DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 15. None Item No. 15 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 16. Item No. 16 a. Provide an analysis of Account 930 - Miscellaneous General Expenses, Account 913 - Advertising expenses, and Account 426 - Other Income Deductions for the test year. This data should be presented as shown in Format 16 attached. Provide detailed workpapers in support of the analyses. As a minimum, the workpapers should show the date, vendor, reference (i.e., voucher no., etc.) dollar amount and brief description of each expenditure. With regard to Account 913, Advertising Expense, the purpose of each expenditure should be shown. Detailed analyses of Accounts 930, 913 and 426 are not required for amounts of less than $1,000 provided the items are grouped by classes as shown in Format 16 attached. b. With regard to association dues charged to Account 930 - Miscellaneous General Expense, provide the following: 1. Justification for inclusion of said dues in the company’s cost of service 2. Explanation of the use of said dues by the association receiving the dues 3. Explanation of purpose and objectives of the association receiving the dues from the company 4. Current annual budget of the association receiving dues from the company by major category of activity, e.g., research, education, administration, lobbying, etc. c. List all dues and contributions charged to operating and/or non-operating expense accounts during the test year which have not been specifically identified elsewhere herein. a - See attached "DEC Rate Case E1 16a Misc General Expenses, Advertising Expenses and Other Income Deductions" b - See attached "DEC Rate Case E1 16b Industry Association Dues" Includes CONFIDENTIAL information. c - See attached "DEC Rate Case E1 16c Dues and Contributions" DUKE ENERGY CAROLINAS, LLC Docket E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 Item No. 16a Miscellaneous General Expenses Analysis of Account 930 - Miscellaneous General Expenses 930200 930210 930220 930230 930240 930250 930600 930700 930800 930940 Misc General Expenses Industry Assoc Dues (a) Exp of Servicing Securities Dues to Various Organizations Director's Expenses Buy/Sell Transf Employee Homes Leased Circuit Charges - Other Research & Development R&D - Alternative Energy General Expenses Total Analysis of Account 913 - Advertising Expenses Analysis of Account 426 - Other Income Deductions 426100 Donations 426101 BPM Donations 426512 Donations 426300 Penalties 426400 Exp/Civic & Political Activity 426510 Other 426540 Employee Service Club Dues 426553 PP&E Impairment Total Notes: (a) see detail in Item No. 16b $ $ $ $ $ (45,284,417) 1,198,693 97,173 432,912 1,541,199 4,267,455 8,983 635,533 2,052,536 165,712 (34,884,221) 844,907 62,419,189 125,175 8,970 (46,334) 3,662,833 2,621,357 4,537 788,145 69,583,872 DUKE ENERGY CAROLINAS, LLC Docket E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 Item No. 16b 2, 16b 3 Industry Association Dues Account 0930210 - Industry Association Dues Summary Item Edison Electric Institute Amount $ 1,198,693 1) Edison Electric Institute (EEI) advocates public policy in legislative and regulatory arenas and works to expand markets for members' profitability. EEI provides advocacy, authoritative analysis, and critical industry data to its leader audiences. EEI provides forums for member company representatives to discuss issues and strategies to advance the industry and to ensure a competitive position in a changing marketplace. Being a member of this organization allows DEC to participate in and have access to the latest electric power research and development that allows it to better serve its customers. [See Item No. 16b 4 for a copy of the EEI budget for 2017 which was provided by EEI.] DUKE ENERGY CAROLINAS, LLC Docket E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 Item No. 16b 4 Industry Association Dues CONFIDENTIAL DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 Account 524000 524000 921100 921100 557000 921100 903000 581004 921100 921100 912000 921100 910100 511000 921100 501190 921100 921200 921200 921200 921100 921100 921100 921200 921100 921100 910100 921200 921100 921100 910000 921100 921100 921100 921100 921100 557000 921100 524000 547150 921100 921100 VARIOUS VARIOUS Item No. 16c Dues and Contributions Recipient INSTITUTE OF NUCLEAR POWER OPERATIONS NUCLEAR ENERGY INSTITUTE CORPORATE EXECUTIVE BOARD CHAMBER OF COMMERCE OF THE USA CONSORTIUM FOR ENERGY EFFICIENCY THE CONFERENCE BOARD INC SOUTHEAST ENERGY EFFICIENCY ALLIANCE INC CHARTWELL'S OUTAGE COMMUNICATIONS RESEARCH COUNCIL BEST PRACTICE INSTITUTE INC GREENTECH MEDIA ENVISION CHARLOTTE WOLTERS KLUWER FINANCIAL SERVICES INC BRACY TUCKER BROWN INC CONSTRUCTION USERS ROUNDTABLE ENERGY STORAGE ASSOCIATION AMERICAN COAL ASH ASSOCIATION NATIONAL SAFETY COUNCIL THE BUSINESS COUNCIL E4 CAROLINAS MINORITY CORPORATE COUNSEL THE GRIDWISE ALLIANCE INC ASSOCIATION OF CORPORATE CONTRIBUTIONS ASSOCIATION OF EDISON ILLUMINATING REPUBLICAN GOVERNORS ASSOCIATION ASSOCIATION OF CORPORATE COUNSEL NORTH CAROLINA STATE UNIVERSITY ENVISION CHARLOTTE THE CONFERENCE BOARD INC SMART GRID CONSUMER COLLABORATIVE AMERICAN BENEFITS COUNCIL MIDWEST ENERGY EFFICIENCY ALLIANCE FLORIDA BUSINESS ROUNDTABLE INC MCDERMOTT WILL & EMERY LLP SOUTHEAST LABOR AND MANAGEMENT PUBLIC AMERICAN SOCIETY OF MECHANICAL ENGINEERS FINANCIAL EXECUTIVES INTERNATIONAL ASSOCIATION FOR THE ADVANCEMENT OF SUSTAINABILITY IN HIGHER EDUCATION CURTISS-WRIGHT FLOW CNTRL CORP-SCIENTECH FRIENDS OF LAKE KEOWEE SOCIETY INC EMISSIONS MARKETING ASSOC INC THE MAYFLOWER GROUP SOUTH CAROLINA CLEAN ENERGY BUSINESS Total Dues Identified by Vendor and > $1,000 that are not reported in E-1 Item No. 16a RECIPIENTS < $1,000K (15 items) ALL OTHER (INCLUDING ALLOCATIONS FROM SERVICE COMPANY) Total Dues NOT Identified by Vendor or < $1,000 that are not reported in E-1 Item No. 16a* TOTAL DUES (NOT REPORTED IN E-1 ITEM NO. 16A) Amount 5,412,948 3,034,537 83,392 65,713 57,505 51,061 16,044 15,495 14,535 13,638 12,500 9,660 8,022 8,000 7,875 7,800 7,696 7,510 7,014 6,500 6,310 6,250 5,682 5,633 5,411 5,048 4,694 3,267 3,155 2,779 2,674 2,500 2,153 2,138 2,028 1,878 1,838 1,730 1,500 1,431 1,283 1,125 8,917,950 3,728 437,105 440,833 9,358,783 * The General Ledger does not provide detail at the vendor level for employee expense reports, certain service company allocations, and other miscellaneous journal entries that were booked outside of the accounts payable subledger. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 17 Item No. 17 The amount of contributions for political purposes (in cash or services) if any. See attached "DEC Rate Case E1 17 Political Contributions.xlsx" DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 Jurisdiction South Carolina ORGANIZATION South Carolina Chamber of Commerce South Carolina Manufacturers Alliance SC Business & Industry Political Education Committee SC House Democratic Caucus SC House Democratic Caucus SC Republican House Caucus SC Republican House Caucus South Carolina Senate Democratic Caucus South Carolina Senate Democratic Caucus South Carolina Senate Republican Caucus South Carolina Senate Republican Caucus Blue Ridge Electric Cooperative, Inc. SC Legislative Black Caucus The Riley Institute - Furman University South Carolina Manufacturers Alliance South Carolina Manufacturers Alliance American Legislative Exchange Council Capital Commission Collins Home & Family Ministries Total South Carolina Political Donations North Carolina North Carolina Chamber Carolina Leadership Coalition North Carolina Chamber Carolina Partnership for Reform, Inc. Junior League of Raleigh, Inc. North Carolina Chamber State Government Leadership Foundation Greater Durham Chamber of Commerce North Carolina Legislative Black Caucus North Carolina Chamber North Carolina Free Enterprises The John W Pope Civitas Institute Triangle Community Foundation World Affairs Council of Charlotte Alliance of North Carolina Black Elected Officials N&O Circulation North Carolina Professional Lobbyists Association World Affairs Council of Charlotte Total North Carolina Political Donations Item No. 17 Political Contributions Invoice Amount $31,000 $20,000 $10,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $4,500 $3,500 $2,500 $2,000 $1,942 $1,500 $1,500 $1,500 $119,942 Amount Allocated to Duke Energy Carolinas, LLC $4,712 $5,400 $7,600 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,420 $2,660 $1,900 $1,520 $1,476 $1,140 $1,140 $1,500 $62,868 $100,000 $50,000 $50,000 $25,000 $25,000 $25,000 $25,000 $15,500 $15,000 $5,000 $5,000 $5,000 $5,000 $3,000 $2,500 $1,511 $1,000 $600 $359,111 $12,000 $25,000 $29,000 $12,500 $12,500 $7,250 $12,500 $1,085 $7,500 $600 $2,500 $2,500 $3,000 $1,127 $1,250 $1,511 $1,000 $225 $133,048 Purpose Membership dues (lobbying portion) Membership dues (lobbying portion) 2016 Membership dues 2016 Membership dues 2016 Contribution Business Roundtable membership dues Sponsorship of 2016 Legislative Classic 2016 Senate Democratic Caucus membership program Sponsorship 2016 Membership dues Sponsorship Dinner sponsorship Corporate Roundtable 2016 Membership Legislative & Civic Awards dinner Heritage Legislative Event Heritage Legislative Reception ALEC Scholarship Fund Legislative Golf sponsorship Golf Tournament sponsorship Membership dues (lobbying portion) Membership dues Voter Education Conference (lobbying portion) Annual contribution Sponsorship of North Carolina Governor's Inaugural Ball Energy & Environmental Management Conference (lobbying portion) General support Membership dues (lobbying portion) Sponsorship of 2016 Scholarship event Economic Forecast Forum (lobbying portion) Membership dues 2016 Conservative Leadership Conference Sponsorship Sponsorship of Triangle Business Investors for Good luncheon Table Sponsorship-World Citizen Award dinner Summit sponsorship Subscription to political publication Sponsorship Table sponsor-CEO Series Jurisdiction Federal ORGANIZATION Nuclear Energy Institute Edison Electric Institute, Inc. Republican Governors' Association Chamber of Commerce of the USA Chamber of Commerce of the USA Democratic Governors' Association The Business Roundtable Senate Leadership Fund Edison Electric Institute, Inc. Coal Utilization Research Council Coal Utilization Research Council Center for Innovative Policy Republican Governors' Association Congressional Black Caucus Foundation Politico, LLC Edison Electric Institute, Inc. Chamber of Commerce of the USA Indiana Society of Washington National Governors' Association Center for Best Practices National Governors' Association Center for Best Practices North Carolina Society of Washington Edison Electric Institute, Inc. Women in Government Conventions2016 LLC Republican Governors' Association The Alpine Group Edison Electric Institute, Inc. American Legislative Exchange Council Congressional Black Caucus Political Education & Leadership Institute Edison Electric Institute, Inc. Harmon Killbrew-Danny Thompson Memorial National Black Caucus of State Legislators National Black Caucus of State Legislators Red River Productions, LLC The International Students' House Western Governors' Association Southern States Energy Board Women in Government Chic Productions, LLC Bloomberg Finance, LP North Carolina Society of Washington Total Federal Political Donations Invoice Amount $4,601,598 $3,759,096 $275,000 $250,000 $250,000 $250,000 $245,000 $150,000 $139,500 $60,000 $60,000 $40,000 $40,000 $35,000 $32,295 $30,000 $25,000 $25,000 $25,000 $25,000 $25,000 $20,000 $20,000 $15,000 $15,000 $15,000 $13,240 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $5,000 $5,000 $4,000 $1,593 $1,000 $10,547,322 Purpose 2016 Membership dues (lobbying portion) 2016 Membership dues (lobbying portion) 2016 Membership renewal/contribution Special contribution Annual membership dues (lobbying portion) Membership renewal Annual dues General contribution Utility Solid Waste Activities Group dues (lobbying portion) 2016 Steering Committee membership dues (lobbying portion) 2017 Steering Committee membership dues (lobbying portion) DNC Convention via Democratic Governors' Association RNC Convention via Republican Governors' Association Sponsorship of awards Dinner Federal Political Pro News Service Republican Convention package Cybersecurity Conference (lobbying portion) Presidential Inaugural Ball Corporate Fellows contribution - 2016 Corporate Fellows contribution - 2017 Sponsorship of reception Democratic Convention package 2016 Business Council membership Sponsorship Republican National Convention Republican National Convention Democratic National Convention hotel package Private Sector Washington Club & Energy, Environment and Agriculture Task Force Tunica 2016 Mississippi Policy Conference 2016 Joint Sponsorship of dinner Memorial sponsorship 2016 NBCSL Corporate Round Table dues Energy Summit RNC & DNC Charity event sponsorship Sponsorship Funding for ISH Global Leadership Awards dinner Sponsorship 2016 Sponsorship 2016 Advanced Technology & Innovations Summit Tickets to the Congressional Black Caucus Legislative Conference Bloomberg Government (BGOV.com) license Membership dues $7,552 Total Other Political Donations less than $1,000 (43) Grand Total Amount Allocated to Duke Energy Carolinas, LLC $106,209 $199,243 $103,263 $93,875 $28,163 $93,875 $43,239 $56,325 $3,712 $11,265 $11,265 $15,020 $15,020 $13,143 $7,094 $11,265 $3,286 $8,768 $9,388 $9,388 $8,768 $7,510 $7,510 $5,633 $5,261 $5,633 $4,972 $3,755 $3,755 $3,755 $3,755 $3,755 $3,755 $3,755 $3,755 $3,755 $1,878 $1,878 $1,502 $598 $376 $928,113 $11,026,375 $1,131,581 Note 1: All charges were booked to Other Income Deductions accounts 426.1/426.4 with the exception of Coal Utilization Research Council, charged to 921.2 & 923 in 2016, corrected in 2017. Note 2: Invoice Amount may include charges that are not related to political activity. Only the portion of the amount that is political in nature and allocated to DEC, LLC is shown in the amount allocated column. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 18. Item No. 18 a. A statement describing the applicant’s lobbying activities and a schedule showing the name of the individual, his salary, and all company-paid or reimbursed expenses or allowances and the account charged for all personnel whose principal function is that of lobbying, whether it be lobbying on the local, state, or national level. The total expenses of registered lobbyist should show the portions allocated both above and below the line. b. A schedule showing the following information regarding the applicant’s investments in subsidiaries and joint ventures for the test year and the year preceding the test year with each year shown separately: 1. Name of subsidiary or joint venture 2. Date of initial investment 3. Amount and type of investment made for each of the two (2) years included in this report 4. Balance sheet and income statement for the test year and the year preceding the test year. (Where only internal statements are prepared, furnish copies of these.) 5. Show on a separate schedule all dividends or income of any type received by applicant from its subsidiaries or joint ventures for each of the two (2) year report periods and indicate how this income is reflected in the stockholder reports. 6. Name of officers of each of the subsidiaries or joint ventures, officer’s annual compensation, and portion of compensation charged to the subsidiary or joint venture. Also, indicate the position each officer holds with the applicant and the compensation received from the applicant. a. See attachment "DEC Rate Case E1 18a - Lobbying Activities CONFIDENTIAL.xlsx". b. See attachment "DEC Rate Case E1 18b. 1-6 Investment in Subsidiaries.xlsx" DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Item 18a (Lobbying Activities) For the Test Year Ended December 31, 2016 CONFIDENTIAL DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the Test Year Ended December 31, 2016 Company (% Voting Stock Owned) Item No. 18b 1, 18b 2, 18b 3 2016 Date Of Initial Investment Claiborne Energy Services (100%) Common Stock / Equity Contribution Undistributed Earnings Totals 3/1/1990 Eastover Land (100%) Common Stock / Equity Contribution Undistributed Earnings Totals 6/30/1970 Eastover Mining (100%) Common Stock / Equity Contribution Undistributed Earnings Totals 7/15/1970 Investment At Beginning Of Year (Jan 2016) $ Subsidiary Net Income (Loss) Investment At End Of Year (Dec 2016) Investment 3,917,479 2,334,371 6,251,850 288,834 288,834 - 3,917,479 2,623,205 6,540,684 6,579,870 (4,835,702) 1,744,168 (114) (114) - 6,579,870 (4,835,816) 1,744,054 1,703,080 1,334,133 3,037,213 (573) (573) - 1,703,080 1,333,560 3,036,640 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the Test Year Ended December 31, 2016 Company (% Voting Stock Owned) Item No. 18b 1, 18b 2, 18b 3 2015 Date Of Initial Investment Claiborne Energy Services (100%) Common Stock / Equity Contribution Undistributed Earnings Totals 3/1/1990 Eastover Land (100%) Common Stock / Equity Contribution Undistributed Earnings Totals 6/30/1970 Eastover Mining (100%) Common Stock / Equity Contribution Undistributed Earnings Totals 7/15/1970 Investment At Beginning Of Year (Jan 2015) $ Subsidiary Net Income (Loss) Investment At End Of Year (Dec 2015) Investment 3,917,479 2,334,371 6,251,850 - - 3,917,479 2,334,371 6,251,850 6,579,870 (4,835,702) 1,744,168 - - 6,579,870 (4,835,702) 1,744,168 1,703,080 1,334,133 3,037,213 - - 1,703,080 1,334,133 3,037,213 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the Test Year Ended December 31, 2016 Item No. 18b 4 2016 Balance Sheets Claiborne Energy Services, Inc. ASSETS Current Assets Cash and Cash Equivalents Receivables Restricted Receivables of VIEs Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory Assets Assets Held For Sale Other Total Current Assets Eastover Land Company Eastover Mining Company $0 0 0 6,696,211 0 0 0 0 0 6,696,211 $0 0 0 1,743,818 0 0 0 0 175 1,743,993 $0 0 0 3,106,473 0 0 0 0 175 3,106,648 Investments and Other Assets Investment in Equity Method Unconsolidated Affiliates Nuclear Decommissioning Trust Funds Goodwill Intangibles, net Notes Receivable Assets Held For Sale Investment in Consolidated Subsidiaries Other Total Investments and Other Assets 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Property, Plant and Equipment Cost Less Accumulated Depreciation and Amortization Generation Facilities To Be Retired Net Property Plant and Equipment 0 0 0 0 0 0 0 0 0 0 0 0 Regulatory Assets and Deferred Debits Regulatory Assets Other Total Regulatory Assets and Deferred Debits 0 0 0 0 0 0 0 0 0 6,696,211 1,743,993 3,106,648 0 0 0 155,526 0 0 0 0 0 155,526 0 0 0 (61) 0 0 0 0 0 (61) 0 0 0 (31,447) 0 0 0 0 155,726 124,280 Long-Term Debt 0 0 0 Notes payable to affiliated companies 0 0 0 Deferred Credits and Other Liabilities Deferred Income Taxes Investment Tax Credit Accrued Pension and Other Post-Retirement Benefit Costs Liabilities Assoc with Assets Held For Sale Asset Retirement Obligations Regulatory Liabilities Other Total Deferred Credits and Other Liabilities 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (54,629) 0 0 0 0 0 358 (54,272) 155,526 (61) 70,008 0 0 0 0 500,000 3,417,479 2,623,205 0 6,540,684 6,696,211 0 6,579,870 0 (4,835,816) 0 1,744,054 1,743,993 0 3,100,000 (1,396,920) 1,333,560 0 3,036,640 3,106,648 Total Assets LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable Accounts payable to affiliated companies Notes Payable and Commercial Paper Taxes Accrued Interest Accrued Liabilities Associated with Assets Held for Sale Current Maturities of Long-Term Debt Regulatory Liabilities Other Total Current Liabilities Total Liabilities Preferred Stock Redeemable Total Equity Noncontrolling Interest Common Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income Total Equity Including Noncontrolling Interest Total Liabilities and Equity DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the Test Year Ended December 31, 2016 Item No. 18b 4 2016 Income Statements Claiborne Energy Services, Inc. Operating Revenue Regulated Electric Non-Regulated Electric, Natural Gas and Other Total Operating Revenues Eastover Land Company Eastover Mining Company $0 0 0 $0 0 0 $0 0 0 Operating Expenses Fuel used in Electric Generation and Purchased Power Operations, Maintenance and Other Depreciation and Amortization Property and Other Taxes Impairments and Other Charges Total Operating Expenses 0 0 0 0 0 0 0 0 0 175 0 175 0 708 0 175 0 883 Gain/(Loss) on Sales of Other Assets and Other, net 0 0 0 0 (175) (883) Other Income and Expenses Other Income and Expenses 444,361 0 0 Earnings Before Interest Expense and Taxes 444,361 (175) (883) 0 0 0 444,361 (175) (883) 155,526 (61) (309) 0 0 0 Income From Continuing Operations Attributable to Duke Energy Corp 288,834 (114) (574) Income (Loss) From Continuing Operations 288,834 (114) (574) 0 0 0 Net Inc Bfr Ext and Chg in Acct. Prin. 288,834 (114) (574) Consolidated Net Income 288,834 (114) (574) 0 0 0 288,834 (114) (574) Net Operating Income/ (Expense) Interest Expense Earnings From Continuing Operations Before Income Taxes Income Tax Expense (Benefit) From Continuing Operations Net Income (Loss) attributable to non controlling interests Earnings (Loss) of Subsidiaries Less: Net Income (Loss) attributable to non controlling interests Net Income Attributable to Controlling Interest DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the Twelve Months Ended December 31, 2015 Item No. 18b 4 2015 Balance Sheets Claiborne Energy Services, Inc. Eastover Land Company Eastover Mining Company ASSETS Current Assets Cash and Cash Equivalents Receivables Restricted Receivables of VIEs Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory Assets Assets Held For Sale Other Total Current Assets Property, Plant and Equipment Cost Less Accumulated Depreciation and Amortization Generation Facilities To Be Retired Net Property Plant and Equipment Other Noncurrent Assets Goodwill Regulatory Assets Nuclear Decommissioning Trust Funds Investment in Equity Method Unconsolidated Affiliates Assets Held For Sale Notes Receivable Investment in Consolidated Subsidiaries Other Total Other Noncurrent Assets Total Assets $0 0 0 0 0 0 0 0 0 0 $0 0 0 (32,818) 0 0 0 0 174 (32,644) $0 0 0 1,749,319 0 0 0 0 31,596 1,780,915 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,251,850 0 6,251,850 0 0 0 0 0 0 1,776,810 0 1,776,810 0 0 0 0 0 0 1,322,744 0 1,322,744 6,251,850 1,744,167 3,103,658 LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable Accounts payable to affiliated companies Notes Payable and Commercial Paper Taxes Accrued Interest Accrued Liabilities Associated with Assets Held for Sale Current Maturities of Long-Term Debt Regulatory Liabilities Other Total Current Liabilities 0 0 0 0 0 0 0 0 0 0 0 0 0 (1) 0 0 0 0 0 (1) Long-Term Debt 0 0 0 Notes payable to affiliated companies 0 0 0 Other Noncurrent Liabilities Deferred Income Taxes Asset Retirement Obligations Regulatory Liabilities Accrued Pension and Other Post-Retirement Benefit Costs Investment Tax Credit Liabilities Assoc with Assets Held For Sale Other Total Other Noncurrent Liabilities 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (178,604) 0 0 0 0 0 89,323 (89,281) 0 (1) 66,445 0 0 Total Liabilities Preferred Stock Redeemable Total Equity Noncontrolling Interest Common Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income Total Equity Including Noncontrolling Interest Total Liabilities and Equity 0 500,000 3,417,479 2,334,371 0 6,251,850 6,251,850 0 6,579,870 0 (4,835,702) 0 1,744,168 1,744,167 0 0 0 0 0 0 0 0 155,726 155,726 0 0 3,100,000 (1,396,920) 1,334,134 0 3,037,214 3,103,658 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the Twelve Months Ended December 31, 2015 Item No. 18b 4 2015 Income Statements Claiborne Energy Services, Inc. Operating Revenue Regulated Electric Non-Regulated Electric, Natural Gas and Other Total Operating Revenues Eastover Land Company Eastover Mining Company $0 0 0 $0 0 0 $0 0 0 Operating Expenses Fuel used in Electric Generation and Purchased Power Operations, Maintenance and Other Depreciation and Amortization Property and Other Taxes Impairments and Other Charges Total Operating Expenses 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Gain/(Loss) on Sales of Other Assets and Other, net 0 0 0 Net Operating Income/ (Expense) 0 0 0 Other Income and Expenses Other Income and Expenses 0 0 0 Earnings Before Interest Expense and Taxes 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Income From Continuing Operations Attributable to Duke Energy Corp 0 0 0 Income (Loss) From Continuing Operations 0 0 0 Earnings (Loss) of Subsidiaries 0 0 0 Net Inc Bfr Ext and Chg in Acct. Prin. 0 0 0 Consolidated Net Income 0 0 0 0 0 0 0 0 0 Interest Expense Earnings From Continuing Operations Before Income Taxes Income Tax Expense (Benefit) From Continuing Operations Net Income (Loss) attributable to non controlling interests Less: Net Income (Loss) attributable to non controlling interests Net Income Attributable to Controlling Interest DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the Test Year Ended December 31, 2016, and The Prior Year Ended December 31, 2015 Company (% Voting Stock Owned) Claiborne Energy Services (100%) Item No. 18b 5 Subsidiary Income Dec 2016 Dec 2015 $288,834 $0 Eastover Land (100%) (114) 0 Eastover Mining (100%) (573) 0 Total $288,147 Amounts above are reflected in Duke Energy Carolinas, LLC financial statements as follows: Income statement: Equity in Earnings of Subsidiary Companies (418.1) Balance Sheet: Investment in Subsidiary Companies (123.1) Notes No dividends were received from subsidiaries. The Claiborne income was due to a profitability payment from their investment in Louisianna Energy Services, LLC. $0 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the Test Year Ended December 31, 2016 Item No. 18b 6 Officers The officers of the Duke Energy Carolinas, LLC subsidiaries listed are currently employed by Duke Energy Business Services (DEBS). Their costs, including compensation and other expenses, are billed to Duke Energy Carolinas, LLC affiliates under the 2016 Cost Allocation Manual which has been filed with the North Carolina Utilities Commission. The subsidiaries listed do not receive billings for these officers as their work for the subsidiaries is not significant. CLAIBORNE ENERGY SERVICES, INC DIRECTORS AND OFFICERS AS OF 12/31/2016 DIRECTORS Appointed Entity Good, Lynn J. Jamil, Dhiaa M. Young, Steven Keith Appointment Type Director Director Director OFFICERS Appointed Entity Currens Jr., William E. Currens Jr., William E. De May, Stephen Gerard De May, Stephen Gerard Duffy, Kris C. Jamil, Dhiaa M. Maltz, David S. Monroe III, Thomas Cooper Sullivan III, John L. Wright, Nancy M. Appointment Type Chief Accounting Officer Controller Senior Vice President, Tax Treasurer Assistant Treasurer President Corporate Secretary Vice President, Tax Assistant Treasurer Assistant Corporate Secretary DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the Test Year Ended December 31, 2016 Item No. 18b 6 Officers The officers of the Duke Energy Carolinas, LLC subsidiaries listed are currently employed by Duke Energy Business Services (DEBS). Their costs, including compensation and other expenses, are billed to Duke Energy Carolinas, LLC affiliates under the 2016 Cost Allocation Manual which has been filed with the North Carolina Utilities Commission. The subsidiaries listed do not receive billings for these officers as their work for the subsidiaries is not significant. EASTOVER LAND COMPANY DIRECTORS AND OFFICERS AS OF 12/31/2016 DIRECTORS Appointed Entity Esamann, Douglas F Good, Lynn J. Appointment Type Director Director OFFICERS Appointed Entity Currens Jr., William E. Currens Jr., William E. De May, Stephen Gerard De May, Stephen Gerard Duffy, Kris C. Esamann, Douglas F Maltz, David S. Monroe III, Thomas Cooper Sullivan III, John L. Wright, Nancy M. Appointment Type Chief Accounting Officer Controller Senior Vice President, Tax Treasurer Assistant Treasurer President Corporate Secretary Vice President, Tax Assistant Treasurer Assistant Corporate Secretary DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the Test Year Ended December 31, 2016 Item No. 18b 6 Officers The officers of the Duke Energy Carolinas, LLC subsidiaries listed are currently employed by Duke Energy Business Services (DEBS). Their costs, including compensation and other expenses, are billed to Duke Energy Carolinas, LLC affiliates under the 2016 Cost Allocation Manual which has been filed with the North Carolina Utilities Commission. The subsidiaries listed do not receive billings for these officers as their work for the subsidiaries is not significant. EASTOVER MINING COMPANY DIRECTORS AND OFFICERS AS OF 12/31/2016 DIRECTORS Appointed Entity Esamann, Douglas F Good, Lynn J. Appointment Type Director Director OFFICERS Appointed Entity Currens Jr., William E. Currens Jr., William E. De May, Stephen Gerard De May, Stephen Gerard Duffy, Kris C. Esamann, Douglas F Maltz, David S. Monroe III, Thomas Cooper Sullivan III, John L. Wright, Nancy M. Appointment Type Chief Accounting Officer Controller Senior Vice President, Tax Treasurer Assistant Treasurer President Corporate Secretary Vice President, Tax Assistant Treasurer Assistant Corporate Secretary DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 19. None Item No. 19 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 20. Item No. 20 Provide the following information with regard to uncollectible accounts for the test year and the five preceding calendar years (taxable year acceptable) for electric operations only: a. Reserve account balance at the beginning of year. b. Charges to reserve account (accounts charged off) c. Credits to reserve account d. Current year provision e. Reserve account balance at the end of the year f. Percent of provision to total revenue g. An explanation of the method used to calculate the annual uncollectible provision. Please see attached file "DEC rate case E1 #20 2016 Bad Debt Reserve.xlsx" for response to items a-g. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 Form E-1 Data Request: Bad Debt Reserve For the test year ended December 31, 2016 E-1 Item #20 2011 Reserve Balance BOY Charges to Reserve Credits to Reserve Reserve Balance EOY 8,000,000 (15,457,815) 15,457,815 8,000,000 2012 8,000,000 (11,845,305) 11,845,305 8,000,000 2013 8,000,000 (13,447,193) 13,447,193 8,000,000 2014 8,000,000 (16,500,370) 16,500,370 8,000,000 2015 8,000,000 (14,772,252) 15,772,252 9,000,000 2016 9,000,000 (13,081,881) 13,081,881 9,000,000 Current Year Provision Total Revenue Percent Reserve to Total Revenue 9,000,000 5,628,014,385 6,068,468,810 6,122,648,130 6,533,754,535 6,631,826,473 6,564,620,260 0.142% 0.132% 0.131% 0.122% 0.136% 0.137% The Calculated A/R reserve is based on the projected upcoming 4 months of bad dept write-offs and the historic previous 6 months of write-offs. The projected 4 months along with the current month write-offs as a percentage of current month outstanding A/R is applied to the average historic 6 previous months oustanding A/R to establish the estimated reserve. This amount is rounded up the the next $MM. The reserve is adjusted to the highest estimated reserve over the previous 12 months. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 NCUC Form E-1 Data Request For the test year ended December 31, 2016 21. Item No. 21 Provide the most recent annual report to stockholders, latest 10 year statistical supplement (if available), and subsequent quarterly reports to stockholders, or all such reports since the last general rate case filing. See the most recent annual report to stockholders below. Also find attached per the table below the 10 year statistical supplements and quarterly reports to stockholders since the last general rate case filing. These files are listed by year and attached as follows: Duke Energy 2016 Annual Report and Form10K Q1 2012 10-Q.pdf Q2 2012 10-Q.pdf Q3 2012 10-Q.pdf Q1 2012 Stat Supplement.pdf Q2 2012 Stat Supplement.pdf Q3 2012 Stat Supplement.pdf Q4 2012 Stat Supplement.pdf Q1 2013 10-Q.pdf Q2 2013 10-Q.pdf Q3 2013 10-Q.pdf Q1 2013 Stat Supplement.pdf Q2 2013 Stat Supplement.pdf Q3 2013 Stat Supplement.pdf Q4 2013 Stat Supplement.pdf Q1 2014 10-Q.pdf Q2 2014 10-Q.pdf Q3 2014 10-Q.pdf Q1 2014 Stat Supplement.pdf Q2 2014 Stat Supplement.pdf Q3 2014 Stat Supplement.pdf Q4 2014 Stat Supplement.pdf Q1 2015 10-Q.pdf Q2 2015 10-Q.pdf Q3 2015 10-Q.pdf Q1 2015 Stat Supplement.pdf Q2 2015 Stat Supplement.pdf Q3 2015 Stat Supplement.pdf Q4 2015 Stat Supplement.pdf Q1 2016 10-Q.pdf Q2 2016 10-Q.pdf Q3 2016 10-Q.pdf Q1 2016 Stat Supplement.pdf Q2 2016 Stat Supplement.pdf Q3 2016 Stat Supplement.pdf Q4 2016 Stat Supplement.pdf Copies of annual reports, statistical supplements and Form 10-Qs and 10-Ks can be viewed and / or printed from the Duke Energy website within the Investors section. Bringing the future to light. [5 DUKE S- 2016 ANNUAL REPORT AND FORM mm Aug 25 2mm? Our annual report enters the digital age. We are driving innovation in everything we do, including how we connect with our shareholders and customers. That’s why next year we’ll deliver a new, interactive digital format of the annual report – and why this 2016 report will be the last printed in its current format. .: Ian-b. 21' Lynn J. Good / &KDLUPDQ 3UHVLGHQW DQG &KLHI ([HFXWLYH 2IÀFHU Dear Stakeholders: Customer demand, market forces, policy choices and more are challenging our industry as never before. The companies that succeed in this dynamic environment are those that anticipate and adapt. I am pleased to say Duke Energy is leading the way. In the past year, we completed our multiyear portfolio transition, lowering our business risk to provide shareholders with more consistent earnings and cash Áow growth. We sold our assets in Latin America and completed our acquisition of Piedmont Natural Gas, a premier natural gas company that will give us critical mass in this growing sector. As a result, Duke Energy now operates almost exclusively in stable, predictable regulated businesses. As we transitioned, our long-term strategy continued to guide our company forward. Last year, we improved our industry-leading safety performance. We responsibly managed costs out of the business while keeping our growth capital plan on track. We also delivered Ànancial results at the high end of our projections and continued to pay our dividend, now going on 91 consecutive years. 2016 was a pivotal year. It represented the culmination of work underway since 2013 to transform the company. Today’s Duke Energy now stands as a leading, regulated electric and natural gas infrastructure business. Our success in driving this transformation, while also delivering solid Ànancial results, gives us great conÀdence about the future. In this letter, we outline last year’s accomplishments and share our vision for where we want to take Duke Energy. As you will see, we have an ambitious, achievable strategy focused on moderni]ing our energy grid, generating cleaner energy and building our natural gas infrastructure – all while providing customers with the service they value. This is our path forward. With a clear strategy and a focus on delivering value to customers, our future is bright. \ 1 \ DUKE ENERGY 2XU )LQDQFLDO +LJKOLJKWVa 2016 2015b 2014b Total operating revenues $22,743 $22,371 $22,509 Income from continuing operations $2,578 $2,654 $2,538 Net income $2,170 $2,831 $1,889 $6,798 $6,676 $6,586 Year-end 700 688 707 Weighted average – basic and diluted 691 694 707 Reported diluted earnings per share GAAP $3.11 $4.05 $2.66 Adjusted diluted earnings per share Non-GAAP $4.69 $4.54 $4.55 Dividends declared per share $3.36 $3.24 $3.15 Total assets $132,761 $121,156 $120,557 Long-term debt including capital leases, less current maturities $45,576 $36,842 $36,075 Total Duke Energy Corporation stockholders’ equity $41,033 $39,727 $40,875 In millions, except per-share amounts and ratios Operating Results Cash Flow Data Net cash provided by operating activities Common Stock Data Shares of common stock outstanding Balance Sheet Data Earnings Per Share (in dollars) 4.55 Reported Diluted 4.05 3.11 2015 Dividends Declared Per Share (in dollars) 4.69 4.54 2.66 2014 Adjusted Diluted 2016 3.15 2014 3.24 2015 Capital and Investment Expenditures (dollars in billions) 3.36 5.5 2016 2014 8.2 7.0 2015 2016 a 6LJQLÀFDQW WUDQVDFWLRQV UHÁHFWHG LQ WKH UHVXOWV DERYH LQFOXGH L WKH VDOH RI WKH ,QWHUQDWLRQDO 'LVSRVDO *URXS LQ LQFOXGLQJ D ORVV RQ VDOH UHFRUGHG ZLWKLQ GLVFRQWLQXHG RSHUDWLRQV VHH 1RWH WR WKH &RQVROLGDWHG )LQDQFLDO 6WDWHPHQWV ´$FTXLVLWLRQV DQG 'LVSRVLWLRQVµ LL WKH DFTXLVLWLRQ RI 3LHGPRQW LQ LQFOXGLQJ ORVVHV RQ LQWHUHVW UDWH VZDSV UHODWHG WR WKH DFTXLVLWLRQ ÀQDQFLQJ VHH 1RWH LLL LPSDLUPHQW RI WKH 0LGZHVW 'LVSRVDO *URXS VHH 1RWH LY LQFUHPHQWDO WD[ H[SHQVH UHVXOWLQJ IURP WKH GHFLVLRQ WR UHSDWULDWH DOO FXPXODWLYH KLVWRULFDO XQGLVWULEXWHG IRUHLJQ HDUQLQJV VHH 1RWH ´,QFRPH 7D[HVµ Y LQFUHDVH LQ WKH OLWLJDWLRQ UHVHUYH UHODWHG WR WKH FULPLQDO LQYHVWLJDWLRQ RI WKH 'DQ 5LYHU FRDO DVK UHOHDVH VHH 1RWH ´&RPPLWPHQWV DQG &RQWLQJHQFLHVµ DQG YL FRVWV WR DFKLHYH PHUJHUV LQ DQG b 3ULRU \HDU GDWD KDV EHHQ UHFDVW WR UHÁHFW WKH FODVVLÀFDWLRQ RI WKH ,QWHUQDWLRQDO 'LVSRVDO *URXS DV GLVFRQWLQXHG RSHUDWLRQV 2016 ANNUAL REPORT / 2 / ´:H SURGXFHG VWURQJ ÀQDQFLDO UHVXOWV WKLV \HDU ZLWK SRVLWLYH VKDUHKROGHU UHWXUQV VROLG HDUQLQJV SHU VKDUH DQG VXFFHVVIXO H[HFXWLRQ RQ RXU JURZWK FDSLWDO SODQ ² ZKLOH UHGXFLQJ RSHUDWLQJ FRVWV µ Steve Young / ([HFXWLYH 9LFH 3UHVLGHQW DQG &KLHI )LQDQFLDO 2IÀFHU Delivering Financial Results In 2016, we produced strong Ànancial results. We delivered adjusted diluted earnings per share of $4.69, which was at the high end of our guidance range. These results were driven by our outstanding safety and operational performance, continued cost discipline and successful deployment of growth capital consistent with our strategy. We understand we represent a solid, long-term holding for our investors. Foundational to this is the strength of our dividend. This year will mark the 91st consecutive year we have paid a quarterly dividend, and we expect to maintain our annual dividend growth at a rate consistent with our earnings growth. This is a tradition we are proud to continue as we return value to investors. Our total shareholder return was 13.5 percent in 2016, compared to negative 10.8 percent in 2015. The utility industry outperformed the broader market last year, despite rising interest rates and speculation on policy and regulatory changes impacting the energy industry. The total shareholder return of the Philadelphia Utility Index UTY was 17.4 percent in 2016, compared to negative 6.3 percent in 2015. Despite solid returns to investors last year, we trailed the UTY due to the uncertainty associated with our portfolio transition. Thanks to a great deal of hard work, we put that uncertainty behind us in 2016 and are now focused on executing our regulated growth strategy for years to come. \ 3 \ DUKE ENERGY This February, we announced our 2017 adjusted diluted earnings guidance range of $4.50 to $4.70 per share. Our Àve-year, annual long-term growth rate remains 4 to 6 percent and is underpinned by delivering strong results on our growth capital plan, which we increased by 25 percent to $37 billion. With this Àve-year plan, we are focused on meeting the changing needs of our customers and communities, and delivering superior returns to our investors. We will continue our cost management efforts throughout our business, keeping our pledge to maintain Áat operating and maintenance expenses through 2020. We are conÀdent in our ability to continue delivering a reliable, growing dividend and achievable earnings growth, providing an attractive, risk-adjusted shareholder return for our investors. As a capital-intensive industry, our growth is supported by the strength of our balance sheet, which remains a continued focus for our company. Executing Our Strategy For the past several years, we have worked to realign our business portfolio. An important step in this process was to remove volatility from our Ànancial results. Last year, we announced our intention to exit our international business to focus on predictable, stable earnings and cash Áows. In October 2016, we reached agreements to sell our holdings in Bra]il to China Three Gorges Corporation Anthony Alston and James Mendenhall / Solar Technicians, Dogwood Solar Site for approximately $1.2 billion, and sell our remaining Latin American assets to I Squared Capital for approximately $1.2 billion. These transactions were complex undertakings and our team worked to complete them ahead of schedule, closing both in December 2016. The cash proceeds, approximately $1.9 billion, were used to reduce Duke Energy holding company debt and support our balance sheet. Moderni]ing the energy grid In this era of transformation, the demands on our system have never been greater. Robust investment to moderni]e our energy grid is essential to providing greater Áexibility, better reliability and more products and services for our customers. With our transition complete, our vision for where we want to take Duke Energy is clear. We’re focused on moderni]ing our energy grid, generating cleaner energy and building our natural gas infrastructure. And we will build on our foundation of customer satisfaction and stakeholder engagement. Everything we do begins with customer service and we understand that working with our stakeholders is critical to our success. Our transmission and distribution system is the largest in the nation, when measured in line miles. The scale of this system requires consistent investment, and we have a 10-year, $25 billion plan to moderni]e the energy grid. Our initial grid investment plan focuses on enhancing basic service offerings with smart meters and communications technologies, increasing power quality and improving reliability. These investments will also support more distributed energy resources on our system and make the grid more resilient to storms and cybersecurity threats. We see great opportunities ahead as we continue investing in infrastructure our customers value and delivering sustainable growth for our investors. Smart meters help us meet the changing needs of our customers who want more choice and control over their energy usage, while giving us the ability to manage the grid more efÀciently. ´8QLWLQJ 'XNH (QHUJ\ DQG 3LHGPRQW HVWDEOLVKHV VFDOH IRU RXU QDWXUDO JDV SODWIRUP WKDW ZLOO SURYLGH VWURQJ JURZWK RSSRUWXQLWLHV IRU \HDUV WR FRPH µ Frank Yoho / ([HFXWLYH 9LFH 3UHVLGHQW ² 1DWXUDO *DV %XVLQHVV 2016 ANNUAL REPORT / 4 / ´:H·UH FRQVWDQWO\ FKDOOHQJLQJ RXUVHOYHV WR PHHW DQG H[FHHG FXVWRPHUV· H[SHFWDWLRQV E\ HQKDQFLQJ RXU WHFKQRORJLHV WR GHOLYHU VPDUWHU PRUH DGYDQFHG VROXWLRQV µ Doug Esamann / ([HFXWLYH 9LFH 3UHVLGHQW ² (QHUJ\ 6ROXWLRQV DQG 3UHVLGHQW ² 0LGZHVW DQG )ORULGD 5HJLRQV We began deployment in the Midwest in 2009, have moved to the Carolinas and we have plans to deploy in Florida over the next several years. – 400 megawatts of wind and 150 megawatts of solar. Our growing portfolio now includes 21 wind projects and 63 solar facilities across 14 states. Already, our initial grid investments saved millions by automating manual processes and reducing the number of trips to start and stop service for customers. These investments have also allowed us to save over 50 million outage minutes for customers in 2016, a two-fold increase from 2015. As we moderni]e our grid, we expect to reduce our outage frequency and duration rates by 50 percent over the next 10 years. In our regulated service territories, we connected over 500 megawatts of renewables to our systems. In 2016, we received approval for our Crane naval station solar plant in Indiana, announced two new solar projects in Florida as well as two projects totaling 75 megawatts in our Duke Energy Carolinas service territory. Generating cleaner energy Investing in cleaner, natural gas generation and renewables helps us move toward a low-carbon future. Our focus on generating cleaner energy, along with the retirement of more than 40 older coal units, has led to a 29 percent reduction in our carbon dioxide emissions since 2005. Last year, we made progress on our major natural gas-Àred generation projects. That included our Western Carolinas Moderni]ation project in Asheville, North Carolina, the Lee combinedcycle facility in South Carolina and our Citrus County plant in Florida. These projects continue to move forward as planned, remaining on time and on budget. Natural gas investments complement our continued focus on expanding our renewable portfolio. Last year, Duke Energy Renewables, our commercial business unit, added 550 megawatts \ 5 \ DUKE ENERGY Our commercial investments – more than $5 billion over the past 10 years – plus our regulated renewables footprint have positioned us as a top Àve renewables company in the country with over 3,000 combined megawatts. Our investment plan will continue to advance that position. In the next decade, we will invest $11 billion on new, highly efÀcient natural gas generation and cleaner renewable energy sources. These renewable energy sources include hydro, wind and solar projects. With these investments, and our carbon-free nuclear generation, by 2026, we will reduce carbon emissions by 35 percent from our 2005 levels. Building our natural gas infrastructure It takes an extensive, resilient distribution network to deliver the beneÀts of natural gas, and we have made signiÀcant progress in building that infrastructure. ´:H FRQWLQXH WR HQJDJH DQG GHYHORS UHODWLRQVKLSV ZLWK VWDNHKROGHUV DV ZH UHFRJQL]H WKH LPSRUWDQW UROH WKH\ SOD\ LQ RXU DELOLW\ WR GHOLYHU RQ RXU VWUDWHJ\ µ Julie Janson / ([HFXWLYH 9LFH 3UHVLGHQW &KLHI /HJDO 2IÀFHU DQG &RUSRUDWH 6HFUHWDU\ In October 2016, we completed our $4.9 billion acquisition of Piedmont Natural Gas. Uniting Duke Energy and Piedmont created scale for our natural gas platform that will provide strong growth opportunities for years to come. With this acquisition, we now operate a Àve-state natural gas distribution business and have si]able investments in midstream natural gas pipelines. We now rank second nationally for natural gas consumption across our electric utilities and local distribution companies. We are excited about our growing midstream business as we invest in the Atlantic Coast, Sabal Trail and Constitution pipelines. This infrastructure will bring much needed natural gas supplies to the eastern United States, spurring economic growth and helping us grow our customer base in the Southeast. Natural gas will play a major role in our company’s continued growth. We plan to double the contribution of our natural gas infrastructure business, accounting for 15 percent of our portfolio in the next 10 years. Transforming the customer experience As customer expectations continue to evolve, we’re enhancing our technology infrastructure to deliver smarter, more advanced customer solutions. During 2016, we enhanced our basic services to customers, including proactive outage notiÀcation options via voice, email and two-way text. In addition, customers can get predictive high bill usage alerts, giving them greater control over their monthly bill. Last year, we began testing a prepayment billing program in select regions of South Carolina, giving customers greater choice in how they pay their bills. The rate of innovation, driven by our customers’ experiences with other industries, demands we constantly challenge ourselves without sacriÀcing affordable rates or reliable service and we’re doing that at Duke Energy. The investments we are making support our goal of moving the company into the Àrst quartile for customer satisfaction and maintaining that position for years to come. ´:H EHOLHYH VPDUW LQYHVWPHQWV WR PRGHUQL]H RXU HQHUJ\ JULG DUH HVVHQWLDO WR SURYLGLQJ JUHDWHU ÁH[LELOLW\ EHWWHU UHOLDELOLW\ DQG PRUH SURGXFWV DQG VHUYLFHV IRU RXU FXVWRPHUV µ Lloyd Yates / ([HFXWLYH 9LFH 3UHVLGHQW ² &XVWRPHU DQG 'HOLYHU\ 2SHUDWLRQV DQG 3UHVLGHQW ² &DUROLQDV 5HJLRQ 2016 ANNUAL REPORT / 6 / Matt Robinson / Lineman, Hurricane Matthew Response Team Engaging stakeholders We understand the important role stakeholders play in our ability to deliver on our strategy and meet our customers’ expectations. We continue to engage with them, and we’re committed to Ànding the right balance between safety, reliability and affordability. Our industry continues to transform and our investments are changing with it. We believe our method of recovery must adapt as well. Over the next 10 years, we will work with regulators and legislators to moderni]e our recovery mechanisms in all of our jurisdictions. Maintaining Safe, EfÀcient Operations The foundation for our growth and success is our continued operational excellence. That remains a constant focus for our company, and it always starts with safety. We improved on our industryleading performance from 2015, reducing our total incident case rate and OS+A-reportable employee safety incidents. In 2016, we had no work-related fatalities. Today, Duke Energy leads the industry in employee safety and we will continue our focus moving forward. Nothing will deter us from our commitment to safety. Our generation Áeet met the demands of our customers, despite a summertime record for usage in the Carolinas. In 2016, our nuclear Áeet increased its capacity factor for the fourth consecutive year to 95.7 percent, a new record and the 18th consecutive year our capacity factor was above 90 percent. Our fossil-hydro organi]ation also made improvements. Our Bad Creek hydro facility celebrated its 25th anniversary, and we announced plans to upgrade the facility, adding nearly 200 megawatts of clean generating capacity. Our Edwardsport gasiÀedcoal plant continued to improve its performance, setting continuous operation records. We maintained this performance while responding to three natural disasters – one of which left signiÀcant damage throughout the Carolinas in its wake. Hurricane Matthew was a historic storm, requiring an equally historic response. In the Carolinas, we set a company record for restoring power, reducing outages from ´6DIHW\ DQG RSHUDWLRQDO H[FHOOHQFH DUH FULWLFDO WR RXU JURZWK DQG VXFFHVV ,·P SURXG WR VD\ WKDW LQ ZH LPSURYHG XSRQ RXU LQGXVWU\ OHDGLQJ SHUIRUPDQFH µ Dhiaa Jamil / ([HFXWLYH 9LFH 3UHVLGHQW DQG &KLHI 2SHUDWLQJ 2IÀFHU \ 7 \ DUKE ENERGY ´9ROXQWHHULVP LV DQ LQWHJUDO SDUW RI RXU FRPPLWPHQW WR FXVWRPHUV ,Q RXU HPSOR\HHV YROXQWHHUHG WKRXVDQGV RI KRXUV RI FRPPXQLW\ VHUYLFH LQ WKHLU ORFDO FRPPXQLWLHV IRU D YDULHW\ RI FDXVHV DQG RUJDQL]DWLRQV µ Melissa Anderson / ([HFXWLYH 9LFH 3UHVLGHQW ² $GPLQLVWUDWLRQ DQG &KLHI +XPDQ 5HVRXUFHV 2IÀFHU 1.4 million to fewer than 60,000 in Àve days. We tapped resources from across our company to support our customers. We also leveraged our industry partnerships and communication channels, placing over a million proactive calls to customers and sending more than 3 million emails. The lengths our employees went through to support impacted communities was truly inspiring. They showed the very best of Duke Energy: excellence and commitment to our customers, regardless of the conditions or situations. Our commitment to operational excellence extends to environmental stewardship. In 2016, we reduced reportable environmental events by 17 percent compared to 2015. We also made signiÀcant progress closing our coal ash basins to help protect communities and the environment while managing costs. For example, in North Carolina, we safely excavated more than 5 million tons of coal ash, moving it to permanent storage locations. In June 2016, North Carolina’s coal ash legislation was updated, giving us the opportunity to use capping systems to safely close many basins in place once certain nearterm projects are completed. We also published our basin closure plans across our service territories and announced two locations where coal ash will be reprocessed for use in concrete products. In addition, we exceeded the promised savings to customers as part of our Progress Energy merger. The dedicated efforts of our teams allowed us to complete this important milestone – $687 million in guaranteed savings – a full year ahead of our original commitment. Our foundation of safety, operational and environmental excellence is unwavering. Any success we achieve starts here. Serving Our Communities Our commitment to our customers and communities extends beyond the services we provide. We are proud to be an economic engine for the communities we call home. Last year, Duke Energy helped attract $4.1 billion in capital investment in our service territories, leading to the creation of over 14,000 jobs. For the 12th consecutive year, Duke Energy was named to Site Selection maga]ine’s annual list of Top Utilities in Economic Development. In 2016, the Duke Energy Foundation donated more than $30 million in charitable gifts to communities and local organi]ations, focusing on early childhood literacy, science, technology, engineering and mathematics STEM education, workforce preparedness and environmental stewardship. Our efforts helped address the needs of our communities across our service territories. In Indiana, our Power of Reading 2016 ANNUAL REPORT / 8 / Summit brought over 400 teachers together, focused on improving literacy and arming teachers with new tools and tactics to support students. Volunteerism is also an integral part of Duke Energy’s commitment to customers. Throughout the year, our employees volunteered thousands of hours of community service in their local communities for a variety of causes and organizations. Our sustainability efforts contribute to the vitality of our communities. For the 11th consecutive year, Duke Energy was named to the Dow Jones Sustainability Index. Since 1999, the index has identiÀed top performing companies in each sector based on various environmental, economic and social criteria. We want to do what’s right for our customers and communities and our work last year shows our long-term commitment to them. Bringing The Future to Light Every hour of every day, more than 25 million people and businesses count on Duke Energy for safe, reliable and affordable energy. The service we provide is the lifeblood of our communities and we have an obligation to help propel them forward. That’s an awesome responsibility. Since I became CEO in 2013, I have seen that conviction every day at Duke Energy. I see it in the eyes of 29,000 employees who remain dedicated to putting our customers Àrst. Their dedication was on full display this year as they responded to three major storms. This conviction was shown as we completed our portfolio transition to put our company in the best position for long-term growth and success. And I saw the conviction in our company’s leadership, from our Board of Directors to our senior leadership team, who helped chart the right course for Duke Energy. It’s truly an honor to serve as the CEO of this company. \ 9 \ DUKE ENERGY Aspirations for the next decade. ƒ Invest $25 billion in modernizing our energy delivery system. ƒ Invest $11 billion in generating cleaner energy through natural gas and renewables. ƒ Double the contribution of our natural gas infrastructure business to 15 percent. ƒ Achieve and sustain top quartile customer satisfaction. ƒ Maintain our world-class safety standards and operational excellence. ƒ Modernize the regulatory constructs in all of our jurisdictions. As the photos in this report show, Duke Energy has a rich, 113-year history of serving our customers. We’ve adapted to their ever-changing needs and that now extends to this report. Starting next year, we will create an enhanced, digital annual report, complementing our move to an online annual shareholder meeting. I’m conÀdent today’s Duke Energy will continue to adapt. As I travel and interact with customers, employees and stakeholders, I am reminded of the impact our company has on the communities we serve – and why our transformation is so important to so many who have a stake in Duke Energy’s success. Our performance in 2016 only renews my conÀdence in our employees, our leadership and our strategy as we continue to bring the future to light. Lynn J. Good Chairman, President and Chief Executive OfÀcer March 2, 2017 Duke Energy At A Glance Electric Utilities and Infrastructure Generation Diversity (percent owned capacity)1 38% Natural Gas/Fuel Oil 37% Coal 18% Nuclear 7% Hydro and Solar Generated (net output gigawatt-hours (GWh))2 Natural Gas Customer Diversity Gas Utilities and Infrastructure conducts natural gas distribution operations primarily through the regulated public utilities of Piedmont Natural Gas and Duke Energy Ohio. Natural Gas Operations3 31% Power Generation 25% Residential 22% General Services 14% Wholesale/Other 9% Industrial 35% Coal 35% Nuclear 29% Natural Gas/Fuel Oil 1% Hydro and Solar Customer Diversity (in billed GWh sales)2 32% Residential 30% General Services 20% Industrial 18% Wholesale/Other Electric Utilities and Infrastructure conducts operations primarily through the regulated public utilities of Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana and Duke Energy Ohio. Electric Operations ƒ Owns approximately 49,300 megawatts (MW) of generating capacity ƒ Service area covers about 95,000 square miles with an estimated population of 24 million ƒ Service to approximately 7.5 million residential, commercial and industrial customers ƒ 268,700 miles of distribution lines and a 32,200-mile transmission system 1 As of December 31, 2016. 2 For the year-ended December 31, 2016. 3 &KDUW UHÁHFWV WKH PRQWKV IRU ZKLFK 3LHGPRQW ZDV RZQHG E\ 'XNH (QHUJ\ in 2016, and 12 months for other existing Duke Energy gas operations. ƒ Regulated natural gas transmission and distribution services to approximately 1.6 million customers in the Carolinas, Tennessee, southwestern Ohio and northern Kentucky ƒ Maintains more than 32,900 miles of natural gas transmission and distribution pipelines, and 26,600 miles of natural gas service pipelines Duke Energy Renewables Generation Diversity (percent owned capacity)1 79% Wind 21% Solar Duke Energy Renewables primarily acquires, develops, builds and operates wind and solar renewable generation throughout the continental U.S. The portfolio includes nonregulated renewable energy and energy storage assets. Duke Energy Renewables, part of the Commercial Renewables business segment, includes utility-scale wind and solar generation assets which total 2,900 MW across 14 states from 21 wind and 63 solar projects. The power produced from renewable generation is primarily sold through long-term contracts to utilities, electric cooperatives, municipalities and commercial and industrial customers. As part of its growth strategy, Duke Energy Renewables has expanded its investment portfolio through the addition of distributed solar companies and projects, energy storage V\VWHPV DQG HQHUJ\ PDQDJHPHQW VROXWLRQV VSHFLÀFDOO\ WDLORUHG to commercial businesses and other institutions. 2016 ANNUAL REPORT / 10 / Board of Directors From left to right: Ann Maynard Gray (Retiring at 2017 Annual Meeting of Shareholders), James B. Hyler, Jr., John H. Forsgren, Daniel R. DiMicco, Carlos A. Saladrigas, Thomas E. Skains, Lynn J. Good, John T. Herron, E. Marie McKee, William E. Kennard, Michael G. Browning, William E. Webster, Jr., Michael J. Angelakis, Charles W. Moorman IV and Theodore F. Craver, Jr. (Not Pictured) Michael J. Angelakis 'DQLHO 5 'L0LFFR -RKQ 7 +HUURQ &KDUOHV : 0RRUPDQ ,9 Chairman and Chief Executive 2IÀFHU ² $WDLURV 0DQDJHPHQW / 3 &KDLUPDQ (PHULWXV 5HWLUHG 3UHVLGHQW DQG &KLHI ([HFXWLYH 2IÀFHU ² 1XFRU &RUSRUDWLRQ 5HWLUHG 3UHVLGHQW &KLHI ([HFXWLYH 2IÀFHU DQG &KLHI 1XFOHDU 2IÀFHU ² (QWHUJ\ 1XFOHDU 3UHVLGHQW DQG &KLHI ([HFXWLYH 2IÀFHU ² $PWUDN ƒ Member, Corporate ƒ Chair, Nuclear Governance Committee, Nuclear Oversight Committee ƒ Director of Duke Energy since 2007 Oversight Committee ƒ Member, Regulatory Policy and Operations Committee ƒ Director of Duke Energy since 2013 Committee, Nuclear Oversight Committee ƒ Director of Duke Energy since 2016 ƒ Chair, Audit Committee ƒ Member, Finance and Risk Management Committee ƒ Director of Duke Energy since 2015 0LFKDHO * %URZQLQJ &KDLUPDQ ² %URZQLQJ &RQVROLGDWHG //& ƒ Independent Lead Director ƒ Chair, Corporate Governance Committee ƒ Member, Compensation Committee, Finance and Risk Management Committee ƒ Director of Duke Energy since 2006 7KHRGRUH ) &UDYHU -U 5HWLUHG &KDLUPDQ 3UHVLGHQW DQG &KLHI ([HFXWLYH 2IÀFHU ² (GLVRQ ,QWHUQDWLRQDO ƒ Member, Finance and Risk Management Committee, Regulatory Policy and Operations Committee ƒ Director of Duke Energy since 2017 -RKQ + )RUVJUHQ 5HWLUHG 9LFH &KDLUPDQ ([HFXWLYH 9LFH 3UHVLGHQW DQG &KLHI )LQDQFLDO 2IÀFHU ² 1RUWKHDVW 8WLOLWLHV ƒ Chair, Finance and Risk Management Committee ƒ Member, Audit Committee ƒ Director of Duke Energy since 2009 Retired Vice Chairman and Chief 2SHUDWLQJ 2IÀFHU ² )LUVW &LWL]HQV %DQF6KDUHV ,QF ƒ Chair, Regulatory Policy and Operations Committee ƒ Member, Audit Committee ƒ Director of Duke Energy since 2012 /\QQ - *RRG &KDLUPDQ 3UHVLGHQW DQG &KLHI ([HFXWLYH 2IÀFHU ² 'XNH (QHUJ\ &RUSRUDWLRQ ƒ Director of Duke Energy since 2013 $QQ 0D\QDUG *UD\ 5HWLUHG 9LFH 3UHVLGHQW $%& ,QF DQG 3UHVLGHQW 'LYHUVLÀHG 3XEOLVKLQJ *URXS RI $%& ,QF ƒ Member, Corporate Governance Committee, Finance and Risk Management Committee ƒ Director of Duke Energy since 1997 \ 11 \ DUKE ENERGY -DPHV % +\OHU -U William E. Kennard 1RQ ([HFXWLYH &KDLUPDQ ² 9HORFLWDV 3DUWQHUV //& ƒ Member, Corporate Governance Committee, Finance and Risk Management Committee, Regulatory Policy and Operations Committee ƒ Director of Duke Energy since 2014 E. Marie McKee 5HWLUHG 6HQLRU 9LFH 3UHVLGHQW ² &RUQLQJ ,QFRUSRUDWHG ƒ Member, Compensation &DUORV $ 6DODGULJDV &KDLUPDQ ² 5HJLV +5 *URXS ƒ Member, Audit Committee, Compensation Committee ƒ Director of Duke Energy since 2012 7KRPDV ( 6NDLQV 5HWLUHG &KDLUPDQ 3UHVLGHQW DQG &KLHI ([HFXWLYH 2IÀFHU ² 3LHGPRQW 1DWXUDO *DV &RPSDQ\ ,QF ƒ Member, Nuclear Oversight Committee, Regulatory Policy and Operations Committee ƒ Director of Duke Energy since 2016 :LOOLDP ( :HEVWHU -U 5HWLUHG ([HFXWLYH 9LFH 3UHVLGHQW ,QGXVWU\ 6WUDWHJ\ IRU WKH ,QVWLWXWH RI 1XFOHDU 3RZHU 2SHUDWLRQV ƒ Member, Nuclear Oversight Committee, Regulatory Policy and Operations Committee ƒ Director of Duke Energy since 2016 ƒ Chair, Compensation Committee ƒ Member, Audit Committee ƒ Director of Duke Energy since 2012 ©2017 Duke Energy Corporation 162772 3/17 DUKE ENERGY CORPORATION Cautionary Statement Regarding Forward-Looking Information Non-GAAP Financial Measures 2016 Form 10-K l A DUKE ENERGY FORWARD-LOOKING INFORMATION This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management’s beliefs and assumptions and can often be identified by terms and phrases that include “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook” or other similar terminology. Various factors may cause actual results to be materially different than the suggested outcomes within forward-looking statements; accordingly, there is no assurance that such results will be realized. These factors include, but are not limited to: state, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements or climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices; the extent and timing of costs and liabilities to comply with federal and state laws, regulations and legal requirements related to coal ash remediation, including amounts for required closure of certain ash impoundments, are uncertain and difficult to estimate; the ability to recover eligible costs, including amounts associated with coal ash impoundment retirement obligations and costs related to significant weather events, and to earn an adequate return on investment through the regulatory process; the costs of decommissioning Crystal River Unit 3 and other nuclear facilities could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process; credit ratings of the company or its subsidiaries may be different from what is expected; costs and effects of legal and administrative proceedings, settlements, investigations and claims; industrial, commercial and residential growth or decline in service territories or customer bases resulting from variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, including self-generation and distributed generation technologies; federal and state regulations, laws and other efforts designed to promote and expand the use of energy efficiency measures and distributed generation technologies, such as private solar and battery storage, in our service territories could result in customers leaving the electric distribution system, excess generation resources as well as stranded costs; advancements in technology; additional competition in electric and natural gas markets and continued industry consolidation; the influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts, earthquakes and tornadoes, including extreme weather associated with climate change; the ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to the company resulting from an incident that affects the U.S. electric grid or generating resources; the ability to complete necessary or desirable pipeline expansion or infrastructure projects in our natural gas business; operational interruptions to our natural gas distribution and transmission activities; the availability of adequate interstate pipeline transportation capacity and natural gas supply; the impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches, and other catastrophic events such as fires, explosions, pandemic health events or other similar occurrences; the inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks; the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets; the results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, interest rate fluctuations and general economic conditions; the credit ratings may be different from what the company and its subsidiaries expect; declines in the market prices of equity and fixed income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans, and nuclear decommissioning trust funds; construction and development risks associated with the completion of Duke Energy and its subsidiaries’ capital investment projects, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards, as well as the ability to recover costs from customers in a timely manner or at all; changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants; the ability to control operation and maintenance costs; the level of creditworthiness of counterparties to transactions; employee workforce factors, including the potential inability to attract and retain key personnel; the ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent); the performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities; the effect of accounting pronouncements issued periodically by accounting standardsetting bodies; substantial revision to the U.S. tax code, such as changes to the corporate tax rate or a material change in the deductibility of interest; the impact of potential goodwill impairments; the ability to successfully complete future merger, acquisition or divestiture plans; and the ability to successfully integrate the natural gas businesses following the acquisition of Piedmont Natural Gas Company, Inc. and realize anticipated benefits. Additional risks and uncertainties are identified and discussed in Duke Energy’s and its subsidiaries’ reports filed with the U.S. Securities and Exchange Commission (SEC) and available at the SEC’s website at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made; Duke Energy expressly disclaims an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. NON-GAAP MEASURES Adjusted Diluted Earnings Per Share (“EPS”) Duke Energy’s 2016 Annual Report references adjusted diluted EPS for 2016, 2015 and 2014 of $4.69, $4.54 and $4.55, respectively. Management evaluates financial performance in part based on adjusted diluted EPS, a non-GAAP financial measure. Adjusted diluted EPS represents diluted EPS from continuing operations attributable to Duke Energy Corporation common stockholders, adjusted for the 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 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 this non-GAAP financial measure for planning and forecasting and for reporting results to the Duke Energy Board of Directors (Board of Directors), employees, stockholders, analysts and investors. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measure for adjusted diluted EPS is reported diluted EPS attributable to Duke Energy Corporation common stockholders. Special items included in the periods presented include the following, which management believes do not reflect ongoing costs: t Costs to Achieve Mergers represents charges that result from potential or completed strategic acquisitions. t Cost Savings Initiatives represents severance charges related to companywide initiatives to standardize processes and systems, leverage technology and workforce optimization. t Commercial Renewables Impairment and Asset Impairment represent other-than-temporary impairments. t Edwardsport Settlement, Ash Basin Settlement and Penalties, and Coal Ash Plea Agreements Reserve represent charges related to plea agreements and settlement agreements with regulators and other governmental entities. Adjusted diluted EPS also include the operating results of the nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, the Midwest Generation Disposal Group) and the Latin American generation business (International Disposal Group), which have been classified as discontinued operations. Management believes inclusion of the operating results of the disposal groups within adjusted diluted EPS results in a better reflection of Duke Energy’s financial performance during the period. Duke Energy’s adjusted diluted EPS may not be comparable to a similarly titled measure of another company because other entities may not calculate the measure in the same manner. The following is a reconciliation of reported diluted EPS to adjusted diluted EPS for 2016, 2015 and 2014: Years Ended December 31, (Per diluted share) 2016 2015 2014 Reported EPS $3.11 $4.05 $2.66 0.48 0.09 0.18 Cost Savings Initiatives 0.08 0.13 — Commercial Renewables Impairment 0.07 — — Edwardsport Settlement — 0.08 — Ash Basin Settlement and Penalties — 0.02 — Asset Impairment — — 0.08 Coal Ash Plea Agreements Reserve — — 0.14 Asset Sales — — (0.01) Economic Hedges (mark-to-market) — — 0.01 Adjustments to Reported: Costs to Achieve Mergers Discontinued Operations Adjusted Diluted EPS Adjusted Diluted EPS Outlook Duke Energy’s 2016 Annual Report references Duke Energy’s forecasted 2017 adjusted diluted EPS outlook range of $4.50 to $4.70 per share. The materials also reference the five-year, long-term range of annual growth of 4 to 6 percent in adjusted diluted EPS (on a compound annual growth rate (“CAGR”) basis). Adjusted diluted EPS is a non-GAAP financial measure as it represents diluted EPS 0.95 0.17 1.49 $4.69 $4.54 $4.55 from continuing operations attributable to Duke Energy Corporation shareholders, adjusted for the per share impact of special items (as discussed above under Adjusted Diluted EPS). Due to the forward-looking nature of this non-GAAP financial measure for future periods, information to reconcile it to the most directly comparable GAAP financial measure is not available at this time, as management is unable to project all special items for future periods, such as legal settlements, the impact of regulatory orders or asset impairments. 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, 2016 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. DUKE ENERGY CORPORATION 1-32853 20-2777218 (a Delaware corporation) 550 South Tryon Street Charlotte, NC 28202-1803 704-382-3853 Commission file number Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number Commission file number DUKE ENERGY CAROLINAS, LLC 1-3274 PROGRESS ENERGY, INC. 1-1232 DUKE ENERGY PROGRESS, LLC 1-3543 1-4928 (a North Carolina limited liability company) 526 South Church Street Charlotte, North Carolina 28202-1803 704-382-3853 56-0205520 1-15929 (a North Carolina corporation) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 704-382-3853 56-2155481 1-3382 (a North Carolina limited liability company) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 704-382-3853 56-0165465 Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number DUKE ENERGY FLORIDA, LLC (a Florida limited liability company) 299 First Avenue North St. Petersburg, Florida 33701 704-382-3853 59-0247770 DUKE ENERGY OHIO, INC. (an Ohio corporation) 139 East Fourth Street Cincinnati, Ohio 45202 704-382-3853 31-0240030 DUKE ENERGY INDIANA, LLC (an Indiana limited liability company) 1000 East Main Street Plainfield, Indiana 46168 704-382-3853 35-0594457 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Registrant Duke Energy Corporation (Duke Energy) Duke Energy Title of each class Common Stock, $0.001 par value 5.125% Junior Subordinated Debentures due January 15, 2073 Name of each exchange on which registered New York Stock Exchange, Inc. New York Stock Exchange, Inc. SECURITIES REGISTERED PURSUANT TO SECTION 12(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 No … Duke Energy Florida, LLC (Duke Energy Florida) Yes _ No … Duke Energy Yes _ Duke Energy Carolinas, LLC (Duke Energy Carolinas) Yes _ No … Duke Energy Ohio, Inc. (Duke Energy Ohio) Yes _ No … Progress Energy, Inc. (Progress Energy) Yes … No _ Duke Energy Indiana, LLC (Duke Energy Indiana) Yes _ No … Duke Energy Progress, LLC (Duke Energy Progress) Yes _ No … Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes … No _ (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 and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes _ No … Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. … (Only applicable to Duke Energy) Indicate by check mark whether Duke Energy is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer _ Accelerated filer … Non-accelerated filer … Smaller reporting company … Indicate by check mark whether Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana are large accelerated filers, accelerated filers, non-accelerated filers, or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer … Accelerated filer … Non-accelerated filer _ Smaller reporting company … Indicate by check mark whether the registrants are a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes … No _ Estimated aggregate market value of the common equity held by nonaffiliates of Duke Energy at June 30, 2016. $59,060,642,963 Number of shares of Common Stock, $0.001 par value, outstanding at January 31, 2017. 699,607,929 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Duke Energy definitive proxy statement for the 2017 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 seven registrants: Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants. Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and are, therefore, filing this Form 10-K with the reduced disclosure format specified in General Instructions I(2) of Form 10-K. TABLE OF CONTENTS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2016 Item Page CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION GLOSSARY OF TERMS PART I. 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 DUKE ENERGY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 BUSINESS SEGMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 EXECUTIVE OFFICERS OF THE REGISTRANTS . . . . . . . . . . . . . . . . . . . . 14 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 DUKE ENERGY CAROLINAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 PROGRESS ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 DUKE ENERGY PROGRESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 DUKE ENERGY FLORIDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 DUKE ENERGY OHIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 DUKE ENERGY INDIANA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1A. RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1B. UNRESOLVED STAFF COMMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3. 4. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 26 PART II. 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . 27 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 7A. 8. 9. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . 61 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . 62 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 9A. PART III. 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . . 209 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . 209 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 14. PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 PART IV. 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . 211 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit-1 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: t State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements or climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices; t 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; t The ability to recover eligible costs, including amounts associated with coal ash impoundment retirement obligations and costs related to significant weather events, and to earn an adequate return on investment through the regulatory process; t The costs of decommissioning Crystal River Unit 3 and other nuclear facilities could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process; t Costs and effects of legal and administrative proceedings, settlements, investigations and claims; t Industrial, commercial and residential growth or decline in service territories or customer bases resulting from variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, including self-generation and distributed generation technologies; t 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; t Advancements in technology; t Additional competition in electric and natural gas markets and continued industry consolidation; t 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; t The ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to the company resulting from an incident that affects the U.S. electric grid or generating resources; t The ability to complete necessary or desirable pipeline expansion or infrastructure projects in our natural gas business; t Operational interruptions to our natural gas distribution and transmission activities; t The availability of adequate interstate pipeline transportation capacity and natural gas supply. t The impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches and other catastrophic events, such as fires, explosions, pandemic health events or other similar occurrences; t The inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks; t The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets; t The results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, interest rate fluctuations and general economic conditions; t Credit ratings of the Duke Energy Registrants may be different from what is expected; t 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; t 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; t 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; t The ability to control operation and maintenance costs; t The level of creditworthiness of counterparties to transactions; t Employee workforce factors, including the potential inability to attract and retain key personnel; t The ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent); t The performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities; t The effect of accounting pronouncements issued periodically by accounting standardsetting bodies; t Substantial revision to the U.S. tax code, such as changes to the corporate tax rate or a material change in the deductibility of interest; t The impact of potential goodwill impairments; t The ability to successfully complete future merger, acquisition or divestiture plans; and t The ability to successfully integrate the natural gas businesses following the acquisition of Piedmont Natural Gas Company, Inc. and realize anticipated benefits. Additional risks and uncertainties are identified and discussed in the Duke Energy Registrants’ reports filed with the SEC and available at the SEC’s website at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made and the Duke Energy Registrants expressly disclaim an obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future events or otherwise. Glossary of Terms The following terms or acronyms used in this Form 10-K are defined below: Term or Acronym Definition the 2012 Settlement . . . . . . . . . . . Settlement agreement in 2012 among Duke Energy Florida, the Florida OPC and other customer advocates the 2013 Settlement. . . . . . . . . . . . . . Settlement agreement in 2013 among Duke Energy Florida, the Florida OPC and other customer advocates Term or Acronym Definition CEO . . . . . . . . . . . . . . . . . . . . . . . . Chief Executive Officer Cinergy . . . . . . . . . . . . . . . . . . . . . Cinergy Corp. (collectively with its subsidiaries) CO2 . . . . . . . . . . . . . . . . . . . . . . . . Carbon Dioxide Coal Ash Act . . . . . . . . . . . . . . . . . North Carolina Coal Ash Management Act of 2014 2013 Agreement . . . . . . . . . . . . . . 2013 revised and restated stipulation and settlement agreement Coal Ash Commission . . . . . . . . . . Coal Ash Management Commission the 2015 Plan . . . . . . . . . . . . . . . . Duke Energy Corporation 2015 Long-Term Incentive Plan the Company . . . . . . . . . . . . . . . . . Duke Energy Corporation and its subsidiaries ACP . . . . . . . . . . . . . . . . . . . . . . . . Atlantic Coast Pipeline, LLC, a limited liability company owned by Dominion, Duke Energy and Southern Company Gas ACP Pipeline . . . . . . . . . . . . . . . . . The approximately 600-mile proposed interstate natural gas pipeline AFUDC. . . . . . . . . . . . . . . . . . . . . . Allowance for funds used during construction AHFS . . . . . . . . . . . . . . . . . . . . . . . Assets held for sale COL . . . . . . . . . . . . . . . . . . . . . . . . Combined Operating License Consolidated Complaint. . . . . . . . . Corrected Verified Consolidated Shareholder Derivative Complaint Constitution. . . . . . . . . . . . . . . . . . Constitution Pipeline Company, LLC CPCN. . . . . . . . . . . . . . . . . . . . . . . Certificate of Public Convenience and Necessity CPP . . . . . . . . . . . . . . . . . . . . . . . . Clean Power Plan CRC. . . . . . . . . . . . . . . . . . . . . . . . Cinergy Receivables Company LLC ALJ . . . . . . . . . . . . . . . . . . . . . . . . Administrative Law Judge Crystal River Unit 3 . . . . . . . . . . . . Crystal River Unit 3 Nuclear Plant Amended Complaint . . . . . . . . . . . Amended Verified Consolidated Shareholder Derivative Complaint CSA . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive Site Assessment CSAPR. . . . . . . . . . . . . . . . . . . . . . Cross-State Air Pollution Rule AMI . . . . . . . . . . . . . . . . . . . . . . . . Advanced Metering Infrastructure CT . . . . . . . . . . . . . . . . . . . . . . . . . Combustion Turbine AOCI . . . . . . . . . . . . . . . . . . . . . . . Accumulated Other Comprehensive Income (Loss) CTG . . . . . . . . . . . . . . . . . . . . . . . . China Three Gorges Energy S.à.r.l. ARO. . . . . . . . . . . . . . . . . . . . . . . . Asset Retirement Obligation ARP . . . . . . . . . . . . . . . . . . . . . . . . Alternative Revenue Programs CWA . . . . . . . . . . . . . . . . . . . . . . . Clean Water Act DATC . . . . . . . . . . . . . . . . . . . . . . . Duke-American Transmission Co. the ASR . . . . . . . . . . . . . . . . . . . . . Accelerated Stock Repurchase Program D.C. Circuit Court. . . . . . . . . . . . . . U.S. Court of Appeals for the District of Columbia ASRP . . . . . . . . . . . . . . . . . . . . . . . Accelerated natural gas service line replacement program the Dealers . . . . . . . . . . . . . . . . . . Goldman, Sachs & Co. and JP Morgan Chase Bank Barclays . . . . . . . . . . . . . . . . . . . . Barclays Capital Inc. DEBS. . . . . . . . . . . . . . . . . . . . . . . Duke Energy Business Services, LLC BCWF . . . . . . . . . . . . . . . . . . . . . . Benton County Wind Farm, LLC DECAM . . . . . . . . . . . . . . . . . . . . . Duke Energy Commercial Asset Management, LLC Beckjord . . . . . . . . . . . . . . . . . . . . Beckjord Generating Station Bison. . . . . . . . . . . . . . . . . . . . . . . Bison Insurance Company Limited Board of Directors . . . . . . . . . . . . . Duke Energy Board of Directors DEFPF . . . . . . . . . . . . . . . . . . . . . . Duke Energy Florida Project Finance, LLC DEFR . . . . . . . . . . . . . . . . . . . . . . . Duke Energy Florida Receivables, LLC Bresalier Complaint . . . . . . . . . . . . Shareholder derivative lawsuit filed by Saul Bresalier related to ash basin management practices Deloitte . . . . . . . . . . . . . . . . . . . . . Deloitte & Touche LLP, and the member firms of Deloitte Touche Tohmatsu and their respective affiliates Bresalier Defendants . . . . . . . . . . . Several current and former Duke Energy officers and directors named in the Bresalier Complaint DEPR. . . . . . . . . . . . . . . . . . . . . . . Duke Energy Progress Receivables, LLC DERF . . . . . . . . . . . . . . . . . . . . . . . Duke Energy Receivables Finance Company, LLC Bridge Facility . . . . . . . . . . . . . . . . $4.9 billion senior secured financing facility with Barclays Capital Inc. DETM. . . . . . . . . . . . . . . . . . . . . . . Duke Energy Trading and Marketing, LLC Brunswick . . . . . . . . . . . . . . . . . . . Brunswick Nuclear Plant DHHS. . . . . . . . . . . . . . . . . . . . . . . North Carolina Department of Health and Human Services CAA . . . . . . . . . . . . . . . . . . . . . . . . Clean Air Act DOE . . . . . . . . . . . . . . . . . . . . . . . . U.S. Department of Energy Calpine . . . . . . . . . . . . . . . . . . . . . Calpine Corporation DOJ . . . . . . . . . . . . . . . . . . . . . . . . Department of Justice Cardinal. . . . . . . . . . . . . . . . . . . . . Cardinal Pipeline Company, LLC Dominion. . . . . . . . . . . . . . . . . . . . Dominion Resources Catawba . . . . . . . . . . . . . . . . . . . . Catawba Nuclear Station DSM . . . . . . . . . . . . . . . . . . . . . . . Demand Side Management CC . . . . . . . . . . . . . . . . . . . . . . . . . Combined Cycle Dth . . . . . . . . . . . . . . . . . . . . . . . . Dekatherm CCR. . . . . . . . . . . . . . . . . . . . . . . . Coal Combustion Residuals Duke Energy. . . . . . . . . . . . . . . . . . Duke Energy Corporation (collectively with its subsidiaries) CCS . . . . . . . . . . . . . . . . . . . . . . . . Carbon Capture and Storage CECPCN. . . . . . . . . . . . . . . . . . . . . Certificate of Environmental Compatibility and Public Convenience and Necessity Duke Energy Carolinas. . . . . . . . . . Duke Energy Carolinas, LLC Term or Acronym Definition Duke Energy Defendants . . . . . . . . Several current and former Duke Energy officers and directors named as defendants in the Consolidated Complaint Term or Acronym Definition Interim FERC Mitigation . . . . . . . . . Interim firm power sale agreements mitigation plans related to the Progress Energy merger Duke Energy Florida . . . . . . . . . . . . Duke Energy Florida, LLC International Disposal Group . . . . . Duke Energy’s international business, excluding National Methanol Company Duke Energy Indiana . . . . . . . . . . . Duke Energy Indiana, LLC IRP . . . . . . . . . . . . . . . . . . . . . . . . Integrated Resource Plans Duke Energy Kentucky . . . . . . . . . . Duke Energy Kentucky, Inc. IRS . . . . . . . . . . . . . . . . . . . . . . . . Internal Revenue Service Duke Energy Ohio. . . . . . . . . . . . . . Duke Energy Ohio, Inc. ISFSI . . . . . . . . . . . . . . . . . . . . . . . Independent Spent Fuel Storage Installation Duke Energy Progress . . . . . . . . . . Duke Energy Progress, LLC ISO . . . . . . . . . . . . . . . . . . . . . . . . Independent System Operator Duke Energy Registrants . . . . . . . . Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont ITC. . . . . . . . . . . . . . . . . . . . . . . . . Investment Tax Credit Dynegy. . . . . . . . . . . . . . . . . . . . . . Dynegy Inc. East Bend . . . . . . . . . . . . . . . . . . . East Bend Generating Station EE . . . . . . . . . . . . . . . . . . . . . . . . . Energy efficiency EGU . . . . . . . . . . . . . . . . . . . . . . . . Electric Generating Units EIS. . . . . . . . . . . . . . . . . . . . . . . . . Environmental Impact Statement ELG . . . . . . . . . . . . . . . . . . . . . . . . Effluent Limitations Guidelines EPA . . . . . . . . . . . . . . . . . . . . . . . . U.S. Environmental Protection Agency EPC . . . . . . . . . . . . . . . . . . . . . . . . Engineering, Procurement and Construction agreement EPS . . . . . . . . . . . . . . . . . . . . . . . . Earnings Per Share ESP . . . . . . . . . . . . . . . . . . . . . . . . Electric Security Plan ETR . . . . . . . . . . . . . . . . . . . . . . . . Effective tax rate IURC . . . . . . . . . . . . . . . . . . . . . . . Indiana Utility Regulatory Commission Investment Trusts . . . . . . . . . . . . . Grantor trusts of Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana JDA . . . . . . . . . . . . . . . . . . . . . . . . Joint Dispatch Agreement KO Transmission . . . . . . . . . . . . . . KO Transmission Company KPSC . . . . . . . . . . . . . . . . . . . . . . . Kentucky Public Service Commission kV . . . . . . . . . . . . . . . . . . . . . . . . . Kilovolt kWh. . . . . . . . . . . . . . . . . . . . . . . . Kilowatt-hour LDC . . . . . . . . . . . . . . . . . . . . . . . . Local Distribution Company Legacy Duke Energy Directors . . . . Members of the pre-merger Duke Energy Board of Directors Levy. . . . . . . . . . . . . . . . . . . . . . . . Duke Energy Florida’s proposed nuclear plant in Levy County, Florida LIBOR . . . . . . . . . . . . . . . . . . . . . . London Interbank Offered Rate Exchange Act. . . . . . . . . . . . . . . . . Exchange Act of 1934 Long-Term FERC Mitigation . . . . . . The revised market power mitigation plan related to the Progress Energy merger FASB . . . . . . . . . . . . . . . . . . . . . . . Financial Accounting Standards Board MATS. . . . . . . . . . . . . . . . . . . . . . . Mercury and Air Toxics Standards FERC . . . . . . . . . . . . . . . . . . . . . . . Federal Energy Regulatory Commission Mcf . . . . . . . . . . . . . . . . . . . . . . . . Thousand cubic feet Fitch . . . . . . . . . . . . . . . . . . . . . . . Fitch Ratings, Inc. McGuire. . . . . . . . . . . . . . . . . . . . . McGuire Nuclear Station FirstEnergy . . . . . . . . . . . . . . . . . . FirstEnergy Corp. Merger Chancery Litigation . . . . . . Four shareholder derivative lawsuits filed in the Delaware Chancery Court related to the Progress Energy merger Florida OPC . . . . . . . . . . . . . . . . . . Florida Office of Public Counsel Form S-3. . . . . . . . . . . . . . . . . . . . Registration statement FP&L . . . . . . . . . . . . . . . . . . . . . . . Florida Power & Light Company Mesirov Complaint. . . . . . . . . . . . . Shareholder derivative complaint file by Judy Mesirov FPSC . . . . . . . . . . . . . . . . . . . . . . . Florida Public Service Commission MGP . . . . . . . . . . . . . . . . . . . . . . . Manufactured gas plant FTR . . . . . . . . . . . . . . . . . . . . . . . . Financial transmission rights GAAP . . . . . . . . . . . . . . . . . . . . . . . Generally Accepted Accounting Principles in the United States Midwest Generation Disposal Group Duke Energy Ohio’s nonregulated Midwest generation business and Duke Energy Retail Sales, LLC GHG. . . . . . . . . . . . . . . . . . . . . . . . Greenhouse Gas MISO . . . . . . . . . . . . . . . . . . . . . . . Midcontinent Independent System Operator, Inc. GPC. . . . . . . . . . . . . . . . . . . . . . . . Georgia Power Company MMBtu . . . . . . . . . . . . . . . . . . . . . Million British Thermal Unit GWh . . . . . . . . . . . . . . . . . . . . . . . Gigawatt-hours MPP . . . . . . . . . . . . . . . . . . . . . . . Money Purchase Pension Harris . . . . . . . . . . . . . . . . . . . . . . Shearon Harris Nuclear Plant Moody’s . . . . . . . . . . . . . . . . . . . . Moody’s Investors Service, Inc. HB 998 . . . . . . . . . . . . . . . . . . . . . North Carolina House Bill 998, or the North Carolina Tax Simplification and Rate Reduction Act MTBE. . . . . . . . . . . . . . . . . . . . . . . Methyl tertiary butyl ether Hines. . . . . . . . . . . . . . . . . . . . . . . Hines Energy Complex I Squared. . . . . . . . . . . . . . . . . . . . ISQ Enerlam Aggregator, L.P. and Enerlam Holding Ltd. MTEP. . . . . . . . . . . . . . . . . . . . . . . MISO Transmission Expansion Planning MW . . . . . . . . . . . . . . . . . . . . . . . . Megawatt MVP. . . . . . . . . . . . . . . . . . . . . . . . Multi Value Projects MWh . . . . . . . . . . . . . . . . . . . . . . . Megawatt-hour ICPA . . . . . . . . . . . . . . . . . . . . . . . Inter-Company Power Agreement NCDEQ . . . . . . . . . . . . . . . . . . . . . North Carolina Department of Environmental Quality (formerly the North Carolina Department of Environment and Natural Resources) IGCC . . . . . . . . . . . . . . . . . . . . . . . Integrated Gasification Combined Cycle NCEMC . . . . . . . . . . . . . . . . . . . . . North Carolina Electric Membership Corporation IGCC Rider. . . . . . . . . . . . . . . . . . . Tracking mechanism used to recover costs related to the Edwardsport IGCC plant from retail electric customers NCEMPA . . . . . . . . . . . . . . . . . . . . North Carolina Eastern Municipal Power Agency IBNR . . . . . . . . . . . . . . . . . . . . . . . Incurred but not yet reported NCRC. . . . . . . . . . . . . . . . . . . . . . . Florida’s Nuclear Cost Recovery Clause IGCC Settlement . . . . . . . . . . . . . . 2015 Settlement to resolve disputes with intervenors related to five IGCC riders NCRS. . . . . . . . . . . . . . . . . . . . . . . Nuclear Power Plant Cost Recovery Statutes IMR . . . . . . . . . . . . . . . . . . . . . . . . Integrity Management Rider NC WARN . . . . . . . . . . . . . . . . . . . N.C. Waste Awareness and Reduction Network NCUC . . . . . . . . . . . . . . . . . . . . . . North Carolina Utilities Commission Term or Acronym Definition Term or Acronym Definition NDTF . . . . . . . . . . . . . . . . . . . . . . . Nuclear decommissioning trust funds RCRA. . . . . . . . . . . . . . . . . . . . . . . Resource Conservation and Recovery Act NEIL . . . . . . . . . . . . . . . . . . . . . . . Nuclear Electric Insurance Limited RFP . . . . . . . . . . . . . . . . . . . . . . . . Requests for Proposal NYSDEC. . . . . . . . . . . . . . . . . . . . . New York State Department of Environmental Conservation Relative TSR . . . . . . . . . . . . . . . . . TSR of Duke Energy stock relative to a pre-defined peer group NMC . . . . . . . . . . . . . . . . . . . . . . . National Methanol Company Robinson . . . . . . . . . . . . . . . . . . . . Robinson Nuclear Plant NOL . . . . . . . . . . . . . . . . . . . . . . . . Net operating loss RTO . . . . . . . . . . . . . . . . . . . . . . . . Regional Transmission Organization NOV. . . . . . . . . . . . . . . . . . . . . . . . Notice of violation Sabal Trail . . . . . . . . . . . . . . . . . . . Sabal Trail Transmission, LLC NOx . . . . . . . . . . . . . . . . . . . . . . . . Nitrogen oxide Sabal Trail Pipeline . . . . . . . . . . . . Sabal Trail Natural Gas Pipeline NPNS. . . . . . . . . . . . . . . . . . . . . . . Normal purchase/normal sale SACE . . . . . . . . . . . . . . . . . . . . . . . Southern Alliance of Clean Energy NRC. . . . . . . . . . . . . . . . . . . . . . . . U.S. Nuclear Regulatory Commission NYSE . . . . . . . . . . . . . . . . . . . . . . . New York Stock Exchange SAFSTOR . . . . . . . . . . . . . . . . . . . . A method of decommissioning in which a nuclear facility is placed and maintained in a condition that allows the facility to be safely stored and subsequently decontaminated to levels that permit release for unrestricted use Oconee . . . . . . . . . . . . . . . . . . . . . Oconee Nuclear Station S.C. Court of Appeals. . . . . . . . . . . Court of Appeals of South Carolina OPEB. . . . . . . . . . . . . . . . . . . . . . . Other Post-Retirement Benefit Obligations SCCL . . . . . . . . . . . . . . . . . . . . . . . South Carolina Coastal Conservation League OPEB Assets . . . . . . . . . . . . . . . . . Other post-retirement plan assets are comprised of the Retirement Plan of Piedmont 401(h) Medical Plan, and the following Voluntary Employees’ Beneficiary Association 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 NonBargaining Unit Employees SCDHEC. . . . . . . . . . . . . . . . . . . . . South Carolina Department of Health and Environmental Control Spectra Capital . . . . . . . . . . . . . . . Spectra Energy Capital, LLC ORS . . . . . . . . . . . . . . . . . . . . . . . . Office of Regulatory Staff S&P . . . . . . . . . . . . . . . . . . . . . . . . Standard & Poor’s Rating Services Osprey Plant acquisition . . . . . . . . Duke Energy Florida’s purchase of a Calpine Corporation’s 599-MW combined-cycle natural gas plant in Auburndale, Florida SSO . . . . . . . . . . . . . . . . . . . . . . . . Standard Service Offer OTTI. . . . . . . . . . . . . . . . . . . . . . . . Other-than-temporary impairment State Electric Utility Commissions NWPA . . . . . . . . . . . . . . . . . . . . . . Nuclear Waste Policy Act of 1982 NYAG . . . . . . . . . . . . . . . . . . . . . . . New York Attorney General OVEC . . . . . . . . . . . . . . . . . . . . . . . Ohio Valley Electric Corporation the Parent . . . . . . . . . . . . . . . . . . . Duke Energy Corporation Holding Company the Payments. . . . . . . . . . . . . . . . . Fines and restitution related to the North Carolina Ash Basin Grand Jury Investigation PGA . . . . . . . . . . . . . . . . . . . . . . . . Purchased Gas Adjustments Phase I CCR Compliance Projects . . . Duke Energy Indiana’s federally mandated compliance projects to comply with the EPA’s CCR rule Piedmont . . . . . . . . . . . . . . . . . . . . Piedmont Natural Gas Company, Inc. Piedmont Pension Assets. . . . . . . . Qualified pension plan assets associated with the Retirement Plan of Piedmont Pioneer . . . . . . . . . . . . . . . . . . . . . Pioneer Transmission, LLC PJM . . . . . . . . . . . . . . . . . . . . . . . . PJM Interconnection, LLC PPA . . . . . . . . . . . . . . . . . . . . . . . . Purchase Power Agreement Progress Energy. . . . . . . . . . . . . . . Progress Energy, Inc. PSCSC. . . . . . . . . . . . . . . . . . . . . . Public Service Commission of South Carolina PTC . . . . . . . . . . . . . . . . . . . . . . . . Production Tax Credits PUCO. . . . . . . . . . . . . . . . . . . . . . . Public Utilities Commission of Ohio PUCO Order . . . . . . . . . . . . . . . . . . Order issued by PUCO approving a settlement of Duke Energy Ohio’s natural gas base rate case and authorizing the recovery of certain MGP costs SEC . . . . . . . . . . . . . . . . . . . . . . . . Securities and Exchange Commission SELC . . . . . . . . . . . . . . . . . . . . . . . Southern Environmental Law Center Segment Income . . . . . . . . . . . . . . Income from continuing operations net of income attributable to noncontrolling interests SO2 . . . . . . . . . . . . . . . . . . . . . . . . Sulfur dioxide State Utility Commissions . . . . . . . NCUC, PSCSC, FPSC, PUCO, IURC, KPSC and TRA (Collectively) NCUC, PSCSC, FPSC, PCO, IURC and KPSC (Collectively) State Gas Utility Commissions. . . . NCUC, PSCSC, PUCO, TRA and KPSC (Collectively) Subsidiary Registrants. . . . . . . . . . Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont Sutton . . . . . . . . . . . . . . . . . . . . . . L.V. Sutton combined cycle facility T&D Rider . . . . . . . . . . . . . . . . . . . Tracking mechanism to recover grid infrastructure improvement costs in Indiana Term Loan . . . . . . . . . . . . . . . . . . . Duke Energy (Parent) $1.5 billion term loan facility, as amended maturing on July 31, 2017 TRA . . . . . . . . . . . . . . . . . . . . . . . . Tennessee Regulatory Authority TSR . . . . . . . . . . . . . . . . . . . . . . . . Total shareholder return Uprate Project . . . . . . . . . . . . . . . . Hines Chiller Uprate Project U.S. . . . . . . . . . . . . . . . . . . . . . . . . United States U.S. Court of Appeals. . . . . . . . . . . U.S. Court of Appeals for the Second Circuit USDOJ . . . . . . . . . . . . . . . . . . . . . . United States Department of Justice Environmental Crimes Section and the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina and the Western District of North Carolina, collectively VIE. . . . . . . . . . . . . . . . . . . . . . . . . Variable Interest Entity PURPA. . . . . . . . . . . . . . . . . . . . . . Public Utility Regulatory Policies Act of 1978 WACC . . . . . . . . . . . . . . . . . . . . . . Weighted Average Cost of Capital QF . . . . . . . . . . . . . . . . . . . . . . . . . Qualifying Facility WVPA. . . . . . . . . . . . . . . . . . . . . . . Wabash Valley Power Association, Inc. RCA . . . . . . . . . . . . . . . . . . . . . . . . Revolving Credit Agreement PART I ITEM 1. BUSINESS The public may read and copy any materials the Duke Energy Registrants file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Additionally, information about the Duke Energy Registrants, including reports filed with the SEC, is available through Duke Energy’s website at http://www.duke-energy.com. Such reports are accessible at no charge and are made available as soon as reasonably practicable after such material is filed with or furnished to the SEC. DUKE ENERGY General Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy operates in the United States (U.S.) primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, LLC (Duke Energy Progress); Duke Energy Florida, LLC (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio); and Duke Energy Indiana, LLC (Duke Energy Indiana). On October 3, 2016, Duke Energy acquired Piedmont Natural Gas Company, Inc. (Piedmont) which also became a wholly owned subsidiary and subsidiary registrant of Duke Energy. Duke Energy’s consolidated financial statements include Piedmont’s results of operations and cash flow activity subsequent to the acquisition. See Note 2 for additional information regarding the acquisition. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its seven separate subsidiary registrants (collectively referred to as the Subsidiary Registrants), which along with Duke Energy, are collectively referred to as the Duke Energy Registrants (Duke Energy Registrants). Piedmont, a North Carolina corporation, is an energy services company whose principal business is the distribution of natural gas to over 1 million residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee, including customers served by municipalities who are Piedmont’s sales for resale customers. In October 2016, Duke Energy completed the acquisition of Piedmont for a total cash purchase price of $5.0 billion and assumed Piedmont’s existing long-term debt, which had an estimated fair value of approximately $2.0 billion at the time of the acquisition. The acquisition provides a foundation for Duke Energy to establish a broader, long-term strategic natural gas infrastructure platform to supplement and complement its existing natural gas pipeline investments and regulated natural gas business in the Midwest. For additional information on the details of this transaction, including preliminary purchase price allocation and acquisition financing, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions.” In December 2016, Duke Energy completed the sale of its Latin American businesses to focus on its domestic regulated electric and gas businesses, which was further bolstered by the acquisition of Piedmont. The sale of the International Energy businesses, excluding an equity method investment in National Methanol Company (NMC), was completed through two transactions including the sale of Duke Energy’s Brazilian business to China Three Gorges and Duke Energy’s remaining Central and South American businesses to I Squared Capital (collectively, the International Disposal Group). See Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions,” for additional information. The Duke Energy Registrants electronically file reports with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxies and amendments to such reports. Business Segments The acquisition of Piedmont and sale of the International Disposal Group has resulted in a realigned business with three reportable operating segments (business segments); Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. The remainder of Duke Energy’s operations is presented as Other. Duke Energy’s chief operating decision-maker routinely reviews financial information about each of these business segments in deciding how to allocate resources and evaluate the performance of the business. For additional information on each of these business segments, including financial and geographic information, see Note 3 to the Consolidated Financial Statements, “Business Segments.” The following sections describe the business and operations of each of Duke Energy’s business segments, as well as Other. ELECTRIC UTILITIES AND INFRASTRUCTURE Electric Utilities and Infrastructure conducts operations primarily through the regulated public utilities of Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana and Duke Energy Ohio. Electric Utilities and Infrastructure provides retail electric service through the generation, transmission, distribution and sale of electricity to approximately 7.5 million customers within the Southeast and Midwest regions of the U.S. The service territory is approximately 95,000 square miles across six states with a total estimated population of 24 million people. The operations include electricity sold wholesale to municipalities, electric cooperative utilities and other load-serving entities. Electric Utilities and Infrastructure is also a joint owner in certain electric transmission projects. Electric Utilities and Infrastructure has a 50 percent ownership interest in Duke-American Transmission Co. (DATC), a partnership with American Transmission Company, formed to design, build and operate transmission infrastructure. DATC owns 72 percent of the transmission service rights to Path 15, an 84-mile transmission line in central California. Electric Utilities and Infrastructure also has a 50 percent ownership interest in Pioneer Transmission, LLC, which builds, owns and operates electric transmission facilities in North America. The electric operations and investments in projects are subject to the rules and regulations of the FERC, the North Carolina Utilities Commission (NCUC), the Public Service Commission of South Carolina (PSCSC), the Florida Public Service Commission (FPSC), the Indiana Utility Regulatory Commission (IURC), the Public Utilities Commission of Ohio (PUCO) and the Kentucky Public Service Commission (KPSC). 6 PART I The following table represents the distribution of billed sales by customer class for the year ended December 31, 2016. Duke Energy Carolinas(a) Duke Energy Progress(a) Duke Energy Florida(b) Duke Energy Ohio(c) Duke Energy Indiana(d) Residential 32% 26% 50% 35% 26% General service 33% 23% 38% 38% 24% Industrial 25% 15% 8% 24% 31% Total retail sales 90% 64% 96% 97% 81% Wholesale and other sales 10% 36% 4% 3% 19% 100% 100% 100% 100% 100% Total sales (a) Primary general service sectors include health care, education, financial services, information technology and military buildings. Primary industrial sectors include textiles, chemicals, rubber and plastics, paper, food and beverage and auto manufacturing. (b) Primary general service sectors include tourism, health care and government facilities and schools. Primary industrial sectors include phosphate rock mining and processing and citrus and other food processing. (c) Primary general service sectors include health care, education, real estate and rental leasing, financial and insurance services, water/wastewater services and wholesale trade services. Primary industrial sectors include primary metals, chemicals, food and beverage and transportation. (d) Primary general service sectors include retail, financial, health care and education services. Primary industrial sectors include metals, transportation, building materials, food and beverage and chemicals. The number of residential and general service customers within the Electric Utilities and Infrastructure service territory is expected to increase over time. While economic conditions within the service territory continue to improve, sales growth has been hampered by continued adoption of energy efficiencies and self-generation. The continued adoption of more efficient housing and appliances is expected to have a negative impact on average usage per residential customer over time. While residential sales increased in 2016 compared to 2015, the growth rate was modest when compared to historical periods. Competition in the regulated electric distribution business is primarily from the development and deployment of alternative energy sources including on-site generation from industrial customers and distributed generation, such as private solar, at residential, general service and/or industrial customer sites. Duke Energy is not aware of any proposed legislation within any of its jurisdictions that would provide retail customers the right to choose their electricity provider or otherwise restructure or deregulate the electric industry, including broadly subsidizing distributed generation such as private solar. Although there is no pending legislation at this time, if the retail jurisdictions served by Electric Utilities and Infrastructure become subject to deregulation, the recovery of stranded costs could become a significant consideration. Stranded costs primarily include the generation assets of Electric Utilities and Infrastructure whose value in a competitive marketplace may be less than their current book value, as well as above-market purchased power commitments from qualifying facilities (QFs). The Public Utility Regulatory Policies Act of 1978 (PURPA) established a new class of generating facilities as QFs, typically small power production facilities that generate power within a utility company’s service territory for which the utility companies are legally obligated to purchase the energy at an avoided cost rate. Thus far, all states that have passed restructuring legislation have provided for the opportunity to recover a substantial portion of stranded costs. Electric Utilities and Infrastructure’s largest stranded cost exposure is primarily related to Duke Energy Florida’s purchased power commitments with QFs, under which it has future minimum expected capacity payments through 2043 of $2.8 billion. Duke Energy Florida was obligated to enter into these contracts under provisions of PURPA. Duke Energy Florida continues to seek ways to address the impact of escalating payments under these contracts. However, the FPSC allows full recovery of the retail portion of the cost of power purchased from QFs. For additional information related to these purchased power commitments, see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.” In Ohio, Electric Utilities and Infrastructure conducts competitive auctions for electricity supply. The cost of energy purchased through these auctions is recovered from retail customers. Electric Utilities earns retail margin in Ohio on the transmission and distribution of electricity and not on the cost of the underlying energy. Seasonality and the Impact of Weather Revenues and costs are influenced by seasonal weather patterns. Peak sales of electricity occur during the summer and winter months, which results in higher revenue and cash flows during these periods. By contrast, lower sales of electricity occur during the spring and fall, allowing for scheduled plant maintenance. Residential and general service customers are more impacted by weather than industrial customers. Estimated weather impacts are based on actual current period weather compared to normal weather conditions. Normal weather conditions are defined as the long-term average of actual historical weather conditions. The estimated impact of weather on earnings is based on the temperature variances from a normal condition and customers’ historic usage patterns. The methodology used to estimate the impact of weather does not consider all variables that may impact customer response to weather conditions such as humidity in the summer or wind chill in the winter. The precision of this estimate may also be impacted by applying long-term weather trends to shorter-term periods. Heating-degree days measure the variation in weather based on the extent the average daily temperature falls below a base temperature. Cooling-degree days measure the variation in weather based on the extent the average daily temperature rises above the base temperature. Each degree of temperature below the base temperature counts as one heating-degree day and each degree of temperature above the base temperature counts as one cooling-degree day. Competition Retail Electric Utilities and Infrastructure’s businesses operate as the sole supplier of electricity within their service territories, with the exception of Ohio, which has a competitive electricity supply market for generation service. Electric Utilities and Infrastructure owns and operates facilities necessary to transmit and distribute electricity and, except in Ohio, to generate electricity. Services are priced by state commission approved rates designed to include the costs of providing these services and a reasonable return on invested capital. This regulatory policy is intended to provide safe and reliable electricity at fair prices. Wholesale Duke Energy competes with other utilities and merchant generators for bulk power sales, sales to municipalities and cooperatives and wholesale transactions under primarily cost-based contracts approved by FERC. The principal factors in competing for these sales are price, availability of capacity and power and reliability of service. Prices are influenced primarily by market conditions and fuel costs. 7 PART I 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. to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities earlier than their current estimated useful lives, primarily because these facilities do not have the requisite emission control equipment to meet United States Environmental Protection Agency (EPA) regulations recently approved or proposed. Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired. For additional information related to potential plant retirements see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.” On October 23, 2015, the EPA published in the Federal Register the final Clean Power Plan (CPP) rule that regulates carbon dioxide (CO2) emissions from existing fossil fuel-fired electric generating units (EGUs). The CPP establishes CO2 emission rates and mass cap goals that apply to existing fossil fuel-fired EGUs. Petitions challenging the rule have been filed by several groups. On February 9, 2016, the Supreme Court issued a stay of the final CPP rule, halting implementation of the CPP until legal challenges are resolved. States in which Duke Energy Registrants operate have suspended work on CPP compliance plans as a result of the stay. Oral arguments before 10 of the 11 judges on D.C. Circuit Court were heard on September 27, 2016. The court is expected to decide the case in early 2017. Compliance with CPP could cause the industry to replace coal-fired generation with natural gas and renewables. Costs to operate coal-fired generation plants continue to grow due to increasing environmental compliance requirements, including ash management costs unrelated to CPP, which may result in the retirement of coal-fired generation plants earlier than the current end of useful lives. If the CPP is ultimately upheld by the courts and implementation goes forward, the Duke Energy Registrants could incur increased fuel, purchased power, operation and maintenance and other costs for replacement generation as a result of this rule. Due to the uncertainties related to the implementation of the CPP, the Duke Energy Registrants cannot predict the outcome of these matters. Energy Capacity and Resources Electric Utilities and Infrastructure owns approximately 49,300 megawatts (MW) of generation capacity. For additional information on owned generation facilities, see Item 2, “Properties.” Energy and capacity are also supplied through contracts with other generators and purchased on the open market. Factors that could cause Electric Utilities and Infrastructure to purchase power for its customers include generating plant outages, extreme weather conditions, generation reliability, demand growth and price. Electric Utilities and Infrastructure has interconnections and arrangements with its neighboring utilities to facilitate planning, emergency assistance, sale and purchase of capacity and energy and reliability of power supply. Electric Utilities and Infrastructure’s generation portfolio is a balanced mix of energy resources having different operating characteristics and fuel sources designed to provide energy at the lowest possible cost to meet its obligation to serve retail customers. All options, including owned generation resources and purchased power opportunities, are continually evaluated on a real-time basis to select and dispatch the lowest-cost resources available to meet system load requirements. Potential Plant Retirements The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered Sources of Electricity Electric Utilities and Infrastructure relies principally on coal, nuclear fuel and natural gas for its generation of electricity. The following table lists sources of electricity and fuel costs for the three years ended December 31, 2016. Cost of Delivered Fuel per Net Kilowatt-hour Generated (Cents) Generation by Source 2016 2015 2014 2016 2015 2014 Coal(a) 27.1% 29.0% 33.5% 3.07 3.24 3.54 Nuclear(a) 27.4% 27.0% 26.1% 0.66 0.65 0.65 Natural gas and oil(a) 22.9% 23.1% 19.0% 3.07 3.74 4.70 All fuels (cost-based on weighted average)(a) 77.4% 79.1% 78.6% 2.22 2.50 2.86 0.7% 0.8% 0.8% 78.1% 79.9% 79.4% Hydroelectric and solar(b) Total generation Purchased power and net interchange Total sources of energy 21.9% 20.1% 20.6% 100.0% 100.0% 100.0% (a) Statistics related to all fuels reflect Electric Utilities and Infrastructure’s ownership interest in jointly owned generation facilities. (b) Generating figures are net of output required to replenish pumped storage facilities during off-peak periods. re-openers, range from 2017 to 2019 for Duke Energy Carolinas, 2017 to 2019 for Duke Energy Progress, 2017 to 2019 for Duke Energy Florida, 2017 for Duke Energy Ohio and 2017 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. Coal purchased for the Carolinas is primarily produced from mines in Central Appalachia, Northern Appalachia and the Illinois Basin. Coal purchased for Florida is primarily produced from mines in Colorado and the Illinois Basin. Coal purchased for Kentucky is delivered by 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 longterm contracts, which have various price adjustment provisions and market 8 PART I barge and is produced from mines along the Ohio River in Illinois, Ohio, West Virginia and Pennsylvania. Coal purchased for Indiana is primarily produced in Indiana and Illinois. 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. The current average sulfur content of coal purchased by Electric Utilities and Infrastructure is between 1.5 percent and 2 percent for Duke Energy Carolinas, between 1.5 percent and 2 percent for Duke Energy Progress, between 1 percent and 3 percent for Duke Energy Florida, between 3 percent and 3.5 percent for Duke Energy Ohio and between 2.5 percent and 3 percent for Duke Energy Indiana. Electric Utilities and Infrastructure’s environmental controls, in combination with the use of sulfur dioxide (SO2) emission allowances, enable Electric Utilities and Infrastructure to satisfy current SO2 emission limitations for its existing facilities. services requirements for these plants through at least 2019. For future requirements not already covered under long-term contracts, Electric Utilities and Infrastructure believes it will be able to renew contracts as they expire, or enter into similar contractual arrangements with other suppliers of nuclear fuel materials and services. Natural Gas and Fuel Oil Natural gas and fuel oil supply 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. 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 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 percent of its uranium concentrates, conversion services and enrichment services requirements through at least 2017 and cover fabrication Purchased Power Electric Utilities and Infrastructure purchases a portion of its capacity and system requirements through purchase obligations, leases and purchase 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 the previous three years: Purchase obligations and leases (in millions of megawatt-hours (MWh)) (a) Purchase capacity under contract (in MW) (b) 2016 2015 2014 18 14.9 14.3 4,588 4,573 4,500 (a) Represents approximately 7 percent of total system requirements for 2016 and 6 percent for 2015 and 2014. (b) These agreements include approximately 451 MW of firm capacity under contract by Duke Energy Florida with QFs. ash within the state and requires closure of ash impoundments by no later than December 31, 2029, based on risk rankings, among other detailed requirements. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of coal ash surface impoundments (ash basins or impoundments) to the normal ratemaking processes before utility regulatory commissions. Duke Energy has and will periodically submit to applicable authorities required sitespecific coal ash impoundment remediation or closure plans. These plans and all associated permits must be approved before any work can begin. On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of coal combustion residuals (CCR) from electric utilities as solid waste. The rule classifies CCR as nonhazardous under Subtitle D of the Resource Conservation and Recovery Act (RCRA). The RCRA and the Coal Ash Act, as amended, finalized the legal framework related to coal ash management practices and ash basin closure. Inventory Generation of electricity is capital intensive. Electric Utilities and Infrastructure must maintain an adequate stock of fuel and materials and supplies in order to ensure continuous operation of generating facilities and reliable delivery to customers. As of December 31, 2016, the inventory balance for Electric Utilities and Infrastructure was approximately $3.4 billion. For additional information on inventory see Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.” Ash Basin Management On September 20, 2014, the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) became law and was amended on June 24, 2015, and July 14, 2016. The Coal Ash Act, as amended, regulates the handling of coal 9 PART I Duke Energy has advanced the strategy and implementation for the remediation or closure of coal ash basins. In 2015, Duke Energy began activities at certain North Carolina sites specified as high risk by the Coal Ash Act, including moving coal ash off-site for use in structural fill or to lined landfills. Additional modifications to operating coal plants are underway to comply with RCRA. For additional information on the ash basins, see Notes 5 and 9 to the Consolidated Financial Statements, “Commitments and Contingencies” and “Asset Retirement Obligations,” respectively. Unit 3) permanently ceased operation in February 2013. Nuclear insurance includes: nuclear liability coverage; property, decontamination and premature decommissioning coverage; and replacement power expense coverage. Joint owners reimburse Duke Energy for certain expenses associated with nuclear insurance in accordance with joint owner agreements. The Price-Anderson Act requires plant owners to provide for public nuclear liability claims resulting from nuclear incidents to the maximum total financial protection liability, which is approximately $13.4 billion. For additional information on nuclear insurance see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.” Duke Energy has a significant future financial commitment to dispose of spent nuclear fuel and decommission and decontaminate each plant safely. The NCUC, PSCSC and FPSC require Duke Energy to update their cost estimates for decommissioning their nuclear plants every five years. Nuclear Matters Duke Energy owns, wholly or partially, 11 operating nuclear reactors located at six stations. The Crystal River Unit 3 Nuclear Plant (Crystal River The following table summarizes the fair value of nuclear decommissioning trust fund (NDTF) balances and cost study results for Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida. NDTF(a) (in millions) December 31, 2016 6,205 Decommissioning Costs(a)(b) 8,150 2013 and 2014 3,273 3,050 3,420 2013 Duke Energy Progress 2,217 2,035 3,550 2014 Duke Energy Florida(c) 715 740 1,180 2013 $ 5,825 $ Year of Cost Study Duke Energy Carolinas Duke Energy $ December 31, 2015 (a) Amounts for Progress Energy equal the sum of Duke Energy Progress and Duke Energy Florida. (b) Amounts include the Subsidiary Registrants’ ownership interest in jointly owned reactors. Other joint owners are responsible for decommissioning costs related to their interest in the reactors. (c) Duke Energy Florida received reimbursements form the NDTF for costs related to ongoing decommissioning activity of Crystal River Unit 3 during 2016. 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 balance and expected fund earnings, will be sufficient to provide for the cost of future decommissioning. For additional information, see Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations.” The Nuclear Waste Policy Act of 1982 (as amended) (NWPA) provides the framework for development by the federal government of interim storage and permanent disposal facilities for high-level radioactive waste materials. The NWPA promotes increased usage of interim storage of spent nuclear fuel at existing nuclear plants. Electric Utilities and Infrastructure will continue to maximize the use of spent fuel storage capability within its own facilities for as long as feasible. Under federal law, the U.S. Department of Energy (DOE) is responsible for the selection and construction of a facility for the permanent disposal of spent nuclear fuel and high-level radioactive waste. Delays have occurred in the DOE’s proposed permanent repository to be located at Yucca Mountain, Nevada. At this time, DOE’s focus is on developing consolidated storage for commercial spent nuclear fuel at one or more central sites rather than at a permanent repository. Until the DOE begins to accept the spent nuclear fuel, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida will continue to safely manage their spent nuclear fuel. Under current regulatory guidelines, Shearon Harris Nuclear Plant (Harris) has sufficient storage capacity in its spent fuel pools through the expiration of its renewed operating license. Crystal River Unit 3 was retired in 2013 and placed in SAFSTOR prior to final decommissioning. The spent fuel is currently stored in the spent fuel pool. An independent spent fuel storage installation will be installed to accommodate storage of all the spent nuclear fuel until the DOE accepts the spent nuclear fuel. With certain modifications and approvals by the U.S. Nuclear Regulatory Commission (NRC) to expand the on-site dry cask storage facilities, spent nuclear fuel dry storage facilities will be sufficient to provide storage space of spent fuel through the expiration of the operating licenses, including any license renewals, for the Brunswick Nuclear Plant (Brunswick), Catawba Nuclear Station (Catawba), McGuire Nuclear Station (McGuire), Oconee Nuclear Station (Oconee) and Robinson Nuclear Plant (Robinson). The nuclear power industry faces uncertainties with respect to the cost and long-term availability of disposal sites for spent nuclear fuel and other radioactive waste, compliance with changing regulatory requirements, capital outlays for modifications and new plant construction, the technological and financial aspects of decommissioning plants at the end of their licensed lives and requirements relating to nuclear insurance. Electric Utilities and Infrastructure is subject to the jurisdiction of the NRC for the design, construction and operation of its nuclear generating facilities. The following table includes the current year of expiration of nuclear operating licenses for nuclear stations in operation. Nuclear operating licenses are potentially subject to extension. Unit Year of Expiration Duke Energy Carolinas Catawba Unit 1 & 2 2043 McGuire Unit 1 2041 McGuire Unit 2 2043 Oconee Unit 1 & 2 2033 Oconee Unit 3 2034 Duke Energy Progress Brunswick Unit 1 2036 Brunswick Unit 2 2034 Harris 2046 Robinson 2030 Duke Energy Florida has requested the NRC to terminate the Crystal River Unit 3 operating license as Crystal River Unit 3 permanently ceased operation in February 2013. For additional information on decommissioning activity, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.” 10 PART I On October 27, 2016, and December 15, 2016, the NRC issued combined operating licenses for Duke Energy Florida’s proposed Levy Nuclear Plant Units 1 and 2 (Levy) and Duke Energy Carolinas’ William States Lee III Nuclear Station Units 1 and 2, respectively. For additional information on these proposed nuclear plants, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.” The NRC issues orders with regard to security at nuclear plants in response to new or emerging threats. The most recent orders include additional restrictions on nuclear plant access, increased security measures at nuclear facilities and closer coordination with intelligence, military, law enforcement and emergency response functions at the federal, state and local levels. As the NRC, other governmental entities and the industry continue to consider security issues, it is possible that more extensive security plans could be required. regulated electric and other data by nonregulated entities and services provided between regulated and nonregulated energy affiliates. These regulations affect the activities of nonregulated affiliates with Electric Utilities and Infrastructure. Regional Transmission Organizations (RTO). PJM Interconnection, LLC (PJM) and Midcontinent Independent System Operator, Inc. (MISO) are the Independent System Operators (ISO) and FERC-approved RTOs for the regions in which Duke Energy Ohio and Duke Energy Indiana operate. PJM and MISO operate energy, capacity and other markets, and control the day-to-day operations of bulk power systems through central dispatch. Duke Energy Ohio is a member of PJM and Duke Energy Indiana is a member of MISO. Transmission owners in these RTOs have turned over control of their transmission facilities and their transmission systems are currently under the dispatch control of the RTOs. Transmission service is provided on a regionwide, open-access basis using the transmission facilities of the RTO members at rates based on the costs of transmission service. Environmental. Electric Utilities and Infrastructure is subject to the jurisdiction of the EPA and state and local environmental agencies. For a discussion of environmental regulation, see “Environmental Matters” in this section. See “Other Matters” section of MD&A for a discussion about potential Global Climate Change legislation and other EPA regulations under development and the potential impacts such legislation and regulation could have on Duke Energy’s operations. Regulation State The NCUC, PSCSC, FPSC, PUCO, IURC and KPSC (collectively, the state electric utility commissions) approve rates for Duke Energy’s retail electric service within their respective states. The state electric utility commissions, to varying degrees, have authority over the construction and operation of Electric Utilities and Infrastructure’s generating facilities. Certificates of Public Convenience and Necessity issued by the state electric utility commissions, as applicable, authorize Electric Utilities and Infrastructure to construct and operate its electric facilities and to sell electricity to retail and wholesale customers. Prior approval from the relevant state electric utility commission is required for the entities within Electric Utilities and Infrastructure to issue securities. The underlying concept of utility ratemaking is to set rates at a level that allows the utility to collect revenues equal to its cost of providing service plus earn a reasonable rate of return on its invested capital, including equity. In addition to rates approved in base rate cases, each of the state electric utility commissions allow recovery of certain costs through various cost-recovery clauses to the extent the respective commission determines in periodic hearings that such costs, including any past over or under-recovered costs, are prudent. Fuel, fuel-related costs and certain purchased power costs are eligible for recovery by Electric Utilities and Infrastructure. Electric Utilities and Infrastructure uses coal, hydroelectric, natural gas, oil, renewable generation and nuclear fuel to generate electricity, thereby maintaining a diverse fuel mix that helps mitigate the impact of cost increases in any one fuel. Due to the associated regulatory treatment and the method allowed for recovery, changes in fuel costs from year to year have no material impact on operating results of Electric Utilities and Infrastructure, unless a commission finds a portion of such costs to have been imprudent. However, delays between the expenditure for fuel costs and recovery from customers can adversely impact the timing of cash flows of Electric Utilities and Infrastructure. On December 8, 2016, the PSCSC approved Duke Energy Progress’ 2016 South Carolina rate case authorizing an increase of approximately $56 million in revenues over a two-year period. An increase of approximately $38 million in revenues was effective January 1, 2017, and an additional increase of approximately $18.5 million in revenues will be effective January 1, 2018. Duke Energy Progress will amortize approximately $18.5 million from the cost of removal reserve in 2017. Other terms include a rate of return on equity of 10.1 percent, recovery of coal ash costs incurred from January 1, 2015, through June 30, 2016, over a 15-year period and ongoing deferral of allocated ash basin closure costs from July 1, 2016, until the next base rate case. This represents the only base rate case approved and effective in the past three years. For more information on rate matters and other regulatory proceedings, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.” GAS UTILITIES AND INFRASTRUCTURE Gas Utilities and Infrastructure conducts natural gas operations primarily through the regulated public utilities of Piedmont and Duke Energy Ohio. The natural gas operations are subject to the rules and regulations of the NCUC, PSCSC, PUCO, KPSC, Tennessee Regulatory Authority (TRA) and the FERC. Gas Utilities and Infrastructure serves residential, commercial, industrial and power generation natural gas customers. Gas Utilities and Infrastructure has over 1.5 million customers, including more than 1 million customers located in North Carolina, South Carolina and Tennessee, and an additional 529,000 customers located within southwestern Ohio and northern Kentucky. In the Carolinas, Ohio and Kentucky, the service areas are comprised of numerous cities, towns and communities. In Tennessee, the service area is the metropolitan area of Nashville. The number of residential, commercial and industrial customers within the Gas Utilities and Infrastructure service territory is expected to increase over time. Average usage per residential customer is expected to remain flat or decline for the foreseeable future, however decoupled rates in North Carolina and various rate design mechanisms in other jurisdictions to partially mitigate the impact of the declining usage per customer trend on overall profitability. While total industrial and general service sales increased in 2016 when compared to 2015, the growth rate was modest when compared to historical periods. Gas Utilities and Infrastructure also owns, operates and has investments in various pipeline transmission and natural gas storage facilities. Natural Gas for Retail Distribution Gas Utilities and Infrastructure is responsible for the distribution of natural gas to retail customers in its North Carolina, South Carolina, Tennessee, Ohio and Kentucky service territories. Gas Utilities and Infrastructure’s natural gas procurement strategy is to contract primarily with major and independent producers and marketers for 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 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 2016, firm supply purchase commitment agreements provided approximately 86 percent of the natural gas supply for Piedmont and 53 percent for Duke Energy Ohio. 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 11 PART I Seasonality and the Impact of Weather Pipeline and Storage Investments Gas Utilities and Infrastructure’s costs and revenues are influenced by seasonal patterns due to peak natural gas sales occurring during the winter months. Residential customers are the most impacted by weather. There are certain regulatory mechanisms for the North Carolina, South Carolina and Tennessee service territories that normalize the margins collected from certain customer classes during the winter, providing for an adjustment either up or down. In North Carolina, rate design provides protection from both weather and other usage variations such as conservation, while South Carolina and Tennessee revenues are adjusted solely based on weather. Rate design for the Ohio service territory also mitigates the impacts of weather on customer bills. Estimated weather impacts are based on actual current period weather compared to normal weather conditions. Normal weather conditions are defined as the long-term average of actual historical weather conditions. Degree-day data are used to estimate energy required to maintain comfortable indoor temperatures based on each day’s average temperature. Heating-degree days measure the variation in weather based on the extent the average daily temperature falls below a base temperature. The methodology used to estimate the applicable impact of weather does not consider all variables that may impact customer response to weather conditions, such as wind chill. The precision of this estimate may also be impacted by applying long-term weather trends to shorter-term periods. Duke Energy, through its Gas Utilities and Infrastructure segment, is a 47 percent equity member of Atlantic Coast Pipeline, LLC (ACP) that plans to build and own the proposed Atlantic Coast Pipeline (ACP Pipeline), an approximately 600-mile interstate natural gas pipeline. Prior to the Piedmont acquisition, Duke Energy owned a 40 percent equity ownership in ACP. The pipeline is intended to transport diverse gas supplies into southeastern markets. Duke Energy Carolinas, Duke Energy Progress and Piedmont, among others, will be customers of the pipeline. The estimated in-service date of the pipeline is in the second half of 2019. Gas Utilities and Infrastructure also has a 7.5 percent equity ownership interest in Sabal Trail Transmission, LLC (Sabal Trail). Sabal Trail is a joint venture that is constructing a 515-mile natural gas pipeline (Sabal Trail pipeline) to transport natural gas to Florida. The Sabal Trail pipeline has received regulatory approvals and initiated construction of the pipeline with an expected in-service date in mid-2017. The Sabal Trail pipeline will traverse Alabama, Georgia and Florida. As a result of the Piedmont acquisition, Duke Energy, through its Gas Utilities and Infrastructure segment, has a 21.49 percent equity ownership interest in Cardinal Pipeline Company, LLC (Cardinal), an intrastate pipeline located in North Carolina regulated by the NCUC, and a 24 percent equity ownership interest in Constitution Pipeline Company, LLC (Constitution), an interstate pipeline development company formed to develop, construct, own and operate a 124-mile natural gas pipeline and related facilities connecting shale natural gas supplies and gathering systems in Susquehanna County, Pennsylvania, to Iroquois Gas Transmission and Tennessee Gas Pipeline systems in New York, regulated by the FERC. Duke Energy, as a result of the Piedmont acquisition, also has a 45 percent equity ownership in Pine Needle LNG Company, LLC (Pine Needle), an interstate liquefied natural gas storage facility located in North Carolina and a 50 percent equity ownership interest in Hardy Storage Company, LLC (Hardy Storage), an underground interstate natural gas storage facility located in Hardy and Hampshire counties in West Virginia, both regulated by the FERC. KO Transmission Company (KO Transmission), a wholly owned subsidiary of Duke Energy Ohio, is an interstate pipeline company engaged in the business of transporting natural gas and is subject to the rules and regulations of FERC. KO Transmission’s 90-mile pipeline supplies natural gas to Duke Energy Ohio and interconnects with the Columbia Gulf Transmission pipeline and Tennessee Gas Pipeline. An approximately 70-mile portion of KO Transmission’s pipeline facilities is co-owned by Columbia Gas Transmission Corporation. See Notes 4, 12 and 17 to the Consolidated Financial Statements, “Regulatory Matters,” “Investments in Unconsolidated Affiliates” and “Variable Interest Entities,” respectively, for further information on Duke Energy’s pipeline investments. Competition Gas Utilities and Infrastructure’s businesses operate as the sole supplier of natural gas within their retail service territories, with the exception of Ohio, which has a competitive natural gas supply market for distribution service. Gas Utilities and Infrastructure owns and operates facilities necessary to transport and distribute natural gas. Gas Utilities and Infrastructure earns retail margin on the transmission and distribution of natural gas and not on the cost of the underlying commodity. Services are priced by state commission approved rates designed to include the costs of providing these services and a reasonable return on invested capital. This regulatory policy is intended to provide safe and reliable natural gas 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 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 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 and adversely affecting our earnings. Inventory Gas Utilities and Infrastructure must maintain adequate natural gas inventory in order to provide reliable delivery to customers. As of December 31, 2016, the inventory balance for Gas Utilities and Infrastructure was $108 million. For more information on inventory, see Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.” Regulation State The NCUC, PSCSC, PUCO, TRA and KPSC (collectively, the state gas utility commissions) approve rates for Duke Energy’s retail natural gas service within their respective states. The state gas utility commissions, to varying degrees, have authority over the construction and operation of Gas Utilities and Infrastructure’s natural gas distribution facilities. Certificates of Public Convenience and Necessity or Certificates of Environmental Compatibility 12 PART I and Public Necessity issued by the state gas utility commissions or other government agencies, as applicable, authorize Gas Utilities and Infrastructure to construct and operate its natural gas distribution facilities and to sell natural gas to retail and wholesale customers. Prior approval from the relevant state gas utility commission is required for Gas Utilities and Infrastructure to issue securities. The underlying concept of utility ratemaking is to set rates at a level that allows the utility to collect revenues equal to its cost of providing service plus a reasonable rate of return on its invested capital, including equity. In addition to amounts collected from customers though approved base rates, each of the state gas utility commissions allow recovery of certain costs through various cost-recovery clauses to the extent the respective commission determines in periodic hearings that such costs, including any past over- or under-recovered costs, are prudent. Natural gas costs are eligible for recovery by Gas Utilities and Infrastructure. Due to the associated regulatory treatment and the method allowed for recovery, changes in natural gas costs from year to year have no material impact on operating results of Gas Utilities and Infrastructure, unless a commission finds a portion of such costs to have not been prudent. However, delays between the expenditure for natural gas and recovery from customers can adversely impact the timing of cash flows of Gas Utilities and Infrastructure. The following table summarizes certain components underlying recently approved and effective base rates during 2016. Annual Increase (in millions) Piedmont 2013 North Carolina Rate Case $ Piedmont 2016 South Carolina Rate Stabilization Adjustment Filing(a) Return on Equity Equity Component of Capital Structure 31 10.0% 50.7% January 2014 8 10.2% 53.0% November 2016 Effective Date (a) Under the rate stabilization adjustment mechanism, Piedmont resets rates in South Carolina based on updated costs and revenues on an annual basis. Gas Utilities and Infrastructure has integrity management rider (IMR) mechanisms in North Carolina and Tennessee designed to separately track and recover certain costs associated with capital investments incurred to comply with federal pipeline safety and integrity programs, as well as additional state safety and integrity requirements in Tennessee. The following table summarizes information related to recently approved IMR filings. Cumulative Investment (in millions) $ Piedmont 2016 IMR Filing - North Carolina(a) 513 173 Piedmont 2016 IMR Filing - Tennessee(b)(c) Annual Margin Revenues $ Effective Date 56 December 2016 21 January 2016 (a) Cumulative investment amounts through September 30, 2016. (b) Cumulative investment amounts through October 31, 2015. (c) In November 2016, Piedmont filed a petition with the TRA seeking authority to collect an additional $1.7 million in annual margin revenue effective January 2017 based on approximately $20 million of capital investments over the 12-month period ending October 31, 2016. A ruling from the TRA is pending. For more information on rate matters and other regulatory proceedings, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.” COMMERCIAL RENEWABLES Commercial Renewables primarily acquires, builds, develops and operates wind and solar renewable generation throughout the continental U.S. The portfolio includes nonregulated renewable energy and energy storage businesses. Commercial Renewables’ renewable energy includes utility-scale wind and solar generation assets, which total 2,900 MW across 14 states from 21 wind farms and 63 commercial solar farms. Revenues are primarily generated by selling the power produced from renewable generation through long-term contracts to utilities, electric cooperatives, municipalities and commercial and industrial customers. In most instances, these customers have obligations under state-mandated renewable energy portfolio standards or similar state or local renewable energy goals. Energy and renewable energy credits generated by wind and solar projects are generally sold at contractual prices. In addition, as eligible wind and solar projects are placed in service, Commercial Renewables recognizes either investment tax credits (ITC) when the renewable project achieves commercial availability or production tax credits (PTC) as power is generated by the project over 10 years. Renewable ITC are recognized over the useful life of the asset with the benefit of the tax basis adjustment due to the ITC recognized in income in the year of commercial availability. As part of its growth strategy, Commercial Renewables has expanded its investment portfolio through the addition of distributed solar companies and projects, energy storage systems and energy management solutions specifically tailored to commercial businesses. These investments include the 2015 acquisition of REC Solar Corp., a California-based provider of solar installations for retail, manufacturing, agriculture, technology, government and nonprofit customers across the U.S. and Phoenix Energy Technologies Inc., a Californiabased provider of enterprise energy management and information software to commercial businesses. For additional information on Commercial Renewables’ generation facilities, see Item 2, “Properties.” 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: t 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. t Regulations of the U.S. Department of Transportation affect the design, construction, operation, maintenance, integrity, safety and security of natural gas distribution and transmission systems. t Regulations of the EPA relate to the environment including proposed air emissions regulations that would expand to include emissions of methane. For a discussion of environmental regulation, see “Environmental Matters” in this section. Refer to “Other Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion about potential Global Climate Change legislation and other EPA regulations under development and the potential impacts such legislation and regulation could have on Duke Energy’s operations. Regulations of 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. 13 PART I Regulation Bison is a wholly owned captive insurance subsidiary of Duke Energy with principal activities that include the indemnification of various business risks and losses, such as property, workers’ compensation and general liability of Duke Energy subsidiaries and affiliates. NMC is a joint venture that operates in Jubail, Saudi Arabia as a large regional producer of methanol and methyl tertiary butyl ether (MTBE), an additive to gasoline. Duke Energy has an effective economic ownership interest in NMC of 25 percent and records activity of the investment using the equity method of accounting. Upon the successful startup of NMC’s polyacetal production facility, which is expected to occur in the second quarter of 2017, Duke Energy’s economic ownership interest in NMC will decrease to 17.5 percent while Duke Energy will retain 25 percent of the NMC’s board representation and voting rights. Commercial Renewables is subject to regulation at the federal level, primarily from the FERC. Regulations of the FERC govern access to regulated market information by nonregulated entities and services provided between regulated and nonregulated utilities. Market Environment and Competition The market price of commodities and services, along with the quality and reliability of services provided, drive competition in the wholesale energy business. Commercial Renewables’ main competitors include other nonregulated generators and wholesale power providers. Sources of Electricity Regulation Commercial Renewables relies on wind and solar resources for its generation of electric energy. Certain entities within Other are subject to the jurisdiction of federal, state and local agencies. OTHER Employees The remainder of Duke Energy’s operations is presented as Other. While it is not an operating segment, Other primarily includes unallocated corporate interest expense, certain unallocated corporate costs, Bison Insurance Company Limited (Bison), contributions to the Duke Energy Foundation, Duke Energy’s 25 percent equity interest in NMC and immaterial investments in businesses Duke Energy has retained from previous divestitures that are no longer part of its current operating segments. On December 31, 2016, Duke Energy had a total of 28,798 employees on its payroll. The total includes 5,509 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. Executive Officers of the Registrants The following table sets forth the individuals who currently serve as executive officers. Executive officers serve until their successors are duly elected or appointed. Name Age(a) Current and Recent Positions Held Lynn J. Good 57 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 58 Executive Vice President and Chief Financial Officer. Mr. Young assumed his current position in August 2013. Prior to that, he had served as Senior Vice President, Chief Accounting Officer and Controller since April 2006. Douglas F Esamann 59 Executive Vice President, Energy Solutions and President, Midwest and Florida Regions. Mr. Esamann assumed his current position in September 2016 and was Executive Vice President and President, Midwest and Florida Regions since June 2015. Prior to that, he was President, Duke Energy Indiana since November 2010. Lloyd M. Yates 56 Executive Vice President, Customer and Delivery Operations and President, Carolinas Region. Mr. Yates assumed his current position in September 2016 and was Executive Vice President, Market Solutions and President, Carolinas Region since August 2014. He held the position of Executive Vice President, Regulated Utilities from December 2012 to August 2014, and prior to that, had served as Executive Vice President, Customer Operations since July 2012, upon the merger of Duke Energy and Progress Energy. Prior to the merger, Mr. Yates was President and Chief Executive Officer of Progress Energy Carolinas, Inc., which is now known as Duke Energy Progress, LLC since July 2007. Dhiaa M. Jamil 60 Executive Vice President and Chief Operating Officer. Mr. Jamil assumed the role of Chief Operating Officer in May 2016. Prior to his current position, he had held the title Executive Vice President and President, Regulated Generation and Transmission since June 2015. Prior to that, he had served as Executive Vice President and President, Regulated Generation since August 2014. He served as Executive Vice President and President of Duke Energy Nuclear from March 2013 to August 2014, and Chief Nuclear Officer from February 2008 to February 2013. He also served as Chief Generation Officer for Duke Energy from July 2009 to June 2012. Franklin H. Yoho 57 Executive Vice President and President, Natural Gas. Mr. Yoho assumed his current position in October 2016 upon the acquisition of Piedmont by Duke Energy. Prior to this appointment, he served as Senior Vice President and Chief Commercial Officer of Piedmont since August 2011. Prior to that, he served as Senior Vice President, Commercial Operations since March 2002. Julia S. Janson 52 Executive Vice President, Chief Legal Officer and Corporate Secretary. Ms. Janson assumed her current position in December 2012 and, in February 2016, assumed the interim responsibilities for the External Affairs and Strategic Policy organization. Prior to that, she had held the position of President of Duke Energy Ohio and Duke Energy Kentucky since 2008. Melissa H. Anderson 52 Executive Vice President, Administration and Chief Human Resources Officer. Ms. Anderson assumed her position in May 2016 and had been Executive Vice President and Chief Human Resources Officer since January 2015. Prior to joining Duke Energy, she served as Senior Vice President of Human Resources at Domtar Inc. since 2010. William E. Currens Jr. 47 Senior Vice President, Chief Accounting Officer and Controller. Mr. Currens assumed his current position in May 2016. Prior to that, he had held the position of Vice President, Investor Relations since 2008. (a) The ages of the officers provided are as of December 31, 2016. 14 PART I DUKE ENERGY CAROLINAS 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. Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas’ service area covers approximately 24,000 square miles and supplies electric service to 2.5 million residential, commercial and industrial customers. For information about Duke Energy Carolinas’ generating facilities, see Item 2, “Properties.” Duke Energy Carolinas is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC. Substantially all of Duke Energy Carolinas’ operations are regulated and qualify for regulatory accounting. Duke Energy Carolinas operates one reportable business segment, Electric Utilities and Infrastructure. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.” 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: t The Clean Air Act (CAA), as well as state laws and regulations impacting air emissions, including State Implementation Plans related to existing and new national ambient air quality standards for ozone and particulate matter. Owners and/or operators of air emission sources are responsible for obtaining permits and for annual compliance and reporting. PROGRESS ENERGY t The Clean Water Act (CWA), which requires permits for facilities that discharge wastewaters into navigable waters. 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.” t 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. t The National Environmental Policy Act, which requires federal agencies to consider potential environmental impacts in their permitting and licensing decisions, including siting approvals. t 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 and groundwater water impacts from ash basins in North Carolina. DUKE ENERGY PROGRESS Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress’ service area covers approximately 32,000 square miles and supplies electric service to approximately 1.5 million residential, commercial and industrial customers. For information about Duke Energy Progress’ generating facilities, see Item 2, “Properties.” Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC. Substantially all of Duke Energy Progress’ operations are regulated and qualify for regulatory accounting. Duke Energy Progress operates one reportable business segment, Electric Utilities and Infrastructure. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.” t RCRA, which creates the framework for the proper management of hazardous and nonhazardous solid waste, classifies CCR as nonhazardous waste and establishes requirements regarding landfill design and management and monitoring of CCR, including ash basins. t The Solid Waste Disposal Act, as amended by the RCRA, which requires certain solid wastes, including hazardous wastes, to be managed pursuant to a comprehensive regulatory oversight program. For more information on environmental matters, see Notes 5 and 9 to the Consolidated Financial Statements, “Commitments and Contingencies – Environmental” and “Asset Retirement Obligations,” respectively, and the “Other Matters” section of MD&A. Except as otherwise described in these sections, costs to comply with current federal, state and local provisions regulating the discharge of materials into the environment or other potential costs related to protecting the environment are incorporated into the routine cost structure of our various business segments and are not expected to have a material adverse effect on the competitive position, consolidated results of operations, cash flows or financial position of the Duke Energy Registrants. The “Other Matters” section of MD&A includes an estimate of future capital expenditures required to comply with environmental regulations and a discussion of Global Climate Change including the potential impact of current and future legislation related to greenhouse gas (GHG) emissions on the Duke Energy Registrants’ operations. Recently passed and potential future environmental statutes and regulations could have a significant impact on the Duke Energy Registrants’ results of operations, cash flows or financial position. However, if and when such statutes and regulations become effective, the Duke Energy Registrants will seek appropriate regulatory recovery of costs to comply within its regulated operations. DUKE ENERGY 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.” 15 PART I DUKE ENERGY OHIO 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. Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in portions of Ohio and Kentucky, in the generation and sale of electricity in portions of Kentucky and the transportation and sale of natural gas in portions of Ohio and Kentucky. Duke Energy Ohio also conducts competitive auctions for retail electricity supply in Ohio whereby recovery of the energy price is from retail customers. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky). References herein to Duke Energy Ohio include Duke Energy Ohio and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subject to the regulatory provisions of the PUCO, KPSC and FERC. Duke Energy Ohio’s service area covers approximately 3,000 square miles and supplies electric service to approximately 850,000 residential, commercial and industrial customers and provides transmission and distribution services for natural gas to approximately 529,000 customers. For information about Duke Energy Ohio’s generating facilities, see Item 2, “Properties.” KO Transmission, a wholly owned subsidiary of Duke Energy Ohio, is an interstate pipeline company engaged in the business of transporting natural gas and is subject to the rules and regulations of FERC. KO Transmission’s 90-mile pipeline supplies natural gas to Duke Energy Ohio and interconnects with the Columbia Gulf Transmission pipeline and Tennessee Gas Pipeline. An approximately 70-mile portion of KO Transmission’s pipeline facilities is co-owned by Columbia Gas Transmission Corporation. On April 2, 2015, Duke Energy completed the sale of its nonregulated Midwest generation business, which sold power into wholesale energy markets, to a subsidiary of Dynegy. For further information about the sale of the Midwest Generation business, refer to Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions.” Substantially all of Duke Energy Ohio’s operations that remain after the sale qualify for regulatory accounting. BUSINESS STRATEGY RISKS Duke Energy’s future results could be adversely affected if it is unable to implement its business strategy. Duke Energy’s future results of operations depend, in significant part, on the extent to which it can implement its business strategy successfully. Duke Energy’s strategy, including transforming the customer experience, modernizing the energy grid, generating cleaner energy, expansion of natural gas infrastructure and engaging employees and stakeholders to accomplish these priorities, is subject to business, economic and competitive uncertainties and contingencies, many of which are beyond its control. As a consequence, Duke Energy may not be able to fully implement or realize the anticipated results of its strategy. REGULATORY, LEGISLATIVE AND LEGAL RISKS The Duke Energy Registrants’ regulated utility revenues, earnings and results are dependent on state legislation and regulation that affect electric generation, electric and gas transmission, distribution and related activities, which may limit their ability to recover costs. The Duke Energy Registrants’ regulated electric and natural gas utility businesses are regulated on a cost-of-service/rate-of-return basis subject to statutes and regulatory commission rules and procedures of North Carolina, South Carolina, Florida, Ohio, Tennessee, Indiana and Kentucky. If the Duke Energy Registrants’ regulated utility earnings exceed the returns established by the state utility commissions, retail electric and natural gas rates may be subject to review and possible reduction by the commissions, which may decrease the Duke Energy Registrants’ future earnings. Additionally, if regulatory bodies do not allow recovery of costs incurred in providing service on a timely basis, the Duke Energy Registrants’ future earnings could be negatively impacted. If legislative and regulatory structures were to evolve in such a way that the Duke Energy Registrants’ exclusive rights to serve their regulated customers were eroded, their future earnings could be negatively impacted. Federal and state regulations, laws and other efforts designed to promote and expand the use of energy efficiency measures and distributed generation technologies, such as private solar and battery storage, in Duke Energy service territories could result in customers leaving the electric distribution system and an increase in customer net energy metering, which allows customers with private solar to receive bill credits for surplus power at the full retail amount. Over time, customer adoption of these technologies and increased energy efficiency could result in excess generation resources as well as stranded costs if Duke Energy is not able to fully recover the costs and investment in generation. State regulators have approved various mechanisms to stabilize natural gas utility margins, including margin decoupling in North Carolina, rate stabilization in South Carolina and uncollectible natural gas cost recovery in all states. State regulators have approved other margin stabilizing mechanisms that, for example, allow for recovery of margin losses associated with negotiated transactions designed to retain large volume customers that could use alternative fuels or that may otherwise directly access natural gas supply through their own connection to an interstate pipeline. If regulators decided to discontinue the Duke Energy Registrants’ use of tariff mechanisms, it would negatively impact results of operations, financial condition and cash flows. In addition, regulatory authorities also review whether natural gas costs are prudent and can disallow the recovery of a portion of natural gas costs that the Duke Energy Registrants seek to recover from customers, which would adversely impact earnings. Business Segments Duke Energy Ohio has two reportable operating segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure. For additional information on these business segments, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.” DUKE ENERGY INDIANA Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana’s service area covers 23,000 square miles and supplies electric service to 820,000 residential, commercial and industrial customers. See Item 2, “Properties” for further discussion of Duke Energy Indiana’s generating facilities, transmission and distribution. Duke Energy Indiana is subject to the regulatory provisions of the IURC and FERC. Substantially all of Duke Energy Indiana’s operations are regulated and qualify for regulatory accounting. Duke Energy Indiana operates one reportable business segment, Electric Utilities and Infrastructure. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.” 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 16 PART I The electric 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 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 rates that the Duke Energy Registrants’ regulated utility business are allowed to charge significantly influences the results of operations, financial position and liquidity of the Duke Energy Registrants. The regulation of the rates that the regulated utility businesses charge customers is determined, in large part, by state utility commissions in rate case proceedings. Negative decisions made by these regulators could have a material adverse effect on the Duke Energy Registrants’ results of operations, financial position or liquidity and affect the ability of the Duke Energy Registrants to recover costs and an appropriate return on the significant infrastructure investments being made. Duke Energy cannot predict the outcome of these rate case proceedings. The Duke Energy Registrants are subject to numerous environmental laws and regulations affecting many aspects of their present and future operations, including CCRs, air emissions, water quality, wastewater discharges, solid waste and hazardous waste. These laws and regulations can result in increased capital, operating and other costs. These laws and regulations generally require the Duke Energy Registrants to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals. Compliance with environmental laws and regulations can require significant expenditures, including expenditures for cleanup costs and damages arising from contaminated properties. Failure to comply with environmental regulations may result in the imposition of fines, penalties and injunctive measures affecting operating assets. The steps the Duke Energy Registrants could be required to take to ensure their facilities are in compliance could be prohibitively expensive. As a result, the Duke Energy Registrants may be required to shut down or alter the operation of their facilities, which may cause the Duke Energy Registrants to incur losses. Further, the Duke Energy Registrants may not be successful in recovering capital and operating costs incurred to comply with new environmental regulations through existing regulatory rate structures and their contracts with customers. Also, the Duke Energy Registrants may not be able to obtain or maintain from time to time all required environmental regulatory approvals for their operating assets or development projects. Delays in obtaining any required environmental regulatory approvals, failure to obtain and comply with them or changes in environmental laws or regulations to more stringent compliance levels could result in additional costs of operation for existing facilities or development of new facilities being prevented, delayed or subject to additional costs. Although it is not expected that the costs to comply with current environmental regulations will have a material adverse effect on the Duke Energy Registrants’ financial position, results of operations or cash flows due to regulatory cost recovery, the Duke Energy Registrants are at risk that the costs of complying with environmental regulations in the future will have such an effect. The EPA has recently enacted or proposed new federal regulations governing the management of cooling water intake structures, wastewater and CO2 emissions. These regulations may require the Duke Energy Registrants to make additional capital expenditures and increase operating and maintenance costs. Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs that could adversely affect the Duke Energy Registrants’ financial position, results of operations or cash flows and their utility businesses. Increased competition resulting from deregulation or restructuring legislation could have a significant adverse impact on the Duke Energy Registrants’ results of operations, financial position or cash flows. Retail competition and the unbundling of regulated electric service could have a significant adverse financial impact on the Duke Energy Registrants due to an impairment of assets, a loss of retail customers, lower profit margins or increased costs of capital. The Duke Energy Registrants cannot predict the extent and timing of entry by additional competitors into the electric markets. The Duke Energy Registrants cannot predict if or when they will be subject to changes in legislation or regulation, nor can they predict the impact of these changes on their financial position, results of operations or cash flows. The Duke Energy Registrants’ businesses are subject to extensive federal regulation and a wide variety of laws and governmental policies, including taxes, that may change over time in ways that affect operations and costs. Duke Energy is subject to regulations under a wide variety of U.S. federal and state regulations and policies. There can be no assurance that laws, regulations and policies will not be changed in ways that result in material modifications of business models and objectives or affect returns on investment by restricting activities and products, subjecting them to escalating costs or prohibiting them outright. In particular, a substantial revision to the U.S. tax code, such as changes to the corporate tax rate or a material change in the deductibility of interest could significantly change Duke Energy’s effective tax rate, the cost of capital and have an impact on results of operations and cash flows. The Duke Energy Registrants are subject to regulation by FERC, NRC, EPA and various other federal agencies as well as the North American Electric Reliability Corporation. Regulation affects almost every aspect of the Duke Energy Registrants’ businesses, including, among other things, their ability to: take fundamental business management actions; determine the terms and rates of transmission and distribution services; make acquisitions; issue equity or debt securities; engage in transactions with other subsidiaries and affiliates; and pay dividends upstream to the Duke Energy Registrants. Changes to federal regulations are continuous and ongoing. The Duke Energy Registrants cannot predict the future course of regulatory changes or the ultimate effect those changes will have on their businesses. However, changes in regulation can cause delays in or affect business planning and transactions and can substantially increase the Duke Energy Registrants’ costs. The Duke Energy Registrants’ 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. Although there is no federal climate change legislation, in 2016, the United States signed the Paris Agreement on climate change by which the signatories agreed to pursue efforts to limit the increase in the global average temperature by less than 2 degrees Celsius above pre-industrial levels. If the United States honors the Paris accord, the EPA may adopt and implement regulations to further restrict emissions of GHGs. Increased regulation of GHG emissions could impose significant additional costs on the Duke Energy Registrants’ operations, their suppliers and customers. Regulatory changes could also result in generation facilities to be retired early and result in stranded costs if Duke Energy is not able to fully recover the costs and investment in generation. At this time, the effect that climate change regulation may have in the future on Duke Energy’s business, financial condition or results of operations is not able to be predicted. 17 PART I OPERATIONAL RISKS including whether the business of Piedmont is integrated in an efficient and effective manner. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues generated by the combined company and diversion of management’s time and energy, all of which could have an adverse effect on the combined company’s financial position, results of operations or cash flows. 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 gas costs, under periodic adjustment clauses, overall declines in electricity or natural gas sold as a result of economic downturn or recession could reduce revenues and cash flows, thereby diminishing results of operations. Additionally, prolonged economic downturns that negatively impact the Duke Energy Registrants’ results of operations and cash flows could result in future material impairment charges to write-down the carrying value of certain assets, including goodwill, to their respective fair values. The Duke Energy Registrants also sell electricity into the spot market or other competitive power markets on a contractual basis. With respect to such transactions, the Duke Energy Registrants are not guaranteed any rate of return on their capital investments through mandated rates, and revenues and results of operations are likely to depend, in large part, upon prevailing market prices. These market prices may fluctuate substantially over relatively short periods of time and could reduce the Duke Energy Registrants’ revenues and margins, thereby diminishing results of operations. Factors that could impact sales volumes, generation of electricity and market prices at which the Duke Energy Registrants are able to sell electricity and natural gas are as follows: Natural disasters or operational accidents may adversely affect the Duke Energy Registrants’ operating results. Natural disasters (such as electromagnetic events or the 2011 earthquake and tsunami in Japan) or other operational accidents within the company or industry (such as the San Bruno, California natural gas transmission pipeline failure) could have direct significant impacts on the Duke Energy Registrants as well as on key contractors and suppliers. Such events could indirectly impact the Duke Energy Registrants through changes to policies, laws and regulations whose compliance costs have a significant impact on the Duke Energy Registrants’ financial position, results of operations and cash flows. The reputation and financial condition of the Duke Energy Registrants could be negatively impacted due to their obligations to comply with federal and state regulations, laws, and other legal requirements that govern the operations, assessments, storage, closure, remediation, disposal and monitoring relating to CCR, the high costs and new rate impacts associated with implementing these new CCR-related requirements and the strategies and methods necessary to implement these requirements in compliance with these legal obligations. As a result of electricity produced for decades at coal-fired power plants, the Duke Energy Registrants manage large amounts of CCR that are primarily stored in dry storage within landfills or combined with water in other surface impoundments, all in compliance with applicable regulatory requirements. However, the potential exists for another CCR-related incident, such as the one that occurred during the 2014 Dan River Steam Station ash basin release, that could raise environmental or general public health concerns. Such a CCRrelated incident could have a material adverse impact on the reputation and financial condition of the Duke Energy Registrants. During 2015, EPA regulations were enacted related to the management of CCR from power plants. These regulations classify CCR as nonhazardous waste under the RCRA and apply to electric generating sites with new and existing landfills, new and existing surface impoundments, structural fills and CCR piles, and establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring, protection and remedial procedures and other operational and reporting procedures for the disposal and management of CCR. In addition to the federal regulations, CCR landfills and surface impoundments will continue to be independently regulated by existing state laws, regulations and permits, as well as additional legal requirements that may be imposed in the future. These federal and state laws, regulations and other legal requirements may require or result in additional expenditures, increased operating and maintenance costs and/or result in closure of certain power generating facilities, which could affect the financial position, results of operations and cash flows of the Duke Energy Registrants. The Duke Energy Registrants intend to seek full cost recovery for expenditures through the normal ratemaking process with state and federal utility commissions, who permit recovery in rates of necessary and prudently incurred costs associated with the Duke Energy Registrants’ regulated operations, and through other wholesale contracts with terms that contemplate recovery of such costs, although there is no guarantee of full cost recovery. In addition, the timing for recovery of such costs could have a material adverse impact on Duke Energy’s cash flows. t 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; t supply of and demand for energy commodities; t transmission or transportation constraints or inefficiencies that impact nonregulated energy operations; t 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; t natural gas, crude oil and refined products production levels and prices; t ability to procure satisfactory levels of inventory, such as coal, natural gas and uranium; and t capacity and transmission service into, or out of, the Duke Energy Registrants’ markets. Duke Energy’s acquisition of Piedmont may not achieve its intended results. Duke Energy and Piedmont completed the merger agreement with the expectation that the transaction will result in various benefits, including, among other things, being accretive to earnings and foundational to establishing a broader natural gas infrastructure business within Duke Energy. Achieving the anticipated benefits of the transaction is subject to a number of uncertainties, 18 PART I The Duke Energy Registrants have recognized significant asset retirement obligations related to these CCR-related requirements. Closure activities began in 2015 at the four sites specified as high priority by the Coal Ash Act and at the W.S. Lee Steam Station site in South Carolina in connection with other legal requirements. Excavation at these sites involves movement of large amounts of CCR materials to off-site locations for use as structural fill, to appropriate engineered off-site or on-site lined landfills or conversion of the ash for beneficial use. At other sites, preliminary planning and closure methods have been studied and factored into the estimated retirement and management costs. The Coal Ash Act requires CCR surface impoundments in North Carolina to be closed, with the closure method based on a risk ranking classification determined by state regulators. 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. that time. In other areas, demand for power peaks during the winter. Demand for natural gas peaks during the winter months. Further, extreme weather conditions such as heat waves, winter storms and severe weather associated with climate change could cause these seasonal fluctuations to be more pronounced. As a result, the overall operating results of the Duke Energy Registrants’ businesses may fluctuate substantially on a seasonal and quarterly basis and thus make period-to-period comparison less relevant. Sustained severe drought conditions could impact generation by hydroelectric plants, as well as fossil and nuclear plant operations, as these facilities use water for cooling purposes and for the operation of environmental compliance equipment. Furthermore, destruction caused by severe weather events, such as hurricanes, tornadoes, severe thunderstorms, snow and ice storms, can result in lost operating revenues due to outages, property damage, including downed transmission and distribution lines, and additional and unexpected expenses to mitigate storm damage. The cost of storm restoration efforts may not be fully recoverable through the regulatory process. The Duke Energy Registrants’ financial position, results of operations and cash flows may be negatively affected by a lack of growth or slower growth in the number of customers, or decline in customer demand or number of customers. 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. 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. Growth in customer accounts and growth of customer usage each directly influence demand for electricity and natural gas and the need for additional power generation and delivery facilities. Customer growth and customer usage are affected by a number of factors outside the control of the Duke Energy Registrants, such as mandated energy efficiency measures, demand-side management goals, distributed generation resources and economic and demographic conditions, such as population changes, job and income growth, housing starts, new business formation and the overall level of economic activity. Certain regulatory and legislative bodies have introduced or are considering requirements and/or incentives to reduce energy consumption by certain dates. Additionally, technological advances driven by federal laws mandating new levels of energy efficiency in end-use electric devices or other improvements in or applications of technology could lead to declines in per capita energy consumption. Advances in distributed generation technologies that produce power, including fuel cells, micro-turbines, wind turbines and solar cells, may reduce the cost of alternative methods of producing power to a level competitive with central power station electric production utilized by the Duke Energy Registrants. Some or all of these factors could result in a lack of growth or decline in customer demand for electricity or number of customers and may cause the failure of the Duke Energy Registrants to fully realize anticipated benefits from significant capital investments and expenditures, which could have a material adverse effect on their financial position, results of operations and cash flows. Furthermore, the Duke Energy Registrants currently have energy efficiency riders in place to recover the cost of energy efficiency programs in North Carolina, South Carolina, Florida, 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. Duke Energy may be unable to complete necessary or desirable pipeline expansion or infrastructure development or maintenance projects, which may delay or prevent the Duke Energy Registrants from serving natural gas customers or expanding the natural gas business. In order to serve current or new natural gas customers or expand the service to existing customers, the Duke Energy Registrants need to maintain, expand or upgrade distribution, transmission and/or storage infrastructure, including laying new pipeline and building compressor stations. Various factors, such as the inability to obtain required approval from local, state and/or federal regulatory and governmental bodies, public opposition to projects, inability to obtain adequate financing, competition for labor and materials, construction delays, cost overruns and the inability to negotiate acceptable agreements relating to rights of way, construction or other material development components, may prevent or delay the completion of projects or increase costs. As a result, the Duke Energy Registrants may be unable to adequately serve existing natural gas customers or support customer growth or could incur higher than anticipated costs, which could have a negative financial impact. The 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. 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 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 19 PART I to interstate pipelines capacity or reduction in natural gas supply due to events including, but not limited to, operational failures or disruptions, hurricanes, tornadoes, floods, freeze off of natural gas wells, terrorist or cyberattacks or other acts of war or legislative or regulatory actions or requirements, including remediation related to integrity inspections, could reduce the normal interstate supply of natural gas and thereby reduce earnings. Moreover, if additional natural gas infrastructure, including, but not limited to, exploration and drilling rigs and platforms, processing and gathering systems, off-shore pipelines, interstate pipelines and storage, cannot be built at a pace that meets demand, then growth opportunities could be limited and earnings negatively impacted. Cyberattacks and data security breaches could adversely affect the Duke Energy Registrants’ businesses. Information security risks have generally increased in recent years as a result of the proliferation of new technologies and the increased sophistication and frequency of cyberattacks and data security breaches. The utility industry requires the continued operation of sophisticated information technology systems and network infrastructure, which are part of an interconnected regional grid. Additionally, connectivity to the internet continues to increase through smart grid and other initiatives. Because of the critical nature of the infrastructure, increased connectivity to the internet and technology systems’ inherent vulnerability to disability or failures due to hacking, viruses, acts of war or terrorism or other types of data security breaches, the Duke Energy Registrants face a heightened risk of cyberattack. In the event of such an attack, the Duke Energy Registrants could (i) have business operations disrupted, property damaged, customer information stolen and other private information accessed, (ii) experience substantial loss of revenues, repair and restoration costs, implementation costs for additional security measures to avert future cyberattacks and other financial loss and (iii) be subject to increased regulation, litigation and reputational damage. Fluctuations in commodity prices or availability may adversely affect various aspects of the Duke Energy Registrants’ operations as well as their financial condition, results of operations and cash flows. The Duke Energy Registrants are exposed to the effects of market fluctuations in the price of natural gas, coal, fuel oil, nuclear fuel, electricity and other energy-related commodities as a result of their ownership of energy-related assets. Fuel costs are recovered primarily through cost-recovery clauses, subject to the approval of state utility commissions. Additionally, the Duke Energy Registrants are exposed to risk that counterparties will not be able to fulfill their obligations. Disruption in the delivery of fuel, including disruptions as a result of, among other things, transportation delays, weather, labor relations, force majeure events or environmental regulations affecting any of these fuel suppliers, could limit the Duke Energy Registrants’ ability to operate their facilities. Should counterparties fail to perform, the Duke Energy Registrants might be forced to replace the underlying commitment at prevailing market prices possibly resulting in losses in addition to the amounts, if any, already paid to the counterparties. Certain of the Duke Energy Registrants’ hedge agreements may result in the receipt of, or posting of, derivative collateral with counterparties, depending on the daily derivative position. Fluctuations in commodity prices that lead to the return of collateral received and/or the posting of collateral with counterparties negatively impact liquidity. Downgrades in the Duke 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. Failure to attract and retain an appropriately qualified workforce could unfavorably impact the Duke Energy Registrants’ results of operations. Certain events, such as an aging workforce, mismatch of skill set or complement to future needs, or unavailability of contract resources may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge base and the lengthy time required for skill development. In this case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may increase. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to new employees, or future availability and cost of contract labor may adversely affect the ability to manage and operate the business, especially considering the workforce needs associated with nuclear generation facilities and new skills required to operate a modernized, technology-enabled power grid. If the Duke Energy Registrants are unable to successfully attract and retain an appropriately qualified workforce, their financial position, results of operations or cash flows could be negatively affected. Potential terrorist activities, or military or other actions, could adversely affect the Duke Energy Registrants’ businesses. The costs of retiring Duke Energy Florida’s Crystal River Unit 3 could prove to be more extensive than is currently identified. The continued threat of terrorism and the impact of retaliatory military and other action by the U.S. and its allies may lead to increased political, economic and financial market instability and volatility in prices for natural gas and oil, which may have material adverse effects in ways the Duke Energy Registrants cannot predict at this time. In addition, future acts of terrorism and possible reprisals as a consequence of action by the U.S. and its allies could be directed against companies operating in the U.S. Information technology systems, transmission and distribution and generation facilities such as nuclear plants could be potential targets of terrorist activities or harmful activities by individuals or groups. The potential for terrorism has subjected the Duke Energy Registrants’ operations to increased risks and could have a material adverse effect on their businesses. In particular, the Duke Energy Registrants may experience increased capital and operating costs to implement increased security for their information technology systems, transmission and distribution and generation facilities, including nuclear power plants under the NRC’s design basis threat requirements. These increased costs could include additional physical plant security and security personnel or additional capability following a terrorist incident. Costs to retire and decommission the plant could exceed estimates and, if not recoverable through the regulatory process, could adversely affect Duke Energy’s, Progress Energy’s and Duke Energy Florida’s financial condition, results of operations and cash flows. Duke Energy Ohio’s and Duke Energy Indiana’s membership in an RTO presents risks that could have a material adverse effect on their results of operations, financial condition and cash flows. The rules governing the various regional power markets may change, which could affect Duke Energy Ohio’s and Duke Energy Indiana’s costs and/ or revenues. To the degree Duke Energy Ohio and Duke Energy Indiana incur significant additional fees and increased costs to participate in an RTO, their results of operations may be impacted. Duke Energy Ohio and Duke Energy Indiana may be allocated a portion of the cost of transmission facilities built 20 PART I by others due to changes in RTO transmission rate design. Duke Energy Ohio and Duke Energy Indiana may be required to expand their transmission system according to decisions made by an RTO rather than their own internal planning process. While RTO transmission rates were initially designed to be revenue neutral, various proposals and proceedings currently taking place by the FERC may cause transmission rates to change from time to time. In addition, RTOs have been developing rules associated with the allocation and methodology of assigning costs associated with improved transmission reliability, reduced transmission congestion and firm transmission rights that may have a financial impact on Duke Energy Ohio and Duke Energy Indiana. As members of an RTO, Duke Energy Ohio and Duke Energy Indiana are subject to certain additional risks, including those associated with the allocation among RTO members, of losses caused by unreimbursed defaults of other participants in the RTO markets and those associated with complaint cases filed against an RTO that may seek refunds of revenues previously earned by RTO members. 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 capital 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 capital 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 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. NUCLEAR GENERATION RISKS Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida may incur substantial costs and liabilities due to their ownership and operation of nuclear generating facilities. Ownership interest in and operation of nuclear stations by Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida subject them to various risks. These risks include, among other things: the potential harmful effects on the environment and human health resulting from the current or past operation of nuclear facilities and the storage, handling and disposal of radioactive materials; limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with nuclear operations; and uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives. Ownership and operation of nuclear generation facilities requires compliance with licensing and safety-related requirements imposed by the NRC. In the event of non-compliance the NRC may increase regulatory oversight, impose fines or shut down a unit depending upon its assessment of the severity of the situation. Revised security and safety requirements promulgated by the NRC, which could be prompted by, among other things, events within or outside of the control of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, such as a serious nuclear incident at a facility owned by a third party, could necessitate substantial capital and other expenditures, as well as assessments to cover third-party losses. In addition, if a serious nuclear incident were to occur, it could have a material adverse effect on the results of operations, financial condition, cash flows and reputation of the Duke Energy Registrants. The Duke Energy Registrants must meet credit quality standards and there is no assurance they will maintain investment grade credit ratings. If the Duke Energy Registrants are unable to maintain investment grade credit ratings, they would be required under credit agreements to provide collateral in the form of letters of credit or cash, which may materially adversely affect their liquidity. Each of the Duke Energy Registrants’ senior long-term debt issuances is currently rated investment grade by various rating agencies. The Duke Energy Registrants cannot ensure their senior long-term debt will be rated investment grade in the future. If the rating agencies were to rate the Duke Energy Registrants below investment grade, borrowing costs would increase, perhaps significantly. In addition, the potential pool of investors and funding sources would likely decrease. Further, if the short-term debt rating were to fall, access to the commercial paper market could be significantly limited. A downgrade below investment grade could also require the posting of additional collateral in the form of letters of credit or cash under various credit, commodity and capacity agreements and trigger termination clauses in some interest rate derivative agreements, which would require cash payments. All of these events would likely reduce the Duke Energy Registrants’ liquidity and profitability and could have a material effect on their financial position, results of operations or cash flows. LIQUIDITY, CAPITAL REQUIREMENTS AND COMMON STOCK RISKS The Duke Energy Registrants rely on access to short-term borrowings and longer-term capital 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. Non-compliance with debt covenants or conditions could adversely affect the Duke Energy Registrants’ ability to execute future borrowings. The Duke Energy Registrants’ businesses are significantly financed through issuances of debt. 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 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. 21 PART I 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. Poor investment performance of the Duke Energy pension plan holdings and other factors impacting pension plan costs could unfavorably impact the Duke Energy Registrants’ liquidity and results of operations. The costs of providing non-contributory defined benefit pension plans are dependent upon a number of factors, such as the rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plans, future government regulation and required or voluntary contributions made to the plans. The Subsidiary Registrants are allocated their proportionate share of the cost and obligations related to these plans. Without sustained growth in the pension investments over time to increase the value of plan assets and, depending upon the other factors impacting costs as listed above, Duke Energy could be required to fund its plans with significant amounts of cash. Such cash funding obligations, and the Subsidiary Registrants’ proportionate share of such cash funding obligations, could have a material impact on the Duke Energy Registrants’ financial position, results of operations or cash flows. Ownership and operation of nuclear generation facilities also requires the maintenance of funded trusts that are intended to pay for the decommissioning costs of the respective nuclear power plants. The performance of the capital markets affects the values of the assets held in trust to satisfy these future obligations. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida have significant obligations in this area and hold significant assets in these trusts. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below projected rates of return. Although a number of factors impact funding requirements, a decline in the market value of the assets may increase the funding requirements of the obligations for decommissioning nuclear plants. If Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are unable to successfully manage their NDTF assets, their financial condition, results of operations and cash flows could be negatively affected. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES ELECTRIC UTILITIES AND INFRASTRUCTURE The following table provides information related to the Electric Utilities and Infrastructure’s generation stations as of December 31, 2016. The MW displayed in the table below are based on summer capacity. Ownership interest in all facilities is 100 percent unless otherwise indicated. Facility Plant Type Primary Fuel Location Owned MW Capacity Duke Energy Carolinas Oconee McGuire Catawba(a) Belews Creek Marshall J.E. Rogers Lincoln Combustion Turbine (CT) Allen Rockingham CT Buck Combined Cycle (CC) Dan River CC Mill Creek CT W.S. Lee W.S. Lee CT Bad Creek Jocassee Cowans Ford Keowee Other small facilities (25 plants) Distributed generation Nuclear Nuclear Nuclear Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Hydro Hydro Hydro Hydro Hydro Renewable Uranium Uranium Uranium Coal Coal Coal Gas/Oil Coal Gas/Oil Gas Gas Gas/Oil Gas Gas/Oil Water Water Water Water Water Solar SC NC SC NC NC NC NC NC NC NC NC SC SC SC SC SC NC SC NC/SC NC 2,554 2,316 441 2,220 2,078 1,396 1,267 1,127 825 668 651 596 170 82 1,360 780 325 152 666 11 Total Duke Energy Carolinas 19,685 22 PART I Facility Plant Type Primary Fuel Location Owned MW Capacity Duke Energy Progress Brunswick Harris Robinson Roxboro Smith CC H.F. Lee CC Wayne County CT Smith CT Darlington CT Mayo L.V. Sutton CC Asheville Asheville CT Weatherspoon CT L.V. Sutton CT Blewett CT Walters Other small facilities (3 plants) Distributed generation Nuclear Nuclear Nuclear Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Hydro Hydro Renewable Uranium Uranium Uranium Coal Gas/Oil Gas/Oil Gas/Oil Gas/Oil Gas/Oil Coal Gas/Oil Coal Gas/Oil Gas/Oil Gas/Oil Oil Water Water Solar NC NC SC NC NC NC NC NC SC NC NC NC NC NC NC NC NC NC NC 1,870 928 741 2,439 1,088 910 863 780 735 727 622 378 324 128 61 52 112 115 62 Total Duke Energy Progress 12,935 Duke Energy Florida Crystal River Hines CC Bartow CC Anclote Intercession City CT DeBary CT Tiger Bay CC Bartow CT Bayboro CT Suwannee River CT Higgins CT Avon Park CT University of Florida CoGen CT Distributed generation Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Renewable Coal Gas/Oil Gas/Oil Gas Gas/Oil Gas/Oil Gas/Oil Gas/Oil Oil Gas Gas/Oil Gas/Oil Gas Solar FL FL FL FL FL FL FL FL FL FL FL FL FL FL Total Duke Energy Florida 2,291 1,912 1,105 1,041 984 583 205 175 174 155 114 50 46 4 8,839 Duke Energy Ohio East Bend Woodsdale CT Fossil Fossil Coal Gas/Propane KY OH Total Duke Energy Ohio 600 462 1,062 Duke Energy Indiana Gibson (b) Cayuga(c) Edwardsport Madison CT Vermillion CT(d) Wheatland CT Noblesville CC Gallagher Henry County CT Cayuga CT Connersville CT Miami Wabash CT Markland Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Hydro Total Duke Energy Indiana Coal Coal/Oil Coal Gas Gas Gas Gas/Oil Coal Gas/Oil Gas/Oil Oil Oil Water IN IN IN OH IN IN IN IN IN IN IN IN IN 2,822 1,005 595 576 355 460 285 280 129 99 86 80 45 6,817 23 PART I Owned MW Capacity Totals by Type Total Electric Utilities 49,338 Totals By Plant Type Nuclear Fossil Hydro Renewable 8,850 36,856 3,555 77 Total Electric Utilities 49,338 (a) Jointly owned with North Carolina Municipal Power Agency Number 1, North Carolina Electric Membership Corporation and Piedmont Municipal Power Agency. Duke Energy Carolinas’ ownership is 19.25 percent of the facility. (b) Duke Energy Indiana owns and operates Gibson Station Units 1 through 4 and is a joint owner of unit 5 with Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency. Duke Energy Indiana operates unit 5 and owns 50.05 percent. (c) Includes Cayuga Internal Combustion. (d) Jointly owned with WVPA. Duke Energy Indiana’s ownership is 62.5 percent of the facility. The following table provides information related to Electric Utilities and Infrastructure’s electric transmission and distribution properties as of December 31, 2016. Duke Energy Duke Duke Duke Energy Energy Energy Carolinas Progress Florida Duke Energy Ohio Duke Energy Indiana Electric Transmission Lines Miles of 500 to 525 kilovolt (kV) Miles of 345 kV Miles of 230 kV Miles of 100 to 161 kV Miles of 13 to 69 kV 1,100 1,700 8,500 12,500 8,400 600 — 2,700 6,800 3,000 300 — 3,400 2,600 — 200 — 1,700 1,000 2,300 — 1,000 — 700 700 — 700 700 1,400 2,400 Total conductor miles of electric transmission lines 32,200 13,100 6,300 5,200 2,400 5,200 Electric Distribution Lines Miles of overhead lines Miles of underground line 172,300 96,400 66,600 37,100 45,000 24,600 24,600 20,000 13,700 5,900 22,400 8,800 Total conductor miles of electric distribution lines 268,700 103,700 69,600 44,600 19,600 31,200 3,300 1,500 500 500 300 500 Number of electric transmission and distribution substations 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 gas distribution as of December 31, 2016. Miles of gas distribution and transmission pipelines Miles of gas service lines 24 Duke Energy Duke Energy Ohio 32,900 26,600 7,200 6,200 PART I COMMERCIAL RENEWABLES The following table provides information related to Commercial Renewables’ electric generation facilities as of December 31, 2016. The MW displayed in the table below are based on summer capacity. Ownership interest in all facilities is 100 percent unless otherwise indicated. Facility Plant Type Primary Fuel Location Owned MW Capacity Duke Energy Renewables – Wind Los Vientos Windpower Top of the World Frontier Notrees Campbell Hill North Allegheny Laurel Hill Wind Energy Ocotillo Kit Carson Silver Sage Happy Jack Shirley Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind TX WY OK TX WY PA PA TX CO WY WY WI 912 200 200 153 99 70 69 59 51 42 29 20 Sweetwater IV(a) Renewable Wind TX 113 Sweetwater V(a) Renewable Wind TX 38 Ironwood(a) Cimarron II(a) Mesquite Creek(a) Total Renewables – Wind Renewable Renewable Renewable Wind Wind Wind KS KS TX 84 66 106 2,311 Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Renewable Solar Solar Solar Solar Solar Solar Solar Solar Solar Solar Solar Solar Solar Solar Solar Solar Solar Solar Solar Solar NC CA CA NM NC CA NC NC NC CA CA NC CA AZ TX NC CO NC NC Various 80 50 40 25 22 21 20 20 20 20 20 20 20 15 14 14 13 12 12 125 583 Duke Energy Renewables – Solar Conetoe II Seville I & II Rio Bravo I & II Caprock Kelford Highlander Dogwood Halifax Airport Pasquotank Pumpjack Wildwood Shawboro Longboat Bagdad TX Solar Creswell Alligood Victory Washington White Post Whitakers Other small solar Total Renewables – Solar Total Commercial Renewables 2,894 (a) Commercial Renewables owns 47 percent of Sweetwater IV and V and 50 percent of Ironwood, Cimarron II and Mesquite Creek. 25 PART I OTHER Duke Energy owns approximately 8 million square feet and leases 2.3 million square feet of corporate, regional and district office space spread throughout its service territories. Duke Energy also owns a 25 percent equity interest in NMC. In 2016, NMC produced approximately 765,000 metric tons of methanol and approximately 974,000 metric tons of MTBE. Approximately 40 percent of methanol is normally used in the MTBE production. ITEM 3. LEGAL PROCEEDINGS For information regarding legal proceedings, including regulatory and environmental matters, see Note 4, “Regulatory Matters,” and Note 5, “Commitments and Contingencies,” to the Consolidated Financial Statements. MTBE Litigation On June 19, 2014, the Commonwealth of Pennsylvania filed suit against, among others, Duke Energy Merchants, alleging contamination of “waters of the state” by MTBE from leaking gasoline storage tanks. MTBE is a gasoline additive intended to increase the oxygen level in gasoline and make it burn cleaner. The case was moved to federal court and consolidated in an existing multidistrict litigation docket of pending MTBE cases. Discovery in this case continues. ITEM 4. MINE SAFETY DISCLOSURES This is not applicable for any of the Duke Energy Registrants. 26 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The common stock of Duke Energy is listed and traded on the New York Stock Exchange (NYSE) (ticker symbol DUK). As of January 31, 2017, there were 165,640 Duke Energy common stockholders of record. There is no market for common stock of the Subsidiary Registrants, all of which is owned by Duke Energy. Common Stock Data by Quarter The following chart provides Duke Energy common stock trading prices as reported on the NYSE and information on common stock dividends declared. Stock prices represent the intra-day high and low stock price. 89.97 79.88 73.63 70.41 77.53 67.27 80.71 75.29 70.16 65.50 85.79 87.75 75.72 77.90 80.49 72.34 0.795 0.795 0.825 0.825 0.825 0.825 0.855 0.855 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 Stock Price High Stock Price Low Dividends Declared Per Share Duke Energy expects to continue its policy of paying regular cash dividends; however, there is no assurance as to the amount of future dividends as they depend on future earnings, capital requirements and financial condition, and are subject to declaration by the Duke Energy Board of Directors. Duke Energy’s operating subsidiaries have certain restrictions on their ability to transfer funds in the form of dividends or loans to Duke Energy. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters” for further information regarding these restrictions. Securities Authorized for Issuance Under Equity Compensation Plans See Item 12 of Part III within this Annual Report for information regarding Securities Authorized for Issuance Under Equity Compensation Plans. Issuer Purchases of Equity Securities for Fourth Quarter 2016 There were no repurchases of equity securities during the fourth quarter of 2016. 27 PART II Stock Performance Graph The following performance graph compares the cumulative total shareholder return from Duke Energy Corporation common stock, as compared with the Standard & Poor’s 500 Stock Index (S&P 500) and the Philadelphia Utility Sector Index (Philadelphia Utility Index) for the past five years. The graph assumes an initial investment of $100 on December 31, 2011, in Duke Energy common stock, in the S&P 500 and in the Philadelphia Utility Index and that all dividends were reinvested. The stockholder return shown below for the five-year historical period may not be indicative of future performance. $250 $200 $150 $100 $50 $0 2011 2012 Duke Energy Corporation 2013 2014 Philadelphia Utility Index 2015 2016 S&P 500 NYSE CEO Certification Duke Energy has filed the certification of its Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to this Annual Report on Form 10-K for the year ended December 31, 2016. 28 PART II ITEM 6. SELECTED FINANCIAL DATA The following table provides selected financial data for the years of 2012 through 2016. (in millions, except per share amounts) Statement of Operations Total operating revenues Operating income Income from continuing operations (Loss) Income from discontinued operations, net of tax Net income Net income attributable to Duke Energy Corporation Common Stock Data Income from continuing operations attributable to Duke Energy Corporation common stockholders(c) Basic Diluted (Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders(c) Basic Diluted Net income attributable to Duke Energy Corporation common stockholders(c) Basic Diluted Dividends declared per share of common stock(c) Balance Sheet Total assets Long-term debt including capital leases, less current maturities 2016 2015(a) 2014(a) 2013(a) 2012(a) $ 22,743 5,341 2,578 (408) 2,170 2,152 $ 22,371 5,078 2,654 177 2,831 2,816 $ 22,509 4,842 2,538 (649) 1,889 1,883 $ 21,211 4,305 2,278 398 2,676 2,665 $ 16,363 2,403 1,289 493 1,782 1,768 $ 3.71 3.71 $ 3.80 3.80 $ 3.58 3.58 $ 3.21 3.21 $ 2.23 2.23 $ (0.60) (0.60) $ 0.25 0.25 $ (0.92) (0.92) $ 0.56 0.55 $ 0.84 0.84 $ 3.11 3.11 3.36 $ 4.05 4.05 3.24 $ 2.66 2.66 3.15 $ 3.77 3.76 3.09 $ 3.07 3.07 3.03 (b) $ 132,761 45,576 $ 121,156 36,842 $ 120,557 36,075 $ 114,779 37,065 $ 113,856 35,512 (a) Prior year data has been recast to reflect the classification of the International Disposal Group as discontinued operations. (b) Significant transactions reflected in the results above include: (i) the sale of the International Disposal Group in 2016, including a loss on sale recorded within discontinued operations (see Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions”) (ii) the acquisition of Piedmont in 2016, including losses on interest rate swaps related to the acquisition financing (see Note 2); (iii) 2014 impairment of the Midwest Disposal Group (see Note 2); (iv) 2014 incremental tax expense resulting from the decision to repatriate all cumulative historical undistributed foreign earnings (see Note 22, “Income Taxes”); (v) 2014 increase in the litigation reserve related to the criminal investigation of the Dan River coal ash release (see Note 5, “Commitments and Contingencies”); (vi) 2013 pretax charges of $360 million related to Crystal River Unit 3 and nuclear development costs; (vii) the 2012 merger with Progress Energy; (viii) costs to achieve mergers in 2016, 2015, 2014, 2013 and 2012; and (ix) 2012 pretax impairment and other charges related to the Edwardsport Integrated Gasification Combined Cycle (IGCC) project of $628 million. (c) On July 2, 2012, immediately prior to the merger with Progress Energy, Duke Energy executed a one-for-three reverse stock split. All share and earnings per share amounts are presented as if the one-for-three reverse stock split had been effective at the beginning of the earliest period presented. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.), as well as certain non-GAAP financial measures such as adjusted earnings and adjusted earnings per share discussed below. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies. The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) and its subsidiaries Duke Energy Carolinas, LLC (Duke Energy Carolinas), Progress Energy, Inc. (Progress Energy), Duke Energy Progress, LLC (Duke Energy Progress), Duke Energy Florida, LLC (Duke Energy Florida), Duke Energy Ohio, Inc. (Duke Energy Ohio) and Duke Energy Indiana, LLC (Duke Energy Indiana). However, none of the registrants make any representation as to information related solely to Duke Energy or the subsidiary registrants of Duke Energy other than itself. Subsequent to Duke Energy’s acquisition of Piedmont Natural Gas Company, Inc. (Piedmont) on October 3, 2016, Piedmont is a wholly owned subsidiary of Duke Energy. The financial information for Duke Energy includes results of Piedmont subsequent to October 3, 2016. See Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions,” for additional information regarding the acquisition. DUKE ENERGY Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the U.S. primarily through its wholly owned subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and Notes for the years ended December 31, 2016, 2015 and 2014. 29 PART II Executive Overview The remaining charges include commitments made in conjunction with the transaction, such as charitable contributions and a one-time bill credit to Piedmont customers, as well as professional fees and severance. Duke Energy also expects to incur system integration and other acquisition-related transition costs, primarily through 2018, that are necessary to achieve certain anticipated cost savings, efficiencies and other benefits. See Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions,” for additional information regarding the transaction. Acquisition of Piedmont Natural Gas On October 3, 2016, Duke Energy completed the acquisition of Piedmont, a North Carolina corporation primarily engaged in regulated natural gas distribution to residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee. Piedmont is also invested in joint-venture, energy-related businesses, including regulated interstate natural gas transportation and storage and regulated intrastate natural gas transportation. The acquisition provides a foundation for Duke Energy to establish a broader, long-term strategic natural gas infrastructure platform to complement its existing natural gas pipeline investments and regulated natural gas business in the Midwest. Cost savings, efficiencies and other benefits are expected from combined operations. Duke Energy acquired all of Piedmont’s outstanding common stock for a total cash purchase price of $5.0 billion and assumed Piedmont’s existing long-term debt, which had an estimated fair value of approximately $2.0 billion at the time of the acquisition. The excess of the purchase price over the estimated fair value of Piedmont’s assets and liabilities on the acquisition date was recorded as goodwill. The transaction resulted in incremental goodwill of approximately $3.4 billion. Duke Energy financed the transaction with a combination of debt, equity issuances and other cash sources. Financings to fund the transaction included $3.75 billion of long-term debt issued in August 2016, $750 million borrowed under a short-term loan facility (Term Loan) in September 2016, as well as the issuance of 10.6 million shares of common stock in October 2016. The share issuance resulted in net cash proceeds of approximately $723 million. See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for additional information related to the debt issuance and Note 18, “Common Stock,” for additional information related to the equity issuance. Duke Energy recorded pretax non-recurring transaction and integration costs associated with the acquisition of $439 million in 2016, including interest expense of $234 million related to the acquisition financing. The interest expense primarily relates to losses on forward-starting interest rate swaps. Sale of International Energy In February 2016, Duke Energy announced it had initiated a process to divest its Latin American generation businesses and, in October 2016, reached agreements to sell the businesses in two separate transactions for a combined enterprise value of $2.4 billion. Both deals closed ahead of schedule in December 2016. Duke Energy sold its Brazilian business to China Three Gorges for approximately $1.2 billion, including the assumption of debt, and its remaining Central and South American businesses to I Squared Capital in a deal also valued at approximately $1.2 billion. The transactions generated cash proceeds of $1.9 billion, excluding transaction costs, which were primarily used to reduce Duke Energy holding company debt. Existing favorable tax attributes result in no immediate U.S. federal-level cash tax impacts. As a result of the transactions, the International Energy Disposal Group was classified as held for sale and as discontinued operations in the fourth quarter of 2016. In conjunction with the advancement of marketing efforts, in the second quarter of 2016 Duke Energy performed recoverability tests of the asset groups of the International Disposal Group, and as a result recorded an after-tax impairment charge of $145 million related to certain assets in Central America. In the fourth quarter of 2016, Duke Energy recorded an after-tax loss on disposal of $640 million, which includes the recognition of cumulative foreign currency translation losses of $620 million. Both charges are included within Loss from Discontinued Operations, net of tax on the Consolidated Statements of Operations for the year ended December 31, 2016. See Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions” for additional information. Financial Results Annual Earnings (in millions) Annual Earnings Per Diluted Share Net Income Attributable to Duke Energy Corporation Net Income Attributable to Duke Energy Corporation common stockholders per diluted share Adjusted Earnings (a) Adjusted Diluted Earnings Per Share (a) $3,218 $2,816 $4.55 $4.05 $3.11 $2.66 2015 2016 2014 $4.69 $4.54 $2,152 $1,883 2014 $3,244 $3,152 2015 2016 (a) See Results of Operations below for Duke Energy’s definition of adjusted earnings and adjusted earnings per share as well as a reconciliation of this non-GAAP financial measure to net income attributable to Duke Energy and net income attributable to Duke Energy per diluted share. 30 PART II 2016 GAAP reported earnings were impacted by charges related to the International Energy sale described above, which were recorded to discontinued operations. See “Results of Operations” below for a detailed discussion of the consolidated results of operations, as well as a detailed discussion of financial results for each of Duke Energy’s reportable business segments, as well as Other. Federal Coal Combustion Residuals (CCR) requirements. In May 2016, Duke Energy received preliminary risk rankings for its coal ash sites in North Carolina from the North Carolina Department of Environmental Quality (NCDEQ), and in July 2016 new legislation was passed that provided clarity on the risk ranking framework. The legislation also required the completion of dam improvement projects and the installation of water lines for residents within a half mile of coal ash sites in the state. Work was completed on all required deadlines under the new legislation. 2016 Areas of Focus and Accomplishments Duke Energy advanced a number of important strategic initiatives to transform its energy future with a focus on customers, employees, operations and growth. The company has responded to an environment of changing customer demands, investing in electric and gas infrastructure that customers value and that provide an opportunity for sustainable growth. Cost Management and Efficiencies. Duke Energy has a demonstrated track record of driving efficiencies and productivity, including merger integration. These efficiencies will help in Duke Energy’s objective to keep overall customer rates below the national average, while moderating customer bill increases over time. In June 2016, Duke Energy achieved the $687 million of guaranteed savings for customers in the Carolinas from the 2012 merger with Progress Energy, a full year ahead of its original commitment. Portfolio Transition. With the acquisition of Piedmont and the sale of International Energy, Duke Energy completed a multiyear portfolio transition. The Piedmont acquisition reflects the growing importance of natural gas to the future of the energy infrastructure within the company’s service territory and throughout the U.S., and establishes a strategic platform for future growth in natural gas infrastructure. Duke Energy’s exit of the Latin American market results in a portfolio of domestic electric and gas infrastructure businesses with a lower risk profile and enhances the ability to generate more consistent earnings and cash flows over time. Growth in the Dividend. In 2016, Duke Energy continued to grow the dividend payment to shareholders by approximately 4 percent. 2016 represented the 90th consecutive year Duke Energy paid a cash dividend on its common stock. Duke Energy Objectives – 2017 and Beyond Duke Energy will continue to deliver exceptional value to customers, be an integral part of the communities in which it does business, and provide attractive returns to investors. Duke Energy is committed to lead the way to cleaner, smarter energy solutions that customers value through a strategy focused on: Operational Excellence. Duke Energy continues to focus on the safe and efficient operation of its generation fleet. During the year Duke Energy’s safety performance metrics led the utilities industry, and its regulated fuel costs averaged $2.22/kWh, which is the lowest in the past several years. Additionally, the nuclear fleet increased its capacity factor for a fourth consecutive year to approximately 96 percent, with several units setting all-time generation records. t Transformation of the customer experience to meet changing customer expectations through enhanced convenience, control and choice in energy supply and usage. Storm Response and System Restoration. Duke Energy’s service territories experienced numerous storms during 2016, including Winter Storm Jonas and Hurricane Matthew. During Hurricane Matthew, over 1.7 million customers in Florida and the Carolinas were without power. In the Carolinas, 1.4 million outages were restored in record time, helping communities start the rebuilding process. Power was restored to customers through the commitment and resolve of employees and contractors. t Modernization of the electric grid, including storm hardening, to ensure the system is better prepared for severe weather and to improve the system’s reliability and flexibility, as well as to provide better information and services for customers. Customer Satisfaction. Higher J.D. Power customer satisfaction scores in 2016 reflect progress in the Company’s efforts to improve customer satisfaction. In Florida, scores improved more than 30 points. The work to improve customer satisfaction will continue, but all jurisdictions remain on track to make steady gains in the years ahead as Duke Energy continues to transform the customer experience. t Expansion of natural gas infrastructure, from midstream gas pipelines to local distribution systems. t Generation of cleaner energy through an increased amount of natural gas, renewables generation and the continued safe and reliable operation of nuclear plants. t Operational excellence through engagement with employees and being an industry leader in safety performance and efficient operations. t Stakeholder engagement to ensure the regulatory rules in the states in which Duke Energy operates benefit customers and allow Duke Energy to recover its significant investments in a timely manner. Constructive Regulatory Outcomes. Through constructive stakeholder engagement, Duke Energy reached settlements for the Edwardsport IGCC facility in Indiana and Duke Energy Progress South Carolina rate case. These settlements have been approved by the Indiana Utility Regulatory Commission (IURC) and Public Service Commission of South Carolina (PSCSC), respectively. Duke Energy will also save its Florida customers more than $800 million over approximately 20 years through the successful securitization financing of its regulatory asset related to Crystal River 3. Primary objectives toward the implementation of this strategy include: Growth Initiatives. Growth in the Electric Utilities and Infrastructure business is expected to be supported by the investment of significant capital in the electric transmission and distribution grid, and in cleaner, more efficient generation. Duke Energy expects to invest approximately $30 billion in Electric Utilities and Infrastructure growth projects over the next five years, continuing its efforts to generate cleaner energy. Duke Energy intends to work constructively with regulators to evaluate the current construct and seek modernized recovery solutions, such as riders, rate decoupling and multiyear rate plans, that benefit both customers and shareholders. Coal Ash Management. Duke Energy continued to make significant progress on the safe storage of coal ash in 2016. Closure activities are underway at five sites and comprehensive closure plans for all Duke Energy coal ash sites were developed and disclosed publicly during 2016, consistent with 31 PART II Investment projects at Electric Utilities and Infrastructure currently underway that will support growth initiatives include: Execute on Coal Ash Management Strategy. Duke Energy will continue the company’s compliance strategy with the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) and Resource Conservation and Recovery Act. Duke Energy will update ash management plans to comply with the appropriate regulations and expand excavation and other compliance work at additional sites once plans and permits are approved. t Duke Energy Indiana’s $1.4 billion grid modernization plan, which was approved by the IURC in 2016, is aimed at improving reliability, including fewer outages and quicker restoration. The plan allows for recovery of Duke Energy’s investment through a rider. As part of the settlement, Duke Energy also received approval to install AMI meters, deferring the costs for future recovery in a rate case. Results of Operations t Significant investments in natural gas-fired combined cycle plants, including completing the $1.5 billion Citrus Country plant in Florida, the $600 million Lee facility in South Carolina and the $1 billion investment in the Western Carolinas Modernization Project. These investments will allow Duke Energy to replace older, less efficient coal units early. Non-GAAP Measures Management evaluates financial performance in part based on nonGAAP financial measures, including adjusted earnings and adjusted diluted EPS. These items represent income from continuing operations attributable to Duke Energy, adjusted for the dollar and per share impact of special items. As discussed below, special items include certain charges and credits, which management believes are not indicative of Duke Energy’s ongoing performance. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them with an additional relevant comparison of Duke Energy’s performance across periods. Management uses these non-GAAP financial measures for planning and forecasting, and for reporting financial results to the Duke Energy Board of Directors (Board of Directors), employees, stockholders, analysts and investors. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation (GAAP Reported Earnings) and Diluted EPS Attributable to Duke Energy Corporation common stockholders (GAAP Reported EPS). Special items included in the periods presented include the following, items which management believes do not reflect ongoing costs: t Duke Energy expects to continue to advance other cleaner energy sources within its regulated electric jurisdictions, including hydro, wind, solar and combined heat and power projects, increasing the flexibility of the system and allowing Duke Energy to continue lowering carbon emissions. Electric Utilities and Infrastructure will also invest significantly in modernizing the electric grid to provide greater flexibility, better reliability and power quality, as well as more valuable products and services for its customers. These significant investments will result in the need to file rate cases with regulators to update customer rates. Duke Energy will also focus on modernizing the regulatory constructs in its jurisdictions to minimize rate impacts to customers and recover costs in a more timely manner. Duke Energy expects to invest around $6 billion in its Gas Utilities and Infrastructure business over the next five years. Growth in Gas Utilities and Infrastructure will be focused on the following: t Costs to Achieve Mergers represents charges that result from potential or completed strategic acquisitions. t With the acquisition of Piedmont, Duke Energy now operates gas distribution businesses across five states. The continued integration of Piedmont, as well as additional investments in the gas Local Distribution Company (LDC) system, will help maintain system integrity and expand gas distribution to new customers. t Cost Savings Initiatives represents severance charges related to companywide initiatives to standardize processes and systems, leverage technology and workforce optimization. t Commercial Renewables Impairment and Asset Impairment represent other-than-temporary impairments. t Duke Energy will continue to grow its midstream pipeline business, underpinned by investments in the Atlantic Coast Pipeline, Sabal Trail and Constitution pipeline projects. These highly contracted pipelines will bring much needed, low-cost gas supplies to the eastern U.S., spurring economic growth and helping Duke Energy to grow its customer base in the Southeast. t Edwardsport Settlement, Ash Basin Settlement and Penalties, and Coal Ash Plea Agreements Reserve represent charges related to Plea Agreements and settlement agreements with regulators and other governmental entities. Adjusted earnings also include the operating results of the nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, the Midwest Generation Disposal Group) and the International Disposal Group, which have been classified as discontinued operations. Management believes inclusion of the operating results of the Disposal Groups within adjusted earnings and adjusted diluted EPS results in a better reflection of Duke Energy’s financial performance during the period. Duke Energy’s adjusted earnings and adjusted diluted EPS may not be comparable to similarly titled measures of another company because other companies may not calculate the measures in the same manner. For Commercial Renewables, Duke Energy will continue to pursue longterm, highly contracted wind and solar projects that meet its return criteria. Cost Management. Duke Energy has a demonstrated track record of driving efficiencies and productivity into the business and continues to identify sustainable cost savings as an essential element in response to a transforming industry. 32 PART II 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, 2016 (in millions, except per share amounts) GAAP Reported Earnings/EPS Adjustments to Reported: Costs to Achieve Mergers Cost Savings Initiatives Commercial Renewables Impairment Edwardsport Settlement Ash Basin Settlement and Penalties Asset Impairment Coal Ash Plea Agreements Reserve Asset Sales Economic Hedges (mark-to-market) Discontinued Operations(a)(b)(c) Adjusted Earnings/Adjusted Diluted EPS 2015 2014 Earnings EPS Earnings EPS Earnings $ 2,152 $ 3.11 $ 2,816 $ 4.05 $ 1,883 $ EPS 329 57 45 — — — — — — 661 $ 3,244 0.48 0.08 0.07 — — — — — — 0.95 $ 4.69 60 88 — 58 11 — — — — 119 $ 3,152 0.09 0.13 — 0.08 0.02 — — — — 0.17 $ 4.54 127 — — — — 59 102 (9) 6 1,050 $ 3,218 0.18 — — — — 0.08 0.14 (0.01) 0.01 1.49 $ 4.55 2.66 (a) For 2016, includes a loss on sale of the International Disposal Group. Represents the GAAP reported Loss from Discontinued Operations, less the International Disposal Group operating results, which are included in adjusted earnings. (b) For 2015, includes the impact of a litigation reserve related to the Midwest Generation Disposal Group. Represents (i) GAAP reported Income from Discontinued Operations, less the International Disposal Group operating results and Midwest Generation Disposal Group operating results, which are included in adjusted earnings, and (ii) a state tax charge resulting from the completion of the sale of the Midwest Generation Disposal Group but not reported as discontinued operations. (c) For 2014, includes an impairment of the Midwest Generation Disposal Group and a tax charge related to the repatriation of foreign earnings of the International Disposal Group. Represents the GAAP reported Loss from Discontinued Operations, less the International Disposal Group operating results and Midwest Generation Disposal Group operating results, which are included in adjusted earnings. As discussed, management also evaluates financial performance based on adjusted earnings. Duke Energy’s full-year 2015 adjusted diluted EPS was $4.54 compared to $4.55 for full-year 2014. The variance in adjusted diluted EPS was primarily due to: Year Ended December 31, 2016 as compared to 2015 Duke Energy’s full-year 2016 GAAP Reported EPS was $3.11 compared to $4.05 for full-year 2015. GAAP Reported EPS was lower primarily due to a $0.93 loss on sale of the international business, which has been presented as discontinued operations. Duke Energy also recorded $0.40 of after-tax costs to achieve the Piedmont merger in 2016, including losses on interest rate swaps related to the acquisition financing. See Note 2, “Acquisitions and Dispositions,” for additional information on the Piedmont and international transactions. As discussed, management also evaluates financial performance based on adjusted earnings. Duke Energy’s full-year 2016 adjusted diluted EPS was $4.69 compared to $4.54 for full-year 2015. The variance in adjusted diluted EPS was primarily due to: t Lower results in Latin America primarily due to lower demand, unfavorable hydrology in Brazil, changes in foreign currency exchange rates, a tax benefit in 2014 related to the reorganization of Chilean operations and lower dispatch in Central America due to increased competition; t Higher operations and maintenance expense primarily due to a 2014 benefit associated with the adoption of nuclear outage levelization, amounts related to additional ownership interest in assets acquired from North Carolina Eastern Municipal Power Agency (NCEMPA), and higher planned fossil generation outage costs, partially offset by lower storm restoration costs; t More favorable weather in 2016 compared to 2015; t Increased retail revenues from pricing and riders, including energy efficiency programs; t Higher depreciation and amortization expense primarily due to higher depreciable base; and t Strong operations and maintenance cost control at Electric Utilities and Infrastructure; and t Piedmont’s earnings contribution subsequent to the acquisition in October 2016. t Lower equity in earnings of unconsolidated affiliates due to lower margins at National Methanol Company (NMC), largely driven by lower MTBE prices, partially offset by lower butane costs. Partially offset by: Partially offset by: t Higher storm costs at Electric Utilities and Infrastructure due to significant 2016 storms; t Increased retail pricing primarily due to rate riders in most jurisdictions, including increased revenues related to energy efficiency programs, equity returns related to additional ownership interest in assets acquired from NCEMPA and higher base rates; t Higher interest expense related to additional debt outstanding; and t Higher depreciation and amortization expense at Electric Utilities and Infrastructure primarily due to higher depreciable base. t Increased wholesale net margins largely due to increases in contracted amounts and prices and a new wholesale contract with NCEMPA; Year Ended December 31, 2015 as compared to 2014 t Retail sales growth of 0.6 percent; Duke Energy’s full-year 2015 GAAP Reported EPS was $4.05 compared to $2.66 for full-year 2014. GAAP Reported EPS in 2015 was higher primarily due to a $0.92 loss per share from discontinued operations in 2014, which included an impairment of the Midwest Generation Disposal Group and a tax charge on repatriated foreign earnings related to the International Disposal Group. t Higher results at the nonregulated Midwest generation business prior to its sale on April 2, 2015, due to higher PJM Interconnection LLC (PJM) capacity revenues and increased generation margins; and t Reduction in shares outstanding due to the Duke Energy accelerated stock repurchase (only impacts per share amounts). 33 PART II SEGMENT RESULTS Due to the Piedmont acquisition and the sale of International Energy in the fourth quarter of 2016, Duke Energy’s segment structure has been realigned to include the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. The remainder of Duke Energy’s operations is presented as Other. Prior period information has been recast to conform to the current segment structure. See Note 2 to the Consolidated Financial Statements, “Acquisitions and Disposition,” for further information on the Piedmont acquisition and International Energy sale and Note 3, “Business Segments,” for additional information on Duke Energy’s segment structure. The remaining information presented in this discussion of results of operations is on a GAAP basis. Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income includes intercompany revenues and expenses that are eliminated in the Consolidated Financial Statements. Electric Utilities and Infrastructure Years Ended December 31, (in millions) Operating Revenues Operating Expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses Interest Expense Income Before Income Taxes Income Tax Expense Segment Income Duke Energy Carolinas Gigawatt-Hours (GWh) sales Duke Energy Progress GWh sales Duke Energy Florida GWh sales Duke Energy Ohio GWh sales Duke Energy Indiana GWh sales Total Electric Utilities and Infrastructure GWh sales Net proportional MW capacity in operation 2016 2015 Variance 2016 vs. 2015 2014 Variance 2015 vs. 2014 $ 21,366 15,821 — 5,545 303 1,136 4,712 1,672 $ 3,040 $ 21,521 16,295 5 5,231 264 1,074 4,421 1,602 $ 2,819 $ (155) (474) (5) 314 39 62 291 70 $ 221 $ 21,691 16,609 4 5,086 267 1,057 4,296 1,582 $ 2,714 $ (170) (314) 1 145 (3) 17 125 20 $ 105 88,545 69,049 40,404 25,163 34,368 257,529 49,295 86,950 64,881 40,053 25,439 33,518 250,841 50,170 1,595 4,168 351 (276) 850 6,688 (875) 88,070 62,871 38,703 24,735 33,433 247,812 49,600 (1,120) 2,010 1,350 704 85 3,029 570 Year Ended December 31, 2016 as Compared to 2015 Operating Expenses. The variance was driven primarily by: Electric Utilities and Infrastructure’s higher earnings were primarily due to increased pricing and rider revenues, favorable weather, a prior year impairment charge associated with the 2015 Edwardsport IGCC settlement and an increase in wholesale power margins. These impacts were partially offset by increased depreciation and amortization expense, higher interest expense and higher operations and maintenance expense. The following is a detailed discussion of the variance drivers by line item. t a $713 million decrease in fuel expense (including purchased power and natural gas purchases for resale) primarily due to lower natural gas and coal prices, and lower volumes of coal and oil, partially offset by higher volumes of natural gas; and t an $88 million pretax impairment charge in the prior year related to the 2015 Edwardsport IGCC settlement. Operating Revenues. The variance was driven primarily by: Partially offset by: t a $768 million decrease in fuel revenues driven by lower fuel prices included in rates. t a $162 million increase in depreciation and amortization expense primarily due to additional plant in service, including the additional ownership interest in generating assets acquired from NCEMPA, as well as the expiration of the North Carolina cost of removal decrement rider; and Partially offset by: t a $154 million increase in operations and maintenance expense primarily due to higher environmental and operational costs that are recoverable in rates, increased employee benefit costs, and higher storm restoration costs, partially offset by lower costs due to effective cost control efforts. t a $414 million increase in rider revenues including increased revenues related to energy efficiency programs, the additional ownership interest in generating assets acquired from NCEMPA in the third quarter of 2015 and increased revenues related to Duke Energy Indiana’s clean coal equipment, and increased retail electric pricing primarily due to the expiration of the North Carolina cost of removal decrement rider; Other Income and Expenses. The variance was primarily driven by higher AFUDC equity. t a $101 million increase in retail sales, net of fuel revenue, due to favorable weather compared to the prior year; and Interest Expense. The variance was due to higher debt outstanding in the current year. t a $76 million increase in wholesale power revenues primarily due to additional volumes and capacity charges for customers served under long-term contracts, including the NCEMPA wholesale contract. 34 PART II Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rates for the years ended December 31, 2016 and 2015 were 35.5 percent and 36.2 percent, respectively. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rates for the years ended December 31, 2015 and 2014 were 36.2 percent and 36.8 percent, respectively. Year Ended December 31, 2015 as Compared to 2014 Matters Impacting Future Electric Utilities and Infrastructure Results Electric Utilities and Infrastructure’s higher earnings were primarily due to an increase in wholesale power margins, growth in retail sales, and increased retail pricing primarily due to rate riders in most jurisdictions, including increased revenues related to energy efficiency programs, and higher base rates primarily due to phasing of 2013 rate cases. These drivers were partially offset by an impairment charge associated with the 2015 Edwardsport IGCC settlement, higher operations and maintenance expense and increased depreciation and amortization expense. The following is a detailed discussion of the variance drivers by line item. An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Electric Utilities and Infrastructure’s financial position, results of operations and cash flows. See Notes 4 and 9 to the Consolidated Financial Statements, “Regulatory Matters” and “Asset Retirement Obligations,” respectively, for additional information. On May 18, 2016, the NCDEQ issued proposed risk classifications for all coal ash surface impoundments in North Carolina. All ash impoundments not previously designated as high priority by the Coal Ash Act were designated as intermediate risk. Certain impoundments classified as intermediate risk, however, may be reassessed in the future as low risk pursuant to legislation signed by the former North Carolina governor on July 14, 2016. Electric Utilities and Infrastructure’s estimated asset retirement obligations (AROs) related to the closure of North Carolina ash impoundments are based upon the mandated closure method or a probability weighting of potential closure methods for the impoundments that may be reassessed to low risk. As the final risk ranking classifications in North Carolina are delineated, final closure plans and corrective action measures are developed and approved for each site, the closure work progresses and the closure method scope and remedial methods are determined, the complexity of work and the amount of coal combustion material could be different than originally estimated and, therefore, could materially impact Electric Utilities and Infrastructure’s financial position. See Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations,” for additional information. Duke Energy is a party to multiple lawsuits and could be subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits and potential fines and penalties could have an adverse impact on Electric Utilities and Infrastructure’s financial position, results of operations and cash flows. See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. In the fourth quarter of 2016, Hurricane Matthew caused historic flooding, extensive damage and widespread power outages within the Duke Energy Progress service territory. Duke Energy Progress filed a petition with the North Carolina Utilities Commission (NCUC) requesting an accounting order to defer approximately $140 million of incremental operation and maintenance and capital costs incurred in response to Hurricane Matthew and other significant 2016 storms. The NCUC has not ruled on the petition. A final order from the NCUC that disallows the deferral and future recovery of all or a significant portion of the incremental storm restoration costs incurred could result in an adverse impact on Electric Utilities and Infrastructure’s financial position, results of operations and cash flows. Duke Energy Carolinas and Duke Energy Progress intend to file rate cases in North Carolina in 2017 to recover costs of complying with CCR regulations and the Coal Ash Act, as well as costs of capital investments in generation, transmission and distribution systems and any increase in expenditures subsequent to previous rate cases. Duke Energy Ohio has notified the Public Utilities Commission of Ohio (PUCO) of its intent to file an electric distribution rate case in Ohio to address recovery of electric distribution system capital investments and any increase in expenditures subsequent to previous rate cases. Electric Utilities and Infrastructure’s earnings could be adversely impacted if these rate cases are delayed or denied by the NCUC or PUCO. Operating Revenues. The variance was driven primarily by: t a $296 million decrease in fuel revenues due to lower overall fuel prices included in rates; and t a $131 million decrease in revenues to recover gross receipts taxes due to the North Carolina Tax Simplification and Rate Reduction Act, which terminated the collection of the North Carolina gross receipts tax effective July 1, 2014 (offset in Operating Expenses). Partially offset by: t a $175 million increase in wholesale power revenues, primarily due to additional volumes and capacity charges for customers served under long-term contracts, including the NCEMPA wholesale contract; and t an $81 million increase from retail sales growth (net of fuel revenue) due to increased demand. Operating Expenses. The variance was driven primarily by: t a $378 million decrease in fuel expense (including purchased power) primarily due to lower natural gas and coal prices and lower volumes of coal and oil, partially offset by higher volumes of natural gas; and t a $131 million decrease in property and other taxes primarily due to the termination of the collection of the North Carolina gross receipts tax (offset in Operating Revenues) and the partial reversal of a sales tax reserve recorded in 2014 at Duke Energy Indiana, partially offset by higher property taxes across multiple jurisdictions. Partially offset by: t an $88 million pretax impairment charge related to the 2015 Edwardsport IGCC settlement. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information; t a $49 million increase in depreciation and amortization expense primarily due to additional plant in service; and t a $47 million increase in operations and maintenance expense primarily due to planned nuclear spending and the 2014 benefit of the adoption of nuclear outage levelization, higher costs for customer programs and distribution projects, and higher maintenance costs at fossil generation stations primarily due to increased ownership interest in assets acquired from NCEMPA, partially offset by a 2014 litigation reserve related to the Dan River coal ash spill (see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information) and lower storm restoration costs. 35 PART II Gas Utilities and Infrastructure Years Ended December 31, 2014 Variance 2015 vs. 2014 578 419 — 159 3 37 125 45 80 $ (37) (11) 6 (20) — (12) (8) (1) $ (7) 120,908,508 — 120,908,508 — 81,870,489 84,523,814 (2,653,325) 93,275,895 — (8,752,081) (in millions) 2016 $ Operating Revenues Operating Expenses (Loss) Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses Interest Expense Income Before Income Taxes Income Tax Expense Segment Income $ Piedmont LDC throughput (dekatherms)(a) Duke Energy Midwest LDC throughput (MCF) 901 636 (1) 264 24 46 242 90 152 $ $ 2015 Variance 2016 vs. 2015 541 408 6 139 3 25 117 44 73 $ 360 228 (7) 125 21 21 125 46 $ 79 $ $ (a) Only includes throughput subsequent to Duke Energy’s acquisition of Piedmont on October 3, 2016. Year Ended December 31, 2016 as Compared to 2015 Partially offset by: Gas Utilities and Infrastructure’s higher results were primarily due to the inclusion of Piedmont’s earnings subsequent to the merger on October 3, 2016 and higher equity earnings from pipeline investments. Piedmont’s earnings included in Gas Utilities and Infrastructure’s results were $67 million for the year ended December 31, 2016. t a $19 increase in regulated natural gas rider revenues primarily due to rate increases. Operating Expenses. The variance is driven primarily by: t a $43 million decrease in the cost of natural gas, primarily due to decreased volumes and lower natural gas prices. Operating Revenues. The variance was driven primarily by a $398 million increase in operating revenues due to the inclusion of Piedmont operating revenues beginning in October 2016, partially offset by a $38 million decrease in fuel revenues driven by lower natural gas prices and decreased sales volumes for Midwest operations. Partially offset by: t a $16 million increase due to a favorable gas excise tax settlement in June 2014; and Operating Expenses. The variance was driven primarily by a $276 million increase in operating expenses due to the inclusion of Piedmont operating expenses beginning in October 2016, partially offset by a $38 million decrease in the cost of natural gas, primarily due to decreased volumes and lower natural gas prices for Midwest operations. t an $8 million increase due to amortization of the manufactured gas plant (MGP) regulatory asset. Other Income and Expenses. The increase was driven primarily by higher equity earnings from pipeline investments. Income Tax Expense. The variance was primarily due to lower pretax income, partially offset by an increase in effective tax rate. The effective tax rates for the years ended December 31, 2015 and 2014 were 37.6 percent and 36.0 percent, respectively. Interest Expense. The variance was primarily due to the inclusion of Piedmont interest expenses beginning in October 2016. Matters Impacting Future Gas Utilities and Infrastructure Results Gas Utilities and Infrastructure has a 24 percent ownership interest in Constitution Pipeline Company, LLC (Constitution), a natural gas pipeline project slated to transport natural gas supplies to major northeastern markets. On April 22, 2016, the New York State Department of Environmental Conservation denied Constitution’s application for a necessary water quality certification for the New York portion of the Constitution pipeline. Constitution has stopped construction and discontinued capitalization of future development costs until the project’s uncertainty is resolved. To the extent the legal and regulatory proceedings have unfavorable outcomes, or if Constitution concludes that the project is not viable or does not go forward, an impairment charge of up to the recorded investment in the project, net of any cash and working capital returned, may be recorded. With the project on hold, funding of project costs has ceased until resolution of legal actions. Duke Energy is contractually obligated to provide funding of required operating costs, including the ownership percentage of legal expenses to obtain the necessary permitting for the project and project costs Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rates for the years ended December 31, 2016 and 2015 were 37.2 percent and 37.6 percent, respectively. Year Ended December 31, 2015 as Compared to 2014 Gas Utilities and Infrastructure’s lower earnings were primarily due to unfavorable weather. Operating Revenues. The variance was driven primarily by: t a $43 million decrease in fuel revenues primarily driven by lower natural gas prices and decreased sales volumes; and t a $7 million decrease in sales to retail customers due to unfavorable weather. 36 PART II incurred prior to the denial of the water permit. If the legal actions result in an outcome where the project is abandoned, Constitution is obligated under various contracts to pay breakage fees that Gas Utilities and Infrastructure would be obligated to fund up to the ownership percentage, or potentially up to $10 million. In 2013, the PUCO issued an order (PUCO order) approving Duke Energy Ohio’s recovery of costs incurred between 2008 and 2012 for environmental investigation and remediation of two former MGP sites. At December 31, 2016, Duke Energy Ohio had recorded in Regulatory assets on the Consolidated Balance Sheet approximately $99 million of estimated MGP remediation costs not yet recovered through the MGP rider mechanism. Intervenors have appealed to the Ohio Supreme Court the PUCO order authorizing recovery of these amounts. That appeal remains pending. Duke Energy Ohio cannot predict the outcome of the appeal before the Ohio Supreme Court or future action by the PUCO. If Duke Energy Ohio is not able to recover these remediation costs in rates, the costs could have an adverse impact on Gas Utilities and Infrastructure’s financial position, results of operations and cash flows. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information. Commercial Renewables Years Ended December 31, 2016 2015 Variance 2016 vs. 2015 2014 Variance 2015 vs. 2014 Operating Revenues $ 484 $ 286 $ 198 $ 236 $ 50 Operating Expenses 492 322 170 231 91 Gains on Sales of Other Assets and Other, net 5 1 4 — 1 Operating (Loss) Income (3) (35) 32 5 (40) (in millions) Other Income and Expenses (83) 2 (85) 11 (9) Interest Expense 53 44 9 50 (6) Loss Before Income Taxes (139) (77) (62) (34) (43) Income Tax Benefit (160) (128) (32) (88) (40) (2) (1) (1) 1 (2) 52 $ (29) 53 $ (1) Less: (Loss) Income Attributable to Noncontrolling Interests $ Segment Income 23 $ $ Renewable plant production, GWh 7,565 5,577 1,988 5,462 115 Net proportional MW capacity in operation 2,892 1,943 949 1,370 573 Year Ended December 31, 2016 as Compared to 2015 Year Ended December 31, 2015 as Compared to 2014 Commercial Renewables’ lower earnings were primarily due to an impairment charge related to certain equity method investments in wind projects, partially offset by new wind and solar generation placed in service and improved wind production. The following is a detailed discussion of variance drivers by line item. Commercial Renewables’ results were impacted by new solar and wind generation placed in service, partially offset by unfavorable wind patterns. The following is a detailed discussion of variance drivers by line item. Operating Revenues. The variance was driven primarily by: Operating Revenues. The variance was driven primarily by: t a $41 million increase due to the acquisition of REC Solar; and t a $135 million increase due to growth of REC Solar, a California-based provider of solar installations acquired by Duke Energy in 2015; and t a $27 million increase from new solar and wind generation placed in service. t a $66 million increase from new wind and solar generation placed in service and improved wind production. Partially offset by: t an $18 million decrease due to lower wind production. Operating Expenses. The variance was driven primarily by: Operating Expenses. The variance was driven primarily by: t a $130 million increase in operating expenses due to growth of REC Solar; and t a $48 million increase in operating expenses due to the acquisition of REC Solar; and t a $36 million increase in operating expenses due to new wind and solar generation placed in service. t a $33 million increase in operating expenses due to new wind and solar generation placed in service. Other Income and Expenses. The variance was due to a $71 million pretax impairment charge related to certain equity method investments in wind projects. See Note 12 to the Consolidated Financial Statements, “Investments in Unconsolidated Affiliates,” for additional information. Other Income and Expenses. The variance was primarily due to lower equity earnings due to lower wind production. Interest Expense. The variance was primarily due to an increase in capitalized interest in 2015 from higher spending on wind and solar projects. Income Tax Benefit. The variance was primarily due to a decrease in pretax income and the impact of production tax credits (PTCs) for the renewables portfolio. Income Tax Benefit. The variance was primarily due to a decrease in pretax income and the impact of PTCs. 37 PART II Matters Impacting Future Commercial Renewables Results Renewables reporting units, goodwill impairment charges could be recorded. The carrying value of goodwill within Commercial Renewables was approximately $122 million at December 31, 2016. Persistently low market pricing for wind resources, primarily in the Energy Reliability Council of Texas West market, and the future expiration of tax incentives including Investment Tax Credits (ITCs) and PTCs could result in adverse impacts to the future results of Commercial Renewables. Changes or variability in assumptions used in calculating the fair value of the Commercial Renewables reporting units for goodwill testing purposes including but not limited to, legislative actions related to tax credit extensions, long-term growth rates and discount rates, could significantly impact the estimated fair value of the Commercial Renewables reporting units. In the event of a significant decline in the estimated fair value of the Commercial Other Years Ended December 31, 2016 2015 Variance 2016 vs. 2015 2014 Variance 2015 vs. 2014 Operating Revenues $ 117 $ 135 $ (18) $ 116 $ 19 Operating Expenses 604 409 195 528 (119) 23 18 5 6 12 (464) (256) (208) (406) 150 75 98 (23) 174 (76) (16) (in millions) Gains on Sales of Other Assets and Other, net Operating Loss Other Income and Expenses Interest Expense Loss Before Income Taxes Income Tax Benefit Less: Income attributable to Noncontrolling Interests Net Expense 693 393 300 409 (1,082) (551) (531) (641) 90 (446) (262) (184) (314) 52 9 10 (1) 5 5 $ (645) $ (299) $(346 ) $ (332) $ 33 Year Ended December 31, 2016 as Compared to 2015 Year Ended December 31, 2015 as Compared to 2014 Other’s higher net expense was driven by higher costs related to the Piedmont acquisition, higher charitable donations and higher interest expense related to the Piedmont acquisition financing. The following is a detailed discussion of the variance drivers by line item. Other’s lower net expense was driven by an impairment charge in 2014 related to the Ohio Valley Electric Corporation (OVEC) and lower Progress Energy merger costs, partially offset by lower earnings from NMC. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The decrease was primarily due to customer credits recorded in the fourth quarter related to Piedmont merger commitments. See Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions,” for additional information. Operating Revenues. The increase was primarily due to higher revenues from OVEC. Operating Expenses. The decrease was primarily due to an impairment charge in 2014 related to OVEC, lower charges related to the Progress Energy merger, and higher prior year captive insurance losses, partially offset by severance accruals and higher North Carolina franchise taxes. Operating Expenses. The increase was primarily due to transaction and integration costs associated with the Piedmont acquisition and increased donations to the Duke Energy Foundation, partially offset by a decrease in severance accruals. The Duke Energy Foundation is a nonprofit organization funded by Duke Energy shareholders that makes charitable contributions to selected nonprofits and government subdivisions. Gains on Sales of Other Assets and Other, net. The variance was primarily due to a gain on sale of telecommunication leases. Other Income and Expenses, net. The variance was primarily due to lower earnings from NMC, lower returns on investments that support employee benefit obligations and a gain on an investment sale in 2014, partially offset by interest income from the resolution of an income tax matter. Other Income and Expenses. The variance was primarily due to lower earnings from NMC, which was recast to Other following the sale of the International Disposal Group (See Note 3 to the Consolidated Financial Statements, “Business Segments”), partially offset by higher returns on investments that support employee benefit obligations. Income Tax Benefit. The variance was primarily due to a decrease in pretax losses. The effective tax rates for the years ended December 31, 2015 and 2014 were 47.5 percent and 49.0 percent, respectively. Interest Expense. The increase was primarily due to Piedmont acquisition financing, including bridge facility costs and losses on forwardstarting interest rate swaps. For additional information see Notes 2 and 14 to the Consolidated Financial Statements, “Acquisitions and Dispositions” and “Derivatives and Hedging,” respectively. Matters Impacting Future Other Results Included in Other is Duke Energy Ohio’s 9 percent ownership interest in OVEC, which owns 2,256 MW of coal fired generation capacity. As a counterparty to an inter-company power agreement (ICPA), Duke Energy Ohio has a contractual arrangement to receive entitlements to capacity and energy from OVEC’s power plants through June 2040 commensurate with its power participation ratio, which is equivalent to Duke Energy Ohio’s ownership interest. Costs, including fuel, operating expenses, fixed costs, debt amortization, and interest expense, Income Tax Benefit. The variance was primarily due to an increase in pretax losses, partially offset by a decrease in the effective tax rate. The effective tax rates for the years ended December 31, 2016 and 2015 were 41.2 percent and 47.5 percent, respectively. The decrease in the effective tax rate was primarily due to the benefit from legal entity restructuring recorded in 2015. 38 PART II (LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX are allocated to counterparties to the ICPA, including Duke Energy Ohio, based on their power participation ratio. The value of the ICPA is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business. Deterioration in the credit quality or bankruptcy of one or more parties to the ICPA could increase the costs of OVEC. In addition, certain proposed environmental rulemaking costs could result in future increased cost allocations. The retired Beckjord generating station (Beckjord), a nonregulated facility retired during 2014, is not subject to the EPA rule related to the disposal of CCR from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with on-site storage of coal ash, the costs could have an adverse impact on Other’s financial position, results of operations and cash flows. Earnings from an equity method investment in NMC reflect sales of methanol and MTBE, which generate margins that are directionally correlated with Brent crude oil prices. The recent decline in crude oil prices have reduced the earnings realized from NMC. Further weakness in the market price of Brent crude oil and related commodities may result in a further decline in earnings. Duke Energy’s economic ownership interest will decrease from 25 percent to 17.5 percent upon successful startup of NMC’s polyacetal production facility, which is expected to occur in the second quarter of 2017. U.S. federal tax reform has become an important priority of the current Congress and Administration. Any substantial revision to the U.S. tax code, including a loss of the ability to deduct interest expense, could adversely impact Duke Energy’s future earnings, cash flows or financial position. Year Ended December 31, 2016 as Compared to 2015 The variance was primarily driven by the loss on the disposal of Duke Energy’s Latin American generation business and an impairment charge related to certain assets in Central America, partially offset by a tax benefit related to historic unremitted foreign earnings and immaterial out of period tax adjustments unrelated to the Disposal Groups. See Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions,” for additional information. Year Ended December 31, 2015 as Compared to 2014 The variance was primarily due to the 2014 impairment of the Midwest Generation Disposal Group and a 2014 tax charge related to historic unremitted foreign earnings, partially offset by lower operating results of the International Disposal Group in 2015 compared to 2014. Operating results for the International Disposal Group in 2015 were impacted by lower demand, unfavorable hydrology in Brazil, changes in foreign currency exchange rates, the absence of a 2014 tax benefit related to the reorganization of Chilean operations and lower dispatch in Central America due to increased competition. DUKE ENERGY CAROLINAS Introduction Basis of Presentation Management’s Discussion and Analysis should be read in conjunction with the accompanying Consolidated Financial Statements and Notes for the years ended December 31, 2016, 2015 and 2014. The results of operations and variance discussion for Duke Energy Carolinas is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K. Results of Operations Years Ended December 31, (in millions) 2016 2015 Operating Revenues $ 7,322 $ 7,229 Operating Expenses 5,255 5,268 Loss on Sales of Other Assets and Other, net Operating Income Other Income and Expenses Interest Expense Income Before Income Taxes Income Tax Expense Net Income Variance $ 93 (13) (5) (1) (4) 2,062 1,960 102 162 160 2 424 412 12 1,800 1,708 92 634 627 $ 1,166 $ 1,081 7 $ 85 The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Carolinas. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized. Increase (Decrease) over prior year 2016 2015 Residential sales 0.1% (0.2)% General service sales 0.7% 1.0% Industrial sales (0.9)% 2.6% Wholesale power sales 9.8% 1.5% Joint dispatch sales (2.3)% (44.8)% Total sales 1.8% (1.3)% Average number of customers 1.4% 1.3% 39 PART II Year Ended December 31, 2016 as Compared to 2015 Income Tax Expense. The variance was primarily due to an increase in pretax income, partially offset by a lower effective tax rate. The effective tax rate for the years ended December 31, 2016 and 2015 were 35.2 percent and 36.7 percent, respectively. The decrease in the effective tax rate was primarily due to audit settlements and the impact of favorable tax return true-ups. Operating Revenues. The variance was driven primarily by: t a $91 million increase in retail pricing and rider revenues, including increased revenues related to energy efficiency programs and the expiration of the North Carolina cost of removal decrement rider; Matters Impacting Future Results t a $58 million increase in retail sales, net of fuel revenues, to retail customers due to more favorable weather compared to the prior year; and An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Duke Energy Carolinas’ financial position, results of operations and cash flows. See Notes 4 and 9 to the Consolidated Financial Statements, “Regulatory Matters” and “Asset Retirement Obligations,” respectively, for additional information. On May 18, 2016, the NCDEQ issued proposed risk classifications for all coal ash surface impoundments in North Carolina. All ash impoundments not previously designated as high priority by the Coal Ash Act were designated as intermediate risk. Certain impoundments classified as intermediate risk, however, may be reassessed in the future as low risk pursuant to legislation signed by the former North Carolina governor on July 14, 2016. Duke Energy Carolinas’ estimated AROs related to the closure of North Carolina ash impoundments are based upon the mandated closure method or a probability weighting of potential closure methods for the impoundments that may be reassessed to low risk. As the final risk ranking classifications in North Carolina are delineated, final closure plans and corrective action measures are developed and approved for each site, the closure work progresses, and the closure method scope and remedial action methods are determined, the complexity of work and the amount of coal combustion material could be different than originally estimated and, therefore, could materially impact Duke Energy Carolinas’ financial position. See Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations,” for additional information. Duke Energy Carolinas is a party to multiple lawsuits and subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact on Duke Energy Carolinas’ financial position, results of operations and cash flows. See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. Duke Energy Carolinas intends to file a rate case in North Carolina in 2017 to recover costs of complying with CCR regulations and the Coal Ash Act, as well as costs of capital investments in generation, transmission and distribution systems and any increase in expenditures subsequent to previous rate cases. Duke Energy Carolinas’ earnings could be adversely impacted if the rate case is delayed or denied by the NCUC. t a $45 million increase in wholesale power revenues, net of sharing, primarily due to additional demand from customers served under longterm contracts. Partially offset by: t a $106 million decrease in fuel revenues, driven primarily by lower fuel prices included in electric retail and wholesale rates. Operating Expenses. The variance was driven primarily by: t an $84 million decrease in fuel expense (including purchased power) primarily due to lower natural gas and coal prices, as well as changes in generation mix. Partially offset by: t a $41 million increase in operations and maintenance expense primarily due to costs associated with merger commitments related to the Piedmont acquisition in 2016, increased employee benefit costs, higher energy efficiency program costs, and higher storm restoration costs, partially offset by lower severance expenses, lower expenses at generating plants, lower costs associated with the Progress Energy merger and decreased corporate costs; t a $24 million increase in depreciation and amortization expense due to additional plant in service; and t a $7 million increase in property and other taxes primarily due to higher property taxes. Interest Expense. The variance was primarily due to higher debt outstanding in the current year. PROGRESS ENERGY Introduction Basis of Presentation Management’s Discussion and Analysis should be read in conjunction with the accompanying Consolidated Financial Statements and Notes for the years ended December 31, 2016, 2015 and 2014. The results of operations and variance discussion for Progress Energy is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K. 40 PART II Results of Operations Years Ended December 31, (in millions) 2016 2015 Operating Revenues $ 9,853 $10,277 $ (424) Operating Expenses 7,737 8,142 (405) 25 25 — 2,141 2,160 (19) 114 97 17 Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses Interest Expense Income Before Income Taxes Income Tax Expense Income from Continuing Operations Income (Loss) from Discontinued Operations, net of tax Net Income Less: Net Income Attributable to Noncontrolling Interests Net Income Attributable to Parent Variance 689 670 19 1,566 1,587 (21) 527 522 5 1,039 1,065 (26) 2 (3) 5 1,041 1,062 (21) 10 11 (1) $ 1,031 $ 1,051 $ (20) Other Income and Expenses. The variance is due to higher AFUDC equity return on certain projects at Duke Energy Florida. Year Ended December 31, 2016 as Compared to 2015 Operating Revenues. The variance was driven primarily by: t a $638 million decrease in fuel revenues due to lower fuel prices and changes in generation mix, partially offset by increased capacity rates to retail customers at Duke Energy Florida; and Interest Expense. The variance is due to higher debt outstanding, partially offset by higher AFUDC debt return on certain projects at Duke Energy Florida. t a $17 million decrease in retail sales, net of fuel revenue, due to unfavorable weather compared to the prior year at Duke Energy Florida. Income Tax Expense. The variance was primarily due to a higher effective tax rate, partially offset by lower pretax income. The effective tax rate for the 12 months ended December 31, 2016 and 2015 were 33.7 percent and 32.9 percent, respectively. Partially offset by: t a $188 million increase in rider revenues, including increased revenues related to energy efficiency programs, the additional ownership interest in certain generating assets acquired from NCEMPA in the third quarter of 2015, nuclear asset securitization revenues beginning in 2016, and an increase in energy conservation and environmental cost recovery clause revenues, partially offset by lower nuclear cost recovery clause (NCRC) rider revenues due to suspending recovery for the Levy nuclear project in 2015; and Matters Impacting Future Results An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Progress Energy’s financial position, results of operations and cash flows. See Notes 4 and 9 to the Consolidated Financial Statements, “Regulatory Matters” and “Asset Retirement Obligations,” respectively, for additional information. On May 18, 2016, the NCDEQ issued proposed risk classifications for all coal ash surface impoundments in North Carolina. All ash impoundments not previously designated as high priority by the Coal Ash Act were designated as intermediate risk. Certain impoundments classified as intermediate risk, however, may be reassessed in the future as low risk pursuant to legislation signed by the former North Carolina governor on July 14, 2016. Duke Energy Progress’ estimated AROs related to the closure of North Carolina ash impoundments are based upon the mandated closure method or a probability weighting of potential closure methods for the impoundments that may be reassessed to low risk. As the final risk ranking classifications in North Carolina are delineated, final closure plans and corrective action measures are developed and approved for each site, the closure work progresses, and the closure method scope and remedial action methods are determined, the complexity of work and the amount of coal combustion material could be different than originally estimated and, therefore, could materially impact Duke Energy Progress’ financial position. See Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations,” for additional information. Duke Energy Progress is a party to multiple lawsuits and subject to fines and other penalties related to operations at certain North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact on Progress Energy’s financial position, results of operations and cash flows. See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. t a $34 million increase in wholesale power revenues primarily due to the NCEMPA contract, partially offset by lower peak demand at Duke Energy Progress and contracts that expired in the prior year at Duke Energy Florida. Operating Expenses. The variance was driven primarily by: t a $581 million decrease in fuel expense primarily due to lower natural gas prices, changes in generation mix, lower deferred fuel expense, and lower generation costs, partially offset by increased purchased power. Partially offset by: t a $96 million increase in depreciation and amortization expense primarily due to additional plant in service, including the additional ownership interest in generation assets acquired from NCEMPA; and t an $84 million increase in operations and maintenance expense due to costs associated with merger commitments related to the Piedmont acquisition in 2016, higher employee benefit costs, and higher storm restoration costs at Duke Energy Progress, partially offset by lower nuclear costs and severance costs at Duke Energy Progress and lower costs related to fleet maintenance work at Duke Energy Florida. 41 PART II In the fourth quarter of 2016, Hurricane Matthew caused historic flooding, extensive damage and widespread power outages within the Duke Energy Progress service territory. Duke Energy Progress filed a petition with the NCUC requesting an accounting order to defer approximately $140 million of incremental operation and maintenance and capital costs incurred in response to Hurricane Matthew and other significant 2016 storms. The NCUC has not ruled on the petition. A final order from the NCUC that disallows the deferral and future recovery of all or a significant portion of the incremental storm restoration costs incurred could result in an adverse impact on Progress Energy’s financial position, results of operations and cash flows. Duke Energy Progress intends to file a rate case in North Carolina in 2017 to recover costs of complying with CCR regulations and the Coal Ash Act, as well as costs of capital investments in generation, transmission and distribution systems and any increase in expenditures subsequent to previous rate cases. Progress Energy’s earnings could be adversely impacted if the rate case is delayed or denied by the NCUC. DUKE ENERGY PROGRESS Introduction Basis of Presentation Management’s Discussion and Analysis should be read in conjunction with the accompanying Consolidated Financial Statements and Notes for the years ended December 31, 2016, 2015 and 2014. The results of operations and variance discussion for Duke Energy Progress is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K. Results of Operations Years Ended December 31, (in millions) 2016 2015 Variance Operating Revenues $ 5,277 $ 5,290 $ (13) Operating Expenses 4,194 4,269 (75) 3 3 — 1,086 1,024 62 71 71 — Gains on Sales of Other Asset and Other, net Operating Income Other Income and Expenses Interest Expense 257 235 22 Income Before Income Taxes 900 860 40 301 Income Tax Expense $ Net Income 599 $ 294 7 566 $ 33 The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Progress. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized. Increase (Decrease) over prior year Residential sales 2016 2015 (1.5)% (1.4)% General service sales 0.2% 0.9% Industrial sales (0.1)% (0.3)% Wholesale power sales 18.4% 13.0% Joint dispatch sales 17.7% 14.1% Total sales 6.4% 3.2% Average number of customers 1.3% 1.4% Operating Revenues. The variance was driven primarily by: t a $65 million increase in wholesale power revenues primarily due to the NCEMPA contract effective August 1, 2015, partially offset by lower peak demand. t a $206 million decrease in fuel revenues driven by lower natural gas prices and changes in generation mix; Operating Expenses. The variance was driven primarily by: t a $17 million decrease in intercompany Joint Dispatch Agreement (JDA) revenues; and t a $199 million decrease in fuel expense primarily due to lower natural gas prices and changes in generation mix. t a $5 million decrease in transmission revenues due to a settlement with customers that reduced the rate of return on equity. Partially offset by: Year Ended December 31, 2016 as Compared to 2015 t a $61 million increase in depreciation and amortization expense primarily due to additional plant in service, including the additional ownership interest in generating assets acquired from NCEMPA; Partially offset by: t a $150 million increase in rider revenues due to the purchase of NCEMPA’s ownership interest in certain generating assets and energy efficiency programs; and 42 PART II t a $51 million increase in operations and maintenance expense primarily due to a favorable pension expense adjustment recorded in 2015, costs associated with merger commitments related to the Piedmont acquisition in 2016, higher storm restoration costs, and higher employee benefit costs, partially offset by lower nuclear costs (net of nuclear levelization) due to fewer outages in 2016 and lower severance costs; and Progress’ estimated AROs related to the closure of North Carolina ash impoundments are based upon the mandated closure method or a probability weighting of potential closure methods for the impoundments that may be reassessed to low risk. As the final risk ranking classifications in North Carolina are delineated, final closure plans and corrective action measures are developed and approved for each site, the closure work progresses, and the closure method scope and remedial action methods are determined, the complexity of work and the amount of coal combustion material could be different than originally estimated and, therefore, could materially impact Duke Energy Progress’ financial position. See Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations,” for additional information. Duke Energy Progress is a party to multiple lawsuits and subject to fines and other penalties related to operations at certain North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact on Duke Energy Progress’ financial position, results of operations and cash flows. See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. In the fourth quarter of 2016, Hurricane Matthew caused historic flooding, extensive damage and widespread power outages within the Duke Energy Progress service territory. Duke Energy Progress filed a petition with the NCUC requesting an accounting order to defer approximately $140 million of incremental operation and maintenance and capital costs incurred in response to Hurricane Matthew and other significant 2016 storms. The NCUC has not ruled on the petition. A final order from the NCUC that disallows the deferral and future recovery of all or a significant portion of the incremental storm restoration costs incurred could result in an adverse impact on Duke Energy Progress’ financial position, results of operations and cash flows. Duke Energy Progress intends to file a rate case in North Carolina in 2017 to recover costs of complying with CCR regulations and the Coal Ash Act, as well as costs of capital investments in generation, transmission and distribution systems and any increase in expenditures subsequent to previous rate cases. Duke Energy Progress’ earnings could be adversely impacted if the rate case is delayed or denied by the NCUC. t a $15 million increase in property and other taxes due to a 2015 North Carolina Franchise Tax refund and increases in current year property taxes in North Carolina and South Carolina. Interest Expense. The variance was due to higher debt outstanding. Income Tax Expense. The variance was primarily due to an increase in pretax income, partially offset by a lower effective tax rate. The effective tax rate for the years ended December 31, 2016 and 2015 were 33.4 percent and 34.2 percent, respectively. The decrease in the effective tax rate was primarily due to the impact of favorable tax return true-ups and a rate change in North Carolina. Matters Impacting Future Results An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Duke Energy Progress’ financial position, results of operations and cash flows. See Notes 4 and 9 to the Consolidated Financial Statements, “Regulatory Matters” and “Asset Retirement Obligations,” respectively, for additional information. On May 18, 2016, the NCDEQ issued proposed risk classifications for all coal ash surface impoundments in North Carolina. All ash impoundments not previously designated as high priority by the Coal Ash Act were designated as intermediate risk. Certain impoundments classified as intermediate risk, however, may be reassessed in the future as low risk pursuant to legislation signed by the former North Carolina governor on July 14, 2016. Duke Energy DUKE ENERGY FLORIDA Introduction Basis of Presentation Management’s Discussion and Analysis should be read in conjunction with the accompanying Consolidated Financial Statements and Notes for the years ended December 31, 2016, 2015 and 2014. The results of operations and variance discussion for Duke Energy Florida is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K. Results of Operations Years Ended December 31, (in millions) 2016 2015 Variance Operating Revenues $ 4,568 $ 4,977 $ (409) Operating Expenses 3,527 3,862 (335) Operating Income 1,041 1,115 (74) 44 24 20 Interest Expense 212 198 14 Income Before Income Taxes 873 941 (68) Other Income and Expenses 322 Income Tax Expense $ Net Income 551 342 $ 599 (20) $ The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Florida. The below percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized. 43 (48) PART II Increase (Decrease) over prior year 2016 2015 Residential sales 1.7% 4.9% General service sales (0.1)% 2.4% Industrial sales (2.9)% 0.8% Wholesale and other 35.2% (2.3)% Total sales 0.9% 3.5% Average number of customers 1.5% 1.5% t a $20 million decrease in property and other taxes due to lower revenue related taxes compared to the prior year. Year Ended December 31, 2016 as Compared to 2015 Operating Revenues. The variance was driven primarily by: Partially offset by: t a $432 million decrease in fuel and capacity revenues primarily due to lower fuel prices to retail customers, partially offset by increased capacity rates to retail customers; t a $35 million increase in depreciation and amortization expense primarily due to an increase in base assets and clause amortization; and t a $31 million decrease in wholesale power revenues primarily driven by contracts that expired in the prior year; and t a $33 million increase in operations and maintenance expense primarily due to higher employee benefit costs and costs recoverable through the energy conservation cost recovery clause, partially offset by lower costs related to fleet maintenance work. t a $17 million decrease in retail sales, net of fuel revenue, due to unfavorable weather compared to the prior year. Partially offset by: Other Income and Expenses. The variance was primarily driven by higher AFUDC equity return on the Citrus County Combined Cycle and Hines Chiller Uprate projects in the current year. t a $38 million increase in rider revenues primarily due to nuclear asset securitization revenues beginning in 2016, and an increase in energy conservation cost recovery clause and environmental cost recovery clause revenues due to higher recovery rates in 2016, partially offset by a decrease in NCRC revenues as a result of suspending recovery of the Levy nuclear project in 2015; Interest Expense. The variance was due to new bonds issued in 2016, partially offset by higher AFUDC debt return on the Citrus County Combined Cycle and Hines Chiller Uprate projects in the current year. t a $19 million increase in other revenues primarily due to a customer settlement charge taken in the prior year, increased transmission demand and higher transmission rates; and Income Tax Expense. The variance was primarily due to lower pretax income, partially offset by a higher effective tax rate. The effective tax rate for the years ended December 31, 2016 and 2015 were 36.9 percent and 36.3 percent, respectively. The increase in effective tax rate was primarily due the release of tax reserves in 2015 due to expired tax statutes, partially offset by higher AFUDC equity. t a $16 million increase in weather-normal sales volumes to retail customers in the current year. Operating Expenses. The variance was driven primarily by: t a $382 million decrease in fuel expense primarily due to lower deferred fuel expense and lower generation costs, partially offset by increased purchased power; and DUKE ENERGY OHIO Introduction Basis of Presentation Management’s Discussion and Analysis should be read in conjunction with the accompanying Consolidated Financial Statements and Notes for the years ended December 31, 2016, 2015 and 2014. The results of operations and variance discussion for Duke Energy Ohio is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K. Results of Operations (in millions) Operating Revenues Operating Expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses Interest Expense Income from Continuing Operations Before Income Taxes Income Tax Expense from Continuing Operations Income from Continuing Operations Income from Discontinued Operations, net of tax Net Income 2016 $ 1,944 1,599 2 347 9 86 270 78 192 36 $ 228 44 Years Ended December 31, 2015 Variance $ 1,905 $ 39 1,610 (11) 8 (6) 303 44 6 3 79 7 230 40 81 (3) 149 43 23 13 $ 172 $ 56 PART II The following table shows the percent changes in GWh sales of electricity and average number of electric customers for Duke Energy Ohio. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized. Increase (Decrease) over prior year 2016 2015 0.7% (2.2)% General service sales 1.3% (0.1)% Industrial sales (0.7)% 0.4% Residential sales (53.9)% 222.3% Total sales (1.1)% 2.8% Average number of customers 0.8% 0.7% Wholesale power sales Year Ended December 31, 2016 as Compared to 2015 Matters Impacting Future Results Operating Revenues. The variance was driven primarily by: An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact on Duke Energy Ohio’s financial position, results of operations and cash flows. See Notes 4 and 9 to the Consolidated Financial Statements, “Regulatory Matters” and “Asset Retirement Obligations,” respectively, for additional information. Duke Energy Ohio’s nonregulated Beckjord station, a facility retired during 2014, is not subject to the EPA rule related to the disposal of CCR from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with on-site storage of coal ash at the facility, the costs could have an adverse impact on Duke Energy Ohio’s financial position, results of operations and cash flows. In 2013, the PUCO issued an order (PUCO order) approving Duke Energy Ohio’s recovery of costs incurred between 2008 and 2012 for environmental investigation and remediation of two former MGP sites. At December 31, 2016, Duke Energy Ohio had recorded in Regulatory assets on the Consolidated Balance Sheet approximately $99 million of estimated MGP remediation costs not yet recovered through the MGP rider mechanism. Intervenors have appealed to the Ohio Supreme Court the PUCO order authorizing recovery of these amounts. That appeal remains pending. Duke Energy Ohio cannot predict the outcome of the appeal before the Ohio Supreme Court or future action by the PUCO. If Duke Energy Ohio is not able to recover these remediation costs in rates, the costs could have an adverse impact on Duke Energy Ohio’s financial position, results of operations and cash flows. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information. Duke Energy Ohio has a 9 percent ownership interest in OVEC, which owns 2,256 MW of coal fired generation capacity. As a counterparty to an ICPA, Duke Energy Ohio has a contractual arrangement to receive entitlements to capacity and energy from OVEC’s power plants through June 2040 commensurate with its power participation ratio, which is equivalent to Duke Energy Ohio’s ownership interest. Costs, including fuel, operating expenses, fixed costs, debt amortization, and interest expense, are allocated to counterparties to the ICPA, including Duke Energy Ohio, based on their power participation ratio. The value of the ICPA is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business. Deterioration in the credit quality or bankruptcy of one or more parties to the ICPA could increase the costs of OVEC. In addition, certain proposed environmental rulemaking costs could result in future increased cost allocations. Duke Energy Ohio has notified the PUCO of its intent to file an electric distribution rate case in Ohio to address recovery of electric distribution system capital investments and any increase in expenditures subsequent to previous rate cases. Duke Energy Ohio’s earnings could be adversely impacted if the rate case is delayed or denied by the PUCO. t a $61 million increase in rider revenues primarily due to increased rates and true-ups. Partially offset by: t a $25 million decrease in fuel revenues driven by lower electric fuel and natural gas prices and decreased natural gas sales volumes. Operating Expenses. The variance was driven by: t a $38 million decrease in the cost of natural gas, primarily due to decreased volumes and lower natural gas prices. Partially offset by: t a $17 million increase in operations and maintenance expense primarily due to increased spending on energy efficiency programs, higher PJM transmission owner scheduling and reactive supply expenses, and increased costs related to distribution projects and inspection maintenance programs, partially offset by lower allocated corporate costs; t a $6 million increase in depreciation and amortization expense due to additional plant in service; and t a $4 million increase in property and other taxes due to higher property taxes. Income Tax Expense. The variance was primarily due to a lower effective tax rate, partially offset by an increase in pretax income. The effective tax rate for the years ended December 31, 2016 and 2015 were 28.9 percent and 35.2 percent, respectively. The decrease in the effective tax rate was primarily due to an immaterial out of period adjustment related to deferred tax balances associated with property, plant and equipment. Income from Discontinued Operations, Net of Tax. The variance was primarily due to an income tax benefit resulting from immaterial out of period deferred tax liability adjustments related to the Midwest Generation Disposal Group, partially offset by the Midwest Generation Disposal Group’s operating results in 2015. See Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions,” for additional information. 45 PART II DUKE ENERGY INDIANA Introduction Basis of Presentation Management’s Discussion and Analysis should be read in conjunction with the accompanying Consolidated Financial Statements and Notes for the years ended December 31, 2016, 2015 and 2014. The results of operations and variance discussion for Duke Energy Indiana is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K. Results of Operations Years Ended December 31, (in millions) 2016 2015 Variance Operating Revenues $ 2,958 $ 2,890 $ 68 Operating Expenses 2,194 2,247 (53) Gains on Sales of Other Assets and Other, net Operating Income 1 1 — 765 644 121 11 22 11 Interest Expense 181 176 5 Income Before Income Taxes 606 479 127 Other Income and Expenses Income Tax Expense Net Income 225 163 62 $ 381 $ 316 $ 65 The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Indiana. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized. Increase (Decrease) over prior year 2016 2015 Residential sales (0.4)% (4.1)% General service sales 0.7% (0.5)% Industrial sales 0.4% (1.4)% 10.8% 9.4% Wholesale power sales Total sales 2.5% 0.3% Average number of customers 1.1% 0.8% t a $94 million increase in rider revenues related to clean coal equipment and Edwardsport IGCC; and t a $40 million increase in operations and maintenance expense due to 2016 costs at Edwardsport IGCC in excess of the settlement cap and increased costs related to energy efficiency programs and clean coal technology that are recoverable through rate riders, partially offset by decreased expenses at several generating plants; and t a $20 million increase in wholesale power revenues due to new contracts and higher demand. t an $8 million impairment charge in the current year related to the early retirement of certain metering equipment. Year Ended December 31, 2016 as Compared to 2015 Operating Revenues. The variance was driven primarily by: Other Income and Expense. The variance was driven primarily by an increase in AFUDC equity in the current year and certain costs resulting from the 2015 Edwardsport IGCC settlements in the prior year. Partially offset by: t a $50 million decrease in fuel revenues primarily due to a decrease in fuel prices. t an $88 million pretax impairment charge in the prior year related to the 2015 Edwardsport IGCC settlements. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rates for the years ended December 31, 2016 and 2015 were 37.1 percent and 34.0 percent, respectively. The increase in the effective tax rate was primarily due to an immaterial out of period adjustment to deferred tax balances in 2015 associated with property, plant and equipment and the reclassification of state tax credits from income tax to general franchise tax in 2016. Partially offset by: Matters Impacting Future Results t a $62 million increase in depreciation and amortization expense primarily due to additional plant in service, as well as increased depreciation related to AROs; 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 Operating Expenses. The variance was driven primarily by: t a $73 million decrease in fuel expense primarily due to lower fuel prices and lower purchased power costs; and 46 PART II 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. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact on Duke Energy Indiana’s financial position, results of operations and cash flows. The IURC approved a settlement agreement between Duke Energy Indiana and multiple parties that resolves all disputes, claims and issues from the IURC proceedings related to post-commercial operating performance and recovery of ongoing operating and capital costs at the Edwardsport IGCC generating facility. Pursuant to the terms of this agreement, the agreement imposes a cost cap for retail recoverable operations and maintenance costs through 2017. An inability to manage operating costs in accordance with caps imposed pursuant to the agreement could have an adverse impact on Duke Energy Indiana’s financial position, results of operations and cash flows. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information. regulatory assets, or may disallow recovery of all or a portion of certain assets. For further information on regulatory assets and liabilities, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.” As required by regulated operations accounting rules, significant judgment can be required to determine if an otherwise recognizable incurred cost, such as closure costs for ash impoundments, qualifies to be deferred for future recovery as a regulatory asset. Significant judgment can also be required to determine if revenues previously recognized are for entity specific costs that are no longer expected to be or have not yet been incurred and are therefore a regulatory liability. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for a more in-depth discussion of Regulatory Assets and Liabilities. Regulated operations accounting rules also require recognition of a disallowance (also called “impairment”) loss if it becomes probable that part of the cost of a plant under construction (or a recently completed or an abandoned plant) will be disallowed for ratemaking purposes and a reasonable estimate of the amount of the disallowance can be made. For example, if a cost cap is set for a plant still under construction, the amount of the disallowance is a result of a judgment as to the ultimate cost of the plant. Other disallowances can require judgments on allowed future rate recovery. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for a discussion of disallowances recorded related to the Edwardsport IGCC Plant, the retired Crystal River Unit 3 Nuclear Plant (Crystal River Unit 3) and the Grid Infrastructure Improvement Plan. When it becomes probable that regulated assets will be abandoned, the cost of the asset is removed from plant in service. The value that may be retained as a regulatory asset on the balance sheet for the abandoned property is dependent upon amounts that may be recovered through regulated rates, including any return. As such, an impairment charge, if any, could be partially or fully offset by the establishment of a regulatory asset if rate recovery is probable. The impairment for a disallowance of costs for regulated plants under construction, recently completed or abandoned is based on discounted cash flows. For further information, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.” CRITICAL ACCOUNTING POLICIES AND ESTIMATES Preparation of financial statements requires the application of accounting policies, judgments, assumptions and estimates that can significantly affect the reported results of operations, cash flows or the amounts of assets and liabilities recognized in the financial statements. Judgments made include the likelihood of success of particular projects, possible legal and regulatory challenges, earnings assumptions on pension and other benefit fund investments and anticipated recovery of costs, especially through regulated operations. Management discusses these policies, estimates and assumptions with senior members of management on a regular basis and provides periodic updates on management decisions to the Audit Committee of the Board of Directors. Management believes the areas described below require significant judgment in the application of accounting policy or in making estimates and assumptions that are inherently uncertain and that may change in subsequent periods. For further information, see Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.” Goodwill Impairment Assessments Duke Energy allocates goodwill to reporting units, which are either the Business Segments listed in Note 3 to the Consolidated Financial Statements or one level below based on how the Business Segment is managed. Duke Energy is required to test goodwill for impairment at least annually and more frequently if it is more likely than not that the fair value is less than the carrying value. Duke Energy performs its annual impairment test as of August 31. Application of the goodwill impairment test requires management’s judgment, including determining the fair value of the reporting unit, which management estimates using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries. Significant assumptions used in these fair value analyses include discount and growth rates, future rates of return expected to result from ongoing rate regulation, utility sector market performance and transactions, projected operating and capital cash flows for Duke Energy’s business and the fair value of debt. Estimated future cash flows under the income approach are based to a large extent on Duke Energy’s internal business plan, and adjusted as appropriate for Duke Energy’s views of market participant assumptions. Duke Energy’s internal business plan reflects management’s assumptions related to customer usage and attrition based on internal data and economic data obtained from third-party sources, projected commodity pricing data and potential changes in environmental regulations. The business plan assumes the occurrence of certain events in the future, such as the outcome of future rate filings, future approved rates of returns on equity, anticipated earnings/returns related to significant future capital investments, continued recovery of cost of service, the renewal of certain contracts and the future of renewable tax credits. Regulated Operations Accounting Duke Energy’s regulated operations meet the criteria for application of regulated operations accounting treatment for substantially all of its operations. As a result, Duke Energy records 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 generally represent obligations to make refunds or reduce rates to customers for previous collections or deferred revenue for costs that have yet to be incurred. Regulatory assets and liabilities can also be recorded for Alternative Revenue Programs (ARP), such as rate stabilization adjustment mechanisms and weather normalization adjustments. These programs allow for the deferral or accrual of revenues to provide recovery of approved margins on an annual basis independent of weather and consumption patterns. Duke Energy also has ARPs that relate to energy efficiency programs. 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 47 PART II Management also makes assumptions regarding operation, maintenance and general and administrative costs based on the expected outcome of the aforementioned events. In estimating cash flows, Duke Energy incorporates expected growth rates, regulatory and economic stability, the ability to renew contracts and other factors, into its revenue and expense forecasts. One of the most significant assumptions that Duke Energy utilizes in determining the fair value of its reporting units under the income approach is the discount rate applied to the estimated future cash flows. Management determines the appropriate discount rate for each of its reporting units based on the weighted average cost of capital (WACC) for each individual reporting unit. The WACC takes into account both the after-tax cost of debt and cost of equity. A major component of the cost of equity is the current risk-free rate on 20-year U.S. Treasury bonds. In the 2016 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, 2016, for each of Duke Energy’s domestic reporting units ranged from 5.2 percent to 15 percent. The underlying assumptions and estimates are made as of a point in time. Subsequent changes, particularly changes in the discount rates, authorized regulated rates of return or growth rates inherent in management’s estimates of future cash flows, could result in future impairment charges. For Duke Energy’s international operations, a country-specific risk adder based on the average risk premium for each separate country in which International Energy operates was added to the base discount rate to reflect the differing risk profiles. This resulted in a discount rate for the August 31, 2016, goodwill impairment test for the international operations of 11.5 percent. In December 2016, Duke Energy disposed of its international operations and no longer has goodwill associated with the international operations. For further information, see Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions.” Duke Energy primarily operates in environments that are either fully or partially rate-regulated. In such environments, revenue requirements are adjusted periodically by regulators based on factors including levels of costs, sales volumes and costs of capital. Accordingly, Duke Energy’s regulated utilities operate to some degree with a buffer from the direct effects, positive or negative, of significant swings in market or economic conditions. However, significant changes in discount rates over a prolonged period may have a material impact on the fair value of equity. As of August 31, 2016, all of the reporting units’ estimated fair value of equity substantially exceeded the carrying value of equity. For further information, see Note 11 to the Consolidated Financial Statements, “Goodwill and Intangible Assets.” and earnings on the nuclear decommissioning trust fund (NDTF). As a result, amounts recovered in regulated revenues, earnings on the NDTF, accretion expense and depreciation of the associated asset are netted and deferred as a regulatory asset or liability. Obligations for nuclear decommissioning are based on-site-specific cost studies. Duke Energy Carolinas and Duke Energy Progress assume prompt dismantlement of the nuclear facilities after operations are ceased. Duke Energy Florida assumes Crystal River Unit 3 will be placed into a safe storage configuration until eventual dismantlement is completed by 2074. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida also assume that spent fuel will be stored on-site until such time that it can be transferred to a yet to be built U.S. Department of Energy (DOE) facility. Obligations for closure of ash basins are based upon discounted cash flows of estimated costs for site-specific plans, if known, or probability weightings of the potential closure methods if the closure plans are under development and multiple closure options are being considered and evaluated on a site-by-site basis. For further information, see Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations.” Long-Lived Asset Impairment Assessments, Excluding Regulated Operations Property, plant and equipment, excluding plant held for sale, is stated at the lower of carrying value (historical cost less accumulated depreciation and previously recorded impairments) or fair value, if impaired. Duke Energy evaluates property, plant and equipment for impairment when events or changes in circumstances (such as a significant change in cash flow projections or the determination that it is more likely than not that an asset or asset group will be sold) indicate the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared with their carrying value. Performing an impairment evaluation involves a significant degree of estimation and judgment in areas such as identifying circumstances that indicate an impairment may exist, identifying and grouping affected assets and developing the undiscounted future cash flows. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value and recording a loss if the carrying value is greater than the fair value. Additionally, determining fair value requires probability weighting future cash flows to reflect expectations about possible variations in their amounts or timing and the selection of an appropriate discount rate. Although cash flow estimates are based on relevant information available at the time the estimates are made, estimates of future cash flows are, by nature, highly uncertain and may vary significantly from actual results. For assets identified as held for sale, the carrying value is compared to the estimated fair value less cost to sell to determine if an impairment loss is required. Until the assets are disposed of, their estimated fair value is re-evaluated when circumstances or events change. When determining whether an asset or asset group has been impaired, management groups assets at the lowest level that has discrete cash flows. Asset Retirement Obligations AROs are recognized for legal obligations associated with the retirement of property, plant and equipment. Substantially all AROs are related to regulated operations. When recording an ARO, the present value of the projected liability is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The liability is accreted over time. For operating plants, the present value of the liability is added to the cost of the associated asset and depreciated over the remaining life of the asset. For retired plants, the present value of the liability is recorded as a regulatory asset unless determined not to be recoverable. The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding timing of future cash flows, selection of discount rates and cost escalation rates, among other factors. These estimates are subject to change. Depreciation expense is adjusted prospectively for any changes to the carrying amount of the associated asset. The Duke Energy Registrants receive amounts to fund the cost of the ARO for regulated operations through a combination of regulated revenues Revenue Recognition Revenues are recognized when either the electric service is provided or the natural gas is delivered. As retail meters are read, invoices are prepared and the invoice amount is generally recognized as “billed” revenue. Operating revenues also include “unbilled” electric and natural gas revenues for the amount of service provided or product delivered after the last meter reading prior to the end of the accounting period. Unbilled retail revenues are estimated by applying an average revenue per kilowatt-hour (kWh), per thousand cubic feet (Mcf) or per dekatherm (dth) for all customer classes to the number of estimated kWh, Mcf or dth delivered but not yet billed. For wholesale customers, the invoice amount is generally recognized as “billed” revenue. Although meters are read as of the end of the month, invoices 48 PART II have typically not been prepared. An estimate of the wholesale invoice is included in the reported amount of “unbilled” revenue. In addition, adjustments to accounts receivable or accruals of accounts payable are sometimes recorded to contracts billed under estimated formula rates, which are subsequently trued-up in the following year. The amount of unbilled revenues can vary significantly from period to period as a result of numerous factors that impact the change in the unbilled revenue receivable balance, including seasonality, weather, customer usage patterns, customer mix, timing of rendering customer bills, meter readings schedules and the average price in effect for customer classes. (6.75 percent for Piedmont pension and other post-retirement plan assets). 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. Equity securities are held for their higher expected returns. Debt securities are primarily held to hedge the pension liability. Hedge funds, real estate and other global securities are held for diversification. Investments within asset classes are diversified to achieve broad market participation and reduce the impact of individual managers on investments. In 2013, Duke Energy adopted a de-risking investment strategy for its pension assets. As the funded status of the plans increase, over time the targeted allocation to return-seeking assets will be reduced and the targeted allocation to fixed-income assets will be increased to better manage Duke Energy’s pension assets and reduce funded status volatility. Based on the current funded status of the plans, the asset allocation for the Duke Energy pension plans is 63 percent fixed-income assets and 37 percent return-seeking assets. The asset allocation for the Piedmont assets is 61 percent return-seeking assets and 39 percent liability hedging fixed-income assets. Duke Energy regularly reviews its actual asset allocation and periodically rebalances its investments to the targeted allocations when considered appropriate. The assets for Duke Energy’s pension and other post-retirement plans are maintained in a master retirement trust. Piedmont also has qualified pension and other post-retirement assets. Duke Energy also invests other post-retirement assets in Voluntary Employees’ Beneficiary Association trusts and mutual funds within a Piedmont 401(h) account (excludes 401(h) accounts within the master retirement trust). The investment objective is to achieve sufficient returns, subject to a prudent level of portfolio risk, for the purpose of promoting the security of plan benefits for participants. Duke Energy discounted its future U.S. pension and other post-retirement obligations using a rate of 4.1 percent as of December 31, 2016. 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, 2016, Duke Energy determined its discount rate for U.S. pension and other postretirement 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 2016 pretax pension expense, pretax other post-retirement expense, pension obligation and other post-retirement benefit obligation if a 0.25 percent change in rates were to occur. 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 postretirement benefits are the expected long-term rate of return on plan assets and the assumed discount rate applied to future projected benefit payments. Additionally, the health care cost trend rate assumption is critical to Duke Energy’s estimate of other post-retirement benefits. Duke Energy elects to amortize net actuarial gains or losses in excess of the corridor of 10 percent of the greater of the market-related value of plan assets or plan projected benefit obligation, into net pension or other postretirement benefit expense over the average remaining service period of active covered employees. Prior service cost or credit, which represents the effect on plan liabilities due to plan amendments, is amortized over the average remaining service period of active covered employees. Duke Energy, or its affiliates, maintain, and the Subsidiary Registrants participate in, qualified, non-contributory defined benefit retirement plans. The plans cover most U.S. employees using a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits based upon a percentage of current eligible earnings based on age and years of service and current interest credits. Certain employees are covered under plans that use a final average earnings formula. As of January 1, 2014, the qualified and non-qualified, non-contributory defined benefit plans are closed to new and rehired non-union, and certain unionized employees. Piedmont employees hired or rehired after December 31, 2007, cannot participate in the qualified, non-contributory defined benefit plans, but are participants in a Money Purchase Pension plan. Duke Energy, or its affiliates, maintain, and the Subsidiary Registrants participate in, non-qualified, noncontributory defined benefit retirement plans, which cover certain executives. Duke Energy provides some health care and life insurance benefits for retired employees on a contributory and non-contributory basis. Certain employees are eligible for these benefits if they have met age and service requirements at retirement, as defined in the plans. These plans are closed to new participants. As of December 31, 2016, Duke Energy assumes pension and other postretirement plan assets will generate a long-term rate of return of 6.50 percent Qualified and NonQualified Pension Plans (in millions) Effect on 2016 pretax pension and other post-retirement expense Expected long-term rate of return Discount rate Effect on pension and other post-retirement benefit obligation at December 31, 2016 Discount rate 49 Other Post-Retirement Plans 0.25% (0.25)% 0.25% $ (20) (17) $ 20 17 $ (1) (1) (202) 207 (17) (0.25)% $ 1 1 17 PART II Duke Energy’s other post-retirement plan uses a health care trend rate covering both pre- and post-age 65 retired plan participants, which is comprised of a medical care trend rate, which reflects the near- and long-term expectation of increases in medical costs, and a prescription drug trend rate, which reflects the nearand long-term expectation of increases in prescription drug costs. As of December 31, 2016, the health care trend rate was 7 percent, trending down to 4.75 percent by 2023. The following table presents the approximate effect on Duke Energy’s 2016 pretax other post-retirement expense and other post-retirement benefit obligation if a 1 percentage point change in the health care trend rate were to occur. These plans are closed to new hires. Other Post-Retirement Plans (in millions) 1% Effect on 2016 other post-retirement expense Effect on other post-retirement benefit obligation at December 31, 2016 (1)% $ 5 $ (5) 29 (25) For further information, see Note 21 to the Consolidated Financial Statements, “Employee Benefit Plans.” when: (i) the taxing authority has completed its examination procedures, including all appeals and administrative reviews; (ii) the Duke Energy Registrants do not intend to appeal or litigate the tax position included in the completed examination; and (iii) it is remote the taxing authority would examine or re-examine the tax position. The amount of a tax return position that is not recognized in the financial statements is disclosed as an unrecognized tax benefit. If these unrecognized tax benefits are later recognized, then there will be a decrease in income tax expense or a reclassification between deferred and current taxes payable. If the portion of tax benefits that has been recognized changes and those tax benefits are subsequently unrecognized, then the previously recognized tax benefits may impact the financial statements through increasing income tax expense or a reclassification between deferred and current taxes payable. Changes in assumptions on tax benefits may also impact interest expense or interest income and may result in the recognition of tax penalties. Tax-related interest and penalties are recorded in Interest Expense and Other Income and Expenses, net, in the Consolidated Statements of Operations. Income Taxes Duke Energy and its subsidiaries file a consolidated federal income tax return and other state returns. The Subsidiary Registrants entered into a taxsharing agreement with Duke Energy. Income taxes recorded represent amounts the Subsidiary Registrants would incur as separate C-Corporations. Deferred income taxes have been provided for temporary differences between GAAP and tax bases of assets and liabilities because the differences create taxable or tax-deductible amounts for future periods. ITCs associated with regulated operations are deferred and amortized as a reduction of income tax expense over the estimated useful lives of the related properties. Positions taken or expected to be taken on tax returns, including the decision to exclude certain income or transactions from a return, are recognized in the financial statements when it is more likely than not the tax position can be sustained based solely on the technical merits of the position. The largest amount of tax benefit that is greater than 50 percent likely of being effectively settled is recorded. Management considers a tax position effectively settled LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash Duke Energy relies primarily upon cash flows from operations, debt issuances and its existing cash and cash equivalents to fund its liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders. Duke Energy’s projected primary sources and uses for the next three fiscal years are included in the table below. (in millions) Uses: Capital expenditures Debt maturities and reduction in short-term debt(a) Dividend payments(b) Sources: Net cash flows from operations(c) Debt issuances Equity issuances 2017 2018 2019 $ 8,780 $ 10,030 $ 10,075 2,700 2,450 2,950 2,550 2,750 2,650 $ 6,750 6,500 — $ 7,950 6,650 350 $ 8,750 5,400 350 $1.5 billion was remitted. In 2016, $120 million was remitted. The remaining amount was remitted in the first quarter of 2017. The Subsidiary Registrants generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Subsidiary Registrants, excluding Progress Energy, support their short-term borrowing needs through participation with Duke Energy and certain of its other subsidiaries in a money pool arrangement. The companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for additional discussion of the money pool arrangement. Duke Energy and the Subsidiary Registrants, excluding Progress Energy, may also use short-term debt, including commercial paper and the money pool, as a bridge to long-term debt financings. The levels of borrowing may vary significantly over the course of the year due to the timing of long-term debt financings and the impact of fluctuations in cash flows from operations. From time to time, Duke Energy’s current liabilities exceed current assets resulting from the use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate due to the seasonality of its businesses. (a) Excludes capital leases and 2018 maturities of securitized receivables expected to be renewed. Amounts represent Duke Energy’s financing plan, which accelerates certain contractual maturities. (b) Subject to approval by the Board of Directors. (c) Includes expenditures related to ash basin closures. Piedmont Acquisition During 2014, Duke Energy declared a taxable dividend of foreign earnings in the form of notes payable that was intended to result in the repatriation of approximately $2.7 billion of cash held and expected to be generated by International Energy over a period of up to eight years. In 2015, approximately On October 3, 2016, Duke Energy acquired all outstanding common stock of Piedmont for a total cash purchase price of $5.0 billion, and assumed Piedmont’s existing long-term debt, which had an estimated fair value of approximately $2.0 billion at the time of the acquisition. For further information 50 PART II CREDIT FACILITIES AND REGISTRATION STATEMENTS on the acquisition, refer to Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions.” Financings to fund the transaction included $3.75 billion of long-term debt issued in August 2016, $750 million borrowed under the Term Loan in September 2016, as well as the issuance of 10.6 million shares of common stock in October 2016. The share issuance resulted in net cash proceeds of approximately $723 million. See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for additional information related to the debt issuance and Note 18, “Common Stock,” for additional information related to the equity issuance. Available Credit Facilities Duke Energy has a Master Credit Facility with a capacity of $7.5 billion through January 2020. The Duke Energy Registrants, excluding Progress Energy (Parent) and Piedmont, have borrowing capacity under the Master Credit Facility up to specified sublimits for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. Duke Energy Carolinas and Duke Energy Progress are also required to each maintain $250 million of available capacity under the Master Credit Facility as security to meet obligations under plea agreements reached with the U.S. Department of Justice in 2015 related to violations at North Carolina facilities with ash basins. Piedmont has a separate five-year revolving syndicated credit facility, with a capacity of $850 million through December 2020 and an expansion option of up to an additional $200 million. The facility provides a line of credit for letters of credit of $10 million. The table below includes the current borrowing sublimits and available capacity under these credit facilities. International Energy In February 2016, Duke Energy announced it had initiated a process to divest the International Disposal Group, and in October 2016, announced it had entered into two separate sales agreements to execute the divestiture. Both sales closed in December of 2016, resulting in available cash proceeds of $1.9 billion, excluding transaction costs. Proceeds were primarily used to reduce Duke Energy holding company debt. Existing favorable tax attributes result in no immediate U.S. federal-level cash tax impacts. For further information on the sale, refer to Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions.” December 31, 2016 (in millions) Duke Energy(a) Duke Energy (Parent) Duke Energy Carolinas Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Facility size(b) $ 8,350 $ 3,400 $ 1,100 $ 1,000 $ 950 $ 450 $ 600 Reduction to backstop issuances Commercial paper(c) Outstanding letters of credit Tax-exempt bonds Coal ash set-aside Available capacity (2,022) (78) (116) (500) $ 5,634 (977) (69) — — $ 2,354 (300) (4) (35) (250) $ 511 (150) (2) — (250) $ 598 (84) (1) — — $ 865 (31) — — — $ 419 (150) — (81) — $ 369 (a) Includes amounts related to Piedmont’s $850 million credit facility. (b) Represents the sublimit of each borrower. (c) Duke Energy issued $625 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana. The balances are classified as Long-Term Debt Payable to Affiliated Companies in the Consolidated Balance Sheets. Term Loan Facility CAPITAL EXPENDITURES In 2016, Duke Energy (Parent) entered into a $1.5 billion term loan facility, as amended (Term Loan) maturing on July 31, 2017. During 2016, Duke Energy (Parent) drew the full amount available under the Term Loan and used $750 million of proceeds to fund a portion of the Piedmont acquisition and the remaining $750 million to manage short-term liquidity and for general corporate purposes. The terms and conditions of the Term Loan were generally consistent with those governing Duke Energy’s Master Credit Facility. In December 2016, Duke Energy (Parent) repaid the $1.5 billion term loan, which terminated this credit facility. Duke Energy continues to focus on reducing risk and positioning its business for future success and will invest principally in its strongest business sectors. Duke Energy’s projected capital and investment expenditures for the next three fiscal years are included in the table below. (in millions) New generation Regulated renewables Environmental Nuclear fuel Major nuclear Customer additions Grid modernization and other transmission and distribution projects Maintenance and other Total Electric Utilities and Infrastructure Gas Utilities and Infrastructure Commercial Renewables and Other Total projected capital and investment expenditures Shelf Registration In September 2016, Duke Energy filed a registration statement (Form S-3) with the SEC. Under this Form S-3, which is uncapped, the Duke Energy Registrants, excluding Progress Energy may issue debt and other securities in the future at amounts, prices and with terms to be determined at the time of future offerings. The registration statement also allows for the issuance of common stock by Duke Energy. In January 2017, Duke Energy amended its Form S-3 to add Piedmont as a registrant and included in the amendment a prospectus for Piedmont under which it may issue debt securities in the same manner as other Duke Energy Registrants. 51 2017 2018 $ 935 70 665 425 285 435 $ 690 65 405 425 375 510 2,025 2,140 6,980 1,300 500 $ 8,780 3,055 1,780 7,305 2,175 550 $10,030 2019 $ 580 385 45 395 340 520 3,150 1,935 7,350 2,025 700 $10,075 PART II DEBT MATURITIES 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. The following table shows the significant components of Current maturities of Long-Term Debt on the Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings. (in millions) Maturity Date Interest Rate Unsecured Debt Duke Energy (Parent) Duke Energy (Parent) Piedmont Natural Gas April 2017 August 2017 September 2017 1.226% 1.625% 8.510% First Mortgage Bonds Duke Energy Progress Duke Energy Florida Duke Energy Progress March 2017 September 2017 November 2017 1.146% 5.800% 1.111% 250 250 200 June 2017 June 2017 2.365% 2.260% 45 34 February 2017 February 2017 February 2017 3.600% 0.810% 0.790% 77 10 25 Secured Duke Energy Duke Energy Tax-exempt Bonds Duke Energy Carolinas Duke Energy Carolinas Duke Energy Carolinas $ Cash flows from operations of Electric Utilities and Infrastructure and Gas Utilities and Infrastructure are primarily driven by sales of electricity and natural gas, respectively, and costs of operations. These cash flows from operations are relatively stable and comprise a substantial portion of Duke Energy’s operating cash flows. Weather conditions, working capital and commodity price fluctuations, and unanticipated expenses including unplanned plant outages, storms, legal costs and related settlements can affect the timing and level of cash flows from operations. Duke Energy believes it has sufficient liquidity resources through the commercial paper markets, and ultimately, the Master Credit Facility, to support these operations. Cash flows from operations are subject to a number of other factors, including, but not limited to, regulatory constraints, economic trends and market volatility (see Item 1A, “Risk Factors,” for additional information). At December 31, 2016, Duke Energy had cash and cash equivalents and short-term investments of $392 million. 400 700 35 293 Other(a) Current maturities of longterm debt CASH FLOWS FROM OPERATING ACTIVITIES December 31, 2016 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. Duke Energy’s capitalization is balanced between debt and equity as shown in the table below. $ 2,319 (a) Includes capital lease obligations, amortizing debt and small bullet maturities. DIVIDEND PAYMENTS In 2016, Duke Energy paid quarterly cash dividends for the 90th consecutive year and expects to continue its policy of paying regular cash dividends in the future. There is no assurance as to the amount of future dividends because they depend on future earnings, capital requirements, financial condition and are subject to the discretion of the Board of Directors. Duke Energy targets a dividend payout ratio of between 70 percent and 75 percent, based upon adjusted diluted EPS. In 2015 and 2016, Duke Energy increased the dividend by approximately 4 percent annually. Through 2021, the annual dividend growth rate is expected to be approximately 4 to 6 percent. Projected 2017 Actual 2016 Actual 2015 Equity 44% 45% 48% Debt 56% 55% 52% Duke Energy’s fixed charges coverage ratio, calculated using Securities and Exchange Commission (SEC) guidelines, was 2.7 times for 2016, 3.1 times for 2015, and 3.0 times for 2014. 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, 2016, the amount of restricted net assets of wholly owned subsidiaries of Duke Energy that may not be distributed to Duke Energy in the form of a loan or dividend is less than 25 percent of Duke Energy’s net assets. Duke Energy does not have any legal or other restrictions on paying common stock dividends to Restrictive Debt Covenants Duke Energy’s debt and credit agreements contain various financial and other covenants. Duke Energy’s Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65 percent for each borrower. Piedmont’s credit facility contains a debt-to-total capitalization covenant not to exceed 70 percent. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements or sublimits thereto. As of December 31, 2016, each of the Duke Energy Registrants were in compliance with all covenants related to their debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or 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. 52 PART II Credit Ratings OPERATING CASH FLOWS The Duke Energy Registrants each hold credit ratings by Fitch Ratings, Inc. (Fitch), Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Rating Services (S&P). The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2017. The following table summarizes key components of Duke Energy’s operating cash flows for the three most recently completed fiscal years. Duke Energy Corporation Issuer Credit Rating Senior Unsecured Debt Commercial Paper Duke Energy Carolinas Senior Secured Debt Senior Unsecured Debt Progress Energy Senior Unsecured Debt Duke Energy Progress Senior Secured Debt Duke Energy Florida Senior Secured Debt Senior Unsecured Debt Duke Energy Ohio Senior Secured Debt Senior Unsecured Debt Duke Energy Indiana Senior Secured Debt Senior Unsecured Debt Duke Energy Kentucky Senior Unsecured Debt Piedmont Natural Gas Senior Unsecured Commercial Paper Fitch Moody’s S&P Negative BBB+ BBB+ F-2 Stable AAA+ Stable BBB Stable A+ Stable A AStable A APositive A AStable AN/A N/A N/A Negative Baa1 Baa1 P-2 Stable Aa2 A1 Stable Baa2 Stable Aa3 Stable A1 A3 Stable A2 Baa1 Stable Aa3 A2 Stable Baa1 Stable A2 P-1 Stable ABBB+ A-2 Stable A AStable BBB+ Stable A Stable A AStable A AStable A AStable AStable AA-2 Years Ended December 31, (in millions) Net income $ 2,170 2014 2,831 $ 1,889 4,800 5,366 Contributions to qualified pension plans (155) (302) — Payments for AROs (608) (346) (68) (7) Working capital Net cash provided by operating activities $ 2015 5,398 Non-cash adjustments to net income $ 6,798 $ (307) (601) 6,676 $ 6,586 For the year ended December 31, 2016 compared to 2015, the variance was driven primarily by: t a $300 million increase in cash flows from working capital primarily due to the sale of the international business; and t a $147 million decrease in contributions to qualified pension plans. Offset by: t a $262 million increase in payments for AROs; and t a $63 million decrease in net income after non-cash adjustments due to higher storm costs offset by favorable weather, increased rider revenues, higher wholesale margins and strong cost control. For the year ended December 31, 2015 compared to 2014, the variance was driven primarily by: t a $376 million increase in net income after non-cash adjustments resulting from increased retail pricing due to rate riders and higher base rates, increased wholesale net margins due to higher contracted amounts and prices, a new wholesale contract with NCEMPA, retail sales growth; and 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. t a $294 million increase in cash flows from a working capital decrease primarily due to lower current year receivables resulting from unseasonably warmer weather in December 2015 and prior year under collection of fuel and purchased power due to increased consumption. Offset by: Cash Flow Information t a $302 million increase in contributions to qualified pension plans; and The following table summarizes Duke Energy’s cash flows for the three most recently completed fiscal years. t a $278 million increase in payments for AROs. INVESTING CASH FLOWS Years Ended December 31, (in millions) 2016 2015 2014 The following table summarizes key components of Duke Energy’s investing cash flows for the three most recently completed fiscal years. Cash flows provided by (used in): 6,798 $ 6,676 $ 6,586 Investing activities (11,533) (5,277) (5,373) Financing activities 4,270 (2,578) (678) 474 1,099 (548) 9 (80) (13) Cash and cash equivalents at beginning of period 383 463 476 Cash and cash equivalents at end of period $ 392 Operating activities 2016 $ Changes in cash and cash equivalents included in assets held for sale Net increase (decrease) in cash and cash equivalents $ 383 $ Years Ended December 31, (in millions) Capital, investment and acquisition expenditures Available for sale securities, net Net proceeds from the sales of discontinued operations and other assets, net of cash divested Other investing items 463 Net cash used in investing activities 53 2016 2015 2014 $ (13,215) $ (8,363) $ (5,528) 83 3 23 1,418 2,968 179 181 115 (47) $ (11,533) $ (5,277) $ (5,373) PART II The primary use of cash related to investing activities is capital, investment and acquisition expenditures, detailed by reportable business segment in the following table. For the year ended December 31, 2016 compared to 2015, the variance was driven primarily by: t a $7,389 million increase in proceeds from net issuances of long-term debt mainly due to the issuances of $3,750 million of senior unsecured notes used to fund a portion of the Piedmont acquisition, $1,294 million of nuclear asset-recovery bonds and other issuances primarily used to fund capital expenditures, pay down outstanding commercial paper and repay debt maturities; and Years Ended December 31, (in millions) 2016 2015 2014 $ 6,649 $ 6,852 $ 4,642 5,519 234 121 Commercial Renewables 857 1,019 514 Other 190 258 251 $ 13,215 $ 8,363 $ 5,528 Electric Utilities and Infrastructure Gas Utilities and Infrastructure Total capital, investment and acquisition expenditures t a $1,500 million decrease in cash outflows due to the 2015 repurchase of 19.8 million common shares under the ASR; and t a $714 million increase in proceeds resulting from the issuance of common stock to fund the acquisition of Piedmont. For the year ended December 31, 2016 compared to 2015, the variance was driven primarily by: Partially offset by: t a $2,692 million increase in cash outflows for the net payments of notes payable and commercial paper primarily through the use of proceeds from $1,294 million nuclear asset-recovery bonds issued at Duke Energy Florida, further increased by the prior year use of shortterm debt to repay long-term debt maturities at Duke Energy Florida in advance of the 2016 proceeds from the nuclear asset-recovery bonds. t a $4,852 million increase in capital, investment and acquisition expenditures mainly due to the Piedmont acquisition; and t a $1,550 million decrease in net proceeds from sales of discontinued operations mainly due to the variance in proceeds between the prior year sale of the Midwest generation business and the current year sale of the international business. For the year ended December 31, 2015 compared to 2014, the variance was driven primarily by: For the year ended December 31, 2015 compared to 2014, the variance was driven primarily by: t a $2,789 million increase in proceeds mainly due to the sale of the nonregulated Midwest generation business to Dynegy, Inc. (Dynegy); and t a $1,500 million increase in cash outflows due to the 2015 repurchase of 19.8 million common shares under the ASR; and t a $202 million return of collateral related to the Chilean acquisition in 2013. The collateral was used to repay a secured loan. t a $443 million decrease in proceeds from net issuances of notes payable and commercial paper primarily due to prior year financing with short-term debt in advance of the 2015 receipt of proceeds from the sale of the nonregulated Midwest generation business to Dynegy, net of current year financing with short-term debt used to repay long-term debt maturities at Duke Energy Florida in advance of the 2016 proceeds from the proposed issuance of the nuclear asset-recovery bonds. Partially offset by: t a $2,835 million increase in capital, investment and acquisition expenditures mainly due to the acquisition of NCEMPA ownership interests in certain generating assets, fuel and spare parts inventory jointly owned with and operated by Duke Energy Progress and growth initiatives in electric and natural gas infrastructure, solar projects and natural gas-fired generation. Summary of Significant Debt Issuances Piedmont Acquisition Financing FINANCING CASH FLOWS In August 2016, Duke Energy issued $3.75 billion of senior unsecured notes in three separate series. The net proceeds were used to finance a portion of the Piedmont acquisition. The $4.9 billion Bridge Facility was terminated following the issuance of this debt. See Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions,” for additional information on the Piedmont acquisition. The following table summarizes key components of Duke Energy’s financing cash flows for the three most recently completed fiscal years. Years Ended December 31, (in millions) Issuance of common stock 2016 $ 731 $ 2015 17 2014 $ 25 Issuances (Repayments) of long-term debt, net 7,315 Notes payable and commercial paper (1,447) 1,245 1,688 Dividends paid (2,332) (2,254) (2,234) — (1,500) — 3 (12) (34) Repurchase of common shares Other financing items Net cash provided by (used in) financing activities (74) Nuclear Asset-Recovery Bonds (123) In June 2016, DEFPF issued $1,294 million of nuclear asset-recovery bonds and used the proceeds to acquire nuclear asset-recovery property from its parent, Duke Energy Florida. The nuclear asset-recovery bonds are payable only from and secured by the nuclear asset-recovery property. DEFPF is consolidated for financial reporting purposes; however, the nuclear assetrecovery bonds do not constitute a debt, liability or other legal obligation of, or interest in, Duke Energy Florida or any of its affiliates other than DEFPF. $ 4,270 $ (2,578) $ (678) 54 PART II The assets of DEFPF, including the nuclear asset-recovery property, are not available to pay creditors of Duke Energy Florida or any of its affiliates. Duke Energy Florida used the proceeds from the sale to repay short-term borrowings under the intercompany money pool borrowing arrangement and make an equity distribution of $649 million to the ultimate parent, Duke Energy (Parent), which repaid short-term borrowings. See Notes 4 and 17 to the Consolidated Financial Statements, “Regulatory Matters” and “Variable Interest Entities,” respectively, for additional information. six months London Interbank Offered Rate (LIBOR) plus an applicable margin of 1.75 percent plus a 0.125 percent increase every three years thereafter. In connection with this debt issuance, Emerald State Solar, LLC entered into two interest rate swaps to convert the substantial majority of the loan interest payments from variable rates to fixed rates of approximately 1.81 percent for Tranche A and 1.38 percent for Tranche B, plus the applicable margin. See Note 14 to the Consolidated Financial Statements, “Derivatives and Hedging,” for further information on the notional amounts of the interest rate swaps. Solar Facilities Financing Duke Energy Florida Bond Issuance In August 2016, Emerald State Solar, LLC, an indirect wholly owned subsidiary of Duke Energy, entered into a $333 million portfolio financing of approximately 22 North Carolina Solar facilities. Tranche A of $228 million is secured by substantially all the assets of the solar facilities and is nonrecourse to Duke Energy. Tranche B of $105 million is secured by an Equity Contribution Agreement with Duke Energy. Proceeds were used to reimburse Duke Energy for a portion of previously funded construction expenditures related to the Emerald State Solar, LLC portfolio. The initial interest rate on the loans was In January 2017, Duke Energy Florida issued $900 million of first mortgage bonds. The issuance was split between a $250 million, three-year series and a $650 million, 10-year series. The net proceeds from the issuance were used to repay at maturity $250 million aggregate principal amount of bonds due September 2017, as well as to fund capital expenditures for ongoing construction and capital maintenance and for general corporate purposes. The following tables summarize significant debt issuances (in millions). Year Ended December 31, 2016 Issuance Date Unsecured Debt April 2016(a) August 2016 August 2016 August 2016 Secured Debt June 2016(b) June 2016(b) June 2016(b) June 2016(b) June 2016(b) August 2016 August 2016 First Mortgage Bonds March 2016(c) March 2016(c) May 2016(d) June 2016(c) September 2016(e) September 2016(c) November 2016(f) Total issuances (a) (b) (c) (d) (e) (f) Maturity Interest Date Rate Duke Energy (Parent) Duke Energy $ 350 750 1,500 1,500 $ 350 750 1,500 1,500 Duke Energy Carolinas $ — — — — Duke Energy Progress $ — — — — Duke Energy Florida $ — — — — Duke Energy Ohio $ — — — — Duke Energy Indiana $ — — — — April 2023 September 2021 September 2026 September 2046 2.875% 1.800% 2.650% 3.750% March 2020 September 2022 September 2029 March 2033 September 2036 June 2034 June 2020 1.196% 1.731% 2.538% 2.858% 3.112% 2.747% 2.747% 183 150 436 250 275 228 105 — — — — — — — — — — — — — — — — — — — — — 183 150 436 250 275 — — — — — — — — — — — — — — — — March 2023 March 2046 May 2046 June 2046 October 2046 October 2046 December 2026 2.500% 3.875% 3.750% 3.700% 3.400% 3.700% 2.950% 500 500 500 250 600 450 600 — — — — — — — 500 500 — — — — 600 — — — — — 450 — — — — — 600 — — — — — 250 — — — — — 500 — — — — $ 9,127 $ 4,100 450 $ 1,894 $ 1,600 $ $ 250 $ 500 Proceeds were used to pay down outstanding commercial paper and for general corporate purposes. The nuclear asset-recovery bonds are sequential pay amortizing bonds. The maturity date above represents the scheduled final maturity date for the bonds. Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance and for general corporate purposes. Proceeds were used to repay $325 million of unsecured debt due June 2016, $150 million of first mortgage bonds due July 2016 and for general corporate purposes. Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance, to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes. Proceeds were used to repay at maturity $350 million aggregate principal amount of certain bonds due December 2016, as well as to fund capital expenditures for ongoing construction and capital maintenance and for general corporate purposes. 55 PART II Issuance Date Unsecured Debt November 2015(a)(b) November 2015(a)(b) First Mortgage Bonds March 2015(c) August 2015(a)(d) August 2015(a)(d) Total issuances Maturity Date Year Ended December 31, 2015 Duke Interest Duke Energy Rate Energy (Parent) April 2024 December 2045 3.750% 4.800% $ 400 600 June 2045 August 2025 August 2045 3.750% 3.250% 4.200% 500 500 700 $ 2,700 $ $ 400 600 — — — 1,000 Duke Energy Carolinas $ $ — — 500 — — 500 Duke Energy Progress $ $ — — — 500 700 1,200 (a) Proceeds were used to repay short-term money pool and commercial paper borrowing issued to fund a portion of the NCEMPA acquisition, see Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions,” for further information. (b) Proceeds were used to refinance at maturity $300 million of unsecured notes at Progress Energy due January 2016. (c) Proceeds were used to redeem at maturity $500 million of first mortgage bonds due October 2015. (d) Proceeds were used to refinance at maturity $400 million of first mortgage bonds due December 2015. Off-Balance Sheet Arrangements Duke Energy and certain of its subsidiaries enter into guarantee arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include performance guarantees, stand-by letters of credit, debt guarantees, surety bonds and indemnifications. Most of the guarantee arrangements entered into by Duke Energy enhance the credit standing of certain subsidiaries, non-consolidated entities or less than wholly owned entities, enabling them to conduct business. As such, these guarantee arrangements involve elements of performance and credit risk, which are not always included on the Consolidated Balance Sheets. The possibility of Duke Energy, either on its own or on behalf of Spectra Energy Capital, LLC (Spectra Capital) through indemnification agreements entered into as part of the January 2, 2007, spin-off of Spectra Energy Corp, having to honor its contingencies is largely dependent upon the future operations of the subsidiaries, investees and other third parties, or the occurrence of certain future events. Duke Energy performs ongoing assessments of their respective guarantee obligations to determine whether any liabilities have been incurred as a result of potential increased non-performance risk by third parties for which Duke Energy has issued guarantees. See Note 7 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further details of the guarantee arrangements. Issuance of these guarantee arrangements is not required for the majority of Duke Energy’s operations. Thus, if Duke Energy discontinued issuing these guarantees, there would not be a material impact to the consolidated results of operations, cash flows or financial position. Other than the guarantee arrangements discussed above, normal operating lease arrangements and off-balance sheet debt related to nonconsolidated VIEs, Duke Energy does not have any material off-balance sheet financing entities or structures. For additional information, see Note 5 and Note 17 to the Consolidated Financial Statements, “Commitments and Contingencies” and “Variable Interest Entities,” respectively. Contractual Obligations Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. The following table summarizes Duke Energy’s contractual cash obligations as of December 31, 2016. Payments Due By Period (in millions) Long-term debt(a) Interest payments on long-term debt(b) Capital leases(c) Operating leases(c) Purchase obligations:(d) Fuel and purchased power(e)(f) Other purchase obligations(g) Nuclear decommissioning trust annual funding(h) Total contractual cash obligations(i)(j) Total 45,278 29,961 1,562 1,850 Less than 1 year (2017) $ 2,211 1,868 148 218 2-3 years (2018 & 2019) $ 6,592 3,500 308 386 4-5 years (2020 & 2021) $ 5,582 3,014 322 298 More than 5 years (2022 & beyond) $ 30,893 21,579 784 948 25,353 7,688 315 $ 112,007 4,819 5,802 30 15,096 6,136 719 28 17,669 3,786 193 28 13,223 10,612 974 229 66,019 $ 56 $ $ $ $ PART II (a) See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities.” (b) Interest payments on variable rate debt instruments were calculated using December 31, 2016, interest rates and holding them constant for the life of the instruments. (c) See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.” Amounts in the table above include the interest component of capital leases based on the interest rates stated in the lease agreements and exclude certain related executory costs. Amounts exclude contingent lease obligations. (d) Current liabilities, except for current maturities of long-term debt, and purchase obligations reflected on the Consolidated Balance Sheets have been excluded from the above table. (e) Includes firm capacity payments that provide Duke Energy with uninterrupted firm access to electricity transmission capacity and natural gas transportation contracts, as well as undesignated contracts and contracts that qualify as normal purchase/normal sale (NPNS). For contracts where the price paid is based on an index, the amount is based on market prices at December 31, 2016, or the best projections of the index. For certain of these amounts, Duke Energy may settle on a net cash basis since Duke Energy has entered into payment netting arrangements with counterparties that permit Duke Energy to offset receivables and payables with such counterparties. (f) Amounts exclude obligations under the OVEC purchase power agreement. See Note 17 to the Consolidated Financial Statements for additional information. (g) Includes contracts for software, telephone, data and consulting or advisory services. Amount also includes contractual obligations for engineering, procurement and construction costs for new generation plants, wind and solar facilities, plant refurbishments, maintenance and day-to-day contract work and commitments to buy certain products. Amount excludes certain open purchase orders for services that are provided on demand, for which the timing of the purchase cannot be determined. (h) Related to future annual funding obligations to NDTF through nuclear power stations’ relicensing dates. Amounts through 2017 include North Carolina jurisdictional amounts that Duke Energy Progress retained internally and is transitioning to its external decommissioning funds per a 2008 NCUC order. The transition of the original $131 million must be complete by December 31, 2017, and at least 10 percent must be transitioned each year. See Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations.” (i) Unrecognized tax benefits of $17 million are not reflected in this table as Duke Energy cannot predict when open income tax years will close with completed examinations. See Note 22 to the Consolidated Financial Statements, “Income Taxes.” (j) The table above excludes reserves for litigation, environmental remediation, asbestos-related injuries and damages claims and self-insurance claims (see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies”) because Duke Energy is uncertain as to the timing and amount of cash payments that will be required. Additionally, the table above excludes annual insurance premiums that are necessary to operate the business, including nuclear insurance (see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies”), funding of pension and other post-retirement benefit plans (see Note 21 to the Consolidated Financial Statements, “Employee Benefit Plans”), AROs, including ash management expenditures (see Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations”) and regulatory liabilities (see Note 4 to the Consolidated Financial Statements, “Regulatory Matters”) because the amount and timing of the cash payments are uncertain. Also excluded are Deferred Income Taxes and ITCs recorded on the Consolidated Balance Sheets since cash payments for income taxes are determined based primarily on taxable income for each discrete fiscal year. market fluctuations, which may include using various commodity derivatives, such as swaps, futures, forwards and options. For additional information, see Note 14 to the Consolidated Financial Statements, “Derivatives and Hedging.” The inputs and methodologies used to determine the fair value of contracts are validated by an internal group separate from Duke Energy’s deal origination function. While Duke Energy uses common industry practices to develop its valuation techniques, changes in its pricing methodologies or the underlying assumptions could result in significantly different fair values and income recognition. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Risk Management Policies The Enterprise Risk Management policy framework at Duke Energy includes strategy, operational, project execution and financial or transaction related risks. Enterprise Risk Management includes market risk as part of the financial and transaction related risks in its framework. Duke Energy is exposed to market risks associated with commodity prices, interest rates, equity prices and foreign currency exchange rates. Duke Energy has established comprehensive risk management policies to monitor and manage these market risks. Duke Energy’s Chief Executive Officer and Chief Financial Officer are responsible for the overall approval of market risk management policies and the delegation of approval and authorization levels. The Finance and Risk Management Committee of the Board of Directors receives periodic updates from the Chief Risk Officer and other members of management on market risk positions, corporate exposures and overall risk management activities. The Chief Risk Officer is responsible for the overall governance of managing commodity price risk, including monitoring exposure limits. The following disclosures about market risk contain forward-looking statements that involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Please review Item 1A, “Risk Factors,” and “Cautionary Statement Regarding ForwardLooking Information” for a discussion of the factors that may impact any such forward-looking statements made herein. 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 to mitigate the effect of such fluctuations on operations. Duke Energy’s primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to the prices of power and fuel. 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. Commodity Price Risk Duke Energy is exposed to the impact of market fluctuations in the prices of electricity, coal, natural gas and other energy-related products marketed and purchased as a result of its ownership of energy-related assets. Duke Energy’s exposure to these fluctuations is limited by the cost-based regulation of its regulated operations as these operations are typically allowed to recover substantially all of these costs through various cost-recovery clauses, including fuel clauses. While there may be a delay in timing between when these costs are incurred and when they are recovered through rates, changes from year to year generally do not have a material impact on operating results of these regulated operations. Price risk represents the potential risk of loss from adverse changes in the market price of electricity or other energy commodities. Duke Energy’s exposure to commodity price risk is influenced by a number of factors, including contract size, length, market liquidity, location and unique or specific contract terms. Duke Energy employs established policies and procedures to manage risks associated with these Generation Portfolio Risks Duke Energy is primarily exposed to market price fluctuations of wholesale power, natural gas and coal prices in the Electric Utilities and Gas Utilities segments. 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. 57 PART II For the Electric Utilities segment, the generation portfolio not utilized to serve retail operations or committed load is subject to commodity price fluctuations. However, the impact on the Consolidated Statements of Operations is partially offset by mechanisms in these regulated jurisdictions that result in the sharing of net profits from these activities with retail customers. The Duke Energy Registrants are also subject to credit risk from transactions with their suppliers that involve prepayments in conjunction with outsourcing arrangements, major construction projects and certain commodity purchases. The Duke Energy Registrants’ credit exposure to such suppliers may take the form of increased costs or project delays in the event of nonperformance. The Duke Energy Registrants’ frequently require guarantees or letters of credit from suppliers to mitigate this credit risk. Credit risk associated with the Duke Energy Registrants’ service to residential, commercial and industrial customers is generally limited to outstanding accounts receivable. The Duke Energy Registrants mitigate this credit risk by requiring 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 Cinergy Receivables Company LLC (CRC), a Duke Energy consolidated variable interest entity. Losses on collection are first absorbed by the equity of CRC and next by the subordinated retained interests held by Duke Energy Ohio, Duke Energy Kentucky and Duke Energy Indiana. See Note 17 to the Consolidated Financial Statements, “Variable Interest Entities.” Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate selfinsured retention. Duke Energy Carolinas’ cumulative payments began to exceed the self-insurance retention in 2008. Future payments up to the policy limit will be reimbursed by the third-party insurance carrier. The insurance policy limit for potential future insurance recoveries indemnification and medical cost claim payments is $814 million in excess of the self-insured retention. Receivables for insurance recoveries were $587 million and $599 million at December 31, 2016 and 2015, respectively. These amounts are classified in Other within Investments and Other Assets and Receivables on the Consolidated Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating. The Duke Energy Registrants also have credit risk exposure through issuance of performance guarantees, letters of credit and surety bonds on behalf of less than wholly owned entities and third parties. Where the Duke Energy Registrants have issued these guarantees, it is possible that they could be required to perform under these guarantee obligations in the event the obligor under the guarantee fails to perform. Where the Duke Energy Registrants have issued guarantees related to assets or operations that have been disposed of via sale, they attempt to secure indemnification from the buyer against all future performance obligations under the guarantees. See Note 7 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further information on guarantees issued by the Duke Energy Registrants. Based on the Duke Energy Registrants’ policies for managing credit risk, their exposures and their credit and other reserves, the Duke Energy Registrants do not currently anticipate a materially adverse effect on their consolidated financial position or results of operations as a result of non-performance by any counterparty. Interest Rate Risk Duke Energy is exposed to risk resulting from changes in interest rates as a result of its issuance of variable and fixed-rate debt and commercial paper. Duke Energy manages interest rate exposure by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. Duke Energy also enters into financial derivative instruments, which may include instruments such as, but not limited to, interest rate swaps, swaptions and U.S. Treasury lock agreements to manage and mitigate interest rate risk exposure. See Notes 1, 6, 14 and 16 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” “Debt and Credit Facilities,” “Derivatives and Hedging,” and “Fair Value Measurements.” At December 31, 2016, Duke Energy had $777 million notional amount of floating-to-fixed swaps outstanding, $500 million notional amount of fixed-to-floating swaps outstanding and $400 million forward-starting swaps outstanding. Duke Energy had $6.3 billion of unhedged long- and short-term floating interest rate exposure at December 31, 2016. The impact of a 100 basis point change in interest rates on pretax income is approximately $63 million at December 31, 2016. 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, 2016. See Note 14, “Derivatives and Hedging,” to the Consolidated Financial Statements for additional information about the forward-starting interest rate swaps related to the Piedmont acquisition. Credit Risk Credit risk represents the loss that the Duke Energy Registrants would incur if a counterparty fails to perform under its contractual obligations. Where exposed to credit risk, the Duke Energy Registrants analyze the counterparty’s financial condition prior to entering into an agreement and monitor exposure on an ongoing basis. The Duke Energy Registrants establish credit limits where appropriate in the context of contractual arrangements and monitor such limits. To reduce credit exposure, the Duke Energy Registrants seek to include netting provisions with counterparties, which permit the offset of receivables and payables with such counterparties. The Duke Energy Registrants also frequently use master agreements with credit support annexes to further mitigate certain credit exposures. The master agreements provide for a counterparty to post cash or letters of credit to the exposed party for exposure in excess of an established threshold. The threshold amount represents a negotiated unsecured credit limit for each party to the agreement, determined in accordance with the Duke Energy Registrants’ internal corporate credit practices and standards. Collateral agreements generally also provide that the inability to post collateral is sufficient cause to terminate contracts and liquidate all positions. The Duke Energy Registrants also obtain cash or letters of credit from certain counterparties to provide credit support outside of collateral agreements, where appropriate, based on a financial analysis of the counterparty and the regulatory or contractual terms and conditions applicable to each transaction. See Note 14 to the Consolidated Financial Statements, “Derivatives and Hedging,” for additional information regarding credit risk related to derivative instruments. The Duke Energy Registrants’ principal counterparties for its electric and gas businesses are regional transmission organizations, distribution companies, municipalities, electric cooperatives and utilities located throughout the U.S. The Duke Energy Registrants have concentrations of receivables from such entities throughout these regions. These concentrations of receivables may affect the Duke Energy Registrants’ overall credit risk in that risk factors can negatively impact the credit quality of the entire sector. Marketable Securities Price Risk As described further in Note 15 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities,” Duke Energy invests in debt and equity securities as part of various investment portfolios to fund certain obligations. The vast majority of investments in equity securities are within the NDTF and assets of the various pension and other post-retirement benefit plans. 58 PART II Pension Plan Assets Nuclear Decommissioning Trust Funds Duke Energy maintains investments to facilitate funding the costs of providing non-contributory defined benefit retirement and other post-retirement benefit plans. These investments are exposed to price fluctuations in equity markets and changes in interest rates. The equity securities held in these pension plans are diversified to achieve broad market participation and reduce the impact of any single investment, sector or geographic region. Duke Energy has established asset allocation targets for its pension plan holdings, which take into consideration the investment objectives and the risk profile with respect to the trust in which the assets are held. See Note 21 to the Consolidated Financial Statements, “Employee Benefit Plans” for additional information regarding investment strategy of pension plan assets. A significant decline in the value of plan asset holdings could require Duke Energy to increase funding of its pension plans in future periods, which could adversely affect cash flows in those periods. Additionally, a decline in the fair value of plan assets, absent additional cash contributions to the plan, could increase the amount of pension cost required to be recorded in future periods, which could adversely affect Duke Energy’s results of operations in those periods. As required by the NRC, NCUC, PSCSC and the Florida Public Service Commission (FPSC), subsidiaries of Duke Energy maintain trust funds to fund the costs of nuclear decommissioning. As of December 31, 2016, these funds were invested primarily in domestic and international equity securities, debt securities, cash and cash equivalents and short-term investments. Per the NRC, Internal Revenue Code, NCUC, PSCSC and FPSC requirements, these funds may be used only for activities related to nuclear decommissioning. These investments are exposed to price fluctuations in equity markets and changes in interest rates. Duke Energy actively monitors its portfolios by benchmarking the performance of its investments against certain indices and by maintaining, and periodically reviewing, target allocation percentages for various asset classes. Accounting for nuclear decommissioning recognizes that costs are recovered through retail and wholesale rates; therefore, fluctuations in investment prices do not materially affect the Consolidated Statements of Operations, as changes in the fair value of these investments are primarily deferred as regulatory assets or regulatory liabilities pursuant to Orders by the NCUC, PSCSC, FPSC and FERC. Earnings or losses of the fund will ultimately impact the amount of costs recovered through retail and wholesale rates. See Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations” for additional information regarding nuclear decommissioning costs. See Note 15 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities” for additional information regarding NDTF assets. OTHER MATTERS disposal and management of CCR. As a result of the EPA rule, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana recorded additional ARO amounts during 2015. Various industry and environmental parties have appealed the EPA’s CCR rule in the U.S. Court of Appeals for the District of Columbia (D.C. Circuit Court). On April 18, 2016, the EPA filed a motion with the federal court to settle five issues raised in litigation. On June 14, 2016, the court approved the motion with respect to all of those issues. A decision by the court on the remaining issues is expected in the second quarter of 2017. Duke Energy does not expect a material impact from the settlement or that it will result in additional ARO adjustments. In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions and via wholesale contracts, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. For more information, see Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations.” Ratios of Earnings to Fixed Charges The Duke Energy Registrants’ ratios of earnings to fixed charges, as calculated using SEC guidelines, are included in the table below. Years Ended December 31, Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 2016 2015 2014 2.7 4.7 3.0 4.0 4.3 3.8 4.1 3.1 4.7 2.9 3.7 4.3 3.6 3.6 3.0 4.6 2.7 3.5 4.1 2.1 4.1 Environmental Regulations The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants. The following sections outline various proposed and recently enacted 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 Ash Management Act of 2014 AROs recorded on the Duke Energy Carolinas and Duke Energy Progress Consolidated Balance Sheets at December 31, 2016, and December 31, 2015, 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. In January 2016, the NCDEQ published draft risk classifications for sites not specifically delineated by the Coal Ash Act as high risk. These risk rankings were generally determined based on three primary criteria: structural integrity of the impoundments and impacts to surface water and to groundwater. The NCDEQ’s draft proposed classifications categorized 12 basins at four sites as intermediate risk and four basins at three sites as low risk. The NCDEQ’s draft proposed classifications also categorized nine basins at six sites as “low-to-intermediate” risk, thereby not assigning a definitive risk ranking at that time. On May 18, 2016, the NCDEQ issued new proposed risk classifications, proposing to rank all originally proposed low risk and “low-to-intermediate” risk sites as intermediate. On July 14, 2016, the former governor of North Carolina signed legislation which amended the Coal Ash Act and required Duke Energy to undertake dam improvement projects and to provide access to a permanent alternative drinking water source to certain residents within a half mile of coal ash basin Coal Combustion Residuals In April 2015, the EPA published a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation classifies CCR as nonhazardous waste and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments that are no longer receiving CCR but contain liquid located at stations currently generating electricity (regardless of fuel source). The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring, protection and remedial procedures and other operational and reporting procedures to ensure the safe 59 PART II compliance boundaries and to certain other potentially impacted residents. The new legislation also ranks basins at the H.F. Lee, Cape Fear and Weatherspoon stations as intermediate risk consistent with Duke Energy’s previously announced plans to excavate those basins. These specific intermediaterisk basins require closure through excavation including a combination of transferring ash to an appropriate engineered landfill or conversion of the ash for beneficial use. Closure of these specific intermediate-risk basins is required to be completed no later than August 1, 2028. Upon satisfactory completion of the dam improvement projects and installation of alternative drinking water sources by October 15, 2018, the legislation requires the NCDEQ to reclassify sites proposed as intermediate risk, excluding H.F. Lee, Cape Fear and Weatherspoon, as low risk. In January 2017, NCDEQ issued preliminary approval of Duke Energy’s plans for the alternative water sources. Per the Coal Ash Act, final proposed classifications were to be subject to Coal Ash Management Commission (Coal Ash Commission) approval. In March 2016, the Coal Ash Commission created by the Coal Ash Act was disbanded by the former governor of North Carolina based on a North Carolina Supreme Court ruling regarding the constitutionality of the body. The July 2016 legislation eliminates the Coal Ash Commission and transfers responsibility for ash basin closure oversight to the NCDEQ. Additionally, the July 2016 legislation requires the installation and operation of three large-scale coal ash beneficiation projects which are expected to produce reprocessed ash for use in the concrete industry. Closure of basins at sites with these beneficiation projects are required to be completed no later than December 31, 2029. On October 5, 2016, Duke Energy announced Buck Steam Station as a first location for one of the beneficiation projects. On December 13, 2016, Duke Energy announced H.F. Lee as the second location. Duke Energy intends to announce the third location by July 1, 2017. The Coal Ash Act includes a variance procedure for compliance deadlines and other issues surrounding the management of CCR and CCR surface impoundments. Provisions of the Coal Ash Act prohibit cost recovery in customer rates for unlawful discharge of ash impoundment waters occurring after January 1, 2014. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of ash impoundments to the normal ratemaking processes before utility regulatory commissions. Consistent with the requirements of the Coal Ash Act, Duke Energy has submitted comprehensive site assessments and groundwater corrective plans to NCDEQ and will submit to NCDEQ site-specific coal ash impoundment closure plans in advance of closure. These plans and all associated permits must be approved by NCDEQ before closure work can begin. For further information on AROs, see Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations.” Steam Electric Effluent Limitations Guidelines Mercury and Air Toxics Standards 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. On January 4, 2016, the final Steam Electric Effluent Limitations Guidelines (ELG) rule became effective. The rule establishes new requirements for wastewater streams associated with steam electric power generation and includes more stringent controls for any new coal plants that may be built in the future. Affected facilities must comply between 2018 and 2023, depending on timing of new Clean Water Act (CWA) permits. Most, if not all, of the steam electric generating facilities the Duke Energy Registrants own are likely affected sources. The Duke Energy Registrants are well-positioned to meet the majority of the requirements of the rule due to current efforts to convert to dry ash handling. Petitions challenging the rule have been filed by several groups. On March 16, 2015, Duke Energy Indiana filed its own legal challenge to the rule with the Seventh Circuit Court of Appeals specific to the ELG for wastewater associated rule focused on the limits imposed on integrated gas combined-cycle facilities. All challenges to the rule have been consolidated in the Fifth Circuit Court of Appeals. Opening briefs were submitted on December 5, 2016. Briefing concludes on June 5, 2017, and oral argument has not been scheduled. It is unknown when the courts will rule on the petitions. The Duke Energy Registrants cannot predict the outcome of these matters. Estimated Cost and Impacts of Rulemakings Duke Energy will incur capital expenditures to comply with the environmental regulations and rules discussed above. The following table provides five-year estimated costs, excluding AFUDC, of new control equipment that may need to be installed on existing power plants primarily to comply with the Coal Ash Act requirements for conversion to dry disposal of bottom ash and fly ash, CWA 316(b) and ELGs through December 31, 2021. The table excludes ash basin closure costs recorded in Asset retirement obligations on the Consolidated Balance Sheets. For more information related to AROs, see Note 9 to the Consolidated Financial Statements. (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana The final Mercury and Air Toxics Standards (MATS) rule was issued on February 16, 2012. The rule established emission limits for hazardous air pollutants from new and existing coal-fired and oil-fired steam electric generating units (EGUs). The rule required sources to comply with emission limits by April 16, 2015, or by April 16, 2016, with approved extension. Strategies to achieve compliance included installation of new air emission control equipment, development of monitoring processes, fuel switching and acceleration of retirement for some coal-fired EGUs. All of Duke Energy’s coal-fired units are in compliance with the emission limits, work practices standards and other requirements of the MATS rule. Five-Year Estimated Costs $ 1,200 530 325 260 65 125 220 Cross-State Air Pollution Rule On December 3, 2015, the EPA proposed a rule to lower the Cross-State Air Pollution Rule (CSAPR) Phase 2 state ozone season nitrogen oxide (NOx) emission budgets for 23 eastern states, including North Carolina, Ohio, Kentucky and Indiana. The EPA also proposed to eliminate the CSAPR Phase 2 ozone season state NOx budgets for Florida and South Carolina. On September 7, 2016, the EPA finalized a CSAPR update rule that reduces the CSAPR Phase 2 state ozone season NOx emission budgets for 22 eastern states, including Ohio, Kentucky and Indiana. In the final CSAPR update rule, the EPA removed Florida, South Carolina and North Carolina from the ozone season NOx program. Beginning in 2017, Duke Energy Registrants in these states will not be subject to any CSAPR ozone season NOx emission limitations. For the states that remain in the program, the reduced state ozone season NOx emission budgets will take effect on May 1, 2017. Clean Water Act 316(b) The EPA published the final 316(b) cooling water intake structure rule on August 15, 2014, with an effective date of October 14, 2014. The rule applies to 26 of the electric generating facilities the Duke Energy Registrants own and operate. The rule allows for several options to demonstrate compliance and provides flexibility to the state environmental permitting agencies to make determinations on controls, if any, that will be required for cooling water intake structures. Any required intake structure modifications and/or retrofits are expected to be installed in the 2019 to 2022 time frame. Petitions challenging the rule have been filed by several groups. It is unknown when the courts will rule on the petitions. The Duke Energy Registrants cannot predict the outcome of these matters. 60 PART II In Kentucky and Indiana, where Duke Energy Registrants own and operate coalfired EGUs subject to the final rule requirements, potential near-term responses could include changing unit dispatch to run certain generating units less frequently and/or purchasing NOx allowances from the trading market. Longer term, upgrading the performance of existing NOx controls is an option. 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. Between 2005 and 2016, the Duke Energy Registrants have collectively lowered the CO2 emissions from their electricity generation by approximately 30 percent, which lowers the exposure to any future mandatory CO2 emission reduction requirements or carbon tax, whether as a result of federal legislation, the final CPP regulation or other as yet unknown emission reduction requirement. Under any future scenario involving mandatory CO2 limitations, the Duke Energy Registrants would plan to seek recovery of their compliance costs through appropriate regulatory mechanisms. The Duke Energy Registrants recognize certain groups associate severe weather events with increasing levels of GHGs in the atmosphere and forecast the possibility these weather events could have a material impact on future results of operations should they occur more frequently and with greater severity. However, the uncertain nature of potential changes in extreme weather events (such as increased frequency, duration and severity), the long period of time over which any potential changes might take place and the inability to predict potential changes with any degree of accuracy, make estimating any potential future financial risk to the Duke Energy Registrants’ operations impossible. The Duke Energy Registrants have historically planned and prepared for extreme weather events, such as ice storms, tornadoes, hurricanes, severe thunderstorms, high winds and droughts they occasionally experience. The Duke Energy Registrants routinely take steps to reduce the potential impact of severe weather events on their electric distribution systems. The Duke Energy Registrants’ electric generating facilities are designed to withstand extreme weather events without significant damage. The Duke Energy Registrants maintain an inventory of coal and oil on-site to mitigate the effects of any potential short-term disruption in fuel supply so they can continue to provide customers with an uninterrupted supply of electricity. Carbon Pollution Standards for New, Modified and Reconstructed Power Plants On October 23, 2015, the EPA published a final rule in the Federal Register establishing carbon dioxide (CO2) emissions limits for new, modified and reconstructed power plants. The requirements for new plants do not apply to any facility that Duke Energy currently has in operation, but would apply to plants that commenced construction after January 8, 2014. The EPA set an emissions standard for coal units of 1,400 pounds of CO2 per gross MWh, which would require the application of partial carbon capture and storage (CCS) technology for a coal unit to be able to meet the limit. Utility-scale CCS is not currently a demonstrated and commercially available technology for coal-fired EGUs, and therefore the final standard effectively prevents the development of new coal-fired generation. The EPA set a final standard of 1,000 pounds of CO2 per gross MWh for new natural gas combined-cycle units. Petitions challenging the rule have been filed by several groups. Final briefs in the case were due February 6, 2017. Oral arguments are scheduled for April 2017. The Duke Energy Registrants do not expect the impacts of the final standards will be material to Duke Energy’s financial position, results of operations or cash flows. Clean Power Plan On October 23, 2015, the EPA published in the Federal Register the final Clean Power Plan (CPP) rule that regulates CO2 emissions from existing fossil fuel-fired EGUs. The CPP established CO2 emission rates and mass cap goals that apply to existing fossil fuel-fired EGUs. Petitions challenging the rule have been filed by several groups and on February 9, 2016, the Supreme Court issued a stay of the final CPP rule, halting implementation of the CPP until legal challenges are resolved. The states in which the Duke Energy Registrants operate have suspended work on the CPP in response to the stay. Oral arguments before 10 of the 11 judges on D.C. Circuit Court were heard on September 27, 2016. The court is expected to decide the case in early 2017. Compliance with CPP could cause the industry to replace coal-fired generation with natural gas and renewables. Costs to operate coal-fired generation plants continue to grow due to increasing environmental compliance requirements, including ash management costs unrelated to CPP, which may result in the retirement of coal-fired generation plants earlier than the current end of useful lives. If the CPP is ultimately upheld by the courts and implementation goes forward, the Duke Energy Registrants could incur increased fuel, purchased power, operation and maintenance and other costs for replacement generation as a result of this rule. Due to the uncertainties related to the implementation of the CPP, the Duke Energy Registrants cannot predict the outcome of these matters. Nuclear Matters Following the events at the Fukushima Daiichi nuclear power station in Japan, in March 2011, the NRC formed a task force to conduct a comprehensive review of processes and regulations to determine whether the agency should make additional improvements to the nuclear regulatory system. Subsequently, the NRC targeted a set of improvements designed to enhance accident mitigation, strengthen emergency preparedness and improve efficiency of NRC programs. Pursuant to the findings of the task force, in March 2012, the NRC issued three regulatory orders requiring safety enhancements related to mitigation strategies to respond to extreme natural events resulting in the loss of power at a plant, ensuring reliable hardened containment vents and enhancing spent fuel pool instrumentation. Duke Energy is committed to compliance with all safety enhancements ordered by the NRC, and as of January 2017, Duke Energy actions on two of the three NRC orders are complete. The remaining order is focused only on enhancements to boiling water reactor designs which, for Duke Energy, is unique to Brunswick Steam Electric Plant. Actions associated with this third order will be completed by March 2019. With the NRC’s continuing review of this matter, Duke Energy cannot predict to what extent the NRC will impose additional licensing and safety-related requirements or the costs of complying with such requirements. Upon receipt of additional guidance from the NRC and a collaborative industry review, Duke Energy will be able to determine an implementation plan and associated costs. See Item 1A, “Risk Factors,” for further discussion of applicable risk factors. Global Climate Change The Duke Energy Registrants’ greenhouse gas (GHG) emissions consist primarily of CO2 and result primarily from operating a fleet of coal-fired power plants. In 2016, the Duke Energy Registrants’ power plants emitted approximately 107 million tons of CO2. Future CO2 emissions will be influenced by variables that include compliance with new or existing regulations, economic conditions that affect electricity demand and the technologies deployed to generate the electricity necessary to meet the customer demand. The Duke Energy Registrants have taken actions that have resulted in a reduction of CO2 emissions over time. Actions have included the retirement of 47 coal-fired EGUs with a combined generating capacity of 5,425 MW. 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.” 61 PART II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Duke Energy Ohio, Inc. (Duke Energy Ohio) Duke Energy Corporation (Duke Energy) Report of Independent Registered Public Accounting Firm .......................................... Consolidated Statements of Operations ..................................................................... Consolidated Statements of Comprehensive Income .................................................. Consolidated Balance Sheets ..................................................................................... Consolidated Statements of Cash Flows .................................................................... Consolidated Statements of Changes in Equity........................................................... 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........................................................... 63 64 65 66 68 70 Duke Energy Indiana, LLC (Duke Energy Indiana) Report of Independent Registered Public Accounting Firm .......................................... 98 Consolidated Statements of Operations and Comprehensive Income.......................... 99 Consolidated Balance Sheets ..................................................................................... 100 Consolidated Statements of Cash Flows .................................................................... 101 Consolidated Statements of Changes in Equity........................................................... 102 Duke Energy Carolinas, LLC (Duke Energy Carolinas) Report of Independent Registered Public Accounting Firm .......................................... Consolidated Statements of Operations and Comprehensive Income.......................... Consolidated Balance Sheets ..................................................................................... Consolidated Statements of Cash Flows .................................................................... Consolidated Statements of Changes in Equity........................................................... 71 72 73 74 75 Combined Notes to Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies................................................. Note 2 – Acquisitions and Dispositions ...................................................................... Note 3 – Business Segments ..................................................................................... Note 4 – Regulatory Matters ...................................................................................... Note 5 – Commitments and Contingencies ................................................................ Note 6 – Debt and Credit Facilities ............................................................................ Note 7 – Guarantees and Indemnifications ................................................................ Note 8 – Joint Ownership of Generating and Transmission Facilities........................... Note 9 – Asset Retirement Obligations ....................................................................... Note 10 – Property, Plant and Equipment .................................................................. Note 11 – Goodwill and Intangible Assets .................................................................. Note 12 – Investments in Unconsolidated Affiliates ................................................... Note 13 – Related Party Transactions ........................................................................ Note 14 – Derivatives and Hedging ............................................................................ Note 15 – Investments in Debt and Equity Securities ................................................. Note 16 – Fair Value Measurements .......................................................................... Note 17 – Variable Interest Entities............................................................................ Note 18 – Common Stock .......................................................................................... Note 19 – Severance ................................................................................................. Note 20 – Stock-Based Compensation....................................................................... Note 21 – Employee Benefit Plans ............................................................................. Note 22 – Income Taxes............................................................................................. Note 23 – Other Income and Expenses, Net ............................................................... Note 24 – Subsequent Events.................................................................................... Note 25 – Quarterly Financial Data (Unaudited)......................................................... Progress Energy, Inc. (Progress Energy) Report of Independent Registered Public Accounting Firm .......................................... Consolidated Statements of Operations and Comprehensive Income.......................... Consolidated Balance Sheets ..................................................................................... Consolidated Statements of Cash Flows .................................................................... Consolidated Statements of Changes in Equity........................................................... 76 77 78 80 82 Duke Energy Progress, LLC (Duke Energy Progress) Report of Independent Registered Public Accounting Firm .......................................... Consolidated Statements of Operations and Comprehensive Income.......................... Consolidated Balance Sheets ..................................................................................... Consolidated Statements of Cash Flows .................................................................... Consolidated Statements of Changes in Equity........................................................... 83 84 85 86 87 Duke Energy Florida, LLC (Duke Energy Florida) Report of Independent Registered Public Accounting Firm .......................................... Consolidated Statements of Operations and Comprehensive Income.......................... Consolidated Balance Sheets ..................................................................................... Consolidated Statements of Cash Flows .................................................................... Consolidated Statements of Changes in Equity........................................................... 93 94 95 96 97 88 89 90 91 92 62 103 111 115 119 131 140 145 146 147 150 152 153 155 156 160 166 173 177 178 178 180 197 203 204 205 PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Duke Energy Corporation Charlotte, North Carolina We have audited the accompanying consolidated balance sheets of Duke Energy Corporation and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and 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, 2016. We also have audited the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report On Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Corporation and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. /s/ Deloitte & Touche LLP Charlotte, North Carolina February 24, 2017 63 PART II DUKE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, (in millions, except per share amounts) 2016 2015 2014 Operating Revenues Regulated electric Nonregulated electric and other Regulated natural gas $21,221 659 863 $21,379 456 536 $ 21,550 386 573 Total operating revenues 22,743 22,371 22,509 6,625 265 6,085 3,294 1,142 18 7,355 141 5,539 3,053 1,129 106 7,732 185 5,506 2,969 1,204 81 17,429 17,323 17,677 27 30 10 5,341 5,078 4,842 (15) 324 69 290 130 320 Operating Expenses Fuel used in electric generation and purchased power Cost of natural gas Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses Equity in earnings (losses) of unconsolidated affiliates Other income and expenses, net 309 359 450 Interest Expense 1,916 1,527 1,529 Income From Continuing Operations Before Income Taxes Income Tax Expense From Continuing Operations 3,734 1,156 3,910 1,256 3,763 1,225 Income From Continuing Operations (Loss) Income From Discontinued Operations, net of tax 2,578 (408) 2,654 177 2,538 (649) Net Income Less: Net Income Attributable to Noncontrolling Interests 2,170 18 2,831 15 1,889 6 $ 2,152 $ 2,816 $ 1,883 $ 3.71 $ 3.71 $ 3.80 $ 3.80 $ 3.58 $ 3.58 $ (0.60) $ (0.60) $ 0.25 $ 0.25 $ (0.92) $ (0.92) $ 3.11 $ 3.11 $ 4.05 $ 4.05 $ 2.66 $ 2.66 691 691 694 694 707 707 Total other income and expenses Net Income Attributable to Duke Energy Corporation Earnings Per Share – Basic and Diluted Income from continuing operations attributable to Duke Energy Corporation common stockholders Basic Diluted (Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders Basic Diluted Net Income attributable to Duke Energy Corporation common stockholders Basic Diluted Weighted average shares outstanding Basic Diluted See Notes to Consolidated Financial Statements 64 PART II DUKE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, (in millions) 2016 2015 2014 Net Income $ 2,170 $2,831 $1,889 Other Comprehensive Income (Loss), net of tax Foreign currency translation adjustments Pension and OPEB adjustments Net unrealized gains (losses) on cash flow hedges(a) Reclassification into earnings from cash flow hedges Unrealized gains (losses) on available-for-sale securities 694 (11) 17 13 2 (264) (13) — 9 (6) (124) 4 (26) 7 3 Other Comprehensive Income (Loss), net of tax 715 (274) (136) 2,885 20 2,557 4 1,753 14 $ 2,865 $2,553 $1,739 Comprehensive Income Less: Comprehensive Income Attributable to Noncontrolling Interests Comprehensive Income Attributable to Duke Energy Corporation (a) Net of insignificant tax expense in 2016 and 2015, and $13 million tax benefit in 2014. See Notes to Consolidated Financial Statements 65 PART II DUKE ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS December 31, (in millions) 2016 ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $14 at 2016 and $12 at 2015) Receivables of VIEs (net of allowance for doubtful accounts of $54 at 2016 and $53 at 2015) Inventory Assets held for sale Regulatory assets (includes $50 related to VIEs at 2016) Other Total current assets Investments and Other Assets Investments in equity method unconsolidated affiliates Nuclear decommissioning trust funds Goodwill Assets held for sale Other Total investments and other assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets (includes $1,142 related to VIEs at 2016) Other Total regulatory assets and deferred debits Total Assets See Notes to Consolidated Financial Statements 66 $ 392 751 1,893 3,522 — 1,023 458 2015 $ 383 515 1,748 3,746 746 877 307 8,039 8,322 925 6,205 19,425 — 2,752 499 5,825 16,072 2,413 2,830 29,307 27,639 121,397 (39,406) 529 109,967 (36,736) 548 82,520 73,779 12,878 17 11,373 43 12,895 11,416 $132,761 $ 121,156 PART II DUKE ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS – (Continued) December 31, (in millions) 2016 2015 $ 2,994 2,487 384 503 2,319 — 411 409 2,044 $ 2,350 3,633 289 412 2,026 279 — 400 2,011 11,551 11,400 45,576 36,842 14,155 493 1,111 — 10,200 6,881 1,753 12,548 472 1,088 900 10,249 6,255 1,631 34,593 33,143 Equity Common stock, $0.001 par value, 2 billion shares authorized; 700 million and 688 million shares outstanding at 2016 and 2015, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss 1 38,741 2,384 (93) 1 37,968 2,564 (806) Total Duke Energy Corporation stockholders’ equity Noncontrolling interests 41,033 8 39,727 44 41,041 39,771 $132,761 $ 121,156 LIABILITIES AND EQUITY Current Liabilities Accounts payable Notes payable and commercial paper Taxes accrued Interest accrued Current maturities of long-term debt (includes $260 at 2016 and $125 at 2015 related to VIEs) Liabilities associated with assets held for sale Asset retirement obligations Regulatory liabilities Other Total current liabilities Long-Term Debt (includes $3,587 at 2016 and $2,197 at 2015 related to VIEs) Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Liabilities associated with assets held for sale Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Total equity Total Liabilities and Equity See Notes to Consolidated Financial Statements 67 PART II DUKE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) Equity component of AFUDC FERC mitigation costs Accrued charitable contributions related to Piedmont merger commitments Losses (gains) on sales of other assets Impairment charges Deferred income taxes Equity in earnings of unconsolidated affiliates Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans Payments for asset retirement obligations (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Inventory Other current assets Increase (decrease) in Accounts payable Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Investment expenditures Acquisitions, net of cash acquired Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Proceeds from the sales of discontinued operations and other assets, net of cash divested Change in restricted cash Other Net cash used in investing activities See Notes to Consolidated Financial Statements 68 2016 2015 2014 $ 2,170 $ 2,831 $ 1,889 3,880 (200) — 93 477 212 900 15 21 (155) (608) 3,613 (164) — — (48) 153 1,244 (69) 71 (302) (346) 3,507 (135) (15) — (33) 915 1,149 (130) 108 — (68) 34 (391) 272 (220) (29) 359 (237) (65) 44 58 (269) (414) 266 236 182 (186) (200) (6) (38) 168 (216) (243) (30) (14) (201) 16 209 6,798 6,676 6,586 (7,901) (307) (4,778) (5,153) 5,236 1,418 (4) (44) (6,766) (263) (1,334) (4,037) 4,040 2,968 191 (76) (5,384) (90) (54) (4,110) 4,133 179 9 (56) (11,533) (5,277) (5,373) PART II DUKE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued) Years Ended December 31, (in millions) 2016 2015 2014 $ 9,238 731 (1,923) 2,081 (2,166) (1,362) (6) (2,332) — 9 $ 2,955 17 (3,029) 379 (931) 1,797 (9) (2,254) (1,500) (3) $ 2,914 25 (3,037) 1,066 (564) 1,186 (65) (2,234) — 31 4,270 (2,578) (678) Changes in cash and cash equivalents included in assets held for sale 474 1,099 (548) Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period 9 383 (80) 463 (13) 476 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the: Issuance of long-term debt Issuance of common stock Payments for the redemption of long-term debt Proceeds from the issuance of short-term debt with original maturities greater than 90 days Payments for the redemption of short-term debt with original maturities greater than 90 days Notes payable and commercial paper Distributions to noncontrolling interests Dividends paid Repurchase of common shares Other Net cash provided by (used in) financing activities Cash and cash equivalents at end of period $ Supplemental Disclosures: Cash paid for interest, net of amount capitalized Cash paid for income taxes Significant non-cash transactions: Accrued capital expenditures See Notes to Consolidated Financial Statements 69 392 $ 383 $ 463 $ 1,794 229 $ 1,607 170 $ 1,659 158 1,000 771 664 PART II DUKE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Duke Energy Corporation Stockholders’ Accumulated Other Comprehensive Loss (in millions) Net Unrealized Total Foreign Net Gains (Losses) Duke Energy Common Additional Currency Losses on on Available- Pension and Corporation Stock Common Paid-in Retained Translation Cash Flow for-SaleOPEB Stockholders’ Noncontrolling Shares Stock Capital Earnings Adjustments Hedges Securities Adjustments Equity Interests Balance at December 31, 2013 706 $ 1 Net income Other comprehensive (loss) income Common stock issuances, including dividend reinvestment and employee benefits Common stock dividends Distributions to noncontrolling interest in subsidiaries — — — — — — 1 — — — Other — — — — Balance at December 31, 2014 707 $ 1 Net income $39,365 $ 2,363 Total Equity $(307) $ (40) $ — $ (52) $ 41,330 $ 78 $41,408 1,883 — — (132) — (19) — 3 — 4 1,883 (144) 6 8 1,889 (136) 40 — — (2,234) — — — — — — — — 40 (2,234) — — 40 (2,234) — — — — — — — — — — — — — — (65) (3) (65) (3) $39,405 $ 2,012 $(439) $ (59) 3 $ (48) $ 40,875 $ 24 $40,899 $ Other comprehensive (loss) income Common stock issuances, including dividend reinvestment and employee benefits Stock repurchase Common stock dividends Distributions to noncontrolling interest in subsidiaries Other(a) — — — — — — 2,816 — — (253) — 9 — (6) — (13) 2,816 (263) 15 (11) 2,831 (274) 1 (20) — — — 63 (1,500) — — — (2,254) — — — — — — — — — — — — 63 (1,500) (2,254) — — — 63 (1,500) (2,254) — — — — — — — (10) — — — — — — — — — (10) (9) 25 (9) 15 Balance at December 31, 2015 688 $ 1 $37,968 $ 2,564 $(692) $ (50) (3) $ (61) $ 39,727 $ 44 $39,771 Net income Other comprehensive income (loss)(b) Common stock issuances, including dividend reinvestment and employee benefits Common stock dividends Distributions to noncontrolling interests in subsidiaries Other(c) — — — — — — 2,152 — — 692 — 30 — 2 — (11) 2,152 713 18 2 2,170 715 12 — — — 773 — — (2,332) — — — — — — — — 773 (2,332) — — 773 (2,332) — — — — — — — — — — — — — — — — — — (6) (50) (6) (50) Balance at December 31, 2016 700 $ 1 $38,741 $ 2,384 $ — $ (20) (1) $ (72) $41,033 $ $ $ 8 $41,041 (a) Noncontrolling Interests amount is primarily related to the acquisitions of a majority interest in a provider of energy management systems and services for commercial customers and a solar company. (b) Foreign Currency Translation Adjustments amount includes $620 million of cumulative adjustment realized as a result of the sale of the Latin American generation business. Refer to Note 2 to the Consolidated Financial Statements. (c) Noncontrolling Interests amount is primarily related to the sale of the Latin American generation business. Refer to Note 2 to the Consolidated Financial Statements. See Notes to Consolidated Financial Statements 70 PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of Duke Energy Carolinas, LLC Charlotte, North Carolina We have audited the accompanying consolidated balance sheets of Duke Energy Carolinas, LLC and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and 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, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Carolinas, LLC and subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. /s/Deloitte & Touche LLP Charlotte, North Carolina February 24, 2017 71 PART II DUKE ENERGY CAROLINAS, LLC CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Years Ended December 31, (in millions) Operating Revenues Operating Expenses Fuel used in electric generation and purchased power Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Loss on Sales of Other Assets and Other, net 2016 2015 2014 $ 7,322 $ 7,229 $ 7,351 1,797 2,106 1,075 276 1 1,881 2,066 1,051 269 1 2,133 1,995 1,009 316 3 5,255 5,268 5,456 (5) (1) — Operating Income Other Income and Expenses, net Interest Expense 2,062 162 424 1,960 160 412 1,895 172 407 Income Before Income Taxes Income Tax Expense 1,800 634 1,708 627 1,660 588 $ 1,166 $ 1,081 $ 1,072 2 — 1 1 2 — Net Income Other Comprehensive Income, net of tax Reclassification into earnings from cash flow hedges Unrealized gain on available-for-sale securities Other Comprehensive Income, net of tax Comprehensive Income See Notes to Consolidated Financial Statements 72 2 2 2 $ 1,168 $ 1,083 $ 1,074 PART II DUKE ENERGY CAROLINAS, LLC CONSOLIDATED BALANCE SHEETS December 31, (in millions) 2016 ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $2 at 2016 and $3 at 2015) Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2016 and 2015) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other $ 14 160 645 163 66 1,055 238 37 2015 $ 13 142 596 107 163 1,276 305 128 2,378 2,730 Investments and Other Assets Nuclear decommissioning trust funds Other 3,273 940 3,050 999 Total investments and other assets 4,213 4,049 41,127 (14,365) 39,398 (13,521) Net property, plant and equipment 26,762 25,877 Regulatory Assets and Deferred Debits Regulatory assets Other 3,159 3 2,766 4 3,162 2,770 $ 36,515 $ 35,426 $ $ Total current assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Total regulatory assets and deferred debits Total Assets LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Asset retirement obligations Regulatory liabilities Other Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities 833 247 143 102 116 222 161 468 753 229 25 95 356 — 39 519 2,292 2,016 9,187 7,711 300 300 6,544 203 97 3,673 2,840 607 6,146 199 107 3,918 2,802 621 13,964 13,793 10,781 (9) 11,617 (11) 10,772 11,606 $ 36,515 $ 35,426 Commitments and Contingencies Equity Member’s equity Accumulated other comprehensive loss Total equity Total Liabilities and Equity See Notes to Consolidated Financial Statements 73 PART II DUKE ENERGY CAROLINAS, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including amortization of nuclear fuel) Equity component of AFUDC FERC mitigation costs Accrued charitable contributions related to Piedmont merger commitments Losses on sales of other assets and other, net Impairment charges Deferred income taxes Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans Payments for asset retirement obligations (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities 2016 2015 2014 $ 1,166 $ 1,081 $ 1,072 1,382 (102) — 52 5 1 470 4 (43) (287) 1,361 (96) — — 1 1 397 15 1,273 (91) 3 — — — 376 22 (91) — (167) — 5 (76) (56) 215 67 — 42 (32) (157) (51) — 48 — (60) (236) (85) 18 187 63 20 (30) (4) 75 (128) 127 76 (77) 10 (7) (15) (10) 17 (22) 2,976 2,373 2,380 (2,220) (2,832) 2,832 97 (83) (1,933) (2,555) 2,555 (13) (35) (1,879) (2,064) 2,044 72 (18) (2,206) (1,981) (1,845) 1,587 (356) (2,000) — 516 (506) (401) (1) — (45) (500) — (769) (392) (545) 1 13 — 13 (10) 23 Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt Payments for the redemption of long-term debt Distributions to parent Other Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period $ Supplemental Disclosures: Cash paid for interest, net of amount capitalized Cash (received from) paid for income taxes Significant non-cash transactions: Accrued capital expenditures See Notes to Consolidated Financial Statements 74 14 $ 13 $ 13 $ 393 (60) $ 389 342 $ 388 305 347 239 194 PART II DUKE ENERGY CAROLINAS, LLC CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Accumulated Other Comprehensive Loss (in millions) Balance at December 31, 2013 Net income Other comprehensive income Distributions to parent Balance at December 31, 2014 Net income Other comprehensive income Distributions to parent Balance at December 31, 2015 Net income Other comprehensive income Distributions to parent Other Balance at December 31, 2016 See Notes to Consolidated Financial Statements 75 Member’s Equity Net Losses on Cash Flow Hedges Net Losses Availablefor-Sale Securities Total Equity $10,365 $ (14) $ (1) $10,350 1,072 — (500) — 2 — — — — 1,072 2 (500) $10,937 $ (12) $ (1) $10,924 1,081 — (401) — 1 — — 1 — 1,081 2 (401) $11,617 $ (11) $ — $11,606 1,166 — (2,000) (2) — 2 — — — — — — 1,166 2 (2,000) (2) $10,781 $ (9) $ — $10,772 PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of Progress Energy, Inc. Charlotte, North Carolina We have audited the accompanying consolidated balance sheets of Progress Energy, Inc. and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and 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, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Progress Energy, Inc. and subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. /s/Deloitte & Touche LLP Charlotte, North Carolina February 24, 2017 76 PART II PROGRESS ENERGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Years Ended December 31, (in millions) Operating Revenues Operating Expenses Fuel used in electric generation and purchased power Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net 2016 2015 2014 $ 9,853 $ 10,277 $10,166 3,644 2,386 1,213 487 7 4,224 2,298 1,116 492 12 4,195 2,335 1,128 517 (16) 7,737 8,142 8,159 25 25 11 Operating Income Other Income and Expenses, net Interest Expense 2,141 114 689 2,160 97 670 2,018 77 675 Income From Continuing Operations Before Income Taxes Income Tax Expense From Continuing Operations 1,566 527 1,587 522 1,420 540 Income From Continuing Operations Income (Loss) From Discontinued Operations, net of tax 1,039 2 1,065 (3) 880 (6) Net Income Less: Net Income Attributable to Noncontrolling Interests 1,041 10 1,062 11 874 5 Net Income Attributable to Parent $ 1,031 $ 1,051 $ 869 Net Income $ 1,041 $ 1,062 $ 874 1 8 1 (10) 4 (1) 9 8 1 10 (7) 18 1,051 1,055 892 10 11 $ 1,041 $ 1,044 Other Comprehensive Income (Loss), net of tax Pension and OPEB adjustments Reclassification into earnings from cash flow hedges Unrealized gains (losses) on investments in available-for-sale securities Other Comprehensive Income (Loss), net of tax Comprehensive Income Less: Comprehensive Income Attributable to Noncontrolling Interests Comprehensive Income Attributable to Parent See Notes to Consolidated Financial Statements 77 5 $ 887 PART II PROGRESS ENERGY, INC. CONSOLIDATED BALANCE SHEETS December 31, (in millions) 2016 ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $6 at 2016 and 2015) Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2016 and $8 at 2015) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets (includes $50 related to VIEs at 2016) Other $ 46 114 692 106 80 1,717 401 148 2015 $ 44 151 658 375 — 1,751 362 156 3,304 3,497 Investments and Other Assets Nuclear decommissioning trust funds Goodwill Other 2,932 3,655 852 2,775 3,655 834 Total investments and other assets 7,439 7,264 44,864 (15,212) 529 42,666 (14,867) 548 30,181 28,347 5,722 4 5,435 5 5,726 5,440 $ 46,650 $ 44,548 Total current assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets (includes $1,142 related to VIEs at 2016) Other Total regulatory assets and deferred debits Total Assets See Notes to Consolidated Financial Statements 78 PART II PROGRESS ENERGY, INC. CONSOLIDATED BALANCE SHEETS – (Continued) December 31, (in millions) 2016 LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt (includes $62 related to VIEs at 2016) Asset retirement obligations Regulatory liabilities Other $ 1,003 348 729 83 201 778 189 189 745 2015 $ 722 311 1,308 53 195 315 — 286 891 4,265 4,081 15,590 13,999 Long-Term Debt Payable to Affiliated Companies 1,173 150 Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other 5,246 547 5,286 2,395 341 4,790 536 5,369 2,387 383 13,815 13,465 — 8,094 3,764 (38) — 8,092 4,831 (48) 11,820 12,875 (13) (22) 11,807 12,853 $ 46,650 $ 44,548 Total current liabilities Long-Term Debt (includes $1,741 at 2016 and $479 at 2015 related to VIEs) Total deferred credits and other liabilities Commitments and Contingencies Equity Common stock, $0.01 par value, 100 shares authorized and outstanding at 2016 and 2015 Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total Progress Energy, Inc. stockholders’ equity Noncontrolling interests Total equity Total Liabilities and Equity See Notes to Consolidated Financial Statements 79 PART II PROGRESS ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) Equity component of AFUDC FERC mitigation costs Accrued charitable contributions related to Piedmont merger commitments Gains on sales of other assets and other, net Impairment charges Deferred income taxes Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans Payments for asset retirement obligations (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Acquisitions Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Proceeds from insurance Proceeds from the sale of nuclear fuel Notes receivable from affiliated companies Change in restricted cash Other Net cash used in investing activities See Notes to Consolidated Financial Statements 80 2016 2015 2014 $ 1,041 $ 1,062 $ 874 1,435 (76) — 32 (34) 7 532 (24) (43) (270) 1,312 (54) — — (31) 12 714 (5) (83) (156) 1,313 (26) (18) — (6) 2 1,014 27 — (68) 42 7 211 35 3 (6) 105 (316) (67) 553 12 (31) (56) (101) (934) 242 37 15 (42) (248) (58) (193) 108 (63) 136 (167) (112) 6 80 (20) (144) (14) 56 2,844 2,749 1,966 (3,306) (10) (2,143) 2,187 58 20 (80) (6) 47 (2,698) (1,249) (1,174) 1,211 — 102 220 — (34) (1,940) — (1,689) 1,652 — — (145) — (44) (3,233) (3,622) (2,166) PART II PROGRESS ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued) Years Ended December 31, (in millions) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt Payments for the redemption of long-term debt Notes payable to affiliated companies Distributions to noncontrolling interests Capital contribution from parent Dividends to parent Other Net cash provided by financing activities 2016 2015 2014 $ 2,375 (327) 444 (1) — (2,098) (2) 391 $ 1,186 (1,553) 623 (4) 625 — (2) 875 $ 1,572 (931) (378) (37) — — (42) 184 2 44 2 42 (16) 58 Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period $ Supplemental Disclosures: Cash paid for interest, net of amount capitalized Cash (received from) paid for income taxes Significant non-cash transactions: Accrued capital expenditures See Notes to Consolidated Financial Statements 81 46 $ 44 $ 42 $ 673 (187) $ 649 (426) $ 664 141 317 329 294 PART II PROGRESS ENERGY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Accumulated Other Comprehensive Loss (in millions) Balance at December 31, 2013 Common Stock $ Net income Other comprehensive income Distributions to noncontrolling interests Transfer of service company net assets to Duke Energy Other Balance at December 31, 2014 $ Net income Other comprehensive income (loss) Distributions to noncontrolling interests Capital contribution from parent Other Balance at December 31, 2015 $ Net income Other comprehensive income Distributions to noncontrolling interests Dividends to parent Other Balance at December 31, 2016 $ Additional Paid-in Capital Net Unrealized Total Progress Net Losses on Gains on Pension and Energy, Inc. Retained Cash Flow Available-forOPEB Stockholders’ Noncontrolling Earnings Hedges Sale Securities Adjustments Equity Interests — $ 7,467 $3,452 $ (43) $ — $ (16) $ 10,860 4 $ 10,864 — — — — — — 869 — — — 8 — — 1 — — 9 — 869 18 — 5 — (37) 874 18 (37) — — — — (539) — — — — — — — (539) — — (4) (539) (4) — $ 7,467 $3,782 $ (35) 1 $ (7) $ 11,208 — — — — — — — — 625 — 1,051 — — — (2) — 4 — — — — (1) — — — — (10) — — — 1,051 (7) — 625 (2) — $ 8,092 $4,831 $ (31) $ — $ (17) $ 12,875 — — — — — — — — — 2 1,031 — — (2,098) — — 8 — — — — 1 — — — — 1 — — — 1,031 10 — (2,098) 2 — $ 8,094 $3,764 $ (23) 1 $(16) $ 11,820 See Notes to Consolidated Financial Statements 82 $ $ $ Total Equity $ (32) $ 11,176 11 — (4) — 3 $ (22) $ 12,853 10 — (1) — — $ 1,062 (7) (4) 625 1 1,041 10 (1) (2,098) 2 (13) $ 11,807 PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of Duke Energy Progress, LLC Charlotte, North Carolina We have audited the accompanying consolidated balance sheets of Duke Energy Progress, LLC and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and 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, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Progress, LLC and subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. /s/Deloitte & Touche LLP Charlotte, North Carolina February 24, 2017 83 PART II DUKE ENERGY PROGRESS, LLC CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Years Ended December 31, (in millions) Operating Revenues Operating Expenses Fuel used in electric generation and purchased power Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Net Income and Comprehensive Income See Notes to Consolidated Financial Statements 84 2016 2015 2014 $5,277 $5,290 $ 5,176 1,830 1,504 703 156 1 2,029 1,452 643 140 5 2,036 1,470 582 174 (18) 4,194 4,269 4,244 3 3 3 1,086 71 257 1,024 71 235 935 51 234 900 301 860 294 752 285 $ 599 $ 566 $ 467 PART II DUKE ENERGY PROGRESS, LLC CONSOLIDATED BALANCE SHEETS December 31, (in millions) 2016 ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $4 at 2016 and 2015) Receivables of VIEs (net of allowance for doubtful accounts of $5 at 2016 and 2015) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other Total current assets Investments and Other Assets Nuclear decommissioning trust funds Other $ Total investments and other assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Asset retirement obligations Regulatory liabilities Other Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies $ 15 87 349 16 — 1,088 264 121 1,940 2,217 523 2,035 486 2,740 2,521 28,419 (10,561) 529 18,387 27,313 (10,141) 548 17,720 3,243 2 2,710 3 3,245 2,713 $ 26,329 $ 24,894 $ $ Total regulatory assets and deferred debits Total Assets 11 51 404 5 165 1,076 188 57 1,957 2015 589 227 — 104 102 452 189 158 365 399 190 209 15 96 2 — 85 412 2,186 1,408 6,409 6,366 150 150 3,323 146 252 4,508 1,946 3,027 132 262 4,567 1,878 51 10,226 45 9,911 Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Equity Member’s Equity Total Liabilities and Equity See Notes to Consolidated Financial Statements 85 7,358 7,059 $ 26,329 $ 24,894 PART II DUKE ENERGY PROGRESS, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (in millions) 2016 2015 2014 $ 599 $ 566 $ 467 907 (50) — 32 (6) 1 384 (32) (24) (212) 821 (47) — — (7) 5 354 (14) (42) (109) 761 (25) (18) — (3) — 455 (7) — — 4 (17) 11 12 84 (3) 43 (6) (50) 185 13 78 (8) (65) (416) 171 37 90 114 (163) (10) (65) 70 (34) 76 (83) (66) 27 17 10 (68) 48 (21) 1,932 1,594 1,245 (1,733) — (1,658) 1,615 (165) 26 (1,669) (1,249) (727) 672 237 (30) (1,241) — (499) 458 (237) (12) (1,915) (2,766) (1,531) 505 (15) (209) — (300) — (2) 1,186 (991) 359 626 — — (2) 1,347 (379) (462) — — (225) (7) Net cash (used in) provided by financing activities (21) 1,178 274 Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period (4) 15 6 9 (12) 21 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) Equity component of AFUDC FERC mitigation costs Accrued charitable contributions related to Piedmont merger commitments Gains on sales of other assets and other, net Impairment charges Deferred income taxes Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans Payments for asset retirement obligations (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Asset acquisition Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt Payments for the redemption of long-term debt Notes payable to affiliated companies Capital contribution from parent Distributions to parent Dividends to parent Other Cash and cash equivalents at end of period $ Supplemental Disclosures: Cash paid for interest, net of amount capitalized Cash (received from) paid for income taxes Significant non-cash transactions: Accrued capital expenditures See Notes to Consolidated Financial Statements 86 11 $ 15 $ 9 $ 248 (287) $ 218 (197) $ 220 81 147 143 194 PART II DUKE ENERGY PROGRESS, LLC CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in millions) Common Stock Retained Earnings Balance at December 31, 2013 $ 2,159 $ 3,466 — — 467 (225) $ 2,159 — (2,159) — $ 3,708 355 (4,063) — $ Balance at December 31, 2015 Net income Distribution to parent $ — — — $ Balance at December 31, 2016 $ — $ Net income Dividends to parent Balance at December 31, 2014 Net income Transfer to Member’s Equity Capital contribution from parent See Notes to Consolidated Financial Statements 87 Member’s Equity $ Total Equity — $ 5,625 — — 467 (225) — 211 6,222 626 $ 5,867 566 — 626 — — — $ 7,059 599 (300) $ 7,059 599 (300) — $ 7,358 $ 7,358 PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of Duke Energy Florida, LLC Charlotte, North Carolina We have audited the accompanying consolidated balance sheets of Duke Energy Florida, LLC and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and 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, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Florida, LLC and subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. /s/Deloitte & Touche LLP Charlotte, North Carolina February 24, 2017 88 PART II DUKE ENERGY FLORIDA, LLC CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Years Ended December 31, (in millions) Operating Revenues Operating Expenses Fuel used in electric generation and purchased power Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Net Income Other Comprehensive Income, net of tax Net unrealized gain on available-for-sale securities Reclassification into earnings from cash flow hedges Other Comprehensive Income, net of tax Comprehensive Income See Notes to Consolidated Financial Statements 89 2016 2015 2014 $ 4,568 $ 4,977 $ 4,975 1,814 865 509 333 6 2,195 835 473 352 7 2,158 850 545 343 2 3,527 3,862 3,898 — — 1 1,041 44 212 1,115 24 198 1,078 20 201 873 322 941 342 897 349 $ 551 $ 599 $ 548 1 — — — — 1 1 — 1 $ 552 $ 599 $ 549 PART II DUKE ENERGY FLORIDA, LLC CONSOLIDATED BALANCE SHEETS December 31, (in millions) 2016 ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $2 at 2016 and 2015) Receivables of VIEs (net of allowance for doubtful accounts of $2 and 2016 and $3 at 2015) Receivables from affiliated companies Inventory Regulatory assets (includes $50 related to VIEs at 2016) Other (includes $53 related to VIEs at 2016) $ 16 61 288 5 641 213 125 2015 $ 8 60 308 84 663 98 21 1,349 1,242 Investments and Other Assets Nuclear decommissioning trust funds Other 715 276 740 292 Total investments and other assets 991 1,032 16,434 (4,644) 15,343 (4,720) 11,790 10,623 2,480 2 2,725 2 Total current assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets (includes $1,142 related to VIEs at 2016) Other 2,482 2,727 $ 16,612 $ 15,624 $ $ Total regulatory assets and deferred debits Total Assets LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt (includes $62 related to VIEs at 2016) Regulatory liabilities Other 413 125 297 33 49 326 31 352 322 116 813 132 43 13 200 452 1,626 2,091 Long-Term Debt (includes $1,442 at 2016 and $225 at 2015 related to VIEs) 5,799 4,253 Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other 2,694 262 778 448 105 2,460 242 802 509 146 4,287 4,159 4,899 1 5,121 — Total current liabilities Total deferred credits and other liabilities Commitments and Contingencies Equity Member’s equity Accumulated other comprehensive income Total equity Total Liabilities and Equity See Notes to Consolidated Financial Statements 90 4,900 5,121 $ 16,612 $ 15,624 PART II DUKE ENERGY FLORIDA, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (in millions) 2016 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion Equity component of AFUDC Gains on sales of other assets and other, net Impairment charges Deferred income taxes Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans Payments for asset retirement obligations (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities $ 551 2015 $ 599 2014 $ 548 516 (26) — 6 224 2 (20) (58) 480 (7) — 7 348 5 (40) (47) 550 — (1) 2 400 29 — (68) 38 23 21 23 (133) (3) 61 (44) (17) 116 (9) (33) (37) (36) (269) 71 9 (117) (149) (84) (127) 46 67 57 (84) 18 32 (31) (80) (59) (53) (44) 10 844 1,373 966 (1,573) (10) (485) 572 58 20 (6) 21 (1,029) — (447) 538 — 102 — (3) (699) — (1,189) 1,195 — — — (31) (1,403) (839) (724) 1,870 (12) (516) — (775) — — (562) 729 (350) (350) (1) 225 (252) (97) (124) — (2) Net cash provided by (used in) financing activities 567 (534) (250) Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period 8 8 — 8 (8) 16 Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Acquisitions Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Insurance proceeds Proceeds from the sale of nuclear fuel Change in restricted cash Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt Payments for the redemption of long-term debt Notes payable to affiliated companies Dividends to parent Distribution to parent Other Cash and cash equivalents at end of period Supplemental Disclosures: Cash paid for interest, net of amount capitalized Cash paid for (received from) income taxes Significant non-cash transactions: Accrued capital expenditures $ 16 $ 8 $ 8 $ 208 216 $ 205 (229) $ 203 59 170 See Notes to Consolidated Financial Statements 91 186 100 PART II DUKE ENERGY FLORIDA, LLC CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Accumulated Other Comprehensive Income (in millions) Common Stock Retained Earnings Balance at December 31, 2013 $ 1,762 $ 3,036 — — — 548 — (124) $ 1,762 $ 3,460 — (1,762) — — 351 (3,461) (350) — Net income Other comprehensive income Dividend to parent Balance at December 31, 2014 Net income Transfer to Member’s Equity Dividends to parent Distribution to parent Balance at December 31, 2015 $ $ — — — — Net income Other comprehensive income Distribution to parent Other Balance at December 31, 2016 — $ — $ $ — — $ — — — $ — $ 5,121 $ 4,899 $ — $ — — — — $ 551 — (775) 2 $ — Net Gains on Cash Flow Hedges — — — 248 5,223 — (350) — — — — See Notes to Consolidated Financial Statements 92 — Member’s Equity Net Unrealized Gains on Available-forSale Securities — $ — 1 — — $ 1 $ Total Equity (1) $ 4,797 — 1 — 548 1 (124) — $ 5,222 — — — — 599 — (350) (350) — $ 5,121 — — — — 551 1 (775) 2 — $ 4,900 PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of Duke Energy Ohio, Inc. Charlotte, North Carolina We have audited the accompanying consolidated balance sheets of Duke Energy Ohio, Inc. and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and 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, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Ohio, Inc. and subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. /s/Deloitte & Touche LLP Charlotte, North Carolina February 24, 2017 93 PART II DUKE ENERGY OHIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Years Ended December 31, (in millions) 2016 2015 2014 Operating Revenues Regulated electric Nonregulated electric and other Regulated natural gas $1,410 31 503 $1,331 33 541 $1,316 19 578 Total operating revenues 1,944 1,905 1,913 442 51 103 512 233 258 — 446 47 141 495 227 254 — 459 25 185 516 214 234 94 1,599 1,610 1,727 Operating Expenses Fuel used in electric generation and purchased power – regulated Fuel used in electric generation and purchased power – nonregulated Cost of natural gas Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net 2 8 1 Operating Income Other Income and Expenses, net Interest Expense 347 9 86 303 6 79 187 10 86 Income From Continuing Operations Before Income Taxes 270 230 111 Income Tax Expense From Continuing Operations Income From Continuing Operations Income (Loss) From Discontinued Operations, net of tax Net Income (Loss) and Comprehensive Income (Loss) See Notes to Consolidated Financial Statements 94 78 81 43 192 36 149 23 68 (563) $ 228 $ 172 $ (495) PART II DUKE ENERGY OHIO, INC. CONSOLIDATED BALANCE SHEETS December 31, (in millions) 2016 ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $2 at 2016 and 2015) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other Total current assets Investments and Other Assets Goodwill Other Total investments and other assets $ Property, Plant and Equipment Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Regulatory liabilities Other $ 14 66 84 — 105 36 110 415 920 21 941 920 20 940 8,126 (2,579) 5,547 7,750 (2,507) 5,243 520 2 497 2 522 499 $ 7,528 $ 7,097 $ $ Total regulatory assets and deferred debits Total Assets 13 71 129 94 137 37 37 518 2015 282 63 16 178 19 1 21 91 207 53 103 171 18 106 12 153 671 823 1,858 1,467 25 25 Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities 1,443 56 77 236 166 1,978 1,407 56 125 245 165 1,998 Commitments and Contingencies Equity Common stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at 2016 and 2015 Additional paid-in capital Accumulated deficit 762 2,695 (461) 762 2,720 (698) Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies Total equity Total Liabilities and Equity See Notes to Consolidated Financial Statements 95 2,996 2,784 $ 7,528 $ 7,097 PART II DUKE ENERGY OHIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (in millions) 2016 2015 2014 $ 228 $ 172 $ (495) 237 (6) (2) — 55 6 (5) (5) 230 (3) (8) 40 206 9 (8) (4) 258 (4) (1) 941 (219) 8 — — (2) (4) (36) (32) 79 (10) 23 23 — — 27 (56) 14 8 (5) 19 10 3 (54) (35) (31) (1) (21) (21) 88 25 (73) 27 (3) (9) 27 (4) (33) 425 667 481 (476) (94) (30) (399) 145 (15) (322) (88) (12) Net cash used in investing activities (600) (269) (422) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt Payments for the redemption of long-term debt Notes payable to affiliated companies Dividends to parent Other 341 (53) (87) (25) (2) — (157) (95) (150) (2) — (449) 473 (100) 1 174 (404) (75) (1) 14 (6) 20 (16) 36 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, amortization and accretion Equity component of AFUDC Gains on sales of other assets and other, net Impairment charges Deferred income taxes Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans Payments for asset retirement obligations (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Notes receivable from affiliated companies Other Net cash provided by (used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Cash paid for interest, net of amount capitalized Cash (received from) paid for income taxes Significant non-cash transactions: Accrued capital expenditures Distribution of membership interest of Duke Energy SAM, LLC to parent $ 13 $ 14 $ 20 $ 81 (46) $ 76 410 $ 76 (5) 20 1,912 24 — 83 — See Notes to Consolidated Financial Statements 96 PART II DUKE ENERGY OHIO, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in millions) Balance at December 31, 2013 Net loss Dividends to parent Balance at December 31, 2014 Net income Dividends to parent Distribution of membership interest of Duke Energy SAM, LLC to parent Balance at December 31, 2015 Net income Contribution from parent Dividends to parent Balance at December 31, 2016 See Notes to Consolidated Financial Statements 97 Common Stock Additional Paid-in Capital Accumulated Deficit Total Equity $ 762 $ 4,882 $ (375) $ 5,269 — — — (100) (495) — (495) (100) $ 762 $ 4,782 $ (870) $ 4,674 — — — (150) 172 — 172 (150) — (1,912) — (1,912) $ 762 $ 2,720 $ (698) $ 2,784 — — — — — (25) 228 9 — 228 9 (25) $ 762 $ 2,695 $ (461) $ 2,996 PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of Duke Energy Indiana, LLC Charlotte, North Carolina We have audited the accompanying consolidated balance sheets of Duke Energy Indiana, LLC and subsidiary (the “Company”) as of December 31, 2016 and 2015, and 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, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Indiana, LLC and subsidiary at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. /s/Deloitte & Touche LLP Charlotte, North Carolina February 24, 2017 98 PART II DUKE ENERGY INDIANA, LLC CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Years Ended December 31, (in millions) 2016 2015 2014 $ 2,958 $ 2,890 $ 3,175 909 723 496 58 8 982 682 434 61 88 1,259 670 413 128 — 2,194 2,247 2,470 1 1 — Operating Income Other Income and Expenses, net Interest Expense 765 22 181 644 11 176 705 22 171 Income Before Income Taxes Income Tax Expense 606 225 479 163 556 197 $ 381 $ 316 $ 359 Operating Revenues Operating Expenses Fuel used in electric generation and purchased power Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net Net Income Other Comprehensive Loss, net of tax Reclassification into earnings from cash flow hedges Comprehensive Income See Notes to Consolidated Financial Statements 99 (1) (2) — $ 380 $ 314 $ 359 PART II DUKE ENERGY INDIANA, LLC CONSOLIDATED BALANCE SHEETS December 31, (in millions) 2016 ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $1 at 2016 and 2015) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other $ 17 105 114 86 504 149 45 2015 $ 9 96 71 83 570 102 15 1,020 946 145 212 14,241 (4,317) 14,007 (4,484) Net property, plant and equipment 9,924 9,523 Regulatory Assets and Deferred Debits Regulatory assets Other 1,073 2 716 2 1,075 718 $ 12,164 $ 11,399 $ $ Total current assets Investments and Other Assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Total regulatory assets and deferred debits Total Assets LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Regulatory liabilities Other Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Equity Member’s equity Common Stock, no par; $0.01 stated value, 60,000,000 shares authorized; 53,913,701 shares outstanding at 2015 Additional paid-in capital Retained earnings Accumulated other comprehensive income Total equity Total Liabilities and Equity See Notes to Consolidated Financial Statements 100 263 74 31 61 3 40 93 189 83 89 56 547 62 97 565 1,123 3,633 3,071 150 150 1,900 137 71 866 748 27 1,657 138 80 525 754 65 3,749 3,219 4,067 — — — — — 1 1,384 2,450 1 4,067 3,836 $ 12,164 $ 11,399 PART II DUKE ENERGY INDIANA, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Equity component of AFUDC Gains on sales of other assets and other, net Impairment charges Deferred income taxes Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans Payments for asset retirement obligations (Increase) decrease in Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities 2016 2015 2014 $ 381 $ 316 $ 359 499 (16) — 8 213 8 (9) (46) 439 (11) (1) 88 262 13 (19) (19) 416 (14) — — 308 16 — — (2) (43) 66 (67) (7) 44 (21) 90 (35) 36 (103) (8) 8 (9) (4) (81) (27) 33 25 35 26 (41) 2 (32) 5 (82) (21) (8) (35) 17 871 1,176 905 (755) (14) 11 — (3) 32 (690) (9) 11 17 (83) (17) (625) (20) 16 — 96 4 (729) (771) (529) 494 (478) — — (149) (1) — (5) (71) (326) — — — (5) 71 (450) — (1) (134) (402) (385) 8 9 3 6 (9) 15 Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Proceeds from the sales of other assets Notes receivable from affiliated companies Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt Payments for the redemption of long-term debt Notes payable to affiliated companies Dividends to parent Distributions to parent Other Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period $ Supplemental Disclosures: Cash paid for interest, net of amount capitalized Cash received from income taxes Significant non-cash transactions: Accrued capital expenditures See Notes to Consolidated Financial Statements 101 17 $ 9 $ 6 $ 171 (7) $ 175 (253) $ 169 (61) 99 64 87 PART II DUKE ENERGY INDIANA, LLC CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Accumulated Other Comprehensive Income Additional Paid-in Capital Retained Earnings 1 $ 1,384 $ 2,551 — — — — 359 (450) (in millions) Common Stock Balance at December 31, 2013 $ Net income Dividends to parent Balance at December 31, 2014 $ Net income Other comprehensive loss Dividends to parent Balance at December 31, 2015 $ Net income Other comprehensive loss Distributions to parent Transfer to Member’s Equity Balance at December 31, 2016 $ Member’s Equity $ — 1 $ 1,384 $ 2,460 — — — 316 — (326) 1 $ 1,384 $ 2,450 — — — (1) — — — (1,384) — — — (2,450) 381 — (149) 3,835 — $ 4,067 $ — See Notes to Consolidated Financial Statements 102 $ $ — — — — — — Net Gains on Cash Flow Hedges $ — $ — — — $ — $ $ Total Equity 3 $ 3,939 — — 359 (450) 3 $ 3,848 — (2) — 316 (2) (326) 1 $ 3,836 — (1) — — 381 (1) (149) — — $ 4,067 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements 'PS UIF :FBST &OEFE %FDFNCFS BOE Index to Combined Notes To Consolidated Financial Statements 5IF OPUFT UP UIF DPOTPMJEBUFE mOBODJBM TUBUFNFOUT BSF B DPNCJOFE QSFTFOUBUJPO 5IF GPMMPXJOH UBCMF JOEJDBUFT UIF SFHJTUSBOUT UP XIJDI UIF OPUFT BQQMZ Applicable Notes Registrant 1 2 3 4 5 6 7 8 9 10 11 12 %VLF &OFSHZ $PSQPSBUJPO %VLF &OFSHZ $BSPMJOBT --$ 1SPHSFTT &OFSHZ *OD 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'PS BEEJUJPOBM JOGPSNBUJPO PO UIF EFUBJMT PG UIJT USBOTBDUJPO JODMVEJOH QVSDIBTF QSJDF BMMPDBUJPO BOE BDRVJTJUJPO mOBODJOH TFF /PUF 1JFENPOU DPOUJOVFT UP NBJOUBJO SFQPSUJOH SFRVJSFNFOUT BT B 4FDVSJUJFT BOE &YDIBOHF $PNNJTTJPO 4&$ SFHJTUSBOU *O %FDFNCFS %VLF &OFSHZ DPNQMFUFE BO FYJU PG UIF -BUJO "NFSJDBO NBSLFU UP GPDVT PO JUT EPNFTUJD SFHVMBUFE CVTJOFTT XIJDI XBT 103 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) %VLF &OFSHZ 1SPHSFTT JT B SFHVMBUFE QVCMJD VUJMJUZ QSJNBSJMZ FOHBHFE JO UIF HFOFSBUJPO USBOTNJTTJPO EJTUSJCVUJPO BOE TBMF PG FMFDUSJDJUZ JO QPSUJPOT PG /PSUI $BSPMJOB BOE 4PVUI $BSPMJOB %VLF &OFSHZ 1SPHSFTT JT TVCKFDU UP UIF SFHVMBUPSZ QSPWJTJPOT PG UIF /$6$ 14$4$ /3$ BOE '&3$ 4VCTUBOUJBMMZ BMM PG %VLF &OFSHZ 1SPHSFTT PQFSBUJPOT RVBMJGZ GPS SFHVMBUPSZ BDDPVOUJOH %VLF &OFSHZ 'MPSJEB JT B SFHVMBUFE QVCMJD VUJMJUZ QSJNBSJMZ FOHBHFE JO UIF HFOFSBUJPO USBOTNJTTJPO EJTUSJCVUJPO BOE TBMF PG FMFDUSJDJUZ JO QPSUJPOT PG 'MPSJEB %VLF &OFSHZ 'MPSJEB JT TVCKFDU UP UIF SFHVMBUPSZ QSPWJTJPOT PG UIF 'MPSJEB 1VCMJD 4FSWJDF $PNNJTTJPO '14$ /3$ BOE '&3$ 4VCTUBOUJBMMZ BMM PG %VLF &OFSHZ 'MPSJEB T PQFSBUJPOT RVBMJGZ GPS SFHVMBUPSZ BDDPVOUJOH %VLF &OFSHZ 0IJP JT B SFHVMBUFE QVCMJD VUJMJUZ QSJNBSJMZ FOHBHFE JO UIF USBOTNJTTJPO BOE EJTUSJCVUJPO PG FMFDUSJDJUZ JO QPSUJPOT PG 0IJP BOE ,FOUVDLZ UIF HFOFSBUJPO BOE TBMF PG FMFDUSJDJUZ JO QPSUJPOT PG ,FOUVDLZ BOE UIF USBOTQPSUBUJPO BOE TBMF PG OBUVSBM HBT JO QPSUJPOT PG 0IJP BOE ,FOUVDLZ %VLF &OFSHZ 0IJP BMTP DPOEVDUT DPNQFUJUJWF BVDUJPOT GPS SFUBJM FMFDUSJDJUZ TVQQMZ JO 0IJP XIFSFCZ SFDPWFSZ PG UIF FOFSHZ QSJDF JT GSPN SFUBJM DVTUPNFST BOE SFDPSEFE JO 0QFSBUJOH 3FWFOVFT PO UIF $POTPMJEBUFE 4UBUFNFOUT PG 0QFSBUJPOT BOE $PNQSFIFOTJWF *ODPNF 0QFSBUJPOT JO ,FOUVDLZ BSF DPOEVDUFE UISPVHI JUT XIPMMZ PXOFE TVCTJEJBSZ %VLF &OFSHZ ,FOUVDLZ *OD %VLF &OFSHZ ,FOUVDLZ 3FGFSFODFT IFSFJO UP %VLF &OFSHZ 0IJP JODMVEF %VLF &OFSHZ 0IJP BOE JUT TVCTJEJBSJFT VOMFTT PUIFSXJTF OPUFE %VLF &OFSHZ 0IJP JT TVCKFDU UP UIF SFHVMBUPSZ QSPWJTJPOT PG UIF 1VCMJD 6UJMJUJFT $PNNJTTJPO PG 0IJP 16$0 ,FOUVDLZ 1VCMJD 4FSWJDF $PNNJTTJPO ,14$ BOE '&3$ 0O "QSJM %VLF &OFSHZ DPNQMFUFE UIF TBMF PG JUT OPOSFHVMBUFE .JEXFTU HFOFSBUJPO CVTJOFTT XIJDI TPME QPXFS JOUP XIPMFTBMF FOFSHZ NBSLFUT UP B TVCTJEJBSZ PG %ZOFHZ *OD %ZOFHZ 'PS GVSUIFS JOGPSNBUJPO BCPVU UIF TBMF PG UIF .JEXFTU (FOFSBUJPO CVTJOFTT SFGFS UP /PUF i"DRVJTJUJPOT BOE %JTQPTJUJPOT w 4VCTUBOUJBMMZ BMM PG %VLF &OFSHZ 0IJP T PQFSBUJPOT UIBU SFNBJO BGUFS UIF TBMF RVBMJGZ GPS SFHVMBUPSZ BDDPVOUJOH %VLF &OFSHZ *OEJBOB JT B SFHVMBUFE QVCMJD VUJMJUZ QSJNBSJMZ FOHBHFE JO UIF HFOFSBUJPO USBOTNJTTJPO EJTUSJCVUJPO BOE TBMF PG FMFDUSJDJUZ JO QPSUJPOT PG *OEJBOB %VLF &OFSHZ *OEJBOB JT TVCKFDU UP UIF SFHVMBUPSZ QSPWJTJPOT PG UIF *OEJBOB 6UJMJUZ 3FHVMBUPSZ $PNNJTTJPO *63$ BOE '&3$ 4VCTUBOUJBMMZ BMM PG %VLF &OFSHZ *OEJBOB T PQFSBUJPOT RVBMJGZ GPS SFHVMBUPSZ BDDPVOUJOH 0O +BOVBSZ %VLF &OFSHZ *OEJBOB BO *OEJBOB DPSQPSBUJPO DPOWFSUFE JOUP BO *OEJBOB MJNJUFE MJBCJMJUZ DPNQBOZ 1JFENPOU JT B SFHVMBUFE QVCMJD VUJMJUZ QSJNBSJMZ FOHBHFE JO UIF EJTUSJCVUJPO PG OBUVSBM HBT JO QPSUJPOT PG /PSUI $BSPMJOB 4PVUI $BSPMJOB BOE 5FOOFTTFF 1JFENPOU JT JOWFTUFE JO KPJOU WFOUVSF CVTJOFTTFT JODMVEJOH SFHVMBUFE JOUFSTUBUF OBUVSBM HBT USBOTQPSUBUJPO BOE TUPSBHF BOE JOUSBTUBUF OBUVSBM HBT USBOTQPSUBUJPO CVTJOFTTFT 1JFENPOU JT TVCKFDU UP UIF SFHVMBUPSZ QSPWJTJPOT PG UIF /$6$ 14$4$ 5FOOFTTFF 3FHVMBUPSZ "VUIPSJUZ 53" BOE '&3$ 4VCTUBOUJBMMZ BMM PG 1JFENPOU T PQFSBUJPOT RVBMJGZ GPS SFHVMBUPSZ BDDPVOUJOH $FSUBJO QSJPS ZFBS BNPVOUT IBWF CFFO SFDMBTTJmFE UP DPOGPSN UP UIF DVSSFOU ZFBS QSFTFOUBUJPO Other Current Assets and Liabilities 5IF GPMMPXJOH UBCMF QSPWJEFT B EFTDSJQUJPO PG BNPVOUT JODMVEFE JO 0UIFS XJUIJO $VSSFOU "TTFUT PS $VSSFOU -JBCJMJUJFT UIBU FYDFFE QFSDFOU PG UPUBM $VSSFOU "TTFUT PS $VSSFOU -JBCJMJUJFT PO UIF %VLF &OFSHZ 3FHJTUSBOUT $POTPMJEBUFE #BMBODF 4IFFUT BU FJUIFS %FDFNCFS PS December 31, (in millions) Location Duke Energy "DDSVFE DPNQFOTBUJPO 2016 2015 $VSSFOU -JBCJMJUJFT $ 765 Duke Energy Carolinas "DDSVFE DPNQFOTBUJPO $PMMBUFSBM MJBCJMJUJFT $VSSFOU -JBCJMJUJFT $VSSFOU -JBCJMJUJFT $ 248 155 Progress Energy *ODPNF UBYFT SFDFJWBCMF $VTUPNFS EFQPTJUT %FSJWBUJWF MJBCJMJUJFT $VSSFOU "TTFUT $VSSFOU -JBCJMJUJFT $VSSFOU -JBCJMJUJFT $ 19 363 1 373 Duke Energy Progress *ODPNF UBYFT SFDFJWBCMF $VTUPNFS EFQPTJUT "DDSVFE DPNQFOTBUJPO %FSJWBUJWF MJBCJMJUJFT $VSSFOU "TTFUT $VSSFOU -JBCJMJUJFT $VSSFOU -JBCJMJUJFT $VSSFOU -JBCJMJUJFT $ 16 141 135 — 111 108 Duke Energy Florida $VTUPNFS EFQPTJUT %FSJWBUJWF MJBCJMJUJFT $VSSFOU -JBCJMJUJFT $VSSFOU -JBCJMJUJFT $ 222 1 Duke Energy Ohio *ODPNF UBYFT SFDFJWBCMF 0UIFS SFDFJWBCMF "DDSVFE MJUJHBUJPO SFTFSWF $VSSFOU "TTFUT $VSSFOU "TTFUT $VSSFOU -JBCJMJUJFT $ 16 — 4 33 80 $PMMBUFSBM MJBCJMJUJFT $VSSFOU -JBCJMJUJFT Duke Energy Indiana $PMMBUFSBM MJBCJMJUJFT $VSSFOU -JBCJMJUJFT 62 $ 44 Discontinued Operations 5IF SFTVMUT PG PQFSBUJPOT PG UIF *OUFSOBUJPOBM %JTQPTBM (SPVQ BOE %VLF &OFSHZ 0IJP T OPOSFHVMBUFE .JEXFTU (FOFSBUJPO CVTJOFTT BOE %VLF &OFSHZ 3FUBJM 4BMFT --$ DPMMFDUJWFMZ .JEXFTU (FOFSBUJPO %JTQPTBM (SPVQ IBWF CFFO DMBTTJmFE BT %JTDPOUJOVFE 0QFSBUJPOT PO %VLF &OFSHZ T $POTPMJEBUFE 4UBUFNFOUT PG 0QFSBUJPOT %VLF &OFSHZ IBT FMFDUFE UP QSFTFOU DBTI nPXT PG EJTDPOUJOVFE PQFSBUJPOT DPNCJOFE XJUI DBTI nPXT PG DPOUJOVJOH PQFSBUJPOT 6OMFTT PUIFSXJTF OPUFE UIF OPUFT UP UIFTF DPOTPMJEBUFE mOBODJBM TUBUFNFOUT FYDMVEF BNPVOUT SFMBUFE UP EJTDPOUJOVFE PQFSBUJPOT GPS BMM QFSJPET QSFTFOUFE BOE BTTFUT IFME GPS TBMF ")'4 BOE MJBCJMJUJFT BTTPDJBUFE XJUI ")'4 BT PG %FDFNCFS 4FF /PUF GPS BEEJUJPOBM JOGPSNBUJPO PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Amounts Attributable to Controlling Interests %VLF &OFSHZ T BNPVOU PG -PTT *ODPNF GSPN %JTDPOUJOVFE 0QFSBUJPOT OFU PG UBY QSFTFOUFE PO UIF $POTPMJEBUFE 4UBUFNFOUT PG 0QFSBUJPOT JODMVEFT BNPVOUT BUUSJCVUBCMF UP OPODPOUSPMMJOH JOUFSFTU 5IF GPMMPXJOH UBCMF QSFTFOUT /FU *ODPNF "UUSJCVUBCMF UP %VLF &OFSHZ $PSQPSBUJPO GPS DPOUJOVJOH PQFSBUJPOT BOE EJTDPOUJOVFE PQFSBUJPOT Year ended December 31, (in millions) 2016 2015 2014 *ODPNF GSPN $POUJOVJOH 0QFSBUJPOT *ODPNF GSPN $POUJOVJOH 0QFSBUJPOT "UUSJCVUBCMF UP /PODPOUSPMMJOH *OUFSFTUT *ODPNF GSPN $POUJOVJOH 0QFSBUJPOT "UUSJCVUBCMF UP %VLF &OFSHZ $PSQPSBUJPO -PTT *ODPNF 'SPN %JTDPOUJOVFE 0QFSBUJPOT OFU PG UBY *ODPNF GSPN %JTDPOUJOVFE 0QFSBUJPOT "UUSJCVUBCMF UP /PODPOUSPMMJOH *OUFSFTUT OFU PG UBY -PTT *ODPNF 'SPN %JTDPOUJOVFE 0QFSBUJPOT "UUSJCVUBCMF UP %VLF &OFSHZ $PSQPSBUJPO OFU PG UBY /FU *ODPNF /FU *ODPNF "UUSJCVUBCMF UP /PODPOUSPMMJOH *OUFSFTUT $ 2,578 7 $ 2,571 $ (408) 11 $ (419) $ 2,170 18 177 171 1 /FU *ODPNF "UUSJCVUBCMF UP %VLF &OFSHZ $PSQPSBUJPO $ 2,152 CBMBODF TIFFU GPS UIF BCBOEPOFE QSPQFSUZ JT EFQFOEFOU VQPO BNPVOUT UIBU NBZ CF SFDPWFSFE UISPVHI SFHVMBUFE SBUFT JODMVEJOH BOZ SFUVSO "T TVDI BO JNQBJSNFOU DIBSHF DPVME CF QBSUJBMMZ PS GVMMZ PGGTFU CZ UIF FTUBCMJTINFOU PG B SFHVMBUPSZ BTTFU JG SBUF SFDPWFSZ JT QSPCBCMF 5IF JNQBJSNFOU GPS B EJTBMMPXBODF PG DPTUT GPS SFHVMBUFE QMBOUT VOEFS DPOTUSVDUJPO SFDFOUMZ DPNQMFUFE PS BCBOEPOFE JT CBTFE PO EJTDPVOUFE DBTI nPXT SIGNIFICANT ACCOUNTING POLICIES Use of Estimates *O QSFQBSJOH mOBODJBM TUBUFNFOUT UIBU DPOGPSN UP HFOFSBMMZ BDDFQUFE BDDPVOUJOH QSJODJQMFT (""1 JO UIF 6 4 UIF %VLF &OFSHZ 3FHJTUSBOUT NVTU NBLF FTUJNBUFT BOE BTTVNQUJPOT UIBU BGGFDU UIF SFQPSUFE BNPVOUT PG BTTFUT BOE MJBCJMJUJFT UIF SFQPSUFE BNPVOUT PG SFWFOVFT BOE FYQFOTFT BOE UIF EJTDMPTVSF PG DPOUJOHFOU BTTFUT BOE MJBCJMJUJFT BU UIF EBUF PG UIF mOBODJBM TUBUFNFOUT "DUVBM SFTVMUT DPVME EJGGFS GSPN UIPTF FTUJNBUFT Regulated Fuel and Purchased Gas Adjustment Clauses 5IF %VLF &OFSHZ 3FHJTUSBOUT VUJMJ[F DPTU USBDLJOH NFDIBOJTNT DPNNPOMZ SFGFSSFE UP BT GVFM BEKVTUNFOU DMBVTFT PS QVSDIBTFE HBT BEKVTUNFOU DMBVTFT 1(" 5IFTF DMBVTFT BMMPX GPS UIF SFDPWFSZ PG GVFM BOE GVFM SFMBUFE DPTUT QPSUJPOT PG QVSDIBTFE QPXFS OBUVSBM HBT DPTUT BOE IFEHJOH DPTUT UISPVHI TVSDIBSHFT PO DVTUPNFS SBUFT 5IF EJGGFSFODF CFUXFFO UIF DPTUT JODVSSFE BOE UIF TVSDIBSHF SFWFOVFT JT SFDPSEFE FJUIFS BT BO BEKVTUNFOU UP 0QFSBUJOH 3FWFOVFT 0QFSBUJOH &YQFOTFT o 'VFM VTFE JO FMFDUSJD HFOFSBUJPO PS 0QFSBUJOH &YQFOTFT o $PTU PG OBUVSBM HBT PO UIF $POTPMJEBUFE 4UBUFNFOUT PG 0QFSBUJPOT XJUI BO PGG TFUUJOH JNQBDU PO SFHVMBUPSZ BTTFUT PS MJBCJMJUJFT Regulatory Accounting 5IF NBKPSJUZ PG UIF %VLF &OFSHZ 3FHJTUSBOUT PQFSBUJPOT BSF TVCKFDU UP QSJDF SFHVMBUJPO GPS UIF TBMF PG FMFDUSJDJUZ BOE OBUVSBM HBT CZ TUBUF VUJMJUZ DPNNJTTJPOT PS '&3$ 8IFO QSJDFT BSF TFU PO UIF CBTJT PG TQFDJmD DPTUT PG UIF SFHVMBUFE PQFSBUJPOT BOE BO FGGFDUJWF GSBODIJTF JT JO QMBDF TVDI UIBU TVGmDJFOU OBUVSBM HBT PS FMFDUSJD TFSWJDFT DBO CF TPME UP SFDPWFS UIPTF 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Financial Statements – (Continued) TIJGU JO UIF UJNJOH PS QBUUFSO PG SFWFOVF SFDPHOJUJPO GPS TVDI TBMFT 5IF FWBMVBUJPO PG PUIFS SFWFOVF TUSFBNT JT POHPJOH JODMVEJOH MPOH UFSN DPOUSBDUT XJUI JOEVTUSJBM DVTUPNFST BOE MPOH UFSN QVSDIBTF QPXFS BHSFFNFOUT 11" %VLF &OFSHZ DPOUJOVFT UP FWBMVBUF XIBU JOGPSNBUJPO XPVME CF NPTU VTFGVM GPS VTFST PG UIF mOBODJBM TUBUFNFOUT JODMVEJOH JOGPSNBUJPO BMSFBEZ QSPWJEFE JO EJTDMPTVSFT PVUTJEF PG UIF mOBODJBM TUBUFNFOU GPPUOPUFT 5IFTF BEEJUJPOBM EJTDMPTVSFT DPVME JODMVEF UIF EJTBHHSFHBUJPO PG SFWFOVFT CZ HFPHSBQIJD MPDBUJPO UZQF PG TFSWJDF DVTUPNFS DMBTT PS CZ EVSBUJPO PG DPOUSBDU iBU XJMMw WFSTVT DPOUSBDUFE SFWFOVF 3FWFOVFT GSPN DPOUSBDUT XJUI DVTUPNFST SFWFOVF SFDPHOJ[FE VOEFS SFHVMBUFE PQFSBUJPOT BDDPVOUJOH BOE SFWFOVF GSPN MFBTF BDDPVOUJOH XJMM BMTP CF EJTDMPTFE %VLF &OFSHZ JOUFOET UP VTF UIF NPEJmFE SFUSPTQFDUJWF NFUIPE PG BEPQUJPO FGGFDUJWF +BOVBSZ 5IJT NFUIPE SFTVMUT JO B DVNVMBUJWF DIBOHF FGGFDU UIBU XJMM CF SFDPSEFE BT BO BEKVTUNFOU UP SFUBJOFE 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cquisition of Piedmont Natural Gas 0O 0DUPCFS %VLF &OFSHZ BDRVJSFE BMM PVUTUBOEJOH DPNNPO TUPDL PG 1JFENPOU GPS B UPUBM DBTI QVSDIBTF QSJDF PG CJMMJPO BOE BTTVNFE 1JFENPOU T FYJTUJOH MPOH UFSN EFCU XIJDI IBE BO FTUJNBUFE GBJS WBMVF PG BQQSPYJNBUFMZ CJMMJPO BU UIF UJNF PG UIF BDRVJTJUJPO 1JFENPOU 111 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Preliminary Purchase Price Allocation t $IBSHFT PG NJMMJPO SFMBUFE UP DPNNJUNFOUT NBEF JO DPOKVODUJPO XJUI UIF USBOTBDUJPO JODMVEJOH DIBSJUBCMF DPOUSJCVUJPOT BOE B POF UJNF CJMM DSFEJU UP 1JFENPOU DVTUPNFST NJMMJPO XBT SFDPSEFE BT B SFEVDUJPO JO 0QFSBUJOH 3FWFOVFT XJUI UIF SFNBJOJOH NJMMJPO SFDPSEFE XJUIJO 0QFSBUJPO NBJOUFOBODF BOE PUIFS 5IF QSFMJNJOBSZ QVSDIBTF QSJDF BMMPDBUJPO PG UIF 1JFENPOU BDRVJTJUJPO JT FTUJNBUFE BT GPMMPXT (in millions) $VSSFOU BTTFUT 1SPQFSUZ QMBOU BOE FRVJQNFOU OFU (PPEXJMM 0UIFS MPOH UFSN BTTFUT Total assets Pro Forma Financial Information 5IF GPMMPXJOH VOBVEJUFE QSP GPSNB mOBODJBM JOGPSNBUJPO SFnFDUT UIF DPNCJOFE SFTVMUT PG PQFSBUJPOT PG %VLF &OFSHZ BOE 1JFENPOU BT JG UIF NFSHFS IBE PDDVSSFE BT PG +BOVBSZ 5IF QSP GPSNB mOBODJBM JOGPSNBUJPO EPFT OPU JODMVEF QPUFOUJBM DPTU TBWJOHT JOUFSDPNQBOZ SFWFOVFT 1JFENPOU T FBSOJOHT GSPN B DFSUBJO FRVJUZ NFUIPE JOWFTUNFOU TPME JNNFEJBUFMZ QSJPS UP UIF NFSHFS PS OPO SFDVSSJOH USBOTBDUJPO BOE JOUFHSBUJPO DPTUT JODVSSFE CZ %VLF &OFSHZ BOE 1JFENPOU 5IF BGUFS UBY OPO SFDVSSJOH USBOTBDUJPO BOE JOUFHSBUJPO DPTUT JODVSSFE CZ %VLF &OFSHZ BOE 1JFENPOU XFSF NJMMJPO BOE NJMMJPO GPS UIF ZFBST FOEFE %FDFNCFS BOE SFTQFDUJWFMZ 5IJT JOGPSNBUJPO IBT CFFO QSFTFOUFE GPS JMMVTUSBUJWF QVSQPTFT POMZ BOE JT OPU OFDFTTBSJMZ JOEJDBUJWF PG UIF DPOTPMJEBUFE SFTVMUT PG PQFSBUJPOT UIBU XPVME IBWF CFFO BDIJFWFE PS UIF GVUVSF DPOTPMJEBUFE SFTVMUT PG PQFSBUJPOT PG %VLF &OFSHZ $VSSFOU MJBCJMJUJFT JODMVEJOH DVSSFOU NBUVSJUJFT PG MPOH UFSN EFCU -POH UFSN MJBCJMJUJFT -POH UFSN EFCU Total liabilities Total purchase price t 0UIFS USBOTBDUJPO BOE JOUFHSBUJPO DPTUT PG NJMMJPO SFDPSEFE UP 0QFSBUJPO NBJOUFOBODF BOE PUIFS JODMVEJOH QSPGFTTJPOBM GFFT BOE TFWFSBODF 5IF GBJS WBMVF PG 1JFENPOU T BTTFUT BOE MJBCJMJUJFT XFSF EFUFSNJOFE CBTFE PO TJHOJmDBOU FTUJNBUFT BOE BTTVNQUJPOT UIBU BSF KVEHNFOUBM JO OBUVSF JODMVEJOH QSPKFDUFE GVUVSF DBTI nPXT JODMVEJOH UJNJOH EJTDPVOU SBUFT SFnFDUJOH SJTL JOIFSFOU JO UIF GVUVSF DBTI nPXT BOE NBSLFU QSJDFT PG MPOH UFSN EFCU 5IF QSFMJNJOBSZ BNPVOUT BSF TVCKFDU UP SFWJTJPO UP UIF FYUFOU UIBU BEEJUJPOBM JOGPSNBUJPO JT PCUBJOFE BCPVU UIF GBDUT BOE DJSDVNTUBODFT UIBU FYJTUFE BT PG UIF BDRVJTJUJPO EBUF 5IF NBKPSJUZ PG 1JFENPOU T PQFSBUJPOT BSF TVCKFDU UP UIF SBUF TFUUJOH BVUIPSJUZ PG UIF /$6$ UIF 14$4$ BOE UIF 53" BOE BSF BDDPVOUFE GPS QVSTVBOU UP BDDPVOUJOH HVJEBODF GPS SFHVMBUFE PQFSBUJPOT 5IF SBUF TFUUJOH BOE DPTU SFDPWFSZ QSPWJTJPOT DVSSFOUMZ JO QMBDF GPS 1JFENPOU T SFHVMBUFE PQFSBUJPOT QSPWJEF SFWFOVFT EFSJWFE GSPN DPTUT JODMVEJOH B SFUVSO PO JOWFTUNFOU PG BTTFUT BOE MJBCJMJUJFT JODMVEFE JO SBUF CBTF 5IVT UIF GBJS WBMVF PG 1JFENPOU T BTTFUT BOE MJBCJMJUJFT TVCKFDU UP UIFTF SBUF TFUUJOH QSPWJTJPOT BQQSPYJNBUFT UIF QSF BDRVJTJUJPO DBSSZJOH WBMVFT BOE EPFT OPU SFnFDU BOZ OFU WBMVBUJPO BEKVTUNFOUT 5IF TJHOJmDBOU BTTFUT BOE MJBCJMJUJFT GPS XIJDI WBMVBUJPO BEKVTUNFOUT XFSF SFnFDUFE XJUIJO UIF QVSDIBTF QSJDF BMMPDBUJPO JODMVEF UIF BDRVJSFE FRVJUZ NFUIPE JOWFTUNFOUT BOE MPOH UFSN EFCU 5IF EJGGFSFODF CFUXFFO UIF QSFMJNJOBSZ GBJS WBMVF BOE UIF QSF NFSHFS DBSSZJOH WBMVFT PG MPOH UFSN EFCU GPS SFHVMBUFE PQFSBUJPOT XBT SFDPSEFE BT B SFHVMBUPSZ BTTFU 5IF FYDFTT PG UIF QVSDIBTF QSJDF PWFS UIF FTUJNBUFE GBJS WBMVF PG 1JFENPOU T BTTFUT BOE MJBCJMJUJFT PO UIF BDRVJTJUJPO EBUF XBT SFDPSEFE BT HPPEXJMM 5IF HPPEXJMM SFnFDUT UIF WBMVF QBJE CZ %VLF &OFSHZ QSJNBSJMZ GPS FTUBCMJTIJOH B CSPBEFS MPOH UFSN TUSBUFHJD OBUVSBM HBT JOGSBTUSVDUVSF QMBUGPSN BO JNQSPWFE SJTL QSPmMF BOE FYQFDUFE TZOFSHJFT SFTVMUJOH GSPN UIF DPNCJOFE FOUJUJFT 4FF /PUF GPS JOGPSNBUJPO SFMBUFE UP UIF BMMPDBUJPO PG HPPEXJMM UP %VLF &OFSHZ T SFQPSUJOH VOJUT Years Ended December 31, (in millions) 2016 0QFSBUJOH 3FWFOVFT /FU *ODPNF "UUSJCVUBCMF UP %VLF &OFSHZ $PSQPSBUJPO $ 23,504 2,442 2015 Piedmont’s Earnings 1JFENPOU T SFWFOVFT BOE OFU JODPNF JODMVEFE JO %VLF &OFSHZ T $POTPMJEBUFE 4UBUFNFOUT PG 0QFSBUJPOT GPS UIF ZFBS FOEFE %FDFNCFS XFSF NJMMJPO BOE NJMMJPO SFTQFDUJWFMZ 1JFENPOU T SFWFOVFT BOE OFU JODPNF GPS UIF ZFBS FOEFE %FDFNCFS JODMVEF UIF JNQBDU PG OPO SFDVSSJOH USBOTBDUJPO DPTUT PG NJMMJPO BOE NJMMJPO SFTQFDUJWFMZ Acquisition Related Financings and Other Matters %VLF &OFSHZ mOBODFE UIF 1JFENPOU BDRVJTJUJPO XJUI B DPNCJOBUJPO PG EFCU BOE FRVJUZ JTTVBODFT BOE PUIFS DBTI TPVSDFT JODMVEJOH t CJMMJPO PG MPOH UFSN EFCU JTTVFE JO "VHVTU t NJMMJPO CPSSPXFE VOEFS UIF CJMMJPO TIPSU UFSN MPBO GBDJMJUZ JO 4FQUFNCFS XIJDI XBT SFQBJE JO %FDFNCFS t NJMMJPO TIBSFT PG DPNNPO TUPDL JTTVFE JO 0DUPCFS GPS OFU DBTI QSPDFFET PG BQQSPYJNBUFMZ NJMMJPO Accounting Charges Related to the Acquisition %VLF &OFSHZ JODVSSFE QSFUBY OPO SFDVSSJOH USBOTBDUJPO BOE JOUFHSBUJPO DPTUT BTTPDJBUFE XJUI UIF BDRVJTJUJPO PG NJMMJPO BOE NJMMJPO GPS UIF ZFBST FOEFE %FDFNCFS BOE SFTQFDUJWFMZ "NPVOUT SFDPSEFE PO UIF $POTPMJEBUFE 4UBUFNFOUT PG 0QFSBUJPOT JO JODMVEF 5IF CJMMJPO TFOJPS VOTFDVSFE CSJEHF mOBODJOH GBDJMJUZ #SJEHF 'BDJMJUZ XJUI #BSDMBZT $BQJUBM *OD #BSDMBZT XBT UFSNJOBUFE GPMMPXJOH UIF JTTVBODF PG UIF MPOH UFSN EFCU 'PS BEEJUJPOBM JOGPSNBUJPO SFMBUFE UP UIF EFCU BOE FRVJUZ JTTVBODFT TFF /PUFT BOE SFTQFDUJWFMZ 'PS BEEJUJPOBM JOGPSNBUJPO SFHBSEJOH %VLF &OFSHZ T BOE 1JFENPOU T KPJOU JOWFTUNFOU JO "UMBOUJD $PBTU 1JQFMJOF --$ "$1 TFF /PUF t *OUFSFTU FYQFOTF PG NJMMJPO SFMBUFE UP UIF BDRVJTJUJPO mOBODJOH JODMVEJOH SFBMJ[FE MPTTFT PO GPSXBSE TUBSUJOH JOUFSFTU SBUF TXBQT PG NJMMJPO 4FF /PUF GPS BEEJUJPOBM JOGPSNBUJPO PO UIF TXBQT PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Purchase of NCEMPA’s Generation DISPOSITIONS 0O +VMZ %VLF &OFSHZ 1SPHSFTT DPNQMFUFE UIF QVSDIBTF PG /PSUI $BSPMJOB &BTUFSO .VOJDJQBM 1PXFS "HFODZ T /$&.1" PXOFSTIJQ JOUFSFTUT JO DFSUBJO HFOFSBUJOH BTTFUT GVFM BOE TQBSF QBSUT JOWFOUPSZ KPJOUMZ PXOFE XJUI BOE PQFSBUFE CZ %VLF &OFSHZ 1SPHSFTT GPS BQQSPYJNBUFMZ CJMMJPO 5IJT QVSDIBTF XBT BDDPVOUFE GPS BT BO BTTFU BDRVJTJUJPO 5IF QVSDIBTF SFTVMUFE JO UIF BDRVJTJUJPO PG B UPUBM PG BQQSPYJNBUFMZ NFHBXBUUT .8 PG HFOFSBUJOH DBQBDJUZ BU #SVOTXJDL /VDMFBS 1MBOU #SVOTXJDL 4IFBSPO )BSSJT /VDMFBS 1MBOU )BSSJT .BZP 4UFBN 1MBOU BOE 3PYCPSP 4UFBN 1MBOU *O DPOOFDUJPO XJUI UIJT USBOTBDUJPO %VLF &OFSHZ 1SPHSFTT BOE /$&.1" FOUFSFE JOUP B ZFBS XIPMFTBMF QPXFS BHSFFNFOU XIFSFCZ %VLF &OFSHZ 1SPHSFTT XJMM TFMM QPXFS UP /$&.1" UP DPOUJOVF UP NFFU UIF OFFET PG /$&.1" DVTUPNFST 5IF QVSDIBTF QSJDF FYDFFEFE UIF IJTUPSJDBM DBSSZJOH WBMVF PG UIF BDRVJSFE BTTFUT CZ NJMMJPO XIJDI XBT SFDPHOJ[FE BT BO BDRVJTJUJPO BEKVTUNFOU BOE SFDPSEFE JO QSPQFSUZ QMBOU BOE FRVJQNFOU %VLF &OFSHZ 1SPHSFTT FTUBCMJTIFE B SJEFS JO /PSUI $BSPMJOB UP SFDPWFS UIF DPTUT UP BDRVJSF PQFSBUF BOE NBJOUBJO JOUFSFTUT JO UIF BTTFUT QVSDIBTFE BT BMMPDBUFE UP JUT /PSUI $BSPMJOB SFUBJM PQFSBUJPOT JODMVEJOH UIF QVSDIBTF BDRVJTJUJPO BEKVTUNFOU BOE JODMVEFE UIF QVSDIBTF BDRVJTJUJPO BEKVTUNFOU JO XIPMFTBMF QPXFS GPSNVMB SBUFT %VLF &OFSHZ 1SPHSFTT SFDFJWFE BO PSEFS GSPN UIF 14$4$ UP EFGFS SFDPWFSZ PG UIF 4PVUI $BSPMJOB SFUBJM BMMPDBUFE DPTUT PG UIF BTTFU QVSDIBTFE VOUJM %VLF &OFSHZ 1SPHSFTT OFYU HFOFSBM SBUF DBTF XIJDI XBT mMFE JO +VMZ *O 0DUPCFS %VLF &OFSHZ 1SPHSFTT UIF 0GmDF PG 3FHVMBUPSZ 4UBGG 034 BOE JOUFSWFOPST FOUFSFE JOUP B TFUUMFNFOU BHSFFNFOU UIBU QSPWJEFT GPS SFDPWFSZ PG UIF IJTUPSJDBM DBSSZJOH WBMVF PG UIF 4PVUI $BSPMJOB BMMPDBUFE QVSDIBTFE DPTUT PG UIF USBOTBDUJPO 5IF TFUUMFNFOU BHSFFNFOU XBT BQQSPWFE CZ UIF 14$4$ JO %FDFNCFS 4FF /PUF GPS BEEJUJPOBM JOGPSNBUJPO PO UIF 4PVUI $BSPMJOB SBUF DBTF 5IF PXOFSTIJQ JOUFSFTUT JO HFOFSBUJOH BTTFUT BDRVJSFE BSF TVCKFDU UP SBUF TFUUJOH BVUIPSJUZ PG UIF '&3$ /$6$ BOE 14$4$ BOE BDDPSEJOHMZ UIF BTTFUT BSF SFDPSEFE BU IJTUPSJDBM DPTU 5IF BTTFUT BDRVJSFE BSF QSFTFOUFE JO UIF GPMMPXJOH UBCMF 5IF GPMMPXJOH UBCMF TVNNBSJ[FT UIF -PTT *ODPNF GSPN %JTDPOUJOVFE 0QFSBUJPOT OFU PG UBY SFDPSEFE PO %VLF &OFSHZ T $POTPMJEBUFE 4UBUFNFOUT PG 0QFSBUJPOT Years Ended December 31, (in millions) *OUFSOBUJPOBM &OFSHZ %JTQPTBM (SPVQ .JEXFTU (FOFSBUJPO %JTQPTBM (SPVQ 0UIFS B -PTT *ODPNF GSPN %JTDPOUJOVFE 0QFSBUJPOT OFU PG UBY Total assets Total purchase price $ (534) 36 90 $ (408) 33 177 *O 'FCSVBSZ %VLF &OFSHZ BOOPVODFE JU IBE JOJUJBUFE B QSPDFTT UP EJWFTU JUT *OUFSOBUJPOBM &OFSHZ CVTJOFTTFT FYDMVEJOH UIF FRVJUZ NFUIPE JOWFTUNFOU JO /.$ UIF *OUFSOBUJPOBM %JTQPTBM (SPVQ BOE JO 0DUPCFS BOOPVODFE JU IBE FOUFSFE JOUP UXP TFQBSBUF QVSDIBTF BOE TBMF BHSFFNFOUT UP FYFDVUF UIF EJWFTUJUVSF #PUI TBMFT DMPTFE JO %FDFNCFS PG SFTVMUJOH JO BWBJMBCMF DBTI QSPDFFET PG CJMMJPO FYDMVEJOH USBOTBDUJPO DPTUT 1SPDFFET XFSF QSJNBSJMZ VTFE UP SFEVDF %VLF &OFSHZ IPMEJOH DPNQBOZ EFCU &YJTUJOH GBWPSBCMF UBY BUUSJCVUFT SFTVMU JO OP JNNFEJBUF 6 4 GFEFSBM MFWFM DBTI UBY JNQBDUT %FUBJMT PG FBDI USBOTBDUJPO BSF BT GPMMPXT t 0O %FDFNCFS %VLF &OFSHZ DMPTFE PO UIF TBMF PG JUT PXOFSTIJQ JOUFSFTUT JO CVTJOFTTFT JO "SHFOUJOB $IJMF &DVBEPS &M 4BMWBEPS (VBUFNBMB BOE 1FSV UP * 4RVBSFE $BQJUBM 5IF BTTFUT TPME JODMVEFE BQQSPYJNBUFMZ .8 PG IZESPFMFDUSJD BOE OBUVSBM HBT HFOFSBUJPO DBQBDJUZ USBOTNJTTJPO JOGSBTUSVDUVSF BOE OBUVSBM HBT QSPDFTTJOH GBDJMJUJFT * 4RVBSFE $BQJUBM QVSDIBTFE UIF CVTJOFTTFT GPS BO FOUFSQSJTF WBMVF PG CJMMJPO t 0O %FDFNCFS %VLF &OFSHZ DMPTFE PO UIF TBMF PG JUT #SB[JMJBO CVTJOFTT XIJDI JODMVEFE BQQSPYJNBUFMZ .8 PG IZESPFMFDUSJD HFOFSBUJPO DBQBDJUZ UP $5( GPS BO FOUFSQSJTF WBMVF PG CJMMJPO 8JUI UIF DMPTJOH PG UIF $5( EFBM %VLF &OFSHZ mOBMJ[FE JUT FYJU GSPN UIF -BUJO "NFSJDBO NBSLFU $ 2014 Sale of International Energy 901 "DRVJTJUJPO BEKVTUNFOU SFDPSEFE XJUIJO QSPQFSUZ QMBOU BOE FRVJQNFOU 2015 B 3FMBUFT UP QSFWJPVTMZ TPME CVTJOFTTFT OPU SFMBUFE UP UIF %JTQPTBM (SPVQT 5IF BNPVOU GPS SFQSFTFOUT BO JODPNF UBY CFOFmU SFTVMUJOH GSPN JNNBUFSJBM PVU PG QFSJPE EFGFSSFE UBY MJBCJMJUZ BEKVTUNFOUT 5IF BNPVOUT GPS BOE JODMVEF JOEFNOJmDBUJPOT QSPWJEFE GPS DFSUBJO MFHBM UBY BOE FOWJSPONFOUBM NBUUFST BOE GPSFJHO DVSSFODZ USBOTMBUJPO BEKVTUNFOUT (in millions) *OWFOUPSZ /FU QSPQFSUZ QMBOU BOE FRVJQNFOU 2016 1,251 Assets Held For Sale and Discontinued Operations "T B SFTVMU PG UIF USBOTBDUJPOT UIF *OUFSOBUJPOBM %JTQPTBM (SPVQ XBT DMBTTJmFE BT IFME GPS TBMF BOE BT EJTDPOUJOVFE PQFSBUJPOT JO UIF GPVSUI RVBSUFS PG *OUFSFTU FYQFOTF EJSFDUMZ BTTPDJBUFE XJUI UIF *OUFSOBUJPOBM %JTQPTBM (SPVQ XBT BMMPDBUFE UP EJTDPOUJOVFE PQFSBUJPOT /P JOUFSFTU GSPN DPSQPSBUF MFWFM EFCU XBT BMMPDBUFE UP EJTDPOUJOVFE PQFSBUJPOT *O DPOOFDUJPO XJUI UIF BDRVJTJUJPO %VLF &OFSHZ 1SPHSFTT BDRVJSFE /$&.1" T /%5' BTTFUT PG NJMMJPO BOE BTTVNFE "30T PG NJMMJPO BTTPDJBUFE XJUI /$&.1" T JOUFSFTU JO UIF HFOFSBUJPO BTTFUT 5IF /%5' BOE UIF "30T BSF TVCKFDU UP SFHVMBUPSZ BDDPVOUJOH USFBUNFOU 113 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 5IF GPMMPXJOH UBCMF QSFTFOUT UIF DBSSZJOH WBMVFT PG UIF NBKPS DMBTTFT PG "TTFUT IFME GPS TBMF BOE -JBCJMJUJFT BTTPDJBUFE XJUI BTTFUT IFME GPS TBMF JODMVEFE JO UIF $POTPMJEBUFE #BMBODF 4IFFUT "T B SFTVMU PG %VLF &OFSHZ DMPTJOH CPUI USBOTBDUJPOT JO %FDFNCFS UIFSF BSF OP "TTFUT IFME GPS TBMF PS -JBCJMJUJFT BTTPDJBUFE XJUI BTTFUT IFME GPS TBMF BT PG %FDFNCFS (in millions) Years Ended December 31, (in millions) 0QFSBUJOH 3FWFOVFT 'VFM VTFE JO FMFDUSJD HFOFSBUJPO BOE QVSDIBTFE QPXFS $PTU PG OBUVSBM HBT 0QFSBUJPO NBJOUFOBODF BOE PUIFS %FQSFDJBUJPO BOE BNPSUJ[BUJPO B 1SPQFSUZ BOE PUIFS UBYFT *NQBJSNFOU DIBSHFT C -PTT (BJOT PO 4BMFT PG 0UIFS "TTFUT BOE 0UIFS OFU 0UIFS *ODPNF BOE &YQFOTFT OFU *OUFSFTU &YQFOTF 1SFUBY MPTT PO EJTQPTBM D -PTT *ODPNF CFGPSF JODPNF UBYFT E *ODPNF UBY FYQFOTF F G -PTT *ODPNF GSPN EJTDPOUJOVFE PQFSBUJPOT PG UIF *OUFSOBUJPOBM %JTQPTBM (SPVQ December 31, 2015 Current assets held for sale $BTI BOE DBTI FRVJWBMFOUT 3FDFJWBCMFT OFU *OWFOUPSZ 0UIFS 5PUBM DVSSFOU BTTFUT IFME GPS TBMF 188 Noncurrent assets held for sale Property, Plant and Equipment $PTU "DDVNVMBUFE EFQSFDJBUJPO BOE BNPSUJ[BUJPO /FU QSPQFSUZ QMBOU BOE FRVJQNFOU (PPEXJMM 0UIFS Total noncurrent assets held for sale Total assets held for sale Current liabilities associated with assets held for sale "DDPVOUT QBZBCMF 5BYFT BDDSVFE $VSSFOU NBUVSJUJFT PG MPOH UFSN EFCU 0UIFS 5PUBM DVSSFOU MJBCJMJUJFT BTTPDJBUFE XJUI BTTFUT IFME GPS TBMF Noncurrent liabilities associated with assets held for sale -POH 5FSN %FCU %FGFSSFE JODPNF UBYFT 0UIFS 5PUBM OPODVSSFOU MJBCJMJUJFT BTTPDJBUFE XJUI BTTFUT IFME GPS TBMF Total liabilities associated with assets held for sale 2016 2014 — — 370 $ (534) B 6QPO NFFUJOH UIF DSJUFSJB GPS BTTFUT IFME GPS TBMF CFHJOOJOH JO UIF GPVSUI RVBSUFS PG EFQSFDJBUJPO FYQFOTF XBT DFBTFE C *O DPOKVODUJPO XJUI UIF BEWBODFNFOUT PG NBSLFUJOH FGGPSUT EVSJOH %VLF &OFSHZ QFSGPSNFE SFDPWFSBCJMJUZ UFTUT PG UIF MPOH MJWFE BTTFU HSPVQT PG *OUFSOBUJPOBM &OFSHZ "T B SFTVMU %VLF &OFSHZ EFUFSNJOFE UIF DBSSZJOH WBMVF PG DFSUBJO BTTFUT JO $FOUSBM "NFSJDB XBT OPU GVMMZ SFDPWFSBCMF BOE SFDPSEFE B QSFUBY JNQBJSNFOU DIBSHF PG NJMMJPO 5IF DIBSHF SFQSFTFOUT UIF FYDFTT PG DBSSZJOH WBMVF PWFS UIF FTUJNBUFE GBJS WBMVF PG UIF BTTFUT XIJDI XBT CBTFE PO B -FWFM 'BJS 7BMVF NFBTVSFNFOU UIBU XBT QSJNBSJMZ EFUFSNJOFE GSPN UIF JODPNF BQQSPBDI VTJOH EJTDPVOUFE DBTI nPXT CVU BMTP DPOTJEFSFE NBSLFU JOGPSNBUJPO PCUBJOFE JO D 5IF QSFUBY MPTT PO EJTQPTBM JODMVEFT UIF SFDPHOJUJPO PG DVNVMBUJWF GPSFJHO DVSSFODZ USBOTMBUJPO MPTTFT PG NJMMJPO BT PG UIF EJTQPTBM EBUF 4FF UIF $POTPMJEBUFE 4UBUFNFOUT PG $IBOHFT JO &RVJUZ GPS BEEJUJPOBM JOGPSNBUJPO E 1SFUBY -PTT *ODPNF BUUSJCVUBCMF UP %VLF &OFSHZ $PSQPSBUJPO XBT NJMMJPO NJMMJPO BOE NJMMJPO GPS UIF ZFBST FOEFE %FDFNCFS BOE SFTQFDUJWFMZ F BNPVOU JODMVEFT NJMMJPO PG JODPNF UBY FYQFOTF PO UIF EJTQPTBM XIJDI QSJNBSJMZ SFnFDUT JO DPVOUSZ UBYFT JODVSSFE BT B SFTVMU PG UIF TBMF 5IF BGUFS UBY MPTT PO EJTQPTBM XBT NJMMJPO G BNPVOU JODMVEFT BO JODPNF UBY CFOFmU PG NJMMJPO BOE BNPVOU JODMVEFT BO JODPNF UBY DIBSHF PG NJMMJPO SFMBUFE UP IJTUPSJDBM VOEJTUSJCVUFE GPSFJHO FBSOJOHT 4FF /PUF i*ODPNF 5BYFT w GPS BEEJUJPOBM JOGPSNBUJPO 2015 $ 988 227 43 341 62 15 7 194 13 (3) 58 82 (514) — (435) 99 70 %VLF &OFSHZ IBT FMFDUFE OPU UP TFQBSBUFMZ EJTDMPTF EJTDPOUJOVFE PQFSBUJPOT PO UIF $POTPMJEBUFE 4UBUFNFOUT PG $BTI 'MPXT 5IF GPMMPXJOH UBCMF TVNNBSJ[FT %VLF &OFSHZ T DBTI n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ears Ended December 31, (in millions) 2016 2015 2014 0QFSBUJOH BDUJWJUJFT $ 204 *OWFTUJOH BDUJWJUJFT (434) 177 111 Cash flows provided by (used in): Other Sale Related Matters %VLF &OFSHZ XJMM QSPWJEF USBOTJUJPO TFSWJDFT UP $5( BOE * 4RVBSFE GPS B QFSJPE OPU UP FYUFOE CFZPOE .BSDI BOE 4FQUFNCFS SFTQFDUJWFMZ *O BEEJUJPO %VLF &OFSHZ XJMM SFJNCVSTF $5( BOE * 4RVBSFE GPS BMM UBY PCMJHBUJPOT BSJTJOH GSPN UIF QFSJPE QSFDFEJOH DPOTVNNBUJPO PO UIF USBOTBDUJPOT UPUBMJOH BQQSPYJNBUFMZ NJMMJPO %VLF &OFSHZ IBT OPU SFDPSEFE BOZ PUIFS MJBCJMJUJFT DPOUJOHFOU MJBCJMJUJFT PS JOEFNOJmDBUJPOT SFMBUFE UP UIF *OUFSOBUJPOBM %JTQPTBM (SPVQ PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Midwest Generation Exit %VLF &OFSHZ UISPVHI JOEJSFDU TVCTJEJBSJFT DPNQMFUFE UIF TBMF PG UIF .JEXFTU (FOFSBUJPO %JTQPTBM (SPVQ UP B TVCTJEJBSZ PG %ZOFHZ PO "QSJM GPS BQQSPYJNBUFMZ CJMMJPO JO DBTI 5IF OPOSFHVMBUFE .JEXFTU HFOFSBUJPO CVTJOFTT JODMVEFE HFOFSBUJPO GBDJMJUJFT XJUI BQQSPYJNBUFMZ .8 PG PXOFE DBQBDJUZ MPDBUFE JO 0IJP 1FOOTZMWBOJB BOE *MMJOPJT 0O "QSJM QSJPS UP UIF TBMF %VLF &OFSHZ 0IJP EJTUSJCVUFE JUT JOEJSFDU PXOFSTIJQ JOUFSFTU JO UIF OPOSFHVMBUFE .JEXFTU HFOFSBUJPO CVTJOFTT UP B TVCTJEJBSZ PG %VLF &OFSHZ $PSQPSBUJPO %VLF &OFSHZ VUJMJ[FE B SFWPMWJOH DSFEJU BHSFFNFOU 3$" UP TVQQPSU UIF PQFSBUJPOT PG UIF OPOSFHVMBUFE .JEXFTU HFOFSBUJPO CVTJOFTT %VLF &OFSHZ 0IJP IBE B QPXFS QVSDIBTF BHSFFNFOU XJUI UIF .JEXFTU (FOFSBUJPO %JTQPTBM (SPVQ GPS B QPSUJPO PG JUT TUBOEBSE TFSWJDF PGGFS 440 TVQQMZ SFRVJSFNFOU 5IF BHSFFNFOU BOE UIF 440 FYQJSFE JO .BZ 5IF SFTVMUT PG PQFSBUJPOT PG UIF .JEXFTU (FOFSBUJPO %JTQPTBM (SPVQ QSJPS UP UIF EBUF PG TBMF BSF DMBTTJmFE BT EJTDPOUJOVFE PQFSBUJPOT JO UIF BDDPNQBOZJOH $POTPMJEBUFE 4UBUFNFOUT PG 0QFSBUJPOT *OUFSFTU FYQFOTF BTTPDJBUFE XJUI UIF 3$" XBT BMMPDBUFE UP EJTDPOUJOVFE PQFSBUJPOT /P PUIFS JOUFSFTU FYQFOTF SFMBUFE UP DPSQPSBUF MFWFM EFCU XBT BMMPDBUFE UP EJTDPOUJOVFE PQFSBUJPOT $FSUBJO JNNBUFSJBM DPTUT UIBU XFSF FMJNJOBUFE BT B SFTVMU PG UIF TBMF SFNBJOFE JO DPOUJOVJOH PQFSBUJPOT 5IF GPMMPXJOH UBCMF TVNNBSJ[FT UIF .JEXFTU (FOFSBUJPO %JTQPTBM (SPVQ BDUJWJUZ SFDPSEFE XJUIJO EJTDPOUJOVFE PQFSBUJPOT (in millions) Duke Energy Duke Energy Ohio Years Ended December 31, Years Ended December 31, 2016 2016 2015 2015 2014 — — $ — (36) 33 $ 0QFSBUJOH 3FWFOVFT 1SFUBY -PTT PO EJTQPTBM B $ — — *ODPNF MPTT CFGPSF JODPNF UBYFT C *ODPNF UBY CFOFmU FYQFOTF D $ — (36) *ODPNF MPTT GSPN EJTDPOUJOVFE PQFSBUJPOT $ 36 2014 $ 36 B 5IF -PTT PO EJTQPTBM JODMVEFT JNQBJSNFOUT SFDPSEFE UP BEKVTU UIF DBSSZJOH BNPVOU PG UIF BTTFUT UP UIF FTUJNBUFE GBJS WBMVF PG UIF CVTJOFTT CBTFE PO UIF TFMMJOH QSJDF UP %ZOFHZ MFTT DPTU UP TFMM C BNPVOUT JODMVEF UIF JNQBDU PG BO NJMMJPO DIBSHF GPS UIF TFUUMFNFOU BHSFFNFOU SFBDIFE JO B MBXTVJU SFMBUFE UP UIF .JEXFTU (FOFSBUJPO %JTQPTBM (SPVQ 3FGFS UP /PUF GPS GVSUIFS JOGPSNBUJPO BCPVU UIF MBXTVJU D BNPVOUT SFTVMU GSPN JNNBUFSJBM PVU PG QFSJPE EFGFSSFE UBY MJBCJMJUZ BEKVTUNFOUT 3. BUSINESS SEGMENTS %VLF &OFSHZ FWBMVBUFT TFHNFOU QFSGPSNBODF CBTFE PO TFHNFOU JODPNF 4FHNFOU JODPNF JT EFm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m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i"DRVJTJUJPOT BOE %JTQPTJUJPOTw GPS BEEJUJPOBM JOGPSNBUJPO SFMBUFE UP UIF TBMF DUKE ENERGY %VF UP UIF 1JFENPOU BDRVJTJUJPO BOE UIF TBMF PG *OUFSOBUJPOBM &OFSHZ JO UIF GPVSUI RVBSUFS PG %VLF &OFSHZ T TFHNFOU TUSVDUVSF IBT CFFO SFBMJHOFE UP JODMVEF UIF GPMMPXJOH TFHNFOUT &MFDUSJD 6UJMJUJFT BOE *OGSBTUSVDUVSF (BT 6UJMJUJFT BOE *OGSBTUSVDUVSF BOE $PNNFSDJBM 3FOFXBCMFT 1SJPS QFSJPE JOGPSNBUJPO IBT CFFO SFDBTU UP DPOGPSN UP UIF DVSSFOU TFHNFOU TUSVDUVSF 4FF /PUF GPS GVSUIFS JOGPSNBUJPO PO UIF 1JFENPOU BOE *OUFSOBUJPOBM &OFSHZ USBOTBDUJPOT PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) The remainder of Duke Energy’s operations is presented as Other, which is primarily comprised of unallocated corporate interest expense, unallocated corporate costs, contributions to the Duke Energy Foundation and the operations of Duke Energy’s wholly owned captive insurance subsidiary, Bison Insurance Company Limited (Bison). As discussed above, Other also includes Duke Energy’s 25 percent interest in NMC, a large regional producer of methyl tertiary butyl ether (MTBE) located in Saudi Arabia. The investment in NMC is accounted for under the equity method of accounting. Year Ended December 31, 2016 (in millions) Electric Utilities and Infrastructure Gas Utilities and Infrastructure Commercial Renewables Total Reportable Segments Other $ 21,336 30 $ 875 26 $ 484 — $ 22,695 56 $ Total Revenues $ 21,366 $ 901 $ 484 $ 22,751 $ 117 $ (125) $ 22,743 Interest Expense Depreciation and amortization Equity in earnings (losses) of unconsolidated affiliates(a) Income tax expense (benefit) Segment income (loss)(b)(c) Add back noncontrolling interest component Loss from discontinued operations, net of tax(d) Net income Capital investments expenditures and acquisitions(e) Segment assets $ 1,136 2,897 5 1,672 3,040 $ 46 115 19 90 152 $ $ 1,235 3,142 (58) 1,602 3,215 $ 693 152 43 (446) (645) $ (12) $ — — — 1 $ 6,649 114,993 $ 13,025 130,130 $ 190 2,443 (a) (b) (c) (d) (e) $ 5,519 10,760 $ 857 4,377 $ Total Unaffiliated Revenues Intersegment Revenues 53 130 (82) (160) 23 48 69 Eliminations — $ 22,743 (125) — 1,916 3,294 (15) 1,156 2,571 7 (408) $ 2,170 $ — $ 13,215 188 132,761 Commercial Renewables includes a pretax impairment charge of $71 million. See Note 12 for additional information. Other includes $329 million of after-tax costs to achieve mergers. Refer to Note 2 for additional information on costs related to the Piedmont merger. Other includes after-tax charges of $57 million related to cost savings initiatives. Refer to Note 19 for further information. Includes a loss on sale of the International Disposal Group. Refer to Note 2 for further information. Other includes $26 million of capital investments expenditures related to the International Disposal Group. Gas Utilities and Infrastructure includes the Piedmont acquisition of $5 billion. Refer to Note 2 for more information on the Piedmont acquisition. Year Ended December 31, 2015 (in millions) Electric Utilities and Infrastructure Gas Utilities and Infrastructure Commercial Renewables Total Reportable Segments Other 60 75 $ Total $ 21,489 32 $ 536 5 $ 286 — $ 22,311 37 Total Revenues $ 21,521 $ 541 $ 286 $ 22,348 $ 135 $ (112) $ 22,371 Interest Expense Depreciation and amortization Equity in earnings (losses) of unconsolidated affiliates Income tax expense (benefit) Segment income (loss)(a)(b)(c) Add back noncontrolling interest component Income from discontinued operations, net of tax(d) Net income Capital investments expenditures and acquisitions(e) Segment assets(f) $ 1,074 2,735 (2) 1,602 2,819 $ 25 79 1 44 73 $ 44 104 (6) (128) 52 $ 1,143 2,918 (7) 1,518 2,944 $ 393 135 76 (262) (299) $ $ 6,852 109,097 $ 234 2,637 $ 1,019 3,861 $ 8,105 115,595 $ 258 5,373 (a) (b) (c) (d) $ Eliminations Unaffiliated Revenues Intersegment Revenues — $ 22,371 (112) — (9) $ 1,527 — 3,053 — 69 — 1,256 — 2,645 9 177 $ 2,831 $ — $ 8,363 188 121,156 Electric Utilities and Infrastructure includes an after-tax charge of $58 million related to the Edwardsport settlement. Refer to Note 4 for further information. Other includes $60 million of after-tax costs to achieve mergers. Other includes after-tax charges of $77 million related to cost savings initiatives. Refer to Note 19 for further information. Includes the impact of a settlement agreement reached in a lawsuit related to the Midwest Generation Disposal Group. Refer to Note 5 for further information related to the lawsuit and Note 2 for further information on discontinued operations. (e) Other includes capital investment expenditures of $45 million related to the International Disposal Group. (f) Other includes Assets Held for Sale balances related to the International Disposal Group. Refer to Note 2 for further information. 116 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Year Ended December 31, 2014 (in millions) Electric Utilities and Infrastructure Gas Utilities and Infrastructure Commercial Renewables Total Reportable Segments $ 22,463 42 $ Other Eliminations 46 70 $ — (112) $ 22,509 $ 22,505 $ 116 $ (112) $ 22,509 50 90 8 (88) 53 $ 1,144 2,849 7 1,539 2,847 $ 409 120 123 (314) (332) $ (24) — — — 18 $ $ 514 2,981 $ 5,277 109,612 $ 251 10,755 $ — 190 Unaffiliated Revenues Intersegment Revenues $ 21,655 36 $ 573 5 $ 235 1 Total Revenues $ 21,691 $ 578 $ 236 Interest Expense Depreciation and amortization Equity in earnings (losses) of unconsolidated affiliates Income tax expense (benefit) Segment income (loss)(a)(b) Add back noncontrolling interest component Loss from discontinued operations, net of tax(c) Net income Capital investments expenditures and acquisitions(d) Segment assets(e) $ 1,057 2,686 (1) 1,582 2,714 $ 37 73 — 45 80 $ $ 4,642 104,119 $ 121 2,512 (a) (b) (c) (d) (e) Total — 1,529 2,969 130 1,225 2,533 5 (649) $ 1,889 $ 5,528 120,557 Other includes a $94 million pretax impairment charge related to Ohio Valley Electric Corporation (OVEC) and costs to achieve mergers. Electric Utilities and Infrastructure includes pretax charges of $102 million related to the criminal investigation of the Dan River coal ash spill. See Note 5 for additional information. Includes an impairment of the Midwest Generation Disposal Group. Refer to Note 2 for further information. Other includes $67 million of capital investments expenditures and acquisitions of the International Disposal Group. Other includes Assets Held for Sale balances related to the International Disposal Group and Midwest Generation Disposal Group. Refer to Note 2 for further information. Geographical Information For the years ended December 31, 2016, 2015 and 2014, all assets and revenues are within the U.S. Products and Services The following table summarizes revenues of the reportable segments by type. Retail Electric (in millions) Wholesale Electric Retail Natural Gas Other Total Revenues 2016 Electric Utilities and Infrastructure Gas Utilities and Infrastructure Commercial Renewables $ 18,338 — — $ 2,095 — 303 $ — 871 — $ 933 30 181 $ 21,366 901 484 Total Reportable Segments $ 18,338 $ 2,398 $ 871 $ 1,144 $ 22,751 2015 Electric Utilities and Infrastructure Gas Utilities and Infrastructure Commercial Renewables $ 18,695 — — $ 2,014 — 245 $ — 546 — $ 812 (5) 41 $ 21,521 541 286 Total Reportable Segments $ 18,695 $ 2,259 $ 546 $ 848 $ 22,348 2014 Electric Utilities and Infrastructure Gas Utilities and Infrastructure Commercial Renewables $ 19,007 — — $ 1,879 — 236 $ — 571 — $ 805 7 — $ 21,691 578 236 Total Reportable Segments $ 19,007 $ 2,115 $ 571 $ 812 $ 22,505 117 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY OHIO Duke Energy Ohio has two reportable operating segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure. Electric Utilities and Infrastructure transmits and distributes electricity in portions of Ohio and generates, distributes and sells electricity in portions of Kentucky. Gas Utilities and Infrastructure transports and sells natural gas in portions of Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Ohio and its wholly owned subsidiary, Duke Energy Kentucky. Other is primarily comprised of governance costs allocated by its parent, Duke Energy, and revenues and expenses related to Duke Energy Ohio’s contractual arrangement to buy power from OVEC’s power plants. For additional information on related party transactions refer to Note 13. All of Duke Energy Ohio’s revenues are generated domestically and its long-lived assets are all in the U.S. Year Ended December 31, 2016 Electric Utilities and Infrastructure Gas Utilities and Infrastructure Total revenues $ 1,410 $ 503 $ 1,913 $ 31 $ — $ 1,944 Interest expense Depreciation and amortization Income tax expense (benefit) Segment income (loss) Income from discontinued operations, net of tax Net income Capital expenditures Segment assets $ 58 151 55 154 $ 27 80 44 77 $ 85 231 99 231 $ 1 2 (21) (39) $ — $ — — — $ 322 4,782 $ 154 2,696 $ 476 7,478 $ — 62 (in millions) Total Reportable Segments Other Eliminations Total 86 233 78 192 36 $ 228 $ — $ 476 (12) 7,528 Year Ended December 31, 2015 (in millions) Electric Utilities and Infrastructure Gas Utilities and Infrastructure Total Reportable Segments Other Eliminations $ 33 $ — $ $ — $ — — (1) Total revenues $ 1,331 $ 541 $ 1,872 Interest expense Depreciation and amortization Income tax expense (benefit) Segment income (loss) Income from discontinued operations, net of tax Net income Capital expenditures Segment assets $ 53 147 59 118 $ 25 79 45 73 $ 78 226 104 191 $ 264 4,534 $ 135 2,516 $ 399 7,050 $ 1 1 (23) (41) — 56 Total $ 1,905 79 227 81 149 23 $ 172 $ — $ 399 (9) 7,097 Year Ended December 31, 2014 (in millions) Electric Utilities and Infrastructure Gas Utilities and Infrastructure Total Reportable Segments Other Eliminations $ 19 $ (1) $ 1,913 $ $ 1 $ — — (1) Total revenues $ 1,317 $ 578 $ 1,895 Interest expense Depreciation and amortization Income tax expense (benefit) Segment income (loss)(a) Loss from discontinued operations, net of tax(b) Net loss Capital expenditures Segment assets(c) $ 43 138 71 122 $ 37 73 45 80 $ 80 211 116 202 $ 193 4,428 $ 107 2,487 $ 300 6,915 (a) Other includes a $94 million pretax impairment charge related to OVEC. (b) Includes an impairment of the Midwest Generation Disposal Group. Refer to Note 2 for further information. (c) Other includes Assets Held for Sale balances related to the Midwest Generation Disposal Group. Refer to Note 2 for further information. 118 $ 5 3 (73) (133) 22 3,321 Total 86 214 43 68 (563) $ (495) $ — $ 322 (243) 9,993 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY CAROLINAS, PROGRESS ENERGY, DUKE ENERGY PROGRESS, DUKE ENERGY FLORIDA AND DUKE ENERGY INDIANA The remaining Subsidiary Registrants each have one reportable operating segment, Electric Utilities and Infrastructure, which generates, transmits, distributes and sells electricity. The remainder of each company’s operations is classified as Other. While not considered a reportable segment for any of these companies, Other consists of certain unallocated corporate costs. Other for Progress Energy also includes interest expense on corporate debt instruments of $221 million, $240 million and $241 million for the years ended December 31, 2016, 2015 and 2014. The following table summarizes the net loss for Other for each of these entities. Years Ended December 31, (in millions) Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Indiana 2016 2015 2014 $ (104) (200) (56) (23) (13) $ (95) (159) (32) (16) $ (79) (190) (31) (19) (11) (10) The assets of Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana are substantially all included within the Electric Utilities and Infrastructure segment at December 31, 2016, 2015 and 2014. 4. REGULATORY MATTERS REGULATORY ASSETS AND LIABILITIES The Duke Energy Registrants record regulatory assets and liabilities that result from the ratemaking process. See Note 1 for further information. The following tables present the regulatory assets and liabilities recorded on the Consolidated Balance Sheets. December 31, 2016 (in millions) Regulatory Assets AROs – coal ash AROs – nuclear and other Accrued pension and OPEB Retired generation facilities Debt fair value adjustment Net regulatory asset related to income taxes Storm cost deferrals Nuclear asset securitized balance, net Hedge costs and other deferrals Derivatives – gas supply contracts Demand side management (DSM)/Energy efficiency (EE) Grid modernization Vacation accrual Deferred fuel and purchased power Nuclear deferral Post-in-service carrying costs and deferred operating expenses Gasification services agreement buyout Transmission expansion obligation Manufactured gas plant (MGP) Advanced metering infrastructure NCEMPA deferrals East Bend deferrals Other Total regulatory assets Less: current portion Total noncurrent regulatory assets 119 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress $ 3,761 684 2,387 534 1,313 894 153 1,193 217 187 407 65 196 156 226 413 8 71 99 218 51 32 636 13,901 $1,536 9 481 39 — 484 — — 93 — 122 — 76 — 92 70 — — — 172 — — 223 3,397 $ 1,830 569 882 422 — 231 148 1,193 91 — 278 — 38 111 134 42 — — — — 51 — 103 6,123 $1,822 275 423 165 — 7 148 — 66 — 263 — 38 24 38 42 — — — — 51 — 69 3,431 1,023 238 401 $12,878 $3,159 $ 5,722 Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 8 294 458 257 — 224 — 1,193 25 — 15 — — 87 96 — — — — — — — 36 2,693 $ 12 — 135 — — 63 5 — 7 — 6 65 4 5 — 20 — 71 99 — — 32 33 557 $ 276 — 222 73 — 119 — — 26 — — — 10 40 — 281 8 — — 46 — — 121 1,222 188 213 37 149 $3,243 $2,480 $520 $ 1,073 $ PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) December 31, 2016 (in millions) Regulatory Liabilities Costs of removal Amounts to be refunded to customers Storm reserve Accrued pension and OPEB Deferred fuel and purchased power Other Total regulatory liabilities Less: current portion Total noncurrent regulatory liabilities Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 6,074 45 83 174 192 722 $2,476 — 22 46 105 352 $ 2,198 — 60 — 81 245 $1,840 — — — 64 200 $ 358 — 60 — 17 44 $ 212 — 1 19 6 19 $660 45 — 72 — 11 7,290 3,001 2,584 2,104 479 257 788 409 161 189 158 31 21 40 $ 6,881 $2,840 $ 2,395 $1,946 $ 448 $ 236 $748 Duke Energy Ohio Duke Energy Indiana December 31, 2015 (in millions) Regulatory Assets AROs – coal ash AROs – nuclear and other Accrued pension and OPEB Retired generation facilities Debt fair value adjustment Net regulatory asset related to income taxes Nuclear asset securitizable balance, net Hedge costs and other deferrals DSM/EE Grid modernization Vacation accrual Deferred fuel and purchased power Nuclear deferral Post-in-service carrying costs and deferred operating expenses Gasification services agreement buyout Transmission expansion obligation MGP NCEMPA deferrals East Bend deferrals Other Total regulatory assets Less: current portion Total noncurrent regulatory assets 120 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress $ 2,555 838 2,151 509 1,191 1,075 1,237 571 340 68 192 151 245 383 32 72 104 21 16 499 12,250 $1,120 104 479 49 — 564 — 127 80 — 79 21 107 97 — — — — — 244 3,071 $1,394 487 807 409 — 318 1,237 410 250 — 38 129 138 38 — — — 21 — 121 5,797 $ 1,386 195 366 179 — 106 — 171 237 — 38 93 62 38 — — — 21 — 82 2,974 877 305 362 264 $11,373 $2,766 $5,435 $ 2,710 Duke Energy Florida $ 8 292 441 230 — 212 1,237 239 13 — — 36 76 — — — — — — 39 2,823 $ 4 — 139 — — 55 — 7 10 68 5 1 — 21 — 72 104 — 16 31 533 $ 37 — 220 51 — 120 — 27 — — 10 — — 227 32 — — — — 94 818 98 36 102 $2,725 $ 497 $ 716 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) December 31, 2015 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Regulatory Liabilities Costs of removal Amounts to be refunded to customers Storm reserve Accrued pension and OPEB Deferred fuel and purchased power Other Total regulatory liabilities $ 5,329 71 150 288 311 506 6,655 $2,413 — 24 68 55 281 2,841 $2,078 — 125 51 255 164 2,673 $1,725 — — 25 58 155 1,963 $ 353 — 125 26 197 8 709 $ 222 — 1 21 1 12 257 $ 616 71 — 83 — 46 816 400 39 286 85 200 12 62 Total noncurrent regulatory liabilities $ 6,255 $2,802 $2,387 $1,878 $ 509 $ 245 $ 754 Descriptions of regulatory assets and liabilities, summarized in the tables above, as well as their recovery and amortization periods follow. Items are excluded from rate base unless otherwise noted. AROs – coal ash. Represents regulatory assets including deferred depreciation and accretion related to the legal obligation to close ash basins. The costs are deferred until recovery treatment has been determined. The recovery period for these costs has yet to be established. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Ohio earn a debt return on their expenditures. See Notes 1 and 9 for additional information. AROs – nuclear and other. Represents regulatory assets, including deferred depreciation and accretion, related to legal obligations associated with the future retirement of property, plant and equipment, excluding amounts related to coal ash. The AROs relate primarily to decommissioning nuclear power facilities. The amounts also include certain deferred gains on NDTF investments. The recovery period for costs related to nuclear facilities runs through the decommissioning period of each nuclear unit, the latest of which is currently estimated to be 2086. See Notes 1 and 9 for additional information. Accrued pension and OPEB. Accrued pension and other post-retirement benefit obligations (OPEB) represent regulatory assets and liabilities related to each of the Duke Energy Registrants’ respective shares of unrecognized actuarial gains and losses and unrecognized prior service cost and credit attributable to Duke Energy’s pension plans and OPEB plans. The regulatory asset or liability is amortized with the recognition of actuarial gains and losses and prior service cost and credit to net periodic benefit costs for pension and OPEB plans. The accrued pension and OPEB regulatory asset is expected to be recovered primarily over average remaining service periods of active employees covered by the benefit plans, which is approximately nine years. See Note 21 for additional detail. Retired generation facilities. Duke Energy Carolinas earns a return on the outstanding retail balance with recovery periods ranging from one to six years. Duke Energy Progress earns a return on the outstanding balance with recovery over a period of 10 years beginning in 2013 for retail purposes and over the longer of 10 years or the previously estimated planned retirement date for wholesale purposes. Duke Energy Indiana earns a return on the outstanding balances and the costs are included in rate base. Duke Energy Indiana’s recovery period will be determined in the next general rate case. Duke Energy Florida earns a full return on a portion of the regulatory asset related to the retired nuclear plant currently recovered in the nuclear cost recovery clause (NCRC), with the remaining portion earning a reduced return. Duke Energy Florida’s recovery period varies. Debt fair value adjustment. Purchase accounting adjustments recorded to state the carrying value of Progress Energy and Piedmont at fair value in connection with the 2012 and 2016 mergers, respectively. Amount is amortized over the life of the related debt. Net regulatory asset related to income taxes. Regulatory assets principally associated with the depreciation and recovery of AFUDC equity. Amounts have no impact on rate base as regulatory assets are offset by deferred tax liabilities. The recovery period is over the life of the associated assets. Amounts for all registrants include regulatory liabilities related to the gross up of federal ITCs. Amounts for Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress include regulatory liabilities related to the change in the North Carolina corporate tax rate discussed in Note 22. Storm cost deferrals. Represents deferred incremental costs incurred related to extraordinary weather-related events, primarily damage resulting from Hurricane Matthew in the fourth quarter of 2016. The recovery period is unknown. Nuclear asset securitizable balance, net. Represents the balance associated with Crystal River Unit 3 retirement approved for recovery by the FPSC on September 15, 2015, and the upfront financing costs securitized in 2016 with issuance of the associated bonds. The regulatory asset balance is net of the AFUDC equity portion. The recovery period is through 2036. Hedge costs and other deferrals. Amounts relate to unrealized gains and losses on derivatives recorded as a regulatory asset or liability, respectively, until the contracts are settled. The recovery period varies for these costs and currently extends to 2048. Derivatives – gas supply contracts held for utility operations. Represents costs for certain long-dated, fixed quantity forward gas supply contracts which are recoverable through Piedmont’s PGA clauses. DSM/EE. The recovery period varies for these costs, with some currently unknown. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are required to pay interest on the outstanding liability balance. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida collect a return on DSM/EE investments. Grid modernization. Duke Energy Ohio amounts represent deferred depreciation and operating expenses as well as carrying costs on the portion of capital expenditures placed in service but not yet reflected in retail rates as plant in service. Recovery period is generally one year for depreciation and operating expenses. Recovery for post-in-service carrying costs is over the life of the assets. Duke Energy Ohio is earning a return on these costs. Vacation accrual. Generally recovered within one year. Duke Energy Carolinas earns a return on the North Carolina balance. Deferred fuel and purchased power. Represents certain energyrelated costs that are recoverable or refundable as approved by the applicable regulatory body. Duke Energy Florida amount includes capacity costs. Duke Energy Florida earns a return on the retail portion of under-recovered costs. Duke Energy Ohio earns a return on under-recovered costs. Duke Energy Florida and Duke Energy Ohio pay interest on over-recovered costs. Duke Energy Carolinas and Duke Energy Progress amounts include certain purchased power Less: current portion 121 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) costs in both North Carolina and South Carolina and costs of distributed energy resource programs in South Carolina. Duke Energy Carolinas and Duke Energy Progress pay interest on over-recovered costs in North Carolina. Recovery period is generally over one year. Duke Energy Indiana recovery period is quarterly. Nuclear deferral. Includes (i) amounts related to levelizing nuclear plant outage costs at Duke Energy Carolinas and Duke Energy Progress in North Carolina and South Carolina, which allows for the recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, resulting in the deferral of operations and maintenance costs associated with refueling and (ii) certain deferred preconstruction and carrying costs at Duke Energy Florida as approved by the FPSC, primarily associated with the Levy nuclear project (Levy), with a final true-up to be filed by May 2017. Post-in-service carrying costs and deferred operating expenses. Represents deferred depreciation and operating expenses as well as carrying costs on the portion of capital expenditures placed in service but not yet reflected in retail rates as plant in service. Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana earn a return on the outstanding balance. For Duke Energy Ohio and Duke Energy Indiana, some amounts are included in rate base. Recovery is over various lives and the latest recovery period is 2083. Gasification services agreement buyout. The IURC authorized Duke Energy Indiana to recover costs incurred to buy out a gasification services agreement, including carrying costs through 2017. Duke Energy Indiana earns a return on this balance. Transmission expansion obligation. Represents transmission expansion obligations related to Duke Energy Ohio’s withdrawal from Midcontinent Independent System Operator, Inc. (MISO). MGP. Represents remediation costs incurred at former MGP sites and the deferral of costs to be incurred at the East End and West End sites through 2019. Costs incurred between 2008 and 2012 are recovered through an approved MGP rider. Recovery of costs incurred after 2012 has been requested but is pending approval from the PUCO. Duke Energy Ohio does not earn a return on these costs. Advanced metering infrastructure (AMI). Duke Energy Carolinas amount represents deferred costs related to the installation of AMI meters and remaining net book value of non-AMI meters to be replaced. Duke Energy Carolinas earns a return on a portion of the costs and the recovery period varies. Duke Energy Indiana amount represents expected future recovery of net book value of electromechanical meters that have been replaced with AMI meters. Duke Energy Indiana expects to recover this asset over a six-year period and the meters will remain in rate base until the next general rate case. NCEMPA deferrals. Represents retail allocated cost deferrals and returns associated with the additional ownership interest in assets acquired from NCEMPA discussed in Note 2. The North Carolina retail allocated costs are generally being recovered over a period of time between three years and the remaining life of the assets purchased through a rider that became effective on December 1, 2015. The South Carolina retail allocated costs will be amortized over an average of 24 years beginning January 2017 are earning a return. East Bend deferrals. Represents both deferred operating expenses and deferred depreciation as well as carrying costs on the portion of East Bend Generating Station (East Bend) that was acquired from Dayton Power and Light and that had been previously operated as a jointly owned facility. Recovery will not commence until resolution of the next electric rate case in Kentucky. Duke Energy Ohio is earning a return on these deferred costs. Costs of removal. Represents funds received from customers to cover the future removal of property, plant and equipment from retired or abandoned sites as property is retired. Also includes certain deferred gains on NDTF investments. Amounts to be refunded to customers. Represents required rate reductions to retail customers by the applicable regulatory body. The period of refund for Duke Energy Indiana is through 2018. Storm reserve. Duke Energy Carolinas and Duke Energy Florida are allowed to petition the PSCSC and FPSC, respectively, to seek recovery of incremental or allowable costs incurred for named storms. Funds are used to offset future incurred costs. RESTRICTIONS ON THE ABILITY OF CERTAIN SUBSIDIARIES TO MAKE DIVIDENDS, ADVANCES AND LOANS TO DUKE ENERGY As a condition to the approval of merger transactions, the NCUC, PSCSC, PUCO, KPSC and IURC imposed conditions on the ability of Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio, Duke Energy Kentucky, Duke Energy Indiana and Piedmont to transfer funds to Duke Energy through loans or advances, as well as restricted amounts available to pay dividends to Duke Energy. Certain subsidiaries may transfer funds to Duke Energy Corporation Holding Company (the parent) by obtaining approval of the respective state regulatory commissions. These conditions imposed restrictions on the ability of the public utility subsidiaries to pay cash dividends as discussed below. 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. Amounts restricted as a result of these provisions were not material at December 31, 2016. Additionally, certain other subsidiaries of Duke Energy have restrictions on their ability to dividend, loan or advance funds to Duke Energy due to specific legal or regulatory restrictions, including, but not limited to, minimum working capital and tangible net worth requirements. The restrictions discussed below were less than 25 percent of Duke Energy’s net assets at December 31, 2016. Duke Energy Carolinas Duke Energy Carolinas must limit cumulative distributions subsequent to mergers to (i) the amount of retained earnings on the day prior to the closing of the mergers, plus (ii) any future earnings recorded. Duke Energy Progress Duke Energy Progress must limit cumulative distributions subsequent to the mergers between Duke Energy and Progress Energy and Duke Energy and Piedmont to (i) the amount of retained earnings on the day prior to the closing of the respective mergers, plus (ii) any future earnings recorded. Duke Energy Ohio Duke Energy Ohio will not declare and pay dividends out of capital or unearned surplus without the prior authorization of the PUCO. Duke Energy Ohio received FERC and PUCO approval to pay dividends from its equity accounts that are reflective of the amount that it would have in its retained earnings account had push-down accounting for the Cinergy Corp. (Cinergy) merger not been applied to Duke Energy Ohio’s balance sheet. The conditions include a commitment from Duke Energy Ohio that equity, adjusted to remove the impacts of push-down accounting, will not fall below 30 percent of total capital. Duke Energy Kentucky is required to pay dividends solely out of retained earnings and to maintain a minimum of 35 percent equity in its capital structure. Duke Energy Indiana Duke Energy Indiana must limit cumulative distributions subsequent to the merger between Duke Energy and Cinergy to (i) the amount of retained earnings on the day prior to the closing of the merger, plus (ii) any future earnings recorded. In addition, Duke Energy Indiana will not declare and pay dividends out of capital or unearned surplus without prior authorization of the IURC. 122 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Piedmont on results of operations, cash flows and the financial position of Duke Energy Carolinas and Duke Energy Progress will not be material. Piedmont must limit cumulative distributions subsequent to the acquisition of Piedmont by Duke Energy to (i) the amount of retained earnings on the day prior to the closing of the merger, plus (ii) any future earnings recorded. Duke Energy Carolinas Advanced Metering Infrastructure Deferral RATE RELATED INFORMATION On July 12, 2016, the PSCSC issued an accounting order for Duke Energy Carolinas to defer the financial effects of depreciation expense incurred for the installation of AMI meters, the carrying costs on the investment at its weighted average cost of capital (WACC) and the carrying costs on the deferred costs at its WACC not to exceed $45 million. The decision also allows Duke Energy Carolinas to continue to depreciate the non-AMI meters to be replaced. Current retail rates will not change as a result of the decision and the ability of interested parties to challenge the reasonableness of expenditures in subsequent proceedings is not limited. The NCUC, PSCSC, FPSC, IURC, PUCO, TRA and KPSC approve rates for retail electric and natural gas services within their states. The FERC approves rates for electric sales to wholesale customers served under cost-based rates (excluding Ohio and Indiana), as well as sales of transmission service. The FERC also regulates certification and siting of new interstate natural gas pipeline projects. Duke Energy Carolinas and Duke Energy Progress Ash Basin Closure Costs Deferral On July 13, 2016, in response to a joint petition of Duke Energy Carolinas and Duke Energy Progress, the PSCSC issued an accounting order for the deferment into a regulatory account of certain costs incurred in connection with federal and state environmental remediation requirements related to the permanent closure of ash basins and other ash storage units at coal-fired generating facilities that have provided or are providing generation to customers located in South Carolina. The decision allows for ash basin closure expenses to be partially offset with excess regulatory liability amounts from the deferral of nuclear decommissioning costs that are collected from South Carolina retail customers and for Duke Energy Progress to partially offset incurred ash basin closure costs with costs of removal amounts collected from customers. The PSCSC’s ruling does not change retail rates or the tariff amounts and does not limit the ability of interested parties to challenge the reasonableness of expenditures in subsequent proceedings. In connection with Duke Energy Progress’ base rate case filed in July 2016, in December 2016, the PSCSC approved recovery of coal ash costs incurred from January 1, 2015, through June 30, 2016, over a 15-year period and ongoing deferral of future ash basin closure costs incurred from July 1, 2016, until its next base rate case in South Carolina. On December 30, 2016, Duke Energy Carolinas and Duke Energy Progress filed a joint petition with the NCUC seeking an accounting order authorizing deferral of certain costs incurred in connection with federal and state environmental remediation requirements related to the permanent closure of ash basins and other ash storage units at coal-fired generating facilities that have provided or are providing generation to customers located in North Carolina. Initial comments are due by March 1, 2017, and reply comments are due by March 29, 2017. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter. William States Lee Combined Cycle Facility FERC Transmission Return on Equity Complaints William States Lee III Nuclear Station On January 7, 2016, a group of transmission service customers filed a complaint with FERC that the rate of return on equity of 10.2 percent in Duke Energy Carolinas’ transmission formula rates is excessive and should be reduced to no higher than 8.49 percent, effective upon the complaint date. On the same date, a similar complaint was filed with FERC claiming that the rate of return on equity of 10.8 percent in Duke Energy Progress’ transmission formula rates is excessive and should be reduced to no higher than 8.49 percent, effective upon the complaint date. On April 21, 2016, FERC issued an order which consolidated the cases, set a refund effective date of January 7, 2016, and set the consolidated case for settlement and hearing. On June 14, 2016, Duke Energy Carolinas and Duke Energy Progress reached a settlement agreement in principle to reduce the return on equity for both companies to 10 percent. On November 21, 2016, the FERC approved the settlement agreement resolving the complaints. The Impact In December 2007, Duke Energy Carolinas applied to the NRC for combined operating licenses (COLs) for two Westinghouse AP1000 reactors for the proposed William States Lee III Nuclear Station to be located at a site in Cherokee County, South Carolina. The NCUC and PSCSC have concurred with the prudency of Duke Energy Carolinas incurring certain project development and preconstruction costs through several separately issued orders, although full cost recovery is not guaranteed. In December 2016, the NRC issued a COL for each reactor. As of December 31, 2016, Duke Energy Carolinas has incurred approximately $520 million of costs, including AFUDC, related to the project. These project costs are included in Net property, plant and equipment on Duke Energy Carolinas’ Consolidated Balance Sheets. Duke Energy Carolinas is not required to build the nuclear reactors as result of the COLs being issued. On April 9, 2014, the PSCSC granted Duke Energy Carolinas and North Carolina Electric Membership Corporation (NCEMC) a Certificate of Environmental Compatibility and Public Convenience and Necessity (CECPCN) for the construction and operation of a 750-MW combined-cycle natural gasfired generating plant at Duke Energy Carolinas’ existing William States Lee Generating Station in Anderson, South Carolina. Duke Energy Carolinas began construction in July 2015 and estimates a cost to build of $600 million for its share of the facility, including AFUDC. The project is expected to be commercially available in late 2017. NCEMC will own approximately 13 percent of the project. On July 3, 2014, the South Carolina Coastal Conservation League (SCCL) and Southern Alliance for Clean Energy (SACE) jointly filed a Notice of Appeal with the Court of Appeals of South Carolina (S.C. Court of Appeals) seeking the court’s review of the PSCSC’s decision, claiming the PSCSC did not properly consider a request related to a proposed solar facility prior to granting approval of the CECPCN. The S.C. Court of Appeals affirmed the PSCSC’s decision on February 10, 2016, and on March 24, 2016, denied a request for rehearing filed by SCCL and SACE. On April 21, 2016, SCCL and SACE petitioned the South Carolina Supreme Court for review of the S.C. Court of Appeals decision. Duke Energy Carolinas filed its response on June 13, 2016, and SCCL and SACE filed a reply on June 23, 2016. On September 6, 2016, the Small Business Chamber of Commerce filed a motion for permission to file a brief supporting the environmental intervenors’ position. On September 22, 2016, the South Carolina Supreme Court granted permission for the brief and allowed Duke Energy Carolinas an opportunity to file a response, which was filed on October 3, 2016. Duke Energy Carolinas cannot predict the outcome of this matter. 123 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy Progress On July 1, 2016, Duke Energy Progress filed an application with the PSCSC requesting an average 14.5 percent increase in retail revenues. The requested rate change would increase annual revenues by approximately $79 million, with a rate of return on equity of 10.75 percent. The increase is designed to recover the cost of investment in new generation infrastructure, environmental expenditures including allocated historical ash basin closure costs and increased nuclear operating costs. Duke Energy Progress has requested new rates to be effective January 1, 2017. On October 19, 2016, Duke Energy Progress, the ORS and intervenors entered into a settlement agreement that was filed with the PSCSC on the same day. Terms of the settlement agreement include an approximate $56 million increase in revenues over a two-year period. An increase of approximately $38 million in revenues was effective January 1, 2017, and an additional increase of approximately $18.5 million in revenues will be effective January 1, 2018. Duke Energy Progress will amortize approximately $18.5 million from the cost of removal reserve in 2017. Other settlement terms include a rate of return on equity of 10.1 percent, recovery of coal ash costs incurred from January 1, 2015, through June 30, 2016, over a 15-year period and ongoing deferral of allocated ash basin closure costs from July 1, 2016, until the next base rate case. The settlement also provides that Duke Energy Progress will not seek an increase in rates in South Carolina to occur prior to 2019, with limited exceptions. In December 2016, the PSCSC approved the settlement and issued an approval order. is also working with the local natural gas distribution company to upgrade an existing natural gas pipeline to serve the natural gas plant. The plan requires various approvals including regulatory approvals in North Carolina. Duke Energy Progress filed for a Certificate of Public Convenience and Necessity (CPCN) with the NCUC for the new natural gas units on January 15, 2016. On March 28, 2016, the NCUC issued an order approving the CPCN for the new combined-cycle natural gas plants, but denying the CPCN for the contingent simple cycle unit without prejudice to Duke Energy Progress to refile for approval in the future. Site preparation activities are underway and construction of these plants is scheduled to begin in early 2017. The plants are expected to be in service by late 2019. Duke Energy Progress plans to file for future approvals related to the proposed solar generation and pilot battery storage project. On May 27, 2016, N.C. Waste Awareness and Reduction Network (NC WARN) and The Climate Times filed a notice of appeal from the CPCN order to the N.C. Court of Appeals. On May 31, 2016, Duke Energy Progress filed a motion to dismiss the notice of appeal with the NCUC due to NC WARN’s and The Climate Times’ failure to post a required appeal bond. After a series of filings, an NCUC order, petitions to the N.C. Court of Appeals and an evidentiary hearing, on July 8, 2016, the NCUC issued an order setting NC WARN’s and The Climate Times’ appeal bond at $98 million. On July 28, 2016, NC WARN and The Climate Times filed a notice of appeal and exceptions from the NCUC’s July 8, 2016, appeal bond order. On August 2, 2016, the NCUC granted Duke Energy Progress’ motion to dismiss NC WARN’s and The Climate Times’ notice of appeal from the CPCN order due to failure to post the requisite bond. On August 18, 2016, NC WARN and The Climate Times filed a petition with the N.C. Court of Appeals seeking appellate review of the NCUC’s CPCN order, the July 8, 2016, appeal bond order and the August 2, 2016, order dismissing their notice of appeal, which the N.C. Court of Appeals denied on September 6, 2016. On September 19, 2016, the NCUC granted Duke Energy Progress’ motion to dismiss NC WARN’s and The Climate Times’ subsequent appeal of the second bond order dated July 28, 2016, and NC WARN’s and The Climate Times’ subsequent appeal of the CPCN order and dismissal order dated August 18, 2016. On October 17, 2016, NC WARN and The Climate Times filed another petition for review with the N.C. Court of Appeals asking the court to reverse the CPCN order, the second bond order and the dismissal of their first and second notices of appeal as to the CPCN order. On November 3, 2016, the N.C. Court of Appeals denied NC WARN’s and The Climate Times’ petition for review. All appeals have been concluded. The carrying value of the 376-MW Asheville coal-fired plant, including associated ash basin closure costs, of $492 million and $548 million are included in Generation facilities to be retired, net on Duke Energy Progress’ Consolidated Balance Sheets as of December 31, 2016 and 2015, respectively. Western Carolinas Modernization Plan Shearon Harris Nuclear Plant Expansion On November 4, 2015, in response to community feedback, Duke Energy Progress announced a revised Western Carolinas Modernization Plan with an estimated cost of $1.1 billion. The revised plan includes retirement of the existing Asheville coal-fired plant, the construction of two 280-MW combinedcycle natural gas plants having dual fuel capability, with the option to build a third natural gas simple cycle unit in 2023 based upon the outcome of initiatives to reduce the region’s power demand. The revised plan includes upgrades to existing transmission lines and substations, but eliminates the need for a new transmission line and a new substation associated with the project in South Carolina. The revised plan has the same overall project cost as the original plan and the plans to install solar generation remain unchanged. Duke Energy Progress has also proposed to add a pilot battery storage project. These investments will be made within the next seven years. Duke Energy Progress In 2006, Duke Energy Progress selected a site at Harris to evaluate for possible future nuclear expansion. On February 19, 2008, Duke Energy Progress filed its COL application with the NRC for two Westinghouse AP1000 reactors at Harris, which the NRC docketed for review. On May 2, 2013, Duke Energy Progress filed a letter with the NRC requesting the NRC to suspend its review activities associated with the COL at the Harris site. The NCUC and PSCSC have approved deferral for $48 million of retail costs which are recorded in Regulatory assets on Duke Energy Progress’ Consolidated Balance Sheets. On November 17, 2016, the FERC approved Duke Energy Progress’ rate recovery request filing for the wholesale ratepayers’ share of the abandonment costs, including a debt only return to be recovered through revised formula rates and amortized over a 15-year period beginning May 1, 2014. Storm Cost Deferral Filings On December 16, 2016, Duke Energy Progress filed a petition with the NCUC requesting an accounting order to defer certain costs incurred in connection with response to Hurricane Matthew and other significant storms in 2016. Current estimated incremental operation and maintenance and capital costs total approximately $140 million. Additional costs could be incurred in 2017 related to storms in the fourth quarter of 2016. Duke Energy Progress proposes to true-up the total costs quarterly through August 2017. Duke Energy Progress cannot predict the outcome of this matter. On December 16, 2016, Duke Energy Progress filed a petition with the PSCSC requesting an accounting order to defer certain costs incurred related to repairs and restoration of service following Hurricane Matthew. Estimated total restoration costs are approximately $60 million. Actual total costs would be trued-up quarterly through 2017. In January 2017, the PSCSC approved the deferral request and issued an accounting order. South Carolina Rate Case 124 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy Florida settlement agreement (the 2013 Settlement) between Duke Energy Florida, Florida OPC and other customer advocates. The 2013 Settlement replaces and supplants the 2012 Settlement and substantially resolves issues related to (i) Crystal River Unit 3, (ii) Levy, (iii) Crystal River 1 and 2 coal units and (iv) future generation needs in Florida. Refer to the remaining sections below for further discussion of these settlement agreements. Hines Chiller Uprate Project On May 20, 2016, Duke Energy Florida filed a petition seeking approval to include in base rates the revenue requirement for a Chiller Uprate Project (Uprate Project) at the Hines Energy Complex (Hines). Duke Energy Florida proposed to complete the Uprate Project in two phases: Phase one to include work on Hines units 1-3 and common equipment, to be placed in service during October 2016; and Phase two work on Hines Unit 4 to be placed in service during January 2017. The final combined construction cost estimate for both phases of approximately $150 million is below the cost estimate provided during the need determination proceeding. Duke Energy Florida estimated an annual retail revenue requirement for Phase one and Phase two of approximately $17 million and $3 million, respectively. On August 29, 2016, the FPSC approved the Phase one revenue requirement to be effective in customer rates in November 2016. However, Duke Energy Florida made filings with the FPSC in October 2016 to remove the Uprate Project from customer rates because a portion of the common equipment required for either phase to be considered in service was not completed as expected. Duke Energy Florida filed for recovery of the costs associated with the Uprate Project in February 2017. Duke Energy Florida cannot predict the outcome of this matter. Crystal River Unit 3 In December 2014, the FPSC approved Duke Energy Florida’s decision to construct an independent spent fuel storage installation (ISFSI) for the retired Crystal River Unit 3 nuclear plant and approved Duke Energy Florida’s request to defer amortization of the ISFSI pending resolution of litigation against the federal government as a result of the Department of Energy’s breach of its obligation to accept spent nuclear fuel. The return rate is based on the currently approved AFUDC rate with a return on equity of 7.35 percent, or 70 percent of the currently approved 10.5 percent. The return rate is subject to change if the return on equity changes in the future. In September 2016, the FPSC approved an amendment to the 2013 Settlement authorizing recovery of the ISFSI through the Capacity Cost Recovery Clause. Through December 31, 2016, Duke Energy Florida has deferred approximately $93 million for recovery associated with building the ISFSI. The regulatory asset associated with the original Crystal River Unit 3 power uprate project will continue to be recovered through the NCRC over an estimated seven-year period that began in 2013 with a remaining uncollected balance of $128 million at December 31, 2016. Citrus County Combined Cycle Facility On October 2, 2014, the FPSC granted Duke Energy Florida a Determination of Need for the construction of a 1,640-MW combined-cycle natural gas plant in Citrus County, Florida. On May 5, 2015, the Florida Department of Environmental Protection approved Duke Energy Florida’s Site Certification Application. The project has received all required permits and approvals and construction began in October 2015. The facility is expected to be commercially available in 2018 at an estimated cost of $1.5 billion, including AFUDC. Crystal River Unit 3 Regulatory Asset On May 22, 2015, Duke Energy Florida petitioned the FPSC for approval to include in base rates the revenue requirement for the projected $1.298 billion Crystal River Unit 3 regulatory asset as authorized by the 2013 Revised and Restated Stipulation and Settlement Agreement (2013 Agreement). On September 15, 2015, the FPSC approved Duke Energy Florida’s motion for approval of a settlement agreement with intervenors to reduce the value of the projected Crystal River Unit 3 regulatory asset to be recovered to $1.283 billion as of December 31, 2015. An impairment charge of $15 million was recognized in the third quarter of 2015 to adjust the regulatory asset balance. In June 2015, the governor of Florida signed legislation to allow utilities to issue nuclear asset-recovery bonds to finance the recovery of certain retired nuclear generation assets, with approval of the FPSC. In November 2015, the FPSC issued a financing order approving Duke Energy Florida’s request to issue nuclear asset-recovery bonds to finance its unrecovered regulatory asset related to Crystal River Unit 3 through a wholly owned special purpose entity. Nuclear asset-recovery bonds replace the base rate recovery methodology authorized by the 2013 Agreement and result in a lower rate impact to customers with a recovery period of approximately 20 years. Pursuant to provisions in Florida Statutes and the FPSC financing order, in 2016, Duke Energy Florida formed Duke Energy Florida Project Finance, LLC (DEFPF), a wholly owned, bankruptcy remote special purpose subsidiary for the purpose of issuing nuclear asset-recovery bonds. In June 2016, DEFPF issued $1,294 million aggregate principal amount of senior secured bonds (nuclear asset-recovery bonds) to finance the recovery of Duke Energy Florida’s Crystal River 3 regulatory asset. In connection with this financing, net proceeds to DEFPF of approximately $1,287 million, after underwriting costs, were used to acquire nuclear assetrecovery property from Duke Energy Florida and to pay transaction related expenses. The nuclear asset-recovery property includes the right to impose, bill, collect and adjust a non-bypassable nuclear asset-recovery charge, to be collected on a per kilowatt-hour basis, from all Duke Energy Florida retail customers until the bonds are paid in full. Duke Energy Florida began collecting the nuclear assetrecovery charge on behalf of DEFPF in customer rates in July 2016. See Notes 6 and 17 for additional information. Purchase of Osprey Energy Center In December 2014, Duke Energy Florida and Osprey Energy Center, LLC, a wholly owned subsidiary of Calpine Corporation (Calpine), entered into an Asset Purchase and Sale Agreement for the purchase of a 599-MW combinedcycle natural gas plant in Auburndale, Florida (Osprey Plant acquisition) for approximately $166 million. On August 2, 2016, Duke Energy Florida filed a petition seeking approval to include in base rates the revenue requirements for the Osprey Plant acquisition to be included in customer bills beginning in February 2017. Duke Energy Florida estimated the retail revenue requirements for the Osprey acquisition to be approximately $48 million. On November 1, 2016, the FPSC approved the petition to include the revenue requirements in base rates. Closing of the acquisition occurred on January 3, 2017. Duke Energy Florida received a Civil Investigative Demand from the Department of Justice (DOJ) related to alleged violation of the waiting period for the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The DOJ alleged Duke Energy Florida assumed operational control of the Osprey Plant before the waiting period expiration on February 27, 2015. On January 17, 2017, Duke Energy Florida entered into a stipulation agreement to settle with the DOJ for $600,000 without admission of liability. On January 18, 2017, the DOJ filed a complaint and the stipulation in the U.S. District Court for the District of Columbia. The stipulation is subject to court approval. Duke Energy recorded a reserve in the fourth quarter of 2016. FPSC Settlement Agreements On February 22, 2012, the FPSC approved a settlement agreement (the 2012 Settlement) among Duke Energy Florida, the Florida OPC and other customer advocates. The 2012 Settlement was to continue through the last billing cycle of December 2016. On October 17, 2013, the FPSC approved a 125 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Customer Rate Matters Crystal River 1 and 2 Coal Units Pursuant to the 2013 Settlement, Duke Energy Florida will maintain base rates at the current level through the last billing period of 2018, subject to the return on equity range of 9.5 percent to 11.5 percent, with exceptions for base rate increases for new generation through 2018, per the provisions of the 2013 Settlement. Duke Energy Florida is not required to file a depreciation study, fossil dismantlement study or nuclear decommissioning study until the earlier of the next rate case filing or March 31, 2019. The 2013 Settlement also provided for a $150 million increase in base revenue effective with the first billing cycle of January 2013. If Duke Energy Florida’s retail base rate earnings fall below the return on equity range, as reported on a FPSC-adjusted or pro forma basis on a monthly earnings surveillance report, it may petition the FPSC to amend its base rates during the term of the 2013 Settlement. Duke Energy Florida has evaluated Crystal River 1 and 2 coal units for retirement in order to comply with certain environmental regulations. Based on this evaluation, those units will likely be retired by 2018. Once those units are retired Duke Energy Florida will continue recovery of existing annual depreciation expense through the end of 2020. Beginning in 2021, Duke Energy Florida will be allowed to recover any remaining net book value of the assets from retail customers through the Capacity Cost Recovery Clause. In April 2014, the FPSC approved Duke Energy Florida’s petition to allow for the recovery of prudently incurred costs to comply with the Mercury and Air Toxics Standard through the Environmental Cost Recovery Clause. Levy Nuclear Project East Bend Coal Ash Basin Filing On July 28, 2008, Duke Energy Florida applied to the NRC for a COL for two Westinghouse AP1000 reactors at Levy. In 2008, the FPSC granted Duke Energy Florida’s petition for an affirmative Determination of Need and related orders requesting cost recovery under Florida’s nuclear cost-recovery rule, together with the associated facilities, including transmission lines and substation facilities. In October 2016, the NRC issued COLs for the proposed Levy Nuclear Plant Units 1 and 2. On January 28, 2014, Duke Energy Florida terminated the Levy engineering, procurement and construction agreement (EPC). Duke Energy Florida may be required to pay for work performed under the EPC and to bring existing work to an orderly conclusion, including but not limited to costs to demobilize and cancel certain equipment and material orders placed. Duke Energy Florida recorded an exit obligation in 2014 for the termination of the EPC. This liability was recorded within Other in Deferred Credits and Other Liabilities with an offset primarily to Regulatory assets on the Consolidated Balance Sheets. Duke Energy Florida is allowed to recover reasonable and prudent EPC cancellation costs from its retail customers. The 2012 Settlement provided that Duke Energy Florida include the allocated wholesale cost of Levy as a retail regulatory asset and include this asset as a component of rate base and amortization expense for regulatory reporting. In accordance with the 2013 Settlement, Duke Energy Florida ceased amortization of the wholesale allocation of Levy investments against retail rates. On October 27, 2014, the FPSC approved Duke Energy Florida rates for 2015 for Levy as filed and consistent with those established in the 2013 Revised and Restated Settlement Agreement. Recovery of the remaining retail portion of the project costs may occur over five years from 2013 through 2017. Duke Energy Florida has an ongoing responsibility to demonstrate prudency related to the wind down of the Levy investment and the potential for salvage of Levy assets. As of December 31, 2016, Duke Energy Florida has a net uncollected investment in Levy of approximately $219 million, including AFUDC. Of this amount, $119 million related to land and the COL is included in Net, property, plant and equipment and will be recovered through base rates and $100 million is included in Regulatory assets within Regulatory Assets and Deferred Debits on the Consolidated Balance Sheets and will be recovered through the NCRC. On April 16, 2015, the FPSC approved Duke Energy Florida’s petition to cease collection of the Levy Nuclear Project fixed charge beginning with the first billing cycle in May 2015. On August 18, 2015, the FPSC approved leaving the Levy Nuclear Project portion of the NCRC charge at zero dollars for 2016 and 2017, consistent with the 2013 Settlement. Duke Energy Florida will submit by May 2017 a true-up of Levy Nuclear Project costs or credits to be recovered no earlier than January 2018. To the extent costs become known after May 2017, Duke Energy Florida will petition for recovery at that time. On December 2, 2016, Duke Energy Kentucky filed with the KPSC a request for a CPCN for construction projects necessary to close and repurpose an ash basin at the East Bend necessitated by current and proposed EPA regulations. Duke Energy Kentucky is targeting a completion date in fourth quarter 2018 for these projects and estimates a total cost of approximately $93 million. Duke Energy Kentucky has requested an order to be issued by April 30, 2017. Duke Energy Ohio Base Rate Case In connection with Duke Energy Ohio’s deployment of SmartGrid network, consisting of investments in AMI and distribution automation, a rider was established to recover these investments and return expected savings to customers. A stipulation updating this rider was approved by the PUCO in 2012, whereby Duke Energy Ohio committed to filing a base electric distribution case within one year of full deployment of SmartGrid. On October 22, 2015, PUCO staff concluded that full deployment had occurred thereby, absent relief by the PUCO, Duke Energy Ohio would be required to file a base electric rate case. Pursuant to an order (PUCO order) authorizing a modification in the filing date, Duke Energy Ohio notified the PUCO of its intent to file an electric distribution rate case in Ohio. The base rate case application and supporting testimony will be filed March 2, 2017, and March 16, 2017, respectively. Duke Energy Ohio cannot predict the outcome of this matter. Natural Gas Pipeline Extension Duke Energy Ohio is proposing to install a new natural gas pipeline in its Ohio service territory to increase system reliability and enable the retirement of older infrastructure. The proposed project involves the installation of a natural gas line and is estimated to cost between $86 million and $110 million, excluding AFUDC. On September 13, 2016, Duke Energy Ohio filed with the Ohio Power Siting Board for approval of one of two proposed routes. If approved, construction of the pipeline extension is expected to be completed by 2019. Advanced Metering Infrastructure On April 25, 2016, Duke Energy Kentucky filed with the KPSC an application for approval of a CPCN for the construction of AMI. Duke Energy Kentucky anticipates that the estimated $49 million project, if approved, will take about two years to complete. Duke Energy Kentucky also requested approval to establish a regulatory asset of approximately $10 million for the remaining book value of existing meter equipment and inventory that will be replaced. On July 20, 2016, the Kentucky Attorney General, the only intervenor in the proceeding, moved to dismiss the application. Duke Energy Kentucky filed its opposition to the Kentucky Attorney General’s motion to dismiss on July 27, 2016. On September 28, 2016, the KPSC denied the Kentucky Attorney General’s 126 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Ohio’s specific request to include Duke Energy Ohio’s entitlement to generation from OVEC in the rider at this time; however, the order allows Duke Energy Ohio to submit additional information to request recovery in the future. On May 4, 2015, Duke Energy Ohio filed an application for rehearing requesting the PUCO to modify or amend certain aspects of the order. On May 28, 2015, the PUCO granted all applications for rehearing filed in the case for future consideration. Duke Energy Ohio cannot predict the outcome of the appeals in this matter. During May and November 2016, Duke Energy Ohio completed two competitive bidding processes with results approved by the PUCO to procure a portion of the supply for its SSO load for the term of the ESP. In 2016, Duke Energy Ohio also issued requests for proposal (RFP) to serve a portion of the load attributed to its customers on the state’s percentage of income payment plan. This RFP was issued consistent with state law enacted in 2016. motion to dismiss and granted Duke Energy Kentucky’s motion to file rebuttal testimony. Duke Energy Kentucky and the Kentucky Attorney General entered into a stipulation resolving the matters raised in the application. An evidentiary hearing was held on December 8, 2016. Duke Energy Kentucky cannot predict the outcome of this matter. Accelerated Natural Gas Service Line Replacement Rider On January 20, 2015, Duke Energy Ohio filed an application for approval of an accelerated natural gas service line replacement program (ASRP). Under the ASRP, Duke Energy Ohio proposed to replace certain natural gas service lines on an accelerated basis over a 10-year period. Duke Energy Ohio also proposed to complete preliminary survey and investigation work related to natural gas service lines that are customer owned and for which it does not have valid records and, further, to relocate interior natural gas meters to suitable exterior locations where such relocation can be accomplished. Duke Energy Ohio’s current projected total capital and operations and maintenance expenditures under the ASRP are approximately $240 million. The filing also sought approval of Rider ASRP to recover related expenditures. Duke Energy Ohio proposed to update Rider ASRP on an annual basis. Intervenors opposed the ASRP, primarily because they believe the program is neither required nor necessary under federal pipeline regulation. On October 26, 2016, the PUCO issued an order denying the proposed ASRP. The PUCO did, however, encourage Duke Energy Ohio to work with the PUCO Staff and intervenors to identify a reasonable solution for the risks attributed to service line leaks caused by corrosion. Duke Energy Ohio filed an application for rehearing of the PUCO decision. In December 2016, the PUCO granted the request for the purpose of further review. Duke Energy Ohio cannot predict the outcome of this matter. 2012 Natural Gas Rate Case/Manufactured Gas Plant Cost Recovery On November 13, 2013, the PUCO issued an order approving a settlement of Duke Energy Ohio’s natural gas base rate case and authorizing the recovery of costs incurred between 2008 and 2012 for environmental investigation and remediation of two former MGP sites. The PUCO order also authorized Duke Energy Ohio to continue deferring MGP environmental investigation and remediation costs incurred subsequent to 2012 and to submit annual filings to adjust the MGP rider for future costs. Intervening parties appealed this decision to the Ohio Supreme Court and that appeal remains pending. Oral argument is scheduled for February 28, 2017. Incurred and projected investigation and remediation expenses at these MGP sites that have not been collected through the MGP rider are approximately $99 million and are recorded as Regulatory assets on Duke Energy Ohio’s Consolidated Balance Sheet as of December 31, 2016. Duke Energy Ohio cannot predict the outcome of this matter. The PUCO order also contained deadlines for completing the MGP environmental investigation and remediation costs at the MGP sites. For the property known as the East End site, the PUCO order established a deadline of December 31, 2016. The PUCO order authorized Duke Energy Ohio to seek to extend these deadlines due to certain circumstances. On May 16, 2016, Duke Energy Ohio filed an application to extend the deadline for cost recovery applicable to the East End site. In December 2016, the PUCO approved the request, extending the deadline to complete the remediation work until December 31, 2019. In January 2017, intervening parties filed for rehearing of the PUCO’s decision. On February 8, 2017, the PUCO denied the rehearing request. As of December 31, 2016, $46 million of the regulatory asset represents future remediation cost expected to be incurred at the East End site. Duke Energy Ohio cannot predict the outcome of this matter. Energy Efficiency Cost Recovery On March 28, 2014, Duke Energy Ohio filed an application for recovery of program costs, lost distribution revenue and performance incentives related to its energy efficiency and peak demand reduction programs. These programs are undertaken to comply with environmental mandates set forth in Ohio law. After a comment period, the PUCO approved Duke Energy Ohio’s application, but found that Duke Energy Ohio was not permitted to use banked energy savings from previous years in order to calculate the amount of allowed incentive. This conclusion represented a change to the cost recovery mechanism that had been agreed to by intervenors and approved by the PUCO in previous cases. The PUCO granted the applications for rehearing filed by Duke Energy Ohio and an intervenor on July 8, 2015. On January 6, 2016, Duke Energy Ohio and PUCO Staff entered into a stipulation pending PUCO approval, resolving the issues related to, among other things, performance incentives and the PUCO Staff audit of 2013 costs. Based on the stipulation, in December 2015, Duke Energy Ohio re-established approximately $20 million of the revenues that had been reversed in the second quarter. On October 26, 2016, the PUCO issued an order approving the stipulation without modification. Intervenors requested rehearing of the PUCO decision and, in December 2016, the PUCO granted rehearing for the purpose of further review. Duke Energy Ohio cannot predict the outcome of this matter. Regional Transmission Organization Realignment Duke Energy Ohio, including Duke Energy Kentucky, transferred control of its transmission assets from MISO to PJM Interconnection, LLC (PJM), effective December 31, 2011. The PUCO approved a settlement related to Duke Energy Ohio’s recovery of certain costs of the Regional Transmission Organization (RTO) realignment via a non-bypassable rider. Duke Energy Ohio is allowed to recover all MISO Transmission Expansion Planning (MTEP) costs, including but not limited to Multi Value Project (MVP) costs, directly or indirectly charged to Ohio customers. Duke Energy Ohio also agreed to vigorously defend against any charges for MVP projects from MISO. The KPSC also approved a request to effect the RTO realignment, subject to a commitment not to seek double recovery in a future rate case of the transmission expansion fees that may be charged by MISO and PJM in the same period or overlapping periods. 2014 Electric Security Plan In April 2015, the PUCO modified and approved Duke Energy Ohio’s proposed electric security plan (ESP), with a three-year term and an effective date of June 1, 2015. The PUCO approved a competitive procurement process for SSO load, a distribution capital investment rider and a tracking mechanism for incremental distribution expenses caused by major storms. The PUCO also approved a placeholder tariff for a price stabilization rider, but denied Duke Energy 127 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) the next rate case. Terms of the settlement agreement also require Duke Energy Indiana to perform certain reporting and groundwater monitoring. The settlement is subject to approval by the IURC. An evidentiary hearing was held on February 23, 2017. Duke Energy Indiana cannot predict the outcome of this matter. The following table provides a reconciliation of the beginning and ending balance of Duke Energy Ohio’s recorded liability for its exit obligation and share of MTEP costs, excluding MVP, recorded within Other in Current liabilities and Other in Deferred credits and other liabilities on the Consolidated Balance Sheets. The retail portions of MTEP costs billed by MISO are recovered by Duke Energy Ohio through a non-bypassable rider. As of December 31, 2016 and 2015, $71 million and $72 million are recorded in Regulatory assets on Duke Energy Ohio’s Consolidated Balance Sheets, respectively. (in millions) December 31, 2015 Duke Energy Ohio $ 92 Provisions/ Adjustments $ 3 Cash Reductions $ (5) Edwardsport Integrated Gasification Combined Cycle Plant Costs for the Edwardsport Integrated Gasification Combined Cycle (IGCC) Plant are recovered from retail electric customers via a tracking mechanism (IGCC rider) with updates filed by Duke Energy Indiana. The IGCC Plant was placed into commercial operation in June 2013. Duke Energy Indiana and several intervenors agreed upon a settlement (IGCC settlement) in 2015 to resolve disputes related to five IGCC riders (the 11th through 15th) and a subdocket to Duke Energy Indiana’s fuel adjustment clause. The settlement agreement resolved disputes related to the determination on whether the IGCC plant was properly declared in-service for ratemaking purposes in June 2013, as well as the operational performance of the plant. The IGCC settlement resulted in customers not being billed for previously incurred plant operating costs of $87.5 million and payments and commitments from Duke Energy Indiana of $5.5 million for attorneys’ fees and consumer programs funding. Duke Energy Indiana recognized pretax impairment and related charges of $93 million in 2015. Additionally, under the IGCC settlement, the recovery of operating and maintenance expenses and ongoing maintenance capital at the plant are subject to certain caps during the years of 2016 and 2017. The IGCC settlement also includes a commitment to either retire or stop burning coal by December 31, 2022, at the Gallagher Station. Pursuant to the IGCC settlement, the in-service date used for accounting and ratemaking will remain as June 2013. Remaining deferred costs will be recovered over eight years and not earn a carrying cost. On August 24, 2016, the IURC approved the settlement in full with no changes or conditions. The order was not appealed and the proceeding is concluded. As of December 31, 2016, deferred costs related to the project are approximately $161 million. Under the IGCC settlement, future IGCC riders will be filed annually, rather than every six months, with the next filing scheduled for first quarter 2017. The ninth semi-annual IGCC rider order was appealed by various intervenors and the matter was remanded to the IURC for further proceedings and additional findings on a tax in-service issue. On February 2, 2017, the IURC issued an order upholding the original decision, finding that an estimate of impact on customer rates due to the federal income tax in-service determination was reasonable. The intervenors could appeal this order. December 31, 2016 $ 90 MVP. MISO approved 17 MVP proposals prior to Duke Energy Ohio’s exit from MISO on December 31, 2011. Construction of these projects is expected to continue through 2020. Costs of these projects, including operating and maintenance costs, property and income taxes, depreciation and an allowed return, are allocated and billed to MISO transmission owners. On December 29, 2011, MISO filed a tariff with the FERC providing for the allocation of MVP costs to a withdrawing owner based on monthly energy usage. The FERC set for hearing (i) whether MISO’s proposed cost allocation methodology to transmission owners who withdrew from MISO prior to January 1, 2012, is consistent with the tariff at the time of their withdrawal from MISO and, (ii) if not, what the amount of and methodology for calculating any MVP cost responsibility should be. In 2012, MISO estimated Duke Energy Ohio’s MVP obligation over the period from 2012 to 2071 at $2.7 billion, on an undiscounted basis. On July 16, 2013, a FERC Administrative Law Judge (ALJ) issued an initial decision. Under this initial decision, Duke Energy Ohio would be liable for MVP costs. Duke Energy Ohio filed exceptions to the initial decision, requesting FERC to overturn the ALJ’s decision. On October 29, 2015, the FERC issued an order reversing the ALJ’s decision. The FERC ruled the cost allocation methodology is not consistent with the MISO tariff and that Duke Energy Ohio has no liability for MVP costs after its withdrawal from MISO. On May 19, 2016, the FERC denied the request for rehearing filed by MISO and the MISO Transmission Owners. On July 15, 2016, the MISO Transmission Owners filed a petition for review with the U.S. Court of Appeals for the Sixth Circuit. Duke Energy Ohio cannot predict the outcome of this matter. Duke Energy Indiana FERC Transmission Return on Equity Complaint Coal Combustion Residual Plan Customer groups have filed with the FERC complaints against MISO and its transmission-owning members, including Duke Energy Indiana, alleging, among other things, that the current base rate of return on equity earned by MISO transmission owners of 12.38 percent is unjust and unreasonable. The latest complaint, filed on February 12, 2015, claims the base rate of return on equity should be reduced to 8.67 percent and requests a consolidation of complaints. The motion to consolidate complaints was denied. On January 5, 2015, the FERC issued an order accepting the MISO transmission owners 0.50 percent adder to the base rate of return on equity based on participation in an RTO subject to it being applied to a return on equity that is shown to be just and reasonable in the pending return on equity complaints. A hearing in the base return on equity proceeding was held in August 2015. On December 22, 2015, the presiding FERC ALJ in the first complaint issued an Initial Decision in which the base rate of return on equity was set at 10.32 percent. On September 28, 2016, the Initial Decision in the first complaint was affirmed by FERC. On June 30, 2016, the presiding FERC ALJ in the second complaint issued an Initial Decision setting the base rate of return on equity at 9.70 percent. The Initial Decision in the second complaint is pending FERC review. Duke Energy Indiana currently believes these matters will not have a material impact on its results of operations, cash flows and financial position. On March 17, 2016, Duke Energy Indiana filed with the IURC a request for approval of its first group of federally mandated Coal Combustion Residual (CCR) rule compliance projects (Phase I CCR Compliance Projects) to comply with the EPA’s CCR rule. The projects in this Phase I filing are CCR compliance projects, including the conversion of Cayuga and Gibson Stations to dry bottom ash handling and related water treatment. Duke Energy Indiana has requested timely recovery of approximately $380 million in retail capital costs and incremental operating and maintenance costs, including AFUDC, under a federal mandate tracker which provides for timely recovery of 80 percent of such costs and deferral with carrying costs of 20 percent of such costs for recovery in a subsequent retail base rate case. On January 24, 2017, Duke Energy Indiana and various Intervenors filed a settlement agreement with the IURC. Terms of the settlement include recovery of 60 percent of the estimated CCR compliance construction project capital costs through existing rider mechanisms and deferral of 40 percent of these costs until Duke Energy Indiana’s next general retail rate case. The deferred costs will earn a return based on Duke Energy Indiana’s long-term debt rate of 4.73 percent until costs are included in retail rates, at which time the deferred costs will earn a full return. Costs are to be capped at $365 million, plus actual AFUDC. Costs above the cap may be recoverable in 128 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 20-year supply contracts, subject to state regulatory approval. In October 2014, the NCUC and PSCSC approved the Duke Energy Carolinas and Duke Energy Progress requests to enter into certain affiliate agreements, pay compensation to ACP and to grant a waiver of certain Code of Conduct provisions relating to contractual and jurisdictional matters. On September 18, 2015, ACP filed an application with the FERC requesting a CPCN authorizing ACP to construct the pipeline. In December 2016, FERC issued a preliminary Environmental Impact Statement (EIS) indicating that the proposed pipeline would not cause significant harm to the environment or protected populations. The final EIS is expected by June 30, 2017. FERC approval of the application is expected within 90 days of the issuance of the final EIS. Construction is projected to begin once FERC approval is received with a targeted in-service date in the second half of 2019. ACP executed a construction agreement in September 2016 and is working with various agencies to develop the final pipeline route. ACP also requested approval of an open access tariff and the precedent agreements it entered into with future pipeline customers, including Duke Energy Carolinas and Duke Energy Progress. See Notes 12 and 17 for additional information. Grid Infrastructure Improvement Plan On August 29, 2014, pursuant to a new statute, Duke Energy Indiana filed a seven-year grid infrastructure improvement plan with the IURC with an estimated cost of $1.9 billion, focusing on the reliability, integrity and modernization of the transmission and distribution system. The plan also provided for cost recovery through a transmission and distribution rider (T&D Rider). In May 2015, the IURC denied the original proposal due to an insufficient level of detailed projects and cost estimates in the plan. On December 7, 2015, Duke Energy Indiana filed a revised infrastructure improvement plan with an estimated cost of $1.8 billion in response to guidance from IURC orders and the Indiana Court of Appeals decisions related to this new statute. The revised plan uses a combination of advanced technology and infrastructure upgrades to improve service to customers and provide them with better information about their energy use. It also provides for cost recovery through a T&D Rider. In March 2016, Duke Energy Indiana entered into a settlement with all parties to the proceeding except the Citizens Action Coalition of Indiana, Inc. The settlement agreement decreased the capital expenditures eligible for timely recovery of costs in the seven-year plan to approximately $1.4 billion, including the removal of an AMI project. Under the settlement, the return on equity to be used in the T&D Rider is 10 percent. The IURC approved the settlement and issued a final order on June 29, 2016. The order was not appealed and the proceeding is concluded. The settlement also provided for deferral accounting for depreciation and post-in-service carrying costs for AMI projects outside the seven-year plan. Duke Energy Indiana withdrew its request for a regulatory asset for current meters and will retain any savings associated with future AMI installation until the next retail base rate case, which is required to be filed prior to the end of the seven-year plan. In 2016, Duke Energy Indiana decided to implement the AMI project. This decision resulted in a pretax impairment charge related to existing or non-AMI meters of approximately $8 million, based in part on Duke Energy Indiana’s intent to file a base rate case in 2022 under the approved T&D Rider plan. At December 31, 2016, Duke Energy Indiana’s remaining net book value of non-AMI meters is approximately $46 million which will be depreciated through 2022. In the event that Duke Energy Indiana was to file a base rate case earlier than 2022, it may incur additional impairment charges. Sabal Trail Transmission Pipeline On May 4, 2015, Duke Energy acquired a 7.5 percent ownership interest in Sabal Trail Transmission, LLC (Sabal Trail) from Spectra Energy Partners, LP, a master limited partnership, formed by Spectra Energy Corp. Spectra Energy Partners, LP holds a 50 percent ownership interest in Sabal Trail and NextEra Energy has a 42.5 percent ownership interest. Sabal Trail is a joint venture that is constructing a 515-mile natural gas pipeline (Sabal Trail pipeline) to transport natural gas to Florida. Total estimated project costs are approximately $3.2 billion. The Sabal Trail pipeline will traverse Alabama, Georgia and Florida. The primary customers of the Sabal Trail pipeline, Duke Energy Florida and Florida Power & Light Company (FP&L), have each contracted to buy pipeline capacity for 25-year initial terms. On February 3, 2016, the FERC issued an order granting the request for a CPCN to construct and operate the pipeline. The Sabal Trail pipeline has received regulatory approvals and initiated construction of the pipeline with an expected in-service date in mid-2017. See Notes 12 and 17 for additional information. Other Regulatory Matters Constitution Pipeline Atlantic Coast Pipeline Duke Energy owns a 24 percent ownership interest in Constitution Pipeline Company, LLC (Constitution) through a wholly owned subsidiary of Piedmont. Constitution is a natural gas pipeline project slated to transport natural gas supplies from the Marcellus supply region in northern Pennsylvania to major northeastern markets. The pipeline will be constructed and operated by Williams Partners L.P. which has a 41 percent ownership share. The remaining interest is held by Cabot Oil and Gas Corporation and WGL Holdings, Inc. On April 22, 2016, the New York State Department of Environmental Conservation (NYSDEC) denied Constitution’s application for a necessary water quality certification for the New York portion of the Constitution pipeline. Constitution filed legal actions in the U.S. District Court for the Northern District of New York and in the U.S. Court of Appeals for the Second Circuit (U.S. Court of Appeals) challenging the legality and appropriateness of the NYSDEC’s decision. Both courts granted Constitution’s motions to expedite the schedules for the legal actions. On November 16, 2016, oral arguments were heard in the U.S. Court of Appeals. Constitution remains steadfastly committed to pursuing the project and intends to pursue all available options to challenge the NYSDEC’s decision. In light of the denial of the certification, Constitution revised its target in-service date of the project to be as early as the second half of 2018, assuming that the challenge process is satisfactorily and promptly concluded. In July 2016, Constitution requested and the FERC approved an extension of the construction period and in-service deadline of the project to December 2018. Also in July, the FERC denied the New York Attorney General’s (NYAG) complaint and request for a stay of the certificate order authorizing the project On September 2, 2014, Duke Energy, Dominion Resources (Dominion), Piedmont and Southern Company Gas, formerly AGL Resources Inc., announced the formation of ACP to build and own the proposed Atlantic Coast Pipeline (ACP pipeline), an approximately 600-mile interstate natural gas pipeline running from West Virginia to North Carolina. The ACP pipeline is designed to meet the needs identified in RFPs by Duke Energy Carolinas, Duke Energy Progress and Piedmont. The ACP pipeline development costs are estimated between $5.0 billion to $5.5 billion. Dominion will build and operate the ACP pipeline. Originally, Dominion held a 45 percent membership interest in ACP, Duke Energy held a 40 percent interest, Piedmont held a 10 percent interest and Southern Company Gas held a 5 percent interest. On October 3, 2016, Duke Energy and Piedmont completed a merger transaction that resulted in Piedmont becoming a wholly owned subsidiary of Duke Energy. In connection with this transaction, and pursuant to terms of the ACP partnership agreement, Piedmont transferred 3 percent of its membership interest in ACP to Dominion in exchange for approximately $14 million. As a result of this transfer, Dominion maintains a leading ownership percentage in ACP of 48 percent and Duke Energy owns a 47 percent interest through its Gas Utilities and Infrastructure segment. Southern Company Gas maintains a 5 percent interest. See Note 2 for additional information related to Duke Energy’s acquisition of Piedmont. Duke Energy Carolinas, Duke Energy Progress and Piedmont, among others, will be customers of the pipeline. Purchases will be made under several 129 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Enforcement has been conducting a nonpublic investigation of Duke Energy’s market power analyses included in the Progress merger filings submitted to FERC. Duke Energy cannot predict the outcome of this investigation. on the grounds that Constitution had improperly cut trees along the proposed route. The FERC found the complaint procedurally deficient and that there was no justification for a stay; it did find the filing constituted a valid request for investigation and thus referred the matter to FERC staff for further examination as may be appropriate. On November 22, 2016, the FERC denied the NYAG’s request for reconsideration of this order. Since April 2016, with the actions of the NYSDEC, Constitution stopped construction and discontinued capitalization of future development costs until the project’s uncertainty is resolved. As a result, Duke Energy evaluated the investment in the Constitution project for OTTIs. At this time, no OTTI has been determined and therefore no impairment charge to reduce the carrying value of the investment has been recorded. However, to the extent that the legal and regulatory proceedings have unfavorable outcomes, or if Constitution concludes that the project is not viable or does not go forward as legal and regulatory actions progress, the conclusions with respect to OTTIs could change and may require that an impairment charge of up to the recorded investment in the project, net of any cash and working capital returned, be recorded. Duke Energy will continue to monitor and update the OTTI analysis as required. Different assumptions could affect the timing and amount of any charge recorded in a period. Pending the outcome of the matters described above, and when construction proceeds, Duke Energy remains committed to fund an amount in proportion to its ownership interest for the development and construction of the new pipeline. Duke Energy’s total anticipated contributions are approximately $229 million. See Notes 12 and 17 for additional information. Potential Coal Plant Retirements The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in Florida and Indiana earlier than their current estimated useful lives primarily because facilities do not have the requisite emission control equipment to meet EPA regulations recently approved or proposed. The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement due to a lack of requisite environmental control equipment. Dollar amounts in the table below are included in Net property, plant and equipment on the Consolidated Balance Sheets as of December 31, 2016 and exclude capitalized asset retirement costs. Duke Energy Carolinas Allen Steam Station Units 1-3(a) Progress Energy and Duke Energy Florida Crystal River Units 1 and 2 Duke Energy Indiana(b) Gallagher Units 2 and 4(c) Total Duke Energy Progress Energy Merger FERC Mitigation In June 2012, the FERC approved the merger with Progress Energy, including Duke Energy and Progress Energy’s revised market power mitigation plan, the Joint Dispatch Agreement (JDA) and the joint Open Access Transmission Tariff. The revised market power mitigation plan provided for the acceleration of one transmission project and the completion of seven other transmission projects (Long-Term FERC Mitigation) and interim firm power sale agreements during the completion of the transmission projects (Interim FERC Mitigation). The Long-Term FERC Mitigation was expected to increase power imported into the Duke Energy Carolinas and Duke Energy Progress service areas and enhance competitive power supply options in the service areas. All of these projects were completed in or before 2014. On May 30, 2014, the Independent Monitor filed with FERC a final report stating that the Long-Term FERC Mitigation is complete. In 2014, Duke Energy Progress recorded an $18 million partial reversal of an impairment recorded in 2012. This reversal adjusts the initial disallowance from the Long-Term FERC mitigation and reflects updated information on the construction costs and in-service dates of the transmission projects. Following the closing of the merger, outside counsel reviewed Duke Energy’s mitigation plan and discovered a technical error in the calculations. On December 6, 2013, Duke Energy submitted a filing to the FERC disclosing the error and arguing that no additional mitigation is necessary. The city of New Bern filed a protest and requested that FERC order additional mitigation. On October 29, 2014, the FERC ordered that the amount of the stub mitigation be increased from 25 MW to 129 MW. The stub mitigation is Duke Energy’s commitment to set aside for third parties a certain quantity of firm transmission capacity from Duke Energy Carolinas to Duke Energy Progress during summer off-peak hours. The FERC also ordered that Duke Energy operate certain phase shifters to create additional import capability and that such operation be monitored by an independent monitor. The costs to comply with this order are not material. The FERC also referred Duke Energy’s failure to expressly designate the phase shifter reactivation as a mitigation project in the original mitigation plan filing in March 2012 to the FERC Office of Enforcement for further inquiry. In response, and since December 2014, the FERC Office of Capacity (in MW) Remaining Net Book Value (in millions) 585 $ 168 873 120 280 1,738 136 $ 424 (a) Duke Energy Carolinas will retire Allen Steam Station Units 1 through 3 by December 31, 2024, as part of the resolution of a lawsuit involving alleged New Source Review violations. (b) Duke Energy Indiana retired Wabash River Units 2 through 6 in 2016. (c) Duke Energy Indiana committed to either retire or stop burning coal at Gallagher Units 2 and 4 by December 31, 2022, as part of the settlement of Edwardsport IGCC matters. On October 23, 2015, the EPA published in the Federal Register the final Clean Power Plan (CPP) rule regulating carbon dioxide (CO2) emissions from existing fossil fuel-fired electric generating units (EGUs). The CPP establishes CO2 emission rates and mass cap goals that apply to existing fossil fuel-fired EGUs. Petitions challenging the final CPP have been filed by several groups and on February 9, 2016, the U.S. Supreme Court issued a stay of the final CPP rule, halting implementation until legal challenges are resolved. States in which the Duke Energy Registrants operate have suspended work on CPP compliance plans as a result of the stay. The court is expected to decide the case in early 2017. Compliance with CPP could cause the industry to replace coal-fired generation with natural gas and renewables, especially in states that have significant CO2 reduction targets under the rule. Costs to operate coal-fired generation plants continue to grow due to increasing environmental compliance requirements, including ash management costs unrelated to CPP, which may result in the retirement of coal-fired generation plants earlier than the current end of useful lives. Duke Energy continues to evaluate the need to retire generating facilities and plans to seek regulatory recovery, where appropriate, for amounts that have not been recovered upon asset retirements. However, recovery is subject to future regulatory approval, including the recovery of carrying costs on remaining book values, and therefore cannot be assured. Refer to the “Western Carolinas Modernization Plan” discussion above for details of Duke Energy Progress’ planned retirements. 130 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 5. COMMITMENTS AND CONTINGENCIES INSURANCE Nuclear Liability Coverage The Price-Anderson Act requires owners of nuclear reactors to provide for public nuclear liability protection per nuclear incident up to a maximum total financial protection liability. The maximum total financial protection liability, which is approximately $13.4 billion, is subject to change every five years for inflation and for the number of licensed reactors. Total nuclear liability coverage consists of a combination of private primary nuclear liability insurance coverage and a mandatory industry risk-sharing program to provide for excess nuclear liability coverage above the maximum reasonably available private primary coverage. The United States Congress could impose revenue-raising measures on the nuclear industry to pay claims. General Insurance The Duke Energy Registrants have insurance and reinsurance coverage either directly or through indemnification from Duke Energy’s captive insurance company, Bison, and its affiliates, consistent with companies engaged in similar commercial operations with similar type properties. The Duke Energy Registrants’ coverage includes (i) commercial general liability coverage for liabilities arising to third parties for bodily injury and property damage; (ii) workers’ compensation; (iii) automobile liability coverage; and (iv) property coverage for all real and personal property damage. Real and personal property damage coverage excludes electric transmission and distribution lines, but includes damages arising from boiler and machinery breakdowns, earthquakes, flood damage and extra expense, but not outage or replacement power coverage. All coverage is subject to certain deductibles or retentions, sublimits, exclusions, terms and conditions common for companies with similar types of operations. The Duke Energy Registrants self-insure their electric transmission and distribution lines against loss due to storm damage and other natural disasters. As discussed further in Note 4, Duke Energy Florida maintains a storm damage reserve and has a regulatory mechanism to recover the cost of named storms on an expedited basis. The cost of the Duke Energy Registrants’ coverage can fluctuate from year to year reflecting claims history and conditions of the insurance and reinsurance markets. In the event of a loss, terms and amounts of insurance and reinsurance available might not be adequate to cover claims and other expenses incurred. Uninsured losses and other expenses, to the extent not recovered by other sources, could have a material effect on the Duke Energy Registrants’ results of operations, cash flows or financial position. Each company is responsible to the extent losses may be excluded or exceed limits of the coverage available. Primary Liability Insurance Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida have purchased the maximum reasonably available private primary nuclear liability insurance as required by law, which was $375 million per station. For incidents after January 1, 2017, this primary nuclear liability insurance limit increased to $450 million per station. Excess Liability Program This program provides $13 billion of coverage per incident through the Price-Anderson Act’s mandatory industrywide excess secondary financial protection program of risk pooling. This amount is the product of potential cumulative retrospective premium assessments of $127 million times the current 102 licensed commercial nuclear reactors in the U.S. Under this program, licensees could be assessed retrospective premiums to compensate for public nuclear liability damages in the event of a nuclear incident at any licensed facility in the U.S. Retrospective premiums may be assessed at a rate not to exceed $19 million per year per licensed reactor for each incident. The assessment may be subject to state premium taxes. Nuclear Insurance Nuclear Property and Accidental Outage Coverage Duke Energy Carolinas owns and operates the McGuire Nuclear Station (McGuire) and the Oconee Nuclear Station (Oconee) and operates and has a partial ownership interest in the Catawba Nuclear Station (Catawba). McGuire and Catawba each have two reactors. Oconee has three reactors. The other joint owners of Catawba reimburse Duke Energy Carolinas for certain expenses associated with nuclear insurance per the Catawba joint owner agreements. Duke Energy Progress owns and operates the Robinson Nuclear Plant (Robinson), Brunswick and Harris. Robinson and Harris each have one reactor. Brunswick has two reactors. Duke Energy Florida owns Crystal River Unit 3, which has been retired. In the event of a loss, terms and amounts of insurance available might not be adequate to cover property damage and other expenses incurred. Uninsured losses and other expenses, to the extent not recovered by other sources, could have a material effect on Duke Energy Carolinas’, Duke Energy Progress’ and Duke Energy Florida’s results of operations, cash flows or financial position. Each company is responsible to the extent losses may be excluded or exceed limits of the coverage available. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are members of Nuclear Electric Insurance Limited (NEIL), an industry mutual insurance company, which provides “all risk” property damage, decontamination and premature decommissioning insurance for each station for losses resulting from damage to its nuclear plants, either due to accidents or acts of terrorism. Additionally, NEIL provides some replacement power cost insurance for each station for losses in the event of a major accidental outage at an insured nuclear station. NEIL requires its members to maintain an investment grade credit rating or to ensure collectability of their annual retrospective premium obligation by providing a financial guarantee, letter of credit, deposit premium or other means of assurance. The companies are required each year to report to the NRC the current levels and sources of insurance that demonstrate it possesses sufficient financial resources to stabilize and decontaminate its reactors and reactor station sites in the event of an accident. Pursuant to regulations of the NRC, each company’s property damage insurance policies provide that all proceeds from such insurance be applied, first, to place the plant in a safe and stable condition after a qualifying accident and second, to decontaminate the plant before any proceeds can be used for decommissioning, plant repair or restoration. 131 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Losses resulting from acts of terrorism are covered as common occurrences, such that if terrorist acts occur against one or more commercial nuclear power plants insured by NEIL within a 12-month period, they would be treated as one event and the owners of the plants where the act occurred would share one full limit of liability. The full limit of liability is currently $3.2 billion. NEIL sublimits the total aggregate for all of their policies for non-nuclear terrorist events to approximately $1.83 billion. Each nuclear facility has accident property damage, decontamination and premature decommissioning liability insurance from NEIL with limits of $1.5 billion, except for Crystal River Unit 3. Crystal River Unit 3’s limit is $50 million and is on an actual cash value basis. All nuclear facilities except for Catawba and Crystal River Unit 3 also share an additional $1.25 billion nuclear accident insurance limit above their dedicated underlying limit. This shared additional excess limit is not subject to reinstatement in the event of a loss. Catawba has a dedicated $1.25 billion of additional nuclear accident insurance limit above its dedicated underlying limit. Catawba and Oconee also have an additional $750 million of non-nuclear accident property damage limit. All coverages are subject to sublimits and significant deductibles. NEIL’s Accidental Outage policy provides some replacement power cost insurance for losses in the event of a major accident property damage outage of a nuclear unit. Coverage is provided on a weekly limit basis after a significant waiting period deductible and at 100 percent of the available weekly limits for 52 weeks and 80 percent of the available weekly limits for the next 110 weeks. Coverage is provided until these available weekly periods are met where the accidental outage policy limit will not exceed $490 million for McGuire, Catawba, Brunswick and Harris, $464 million for Oconee and $404 million for Robinson. NEIL sublimits the accidental outage recovery to the first 104 weeks of coverage not to exceed $328 million from non-nuclear accidental property damage. Coverage amounts decrease in the event more than one unit at a station is out of service due to a common accident. All coverages are subject to sublimits and significant deductibles. obligations for Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are $164 million, $104 million and $1 million, respectively. Duke Energy Carolinas’ maximum assessment amount includes 100 percent of potential obligations to NEIL for jointly owned reactors. Duke Energy Carolinas would seek reimbursement from the joint owners for their portion of these assessment amounts. ENVIRONMENTAL The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all of the Duke Energy Registrants. Remediation Activities In addition to the ARO recorded as a result of various environmental regulations, discussed in Note 9, the Duke Energy Registrants are responsible for environmental remediation at various sites. These include certain properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. These sites are in various stages of investigation, remediation and monitoring. Managed in conjunction with relevant federal, state and local agencies, remediation activities vary based upon site conditions and location, remediation requirements, complexity and sharing of responsibility. If remediation activities involve joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for environmental impacts caused by other potentially responsible parties and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Liabilities are recorded when losses become probable and are reasonably estimable. The total costs that may be incurred cannot be estimated because the extent of environmental impact, allocation among potentially responsible parties, remediation alternatives and/or regulatory decisions have not yet been determined at all sites. Additional costs associated with remediation activities are likely to be incurred in the future and could be significant. Costs are typically expensed as Operation, maintenance and other in the Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable. Potential Retroactive Premium Assessments In the event of NEIL losses, NEIL’s board of directors may assess member companies retroactive premiums of amounts up to 10 times their annual premiums for up to six years after a loss. NEIL has never exercised this assessment. The maximum aggregate annual retrospective premium The following tables contain information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheets. (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Balance at December 31, 2013 Provisions/adjustments Cash reductions $ 74 32 (14) $ 11 (1 ) — $ 27 1 (11) $ 8 4 (7) $ 19 (3 ) (4) $ 27 28 (1) $ 7 4 (1) Balance at December 31, 2014 Provisions/adjustments Cash reductions 92 11 (9) 10 1 (1) 17 4 (4) 5 — (2) 12 4 (2) 54 1 (1) 10 5 (3) Balance at December 31, 2015 Provisions/adjustments Cash reductions 94 19 (15) 10 4 (4) 17 7 (6) 3 2 (2) 14 4 (4) 54 7 (2) 12 1 (3) Balance at December 31, 2016 $ 98 $ 10 $ 18 $ 3 $ 14 $ 59 $10 132 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Additional losses in excess of recorded reserves that could be incurred for the stages of investigation, remediation and monitoring for environmental sites that have been evaluated at this time are not material except as presented in the table below. the incident at Dan River and continued thereafter. The lawsuit also asserts claims against the Duke Energy Defendants for corporate waste (relating to the money Duke Energy has spent and will spend as a result of the fines, penalties and coal ash removal) and unjust enrichment (relating to the compensation and director remuneration that was received despite these alleged breaches of fiduciary duty). The lawsuit seeks both injunctive relief against Duke Energy and restitution from the Duke Energy Defendants. On January 21, 2015, the Duke Energy Defendants filed a Motion to Stay and an alternative Motion to Dismiss. On August 31, 2015, the court issued an order staying the case which was lifted on March 24, 2016. On April 22, 2016, plaintiffs filed an Amended Verified Consolidated Shareholder Derivative Complaint (Amended Complaint) making the same allegations as in the Consolidated Complaint. The Duke Energy Defendants filed a motion to dismiss the Amended Complaint on June 21, 2016. On December 14, 2016, the Delaware Chancery Court entered an order dismissing the Amended Complaint. Plaintiffs filed an appeal to the Delaware Supreme Court on January 9, 2017. Opening briefs were due by February 24, 2017, and a date for oral argument has not been set. On March 5, 2015, shareholder Judy Mesirov filed a shareholder derivative complaint (Mesirov Complaint) in North Carolina state court. The lawsuit, styled Mesirov v. Good, was similar to the consolidated derivative action pending in Delaware Chancery Court and was filed against the same current directors and former directors and officers as the Delaware litigation. Duke Energy Corporation, Duke Energy Progress and Duke Energy Carolinas were named as nominal defendants. The Mesirov Complaint alleged that the Duke Energy Board of Directors was aware of Clean Water Act (CWA) compliance issues and failures to maintain structures in ash basins, but that the Board of Directors did not require Duke Energy Carolinas and Duke Energy Progress to take action to remedy deficiencies. The Mesirov Complaint further alleged that the Board of Directors sanctioned activities to avoid compliance with the law by allowing improper influence of the NCDEQ to minimize regulation and by opposing previously anticipated citizen suit litigation. The Mesirov Complaint sought corporate governance reforms and damages relating to costs associated with the Dan River release, remediation of ash basins that are out of compliance with the CWA and defending and payment of fines, penalties and settlements relating to criminal and civil investigations and lawsuits. On July 5, 2016, the plaintiff filed a Notice of Voluntary Dismissal Without Prejudice, closing this matter. In addition to the above derivative complaints, in 2014, Duke Energy received two shareholder litigation demand letters. The letters alleged that the members of the Board of Directors and certain officers breached their fiduciary duties by allowing the company to illegally dispose of and store coal ash pollutants. One of the letters also alleged a breach of fiduciary duty in the decision-making relating to the leadership changes following the close of the Progress Energy merger in July 2012. By letter dated September 4, 2015, attorneys for the shareholders were informed that, on the recommendation of the Demand Review Committee formed to consider such matters, the Board of Directors concluded not to pursue potential claims against individuals. One of the shareholders, Mitchell Pinsly, sent a formal demand for records and Duke Energy has responded to this request. On October 30, 2015, shareholder Saul Bresalier filed a shareholder derivative complaint (Bresalier Complaint) in the U.S. District Court for the District of Delaware. The lawsuit alleges that several current and former Duke Energy officers and directors (Bresalier Defendants) breached their fiduciary duties in connection with coal ash environmental issues, the post-merger change in Chief Executive Officer (CEO) and oversight of political contributions. Duke Energy is named as a nominal defendant. The Bresalier Complaint contends that the Demand Review Committee failed to appropriately consider the shareholder’s earlier demand for litigation and improperly decided not to (in millions) Duke Energy Duke Energy Carolinas Duke Energy Ohio Duke Energy Indiana $ 69 22 36 7 North Carolina and South Carolina Ash Basins In February 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River Steam Station caused a release of ash basin water and ash into the Dan River. Duke Energy Carolinas estimates 30,000 to 39,000 tons of ash and 24 million to 27 million gallons of basin water were released into the river. In July 2014, Duke Energy completed remediation work identified by the EPA and continues to cooperate with the EPA’s civil enforcement process. Future costs related to the Dan River release, including future state or federal civil enforcement proceedings, future regulatory directives, natural resources damages, future claims or litigation and long-term environmental impact costs, cannot be reasonably estimated at this time. The North Carolina Department of Environmental Quality (NCDEQ) has historically assessed Duke Energy Carolinas and Duke Energy Progress with Notice of Violations (NOV) for violations that were most often resolved through satisfactory corrective actions and minor, if any, fines or penalties. Subsequent to the Dan River ash release, Duke Energy Carolinas and Duke Energy Progress have been served with a higher level of NOVs, including assessed penalties for violations at L.V. Sutton Combined Cycle Plant (Sutton) and Dan River Steam Station. Duke Energy Carolinas and Duke Energy Progress cannot predict whether the NCDEQ will assess future penalties related to existing unresolved NOVs and if such penalties would be material. See “NCDEQ Notices of Violation” section below for additional discussion. LITIGATION Duke Energy Duke Energy no longer has exposure to litigation matters related to the International Energy Disposal Group as a result of the divestiture of the business in December 2016. See Note 2 for additional information related to the sale of International Energy. Ash Basin Shareholder Derivative Litigation Five shareholder derivative lawsuits were filed in Delaware Chancery Court relating to the release at Dan River and to the management of Duke Energy’s ash basins. On October 31, 2014, the five lawsuits were consolidated in a single proceeding titled In Re Duke Energy Corporation Coal Ash Derivative Litigation. On December 2, 2014, plaintiffs filed a Corrected Verified Consolidated Shareholder Derivative Complaint (Consolidated Complaint). The Consolidated Complaint names as defendants several current and former Duke Energy officers and directors (collectively, the “Duke Energy Defendants”). Duke Energy is named as a nominal defendant. The Consolidated Complaint alleges the Duke Energy Defendants breached their fiduciary duties by failing to adequately oversee Duke Energy’s ash basins and that these breaches of fiduciary duty may have contributed to 133 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) pursue claims against the Bresalier Defendants. The Bresalier Defendants filed a Motion to Dismiss the Bresalier litigation on January 15, 2016. In lieu of a response to the Motion to Dismiss, the plaintiff filed a Motion to Convert the Bresalier Defendants’ Motion to Dismiss into a Motion for Summary Judgment and also for limited discovery. Following a hearing on June 15, 2016, the court denied the plaintiff’s Motion to Convert and is requiring the parties to complete briefing on the Bresalier Defendants’ Motion to Dismiss. On July 29, 2016, the Bresalier Defendants filed an Amended Motion to Dismiss. Oral argument on the Amended Motion to Dismiss was heard on December 20, 2016. As discussed below, an agreement-in-principle has been reached to settle the merger related claims in the Bresalier Complaint. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with these matters. Price Reporting Cases Duke Energy Trading and Marketing, LLC (DETM), a non-operating Duke Energy affiliate, was a defendant, along with numerous other energy companies, in four class-action lawsuits and a fifth single-plaintiff lawsuit in a consolidated federal court proceeding in Nevada. Each of these lawsuits contained similar claims that defendants allegedly manipulated natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs sought damages in unspecified amounts. In February 2016, DETM reached agreements in principle to settle all of the pending lawsuits. Settlement of the single-plaintiff settlement was finalized and paid in March 2016. The proposed settlement of the class-action lawsuits was submitted to the Court and preliminarily approved on January 26, 2017. The Court will consider final approval of the class settlement following notice to the class members. The settlement amounts are not material to Duke Energy. Progress Energy Merger Shareholder Litigation Duke Energy, the 11 members of the Board of Directors who were also members of the pre-merger Board of Directors (Legacy Duke Energy Directors) and certain Duke Energy officers were defendants in a purported securities class-action lawsuit (Nieman v. Duke Energy Corporation, et al). This lawsuit consolidated three lawsuits originally filed in July 2012. The plaintiffs alleged federal Securities Act of 1933 and Securities Exchange Act of 1934 (Exchange Act) claims based on allegations of materially false and misleading representations and omissions in the Registration Statement filed on July 7, 2011, and purportedly incorporated into other documents, all in connection with the post-merger change in CEO. On August 15, 2014, the parties reached an agreement in principle to settle the litigation. On March 10, 2015, the parties filed a Stipulation of Settlement and a Motion for Preliminary Approval of the Settlement. Under the terms of the agreement, Duke Energy agreed to pay $146 million to settle the claim. On April 22, 2015, Duke Energy made a payment of $25 million into the settlement escrow account. The remainder of $121 million was paid by insurers into the settlement escrow account. The final order approving the settlement was issued on November 2, 2015, thus closing the matter. On May 31, 2013, the Delaware Chancery Court consolidated four shareholder derivative lawsuits filed in 2012. The Court also appointed a lead plaintiff and counsel for plaintiffs and designated the case as In Re Duke Energy Corporation Derivative Litigation (Merger Chancery Litigation). The lawsuit names as defendants the Legacy Duke Energy Directors. Duke Energy is named as a nominal defendant. The case alleges claims for breach of fiduciary duties of loyalty and care in connection with the post-merger change in CEO. Two shareholder Derivative Complaints, filed in 2012 in federal district court in Delaware, were consolidated as Tansey v. Rogers, et al. The case alleges claims against the Legacy Duke Energy Directors for breach of fiduciary duty and waste of corporate assets, as well as claims under Section 14(a) and 20(a) of the Exchange Act. Duke Energy is named as a nominal defendant. On December 21, 2015, Plaintiff filed a Consolidated Amended Complaint asserting the same claims contained in the original complaints. The Legacy Duke Energy Directors have reached an agreement-inprinciple to settle the Merger Chancery Litigation, conditioned on dismissal as well, of the Tansey v. Rogers, et al case and the merger related claims in the Bresalier Complaint discussed above, for a total of $27 million. The entire settlement amount is to be funded by insurance. The settlement amount, less court-approved attorney fees, will be payable to Duke Energy. The settlement is subject to the execution of definitive settlement documents and court approval. Duke Energy Carolinas and Duke Energy Progress NCDEQ Notice of Violation In August 2014, NCDEQ issued an NOV for alleged groundwater violations at Duke Energy Progress’ Sutton Plant. On March 10, 2015, NCDEQ issued a civil penalty of approximately $25 million to Duke Energy Progress for environmental damages related to alleged groundwater contamination at the Sutton Plant. On April 9, 2015, Duke Energy Progress filed a Petition for Contested Case hearing in the Office of Administrative Hearings. In February 2015, NCDEQ issued an NOV for alleged groundwater violations at Duke Energy Progress’ Asheville Plant. Duke Energy Progress responded to NCDEQ regarding this NOV. On September 29, 2015, Duke Energy Progress and Duke Energy Carolinas entered into a settlement agreement with NCDEQ resolving all former, current and future groundwater penalties at all Duke Energy Carolinas and Duke Energy Progress coal facilities in North Carolina. Under the agreement, Duke Energy Progress paid approximately $6 million and Duke Energy Carolinas paid approximately $1 million. In addition to these payments, Duke Energy Progress and Duke Energy Carolinas will accelerate remediation actions at the Sutton, Asheville, Belews Creek and H.F. Lee plants. The court entered a consent order resolving the contested case relating to the Sutton Plant and NCDEQ rescinded the NOVs relating to alleged groundwater violations at both the Sutton and Asheville plants. On October 13, 2015, the Southern Environmental Law Center (SELC), representing multiple conservation groups, filed a lawsuit in North Carolina Superior Court seeking judicial review of the order approving the settlement agreement with NCDEQ. The conservation groups contend that the ALJ exceeded his statutory authority in approving a settlement that provided for past, present and future resolution of groundwater issues at facilities which were not at issue in the penalty appeal. On December 18, 2015, Duke Energy Carolinas and Duke Energy Progress filed a Motion to Dismiss the complaint. On February 12, 2016, the ALJ entered a new order clarifying that the dismissal of the contested case only applied to the specific issues before the ALJ in the Petition for Contested Case. On March 10, 2016, the court dismissed the SELC lawsuit based on the ALJ’s entry of the new order. On February 8, 2016, the NCDEQ assessed a penalty of approximately $6.8 million, including enforcement costs, against Duke Energy Carolinas related to stormwater pipes and associated discharges at the Dan River Steam Station. Duke Energy Carolinas recorded a charge in December 2015 for this penalty. In March 2016, Duke Energy Carolinas filed an appeal of this penalty. 134 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) On September 23, 2016, Duke Energy Carolinas entered into a settlement agreement with the NCDEQ, without admission of liability, under which Duke Energy Carolinas agreed to a payment of $6 million to resolve allegations underlying the asserted civil penalty related to the Dan River coal ash release and a March 4, 2016, NOV alleging unpermitted discharges at the facility. North Carolina Ash Basin Grand Jury Investigation As a result of the Dan River ash basin water release discussed above, NCDEQ issued a NOV and Recommendation of Assessment of Civil Penalties with respect to this matter on February 28, 2014, which the company responded to on March 13, 2014. Duke Energy and certain Duke Energy employees received subpoenas issued by the United States Attorney for the Eastern District of North Carolina in connection with a criminal investigation related to all 14 of the North Carolina facilities with ash basins and the nature of Duke Energy’s contacts with NCDEQ with respect to those facilities. This was a multidistrict investigation that also involves state law enforcement authorities. On February 20, 2015, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Business Services, LLC (DEBS), a wholly owned subsidiary of Duke Energy, each entered into Plea Agreements in connection with the investigation initiated by the United States Department of Justice Environmental Crimes Section and the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina and the Western District of North Carolina (collectively, USDOJ). On May 14, 2015, the United States District Court for the Eastern District of North Carolina approved the Plea Agreements. Under the Plea Agreements, DEBS and Duke Energy Progress pleaded guilty to four misdemeanor CWA violations related to violations at Duke Energy Progress’ H.F. Lee Steam Electric Plant, Cape Fear Steam Electric Plant and Asheville Steam Electric Generating Plant. Duke Energy Carolinas and DEBS pleaded guilty to five misdemeanor CWA violations related to violations at Duke Energy Carolinas’ Dan River Steam Station and Riverbend Steam Station. DEBS, Duke Energy Carolinas and Duke Energy Progress also agreed (i) to a five-year probation period, (ii) to pay a total of approximately $68 million in fines and restitution and $34 million for community service and mitigation (the Payments), (iii) to fund and establish environmental compliance plans subject to the oversight of a court-appointed monitor in addition to certain other conditions set out in the Plea Agreements. Duke Energy Carolinas and Duke Energy Progress also agree to each maintain $250 million under their Master Credit Facility as security to meet their obligations under the Plea Agreements. Payments under the Plea Agreements will be borne by shareholders and are not tax deductible. Duke Energy Corporation has agreed to issue a guarantee of all payments and performance due from DEBS, Duke Energy Carolinas and Duke Energy Progress, including but not limited to payments for fines, restitution, community service, mitigation and the funding of, and obligations under, the environmental compliance plans. As a result of the Plea Agreements, Duke Energy Carolinas and Duke Energy Progress recognized charges of $72 million and $30 million, respectively, in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income during 2014. Payment of the amounts relating to fines and restitution were made between May and July 2015. The Plea Agreements do not cover pending civil claims related to the Dan River coal ash release and operations at other North Carolina coal plants. On May 14, 2015, Duke Energy reached an Interim Administrative Agreement with the U.S. Environmental Protection Agency Office of Suspension and Debarment that avoids debarment of DEBS, Duke Energy Carolinas or Duke Energy Progress with respect to all active generating facilities. The Interim Administrative Agreement imposes a number of requirements relating to environmental and ethical compliance, subject to the oversight of an independent monitor. NCDEQ State Enforcement Actions In the first quarter of 2013, SELC sent notices of intent to sue Duke Energy Carolinas and Duke Energy Progress related to alleged CWA violations from coal ash basins at two of their coal-fired power plants in North Carolina. The NCDEQ filed enforcement actions against Duke Energy Carolinas and Duke Energy Progress alleging violations of water discharge permits and North Carolina groundwater standards. The cases have been consolidated and are being heard before a single judge. On August 16, 2013, the NCDEQ filed an enforcement action against Duke Energy Carolinas and Duke Energy Progress related to their remaining plants in North Carolina, alleging violations of the CWA and violations of the North Carolina groundwater standards. Both of these cases have been assigned to the judge handling the enforcement actions discussed above. SELC is representing several environmental groups who have been permitted to intervene in these cases. On July 10, 2015, Duke Energy Carolinas and Duke Energy Progress filed two Motions for Partial Summary Judgment in the case on the basis that there is no longer either a genuine controversy or disputed material facts about the relief for seven of the 14 North Carolina plants with coal ash basins. On September 14, 2015, the court granted the Motions for Partial Summary Judgment pending court approval of the terms through an order. On April 4, 2016, the court issued an order granting Duke Energy Progress’ Motion for Partial Summary Judgment for cases involving the H.F. Lee, Cape Fear and Weatherspoon plants. On June 1, 2016, the court issued an order granting Duke Energy Carolinas’ and Duke Energy Progress’ Motion for Partial Summary Judgment for cases involving the Asheville, Dan River, Riverbend and Sutton plants. The litigation is concluded for these seven plants. Litigation continues for the remaining seven plants. In response to a motion for partial summary judgment on the groundwater claims filed by the environmental groups, on October 17, 2016, Duke Energy Carolinas and Duke Energy Progress filed a cross-motion for partial summary judgment on the groundwater claims. On February 13, 2017, the court issued an order denying both the environmental groups’ motion for partial summary judgment and Duke Energy Carolinas and Duke Energy Progress’ cross-motion for partial summary judgment. It is not possible to predict any liability or estimate any damages Duke Energy Carolinas or Duke Energy Progress might incur in connection with these matters. Federal Citizens Suits On June 13, 2016, the Roanoke River Basin Association filed a federal citizen suit in the Middle District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the Mayo Plant. On August 19, 2016, Duke Energy Progress filed a Motion to Dismiss the complaint and a decision is pending. It is not possible to predict whether Duke Energy Progress will incur any liability or to estimate the damages, if any, they might incur in connection with this matter. Five previously filed cases involving the Riverbend, Cape Fear, H.F. Lee, Sutton and Buck plants have been dismissed or settled during 2016. 135 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Potential Groundwater Contamination Claims exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of December 31, 2016, there were 121 asserted claims for non-malignant cases with the cumulative relief sought of up to $32 million and 58 asserted claims for malignant cases with the cumulative relief sought of up to $16 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed. Duke Energy Carolinas has recognized asbestos-related reserves of $512 million and $536 million at December 31, 2016 and 2015, respectively. These reserves are classified in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities on the Consolidated Balance Sheets. These reserves are based upon the minimum amount of the range of loss for current and future asbestos claims through 2036, are recorded on an undiscounted basis and incorporate anticipated inflation. In light of the uncertainties inherent in a longer-term forecast, management does not believe they can reasonably estimate the indemnity and medical costs that might be incurred after 2036 related to such potential claims. It is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves. Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate selfinsured retention. Duke Energy Carolinas’ cumulative payments began to exceed the self-insurance retention in 2008. Future payments up to the policy limit will be reimbursed by the third-party insurance carrier. The insurance policy limit for potential future insurance recoveries indemnification and medical cost claim payments is $814 million in excess of the self-insured retention. Receivables for insurance recoveries were $587 million and $599 million at December 31, 2016 and 2015, respectively. These amounts are classified in Other within Investments and Other Assets and Receivables on the Consolidated Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating. Beginning in May 2015, a number of residents living in the vicinity of the North Carolina facilities with ash basins received letters from the NCDEQ advising them not to drink water from the private wells on their land tested by the NCDEQ as the samples were found to have certain substances at levels higher than the criteria set by the North Carolina Department of Health and Human Services (DHHS). The criteria, in some cases, are considerably more stringent than federal drinking water standards established to protect human health and welfare. The North Carolina Coal Ash Management Act of 2014, as amended, (Coal Ash Act) requires additional groundwater monitoring and assessments for each of the 14 coal-fired plants in North Carolina, including sampling of private water supply wells. The data gathered through these Comprehensive Site Assessments (CSAs) will be used by NCDEQ to determine whether the water quality of these private water supply wells has been adversely impacted by the ash basins. Duke Energy has submitted CSAs documenting the results of extensive groundwater monitoring around coal ash basins at all 14 of the plants with coal ash basins. Generally, the data gathered through the installation of new monitoring wells and soil and water samples across the state have been consistent with historical data provided to state regulators over many years. The DHHS and NCDEQ sent follow-up letters on October 15, 2015, to residents near coal ash basins who have had their wells tested, stating that private well samplings at a considerable distance from coal ash basins, as well as some municipal water supplies, contain similar levels of vanadium and hexavalent chromium which leads investigators to believe these constituents are naturally occurring. In March 2016, DHHS rescinded the advisories. Duke Energy Carolinas and Duke Energy Progress have received formal demand letters from residents near Duke Energy Carolinas’ and Duke Energy Progress’ coal ash basins. The residents claim damages for nuisance and diminution in property value, among other things. The parties held three days of mediation discussions which ended at impasse. On January 6, 2017, Duke Energy Carolinas and Duke Energy Progress received the plaintiffs’ notice of their intent to file suits should the matter not settle. The NCDEQ preliminarily approved Duke Energy’s permanent water solution plans on January 13, 2017, and as a result shortly thereafter, Duke Energy issued a press release, providing additional details regarding the homeowner compensation package. This package consists of three components: (i) a $5,000 goodwill payment to each eligible well owner to support the transition to a new water supply, (ii) where a public water supply is available and selected by the eligible well owner, a stipend to cover 25 years of water bills and (iii) the Property Value Protection Plan. The Property Value Protection Plan is a program offered by Duke Energy designed to guarantee eligible plant neighbors the fair market value of their residential property should they decide to sell their property during the time which the plan is offered. Duke Energy Carolinas and Duke Energy Progress recognized charges of $18 million and $4 million, respectively, in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income in December 2016. It is not possible to estimate the maximum exposure of loss, if any, that may occur in connection with claims which might be made by these residents. Duke Energy Progress and Duke Energy Florida Spent Nuclear Fuel Matters On October 16, 2014, Duke Energy Progress and Duke Energy Florida sued the U.S. in the U.S. Court of Federal Claims. The lawsuit claimed the Department of Energy breached a contract in failing to accept spent nuclear fuel under the Nuclear Waste Policy Act of 1982 and asserted damages for the cost of on-site storage. Duke Energy Progress and Duke Energy Florida asserted damages for the period January 1, 2011 through December 31, 2013, of $48 million and $25 million, respectively. Claims for all periods prior to 2011 have been resolved. Additional claims are likely to be filed after the current litigation is resolved. Trial has been set for June 2017. Duke Energy Progress and Duke Energy Florida cannot predict the outcome of this matter. Duke Energy Florida Class-Action Lawsuit Duke Energy Carolinas On February 22, 2016, a lawsuit was filed in the U.S. District Court for the Southern District of Florida on behalf of a putative class of Duke Energy Florida and FP&L’s customers in Florida. The suit alleges the State of Florida’s nuclear power plant cost recovery statutes (NCRS) are unconstitutional and pre-empted by federal law. Plaintiffs claim they are entitled to repayment of all money Asbestos-related Injuries and Damages Claims Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement related to asbestos exposure. These claims relate to damages for bodily injuries alleged to have arisen from 136 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) paid by customers of Duke Energy Florida and FP&L as a result of the NCRS, as well as an injunction against any future charges under those statutes. The constitutionality of the NCRS has been challenged unsuccessfully in a number of prior cases on alternative grounds. Duke Energy Florida and FP&L filed motions to dismiss the complaint on May 5, 2016. On September 21, 2016, the Court granted the motions to dismiss with prejudice. Plaintiffs filed a motion for reconsideration, which was denied. On January 4, 2017, plaintiffs filed a notice of appeal. Duke Energy Florida cannot predict the outcome of this appeal. and response costs of up to $43 million for the investigation and remediation of MGP sites. On December 6, 2016, the trial court entered judgment against Duke Energy Florida in the case. In January 2017, Duke Energy Florida appealed the decision to the U.S. Court of Appeals for the 6th Circuit. Duke Energy Florida cannot predict the outcome of this appeal. Duke Energy Ohio Antitrust Lawsuit Westinghouse Contract Litigation In January 2008, four plaintiffs, including individual, industrial and nonprofit customers, filed a lawsuit against Duke Energy Ohio in federal court in the Southern District of Ohio. Plaintiffs alleged Duke Energy Ohio conspired to provide inequitable and unfair price advantages for certain large business consumers by entering into nonpublic option agreements in exchange for their withdrawal of challenges to Duke Energy Ohio’s Rate Stabilization Plan implemented in early 2005. In March 2014, a federal judge certified this matter as a class action. Plaintiffs alleged claims of antitrust violations under the federal Robinson Patman Act as well as fraud and conspiracy allegations under the federal Racketeer Influenced and Corrupt Organizations statute and the Ohio Corrupt Practices Act. During 2015, the parties received preliminary court approval of a settlement agreement. Duke Energy Ohio recorded a litigation settlement reserve of $81 million classified in Other within Current Liabilities on the Consolidated Balance Sheet at December 31, 2015. Duke Energy Ohio also recognized a pretax charge of $81 million in (Loss) Income From Discontinued Operations, net of tax in the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2015. The settlement agreement was approved at a federal court hearing on April 19, 2016. Distribution of the settlement checks was approved by the court in January 2017. See Note 2 for further discussion on the Midwest Generation Exit. On March 28, 2014, Duke Energy Florida filed a lawsuit against Westinghouse in the U.S. District Court for the Western District of North Carolina. The lawsuit seeks recovery of $54 million in milestone payments in excess of work performed under the terminated EPC for Levy as well as a determination by the court of the amounts due to Westinghouse as a result of the termination of the EPC. Duke Energy Florida recognized an exit obligation as a result of the termination of the EPC contract. On March 31, 2014, Westinghouse filed a lawsuit against Duke Energy Florida in U.S. District Court for the Western District of Pennsylvania. The Pennsylvania lawsuit alleged damages under the EPC in excess of $510 million for engineering and design work, costs to end supplier contracts and an alleged termination fee. On June 9, 2014, the judge in the North Carolina case ruled that the litigation will proceed in the Western District of North Carolina. On July 11, 2016, Duke Energy Florida and Westinghouse filed separate Motions for Summary Judgment. On September 29, 2016, the court issued its ruling on the parties’ respective Motions for Summary Judgment, ruling in favor of Westinghouse on a $30 million termination fee claim and dismissing Duke Energy Florida’s $54 million refund claim, but stating that Duke Energy Florida could use the refund claim to offset any damages for termination costs. Westinghouse’s claim for termination costs was unaffected by this ruling and continued to trial. At trial, Westinghouse reduced its claim for termination costs from $482 million to $424 million. Following a trial on the matter, the court issued its final order in December 2016 denying Westinghouse’s claim for termination costs and re-affirming its earlier ruling in favor of Westinghouse on the $30 million termination fee and Duke Energy Florida’s refund claim. Judgment was entered against Duke Energy Florida in the amount of approximately $34 million, which includes prejudgment interest. Westinghouse has appealed the trial court’s order and Duke Energy Florida has cross-appealed. It is not possible to predict the ultimate outcome of the appeal of the trial court’s order. Ultimate resolution of these matters could have a material effect on the results of operations, financial position or cash flows of Duke Energy Florida. However, appropriate regulatory recovery will be pursued for the retail portion of any costs incurred in connection with such resolution. W.C. Beckjord Fuel Release On August 18, 2014, approximately 9,000 gallons of fuel oil were inadvertently discharged into the Ohio River during a fuel oil transfer at the W.C. Beckjord generating station. The Ohio Environmental Protection Agency issued a NOV related to the discharge. On November 22, 2016, Duke Energy Ohio entered into a plea agreement with the U.S. Attorney for the Southern District of Ohio. Terms of the agreement include a misdemeanor violation of the CWA, a fine of $1 million and a $100 thousand contribution to the Foundation for Ohio River Education, which were paid in fourth quarter 2016. Duke Energy Ohio has also reimbursed government and private entities for approximately $1 million of costs incurred as a result of the fuel release. Duke Energy Indiana Benton County Wind Farm Dispute MGP Cost Recovery Action On December 16, 2013, Benton County Wind Farm LLC (BCWF) filed a lawsuit against Duke Energy Indiana seeking damages for past generation losses totaling approximately $16 million alleging Duke Energy Indiana violated its obligations under a 2006 PPA by refusing to offer electricity to the market at negative prices. Damage claims continue to increase during times that BCWF is not dispatched. Under 2013 revised MISO market rules, Duke Energy Indiana On December 30, 2011, Duke Energy Florida filed a lawsuit against FirstEnergy Corp. (FirstEnergy) to recover investigation and remediation costs incurred by Duke Energy Florida in connection with the restoration of two former MGP sites in Florida. Duke Energy Florida alleged that FirstEnergy, as the successor to Associated Gas & Electric Co., owes past and future contribution 137 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) is required to make a price offer to MISO for the power it proposes to sell into MISO markets and MISO determines whether BCWF is dispatched. Because market prices would have been negative due to increased market participation, Duke Energy Indiana determined it would not bid at negative prices in order to balance customer needs against BCWF’s need to run. BCWF contends Duke Energy Indiana must bid at the lowest negative price to ensure dispatch, while Duke Energy Indiana contends it is not obligated to bid at any particular price, that it cannot ensure dispatch with any bid and that is has reasonably balanced the parties’ interests. On July 6, 2015, the U.S. District Court for the Southern District of Indiana entered judgment against BCWF on all claims. BCWF appealed the decision and on December 9, 2016, the appeals court ruled in favor of BCWF. The matter has been remanded to a lower court to determine damages. Duke Energy Indiana cannot predict the outcome of this matter. Ultimate resolution of this matter could have a material effect on the results of operations, financial position or cash flows of Duke Energy Indiana. However, appropriate regulatory recovery will be pursued for the retail portion of any costs incurred in connection with such resolution. December 31, (in millions) 2016 2015 Reserves for Legal Matters Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio $ 98 23 59 14 28 4 $156 11 54 6 31 80 OTHER COMMITMENTS AND CONTINGENCIES General As part of their normal business, the Duke Energy Registrants are party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. These guarantees involve elements of performance and credit risk, which are not fully recognized on the Consolidated Balance Sheets and have unlimited maximum potential payments. However, the Duke Energy Registrants do not believe these guarantees will have a material effect on their results of operations, cash flows or financial position. Other Litigation and Legal Proceedings The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve significant amounts. The Duke Energy Registrants believe the final disposition of these proceedings will not have a material effect on their results of operations, cash flows or financial position. Purchase Obligations Purchased Power The table below presents recorded reserves based on management’s best estimate of probable loss for legal matters, excluding asbestos-related reserves and the exit obligation discussed above related to the termination of an EPC contract. Reserves are classified on the Consolidated Balance Sheets in Other within Deferred Credits and Other Liabilities and Accounts payable and Other within Current Liabilities. The reasonably possible range of loss in excess of recorded reserves is not material, other than as described above. Duke Energy Progress, Duke Energy Florida and Duke Energy Ohio have ongoing purchased power contracts, including renewable energy contracts, with other utilities, wholesale marketers, co-generators and qualified facilities. These purchased power contracts generally provide for capacity and energy payments. In addition, Duke Energy Progress and Duke Energy Florida have various contracts to secure transmission rights. The following table presents executory purchased power contracts with terms exceeding one year, excluding contracts classified as leases. Minimum Purchase Amount at December 31, 2016 (in millions) Contract Expiration Duke Energy Progress(a) Duke Energy Florida(b) Duke Energy Ohio(c)(d) 2019-2031 2021-2043 2018 2017 $ 66 341 203 2018 $ 67 357 89 (a) Contracts represent between 15 percent and 100 percent of net plant output. (b) Contracts represent between 81 percent and 100 percent of net plant output. 2019 $ 67 377 — 2020 $ 50 394 — $ 2021 Thereafter Total 51 376 — $ 267 1,211 — $ 568 3,056 292 (c) Contracts represent between 1 percent and 11 percent of net plant output. (d) Excludes PPA with OVEC. See Note 17 for additional information. Gas Supply and Capacity Contracts Duke Energy and Duke Energy Ohio routinely enter into long-term gas supply commodity and capacity commitments and other agreements that commit future cash flows to acquire services needed in their businesses. These commitments include pipeline and storage capacity contracts and natural gas supply contracts to provide service to customers. Costs arising from the natural gas supply commodity and capacity commitments, while significant, are passthrough costs to customers and are generally fully recoverable through the fuel adjustment or PGA procedures and prudence reviews in North Carolina and South Carolina and under the Tennessee Incentive Plan in Tennessee. In the Midwest, these costs are recovered via the Gas Cost Recovery Rate in Ohio or the Gas Cost Adjustment Clause in Kentucky. The time periods for fixed payments under pipeline and storage capacity contracts are up to 19 years. The time periods for fixed payments under natural gas supply contracts are up to three years. The time period for the natural gas supply purchase commitments is up to 15 years. Certain storage and pipeline capacity contracts require the payment of demand charges that are based on rates approved by the FERC in order to maintain rights to access the natural gas storage or pipeline capacity on a firm basis during the contract term. The demand charges that are incurred in each period are recognized in the Consolidated Statements of Operations and Comprehensive Income as part of natural gas purchases and are included in Cost of natural gas. 138 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) The following table presents future unconditional purchase obligations under natural gas supply and capacity contracts as of December 31, 2016. (in millions) Duke Energy which are classified as leases. Consolidated capitalized lease obligations are classified as Long-Term Debt or Other within Current Liabilities on the Consolidated Balance Sheets. Amortization of assets recorded under capital leases is included in Depreciation and amortization and Fuel used in electric generation on the Consolidated Statements of Operations. The following table presents rental expense for operating leases. These amounts are included in Operation, maintenance and other on the Consolidated Statements of Operations. Duke Energy Ohio 2017 2018 2019 2020 2021 Thereafter $ 371 308 286 269 267 1,595 $ Total $ 3,096 $ 52 35 26 22 22 7 Years Ended December 31, 164 Operating and Capital Lease Commitments The Duke Energy Registrants lease office buildings, railcars, vehicles, computer equipment and other property and equipment with various terms and expiration dates. Additionally, Duke Energy Progress has a capital lease related to firm gas pipeline transportation capacity. Duke Energy Progress and Duke Energy Florida have entered into certain purchased power agreements, (in millions) 2016 2015 2014 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $242 45 140 68 72 16 23 $313 41 230 149 81 13 20 $ 350 41 257 161 96 17 21 The following table presents future minimum lease payments under operating leases, which at inception had a non-cancelable term of more than one year. December 31, 2016 (in millions) Duke Energy Duke Energy Carolinas Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 2017 2018 2019 2020 2021 Thereafter $ 218 205 181 164 134 948 $ 41 35 27 23 17 52 $ 129 126 120 109 91 602 $ 75 73 68 58 43 379 $ 54 53 52 51 48 223 $ 12 11 7 6 4 7 $20 17 11 10 6 9 Total $1,850 $195 $ 1,177 $696 $481 $ 47 $73 Progress Energy The following table presents future minimum lease payments under capital leases. December 31, 2016 Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 6 6 6 5 1 30 $ 46 46 45 46 45 322 $ 21 21 20 22 20 250 $ 25 25 25 25 25 71 $ 4 3 1 — — — $ 1 2 1 1 1 41 1,562 (462) 54 (32) 550 (265) 354 (212) 196 (53) 8 (1) $ 1,100 $ 22 $ 285 $ 142 $ 143 $ 7 (in millions) Duke Energy 2017 2018 2019 2020 2021 Thereafter $ 148 154 154 159 163 784 Minimum annual payments Less: amount representing interest Total 139 Duke Energy Carolinas $ 47 (36) $ 11 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 6. DEBT AND CREDIT FACILITIES SUMMARY OF DEBT AND RELATED TERMS The following tables summarize outstanding debt. December 31, 2016 (in millions) Weighted Average Interest Rate Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Unsecured debt, maturing 2017 - 2073 Secured debt, maturing 2017 - 2037 First mortgage bonds, maturing 2017 - 2046(a) Capital leases, maturing 2018 - 2051(b) Tax-exempt bonds, maturing 2017 - 2041(c) Notes payable and commercial paper(d) Money pool/intercompany borrowings(e) Fair value hedge carrying value adjustment Unamortized debt discount and premium, net(f) Unamortized debt issuance costs(g) 4.30% 2.60% 4.61% 4.48% 2.84% 1.01% $ 17,812 3,909 21,879 1,100 1,053 3,112 — 6 1,753 (242) $ 1,150 425 7,410 22 355 — 300 6 (20) (45) $ 3,551 1,819 10,800 285 48 — 1,902 — (31) (104) $ — 300 6,425 142 48 — 150 — (16) (38) $ 150 1,519 4,375 143 — — 297 — (10) (52) $ 810 — 1,000 7 77 — 41 — (28) (7) $ 415 — 2,669 11 572 — 150 — (9) (22) Total debt 4.07% $ 50,382 $ 9,603 $ 18,270 $ 7,011 $ 6,422 $ 1,900 $ 3,786 (2,487) — (2,319) $ 45,576 — — (116) $ 9,487 — (729) (778) $ 16,763 — — (452) $ 6,559 — (297) (326) $ 5,799 — (16) (1) $ 1,883 — — (3) $ 3,783 Short-term notes payable and commercial paper Short-term money pool/intercompany borrowings Current maturities of long-term debt(h) Total long-term debt(h) (a) Substantially all electric utility property is mortgaged under mortgage bond indentures. (b) Duke Energy includes $98 million and $670 million of capital lease purchase accounting adjustments related to Duke Energy Progress and Duke Energy Florida, respectively, related to power purchase agreements that are not accounted for as capital leases in their respective financial statements because of grandfathering provisions in GAAP. (c) Substantially all tax-exempt bonds are secured by first mortgage bonds or letters of credit. (d) Includes $625 million that was classified as Long-Term Debt on the Consolidated Balance Sheets due to the existence of long-term credit facilities that backstop these commercial paper balances, along with Duke Energy’s ability and intent to refinance these balances on a long-term basis. The weighted average days to maturity for Duke Energy and Piedmont’s commercial paper programs were 14 days and eight days, respectively. (e) Progress Energy amount includes a $1 billion intercompany loan related to the sale of the International Disposal Group. See Note 2 for further discussion of the sale. (f) Duke Energy includes $1,653 million and $197 million in purchase accounting adjustments related to Progress Energy and Piedmont, respectively. (g) Duke Energy includes $53 million in purchase accounting adjustments primarily related to the merger with Progress Energy. (h) Refer to Note 17 for additional information on amounts from consolidated VIEs. 140 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) December 31, 2015 (in millions) Weighted Average Interest Rate Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Unsecured debt, maturing 2016 - 2073 Secured debt, maturing 2016 - 2037 First mortgage bonds, maturing 2016 - 2045(a) Capital leases, maturing 2016 - 2051(b) Tax-exempt bonds, maturing 2017 - 2041(c) Notes payable and commercial paper(d) Money pool/intercompany borrowings Fair value hedge carrying value adjustment Unamortized debt discount and premium, net(e) Unamortized debt issuance costs(f) 4.68% 2.37% 4.74% 5.39% 2.59% 0.88% $ 12,960 2,361 18,980 1,335 1,053 4,258 — 6 1,712 (164 ) $ 1,152 425 6,161 24 355 — 300 6 (17) (39) $ 3,850 479 9,750 300 48 — 1,458 — (28) (85) $ — 254 5,975 144 48 — 359 — (16) (37) $ 150 225 3,775 156 — — 813 — (8) (32) $ 765 — 750 13 77 — 128 — (28) (4) $ 740 — 2,319 14 572 — 150 — (8) (19) Total debt 4.15% $ 42,501 $ 8,367 $ 15,772 $ 6,727 $ 5,079 $ 1,701 $ 3,768 (3,633) — (2,026) $ 36,842 — — (356) $ 8,011 — (1,308) (315) $ 14,149 — (209) (2) $ 6,516 — (813) (13) $ 4,253 — (103) (106) $ 1,492 — — (547) $ 3,221 Short-term notes payable and commercial paper Short-term money pool/intercompany borrowings Current maturities of long-term debt(g) Total long-term debt(g) (a) Substantially all electric utility property is mortgaged under mortgage bond indentures. (b) Duke Energy includes $114 million and $731 million of capital lease purchase accounting adjustments related to Duke Energy Progress and Duke Energy Florida, respectively, related to power purchase agreements that are not accounted for as capital leases in their respective financial statements because of grandfathering provisions in GAAP. (c) Substantially all tax-exempt bonds are secured by first mortgage bonds or letters of credit. (d) Includes $625 million that was classified as Long-Term Debt on the Consolidated Balance Sheets due to the existence of long-term credit facilities that backstop these commercial paper balances, along with Duke Energy’s ability and intent to refinance these balances on a long-term basis. The weighted average days to maturity for commercial paper was 15 days. (e) Duke Energy includes $1,798 million in purchase accounting adjustments related to the merger with Progress Energy. (f) Duke Energy includes $59 million in purchase accounting adjustments primarily related to the merger with Progress Energy. (g) Refer to Note 17 for additional information on amounts from consolidated VIEs. CURRENT MATURITIES OF LONG-TERM DEBT The following table shows the significant components of Current maturities of Long-Term Debt on the Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings. (in millions) Unsecured Debt Duke Energy (Parent) Duke Energy (Parent) Piedmont Natural Gas First Mortgage Bonds Duke Energy Progress Duke Energy Florida Duke Energy Progress Secured Duke Energy Duke Energy Tax-exempt Bonds Duke Energy Carolinas Duke Energy Carolinas Duke Energy Carolinas Other(a) Maturity Date Interest Rate December 31, 2016 April 2017 August 2017 September 2017 1.226% 1.625% 8.510% March 2017 September 2017 November 2017 1.146% 5.800% 1.111% 250 250 200 June 2017 June 2017 2.365% 2.260% 45 34 February 2017 February 2017 February 2017 3.600% 0.810% 0.790% 77 10 25 293 $ 400 700 35 $ 2,319 Current maturities of long-term debt (a) Includes capital lease obligations, amortizing debt and small bullet maturities. 141 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Maturities and Call Options The following table shows the annual maturities of long-term debt for the next five years and thereafter. Amounts presented exclude short-term notes payable and commercial paper and money pool borrowings for the Subsidiary Registrants. December 31, 2016 (in millions) Duke Energy(a) Duke Energy Carolinas Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 2017 2018 2019 2020 2021 Thereafter $ 2,319 3,466 3,316 2,112 3,699 31,090 $ 116 1,629 5 755 501 6,597 $ 778 559 1,992 469 1,473 12,270 $ 452 — 902 152 602 4,903 $ 326 561 292 319 372 4,255 $ $ Total long-term debt, including current maturities $ 46,002 $ 9,603 $ 17,541 $ 7,011 $ 6,125 $ 1,884 Progress Energy 1 3 551 25 49 1,255 3 3 63 653 70 2,994 $ 3,786 (a) Excludes $1,893 million in purchase accounting adjustments related to the Progress Energy merger and the Piedmont acquisition. The Duke Energy Registrants have the ability under certain debt facilities to call and repay the obligation prior to its scheduled maturity. Therefore, the actual timing of future cash repayments could be materially different than as presented above. Short-Term Obligations Classified as Long-Term Debt Tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder and certain commercial paper issuances and money pool borrowings are classified as Long-Term Debt on the Consolidated Balance Sheets. These tax-exempt bonds, commercial paper issuances and money pool borrowings, which are short-term obligations by nature, are classified as long term due to Duke Energy’s intent and ability to utilize such borrowings as long-term financing. As Duke Energy’s Master Credit Facility and other bilateral letter of credit agreements have non-cancelable terms in excess of one year as of the balance sheet date, Duke Energy has the ability to refinance these short-term obligations on a long-term basis. The following tables show short-term obligations classified as long-term debt. December 31, 2016 (in millions) Tax-exempt bonds Commercial paper(a) Total Duke Energy Duke Energy Carolinas Duke Energy Progress Duke Energy Ohio Duke Energy Indiana $ 347 625 $ 35 300 $ — 150 $ 27 25 $ 285 150 $ 972 $ 335 $ 150 $ 52 $ 435 Duke Energy Duke Energy Carolinas Duke Energy Progress Duke Energy Ohio Duke Energy Indiana $ 347 625 $ 35 300 $ — 150 $ 27 25 $ 285 150 $ 972 $ 335 $ 150 $ 52 $ 435 December 31, 2015 (in millions) Tax-exempt bonds Commercial paper Total (a) (a) Progress Energy amounts are equal to Duke Energy Progress amounts. SUMMARY OF SIGNIFICANT DEBT ISSUANCES Piedmont Acquisition Financing In August 2016, Duke Energy issued $3.75 billion of senior unsecured notes in three separate series. The net proceeds were used to finance a portion of the Piedmont acquisition. The $4.9 billion Bridge Facility was terminated following the issuance of this debt. See Note 2 for additional information on the Piedmont acquisition. 142 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Nuclear Asset-Recovery Bonds to Duke Energy. Tranche B of $105 million is secured by an Equity Contribution Agreement with Duke Energy. Proceeds were used to reimburse Duke Energy for a portion of previously funded construction expenditures related to the Emerald State Solar, LLC portfolio. The initial interest rate on the loans was six months London Interbank Offered Rate (LIBOR) plus an applicable margin of 1.75 percent plus a 0.125 percent increase every three years thereafter. In connection with this debt issuance, Emerald State Solar, LLC entered into two interest rate swaps to convert the substantial majority of the loan interest payments from variable rates to fixed rates of approximately 1.81 percent for Tranche A and 1.38 percent for Tranche B, plus the applicable margin. See Note 14 for further information on the notional amounts of the interest rate swaps. In June 2016, DEFPF issued $1,294 million of nuclear asset-recovery bonds and used the proceeds to acquire nuclear asset-recovery property from its parent, Duke Energy Florida. The nuclear asset-recovery bonds are payable only from and secured by the nuclear asset-recovery property. DEFPF is consolidated for financial reporting purposes; however, the nuclear asset-recovery bonds do not constitute a debt, liability or other legal obligation of, or interest in, Duke Energy Florida or any of its affiliates other than DEFPF. The assets of DEFPF, including the nuclear asset-recovery property, are not available to pay creditors of Duke Energy Florida or any of its affiliates. Duke Energy Florida used the proceeds from the sale to repay short-term borrowings under the intercompany money pool borrowing arrangement and make an equity distribution of $649 million to the ultimate parent, Duke Energy (Parent), which repaid short-term borrowings. See Notes 4 and 17 for additional information. Duke Energy Florida Bond Issuance In January 2017, Duke Energy Florida issued $900 million of first mortgage bonds. The issuance was split between a $250 million, three-year series and a $650 million, 10-year series. The net proceeds from the issuance were used to repay at maturity $250 million aggregate principal amount of bonds due September 2017, as well as to fund capital expenditures for ongoing construction and capital maintenance and for general corporate purposes. The following tables summarize significant debt issuances (in millions). Solar Facilities Financing In August 2016, Emerald State Solar, LLC, an indirect wholly owned subsidiary of Duke Energy, entered into a $333 million portfolio financing of approximately 22 North Carolina Solar facilities. Tranche A of $228 million is secured by substantially all the assets of the solar facilities and is nonrecourse Year Ended December 31, 2016 Issuance Date Unsecured Debt April 2016(a) August 2016 August 2016 August 2016 Secured Debt June 2016(b) June 2016(b) June 2016(b) June 2016(b) June 2016(b) August 2016 August 2016 First Mortgage Bonds March 2016(c) March 2016(c) May 2016(d) June 2016(c) September 2016(e) September 2016(c) November 2016(f) Total issuances (a) (b) (c) (d) (e) (f) Duke Energy (Parent) Duke Energy Carolinas $ $ Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Maturity Date Interest Rate Duke Energy April 2023 September 2021 September 2026 September 2046 2.875% 1.800% 2.650% 3.750% $ 350 750 1,500 1,500 March 2020 September 2022 September 2029 March 2033 September 2036 June 2034 June 2020 1.196% 1.731% 2.538% 2.858% 3.112% 2.747% 2.747% 183 150 436 250 275 228 105 — — — — — — — — — — — — — — — — — — — — — 183 150 436 250 275 — — — — — — — — — — — — — — — — March 2023 March 2046 May 2046 June 2046 October 2046 October 2046 December 2026 2.500% 3.875% 3.750% 3.700% 3.400% 3.700% 2.950% 500 500 500 250 600 450 600 — — — — — — — 500 500 — — — — 600 — — — — — 450 — — — — — 600 — — — — — 250 — — — — — 500 — — — — $ 9,127 $ 4,100 $ 1,600 450 $ 1,894 350 750 1,500 1,500 — — — — $ $ — — — — $ — — — — $ $ — — — — 250 $ $ — — — — 500 Proceeds were used to pay down outstanding commercial paper and for general corporate purposes. The nuclear asset-recovery bonds are sequential pay amortizing bonds. The maturity date above represents the scheduled final maturity date for the bonds. Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance and for general corporate purposes. Proceeds were used to repay $325 million of unsecured debt due June 2016, $150 million of first mortgage bonds due July 2016 and for general corporate purposes. Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance, to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes. Proceeds were used to repay at maturity $350 million aggregate principal amount of certain bonds due December 2016, as well as to fund capital expenditures for ongoing construction and capital maintenance and for general corporate purposes. 143 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Year Ended December 31, 2015 Issuance Date Unsecured Debt November 2015(a)(b) November 2015(a)(b) First Mortgage Bonds March 2015(c) August 2015(a)(d) August 2015(a)(d) Maturity Date Interest Rate April 2024 December 2045 3.750 % 4.800 % June 2045 August 2025 August 2045 3.750 % 3.250 % 4.200 % Total issuances (a) (b) (c) (d) Duke Energy (Parent) Duke Energy $ 400 600 $ 400 600 500 500 700 — — — $ 2,700 $ 1,000 Duke Energy Carolinas $ — — Duke Energy Progress $ 500 — — $ 500 — — — 500 700 $ 1,200 Proceeds were used to repay short-term money pool and commercial paper borrowing issued to fund a portion of the NCEMPA acquisition, see Note 2 for further information. Proceeds were used to refinance at maturity $300 million of unsecured notes at Progress Energy due January 2016. Proceeds were used to redeem at maturity $500 million of first mortgage bonds due October 2015. Proceeds were used to refinance at maturity $400 million of first mortgage bonds due December 2015. Energy Carolinas and Duke Energy Progress are also required to each maintain $250 million of available capacity under the Master Credit Facility as security to meet obligations under plea agreements reached with the U.S. Department of Justice in 2015 related to violations at North Carolina facilities with ash basins. Piedmont has a separate five-year revolving syndicated credit facility, with a capacity of $850 million through December 2020 and an expansion option of up to an additional $200 million. The facility provides a line of credit for letters of credit of $10 million. The table below includes the current borrowing sublimits and available capacity under these credit facilities. AVAILABLE CREDIT FACILITIES Duke Energy has a Master Credit Facility with a capacity of $7.5 billion through January 2020. The Duke Energy Registrants, excluding Progress Energy (Parent) and Piedmont, have borrowing capacity under the Master Credit Facility up to specified sublimits for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. Duke December 31, 2016 (in millions) Facility size(b) Reduction to backstop issuances Commercial paper(c) Outstanding letters of credit Tax-exempt bonds Coal ash set-aside Available capacity Duke Energy (Parent) Duke Energy(a) $ 8,350 (2,022) (78) (116) (500) $ 5,634 $ 3,400 $ (977) (69) — — 2,354 Duke Energy Carolinas $ 1,100 $ (300) (4) (35) (250) 511 Duke Energy Progress $ 1,000 $ (150) (2) — (250) 598 Duke Energy Florida Duke Energy Ohio $ 950 $ 450 $ (84) (1) — — 865 $ (31) — — — 419 Duke Energy Indiana $ 600 $ (150) — (81) — 369 (a) Includes amounts related to Piedmont’s $850 million credit facility. (b) Represents the sublimit of each borrower. (c) Duke Energy issued $625 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana. The balances are classified as Long-Term Debt Payable to Affiliated Companies in the Consolidated Balance Sheets. 144 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Term Loan Facility Money Pool In 2016, Duke Energy (Parent) entered into a $1.5 billion term loan facility, as amended (Term Loan) maturing on July 31, 2017. During 2016, Duke Energy (Parent) drew the full amount available under the Term Loan and used $750 million of proceeds to fund a portion of the Piedmont acquisition and the remaining $750 million to manage short-term liquidity and for general corporate purposes. The terms and conditions of the Term Loan are generally consistent with those governing Duke Energy’s Master Credit Facility. In December 2016, Duke Energy (Parent) repaid the $1.5 billion term loan which terminated this credit facility. The Subsidiary Registrants, excluding Progress Energy, are eligible to receive support for their short-term borrowing needs through participation with Duke Energy and certain of its subsidiaries in a money pool arrangement. Under this arrangement, those companies with short-term funds may provide short-term loans to affiliates participating in this arrangement. The money pool is structured such that the Subsidiary Registrants, excluding Progress Energy, separately manage their cash needs and working capital requirements. Accordingly, there is no net settlement of receivables and payables between money pool participants. Duke Energy (Parent), may loan funds to its participating subsidiaries, but may not borrow funds through the money pool. Accordingly, as the money pool activity is between Duke Energy and its wholly owned subsidiaries, all money pool balances are eliminated within Duke Energy’s Consolidated Balance Sheets. Money pool receivable balances are reflected within Notes receivable from affiliated companies on the Subsidiary Registrants’ Consolidated Balance Sheets. Money pool payable balances are reflected within either Notes payable to affiliated companies or Long-Term Debt Payable to Affiliated Companies on the Subsidiary Registrants’ Consolidated Balance Sheets. Other Debt Matters In September 2016, Duke Energy filed a Registration statement (Form S-3) with the SEC. Under this Form S-3, which is uncapped, the Duke Energy Registrants, excluding Progress Energy, may issue debt and other securities in the future at amounts, prices and with terms to be determined at the time of future offerings. The registration statement was filed to replace a similar prior filing upon expiration of its three-year term and also allows for the issuance of common stock by Duke Energy. Duke Energy has an effective Form S-3 with the SEC to sell up to $3 billion of variable denomination floating-rate demand notes, called PremierNotes. The Form S-3 states that no more than $1.5 billion of the notes will be outstanding at any particular time. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, are non-transferable and may be redeemed in whole or in part by Duke Energy or at the investor’s option at any time. The balance as of December 31, 2016 and 2015 was $1,090 million and $1,121 million, respectively. The notes are short-term debt obligations of Duke Energy and are reflected as Notes payable and commercial paper on Duke Energy’s Consolidated Balance Sheets. In January 2017, Duke Energy amended its Form S-3 to add Piedmont as a registrant and included in the amendment a prospectus for Piedmont under which it may issue debt securities in the same manner as other Duke Energy Registrants. Duke Energy guaranteed debt issued by Duke Energy Carolinas of $762 million and $767 million, respectively, as of December 31, 2016 and 2015. Restrictive Debt Covenants The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. Duke Energy’s Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio not to exceed 65 percent for each borrower. Piedmont’s credit facility contains a debt-to-total capitalization ratio covenant not to exceed 70 percent. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of December 31, 2016, each of the Duke Energy Registrants were in compliance with all covenants related to their debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses. Other Loans As of December 31, 2016 and 2015, Duke Energy had loans outstanding of $661 million, including $39 million at Duke Energy Progress and $629 million, including $41 million at Duke Energy Progress, respectively, against the cash surrender value of life insurance policies it owns on the lives of its executives. The amounts outstanding were carried as a reduction of the related cash surrender value that is included in Other within Investments and Other Assets on the Consolidated Balance Sheets. 7. GUARANTEES AND INDEMNIFICATIONS Duke Energy and Progress Energy have various financial and performance guarantees and indemnifications, which are issued in the normal course of business. As discussed below, these contracts include performance guarantees, stand-by letters of credit, debt guarantees, surety bonds and indemnifications. Duke Energy and Progress Energy enter into these arrangements to facilitate commercial transactions with third parties by enhancing the value of the transaction to the third party. At December 31, 2016, Duke Energy and Progress Energy do not believe conditions are likely for significant performance under these guarantees. To the extent liabilities are incurred as a result of the activities covered by the guarantees, such liabilities are included on the accompanying Consolidated Balance Sheets. On January 2, 2007, Duke Energy completed the spin-off of its natural gas businesses to shareholders. Guarantees issued by Duke Energy or its affiliates, or assigned to Duke Energy prior to the spin-off, remained with Duke Energy subsequent to the spin-off. Guarantees issued by Spectra Energy Capital, LLC (Spectra Capital) or its affiliates prior to the spin-off remained with Spectra Capital subsequent to the spin-off, except for guarantees that were later assigned to Duke Energy. Duke Energy has indemnified Spectra Capital against any losses incurred under certain of the guarantee obligations that remain with Spectra Capital. At December 31, 2016, the maximum potential amount of future payments associated with these guarantees was $205 million, the majority of which expires by 2028. 145 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy has issued performance guarantees to customers and other third parties that guarantee the payment and performance of other parties, including certain non-wholly owned entities, as well as guarantees of debt of certain non-consolidated entities and less than wholly owned consolidated entities. If such entities were to default on payments or performance, Duke Energy would be required under the guarantees to make payments on the obligations of the less than wholly owned entity. The maximum potential amount of future payments required under these guarantees as of December 31, 2016, was $333 million. Of this amount, $11 million relates to guarantees issued on behalf of less than wholly owned consolidated entities, with the remainder related to guarantees issued on behalf of third parties and unconsolidated affiliates of Duke Energy. Of the guarantees noted above, $215 million of the guarantees expire between 2017 and 2033, with the remaining performance guarantees having no contractual expiration. Duke Energy has guaranteed certain issuers of surety bonds, obligating itself to make payment upon the failure of a wholly owned and former nonwholly owned entity to honor its obligations to a third party. Under these arrangements, Duke Energy has payment obligations that are triggered by a draw by the third party or customer due to the failure of the wholly owned or former non-wholly owned entity to perform according to the terms of its underlying contract. At December 31, 2016, Duke Energy had guaranteed $44 million of outstanding surety bonds, most of which have no set expiration. Duke Energy uses bank-issued stand-by letters of credit to secure the performance of wholly owned and non-wholly owned entities to a third party or customer. Under these arrangements, Duke Energy has payment obligations to the issuing bank which are triggered by a draw by the third party or customer due to the failure of the wholly owned or non-wholly owned entity to perform according to the terms of its underlying contract. At December 31, 2016, Duke Energy had issued a total of $485 million in letters of credit, which expire between 2017 and 2020. The unused amount under these letters of credit was $77 million. Duke Energy and Progress Energy have issued indemnifications for certain asset performance, legal, tax and environmental matters to third parties, including indemnifications made in connection with sales of businesses. At December 31, 2016, the estimated maximum exposure for these indemnifications was $96 million, the majority of which expires in 2017. Of this amount, $7 million has no contractual expiration. For certain matters for which Progress Energy receives timely notice, indemnity obligations may extend beyond the notice period. Certain indemnifications related to discontinued operations have no limitations as to time or maximum potential future payments. The following table includes the liabilities recognized for the guarantees discussed above. These amounts are primarily recorded in Other within Deferred Credits and other Liabilities on the Consolidated Balance Sheets. As current estimates change, additional losses related to guarantees and indemnifications to third parties, which could be material, may be recorded by the Duke Energy Registrants in the future. December 31, (in millions) 2016 2015 Duke Energy Progress Energy Duke Energy Florida $ 13 — — $ 21 7 7 8. JOINT OWNERSHIP OF GENERATING AND TRANSMISSION FACILITIES The Duke Energy Registrants maintain ownership interests in certain jointly owned generating and transmission facilities. The Duke Energy Registrants are entitled to a share of the generating capacity and output of each unit equal to their respective ownership interests. The Duke Energy Registrants pay their ownership share of additional construction costs, fuel inventory purchases and operating expenses. The Duke Energy Registrants share of revenues and operating costs of the jointly owned facilities is included within the corresponding line in the Consolidated Statements of Operations. Each participant in the jointly owned facilities must provide its own financing. The following table presents the Duke Energy Registrants’ interest of jointly owned plant or facilities and amounts included on the Consolidated Balance Sheets. All facilities are operated by the Duke Energy Registrants and are included in the Electric Utilities and Infrastructure segment. December 31, 2016 (in millions except for ownership interest) Duke Energy Carolinas Catawba Nuclear Station (units 1 and 2)(a) Duke Energy Ohio Transmission facilities(b) Duke Energy Indiana Gibson Station (unit 5)(c) Vermillion Generating Station(d) Transmission and local facilities(c) (a) (b) (c) (d) Jointly owned with North Carolina Municipal Power Agency Number 1, NCEMC and Piedmont Municipal Power Agency. Jointly owned with America Electric Power Generation Resources and The Dayton Power and Light Company. Jointly owned with Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency. Jointly owned with WVPA. 146 Ownership Interest Property, Plant and Equipment Accumulated Depreciation Construction Work in Progress 19.25% $ 954 $ 612 Various 90 60 1 50.05% 62.5% Various 333 154 4,315 157 111 1,715 11 — — $ 12 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) On August 31, 2016, Duke Energy Florida completed the purchase of Georgia Power Company’s (GPC) ownership interest in Intercession City Station Unit 11 for an amount equal to GPC’s net book value of the facility as of the transaction close date. Following the purchase, Duke Energy Florida controls the entire output of the facility. At December 31, 2016, Duke Energy Florida owns 100 percent of the retired Crystal River Unit 3. Duke Energy Florida completed the purchase of 9. 1.7 percent ownership interest from Seminole Electric Cooperative, Inc. on November 30, 2016. On October 30, 2015, Duke Energy Florida completed the purchase of 6.52 percent ownership interest from the Florida Municipal Joint Owners and settled other disputes for $55 million. All costs associated with Crystal River Unit 3 are included within Regulatory assets on the Consolidated Balance Sheets of Duke Energy, Progress Energy and Duke Energy Florida. See Note 4 for additional information. ASSET RETIREMENT OBLIGATIONS Duke Energy records an ARO when it has a legal obligation to incur retirement costs associated with the retirement of a long-lived asset and the obligation can be reasonably estimated. Certain assets of the Duke Energy Registrants’ have an indeterminate life, such as transmission and distribution facilities, and thus the fair value of the retirement obligation is not reasonably estimable. A liability for these AROs will be recorded when a fair value is determinable. The Duke Energy Registrants’ regulated operations accrue costs of removal for property that does not have an associated legal retirement obligation based on regulatory orders from state commissions. These costs of removal are recorded as a regulatory liability in accordance with regulatory accounting treatment. The Duke Energy Registrants do not accrue the estimated cost of removal for any nonregulated assets. See Note 4 for the estimated cost of removal for assets without an associated legal retirement obligation, which are included in Regulatory liabilities on the Consolidated Balance Sheets. The following table presents the AROs recorded on the Consolidated Balance Sheets. December 31, 2016 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Decommissioning of Nuclear Power Facilities(a) Closure of Ash Impoundments Other(b) Total asset retirement obligation Less: current portion $ 5,204 5,150 $ 1,834 2,032 $ 3,172 2,228 $ 2,454 2,209 $ 717 19 $ — 43 $ 257 $ 10,611 411 29 $ 3,895 222 75 $ 5,475 189 34 $ 4,697 189 42 $ 778 — $ 34 77 — 19 $ 866 — Total noncurrent asset retirement obligation $ 10,200 $ 3,673 $ 5,286 $ 4,508 $ 778 $ 77 $ 866 (in millions) — 847 (a) The Duke Energy amount includes purchase accounting adjustments related to the merger with Progress Energy. (b) Primarily includes obligations related to asbestos removal and the closure of certain landfills at fossil generation facilities. Duke Energy Ohio also includes AROs related to the retirement of natural gas mains and services. Duke Energy includes AROs related to the removal of renewable energy generation assets and Piedmont’s underground natural gas mains and services. t Requires dry disposal of bottom ash at active plants, excluding the Asheville Plant, by December 31, 2019, or retirement of active plants; North Carolina Ash Basins AROs recorded on the Duke Energy Carolinas and Duke Energy Progress Consolidated Balance Sheets 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. In 2014 the Coal Ash Act became law and was amended on June 24, 2015, and July 14, 2016. The Coal Ash Act, as amended, t Establishes requirements to deal with groundwater and surface water impacts from impoundments; and t Increases the level of regulation for structural fills utilizing coal ash. High-risk basins (Asheville, Sutton, Riverbend and Dan River) require closure through excavation, including a combination of transferring the ash to an appropriate engineered landfill or conversion of the ash for beneficial use. Closure of high risk basins is required to be completed no later than August 1, 2019, except for Asheville which is required to be completed no later than August 1, 2022. Intermediate-risk basins require closure through excavation including a combination of converting the basin to a lined industrial landfill, transferring of the ash to an appropriate engineered landfill or conversion of the ash for beneficial use. Closure of intermediate-risk basins is required to be completed no later than December 31, 2024, except for H.F. Lee, Cape Fear and Weatherspoon to be completed no later than August 1, 2028. t Prohibits construction of new and expansion of existing ash impoundments and use of existing impoundments at retired facilities; t Requires ash impoundments in North Carolina to be categorized as high risk, intermediate risk or low risk by the NCDEQ with the method of closure and timing to be based upon the assigned risk, with closure no later than December 31, 2029 (see below for category descriptions); t Classifies Duke Energy Progress’ Asheville and Sutton plants and Duke Energy Carolinas’ Riverbend and Dan River stations as high risk; t Requires dry disposal of fly ash at active plants, excluding the Asheville Plant, not retired by December 31, 2018; 147 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Low-risk basins require closure through either the combination of the installation and maintenance of a cap system and groundwater monitoring system designed to minimize infiltration and erosion or other closure options available to intermediate-risk basins. Closure of low-risk basins is required to be completed no later than December 31, 2029. In January 2016, the NCDEQ published draft risk classifications for sites not specifically delineated by the Coal Ash Act as high risk. These risk rankings were generally determined based on three primary criteria: structural integrity of the impoundments and impacts to surface water and to groundwater. The NCDEQ’s draft proposed classifications categorized 12 basins at four sites as intermediate risk and four basins at three sites as low risk. The NCDEQ’s draft proposed classifications also categorized nine basins at six sites as “lowto-intermediate” risk, thereby not assigning a definitive risk ranking at that time. On May 18, 2016, the NCDEQ issued new proposed risk classifications, proposing to rank all originally proposed low risk and “low-to-intermediate” risk sites as intermediate. On July 14, 2016, the former governor of North Carolina signed legislation which amended the Coal Ash Act and required Duke Energy to undertake dam improvement projects and to provide access to a permanent alternative drinking water source to certain residents within a half mile of coal ash basin compliance boundaries and to certain other potentially impacted residents. The new legislation also ranks basins at the H.F. Lee, Cape Fear and Weatherspoon stations as intermediate risk consistent with Duke Energy’s previously announced plans to excavate those basins. These specific intermediate basins require closure through excavation including a combination of transferring ash to an appropriate engineered landfill or conversion of the ash for beneficial use. Closure of these specific intermediate basins is required to be completed no later than August 1, 2028. Upon satisfactory completion of the dam improvement projects and installation of alternative drinking water sources by October 15, 2018, the legislation requires the NCDEQ to reclassify sites proposed as intermediate risk, excluding H.F. Lee, Cape Fear and Weatherspoon, as low risk. In January 2017, NCDEQ issued preliminary approval of Duke Energy’s plans for the alternative water sources. Per the Coal Ash Act, final proposed classifications were to be subject to Coal Ash Management Commission (Coal Ash Commission) approval. In March 2016, the Coal Ash Commission created by the Coal Ash Act was disbanded by the former governor of North Carolina based on a North Carolina Supreme Court ruling regarding the constitutionality of the body. The July 2016 legislation eliminates the Coal Ash Commission and transfers responsibility for ash basin closure oversight to the NCDEQ. Additionally, the July 2016 legislation requires the installation and operation of three large-scale coal ash beneficiation projects which are expected to produce reprocessed ash for use in the concrete industry. Closure of basins at sites with these beneficiation projects are required to be completed no later than December 31, 2029. On October 5, 2016, Duke Energy announced Buck Steam Station as a first location for one of the beneficiation projects. On December 13, 2016, Duke Energy announced H.F. Lee as the second location. Duke Energy intends to announce the third location by July 1, 2017. The Coal Ash Act includes a variance procedure for compliance deadlines and other issues surrounding the management of CCR and CCR surface impoundments. Provisions of the Coal Ash Act prohibit cost recovery in customer rates for unlawful discharge of ash impoundment waters occurring after January 1, 2014. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of ash impoundments to the normal ratemaking processes before utility regulatory commissions. Consistent with the requirements of the Coal Ash Act, Duke Energy has submitted CSAs and groundwater corrective action plans to NCDEQ and will submit to NCDEQ site-specific coal ash impoundment closure plans in advance of closure. These plans and all associated permits must be approved by NCDEQ before any closure work can begin. Federal Coal Combustion Residuals Regulation In April 2015, the EPA published a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation classifies CCR as nonhazardous waste and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments that are no longer receiving CCR but contain liquid located at stations currently generating electricity (regardless of fuel source). The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. As a result of the EPA rule, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana recorded additional ARO amounts during 2015. In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. In September 2014, Duke Energy Carolinas executed a consent agreement with the South Carolina Department of Health and Environmental Control (SCDHEC) requiring the excavation of an inactive ash basin and ash fill area at the W.S. Lee Steam Station. As part of this agreement, in December 2014, Duke Energy Carolinas filed an ash removal plan and schedule with SCDHEC. In April 2015, the federal CCR rules were published and Duke Energy Carolinas subsequently executed an agreement with the conservation groups Upstate Forever and Save Our Saluda that requires Duke Energy Carolinas to remediate all active and inactive ash storage areas at the W.S. Lee Steam Station. Coalfired generation at W.S. Lee ceased in 2014 and unit 3 was converted to natural gas in March 2015. In July 2015, Duke Energy Progress executed a consent agreement with the SCDHEC requiring the excavation of an inactive ash fill area at the Robinson Plant within eight years. Coal ash impoundments at the Robinson Plant and W.S. Lee Station sites are required to be closed pursuant to the CCR rule and the provisions of these consent agreements are consistent with the federal CCR closure requirements. Coal Ash Liability The ARO amount recorded on the Consolidated Balance Sheets is based upon estimated closure costs for impacted ash impoundments. The amount recorded represents the discounted cash flows for estimated closure costs based upon either specific closure plans or the probability weightings of the potential closure methods as evaluated on a site-by-site basis. Actual costs to be incurred will be dependent upon factors that vary from site to site. The most significant factors are the method and time frame of closure at the individual sites. Closure methods considered include removing the water from the basins, consolidating material as necessary and capping the ash with a synthetic barrier, excavating and relocating the ash to a lined structural fill or lined landfill, or recycling the ash for concrete or some other beneficial use. The ultimate method and timetable for closure will be in compliance with standards set by federal and state regulations. The ARO amount will be adjusted as additional information is gained through the closure and post-closure process, including acceptance and approval of compliance approaches which may change management assumptions, and may result in a material change to the balance. See ARO Liability Rollforward section below for information about revisions made to the coal ash liability during 2016. 148 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Asset retirement costs associated with the AROs for operating plants and retired plants are included in Net property, plant and equipment and Regulatory assets, respectively, on the Consolidated Balance Sheets. See Note 4 for additional information on Regulatory assets related to AROs. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. an exemption from the NRC which allows for use of the NDTF for all aspects of nuclear decommissioning. Therefore, the entire balance of Duke Energy Florida’s NDTF may be applied toward license termination, spent fuel and site restoration costs incurred to decommission Crystal River Unit 3. December 31, (in millions) Duke Energy Duke Energy Carolinas Duke Energy Progress Nuclear Decommissioning Liability AROs related to nuclear decommissioning are based on site-specific cost studies. The NCUC, PSCSC and FPSC require updated cost estimates for decommissioning nuclear plants every five years. The following table summarizes information about the most recent site-specific nuclear decommissioning cost studies. Decommissioning costs in the table below are presented in dollars of the year of the cost study and include costs to decommission plant components not subject to radioactive contamination. (in millions) Duke Energy Duke Energy Carolinas Duke Energy Progress Duke Energy Florida Annual Funding Requirement(a) Decommissioning Costs(a)(b) Year of Cost Study $ 14 — 14 — $ 8,150 3,420 3,550 1,180 2013 and 2014 2013 2014 2013 2016 $ 5,099 2,882 2,217 2015 $ 4,670 2,686 1,984 See Note 16 for additional information related to the fair value of the Duke Energy Registrants’ NDTFs. Nuclear Operating Licenses Operating licenses for nuclear units are potentially subject to extension. The following table includes the current expiration of nuclear operating licenses. Unit Duke Energy Carolinas Catawba Units 1 and 2 McGuire Unit 1 McGuire Unit 2 Oconee Units 1 and 2 Oconee Unit 3 Duke Energy Progress Brunswick Unit 1 Brunswick Unit 2 Harris Robinson (a) Amounts for Progress Energy equal the sum of Duke Energy Progress and Duke Energy Florida. (b) Amounts include the Subsidiary Registrant’s ownership interest in jointly owned reactors. Other joint owners are responsible for decommissioning costs related to their interest in the reactors. Nuclear Decommissioning Trust Funds Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida each maintain NDTFs that are intended to pay for the decommissioning costs of the respective nuclear power plants. The NDTF investments are managed and invested in accordance with applicable requirements of various regulatory bodies including the NRC, FERC, NCUC, PSCSC, FPSC and the Internal Revenue Service (IRS). Use of the NDTF investments is restricted to nuclear decommissioning activities including license termination, spent fuel and site restoration. The license termination and spent fuel obligations relate to contaminated decommissioning and are recorded as AROs. The site restoration obligation relates to non-contaminated decommissioning and is recorded to cost of removal within Regulatory liabilities on the Consolidated Balance Sheets. The following table presents the fair value of NDTF assets legally restricted for purposes of settling AROs associated with nuclear decommissioning. Duke Energy Florida is actively decommissioning Crystal River Unit 3 and was granted Year of Expiration 2043 2041 2043 2033 2034 2036 2034 2046 2030 Duke Energy Florida has requested the NRC terminate the operating license for Crystal River Unit 3 as it permanently ceased operation in February 2013. Refer to Note 4 for further information on the Crystal River Unit 3 decommissioning activity and transition to SAFSTOR. ARO Liability Rollforward During 2016, the Duke Energy Registrants updated coal ash ARO liability estimates based on additional site-specific information about the related costs, methods and timing of work to be performed. Actual closure costs incurred could be materially different from current estimates that form the basis of the recorded AROs. 149 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) The following table presents changes in the liability associated with AROs. (in millions) Balance at December 31, 2014 $ Acquisitions(a) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio 8,464 $ 3,428 $ 4,711 $ 3,905 $ 806 $ 226 — 226 204 23 Duke Energy Indiana 27 $ 32 — — Accretion expense 380 165 203 169 34 4 15 Liabilities settled(c) (422) (200) (195) (125) (70) (4) (23) 1,016 178 282 282 — 116 418 585 347 142 132 9 (18) 83 10,249 3,918 5,369 4,567 802 125 525 — (b) Liabilities incurred in the current year(d) Revisions in estimates of cash flows Balance at December 31, 2015 22 — 2 — 2 — Accretion expense(b) 400 187 230 194 35 5 24 Liabilities settled(c) (613) (287) (272) (212) (60) (5) (49) Liabilities incurred in the current year 51 — 3 3 — — 29 Revisions in estimates of cash flows 502 77 143 145 (1) (48) 337 $ 10,611 $ 3,895 $ 5,475 $ 4,697 $ 778 77 $ 866 Acquisitions Balance at December 31, 2016 (a) (b) (c) (d) $ Duke Energy Progress amount relates to the NCEMPA acquisition. See Note 2 for additional information. Substantially all accretion expense for the years ended December 31, 2016 and 2015 relates to Duke Energy’s regulated electric operations and has been deferred in accordance with regulatory accounting treatment. Amounts primarily relate to ash impoundment closures and nuclear decommissioning of Crystal River Unit 3. Amounts primarily relate to AROs recorded as a result of the EPA’s rule for disposal of CCR. 10. PROPERTY, PLANT AND EQUIPMENT The following tables summarize the property, plant and equipment for Duke Energy and its subsidiary registrants. December 31, 2016 (in millions) Land Plant – Regulated Electric generation, distribution and transmission Natural gas transmission and distribution Other buildings and improvements Plant – Nonregulated Electric generation, distribution and transmission Other buildings and improvements Nuclear fuel Equipment Construction in process Other Total property, plant and equipment(a)(d) Total accumulated depreciation – regulated(b)(c)(d) Total accumulated depreciation – nonregulated(c)(d) Generation facilities to be retired, net Total net property, plant and equipment Estimated Useful Life (Years) Duke Energy Duke Energy Carolinas Progress Energy $ $ $ 1,501 432 735 Duke Energy Progress $ 393 Duke Energy Florida $ 342 Duke Energy Ohio $ 150 Duke Energy Indiana $ 106 8 - 100 12 - 67 15 - 100 89,864 7,738 1,692 34,515 — 502 37,596 — 634 23,683 — 293 13,913 — 341 4,593 2,456 211 13,160 — 197 5 - 30 25 - 35 4,298 421 3,572 1,941 6,186 4,184 — — 2,092 358 2,324 904 — — 1,480 505 2,708 1,206 — — 1,480 378 1,329 863 — — — 127 1,379 332 — — — 338 206 172 — — — 156 396 226 121,397 (37,831) (1,575) 529 41,127 (14,365) — — 44,864 (15,212) — 529 28,419 (10,561) — 529 16,434 (4,644) — — 8,126 (2,579) — — 14,241 (4,317) — — $ 82,520 $ 26,762 $ 30,181 $ 18,387 $11,790 $ 5,547 $ 9,924 3 - 38 5 - 40 (a) Includes capitalized leases of $1,355 million, $40 million, $288 million, $142 million, $146 million, $81 million and $35 million at Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana, respectively, primarily within Plant – Regulated. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of $99 million, $9 million and $90 million, respectively, of accumulated amortization of capitalized leases. (b) Includes $1,922 million, $1,192 million, $730 million and $730 million of accumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively. (c) Includes accumulated amortization of capitalized leases of $50 million, $9 million, $19 million and $8 million at Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana, respectively. (d) Includes gross property, plant and equipment cost of consolidated VIEs of $2,591 million and accumulated depreciation of consolidated VIEs of $411 million at Duke Energy. 150 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) December 31, 2015 (in millions) Land Plant – Regulated Electric generation, distribution and transmission Natural gas transmission and distribution Other buildings and improvements Plant – Nonregulated Electric generation, distribution and transmission Other buildings and improvements Nuclear fuel Equipment Construction in process Other Total property, plant and equipment(a)(d) Total accumulated depreciation – regulated(b)(c)(d) Total accumulated depreciation – nonregulated(c)(d) Generation facilities to be retired, net Total net property, plant and equipment Estimated Useful Life (Years) Duke Energy $ 1,391 Duke Energy Carolinas $ 407 Progress Energy $ 719 Duke Energy Progress $ 392 Duke Energy Florida $ 327 Duke Energy Ohio $ Duke Energy Indiana 118 $ 108 8 - 100 12 - 67 15 - 100 87,593 2,322 1,480 33,623 — 477 36,422 — 621 22,888 — 294 13,534 — 322 4,429 2,322 204 13,118 — 179 1 - 30 25 - 35 3,348 410 3,194 1,736 4,485 4,008 — — 1,827 368 1,860 836 — — 1,367 530 1,827 1,180 — — 1,367 398 1,118 856 — — — 132 709 319 — — — 344 180 153 — — — 173 214 215 3 - 38 5 - 60 109,967 39,398 42,666 27,313 15,343 7,750 14,007 (35,367) (1,369) (13,521) — (14,867) — (10,141) — (4,720) — (2,507) — (4,484) — 548 — 548 548 — — — $ 73,779 $ 25,877 $ 28,347 $17,720 $10,623 $ 5,243 $ 9,523 (a) Includes capitalized leases of $1,465 million, $40 million, $302 million, $144 million, $158 million, $96 million and $39 million at Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana, respectively, primarily in regulated plant. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of $85 million, $7 million and $78 million, respectively, of accumulated amortization of capitalized leases. (b) Includes $1,621 million, $976 million, $645 million and $645 million of accumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively. (c) Includes accumulated amortization of capitalized leases of $57 million, $11 million, $27 million and $7 million at Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana, respectively. (d) Includes gross property, plant and equipment cost of consolidated VIEs of $2,033 million and accumulated depreciation of consolidated VIEs of $327 million at Duke Energy. The following table presents capitalized interest, which includes the debt component of AFUDC. Years Ended December 31, (in millions) 2016 2015 2014 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $100 38 31 17 14 8 7 $ 98 38 24 20 4 10 6 $ 75 38 11 10 1 10 6 lease payments as all payments are contingent based on actual electricity generated by the renewable energy projects. Contingent lease payments were $216 million, $172 million and $164 million for the years ended December 31, 2016, 2015 and 2014. As of December 31, 2016, renewable energy projects owned by Duke Energy and accounted for as operating leases had a cost basis of $3,127 million and accumulated depreciation of $347 million. These assets are principally classified as nonregulated electric generation and transmission assets. Operating Leases Duke Energy’s Commercial Renewables segment operates various renewable energy projects and sells the generated output to utilities, electric cooperatives, municipalities and commercial and industrial customers through long-term contracts. In certain situations, these long-term contracts and the associated renewable energy projects qualify as operating leases. Rental income from these leases is accounted for as Operating Revenues in the Consolidated Statements of Operations. There are no minimum 151 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 11. GOODWILL AND INTANGIBLE ASSETS GOODWILL Progress Energy The following table presents goodwill by reportable operating segment for Duke Energy. Progress Energy’s Goodwill is included in the Electric Utilities and Infrastructure operating segment and there are no accumulated impairment charges. Duke Energy (in millions) Goodwill at December 31, 2015 Piedmont Acquisition(a) Electric Utilities and Infrastructure Gas Utilities and Commercial Infrastructure Renewables Impairment Testing Duke Energy, Duke Energy Ohio and Progress Energy perform annual goodwill impairment tests each year as of August 31. Duke Energy, Duke Energy Ohio and Progress Energy update their test between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. As the fair value of Duke Energy, Duke Energy Ohio and Progress Energy’s reporting units exceeded their respective carrying values at the date of the annual impairment analysis, no impairment charges were recorded. Total $ 15,656 $ 1,723 294 $ 1,630 122 $16,072 — 3,353 Goodwill at December 31, 2016 $ 17,379 $ 1,924 $ 122 $19,425 (a) Refer to Note 2 for more information on the purchase accounting related to the acquisition of Piedmont. Duke Energy Ohio Duke Energy Ohio’s Goodwill balance of $920 million, allocated $596 million to Electric Utilities and Infrastructure and $324 million to Gas Utilities and Infrastructure, is presented net of accumulated impairment charges of $216 million on the Consolidated Balance Sheets at December 31, 2016 and 2015. INTANGIBLE ASSETS The following tables show the carrying amount and accumulated amortization of intangible assets included in Other within Investments and Other Assets on the Consolidated Balance Sheets of the Duke Energy Registrants at December 31, 2016 and 2015. December 31, 2016 (in millions) Emission allowances Renewable energy certificates Gas, coal and power contracts Renewable operating and development projects Other Duke Energy $ 19 125 24 97 6 Duke Energy Carolinas $ 1 36 — — — Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 6 84 — — — $ 2 84 — — — $ 4 — — — — $ — 4 — — — $ 13 — 24 — — Total gross carrying amounts 271 37 90 86 4 4 37 Accumulated amortization – gas, coal and power contracts Accumulated amortization – renewable operating and development projects Accumulated amortization – other Total accumulated amortization (17) (23) (5) (45) — — — — — — — — — — — — — — — — — — — — (17) — — (17) 37 $ 90 $ 86 $ 4 4 $ 20 Total intangible assets, net $ 226 152 $ $ PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) December 31, 2015 (in millions) Emission allowances Renewable energy certificates Gas, coal and power contracts Renewable operating and development projects Other Duke Energy $ 20 116 24 115 2 Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 1 30 — — — $ 6 80 — — — $ 2 80 — — — $ 4 — — — — $ — 5 — — — $ 14 — 24 — — Total gross carrying amounts 277 31 86 82 4 5 38 Accumulated amortization – gas, coal and power contracts Accumulated amortization – renewable operating and development projects Accumulated amortization – other (16) (18) (1) — — — — — — — — — — — — — — — (16) — — Total accumulated amortization (35) — — — — — (16) $ 242 $ 31 $ 86 $ 82 $ 4 5 $ 22 Total intangible assets, net $ Amortization Expense The following table presents amortization expense for gas, coal and power contracts, renewable operating projects and other intangible assets. December 31, (in millions) 2016 2015 2014 Duke Energy Duke Energy Ohio Duke Energy Indiana $ 6 — 1 $ 5 — 1 $ 6 2 1 The table below shows the expected amortization expense for the next five years for intangible assets as of December 31, 2016. The expected amortization expense includes estimates of emission allowances consumption and estimates of consumption of commodities such as gas and coal under existing contracts, as well as estimated amortization related to renewable operating projects. The amortization amounts discussed below are estimates and actual amounts may differ from these estimates due to such factors as changes in consumption patterns, sales or impairments of emission allowances or other intangible assets, delays in the in-service dates of renewable assets, additional intangible acquisitions and other events. (in millions) Duke Energy Duke Energy Indiana 12. 2017 2018 2019 2020 2021 $5 2 $5 2 $5 2 $5 2 $5 2 INVESTMENTS IN UNCONSOLIDATED AFFILIATES EQUITY METHOD INVESTMENTS Investments in domestic and international affiliates that are not controlled by Duke Energy, but over which it has significant influence, are accounted for using the equity method. As of December 31, 2016, the carrying amount of investments in affiliates with carrying amounts greater than zero exceeded the underlying investment by $24 million. These differences are attributable to intangibles associated with underlying contracts, which are reflected in the investments balance and the equity in earnings reported in the table below. 153 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) The following table presents Duke Energy’s investments in unconsolidated affiliates accounted for under the equity method, as well as the respective equity in earnings, by segment. Years Ended December 31, 2016 (in millions) Investments 2015 Equity in earnings Investments 2014 Equity in earnings Equity in earnings Electric Utilities and Infrastructure Gas Utilities and Infrastructure Commercial Renewables Other $ 93 566 185 81 $ 5 19 (82) 43 $ 57 113 265 64 $ (2) 1 (6) 76 $ Total $ 925 $ (15) $ 499 $ 69 $ 130 During the years ended December 31, 2016, 2015 and 2014, Duke Energy received distributions from equity investments of $31 million, $104 million and $154 million, respectively, which are included in Other assets within Cash Flows from Operating Activities on the Consolidated Statements of Cash Flows. Significant investments in affiliates accounted for under the equity method are discussed below. For regulatory matters and other information on the ACP, Sabal Trail and Constitution investments, see Notes 4 and 17. Commercial Renewables In 2016, Duke Energy sold its interest in three of the Catamount Sweetwater, LLC wind farm projects. Duke Energy has a 47 percent ownership interest in each of the two other Catamount Sweetwater, LLC wind farm projects and 50 percent interest in DS Cornerstone, LLC, which owns wind farm projects in the U.S. Electric Utilities and Infrastructure Duke Energy owns a 50 percent interest in Duke-American Transmission Co. (DATC) and in Pioneer Transmission, LLC (Pioneer), which build, own and operate electric transmission facilities in North America. Impairment of Equity Method Investments During the year ended December 31, 2016, Duke Energy recorded an OTTI of certain wind project investments. The $71 million pretax impairment was recorded within Equity in earnings (losses) of unconsolidated affiliates on Duke Energy’s Consolidated Statements of Operations. The other-than-temporary decline in value of these investments was primarily attributable to a sustained decline in market pricing where the wind investments are located, projected net losses for the projects and a reduction in the projected cash distribution to the class of investment owned by Duke Energy. Gas Utilities and Infrastructure The table below outlines Duke Energy’s ownership interests in natural gas pipeline companies and natural gas storage facilities. See Notes 4 and 17 for more information. Investment Amount (in millions) Entity Name Pipeline Investments Atlantic Coast Pipeline, LLC Sabal Trail Transmission, LLC Constitution Pipeline, LLC Cardinal Pipeline Company, LLC Storage Facilities Pine Needle LNG Company, LLC Hardy Storage Company, LLC Total Investments Ownership Interest December 31, 2016 (1) — 8 123 December 31, 2015 Other 47% 7.5% 24% 21.49% $ 45% 50% $ 265 140 82 16 16 47 566 $ $ 52 61 — — Duke Energy owns a 25 percent indirect interest in NMC, which owns and operates a methanol and MTBE business in Jubail, Saudi Arabia. Duke Energy’s economic ownership interest will decrease to 17.5 percent upon successful startup of NMC’s polyacetal production facility, which is expected to occur in the second quarter of 2017. Duke Energy will retain 25 percent of the board representation and voting rights of NMC. The investment in NMC is accounted for under the equity method of accounting. — — 113 154 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 13. RELATED PARTY TRANSACTIONS The Subsidiary Registrants engage in related party transactions in accordance with the applicable state and federal commission regulations. Refer to the Consolidated Balance Sheets of the Subsidiary Registrants for balances due to or due from related parties. Material amounts related to transactions with related parties included in the Consolidated Statements of Operations and Comprehensive Income are presented in the following table. In addition to the amounts presented above, the Subsidiary Registrants record the impact on net income of other affiliate transactions, including rental of office space, participation in a money pool arrangement, other operational transactions and their proportionate share of certain charged expenses. See Note 6 for more information regarding money pool. The net impact of these transactions was not material for the years ended December 31, 2016, 2015 and 2014 for the Subsidiary Registrants. As discussed in Note 17, certain trade receivables have been sold by Duke Energy Ohio and Duke Energy Indiana to CRC, an affiliate formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price. Duke Energy Ohio’s nonregulated indirect subsidiary, Duke Energy Commercial Asset Management, LLC (DECAM), owned generating plants included in the Midwest Generation Disposal Group sold to Dynegy on April 2, 2015. On April 1, 2015, Duke Energy Ohio distributed its indirect ownership interest in DECAM to a Duke Energy subsidiary and non-cash settled DECAM’s intercompany loan payable of $294 million. Refer to Note 2 for further information on the sale of the Midwest Generation Disposal Group. Years Ended December 31, (in millions) 2016 2015 2014 Duke Energy Carolinas Corporate governance and shared service expenses(a) Indemnification coverages(b) JDA revenue(c) JDA expense(c) $ 831 $ 914 $ 851 22 24 21 38 51 133 156 183 198 Progress Energy Corporate governance and shared service expenses(a) Indemnification coverages(b) JDA revenue(c) JDA expense(c) Intercompany natural gas purchases(d) $ 710 $ 712 $ 732 35 38 33 156 183 198 38 51 133 19 — — Duke Energy Progress Corporate governance and shared service expenses(a) Indemnification coverages(b) JDA revenue(c) JDA expense(c) Intercompany natural gas purchases(d) $ 397 $ 403 $ 386 14 16 17 156 183 198 38 51 133 19 — — Duke Energy Florida Corporate governance and shared service expenses(a) Indemnification coverages(b) $ 313 $ 309 $ 346 21 22 16 Duke Energy Ohio Corporate governance and shared service expenses(a) Indemnification coverages(b) $ 356 $ 342 $ 316 5 6 13 Duke Energy Indiana Corporate governance and shared service expenses(a) Indemnification coverages(b) $ 366 $ 349 $ 384 8 9 11 Intercompany Income Taxes Duke Energy and its subsidiaries file a consolidated federal income tax return and other state and jurisdictional returns. The Subsidiary Registrants have a tax sharing agreement with Duke Energy for the allocation of consolidated tax liabilities and benefits. Income taxes recorded represent amounts the Subsidiary Registrants would incur as separate C-Corporations. The following table includes the balance of intercompany income tax receivables for the subsidiary registrants. (in millions) December 31, 2016 Intercompany income tax receivable Intercompany income tax payable (a) The Subsidiary Registrants are charged their proportionate share of corporate governance and other shared services costs, primarily related to human resources, employee benefits, legal and accounting fees, as well as other third-party costs. These amounts are recorded in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income. (b) The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income. (c) Duke Energy Carolinas and Duke Energy Progress participate in a JDA which allows the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power under the JDA are recorded in Operating Revenues on the Consolidated Statements of Operations and Comprehensive Income. Expenses from the purchase of power under the JDA are recorded in Fuel used in electric generation and purchased power on the Consolidated Statements of Operations and Comprehensive Income. (d) Duke Energy Progress purchases natural gas from Piedmont to supply electric generation facilities. These expenses are recorded in Fuel used in electric generation and purchased power on the Consolidated Statements of Operations and Comprehensive Income. Duke Duke Energy Progress Energy Carolinas Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 1 $— $— $ 37 $— $— — 37 90 — 1 3 Intercompany income tax receivable $ 122 $ 120 $ 104 $— $ 54 $— Intercompany income tax payable — — — 96 — 47 December 31, 2015 155 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 14. DERIVATIVES AND HEDGING The Duke Energy Registrants use commodity and interest rate contracts to manage commodity price risk and interest rate risk. The primary use of commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Interest rate swaps are used to manage interest rate risk associated with borrowings. All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting arrangements is offset against the collateralized derivatives on the Consolidated Balance Sheets. The cash impacts of settled derivatives are recorded as operating activities on the Consolidated Statements of Cash Flows. the future transaction impacts earnings. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt. See the Consolidated Statements of Changes in Equity for gains and losses reclassified out of AOCI for the years ended December 31, 2016 and 2015. Duke Energy’s interest rate derivatives designated as hedges include interest rate swaps used to hedge existing debt within the Commercial Renewables business. Undesignated Contracts Undesignated contracts include contracts not designated as a hedge because they are accounted for under regulatory accounting and contracts that do not qualify for hedge accounting. Duke Energy’s interest rate swaps for its regulated operations employ regulatory accounting. With regulatory accounting, the mark-to-market gains or losses on the swaps are deferred as regulatory liabilities or regulatory assets, respectively. Regulatory assets and liabilities are amortized consistent with the treatment of the related costs in the ratemaking process. The accrual of interest on the swaps is recorded as Interest Expense. In August 2016, Duke Energy unwound $1.4 billion of forward-starting interest rate swaps associated with the Piedmont acquisition financing described in Note 6. The swaps were considered undesignated as they did not qualify for hedge accounting. Losses on the swaps of $190 million are included within Interest Expense on the Consolidated Statements of Operations for the year ended December 31, 2016. See Note 2 for additional information related to the Piedmont acquisition. INTEREST RATE RISK The Duke Energy Registrants are exposed to changes in interest rates as a result of their issuance or anticipated issuance of variable-rate and fixed-rate debt and commercial paper. Interest rate risk is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into interest rate swaps, U.S. Treasury lock agreements and other financial contracts. In anticipation of certain fixed-rate debt issuances, a series of forward-starting interest rate swaps may be executed to lock in components of current market interest rates. These instruments are later terminated prior to or upon the issuance of the corresponding debt. Cash Flow Hedges For a derivative designated as hedging the exposure to variable cash flows of a future transaction, referred to as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings once The following tables show notional amounts of outstanding derivatives related to interest rate risk. December 31, 2016 Duke Energy (in millions) Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Cash flow hedges(a) Undesignated contracts $ 750 927 $ — 400 $ — 500 $ — 250 $ — 250 $ — 27 Total notional amount $ 1,677 $ 400 $ 500 $ 250 $ 250 $ 27 December 31, 2015 Duke Energy (in millions) Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Cash flow hedges(a) Undesignated contracts $ 497 1,827 $ — 400 $ — 500 $ — 250 $ — 250 $ — 27 Total notional amount $ 2,324 $ 400 $ 500 $ 250 $ 250 $ 27 (a) Duke Energy includes amounts related to consolidated VIEs of $750 million and $497 million at December 31, 2016 and 2015, respectively. The December 31, 2016, amount includes interest rate swaps related to solar facilities financing with an outstanding notional amount of $300 million, including $81 million of four-year swaps and $219 million of 18-year swaps. See note 6 for additional information related to the solar facilities financing. 156 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) COMMODITY PRICE RISK price risks, but not for speculative trading. The strategy and objective of these hedging programs are to use the financial instruments to reduce gas cost volatility for customers. The Duke Energy Registrants are exposed to the impact of changes in the prices of electricity purchased and sold in bulk power markets and coal and natural gas purchases. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets and delivery locations. For the Subsidiary Registrants, bulk power electricity and coal and natural gas purchases flow through fuel adjustment clauses, formula based contracts or other cost sharing mechanisms. Differences between the costs included in rates and the incurred costs, including undesignated derivative contracts, are largely deferred as regulatory assets or regulatory liabilities. Piedmont policies allow for the use of financial instruments to hedge commodity Volumes The tables below include volumes of outstanding commodity derivatives. Amounts disclosed represent the absolute value of notional volumes of commodity contracts excluding NPNS. The Duke Energy Registrants have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown. December 31, 2016 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 147 890 — 91 — 269 — 118 — 151 — — 147 1 Electricity (gigawatt-hours) Natural gas (millions of dekatherms)(a) (a) Amounts at Duke Energy increased 529 million dekatherms due to the acquisition of Piedmont in 2016. December 31, 2015 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 70 398 — 66 — 332 — 117 — 215 34 — 36 — Electricity (gigawatt-hours) Natural gas (millions of dekatherms) LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS The following tables show the fair value and balance sheet location of derivative instruments. Although derivatives subject to master netting arrangements are netted on the Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown. Derivative Assets December 31, 2016 Duke Energy Duke Energy Carolinas Not Designated as Hedging Instruments Current Noncurrent $ 108 32 $ Total Derivative Assets – Commodity Contracts $ 140 $ $ 19 (in millions) Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 23 10 $ 61 21 $ 35 10 $ 26 11 $ 4 1 $ 16 — 33 $ 82 $ 45 $ 37 $ 5 $ 16 $ — $— $— $ — $— $ — Commodity Contracts Interest Rate Contracts Designated as Hedging Instruments Noncurrent Not Designated as Hedging Instruments Current Total Derivative Assets – Interest Rate Contracts Total Derivative Assets 3 — 3 1 2 — — $ 22 $ 162 $ — $ 33 $ 3 $ 85 $ 1 $ 46 $ 2 $ 39 $— $ 5 $ — $ 16 157 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Derivative Liabilities (in millions) December 31, 2016 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Commodity Contracts Not Designated as Hedging Instruments Current Noncurrent $ Total Derivative Liabilities – Commodity Contracts 43 166 $ — 1 $ 12 7 $ — 1 $ 12 — $ — — $ 2 — $ 209 $ 1 $ 19 $ 1 $ 12 $ — $ 2 $ 8 8 $ — — $ — — $ — — $ — — $ — — $ — — 1 26 $ 43 $ 252 — 15 $ 15 $ 16 — 6 6 25 — 6 $ 6 $ 7 — — — 12 1 5 6 6 — — $ — $ 2 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Ohio Duke Energy Indiana Interest Rate Contracts Designated as Hedging Instruments Current Noncurrent Not Designated as Hedging Instruments Current Noncurrent Total Derivative Liabilities – Interest Rate Contracts Total Derivative Liabilities $ $ Derivative Assets (in millions) $ $ $ $ December 31, 2015 Duke Energy Florida Commodity Contracts Not Designated as Hedging Instruments Current Noncurrent $ 12 4 $ — — $ 1 4 $ — — $ 1 4 $ 3 — $ 7 — Total Derivative Assets – Commodity Contracts $ 16 $ — $ 5 $ — $ 5 $ 3 $ 7 $ 3 $ — $ — $ — $ — 6 — 6 $ $ 9 25 $ — $ — $ 6 $ 11 Duke Energy Duke Energy Carolinas Progress Energy Not Designated as Hedging Instruments Current Noncurrent $ 256 100 $ 32 8 Total Derivative Liabilities – Commodity Contracts $ 356 $ $ Interest Rate Contracts Designated as Hedging Instruments Noncurrent Not Designated as Hedging Instruments Current Total Derivative Assets – Interest Rate Contracts Total Derivative Assets (in millions) $ — 2 — — 2 7 $ — $ 3 $ — $ 7 Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 222 92 $ 77 16 $ 145 71 $ — — $ — — 40 $ 314 $ 93 $ 216 $ — $ — Derivative Liabilities 2 $ — $ $ 2 2 $ $ December 31, 2015 Commodity Contracts Interest Rate Contracts Designated as Hedging Instruments Current 9 $ — $ — $ — $ — $ — $ — Noncurrent 13 — — — — — — Not Designated as Hedging Instruments Current Noncurrent 4 15 — 5 3 5 — 5 — — 1 6 — — 5 45 $ 8 $ 322 $ 5 $ 98 $ — $ 216 7 7 $ — $ — Total Derivative Liabilities – Interest Rate Contracts Total Derivative Liabilities $ 41 $ 397 $ $ 158 $ $ PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) OFFSETTING ASSETS AND LIABILITIES The following tables present the line items on the Consolidated Balance Sheets where derivatives are reported. Substantially all of Duke Energy’s outstanding derivative contracts are subject to enforceable master netting arrangements. The Gross amounts offset in the tables below show the effect of these netting arrangements on financial position and include collateral posted to offset the net position. The amounts shown are calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below. Derivative Assets December 31, 2016 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Current Gross amounts recognized Gross amounts offset Net amounts presented in Current Assets: Other $ 111 (11) $ 100 $ 23 — $ 23 $ 64 (11) $ 53 $ 36 — $ 36 $ 28 (11) $ 17 $ 4 — $ 4 $ 16 — $ 16 Noncurrent Gross amounts recognized Gross amounts offset $ 51 (2) $ 10 (1) $ 21 (1) $ 10 (1) $ 11 — $ 1 — $ — — Net amounts presented in Investments and Other Assets: Other $ 49 $ $ 20 $ 9 $ 11 $ 1 $ — Duke Energy Indiana (in millions) 9 Derivative Liabilities December 31, 2016 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Current Gross amounts recognized Gross amounts offset Net amounts presented in Current Liabilities: Other $ 52 (11) $ 41 $ — — $ — $ 12 (11) $ 1 $— — $— $ 12 (11) $ 1 $ 1 — $ 1 $ Noncurrent Gross amounts recognized Gross amounts offset $ 200 (2) $ 16 (1) $ 13 (1) $ 7 (1) $— — $ 5 — $ — — Net amounts presented in Deferred Credits and Other Liabilities: Other $ 198 $ 15 $ 12 $ 6 $— $ 5 $ — Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana (in millions) Derivative Assets 2 — $ 2 December 31, 2015 Duke Energy Duke Energy Carolinas Current Gross amounts recognized Gross amounts offset Net amounts presented in Current Assets: Other $ 18 (3) $ 15 $ — — $ — $ 7 (2) $ 5 $ 2 — $ 2 $ 3 (2) $ 1 $ 3 — $ 3 $ Noncurrent Gross amounts recognized Gross amounts offset $ 7 (4) $ — — $ 4 (4) $— — $ 4 (4) $— — $ — — Net amounts presented in Investments and Other Assets: Other $ 3 $ — $ — $— $— $— $ — (in millions) Progress Energy Derivative Liabilities 7 — $ 7 December 31, 2015 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Current Gross amounts recognized Gross amounts offset Net amounts presented in Current Liabilities: Other $ 269 (22) $ 247 $ 32 — $ 32 $ 225 (21) $ 204 $ 77 (1) $ 76 $ 145 (20) $ 125 $ 1 — $ 1 $ — — $ — Noncurrent Gross amounts recognized Gross amounts offset $ 128 (16) $ 13 — $ 97 (15) $ 21 — $ 71 (15) $ 6 — $ — — Net amounts presented in Deferred Credits and Other Liabilities: Other $ 112 $ 13 $ 82 $ 21 $ 56 $ 6 $ — (in millions) 159 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) OBJECTIVE CREDIT CONTINGENT FEATURES Certain derivative contracts contain objective credit contingent features. These features include the requirement to post cash collateral or letters of credit if specific events occur, such as a credit rating downgrade below investment grade. The following tables show information with respect to derivative contracts that are in a net liability position and contain objective credit-risk-related payment provisions. Amounts for Duke Energy Ohio and Duke Energy Indiana were not material. December 31, 2016 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Aggregate fair value of derivatives in a net liability position $ $ $ $ 34 16 18 6 Duke Energy Florida $ 12 Fair value of collateral already posted — — — — — Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered 34 16 18 6 12 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Aggregate fair value of derivatives in a net liability position $ 334 $ $ $ December 31, 2015 Fair value of collateral already posted Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered 45 290 93 $ 194 30 — 30 — 30 304 45 260 93 164 The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative and cash collateral must be executed with the same counterparty under the same master netting arrangement. At December 31, 2015, receivables of $30 million at Duke Energy Florida related to the right to reclaim cash collateral under master netting arrangements were offset against net derivative positions on the Consolidated Balance Sheets of Duke Energy, Progress Energy and Duke Energy Florida. 15. INVESTMENTS IN DEBT AND EQUITY SECURITIES Energy Registrants. Accordingly, all unrealized losses associated with debt and equity securities within the Investment Trusts are considered OTTIs and are recognized immediately. Investments within the Investment Trusts generally qualify for regulatory accounting and accordingly realized and unrealized gains and losses are generally deferred as a regulatory asset or liability. TRADING SECURITIES Investments in debt and equity securities held in rabbi trusts associated with certain deferred compensation plans are classified as trading securities. The fair value of these investments was $5 million at December 31, 2016. AVAILABLE-FOR-SALE SECURITIES Other Available-for-Sale Securities The Duke Energy Registrants classify their investments in debt and equity securities as available-for-sale. Duke Energy’s available-for-sale securities are primarily comprised of investments held in (i) the NDTF at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to OPEB plans and (iii) Bison. Duke Energy classifies all other investments in debt and equity securities as long term, unless otherwise noted. Unrealized gains and losses on all other available-for-sale securities are included in other comprehensive income until realized, unless it is determined the carrying value of an investment is other-than-temporarily impaired. If an OTTI exists, the unrealized loss is included in earnings based on the criteria discussed below. The Duke Energy Registrants analyze all investment holdings each reporting period to determine whether a decline in fair value should be considered other-than-temporary. Criteria used to evaluate whether an impairment associated with equity securities is other-than-temporary includes, but is not limited to, (i) the length of time over which the market value has been lower than the cost basis of the investment, (ii) the percentage decline compared to the cost of the investment and (iii) management’s intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value. If a decline in fair value is determined to be other-than-temporary, the investment is written down to its fair value through a charge to earnings. Investment Trusts The investments within the NDTF investments and the Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana grantor trusts (Investment Trusts) are managed by independent investment managers with discretion to buy, sell and invest pursuant to the objectives set forth by the trust agreements. The Duke Energy Registrants have limited oversight of the day-to-day management of these investments. As a result, the ability to hold investments in unrealized loss positions is outside the control of the Duke 160 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) If the entity does not have an intent to sell a debt security and it is not more likely than not management will be required to sell the debt security before the recovery of its cost basis, the impairment write-down to fair value would be recorded as a component of other comprehensive income, except for when it is determined a credit loss exists. In determining whether a credit loss exists, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than the amortized cost basis, (ii) changes in the financial condition of the issuer of the security, or in the case of an asset backed security, the financial condition of the underlying loan obligors, (iii) consideration of underlying collateral and guarantees of amounts by government entities, (iv) ability of the issuer of the security to make scheduled interest or principal payments and (v) any changes to the rating of the security by rating agencies. If a credit loss exists, the amount of impairment write-down to fair value is split between credit loss and other factors. The amount related to credit loss is recognized in earnings. The amount related to other factors is recognized in other comprehensive income. There were no material credit losses as of December 31, 2016 and 2015. DUKE ENERGY The following table presents the estimated fair value of investments in available-for-sale securities. December 31, 2016 (in millions) NDTF Cash and cash equivalents Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities Total NDTF Other Investments Cash and cash equivalents Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities Gross Unrealized Holding Gains December 31, 2015 Estimated Fair Value Gross Unrealized Holding Losses(a) Gross Unrealized Holding Gains Gross Unrealized Holding Losses(a) Estimated Fair Value $ — 2,092 10 3 10 — $ — 54 8 10 8 3 $ 111 4,106 528 331 984 124 $ — 1,823 7 5 11 — $ — 58 8 1 5 4 $ 179 3,590 432 185 1,254 177 $ 2,115 $ 83 $ 6,184 $ 1,846 $ 76 $ 5,817 $ — 38 1 2 — — $ — — 1 1 1 2 $ 25 104 66 82 51 42 $ — 32 1 3 — — $ — 1 3 1 — 2 $ 29 95 92 74 45 62 Total Other Investments(b) $ 41 $ 5 $ 370 $ 36 $ 7 $ 397 Total Investments $ 2,156 $ 88 $ 6,554 $ 1,882 $ 83 $ 6,214 (a) Substantially all these amounts are considered OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. (b) These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) December 31, 2016 Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years $ 94 653 515 946 Total $2,208 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Years Ended December 31, (in millions) Realized gains Realized losses 2016 $246 187 161 2015 $193 98 2014 $271 105 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY CAROLINAS The following table presents the estimated fair value of investments in available-for-sale securities. December 31, 2016 (in millions) NDTF Cash and cash equivalents Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities Gross Unrealized Holding Gains December 31, 2015 Estimated Fair Value Gross Unrealized Holding Losses(a) Gross Unrealized Holding Gains Gross Unrealized Holding Losses(a) Estimated Fair Value $ — 1,157 5 1 2 — $ — 28 6 2 5 3 $ 18 2,245 354 67 458 116 $ — 1,021 3 1 3 — $ — 27 5 — 3 4 $ 34 2,094 292 33 438 147 Total NDTF $ 1,165 $ 44 $ 3,258 $ 1,028 $ 39 $ 3,038 Other Investments Other debt securities $ — $ 1 $ 3 $ — $ 1 $ 3 Total Other Investments(b) $ — $ 1 $ 3 $ — $ 1 $ 3 Total Investments $ 1,165 $ 45 $ 3,261 $ 1,028 $ 40 $ 3,041 (a) Substantially all these amounts represent OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. (b) These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) December 31, 2016 Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years $ 3 230 260 505 Total $998 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Years Ended December 31, (in millions) Realized gains Realized losses 2016 $157 121 162 2015 $ 158 83 2014 $ 109 93 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) PROGRESS ENERGY The following table presents the estimated fair value of investments in available-for-sale securities. December 31, 2016 (in millions) NDTF Cash and cash equivalents Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities Gross Unrealized Holding Gains December 31, 2015 Estimated Fair Value Gross Unrealized Holding Losses(a) Gross Unrealized Holding Gains Gross Unrealized Holding Losses(a) Estimated Fair Value $ — 935 5 2 8 — $ — 26 2 8 3 — $ 93 1,861 174 264 526 8 $ — 802 4 4 8 — $ — 31 3 1 2 — $ 145 1,496 140 152 816 30 Total NDTF $ 950 $ 39 $ 2,926 $ 818 $ 37 $ 2,779 Other Investments Cash and cash equivalents Municipal bonds $ — 2 $ — — $ 21 44 $ — 3 $ — — $ 18 45 Total Other Investments(b) $ 2 $ — $ 65 $ 3 $ — $ 63 Total Investments $ 952 $ 39 $ 2,991 $ 821 $ 37 $ 2,842 (a) Substantially all these amounts represent OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. (b) These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) December 31, 2016 Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years $ 84 347 187 398 Total $ 1,016 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Years Ended December 31, (in millions) 2016 2015 2014 Realized gains Realized losses $ 84 64 $ 33 13 $ 157 11 163 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY PROGRESS The following table presents the estimated fair value of investments in available-for-sale securities. December 31, 2016 Gross Unrealized Holding Gains (in millions) NDTF Cash and cash equivalents Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities Total NDTF Other Investments Cash and cash equivalents Total Other Investments (b) Total Investments December 31, 2015 Estimated Fair Value Gross Unrealized Holding Losses(a) Gross Unrealized Holding Gains Gross Unrealized Holding Losses(a) Estimated Fair Value $ — 704 4 2 5 — $ — 21 1 8 2 — $ 45 1,505 120 263 275 5 $ — 596 3 4 6 — $ — 25 2 1 2 — $ 110 1,178 96 150 486 18 $ 715 $ 32 $ 2,213 $ 609 $ 30 $ 2,038 $ — $ — $ 1 $ — $ — $ 1 $ — $ — $ 1 $ — $ — $ 1 $ 715 $ 32 $ 2,214 $ 609 $ 30 $ 2,039 (a) Substantially all these amounts are considered OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. (b) These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) December 31, 2016 Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years $ 28 190 142 303 Total $ 663 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Years Ended December 31, (in millions) Realized gains Realized losses 164 2016 2015 2014 $71 55 $ 26 11 $ 19 5 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY FLORIDA The following table presents the estimated fair value of investments in available-for-sale securities. December 31, 2016 (in millions) NDTF Cash and cash equivalents Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities Gross Unrealized Holding Gains December 31, 2015 Estimated Fair Value Gross Unrealized Holding Losses(a) Gross Unrealized Holding Gains Gross Unrealized Holding Losses(a) Estimated Fair Value $ — 231 1 — 3 — $ — 5 1 — 1 — $ 48 356 54 1 251 3 $ — 206 1 — 2 — $ — 6 1 — — — $ 35 318 44 2 330 12 Total NDTF(b) $ 235 $ 7 $ 713 $ 209 $ 7 $ 741 Other Investments Cash and cash equivalents Municipal bonds $ — 2 $ — — $ 4 44 $ — 3 $ — — $ 6 45 Total Other Investments(c) $ 2 $ — $ 48 $ 3 $ — $ 51 Total Investments $ 237 $ 7 $ 761 $ 212 $ 7 $ 792 (a) Substantially all these amounts are considered OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. (b) The decrease in estimated fair value of the NDTF as of December 31, 2016, is primarily due to reimbursements from the NDTF for costs related to ongoing decommissioning activity of Crystal River Unit 3. (c) These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) December 31, 2016 Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years $ 56 157 45 95 Total $353 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Years Ended December 31, (in millions) Realized gains Realized losses 165 2016 2015 2014 $13 9 $ 7 2 $138 5 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY INDIANA The following table presents the estimated fair value of investments in available-for-sale securities. December 31, 2016 (in millions) Other Investments Cash and cash equivalents Equity securities Corporate debt securities Municipal bonds U.S. government bonds Gross Unrealized Holding Gains December 31, 2015 Estimated Fair Value Gross Unrealized Holding Losses(a) Gross Unrealized Holding Gains Gross Unrealized Holding Losses(a) Estimated Fair Value $ — 33 — — — $ — — — 1 — $ — 79 2 28 1 $ — 27 — — — $ — — — 1 — $ 2 71 2 26 — Total Other Investments(b) $ 33 $ 1 $ 110 $ 27 $ 1 $ 101 Total Investments $ 33 $ 1 $ 110 $ 27 $ 1 $ 101 (a) Substantially all these amounts are considered OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. (b) These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) December 31, 2016 Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years $ 3 13 9 6 Total $31 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were insignificant for the years ended December 31, 2016, 2015 and 2014. 16. FAIR VALUE MEASUREMENTS Fair value is the exchange price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value definition focuses on an exit price versus the acquisition cost. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data, or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient. Fair value measurements are classified in three levels based on the fair value hierarchy: are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities and credit spreads. A Level 2 measurement cannot have more than an insignificant portion of its valuation based on unobservable inputs. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less than active markets. Level 3 – Any fair value measurement which includes unobservable inputs for more than an insignificant portion of the valuation. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 measurements may include longer-term instruments that extend into periods in which observable inputs are not available. Not Categorized – Certain investments are not categorized within the Fair Value hierarchy. These investments are measured based on the fair value of the underlying investments but may not be readily redeemable at that fair value. Fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value. Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. An active market is one in which transactions for an asset or liability occur with sufficient frequency and volume to provide ongoing pricing information. Level 2 – A fair value measurement utilizing inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly, for an asset or liability. Inputs include (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) and inputs other than quoted market prices that 166 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Transfers between levels represent assets or liabilities that were previously (i) categorized at a higher level for which the inputs to the estimate became less observable or (ii) classified at a lower level for which the inputs became more observable during the period. The Duke Energy Registrant’s policy is to recognize transfers between levels of the fair value hierarchy at the end of the period. There were no transfers between Levels 1 and 2 during the years ended December 31, 2016, 2015 and 2014. Transfers out of Level 3 during the year ended December 31, 2014, were the result of forward commodity prices becoming observable due to the passage of time. Valuation methods of the primary fair value measurements disclosed below are as follows. Commodity derivatives Commodity derivatives with clearinghouses are classified as Level 1. Other commodity derivatives are primarily valued using internally developed discounted cash flow models which incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or non-performance risk (after reflecting credit enhancements such as collateral) and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate the fair value of gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves. Investments in equity securities The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as the New York Stock Exchange (NYSE) and the NASDAQ Stock Market. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements. Interest rate derivatives Most over-the-counter interest rate contract derivatives are valued using financial models which utilize observable inputs for similar instruments and are classified as Level 2. Inputs include forward interest rate curves, notional amounts, interest rates and credit quality of the counterparties. Investments in debt securities Most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed-income security is relatively inactive or illiquid, the measurement is Level 3. Other fair value considerations See Note 11 for a discussion of the valuation of goodwill and intangible assets. See Note 2 related to the acquisition of Piedmont in 2016 and the purchase of NCEMPA’s ownership interests in certain generating assets in 2015. DUKE ENERGY The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 14. See Note 15 for additional information related to investments by major security type. December 31, 2016 (in millions) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities Other trading and available-for-sale equity securities Other trading and available-for-sale debt securities Derivative assets Total assets Derivative liabilities Net assets (liabilities) 167 Total Fair Value Level 1 Level 2 Level 3 Not Categorized $ 4,106 2,078 104 266 162 6,716 (252) $4,029 632 104 75 5 4,845 (2) $ — 1,446 — 186 136 1,768 (63) $ — — — 5 21 26 (187) $ 77 — — — — 77 — $ 6,464 $4,843 $1,705 $ (161) $ 77 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) December 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities Other available-for-sale equity securities Other available-for-sale debt securities Derivative assets Total assets Derivative liabilities Net assets Total Fair Value Level 1 Level 2 $ 3,590 2,227 95 302 25 $ 3,418 672 95 75 — $ Level 3 Not Categorized — 1,555 — 222 15 $ — — — 5 10 $ 172 — — — — 6,239 (397) 4,260 — 1,792 (397) 15 — 172 — $ 5,842 $ 4,260 $ 1,395 $ 15 $ 172 The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Amounts included in earnings for derivatives are primarily included in Operating Revenues. December 31, 2016 (in millions) Investments Balance at beginning of period Derivative liability resulting from the acquisition of Piedmont Purchases, sales, issuances and settlements: Purchases Settlements Total gains included on the Consolidated Balance Sheet as regulatory assets or liabilities $ Balance at end of period $ Derivatives (net) 5 — $ 10 (187) Total $ 15 (187) — — — 33 (28) 6 33 (28) 6 5 $ (166) $ (161) December 31, 2015 (in millions) Investments Balance at beginning of period Total pretax realized or unrealized gains (losses) included in earnings Purchases, sales, issuances and settlements: Purchases Sales Settlements $ Total gains included on the Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period $ Derivatives (net) 5 — $ (1) 21 Total $ 4 21 — — — 24 (1) (37) 24 (1) (37) — 4 4 5 $ 10 $ 15 DUKE ENERGY CAROLINAS The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 14. See Note 15 for additional information related to investments by major security type. December 31, 2016 (in millions) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities Other available-for-sale debt securities Derivative assets Total assets Derivative liabilities Net assets 168 Total Fair Value Level 1 Level 2 $ 2,245 1,013 3 33 $2,168 178 — — $ 3,294 2,346 Level 3 — 835 — 33 $ — — 3 — 868 3 (16) — (16) $ 3,278 $2,346 $ 852 Not Categorized $ 77 — $ 3 77 — — — — $ 77 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) December 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities Other available-for-sale debt securities Total Fair Value Level 1 Level 2 $ 2,094 944 3 $ 1,922 246 — $ 3,041 2,168 (45) — $ 2,996 $ 2,168 $ 653 Total assets Derivative liabilities Net assets — 698 — Level 3 Not Categorized $ — — 3 $ 172 — — 698 3 172 (45) — — 3 $ 172 $ There was no change to the Level 3 balance during the years ended December 31, 2016 and 2015. PROGRESS ENERGY The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 14. See Note 15 for additional information related to investments by major security type. December 31, 2016 (in millions) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities Other available-for-sale debt securities Derivative assets Total assets Derivative liabilities Net assets Total Fair Value Level 1 Level 2 $1,861 1,065 65 85 $1,861 454 21 — $ — 611 44 85 3,076 (25) 2,336 — 740 (25) $3,051 $2,336 $ 715 December 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities Other available-for-sale debt securities Derivative assets Total assets Derivative liabilities Net assets Total Fair Value Level 1 Level 2 $ 1,496 1,283 63 11 $ 1,496 426 18 — $ 2,853 (322) 1,940 — 913 (322) $ 2,531 $ 1,940 $ 591 — 857 45 11 DUKE ENERGY PROGRESS The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 14. See Note 15 for additional information related to investments by major security type. December 31, 2016 (in millions) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities and other Other available-for-sale debt securities and other Derivative assets Total assets Derivative liabilities Net assets 169 Total Fair Value Level 1 Level 2 $1,505 708 1 46 $1,505 207 1 — $ — 501 — 46 2,260 (7) 1,713 — 547 (7) $2,253 $1,713 $ 540 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) December 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities and other Other available-for-sale debt securities and other Derivative assets Total assets Derivative liabilities Net assets Total Fair Value Level 1 Level 2 $ 1,178 860 1 2 $1,178 141 1 — $ — 719 — 2 2,041 (98) 1,320 — 721 (98) $ 1,943 $1,320 $ 623 DUKE ENERGY FLORIDA The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 14. See Note 15 for additional information related to investments by major security type. December 31, 2016 (in millions) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities and other Other available-for-sale debt securities and other Derivative assets Total assets Derivative liabilities Net assets Total Fair Value Level 1 Level 2 $ 356 357 48 39 $356 247 4 — $ — 110 44 39 800 (12) 607 — 193 (12) $ 788 $607 $ 181 December 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities and other Other available-for-sale debt securities and other Derivative assets Total assets Derivative liabilities Net assets (liabilities) 170 Total Fair Value Level 1 Level 2 $ 318 423 51 7 $ 318 285 6 — $ — 138 45 7 799 (216) 609 — 190 (216) $ 583 $ 609 $ (26) PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY OHIO The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which are disclosed in Note 14. December 31, 2016 (in millions) Total Fair Value Level 1 Level 2 Level 3 5 (6) $ — — $ — (6) $ 5 — $ (1) $ — $ (6) $ 5 $ Derivative assets Derivative liabilities Net (liabilities) assets December 31, 2015 (in millions) Total Fair Value Derivative assets Derivative liabilities Level 1 Level 2 Level 3 3 (7) $ — — $ — (7) $ 3 — $ (4) $ — $ (7) $ 3 $ Net (liabilities) assets The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Derivatives (net) Years Ended December 31, (in millions) 2016 2015 Balance at beginning of period Total pretax realized or unrealized gains (losses) included in earnings Purchases, sales, issuances and settlements: Purchases Settlements Total gains included on the Consolidated Balance Sheet as regulatory assets or liabilities $ 3 — $(18) 21 5 (5) 2 5 (5) — Balance at end of period $ 5 $ 3 DUKE ENERGY INDIANA The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 14. See Note 15 for additional information related to investments by major security type. December 31, 2016 (in millions) Total Fair Value Other available-for-sale equity securities Other available-for-sale debt securities and other Derivative assets Total assets Derivative liabilities Net assets Level 2 Level 3 $ 79 31 16 Level 1 $ 79 — — $— 31 — $ — — 16 126 (2) 79 (2) 31 — 16 — $124 $ 77 $ 31 $ 16 December 31, 2015 (in millions) Other available-for-sale equity securities Other available-for-sale debt securities and other Derivative assets Net assets 171 Total Fair Value Level 1 Level 2 Level 3 $ 71 30 7 $ 71 2 — $— 28 — $ — — 7 $ 108 $ 73 $ 28 $ 7 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Derivatives (net) Years Ended December 31, (in millions) 2016 2015 Balance at beginning of period Purchases, sales, issuances and settlements: Purchases Settlements Total gains included on the Consolidated Balance Sheet as regulatory assets or liabilities $ 7 $ 14 29 (24) 4 19 (30) 4 Balance at end of period $ 16 $ 7 QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS The following table includes quantitative information about the Duke Energy Registrants’ derivatives classified as Level 3. December 31, 2016 Investment Type Fair Value (in millions) Valuation Technique Unobservable Input Range Duke Energy Natural gas contracts Financial Transmission Rights (FTRs) Total Level 3 derivatives $(187) 21 $(166) Discounted cash flow RTO auction pricing Forward natural gas curves – price per million British thermal unit (MMBtu) FTR price – per megawatt-hour (MWh) $ 2.31 — $ 4.18 (0.83) — 9.32 Duke Energy Ohio $ 5 RTO auction pricing FTR price – per MWh $ 0.77 — $ 3.52 16 RTO auction pricing FTR price – per MWh Duke Energy Indiana (0.83) — 9.32 December 31, 2015 Investment Type Fair Value (in millions) Duke Energy Duke Energy Ohio Duke Energy Indiana Valuation Technique Unobservable Input Range $ 10 3 RTO auction pricing RTO auction pricing FTR price – per MWh FTR price – per MWh $ (0.74) — $ 7.29 0.67 — 2.53 7 RTO auction pricing FTR price – per MWh (0.74) — 7.29 OTHER FAIR VALUE DISCLOSURES The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements. December 31, 2016 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana December 31, 2015 Book Value Fair Value Book Value Fair Value $ 47,895 9,603 17,541 7,011 6,125 1,884 3,786 $49,161 10,494 19,107 7,357 6,728 2,020 4,260 $38,868 8,367 14,464 6,518 4,266 1,598 3,768 $41,767 9,156 15,856 6,757 4,908 1,724 4,219 At both December 31, 2016 and December 31, 2015, fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper and nonrecourse notes payable of VIEs are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates. 172 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 17. VARIABLE INTEREST ENTITIES A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. A qualitative analysis of control determines the party that consolidates a VIE. This assessment is based on (i) what party has the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) what party has rights to receive benefits or is obligated to absorb losses that could potentially be significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment. DERF, DEPR and DEFR borrow amounts under credit facilities to buy these receivables. Borrowing availability from the credit facilities is limited to the amount of qualified receivables purchased. The sole source of funds to satisfy the related debt obligations is cash collections from the receivables. Amounts borrowed under the credit facilities are reflected on the Consolidated Balance Sheets as Long-Term Debt. The most significant activity that impacts the economic performance of DERF, DEPR and DEFR are the decisions made to manage delinquent receivables. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida consolidate DERF, DEPR and DEFR, respectively, as they make those decisions. Receivables Financing – CRC CRC is a bankruptcy remote, special purpose entity indirectly owned by Duke Energy. On a revolving basis, CRC buys certain accounts receivable arising from the sale of electricity, natural gas and related services from Duke Energy Ohio and Duke Energy Indiana. CRC borrows amounts under a credit facility to buy the receivables from Duke Energy Ohio and Duke Energy Indiana. Borrowing availability from the credit facility is limited to the amount of qualified receivables sold to CRC. The sole source of funds to satisfy the related debt obligation is cash collections from the receivables. Amounts borrowed under the credit facility are reflected on Duke Energy’s Consolidated Balance Sheets as Long-Term Debt. The proceeds Duke Energy Ohio and Duke Energy Indiana receive from the sale of receivables to CRC are typically 75 percent cash and 25 percent in the form of a subordinated note from CRC. The subordinated note is a retained interest in the receivables sold. Depending on collection experience, additional equity infusions to CRC may be required by Duke Energy to maintain a minimum equity balance of $3 million. CRC is considered a VIE because (i) equity capitalization is insufficient to support its operations, (ii) power to direct the activities that most significantly impact the economic performance of the entity are not performed by the equity holder and (iii) deficiencies in net worth of CRC are funded by Duke Energy. The most significant activities that impact the economic performance of CRC are decisions made to manage delinquent receivables. Duke Energy consolidates CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy Indiana consolidate CRC. CONSOLIDATED VIEs The obligations of these VIEs discussed in the following paragraphs are nonrecourse to the Duke Energy Registrants. The registrants have no requirement to provide liquidity to, purchase assets of or guarantee performance of these VIEs unless noted in the following paragraphs. No financial support was provided to any of the consolidated VIEs during the years ended December 31, 2016, 2015 and 2014, or is expected to be provided in the future, that was not previously contractually required. Receivables Financing – DERF/DEPR/DEFR Duke Energy Receivables Finance Company, LLC (DERF), Duke Energy Progress Receivables, LLC (DEPR) and Duke Energy Florida Receivables, LLC (DEFR) are bankruptcy remote, special purpose subsidiaries of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, respectively. DERF, DEPR and DEFR are wholly owned limited liability companies with separate legal existence from their parent companies and their assets are not generally available to creditors of their parent companies. On a revolving basis, DERF, DEPR and DEFR buy certain accounts receivable arising from the sale of electricity and related services from their parent companies. Receivables Financing – Credit Facilities The following table outlines amounts and expiration dates of the credit facilities described above. Duke Energy Duke Energy Carolinas CRC Expiration date Credit facility amount (in millions) Amounts borrowed at December 31, 2016 Amounts borrowed at December 31, 2015 Duke Energy Progress Duke Energy Florida DERF DEPR DEFR December 2018 December 2018 $ 325 $ 425 325 425 325 425 February 2019 $ 300 300 254 April 2019 $ 225 225 225 Nuclear Asset-Recovery Bonds – DEFPF DEFPF is a bankruptcy remote, wholly owned special purpose subsidiary of Duke Energy Florida. DEFPF was formed in 2016 for the sole purpose of issuing nuclear asset-recovery bonds to finance Duke Energy Florida’s unrecovered regulatory asset related to Crystal River Unit 3. In June 2016, DEFPF issued $1,294 million of senior secured bonds and used the proceeds to acquire nuclear asset-recovery property from Duke Energy Florida. The nuclear asset-recovery property acquired includes the right to impose, bill, collect and adjust a non-bypassable nuclear asset-recovery charge from all 173 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy Florida retail customers until the bonds are paid in full and all financing costs have been recovered. The nuclear asset-recovery bonds are secured by the nuclear asset-recovery property and cash collections from the nuclear asset-recovery charges are the sole source of funds to satisfy the debt obligation. The bondholders have no recourse to Duke Energy Florida. For additional information see Notes 4 and 6. DEFPF is considered a VIE primarily because the equity capitalization is insufficient to support its operations. Duke Energy Florida has the power to direct the significant activities of the VIE as described above and therefore Duke Energy Florida is considered the primary beneficiary and consolidates DEFPF. The following table summarizes the impact of DEFPF on Duke Energy Florida’s Consolidated Balance Sheets. (in millions) December 31, 2016 $ Receivables of VIEs Regulatory Assets: Current Current Assets: Other Regulatory Assets and Deferred Debits: Regulatory assets Current Liabilities: Other Current maturities of long-term debt Long-Term Debt 6 50 53 1,142 17 62 1,217 Commercial Renewables Certain of Duke Energy’s renewable energy facilities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves in support of debt financings. Assets are restricted and cannot be pledged as collateral or sold to third parties without prior approval of debt holders. The activities that most significantly impact the economic performance of these renewable energy facilities were decisions associated with siting, negotiating PPAs, engineering, procurement and construction and decisions associated with ongoing operations and maintenance-related activities. Duke Energy consolidates the entities as it is responsible for all of these decisions. The table below presents material balances reported on Duke Energy’s Consolidated Balance Sheets related to renewables VIEs. (in millions) December 31, 2016 $ Current Assets: Other Property, plant and equipment, cost Accumulated depreciation and amortization Current maturities of long-term debt Long-Term Debt Deferred Credits and Other Liabilities: Deferred income taxes Deferred Credits and Other Liabilities: Other 223 3,419 (453) 198 1,097 275 252 December 31, 2015 $ 138 2,015 (321) 108 968 289 33 Duke Energy Indiana NON-CONSOLIDATED VIEs The following tables summarize the impact of non-consolidated VIEs on the Consolidated Balance Sheets. December 31, 2016 Duke Energy Pipeline Investments Commercial Renewables Other Total Duke Energy Ohio $ — $ — $— $— $ 82 $ 101 487 174 90 751 — — 12 — — 12 — — $ 499 $ 174 $ 90 $763 $ 82 $ 101 Other current liabilities — — 3 3 — — Deferred credits and other liabilities — — 13 13 — Total liabilities $ — $ — $ 16 $ 16 $— $ Net assets (liabilities) $ 499 $ 174 $ 74 $747 $ 82 $ 101 (in millions) Receivables from affiliated companies Investments in equity method unconsolidated affiliates Investments and other assets Total assets 174 — — PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) December 31, 2015 Duke Energy (in millions) Pipeline Investments Commercial Renewables Other Total $ — 113 $ 113 — — $ — $ 113 $ — 235 $ 235 — — $ — $ 235 $— 39 $ 39 3 14 $ 17 $ 22 $— 387 $ 387 3 14 $ 17 $ 370 Receivables from affiliated companies Investments in equity method unconsolidated affiliates Total assets Other current liabilities Deferred credits and other liabilities Total liabilities Net assets The Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above except for the power purchase agreement with OVEC, which is discussed below, and various guarantees, some of which are reflected in the table above as Deferred credits and other liabilities. For more information on various guarantees, refer to Note 7. Investment Amount (in millions) Entity Name ACP Sabal Trail Constitution Total 47% 7.5% 24% $ $ 265 140 82 487 $ $ $ 47 — — $— $ 47 $ $ $ 60 — 60 — — — 60 OVEC December 31, 2015 $ $ 47 Duke Energy holds a 50 percent equity interest in DATC. DATC is considered a VIE due to having insufficient equity to finance their own activities without subordinated financial support. The activities that most significantly impact DATC’s economic performance are decisions related to investing in existing and development of new transmission facilities. The power to direct these activities is jointly and equally shared by Duke Energy and the other joint venture partner, American Transmission Company, LLC, therefore Duke Energy does not consolidate DATC. Duke Energy holds a 50 percent equity interest in Pioneer. Pioneer is considered a VIE due to having insufficient equity to finance their own activities without subordinated financial support. The activities that most significantly impact Pioneer’s economic performance are decisions related to the development of new transmission facilities. The power to direct these activities is jointly and equally shared by Duke Energy and the other joint venture partner, American Electric Power, therefore Duke Energy does not consolidate Pioneer. Duke Energy has investments in various joint ventures with pipeline projects currently under construction. These entities are considered VIEs due to having insufficient equity to finance their own activities without subordinated financial support. Duke Energy does not have the power to direct the activities that most significantly impact the economic performance, the obligation to absorb losses or the right to receive benefits of these VIEs and therefore does not consolidate these entities. The table below presents Duke Energy’s ownership interest and investment balance in these joint ventures. December 31, 2016 Duke Energy Indiana Other Pipeline Investments Ownership Interest(a) Duke Energy Ohio Duke Energy Ohio’s 9 percent ownership interest in OVEC is considered a non-consolidated VIE due to having insufficient equity to finance their activities without subordinated financial support. As a counterparty to an inter-company power agreement (ICPA), Duke Energy Ohio has a contractual arrangement to buy power from OVEC’s power plants through June 2040 commensurate with its power participation ratio, which is equivalent to Duke Energy Ohio’s ownership interest. Costs, including fuel, operating expenses, fixed costs, debt amortization, and interest expense are allocated to counterparties to the ICPA based on their power participation ratio. The value of the ICPA is subject to variability due to fluctuation in power prices and changes in OVEC’s cost of business, including costs associated with its 2,256 MW of coal-fired generation capacity. Deterioration in the credit quality, or bankruptcy of one or more parties to the ICPA could increase the costs of OVEC. In addition, certain proposed environmental rulemaking could result in future increased cost allocations. 52 61 — 113 (a) The percentages presented reflect Duke Energy’s ownership interest as of December 31, 2016. The investment amount presented for ACP as of December 31, 2015, reflects 40 percent ownership interest prior to acquiring an additional 7 percent as a result of the Piedmont acquisition. See Notes 2 and 4 for additional information related to the Piedmont acquisition and increased ownership of ACP. Commercial Renewables Duke Energy has investments in various renewable energy project entities. Some of these entities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves in support of debt financings. Duke Energy does not consolidate these VIEs because power to direct and control key activities is shared jointly by Duke Energy and other owners. During the year ended December 31, 2016, Duke Energy recorded a $71 million pretax OTTI of certain wind project investments within Equity in earnings (losses) of unconsolidated affiliates on Duke Energy’s Consolidated Statements of Operations. See Note 12 for additional information related to the OTTI. CRC See discussion under Consolidated VIEs for additional information related to CRC. Amounts included in Receivables from affiliated companies in the above table for Duke Energy Ohio and Duke Energy Indiana reflect their retained interest in receivables sold to CRC. These subordinated notes held by Duke Energy Ohio and Duke Energy Indiana are stated at fair value. Carrying values of 175 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) retained interests are determined by allocating carrying value of the receivables between assets sold and interests retained based on relative fair value. The allocated bases of the subordinated notes are not materially different than their face value because (i) the receivables generally turnover in less than two months, (ii) credit losses are reasonably predictable due to the broad customer base and lack of significant concentration and (iii) the equity in CRC is subordinate to all retained interests and thus would absorb losses first. The hypothetical effect on fair value of the retained interests assuming both a 10 percent and a 20 percent unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio and Duke Energy Indiana on the retained interests using the acceptable yield method. This method generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both retained interests and purchased beneficial interest whenever it is determined that an OTTI has occurred. Key assumptions used in estimating fair value are detailed in the following table. Duke Energy Ohio Anticipated credit loss ratio Discount rate Receivable turnover rate Duke Energy Indiana 2016 2015 2016 2015 0.5% 1.5% 13.3% 0.6% 1.2% 12.9% 0.3% 1.5% 10.6% 0.3% 1.2% 10.6% The following table shows the gross and net receivables sold. Duke Energy Ohio (in millions) Receivables sold Less: Retained interests Net receivables sold Duke Energy Indiana 2016 2015 2016 $ 267 82 $ 185 $ 233 47 $ 186 $ 306 101 $ 205 2015 $ 260 60 200 $ The following table shows sales and cash flows related to receivables sold. (in millions) Sales Receivables sold Loss recognized on sale Cash Flows Cash proceeds from receivables sold Collection fees received Return received on retained interests Cash flows from the sales of receivables are reflected within Cash Flows From Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Consolidated Statements of Cash Flows. Collection fees received in connection with servicing transferred accounts receivable are included in Operation, maintenance and other on Duke Energy Ohio’s and Duke Energy Indiana’s Consolidated Statements of Operations and Comprehensive Income. The loss recognized on sales of receivables is Duke Energy Ohio Duke Energy Indiana Years Ended December 31, Years Ended December 31, 2016 2015 2014 2016 2015 2014 $1,926 9 $1,963 9 $2,246 11 $2,635 11 $ 2,627 11 $ 2,913 11 1,882 1 2 1,995 1 3 2,261 1 4 2,583 1 5 2,670 1 5 2,932 1 6 calculated monthly by multiplying receivables sold during the month by the required discount. The required discount is derived monthly utilizing a threeyear weighted average formula that considers charge-off history, late charge history and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is the prior month-end LIBOR plus a fixed rate of 1.00 percent. 176 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 18. COMMON STOCK Basic Earnings Per Share (EPS) is computed by dividing net income attributable to Duke Energy common stockholders, adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted average number of common stock outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted average number of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, were exercised or settled. Duke Energy’s participating securities are restricted stock units that are entitled to dividends declared on Duke Energy common stock during the restricted stock unit’s vesting periods. The following table presents Duke Energy’s basic and diluted EPS calculations and reconciles the weighted average number of common stock outstanding to the diluted weighted average number of common stock outstanding. Years Ended December 31, (in millions, except per share amounts) Income from continuing operations attributable to Duke Energy common stockholders excluding impact of participating securities Weighted average shares outstanding – basic Weighted average shares outstanding – diluted Earnings per share from continuing operations attributable to Duke Energy common stockholders Basic Diluted Potentially dilutive items excluded from the calculation(a) Dividends declared per common share 2016 2015 2014 $2,567 691 691 $2,640 694 694 $ 2,529 707 707 $ 3.71 $ 3.71 2 $ 3.36 $ 3.80 $ 3.80 2 $ 3.24 $ 3.58 $ 3.58 2 $ 3.15 (a) Performance stock awards were not included in the dilutive securities calculation because the performance measures related to the awards had not been met. Stock Issuance Accelerated Stock Repurchase Program In March 2016, Duke Energy marketed an equity offering of 10.6 million shares of common stock. In lieu of issuing equity at the time of the offering, Duke Energy entered into Equity Forwards with Barclays. The Equity Forwards required Duke Energy to either physically settle the transactions by issuing 10.6 million shares, or net settle in whole or in part through the delivery or receipt of cash or shares. On October 5, 2016, following the close of the Piedmont acquisition, Duke Energy physically settled the Equity Forwards in full by delivering 10.6 million shares of common stock in exchange for net cash proceeds of approximately $723 million. The net proceeds were used to finance a portion of the Piedmont acquisition. On April 6, 2015, Duke Energy entered into agreements with each of Goldman, Sachs & Co. and JPMorgan Chase Bank, National Association (the Dealers) to repurchase a total of $1.5 billion of Duke Energy common stock under an accelerated stock repurchase program (the ASR). Duke Energy made payments of $750 million to each of the Dealers and was delivered 16.6 million shares, with a total fair value of $1.275 billion, which represented approximately 85 percent of the total number of shares of Duke Energy common stock expected to be repurchased under the ASR. The company recorded the $1.5 billion payment as a reduction to common stock as of April 6, 2015. In June 2015, the Dealers delivered 3.2 million additional shares to Duke Energy to complete the ASR. Approximately 19.8 million shares, in total, were delivered to Duke Energy and retired under the ASR at an average price of $75.75 per share. The final number of shares repurchased was based upon the average of the daily volume weighted average stock prices of Duke Energy’s common stock during the term of the program, less a discount. 177 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 19. SEVERANCE As part of strategic planning processes launched in 2015, Duke Energy continued to implement targeted cost savings initiatives during 2016 aimed at reducing operations and maintenance expense. The initiatives included efforts to reduce costs through the standardization of processes and systems, leveraging technology and workforce optimization throughout the company. Also during 2016, Duke Energy and Piedmont announced severance plans covering certain eligible employees whose employment will be involuntarily terminated without cause as a result of Duke Energy’s acquisition of Piedmont. These reductions are a part of the synergies expected to be realized with the acquisition. Refer to Note 2 for additional information on the Piedmont acquisition. (in millions) Year Ended December 31, 2016 Year Ended December 31, 2015 As part of the cost savings initiatives and the Piedmont integration, voluntary and involuntary severance benefit costs were accrued for a total of approximately 600 employees in 2016 and 900 employees in 2015. The following table presents the direct and allocated severance and related expenses recorded by the Duke Energy Registrants. Amounts are included within Operation, maintenance and other on the Consolidated Statements of Operations. Duke Energy $ 118 Duke Energy Carolinas $ 39 Progress Energy $ 40 Duke Energy Progress $ 23 Duke Energy Florida $ 17 Duke Energy Ohio $ 3 Duke Energy Indiana $ 7 142 93 36 28 8 2 6 The table below presents the severance liability for past and ongoing severance plans including the plans described above. Amounts for Duke Energy Indiana and Duke Energy Ohio are not material. (in millions) Balance at December 31, 2015 Provision/Adjustments Cash Reductions Balance at December 31, 2016 20. Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida $ 136 110 (167) $ 78 18 (83) $ 23 20 (29) $ 19 11 (24) $ 4 9 (5) $ $ 13 $ 14 $ $ 8 79 6 STOCK-BASED COMPENSATION The Duke Energy Corporation 2015 Long-Term Incentive Plan (the 2015 Plan) provides for the grant of stock-based compensation awards to employees and outside directors. The 2015 Plan reserves 10 million shares of common stock for issuance. Duke Energy has historically issued new shares upon exercising or vesting of share-based awards. However, Duke Energy may use a combination of new share issuances and open market repurchases for share-based awards that are exercised or vest in the future. Duke Energy has not determined with certainty the amount of such new share issuances or open market repurchases. The following table summarizes the total expense recognized by the Duke Energy Registrants, net of tax, for stock-based compensation. Duke Energy’s pretax stock-based compensation costs, the tax benefit associated with stock-based compensation expense and stock-based compensation costs capitalized are included in the following table. Years Ended December 31, Years Ended December 31, (in millions) 2016 2015 2014 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 35 12 12 7 5 2 3 $ 38 14 14 9 5 2 4 $ 38 12 14 9 5 5 3 (in millions) 2016 2015 2014 Restricted stock unit awards Performance awards Pretax stock-based compensation cost Tax benefit associated with stock-based compensation expense Stock-based compensation costs capitalized $ 36 19 $ 55 $ 20 2 $ 38 23 $ 61 $ 23 3 $ 39 22 $ 61 $ 23 4 RESTRICTED STOCK UNIT AWARDS Restricted stock unit awards generally vest over periods from immediate to three years. Fair value amounts are based on the market price of Duke Energy’s common stock on the grant date. The following table includes information related to restricted stock unit awards. Years Ended December 31, Shares awarded (in thousands) Fair value (in millions) 178 2016 2015 2014 684 $ 52 524 $ 41 557 $ 40 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) The following table summarizes information about restricted stock unit awards outstanding. The following table summarizes information about stock-based performance awards outstanding and assumes payout at the maximum level. Weighted Average Grant Date Fair Shares Value (in thousands) (per share) Outstanding at December 31, 2015 Piedmont transfers in Granted Vested Forfeited Outstanding at December 31, 2016 Restricted stock unit awards expected to vest 953 113 684 (525) (86) 1,139 1,056 $ 75 79 75 73 76 76 76 Outstanding at December 31, 2015 Granted Vested Forfeited Outstanding at December 31, 2016 Stock-based performance awards expected to vest 1,697 675 (544) (104) 1,724 1,199 $ 40 38 46 38 38 38 The total grant date fair value of shares vested during the years ended December 31, 2016, 2015 and 2014 was $25 million, $26 million and $27 million, respectively. At December 31, 2016, Duke Energy had $24 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of one year, ten months. The total grant date fair value of shares vested during the years ended December 31, 2016, 2015 and 2014 was $38 million, $41 million and $52 million, respectively. At December 31, 2016, Duke Energy had $27 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of one year, ten months. STOCK OPTIONS PERFORMANCE AWARDS Stock options are granted with a maximum option term of 10 years and with an exercise price not less than the market price of Duke Energy’s common stock on the grant date. The following table summarizes information about stock options outstanding. Stock-based performance awards generally vest after three years if performance targets are met. Performance awards granted in 2016, 2015 and 2014 contain market conditions based on the total shareholder return (TSR) of Duke Energy stock relative to a predefined peer group (relative TSR). These awards are valued using a path-dependent model that incorporates expected relative TSR into the fair value determination of Duke Energy’s performance-based share awards. The model uses three-year historical volatilities and correlations for all companies in the predefined peer group, including Duke Energy, to simulate Duke Energy’s relative TSR as of the end of the performance period. For each simulation, Duke Energy’s relative TSR associated with the simulated stock price at the end of the performance period plus expected dividends within the period results in a value per share for the award portfolio. The average of these simulations is the expected portfolio value per share. Actual life to date results of Duke Energy’s relative TSR for each grant are incorporated within the model. For performance awards granted in 2016, the model used a risk-free interest rate of 0.9 percent, which reflects the yield on three-year Treasury bonds as of the grant date, and an expected volatility of 16.1 percent based on Duke Energy’s historical volatility over three years using daily stock prices. The performance awards granted in 2016 also contain a performance condition based on Duke Energy’s cumulative adjusted EPS. The following table includes information related to stock-based performance awards. Outstanding at December 31, 2015 Exercised Outstanding at December 31, 2016 2016 2015 2014 675 $ 25 642 $ 26 542 $ 19 Stock Options (in thousands) Weighted Average Exercise Price (per share) 103 (103) — $ 69 69 — The following table summarizes additional information related to stock options exercised and granted. Years Ended December 31, Years Ended December 31, Shares awarded (in thousands) Fair value (in millions) Shares (in thousands) Weighted Average Grant Date Fair Value (per share) 179 (in millions) 2016 2015 2014 Intrinsic value of options exercised Tax benefit related to options exercised Cash received from options exercised $ 1 — 7 $ 5 2 17 $ 6 2 25 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 21. EMPLOYEE BENEFIT PLANS qualified, non-contributory defined benefit plans, but are participants in the Money Purchase Pension (MPP) plan, discussed below. Duke Energy uses a December 31 measurement date for its defined benefit retirement plan assets and obligations. Net periodic benefit costs disclosed in the tables below represent the cost of the respective benefit plan for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment. Amounts presented in the tables below for the Subsidiary Registrants represent the amounts of pension and other post-retirement benefit cost allocated by Duke Energy for employees of the Subsidiary Registrants. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and post-retirement benefit cost for employees of Duke Energy’s shared services affiliate that provide support to the Subsidiary Registrants. These allocated amounts are included in the governance and shared service costs discussed in Note 13. Duke Energy’s policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefit payments to be paid to plan participants. The following table includes information related to the Duke Energy Registrants’ contributions to its U.S. qualified defined benefit pension plans. DEFINED BENEFIT RETIREMENT PLANS Duke Energy or its affiliates maintain, and the Subsidiary Registrants participate in, qualified, non-contributory defined benefit retirement plans. The plans cover most U.S. employees using a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits based upon a percentage of current eligible earnings based on age, or age and years of service and interest credits. Certain employees are covered under plans that use a final average earnings formula. Under these average earnings formulas, a plan participant accumulates a retirement benefit equal to the sum of percentages of their (i) highest three-year, four-year, or five-year average earnings, (ii) highest three-year, four-year, or five-year average earnings in excess of covered compensation per year of participation (maximum of 35 years), (iii) highest three-year average earnings times years of participation in excess of 35 years. Duke Energy also maintains, and the Subsidiary Registrants participate in, non-qualified, non-contributory defined benefit retirement plans which cover certain executives. As of January 1, 2014, the qualified and non-qualified, non-contributory defined benefit plans are closed to new and rehired non-union and certain unionized employees. Piedmont employees hired or rehired after December 31, 2007, cannot participate in the Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 160 $ 45 $ 45 $ 25 $ 20 $ 4 $ 9 $ 155 302 — $ 43 91 — $ 43 83 — $ 24 42 — $ 20 40 — $ 5 8 — $ 9 19 — Duke Energy Duke Energy Carolinas Service cost Interest cost on projected benefit obligation Expected return on plan assets Amortization of actuarial loss Amortization of prior service credit Settlement charge Other $ 147 335 (519) 134 (17) 3 8 $ 48 86 (142) 33 (8) — 2 $ Net periodic pension costs(a)(b) $ 91 $ 19 $ (in millions) Anticipated Contributions: 2017 Contributions Made: 2016 2015 2014 QUALIFIED PENSION PLANS Components of Net Periodic Pension Costs Year Ended December 31, 2016 (in millions) 180 Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 42 106 (168) 51 (3) — 3 $ 24 49 (82) 23 (2) — 1 $ 19 55 (84) 29 (1) — 1 $ 4 19 (27) 4 — — 1 $ 9 28 (42) 11 (1) — 1 31 $ 13 $ 19 $ 1 $ 6 Progress Energy PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Year Ended December 31, 2015 Duke Energy (in millions) Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Service cost Interest cost on projected benefit obligation Expected return on plan assets Amortization of actuarial loss Amortization of prior service (credit) cost Other $ 159 324 (516) 166 (15) 8 $ 50 83 (139) 39 (7) 2 $ 44 104 (171) 65 (3) 3 $ 23 $ 48 (79) 33 (2) 1 20 54 (87) 31 (1) 1 $ 4 18 (26) 7 — — $ 10 27 (42) 13 1 1 Net periodic pension costs(a)(b) $ 126 $ 28 $ 42 $ 24 18 $ 3 $ 10 $ Year Ended December 31, 2014 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Service cost Interest cost on projected benefit obligation Expected return on plan assets Amortization of actuarial loss Amortization of prior service credit Other $ 135 344 (511) 150 (15) 8 $ 41 85 (132) 36 (8) 2 $ 40 112 (173) 68 (3) 3 $ 21 54 (85) 32 (2) 1 $ 20 57 (85) 32 (1) 1 $ 4 20 (27) 4 — — $ 9 29 (41) 13 — 1 Net periodic pension costs(a)(b) $ 111 $ 24 $ 47 $ 21 $ 24 $ 1 $ 11 (in millions) (a) Duke Energy amounts exclude $8 million, $9 million and $10 million for the years ended December 2016, 2015 and 2014, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006. (b) Duke Energy Ohio amounts exclude $4 million, $4 million and $5 million for the years ended December 2016, 2015 and 2014, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006. Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets Year Ended December 31, 2016 (in millions) Regulatory assets, net increase Accumulated other comprehensive loss (income) Deferred income tax expense Prior year service credit arising during the year Amortization of prior year actuarial losses Net amount recognized in accumulated other comprehensive income Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 214 $ 4 $ 34 $ 18 $ 16 $ 2 $ 9 $ 4 (2) (7) $ — — — $ — — (1) $ — — — $ — — — $— — — $— — — $ (5) $ — $ (1) $ — $ — $— $— Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 173 $ 65 $ 18 $ 14 $ 4 $ 14 $ 11 $ 6 4 1 (11) 3 (6) $ — — — — — — $ 5 — — (4) — — $ — — — — — — $ — — — — — — $— — — — — — $— — — — — — $ (3) $ — $ 1 $ — $ — $— $— Year Ended December 31, 2015 (in millions) Regulatory assets, net increase (decrease) Accumulated other comprehensive (income) loss Deferred income tax expense Actuarial losses arising during the year Prior year service credit arising during the year Amortization of prior year actuarial losses Transfer with the Midwest Generation Disposal Group Reclassification of actuarial losses to regulatory assets Net amount recognized in accumulated other comprehensive income 181 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Reconciliation of Funded Status to Net Amount Recognized Year Ended December 31, 2016 (in millions) Change in Projected Benefit Obligation Obligation at prior measurement date Obligation assumed from acquisition Service cost Interest cost Actuarial loss Transfers Plan amendments Benefits paid Impact of settlements Obligation at measurement date Accumulated Benefit Obligation at measurement date Change in Fair Value of Plan Assets Plan assets at prior measurement date Assets received from acquisition Employer contributions Actual return on plan assets Benefits paid Impact of settlements Transfers Plan assets at measurement date Funded status of plan Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 7,727 352 147 335 307 — (52) (679) (6) $ 8,131 $ 8,006 $1,995 — 48 86 46 14 (3) (234) — $1,952 $1,952 $2,451 — 42 106 111 (3) — (195) — $2,512 $2,479 $1,143 — 24 49 52 (3) — (107) — $1,158 $1,158 $1,276 — 19 55 57 — — (84) — $1,323 $1,290 $ 453 — 4 19 13 (3) (3) (36) — $ 447 $ 436 $ 649 — 9 28 41 — (15) (54) — $ 658 $ 649 $ 8,136 343 155 582 (679) (6) — $ 8,531 $ 400 $2,243 — 43 159 (234) — 14 $2,225 $ 273 $2,640 — 43 190 (195) — (3) $2,675 $ 163 $1,284 — 24 92 (107) — (3) $1,290 $ 132 $1,321 — 20 95 (84) — — $1,352 $ 29 $ 433 — 5 29 (36) — (3) $ 428 $ (19) $ 655 — 9 47 (54) — — $ 657 $ (1) Year Ended December 31, 2015 (in millions) Change in Projected Benefit Obligation Obligation at prior measurement date Obligation transferred with Midwest Generation Disposal Group Service cost Interest cost Actuarial gain Transfers Plan amendments Benefits paid Obligation at measurement date Accumulated Benefit Obligation at measurement date Change in Fair Value of Plan Assets Plan assets at prior measurement date Obligation transferred with Midwest Generation Disposal Group Employer contributions Actual return on plan assets Benefits paid Transfers Plan assets at measurement date Funded status of plan Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 8,107 (83) 159 324 (241) — (6) (533) $ 7,727 $ 7,606 $2,053 — 50 83 (53) 8 — (146) $1,995 $1,993 $ 2,557 — 44 104 (111) 4 — (147) $ 2,451 $ 2,414 $ 1,187 — 23 48 (46) 7 — (76) $ 1,143 $ 1,143 $1,335 — 20 54 (62) (3) — (68) $1,276 $1,240 $ 469 — 4 18 (9) 8 — (37) $ 453 $ 442 $ 673 — 10 27 (15) — (4) (42) $ 649 $ 628 $ 8,498 (81) 302 (50) (533) — $ 8,136 $ 409 $2,300 — 91 (10) (146) 8 $2,243 $ 248 $ 2,722 — 83 (22) (147) 4 $ 2,640 $ 189 $ 1,321 — 42 (10) (76) 7 $ 1,284 $ 141 $1,363 — 40 (11) (68) (3) $1,321 $ 45 $ 456 — 8 (2) (37) 8 $ 433 $ (20) $ 681 — 19 (3) (42) — $ 655 $ 6 182 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Amounts Recognized in the Consolidated Balance Sheets December 31, 2016 (in millions) Prefunded pension(a) Noncurrent pension liability(b) Net asset recognized Regulatory assets Accumulated other comprehensive (income) loss Deferred income tax asset Prior service credit Net actuarial loss Net amounts recognized in accumulated other comprehensive loss Amounts to be recognized in net periodic pension costs in the next year Unrecognized net actuarial loss Unrecognized prior service credit Duke Energy Duke Energy Carolinas Duke Energy Progress $ 518 $ 118 $ 400 $ 2,098 $ $ $ $ 273 — 273 476 $ 225 $ 62 $ 163 $ 805 $ $ $ $ $ (41) (6) 123 $ 76 $ — — — $ — $ (6) — 16 $ 10 $ 147 (24) $ 31 (8) $ 52 (3) Progress Energy Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 91 62 29 426 $ 6 $ 25 $ (19) $ 81 $ — $ 1 $ (1) $ 171 $ — — — $ — $ — — — $ — $— — — $— $ — — — $ — $ 23 (2) $ 29 (1) $ 5 — $ 132 — 132 378 $ $ $ $ 8 (2) December 31, 2015 (in millions) Prefunded pension(a) Noncurrent pension liability(b) Net asset recognized Regulatory assets Accumulated other comprehensive (income) loss Deferred income tax asset Prior service credit Net actuarial loss Net amounts recognized in accumulated other comprehensive loss(c) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 474 $ 65 $ 409 $ 1,884 $ 252 $ 4 $ 248 $ 472 $ 232 $ 43 $ 189 $ 771 $ 145 $ 4 $ 141 $ 360 $ 84 $ 39 $ 45 $ 410 $ 1 $ 21 $ (20) $ 79 $ 6 $ — $ 6 $ 162 $ (45) (4) 130 $ 81 $ — — — $ — $ (6) — 17 $ 11 $ — — — $ — $ — — — $ — $— — — $— $ — — — $ — (a) Included in Other within Investments and Other Assets on the Consolidated Balance Sheets. (b) Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets. (c) Excludes accumulated other comprehensive income of $13 million as of December 31, 2015, net of tax, associated with a Brazilian retirement plan. Information for Plans with Accumulated Benefit Obligation in Excess of Plan Assets December 31, 2016 (in millions) Projected benefit obligation Accumulated benefit obligation Fair value of plan assets Duke Energy Progress Energy Duke Energy Florida Duke Energy Ohio $ 1,299 1,239 1,182 $ 665 633 604 $ 665 633 604 $ 311 299 286 December 31, 2015 (in millions) Projected benefit obligation Accumulated benefit obligation Fair value of plan assets 183 Duke Energy Progress Energy Duke Energy Florida Duke Energy Ohio $ 1,216 1,158 1,151 $ 611 575 574 $ 611 575 574 $ 307 298 289 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Assumptions Used for Pension Benefits Accounting The discount rate used to determine the current year pension obligation and following year’s pension expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected. The average remaining service period of active covered employees is nine years for Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana. The following tables present the assumptions or range of assumptions used for pension benefit accounting. December 31, 2016 Benefit Obligations Discount rate Salary increase Net Periodic Benefit Cost Discount rate Salary increase Expected long-term rate of return on plan assets 2015 2014 4.10% 4.00% - 4.50% 4.40 % 4.00% - 4.40 % 4.10% 4.00% - 4.40% 4.40% 4.00% - 4.40% 6.50% - 6.75% 4.10 % 4.00% - 4.40 % 6.50 % 4.70% 4.00% - 4.40% 6.75% Expected Benefit Payments (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Years ending December 31, 2017 2018 2019 2020 2021 $ 585 595 613 632 637 $ 162 171 177 186 181 $ 159 159 164 171 175 $ 84 83 86 90 92 $ 74 75 76 79 81 $ 35 33 33 34 35 $ 49 49 48 47 48 3,099 867 890 455 425 161 219 2022 – 2026 NON-QUALIFIED PENSION PLANS Components of Net Periodic Pension Costs Year Ended December 31, 2016 (in millions) Service cost Interest cost on projected benefit obligation Amortization of actuarial loss Amortization of prior service credit Net periodic pension costs Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 2 14 8 (1) $ 23 $— 1 1 — $ 2 $— 5 1 — $ 6 $— 1 1 — $ 2 $— 2 1 — $ 3 $— — — — $— $— — — — $— Year Ended December 31, 2015 (in millions) Service cost Interest cost on projected benefit obligation Amortization of actuarial loss Amortization of prior service credit Net periodic pension costs Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 3 13 6 (1) $ 21 $— 1 — — $ 1 $ 1 4 2 (1) $ 6 $— 1 1 — $ 2 $— 2 2 — $ 4 $— — — — $— $— — 1 — $ 1 184 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Year Ended December 31, 2014 (in millions) Service cost Interest cost on projected benefit obligation Amortization of actuarial loss Amortization of prior service credit Net periodic pension costs Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 3 14 3 (1) $ 19 $— 1 — — $ 1 $ 1 5 2 (1) $ 7 $ 1 1 — — $ 2 $— 2 — — $ 2 $— — — — $— $— — — — $— Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets and Liabilities Year Ended December 31, 2016 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Regulatory assets, net (decrease) increase $ (3) $ (2) $ 2 $ 1 $ 1 $— $ (1) Regulatory liabilities, net increase (decrease) $— $— $— $— $— $— $— Accumulated other comprehensive (income) loss Deferred income tax benefit Prior service credit arising during the year Actuarial loss arising during the year $— (1) 1 $— — — $— — — $— — — $— — — $— — — $— — — Net amount recognized in accumulated other comprehensive loss (income) $— $— $— $— $— $— $— (in millions) Year Ended December 31, 2015 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Regulatory assets, net (decrease) increase $(13) $ 2 $ (16) $ (1) $ (15) $— $ (1) Accumulated other comprehensive (income) loss Deferred income tax benefit Amortization of prior service credit Actuarial gains arising during the year $ (7) 1 17 $— — — $ (5) — 13 $— — — $— — — $— — — $— — — Net amount recognized in accumulated other comprehensive loss (income) $ 11 $— $ 8 $— $— $— $— (in millions) 185 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Reconciliation of Funded Status to Net Amount Recognized Year Ended December 31, 2016 (in millions) Duke Energy Carolinas Duke Energy Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Change in Projected Benefit Obligation Obligation at prior measurement date Obligation assumed from acquisition Service cost Interest cost Actuarial losses (gains) Plan amendments Benefits paid $ 341 5 2 14 4 (2) (32) $ 16 — — 1 (1) — (2) $ 112 — — 5 5 — (8) $ 33 — — 1 2 — (3) $ 46 — — 2 1 — (3) $ 4 — — — — — — $ 5 — — — (2) — — Obligation at measurement date $ 332 $ 14 $ 114 $ 33 $ 46 $ 4 $ 3 Accumulated Benefit Obligation at measurement date $ 332 $ 14 $ 114 $ 33 $ 46 $ 4 $ 3 Change in Fair Value of Plan Assets Benefits paid $ (32) $ (2) $— Employer contributions Plan assets at measurement date $ (8) $ (3) $ (3) $— 32 2 8 3 3 — — $ — $— $ — $— $— $— $— Year Ended December 31, 2015 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Change in Projected Benefit Obligation Obligation at prior measurement date Service cost Interest cost Actuarial losses (gains) Transfers Benefits paid $ 337 3 13 10 4 (26) $ 16 — 1 1 — (2) $ 116 1 4 (1) — (8) $ 35 — 1 — — (3) $ 61 — 2 (14) — (3) $ 4 — — — — — $ 5 — — — — — Obligation at measurement date $ 341 $ 16 $ 112 $ 33 $ 46 $ 4 $ 5 Accumulated Benefit Obligation at measurement date $ 336 $ 16 $ 112 $ 33 $ 46 $ 4 $ 5 — (8) 8 — (3) 3 — (3) 3 — — — — — — $ — $— $— $— $— (in millions) Change in Fair Value of Plan Assets Plan assets at prior measurement date Benefits paid Employer contributions Plan assets at measurement date — (26) 26 — (2 ) 2 $ — $— 186 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Amounts Recognized in the Consolidated Balance Sheets December 31, 2016 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Current pension liability(a) Noncurrent pension liability(b) $ 28 304 $ 2 12 $ 8 106 $ 2 31 $ 3 43 $— 4 $— 3 Total accrued pension liability $ 332 $ 14 $ 114 $ 33 $ 46 $ 4 $ 3 Regulatory assets $ 73 $ 5 $ 18 $ 7 $ 11 $ 1 $— Accumulated other comprehensive (income) loss Deferred income tax asset Prior service credit Net actuarial loss $ (3) (1) 10 $ — — — $ (3) — 9 $— — — $— — — $— — — $— — — $ 6 $ — $ 6 $— $— $— $— $ 7 (2) $ — — $ 2 — $ 1 — $ 1 — $— — $— — Duke Energy Duke Energy Carolinas Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Current pension liability(a) Noncurrent pension liability(b) $ 27 314 $ 2 14 $ $ 3 30 $ 3 43 $— 4 $— 5 Total accrued pension liability $ 341 $ 16 $ 112 $ 33 $ 46 $ 4 $ 5 Regulatory assets $ 76 $ 7 $ 16 $ 6 $ 10 $ 1 $ 1 Accumulated other comprehensive (income) loss Deferred income tax asset Net actuarial loss $ (3) $ — $ (3) $— $— $— $— 9 — 9 — — — — Net amounts recognized in accumulated other comprehensive loss $ 6 $ — 6 $— $— $— $— (in millions) Net amounts recognized in accumulated other comprehensive income Amounts to be recognized in net periodic pension expense in the next year Unrecognized net actuarial loss Unrecognized prior service credit December 31, 2015 (in millions) Progress Energy $ 8 104 (a) Included in Other within Current Liabilities on the Consolidated Balance Sheets. (b) Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets. Information for Plans with Accumulated Benefit Obligation in Excess of Plan Assets December 31, 2016 (in millions) Projected benefit obligation Accumulated benefit obligation Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 332 332 $ 14 14 $ 114 114 $ 33 33 $ 46 46 $4 4 $3 3 December 31, 2015 (in millions) Projected benefit obligation Accumulated benefit obligation Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 341 336 $ 16 16 $ 112 112 $ 33 33 $ 46 46 $4 4 $5 5 187 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Assumptions Used for Pension Benefits Accounting The discount rate used to determine the current year pension obligation and following year’s pension expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected. The average remaining service period of active covered employees is 10 years for Duke Energy, seven years for Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana, 14 years for Progress Energy, 12 years for Duke Energy Progress and 15 years for Duke Energy Florida. The following tables present the assumptions used for pension benefit accounting. December 31, Benefit Obligations Discount rate Salary increase Net Periodic Benefit Cost Discount rate Salary increase 2016 2015 2014 4.10% 4.40% 4.40% 4.40% 4.10% 4.40% 4.40% 4.10% 4.70% 4.40% 4.40% 4.40% Expected Benefit Payments (in millions) Years ending December 31, 2017 2018 2019 2020 2021 2021 – 2025 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 29 25 25 24 24 111 $2 2 2 2 1 5 $ 8 8 8 8 8 36 $ 3 3 2 2 2 11 $ 3 3 3 3 3 15 $ — — — — — 1 $— — — — — 1 OTHER POST-RETIREMENT BENEFIT PLANS Duke Energy provides, and the Subsidiary Registrants participate in, some health care and life insurance benefits for retired employees on a contributory and non-contributory basis. Employees are eligible for these benefits if they have met age and service requirements at retirement, as defined in the plans. The health care benefits include medical, dental and prescription drug coverage and are subject to certain limitations, such as deductibles and co-payments. Duke Energy did not make any pre-funding contributions to its other post-retirement benefit plans during the years ended December 31, 2016, 2015 or 2014. Components of Net Periodic Other Post-Retirement Benefit Costs Year Ended December 31, 2016 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Service cost Interest cost on accumulated post-retirement benefit obligation Expected return on plan assets Amortization of actuarial loss (gain) Amortization of prior service credit $ 3 35 (12) 6 (141) $ 1 8 (8) (3) (14) $ 1 15 — 22 (103) $— 8 — 13 (68) $ 1 7 — 9 (35) $— 1 — (2) — $— 4 (1) (1) (1) Net periodic post-retirement benefit costs(a)(b) $ (109) $(16) $ (65) $(47) $ (18) $ (1) $ 1 188 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Year Ended December 31, 2015 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Service cost Interest cost on accumulated post-retirement benefit obligation Expected return on plan assets Amortization of actuarial loss (gain) Amortization of prior service credit $ 6 36 (13) 16 (140) $ 1 9 (8) (2) (14) $ 1 15 — 28 (102) $ 1 8 — 18 (68) $ 1 7 — 10 (35) $— 2 (1) (2) — $ 1 4 (1) (2) — Net periodic post-retirement benefit costs(a)(b) $ (95) $(14) $ (58) $(41) $ (17) $ (1) $ 2 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Service cost Interest cost on accumulated post-retirement benefit obligation Expected return on plan assets Amortization of actuarial loss (gain) Amortization of prior service credit $ 10 49 (13) 39 (125) $ 2 12 (9) 3 (11) $ 4 22 — 42 (95) $ 1 11 — 31 (73) $ 3 12 — 10 (21) $— 2 — (2) — $ 1 5 (1) — — Net periodic post-retirement benefit costs(a)(b) $ (40) $ (3) $ (27) $ (30) $ 4 $— $ 5 Year Ended December 31, 2014 (in millions) (a) Duke Energy amounts exclude $8 million, $10 million and $9 million for the years ended December 2016, 2015 and 2014, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006. (b) Duke Energy Ohio amounts exclude $2 million, $3 million and $2 million for the years ended December 2016, 2015 and 2014, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006. Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets and Liabilities Year Ended December 31, 2016 (in millions) Duke Energy Duke Energy Carolinas Regulatory assets, net increase (decrease) $ 53 $ — $ 47 $ 38 $ Regulatory liabilities, net increase (decrease) $ (114) $ (22) $ (51) $ (25) $ (2) 3 1 $ — — — $ — — 1 $ — — — $ 2 $ — $ $ — Accumulated other comprehensive (income) loss Deferred income tax benefit Actuarial losses arising during the year Amortization of prior year prior service credit Net amount recognized in accumulated other comprehensive income Progress Energy 1 Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 9 $— $ (6) $ (26) $ (2) $ (12) $ — — — $— — — $ — — — $ — $— $ — Duke Energy Ohio Duke Energy Indiana Year Ended December 31, 2015 Duke Energy Carolinas Duke Energy Florida (in millions) Regulatory assets, net increase (decrease) $ 1 $ — $ 1 $ — $ 1 $— $ (7) Regulatory liabilities, net increase (decrease) $ (92) $ (8) $ (71) $ (36) $ (35) $ 2 $ (8) $ 2 (5) (3) 3 $ — — — — $ (1) 2 — (1) $ — — — — $ — — — — $— — — — $— — — — $ (3) $ — $ — $ — $ — $— $— Accumulated other comprehensive (income) loss Deferred income tax benefit Actuarial losses (gains) arising during the year Transfer with the Midwest Generation Disposal Group Amortization of prior year prior service credit Net amount recognized in accumulated other comprehensive income 189 Progress Energy Duke Energy Progress Duke Energy PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Reconciliation of Funded Status to Accrued Other Post-Retirement Benefit Costs Year Ended December 31, 2016 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Change in Projected Benefit Obligation Accumulated post-retirement benefit obligation at prior measurement date Obligation assumed from acquisition Service cost Interest cost Plan participants’ contributions Actuarial (gains) losses Transfers Plan amendments Benefits paid Accumulated post-retirement benefit obligation at measurement date $ 828 39 3 35 19 33 — (1) (88) $ 868 $ 200 — 1 8 3 5 1 — (17) $ 201 $ 354 — 1 15 7 16 — — (36) $ 357 $ 188 — — 8 4 8 — — (17) $ 191 $164 — 1 7 3 8 — — (19) $164 $ 35 — — 1 1 — — (1) (4) $ 32 $ 87 — — 4 2 3 — — (13) $ 83 Change in Fair Value of Plan Assets Plan assets at prior measurement date Assets received from acquisition Actual return on plan assets Benefits paid Employer contributions Plan participants’ contributions $ 208 29 14 (88) 62 19 $ 134 — 8 (17) 9 3 $ — — 1 (36) 29 7 $ — — — (17) 13 4 $ 1 — — (19) 15 3 $ 8 — 1 (4) 1 1 $ 19 — 2 (13) 12 2 Plan assets at measurement date $ 244 $ 137 $ $ — $— $ 7 $ 22 1 Year Ended December 31, 2015 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Change in Projected Benefit Obligation Accumulated post-retirement benefit obligation at prior measurement date Service cost Interest cost Plan participants’ contributions Actuarial (gains) losses Transfers Plan amendments Benefits paid Obligations transferred with the Midwest Generation Disposal Group Accrued retiree drug subsidy $ 916 6 36 20 (39) — (9) (100) (3) 1 $ 220 1 9 4 (18) 2 — (18) — — $379 1 15 7 (1) — — (47) — — $207 1 8 4 (13) — — (19) — — $170 1 7 3 11 — — (28) — — $ 39 — 2 1 (3) — (1) (3) — — $ 96 1 4 2 1 — (4) (13) — — Accumulated post-retirement benefit obligation at measurement date $ 828 $ 200 $354 $188 $164 $ 35 $ 87 Change in Fair Value of Plan Assets Plan assets at prior measurement date Actual return on plan assets Benefits paid Employer contributions Plan participants’ contributions $ 227 (1) (100) 62 20 $ 145 (1) (18) 4 4 $— 1 (47) 39 7 $ (1) 1 (19) 15 4 $— 1 (28) 25 3 $ 8 — (3) 2 1 $ 23 (1) (13) 8 2 Plan assets at measurement date $ 208 $ 134 $— $— $ 1 $ 8 $ 19 190 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Amounts Recognized in the Consolidated Balance Sheets December 31, 2016 (in millions) Current post-retirement liability(a) Noncurrent post-retirement liability(b) Total accrued post-retirement liability Regulatory assets Regulatory liabilities Accumulated other comprehensive (income) loss Deferred income tax liability Prior service credit Net actuarial gain Net amounts recognized in accumulated other comprehensive income Amounts to be recognized in net periodic pension expense in the next year Unrecognized net actuarial loss (gain) Unrecognized prior service credit Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 38 586 $ 624 $ 54 $ 174 $ — 64 $ 64 $ — $ 46 $ 31 325 $ 356 $ 48 $ — $ 17 174 $ 191 $ 38 $ — $ 15 149 $ 164 $ 10 $ — $ 2 23 $ 25 $— $ 19 $— 63 $ 63 $ 51 $ 71 $ 5 (5) (10) $ (10) $ — — — $ — $ — — — $ — $ — — — $ — $ — — — $ — $— — — $— $— — — $— $ 10 (115) $ (2) (10) $ 21 (85) $ 12 (55) $ 9 (30) $ (2) — $ (6) (1) December 31, 2015 (in millions) Current post-retirement liability(a) Noncurrent post-retirement liability(b) Total accrued post-retirement liability Regulatory assets Regulatory liabilities Accumulated other comprehensive (income) loss Deferred income tax liability Prior service credit Net actuarial gain Net amounts recognized in accumulated other comprehensive income Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 37 583 $ 620 $ 1 $ 288 $— 66 $ 66 $— $ 68 $ 31 323 $ 354 $ 1 $ 51 $ 16 172 $ 188 $ — $ 25 $ 15 149 $ 164 $ 1 $ 26 $ 2 25 $ 27 $— $ 21 $— 68 $ 68 $ 57 $ 83 $ $— — — $— $ — (1) — $ (1) $ — — — $ — $ — — — $ — $— — — $— $— — — $— 7 (6) (13) $ (12) (a) Included in Other within Current Liabilities on the Consolidated Balance Sheets. (b) Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets. Assumptions Used for Other Post-Retirement Benefits Accounting The discount rate used to determine the current year other post-retirement benefits obligation and following year’s other post-retirement benefits expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected. The average remaining service period of active covered employees is nine years for Duke Energy, 11 years for Duke Energy Carolinas, eight years for Duke Energy Ohio, nine years for Duke Energy Indiana and Duke Energy Kentucky, seven years for Progress Energy and Duke Energy Progress and eight years for Duke Energy Florida. 191 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) The following tables present the assumptions used for other post-retirement benefits accounting. December 31, Benefit Obligations Discount rate Net Periodic Benefit Cost Discount rate Expected long-term rate of return on plan assets Assumed tax rate 2016 2015 2014 4.10% 4.40% 4.10% 4.40% 6.50% 35% 4.10% 6.50% 35% 4.70% 6.75% 35% Assumed Health Care Cost Trend Rate December 31, Health care cost trend rate assumed for next year Rate to which the cost trend is assumed to decline (the ultimate trend rate) Year that rate reaches ultimate trend 2016 2015 7.00% 4.75% 2023 7.50% 4.75% 2023 Sensitivity to Changes in Assumed Health Care Cost Trend Rates Year Ended December 31, 2016 (in millions) 1-Percentage Point Increase Effect on total service and interest costs Effect on post-retirement benefit obligation 1-Percentage Point Decrease Effect on total service and interest costs Effect on post-retirement benefit obligation Duke Energy Duke Energy Carolinas Progress Energy $ 1 29 $— 7 $ 1 12 (1) (25) — (6) Duke Energy $ 85 81 78 75 72 310 Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 1 6 $ — 5 $— 1 $— 3 (1) (10) (1) (6) — (5) — (1) — (2) Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 18 18 18 18 18 76 $ 32 31 31 30 29 126 $ 17 16 16 16 15 67 $ 15 15 14 14 13 58 $ 4 3 3 3 3 12 $ 10 9 9 8 7 31 $ Expected Benefit Payments (in millions) Years ending December 31, 2017 2018 2019 2020 2021 2021 – 2025 192 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) PLAN ASSETS In 2013, Duke Energy adopted a de-risking investment strategy for the Duke Energy Master Retirement Trust. As the funded status of the pension plans increase, the targeted allocation to fixed-income assets may be increased to better manage Duke Energy’s pension liability and reduce funded status volatility. Duke Energy regularly reviews its actual asset allocation and periodically rebalances its investments to the targeted allocation when considered appropriate. The Duke Energy Master Retirement Trust is authorized to engage in the lending of certain plan assets. Securities lending is an investment management enhancement that utilizes certain existing securities of the Duke Energy Master Retirement Trust to earn additional income. Securities lending involves the loaning of securities to approved parties. In return for the loaned securities, the Duke Energy Master Retirement Trust receives collateral in the form of cash and securities as a safeguard against possible default of any borrower on the return of the loan under terms that permit the Duke Energy Master Retirement Trust to sell the securities. The Duke Energy Master Retirement Trust mitigates credit risk associated with securities lending arrangements by monitoring the fair value of the securities loaned, with additional collateral obtained or refunded as necessary. The fair value of securities on loan was approximately $156 million and $305 million at December 31, 2016 and 2015, respectively. Cash and securities obtained as collateral exceeded the fair value of the securities loaned at December 31, 2016 and 2015, respectively. Securities lending income earned by the Duke Energy Master Retirement Trust was immaterial for the years ended December 31, 2016, 2015 and 2014, respectively. Qualified pension and other post-retirement benefits for the Subsidiary Registrants are derived from the Duke Energy Master Retirement Trust, as such, each are allocated their proportionate share of the assets discussed below. Description and Allocations Duke Energy Master Retirement Trust Assets for both the qualified pension and other post-retirement benefits are maintained in the Duke Energy Master Retirement Trust. Piedmont also has qualified pension (Piedmont Pension Assets) and other post-retirement assets. Approximately 98 percent of the Duke Energy Master Retirement Trust assets were allocated to qualified pension plans and approximately 2 percent were allocated to other post-retirement plans (comprised of 401(h) accounts), as of December 31, 2016 and 2015. The investment objective of the Duke Energy Master Retirement Trust is to achieve reasonable returns, subject to a prudent level of portfolio risk, for the purpose of enhancing the security of benefits for plan participants. As of December 31, 2016, Duke Energy assumes pension and other post-retirement plan assets will generate a long-term rate of return of 6.50 percent (6.75 percent for Piedmont Pension and OPEB Assets). 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 return. Debt securities are primarily held to hedge the qualified pension plan liability. Hedge funds, real estate and other global securities are held for diversification. Investments within asset classes are diversified to achieve broad market participation and reduce the impact of individual managers or investments. The following table includes the target asset allocations by asset class at December 31, 2016 and the actual asset allocations for the Duke Energy Master Retirement Trust. Target Allocation(a) U.S. equity securities Non-U.S. equity securities Global equity securities Global private equity securities Debt securities Hedge funds Real estate and cash Other global securities Total 10% 8% 10% 3% 63% 2% 2% 2% 100% Actual Allocation at December 31, 2016(a) 2015 11% 8% 10% 2% 63% 2% 2% 2% 100% 11% 8% 10% 2% 63% 2% 2% 2% 100% (a) Excludes Piedmont Pension Assets, which have a targeted asset allocation of 60 percent return-seeking and 40 percent liability hedging fixed-income. Actual asset allocations were 61 percent return-seeking and 39 percent liability hedging fixed-income at December 31, 2016. 193 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Other post-retirement assets Duke Energy’s other post-retirement assets (OPEB Assets) are comprised of Voluntary Employees’ Beneficiary Association trusts and mutual funds within a Piedmont 401(h) account (OPEB Assets exclude 401(h) accounts within the Duke Energy Master Retirement Trust). Duke Energy’s investment objective is to achieve sufficient returns, subject to a prudent level of portfolio risk, for the purpose of promoting the security of plan benefits for participants. The following table presents target and actual asset allocations for the OPEB Assets at December 31, 2016. Target Allocation Actual Allocation at December 31, 2016 2015 U.S. equity securities Real estate Debt securities 38% 2% 45% 39% 2% 37% 29% —% 28% Cash 15% 22% 43% Total 100% 100% 100% Fair Value Measurements Investments in real estate limited partnerships Duke Energy classifies recurring and non-recurring fair value measurements based on the fair value hierarchy as discussed in Note 16. Valuation methods of the primary fair value measurements disclosed below are as follows: Investments in real estate limited partnerships are valued by the trustee at each valuation date (monthly). As part of the trustee’s valuation process, properties are externally appraised generally on an annual basis, conducted by reputable, independent appraisal firms, and signed by appraisers that are members of the Appraisal Institute, with the professional designation MAI. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three valuation techniques that can be used to value investments in real estate assets: the market, income or cost approach. The appropriateness of each valuation technique depends on the type of asset or business being valued. In addition, the trustee may cause additional appraisals to be performed as warranted by specific asset or market conditions. Property valuations and the salient valuation-sensitive assumptions of each direct investment property are reviewed by the trustee quarterly and values are adjusted if there has been a significant change in circumstances related to the investment property since the last valuation. Value adjustments for interim capital expenditures are only recognized to the extent that the valuation process acknowledges a corresponding increase in fair value. An independent firm is hired to review and approve quarterly direct real estate valuations. Key inputs and assumptions used to determine fair value includes among others, rental revenue and expense amounts and related revenue and expense growth rates, terminal capitalization rates and discount rates. Development investments are valued using cost incurred to date as a primary input until substantive progress is achieved in terms of mitigating construction and leasing risk at which point a discounted cash flow approach is more heavily weighted. Key inputs and assumptions in addition to those noted above used to determine the fair value of development investments include construction costs and the status of construction completion and leasing. Investments in real estate limited partnerships are valued at net asset value of units held at year end and are not readily redeemable at the measurement date. Investments in real estate limited partnerships are not categorized within the fair value hierarchy. Investments in equity securities Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the reporting period. Principal active markets for equity prices include published exchanges such as NASDAQ and NYSE. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. Prices have not been adjusted to reflect after-hours market activity. The majority of investments in equity securities are valued using Level 1 measurements. When the price of an institutional commingled fund is unpublished, it is not categorized in the fair value hierarchy, even though the funds are readily available at the fair value. Investments in corporate debt securities and U.S. government securities Most debt investments are valued based on a calculation using interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. Most debt valuations are Level 2 measurements. If the market for a particular fixed-income security is relatively inactive or illiquid, the measurement is Level 3. U.S. Treasury debt is typically Level 2. Investments in short-term investment funds Investments in short-term investment funds are valued at the net asset value of units held at year end and are readily redeemable at the measurement date. Investments in short-term investment funds with published prices are valued as Level 1. Investments in short-term investment funds with unpublished prices are valued as Level 2. 194 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy Master Retirement Trust The following tables provide the fair value measurement amounts for the Duke Energy Master Retirement Trust qualified pension and other post-retirement assets and Piedmont Pension Assets. December 31, 2016 (in millions) Equity securities Corporate debt securities Short-term investment funds Partnership interests Hedge funds Real estate limited partnerships U.S. government securities Guaranteed investment contracts Governments bonds – foreign Cash Government and commercial mortgage backed securities Net pending transactions and other investments Total assets(a) Total Fair Value $2,472 4,330 476 157 232 144 734 29 32 17 — 32 Level 1 $1,677 8 211 — — 17 — — — 15 — 1 Level 2 $ 27 4,322 265 — — — 734 — 32 2 — 6 Level 3 $ 9 — — — — — — 29 — — — — Not Categorized(b) $ 759 — — 157 232 127 — — — — — 25 $8,655 $1,929 $5,388 $ 38 $ 1,300 (a) Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana were allocated approximately 27 percent, 30 percent, 15 percent, 15 percent, 5 percent and 8 percent, respectively, of the Duke Energy Master Retirement Trust and Piedmont Pension assets at December 31, 2016. Accordingly, all amounts included in the table above are allocable to the Subsidiary Registrants using these percentages. (b) Certain investments are not categorized. These investments are measured based on the fair value of the underlying investments but may not be readily redeemable at that fair value. December 31, 2015 (in millions) Equity securities Corporate debt securities Short-term investment funds Partnership interests Hedge funds Real estate limited partnerships U.S. government securities Guaranteed investment contracts Governments bonds – foreign Cash Government and commercial mortgage backed securities Net pending transactions and other investments Total assets(a) Total Fair Value $2,160 4,362 404 185 210 118 748 31 34 10 9 (28) Level 1 $1,470 — 192 — — — — — — 10 — (36) Level 2 $ 2 4,362 212 — — — 748 — 34 — 9 8 Level 3 $— — — — — — — 31 — — — — Not Categorized(b) $ 688 — — 185 210 118 — — — — — — $8,243 $1,636 $5,375 $ 31 $ 1,201 (a) Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana were allocated approximately 28 percent, 32 percent, 15 percent, 16 percent, 5 percent and 8 percent, respectively, of the Duke Energy Master Retirement Trust assets at December 31, 2015. Accordingly, all amounts included in the table above are allocable to the Subsidiary Registrants using these percentages. (b) Certain investments are not categorized. These investments are measured based on the fair value of the underlying investments but may not be readily redeemable at that fair value. The following table provides a reconciliation of beginning and ending balances of Duke Energy Master Retirement Trust qualified pension and other post-retirement assets and Piedmont Pension Assets at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3). (in millions) Balance at January 1 Combination of Piedmont Pension Assets Sales Total gains (losses) and other, net 2016 $ 31 9 (2) — 2015 $ 34 — (2) (1) Balance at December 31 $ 38 $ 31 195 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Other post-retirement assets The following tables provide the fair value measurement amounts for OPEB Assets. December 31, 2016 Level 1 Level 2 $— $ 14 — 1 — 26 — 25 $— $ 66 Level 3 $— — — — $— December 31, 2015 Level 1 Level 2 $— $ 18 — 12 — 12 $— $ 42 Level 3 $ — — — $ — (in millions) Cash and cash equivalents Real estate Equity securities Debt securities Total assets Total Fair Value $ 14 1 26 25 $ 66 (in millions) Cash and cash equivalents Equity securities Debt securities Total assets Total Fair Value $ 18 12 12 $ 42 of eligible pay per pay period (5 percent for Piedmont employees). Dividends on Duke Energy shares held by the savings plans are charged to retained earnings when declared and shares held in the plans are considered outstanding in the calculation of basic and diluted EPS. As of January 1, 2014, for new and rehired non-union and certain unionized employees who are not eligible to participate in Duke Energy’s defined benefit plans, an additional employer contribution of 4 percent of eligible pay per pay period, which is subject to a three-year vesting schedule, is provided to the employee’s savings plan account. EMPLOYEE SAVINGS PLANS Retirement Savings Plan Duke Energy or its affiliates sponsor, and the Subsidiary Registrants participate in, employee savings plans that cover substantially all U.S. employees. Most employees participate in a matching contribution formula where Duke Energy provides a matching contribution generally equal to 100 percent of employee before-tax and Roth 401(k) contributions of up to 6 percent The following table includes pretax employer matching contributions made by Duke Energy and expensed by the Subsidiary Registrants. (in millions) Years ended December 31, 2016 2015 2014 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $169 159 143 $57 54 47 $50 48 43 $35 34 30 $15 13 14 $3 3 3 $8 7 7 4 percent of the participant’s compensation plus an additional 4 percent of compensation above the Social Security wage base up to the IRS compensation limit. The participant is vested in MPP plan after three years of service. No contributions were made to the MPP plan during the three months ended December 31, 2016. In January 2017, a $2.2 million contribution was made to the MPP plan. Money Purchase Pension Plan Piedmont sponsors the MPP plan, which is a defined contribution pension plan that allows employees to direct investments and assume risk of investment returns. Under the MPP plan, Piedmont annually deposits a percentage of each participant’s pay into an account of the MPP plan. This contribution equals 196 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 22. INCOME TAXES Income Tax Expense Components of Income Tax Expense Year Ended December 31, 2016 (in millions) Current income taxes Federal State Foreign Total current income taxes Deferred income taxes Federal State Total deferred income taxes(a) Investment tax credit amortization Income tax expense from continuing operations Tax (benefit) expense from discontinued operations Total income tax expense included in Consolidated Statements of Operations Duke Energy $ Duke Energy Carolinas Duke Energy Progress Duke Energy Florida Duke Energy Ohio 15 (19) — (4) $ (59) (25) — (84) $ 76 22 — 98 $ (7) (13) — (20) Progress Energy $ Duke Energy Indiana — (15) 2 (13) $ 139 25 — 164 $ 7 6 — 13 1,064 117 1,181 (12) 1,156 (30) 430 45 475 (5) 634 — 486 50 536 (5) 527 1 350 40 390 (5) 301 — 199 25 224 — 322 — 88 11 99 (1) 78 (36) 202 11 213 (1) 225 — $ 1,126 $ 634 $ 528 $ 301 $322 $ 42 $ 225 (a) Includes benefits of net operating loss (NOL) carryforwards and tax credit carryforwards of $648 million at Duke Energy, $4 million at Duke Energy Carolinas, $190 million at Progress Energy, $60 million at Duke Energy Progress, $49 million at Duke Energy Florida, $26 million at Duke Energy Ohio and $58 million at Duke Energy Indiana. Year Ended December 31, 2015 (in millions) Current income taxes Federal State Foreign Total current income taxes Deferred income taxes Federal State Total deferred income taxes(a) Investment tax credit amortization Income tax expense from continuing operations Tax expense (benefit) from discontinued operations Total income tax expense included in Consolidated Statements of Operations Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana — (12) 4 (8) $ 216 14 — 230 $ (193) 1 — (192) $ (56) (4) — (60) $ 1 (7) — (6) $ (18) (1) — (19) $ (86) (12) — (98) 1,097 181 1,278 (14) 1,256 89 345 57 402 (5) 627 — 694 27 721 (7) 522 (1) 334 27 361 (7) 294 — 290 58 348 — 342 — 96 5 101 (1) 81 22 245 17 262 (1) 163 — $ 1,345 $ 627 $ 521 $ 294 $342 $ 103 $ 163 Duke Energy $ (a) Includes benefits of NOL carryforwards and utilization of NOL and tax credit carryforwards of $264 million at Duke Energy, $15 million at Duke Energy Carolinas, $119 million at Progress Energy, $21 million at Duke Energy Progress, $84 million at Duke Energy Florida, $3 million at Duke Energy Ohio and $45 million at Duke Energy Indiana. 197 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Year Ended December 31, 2014 (in millions) Current income taxes Federal State Foreign Total current income taxes Deferred income taxes Federal State Total deferred income taxes(a)(b) Investment tax credit amortization Income tax expense from continuing operations Tax expense (benefit) from discontinued operations Total income tax expense (benefit) included in Consolidated Statements of Operations Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana — 56 6 62 $ 161 51 — 212 $ (466) (8) — (474) $(184) 14 — (170) $ (53) 1 — (52) $ (73) 3 — (70) $(112) 1 — (111) 1,144 35 1,179 (16) 1,225 149 407 (25) 382 (6) 588 — 938 84 1,022 (8) 540 (4) 436 25 461 (6) 285 — 350 52 402 (1) 349 — 113 1 114 (1) 43 (300) 294 15 309 (1) 197 — $ 1,374 $ 588 $ 536 $ 285 $349 $(257) $ 197 Duke Energy $ (a) There were no benefits of NOL carryforwards. (b) Includes utilization of NOL carryforwards of $1,544 million at Duke Energy, $345 million at Duke Energy Carolinas, $530 million at Progress Energy, $291 million at Duke Energy Progress, $64 million at Duke Energy Florida, $56 million at Duke Energy Ohio and $141 million at Duke Energy Indiana. Duke Energy Income from Continuing Operations before Income Taxes Years Ended December 31, (in millions) 2016 2015 2014 Domestic Foreign $ 3,689 45 $ 3,831 79 $3,637 126 Income from continuing operations before income taxes $ 3,734 $ 3,910 $3,763 the Company’s intent, combined with the extension of bonus depreciation by Congress in late 2015, allowed Duke Energy to more efficiently utilize foreign tax credits and reduce U.S. deferred tax liabilities associated with the historical unremitted foreign earnings by approximately $95 million during the year ended December 31, 2016. Due to the classification of the International Disposal Group as discontinued operations beginning in the fourth quarter of 2016, income tax amounts related to the International Disposal Group’s foreign earnings are presented within (Loss) Income from Discontinued Operations, net of tax on the Consolidated Statements of Operations. In December 2016, Duke Energy closed on the sale of the International Disposal Group in two separate transactions to execute the divestiture. See Note 2 for additional information on the sale. Taxes on Foreign Earnings During 2014, Duke Energy declared a taxable dividend of foreign earnings in the form of notes payable that was expected to result in the repatriation of approximately $2.7 billion of cash held, and expected to be generated, by international businesses over a period of up to eight years. As a result of the decision to repatriate cumulative historical undistributed foreign earnings, Duke Energy recorded U.S. income tax expense of approximately $373 million in 2014. As of December 31, 2014, Duke Energy’s intention was to indefinitely reinvest any future undistributed foreign earnings. In February 2016, Duke Energy announced it had initiated a process to divest the International Disposal Group and, accordingly, no longer intended to indefinitely reinvest post-2014 undistributed foreign earnings. This change in 198 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Statutory Rate Reconciliation The following tables present a reconciliation of income tax expense at the U.S. federal statutory tax rate to the actual tax expense from continuing operations. Year Ended December 31, 2016 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Income tax expense, computed at the statutory rate of 35 percent State income tax, net of federal income tax effect AFUDC equity income Renewable energy production tax credits Audit adjustment Tax true-up Other items, net $ 1,307 64 (70) (97) 5 (14) (39) $ 630 46 (36) — 3 (14) 5 $ 548 20 (26) — — (11) (4) $ 315 10 (17) — — (3) (4) $ 306 30 (9) — — (9) 4 $ 95 (2) (2) — — (16) 3 $ 212 11 (6) — — 2 6 Income tax expense from continuing operations $ 1,156 $ 634 $ 527 $ 301 $ 322 $ 78 $ 225 Effective tax rate 31.0% 35.2% 33.7% 33.4% 36.9% 28.9% 37.1% Year Ended December 31, 2015 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Income tax expense, computed at the statutory rate of 35 percent State income tax, net of federal income tax effect AFUDC equity income Renewable energy production tax credits Audit adjustment Tax true-up Other items, net $ 1,369 109 (58) (72) (22) 2 (72) $ 598 46 (34) — — 2 15 $ 555 18 (19) (1) (23) (3) (5) $ 302 15 (17) — 1 (4) (3) $ 330 33 (3) — (24) 2 4 $ 81 2 (1) — — (5) 4 $ 168 2 (4) — — (9) 6 Income tax expense from continuing operations $ 1,256 $ 627 $ 522 $ 294 $ 342 $ 81 $ 163 Effective tax rate 32.1% 36.7% 32.9% 34.2% 36.3% 35.2% 34.0% Year Ended December 31, 2014 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Income tax expense, computed at the statutory rate of 35 percent State income tax, net of federal income tax effect AFUDC equity income Renewable energy production tax credits Other items, net $ 1,317 59 (47) (67) (37) $ 581 17 (32) — 22 $ 497 49 (9) — 3 $ 263 25 (9) — 6 $ 314 34 — — 1 $ 39 3 (1) — 2 $ 195 10 (5) — (3) Income tax expense from continuing operations $ 1,225 $ 588 $ 540 $ 285 $ 349 $ 43 $ 197 Effective tax rate 32.6% 35.4% 38.0% 37.9% 38.9% 38.9% 35.5% Valuation allowances have been established for certain state NOL carryforwards and state income tax credits that reduce deferred tax assets to an amount that will be realized on a more-likely-than-not basis. The net change in the total valuation allowance is included in the State income tax, net of federal income tax effect in the above tables. 199 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) DEFERRED TAXES Net Deferred Income Tax Liability Components December 31, 2016 Duke Energy (in millions) Deferred credits and other liabilities Capital lease obligations Pension, post-retirement and other employee benefits Progress Energy merger purchase accounting adjustments(a) Tax credits and NOL carryforwards Investments and other assets Other Valuation allowance Total deferred income tax assets Investments and other assets Accelerated depreciation rates Regulatory assets and deferred debits, net Total deferred income tax liabilities Net deferred income tax liabilities $ 382 60 561 918 4,682 — 205 (96) Duke Energy Carolinas $ Progress Energy 66 8 16 — 192 — 16 — $ 126 — 199 — 1,165 — 35 (12) Duke Energy Progress $ 40 — 91 — 222 — 8 — Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ $ $ 93 — 96 — 232 — — — 21 — 22 — 49 3 5 — 4 1 37 — 278 — 9 — 6,712 298 1,513 361 421 100 329 (1,892) (14,872) (4,103) (20,867) (1,149) (4,664) (1,029) (6,842) (597) (4,490) (1,672) (6,759) (313) (2,479) (892) (3,684) (297) (2,038) (780) (3,115) — (1,404) (139) (1,543) (21) (1,938) (270) (2,229) $(14,155) $(6,544) $(5,246) $(3,323) $(2,694) $(1,443) $(1,900) (a) Primarily related to capital lease obligations and debt fair value adjustments. The following table presents the expiration of tax credits and NOL carryforwards. December 31, 2016 (in millions) Amount Expiration Year Investment tax credits Alternative minimum tax credits Federal NOL carryforwards State NOL carryforwards and credits(a) Foreign NOL carryforwards(b) Foreign Tax Credits Charitable Carryforwards $ 1,143 1,151 1,267 248 12 859 2 2027 – 2036 Indefinite 2020 – 2036 2017 – 2036 2026 – 2036 2024 – 2026 2017 – 2019 Total tax credits and NOL carryforwards $ 4,682 (a) A valuation allowance of $84 million has been recorded on the state NOL carryforwards, as presented in the Net Deferred Income Tax Liability Components table. (b) A valuation allowance of $12 million has been recorded on the foreign NOL carryforwards, as presented in the Net Deferred Income Tax Liability Components table. 200 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) December 31, 2015 Duke Energy (in millions) Deferred credits and other liabilities Capital lease obligations Pension, post-retirement and other employee benefits Progress Energy merger purchase accounting adjustments(a) Tax credits and NOL carryforwards Investments and other assets Other Valuation allowance 201 63 580 1,009 3,631 — 206 (93) $ Progress Energy Duke Energy Progress $ 25 — 92 — 163 — 2 — Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ $ $ 38 9 46 — 170 — 20 — $ 115 — 186 — 997 — 48 (38) 5,597 283 1,308 282 371 118 282 Investments and other assets Accelerated depreciation rates Regulatory assets and deferred debits, net (1,573) (12,939) (3,633) (1,057) (4,429) (943) (412) (4,169) (1,517) (228) (2,325) (756) (201) (1,868) (762) — (1,356) (169) (7) (1,797) (135) Total deferred income tax liabilities (18,145) (6,429) (6,098) (3,309) (2,831) (1,525) (1,939) Net deferred income tax liabilities $(12,548) $(6,146) $(4,790) $(3,027) $(2,460) $(1,407) $(1,657) Total deferred income tax assets $ Duke Energy Carolinas 66 — 82 — 177 — 46 — 29 — 24 — 25 3 37 — 5 2 40 — 215 — 20 — (a) Primarily related to capital lease obligations and debt fair value adjustments. On August 6, 2015, pursuant to N.C. Gen. Stat. 105-130.3C, the North Carolina Department of Revenue announced the North Carolina corporate income tax rate would be reduced from a statutory rate of 5.0 percent to 4.0 percent beginning January 1, 2016. Duke Energy recorded a net reduction of approximately $95 million to its North Carolina deferred tax liability in the third quarter of 2015. The significant majority of this deferred tax liability reduction was offset by recording a regulatory liability pending NCUC determination of the disposition of amounts related to Duke Energy Carolinas and Duke Energy Progress. The impact did not have a significant impact on the financial position, results of operation, or cash flows of Duke Energy, Duke Energy Carolinas, Progress Energy or Duke Energy Progress. On August 4, 2016, pursuant to N.C. Gen. Stat. 105-130.3C, the North Carolina Department of Revenue announced the North Carolina corporate income tax rate would be reduced from a statutory rate of 4.0 percent to 3.0 percent beginning January 1, 2017. Duke Energy recorded a net reduction of approximately $80 million to its North Carolina deferred tax liability in the third quarter of 2016. The significant majority of this deferred tax liability reduction was offset by recording a regulatory liability pending NCUC determination of the disposition of amounts related to Duke Energy Carolinas and Duke Energy Progress. The impact did not have a significant impact on the financial position, results of operation, or cash flows of Duke Energy, Duke Energy Carolinas, Progress Energy or Duke Energy Progress. UNRECOGNIZED TAX BENEFITS The following tables present changes to unrecognized tax benefits. Year Ended December 31, 2016 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Ohio Unrecognized tax benefits – January 1 Unrecognized tax benefits increases (decreases) Gross increases – tax positions in prior periods Gross decreases – tax positions in prior periods Decreases due to settlements Reduction due to lapse of statute of limitations Total changes $ 88 $ 72 $ 1 $ 3 $— — (4) (68) 1 (71) — (4) (67) — (71) — (1) — 2 1 — (1) — — (1) 4 — — — 4 — — (1) — (1) Unrecognized tax benefits – December 31 $ 17 $ 1 $ 2 $ 2 $ 4 $ — (in millions) 201 Duke Energy Indiana $ 1 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Year Ended December 31, 2015 (in millions) Unrecognized tax benefits – January 1 Unrecognized tax benefits increases (decreases) Gross increases – tax positions in prior periods Gross decreases – tax positions in prior periods Decreases due to settlements Reduction due to lapse of statute of limitations Duke Energy $ 213 $ — (48) (45) (32) Total changes Unrecognized tax benefits – December 31 Duke Energy Carolinas 88 160 $ — (45) (43) — (125) $ (88) $ Duke Energy Progress Duke Energy Florida 32 $ 23 $ 8 1 — — (32) 1 — — (21) — — — (8) Progress Energy (31) 72 $ 1 $ (20) (8) 3 $— Duke Energy Indiana $ 1 — — — — — $ 1 Year Ended December 31, 2014 (in millions) Unrecognized tax benefits – January 1 Unrecognized tax benefits increases (decreases) Gross increases – tax positions in prior periods Gross decreases – tax positions in prior periods Decreases due to settlements Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Indiana $ 230 $ 171 $ 32 $ 22 $ 8 $ 1 — (2) (15) — — (11 ) 1 — (1) 1 — — — — — — — — (17) (11) — 1 — — $ 213 $ 160 $ 32 $ 23 $ 8 $ 1 Total changes Unrecognized tax benefits – December 31 The following table includes additional information regarding the Duke Energy Registrants’ unrecognized tax benefits. It is reasonably possible that Duke Energy could reflect an approximate $8 million reduction and Duke Energy Carolinas could reflect an approximate $1 million reduction in unrecognized tax benefits within the next 12 months. All other Duke Energy Registrants do not anticipate a material increase or decrease in unrecognized tax benefits within the next 12 months. December 31, 2016 (in millions) Amount that if recognized, would affect the effective tax rate or regulatory liability(a) Amount that if recognized, would be recorded as a component of discontinued operations Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 8 $ 1 $ 2 $ 2 $— $— $— 5 — — — — 2 — (a) Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana are unable to estimate the specific amounts that would affect the effective tax rate versus the regulatory liability. 202 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) OTHER TAX MATTERS The following tables include interest recognized in the Consolidated Statements of Operations and the Consolidated Balance Sheets. Year Ended December 31, 2016 Duke Energy (in millions) $ Net interest income recognized related to income taxes Net interest expense recognized related to income taxes Interest payable related to income taxes — — 4 Duke Energy Carolinas $ — 7 23 Progress Energy $ 1 — 1 Duke Energy Progress $ — — 1 Duke Energy Florida $ 2 — — Year Ended December 31, 2015 Duke Energy (in millions) Net interest income recognized related to income taxes Net interest expense recognized related to income taxes Interest receivable related to income taxes Interest payable related to income taxes $ 12 — 3 — Duke Energy Carolinas $ — 1 — 14 Progress Energy $ 2 — — — Duke Energy Progress $ 2 — — 1 Duke Energy Florida Duke Energy Indiana $ $ 1 — — — 1 — 3 — Year Ended December 31, 2014 Duke Energy (in millions) Net interest income recognized related to income taxes Net interest expense recognized related to income taxes Interest receivable related to income taxes Interest payable related to income taxes $ 6 — — 13 Duke Energy Carolinas $ — 1 — 13 Progress Energy $ Duke Energy Progress 3 — — 5 $ — 1 — 3 Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ $ $ 1 — — 5 4 — — — 4 — 2 — Duke Energy and its subsidiaries are no longer subject to U.S. federal examination for years before 2015. With few exceptions, Duke Energy and its subsidiaries are no longer subject to state, local or non-U.S. income tax examinations by tax authorities for years before 2004. 23. OTHER INCOME AND EXPENSES, NET The components of Other income and expenses, net on the Consolidated Statements of Operations are as follows. Year Ended December 31, 2016 (in millions) Duke Energy Interest income AFUDC equity Post in-service equity returns Nonoperating income (expense), other $ 21 200 67 36 Other income and expense, net $ 324 203 Duke Energy Carolinas $ 4 102 55 1 $ 162 Progress Energy $ Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 4 76 12 22 $ 3 50 12 6 $ 2 26 — 16 $ 5 6 — (2) $ 6 16 — — $ 114 $ 71 $ 44 $ 9 $ 22 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) Year Ended December 31, 2015 (in millions) Interest income AFUDC equity Duke Energy $ 20 164 Duke Energy Carolinas $ 2 96 Progress Energy $ 4 54 Duke Energy Progress $ 2 47 Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ $ $ 2 7 4 3 6 11 Post in-service equity returns 73 60 13 13 — — — Nonoperating income (expense), other 33 2 26 9 15 (1) (6) $ 290 $ 160 Other income and expense, net $ 97 $ 71 $ 24 $ 6 $ 11 Year Ended December 31, 2014 (in millions) Interest income AFUDC equity Duke Energy $ 16 135 Duke Energy Carolinas $ 4 91 Progress Energy $ 3 26 Duke Energy Progress $ — 25 Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ $ $ 2 — 8 4 Post in-service equity returns 89 71 17 17 — — Nonoperating income (expense), other 80 6 31 9 18 (2) $ 320 $ 172 Other income and expense, net 24. $ 77 $ 51 $ 20 $ 10 6 14 — 2 $ 22 SUBSEQUENT EVENTS For information on subsequent events related to regulatory matters, commitments and contingencies, and debt and credit facilities see Notes 4, 5 and 6, respectively. 204 PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) 25. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. DUKE ENERGY Quarterly EPS amounts may not sum to the full-year total due to changes in the weighted average number of common shares outstanding and rounding. (in millions, except per share data) 2016 Operating revenues Operating income Income from continuing operations Income (loss) from discontinued operations, net of tax Net income (loss) Net income (loss) attributable to Duke Energy Corporation Earnings per share: Income from continuing operations attributable to Duke Energy Corporation common stockholders Basic Diluted Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders Basic Diluted Net income (loss) attributable to Duke Energy Corporation common stockholders Basic Diluted 2015 Operating revenues Operating income Income from continuing operations Income (Loss) from discontinued operations, net of tax Net income Net income attributable to Duke Energy Corporation Earnings per share: Income from continuing operations attributable to Duke Energy Corporation common stockholders Basic Diluted Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders Basic Diluted Net income attributable to Duke Energy Corporation common stockholders Basic Diluted First Second Third Fourth Quarter Quarter Quarter Quarter (in millions) Total $5,377 $5,213 $6,576 $5,577 $22,743 1,240 1,259 1,954 888 5,341 577 624 1,001 376 2,578 122 699 (112) 512 180 1,181 (598) (222) (408) 2,170 694 509 1,176 (227) 2,152 49 482 177 2,831 864 543 932 477 2,816 $ (21) $ (22) $ (24) $ (30) $ — — (90) (3) (97) (93) — — (7) (7) (14) — — (41) — — — — (142) (41) (142) (21) $ (63) $ (121) $ (182) $ (387) DUKE ENERGY CAROLINAS 2016 Operating revenues Operating income Net income 2015 Operating revenues Operating income Net income $5,792 $5,302 $6,202 $5,075 $22,371 1,390 1,192 1,606 890 5,078 755 576 890 433 2,654 45 935 Total (in millions) $ 1.01 $ 0.74 $ 1.70 $ (0.33) $ 3.11 $ 1.01 $ 0.74 $ 1.70 $ (0.33) $ 3.11 (29) 547 $ (140) $ (329) $ (174) $ (751) $(1,394) 2015 Costs to Achieve Mergers $ Edwardsport Settlement (see Note 4) Ash Basin Settlement and Penalties (see Note 5) State Tax Adjustment related to Midwest Generation Sale Cost Savings Initiatives (see Note 19) $ 0.18 $ (0.16) $ 0.26 $ (0.86) $ (0.60) $ 0.18 $ (0.16) $ 0.26 $ (0.86) $ (0.60) Total 2016 Costs to Achieve Mergers (see Note 2) $ (120) $ (111) $ (84) $ (208) $ (523) Commercial Renewables Impairment (see Note 12) — — (71) — (71) Loss on Sale of International Disposal Group (see Note 2) — — — (514) (514) Impairment of Assets in Central America (see Note 2) — (194) — — (194) Cost Savings Initiatives (see Note 19) (20) (24) (19) (29) (92) Total $ 0.83 $ 0.90 $ 1.44 $ 0.53 $ 3.71 $ 0.83 $ 0.90 $ 1.44 $ 0.53 $ 3.71 112 867 First Second Third Fourth Quarter Quarter Quarter Quarter First Second Third Fourth Quarter Quarter Quarter Quarter Total $1,740 $1,675 $2,226 $1,681 $7,322 481 464 815 302 2,062 271 261 494 140 1,166 $1,901 $1,707 $2,061 $1,560 $7,229 515 483 666 296 1,960 292 265 383 141 1,081 The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. $ 1.06 $ 0.83 $ 1.29 $ 0.62 $ 3.80 $ 1.06 $ 0.83 $ 1.29 $ 0.62 $ 3.80 (in millions) 2016 Costs to Achieve Mergers Cost Savings Initiatives (see Note 19) Total 2015 Costs to Achieve Mergers Ash Basin Settlement and Penalties (see Note 5) Cost Savings Initiatives (see Note 19) Total $ 0.16 $ (0.05) $ 0.06 $ 0.07 $ 0.25 $ 0.16 $ (0.05) $ 0.06 $ 0.07 $ 0.25 $ 1.22 $ 0.78 $ 1.35 $ 0.69 $ 4.05 $ 1.22 $ 0.78 $ 1.35 $ 0.69 $ 4.05 205 First Second Third Fourth Quarter Quarter Quarter Quarter Total $ (11) $ (12) $ (13) $ (68) $ (104) (10) (10) (8) (11) (39) $ (21) $ (22) $ (21) $ (79) $ (143) $ (9) $ (11) $ (11) $ (16) $ (47) $ — — (1) (7) (8) — — — (93) (93) (9) $ (11) $ (12) $ (116) $ (148) PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) PROGRESS ENERGY (in millions) 2016 Operating revenues Operating income Income from continuing operations Net income Net income attributable to parent 2015 Operating revenues Operating income Income from continuing operations Net income Net income attributable to parent First Second Third Quarter Quarter Quarter Fourth Quarter The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. Total (in millions) $2,332 $2,348 $2,965 475 560 814 212 274 449 212 274 449 209 272 446 $2,536 $2,476 $2,929 549 504 756 264 217 452 263 217 451 260 215 448 $2,208 $ 9,853 292 2,141 104 1,039 106 1,041 104 1,031 2016 Costs to Achieve Mergers Cost Savings Initiatives (see Note 19) Total 2015 Costs to Achieve Mergers $ 2,336 $10,277 351 2,160 132 1,065 131 1,062 128 1,051 (in millions) 2016 Costs to Achieve Mergers Cost Savings Initiatives (see Note 19) Total 2015 Costs to Achieve Mergers Ash Basin Settlement and Penalties (see Note 5) Cost Savings Initiatives (see Note 19) Total First Second Third Quarter Quarter Quarter Fourth Quarter $ (44) $ (69) (14) (40) $(15) $ (16) $ (20) $ (58) $ (109) $ (8) $ (8) $ (8) $ (10) $ (34) — — (6) — (6) — — — (36) (36) $ (8) $ (8) $ (14) 2016 Operating revenues Operating income Net income 2015 Operating revenues Operating income Net income $ (10) $ (10) $ (13) $ (46) $ (79) $ (5) $ (5) $ (6) $ (6) $ (22) — — (6) — (6) — — (28) (28) $ (5) $ (5) $ (12) $ (34) $ (56) First Second Third Fourth Quarter Quarter Quarter Quarter Total $1,024 $1,133 $1,381 $1,030 $4,568 213 300 373 155 1,041 110 171 206 64 551 $1,086 $1,281 $1,436 $1,174 $4,977 227 315 357 216 1,115 113 165 216 105 599 The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. $ (46) $ (76) (in millions) First Second Third Fourth Quarter Quarter Quarter Quarter (6) $ (40) $ (56) (7) (6) (23) — 2016 Operating revenues Operating income Net income 2015 Operating revenues Operating income Net income DUKE ENERGY PROGRESS (in millions) (5) $ (5) DUKE ENERGY FLORIDA Total $ (10) (10) (5) $ (5) Cost Savings Initiatives (see Note 19) (in millions) $ (7) $ (8) (8) (8) $ Total Ash Basin Settlement and Penalties (see Note 5) Total The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. First Second Third Fourth Quarter Quarter Quarter Quarter Total $1,307 $1,213 $1,583 $1,174 $ 5,277 258 255 438 135 1,086 137 131 271 60 599 $ (2) (2) $ (4) $ (3) $ (4) $ (4) $ (13) (3) (3) (9) (17) $ (6) $ (7) $ (13) $ (30) 2015 Costs to Achieve Mergers $ (3) $ (3) $ Total 206 Total 2016 Costs to Achieve Mergers Cost Savings Initiatives (see Note 19) Total Cost Savings Initiatives (see Note 19) $1,449 $1,193 $1,488 $1,160 $ 5,290 316 184 394 130 1,024 183 85 229 69 566 First Second Third Fourth Quarter Quarter Quarter Quarter — $ (3) — $ (3) $ (3) $ (4) $ (13) — (8) (8) (3) $ (12) $ (21) PART II %6,& &/&3(: $03103"5*0/ t %6,& &/&3(: $"30-*/"4 --$ t 130(3&44 &/&3(: */$ t %6,& &/&3(: 130(3&44 --$ t %6,& &/&3(: '-03*%" --$ t %6,& &/&3(: 0)*0 */$ t %6,& &/&3(: */%*"/" --$ Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY OHIO (in millions) 2016 Operating revenues Operating income Income from discontinued operations, net of tax Net income 2015 Operating revenues Operating income Income (Loss) from discontinued operations, net of tax Net income (loss) DUKE ENERGY INDIANA First Quarter $ 516 96 Second Quarter $ 2 59 $ 586 111 Third Quarter 428 55 $ — 23 $ 90 149 Fourth Quarter 489 106 $ 34 89 405 43 $ (65) (52) $ (2 ) 32 (in millions) 2016 Operating revenues Operating income Net income 2015 Operating revenues Operating income Net income 511 $ 1,944 90 347 — 57 462 76 Total 36 228 452 $ 1,905 73 303 — 43 2016 Costs to Achieve Mergers First Second Third Fourth Quarter Quarter Quarter Quarter $ Cost Savings Initiatives (see Note 19) Total 2015 Costs to Achieve Mergers $ $ Cost Savings Initiatives (see Note 19) Total (1) $ (2) $ (2) $ (6) (1) (1) — (1) (3) (2) $ (2) $ (2) $ (3) $ (9) (1) $ — $ (1) $ (1) $ — (1) $ (1) $ — (1) $ (1) $ (4) (2) (2) (3) $ (6) Fourth Quarter Total $ 714 176 95 $702 174 85 $809 239 129 $733 $2,958 176 765 72 381 $ 788 210 108 $ 686 146 68 $ 749 117 46 $ 667 $2,890 171 644 94 316 (in millions) First Second Third Fourth Quarter Quarter Quarter Quarter 2016 Costs to Achieve Mergers $ Cost Savings Initiatives (see Note 19) Total (1) $ Second Third Quarter Quarter The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. 23 172 The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. (in millions) First Quarter Total $ Total (1) $ (2) $ (3) $ (3) $ (9) (1) (4) (1) (1) (2) $ (6) $ (4) $ (4) $ (16) (7) 2015 Costs to Achieve Mergers 207 $ (2) $ (1) $ (2) $ (2) $ (7) Edwardsport Settlement (see Note 4) — — (90) (3) (93) Cost Savings Initiatives (see Note 19) Total — — — (6) (6) $ (2) $ (1) $ (92) $ (11) $ (106) PART II ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Management’s Annual Report On Internal Control Over Financial Reporting Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported, within the time periods specified by the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated the effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2016, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance. The Duke Energy Registrants’ management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a−15(f) and 15d−15(f). The Duke Energy Registrants’ internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles in the United States. Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of the internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. The Duke Energy Registrants’ management, including their Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of their internal control over financial reporting as of December 31, 2016, based on the framework in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management concluded that its internal controls over financial reporting were effective as of December 31, 2016. Deloitte & Touche LLP, Duke Energy’s independent registered public accounting firm, has issued an attestation report on the effectiveness of Duke Energy’s internal control over financial reporting. This attestation report is included in Part II, Item 8 of this Form 10-K. This report is not applicable to the Subsidiary Registrants as these companies are not accelerated or large accelerated filers. Changes in Internal Control Over Financial Reporting Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended December 31, 2016, and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. 208 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information regarding Duke Energy’s Executive Officers is set forth in Part I, Item 1, “Business – Executive Officers of the Registrants,” in this Annual Report on Form 10-K. Duke Energy will provide information that is responsive to the remainder of this Item 10 in its definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated in this Item 10 by reference. ITEM 11. EXECUTIVE COMPENSATION Duke Energy will provide information that is responsive to this Item 11 in its definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated in this Item 11 by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Equity Compensation Plan Information The following table shows information as of December 31, 2016, about securities to be issued upon exercise of outstanding options, warrants and rights under Duke Energy’s equity compensation plans, along with the weighted average exercise price of the outstanding options, warrants and rights and the number of securities remaining available for future issuance under the plans. Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants and rights (b)(1) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders Equity compensation plans not approved by security holders 3,224,537(2) 191,181(4) n/a n/a 8,661,659(3) n/a(5) Total 3,415,718 n/a 8,661,659 (1) As of December 31, 2016, no options were outstanding under equity compensation plans. (2) Includes restricted stock units and performance shares (assuming the maximum payout level) granted under the Duke Energy Corporation 2010 Long-Term Incentive Plan or the Duke Energy Corporation 2015 Long-Term Incentive Plan, as well as shares that could be payable with respect to certain compensation deferred under the Duke Energy Corporation Executive Savings Plan (Executive Savings Plan) and the Duke Energy Corporation Directors’ Savings Plan (Directors’ Savings Plan). (3) Includes shares remaining for issuance pursuant to stock awards under the Duke Energy Corporation 2015 Long-Term Incentive Plan. (4) Includes shares that could be payable with respect to certain compensation deferred under the Executive Savings Plan and the Directors’ Savings Plan, each of which is a non-qualified deferred compensation plan described in more detail below. Upon the acquisition of Piedmont Natural Gas Company, Inc., performance shares granted prior to the acquisition under the Piedmont Natural Gas Company, Inc. Incentive Compensation Plan were converted to restricted stock units payable in shares of Duke Energy common stock. As of December 31, 2016, 109,023 such restricted stock units were outstanding. Following the acquisition, no further stock awards were permitted to be granted under the Piedmont Natural Gas Company, Inc. Incentive Compensation Plan. These converted awards are not listed in the table above. (5) The number of shares remaining available for future issuance under equity compensation plans not approved by security holders cannot be determined because it is based on the amount of future voluntary deferrals, if any, under the Executive Savings Plan and the Directors’ Savings Plan. Under the Executive Savings Plan, participants can elect to defer a portion of their base salary and short-term incentive compensation. Participants also receive a company matching contribution in excess of the contribution limits prescribed by the Internal Revenue Code under the Duke Energy Retirement Savings Plan, which is the 401(k) plan in which the named executive officers participate. In general, payments are made following the termination of employment or death in the form of a lump sum or installments, as selected by the participant. Participants may direct the deemed investment of base deferrals, short-term incentive compensation deferrals and matching contributions among investment options available under the Duke Energy Retirement Savings Plan, including the Duke Energy Common Stock Fund. Participants may change their investment elections on a daily basis. Deferrals of equity awards are credited with earnings and losses based on the performance of the Duke Energy Common Stock Fund. The benefits payable under the plan are unfunded and subject to claims of Duke Energy’s creditors. Under the Directors’ Savings Plan, outside directors may elect to defer all or a portion of their annual compensation, consisting of retainers and attendance fees. Deferred amounts are credited to an unfunded account, the balance of which is adjusted for the performance of phantom investment options, including the Duke Energy Common Stock Fund, as elected by the director, and generally are paid when the director terminates his or her service from the Board of Directors. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Duke Energy will provide information that is responsive to this Item 13 in its definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated in this Item 13 by reference. 209 PART III ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Deloitte & Touche LLP and the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, Deloitte) provided professional services to the Duke Energy Registrants. The following tables present the Deloitte fees for services rendered to the Duke Energy Registrants during 2016 and 2015. Year Ended December 31, 2016 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 13.8 0.7 0.4 $4.9 — 0.1 $5.2 — 0.1 $3.0 — 0.1 $2.2 — — $0.8 — — $1.4 — 0.1 Other Fees 0.2 0.1 0.1 0.1 — — — Total Fees $ 15.1 $5.1 $5.4 $3.2 $2.2 $0.8 $1.5 (in millions) Types of Fees Audit Fees(a) Audit-Related Fees(b) Tax Fees(c) Year Ended December 31, 2015 (in millions) Types of Fees Audit Fees(a) Audit-Related Fees(b) Tax Fees(c) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 12.4 2.4 0.2 $4.6 — 0.1 $5.1 — — $2.9 — — $2.2 — — $0.8 1.2 — $1.3 — — Other Fees 0.1 — — — — — — Total Fees $ 15.1 $4.7 $5.1 $2.9 $2.2 $2.0 $1.3 (a) Audit Fees are fees billed or expected to be billed for professional services for the audit of the Duke Energy Registrants’ financial statements included in the Annual Report on Form 10-K and the review of financial statements included in quarterly reports on Form 10-Q, for services that are normally provided by Deloitte in connection with statutory, regulatory or other filings or engagements, or for any other service performed by Deloitte to comply with generally accepted auditing standards. Total Fees for Duke Energy in 2016 include amounts for audit work related to Piedmont. For additional information related to acquisition of Piedmont see Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions.” (b) Audit-Related Fees are fees billed, or expected to be billed, for assurance and related services that are reasonably related to the performance of an audit or review of financial statements, including assistance with acquisitions and divestitures and internal control reviews. (c) Tax Fees are fees for tax return assistance and preparation, tax examination assistance and professional services related to tax planning and tax strategy. To safeguard the continued independence of the independent auditor, the Audit Committee of the Board of Directors of Duke Energy adopted a policy that all services provided by the independent auditor require preapproval by the Audit Committee. Pursuant to the policy, certain audit services, audit-related services, tax services and other services have been specifically preapproved up to fee limits. In the event the cost of any of these services may exceed the fee limits, the Audit Committee must preapprove the service. All services performed in 2016 and 2015 by the independent accountant were approved by the Audit Committee pursuant to their preapproval policy. 210 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Consolidated Financial Statements, Supplemental Financial Data and Supplemental Schedules included in Part II of this annual report are as follows: Duke Energy Corporation Consolidated Financial Statements Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Balance Sheets as of December 31, 2016 and 2015 Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2015 and 2014 Notes to the Consolidated Financial Statements Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements) Report of Independent Registered Public Accounting Firm All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes. Duke Energy Carolinas, LLC Consolidated Financial Statements Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Balance Sheets as of December 31, 2016 and 2015 Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2015 and 2014 Notes to the Consolidated Financial Statements Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements) Report of Independent Registered Public Accounting Firm All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes. Progress Energy, Inc. Consolidated Financial Statements Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Balance Sheets as of December 31, 2016 and 2015 Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2015 and 2014 Notes to the Consolidated Financial Statements Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements) Report of Independent Registered Public Accounting Firm All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes. Duke Energy Progress, LLC Consolidated Financial Statements Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Balance Sheets as of December 31, 2016 and 2015 Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2015 and 2014 Notes to the Consolidated Financial Statements Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements) Report of Independent Registered Public Accounting Firm All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes. Duke Energy Florida, LLC Consolidated Financial Statements Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Balance Sheets as of December 31, 2016 and 2015 Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2015 and 2014 Notes to the Consolidated Financial Statements Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements) Report of Independent Registered Public Accounting Firm All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes. 211 PART IV Duke Energy Ohio, Inc. Consolidated Financial Statements Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Balance Sheets as of December 31, 2016 and 2015 Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2015 and 2014 Notes to the Consolidated Financial Statements Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements) Report of Independent Registered Public Accounting Firm All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes. Duke Energy Indiana, LLC Consolidated Financial Statements Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Balance Sheets as of December 31, 2016 and 2015 Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2015 and 2014 Notes to the Consolidated Financial Statements Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements) Report of Independent Registered Public Accounting Firm All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes. (b) Exhibits – See Exhibit Index immediately following the signature page. 212 PART IV SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. Date: February 24, 2017 DUKE ENERGY CORPORATION (Registrant) By: /s/ LYNN J. GOOD Lynn J. Good Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. (i) /s/ LYNN J. GOOD Lynn J. Good Chairman, President and Chief Executive Officer (Principal Executive Officer and Director) (ii) /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer (Principal Financial Officer) (iii) /s/ WILLIAM E. CURRENS JR. William E. Currens Jr. Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) (iv) Directors: Michael J. Angelakis* Michael G. Browning* Daniel R. DiMicco* John H. Forsgren* Ann Maynard Gray* John T. Herron* James B. Hyler, Jr.* William E. Kennard* E. Marie McKee* Charles W. Moorman IV* Carlos A. Saladrigas* Thomas E. Skains* William E. Webster, Jr.* Steven K. Young, by signing his name hereto, does hereby sign this document on behalf of the registrant and on behalf of each of the above-named persons previously indicated by asterisk (*) pursuant to a power of attorney duly executed by the registrant and such persons, filed with the Securities and Exchange Commission as an exhibit hereto. By: Date: February 24, 2017 213 /s/ STEVEN K. YOUNG Attorney-In-Fact PART IV SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 24, 2017 DUKE ENERGY CAROLINAS, LLC (Registrant) By: /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. (i) /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer (Principal Executive Officer) (ii) /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer (Principal Financial Officer) (iii) /s/ WILLIAM E. CURRENS JR. William E. Currens Jr. Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) (iv) Directors: /s/ LYNN J. GOOD Lynn J. Good /s/ DHIAA M. JAMIL Dhiaa M. Jamil /s/ LLOYD M. YATES Lloyd M. Yates Date: February 24, 2017 214 PART IV SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 24, 2017 PROGRESS ENERGY, INC. (Registrant) By: /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. (i) /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer (Principal Executive Officer) (ii) /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer (Principal Financial Officer) (iii) /s/ WILLIAM E. CURRENS JR. William E. Currens Jr. Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) (iv) Directors: /s/ LYNN J. GOOD Lynn J. Good /s/ JULIA S. JANSON Julia S. Janson Date: February 24, 2017 215 PART IV SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 24, 2017 DUKE ENERGY PROGRESS, LLC (Registrant) By: /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. (i) /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer (Principal Executive Officer) (ii) /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer (Principal Financial Officer) (iii) /s/ WILLIAM E. CURRENS JR. William E. Currens Jr. Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) (iv) Directors: /s/ DOUGLAS F ESAMANN Douglas F Esamann /s/ LYNN J. GOOD Lynn J. Good /s/ DHIAA M. JAMIL Dhiaa M. Jamil /s/ JULIA S. JANSON Julia S. Janson /s/ LLOYD M. YATES Lloyd M. Yates Date: February 24, 2017 216 PART IV SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 24, 2017 DUKE ENERGY FLORIDA, LLC (Registrant) By: /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. (i) /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer (Principal Executive Officer) (ii) /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer (Principal Financial Officer) (iii) /s/ WILLIAM E. CURRENS JR. William E. Currens Jr. Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) (iv) Directors: /s/ DOUGLAS F ESAMANN Douglas F Esamann /s/ LYNN J. GOOD Lynn J. Good /s/ DHIAA M. JAMIL Dhiaa M. Jamil /s/ JULIA S. JANSON Julia S. Janson /s/ LLOYD M. YATES Lloyd M. Yates Date: February 24, 2017 217 PART IV SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 24, 2017 DUKE ENERGY OHIO, INC. (Registrant) By: /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. (i) /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer (Principal Executive Officer) (ii) /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer (Principal Financial Officer) (iii) /s/ WILLIAM E. CURRENS JR. William E. Currens Jr. Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) (iv) Directors: /s/ DOUGLAS F ESAMANN Douglas F Esamann /s/ LYNN J. GOOD Lynn J. Good /s/ DHIAA M. JAMIL Dhiaa M. Jamil Date: February 24, 2017 218 PART IV SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 24, 2017 DUKE ENERGY INDIANA, LLC (Registrant) By: /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. (i) /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer (Principal Executive Officer) (ii) /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer (Principal Financial Officer) (iii) /s/ WILLIAM E. CURRENS JR. William E. Currens Jr. Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) (iv) Directors: /s/ MELODY BIRMINGHAM-BYRD Melody Birmingham-Byrd /s/ DOUGLAS F ESAMANN Douglas F Esamann /s/ KELLEY A. KARN Kelley A. Karn Date: February 24, 2017 219 PART IV EXHIBIT INDEX Exhibits filed herewithin are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**). The Company agrees to furnish upon request to the Commission a copy of any omitted schedules or exhibits upon request on all items designated by a triple asterisk (***). Exhibit Number Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 2.1 Agreement and Plan of Merger between Duke Energy Corporation, Diamond Acquisition Corporation and Progress Energy, Inc., dated as of January 8, 2011 (incorporated by reference to Exhibit 2.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on January 11, 2011, File No. 1-32853). X 2.2 Agreement and Plan of Merger between Piedmont Natural Gas Company, Duke Energy Corporation and Forest Subsidiary, Inc. (incorporated by reference to Exhibit 2.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on October 26, 2015, File No. 1-32853). X 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on May 20, 2014, File No. 1-32853). X 3.2 Amended and Restated By-Laws of Duke Energy Corporation (incorporated by reference to Exhibit 3.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on January 4, 2016, File No. 1-32853). X 3.3 Articles of Organization including Articles of Conversion (incorporated by reference to Exhibit 3.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on April 7, 2006, File No. 1-4928). X 3.3.1 Amended Articles of Organization, effective October 1, 2006 (incorporated by reference to Exhibit 3.1 to Duke Energy Carolinas, LLC’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November 13, 2006, File No. 1-4928). X 3.4 Amended Articles of Consolidation of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company), effective October 23, 1996 (incorporated by reference to Exhibit 3(a) to registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 filed on November 13, 1996, File No. 1-1232). X 3.4.1 Amended Articles of Consolidation, effective October 1, 2006 (incorporated by reference to Exhibit 3.1 to Duke Energy Ohio, Inc.’s (formerly The Cincinnati Gas & Electric Company) Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November 17, 2006, File No. 1-1232). X 3.5 Certificate of Conversion of Duke Energy Indiana, LLC (incorporated by reference to Exhibit 3.1 to registrant’s Current Report on Form 8-K filed on January 4, 2016, File No. 1-3543). X 3.5.1 Articles of Entity Conversion of Duke Energy Indiana, LLC (incorporated by reference to Exhibit 3.2 to registrant’s Current Report on Form 8-K filed on January 4, 2016, File No. 1-3543). X 3.5.2 Plan of Entity Conversion of Duke Energy Indiana, LLC (incorporated by reference to Exhibit 3.3 to registrant’s Current Report on Form 8-K filed on January 4, 2016, File No. 1-3543). X 3.5.3 Articles of Organization of Duke Energy Indiana, LLC (incorporated by reference to Exhibit 3.4 to registrant’s Current Report on Form 8-K filed on January 4, 2016, File No. 1-3543). X 3.5.4 Limited Liability Company Operating Agreement of Duke Energy Indiana, LLC (incorporated by reference to Exhibit 3.5 to registrant’s Current Report on Form 8-K filed on January 4, 2016, File No. 1-3543). X E-1 PART IV Exhibit Number Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida 3.6 Limited Liability Company Operating Agreement of Duke Energy Carolinas, LLC (incorporated by reference to Exhibit 3.2 to registrant’s Current Report on Form 8-K filed on April 7, 2006, File No. 1-4928). 3.7 Regulations of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company), effective July 23, 2003 (incorporated by reference to Exhibit 3.2 to registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 filed on August 13, 2003, File No. 1-1232). 3.8 Articles of Organization including Articles of Conversion for Duke Energy Progress, LLC (incorporated by reference to Exhibit 3.1 to registrant’s Current Report on Form 8-K filed on August 4, 2015, File No. 1-3382). X 3.8.1 Plan of Conversion of Duke Energy Progress, Inc. (incorporated by reference to Exhibit 3.2 to registrant’s Current Report on Form 8-K filed on August 4, 2015, File No. 1-3382). X 3.8.2 Limited Liability Company Operating Agreement of Duke Energy Progress, LLC (incorporated by reference to Exhibit 3.3 to registrant’s Current Report on Form 8-K filed on August 4, 2015, File No. 1-3382). X 3.9 Amended and Restated Articles of Incorporation of Progress Energy, Inc. (formerly CP&L Energy, Inc.), effective June 15, 2000 (incorporated by reference to Exhibit 3(a)(1) to registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 filed on August 14, 2000, File No. 1-3382). X 3.9.1 Articles of Amendment to the Amended and Restated Articles of Incorporation of Progress Energy, Inc. (formerly CP&L Energy, Inc.), effective December 4, 2000 (incorporated by reference to Exhibit 3(b)(1) to registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 filed on March 28, 2002, File No. 1-3382). X 3.9.2 Articles of Amendment to the Amended and Restated Articles of Incorporation of Progress Energy, Inc. (formerly CP&L Energy, Inc.), effective May 10, 2006 (incorporated by reference to Exhibit 3(a) to registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed on August 9, 2006, File No. 1-15929). X 3.9.3 By-Laws of Progress Energy, Inc. (formerly CP&L Energy, Inc.), effective May 10, 2006 (incorporated by reference to Exhibit 3(b) to registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed on August 9, 2006, File No. 1-15929). X 4.1 Articles of Conversion for Duke Energy Florida, LLC (incorporated by reference to Exhibit 3.4 to registrant’s Current Report on Form 8-K filed on August 4, 2015, File No. 1-3274). X 4.1.1 Articles of Organization for Duke Energy Florida, LLC (incorporated by reference to Exhibit 3.5 to registrant’s Current Report on Form 8-K filed on August 4, 2015, File No. 1-3274). X 4.1.2 Plan of Conversion of Duke Energy Florida, Inc. (incorporated by reference to Exhibit 3.6 to registrant’s Current Report on Form 8-K filed on August 4, 2015, File No. 1-3274). X 4.1.3 Limited Liability Company Operating Agreement of Duke Energy Florida, LLC (incorporated by reference to Exhibit 3.7 to registrant’s Current Report on Form 8-K filed on August 4, 2015, File No. 1-3274). X 4.2 Indenture between Duke Energy Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, dated as of June 3, 2008 (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on June 16, 2008, File No. 1-32853). X 4.2.1 First Supplemental Indenture, dated as of June 16, 2008 (incorporated by reference to Exhibit 4.2 to Duke Energy Corporation’s Current Report on Form 8-K filed on June 16, 2008, File No. 1-32853). X Duke Energy Ohio X E-2 X Duke Energy Indiana PART IV Exhibit Number Duke Energy Duke Energy Carolinas 4.2.2 Second Supplemental Indenture, dated as of January 26, 2009 (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on January 26, 2009, File No. 1-32853). X 4.2.3 Third Supplemental Indenture, dated as of August 28, 2009 (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on August 28, 2009, File No. 1-32853). X 4.2.4 Fourth Supplemental Indenture, dated as of March 25, 2010 (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on March 25, 2010, File No. 1-32853). X 4.2.5 Fifth Supplemental Indenture, dated as of August 25, 2011 (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on August 25, 2011, File No. 1-32853). X 4.2.6 Sixth Supplemental Indenture, dated as of November 17, 2011 (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on November 17, 2011, File No. 1-32853). X 4.2.7 Seventh Supplemental Indenture, dated as of August 16 , 2012 (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on August 16, 2012, File No. 1-32853). X 4.2.8 Eighth Supplemental Indenture, dated as of January 14, 2013 (incorporated by reference to Exhibit 2 to Duke Energy Corporation’s Form 8-A filed on January 14, 2013, File No. 1-32853). X 4.2.9 Ninth Supplemental Indenture, dated as of June 13, 2013 (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on June 13, 2013, File No. 1-32853). X 4.2.10 Tenth Supplemental Indenture, dated as of October 11, 2013 (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on October 11, 2013, File No. 1-32853). X 4.2.11 Eleventh Supplemental Indenture, dated as of April 4, 2014 (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on April 4, 2014, File No. 1-32853). X 4.2.12 Twelfth Supplemental Indenture, dated as of November 19, 2015 (incorporated by reference to Exhibit 4.2 to Duke Energy Corporation’s Current Report on Form 8-K filed on November 19, 2015, File No. 1-32853). X 4.2.13 Thirteenth Supplemental Indenture, dated as of April 18, 2016, to the indenture dated as of June 3, 2008, between Duke Energy Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed on May 5, 2016, File No. 1-32853). X 4.2.14 Fourteenth Supplemental Indenture, dated as of August 12, 2016 (incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on August 12, 2016, File No. 1-32853). X 4.3 Senior Indenture between Duke Energy Carolinas, LLC and The Bank of New York Mellon Trust Company, N.A., as successor trustee to JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), dated as of September 1, 1998 (incorporated by reference to Exhibit 4-D-1 to registrant’s Post-Effective Amendment No. 2 to Registration Statement on Form S-3 filed on April 7, 1999, File No. 333-14209). X 4.3.1 Fifteenth Supplemental Indenture, dated as of April 3, 2006 (incorporated by reference to Exhibit 4.4.1 to registrant’s Registration Statement on Form S-3 filed on October 3, 2007, File No. 333-146483-03). X 4.3.2 Sixteenth Supplemental Indenture, dated as of June 5, 2007 (incorporated by reference to Exhibit 4.1 registrant’s Current Report on Form 8-K filed on June 6, 2007, File No. 1-4928). X E-3 Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana PART IV Exhibit Number Duke Energy Duke Energy Carolinas 4.4 First and Refunding Mortgage from Duke Energy Carolinas, LLC to The Bank of New York Mellon Trust Company, N.A., successor trustee to Guaranty Trust Company of New York, dated as of December 1, 1927 (incorporated by reference to Exhibit 7(a) to registrant’s Form S-1, effective October 15, 1947, File No. 2-7224). X 4.4.1 Instrument of Resignation, Appointment and Acceptance among Duke Energy Carolinas, LLC, JPMorgan Chase Bank, N.A., as Trustee, and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as of September 24, 2007 (incorporated by reference to Exhibit 4.6.1 to registrant’s Registration Statement on Form S-3 filed on October 3, 2007, File No. 333-146483). X 4.4.2 Ninth Supplemental Indenture, dated as of February 1, 1949 (incorporated by reference to Exhibit 7(j) to registrant’s Form S-1 filed on February 3, 1949, File No. 2-7808). X 4.4.3 Twentieth Supplemental Indenture, dated as of June 15, 1964 (incorporated by reference to Exhibit 4-B-20 to registrant’s Form S-1 filed on August 23, 1966, File No. 2-25367). X 4.4.4 Twenty-third Supplemental Indenture, dated as of February 1, 1968 (incorporated by reference to Exhibit 2-B-26 to registrant’s Form S-9 filed on January 21, 1969, File No. 2-31304). X 4.4.5 Sixtieth Supplemental Indenture, dated as of March 1, 1990 (incorporated by reference to Exhibit 4-B-61 to registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, File No.1-4928). X 4.4.6 Sixty-third Supplemental Indenture, dated as of July 1, 1991 (incorporated by reference to Exhibit 4-B-64 to registrant’s Registration Statement on Form S-3 filed on February 13, 1992, File No. 33-45501). X 4.4.7 Eighty-fourth Supplemental Indenture, dated as of March 20, 2006 (incorporated by reference to Exhibit 4.6.9 to registrant’s Registration Statement on Form S-3 filed on October 3, 2007, File No. 333-146483-03). X 4.4.8 Eighty-fifth Supplemental Indenture, dated as of January 10, 2008 (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on January 11, 2008, File No.1-4928). X 4.4.9 Eighty-seventh Supplemental Indenture, dated as of April 14, 2008 (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on April 15, 2008, File No.1-4928). X 4.4.10 Eighty-eighth Supplemental Indenture, dated as of November 17, 2008 (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on November 20, 2008, File No.1-4928). X 4.4.11 Ninetieth Supplemental Indenture, dated as of November 19, 2009 (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on November 19, 2009, File No.1-4928). X 4.4.12 Ninety-first Supplemental Indenture, dated as of June 7, 2010 (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on June 7, 2010, File No.1-4928). X 4.4.13 Ninety-third Supplemental Indenture, dated as of May 19, 2011 (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on May 19, 2011, File No.1-4928). X 4.4.14 Ninety-fourth Supplemental Indenture, dated as of December 8, 2011 (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on December 8, 2011, File No.1-4928). X 4.4.15 Ninety-fifth Supplemental Indenture, dated as of September 21, 2012 (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on September 21, 2012, File No.1-4928). X E-4 Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana PART IV Exhibit Number Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress 4.4.16 Ninety-sixth Supplemental Indenture, dated as of March 12, 2015, between Duke Energy Carolinas, LLC and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on March 12, 2015, File No. 1-4928). X 4.4.17 Ninety-seventh Supplemental Indenture, dated as of March 11, 2016 (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on March 11, 2016, File No. 1-4928). X 4.4.18 Ninety-eighth Supplemental Indenture, dated as of November 17, 2016 (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on November 17, 2016, File No. 1-4928). X 4.5 Mortgage and Deed of Trust between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and The Bank of New York Mellon (formerly Irving Trust Company) and Frederick G. Herbst (Tina D. Gonzalez, successor), as Trustees, dated as of May 1, 1940. X 4.5.1 First through Fifth Supplemental Indentures thereto (Exhibit 2(b), File No. 2-64189); the Sixth through Sixty-sixth Supplemental Indentures (Exhibit 2(b)-5, File No. 2-16210; Exhibit 2(b)-6, File No. 2-16210; Exhibit 4(b)-8, File No. 2-19118; Exhibit 4(b)-2, File No. 2-22439; Exhibit 4(b)-2, File No. 2-24624; Exhibit 2(c), File No. 2-27297; Exhibit 2(c), File No. 2-30172; Exhibit 2(c), File No. 2-35694; Exhibit 2(c), File No. 2-37505; Exhibit 2(c), File No. 2-39002; Exhibit 2(c), File No. 2-41738; Exhibit 2(c), File No. 2-43439; Exhibit 2(c), File No. 2-47751; Exhibit 2(c), File No. 2-49347; Exhibit 2(c), File No. 2-53113; Exhibit 2(d), File No. 2-53113; Exhibit 2(c), File No. 2-59511; Exhibit 2(c), File No. 2-61611; Exhibit 2(d), File No. 2-64189; Exhibit 2(c), File No. 2-65514; Exhibits 2(c) and 2(d), File No. 2-66851; Exhibits 4(b)-1, 4(b)-2, and 4(b)-3, File No. 2-81299; Exhibits 4(c)-1 through 4(c)-8, File No. 2-95505; Exhibits 4(b) through 4(h), File No. 33-25560; Exhibits 4(b) and 4(c), File No. 33-33431; Exhibits 4(b) and 4(c), File No. 33-38298; Exhibits 4(h) and 4(i), File No. 33-42869; Exhibits 4(e)-(g), File No. 33-48607; Exhibits 4(e) and 4(f), File No. 33-55060; Exhibits 4(e) and 4(f), File No. 33-60014; Exhibits 4(a) and 4(b) to Post-Effective Amendment No. 1, File No. 33-38349; Exhibit 4(e), File No. 33-50597; Exhibit 4(e) and 4(f) to Registration Statement on Form S-3, File No. 33-57835, filed on February 24, 1995; Exhibit to the Current Report on Form 8-K filed on August 28, 1997, File No. 1-3382; Exhibit 4(b) to Registration Statement on Form S-3, File No. 333-69237, filed on December 18, 1998; and Exhibit 4(c) to the Current Report on Form 8-K filed on March 19, 1999, File No. 1-3382). X 4.5.2 Seventy-second Supplemental Indenture, dated as of September 1, 2003 (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on September 12, 2003, File No. 1-3382). X 4.5.3 Seventy-third Supplemental Indenture, dated as of March 1, 2005 (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on March 22, 2005, File No. 1-3382). X 4.5.4 Seventy-fourth Supplemental Indenture, dated as of November 1, 2005 (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on November 30, 2005, File No. 1-3382). X 4.5.5 Seventy-fifth Supplemental Indenture, dated as of March 1, 2008 (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on March 13, 2008, File No. 1-3382). X 4.5.6 Seventy-sixth Supplemental Indenture, dated as of January 1, 2009 (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on January 15, 2009, File No. 1-3382). X E-5 Duke Energy Florida Duke Energy Ohio Duke Energy Indiana PART IV Exhibit Number Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida 4.5.7 Seventy-seventh Supplemental Indenture, dated as of June 18, 2009 (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on June 23, 2009, File No. 1-3382). X 4.5.8 Seventy-eighth Supplemental Indenture, dated as of September 1, 2011 (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on September 15, 2011, File No. 1-3382). X 4.5.9 Seventy-ninth Supplemental Indenture, dated as of May 1, 2012 (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on May 18, 2012, File No. 1-3382). X 4.5.10 Eightieth Supplemental Indenture, dated as of March 1, 2013 (incorporated by reference to Exhibit 4.1 to Duke Energy Progress, Inc.’s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on March 12, 2013, File No. 1-3382). X 4.5.11 Eighty-second Supplemental Indenture, dated as of March 1, 2014, between the Company and The Bank of New York Mellon (formerly Irving Trust Company) and Tina D. Gonzalez (successor to Frederick G. Herbst) and forms of global notes (incorporated by reference to Exhibit 4.1 to Duke Energy Progress, Inc.’s Current Report on Form 8-K filed on March 6, 2014, File No. 1-3382). X 4.5.12 Eighty-third Supplemental Indenture, dated as of November 1, 2014, between the Company and The Bank of New York Mellon (formerly Irving Trust Company) and Tina D. Gonzalez (successor to Frederick G. Herbst) and forms of global notes (incorporated by reference to Exhibit 4.1 to Duke Energy Progress, Inc.’s Current Report on Form 8-K filed on November 20, 2014, File No. 1-3382). X 4.5.13 Eighty-fifth Supplemental Indenture, dated as of August 1, 2015 (incorporated by reference to Exhibit 4.1 to Duke Energy Progress, LLC’s Current Report on Form 8-K filed on August 13, 2015, File No. 1-3382). X 4.5.14 Eighty-sixth Supplemental Indenture, dated as of September 1, 2016 (incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on September 16, 2016, File No. 1-15929). X 4.6 Indenture (for Debt Securities) between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and The Bank of New York Mellon (successor in interest to The Chase Manhattan Bank), as Trustee (incorporated by reference to Exhibit 4(a) to registrant’s Current Report on Form 8-K filed on November 5, 1999, File No. 1-3382). X 4.7 Indenture (for [Subordinated] Debt Securities) (open ended) (incorporated by reference to Exhibit 4(a)(2) to Duke Energy Progress, Inc.’s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Registration Statement on Form S-3 filed on November 18, 2008, File No. 333-155418). X 4.8 Indenture (for First Mortgage Bonds) between Duke Energy Florida, Inc. (formerly Florida Power Corporation) and The Bank of New York Mellon (as successor to Guaranty Trust Company of New York and The Florida National Bank of Jacksonville), as Trustee, dated as of January 1, 1944 (incorporated by reference to Exhibit B-18 to registrant’s Form A-2, File No. 2-5293). X 4.8.1 Seventh Supplemental Indenture (incorporated by reference to Exhibit 4(b) to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 27, 1991, File No. 33-16788). X 4.8.2 Eighth Supplemental Indenture (incorporated by reference to Exhibit 4(c) to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 27, 1991, File No. 33-16788). X E-6 Duke Energy Ohio Duke Energy Indiana PART IV Exhibit Number Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida 4.8.3 Sixteenth Supplemental Indenture (incorporated by reference to Exhibit 4(d) to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 27, 1991, File No. 33-16788). X 4.8.4 Twenty-ninth Supplemental Indenture (incorporated by reference to Exhibit 4(c) to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 17, 1982, File No. 2-79832). X 4.8.5 Thirty-eighth Supplemental Indenture, dated as of July 25, 1994 (incorporated by reference to exhibit 4(f) to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on August 29, 1994, File No. 33-55273). X 4.8.6 Forty-first Supplemental Indenture, dated as of February 1, 2003 (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Duke Energy Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on February 21, 2003, File No. 1-3274). X 4.8.7 Forty-second Supplemental Indenture, dated as of April 1, 2003 (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 filed on August 11, 2003, File No. 1-3274). X 4.8.8 Forty-third Supplemental Indenture, dated as of November 1, 2003 (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on November 21, 2003, File No. 1-3274). X 4.8.9 Forty-fourth Supplemental Indenture, dated as of August 1, 2004 (incorporated by reference to Exhibit 4(m) to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 16, 2005, File No. 1-3274). X 4.8.10 Forty-sixth Supplemental Indenture, dated as of September 1, 2007 (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on September 19, 2007, File No. 1-3274). X 4.8.11 Forty-seventh Supplemental Indenture, dated as of December 1, 2007 (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on December 13, 2007, File No. 1-3274). X 4.8.12 Forty-eighth Supplemental Indenture, dated as of June 1, 2008 (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on June 18, 2008, File No. 1-3274). X 4.8.13 Forty-ninth Supplemental Indenture, dated as of March 1, 2010 (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on March 25, 2010, File No. 1-3274). X 4.8.14 Fiftieth Supplemental Indenture, dated as of August 11, 2011 (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on August 18, 2011, File No. 1-3274). X 4.8.15 Fifty-first Supplemental Indenture, dated as of November 1, 2012 (incorporated by reference to Exhibit 4.1 to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on November 20, 2012, File No. 1-3274). X E-7 Duke Energy Ohio Duke Energy Indiana PART IV Exhibit Number Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 4.8.16 Fifty-third Supplemental Indenture, dated as of September 1, 2016 (incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on September 9, 2016, File No. 1-03274). X 4.9 Indenture (for Debt Securities) between Duke Energy Florida, Inc. (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) and The Bank of New York Mellon Trust Company, National Association (successor in interest to J.P. Morgan Trust Company, National Association), as Trustee, dated as of December 7, 2005 (incorporated by reference to Exhibit 4(a) to registrant’s Current Report on Form 8-K filed on December 13, 2005, File No. 1-3274). X 4.10 Indenture (for [Subordinated] Debt Securities) (open ended) (incorporated by reference to Exhibit 4(a)(2) Duke Energy Florida, Inc.’s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Registration Statement on Form S-3 filed on November 18, 2008, File No. 333-155418). X 4.11 Original Indenture (Unsecured Debt Securities) between Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as of May 15, 1995 (incorporated by reference to Exhibit 3 to registrant’s Form 8-A filed on July 27, 1995, File No. 1-1232). X 4.11.1 First Supplemental Indenture, dated as of June 1, 1995 (incorporated by reference to Exhibit 4 B to Duke Energy Ohio, Inc.’s (formerly The Cincinnati Gas & Electric Company) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 filed on August 11, 1995, File No. 1-1232). X 4.11.2 Seventh Supplemental Indenture, dated as of June 15, 2003 (incorporated by reference to Exhibit 4.1 to Duke Energy Ohio, Inc.’s (formerly The Cincinnati Gas & Electric Company) Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 filed on August 13, 2003, File No. 1-1232). X 4.12 Original Indenture (First Mortgage Bonds) between Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as of August 1, 1936 (incorporated by reference to an exhibit to registrant’s Registration Statement No. 2-2374). X 4.12.1 Fortieth Supplemental Indenture, dated as of March 23, 2009 (incorporated by reference to Exhibit 4.1 to Duke Energy Ohio, Inc.’s (formerly The Cincinnati Gas & Electric Company) Current Report on Form 8-K filed on March 24, 2009, File No. 1-1232). X 4.12.2 Forty-second Supplemental Indenture, dated as of September 6, 2013 (incorporated by reference to Exhibit 4.1 to Duke Energy Ohio, Inc.’s (formerly The Cincinnati Gas & Electric Company) Current Report on Form 8-K filed on September 6, 2013, File No. 1-1232). X 4.12.3 Forty-fourth Supplemental Indenture, dated as of June 23, 2016 (incorporated by reference to Exhibit 4.1 registrant’s Current Report on Form 8-K filed on June 23, 2016, File No. 1-1232). X 4.13 Indenture between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as of November 15, 1996 (incorporated by reference to Exhibit 4(v) to registrant’s Annual Report on Form 10-K for the year ended December 31, 1996 filed on March 27, 1997, File No. 1-3543). X 4.13.1 Third Supplemental Indenture, dated as of March 15, 1998 (incorporated by reference to Exhibit 4 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Annual Report on Form 10-K for the year ended December 31, 1997 filed on March 27, 1998, File No. 1-3543). X 4.13.2 Eighth Supplemental Indenture, dated as of September 23, 2003 (incorporated by reference to Exhibit 4.2 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 filed on November 13, 2003, File No. 1-3543). X E-8 PART IV Exhibit Number Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 4.13.3 Ninth Supplemental Indenture, dated as of October 21, 2005 (incorporated by reference to Exhibit 4.7.3 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 29, 2010, File No. 333-169633). X 4.13.4 Tenth Supplemental Indenture, dated as of June 9, 2006 (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Current Report on Form 8-K filed on June 15, 2006, File No. 1-3543). X 4.14 Original Indenture (First Mortgage Bonds) between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and Deutsche Bank National Trust Company, as Successor Trustee, dated as of September 1, 1939 (filed as an exhibit in File No. 70-258). X 4.14.1 Tenth Supplemental Indenture, dated as of July 1, 1952 (filed as an exhibit in File No. 2-9687). X 4.14.2 Twenty-third Supplemental Indenture, dated as of January 1, 1977 (filed as an exhibit in File No. 2-57828). X 4.14.3 Twenty-fifth Supplemental Indenture, dated as of September 1, 1978 (filed as an exhibit in File No. 2-62543). X 4.14.4 Twenty-sixth Supplemental Indenture, dated as of September 1, 1978 (filed as an exhibit in File No. 2-62543). X 4.14.5 Thirtieth Supplemental Indenture, dated as of August 1, 1980 (filed as an exhibit in File No. 2-68562). X 4.14.6 Thirty-fifth Supplemental Indenture, dated as of March 30, 1984 (filed as an exhibit to registrant’s Annual Report on Form 10-K for the year ended December 31, 1984, File No. 1-3543). X 4.14.7 Forty-sixth Supplemental Indenture, dated as of June 1, 1990 (filed as an exhibit to registrant’s Annual Report on Form 10-K for the year ended December 31, 1991, File No. 1-3543). X 4.14.8 Forty-seventh Supplemental Indenture, dated as of July 15, 1991 (filed as an exhibit to registrant’s Annual Report on Form 10-K for the year ended December 31, 1991, File No. 1-3543). X 4.14.9 Forty-eighth Supplemental Indenture, dated as of July 15, 1992 (filed as an exhibit to registrant’s Annual Report on Form 10-K for the year ended December 31, 1992, File No. 1-3543). X 4.14.10 Fifty-second Supplemental Indenture, dated as of April 30, 1999 (incorporated by reference to Exhibit 4 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 filed on May 13, 1999, File No. 1-3543). X 4.14.11 Fifty-seventh Supplemental Indenture, dated as of August 21, 2008 (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Current Report Form 8-K filed on August 21, 2008, File No. 1-3543). X 4.14.12 Fifty-eighth Supplemental Indenture, dated as of December 19, 2008 (incorporated by reference to Exhibit 4.8.12 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 29, 2010, File No. 333-169633-02). X 4.14.13 Fifty-ninth Supplemental Indenture, dated as of March 23, 2009 (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Current Report on Form 8-K filed on March 24, 2009, File No. 1-3543). X 4.14.14 Sixtieth Supplemental Indenture, dated as of June 1, 2009 (incorporated by reference to Exhibit 4.8.14 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 29, 2010, File No. 333-169633-02). X E-9 PART IV Exhibit Number Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 4.14.15 Sixty-first Supplemental Indenture, dated as of October 1, 2009 (incorporated by reference to Exhibit 4.8.15 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 29, 2010, File No. 333-169633-02). X 4.14.16 Sixty-second Supplemental Indenture, dated as of July 9, 2010 (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Current Report on Form 8-K filed on July 9, 2010, File No. 1-3543). X 4.14.17 Sixty-third Supplemental Indenture, dated as of September 23, 2010 (incorporated by reference to Exhibit 4.8.17 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 29, 2010, File No. 333-169633-02). X 4.14.18 Sixty-fourth Supplemental Indenture, dated as of December 1, 2011 (incorporated by reference to Exhibit 4(d)(2)(xviii) to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 30, 2013, File No. 333-191462-03). X 4.14.19 Sixty-fifth Supplemental Indenture, dated as of March 15, 2012 (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Current Report on Form 8-K filed on March 15, 2012, File No. 1-3543). X 4.14.20 Sixty-sixth Supplemental Indenture, dated as of July 11, 2013 (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Current Report on Form 8-K filed on July 11, 2013, File No. 1-3543). X 4.14.21 Sixty-seventh Supplemental Indenture, dated as of January 1, 2016, between Duke Energy Indiana, Inc. and Deutsche Bank National Trust Company, as Trustee, supplementing and amending the Indenture of Mortgage or Deed of Trust, dated September 1, 1939, between Duke Energy Indiana, Inc. and Deutsche Bank National Trust Company, as Trustee (incorporated by reference to Exhibit 4.2 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed on May 5, 2016, File No. 1-3543). X 4.14.22 Sixty-eighth Supplemental Indenture, dated as of May 12, 2016 (incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on May 12, 2016, File No. 1-3543). X 4.15 Repayment Agreement between Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) and The Dayton Power and Light Company, dated as of December 23, 1992, (filed with registrant’s Annual Report on Form 10-K for the year ended December 31, 1992, File No. 1-1232). 4.16 Unsecured Promissory Note between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and the Rural Utilities Service, dated as of October 14, 1998 (incorporated by reference to Exhibit 4 to registrant’s Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 8, 1999, File No. 1-3543). X 4.17 6.302% Subordinated Note between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and Cinergy Corp., dated as of February 5, 2003 (incorporated by reference to Exhibit 4(yyy) to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 filed on May 12,2003, File No. 1-3543). X 4.18 6.403% Subordinated Note between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and Cinergy Corp., dated as of February 5, 2003 (incorporated by reference to Exhibit 4(zzz) to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 filed on May 12, 2003, File No. 1-3543). X 4.19 Form of Duke Energy InterNote (Fixed Rate), dated as of November 13, 2012 (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on November 14, 2012, File No. 1-32853). X 4.20 Form of Duke Energy InterNote (Floating Rate), dated as of November 13, 2012 (incorporated by reference to Exhibit 4.2 to Duke Energy Corporation’s Current Report on Form 8-K filed on November 14, 2012, File No. 1-32853). X E-10 X PART IV Exhibit Number Duke Energy Duke Energy Carolinas 4.21 Contingent Value Obligation Agreement between Progress Energy, Inc. (formerly CP&L Energy, Inc.) and The Chase Manhattan Bank, as Trustee, dated as of November 30, 2000 (incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on December 1, 2000, File No. 1-3382). 10.1 Purchase and Sale Agreement between Duke Energy Americas, LLC and LSP Bay II Harbor Holding, LLC, dated as of January 8, 2006 (incorporated by reference to Exhibit 10.2 to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 filed on May 10, 2006, File No. 1-32853). X X 10.1.1 Amendment to Purchase and Sale Agreement between Duke Energy Americas, LLC, LS Power Generation, LLC (formerly LSP Bay II Harbor Holding, LLC), LSP Gen Finance Co, LLC, LSP South Bay Holdings, LLC, LSP Oakland Holdings, LLC, and LSP Morro Bay Holdings, LLC, dated as of May 4, 2006 (incorporated by reference to Exhibit 10.2.1 to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 filed on May 10, 2006, File No.1-32853). X X 10.2** Directors’ Charitable Giving Program (incorporated by reference to Exhibit 10-P to Duke Energy Carolinas, LLC’s Annual Report on Form 10-K for the year ended December 31, 1992, File No. 1-4928). X 10.2.1** Amendment to Directors’ Charitable Giving Program, dated as of June 18, 1997 (incorporated by reference to Exhibit 1-1.1 to Duke Energy Carolinas, LLC’s Annual Report on Form 10-K for the year ended December 31, 2003 filed on March 15, 2004, File No. 1-4928). X 10.2.2** Amendment to Directors’ Charitable Giving Program, dated as of July 28, 1997 (incorporated by reference to Exhibit 10-1.2 to Duke Energy Carolinas, LLC’s Annual Report on Form 10-K for the year ended December 31, 2003 filed on March 15, 2004, File No. 1-4928). X 10.2.3** Amendment to Directors’ Charitable Giving Program, dated as of February 18, 1998 (incorporated by reference to Exhibit 10-1.3 to Duke Energy Carolinas, LLC’s Annual Report on Form 10-K for the year ended December 31, 2003 filed on March 15, 2004, File No. 1-4928). X 10.3 Agreements with Piedmont Electric Membership Corporation, Rutherford Electric Membership Corporation and Blue Ridge Electric Membership Corporation to provide wholesale electricity and related power scheduling services from September 1, 2006 through December 31, 2021 (incorporated by reference to Exhibit 10.15 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed on August 9, 2006, File No. 1-32853). X 10.4 Asset Purchase Agreement between Saluda River Electric Cooperative, Inc., as Seller, and Duke Energy Carolinas, LLC, as Purchaser, dated as of December 20, 2006 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on December 27, 2006, File No. 1-4928). X 10.5 Settlement between Duke Energy Corporation, Duke Energy Carolinas, LLC and the U.S. Department of Justice resolving Duke Energy’s used nuclear fuel litigation against the U.S. Department of Energy, dated as of March 6, 2007 (incorporated by reference to Item 8.01 to registrant’s Current Report on Form 8-K filed on March 12, 2007, File No. 1-4928). X 10.6 Engineering, Procurement and Construction Agreement between Duke Energy Carolinas, LLC and Stone & Webster National Engineering P.C., dated as of July 11, 2007 (incorporated by reference to Exhibit 10.1 to registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, filed on November 12, 2007, File No. 1-4928). (Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.) X E-11 Progress Energy X Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana PART IV Exhibit Number Duke Energy 10.7 Amended and Restated Engineering, Procurement and Construction Agreement between Duke Energy Carolinas, LLC and Stone & Webster National Engineering P.C., dated as of February 20, 2008 (incorporated by reference to Exhibit 10.1 to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 14, 2008, File No. 1-4928). (Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.) 10.8 Asset Purchase Agreement between Cinergy Capital & Trading, Inc. (Capital & Trading), CinCap Madison, LLC and Duke Energy Indiana, LLC (formerly PSI Energy, Inc.), dated as of February 5, 2003 (incorporated by reference to Exhibit 10(tt) to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 filed on May 12, 2003, File No. 1-3543). 10.9 Amended and Restated Engineering and Construction Agreement between Duke Energy Carolinas, LLC and Shaw North Carolina, Inc., dated as of December 21, 2009 (incorporated by reference to Item 1.01 to registrant’s Current Report on Form 8-K filed on December 28, 2009, File No. 1-4928). 10.10 Asset Purchase Agreement between Capital & Trading, CinCap VII, LLC and Duke Energy Indiana, LLC (formerly PSI Energy, Inc.), dated as of February 5, 2003 (incorporated by reference to Exhibit 10(uu) to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 filed on May 12, 2003, File No. 1-3543). 10.11 Asset Purchase Agreement between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) and Allegheny Energy Supply Company, LLC, Allegheny Energy Supply Wheatland Generating Facility, LLC and Lake Acquisition Company, L.L.C., dated as of May 6, 2005 (incorporated by reference to registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 filed on August 4, 2005, File No. 1-1232). 10.12 Asset Purchase Agreement between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and CG&E and Allegheny Energy Supply Company, LLC, Allegheny Energy Supply Wheatland Generating Facility, LLC and Lake Acquisition Company, L.L.C., dated as of May 6, 2005 (incorporated by reference to Exhibit 10(kkkk) to registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 filed on August 4, 2005, File No. 1-3543). 10.13 Keepwell Agreement between Duke Capital LLC and Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company), dated as of April 10, 2006 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on April 14, 2006, File No. 1-1232). 10.14 Agreements between Piedmont Electric Membership Corporation, Rutherford Electric Membership Corporation and Blue Ridge Electric Membership Corporation to provide wholesale electricity and related power scheduling services from September 1, 2006 through December 31, 2021 (incorporated by reference to Exhibit 10.15 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed on August 9, 2006, File No. 1-32853). 10.15 Asset Purchase Agreement between Duke Energy Indiana, LLC, (formerly PSI Energy, Inc.), as Seller, and Wabash Valley Power Association, Inc., as Buyer, dated as of December 1, 2006 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on December 7, 2006, File No. 1-3543). 10.16 Purchase and Sale Agreement between Cinergy Capital & Trading, Inc., as Seller, and Fortis Bank, S.A./N.V., as Buyer, dated as of June 26, 2006 (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on June 30, 2006, File No. 1-32853). Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana X X X X X X X X X E-12 X PART IV Exhibit Number Duke Energy 10.17 Engineering, Procurement and Construction Management Agreement between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and Bechtel Power Corporation, dated as of December 15, 2008 (incorporated by reference to Exhibit 10.16 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 13, 2009, File No. 1-3543). (Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.) 10.18 Formation and Sale Agreement between Duke Ventures, LLC, Crescent Resources, LLC, Morgan Stanley Real Estate Fund V U.S. L.P., Morgan Stanley Real Estate Fund V Special U.S., L.P., Morgan Stanley Real Estate Investors V U.S., L.P., MSP Real Estate Fund V, L.P., and Morgan Stanley Strategic Investments, Inc., dated as of September 7, 2006 (incorporated by reference to Exhibit 10.3 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November 9, 2006, File No. 1-32853). X 10.19 Engineering, Procurement and Construction Agreement between Duke Energy Carolinas, LLC and Stone & Webster National Engineering P.C., dated as of July 11, 2007 (incorporated by reference to Exhibit 10.2 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed on November 9, 2007, File No. 1-32853). (Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.) X 10.20 Amended and Restated Engineering, Procurement and Construction Agreement between Duke Energy Carolinas, LLC and Stone & Webster National Engineering P.C., dated as of February 20, 2008, (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 9, 2008, File No. 1-32853). (Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.) X 10.21 Agreement and Plan of Merger between DEGS Wind I, LLC, DEGS Wind Vermont, Inc., Catamount Energy Corporation, dated as of June 25, 2008 (incorporated by reference to Exhibit 10.2 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 filed on August 11, 2008, File No. 1-32853). X 10.22 Amended and Restated Engineering and Construction Agreement between Duke Energy Carolinas, LLC and Shaw North Carolina, Inc., dated as of December 21, 2009 (incorporated by reference to Exhibit 10.41 to Duke Energy Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 filed on February 26, 2010, File No.1-32853). X 10.23 Operating Agreement of Pioneer Transmission, LLC (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 filed on November 7, 2008, File No. 1-32853). X 10.24** Amended and Restated Duke Energy Corporation Directors’ Saving Plan, dated as of January 1, 2014 (incorporated by reference to Exhibit 10.32 to Duke Energy Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on February 28, 2014, File No. 1-32853). X 10.25 Engineering, Procurement and Construction Management Agreement between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and Bechtel Power Corporation, dated as of December 15, 2008 (incorporated by reference to Item 1.01 to registrant’s Current Report on Form 8-K filed on December 19, 2008, File Nos. 1-32853 and 1-3543). (Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.) X E-13 Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana X X PART IV Exhibit Number Duke Energy Duke Energy Carolinas X Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana X X 10.26 Amended and Restated Engineering and Construction Agreement between Duke Energy Carolinas, LLC and Shaw North Carolina, Inc., dated as of March 8, 2010 (incorporated by reference to Exhibit 10.1 to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 filed on May 7, 2010, File Nos. 1-32853 and 1-4928). X 10.27** Duke Energy Corporation Executive Severance Plan (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on January 10, 2011, File No. 1-32853). X 10.28 $6,000,000,000 Five-Year Credit Agreement between Duke Energy Corporation, Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC, Duke Energy Kentucky, Inc., Carolina Power and Light Company d/b/a Duke Energy Progress, Inc. and Florida Power Corporation, d/b/a Duke Energy Florida, Inc., as Borrowers, the lenders listed therein, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A. and The Royal Bank of Scotland plc, as Co-Syndication Agents and Bank of China, New York Branch, Barclays Bank PLC, Citibank, N.A., Credit Suisse AG, Cayman Islands Branch, Industrial and Commercial Bank of China Limited, New York Branch, JPMorgan Chase Bank, N.A. and UBS Securities LLC, as Co-Documentation Agents, dated as of November 18, 2011 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on November 25, 2011, File Nos. 1-32853, 1-4928, 1-1232 and 1-3543). X X 10.28.1 Amendment No. 1 and Consent between Duke Energy Corporation, Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC, Duke Energy Kentucky, Inc., Duke Energy Progress, Inc., Duke Energy Florida, Inc., and Wells Fargo Bank, National Association, dated as of December 18, 2013 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on December 23, 2013, File Nos. 1-32853, 1-4928, 1-3382, 1-3274, 1-1232 and 1-3543). X X X X X X 10.28.2 Amendment No. 2 and Consent between Duke Energy Corporation, Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC, Duke Energy Kentucky, Inc., Duke Energy Progress, Inc., and Duke Energy Florida, Inc., the Lenders party hereto, the issuing Lenders party hereto, Wells Fargo Bank, National Association, as Administrative Agent and Swingline Lender, dated as of January 30, 2015 (incorporated by reference to Exhibit 10.1 of registrant’s Current Report on Form 8-K filed on February 5, 2015, File Nos. 1-32853, 1-4928, 1-1232, 1-3543, 1-3382 and 1-3274). X X X X X X 10.29** Duke Energy Corporation 2010 Long-Term Incentive Plan (incorporated by reference to Appendix A to registrant’s Form DEF 14A filed on March 22, 2010, File No. 1-32853). X 10.29.1** Amendment to Duke Energy Corporation 2010 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 filed on August 8, 2012, File No. 1-32853). X 10.30** Duke Energy Corporation 2015 Long-Term Incentive Plan (incorporated by reference to Appendix A to registrant’s DEF 14A filed on March 26, 2015, File No. 1-32853). X 10.31** Form of Restricted Stock Unit Award Agreement of Duke Energy Corporation under the Duke Energy Corporation 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on May 12, 2015, File No. 1-32853). X 10.32** Form of Performance Award Agreement of Duke Energy Corporation under the Duke Energy Corporation 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to registrant’s Current Report on Form 8-K filed on May 12, 2015, File No. 1-32853). X E-14 PART IV Exhibit Number Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress 10.33** Form of Performance Award Agreement of Duke Energy Corporation under the Duke Energy Corporation 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on February 18, 2016, File No. 1-32853). X 10.34** Form of Restricted Stock Unit Award Agreement of Duke Energy Corporation under the Duke Energy Corporation 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to registrant’s Current Report on Form 8-K filed on February 18, 2016, File No. 1-32853). X 10.35 Settlement Agreement between Duke Energy Corporation, the North Carolina Utilities Commission Staff and the North Carolina Public Staff, dated as of November 28, 2012 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on November 29, 2012, File No. 1-32853). X 10.36 Settlement Agreement between Duke Energy Corporation and the North Carolina Attorney General, dated as of December 3, 2012 (incorporated by reference Item 7.01 to registrant’s Current Report on Form 8-K filed on December 3, 2012, File No. 1-32853). X 10.37** Form of Change-in-Control Agreement (incorporated by reference to Exhibit 10.58 to Duke Energy Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012 filed on March 1, 2013, File No. 1-32853). X 10.38** Amended and Restated Duke Energy Corporation Executive Cash Balance Plan, dated as of January 1, 2014 (incorporated by reference to Exhibit 10.52 to Duke Energy Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on February 28, 2014, File No. 1-32852). X 10.39 Purchase, Construction and Ownership Agreement, dated as of July 30, 1981, between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina Municipal Power Agency Number 3 and Exhibits, together with resolution, dated as of December 16, 1981, changing name to North Carolina Eastern Municipal Power Agency, amending letter, dated as of February 18, 1982, and amendment, dated as of February 24, 1982 (incorporated by reference to Exhibit 10(a) to registrant’s File No. 33-25560). X 10.40 Operating and Fuel Agreement, dated as of July 30, 1981, between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina Municipal Power Agency Number 3 and Exhibits, together with resolution, dated as of December 16, 1981, changing name to North Carolina Eastern Municipal Power Agency, amending letters, dated as of August 21, 1981 and December 15, 1981, and amendment, dated as of February 24, 1982 (incorporated by reference to Exhibit 10(b) to registrant’s File No. 33-25560). X 10.41 Power Coordination Agreement, dated as of July 30, 1981, between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina Municipal Power Agency Number 3 and Exhibits, together with resolution, dated as of December 16, 1981, changing name to North Carolina Eastern Municipal Power Agency and amending letter, dated as of January 29, 1982 (incorporated by reference to Exhibit 10(c) to registrant’s File No. 33-25560). X 10.42 Amendment, dated as of December 16, 1982, to Purchase, Construction and Ownership Agreement, dated as of July 30, 1981, between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina Eastern Municipal Power Agency (incorporated by reference to Exhibit 10(d) to registrant’s File No. 33-25560). X 10.43** Progress Energy, Inc. 2007 Equity Incentive Plan (incorporated by reference to Exhibit C to registrant’s Form DEF 14A filed on March 30, 2007, File No. 1-15929). X E-15 Duke Energy Florida Duke Energy Ohio Duke Energy Indiana PART IV Exhibit Number Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida 10.44** Form of Letter Agreement executed by certain officers of Progress Energy, Inc., waiving certain rights under Progress Energy, Inc.’s Management Change-inControl Plan and their employment agreements, dated as of January 8, 2011 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on January 8, 2011, File No. 1-15929). X 10.45** Progress Energy, Inc. Management Change-in-Control Plan, Amended and Restated, effective July 13, 2011 (incorporated by reference to Exhibit 10(d) to registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 filed on November 8, 2011, File Nos. 1-15929, 1-3382 and 1-3274). X 10.46 Precedent and Related Agreements between Duke Energy Florida, Inc. (formerly Florida Power Corporation d/b/a Progress Energy Florida, Inc. (“PEF”)), Southern Natural Gas Company, Florida Gas Transmission Company (“FGT”), and BG LNG Services, LLC (“BG”), including: a) Precedent Agreement between Southern Natural Gas Company and PEF, dated as of December 2, 2004; b) Gas Sale and Purchase Contract between BG and PEF, dated as of December 1, 2004; c) Interim Firm Transportation Service Agreement by and between FGT and PEF, dated as of December 2, 2004; d) Letter Agreement between FGT and PEF, dated as of December 2, 2004 and Firm Transportation Service Agreement between FGT and PEF to be entered into upon satisfaction of certain conditions precedent; e) Discount Agreement between FGT and PEF, dated as of December 2, 2004; f) Amendment to Gas Sale and Purchase Contract between BG and PEF, dated as of January 28, 2005; and g) Letter Agreement between FGT and PEF, dated as of January 31, 2005 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K/A filed on March 15, 2005, File Nos. 1-15929 and 1-3274). (Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.) X X 10.47 Engineering, Procurement and Construction Agreement between Duke Energy Florida, Inc. (formerly Florida Power Corporation d/b/a/ Progress Energy Florida, Inc.), as owner, and a consortium consisting of Westinghouse Electric Company LLC and Stone & Webster, Inc., as contractor, for a two-unit AP1000 Nuclear Power Plant, dated as of December 31, 2008 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on March 2, 2009, File Nos. 1-15929 and 1-3274). (Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.) X X 10.48** Employment Agreement between Duke Energy Corporation and Lynn J. Good, dated as of June 17, 2013 (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on June 18, 2013, File No. 1-32853). X 10.48.1** Amendment to Employment Agreement between Duke Energy Corporation and Lynn J. Good, dated as of June 25, 2015 (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on June 29, 2015, File No. 1-32853). X 10.49** Duke Energy Corporation Executive Short-Term Incentive Plan, effective February 25, 2013 (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on May 7, 2013, File No. 1-32853). X 10.50** Duke Energy Corporation 2016 Director Compensation Program Summary (incorporated by reference to Exhibit 10.55 to Duke Energy Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on February 25, 2016, File No. 1-32853). X 10.51** Amended and Restated Duke Energy Corporation Executive Savings Plan, dated as of January 1, 2014 (incorporated by reference to Exhibit 10.82 to Duke Energy Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on February 28, 2014, File No. 1-32853). X E-16 X X Duke Energy Ohio Duke Energy Indiana PART IV Exhibit Number Duke Energy 10.52 Agreement between Duke Energy SAM, LLC, Duke Energy Ohio, Inc., Duke Energy Commercial Enterprise, Inc. and Dynegy Resource I, LLC, dated as of August 21, 2014 (incorporated by reference to Exhibit 10.61 to Duke Energy Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 2, 2015, File No. 1-32853). X 10.53 Asset Purchase Agreement between Duke Energy Progress, Inc. and North Carolina Eastern Municipal Power Agency, dated as of September 5, 2014 (incorporated by reference to Exhibit 10.62 to Duke Energy Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 2, 2015, File No. 1-32853). X 10.54 Change in Control Agreement between Duke Energy Corporation and Lloyd M. Yates, dated as of April 30, 2014 (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on May 6, 2014, File No. 1-32853). X 10.55 Accelerated Stock Repurchase Program executed by Goldman, Sachs & Co., and JPMorgan Chase Bank, N.A. on April 6, 2015, under an agreement with Duke Energy Corporation (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on April 6, 2015, File No. 1-32853). X 10.56 Plea Agreement between Duke Energy Corporation and the Court of the Eastern District of North Carolina in connection with the May 14, 2015, Dan River Grand Jury Settlement (incorporated by reference to Exhibit 10.3 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 7, 2015, File No. 1-32853). X 10.57 Plea Agreement between Duke Energy Corporation and the Court of the Eastern District of North Carolina in connection with the May 14, 2015, Dan River Grand Jury Settlement (incorporated by reference to Exhibit 10.4 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed on August 7, 2015, File No. 1-32853). X 10.58 $1,500,000,000 Amended and Restated Term Loan Agreement among Duke Energy Corporation, as Borrower, the Lenders listed therein, The Bank of TokyoMitsubishi UFJ, Ltd., as Administrative Agent, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., Santander Bank, N.A. and TD Bank, N.A., as Joint Lead Arrangers and Bookrunners, dated as of August 1, 2016 (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30,2016 filed on August 4, 2016, File No. 1-32853). X 10.59 Purchase and Sale Agreement by and among Duke Energy International Group S.à.r.l., Duke Energy International Brazil Holdings S.à.r.l. and China Three Gorges (Luxembourg) Energy S.à.r.l., dated as of October 10, 2016 (incorporated by reference to Exhibit 2.1 to registrant’s Current Report on Form 8-K filed on October 13, 2016, File No. 1-32853). X 10.60 Purchase and Sale Agreement by and among Duke Energy Brazil Holdings II, C.V., Duke Energy International Uruguay Investments SRL, Duke Energy International Group S.à.r.l., Duke Energy International España Holdings SL, Duke Energy International Investments No. 2 Ltd., ISQ Enerlam Aggregator, L.P., and Enerlam (UK) Holdings Ltd., dated as of October 10, 2016 (incorporated by reference to Exhibit 2.2. to registrant’s Current Report on Form 8-K filed on October 13, 2016, File No. 1-32853). X 10.61** Amended and Restated Employment Agreement, dated May 25, 2012, between Piedmont Natural Gas Company, Inc. and Franklin H. Yoho (incorporated by reference to Exhibits 10.12 and 10.13 to registrant’s Annual Report on Form 10-K for the year ended October 31, 2015 filed on December 23, 2015, File No. 1-06196). X E-17 Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio X X Duke Energy Indiana PART IV Exhibit Number Duke Energy 10.62** Severance Agreements with Thomas E. Skains and Franklin H. Yoho, dated September 4, 2007 (incorporate by reference to Exhibits 10.2 and 10.3, respectively, to registrant’s Annual Report on Form 10-K for the year ended October 31, 2015 filed on December 23, 2015, File No. 1-06196). X 10.63** Piedmont Natural Gas Company, Inc. Defined Contribution Restoration Plan, dated as of December 8, 2008, effective January 1, 2009 (incorporated by reference to Exhibit 10.2 to registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009 filed on March 9, 2009, File No. 1-06196). X 10.63.1** Instrument of Amendment for Piedmont Natural Gas Company, Inc. Defined Contribution Restoration Plan, dated as of January 23, 2012, by Piedmont Natural Gas Company, Inc. (incorporated by reference to Exhibit 10.1 to registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2012 filed on March 9, 2012, File No. 1-06196). X *10.63.2** Instrument of Second Amendment for Piedmont Natural Gas Company, Inc. Defined Contribution Restoration Plan, dated September 15, 2016. X *10.64** Piedmont Natural Gas Company, Inc. Incentive Compensation Plan. X 10.64.1** First Amendment to Piedmont Natural Gas Company, Inc. Incentive Compensation Plan (incorporated by reference to Exhibit 4.2 to registrant’s Registration Statement on Form S-8 filed on October 3, 2016, File No. 1-32853). X 10.65** X Form of Performance Unit Award Agreement (incorporated by reference to Exhibit 10.4 to registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2016 filed on March 9, 2016, File No. 1-06196). *10.66** Waiver of Certain Rights to Terminate for Good Reason between Duke Energy Corporation and Franklin H. Yoho. X *10.67** Notice of Non-Renewal of Employment Agreement between Duke Energy Corporation and Franklin H. Yoho. X *10.68** Retention Award Agreement, dated as of October 24, 2015, between Duke Energy Corporation and Franklin H. Yoho. X 10.69 Confirmation of Forward Sale Transaction, dated as of March 1, 2016, between Duke Energy Corporation and Barclays Capital Inc. (incorporated by referenced to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on March 7, 2016, File No. 1-32853). X 10.69.1 Additional Confirmation of Forward Sale Transaction, dated as of March 2, 2016, between Duke Energy Corporation and Barclays Capital Inc. (incorporated by reference to Exhibit 10.2 to registrant’s Current Report on Form 8-K filed on March 7, 2016, File No. 1-32853). X *12.1 Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY CORPORATION X *12.2 Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY CAROLINAS, LLC *12.3 Computation of Ratio of Earnings to Fixed Charges – PROGRESS ENERGY, INC. *12.4 Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY PROGRESS, LLC *12.5 Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY FLORIDA, LLC *12.6 Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY OHIO, INC. *12.7 Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY INDIANA, LLC *21 List of Subsidiaries X *23.1.1 Consent of Independent Registered Public Accounting Firm. X *23.1.2 Consent of Independent Registered Public Accounting Firm. *23.1.3 Consent of Independent Registered Public Accounting Firm. *23.1.4 Consent of Independent Registered Public Accounting Firm. Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Indiana X X X X X X X X X E-18 Duke Energy Ohio PART IV Exhibit Number Duke Energy *23.1.5 Consent of Independent Registered Public Accounting Firm. *23.1.6 Consent of Independent Registered Public Accounting Firm. *24.1 Power of attorney authorizing Lynn J. Good and others to sign the annual report on behalf of the registrant and certain of its directors and officers. X *24.2 Certified copy of resolution of the Board of Directors of the registrant authorizing power of attorney. X *31.1.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.1.2 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.3 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.4 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.5 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.6 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.7 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.1 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.3 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.4 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.5 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.6 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.7 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32.1.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana X X X X X X X X X X X X X X X X X X X X X E-19 PART IV Exhibit Number Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana *32.1.7 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X *32.2.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.7 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *101.INS XBRL Instance Document X X X X X X X *101.SCH XBRL Taxonomy Extension Schema Document X X X X X X X *101.CAL XBRL Taxonomy Calculation Linkbase Document X X X X X X X *101.LAB XBRL Taxonomy Label Linkbase Document X X X X X X X *101.PRE XBRL Taxonomy Presentation Linkbase Document X X X X X X X *101.DEF XBRL Taxonomy Definition Linkbase Document X X X X X X X X X X X X X X The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the SEC, to furnish copies of any or all of such instruments to it. E-20 Investor Information Annual Meeting of Shareholders Financial Publications Duke Energy’s 2017 Annual Meeting of Shareholders will be: Duke Energy’s Annual Report and related Ànancial publications can be found on our website at duke-energy. com/investors. Printed copies are also available free of charge upon request. Date: May 4, 2017 Time: 12:30 p.m. Eastern time Visit: duke-energy.onlineshareholdermeeting.com Audio broadcast: 888.256.9124 conference number 4228233 To participate in the online Annual Meeting, shareholders will need the 16-digit control number included in the Notice of Internet Availability of the Proxy Materials, on the proxy card or in the instructions that accompanied the proxy materials. Shareholder Services Shareholders may call 800.488.3853 or 704.382.3853 with questions about their stock accounts, legal transfer requirements, address changes or replacement dividend checks. Additionally, registered shareholders can view their account online through DUK-Online, available at duke-energy.com/investors. Send written requests to: Investor Relations Duke Energy P.O. Box 1005 Charlotte, NC 28201-1005 For electronic correspondence, visit duke-energy.com/ investors or download the mobile IR app. Search for “DUK Investor” in the Apple App Store or Google Play. Stock Exchange Listing Duke Energy’s common stock is listed on the New York Stock Exchange. The Company’s common stock trading symbol is DUK. Website Addresses Corporate home page: duke-energy.com Investor Relations: duke-energy.com/investors InvestorDirect Choice Plan The InvestorDirect Choice Plan provides a simple and convenient way to purchase common stock directly through the Company, without incurring brokerage fees. Purchases may be made weekly. Bank drafts for monthly purchases, as well as a safekeeping option for depositing certiÀcates into the plan, are available. The plan also provides for full reinvestment, direct deposit or cash payment of a portion of the dividends. Additionally, participants may register for DUK-Online, our online account management service. Duplicate Mailings If your shares are registered in different accounts, you may receive duplicate mailings of annual reports, proxy statements and other shareholder information. Call Investor Relations for instructions on eliminating duplications or combining your accounts. Transfer Agent and Registrar Duke Energy maintains shareholder records and acts as transfer agent and registrar for the Company’s common stock. Dividend Payment Duke Energy has paid quarterly cash dividends on its common stock for 91 consecutive years. For the remainder of 2017, dividends on common stock are expected to be paid, subject to declaration by the Board of Directors, on June 16, September 18 and December 18. Bond Trustee If you have questions regarding your bond account, call 800.254.2826, or write to: The Bank of New York Mellon Global Trust Services 101 Barclay Street – 21st Floor New York, NY 10286 Send Us Feedback We welcome your opinion on this annual report. Please visit duke-energy.com/investors, where you can view and provide feedback on both the print and online versions of this report or contact Investor Relations directly. Duke Energy is an equal opportunity employer. This report is published solely to inform shareholders and is not to be considered an offer, or the solicitation of an offer, to buy or sell securities. FPO printer to place FSC Products with a Mixed Sources label support the development of responsible forest management worldwide. The wood comes from Forest Stewardship CouncilŠ (FSC)Œ-certiÀed well-managed forests, company-controlled sources and/or recycled material. This annual report is printed on paper manufactured with energy generated from renewable sources. [5 DUKE mm Mg] 25 2mm? Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2012 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 Exact name of registrants as specified in their charters, addresses of principal executive offices, telephone numbers and states of incorporation IRS Employer Identification No. 1-32853 DUKE ENERGY CORPORATION 20-2777218 550 South Tryon Street Charlotte, NC 28202-1803 704-382-3853 State of Incorporation: Delaware 1-4928 DUKE ENERGY CAROLINAS, LLC 56-0205520 526 South Church Street Charlotte, NC 28202-1803 704-382-3853 State of Incorporation: North Carolina 1-1232 DUKE ENERGY OHIO, INC. 31-0240030 139 East Fourth Street Cincinnati, OH 45202 704-382-3853 State of Incorporation: Ohio 1-3543 DUKE ENERGY INDIANA, INC. 35-0594457 1000 East Main Street Plainfield, IN 46168 704-382-3853 State of Incorporation: Indiana Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Duke Energy Corporation (Duke Energy) Yes x No ¨ Duke Energy Ohio, Inc. (Duke Energy Ohio) Yes x No ¨ Duke Energy Carolinas, LLC (Duke Energy Carolinas) Yes x No ¨ Duke Energy Indiana, Inc. (Duke Energy Indiana) Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Duke Energy Yes x No ¨ Duke Energy Ohio Yes x No ¨ Duke Energy Carolinas Yes x No ¨ Duke Energy Indiana Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Duke Energy Large accelerated filer x Accelerated filer ¨ Duke Energy Carolinas Large accelerated filer ¨ Accelerated filer ¨ Duke Energy Ohio Large accelerated filer ¨ Accelerated filer ¨ Duke Energy Indiana Large accelerated filer ¨ Accelerated filer ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x Yes ¨ No x Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date. Duke Energy Duke Energy Carolinas Outstanding as of April 30, 2012 Registrant Duke Energy Duke Energy Carolinas Duke Energy Ohio Duke Energy Indiana Non-accelerated filer Non-accelerated filer Non-accelerated filer Non-accelerated filer ¨ x x x ¨ ¨ ¨ ¨ Smaller reporting company Smaller reporting company Smaller reporting company Smaller reporting company Duke Energy Ohio Duke Energy Indiana Description Common Stock, par value $0.001 All of the registrant’s limited liability company member interests are directly owned by Duke Energy. All of the registrant’s common stock is indirectly owned by Duke Energy. All of the registrant’s common stock is indirectly owned by Duke Energy. Yes ¨ Yes ¨ No x No x Shares 1,338,105,469 This combined Form 10-Q is filed separately by four registrants: Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana (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, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q. Table of Contents CAUTIONARY STATEMENT REGARDING FORWARDLOOKING INFORMATION INDEX FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2012 Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Duke Energy Corporation (Duke Energy) Unaudited Condensed Consolidated Statements of Operations Unaudited Condensed Consolidated Statements of Comprehensive Income Unaudited Condensed Consolidated Balance Sheets Unaudited Condensed Consolidated Statements of Cash Flows Unaudited Condensed Consolidated Statements of Equity Duke Energy Carolinas, LLC (Duke Energy Carolinas) Unaudited Condensed Consolidated Statements of Comprehensive Income Unaudited Condensed Consolidated Balance Sheets Unaudited Condensed Consolidated Statements of Cash Flows Unaudited Condensed Consolidated Statements of Member’s Equity Duke Energy Ohio, Inc. (Duke Energy Ohio) Unaudited Condensed Consolidated Statements of Comprehensive Income Unaudited Condensed Consolidated Balance Sheets Unaudited Condensed Consolidated Statements of Cash Flows Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity Duke Energy Indiana, Inc. (Duke Energy Indiana) Unaudited Condensed Consolidated Statements of Comprehensive Income Unaudited Condensed Consolidated Balance Sheets Unaudited Condensed Consolidated Statements of Cash Flows Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity Combined Notes to Unaudited Condensed Consolidated Financial Statements for Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana 2. 3. 4. Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Controls and Procedures 3 3 4 5 7 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. These forward-looking statements, which are intended to cover Duke Energy and the applicable Duke Energy Registrants, are identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook” and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to: • State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements, as well as rulings that affect cost and investment recovery or have an impact on rate structures; • Costs and effects of legal and administrative proceedings, settlements, investigations and claims; • Industrial, commercial and residential growth or decline in the respective Duke Energy Registrants’ service territories, customer base or customer usage patterns; • Additional competition in electric markets and continued industry consolidation; • Political and regulatory uncertainty in other countries in which Duke Energy conducts business; • The influence of weather and other natural phenomena on each of the Duke Energy Registrants’ operations, including the economic, operational and other effects of storms, hurricanes, droughts and tornados; • The impact on the Duke Energy Registrants’ facilities and business from a terrorist attack; 18 • The inherent risks associated with the operation and potential construction or nuclear facilities, including environmental, health, safety, regulatory and financial risks; 19 • The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates; • Unscheduled generation outages, unusual maintenance or repairs and electric transmission system constraints; • The performance of electric generation facilities and of projects undertaken by Duke Energy’s non-regulated businesses; • The results of financing efforts, including the Duke Energy Registrants’ ability to obtain financing on favorable terms, which can be affected by various factors, including the respective Duke Energy Registrants’ credit ratings and general economic conditions; • Declines in the market prices of equity securities and resultant cash funding requirements for Duke Energy’s defined benefit pension plans; • The level of creditworthiness of counterparties to Duke Energy Registrants’ transactions; • Employee workforce factors, including the potential inability to attract and retain key personnel; • Growth in opportunities for the respective Duke Energy Registrants’ business units, including the timing and success of 8 9 10 12 13 14 15 17 20 22 23 24 76 89 90 PART II. OTHER INFORMATION 1. 1A. Legal Proceedings Risk Factors 91 91 1A. 2. Risk Factors Unregistered Sales of Equity Securities and Use 91 5. 6. of Proceeds Other Information Exhibits Signatures 91 91 93 95 efforts to develop domestic and international power and other projects; • Construction and development risks associated with the completion of Duke Energy Registrants’ capital investment projects in existing and new generation facilities, 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 ratepayers in a timely manner or at all; • The effect of accounting pronouncements issued periodically by accounting standard-setting bodies; • The expected timing and likelihood of completion of the proposed merger with Progress Energy, Inc. (Progress Energy), including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed merger that could reduce anticipated benefits or cause the parties to abandon the merger, the diversion of management’s time and attention from Duke Energy’s ongoing business during this time period, the ability to maintain relationships with customers, employees or suppliers as well as the ability to successfully integrate the businesses and realize cost savings and any other synergies and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; • The risk that the proposed merger with Progress Energy is terminated prior to completion and results in significant transaction costs to Duke Energy; and • The ability to successfully complete merger, acquisition or divestiture plans. 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 Duke Energy has described. The Duke Energy Registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Table of Contents PART I. FINANCIAL INFORMATION DUKE ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In millions, except per-share amounts) Item 1. Financial Statements Three Months Ended March 31, Operating Revenues Regulated electric Non-regulated electric, natural gas, and other Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power—regulated Fuel used in electric generation and purchased power—non-regulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses Equity in earnings of unconsolidated affiliates Impairments and gains on sales of unconsolidated affiliates Other income and expenses, net Total other income and expenses Interest Expense Income From Continuing Operations Before Income Taxes Income Tax Expense from Continuing Operations Income From Continuing Operations Income From Discontinued Operations, net of tax Net Income Less: Net Income Attributable to Noncontrolling Interests Net Income Attributable to Duke Energy Corporation 2012 2011 $ 2,501 $ 2,573 855 235 3,663 958 171 3,630 777 812 376 151 448 102 880 454 746 479 184 402 186 — 2,859 3,138 3 10 814 495 32 45 (5) 89 2 117 151 219 746 129 224 400 103 297 233 $ 295 $ 513 — 513 2 511 $ 0.22 $ 0.22 $ $ 0.38 0.38 $ — $ — $ $ — — $ 0.22 $ 0.22 $ 0.25 $ 0.38 $ 0.38 $ 0.245 1,337 1,337 1,330 1,331 2 299 4 Earnings Per Share—Basic and Diluted Income from continuing operations attributable to Duke Energy Corporation common shareholders Basic Diluted Income from discontinued operations attributable to Duke Energy Corporation common shareholders Basic Diluted Net income attributable to Duke Energy Corporation common stockholders Basic Diluted Dividends declared per share Weighted-average shares outstanding Basic Diluted See Notes to Unaudited Condensed Consolidated Financial Statements 3 Table of Contents PART I DUKE ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In millions) Three Months Ended March 31, Net income Other comprehensive income (loss), net of tax Foreign currency translation adjustments Pension and OPEB adjustments (a) Net unrealized gain on cash flow hedges (b) Reclassification into earnings from cash flow hedges (c) Unrealized gain on investments in available for sale securities (d) Reclassification into earnings from available for sale securities (e) Other comprehensive income, net of tax Comprehensive income Less: Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Duke Energy Corporation (a) (b) (c) (d) (e) 2012 2011 $ 299 $ 513 44 4 31 13 (1) 1 (1) 60 359 4 $ 355 Net of $2 tax expense in 2012 and $3 tax benefit in 2011. Net of $5 tax expense in 2012 and $1 tax expense in 2011. Net of insignificant tax benefit in 2012 and insignificant tax expense in 2011. Net of insignificant tax expense in 2012 and $3 tax expense in 2011. Net of insignificant tax benefit in 2012. See Notes to Unaudited Condensed Consolidated Financial Statements 4 (9) 2 1 3 — 28 541 2 $ 539 Table of Contents PART I DUKE ENERGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions) ASSETS Current Assets Cash and cash equivalents Short-term investments Receivables (net of allowance for doubtful accounts of $37 at March 31, 2012 and $35 at December 31, 2011) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $42 at March 31, 2012 and $40 at December 31, 2011) Inventory Other Total current assets Investments and Other Assets Investments in equity method unconsolidated affiliates Nuclear decommissioning trust funds Goodwill Intangibles, net Notes receivable Restricted other assets of variable interest entities Other Total investments and other assets Property, Plant and Equipment Cost Cost, variable interest entities Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment March 31, 2012 December 31, $ 1,071 $ 238 613 1,124 1,754 1,124 5,924 2011 2,110 190 784 1,157 1,588 1,051 6,880 479 460 2,247 3,853 357 2,060 3,849 68 62 135 2,231 9,160 129 2,103 9,236 61,036 942 (19,086) 79 42,971 363 60,377 913 (18,709) 80 42,661 Regulatory Assets and Deferred Debits 3,517 151 Regulatory assets Other Total regulatory assets and deferred debits 3,668 Total Assets $ 61,799 See Notes to Unaudited Condensed Consolidated Financial Statements 5 3,672 153 3,825 $ 62,526 Table of Contents PART I DUKE ENERGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued) (Unaudited) (In millions, except per-share amounts) LIABILITIES AND EQUITY Current Liabilities Accounts payable Notes payable and commercial paper Non-recourse notes payable of variable interest entities Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Long-term Debt Non-recourse Long-term Debt of Variable Interest Entities Deferred Credits and Other Liabilities March 31, 2012 December 31, $ 1,050 $ 181 275 See Notes to Unaudited Condensed Consolidated Financial Statements 6 154 273 431 287 1,067 252 1,894 1,091 5,528 17,730 949 945 Commitments and Contingencies Equity Common Stock, $0.001 par value, 2 billion shares authorized; 1,338 million and 1,336 million shares outstanding at March 31, 2012 and December 31, 2011, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total Duke Energy Corporation shareholders’ equity Noncontrolling interests Total equity Total Liabilities and Equity 1,433 369 1,054 4,283 18,081 Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities 2011 7,726 381 7,581 846 1,965 2,951 1,743 15,612 856 1,936 2,919 1,778 15,454 1 21,121 1,833 1 21,132 1,873 (174) 22,781 97 22,878 $ 61,799 384 (234) 22,772 93 22,865 $ 62,526 Table of Contents PART I DUKE ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Three Months Ended March 31, 2011 2012 CASH FLOWS FROM OPERATING ACTIVITIES Net Income Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization (including amortization of nuclear fuel) Equity component of AFUDC Gains on sales of other assets Impairment of other long-lived assets Deferred income taxes Equity in earnings of unconsolidated affiliates Voluntary opportunity cost deferral Accrued pension and other post-retirement benefit costs (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Inventory Other current assets Increase (decrease) in Accounts payable Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities $ 299 $ 504 (60) 544 (59) (3) 407 (13) — 175 65 (45) (32) (101) 28 — 26 (2) 18 218 172 (162) 110 (31) (270) (62) 10 (192) (29) (193) 27 (66) 961 96 3 (62) 872 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (988) (1,006) (3) (2) (710) 675 (13) Investment expenditures Acquisitions Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Net proceeds from the sales of other assets, and sales of and collections on notes receivable Change in restricted cash Other Net cash used in investing activities 513 (42) (948) 821 17 103 14 (35) 8 11 (918) (1,180) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the: Issuance of long-term debt Issuance of common stock related to employee benefit plans Payments for the redemption of long-term debt Notes payable and commercial paper Distributions to noncontrolling interests Dividends paid Other Net cash used in financing activities Net decrease in cash and cash equivalents — 6 392 8 (821) 28 (1) (335) (2) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures Extinguishment of debt related to investment in Attiki Gas Supply, S.A. See Notes to Unaudited Condensed Consolidated Financial Statements 7 (18) 58 (10) (331) (731) (1,039) 2,110 $ 1,071 $ 1 (294) (251) 1,670 1,419 $ $ $ $ 282 — 270 66 Table of Contents PART II DUKE ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (In millions) Common Balance at December 31, 2010 Net income Other comprehensive income Stock Shares Common 1,329 — — $ Stock 1 — — Additional Paid-in Capital Duke Energy Corporation Shareholders Accumulated Other Comprehensive Income (Loss) Net Gains Pension and Foreign (Losses) on OPEB Related Currency Cash Flow Adjustments Adjustments Hedges Other to AOCI Retained Earnings $ 21,023 $ 1,496 $ — 511 — — 97 $ — (18) $ (17) $ — 31 — 3 3 Common Stockholders ’ Equity Noncontrolling Interests Total Equity (60) $ 22,522 $ — 511 (9) 28 131 $22,653 2 513 — 28 — — Common stock issuances, including dividend reinvestment and employee benefits Common stock dividends Changes in noncontrolling interest in subsidiaries Balance at March 31, 2011 Balance at December 31, 2011 Net income Other comprehensive income 2 — — — — 1,331 1,336 — — — $ $ — — — — — — — — — — $ 21,027 $ 1,676 $ $21,132 $1,873 $ — 295 — — — — — — (11) — — (335) $21,121 $1,833 $ — — 4 — 1 1 — — — (331) 128 $ (45) $ — 44 4 (331) — 12 — — — $ 22,734 $ (109) $ 22,772 $ — 295 4 60 — — — — — — (15) $ (14) $ (71) $ (9) $ (69) 4 (331) (11) (11) 122 $ 22,856 93 $ 22,865 4 299 — 60 — — Common stock issuances, including dividend reinvestment and employee benefits Common stock dividends Balance at March 31, 2012 2 — 1,338 — — $ 1 (1) $ (59) $ (9) $ See Notes to Unaudited Condensed Consolidated Financial Statements 8 (11) (335) (105) $ 22,781 $ 97 (11) (335) $22,878 Table of Contents PART I DUKE ENERGY CAROLINAS, LLC CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In millions) Three Months Ended March 31, Operating Revenues-Regulated Electric Operating Expenses Fuel used in electric generation and purchased power Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Net Income and Comprehensive Income 2012 2011 $ 1,501 $1,552 380 469 331 435 201 84 228 90 1,189 — 1,029 3 363 42 475 39 97 417 151 $ 266 See Notes to Unaudited Condensed Consolidated Financial Statements 9 $ 89 316 111 205 Table of Contents PART I DUKE ENERGY CAROLINAS, LLC CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $3 at March 31, 2012 and December 31, 2011) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $6 at March 31, 2012 and December 31, 2011) Inventory Other Total current assets Investments and Other Assets Nuclear decommissioning trust funds Other Total investments and other assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets March 31, 2012 December 31, $ $ 15 427 10 289 1,187 1,021 336 2,392 581 917 278 3,252 2,247 971 3,218 2,060 968 3,028 593 33,257 32,840 (11,460) 79 (11,269) 21,876 21,651 1,800 70 1,894 71 1,965 $ 29,896 1,870 $ 29,356 See Notes to Unaudited Condensed Consolidated Financial Statements 2011 80 Table of Contents PART I DUKE ENERGY CAROLINAS, LLC CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued) (Unaudited) (In millions) LIABILITIES AND MEMBER’S EQUITY Current Liabilities Accounts payable Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Long-term Debt Non-recourse Long-term Debt of Variable Interest Entities Deferred Credits and Other Liabilities March 31, 2012 December 31, $ $ 474 61 150 427 470 1,582 7,796 300 4,724 Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefits Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities 4,555 233 248 (19) 9,720 $29,356 11 300 241 1,875 1,970 917 9,739 See Notes to Unaudited Condensed Consolidated Financial Statements 793 126 115 1,178 398 2,610 7,796 231 9,958 Commitments and Contingencies Member’s Equity Member’s Equity Accumulated other comprehensive loss Total member’s equity Total Liabilities and Member’s Equity 2011 1,846 1,928 926 9,736 9,473 (19) 9,454 $ 29,896 Table of Contents PART I DUKE ENERGY CAROLINAS, LLC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Three Months Ended March 31, CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including amortization of nuclear fuel) Equity component of AFUDC Gains on sales of other assets and other, net Deferred income taxes Voluntary opportunity cost deferral Accrued pension and other post-retirement benefit costs (Increase) decrease in Receivables Inventory Other current assets Increase (decrease) in Accounts payable Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Notes due from affiliate 2012 2011 $ 266 $ 205 288 (36) (3) 154 (101) 10 117 (100) (3) (233) (65) 109 (18) (32) 353 (483) (627) 615 625 (5) Other Net cash provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payments for the redemption of long-term debt Other Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures Significant non-cash transactions: Accrued capital expenditures 125 See Notes to Unaudited Condensed Consolidated Financial Statements 12 249 (39) — 119 — 8 246 (59) 147 (116) (56) (40) (4) (43) 617 (562) (428) 416 (104) — (678) (751) (1) (752) (274) 289 $ 15 (1) (1) (62) 153 $ 91 $ 115 $ 153 — Table of Contents PART II DUKE ENERGY CAROLINAS, LLC CONDENSED CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY (Unaudited) (In millions) Accumulated Other Comprehensive Loss Member’ s Equity Balance at December 31, 2010 $ 8,938 205 $ 9,143 $ 9,473 266 $ 9,739 Net income Balance at March 31, 2011 Balance at December 31, 2011 Net income Balance at March 31, 2012 Net Gains (Losses) on Cash Flow Hedges $ Other $ — $ $ (20) (17) $ (17) (2) — $ $ — See Notes to Unaudited Condensed Consolidated Financial Statements 13 (20) (2) (2) — $ (2) Total $ 8,916 205 $9,121 $ 9,454 266 $ 9,720 Table of Contents PART I DUKE ENERGY OHIO, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In millions) Three Months Ended March 31, 2012 2011 $ 324 $ 372 271 236 879 Operating Revenues Regulated electric Non-regulated electric and other Regulated natural gas 417 171 912 Total operating revenues Operating Expenses Fuel used in electric generation and purchased power—regulated Fuel used in electric generation and purchased power—non-regulated Cost of natural gas sold Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses 196 83 68 73 775 4 746 2 135 5 24 118 116 1 Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense 138 Net Income Other Comprehensive Income, net of tax Pension and OPEB adjustments (a) Comprehensive income (a) 97 164 119 205 88 114 239 75 24 44 43 74 73 1 $ Net of insignificant tax expense in 2012. See Notes to Unaudited Condensed Consolidated Financial Statements 14 75 — $ 73 Table of Contents PART I DUKE ENERGY OHIO, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $16 at March 31, 2012 and $16 at December 31, 2011) March 31, 2012 $ Inventory Other Total current assets 26 843 249 December 31, 2011 $ 99 681 243 226 1,344 220 1,243 921 139 67 921 Investments and Other Assets Goodwill Intangibles, net Other Total investments and other assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits 143 1,127 58 1,122 10,542 (2,589) 7,953 10,632 (2,594) 8,038 519 15 534 Total Assets $ See Notes to Unaudited Condensed Consolidated Financial Statements 15 10,958 $ 520 16 536 10,939 Table of Contents PART I DUKE ENERGY OHIO, INC. CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued) (Unaudited) (In millions, except share and per-share amounts) LIABILITIES AND COMMON STOCKHOLDER’S EQUITY Current Liabilities Accounts payable Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Long-term Debt Deferred Credits and Other Liabilities March 31, 2012 December 31, $ $ 408 157 31 507 127 1,230 2,046 Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities 1,845 7 Retained deficit Accumulated other comprehensive loss Total common stockholder’s equity 16 1,853 8 179 182 2,490 762 5,057 (578) $ 10,958 See Notes to Unsudited Condensed Consolidated Financial Statements 507 122 1,234 2,048 147 (27) 5,214 Total Liabilities and Common Stockholder’s Equity 402 180 23 145 28 264 2,468 Commitments and Contingencies Common Stockholder’s Equity Common Stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at March 31, 2012 and December 31, 2011 Additional paid-in capital 2011 27 273 762 5,085 (652) (28) 5,167 $ 10,939 Table of Contents PART I DUKE ENERGY OHIO, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Three Months Ended March 31, 2011 2012 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Gains on sales of other assets and other, net Impairment charges Deferred income taxes Accrued pension and other post-retirement benefit costs (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Inventory Other current assets Increase (decrease) in Accounts payable Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities $ 74 84 (1) 2 See Notes to Unaudited Condensed Consolidated Financial Statements 17 (2) 3 4 (48) 55 (8) 78 42 14 16 (24) 6 (64) 10 (1) (2) 33 4 (57) (28) 180 244 (121) 82 (218) (96) — (4) 6 Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payments for the redemption of long-term debt Notes payable to affiliate Dividend to parent Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures Significant non-cash transactions: Accrued capital expenditures Transfer of Vermillion Generating Station to Duke Energy Indiana 89 44 — Other 73 — 36 (8) CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Net proceeds from the sale of other assets Notes due from affiliate Change in restricted cash $ 4 6 (251) (90) (2) (2) — — 3 $ 26 (285) (284) (130) 228 $ 98 $ $ 34 28 $ 35 $ — (2) (73) 99 Table of Contents PART II DUKE ENERGY OHIO, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (Unaudited) (In millions) Retained Earnings Stock Additional Paid-in Capital (Deficit) Accumulated Other Comprehensive Loss Pension and OPEB Adjustments $ 762 — — $ 762 $ 762 — — — $ 762 $ 5,570 — (285) $ 5,285 $ 5,085 — — (28) $ 5,057 $ (846) $ Common Balance at December 31, 2010 Net income Dividend to parent Balance at March 31, 2011 Balance at December 31, 2011 Net income Other comprehensive income Transfer of Vermillion Generating Station to Duke Energy Indiana Balance at March 31, 2012 See Notes to Unaudited Condensed Consolidated Financial Statements 18 — — 73 — $ (773) $ (652) $ $ — — 73 (22) (28) $5,252 $5,167 74 1 — $ Total $ 5,464 (285) — 74 $ (578) (22) (27) 1 (28) $5,214 Table of Contents PART I DUKE ENERGY INDIANA, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In millions) Three Months Ended March 31, 2011 2012 Operating Revenues-Regulated Electric $ Operating Expenses Fuel used in electric generation and purchased power Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Operating (Loss) Income Other Income and Expenses, net Interest Expense (Loss) Income Before Income Taxes Income Tax (Benefit) Expense Net (Loss) Income Other Comprehensive Loss, net of tax Reclassification into earnings from cash flow hedges (a) Comprehensive (loss) income (a) Net of insignificant tax benefit in 2012 688 $ 659 283 160 246 161 96 100 21 22 — 529 400 960 (272) 23 34 (283) (116) (167) (1) $ (168) See Notes to Unaudited Condensed Consolidated Financial Statements 19 130 23 36 117 41 76 $ — 76 Table of Contents PART I DUKE ENERGY INDIANA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $1 at March 31, 2012 and December 31, 2011) Inventory Other Total current assets Investments and Other Assets Intangibles, net Other Total investments and other assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets March 31, 2012 December 31, $ $ 22 209 364 20 16 198 330 124 719 135 679 47 50 113 163 117 164 11,733 (3,511) 8,222 11,791 (3,393) 8,398 746 25 798 771 822 $ 10,062 $ 9,876 See Notes to Unaudited Condensed Consolidated Financial Statements 2011 24 Table of Contents PART I DUKE ENERGY INDIANA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued) (Unaudited) (In millions, except share and per-share amounts) LIABILITIES AND COMMON STOCKHOLDER’S EQUITY Current Liabilities Accounts payable Notes payable Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Long-term Debt Deferred Credits and Other Liabilities March 31, 2012 December 31, $ $ 250 178 66 48 5 92 639 3,702 Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities 21 300 74 50 6 93 796 3,453 927 159 161 102 1,943 See Notes to Unaudited Condensed Consolidated Financial Statements 273 811 143 44 684 Commitments and Contingencies Common Stockholder’s Equity Common Stock, no par; $0.01 stated value, 60,000,000 shares authorized; 53,913,701 shares outstanding at March 31, 2012 and December 31, 2011 Additional paid-in capital Retained earnings Accumulated other comprehensive income Total common stockholder’s equity Total Liabilities and Common Stockholder’s Equity 2011 1 143 43 683 122 2,079 6 1 1,358 2,368 7 3,592 $ 9,876 $ 10,062 1,384 2,201 3,734 Table of Contents PART I DUKE ENERGY INDIANA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Three Months Ended March 31, CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization Equity component of AFUDC Impairment charges Deferred income taxes and investment tax credit amortization Accrued pension and other post-retirement benefit costs 2011 2012 $ (167) $ 97 (21) 100 (19) — 7 5 400 (116) 4 (Increase) decrease in Receivables Inventory Other current assets Increase (decrease) in Accounts payable Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities (11) (34) 77 (12) 20 8 12 26 15 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Notes due from affiliate Change in restricted cash (8) (4) 9 (17) (19) (12) 3 153 266 (273) (4) (269) (1) — (2) 5 — (267) 4 — — 1 (272) Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from this issuance of long-term debt Payments for the redemption of long-term debt Notes payable to affiliate Other Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures Significant non-cash transactions: Accrued capital expenditures Transfer of Vermillion Generating Station from Duke Energy Ohio See Notes to Unaudited Condensed Consolidated Financial Statements 22 76 250 (1) — (122) (2) 125 — — (1) (1) (2) 6 16 54 52 $ 22 $ $ $ 72 $ 86 $ — 26 Table of Contents PART II DUKE ENERGY INDIANA, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (Unaudited) (In millions) Common Stock Balance at December 31, 2010 $ 1 — Net income $ $ Balance at March 31, 2011 Balance at December 31, 2011 Net loss Other comprehensive loss Transfer of Vermillion Generating Station from Duke Energy Ohio Balance at March 31, 2012 1 1 — — — $ 1 Additional Paid-in Capital Retained Earnings $ 1,358 — $ 1,358 $ 1,358 — — 26 $ 1,384 $ 2,200 76 $2,276 $ 2,368 (167) — — $2,201 See Notes to Unaudited Condensed Consolidated Financial Statements 23 Accumulated Other Comprehensive Income Net Gains (Losses) on Cash Flow Hedges $ 8 — $ $ 8 7 — (1) — $ 6 Total $ 3,567 76 $ 3,643 $3,734 (167) (1) 26 $ 3,592 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements Index to Combined Notes To Unaudited Condensed Consolidated Financial Statements The unaudited notes to the condensed consolidated financial statements that follow are a combined presentation. The following list indicates the registrants to which the notes apply: Registrant Applicable Notes Duke Energy Corporation 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 Duke Energy Carolinas, LLC 1, 2, 3, 4, 5, 6, 8, 9, 10, 11, 14, 15, 16, 17, 18, 19 Duke Energy Ohio, Inc. 1, 2, 3, 4, 5, 6, 7, 8, 9, 11, 14, 15, 16, 17, 18, 19 Duke Energy Indiana, Inc. 1, 2, 3, 4, 5, 6, 8, 9, 10, 11, 14, 15, 16, 17, 18, 19 1. Organization and Basis of Presentation Organization. Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the United States (U.S.) primarily through its direct and indirect wholly owned subsidiaries, Duke Energy Carolinas, LLC (Duke Energy Carolinas), Duke Energy Ohio, Inc. (Duke Energy Ohio), which includes Duke Energy Kentucky, Inc. (Duke Energy Kentucky), and Duke Energy Indiana, Inc. (Duke Energy Indiana), as well as in Latin America through International Energy. When discussing Duke Energy’s condensed consolidated financial information, it necessarily includes the results of its three separate subsidiary registrants, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. The information in these combined notes relates to each of the Duke Energy Registrants as noted in the Index to the Combined Notes. However, none of the registrants makes any representation as to information related solely to Duke Energy or the subsidiaries of Duke Energy other than itself. As discussed further in Note 3, Duke Energy operates in three reportable business segments: U.S. Franchised Electric and Gas, Commercial Power and International Energy. The remainder of Duke Energy’s operations is presented as Other. These Unaudited Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and all majority-owned subsidiaries where the respective Duke Energy Registrants have control and those variable interest entities (VIEs) where the respective Duke Energy Registrants are the primary beneficiary. These Unaudited Condensed Consolidated Financial Statements also reflect Duke Energy Carolinas’ approximate 19.25% proportionate share of the Catawba Nuclear Station, as well as Duke Energy Ohio’s proportionate share of certain generation and transmission facilities in Ohio, Indiana and Kentucky and Duke Energy Indiana’s proportionate share of certain generation and transmission facilities. In January 2012, Duke Energy Ohio completed the sale of its 75% ownership of the Vermillion Generating Station; upon the close, Duke Energy Indiana purchased a 62.5% interest in the station. See Note 2 for further discussion. Duke Energy Carolinas, a wholly owned subsidiary of Duke Energy, is an electric utility company that generates, transmits, distributes and sells electricity in North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC), the Public Service Commission of South Carolina (PSCSC), the U.S. Nuclear Regulatory Commission (NRC) and the Federal Energy Regulatory Commission (FERC). Substantially all of Duke Energy Carolinas’ operations are regulated and qualify for regulatory accounting treatment. As discussed further in Note 3, Duke Energy Carolinas’ operations include one reportable business segment, Franchised Electric. Duke Energy Ohio is an indirect wholly owned subsidiary of Duke Energy. Duke Energy Ohio is a combination electric and gas public utility that provides service in the southwestern portion of Ohio and in northern Kentucky through its wholly owned subsidiary Duke Energy Kentucky, as well as electric generation in parts of Ohio, Illinois and Pennsylvania. Duke Energy Ohio’s principal lines of business include generation, transmission and distribution of electricity, the sale of and/or transportation of natural gas, and energy marketing. Duke Energy Ohio conducts competitive auctions for retail electricity supply in Ohio whereby the energy price is recovered from retail customers. Duke Energy Kentucky’s principal lines of business include generation, transmission and distribution of electricity, as well as the sale of and/or transportation of natural gas. Duke Energy Ohio is subject to the regulatory provisions of the Public Utilities Commission of Ohio (PUCO), the Kentucky Public Service Commission (KPSC) and the FERC. Duke Energy Ohio applies regulatory accounting treatment to substantially all of the operations of its Franchised Electric and Gas operating segment. Through November 2011, Duke Energy Ohio applied regulatory accounting treatment to certain rate riders associated with retail generation of its Commercial Power operating segment. See Note 3 for information about business segments. Duke Energy Indiana is an indirect wholly owned subsidiary of Duke Energy. Duke Energy Indiana is an electric utility that provides service in north central, central, and southern Indiana. Its primary line of business is generation, transmission and distribution of electricity. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and the FERC. The substantial majority of Duke Energy Indiana’s operations are regulated and qualify for regulatory accounting treatment. As discussed further in Note 3, Duke Energy Indiana’s operations include one reportable business segment, Franchised Electric. See Note 2 for information regarding Duke Energy’s pending merger with Progress Energy, Inc (Progress Energy). 24 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Basis of Presentation . These Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Unaudited Condensed Consolidated Financial Statements do not include all of the information and notes required by GAAP in the U.S. for annual financial statements. Because the interim Unaudited Condensed Consolidated Financial Statements and Notes do not include all of the information and notes required by GAAP in the U.S. for annual financial statements, the Unaudited Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the respective Consolidated Financial Statements and Notes in the Duke Energy Registrants combined Form 10-K for the year ended December 31, 2011. These Unaudited Condensed Consolidated Financial Statements reflect all normal recurring adjustments that are, in the opinion of the respective company’s management, necessary to fairly present the financial position and results of operations of each Duke Energy Registrant. Amounts reported in Duke Energy’s interim Unaudited Condensed Consolidated Statements of Operations and each of the Duke Energy Registrants’ interim Unaudited Condensed Consolidated Statements of Comprehensive Income are not necessarily indicative of amounts expected for the respective annual periods due to the effects of seasonal temperature variations on energy consumption, regulatory rulings, the timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors. Duke Energy Ohio and Duke Energy Indiana sell power to and purchase power from PJM Interconnection, LLC (PJM) and Midwest Independent Transmission System Operator, Inc. (MISO), respectively. Duke Energy Ohio and Duke Energy Indiana account for these transactions on a net hourly basis as the transactions are settled on a net hourly basis. Use of Estimates. To conform to GAAP in the U.S., management makes estimates and assumptions that affect the amounts reported in the Unaudited Condensed Consolidated Financial Statements and Notes. Although these estimates are based on management’s best available information at the time, actual results could differ. Unbilled Revenue. Revenues on sales of electricity and gas are recognized when either the service is provided or the product is delivered. Unbilled retail revenues are estimated by applying average revenue per kilowatt-hour or per thousand cubic feet (Mcf) for all customer classes to the number of estimated kilowatt-hours or Mcfs delivered but not billed. Unbilled wholesale energy revenues are calculated by applying the contractual rate per megawatt-hour (MWh) to the number of estimated MWh delivered but not yet billed. Unbilled wholesale demand revenues are calculated by applying the contractual rate per megawatt (MW) to the MW volume delivered but not yet billed. The amount of unbilled revenues can vary significantly from period to period as a result of numerous factors, including seasonality, weather, customer usage patterns and customer mix. At March 31, 2012 and December 31, 2011, Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana had unbilled revenues within Restricted Receivables of Variable Interest Entities and Receivables on their respective Condensed Consolidated Balance Sheets as follows: March 31, 2012 Duke Energy Duke Energy Carolinas Duke Energy Ohio Duke Energy Indiana $ December 31, 2011 (in millions) 666 $ 289 39 5 674 293 50 2 Additionally, Duke Energy Ohio and Duke Energy Indiana sell, on a revolving basis, nearly all of their retail and wholesale accounts receivable to Cinergy Receivables Company, LLC (CRC). These transfers meet sales/derecognition criteria and therefore, Duke Energy Ohio and Duke Energy Indiana, account for the transfers of receivables to CRC as sales, and accordingly the receivables sold are not reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. Receivables for unbilled revenues related to retail and wholesale accounts receivable at Duke Energy Ohio and Duke Energy Indiana included in the sales of accounts receivable to CRC at March 31, 2012 and December 31, 2011 were as follows: March 31, 2012 Duke Energy Ohio Duke Energy Indiana $ December 31, 2011 (in millions) 63 114 $ 89 115 See Note 11 for additional information. 2. Acquisitions and Sales of Other Assets Acquisitions. The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date, and include earnings from acquisitions in consolidated earnings after the purchase date. On January 8, 2011, Duke Energy entered into an Agreement and Plan of Merger (Merger Agreement) among Diamond Acquisition Corporation, a North Carolina corporation and Duke Energy’s wholly owned subsidiary (Merger Sub) and Progress Energy, a North Carolina corporation engaged in the regulated utility business of generation, transmission, distribution and sale of electricity in portions of North Carolina, South Carolina and Florida. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Progress Energy with Progress Energy continuing as the surviving corporation and a wholly owned subsidiary of Duke Energy. @196 JEQELQ KEN m? ?an? 25 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Pursuant to the Merger Agreement, upon the closing of the merger, each issued and outstanding share of Progress Energy common stock will automatically be canceled and converted into the right to receive 2.6125 shares of common stock of Duke Energy, subject to appropriate adjustment for a reverse stock split of the Duke Energy common stock as contemplated in the Merger Agreement and except that any shares of Progress Energy common stock that are owned by Progress Energy or Duke Energy, other than in a fiduciary capacity, will be canceled without any consideration therefor. Each outstanding option to acquire, and each outstanding equity award relating to, one share of Progress Energy common stock will be converted into an option to acquire, or an equity award relating to 2.6125 shares of Duke Energy common stock, as applicable, subject to appropriate adjustment for the reverse stock split. Based on Progress Energy shares outstanding at March 31, 2012, Duke Energy would issue 773 million shares of common stock to convert the Progress Energy common shares in the merger under the unadjusted exchange ratio of 2.6125. The exchange ratio will be adjusted proportionately to reflect a 1-for-3 reverse stock split with respect to the issued and outstanding Duke Energy common stock that Duke Energy plans to implement prior to, and conditioned on, the completion of the merger. The resulting adjusted exchange ratio is 0.87083 of a share of Duke Energy common stock for each share of Progress Energy common stock. Based on Progress Energy shares outstanding at March 31, 2012, Duke Energy would issue 258 million shares of common stock, after the effect of the 1-for-3 reverse stock split, to convert the Progress Energy common shares in the merger. The merger will be accounted for under the acquisition method of accounting with Duke Energy treated as the acquirer, for accounting purposes. Based on the market price of Duke Energy common stock on March 31, 2012, the transaction would be valued at $16 billion and would result in incremental recorded goodwill to Duke Energy of $10 billion, according to current estimates. Duke Energy would also assume all of Progress Energy’s outstanding debt, which is estimated to be $15 billion based on the approximate fair value of Progress Energy’s outstanding indebtedness at March 31, 2012. Additionally, immediately upon closing of the merger, Duke Energy expects to record expenses of $400 million to $600 million, representing accruals for commitments made in conjunction with the merger, such as employee severance, funding charitable and community support contributions and commitments related to market power mitigation, as described further below. The Merger Agreement has been unanimously approved by both companies’ Boards of Directors. The merger is conditioned upon, among other things, approval by the shareholders of both companies, as well as expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval by the FERC, the Federal Communications Commission (FCC), the NRC, the NCUC, and the KPSC. Duke Energy and Progress Energy also are seeking review of the merger by the PSCSC and approval of the joint dispatch agreement by the PSCSC. Although there are no merger-specific regulatory approvals required in Indiana, Ohio or Florida, the companies will continue to update the public services commissions in those states on the merger, as applicable and as required. The status of regulatory approvals is as follows: Federal Energy Regulatory Commission. On April 4, 2011, Duke Energy and Progress Energy, jointly filed applications with the FERC for the approval of the merger, the Joint Dispatch Agreement and the joint Open Access Transmission Tariff (OATT). On September 30, 2011, the FERC conditionally approved the merger, subject to approval of mitigation measures to address its finding that the combined company could have an adverse effect on competition in wholesale power markets in the Duke Energy Carolinas and Progress Energy Carolinas East balancing authority areas. On October 17, 2011, Duke Energy and Progress Energy filed their plan for mitigating the FERC’s concerns by proposing to offer on a daily basis a certain quantity of power during summer and winter periods to the extent it is available after serving native load and existing firm obligations. On December 14, 2011, the FERC issued an order rejecting Duke Energy and Progress Energy’s proposed mitigation plan, finding that the proposed mitigation plans submitted by the companies did not adequately address the market power issues. In a separate order issued December 14, 2011, the FERC dismissed the applications for approval of the Joint Dispatch Agreement and the joint OATT without prejudice to the right to refile them if Duke Energy and Progress Energy decide to file another mitigation plan to address the FERC’s market power concerns stated in the FERC’s September 30, 2011 order. On March 26, 2012, Duke Energy and Progress Energy filed their revised mitigation plan with the FERC. The filing requests that the FERC issue orders approving the mitigation plan, the Joint Dispatch Agreement and the joint OATT within 60 days of the filing, and no later than June 8, 2012. In addition to offering interim firm sales of capacity and energy during the summer and winter periods, Duke Energy and Progress Energy have planned seven permanent transmission upgrades, estimated to cost $110 million, that will increase the power import capabilities into the Progress Energy and Duke Energy North Carolina and South Carolina service areas and enhance the competitive power supply options in the region. On April 13, 2012, the companies filed a response to a request for additional information which was received from the FERC on April 10, 2012. Four participants to the proceedings filed comments before the April 25, 2012 filing deadline. On May 1, 2012, the companies filed a response to the comments with the FERC. North Carolina Utilities Commission. On April 4, 2011, Duke Energy and Progress Energy filed a merger application and joint dispatch agreement with the NCUC. On September 2, 2011, Duke Energy, Progress Energy and the NC Public Staff filed a settlement agreement with the NCUC. Under the settlement agreement, the companies will guarantee North Carolina customers their allocable share of $650 million in savings related to fuel and joint dispatch of generation assets over the first five years after the merger closes, continue community financial support for a minimum of four years, contribute to weatherization efforts of low-income customers and workforce development during the first year after the merger closes and agree not to recover direct merger-related costs. A public hearing occurred September 20-22, 2011 and proposed orders and briefs were filed November 23, 2011. Duke Energy is required by regulatory conditions imposed by the NCUC to file with the NCUC a thirty-day advance notice of certain FERC filings prior to filing with the FERC. Accordingly, Duke Energy filed advance notice of the revised FERC mitigation plan on February 22, 2012. On May 8, 2012, Duke Energy and Progress Energy jointly filed a settlement agreement with the NC Public Staff at the NCUC which addresses various merger-related issues including retail rate recovery of the costs associated with the mitigation of wholesale market power and fuel savings associated with the Joint Dispatch Agreement. The agreement is subject to the approval of the NCUC, and is also contingent upon the approval by the FERC, without material condition or change, of the market power mitigation proposal, as well as other various merger filings currently under review at the FERC. Public Service Commission of South Carolina. On April 25, 2011, Duke Energy and Progress Energy, on behalf of their utility companies Duke Energy Carolinas and Progress Energy Carolinas, filed an application requesting the PSCSC to review the merger and approve the proposed Joint Dispatch Agreement and the prospective future merger of Duke Energy Carolinas and Progress Energy Carolinas. On September 13, 2011, Duke Energy and Progress Energy withdrew their application seeking approval for the future merger of their Carolinas utility companies, Duke Energy Carolinas and Progress Energy Carolinas, as the merger of these entities is not likely to occur for several years after the close of the merger. Hearings occurred the week of December 12, 2011 and proposed orders and briefs were filed on December 20, 2011. Duke Energy Carolinas and Progress Energy Carolinas committed at the hearing that, as a condition for the PSCSC approving the proposed 26 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Joint Dispatch Agreement, Duke Energy Carolinas and Progress Energy Carolinas will give their South Carolina customers “most favored nations” treatment. Thus, Duke Energy Carolinas’ and Progress Energy Carolinas’ South Carolina customers will receive pro rata benefits equivalent to those approved by the NCUC in connection with the NCUC’s review of the merger application. Duke Energy Carolinas and Progress Energy Carolinas are awaiting a PSCSC order in this case. Securities and Exchange Commission. On March 17, 2011, Duke Energy filed an initial registration statement on Form S-4 with the Securities and Exchange Commission (SEC) for shares to be issued to consummate the merger with Progress Energy. On July 7, 2011, the Form S-4 was declared effective by the SEC, and the joint proxy statement/prospectus contained in the Form S-4 was mailed to the shareholders of both companies thereafter. On August 23, 2011, Duke Energy and Progress Energy shareholders approved the proposed merger. In addition, Duke Energy shareholders approved a 1-for-3 reverse stock split. U.S. Department of Justice and the Federal Trade Commission. On March 28, 2011, Duke Energy and Progress Energy submitted HartScott-Rodino antitrust filings to the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC). The 30 day notice period expired without further action by the DOJ; therefore, the companies had clearance to close the merger on April 27, 2011. This clearance was effective for one year. On March 22, 2012, the companies filed new antitrust filings. The 30 day notice period expired without further action by the DOJ; therefore, the companies have clearance to close the merger. Nuclear Regulatory Commission. On March 30, 2011, Progress Energy made filings with the NRC for approval for indirect transfer of control of licenses for Progress Energy’s nuclear facilities to include Duke Energy as the ultimate parent corporation on these licenses. On December 2, 2011, the NRC approved the indirect transfer of control of Progress Energy’s nuclear stations to include Duke Energy as the parent corporation of the licenses. Kentucky Public Service Commission. On April 4, 2011, Duke Energy and Progress Energy filed a merger application with the KPSC. On June 24, 2011, Duke Energy and Progress Energy filed a settlement agreement with the Attorney General. A public hearing occurred on July 8, 2011. An order conditionally approving the merger was issued on August 2, 2011. On September 15, 2011, Duke Energy and Progress Energy filed for approval of a stipulation revising one of the merger conditions contained in the KPSC order. On October 28, 2011, the KPSC issued an order approving the stipulation and merger and again required Duke Energy and Progress Energy to accept all conditions contained in the order. Duke Energy and Progress Energy filed their acceptance of those conditions on November 4, 2011. Federal Communications Commission. On July 12, 2011, Duke Energy and Progress Energy filed an application with the FCC for approval of radio system license transfers. The FCC approved the transfers on July 27, 2011. On January 5, 2012, the FCC granted an extension of its approval until July 12, 2012. No assurances can be given as to the timing of the satisfaction of all closing conditions or that all required approvals will be received. The Merger Agreement contains certain termination rights for both Duke Energy and Progress Energy, and further provides for the payment of a termination fee of $400 million by Progress Energy under specified circumstances and a termination fee of $675 million by Duke Energy under specified circumstances. On January 8, 2012, Duke Energy and Progress Energy mutually agreed to extend the initial termination date of January 8, 2012 specified in the Merger Agreement to July 8, 2012. For the three months ended March 31, 2012 and 2011, Duke Energy incurred transaction costs related to the Progress Energy merger of $8 million and $11 million, respectively, which are recorded within Operating Expenses in Duke Energy’s Condensed Consolidated Statement of Operations. Vermillion Generating Station. On January 12, 2012, after receiving approvals from the FERC and the IURC on August 12, 2011 and December 28, 2011, respectively, Duke Energy Vermillion II, LLC (Duke Energy Vermillion), an indirect wholly owned subsidiary of Duke Energy Ohio, completed the sale of its 75% undivided ownership interest in the Vermillion Generating Station (Vermillion) to Duke Energy Indiana and Wabash Valley Power Association (WVPA). Upon the closing of the sale, Duke Energy Indiana and WVPA held 62.5% and 37.5% interests in Vermillion, respectively. Duke Energy Ohio received proceeds of $68 million and $14 million from Duke Energy Indiana and WVPA, respectively. Following the transaction, Duke Energy Indiana retired Gallagher Units 1 and 3 effective February 1, 2012. As Duke Energy Indiana is an affiliate of Duke Energy Vermillion the transaction has been accounted for as a transfer between entities under common control with no gain or loss recorded and did not have a significant impact to Duke Energy Ohio or Duke Energy Indiana’s results of operations. The proceeds received from Duke Energy Indiana are included in Net proceeds from the sales of other assets on Duke Energy Ohio’s Condensed Consolidated Statements of Cash Flows. The cash paid to Duke Energy Ohio is included in Capital expenditures on Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows. Duke Energy Ohio and Duke Energy Indiana recognized non-cash equity transfers of $28 million and $26 million, respectively, in their Condensed Consolidated Statements of Common Stockholder’s Equity on the transaction representing the difference between cash exchanged and the net book value of Vermillion. These amounts are not reflected in Duke Energy’s Condensed Consolidated Statements of Cash Flows or Condensed Consolidated Statements of Equity as the transaction is eliminated in consolidation. The proceeds from WVPA are included in Net proceeds from the sales of other assets, and sale of and collections on notes receivable on Duke Energy and Duke Energy Ohio’s Condensed Consolidated Statements of Cash Flows. In the second quarter of 2011, Duke Energy Ohio recorded a pre-tax impairment charge of $9 million to adjust the carrying value of the proportionate share of Vermillion to be sold to WVPA to the proceeds to be received from WVPA less costs to sell. The sale of the proportionate share of Vermillion to WVPA did not result in a significant additional gain or loss upon close of the transaction. Wind Projects Joint Venture. In April 2012, Duke Energy executed a joint venture agreement with Sumitomo Corporation of America (SCOA). Under the terms of the agreement, Duke Energy and SCOA will each own a 50% interest in the joint venture, which owns two wind generation facilities currently under construction. 27 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Duke Energy and SCOA also negotiated a $330 million, Construction and 12-year amortizing Term Loan Facility, on behalf of the borrower, a wholly owned subsidiary of the joint venture. The loan agreement is non-recourse to Duke Energy. Duke Energy received proceeds of $319 million upon execution of the loan agreement. This amount represents reimbursement of a significant portion of Duke Energy’s construction costs incurred as of the date of the agreement. Beginning in April 2012, and through completion of the projects, Duke Energy and SCOA will each fund 50% of the remaining construction cost of the projects through contributions to the joint venture. Duke Energy will consolidate the joint venture until the projects reach commercial operations later in 2012. This transaction is expected to result in an insignificant gain to Duke Energy at the time construction is complete, where upon Duke Energy will no longer consolidate the joint venture. 3. Business Segments Effective with the first quarter of 2012, management began evaluating segment performance based on Segment Income. Segment Income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment Income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. In conjunction with management’s use of the new reporting measure, certain governance costs that were previously unallocated have now been allocated to each of the segments. In addition, direct interest expense and income taxes are included in segment income. Prior year segment profitability information has been recast to conform to the current year presentation. None of these changes impacts the reportable operating segments or the Duke Energy Registrants’ previously reported consolidated revenues, net income or earnings-per-share. Duke Energy Duke Energy has the following reportable operating segments: U.S. Franchised Electric and Gas (USFE&G), Commercial Power and International Energy. USFE&G generates, transmits, distributes and sells electricity in central and western North Carolina, western South Carolina, central, north central and southern Indiana, and northern Kentucky. USFE&G also transmits and distributes electricity in southwestern Ohio. Additionally, USFE&G transports and sells natural gas in southwestern Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Carolinas, regulated portions of Duke Energy Ohio including Duke Energy Kentucky, and Duke Energy Indiana. Commercial Power owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants, as well as other contractual positions. Commercial Power also has a retail sales subsidiary, Duke Energy Retail Sales, LLC (Duke Energy Retail), which is certified by the PUCO as a Competitive Retail Electric Service provider in Ohio. Through Duke Energy Generation Services, Inc. and its affiliates (DEGS), Commercial Power engages in the development, construction and operation of renewable energy projects. In addition, DEGS develops commercial transmission projects. DEGS also owns and operates electric generation for large energy consumers, municipalities, utilities and industrial facilities. International Energy principally operates and manages power generation facilities and engages in sales and marketing of electric power and natural gas outside the U.S. It conducts operations primarily through Duke Energy International, LLC and its affiliates and its activities principally target power generation in Latin America. Additionally, International Energy owns a 25% interest in National Methanol Company, located in Saudi Arabia, which is a large regional producer of methanol and methyl tertiary butyl ether. The remainder of Duke Energy’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes unallocated corporate costs, including costs to achieve certain mergers and divestitures, costs associated with certain corporate severance programs, corporate interest expense and certain corporate income tax impact. It also includes, Bison Insurance Company Limited (Bison), Duke Energy’s wholly owned, captive insurance subsidiary, Duke Energy’s 50% interest in DukeNet Communications, LLC (DukeNet) and related telecommunications businesses, and Duke Energy Trading and Marketing, LLC, which is 40% owned by Exxon Mobil Corporation and 60% owned by Duke Energy. Business Segment Data Unaffiliated Revenues Total Revenues Intersegment Revenues Segment Income/ Consolidated Net Income(a) (in millions) Three Months Ended March 31, 2012 USFE&G (b) Commercial Power International Energy Total reportable segments Other Eliminations Add back of noncontrolling interest component Income from Discontinued Operations, net of tax Total consolidated $ 2,660 564 $ 402 3,626 4 — — — $ 3,630 $ 8 16 — $2,668 580 24 3,650 15 11 (35) — — — $ 31 142 309 402 (16) — (35) — — $ 3,630 136 4 $ 2 299 @196 JEQELQ KEN m? ?an? 28 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Intersegment Revenues Unaffiliated Revenues Total Revenues Segment Income/ Consolidated Net Income(a) $ 2,683 $ (in millions) Three Months Ended March 31, 2011 USFE&G Commercial Power International Energy Total reportable segments Other Eliminations Add back of noncontrolling interest component Total consolidated (a) (b) $ 2,674 642 $ 348 3,664 (1) — — $ 3,663 $ 9 2 — 11 12 (23) — — 348 3,675 11 (23) — $ 3,663 341 49 128 518 644 (7) — $ 2 513 Segment results exclude noncontrolling interests and results of entities classified as discontinued operations. As discussed further in Note 4, Duke Energy recorded pre-tax impairment and other charges of $420 million in the first quarter of 2012 related to Edwardsport integrated gasification combined cycle (IGCC) project. Segment assets in the following table exclude all intercompany assets. Segment Assets March 31, 2012 $47,790 USFE&G Commercial Power International Energy Total reportable segments Other Reclassifications (a) Total consolidated assets (a) December 31, 2011 (in millions) $ 47,977 6,939 4,539 59,455 2,961 110 $ 62,526 6,884 4,752 59,426 2,337 36 $61,799 Primarily represents reclassification of federal tax balances in consolidation. Duke Energy Ohio Duke Energy Ohio has two reportable operating segments, Franchised Electric and Gas and Commercial Power. Franchised Electric and Gas transmits and distributes electricity in southwestern Ohio and generates, transmits, distributes and sells electricity in northern Kentucky. Franchised Electric and Gas also transports and sells natural gas in southwestern Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Ohio and its wholly owned subsidiary Duke Energy Kentucky. Commercial Power owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants, as well as other contractual positions. Duke Energy Ohio’s Commercial Power reportable operating segment does not include the operations of DEGS or Duke Energy Retail, which is included in the Commercial Power reportable operating segment at Duke Energy. The remainder of Duke Energy Ohio’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes certain governance costs allocated by its parent, Duke Energy (see Note 17). Business Segment Data Segment Income/ Consolidated Net Income Unaffiliated Revenues (a) (in millions) Three Months Ended March 31, 2012 Franchised Electric and Gas Commercial Power Total reportable segments Other Eliminations $ 473 $ 34 454 44 927 78 — (15) (4) — E99, gg?gg? KEEN 74 912 29 Total consolidated Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Segment Income/ Consolidated Net Income Unaffiliated Revenues (a) (in millions) Three Months Ended March 31, 2011 Franchised Electric and Gas Commercial Power Total reportable segments Other Total consolidated (a) $ 464 $ 415 879 — 879 $ 48 28 76 (3) $ 73 There was an insignificant amount of intersegment revenues for the three months ended March 31, 2012 and 2011. Segment assets in the following table exclude all intercompany assets. Segment Assets March 31, 2012 Franchised Electric and Gas Commercial Power Total reportable segments Other Reclassifications Total consolidated assets $ 6,432 4,733 December 31, 2011 (in millions) $ 6,293 11,165 4,740 11,033 177 259 (384) $ 10,958 (353) $ 10,939 Duke Energy Carolinas and Duke Energy Indiana Duke Energy Carolinas and Duke Energy Indiana each have one reportable operating segment, Franchised Electric, which generates, transmits, distributes and sells electricity in central and western North Carolina and western South Carolina, and north central, central and southern Indiana, respectively. The remainder of Duke Energy Carolinas’ and Duke Energy Indiana’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes costs to achieve certain mergers and divestitures, certain corporate severance programs, and certain costs for use of corporate assets as allocated to Duke Energy Carolinas or Duke Energy Indiana. At March 31, 2012 and 2011, all of Duke Energy Carolinas’ and Duke Energy Indiana’s assets are each owned by the Franchised Electric operating segment. For the three months ended March 31, 2012 and 2011, substantially all revenues, and expenses are from the Franchised Electric operating segment of each registrant. 4. Regulatory Matters Rate Related Information. The NCUC, PSCSC, IURC, PUCO and KPSC approve rates for retail electric and gas services within their states. Non-regulated sellers of gas and electric generation are also allowed to operate in Ohio once certified by the PUCO. The FERC approves rates for electric sales to wholesale customers served under cost-based rates, as well as sales of transmission service. Duke Energy Ohio Standard Service Offer (SSO). The PUCO approved Duke Energy Ohio’s current ESP on November 22, 2011. The ESP effectively separates the generation of electricity from Duke Energy Ohio’s retail load obligation and requires Duke Energy Ohio to transfer its generation assets to a non-regulated affiliate on or before December 31, 2014. The ESP includes competitive auctions for electricity supply whereby the energy price is recovered from retail customers. As a result, Duke Energy Ohio now earns retail margin on the transmission and distribution of electricity only and not on the cost of the underlying energy. New rates for Duke Energy Ohio went into effect for SSO customers on January 1, 2012. The ESP also includes a provision for a nonbypassable stability charge of $110 million per year to be collected from January 1, 2012 through December 31, 2014. On January 18, 2012, the PUCO denied a request for rehearing of its decision on Duke Energy Ohio’s ESP filed by Columbus Southern Power and Ohio Power Company. Duke Energy Ohio Generation Asset Transfer. On April 2, 2012, Duke Energy Ohio and various affiliated entities filed an Application for Authorization for Disposition of Jurisdictional Facilities with FERC. The application seeks to transfer, from Duke Energy Ohio’s rate-regulated Ohio utility company, the legacy coal-fired and combustion gas turbine assets to a non-regulated affiliate, consistent with ESP stipulation approved on November 22, 2011. The application outlines a potential additional step in the reorganization that would result in a transfer of all of Duke Energy Ohio’s Commercial Power business to an indirect wholly owned subsidiary of Duke Energy as early as October 2012. The process of determining the optimal corporate structure is an ongoing evaluation of factors, such as tax considerations, that may change between now and the transfer date. In conjunction with the 30 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) transfer, Duke Energy Ohio’s capital structure will be restructured to reflect appropriate debt and equity ratios for its regulated Franchised Electric and Gas operations. The transfer could instead be accomplished within a wholly owned non-regulated subsidiary of Duke Energy Ohio depending on final tax structuring analysis. Duke Energy Ohio requested the FERC to rule on the application within 90 days. Duke Energy Carolinas North Carolina Rate Case. On January 27, 2012, the NCUC approved a settlement agreement between Duke Energy Carolinas and the North Carolina Utilities Public Staff (Public Staff). The terms of the agreement include an average 7.2% increase in retail revenues, or approximately $309 million annually beginning in February 2012. The agreement includes a 10.5% return on equity and a capital structure of 53% equity and 47% long-term debt. In order to mitigate the impact of the increase on customers, the agreement provides for (i) Duke Energy to waive its right to increase the amount of construction work in progress in rate base for any expenditures associated with Cliffside Unit 6 above the North Carolina retail portion included in the 2009 North Carolina Rate Case, (ii) the accelerated return of certain regulatory liabilities, related to accumulated EPA sulfur dioxide auction proceeds, to customers, which lowered the total impact to customer bills to an increase of approximately 7.2% in the near-term; and (iii) an $11 million shareholder contribution to agencies that provide energy assistance to low income customers. In exchange for waiving the right to increase the amount of construction work in process for Cliffside Unit 6, Duke Energy will continue to capitalize AFUDC on all expenditures associated with Cliffside Unit 6 not included in rate base as a result of the 2009 North Carolina Rate Case. On March 28, 2012, the North Carolina Attorney General filed a notice of appeal with the NCUC challenging the rate of return approved in the agreement. On April 17, 2012, the NCUC denied Duke Energy Carolinas’ request to dismiss the notice of appeal. Duke Energy Carolinas South Carolina Rate Case. On January 25, 2012, the PSCSC approved a settlement agreement between Duke Energy Carolinas and the Office of Regulatory Staff (ORS), Wal-Mart Stores East, LP (Wal-Mart), and Sam’s East, Inc (Sam’s). The Commission of Public Works for the city of Spartanburg, South Carolina and the Spartanburg Sanitary Sewer District were not parties to the agreement; however, they did not object to the agreement. The terms of the agreement include an average 5.98% increase in retail and commercial revenues, or approximately $93 million annually beginning February 6, 2012. The agreement includes a 10.5% return on equity, a capital structure of 53% equity and 47% long-term debt, and a contribution of $4 million to AdvanceSC. Capital Expansion Projects. Overview. USFE&G is engaged in planning efforts to meet projected load growth in its service territories. Capacity additions may include new nuclear, IGCC, coal facilities or gas-fired generation units. Because of the long lead times required to develop such assets, USFE&G is taking steps now to ensure those options are available. Duke Energy Carolinas Cliffside Unit 6. On March 21, 2007, the NCUC issued an order allowing Duke Energy Carolinas to build an 800 MW coal-fired unit. Following final equipment selection and the completion of detailed engineering, Cliffside Unit 6 is expected to have a net output of 825 MW. On January 31, 2008, Duke Energy Carolinas filed its updated cost estimate of $1.8 billion (excluding AFUDC of $600 million) for the approved new Cliffside Unit 6. In March 2010, Duke Energy Carolinas filed an update to the cost estimate of $1.8 billion (excluding AFUDC) with the NCUC where it reduced the estimated AFUDC financing costs to $400 million as a result of the December 2009 rate case settlement with the NCUC that allowed the inclusion of construction work in progress in rate base prospectively. Duke Energy Carolinas believes that the overall cost of Cliffside Unit 6 will be reduced by $125 million in federal advanced clean coal tax credits, as discussed in Note 5. Cliffside Unit 6 is expected to begin commercial operation in the fall of 2012. Duke Energy Carolinas Dan River and Buck Combined Cycle Facilities. In June 2008, the NCUC issued its order approving the Certificate of Public Convenience and Necessity (CPCN) applications to construct a 620 MW combined cycle natural gas fired generating facility at each of Duke Energy Carolinas’ existing Dan River Steam Station and Buck Steam Station. The Division of Air Quality (DAQ) issued a final air permit authorizing construction of the Buck and Dan River combined cycle natural gas-fired generating units in October 2008 and August 2009, respectively. In November 2011, Duke Energy Carolinas placed its 620 MW Buck combined cycle natural gas-fired generation facility in service. The Dan River project is expected to begin operation by the end of 2012. Based on the most updated cost estimates, total costs (including AFUDC) for the Dan River project are $710 million. Duke Energy Indiana Edwardsport IGCC Plant. On September 7, 2006, Duke Energy Indiana and Southern Indiana Gas and Electric Company d/b/a Vectren Energy Delivery of Indiana (Vectren) filed a joint petition with the IURC seeking a CPCN for the construction of a 618 MW IGCC power plant at Duke Energy Indiana’s Edwardsport Generating Station in Knox County, Indiana. The facility was initially estimated to cost approximately $1.985 billion (including $120 million of AFUDC). In August 2007, Vectren formally withdrew its participation in the IGCC plant and a hearing was conducted on the CPCN petition based on Duke Energy Indiana owning 100% of the project. On November 20, 2007, the IURC issued an order granting Duke Energy Indiana a CPCN for the proposed IGCC project, approved the cost estimate of $1.985 billion and approved the timely recovery of costs related to the project. On January 25, 2008, Duke Energy Indiana received the final air permit from the Indiana Department of Environmental Management. The Citizens Action Coalition of Indiana, Inc. (CAC), Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc., all intervenors in the CPCN proceeding, have appealed the air permit. On May 1, 2008, Duke Energy Indiana filed its first semi-annual IGCC rider and ongoing review proceeding with the IURC as required under the CPCN order issued by the IURC. In its filing, Duke Energy Indiana requested approval of a new cost estimate for the IGCC project of $2.35 billion (including $125 million of AFUDC) and for approval of plans to study carbon capture as required by the IURC’s CPCN order. On January 7, 2009, the IURC approved Duke Energy Indiana’s request, including the new cost estimate of $2.35 billion, and cost recovery associated with a study on carbon capture. On November 3, 2008 and May 1, 2009, Duke Energy Indiana filed its second and third semi-annual IGCC riders, respectively, both of which were approved by the IURC in full. On November 24, 2009, Duke Energy Indiana filed a petition for its fourth semi-annual IGCC rider and ongoing review proceeding with the IURC. As Duke Energy Indiana experienced design modifications, quantity increases and scope growth above what was anticipated from the preliminary engineering design, capital costs to the IGCC project were anticipated to increase. Duke Energy Indiana forecasted that the additional capital cost items would use the remaining contingency and escalation amounts in the 31 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) current $2.35 billion cost estimate and add $150 million, excluding the impact associated with the need to add more contingency. Duke Energy Indiana did not request approval of an increased cost estimate in the fourth semi-annual update proceeding; rather, Duke Energy Indiana requested, and the IURC approved, a subdocket proceeding in which Duke Energy Indiana would present additional evidence regarding an updated estimated cost for the IGCC project and in which a more comprehensive review of the IGCC project could occur. The evidentiary hearing for the fourth semi-annual update proceeding was held April 6, 2010, and an interim order was received on July 28, 2010. The order approves the implementation of an updated IGCC rider to recover costs incurred through September 30, 2009, effective immediately. The approvals are on an interim basis pending the outcome of the sub-docket proceeding involving the revised cost estimate as discussed further below. On April 16, 2010, Duke Energy Indiana filed a revised cost estimate for the IGCC project reflecting an estimated cost increase of $530 million. Duke Energy Indiana requested approval of the revised cost estimate of $2.88 billion (including $160 million of AFUDC), and for continuation of the existing cost recovery treatment. A major driver of the cost increase included quantity increases and design changes, which impacted the scope, productivity and schedule of the IGCC project. On September 17, 2010, an agreement was reached with the OUCC, Duke Energy Indiana Industrial Group and Nucor Steel — Indiana to increase the authorized cost estimate of $2.35 billion to $2.76 billion, and to cap the project’s costs that could be passed on to customers at $2.975 billion. Any construction cost amounts above $2.76 billion would be subject to a prudence review similar to most other rate base investments in Duke Energy Indiana’s next general rate increase request before the IURC. Duke Energy Indiana agreed to accept a 150 basis point reduction in the equity return for any project construction costs greater than $2.35 billion. Additionally, Duke Energy Indiana agreed not to file for a general rate case increase before March 2012. Duke Energy Indiana also agreed to reduce depreciation rates earlier than would otherwise be required and to forego a deferred tax incentive related to the IGCC project. As a result of the settlement, Duke Energy Indiana recorded a pre-tax charge to earnings of approximately $44 million in the third quarter of 2010 to reflect the impact of the reduction in the return on equity. Due to the IURC investigation discussed below, the IURC convened a technical conference on November 3, 2010, related to the continuing need for the Edwardsport IGCC facility. On December 9, 2010, the parties to the settlement withdrew the settlement agreement to provide an opportunity to assess whether and to what extent the settlement agreement remained a reasonable allocation of risks and rewards and whether modifications to the settlement agreement were appropriate. Management determined that the approximate $44 million charge discussed above was not impacted by the withdrawal of the settlement agreement. During 2010, Duke Energy Indiana filed petitions for its fifth and sixth semi-annual IGCC riders. Evidentiary hearings were held on April 24, 2012 and April 25, 2012. The CAC, Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc. filed motions for two subdocket proceedings alleging improper communications, undue influence, fraud, concealment and gross mismanagement, and a request for field hearing in this proceeding. Duke Energy Indiana opposed the requests. On February 25, 2011, the IURC issued an order which denied the request for a subdocket to investigate the allegations of improper communications and undue influence at this time, finding there were other agencies better suited for such investigation. The IURC also found that allegations of fraud, concealment and gross mismanagement related to the IGCC project should be heard in a Phase II proceeding of the cost estimate subdocket and set evidentiary hearings on both Phase I (cost estimate increase) and Phase II beginning in August 2011. After procedural delays, hearings were held on Phase I on October 26, 2011 and on Phase II on November 21, 2011. On March 10, 2011, Duke Energy Indiana filed testimony with the IURC proposing a framework designed to mitigate customer rate impacts associated with the Edwardsport IGCC project. Duke Energy Indiana’s filing proposed a cap on the project’s construction costs, (excluding financing costs), which can be recovered through rates at $2.72 billion. It also proposed rate-related adjustments that will lower the overall customer rate increase related to the project from an average of 19% to approximately 16%. On November 30, 2011, Duke Energy Indiana filed a petition with the IURC in connection with its eighth semi-annual rider request for the Edwardsport IGCC project. Evidentiary hearings for the seventh and eight semi-annual rider requests are scheduled for August 6, 2012 and August 7, 2012. On June 27, 2011, Duke Energy Indiana filed testimony with the IURC in connection with its seventh semi-annual rider request which included an update on the current cost forecast of the Edwardsport IGCC project. The updated forecast excluding AFUDC increased from $2.72 billion to $2.82 billion, not including any contingency for unexpected start-up events. On June 30, 2011, the OUCC and intervenors filed testimony in Phase I recommending that Duke Energy Indiana be disallowed cost recovery of any of the additional cost estimate increase above the previously approved cost estimate of $2.35 billion. Duke Energy Indiana filed rebuttal testimony on August 3, 2011. In the subdocket proceeding, on July 14, 2011, the OUCC and certain intervenors filed testimony in Phase II alleging that Duke Energy Indiana concealed information and grossly mismanaged the project, and therefore Duke Energy Indiana should only be permitted to recover from customers $1.985 billion, the original IGCC project cost estimate approved by the IURC. Other intervenors recommended that Duke Energy Indiana not be able to rely on any cost recovery granted under the CPCN or the first cost increase order. Duke Energy Indiana believes it has diligently and prudently managed the project. On September 9, 2011, Duke Energy defended against the allegations in its responsive testimony. The OUCC and intervenors filed their final rebuttal testimony in Phase II on or before October 7, 2011, making similar claims of fraud, concealment and gross mismanagement and recommending the same outcome of limiting Duke Energy Indiana’s recovery to the $1.985 billion initial cost estimate. Additionally, the CAC recommended that recovery be limited to the costs incurred on the IGCC project as of November 30, 2009 (Duke Energy Indiana estimates it had committed costs of $1.6 billion), with further IURC proceedings to be held to determine the financial consequences of this recommendation. On October 19, 2011, Duke Energy Indiana revised its project cost estimate from approximately $2.82 billion, excluding financing costs, to approximately $2.98 billion, excluding financing costs. The revised estimate reflects additional cost pressures resulting from quantity increases and the resulting impact on the scope, productivity and schedule of the IGCC project. Duke Energy Indiana previously proposed to the IURC a cost cap of approximately $2.72 billion, plus the actual AFUDC that accrues on that amount. As a result, Duke Energy Indiana recorded a pre-tax impairment charge of approximately $222 million in the third quarter of 2011 related to costs expected to be incurred above the cost cap. This charge is in addition to a pre-tax impairment charge of 32 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) approximately $44 million recorded in the third quarter of 2010 as discussed above. The cost cap, if approved by the IURC, limits the amount of project construction costs that may be incorporated into customer rates in Indiana. As a result of the proposed cost cap, recovery of these cost increases is not considered probable. Additional updates to the cost estimate could occur through the completion of the plant in 2012. Phase I and Phase II hearings concluded on January 24, 2012. The CAC has filed repeated requests for the IURC to consider issues of ethics, undue influence, due process violations and appearance of impropriety. The IURC denied the most recent motion in March 2012. In April 2012, the CAC filed a motion requesting the IURC to certify questions of law for appeal regarding allegations of fraud on the commission and due process violations. The IURC has not yet ruled on the motion. On April 30, 2012, Duke Energy Indiana entered into a settlement agreement with the Indiana Office of the Utility Consumer Counselor, the Duke Energy Indiana Industrial Group and Nucor Steel-Indiana on the cost increase for construction of the Edwardsport IGCC plant, including both Phase I and Phase II of the sub docket. Pursuant to the agreement, there would be a cap on costs to be reflected in customer rates of $2.595 billion, including estimated financing costs through June 30, 2012. If an IURC order comes after June 30, 2012, Duke Energy Indiana will be able to recover additional financing costs until customer rates are revised. Duke Energy Indiana also agrees not to request a retail electric base rate increase prior to March 2013, with rates in effect no earlier than April 1, 2014. The agreement is subject to approval by the IURC, and the settling parties have requested that schedule be set to hear evidence in support of the settlement agreement, which could allow for an IURC order as early as the summer of 2012. As a result of the agreement, Duke Energy Indiana recorded pre-tax impairment and other charges of approximately $420 million in the first quarter of 2012. Approximately $400 million is recorded in Impairment charges and the remaining approximately $20 million is recorded in Operation, maintenance and other on Duke Energy’s Condensed Consolidated Statement of Operations and in Duke Energy Indiana’s Condensed Consolidated Statements of Comprehensive Income. The $20 million recorded in Operation, maintenance and other, is attributed to legal fees Duke Energy Indiana will be responsible for on behalf of certain intervenors, as well as funding for low income energy assistance, as required by the settlement agreement. These charges are in addition to pre-tax impairment charges of approximately $222 million in the third quarter of 2011 and $44 million recorded in the third quarter of 2010, as discussed above. Duke Energy is unable to predict the ultimate outcome of these proceedings. In the event the IURC disallows a portion of the remaining plant costs, including financing costs, or if cost estimates for the plant increase, additional charges to expense, which could be material, could occur . Construction of the Edwardsport IGCC plant is ongoing and is currently expected to be completed and placed in-service in 2012. Duke Energy Carolinas William States Lee III Nuclear Station. In December 2007, Duke Energy Carolinas filed an application with the NRC, which has been docketed for review, for a combined Construction and Operating License (COL) for two Westinghouse AP1000 (advanced passive) reactors for the proposed William States Lee III Nuclear Station (Lee Nuclear Station) at a site in Cherokee County, South Carolina. Each reactor is capable of producing 1,117 MW. Submitting the COL application does not commit Duke Energy Carolinas to build nuclear units. Through several separate orders, the NCUC and PSCSC have allowed Duke Energy to incur project development and pre-construction costs for the project through June 30, 2012, and up to an aggregate maximum amount of $350 million. As a condition to the approval of continued development of the project, Duke Energy Carolinas shall provide certain monthly reports to the PSCSC and the ORS. Duke Energy Carolinas has also agreed to provide a monthly report to certain parties on the progress of negotiations to acquire an interest in the V.C. Summer Nuclear Station (refer to discussion below) expansion being developed by South Carolina Public Service Authority (Santee Cooper) and South Carolina Electric & Gas Company (SCE&G). Any change in ownership interest, output allocation, sharing of costs or control and any future option agreements concerning Lee Nuclear Station shall be subject to prior approval of the PSCSC. The NRC review of the COL application continues and the estimated receipt of the COL is in mid 2013. Duke Energy Carolinas filed with the Department of Energy (DOE) for a federal loan guarantee, which has the potential to lower financing costs associated with the proposed Lee Nuclear Station; however, it was not among the four projects selected by the DOE for the final phase of due diligence for the federal loan guarantee program. The project could be selected in the future if the program funding is expanded or if any of the current finalists drop out of the program. In the first quarter of 2011, Duke Energy Carolinas entered into an agreement with JEA that provides JEA with an option to purchase up to a 20% undivided ownership interest in Lee Nuclear Station. JEA has 90 days following Duke Energy Carolinas’ receipt of the COL to exercise the option. Duke Energy currently anticipates receiving the COL and other pertinent permits by mid-2013. Duke Energy Carolinas V.C. Summer Nuclear Station Letter of Intent. In July 2011, Duke Energy Carolinas signed a letter of intent with Santee Cooper related to the potential acquisition by Duke Energy Carolinas of a 5% to 10% ownership interest in the V.C. Summer Nuclear Station being developed by Santee Cooper and SCE&G near Jenkinsville, South Carolina. The letter of intent provides a path for Duke Energy Carolinas to conduct the necessary due diligence to determine if future participation in this project is beneficial for its customers. Potential Plant Retirements. Duke Energy Carolinas, Duke Energy Indiana, Duke Energy Ohio and Duke Energy Kentucky each periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (15-20 years), and options being considered to meet those needs. The IRP’s filed by Duke Energy Carolinas, Duke Energy Indiana, Duke Energy Ohio and Duke Energy Kentucky in 2011 and 2010 included planning assumptions to potentially retire by 2015, certain coal-fired generating facilities in North Carolina, South Carolina, Indiana and Ohio that do not have the requisite emission control equipment, primarily to meet EPA regulations that are not yet effective. Duke Energy classifies generating facilities that are still operating but are expected to be retired significantly before the end of their previously estimated useful lives as Generation facilities to be retired, net, on the Condensed Consolidated Balance Sheets. Amounts are reclassified from the cost and accumulated depreciation of Property, plant and equipment when it becomes probable the plant will be retired. Duke Energy continues to depreciate these generating facilities based on depreciable lives on file with the state regulatory commission. When such facilities are removed from service, the remaining net carrying value, if any, is then reclassified to regulatory assets, in accordance with the expected ratemaking treatment. The table below contains, as of March 31, 2012, the net carrying value of these facilities that are in the Condensed Consolidated Balance Sheets. Duke Energy MW Remaining net book value (in millions) (a) (a) (b) (c) (d) (e) (f) Duke Energy Carolinas(b)(c)(d) 3,049 $ 344 $ 1,356 192 Duke Energy Ohio(e) Duke Energy Indiana(f) 1,025 668 $ 138 $ 14 Included in Property, plant and equipment, net, on the Condensed Consolidated Balance Sheets unless otherwise noted. Includes Dan River Units 1 through 3, Riverbend Units 4 through 7, Lee Units 1 through 3 and Buck Units 5 and 6. Duke Energy Carolinas has committed to retire 1,667 MW in conjunction with a Cliffside air permit settlement, of which 311 MW have already been retired. Dan River was retired on April 1, 2012. Net book value of Buck Units 5 and 6 of $79 million is included in Generation facilities to be retired, net, on the Condensed Consolidated Balance Sheets. Includes Beckjord Station and Miami Fort Unit 6. Beckjord has no remaining book value. Includes Wabash River Units 2 through 6. 33 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives, and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired. Other Matters. Duke Energy Ohio and Duke Energy Kentucky Regional Transmission Organization Realignment. Duke Energy Ohio, which includes its wholly owned subsidiary Duke Energy Kentucky, transferred control of its transmission assets to effect a Regional Transmission Organization (RTO) realignment from the Midwest Independent Transmission System Operator, Inc. (MISO) to PJM interconnection, L.L.C. (PJM), effective December 31, 2011. On December 16, 2010, the FERC issued an order related to MISO’s cost allocation methodology surrounding Multi-Value Projects (MVP), a type of MISO Transmission Expansion Planning (MTEP) project cost. MISO expects that MVP will fund the costs of large transmission projects designed to bring renewable generation from the upper Midwest to load centers in the eastern portion of the MISO footprint. MISO approved MVP proposals with estimated project costs of approximately $5.2 billion prior to the date of Duke Energy Ohio’s exit from MISO on December 31, 2011. These projects are expected to be undertaken by the constructing transmission owners from 2012 through 2020 with costs recovered through MISO over the useful life of the projects. The FERC order did not clearly and expressly approve MISO’s apparent interpretation that a withdrawing transmission owner is obligated to pay its share of costs of all MVP projects approved by MISO up to the date of the withdrawing transmission owners’ exit from MISO. Duke Energy Ohio, including Duke Energy Kentucky, has historically represented approximately five-percent of the MISO system. The impact of this order is not fully known, but could result in a substantial increase in MISO transmission expansion costs allocated to Duke Energy Ohio and Duke Energy Kentucky subsequent to a withdrawal from MISO. Duke Energy Ohio and Duke Energy Kentucky, among other parties, sought rehearing of the FERC MVP order. On October 21, 2011, the FERC issued an order on rehearing in this matter largely affirming its original MVP order and conditionally accepting MISO’s compliance filing as well as determining that the MVP allocation methodology is consistent with cost causation principles and FERC precedent. The FERC also reiterated that it will not prejudge any settlement agreement between an RTO and a withdrawing transmission owner for fees that a withdrawing transmission owner owes to the RTO. The order further states that any such fees that a withdrawing transmission owner owes to an RTO are a matter for those parties to negotiate, subject to review by the FERC. The FERC also ruled that Duke Energy Ohio and Duke Energy Kentucky’s challenge of MISO’s ability to allocate MVP costs to a withdrawing transmission owner is beyond the scope of the proceeding. The order further stated that MISO’s tariff withdrawal language establishes that once cost responsibility for transmission upgrades is determined, withdrawing transmission owners retain any costs incurred prior to the withdrawal date. In order to preserve their rights, Duke Energy Ohio and Duke Energy Kentucky filed an appeal of the FERC order in the D.C. Circuit Court of Appeals. The case was consolidated with appeals of the FERC order by other parties in the Seventh Circuit Court of Appeals. Duke Energy Ohio and Duke Energy Kentucky have entered into settlements or have received state regulatory approvals associated with the RTO realignment. On December 22, 2010, the KPSC issued an order granting approval of Duke Energy Kentucky’s request to effect the RTO realignment, subject to several conditions. The conditions accepted by Duke Energy Kentucky include a commitment to not seek to double-recover in a future rate case the transmission expansion fees that may be charged by MISO and PJM in the same period or overlapping periods. On January 25, 2011, the KPSC issued an order stating that the order had been satisfied and is now unconditional. On April 26, 2011, Duke Energy Ohio, Ohio Energy Group, The Office of Ohio Consumers’ Counsel and the Commission Staff filed an Application and a Stipulation with the PUCO regarding Duke Energy Ohio’s recovery via a non-bypassable rider of certain costs related to its proposed RTO realignment. Under the Stipulation, Duke Energy Ohio would recover all MTEP costs, including but not limited to MVP costs, directly or indirectly charged to Duke Energy Ohio retail customers. Duke Energy Ohio would not seek to recover any portion of the MISO exit obligation, PJM integration fees, or internal costs associated with the RTO realignment and the first $121 million of PJM transmission expansion costs from Ohio retail customers. Duke Energy Ohio also agreed to vigorously defend against any charges for MVP projects from MISO. On May 25, 2011, the Stipulation was approved by the PUCO. An application for rehearing filed by Ohio Partners for Affordable Energy was denied by the PUCO on July 15, 2011. On October 14, 2011, Duke Energy Ohio and Duke Energy Kentucky filed an application with the FERC to establish new wholesale customer rates for transmission service under PJM’s Open Access Transmission Tariff. In this filing, Duke Energy Ohio and Duke Energy Kentucky sought recovery of their legacy MTEP costs, including MVP costs, and submitted an analysis showing that the benefits of the RTO realignment outweigh the costs to the customers. The new rates went into effect, subject to refund, on January 1, 2012. Protests were filed by certain transmission customers. On April 24, 2012, FERC issued an order in which it, among other things, denied recovery of legacy MTEP costs without prejudice to the right of Duke Energy Ohio and Duke Energy Kentucky to make another filing including a more comprehensive cost-benefit analysis to support such recovery. 34 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) On November 2, 2011, MISO, the MISO Transmission Owners, Duke Energy Ohio and Duke Energy Kentucky jointly submitted to the FERC a filing that addresses the treatment of MTEP costs, excluding MVP costs. The November 2, 2011 filing, which was accepted by the FERC on December 30, 2011, provides that the MISO Transmission Owners will continue to be obligated to construct the non-MVP MTEP projects, for which Duke Energy Ohio and Duke Energy Kentucky will continue to be obligated to pay a portion of the costs. Likewise, transmission customers serving load in MISO will continue to be obligated to pay a portion of the costs of a previously identified non-MVP MTEP project that Duke Energy Ohio has constructed. On December 29, 2011, MISO filed with FERC a Schedule 39 to MISO’s tariff. Schedule 39 provides for the allocation of MVP costs to a withdrawing owner based on the owner’s actual transmission load after the owner’s withdrawal from MISO, or, if the owner fails to report such load, based on the owner’s historical usage in MISO assuming annual load growth. On January 19, 2012, Duke Energy Ohio and Duke Energy Kentucky filed with FERC a protest of the allocation of MVP costs to them under Schedule 39. On February 27, 2012, the FERC accepted Schedule 39 as a just and reasonable basis for MISO to charge for MVP costs, a transmission owner that withdraws from MISO after January 1, 2012. The FERC set hearing and settlement procedures regarding whether MISO’s proposal to use the methodology in Schedule 39 to calculate the obligation of transmission owners who withdrew from MISO prior to January 1, 2012 (such as Duke Energy Ohio and Duke Energy Kentucky) to pay for MVP costs is consistent with the MVP-related withdrawal obligations in the tariff at the time that they withdrew from MISO, and, if not, what amount of, and methodology for calculating, any MVP cost responsibility should be. On March 28, 2012, Duke Energy Ohio and Duke Energy Kentucky filed a request for rehearing of FERC’s order on MISO’s Schedule 39. On December 31, 2011, Duke Energy Ohio recorded a liability for its MISO exit obligation and share of MTEP costs, excluding MVP, of approximately $110 million. This liability was recorded within Other in Current liabilities and Other in Deferred credits and other liabilities on Duke Energy Ohio’s Condensed Consolidated Balance Sheets upon exit from MISO on December 31, 2011. Approximately $74 million of this amount was recorded as a regulatory asset while $36 million was recorded to Operation, maintenance and other in Duke Energy Ohio’s Condensed Consolidated Statements of Comprehensive Income. There were no significant changes in the amount of the recorded liability during the first quarter of 2012. In addition to the above amounts, Duke Energy Ohio may also be responsible for costs associated with MISO MVP projects. Duke Energy Ohio is contesting its obligation to pay for such costs. However, depending on the final outcome of this matter, Duke Energy Ohio could incur material costs associated with MVP projects, which are not reasonably estimable at this time. Regulatory accounting treatment will be pursued for any costs incurred in connection with the resolution of this matter. Duke Energy Indiana Carbon Sequestration. Duke Energy Indiana filed a petition with the IURC requesting approval of its plans for studying carbon storage, sequestration and/or enhanced oil recovery for the carbon dioxide (CO 2 ) from the Edwardsport IGCC facility on March 6, 2009. On July 7, 2009, Duke Energy Indiana filed its case-in-chief testimony requesting approval for cost recovery of a $121 million site assessment and characterization plan for CO2 sequestration options including deep saline sequestration, depleted oil and gas sequestration and enhanced oil recovery for the CO 2 from the Edwardsport IGCC facility. The OUCC filed testimony supportive of the continuing study of carbon storage, but recommended that Duke Energy Indiana break its plan into phases, recommending approval of only $33 million in expenditures at this time and deferral of expenditures rather than cost recovery through a tracking mechanism as proposed by Duke Energy Indiana. The CAC, an intervenor, recommended against approval of the carbon storage plan stating customers should not be required to pay for research and development costs. Duke Energy Indiana’s rebuttal testimony was filed October 30, 2009, wherein it amended its request to seek deferral of $42 million to cover the carbon storage site assessment and characterization activities scheduled to occur through the end of 2010, with further required study expenditures subject to future IURC proceedings. An evidentiary hearing was held on November 9, 2009. Duke Energy Indiana IURC Investigation. On October 5, 2010, the Governor of Indiana terminated the employment of the Chairman of the IURC in connection with Duke Energy Indiana’s hiring of an attorney from the IURC staff. As requested by the governor, the Indiana Inspector General initiated an investigation into whether the IURC attorney violated any state ethics rules, and the IURC announced it would internally audit the Duke Energy Indiana cases dating from January 1, 2010 through September 30, 2010, on which this attorney worked while at the IURC, as well as all Edwardsport IGCC cases dating back to 2006. Duke Energy Indiana engaged an outside law firm to conduct its own investigation regarding Duke Energy Indiana’s hiring of an IURC attorney and Duke Energy Indiana’s related hiring practices. On October 5, 2010, Duke Energy Indiana placed the attorney and President of Duke Energy Indiana on administrative leave. They were subsequently terminated on November 8, 2010. On December 7, 2010, the IURC released its internal audit findings concluding that the previous rulings were supported by sound, legal reasoning consistent with the Indiana Rules of Evidence and historical practice and procedures of the IURC and that the previous rulings appeared to be balanced and consistent among the parties. The audit concluded it did not reveal any bias or a resultant unfair advantage obtained by Duke Energy Indiana as a result of the evidentiary rulings of the former IURC attorney. The IURC found no conflict between the order and the staff report; however, the audit report noted the staff report offered no specific recommendation to either approve or deny the requested relief and that this was the only order that was subject to an appeal. As such, the IURC reopened that proceeding for further review and consideration of the evidence presented. The Inspector General’s investigation into whether the former IURC attorney violated any state ethics rules was the subject of an Indiana Ethics Commission hearing that was held on April 14, 2011, and a final report was issued on May 14, 2011. The final report pertained only to the conduct of the former IURC attorney as Duke Energy Indiana was not a subject of the investigation. 5. Commitments and Contingencies Environmental Duke Energy is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. 35 @196 JEQELQ KEN m? ?an? Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) The following environmental matters impact all of the Duke Energy Registrants. Remediation Activities. The Duke Energy Registrants are responsible for environmental remediation at various contaminated sites. These include some properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. In some cases, Duke Energy no longer owns the property. Managed in conjunction with relevant federal, state and local agencies, activities vary with site conditions and locations, remediation requirements, complexity and sharing of responsibility. If remediation activities involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for contamination caused by other parties. In some instances, the Duke Energy Registrants may share liability associated with contamination with other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Reserves associated with remediation activities at certain sites have been recorded and it is anticipated that additional costs associated with remediation activities at certain sites will be incurred in the future. All of these sites generally are managed in the normal course of business or affiliate operations. The Duke Energy Registrants have accrued costs associated with remediation activities at some of its current and former sites, as well as other relevant environmental contingent liabilities. Management, in the normal course of business, continually assesses the nature and extent of known or potential environmental-related contingencies and records liabilities when losses become probable and are reasonably estimable. Costs associated with remediation activities within the Duke Energy Registrants’ operations are typically expensed unless regulatory recovery of the costs is deemed probable. As of March 31, 2012, Duke Energy Ohio had a total reserve of $25 million, related to remediation work at certain former manufactured gas plant (MGP) sites. Duke Energy Ohio has received an order from the PUCO to defer the costs incurred. As of March 31, 2012, Duke Energy Ohio has deferred $72 million of costs related to the MGP sites. The PUCO will rule on the recovery of these costs at a future proceeding. Management believes it is probable that additional liabilities will be incurred as work progresses at Ohio MGP sites; however, costs associated with future remediation cannot currently be reasonably estimated. Clean Water Act 316(b). The EPA published its proposed cooling water intake structures rule on April 20, 2011. Duke Energy submitted comments on the proposed rule on August 16, 2011. The proposed rule advances one main approach and three alternatives. The main approach establishes aquatic protection requirements for existing facilities and new on-site facility additions that withdraw 2 million gallons or more of water per day from rivers, streams, lakes, reservoirs, estuaries, oceans, or other U.S. waters for cooling purposes. Based on the main approach proposed, most, if not all of the 22 coal and nuclear-fueled generating facilities in which the Duke Energy Registrants are either a whole or partial owner are likely affected sources. Additional sources, including some combined-cycle combustion turbine facilities, may also be impacted, at least for intake modifications. The EPA has plans to finalize the 316(b) rule in July 2012. Compliance with portions of the rule could begin as early as 2015. Because of the wide range of potential outcomes, including the other three alternative proposals, the Duke Energy Registrants are unable to estimate its costs to comply at this time. Cross-State Air Pollution Rule (CSAPR). On August 8, 2011, the final Cross-State Air Pollution Rule (CSAPR) was published in the Federal Register. The CSAPR established state-level annual SO 2 and NOx budgets that were to take effect on January 1, 2012, and state-level ozone-season NO x budgets that were to take effect on May 1, 2012, allocating emission allowances to affected sources in each state equal to the state budget less an allowance setaside for new sources. The budget levels were set to decline in 2014 for many states, including each state that the Duke Energy Registrants operate in, except for South Carolina where the budget levels were to remain constant. The rule allowed both intrastate and interstate allowance trading. Numerous petitions for review of the CSAPR and motions for stay of the CSAPR were filed with the United States Court of Appeals for the District of Columbia. On December 30, 2011 the court ordered a stay of the CSAPR pending the court’s resolution of the various petitions for review. Based on the court’s order, the EPA continues to administer the Clean Air Interstate Rule that the Duke Energy Registrants have been complying with since 2009 and which was to be replaced by the CSAPR beginning in 2012. Oral arguments in the case were held on April 13, 2012. A decision could be issued in the case in the second or third quarter of 2012. The stringency of the 2012 and 2014 CSAPR requirements varied among the Duke Energy Registrants. Where the CSAPR requirements were to be constraining, activities to meet the requirements could include purchasing emission allowances, power purchases, curtailing generation and utilizing low sulfur fuel. The CSAPR was not expected to result in Duke Energy Registrants adding new emission controls. Technical adjustments to the CSAPR recently finalized by the EPA will not materially impact the Duke Energy Registrants. The Duke Energy Registrants cannot predict the outcome of the litigation or how it might affect the CSAPR requirements as they apply to the Duke Energy Registrants. Coal Combustion Product (CCP) Management. Duke Energy currently estimates that it will spend $259 million ($78 million at Duke Energy Carolinas, $63 million at Duke Energy Ohio and $118 million at Duke Energy Indiana) over the period 2012-2016 to install synthetic caps and liners at existing and new CCP landfills and to convert some of its CCP handling systems from wet to dry systems to comply with current regulations. The EPA and a number of states are considering additional regulatory measures that will contain specific and more detailed requirements for the management and disposal of CCPs, primarily ash, from the Duke Energy Registrants’ coal-fired power plants. On June 21, 2010, the EPA issued a proposal to regulate, under the Resource Conservation and Recovery Act, coal combustion residuals (CCR), a term the EPA uses to describe the CCPs associated with the generation of electricity. The EPA proposal contains two regulatory options whereby CCRs not employed in approved beneficial use applications would either be regulated as hazardous waste or would continue to be regulated as non-hazardous waste. Duke Energy cannot predict the outcome of this rulemaking. However, based on the proposal, the cost of complying with the final regulation will be significant. The timing of a final rule is uncertain, but is not expected before late 2012 at the earliest. Mercury and Air Toxics Standards (MATS). The final Mercury and Air Toxics Standards rule (previously referred to as the Utility MACT Rule) was published in the Federal Register on February 16, 2012. The final rule establishes emission limits for hazardous air pollutants, including mercury from new and existing coal-fired electric generating units. The rule requires sources to comply with the emission limits by April 16, 2015. Under the Clean Air Act, permitting authorities have the discretion to grant up to a 1-year compliance extension, on a case-by-case basis, to sources that are unable to complete the installation of emission controls before the compliance deadline. The Duke Energy Registrants are evaluating the requirements of the rule and developing strategies 36 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) for complying with the rule’s requirements. Strategies to achieve compliance with the final MATS rules are likely to include installation of new or upgrades to existing air emission control equipment, the development of monitoring processes and accelerated retirement of some coal-fired electric-generating units. For additional information, refer to Note 4, Regulatory Matters, regarding potential plant retirements. Numerous petitions for review of the final MATS rule have been filed with the United States Court of Appeals for the District of Columbia. The court has not established a schedule for the litigation. The Duke Energy Registrants cannot predict the outcome of the litigation or how it might affect the MATS requirements as they apply to the Duke Energy Registrants. Based on a preliminary review, the cost to the Duke Energy Registrants to comply with the final regulation will be material. EPA Greenhouse Gas New Source Performance Standards (NSPS). On April 13, 2012, the EPA’s proposed rule to establish carbon dioxide (CO2 ) emissions standards for pulverized coal, IGCC, and natural gas combined cycle electric generating units that are permitted and constructed in the future was published in the Federal Register. The proposal would not apply to any of the coal and natural gas generation plants that are currently under construction or in operation by the Duke Energy Registrants. Any future pulverized coal and IGCC units will have to employ carbon capture and storage (CCS) technology to meet the CO 2 emission standard the EPA has proposed. New natural gas combined cycle facilities will be able to meet the proposed standard without CCS technology. Management does not expect any material impact on the Duke Energy Registrants’ future results of operations or cash flows based on the EPA’s proposal. The final rule, however, could be significantly different from the proposal. Estimated Cost of EPA Rulemakings . While the ultimate compliance requirements for the Duke Energy Registrants for MATS, Clean Water Act 316(b), CSAPR and CCRs will not be known until all the rules have been finalized, for planning purposes, the Duke Energy Registrants currently estimate the cost of new control equipment that may need to be installed on existing power plants to comply with this group of rules could total $4.5 billion to $5 billion over the next 10 years. The Duke Energy Registrants also expect to incur increased fuel, purchased power, operation and maintenance, and other expenses in conjunction with these EPA regulations. Until the final regulatory requirements of the group of EPA regulations are known and can be fully evaluated, the potential compliance costs associated with these EPA regulatory actions are subject to considerable uncertainty. Therefore, the actual compliance costs incurred may be materially different from these estimates based on the timing and requirements of the final EPA regulations. The Duke Energy Registrants will seek regulatory recovery of amounts incurred associated with the regulated generation plants in conjunction with these rulings. Litigation Duke Energy Alaskan Global Warming Lawsuit. On February 26, 2008, plaintiffs, the governing bodies of an Inupiat village in Alaska, filed suit in the U.S. Federal Court for the Northern District of California against Peabody Coal and various oil and power company defendants, including Duke Energy and certain of its subsidiaries. Plaintiffs brought the action on their own behalf and on behalf of the village’s 400 residents. The lawsuit alleges that defendants’ emissions of CO 2 contributed to global warming and constitute a private and public nuisance. Plaintiffs also allege that certain defendants, including Duke Energy, conspired to mislead the public with respect to global warming. Plaintiffs seek unspecified monetary damages, attorney’s fees and expenses. On June 30, 2008, the defendants filed a motion to dismiss on jurisdictional grounds, together with a motion to dismiss the conspiracy claims. On October 15, 2009, the District Court granted defendants motion to dismiss. The plaintiffs filed a notice of appeal and the Ninth Circuit Court of Appeals held argument in the case on November 28, 2011. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with this matter. Price Reporting Cases. A total of five lawsuits were filed against Duke Energy affiliates and other energy companies and remain pending in a consolidated, single federal court proceeding in Nevada. In November 2009, the judge granted defendants’ motion for reconsideration of the denial of defendants’ summary judgment motion in two of the remaining five cases to which Duke Energy affiliates are a party. A hearing on that motion occurred on July 15, 2011, and on July 19, 2011, the judge granted the motion for summary judgment. Plaintiffs have filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit. Each of these cases contains similar claims, that the respective plaintiffs, and the classes they claim to represent, were harmed by the defendants’ alleged manipulation of the natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs seek damages in unspecified amounts. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with the remaining matters. However, based on Duke Energy’s past experiences with similar cases of this nature, it does not believe its exposure under these remaining matters is material. Duke Energy International Paranapanema Lawsuit. On July 16, 2008, Duke Energy International Geracao Paranapanema S.A. (DEIGP) filed a lawsuit in the Brazilian federal court challenging transmission fee assessments imposed under two new resolutions promulgated by the Brazilian Electricity Regulatory Agency (ANEEL) (collectively, the Resolutions). The Resolutions purport to impose additional transmission fees (retroactive to July 1, 2004 and effective through June 30, 2009) on generation companies located in the State of São Paulo for utilization of the electric transmission system. The new charges are based upon a flat-fee that fails to take into account the locational usage by each generator. DEIGP’s additional assessment under these Resolutions amounts to approximately $64 million, inclusive of interest, through December 2011. Based on DEIGP’s continuing refusal to tender payment of the disputed sums, on April 1, 2009, ANEEL imposed an additional fine against DEIGP in the amount of $9 million. DEIGP filed a request to enjoin payment of the fine and for an expedited decision on the merits or, alternatively, an order requiring that all disputed sums be deposited in the court’s registry in lieu of direct payment to the distribution companies. On June 30, 2009, the court issued a ruling in which it granted DEIGP’s request for injunction regarding the additional fine, but denied DEIGP’s request for an expedited decision on the original assessment or payment into the court registry. Under the court’s 37 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) order, DEIGP was required to make installment payments on the original assessment directly to the distribution companies pending resolution on the merits. DEIGP filed an appeal and on August 28, 2009, the order was modified to allow DEIGP to deposit the disputed portion of each installment, which was most of the assessed amount, into an escrow account pending resolution on the merits. In the second quarter of 2009, Duke Energy recorded a pre-tax charge of $33 million associated with this matter. Brazil Expansion Lawsuit. On August 9, 2011, the State of São Paulo filed a lawsuit in Brazilian state court against DEIGP based upon a claim that DEIGP is under a continuing obligation to expand installed generation capacity by 15% pursuant to a stock purchase agreement under which DEIGP purchased generation assets from the state. On August 10, 2011, a judge granted an ex parte injunction ordering DEIGP to present, within 60 days of service, a detailed expansion plan in satisfaction of the 15% obligation or face civil penalties in the amount of approximately $16,000 per day. Both DEIGP and ANEEL have previously taken a position that the 15% expansion obligation is no longer viable given the changes that have occurred in the electric energy sector since privatization of that sector. After filing various objections, defenses and appeals regarding the referenced order, DEIGP submitted its proposed expansion plan on November 11, 2011. The State of São Paulo filed a response asserting that DEIGP’s expansion plan is inadequate. No trial date has been set. Crescent Litigation. On September 3, 2010, the Crescent Resources Litigation Trust filed suit against Duke Energy along with various affiliates and several individuals, including current and former employees of Duke Energy, in the U.S. Bankruptcy Court for the Western District of Texas. The Crescent Resources Litigation Trust was established in May 2010 pursuant to the plan of reorganization approved in the Crescent bankruptcy proceedings in the same court. The complaint alleges that in 2006 the defendants caused Crescent to borrow approximately $1.2 billion from a consortium of banks and immediately thereafter distribute most of the loan proceeds to Crescent’s parent company without benefit to Crescent. The complaint further alleges that Crescent was rendered insolvent by the transactions, and that the distribution is subject to recovery by the Crescent bankruptcy estate as an alleged fraudulent transfer. The plaintiff requests return of the funds as well as other statutory and equitable relief, punitive damages and attorneys’ fees. Duke Energy and its affiliated defendants believe that the referenced 2006 transactions were legitimate and did not violate any state or federal law. Defendants filed a motion to dismiss in December 2010. On March 21, 2011, the plaintiff filed a response to the defendant’s motion to dismiss and a motion for leave to file an amended complaint, which was granted. The Defendants filed a second motion to dismiss in response to plaintiffs’ amended complaint. The plaintiffs filed a demand for a jury trial, a motion to transfer the case to the federal district court, and a motion to consolidate the case with a separate action filed by the plaintiffs against Duke Energy’s legal counsel. On March 22, 2012, the federal District Court issued an order denying the defendant’s motion to dismiss and granting the plaintiffs’ motions for transfer and consolidation. The court has not yet made a final ruling on whether the plaintiffs are entitled to a jury trial. Trial on this matter has been set to commence in January 2014. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with this lawsuit. Federal Advanced Clean Coal Tax Credits. Duke Energy Carolinas has been awarded $125 million of federal advanced clean coal tax credits associated with its construction of Cliffside Unit 6 and Duke Energy Indiana has been awarded $134 million of federal advanced clean coal tax credits associated with its construction of the Edwardsport IGCC plant. In March, 2008, two environmental groups, Appalachian Voices and the Canary Coalition, filed suit against the Federal government challenging the tax credits awarded to incentivize certain clean coal projects. Although Duke Energy was not a party to the case, the allegations center on the tax incentives provided for the Cliffside and Edwardsport projects. The initial complaint alleged a failure to comply with the National Environmental Policy Act. The first amended complaint, filed in August 2008, added an Endangered Species Act claim and also sought declaratory and injunctive relief against the DOE and the U.S. Department of the Treasury. In 2008, the District Court dismissed the case. On September 23, 2009, the District Court issued an order granting plaintiffs’ motion to amend their complaint and denying, as moot, the motion for reconsideration. Plaintiffs have filed their second amended complaint. The Federal government has moved to dismiss the second amended complaint; the motion is pending. On July 26, 2010, the District Court denied plaintiffs’ motion for preliminary injunction seeking to halt the issuance of the tax credits. Duke Energy Carolinas New Source Review (NSR). In 1999-2000, the DOJ, acting on behalf of the EPA and joined by various citizen groups and states, filed a number of complaints and notices of violation against multiple utilities across the country for alleged violations of the NSR provisions of the CAA. Generally, the government alleges that projects performed at various coal-fired units were major modifications, as defined in the CAA, and that the utilities violated the CAA when they undertook those projects without obtaining permits and installing the best available emission controls for SO 2 , NOx and particulate matter. The complaints seek injunctive relief to require installation of pollution control technology on various generating units that allegedly violated the CAA, and unspecified civil penalties in amounts of up to $32,500 per day for each violation. A number of the Duke Energy Registrants’ plants have been subject to these allegations. Duke Energy Carolinas asserts that there were no CAA violations because the applicable regulations do not require permitting in cases where the projects undertaken are “routine” or otherwise do not result in a net increase in emissions. In 2000, the government brought a lawsuit against Duke Energy Carolinas in the U.S. District Court in Greensboro, North Carolina. The EPA claims that 29 projects performed at 25 of Duke Energy Carolinas’ coal-fired units violate these NSR provisions. Three environmental groups have intervened in the case. In August 2003, the trial court issued a summary judgment opinion adopting Duke Energy Carolinas’ legal positions on the standard to be used for measuring an increase in emissions, and granted judgment in favor of Duke Energy Carolinas. The trial court’s decision was appealed and ultimately reversed and remanded for trial by the U.S. Supreme Court. At trial, Duke Energy Carolinas will continue to assert that the projects were routine or not projected to increase emissions. On February 11, 2011, the trial judge held an initial status conference and on March 22, 2011, the judge entered an interim scheduling order. The parties have filed a stipulation in which the United States and Plaintiff-Intervenors have dismissed with prejudice 16 claims. In exchange, Duke Energy Carolinas dismissed certain affirmative defenses. The parties have filed motions for summary judgment on the remaining claims. No trial date has been set, but a trial is not expected until the second half of 2012, at the earliest. 38 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) It is not possible to estimate the damages, if any, that might be incurred in connection with the unresolved matters related to Duke Energy Carolinas discussed above. Ultimate resolution of these matters could have a material effect on the consolidated results of operations, cash flows or financial position of Duke Energy Carolinas. However, the appropriate regulatory treatment will be pursued for any costs incurred in connection with such resolution. Asbestos-related Injuries and Damages Claims. Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement relating to damages for bodily injuries alleged to have arisen from the exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of March 31, 2012, there were 175 asserted claims for non-malignant cases with the cumulative relief sought of up to $46 million, and 47 asserted claims for malignant cases with the cumulative relief sought of up to $17 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed. Amounts recognized as asbestos-related reserves related to Duke Energy Carolinas in the respective Condensed Consolidated Balance Sheets totaled $789 million and $801 million as of March 31, 2012 and December 31, 2011, respectively, and are classified in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities. These reserves are based upon the minimum amount in Duke Energy Carolinas’ best estimate of the range of loss for current and future asbestos claims through 2030. Management believes that it is possible there will be additional claims filed against Duke Energy Carolinas after 2030. In light of the uncertainties inherent in a longer-term forecast, management does not believe that they can reasonably estimate the indemnity and medical costs that might be incurred after 2030 related to such potential claims. Asbestos-related loss estimates incorporate anticipated inflation, if applicable, and are recorded on an undiscounted basis. These reserves are based upon current estimates and are subject to greater uncertainty as the projection period lengthens. A significant upward or downward trend in the number of claims filed, the nature of the alleged injury, and the average cost of resolving each such claim could change our estimated liability, as could any substantial or favorable verdict at trial. A federal legislative solution, further state tort reform or structured settlement transactions could also change the estimated liability. Given the uncertainties associated with projecting matters into the future and numerous other factors outside our control, management believes that it is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves. Duke Energy Carolinas has a third-party insurance policy to cover certain losses related to asbestos-related injuries and damages above an aggregate self insured retention of $476 million. Duke Energy Carolinas’ cumulative payments began to exceed the self insurance retention on its insurance policy in 2008. Future payments up to the policy limit will be reimbursed by Duke Energy Carolinas’ third party insurance carrier. The insurance policy limit for potential future insurance recoveries for indemnification and medical cost claim payments is $968 million in excess of the self insured retention. Insurance recoveries of $813 million related to this policy are classified in the respective Condensed Consolidated Balance Sheets in Other within Investments and Other Assets and Receivables as of both March 31, 2012 and December 31, 2011, respectively. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Management believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating. Duke Energy Ohio Antitrust Lawsuit. In January 2008, four plaintiffs, including individual, industrial and nonprofit customers, filed a lawsuit against Duke Energy Ohio in federal court in the Southern District of Ohio. Plaintiffs alleged that Duke Energy Ohio (then The Cincinnati Gas & Electric Company), conspired to provide inequitable and unfair price advantages for certain large business consumers by entering into non-public option agreements with such consumers in exchange for their withdrawal of challenges to Duke Energy Ohio’s pending Rate Stabilization Plan (RSP), which was implemented in early 2005. On March 31, 2009, the District Court granted Duke Energy Ohio’s motion to dismiss. Plaintiffs filed a motion to alter or set aside the judgment, which was denied by an order dated March 31, 2010. In April 2010, the plaintiffs filed their appeal of that order with the U.S. Court of Appeals for the Sixth Circuit, which heard argument on that appeal on January 11, 2012. It is not possible to predict at this time whether Duke Energy Ohio will incur any liability or to estimate the damages, if any, that Duke Energy Ohio might incur in connection with this lawsuit. Asbestos-related Injuries and Damages Claims. Duke Energy Ohio has been named as a defendant or co-defendant in lawsuits related to asbestos at its electric generating stations. The impact on Duke Energy Ohio’s consolidated results of operations, cash flows or financial position of these cases to date has not been material. Based on estimates under varying assumptions concerning uncertainties, such as, among others: (i) the number of contractors potentially exposed to asbestos during construction or maintenance of Duke Energy Ohio generating plants; (ii) the possible incidence of various illnesses among exposed workers, and (iii) the potential settlement costs without federal or other legislation that addresses asbestos tort actions, Duke Energy Ohio estimates that the range of reasonably possible exposure in existing and future suits over the foreseeable future is not material. This estimated range of exposure may change as additional settlements occur and claims are made and more case law is established. Other Litigation and Legal Proceedings The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve substantial amounts. Management believes that the final disposition of these proceedings will not have a material effect on its consolidated results of operations, cash flows or financial position. The Duke Energy Registrants have exposure to certain legal matters that are described herein. Duke Energy has recorded reserves, including reserves related to the aforementioned asbestos-related injuries and damages claims, of $803 million and $810 million as of March 31, 2012 and December 31, 2011, respectively, for these proceedings and exposures (the total of which is primarily related to Duke Energy Carolinas). These reserves represent management’s best estimate of probable loss as defined in the accounting guidance for contingencies. Duke Energy has insurance coverage for certain of these losses incurred. As of both March 31, 2012 and December 31, 2011, Duke Energy recognized $813 million of probable insurance recoveries related to these losses (the total of which is related to Duke Energy Carolinas). The Duke Energy Registrants expense legal costs related to the defense of loss contingencies as incurred. 39 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Other Commitments and Contingencies General. As part of its normal business, the Duke Energy Registrants are a party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. To varying degrees, these guarantees involve elements of performance and credit risk, which are not included on the respective Condensed Consolidated Balance Sheets. The possibility of any of the Duke Energy Registrants having to honor their contingencies is largely dependent upon future operations of various subsidiaries, investees and other third parties, or the occurrence of certain future events. In addition, the Duke Energy Registrants enter into various fixed-price, non-cancelable commitments to purchase or sell power (tolling arrangements or power purchase contracts), take-or-pay arrangements, transportation or throughput agreements and other contracts that may or may not be recognized on the respective Condensed Consolidated Balance Sheets. Some of these arrangements may be recognized at fair value on the respective Condensed Consolidated Balance Sheets if such contracts meet the definition of a derivative and the normal purchase normal sale (NPNS) exception does not apply. 6. Debt and Credit Facilities Significant changes to the Duke Energy Registrants’ debt and credit facilities since December 31, 2011 are as follows: First Mortgage Bonds. In March 2012, Duke Energy Indiana issued $250 million principal amount of first mortgage bonds, which carry a fixed interest rate of 4.20% and mature March 15, 2042. Proceeds from the issuances were used to repay a portion of Duke Energy Indiana’s outstanding short-term debt. Other Debt. In January 2012, Duke Energy Carolinas used proceeds from its December 2011 $1 billion issuance of principal amount of first mortgage bonds to repay $750 million 6.25% senior unsecured notes that matured January 15, 2012. In the first quarter of 2012, Duke Energy completed the previously announced sale of International Energy’s indirect 25% ownership interest in Attiki Gas Supply, S.A (Attiki), a Greek corporation, to an existing equity owner in a series of transactions that resulted in the full discharge of the related debt obligation. No gain or loss was recognized on these transactions. As of December 31, 2011, Duke Energy’s investment balance was $64 million and the related debt obligation of $64 million was reflected in Current Maturities of Long-Term Debt on Duke Energy’s Condensed Consolidated Balance Sheets. On April 4, 2011, Duke Energy filed a registration statement (Form S-3) with the SEC to sell up to $1 billion of variable denomination floating rate demand notes, called PremierNotes. The Form S-3 states that no more than $500 million of the notes will be outstanding at any particular time. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, but may be redeemed in whole or in part by Duke Energy at any time. The notes are non-transferable and may be redeemed in whole or in part at the investor’s option. Proceeds from the sale of the notes will be used for general corporate purposes. The balance as of March 31, 2012 and December 31, 2011, is $126 million and $79 million, respectively. The notes reflect a short-term debt obligation of Duke Energy and are reflected as Notes payable and commercial paper on Duke Energy’s Condensed Consolidated Balance Sheets. At March 31, 2012 and December 31, 2011, Duke Energy Carolinas had $400 million principal amount of 5.625% senior unsecured notes due November 2012 classified as Current maturities of long-term debt on its Condensed Consolidated Balance Sheets. Duke Energy Carolinas currently anticipates satisfying this obligation with proceeds from additional borrowings. At March 31, 2012 and December 31, 2011, Duke Energy Ohio had $500 million principal amount of 5.70% debentures due September 2012 classified as Current maturities of long-term debt on its Condensed Consolidated Balance Sheets. Duke Energy currently anticipates satisfying this obligation with proceeds from additional borrowings, in connection with the Duke Energy Ohio generation asset transfer, as discussed in Note 4. See Note 2 for a discussion on debt related to the joint venture with SCOA. Non-Recourse Notes Payable of VIEs. To fund the purchase of receivables, CRC borrows from third parties and such borrowings fluctuate based on the amount of receivables sold to CRC. The borrowings are secured by the assets of CRC and are non-recourse to Duke Energy. The debt is short-term because the facility has an expiration date of October 2012. At March 31, 2012 and December 31, 2011, CRC borrowings were $275 million and $273 million, respectively, and are reflected as Non-recourse notes payable of VIEs on Duke Energy’s Condensed Consolidated Balance Sheets. 40 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Money Pool. The Subsidiary Registrants receive support for their short-term borrowing needs through participation with Duke Energy and certain of its subsidiaries in a money pool arrangement. Under this arrangement, those companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. The money pool is structured such that the Subsidiary Registrants separately manage their cash needs and working capital requirements. Accordingly, there is no net settlement of receivables and payables between the money pool participants. Per the terms of the money pool arrangement, the parent company, Duke Energy may loan funds to its participating subsidiaries, but may not borrow funds through the money pool. Accordingly, as the money pool activity is between Duke Energy and its wholly owned subsidiaries, all money pool balances are eliminated within Duke Energy’s Condensed Consolidated Balance Sheets. The following table shows the Subsidiary Registrants’ money pool balances and classification within their respective Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011: March 31, 2012 Duke Energy Carolinas Duke Energy Ohio Duke Energy Indiana December 31, 2011 Receivables Notes Payable Long-term Debt $ $ $ 298 344 — — — Receivables (in millions) 300 $ — 178 150 923 311 — Notes Payable Long-term Debt $ $ — — 300 — 150 300 Increases or decreases in money pool receivables are reflected within investing activities on the respective Subsidiary Registrants’ Condensed Consolidated Statements of Cash Flows, while increases or decreases in money pool borrowings are reflected within financing activities on the respective Subsidiary Registrants Condensed Consolidated Statements of Cash Flows. Available Credit Facilities. In November 2011, Duke Energy entered into a new $6 billion, five-year master credit facility, with $4 billion available at closing and the remaining $2 billion available following successful completion of the proposed merger with Progress Energy. This $2 billion commitment expires on July 8, 2012. The Duke Energy Registrants each have borrowing capacity under the master credit facility up to specified sublimits for each borrower. However, Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. See the table below for the borrowing sublimits for each of the borrowers as of March 31, 2012. The amount available under the master credit facility has been reduced, as indicated in the table below, by the use of the master credit facility to backstop the issuances of commercial paper, letters of credit and certain tax-exempt bonds. As indicated, borrowing sub limits for the Subsidiary Registrants are also reduced for amounts outstanding under the money pool arrangement. Master Credit Facility Summary as of March 31, 2012 (in millions) (a)(b) Facility Size (c) Less: Notes Payable and Commercial Paper (d) Outstanding Letters of Credit Tax-Exempt Bonds Available Capacity (a) (b) (c) (d) Duke Energy (Parent) Duke Energy Carolinas Duke Energy Ohio Duke Energy Indiana Total Duke Energy $ 1,250 $ 1,250 $ $ 750 $ $ (150) — (81) 519 (505) (46) (260) $ 3,189 (55) (39) — $ 1,156 (300) — — (7) (95) $ 848 750 (84) $ 666 4,000 This summary only includes Duke Energy’s master credit facility and, accordingly, excludes certain demand facilities and committed facilities that are immaterial in size or which generally support very specific requirements, which primarily include facilities that backstop various outstanding taxexempt bonds. These facilities that backstop various outstanding tax-exempt bonds generally have non-cancelable terms in excess of one year from the balance sheet date, such that the Duke Energy Registrants have the ability to refinance such borrowings on a long-term basis. Accordingly, such borrowings are reflected as Long-term Debt on the Condensed Consolidated Balance Sheets of the respective Duke Energy Registrant. Credit facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower. Represents the sub limit of each borrower at March 31, 2012. The Duke Energy Ohio sub limit includes $100 million for Duke Energy Kentucky. Duke Energy issued $450 million of Commercial Paper and loaned the proceeds through the money pool to Duke Energy Carolinas and Duke Energy Indiana (see money pool table above). The balances are classified as long-term borrowings within Long-term Debt in Duke Energy Carolinas’ and Duke Energy Indiana’s Condensed Consolidated Balance Sheets. Duke Energy holds an additional $55 million of Commercial Paper as of March 31, 2012. The balance is classified as Notes payable and commercial paper on Duke Energy’s Condensed Consolidated Balance Sheets. Restrictive Debt Covenants. 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. As of March 31, 2012, each of the Duke Energy Registrants was in compliance with all covenants related to its significant debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the significant debt or credit agreements contain material adverse change clauses. 41 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) 7. Goodwill The following table shows goodwill by reportable operating segment for Duke Energy and Duke Energy Ohio at March 31, 2012 and December 31, 2011: Duke Energy (in millions) Balance at December 31, 2011: Goodwill Accumulated Impairment Charges Balance at December 31, 2011, as adjusted for accumulated impairment charges Balance at March 31, 2012: Goodwill Accumulated Impairment Charges Foreign Exchange and Other Changes Balance at March 31, 2012, as adjusted for accumulated impairment charges USFE&G Commercial Power International Energy $ 3,483 — $ $ 940 (871) 69 3,483 3,483 940 — — (871) $ 3,483 297 — $ 4,720 (871) 297 3,849 297 4,720 (871) — — $ Total 4 4 301 $ 3,853 Franchised Electric &Gas Commercial Power Total $ $ 1,188 (1,188) — $ 69 Duke Energy Ohio (in millions) Balance at December 31, 2011: Goodwill Accumulated Impairment Charges Balance at December 31, 2011, as adjusted for accumulated impairment charges Balance at March 31, 2012: Goodwill Accumulated Impairment Charges Balance at March 31, 2012, as adjusted for accumulated impairment charges 42 1,137 (216) 921 1,137 $ (216) 921 $2,325 (1,404) 921 2,325 1,188 (1,188) $ — (1,404) $ 921 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) 8. Risk Management, Derivative Instruments and Hedging Activities The Duke Energy Registrants utilize various derivative instruments to manage risks primarily associated with commodity prices and interest rates. The primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to changes in the prices of power and fuel. Interest rate derivatives are entered into to manage interest rate risk associated with variable-rate and fixed-rate borrowings. Certain derivative instruments qualify for hedge accounting and are designated as either cash flow hedges or fair value hedges, while others either do not qualify as accounting hedges (such as economic hedges) or have not been designated as hedges (hereinafter referred to as undesignated contracts). All derivative instruments not meeting the criteria for the NPNS exception are recognized as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. As the regulated operations of the Duke Energy Registrants meet the criteria for regulatory accounting treatment, the majority of the derivative contracts entered into by the regulated operations are not designated as hedges since gains and losses on such contracts are deferred as regulatory liabilities and assets, respectively. Thus there is no immediate earnings impact associated with changes in fair values of such derivative contracts. For derivative instruments that qualify and are designated as cash flow hedges, the effective portion of the gain or loss is reported as a component of Accumulated Other Comprehensive Income (AOCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gains or losses on the derivative that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For derivative instruments that qualify and are designated as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item are recognized in earnings in the current period. Any gains or losses on the derivative are included in the same line item as the offsetting loss or gain on the hedged item in the Condensed Consolidated Statements of Operations for Duke Energy, or in the Condensed Consolidated Statements of Comprehensive Income for Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana. Information presented in the tables below primarily relates to Duke Energy and Duke Energy Ohio. Separate disclosures for Duke Energy Carolinas and Duke Energy Indiana are not always presented as regulatory accounting treatment is applied to substantially all of their derivative instruments. Commodity Price Risk The Duke Energy Registrants are exposed to the impact of market changes in the future prices of electricity (energy, capacity and financial transmission rights), coal, natural gas and emission allowances (SO 2 , seasonal NO X and annual NO X) as a result of their energy operations such as electricity generation and the transportation and sale of natural gas. With respect to commodity price risks associated with electricity generation, the Duke Energy Registrants are exposed to changes including, but not limited to, the cost of the coal and natural gas used to generate electricity, the prices of electricity in wholesale markets, the cost of capacity and electricity purchased for resale in wholesale markets and the cost of emission allowances primarily at the Duke Energy Registrants’ coal fired power plants. Risks associated with commodity price changes on future operations are closely monitored and, where appropriate, various commodity contracts are used to mitigate the effect of such fluctuations on operations. Exposure to commodity price risk is influenced by a number of factors, including, but not limited to, the term of the contract, the liquidity of the market and delivery location. Commodity Fair Value Hedges. At March 31, 2012, there were no open commodity derivative instruments that were designated as fair value hedges. Commodity Cash Flow Hedges . At March 31, 2012, there were no open commodity derivative instruments that were designated as cash flow hedges. Undesignated Contracts . The Duke Energy Registrants use derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. Undesignated contracts also include contracts associated with operations that Duke Energy continues to wind down or has included as discontinued operations. As these undesignated contracts expire as late as 2021, Duke Energy has entered into economic hedges that leave it minimally exposed to changes in prices over the duration of these contracts. Duke Energy Carolinas uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. As of March 31, 2012, Duke Energy Carolinas does not have any undesignated commodity derivatives. Duke Energy Ohio uses derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts at March 31, 2012 are primarily associated with forward sales and purchases of power, coal and emission allowances, for the Commercial Power segment. Duke Energy Indiana uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at March 31, 2012 are primarily associated with forward purchases and sales of power, financial transmission rights and emission allowances. Interest Rate Risk The Duke Energy Registrants are exposed to risk resulting from changes in interest rates as a result of their issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Interest rate exposure is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into financial contracts; primarily interest rate swaps and U.S. Treasury lock agreements. Additionally, in anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of the market interest rates at the time and terminated prior to or upon the issuance of the corresponding debt. When these transactions occur within a business that meets the criteria for regulatory accounting treatment, these contracts may be treated as undesignated and any pre-tax gain or loss recognized from inception to 43 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) termination of the hedges would be recorded as a regulatory liability or asset and amortized as a component of interest expense over the life of the debt. Alternatively, these derivatives may be designated as hedges whereby, any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded in AOCI and amortized as a component of interest expense over the life of the debt. The following table shows the notional amounts for derivatives related to interest rate risk at March 31, 2012 and December 31, 2011. Notional Amounts of Derivative Instruments Related to Interest Rate Risk Duke Energy Duke Energy Carolinas Duke Energy Ohio Duke Energy Indiana Cash Flow Hedges Undesignated Contracts Fair Value Hedges Total Notional Amount at March 31, 2012 $ $ $ $ 245 275 $ 1,361 $ (in millions) Duke Energy Duke Energy Carolinas Duke Energy Ohio Duke Energy Indiana $ $ $ $ (in millions) (a) Cash Flow Hedges Undesignated Contracts Fair Value Hedges Total Notional Amount at December 31, 2011 (a) (a) 841 841 247 275 $ 1,363 $ — — 25 25 — — 25 25 — 27 250 277 $ 200 — $ — 27 250 277 $ — 200 — 200 — $ 200 Includes amounts related to non-recourse variable rate long-term debt of VIEs of $466 million at both March 31, 2012 and at December 31, 2011. Volumes of Commodity Derivatives The following tables show information relating to the volume of Duke Energy and Duke Energy Ohio’s commodity derivative activity outstanding as of March 31, 2012 and December 31, 2011. Amounts disclosed represent the notional volumes of commodities contracts accounted for at fair value. For option contracts, notional amounts include only the delta-equivalent volumes which represent the notional volumes times the probability of exercising the option based on current price volatility. Volumes associated with contracts qualifying for the NPNS exception have been excluded from the table below. Amounts disclosed represent the absolute value of notional amounts. Duke Energy and Duke Energy Ohio have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown below. For additional information on notional dollar amounts of debt subject to derivative contracts accounted for at fair value, see “Interest Rate Risk” section above. Underlying Notional Amounts for Commodity Derivative Instruments Accounted for At Fair Value Duke Energy Duke Energy Ohio March 31, 2012 Commodity contracts Electricity-energy (Gigawatt-hours) (a) Emission Allowances: NO X (thousands of tons) Natural gas (millions of decatherms) 18,476 4 9,985 4 38 30 Duke Energy Duke Energy Ohio December 31, 2011 Commodity contracts Electricity-energy (Gigawatt-hours) (a) Emission Allowances: NO X (thousands of tons) Natural gas (millions of decatherms) (a) 14,118 9 40 Amounts at Duke Energy Ohio include intercompany positions that are eliminated at Duke Energy. 44 14,655 9 2 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) The following table shows fair value amounts of derivative contracts as of March 31, 2012 and December 31, 2011, and the line item(s) in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. Location and Fair Value Amounts of Derivatives Reflected in the Condensed Consolidated Balance Sheets Duke Energy Asset Duke Energy Ohio March 31, 2012 Liability Asset Liability (in millions) Balance Sheet Location Derivatives Designated as Hedging Instruments Interest rate contracts Current Assets: Other Investments and Other Assets: Other Current Liabilities: Other Deferred Credits and Other Liabilities: Other Total Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments Commodity contracts Current Assets: Other Investments and Other Assets: Other Current Liabilities: Other Deferred Credits and Other Liabilities: Other Interest rate contracts Current Liabilities: Other Deferred Credits and Other Liabilities: Other (a) Total Derivatives Not Designated as Hedging Instruments $ — $ — — 11 $ 4 2 — 61 $ $ — — — — $ — 7 $ 72 $ $ 206 22 $ 138 — $ 225 19 $ 148 1 4 55 32 102 3 31 15 53 — — $ 264 $271 Total Derivatives (a) 5 2 2 53 $ 350 $ 422 6 — — $ 278 $ 284 1 6 $ 224 $ 224 Amount at Duke Energy includes $46 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment. 45 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Duke Energy Duke Energy Ohio December 31, 2011 Liability Asset Asset Liability (in millions) Balance Sheet Location Derivatives Designated as Hedging Instruments Interest rate contracts Current Assets: Other Investments and Other Assets: Other Current Liabilities: Other Deferred Credits and Other Liabilities: Other Total Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments Commodity contracts Current Assets: Other Investments and Other Assets: Other Current Liabilities: Other Deferred Credits and Other Liabilities: Other Interest rate contracts Current Liabilities: Other Deferred Credits and Other Liabilities: Other (a) Total Derivatives Not Designated as Hedging Instruments $ $ $ 81 35 136 25 $ 17 168 93 $ 79 29 136 22 $ 39 18 146 — — $277 $ 283 2 75 $ 386 $ 473 — — $266 $ 271 1 8 $ 245 $ 245 — $ Total Derivatives (a) $ — — 11 76 $ 87 4 2 6 3 2 — $ 31 5 $ — — — — $ — 33 Amounts at Duke Energy include $67 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment. The following table shows the amount of the gains and losses recognized on derivative instruments designated and qualifying as cash flow hedges by type of derivative contract during the three months ended March 31, 2012 and 2011, and the Condensed Consolidated Statements of Operations line items in which such gains and losses are included for Duke Energy, and the Condensed Consolidated Statements of Comprehensive Income line items in which such gains and losses are included for Duke Energy Ohio. Cash Flow Hedges—Location and Amount of Pre-Tax Gains (Losses) Recognized in Comprehensive Income Three Months Ended Duke Energy March 31, 2011 2012 (in millions) Amount of Pre-tax Gains Recorded in AOCI Interest rate contracts Total Pre-tax Gains Recorded in AOCI Location of Pre-tax Losses Reclassified from AOCI into Earnings (a) Interest rate contracts Interest expense Total Pre-tax Losses Reclassified from AOCI into Earnings (a) $ 18 $ 18 $ $ 3 3 $ (1) $ (1) $ $ (1) (1) Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period. 46 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) There were no gains and losses on cash flow hedges recorded or reclassified at Duke Energy Ohio for the three months ended March 31, 2012 and 2011, respectively. There was no hedge ineffectiveness during the three months ended March 31, 2012 and 2011, and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods for all Duke Energy Registrants. Duke Energy. At March 31, 2012, $102 million of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges remains in AOCI and a $7 million pre-tax loss is expected to be recognized in earnings during the next 12 months as the hedged transactions occur. Duke Energy Ohio. At March 31, 2012, there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI. The following table shows the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument during the three months ended March 31, 2012 and 2011, and the line item(s) in the Condensed Consolidated Statements of Comprehensive Income in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities. Undesignated Contracts—Location and Amount of Pre-Tax Gains and (Losses) Recognized in Income or as Regulatory Assets or Liabilities Duke Energy Duke Energy Ohio Three Months Ended 2012 2011 March 31, 2012 2011 (in millions) Location of Pre-Tax Gains and (Losses) Recognized in Earnings Commodity contracts Revenue, non-regulated electric, natural gas and other Fuel used in electric generation and purchased power - non-regulated Total Pre-tax (Losses) Gains Recognized in Earnings (a) Location of Pre-Tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities Commodity contracts Regulatory Asset Regulatory Liability Interest rate contracts Regulatory Asset Regulatory Liability Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities (a) $ 36 — $ 36 $ (13) (1) $ (14) $ 71 — $ 71 $ $ (1) $— $ (2) — $— — 5 22 — $ 26 (1) — 12 $ 11 1 — $ (1) $ (6) (1) (7) — — $— Amounts include Duke Energy Ohio intercompany positions that are eliminated at Duke Energy. Credit Risk Certain of Duke Energy and Duke Energy Ohio’s derivative contracts contain contingent credit features, such as material adverse change clauses or payment acceleration clauses that could result in immediate payments, the posting of letters of credit or the termination of the derivative contract before maturity if specific events occur, such as a downgrade of Duke Energy or Duke Energy Ohio’s credit rating below investment grade. The following table shows information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions. The amounts disclosed in the table below represent the aggregate fair value amounts of such derivative instruments at the end of the reporting period, the aggregate fair value of assets that are already posted as collateral under such derivative instruments at the end of the reporting period, and the aggregate fair value of additional assets that would be required to be transferred in the event that credit-risk-related contingent features were triggered at March 31, 2012 and December 31, 2011. 47 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Information Regarding Derivative Instruments that Contain Credit-risk Related Contingent Features Duke Energy Duke Energy Ohio March 31, 2012 Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position Collateral Already Posted Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period (in millions) $ $ 203 57 $ $ 201 43 $ 11 $ 11 December 31, 2011 Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position Collateral Already Posted Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period $ $ 96 36 $ 5 (in millions) $ $ 94 35 $ 5 Netting of Cash Collateral and Derivative Assets and Liabilities Under Master Netting Arrangements. In accordance with applicable accounting rules, Duke Energy and Duke Energy Ohio have elected to offset fair value amounts (or amounts that approximate fair value) recognized on their Condensed Consolidated Balance Sheets related to cash collateral amounts receivable or payable against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting agreement. The amounts disclosed in the table below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements as of March 31, 2012 and December 31, 2011. See Note 9 for additional information on fair value disclosures related to derivatives. Information Regarding Cash Collateral under Master Netting Arrangements Duke Energy Duke Energy Ohio March 31, 2012 (in millions) Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets Receivables Payables Receivables Payables $ 21 $ — $ 21 $ — $ 38 $ — $ 23 $ — December 31, 2011 (in millions) Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets Receivables Payables Receivables Payables $ 10 $ — $ 9 $ — $ 30 $ — $ 28 $ — 9. Fair Value of Financial Assets and Liabilities Under existing accounting guidance, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. The fair value definition focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability versus an entry price, which would be the price paid to acquire an asset or received to assume a liability. The Duke Energy Registrants classify recurring and non-recurring fair value measurements based on the following fair value hierarchy, as prescribed by the accounting guidance for fair value, which prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1—unadjusted quoted prices in active markets for identical assets or liabilities that Duke Energy has the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information. Duke Energy does not adjust quoted market prices on Level 1 for any blockage factor. 48 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Level 2—a fair value measurement utilizing inputs other than a quoted market price that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates. A Level 2 measurement cannot have more than an insignificant portion of the valuation based on unobservable inputs. Level 3—any fair value measurements which include unobservable inputs for the asset or liability for more than an insignificant portion of the valuation. A level 3 measurement may be based primarily on Level 2 inputs. The fair value accounting guidance for financial instruments permits entities to elect to measure many financial instruments and certain other items at fair value that are not required to be accounted for at fair value under other GAAP. There are no financial assets or financial liabilities that are not required to be accounted for at fair value under GAAP for which the option to record at fair value has been elected by the Duke Energy Registrants. However, in the future, the Duke Energy Registrants may elect to measure certain financial instruments at fair value in accordance with this accounting guidance. The Duke Energy Registrant’s Policy for the recognition of transfers between levels of the fair value hierarchy is to recognize the transfer at the end of the period. Valuation methods of the primary fair value measurements disclosed below are as follows: Investments in equity securities. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as NASDAQ and NYSE. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. Prices have not been adjusted to reflect for after-hours market activity. The majority of investments in equity securities are valued using Level 1 measurements. For certain investments which are valued on a ‘Net Asset Value’, when the Company does not have the ability to redeem the investment or does not have the ability to redeem the investment in the near term at net asset value per share (or its equivalent), the fair value measurement of the investment is categorized as Level 3. Investments in available-for-sale auction rate securities. Duke Energy held $88 million par value ($72 million carrying value) and $89 million par value ($71 million carrying value) as of March 31, 2012, and December 31, 2011, respectively of auction rate securities for which an active market does not currently exist. During the three months ended March 31, 2012, an insignificant amount of these investments in auction rate securities were redeemed at full par value plus accrued interest. Duke Energy Carolinas held $16 million par value ($12 million carrying value) of these auction rate securities at both March 31, 2012, and December 31, 2011. All of these auction rate securities are student loan securities for which approximately 95% of the par value is ultimately backed by the U.S. government. Approximately 55% of the par value of these securities is AAA rated. As of March 31, 2012 and December 31, 2011, all of these auction rate securities are classified as long-term investments and are valued using Level 3 measurements. The methods and significant assumptions used to determine the fair values of the investment in auction rate debt securities represent estimations of fair value using internal discounted cash flow models which incorporate primarily management’s own assumptions as to the term over which such investments will be recovered at par (ranging from zero to 17 years), the current level of interest rates (less than 0.4%), and the appropriate risk-adjusted discount rates (up to 6.2% reflecting a tenor of up to 17 years). In preparing the valuations, all significant value drivers were considered, including the underlying collateral (primarily evaluated on the basis of credit ratings, parity ratios and the percentage of loans backed by the U.S. government). Auction rate securities which are classified as Short-term investments are valued using Level 2 measurements, as they are valued at par based on a commitment by the issuer to redeem at par value. There were no auction rate securities classified as Short-term investments as of March 31, 2012 or December 31, 2011. There were no other-than-temporary impairments associated with investments in auction rate debt securities during the three months ended March 31, 2012 or 2011. Investments in debt securities. Most debt investments (including those held in the Nuclear Decommissioning Trust Funds (NDTF)) are valued based on a calculation using interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. Most debt valuations are Level 2 measurements. If the market for a particular fixed income security is relatively inactive or illiquid, the measurement is a Level 3 measurement. U.S. Treasury debt is typically a Level 1 measurement. For certain investments that are valued on a net asset value basis, when Duke Energy does not have the ability to redeem the investment in the near term at net asset value per share (or its equivalent), or the net asset value is not available as of the measurement date, the fair value measurement of the investment is categorized as Level 3. Commodity derivatives. The pricing for commodity derivatives is primarily a calculated value which incorporates the forward price and is adjusted for liquidity (bid-ask spread), credit or non-performance risk (after reflecting credit enhancements such as collateral) and discounted to present value. The primary difference between a Level 2 and a Level 3 measurement has to do with the level of activity in forward markets for the commodity. If the market is relatively inactive, the measurement is deemed to be a Level 3 measurement. Some commodity derivatives are NYMEX and ICE contracts, which are classified as Level 1 measurements. 49 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Duke Energy The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy’s Condensed Consolidated Balance Sheets at fair value at March 31, 2012 and December 31, 2011. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type. Total Fair Value Amounts at March 31, 2012 Level 1 Level 2 Level 3 $ — $ 72 (in millions) Description Investments in available-for-sale auction rate securities (a) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities Other long-term trading and available-for-sale equity securities (b) Other trading and available-for-sale debt securities (c) Derivative assets (b) Total Assets Derivative liabilities (d) Net Assets (a) (b) (c) (d) $ 72 1,518 729 80 490 $ 97 2,986 $ — 1,461 95 72 57 86 $ 1,771 (248) $ 2,738 (78) $1,693 47 10 588 8 433 46 — — 7 $ 1,083 $ 132 4 (124) $ 959 (46) $ 86 Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other within Investments and Other Assets and Short-term Investments on the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. Total Fair Value Amount December 31, 2011 Level 1 Level 2 Level 3 $— 46 567 7 $ 71 6 (in millions) Description Investments in available-for-sale auction rate securities (a) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities Other long-term trading and available-for-sale equity securities (b) Other trading and available-for-sale debt securities (c) Derivative assets (b) Total Assets Derivative liabilities (d) Net Assets (a) (b) (c) (d) $ 71 1,337 723 68 382 74 $ 2,655 (264) $ 2,391 $ — 1,285 109 61 22 43 $ 1,520 (36) $ 1,484 360 6 $ 986 (164) $ 822 47 — — 25 $149 (64) $ 85 Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other within Investments and Other Assets and Short-term Investments on the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. 50 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3): Rollforward of Level 3 Measurements Available-for- Three Months Ended March 31, 2012 Balance at January 1, 2012 Total pre-tax realized or unrealized losses included in earnings: Sale NDTF Investments $ Three Months Ended March 31, 2011 Balance at January 1, 2011 Total pre-tax realized or unrealized gains (losses) included in earnings: Revenue, non-regulated electric, natural gas, and other Total pre-tax gains included in other comprehensive income: Gains on available for sale securities and other Purchases, sales, issuances and settlements: Purchases Sales Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2011 51 71 $ — — Regulated electric Revenue, non-regulated electric, natural gas, and other Total pre-tax gains included in other comprehensive income: Gains on available for sale securities and other Purchases, sales, issuances and settlements: Purchases Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2012 Available-for- Sale Auction Rate Securities 53 Derivatives $ — — 1 — — — Total (net) (39) 8 8 (2) (2) — 2 1 — — 2 (9) 1 $ 85 $ — 72 $ 56 $ (42) 1 $ 86 $ 118 $ 47 $ (19) $146 — — 6 1 (2) (2) — 122 (8) — — — $ — (9) — 6 — — (2) — 1 3 2 $ 48 — $ (8) (24) 1 2 $146 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Duke Energy Carolinas The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Carolinas’ Condensed Consolidated Balance Sheets at fair value at March 31, 2012 and December 31, 2011. Amounts presented in the tables below exclude cash collateral amounts. See Note 10 for additional information related to investments by major security type. Total Fair Value Amounts at March 31, 2012 Level 1 Level 2 Level 3 $— $ 12 (in millions) Description Investments in available-for-sale auction rate securities (a) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities Derivative assets (b) $ Total assets (a) (b) 12 $ 1 — 1,461 95 — $ 2,260 $1,556 1,518 729 47 10 588 1 46 — $636 $ 68 Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Total Fair Value Amounts at December 31, 2011 Level 1 Level 2 Level 3 (in millions) Description Investments in available-for-sale auction rate securities (a) Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities Derivative assets (b) $ $ Total assets (a) (b) 12 1,337 723 1 $ — 1,285 109 — $— 46 567 1 $ 12 6 2,073 $ 1,394 $ 614 $ 65 Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. 52 47 — Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) The following table provides a reconciliation of beginning and ending balances of assets measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3): Rollforward of Level 3 Measurements Available-for- Available-for- Sale Sale Auction Rate Securities NDTF Investments Total (in millions) Three Months Ended March 31, 2012 Balance at January 1, 2012 Purchases, sales, issuances and settlements: Purchases Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2012 $ 12 $ — $ — 12 $ Available-for- 53 $ 65 2 2 1 1 $ 68 56 Available-for- Sale Sale Auction Rate Securities NDTF Investments Total (in millions) Three Months Ended March 31, 2011 Balance at January 1, 2011 Purchases, sales, issuances and settlements: Purchases Sales Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2011 $ 12 $ — — — 12 $ 47 1 1 (2) (2) 2 $ $5 9 48 2 $ 60 Duke Energy Ohio The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Ohio’s Condensed Consolidated Balance Sheets at fair value at March 31, 2012 and December 31, 2011. Amounts presented in the tables below exclude cash collateral amounts which are disclosed separately in Note 8. Total Fair Value Amounts at March 31, 2012 Level 1 Level 2 Level 3 $ 6 $ 9 (7) $ (1) (13) $ (4) (in millions) Description Derivative assets (a) Derivative liabilities (b) Net Assets (a) (b) $ 101 (41) $ 60 $ 86 (21) $ 65 Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. 53 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Total Fair Value Amounts at December 31, 2011 Level 1 Level 2 Level 3 $ 5 $ 9 (in millions) Description Derivative assets (a) Derivative liabilities (b) Net Assets (Liabilities) (a) (b) $ 56 (30) $ 26 $ 42 (10) $ 32 (8) (12) $ (3) $ (3) Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. The following table provides a reconciliation of beginning and ending balances of assets measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3): Rollforward of Level 3 Measurements Derivatives (net) Three Months Ended March 31, 2012 Balance at January 1, 2012 Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability or as non-current liability Balance at March 31, 2012 Pre-tax amounts included in the Condensed Consolidated Statements of Comprehensive Income related to Level 3 measurements outstanding at March 31, 2012: Revenue, non-regulated electric and other Fuel used in electric generation and purchased power - non-regulated Total Three Months Ended March 31, 2011 Balance at January 1, 2011 Total pre-tax realized or unrealized gains (losses) included in earnings: Revenue, non-regulated electric and other Purchases, sales, issuances and settlements: Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability or as non-current liability Balance at March 31, 2011 Pre-tax amounts included in the Condensed Consolidated Statements of Comprehensive Income related to Level 3 measurements outstanding at March 31, 2011: Revenue, non-regulated electric and other Fuel used in electric generation and purchased power—non-regulated Total 54 $ (3) (1) $ (4) $ 1 — $ 1 $ 13 4 (1) $ 1 17 $ 4 — $ 4 Table of Contents PART II DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Duke Energy Indiana The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Indiana’s Condensed Consolidated Balance Sheets at fair value at March 31, 2012 and December 31, 2011. Amounts presented in the tables below exclude cash collateral amounts. See Note 10 for additional information related to investments by major security type. Total Fair Value Amounts at March 31, 2012 Level 1 Level 2 Level 3 $— 28 — 28 $— — (in millions) Description Available-for-sale equity securities(a) Available-for-sale debt securities(a) Derivative assets (b) Total Assets Derivative liabilities (c) Net Assets (a) (b) (c) $ 52 28 3 83 $ 52 — — 52 (48) $ 35 (1) $ 51 3 3 (47) $ (19) — $ 3 Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. Total Fair Value Amounts at December 31, 2011 Level 1 Level 2 Level 3 $— 28 — 28 (68) $ (40) $— — (in millions) Description Available-for-sale equity securities(a) Available-for-sale debt securities(a) Derivative assets (b) Total Assets Derivative liabilities (c) Net Assets (a) (b) (c) $ 46 28 4 $ 78 (69) 9 $ 46 — — 46 (1) $ 45 4 4 — $ 4 Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. 55 Table of Contents PART II DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) The following table provides a reconciliation of beginning and ending balances of assets measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3): Rollforward of Level 3 measurements Derivatives (net) (in millions) Three Months Ended March 31, 2012 Balance at January 1, 2012 Total pre-tax realized or unrealized gains (losses) included in earnings: $ 4 Regulated electric 8 Purchases, sales, issuances and settlements: (10) Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2012 1 3 $ Derivatives (net) (in millions) Three Months Ended March 31, 2011 Balance at January 1, 2011 Purchases, sales, issuances and settlements Settlements Total losses included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2011 $ 4 (2) (1) $ 1 Additional Fair Value Disclosures—Long-term debt: The fair value of long-term debt is summarized in the following table. Judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates determined as of March 31, 2012 and December 31, 2011 are not necessarily indicative of the amounts the Duke Energy Registrants could have settled in current markets. The fair value of long-term debt is determined using Level 2 measurements. Duke Energy Book Fair Value(a) Value March 31, 2012 December 31, 2011 (a) (b) $ 20,093 20,573 $22,332 23,053 Long-term debt, including current maturities Duke Energy Duke Energy Carolinas Ohio Book Fair Book Fair Value(b) Value Value Value $ 8,523 9,274 (in millions) $ 9,703 10,629 $ 2,553 2,555 $ 2,656 2,688 Duke Energy Indiana Book Fair Value Value $ 3,707 3,459 $4,224 4,048 Includes Non-recourse long-term debt of variable interest entities of $945 million and $949 million at March 31, 2012 and December 31, 2011, respectively. Includes Non-recourse long-term debt of variable interest entities of $300 million at both March 31, 2012 and December 31, 2011, respectively. At both March 31, 2012 and December 31, 2011, the fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, commercial paper and non-recourse notes payable of variable interest entities are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates. 56 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) 10. Investments in Debt and Equity Securities The Duke Energy Registrants classify their investments in debt and equity securities into two categories – trading and available-for-sale. Trading Securities. Investments in debt and equity securities held in grantor trusts associated with certain deferred compensation plans and certain other investments are classified as trading securities and are reported at fair value in the Condensed Consolidated Balance Sheets with net realized and unrealized gains and losses included in earnings each period. At March 31, 2012 and December 31, 2011, the fair value of these investments was $31 million and $32 million, respectively. Available for Sale Securities. All other investments in debt and equity securities are classified as available-for-sale securities, which are also reported at fair value on the Condensed Consolidated Balance Sheets with unrealized gains and losses excluded from earnings and reported either as a regulatory asset or liability, as discussed further below, or as a component of other comprehensive income until realized. Duke Energy’s available-for-sale securities are primarily comprised of investments held in the NDTF at Duke Energy Carolinas, investments in a grantor trust at Duke Energy Indiana related to other post-retirement benefit plans as required by the IURC, Duke Energy captive insurance investment portfolio, Duke Energy’s foreign operations investment portfolio and investments of Duke Energy and Duke Energy Carolinas in auction rate debt securities. The investments within the Duke Energy Carolinas NDTF and the Duke Energy Indiana grantor trust are managed by independent investment managers with discretion to buy, sell and invest pursuant to the objectives set forth by the trust agreements. Therefore, Duke Energy Carolinas and Duke Energy Indiana have limited oversight of the day-to-day management of these investments. Since day-to-day investment decisions, including buy and sell decisions, are made by the investment manager, the ability to hold investments in unrealized loss positions is outside the control of Duke Energy Carolinas and Duke Energy Indiana. Accordingly, all unrealized gains and losses associated with equity securities within the Duke Energy Carolinas NDTF and the Duke Energy Indiana grantor trust are considered other-than-temporary and are recognized immediately when the fair value of individual investments is less than the cost basis of the investment. Pursuant to regulatory accounting, substantially all unrealized losses associated with investments in debt and equity securities within the Duke Energy Carolinas NDTF and the Duke Energy Indiana grantor trust are deferred as a regulatory asset or liability. As a result there is no immediate impact on the earnings of Duke Energy Carolinas and Duke Energy Indiana. For investments in debt and equity securities held in the captive insurance investment portfolio, Duke Energy’s foreign operations investment portfolio and investments in auction rate debt securities, unrealized gains and losses are included in other comprehensive income until realized, unless it is determined that the carrying value of an investment is other-than-temporarily impaired. If so, the write-down to fair value may be included in earnings based on the criteria discussed below. For available-for-sale securities outside of the Duke Energy Carolinas NDTF and the Duke Energy Indiana grantor trust, which are discussed separately above, Duke Energy analyzes all investment holdings each reporting period to determine whether a decline in fair value should be considered other-thantemporary. Criteria used to evaluate whether an impairment associated with equity securities is other-than-temporary includes, but is not limited to, the length of time over which the market value has been lower than the cost basis of the investment, the percentage decline compared to the cost of the investment and management’s intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. If a decline in fair value is determined to be other-than-temporary, the investment is written down to its fair value through a charge to earnings. With respect to investments in debt securities, under the accounting guidance for other-than-temporary impairment, if the entity does not have an intent to sell the security and it is not more likely than not that management will be required to sell the debt security before the recovery of its cost basis, the impairment write-down to fair value would be recorded as a component of other comprehensive income, except for when it is determined that a credit loss exists. In determining whether a credit loss exists, management considers, among other things, the length of time and the extent to which the fair value has been less than the amortized cost basis, changes in the financial condition of the issuer of the security, or in the case of an asset backed security, the financial condition of the underlying loan obligors, consideration of underlying collateral and guarantees of amounts by government entities, ability of the issuer of the security to make scheduled interest or principal payments and any changes to the rating of the security by rating agencies. If it is determined that a credit loss exists, the amount of impairment write-down to fair value would be split between the credit loss, which would be recognized in earnings, and the amount attributable to all other factors, which would be recognized in other comprehensive income. Management believes, based on consideration of the criteria above, that no credit loss exists as of March 31, 2012 and December 31, 2011. Management does not have the intent to sell such investments in auction rate debt securities and the investments in debt securities within its captive insurance investment portfolio and foreign operations investment portfolio, and it is not more likely than not that management will be required to sell these securities before the anticipated recovery of their cost basis. Therefore, management has concluded that there were no other-than-temporary impairments necessary as of March 31, 2012 and December 31, 2011. Accordingly, all changes in the market value of investments in auction rate debt securities and captive insurance investments were reflected as a component of other comprehensive income in 2012 and 2011. See Note 9 for additional information related to fair value measurements for investments in auction rate debt securities. Short-term and Long-term investments . Investments in debt and equity securities are classified as either short-term investments or long-term investments based on management’s intent and ability to sell these securities, taking into consideration illiquidity factors in the current markets. Duke Energy holds corporate debt securities which were purchased using excess cash from its foreign operations. These investments are classified as Short-term Investments on the balance sheet and are available for current operations of Duke Energy’s foreign business. Duke Energy held short-term investments with a fair value of $238 million as of March 31, 2012 and $190 million as of December 31, 2011. Duke Energy classifies its investments in debt and equity securities held in the Duke Energy Carolinas NDTF (see Note 9 for further information), the Duke Energy Indiana grantor trust and the captive insurance investment portfolio as long-term. Additionally, Duke Energy has classified $72 million carrying value ($88 million par value) and $71 million carrying value ($89 million par value) of investments in auction rate debt securities as long-term at March 31, 2012 and December 31, 2011, respectively, due to market 57 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) illiquidity factors as a result of continued failed auctions. All of these investments are classified as available-for-sale and, therefore, are reflected on the Condensed Consolidated Balance Sheets at estimated fair value based on either quoted market prices or management’s best estimate of fair value based on expected future cash flow using appropriate risk-adjusted discount rates. Since management does not intend to use these investments in current operations, these investments are classified as long-term. The estimated fair values of short-term and long-term investments for Duke Energy, Duke Energy Carolinas and Duke Energy Indiana are as follows: March 31, 2012 Gross Gross Unrealized Holding Gains Unrealized Holding Unrealized Holding Gains Estimated Fair Value Losses Unrealized Holding Losses Estimated Fair Value (in millions) Duke Energy Carolinas NDTF: Equity Securities $ Corporate Debt Securities Municipal Bonds U.S. Government Bonds Other Debt Securities Total Duke Energy Carolinas NDTF 591 $ 8 2 11 $ $ 616 10 — Corporate Debt Securities Municipal Bonds U.S. Government Bonds Other Debt Securities Auction Rate Securities (a) Total Other Investments $ 10 $ 1 2 — (1) $ Total Duke Energy Investments (9) 631 (18) (27) $473 $ 1,337 205 51 $ 46 28 $ 74 $5 1 $ $ 80 $6 $ (1) $ 20 299 $ (1) (1) (1) 1 — 72 $ 531 $ 2,858 $ 2,060 14 241 — — — 1 2 57 83 306 161 — $— — — (17) 4 (16) (2) — — (4) $ (22) 52 28 (1) $ $ 8 2 16 171 $2,247 $ — — — $ $443 51 285 $ — 5 $ 1,518 222 $ — — $ — 1 1 $ $ (7) (1) — — 4 Duke Energy Indiana Grantor Trust: Equity Securities Municipal Bonds Total Duke Energy Indiana Grantor Trust Other Investments: Equity Securities (a) December 31, 2011 Gross Gross — — 21 68 71 (17) $ $ $4 $483 (19) (42) $ 415 $ 2,549 At both March 31, 2012 and December 31, 2011, $12 million of these securities were held by Duke Energy Carolinas. Gross unrealized holding gains on these securities held by Duke Energy Carolinas were insignificant at both March 31, 2012 and December 31, 2011. Gross unrealized holding losses on these securities held by Duke Energy Carolinas were $3 million at both March 31, 2012 and December 31, 2011. The table below summarizes the maturity date for debt securities held by Duke Energy, Duke Energy Carolinas, and Duke Energy Indiana. < 1 Year $ 168 $ 75 $ — Duke Energy(a) Duke Energy Carolinas (a) Duke Energy Indiana (a) 1-5 Years $ 404 $ 150 $ 20 6-10 Years (in millions) $ $ $ 223 183 6 Thereafter $ $ $ 401 321 2 Excludes auction rate securities based on the stated maturity date. See Note 9 for information about fair value measurements related to investments in auction rate debt securities. The fair values and gross unrealized losses of available-for-sale debt and equity securities which are in an unrealized loss position for which other-thantemporary impairment losses have not been recorded, summarized by investment type and length of time that the securities have been in a continuous loss position, are presented in the table below for Duke Energy, Duke Energy Carolinas, and Duke Energy Indiana as of March 31, 2012 and December 31, 2011. 58 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) March 31, 2012 Fair Value Duke Energy Carolinas NDTF: Equity Securities Unrealized Unrealized Unrealized Loss Position >12 months Loss Position <12 months Loss Position >12 months Loss Position <12 months $ $ Fair Value (in millions) $ 54 $ (4) Corporate Debt Securities 48 — Municipal Bonds U.S. Government Bonds Other Debt Securities Total Duke Energy Carolinas NDTF Duke Energy Indiana Grantor Trust: Equity Securities Municipal Bonds Total Indiana Grantor Trust Other Investments: Equity Securities Corporate Debt Securities Municipal Bonds U.S. Government Bonds Other Debt Securities Auction Rate Securities (a) Total Other Investments Total Duke Energy Investments 13 73 — — — (a) December 31, 2011 Unrealized 36 $ 224 $ $— $ 9 $ $ 9 $ 6 $ 254 — 31 16 72 $ 379 $ 612 $ $ (4) $ $111 57 — — $ — — — $ — — — — — $ (17) (17) (21) (3) (1) $ — — (1) (5) $ 289 $ $ $ (1) — — — — — $ $ — 8 113 — — — (1) (6) 8 $ 11 $ $ $ 201 — — — — — (1) (1) (3) $ $ $ $ (17) $ $ (19) (25) (16) (1) — — — — 8 71 $ 284 $ 584 (6) (12) (1) — — (1) 3 4 (4) (1) $ $ (1) — — — — — — — (17) At both March 31, 2012 and December 31, 2011, $12 million of these securities were held by Duke Energy Carolinas. The gross unrealized losses on these securities held by Duke Energy Carolinas which were in an unrealized loss position greater than 12 months were $3 million at both March 31, 2012 and December 31, 2011. The gross unrealized losses on these securities held by Duke Energy Carolinas which were in an unrealized loss position less than 12 months were insignificant at both March 31, 2012 and December 31, 2011. 59 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) 11. Variable Interest Entities A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. If an entity is determined to be a VIE, a qualitative analysis of control determines the party that consolidates a VIE based on what party has the power to direct the most significant activities of the VIE that impact its economic performance as well as what party has rights to receive benefits or is obligated to absorb losses that are significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment. CONSOLIDATED VIEs The table below shows the VIEs that Duke Energy and Duke Energy Carolinas consolidate and how these entities impact Duke Energy’s and Duke Energy Carolinas’ respective Condensed Consolidated Balance Sheets. None of these entities is consolidated by Duke Energy Ohio or Duke Energy Indiana. Other than the discussion below related to CRC, no financial support was provided to any of the consolidated VIEs during the three months ended March 31, 2012 and the year ended December 31, 2011, or is expected to be provided in the future, that was not previously contractually required. Duke Energy Duke Energy Carolinas Duke Energy Receivables Financing LLC (DERF) At March 31, 2012 VIE Balance Sheets Cash and Cash Equivalents $ Restricted Receivables of VIEs Other Current Assets Intangibles, net Restricted Other Assets of VIEs Other Assets Property, Plant and Equipment Cost, VIEs Less Accumulated Depreciation and Amortization Other Deferred Debits Total Assets Accounts Payable Non-Recourse Notes Payable Taxes Accrued Current Maturities of Long-Term Debt Other Current Liabilities Non-Recourse Long-Term Debt Deferred Income Taxes Asset Retirement Obligation Other Liabilities Total Liabilities Noncontrolling interests Net Duke Energy Corporation Shareholders’ Equity — 60 $— 593 499 — — — — — — — — — — — — — — 593 499 — — — — — — — — — 300 275 — — 293 CinCap V Renewables (in millions) $ $ 224 1 $ 14 1 $— 8 — 8 59 — — — — — — — 942 (70) 24 1 88 1,085 70 — — — 11 3 1 1 — — — 4 49 — — 9 81 — 7 $ 276 $ 942 (70) 25 2,335 2 275 4 65 60 945 27 — — — 809 — 1 1,124 162 12 129 10 5 — 24 527 161 14 29 58 Total $ 2 12 62 10 $ — Other 16 153 — 275 — — — — — — — 300 $ CRC 66 161 14 38 1,531 1 3 1 $ 803 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Duke Energy Duke Energy Carolinas Duke Energy Receivables Financing LLC (DERF) CRC CinCap V Renewables (in millions) At December 31, 2011 VIE Balance Sheets $ Restricted Receivables of VIEs Other Current Assets Intangibles, net Restricted Other Assets of VIEs Other Assets Property, Plant and Equipment Cost, VIEs Less Accumulated Depreciation and Amortization Other Deferred Debits Total Assets Accounts Payable Non-Recourse Notes Payable Taxes Accrued Current Maturities of Long-Term Debt Other Current Liabilities Non-Recourse Long-Term Debt Deferred Income Taxes Asset Retirement Obligation Other Liabilities Total Liabilities Noncontrolling interests Net Duke Energy Corporation Shareholders’ Equity 581 — — — — — — — 581 — — — — — 300 — — — $ $547 — — — — — — — $547 — 273 — — — — — — — 300 273 — 281 — $ 274 $ 13 $ 2 — 65 12 10 36 913 (62) 14 — — — 94 — — — 11 24 1,070 1 — 3 49 59 528 160 3 60 — — 13 37 13 87 — $ 7 13 124 850 — $ 220 Other $ Total 3 $1,157 8 134 — 60 — — — 2 73 1 — — 5 — 61 — — — 67 1 $ 5 12 135 50 913 (62) 26 2,365 2 273 3 65 62 949 160 13 50 1,577 1 $ 787 DERF. Duke Energy Carolinas securitizes certain accounts receivable through DERF, a bankruptcy remote, special purpose subsidiary. DERF is a wholly owned limited liability company of Duke Energy Carolinas with a separate legal existence from its parent, and its assets are not intended to be generally available to creditors of Duke Energy Carolinas. As a result of the securitization, on a daily basis Duke Energy Carolinas sells certain accounts receivable, arising from the sale of electricity and/or related services as part of Duke Energy Carolinas’ franchised electric business, to DERF. In order to fund its purchases of accounts receivable, DERF has a $300 million secured credit facility with a commercial paper conduit, which expires in August 2013. Duke Energy Carolinas provides the servicing for the receivables (collecting and applying the cash to the appropriate receivables). Duke Energy Carolinas’ borrowing under the credit facility is limited to the amount of qualified receivables sold, which has been and is expected to be in excess of the amount borrowed, which is maintained at $300 million. The debt is classified as long-term since the facility has an expiration date of greater than one year from the balance sheet date. The obligations of DERF under the facility are non-recourse to Duke Energy Carolinas. Duke Energy and its subsidiaries have no requirement to provide liquidity, purchase assets of DERF or guarantee performance. DERF is considered a VIE because the equity capitalization is insufficient to support its operations. If deficiencies in the net worth of DERF were to occur, those deficiencies would be cured through funding from Duke Energy Carolinas. In addition, the most significant activity of DERF relates to the decisions made with respect to the management of delinquent receivables. Since those decisions are made by Duke Energy Carolinas and any net worth deficiencies of DERF would be cured through funding from Duke Energy Carolinas, Duke Energy Carolinas consolidates DERF. CRC. CRC was formed in order to secure low cost financing for Duke Energy Ohio, including Duke Energy Kentucky, and Duke Energy Indiana. Duke Energy Ohio and Duke Energy Indiana sell on a revolving basis at a discount, nearly all of their customer accounts receivable and related collections to CRC. The receivables which are sold are selected in order to avoid any significant concentration of credit risk and exclude delinquent receivables. The receivables sold are securitized by CRC through a 61 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) facility managed by two unrelated third parties and the receivables are used as collateral for commercial paper issued by the unrelated third parties. These loans provide the cash portion of the proceeds paid by CRC to Duke Energy Ohio and Duke Energy Indiana. The proceeds obtained by Duke Energy Ohio and Duke Energy Indiana from the sales of receivables are cash and a subordinated note from CRC (subordinated retained interest in the sold receivables) for a portion of the purchase price (typically approximates 25% of the total proceeds). The amount borrowed by CRC against these receivables is non-recourse to the general credit of Duke Energy, and the associated cash collections from the accounts receivable sold is the sole source of funds to satisfy the related debt obligation. Borrowing is limited to approximately 75% of the transferred receivables. Losses on collection in excess of the discount are first absorbed by the equity of CRC and next by the subordinated retained interests held by Duke Energy Ohio and Duke Energy Indiana. The discount on the receivables reflects interest expense plus an allowance for bad debts net of a servicing fee charged by Duke Energy Ohio and Duke Energy Indiana. Duke Energy Ohio and Duke Energy Indiana are responsible for the servicing of the receivables (collecting and applying the cash to the appropriate receivables). Depending on the experience with collections, additional equity infusions to CRC may be required to be made by Duke Energy in order to maintain a minimum equity balance of $3 million. There were no equity infusions to CRC during the three months ended March 31, 2012 or 2011. The amount borrowed fluctuates based on the amount of receivables sold. The debt is short term because the facility has an expiration date of less than one year from the balance sheet date. The current expiration date is October 2012. CRC is considered a VIE because the equity capitalization is insufficient to support its operations, the power to direct the most significant activities of the entity are not performed by the equity holder, Cinergy, and deficiencies in the net worth of CRC are not funded by Cinergy, but by Duke Energy. The most significant activity of CRC relates to the decisions made with respect to the management of delinquent receivables. These decisions, as well as the requirement to make up deficiencies in net worth, are made by Duke Energy and not by Duke Energy Ohio, Duke Energy Kentucky or Duke Energy Indiana. Thus, Duke Energy consolidates CRC. Duke Energy Ohio and Duke Energy Indiana do not consolidate CRC. CinCap V. CinCap V was created to finance and execute a power sale agreement with Central Maine Power Company for approximately 35 MW of capacity and energy. This agreement expires in 2016. CinCap V is considered a VIE because the equity capitalization is insufficient to support its operations. As Duke Energy has the power to direct the most significant activities of the entity, which are the decisions to hedge and finance the power sales agreement, CinCap V is consolidated by Duke Energy. Renewables. Duke Energy’s renewable energy facilities include Green Frontier Windpower, LLC, Top of The World Wind Energy LLC and various solar projects, all subsidiaries of DEGS, an indirect wholly owned subsidiary of Duke Energy. These renewable energy facilities are VIEs due to power purchase agreements with terms that approximate the expected life of the projects. These fixed price agreements effectively transfer the commodity price risk to the buyer of the power. Duke Energy has consolidated these entities since inception because the most significant activities that impact the economic performance of these renewable energy facilities were the decisions associated with the siting, negotiation of the purchase power agreement, engineering, procurement and construction, and decisions associated with ongoing operations and maintenance related activities, all of which were made solely by Duke Energy. The debt held by these renewable energy facilities is non-recourse to the general credit of Duke Energy. Duke Energy and its subsidiaries have no requirement to provide liquidity or purchase the assets of these renewable energy facilities. Duke Energy does not guarantee performance except for an immaterial multi-purpose letter of credit and various immaterial debt service reserve and operations and maintenance reserve guarantees. The assets are restricted and they cannot be pledged as collateral or sold to third parties without the prior approval of the debt holders. Other. Duke Energy has other VIEs with restricted assets and non-recourse debt. These VIEs include certain on-site power generation facilities. Duke Energy consolidates these particular on-site power generation entities because Duke Energy has the power to direct the majority of the most significant activities, which, most notably involve the oversight of operation and maintenance related activities that impact the economic performance of these entities. 62 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) NON-CONSOLIDATED VIEs The table below shows the VIEs that the Duke Energy Registrants do not consolidate and how these entities impact Duke Energy’s, Duke Energy Ohio’s and Duke Energy Indiana’s respective Condensed Consolidated Balance Sheets. As discussed above, while Duke Energy consolidates CRC, Duke Energy Ohio and Duke Energy Indiana do not consolidate CRC as they are not the primary beneficiary. Duke Energy DukeNet Renewables $ — 127 — 127 — — — $ 127 $ Other At March 31, 2012 Consolidated Balance Sheets Receivables Investments in equity method unconsolidated affiliates Intangibles Total Assets Other Current Liabilities Deferred Credits and Other Liabilities Total Liabilities Net Duke Energy Corporation Shareholders’ Equity $ — 77 — 77 — — — 77 Total (in millions) $— $— Duke Energy Ohio Duke Energy Indiana $ $ 98 — 118 — — 24 109 228 109 109 133 2 17 337 2 17 207 118 — — — — — — 19 19 $ 114 $ 318 $ 207 $ 118 Duke Energy DukeNet Renewables $ — 129 — 129 — — — $ 129 $ At December 31, 2011 Consolidated Balance Sheets Receivables Investments in equity method unconsolidated affiliates Intangibles Total Assets Other Current Liabilities Deferred Credits and Other Liabilities Total Liabilities Net Duke Energy Corporation Shareholders’ Equity $ — 81 — 81 — — — 81 Other Total (in millions) $— 25 111 136 $— 235 111 3 3 18 21 $115 18 21 $325 Duke Energy Ohio Duke Energy Indiana $ $ 346 129 — 111 240 — — — $ 240 $ 139 — — 139 — — — 139 No financial support that was not previously contractually required was provided to any of the unconsolidated VIEs during the three months ended March 31, 2012 and 2011, respectively, or is expected to be provided in the future. With the exception of the power purchase agreement with the Ohio Valley Electric Corporation (OVEC), which is discussed below, and various guarantees, reflected in the table above as “Deferred Credits and Other Liabilities”, the Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above. CRC. As discussed above, CRC is consolidated only by Duke Energy. Accordingly, the retained interest in the sold receivables recorded on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana are eliminated in consolidation at Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price (typically approximates 25% of the total proceeds). The subordinated note is a retained interest (right to receive a specified portion of cash flows from the sold assets) and is classified within Receivables in Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011. The retained interests reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana approximate fair value. 63 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) The carrying values of the retained interests are determined by allocating the carrying value of the receivables between the assets sold and the interests retained based on relative fair value. Because the receivables generally turn over in less than two months, credit losses are reasonably predictable due to the broad customer base and lack of significant concentration, and the purchased beneficial interest (equity in CRC) is subordinate to all retained interests and thus would absorb losses first, the allocated basis of the subordinated notes are not materially different than their face value. The hypothetical effect on the fair value of the retained interests assuming both a 10% and a 20% unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio, Duke Energy Indiana and Duke Energy Kentucky on the retained interests using the accretable yield method, which generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both the retained interests and purchased beneficial interest whenever it is determined that an other-than-temporary impairment has occurred. The key assumptions used in estimating the fair value in 2012 and 2011 is detailed in the following table: Duke Energy Ohio Anticipated credit loss ratio Discount rate Receivable turnover rate Duke Energy Indiana Anticipated credit loss ratio Discount rate Receivable turnover rate 2012 2011 0.8% 1.3% 12.8% 2.6% 12.7% 0.4% 1.3% 10.2% 2.6% 10.2% 0.8% 0.4% The following table shows the gross and net receivables sold as of March 31, 2012 and December 31, 2011, respectively: Duke Energy Ohio $ Receivables sold as of March 31, 2012 Less: Retained interests Net receivables sold as of March 31, 2012 Duke Energy Indiana (in millions) 258 $ 277 $ 118 159 98 $ 160 Duke Energy Ohio $ Receivables sold as of December 31, 2011 Less: Retained interests Net receivables sold as of December 31, 2011 Duke Energy Indiana (in millions) 302 $ 279 139 $ 140 129 $ 173 The following table shows the retained interests, sales, and cash flows during the three months ended March 31, 2012, and 2011 respectively: Duke Energy Ohio Duke Energy Indiana (in millions) Three Months Ended March 31, 2012 Sales Receivables sold Loss recognized on sale Cash flows Cash proceeds from receivables sold Return received on retained interests $ 610 $ $ 636 2 64 706 3 4 $ 724 2 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Duke Energy Ohio Duke Energy Indiana Three Months Ended March 31, 2011 (in millions) Sales $ Receivables sold Loss recognized on sale 719 6 $ 668 4 Cash flows $ Cash proceeds from receivables sold Return received on retained interests 777 (in millions) $ 709 4 4 Cash flows from the sale of receivables are reflected within Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows. Collection fees received in connection with the servicing of transferred accounts receivable are included in Operation, Maintenance and Other on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Comprehensive Income. The loss recognized on the sale of receivables is calculated monthly by multiplying the receivables sold during the month by the required discount which is derived monthly utilizing a three year weighted average formula that considers charge-off history, late charge history, and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is calculated monthly by summing the prior month-end LIBOR plus a fixed rate of 1.00% as of March 31, 2012, as compared to 2.39% as of March 31, 2011. The fixed rate is reviewed annually and adjusted as appropriate. DukeNet . In 2010, Duke Energy sold a 50% ownership interest in DukeNet to Alinda. The sale resulted in DukeNet becoming a joint venture with Duke Energy and Alinda each owning a 50% interest. In connection with the formation of the new DukeNet joint venture, a five-year, $150 million senior secured credit facility was executed with a syndicate of ten external financial institutions. This credit facility is non-recourse to Duke Energy. DukeNet is considered a VIE because it has entered into certain contractual arrangements that provide DukeNet with additional forms of subordinated financial support. The most significant activities that impact DukeNet’s economic performance relate to its business development and fiber optic capacity marketing and management activities. The power to direct these activities is jointly and equally shared by Duke Energy and Alinda. As a result, Duke Energy does not consolidate the DukeNet joint venture. Accordingly, DukeNet is a non-consolidated VIE that is reported as an equity method investment. Unless consent by Duke Energy is given otherwise, Duke Energy and its subsidiaries have no requirement to provide liquidity, purchase the assets of DukeNet, or guarantee performance. Renewables . Duke Energy has investments in various entities that generate electricity through the use of renewable energy technology. Some of these entities are VIEs which are not consolidated due to the joint ownership of the entities when they were created and the power to direct and control key activities is shared jointly. Instead, Duke Energy’s investment is recorded under the equity method of accounting. These entities are VIEs due to power purchase agreements with terms that approximate the expected life of the project. These fixed price agreements effectively transfer the commodity price risk to the buyer of the power. Other. Duke Energy has investments in various other entities that are VIEs which are not consolidated. The most significant of these investments is Duke Energy Ohio’s 9% ownership interest in OVEC. Through its ownership interest in OVEC, Duke Energy Ohio has a contractual arrangement through June 2040 to buy power from OVEC’s power plants. The proceeds from the sale of power by OVEC to its power purchase agreement counterparties, including Duke Energy Ohio, are designed to be sufficient for OVEC to meet its operating expenses, fixed costs, debt amortization and interest expense, as well as earn a return on equity. Accordingly, the value of this contract is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business, including costs associated with its 2,256 megawatts of coal-fired generation capacity. As discussed in Note 5, the proposed rulemaking on cooling water intake structures, MATS, CSAPR and CCP’s could increase the costs of OVEC which would be passed through to Duke Energy Ohio. The initial carrying value of this contract was recorded as an intangible asset when Duke Energy acquired Cinergy in April 2006. In addition, the company has guaranteed the performance of certain entities in which the company no longer has an equity interest. As a result, the company has a variable interest in certain other VIEs that are non-consolidated. 65 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) 12. Earnings Per Common Share (EPS) Basic Earnings Per Share (EPS) is computed by dividing net income attributable to Duke Energy common shareholders, adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common shareholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, phantom shares and stock-based performance unit awards were exercised or settled. The following table illustrates Duke Energy’s basic and diluted EPS calculations and reconciles the weighted-average number of common shares outstanding to the diluted weighted-average number of common shares outstanding for the three months ended March 31, 2012 and 2011. Income Three Months Ended March 31, 2012 Income from continuing operations attributable to Duke Energy common shareholders, as adjusted for participating securities—basic and diluted Three Months Ended March 31, 2011 Income from continuing operations attributable to Duke Energy common shareholders, as adjusted for participating securities—basic Effect of dilutive securities: Stock options, performance and restricted stock Income from continuing operations attributable to Duke Energy common shareholders, as adjusted for participating securities—diluted Average Shares (in millions, except per-share amounts) EPS $ 292 1,337 $ 0.22 $ 510 1,330 $ 0.38 $ 0.38 1 $ 510 1,331 As of March 31, 2012 and 2011, 4 million and 13 million, respectively, of stock options and performance and unvested stock awards were not included in the “effect of dilutive securities” in the above table because either the option exercise prices were greater than the average market price of the common shares during those periods, or performance measures related to the awards had not yet been met. 13. Stock-Based Compensation For employee awards, equity classified stock-based compensation cost is measured at the service inception date or the grant date, based on the estimated achievement of certain performance metrics or the fair value of the award, and is recognized as expense or capitalized as a component of property, plant and equipment over the requisite service period. Duke Energy recorded pre-tax stock-based compensation expense for the three months ended March 31, 2012 and 2011 as follows: Three Months Ended March 31, 2012(a) $ Stock Options Restricted Stock Unit Awards Performance Awards Total(b) (a) (b) 2011(a) (in millions) 2 $ 8 (2) $ 8 $ 2 8 6 16 Excludes stock-based compensation cost capitalized of an insignificant amount and $1 million for the three months ended March 31, 2012 and 2011, respectively. The tax benefit associated with the recorded expense was $3 million and $6 million for the three months ended March 31, 2012 and 2011, respectively. 66 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) 14. Employee Benefit Obligations Net periodic benefit costs disclosed in the tables below for the qualified and, non-qualified pension and other post-retirement benefit plans represent the cost of the respective benefit plan to the Duke Energy Registrants for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment. Duke Energy The following table shows the components of the net periodic benefit costs for the Duke Energy U.S. qualified and non-qualified pension plans and other post-retirement benefit plans. Three Months Ended Three Months Ended March 31, 2011 March 31, 2012 Other Non- Service cost Interest cost on projected benefit obligation Expected return on plan assets Amortization of prior service cost (credit) Amortization of net transition liability Amortization of loss (gain) Other Net periodic costs (a) (b) Qualified pension plans(a) Qualified pension plans $ $ 23 1 2 61 (94) — 24 1 $ 16 $ $ Qualified Benefit pension (b) plans plans(a) (in millions) 2 $ (2) 2 (2) — 3 $ 24 Non- Post- Qualified pension plans Retirement $ — $ 58 (96) 2 — 19 8 (4) — — — — — 1 Other PostRetirement $ 11 2 1 9 1 (2) — (4) — — — 4 4 Benefit plans(b) $ 3 (1) 3 $ — 6 Excludes regulatory asset amortization of $3 million and $4 million for the three months ended March 31, 2012 and 2011, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006. Excludes regulatory asset amortization of $2 million for each of the three months ended March 31, 2012 and 2011, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006. Each of the Subsidiary Registrants participate in qualified and, non-qualified pension plans and other post-retirement benefit plans sponsored by Duke Energy. The net periodic benefit costs shown in the tables below represent the allocated cost of the respective benefit plan for the periods presented. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and other post-retirement benefit cost for employees of Duke Energy’s shared services affiliate that provide support to the respective Subsidiary Registrant. These allocated amounts are included in the governance and shared services costs for each Subsidiary Registrant discussed in Note 17. 67 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Duke Energy Carolinas Three Months Ended Three Months Ended March 31, 2012 Other PostQualified Retirement March 31, 2011 pension plans $ Service cost Interest cost on projected benefit obligation Expected return on plan assets Amortization of prior service credit Amortization of net transition liability Amortization of loss Other Net periodic costs (a) (a) 9 Benefit plans (in millions) $ 1 23 4 (36) (3) (1) — — 11 — $ 7 Other PostQualified pension plans Retirement $ $ 4 (2) (1) — — 9 2 — 3 — (37) 1 1 $ 9 21 Benefit plans $ 4 2 1 — $ 4 Components of net periodic costs for Duke Energy Carolinas’ non-qualified pension plans were an insignificant amount for the three months ended March 31, 2012 and 2011. Duke Energy Ohio Three Months Ended Three Months Ended March 31, 2012 Other PostQualified Retirement March 31, 2011 pension plans(a) $ Service cost Interest cost on projected benefit obligation Expected return on plan assets Amortization of loss (gain) Net periodic costs (c) (a) (b) (c) 2 Benefit plans(b) $ — 1 8 (11) $ 2 1 (in millions) — (1) $ — Other PostQualified pension plans(a) Retirement $ $ 2 8 (11) 2 $ 1 Benefit plans(b) — 1 — (1) $ — Excludes regulatory asset amortization of $2 million for each of the three months ended March 31, 2012 and 2011, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006. Excludes regulatory asset amortization of an insignificant amount and $1 million for the three months ended March 31, 2012 and 2011, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006. Components of net periodic costs for Duke Energy Ohio’s non-qualified pension plans were an insignificant amount for each of the three months ended March 31, 2012 and 2011. 68 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Duke Energy Indiana Three Months Ended March 31, 2012 Other PostQualified Retirement March 31, 2011 pension plans $ Service cost Interest cost on projected benefit obligation Expected return on plan assets Amortization of prior service cost Amortization of loss Net periodic costs (a) (a) Three Months Ended 2 $ Post- — $ 2 (12) 1 3 2 Retirement Qualified Benefit pension plans plans (in millions) 8 $ Other $ 3 7 (11) — — — — $ Benefit plans 2 — — — 4 2 $ — $ 3 2 Components of net periodic costs for Duke Energy Indiana’s non-qualified pension plans were an insignificant amount for each of the three months ended March 31, 2012 and 2011. Employee Savings Plan Duke Energy sponsors employee savings plans that cover substantially all U.S. employees. Duke Energy made pre-tax employer matching contributions of $28 million and $31 million for the three months ended March 31, 2012 and 2011, respectively. The Subsidiary Registrants participate in Duke Energy sponsored employee savings plans. The following table shows the respective Subsidiary Registrants’ expense related to its proportionate share of pre-tax employer matching contributions. Three Months Ended March 31, (in millions) 2011 2012 Duke Energy Carolinas Duke Energy Ohio Duke Energy Indiana $ 11 1 2 $ 12 1 3 15. Severance 2011 Severance Plan. In conjunction with the proposed merger with Progress Energy, in August 2011, Duke Energy announced plans to offer a voluntary severance plan to approximately 4,850 eligible employees. As this is a voluntary plan, all severance benefits offered under this plan are considered special termination benefits under GAAP. Special termination benefits are measured upon employee acceptance and recorded immediately absent a significant retention period. If a significant retention period exists, the cost of the special termination benefits are recorded ratably over the remaining service periods of the affected employees. Approximately 500 employees accepted the termination benefits during the voluntary window period, which closed on November 30, 2011. The estimated amount of severance payments associated with this voluntary plan, contingent upon a successful close of the proposed merger with Progress Energy, are expected to be approximately $80 million. Other Severance Plans. Amounts included in the table below represent the severance liability for Duke Energy’s past and on-going severance plans. Balance at December 31, 2011 $ Duke Energy 69 32 Balance at Provision/ Adjustments $ (in millions) (1) Cash Reductions March 31, 2012 $ $ (3) 28 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) 16. Income Taxes and Other Taxes Income Taxes. Duke Energy and its subsidiaries file income tax returns in the U.S. with federal and various state governmental authorities, and in certain foreign jurisdictions. The taxable income of Duke Energy and its subsidiaries is reflected in Duke Energy’s U.S. federal and state income tax returns. These subsidiaries have a tax sharing agreement with Duke Energy where the separate return method is used to allocate tax expenses and benefits to the subsidiaries whose investments or results of operations provide these tax expenses and benefits. The accounting for income taxes essentially represents the income taxes that each of these subsidiaries would incur if it were a separate company filing its own tax return as a C-Corporation. The effective tax rates for each of the Duke Energy Registrants are as follows: Three Months Ended March 31, Duke Energy Duke Energy Carolinas Duke Energy Ohio Duke Energy Indiana 2012 2011 25.8% 31.2% 35.1% 36.8% 34.9% 36.3% 37.0% 41.0% For the three months ended March 31, 2012, Duke Energy reflected a decrease in its effective tax rate as a result of a decrease in pre-tax income related to Edwardsport IGCC project impairment charges. In addition, Duke Energy Carolinas reflected an increase in its effective tax rate as a result of a decrease in AFUDC equity and Duke Energy Indiana reflected an increase in its effective tax rate due to a decrease in pre-tax income related to Edwardsport IGCC project impairment charges. See Note 4 for further details on the impairment charges. Excise Taxes. Certain excise taxes levied by state or local governments are collected by the Duke Energy Registrants from its customers. These taxes, which are required to be paid regardless of the Duke Energy Registrants’ ability to collect from the customer, are accounted for on a gross basis. When each of the Duke Energy Registrants act as an agent, and the tax is not required to be remitted if it is not collected from the customer, the taxes are accounted for on a net basis. Excise taxes for each Duke Energy Registrant accounted for on a gross basis and recorded as revenues and other tax expense in the respective Condensed Consolidated Statements of Operations were as follows: Three Months Ended March 31, 2011 2012 $ 39 Duke Energy Carolinas Duke Energy Ohio Duke Energy Indiana Duke Energy (in millions) $ 36 30 34 8 8 $ 78 $ 77 17. Related Party Transactions Duke Energy Carolinas Duke Energy Carolinas engages in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Balances due to or due from related parties included in the Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 are as follows: Assets/(Liabilities) March 31, 2012 (a) $ Current assets (b) Non-current assets (c) Current liabilities (d) Non-current liabilities (e) Net deferred tax liabilities (f) (a) 50 111 (121) (67) (4,682) December 31, 2011(a) (in millions) $ 51 111 (171) (64) (4,509) Balances exclude assets or liabilities associated with accrued pension and other post-retirement benefits and money pool arrangements as discussed below. (b) Of the balance at March 31, 2012, $19 million is classified as Receivables and $31 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2011, $2 million is classified as Receivables and $49 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. 70 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) (c) (d) (e) (f) The balances at March 31, 2012 and December 31, 2011 are classified as Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The balance at March 31, 2012, is classified as Accounts payable on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2011, $157 million is classified as Accounts Payable and $14 million is classified as Accrued Taxes on the Condensed Consolidated Balance Sheets. The balances at March 31, 2012 and December 31, 2011 are classified as Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. Of the balance at March 31, 2012, $(4,724) million is classified as Deferred income taxes and $42 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2011, $(4,555) million is classified as Deferred income taxes and $46 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. As discussed further in Note 14, Duke Energy Carolinas participates in Duke Energy’s qualified pension plan, nonqualified pension plan and other post-retirement benefit plans and is allocated its proportionate share of expenses associated with these plans. Additionally, Duke Energy Carolinas has been allocated accrued pension and other post-retirement benefit obligations as shown in the following table: March 31, 2012 $ Other current liabilities Accrued pension and other post-retirement benefit costs Total allocated accrued pension and other post-retirement benefit obligations December 31, 2011 (in millions) 8 $ 241 $ 8 248 $ 249 256 Other Related Party Amounts Three months ended March 31, 2011 March 31, 2012 $ Corporate governance and shared service expenses (a) Indemnification coverages (b) Rental income and other charged expenses, net (c) (a) (b) (c) (in millions) 235 5 (2) $ 253 5 (2) Duke Energy Carolinas is charged its proportionate share of corporate governance and other costs by an unconsolidated affiliate that is a consolidated affiliate of Duke Energy. Corporate governance and other shared services costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Comprehensive Income. Duke Energy Carolinas incurs expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly-owned captive insurance subsidiary. These expenses are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Comprehensive Income. Duke Energy Carolinas records income associated with the rental of office space to a consolidated affiliate of Duke Energy, as well as its proportionate share of certain charged expenses from affiliates of Duke Energy. As discussed further in Note 6, Duke Energy Carolinas participates in a money pool arrangement with Duke Energy and other Duke Energy subsidiaries. Interest expense associated with money pool activity, which is recorded in Interest Expense on the Condensed Consolidated Statements of Comprehensive Income, was insignificant for each of the three months ended March 31, 2012 and 2011. Interest income associated with money pool activity, which is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Comprehensive Income, was insignificant for each of the three months ended March 31, 2012 and 2011. 71 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) Duke Energy Ohio Duke Energy Ohio engages in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Balances due to or due from related parties included in the Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 are as follows: March 31, 2012(a) $ Current assets (b) Non-current assets (c) Current liabilities (d) Non-current liabilities (e) Net deferred tax liabilities (f) (a) (b) (c) (d) (e) (f) December 31, 2011(a) (in millions) $ 63 30 (130) (31) (1,748) 44 22 (84) — (1,751) Balances exclude assets or liabilities associated with accrued pension and other post-retirement benefits, CRC and money pool arrangements as discussed below. Of the balance at March 31, 2012, $14 million is classified as Receivables and $49 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2011, $15 million is classified as Receivables and $29 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. The balances at March 31, 2012 and December 31, 2011 are classified as Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The balances at March 31, 2012 and December 31, 2011 are classified as Accounts payable on the Condensed Consolidated Balance Sheets. The balance at March 31, 2012 is classified as Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. Of the balance at March 31, 2012, $(1,787) million is classified as Deferred income taxes and $39 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2011, $(1,798) million is classified as Deferred income taxes and $47 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. As discussed further in Note 14, Duke Energy Ohio participates in Duke Energy’s qualified pension plan, non-qualified pension plan and other postretirement benefit plans and is allocated its proportionate share of expenses associated with these plans. Additionally, Duke Energy Ohio has been allocated accrued pension and other post-retirement benefit obligations as shown in the following table: Other current liabilities Accrued pension and other post-retirement benefit costs Total allocated accrued pension and other post-retirement benefit obligations March 31, 2012 December 31, 2011 $ 4 $ $ 163 167 (in millions) 4 166 $ 170 Other Related Party Amounts Three months ended March 31, 2011 March 31, 2012 $ Corporate governance and shared service expenses (a) Indemnification coverages (b) Rental income and other charged expenses, net (c) CRC interest income (d) (a) (b) (c) (d) (in millions) 90 4 (1) 2 $ 95 4 — 4 Duke Energy Ohio is charged its proportionate share of corporate governance and other costs by an unconsolidated affiliate that is a consolidated affiliate of Duke Energy. Corporate governance and other shared services costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Comprehensive Income. Duke Energy Ohio incurs expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly-owned captive insurance subsidiary. These expenses are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Comprehensive Income. Duke Energy Ohio records income associated with the rental of office space to a consolidated affiliate of Duke Energy, as well as its proportionate share of certain charged expenses from affiliates of Duke Energy. As discussed in Note 11, certain trade receivables have been sold by Duke Energy Ohio to CRC, an unconsolidated entity formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price. The interest income associated with the subordinated note is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Comprehensive Income. 72 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) As discussed further in Note 6, Duke Energy Ohio participates in a money pool arrangement with Duke Energy and other Duke Energy subsidiaries. Interest income associated with money pool activity, which is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Comprehensive Income, was $1 million for the three months ended March 31, 2012 and insignificant for the three months ended March 31, 2011. Interest expense associated with money pool activity, which is recorded in Interest Expense on the Condensed Consolidated Statements of Comprehensive Income, was insignificant for each of the three months ended March 31, 2012 and 2011. Duke Energy Commercial Asset Management (DECAM) is a non-regulated, direct subsidiary of Duke Energy Ohio. DECAM conducts business activities including the execution of commodity transactions and executing third party vendor and supply contracts as well as service contracts for certain of Duke Energy’s non-regulated entities. The commodity contracts that DECAM enters either do not qualify as hedges or have not been designated as hedges (hereinafter referred to as undersigned contracts), thus the mark-to-market impacts of these contracts are reflected in Duke Energy Ohio’s Condensed Consolidated Statements of Comprehensive Income. In addition, equal and offsetting mark-to-market impacts of intercompany contracts with non regulated entities are reflected in Duke Energy Ohio’s Condensed Consolidated Statements of Comprehensive Income representing the pass through of the economics of the original contracts to non-regulated entities in accordance with contractual arrangements between Duke Energy Ohio and non-regulated entities. See Note 8 for additional information. Because it is not a rated entity, DECAM receives its credit support from Duke Energy or its non-regulated subsidiaries and not the regulated utility operations of Duke Energy Ohio. DECAM meets its funding needs through an intercompany loan agreement from a subsidiary of Duke Energy. The intercompany loan agreement was executed in February 2011. An additional intercompany loan agreement was executed in October 2011 so that DECAM can also loan money to the subsidiary of Duke Energy. DECAM had no outstanding intercompany loan payable with the subsidiary of Duke Energy as of March 31, 2012 or December 31, 2011. DECAM had a $276 million and a $90 million intercompany loan receivable with the subsidiary of Duke Energy as of March 31, 2012 and December 31, 2011, respectively. Duke Energy Ohio paid a $285 million dividend to its parent, Cinergy, in March 2011. In January 2012, Duke Energy Ohio recorded a non-cash equity transfer of $28 million related to the sale of Vermillion to Duke Energy Indiana. See Note 2 for further discussion. Duke Energy Indiana Duke Energy Indiana engages in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Balances due to or due from related parties included in the Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 are as follows: March 31, 2012 (a) $ Current assets (b) Non-current assets (c) Current liabilities (d) Non-current liabilities (e) Net deferred tax liabilities (f) (a) (b) (c) (d) (e) (f) December 31, 2011(a) (in millions) 70 2 (80) (22) (949) $ 18 2 (97) (22) (914) Balances exclude assets or liabilities associated with accrued pension and other post-retirement benefits, CRC and money pool arrangements as discussed below. Of the balance at March 31, 2012, $59 million is classified as Receivables and $11 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. The balance at December 31, 2011, is classified as Receivables on the Condensed Consolidated Balance Sheets The balances at March 31, 2012 and December 31, 2011 are classified as Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The balance at March 31, 2012 is classified as Accounts payable on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2011, $(72) million is classified as Accounts payable and $(25) million is classified as Taxes accrued on the Condensed Consolidated Balance Sheets. The balances at March 31, 2012 and December 31, 2011 are classified as Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. Of the balance at March 31, 2012, $(974) million is classified as Deferred income taxes and $25 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2011, $(927) million is classified as Deferred income taxes and $13 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. 73 Table of Contents PART I DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued) As discussed further in Note 14, Duke Energy Indiana participates in Duke Energy’s qualified pension plan, non-qualified pension plan and other postretirement benefit plans and is allocated its proportionate share of expenses associated with these plans. Additionally, Duke Energy Indiana has been allocated accrued pension and other post-retirement benefit obligations as shown in the following table: Other current liabilities Accrued pension and other post-retirement benefit costs Total allocated accrued pension and other post-retirement benefit obligations March 31, 2012 December 31, 2011 $ 2 $ $ 228 230 (in millions) 2 231 $ 233 Other Related Party Amounts Three months ended March 31, 2011 March 31, 2012 Corporate governance and shared service expenses (a) Indemnification coverages (b) Rental income and other charged expenses, net (c) CRC interest income (d) (a) (b) (c) (d) $ (in millions) 101 2 $ 107 (1) 2 1 2 4 Duke Energy Indiana is charged its proportionate share of corporate governance and other costs by an unconsolidated affiliate that is a consolidated affiliate of Duke Energy. Corporate governance and other shared services costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Comprehensive Income. Duke Energy Indiana incurs expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly-owned captive insurance subsidiary. These expenses are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Comprehensive Income. Duke Energy Indiana records income associated with the rental of office space to a consolidated affiliate of Duke Energy, as well as its proportionate share of certain charged expenses from affiliates of Duke Energy. As discussed in Note 11, certain trade receivables have been sold by Duke Energy Indiana to CRC, an unconsolidated entity formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price. The interest income associated with the subordinated note is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Comprehensive Income. As discussed further in Note 6, Duke Energy Indiana participates in a money pool arrangement with Duke Energy and other Duke Energy subsidiaries. Interest income associated with money pool activity, which is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Comprehensive Income, was insignificant for each of the three months ended March 31, 2012 and 2011. Interest expense associated with money pool activity, which is recorded in Interest Expense on the Condensed Consolidated Statements of Comprehensive Income, was insignificant for each of the three months ended March 31, 2012 and 2011. In January 2012, Duke Energy Indiana recorded a non-cash equity transfer of $26 million on the purchase of Vermillion from an indirect wholly owned subsidiary of Duke Energy. See Note 2 for further discussion. 18. New Accounting Standards The following new accounting standards were adopted by the Duke Energy Registrants subsequent to March 31, 2011 and the impact of such adoption, if applicable, has been presented in the respective Condensed Consolidated Financial Statements of the Duke Energy Registrants: ASC 220—Comprehensive Income. In June 2011, the FASB amended the existing requirements for presenting comprehensive income in financial statements primarily to increase the prominence of items reported in other comprehensive income (OCI) and to facilitate the convergence of U.S. GAAP and IFRS. Specifically, the revised guidance eliminates the option previously provided to present components of OCI as part of the statement of changes in stockholders’ equity. Accordingly, all non-owner changes in stockholders’ equity are required to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. For the Duke Energy Registrants, this revised guidance was effective on a retrospective basis for interim and annual periods beginning January 1, 2012. The adoption of this standard changed the presentation of the Duke Energy Registrants’ financial statements but did not affect the calculation of net income, comprehensive income or earnings per share. ASC 820—Fair Value Measurements and Disclosures. In May 2011, the FASB amended existing requirements for measuring fair value and for disclosing information about fair value measurements. This revised guidance results in a consistent definition of fair value, as well as common requirements for measurement and disclosure of fair value information between U.S. GAAP and International Financial Reporting Standards (IFRS). In addition, the amendments set forth enhanced disclosure requirements with respect to recurring Level 3 measurements, nonfinancial assets measured or disclosed at fair value, transfers between levels in the fair value hierarchy, and assets and liabilities disclosed but not recorded at fair value. For the Duke Energy Registrants, the revised fair value measurement guidance was effective on a prospective basis for interim and annual periods beginning January 1, 2012. The adoption of this new guidance did not have a significant impact on the Duke Energy Registrants disclosures or their consolidated results of operations, cash flows, or financial position. 74 Table of Contents PART I ASC 350—Intangibles–Goodwill and Other. In September 2011, the FASB amended existing goodwill impairment testing accounting guidance to provide an entity testing goodwill for impairment with the option of performing a qualitative assessment prior to calculating the fair value of a reporting unit in step one of a goodwill impairment test. Under this revised guidance, a qualitative assessment would require an evaluation of economic, industry, and company-specific considerations. If an entity determines, on a basis of such qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying value of a reporting unit, the two-step impairment test, as required under pre-existing applicable accounting guidance, would be required. Otherwise, no further impairment testing would be required. The revised goodwill impairment testing accounting guidance is effective for the Duke Energy Registrants’ annual and interim goodwill impairment tests performed for fiscal years beginning January 1, 2012, with early adoption of this revised guidance permitted for annual and interim goodwill impairment tests performed as of a date before September 15, 2011. Since annual goodwill impairment tests are performed by Duke Energy as of August 31, the Duke Energy Registrants early adopted this revised accounting guidance during the third quarter of 2011 and applied that guidance to their annual goodwill impairment tests for 2011. 19. Subsequent Events For information on subsequent events related to acquisitions and sales of other assets, regulatory matters, and commitments and contingencies, see Notes 2, 4, and 5, respectively. 75 Table of Contents PART I Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. INTRODUCTION Duke Energy Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the United States (U.S.) primarily through its wholly-owned subsidiaries, Duke Energy Carolinas, LLC (Duke Energy Carolinas), Duke Energy Ohio, Inc. (Duke Energy Ohio), which includes Duke Energy Kentucky, Inc. (Duke Energy Kentucky), and Duke Energy Indiana, Inc. (Duke Energy Indiana), as well as in Latin America through International Energy. Management’s Discussion and Analysis includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings and adjusted earnings per share (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. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its three separate subsidiary registrants, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana. However, none of the registrants makes 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 Unaudited Condensed Consolidated Financial Statements and Notes. Proposed Merger with Progress Energy, Inc. On January 8, 2011, Duke Energy entered into an Agreement and Plan of Merger (Merger Agreement) among Diamond Acquisition Corporation, a North Carolina corporation and Duke Energy’s wholly-owned subsidiary (Merger Sub) and Progress Energy, Inc. (Progress Energy), a North Carolina corporation engaged in the regulated utility business of generation, transmission, distribution and sale of electricity in portions of North Carolina, South Carolina and Florida. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Progress Energy with Progress Energy continuing as the surviving corporation and a wholly-owned subsidiary of Duke Energy. Pursuant to the Merger Agreement, upon the closing of the merger, each issued and outstanding share of Progress Energy common stock will automatically be canceled and converted into the right to receive 2.6125 shares of common stock of Duke Energy, subject to appropriate adjustment for a reverse stock split of the Duke Energy common stock as contemplated in the Merger Agreement and except that any shares of Progress Energy common stock that are owned by Progress Energy or Duke Energy, other than in a fiduciary capacity, will be canceled without any consideration therefor. Each outstanding option to acquire, and each outstanding equity award relating to, one share of Progress Energy common stock will be converted into an option to acquire, or an equity award relating to 2.6125 shares of Duke Energy common stock, as applicable, subject to appropriate adjustment for the reverse stock split. Based on Progress Energy shares outstanding at March 31, 2012, Duke Energy would issue 773 million shares of common stock to convert the Progress Energy common shares in the merger under the unadjusted exchange ratio of 2.6125. The exchange ratio will be adjusted proportionately to reflect a 1-for-3 reverse stock split with respect to the issued and outstanding Duke Energy common stock that Duke Energy plans to implement prior to, and conditioned on, the completion of the merger. The resulting adjusted exchange ratio is 0.87083 of a share of Duke Energy common stock for each share of Progress Energy common stock. Based on Progress Energy shares outstanding at March 31, 2012, Duke Energy would issue 258 million shares of common stock, after the effect of the 1-for-3 reverse stock split, to convert the Progress Energy common shares in the merger. The merger will be accounted for under the acquisition method of accounting with Duke Energy treated as the acquirer, for accounting purposes. Based on the market price of Duke Energy common stock on March 31, 2012, the transaction would be valued at $16 billion and would result in incremental recorded goodwill to Duke Energy of $10 billion, according to current estimates. Duke Energy would also assume all of Progress Energy’s outstanding debt, which is estimated to be $15 billion based on the approximate fair value of Progress Energy’s outstanding indebtedness at March 31, 2012. Additionally, immediately upon closing of the merger, Duke Energy expects to record expenses of $400 million to $600 million, representing accruals for commitments made in conjunction with the merger, such as employee severance, funding charitable and community support contributions and commitments related to market power mitigation as described further below. The Merger Agreement has been unanimously approved by both companies’ Boards of Directors. The merger is conditioned upon, among other things, approval by the shareholders of both companies, as well as expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval by the Federal Energy Regulatory Commission (FERC), the Federal Communications Commission (FCC), the Nuclear Regulatory (NRC), the North Carolina Utilities Commission (NCUC), and the Kentucky Public Service Commission (KPSC). Duke Energy and Progress Energy also are seeking review of the merger by the Public Service Commission of South Carolina (PSCSC) and approval of the joint dispatch agreement by the PSCSC. Although there are no merger-specific regulatory approvals required in Indiana, Ohio or Florida, the companies will continue to update the public services commissions in those states on the merger, as applicable and as required. The status of regulatory approvals is as follows: Federal Energy Regulatory Commission. On April 4, 2011, Duke Energy and Progress Energy, jointly filed applications with the FERC for the approval of the merger, the Joint Dispatch Agreement and the joint Open Access Transmission Tariff (OATT). On September 30, 2011, the FERC conditionally approved the merger, subject to approval of mitigation measures to address its finding that the combined company could have an adverse effect on competition in wholesale power markets in the Duke Energy Carolinas and Progress Energy Carolinas East balancing authority areas. On October 17, 2011, Duke Energy and Progress Energy filed their plan for mitigating the FERC’s concerns by proposing to offer on a daily basis a certain quantity of power during summer and Winter 76 Aug 25 Table of Contents PART I periods to the extent it is available after serving native load and existing firm obligations. On December 14, 2011, the FERC issued an order rejecting Duke Energy and Progress Energy’s proposed mitigation plan, finding that the proposed mitigation plans submitted by the companies did not adequately address the market power issues. In a separate order issued December 14, 2011, the FERC dismissed the applications for approval of the Joint Dispatch Agreement and the joint OATT without prejudice to the right to refile them if Duke Energy and Progress Energy decide to file another mitigation plan to address the FERC’s market power concerns stated in the FERC’s September 30, 2011 order. On March 26, 2012, Duke Energy and Progress Energy filed their revised mitigation plan with the FERC. The filing requests that the FERC issue orders approving the mitigation plan, the Joint Dispatch Agreement and the joint OATT within 60 days of the filing, and no later than June 8, 2012. In addition, to offering interim firm sales of capacity and energy during the summer and winter periods, Duke Energy and Progress Energy have planned seven permanent transmission upgrades, estimated to cost $110 million, that will increase the power import capabilities into the Progress Energy and Duke Energy North Carolina and South Carolina service areas and enhance the competitive power supply options in the region. On April 13, 2012, the companies filed a response to a request for additional information which was received from the FERC on April 10, 2012. Four participants to the proceedings filed comments before the April 25, 2012 filing deadline. On May 1, 2012, the companies filed a response to the comments with the FERC. North Carolina Utilities Commission. On April 4, 2011, Duke Energy and Progress Energy filed a merger application and joint dispatch agreement with the NCUC. On September 2, 2011, Duke Energy, Progress Energy and the NC Public Staff filed a settlement agreement with the NCUC. Under the settlement agreement, the companies will guarantee North Carolina customers their allocable share of $650 million in savings related to fuel and joint dispatch of generation assets over the first five years after the merger closes, continue community financial support for a minimum of four years, contribute to weatherization efforts of low-income customers and workforce development during the first year after the merger closes and agree not to recover direct merger-related costs. A public hearing occurred September 20-22, 2011 and proposed orders and briefs were filed November 23, 2011. Duke Energy is required by regulatory conditions imposed by the NCUC to file with the NCUC a thirty-day advance notice of certain FERC filings prior to filing with the FERC. Accordingly, Duke Energy filed advance notice of the revised FERC mitigation plan on February 22, 2012. On May 8, 2012, Duke Energy and Progress Energy jointly filed a settlement agreement with the NC Public Staff at the NCUC which addresses various merger-related issues including retail rate recovery of the costs associated with the mitigation of wholesale market power and fuel savings associated with the Joint Dispatch Agreement. The agreement is subject to the approval of the NCUC, and is also contingent upon the approval by the FERC, without material condition or change, of the market power mitigation proposal, as well as other various merger filings currently under review at the FERC. Public Service Commission of South Carolina. On April 25, 2011, Duke Energy and Progress Energy, on behalf of their utility companies Duke Energy Carolinas and Progress Energy Carolinas, filed an application requesting the PSCSC to review the merger and approve the proposed Joint Dispatch Agreement and the prospective future merger of Duke Energy Carolinas and Progress Energy Carolinas. On September 13, 2011, Duke Energy and Progress Energy withdrew their application seeking approval for the future merger of their Carolinas utility companies, Duke Energy Carolinas and Progress Energy Carolinas, as the merger of these entities is not likely to occur for several years after the close of the merger. Hearings occurred the week of December 12, 2011 and proposed orders and briefs were filed on December 20, 2011. Duke Energy Carolinas and Progress Energy Carolinas committed at the hearing that, as a condition for the PSCSC approving the proposed Joint Dispatch Agreement, Duke Energy Carolinas and Progress Energy Carolinas will give their South Carolina customers “most favored nations” treatment. Thus, Duke Energy Carolinas’ and Progress Energy Carolinas’ South Carolina customers will receive pro rata benefits equivalent to those approved by the NCUC in connection with the NCUC’s review of the merger application. Duke Energy Carolinas and Progress Energy Carolinas are awaiting a PSCSC order in this case. Securities and Exchange Commission. On March 17, 2011, Duke Energy filed an initial registration statement on Form S-4 with the Securities and Exchange Commission (SEC) for shares to be issued to consummate the merger with Progress Energy. On July 7, 2011, the Form S-4 was declared effective by the SEC, and the joint proxy statement/prospectus contained in the Form S-4 was mailed to the shareholders of both companies thereafter. On August 23, 2011, Duke Energy and Progress Energy shareholders approved the proposed merger. In addition, Duke Energy shareholders approved a 1-for-3 reverse stock split. U.S. Department of Justice and the Federal Trade Commission. On March 28, 2011, Duke Energy and Progress Energy submitted HartScott-Rodino antitrust filings to the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC). The 30 day notice period expired without further action by the DOJ; therefore, the companies had clearance to close the merger on April 27, 2011. This clearance is effective for one year. On March 22, 2012, the companies filed new antitrust filings. The 30 day notice period expired without further action by the DOJ; therefore, the companies have clearance to close the merger. Nuclear Regulatory Commission. On March 30, 2011, Progress Energy made filings with the NRC for approval for indirect transfer of control of licenses for Progress Energy’s nuclear facilities to include Duke Energy as the ultimate parent corporation on these licenses. On December 2, 2011, the NRC approved the indirect transfer of control of Progress Energy’s nuclear stations to include Duke Energy as the parent corporation of the licenses. Kentucky Public Service Commission. On April 4, 2011, Duke Energy and Progress Energy filed a merger application with the KPSC. On June 24, 2011, Duke Energy and Progress Energy filed a settlement agreement with the Attorney General. A public hearing occurred on July 8, 2011. An order conditionally approving the merger was issued on August 2, 2011. On September 15, 2011, Duke Energy and Progress Energy filed for approval of a stipulation revising one of the merger conditions contained in the KPSC order. On October 28, 2011, the KPSC issued an order approving the stipulation and merger and again required Duke Energy and Progress Energy to accept all conditions contained in the order. Duke Energy and Progress Energy filed their acceptance of those conditions on November 4, 2011. Federal Communications Commission. On July 12, 2011, Duke Energy and Progress Energy filed an application with the FCC for approval of radio system license transfers. The FCC approved the transfers on July 27, 2011. On January 5, 2012, the FCC granted an extension of its approval until July 12, 2012. No assurances can be given as to the timing of the satisfaction of all closing conditions or that all required approvals will be received. Prior to the merger, Duke Energy and Progress Energy will continue to operate as separate companies. Accordingly, except for specific references to the pending merger, the descriptions of strategy and outlook and the risks and challenges Duke Energy faces, and the discussion and analysis of results of operations and financial condition set forth below relate solely to Duke Energy. Details regarding the pending merger are discussed in Note 2 to the Condensed Consolidated Financial Statements, “Acquisitions and Dispositions of Businesses and Sales of Other Assets.” 77 Table of Contents PART I RESULTS OF OPERATIONS In this section, Duke Energy provides analysis and discussion of earnings and factors affecting earnings on both a GAAP and non-GAAP basis. Management evaluates financial performance in part based on the non-GAAP financial measure, adjusted earnings and adjusted EPS, which is measured as income from continuing operations after deducting income attributable to noncontrolling interests, adjusted for the impact of special items and the mark-to-market impacts of economic hedges in the Commercial Power segment. Special items represent certain charges and credits, which management believes will not be recurring on a regular basis, although it is reasonably possible such charges and credits could recur. Mark-to-market adjustments reflect the mark-to-market impact of derivative contracts, which is recognized in GAAP earnings immediately as such derivative contracts do not qualify for hedge accounting or regulatory accounting treatment, used in Duke Energy’s hedging of a portion of economic value of its generation assets in the Commercial Power segment. The economic value of the generation assets is subject to fluctuations in fair value due to market price volatility of the input and output commodities (e.g., coal, power) and, as such, the economic hedging involves both purchases and sales of those input and output commodities related to the generation assets. Because the operations of the generation assets are accounted for under the accrual method, management believes that excluding the impact of mark-tomarket changes of the economic hedge contracts from operating earnings until settlement better matches the financial impacts of the hedge contract with the portion of economic value of the underlying hedged asset. Management believes that the presentation of adjusted earnings provides useful information to investors, as it provides them an additional relevant comparison of Duke Energy’s performance across periods. Management uses this non-GAAP financial measure for planning and forecasting and for reporting results to the Board of Directors, employees, shareholders, analysts and investors concerning Duke Energy’s financial performance. The most directly comparable GAAP measure for adjusted earning is net income attributable to Duke Energy common shareholders, which includes the impact of special items, the mark-to-market impacts of economic hedges in the Commercial Power segment and discontinued operations. EXECUTIVE OVERVIEW The following table reconciles adjusted earnings to GAAP net income attributable to Duke Energy and adjusted EPS to GAAP EPS attributable to Duke Energy. Three Months Ended March 31, 2011 2012 Total Adjusted Earnings (in millions) Per Share (in millions) Per Share $ $ 0.38 — $ $ 0.39 — — — 506 1 Economic Hedges (Mark-to-Market), net of tax Edwardsport Impairment, net of tax Voluntary Opportunity Plan Deferral, net of tax Costs to Achieve Progress Energy Merger, net of tax Income from Discontinued Operations, net of tax Net Income Attributable to Duke Energy (268) 60 (6) 2 $ 295 (3) (0.20) 0.04 — — $ 0.22 521 — — $ (7) — 511 (0.01) — $ 0.38 For the three months ended March 31, 2012, adjusted earnings was $506 million, or $0.38 per share, compared to adjusted earnings of $521 million or $0.39 per share, for the same period in 2011. The decrease as compared to the prior period was primarily due to: • Unfavorable weather across all jurisdictions, and • Lower non-regulated Midwest coal generation volumes and margin, net of capacity revenues. • Partially offset by the implementation of revised rates in North Carolina and South Carolina, and • Favorable volumes and pricing in Brazil. SEGMENT RESULTS Effective with the first quarter of 2012, management began evaluating segment performance based on Segment Income. Segment Income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment Income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. In conjunction with management’s use of the new reporting measure, certain governance costs that were previously unallocated have now been allocated to each of the segments. In addition, direct interest expense and income taxes are included in segment income. Prior year financial information has been recast to conform to the current year presentation. None of these changes impacts the reportable operating segments or the Duke Energy Registrants’ previously reported consolidated revenues, net income or EPS. See Note 3 to the Unaudited Condensed Consolidated Financial Statements, “Business Segments,” for a discussion of Duke Energy’s segment structure. 78 Table of Contents PART I Duke Energy’s segment income may not be comparable to a similarly titled measure of another company because other entities may not calculate segment income in the same manner. Segment income is summarized in the following table, and detailed discussions follow. Segment Income by Business Segment Three Months Ended March 31, Increase 2011 2012 (in millions) $136 31 USFE&G Commercial Power International Energy Total Reportable Segment Income Other Discontinued Operations Net Income Attributable to Duke Energy $ 341 49 128 518 142 309 (16) (7) — $ 511 2 $ 295 (Decrease) $ (205) (18) 14 (209) (9) 2 $ (216) USFE&G USFE&G includes the regulated operations of Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana. Three Months EndedMarch 31, Operating revenues Operating expenses Gains on sales of other assets and other, net Operating income Other income and expenses, net Interest expense Income before income taxes Income tax expense Segment income $ 2,668 2,382 $ 2,683 2,081 — 602 62 290 62 146 (in millions) 140 524 206 70 $ Duke Energy Carolinas’ GWh sales Duke Energy Midwest’s GWh sales (a)(b) Net proportional MW capacity in operation (c) (c) 2011 4 136 19,461 (a) (a) (b) 2012 14,323 27,471 183 $ 341 20,584 14,772 26,869 Increase (Decrease) $ (15) 301 4 (312) — 6 (318) (113) $ (205) (1,123) (449) 602 Gigawatt-hours (GWh). Duke Energy Ohio (Ohio transmission and distribution only), Duke Energy Indiana and Duke Energy Kentucky, collectively referred to as Duke Energy Midwest within this USFE&G segment discussion. Megawatt (MW). 79 Table of Contents PART I The following table shows the percent changes in GWh sales and average number of electric customers for Duke Energy Carolinas and Duke Energy Midwest for the three months ended March 31, 2012, compared to the same period in the prior year. Except as otherwise noted, the below percentages represent billed sales only for the period presented and are not weather normalized. Three Months Ended Increase (decrease) over prior year Residential sales (a) General service sales (a) Industrial sales (a) Wholesale power sales Total sales(b) Average number of customers (a) (b) Three Months Ended March 31, 2012 March 31, 2012 Duke Energy Carolinas Duke Energy Midwest (14.0)% (1.5)% 1.9% (18.6)% (5.5)% 0.5% (12.0)% (4.8)% 2.2% (3.6)% (3.0)% 0.5% Major components of retail sales. Consists of all components of sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Three Months Ended March 31, 2012 as Compared to March 31, 2011 Operating Revenues. The decrease was driven primarily by: • An $84 million decrease in electric and gas sales to retail customers due to unfavorable weather conditions in 2012 compared to the same period in 2011. For the Carolinas, heating degree days for the first quarter of 2012 were 25% below normal as compared to 3% above normal during the same period in 2011. For the Midwest, heating degree days for the first quarter of 2012 were 28% below normal as compared to 5% above normal during the same period in 2011; and • A $10 million decrease in fuel revenues (including emission allowances) driven primarily by decreased demand from electric retail customers in 2012 compared to the same period in 2011 mainly due to unfavorable weather conditions, and lower demand and fuel rates in Ohio and Kentucky from natural gas retail customers, partially offset by higher fuel rates for electric retail customers, and higher purchased power revenues in Ohio collected under the new ESP, and higher purchased power revenues in Indiana. Fuel revenues represent sales to retail and wholesale customers. Partially offsetting these decreases was: • A $78 million increase in net retail pricing and rate riders primarily due to new retail rates resulting from the 2011 North Carolina and South Carolina rate cases in the first quarter of 2012, and revenues recognized for the energy efficiency program. Operating Expenses. The increase was driven primarily by: • A $420 million increase due to a 2012 impairment and other charges related to the Edwardsport integrated gasification combined cycle (IGCC) plant that is currently under construction. See Note 4 to the Unaudited Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information; and • A $21 million increase in depreciation and amortization due primarily to placing additional plant in service. Partially offsetting these increases were: • A $125 million decrease in operating and maintenance expenses primarily due to the establishment of regulatory assets in the first quarter of 2012, pursuant to regulatory orders, for future recovery of certain employee severance costs related to the 2010 voluntary severance plan and other costs, lower outage costs at nuclear generation stations, and lower storm costs, partially offset by increased costs associated with the energy efficiency program; and • A $17 million decrease in fuel expense (including purchased power and natural gas purchases for resale) primarily related to lower volume of coal used in electric generation resulting from unfavorable weather conditions and lower coal-fired generation due to low natural gas prices, lower prices for natural gas used in electric generation, and lower natural gas volumes and prices to full-service retail gas customers, partially offset by higher purchases of power in Ohio as a result of the new Ohio ESP, higher volumes of natural gas used in electric generation, higher purchases of power in Indiana (reflective of favorable market prices), and higher coal prices. Income Tax Expense. Income tax expense for the three months ended March 31, 2012 decreased $113 million compared to the same period in 2011. The decrease is primarily due to the decrease in pretax income. The effective tax rate for the three months ended March 31, 2012 and 2011 was 34.2% and 34.9%, respectively. Segment Income . As discussed above, the decrease resulted primarily from the 2012 impairment and other charges related to the Edwardsport IGCC plant, unfavorable weather, and increased depreciation and amortization. These negative impacts were partially offset by a decrease in operating and maintenance expenses decreased income taxes, and higher net retail pricing and rate riders. Matters Impacting Future USFE&G Results Results of USFE&G are impacted by the completion of its major generation fleet modernization projects. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for a discussion of the significant increase in the estimated cost of the 618 MW IGCC plant at Duke Energy Indiana’s Edwardsport Generating Station (Edwardsport IGCC). Additional updates to the cost estimate could occur through the completion of the plant in 2012. Phase I and Phase II hearings concluded on January 24, 2012. On April 30, 2012, Duke Energy Indiana entered into a settlement 80 Table of Contents PART I agreement with certain intervenors on the construction cost increase which resulted in the recognition of a $420 million pre-tax charge to earnings. The agreement is subject to approval by the IURC and the settling parties have requested that schedule be set to hear evidence in support of the settlement agreement, which could allow for an IURC order as early as the summer of 2012. Duke Energy Indiana is unable to predict the ultimate outcome of these proceedings. In the event the IURC disallows a portion of the remaining plant costs, including financing costs, or if cost estimates for the plant increase, additional charges to expense, which could be material, could occur. Duke Energy Carolinas plans to file rate cases in North Carolina and South Carolina during 2012. Duke Energy Ohio plans to file electric transmission and distribution and gas rate cases in 2012. These planned rates cases are needed to recover investments in Duke Energy’s ongoing infrastructure modernization projects and operating costs. Commercial Power Three Months Ended March 31, 2011 2012 Operating revenues Operating expenses Gains on sales of other assets and other, net Operating income Other income and expenses, net Interest expense Income before income taxes Income tax expense Segment income Actual coal-fired plant production, GWh Actual gas-fired plant production, GWh Actual renewable plant production, GWh Net proportional MW capacity in operation $ 580 (in millions) $ — 50 8 19 39 8 $ 31 4,068 4,583 998 7,691 644 564 2 82 8 530 24 66 17 $ 49 4,691 2,709 897 8,272 Increase (Decrease) $ (64) (34) (2) (32) — (5) (27) (9) $ (18) (623) 1,874 101 (581) Three Months Ended March 31, 2012 as Compared to March 31, 2011 Operating Revenues. The decrease was driven primarily by: • A $64 million decrease in electric revenues from the coal-fired generation assets driven primarily by the expiration of the 2009-2011 ESP which dedicated Commercial Power’s coal-fired generation to Duke Energy Ohio’s retail customers, partially offset by the coal-fired generation assets participating in the PJM Interconnection, LLC (PJM) wholesale energy market effective January 2, 2012; • A $48 million decrease in electric revenues from Duke Energy Retail Sales, LLC (Duke Energy Retail) resulting from lower volumes and unfavorable pricing; and • A $23 million decrease in electric revenues from Duke Energy Generation Services, Inc. (DEGS), excluding renewables, due primarily to the termination of certain operations at the end of the first quarter of 2011 and a reduction of coal sales volumes as a result of lower natural gas prices. Partially offsetting these decreases were: • A $23 million increase in electric revenues from the gas-fired generation assets driven primarily by increased volumes as a result of lower natural gas prices; • A $21 million increase primarily due to PJM capacity revenues associated with the move of the coal-fired generation assets from MISO to PJM in 2012, net of a decrease related to lower average cleared auction pricing in 2012 compared to 2011 for the gas-fired generation assets; and • A $19 million increase from higher auction volumes. Operating Expenses. The decrease was driven primarily by: • A $20 million decrease in DEGS, excluding renewables, fuel used due primarily to the termination of certain operations at the end of the first quarter of 2011 and from lower natural gas prices; • A $20 million decrease in operating expenses resulting primarily from lower 2012 transmission costs and prior year outages; • A $14 million decrease in purchased power to serve Duke Energy Retail customers; and • A $6 million decrease in fuel expenses from the gas-fired generation assets driven by lower natural gas costs. Partially offsetting these decreases were: • A $17 million increase in purchased power to serve auctions; and • A $12 million increase in fuel expenses from the coal-fired generation assets driven by higher purchased power costs, partially offset by lower coal costs. @196 JEQELQ KEN m? ?an? 81 Table of Contents PART I Income Tax Expense. Income tax expense for the three months ended March 31, 2012 decreased $9 million compared to the same period in 2011. The decrease is primarily due to the decrease in pretax income. The effective tax rate for the three months ended March 31, 2012 and 2011 was 19.3% and 25.9%, respectively. The decrease in the effective tax rate is primarily due to the decrease in the pretax income. Segment Income . As discussed above, the decrease is primarily attributable to lower revenues driven by the expiration of the 2009-2011 ESP and the impact competitive market dispatch for the Duke Energy Ohio coal-fired assets offset by higher PJM capacity revenues and favorable earnings from the gasfired generation assets. Matters Impacting Future Commercial Power Results Commercial Power’s gas-fired non-regulated generation assets earn capacity revenues from PJM. PJM capacity prices are determined through an auction process for planning years from June through May of the following year and are conducted approximately three years in advance of the capacity delivery period. Capacity prices, for periods beginning June 2011 and continuing through May 2014 will be significantly lower than current and historical capacity prices. As a result, Commercial Power’s operating revenues and segment income will be negatively impacted through 2014. Commercial Power is focused on growing its non-regulated renewable energy portfolio. Results for Commercial Power are dependent upon completion of renewable energy construction projects and tax credits from renewable energy production and project investments. Failure of current construction projects to reach commercial operation before the expiration of certain tax credit deadlines could have a significant impact on Commercial Power’s results of operations. International Energy Three Months Ended March 31, $ 402 Operating revenues Operating expenses Operating income Other income and expenses, net Interest expense Income before income taxes Income tax expense Less: Income attributable to noncontrolling interest Segment Income (in millions) $ 348 $ 54 245 211 34 157 137 20 54 59 16 (5) — 15 1 — 16 195 180 48 49 4 $ 142 Sales, GWh Net proportional MW capacity in operation Increase (Decrease) 2011 2012 5,074 4,231 4 $ 128 4,787 4,192 $ 14 287 39 Three Months Ended March 31, 2012 as Compared to March 31, 2011 Operating Revenues. The increase was driven primarily by: • A $24 million increase in Central America due to increased dispatch, and higher average prices in Guatemala; • A $21 million increase in Brazil as a result of higher volumes and average prices, partially offset by unfavorable exchange rates; and • A $9 million increase in Peru as a result of higher average prices and hydrocarbon sales. Operating Expenses. The increase was driven primarily by: • A $30 million increase in Central America primarily due to higher fuel and coal consumption as a result of higher dispatch; Other Income and Expenses, net. The decrease was primarily driven by the absence of a prior year Peru arbitration award of $20 million, partially offset by higher equity earnings at National Methanol Company (NMC) as a result of higher methyl tertiary butyl ether (MTBE) prices and volumes, net of higher butane costs. Segment Income . As discussed above, the increase was primarily due to higher average prices and volumes in Brazil and Peru, and higher equity earnings at NMC, partially offset by the absence of an arbitration award in Peru, and unfavorable exchange rates in Brazil. 82 Table of Contents PART I Other Three Months Ended March 31, 2012 $ 15 Operating revenues Operating expenses (Losses) gains on sales of other assets and other, net Operating loss Other income and expenses, net Interest expense Income before income taxes Income tax benefit Less: Loss attributable to noncontrolling interest Segment Loss 16 (1) (2) 5 43 (40) (24) — $ (16) 2011 (in millions) $ 11 26 8 (7) 22 39 (24) (15) (2) $ (7) Increase (Decrease) $ 4 (10) (9) 5 (17) 4 (16) (9) 2 $ (9) Three Months Ended March 31, 2012 as Compared to March 31, 2011 Operating Expenses. The decrease was driven primarily by lower costs related to the proposed merger with Progress Energy and favorable loss experience at Bison Insurance Company Limited (Bison). (Losses) Gains on Sales of Other Assets and Other, Net. The decrease is attributable primarily to the final settlement of the sale of a 50% ownership interest in DukeNet Communications, LLC (DukeNet), in the prior year. Other Income and Expenses, net. The decrease was driven primarily by higher interest income recorded in 2011 following the resolution of certain income tax matters related to prior years and prior year net gains on sales of miscellaneous investments. Income Tax Benefit. Income tax benefit for the three months ended March 31, 2012 increased $9 million compared to the same period in 2011. The increase is primarily due to the decrease in pretax income. The effective tax rate for the three months ended March 31, 2012 and 2011 was 59.9% and 63.0%, respectively. Segment Loss . The increase was due primarily to a prior year final settlement related to the sale of a 50% ownership interest in DukeNet, favorable tax resolutions in 2011 and current year impairments. Matters Impacting Future Other Results Duke Energy previously held an effective 50% interest in Crescent, which was a real estate joint venture formed by Duke Energy in 2006 that filed for Chapter 11 bankruptcy protection in June 2009. On June 9, 2010, Crescent restructured and emerged from bankruptcy and Duke Energy forfeited its entire 50% ownership interest to Crescent debt holders. This forfeiture caused Duke Energy to recognize a loss, for tax purposes, on its interest in the second quarter of 2010. Although Crescent has reorganized and emerged from bankruptcy with creditors owning all Crescent interest, there remains uncertainty as to the tax treatment associated with the restructuring. Based on this uncertainty, it is possible that Duke Energy could incur a future tax liability related to the tax losses associated with its partnership interest in Crescent and the resolution of issues associated with Crescent’s emergence from bankruptcy. 83 Table of Contents PART I Duke Energy Carolinas INTRODUCTION Management’s Discussion and Analysis should be read in conjunction with Duke Energy Carolinas’ Unaudited Condensed Consolidated Financial Statements. Duke Energy Carolinas, a wholly owned subsidiary of Duke Energy, is an electric utility company that generates, transmits, distributes and sells electricity in North Carolina and South Carolina. BASIS OF PRESENTATION The results of operations and variance discussion for Duke Energy Carolinas is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Three Months Ended March 31, 2011 2012 Operating revenues Operating expenses Gains on sales of other assets and other, net Operating income Other income and expenses, net Interest expense Income before income taxes Income tax expense Net income $1,501 1,029 3 (in millions) $1,552 1,189 — $ (51) (160) 363 42 112 (3) 8 475 39 97 417 151 $ 266 Increase (Decrease) $ 89 316 111 205 3 101 40 $ 61 The $61 million increase in Duke Energy Carolinas’ net income for the three months ended March 31, 2012 compared to March 31, 2011 was primarily due to the following factors: Operating Revenues. The decrease was primarily due to: • An $85 million decrease in fuel revenues driven primarily by decreased demand from retail customers mainly due to unfavorable weather conditions, partially offset by higher fuel rates in both North Carolina and South Carolina. Fuel revenues represent sales to retail and wholesale customers; and • A $58 million decrease in retail revenues due to unfavorable weather conditions. The number of heating degree days for the first quarter of 2012 was 25% below normal as compared to 3% above normal in 2011. The first quarter of 2012 was the mildest on record (dating back to 1961). Partially offsetting these decreases were: • An $81 million increase in net retail pricing and rate riders primarily due to new retail rates resulting from the North Carolina and South Carolina rate cases in the first quarter of 2012, and revenues recognized for the energy efficiency programs primarily due to a favorable adjustment following a South Carolina rate order; and • An $8 million increase in weather adjusted sales volumes to customers primarily due to an extra day of revenues for leap year in 2012. Operating Expenses. The decrease was primarily due to : • A $105 million decrease in operating and maintenance expenses primarily due to the establishment of regulatory assets in the first quarter of 2012, pursuant to regulatory orders, for future recovery of certain employee severance costs related to the 2010 voluntary severance plan and other costs; and • An $89 million decrease in fuel expense (including purchased power) primarily related to lower volume of coal used in electric generation due to lower demand based on unfavorable weather conditions and lower coal-fired generation due to low natural gas prices. Partially offsetting these decreases was: • A $27 million increase in depreciation and amortization expense primarily due to placing additional plant in service and amortization of certain regulatory assets. Income Tax Expense. Income tax expense for the three months ended March 31, 2012 increased $40 million compared to the same period in 2011. The increase in income tax expense is primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2012 and 2011, was 36.3% and 35.1%, respectively. The increase in the effective tax rate is primarily due to the increase in pretax income and a decrease in allowance for funds used during construction (AFUDC) in 2012. Matters Impacting Future Duke Energy Carolinas Results Duke Energy Carolinas plans to file rate cases in North Carolina and South Carolina during 2012. These planned rates cases are needed to recover investments in Duke Energy Carolinas’ ongoing infrastructure modernization projects and operating costs. Duke Energy Carolinas’ earnings could be adversely impacted if these rate cases are denied or delayed by either of the state regulatory commissions. 84 Table of Contents PART I Duke Energy Ohio INTRODUCTION Management’s Discussion and Analysis should be read in conjunction with Duke Energy Ohio’s Unaudited Condensed Consolidated Financial Statements. Duke Energy Ohio is an indirect wholly owned subsidiary of Duke Energy. Duke Energy Ohio’s principal lines of business include generation, transmission and distribution of electricity, the sale of and/or transportation of natural gas, and energy marketing in parts of Ohio, Illinois and Pennsylvania. BASIS OF PRESENTATION The results of operations and variance discussion for Duke Energy Ohio is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Three Months Ended March 31, 2012 Operating revenues Operating expenses Gains (losses) on sales of other assets and other, net Operating income Other income and expenses, net Interest expense Income before income taxes Income tax expense Net income $912 2011 (in millions) 4 $879 746 2 135 5 24 118 116 44 43 $ 74 $ 73 775 1 138 Increase (Decrease) $ 33 29 (1) 3 (1) — 24 $ 2 1 1 The $1 million increase in Duke Energy Ohio’s net income for the three months ended March 31, 2012 compared to March 31, 2011 was primarily due to the following factors: Operating Revenues. The increase was primarily driven by: • A $38 million increase in regulated fuel revenues driven primarily by higher purchased power revenues collected under the new Ohio ESP which became effective January 1, 2012, partially offset by reduced gas sales volumes and lower natural gas costs; • A $34 million increase in net mark-to-market revenues on non-qualifying power and capacity hedge contracts, consisting of mark-to-market gains of $34 million in 2012 compared to no gains in 2011; • A $23 million increase in electric revenues from the gas-fired generation assets driven primarily by increased volumes as a result of lower natural gas prices; and • A $21 million increase primarily due to PJM capacity revenues associated with the move of the coal-fired generation assets from MISO to PJM in 2012, net of a decrease related to lower average cleared auction pricing in 2012 compared to 2011 for the gas-fired generation assets. Partially offsetting these increases were: • A $59 million decrease in electric revenues from the coal-fired generation assets driven primarily by the expiration of the 2009-2011 ESP, partially offset by the coal-fired generation assets participating in the PJM wholesale energy market; • A $15 million decrease in retail revenues related to unfavorable weather conditions in 2012 compared to 2011; and • A $7 million net decrease in retail revenues related to rate riders due to various factors, including changes in the rates reflected in the riders. Operating Expenses. The increase was primarily driven by: • A $34 million increase in regulated fuel expense and purchased power driven primarily by higher purchased power expense as a result of the new Ohio ESP, partially offset by reduced sales volumes and lower natural gas costs; and • A $17 million increase in fuel expenses from the coal-fired generation assets driven by higher coal costs. Partially offsetting these increases were: • A $14 million decrease in operating and maintenance expenses resulting primarily from prior year outages and higher 2011 regulatory asset amortization; and • A $6 million decrease in fuel expenses from the gas-fired generation assets driven by lower natural gas costs. Matters Impacting Future Duke Energy Ohio Results Duke Energy Ohio’s gas-fired non-regulated generation assets earn capacity revenues from PJM. PJM capacity prices are determined through an auction process for planning years from June through May of the following year and are conducted approximately three years in advance of the capacity delivery period. Capacity prices, for periods beginning June 2011 and continuing through May 2014 will be significantly lower than current and historical capacity prices. As a result, Duke Energy Ohio’s operating revenues and net income will be negatively impacted through 2014. Duke Energy Ohio plans to file electric transmission and distribution and gas rate cases in 2012. These planned rates cases are needed to recover capital investments and operating costs. 85 Table of Contents PART I Duke Energy Indiana INTRODUCTION Management’s Discussion and Analysis should be read in conjunction with Duke Energy Indiana’s Unaudited Condensed Consolidated Financial Statements. Duke Energy Indiana is an indirect wholly owned subsidiary of Duke Energy. Duke Energy Indiana is an electric utility company that generates, transmits, distributes and sells electricity in north central, central and southern Indiana. BASIS OF PRESENTATION The results of operations and variance discussion for Duke Energy Indiana is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Three Months Ended March 31, 2012 Operating revenues Operating expenses Operating (loss) income Other income and expenses, net Interest expense (Loss) income before income taxes Income tax (benefit) expense Net (loss) income $ 688 960 (272) 23 34 (283) (116) $ (167) 2011 (in millions) $6 5 9 529 130 23 36 117 41 $ 76 Increase (Decrease) $ 29 431 (402) — (2) (400) (157) $ (243) The $243 million decrease in Duke Energy Indiana’s net income for the three months ended March 31, 2012 compared to March 31, 2011 was primarily due to the following factors: Operating Revenues. The increase was primarily due to: • A $37 million increase in fuel revenues (including emissions allowances) primarily due to an increase in fuel rates as a result of higher fuel and purchased power costs; and • A $9 million increase in rate pricing due to the positive impact on overall average prices of lower sales volumes. Partially offsetting these increases were: • An $11 million decrease in retail revenues related to unfavorable weather conditions in 2012 compared to 2011; and • A $6 million decrease in revenues related to rate riders due to various factors, including changes in the rates reflected in the riders. Operating Expenses. The increase was primarily due to: • A $420 million increase due to a 2012 impairment and other charges related to the Edwardsport IGCC plant that is currently under construction. See Note 4 to the Unaudited Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information; and • A $36 million increase in fuel costs primarily due to higher purchases of power (reflective of favorable market prices); partially offset by decreased generation cost at coal plants due to lower generation levels. Partially offsetting these increases were: • A $21 million decrease in operation and maintenance primarily due to lower storm costs in 2012, and lower generation outage and maintenance costs; and • A $4 million decrease in depreciation and amortization primarily due to lower regulatory amortization expense. Income Tax (Benefit) Expense. Income tax (benefit) expense for the three months ended March 31, 2012 decreased $157 million compared to the same period in 2011. The decrease in income tax (benefit) expense is primarily due to a decrease in pretax income. The effective tax rate, for the three months ended March 31, 2012 and 2011, was 41.0% and 34.9%, respectively. The increase in the effective tax rate is primarily due to the decrease in pretax (loss) income resulting from the 2012 impairment and other charges related to the Edwardsport IGCC project. Matters Impacting Future Duke Energy Indiana Results Results of USFE&G are impacted by the completion of its major generation fleet modernization projects. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for a discussion of the significant increase in the estimated cost of the 618 MW IGCC plant at Duke Energy Indiana’s Edwardsport IGCC plant. Additional updates to the cost estimate could occur through the completion of the plant in 2012. Phase I and Phase II hearings concluded on January 24, 2012. On April 30, 2012, Duke Energy Indiana entered into a settlement agreement with certain intervenors on the construction cost increase which resulted in the recognition of a $420 million pre-tax charge to earnings. The agreement is subject to approval by the IURC and the settling parties have requested that schedule be set to hear evidence in support of the settlement agreement, which could allow for an IURC order as early as the summer of 2012. Duke Energy Indiana is unable to predict the ultimate outcome of these proceedings. In the event the IURC disallows a portion of the remaining plant costs, including financing costs, or if cost estimates for the plant increase, additional charges to expense, which could be material, could occur. 86 Table of Contents PART I LIQUIDITY AND CAPITAL RESOURCES The following discussion of liquidity and capital resources is on a consolidated Duke Energy basis. Duke Energy’s significant cash requirements are largely due to the capital intensive nature of its operations, including capital expansion projects, fleet modernization and other expenditures for environmental compliance. Duke Energy relies upon its cash flows from operations, as well as its ability to access the long-term debt and equity capital markets for sources of domestic liquidity. Additionally, Duke Energy has access to unsecured revolving credit facilities, which are not restricted upon general market conditions, as discussed further below. Cash Flow Information The following table summarizes Duke Energy’s cash flows for the three months ended: March 31, 2011 2012 (in millions) Cash flows provided by (used in): Operating activities Investing activities Financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period $ 872 $ 961 (918) (294) (251) 1,670 $1,419 (1,180) (731) (1,039) 2,110 $ 1,071 Operating Cash Flows. The following table summarizes key components of Duke Energy’s operating cash flows for the three months ended: March 31, 2011 2012 Net income Non-cash adjustments to net income Working capital Net cash provided by operating activities $ 299 (in millions) $ 513 600 836 (263) (152) $ 961 $ 872 The decrease in cash provided by operating activities in 2012 as compared to 2011 was driven primarily by: • Traditional working capital decreased cash provided from operations, primarily due to increase in coal inventory of $130 million, mainly due to milder weather and displaced generation due to low natural gas prices. This increase was partially offset by: • An increase in net income adjusted for non-cash and non-operating items in 2012 as compared to 2011. Investing Cash Flows. The following table summarizes key components of Duke Energy’s investing cash flows for the three months ended: March 31, 2011 2012 (in millions) Capital, investment and acquisition expenditures Available for sale securities, net Proceeds from sales of other assets, and sales of and collections on notes receivable Other investing items Net cash used in investing activities $(1,043) (127) 17 (27) $(1,180) $ (1,011) (35) 103 25 $ (918) The increase in cash used in investing activities in 2012 as compared to 2011 was driven primarily by: • A $100 million decrease primarily as a result of the prior year sale of Windstream Corp. stock received in conjunction with the sale of Q-Comm Corporation in December 2010, • A $90 million increase in purchases of available for sale securities, net of proceeds, and • A $30 million increase in capital and investment expenditures due to Duke Energy’s ongoing infrastructure modernization program. Financing Cash Flows. The following table summarizes key components of Duke Energy’s financing cash flows for the three months ended: March 31, 2011 2012 Issuance of common stock related to employee benefit plans Payments of long-term debt, net Notes payable and commercial power Dividends paid $ (in millions) 8 (429) 28 (335) $ 6 (18) 58 (331) Other ?nancing items Net cash used in investing activities 87 (3) $031) QQW Aug 25 2mm? Table of Contents PART I The increase in cash used in financing activities in 2012 as compared to 2011 was driven primarily by: • A $410 million increase in payments for the redemption of long-term debt net of issuances primarily due to the timing of redemptions and issuances between years, and • A $30 million decrease in proceeds from net issuances of notes payable and commercial paper, primarily due to the prior year increase in notes payable to VIES. Significant Notes Payable and Long-Term Debt Activities - 2012. In March 2012, Duke Energy Indiana issued $250 million principal amount of first mortgage bonds, which carry a fixed interest rate of 4.20% and mature March 15, 2042. Proceeds from the issuance were used to repay a portion of Duke Energy Indiana’s outstanding short-term debt. In January 2012, Duke Energy Carolinas used proceeds from its December 2011 $1 billion issuance of principal amount of first mortgage bonds to repay $750 million 6.25% senior unsecured notes that matured January 15, 2012. On April 4, 2011, Duke Energy filed a registration statement (Form S-3) with the Securities and Exchange Commission (SEC) to sell up to $1 billion (maximum of $500 million of notes outstanding at any particular time) of variable denomination floating rate demand notes, called PremierNotes. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, but may be redeemed in whole or in part by Duke Energy at any time. The notes are non-transferable and may be redeemed in whole or in part at the investor’s option. Proceeds from the sale of the notes will be used for general corporate purposes. The balance as of March 31, 2012 and December 31, 2011, is $126 million and $79 million, respectively. The notes reflect a short-term debt obligation of Duke Energy and will be reflected as Notes Payable and Commercial Paper on Duke Energy’s Condensed Consolidated Balance Sheets. Available Credit Facilities and Restrictive Debt Covenants. In November 2011, Duke Energy entered into a new $6 billion, five-year master credit facility, with $4 billion available at closing and the remaining $2 billion available following successful completion of the proposed merger with Progress Energy. This $2 billion commitment expires on July 8, 2012. The Duke Energy Registrants each have borrowing capacity under the master credit facility up to specified sublimits for each borrower. However, Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. See the table below for the borrowing sublimits for each of the borrowers as of March 31, 2012. The amount available under the master credit facility has been reduced, as indicated in the table below, by the use of the master credit facility to backstop the issuances of commercial paper, letters of credit and certain tax-exempt bonds. As indicated, borrowing sub limits for the Subsidiary Registrants are also reduced for amounts outstanding under the money pool arrangement. Master Credit Facility Summary as of March 31, 2012 (in millions) (a)(b) Facility Size Less: Notes Payable and Commercial Paper (d) Outstanding Letters of Credit Tax-Exempt Bonds Available Capacity (c) a) (b) (c) (d) Duke Energy (Parent) Duke Energy Carolinas Duke Energy Ohio Duke Energy Indiana $ 1,250 $1,250 $ $ 750 $ 4,000 $ (150) — (81) 519 (505) (46) (260) $3,189 (55) (39) — $ 1,156 (300) — — (7) (95) $ 848 750 (84) $ 666 Total This summary only includes Duke Energy’s master credit facility and, accordingly, excludes certain demand facilities and committed facilities that are immaterial in size or which generally support very specific requirements, which primarily include facilities that backstop various outstanding taxexempt bonds. These facilities that backstop various outstanding tax-exempt bonds generally have non-cancelable terms in excess of one year from the balance sheet date, such that the Duke Energy Registrants have the ability to refinance such borrowings on a long-term basis. Accordingly, such borrowings are reflected as Long-term Debt on the Condensed Consolidated Balance Sheets of the respective Duke Energy Registrant. Credit facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower. Represents the sub limit of each borrower at March 31, 2012. The Duke Energy Ohio sub limit includes $100 million for Duke Energy Kentucky. Duke Energy issued $450 million of Commercial Paper and loaned the proceeds through the money pool to Duke Energy Carolinas and Duke Energy Indiana. The balances are classified as long-term borrowings within Long-term Debt in Duke Energy Carolinas’ and Duke Energy Indiana’s Condensed Consolidated Balance Sheets. Duke Energy holds an additional $55 million of Commercial Paper as of March 31, 2012. The balance is classified as Notes payable and commercial paper on Duke Energy’s Condensed Consolidated Balance Sheets. Restrictive Debt Covenants. 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. As of March 31, 2012, each of the Duke Energy Registrants was in compliance with all covenants related to its significant debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the significant debt or credit agreements contain material adverse change clauses. 88 Table of Contents PART I Other Issues Global Climate Change. For information on global climate change and the potential impacts on Duke Energy, see “Other Issues” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2011. Merger with Progress Energy Inc. See Note 3 to the Unaudited Condensed Consolidated Financial Statements, “Acquisitions and Sales of Other Assets” for information related to Duke Energy’s pending merger with Progress Energy, Inc. Off-Balance Sheet Arrangements The following discussion of off balance sheet arrangements and contractual obligations is on a consolidated Duke Energy basis. During the three months ended March 31, 2012, there were no material changes to Duke Energy’s off-balance sheet arrangements. For information on Duke Energy’s offbalance sheet arrangements, see “Off-Balance Sheet Arrangements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2011. Contractual Obligations Duke Energy enters into contracts that require cash payment at specified periods, based on specified minimum quantities and prices. During the three months ended March 31 2012, there were no material changes in Duke Energy’s contractual obligations. For an in-depth discussion of Duke Energy’s contractual obligations, see “Contractual Obligations” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2011. New Accounting Standards The following new Accounting Standards Updates (ASU) have been issued, but have not yet been adopted by Duke Energy, as of March 31, 2012: ASC 210—Balance Sheet. In December 2011, the FASB issued revised accounting guidance to amend the existing disclosure requirements for offsetting financial assets and liabilities to enhance current disclosures, as well as to improve comparability of balance sheets prepared under U.S. GAAP and IFRS. The revised disclosure guidance affects all companies that have financial instruments and derivative instruments that are either offset in the balance sheet (i.e., presented on a net basis) or subject to an enforceable master netting and/or similar arrangement. In addition, the revised guidance requires that certain enhanced quantitative and qualitative disclosures be made with respect to a company’s netting arrangements and/or rights of setoff associated with its financial instruments and/or derivative instruments. For the Duke Energy Registrants, the revised disclosure guidance is effective on a retrospective basis for interim and annual periods beginning January 1, 2013. Duke Energy is currently evaluating the potential impact of the adoption of this revised guidance and is unable to estimate at this time the impact of adoption on its consolidated results of financial position. Subsequent Events For information on subsequent events related to acquisitions and sales of other assets, regulatory matters, and commitments and contingencies see Notes 2, 4, and 5 respectively, to the Unaudited Condensed Consolidated Financial Statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no significant changes from the disclosures presented in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2011. For an in-depth discussion of Duke Energy’s market risks, see “Management’s Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2011. 89 Table of Contents PART I Item 4. Controls and Procedures. – Duke Energy, Duke Energy Carolinas, Duke Energy Ohio, Duke Energy Indiana Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by Duke Energy in the reports they file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized, and reported, within the time periods specified by the Securities and Exchange Commission’s (SEC) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated their effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2012, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance. Changes in Internal Control over Financial Reporting Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2012 and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. 90 Table of Contents PART II – OTHER INFORMATION Item 1. Legal Proceedings. For information regarding legal proceedings that became reportable events or in which there were material developments in the first quarter of 2012, see Note 4 to the Unaudited Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 5 to the Unaudited Condensed Consolidated Financial Statements, “Commitments and Contingencies” under the heading “Litigation.” Item 1A. Risk Factors. In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in Duke Energy’s, Duke Energy Carolinas’, Duke Energy Ohio’s and Duke Energy Indiana’s Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect the Duke Energy Registrants’ financial condition or future results. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Issuer Purchases of Equity Securities for First Quarter of 2012 There were no issuer purchases of equity securities during the first quarter of 2012. Item 5. Other Information Change in Segment Measure Effective with the first quarter of 2012, management began evaluating segment performance based on Segment Income. Segment Income, is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment Income as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. In conjunction with management’s use of the new reporting measure, certain governance costs that were previously unallocated have now been allocated to each of the segments. In addition, direct interest expense and income taxes are included in segment income. Prior year segment profitability information has been recast to conform to the current year presentation. None of these changes impacts the reportable operating segments or the Duke Energy Registrants’ previously reported consolidated revenues, net income or earnings-per-share. Through 2011, management evaluated segment performance based on earnings before interest and taxes from continuing operations (excluding certain allocated corporate governance costs), after deducting expenses attributable to noncontrolling interests related to those profits (EBIT). On a segment basis, EBIT excluded discontinued operations, represented all profits from continuing operations (both operating and non-operating) before deducting interest and taxes, and was net of amounts attributable to noncontrolling interests related to those profits. Segment EBIT included transactions between reportable segments. The table below includes Duke Energy’s old and new segment measures for the three most recently completed fiscal years. Duke Energy Years Ended December 31, 2011 Total Reportable Segments $ 2,604 225 679 $ 3,508 Other $ USFE&G (a) Commercial Power (b) International Energy (a) (b) 2010 New Measure Old Measure EBIT Segment Income $ 1,182 $ (261) $ Segment Income $ 2,966 (229) 486 $ 3,223 133 466 1,781 (76) $ 2009 New Measure Old Measure EBIT $ 1,263 (342) 302 (255) $ 1,223 $ 94 New Measure Old Measure EBIT Segment Income $ 2,321 27 365 $ 2,713 $ $ (251) $ 1,014 (139) 232 1,107 $ (44) USFE&G recorded pre-tax charges of $222 million and $44 million during the years ended December 31, 2011, and 2010, respectively related to the Edwardsport integrated gasification combined cycle (IGCC) plant that is currently under construction. During the year ended December 31, 2011, 2010, and 2009, Commercial Power recorded impairment charges of $79 million, $660 million and $413 million, respectively. Duke Energy Ohio Years Ended December 31, 2011 FE&G(a) 2010 New Measure 327 $ 133 $ 137 $ $ (262) (125) $ (75) (365) (440) $ (93) $ — $ Total Reportable Segments $ 460 $ 78 211 Other $ (80) $ (17) (a) (b) 2009 Segment Income Commercial Power (b) 133 Old Measure EBIT New Measure Old Measure EBIT Segment Income Old Measure EBIT $ New Measure Segment Income $ $ 283 (352) (69) $ 110 (536) (426) $ (64) $ — In the second quarter of 2010, FE&G recorded an impairment charge of $216 million related to the Ohio Transmission and Distribution reporting unit. During the year ended December 31, 2010, and 2009, Commercial Power recorded impairment charges of $621 million and $769 million, respectively. Adoption of Revised Comprehensive Income Presentation Guidance In June 2011, the FASB amended the existing requirements for presenting comprehensive income in financial statements primarily to increase the prominence of items reported in other comprehensive income (OCI) and to facilitate the convergence of U.S. GAAP and IFRS. Specifically, the revised guidance eliminates the option previously provided to present components of OCI as part of the statement of changes in stockholders’ equity. Accordingly, all non-owner changes in stockholders’ equity are required to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. For the Duke Energy Registrants, this revised guidance was effective on a retrospective basis for interim and annual periods beginning January 1, 2012. The adoption of this standard changed the presentation of the Duke Energy Registrants’ financial statements but did not affect the calculation of net income, comprehensive income or earnings per share. The table below includes the Duke Energy Registrants’ revised other comprehensive income presentation for the three most recently completed fiscal years. 91 Table of Contents PART II Duke Energy Years Ended December 31 Net income Other comprehensive (loss) income, net of tax Foreign currency translation adjustments Pension and OPEB adjustments (a) Net actuarial loss (b) Net unrealized (loss) gain on cash flow hedges (c) Reclassification into earnings from cash flow hedges (d) Unrealized gain (loss) on investments in auction rate securities (e) Unrealized gain (loss) on investments in available for sale securities (f) Reclassification into earnings from available for sale securities (g) Other comprehensive(loss) income, net of tax Comprehensive income Less: Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Duke Energy Corporation (a) (b) (c) (d) (e) (f) (g) 2011 2010 2009 $1,714 $ 1,323 $1,085 79 276 — 1 341 (149) (49) — (57) 4 36 (21) 1 18 (6) 8 (5) 3 8 14 — — 4 (4) (243) 1,471 1 $ 1,470 373 372 1,696 2 $ 1,694 1,457 28 $1,429 Net of $23 tax benefit in 2011, $150 tax expense in 2010 and $16 tax expense in 2009. Net of $12 tax benefit in 2009. Net of $31 tax benefit in 2011, $1 tax expense in 2010 and $1 tax expense in 2009. Net of $1 tax expense in 2011, insignificant tax expense in 2010 and $10 tax expense in 2009. Net of $4 tax expense in 2011, $8 tax expense in 2010 and $4 tax benefit in 2009. Net of $3 in tax expense in 2011 and $4 tax expense in 2009. Net of $2 tax benefit in 2011 and $2 tax expense in 2009. Duke Energy Carolinas Years Ended December 31 2010 2009 2011 Net income Other comprehensive income, net of tax Reclassification into earnings from cash flow hedges (a) Unrealized gain (loss) on investments in auction rate securities (b) Other comprehensive income, net of tax Comprehensive income (a) (b) $ 834 $ 838 3 4 3 7 11 $849 — $ 837 $ 702 3 (3) — $ 702 Net of $2 tax expense in 2011, 2010 and 2009. Net of $5 tax expense in 2010 and $3 tax benefit in 2009. Duke Energy Ohio Years Ended December 31 2010 2009 2011 Net income (loss) $194 Other comprehensive (loss) income, net of tax Pension and OPEB adjustments (a) Reclassification into earnings from cash flow hedges (b) Other comprehensive(loss) income, net of tax Comprehensive income (loss) (6) — (6) $188 (a) (b) $ (441) 8 (1) 7 $ (434) $ (426) (2) 16 14 $ (412) Net of insignificant tax expense in 2011, $4 tax expense in 2010 and $1 tax expense in 2009. Net of $1 tax benefit in 2010 and $8 tax expense in 2009. Duke Energy Indiana Years Ended December 31 2010 2009 2011 Net income Other comprehensive income, net of tax Reclassification into earnings from cash flow hedges (a) Other comprehensive income, net of tax Comprehensive income $168 (1) (1) $167 $285 $ 201 (2) (2) $ 283 (1) (1) $ 200 Net of $1 tax bene?t in 2011, 2010 and 2009. 92 Aug 25 2mm? Table of Contents PART II Item 6. Exhibits (a) Exhibits Exhibits filed or furnished herewith are designated by an asterisk (*). Exhibit Number Duke Energy Carolinas Duke Energy Duke Energy Ohio Duke Energy Indiana *12 Computation of Ratio of Earnings to Fixed Charges X *31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.3 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.4 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.5 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.6 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.7 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.8 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X *32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X *32.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X *32.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X *32.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X *32.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X *32.7 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X *32.8 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X *101 Financials in XBRL Format. X 93 X X X Table of Contents PART II The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the Securities and Exchange Commission, to furnish copies of any or all of such instruments to it. 94 Table of Contents PART II SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. DUKE ENERGY CORPORATION DUKE ENERGY CAROLINAS, LLC DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. /S / Date: May 9, 2012 LYNN J. GOOD Lynn J. Good Chief Financial Officer /S / Date: May 9, 2012 STEVEN K. YOUNG Steven K. Young Senior Vice President and Controller 95 Exhibit 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES – DUKE ENERGY CORPORATION The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines. Year Ended December 31, Three Months Ended March 31, 2012 2011 2010 2009 2008 2007 883 $ 2,078 797 (dollars in millions) Earnings as defined for fixed charges calculation Add: Pretax income from continuing operations (a) Fixed charges Distributed income of equity investees Deduct: Interest capitalized (b) Total earnings (as defined for the Fixed Charges calculation) Fixed charges: Interest on debt, including capitalized portions (b) Estimate of interest within rental expense Total fixed charges Ratio of earnings to fixed charges (a) (b) $ 351 269 $2,297 1,057 149 $2,097 1,045 111 $ 1,770 892 82 $1,993 195 147 166 $ 3,337 168 $ 3,085 102 $2,642 93 $2,978 71 $2,951 $ 262 7 $ 269 $ 1,026 $ 1,008 $ 756 37 $ 1,057 $ 1,045 $ 853 39 $ 892 $ 31 2.3 3.2 3.0 3.0 37 38 $ 619 834 49 $ 883 3.4 41 $ 797 3.7 Excludes amounts attributable to noncontrolling interests and income or loss from equity investees. Excludes the equity costs related to Allowance for Funds Used During Construction that are included in Other Income and Expenses in the Condensed Consolidated Statements of Operations. EXHIBIT 31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Rogers, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2012 /s/ JAMES E. ROGERS James E. Rogers President and Chief Executive Officer EXHIBIT 31.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2012 /s/ LYNN J. GOOD Lynn J. Good Group Executive and Chief Financial Officer EXHIBIT 31.3 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Rogers, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Carolinas, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d –15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2012 /S / JAMES E. ROGERS James E. Rogers Chief Executive Officer EXHIBIT 31.4 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Carolinas, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d –15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2012 /S / LYNN J. GOOD Lynn J. Good Chief Financial Officer EXHIBIT 31.5 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Rogers, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Ohio, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2012 /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer EXHIBIT 31.6 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Ohio, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2012 /s/ LYNN J. GOOD Lynn J. Good Chief Financial Officer EXHIBIT 31.7 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Rogers, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Indiana, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2012 /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer EXHIBIT 31.8 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Indiana, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2012 /s/ LYNN J. GOOD Lynn J. Good Chief Financial Officer EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, President and Chief Executive Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy. /s/ JAMES E. ROGERS James E. Rogers President and Chief Executive Officer May 9, 2012 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Group Executive and Chief Financial Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy. /s/ LYNN J. GOOD Lynn J. Good Group Executive and Chief Financial Officer May 9, 2012 EXHIBIT 32.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, Chief Executive Officer of Duke Energy Carolinas, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Carolinas. /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer May 9, 2012 EXHIBIT 32.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Financial Officer of Duke Energy Carolinas, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Carolinas. /s/ LYNN J. GOOD Lynn J. Good Chief Financial Officer May 9, 2012 EXHIBIT 32.5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, Chief Executive Officer of Duke Energy Ohio, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Ohio. /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer May 9, 2012 EXHIBIT 32.6 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Financial Officer of Duke Energy Ohio, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Ohio. /s/ LYNN J. GOOD Lynn J. Good Chief Financial Officer May 9, 2012 EXHIBIT 32.7 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-Q for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, Chief Executive Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana. /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer May 9, 2012 EXHIBIT 32.8 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-Q for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Financial Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana. /s/ LYNN J. GOOD Lynn J. Good Chief Financial Officer May 9, 2012 @196 JEQELQ KEN m? ?an? Duke I Energyt 2012 Statistical Supplement EQFW Aug 25 2mm CONTENTS 2 DUKE ENERGY CORPORATION APPENDIX 2 Consolidating Statement of Operations (Q1 2012) 12 Duke Energy Ohio Supplement (Q1 2012) 3 Consolidating Statement of Operations (Q1 2011) 13 Duke Energy Ohio Supplement (Q1 2011) 4 Consolidating Balance Sheet - Assets 14 Reconciliation of "As Reported" 5 Consolidating Balance Sheet - Liabilities and Common Stockholders' Equity 6 12 U.S. FRANCHISED ELECTRIC AND GAS 6 Consolidating Segment Income (Q1 2012) 7 Consolidating Segment Income (Q1 2011) 8 Consolidating Balance Sheet - Assets 9 Consolidating Balance Sheet - Liabilities and Common Stockholders' Equity 10 Operating Statistics (Carolinas) 11 Operating Statistics (DE Midwest - Electric & Gas) Results to "As Recasted" Duke Energy Corporation CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) (In millions) OPERATING REVENUES Regulated electric Non-regulated electric, natural gas, and other Regulated natural gas Total operating revenues OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - non-regulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges (a) Total operating expenses GAINS (LOSSES) ON SALES OF OTHER ASSETS AND OTHER, NET OPERATING INCOME (LOSS) OTHER INCOME AND EXPENSES Other income and expenses, net Interest Expense INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Income Tax Expense (Benefit) INCOME (LOSS) FROM CONTINUING OPERATIONS Less: Net Income (Loss) attributable to non-controlling interest INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO DUKE ENERGY CORPORATION Income from Discontinued Operations, net of tax NET INCOME ATTRIBUTABLE TO DUKE ENERGY CORPORATION U.S. Franchised Electric and Gas $ 2,488 9 171 2,668 Commercial Power $ 23 557 580 International Energy $ 402 402 Other $ Three Months Ended March 31, 2012 Eliminations/ Adjustments 15 15 777 75 589 368 171 402 2,382 4 290 339 8 116 56 11 530 50 123 19 77 24 2 245 157 (14) 30 16 (1) (2) 62 146 206 70 136 136 8 19 39 8 31 31 54 16 195 49 146 4 142 5 43 (40) (24) (16) (16) $ (10) $ (25) (35) 2,501 958 171 3,630 (14) (22) 1 (35) - 777 448 102 746 479 184 402 3,138 3 495 $ 129 224 400 103 297 4 293 2 295 (a) Primarily due to a $400 million non-cash impairment charge on the Edwardsport IGCC project resulting from a settlement agreement in April 2012. Consolidated Data 2 Duke Energy Corporation CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) (In millions) OPERATING REVENUES Regulated electric Non-regulated electric, natural gas, and other Regulated natural gas Total operating revenues OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - non-regulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses GAINS (LOSSES) ON SALES OF OTHER ASSETS AND OTHER, NET OPERATING INCOME (LOSS) OTHER INCOME AND EXPENSES Other income and expenses, net Interest Expense INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Income Tax Expense (Benefit) INCOME (LOSS) FROM CONTINUING OPERATIONS Less: Net Income (Loss) attributable to non-controlling interest NET INCOME ATTRIBUTABLE TO DUKE ENERGY CORPORATION U.S. Franchised Electric and Gas $ 2,437 10 236 2,683 Commercial Power $ 145 499 644 International Energy $ 348 348 Other $ Three Months Ended March 31, 2011 Eliminations/ Adjustments 11 11 750 119 694 347 171 2,081 602 62 279 16 135 59 13 564 2 82 97 16 75 21 2 211 137 (1) 27 26 8 (7) 61 140 523 182 341 341 9 24 67 18 49 49 59 16 180 48 132 4 128 22 39 (24) (15) (9) (2) (7) $ (9) $ (13) (1) (23) 2,573 855 235 3,663 (23) (23) - 812 376 151 880 454 186 2,859 10 814 - $ 151 219 746 233 513 2 511 Consolidated Data 3 Duke Energy Corporation CONSOLIDATING BALANCE SHEET - ASSETS (Unaudited) (In millions) CURRENT ASSETS Cash and cash equivalents Short-term investments Receivables, net Restricted receivables of variable interest entities, net Inventory Other Total current assets U.S. Franchised Electric and Gas $ INVESTMENTS AND OTHER ASSETS Investments in equity method unconsolidated affiliates Investments and advances (from) to subsidiaries Nuclear decommissioning trust funds Goodwill Intangibles, net Notes receivable Restricted other assets of variable interest entities Other Total investments and other assets PROPERTY, PLANT AND EQUIPMENT Cost Cost, variable interest entities Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment REGULATORY ASSETS AND DEFERRED DEBITS Regulatory Assets Other Total regulatory assets and deferred debits TOTAL ASSETS Intercompany balances REPORTABLE SEGMENT ASSETS Commercial Power 54 $ 677 1,092 1,501 534 3,858 898 $ 238 397 102 35 1,670 6 (73) 2,247 3,483 63 3 1,120 6,849 196 (4) 69 266 129 180 836 103 (5) 301 29 65 141 634 51,288 (16,925) 79 34,442 5,173 942 (774) 5,341 3,500 (926) 2,574 2,993 103 3,096 48,245 67 32 99 7,751 4,878 47,790 (867) $ 6,884 4,752 104 $ 825 11 324 1,264 174 31,098 1 450 605 32,328 $ - $ (2,297) (46) (2,343) (1) (1) (33,755) (32,343) 33,791 $ 36 1,071 238 613 1,124 1,754 1,124 5,924 479 2,247 3,853 357 68 129 2,103 9,236 (1) 1 - 457 17 474 34,680 2,337 March 31, 2012 (31,016) (2) (450) 57 (31,411) 1,076 (462) 614 (126) $ Eliminations/ Adjustments Other 15 $ 1,011 32 140 277 1,475 (455) $ International Energy 61,036 942 (19,086) 79 42,971 3,517 151 3,668 61,799 $ 61,799 Consolidated Data 4 Duke Energy Corporation CONSOLIDATING BALANCE SHEET - LIABILITIES AND EQUITY (Unaudited) (In millions) CURRENT LIABILITIES Accounts payable Notes payable and commercial paper Non-recourse notes payable of variable interest entities Taxes accrued (prepaid) Interest accrued Current maturities of long-term debt Other Total current liabilities U.S. Franchised Electric and Gas $ 984 154 275 192 222 635 654 3,116 Commercial Power $ International Energy 315 $ (14) 6 379 81 767 23 59 27 50 67 226 Eliminations/ Adjustments Other $ 1,040 996 157 31 4 302 2,530 $ (1,312) $ (969) (25) 1 (1) (50) (2,356) 1,050 181 275 369 287 1,067 1,054 4,283 (451) - 18,081 945 1 66 67 7,726 381 846 1,965 2,951 1,743 15,612 LONG-TERM DEBT NON-RECOURSE LONG-TERM DEBT OF VARIABLE INTEREST ENTITIES 12,951 300 607 645 632 - DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory Liabilities Other Total deferred credits and other liabilities 6,578 381 490 1,940 2,929 1,121 13,439 1,125 68 24 116 1,333 162 1 74 237 (139) 287 22 366 536 EQUITY Common stock Additional paid-in capital Retained earnings (accumulated deficit) Accumulated other comprehensive (loss) income Total Duke Energy Corporation shareholders' equity Noncontrolling interests Total equity TOTAL LIABILITIES AND EQUITY 392 8,152 9,914 (19) 18,439 18,439 48,245 379 6,315 (2,242) (69) 4,383 16 4,399 7,751 13 1,818 1,834 38 3,703 80 3,783 4,878 1 27,551 (148) (134) 27,270 2 27,272 34,680 (784) (22,715) (7,525) 10 (31,014) (1) (31,015) (33,755) (455) (867) (32,343) 33,791 Intercompany balances REPORTABLE SEGMENT LIABILITIES AND EQUITY $ 47,790 $ 6,884 4,342 - (126) $ 4,752 $ 2,337 $ March 31, 2012 36 1 21,121 1,833 (174) 22,781 97 22,878 61,799 $ 61,799 Consolidated Data 5 U.S. Franchised Electric and Gas CONSOLIDATING SEGMENT INCOME (Unaudited) (In millions) OPERATING REVENUES Regulated electric Non-regulated electric, natural gas, and other Regulated natural gas Total operating revenues OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges (a) Total operating expenses GAINS ON SALES OF OTHER ASSETS AND OTHER, NET OPERATING INCOME (LOSS) OTHER INCOME AND EXPENSES Other income and expenses, net (b) Interest Expense INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Income Tax expense (benefit) INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO DUKE ENERGY CORPORATION Duke Energy Carolinas, LLC $ 1,499 2 1,501 Duke Energy Ohio, Inc. $ 302 171 473 Duke Energy Indiana, Inc. $ 688 688 380 320 228 90 1,018 3 486 114 75 115 43 60 407 1 67 283 156 96 21 400 956 (268) 40 97 429 156 273 3 15 55 21 34 23 34 (279) (116) (163) Eliminations/ Adjustments $ Three Months Ended March 31, 2012 (1) $ 7 6 2,488 9 171 2,668 (2) 1 2 1 5 777 75 589 368 171 402 2,382 4 290 (4) 62 146 206 70 136 1 9 (8) (a) Primarily due to a $400 million non-cash impairment charge on the Edwardsport IGCC project resulting from a settlement agreement in April 2012. (b) Primarily due to an equity component of allowance for funds used during construction of $37 million for Carolinas, $1 million for Ohio and $21 million for Indiana, respectively. Consolidating Segment Income 6 U.S. Franchised Electric and Gas CONSOLIDATING SEGMENT INCOME (Unaudited) (In millions) OPERATING REVENUES Regulated electric Non-regulated electric, natural gas, and other Regulated natural gas Total operating revenues OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses OPERATING INCOME (LOSS) OTHER INCOME AND EXPENSES Other income and expenses, net (a) Interest Expense INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Income Tax expense (benefit) INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO DUKE ENERGY CORPORATION Duke Energy Carolinas, LLC $ 1,550 2 1,552 Duke Energy Ohio, Inc. $ 228 236 464 Duke Energy Indiana, Inc. $ 659 659 Eliminations/ Adjustments $ 8 8 469 422 201 84 1,176 376 35 119 112 46 65 377 87 246 158 100 22 526 133 2 2 6 42 89 329 116 213 4 14 77 29 48 23 36 120 42 78 (8) 1 (3) (5) 2 Three Months Ended March 31, 2011 $ 2,437 10 236 2,683 750 119 694 347 171 2,081 602 61 140 523 182 341 (a) Primarily due to an equity component of allowance for funds used during construction of $39 million for Carolinas, $2 million for Ohio and $19 million for Indiana, respectively. Consolidating Segment Income 7 U.S. Franchised Electric and Gas CONSOLIDATING BALANCE SHEET - ASSETS (Unaudited) (In millions) CURRENT ASSETS Cash and cash equivalents Receivables, net Restricted receivables of variable interest entities, net Inventory Other Total current assets Duke Energy Carolinas, LLC $ INVESTMENTS AND OTHER ASSETS Investments in equity method unconsolidated affiliates Investments and advances to (from) subsidiaries Nuclear decommissioning trust funds Goodwill Intangibles, net Notes receivable Other Total investments and other assets PROPERTY, PLANT AND EQUIPMENT Cost Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment REGULATORY ASSETS AND DEFERRED DEBITS Regulatory Assets Other Total regulatory assets and deferred debits TOTAL ASSETS Intercompany balances REPORTABLE SEGMENT ASSETS $ 15 460 593 1,021 335 2,424 Duke Energy Ohio, Inc. Eliminations/ Adjustments March 31, 2012 17 $ 486 116 75 694 22 $ 1,486 364 122 1,994 - $ (1,755) 499 2 (1,254) 54 677 1,092 1,501 534 3,858 6 (54) 2,247 11 955 3,165 (3) 921 4 42 964 3,564 47 3 116 3,730 (3,580) 2,562 1 7 (1,010) 6 (73) 2,247 3,483 63 3 1,120 6,849 33,257 (11,460) 79 21,876 6,274 (1,954) 4,320 11,733 (3,511) 8,222 1,800 69 1,869 29,334 447 7 454 6,432 746 24 770 14,716 3 3 (2,237) 22 - (4,840) 4,363 29,356 $ Duke Energy Indiana, Inc. $ 6,432 $ 9,876 24 24 $ 2,126 51,288 (16,925) 79 34,442 2,993 103 3,096 48,245 (455) $ 47,790 Segment Consolidating Balance Sheet 8 U.S. Franchised Electric and Gas CONSOLIDATING BALANCE SHEET - LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (Unaudited) (In millions) CURRENT LIABILITIES Accounts payable Notes payable and commercial paper Non-recourse notes payable of variable interest entities Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Duke Energy Carolinas, LLC $ Duke Energy Ohio, Inc. 449 $ 61 150 427 470 1,557 Duke Energy Indiana, Inc. 190 $ 65 25 202 92 574 Eliminations/ Adjustments 183 $ 178 66 48 5 92 572 March 31, 2012 162 $ (24) 275 (1) 1 413 984 154 275 192 222 635 654 3,116 LONG-TERM DEBT NON-RECOURSE LONG-TERM DEBT OF VARIABLE INTEREST ENTITIES 7,796 300 1,453 - 3,702 - - 12,951 300 DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory Liabilities Other Total deferred credits and other liabilities 4,727 231 241 1,875 1,970 917 9,961 1,038 7 89 22 265 102 1,523 811 143 159 44 684 102 1,943 2 1 (1) 10 12 6,578 381 490 1,940 2,929 1,121 13,439 1,426 8,313 (19) 9,720 29,334 392 2,169 321 2,882 6,432 1 2,732 5,754 12 8,499 14,716 (1) 1,825 (4,474) (12) (2,662) (2,237) (4,840) 4,363 Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) income Total common stockholders' equity TOTAL LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Intercompany balances REPORTABLE SEGMENT LIABILITIES AND COMMON STOCKHOLDERS' EQUITY 22 $ 29,356 - $ 6,432 $ 9,876 $ 2,126 392 8,152 9,914 (19) 18,439 48,245 (455) $ 47,790 Segment Consolidating Balance Sheet 9 Franchised Electric - Carolinas OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2012 2011 ELECTRIC ENERGY SALES (GWH) Residential General service Industrial Other energy and wholesale Total GWh sales billed Unbilled GWh sales TOTAL GWH SALES AVERAGE NUMBER OF CUSTOMERS (IN THOUSANDS) Residential General service Industrial Other energy and wholesale TOTAL AVERAGE NUMBER OF CUSTOMERS 7,030 6,391 4,879 1,333 19,633 (172) 19,461 8,172 6,488 4,789 1,659 21,108 (524) 20,584 2,048 336 7 14 2,405 2,039 334 7 14 2,394 Operating Statistics 10 Franchised Electric - DE Midwest Electric & Gas OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2012 2011 ELECTRIC ENERGY SALES (GWH) Residential General service Industrial Other energy and wholesale Total GWh sales billed Unbilled GWh sales TOTAL GWH SALES 4,754 4,167 3,954 1,563 14,438 (115) 14,323 5,400 4,379 3,869 1,619 15,267 (495) 14,772 AVERAGE NUMBER OF ELECTRIC AND GAS CUSTOMERS (IN THOUSANDS) Residential General service Industrial Other energy and wholesale TOTAL AVERAGE NUMBER OF ELECTRIC AND GAS CUSTOMERS 1,892 231 7 5 2,135 1,883 230 7 4 2,124 AVERAGE NUMBER OF ELECTRIC CUSTOMERS (IN THOUSANDS) Residential General service Industrial Other energy and wholesale TOTAL AVERAGE NUMBER OF ELECTRIC CUSTOMERS 1,420 186 5 5 1,616 1,414 185 5 4 1,608 472 45 2 519 469 45 2 516 AVERAGE NUMBER OF GAS CUSTOMERS (IN THOUSANDS) Residential General service Industrial TOTAL AVERAGE NUMBER OF GAS CUSTOMERS Operating Statistics 11 Duke Energy Ohio Supplement CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, 2012 (Unaudited) (In millions) OPERATING REVENUES Regulated electric Non-regulated electric and other Regulated natural gas Total operating revenues Franchised Electric and Gas Ohio Transmission & Duke Energy Distribution Kentucky, Inc. $ OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - non-regulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses GAINS ON SALES OF OTHER ASSETS AND OTHER, NET OPERATING INCOME (LOSS) OTHER INCOME AND EXPENSES, NET INTEREST EXPENSE INCOME (LOSS) BEFORE INCOME TAXES INCOME TAX EXPENSE (BENEFIT) NET INCOME (LOSS) $ 223 132 355 $ 79 39 118 Commercial Power $ 23 431 454 85 56 81 32 57 311 1 45 29 19 34 11 3 96 22 253 76 40 8 377 77 2 11 36 14 22 1 4 19 7 12 2 10 69 25 44 $ $ Other $ $ Consolidated (1) $ (14) (15) 324 417 171 912 (14) 5 (9) (6) 114 239 75 196 83 68 775 1 138 (1) (1) (6) (2) (4) $ 4 24 118 44 74 Duke Energy Ohio Supplement 12 Duke Energy Ohio Supplement CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, 2011 (Unaudited) (In millions) OPERATING REVENUES Regulated electric Non-regulated electric and other Regulated natural gas Total operating revenues Franchised Electric and Gas Ohio Transmission & Duke Energy Distribution Kentucky, Inc. $ OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - non-regulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses GAINS ON SALES OF OTHER ASSETS AND OTHER, NET OPERATING INCOME (LOSS) OTHER INCOME AND EXPENSES, NET INTEREST EXPENSE INCOME (LOSS) BEFORE INCOME TAXES INCOME TAX EXPENSE (BENEFIT) NET INCOME (LOSS) $ 142 180 322 $ 86 56 142 Commercial Power $ 145 271 416 89 79 34 62 264 58 35 30 33 12 3 113 29 62 164 90 42 8 366 2 52 3 10 51 20 31 1 4 26 9 17 1 10 43 15 28 $ $ Other $ $ Consolidated (1) $ (1) 372 271 236 879 3 3 (4) 97 164 119 205 88 73 746 2 135 (4) (1) (3) $ 5 24 116 43 73 Duke Energy Ohio Supplement 13 Reconciliation of "As Reported" First Quarter 2011 Results to "As Recasted" USFE&G Reported EBIT (Prior Segment Measure) Special Items: Economic hedges Costs to achieve Adjusted EBIT (Corporate Measure) $ $ 712 Segment allocation changes Corporate governance costs Line item mapping changes: Other income and expense below EBIT Interest expense Income taxes Noncontrolling interest Adjusted Segment Income (Corporate Measure) Special Items, net of tax: Economic hedges, net of tax Costs to achieve, net of tax Reported Segment Income (New Segment Measure) 712 Commercial Power $ 4 180 Total Segments $ 180 95 Other 983 $ 4 (45) Duke Energy $ 938 - 987 11 (34) 4 11 953 (43) (6) (2) (51) 51 (2) (140) (186) - 5 (24) (18) - 19 (16) (49) (4) 5 (39) 15 2 27 (219) (238) (2) 341 52 128 22 (180) (253) (4) 521 - 521 (3) - - $ 91 International Energy 341 - $ 49 $ 128 $ (3) 518 - - (3) (7) (7) $ (7) $ 511 Purpose: This supplemental schedule reconciles the Q1 2011 segment results from the previous segment measure (EBIT) to the new segment measure (Segment Income). Reconciliation of "As Reported" Results to "As Recasted" 14 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 x For the quarterly period ended March 31, 2013 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 1-32853 IRS Employer Identification No. 20-2777218 DUKE ENERGY CORPORATION (a Delaware corporation) 550 South Tryon Street Charlotte, North Carolina 28202-1803 704-382-3853 Commission file number 1-4928 Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, and Telephone Number Commission file number Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, and Telephone Number DUKE ENERGY CAROLINAS, LLC 1-3274 DUKE ENERGY FLORIDA, INC. (a North Carolina limited liability company) 526 South Church Street Charlotte, North Carolina 28202-1803 (a Florida corporation) 299 First Avenue North St. Petersburg, Florida 33701 704-382-3853 704-382-3853 59-0247770 56-0205520 1-15929 PROGRESS ENERGY, INC. 1-1232 (an Ohio corporation) 139 East Fourth Street Cincinnati, Ohio 45202 704-382-3853 704-382-3853 31-0240030 56-2155481 1-3382 DUKE ENERGY OHIO, INC. (a North Carolina corporation) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 DUKE ENERGY PROGRESS, INC. 1-3543 DUKE ENERGY INDIANA, INC. (a North Carolina corporation) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 (an Indiana corporation) 1000 East Main Street Plainfield, Indiana 46168 704-382-3853 704-382-3853 56-0165465 35-0594457 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Duke Energy Corporation (Duke Energy) Yes x No ¨ Duke Energy Florida, Inc. (Duke Energy Florida) Yes x No ¨ Duke Energy Carolinas, LLC (Duke Energy Yes x No ¨ Duke Energy Ohio, Inc. (Duke Energy Ohio) Yes x No ¨ Carolinas) Progress Energy, Inc. (Progress Energy) Yes x No ¨ Duke Energy Indiana, Inc. (Duke Energy Yes x No ¨ Indiana) Duke Energy Progress, Inc. (Duke Energy Yes x No ¨ Progress) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Duke Energy Yes x No ¨ Duke Energy Florida Yes x No ¨ Duke Energy Carolinas Yes x No ¨ Duke Energy Ohio Yes x No ¨ Progress Energy Yes x No ¨ Duke Energy Indiana Yes x No ¨ Duke Energy Progress Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated definitions of “large accelerated filer,” “accelerated filer” and “smaller (Check one): Duke Energy Large accelerated filer x Duke Energy Carolinas Large accelerated filer ¨ Progress Energy Large accelerated filer x Duke Energy Progress Large accelerated filer ¨ Duke Energy Florida Large accelerated filer ¨ Duke Energy Ohio Large accelerated filer ¨ Duke Energy Indiana Large accelerated filer ¨ filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the reporting company” in Rule 12b-2 of the Exchange Act. Accelerated Accelerated Accelerated Accelerated Accelerated Accelerated Accelerated filer filer filer filer filer filer filer ¨ ¨ ¨ ¨ ¨ ¨ ¨ Non-accelerated Non-accelerated Non-accelerated Non-accelerated Non-accelerated Non-accelerated Non-accelerated filer filer filer filer filer filer filer ¨ x ¨ x x x x Smaller Smaller Smaller Smaller Smaller Smaller Smaller Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Duke Energy Yes ¨ No x Duke Energy Florida Duke Energy Carolinas Yes ¨ No x Duke Energy Ohio Progress Energy Yes ¨ No x Duke Energy Indiana Duke Energy Progress Yes ¨ No x Number of shares of Common Stock outstanding at May 6, 2013: Registrant Duke Energy Common Stock, $0.001 par value Duke Energy Carolinas Progress Energy Description reporting reporting reporting reporting reporting reporting reporting company company company company company company company Yes ¨ Yes ¨ Yes ¨ ¨ ¨ ¨ ¨ ¨ ¨ ¨ No x No x No x Shares 705,739,261 All of the registrant’s limited liability company member interests are directly owned by Duke Energy. All of the registrant’s common stock is directly owned by Duke Energy. Duke Energy Progress All of the registrant’s common stock is indirectly owned by Duke Energy. Duke Energy Florida All of the registrant’s common stock is indirectly owned by Duke Energy. Duke Energy Ohio All of the registrant’s common stock is indirectly owned by Duke Energy. Duke Energy Indiana All of the registrant’s common stock is indirectly owned by Duke Energy. This combined Form 10-Q is filed separately by seven registrants: Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants. Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q. TABLE OF CONTENTS Safe Harbor for Forward-Looking Statements PART I. FINANCIAL INFORMATION Item 1. Financial Statements Duke Energy Corporation Financial Statements 4 Duke Energy Carolinas, LLC Financial Statements 9 Progress Energy, Inc. Financial Statements 13 Duke Energy Progress, Inc. Financial Statements 17 Duke Energy Florida, Inc. Financial Statements 21 Duke Energy Ohio, Inc. Financial Statements 25 Duke Energy Indiana, Inc. Financial Statements 29 Combined Notes to Condensed Consolidated Financial Statements Note 1 - Organization and Basis of Presentation Note 2 - Acquisitions and Dispositions Note 3 - Business Segments Note 4 - Regulatory Matters Note 5 - Commitments and Contingencies Note 6 - Debt and Credit Facilities Note 7 - Goodwill Note 8 - Risk Management, Derivative Instruments and Hedging Activities Note 9 - Fair Value of Financial Instruments Note 10 - Investments in Debt and Equity Securities Note 11 - Variable Interest Entities Note 12 - Earnings Per Common Share Note 13 - Stock-Based Compensation Note 14 - Employee Benefit Plans Note 15 - Severance Note 16 - Income Taxes and Other Taxes Note 17 - Related Party Transactions Note 18 - Accumulated Other Comprehensive Income Note 19 - New Accounting Standards Note 20 - Subsequent Events 101 101 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 102 Item 3. Quantitative and Qualitative Disclosures About Market Risk 119 Item 4. Controls and Procedures 119 Item 1. Legal Proceedings 121 Item 1A. Risk Factors 121 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 121 Item 6. Exhibits 122 Signatures 124 33 35 37 40 47 54 57 57 73 83 90 95 95 95 97 98 99 100 PART II. OTHER INFORMATION 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. These forward-looking statements, which are intended to cover Duke Energy and the applicable Duke Energy Registrants, are identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook,” and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to: · · · State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices; The ability to recover eligible costs and earn an adequate return on investment through the regulatory process; The costs of retiring Duke Energy Florida’s Crystal River Unit 3 could prove to be more extensive than is currently identified. All costs associated with the retirement Crystal River Unit 3 asset, including replacement power may not be fully recoverable through the regulatory process; · The ability to maintain relationships with customers, employees or suppliers post-merger; · The ability to successfully integrate the Progress Energy businesses and realize cost savings and any other synergies expected from the merger; · The risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; · The impact of compliance with material restrictions or conditions related to the Progress Energy merger imposed by regulators could exceed our expectations; · Costs and effects of legal and administrative proceedings, settlements, investigations and claims; · Industrial, commercial and residential growth or decline in the respective Duke Energy Registrants’ service territories or customer bases resulting from customer usage patterns, including energy efficiency efforts and uses of alternative energy sources; · Additional competition in electric markets and continued industry consolidation; · Political and regulatory uncertainty in other countries in which Duke Energy conducts business; · The influence of weather and other natural phenomena on each of the Duke Energy Registrants’ operations, including the economic, operational and other effects of storms, hurricanes, droughts and tornadoes; · The ability to successfully operate electric generating facilities and deliver electricity to customers; · The ability to recover, in a timely manner, if at all, costs associated with future significant weather events through the regulatory process; · The impact on the Duke Energy Registrants’ facilities and business from a terrorist attack, cyber security threats and other catastrophic events; · The inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks; · The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate; · Unscheduled generation outages, unusual maintenance or repairs and electric transmission system constraints; · The performance of electric generation facilities and of projects undertaken by Duke Energy’s nonregulated businesses; · The results of financing efforts, including the Duke Energy Registrants’ ability to obtain financing on favorable terms, which can be affected by various factors, including the respective Duke Energy Registrants’ credit ratings and general economic conditions; · Declines in the market prices of equity securities and resultant cash funding requirements for Duke Energy’s defined benefit pension plans and nuclear decommissioning trust funds; · The level of creditworthiness of counterparties to Duke Energy Registrants’ transactions; · Employee workforce factors, including the potential inability to attract and retain key personnel; · Growth in opportunities for the respective Duke Energy Registrants’ business units, including the timing and success of efforts to develop domestic and international power and other projects; · Construction and development risks associated with the completion of Duke Energy Registrants’ capital investment projects in existing and new generation facilities, 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 ratepayers in a timely manner or at all; · The Subsidiary Registrants ability to pay dividends or distributions to Duke Energy Corporation holding company (the Parent); · The effect of accounting pronouncements issued periodically by accounting standard-setting bodies; · The impact of potential goodwill impairments; · The ability to reinvest retained earnings of foreign subsidiaries or repatriate such earnings on a tax free basis; and · The ability to successfully complete future merger, acquisition or divestiture plans. 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 Duke Energy has described. The Duke Energy Registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DUKE ENERGY CORPORATION Condensed Consolidated Statements Of Operations (Unaudited) Three Months Ended March 31, 2013 2012 (in millions, except per-share amounts) Operating Revenues Regulated electric Nonregulated electric, natural gas, and other Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses Equity in earnings of unconsolidated affiliates Impairments on sales of unconsolidated affiliates Other income and expenses, net Total other income and expenses Interest Expense Income From Continuing Operations Before Income Taxes Income Tax Expense from Continuing Operations Income From Continuing Operations Income From Discontinued Operations, net of tax Net Income Less: Net Income Attributable to Noncontrolling Interests $ 4,889 824 185 5,898 2,501 $ 958 171 3,630 1,703 777 448 454 104 1,421 102 660 746 479 343 184 ― 4,685 2 402 3,138 3 495 1,215 45 (5) 36 ― 80 89 129 116 367 964 330 634 224 400 103 297 ― 2 634 299 ― Net Income Attributable to Duke Energy Corporation Earnings Per Share - Basic and Diluted Income from continuing operations attributable to Duke Energy Corporation common shareholders Basic Diluted Income from discontinued operations attributable to Duke Energy Corporation common shareholders Basic Diluted Net Income attributable to Duke Energy Corporation common shareholders Basic Diluted Dividends declared per share Weighted-average shares outstanding Basic Diluted See Notes to Condensed Consolidated Financial Statements 5 4 $ 634 $ 0.89 0.89 $ ― ― $ 0.89 0.89 $ $ $ 0.765 $ $ $ $ $ 705 705 295 $ $ $ $ 0.65 0.65 0.01 0.01 0.66 0.66 0.75 446 446 PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements Of Comprehensive Income (Unaudited) (in millions) Net Income $ Three Months Ended March 31, 2013 2012 634 $ 299 Other Comprehensive Income (Loss), Net of Tax Foreign currency translation adjustments 4 Pension and OPEB adjustments (a) 3 4 Net unrealized gain on cash flow hedges (b) 10 13 Reclassification into earnings from cash flow hedges (c) ― (1) Unrealized gain on investments in available for sale securities (d) ― 1 Reclassification into earnings from available for sale securities (e) ― (1) Other Comprehensive Income, Net of Tax Comprehensive Income Net Net Net Net Net 17 60 651 359 ― Less: Comprehensive Income Attributable to Noncontrolling Interests Comprehensive Income Attributable to Duke Energy Corporation (a) (b) (c) (d) (e) 44 $ of $1 million tax expense in 2013 and $2 million tax expense in 2012. of $4 million tax expense in 2013 and $5 million tax expense in 2012. of $1 million tax expense in 2013 and insignificant tax expense in 2012. of insignificant tax expense in 2012. of insignificant tax expense in 2012. See Notes to Condensed Consolidated Financial Statements 6 651 $ 4 355 PART I DUKE ENERGY CORPORATION Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Short-term investments Receivables (net of allowance for doubtful accounts of $32 at March 31, 2013 and $34 at December 31, 2012) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $42 at March 31, 2013 and $44 at December 31, 2012) Inventory Other Total current assets Investments and Other Assets Investments in equity method unconsolidated affiliates Nuclear decommissioning trust funds Goodwill Intangibles, net Notes receivable Restricted other assets of variable interest entities Other Total investments and other assets Property, Plant and Equipment March 31, December 31, 2012 2013 $ 1,296 $ 288 333 1,503 1,516 1,304 3,096 2,062 9,549 1,201 3,223 2,425 10,122 478 483 4,242 4,536 Cost Cost, variable interest entities Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits 16,371 356 69 16,365 54 2,466 24,330 62 2,399 23,994 99,605 1,579 (32,501) 130 98,833 372 71 1,558 (31,969) 136 68,558 68,813 10,778 Total Assets LIABILITIES AND EQUITY Current Liabilities Accounts payable Notes payable and commercial paper Non-recourse notes payable of variable interest entities Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Long-term Debt Non-recourse Long-term debt of Variable Interest Entities Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Preferred Stock of Subsidiaries Equity Common stock, $0.001 par value, 2 billion shares authorized; 706 million and 704 million shares outstanding at March 31, 2013 and December 31, 2012, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total Duke Energy Corporation shareholders' equity Noncontrolling interests Total equity Total Liabilities and Equity See Notes to Condensed Consolidated Financial Statements 7 $ 196 10,974 113,666 $ $ 1,985 $ 1,361 325 11,004 178 11,182 113,856 2,444 745 312 459 425 478 448 9,965 3,110 2,511 10,029 35,084 1,255 35,499 852 10,518 454 2,380 5,229 5,555 2,196 26,332 10,490 458 2,520 5,169 5,584 2,221 ― 93 3,323 2,068 $ 1,424 26,442 1 1 39,263 39,279 1,978 (289) 1,889 (306) 40,953 77 41,030 113,666 78 40,941 113,856 40,863 $ PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements Of Cash Flows (Unaudited) (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) Equity component of AFUDC Gains on sales of other assets Impairment of other long-lived assets Deferred income taxes Equity in earnings of unconsolidated affiliates Voluntary opportunity cost deferral Accrued pension and other post-retirement benefit costs (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Inventory Other current assets Increase (decrease) in Accounts payable Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Investment expenditures Acquisitions Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Net proceeds from the sales of other assets, and sales of and collections on notes receivable Change in restricted cash Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the: Issuance of long-term debt Issuance of common stock related to employee benefit plans Payments for the: Redemption of long-term debt Redemption of preferred stock of a subsidiary Notes payable and commercial paper Distributions to noncontrolling interests Dividends paid Other Net cash provided by (used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures Extinguishment of debt related to investment in Attiki Gas Supply, S. A. See Notes to Condensed Consolidated Financial Statements 8 Three Months Ended March 31, 2013 2012 $ 634 $ 762 (42) (2) 299 544 (59) (3) ― 407 65 (45) (101) 353 (36) ― 87 28 36 (118) 126 (38) (2) 172 (162) 110 (246) (270) (62) 10 3 (62) (31) (312) (78) (4) 1,091 872 (34) 35 (1,465) (988) (13) (42) (948) 821 17 (35) 8 (1,180) 1,009 392 5 8 (747) (96) (821) ― (1,375) (3) (32) (1,255) 1,179 20 627 28 (3) (1) (335) (2) (731) (1,039) 2,110 1,071 (542) (7) 246 (128) 1,424 $ 1,296 $ $ 465 $ ― 270 66 PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements Of Equity (Unaudited) Accumulated Common (in millions) Stock Common Additional Paid-in Retained Comprehensive Shares Stock Capital Earnings Loss Net income 445 ― 1 ― Other comprehensive income Common stock issuances, including dividend reinvestment and employee benefits Common stock dividends Balance at March 31, 2012 1 ― 446 $ ― ― 1 Balance at December 31, 2012 704 $ Balance at December 31, 2011 Net income Other comprehensive income Common stock issuances, including dividend reinvestment and employee benefits Common stock dividends Premium on the redemption of preferred stock of ― 1 ― $ 21,132 $ ― 1,873 295 $ (234) $ ― ― (335) (11) 60 ― 60 ― ― (11) (335) (174) $ $ 39,279 $ 1,889 634 $ (306) $ (542) ― ― ― ― ― 1 ― 706 $ $ 39,263 $ 1,978 97 $ 22,878 78 $ 40,941 40,863 634 17 17 ― 17 ― ― (16) (542) ― ― (16) (542) (1) (1) 41,030 $ ― 634 (3) ― $ See Notes to Condensed Consolidated Financial Statements 9 $ ― (3) ― 22,865 299 (11) (335) 22,781 $ ― $ 60 1,833 (16) Total Equity 93 ― ― $ 2 $ 4 ― 21,121 ― Noncontrolling Interests 22,772 295 $ subsidiaries Changes in noncontrolling interest in subsidiaries Balance at March 31, 2013 Common Stockholders' Equity Other (289) (3) ― $ 40,953 $ 77 $ PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements Of Operations And Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) Operating Revenues 2012 2013 $ 1,729 $ 1,501 Operating Expenses Fuel used in electric generation and purchased power 518 380 Operation, maintenance and other 457 331 Depreciation and amortization 222 228 Property and other taxes Total operating expenses 100 90 1,297 1,029 2 3 434 475 Other Income and Expenses, net 36 39 Interest Expense 82 97 388 417 Gains on Sales of Other Assets and Other, net Operating Income Income Before Income Taxes Income Tax Expense Net Income and Comprehensive Income $ See Notes to Condensed Consolidated Financial Statements 10 144 244 151 $ 266 PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $3 at March 31, 2013 and December 31, 2012) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $6 at March 31, 2013 and December 31, 2012) Receivables from affiliated companies Note receivable from affiliated companies Inventory Other Total current assets Investments and Other Assets Nuclear decommissioning trust funds Other Total investments and other assets Property, Plant and Equipment March 31, $ Cost Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets $ LIABILITIES AND MEMBER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Long-term Debt Non-recourse Long-term Debt of Variable Interest Entities Long-term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Member's Equity Member's Equity Accumulated other comprehensive loss Total member's equity Total Liabilities and Member's Equity See Notes to Condensed Consolidated Financial Statements 11 December 31, 2012 2013 $ 150 19 188 680 637 57 397 1,010 382 1,062 428 2,727 439 2,730 2,519 941 3,460 2,354 934 3,288 34,559 (11,663) 34,190 (11,437) 68 22,964 73 22,826 1,707 69 1,776 30,927 1,727 71 1,798 5 520 112 65 $ 3 $ 30,642 $ 599 128 114 96 406 490 139 406 409 1,651 7,734 1,833 7,735 300 300 300 300 5,281 214 2,214 5,181 215 221 1,959 2,102 912 10,826 10,602 10,132 9,888 215 1,990 $ 924 (16) (16) 10,116 30,927 9,872 30,642 $ PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements Of Cash Flows (Unaudited) (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including amortization of nuclear fuel) Equity component of AFUDC Gains on sales of other assets and other, net Deferred income taxes Voluntary opportunity cost deferral Accrued pension and other post-retirement benefit costs (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other Net cash (used in) provided by investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payments for the redemption of long-term debt Other Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 12 Three Months Ended March 31, 2013 2012 $ 244 $ 266 281 288 (26) (2) 146 (36) (3) 154 (101) 10 ― 10 ― 134 (17) (100) (3) (7) (8) (54) 50 (25) (15) (196) (37) (65) 109 (18) (32) 452 353 (435) (483) (627) 615 625 (5) 125 (16) (16) (48) (34) (28) (504) 492 (15) (3) (465) ― (751) (1) (752) (274) (1) (1) (14) 19 289 $ 5 $ 15 $ 132 $ 115 PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements Of Equity (Unaudited) Member's Equity (in millions) Balance at December 31, 2011 $ Net income Balance at March 31, 2012 $ Balance at December 31, 2012 $ Net income Balance at March 31, 2013 $ 9,473 266 9,739 Accumulated Other Comprehensive Loss Net Losses on Cash Flow Net Losses on Available for Sale Hedges Securities $ (17) $ (2) ― ― $ (17) $ (2) 9,888 244 $ 10,132 $ (15) $ ― (15) $ $ (1) 9,454 266 9,720 $ 9,872 244 $ 10,116 ― See Notes to Condensed Consolidated Financial Statements 13 (1) Total $ PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements Of Operations And Comprehensive Income (Unaudited) (in millions) Operating Revenues $ Three Months Ended March 31, 2013 2012 2,186 $ 2,102 Operating Expenses Fuel used in electric generation and purchased power 860 901 Operation, maintenance and other 561 535 Depreciation and amortization 194 166 Property and other taxes 141 138 1,756 1,740 Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income ― 1 430 363 23 39 Interest Expense 198 185 Income From Continuing Operations Before Taxes 255 217 Income Tax Expense From Continuing Operations 101 76 Income From Continuing Operations 154 141 Other Income and Expenses, net Income From Discontinued Operations, net of tax Net Income ― 11 154 152 Less: Net Income Attributable to Noncontrolling Interest Net Income Attributable to Parent $ 153 1 $ 2 150 Net Income $ 154 $ 152 Other Comprehensive Income, net of tax Reclassification into earnings from pension and OPEB adjustments (a) 1 1 Net unrealized gain on cash flow hedges (b) 1 2 Reclassification into earnings from cash flow hedges (c) Other Comprehensive Income, net of tax Comprehensive Income (a) (b) (c) $ Net of insignificant tax expense in 2013 and 2012. Net of insignificant tax expense in 2013 and $2 million tax expense in 2012. Net of $2 million tax expense in 2012. See Notes to Condensed Consolidated Financial Statements 14 ― 2 2 5 157 156 $ PART I PROGRESS ENERGY, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $15 at March 31, 2013 and $16 at December 31, 2012) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Other Total current assets Investments and Other Assets Nuclear decommissioning trust funds Goodwill Other Total investments and other assets Property, Plant and Equipment March 31, December 31, 2012 2013 $ 35 $ 812 18 20 790 15 ― 1,441 1,405 709 2,999 Cost Cost, variable interest entities Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits 766 3,243 2,017 3,655 531 6,203 1,888 3,655 530 35,369 16 (12,624) 35,130 16 (12,512) 6,073 62 22,823 Total Assets $ LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Long-term Debt Long-term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Preferred Stock of Subsidiaries Common Stockholder's Equity Common stock, $0.01 par value, 100 shares authorized and outstanding at March 31, 2013 and December 31, 2012 Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total common stockholder's equity Noncontrolling interests Total equity Total Liabilities and Common Stockholder's Equity See Notes to Condensed Consolidated Financial Statements 15 $ 5,158 102 5,260 37,285 822 64 980 63 22,697 5,292 100 $ $ 155 195 5,392 37,405 1,066 30 455 83 192 718 924 3,858 1,118 13,506 13,311 ― 274 2,540 93 2,558 95 1,608 2,413 843 3,787 1,610 2,441 2,324 578 9,586 2,469 612 9,755 ― 93 ― ― 7,465 2,933 7,465 2,783 (65) 10,333 (67) 10,181 4 10,185 2 10,335 $ 231 37,285 $ 37,405 PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements Of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2012 2013 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 154 $ 152 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) 235 195 Equity component of AFUDC (13) (24) ― (19) 118 106 Gains on sales of other assets and other, net Deferred income taxes Accrued pension and other post-retirement benefit costs 53 38 Contributions to qualified pension plans ― (18) 12 (60) (25) 75 (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies (3) ― Inventory 36 (8) (115) (18) Other current assets Increase (decrease) in Accounts payable (191) (23) Accounts payable to affiliated companies 34 ― Taxes accrued 72 60 (95) (72) Other current liabilities (76) (34) 69 (35) 265 315 Capital expenditures (622) (600) Purchases of available-for-sale securities (401) (363) Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of available-for-sale securities Change in restricted cash Notes receivable from affiliated companies Other Net cash used in investing activities 391 359 ― (14) (20) ― 9 66 (643) (552) 496 444 ― 3 (736) (1) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the: Issuance of long-term debt Issuance of common stock related to employee benefit plans Payments for the: Redemption of long-term debt Redemption of preferred stock of subsidiaries (96) ― ― 65 Notes payable and commercial paper ― 321 Notes payable to affiliated companies 525 ― (3) (3) Dividends paid ― (260) Other (4) 3 182 572 (196) 335 Proceeds from issuance of short-term debt with original maturities greater than 90 days Distributions to noncontrolling interests Net cash provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and Cash Equivalents at Beginning of Period 231 Cash and Cash Equivalents at End of Period 230 $ 35 $ 565 $ 248 $ 225 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 16 PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements of Equity (Unaudited) (in millions) Balance at December 31, 2011 $ Common Additional Paid-in Retained Stock Capital Earnings 7,418 $ 16 $ Accumulated Other Comprehensive Loss Net Losses on Pension and OPEB Cash Flow Related Hedges Adjustments 2,752 $ (142) $ (23) Common Stockholders' Equity $ Noncontrolling Interests 10,021 $ Total Equity 4 $ 10,025 Net income (a) ― ― 150 ― ― 150 ― Other comprehensive income Common stock issuances, including dividend reinvestment and employee benefits ― ― ― 4 1 5 ― 5 12 5 ― ― ― 17 ― 17 Common stock dividends ― ― (184) ― ― (184) ― (184) Distributions to noncontrolling interests ― ― ― ― ― ― (2) 150 (2) Balance at March 31, 2012 $ 7,430 $ 21 $ 2,718 $ (138) $ (22) $ 10,009 $ 2 $ 10,011 Balance at December 31, 2012 $ ― $ 7,465 $ 2,783 $ (42) $ (25) $ 10,181 $ 4 $ 10,185 Net income ― ― 153 ― ― 153 1 Other comprehensive income Premium on the redemption of preferred stock of ― ― ― 1 1 2 ― 2 subsidiaries ― ― (3) ― ― (3) ― (3) ― Distributions to noncontrolling interests Balance at March 31, 2013 (a) $ ― ― $ 7,465 ― $ 2,933 ― $ (41) ― $ (24) ― $ 10,333 154 (3) $ 2 (3) $ 10,335 For the three months ended March 31, 2012, consolidated net income of $152 million includes $2 million attributable to preferred shareholders of subsidiaries. Income attributable to preferred shareholders of subsidiaries is not a component of total equity and is excluded from the table above. See Notes to Condensed Consolidated Financial Statements 17 PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Statements Of Operations And Comprehensive Income (Unaudited) (in millions) Operating Revenues $ Three Months Ended March 31, 2013 2012 1,216 $ 1,090 Operating Expenses Fuel used in electric generation and purchased power 455 Operation, maintenance and other 352 374 Depreciation and amortization 137 134 Property and other taxes Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income 420 60 56 1,004 984 ― 1 212 107 Other Income and Expenses, net 14 20 Interest Expense 48 51 178 76 Income Before Income Taxes Income Tax Expense Net Income 68 24 110 52 Less: Preferred Stock Dividend Requirement Net Income Available to Parent $ 110 ― $ 1 51 Net Income $ 110 $ 52 Other Comprehensive Income, net of tax Net unrealized gain on cash flow hedges (a) ― Reclassification into earnings from cash flow hedges (b) ― 2 ― 5 57 Other Comprehensive Income, net of tax Comprehensive Income (a) (b) Net of $2 million tax expense in 2012. Net of $1 million tax expense in 2012. $ See Notes to Condensed Consolidated Financial Statements 18 110 3 $ PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $8 at March 31, 2013 and $9 at December 31, 2012) Receivables from affiliated companies Inventory Other Total current assets Investments and Other Assets Nuclear decommissioning trust funds Other Total investments and other assets Property, Plant and Equipment March 31, $ Cost Cost, variable interest entities Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets $ LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Long-term Debt Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Preferred Stock Common Stockholder's Equity Common stock, no par value, 200 million shares authorized; 160 million shares issued and outstanding at March 31, 2013 and December 31, 2012 Retained earnings Total common stockholder's equity Total Liabilities and Equity See Notes to Condensed Consolidated Financial Statements 19 December 31, 2012 2013 $ 11 483 18 808 308 1,628 $ 5 828 313 1,622 1,347 269 1,616 1,259 251 1,510 21,413 16 (8,312) 62 21,168 16 (8,185) 13,179 63 13,062 1,791 1,845 32 1,823 18,246 373 157 $ $ 38 29 1,874 18,068 542 76 364 23 69 407 55 73 407 407 1,510 517 1,998 4,929 4,433 2,210 90 723 1,598 282 6,572 2,162 92 715 1,649 1,538 295 6,451 ― 59 2,159 3,076 5,235 2,159 1,669 $ 18 458 18,246 2,968 $ 5,127 18,068 PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Statements Of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2012 2013 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 110 $ 52 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) 175 161 Equity component of AFUDC (11) (15) Gains on sales of other assets and other, net ― (1) Deferred income taxes 86 46 Accrued pension and other post-retirement benefit costs 24 13 Contributions to qualified pension plans ― (10) (17) (3) (8) 51 (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets (13) 1 20 (5) (25) (28) Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities (87) 4 81 15 32 23 (55) (42) (33) (18) 14 2 293 246 Capital expenditures (395) (391) Purchases of available-for-sale securities (196) (138) Proceeds from sales and maturities of available-for-sale securities 188 133 Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Other ― 61 (403) (335) 496 ― Redemption of long-term debt (1) ― Redemption of preferred stock (62) ― ― 253 Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt Payments for the: Notes payable and commercial paper Notes payable to affiliated companies (326) 11 ― (175) Dividends paid on preferred stock ― (1) Other (4) 2 103 90 Dividends paid to parent Net cash provided by financing activities Net (decrease) increase in cash and cash equivalents (7) 1 Cash and Cash Equivalents at Beginning of Period 18 20 Cash and Cash Equivalents at End of Period $ 11 $ 21 $ 149 $ 162 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 20 PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Statements Of Equity (Unaudited) Accumulated Other Comprehensive Loss Common (in millions) Balance at December 31, 2011 Net income Other comprehensive income Stock-based compensation expense Dividend to parent Preferred stock dividends at stated rate Tax dividend Balance at March 31, 2012 Balance at December 31, 2012 Net income Premium on the redemption of preferred stock Balance at March 31, 2013 Stock Retained Earnings 3,011 52 ― ― (175) (1) (3) Net Losses on Cash Flow Hedges $ (71) ― 5 ― ― ― ― $ (66) $ $ 2,148 ― ― 7 ― ― ― 2,155 $ 2,884 $ 2,159 $ 2,968 $ $ 110 (2) 3,076 $ $ ― ― $ 2,159 See Notes to Condensed Consolidated Financial Statements 21 ― ― ― ― Total Equity $ 5,088 52 5 7 (175) (1) (3) $ 4,973 $ 5,127 110 (2) 5,235 $ PART I DUKE ENERGY FLORIDA, INC. Condensed Statements Of Operations And Comprehensive Income (Unaudited) (in millions) Operating Revenues $ Three Months Ended March 31, 2013 2012 968 $ 1,010 Operating Expenses Fuel used in electric generation and purchased power 405 481 Operation, maintenance and other 211 165 Depreciation and amortization 52 27 Property and other taxes 79 83 747 756 Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Net Income ― 1 221 255 8 9 49 63 180 201 70 73 110 128 Less: Preferred Stock Dividend Requirement Net Income Available to Parent $ 110 ― $ 1 127 Net Income $ 110 $ 128 $ 110 $ 1 129 Other Comprehensive Income, net of tax Net unrealized gain on cash flow hedges (a) Comprehensive Income (a) Net of insignificant tax expense in 2012. ― See Notes to Condensed Consolidated Financial Statements 22 PART I DUKE ENERGY FLORIDA, INC. Condensed Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $7 at March 31, 2013 and December 31, 2012) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Other Total current assets Investments and Other Assets Nuclear decommissioning trust funds Other Total investments and other assets Property, Plant and Equipment March 31, $ 23 20 207 670 176 629 846 182 811 13,615 (4,102) 9,513 13,432 (4,072) 9,360 3,321 48 $ 3,243 47 3,290 14,985 $ 15,180 $ 382 $ 412 3,369 65 44 238 ― 125 $ See Notes to Condensed Consolidated Financial Statements 131 318 613 351 1,640 1,336 2012 Retained earnings Total common stockholder's equity Total Liabilities and Common Stockholder's Equity $ 64 ― 598 354 Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Long-term Debt Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Preferred Stock Common Stockholder's Equity Common Stock, no par; 60,000,000 shares authorized; 100 issued and outstanding at March 31, 2013 and December 31, 7 313 Cost Total Assets December 31, 2012 2013 48 68 55 10 461 1,349 435 534 1,528 4,884 4,885 1,502 612 772 1,518 610 764 787 724 234 3,844 3,934 ― 34 1,762 3,146 1,762 4,908 14,985 255 3,037 4,799 $ 15,180 PART I DUKE ENERGY FLORIDA, INC. Condensed Statements Of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2012 2013 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 110 $ 128 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 54 28 Equity component of AFUDC (2) (9) Gains on sales of other assets and other, net ― (1) Deferred income taxes 70 53 Accrued pension and other post-retirement benefit costs 22 15 Contributions to qualified pension plans ― (8) 28 (9) (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets 5 12 (44) (18) 15 (4) (129) 3 Increase (decrease) in Accounts payable (50) 16 Accounts payable to affiliated companies 21 17 Taxes accrued 76 34 (13) (15) (42) (13) (5) (40) 116 189 Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (223) (200) Purchases of available-for-sale securities (205) (225) Proceeds from sales and maturities of available-for-sale securities 203 225 Notes receivable from affiliated companies 207 (6) Other ― 6 (18) (200) Redemption of long-term debt (426) (1) Redemption of preferred stock (34) ― ― 65 Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payments for the: Proceeds from issuance of short-term debt with original maturities greater than 90 days Notes payable and commercial paper ― 62 238 (8) Dividends paid to parent ― (105) Dividends paid on preferred stock ― (1) Other ― 1 (222) 13 Notes payable to affiliated companies Net cash (used in) provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and Cash Equivalents at Beginning of Period Cash and Cash Equivalents at End of Period (124) 2 131 16 $ 7 $ 18 $ 95 $ 60 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 24 PART I DUKE ENERGY FLORIDA, INC. Condensed Statements Of Equity (Unaudited) Accumulated Other Comprehensive Loss Common (in millions) Retained Earnings Stock Net income Other comprehensive income Stock-based compensation expense Dividend to parent Preferred stock dividends at stated rate Tax dividend Balance at March 31, 2012 $ 1,757 ― ― 3 ― ― ― 1,760 Balance at December 31, 2012 $ 1,762 Balance at December 31, 2011 Net income Premium on the redemption of preferred stock Balance at March 31, 2013 $ $ 2,966 $ 3,037 110 (1) 3,146 128 ― ― (105) (1) (1) ― ― 1,762 $ 2,945 $ $ See Notes to Condensed Consolidated Financial Statements 25 Net Losses on Cash Flow Hedges $ (27) ― 1 ― ― ― ― $ (26) $ $ ― ― ― ― Total $ 4,675 128 1 3 (105) (1) (1) $ 4,700 $ 4,799 110 $ 4,908 (1) PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements Of Operations And Comprehensive Income (Unaudited) Three Months Ended March 31, 2013 2012 (in millions) Operating Revenues Regulated electric $ 333 $ 324 Nonregulated electric and other 228 417 Regulated natural gas 186 171 747 912 Fuel used in electric generation and purchased power - regulated 103 114 Fuel used in electric generation and purchased power - nonregulated 240 239 Total operating revenues Operating Expenses Cost of natural gas 76 75 185 196 Depreciation and amortization 88 83 Property and other taxes 72 68 764 775 Operation, maintenance and other Total operating expenses Gains on Sales of Other Assets and Other, net Operating (Loss) Income ― 1 (17) 138 2 4 18 24 (Loss) Income Before Income Taxes (33) 118 Income Tax (Benefit) Expense (12) 44 Net (Loss) Income (21) 74 Other Income and Expenses, net Interest Expense Other Comprehensive Income, net of tax Pension and OPEB adjustments (a) Comprehensive (Loss) Income (a) 1 $ Net of insignificant tax expense in 2013 and 2012. See Notes to Condensed Consolidated Financial Statements 26 (20) $ 1 75 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $2 at March 31, 2013 and December 31, 2012) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Other Total current assets Investments and Other Assets Goodwill Intangibles, net Other Total investments and other assets Property, Plant and Equipment March 31, $ Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets $ LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Long-term Debt Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Common Stockholder's Equity Common stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at March 31, 2013 and December 31, 2012 Additional paid-in capital Accumulated deficit Accumulated other comprehensive loss Total common stockholder's equity Total Liabilities and Common Stockholder's Equity See Notes to Condensed Consolidated Financial Statements 27 December 31, 2012 2013 $ 27 124 123 4 216 257 $ 82 1 227 267 751 716 921 124 53 1,098 921 129 75 1,125 10,897 (2,758) 8,139 10,824 (2,698) 8,126 582 579 13 595 10,583 $ 593 10,560 $ 318 296 65 14 62 245 337 159 14 261 126 1,185 1,736 124 29 259 117 1,227 1,735 1,853 6 157 1,857 6 155 29 28 254 255 173 175 2,475 2,473 762 762 4,882 4,882 (498) ― $ 31 108 5,146 10,583 $ (477) (1) 5,166 10,560 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements Of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization Gains on sales of other assets and other, net Impairment charges Deferred income taxes Accrued pension and other post-retirement benefit costs (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Net proceeds from the sales of other assets Notes receivable from affiliated companies Change in restricted cash Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payments for the redemption of long-term debt Notes payable to affiliated companies Net cash provided by (used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures Transfer of Vermillion Generating Station to Duke Energy Indiana See Notes to Condensed Consolidated Financial Statements 28 2012 2013 $ (21) $ 89 ― ― (1) 2 (12) 44 5 3 38 (48) 25 84 (17) (41) 30 11 8 (8) (5) (30) 42 3 46 (37) 14 (24) 6 (8) (57) 180 (105) (121) 13 (10) (10) ― 82 (3) (218) 6 (251) ― (108) (2) ― (2) (73) (2) 92 90 (4) 31 $ $ 74 27 $ 19 $ ― 99 26 34 28 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements Of Equity (Unaudited) Accumulated Other Comprehensive Loss Common (in millions) Stock Balance at December 31, 2011 $ Net income Additional Paid-in Capital 762 $ ― Retained Earnings (Deficit) 5,085 $ ― (652) Pension and OPEB Related Adjustments $ ― Balance at March 31, 2012 $ 762 $ Balance at December 31, 2012 $ 762 $ ― Net loss ― (28) 5,057 $ 4,882 $ ― (578) $ (477) $ 74 1 ― (28) $ 5,214 (1) $ 5,166 (27) (21) 1 $ 762 $ 4,882 $ (498) See Notes to Condensed Consolidated Financial Statements 29 $ 5,167 1 ― (21) Other comprehensive income Balance at March 31, 2013 $ ― 74 Other comprehensive income Transfer of Vermillion Generating Station to Duke Energy Indiana Total (28) ― 1 $ 5,146 PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Statements Of Operations And Comprehensive Income (Unaudited) (in millions) Operating Revenues $ Three Months Ended March 31, 2013 2012 724 $ 688 Operating Expenses Fuel used in electric generation and purchased power 293 283 Operation, maintenance and other 150 160 Depreciation and amortization 78 96 Property and other taxes 22 21 ― 400 Impairment charges Total operating expenses Operating Income (Loss) Other Income and Expenses, net 543 960 181 (272) 4 23 41 34 144 (283) Income Tax Expense (Benefit) 54 (116) Net Income (Loss) 90 (167) Interest Expense Income (Loss) Before Income Taxes Other Comprehensive Loss, net of tax Reclassification into earnings from cash flow hedges (a) Comprehensive Income (Loss) (a) ― $ Net of $1 million tax benefit in 2013 and insignificant tax benefit in 2012. See Notes to Condensed Consolidated Financial Statements 30 90 $ (1) (168) PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $1 at March 31, 2013 and December 31, 2012) Receivables from affiliated companies Inventory Other Total current assets Investments and Other Assets Intangibles, net Other Total investments and other assets Property, Plant and Equipment March 31, $ Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Long-term Debt Long-term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Common Stockholder's Equity Common Stock, no par; $0.01 stated value, 60,000,000 shares authorized; 53,913,701 shares outstanding at March 31, 2013 and December 31, 2012 Additional paid-in capital Retained earnings Accumulated other comprehensive income Total common stockholder's equity Total Liabilities and Common Stockholder's Equity See Notes to Condensed Consolidated Financial Statements 31 23 29 $ 36 33 104 143 Cost Total Assets December 31, 2012 2013 375 380 141 711 138 691 37 130 167 41 122 163 12,119 (3,746) 12,012 (3,692) 8,373 8,320 785 24 809 810 24 834 $ 10,060 $ 10,008 $ 123 56 $ 173 60 27 80 48 81 61 53 405 146 165 405 885 998 3,147 150 3,147 150 920 141 853 142 186 185 37 746 51 37 741 46 2,005 2,080 1 1,384 2,318 5 1 1,384 2,408 5 3,798 $ 10,060 $ 3,708 10,008 PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Statements Of Cash Flows (Unaudited) (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Equity component of AFUDC Impairment charges Deferred income taxes and investment tax credit amortization Accrued pension and other post-retirement benefit costs (Increase) decrease in Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt Payments for the redemption of long-term debt Notes payable to affiliated companies Other Net cash (used in) provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures Transfer of Vermillion Generating Station from Duke Energy Ohio See Notes to Condensed Consolidated Financial Statements 32 Three Months Ended March 31, 2013 2012 $ 90 $ (167) 79 97 (3) (21) ― 45 5 (116) 4 400 2 9 (20) (34) 8 (39) 6 12 7 8 (8) (4) 9 (19) 153 (6) (4) 18 (16) 20 (11) 198 (156) (273) (4) 4 1 (272) ― 250 (1) (1) (122) (2) 125 6 16 (156) (2) 2 ― (54) ― (55) (13) 36 $ 23 $ 22 $ 28 ― $ 72 26 PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Statements Of Equity (Unaudited) Additional Paid-in Capital Common (in millions) Stock Balance at December 31, 2011 1 $ Accumulated Other Comprehensive Income $ 1,358 Retained Earnings $ 2,368 Net Gains on Cash Flow Hedges $ Total 7 $ 3,734 Net loss ― ― (167) ― (167) Other comprehensive loss ― ― ― (1) (1) Transfer of Vermillion Generating Station from Duke Energy Ohio ― 26 ― ― Balance at March 31, 2012 $ Balance at December 31, 2012 $ 1 1 $ Net income Balance at March 31, 2013 $ ― 1 $ $ 1,384 $ 2,201 $ 1,384 2,318 $ $ ― 1,384 $ 2,408 See Notes to Condensed Consolidated Financial Statements 33 3,592 5 $ 3,708 ― 90 $ 26 6 $ 5 $ 90 3,798 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements (Unaudited) Index to Combined Notes To Condensed Consolidated Financial Statements The unaudited notes to the condensed consolidated financial statements that follow are a combined presentation. The following list indicates the registrants to which the footnotes apply. Registrant Duke Energy Corporation Duke Energy Carolinas, LLC Progress Energy, Inc. Duke Energy Progress, Inc. Duke Energy Florida, Inc. Duke Energy Ohio, Inc. Duke Energy Indiana, Inc. 1 • • • • • • • 2 • • • • 3 • • • • • • • 4 • • • • • • • 5 • • • • • • • 6 • • • • • • • 7 • • • 8 • • • • • • • Applicable Notes 9 10 11 12 • • • • • • • • • • • • • • • • • • • • • 13 • 14 • • • • • • • 15 16 • • • • • • • • • • • • • • 17 • • • • • • 18 • • • • • • • 19 • • • • • • • 20 • • • • • • • 1. ORGANIZATION AND BASIS OF PRESENTATION NATURE OF OPERATIONS AND BASIS OF CONSOLIDATION Duke Energy Corporation (collectively with its subsidiaries, Duke Energy), is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the United States (U.S.) and Latin America primarily through its direct and indirect subsidiaries. Duke Energy’s subsidiaries includes Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, Inc. (Duke Energy Progress); Duke Energy Florida, Inc. (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio), which includes Duke Energy Kentucky, Inc. (Duke Energy Kentucky); and Duke Energy Indiana, Inc. (Duke Energy Indiana). On July 2, 2012, Duke Energy merged with Progress Energy, with Duke Energy continuing as the surviving corporation, Progress Energy becoming a subsidiary of Duke Energy and Progress Energy’s regulated utility subsidiaries, Duke Energy Progress (formerly Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc.) and Duke Energy Florida (formerly Florida Power Corporation d/b/a Progress Energy Florida , Inc.), becoming indirect subsidiaries of Duke Energy. Duke Energy’s consolidated financial statements include Progress Energy, Duke Energy Progress and Duke Energy Florida activity beginning July 2, 2012. In accordance with Securities and Exchange Commission (SEC) guidance, Progress Energy, Duke Energy Progress and Duke Energy Florida did not reflect the impacts of acquisition accounting from the merger with Duke Energy, whereby the adjustments of assets and liabilities to fair value and the resultant goodwill would be shown on the financial statements of Progress Energy, Duke Energy Progress and Duke Energy Florida. These adjustments were recorded by Duke Energy. See Note 2 for additional information regarding the merger. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its six separate subsidiary registrants, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. The information in these combined notes relates to each of the Duke Energy Registrants as noted in the Index to Combined Notes. However, none of the registrants makes any representation as to information related solely to Duke Energy or the subsidiaries of Duke Energy other than itself. As discussed further in Note 3, Duke Energy operates three reportable business segments: U.S. Franchised Electric and Gas (USFE&G), Commercial Power and International Energy. The remainder of Duke Energy’s operations is presented as Other. These Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and all majority-owned subsidiaries where the respective Duke Energy Registrants have control and those variable interest entities (VIEs) where the respective Duke Energy Registrants are the primary beneficiary. These Condensed Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain generation and transmission facilities. See Note 2 for further discussion. Duke Energy Carolinas, a wholly owned subsidiary of Duke Energy, is a regulated public utility that generates, transmits, distributes and sells electricity in North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC), the Public Service Commission of South Carolina (PSCSC), the U.S. Nuclear Regulatory Commission (NRC) and the Federal Energy Regulatory Commission (FERC). Substantially all of Duke Energy Carolinas’ operations are regulated and qualify for regulatory accounting treatment. As discussed further in Note 3, Duke Energy Carolinas’ operations include one reportable business segment, Franchised Electric. Progress Energy, a wholly owned subsidiary of Duke Energy, is a holding company headquartered in Raleigh, North Carolina, subject to regulation by the FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. As discussed further in Note 3, Progress Energy’s operations include one reportable segment, Franchised Electric. Duke Energy Progress, an indirect wholly owned subsidiary of Duke Energy, is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress is subject to the regulatory provisions of the NCUC, the PSCSC, the NRC and the FERC. Substantially all of Duke Energy Progress’ operations are regulated and qualify for regulatory accounting treatment. As discussed further in Note 3, Duke Energy Progress’ operations include one reportable segment, Franchised Electric. 34 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Duke Energy Florida, an indirect wholly owned subsidiary of Duke Energy, is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in west central Florida. Duke Energy Florida is subject to the regulatory jurisdiction of the Florida Public Service Commission (FPSC), the NRC and the FERC. Substantially all of Duke Energy Florida’s operations are regulated and qualify for regulatory accounting treatment. As discussed further in Note 3, Duke Energy Florida’s operations include one reportable segment, Franchised Electric. Duke Energy Ohio, an indirect wholly owned subsidiary of Duke Energy, is a combination electric and gas public utility that provides service in the southwestern portion of Ohio and in northern Kentucky through its wholly owned subsidiary, Duke Energy Kentucky, as well as electric generation in parts of Ohio, Illinois and Pennsylvania. Duke Energy Ohio’s principal lines of business include generation, transmission and distribution of electricity, the sale of and/or transportation of natural gas, and energy marketing. Duke Energy Ohio conducts competitive auctions for retail electricity supply in Ohio whereby the energy price is recovered from retail customers. Duke Energy Kentucky’s principal lines of business include generation, transmission and distribution of electricity, as well as the sale of and/or transportation of natural gas. 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 Public Utilities Commission of Ohio (PUCO), the Kentucky Public Service Commission (KPSC) and the FERC. Duke Energy Ohio applies regulatory accounting treatment to substantially all of the operations in its Franchised Electric and Gas operating segment. See Note 3 for further information about Duke Energy Ohio’s business segments. Duke Energy Indiana, an indirect wholly owned subsidiary of Duke Energy, is a regulated public utility that provides electricity service in north central, central, and southern Indiana. Its primary line of business is generation, transmission and distribution of electricity. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and the FERC. Substantially all of Duke Energy Indiana’s operations are regulated and qualify for regulatory accounting treatment. As discussed further in Note 3, Duke Energy Indiana’s operations include one reportable business segment, Franchised Electric. REVERSE STOCK SPLIT On July 2, 2012, just prior to the close of the merger with Progress Energy, Duke Energy executed a one-for-three reverse stock split with respect to the issued and outstanding shares of Duke Energy common stock. All per-share amounts included in this Form 10-Q are presented as if the one-for-three reverse stock split had been effective from the beginning of the earliest period presented. BASIS OF PRESENTATION These Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all of the information and notes required by GAAP in the U.S. for annual financial statements. Because the interim Condensed Consolidated Financial Statements and Notes do not include all of the information and notes required by GAAP in the U.S. for annual financial statements, the Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and Notes in the Duke Energy Registrants’ combined Form 10-K for the year ended December 31, 2012. These Condensed Consolidated Financial Statements, in the opinion of management, reflect all normal recurring adjustments that are, in the opinion of the respective companies’ management, necessary to fairly present the financial position and results of operations of each Duke Energy Registrant. Amounts reported in Duke Energy’s interim Condensed Consolidated Statements of Operations and each of the Subsidiary Registrants’ interim Condensed Consolidated Statements of Income and Comprehensive Income are not necessarily indicative of amounts expected for the respective annual periods due to the effects of seasonal temperature variations on energy consumption, regulatory rulings, the timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors. In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Prior year financial statements and footnote disclosures for Progress Energy, Duke Energy Progress and Duke Energy Florida have been reclassified to conform to Duke Energy’s presentation. UNBILLED REVENUE Revenues on sales of electricity and gas are recognized when either the service is provided or the product is delivered. Unbilled retail revenues are estimated by applying average revenue per kilowatt-hour (kWh) or per thousand cubic feet (Mcf) for all customer classes to the number of estimated kWh or Mcf delivered but not billed. Unbilled wholesale energy revenues are calculated by applying the contractual rate per megawatt-hour (MWh) to the number of estimated MWh delivered but not yet billed. Unbilled wholesale demand revenues are calculated by applying the contractual rate per megawatt (MW) to the MW volume delivered but not yet billed. The amount of unbilled revenues can vary significantly from period to period as a result of numerous factors, including seasonality, weather, customer usage patterns and customer mix. The Duke Energy Registrants had unbilled revenues within Receivables and within Restricted receivables of variable interest entities on their respective Condensed Consolidated Balance Sheets as shown in the table below. (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana March 31, 2013 $ December 31, 2012 899 314 193 115 78 49 3 35 $ 920 315 187 112 74 47 3 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Additionally, Duke Energy Ohio and Duke Energy Indiana sell, on a revolving basis, nearly all of their retail and wholesale accounts receivable to Cinergy Receivables Company, LLC (CRC). These transfers meet sales/derecognition criteria and, therefore, Duke Energy Ohio and Duke Energy Indiana account for the transfers of receivables to CRC as sales. Accordingly, the receivables sold are not reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 11 for further information. Receivables for unbilled revenues related to retail and wholesale accounts receivable at Duke Energy Ohio and Duke Energy Indiana included in the sales of accounts receivable to CRC were as shown in the table below. (in millions) Duke Energy Ohio Duke Energy Indiana March 31, 2013 December 31, 2012 74 122 $ 90 $ 132 NET INCOME AMOUNTS ATTRIBUTABLE TO CONTROLLING INTERESTS The following tables present the net income amounts attributable to controlling interests for the Duke Energy Registrants with noncontrolling interests during the three months ended March 31, 2013 and 2012. (in millions) Net Income Amounts Attributable to Controlling Interests Three Months Ended March 31, 2013 Income from continuing operations, net of tax / Net income attributable to controlling interests Three Months Ended March 31, 2012 Income from continuing operations, net of tax Discontinued operations, net of tax Net income attributable to controlling interests Duke Energy Progress Energy $ 634 $ 153 $ 293 $ $ 2 295 $ 139 11 150 2. ACQUISITIONS, DISPOSITIONS AND SALES OF OTHER ASSETS ACQUISITIONS The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date, and include earnings from acquisitions in consolidated earnings after the purchase date. Merger with Progress Energy On July 2, 2012, Duke Energy completed the merger with Progress Energy, a North Carolina corporation engaged in the regulated utility business of generation, transmission and distribution and sale of electricity in portions of North Carolina, South Carolina and Florida. As a result of the merger, Progress Energy became a wholly owned subsidiary of Duke Energy. Purchase Price Pursuant to the merger, all Progress Energy common shares were exchanged at the fixed exchange ratio of 0.87083 common shares of Duke Energy for each Progress Energy common share. The total consideration transferred of $18,071 million, including $62 million fair value of stock-based compensation awards, was based on the closing price of Duke Energy common shares on July 2, 2012. The fair value of Progress Energy’s assets acquired and liabilities assumed was determined based on significant estimates and assumptions, including level 3 inputs, which are judgmental in nature. The estimates and assumptions include the projected timing and amount of future cash flows, discount rates reflecting risk inherent in the future cash flows and future market prices. The fair value of Progress Energy’s assets acquired and liabilities assumed utilized for the purchase price allocation are preliminary. These amounts are subject to revision until the valuations are completed, and to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date, including but not limited to the resolution of matters pertaining to the retirement of Duke Energy Florida’s Crystal River Nuclear Station - Unit 3 (Crystal River Unit 3) as well as certain other tax and contingency related items. The significant assets and liabilities for which preliminary valuation amounts are reflected as of the filing of this Form 10-Q include the fair value of the acquired longterm debt, asset retirement obligations, capital leases and pension and other post-retirement benefit (OPEB) plans. Additionally the February 5, 2013 announcement of the decision to retire Crystal River Unit 3, reflects additional information related to the facts and circumstances that existed as of the acquisition date. See Note 4 for additional information related to Crystal River Unit 3. As such, the 36 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Progress Energy assets acquired and liabilities assumed are presented as if the retirement of Crystal River Unit 3 occurred on the acquisition date. The fair value of the outstanding stock compensation awards is included in the purchase price as consideration transferred. The majority of Progress Energy’s operations are subject to the rate-setting authority of the FERC, NCUC, PSCSC, and FPSC and are accounted for pursuant to U.S. GAAP, including the accounting guidance for regulated operations. The rate-setting and cost recovery provisions currently in place for Progress Energy’s regulated operations provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base. Except for long-term debt, asset retirement obligations, capital leases, pension and OPEB plans and the wholesale portion of Duke Energy Florida’s Crystal River Unit 3, the fair values of Progress Energy’s tangible and intangible assets and liabilities subject to these rate-setting provisions approximate their carrying values, and the assets and liabilities acquired and pro forma financial information do not reflect any net adjustments related to these amounts. The difference between fair value and the pre-merger carrying amounts for Progress Energy’s long-term debt, asset retirement obligations, capital leases and pension and OPEB plans for the regulated operations were recorded as Regulatory assets. The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was recognized as goodwill at the acquisition date. The goodwill reflects the value paid primarily for the long-term potential for enhanced access to capital as a result of the company’s increased scale and diversity, opportunities for synergies, and an improved risk profile. The goodwill resulting from Duke Energy’s merger with Progress Energy was preliminarily allocated entirely to the USFE&G segment, but is subject to change as additional information is obtained. None of the goodwill recognized is deductible for income tax purposes, and as such, no deferred taxes have been recorded related to goodwill. The preliminary purchase price allocation of the merger is presented in the following table. (in millions) Current assets Property, plant and equipment Goodwill Other long-term assets, excluding goodwill $ Total assets Current liabilities, including current maturities of long-term debt Long-term liabilities, preferred stock and noncontrolling interests Long-term debt Total liabilities and preferred stock Total purchase price $ 3,204 23,122 12,477 9,992 48,795 3,590 10,388 16,746 30,724 18,071 The preliminary purchase price allocation in the table above reflects refinements made to the fair values of the assets acquired and liabilities assumed, including adjustments associated with the retirement of Crystal River Unit 3, that were included in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2012. The changes primarily resulted in an increase to Goodwill of $10 million, an increase to the fair value of Current liabilities, including current maturities of longterm debt of $9 million, a decrease to Property, plant and equipment of $157 million and a decrease to Long-term liabilities, preferred stock and noncontrolling interests of $158 million. These refinements had no impact on the amortization of the purchase accounting adjustments recorded during 2012 or for the three months ended March 31, 2013. Pro Forma Financial Information The following unaudited pro forma financial information reflects the consolidated results of operations of Duke Energy for the three months ended March 31, 2012 and reflects the amortization of purchase price adjustments assuming the merger had taken place on January 1, 2011. The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or the future consolidated results of operations of Duke Energy. This information is preliminary in nature and subject to change based on final purchase price adjustments. Non-recurring merger consummation, integration and other costs incurred by Duke Energy during the three months ended March 31, 2012 have been excluded from the pro forma earnings presented below. After-tax non-recurring merger consummation, integration and other costs incurred by Duke Energy were $10 million for the three months ended March 31, 2012. The pro forma financial information also excludes potential future cost savings or non-recurring charges related to the merger. (in millions, except per share amounts) Revenues Net Income Attributable to Duke Energy Corporation Basic and Diluted Earnings Per Share Three Months Ended March 31, 2012 $ 5,724 463 0.66 Chilean Operations In December 2012, International Energy acquired Iberoamericana de Energía Ibener, S.A. (Ibener) of Santiago, Chile for cash consideration of $415 million. This acquisition included the 140 MW Duqueco hydroelectric generation complex consisting of two run-of-the-river plants located in southern Chile. The preliminary purchase accounting entries consisted primarily of $383 million of property, plant and equipment, $30 million of intangible assets, $57 million of deferred income tax liabilities, $53 million of goodwill, and $6 million of working capital. The fair value of the assets acquired and liabilities assumed utilized for the purchase price allocation are preliminary and subject to revision until the valuations are completed and to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. In connection with the acquisition, a $190 million six-month bridge loan and a $200 million revolving loan under a credit agreement were executed with a commercial bank. Both loans are collateralized with cash deposits equal to 101 percent of the loan amounts, 37 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) and therefore no net proceeds from the financings exist through March 31, 2013. The $190 million bridge loan is classified in Current maturities of long-term debt and the related cash collateral deposit is presented within Current Assets on the Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012. The $200 million, fully cash-collateralized revolving loan is due on December 20, 2013 and International Energy has the right to extend the term for additional 1 year terms, not to exceed a final maturity of thirteen years from the date of the initial funding. The revolving loan is classified as Long-term Debt and the related cash collateral deposits are presented within Investments and Other Assets on the Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012. In April 2013, the $190 million six-month bridge loan was replaced with a $230 million nonrecourse secured credit facility with a term of thirteen years, and $ 192 million of cash collateral related to the six-month bridge loan was returned to Duke Energy. Vermillion Generating Station On January 12, 2012, after receiving approvals from the FERC and the IURC on August 12, 2011 and December 28, 2011, respectively, Duke Energy Vermillion II, LLC (Duke Energy Vermillion), an indirect wholly owned subsidiary of Duke Energy Ohio, completed the sale of its 75 percent undivided ownership interest in the Vermillion Generating Station (Vermillion) to Duke Energy Indiana and Wabash Valley Power Association (WVPA). Upon the closing of the sale, Duke Energy Indiana and WVPA held 62.5 percent and 37.5 percent interests in Vermillion, respectively. Duke Energy Ohio received net proceeds of $82 million, consisting of $68 million and $14 million from Duke Energy Indiana and WVPA, respectively. As Duke Energy Indiana is an affiliate of Duke Energy Vermillion the transaction has been accounted for as a transfer between entities under common control with no gain or loss recorded and did not have a significant impact to Duke Energy Ohio or Duke Energy Indiana’s results of operations. The proceeds received from Duke Energy Indiana are included in Net proceeds from the sales of other assets on Duke Energy Ohio’s Condensed Consolidated Statements of Cash Flows. The cash paid to Duke Energy Ohio is included in Capital expenditures on Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows. Duke Energy Ohio and Duke Energy Indiana recognized non-cash after tax equity transfers of $28 million and $26 million, respectively, in their Condensed Consolidated Statements of Equity on the transaction representing the difference between cash exchanged and the net book value of Vermillion. These amounts are not reflected in Duke Energy’s Condensed Consolidated Statements of Cash Flows or Condensed Consolidated Statements of Equity as the transaction is eliminated in consolidation. The proceeds from WVPA are included in Net proceeds from the sales of other assets, and sale of and collections on notes receivable on Duke Energy and Duke Energy Ohio’s Condensed Consolidated Statements of Cash Flows. The sale of the proportionate share of Vermillion to WVPA did not result in a significant gain or loss. DISCONTINUED OPERATIONS Included in Income From Discontinued Operations, net of tax on the Condensed Consolidated Statements of Operations are amounts related to adjustments for prior sales of diversified businesses. These adjustments are generally due to indemnifications provided for certain legal, tax and environmental matters. The ultimate resolution of these matters could result in additional adjustments in future periods. For the three months ended March 31, 2012, Progress Energy’s Income From Discontinued Operations, net of tax was primarily related to the reversal of certain environmental indemnification liabilities for which the indemnification period expired during the three months ended March 31, 2012. 3. BUSINESS SEGMENTS Management evaluates segment performance based on Segment Income, which is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment Income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. Certain governance costs are allocated to each of the segments. In addition, direct interest expense and income taxes are included in Segment Income. Operating segments for each of the Duke Energy Registrants are determined based on information used by the chief operating decision maker in deciding how to allocate resources and evaluate the performance at each of the Duke Energy Registrants. Products and services are sold between the affiliate companies and between the reportable segments of Duke Energy at cost. Segment assets as presented in the tables that follow exclude all intercompany assets. DUKE ENERGY Duke Energy has the following reportable operating segments: USFE&G, Commercial Power and International Energy. USFE&G generates, transmits, distributes and sells electricity in North Carolina, South Carolina, west central Florida, central, north central and southern Indiana, and northern Kentucky. USFE&G also transmits and distributes electricity in southwestern Ohio. Additionally, USFE&G transports and sells natural gas in southwestern Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, certain regulated portions of Duke Energy Ohio, and Duke Energy Indiana. Segment information for USFE&G includes the results of the regulated operations of Progress Energy from July 2, 2012 forward. Commercial Power owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants, as well as other contractual positions. Commercial Power also has a retail sales subsidiary, Duke Energy Retail Sales, LLC (Duke Energy Retail), which is certified by the PUCO as a Competitive Retail Electric Service 38 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) provider in Ohio. Through Duke Energy Generation Services, Inc. and its affiliates (DEGS), Commercial Power engages in the development, construction and operation of renewable energy projects. In addition, DEGS owns and develops commercial transmission projects. International Energy principally operates and manages power generation facilities and engages in sales and marketing of electric power and natural gas outside the U.S. It conducts operations primarily through Duke Energy International, LLC and its affiliates and its activities principally target power generation in Latin America. Additionally, International Energy owns a 25 percent interest in National Methanol Company, located in Saudi Arabia, which is a large regional producer of methanol and methyl tertiary butyl ether (MTBE). The remainder of Duke Energy’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes unallocated corporate costs, which include costs not allocable to Duke Energy’s reportable business segments, primarily interest expense on corporate debt instruments, costs to achieve mergers and divestitures, and costs associated with certain corporate severance programs. It also includes Bison Insurance Company Limited (Bison), Duke Energy’s wholly owned, captive insurance subsidiary, Duke Energy’s 50 percent interest in DukeNet and related telecommunications businesses, and Duke Energy’s 60 percent interest in Duke Energy Trading and Marketing, LLC. (in millions) USFE&G Unaffiliated revenues $ Total revenues Segment income / Consolidated net income (a) $ 8 $ $ Segment assets (a) Commercial Power 5,052 Intersegment revenues Three Months Ended March 31, 2013 Total International Reportable Energy Segments Other 439 392 $ ― 13 5,060 $ 656 $ 98,419 $ 452 $ (42) $ 392 $ 97 $ Eliminations 15 $ 21 $ 20 5,904 $ 711 $ 110,877 5,521 6,937 5,883 ― Consolidated $ 5,898 5,898 ― (41) 35 $ (41) $ (77) $ ― $ 2,696 93 634 113,666 Other includes after-tax costs to achieve the merger with Progress Energy of $34 million, net of tax of $21 million. See Note 2 for additional information. (in millions) Unaffiliated revenues Commercial Power USFE&G (a) $ Intersegment revenues Three Months Ended March 31, 2012 Total International Reportable Energy Segments Other 2,660 $ 564 402 $ 16 8 $ ― 3,626 $ Eliminations 4 $ 11 24 ― Consolidated $ 3,630 (35) ― Total revenues $ 2,668 $ 580 $ 402 $ 3,650 $ 15 $ (35) $ 3,630 Segment income (a)(b) Add back noncontrolling interest component Income from discontinued operations, net of tax $ 136 $ 31 $ 142 $ 309 $ (16) $ ― $ 293 4 2 Consolidated net income (a) (b) $ 299 On January 25, 2012 and January 27, 2012, the Duke Energy Carolinas' South Carolina and North Carolina rate case settlement agreements were approved by the PSCSC and NCUC, respectively. Among other things, the rate case settlements included an annual base rate increase of $309 million in North Carolina and a $93 million annual base rate increase in South Carolina, both beginning in February 2012. The impact of these rates impacts USFE&G. USFE&G recorded an after-tax impairment charge of $268 million, net of tax of $152 million, related to Duke Energy Indiana's Edwardsport Integrated Gasification Combined Cycle (IGCC) project. USFE&G also recorded the reversal of expenses of $60 million, net of tax of $39 million, related to a prior year Voluntary Opportunity Plan in accordance with Duke Energy Carolinas' 2011 rate case. PROGRESS ENERGY Progress Energy’s sole reportable segment is Franchised Electric, which is primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina, South Carolina and Florida. These electric operations also distribute and sell electricity to other utilities, primarily on the east coast of the United States. The remainder of Progress Energy’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes the Progress Energy holding company and Progress Energy Service Company, LLC and other miscellaneous nonregulated businesses, as well as costs to achieve the merger with Duke Energy and certain governance costs allocated by its parent, Duke Energy. See Note 17 for additional information. Franchised Electric (in millions) Unaffiliated revenues $ 2,169 Affiliated revenues Total revenues Segment income (a) Three Months Ended March 31, 2013 Total Reportable Segment Other Eliminations $ 9 2,169 $ 9 $ ― 9 ― Consolidated $ 2,178 8 (1) $ 2,178 $ 2,178 $ 9 $ (1) $ 2,186 $ 232 $ 232 $ (79) $ ― $ 153 $ 154 Add back noncontrolling interest component 1 Consolidated net income Segment assets (a) 36,786 36,786 520 (21) Other includes after-tax costs to achieve the merger with Duke Energy of $12 million, net of tax of $8 million. See Note 2 for additional information. Franchised Three Months Ended March 31, 2012 Total Reportable 37,285 Franchised Electric (in millions) Unaffiliated revenues $ Affiliated revenues Total revenues Segment income (a) Reportable Segment 2,099 $ 1 Eliminations Other 2,099 $ 1 3 $ ― ― Consolidated $ 2,102 (1) ― $ 2,100 $ 2,100 $ 3 $ (1) $ 2,102 $ 178 $ 178 $ (39) $ ― $ 139 Add back noncontrolling interest component 2 Income from discontinued operations, net of tax 11 Consolidated net income (a) $ Other includes after-tax costs to achieve the merger with Duke Energy of $4 million, net of tax of $3 million. See Note 2 for additional information. 39 152 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY OHIO Duke Energy Ohio has two reportable operating segments, Franchised Electric and Gas and Commercial Power. Franchised Electric and Gas transmits and distributes electricity in southwestern Ohio and generates, transmits, distributes and sells electricity in northern Kentucky. Franchised Electric and Gas also transports and sells natural gas in southwestern Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Ohio and its wholly owned subsidiary, Duke Energy Kentucky. Commercial Power owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants, as well as other contractual positions. Duke Energy Ohio’s Commercial Power reportable operating segment does not include the operations of DEGS or Duke Energy Retail, which are included in the Commercial Power reportable operating segment at Duke Energy. The remainder of Duke Energy Ohio’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes certain governance costs allocated by its parent, Duke Energy. See Note 17 for additional information. All of Duke Energy Ohio’s revenues are generated domestically and its long-lived assets are all in the U.S. (in millions) Unaffiliated revenues Intersegment revenues Total revenues Segment income / Consolidated net income Franchised Electric and Gas $ 492 $ Three Months Ended March 31, 2013 Total Reportable Segments Other Eliminations 255 $ 747 $ ― $ ― 492 $ 11 266 $ 53 $ (67) $ $ $ Segment assets (in millions) Unaffiliated revenues Intersegment revenues Total revenues Segment income / Consolidated net income Commercial Power 4,120 6,514 Franchised Electric and Gas $ 473 $ 473 34 $ (14) $ 10,634 ― ― $ (7) $ 109 $ (11) (11) $ ― $ $ 15 $ $ 454 44 15 $ $ 927 78 $ $ ― ― (4) $ $ 747 (21) 10,583 (160) Three Months Ended March 31, 2012 Total Reportable Segments Other Eliminations 439 $ 912 $ ― $ Consolidated 747 ― Commercial Power ― $ 11 758 ― Consolidated ― $ 912 (15) (15) ― $ ― 912 $ 74 DUKE ENERGY CAROLINAS, DUKE ENERGY PROGRESS, DUKE ENERGY FLORIDA AND DUKE ENERGY INDIANA Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana each have one reportable operating segment, Franchised Electric, which generates, transmits, distributes and sells electricity. The remainder of each company’s operations is classified as Other. While not considered reportable segments for any of these companies, Other consists of each respective company’s share of costs to achieve the merger between Duke Energy and Progress Energy, certain corporate severance programs, and certain costs for use of corporate 40 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) assets as allocated to each company. See Note 17 for additional information. The following table summarizes the net loss for Other at each of these entities. Three Months Ended March 31, 2012 (in millions) Duke Energy Carolinas Duke Energy Progress Duke Energy Florida Duke Energy Indiana 2013 $ (19) (7) (5) $ (4) (8) (3) (1) (4) The Franchised Electric operating segments includes substantially all of Duke Energy Carolinas’, Duke Energy Progress’, Duke Energy Florida’s and Duke Energy Indiana’s assets. 4. REGULATORY MATTERS RATE RELATED INFORMATION The NCUC, PSCSC, FPSC, IURC, PUCO and KPSC approve rates for retail electric and gas services within their states. Nonregulated sellers of gas and electric generation are also allowed to operate in Ohio once certified by the PUCO. The FERC approves rates for electric sales to wholesale customers served under cost-based rates, as well as sales of transmission service. Duke Energy Carolinas 2013 North Carolina Rate Case On February 4, 2013, Duke Energy Carolinas filed an application with the NCUC for an increase in base rates of approximately $446 million, or an average 9.7 percent increase in retail revenues. The request for increase is based upon an 11.25 percent return on equity and a capital structure of 53 percent equity and 47 percent longterm debt. The rate increase is designed primarily to recover the cost of plant modernization, environmental compliance and other capital additions. Duke Energy Carolinas expects revised rates, if approved, to go into effect late third quarter of 2013. 2013 South Carolina Rate Case On March 18, 2013, Duke Energy Carolinas filed an application with the PSCSC for an increase in base rates of approximately $220 million, or an average 15.1 percent increase in retail revenues. The request for increase is based upon an 11.25 percent return on equity and a capital structure of 53 percent equity and 47 percent longterm debt. More than half of the request is driven by capital investments, but also seeks to recover items such as vegetation management improvements, nuclear safety upgrades, cyber-security enhancements and the impacts of lower sales volumes. Duke Energy Carolinas expects revised rates, if approved, to go into effect late third quarter of 2013. 2011 North Carolina Rate Case On January 27, 2012, the NCUC approved a settlement agreement between Duke Energy Carolinas and the North Carolina Utilities Commission Public Staff (Public Staff) for a rate increase. On March 28, 2012, the North Carolina Attorney General (NCAG) filed a notice of appeal with the NCUC challenging the rate of return approved in the agreement. On April 12, 2013, the North Carolina Supreme Court (NCSC) issued an order requiring the NCUC to make an independent determination regarding the proper return on equity. The NCSC indicated the determination should be based upon appropriate findings of fact that balance all the available evidence, including the impact of changing economic conditions on customers. On April 29, 2013, the NCAG filed a motion with the NCUC requesting a stay of the rate increase approved by the NCUC and implemented in 2012. The NCAG also requested the NCUC to provide the parties guidance with respect to further evidentiary hearings at which new evidence would be introduced. On May 1, 2013, Duke Energy Carolinas filed its opposition to the NCAG’s motion to stay the rate increase. Duke Energy Carolinas cannot predict the outcome of these proceedings. William States Lee III Nuclear Station In December 2007, Duke Energy Carolinas filed an application with the NRC, which has been docketed for review, for a combined Construction and Operating License (COL) for two Westinghouse AP1000 (advanced passive) reactors for the proposed William States Lee III Nuclear Station (Lee Nuclear Station) at a site in Cherokee County, South Carolina. Each reactor is capable of producing 1,117 MW. Submitting the COL application does not commit Duke Energy Carolinas to build nuclear units. Through several separate orders, the NCUC and PSCSC have concurred with the prudency of Duke Energy incurring certain project development and pre-construction costs. As of March 31, 2013, Duke Energy Carolinas has incurred approximately $330 million, including allowance for funds used during construction (AFUDC), which is included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets. The Lee COL application is impacted by the ongoing activity by the NRC to address its Waste Confidence rule, a generic finding by the NRC that spent fuel can be managed safely until ultimate disposal. The rule has been remanded to the NRC by the District of Columbia Court of 41 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Appeals. In response to the court’s remand and in connection with numerous petitions asserting waste confidence contentions, including in the Lee proceeding, the NRC determined that no final licenses for new reactors would be issued until the remand is appropriately addressed. In September 2012, the NRC provided a timeline of 24 months from the time of its order for the staff to finish the generic Environmental Impact Study and publish a final Waste Confidence rule. Assuming the NRC uses the entire 24 month period for promulgation of a new rule, licenses would not be issued until September 2014 at the earliest. V.C. Summer Nuclear Station Letter of Intent In July 2011, Duke Energy Carolinas signed a letter of intent with Santee Cooper related to the potential acquisition by Duke Energy Carolinas of a 5 percent to 10 percent ownership interest in the V.C. Summer Nuclear Station being developed by Santee Cooper and SCE&G near Jenkinsville, South Carolina. The letter of intent provided a path for Duke Energy Carolinas to conduct the necessary due diligence to determine whether future participation in this project is beneficial for its customers. On November 7, 2012, the term of the letter of intent expired, though Duke Energy Carolinas remains engaged in discussions at this time. Duke Energy Progress 2012 North Carolina Rate Case On February 28, 2013, the Public Staff filed a Settlement Agreement with the NCUC detailing additional terms of settlement with Duke Energy Progress in connection with the rate case filed on October 12, 2012. Pursuant to the Settlement Agreement between Duke Energy Progress and the Public Staff, the parties have agreed to a two year step-in to a total agreed upon net rate increase, with the first year providing for a $151 million, or 4.7 percent average increase in rates, and the second year providing for rates to be increased by an additional $31 million, or 1.0 percent average increase in rates. This second year increase is a result of Duke Energy Progress agreeing to delay collection of financing costs on the construction work in progress for the L.V. Sutton (Sutton) combined cycle facility for one year. The Settlement Agreement is based upon a return on equity of 10.2 percent and a 53 percent equity component of the capital structure. The Settlement Agreement is subject to approval by the NCUC. Duke Energy Progress expects revised rates, if approved, to go into effect in June 2013. L.V. Sutton Combined Cycle Facility Duke Energy Progress is constructing a new 625 MW natural gas-fired generating facility at its existing Sutton Steam Station in New Hanover County, North Carolina. Total estimated costs at final project completion (including AFUDC) for the Sutton project, which is approximately 77 percent complete, are $600 million. The Sutton project is expected to be in service in the fourth quarter of 2013. Shearon Harris Nuclear Station Expansion In 2006, Duke Energy Progress selected a site at its existing Shearon Harris Nuclear Station (Harris) to evaluate for possible future nuclear expansion. On February 19, 2008, Duke Energy Progress filed its COL application with the NRC for two Westinghouse Electric AP1000 reactors at Harris, which the NRC docketed on April 17, 2008. On May 2, 2013, Duke Energy Progress filed a letter with the NRC requesting the NRC to suspend its review activities associated with the COL at the Harris site. As of March 31, 2013, approximately $70 million, including AFUDC, is recorded in Net property, plant and equipment on the Condensed Consolidated Balance Sheet. Duke Energy Progress is seeking recovery of this amount. Duke Energy Florida 2012 FPSC Settlement Agreement On February 22, 2012, the FPSC approved a comprehensive settlement agreement among Duke Energy Florida, the Florida Office of Public Counsel and other consumer advocates. The 2012 FPSC Settlement Agreement will continue through the last billing cycle of December 2016. The agreement addresses four principal matters: (i) the Crystal River Unit 3 delamination prudence review then pending before the FPSC, (ii) certain customer rate matters, (iii) Duke Energy Florida’s proposed Levy Nuclear Station (Levy) cost recovery, and (iv) cost of removal reserve. Refer to each of these respective sections below for further discussion. Crystal River Unit 3 In September 2009, Crystal River Unit 3 began an outage for normal refueling and maintenance as well as an uprate project to increase its generating capability and to replace two steam generators. During preparations to replace the steam generators, workers discovered a delamination (or separation) within the concrete at the periphery of the containment building, which resulted in an extension of the outage. After analysis, it was determined that the concrete delamination at Crystal River Unit 3 was caused by redistribution of stresses in the containment wall that occurred when an opening was created to accommodate the replacement of the unit’s steam generators. In March 2011, the work to return the plant to service was suspended after monitoring equipment identified a new delamination that occurred in a different section of the outer wall after the repair work was completed and during the late stages of retensioning the containment building. Crystal River Unit 3 remained out of service while Duke Energy Florida conducted an engineering analysis and review of the new delamination and evaluated possible repair options. Subsequent to March 2011, monitoring equipment detected additional changes and further damage in the partially tensioned containment building. Duke Energy Florida developed a repair plan which had a preliminary cost estimate of $900 million to $1.3 billion. On February 5, 2013, following the completion of a comprehensive analysis and an independent review by Zapata Incorporated which estimated repair costs to be between $1.49 billion and $3.43 billion depending on the repair scope selected, Duke Energy announced its 42 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) intention to retire Crystal River Unit 3. Duke Energy concluded that it did not have a high degree of confidence that repair could be successfully completed and licensed within estimated costs and schedule, and that it was in the best interests of Duke Energy Florida’s customers, joint owners and Duke Energy’s investors to retire the unit. On February 20, 2013, Duke Energy Florida filed with the NRC a certification of permanent cessation of power operations. Duke Energy Florida developed initial estimates of the cost to decommission the plant during its analysis of whether to repair or retire Crystal River Unit 3. With the final decision to retire, Duke Energy Florida is working to develop a comprehensive decommissioning plan, which will evaluate various decommissioning options and costs associated with each option. The plan will determine resource needs as well as the scope, schedule and other elements of decommissioning. Duke Energy Florida intends to use a safe storage (SAFSTOR) option for decommissioning. Generally, SAFSTOR involves placing the facility into a safe storage configuration, requiring limited staffing to monitor plant conditions, until the eventual dismantling and decontamination activities occur, usually in 40 to 60 years. This decommissioning approach is currently utilized at a number of retired domestic nuclear power plants and is one of three generally accepted approaches to decommissioning approved by the NRC. Once an updated site specific decommissioning study is completed it will be filed with the FPSC. As part of the evaluation of repairing Crystal River Unit 3, initial estimates of the cost to decommission the plant under the SAFSTOR option were developed which resulted in an estimate in 2011 dollars of $989 million. Additional specifics about the decommissioning plan are being developed. Duke Energy Florida maintains insurance for Crystal River Unit 3 through Nuclear Electric Insurance Limited (NEIL). NEIL provides for covered accidental property damage claims on an actual cash value basis up to $1.06 billion with a $10 million deductible per claim. The NEIL coverage does not include property damage to or resulting from the containment structure except full limit coverage does apply to decontamination and debris removal if required following an accident to ensure public health and safety or if property damage results from a terrorism event. Throughout the duration of the Crystal River Unit 3 outage, Duke Energy Florida worked with NEIL for recovery of applicable repair costs and associated replacement power costs. Pursuant to a settlement agreement executed on March 28, 2013, between NEIL and Duke Energy Florida, on April 25, 2013, NEIL paid Duke Energy Florida an additional $530 million. Along with the $305 million which NEIL previously paid, Duke Energy Florida has received a total of $835 million in insurance proceeds. In accordance with the 2012 FPSC Settlement Agreement, NEIL proceeds received allocable to retail customers will be applied to replacement power costs incurred after December 31, 2012 through December 31, 2016. Because Duke Energy Florida did not begin the repair of Crystal River Unit 3 prior to December 31, 2012 and has decided to retire the unit, per the 2012 FPSC Settlement Agreement, Duke Energy Florida will refund $40 million in 2015 and $60 million in 2016. Duke Energy Florida recorded a Regulatory liability for these refunds in the third quarter of 2012 related to these replacement power obligations. As a result of the 2012 FPSC Settlement Agreement, Duke Energy Florida will be permitted to recover prudently incurred fuel and purchased power costs through its fuel clause without regard for the absence of Crystal River Unit 3 for the period from the beginning of the Crystal River Unit 3 outage through December 31, 2016. As a result of the 2012 FPSC Settlement Agreement, Duke Energy Florida will be allowed to recover all remaining Crystal River Unit 3 investments and a return on the Crystal River Unit 3 investments set at its current authorized overall cost of capital, adjusted to reflect a return on equity set at 70 percent of the current FPSC authorized return on equity, no earlier than the first billing cycle of January 2017. Duke Energy Florida has reclassified all Crystal River Unit 3 investments, including property, plant and equipment, nuclear fuel, inventory, and other assets to a regulatory asset. In addition, as a result of Duke Energy Florida’s decision to retire Crystal River Unit 3, the 2012 FPSC Settlement Agreement authorizes Duke Energy Florida to defer the retail portion of all Crystal River Unit 3 related costs including, but not limited to, operations and maintenance and property tax costs in a regulatory asset. A regulatory liability must also be established to capture the difference between, i) actual incurred operations and maintenance and property tax costs in a given year and, ii) the amount included in customer rates as established in Duke Energy Florida’s most recent fully litigated base rate proceeding, effective 2010. Beginning in February 2013, the retail portion of operations and maintenance costs associated with Crystal River Unit 3 is being deferred to a regulatory asset. As of March 31, 2013 and December 31, 2012, $1,711 million and $1,637 million, respectively, have been recorded to Regulatory assets on Duke Energy Florida’s Condensed Balance Sheets. In accordance with the terms of the 2012 FPSC Settlement Agreement, Duke Energy Florida retained the sole discretion to retire Crystal River Unit 3 without challenge from the parties to the agreement. The FPSC will review the prudence of the retirement decision in what was previously titled Phase 2 of the Crystal River Unit 3 delamination regulatory docket. Duke Energy Florida has also asked the FPSC to review the mediated resolution of insurance claims with NEIL as part of what was previously titled Phase 3 of this regulatory docket. Additionally, Duke Energy Florida anticipates that the FPSC will review the costs included in the Crystal River Unit 3 regulatory asset as part of this pending proceeding. On March 1, 2013, an order was issued that Phase 2 and Phase 3 of the regulatory docket would be considered together in a single hearing. On April 26, 2013, the FPSC issued a procedural order on the matter and set final hearing dates to resolve all remaining issues on October 21, 2013 through October 23, 2013. Oral arguments were heard on April 30, 2013 on evidentiary issues. Duke Energy Florida believes the decision to retire Crystal River Unit 3, the actions taken and costs incurred in response to the Crystal River Unit 3 delamination have been prudent and, accordingly, considers replacement power and capital costs not recoverable through insurance to be recoverable through its fuel cost-recovery clause or base rates. Additional replacement power costs and exit cost to wind down the operations at the plant and decommission Crystal River Unit 3 could be material. Retirement of the plant could impact funding obligations associated with Duke Energy Florida’s nuclear decommissioning trust fund. Duke Energy Florida is a party to a master participation agreement and other related agreements with the joint owners of Crystal River Unit 3 which convey certain rights and obligations on Duke Energy Florida and the joint owners. In December 2012, Duke Energy Florida reached an agreement with one group of joint owners related to all Crystal River Unit 3 matters, and is engaged in settlement discussions with the other major group of joint owners. 43 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Duke Energy Florida cannot predict the outcome of the matters described above. Customer Rate Matters In conjunction with the 2012 FPSC Settlement Agreement, Duke Energy Florida will maintain base rates at the current levels through the last billing cycle of December 2016, except as described as follows. The agreement provides for a $150 million increase in revenue requirements effective with the first billing cycle of January 2013, while maintaining the current return on equity range of 9.5 percent to 11.5 percent. Additionally, costs associated with Crystal River Unit 3 investments will be removed from retail rate base effective with the first billing cycle of January 2013. Duke Energy Florida will accrue, for future rate-setting purposes, a carrying charge on the Crystal River Unit 3 investment until the Crystal River Unit 3 regulatory asset is recovered in base rates beginning with the first billing cycle of January 2017. If Duke Energy Florida’s retail base rate earnings fall below the return on equity range, as reported on a FPSC-adjusted or pro-forma basis on a Duke Energy Florida monthly earnings surveillance report, Duke Energy Florida may petition the FPSC to amend its base rates during the term of the agreement. Refer to the discussion above regarding recovery of Crystal River Unit 3 investments. Duke Energy Florida will refund $288 million to retail customers through its fuel clause. Duke Energy Florida will refund $129 million in each of 2013 and 2014, and an additional $10 million annually to residential and small commercial customers in 2014, 2015 and 2016. Duke Energy Florida has a regulatory liability recorded for these refunds. Levy Nuclear Station On July 28, 2008, Duke Energy Florida filed its COL application with the NRC for two Westinghouse AP1000 reactors at its proposed Levy nuclear station, which the NRC docketed on October 6, 2008. Various parties filed a joint petition to intervene in the Levy COL application. On March 26, 2013, the Atomic Safety and Licensing Board issued a decision finding that the NRC had carried its burden of demonstrating that its Final Environmental Impact Statement complies with the National Environmental Policy Act and applicable NRC regulatory requirements. A mandatory hearing conducted by the five NRC Commissioners is expected to occur in late 2013 or early 2014. The Levy COL application is also impacted by the ongoing activity by the NRC to address its Waste Confidence rule, a generic finding by the NRC that spent fuel can be managed safely until ultimate disposal. The rule has been remanded to the NRC by the District of Columbia Court of Appeals. In response to the court’s remand and in connection with numerous petitions asserting waste confidence contentions, including in the Levy proceeding, the NRC determined that no final licenses for new reactors would be issued until the remand is appropriately addressed. In September 2012, the NRC provided a timeline of 24 months from the time of its order for the staff to finish the generic Environmental Impact Study and publish a final Waste Confidence rule. Assuming the NRC uses the entire 24 month period for promulgation of a new rule, licenses would not be issued until September 2014 at the earliest. In 2008, the FPSC granted Duke Energy Florida’s petition for an affirmative Determination of Need and related orders requesting cost recovery under Florida’s nuclear cost-recovery rule for Levy, together with the associated facilities, including transmission lines and substation facilities. Duke Energy Florida currently estimates the in-service date for the first Levy unit to be 2024, with the second unit following 18 months later. The total estimated project cost is between $19 billion and $24 billion. As of March 31, 2013, Duke Energy Florida has a net unrecovered investment of approximately $343 million, including AFUDC, recorded on its Condensed Balance Sheets. Under the terms of the 2012 FSPC Settlement Agreement, Duke Energy Florida began retail cost-recovery of its proposed Levy Nuclear Station effective in the first billing cycle of January 2013 at the fixed rates contained in the settlement and continuing for a five-year period, with true-up of any actual costs not recovered during the 5-year period occurring in the final year. This amount is intended to recover the estimated retail project costs to date plus costs necessary to obtain the COL and any engineering, procurement and construction cancellation costs, if Duke Energy Florida ultimately chooses to cancel that contract. Duke Energy Florida will not file for recovery of any new Levy costs that were not addressed in the 2012 FSPC Settlement Agreement before March 1, 2017 and will not begin recovering those costs from customers before the first billing cycle of January, 2018, unless otherwise agreed to by the parties to the agreement. In addition, the consumer parties will not oppose Duke Energy Florida continuing to pursue a COL for Levy. The 2012 FSPC Settlement Agreement also provides that Duke Energy Florida will treat the allocated wholesale cost of Levy as a retail regulatory asset and include this asset as a component of rate base and amortization expense for regulatory reporting. Duke Energy Florida will have the discretion, under certain circumstances, to accelerate and/or suspend such amortization in full or in part provided that it amortizes all of the regulatory asset by December 31, 2016. Cost of Removal Reserve The 2012 FPSC Settlement Agreement (Settlement Agreement) provides Duke Energy Florida the discretion to reduce cost of removal amortization expense by up to the balance in the cost of removal reserve until the earlier of (a) its applicable cost of removal reserve reaches zero, or (b) the expiration of the 2012 FPSC Settlement Agreement. Duke Energy Florida may not reduce amortization expense if the reduction would cause it to exceed the appropriate high point of the return on equity range, as established in the Settlement Agreement. Pursuant to the Settlement Agreement, Duke Energy Florida recognized a reduction in amortization expense of $56 million and $58 million for the three months ended March 31, 2013 and 2012, respectively. Duke Energy Florida had eligible cost of removal reserves of $58 million remaining at March 31, 2013, which is impacted by accruals in accordance with its latest depreciation study, removal costs expended, jurisdictional allocation changes and reductions in amortization expense as permitted by the Settlement Agreement. Duke Energy Ohio Capacity Rider Filing On August 29, 2012, Duke Energy Ohio filed an application with the PUCO for the establishment of a charge, pursuant to Ohio’s state compensation mechanism, for capacity provided consistent with its obligations as a Fixed Resource Requirement (FRR) entity for 44 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) approximately $728 million. The application included a request for deferral authority and for a new tariff to implement the charge. The deferral being sought is the difference between its costs and market-based prices for capacity. The requested tariff would implement a charge to be collected via a rider through which such deferred balances will subsequently be recovered. 24 parties moved to intervene. Hearings were held in April 2013 and additional hearings are scheduled for May 2013. Under the current procedural schedule, Duke Energy Ohio expects an order in the second half of 2013. 2012 Electric Rate Case On May 1, 2013, the PUCO approved a settlement agreement (Electric Settlement) between Duke Energy Ohio and all intervening parties in connection with an electric distribution case, filed in July 2012. The Electric Settlement provides for a net increase in electric distribution revenues of $49 million, or an average increase of 2.9 percent, based upon a return on equity of 9.84 percent. Revised rates will be effective in May 2013. 2012 Natural Gas Rate Case On May 1, 2013, the PUCO approved a settlement agreement (Gas Settlement) between Duke Energy Ohio and all intervening parties in connection with a gas distribution case, filed in July 2012. The Gas Settlement provides for no increase in base rates for gas distribution service, subject to the unresolved litigation over remediation costs associated with manufactured gas plants (MGP). The Gas Settlement is based upon a return on equity of 9.84 percent. Duke Energy Ohio requested that MGP remediation costs be recovered through a rider with the amount of recovery subject to the results of litigation. Duke Energy Ohio has requested an annual revenue requirement of $22 million for its MGP remediation costs. Hearings for the MGP litigation began April 29, 2013. Duke Energy Ohio expects revised rates, if approved, to go into effect in the second half of 2013. Regional Transmission Organization Realignment Duke Energy Ohio, which includes its wholly owned subsidiary Duke Energy Kentucky, transferred control of its transmission assets to effect a Regional Transmission Organization (RTO) realignment from Midcontinent Independent System Operator, Inc. (MISO) to PJM Interconnection, LLC (PJM) , effective December 31, 2011. On December 16, 2010, the FERC issued an order related to MISO’s cost allocation methodology surrounding Multi-Value Projects (MVP), a type of MISO Transmission Expansion Planning (MTEP) project cost. MISO expects that MVP will fund the costs of large transmission projects designed to bring renewable generation from the upper Midwest to load centers in the eastern portion of the MISO footprint. MISO approved MVP proposals with estimated project costs of approximately $5.2 billion prior to the date of Duke Energy Ohio’s exit from MISO on December 31, 2011. These projects are expected to be undertaken by the constructing transmission owners from 2012 through 2020 with costs recovered through MISO over the useful life of the projects. Duke Energy Ohio has historically represented approximately five percent of the MISO system. On October 21, 2011, the FERC issued an order on rehearing in this matter largely affirming its original MVP order and conditionally accepting MISO’s compliance filing as well as determining that the MVP allocation methodology is consistent with cost causation principles and FERC precedent. The order further stated that MISO’s tariff withdrawal language establishes that once cost responsibility for transmission upgrades is determined, withdrawing transmission owners retain any costs incurred prior to the withdrawal date. In order to preserve its rights, Duke Energy Ohio filed an appeal of the FERC order in the D.C. Circuit Court of Appeals. The case was consolidated with appeals of the FERC order by other parties in the Seventh Circuit Court of Appeals. On December 29, 2011, MISO filed with FERC a Schedule 39 to MISO’s tariff. Schedule 39 provides for the allocation of MVP costs to a withdrawing owner based on the owner’s actual transmission load after the owner’s withdrawal from MISO, or, if the owner fails to report such load, based on the owner’s historical usage in MISO assuming annual load growth. On January 19, 2012, Duke Energy Ohio filed with FERC a protest of the allocation of MVP costs to them under Schedule 39. On February 27, 2012, the FERC accepted Schedule 39 as a just and reasonable basis for MISO to charge for MVP costs, a transmission owner that withdraws from MISO after January 1, 2012. The FERC set for hearing whether MISO’s proposal to use the methodology in Schedule 39 to calculate the obligation of transmission owners who withdrew from MISO prior to January 1, 2012 (such as Duke Energy Ohio) to pay for MVP costs is consistent with the MVP-related withdrawal obligations in the tariff at the time that they withdrew from MISO, and, if not, what amount of, and methodology for calculating, any MVP cost responsibility should be. On March 28, 2012, Duke Energy Ohio filed a request for rehearing of FERC’s February 27, 2012 order on MISO’s Schedule 39. On December 19, 2012, the FERC Trial Staff submitted testimony in the Schedule 39 hearing proceeding in which its witness stated his opinion that Duke Energy Ohio should not be liable for any MVP costs. The role of the FERC Trial Staff is to act as an independent party in the proceeding; it has no judicial authority. The Schedule 39 hearing was held in April 2013. A FERC Administrative Law Judge presided over the hearing and is required to issue an initial decision by July 16, 2013. Upon its exit from MISO on December 31, 2011, Duke Energy Ohio recorded a liability for its MISO exit obligation and share of MTEP costs, excluding MVP, which was recorded within Other in Current liabilities and Other in Deferred credits and other liabilities on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. In addition to these liabilities, Duke Energy Ohio may also be responsible for costs associated with MISO MVP projects. Duke Energy Ohio is contesting its obligation to pay for such costs. However, depending on the final outcome of this matter, Duke Energy Ohio could incur material costs associated with MVP projects, which are not reasonably estimable at this time. Regulatory accounting treatment will be pursued for any costs incurred in connection with the resolution of this matter. The following table provides a reconciliation of the beginning and ending balance of Duke Energy Ohio’s recorded obligations related to its withdrawal from MISO. 45 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) (in millions) Duke Energy Ohio (a) Provision / Adjustments Balance at December 31, 2012 97 $ $ Balance at March 31, 2013(a) Cash Reductions 1 $ (1) $ 97 As of March 31, 2013, $71 million is recorded as a Regulatory asset on Duke Energy Ohio's Condensed Consolidated Balance Sheets. Duke Energy Indiana Edwardsport IGCC Plant On November 20, 2007, the IURC issued an order granting Duke Energy Indiana a Certificate of Public Convenience and Necessity (CPCN) for the construction of a 618 MW IGCC power plant at Duke Energy Indiana’s Edwardsport Generating Station in Knox County, Indiana with a cost estimate of $1.985 billion assuming timely recovery of financing costs related to the project. On January 25, 2008, Duke Energy Indiana received the final air permit from the Indiana Department of Environmental Management. The Citizens Action Coalition of Indiana, Inc. (CAC), Sierra Club, Inc. (Sierra Club), Save the Valley, Inc. (Save the Valley), and Valley Watch, Inc. (Valley Watch), all intervenors in the CPCN proceeding (collectively, the Joint Intervenors), have appealed the air permit. Duke Energy Indiana experienced design modifications, quantity increases and scope growth above what was anticipated from the preliminary engineering design, which increased capital costs for the project. In January 2009, a new cost estimate was approved by the IURC for $2.35 billion (including $125 million of AFUDC). In April 2010, Duke Energy Indiana filed a revised cost estimate for the IGCC project requesting approval of the revised cost estimate of $2.88 billion (including $160 million of AFUDC). In June 2011, Duke Energy Indiana updated its cost forecast to $2.82 billion (excluding AFUDC). In October 2011, Duke Energy Indiana revised its project cost estimate to $2.98 billion (excluding AFUDC). In October 2012, Duke Energy Indiana further revised its projected cost estimate to $3.15 billion (excluding AFUDC). On December 27, 2012, the IURC approved a settlement agreement finalized in April 2012, between Duke Energy Indiana, the Office of Utility Consumer Counselor (OUCC), the Duke Energy Indiana Industrial Group and Nucor Steel-Indiana, on the cost increase for the construction of the project including subdockets before the IURC related to the project. This order resolved all then pending regulatory issues related to the project. The settlement agreement, as approved, caps costs to be reflected in customer rates at $2.595 billion, including estimated AFUDC through June 30, 2012. Duke Energy Indiana is allowed to recover AFUDC after June 30, 2012 until customer rates are revised, with such recovery decreasing to 85 percent on AFUDC accrued after November 30, 2012. Duke Energy Indiana also agreed not to request a retail electric base rate increase prior to March 2013, with rates in effect no earlier than April 1, 2014. The IURC modified the settlement agreement as previously agreed to by the parties to (i) require Duke Energy Indiana to credit customers for cost control incentive payments which the IURC found to be unwarranted as a result of delays that arose from project cost overruns and (ii) provide that if Duke Energy Indiana should recover more than the project costs absorbed by Duke Energy’s shareholders through litigation, any surplus must be returned to the Duke Energy Indiana’s ratepayers. On December 11, 2012, Duke Energy Indiana filed an arbitration action against General Electric Company (General Electric) and Bechtel Corporation (Bechtel) in connection with their work at the Edwardsport IGCC facility. Duke Energy Indiana is seeking damages of not less than $560 million. Duke Energy Indiana cannot predict the outcome of this matter. Over the course of construction of the project, Duke Energy Indiana recorded pre-tax charges of approximately $897 million, related to the Edwardsport project including the settlement agreement discussed above. For the three months ended March 31, 2012, Duke Energy Indiana recorded pre-tax charges of $420 million related to the Edwardsport project. These charges were recorded in Operating revenues, Impairment charges and Operations, maintenance and other on Duke Energy’s Condensed Consolidated Statements of Operations and Duke Energy Indiana’s Condensed Consolidated Statements of Operations and Comprehensive Income. The Joint Intervenors have appealed the IURC order approving the April 2012 settlement agreement and other related regulatory orders to the Indiana Court of Appeals. No briefing schedule has been set. The project is scheduled to be in commercial operation by mid-2013. Additional updates to the cost estimate and schedule could occur through the completion of the plant. The costs for the Edwardsport IGCC plant are recovered from retail electric customers via a tracking mechanism, the IGCC Rider. Duke Energy Indiana files information related to the IGCC Rider every six months. In the currently pending tenth semi-annual IGCC rider proceeding, Duke Energy Indiana is requesting recovery associated with the capped construction costs of the project and forecasted operating expenses for the period the plant is expected to be in-service. On April 11, 2013, the OUCC and the Joint Intervenors filed testimony. The OUCC requested additional information concerning the operating expenses, but otherwise did not dispute Duke Energy Indiana’s calculated rider amounts. The Joint Intervenors recommended rate disallowances of financing charges due to the extension of the in-service date calculated at approximately $77 million, which they deemed to be imprudent. Additionally, the Joint Intervenors requested various ratemaking changes, including interest to be paid on the credit to be provided to customers pursuant to the IURC order on the April 2012 Settlement Agreement. Finally, the Joint Intervenors have requested the IURC to open a docket related to the future reliability of the plant. Duke Energy Indiana will respond in rebuttal testimony in May and an evidentiary hearing is scheduled for June 2013. Phase 2 Environmental Compliance Proceeding On June 28, 2012, Duke Energy Indiana filed with the IURC a plan for the addition of certain environmental pollution control projects on several of its coal-fired generating units in order to comply with existing and proposed environmental rules and regulations. The plan calls for a combination of selective catalytic reduction systems, dry sorbent injection systems for SO 3 mitigation, activated carbon injection systems and/or mercury re-emission chemical injection systems. The capital costs are estimated at $395 million (excluding AFUDC). Duke Energy 46 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Indiana also indicated that it preliminarily anticipates the retirement of Wabash River Units 2 through 5 in 2015 and is still evaluating future equipment additions or retirement of Wabash River Unit 6. On April 10, 2013, the IURC issued an order approving the plan. OTHER REGULATORY MATTERS Progress Energy Merger FERC Mitigation On June 8, 2012, the FERC conditionally approved the Progress Energy merger including Duke Energy and Progress Energy’s revised market power mitigation plan, the Joint Dispatch Agreement (JDA) and the joint Open Access Transmission Tariff (OATT). The revised market power mitigation plan provides for the acceleration of one transmission project and the construction of seven other transmission projects (Long-term FERC Mitigation) and interim firm power sale agreements during the construction of the transmission projects (Interim FERC Mitigation). The Long-term FERC Mitigation is expected to increase power imported into the Duke Energy Carolinas and Duke Energy Progress’ service areas and enhance competitive power supply options in the service areas. The construction of these projects will occur over the next two to three years. In conjunction with the Interim FERC Mitigation, Duke Energy Carolinas and Duke Energy Progress entered into power sale agreements with various counterparties that were effective with the consummation of the merger. These agreements, or similar power sale agreements, will be in place until the Longterm FERC Mitigation is operational. Under the agreements Duke Energy will deliver around-the-clock power during the winter and summer in quantities that vary by season and by peak period. The FERC order requires an independent party to monitor whether the power sale agreements remain in effect during construction of the transmission projects and provide quarterly reports to the FERC regarding the status of construction of the transmission projects. On June 25, 2012, Duke Energy and Progress Energy accepted the conditions imposed by the FERC. On July 10, 2012, certain intervenors requested a rehearing seeking to overturn the June 8, 2012 order by the FERC. On August 8, 2012, FERC granted rehearing for further consideration. Following the closing of the merger, Duke Energy’s outside counsel reviewed Duke Energy’s mitigation plan and discovered a technical error in the calculations. Duke Energy reported the error to the appropriate regulatory bodies and is working to determine whether additional mitigation measures are necessary. At this time, Duke Energy cannot predict the outcome of this matter. Planned and Potential Coal Plant Retirements The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10-20 years), and options being considered to meet those needs. The IRP’s filed by the Subsidiary Registrants in 2013, 2012 and 2011 included planning assumptions to potentially retire by 2015, certain coal-fired generating facilities in North Carolina, South Carolina, Florida, Indiana and Ohio that do not have the requisite emission control equipment, primarily to meet Environmental Protection Agency (EPA) regulations that are not yet effective. 47 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The table below contains the net carrying value of generating facilities planned for early retirement or being evaluated for potential retirement included in Property, plant and equipment, net on the Condensed Consolidated Balance Sheets. In addition to the amounts presented below, Duke Energy Progress and Duke Energy Indiana have $125 million and $60 million, respectively, of net carrying value related to previously retired generation facilities included in Regulatory assets on their Condensed Consolidated Balance Sheets. Capacity (in MW) Remaining net book value ( i n millions)(a) (a) (b) (c) (d) (e) (f) (g) $ Duke Energy Duke Energy (b)(e) Carolinas 3,954 910 415 $ 98 Progress Energy March 31, 2013 Duke Energy (c)(e) Progress Duke Energy (d) Florida Duke Energy (f) Ohio Duke Energy (g) Indiana 575 873 928 668 1,448 175 $ $ 62 $ 113 $ 12 $ 130 Included in Property, plant and equipment, net as of March 31, 2013, on the Condensed Consolidated Balance Sheets, unless otherwise noted. Includes Riverbend Units 4 through 7, Lee Units 1 and 2 and Buck Units 5 and 6. Duke Energy Carolinas has committed to retire 1,667 MW in conjunction with a Cliffside air permit settlement, of which 587 MW have already been retired as of March 31, 2013. Duke Energy Carolinas retired 710 MW for Riverbend Units 4 through 7 and Buck Units 5 and 6 on April 1, 2013. Excludes 170 MW Lee Unit 3 that is expected to be converted to gas in 2014. The Lee Unit 3 conversion will be considered a retirement toward meeting the 1,667 MW retirement commitment. Includes Sutton Station, which is expected to be retired by the end of 2013. Includes Crystal River Units 1 and 2. Net book value of Duke Energy Carolinas' Buck Units 5 and 6 of $68 million, and Duke Energy Progress' Sutton Station of $62 million is included in Generation facilities to be retired, net, on the Condensed Consolidated Balance Sheets at March 31, 2013. Includes Beckjord Station Units 2 through 6 and Miami Fort Unit 6. Beckjord has no remaining book value. Beckjord Unit 1 was retired May 1, 2012. Includes Wabash River Units 2 through 6. Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives, and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired. However, such recovery, including recovery of carrying costs on remaining book values, could be subject to future regulatory approvals and therefore cannot be assured. 5. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL Duke Energy is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. The Subsidiary Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all of the Duke Energy Registrants. Remediation Activities The Duke Energy Registrants are responsible for environmental remediation at various contaminated sites. These include some properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. In some cases, the Duke Energy Registrants no longer own the property. These sites are in various stages of investigation, remediation and monitoring. Managed in conjunction with relevant federal, state and local agencies, activities vary with site conditions and locations, remediation requirements, complexity and sharing of responsibility. If remediation activities involve joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for contamination caused by other parties. In some instances, the Duke Energy Registrants may share liability associated with contamination with other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. All of these sites generally are managed as part of business or affiliate operations. The Duke Energy Registrants continually assess the nature and extent of known or potential environmentally related contingencies and record liabilities when losses become probable and are reasonably estimable. The Duke Energy Registrants have accrued costs associated with remediation activities at some of their current and former sites for the stages of investigation, remediation and monitoring that can be reasonably estimated, as well as other relevant environmental contingent liabilities. At this time, the Duke Energy Registrants cannot estimate the total costs that may be incurred in connection with the remediation of all stages of all sites because the extent of environmental impact, allocation among potentially responsible parties, remediation alternatives, and/or regulatory decisions have not yet been determined. It is anticipated that additional costs, which could be material, associated with remediation activities at certain sites will be incurred in the future. Costs associated with remediation activities within the Duke Energy Registrants’ operations are typically expensed as Operation, maintenance and other unless regulatory recovery of the costs is deemed probable. The following table contains information regarding reserves for probable and estimable costs related to the Duke Energy Registrants’ various environmental sites. These amounts are recorded in Other within Deferred Credits and Other Liabilities on the Duke Energy Registrants’ Condensed Consolidated Balance Sheets. 48 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) (in millions) Balance at December 31, 2011 Provisions / adjustments Cash reductions Balance at March 31, 2012 Duke Energy $ 61 4 (7) $ 58 Balance at December 31, 2012 Provisions / adjustments Cash reductions Balance at March 31, 2013 $ 75 Duke Energy Carolinas $ 12 1 ― $ 13 $ 2 (6) $ 71 $ 12 ― ― 12 Progress Duke Energy Energy Progress 23 $ $ 5 (4) $ 24 $ $ 33 $ 1 (2) 32 $ 11 (1) (1) 9 14 ― Duke Energy Florida $ 12 6 (3) $ 15 $ 13 $ (1) $ 19 15 Duke Energy Indiana $ 9 ― ― $ 9 $ ― 1 (1) $ 19 Duke Energy Ohio $ 28 2 (5) $ 25 $ (2) 13 8 ― (1) 7 $ The Duke Energy Registrants could incur additional losses in excess of their recorded reserves for the stages of investigation, remediation and monitoring for their environmental sites that can be reasonably estimated at this time. The maximum amount of the range for all stages of the Duke Energy Registrants’ environmental sites cannot be determined at this time. Actual experience may differ from current estimates, and it is probable that estimates will continue to change in the future. Duke Energy Ohio has received an order from the PUCO to defer the costs incurred for probable and estimable costs related to environmental sites. Recovery of those costs is being sought in Duke Energy Ohio’s natural gas distribution rate case as discussed in Note 4. The additional losses in excess of their recorded reserves that the Duke Energy Registrants’ could incur for the stages of investigation, remediation and monitoring for their environmental sites that can be reasonably estimated at this time are presented in the table below. (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 84 29 7 3 4 43 5 Clean Water Act 316(b) The EPA published its proposed cooling water intake structures rule on April 20, 2011. The proposed rule advances one main approach and three alternatives. The main approach establishes aquatic protection requirements for existing facilities that withdraw 2 million gallons or more of water per day from rivers, streams, lakes, reservoirs, estuaries, oceans, or other U.S. waters for cooling purposes. Based on the main approach proposed, most, if not all of the coal, natural gas and nuclear-fueled steam electric generating facilities which the Duke Energy Registrants are either a whole or partial owner are likely affected sources unless retired prior to implementation of the 316(b) requirements. The EPA plans to finalize the 316(b) rule by June 2013. If the rule is finalized as proposed, initial submittals, station details or study plans would be due in the spring of 2014. If required, modifications to the intakes could be required as early as mid to late 2016. Because of the wide range of potential outcomes, including the other three alternative proposals, the Duke Energy Registrants are unable to predict the outcome of the rulemaking or estimate their costs to comply at this time. Cross-State Air Pollution Rule (CSAPR) On August 8, 2011, the final Cross-State Air Pollution Rule (CSAPR) was published in the Federal Register. The CSAPR established state-level annual sulfur dioxide (SO2) budgets and annual seasonal nitrogen oxide (NO x ) budgets that were to take effect on January 1, 2012. Numerous parties challenged the rule. On August 21, 2012, by a 2-1 decision, the United States Court of Appeals for the District of Columbia (D.C. Circuit) vacated the CSAPR. The court also directed the EPA to continue administering the Clean Air Interstate Rule (CAIR) that the Duke Energy Registrants have been complying with since 2009, pending completion of a remand rulemaking to replace CSAPR with a valid rule. The CAIR requires additional reductions in SO 2 and NOx emissions beginning in 2015. The EPA petitioned for rehearing by the Court of Appeals, which was denied. On March 29, 2013, the EPA petitioned the U.S. Supreme Court for review of the D.C. Circuit’s decision. The CAIR will remain in force for an unknown period of time until the EPA develops a replacement rule or the CSAPR is reinstated. The Duke Energy Registrants cannot predict the outcome of any further appeal or how a potential CSAPR replacement rule could affect future emission reduction requirements. The continued implementation of the CAIR pending the outcome of the rehearing process and a potential CSAPR replacement rulemaking will not result in the Duke Energy Registrants adding new emission controls. 49 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Coal Combustion Residuals (CCR) On June 21, 2010, the EPA issued a proposal to regulate, under the Resource Conservation and Recovery Act, coal combustion residuals (CCR), a term the EPA uses to describe the coal combustion by-products associated with the generation of electricity. The EPA proposal contains two regulatory options whereby CCRs not employed in approved beneficial use applications either would be regulated as hazardous waste or would continue to be regulated as non-hazardous waste. The Duke Energy Registrants cannot predict the outcome of this rulemaking. The EPA has stated that it may be 2014 before it finalizes the regulation. Steam Electric Effluent Limitation Guidelines On April 19, 2013, the EPA Acting Administrator signed the proposed revisions to the Steam Electric Effluent Limitations Guidelines (ELG). The proposal is expected to be published in the Federal Register in early May 2013 with comments due in July 2013. The EPA is under a court order to complete a final rule by May 22, 2014. The EPA has proposed eight different options for the rule, which vary in stringency and cost. The proposal would regulate seven waste streams, including wastewater from air pollution control equipment and ash transport water from sluicing ash to ponds. The ELG proposed rule would be applicable to all steam electric generating units, including most, if not all of the coal, natural gas and nuclear-fueled generating facilities which the Duke Energy Registrants are either a whole or partial owner. Compliance is proposed as soon as possible after July 1, 2017, but may extend until July 1, 2022. Duke Energy is still evaluating the proposal. Given the number of options and the long compliance term, the Duke Energy Registrants are unable to determine the ultimate impact of the final rule, but the impact could be significant. Mercury and Air Toxics Standards (MATS) The final Mercury and Air Toxics Standards rule, previously referred to as the Utility MACT Rule, was published in the Federal Register on February 16, 2012. The final rule establishes emission limits for hazardous air pollutants from new and existing coal-fired and oil-fired steam electric generating units. The rule requires sources to comply with the emission limits by April 16, 2015. Under the Clean Air Act (CAA), permitting authorities have the discretion to grant up to a one-year compliance extension, on a case-by-case basis, to sources that are unable to complete the installation of emission controls before the compliance deadline. The Duke Energy Registrants continue to develop and implement strategies for complying with the rule’s requirements. Strategies to achieve compliance with the final MATS rules could include installing new or upgrading existing air emission control equipment, developing monitoring processes, fuel switching and accelerating retirement of some coalfired electric-generating units. For additional information, refer to Note 4 regarding potential plant retirements. Numerous petitions for review of the final MATS rule have been filed with the D.C. Circuit. Briefing in the case has been completed. Oral arguments have not been scheduled. The Duke Energy Registrants cannot predict the outcome of the litigation or how it might affect the MATS requirements as they apply to the Duke Energy Registrants. Refer to the table in “Estimated Cost and Impacts of EPA Rulemakings” below for a summary of the cost to the Duke Energy Registrants to comply with the proposed MATS regulations, which will be material. Greenhouse Gas New Source Performance Standards (NSPS) On April 13, 2012, the EPA published in the Federal Register its proposed rule to establish carbon dioxide (CO 2) emissions standards for pulverized coal, IGCC, and natural gas combined cycle electric generating units that are permitted and constructed in the future. The proposal would not apply to any of the Duke Energy Registrants’ coal, including IGCC, and natural gas electric generation plants that are currently under construction or in operation. However, any future pulverized coal and IGCC units will have to employ carbon capture and storage (CCS) technology to meet the CO 2 emission standard the EPA has proposed. The proposed standard will not require new natural gas combined cycle facilities to install CCS technology. The EPA was due to issue the final rule by April 13, 2013, however, the final rule has not been issued and the EPA has stated publicly that more time is needed to complete the rulemaking. No timetable has been set. Management does not expect any material impact on the Duke Energy Registrants’ future results of operations or cash flows based on the EPA’s proposal. The final rule, however, could be significantly different from the proposal. It is not known when the EPA might finalize the rule. Estimated Cost and Impacts of EPA Rulemakings While the ultimate compliance requirements for the Duke Energy Registrants for MATS, Clean Water Act 316(b), ELG and CCR will not be known until all the rules have been finalized, for planning purposes, the Duke Energy Registrants currently estimate that the cost of new control equipment that may need to be installed on existing power plants to comply with EPA regulations could total $5 billion to $6 billion, excluding AFUDC, over the next 10 years. This range includes estimated costs for new control equipment necessary to comply with the MATS, which is the only rule that has been finalized, as shown in the table below: (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 650 to 65 7 5 2 to to 20 40 540 to 85 to 600 $ 85 to 30 to 10 The Duke Energy Registrants also expect to incur increased fuel, purchased power, operation and maintenance, and other expenses in conjunction with these EPA regulations, and also expect to incur costs for replacement generation for potential coal-fired power plant 50 800 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) retirements. Until the final regulatory requirements of the group of EPA regulations are known and can be fully evaluated, the potential compliance costs associated with these EPA regulatory actions are subject to considerable uncertainty. Therefore, the actual compliance costs incurred may be materially different from these estimates based on the timing and requirements of the final EPA regulations. The Duke Energy Registrants intend to seek regulatory recovery of amounts incurred associated with regulated operations in complying with these regulations. Refer to Note 4 for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants. LITIGATION Duke Energy Progress Energy Merger Shareholder Litigation On July 20, 2012, Duke Energy was served with a shareholder Derivative Complaint filed in the Delaware Chancery Court ( Rupp v. Rogers, et al.). The lawsuit names as defendants James E. Rogers and the ten other members of the Duke Energy board of directors who were also members of the pre-merger Duke Energy board of directors (Legacy Duke Energy Directors). Duke Energy is named as a nominal defendant. Raul v. Rogers, also filed in Delaware Chancery Court was consolidated with the Rupp case on September 24, 2012. Two shareholders, each of whom previously made separate Section 220 demands to inspect various Duke Energy books and records, filed derivative cases against James E. Rogers and the Legacy Duke Energy Directors. The Gerber v Rogers, et al. lawsuit was filed on December 5, 2012, and the Reilly v. Rogers, et al. lawsuit was filed on January 8, 2013. Each of the lawsuits alleges claims for breach of fiduciary duties of loyalty and care by the defendants in connection with the post-merger change in CEO. On August 3, 2012, Duke Energy was served with a shareholder Derivative Complaint, which has been transferred to the North Carolina Business Court ( Krieger v. Johnson, et al.). The lawsuit names as defendants, William D. Johnson, James E. Rogers and the Legacy Duke Energy Directors. Duke Energy is named as a nominal defendant. The lawsuit alleges claims for breach of fiduciary duty in granting excessive compensation to Mr. Johnson. A hearing on the defendants’ motion to dismiss was held on January 22, 2013. A decision on the motion made by Mr. Rogers and the Legacy Duke Energy Directors remains pending. Duke Energy has been served with two shareholder Derivative Complaints, filed in federal district court in Delaware. The plaintiffs in Tansey v. Rogers, et al., served on August 17, 2012, and Pinchuck v. Rogers, et al., served on October 31, 2012, allege claims for breach of fiduciary duty and waste of corporate assets, as well as claims under Section 14(a) and 20(a) of the Exchange Act against the Legacy Duke Energy Directors. Duke Energy is named as a nominal defendant. On December 18, 2012, the defendants filed a motion to stay the case. A hearing on the various motions to (i) stay the litigation pending a resolution of the North Carolina securities case noted below; (ii) to appoint a lead plaintiff and a lead law firm; and (iii) to consolidate the two cases was held on May 2, 2013. Duke Energy was also served in July 2012 with three purported securities class action lawsuits. These three cases ( Craig v. Duke Energy Corporation, et al.; Nieman v. Duke Energy Corporation, et al.; and Sunner v. Duke Energy Corporation, et al.), have been consolidated in the United States District Court for the Western District of North Carolina. The plaintiff filed a Corrected Consolidated Complaint on January 28, 2013, alleging federal Securities Act and Exchange Act claims based on allegedly materially false and misleading representations and omissions made in the Registration Statement filed on July 7, 2011, and subsequently incorporated into other documents, all in connection with the post-merger change in CEO. The Corrected Consolidated Complaint names as defendants the Legacy Duke Energy Directors and certain officers of the company. The claims are purportedly brought on behalf of a class of all persons who purchased or otherwise acquired Duke Energy securities between June 11, 2012 and July 9, 2012. The Defendant’s motion to dismiss the Consolidated Complaint was filed April 2, 2013. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with these lawsuits. Additional lawsuits may be filed. Alaskan Global Warming Lawsuit On February 26, 2008, plaintiffs, the governing bodies of an Inupiat village in Alaska, filed suit in the U.S. Federal Court for the Northern District of California against Peabody Coal and various oil and power company defendants, including Duke Energy and certain of its subsidiaries. Plaintiffs brought the action on their own behalf and on behalf of the village’s 400 residents. The lawsuit alleges that defendants’ emissions of CO 2 contributed to global warming and constitute a private and public nuisance. Plaintiffs also allege that certain defendants, including Duke Energy, conspired to mislead the public with respect to global warming. The plaintiffs in the case have requested damages in the range of $95 million to $400 million related to the cost of relocating the Village of Kivalina. On June 30, 2008, the defendants filed a motion to dismiss on jurisdictional grounds, together with a motion to dismiss the conspiracy claims. On October 15, 2009, the District Court granted defendants’ motion to dismiss. The plaintiffs filed a notice of appeal and the U.S. Court of Appeals for the Ninth Circuit held argument in the case on November 28, 2011. On September 21, 2012, the Court of Appeals ruled that the case could not proceed, affirming the District Court’s motion to dismiss. The Plaintiffs have filed a motion for rehearing en banc by the Court of Appeals, which was denied on November 27, 2012. A Petition for Certiorari to the U.S. Supreme Court was filed on February 25, 2013. Although Duke Energy believes the likelihood of loss is remote based on current case law, it is not possible to predict the ultimate outcome of this matter. Price Reporting Cases A total of five lawsuits were filed against Duke Energy affiliates and other energy companies and remain pending in a consolidated, single federal court proceeding in Nevada. Each of these cases contains similar claims, that the respective plaintiffs, and the classes they claim to represent, were harmed by the defendants’ alleged manipulation of the natural gas markets by various means, including providing false information to natural gas trade 51 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs seek damages in unspecified amounts. In November 2009, the judge granted defendants’ motion for reconsideration of the denial of defendants’ summary judgment motion in two of the remaining five cases to which Duke Energy affiliates are a party. A hearing on that motion occurred on July 15, 2011, and on July 19, 2011, the judge granted the motion for summary judgment. The Plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit Court of Appeals), which held argument on October 19, 2012. On April 10, 2013, the Ninth Circuit Court of Appeals reversed the lower Court’s decision, and returned the case to the same Court for further proceedings. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with the remaining matters. However, based on Duke Energy’s past experiences with similar cases of this nature, it does not believe its exposure under these remaining matters is material. Crescent Litigation On September 3, 2010, the Crescent Resources Litigation Trust filed suit against Duke Energy along with various affiliates and several individuals, including current and former employees of Duke Energy, in the U.S. Bankruptcy Court for the Western District of Texas. The case was subsequently transferred to the United States District Court in Austin, Texas. The Crescent Resources Litigation Trust was established in May 2010 pursuant to the plan of reorganization approved in the Crescent bankruptcy proceedings. The complaint alleges that in 2006 the defendants caused Crescent to borrow approximately $1.2 billion and immediately thereafter distribute most of the loan proceeds to Crescent’s parent company without benefit to Crescent. The complaint further alleges that Crescent was rendered insolvent by the transactions, and that the distribution is subject to recovery by the Crescent bankruptcy estate as an alleged fraudulent transfer. The plaintiff requests return of the funds, plus interest, as well as other statutory and equitable relief, punitive damages and attorneys’ fees. Duke Energy and its affiliated defendants believe that the referenced 2006 transactions were legitimate and did not violate any state or federal law. The Defendants motions to dismiss were denied. The Defendants also filed a motion to strike the Plaintiff’s jury demand, which was denied on May 2, 2013. Trial on this matter has been set to commence in January 2014. Mediation, held on August 21 and 22, 2012, was unsuccessful. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with this lawsuit. The ultimate resolution of this matter could have a material effect on the results of operations, cash flows or financial position of Duke Energy. Brazil Expansion Lawsuit On August 9, 2011, the State of São Paulo filed a lawsuit in Brazilian state court against Duke Energy International Geracao Paranapenema S.A. (DEIGP) based upon a claim that DEIGP is under a continuing obligation to expand installed generation capacity in the State of São Paulo by 15 percent pursuant to a stock purchase agreement under which DEIGP purchased generation assets from the state. On August 10, 2011, a judge granted an ex parte injunction ordering DEIGP to present a detailed expansion plan in satisfaction of the 15 percent obligation. DEIGP has previously taken a position that the 15 percent expansion obligation is no longer viable given the changes that have occurred in the electric energy sector since privatization of that sector. After filing various objections, defenses and appeals regarding the referenced order, DEIGP submitted its proposed expansion plan on November 11, 2011, but reserved its objections regarding enforceability. The parties will in due course present evidence to the court regarding their respective positions. No trial date has been set. Duke Energy Carolinas New Source Review (NSR) In 1999-2000, the U.S. Department of Justice (DOJ), acting on behalf of the EPA and joined by various citizen groups and states, filed a number of complaints and notices of violation against multiple utilities across the country for alleged violations of the NSR provisions of the CAA. Generally, the government alleges that projects performed at various coal-fired units were major modifications, as defined in the CAA, and that the utilities violated the CAA when they undertook those projects without obtaining permits and installing the best available emission controls for SO 2, NOx and particulate matter. The complaints seek injunctive relief to require installation of pollution control technology on various generating units that allegedly violated the CAA, and unspecified civil penalties in amounts of up to $37,500 per day for each violation. A number of Duke Energy Carolinas’ plants have been subject to these allegations. Duke Energy Carolinas asserts that there were no CAA violations because the applicable regulations do not require permitting in cases where the projects undertaken are “routine” or otherwise do not result in a net increase in emissions. In 2000, the government brought a lawsuit against Duke Energy Carolinas in the U.S. District Court in Greensboro, North Carolina. The EPA claims that 29 projects performed at 25 of Duke Energy Carolinas’ coal-fired units violate these NSR provisions. Three environmental groups have intervened in the case. In August 2003, the trial court issued a summary judgment opinion adopting Duke Energy Carolinas’ legal positions on the standard to be used for measuring an increase in emissions, and granted judgment in favor of Duke Energy Carolinas. The trial court’s decision was appealed and ultimately reversed and remanded for trial by the U.S. Supreme Court. At trial, Duke Energy Carolinas will continue to assert that the projects were routine or not projected to increase emissions. The parties have filed a stipulation in which the United States and Plaintiff-Intervenors have dismissed with prejudice 16 claims. In exchange, Duke Energy Carolinas dismissed certain affirmative defenses. The parties have filed motions for summary judgment on the remaining claims. No trial date has been set. It is not possible to estimate the damages, if any, that might be incurred in connection with the unresolved matters related to Duke Energy Carolinas discussed above. Ultimate resolution of these matters could have a material effect on the results of operations, cash flows or 52 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) financial position of Duke Energy Carolinas. However, the appropriate regulatory treatment will be pursued for any costs incurred in connection with such resolution. Asbestos-related Injuries and Damages Claims Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement relating to damages for bodily injuries alleged to have arisen from the exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of March 31, 2013, there were 99 asserted claims for non-malignant cases with the cumulative relief sought of up to $18 million, and 46 asserted claims for malignant cases with the cumulative relief sought of up to $15 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed. Amounts recognized as asbestos-related reserves related to Duke Energy Carolinas in the Condensed Consolidated Balance Sheets totaled $743 million and $751 million as of March 31, 2013 and December 31, 2012, respectively, and are classified in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities. These reserves are based upon the minimum amount in Duke Energy Carolinas’ best estimate of the range of loss for current and future asbestos claims through 2030. Management believes that it is possible there will be additional claims filed against Duke Energy Carolinas after 2030. In light of the uncertainties inherent in a longerterm forecast, management does not believe that they can reasonably estimate the indemnity and medical costs that might be incurred after 2030 related to such potential claims. Asbestos-related loss estimates incorporate anticipated inflation, if applicable, and are recorded on an undiscounted basis. These reserves are based upon current estimates and are subject to greater uncertainty as the projection period lengthens. A significant upward or downward trend in the number of claims filed, the nature of the alleged injury, and the average cost of resolving each such claim could change our estimated liability, as could any substantial or favorable verdict at trial. A federal legislative solution, further state tort reform or structured settlement transactions could also change the estimated liability. Given the uncertainties associated with projecting matters into the future and numerous other factors outside our control, management believes that it is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves. Duke Energy Carolinas has a third-party insurance policy to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention of $476 million. Duke Energy Carolinas’ cumulative payments began to exceed the self-insurance retention on its insurance policy in 2008. Future payments up to the policy limit will be reimbursed by Duke Energy Carolinas’ third party insurance carrier. The insurance policy limit for potential future insurance recoveries for indemnification and medical cost claim payments is $935 million in excess of the self-insured retention. Insurance recoveries of $781 million related to this policy are classified in the respective Condensed Consolidated Balance Sheets in Other within Investments and Other Assets and Receivables as of both March 31, 2013 and December 31, 2012, respectively. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Management believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating. Progress Energy Synthetic Fuels Matters In October 2009, a jury delivered a verdict in a lawsuit against Progress Energy and a number of its subsidiaries and affiliates arising out of an Asset Purchase Agreement dated as of October 19, 1999, and amended as of August 23, 2000 (the Asset Purchase Agreement) by and among U.S. Global, LLC (Global); Earthco synthetic fuels facilities (Earthco); certain affiliates of Earthco; EFC Synfuel LLC (which was owned indirectly by Progress Energy) and certain of its affiliates (collectively, the Progress Affiliates). In a case filed in the Circuit Court for Broward County, Florida. In March 2003 (the Florida Global Case), Global requested an unspecified amount of compensatory damages, as well as declaratory relief. Global asserted (i) that pursuant to the Asset Purchase Agreement, it was entitled to an interest in two synthetic fuels facilities previously owned by the Progress Affiliates and an option to purchase additional interests in the two synthetic fuels facilities and (ii) that it was entitled to damages because the Progress Affiliates prohibited it from procuring purchasers for the synthetic fuels facilities. As a result of the 2007 expiration of the Internal Revenue Code Section 29 tax credit program, all of Progress Energy’s synthetic fuels businesses were abandoned and the synthetic fuels businesses were reclassified as discontinued operations. In November 2009, the court ruled in favor of Global. In December 2009, Progress Energy appealed the Broward County judgment to the Florida Fourth District Court of Appeals. Also, in December 2009, Progress Energy made a $154 million payment, which represented payment of the total judgment, including prejudgment interest, and a required premium equivalent to two years of interest, to the Broward County Clerk of Court bond account. Progress Energy continued to accrue interest related to this judgment. On October 3, 2012, the Florida Fourth District Court of Appeals reversed the lower court ruling and directed a verdict on damages under a separate Commission and Services Agreement, which was modified by the court’s December 12, 2012 ruling on Global’s motion for reconsideration. The court held that Global was entitled to approximately $90 million of the amount paid into the registry of the court. Progress Energy was entitled to a refund of the remainder of the funds. Progress Energy received and recorded a $63 million pre-tax gain for the refund in December 2012. The gain was recorded in Income from Discontinued Operations, net of tax in the Consolidated Statements of Operations. The case was remanded to the trial court to determine whether specific performance is an appropriate remedy for the claims under the Asset Purchase Agreement. The plaintiff seeks specific performance of an award of the corporate interests in the Progress Affiliates it claims it was entitled to receive under the Asset Purchase Agreement as of the date the jury determined the breach of contract occurred (March 19, 2002). The Progress Affiliates contend that specific performance is an inapplicable remedy. A hearing on Global’s motion was held on April 19, 2013. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, that Progress Energy might incur in connection with this lawsuit. In a second suit filed in the Superior Court for Wake County, N.C., Progress Synfuel Holdings, Inc. et al. v. U.S. Global, LLC (the North Carolina Global Case), the Progress Affiliates seek declaratory relief consistent with our interpretation of the Asset Purchase Agreement. 53 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Global was served with the North Carolina Global Case on April 17, 2003. In May 2003, Global moved to dismiss the North Carolina Global Case for lack of personal jurisdiction over Global. In the alternative, Global requested that the court decline to exercise its discretion to hear the Progress Affiliates’ declaratory judgment action. In August 2003, the Wake County Superior Court denied Global’s motion to dismiss, but stayed the North Carolina Global Case, pending the outcome of the Florida Global Case. The Progress Affiliates appealed the superior court’s order staying the case. By order dated September 7, 2004, the North Carolina Court of Appeals dismissed the Progress Affiliates’ appeal. Based upon the verdict in the Florida Global Case, Progress Energy anticipates dismissal of the North Carolina Global Case. Duke Energy Progress and Duke Energy Florida Spent Nuclear Fuel Matters The Nuclear Waste Policy Act of 1982 (as amended) (NWPA) provides the framework for development by the federal government of interim storage and permanent disposal facilities for high-level radioactive waste materials. The DOE is responsible for the selection and construction of a facility for the permanent disposal of spent nuclear fuel and high-level radioactive waste. Pursuant to the NWPA, Duke Energy Progress and Duke Energy Florida entered into contracts with the DOE under which the DOE agreed to begin taking spent nuclear fuel by no later than January 31, 1998. All similarly situated utilities were required to sign the same Standard Contract for Disposal of Spent Nuclear Fuel. The DOE failed to begin taking spent nuclear fuel by January 31, 1998. In January 2004, Duke Energy Progress and Duke Energy Florida filed a complaint in the U.S. Court of Federal Claims against the United States, claiming that the DOE breached the standard contract and asserting damages incurred through 2005 for storing spent nuclear fuel at their nuclear sites (Phase I litigation). In 2011, the U.S. Court of Federal Claims issued a ruling to award Duke Energy Progress substantially all its asserted damages. As a result, Duke Energy Progress recorded the award as an offset for past spent fuel storage costs incurred. On December 12, 2011, Duke Energy Progress and Duke Energy Florida filed a second complaint in the U.S. Court of Federal Claims against the United States, claiming damages incurred from January 1, 2006 through December 31, 2010. The damages stem from the same breach of contract asserted in the previous litigation. On March 23, 2012, Duke Energy Progress and Duke Energy Florida filed their initial disclosure of $113 million of damages with the U.S. Court of Federal Claims and the DOE, of which $90 million was attributable to Duke Energy Progress and $23 million was attributable to Duke Energy Florida. The total amount of damages could change during discovery, which is scheduled to end on May 31, 2013. Duke Energy Progress and Duke Energy Florida may file subsequent damage claims as they incur additional costs. Duke Energy Progress and Duke Energy Florida cannot predict the outcome of this matter. Duke Energy Ohio Antitrust Lawsuit In January 2008, four plaintiffs, including individual, industrial and nonprofit customers, filed a lawsuit against Duke Energy Ohio in federal court in the Southern District of Ohio. Plaintiffs alleged that Duke Energy Ohio (then The Cincinnati Gas & Electric Company), conspired to provide inequitable and unfair price advantages for certain large business consumers by entering into non-public option agreements with such consumers in exchange for their withdrawal of challenges to Duke Energy Ohio’s pending Rate Stabilization Plan (RSP), which was implemented in early 2005. On March 31, 2009, the District Court granted Duke Energy Ohio’s motion to dismiss. Plaintiffs filed a motion to alter or set aside the judgment, which was denied by an order dated March 31, 2010. In April 2010, the plaintiffs filed their appeal of that order with the U.S. Court of Appeals for the Sixth Circuit, which heard argument on that appeal on January 11, 2012. On June 4, 2012, the Sixth Circuit Court of Appeals reversed the district court’s decision and remanded the matter on all claims for trial on the merits and on July 25, 2012, the Court denied Duke Energy Ohio’s petition for an en banc review of the case. On October 15, 2012, Duke Energy filed a petition for certiorari to the United States Supreme Court, which was denied on January 14, 2013. Mediations held in December 2012 and March 2013 were unsuccessful. The plaintiffs’ last mediation demand was for $99 million. It is not possible to predict at this time whether Duke Energy Ohio will incur any liability or to estimate the damages, if any, that may be incurred in connection with this lawsuit. Asbestos-related Injuries and Damages Claims Duke Energy Ohio has been named as a defendant or co-defendant in lawsuits related to asbestos at its electric generating stations. The impact on Duke Energy Ohio’s results of operations, cash flows or financial position of these cases to date has not been material. Based on estimates under varying assumptions concerning uncertainties, such as, among others: (i) the number of contractors potentially exposed to asbestos during construction or maintenance of Duke Energy Ohio generating plants; (ii) the possible incidence of various illnesses among exposed workers, and (iii) the potential settlement costs without federal or other legislation that addresses asbestos tort actions, Duke Energy Ohio estimates that the range of reasonably possible exposure in existing and future suits over the foreseeable future is not material. This estimated range of exposure may change as additional settlements occur and claims are made and more case law is established. Other Litigation and Legal Proceedings The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve substantial amounts. Management believes that the final disposition of these proceedings will not have a material effect on its results of operations, cash flows or financial position. The Duke Energy Registrants expense legal costs related to the defense of loss contingencies as incurred. The Duke Energy Registrants have exposure to certain legal matters that are described herein. The Duke Energy Registrants have recorded reserves for these proceedings and exposures as presented in the table below. These reserves represent management’s best estimate of probable loss as defined in the accounting guidance for contingencies. The estimated reasonably possible range of loss for non-asbestos related matters in excess of the recorded reserves is not material. Duke Energy Carolinas has insurance coverage for certain of these losses incurred as presented in the table below. 54 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) March 31, (in millions) December 31, 2012 2013 Reserves for Legal and Other Matters (a) Duke Energy (b) 834 $ Duke Energy Carolinas (b) 846 $ 751 743 Progress Energy 75 79 Duke Energy Progress 11 12 Duke Energy Florida (c) 44 47 7 8 Duke Energy Indiana Probable Insurance Recoveries (d) Duke Energy (e) 781 $ Duke Energy Carolinas (e) (a) (b) (c) (d) (e) 781 $ 781 781 Reserves are classified in the respective Condensed Consolidated Balance Sheets in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities. Includes reserves for aforementioned asbestos-related injuries and damages claims. Includes workers' compensation claims. Insurance recoveries are classified in the respective Condensed Consolidated Balance Sheets in Other within Investments and Other Assets and Receivables. Relates to recoveries associated with aforementioned asbestos-related injuries and damages claims. OTHER COMMITMENTS AND CONTINGENCIES General As part of its normal business, the Duke Energy Registrants are a party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. To varying degrees, these guarantees involve elements of performance and credit risk, which are not included on the respective Condensed Consolidated Balance Sheets. The possibility of any of the Duke Energy Registrants having to honor their contingencies is largely dependent upon future operations of various subsidiaries, investees and other third parties, or the occurrence of certain future events. In addition, the Duke Energy Registrants enter into various fixed-price, non-cancelable commitments to purchase or sell power (tolling arrangements or power purchase contracts), take-or-pay arrangements, transportation or throughput agreements and other contracts that may or may not be recognized on their respective Condensed Consolidated Balance Sheets. Some of these arrangements may be recognized at fair value on the respective Condensed Consolidated Balance Sheets if such contracts meet the definition of a derivative and the Normal purchase/normal sale (NPNS) exception does not apply. In most cases, the Duke Energy Registrants purchase obligation contracts contain provisions for price adjustments, minimum purchase levels and other financial commitments. 6. DEBT AND CREDIT FACILITIES SUMMARY OF SIGNIFICANT DEBT ISSUANCES The following table summarizes the Duke Energy Registrants’ significant debt issuances since December 31, 2012 (in millions). Issuance Date Unsecured Debt January 2013 (a) Maturity Date January 2073 Duke Energy (Parent) Interest Rate 5.125 % $ 500 Duke Energy Duke Energy Progress $ - $ 500 Secured Debt February 2013 (b) (c) February 2013 (b) (d) April 2013 First Mortgage Bonds (e) March 2013 Total issuances (a) (b) (c) (d) (e) December 2030 2.043 % June 2037 4.740 % April 2026 5.456 % March 2043 - - - - 203 220 4.100 % $ 500 $ 500 500 230 500 $ 1,653 Callable after January 2018 at par. Proceeds from the issuance were used to redeem the $300 million 7.10% Cumulative Quarterly Income Preferred Securities (QUIPS). The securities were redeemed at par plus accrued and unpaid distributions, payable upon presentation on the redemption date. The remaining net proceeds were used to repay a portion of our commercial paper and for general corporate purposes. See Note 11 for additional information about the QUIPS. Represents the conversion of construction loans related to a renewable energy project issued in December 2012 to term loans. No cash proceeds were received in conjunction with the conversion. The term loans have varying maturity dates. The maturity date presented represents the latest date for all components of the respective loans. The debt is floating rate. Duke Energy has entered into a pay fixed-receive floating interest rate swap for 95 percent of the loans. Represents primarily the conversion of a $190 million bridge loan issued in conjunction with the acquisition of Ibener in December 2012. Duke Energy received incremental proceeds of $40 million upon conversion of the bridge loan. The debt is floating rate and is denominated in U.S. dollars. Duke Energy has entered into a pay fixed-receive floating interest rate swap for 75 percent of the loan. Proceeds from the issuance were used to repay notes payable to affiliated companies as well as for general corporate purposes. 55 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) CURRENT MATURITIES OF LONG-TERM DEBT The following table shows the significant components of Current maturities of long-term debt on the Duke Energy Registrants’ respective Condensed Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with proceeds from additional borrowings, unless otherwise noted. (in millions) Maturity Date Interest Rate March 31, 2013 Unsecured Debt Duke Energy (Parent) Duke Energy Indiana Duke Energy (Parent) Progress Energy (Parent) June 2013 September 2013 February 2014 March 2014 5.650 % 5.000 % 6.300 % 6.050 % June 2013 1.009 % 190 June 2013 September 2013 November 2013 2.100 % 5.125 % 5.750 % 250 $ 250 400 750 300 Secured Debt Duke Energy (a) First Mortgage Bonds Duke Energy Ohio Duke Energy Progress Duke Energy Carolinas 400 400 Other 383 Current maturities of long-term debt (a) $ 3,323 Notes were fully offset with cash collateral, which was presented within Current Assets on the Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012. All collateral was returned when the six-month bridge loan was replaced with a $230 million non-recourse secured credit facility issued in April 2013. See Note 2 for additional information. 56 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) AVAILABLE CREDIT FACILITIES Duke Energy has a $6 billion, five-year master credit facility, expiring in November 2016. In 2012, the Duke Energy Registrants reached an agreement with banks representing $5.63 billion of commitments under the master credit facility to extend the expiration date by one year to November 2017. Through November 2016, the available credit under this facility remains at $6 billion. The Duke Energy Registrants each have borrowing capacity under the master credit facility up to specified sublimits for each borrower. However, Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. See the table below for the borrowing sublimits for each of the borrowers as of March 31, 2013. The amount available under the master credit facility has been reduced, as indicated in the table below, by the use of the master credit facility to backstop the issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. As indicated, borrowing sublimits for the Subsidiary Registrants are also reduced for certain amounts outstanding under the money pool arrangement. March 31, 2013 (in millions) Facility size (a) Duke Energy (Parent) $ 1,750 Duke Energy Carolinas $ 1,250 Duke Energy (486) (50) ― 1,214 Total Duke Energy 750 Duke Energy Florida $ 750 Duke Energy Ohio $ 750 Duke Energy Indiana $ 750 (300) (26) (162) (163) (169) (7) (2) (1) ― ― (60) (75) ― ― (84) (81) (240) Progress $ $ 6,000 Reduction to backstop issuances Notes payable and commercial paper (b) Outstanding letters of credit Tax-exempt bonds Available capacity (a) (b) $ $ 868 $ 722 $ 587 $ 503 $ 500 (1,306) $ 4,394 Represents the sublimit of each borrower at March 31, 2013. The Duke Energy Ohio sublimit includes $100 million for Duke Energy Kentucky. Duke Energy issued $450 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas and Duke Energy Indiana. The balances are classified as long-term borrowings within Long-term Debt in Duke Energy Carolina’s and Duke Energy Indiana’s Condensed Consolidated Balance Sheets. 57 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) 7. GOODWILL GOODWILL The following tables present goodwill by reportable operating segment for Duke Energy and Duke Energy Ohio. Duke Energy (in millions) USFE&G International Energy Commercial Power Total Balance at December 31, 2012: Goodwill $ Accumulated impairment charges Balance at December 31, 2012, as adjusted for accumulated impairment charges Acquisitions (a) 15,950 933 $ 353 $ 17,236 $ ― (871) ― (871) 15,950 62 353 16,365 10 2 (6) 6 15,960 935 347 17,242 ― (871) ― (871) Balance at March 31, 2013: Goodwill Accumulated impairment charges Balance at March 31, 2013, as adjusted for accumulated impairment charges (a) $ 15,960 64 $ 347 $ 16,371 $ Amounts represent purchase price adjustments related to the Progress Energy merger at USFE&G, a minor renewables acquisition at Commercial Power and the Ibener acquisition at International Energy. See Note 2 for further information on purchase price adjustments related to the Progress Energy Merger. Duke Energy Ohio (in millions) Balance at December 31, 2012: Goodwill Accumulated impairment charges 1,137 (216) $ Balance at December 31, 2012, as adjusted for accumulated impairment charges Balance at March 31, 2013: Goodwill Accumulated impairment charges Balance at March 31, 2013, as adjusted for accumulated impairment charges Commercial Power Franchised Electric & Gas 1,188 (1,188) $ 2,325 (1,404) 921 ― 921 1,137 (216) 1,188 (1,188) (1,404) 921 $ $ Total $ ― 2,325 $ 921 Progress Energy Progress Energy had Goodwill of $3,655 million within the Franchised Electric operating segment as of March 31, 2013 and December 31, 2012, for which there are no accumulated impairment charges. 8. RISK MANAGEMENT, DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Duke Energy Registrants closely monitor the risks associated with commodity price changes and changes in interest rates on their operations and, where appropriate, use various commodity and interest rate instruments to manage these risks. Certain of these derivative instruments qualify for hedge accounting and are designated as hedging instruments, while others either do not qualify as hedges or have not been designated as hedges (hereinafter referred to as undesignated contracts). The Duke Energy Registrants’ primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to changes in the prices of power and fuel. Interest rate swaps are entered into to manage interest rate risk primarily associated with the Duke Energy Registrants’ variable-rate and fixed-rate borrowings. Additionally, Duke Energy Carolinas’, Duke Energy Progress’ and Duke Energy Florida’s nuclear decommissioning trust fund (NDTF) investment holdings may include certain derivative instruments, such as interest rate swaps and credit default swaps, as part of its overall investment strategy. As further discussed in Note 10 the NDTF’s are managed by third party investment managers who have the discretion to make investment decisions within risk management guidelines determined by management of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida. The fair value of these derivative instruments are included within Nuclear decommissioning trust funds on the Condensed Consolidated Balance Sheets and are not material to the investment balance at March 31, 2013 and December 31, 2012. 58 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The accounting guidance for derivatives requires the recognition of all derivative instruments not identified as NPNS as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. For derivative instruments that qualify for hedge accounting, the Duke Energy Registrants may elect to designate such derivatives as either cash flow hedges or fair value hedges. The Duke Energy Registrants offset fair value amounts recognized on the Condensed Consolidated Balance Sheets related to derivative instruments executed with the same counterparty under the same master netting agreement. The operations of the USFE&G business segment meet the criteria for regulatory accounting treatment. Accordingly, for derivatives that would otherwise be designated as cash flow hedges within USFE&G, gains and losses are reflected as a regulatory liability or asset instead of as a component of accumulated other comprehensive income (AOCI). For derivatives that would otherwise be designated as fair value hedges or left undesignated within USFE&G, gains and losses associated with the change in fair value of these derivative contracts would be deferred as a regulatory liability or asset. As a result changes in fair value of these derivatives have no immediate earnings impact. Within the Duke Energy Registrants’ unregulated businesses, for derivative instruments that qualify for hedge accounting and are designated as cash flow hedges, the effective portion of the gain or loss is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gains or losses on the derivative that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For derivative instruments that qualify and are designated as a fair value hedge, the gain or loss on the derivative as well as the fully or partially offsetting loss or gain on the hedged item are recognized in earnings in the current period. The Duke Energy Registrants include the gain or loss on the derivative in the same line item as the offsetting loss or gain on the hedged item in the Condensed Consolidated Statements of Operations. Additionally, the Duke Energy Registrants enter into derivative agreements that are economic hedges that either do not qualify for hedge accounting or have not been designated as a hedge. The changes in fair value of these undesignated derivative instruments are reflected in current earnings. COMMODITY PRICE RISK The Duke Energy Registrants are exposed to the impact of market changes in the future prices of electricity (energy, capacity and financial transmission rights), coal, natural gas and emission allowances (SO 2, seasonal NO X and annual NO X ) as a result of their energy operations such as electricity generation and the transportation and sale of natural gas. With respect to commodity price risks associated with electricity generation, the Duke Energy Registrants are exposed to changes including, but not limited to, the cost of the coal and natural gas used to generate electricity, the prices of electricity sold in wholesale markets, the cost of capacity and electricity purchased for resale in wholesale markets and the cost of emission allowances primarily at the Duke Energy Registrants’ coal fired power plants. Risks associated with commodity price changes on future operations are closely monitored and, where appropriate, various commodity contracts are used to mitigate the effect of such fluctuations on operations. Exposure to commodity price risk is influenced by a number of factors, including, but not limited to, the term of the contract, the liquidity of the market and delivery location. Commodity Fair Value Hedges At March 31, 2013, there were no open commodity derivative instruments that were designated as fair value hedges. Commodity Cash Flow Hedges At March 31, 2013, open commodity derivative instruments that were designated as cash flow hedges were not material. Undesignated Contracts The Duke Energy Registrants use derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. These contracts expire as late as 2017. Undesignated contracts also include contracts associated with operations that Duke Energy continues to wind down or has included as discontinued operations. As these undesignated contracts expire as late as 2021, Duke Energy has entered into economic hedges that leave it minimally exposed to changes in prices over the duration of these contracts. Duke Energy Carolinas and Duke Energy Progress use derivative contracts primarily as economic hedges to manage the market risk exposures that arise from electricity generation. Duke Energy Carolinas and Duke Energy Progress have also entered into firm power sale agreements, which are accounted for as derivative instruments, as part of the Interim FERC Mitigation in connection with Duke Energy’s merger with Progress Energy. Duke Energy Carolinas’ undesignated contracts as of March 31, 2013, are primarily associated with forward sales and purchases of power. Duke Energy Progress’ undesignated contracts as of March 31, 2013, are primarily associated with forward purchases of fuel used in electricity generation. Duke Energy Florida uses derivative contracts primarily as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at March 31, 2013, are primarily associated with forward purchases of fuel used in electricity generation. Duke Energy Ohio uses derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts at March 31, 2013, are primarily associated with forward sales and purchases of power, coal and gas for the Commercial Power segment. 59 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Duke Energy Indiana uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at March 31, 2013, are primarily associated with forward purchases and sales of power, and financial transmission rights. Volumes The table below shows information relating to the volume of the Duke Energy registrants outstanding commodity derivative activity. Amounts disclosed represent the notional volumes of commodities contracts accounted for at fair value. For option contracts, notional amounts include only the delta-equivalent volumes which represent the notional volumes times the probability of exercising the option based on current price volatility. Volumes associated with contracts qualifying for the NPNS exception have been excluded from the table below. Amounts disclosed represent the absolute value of notional amounts. The Duke Energy Registrants have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown below. For additional information on notional dollar amounts of debt subject to derivative contracts accounted for at fair value, see “Interest Rate Risk” section below. Duke Energy Commodity contracts Electricity-energy (Gigawatt-hours) (a) Natural gas (millions of decatherms) Commodity contracts Electricity-energy (Gigawatt-hours) (a) Natural gas (millions of decatherms) (a) Duke Energy Carolinas 516 1,802 ― Duke Energy Duke Energy Carolinas 56,890 52,104 528 Progress March 31, 2013 Duke Energy Energy Progress 1,850 1,850 335 110 Progress Energy 2,028 1,850 ― 348 December, 31, 2012 Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana ― 225 53,173 406 181 ― Duke Energy Florida Duke Energy Ohio Duke Energy Indiana ― 51,215 180 ― 1,850 118 230 97 Amounts at Duke Energy Ohio include intercompany positions that are eliminated at Duke Energy. INTEREST RATE RISK The Duke Energy Registrants are exposed to risk resulting from changes in interest rates as a result of their issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Interest rate exposure is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into financial contracts; primarily interest rate swaps and U.S. Treasury lock agreements. Additionally, in anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of the market interest rates at the time and terminated prior to or upon the issuance of the corresponding debt. When these transactions occur within a business that meets the criteria for regulatory accounting treatment, these contracts may be treated as undesignated and any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded as a regulatory liability or asset and amortized as a component of interest expense over the life of the debt. In businesses that don’t meet the criteria for regulatory accounting treatment, these derivatives may be designated as hedges whereby any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded in AOCI and amortized as a component of interest expense over the life of the debt. Duke Energy has a combination foreign exchange, pay fixed-receive floating interest rate swap to fix the US Dollar equivalent payments on a floating rate Chilean debt issue. As discussed above, within the Duke Energy Carolinas, Duke Energy Progress, and Duke Energy Florida NDTFs, certain of the fixed income investment managers have authorization to use interest rate swaps and credit default swaps in their investment strategies to either manage risk or enhance returns. Notional amounts for these contracts are not included in the table below as they are not material to the investment balance at March 31, 2013 and December 31, 2012. The following table shows the notional amounts for derivatives related to interest rate risk. March 31, 2013 Duke Energy (in millions) Cash flow hedges (a) 1,047 $ Undesignated contracts Duke Energy Energy Progress ― $ 238 Fair value hedges Total notional amount Progress ― $ ― ― $ 27 ― $ Duke Energy Indiana ― $ ― ― 250 1,535 $ ― $ ― Duke Energy Ohio 200 ― 250 277 $ 200 $ December 31, 2012 Duke Energy (in millions) Cash flow hedges (a) Undesignated contracts (a) $ $ $ 50 ― $ 50 ― 250 1,587 $ Progress ― 50 290 Fair value hedges Total notional amount Energy 1,047 $ Duke Energy Ohio Duke Energy Progress 50 ― $ 27 ― $ Duke Energy Indiana ― 250 $ 277 $ Duke Energy includes amounts related to non-recourse variable rate long-term debt of VIEs of $620 million at March 31, 2013, and at December 31, 2012, respectively. 60 ― 200 200 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY The following tables show fair value amounts of derivative contracts, and the line items in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. March 31, 2013 (in millions) Derivatives Designated as Hedging Instruments Commodity contracts Current liabilities: other Deferred credits and other liabilities: other Interest rate contracts Current assets: other Investments and other assets: other Current Liabilities: Other Deferred credits and other liabilities: other Total Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments Commodity contracts Current assets: other Investments and other assets: other Current liabilities: other Deferred credits and other liabilities: other Interest rate contracts Current liabilities: other Deferred credits and other liabilities: other Total Derivatives Not Designated as Hedging Instruments Total Derivatives December 31, 2012 Liability Asset ― ― $ $ $ ― ― (2) 70 30 102 $ 52 32 $ $ 151 71 ― ― $ 9 6 372 293 ― ― $ 2 7 ― ― 9 $ 41 106 106 2 $ $ $ 6 743 845 2 1 $ ― ― 81 35 119 $ 2 50 $ 407 255 $ ― ― 255 $ 798 $ 264 $ 917 57 306 309 $ 1 1 2 3 ― 3 Liability Asset 76 8 The tables below show the balance sheet location of the derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on Duke Energy’s financial position. The amount shown in the net position column is calculated by counterparty. Most derivatives are entered into with counterparties under enforceable master netting agreements, or with an Independent System Operator (ISO) such as MISO or PJM. Derivatives entered into with a clearinghouse are usually over-collateralized due to the requirement to post initial margin upon entering into contracts. The amounts shown as offset are limited by the amount of exposure to a counterparty such that an over collateralized position at one counterparty is not allowed to reduce an under collateralized position at another counterparty. In addition to the amounts shown as offset, in the table, Duke Energy may also have available accounts receivable or accounts payable, that are subject to master netting agreements that would offset exposures in the event of bankruptcy. March 31, 2013 Net amounts included on the (in millions) Derivative Assets: Current Subject to Master Netting Not Subject to Master Netting Gross amounts offset Gross amounts recognized 182 21 $ Condensed Consolidated Balance Sheet 157 $ $ ― 25 21 46 (a) Total Derivative Assets: Current Derivative Assets: Non-current Subject to Master Netting Not Subject to Master Netting 203 157 91 15 ― 16 15 Total Derivative Assets: Non-current Derivative Liabilities: Current Subject to Master Netting Not Subject to Master Netting 106 75 31 (b) 350 159 222 ― 128 Total Derivative Liabilities: Current Derivative Liabilities: Non-current Subject to Master Netting Not Subject to Master Netting 509 222 287 295 118 ― 177 41 336 118 218 Total Derivative Liabilities: Non-current 75 159 (c) 41 (d) December 31, 2012 Net amounts included on the (in millions) Derivative Assets: Current Subject to Master Netting Not Subject to Master Netting Condensed Consolidated Balance Sheet Gross amounts offset Gross amounts recognized 22 114 ― Total Derivative Assets: Current Derivative Assets: Non-current Subject to Master Netting Not Subject to Master Netting 149 114 96 19 54 ― 19 Total Derivative Assets: Non-current 115 54 61 (b) $ 127 $ $ 13 22 35 (a) 42 Total Derivative Assets: Non-current Derivative Liabilities: Current Subject to Master Netting Not Subject to Master Netting 115 54 61 402 166 151 ― 251 166 Total Derivative Liabilities: Current Derivative Liabilities: Non-current Subject to Master Netting Not Subject to Master Netting 568 151 417 (c) Total Derivative Liabilities: Non-current (a) (b) (c) (d) 295 90 54 ― 349 90 Included in Other within Current Assets on the Condensed Consolidated Balance Sheet. Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other within Current Liabilities on the Condensed Consolidated Balance Sheet. Included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. 61 205 54 259 (d) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following table shows the amount of gains and losses recognized on derivative instruments designated and qualifying as cash flow hedges by type of derivative contract, and the Condensed Consolidated Statements of Operations line items in which such gains and losses are included when reclassified from AOCI. Three Months Ended March 31, 2013 2012 (in millions) Pre-tax Gains (Losses) Recorded in AOCI Interest rate contracts Commodity contracts Total Pre-tax Gains (Losses) Recorded in AOCI Location of Pre-tax Gains and (Losses) Reclassified from AOCI into Earnings (b) Interest rate contracts Interest expense Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings (a) (b) $ 13 $ 18 $ 1 14 $ ― 18 $ (1) $ $ (1) $ (a) Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period. Amounts in AOCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt. 62 (1) (1) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) There was no hedge ineffectiveness during the three months ended March 31, 2013 and 2012, and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods. At March 31, 2013, and 2012, $144 million and $102 million, respectively of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges were included as a component of AOCI and a $4 million pre-tax gain is expected to be recognized in earnings during the next 12 months as the hedged transactions occur. The following tables show the amount of pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument, and the line items in the Condensed Consolidated Statements of Comprehensive Income in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities. Three Months Ended March 31, 2013 2012 (in millions) Location of Pre-tax Gains and (Losses) Recognized in Earnings Commodity contracts Revenue, regulated electric Revenue, nonregulated electric, natural gas and other Fuel used in electric generation and purchased power regulated Fuel used in electric generation and purchased power - nonregulated Interest rate contracts Interest expense Total Pre-tax (Losses) Gains Recognized in Earnings Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities Commodity contracts Regulatory asset Regulatory liability Interest rate contracts Regulatory asset Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities 6 (82) $ ― $ 36 ― ― (52) (7) ― (4) $ (139) $ 36 $ 105 (5) $ (1) 5 13 113 $ 22 26 $ DUKE ENERGY CAROLINAS The following tables show fair value amounts of derivative contracts, and the line items in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy Carolinas nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. March 31, 2013 (in millions) Derivatives Not Designated as Hedging Instruments Commodity contracts Current liabilities: other Deferred credits and other liabilities: other Total Derivatives Not Designated as Hedging Instruments Total Derivatives ― ― ― ― $ $ $ 63 December 31, 2012 Liability Asset $ $ $ Liability Asset 2 3 5 5 $ $ $ ― ― ― ― $ $ $ 6 6 12 12 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The tables below show the balance sheet location of the derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on Duke Energy Carolinas’ financial position. The amount shown in the net position column is calculated by counterparty. Most derivatives are entered into with counterparties under enforceable master netting agreements, or with an ISO such as MISO or PJM. Derivatives entered into with a clearinghouse are usually over-collateralized due to the requirement to post initial margin upon entering into contracts. The amounts shown as offset are limited by the amount of exposure to a counterparty such that an over collateralized position at one counterparty is not allowed to reduce an under collateralized position at another counterparty. In addition to the amounts shown as offset, in the table, Duke Energy Carolinas may also have available accounts receivable or accounts payable to offset exposures in the event of bankruptcy. March 31, 2013 Net amounts included on the (in millions) Derivative Liabilities: Current Not Subject to Master Netting Derivative Liabilities: Non-current Gross amounts offset Gross amounts recognized 2 $ Not Subject to Master Netting Condensed Consolidated Balance Sheet ― $ 2 (a) $ 3 (b) ― 3 December 31, 2012 Net amounts included on the (in millions) Derivative Liabilities: Current Not Subject to Master Netting Derivative Liabilities: Non-current 6 Not Subject to Master Netting (a) (b) Gross amounts offset Gross amounts recognized $ Condensed Consolidated Balance Sheet ― $ 6 (a) $ 6 (b) ― 6 Included in Other within Current Liabilities on the Condensed Consolidated Balance Sheet. Included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. There were insignificant losses on cash flow hedges reclassified at Duke Energy Carolinas for the three months ended March 31, 2013 and 2012, respectively. At March 31, 2013 and 2012, there were no pre-tax deferred net gains or losses on outstanding derivative instruments related to cash flow hedges remaining in AOCI for Duke Energy Carolinas. At March 31, 2013 and 2012, there were no pre-tax losses recognized on undesignated contracts for Duke Energy Carolinas. PROGRESS ENERGY The following tables show fair value amounts of derivative contracts, and the line items in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Progress Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associate with the derivative contracts have not been netted against the fair value amounts. March 31, 2013 (in millions) Derivatives Designated as Hedging Instruments Commodity contracts Current liabilities: other Deferred credits and other liabilities: other Total Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments Commodity contracts Current assets: other Investments and other assets: other Current liabilities: other Deferred credits and other liabilities: other Interest rate contracts Current liabilities: other Total Derivatives Not Designated as Hedging Instruments Total Derivatives $ $ ― ― ― $ 13 $ $ $ 2 20 12 ― 47 47 $ $ 64 December 31, 2012 Liability Asset Liability Asset 1 1 2 $ ― ― $ $ 140 159 ― $ 299 $ $ 301 $ ― ― ― $ 3 8 ― ― $ ― ― 231 195 $ 437 440 ― 11 11 $ 2 1 3 11 $ PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The tables below show the balance sheet location of the derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on Progress Energy’s financial position. The amount shown in the net position column is calculated by counterparty. Most derivatives are entered into with counterparties under enforceable master netting agreements, or with an ISO such as MISO or PJM. Derivatives entered into with a clearinghouse are usually over-collateralized due to the requirement to post initial margin upon entering into contracts The amounts shown as offset are limited by the amount of exposure to a counterparty such that an over collateralized position at one counterparty is not allowed to reduce an under collateralized position at another counterparty. In addition to the amounts shown as offset, in the table, Progress Energy may also have available accounts receivable or accounts payables to offset exposures in the event of bankruptcy. March 31, 2013 Net amounts included on the (in millions) Derivative Assets: Current Subject to Master Netting Derivative Assets: Non-current 33 $ Subject to Master Netting Derivative Liabilities: Current Condensed Consolidated Balance Sheet Gross amounts offset Gross amounts recognized 21 $ 12 (a) $ (b) 14 12 2 Subject to Master Netting Derivative Liabilities: Non-current Subject to Master Netting Not Subject to Master Netting 141 34 107 (c) 156 4 34 ― 122 4 Total Derivative Liabilities: Non-current 160 34 126 (d) December 31, 2012 (in millions) Derivative Assets: Current Subject to Master Netting Derivative Assets: Non-current 3 $ Subject to Master Netting Derivative Liabilities: Current Net amounts included on the Condensed Consolidated Balance Sheet Gross amounts offset Gross amounts recognized ― $ 3 (a) $ 8 ― 8 (b) 222 (c) Subject to Master Netting Derivative Liabilities: Non-current Subject to Master Netting Not Subject to Master Netting 244 22 192 4 ― 156 4 Total Derivative Liabilities: Non-current 196 36 160 (d) (a) (b) (c) (d) 36 Included in Other within Current Assets on the Condensed Consolidated Balance Sheet. Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other within Current Liabilities on the Condensed Consolidated Balance Sheet. Included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. The following table shows the amount of gains and losses recognized on derivative instruments designated and qualifying as cash flow hedges by type of derivative contract, and the Condensed Consolidated Statements of Operations and Comprehensive Income line items in which such gains and losses are included when reclassified from AOCI. Three Months Ended March 31, 2013 2012 (in millions) Pre-tax Gains (Losses) Recorded in AOCI Commodity contracts Interest rate contracts Total Pre-tax Gains (Losses) Recorded in AOCI Location of Pre-tax Gains and (Losses) Reclassified from AOCI into Earnings (b) Interest rate contracts Interest expense Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings (a) (b) $ 1 $ ― $ ― 1 $ 4 4 (a) $ $ ― ― $ $ Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationships and reclassified into earnings during the current period. Amounts in AOCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt. 65 (4) (4) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) At March 31, 2013, and 2012 $68 million and $226 million, respectively of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges were included as a component of AOCI and a $5 million pre-tax loss is expected to be recognized in earnings during the next 12 months as the hedged transactions occur. The following tables show the amount of pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument, and the line items in the Consolidated Statements of Operations and Comprehensive Income in which such gains and losses are included or deferred on the consolidated Balance Sheets as regulatory assets or liabilities. Three Months Ended March 31, 2013 2012 (in millions) Location of Pre-tax Gains and (Losses) Recognized in Earnings Commodity contracts Revenue, regulated electric 6 $ Fuel used in electric generation and purchased power - regulated (a) Other income and expenses, net ― $ (52) (105) ― 8 Interest rate contracts Interest expense Total Pre-tax (Losses) Gains Recognized in Earnings Regulatory asset Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities (c) (50) $ ― (97) $ 105 $ (206) $ 110 $ ― (206) (4) Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities (c) Commodity contracts Regulatory asset (b) Interest rate contracts (a) (b) $ 5 After the settlement of the derivatives and the consumption of the fuel, gains or losses are passed through the fuel cost-recovery clause. Amounts in regulatory assets and liabilities related to terminated hedges are reclassified to earnings as the interest expense is recorded. The hedges will be amortized to interest expense over the term of the related debt. Amounts are recorded as regulatory assets and liabilities in the Condensed Consolidated Balance Sheets until gains or losses are passed through the fuel costrecovery clause. DUKE ENERGY PROGRESS The following tables show fair value amounts of derivative contracts, and the line items in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy Progress nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. March 31, 2013 (in millions) Derivatives Designated as Hedging Instruments Commodity contracts Current liabilities: other December 31, 2012 Liability Asset Liability Asset $ ― $ 1 $ ― Deferred credits and other liabilities: other Total Derivatives Designated as Hedging Instruments $ ― ― $ 1 2 $ ― ― $ 1 2 Derivatives Not Designated as Hedging Instruments (a) Commodity contracts Current assets: other $ 4 $ ― $ 1 $ ― Investments and other assets: other 1 ― ― 1 ― Current liabilities: other 8 52 ― 85 Deferred credits and other liabilities: other 2 54 ― 68 Interest rate contracts Current liabilities: other Total Derivatives Not Designated as Hedging Instruments Total Derivatives (a) ― 14 14 $ $ Substantially all of these contracts receive regulatory treatment. 66 ― $ 106 $ $ 108 $ ― 2 2 $ $ 11 164 166 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The tables below show the balance sheet location of the derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on Duke Energy Progress’ financial position. The amount shown in the net position column is calculated by counterparty. Most derivatives are entered into with counterparties under enforceable master netting agreements, or with an ISO such as MISO or PJM. Derivatives entered into with a clearinghouse are usually over-collateralized due to the requirement to post initial margin upon entering into contracts. The amounts shown as offset are limited by the amount of exposure to a counterparty such that an over collateralized position at one counterparty is not allowed to reduce an under collateralized position at another counterparty. In addition to the amounts shown as offset, in the table, Duke Energy Progress may also have available accounts receivable or accounts payable to offset exposures in the events of bankruptcy. March 31, 2013 Net amounts included on the (in millions) Derivative Assets: Current Subject to Master Netting Derivative Assets: Non-current 12 $ Subject to Master Netting Derivative Liabilities: Current Condensed Consolidated Balance Sheet Gross amounts offset Gross amounts recognized 8 $ 4 (a) $ (b) 2 2 ― Subject to Master Netting Derivative Liabilities: Non-current 53 8 45 (c) Subject to Master Netting 55 5 50 (d) December 31, 2012 Net amounts included on the (in millions) Derivative Assets: Current Subject to Master Netting Derivative Assets: Non-current Gross amounts offset Gross amounts recognized 1 $ Condensed Consolidated Balance Sheet $ ― $ 1 (a) 1 ― 1 (b) Subject to Master Netting Derivative Liabilities: Non-current 97 2 95 (c) Subject to Master Netting 69 7 62 (d) Subject to Master Netting Derivative Liabilities: Current (a) (b) (c) (d) Included in Other within Current Assets on the Condensed Consolidated Balance Sheet. Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other within Current Liabilities on the Condensed Consolidated Balance Sheet. Included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. 67 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following table shows the amount of gains and losses recognized on derivative instruments designated and qualifying as cash flow hedges by type of derivative contract, and the Condensed Consolidated Statements of Operations and Comprehensive Income line items in which such gains and losses are included when reclassified from AOCI. Three Months Ended March 31, 2013 2012 (in millions) Pre-tax Gains (Losses) Recorded in AOCI Interest rate contracts (b) Total Pre-tax Gains (Losses) Recorded in AOCI Location of Pre-tax Gains and (Losses) Reclassified from AOCI into Earnings (b) Interest rate contracts Interest expense Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings (a) (b) $ $ (a) $ $ ― ― $ ― ― $ 5 5 $ (3) (3) $ Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationships and reclassified into earnings during the current period Amounts in AOCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt. At March 31, 2012, $109 million of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges were included as a component of AOCI. The following tables show the amount of pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument and the line items in the Condensed Consolidated Statements of Operations and Comprehensive Income in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities. Three Months Ended March 31, 2013 2012 (in millions) Location of Pre-tax Gains and (Losses) Recognized in Earnings Commodity contracts Revenue, regulated electric 6 $ Fuel used in electric generation and purchased power -regulated (a) ― $ (26) (17) Interest rate contracts Interest expense Total Pre-tax (Losses) Gains Recognized in Earnings Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities (c) Commodity contracts Regulatory asset (b) Interest rate contracts Regulatory asset Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities (a) (b) (c) $ (3) (14) $ ― (26) $ 36 $ (59) $ 39 $ ― (59) 3 After the settlement of the derivatives and the consumption of fuel, gains or losses are passed through the fuel cost-recovery clause. Amounts in regulatory assets and liabilities related to terminated hedges are reclassified to earnings as the interest expense is recorded. The hedges will be amortized to interest expense over the term of the related debt. Amounts are recorded in regulatory assets and liabilities in the Condensed Consolidated Balance Sheets until gains or losses are passed through the fuel costrecovery clause. DUKE ENERGY FLORIDA The following tables show fair value amounts of derivative contracts, and the line items in the Condensed Balance Sheets in which such amounts are included. The fair value of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy Florida nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. March 31, 2013 (in millions) Derivatives Designated as Hedging Instruments Commodity contracts Current liabilities: other Total Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments (a) Commodity contracts Current Assets: Other ― ― $ ― ― $ $ ― ― $ $ $ 1 1 $ 8 $ ― $ 2 $ ― Current liabilities: other (a) Liability Asset $ $ Investments and Other Assets: Other Deferred credits and other liabilities: other Total Derivatives Not Designated as Hedging Instruments Total Derivatives December 31, 2012 Liability Asset 2 ― 7 ― 13 89 ― 146 10 33 33 $ $ Substantially all of these contracts receive regulatory treatment. 68 $ $ 101 190 190 $ $ ― 9 9 123 $ $ 269 270 E99 KEEN m? Edi, PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The tables below show the balance sheet location of the derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on Duke Energy Florida’s financial position. The amount shown in the net position column is calculated by counterparty. Most derivatives are entered into with counterparties under enforceable master netting agreements, or with an ISO such as MISO or PJM. Derivatives entered into with a clearinghouse are usually over-collateralized due to the requirement to post initial margin upon entering into contracts. The amounts shown as offset are limited by the amount of exposure to a counterparty such that an over collateralized position at one counterparty is not allowed to reduce an under collateralized position at another counterparty. In addition to the amounts offset, in the table, Duke Energy Florida may also have available accounts receivable or accounts payable to offset exposures in the event of bankruptcy. March 31, 2013 (in millions) Derivative Assets: Current Subject to Master Netting Derivative Assets: Non-current 21 $ Net amounts included on Condensed Balance Sheet Gross amounts offset Gross amounts recognized 13 $ 8 (a) $ 12 10 Subject to Master Netting Derivative Liabilities: Non-current 89 26 63 (c) 101 29 72 (d) Subject to Master Netting 2 (b) Subject to Master Netting Derivative Liabilities: Current December 31, 2012 (in millions) Derivative Assets: Current Subject to Master Netting Derivative Assets: Non-current 2 $ Net amounts included on Condensed Balance Sheet Gross amounts offset Gross amounts recognized $ ― $ 2 (a) 7 ― 7 (b) Subject to Master Netting Derivative Liabilities: Non-current 147 20 127 (c) Subject to Master Netting 123 29 94 (d) Subject to Master Netting Derivative Liabilities: Current (a) (b) (c) (d) Included in Other within Current Assets on the Condensed Balance Sheet. Included in Other within Investments and Other Assets on the Condensed Balance Sheet. Included in Other within Current Liabilities on the Condensed Balance Sheet. Included in Other within Deferred Credits and Other Liabilities on the Condensed Balance Sheet. There were insignificant gains on cash flow hedges recorded or reclassified at Duke Energy Florida for the three months ended March 31, 2013 and 2012, respectively. At March 31, 2012, $42 million of pre-tax deferred net losses on derivative instruments related to outstanding interest rate cash flow hedges that were included as a component of AOCI. 69 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following tables show the amount of pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument and the line items in the Condensed Consolidated Statements of Operations and Comprehensive Income in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities. Three Months Ended March 31, 2013 2012 (in millions) Location of Pre-tax Gains and (Losses) Recognized in Earnings Commodity contracts Fuel used in electric generation and purchased power - regulated (a) $ (35) $ (79) Interest expense Total Pre-tax (Losses) Gains Recognized in Earnings $ (1) (36) $ ― (79) Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities (b) Commodity contracts Regulatory asset $ 69 $ (147) $ 70 $ ― (147) Interest rate contracts Interest rate contracts Regulatory asset Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities (a) (b) 1 After the settlement of the derivatives and the consumption of fuel, gains or losses are passed through the fuel cost-recovery clause. Amounts are recorded in regulatory assets and liabilities in the Condensed Balance Sheets until gains or losses are passed through the fuel cost-recovery clause. DUKE ENERGY OHIO The following tables show fair value amounts of derivative contracts, and the line items in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy Ohio nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. March 31, 2013 (in millions) Derivatives Designated as Hedging Instruments Interest rate contracts Current assets: other Total Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments Commodity contracts Current assets: other Investments and other assets: other Current liabilities: other Deferred credits and other liabilities: other Interest rate contracts Current liabilities: other Deferred credits and other liabilities: other Total Derivatives Not Designated as Hedging Instruments Total Derivatives 2 2 $ $ $ 42 $ $ $ 13 130 57 ― ― 242 244 $ $ December 31, 2012 Liability Asset ― ― $ 32 7 182 $ $ 91 $ 319 319 2 2 $ 31 81 106 ― $ $ $ ― ― 218 $ $ 220 $ 1 6 $ Liability Asset ― ― 4 51 132 4 1 7 199 199 The tables below show the balance sheet location of the derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on Duke Energy Ohio’s financial position. The amount shown in the net position column is calculated by counterparty. Most derivatives are entered into with counterparties under enforceable master netting agreements, or with an ISO such as MISO or PJM. Derivatives entered into with a clearinghouse are usually over-collateralized due to the requirement to post initial margin upon entering into contracts. The amounts shown as offset are limited by the amount of exposure to a counterparty such that an over collateralized position at one counterparty is not allowed to reduce an under collateralized position at another counterparty. In addition to the amounts shown as offset, in the table, Duke Energy Ohio may also have available accounts receivable or accounts payable to offset exposures in the event of bankruptcy. 70 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) March 31, 2013 Net amounts included on the (in millions) Derivative Assets: Current Subject to Master Netting Not Subject to Master Netting Gross amounts offset Gross amounts recognized 172 $ Condensed Consolidated Balance Sheet 163 $ 9 2 $ 2 ― 174 163 11 (a) 70 63 7 (b) 214 1 209 Total Derivative Liabilities: Current Derivative Liabilities: Non-current Subject to Master Netting Not Subject to Master Netting 215 209 98 6 ― Total Derivative Liabilities: Non-current 104 90 Total Derivative Assets: Current Derivative Assets: Non-current Subject to Master Netting Derivative Liabilities: Current Subject to Master Netting Not Subject to Master Netting 5 1 ― 6 (c) 8 6 90 14 (d) December 31, 2012 Net amounts included on the (in millions) Derivative Assets: Current Subject to Master Netting Not Subject to Master Netting $ Total Derivative Assets: Current Derivative Assets: Non-current Subject to Master Netting Derivative Liabilities: Current Subject to Master Netting Not Subject to Master Netting Total Derivative Liabilities: Current Derivative Liabilities: Non-current Subject to Master Netting Not Subject to Master Netting Total Derivative Liabilities: Non-current (a) (b) (c) (d) Condensed Consolidated Balance Sheet Gross amounts offset Gross amounts recognized 137 2 110 ― $ 27 $ 2 139 110 29 (a) 81 51 30 (b) 136 1 125 ― 11 1 137 125 12 (c) 55 7 51 ― 62 51 4 7 11 (d) Included in Other within Current Assets on the Condensed Consolidated Balance Sheet. Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other within Current Liabilities on the Condensed Consolidated Balance Sheet. Included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. There were no gains or losses on cash flow hedges recorded or reclassified at Duke Energy Ohio for the three months ended March 31, 2013 and 2012, respectively. At March 31, 2013, there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI for Duke Energy Ohio. The following tables show the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument, and the line items in the Condensed Consolidated Statements of Operations and Comprehensive Income in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities. (in millions) Location of Pre-tax Gains and (Losses) Recognized in Earnings Commodity contracts Revenue, nonregulated electric, natural gas and other Fuel used in electric generation and purchased power - nonregulated Total Pre-tax (Losses) Gains Recognized in Earnings Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities Commodity contracts Regulatory asset Interest rate contracts Regulatory asset Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities 71 Three Months Ended March 31, 2013 2012 $ (91) (7) $ $ (98) $ 71 ― 71 $ ― $ (2) $ 1 1 $ 1 (1) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY INDIANA The following tables show fair value amounts of derivative contracts, and the line items in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy Indiana nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. March 31, 2013 (in millions) Derivatives Not Designated as Hedging Instruments Commodity contracts Current assets: other Interest rate contracts Current liabilities: other Total Derivatives Not Designated as Hedging Instruments Total Derivatives December 31, 2012 Liability Asset Liability Asset $ 5 $ ― $ 10 $ ― $ ― 5 5 $ 55 55 55 $ ― 10 10 $ 63 63 63 $ $ $ $ The tables below show the balance sheet location of the derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on Duke Energy Indiana’s financial position. The amount shown in the net position column is calculated by counterparty. Most derivatives are entered into with counterparties under enforceable master netting agreements, or with an ISO such as MISO or PJM. Derivatives entered into with a clearinghouse are usually over-collateralized due to the requirement to post initial margin upon entering into contracts. The amounts shown as offset are limited by the amount of exposure to a counterparty such that an over collateralized position at one counterparty is not allowed to reduce an under collateralized position at another counterparty. In addition to the amounts shown as offset, in the table, Duke Energy Indiana may also have available accounts receivable or accounts payable to offset exposures in the event of bankruptcy. March 31, 2013 Net amounts included on the (in millions) Derivative Assets: Current Subject to Master Netting Derivative Liabilities: Current Gross amounts offset Gross amounts recognized 5 $ Not Subject to Master Netting Condensed Consolidated Balance Sheets ― $ 55 (b) ― 55 5 (a) $ December 31, 2012 Net amounts included on the (in millions) Derivative Assets: Current Subject to Master Netting Derivative Liabilities: Current 10 $ Not Subject to Master Netting (a) (b) $ 63 Included in Other within Current Assets on the Condensed Consolidated Balance Sheet. Included in Other within Current Liabilities on the Condensed Consolidated Balance Sheet. 72 Condensed Consolidated Balance Sheets Gross amounts offset Gross amounts recognized ― ― $ 10 (a) 63 (b) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) There were insignificant gains on cash flow hedges reclassified at Duke Energy Indiana for the three months ended March 31, 2013 and 2012, respectively. There were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI for Duke Energy Indiana at March 31, 2013, and 2012, respectively. The following tables show the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument and line items in the Condensed Consolidated Statements of Operations and Comprehensive Income in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities. Three Months Ended March 31, 2013 2012 (in millions) Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities Commodity contracts Regulatory liability Interest rate contracts Regulatory asset Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities $ 4 $ 4 $ 8 12 $ 21 25 CREDIT RISK Certain derivative contracts of the Duke Energy Registrants contain contingent credit features, such as material adverse change clauses or payment acceleration clauses that could result in immediate payments, the posting of letters of credit or the termination of the derivative contract before maturity if specific events occur, such as a credit rating downgrade below investment grade. The following table shows information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions. The amounts disclosed in the table below represent the aggregate fair value amounts of such derivative instruments at the end of the reporting period, the aggregate fair value of assets that are already posted as collateral under such derivative instruments at the end of the reporting period, and the aggregate fair value of additional assets that would be required to be transferred in the event that credit-risk-related contingent features were triggered. (in millions) Aggregate fair value amounts of derivative instruments in a net liability position Collateral already posted Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered at the end of the reporting period March 31, 2013 Duke Energy Duke Energy Progress Energy 512 215 $ $ 202 230 35 Duke Energy Florida Progress 3 32 279 180 76 119 7 79 $ 195 (in millions) Aggregate fair value amounts of derivative instruments in a net liability position Collateral already posted Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered at the end of the reporting period $ Progress 163 59 108 9 230 227 99 466 $ 286 $ $ Duke Energy Florida Energy Progress Energy 151 $ December 31, 2012 Duke Duke Energy Duke Energy Ohio $ Duke Energy Ohio 178 50 $ 176 104 128 Netting of Cash Collateral and Derivative Assets and Liabilities Under Master Netting Arrangements. In accordance with applicable accounting guidance, the Duke Energy Registrants have elected to offset fair value amounts (or amounts that approximate fair value) recognized on their Condensed Consolidated Balance Sheets related to cash collateral amounts receivable or payable against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting agreement. The amounts disclosed in the table below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements. See Note 9 for additional information on fair value disclosures related to derivatives. 73 2 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) March 31, 2013 (in millions) Duke Energy Amounts offset against net derivative positions Amounts not offset against net derivative positions Progress Energy Amounts offset against net derivative positions Amounts not offset against net derivative positions Duke Energy Progress Amounts offset against net derivative positions Amounts not offset against net derivative positions Duke Energy Florida Amounts offset against net derivative positions Amounts not offset against net derivative positions Duke Energy Ohio Amounts offset against net derivative positions Amounts not offset against net derivative positions 107 $ $ 108 ― ― $ 73 93 $ ― ― ― ― ― 58 1 ― ― 3 ― ― ― 9 ― ― ― 32 ― ― ― 49 ― ― 35 72 108 $ December 31, 2012 Receivables Payables Payables Receivables $ ― ― 1 15 $ 92 $ ― ― 9. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Under existing accounting guidance, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. The fair value definition focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability versus an entry price, which would be the price paid to acquire an asset or received to assume a liability. Fair value measurements require the use of market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, corroborated by market data or generally unobservable. Valuation techniques are required to maximize the use of observable inputs and minimize the use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient. The Duke Energy Registrants classify recurring and non-recurring fair value measurements based on the following fair value hierarchy, as prescribed by the accounting guidance for fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1—unadjusted quoted prices in active markets for identical assets or liabilities the Duke Energy Registrants have the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information. The Duke Energy Registrants’ Level 1 primarily consists of financial instruments such as exchange-traded derivatives and listed equities. Level 2—a fair value measurement utilizing inputs other than a quoted market price that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates. A Level 2 measurement cannot have more than an insignificant portion of the valuation based on unobservable inputs. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less than active markets. Level 3—any fair value measurements which include unobservable inputs for the asset or liability for more than an insignificant portion of the valuation. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 instruments may include longer-term instruments that extend into periods in which quoted prices or other observable inputs are not available. The fair value accounting guidance for financial instruments permits entities to elect to measure many financial instruments and certain other items at fair value that are not required to be accounted for at fair value under other GAAP. There are no financial assets or financial liabilities that are not required to be accounted for at fair value under GAAP for which the option to record at fair value has been elected by the Duke Energy Registrants. However, in the future, the Duke Energy Registrants may elect to measure certain financial instruments at fair value in accordance with this accounting guidance. Transfers out of and into Levels 1, 2 or 3 represent existing assets or liabilities previously categorized as a higher level for which the inputs to the estimate became less observable or assets and liabilities that were previously classified as Level 2 or 3 for which the lowest significant input became more observable during the period, respectively. The Duke Energy Registrant’s policy for the recognition of transfers between levels of the fair value hierarchy is to recognize the transfer at the end of the period. There were no transfers out of or into Levels 1, 2 and 3 during the three months ended March 31, 2013. 74 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Valuation methods of the primary fair value measurements disclosed below are as follows: Investments in equity securities Investments in equity securities, other than those accounted for as equity and cost method investments, are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as NASDAQ and NYSE. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. Prices have not been adjusted to reflect for after-hours market activity. The majority of investments in equity securities are valued using Level 1 measurements. For certain investments that are valued on a net asset value per share (or its equivalent), or the net asset value basis, when the Duke Energy Registrants do not have the ability to redeem the investment in the near term at net asset value per share (or its equivalent), or the net asset value is not available as of the measurement date, the fair value measurement of the investment is categorized as Level 3. Investments in available-for-sale auction rate securities Duke Energy and Duke Energy Carolinas hold auction rate securities for which an active market does not currently exist. Auction rate securities held are student loan securities for which at March 31, 2013 approximately 84 percent is ultimately backed by the U.S. government. At March 31, 2013, approximately 24 percent of these securities are AAA rated. As of March 31, 2013, and December, 31 2012 all of these auction rate securities are classified as long-term investments and are valued using Level 3 measurements. The methods and significant assumptions used to determine the fair values of the investment in auction rate debt securities represent estimations of fair value using internal discounted cash flow models which incorporate primarily management’s own assumptions as to the term over which such investments will be recovered at par (ranging from 10 to 19 years), the current level of interest rates (less than 0.3%), and the appropriate risk-adjusted discount rates (up to 5.0% reflecting a tenor of up to 19 years). In preparing the valuations, all significant value drivers were considered, including the underlying collateral (primarily evaluated on the basis of credit ratings, parity ratios and the percentage of loans backed by the U.S. government). There were no other-than-temporary impairments associated with investments in auction rate debt securities during the three months ended March 31, 2013 or 2012. Investments in debt securities Most debt investments, including those held in the Nuclear Decommissioning Trust Funds (NDTF), are valued based on a calculation using interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. Most debt valuations are Level 2 measurements. If the market for a particular fixed income security is relatively inactive or illiquid, the measurement is a Level 3 measurement. U.S. Treasury debt is typically a Level 1 measurement. Commodity derivatives The pricing for commodity derivatives is primarily a calculated value which incorporates the forward price and is adjusted for liquidity (bid-ask spread), credit or nonperformance risk (after reflecting credit enhancements such as collateral) and discounted to present value. The primary difference between a Level 2 and a Level 3 measurement relates to the level of activity in forward markets for the commodity. If the market is relatively inactive, the measurement is deemed to be a Level 3 measurement. Commodity derivatives with clearinghouses are classified as Level 1 measurements. For commodity derivative contracts classified as Level 3, Duke Energy utilizes internally-developed financial models based upon the income approach (discounted cash flow method) to measure the fair values. The primary inputs to these models are the forward commodity prices used to develop the forward price curves for the respective instrument. The pricing inputs are derived from published exchange transaction prices and other observable or public data sources. In the absence of observable market information that supports the pricing inputs, there is a presumption that the transaction price is equal to the last observable price for a similar period. For the commodity derivative contracts classified as Level 3, the pricing inputs for natural gas and electricity forward price curves are not observable for the full term of the related contracts. In isolation, increases (decreases) in unobservable natural gas forward prices would result in favorable (unfavorable) fair value adjustments for gas purchase contracts. In isolation, increases (decreases) in unobservable electricity forward prices would result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates the pricing inputs used to estimate fair value of gas purchase contracts by a market participant price verification procedure, which provides a comparison of internal forward commodity curves to market participant generated curves. Interest rate derivatives Most over-the-counter interest rate contract derivatives are valued using financial models which utilize observable inputs for similar instruments and are classified within Level 2. Such models may be internally developed, but are similar to models commonly used across industries to value derivative contracts. To determine fair value, the Duke Energy Registrants utilize various inputs and factors including market data and assumptions that market participants would use in pricing assets or liabilities as well as assumptions about the risks inherent in the inputs to the valuation technique. The inputs and factors may include forward interest rate curves, notional amounts, interest rates and credit quality of the Duke Energy Registrants and their counterparties. Goodwill and Long-lived Assets. See Note 7 for a discussion of the valuation for goodwill and long-lived assets. DUKE ENERGY The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy's Condensed Consolidated Balance Sheets. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. Derivative amounts in the table 75 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type. (in millions) March 31, 2013 Level 1 Total Fair Value Investments in available-for-sale auction rate securities (a) 28 $ Level 2 ― $ Level 3 ― $ 28 $ Nuclear decommissioning trust fund equity securities 3,104 3,026 57 21 Nuclear decommissioning trust fund debt securities 1,432 356 1,027 49 93 84 9 ― 634 94 540 ― 75 1 20 54 5,366 3,561 1,653 152 (611) (77) (398) (136) Other trading and available-for-sale equity securities (b) Other trading and available-for-sale debt securities (c) Derivative assets (b) Total assets Derivative liabilities (d) Net assets 4,755 $ (in millions) $ 29 $ Nuclear decommissioning trust fund equity securities Nuclear decommissioning trust fund debt securities ― $ 1,255 $ December 31, 2012 Level 1 Total Fair Value Investments in available-for-sale auction rate securities (a) 3,484 Level 2 $ 16 $ Level 3 ― 29 $ 21 2,837 2,762 54 1,405 317 1,040 48 72 63 9 ― ― Other trading and available-for-sale equity securities (b) Other trading and available-for-sale debt securities (c) 602 40 562 Derivative assets (b) 103 18 22 63 5,048 3,200 1,687 161 Total assets Derivative liabilities (d) (a) (b) (c) (d) (17) (756) Net assets 4,292 $ $ (591) 3,183 $ 1,096 (148) 13 $ Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other within Investments and Other Assets and Short-term Investments on the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. The following tables provide a reconciliation of beginning and ending balances of assets and liabilities measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3). Three Months Ended March 31, 2013 (in millions) Balance at December 31, 2012 Total pre-tax realized or unrealized gains (losses) included in earnings: Regulated electric Revenue, nonregulated electric, natural gas, and other Total pre-tax gains included in other comprehensive income: Losses on available for sale securities and other Purchases, sales, issuances and settlements: Issuances Settlements Total gains included on the Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2013 Pre-tax amounts included in the Consolidated Statements of Comprehensive Income related to Level 3 measurements outstanding at March 31, 2013 Regulated electric Revenue, nonregulated electric, natural gas, and other Total Available-for-Sale Auction Rate Securities $ 29 $ 76 69 $ Derivatives (net) (85) Total $ 13 ― ― (6) (6) (4) (4) (1) ― ― (1) ― ― ― ― 6 7 6 7 ― ― ― $ $ ― ― ― 28 $ Available-for-Sale NDTF Investments 1 $ 70 $ $ ― ― ― $ $ $ ― (82) 1 $ 16 1 1 (10) (10) (9) $ (9) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Three Months Ended March 31, 2012 Available-for-Sale Auction Rate Securities $ 71 Available-for-Sale NDTF Investments $ 53 ― ― ― ― 8 (2) 8 (2) 1 ― ― 1 ― ― 2 ― ― (9) 2 (9) (in millions) Balance at December 31, 2011 Total pre-tax realized or unrealized gains (losses) included in earnings: Regulated electric Revenue, nonregulated electric, natural gas, and other Total pre-tax gains included in other comprehensive income: Gains on available for sale securities and other Purchases, sales, issuances and settlements: Purchases Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2012 $ ― 72 $ 1 56 $ Derivatives (net) (39) ― (42) $ Total 85 $ 1 86 $ DUKE ENERGY CAROLINAS The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Carolinas’ Condensed Consolidated Balance Sheets at fair value. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. (in millions) Investments in available-for-sale auction rate securities (a) 3 $ Nuclear decommissioning trust fund equity securities ― $ 1,734 Nuclear decommissioning trust fund debt securities 2,522 $ Derivative liabilities (b) 2,517 $ (in millions) 3 $ Nuclear decommissioning trust fund equity securities ― $ 1,592 Nuclear decommissioning trust fund debt securities 2,357 $ Derivative liabilities (b) 2,345 $ $ 1,678 73 (5) 606 $ ― $ 68 Level 2 $ Level 3 3 21 48 559 607 $ ― $ 49 $ ― 155 1,678 $ (12) Net Assets 606 1,523 762 Total assets 21 556 $ December 31, 2012 Level 1 Total Fair Value Investments in available-for-sale auction rate securities (a) 1,843 3 $ 50 ― $ Level 3 ― 180 1,843 $ (5) Net assets Level 2 $ 1,663 785 Total assets (a) (b) March 31, 2013 Level 1 Total Fair Value 48 72 $ ― 607 $ (12) 60 $ Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. The following tables provide a reconciliation of beginning and ending balances of assets and liabilities measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3). Three Months Ended March 31,2013 Available-for-Sale Auction Rate Securities Balance at December 31, 2012 Purchases, sales, issuances and settlements: Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2013 Pre-tax amounts included in the Condensed Consolidated Statements of Comprehensive Income related to Level 3 measurements outstanding at March 31, 2013 Regulated electric $ Total $ Available-for-Sale NDTF Investments 3 $ 77 Derivatives (net) 69 $ Total (12) ― ― 7 ― 3 1 ― ― ― $ $ $ 70 $ (5) $ ― ― $ (5) $ (5) $ $ 60 7 $ 1 68 (5) $ (5) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Three Months Ended March 31, 2012 Balance at December 31, 2011 Purchases, sales, issuances and settlements: Purchases Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2012 Available-for-Sale Auction Rate Securities $ 12 Available-for-Sale NDTF Investments $ 53 ― 2 ― 12 $ 1 56 $ Derivatives (net) Total ― $ 65 $ ― ― ― $ 2 1 68 $ PROGRESS ENERGY The following tables provide the fair value measurement amounts for assets and liabilities recorded on Progress Energy's Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. (in millions) Nuclear decommissioning trust fund equity securities March 31, 2013 Level 1 Total Fair Value 1,369 $ Nuclear decommissioning trust fund debt securities and other 1,363 $ Level 2 Level 3 6 $ ― $ 648 177 471 ― Other trading and available-for-sale debt securities and other (a) 60 20 40 ― Derivative assets (b) 15 ― 15 ― 2,092 1,560 532 ― (269) ― (238) (31) Total assets Derivative liabilities (c) Net assets 1,823 $ (in millions) Nuclear decommissioning trust fund equity securities 294 $ December 31, 2012 Level 1 Total Fair Value 1,245 $ 1,560 $ $ 1,239 $ Level 2 $ (31) Level 3 6 $ ― Nuclear decommissioning trust fund debt securities and other 643 162 481 ― Other trading and available-for-sale debt securities and other (a) 57 17 40 ― Derivative assets (b) 11 ― 11 ― 1,956 1,418 538 ― (440) ― (402) (38) Total assets Derivative liabilities (c) Net assets (a) (b) (c) 1,516 $ $ 1,418 $ 136 $ Included in Other within Investments and Other Assets in the Condensed Consolidated Balance Sheets. Included in Other Current Assets within Current Assets and Other within Investments and Other Assets in the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities in the Condensed Consolidated Balance Sheets. 78 (38) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following tables provide a reconciliation of beginning and ending balances of assets and liabilities measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3). Three Months Ended March 31, 2013 Derivatives (net) (in millions) Balance at December 31, 2012 Purchases, sales, issuances and settlements: Issuances Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2013 Pre-tax amounts included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to Level 3 measurements outstanding at March 31, 2013 Regulated electric (38) $ 6 1 Total $ (31) $ 6 6 $ Three Months Ended March 31, 2012 Derivatives (net) (in millions) Balance at December 31, 2011 Total losses included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2012 (24) (3) (27) $ $ DUKE ENERGY PROGRESS The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Progress' Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. (in millions) March 31, 2013 Level 1 Total Fair Value Nuclear decommissioning trust fund equity securities 894 $ Nuclear decommissioning trust fund debt securities and other $ Level 2 894 Level 3 ― $ ― $ 453 123 330 ― Other trading and available-for-sale debt securities and other (a) 4 4 ― ― Derivative assets (b) 5 ― 5 ― 1,356 1,021 335 ― (98) ― (67) (31) Total assets Derivative liabilities (c) Net assets 1,258 $ (in millions) Nuclear decommissioning trust fund equity securities $ 811 Nuclear decommissioning trust fund debt securities and other $ December 31, 2012 Level 1 Total Fair Value $ 1,021 $ 811 268 $ Level 2 $ (31) Level 3 ― $ ― 448 119 329 ― Other trading and available-for-sale debt securities and other (a) 3 3 ― ― Derivative assets (b) 2 ― 2 ― 1,264 933 331 ― (166) ― (128) (38) Total assets Derivative liabilities (c) Net assets (a) (b) (c) 1,098 $ $ 933 $ 203 $ Included in Other within Investments and Other Assets in the Condensed Consolidated Balance Sheets. Included in Other Current Assets within Current Assets and Other within Investments and Other Assets in the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities in the Condensed Consolidated Balance Sheets 79 (38) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following tables provide a reconciliation of beginning and ending balances of assets and liabilities measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3). Three Months Ended March 31, 2013 Derivatives (net) (in millions) Balance at December 31, 2012 Purchases, sales, issuances and settlements: Issuances Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2013 Pre-tax amounts included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to Level 3 measurements outstanding at March 31, 2013 Regulated electric (38) $ 6 1 Total $ (31) $ 6 6 $ Three Months Ended March 31, 2012 Derivatives (net) (in millions) Balance at December 31, 2011 Total losses included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2012 (24) (3) (27) $ $ DUKE ENERGY FLORIDA The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Florida's Condensed Balance Sheets. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. (in millions) Nuclear decommissioning trust fund equity securities March 31, 2013 Level 1 Total Fair Value 474 $ $ 468 Level 2 Level 3 6 $ ― $ Nuclear decommissioning trust fund debt securities and other 196 54 142 ― Other trading and available-for-sale debt securities and other (a) 45 5 40 ― Derivative assets (b) 10 ― 10 ― 725 527 198 ― (167) ― (167) Total assets Derivative liabilities (c) Net assets 558 $ (in millions) Nuclear decommissioning trust fund equity securities 435 $ Other trading and available-for-sale debt securities and other (a) Derivative assets (b) Total assets Derivative liabilities (c) (a) (b) (c) $ $ 429 $ 6 $ Level 2 $ ― Level 3 ― 43 151 ― 43 3 40 ― 9 ― 9 ― 681 475 206 ― (270) ― (270) $ 475 $ Included in Other within Investments and Other Assets in the Condensed Balance Sheets. Included in Other Current Assets within Current Assets and Other within Investments and Other Assets in the Condensed Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities in the Condensed Balance Sheets 80 ― 31 194 411 $ 527 December 31, 2012 Level 1 Total Fair Value Nuclear decommissioning trust fund debt securities and other Net assets (liabilities) $ (64) ― $ ― PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY OHIO The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. March 31, 2013 (in millions) Derivative assets (a) Total Fair Value Derivative liabilities (b) Net liabilities 8 $ (94) (75) $ Level 2 Level 1 19 $ (64) 9 $ (8) (72) $ Level 3 2 $ $ (14) (6) $ 2 $ (5) December 31, 2012 (in millions) Derivative assets (a) Total Fair Value Derivative liabilities (b) Net assets (liabilities) (a) (b) 48 $ (38) 21 $ Level 2 Level 1 59 $ $ (8) (15) 33 $ Level 3 $ (6) 9 (15) $ (6) Included in Other within Current Assets and Other within Investments and Other Assets in the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities in the Condensed Consolidated Balance Sheets. The following tables provide a reconciliation of beginning and ending balances of assets and liabilities measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3). (in millions) Balance at December 31, 2012 Total pre-tax realized or unrealized gains (losses) included in earnings: Revenue, nonregulated electric, natural gas, and other Purchases, sales, issuances and settlements: Settlements Balance at March 31, 2013 Pre-tax amounts included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to Level 3 measurements outstanding at March 31, 2013: Revenue, non-regulated electric and other Total Three Months Ended March 31, 2013 Derivatives (net) (6) $ 4 (3) $ (5) $ (2) (2) $ (in millions) Balance at December 31, 2011 Total losses included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2012 Pre-tax amounts included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to Level 3 measurements outstanding at March 31, 2012: Revenue, non-regulated electric and other Total Three Months Ended March 31, 2012 Derivatives (net) $ $ $ $ 81 (3) (1) (4) 1 1 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY INDIANA The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Indiana’s Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. March 31, 2013 (in millions) Total Fair Value Available-for-sale equity securities (a) Available-for-sale debt securities (a) Derivative assets (b) Total assets Derivative liabilities (c) Net assets (liabilities) 54 $ Level 3 ― $ 29 ― 29 5 1 ― 88 55 29 (55) ― (55) 33 $ Level 2 Level 1 54 $ 55 $ ― 4 4 $ ― (26) $ ― $ 4 $ December 31, 2012 (in millions) Total Fair Value Available-for-sale equity securities (a) Level 2 Level 1 49 $ 49 $ Level 3 ― $ ― $ Available-for-sale debt securities (a) 29 ― 29 ― Derivative assets (b) 10 ― ― 10 Total assets Derivative liabilities (c) Net assets (liabilities) (a) (b) (c) 88 49 29 (63) ― (63) 25 $ 49 $ 10 $ 10 ― (34) $ $ Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. The following tables provide a reconciliation of beginning and ending balances of assets and liabilities measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3). Three Months Ended March 31, 2013 Derivatives (net) (in millions) Balance at December 31, 2012 Total pre-tax realized or unrealized gains (losses) included in earnings: Regulated electric Total losses included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2013 10 $ (5) (1) 4 $ Three Months Ended March 31, 2012 Derivatives (net) (in millions) Balance at December 31, 2011 Total pre-tax realized or unrealized gains (losses) included in earnings: Regulated electric Purchases, sales, issuances and settlements: Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability Balance at March 31, 2012 4 $ 8 (10) 1 3 $ QUANTITATIVE DISCLOSURES ABOUT UNOBSERVABLE INPUTS The following table includes quantitative information about the Duke Energy Registrants' derivatives classified as Level 3. March 31, 2013 Investment Type Duke Energy Commodity natural gas contracts FERC mitigation power sale agreements Financial transmission rights (FTRs) Commodity power contracts Fair Value (in millions) $ Valuation Technique (85) Discounted cash flow (10) Discounted cash flow 4 RTO market pricing Discounted cash flow 17 Commodity capacity contracts (3) Discounted cash flow Commodity capacity option contracts 2 Discounted cash flow Reserves (7) Unobservable Input Forward natural gas curves - price per MMBtu Forward electricity curves - price per MWh FTR price Forward electricity curves - price per MWh Forward capacity curves - price per MW day Forward capacity option curves price per MW day Bid-ask spreads, implied volatility, Range $ 2.84 $ 10.30 25.35 - 54.56 (0.42) - 28.40 - 12.72 81.60 95.16 - 122.64 31.15 - 81.60 Duke Energy Carolinas FERC mitigation power sale agreements Progress Energy Commodity natural gas contracts FERC mitigation power sale agreements Duke Energy Progress Commodity natural gas contracts FERC mitigation power sale agreements Duke Energy Ohio Commodity power contracts probability of default $ $ (26) (5) $ (26) (5) $ Commodity natural gas contracts Reserves Duke Energy Indiana Financial transmission rights (FTRs) (5) Discounted cash flow Forward electricity curves - price per MWh $ Discounted cash flow Forward natural gas curves - price per MMBtu Forward electricity curves - price per MWh $ Forward natural gas curves - price per MMBtu Forward electricity curves - price per MWh $ Forward electricity curves - price per MWh Forward natural gas curves - price per MMBtu Bid-ask spreads, implied volatility, probability of default $ FTR price $ Discounted cash flow Discounted cash flow Discounted cash flow 25 Discounted cash flow (23) Discounted cash flow (7) $ 4 RTO market pricing 82 28.18 - 54.56 4.13 - 4.54 25.35 - 48.68 4.13 - 4.54 25.35 - 48.68 28.40 - 61.35 3.98 - 4.69 (0.42) $ 12.72 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) December 31, 2012 Investment Type Duke Energy Commodity natural gas contracts Fair Value (in millions) $ FERC mitigation power sale agreements Financial transmission rights (FTRs) Commodity power contracts Commodity capacity contracts Commodity capacity option contracts Reserves Duke Energy Carolinas FERC mitigation power sale agreements Progress Energy Commodity natural gas contracts FERC mitigation power sale agreements Duke Energy Progress Commodity natural gas contracts FERC mitigation power sale agreements Duke Energy Ohio Financial transmission rights (FTRs) Commodity power contracts (53) Discounted cash flow (23) Discounted cash flow 11 (8) RTO market pricing Discounted cash flow (3) Discounted cash flow 3 Discounted cash flow (12) Unobservable Input Range Forward natural gas curves - price per MMBtu Forward electricity curves - price per MWh FTR price Forward electricity curves - price per MWh Forward capacity curves - price per MW day Forward capacity option curves price per MW day Bid-ask spreads, implied volatility, probability of default $ 2.33 $ 9.99 25.83 - 48.69 23.63 24.82 - 39.22 77.96 95.16 - 105.36 4.68 - 77.96 $ (12) Discounted cash flow Forward electricity curves - price per MWh $ 25.83 - 48.69 $ (27) Discounted cash flow $ 4.07 - 4.45 (11) Discounted cash flow Forward natural gas curves - price per MMBtu Forward electricity curves - price per MWh 25.83 - 48.69 (27) Discounted cash flow $ 4.07 - 4.45 (11) Discounted cash flow Forward natural gas curves - price per MMBtu Forward electricity curves - price per MWh 25.83 - 48.69 1 (1) RTO market pricing Discounted cash flow $ 27.17 $ 25.90 - 57.50 5 Discounted cash flow FTR price Forward electricity curves - price per MWh Forward natural gas curves - price per MMBtu Bid-ask spreads, implied volatility, probability of default RTO market pricing FTR price $ $ $ Commodity natural gas contracts Reserves Duke Energy Indiana Financial transmission rights (FTRs) Valuation Technique (11) $ 10 83 39.22 - 4.51 23.63 $ 35.43 3.30 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) OTHER FAIR VALUE DISCLOSURES The fair value of long-term debt, including current maturities, is summarized in the following table. Judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates determined are not necessarily indicative of the amounts the Duke Energy Registrants could have settled in current markets. The fair value of the long-term debt is determined using Level 2 measurements. (in millions) Duke Energy (a) $ March 31, 2013 Book Value Fair Value 39,662 $ 44,068 Duke Energy Carolinas (b) Progress Energy Duke Energy Progress $ December 31, 2012 Book Value Fair Value 39,461 $ 44,001 8,740 10,036 8,741 10,096 14,224 16,276 14,428 16,563 5,277 5,336 5,757 4,840 4,894 5,730 5,320 6,222 Duke Energy Ohio 1,994 2,142 1,997 2,117 Duke Energy Indiana 3,702 4,228 3,702 4,268 Duke Energy Florida (a) (b) Includes book value of Non-recourse long-term debt of variable interest entities of $1,255 million and $852 million March 31, 2013 and December 31, 2012, respectively. Includes book value of Non-recourse long-term debt of variable interest entities of $300 million at both March 31, 2013 and December 31, 2012, respectively. At both March 31, 2013 and December 31, 2012, the fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper and non-recourse notes payable of variable interest entities are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates. 10. INVESTMENTS IN DEBT AND EQUITY SECURITIES The Duke Energy Registrants classify their investments in debt and equity securities into two categories – trading and available-for-sale. TRADING SECURITIES Investments in debt and equity securities held in grantor trusts associated with certain deferred compensation plans and certain other investments are classified as trading securities and are reported at fair value in the Condensed Consolidated Balance Sheets with net realized and unrealized gains and losses included in earnings each period. At March 31, 2013 and December 31, 2012, the fair value of these investments was $25 million and $33 million, respectively. 84 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) AVAILABLE FOR SALE SECURITIES All other investments in debt and equity securities are classified as available-for-sale securities, which are also reported at fair value on the Condensed Consolidated Balance Sheets with unrealized gains and losses excluded from earnings and reported either as a regulatory asset or liability, as discussed further below, or as a component of other comprehensive income (OCI) until realized. Duke Energy’s available-for-sale securities are primarily comprised of investments held in the (i) NDTF at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) investments in grantor trusts at both Duke Energy Indiana and Duke Energy Florida related to OPEB plans as required by the IURC and FERC, respectively, and at Duke Energy Progress, (iii) Duke Energy captive insurance investment portfolio, (iv) Duke Energy’s foreign operations investment portfolio and (v) investments of Duke Energy and Duke Energy Carolinas in auction rate debt securities. NDTF and Grantor Trust The investments within the NDTF at Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida and the Duke Energy Indiana, Duke Energy Progress and Duke Energy Florida grantor trusts (Investment Trusts) are managed by independent investment managers with discretion to buy, sell and invest pursuant to the objectives set forth by the trust agreements. Therefore, the Duke Energy Registrants have limited oversight of the day-to-day management of these investments. Since dayto-day investment decisions, including buy and sell decisions, are made by the investment manager, the ability to hold investments in unrealized loss positions is outside the control of the Duke Energy Registrants. Accordingly, all unrealized gains and losses associated with debt and equity securities within the Investment Trusts are considered other-than-temporary and are recognized immediately when the fair value of individual investments is less than the cost basis of the investment. Pursuant to regulatory accounting, substantially all unrealized gains and losses associated with investments in debt and equity securities within the Investment Trusts are deferred as a regulatory asset or liability. As a result, there is no immediate impact on the earnings of the Duke Energy Registrants. Other Available for Sale Securities For investments in debt and equity securities held in the captive insurance investment portfolio, the foreign operations investment portfolio and investments in auction rate debt securities, unrealized gains and losses are included in other comprehensive income until realized, unless it is determined that the carrying value of an investment is other-than-temporarily impaired. If so, the write-down to fair value may be included in earnings based on the criteria discussed below. For available-for-sale securities for which other-than-temporary-impairments are required, the Duke Energy Registrants analyze all investment holdings each reporting period to determine whether a decline in fair value should be considered other-than-temporary. Criteria used to evaluate whether an impairment associated with equity securities is other-than-temporary includes, but is not limited to, the length of time over which the market value has been lower than the cost basis of the investment, the percentage decline compared to the cost of the investment and management’s intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. If a decline in fair value is determined to be other-than-temporary, the investment is written down to its fair value through a charge to earnings. With respect to investments in debt securities, under the accounting guidance for other-than-temporary impairment, if the entity does not have an intent to sell the security and it is not more likely than not that management will be required to sell the debt security before the recovery of its cost basis, the impairment write-down to fair value would be recorded as a component of other comprehensive income, except for when it is determined that a credit loss exists. In determining whether a credit loss exists, management considers, among other things, the length of time and the extent to which the fair value has been less than the amortized cost basis, changes in the financial condition of the issuer of the security, or in the case of an asset backed security, the financial condition of the underlying loan obligors, consideration of underlying collateral and guarantees of amounts by government entities, ability of the issuer of the security to make scheduled interest or principal payments and any changes to the rating of the security by rating agencies. If it is determined that a credit loss exists, the amount of impairment write-down to fair value would be split between the credit loss, which would be recognized in earnings, and the amount attributable to all other factors, which would be recognized in other comprehensive income. Management believes, based on consideration of the criteria above, that no credit loss exists as of March 31, 2013 and December 31, 2012. Management does not have the intent to sell such investments in auction rate debt securities and the investments in debt securities within its captive insurance investment portfolio and foreign operations investment portfolio, and it is not more likely than not that management will be required to sell these securities before the anticipated recovery of their cost basis. Management has concluded that there were no other-than-temporary impairments for debt or equity securities necessary as of March 31, 2013 and December 31, 2012. Accordingly, all changes in the market value of investments other than those held in the Investment Trusts, which receive regulatory accounting as discussed above, were reflected as a component of other comprehensive income in 2013 and 2012. See Note 9 for additional information related to fair value measurements for investments in auction rate debt securities. Short-term and Long-term Investments Investments in debt and equity securities are classified as either short-term investments or long-term investments based on management’s intent and ability to sell these securities, taking into consideration illiquidity factors in the current markets. Duke Energy holds corporate debt securities which were purchased using excess cash from its foreign operations. These investments are classified as Short-term investments on the Condensed Consolidated Balance Sheet and are available for current operations of Duke Energy’s foreign business. The fair value of these investments was $288 million as of March 31, 2013 and $333 million as of December 31, 2012. Duke Energy classifies its investments in debt and equity securities held in the Investment Trusts and the captive insurance investment portfolio as long-term. Additionally, Duke Energy has classified $28 million carrying value ($34 million par value) and $29 million carrying value 85 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) ($34 million par value) of investments in auction rate debt securities as long-term at March 31, 2013 and December 31, 2012, respectively, due to market illiquidity factors as a result of continued failed auctions, and since management does not intend to use these investments in current operations. All of these investments are classified as available-for-sale and, therefore, are reflected on the Condensed Consolidated Balance Sheets at estimated fair value based on either quoted market prices or management’s best estimate of fair value based on expected future cash flow using appropriate risk-adjusted discount rates. DUKE ENERGY The following table presents the estimated fair value of short-term and long-term investments for Duke Energy. For investments held within the NDTF, and investments within Grantor Trusts which are classified as Other Investments below, unrealized holding gains and losses are recognized immediately and recorded as Regulatory assets or Regulatory liabilities on the Condensed Consolidated Balance Sheets. (in millions) Gross Unrealized Holding Gains NDTF Cash and cash equivalents $ Equity securities ― March 31, 2013 Gross Unrealized Holding Losses $ ― 105 $ 333 21 1 338 1 189 12 1 194 20 2 666 24 1 625 12 163 164 $ 10 1,199 1 $ 2 26 $ 23 $ 4,263 $ ― $ ― $ ― $ 17 10 U.S. government bonds Other debt securities Total NDTF $ 1,439 Other Investments Cash and cash equivalents $ ― 4,546 $ 21 $ 2,837 16 ― 84 10 ― 63 1 ― 347 2 ― 381 4 1 75 4 1 70 ― ― 73 ― ― 23 1 ― 103 1 ― 86 $ 6 7 28 $ ― 22 $ 731 $ $ 6 7 $ $ 1,461 $ 33 $ 5,277 $ ― 17 1,216 $ 30 $ U.S. government bonds Other debt securities (a) ― $ 2 17 Municipal bonds Auction rate securities Total Other Investments(a) Total Investments ― $ 19 Corporate debt securities Municipal bonds 91 Estimated Fair Value Gross Unrealized Holding Losses 1,132 19 Corporate debt securities $ Gross Unrealized Holding Gains 3,104 1,380 Equity securities December 31, 2012 Estimated Fair Value 29 669 4,932 These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities held by Duke Energy. The table below excludes auction rate securities based on the stated maturity date. See Note 9 for information about fair value measurements related to investments in auction rate debt securities. (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years March 31, 2013 328 $ 435 398 788 Total 1,949 $ The following table presents realized gains and losses, which were determined on a specific basis, from sales of Duke Energy's available-for-sale securities. Three Months Ended March 31, (in millions) Realized gains Realized losses 2012 2013 31 $ 21 2 $ 7 DUKE ENERGY CAROLINAS The following table presents the estimated fair value of short-term and long-term investments for Duke Energy Carolinas. For investments held within the NDTF, unrealized holding gains and losses are recognized immediately and recorded as Regulatory assets or Regulatory liabilities on the Condensed Consolidated Balance Sheets. (in millions) Gross Unrealized Holding Gains NDTF Cash and cash equivalents $ Equity securities Municipal bonds U.S. government bonds Other Investments Auction rate securities Total Other Investments(a) Total Investments $ 736 Corporate debt securities Other debt securities Total NDTF ― March 31, 2013 Gross Unrealized Holding Losses $ ― December 31, 2012 Estimated Fair Value $ $ Estimated Fair Value Gross Unrealized Holding Losses ― 4 1,735 600 $ ― $ 40 5 1,592 250 9 2 239 11 1 ― ― 21 2 ― 40 8 1 345 10 ― 304 11 764 $ 2 9 $ ― ― $ $ 1 1 $ $ $ 764 $ 10 $ $ 41 Gross Unrealized Holding Gains $ 136 2,517 3 3 2,520 9 $ 632 $ $ ― ― $ $ $ 632 $ $ 2 8 1 1 9 $ 135 2,361 $ 3 3 $ 2,364 $ (a) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities held by Duke Energy Carolinas. The table below excludes auction rate securities based on the stated maturity date. See Note 9 for information about fair value measurements related to investments in auction rate debt securities. (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years March 31, 2013 Total $ 18 173 185 365 $ 741 The following table presents realized gains and losses, which were determined on a specific basis, from sales of Duke Energy Carolinas' available-for-sale securities. (in millions) Realized gains Realized losses Three Months Ended March 31, 2013 2012 25 $ 4 $ 20 2 PROGRESS ENERGY The following table presents the estimated fair value of short-term and long-term investments for Progress Energy. For investments held within the NDTF, and investments within Grantor Trusts which are classified as Other Investments below, unrealized holding gains and losses are recognized immediately and recorded as Regulatory assets or Regulatory liabilities on the Condensed Consolidated Balance Sheets. Gross (in millions) Unrealized Holding Gains NDTF Cash and cash equivalents $ ― Equity securities Corporate debt securities March 31, 2013 Gross Unrealized Holding Losses $ ― 644 15 December 31, 2012 Estimated Fair Value $ 50 Gross Unrealized Holding Gains $ 1,369 Estimated Fair Value Gross Unrealized Holding Losses ― ― $ 532 14 65 $ 1,245 8 ― 94 9 ― 89 Municipal bonds 10 1 168 11 1 154 U.S. government bonds 12 1 321 14 ― 321 1 ― 1 $ 567 $ ― 15 $ 28 1,902 $ ― $ ― $ 17 $ 3 3 570 $ ― ― 15 $ 57 1,959 Other debt securities Total NDTF $ 675 $ 17 $ 27 2,029 Other Investments Cash and cash equivalents $ ― $ ― $ 21 $ 3 3 678 $ ― ― $ $ 17 $ Municipal bonds Total Other Investments(a) Total Investments (a) $ 40 61 2,090 $ $ 40 $ These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities held by Progress Energy. (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years March 31, 2013 26 $ 145 164 315 Total 650 $ The following table presents realized gains and losses, which were determined on a specific basis, from sales of Progress Energy's available-for-sale securities. (in millions) Realized gains Realized losses Three Months Ended March 31, 2013 2012 5 $ 2 $ 7 3 DUKE ENERGY PROGRESS The following table presents the estimated fair value of short-term and long-term investments for Duke Energy Progress. For investments held within the NDTF, and investments within Grantor Trusts which are classified as Other Investments below, unrealized holding gains and losses are recognized immediately and recorded as Regulatory assets or Regulatory liabilities on the Consolidated Balance Sheets. Gross (in millions) Unrealized Holding Gains NDTF Cash and cash equivalents $ Equity securities ― March 31, 2013 Gross Unrealized Holding Losses $ ― December 31, 2012 Estimated Fair Value $ 39 Gross Unrealized Holding Gains $ Gross Unrealized Holding Losses ― $ ― Estimated Fair Value $ 55 413 11 894 337 11 811 Corporate debt securities 6 ― 84 8 ― 78 Municipal bonds 4 ― 95 4 ― 80 11 1 233 13 ― 241 U.S. government bonds Other debt securities Total NDTF $ 435 $ ― 12 $ 1,356 $ 363 $ ― 11 $ 10 1,275 Other Investments Cash and cash equivalents $ ― $ ― $ 4 $ ― $ ― $ 3 1 1 11 Total Other Investments(a) Total Investments (a) $ ― $ $ 435 $ ― 12 $ 4 $ ― $ $ 1,360 $ 363 $ ― 11 $ $ 3 1,278 These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities held by Duke Energy Progress. (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years March 31, 2013 11 128 $ Total 76 208 423 $ The following table presents realized gains and losses, which were determined on a specific basis, from sales of Duke Energy Progress' available-for-sale securities. (in millions) Realized gains Realized losses Three Months Ended March 31, 2013 2012 2 $ 1 $ 5 2 DUKE ENERGY FLORIDA The following table presents the estimated fair value of short-term and long-term investments for Duke Energy Florida. For investments held within the NDTF, and investments within Grantor Trusts which are classified as Other Investments below, unrealized holding gains and losses are recognized immediately and recorded as Regulatory assets or Regulatory liabilities on the Condensed Balance Sheets. Gross (in millions) Unrealized Holding Gains NDTF Cash and cash equivalents $ ― Equity securities March 31, 2013 Gross Unrealized Holding Losses $ ― December 31, 2012 Estimated Fair Value $ 11 Gross Unrealized Holding Gains $ Estimated Fair Value Gross Unrealized Holding Losses ― ― $ $ 10 231 4 475 194 4 434 Corporate debt securities 2 ― 10 1 ― 11 Municipal bonds 6 1 73 7 ― 74 U.S. government bonds 1 ― 88 1 ― 80 $ 204 $ ― 4 18 $ 16 673 1 $ ― 5 $ $ ― $ 3 $ ― $ ― $ $ ― ― 5 $ 40 43 $ 3 3 $ $ 716 $ 207 $ ― ― 4 Other debt securities Total NDTF $ ― 240 Other Investments Cash and cash equivalents $ ― $ 3 3 243 Municipal bonds Total Other Investments(a) Total Investments (a) $ $ 627 1 40 $ 41 $ 668 These amounts are recorded in Other within Investments and Other Assets on the Condensed Balance sheets. The table below summarizes the maturity date for debt securities held by Duke Energy Florida. (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years March 31, 2013 15 17 $ 88 107 Total 227 $ The following table presents realized gains and losses, which were determined on a specific basis, from sales of Duke Energy Florida's available-for-sale securities. (in millions) Realized gains Realized losses Three Months Ended March 31, 2013 2012 3 $ 1 $ 2 1 DUKE ENERGY INDIANA The following table presents the estimated fair value of short-term and long-term investments for Duke Energy Indiana. Unrealized holding gains and losses on these investments are recognized immediately and recorded as Regulatory assets or Regulatory liabilities on the Condensed Consolidated Balance Sheets. Gross (in millions) Unrealized Holding Gains Other Investments Equity securities $ Municipal bonds Total Other Investments(a) Total Investments (a) 14 March 31, 2013 Gross Unrealized Holding Losses $ ― $ ― ― ― 1 $ $ 15 15 $ December 31, 2012 Estimated Fair Value $ 54 $ 29 83 83 $ Gross Unrealized Holding Gains Gross Unrealized Holding Losses $ 9 $ 1 10 10 $ $ ― $ $ ― ― ― $ $ These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities held by Duke Energy Indiana. Estimated Fair Value 50 28 $ 78 78 (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years March 31, 2013 Total $ 1 21 4 3 $ 29 Realized gains and losses, which were determined on a specific basis, from sales of Duke Energy Indiana's available-for-sale securities were insignificant for each of the three months ended March 31, 2013, and March 31, 2012. 86 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) 11. VARIABLE INTEREST ENTITIES A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. If an entity is determined to be a VIE, a qualitative analysis of control determines the party that consolidates a VIE based on what party has the power to direct the most significant activities of the VIE that impact its economic performance as well as what party has rights to receive benefits or is obligated to absorb losses that are significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment. CONSOLIDATED VIEs The table below shows the VIEs that Duke Energy and Duke Energy Carolinas consolidate and how these entities impact Duke Energy’s and Duke Energy Carolinas’ respective Condensed Consolidated Balance Sheets. None of these entities are consolidated by Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio or Duke Energy Indiana. Other than the discussion below related to CRC, no financial support was provided to any of the consolidated VIEs during the three months ended March 31, 2013 and the year ended December 31, 2012, or is expected to be provided in the future, that was not previously contractually required. March 31, 2013 DERF(a) (in millions) Restricted Receivables of VIEs 680 $ CinCapV CRC 585 $ 23 $ Total Other Renewables 16 $ ― $ $ 1,304 Other Current Assets ― ― 5 208 2 Intangibles, net ― ― ― 11 ― 11 Restricted Other Assets of VIEs ― ― 48 6 ― 54 Other Assets ― ― 12 1 2 15 Property, Plant and Equipment, Cost ― ― ― 1,564 15 1,579 Accumulated Depreciation and Amortization ― ― ― (114) (5) (119) Other Deferred Debits ― ― ― 33 ― 33 680 585 81 1,732 14 3,092 Total Assets 215 Accounts Payable ― ― ― 2 ― 2 Non-Recourse Notes Payable of VIEs ― 325 ― ― ― 325 Taxes Accrued ― ― ― 3 ― 3 Current Maturities of Long-Term Debt ― ― 13 52 ― 65 Other Current Liabilities ― ― 6 29 ― 35 300 ― 44 911 ― 1,255 Deferred Income Taxes ― ― ― 275 ― 275 Asset Retirement Obligations ― ― ― 23 ― 23 Other Liabilities ― ― 11 33 ― 44 Total Liabilities 300 325 74 1,328 ― 2,027 Noncontrolling Interests ― ― ― ― ― Non-Recourse Long-Term Debt Net Assets of Consolidated VIEs (a) 380 $ 260 $ 7 $ 404 $ $ ― 14 $ (1) $ 1,065 Duke Energy Receivables Finance Company, LLC (DERF) is a wholly owned limited liability company of Duke Energy Carolinas. December 31, 2012 DERF(a) (in millions) Restricted Receivables of VIEs $ CinCapV CRC 637 $ 534 $ $ Total Other Renewables 15 16 $ 1,201 Other Current Assets ― ― 4 133 2 139 Intangibles, net ― ― ― 12 ― 12 Restricted Other Assets of VIEs ― ― 52 2 ― 54 Other Assets ― ― 10 ― 2 12 Property, Plant and Equipment, Cost ― ― ― 1,543 15 1,558 Accumulated Depreciation and Amortization ― ― ― (98) (5) (103) Other Deferred Debits ― ― ― 40 ― 40 637 534 81 1,648 13 2,913 Total Assets Accounts Payable ― ― ― 1 ― 1 Non-Recourse Notes Payable of VIEs ― 312 ― ― ― 312 Taxes Accrued ― ― ― 62 ― 62 Current Maturities of Long-Term Debt ― ― 13 459 ― 472 Other Current Liabilities ― ― 4 25 ― 29 300 ― 48 504 ― 852 Deferred Income Taxes ― ― ― 154 ― 154 Asset Retirement Obligations ― ― ― 23 ― 23 Other Liabilities ― ― 10 39 ― 49 Total Liabilities 300 312 75 1,267 ― 1,954 Noncontrolling Interests ― ― ― ― ― ― Non-Recourse Long-Term Debt Net Assets of Consolidated VIEs (a) $ 337 222 $ DERF is a wholly owned limited liability company of Duke Energy Carolinas. 88 $ 6 $ 381 $ 13 $ 959 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DERF Duke Energy Carolinas securitizes certain accounts receivable through DERF, a bankruptcy remote, special purpose subsidiary. DERF is a wholly owned limited liability company of Duke Energy Carolinas with a separate legal existence from its parent, and its assets are not intended to be generally available to creditors of Duke Energy Carolinas. As a result of the securitization, on a daily basis Duke Energy Carolinas sells certain accounts receivable, arising from the sale of electricity and/or related services as part of Duke Energy Carolinas’ franchised electric business, to DERF. In order to fund its purchases of accounts receivable, DERF has a $300 million secured credit facility with a commercial paper conduit, which expires in August 2014. Duke Energy Carolinas provides the servicing for the receivables (collecting and applying the cash to the appropriate receivables). Duke Energy Carolinas’ borrowing under the credit facility is limited to the amount of qualified receivables sold, which has been and is expected to be in excess of the amount borrowed, which is maintained at $300 million. The debt is classified as long-term since the facility has an expiration date of greater than one year from the balance sheet date. The obligations of DERF under the facility are non-recourse to Duke Energy Carolinas. Duke Energy and its subsidiaries have no requirement to provide liquidity, purchase assets of DERF or guarantee performance. DERF is considered a VIE because the equity capitalization is insufficient to support its operations. If deficiencies in the net worth of DERF were to occur, those deficiencies would be cured through funding from Duke Energy Carolinas. In addition, the most significant activity of DERF relates to the decisions made with respect to the management of delinquent receivables. Since those decisions are made by Duke Energy Carolinas and any net worth deficiencies of DERF would be cured through funding from Duke Energy Carolinas, Duke Energy Carolinas consolidates DERF. CRC CRC was formed in order to secure low cost financing for Duke Energy Ohio, including Duke Energy Kentucky, and Duke Energy Indiana. Duke Energy Ohio and Duke Energy Indiana sell on a revolving basis at a discount, nearly all of their customer accounts receivable and related collections to CRC. The receivables which are sold are selected in order to avoid any significant concentration of credit risk and exclude delinquent receivables. The receivables sold are securitized by CRC through a facility managed by two unrelated third parties and the receivables are used as collateral for commercial paper issued by the unrelated third parties. These loans provide the cash portion of the 89 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) proceeds paid by CRC to Duke Energy Ohio and Duke Energy Indiana. The proceeds obtained by Duke Energy Ohio and Duke Energy Indiana from the sales of receivables are cash and a subordinated note from CRC (subordinated retained interest in the sold receivables) for a portion of the purchase price (typically approximates 25 percent of the total proceeds). The amount borrowed by CRC against these receivables is non-recourse to the general credit of Duke Energy, and the associated cash collections from the accounts receivable sold is the sole source of funds to satisfy the related debt obligation. Borrowing is limited to approximately 75 percent of the transferred receivables. Losses on collection in excess of the discount are first absorbed by the equity of CRC and next by the subordinated retained interests held by Duke Energy Ohio and Duke Energy Indiana. The discount on the receivables reflects interest expense plus an allowance for bad debts net of a servicing fee charged by Duke Energy Ohio and Duke Energy Indiana. Duke Energy Ohio and Duke Energy Indiana are responsible for the servicing of the receivables (collecting and applying the cash to the appropriate receivables). Depending on the experience with collections, additional equity infusions to CRC may be required to be made by Duke Energy in order to maintain a minimum equity balance of $3 million. There were no infusions to CRC during the three months ended March 31, 2013 and 2012, respectively. The amount borrowed fluctuates based on the amount of receivables sold. The debt is short term because the facility has an expiration date of less than one year from the balance sheet date. The current expiration date is November 2013. CRC is considered a VIE because the equity capitalization is insufficient to support its operations, the power to direct the most significant activities of the entity are not performed by the equity holder, Cinergy, and deficiencies in the net worth of CRC are not funded by Cinergy, but by Duke Energy. The most significant activity of CRC relates to the decisions made with respect to the management of delinquent receivables. These decisions, as well as the requirement to make up deficiencies in net worth, are made by Duke Energy and not by Duke Energy Ohio, Duke Energy Kentucky or Duke Energy Indiana. Thus, Duke Energy consolidates CRC. Duke Energy Ohio and Duke Energy Indiana do not consolidate CRC. CinCap V CinCap V was created to finance and execute a power sale agreement with Central Maine Power Company for approximately 35 MW of capacity and energy. This agreement expires in 2016. CinCap V is considered a VIE because the equity capitalization is insufficient to support its operations. As Duke Energy has the power to direct the most significant activities of the entity, which are the decisions to hedge and finance the power sales agreement, CinCap V is consolidated by Duke Energy. Renewables Duke Energy’s renewable energy facilities include Green Frontier Windpower, LLC, Top of The World Wind Energy LLC, Los Vientos Windpower IA LLC, Los Vientos Windpower IB, LLC and various solar projects, all subsidiaries of DEGS, an indirect wholly owned subsidiary of Duke Energy. Green Frontier Windpower, LLC, Top of the World Wind Energy, LLC and the various solar projects are VIEs due to power purchase agreements with terms that approximate the expected life of the projects. These fixed price agreements effectively transfer the commodity price risk to the buyer of the power. Los Vientos Windpower IA, LLC and Los Vientos Windpower IB, LLC are VIEs due to Duke Energy issuing debt service reserve guarantees and operations and maintenance reserve guarantees in support of the debt financings in December 2012. Duke Energy has consolidated these entities since inception because the most significant activities that impact the economic performance of these renewable energy facilities were the decisions associated with the siting, negotiation of the purchase power agreement, engineering, procurement and construction, and decisions associated with ongoing operations and maintenance related activities, all of which were made solely by Duke Energy. The debt held by these renewable energy facilities is non-recourse to the general credit of Duke Energy. Duke Energy and its subsidiaries have no requirement to provide liquidity or purchase the assets of these renewable energy facilities. Duke Energy does not guarantee performance except for an immaterial multi-purpose letter of credit and various immaterial debt service reserve and operations and maintenance reserve guarantees. The assets are restricted and they cannot be pledged as collateral or sold to third parties without the prior approval of the debt holders. NON-CONSOLIDATED VIEs The tables below show the VIEs that the Duke Energy Registrants do not consolidate and how these entities impact the Duke Energy Registrants respective Condensed Consolidated Balance Sheets. As discussed above, while Duke Energy consolidated CRC, Duke Energy Ohio and Duke Energy Indiana do not consolidate CRC as they are not the primary beneficiary. March 31, 2013 Duke Energy (in millions) Receivables Investments in equity method unconsolidated affiliates Intangibles Investments and other assets DukeNet ― $ Total assets Other current liabilities Deferred credits and other liabilities Total liabilities Net assets (in millions) Receivables Investments in equity method unconsolidated affiliates DukeNet $ ― $ 115 $ 135 $ 149 ― ― ― ― 102 2 2 ― ― ― ― 117 149 131 397 217 135 ― ― ― ― ― ― 1 1 16 17 114 16 17 ― ― ― ― ― ― $ 27 149 $ $ ― 293 102 ― 102 380 $ December 31, 2012 Duke Energy FPC Capital I (a) Trust Other $ ― $ ― Renewables ― ― $ Duke Energy Indiana 117 117 $ ― $ Duke Energy Ohio Total Other Renewables Total $ 217 $ ― 135 $ Duke Energy Ohio $ 97 Duke Energy Indiana $ 116 118 147 ― 27 292 ― ― Intangibles ― ― ― 104 104 104 ― Investments and other assets ― ― 9 2 11 ― ― 118 147 9 133 407 201 116 Other current liabilities ― ― ― 3 3 ― ― Deferred credits and other liabilities ― ― 319 17 336 ― ― ― 118 ― 147 319 (310) 20 339 68 ― 201 Total assets Total liabilities Net assets (liabilities) (a) $ $ $ $ 113 $ $ The entire balance of Investments and other assets and $274 million of the Deferred credits and other liabilities balance applies to Progress Energy. 90 $ ― 116 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) No financial support that was not previously contractually required was provided to any of the unconsolidated VIEs during the three months ended March 31, 2013 and 2012, respectively, or is expected to be provided in the future. With the exception of the power purchase agreement with the Ohio Valley Electric Corporation (OVEC), which is discussed below, and various guarantees, reflected in the table above as “Deferred credits and other liabilities”, the Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above. DukeNet In 2010, Duke Energy sold a 50 percent ownership interest in DukeNet to Alinda. The sale resulted in DukeNet becoming a joint venture with Duke Energy and Alinda each owning a 50 percent interest. In connection with the formation of the new DukeNet joint venture, a 5-year, $150 million senior secured credit facility was executed with a syndicate of 10 external financial institutions. This credit facility is non-recourse to Duke Energy. DukeNet is considered a VIE because it has entered into certain contractual arrangements that provide DukeNet with additional forms of subordinated financial support. The most significant activities that impact DukeNet’s economic performance relate to its business development and fiber optic capacity marketing and management activities. The power to direct these activities is jointly and equally shared by Duke Energy and Alinda. As a result, Duke Energy does not consolidate DukeNet. Accordingly, DukeNet is a non-consolidated VIE that is reported as an equity method investment. Unless consent by Duke Energy is given otherwise, Duke Energy and its subsidiaries have no requirement to provide liquidity, purchase the assets of DukeNet, or guarantee performance. Renewables Duke Energy has investments in various entities that generate electricity through the use of renewable energy technology. Some of these entities are VIEs which are not consolidated due to the joint ownership of the entities when they were created and the power to direct and control key activities is shared jointly. Instead, Duke Energy’s investment is recorded under the equity method of accounting. These entities are VIEs due to power purchase agreements with terms that approximate the expected life of the project. These fixed price agreements effectively transfer the commodity price risk to the buyer of the power. DS Cornerstone, LLC, a 50/50 joint venture entity with a third-party joint venture partner, owns two windpower projects and has executed a third party financing against the two windpower projects. DS Cornerstone was a consolidated VIE of Duke Energy through August 31, 2012, as the members equity was not sufficient to support the operations of the joint venture as demonstrated by the third party financing. Duke Energy provided a Production Tax Credit (PTC) Remedy Agreement to the joint venture partner whereby Duke Energy guaranteed the two windpower projects would achieve commercial operation in 2012 and an agreed to number of wind turbines would qualify for production tax credits. In the event the agreed to number of wind turbines of the two wind generating facilities failed to qualify, the joint venture partner had the option to put its equity ownership interest back to Duke Energy. The PTC Remedy Agreement resulted in greater loss exposure to Duke Energy and, as a result, Duke Energy consolidated DS Cornerstone, LLC through August 31, 2012, until both projects reached commercial operation and the appropriate number of wind turbines qualified for PTC. As of March 31, 2013, DS Cornerstone is a non-consolidated VIE. The most significant activities that impact DS Cornerstone’s economic performance are the decisions related to the ongoing operations and maintenance activities. The power to direct these activities is jointly and equally shared by Duke Energy and the thirdparty joint venture partner. As a result, Duke Energy does not consolidate the DS Cornerstone. Accordingly, DS Cornerstone is a non-consolidated VIE that is reported as an equity method investment. FPC Capital I Trust At December 31, 2012, Progress Energy had variable interests in the FPC Capital I Trust (the Trust) which was a VIE of which Duke Energy was not the primary beneficiary. The Trust, a finance subsidiary, was established in 1999 for the sole purpose of issuing $300 million of 7.10% Cumulative Quarterly Income Preferred Securities due 2039, and used the proceeds thereof to purchase from Florida Progress Funding Corporation (Funding Corp.), a wholly owned subsidiary of Progress Energy, $300 million of 7.10% Junior Subordinated Deferrable Interest Notes due 2039. The Trust had no other operations and its sole assets are the subordinated notes and related guarantees. Funding Corp. was 91 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) formed for the sole purpose of providing financing to Duke Energy Florida. Funding Corp. did not engage in business activities other than such financing and had no independent operations. Progress Energy guaranteed the payments of all distributions required by the Trust. On February 1, 2013, Duke Energy redeemed the $300 million of 7.10% Cumulative Quarterly Income Preferred Securities and subsequently terminated the Trust. Other Duke Energy has investments in various other entities that are VIEs which are not consolidated. The most significant of these investments is Duke Energy Ohio’s 9 percent ownership interest in OVEC. Through its ownership interest in OVEC, Duke Energy Ohio has a contractual arrangement through June 2040 to buy power from OVEC’s power plants. The proceeds from the sale of power by OVEC to its power purchase agreement counterparties, including Duke Energy Ohio, are designed to be sufficient for OVEC to meet its operating expenses, fixed costs, debt amortization and interest expense, as well as earn a ROE. Accordingly, the value of this contract is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business, including costs associated with its 2,256 MW of coal-fired generation capacity. As discussed in Note 5, the proposed rulemaking on cooling water intake structures, MATS, CSAPR and CCP’s could increase the costs of OVEC which would be passed through to Duke Energy Ohio. The initial carrying value of this contract was recorded as an intangible asset when Duke Energy acquired Cinergy in April 2006. In addition, the company has guaranteed the performance of certain entities in which the company no longer has an equity interest. As a result, the company has a variable interest in certain other VIEs that are not consolidated. CRC As discussed above, CRC is consolidated only by Duke Energy. Accordingly, the retained interest in the sold receivables recorded on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana are eliminated in consolidation at Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price (typically approximates 25 percent of the total proceeds). The subordinated note is a retained interest (right to receive a specified portion of cash flows from the sold assets) and is classified within Receivables in Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012, respectively. The retained interests reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana approximate fair value. The carrying values of the retained interests are determined by allocating the carrying value of the receivables between the assets sold and the interests retained based on relative fair value. Because the receivables generally turnover in less than two months, credit losses are reasonably predictable due to the broad customer base and lack of significant concentration, and the purchased beneficial interest (equity in CRC) is subordinate to all retained interests and thus would absorb losses first, the allocated basis of the subordinated notes are not materially different than their face value. The hypothetical effect on the fair value of the retained interests assuming both a 10 percent and a 20 percent unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio and Duke Energy Indiana on the retained interests using the acceptable yield method, which generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both the retained interests and purchased beneficial interest whenever it is determined that an other-than-temporary impairment has occurred. The key assumptions used in estimating the fair value in 2013 and 2012 is detailed in the following table: Duke Energy Indiana Duke Energy Ohio 2012 2013 Anticipated credit loss ratio Discount rate Receivable turnover rate 0.7 % 1.2 % 12.7 % 0.6 % 1.2 % 12.8 % 2012 2013 0.3 % 1.2 % 10.2 % 0.3 % 1.2 % 10.3 % The following table shows the gross and net receivables sold: (in millions) Receivables sold Less: Retained interests Net receivables sold Duke Energy Ohio December 31, 2012 304 $ March 31, 2013 $ 115 189 $ $ Duke Energy Indiana March 31, 2013 December 31, 2012 282 97 $ 317 135 $ 289 185 $ 182 $ 116 173 The following tables show the retained interests, sales, and cash flows related to receivables sold: (in millions) Sales Receivables sold Loss recognized on sale Cash flows Cash proceeds from receivables sold Collection fees received Return received on retained interests Duke Energy Indiana Three Months Ended March 31, 2013 2012 Duke Energy Ohio Three Months Ended March 31, 2013 2012 $ 638 3 $ 610 4 $ 747 $ 706 3 3 617 636 725 724 ― 1 ― 2 ― 2 ― 2 92 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Cash flows from the sale of receivables are reflected within Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows. Collection fees received in connection with the servicing of transferred accounts receivable are included in Operation, Maintenance and Other on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Operations and Comprehensive Income. The loss recognized on the sale of receivables is calculated monthly by multiplying the receivables sold during the month by the required discount which is derived monthly utilizing a three year weighted average formula that considers charge-off history, late charge history, and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is calculated monthly by summing the prior month-end LIBOR plus a fixed rate of 1.00 percent. 12. EARNINGS PER COMMON SHARE (EPS) Basic Earnings Per Share (EPS) is computed by dividing net income attributable to Duke Energy common shareholders, adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common shareholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, phantom shares and stock-based performance unit awards were exercised or settled. On July 2, 2012, just prior to the close of the merger with Progress Energy, Duke Energy executed a one-for-three reverse stock split. All earnings per share amounts included in this Form 10-Q are presented as if the one-for-three reverse stock split had been effective January 1, 2012. The following table presents Duke Energy’s basic and diluted EPS calculations and reconciles the weighted-average number of common shares outstanding to the diluted weighted-average number of common shares outstanding. (In millions, except per-share amounts) Three Months Ended March 31, 2013 Income from continuing operations attributable to Duke Energy common shareholders, as adjusted for participating securities — basic and diluted Three Months Ended March 31, 2012 Income from continuing operations attributable to Duke Energy common shareholders, as adjusted for participating securities — basic and diluted Average Shares Income EPS $ 629 705 $ 0.89 $ 292 446 $ 0.65 As of March 31, 2013, and 2012, 1 million of stock options and performance and unvested stock awards were not included in the dilutive securities calculation in the above table because either the option exercise prices were greater than the average market price of the common shares during those periods, or performance measures related to the awards had not yet been met. 13. STOCK-BASED COMPENSATION For employee awards, equity classified stock-based compensation cost is measured at the service inception date or the grant date, based on the estimated achievement of certain performance metrics or the fair value of the award, and is recognized as expense or capitalized as a component of property, plant and equipment over the requisite service period. Duke Energy recorded pre-tax stock-based compensation expense as shown in the following table. (in millions) Stock Options Restricted Stock Unit Awards Performance Awards $ Total $ Tax benefit associated with stock-based compensation expense Stock-based compensation costs capitalized $ Three Months Ended March 31, 2013 2012 2 $ 13 11 26 $ 10 $ 1 2 8 (2) 8 3 ― 14. EMPLOYEE BENEFIT PLANS DEFINED BENEFIT RETIREMENT PLANS Duke Energy and its subsidiaries (including legacy Progress Energy and Cinergy businesses) maintain, and the Subsidiary Registrants participate in, qualified, noncontributory defined benefit retirement plans. Duke Energy also maintains, and the Subsidiary Registrants participate in, non-qualified, non-contributory defined benefit retirement plans, which cover certain executives. 93 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Net periodic benefit costs disclosed in the tables below for the qualified and other post-retirement benefit plans represent the cost of the respective benefit plan for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment. Amounts presented in the tables below for the Subsidiary Registrants represent the amounts of pension and other post-retirement benefit cost allocated by Duke Energy for employees of the Subsidiary Registrants. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and post-retirement benefit cost for employees of Duke Energy’s shared services affiliate that provide support to the Subsidiary Registrants. These allocated amounts are included in the governance and shared service costs discussed in Note 17. QUALIFIED PENSION PLANS The following tables include the components of net periodic pension costs for qualified pension plans. Three Months Ended March 31, 2013 (in millions) Service cost Interest cost on project benefit obligation Duke Energy Carolinas Duke Energy 42 $ 12 $ Progress Duke Energy Energy Progress 15 $ 5 $ Duke Energy Florida 8 $ Duke Energy Ohio 2 $ Duke Energy Indiana 3 $ 80 20 29 13 13 5 7 (137) (37) (50) (23) (22) (8) (11) Amortization of prior service credit (3) (2) (1) - - - - Amortization of actuarial loss 61 15 25 11 12 3 6 Expected return on plan assets Other 2 Net periodic pension costs (a)(b) 1 45 $ - 1 9 $ 19 $ 6 $ 11 $ - 2 $ 5 $ Three Months Ended March 31, 2012 (in millions) Service cost Interest cost on project benefit obligation Duke Energy 23 $ Expected return on plan assets Amortization of prior service cost Amortization of actuarial loss Other Net periodic pension costs (a)(b) (a) (b) Duke Energy Carolinas Duke Energy Energy Progress 15 $ Duke Energy Florida 6 $ 7 $ Duke Energy Ohio 2 $ Duke Energy Indiana 2 $ 61 23 31 14 13 8 8 (94) (36) (46) (24) (20) (11) (12) 1 - 2 2 - - 1 24 11 22 9 11 2 3 1 - - - - - 16 $ 9 $ Progress 7 $ 24 $ 7 $ 11 $ 1 $ 2 $ Duke Energy amounts exclude $3 million for each of the three months ended March 31, 2013 and 2012, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy. Duke Energy Ohio amounts exclude $2 million for each of the three months ended March 31, 2013 and 2012, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy. NON-QUALIFIED PENSION PLANS The net periodic pension costs for non-qualified pension plans were not material for the three months ended March 31, 2013 and March 31, 2012. OTHER POST-RETIREMENT BENEFIT PLANS Duke Energy and most of its subsidiaries provide, and the Subsidiary Registrants participate in, some health care and life insurance benefits for retired employees on a contributory and non-contributory basis. Employees are eligible for these benefits if they have met age and service requirements at retirement, as defined in the plans. The health care benefits include medical coverage, dental coverage, and prescription drug coverage and are subject to certain limitations, such as deductibles and copayments. The following tables include the components of net periodic other post-retirement benefit costs . Three Months Ended March 31, 2013 (in millions) Service cost Interest cost on accumulated postretirement benefit obligation Duke Energy $ 7 Duke Energy Carolinas $ Progress Duke Energy Energy Progress 1 6 $ 3 Duke Energy Florida $ 2 Duke Energy Ohio $ - Duke Energy Indiana $ - 18 3 11 6 4 - 1 Expected return on plan assets (3) (3) - - - - - Amortization of prior service credit (3) (2) - - - - - Amortization of actuarial loss (gain) Net periodic costs (a)(b) 13 1 - 14 9 18 4 - (1) $ 32 $ 31 $ $ $ 10 $ $ - Three Months Ended March 31, 2012 1 Duke Energy Florida $ 1 8 4 10 5 4 1 2 Expected return on plan assets (4) (3) - - - - - Amortization of prior service credit (2) (1) - - - - - (in millions) Service cost Interest cost on accumulated postretirement benefit obligation Duke Energy $ 2 Duke Energy Carolinas $ 1 $ Progress Duke Energy Energy Progress 3 $ Duke Energy Ohio $ - Duke Energy Indiana $ - Amortization of net transition liability Amortization of actuarial (gain) loss Net periodic costs (a)(b) (a) (b) $ 2 1 1 - 1 - (2) 4 1 3 6 3 9 3 9 (1) - $ 20 $ $ $ $ $ Duke Energy amounts exclude $2 million for each of the three months ended March 31, 2013 and 2012, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy. Duke Energy Ohio amounts exclude $1 million for each of the three months ended March 31, 2013 and 2012, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy. 94 2 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) EMPLOYEE SAVINGS PLANS Duke Energy and Progress Energy sponsor, and the Subsidiary Registrants participate in, employee savings plans that cover substantially all U.S. employees. Most employees participate in a matching contribution formula where Duke Energy provides a matching contribution generally equal to 100 percent of employee before-tax and Roth 401(k) contributions, and, as applicable, after-tax contributions, of up to 6 percent of eligible pay per pay period. Dividends on Duke Energy shares held by the savings plans are charged to retained earnings when declared and shares held in the plans are considered outstanding in the calculation of basic and diluted EPS. The following table includes pre-tax employer matching contributions made by Duke Energy and expensed by the Subsidiary Registrants. (in millions) Duke Energy Carolinas Duke Energy Progress Duke Energy Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana For the three months ended March 31, 2013 2012 $ 41 28 $ 14 $ 11 12 12 $ 6 6 $ 4 4 $ 1 $ 1 2 2 15. SEVERANCE In conjunction with the merger with Progress Energy, in November 2011 Duke Energy and Progress Energy offered a voluntary severance plan to certain eligible employees. As this was a voluntary severance plan, all severance benefits offered under this plan are considered special termination benefits under U.S. GAAP. Special termination benefits are measured upon employee acceptance and recorded immediately absent any significant retention period. If a significant retention period exists, the cost of the special termination benefits are recorded ratably over the retention period. Approximately 1,100 employees from Duke Energy and Progress Energy requested severance during the voluntary window, which closed on November 30, 2011. The estimated amount of future severance expense associated with this voluntary plan and other severance benefits through 2014, excluding amounts incurred through March 31, 2013, is expected to be approximately $20 million and most of the costs will be charged to Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida. Additionally, in the third quarter of 2012, a voluntary severance plan was offered to certain unionized employees of Duke Energy Ohio. Approximately 75 employees accepted the termination benefits during the voluntary window, which closed on October 8, 2012. The expense associated with this plan was not material. In conjunction with the retirement of the Crystal River Unit 3, severance benefits will be made available to certain eligible impacted unionized and non-unionized employees, to the extent that those employees do not find job opportunities at other locations. Approximately 600 95 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) employees work at Crystal River Unit 3. In the first quarter of 2013, Duke Energy Florida deferred $16 million of severance costs as a regulatory asset. Future severance expense expected to be incurred at Duke Energy Florida is currently not estimable as the total number of employees impacted and job classifications and functions have not yet been determined. Refer to Note 4 for further discussion regarding Crystal River Unit 3. Amounts included in the table below represent direct and allocated severance and related expense recorded by the Duke Energy Registrants, and are recorded in Operation, maintenance, and other within Operating Expenses on the Condensed Consolidated Statements of Operations. The Duke Energy Registrants recorded no severance expense during the three months ended March 31, 2012. Three Months Ended March 31, 2013 (in millions) Duke Energy (a) 16 $ Duke Energy Carolinas 5 Progress Energy 7 Duke Energy Progress 5 Duke Energy Florida 2 Duke Energy Ohio 1 Duke Energy Indiana 2 (a) Includes $5 million of accelerated stock award expense. Amounts included in the table below represent the severance liability for past and ongoing severance plans. Amounts for Subsidiary Registrants do not include allocated expense or associated cash payments. Amounts for Duke Energy Ohio and Duke Energy Indiana are not material. Duke Energy Provision / Adjustments Balance at December 31, 2012 (in millions) (a) $ 135 $ Balance at March 31, 2013 Cash Reductions 31 (67) $ 99 $ Duke Energy Carolinas 12 1 (9) 4 Progress Energy (a) 43 21 (18) 46 Duke Energy Progress 23 1 (10) 14 Duke Energy Florida (a) 6 16 (2) 20 (a) Provision / Adjustments includes $16 million of severance costs deferred related to Crystal River Unit 3. 16. INCOME TAXES AND OTHER TAXES INCOME TAXES Duke Energy and its subsidiaries file income tax returns in the U.S. with federal and various state governmental authorities, and in certain foreign jurisdictions. The taxable income of Duke Energy and its subsidiaries is reflected in Duke Energy’s U.S. federal and state income tax returns. These subsidiaries have a tax sharing agreement with Duke Energy where the separate return method is used to allocate tax expenses and benefits to the subsidiaries whose investments or results of operations provide these tax expenses and benefits. The accounting for income taxes essentially represents the income taxes that each of these subsidiaries would incur if it were a separate company filing its own tax return as a C-Corporation. The effective tax rates for each of the Duke Energy Registrants are included in the following table. Three Months Ended March 31, 2012 34.2 % 25.8 % 37.1 % 36.3 % 39.6 % 35.1 % 38.1 % 32.0 % 39.1 % 36.6 % 37.1 % 37.0 % 37.5 % 41.0 % 2013 Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 96 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The increase in the effective tax rate for Duke Energy is primarily due to lower pre-tax income in 2012 due to the Edwardsport IGCC project impairment, Progress Energy results of operations included in 2013, impact of lower AFUDC equity in 2013, and a reduction of foreign deferred taxes in 2012 due to changes in foreign tax rates. The increase in the effective tax rate for Progress Energy is primarily due to the impact of lower AFUDC equity in 2013 and the ESOP dividend deduction being recorded at Duke Energy in 2013 as a result of the merger. The increase in the effective tax rate for Duke Energy Progress and Duke Energy Florida is primarily due to the favorable prior-year tax benefit related to the manufacturing deduction and the impact of lower AFUDC equity in 2013. EXCISE TAXES Certain excise taxes levied by state or local governments are collected by the Duke Energy Registrants from their customers. These taxes, which are required to be paid regardless of the Duke Energy Registrants’ ability to collect from the customer, are accounted for on a gross basis. When the Duke Energy Registrants act as an agent, and the tax is not required to be remitted if it is not collected from the customer, the taxes are accounted for on a net basis. The Duke Energy Registrants’ excise taxes accounted for on a gross basis and recorded as operating revenues in the Condensed Consolidated Statements of Operations were as follows: (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Three Months Ended March 31, 2013 2012 149 $ 42 67 28 39 31 9 $ 77 39 69 26 43 30 8 17. RELATED PARTY TRANSACTIONS The Subsidiary Registrants engage in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Refer to the Condensed Consolidated Balance Sheets of Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana for balances due to or due from related parties. Amounts related to transactions with related parties included in the Condensed Consolidated Statements of Operations and Comprehensive Income are presented in the following table. Three Months Ended March 31, 2012 (in millions) 2013 Duke Energy Carolinas Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 243 $ 235 5 5 Joint Dispatch Agreement (JDA) revenue (c) 53 ― JDA expense(c) 10 ― Progress Energy Corporate governance and shared services provided by Duke Energy (a) $ Corporate governance and shared services provided to Duke Energy (d) 80 $ ― 28 ― 8 ― JDA revenue(c) 10 ― JDA expense(c) 53 ― Indemnification coverages (b) Duke Energy Progress Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 48 $ 52 5 ― JDA revenue(c) 10 ― JDA expense(c) 53 ― Duke Energy Florida Corporate governance and shared service expenses (a) $ Indemnification coverages (b) Duke Energy Ohio Corporate governance and shared service expenses (a) Indemnification coverages (b) (a) (b) (c) (d) $ $ 87 $ 4 $ 99 2 39 ― 3 Indemnification coverages (b) Duke Energy Indiana Corporate governance and shared service expenses (a) 32 90 4 $ 101 2 The Subsidiary Registrants are charged their proportionate share of corporate governance and other costs by unconsolidated affiliates that are consolidated affiliates of Duke Energy and Progress Energy. Corporate governance and other shared services costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, maintenance and other on the Condensed Consolidated Statements of Operations and Comprehensive Income. The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation, maintenance and other on the Condensed Consolidated Statements of Operations and Comprehensive Income. Effective with the consummation of the merger between Duke Energy and Progress Energy, Duke Energy Carolinas and Duke Energy Progress began to participate in a JDA which allowed the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power under the JDA are recorded in Operating Revenues on the Condensed Consolidated Statements of Operations and Comprehensive Income. Expenses from the purchase of power under the JDA are recorded in Fuel used in electric generation and purchased power on the Condensed Consolidated Statements of Operations and Comprehensive Income. Progress Energy charges a proportionate share of corporate governance and other costs to unconsolidated affiliates that are consolidated affiliates of Duke Energy. Corporate governance and other shared costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third-party costs. These charges are recorded as an offset to Operation, maintenance and other in the Condensed Consolidated Statements of Operations and Comprehensive Income. 97 mm Aug 25 2mm PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) In addition to the amounts presented above, the Subsidiary Registrants record income associated with the rental of office space to consolidated affiliates of Duke Energy, as well as their proportionate share of certain charged expenses from affiliates of Duke Energy. The Duke Energy registrants participate in a money pool arrangement with Duke Energy and certain of its subsidiaries. See Note 6 for more information regarding money pool. As discussed in Note 11, certain trade receivables have been sold by Duke Energy Ohio and Duke Energy Indiana to CRC, an unconsolidated entity formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price. Rental income, interest income and interest expense on these transactions were not material for the three months ended March 31, 2013 and 2012. In January 2012, Duke Energy Ohio recorded a non-cash after tax equity transfer of $ 28 million related to the sale of Vermilion to Duke Energy Indiana. Duke Energy Indiana recorded a non-cash after tax equity transfer of $26 million for the purchase of Vermillion from Duke Energy Ohio. See note 2 for further discussion. Duke Energy Commercial Asset Management (DECAM) is a non-regulated, direct subsidiary of Duke Energy Ohio. DECAM conducts business activities, including the execution of commodity transactions, third party vendor and supply contracts and service contracts, for certain of Duke Energy’s non-regulated entities. The commodity contracts that DECAM enters either do not qualify as hedges or are accounted for as undesignated contracts, thus the mark-to-market impacts of these contracts are reflected in Duke Energy Ohio’s Condensed Consolidated Statements of Operations and Comprehensive Income. In addition, equal and offsetting mark-to-market impacts of intercompany contracts with non-regulated entities are reflected in Duke Energy Ohio’s Condensed Consolidated Statements of Operations and Comprehensive Income representing the pass through of the economics of the original contracts to non-regulated entities in accordance with contractual arrangements between Duke Energy Ohio and non-regulated entities. Because it is not a rated entity, DECAM receives its credit support from Duke Energy or its non-regulated subsidiaries and not the regulated utility operations of Duke Energy Ohio. DECAM meets its funding needs through an intercompany loan agreement from a subsidiary of Duke Energy. DECAM also has the ability to loan money to the subsidiary of Duke Energy. DECAM had an outstanding intercompany loan payable with the subsidiary of Duke Energy of $99 million and $79 million as of March 31, 2013 and December 31, 2012, respectively. These amounts are recorded in Notes payable to affiliated companies on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. DECAM had no intercompany loan receivable with the subsidiary of Duke Energy as of March 31, 2013. 18. ACCUMULATED OTHER COMPREHENSIVE INCOME DUKE ENERGY The following table presents changes in AOCI by component for Duke Energy. All amounts are net of tax. (in millions) Foreign Currency Translation Adjustments (45) Net Gains (Losses) on Cash Flow Hedges OCI before reclassifications Amounts reclassified from AOCI Total other comprehensive income Balance at March 31, 2012 $ (1) $ (71) 13 (1) 12 (59) Balance at December 31, 2012 $ (116) $ (100) Balance at December 31, 2011 OCI before reclassifications Total other comprehensive income Balance at March 31, 2013 $ $ 44 ― 44 4 4 $ (112) $ $ $ 10 10 (90) $ 98 $ Net Gains (Losses) on Available for Sale Securities (9) 1 (1) ― (9) ― ― ― ― $ Pension and OPEB Related Adjustments (109) 4 ― 4 (105) $ (90) $ 3 3 (87) $ Total $ (234) 62 (2) 60 (174) $ (306) $ 17 17 (289) $ PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) For the three months ended March 31, 2013 and March 31, 2012 reclassifications out of AOCI for the Subsidiary Registrants were not material. Changes in AOCI for the Subsidiary Registrants are presented in their respective Condensed Consolidated Statements of Equity. 19. NEW ACCOUNTING STANDARDS The following new accounting standards were adopted by the Duke Energy Registrants subsequent to March 31, 2012, and the impact of such adoption, if applicable, has been presented in the accompanying Condensed Consolidated Financial Statements: Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 210 — Balance Sheet In January 2013, the FASB issued revised accounting guidance to amend the existing disclosure requirements for offsetting financial assets and liabilities to enhance current disclosures, as well as to improve comparability of balance sheets prepared under U.S. GAAP and IFRS. The revised disclosure guidance affects all companies that have financial instruments and derivative instruments that are either offset in the balance sheet (i.e., presented on a net basis) or subject to an enforceable master netting arrangement and/or similar agreement. The revised guidance requires that certain enhanced quantitative and qualitative disclosures be made with respect to a company’s netting arrangements and/or rights of setoff associated with its financial instruments and/or derivative instruments including associated collateral. For the Duke Energy Registrants, the revised disclosure guidance was effective on a retrospective basis for interim and annual periods beginning January 1, 2013. Other than additional disclosures, this revised guidance does not impact the Duke Energy Registrants’ results of operations, cash flows or financial position. ASC 220 — Comprehensive Income In February 2013, the FASB amended the existing requirements for presenting comprehensive income in financial statements to improve the reporting of reclassifications out of AOCI. The amendments in this Update seek to attain that objective by requiring an entity to report the effect of significant reclassifications out of AOCI on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of AOCI is reclassified to a balance sheet account (for example, property, plant and equipment) instead of directly to income or expense in the same reporting period. For the Duke Energy Registrants, this revised guidance was effective on a prospective basis for interim and annual periods beginning January 1, 2013. Other than additional disclosures or a change in the presentation on the statement of comprehensive income, this revised guidance does not impact the Duke Energy Registrants’ results of operations, cash flows or financial position. The following new Accounting Standards Update (ASU) has been issued, but has not yet been adopted by Duke Energy, as of March 31, 2013 ASC 830—Foreign Currency Matters. In March 2013, the FASB issued revised accounting guidance to resolve the diversity in practice about the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate) within a foreign entity. In addition, the amendments resolve the diversity in practice for the release of the cumulative translation adjustment involving business combinations achieved in stages by either a Duke investor or a third party acquirer. For the Duke Energy Registrants, the revised accounting guidance is effective on a prospective basis for interim and annual periods beginning January 1, 2014. The revised guidance will impact the timing of the recognition of the cumulative translation adjustment for certain future transactions and therefore, could impact the Duke Energy Registrants’ results of operations, cash flows and financial position. 20. SUBSEQUENT EVENTS For information on subsequent events related to acquisitions, dispositions and sales of other assets, regulatory matters, commitments and contingencies and debt and credit facilities, see Notes 2, 4, 5 and 6, respectively. 99 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DUKE ENERGY Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the United States (U.S.) through its wholly owned subsidiaries Duke Energy Carolinas, LLC (Duke Energy Carolinas), Duke Energy Progress, Inc. (Duke Energy Progress) (formerly Carolina Power & Light Company d/b/a Progress Energy Carolinas), Duke Energy Florida, Inc. (Duke Energy Florida) (formerly Florida Power Corporation d/b/a Progress Energy Florida, Inc.), Duke Energy Ohio, Inc. (Duke Energy Ohio), and Duke Energy Indiana, Inc. (Duke Energy Indiana), as well as in Latin America through International Energy. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its six separate subsidiary registrants, Duke Energy Carolinas, Progress Energy, Inc. (Progress Energy), Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. On July 2, 2012, Duke Energy merged with Progress Energy, with Duke Energy continuing as the surviving corporation, and Progress Energy becoming a wholly owned subsidiary of Duke Energy. Duke Energy Progress and Duke Energy Florida, Progress Energy’s regulated utility subsidiaries, are now indirect wholly owned subsidiaries of Duke Energy. Duke Energy’s Condensed Consolidated Financial Statements include Progress Energy, Duke Energy Progress and Duke Energy Florida activity beginning July 2, 2012. Immediately preceding the merger, Duke Energy completed a one-for-three reverse stock split with respect to the issued and outstanding shares of Duke Energy common stock. All share and per share amounts presented herein reflect the impact of the one-for-three reverse stock split. Progress Energy’s shareholders received 0.87083 shares of Duke Energy common stock in exchange for each share of Progress Energy common stock outstanding as of July 2, 2012. Generally, all outstanding Progress Energy equity-based compensation awards were converted into Duke Energy equity-based compensation awards using the same ratio. See Note 2 to the Condensed Consolidated Financial Statements, “Acquisitions, Dispositions and Sales of Other Assets,” for information related to the merger with Progress Energy. Management’s Discussion and Analysis includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings and adjusted earnings per share (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 presented herein may not be comparable to similarly titled measures used by other companies. Management’s Discussion and Analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes and in conjunction with Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2012. RESULTS OF OPERATIONS In this section, Duke Energy provides analysis and discussion of earnings and factors affecting earnings on a both GAAP and non-GAAP basis. Management evaluates financial performance in part based on the non-GAAP financial measures, Adjusted earnings and Adjusted diluted EPS, which are measured as income from continuing operations after deducting income attributable to noncontrolling interests, adjusted for the dollar and per share impact of special items and the mark-to-market impacts of economic hedges in the Commercial Power segment. Special items represent certain charges and credits, which management believes will not be recurring on a regular basis, although it is reasonably possible such charges and credits could recur. Mark-to-market adjustments reflect the mark-to-market impact of derivative contracts, which are used in Duke Energy’s hedging of a portion of economic value of its generation assets in the Commercial Power segment. The mark-tomarket impact of the derivative contracts is recognized in GAAP earnings immediately as such derivative contracts do not qualify for hedge accounting or regulatory treatment. The economic value of the generation assets is subject to fluctuations in fair value due to market price volatility of the input and output commodities (e.g. coal, power, gas) and as such the economic hedging involves both purchases and sales of those input and output commodities related to the generation assets. Because the operations of the generation assets are accounted for under the accrual method, management believes that excluding the impacts of mark-to-market changes of the economic hedge contracts from operating earnings until settlement better matches the financial impacts of the hedge contract with the portion of economic value of the underlying hedged asset. Management believes that the presentation of Adjusted earnings and Adjusted diluted EPS provides useful information to investors, as it provides them 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 results to the Board of Directors, employees, shareholders, analysts and investors concerning Duke Energy’s financial performance. The most directly comparable GAAP measures for Adjusted earnings and Adjusted diluted EPS are Net Income and Diluted EPS attributable to Duke Energy common shareholders, which include the dollar and per share impact of special items, the mark-to-market impacts of economic hedges in the Commercial Power segment and discontinued operations. Executive Overview The following table reconciles Adjusted earnings to GAAP Net Income attributable to Duke Energy and Adjusted diluted EPS to GAAP diluted EPS attributable to Duke Energy (amounts are net of tax). Three Months Ended March 31, 2012 2013 716 Per diluted share $ 1.02 (48) (0.08) (34) (0.05) - 0.89 Amount (in millions, except per share amounts) Adjusted earnings Economic hedges (mark-to-market) Costs to achieve Progress Energy merger Edwardsport charges Voluntary Opportunity Plan deferral Income from discontinued operations Net income attributable to Duke Energy $ $ 100 634 $ Amount $ 506 1 (6) (268) 60 2 $ 295 Per diluted share $ 1.13 (0.01) (0.60) 0.13 0.01 $ 0.66 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The variance in adjusted earnings for the three months ended March 31, 2013, compared to the same period in 2012, was primarily due to: · The inclusion of Progress Energy results beginning July 2, 2012; · Favorable weather in 2013 compared to 2012; and · The implementation of revised customer rates for Duke Energy Carolinas in February 2012. Partially offset by: · Lower results in Latin America due to lower sales volumes, higher purchased power costs and unfavorable foreign exchange rates; · Lower results in the nonregulated generation businesses due to lower PJM Interconnection, LLC (PJM) capacity prices; and · Incremental shares issued to complete the Progress Energy merger (impacts per diluted share amounts only). Segment Results Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. Management also uses adjusted segment income as a measure of historical and anticipated future segment and Other performance. Adjusted segment income is a non-GAAP financial measure, as it is based upon segment income adjusted for special items and the mark-to-market impact of economic hedges in the Commercial Power segment. Management believes that the presentation of adjusted segment income provides useful information to investors, as it provides them with an additional relevant comparison of a segment’s performance across periods. The most directly comparable GAAP measure for adjusted segment income is reported segment income, which represents segment income from continuing operations, including any special items and the mark-to-market impact of economic hedges in the Commercial Power segment. See Note 3 to the Condensed Consolidated Financial Statements, “Business Segments,” for a discussion of Duke Energy’s segment structure. Duke Energy’s segment income and adjusted segment income may not be comparable to similarly titled measures of another company because other entities may not calculate segment income or adjusted segment income in the same manner. The following tables reconcile adjusted segment income to segment income, and detailed discussions follow (amounts are net of tax). (in millions, except per share amounts) Adjusted segment income Mark-to-market impact of economic hedges Costs to achieve Progress Energy merger Segment income Income from discontinued operations Net income attributable to Duke Energy (in millions, except per share amounts) Adjusted segment income Edwardsport impairment Costs to achieve Progress Energy merger Mark-to-market impact of economic hedges Voluntary Opportunity Plan deferral Segment income Income from discontinued operations Net income attributable to Duke Energy USFE&G $ 656 $ $ Three Months Ended March 31, 2013 International Total Reportable Energy Segments Commercial Power 656 $ 6 (48) (42) $ 97 $ $ 97 759 $ 711 (43) $ - (48) $ Duke Energy Other (34) $ (77) 716 (48) $ (34) 634 $ 634 - Commercial Power USFE&G $ 344 $ (268) 60 136 $ 30 $ 1 31 Three Months Ended March 31, 2012 International Total Reportable Energy Segments $ 142 $ 516 (268) 1 60 $ 142 $ 309 Other $ $ (10) (6) (16) Duke Energy $ 506 (268) (6) 1 60 $ 293 $ 295 2 101 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The remaining information presented through this discussion of results of operations is presented on a GAAP basis. U.S. FRANCHISED ELECTRIC AND GAS (in millions) Operating Revenues 2013 $ Operating Expenses Three Months Ended March 31, 2012 5,060 $ 3,840 Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Segment Income $ 2,668 Variance $ 2,392 1,458 2,382 2 4 (2) 1,222 290 932 (1) 61 62 236 146 90 1,047 206 841 391 656 70 $ 136 $ 321 520 Duke Energy Carolinas GWh sales (a)(b) 22,246 19,461 2,785 Duke Energy Progress GWh sales (a)(c) 14,701 13,168 1,533 Duke Energy Florida GWh sales (a)(d) 8,017 8,412 (395) Duke Energy Ohio GWh sales (a) 6,178 5,854 324 Duke Energy Indiana GWh sales (a) 8,505 8,469 36 Total USFE&G GWh sales 59,647 55,364 4,283 Net proportional MW capacity in operation (e) 49,641 27,471 (a) (b) Gigawatt-hours (GWh). Includes 184 GWh sales associated with interim firm power sale agreements (Interim FERC Mitigation) entered into as part of FERC's approval of the merger with Progress Energy, which are not included in the operating results in the table above, for the three months ended March 31, 2013. See Note 2 to the Condensed Consolidated Financial Statements, "Acquisitions, Dispositions and Sales of Other Assets," for a discussion of the Interim FERC Mitigation. All of Duke Energy Progress' GWh sales for the three months ended March, 31 2012 occurred prior to the merger between Duke Energy and Progress Energy. All of Duke Energy Florida's GWh sales for the three months ended March 31, 2012 occurred prior to the merger between Duke Energy and Progress Energy. Megawatt (MW). (c) (d) (e) Three Months Ended March 31, 2013 as Compared to March 31, 2012 Operating Revenues. The variance was driven primarily by: · A $2,117 million increase in operating revenues due to the inclusion of Progress Energy operating revenues beginning in July 2012, · A $120 million increase in fuel revenues (including emission allowances) driven primarily by increased demand from electric retail customers in 2013 compared to the same period in 2012 mainly due to favorable weather conditions, partially offset by lower fuel rates for electric retail customers in all jurisdictions, and lower revenues for purchases of power in Indiana and in the Carolinas. Fuel revenues represent sales to retail and wholesale customers, · A $105 million increase in electric and gas sales (net of fuel revenue) to retail customers due to favorable weather conditions in 2013 compared to 2012. For the Carolinas, heating degree days for the first quarter of 2013 were 6 percent above normal as compared to 25 percent below normal during the same period in 2012. For Indiana and Ohio, heating degree days for the first quarter of 2013 were 7 percent above normal as compared to 28 percent below normal during the same period in 2012, · A $32 million net increase in rate riders primarily due to updates to the riders, and in retail pricing primarily due to revised retail rates resulting from the 2011 North Carolina and South Carolina rate cases implemented February 2012, and · A $19 million net increase in wholesale power revenues, net of sharing, primarily due to a new customer, additional volumes and charges for capacity for customers served under long-term contracts. Operating Expenses. The variance was driven primarily by: · A $1,650 million increase in operating expenses due to the inclusion of Progress Energy operating expenses beginning in July 2012, · A $133 million increase in fuel expense (including purchased power and natural gas purchases for resale) primarily related to (i) higher volumes of coal used in electric generation primarily due to increased generation due to favorable weather conditions, (ii) higher volumes of natural gas used in electric generation due primarily to additional generating capacity placed in service, and (iii) higher prices for coal and natural gas used in electric generation, partially offset by lower purchased power costs in (a) Indiana, reflective of market conditions, and (b) the Carolinas, primarily due to additional generating capacity placed in-service late 2012 and also reflective of market conditions. · A $101 million increase in operating and maintenance expense primarily due to the establishment of regulatory assets in the first quarter of 2012, pursuant to regulatory orders, for future recovery of certain employee severance costs related to the 2010 voluntary severance plan and other costs. 102 PART I Partially offsetting these increases was: · A $420 million decrease due to a 2012 impairment and other charges related to the Edwardsport IGCC plant. See Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information. Interest Expense. The variance was primarily driven by the inclusion of Progress Energy interest expense beginning in July 2012. Income Tax Expense. The variance was primarily due to an increase in pre-tax income. The effective tax rate for the three months ended March 31, 2013 and 2012 was 37.3 percent and 34.2 percent, respectively. The increase in the effective tax rate was primarily due to an increase in pre-tax income and a reduction in AFUDC equity. Segment Income. The variance resulted primarily from the inclusion of Progress Energy results beginning in July 2012, the 2012 impairment and other charges related to the Edwardsport IGCC plant, favorable weather, higher net rate riders and retail pricing, and the net increase in wholesale power revenues. These positive impacts were partially offset by higher income tax expense and higher operating and maintenance expenses. Matters Impacting Future USFE&G Results On December 27, 2012, the IURC approved a settlement agreement between Duke Energy Indiana and certain intervenors to cap the construction costs recoverable in retail rates for the Edwardsport Integrated Gasification Combined Cycle (IGCC) plant. The Edwardsport IGCC plant is scheduled to begin commercial operation in mid2013. USFE&G’s financial condition, results of operations and cash flows could be adversely impacted by additional delays in the commencement of operations which may result in increased costs. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. USFE&G currently has pending rate cases in North Carolina and South Carolina. These rate cases are needed to recover the costs of plant modernization and other capital investments in generation, transmission, and distribution systems, as well as increased expenditures for nuclear plants and personnel, vegetation management and other operating costs. USFE&G has a settlement agreement related to one rate case in North Carolina before the NCUC. USFE&G’s financial condition, results of operations and cash flows could be adversely impacted if these rate cases or settlement agreements are denied or delayed by the NCUC or PSCSC. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. On May 1, 2013, the PUCO approved a settlement agreement related to Duke Energy Ohio’s electric and gas distribution rate cases. The settlement agreement provides for a net annualized increase in electric distribution revenues of $49 million and no increase in base rates for gas customers subject to the unresolved litigation over remediation costs associated with MGP sites. A separate hearing for recovery of remediation costs associated with MGP sites was held on April 29, 2013. Revised electric rates will be effective in May 2013. Duke Energy Ohio’s financial condition, results of operations and cash flows could be adversely impacted if the PUCO issues an unfavorable ruling on the MGP proceeding. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. On April 12, 2013, the North Carolina Supreme Court (NCSC) issued an order requiring the NCUC to make an independent determination regarding the proper return on equity included in Duke Energy Carolinas’ rate increase approved on January 27, 2012. The NCSC indicated the determination should be based upon appropriate findings of fact that balance all the available evidence, including the impact of changing economic conditions on customers. On April 29, 2013, the NCAG filed a motion with the NCUC requesting a stay of the rate increase approved by the NCUC and implemented in 2012. USFE&G’s financial condition, results of operations and cash flows could be adversely impacted if the NCUC determines the return of equity should be adjusted or issues a stay of the rate increase. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. The FPSC will review the prudence of the retirement decision and the mediated resolution of insurance claims with NEIL related to Duke Energy Florida’s Crystal River Unit 3. A procedural schedule has been established providing for hearings in October 2013. USFE&G’s financial condition, results of operations and cash flows could be adversely impacted if the FPSC issues an unfavorable ruling. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. COMMERCIAL POWER (in millions) Operating Revenues 2013 $ Three Months Ended March 31, 2012 452 $ 580 $ Variance (128) Operating Expenses 533 530 3 Operating (Loss) Income (81) 50 (131) Other Income and Expense, net 11 8 3 Interest Expense 15 19 (4) (Loss) Income Before Income Taxes (85) 39 (124) Income Tax (Benefit) Expense Segment (Loss) Income (43) 8 31 $ (42) $ $ (51) (73) Coal-fired plant production, GWh 4,549 4,068 481 Gas-fired plant production, GWh 3,897 4,583 (686) Renewable plant production, GWh 1,405 998 407 Total Commercial Power production, GWh 9,851 9,649 202 Net proportional MW capacity in operation 8,094 7,691 403 103 PART I Three Months Ended March 31, 2013 as Compared to March 31, 2012 Operating Revenues. The variance was driven primarily by: · A $71 million decrease in net mark-to-market revenues on non-qualifying power and capacity hedge contracts, consisting of mark-to-market losses of $68 million in 2013 compared to gains of $3 million in 2012, · A $61 million decrease in PJM Interconnection, LLC (PJM) capacity revenues related to lower average cleared capacity auction pricing in 2013 compared to 2012, and · A $24 million decrease in electric revenues from Duke Energy Generation Services, Inc. (DEGS), excluding renewables, due primarily to the sale of non-core business operations. Partially offsetting these decreases were: · A $15 million increase in electric revenues from higher production in the renewables portfolio, and · A $9 million increase in electric revenues from the gas-fired generation assets driven primarily by higher power prices, partially offset by decreased volumes. Operating Expenses. The variance was driven primarily by: · An $18 million increase in fuel expenses from the gas-fired generation assets driven by higher natural gas costs, partially offset by lower natural gas volumes, and · A $7 million increase in depreciation expense driven primarily by additional renewable assets in operation. Partially offsetting these increases were: · An $11 million decrease in DEGS, excluding renewables, fuel used due primarily to the sale of non-core business operations, and · A $10 million decrease in fuel expenses from the coal-fired generation assets driven primarily by lower cost of coal. Income Tax (Benefit) Expense. The variance was primarily due to a decrease in pre-tax income and higher production tax credits in 2013 for the Renewables portfolio. The effective tax rate for the three months ended March 31, 2013 and 2012 was 50.8 percent and 19.3 percent, respectively. The increase in the effective tax rate for the period was primarily due to a pre-tax loss in 2013 compared to pre-tax income in 2012. Segment Income. The decrease is primarily attributable to lower revenues driven by unfavorable net mark-to-market results on non-qualifying commodity hedge contracts and lower PJM capacity revenues. These negative impacts were partially offset by higher income tax benefits. Matters Impacting Future Commercial Power Results Changes or variability in assumptions used in calculating the fair value of the renewables reporting unit for goodwill testing purposes including but not limited to, legislative actions related to tax credit extensions, long-term growth rates and discount rates, could significantly impact the estimated fair value of the renewables reporting unit. In the event of a significant decline in the estimated fair value of the renewables reporting unit, goodwill and other asset impairment charges could be recorded. The carrying value of goodwill, and intangible assets associated with proposed renewable projects within Commercial Power’s renewables reporting unit was approximately $110 million at March 31, 2013. The current low energy price projections, as well as recently issued and proposed environmental regulations pertaining to coal and coal-fired generating facilities, could impact future cash flows and market valuations of Commercial Power’s coal-fired generation assets which could lead to impairment charges. INTERNATIONAL ENERGY (in millions) Operating Revenues 2013 $ Three Months Ended March 31, 2012 392 $ 402 $ Variance (10) Operating Expenses 263 245 18 Operating Income 129 157 (28) (21) Other Income and Expense, net 33 54 Interest Expense 21 16 5 141 195 (54) 42 49 (7) 2 4 142 Income Before Income Taxes Income Tax Expense Less: Income Attributable to Noncontrolling Interests Segment Income $ Sales, GWh Net proportional MW capacity in operation 104 97 $ $ (2) (45) 4,756 5,074 (318) 4,584 4,231 353 PART I Three Months Ended March 31, 2013 as Compared to March 31, 2012 Operating Revenues. The variance was driven primarily by: • A $24 million decrease in Brazil due to a delay in the rainy season and unfavorable exchange rates, partially offset by higher average prices. Partially offsetting this decrease was: • A $7 million increase in Chile as a result of asset acquisitions in the prior year, and • A $6 million increase in Central America as a result of higher energy sales volumes partially offset by lower average prices. Operating Expenses. The variance was driven primarily by: • A $6 million increase in Chile due to asset acquisitions in the prior year; • A $5 million increase in Ecuador as a result of planned maintenance costs, and • A $3 million increase in Brazil due to higher purchased power costs, partially offset by favorable exchange rates. Other Income and Expense, net. The variance was primarily driven by a net remeasurement loss, lower interest income in Brazil, and lower equity earnings at National Methanol Company (NMC) as a result of lower methyl tertiary-butyl ether (MTBE) prices and volumes, net of lower butane costs. Segment Income. The variance was primarily due to lower results in Brazil, planned maintenance costs in Ecuador and lower equity earnings at NMC. OTHER (in millions) Operating Revenues 2013 $ Operating Expenses Losses on Sales of Other Assets and Other, net Operating Loss Three Months Ended March 31, Variance 2013 vs. 2012 2012 35 $ 15 $ 20 90 16 - (1) 1 (55) (2) (53) 74 Other Income and Expense, net 11 5 6 Interest Expense 95 43 52 (139) (40) (99) (60) (24) (36) (2) (16) Loss Before Income Taxes Income Tax Benefit Less: Loss Attributable to Noncontrolling Interests Net Expense $ (77) $ $ (2) (61) Three Months Ended March 31, 2013 as Compared to March 31, 2012 Operating Revenues. The variance was driven primarily by mark-to-market activity of mitigation sales related to the Progress Energy merger and higher premiums earned at Bison Insurance Company Limited (Bison) as a result of the addition of Progress Energy. These positive impacts were partially offset by mark-to-market activity at Duke Energy Trading and Marketing, LLC (DETM). Operating Expenses. The variance was driven primarily by charges related to the Progress Energy merger, increased severance charges and unfavorable loss experience at Bison. Other Income and Expense, net. The variance was driven primarily by impairments and gains on sales of investments in the prior year. Interest Expense. The variance was due primarily to higher debt balances as a result of debt issuances and the inclusion of Progress Energy interest expense beginning in July 2012. Income Tax Benefit. The variance was primarily due to an increase in pre-tax loss. The effective tax rate for the three months ended March 31, 2013 and 2012 was 42.5 percent and 59.9 percent, respectively. Net Expense. The variance was due primarily to higher interest expense, charges related to the Progress Energy merger, increased severance charges, and unfavorable loss experience at Bison. These negative impacts were partially offset by higher income tax benefit due to increased loss before income taxes, mark-to-market activity of mitigation sales related to the Progress Energy merger, and higher premiums earned at Bison. Matters Impacting Future Other Results Duke Energy previously held an effective 50 percent interest in Crescent Resources LLC (Crescent), which was a real estate joint venture formed by Duke Energy in 2006 that filed for Chapter 11 bankruptcy protection in June 2009. On June 9, 2010, Crescent restructured and emerged from bankruptcy and Duke Energy forfeited its entire 50 percent ownership interest to Crescent debt holders. This forfeiture caused Duke Energy to recognize a loss, for tax purposes, on its interest in the second quarter of 2010. Although Crescent has reorganized and emerged from bankruptcy with creditors owning all Crescent interest, there remains uncertainty as to the tax treatment associated with the restructuring. Based on this uncertainty, it is possible that Duke Energy could incur a future tax liability related to the tax losses associated with its partnership interest in Crescent and the resolution of issues associated with Crescent’s emergence from bankruptcy. 105 PART I DUKE ENERGY CAROLINAS Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2013 and 2012. The results of operations and variance discussion for Duke Energy Carolinas is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. RESULTS OF OPERATIONS (in millions) Operating Revenues 2013 $ Operating Expenses Three Months Ended March 31, 2012 1,729 $ 1,501 $ Variance 228 1,297 1,029 2 3 (1) 434 475 (41) Other Income and Expenses, net 36 39 (3) Interest Expense 82 97 (15) (29) Gains on Sales of Other Assets and Other, net Operating Income Income Before Income Taxes 388 417 Income Tax Expense Net Income and Comprehensive Income 144 244 151 $ $ 266 268 (7) (22) $ The following table presents the percentage change in GWh sales and average number of customers for Duke Energy Carolinas. Except as otherwise noted, the below percentages represent billed sales only for the periods presented and are not weather normalized. Increase (decrease) over prior year 2013 Residential sales (a) 9.6 % General service sales (a) 2.1 % Industrial sales (a) (1.4) % Wholesale power sales 147.3 % Total sales(b) 14.3 % Average number of customers 0.7 % (a) Major components of retail sales. (b) Consists of all components of sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Three Months Ended March 31, 2013 as Compared to March 31, 2012 Operating Revenues. The variance was primarily due to: · A $127 million increase in fuel revenues driven primarily by an increased demand from retail customers mainly due to favorable weather conditions, partially offset by a decrease in fuel rates in both North Carolina and South Carolina. Fuel revenues represent sales to retail and wholesale customers, · A $68 million (net of fuel revenue) increase in GWh sales to retail customers due to favorable weather conditions. The number of heating degree days for 2013 was 6 percent above normal as compared to 25 percent below normal in 2012. The first quarter of 2012 was the mildest on record (dating back to 1961), · A $16 million increase in net retail pricing and rate riders primarily due to the year over year impact of new retail rates implemented in February 2012, partially offset by lower energy efficiency program revenues, primarily due to a favorable revenue adjustment in 2012 following a South Carolina rate order, and · A $14 million increase in wholesale power revenues, net of sharing, primarily due to a new customer in 2013, increased capacity charges, and additional volumes for customers served under long-term contracts. Operating Expenses. The variance was primarily due to: · A $138 million dollar increase in fuel expense (including purchased power) primarily related to higher volumes of coal and natural gas from increased generation due to favorable weather conditions and increased prices of coal and natural gas used in electric generation, partially offset by decreased purchased power due to additional generating capacity placed in service late 2012 and increased coal-fired generation due to higher natural gas prices; and, · A $126 million increase in operating and maintenance expenses primarily due to the establishment of regulatory assets in the first quarter of 2012, pursuant to regulatory orders for future recovery of certain employee severance costs related to the 2010 voluntary severance plan and other costs, higher non-outage and outage costs at generation plants, Duke Energy Carolinas’ portion of the costs associated 106 PART I with the Progress Energy merger, and increased storm costs, partially offset by 2012 donations required by rate cases, lower customer service and energy efficiency program costs, and lower corporate and employee benefit costs. Interest Expense. The decrease is primarily due to higher deferred interest on the costs of major projects recently placed in service but not yet reflected in customer rates, partially offset by a lower debt component of allowance for funds used during construction (AFUDC). Income Tax Expense. The variance in income tax expense was primarily due to a decrease in pre-tax income. The effective tax rate for the three months ended March 31, 2013 and 2012 was 37.1 percent and 36.3 percent, respectively. Matters Impacting Future Duke Energy Carolinas Results Duke Energy Carolinas has pending rate cases in North Carolina and South Carolina. These rates cases are needed to recover investments in Duke Energy Carolinas’ ongoing infrastructure modernization projects and operating costs. Duke Energy Carolinas’ earnings could be adversely impacted if these rate cases are denied or delayed by either of the state regulatory commissions. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. On April 12, 2013, the NCSC issued an order requiring the NCUC to make an independent determination regarding the proper return on equity included in Duke Energy Carolinas’ rate increase approved on January 27, 2012. The NCSC indicated the determination should be based upon appropriate findings of fact that balance all the available evidence, including the impact of changing economic conditions on customers. On April 29, 2013, the NCAG filed a motion with the NCUC requesting a stay of the rate increase approved by the NCUC and implemented in 2012. Duke Energy Carolinas’ financial condition, results of operations and cash flows could be adversely impacted if the NCUC determines the return of equity should be adjusted or issues a stay of the rate case. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. PROGRESS ENERGY Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2013 and 2012. The results of operations and variance discussion for Progress Energy is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10Q. RESULTS OF OPERATIONS (in millions) Operating Revenues 2013 $ Operating Expenses Three Months Ended March 31, 2012 2,186 $ 2,102 $ 1,756 Gains on Sales of Other Assets and Other, net Variance 84 1,740 16 (1) - 1 430 363 67 23 39 (16) Interest Expense 198 185 13 Income From Continuing Operations Before Taxes 255 217 38 Income Tax Expense From Continuing Operations 101 76 25 Income From Continuing Operations 154 141 13 - 11 (11) 154 152 2 1 2 150 (1) 3 Operating Income Other Income and Expenses, net Income From Discontinued Operations, net of tax Net Income Less: Net Income Attributable to Noncontrolling Interest Net Income Attributable to Parent $ 153 $ $ Three Months Ended March 31, 2013 as Compared to March 31, 2012 Operating Revenues. The variance was primarily due to: · · A $56 million increase in sales (excluding fuel revenues) to wholesale customers primarily due to a new contract with a major wholesale customer that began in January 2013 and an amended capacity contract with a major customer that began in May 2012 and favorable weather conditions at Duke Energy Progress, A $43 million increase primarily due to a retail base rate increase effective January 1, 2013 at Duke Energy Florida · A $38 million increase (net of fuel revenue) in GWh sales to retail customers primarily due to favorable weather at Duke Energy Progress net of unfavorable weather at Duke Energy Florida. The weather statistics for heating degree days in 2013 were favorable compared to the same period in 2012, and · A $19 million increase in capacity clause revenues at Duke Energy Florida primarily due to an increase in recovery of costs related to the proposed Levy Nuclear Station effective January 1, 2013, partially offset by lower sales volume. Partially offsetting these increases was: · An $83 million decrease in fuel revenues primarily due to the impact of lower residential fuel rates at Duke Energy Florida and a decrease in GWh retail sales due to weather. 107 PART I Operating Expenses. The variance was primarily due to: · A $28 million increase in Depreciation and amortization primarily due to higher nuclear cost-recovery amortization related to the Levy nuclear station project at Duke Energy Florida, and · A $26 million increase in Operation, maintenance and other expense primarily due to Duke Energy Florida’s 2012 settlement agreement, including the 2012 reversals and suspension of accruals related to Crystal River Unit 3, partially offset by lower nuclear plant outage costs at Duke Energy Progress resulting from one nuclear refueling outage in 2013 compared to two extended outages during the same period in 2012. Partially offsetting these increases was: · A $41 million decrease in Fuel used in electric generation and purchased power primarily due to generation mix at Duke Energy Progress as a result of retiring certain coal-fired plants and adding one new natural gas-fired generating plant, and one less nuclear outage in 2013 compared to 2012. Other Income and Expenses, net. The variance was primarily due to the $8 million prior-year pre-tax unrealized gain to record the change in fair value of the contingent value obligations (CVOs) compared to no change in the fair value of the CVOs in 2013. Interest Expense. The variance was primarily due to the $29 million charge to interest expense on the redemption of Progress Energy’s 7.10% Cumulative Quarterly Income Preferred Securities (QUIPS) in January 2013, partially offset by the $16 million capitalized interest, starting January 1, 2013, on the regulatory asset related to the retail portion of the retired Crystal River Unit 3 assets. Income Tax Expense from Continuing Operations. The variance was primarily due to an increase in pre-tax income. The effective tax rates for 2013 and 2012 were 39.6 percent and 35.1 percent, respectively. The increase in the effective tax rate is primarily due to the impact of lower AFUDC equity and the employee stock ownership plan dividend deduction being recorded at Duke Energy in 2013 as a result of the merger. Discontinued Operations, net of tax. The variance was primarily due to the prior-year reversal of certain environmental indemnification liabilities for which the indemnification period had expired. Matters Impacting Future Progress Energy Results The FPSC will review the prudence of the retirement decision and the mediated resolution of insurance claims with NEIL related to Duke Energy Florida’s Crystal River Unit 3. A procedural schedule related to these proceedings is pending before the FPSC. Progress Energy’s financial condition, results of operations and cash flows could be adversely impacted if the FPSC issues an unfavorable ruling. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. Duke Energy Progress has a settlement agreement related to a rate case in North Carolina pending before the NCUC. The settlement agreement provides for a total $182 million increase in retail rates during a two year step-in period. Progress Energy’s earnings could be adversely impacted if the settlement agreement is denied or delayed by the NCUC. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. DUKE ENERGY PROGRESS Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2013 and 2012. The results of operations and variance discussion for Duke Energy Progress is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. RESULTS OF OPERATIONS (in millions) Operating Revenues 2013 $ Operating Expenses Gains on Sales of Other Assets and Other, net Operating Income Three Months Ended March 31, 2012 1,216 $ 1,090 $ Variance 126 1,004 984 20 - 1 (1) 212 107 105 Other Income and Expenses, net 14 20 (6) Interest Expense 48 51 (3) 178 76 102 Income Before Income Taxes Income Tax Expense Net Income Less: Preferred Stock Dividend Requirement Net Income Available to Parent 68 24 44 110 52 58 $ 110 $ 1 51 (1) 59 $ The following table presents the percentage change in GWh sales and average number of customers for Duke Energy Progress. Except as otherwise noted, the below percentages represent billed sales only for the periods presented and are not weather normalized. Increase over prior period Residential sales (a) General service sales (a) Industrial sales (a) Wholesale power sales Total sales(b) Average number of customers (a) (b) 2013 11.8 1.0 0.6 26.8 11.6 0.8 % % % % % % Major components of retail sales. Consists of all components of sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. 108 PART I Three Months Ended March 31, 2013 as Compared to March 31, 2012 Operating Revenues. The variance was primarily due to: · A $56 million increase in sales (excluding fuel revenues) to wholesale customers primarily due to a new contract with a major wholesale customer that began in January 2013 and an amended capacity contract with a major wholesale customer that began in May 2012 and favorable weather conditions, · A $48 million increase (net of fuel revenue) in GWh sales to retail customers due to favorable weather conditions. The number of heating degree days for the 3 months ended March 31, 2013 was 5 percent above normal compared to 29 percent below normal for the same period in 2012, and · A $20 million increase in wholesale fuel revenue due to higher sales primarily due to favorable weather conditions. Operating Expenses. The variance was primarily due to: · A $35 million increase in Fuel expense (including purchased power) primarily from demand associated with favorable weather, partially offset by lower fuel expense due to generation mix as a result of retiring certain coal-fired plants and adding one new natural gas-fired generating plant, and one less nuclear outage in 2013 compared to 2012. Partially offsetting this increase was: · A $22 million decrease in Operation and maintenance expenses primarily due to lower nuclear plant outage costs, partially offset by higher costs to achieve the merger with Duke Energy. The lower nuclear plant outage costs are primarily due to one nuclear refueling outage in 2013 compared to two extended outages during the same period in 2012. Income Tax Expense. The variance was primarily due to an increase in pre-tax income. The effective tax rates for the three months ended March 31, 2013 and 2012 were 38.1 percent and 32.0 percent, respectively. The increase in the effective tax rate was primarily due to the favorable prior year tax benefit related to the manufacturing deduction and the impact of lower AFUDC equity in 2013. Matters Impacting Future Duke Energy Progress Results Duke Energy Progress has a settlement agreement related to a rate case in North Carolina pending before the NCUC. The settlement agreement provides for a total $182 million increase in retail rates during a two year step-in period. Duke Energy Progress’ earnings could be adversely impacted if the settlement agreement is denied or delayed by the NCUC. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. DUKE ENERGY FLORIDA Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2013 and 2012. The results of operations and variance discussion for Duke Energy Florida is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. RESULTS OF OPERATIONS (in millions) Operating Revenues 2013 $ Operating Expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Net Income Less: Preferred Stock Dividend Requirement Net Income Available to Parent Three Months Ended March 31, 2012 968 $ 1,010 $ (42) 747 756 (9) - 1 (1) 221 255 (34) 8 9 (1) 49 63 (14) 180 201 (21) 70 73 (3) 110 128 (18) $ Variance 110 $ 1 127 (1) (17) $ The following table presents the percentage change in GWh sales and average number of customers for Duke Energy Florida. Except as otherwise noted, the below percentages represent billed sales only for the periods presented and are not weather normalized. Increase (decrease) over prior period 2013 Residential sales (a) General service sales (a) Industrial sales (a) Wholesale power sales Total sales(b) Average number of customers (a) (b) 1.1 (2.6) (0.3) % (17.6) % (4.7) 0.9 % % % % Major components of retail sales. Consists of all components of sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. 109 PART I Three Months Ended March 31, 2013 as Compared to March 31, 2012 Operating Revenues. The variance was primarily due to: · An $83 million decrease in fuel revenues primarily due to the impact of lower residential fuel rates and a decrease in GWh retail sales due to weather, · A $10 million decrease in sales to retail customers due to unfavorable weather, and · A $5 million decrease in weather-normal retail volumes primarily related to commercial, industrial, and governmental sectors, offset by favorable volumes in the residential sector. Partially offsetting these decreases was: · · A $43 million increase primarily due to a retail base rate increase effective January 1, 2013, and A $19 million increase in capacity clause revenues primarily due to an increase in recovery of costs related to the proposed Levy Nuclear Station (Levy) effective January 1, 2013, partially offset by lower sales volume. Operating Expenses. The variance was primarily due to: · A $76 million decrease in Fuel used in electric generation and purchased power primarily due to lower system requirements due to milder weather in the current year and lower natural gas prices. Partially offsetting this decrease was: · · A $46 million increase in Operation and maintenance expenses primarily due to Duke Energy Florida's 2012 FPSC Settlement Agreement, including the 2012 reversals and suspension of accruals related to Crystal River Unit 3. A $25 million increase in Depreciation and amortization primarily due to higher nuclear cost-recovery amortization related to the Levy project. Interest Expense. The variance was primarily due to the $16 million capitalized interest, starting January 1, 2013, on the regulatory asset related to the retail portion of the retired Crystal River Unit 3 assets. Matters Impacting Future Duke Energy Florida Results The FPSC will review the prudence of the retirement decision and the mediated resolution of insurance claims with NEIL related to Duke Energy Florida’s Crystal River Unit 3. A procedural schedule has been established providing for hearings in October 2013. Duke Energy Florida’s financial condition, results of operations and cash flows could be adversely impacted if the FPSC issues an unfavorable ruling. See Note 4, Regulatory Matters, to the Condensed Consolidated Financial Statements for additional information. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. DUKE ENERGY OHIO Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2013 and 2012. The results of operations and variance discussion for Duke Energy Ohio is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. RESULTS OF OPERATIONS (in millions) Operating Revenues 2013 $ Operating Expenses Gains on Sales of Other Assets and Other, net Operating (Loss) Income Other Income and Expenses, net Interest Expense (Loss) Income Before Income Taxes Income Tax (Benefit) Expense Net (Loss) Income $ Three Months Ended March 31, 2012 747 $ 912 $ Variance (165) (11) 764 775 - 1 (1) (17) 138 (155) (2) 2 4 18 24 (6) (33) 118 (151) (12) (21) $ 44 74 (56) (95) $ The following table presents the percentage change in GWh sales and average number of customers for Duke Energy Ohio. Except as otherwise noted, the below percentages represent billed sales only for the periods presented and are not weather normalized. Increase (decrease) over prior year 2013 Residential sales (a) General service sales (a) Industrial sales (a) Wholesale power sales Total sales(b) Average number of customers (a) (b) 11.2 3.4 % (0.1) % 130.8 5.5 0.2 % Major components of retail sales. Consists of all components of sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. 110 % % % PART I Three Months Ended March 31, 2013 as Compared to March 31, 2012 Operating Revenues. The variance was primarily driven by: · · A $124 million decrease in net mark-to-market revenues on non-qualifying power and capacity hedge contracts, consisting of mark-to-market losses of $90 million in 2013 compared to gains of $34 million in 2012; and A $61 million decrease in PJM capacity revenues related to lower average cleared capacity auction pricing in 2013 compared to 2012. Partially offsetting these decreases were: · A $17 million increase in retail revenues related to favorable weather conditions in 2013 compared to 2012. Operating Expenses. The variance was primarily driven by: · An $11 million decrease in operating and maintenance expenses primarily due to lower station outage expenses. Income Tax Expense. The variance in tax expense was primarily due to a decrease in pre-tax income. The effective tax rate for the three months ended March 31, 2013 and 2012 was 37.1 percent and 37.0 percent, respectively. Matters Impacting Future Duke Energy Ohio Results On May 1, 2013, the PUCO approved a settlement agreement related to Duke Energy Ohio’s electric and gas distribution rate cases. The settlement agreement provides for a net annualized increase in electric distribution revenues of $49 million and no increase in base rates for gas customers subject to the unresolved litigation over remediation costs associated with MGP sites. A separate hearing for recovery of remediation costs associated with MGP sites was held on April 29, 2013. Revised electric rates will be effective in May 2013. Duke Energy Ohio’s financial condition, results of operations and cash flows could be adversely impacted if the PUCO issues an unfavorable ruling on the MGP proceeding. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. The current low energy price projections, as well as recently issued and proposed environmental regulations pertaining to coal and coal-fired generating facilities, could impact future cash flows and market valuations of Duke Energy Ohio’s coal-fired generation assets which could lead to impairment charges. DUKE ENERGY INDIANA Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2013 and 2012. The results of operations and variance discussion for Duke Energy Indiana is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. RESULTS OF OPERATIONS (in millions) Operating Revenues 2013 $ Three Months Ended March 31, 2012 724 $ 688 $ Variance 36 Operating Expenses 543 960 Operating Income (Loss) 181 (272) 453 4 23 (19) Other Income and Expenses, net Interest Expense Income (Loss) Before Income Taxes Income Tax Expense (Benefit) Net Income (Loss) 41 34 7 144 (283) 427 54 $ (417) 90 $ (116) (167) 170 257 $ The following table presents the percentage change in GWh sales and average number of customers for Duke Energy Indiana. Except as otherwise noted, the below percentages represent billed sales only for the periods presented and are not weather normalized. Increase (decrease) over prior year 2013 Residential sales (a) General service sales (a) Industrial sales (a) Wholesale power sales Total sales(b) Average number of customers (a) (b) 12.8 3.6 % (1.4) (14.7) % 0.4 0.8 % Major components of retail sales. Consists of all components of sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. 111 % % % PART I Three Months Ended March 31, 2013 as Compared to March 31, 2012 Operating Revenues. The variance was primarily due to: · A $22 million net increase in rate riders primarily related to higher recoveries under the Edwardsport IGCC rider; and · A $20 million net increase in revenue due to favorable weather. Partially offsetting these increases were: · A $13 million decrease in overall average rate realization due primarily to the declining block rate structure for residential sales. Operating Expenses. The variance was primarily due to: · A $420 million decrease due to impairment and other charges recorded in 2012 related to the Edwardsport IGCC plant that is currently under construction. Other Income and Expenses, net. The decrease was primarily due to: · A $19 million decrease in AFUDC Equity primarily due to the implementation of new rates related to the IGCC rider in January 2013. Income Tax (Benefit) Expense. The variance in income tax expense was primarily due to an increase in pre-tax income. The effective tax rates for the three months ended March 31, 2013 and 2012 were 37.5 percent and 41.0 percent, respectively. The decrease in the effective tax rate is primarily due to the reduction in AFUDC equity, as well as Edwardsport IGCC impairments, which resulted in a pre-tax loss in 2012. Matters Impacting Future Duke Energy Indiana Results On December 27, 2012, the IURC approved a settlement agreement between Duke Energy Indiana and certain intervenors to cap the construction costs recoverable in retail rates for the Edwardsport IGCC plant. The Edwardsport IGCC plant is scheduled to begin commercial operation in mid-2013. Duke Energy Indiana’s financial condition, results of operations and cash flows could be adversely impacted by additional delays in the commencement of operations which may result in increased costs. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. 112 PART I LIQUIDITY AND CAPITAL RESOURCES The following discussion of liquidity and capital resources is on a consolidated Duke Energy basis. Duke Energy’s significant cash requirements are largely due to the capital intensive nature of its operations, including capital expansion projects, fleet modernization and other expenditures for environmental compliance. Duke Energy relies upon its cash flows from operations, as well as its ability to access the long-term debt and equity capital markets for sources of domestic liquidity. Additionally, Duke Energy has access to an unsecured revolving credit facility, which is not restricted upon general market conditions, as discussed further below. Cash Flow Information The following table summarizes Duke Energy’s cash flows. Three Months Ended March 31, (in millions) 2012 2013 Cash flows provided by (used in): Operating activities 1,091 $ Investing activities Financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 872 $ (1,180) (1,465) 246 (731) (128) (1,039) 1,424 1,296 $ 2,110 1,071 $ OPERATING CASH FLOWS The following table summarizes key components of Duke Energy’s operating cash flows: (in millions) Net income $ Non-cash adjustments to net income Working capital Net cash provided by operating activities $ Three Months Ended March 31, 2013 2012 634 $ 299 1,122 836 (665) (263) 1,091 $ 872 The increase in cash provided by operating activities in 2013 as compared to 2012 was driven primarily by: • An approximately $620 million increase in net income after non-cash adjustments, mainly due to the inclusion of Progress Energy's results, beginning July 2, 2012, the prior year impact of the 2011 Duke Energy Carolinas' rate cases and favorable weather. This increase was partially offset by: • A $380 million decrease in traditional working capital, mainly due to an increase in the incentive pay-out and prior year over collection of the Carolinas' fuel costs. INVESTING CASH FLOWS The following table summarizes key components of Duke Energy’s investing cash flows: (in millions) Capital, investment and acquisition expenditures $ Available for sale securities, net Three Months Ended March 31, 2013 2012 (1,410) $ (1,043) (127) (76) Proceeds from sales of equity investments and other assets, and sales of and collections on notes receivable Other investing items Net cash used in investing activities $ 20 17 1 (27) (1,180) (1,465) $ The increase in cash used in investing activities in 2013 as compared to 2012 is primarily due to the following: • A $370 million increase in capital, investment and acquisition expenditures primarily due to the inclusion of Progress Energy's capital expenditures beginning July 2, 2012, net of lower spending on Duke Energy's renewable energy wind projects and ongoing infrastructure modernization program as these projects near completion. 113 PART I FINANCING CASH FLOWS The following table summarizes key components of Duke Energy’s financing cash flows: Three Months Ended March 31, (in millions) Issuance of common stock related to employee benefit plans 2012 2013 5 $ Issuance of long-term debt, net 8 $ 262 Notes payable and commercial paper Dividends paid Other financing items Net cash provided by (used in) financing activities (429) 627 28 (542) (335) (3) (731) (106) 246 $ $ The increase in net cash provided by financing activities in 2013 as compared to cash used in 2012 was due primarily to the following: • A $690 million increase in net issuances of long-term debt, primarily due to the timing of issuances and redemptions across years. • A $600 million increase in proceeds from net issuances of notes payable and commercial paper, primarily to fund the short-term working capital needs of the Duke Energy Registrants. These increases in cash provided were partially offset by: • A $200 million increase in quarterly dividends primarily due to an increase in common shares outstanding, resulting from the merger with Progress Energy and an increase in dividends per share from $0.75 to $0.765 beginning in the third quarter of 2012. SIGNIFICANT NOTES PAYABLE AND LONG-TERM DEBT ACTIVITIES – 2013 The following table summarizes the Duke Energy Registrants’ significant debt issuances since December 31, 2012 (in millions). Issuance Date Unsecured Debt Maturity Date January 2013 (a) January 2073 Duke Energy (Parent) Interest Rate 5.125 % $ 500 Duke Energy Duke Energy Progress - $ 500 $ Secured Debt (b) (c) February 2013 February 2013 (b) April 2013 (d) First Mortgage Bonds March 2013 (e) Total issuances (a) (b) (c) (d) (e) December 2030 June 2037 April 2026 March 2043 2.043 % 4.740 % - 5.456 % 4.100 % - $ 500 500 500 $ 203 220 230 500 1,653 $ Callable after January 2018 at par. Proceeds from the issuance were used to redeem the $300 million 7.10% QUIPS. The securities were redeemed at par plus accrued and unpaid distributions, payable upon presentation on the redemption date. The remaining net proceeds were used to repay a portion of our commercial paper and for general corporate purposes. See Note 11 to the Condensed Consolidated Financial Statements, "Variable Interest Entities," for additional information about the QUIPS. Represents the conversion of construction loans related to a renewable energy project issued in December 2012 to term loans. No cash proceeds were received in conjunction with the conversion. The term loans have varying maturity dates. The maturity date presented represents the latest date for all components of the respective loans. The debt is floating rate. Duke Energy has entered into a pay fixed-receive floating interest rate swap for 95 percent of the loans. Represents primarily the conversion of a $190 million bridge loan issued in conjunction with the acquisition of Iberoamericana de Energía Ibener, S.A. (Ibener) in December 2012. Duke Energy received incremental proceeds of $40 million upon conversion of the bridge loan. The debt is floating rate and is denominated in U.S. dollars. Duke Energy has entered into a pay fixed-received floating interest rate swap for 75 percent of the loan. Proceeds from the issuance were used to repay notes payable to affiliated companies as well as for general corporate purposes. CURRENT MATURITIES OF LONG-TERM DEBT The following table shows the significant components of Current maturities of long-term debt on the Duke Energy Registrants’ respective Condensed Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with proceeds from additional borrowings, unless otherwise noted. (in millions) Maturity Date Interest Rate March 31, 2013 Unsecured Debt Duke Energy (Parent) Duke Energy Indiana Duke Energy (Parent) Progress Energy (Parent) June 2013 September 2013 February 2014 March 2014 5.650 % 5.000 % 6.300 % 6.050 % June 2013 1.009 % 190 June 2013 September 2013 November 2013 2.100 % 5.125 % 5.750 % 250 400 400 $ 250 400 750 300 Secured Debt Duke Energy (a) First Mortgage Bonds Duke Energy Ohio Duke Energy Progress Duke Energy Carolinas 383 Other Current maturities of long-term debt (a) $ 3,323 Notes were fully offset with cash collateral, which was presented within Current Assets on the Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012. All collateral was returned after the six-month bridge loan was replaced with a $230 million nonrecourse secured credit facility issued in April 2013. See Note 2 to the Condensed Consolidated Financial Statements, "Acquisitions, Dispositions and Sales of Other Assets," for additional information. Egg Eng m? 114 PART I Duke Energy issues unsecured senior notes, called InterNotes, due one year to 30 years from the date of issuance. The InterNotes are issued in the retail markets as direct, unsecured and unsubordinated obligations of Duke Energy Corporation. The net proceeds from the sale of InterNotes are used to fund capital expenditures in Duke Energy’s unregulated businesses and for general corporate purposes. The balances as of March 31, 2013 and December 31, 2012 were $64 million and $35 million, respectively, with maturities ranging from 10 to14 years. The notes reflect long-term debt obligations of Duke Energy and are reflected as Long-term debt on Duke Energy’s Condensed Consolidated Balance Sheets. Duke Energy issues variable denomination floating rate demand notes, called PremierNotes. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, but may be redeemed in whole or in part by Duke Energy at any time. The notes are non-transferable and may be redeemed in whole or in part at the investor’s option. Proceeds from the sale of the notes will be used for general corporate purposes. The balances as of March 31, 2013 and December 31, 2012, were $506 million and $395 million, respectively. The notes reflect a short-term debt obligation of Duke Energy and are reflected as Notes Payable and Commercial Paper on Duke Energy’s Condensed Consolidated Balance Sheets. Credit Facilities and Other Information MASTER CREDIT FACILITY SUMMARY Duke Energy has a $6 billion, 5-year master credit facility, expiring in November 2016. In 2012 the Duke Energy Registrants reached an agreement with banks representing $5.63 billion of commitments under the master credit facility to extend the expiration date by one year to November 2017. Through November 2016, the available credit under this facility remains $6 billion. The Duke Energy Registrants each have borrowing capacity under the master credit facility up to specified sublimits for each borrower. However, Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. See the table below for the borrowing sublimits for each of the borrowers as of March 31, 2013. The amount available under the master credit facility is reduced, as indicated in the table below, by the use of the master credit facility to backstop the issuances of commercial paper, certain letters of credit and variable rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. As indicated, borrowing sublimits for the Subsidiary Registrants are also reduced for amounts outstanding under the money pool arrangement. (in millions) Facility size (a) Duke Energy (Parent) $ Duke Energy 1,750 (486) (300) (26) (162) (163) (169) (50) (7) (2) (1) ― ― (60) ― 1,214 (75) ― 722 ― 587 (84) (81) (240) Progress $ 750 Duke Energy Florida $ 750 Duke Energy Ohio Total Duke Energy Duke Energy Carolinas $ 1,250 $ 750 Duke Energy Indiana $ 750 $ 6,000 Reduction to backstop issuances Notes payable and commercial paper (b) Outstanding letters of credit Tax-exempt bonds Available capacity (a) (b) $ $ 868 $ $ $ 503 $ 500 (1,306) $ 4,394 Represents the sublimit of each borrower at March 31, 2013. The Duke Energy Ohio sublimit includes $100 million for Duke Energy Kentucky. Duke Energy issued $450 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas and Duke Energy Indiana. The balances are classified as long-term borrowings within Long-term Debt in Duke Energy Carolina’s and Duke Energy Indiana’s Condensed Consolidated Balance Sheets. FIRST MORTGAGE BOND RESTRICTIONS The Subsidiary Registrants’ first mortgage bonds are secured under their respective mortgage indentures. Each mortgage constitutes a first lien on substantially all of the fixed properties of the respective company, subject to certain permitted encumbrances and exceptions. The lien of each mortgage also covers subsequently acquired property. Each mortgage allows the issuance of additional first mortgage bonds based on property additions, retirements of first mortgage bonds and the deposit of cash if certain conditions are satisfied. Most of the Subsidiary Registrants are required to pass a “net earnings” test in order to issue new first mortgage bonds, other than on the basis of retired bonds 115 PART I under certain circumstances. The test requires that the issuer’s adjusted net earnings, which are calculated based on results for 12 consecutive months within the prior 15 to 18 months, be at least twice the annual interest requirement for bonds currently outstanding and to be outstanding. Duke Energy Indiana’s and Duke Energy Florida’s ratios of net earnings to the annual interest requirement for bonds have at times in the past two years been below 2.0 times, due to various charges to operating expenses. As discussed in Note 4 of the Condensed Consolidated Financial Statements, “Regulatory Matters,” these charges and any future charges may impact future net earnings tests and affect the ability of Duke Energy Indiana and Duke Energy Florida to issue first mortgage bonds. In the event Duke Energy Indiana’s or Duke Energy Florida’s long-term debt requirements exceed its first mortgage bond capacity, Duke Energy Indiana or Duke Energy Florida can access alternative sources of capital, including, but not limited to issuing unsecured debt, borrowing under the money pool, entering into bilateral direct loan arrangements, and, if necessary, utilizing available capacity under the master credit facility. All of the other Duke Energy Registrants have earnings substantially in excess of the net earnings test requirement for issuing first mortgage bonds. RESTRICTIVE DEBT CONVENANTS The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. The master credit facility contains a covenant requiring the debtto-total capitalization ratio to not exceed 65 percent for each borrower. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of March 31, 2013, each of the Duke Energy Registrants was in compliance with all covenants related to its significant debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the significant debt or credit agreements contain material adverse change clauses. CREDIT RATINGS Duke Energy and certain subsidiaries each hold credit ratings by Fitch Ratings (Fitch), Moody’s Investors Service (Moody’s) and Standard & Poor’s (S&P). Duke Energy’s corporate credit rating and issuer credit rating from Fitch, Moody’s and S&P, respectively, as of April 30, 2013 is BBB+, Baa2 and BBB, respectively. As of April 30, 2013, the Duke Energy Registrants’ have a stable outlook rating from Fitch and Moody’s, with the exception of Duke Energy Florida, which has a negative outlook at Fitch. In addition, the Duke Energy Registrants have a negative outlook rating from S&P. Duke Energy’s credit ratings are dependent on, among other factors, the ability to generate sufficient cash to fund capital and investment expenditures and pay dividends on its common stock, while maintaining the strength of its current balance sheet. If, as a result of market conditions or other factors, Duke Energy is unable to maintain its current balance sheet strength, or if its earnings and cash flow outlook materially deteriorates, Duke Energy’s credit ratings could be negatively impacted. UNDISTRIBUTED FOREIGN EARNINGS Undistributed earnings associated with Duke Energy’s foreign operations are considered indefinitely reinvested, thus no U.S. tax is recorded on such earnings. This assertion is based on management’s determination that the cash held in Duke Energy’s foreign jurisdictions is not needed to fund its U.S. operations and that Duke Energy either has invested or has intentions to reinvest such earnings. Duke Energy periodically evaluates the impact of repatriation of cash generated and held in foreign countries. While Duke Energy’s current intent is to indefinitely reinvest foreign earnings, circumstances could arise that may alter that view, including a future change in tax law governing U.S. taxation of foreign earnings or changes in Duke Energy’s U.S. cash flow requirements. If Duke Energy were to decide to repatriate foreign generated and held cash previously designated as undistributed earnings, recognition of material U.S. federal income tax liabilities would be required to be recognized in the period such determination is made. The cumulative undistributed earnings as of March 31, 2013, on which Duke Energy has not provided deferred U.S. income taxes and foreign withholding taxes is $2.2 billion. The amount of unrecognized deferred tax liability related to these undistributed earnings is estimated to be between $275 million and $350 million. OTHER ISSUES Global Climate Change For information on global climate change and the potential impacts on Duke Energy, see “Other Issues” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2012. Nuclear Matters Following the events at the Fukushima Daiichi nuclear power station in Japan, Duke Energy conducted thorough inspections at each of its three nuclear sites during 2011. Progress Energy also conducted inspections in 2011 at each of its four sites. The initial inspections did not identify any significant vulnerabilities, however, Duke Energy has continued reviewing designs to evaluate safety margins to external events. Emergency-response capabilities, written procedures and engineering specifications were reviewed to verify each site’s ability to respond in the unlikely event of station blackout. Duke Energy is working within the nuclear industry to improve the safety standards and margin using the three layers of safety approach used in the U.S.: protection, mitigation and emergency response. Emergency equipment is currently being added at each station to perform key safety functions in the event that backup power sources are lost permanently. These improvements are in addition to the numerous layers of safety measures and systems previously in place. In March 2011, the Nuclear Regulatory Commission (NRC) formed a task force to conduct a comprehensive review of processes and regulations to determine whether the agency should make additional improvements to the nuclear regulatory system. On July 13, 2011, the task force proposed a set of improvements designed to ensure protection, enhance accident mitigation, strengthen emergency preparedness and improve efficiency of NRC programs. The recommendations were further prioritized into three tiers based on the safety enhancement level. On March 12, 2012, the NRC issued three regulatory orders requiring safety enhancements related to mitigation strategies to respond to extreme natural events resulting in the loss of power at a plant, ensuring reliable hardened containment vents and enhancing spent fuel pool instrumentation. 116 PART I In May 2012, the NRC endorsed guidance on re-evaluating emergency communications systems and staffing levels and performing seismic and flooding walkdowns. On July 13, 2012, the NRC outlined plans for implementing Tier 2 and Tier 3 recommendations. On August 30, 2012, the NRC issued implementation guidance to enable power plants to achieve compliance with the orders issued in March 2012. Plants were required to submit implementation plans to the NRC by February 28, 2013, and complete implementation of the safety enhancements within two refueling outages or by December 31, 2016, whichever comes first. Each plant is also required to reassess their seismic and flooding hazards using present-day methods and information, conduct inspections to ensure protection against hazards in the current design basis, and re-evaluate emergency communications systems and staffing levels. Duke Energy is committed to compliance with all safety enhancements ordered by the NRC in connection with the March 12, 2012, regulatory orders noted above, the cost of which could be material. Until such time as the NRC mandated reassessment of flooding and seismic hazards is complete the exact scope and cost of compliance modifications to our sites will not be known. Duke Energy anticipates investing approximately $500 million in capital and approximately $100 million in operations and maintenance expenses to comply with Fukushima regulatory requirements from 2013-2015. These expenditures will focus on key areas such as coping with natural phenomena, the design of containment vents for boiling water reactor (BWR) units, instrumentation to accurately measure spent fuel pools, water levels and opportunities to augment emergency response. Amounts required to meet these requirements may vary, as the rules are more clearly defined. On March 19, 2013, the NRC directed the NRC Staff to prepare a revision to its existing rules related to hardened containment vents requiring vents for all BWR Mark Is and IIs to be capable of remaining functional during severe accident conditions. The NRC directed the NRC Staff to issue the order no later than May 20, 2013. Duke Energy Progress’ Brunswick Nuclear Station Units 1 and 2 will be required to comply with these revised rules. Duke Energy cannot predict the financial impact of complying with these severe accident capability requirements and costs of these requirement are not included in the estimates discussed above. With the NRC’s continuing review of the remaining recommendations, Duke Energy cannot predict to what extent the NRC will impose additional licensing and safetyrelated requirements, or the costs of complying with such requirements. The tight time frame required to complete the necessary safety enhancements by no later than 2016 could lead to even higher costs. Upon receipt of additional guidance from the NRC and a collaborative industry review, Duke Energy will be able to determine an implementation plan and associated costs. See Item 1A, “Risk Factors,” for further discussion of applicable risk factors. On February 20, 2013, Duke Energy Florida notified the NRC that Crystal River Unit 3 would be retired. The NRC granted Duke Energy Florida’s request for a six-month extension to file an integration plan related to the retirement. In 2006, Duke Energy Progress selected a site at its existing Shearon Harris Nuclear Station (Harris) to evaluate for possible future nuclear expansion. On February 19, 2008, Duke Energy Progress filed its combined Construction and Operating License (COL) application with the NRC for two Westinghouse Electric AP1000 reactors at Harris, which the NRC docketed on April 17, 2008. On May 2, 2013, Duke Energy Progress filed a letter to the NRC requesting the NRC to suspend its review activities associated with the COL at the Harris site. New Accounting Standards See Note 19 to the Condensed Consolidated Financial Statements, “New Accounting Standards,” for a discussion of the impact of new accounting standards. Off-Balance Sheet Arrangements During the three months ended March 31, 2013, there were no material changes to Duke Energy’s off-balance sheet arrangements. For information on Duke Energy’s offbalance sheet arrangements, see “Off-Balance Sheet Arrangements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2012. Contractual Obligations Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. During the three months ended March 31, 2013, there were no material changes in Duke Energy’s contractual obligations. For an in-depth discussion of Duke Energy’s contractual obligations, see “Contractual Obligations” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2012. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no significant changes from the disclosures presented in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2012. For an indepth discussion of Duke Energy’s market risks, see “Management’s Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2012. ITEM 4. CONTROLS AND PROCEDURES – DUKE ENERGY, DUKE ENERGY CAROLINAS, PROGRESS ENERGY, DUKE ENERGY PROGRESS, DUKE ENERGY FLORIDA, DUKE ENERGY OHIO AND DUKE ENERGY INDIANA Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized, and reported, within the time periods specified by the Securities and Exchange Commission’s (SEC) rules and forms. 117 PART I Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated the effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a−15(e) and 15d−15(e) under the Exchange Act) as of March 31, 2013, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance. Changes in Internal Control over Financial Reporting Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2013 and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. 118 PART I ITEM 1. LEGAL PROCEEDINGS Avian Mortalities Duke Energy has been notified by the U.S. Department of Justice (DOJ) that it has initiated a preliminary investigation into the incidental deaths of golden eagles and other migratory birds resulting from turbine collisions at two of Duke Energy’s wind farms in Wyoming. Duke Energy undertakes adaptive management practices designed to avoid and minimize additional avian impacts, and is cooperating in the investigation and working with both the DOJ and the US Fish and Wildlife Service toward a constructive resolution. For further information regarding legal proceedings, including regulatory and environmental matters, see Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies — Litigation” and “Commitments and Contingencies — Environmental.” ITEM 1A. RISK FACTORS In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in the Duke Energy Registrants’ Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect the Duke Energy Registrants’ financial condition or future results. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ISSUER PURCHASES OF EQUITY SECURITIES FOR THE FIRST QUARTER of 2013 There were no issuer purchases of equity securities during the first quarter of 2013. 119 PART I Exhibits filed herewithin are designed by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**). The Company agrees to furnish upon request to the Commission a copy of any omitted schedules or exhibits upon request on all items designated by a triple asterisk (***). Exhibit Number 4.1 Eighth Supplemental Indenture, dated as of January 14, 2013, to the Indenture, dated as of June 3, 2008, between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 2 to the Registration Statement on Form 8-A of the Company filed on January 14, Duke Energy X Duke Energy Carolinas Progress Duke Energy Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 2013) 10.1** *12 *31.1.1 10.1 Duke Energy Corporation Executive Short-Term Incentive Plan, as amended effective February 25, 2013 (incorporated by reference to Exhibit 10.1 to the Form 8-K of Duke Energy Corporation, File No. 1-32583 dated May 7, 2013). Computation of Ratio of Earnings to Fixed Charges Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.2 Certification of the Chief Executive Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.1.3 Certification of the Chief Executive Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.1.4 Certification of the Chief Executive Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.1.5 Certification of the Chief Executive Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.1.6 Certification of the Chief Executive Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.1.7 Certification of the Chief Executive Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.2.1 Certification of the Chief Financial Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.2.2 Certification of the Chief Financial Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.2.3 Certification of the Chief Financial Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.2.4 Certification of the Chief Financial Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.2.5 Certification of the Chief Financial Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.2.6 Certification of the Chief Financial Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *31.2.7 Certification of the Chief Financial Officer Pursuant to Section of the Sarbanes-Oxley Act of 2002. 302 *32.1.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.7 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.7 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *101.INS *101.SCH *101.CAL *101.LAB *101.PRE *101.DEF XBRL XBRL XBRL XBRL XBRL XBRL Instance Document Taxonomy Extension Schema Document Taxonomy Calculation Linkbase Document Taxonomy Label Linkbase Document Taxonomy Presentation Linkbase Document Taxonomy Definition Linkbase Document X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the Securities and Exchange Commission (SEC), to furnish copies of any or all of such instruments to it. 120 PART II. OTHER INFORMATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. DUKE ENERGY CORPORATION DUKE ENERGY CAROLINAS, LLC PROGRESS ENERGY, INC. DUKE ENERGY PROGRESS, INC. DUKE ENERGY FLORIDA, INC. DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. /S/ LYNN J. GOOD Date: May 9, 2013 Lynn J. Good Executive Vice President and Chief Financial Officer /S/ STEVEN K. YOUNG Date: May 9, 2013 Steven K. Young Vice President, Chief Accounting Officer, and Controller 122 @196 JEQELQ KEN m? ?an? EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES – DUKE ENERGY CORPORATION The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines. Three Months Ended March 31, (in millions) Years Ended December 31, 2012 (a) 2013 2011 2010 2008 2009 Earnings as defined for fixed charges calculation Add: Pretax income from continuing operations (b) $ Fixed charges Distributed income of equity investees 928 $ 2,291 $ 2,297 $ 2,097 $ 1,770 $ 1,993 422 1,510 1,057 1,045 892 883 27 151 149 111 82 195 ― Deduct: Preferred dividend requirements of subsidiaries ― 3 ― ― ― Interest capitalized (c) 24 177 166 168 102 Total earnings 93 $ 1,353 $ 3,772 $ 3,337 $ 3,085 $ 2,642 $ 2,978 $ 391 $ 1,420 $ 1,026 $ 1,008 $ 853 $ 834 Fixed charges: Interest on debt, including capitalized portions (b) Estimate of interest within rental expense 31 87 31 37 39 49 Preferred dividend requirements ― 3 ― ― ― ― Total fixed charges Ratio of earnings to fixed charges Ratio of earnings to fixed charges and preferred dividends combined (d) (a) (b) (c) (d) $ 422 $ 1,510 $ 1,057 $ 1,045 $ 892 $ 883 3.2 2.5 3.2 3.0 3.0 3.4 3.2 2.5 3.2 3.0 3.0 3.4 Includes the results of Progress Energy, Inc. beginning on July 2, 2012 Excludes amounts attributable to noncontrolling interests and income or loss from equity investees. Excludes the equity costs related to Allowance for Funds Used During Construction that are included in Other Income and Expenses in the Condensed Consolidated Statements of Operations. For all periods presented, Duke Energy Corporation had no preferred stock outstanding @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Rogers, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ JAMES E. ROGERS James E. Rogers Chairman, President and Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.2 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Rogers, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Carolinas, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.3 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Rogers, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Progress Energy, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ JAMES E. ROGERS James E. Rogers President and Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.4 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Rogers, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Progress, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.5 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Rogers, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Florida, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.6 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Rogers, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Ohio, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.7 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Rogers, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Indiana, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.1 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) 2) I have reviewed this quarterly report on Form 10-Q of Duke Energy Carolinas, LLC; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.4 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Progress, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.5 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Florida, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.6 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Ohio, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.7 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Indiana, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2013 /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, Chairman, President and Chief Executive Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy. /s/ JAMES E. ROGERS James E. Rogers Chairman, President and Chief Executive Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, Chief Executive Officer of Duke Energy Carolinas, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) (2) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Carolinas. /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, President and Chief Executive Officer of Progress Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Progress Energy. /s/ JAMES E. ROGERS James E. Rogers President and Chief Executive Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Progress, Inc. (“Duke Energy Progress”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, Chief Executive Officer of Duke Energy Progress, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Progress. /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Florida, Inc. (“Duke Energy Florida”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, Chief Executive Officer of Duke Energy Florida, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Florida. /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.6 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, Chief Executive Officer of Duke Energy Ohio, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Ohio. /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.7 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, Chief Executive Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana. /s/ JAMES E. ROGERS James E. Rogers Chief Executive Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Executive Vice President and Chief Financial Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy. /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Executive Vice President and Chief Financial Officer of Duke Energy Carolinas, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) (2) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Carolinas. /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Executive Vice President and Chief Financial Officer of Progress Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Progress Energy. /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Progress, Inc. (“Duke Energy Progress”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Executive Vice President and Chief Financial Officer of Duke Energy Progress, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Progress. /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Florida, Inc. (“Duke Energy Florida”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Executive Vice President and Chief Financial Officer of Duke Energy Florida, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Florida. /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.6 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Executive Vice President and Chief Financial Officer of Duke Energy Ohio, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Ohio. /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer May 9, 2013 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.7 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Executive Vice President and Chief Financial Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana. /s/ LYNN J. GOOD Lynn J. Good Executive Vice President and Chief Financial Officer May 9, 2013 @196 JEQELQ KEN m? ?an? @196 JEQELQ KEN m? ?an? [5 DUKE Quarter 2013 Statistical Supplement Aug 25 ??FFl?l?tL mam CONTENTS 2 DUKE ENERGY CORPORATION 2 Consolidating Statement of Operations 4 Consolidating Balance Sheet - Assets 5 Consolidating Balance Sheet - Liabilities and 21 COMMERCIAL POWER 21 Commercial Power Operating Statistics Equity 6 U.S. FRANCHISED ELECTRIC AND GAS 6 Consolidating Segment Income 8 Consolidating Balance Sheet - Assets 9 Consolidating Balance Sheet - Liabilities and Equity 10 Operating Statistics (Duke Energy Carolinas) 12 Operating Statistics (Duke Energy Progress) 14 Operating Statistics (Duke Energy Florida) 16 Operating Statistics (Duke Energy Ohio - Electric) 18 Operating Statistics (Duke Energy Ohio - Gas) 19 Operating Statistics (Duke Energy Indiana) 22 INTERNATIONAL ENERGY 22 23 International Energy Operating Statistics APPENDIX 23 Duke Energy Ohio Supplement Duke Energy Corporation CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) (In millions) OPERATING REVENUES Regulated electric (a) Nonregulated electric, natural gas, and other Regulated natural gas Total operating revenues U.S. Franchised Electric and Gas $ OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses Gains on sales of other assets and other, net OPERATING INCOME OTHER INCOME AND EXPENSES Other income and expenses, net Interest Expense INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Income Tax Expense (Benefit) INCOME (LOSS) FROM CONTINUING OPERATIONS Less: Net Income (loss) attributable to non-controlling interest SEGMENT INCOME (LOSS)/NET EXPENSE FROM CONTINUING OPERATIONS ATTRIBUTABLE TO DUKE ENERGY CORPORATION Income from Discontinued Operations, net of tax NET INCOME ATTRIBUTABLE TO DUKE ENERGY CORPORATION $ 4,874 186 5,060 Commercial Power $ 27 425 452 International Energy $ 392 392 Other $ 16 19 35 1,703 76 1,199 536 326 3,840 2 1,222 329 11 117 63 13 533 (81) 131 17 87 26 2 263 129 5 46 36 3 90 (55) 61 236 1,047 391 656 - 11 15 (85) (43) (42) - 33 21 141 42 99 2 11 95 (139) (60) (79) (2) 656 $ (42) $ 97 $ Three Months Ended March 31, 2013 Eliminations/ Adjustments $ (77) $ (28) $ (12) (1) (41) 4,889 824 185 5,898 (11) (28) (1) (1) (41) - 1,703 454 104 1,421 660 343 4,685 2 1,215 - 116 367 964 330 634 $ $ $ 634 634 (a) The amount for Commercial Power is primarily due to stability charge revenues included in Duke Energy Ohio's current Electric Stability Plan (ESP). Consolidated Data 2 Duke Energy Corporation CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) (In millions) OPERATING REVENUES Regulated electric (a) Nonregulated electric, natural gas, and other Regulated natural gas Total operating revenues U.S. Franchised Electric and Gas $ OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges (b) Total operating expenses Gains on sales of other assets and other, net OPERATING INCOME (LOSS) OTHER INCOME AND EXPENSES Other income and expenses, net Interest Expense INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Income Tax Expense (Benefit) INCOME (LOSS) FROM CONTINUING OPERATIONS Less: Net Income attributable to non-controlling interest SEGMENT INCOME/NET EXPENSE FROM CONTINUING OPERATIONS ATTRIBUTABLE TO DUKE ENERGY CORPORATION $ Income from Discontinued Operations, net of tax NET INCOME ATTRIBUTABLE TO DUKE ENERGY CORPORATION 2,497 171 2,668 Commercial Power $ 23 557 580 International Energy $ 402 402 Other $ Three Months Ended March 31, 2012 Eliminations/ Adjustments 15 15 $ (19) $ (16) (35) 2,501 958 171 3,630 777 75 589 368 171 402 2,382 4 290 339 8 116 56 11 530 50 123 19 77 24 2 245 157 (14) 30 16 (1) (2) (14) (22) 1 (35) - 777 448 102 746 479 184 402 3,138 3 495 62 146 206 70 136 - 8 19 39 8 31 - 54 16 195 49 146 4 5 43 (40) (24) (16) - - 129 224 400 103 297 4 (16) $ - 136 $ 31 $ 142 $ $ $ $ 293 2 295 (a) The amount for Commercial Power is primarily due to stability charge revenues included in Duke Energy Ohio's current Electric Stability Plan (ESP). (b) The amount for USFE&G is primarily due to a $400 million non-cash impairment charge related to the Edwardsport IGCC project. Note: Does not include Progress Energy activity as the merger closed on July 2, 2012. Consolidated Data 3 Duke Energy Corporation CONSOLIDATING BALANCE SHEET - ASSETS (Unaudited) (In millions) CURRENT ASSETS Cash and cash equivalents Short-term investments Receivables, net Restricted receivables of variable interest entities, net Receivables from affiliated companies Notes receivable from affiliated companies Inventory Other Total current assets U.S. Franchised Electric and Gas $ INVESTMENTS AND OTHER ASSETS Investments in equity method unconsolidated affiliates Investments and advances (from) to subsidiaries Nuclear decommissioning trust funds Goodwill Intangibles, net Notes receivable Restricted other assets of variable interest entities Other Total investments and other assets $ 5 75 4,536 15,960 76 4 1,441 22,097 PROPERTY, PLANT AND EQUIPMENT Cost Cost, variable interest entities Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment REGULATORY ASSETS AND DEFERRED DEBITS Regulatory Assets Other Total regulatory assets and deferred debits TOTAL ASSETS Segment reclassifications, intercompany balances and other adjustments REPORTABLE SEGMENT ASSETS 64 1,062 1,265 287 277 2,886 1,313 7,154 Commercial Power $ 928 288 260 107 73 227 1,883 222 (7) 64 224 54 85 642 86 (13) 347 55 63 330 868 89,360 16 (29,852) 130 59,654 4,899 1,563 (918) 5,544 3,849 (987) 2,862 10,138 117 10,255 99,160 67 40 107 7,872 3 3 5,616 (741) $ 9 109 39 995 125 302 1,579 International Energy 98,419 (935) $ 6,937 $ 5,521 295 72 12,361 479 13 348 13,568 $ 166 42,884 1 452 625 44,128 $ - $ (13,750) (756) (1) (128) (14,635) 1 1 (58,038) (56,360) 58,131 $ 93 1,296 288 1,503 1,304 3,096 2,062 9,549 478 4,536 16,371 356 69 54 2,466 24,330 (1) 2 1 572 36 608 59,056 2,696 March 31, 2013 (1) (42,939) (450) (15) (43,405) 1,498 (746) 752 (95) $ Eliminations/ Adjustments Other 99,605 1,579 (32,501) 130 68,813 10,778 196 10,974 113,666 $ 113,666 Consolidated Data 4 Duke Energy Corporation CONSOLIDATING BALANCE SHEET - LIABILITIES AND EQUITY (Unaudited) (In millions) CURRENT LIABILITIES Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Notes payable and commercial paper Non-recourse notes payable of variable interest entities Taxes accrued (prepaid) Interest accrued Current maturities of long-term debt Other Total current liabilities U.S. Franchised Electric and Gas $ 1,564 12,742 347 325 345 351 1,575 1,509 18,758 Commercial Power $ International Energy 155 $ 4 226 (92) 6 77 107 483 32 3 49 30 365 87 566 Eliminations/ Adjustments Other $ 233 928 239 1,361 190 91 1,306 444 4,792 $ March 31, 2013 1 $ (13,677) (812) (67) (79) (14,634) 1,985 1,361 325 425 478 3,323 2,068 9,965 LONG-TERM DEBT NON-RECOURSE LONG-TERM DEBT OF VARIABLE INTEREST ENTITIES NOTES PAYABLE TO AFFILIATED COMPANIES 24,369 300 450 450 955 - 714 - 9,551 - (450) 35,084 1,255 - DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory Liabilities Other Total deferred credits and other liabilities 11,128 454 1,785 5,190 5,553 1,571 25,681 1,247 53 37 122 1,459 236 1 1 73 311 (2,112) 572 2 436 (1,102) 19 (31) 1 (6) (17) 10,518 454 2,380 5,229 5,555 2,196 26,332 EQUITY Total Duke Energy Corporation shareholders' equity Noncontrolling interests Total equity 29,602 29,602 4,511 14 4,525 3,959 66 4,025 45,818 (3) 45,815 (42,937) (42,937) 40,953 77 41,030 TOTAL LIABILITIES AND EQUITY 99,160 7,872 5,616 59,056 (58,038) 113,666 (56,360) 58,131 Segment reclassifications, intercompany balances and other adjustments REPORTABLE SEGMENT LIABILITIES AND EQUITY (741) $ 98,419 (935) $ 6,937 (95) $ 5,521 $ 2,696 $ 93 $ 113,666 Consolidated Data 5 U.S. Franchised Electric and Gas CONSOLIDATING SEGMENT INCOME (Unaudited) (In millions) OPERATING REVENUES Regulated electric Regulated natural gas Total operating revenues OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Cost of natural gas Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses Gains on sales of other assets and other, net OPERATING INCOME OTHER INCOME AND EXPENSES Other income and expenses, net (a) Interest Expense INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Income Tax Expense SEGMENT INCOME (LOSS) ATTRIBUTABLE TO DUKE ENERGY CORPORATION Duke Energy Carolinas, LLC $ $ 1,720 1,720 Duke Energy Progress, Inc. $ 1,210 1,210 Duke Energy Florida, Inc. $ 968 968 Duke Energy Ohio, Inc. Duke Energy Indiana, Inc. $ $ 306 186 492 724 724 513 422 222 100 1,257 2 465 455 336 137 59 987 223 405 203 52 79 739 229 103 76 104 49 65 397 95 293 143 78 22 536 188 37 83 419 156 263 14 48 189 72 117 8 49 188 73 115 2 17 80 27 53 4 41 151 57 94 $ $ $ $ Eliminations/ Adjustments $ $ Three Months Ended March 31, 2013 (54) $ (54) 4,874 186 5,060 (66) (9) (2) 1 (76) 22 1,703 76 1,199 536 326 3,840 2 1,222 (4) (2) 20 6 14 $ 61 236 1,047 391 656 (a) Primarily due to an equity component of allowance for funds used during construction of $26 million for Duke Energy Carolinas, $11 million for Duke Energy Progress, $2 million for Duke Energy Florida and $3 million for Duke Energy Indiana. Consolidating Segment Income 6 U.S. Franchised Electric and Gas CONSOLIDATING SEGMENT INCOME (Unaudited) (In millions) OPERATING REVENUES Regulated electric Regulated natural gas Total operating revenues Duke Energy Carolinas, LLC $ OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Cost of natural gas Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges (a) Total operating expenses Gains on sales of other assets and other, net OPERATING INCOME OTHER INCOME AND EXPENSES Other income and expenses, net (b) Interest Expense INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Income Tax Expense SEGMENT INCOME FROM CONTINUING OPERATIONS ATTRIBUTABLE TO DUKE ENERGY CORPORATION $ 1,501 1,501 Duke Energy Ohio, Inc. $ 302 171 473 380 320 228 90 1,018 3 486 114 75 115 43 60 407 1 67 40 97 429 156 273 3 15 55 21 34 $ Duke Energy Indiana, Inc. $ 688 688 Eliminations/ Adjustments $ 6 6 283 156 96 21 400 956 (268) $ 23 34 (279) (116) (163) $ Three Months Ended March 31, 2012 $ 2,497 171 2,668 (2) 1 2 1 5 777 75 589 368 171 402 2,382 4 290 (4) 62 146 206 70 136 1 9 (8) $ (a) The amount for USFE&G is primarily due to a $400 million non-cash impairment charge related to the Edwardsport IGCC project. (b) Primarily due to an equity component of allowance for funds used during construction of $37 million for Carolinas, $1 million for Ohio and $21 million for Indiana, respectively. Note: Does not include Progress Energy activity as the merger closed on July 2, 2012. Consolidating Segment Income 7 U.S. Franchised Electric and Gas CONSOLIDATING BALANCE SHEET - ASSETS (Unaudited) (In millions) CURRENT ASSETS Cash and cash equivalents Receivables, net Restricted receivables of variable interest entities, net Receivables from affiliated companies Notes receivable from affiliated companies Inventory Other Total current assets Duke Energy Carolinas, LLC $ INVESTMENTS AND OTHER ASSETS Investments in equity method unconsolidated affiliates Investments and advances to (from) subsidiaries Nuclear decommissioning trust funds Goodwill Intangibles, net Notes receivable Other Total investments and other assets PROPERTY, PLANT AND EQUIPMENT Cost Cost, variable interest entities Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment REGULATORY ASSETS AND DEFERRED DEBITS Regulatory Assets Other Total regulatory assets and deferred debits TOTAL ASSETS Segment reclassifications, intercompany balances and other adjustments REPORTABLE SEGMENT ASSETS 5 150 680 76 397 1,010 403 2,721 Duke Energy Progress, Inc. $ $ 7 313 82 598 354 1,354 Duke Energy Ohio, Inc. $ 1 1,347 5 264 1,617 34,559 (11,663) 68 22,964 21,387 16 (8,312) 62 13,153 13,615 (4,102) 9,513 6,613 (2,026) 4,587 1,707 69 1,776 30,988 1,749 32 1,781 18,344 3,243 47 3,290 15,003 522 8 530 6,547 30,841 2 670 22 152 846 20 86 196 5 95 65 467 1 67 2,519 10 1 929 3,527 (147) $ 11 483 183 808 308 1,793 Duke Energy Florida, Inc. (106) $ 18,238 15,036 $ 1 921 2 39 963 33 $ Duke Energy Indiana, Inc. 6,502 $ 37 126 163 (45) $ 23 29 143 375 141 711 Eliminations/ (a) Adjustments (2) $ 1 585 (393) (125) 42 108 64 1,062 1,265 287 277 2,886 1,313 7,154 1 7 15,039 3 (69) 14,981 5 75 4,536 15,960 76 4 1,441 22,097 12,119 (3,746) 8,373 1,067 (3) 1,064 89,360 16 (29,852) 130 59,654 785 24 809 10,056 2,132 (63) 2,069 18,222 10,138 117 10,255 99,160 (4) $ March 31, 2013 10,052 (472) $ 17,750 (741) $ 98,419 (a) In addition to the elimination of intercompany balances, amounts include purchase accounting adjustments and restricted receivables related to Cinergy Receivables Company. Segment Consolidating Balance Sheet 8 U.S. Franchised Electric and Gas CONSOLIDATING BALANCE SHEET - LIABILITIES AND EQUITY (Unaudited) (In millions) CURRENT LIABILITIES Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Non-recourse notes payable of variable interest entities Taxes accrued Interest accrued Current maturities of long-term debt Other Total current liabilities Duke Energy Carolinas, LLC $ LONG-TERM DEBT NON-RECOURSE LONG-TERM DEBT OF VARIABLE INTEREST ENTITIES NOTES PAYABLE TO AFFILIATED COMPANIES 520 93 68 139 406 405 1,631 Duke Energy Progress, Inc. $ 373 121 38 53 73 407 407 1,472 Duke Energy Florida, Inc. $ 382 27 238 124 68 10 461 1,310 Duke Energy Ohio, Inc. $ 164 12 111 18 23 259 91 678 Duke Energy Indiana, Inc. $ 122 6 27 80 48 405 146 834 7,734 300 300 4,929 - 4,884 - 1,339 - 3,147 150 DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory Liabilities Other Total deferred credits and other liabilities 5,362 214 215 1,990 2,214 912 10,907 2,210 90 723 1,669 1,598 282 6,572 1,502 3 612 772 724 231 3,844 1,085 6 128 23 262 95 1,599 936 141 185 37 746 51 2,096 EQUITY TOTAL LIABILITIES AND EQUITY 10,116 30,988 5,371 18,344 4,965 15,003 2,931 6,547 3,829 10,056 Segment reclassifications, intercompany balances and other adjustments REPORTABLE SEGMENT LIABILITIES AND EQUITY (147) $ 30,841 (106) $ 18,238 33 $ 15,036 (45) $ 6,502 Eliminations/ (a) Adjustments $ 10,052 3 $ 12,483 (67) 325 2 88 (1) 12,833 2,336 - 11,128 454 1,785 5,190 5,553 1,571 25,681 2,390 18,222 29,602 99,160 (472) $ 17,750 1,564 12,742 347 325 345 351 1,575 1,509 18,758 24,369 300 450 33 (78) 699 9 663 (4) $ March 31, 2013 (741) $ 98,419 (a) In addition to the elimination of intercompany balances, amounts include purchase accounting adjustments and restricted receivables related to Cinergy Receivables Company. Segment Consolidating Balance Sheet 9 Franchised Electric - Duke Energy Carolinas OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 2012 SOURCES OF ELECTRIC ENERGY (GWH) (a) Generated - net output : Coal Nuclear Hydro Oil & gas Renewable Energy Total generation (b) Purchased power (c) and net interchange Total sources of energy Less: Line loss and company usage TOTAL GWH SOURCES 8,260 11,019 614 2,219 3 22,115 1,441 23,556 1,310 22,246 5,615 11,620 351 1,117 2 18,705 1,971 20,676 1,215 19,461 ELECTRIC ENERGY SALES (GWH) Residential General service Industrial Other energy and wholesale Total GWh sales billed Change in unbilled TOTAL GWH SALES 7,705 6,526 4,811 3,194 22,236 10 22,246 7,030 6,391 4,879 1,333 19,633 (172) 19,461 20,407 14,681 19,534 15,391 99 100 Total Capability - Owned MW (time of peak) Summer Winter (a) Nuclear Capacity Factor (%) (d) (a) Statistics reflect Duke Energy Carolinas' ownership share of jointly owned stations. (b) Generation by source is reported net of auxiliary power. (c) Purchased Power includes Renewable Energy purchases. (d) Statistics reflect 100% of jointly owned stations. Operating Statistics 10 Franchised Electric - Duke Energy Carolinas OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 REVENUES FROM GENERATION, TRANSMISSION AND DISTRIBUTION OF ELECTRICITY (IN MILLIONS) Residential General service Industrial Other energy and wholesale Total billed Change in unbilled TOTAL REVENUES AVERAGE NUMBER OF CUSTOMERS (IN THOUSANDS) Residential General service Industrial Other energy and wholesale TOTAL AVERAGE NUMBER OF CUSTOMERS $ $ 2012 748 $ 502 253 163 1,666 (5) 1,661 $ 682 485 260 86 1,513 (3) 1,510 2,062 338 7 14 2,421 2,048 336 7 14 2,405 Operating Statistics 11 Franchised Electric - Duke Energy Progress OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 2012 SOURCES OF ELECTRIC ENERGY (GWH) (a) Generated - net output : Coal Nuclear Hydro Gas Oil Total generation (b) Purchased power (c) and net interchange Total sources of energy Less: Line loss and company usage TOTAL GWH SOURCES 3,130 6,163 282 3,538 29 13,142 2,190 15,332 631 14,701 5,177 4,672 218 2,591 42 12,700 1,070 13,770 602 13,168 ELECTRIC ENERGY SALES (GWH) Residential General service Industrial Other energy and wholesale Total GWh sales billed Change in unbilled TOTAL GWH SALES 4,959 3,482 2,444 3,781 14,666 35 14,701 4,435 3,449 2,429 2,988 13,301 (133) 13,168 12,202 12,376 12,281 11,338 93 73 Total Capability - Owned MW (time of peak) Summer Winter (a) Nuclear Capacity Factor (%) (d) (a) Statistics include Duke Energy Progress' ownership share of jointly owned stations. (b) Generation by source is reported net of auxiliary power. (c) Purchased Power includes Renewable Energy purchases. (d) Statistics reflect 100% of jointly owned stations. Operating Statistics 12 Franchised Electric - Duke Energy Progress OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 REVENUES FROM GENERATION, TRANSMISSION AND DISTRIBUTION OF ELECTRICITY (IN MILLIONS) Residential General service Industrial Other energy and wholesale Total billed Change in unbilled TOTAL REVENUES AVERAGE NUMBER OF CUSTOMERS (IN THOUSANDS) Residential General service Industrial Other energy and wholesale TOTAL AVERAGE NUMBER OF CUSTOMERS $ $ 2012 485 294 154 235 1,168 3 1,171 1,238 220 4 2 1,464 $ $ 446 294 158 160 1,058 (7) 1,051 1,228 218 4 2 1,452 Operating Statistics 13 Franchised Electric - Duke Energy Florida OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 2012 SOURCES OF ELECTRIC ENERGY (GWH) (a) Generated - net output : Coal Gas Oil Total generation (b) Purchased power (c) and net interchange Total sources of energy Less: Line loss and company usage TOTAL GWH SOURCES 2,169 4,748 58 6,975 1,683 8,658 641 8,017 2,135 5,436 27 7,598 1,485 9,083 671 8,412 ELECTRIC ENERGY SALES (GWH) Residential General service Industrial Other energy and wholesale Total GWh sales billed Change in unbilled TOTAL GWH SALES 3,745 3,224 755 292 8,016 1 8,017 3,706 3,311 757 352 8,126 286 8,412 9,095 7,264 9,948 7,872 Total Capability - Owned MW (time of peak) Summer Winter (a) (a) Statistics reflect Duke Energy Florida's ownership share of jointly owned stations. (b) Generation by source is reported net of auxiliary power. (c) Purchased Power includes Renewable Energy purchases. Operating Statistics 14 Franchised Electric - Duke Energy Florida OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 REVENUES FROM GENERATION, TRANSMISSION AND DISTRIBUTION OF ELECTRICITY (IN MILLIONS) Residential General service Industrial Other energy and wholesale Total billed Change in unbilled TOTAL REVENUES AVERAGE NUMBER OF CUSTOMERS (IN THOUSANDS) Residential General service Industrial Other energy and wholesale AVERAGE NUMBER OF CUSTOMERS $ $ 2012 466 302 61 130 959 3 962 1,474 188 2 2 1,666 $ $ 487 338 69 96 990 15 1,005 1,461 187 2 2 1,652 Operating Statistics 15 Franchised Electric - Duke Energy Ohio Electric OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 2012 SOURCES OF ELECTRIC ENERGY (GWH) (a) Generated - net output : Coal (b) Total generation Purchased power (c) and net interchange Total sources of energy Less: Line loss and company usage TOTAL GWH SOURCES 943 943 247 1,190 59 1,131 593 593 472 1,065 46 1,019 ELECTRIC ENERGY SALES (GWH) Residential General service Industrial Other energy and wholesale Total GWh sales billed Change in unbilled TOTAL GWH SALES 2,498 2,282 1,396 148 6,324 (146) 6,178 2,247 2,207 1,398 81 5,933 (79) 5,854 1,039 1,141 1,039 1,141 Total Capability - Owned MW (time of peak) Summer Winter (a) (a) Statistics reflect Duke Energy Ohio's ownership share of jointly owned stations. (b) Generation by source is reported net of auxiliary power. (c) Purchased Power includes Renewable Energy purchases. Note: Total GWH Sources will not equal Total GWH Sales. Sources include Duke Energy Kentucky's regulated generation for all periods. Sales include Duke Energy Ohio's and Duke Energy Kentucky's retail sales. Ohio retail sales are fulfilled through auction purchases under the current ESP. Operating Statistics 16 Franchised Electric - Duke Energy Ohio Electric OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 2012 REVENUES FROM GENERATION, TRANSMISSION AND DISTRIBUTION OF ELECTRICITY (IN MILLIONS) Residential General service Industrial Other energy and wholesale Total billed Change in unbilled TOTAL REVENUES AVERAGE NUMBER OF ELECTRIC CUSTOMERS (IN THOUSANDS) Residential General service Industrial Other energy and wholesale TOTAL AVERAGE NUMBER OF ELECTRIC CUSTOMERS $ $ 183 $ 101 25 7 316 (10) 306 $ 158 100 25 4 287 11 298 737 86 3 3 829 736 86 3 2 827 Operating Statistics 17 Franchised Electric - Duke Energy Ohio Gas OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 2012 BCF SALES Residential General service Industrial Other energy and wholesale Total BCF sales billed Change in unbilled TOTAL BCF SALES REVENUES FROM GENERATION, TRANSMISSION AND DISTRIBUTION OF GAS (IN MILLIONS) Residential General service Industrial Other energy and wholesale Total billed Change in unbilled TOTAL REVENUES AVERAGE NUMBER OF GAS CUSTOMERS (IN THOUSANDS) Residential General service Industrial TOTAL AVERAGE NUMBER OF GAS CUSTOMERS 20,045 11,649 2,407 6,154 40,255 (912) 39,343 $ $ 16,533 9,595 1,953 6,131 34,212 (2,622) 31,590 126 $ 54 8 4 192 (6) 186 $ 127 50 6 6 189 (18) 171 471 45 2 518 472 45 2 519 Operating Statistics 18 Franchised Electric - Duke Energy Indiana OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 2012 SOURCES OF ELECTRIC ENERGY (GWH) Generated - net output (a): Coal Hydro Gas Total generation (b) Purchased power (c) and net interchange Total sources of energy Less: Line loss and company usage TOTAL GWH SOURCES 6,415 74 193 6,682 2,005 8,687 182 8,505 5,217 66 246 5,529 3,156 8,685 216 8,469 ELECTRIC ENERGY SALES (GWH) Residential General service Industrial Other energy and wholesale Total GWh sales billed Change in unbilled TOTAL GWH SALES 2,828 2,031 2,519 1,266 8,644 (139) 8,505 2,506 1,960 2,556 1,483 8,505 (36) 8,469 Total Capability - Owned MW (a) (time of peak) Summer Winter 6,898 6,364 6,898 6,741 (a) Statistics reflect Duke Energy Indiana's ownership share of jointly owned stations. (b) Generation by source is reported net of auxiliary power. (c) Purchased Power includes Renewable Energy purchases. Operating Statistics 19 Franchised Electric - Duke Energy Indiana OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 2012 REVENUES FROM GENERATION, TRANSMISSION AND DISTRIBUTION OF ELECTRICITY (IN MILLIONS) Residential General service Industrial Other energy and wholesale Total billed Change in unbilled TOTAL REVENUES AVERAGE NUMBER OF CUSTOMERS (IN THOUSANDS) Residential General service Industrial Other energy and wholesale AVERAGE NUMBER OF CUSTOMERS $ $ 288 $ 180 178 80 726 (13) 713 $ 252 168 173 69 662 662 690 100 3 2 795 684 100 3 1 788 Operating Statistics 20 Commercial Power OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 2012 GENERATION (GWH) Coal Gas Renewables Actual plant generation 4,549 3,897 1,405 9,851 4,068 4,583 998 9,649 Net proportional megawatt capacity in operation 8,094 7,691 Operating Statistics 21 International Energy OPERATING STATISTICS (Unaudited) Three Months Ended March 31, 2013 2012 Sales, GWh Net proportional megawatt capacity in operation 4,756 4,584 5,074 4,231 Operating Statistics 22 Duke Energy Ohio Supplement CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, 2013 (Unaudited) (In millions) OPERATING REVENUES Regulated electric (a) Nonregulated electric and other Regulated natural gas Total operating revenues Franchised Electric and Gas Ohio Transmission & Duke Energy Distribution Kentucky, Inc. $ OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas sold Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses OPERATING INCOME (LOSS) Other income and expenses, net Interest expense INCOME (LOSS) BEFORE INCOME TAXES Income tax expense (benefit) NET INCOME (LOSS) $ 220 141 361 $ 86 45 131 Commercial Power $ 27 239 266 Other $ 70 54 76 38 61 299 62 33 22 28 11 4 98 33 251 72 39 7 369 (103) 2 13 51 17 34 4 29 10 19 1 (104) (37) (67) $ $ $ Consolidated - $ (11) (11) 333 228 186 747 (11) 9 (2) (9) 103 240 76 185 88 72 764 (17) (9) (2) (7) $ 2 18 (33) (12) (21) (a) The amount for Commercial Power is primarily due to stability charge revenues included in Duke Energy Ohio's current Electric Stability Plan (ESP). Duke Energy Ohio Supplement 23 Duke Energy Ohio Supplement CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, 2012 (Unaudited) (In millions) OPERATING REVENUES Regulated electric (a) Nonregulated electric and other Regulated natural gas Total operating revenues Franchised Electric and Gas Ohio Transmission & Duke Energy Distribution Kentucky, Inc. $ OPERATING EXPENSES Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas sold Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses Gains on sales of other assets and other, net OPERATING INCOME (LOSS) Other income and expenses, net Interest expense INCOME (LOSS) BEFORE INCOME TAXES Income tax expense (benefit) NET INCOME (LOSS) $ 223 132 355 $ 79 39 118 Commercial Power $ 23 431 454 85 56 81 32 57 311 1 45 29 19 34 11 3 96 22 253 76 40 8 377 77 2 11 36 14 22 1 4 19 7 12 2 10 69 25 44 $ $ Other $ $ Consolidated (1) $ (14) (15) 324 417 171 912 (14) 5 (9) (6) 114 239 75 196 83 68 775 1 138 (1) (1) (6) (2) (4) $ 4 24 118 44 74 (a) The amount for Commercial Power is primarily due to stability charge revenues included in Duke Energy Ohio's current Electric Stability Plan (ESP). Duke Energy Ohio Supplement 24 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 x For the quarterly period ended March 31, 2014 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 1-32853 IRS Employer Identification No. 20-2777218 DUKE ENERGY CORPORATION (a Delaware corporation) 550 South Tryon Street Charlotte, North Carolina 28202-1803 704-382-3853 Commission file number 1-4928 Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number Commission file number Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number DUKE ENERGY CAROLINAS, LLC 1-3274 DUKE ENERGY FLORIDA, INC. (a North Carolina limited liability company) 526 South Church Street Charlotte, North Carolina 28202-1803 (a Florida corporation) 299 First Avenue North St. Petersburg, Florida 33701 704-382-3853 704-382-3853 59-0247770 56-0205520 1-15929 PROGRESS ENERGY, INC. 1-1232 (an Ohio corporation) 139 East Fourth Street Cincinnati, Ohio 45202 704-382-3853 704-382-3853 31-0240030 56-2155481 1-3382 DUKE ENERGY OHIO, INC. (a North Carolina corporation) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 DUKE ENERGY PROGRESS, INC. 1-3543 DUKE ENERGY INDIANA, INC. (a North Carolina corporation) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 (an Indiana corporation) 1000 East Main Street Plainfield, Indiana 46168 704-382-3853 704-382-3853 56-0165465 35-0594457 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Duke Energy Corporation (Duke Energy) Yes x No ¨ Duke Energy Florida, Inc. (Duke Energy Yes x No ¨ Florida) Duke Energy Carolinas, LLC (Duke Energy Yes x No ¨ Duke Energy Ohio, Inc. (Duke Energy Ohio) Yes x No ¨ Carolinas) Progress Energy, Inc. (Progress Energy) Yes x No ¨ Duke Energy Indiana, Inc. (Duke Energy Yes x No ¨ Indiana) Duke Energy Progress, Inc. (Duke Energy Yes x No ¨ Progress) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Duke Energy Yes x No ¨ Duke Energy Florida Yes x No ¨ Duke Energy Carolinas Yes x No ¨ Duke Energy Ohio Yes x No ¨ Progress Energy Yes x No ¨ Duke Energy Indiana Yes x No ¨ Duke Energy Progress Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Duke Energy Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ Duke Energy Carolinas Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Progress Energy Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Progress Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Florida Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Ohio Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Indiana Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Duke Energy Yes ¨ No x Duke Energy Florida Duke Energy Carolinas Yes ¨ No x Duke Energy Ohio Progress Energy Yes ¨ No x Duke Energy Indiana Duke Energy Progress Yes ¨ No x Number of shares of Common Stock outstanding at May 6, 2014: Registrant Description Duke Energy Common Stock, $0.001 par value Duke Energy Carolinas All of the registrant’s limited liability company member interests are directly owned by Duke Energy. Progress Energy All of the registrant’s common stock is directly owned by Duke Energy. Duke Energy Progress All of the registrant’s common stock is indirectly owned by Duke Energy. Duke Energy Florida All of the registrant’s common stock is indirectly owned by Duke Energy. Duke Energy Ohio All of the registrant’s common stock is indirectly owned by Duke Energy. Duke Energy Indiana All of the registrant’s common stock is indirectly owned by Duke Energy. Yes ¨ Yes ¨ Yes ¨ No x No x No x Shares 707,237,462 This combined Form 10-Q is filed separately by seven registrants: Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants. Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10Q. TABLE OF CONTENTS Safe Harbor for Forward-Looking Statements PART I. FINANCIAL INFORMATION Item 1. Financial Statements Duke Energy Corporation Financial Statements 4 Duke Energy Carolinas, LLC Financial Statements 9 Progress Energy, Inc. Financial Statements 13 Duke Energy Progress, Inc. Financial Statements 17 Duke Energy Florida, Inc. Financial Statements 21 Duke Energy Ohio, Inc. Financial Statements 25 Duke Energy Indiana, Inc. Financial Statements 29 Combined Notes to Condensed Consolidated Financial Statements Note 1 - Organization and Basis of Presentation Note 2 - Dispositions Note 3 - Business Segments Note 4 - Regulatory Matters Note 5 - Commitments and Contingencies Note 6 - Debt and Credit Facilities Note 7 - Goodwill Note 8 - Related Party Transactions Note 9 - Derivatives and Hedging Note 10 - Investments in Debt and Equity Securities Note 11 - Fair Value Measurements Note 12 - Variable Interest Entities Note 13 - Common Stock Note 14 - Stock-Based Compensation Note 15 - Employee Benefit Plans Note 16 - Income Taxes Note 17 - Subsequent Events 33 35 36 38 42 50 51 51 53 61 67 74 78 79 79 81 81 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 100 Item 4. Controls and Procedures 100 Item 1. Legal Proceedings 102 Item 1A. Risk Factors 102 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 102 Item 6. Exhibits 103 Signatures 105 82 PART II. OTHER INFORMATION 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. These forward-looking statements are identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook,” and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to: · · State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements or climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices; The extent and timing of the costs and liabilities relating to the Dan River ash basin release and future regulatory changes related to the management of coal ash; · The ability to recover eligible costs, including those associated with future significant weather events, and earn an adequate return on investment through the regulatory process; · The costs of decommissioning Crystal River Unit 3 could prove to be more extensive than are currently identified and all costs may not be fully recoverable through the regulatory process; · The risk that the credit ratings of the company or its subsidiaries may be different from what the companies expect; · 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 customer usage patterns, including energy efficiency efforts and use of alternative energy sources, including self-generation and distributed generation technologies; · Additional competition in electric markets and continued industry consolidation; · Political and regulatory uncertainty in other countries in which Duke Energy conducts business; · The influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts and tornadoes; · The ability to successfully operate electric generating facilities and deliver electricity to customers; · The impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches, and other catastrophic events; · The inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks; · The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets; · The results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general economic conditions; · Declines in the market prices of equity and fixed income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans, and nuclear decommissioning trust funds; · Changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants; · The ability to control operation and maintenance costs; · The level of creditworthiness of counterparties to transactions; · Employee workforce factors, including the potential inability to attract and retain key personnel; · The ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent); · The performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities; · The effect of accounting pronouncements issued periodically by accounting standard-setting bodies; · The impact of potential goodwill impairments; · The ability to reinvest retained earnings of foreign subsidiaries or repatriate such earnings on a tax-free basis; and · The ability to successfully complete future merger, acquisition or divestiture plans. 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; the Duke Energy Registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise that occur after that date. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DUKE ENERGY CORPORATION Condensed Consolidated Statements Of Operations (Unaudited) Three Months Ended March 31, 2014 (in millions, except per-share amounts) Operating Revenues Regulated electric Nonregulated electric, natural gas, and other Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas and other Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses Equity in earnings of unconsolidated affiliates Other income and expenses, net Total other income and expenses Interest Expense (Loss) Income From Continuing Operations Before Income Taxes Income Tax (Benefit) Expense from Continuing Operations (Loss) Income From Continuing Operations Loss From Discontinued Operations, net of tax Net (Loss) Income Less: Net Income Attributable to Noncontrolling Interests Net (Loss) Income Attributable to Duke Energy Corporation $ 5,578 824 222 6,624 2013 $ 185 5,898 1,703 454 104 1,421 2,000 409 122 1,506 790 660 343 358 1,382 ― 6,567 4,685 1 58 2 1,215 36 95 131 406 36 80 116 367 964 330 634 (217) (127) (90) (3) (93) ― 634 4 Earnings Per Share - Basic and Diluted (Loss) Income from continuing operations attributable to Duke Energy Corporation common shareholders Basic Diluted Loss from discontinued operations attributable to Duke Energy Corporation common shareholders Basic Diluted Net (Loss) Income attributable to Duke Energy Corporation common shareholders Basic Diluted Weighted-average shares outstanding Basic Diluted See Notes to Condensed Consolidated Financial Statements 4 4,889 824 ― $ (97) $ 634 $ $ (0.13) (0.13) $ $ 0.89 0.89 $ $ (0.01) (0.01) $ $ ― ― $ $ (0.14) (0.14) $ $ 0.89 0.89 706 706 705 705 PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements Of Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2014 Net (Loss) Income $ (93) 2013 $ 634 Other Comprehensive Income (Loss), Net of Tax Foreign currency translation adjustments 24 Pension and OPEB adjustments (1) 3 Net unrealized gain on cash flow hedges (a) ― 10 Other Comprehensive Income, Net of Tax Comprehensive (Loss) Income (a) Net of $4 million tax expense in 2013. See Notes to Condensed Consolidated Financial Statements 5 23 17 (70) 651 ― 5 Less: Comprehensive Income Attributable to Noncontrolling Interests Comprehensive (Loss) Income Attributable to Duke Energy Corporation 4 $ (75) $ 651 PART I DUKE ENERGY CORPORATION Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Short-term investments Receivables (net of allowance for doubtful accounts of $17 at March 31, 2014 and $30 at December 31, 2013) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $54 at March 31, 2014 and $43 at December 31, 2013) Inventory Assets held for sale Regulatory assets Other Total current assets Investments and Other Assets Investments in equity method unconsolidated affiliates Nuclear decommissioning trust funds Goodwill Assets held for sale Other Total investments and other assets Property, Plant and Equipment March 31, 2014 $ 1,531 December 31, 2013 $ 6 597 44 1,286 2,199 1,719 2,908 3,250 ― 515 1,148 895 1,821 10,516 1,661 10,565 386 390 5,132 16,340 107 5,231 16,342 2,341 3,251 27,551 3,432 25,401 103,115 (33,625) 99,874 Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits (33,519) 66,355 69,490 9,191 181 9,138 183 9,321 Total Assets LIABILITIES AND EQUITY Current Liabilities Accounts payable Notes payable and commercial paper Taxes accrued Interest accrued Current maturities of long-term debt Liabilities associated with assets held for sale Regulatory liabilities Other Total current liabilities Long-term Debt Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Liabilities associated with assets held for sale Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Equity Common stock, $0.001 par value, 2 billion shares authorized; 707 million and 706 million shares outstanding at March 31, 2014 and December 31, 2013, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total Duke Energy Corporation stockholders' equity Noncontrolling interests Total equity Total Liabilities and Equity See Notes to Condensed Consolidated Financial Statements 6 1,501 9,372 $ 113,792 $ 114,779 $ 1,892 $ 2,391 1,737 839 423 478 885 222 243 551 440 2,104 7 316 1,996 1,612 7,492 8,644 39,000 38,152 11,852 438 12,097 1,270 71 4,994 6,125 1,761 26,511 1,322 66 4,950 5,949 1,749 26,575 442 1 1 39,372 1,713 39,365 2,363 (399) 41,330 78 41,408 (377) 40,709 80 40,789 $ 113,792 $ 114,779 PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements Of Cash Flows (Unaudited) (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net (Loss) Income Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) Equity component of AFUDC Gains on sales of other assets Impairment charges Deferred income taxes Equity in earnings of unconsolidated affiliates Accrued pension and other post-retirement benefit costs (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Inventory Other current assets Increase (decrease) in Accounts payable Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Investment expenditures Acquisitions Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Net proceeds from the sales of other assets Change in restricted cash Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the: Issuance of long-term debt Issuance of common stock related to employee benefit plans Payments for the: Redemption of long-term debt Redemption of preferred stock of a subsidiary Notes payable and commercial paper Distributions to noncontrolling interests Dividends paid Other Net cash (used in) provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 7 Three Months Ended March 31, 2014 $ (93) $ 884 (28) ― 1,382 2013 634 762 (42) (2) ― (178) 353 (36) (36) 27 87 45 29 272 36 (118) 126 (38) (297) (246) (31) (312) (78) (4) 1,091 (97) (175) (346) (22) 6 1,373 (1,375) (3) (32) (1,255) 1,179 (1,232) (36) ― (967) 1,004 4 20 (34) 35 (1,465) (27) (32) (1,286) 875 1,009 5 19 (747) (96) (1,287) ― 898 627 (3) (553) (6) (57) (3) (542) (7) $ 30 1,501 1,531 $ (128) 1,424 1,296 $ 361 $ 465 246 PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements of Changes In Equity (Unaudited) Accumulated Other Comprehensive Loss Common (in millions) Stock Common Shares Stock Net income Other comprehensive income Common stock issuances, including dividend reinvestment and employee benefits Common stock dividends Premium on the redemption of preferred stock of ― ― 1 ― ― 2 ― ― ― subsidiaries Changes in noncontrolling interest in subsidiaries ― ― ― ― 1 Balance at December 31, 2012 704 $ Balance at March 31, 2013 706 $ Balance at December 31, 2013 706 $ Net (loss) income Other comprehensive (loss) income Common stock issuances, including dividend reinvestment and employee benefits Common stock dividends Distribution to noncontrolling interest in subsidiaries Balance at March 31, 2014 ― ― 1 ― ― 707 $ 1 ― ― ― ― ― 1 Additional Paid-in Capital $ 39,279 Foreign Currency Net Gains Translation (Losses) on Cash OPEB Adjustments Flow Hedges Adjustments Retained Earnings $ ― ― 1,889 $ (116) $ (100) Common Stockholders' Pension and $ (90) Noncontrolling Equity $ 40,863 Total Equity Interests $ 78 $ 40,941 634 ― ― ― 4 10 ― 3 634 17 ― ― 634 17 (16) ― ― (542) ― ― ― ― ― ― (16) (542) ― ― (16) (542) $ (90) $ (87) $ (3) ― 40,953 ― (1) $ ― ― (112) ― ― $ (3) ― 1,978 ― ― $ ― ― 39,263 $ 77 $ (3) (1) 41,030 $ 39,365 $ 2,363 $ (307) $ (40) $ (52) $ 41,330 $ 78 $ 41,408 $ ― ― (97) ― ― 7 ― ― ― (553) 39,372 $ ― 1,713 $ ― (1) (97) 23 ― ― ― ― ― ― ― ― ― ― ― (284) $ (40) See Notes to Condensed Consolidated Financial Statements 8 $ (53) $ (93) 22 4 1 7 (553) ― ― 7 (553) ― (3) 40,709 $ 80 23 (3) $ 40,789 PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements Of Operations And Comprehensive Income (Unaudited) Three Months Ended March 31, 2014 (in millions) Operating Revenues $ 2,000 2013 $ 1,729 Operating Expenses Fuel used in electric generation and purchased power 658 518 Operation, maintenance and other 487 457 Depreciation and amortization 242 222 Property and other taxes 104 100 1,491 1,297 Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net ― 2 509 434 49 36 Interest Expense 101 82 Income Before Income Taxes 457 388 171 144 286 244 Income Tax Expense Net Income Other Comprehensive Income, net of tax Reclassification into earnings from cash flow hedges Comprehensive Income $ See Notes to Condensed Consolidated Financial Statements 9 1 287 ― $ 244 PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $3 at March 31, 2014 and December 31, 2013) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $6 at March 31, 2014 and December 31, 2013) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other Total current assets Investments and Other Assets Nuclear decommissioning trust funds Other Total investments and other assets Property, Plant and Equipment March 31, 2014 $ 17 114 December 31, 2013 $ 705 Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits 673 102 75 337 222 886 1,065 320 269 2,750 295 309 2,848 2,900 994 1,000 3,894 3,840 35,296 (12,125) 23,171 (11,894) 23,012 1,459 1,527 2,840 34,906 45 46 1,504 Total Assets $ LIABILITIES AND MEMBER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Regulatory liabilities Other Total current liabilities Long-term Debt Long-term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Member's Equity Member's Equity Accumulated other comprehensive loss Total member's equity Total Liabilities and Member's Equity $ 31,319 $ 540 $ 182 144 47 44 348 1,441 8,089 $ 1,573 31,273 701 161 147 97 47 136 See Notes to Condensed Consolidated Financial Statements 10 23 186 65 393 1,611 300 8,089 300 5,727 5,706 208 158 210 161 1,594 1,617 2,601 667 10,978 2,576 676 10,923 - - 10,525 (14) 10,511 31,319 10,365 (15) 10,350 31,273 $ PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements Of Cash Flows (Unaudited) (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including amortization of nuclear fuel) Equity component of AFUDC Gains on sales of other assets and other, net Deferred income taxes Accrued pension and other post-retirement benefit costs (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Distributions to parent Other Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 11 Three Months Ended March 31, 2014 $ 286 $ 2013 244 281 (26) (2) 146 10 309 (22) ― 87 6 (7) (8) (54) 50 (25) 3 11 (27) 181 (59) (16) (16) (48) (34) (28) (15) (100) 21 (3) (26) 14 (9) 672 452 (426) (584) 579 (435) (504) (115) (6) (552) (15) (3) (465) (126) 492 $ 17 $ ― (1) (1) (14) 19 5 $ 133 $ 132 ― (126) (6) 23 PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements Of Changes in Member's Equity (Unaudited) Member's (in millions) Equity Balance at December 31, 2012 $ Net income Balance at March 31, 2013 9,888 244 $ 10,132 Balance at December 31, 2013 $ 10,365 Net income Other comprehensive income Distributions to parent Balance at March 31, 2014 Accumulated Other Comprehensive Loss Unrealized Losses on Available for Sale Hedges Securities $ (15) $ (1) ― ― $ (15) $ (1) Net Losses on Cash Flow $ 286 $ (126) 10,525 (14) $ ― 1 ― $ See Notes to Condensed Consolidated Financial Statements 12 (13) (1) Total $ 9,872 244 $ 10,116 $ 10,350 ― ― ― $ (1) 286 1 $ (126) 10,511 PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements Of Operations And Comprehensive Income (Unaudited) Three Months Ended March 31, 2014 (in millions) Operating Revenues $ 2,541 2013 $ 2,186 Operating Expenses Fuel used in electric generation and purchased power 1,043 860 Operation, maintenance and other 595 561 Depreciation and amortization 276 194 Property and other taxes 151 141 2,065 1,756 Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net 1 ― 477 430 15 23 Interest Expense 169 198 Income From Continuing Operations Before Taxes 323 255 Income Tax Expense From Continuing Operations 119 101 Income From Continuing Operations 204 154 Loss From Discontinued Operations, net of tax Net Income (1) ― 203 154 Less: Net Income Attributable to Noncontrolling Interest Net Income Attributable to Parent $ 1 202 $ 1 153 Net Income $ 203 $ 154 Other Comprehensive Income, net of tax Reclassification into earnings from pension and OPEB adjustments 1 1 Net unrealized gain on cash flow hedges 1 1 Other Comprehensive Income, net of tax 2 Comprehensive Income $ See Notes to Condensed Consolidated Financial Statements 13 205 2 $ 156 PART I PROGRESS ENERGY, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $6 at March 31, 2014 and $14 at December 31, 2013) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $8 at March 31, March 31, 2014 $ 36 51 December 31, 2013 $ 856 4 2014) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other Total current assets Investments and Other Assets Nuclear decommissioning trust funds Goodwill Other Total investments and other assets Property, Plant and Equipment 417 4 75 1,424 353 176 1,391 530 565 3,609 726 3,585 2,330 3,655 767 6,752 Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets $ LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Regulatory liabilities Other Total current liabilities Long-term Debt Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies $ 2,292 3,655 804 6,751 36,460 36,480 (13,093) (13,098) 23,367 23,382 4,157 99 4,256 37,984 4,155 $ 655 $ 96 4,251 195 18 3,048 207 896 4,046 14,503 13,630 3,766 633 3,283 765 2,562 2,292 527 9,429 2,587 2,402 518 9,906 Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total common stockholder's equity Noncontrolling interests Total equity Total Liabilities and Equity ― ― 7,467 3,112 (54) 10,525 7,467 3,452 (59) 10,860 4 10,864 2 10,527 $ See Notes to Condensed Consolidated Financial Statements 14 836 485 172 747 2013 37,969 123 1,213 105 181 237 922 102 Common Stockholder's Equity Common stock, $0.01 par value, 100 shares authorized and outstanding at March 31, 2014 and December 31, 58 528 37,984 $ 37,969 PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements Of Cash Flows (Unaudited) (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) Equity component of AFUDC Gains on sales of other assets and other, net Deferred income taxes Accrued pension and other post-retirement benefit costs (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the: Issuance of long-term debt Payments for the: Redemption of long-term debt Redemption of preferred stock of subsidiary Notes payable to affiliated companies Distributions to noncontrolling interests Other Net cash provided by financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 15 Three Months Ended March 31, 2014 2013 $ 203 $ 154 235 316 (1) (1) (13) ― 118 53 183 7 12 (25) (3) 13 (45) ― 72 36 (134) (115) (53) (191) 114 3 34 72 (116) (52) (6) 503 (95) (76) (475) (266) (25) (598) (622) (401) 391 (20) 9 (643) 875 496 (469) 69 265 269 (101) $ 36 $ (736) (96) 525 (3) (4) 182 (196) 231 35 $ 158 $ 248 ― (291) (3) (39) 73 (22) 58 PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements of Changes in Common Stockholder's Equity (Unaudited) Common Stock (in millions) Balance at December 31, 2012 $ ― Additional Paid-in Capital $ 7,465 Retained Earnings $ 2,783 Accumulated Other Comprehensive Loss Net Losses on Cash Pension and Flow OPEB Related Hedges Adjustments $ (42) $ (25) Common Stockholder's Equity $ 10,181 Noncontrolling Total Equity Interests $ 4 $ 10,185 Net income ― ― 153 ― ― 153 1 154 Other comprehensive income Premium on the redemption of preferred stock of subsidiaries ― ― ― 1 1 2 ― 2 ― ― (3) ― ― (3) ― (3) Distributions to noncontrolling interests ― ― ― ― ― ― (3) (3) Balance at March 31, 2013 $ ― $ 7,465 $ 2,933 $ (41) $ (24) $ 10,333 $ 2 $ 10,335 Balance at December 31, 2013 $ ― $ 7,467 $ 3,452 $ (43) $ (16) $ 10,860 $ 4 $ 10,864 Net income ― ― 202 ― ― 202 1 Other comprehensive income ― ― ― 1 1 2 ― 2 Distributions to noncontrolling interests Transfer of service company net assets to Duke Energy ― ― ― ― ― ― (3) (3) Balance at March 31, 2014 ― $ ― ― $ 7,467 3,112 ― 3 (542) $ $ (39) $ See Notes to Condensed Consolidated Financial Statements 16 (15) ― (539) $ 10,525 203 $ 2 (539) $ 10,527 PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Statements Of Operations And Comprehensive Income (Unaudited) Three Months Ended March 31, 2014 (in millions) Operating Revenues $ 1,422 2013 $ 1,216 Operating Expenses Fuel used in electric generation and purchased power 573 Operation, maintenance and other 381 352 Depreciation and amortization 144 137 Property and other taxes Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense 455 67 60 1,165 1,004 1 ― 258 212 9 14 57 48 210 178 77 Net Income and Comprehensive Income $ See Notes to Condensed Consolidated Financial Statements 17 133 68 $ 110 PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $5 at March 31, 2014 and $10 at December 31, 2013) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $5 at March 31, March 31, 2014 $ 9 14 December 31, 2013 $ 538 7 2014) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other Total current assets Investments and Other Assets Nuclear decommissioning trust funds Other Total investments and other assets Property, Plant and Equipment 417 2 ― 853 127 65 823 315 300 Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets $ LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Regulatory liabilities Other Total current liabilities Long-term Debt Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Common Stockholder's Equity Common stock, no par value, 200 million shares authorized; 160 million shares outstanding at March 31, 2014 and December 31, 2013 Retained earnings Total common stockholder's equity Total Liabilities and Common Stockholder's Equity See Notes to Condensed Consolidated Financial Statements 18 $ 296 2,071 1,861 1,569 459 1,539 2,028 1,982 22,477 (8,749) 13,728 (8,623) 13,650 1,446 35 1,481 19,308 1,384 32 1,416 18,909 344 242 ― 443 22,273 $ $ 462 37 70 6 68 174 63 392 329 1,103 5,711 1,721 5,061 2,658 2,557 321 1,729 1,673 316 1,758 1,792 212 222 6,502 6,736 2,159 3,599 5,758 19,308 420 103 37 77 $ 21 145 2,159 3,466 $ 5,625 18,909 PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Statements Of Cash Flows (Unaudited) (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) Equity component of AFUDC Gains on sales of other assets and other, net Deferred income taxes Accrued pension and other post-retirement benefit costs (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt Payments for the: Redemption of long-term debt Redemption of preferred stock of subsidiary Notes payable to affiliated companies Other Net cash provided by financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 19 Three Months Ended March 31, 2014 $ 133 $ 2013 110 (1) 175 (11) ― 117 (2) 86 24 6 (5) (17) (8) (13) 53 (183) (25) (37) 139 (87) 81 183 (2) 10 20 ― 32 (55) (33) 14 (41) (13) (1) 356 293 (18) (384) (395) (196) 188 ― ― (403) 650 496 (168) (299) (151) 149 (65) $ 21 9 $ (1) (62) (326) (4) 103 (7) 18 11 $ 116 $ 149 ― (462) (4) 16 (12) PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Statements Of Changes in Common Stockholder's Equity (Unaudited) (in millions) Balance at December 31, 2012 $ Net income Premium on the redemption of preferred stock Balance at March 31, 2013 $ Balance at December 31, 2013 $ Net income Balance at March 31, 2014 Common Stock 2,159 ― ― 2,159 2,159 Retained Earnings $ See Notes to Condensed Consolidated Financial Statements 20 2,159 $ 110 (2) $ 3,076 $ $ 3,466 133 3,599 $ ― $ 2,968 $ $ Total Equity 5,127 110 (2) 5,235 5,625 133 5,758 PART I DUKE ENERGY FLORIDA, INC. Condensed Consolidated Statements Of Operations And Comprehensive Income (Unaudited) Three Months Ended March 31, 2014 (in millions) Operating Revenues $ 1,116 2013 $ 968 Operating Expenses Fuel used in electric generation and purchased power 470 405 Operation, maintenance and other 211 211 Depreciation and amortization 132 52 Property and other taxes Total operating expenses Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense 84 79 897 747 219 221 5 8 49 49 175 180 67 Net Income $ 108 $ 109 70 $ 110 $ ― 110 Other Comprehensive Income, net of tax Net unrealized gain on cash flow hedges Comprehensive Income 1 See Notes to Condensed Consolidated Financial Statements 21 PART I DUKE ENERGY FLORIDA, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $1 at March 31, 2014 and $4 at December 31, 2013) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $3 at March 31, March 31, 2014 $ 10 35 December 31, 2013 $ ― 3 ― 571 221 182 1,368 318 2014) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other Total current assets Investments and Other Assets Nuclear decommissioning trust funds Other Total investments and other assets Property, Plant and Equipment 10 110 568 214 64 1,329 252 753 252 1,013 1,005 13,973 (4,337) 9,636 13,863 (4,252) 9,611 2,711 44 2,755 14,733 2,729 44 2,773 761 Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets $ LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Regulatory liabilities Other Total current liabilities Long-term Debt Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Common Stockholder's Equity Common Stock, no par; 60 million shares authorized; 100 shares outstanding at March 31, 2014 and December 31, 2013 Retained earnings Accumulated other comprehensive loss Total common stockholder's equity Total Liabilities and Common Stockholder's Equity See Notes to Condensed Consolidated Financial Statements 22 $ 311 66 $ $ 14,757 333 38 ― 181 75 66 11 104 406 1,039 5,099 66 46 11 144 445 1,264 4,875 1,816 284 829 1,829 286 833 618 255 3,821 609 275 3,813 1,762 1,762 3,020 3,036 ― 4,782 $ 16 375 14,733 (1) 4,797 $ 14,757 PART I DUKE ENERGY FLORIDA, INC. Condensed Consolidated Statements Of Cash Flows (Unaudited) Three Months Ended March 31, 2014 2013 (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion Equity component of AFUDC Deferred income taxes Accrued pension and other post-retirement benefit costs (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt Payments for the: Redemption of long-term debt Redemption of preferred stock Notes payable to affiliated companies Dividend to parent Other Net cash used in financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures $ 108 $ 54 (2) 133 ― 60 70 22 7 5 21 28 20 68 5 (44) 15 (129) 24 28 (50) 21 (7) 10 76 (63) (36) (13) 365 (13) (42) (5) 116 (176) (115) (223) (205) 120 (110) 203 207 (8) (289) ― (18) 225 ― (1) (426) (34) ― (181) (124) 238 $ 16 10 $ ― ― (222) (124) 131 7 $ 42 $ 95 (1) (82) (6) See Notes to Condensed Consolidated Financial Statements 23 110 PART I DUKE ENERGY FLORIDA, INC. Condensed Consolidated Statements Of Changes in Common Stockholder's Equity (Unaudited) (in millions) Balance at December 31, 2012 $ Net income Premium on the redemption of preferred stock Balance at March 31, 2013 $ Balance at December 31, 2013 $ Net income Other comprehensive income Dividend to parent Balance at March 31, 2014 Common Stock 1,762 ― ― 1,762 1,762 Retained Earnings $ 3,037 $ 110 (1) 3,146 $ 3,036 ― ― ― $ 1,762 $ (1) $ ― 1 ― ― 108 ― $ See Notes to Condensed Consolidated Financial Statements 24 Accumulated Other Comprehensive Income Net Gain on Cash Flow Hedges $ ― ― ― $ ― (124) 3,020 Total $ 4,799 110 (1) $ 4,908 $ 4,797 108 1 (124) $ 4,782 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements Of Operations And Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) Operating Revenues Regulated electric Nonregulated electric and other Regulated natural gas Total operating revenues 2014 $ 367 173 2013 $ 333 228 223 186 763 747 124 103 Operating Expenses Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Operating Loss Other Income and Expenses, net 102 131 240 76 181 185 91 75 1,417 88 72 ― 2,121 764 (1,358) (17) 2 18 (33) (12) (21) 3 22 Interest Expense Loss Before Income Taxes Income Tax Benefit Net Loss Other Comprehensive Income, net of tax (1,377) (487) (890) Pension and OPEB adjustments Comprehensive Loss ― $ See Notes to Condensed Consolidated Financial Statements 25 (890) $ 1 (20) PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $2 at March 31, 2014 and December 31, 2013) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Assets held for sale Regulatory assets Other Total current assets Investments and Other Assets Goodwill Assets held for sale Other Total investments and other assets Property, Plant and Equipment March 31, 2014 $ See Notes to Condensed Consolidated Financial Statements 26 36 121 121 57 89 442 45 128 1,089 Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Liabilities associated with assets held for sale Current maturities of long-term debt Regulatory liabilities Other Total current liabilities Long-term Debt Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs Liabilities associated with assets held for sale Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Common Stockholder's Equity Common stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at March 31, 2014 and December 31, 2013 Additional paid-in capital Accumulated deficit Total common stockholder's equity Total Liabilities and Common Stockholder's Equity $ 53 127 167 Cost Total Assets 38 December 31, 2013 229 57 270 891 920 2,167 920 34 232 3,121 1,152 7,029 (2,196) 11,143 (2,908) 4,833 8,235 483 9 492 - $ 9,535 $ 471 14 485 10,763 $ 197 $ 319 64 77 43 306 133 30 167 17 - 189 47 27 599 12 72 110 1,602 807 1,588 2,141 1,542 32 55 23 264 2,012 58 28 262 150 186 2,066 2,546 762 762 4,882 4,782 $ (1,265) (375) 4,279 5,269 10,763 9,535 $ PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements Of Cash Flows (Unaudited) Three Months Ended March 31, 2014 (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net loss Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization Equity component of AFUDC Impairment charges Deferred income taxes Accrued pension and other post-retirement benefit costs (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Notes receivable from affiliated companies Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payments for the redemption of long-term debt Notes payable to affiliated companies Dividends to parent Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures $ (890) $ 92 89 1,417 (501) 1 39 38 (16) (6) (17) (41) 11 8 29 (92) (5) 3 (37) 13 (10) (10) 14 21 (13) (38) (7) (9) 7 33 (110) (193) (105) (3) (108) (1) (2) (83) 263 92 (100) ― 162 90 2 (4) 31 36 27 (21) ― ― (12) 5 (1) See Notes to Condensed Consolidated Financial Statements 2013 $ 38 $ 27 $ 24 $ 19 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements of Changes in Common Stockholder's Equity (Unaudited) Common Stock (in millions) Balance at December 31, 2012 $ Accumulated Other Comprehensive Income Additional Paid-in Capital 762 $ 4,882 Accumulated Deficit $ (477) Pension and OPEB Related Adjustments $ (1) Net loss ― ― (21) ― Other comprehensive income ― ― ― 1 Balance at March 31, 2013 $ 762 $ 4,882 $ Balance at December 31, 2013 $ 762 $ 4,882 $ $ 5,146 (375) $ ― $ 5,269 (890) ― Dividends to parent ― (100) ― ― $ 4,782 $ See Notes to Condensed Consolidated Financial Statements 28 1 ― ― 762 (21) $ ― $ 5,166 (498) Net loss Balance at March 31, 2014 Total $ (1,265) $ ― (890) (100) $ 4,279 PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Statements Of Operations And Comprehensive Income (Unaudited) Three Months Ended March 31, 2014 (in millions) Operating Revenues $ 845 2013 $ 724 Operating Expenses Fuel used in electric generation and purchased power 339 293 Operation, maintenance and other 166 150 Depreciation and amortization 102 78 Property and other taxes Total operating expenses Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Net Income 23 22 630 543 215 181 7 4 43 41 179 144 66 54 113 90 Other Comprehensive Income, net of tax Reclassification into earnings from cash flow hedges Comprehensive Income $ See Notes to Condensed Consolidated Financial Statements 29 1 114 ― $ 90 PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) ASSETS Current Assets Cash and cash equivalents Receivables (net of allowance for doubtful accounts of $1 at March 31, 2014 and December 31, 2013) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other Total current assets Investments and Other Assets Other Total investments and other assets Property, Plant and Equipment March 31, 2014 $ 26 46 December 31, 2013 $ 22 151 141 96 434 190 444 178 112 Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits 1,137 118 125 961 215 215 269 269 12,578 (3,994) 12,489 (3,913) 8,584 8,576 669 717 25 25 694 Total Assets LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Regulatory liabilities Other Total current liabilities Long-term Debt Long-term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Common Stockholder's Equity Common Stock, no par; $0.01 stated value, 60,000,000 shares authorized; 53,913,701 shares outstanding at March 31, 2014 and December 31, 2013 Additional paid-in capital Retained earnings Accumulated other comprehensive income Total common stockholder's equity Total Liabilities and Common Stockholder's Equity See Notes to Condensed Consolidated Financial Statements 30 15 742 $ 10,630 $ 10,548 $ 129 $ 206 68 56 57 56 5 16 140 51 5 15 84 492 88 484 3,641 150 3,641 150 1,175 140 107 30 796 1,171 140 163 46 2,294 30 782 48 2,334 1 1,384 2,664 4 1 1,384 2,551 3 4,053 $ 10,630 3,939 $ 10,548 PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Statements Of Cash Flows (Unaudited) (in millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Equity component of AFUDC Deferred income taxes Accrued pension and other post-retirement benefit costs (Increase) decrease in Receivables Receivables from affiliated companies Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities Other assets Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payments for the redemption of long-term debt Notes payable to affiliated companies Other Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 31 Three Months Ended March 31, 2014 $ 113 $ 2013 90 79 103 (4) (39) (3) 45 5 4 2 (39) 6 12 (23) 10 (10) (41) (6) (4) 18 (16) (36) 12 110 (6) (3) 20 (11) 198 50 240 (156) (2) 2 ― (156) (133) (3) 3 (94) (227) (1) (54) ― (55) (13) (1) ― (1) (2) 11 15 $ 26 $ 36 23 $ 32 $ 28 PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Statements of Changes in Common Stockholder's Equity (Unaudited) Common Stock (in millions) Balance at December 31, 2012 $ Net income 1 $ 1,384 1 $ 1 $ ― Balance at March 31, 2013 $ Balance at December 31, 2013 $ Accumulated Other Comprehensive Income Additional Paid-in Capital Retained Earnings Net Gains (Losses) on Cash Flow Hedges $ 2,318 1,384 $ 2,408 $ 1,384 $ 2,551 $ ― $ 5 3,708 5 $ 3,798 3 $ 3,939 ― 90 Net income ― ― 113 ― Other comprehensive income ― ― ― 1 Balance at March 31, 2014 $ 1 $ 1,384 $ See Notes to Condensed Consolidated Financial Statements 32 2,664 Total $ $ 4 90 113 1 $ 4,053 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements (Unaudited) Index to Combined Notes To Condensed Consolidated Financial Statements The unaudited notes to the condensed consolidated financial statements that follow are a combined presentation. The following list indicates the registrants to which the footnotes apply. Registrant Duke Energy Corporation Duke Energy Carolinas, LLC Progress Energy, Inc. Duke Energy Progress, Inc. Duke Energy Florida, Inc. Duke Energy Ohio, Inc. Duke Energy Indiana, Inc. 1 • • • • • • • 2 • • 3 • • • • • • • 4 • • • • • • • 5 • • • • • • • 6 • • • • • • • Applicable Notes 8 9 10 11 • • • • • • • • • • • • • • • • • • • • • • • • • • • • 7 • 12 • • • • • • • 13 • 14 • 15 16 17 • • • • • • • • • • • • • • • • • • • • • 1. ORGANIZATION AND BASIS OF PRESENTATION NATURE OF OPERATIONS AND BASIS OF CONSOLIDATION Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy operates in the United States (U.S.) and Latin America primarily through its direct and indirect subsidiaries. Duke Energy’s subsidiaries include its subsidiary registrants, Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, Inc. (Duke Energy Progress); Duke Energy Florida, Inc. (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio) and Duke Energy Indiana, Inc. (Duke Energy Indiana). When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its six separate subsidiary registrants (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. These Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries where the respective Duke Energy Registrants have control. These Condensed Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC), Public Service Commission of South Carolina (PSCSC), U.S. Nuclear Regulatory Commission (NRC) and FERC. Substantially all of Duke Energy Carolinas’ operations qualify for regulatory accounting. Progress Energy is a public utility holding company headquartered in Raleigh, North Carolina, subject to regulation by the FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Substantially all of Progress Energy’s operations qualify for regulatory accounting. Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC. Substantially all of Duke Energy Progress’ operations qualify for regulatory accounting. Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Florida. Duke Energy Florida is subject to the regulatory jurisdiction of the Florida Public Service Commission (FPSC), NRC and FERC. Substantially all of Duke Energy Florida’s operations qualify for regulatory accounting. Duke Energy Ohio is a public utility that provides service in portions of Ohio and Kentucky. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky). Duke Energy Ohio’s principal lines of business include transmission and distribution of electricity and the sale of and/or transportation of natural gas. Duke Energy Ohio also generates and sells power into wholesale energy markets. Duke Energy Ohio conducts competitive auctions for retail electricity supply in Ohio whereby the energy price is recovered from retail customers. Duke Energy Kentucky’s principal lines of business include generation, transmission and distribution of electricity, as well as the sale of and/or transportation of natural gas. 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 Public Utilities Commission of Ohio (PUCO), Kentucky Public Service Commission (KPSC) and FERC. Duke Energy Ohio applies regulatory accounting to a portion of its operations. Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and the FERC. Substantially all of Duke Energy Indiana’s operations qualify for regulatory accounting. Certain prior year amounts have been reclassified to conform to the current year presentation. 33 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) BASIS OF PRESENTATION These Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all information and notes required by GAAP in the U.S. for annual financial statements. Because the interim Condensed Consolidated Financial Statements and Notes do not include all information and notes required by GAAP in the U.S. for annual financial statements, the Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and Notes in the Duke Energy Registrants’ combined Annual Report on Form 10-K for the year ended December 31, 2013. These Condensed Consolidated Financial Statements reflect all normal recurring adjustments in the opinion of the respective companies’ management, necessary to fairly present the financial position and results of operations of each of the Duke Energy Registrants. Amounts reported in Duke Energy’s interim Condensed Consolidated Statements of Operations and each of the Subsidiary Registrants’ interim Condensed Consolidated Statements of Operations and Comprehensive Income are not necessarily indicative of amounts expected for the respective annual periods due to effects of seasonal temperature variations on energy consumption, regulatory rulings, timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices, and other factors. In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. UNBILLED REVENUE Revenues on sales of electricity and gas are recognized when service is provided. Unbilled revenues are recognized by applying customer billing rates to the estimated volumes of energy delivered but not yet billed. Unbilled revenues can vary significantly from period to period as a result of seasonality, weather, customer usage patterns and meter reading schedules. Unbilled revenues are included within Receivables and Restricted receivables of variable interest entities on the Condensed Consolidated Balance Sheets as shown in the following table. (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana March 31, 2014 $ 816 December 31, 2013 $ 937 323 312 203 120 189 120 83 1 28 69 55 5 Additionally, Duke Energy Ohio and Duke Energy Indiana sell, on a revolving basis, nearly all of their retail accounts receivable, including receivables for unbilled revenues, to an affiliate, Cinergy Receivables Company, LLC (CRC) and account for the transfers of receivables as sales. Accordingly, the receivables sold are not reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 12 for further information. These receivables for unbilled revenues are shown in the table below. (in millions) Duke Energy Ohio Duke Energy Indiana March 31, 2014 December 31, 2013 65 95 $ $ 89 144 AMOUNTS ATTRIBUTABLE TO CONTROLLING INTERESTS Loss From Discontinued Operations, net of tax presented on the respective Condensed Consolidated Statements of Operations for Duke Energy and Progress Energy is attributable only to controlling interests for all periods presented. Other comprehensive income reported on the respective Condensed Consolidated Statements of Equity for Duke Energy and Progress Energy is attributable only to controlling interests for all periods presented. ACCUMULATED OTHER COMPREHENSIVE INCOME For the three months ended March 31, 2014 and 2013, reclassifications out of accumulated other comprehensive income (AOCI) for the Duke Energy Registrants were not material. Changes in AOCI for the Duke Energy Registrants are presented in their respective Condensed Consolidated Statements of Equity. EXCISE TAXES Certain excise taxes levied by state or local governments are required to be paid even if not collected from the customer. These taxes are recognized on a gross basis. Otherwise, the taxes are accounted for net. Excise taxes accounted for on a gross basis as operating revenues in the Condensed Consolidated Statements of Operations were as follows. Three Months Ended March 31, (in millions) 2014 Duke Energy $ 167 2013 $ 149 Duke Energy Carolinas 46 42 Progress Energy 77 67 Duke Energy Progress 32 28 Duke Energy Florida 45 39 Duke Energy Ohio 34 31 Duke Energy Indiana 10 9 34 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) NEW ACCOUNTING STANDARDS The new accounting standards adopted in 2014 and 2013 had no significant impact on the presentation or results of operations, cash flows, or financial position of the Duke Energy Registrants. Disclosures have been enhanced to provide a discussion and tables on derivative contracts subject to enforceable master netting agreements. The following new Accounting Standards Updates (ASUs) have been issued, but have not yet been adopted by the Duke Energy Registrants, as of March 31, 2014. ASC 205 — Reporting Discontinued Operations . In April 2014, the FASB issued revised accounting guidance for reporting discontinued operations. A discontinued operation would be either (i) a component of an entity or a group of components of an entity that represents a separate major line of business or major geographical area of operations that either has been disposed of or is part of a single coordinated plan to be classified as held for sale or (ii) a business that, on acquisition, meets the criteria to be classified as held for sale. For the Duke Energy Registrants, this guidance is effective on a prospective basis for interim and annual periods beginning January 1, 2015. This guidance will also result in increased disclosures. In general, this guidance is likely to result in fewer disposals of assets qualifying as discontinued operations. 2. DISPOSITIONS Midwest Generation Exit On February 17, 2014, Duke Energy Ohio announced it had initiated a process to exit its nonregulated Midwest generation business. As a result, Duke Energy and Duke Energy Ohio classified the assets and associated liabilities of this business as held for sale in the Condensed Consolidated Balance Sheet at March 31, 2014, and recorded pretax losses on these assets of approximately $1,381 million and $1,417 million at Duke Energy and Duke Energy Ohio, respectively, which represents the excess of the carrying value over the estimated fair value of the business, less estimated costs to sell. These losses were included in Impairment charges in the Condensed Consolidated Statements of Operations and Comprehensive Income. The fair value of the disposal group was based on the income approach, which estimates fair value using discounted cash flows. The impairment will be updated, if necessary, based on changes in estimated fair value as additional information related to the potential transaction becomes available. Duke Energy and Duke Energy Ohio ceased depreciating the fixed assets of the disposal group when classified as held for sale. Considering a marketing period of several months and potential regulatory approvals, Duke Energy Ohio expects to dispose of the nonregulated Midwest generation business by the end of the first quarter of 2015. The nonregulated Midwest generation business is included in the Commercial Power segment. The following table presents information related to the Duke Energy Ohio plants included in the disposal group. Total Average (c) Owned Average (c) Plant Type Primary Fuel Location Stuart(a)(b) Fossil Steam Coal OH 2,318 904 Zi m m e r(a) Fossil Steam Coal OH 1,338 622 46.5 Facility Hanging Rock MW Capacity MW Capacity Ownership Interest 39 % Combined Cycle Gas OH 1,274 1,274 100 Miami Fort (Units 7 and 8) (a) Fossil Steam Coal OH 1,020 653 64 Conesville (a)(b) Fossil Steam Coal OH 780 312 40 Washington Combined Cycle Gas OH 637 637 100 Fayette Combined Cycle Gas PA 640 640 100 Fossil Steam Coal OH 618 204 33 Lee Combustion Turbine Gas IL 640 640 100 Dick's Creek Combustion Turbine Gas OH 136 136 100 Miami Fort Combustion Turbine Oil OH 68 68 100 9,469 6,090 Killen(a)(b) Total Midwest Generation (a) (b) (c) Jointly owned with Ohio Power Company and/or The Dayton Power & Light Company. Station is not operated by Duke Energy Ohio. Average MW capacity is calculated as the average of winter capacity and summer capacity. The disposal group also includes Duke Energy Ohio’s power purchase agreement with the Ohio Valley Electric Corporation (OVEC), and a retail sales business owned by Duke Energy. The following table presents the carrying values of the major classes of Assets held for sale and Liabilities associated with assets held for sale included in the Midwest generation disposal group in the Condensed Consolidated Balance Sheets. Amounts included in the following table 35 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) exclude certain other disposal groups which are not material and accordingly do not agree to the Duke Energy Condensed Consolidated Balance Sheets. March 31, 2014 Duke Energy Ohio (in millions) Current assets Investments and other assets Property, plant and equipment Total assets held for sale Current liabilities Deferred credits and other liabilities Total liabilities associated with assets held for sale Duke Energy 515 $ 2,025 2,749 222 $ $ 442 $ 179 1,988 209 $ 2,609 $ 189 55 $ 244 56 278 $ 3. BUSINESS SEGMENTS Duke Energy evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. Certain governance costs are allocated to each segment. In addition, direct interest expense and income taxes are included in segment income. Operating segments are determined based on information used by the chief operating decision maker in deciding how to allocate resources and evaluate the performance. Products and services are sold between affiliate companies and reportable segments of Duke Energy at cost. Segment assets as presented in the tables that follow exclude all intercompany assets. DUKE ENERGY Duke Energy has the following reportable operating segments: Regulated Utilities, International Energy and Commercial Power. Regulated Utilities conducts operations primarily through Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana, and the regulated transmission and distribution operations of Duke Energy Ohio. These electric and gas operations are subject to the rules and regulations of the FERC, NCUC, PSCSC, FPSC, PUCO, IURC, and KPSC. Substantially all of Regulated Utilities’ operations are regulated and, accordingly, these operations qualify for regulatory accounting treatment. International Energy principally operates and manages power generation facilities and engages in sales and marketing of electric power, natural gas, and natural gas liquids outside the U.S. Its activities principally target power generation in Latin America. Additionally, International Energy owns a 25 percent interest in National Methanol Company (NMC), a large regional producer of Methyl tertiary butyl ether (MTBE) located in Saudi Arabia. The investment in NMC is accounted for under the equity method of accounting. Commercial Power owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants as well as other contractual positions. Commercial Power’s generation operations consist primarily of Duke Energy Ohio’s coal-fired and gas-fired nonregulated generation assets located in the Midwest region of the U.S. and wind and solar generation located throughout the U.S. The asset portfolio has a diversified fuel mix with baseload and mid-merit coal-fired units as well as combined cycle and peaking natural gas-fired units. In addition, Commercial Power operates and develops transmission projects. The remainder of Duke Energy’s operations is presented as Other. While it is not an operating segment, Other primarily includes unallocated corporate interest expense, certain unallocated corporate costs, Bison Insurance Company Limited (Bison), Duke Energy’s wholly owned, captive insurance subsidiary, and contributions to the Duke Energy Foundation. On December 31, 2013, Duke Energy sold its interest in DukeNet Communications Holdings, LLC (DukeNet) to Time Warner Cable, Inc . Regulated Utilities (in millions) Unaffiliated revenues 5,795 $ Intersegment revenues Total revenues Segment income (loss) (a)(b) Add back noncontrolling interests component Loss from discontinued operations, net of tax Three Months Ended March 31, 2014 Total Reportable Commercial Power Segments International Energy $ 382 $ 442 ― 10 $ 7 6,619 $ Eliminations Other 5 $ 20 17 ― (a) (b) ― $ 5,805 $ 382 $ 449 $ 6,636 $ 25 $ (37) $ 6,624 $ 737 $ 130 $ (879) $ (12) $ (82) $ ― $ (94) 4 (3) 100,097 $ $ 5,064 $ 5,666 $ 110,827 $ 2,789 $ 176 $ (93) $ 113,792 Commercial Power includes the impairment charge related to the planned disposition of the Midwest Generation business. See Note 2 for additional information. Other includes after-tax costs to achieve the Progress Energy merger. Regulated Utilities (in millions) Unaffiliated revenues $ Intersegment revenues Total revenues Segment income (loss) / Consolidated net income (a) (a) 6,624 (37) Net loss Segment assets (a) Consolidated $ 5,052 Three Months Ended March 31, 2013 Total Reportable Commercial Power Segments International Energy $ 392 $ 439 ― 8 $ 13 5,883 $ 21 Eliminations Other 15 $ ― Consolidated $ 5,898 (41) 20 ― $ 5,060 $ 392 $ 452 $ 5,904 $ 35 $ (41) $ 5,898 $ 656 $ 97 $ (42) $ 711 $ (77) $ ― $ 634 Other includes after-tax costs to achieve the Progress Energy merger. 36 E99 KEEN m? Edi, PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY OHIO Duke Energy Ohio has two reportable operating segments, Regulated Utilities and Commercial Power. Regulated Utilities transmits and distributes electricity in portions of Ohio and generates, distributes and sells electricity in portions of Kentucky. Regulated Utilities also transports and sells natural gas in portions of Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Ohio and its wholly owned subsidiary, Duke Energy Kentucky. Commercial Power owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants, as well as other contractual positions. The remainder of Duke Energy Ohio’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes certain governance costs allocated by its parent, Duke Energy. See Note 8 for additional information. All of Duke Energy Ohio’s revenues are generated domestically and its long-lived assets are all in the U.S. (in millions) Unaffiliated revenues (a) Intersegment revenues Total revenues Segment income (loss) / Consolidated net loss(a)(b) Segment assets (b) (a) (b) Regulated Utilities $ 562 Commercial Power Three Months Ended March 31, 2014 Total Reportable Segments Other 770 $ ― ― $ (887) $ (3) $ ― $ (890) $ 9,594 $ 102 $ (161) $ 9,535 562 $ 7 208 $ $ 64 $ (951) $ 6,736 $ 2,858 $ Consolidated ― 201 ― Eliminations ― $ $ $ 763 7 $ 763 $ ― (7) (7) $ 763 $ In May 2013, Duke Energy Ohio implemented revised customer rates approved by the PUCO. This increase impacts Regulated Utilities. See Note 4 for additional information about the revised customer rates. Commercial Power includes the impairment charge related to the planned disposition of the Midwest Generation business. See Note 2 for additional information. (in millions) Unaffiliated revenues Intersegment revenues Total revenues Segment income (loss) / Consolidated net loss Regulated Utilities $ 492 $ ― Commercial Power 255 Three Months Ended March 31, 2013 Total Reportable Segments Other $ 11 747 $ ― ― ― 11 $ 492 $ 266 $ 758 $ $ 53 $ (67) $ (14) $ (7) $ Eliminations ― Consolidated $ 747 $ (11) (11) ― $ 747 $ ― $ (21) DUKE ENERGY CAROLINAS, PROGRESS ENERGY, DUKE ENERGY PROGRESS, DUKE ENERGY FLORIDA AND DUKE ENERGY INDIANA The remaining Duke Energy Registrants each have one reportable operating segment, Regulated Utility, which generates, transmits, distributes and sells electricity. The remainder of each company’s operations is classified as Other. While not considered a reportable segment for any of these companies, Other consists of certain unallocated corporate costs. Other for Progress Energy also includes interest expense on corporate debt instruments of $63 million and $101 million for the three months ended March 31, 2014 and 2013, respectively. The following table summarizes the net loss for Other at each of these registrants. Three Months Ended March 31, 2014 (in millions) Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Indiana $ (21) (52) (10) (4) (3) 37 $ 2013 (19) (79) (7) (5) (4) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The respective Regulated Utility and Regulated Utilities operating segments include substantially all of Duke Energy Carolinas’, Progress Energy’s, Duke Energy Progress’, Duke Energy Florida’s and Duke Energy Indiana’s assets at March 31, 2014 and 2013. 4. REGULATORY MATTERS RATE RELATED INFORMATION The NCUC, PSCSC, FPSC, IURC, PUCO and KPSC approve rates for retail electric and natural gas services within their states. Nonregulated sellers of natural gas and electric generation are also allowed to operate in Ohio once certified by the PUCO. The FERC approves rates for electric sales to wholesale customers served under costbased rates (excluding Ohio and Indiana), as well as sales of transmission service. Duke Energy Carolinas 2013 North Carolina Rate Case On September 24, 2013, the NCUC approved a settlement agreement related to Duke Energy Carolinas’ request for a rate increase with minor modifications. The parties agreed to a three-year step-in rate increase, with the first two years providing for $204 million, or a 4.5 percent average increase in rates, and the third year providing for rates to be increased by an additional $30 million, or 0.6 percent. The agreement is based upon a return on equity of 10.2 percent and an equity component of the capital structure of 53 percent. New rates went into effect on September 25, 2013. On October 23, 2013, the North Carolina Attorney General (NCAG) appealed the rate of return and capital structure approved in the agreement. On October 24, 2013, the NC Waste Awareness and Reduction Network (NC WARN) also appealed various matters in the settlement. The North Carolina Supreme Court (NCSC) denied a Motion to Consolidate these appeals with other North Carolina rate case appeals involving Duke Energy Carolinas and Duke Energy Progress on March 13, 2014. Briefing continues in this matter, and no oral argument has been scheduled at this time. Duke Energy Carolinas cannot predict the outcome of this matter. 2013 South Carolina Rate Case On September 11, 2013, the PSCSC approved a settlement agreement related to Duke Energy Carolinas’ request for a rate increase. Parties to the settlement agreement were the Office of Regulatory Staff, Wal-Mart Stores East, LP and Sam’s East, Incorporated, the South Carolina Energy Users Committee, Public Works of the City of Spartanburg, South Carolina and the South Carolina Small Business Chamber of Commerce. The parties agreed to a two-year step-in rate increase, with the first year providing for approximately $80 million, or a 5.5 percent average increase in rates, and the second year providing for rates to be increased by an additional $38 million, or 2.6 percent. The settlement agreement is based upon a return on equity of 10.2 percent and a 53 percent equity component of the capital structure. New rates went into effect on September 18, 2013. 2011 North Carolina Rate Case On January 27, 2012, the NCUC approved a settlement agreement related to Duke Energy Carolinas’ request for a rate increase. The Public Staff was a party to the settlement. On October 23, 2013, the NCUC reaffirmed the rate of return approved in the January 27, 2012 settlement agreement, in response to an appeal by the NCAG. On November 21, 2013, the NCAG appealed the reaffirmed order. The NCSC denied a Motion to Consolidate this appeal with other North Carolina rate case appeals involving Duke Energy Carolinas and Duke Energy Progress on March 13, 2014. Briefing continues in this matter, and no oral argument has been scheduled at this time. Duke Energy Carolinas cannot predict the outcome of this matter. William States Lee Combined Cycle Facility On April 9, 2014, the PSCSC granted Duke Energy Carolinas a Certificate of Environmental Compatibility and Public Convenience and Necessity (CECPCN) for the construction and operation of a 750 MW combined cycle natural gas-fired generating plant at its existing William States Lee Generating Station in Anderson, South Carolina. Receipt of the CECPCN does not commit Duke Energy Carolinas to build the facility. Duke Energy Carolinas will make a decision regarding this facility by mid2014. If constructed, the North Carolina Electric Membership Corporation will own 14 percent of the project. Duke Energy Progress 2012 North Carolina Rate Case On May 30, 2013, the NCUC approved a settlement agreement related to Duke Energy Progress’ request for a rate increase. The Public Staff was a party to the settlement agreement. The parties agreed to a two-year step-in rate increase, with the first year providing for a $147 million, or a 4.5 percent average increase in rates, and the second year providing for rates to be increased by an additional $31 million, or a 1.0 percent average increase in rates. The agreement is based upon a return on equity of 10.2 percent and an equity component of the capital structure of 53 percent. New rates went into effect on June 1, 2013. On July 1, 2013, the NCAG appealed the NCUC’s approval of the rate of return and capital structure included in the agreement. NC WARN also appealed various matters in the settlement. The NCSC denied a Motion to Consolidate these appeals with other North Carolina rate case 38 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) appeals involving Duke Energy Carolinas and Duke Energy Progress on March 13, 2014. Briefing has concluded in this matter and oral argument was held on May 5, 2014. Duke Energy Progress cannot predict the outcome of this matter. Wholesale Depreciation Rates On April 19, 2013, Duke Energy Progress filed an application with FERC for acceptance of changes to generation depreciation rates and in August filed for acceptance of additional changes. These changes will affect the rates of Duke Energy Progress wholesale power customers that purchase or will purchase power under formula rates. Certain Duke Energy Progress wholesale customers filed interventions and protests. FERC accepted the depreciation rate changes, subject to refund, and set the matter for settlement and hearing in a consolidated proceeding. FERC further initiated an action with respect to the justness and reasonableness of the proposed rate changes. A settlement conference is scheduled for May 22, 2014. Duke Energy Progress cannot predict the outcome of this matter. Duke Energy Florida FPSC Settlement Agreements On February 22, 2012, the FPSC approved a settlement agreement (the 2012 Settlement) among Duke Energy Florida, the Florida Office of Public Counsel (OPC) and other customer advocates. The 2012 Settlement was to continue through the last billing cycle of December 2016. On October 17, 2013, the FPSC approved a settlement agreement (the 2013 Settlement) between Duke Energy Florida, OPC, and other customer advocates. The 2013 Settlement replaces and supplants the 2012 Settlement and substantially resolves issues related to (i) Crystal River Unit 3, (ii) Levy, (iii) Crystal River 1 and 2 coal units, and (iv) future generation needs in Florida. Refer to the remaining sections below and the 2013 Annual Report on Form 10-K for further discussion of these settlement agreements. Crystal River Unit 3 On February 5, 2013, Duke Energy Florida announced the retirement of Crystal River Unit 3. On February 20, 2013, Duke Energy Florida filed with the NRC a certification of permanent cessation of power operations and permanent removal of fuel from the reactor vessel. In December 2013, Duke Energy Florida filed an updated site-specific decommissioning plan with the NRC. The plan included a decommissioning cost estimate of $1,180 million, including amounts applicable to joint owners, under the safe storage (SAFSTOR) option. Duke Energy Florida’s decommissioning study assumes Crystal River Unit 3 will be in SAFSTOR configuration, requiring limited staffing to monitor plant conditions, until the eventual dismantling and decontamination activities to be completed by 2073. This decommissioning approach is currently utilized at a number of retired domestic nuclear power plants and is one of three accepted approaches to decommissioning approved by the NRC. Duke Energy Florida has reclassified all Crystal River Unit 3 investments, including property, plant and equipment, nuclear fuel, inventory, and other assets, to a regulatory asset. Duke Energy Florida is allowed to accelerate cash recovery of approximately $130 million of the Crystal River Unit 3 regulatory asset from retail customers from 2014 through 2016 through its fuel clause. Duke Energy Florida will begin recovery of the remaining Crystal River Unit 3 regulatory asset, up to a cap of $1,466 million from retail customers upon the earlier of (i) full recovery of the uncollected Levy investment or (ii) the first billing period of January 2017. Recovery will continue 240 months from inception of collection of the regulatory asset in base rates. The Crystal River Unit 3 base rate component will be adjusted at least every four years. Included in this recovery, but not subject to the cap, are costs of building a dry cask storage facility for spent nuclear fuel. The return rate will be based on the currently approved AFUDC rate with a return on equity of 7.35 percent, or 70 percent of the currently approved 10.5 percent. The return rate is subject to change if the return on equity changes in the future. Construction of the dry cask storage facility is subject to separate FPSC approval. The regulatory asset associated with the uprate project will continue to be recovered through the Nuclear Cost Recovery Clause (NCRC) over an estimated seven year period beginning in 2013. Through March 31, 2014, Duke Energy Florida deferred $1,321 million for rate recovery related to Crystal River Unit 3, which is subject to the rate recovery cap in the 2013 Settlement. In addition, Duke Energy Florida deferred $311 million for recovery associated with building a dry cask storage facility and the original uprate project, which is not subject to the rate recovery cap discussed above. Duke Energy Florida does not expect the Crystal River Unit 3 regulatory asset to exceed the cap. The following table includes a summary of retail customer refunds agreed to in the 2012 Settlement and the 2013 Settlement. Refer to the 2013 Annual Report on Form 10K for additional information on each of these refunds. (in millions) 2012 Settlement refund Total 288 $ Refunded to date $ 164 March 31, 2014 Remaining Amount to be Refunded 2014 2015 $ 104 $ 10 $ 2016 10 Retirement decision refund 100 ― ― 40 60 NEIL proceeds Total customer refunds 490 367 123 ― 878 531 227 ― 50 (130) (8) (29) (37) (56) $ Accelerated regulatory asset recovery Net customer refunds 748 $ 523 $ 198 $ 13 70 $ Levy On July 28, 2008, Duke Energy Florida applied to the NRC for a Combined Construction and Operating License (COL) for two Westinghouse AP1000 reactors at Levy. In 2008, the FPSC granted Duke Energy Florida’s petition for an affirmative Determination of Need and related orders requesting cost recovery under Florida’s nuclear costrecovery rule, together with the associated facilities, including transmission lines and substation facilities. 39 14 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) On January 28, 2014, Duke Energy Florida terminated the Levy engineering, procurement and construction agreement (EPC). Duke Energy Florida may be required to pay for work performed under the EPC and to bring existing work to an orderly conclusion, including but not limited to costs to demobilize and cancel certain equipment and material orders placed. Duke Energy Florida recorded an exit obligation of $25 million upon termination of the EPC. This liability was recorded within Other in Deferred Credits and Other Liabilities with an offset primarily to Regulatory assets on the Condensed Consolidated Balance Sheets. Duke Energy Florida is allowed to recover reasonable and prudent EPC cancellation costs from its retail customers. See Note 5 for a discussion of litigation related to the EPC termination. The 2012 Settlement provided that Duke Energy Florida include the allocated wholesale cost of Levy as a retail regulatory asset and include this asset as a component of rate base and amortization expense for regulatory reporting. In accordance with the 2013 Settlement, Duke Energy Florida ceased amortization of the wholesale allocation of Levy investments against retail rates. Recovery of the remaining retail portion of the project costs will occur over five years from 2013 through 2017. Duke Energy Florida has an ongoing responsibility to demonstrate prudency related to the wind down of the Levy investment and the potential for salvage of Levy assets. As of March 31, 2014, Duke Energy Florida has a net uncollected investment in Levy of approximately $248 million, including AFUDC. Of this amount, $31 million is included in Regulatory assets, $121 million related to land and the COL is included in Net, property, plant and equipment, and $96 million is included in Regulatory assets within Current Assets on the Condensed Consolidated Balance Sheets. New Generation The 2013 Settlement establishes a recovery mechanism for additional generation needs. This recovery mechanism, the Generation Base Rate Adjustment (GBRA), allows recovery of prudent costs of these items through an increase in base rates, upon the in-service date of such assets, without a general rate case at a 10.5 percent return on equity. On October 8, 2013, Duke Energy Florida issued a request for proposals to evaluate alternatives for an additional generation facility. Duke Energy Florida is currently reviewing bids received on December 9, 2013, and expects to make a decision by mid-2014. Cost of Removal Reserve The 2012 Settlement and the 2013 Settlement provided Duke Energy Florida the discretion to reduce cost of removal amortization expense up to the balance in the cost of removal reserve until the earlier of its applicable cost of removal reserve reaching zero or the expiration of the 2013 Settlement. Duke Energy Florida was not allowed to reduce amortization expense if the reduction would cause it to exceed the appropriate high point of the return on equity range. Duke Energy Florida recognized a reduction in amortization expense of $56 million for the three months ended March 31, 2013. Duke Energy Florida had no cost of removal reserves eligible for amortization to income remaining after December 31, 2013. Duke Energy Ohio 2012 Electric Rate Case On May 1, 2013, the PUCO approved a settlement agreement (the Electric Settlement) related to Duke Energy Ohio’s electric distribution rate case. All intervening parties signed the Electric Settlement. The Electric Settlement provides for a net increase in electric distribution revenues of $49 million, or an average increase of 2.9 percent, based upon a return on equity of 9.84 percent. Revised rates were effective in May 2013. 2012 Natural Gas Rate Case On April 2, 2013, Duke Energy Ohio, the PUCO Staff, and intervening parties filed a settlement (the Gas Settlement) with the PUCO related to a gas distribution case. The Gas Settlement provides for no increase in base rates for natural gas distribution service. The Gas Settlement left unresolved the recovery of environmental remediation costs associated with former manufactured gas plants (MGP). The Gas Settlement is based upon a return on equity of 9.84 percent. On November 13, 2013, the PUCO issued an order approving the Gas Settlement and allowing for the recovery of $56 million of MGP costs, excluding carrying costs, to be recovered over a five-year period beginning in 2014. Beginning March 5, 2014, consumer groups filed notices of appeal to the Ohio Supreme Court. On March 17, 2014, these parties filed a motion to stay the MGP rider. The PUCO Staff and Duke Energy Ohio filed memoranda in opposition on March 25, 2014. On April 24, 2014, the court granted Duke Energy Ohio’s motion to intervene. The PUCO Staff’s motion remains pending. On March 21, 2014, consumer groups also filed an application for rehearing on the PUCO’s decision to deny their motion for stay or, in the alternative, to implement the MGP rider subject to refund. Duke Energy Ohio has opposed the application. Duke Energy Ohio cannot predict the outcome of this matter. On March 31, 2014, Duke Energy Ohio filed an application for approval to adjust the MGP rider to include remediation costs incurred in 2013. The tariff was effective with April 2014 billing. Regional Transmission Organization (RTO) Realignment Duke Energy Ohio including Duke Energy Kentucky, transferred control of its transmission assets from Midcontinent Independent System Operator, Inc. (MISO) to PJM Interconnection, LLC (PJM), effective December 31, 2011. On December 22, 2010, the KPSC approved Duke Energy Kentucky’s request to effect the RTO realignment, subject to a commitment not to seek double-recovery in a future rate case of the transmission expansion fees that may be charged by MISO and PJM in the same period or overlapping periods. On May 25, 2011, the PUCO approved a settlement between Duke Energy Ohio, Ohio Energy Group, the Office of Ohio Consumers’ Counsel and the PUCO Staff related to Duke Energy Ohio’s recovery of certain costs of the RTO realignment via a non-bypassable rider. Duke Energy Ohio is allowed to recover all MISO Transmission Expansion Project (MTEP) costs, including but not limited to Multi-Value Project (MVP) costs, directly or indirectly charged to Ohio customers. Duke Energy Ohio did not recover any portion of the MISO exit obligation, PJM integration fees, or internal costs associated with the RTO realignment, and will not recover the first $121 million of PJM transmission 40 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) expansion costs from Ohio retail customers. Duke Energy Ohio also agreed to vigorously defend against any charges for MVP projects from MISO. Upon its exit from MISO on December 31, 2011, Duke Energy Ohio recorded a liability for its exit obligation and share of MTEP costs, excluding MVP. This liability was recorded within Other in Current liabilities and Other in Deferred credits and other liabilities on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. The following table provides a reconciliation of the beginning and ending balance of Duke Energy Ohio’s recorded obligations related to its withdrawal from MISO. (in millions) Duke Energy Ohio (a) Balance at December 31, 2013 $ 95 Provision / Adjustments $ 1 Cash Reductions $ (1) Balance at March 31, 2014(a) $ 95 As of March 31, 2014, $74 million is recorded as a Regulatory asset on Duke Energy Ohio's Condensed Consolidated Balance Sheets. MVP. MISO approved 17 MVP proposals prior to Duke Energy Ohio’s exit from MISO on December 31, 2011. Construction of these projects is expected to continue through 2020. Costs of these projects, including operating and maintenance costs, property and income taxes, depreciation and an allowed return, are allocated and billed to MISO transmission owners. On December 29, 2011, MISO filed a tariff with the FERC providing for the allocation of MVP costs to a withdrawing owner based on monthly energy usage. The FERC set for hearing (i) whether MISO’s proposed cost allocation methodology to transmission owners who withdrew from MISO prior to January 1, 2012 is consistent with the tariff at the time of their withdrawal from MISO, and, (ii) if not, what the amount of and methodology for calculating any MVP cost responsibility should be. On July 16, 2013, a FERC Administrative Law Judge (ALJ) issued an initial decision. Under this initial decision, Duke Energy Ohio would be liable for MVP costs. Duke Energy Ohio filed exceptions to the initial decision, requesting the FERC overturn the ALJ’s decision. After reviewing the initial decision, along with all exceptions and responses filed by the parties, the FERC will issue a final decision. Duke Energy Ohio fully intends to appeal to the federal court of appeals if the FERC affirms the ALJ’s decision. Duke Energy Ohio cannot predict the outcome of these proceedings. In 2012, MISO estimated Duke Energy Ohio’s MVP obligation over the period from 2012 to 2071 at $2.7 billion, on an undiscounted basis. The estimated obligation is subject to great uncertainty including the ultimate cost of the projects, the annual costs of O&M, taxes and return over the project lives and the allocation to Duke Energy Ohio. Duke Energy Indiana Edwardsport IGCC Plant On November 20, 2007, the IURC granted Duke Energy Indiana a Certificate of Public Convenience and Necessity (CPCN) for the construction of a 618 MW IGCC power plant at Duke Energy Indiana’s existing Edwardsport Generating Station in Knox County, Indiana with a cost estimate of $1.985 billion assuming timely recovery of financing costs related to the project. The Citizens Action Coalition of Indiana, Inc., Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc. (collectively, the Joint Intervenors) were intervenors in several matters related to the Edwardsport IGCC Plant. On December 27, 2012, the IURC approved a settlement agreement (2012 Edwardsport settlement) related to the cost increase for the construction of the project, including subdockets before the IURC related to the project. The Office of Utility Consumer Counselor ( OUCC), the Duke Energy Indiana Industrial Group and Nucor Steel-Indiana were parties to the settlement. The settlement agreement, as approved, capped costs to be reflected in customer rates at $2.595 billion, including estimated AFUDC through June 30, 2012. Duke Energy Indiana is allowed to recover AFUDC after June 30, 2012, until customer rates are revised, with such recovery decreasing to 85 percent on AFUDC accrued after November 30, 2012. The project was placed in commercial operation in June 2013. Costs for the Edwardsport IGCC plant are recovered from retail electric customers via a tracking mechanism, the IGCC Rider. Updates to the IGCC Rider are filed semi-annually. The Joint Intervenors have challenged and/or appealed most IGCC Rider updates. To date, all IGCC Rider updates have been approved by the IURC and upheld on appeal. On March 18, 2014, the Indiana Court of Appeals denied an appeal filed by the Joint Intervenors’ and affirmed the IURC order approving the 2012 Edwardsport settlement and other related regulatory orders. On April 2, 2014, the IURC ordered a subdocket to Duke Energy Indiana’s current fuel adjustment clause proceeding. The subdocket will review underlying causes for net negative generation amounts at the Edwardsport IGCC plant during the period September through November 2013. Duke Energy Indiana contends the net negative generation is related to the consumption of fuel and auxiliary power when the plant was in start-up or off-line. The Joint Intervenors, OUCC, the Duke Energy Indiana Industrial Group, and Nucor Steel-Indiana are parties to the subdocket. A prehearing conference was held on April 23, 2014. Duke Energy Indiana cannot predict the outcome of the fuel adjustment clause subdocket or future IGCC Rider proceedings. OTHER REGULATORY MATTERS Merger Appeals On January 9, 2013, the City of Orangeburg and NC WARN appealed the NCUC’s approval of the merger between Duke Energy and Progress Energy. On April 29, 2013, the NCUC granted Duke Energy’s motion to dismiss certain exceptions contained in NC WARN’s appeal. 41 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) On November 6, 2013, the North Carolina Court of Appeals heard oral arguments on the appeals. On March 4, 2014, the Court of Appeals issued an opinion affirming the NCUC’s approval of the merger. On April 8, 2014, NC WARN filed a petition for discretionary review by the North Carolina Supreme Court. On April 21, 2014, Duke Energy and the NCUC Public Staff jointly filed their response opposing NC WARN’s petition. The City of Orangeburg did not file a petition for discretionary review. Progress Energy Merger FERC Mitigation In June 2012, the FERC approved the merger with Progress Energy, including Duke Energy and Progress Energy’s revised market power mitigation plan, the Joint Dispatch Agreement (JDA) and the joint Open Access Transmission Tariff. The revised market power mitigation plan provides for the acceleration of one transmission project and the completion of seven other transmission projects (Long-term FERC Mitigation) and interim firm power sale agreements during the completion of the transmission projects (Interim FERC Mitigation). The Long-term FERC Mitigation is expected to increase power imported into the Duke Energy Carolinas and Duke Energy Progress service areas and enhance competitive power supply options in the service areas. These projects are expected to be completed in 2014. On August 8, 2012, FERC granted certain intervenors’ request for rehearing for further consideration. Following the closing of the merger, outside counsel reviewed Duke Energy’s mitigation plan and discovered a technical error in the calculations. On December 6, 2013, Duke Energy submitted a filing to the FERC disclosing the error and arguing that no additional mitigation is necessary. On March 28, 2014, Duke Energy submitted responses to a FERC deficiency letter seeking additional information concerning the market power mitigation calculations. The City of New Bern filed a protest to Duke Energy’s response and requested that FERC order additional mitigation. Duke Energy cannot predict the outcome of this matter. Planned and Potential Coal Plant Retirements The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a 10 to 20-year period, and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in South Carolina, Florida, Indiana and Ohio earlier than their current estimated useful lives. The facilities do not have the requisite emission control equipment, primarily to meet EPA regulations recently approved or that are not yet effective. The table below contains the net carrying value of generating facilities planned for early retirement or being evaluated for potential retirement included in Property, plant and equipment, net on the Consolidated Balance Sheets. March 31, 2014 Duke Energy (b) Carolinas Duke Energy Capacity (in MW) Remaining net book value (in millions) (a) (a) (b) (c) (d) (e) 2,297 $ 255 Energy 873 200 13 $ Duke Energy (c) Florida Progress $ 112 Duke Energy (d) Ohio 873 $ 112 Duke Energy (e) Indiana 668 556 $ 9 $ 121 Included in Property, plant and equipment, net as of March 31, 2014, on the Condensed Consolidated Balance Sheets. Includes Lee Units 1 and 2. Excludes 170 MW Lee Unit 3 that is expected to be converted to gas in 2014. Duke Energy Carolinas expects to retire or convert these units by December 2020 in conjunction with a settlement agreement associated with the Cliffside Unit 6 air permit. Includes Crystal River Units 1 and 2. Includes Beckjord Units 5 and 6 and Miami Fort Unit 6. Beckjord units have no remaining book value. Includes Wabash River Units 2 through 6. Wabash River Unit 6 is being evaluated for potential conversion to gas. Duke Energy Indiana committed to retire or convert these units by June 2018 in conjunction with a settlement agreement associated with the Edwardsport air permit. Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives, and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired. However, such recovery, including recovery of carrying costs on remaining book values, could be subject to future regulatory approvals and therefore cannot be assured. 5. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL Duke Energy is subject to international, federal, state, and local regulations regarding air and water quality, hazardous and solid waste disposal, and other environmental matters. The Subsidiary Registrants are subject to federal, state, and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. Remediation Activities The Duke Energy Registrants are responsible for environmental remediation at various contaminated sites. These include some properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. These sites are in various stages of investigation, remediation, and monitoring. Managed in conjunction with relevant federal, state, and local agencies, activities vary with site conditions and locations, remediation requirements, complexity, and sharing of responsibility. If remediation activities involve joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for 42 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) contamination caused by other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Liabilities are recorded when losses become probable and are reasonably estimable. The total costs that may be incurred cannot be estimated because the extent of environmental impact, allocation among potentially responsible parties, remediation alternatives, and/or regulatory decisions has not yet been determined. Additional costs associated with remediation activities are likely to be incurred in the future and could be significant. Costs are typically expensed as Operation, maintenance and other in the Condensed Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable. The following table contains information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. (in millions) Balance at beginning of period Provisions / adjustments Cash reductions Balance at end of period (in millions) Balance at beginning of period Provisions / adjustments Cash reductions Balance at end of period $ Duke Energy 79 3 (1) $ $ $ 81 Duke Energy 75 2 (6) 71 Duke Energy Carolinas $ 11 ― ― $ 11 Duke Energy Carolinas $ 12 ― ― $ 12 Three Months Ended March 31, 2014 Duke Energy Duke Energy Energy Progress Florida 27 $ 8 $ 19 3 2 1 (1) ― (1) 29 $ 10 $ 19 Progress $ $ Three Months Ended March 31, 2013 Duke Energy Duke Energy Energy Progress Florida 33 $ 14 $ 19 1 ― 1 (2) (1) (1) 32 $ 13 $ 19 $ $ Progress $ $ $ $ Duke Energy Ohio 27 ― ― 27 Duke Energy Indiana $ 7 ― ― $ 7 Duke Energy Ohio 15 ― (2) 13 Duke Energy Indiana $ 8 ― (1) $ 7 Additional losses in excess of recorded reserves that could be incurred for the stages of investigation, remediation, and monitoring for environmental sites that have been evaluated at this time are presented in the table below. (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ 75 29 5 2 3 35 6 Ash Basins On February 2, 2014, a break in a 48-inch stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the 48-inch stormwater pipe stopping the release of materials into the river. On February 21, 2014, a permanent plug was installed in a 36-inch stormwater pipe beneath the ash basin. Duke Energy Carolinas estimates 30,000 to 39,000 tons of ash and 24 million to 27 million gallons of basin water were released into the river during the incident. Duke Energy Carolinas incurred approximately $15 million of repairs and remediation expense related to this incident during the three months ended March 31, 2014. This amount is recorded in Operations, maintenance and other on the Condensed Consolidated Statements of Operations and Comprehensive Income. Duke Energy Carolinas will not seek recovery of these costs from ratepayers. Other costs related to the Dan River release and other ash basins, including regulatory directives, natural resources damages, pending litigation, future claims or litigation, longterm environmental impact costs, long-term operational changes, and costs associated with new laws and regulations cannot be reasonably estimated at this time. However, the total costs to be incurred to remediate the Dan River ash release are not expected to be material. Duke Energy has engaged third-party engineering experts to complete an independent engineering review of all its ash basins. This work will be complete by May 31, 2014, and immediate actions will be taken to address any significant issues. Duke Energy is also preparing a comprehensive, longer-term ash basin strategy, which will involve a site by site analysis of applicable laws, regulations, site characteristics, and engineering feasibility. We expect this work to be completed by the end of the year, with detailed engineering to follow. Each site is unique, and sitespecific engineering will help determine the most appropriate closure method for that site. On March 12, 2014, Duke Energy issued a letter to the Governor of the State of North Carolina and the Secretary of the North Carolina Department of Environment and Natural Resources (DENR) outlining recommendations for near-term and longer-term action at its ash basins in North Carolina. Implementing the near-term recommendations and longer-term plans depends on receipt of various state and federal permits and determinations that these actions are prudent, cost-effective and environmentally sound. The near-term actions outlined in the letter include moving ash from basins at three coal plants to lined fill solutions, converting the remaining coal units to dry fly ash handling or retiring the units, and minimizing potential risk of an incident similar to Dan River by removing water from ash basins at all retired North Carolina coal plants. 43 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) On April 22, 2014, a representative of Duke Energy appeared before the Environmental Review Commission of the North Carolina General Assembly and outlined cost estimates for a range of ash handling and ash basin closure options. The table below summarizes estimated costs of various potential approaches to ash management for North Carolina ash basins. These amounts represent a rough order of magnitude and are not detailed engineering grade estimates. The estimates assume coal ash will retain a non-hazardous designation by the EPA and exclude financing costs. Any ultimate activities and resultant costs will be dependent upon state and federal environmental requirements. Cost recovery for these expenditures will be pursued through the normal ratemaking process with state utility commissions , which permits the recovery of necessary and prudently incurred costs associated with Duke Energy's regulated operations. Duke Energy records asset retirement obligations when it has a legal obligation to incur retirement costs associated with the retirement of a long-lived asset and the obligation can be reasonably estimated. Duke Energy has not recorded an asset retirement obligation related to these proposals as a legal obligation has not yet been incurred. As the necessary approvals are obtained to permit the work to proceed an asset retirement obligation could be recorded. (in billions) Baseline assumptions (a) $ Estimated additional costs related to full excavation (b) Estimated additional costs related to all-dry systems (c) Total range of costs (a) (b) (c) $ Range 2.0 - 2.5 4.0 - 5.5 1.0 2.0 - 2.0 10.0 - Assumes (i) hybrid cap in place closure for ash basins at ten coal plants, (ii) excavation and relocation of ash to lined structural fills or landfills for the retired Dan River, Riverbend and Sutton coal plants, (iii) dry fly ash conversion at the Asheville units and Cliffside Unit 5, (iv) continued structural fill disposal for the Asheville coal plant, and (v) dry bottom ash handling conversions and fly ash reliability improvements. Includes costs for actions noted in the March 12, 2014 letter to the Governor of North Carolina and existing plans to close ash basins. Represents estimated additional costs to excavate and relocate ash to lined landfills for the ten plants under hybrid cap in place closure in the baseline assumptions. Represents estimated additional costs to convert all active coal plants to all-dry pneumatic bottom ash handling systems and thermally-driven evaporation of other process water. Regulations Clean Water Act 316(b) The EPA proposed a cooling water intake structures rule on April 20, 2011. The proposed rule advances one main approach and three alternatives. Based on the main approach proposed, most, if not all, of the steam electric generating facilities the Duke Energy Registrants own are likely affected sources unless retired prior to implementation of the 316(b) requirements. The EPA intends to finalize the rule by May 16, 2014. If the rule is finalized as proposed, modifications to affected power plant cooling water intake structures could be required by mid-to-late 2017. The Duke Energy Registrants are unable to predict the outcome of this rulemaking, but the impact could be significant. Cross-State Air Pollution Rule (CSAPR) On August 8, 2011, the final Cross-State Air Pollution Rule (CSAPR) was published in the Federal Register. The CSAPR established state-level annual SO 2 budgets and annual seasonal NO x budgets that were to take effect on January 1, 2012. On August 21, 2012, the D.C. Circuit Court vacated the CSAPR. The court also directed the EPA to continue administering the Clean Air Interstate Rule (CAIR). The CAIR requires additional reductions in SO 2 and NOx emissions beginning in 2015. On April 29, 2014, the Supreme Court reversed the D.C. Circuit Court’s decision, finding that with CSAPR, the EPA reasonably interpreted the good neighbor provision of the Clean Air Act. The case has been remanded to the D.C. Circuit Court for further proceedings consistent with the court’s opinion. The stringency of the CSAPR requirements varies among the Duke Energy Registrants. Where the CSAPR requirements are to be constraining, activities to meet the requirements could include purchasing emission allowances, power purchases, curtailing generation and utilizing low sulfur fuel. The CSAPR is not expected to result in Duke Energy Registrants adding new emission controls. The Duke Energy Registrants cannot predict the outcome of the proceedings. Coal Combustion Residuals (CCR) On June 21, 2010, the EPA proposed a regulation under the Resource Conservation and Recovery Act, related to CCR or coal combustion byproducts associated with the generation of electricity. The EPA proposal contains two regulatory options whereby CCRs not employed in approved beneficial use applications would either (i) be regulated as hazardous waste or (ii) continue to be regulated as non-hazardous waste. On October 29, 2013, the U.S. District Court for the District of Columbia directed the EPA to provide the Court, within 60 days of the Order, a proposed schedule for completing the CCR rulemaking. On January 29, 2014, the EPA filed a consent decree agreeing to issue the final rule by December 19, 2014. The Duke Energy Registrants cannot predict the outcome of this rulemaking, but the impact could be significant. Steam Electric Effluent Limitation Guidelines On June 7, 2013, the EPA proposed Steam Electric Effluent Limitations Guidelines (ELGs). The EPA is under a revised court order to finalize the rule by September 30, 2015. The EPA has proposed eight options for the rule, which vary in stringency and cost. The proposed regulation applies to seven waste streams, including wastewater from air pollution control equipment and ash transport water. Most, if not all, of the steam electric generating facilities the Duke Energy Registrants own are likely affected sources. Requirements to comply with the final rule 44 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) may begin as early as late 2018 for some facilities. The Duke Energy Registrants are unable to predict the outcome of the rulemaking, but the impact could be significant. Greenhouse Gas New Source Performance Standards (NSPS) On January 8, 2014, the EPA proposed a rule to establish carbon dioxide (CO 2) emissions standards for new pulverized coal, IGCC, natural gas combined cycle, and simple cycle electric generating units commencing construction on or after the date the proposal appears in the Federal Register. Based on the proposal, future coal and IGCC units will be required to employ carbon capture and storage technology to meet the proposed standard. The Duke Energy Registrants do not expect a material impact on their future results of operations or cash flows based on the EPA’s proposal. The final rule, however, could be significantly different from the proposal. It is not known when the EPA might finalize the rule. On June 25, 2013, the President of the United States issued a memorandum directing the EPA to propose CO 2 emissions guidelines for existing fossil-fueled electric generating units by June 1, 2014, and to finalize the guidelines for states to develop their own regulations for implementing the guidelines by June 1, 2015. The memorandum directed the EPA to require states to submit their implementation regulations for approval by June 30, 2016. The Duke Energy Registrants are unable to predict the outcome of this rulemaking, but the impact could be significant. Mercury and Air Toxics Standards (MATS) The final MATS rule, previously referred to as the Utility MACT Rule, was issued on February 16, 2012. The final rule establishes emission limits for hazardous air pollutants from new and existing coal-fired and oil-fired steam electric generating units. The rule requires sources to comply with emission limits by April 16, 2015. Under the Clean Air Act (CAA), permitting authorities have the discretion to grant up to a one-year compliance extension, on a case-by-case basis, to sources that are unable to complete the installation of emission controls before the compliance deadline. Strategies to achieve compliance with the final rule will include installing new air emission control equipment, developing monitoring processes, fuel switching, and accelerating retirement of some coal-fired electric-generating units. For additional information, refer to Note 4 regarding potential plant retirements. In April 2014, several petitions for review of the final rule were denied by the D.C. Circuit Court. The rule will likely be implemented as promulgated. Refer to the table below for a summary of estimated costs to comply with the MATS regulations. Estimated Cost and Impacts of EPA Rulemakings The ultimate compliance requirements for MATS, Clean Water 316(b), CCRs and ELGs will not be known until all the rules have been finalized. For planning purposes, the Duke Energy Registrants currently estimate the cost of new control equipment that may need to be installed on existing power plants and certain ash basin management costs to comply with these EPA regulations could total $5 billion to $6 billion, excluding AFUDC, over the next 10 years. A portion of the costs in this range, including actions outlined in the March 12, 2014 letter to the Governor of the State of North Carolina, are included in the baseline assumptions in the Ash Basins disclosure above. This estimate assumes coal ash will retain a non-hazardous designation and primarily assumes cap in place closure for ash basins. The cost estimate would be significantly higher if coal ash is deemed a hazardous material and if coal ash is required to be excavated and relocated to lined landfills. The table below includes estimated costs for new control equipment necessary to comply with the MATS rule, which is the only rule that has been finalized. (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana $ Range 525 - 625 50 40 - 25 10 15 35 - 40 - 15 25 50 425 - 485 - The Duke Energy Registrants also expect to incur increased fuel, purchased power, operation and maintenance, and other expenses, and costs for replacement generation for potential coal-fired power plant retirements as a result of these EPA regulations. The actual compliance costs incurred may be materially different from these estimates based on the timing and requirements of the final EPA regulations. The Duke Energy Registrants intend to seek rate recovery of amounts incurred associated with regulated operations in complying with these regulations. Refer to Note 4 for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants. LITIGATION Duke Energy Progress Energy Merger Shareholder Litigation Duke Energy, the eleven members of the Duke Energy Board of Directors who were also members of the pre-merger Duke Energy Board of Directors (Legacy Duke Energy Directors) and certain Duke Energy officers are defendants in a purported securities class action lawsuit (Nieman v. Duke Energy Corporation, et al). This lawsuit consolidates three lawsuits originally filed in July 2012, and is pending in the United States District Court for the Western District of North Carolina. The plaintiffs allege federal Securities Act and Exchange Act claims based on 45 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) allegations of materially false and misleading representations and omissions in the Registration Statement filed on July 7, 2011, and purportedly incorporated into other documents, all in connection with the post-merger change in CEO. The claims are purportedly brought on behalf of a class of all persons who purchased or otherwise acquired Duke Energy securities between June 11, 2012 and July 9, 2012. On July 26, 2013, the Magistrate Judge recommended the District Court Judge deny the defendants’ motion to dismiss. On October 2, 2013, the District Judge heard defendants’ objections to this recommendation. A decision is pending on the motion to dismiss. Mediation of the claims is scheduled for May 14, 2014. On May 31, 2013, the Delaware Chancery Court consolidated four shareholder derivative lawsuits filed in 2012. The Court also appointed a lead plaintiff and counsel for plaintiffs and designated the case as In Re Duke Energy Corporation Derivative Litigation . The lawsuit names as defendants the Legacy Duke Directors. Duke Energy is named as a nominal defendant. The case alleges claims for breach of fiduciary duties of loyalty and care in connection with the post-merger change in CEO. The case is stayed pending resolution of the Nieman v. Duke Energy Corporation, et al. case in North Carolina. Two shareholder Derivative Complaints, filed in 2012 in federal district court in Delaware, were consolidated as Tansey v. Rogers, et al. The case alleges claims for breach of fiduciary duty and waste of corporate assets, as well as claims under Section 14(a) and 20(a) of the Exchange Act. Duke Energy is named as a nominal defendant. On May 17, 2013, the judge granted the defendants' motion to stay the litigation until a decision is rendered on the motion to dismiss in the Nieman v. Duke Energy Corporation, et al. case in North Carolina. On August 3, 2012, Duke Energy was served with a shareholder Derivative Complaint, which was transferred to the North Carolina Business Court ( Krieger v. Johnson, et al.). The lawsuit names as defendants William D. Johnson and the Legacy Duke Energy Directors. Duke Energy is named as a nominal defendant. The lawsuit alleges claims for breach of fiduciary duty in granting excessive compensation to Mr. Johnson. On April 30, 2014, the North Carolina Business Court granted the Legacy Duke Energy Directors’ motion to dismiss the lawsuit. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with these lawsuits. Price Reporting Cases A total of five lawsuits were filed against Duke Energy affiliates and other energy companies and remain pending in a consolidated, single federal court proceeding in Nevada. Each of these cases contain similar claims that defendants’ allegedly manipulated natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs seek damages in unspecified amounts. On July 19, 2011, the judge granted a defendant’s motion for summary judgment in two of the remaining five cases to which Duke Energy affiliates are a party. The U.S. Court of Appeals for the Ninth Circuit subsequently reversed the lower court’s decision. On August 26, 2013, the defendants, including Duke Energy, filed a petition for certiorari to the U.S. Supreme Court, which remains pending. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with the remaining matters. However, based on Duke Energy’s past experiences with similar cases of this nature, it does not believe its exposure under these remaining matters is material. Brazil Expansion Lawsuit On August 9, 2011, the State of São Paulo sued Duke Energy International Geracao Paranapenema S.A. (DEIGP) in Brazilian state court. The lawsuit claims DEIGP is under a continuing obligation to expand installed generation capacity in the State of São Paulo by 15 percent pursuant to a stock purchase agreement under which DEIGP purchased generation assets from the state. On August 10, 2011, a judge granted an ex parte injunction ordering DEIGP to present a detailed expansion plan in satisfaction of the 15 percent obligation. DEIGP has previously taken a position the expansion obligation is no longer viable given changes that have occurred in the electric energy sector since privatization. DEIGP submitted its proposed expansion plan on November 11, 2011, but reserved objections regarding enforceability. No trial date has been set. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with this matter. Duke Energy Carolinas and Duke Energy Progress Dan River Ash Basin Subpoenas As a result of the Dan River basin water release discussed above, DENR issued a Notice of Violation and Recommendation of Assessment of Civil Penalties with respect to this matter on February 28, 2014, which the company responded to on March 13, 2014. On February 10, 2014, Duke Energy received a subpoena for the production of documents, issued by the United States Attorney for the Eastern District of North Carolina in connection with a criminal investigation related to the release. A second subpoena was issued by the same United States Attorney on February 18, 2014, which expanded the document production to cover all fourteen of the North Carolina facilities with coal ash basins. This is a multidistrict investigation that also involves state law enforcement authorities. Copies of the subpoenas as well as subpoenas issued to DENR and DENR employees are publically available. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with these matters. DENR State Enforcement Actions 46 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) In the first quarter of 2013, environmental organizations sent notices of intent to sue to Duke Energy Carolinas and Duke Energy Progress related to alleged groundwater violations and Clean Water Act violations from coal ash basins at two of their coal-fired power plants in North Carolina. The North Carolina Department of Environment and Natural Resources (DENR) filed enforcement actions against Duke Energy Carolinas and Duke Energy Progress alleging violations of water discharge permits and North Carolina groundwater standards. The case against Duke Energy Carolinas was filed in Mecklenburg County Superior Court. The case against Duke Energy Progress was filed in Wake County Superior Court. The cases are being heard before a single judge. On October 4, 2013, Duke Energy Carolinas, Duke Energy Progress and DENR negotiated a proposed consent order. The consent order would have assessed civil penalties and imposed a compliance schedule requiring Duke Energy Carolinas and Duke Energy Progress to undertake monitoring and data collection activities toward making appropriate corrective action to address any substantiated violations. In light of the release that occurred at Dan River on February 2, 2014, on March 21, 2014, DENR withdrew its support of the consent orders and requested that the court proceed with the litigation. On August 16, 2013, DENR filed an enforcement action against Duke Energy Carolinas and Duke Energy Progress related to their remaining plants in North Carolina, alleging violations of the Clean Water Act and violations of the North Carolina groundwater standards. The case against Duke Energy Carolinas was filed in Mecklenburg County Superior Court. The case against Duke Energy Progress was filed in Wake County Superior Court. Both of these cases have been assigned to the judge handling the enforcement actions discussed above. Southern Environmental Law Center (SELC), on behalf of several environmental groups, has been permitted to intervene in these cases. North Carolina Declaratory Judgment Action On October 10, 2012, the SELC, on behalf of the same environmental groups that were permitted to challenge the consent decrees discussed above, filed a petition with the North Carolina Environmental Management Commission (EMC) asking for a declaratory ruling seeking to clarify the application of the state’s groundwater protection rules to coal ash basins. The petition sought to change the interpretation of regulations that permitted DENR to assess the extent, cause and significance of any groundwater contamination before ordering action to eliminate the source of contamination, among other issues. Duke Energy Carolinas and Duke Energy Progress were both permitted to intervene in the matter. On December 3, 2012, the EMC affirmed this interpretation of the regulations On January 8, 2013, the same environmental groups filed a Petition for Judicial Review, challenging the final EMC decision. On March 6, 2014, the judge overturned the ruling of the EMC holding that in the case of groundwater contamination, DENR was required to issue an order to immediately eliminate the source of the contamination before an assessment of the nature, significance and extent of the contamination or the continuing damage to the groundwater was conducted. On April 4, 2014, Duke Energy Carolinas and Duke Energy Progress filed a notice of appeal of the ruling. The EMC filed its Notice of Appeal on April 7, 2014. Federal Citizens Suits On June 11, 2013, Catawba Riverkeeper Foundation, Inc. (Catawba Riverkeeper) filed a separate action in the United States Court for the Western District of North Carolina. The lawsuit contends the state enforcement action discussed above does not adequately address issues raised in Catawba Riverkeeper’s notice of intent to sue. On April 11, 2014, the Court denied Catawba Riverkeeper’s objections to the Magistrate Judge’s recommendation that plainttiff’s case be dismissed as well as Duke Energy Carolinas’ motion to dismiss. The Court allowed limited discovery, after which Duke Energy Carolinas may file any renewed motions to dismiss. On September 12, 2013, Cape Fear River Watch, Inc., Sierra Club, and Waterkeeper Alliance filed a citizen suit in the Federal District Court for the Eastern District of North Carolina. The lawsuit alleges unpermitted discharges to surface water and groundwater violations. Duke Energy Progress filed a motion to dismiss this lawsuit on November 5, 2013. A decision on the motion to dismiss remains pending. Duke Energy Carolinas New Source Review (NSR) In 1999-2000, the U.S. Department of Justice (DOJ) on behalf of the EPA filed a number of complaints and notices of violation against multiple utilities, including Duke Energy Carolinas, for alleged violations of the NSR provisions of the CAA. The government alleges the utilities violated the CAA by not obtaining permits for certain projects undertaken at certain coal plants or installing the best available emission controls for SO 2, NOx and particulate matter. The complaints seek the installation of pollution control technology on various generating units that allegedly violated the CAA, and unspecified civil penalties in amounts of up to $37,500 per day for each violation. Duke Energy Carolinas asserts there were no CAA violations because the applicable regulations do not require permitting in cases where the projects undertaken are “routine” or otherwise do not result in a net increase in emissions. In 2000, the government sued Duke Energy Carolinas in the U.S. District Court in Greensboro, North Carolina. The EPA claims 29 projects performed at 25 of Duke Energy Carolinas’ coal-fired units violate the NSR provisions. Duke Energy Carolinas asserts the projects were routine or not projected to increase emissions. The parties filed a stipulation in which the United States dismissed with prejudice 16 claims. In exchange, Duke Energy Carolinas dismissed certain affirmative defenses. The parties filed opposing motions for summary judgment on the remaining claims. In November 2013, the Court denied Duke Energy’s motion for summary judgment. On March 17, 2014, the court similarly denied plaintiffs’ motion for summary judgment, except to confirm that the baseline for measuring an emissions increase at trial will be the twoyear period immediately preceding each project. Duke Energy requested leave to file another motion for summary judgment on alternative grounds. That motion for leave remains pending. 47 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) It is not possible to predict whether Duke Energy Carolinas will incur any liability or to estimate the damages, if any, it might incur in connection with this matter. Ultimate resolution of these matters could have a material effect on the results of operations, cash flows or financial position of Duke Energy Carolinas. However, the appropriate regulatory recovery will be pursued for costs incurred in connection with such resolution. Asbestos-related Injuries and Damages Claims Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement related to asbestos exposure. These claims relate to damages for bodily injuries alleged to have arisen from exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of March 31, 2014, there were 112 asserted claims for non-malignant cases with the cumulative relief sought of up to $25 million, and 29 asserted claims for malignant cases with the cumulative relief sought of up to $10 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed. Duke Energy Carolinas has recognized asbestos-related reserves of $609 million at March 31, 2014 and $616 million at December 31, 2013. These reserves are classified in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities on the Condensed Consolidated Balance Sheets. These reserves are based upon the minimum amount of the range of loss for current and future asbestos claims through 2033, are recorded on an undiscounted basis and incorporate anticipated inflation. In light of the uncertainties inherent in a longer-term forecast, management does not believe they can reasonably estimate the indemnity and medical costs that might be incurred after 2033 related to such potential claims. It is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves. Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention of $476 million. Duke Energy Carolinas’ cumulative payments began to exceed the self-insurance retention in 2008. Future payments up to the policy limit will be reimbursed by the third-party insurance carrier. The insurance policy limit for potential future insurance recoveries indemnification and medical cost claim payments is $897 million in excess of the self-insured retention. Receivables for insurance recoveries were $649 million at both March 31, 2014 and December 31, 2013. These amounts are classified in Other within Investments and Other Assets and Receivables on the Condensed Consolidated Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating. Progress Energy Synthetic Fuels Matters Progress Energy and a number of its subsidiaries and affiliates are defendants in lawsuits arising out of a 1999 Asset Purchase Agreement. Parties to the Asset Purchase Agreement include U.S. Global, LLC (Global) and affiliates of Progress Energy. In a case filed in the Circuit Court for Broward County, Florida, in March 2003 (the Florida Global Case), Global requested an unspecified amount of compensatory damages, as well as declaratory relief. In November 2009, the court ruled in favor of Global. In December 2009, Progress Energy made a $154 million payment, which represented payment of the total judgment, including prejudgment interest, and a required premium equivalent to two years of interest, to the Broward County Clerk of Court bond account. Progress Energy continued to accrue interest related to this judgment. On October 3, 2012, the Florida Fourth District Court of Appeals reversed the lower court ruling. The court held that Global was entitled to approximately $90 million of the amount paid into the registry of the court. Progress Energy was entitled to a refund of the remainder of the funds. Progress Energy received cash and recorded a $63 million pretax gain for the refund in December 2012. The gain was recorded in Income from Discontinued Operations, net of tax in the Condensed Consolidated Statements of Operations and Comprehensive Income. On May 9, 2013, Global filed a Seventh Amended Complaint asserting a single count for breach of the Asset Purchase Agreement and seeking specific performance. On April 9, 2014, the parties participated in a court-ordered mediation, which was unsuccessful. A hearing on the parties’ motions for summary judgment was held on April 25, 2014, at which time the judge denied Progress Energy’s Motion to Dismiss. The trial will commence May 29, 2014. In a second suit filed in the Superior Court for Wake County, North Carolina, Progress Synfuel Holdings, Inc. et al. v. U.S. Global, LLC (the North Carolina Global Case), the Progress Energy Affiliates seek declaratory relief consistent with their interpretation of the Asset Purchase Agreement. In August 2003, the Wake County Superior Court stayed the North Carolina Global Case, pending the outcome of the Florida Global Case. Based upon the verdict in the Florida Global Case, Progress Energy anticipates dismissal of the North Carolina Global Case. Progress Energy does not expect the resolution of these matters to have a material effect on its results of operations, cash flows or financial position. Duke Energy Progress and Duke Energy Florida Spent Nuclear Fuel Matters On December 12, 2011, Duke Energy Progress and Duke Energy Florida sued the United States in the U.S. Court of Federal Claims. The lawsuit claims the Department of Energy breached a contract in failing to accept spent nuclear fuel under the Nuclear Waste Policy Act of 1982 and asserts damages for the cost of on-site storage. Duke Energy Progress and Duke Energy Florida assert damages for the period January 1, 2006 through December 31, 2010. Claims for all periods prior to 2006 have been resolved. On March 24, 2014, the U.S. Court of Federal Claims issued a judgment in favor of Duke Energy Progress and Duke Energy Florida on this matter, awarding amounts of $83 million and $21 million, respectively. The Federal Government has until May 23, 2014, to appeal the decision. Duke Energy Progress and Duke Energy Florida may file subsequent damage claims as they incur additional costs. 48 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Duke Energy Florida Westinghouse Contract Litigation On March 28, 2014 Duke Energy Florida filed a lawsuit against Westinghouse Electric Company (Westinghouse) in the U.S. District Court for the Western District of North Carolina. The lawsuit seeks recovery of $54 million in milestone payments in excess of work performed under the terminated EPC agreement for Levy as well as a determination by the court of the amounts due to Westinghouse as a result of the termination of the EPC agreement. Duke Energy Florida terminated the EPC agreement on January 28, 2014. On March 31, 2014, Westinghouse filed a lawsuit against Duke Energy Florida in U.S. District Court for the Western District of Pennsylvania. The Pennsylvania lawsuit alleges damages under the EPC agreement in excess of $510 million for engineering and design work, costs to end supplier contracts and an alleged termination fee. It is not possible to predict whether Duke Energy Florida will incur any further liability for terminating the EPC agreement or to estimate the damages, if any, it might incur in connection with these matters. Ultimate resolution of these matters could have a material effect on the results of operations, financial position or cash flows of Duke Energy Florida. However, appropriate regulatory recovery will be pursued for the retail portion of any costs incurred in connection with such resolution. Duke Energy Ohio Antitrust Lawsuit In January 2008, four plaintiffs, including individual, industrial and nonprofit customers, filed a lawsuit against Duke Energy Ohio in federal court in the Southern District of Ohio. Plaintiffs alleged Duke Energy Ohio conspired to provide inequitable and unfair price advantages for certain large business consumers by entering into non-public option agreements in exchange for their withdrawal of challenges to Duke Energy Ohio’s Rate Stabilization Plan (RSP) implemented in early 2005. In March 2014, a federal judge certified this matter as a class action. Trial has been set to begin on July 27, 2015. It is not possible to predict whether Duke Energy Ohio will incur any liability or to estimate the damages which may be incurred in connection with this lawsuit. Asbestos-related Injuries and Damages Claims Duke Energy Ohio has been named as a defendant or co-defendant in lawsuits related to asbestos exposure at its electric generating stations. The impact on Duke Energy Ohio’s results of operations, cash flows or financial position of these cases to date has not been material. Based on estimates under varying assumptions concerning uncertainties, such as, among others: (i) the number of contractors potentially exposed to asbestos during construction or maintenance of Duke Energy Ohio generating plants, (ii) the possible incidence of various illnesses among exposed workers, and (iii) the potential settlement costs without federal or other legislation that addresses asbestos tort actions, Duke Energy Ohio estimates that the range of reasonably possible exposure in existing and future suits over the foreseeable future is not material. This assessment may change as additional settlements occur, claims are made, and more case law is established. Duke Energy Indiana Edwardsport IGCC On December 11, 2012, Duke Energy Indiana filed an arbitration action against General Electric Company and Bechtel Corporation in connection with their work at the Edwardsport IGCC facility. Duke Energy Indiana is seeking damages of not less than $560 million. An arbitration hearing is scheduled for October 2014. Duke Energy Indiana cannot predict the outcome of this matter. Other Litigation and Legal Proceedings The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve significant amounts. The Duke Energy Registrants believe the final disposition of these proceedings will not have a material effect on their results of operations, cash flows or financial position. The table below presents recorded reserves based on management’s best estimate of probable loss for legal matters discussed above and the associated insurance recoveries. The reasonably possible range of loss for all non-asbestos related matters in excess of recorded reserves is not material. (in millions) March 31, 2014 Reserves for Legal and Other Matters Duke Energy (b) December 31, 2013 (a) $ Duke Energy Carolinas (b) 817 $ 824 616 609 Progress Energy 78 78 Duke Energy Progress 10 10 Duke Energy Florida 43 43 Duke Energy Indiana 8 8 Probable Insurance Recoveries Duke Energy (d) (c) $ Duke Energy Carolinas (d) (a) (b) (c) (d) 649 $ 649 Reserves are classified on the Condensed Consolidated Balance Sheets in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities. Includes reserves for asbestos-related injuries and damages claims. Insurance recoveries are classified on the Condensed Consolidated Balance Sheets in Receivables and Other within Investments and Other Assets. Relates to recoveries associated with asbestos-related injuries and damages claims. 49 649 649 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) OTHER COMMITMENTS AND CONTINGENCIES General As part of their normal business, the Duke Energy Registrants are party to various financial guarantees, performance guarantees, and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees, and other third parties. These guarantees involve elements of performance and credit risk, which are not fully recognized on the Condensed Consolidated Balance Sheets and have unlimited maximum potential payments. However, the Duke Energy Registrants do not believe these guarantees will have a material effect on their results of operations, cash flows or financial position. In addition, the Duke Energy Registrants enter into various fixed-price, non-cancelable commitments to purchase or sell power, take-or-pay arrangements, transportation, or throughput agreements and other contracts that may or may not be recognized on their respective Condensed Consolidated Balance Sheets. Some of these arrangements may be recognized at fair value on their respective Condensed Consolidated Balance Sheets if such contracts meet the definition of a derivative and the normal purchase/normal sale (NPNS) exception does not apply. In most cases, the Duke Energy Registrants’ purchase obligation contracts contain provisions for price adjustments, minimum purchase levels, and other financial commitments. 6. DEBT AND CREDIT FACILITIES SUMMARY OF SIGNIFICANT DEBT ISSUANCES The following table summarizes significant debt issuances (in millions). Three Months Ended March 31, 2014 Issuance Date Unsecured Debt Maturity Date Duke Energy (Parent) Interest Rate Duke Energy Progress Duke Energy Florida Duke Energy April 2014 (a) April 2024 3.750 % April 2014 (a) April 2017 0.610 % 400 ― ― 400 March 2017 0.850 % ― ― 225 225 March 2044 4.375 % ― 400 ― 400 March 2017 0.435 % ― 250 ― 225 $ 600 $ ― $ ― 600 $ Secured Debt (b) March 2014 First Mortgage Bonds March 2014 (c) (c) March 2014 Total issuances (a) (b) (c) $ 1,000 $ 650 $ 250 1,875 $ Proceeds will be used to acquire $402 million of tax-exempt bonds at Duke Energy Ohio, the repayment of outstanding commercial paper and for general corporate purposes. Relates to the securitization of accounts receivable at a subsidiary of Duke Energy Florida. Proceeds were used to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes. See Note 12 for further details. Proceeds were used to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes. CURRENT MATURITIES OF LONG-TERM DEBT The following table shows the significant components of Current maturities of long-term debt on the respective Condensed Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings. (in millions) Maturity Date Interest Rate March 31, 2014 Unsecured Debt Duke Energy (Parent) September 2014 3.950 % $ 500 385 Other Current maturities of long-term debt $ 50 885 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) MASTER CREDIT FACILITY Duke Energy has a master credit facility with a capacity of $6 billion through December 2018. The Subsidiary Registrants, excluding Progress Energy each have borrowing capacity under the master credit facility up to specified sublimits for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the master credit facility has been reduced to backstop issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. The table below includes the current borrowing sublimits and available capacity under the master credit facility. Duke Energy (in millions) Facility size (a) $ 6,000 Duke Energy (Parent) $ 2,250 Duke Energy Carolinas $ 1,000 March 31, 2014 Duke Energy Progress 750 $ Duke Energy Florida Duke Energy Ohio 650 $ Duke Energy Indiana 650 $ 700 $ Reduction to backstop issuances Notes payable and commercial paper (b) Outstanding letters of credit Tax-exempt bonds Available capacity (a) (b) $ (1,308) (858) (300) ― ― ― (63) (56) (4) (2) (1) ― ― (240) ― (75) ― ― (84) (81) 4,389 $ 1,336 $ 621 748 $ 649 $ (150) 566 $ 469 $ Represents the sublimit of each borrower at March 31, 2014. Duke Energy issued $450 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas and Duke Energy Indiana. The balances are classified as long-term borrowings within Long-term Debt in Duke Energy Carolinas' and Duke Energy Indiana’s Condensed Consolidated Balance Sheets. 7. GOODWILL The following tables present goodwill by reportable operating segment for Duke Energy and Duke Energy Ohio. Duke Energy International Energy Regulated Utilities (in millions) Balance at December 31, 2013 Goodwill Accumulated impairment charges $ Balance at December 31, 2013, as adjusted for accumulated impairment charges 15,950 ― $ 326 ― Balance at March 31, 2014 Goodwill Accumulated impairment charges Balance at March 31, 2014, as adjusted for accumulated impairment charges 2 15,950 ― $ 15,950 $ ― 15,950 Foreign exchange and other changes 326 Commercial Power $ 328 ― 328 Total (871) 17,211 (871) 64 16,340 935 $ ― 2 17,213 935 (871) $ 64 $ (871) 16,342 Duke Energy Ohio (in millions) Regulated Utilities Balance at December 31, 2013 Goodwill $ Accumulated impairment charges Balance at December 31, 2013, as adjusted for accumulated impairment charges 1,136 Commercial Power $ 1,188 Total $ 2,324 (216) (1,188) (1,404) 920 ― 920 Balance at March 31, 2014 Goodwill 1,136 1,188 2,324 Accumulated impairment charges Balance at March 31, 2014, as adjusted for accumulated impairment charges (216) (1,188) ― (1,404) $ 920 $ $ Progress Energy Progress Energy had Goodwill of $3,655 million within the Regulated Utilities operating segment as of March 31, 2014 and December 31, 2013, for which there were no accumulated impairment charges. 51 920 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) 8. RELATED PARTY TRANSACTIONS The Subsidiary Registrants engage in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Refer to the Condensed Consolidated Balance Sheets of the Subsidiary Registrants for balances due to or due from related parties. Amounts related to transactions with related parties included in the Condensed Consolidated Statements of Operations and Comprehensive Income are presented in the following table. Three Months Ended March 31, (in millions) 2014 2013 Duke Energy Carolinas Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 222 $ 243 5 5 Joint Dispatch Agreement (JDA) revenue (c) 97 53 Joint Dispatch Agreement (JDA) expense (c) 51 10 Progress Energy Corporate governance and shared services provided by Duke Energy (a) $ Corporate governance and shared services provided to Duke Energy (d) 178 $ ― Indemnification coverages (b) 80 28 8 8 JDA revenue(c) 51 10 JDA expense(c) 97 53 Duke Energy Progress Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 96 $ 48 4 5 JDA revenue(c) 51 10 JDA expense(c) 97 53 Duke Energy Florida Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 81 $ 32 4 3 Duke Energy Ohio Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 77 $ 87 3 4 Duke Energy Indiana Corporate governance and shared service expenses (a) $ Indemnification coverages (b) (a) (b) (c) (d) 105 $ 99 3 2 The Subsidiary Registrants are charged their proportionate share of corporate governance and other shared services costs, primarily related to h u m a n resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, maintenance and other on the Condensed Consolidated Statements of Operations and Comprehensive Income. The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation, maintenance and other on the Condensed Consolidated Statements of Operations and Comprehensive Income. Effective with the consummation of the merger between Duke Energy and Progress Energy, Duke Energy Carolinas and Duke Energy Progress began to participate in a JDA which allowed the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power under the JDA are recorded in Operating Revenues on the Condensed Consolidated Statements of Operations and Comprehensive Income. Expenses from the purchase of power under the JDA are recorded in Fuel used in electric generation and purchased power on the Condensed Consolidated Statements of Operations and Comprehensive Income. In 2013, Progress Energy Service Company (PESC), a consolidated subsidiary of Progress Energy, charged a proportionate share of corporate governance and other costs to consolidated affiliates of Duke Energy. Corporate governance and other shared costs were primarily related to human resources, employee benefits, legal and accounting fees, as well as other third-party costs. These charges were recorded as an offset to Operation, maintenance and other in the Condensed Consolidated Statements of Operations and Comprehensive Income. Effective January 1, 2014, PESC was contributed to Duke Energy Corporate Services (DECS), a consolidated subsidiary of Duke Energy, and these costs were no longer charged out of Progress Energy. Progress Energy recorded a non-cash aftertax equity transfer related to the contribution of PESC to DECS in its Condensed Consolidated Statements of Changes in Common Stockholder's Equity during the three months ended March 31, 2014. In addition to the amounts presented above, the Subsidiary Registrants record the impact on net income of other affiliate transactions, including rental of office space, participation in a money pool arrangement, other operational transactions and their proportionate share of certain charged expenses. See Note 6 to the Consolidated Financial Statements in the Annual Report on Form 10-K for more information regarding money pool. The net impact of these transactions was not material for the three months ended March 31, 2014 and 2013 for the Subsidiary Registrants. As discussed in Note 12, certain trade receivables have been sold by Duke Energy Ohio and Duke Energy Indiana to CRC, an affiliate formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price. Duke Energy Commercial Asset Management (DECAM) is a nonregulated, direct subsidiary of Duke Energy Ohio. DECAM conducts business activities, including the execution of commodity transactions, third party vendor and supply contracts, and service contracts for certain of Duke Energy’s nonregulated entities. The commodity contracts that DECAM enters are accounted for as undesignated contracts or NPNS. Consequently, mark-to-market impacts of intercompany contracts with, and sales of power to, nonregulated entities are reflected in Duke 52 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Energy Ohio’s Condensed Consolidated Statements of Operations and Comprehensive Income. These amounts totaled net expense of $54 million and $18 million for the three months ended March 31, 2014 and 2013, respectively. Because it is not a rated entity, DECAM receives its credit support from Duke Energy or its nonregulated subsidiaries and not the regulated utility operations of Duke Energy Ohio. DECAM meets its funding needs through an intercompany loan agreement from a subsidiary of Duke Energy. DECAM also has the ability to loan money to the subsidiary of Duke Energy. DECAM had an outstanding intercompany loan payable of $305 million and $43 million, respectively, as of March 31, 2014 and December 31, 2013. These amounts are recorded in Notes payable to affiliated companies on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. As discussed in Note 6, in April 2014, Duke Energy issued $1 billion of senior unsecured notes. Proceeds from the issuances were used in part to repay outstanding notes of $400 million to DECAM, and such funds were ultimately used to repay at maturity Duke Energy Ohio’s $402 million tax-exempt bonds due April 2014. This transaction substantially completes the restructuring of Duke Energy Ohio’s capital structure to reflect appropriate debt and equity ratios for its regulated operations. The restructuring was conducted in conjunction with the anticipated transfer of Duke Energy Ohio’s nonregulated generation assets out of its regulated public utility subsidiary which is expected by the end of the second quarter of 2014. 9. DERIVATIVES AND HEDGING The Duke Energy Registrants use commodity and interest rate contracts to manage commodity price and interest rate risks. The primary use of energy commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Interest rate swaps are used to manage interest rate risk associated with borrowings. All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Condensed Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting agreement is offset against the collateralized derivatives on the balance sheet. Changes in the fair value of derivative agreements that either do not qualify for or have not been designated as hedges are reflected in current earnings or as regulatory assets or liabilities. COMMODITY PRICE RISK The Duke Energy Registrants are exposed to the impact of changes in the future prices of electricity, coal, and natural gas. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets, and delivery locations. Commodity Fair Value and Cash Flow Hedges At March 31, 2014, there were no open commodity derivative instruments designated as hedges. Undesignated Contracts Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. These contracts expire as late as 2018. Duke Energy Carolinas and Duke Energy Progress have entered into firm power sale agreements, which are accounted for as derivatives, as part of the Interim FERC Mitigation in connection with Duke Energy’s merger with Progress Energy. See Note 2 for further information. Duke Energy Carolinas’ undesignated contracts are primarily associated with forward sales and purchases of electricity. Duke Energy Progress’ and Duke Energy Florida’s undesignated contracts are primarily associated with forward purchases of natural gas. Duke Energy Ohio’s undesignated contracts are primarily associated with forward sales and purchases of electricity, coal, and natural gas. Duke Energy Indiana’s undesignated contracts are primarily associated with forward purchases and sales of electricity and financial transmission rights. Volumes The tables below show information relating to volumes of outstanding commodity derivatives. Amounts disclosed represent the notional volumes of commodity contracts excluding NPNS. Amounts disclosed represent the absolute value of notional amounts. The Duke Energy Registrants have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown. Duke Energy Electricity (gigawatt-hours) (a) Natural gas (millions of decatherms) Natural gas (millions of decatherms) (a) Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 66,268 1,028 925 925 ― 60,115 272 604 ― 352 128 224 254 ― Duke Energy Electricity (gigawatt-hours) (a) March 31, 2014 Duke Energy Duke Energy Carolinas Progress Energy Progress December 31, 2013 Duke Energy Duke Energy Carolinas Progress Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 71,466 1,205 925 925 ― 69,362 203 636 ― 363 141 222 274 ― Amounts at Duke Energy Ohio include intercompany positions that eliminate at Duke Energy. 53 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) INTEREST RATE RISK The Duke Energy Registrants are exposed to changes in interest rates as a result of their issuance or anticipated issuance of variable-rate and fixed-rate debt and commercial paper. Interest rate risk is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into interest rate swaps, U.S. Treasury lock agreements, and other financial contracts. In anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of current market interest rates. These instruments are later terminated prior to or upon the issuance of the corresponding debt. Pretax gains or losses recognized from inception to termination of the hedges are amortized as a component of interest expense over the life of the debt. Duke Energy has a combination foreign exchange, pay fixed-receive floating interest rate swap to fix the US dollar equivalent payments on a floating-rate Chilean debt issue. The following tables show notional amounts for derivatives related to interest rate risk. March 31, 2014 Duke Energy (in millions) Cash flow hedges (a) 798 $ Undesignated contracts (a) $ 27 Duke Energy Ohio Duke Energy 798 $ 27 825 $ ― $ 27 Total notional amount December 31, 2013 Duke Energy Ohio ― $ 34 27 832 $ 27 $ Duke Energy includes amounts related to non-recourse variable rate long-term debt of VIEs of $584 million at March 31, 2014, and at December 31, 2013. DUKE ENERGY The following table shows the fair value of derivatives and the line items in the Condensed Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Condensed Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown. March 31, 2014 (in millions) Derivatives Designated as Hedging Instruments Commodity contracts Current Liabilities: Other Interest rate contracts Investments and Other Assets: Other Current Liabilities: Other Deferred Credits and Other Liabilities: Other Total Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments Commodity contracts Current Assets: Other Current Assets: Assets Held for Sale Investments and Other Assets: Other Investments and Other Assets: Assets Held for Sale Current Liabilities: Other Current Liabilities: Assets Held for Sale Deferred Credits and Other Liabilities: Other Deferred Credits and Other Liabilities: Assets Held for Sale Interest rate contracts Current Liabilities: Other Deferred Credits and Other Liabilities: Other Total Derivatives Not Designated as Hedging Instruments Total Derivatives ― $ 1 $ ― $ ― 1 $ 21 ― ― 21 16 15 ― ― ― 18 4 32 27 23 27 9 7 7 1 ― 312 257 116 463 39 201 ― 215 ― 13 ― 5 ― 158 ― 131 ― 153 ― 166 ― 1 4 980 ― ― 434 1 4 613 22 398 4 3 27 92 ― ― 782 803 $ December 31, 2013 Asset Liability Liability Asset $ 1,012 461 $ 636 $ The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below. March 31, 2014 Derivative Liabilities Derivative Assets Current (a) (in millions) Gross amounts recognized $ Gross amounts offset 454 Current (c) Non-Current (b) $ 338 $ 606 Non-Current (d) $ 399 (436) (265) (473) (267) Net amount subject to master netting 18 73 133 132 Amounts not subject to master netting Net amounts recognized on the Condensed Consolidated Balance Sheet ― 11 1 $ 18 $ 84 $ 134 6 $ 138 December 31, 2013 (in millions) Gross amounts recognized Derivative Liabilities (g) (h) Non-Current Derivative Assets (e) (f) Current Non-Current $ 214 $ (179) Gross amounts offset Current 233 $ 322 (155) 144 35 95 130 Amounts not subject to master netting Net amounts recognized on the Condensed Consolidated Balance Sheet ― 14 4 35 $ 299 (192) Net amounts subject to master netting $ $ (138) 109 $ 134 11 $ 155 (a) (b) (c) (d) (e) (f) (g) (h) Included in Other and Assets Held for Sale within Current Assets on the Condensed Consolidated Balance Sheet. Included in Other and Assets Held for Sale within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other and Liabilities Associated with Assets Held for Sale within Current Liabilities on the Condensed Consolidated Balance Sheet. Included in Other and Liabilities Associated with Assets Held for Sale within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. Included in Other within Current Assets on the Condensed Consolidated Balance Sheet. Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other within Current Liabilities on the Condensed Consolidated Balance Sheet. Included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. The following table shows the gains and losses recognized on cash flow hedges and the line items on the Condensed Consolidated Statements of Operations where such gains and losses are included when reclassified from AOCI. Three Months Ended March 31, (in millions) 2014 2013 Pretax Gains (Losses) Recorded in AOCI Interest rate contracts (a) $ Commodity contracts 2 $ 13 ― 1 $ 2 $ 14 Interest expense $ (1) $ (1) Total Pretax Losses Reclassified from AOCI into Earnings $ (1) $ (1) Total Pretax Gains (Losses) Recorded in AOCI Location of Pretax Gains (Losses) Reclassified from AOCI into Earnings Interest rate contracts (a) Reclassified to earnings as interest expense over the term of the related debt. 54 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) There was no hedge ineffectiveness during the three months ended March 31, 2014 and 2013, and no gains or losses were excluded from the assessment of hedge effectiveness during the same periods. At March 31, 2014 and 2013, $65 million and $144 million respectively, of pretax deferred net losses on interest rate cash flow hedges were included in AOCI. A $6 million pretax gain is expected to be recognized in earnings during the next 12 months as interest expense. The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Condensed Consolidated Statements of Operations or the Condensed Consolidated Balance Sheets where the pretax gains and losses were reported. Three Months Ended March 31, (in millions) 2014 2013 Location of Pretax Gains and (Losses) Recognized in Earnings Commodity contracts Revenue: Regulated electric $ Revenue: Nonregulated electric, natural gas and other Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated (4) $ 6 (397) (82) 7 (52) 138 (7) Interest rate contracts Interest expense (4) (4) Total Pretax Losses Recognized in Earnings $ (260) $ (139) $ (2) $ 105 Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities (a) Commodity contracts Regulatory assets Regulatory liabilities Interest rate contracts (b) Regulatory assets 4 Total Pretax Losses Recognized as Regulatory Assets or Liabilities (a) (b) (5) 27 $ Reclassified to earnings to match recovery through the fuel clause. Reclassified to earnings as interest expense over the term of the related debt. 55 29 13 $ 113 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY CAROLINAS The fair value of derivative instruments were not material for the periods presented in this quarterly report. PROGRESS ENERGY The following table shows the fair value of derivatives and the line items in the Condensed Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Condensed Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown. March 31, 2014 (in millions) December 31, 2013 Asset Liability Liability Asset Derivatives Designated as Hedging Instruments Commodity contracts Current Liabilities: Other ― $ 1 $ ― $ 1 $ Deferred Credits and Other Liabilities: Other ― ― ― 4 Total Derivatives Designated as Hedging Instruments ― 1 ― 5 10 6 3 2 1 ― 2 1 22 102 11 105 3 81 4 91 36 189 20 199 Derivatives Not Designated as Hedging Instruments Commodity contracts Current Assets: Other Investments and Other Assets: Other Current Liabilities: Other Deferred Credits and Other Liabilities: Other Total Derivatives Not Designated as Hedging Instruments Total Derivatives 36 $ 190 $ 20 $ 204 $ The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below. March 31, 2014 Derivative Liabilities Derivative Assets Current (a) (in millions) Gross amounts recognized Gross amounts offset Net amounts recognized on the Condensed Consolidated Balance Sheet $ 32 4 $ (28) $ 4 Current (c) Non-Current (b) 108 $ (4) $ (34) ― $ Non-Current (d) 74 $ 82 (6) $ 76 December 31, 2013 (in millions) Gross amounts recognized $ Net amount subject to master netting (a) (b) (c) (d) 15 $ (13) Gross amounts offset Amounts not subject to master netting Net amounts recognized on the Condensed Consolidated Balance Sheet Derivative Liabilities (c) (d) Non-Current Derivative Assets (a) (b) Current Non-Current $ Current 5 107 $ (4) 83 2 1 90 ― ― $ 1 93 (10) ― 2 $ (17) 90 $ 4 $ 87 Included in Other within Current Assets on the Condensed Consolidated Balance Sheet. Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other within Current Liabilities on the Condensed Consolidated Balance Sheet. Included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. Gains and losses on cash flow hedges and reclassifications from AOCI were not material for the periods presented in this quarterly report. At March 31, 2014 and 2013, $60 million and $68 million, respectively, of pretax deferred net losses on derivative instruments related to interest rate cash flow hedges were included as a component of AOCI. The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Condensed Consolidated Statements of Operations and Comprehensive Income or the Condensed Consolidated Balance Sheets where the pretax gains or losses were reported. Three Months Ended March 31, (in millions) 2014 2013 Location of Pretax Gains and (Losses) Recognized in Earnings Commodity contracts Operating revenues $ Fuel used in electric generation and purchased power (3) $ 6 (52) 7 Interest rate contracts Interest expense Total Pretax Losses Recognized in Earnings Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities (a) Commodity contracts (4) (4) $ ― $ (50) Regulatory assets Interest rate contracts $ Regulatory assets $ 105 $ 110 4 Total Pretax (Losses) Gains Recognized as Regulatory Assets or Liabilities (a) (b) (2) (b) $ Reclassified to earnings to match recovery through the fuel clause. Reclassified to earnings as interest expense over the term of the related debt. 56 2 5 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY PROGRESS The following table shows the fair value of derivatives and the line items in the Condensed Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Condensed Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown. March 31, 2014 (in millions) December 31, 2013 Asset Liability Liability Asset Derivatives Designated as Hedging Instruments Commodity contracts Current Liabilities: Other ― $ 1 $ ― Total Derivatives Designated as Hedging Instruments ― $ 1 $ 1 ― 1 ― Derivatives Not Designated as Hedging Instruments (a) Commodity contracts Current Assets: Other 6 5 ― Investments and Other Assets: Other 1 ― 2 1 Current Liabilities: Other 7 43 2 40 1 23 2 29 15 71 6 6 Deferred Credits and Other Liabilities: Other Total Derivatives Not Designated as Hedging Instruments Total Derivatives (a) 15 $ 72 $ $ 70 71 $ Substantially all of these contracts are recorded as regulatory assets or liabilities. The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below. March 31, 2014 Derivative Liabilities Derivative Assets Current (a) (in millions) Gross amounts recognized $ Gross amounts offset Net amounts recognized on the Condensed Consolidated Balance Sheet 13 2 $ 2 48 $ (2) (11) $ Current (c) Non-Current (b) $ 24 $ 22 (2) (11) ― $ Non-Current (d) 37 $ December 31, 2013 (in millions) Gross amounts recognized $ 3 $ (3) Gross amounts offset Net amounts recognized on the Condensed Consolidated Balance Sheet (a) (b) (c) (d) Derivative Liabilities (c) (d) Non-Current Derivative Assets (a) (b) Current Non-Current $ ― Current 3 41 $ (3) $ $ (3) ― 38 $ 30 (3) $ 27 Included in Other within Current Assets on the Condensed Consolidated Balance Sheet. Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other within Current Liabilities on the Condensed Consolidated Balance Sheet. Included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. Gain and losses on cash flow hedges and reclassifications from AOCI were not material for the periods presented in this quarterly report. The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Condensed Consolidated Statements of Operations and Comprehensive Income or the Condensed Consolidated Balance Sheets where the pretax gains and losses were reported. Three Months Ended March 31, 2014 (in millions) 2013 Location of Pretax Gains and (Losses) Recognized in Earnings Commodity contracts Operating revenues $ Fuel used in electric generation and purchased power (3) $ 6 (17) 7 Interest rate contracts Interest expense (3) (3) Total Pretax Losses Recognized in Earnings $ 1 $ (14) $ 17 $ 36 $ 20 $ 39 Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities (a) Commodity contracts Regulatory assets Interest rate contracts (b) Regulatory assets 3 Total Pretax Losses Recognized as Regulatory Assets or Liabilities (a) (b) Reclassified to earnings to match recovery through the fuel clause. Reclassified to earnings as interest expense over the term of the related debt. 57 3 E99 KEEN m? Edi, PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY FLORIDA The following table shows the fair value of derivatives and the line items in the Condensed Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Condensed Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown. March 31, 2014 (in millions) December 31, 2013 Asset Liability Liability Asset Derivatives Not Designated as Hedging Instruments (a) Commodity contracts Current Assets: Other Current Liabilities: Other Deferred Credits and Other Liabilities: Other Total Derivatives (a) 4 1 3 2 15 58 9 64 2 21 $ 58 117 $ 2 14 $ 63 129 $ Substantially all of these contracts are recorded as regulatory assets or liabilities. The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below. March 31, 2014 Derivative Liabilities Derivative Assets Current (a) (in millions) Gross amounts recognized $ Gross amounts offset Net amounts recognized on the Condensed Balance Sheet 19 $ 3 2 $ 59 (2) (16) $ Current (c) Non-Current (b) $ Non-Current (d) $ 58 $ 52 (20) ― 39 $ (6) December 31, 2013 (in millions) Gross amounts recognized $ 12 $ (10) Gross amounts offset Net amounts recognized on the Condensed Balance Sheet (a) (b) (c) (d) Derivative Liabilities (c) (d) Non-Current Derivative Assets (a) (b) Current Non-Current $ 2 Current 2 $ (2) $ 66 $ (15) ― 51 $ 63 (7) $ 56 Included in Other within Current Assets on the Condensed Balance Sheet. Included in Other within Investments and Other Assets on the Condensed Balance Sheet. Included in Other within Current Liabilities on the Condensed Balance Sheet. Included in Other within Deferred Credits and Other Liabilities on the Condensed Balance Sheet. Gains and losses on cash flow hedges and reclassifications from AOCI were not material for the periods presented in this quarterly report. The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Condensed Consolidated Statements of Operations and Comprehensive Income or the Condensed Consolidated Balance Sheets where the pretax gains and losses were reported. Three Months Ended March 31, 2014 (in millions) 2013 Location of Pretax Gains and (Losses) Recognized in Earnings Commodity contracts Fuel used in electric generation and purchased power $ ― $ (35) Interest rate contracts Interest expense (1) (1) Total Pretax Losses Recognized in Earnings $ (1) $ (36) $ (19) $ 69 $ (18) $ 70 Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities (a) Commodity contracts Regulatory assets Interest rate contracts Regulatory assets (a) 1 1 Total Pretax Gains (Losses) Recognized as Regulatory Assets or Liabilities Reclassified to earnings to match recovery through the fuel clause. 58 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY OHIO The following table shows the fair value of derivatives and the line items in the Condensed Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Condensed Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown. March 31, 2014 (in millions) Derivatives Not Designated as Hedging Instruments Commodity contracts Current Assets: Other Current Assets: Assets Held for Sale Investments and Other Assets: Other Investments and Other Assets: Assets Held for Sale Current Liabilities: Other Current Liabilities: Assets Held for Sale Deferred Credits and Other Liabilities: Other Deferred Credits and Other Liabilities: Assets Held for Sale Interest rate contracts Current Liabilities: Other Deferred Credits and Other Liabilities: Other Total Derivatives Liability ― 7 ― ― 1 ― 315 256 ― ― 407 479 ― 3 ― 37 ― 1 ― 2 ― ― ― 1 4 778 ― ― 391 732 $ December 31, 2013 Asset Liability Asset $ 186 ― 163 ― 130 ― 202 $ 36 ― 56 ― 1 4 390 $ The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below. March 31, 2014 Derivative Liabilities Derivative Assets Current (a) (in millions) Gross amounts recognized $ Gross amounts offset Net amounts recognized on the Condensed Consolidated Balance Sheet 413 $ (407) $ 6 Current (c) Non-Current (b) 319 482 $ 59 $ (438) (260) $ Non-Current (d) 44 $ 296 (260) $ 36 December 31, 2013 Derivative Liabilities (g) (h) Non-Current Derivative Assets (e) (f) Current Non-Current (in millions) Gross amounts recognized $ 186 $ (165) Gross amounts offset 205 Current $ 199 (143) 43 21 73 26 Amounts not subject to master netting Net amounts recognized on the Condensed Consolidated Balance Sheet ― ― 1 (a) (b) (c) (d) (e) (f) (g) (h) 21 $ 73 $ 27 4 $ Included in Assets Held for Sale within Current Assets on the Condensed Consolidated Balance Sheet. Included in Assets Held for Sale within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Liabilities Associated with Assets Held for Sale within Current Liabilities on the Condensed Consolidated Balance Sheet. Included in Liabilities Associated with Assets Held for Sale within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. Included in Other within Current Assets on the Condensed Consolidated Balance Sheet. Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet. Included in Other within Current Liabilities on the Condensed Consolidated Balance Sheet. Included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheet. Gains and losses on cash flow hedges and reclassifications from AOCI were not material for the periods presented in this quarterly report. 59 186 (173) Net amount subject to master netting $ $ (132) 47 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Condensed Consolidated Statements of Operations and Comprehensive Income or the Condensed Consolidated Balance Sheets where the pretax gains and losses were reported. Three Months Ended March 31, 2014 (in millions) Location of Pretax Gains and (Losses) Recognized in Earnings Commodity contracts Revenue: Nonregulated electric, natural gas and other Fuel used in electric generation and purchased power - nonregulated Total Pretax (Losses) Gains Recognized in Earnings Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities Commodity contracts Regulatory liabilities Interest rate contracts Regulatory assets Total Pretax Gains (Losses) Recognized as Regulatory Assets or Liabilities (449) $ 2013 (91) (7) (98) $ 138 (311) $ $ 2 ― ― 2 $ $ 1 1 $ $ DUKE ENERGY INDIANA The fair value of derivative instruments were not material for the periods presented in this quarterly report. CREDIT RISK Certain derivative contracts contain contingent credit features. These features may include (i) material adverse change clauses or payment acceleration clauses that could result in immediate payments, (ii) the posting of letters of credit or termination of the derivative contract before maturity if specific events occur, such as a credit rating downgrade below investment grade. The following tables show information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions. Amounts for Duke Energy Carolinas and Duke Energy Indiana were not material. (in millions) Aggregate fair value amounts of derivative instruments in a net liability position Fair value of collateral already posted Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered March 31, 2014 Duke Energy Duke Energy Progress Energy 287 142 8 26 135 613 $ $ Duke Energy Florida Progress $ 23 ― $ 23 December 31, 2013 Duke (in millions) Aggregate fair value amounts of derivative instruments in a net liability position Fair value of collateral already posted Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered Energy Duke Energy Progress Energy 525 135 $ Progress 168 10 $ $ 158 205 119 611 248 112 26 Duke Energy Florida Duke Energy Ohio 108 10 60 98 $ $ 8 ― 60 Duke Energy Ohio $ 355 125 47 The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative must be executed with the same counterparty under the same master netting agreement. Amounts disclosed below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements. Amounts for Duke Energy Carolinas and Duke Energy Indiana were not material. March 31, 2014 (in millions) December 31, 2013 Receivables Payables Payables Receivables Duke Energy Amounts offset against net derivative positions $ Amounts not offset against net derivative positions 39 $ ― $ 30 $ ― 248 ― 122 ― 8 ― 10 ― 8 ― 10 ― 31 ― 19 ― 217 ― 115 ― Progress Energy Amounts offset against net derivative positions Duke Energy Florida Amounts offset against net derivative positions Duke Energy Ohio Amounts offset against net derivative positions Amounts not offset against net derivative positions 60 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) 10. INVESTMENTS IN DEBT AND EQUITY SECURITIES The Duke Energy Registrants classify their investments in debt and equity securities as either trading or available-for-sale. TRADING SECURITIES Investments in debt and equity securities held in Grantor Trusts associated with certain deferred compensation plans and certain other investments are classified as trading securities. The fair value of these investments was $19 million at March 31, 2014 and $18 million at December 31, 2013. AVAILABLE-FOR-SALE SECURITIES All other investments in debt and equity securities are classified as available-for-sale securities. Duke Energy’s available-for-sale securities are primarily comprised of investments held in (i) the NDTF at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to OPEB plans (iii) Duke Energy’s captive insurance investment portfolio, and (iv) Duke Energy’s foreign operations investment portfolio. Duke Energy holds corporate debt securities that were purchased using excess cash from its foreign operations. These investments are either classified as Cash and cash equivalents or Short-term investments on the Condensed Consolidated Balance Sheet based on maturity date and are available for current operations of Duke Energy’s foreign business. The fair value of these investments classified as Short-term investments was $6 million as of March 31, 2014 and $44 million as of December 31, 2013. Duke Energy classifies all other investments in debt and equity securities as long-term, unless otherwise noted . NDTF and Grantor Trust The investments within the NDTF at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida and the Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana grantor trusts (Investment Trusts) are managed by independent investment managers with discretion to buy, sell, and invest pursuant to the objectives set forth by the trust agreements. The Duke Energy Registrants have limited oversight of the day-to-day management of these investments. As a result, the ability to hold investments in unrealized loss positions is outside the control of the Duke Energy Registrants. Accordingly, all unrealized gains and losses associated with debt and equity securities within the Investment Trusts are considered other-than-temporary impairments and are recognized immediately. Pursuant to regulatory accounting, substantially all realized and unrealized gains and losses associated with investments within the Investment Trusts are deferred as a regulatory asset or liability. As a result, there is no immediate impact on earnings of the Duke Energy Registrants. Other Available for Sale Securities Unrealized gains and losses on all other available-for-sale securities are included in other comprehensive income until realized, unless it is determined the carrying value of an investment is other-than-temporarily impaired. If an other-than-temporary impairment exists, the unrealized loss may be included in earnings based on the criteria discussed below. The Duke Energy Registrants analyze all investment holdings each reporting period to determine whether a decline in fair value should be considered other-thantemporary. Criteria used to evaluate whether an impairment associated with equity securities is other-than-temporary includes, but is not limited to, (i) the length of time over which the market value has been lower than the cost basis of the investment, (ii) the percentage decline compared to the cost of the investment, and (iii) management’s intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value. If a decline in fair value is determined to be other-than-temporary, the investment is written down to its fair value through a charge to earnings. If the entity does not have an intent to sell a debt security and it is not more likely than not management will be required to sell the debt security before the recovery of its cost basis, the impairment write-down to fair value would be recorded as a component of other comprehensive income, except for when it is determined a credit loss exists. In determining whether a credit loss exists, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than the amortized cost basis, (ii) changes in the financial condition of the issuer of the security, or in the case of an asset backed security, the financial condition of the underlying loan obligors, (iii) consideration of underlying collateral and guarantees of amounts by government entities, (iv) ability of the issuer of the security to make scheduled interest or principal payments, and (v) any changes to the rating of the security by rating agencies. If a credit loss exists, the amount of impairment write-down to fair value is split between credit loss and other factors. The amount related to credit loss is recognized in earnings. The amount related to other factors is recognized in other comprehensive income. There were no credit losses as of March 31, 2014 and December 31, 2013. T here were no other-than-temporary impairments for debt or equity securities as of March 31, 2014 and December 31, 2013. Other available-for-sale securities were reflected as a component of other comprehensive income i n 2014 and 2013. 61 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY The following table presents the estimated fair value of investments in available-for-sale securities. (in millions) Gross Unrealized Holding Gains March 31, 2014 Gross Unrealized Holding Losses Estimated Fair Value December 31, 2013 Gross Unrealized Holding Gains Holding Losses Gross Unrealized Estimated Fair Value NDTF Cash and cash equivalents $ Equity securities ― $ ― $ 114 $ ― ― $ $ 110 1,854 14 3,623 1,813 10 11 3 449 8 6 400 3 3 139 2 6 160 U.S. government bonds 10 7 708 7 12 730 Other debt securities 12 1 199 22 2 154 Corporate debt securities Municipal bonds Total NDTF $ 1,890 $ 28 $ 5,232 $ 1,852 3,579 36 $ $ 5,133 Other Investments Cash and cash equivalents ― ― 17 ― ― 21 Equity securities 30 ― 92 29 ― 91 Corporate debt securities 1 ― 72 1 1 99 Municipal bonds 3 1 79 2 2 79 ― ― 12 ― ― 17 U.S. government bonds Other debt securities ― 7 ― 107 111 8 Total Other Investments(a) $ 34 $ 8 $ 379 $ 32 $ 11 $ 418 Total Investments $ 1,924 $ 36 $ 5,611 $ 1,884 $ 47 $ 5,551 (a) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years March 31, 2014 $ 59 433 499 774 Total $ 1,765 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. (in millions) Realized gains Realized losses Three Months Ended March 31, 2014 31 $ 4 $ 2013 31 7 DUKE ENERGY CAROLINAS The following table presents the estimated fair value of investments in available-for-sale securities. (in millions) Gross Unrealized Holding Gains March 31, 2014 Gross Unrealized Holding Losses Estimated Fair Value December 31, 2013 Gross Unrealized Holding Gains Holding Losses Gross Unrealized Estimated Fair Value NDTF Cash and cash equivalents $ Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities Total NDTF ― $ $ 70 8 1,982 $ ― $ ― $ 42 974 6 1,964 274 6 3 313 5 5 ― 1 33 ― 2 54 4 4 309 3 7 354 ― 12 $ ― 1,001 1,023 $ 16 2,900 2 22 193 $ $ 1,004 $ 22 146 $ 2,834 Other Investments Other debt securities ― 1 ― 3 1 3 Total Other Investments(a) $ ― $ 1 $ 3 $ ― $ 1 $ 3 Total Investments $ 1,023 $ 17 $ 2,903 $ 1,004 $ 23 $ 2,837 (a) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years Total Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. March 31, 2014 $ 24 165 305 357 $ 851 (in millions) Realized gains Realized losses Three Months Ended March 31, 2014 23 $ 1 $ 2013 25 4 PROGRESS ENERGY The following table presents the estimated fair value investments in available-for-sale securities. (in millions) Gross Unrealized Holding Gains March 31, 2014 Gross Unrealized Holding Losses Estimated Fair Value December 31, 2013 Gross Unrealized Holding Gains Holding Losses Gross Unrealized Estimated Fair Value NDTF Cash and cash equivalents $ Equity securities ― $ ― 44 $ ― $ ― $ 68 $ 853 6 1,641 839 4 1,615 Corporate debt securities 5 ― 136 3 1 126 Municipal bonds 3 2 106 2 4 106 U.S. government bonds 6 3 399 4 5 376 ― 1 6 ― ― Other debt securities Total NDTF $ 867 $ 12 2,332 $ 848 $ 14 $ 8 2,299 $ Other Investments Cash and cash equivalents Municipal bonds ― ― 16 ― ― 2 ― 40 1 ― 20 39 Total Other Investments(a) $ 2 $ ― $ 56 $ 1 $ ― $ 59 Total Investments $ 869 $ 12 $ 2,388 $ 849 $ 14 $ 2,358 (a) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years March 31, 2014 $ 16 212 136 Total 323 687 $ Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. (in millions) Realized gains Realized losses Three Months Ended March 31, 2014 7 $ 2 $ 2013 5 2 DUKE ENERGY PROGRESS The following table presents the estimated fair value of investments in available-for-sale securities. (in millions) Gross Unrealized Holding Gains March 31, 2014 Gross Unrealized Holding Losses Estimated Fair Value December 31, 2013 Gross Unrealized Holding Gains Holding Losses Gross Unrealized Estimated Fair Value NDTF Cash and cash equivalents $ Equity securities ― $ ― 544 4 Corporate debt securities 4 Municipal bonds 3 U.S. government bonds Other debt securities Total NDTF $ $ 33 $ ― $ ― $ 48 1,088 535 3 ― 87 3 1 80 2 104 2 4 104 5 3 254 4 3 232 ― 1 3 ― ― 556 $ 10 $ 1,569 $ 544 $ 1,069 5 11 $ 1,538 Other Investments Cash and cash equivalents ― ― ― ― ― 2 Total Other Investments(a) $ ― $ ― $ ― $ ― $ ― $ 2 Total Investments $ 556 $ 10 $ 1,569 $ 544 $ 11 $ 1,540 (a) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years March 31, 2014 $ 5 136 89 218 Total $ 448 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. (in millions) Realized gains Realized losses DUKE ENERGY FLORIDA $ Three Months Ended March 31, 2014 6 $ 2 2013 2 1 The following table presents the estimated fair value of investments in available-for-sale securities. Gross Unrealized (in millions) Holding Gains March 31, 2014 Gross Unrealized Holding Losses Estimated Fair Value December 31, 2013 Gross Unrealized Holding Gains Holding Losses Gross Unrealized Estimated Fair Value NDTF Cash and cash equivalents $ Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities ― $ $ $ 11 $ ― $ ― $ 20 2 553 304 1 546 46 1 ― 49 ― ― ― ― 2 ― ― 2 1 ― 145 ― 2 144 ― Total NDTF ― 309 311 ― $ 2 ― 3 $ 763 $ ― 304 $ 3 3 $ 761 Other Investments Cash and cash equivalents Municipal bonds Total Other Investments (a) Total Investments (a) ― ― 2 ― ― 3 2 ― 40 1 ― 39 $ 2 $ ― $ 42 $ 1 $ ― $ 42 $ 313 $ 2 $ 805 $ 305 $ 3 $ 803 These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years March 31, 2014 $ 11 76 47 105 Total $ 239 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. (in millions) Realized gains Realized losses $ 62 Three Months Ended March 31, 2014 1 $ 1 2013 3 1 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY INDIANA The following table presents the estimated fair value of investments in available-for-sale securities. (in millions) Gross Unrealized Holding Gains March 31, 2014 Gross Unrealized Holding Losses Estimated Fair Value Gross Unrealized Holding Gains December 31, 2013 Gross Unrealized Holding Losses Estimated Fair Value Other Investments Cash and cash equivalents $ Equity securities ― $ Municipal bonds ― $ ― 25 ― 1 $ 66 $ ― $ ― 24 28 1 ― ― 1 65 1 28 Total Other Investments(a) $ 25 $ 1 $ 95 $ 24 $ 1 $ 94 Total Investments $ 25 $ 1 $ 95 $ 24 $ 1 $ 94 (a) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. The table below summarizes the maturity date for debt securities. (in millions) Due in one year or less Due after one through five years Due after five through 10 years Due after 10 years March 31, 2014 $ 1 20 5 2 Total $ 28 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were insignificant for the three months ended March 31, 2014 and 2013. 11. FAIR VALUE MEASUREMENTS Fair value is the exchange price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value definition focuses on an exit price versus the acquisition cost. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data, or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient. Fair value measurements are classified in three levels based on the fair value hierarchy: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. An active market is one in which transactions for an asset or liability occur with sufficient frequency and volume to provide ongoing pricing information. Level 2 – A fair value measurement utilizing inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly, for an asset or liability. Inputs include (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, and credit spreads. A Level 2 measurement cannot have more than an insignificant portion of its valuation based on unobservable inputs. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less than active markets. Level 3 – Any fair value measurement which includes unobservable inputs for more than an insignificant portion of the valuation. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 measurements may include longer-term instruments that extend into periods in which observable inputs are not available. The fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value. Transfers between levels represent assets or liabilities that were previously (i) categorized at a higher level for which the inputs to the estimate became less observable or (ii) classified at a lower level for which the inputs became more observable during the period. The Duke Energy Registrant’s policy is to recognize transfers between levels of the fair value hierarchy at the end of the period. There were no transfers between levels 1 and 2 during the three months ended March 31, 2014 and 2013. Transfers out of Level 3 during the three months ended March 31, 2014 are the result of forward commodity prices becoming observable due to the passage of time. Valuation methods of the primary fair value measurements disclosed below are as follows. Investments in equity securities 67 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as NASDAQ and NYSE. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements. Investments in equity securities that are Level 2 or 3 are typically ownership interests in commingled investment funds. Investments in debt securities Most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed income security is relatively inactive or illiquid, the measurement is Level 3. Commodity derivatives Commodity derivatives with clearinghouses are classified as Level 1. Other commodity derivatives are primarily fair valued using internally developed discounted cash flow models which incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or non-performance risk (after reflecting credit enhancements such as collateral), and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate fair value of gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves. Interest rate derivatives Most over-the-counter interest rate contract derivatives are valued using financial models which utilize observable inputs for similar instruments and are classified as Level 2. Inputs include forward interest rate curves, notional amounts, interest rates and credit quality of the counterparties. Goodwill and Long-lived Assets See Note 7 for a discussion of the valuation of goodwill and long-lived assets. DUKE ENERGY The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. (in millions) Nuclear decommissioning trust fund equity securities $ Nuclear decommissioning trust fund debt securities Other trading and available-for-sale equity securities (a) Other trading and available-for-sale debt securities (b) Derivative assets (a) Total assets Derivative liabilities (c) Net assets (in millions) Nuclear decommissioning trust fund equity securities March 31, 2014 Level 1 Total Fair Value 3,623 $ 3,535 Nuclear decommissioning trust fund debt securities 92 ― ― 305 27 258 20 125 35 72 18 5,754 4,115 1,522 117 5,420 (41) $ 3,579 4,074 $ 3,495 102 Other trading and available-for-sale debt securities (b) 333 Net assets 85 $ Level 2 57 $ Level 3 27 $ 1,100 51 91 11 ― 36 277 20 145 33 70 42 5,712 4,057 1,515 140 (321) $ (32) (261) 1,261 $ December 31, 2013 Level 1 Other trading and available-for-sale equity securities (a) Derivative liabilities (c) 52 92 402 Total assets 27 1,131 1,553 Derivative assets (a) Level 3 $ 426 Total Fair Value $ 61 1,609 (334) $ Level 2 $ 5,391 11 $ 4,068 (29) (303) 1,212 $ 111 $ (a) Included in Other or Assets Held for Sale within Current Assets and Other or Assets Held for Sale within Investments and Other Assets on the Condensed Consolidated Balance Sheet. (b) Included in Other within Investments and Other Assets and Short-term Investments on the Condensed Consolidated Balance Sheets. (c) Included in Other or Liabilities Associated with Assets Held for Sale within Current Liabilities and Other or Liabilities Associated with Assets Held for Sale within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. (in millions) Balance at beginning of period Three Months Ended March 31, 2014 Investments Derivatives (net) $ 98 $ 13 Total pretax realized or unrealized gains (losses) included in earnings(a) ― 18 Total $ 111 18 Purchases, sales, issuances and settlements: Purchases 1 ― 1 Sales (1) ― (1) Settlements ― (39) (39) ― (5) (5) Transfers out of Level 3 due to observability of inputs Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period Pretax amounts included in the Condensed Consolidated Statements of Comprehensive Income related 1 $ 99 (1) $ (14) $ ― 85 to Level 3 measurements outstanding $ (in millions) Balance at beginning of period Three Months Ended March 31, 2013 Investments Derivatives (net) $ 98 $ (85) Total pretax realized or unrealized gains (losses) included in earnings(a) Total pretax gains included in other comprehensive income ― $ (7) $ (7) Total $ 13 ― (10) (10) (1) ― (1) ― 6 6 ― 7 7 Purchases, sales, issuances and settlements: Issuances Settlements Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period (a) Amounts for derivatives are primarily included in Operating Revenues. 68 1 $ 98 $ ― (82) $ 1 16 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY CAROLINAS The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2014 (in millions) Total Fair Value Nuclear decommissioning trust fund equity securities $ Nuclear decommissioning trust fund debt securities Other trading and available-for-sale debt securities Total assets Derivative liabilities (a) 1,982 1,894 $ 61 $ Level 3 27 $ 52 918 190 676 3 - - 3 2,903 2,084 737 82 ― (4) Net assets Level 2 Level 1 $ 2,899 $ ― 2,084 (4) 737 $ 78 $ December 31, 2013 (in millions) Total Fair Value Nuclear decommissioning trust fund equity securities $ Nuclear decommissioning trust fund debt securities 1,964 1,879 Total assets Derivative liabilities (a) $ Level 3 27 $ 651 51 3 - - 3 2,837 2,047 709 81 (2) Net assets 58 $ 168 870 Other trading and available-for-sale debt securities Level 2 Level 1 $ 2,835 ― $ 2,047 ― 709 $ (2) 79 $ (a) Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. (in millions) Balance at beginning of period Purchases, sales, issuances and settlements: Purchases Sales Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period (in millions) Balance at beginning of period Purchases, sales, issuances and settlements: Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period 69 Three Months Ended March 31, 2014 Investments Derivatives (net) $ 81 $ (2) 1 (1) $ ― 1 82 (1) (2) (2) ― 1 73 1 ― $ (4) $ 1 78 $ Total 60 $ 7 1 68 7 ― $ Total 79 ― ― Three Months Ended March 31, 2013 Investments Derivatives (net) $ 72 $ (12) $ $ (5) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) PROGRESS ENERGY The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. (in millions) March 31, 2014 Level 1 Total Fair Value Nuclear decommissioning trust fund equity securities $ 1,641 $ 1,641 Level 2 ― $ Level 3 $ ― Nuclear decommissioning trust fund debt securities and other 691 236 455 ― Other trading and available-for-sale debt securities and other (a) 56 16 40 ― 4 ― 4 ― 2,392 1,893 499 ― (158) ― (155) Derivative assets (b) Total assets Derivative liabilities (c) Net assets $ (in millions) 2,234 $ $ 1,615 344 $ December 31, 2013 Level 1 Total Fair Value Nuclear decommissioning trust fund equity securities 1,893 $ 1,615 (3) $ Level 2 ― $ (3) Level 3 $ ― Nuclear decommissioning trust fund debt securities and other 677 233 444 ― Other trading and available-for-sale debt securities and other (a) 58 19 39 ― 3 ― 3 ― 2,353 1,867 486 ― (187) ― (187) Derivative assets (b) Total assets Derivative liabilities (c) Net assets $ 2,166 $ 1,867 299 $ ― $ ― (a) Included in Other within Investments and Other Assets in the Condensed Consolidated Balance Sheets. (b) Included in Other Current Assets within Current Assets and Other within Investments and Other Assets in the Condensed Consolidated Balance Sheets. (c) Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities in the Condensed Consolidated Balance Sheets. The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Derivatives (net) Three Months Ended March 31, (in millions) 2014 $ Balance at beginning of period Total pretax realized or unrealized gains included in earnings ― 2013 $ (38) ― (3) Purchases, sales, issuances and settlements: Issuances Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period Pretax amounts included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to Level 3 measurements outstanding at March 31, 2014 70 ― 6 ― 1 $ (3) $ (3) $ (31) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY PROGRESS The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. (in millions) Nuclear decommissioning trust fund equity securities 1,088 $ Nuclear decommissioning trust fund debt securities and other Derivative assets (b) Total assets Derivative liabilities (c) Net assets (in millions) Nuclear decommissioning trust fund equity securities March 31, 2014 Level 1 Total Fair Value Level 3 $ ― 329 ― 1 ― 1 ― 1,570 1,240 330 ― (58) ― (55) 1,240 $ 275 $ December 31, 2013 Level 1 1,069 Nuclear decommissioning trust fund debt securities and other ― 152 Total Fair Value $ Level 2 $ 481 1,512 $ 1,088 $ 1,069 $ (3) $ Level 2 ― $ (3) Level 3 $ ― 470 137 333 ― Other trading and available-for-sale debt securities and other (a) 3 3 ― ― Derivative assets (b) 1 ― 1 ― 1,543 1,209 334 ― (66) ― (66) Total assets Derivative liabilities (c) Net assets 1,477 $ 1,209 $ 268 $ ― $ ― (a) Included in Other within Investments and Other Assets in the Condensed Consolidated Balance Sheets. (b) Included in Other Current Assets within Current Assets and Other within Investments and Other Assets in the Condensed Consolidated Balance Sheets. (c) Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities in the Condensed Consolidated Balance Sheets. The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Derivatives (net) Three Months Ended March 31, (in millions) 2014 Balance at beginning of period 2013 ― $ Total pretax realized or unrealized gains (losses) included in earnings: $ (38) ― (3) Purchases, sales, issuances and settlements: Issuances Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period Pretax amounts included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to Level 3 measurements outstanding at March 31, 2014 ― 6 ― 1 $ (3) $ (3) $ (31) DUKE ENERGY FLORIDA The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. (in millions) Nuclear decommissioning trust fund equity securities March 31, 2014 Level 1 Total Fair Value $ 553 $ 553 Level 2 $ ― Level 3 $ ― Nuclear decommissioning trust fund debt securities and other 210 84 126 ― Other trading and available-for-sale debt securities and other (a) 42 2 40 ― Derivative assets 3 ― 3 ― Total assets 808 639 169 ― Derivative liabilities (b) (99) ― (99) Net assets (in millions) Nuclear decommissioning trust fund equity securities $ 709 Total Fair Value $ Nuclear decommissioning trust fund debt securities and other 546 $ 639 $ December 31, 2013 Level 1 $ 546 70 ― $ Level 2 $ ― ― Level 3 $ ― 214 96 118 ― 40 2 38 ― Derivative assets 1 ― 1 ― Total assets 801 644 157 ― (116) ― (116) Other trading and available-for-sale debt securities and other (a) Derivative liabilities (b) Net assets (a) (b) $ 685 $ 644 $ Included in Other within Investments and Other Assets in the Condensed Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities in the Condensed Balance Sheets 41 ― $ ― (b) Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities in the Condensed Balance Sheets 71 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY OHIO The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. March 31, 2014 (in millions) Total Fair Value Derivative assets (a) $ Derivative liabilities (b) 31 $ (113) Net assets (liabilities) $ Level 2 Level 1 63 25 $ (2) $ 7 (54) (33) (50) Level 3 $ (29) $ (26) (19) $ December 31, 2013 (in millions) Total Fair Value Derivative assets (c) $ Derivative liabilities (d) (a) (b) (c) (d) 50 $ (95) Net assets (liabilities) 21 $ (1) 1 $ Level 2 Level 1 96 25 (65) 49 $ Level 3 $ (44) $ (29) (4) $ Included in Assets Held for Sale within Current Assets and Assets Held for Sale within Investments and Other Assets in the Condensed Consolidated Balance Sheets. Included in Liabilities Associated with Assets Held for Sale within Current Liabilities and Liabilities Associated with Assets Held for Sale within Deferred Credits and Other Liabilities in the Condensed Consolidated Balance Sheets. Included in Other Current Assets within Current Assets and Other within Investments and Other Assets in the Condensed Consolidated Balance Sheets. Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Derivatives (net) Three Months Ended March 31, 2014 $ (4) $ (in millions) Balance at beginning of period Total pretax realized or unrealized gains (losses) included in earnings Purchases, sales, issuances and settlements: Settlements Transfers out of Level 3 due to observability of inputs Balance at end of period Pretax amounts included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to Level 3 measurements outstanding at March 31, 2014 (6) (4) $ (5) (19) $ (7) $ 2013 (6) 4 (3) ― (5) DUKE ENERGY INDIANA The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2014 (in millions) Available-for-sale equity securities (a) Total Fair Value 66 $ Available-for-sale debt securities (a) Derivative assets (b) Total assets Level 2 Level 1 66 $ ― $ 29 ― 29 8 1 ― 103 67 29 Level 3 ― $ ― 7 7 $ December 31, 2013 (in millions) Available-for-sale equity securities (a) Total Fair Value 65 $ Level 2 Level 1 65 $ ― $ Level 3 ― $ Available-for-sale debt securities (a) 29 ― 29 ― Derivative assets (b) 12 ― ― 12 106 65 29 Total assets (a) (b) 12 $ Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Included in Other within Current Assets on the Condensed Consolidated Balance Sheets. The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. (in millions) Balance at beginning of period Total pretax realized or unrealized gains (losses) included in earnings Purchases, sales, issuances and settlements: Settlements Total losses included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period QUANTITATIVE DISCLOSURES ABOUT UNOBSERVABLE INPUTS The following table includes quantitative information about the Duke Energy Registrants' derivatives classified as Level 3. March 31, 2014 Derivatives (net) Three Months Ended March 31, 2014 $ 12 $ 27 (31) (1) $ 7 $ 2013 10 (5) ― (1) 4 March 31, 2014 Investment Type Duke Energy Natural gas contracts Fair Value (in millions) $ FERC mitigation power sale agreements Financial transmission rights (FTRs) Electricity contracts Capacity option contracts Reserves Total Level 3 derivatives Duke Energy Carolinas FERC mitigation power sale agreements Progress Energy FERC mitigation power sale agreements Duke Energy Progress FERC mitigation power sale agreements Duke Energy Ohio Electricity contracts Natural gas contracts Unobservable Input Range 4 Discounted cash flow Forward natural gas curves - price per MMBtu Forward electricity curves - price per MWh (7) Discounted cash flow 7 7 3 RTO auction pricing Discounted cash flow Discounted cash flow FTR price - price per MWh Forward electricity curves - price per MWh Forward capacity option curves - price per MW day Bid-ask spreads, implied volatility, probability of default (28) $ 3.25 - 7.10 29.84 - 62.70 (1.25) - 35.00 24.08 24.50 - 58.75 148.75 29.84 - 62.70 $ (14) $ (4) Discounted cash flow Forward electricity curves - price per MWh (3) Discounted cash flow Forward electricity curves - price per MWh 27.00 - 56.60 (3) Discounted cash flow Forward electricity curves - price per MWh 27.00 - 56.60 2 4 Discounted cash flow Discounted cash flow Forward electricity curves - price per MWh Forward natural gas curves - price per MMBtu Bid-ask spreads, implied volatility, probability of default 24.08 3.25 - 58.75 7.10 RTO auction pricing FTR price - per MWh (1.25) - 35.00 Reserves Total Level 3 derivatives Duke Energy Indiana FTRs Valuation Technique (25) $ (19) $ 7 $ $ December 31, 2013 Investment Type Duke Energy Natural gas contracts Fair Value (in millions) $ FERC mitigation power sale agreements FTRs Electricity contracts Capacity option contracts Discounted cash flow Forward natural gas curves - price per MMBtu Forward electricity curves - price per MWh Discounted cash flow RTO auction pricing Discounted cash flow Discounted cash flow FTR price - price per MWh Forward electricity curves - price per MWh Forward capacity option curves - price per MW day Bid-ask spreads, implied volatility, probability of default Discounted cash flow Forward electricity curves - price per MWh Discounted cash flow Discounted cash flow Forward electricity curves - price per MWh Forward natural gas curves - price per MMBtu Bid-ask spreads, implied volatility, probability of default RTO auction pricing FTR price - per MWh (22) $ 13 $ (2) 18 (2) (20) $ $ Range (2) 4 Reserves Total Level 3 derivatives Duke Energy Indiana FTRs Unobservable Input 12 23 Reserves Total Level 3 derivatives Duke Energy Carolinas FERC mitigation power sale agreements Duke Energy Ohio Electricity contracts Natural gas contracts (2) Valuation Technique $ $ 3.07 - 5.37 25.79 - 52.38 (0.30) - 20.77 30.40 - 13.80 58.90 165.10 25.79 - 52.38 20.77 3.07 - 58.90 5.37 (0.30) - 13.80 (4) 12 $ OTHER FAIR VALUE DISCLOSURES The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements. March 31, 2014 (in millions) Duke Energy Book Value $ 39,885 $ December 31, 2013 Fair Value 43,188 Book Value $ 40,256 Fair Value $ 42,592 Duke Energy Carolinas 8,436 9,346 8,436 9,123 Progress Energy 15,046 16,083 14,115 15,234 Duke Energy Progress 5,717 5,940 5,235 5,323 Duke Energy Florida 5,110 5,783 4,886 5,408 2,187 2,299 2,188 2,237 3,796 4,279 3,796 4,171 Duke Energy Ohio Duke Energy Indiana 72 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) At both March 31, 2014 and December 31, 2013, the fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper, and non-recourse notes payable of variable interest entities are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates. 12. VARIABLE INTEREST ENTITIES A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity, and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. A qualitative analysis of control determines the party that consolidates a VIE. This assessment is based on (i) what party has the power to direct the most significant activities of the VIE that impact its economic performance, and (ii) what party has rights to receive benefits or is obligated to absorb losses that are significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment. Other than the discussion below related to CRC, no financial support was provided to any of the consolidated VIEs during the three months ended March 31, 2014 and the year ended December 31, 2013, or is expected to be provided in the future, that was not previously contractually required. CONSOLIDATED VIEs The table below shows VIEs consolidated and how these entities impact the Condensed Consolidated Balance Sheets. March 31, 2014 Duke Energy Duke Energy Carolinas Duke Energy Progress Duke Energy Florida DERF DEPR DEFR (in millions) CRC Total Other Renewables ASSETS Current Assets Restricted receivables of variable interest entities $ Other 705 538 $ 318 $ 600 $ 20 $ 18 $ 2,199 $ ― ― ― ― 115 14 129 ― ― ― ― 26 41 67 ― ― ― ― 1,663 18 1,681 ― ― ― ― (186) (6) (192) Investments and Other Assets Other Property, Plant and Equipment Property, plant and equipment, cost (a) Accumulated depreciation and amortization Regulatory Assets and Deferred Debits Other 1 1 1 ― 33 ― 36 706 539 319 600 1,671 85 3,920 Accounts payable ― ― ― ― 2 ― 2 Taxes accrued Current maturities of long-term debt ― ― ― ― 4 ― 4 ― ― ― ― 66 15 81 ― ― ― ― 25 10 35 400 300 225 325 907 29 2,186 Deferred income taxes ― ― ― ― 277 ― 277 Asset retirement obligations ― ― ― ― 26 ― 26 Other ― 1 1 ― 23 10 35 400 301 226 325 1,330 64 2,646 Total assets LIABILITIES AND EQUITY Current Liabilities Other Long-term Debt (b) Deferred Credits and Other Liabilities Total liabilities Net assets of consolidated variable interest entities (a) (b) $ 306 238 $ 93 $ 275 $ 341 $ 21 $ 1,274 $ Restricted as collateral for non-recourse debt of VIEs. Non-recourse to the general assets of Duke Energy, Duke Energy Carolinas, Duke Energy Progress, and Duke Energy Florida. December 31, 2013 Duke Energy (in millions) Duke Energy Carolinas DERF Duke Energy Progress DEPR CRC Total Other Renewables ASSETS Current Assets Restricted receivables of variable interest entities Other $ 673 $ 416 $ 595 $ 18 $ 17 $ 1,719 ― ― ― 89 12 101 ― ― ― 29 51 80 ― ― ― 1,662 18 1,680 Investments and Other Assets Other Property, Plant and Equipment Property, plant and equipment, cost (a) Property, plant and equipment, cost ― ― ― 1,662 18 1,680 Accumulated depreciation and amortization ― ― ― (170) (5) (175) Regulatory Assets and Deferred Debits Other 1 1 ― 34 ― 36 674 417 595 1,662 93 3,441 Accounts payable ― ― ― 2 ― 2 Taxes accrued ― ― ― 10 ― 10 Current maturities of long-term debt ― ― ― 66 14 80 Other ― ― ― 17 10 27 400 300 325 907 34 1,966 Deferred income taxes ― ― ― 290 ― 290 Asset retirement obligations ― ― ― 26 ― 26 1 ― ― 17 13 31 Total assets LIABILITIES AND EQUITY Current Liabilities Long-term Debt (b) Deferred Credits and Other Liabilities Other Total liabilities Net assets of consolidated variable interest entities (a) (b) 401 $ 273 $ 270 Restricted as collateral for non-recourse debt of VIEs. Non-recourse to the general assets of Duke Energy, Duke Energy Carolinas, and Duke Energy Progress. 74 1,335 325 300 117 $ $ 327 71 $ 22 2,432 $ 1,009 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The obligations of these VIEs are non-recourse to Duke Energy, Duke Energy Carolinas, Duke Energy Progress, and Duke Energy Florida. These entities have no requirement to provide liquidity to purchase assets of, or guarantee performance of these VIEs unless noted in the following paragraphs. DERF On a daily basis, Duke Energy Receivables Finance Company, LLC (DERF), a bankruptcy remote, special purpose subsidiary of Duke Energy Carolinas, buys certain accounts receivable arising from the sale of electricity and/or related services from Duke Energy Carolinas. DERF is a wholly owned limited liability company with a separate legal existence from its parent, and its assets are not generally available to creditors of Duke Energy Carolinas. DERF borrows $400 million under a credit facility to buy the receivables. Borrowing is limited to the amount of qualified receivables sold, which is expected to be in excess of the credit facility. The credit facility expires i n October 2016 and is reflected on the Condensed Consolidated Balance Sheets as Long-term Debt. The secured credit facility was not structured to meet the criteria for sale accounting treatment under the accounting guidance for transfers and servicing of financial assets. The most significant activity that impacts the economic performance of DERF is the decisions made to manage delinquent receivables. Duke Energy Carolinas consolidates DERF as it makes those decisions. DEPR On a daily basis, Duke Energy Progress Receivables Company, LLC (DEPR), a bankruptcy remote, special purpose subsidiary of Duke Energy Progress formed in 2013, buys certain accounts receivable arising from the sale of electricity and/or related services from Duke Energy Progress. DEPR is a wholly owned limited liability company with a separate legal existence from its parent, and its assets are not generally available to creditors of Duke Energy Progress. DEPR borrows $300 million under a credit facility to buy the receivables. Borrowing is limited to the amount of qualified receivables sold, which is expected to be in excess of the credit facility. The credit facility expires in December 2016 and is reflected on the Condensed Consolidated Balance Sheets as Long-term Debt. The secured credit facility was not structured to meet the criteria for sale accounting treatment under the accounting guidance for transfers and servicing of financial assets. The most significant activity that impacts the economic performance of DEPR is the decisions made to manage delinquent receivables. Duke Energy Progress consolidates DEPR as it makes those decisions. DEFR On a daily basis, Duke Energy Florida Receivables Company, LLC (DEFR), a bankruptcy remote, special purpose subsidiary of Duke Energy Florida formed in 2014, buys certain accounts receivable arising from the sale of electricity and/or related services from Duke Energy Florida. DEFR is a wholly owned limited liability company with a separate legal existence from its parent, and its assets are not generally available to creditors of Duke Energy Florida. DEFR borrows $225 million under a credit facility to buy the receivables. Borrowing is limited to the amount of qualified receivables sold, which is expected to be in excess of the credit facility. The credit facility expires in March 2017 and is reflected on the Condensed Consolidated Balance Sheets as Long-term Debt. The secured credit facility was not structured to meet the criteria for sale accounting treatment under the accounting guidance for transfers and servicing of financial assets. The most significant activity that impacts the economic performance of DEFR is the decisions made to manage delinquent receivables. Duke Energy Florida consolidates DEFR as it makes those decisions. CRC On a revolving basis, CRC buys certain accounts receivable arising from the sale of electricity and/or related services from Duke Energy Ohio and Duke Energy Indiana. Receivables sold are securitized by CRC through a facility managed by two unrelated third parties. The proceeds Duke Energy Ohio and Duke Energy Indiana receive from the sale of receivables to CRC are typically 75 percent cash and 25 percent in the form of a subordinated note from CRC. The subordinated note is a retained interest in the receivables sold. Cash collections from the receivables are the sole source of funds to satisfy the related debt obligation. Depending on experience with collections, additional equity infusions to CRC may be required by Duke Energy to maintain a minimum equity balance of $3 million. There were no infusions to CRC during the three months ended March 31, 2014 and 2013. Borrowings fluctuate based on the amount of receivables sold. The credit facility expires in November 2016. The secured credit facility is reflected on the Condensed Consolidated Balance Sheets as Long-term Debt. CRC is considered a VIE because (i) equity capitalization is insufficient to support its operations, (ii) power to direct the most significant activities that impact economic performance of the entity are not performed by the equity holder, Cinergy, and (iii) deficiencies in net worth of CRC are not funded by Cinergy, but by Duke Energy. The most significant activity of CRC relates to the decisions made with respect to the management of delinquent receivables. Duke Energy consolidates CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy Indiana consolidate CRC. Renewables Certain of Duke Energy’s renewable energy facilities are VIEs due to power purchase agreements with terms that approximate the expected life of the projects. These fixed price agreements effectively transfer commodity price risk to the buyer of the power. Certain other of Duke Energy’s renewable energy facilities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves in support of debt financings. Assets are restricted and cannot be pledged as collateral or sold to third parties without prior approval of debt holders. The most significant activities that impact the economic performance of these renewable energy facilities were decisions associated with siting, negotiating purchase power agreements, engineering, procurement and construction, and decisions associated with ongoing operations and maintenance-related activities. Duke Energy consolidated the entities as it makes all of these decisions. NON-CONSOLIDATED VIEs The tables below show VIEs not consolidated and how these entities impact the Condensed Consolidated Balance Sheets. 76 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) March 31, 2014 Duke Energy Renewables Other (in millions) Receivables ― $ Investments in equity method unconsolidated affiliates Investments and other assets Total assets $ ― Total ― $ Duke Energy Ohio(a) $ 127 Duke Energy Indiana(a) $ 134 152 3 155 ― ― 4 4 ― ― ― 152 7 159 127 134 Other current liabilities ― 2 2 ― ― Deferred credits and other liabilities ― 14 14 ― ― Total liabilities ― 16 16 ― Net assets (liabilities) (a) 152 $ $ (9) 143 $ $ 127 ― $ 134 Reflects retained interest in CRC. December 31, 2013 Duke Energy Renewables Other (in millions) Receivables ― $ Investments in equity method unconsolidated affiliates $ ― Total $ ― Duke Energy Ohio(a) $ 114 Duke Energy Indiana(b) $ 143 153 60 213 ― ― Intangibles, net ― 96 96 96 ― Investments and other assets ― 4 4 ― ― 153 160 313 210 143 Total assets Other current liabilities ― 3 3 ― ― Deferred credits and other liabilities ― 15 15 ― ― Total liabilities ― 18 18 ― Net assets (a) (b) 153 $ $ 142 $ 295 $ 210 ― $ 143 Reflects OVEC and retained interest in CRC. Reflects retained interest in CRC The Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above except for the power purchase agreement with the Ohio Valley Electric Corporation (OVEC), which is discussed below, and various guarantees, reflected in the table above as Deferred credits and other liabilities. Renewables Duke Energy has investments in various renewable energy project entities. Some of these entities are VIEs due to power purchase agreements with terms that approximate the expected life of the project. These fixed price agreements effectively transfer commodity price risk to the buyer of the power. Duke Energy does not consolidate these VIEs because power to direct and control key activities is shared jointly by Duke Energy and other owners. Other The most significant of the Other non-consolidated VIEs is Duke Energy Ohio’s 9 percent ownership interest in OVEC. Through its ownership interest in OVEC, Duke Energy Ohio has a contractual arrangement to buy power from OVEC’s power plants through June 2040. Proceeds from the sale of power by OVEC to its power purchase agreement counterparties are designed to be sufficient to meet its operating expenses, fixed costs, debt amortization and interest expense, as well as earn a return on equity. Accordingly, the value of this contract is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business, including costs associated with its 2,256 MW of coal-fired generation capacity. The initial carrying value of this contract was recorded as an intangible asset when Duke Energy acquired Cinergy in April 2006. This amount is included in the December 31, 2013 table above for Duke Energy and Duke Energy Ohio. The OVEC amount was reclassified to Assets held for sale in conjunction with the planned disposition of the Midwest Generation business in the first quarter of 2014. CRC See discussion under Consolidated VIEs for additional information related to CRC. 77 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The subordinated notes held by Duke Energy Ohio and Duke Energy Indiana are stated at fair value and are classified within Receivables in their Condensed Consolidated Balance Sheets. Carrying values of retained interests are determined by allocating carrying value of the receivables between assets sold and interests retained based on relative fair value. The allocated basis of the subordinated notes are not materially different than their face value because (i) the receivables generally turnover in less than two months, (ii) credit losses are reasonably predictable due to the broad customer base and lack of significant concentration, and (iii) the equity in CRC is subordinate to all retained interests and thus would absorb losses first. The hypothetical effect on fair value of the retained interests assuming both a 10 percent and a 20 percent unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio and Duke Energy Indiana on the retained interests using the acceptable yield method. This method generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both retained interests and purchased beneficial interest whenever it is determined that an other-than-temporary impairment has occurred. Key assumptions used in estimating the fair value in 2014 and 2013 are detailed in the following table. Duke Energy Ohio 2014 0.6 % 1.2 % 12.8 % Anticipated credit loss ratio Discount rate Receivable turnover rate Duke Energy Indiana 2014 2013 0.3 % 0.3 % 1.2 % 1.2 % 10.4 % 10.3 % 2013 0.6 % 1.2 % 12.8 % The following table shows the gross and net receivables sold. (in millions) Receivables sold Less: Retained interests Net receivables sold Duke Energy Ohio March 31, 2014 $ $ 321 127 194 Duke Energy Indiana March 31, 2014 December 31, 2013 $ 290 $ 114 176 December 31, 2013 319 $ $ 340 $ 143 197 134 185 $ The following tables show sales and cash flows related to receivables sold. Duke Energy Indiana Three Months Ended March 31, 2014 Duke Energy Ohio Three Months Ended March 31, (in millions) Sales Receivables sold Loss recognized on sale Cash flows Cash proceeds from receivables sold Return received on retained interests 2014 $ 2013 741 (4) $ 638 755 (3) $ (3) 617 1 723 2 2013 747 $ (3) 761 725 2 2 Cash flows from sales of receivables are reflected within Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows. Collection fees received in connection with servicing transferred accounts receivable are included in Operation, maintenance and other on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Operations and Comprehensive Income. The loss recognized on sales of receivables is calculated monthly by multiplying receivables sold during the month by the required discount. The required discount is derived monthly utilizing a three-year weighted average formula that considers charge-off history, late charge history, and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is calculated monthly by summing the prior month-end LIBOR plus a fixed rate of 1.00 percent. 13. COMMON STOCK Basic Earnings Per Share (EPS) is computed by dividing net income attributable to Duke Energy common shareholders, adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common shareholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, phantom shares and stock-based performance unit awards, were exercised or settled. Duke Energy’s participating securities are restricted stock units that are entitled to dividends declared on Duke Energy common shares during the restricted stock unit’s vesting periods. The following table presents Duke Energy’s basic and diluted EPS calculations and reconciles the weighted-average number of common shares outstanding to the diluted weighted-average number of common shares outstanding. Income Average Shares $ (94) 706 $ (0.13) $ 629 705 $ 0.89 (Loss) (In millions, except per-share amounts) Three Months Ended March 31, 2014 Loss from continuing operations attributable to Duke Energy common shareholders, as adjusted for participating securities — basic and diluted Three Months Ended March 31, 2013 Income from continuing operations attributable to Duke Energy common shareholders, as adjusted for participating securities — basic and diluted 78 EPS PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) As of March 31, 2014 and 2013, 2 million and 1 million, respectively, of stock options and performance and unvested stock awards were not included in the dilutive securities calculation in the above table because either the option exercise prices were greater than the average market price of the common shares during those periods, or performance measures related to the awards had not yet been met. For the three months ended March 31, 2014 and 2013, Duke Energy declared dividends of $0.78 per share and $0.765 per share, respectively. 14. STOCK-BASED COMPENSATION For employee awards, equity classified stock-based compensation cost is measured at the service inception date or the grant date, based on the estimated achievement of certain performance metrics or the fair value of the award, and is recognized as expense or capitalized as a component of property, plant and equipment over the requisite service period. Duke Energy recorded pretax stock-based compensation expense as follows. Three Months Ended March 31, (in millions) 2014 2013 Stock options $ ― $ 2 Restricted stock unit awards $ 11 $ 13 Total $ 16 $ 26 Tax benefit associated with stock-based compensation expense $ 6 $ 10 Performance awards 11 5 1 1 Stock-based compensation costs capitalized 15. EMPLOYEE BENEFIT PLANS DEFINED BENEFIT RETIREMENT PLANS Duke Energy maintains, and the Subsidiary Registrants participate in, qualified, non-contributory defined benefit retirement plans. The plans cover most U.S. employees using a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits based upon a percentage of current eligible earnings based on age and/or years of service and interest credits. Certain employees are covered under plans that use a final average earnings formula. Under these average earnings formulas, a plan participant accumulates a retirement benefit equal to the sum of percentages of their (i) highest three-year or four-year average earnings, (ii) highest three-year or four-year average earnings in excess of covered compensation per year of participation (maximum of 35 years), and/or (iii) highest three or four-year average earnings times years of participation in excess of 35 years. Duke Energy also maintains, and the Subsidiary Registrants participate in, non-qualified, non-contributory defined benefit retirement plans which cover certain executives. As of January 1, 2014, the qualified and non-qualified noncontributory defined benefit plans are closed to new and rehired non-union and certain unionized employees. Duke Energy uses a December 31 measurement date for its defined benefit retirement plan assets and obligations. Duke Energy’s policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefit payments to be paid to plan participants. Duke Energy did not make any contributions to its qualified defined benefit retirement plans during the three months ended March 31, 2014 and 2013. Net periodic benefit costs disclosed in the tables below represent the cost of the respective benefit plan for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment. Amounts presented in the tables below for the Subsidiary Registrants represent the amounts of pension and other post-retirement benefit cost allocated by Duke Energy for employees of the Subsidiary Registrants. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and post-retirement benefit cost for employees of Duke Energy’s shared services affiliate that provide support to the Subsidiary Registrants. These allocated amounts are included in the governance and shared service costs discussed in Note 8. QUALIFIED PENSION PLANS The following tables include the components of net periodic pension costs for qualified pension plans. (in millions) Service cost Interest cost on projected benefit obligation Duke Energy $ 34 Expected return on plan assets Duke Energy Carolinas $ 10 Three Months Ended March 31, 2014 Progress Duke Energy Duke Energy Energy Progress Florida $ 10 $ 5 $ 5 Duke Energy Ohio $ 1 Duke Energy Indiana $ 2 86 21 28 13 14 5 7 (128) (33) (43) (21) (21) (7) (9) Amortization of actuarial loss 37 9 17 8 8 1 3 Amortization of prior service credit (4) (2) (1) ― ― ― ― Other Net periodic pension costs (a)(b) (in millions) Service cost Interest cost on projected benefit obligation $ 2 27 Duke Energy $ 42 Expected return on plan assets $ 1 6 Duke Energy Carolinas $ 12 $ 1 12 $ ― 5 $ ― 6 Three Months Ended March 31, 2013 Progress Duke Energy Duke Energy Energy Progress Florida $ 15 $ 5 $ 8 $ ― ― Duke Energy Ohio $ 2 $ ― 3 Duke Energy Indiana $ 3 80 20 29 13 13 5 7 (137) (37) (50) (23) (22) (8) (11) Amortization of actuarial loss 61 15 25 11 12 3 6 Amortization of prior service credit (3) (2) (1) ― ― ― ― Other Net periodic pension costs (a)(b) (a) (b) $ 2 45 $ 1 9 $ 1 19 $ ― 6 $ ― 11 $ ― 2 $ ― 5 Duke Energy amounts exclude $3 million for each of the three months ended March 31, 2014 and 2013, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy. Duke Energy Ohio amounts exclude $1 million and $2 million for the three months ended March 31, 2014 and 2013, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy. Egg Eng m? PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) NON-QUALIFIED PENSION PLANS The net periodic pension costs for non-qualified pension plans were not material for the three months ended March 31, 2014 and 2013. OTHER POST-RETIREMENT BENEFIT PLANS Duke Energy provides, and the Subsidiary Registrants participate in, some health care and life insurance benefits for retired employees on a contributory and noncontributory basis. Employees are eligible for these benefits if they have met age and service requirements at retirement, as defined in the plans. The health care benefits include medical, dental, and prescription drug coverage and are subject to certain limitations, such as deductibles and co-payments. Duke Energy did not make any contributions to its other post-retirement benefit plans during the three months ended March 31, 2014 and 2013. The following tables include the components of net periodic other post-retirement benefit costs. (in millions) Service cost Interest cost on accumulated postretirement benefit obligation Duke Energy $ 2 Expected return on plan assets Amortization of actuarial loss Amortization of prior service credit Net periodic other post-retirement benefit costs (a)(b) $ (in millions) Service cost Interest cost on accumulated postretirement benefit obligation Three Months Ended March 31, 2014 Progress Duke Energy Duke Energy Energy Progress Florida 1 $ $ ― $ 1 Duke Energy Ohio $ ― Duke Energy Indiana $ ― 12 3 6 3 3 ― 1 (3) (2) ― ― ― ― ― 10 1 10 7 2 ― ― (31) (3) (24) (18) (5) ― ― (10) Duke Energy $ 7 Expected return on plan assets Duke Energy Carolinas $ ― $ (1) Duke Energy Carolinas $ 1 (7) $ $ (8) $ 1 Three Months Ended March 31, 2013 Progress Duke Energy Duke Energy Energy Progress Florida 6 $ $ 3 $ 2 $ ― Duke Energy Ohio $ ― 1 $ Duke Energy Indiana $ ― 18 3 11 6 4 ― 1 (3) (3) ― ― ― ― ― Amortization of actuarial loss (gain) 13 1 14 9 4 ― (1) Amortization of prior service credit Net periodic other post-retirement benefit (3) (2) ― ― ― ― ― costs (a) (b) (a)(b) $ 32 $ ― 31 $ $ 18 $ 10 $ ― $ ― Duke Energy amounts exclude $2 million for each of the three months ended March 31, 2014 and 2013, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy. Duke Energy Ohio amounts exclude $1 million for each of the three months ended March 31, 2014 and 2013, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy. 80 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) EMPLOYEE SAVINGS PLANS Duke Energy sponsors and the Subsidiary Registrants participate in, employee savings plans that cover substantially all U.S. employees. Most employees participate in a matching contribution formula where Duke Energy provides a matching contribution generally equal to 100 percent of employee before-tax and Roth 401(k) contributions and, as applicable, after-tax contributions of up to 6 percent of eligible pay per pay period. Dividends on Duke Energy shares held by the savings plans are charged to retained earnings when declared and shares held in the plans are considered outstanding in the calculation of basic and diluted earnings per share. As of January 1, 2014, for new and rehired non-union and certain unionized employees who are not eligible to participate in Duke Energy’s defined benefit plans, an additional employer contribution of 4 percent of eligible pay per pay period is provided to the employee’s savings plan account. The following table includes pretax employer matching contributions, as well as the additional contribution of 4 percent of eligible pay per pay period for employees not eligible to participate in a defined benefit plan, made by Duke Energy and expensed by the Subsidiary Registrants. (in millions) For the three months ended March 31, 2014 2013 Duke Energy $ 43 41 Duke Energy Carolinas $ 14 Progress Duke Energy Energy Progress 12 $ 14 12 $ 9 6 Duke Energy Florida $ 4 Duke Energy Ohio $ 1 Duke Energy Indiana 2 $ 1 4 2 16. INCOME TAXES The effective tax rates for each of the Duke Energy Registrants are included in the following table. Three Months Ended March 31, 2014 2013 Duke Energy 58.6 % 34.2 % Duke Energy Carolinas 37.4 % 37.1 % Progress Energy 36.9 % 39.6 % Duke Energy Progress 36.6 % 38.1 % Duke Energy Florida 38.5 % 39.1 % Duke Energy Ohio 35.4 % 37.1 % Duke Energy Indiana 36.8 % 37.5 % The increase in the effective tax rate for Duke Energy for the three months ended March 31, 2014 is primarily due to the first quarter of 2014 impairment of the Midwest Generation business. The decrease in the effective tax rate for Progress Energy for the three months ended March 31, 2014 is primarily due to the reduction of state tax rates in certain jurisdictions. The decrease in the effective tax rate for Duke Energy Progress for the three months ended March 31, 2014 is primarily due to the reduction of state tax rates in certain jurisdictions. The decrease in the effective tax rate for Duke Energy Ohio for the three months ended March 31, 2014 is primarily due to the first quarter of 2014 impairment of the Midwest Generation business. 17. SUBSEQUENT EVENTS For information on subsequent events related to regulatory matters, commitments and contingencies, and debt and credit facilities see Notes 4, 5, and 6, respectively. 81 PART I ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) and Duke Energy Carolinas, LLC (Duke Energy Carolinas), Progress Energy, Inc. (Progress Energy), Duke Energy Progress, Inc. (Duke Energy Progress), Duke Energy Florida, Inc. (Duke Energy Florida), Duke Energy Ohio, Inc. (Duke Energy Ohio), and Duke Energy Indiana, Inc. (Duke Energy Indiana) (collectively referred to as the Subsidiary Registrants). However, none of the registrants makes any representation as to information related solely to Duke Energy or the Subsidiary Registrants of Duke Energy other than itself. DUKE ENERGY Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the United States (U.S.) through its wholly owned subsidiaries Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, and Duke Energy Indiana, as well as in Latin America through International Energy. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. Management’s Discussion and Analysis includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings, adjusted diluted earnings per share (EPS), and adjusted segment income, discussed below. Generally, a non-GAAP financial measure is a numerical measure 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 presented herein may not be comparable to similarly titled measures used by other companies. Management’s Discussion and Analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes and with Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2013. Results of Operations In this section, Duke Energy provides analysis and discussion of earnings and factors affecting earnings on both a GAAP and non-GAAP basis. Management evaluates financial performance in part based on the non-GAAP financial measures, adjusted earnings and adjusted diluted EPS. These items are measured as income from continuing operations after deducting income attributable to noncontrolling interests, adjusted for the dollar and per-share impact of special items and mark-to-market impacts of economic hedges in the Commercial Power segment. Special items represent certain charges and credits, which management believes will not be recurring on a regular basis, although it is reasonably possible such charges and credits could recur. Mark-to-market adjustments reflect the impact of derivative contracts, which are used in Duke Energy’s hedging of a portion of the economic value of its generation assets in the Commercial Power segment. The mark-tomarket impact of derivative contracts is recognized in GAAP earnings immediately as such derivative contracts do not qualify for hedge accounting or regulatory treatment. The economic value of generation assets is subject to fluctuations in fair value due to market price volatility of input and output commodities (e.g., coal, electricity, natural gas). Economic hedging involves both purchases and sales of those input and output commodities related to generation assets. Operations of the generation assets are accounted for under the accrual method. Management believes excluding impacts of mark-to-market changes of the derivative contracts from adjusted earnings until settlement better matches the financial impacts of the derivative contract with the portion of economic value of the underlying hedged asset. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them 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 results to the Board of Directors, employees, shareholders, analysts and investors concerning Duke Energy’s financial performance. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation and Diluted EPS Attributable to Duke Energy Corporation common shareholders, which include the dollar and per-share impact of special items, mark-to-market impacts of economic hedges in the Commercial Power segment and discontinued operations. Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. Management also uses adjusted segment income as a measure of historical and anticipated future segment performance. Adjusted segment income is a non-GAAP financial measure, as it is based upon segment income adjusted for special items and mark-to-market impacts of economic hedges in the Commercial Power segment. Management believes the presentation of adjusted segment income provides useful information to investors, as it provides them with an additional relevant comparison of a segment’s performance across periods. The most directly comparable GAAP measure for adjusted segment income is segment income, which represents segment income from continuing operations, including any special items and mark-to-market impacts of economic hedges in the Commercial Power segment. Duke Energy’s adjusted earnings, adjusted diluted EPS, segment income and adjusted segment income may not be comparable to similarly titled measures of another company because other entities may not calculate the measures in the same manner. See Note 3 to the Condensed Consolidated Financial Statements, “Business Segments,” for a discussion of Duke Energy’s segment structure. Executive Overview The following table reconciles non-GAAP measures to their most directly comparable GAAP measures. Three Months Ended March 31, 2014 (in millions, except per-share amounts) Adjusted segment income/Adjusted earnings Midwest Generation impairment Costs to achieve Progress Energy merger Economic hedges (mark-to-market) Segment income (loss) Loss from Discontinued Operations Net Income Attributable to Duke Energy Regulated Utilities $ 737 International Energy $ ― ― ― $ 737 130 ― ― ― $ 130 Commercial Total Reportable Power Segments $ 10 $ 877 (867) (867) ― $ (22) (879) $ ― (22) $ (12) Other (48) ― $ (34) $ Duke Energy 829 (867) Per Diluted Share $ (34) (22) (94) ― (82) $ (3) (97) $ 1.17 (1.23) (0.04) (0.03) (0.01) (0.14) Three Months Ended March 31, 2013 (in millions, except per-share amounts) Adjusted segment income/Adjusted earnings Economic hedges (mark-to-market) Costs to achieve Progress Energy merger Segment income (loss) Loss from Discontinued Operations Net Income Attributable to Duke Energy Regulated Utilities $ 656 ― ― $ 656 International Energy 97 $ ― ― 97 $ Commercial Total Reportable Power Segments $ 6 $ 759 (48) (48) ― ― $ (42) $ 711 $ $ Other (43) ― (34) (77) Duke Energy $ 716 (48) (34) 634 ― $ 82 $ Per Diluted Share 1.02 (0.08) (0.05) 634 ― $ 0.89 PART I The variance in adjusted earnings for three months ended March 31, 2014, compared to the same period in 2013, was primarily due to: · Increased retail pricing and riders primarily resulting from the implementation of revised rates for Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio, and Duke Energy Indiana; · Favorable weather in 2014 compared to 2013; · Increased weather-normal retail sales volumes for the regulated businesses; and · Higher results in Latin America. Partially offset by: · · Higher depreciation and amortization expense primarily due to the reduction of the cost of removal component of amortization expense in 2013 at Duke Energy Florida; and Higher operating and maintenance expense primarily due to storm costs. SEGMENT RESULTS The remaining information in this discussion of results of operations is presented on a GAAP basis. Regulated Utilities Three Months Ended March 31, 2014 2013 (in millions) Operating Revenues $ Operating Expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Segment Income $ 5,805 $ 5,060 Variance $ 745 4,427 3,840 1 2 (1) 1,379 1,222 157 587 69 61 8 270 236 34 1,178 1,047 131 441 391 656 737 $ $ 50 81 Duke Energy Carolinas GWh sales (a) 23,693 22,246 1,447 Duke Energy Progress GWh sales 16,161 14,701 1,460 Duke Energy Florida GWh sales 8,661 8,017 644 Duke Energy Ohio GWh sales 6,479 6,178 301 Duke Energy Indiana GWh sales Total Regulated Utilities GWh sales Net proportional MW capacity in operation (a) 8,874 8,505 369 63,868 59,647 4,221 49,595 49,641 (46) Includes 177 gigawatt-hours (GWh) sales and 184 GWh sales for the three months ended March 31, 2014 and 2013, respectively, associated with interim firm power sale agreements (Interim FERC Mitigation) entered into as part of the Federal Energy Regulatory Commission's approval of the merger with Progress Energy, which are not included in the operating results in the table above. 83 PART I Three Months Ended March 31, 2014 as Compared to March 31, 2013 Regulated Utilities’ results were positively impacted by higher retail pricing and rate riders, favorable weather, higher weather-normal sales volumes, and an increase in wholesale power margins. These impacts were partially offset by higher depreciation and amortization expense, higher operating and maintenance costs, 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 $332 million increase in fuel revenues driven primarily by (i) increased demand from electric retail customers resulting from favorable weather conditions, and (ii) higher fuel rates for electric retail customers for all jurisdictions, except North Carolina. Fuel revenues represent sales to retail and wholesale customers; A $217 million net increase in retail pricing primarily due to retail rate changes and updated rate riders; A $91 million increase in electric sales (net of fuel revenue) to retail customers due to more favorable weather conditions. For the Carolinas, heating degree days for the first quarter of 2014 were 19 percent above normal as compared with 5 percent above normal during the same period in 2013. For the Midwest, heating degree days for the first quarter of 2014 were 25 percent above normal as compared with 6 percent above normal during the same period in 2013. For Florida, heating degree days for the first quarter of 2014 were 3 percent above normal as compared with 16 percent below normal during the same period in 2013; A $65 million increase in weather-normal sales volumes to retail customers (net of fuel revenue) reflecting increased demand; and A $32 million increase in wholesale power revenues, net of sharing, primarily due to additional volumes and capacity charges for customers served under longterm contracts. Operating Expenses. The variance was driven primarily by: · A $321 million increase in fuel expense (including purchased power and natural gas purchases for resale) primarily related to (i) higher volumes of coal and oil used in electric generation due primarily to increased generation resulting from favorable weather conditions, and (ii) higher natural gas prices; · A $143 million increase in depreciation and amortization expense primarily due to the reduction of the cost of removal component of amortization expense for Duke Energy Florida in 2013 as allowed under the settlement agreement in 2012 among Duke Energy Florida, the Florida Office of Public Counsel (OPC) and other customer advocates (2012 Settlement), and increases in depreciation as a result of additional plant in service and amortization of regulatory assets; and · A $103 million increase in operating and maintenance expense primarily due to higher storm costs. Interest Expense. The variance was primarily due to no longer recording a post in-service debt return on projects now reflected in customer rates. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2014 and 2013 was 37.5 percent and 37.3 percent, respectively. Matters Impacting Future Regulated Utilities Results Appeals of recently approved rate cases are pending at the North Carolina Supreme Court. The North Carolina Attorney General (NCAG) and NC Waste Awareness and Reduction Network (NC WARN) dispute the rate of return, capital structure and other matters approved by the NCUC. The outcome of these appeals could have an adverse impact to Regulated Utilities’ financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. On February 2, 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the river. Duke Energy is a party to multiple lawsuits filed in regards to coal ash management practices, both preceding and following the Dan River incident. The United States Attorney for the District of North Carolina initiated a criminal investigation related to the discharge. In addition, Duke Energy has disclosed estimated costs of various potential approaches to ash management for North Carolina ash basins. The outcome of these lawsuits, investigation and any potential legislative actions could have an adverse impact to Regulated Utilities’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. International Energy Three Months Ended March 31, 2014 2013 (in millions) Operating Revenues $ 382 $ 392 $ Variance (10) Operating Expenses 231 263 (32) Operating Income 151 129 22 Other Income and Expense, net 57 33 24 Interest Expense 23 21 2 185 141 44 51 42 9 4 2 Income Before Income Taxes Income Tax Expense Less: Income Attributable to Noncontrolling Interests Segment Income $ 130 $ 97 2 $ 33 Sales, GWh 5,241 4,756 485 Net proportional MW capacity in operation 4,600 4,584 16 84 PART I Three Months Ended March 31, 2014 as Compared to March 31, 2013 International Energy’s results were positively impacted by favorable results in Brazil, a net remeasurement gain and higher interest income in Latin America, partially offset by unfavorable exchange rates in Brazil. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was driven primarily by: · A $20 million decrease in Central America as a result of lower volumes and average prices; and · A $7 million decrease in Argentina due to unfavorable exchange rates and lower average prices partially offset by higher volumes. Partially offset by: · A $16 million increase in Brazil as a result of higher spot volumes and average prices, partially offset by unfavorable exchange rates. Operating Expenses. The variance was driven primarily by: · A $17 million decrease in Central America due to lower fuel consumption; · A $7 million decrease in Argentina as a result of favorable exchange rates, lower fuel consumption and purchased power; and · A $6 million decrease in Brazil due to lower purchased power and favorable exchange rates, partially offset by higher variable costs. Other Income and Expenses, net. The variance is primarily due to higher interest income and a net remeasurement gain in Latin America. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2014 and 2013 was 27.7 percent and 29.4 percent, respectively. The decrease in the effective tax rate is primarily due to certain nondeductible interest payments in 2013. Commercial Power Three Months Ended March 31, 2014 2013 (in millions) Operating Revenues $ 449 $ 452 $ Variance (3) Operating Expenses 1,862 533 1,329 Operating Loss (1,413) (81) (1,332) (6) Other Income and Expense, net Interest Expense Loss Before Income Taxes Income Tax Benefit Segment Loss 5 11 15 15 (1,423) (85) (544) $ (879) $ (43) (42) (1,338) $ (501) (837) Coal-fired plant production, GWh 4,711 4,549 162 Gas-fired plant production, GWh 3,792 3,897 (105) 184 Renewable plant production, GWh 1,589 1,405 Total Commercial Power production, GWh 10,092 9,851 241 Net proportional MW capacity in operation 7,770 8,094 (324) Three Months Ended March 31, 2014 as Compared to March 31, 2013 Commercial Power’s results were negatively impacted by the impairment for the Midwest Generation business. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was driven primarily by: · · A $58 million decrease in net mark-to-market revenues on non-qualifying power and capacity hedge contracts, consisting of mark-to-market losses of $126 million in 2014 compared to losses of $68 million in 2013; and A $15 million decrease for the coal-fired generation assets driven primarily by lower realized power prices, partially offset by increased volumes. Partially offset by: · A $63 million increase for Duke Energy Retail Sales, LLC (Duke Energy Retail) resulting from favorable pricing, partially offset by lower volumes; and · A $7 million increase in PJM Interconnection LLC (PJM) capacity revenues related to higher average cleared capacity auction pricing. Operating Expenses. The variance was driven primarily by: · A $1,381 million impairment recognized for the Midwest Generation business resulting from the plan to exit that business; and 85 PART I A $76 million increase in purchased power to serve Duke Energy Retail customers. · Partially offset by: · A $96 million decrease in net mark-to-market fuel expense on non-qualifying fuel hedge contracts, consisting of mark-to-market gains of $89 million in 2014 compared to losses of $7 million in 2013; and · A $12 million decrease in fuel expenses from the gas-fired generation assets driven by lower natural gas costs and volumes. Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rate for the three months ended March 31, 2014 and 2013 was 38.2 percent and 50.8 percent, respectively. The decrease in the effective tax rate was primarily due to the first quarter of 2014 impairment of the Midwest Generation business. Matters Impacting Future Commercial Power Results In 2013, a FERC Administrative Law Judge issued an initial decision holding that Commercial Power is responsible for certain Multi Value Projects (MVP) costs, a type of Transmission Expansion Planning (MTEP) cost, approved by Midcontinent Independent System Operator, Inc. (MISO) prior to the date of Commercial Power’s withdrawal. The initial decision will be reviewed by Federal Energy Regulatory Commission (FERC). If FERC upholds the initial decision, Commercial Power intends to file an appeal in federal court. If Commercial Power ultimately is found to be responsible for these costs, a portion of these costs may not be eligible for recovery, resulting in an adverse impact to its financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. Changes or variability in assumptions used in calculating fair value of the renewables reporting unit for goodwill testing purposes including but not limited to legislative actions related to tax credit extensions, long-term growth rates and discount rates, could significantly impact the estimated fair value of the renewables reporting unit. In the event of a significant decline in the estimated fair value of the renewables reporting unit, goodwill and other asset impairment charges could be recorded. The carrying value of goodwill and intangible assets associated with proposed renewable projects within Commercial Power’s renewables reporting unit was approximately $84 million at March 31, 2014. In addition, management periodically reviews individual projects within Commercial Power’s renewables portfolio to evaluate ongoing alignment with the strategic direction of the business. A determination that a project is no longer consistent with the business strategy and a decision to divest of a project or projects could result in an impairment charge. Other Three Months Ended March 31, 2014 2013 (in millions) Operating Revenues $ 25 $ 35 $ Variance (10) Operating Expenses 84 90 (6) Operating Loss (59) (55) (4) 7 11 (4) 105 95 10 (157) (139) (18) (75) (60) (15) (82) (2) (77) Other Income and Expense, net Interest Expense Loss Before Income Taxes Income Tax Benefit Less: Loss Attributable to Noncontrolling Interests Net Expense $ $ $ 2 (5) Three Months Ended March 31, 2014 as Compared to March 31, 2013 Other’s results were negatively impacted by an increase in interest expense. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The decrease was primarily due to mark-to-market activity of mitigation sales related to the Progress Energy merger, partially offset by prior-year mark-to-market activity for Duke Energy Trading and Marketing, LLC (DETM), which was divested in 2013. Interest Expense. The variance was driven primarily by a prior year purchase accounting adjustment related to the redemption of Quarterly Income Preferred Securities (QUIPS). Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rate for the three months ended March 31, 2014 and 2013 was 48.1 percent and 42.5 percent, respectively. Matters Impacting Future Other Results Duke Energy previously held an effective 50 percent interest in Crescent Resources, LLC (Crescent). Crescent was a real estate joint venture formed by Duke Energy in 2006 that filed for Chapter 11 bankruptcy protection in June 2009. On June 9, 2010, Crescent restructured and emerged from bankruptcy and Duke Energy forfeited its entire 50 percent ownership interest to Crescent debt holders. This forfeiture caused Duke Energy to recognize a loss, for tax purposes, on its interest in the second quarter of 2010. Although Crescent has reorganized and emerged from bankruptcy with creditors owning all Crescent interest, there remains uncertainty as to the tax treatment associated with the restructuring. Based on this uncertainty, it is possible that Duke Energy could incur a future tax liability related to the tax losses associated with its partnership interest in Crescent and the resolution of issues associated with Crescent’s emergence from bankruptcy. 86 PART I DUKE ENERGY CAROLINAS Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2014 and 2013 and the Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, 2014 2013 (in millions) Operating Revenues $ Operating Expenses 2,000 $ 1,491 1,729 Variance 271 $ 1,297 194 2 (2) Gains on Sales of Other Assets and Other, net ― Operating Income 509 434 75 49 36 13 Other Income and Expenses, net Interest Expense 101 82 19 Income Before Income Taxes 457 388 69 Income Tax Expense Net Income 171 144 $ 286 $ 244 27 42 $ The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized. Increase over prior year Residential sales General service sales Industrial sales Wholesale power sales Total sales Average number of customers 2014 11.1 3.9 % 2.1 % 14.3 6.5 0.9 % % % % Three Months Ended March 31, 2014 as Compared to March 31, 2013 Operating Revenues. The variance was driven primarily by: · A $137 million increase in fuel revenues driven primarily by increased demand from retail customers, mainly due to favorable weather conditions, and higher natural gas prices. Fuel revenues represent sales to retail and wholesale customers; · A $60 million increase in retail pricing and updated rate riders, which primarily reflects the impact of the 2013 North Carolina and South Carolina retail rate cases; · A $38 million increase in electric sales (net of fuel revenues) to retail customers due to favorable weather conditions. Heating degree days for the first quarter of 2014 were 19 percent above normal compared to 6 percent above normal during the same period in 2013; and · A $26 million increase in weather-normal sales volumes to retail customers reflecting increased demand. Operating Expenses. The variance was driven primarily by: · A $140 million increase in fuel expense (including purchased power) primarily related to increased generation due to higher sales volumes and increased prices of natural gas used in electric generation, net of change in fuel mix; · A $31 million increase in operating and maintenance expenses primarily due to higher storm costs and Dan River ash basin repairs and remediation costs, partially offset by lower outage and non-outage costs at nuclear generation plants; and · A $20 million increase in depreciation and amortization primarily due to higher depreciation as a result of additional plant in service and amortization of certain regulatory assets, partially offset by lower amortization expense due to reductions in regulatory liabilities for costs of removal in accordance with the 2013 North Carolina and South Carolina rate case orders. Other Income and Expenses, net. The variance was primarily due to the recognition of post in-service equity returns for projects that had been completed prior to being reflected in customer rates. Interest Expense. The variance was primarily due to no longer recording a post in-service debt return on projects now reflected in customer rates. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2014 and 2013 was 37.4 percent and 37.1 percent, respectively. Matters Impacting Future Results Appeals of recently approved rate cases are pending at the North Carolina Supreme Court. The NCAG and NC WARN dispute the rate of return, capital structure and other matters approved by the NCUC. The outcome of these appeals could have an adverse impact to Duke 87 PART I Energy Carolinas’ financial position, results of operations and cash flows. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information. On February 2, 2014, a break in a stormwater pipe beneath an ash basin at the retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the river. Duke Energy is a party to multiple lawsuits filed in regards to coal ash management practices, both preceding and following the Dan River incident. The United States Attorney for the District of North Carolina initiated a criminal investigation related to the discharge. In addition, Duke Energy has disclosed estimated costs of various potential approaches to ash management for North Carolina ash basins. The outcome of these lawsuits, investigation and any potential legislative actions could have an adverse impact to Duke Energy Carolinas’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. 88 PART I PROGRESS ENERGY Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2014 and 2013 and the Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, 2014 2013 (in millions) Operating Revenues $ Operating Expenses 2,541 $ 477 Other Income and Expenses, net Variance 355 309 ― 1 Operating Income $ 1,756 2,065 Gains on Sales of Other Assets and Other, net 2,186 1 47 430 15 23 (8) Interest Expense 169 198 (29) Income From Continuing Operations Before Taxes 323 255 68 Income Tax Expense From Continuing Operations 119 101 18 Income From Continuing Operations 204 154 Loss From Discontinued Operations, net of tax Net Income 203 154 Less: Net Income Attributable to Noncontrolling Interest Net Income Attributable to Parent 1 202 1 153 $ 50 ― (1) $ (1) 49 ― $ 49 Three Months Ended March 31, 2014 as Compared to March 31, 2013 Operating Revenues. The variance was driven primarily by: · · · · · A $193 million increase in fuel and capacity revenues primarily due to a higher fuel rate in the current year related to lower Nuclear Electric Insurance Limited (NEIL) insurance reimbursements and accelerated Crystal River Nuclear Station – Unit 3 (Crystal River Unit 3) regulatory asset cost recovery in 2014 as allowed by the settlement agreement in 2013 among Duke Energy Florida, the OPC and other customer advocates (2013 Settlement) for Duke Energy Florida; and increased demand from wholesale and retail customers in 2014, partially resulting from favorable weather conditions, and higher fuel rates for wholesale customers reflective of higher fuel costs for Duke Energy Progress; A $56 million increase in base revenues due to revised rates in North Carolina and Florida; A $41 million increase (net of fuel revenue) in GWh sales to retail customers due to favorable weather conditions. For Duke Energy Progress, heating degree days for the three months ended March 31, 2014, were 49 percent above normal compared to 5 percent above normal for the prior year. For Duke Energy Florida, heating degree days for the first quarter of 2014 were 3 percent above normal as compared with 16 percent below normal during the same period in 2013; A $26 million increase (net of fuel revenue) in GWh sales to retail customers due to higher weather-normal sales volumes to retail customers; and A $16 million increase in nuclear cost recovery clause and energy conservation cost recovery clause revenues at Duke Energy Florida due to higher recovery rates in the current year. Operating Expenses. The variance was driven primarily by: · · · A $184 million increase in fuel expenses (including purchased power) primarily due to increased sales volumes and higher fuel prices; A $79 million increase in depreciation and amortization at Duke Energy Florida primarily due to the reduction of the cost of removal component of amortization expense in 2013 as allowed under the 2012 Settlement; and A $26 million increase in operations and maintenance expenses at Duke Energy Progress primarily due to higher storm costs. Interest Expense. The variance was primarily due to the $29 million charge to interest expense on the redemption of Progress Energy’s 7.10% Cumulative QUIPS in January of 2013. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2014 and 2013 was 36.9 percent and 39.6 percent, respectively. The decrease in the effective tax rate was primarily due to the reduction of state tax rates in certain jurisdictions. Matters Impacting Future Results An appeal of a recently approved rate case is pending at the North Carolina Supreme Court. The NCAG and NC WARN dispute the rate of return, capital structure and other matters approved by the NCUC. The outcome of this appeal could have an adverse impact to Progress Energy’s financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. On February 2, 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping 89 PART I the release of materials into the river. Duke Energy is a party to multiple lawsuits filed in regards to coal ash management practices, both preceding and following the Dan River incident. In addition, Duke Energy has disclosed estimated costs of various potential approaches to ash management for North Carolina ash basins. The outcome of these lawsuits and any potential legislative actions could have an adverse impact to Progress Energy’s financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. 90 PART I DUKE ENERGY PROGRESS Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2014 and 2013 and the Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, 2014 2013 (in millions) Operating Revenues $ Operating Expenses 1,422 $ Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Net Income and Comprehensive Income 1 258 212 46 (5) 9 14 57 48 9 210 178 32 77 $ 206 161 ― 1 Operating Income Variance $ 1,004 1,165 Gains on Sales of Other Assets and Other, net 1,216 133 9 68 $ 110 23 $ The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized. Increase (decrease) over prior period 2014 Residential sales General service sales Industrial sales Wholesale power sales Total sales Average number of customers 12.5 % 4.6 % (2.6) % 20.7 9.9 1.1 % % % Three Months Ended March 31, 2014 as Compared to March 31, 2013 Operating Revenues. The variance was driven primarily by: · · · A $113 million increase in fuel revenues (including emission allowances) driven primarily by increased demand from wholesale and electric retail customers in 2014, partially resulting from favorable weather conditions, and higher fuel rates for wholesale customers reflective of higher fuel costs. Fuel revenues represent sales to retail and wholesale customers; A $37 million increase in retail pricing primarily due to retail rate changes in North Carolina; A $28 million increase (net of fuel revenue) in GWh sales to retail customers due to favorable weather conditions. Heating degree days for the first quarter of 2014 were 49 percent above normal compared to 5 percent above normal for the prior year; · A $16 million increase (net of fuel revenue) in GWh sales to retail customers due to higher weather-normal sales volumes to retail customers; and · A $13 million increase in wholesale power revenues primarily due to higher energy rates, increased capacity rates and higher peak demand. Operating Expenses. The variance was driven primarily by: · A $119 million increase in fuel expenses (including purchased power) primarily due to increased sales volumes; and · A $26 million increase in operations and maintenance expenses primarily due to higher storm costs. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2014 and 2013 was 36.6 percent and 38.1 percent, respectively. The decrease in the effective tax rate was primarily due to the reduction of state tax rates in certain jurisdictions. Matters Impacting Future Results An appeal of a recently approved rate case is pending at the North Carolina Supreme Court. The NCAG and NC WARN dispute the rate of return, capital structure and other matters approved by the NCUC. The outcome of this appeal could have an adverse impact to Duke Energy Progress’s financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. On February 2, 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the river. Duke Energy is a party to multiple lawsuits filed in regards to coal ash management practices, both preceding and following the Dan River incident. In addition, Duke Energy has disclosed estimated costs of various potential approaches to ash 91 PART I management for North Carolina ash basins. The outcome of these lawsuits and any potential legislative actions could have an adverse impact to Duke Energy Progress’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. 92 PART I DUKE ENERGY FLORIDA Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2014 and 2013 and the Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, 2014 2013 (in millions) Operating Revenues $ 1,116 $ 968 $ Variance 148 Operating Expenses 897 747 150 Operating Income 219 221 (2) 5 8 (3) 49 49 175 180 Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Net Income 67 $ 108 (5) (3) (2) 70 $ 110 $ The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized. Increase over prior period Residential sales General service sales Industrial sales Wholesale power sales Total sales Average number of customers 2014 8.2 % 0.7 6.1 % % 63.8 % 8.0 % 1.2 % Three Months Ended March 31, 2014 as Compared to March 31, 2013 Operating Revenues. The variance was driven primarily by: · An $80 million increase in fuel and capacity revenues primarily due to a higher fuel rate in the current year related to lower NEIL insurance reimbursements and accelerated Crystal River Unit 3 regulatory asset cost recovery in 2014 as allowed by the 2013 Settlement; · A $19 million net increase in base revenues due primarily to the 2014 base rate increase; · A $16 million increase in nuclear cost recovery clause and energy conservation cost recovery clause revenues due to higher recovery rates in the current year; · · A $13 million increase in electric sales (net of fuel revenue) to retail customers due to favorable weather conditions. Heating degree days for the first quarter of 2014 were 3 percent above normal as compared with 16 percent below normal during the same period in 2013; and A $10 million increase in weather-normal sales volumes to retail customers reflecting increased demand. Operating Expenses. The variance was driven primarily by: · · A $79 million increase in depreciation and amortization primarily due to the reduction of the cost of removal component of amortization expense in 2013 as allowed under the 2012 Settlement; and A $65 million increase in fuel used in electric generation and purchased power due to higher sales volume and higher fuel prices. Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rate for the three months ended March 31, 2014 and 2013 was 38.5 percent and 39.1 percent, respectively. 93 PART I DUKE ENERGY OHIO Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2014 and 2013 and the Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, 2014 2013 (in millions) Operating Revenues 763 $ Operating Expenses Operating Loss Variance 16 764 1,357 (17) (1,341) 1 3 2 22 18 4 (1,377) (33) (1,344) (487) $ $ 2,121 Interest Expense Income Tax Benefit Net Loss 747 (1,358) Other Income and Expenses, net Loss Before Income Taxes $ (890) $ (12) (21) (475) (869) $ The following table shows the percent changes in Regulated Utilities' GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized. Increase (decrease) over prior year 2014 Residential sales General service sales Industrial sales Wholesale power sales Total sales Average number of customers 11.2 3.9 2.9 % (11.7) % 4.9 0.8 % % % % Three Months Ended March 31, 2014 as Compared to March 31, 2013 Operating Revenues. The variance was driven primarily by: · A $33 million increase in regulated fuel revenues primarily driven by higher fuel costs and increased sales volumes; · A $23 million increase in retail pricing and rate riders primarily due to 2013 rate increases; · A $10 million increase related to favorable weather conditions; and · A $7 million increase in PJM capacity revenue related to higher average cleared capacity auction pricing. Partially offset by: · · A $49 million decrease in net mark-to-market revenue on non-qualifying power and capacity hedge contracts, consisting of mark-to-market losses of $139 million in 2014 compared to losses of $90 million in 2013; and A $15 million decrease for the coal-fired generation assets driven primarily by lower realized power prices, partially offset by increased volumes. Operating Expenses. The variance was driven primarily by: · A $1,417 million impairment recognized for the Midwest Generation business resulting from the plan to exit that business; and · A $49 million increase in regulated fuel expense driven primarily by higher fuel costs, increased volumes, and higher purchased power expense. Partially offset by: · · A $96 million decrease in net mark-to-market fuel expense on non-qualifying fuel hedge contracts, consisting of mark-to-market gains of $89 million in 2014 compared to losses of $7 million in 2013; and A $12 million decrease in fuel expense for the gas-fired generation assets driven by lower natural gas costs and volumes. Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rate for the three months ended March 31, 2014 and 2013 was 35.4 percent and 37.1 percent, respectively. The decrease in the effective tax rate was primarily due to the first quarter of 2014 impairment of the Midwest Generation business. Matters Impacting Future Results In 2013, a FERC Administrative Law Judge issued an initial decision holding that Duke Energy Ohio is responsible for certain MVP costs, a type of MTEP cost, approved by MISO prior to the date of Duke Energy Ohio’s withdrawal. The initial decision will be reviewed by FERC. If 94 PART I FERC upholds the initial decision, Duke Energy Ohio intends to file an appeal in federal court. If Duke Energy Ohio ultimately is found to be responsible for these costs, a portion of these costs may not be eligible for recovery, resulting in an adverse impact to its financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. 95 PART I DUKE ENERGY INDIANA Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2014 and 2013 and the Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, 2014 2013 (in millions) Operating Revenues $ 845 $ 724 $ Variance 121 Operating Expenses 630 543 87 Operating Income 215 181 34 7 4 3 43 41 2 179 144 35 Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Net Income 113 12 54 66 $ $ 90 23 $ The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized. Increase over prior year Residential sales General service sales Industrial sales Wholesale power sales Total sales Average number of customers 2014 13.8 % 3.6 % 0.2 % 5.1 % 4.3 % 0.7 % Three Months Ended March 31, 2014 as Compared to March 31, 2013 Operating Revenues. The variance was driven primarily by: · A $54 million increase in fuel revenues (including emission allowances) due to an increase in fuel rates as a result of higher fuel and purchased power costs; · A $51 million net increase in rate riders primarily due to updates to the integrated gasification combined cycle (IGCC) rider; · A $10 million increase in weather-normal sales volumes to retail customers (net of fuel revenue) reflecting increased demand; and · A $6 million increase in electric sales (net of fuel revenue) to retail customers due to favorable weather conditions. Operating Expenses. The variance was driven primarily by: · A $46 million increase in fuel costs primarily driven by higher fuel and purchased power costs; · A $26 million increase in depreciation primarily as a result of the Edwardsport IGCC plant being placed into service in the second quarter of 2013; and · A $15 million increase in operation and maintenance primarily due to higher operation and maintenance costs, and increased retail customer services costs, partially offset by lower amortization of certain previously deferred operations and maintenance expenses. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2014 and 2013 was 36.8 percent and 37.5 percent, respectively. Matters Impacting Future Results Duke Energy Indiana is evaluating converting Wabash River Unit 6 to a natural gas-fired unit or retiring the unit earlier than its current estimated useful life. If Duke Energy Indiana elects early retirement of the unit, recovery of remaining book values and associated carrying costs totaling approximately $40 million could be subject to future regulatory approvals and therefore cannot be assured. 96 PART I LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash Duke Energy relies primarily upon cash flows from operations, debt issuances and its existing cash and cash equivalents to fund its domestic liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders. See Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2013 for a summary of primary sources and uses of cash for 2014 – 2016 and a more detailed discussion of each. 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. 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. Duke Energy’s current liabilities frequently exceed current assets resulting from the use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate due to the seasonality of its business. CREDIT FACILITY AND REGISTRATION STATEMENTS Master Credit Facility Summary Duke Energy has a master credit facility with a capacity of $6 billion through December 2018. The Subsidiary Registrants, excluding Progress Energy each have borrowing capacity under the master credit facility up to specified sublimits for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the master credit facility has been reduced to backstop the issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. The table below includes the current borrowing sublimits and available capacity under the master credit facility. Duke Energy (in millions) Facility size (a) $ 6,000 Duke Energy (Parent) $ 2,250 Duke Energy Carolinas $ 1,000 March 31, 2014 Duke Energy Progress $ 750 Duke Energy Florida $ 650 Duke Energy Ohio $ Duke Energy Indiana 650 $ 700 Reduction to backstop issuances Notes payable and commercial paper (b) Outstanding letters of credit Tax-exempt bonds Available capacity (a) (b) $ (1,308) (858) (300) ― ― ― (63) (56) (4) (2) (1) ― ― (240) ― (75) ― ― (84) (81) 4,389 $ 1,336 $ 621 $ 748 $ 649 $ (150) 566 $ 469 Represents the sublimit of each borrower at March 31, 2014. Duke Energy issued $450 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas and Duke Energy Indiana. The balances are classified as long-term borrowings within Long-term Debt in Duke Energy Carolinas' and Duke Energy Indiana’s Condensed Consolidated Balance Sheets. PremierNotes Duke Energy has an effective Form S-3 with the SEC to sell up to $3 billion of variable denomination floating-rate demand notes, called PremierNotes. The Form S-3 states that no more than $1.5 billion of the notes will be outstanding at any particular time. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, are non-transferable and may be redeemed in whole or in part by Duke Energy or at the investor’s option at any time. The balance as of March 31, 2014 and December 31, 2013 was $880 million and $836 million, respectively. The notes are short-term debt obligations of Duke Energy and are reflected as Notes payable and commercial paper on Duke Energy’s Condensed Consolidated Balance Sheets. Shelf Registration In September 2013, Duke Energy filed a Form S-3 with the SEC. Under this Form S-3, which is uncapped, the Duke Energy Registrants, excluding Progress Energy may issue debt and other securities in the future at amounts, prices and with terms to be determined at the time of future offerings. The registration statement also allows for the issuance of common stock by Duke Energy. DEBT MATURITIES The following table shows the significant components of Current maturities of long-term debt on the Condensed Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations, primarily with cash on hand and proceeds from additional borrowings. (in millions) Maturity Date Interest Rate March 31, 2014 Unsecured Debt Duke Energy (Parent) September 2014 3.950 % $ 500 385 Other Current maturities of long-term debt $ 97 885 PART I CASH FLOWS FROM OPERATING ACTIVITIES The relatively stable operating cash flows of Regulated Utilities compose a substantial portion of Duke Energy’s cash flows from operations. Regulated Utilities’ cash flows from operations are primarily driven by sales of electricity and natural gas and costs of operations. Weather conditions, commodity price fluctuations and unanticipated expenses, including unplanned plant outages and storms can affect the timing and level of cash flows from operations. Duke Energy provides the liquidity support for Commercial Power’s coal-fired and gas-fired assets that are dispatched into the PJM wholesale market. Commercial Power has economically hedged a portion of its forecasted generation through 2018 with various counterparties, and a substantial portion of these contracts require daily posting of margin, which can be significant. Duke Energy believes it has sufficient liquidity resources through the commercial paper markets, and ultimately the master credit facility, to support these operations. Cash flows from operations are subject to a number of other factors, including but not limited to regulatory constraints, economic trends and market volatility (see “Item 1A. Risk Factors,” in the Duke Energy Registrants’ Annual Report on Form 10-K for the year ended December 31, 2013 for additional information). At March 31, 2014, Duke Energy had cash and cash equivalents and short-term investments of $1.5 billion, of which $1.2 billion is held by entities domiciled in foreign jurisdictions and is forecasted to be used to fund the operations of and investments in International Energy. Undistributed earnings associated with foreign operations are considered indefinitely reinvested. As a result, no U.S. tax is recorded on such earnings. This assertion is based on management’s determination that the cash held in foreign jurisdictions is not needed to fund Duke Energy’s U.S. operations and that it either has invested or has intentions to reinvest such earnings. While management currently intends to indefinitely reinvest all unremitted foreign earnings, should circumstances change, Duke Energy may need to record additional income tax expense in the period in which such determination changes. The cumulative undistributed earnings as of March 31, 2014, on which Duke Energy has not provided deferred U.S. income taxes and foreign withholding taxes is approximately $2.6 billion. The amount of unrecognized deferred tax liability related to these undistributed earnings is estimated at between $350 million and $425 million. Restrictive Debt Covenants The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. The master credit facility contains a covenant requiring the debtto-total capitalization ratio to not exceed 65 percent for each borrower. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of March 31, 2014, each of the Duke Energy Registrants was in compliance with all covenants related to their significant debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the significant debt or credit agreements contain material adverse change clauses. Credit Ratings Credit ratings are intended to provide credit lenders a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the rating agencies’ assessments of their ability to meet their debt principal and interest obligations when they come due. If, as a result of market conditions or other factors, the Duke Energy Registrants are unable to maintain current balance sheet strength, or if earnings and cash flow outlook materially deteriorates, credit ratings could be negatively impacted. The Duke Energy Registrants’ each hold credit ratings by Fitch Ratings, Inc. (Fitch), Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Rating Services (S&P). The Duke Energy Registrants’ credit ratings from Fitch, Moody’s and S&P have not changed since February 13, 2014, and their outlooks remain stable. Cash Flow Information The following table summarizes Duke Energy’s cash flows. Three Months Ended March 31, (in millions) 2014 2013 Cash flows provided by (used in): Operating activities $ Investing activities 1,373 $ Financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period (57) 246 30 (128) 1,424 1,501 Cash and cash equivalents at end of period $ 1,091 (1,465) (1,286) 1,531 $ 1,296 OPERATING CASH FLOWS The following table summarizes key components of Duke Energy’s operating cash flows. Three Months Ended March 31, 2014 (in millions) Net (loss) income $ Non-cash adjustments to net (loss) income (93) $ (665) (585) Net cash provided by operating activities $ 1,373 $ The variance was driven primarily by: • A $202 million increase in net income after non-cash adjustments, mainly due to increased retail pricing and riders, favorable weather and weather-normal volumes. 98 634 1,122 2,051 Working capital 2013 1,091 PART I INVESTING CASH FLOWS The following table summarizes key components of Duke Energy’s investing cash flows. Three Months Ended March 31, 2014 (in millions) Capital, investment and acquisition expenditures (1,268) $ Available for sale securities, net Proceeds from sales of other assets Other investing items 2013 (1,410) $ 37 (76) 4 20 1 (59) Net cash used in investing activities (1,286) $ (1,465) $ The variance was primarily due to: • A $142 million decrease in capital, investment and acquisition expenditures primarily due to lower spending for expansion and maintenance projects at the Regulated Utilities. FINANCING CASH FLOWS The following table summarizes key components of Duke Energy’s financing cash flows. Three Months Ended March 31, (in millions) 2014 Issuance of common stock related to employee benefit plans 2013 19 $ (Redemption) Issuance of long-term debt, net 5 $ (412) 262 Notes payable and commercial paper 898 627 Dividends paid (553) (542) Other financing items (106) (9) Net cash (used in) provided by financing activities (57) $ 246 $ The variance was due primarily to: • A $674 million decrease in proceeds from net issuances of long-term debt, primarily due to the timing of issuances and redemptions across years. Partially offset by: • A $271 million increase in proceeds from net issuances of notes payable and commercial paper, primarily to fund the short-term working capital needs and • A $96 million prior year payment for the redemption of preferred stock of subsidiaries. Summary of Significant Debt Issuances The following table summarizes the significant debt issuances (in millions). Three Months Ended March 31, 2014 Issuance Date Unsecured Debt Maturity Date Duke Energy (Parent) Interest Rate Duke Energy Progress Duke Energy Florida Duke Energy April 2014 (a) April 2024 3.750 % April 2014 (a) April 2017 0.610 % 400 ― ― 400 March 2017 0.850 % ― ― 225 225 March 2044 4.375 % ― 400 ― 400 March 2017 0.435 % ― 250 ― 225 $ 600 $ ― $ ― $ 600 Secured Debt (b) March 2014 First Mortgage Bonds March 2014 (c) (c) March 2014 Total issuances (a) (b) (c) $ 1,000 $ 650 $ $ 250 1,875 Proceeds will be used to acquire $402 million of tax-exempt bonds at Duke Energy Ohio, the repayment of outstanding commercial paper and for general corporate purposes. Relates to the securitization of accounts receivable at a subsidiary of Duke Energy Florida. Proceeds were used to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes. See Note 12 for further details. Proceeds were used to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes. OTHER ISSUES 99 PART I North Carolina Ash Basins On February 2, 2014, a break in a 48-inch stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the 48-inch stormwater pipe stopping the release of materials into the river. On February 21, 2014, a permanent plug was installed in a 36-inch stormwater pipe beneath the ash basin. Duke Energy Carolinas estimates 30,000 to 39,000 tons of ash and 24 million to 27 million gallons of basin water were released into the river during the event. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for further discussion of Duke Energy’s response to the release. Global Climate Change For other information on global climate change and the potential impacts on Duke Energy, see “Other Issues” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2013. Nuclear Matters For other information on nuclear matters and the potential impacts on Duke Energy, see “Other Issues” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2013. New Accounting Standards See Note 1 to the Condensed Consolidated Financial Statements, “Organization and Basis of Presentation,” for a discussion of the impact of new accounting standards. Off-Balance Sheet Arrangements During the three months ended March 31, 2014, there were no material changes to Duke Energy’s off-balance sheet arrangements. For information on Duke Energy’s offbalance sheet arrangements, see “Off-Balance Sheet Arrangements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2013. Contractual Obligations Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. During the three months ended March 31, 2014, there were no material changes in Duke Energy’s contractual obligations. For an in-depth discussion of Duke Energy’s contractual obligations, see “Contractual Obligations” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2013. Subsequent Events See Note 17 to the Condensed Consolidated Financial Statements, “Subsequent Events,” for a discussion of subsequent events. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During the three months ended March 31, 2014, there were no material changes to Duke Energy’s disclosures about market risk. For an in-depth discussion of Duke Energy’s market risks, see “Management’s Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2013. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s (SEC) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated their effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2014, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance. Changes in Internal Control over Financial Reporting 100 PART I Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31,2014 and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. As a result of continued merger integration efforts, during the first quarter of 2014 Duke Energy integrated several systems including the financial, tax and asset accounting systems as well as the system for human resources functions including payroll. These system changes are a result of an evaluation of the previous systems and related processes to support evolving operational needs, and are not the result of any identified deficiencies in the previous systems. Duke Energy reviewed the implementation effort as well as the impact on Duke Energy’s internal control over financial reporting and where appropriate, made changes to internal controls over financial reporting to address these system changes . 101 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Litigation involving governmental agencies is discussed below. For additional information regarding legal proceedings, including regulatory and environmental matters, see Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies — Litigation” and “Commitments and Contingencies — Environmental.” Brazilian Transmission Fee Assessments On July 16, 2008, Duke Energy International Geracao Paranapanema S.A. (DEIGP) filed a lawsuit in the Brazilian federal court challenging transmission fee assessments imposed under two new resolutions promulgated by the Brazilian electricity regulatory agency (ANEEL) (collectively, the Resolutions). The Resolutions purport to impose additional transmission fees on generation companies located in the State of Sao Paulo for utilization of the electric transmission system. The fees were retroactive to July 1, 2004 and effective through June 30, 2009. The charges were based upon a flat-fee that failed to take into account the locational usage by each generator. DEIGP's additional assessment under these Resolutions amounts to approximately $61 million inclusive of interest through March 2014. Pending resolution of this dispute on the merits, DEIGP deposited the disputed portion of the assessment into a court-monitored escrow, and paid the undisputed portion to the distribution companies. In a decision published on October 2, 2013, the trial court affirmed an additional fine imposed by ANEEL on April 1, 2009 for DEIGP’s failure to pay the disputed portion of the assessment. DEIGP appealed the trial court’s ruling and deposited $10 million into a court-monitored escrow. Brazilian Regulatory Citations In September 2007, the State Environmental Agency of Parana (IAP) assessed seven fines against DEIGP, totaling $14 million for failure to comply with reforestation measures allegedly required by state regulations in Brazil. DEIGP filed administrative appeals with respect to all the fines. Two of the seven fines have been dismissed in favor of DEIGP. A third fine was deposited in the registry of the trial court and is under appeal. The others are pending in administrative and judicial proceedings in Brazil. Additionally, DEIGP was assessed three environmental fines by the Brazilian federal environmental enforcement agency, Brazil Institute of Environment and Renewable Natural Resources (IBAMA), totaling approximately $1 million for improper maintenance of existing reforested areas. DEIGP believes that it has properly maintained all reforested areas and has challenged these assessments. Gibson Notice of Violations Pursuant to Notices of Violation dated June 23, 2011 and July 16, 2013, the EPA has asserted that, on several occasions between August 1, 2008 through March 31, 2013, Duke Energy Indiana’s Gibson steam station violated opacity limits contained in its Title V permit. Duke Energy Indiana expects to enter into a settlement agreement with the EPA in the second quarter of 2014, which would require payment of a civil penalty of $199,000. ITEM 1A. RISK FACTORS In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in the Duke Energy Registrants’ Annual Report on Form 10-K for the year ended December 31, 2013, which could materially affect the Duke Energy Registrants’ financial condition or future results. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ISSUER PURCHASES OF EQUITY SECURITIES FOR THE FIRST QUARTER OF 2014 There were no issuer purchases of equity securities during the first quarter of 2014. 102 PART II ITEM 6. EXHIBITS Exhibits filed herewithin are designed by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**). The Company agrees to furnish upon request to the Commission a copy of any omitted schedules or exhibits upon request on all items designated by a triple asterisk (***). Exhibit Number 4.1 Eighty Second Supplemental Indenture, dated as of March 1, 2014, between the Company and The Bank of New York Mellon (formerly Irving Trust Company) and Tina D. Gonzalez (successor to Frederick G. Herbst) and forms of global notes (incorporated by reference to Exhibit 4.1 to the Form 8-K of Duke Energy Progress, Inc. filed on March 6, 2014, File No. 1-03382). 10.1 Change in Control Agreement between Duke Energy Corporation and Lloyd M. Yates, dated as of April 30, 2014 (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on May 6, 2014, File No. 1-32853). *12 Computation of Ratio of Earnings to Fixed Charges *31.1.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.2 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.3 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.4 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.5 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.6 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.7 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.1 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.3 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.4 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.5 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.6 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.7 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32.1.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.7 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.7 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *101.INS *101.SCH *101.CAL *101.LAB *101.PRE *101.DEF XBRL XBRL XBRL XBRL XBRL XBRL Instance Document Taxonomy Extension Schema Document Taxonomy Calculation Linkbase Document Taxonomy Label Linkbase Document Taxonomy Presentation Linkbase Document Taxonomy Definition Linkbase Document Duke Energy Duke Energy Carolinas Progress Duke Energy Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the Securities and Exchange Commission (SEC), to furnish copies of any or all of such instruments to it. 103 PART II SIGNATURES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. DUKE ENERGY CORPORATION DUKE ENERGY CAROLINAS, LLC PROGRESS ENERGY, INC. DUKE ENERGY PROGRESS, INC. DUKE ENERGY FLORIDA, INC. DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. /S/ STEVEN K. YOUNG Date: May 9, 2014 Steven K. Young Executive Vice President and Chief Financial Officer /S/ BRIAN D. SAVOY Date: May 9, 2014 Brian D. Savoy Vice President, Controller and Chief Accounting Officer 105 @196 JEQELQ KEN m? ?an? EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES – DUKE ENERGY CORPORATION The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines. Three Months Ended March 31, (in millions) Years Ended December 31, 2014 2012 (a) 2013 2011 2010 2009 Earnings as defined for fixed charges calculation Add: Pretax income from continuing operations (b) $ Fixed charges Distributed income of equity investees (257) $ 3,787 $ 2,291 $ 2,297 $ 2,097 $ 1,770 460 1,886 1,510 1,057 1,045 892 34 109 151 149 111 82 Deduct: Preferred dividend requirements of subsidiaries ― ― 3 ― ― ― Interest capitalized 21 214 177 166 168 102 Total earnings $ 216 $ 5,568 $ 3,772 $ 3,337 $ 3,085 $ 2,642 $ 427 $ 1,760 $ 1,420 $ 1,026 $ 1,008 $ 853 Fixed charges: Interest on debt, including capitalized portions Estimate of interest within rental expense 33 126 87 31 37 39 Preferred dividend requirements ― ― 3 ― ― ― Total fixed charges Ratio of earnings to fixed charges Ratio of earnings to fixed charges and preferred dividends combined (c) (a) (b) (c) (d) $ 460 $ 1,886 $ 1,510 $ 1,057 $ 1,045 $ 892 0.5(d) 3.0 2.5 3.2 3.0 3.0 0.5(d) 3.0 2.5 3.2 3.0 3.0 Includes the results of Progress Energy, Inc. beginning on July 2, 2012 Excludes amounts attributable to noncontrolling interests and income or loss from equity investees. For all periods presented, Duke Energy Corporation had no preferred stock outstanding The earnings to fixed charges ratio was negatively impacted by a pre-tax impairment charge of $1,382 million related to the plan to dispose of the Midwest Generation business. @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ LYNN J. GOOD Lynn J. Good Vice Chairman, President and Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.2 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Carolinas, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.3 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Progress Energy, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.4 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Progress, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.5 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Florida, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.6 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Ohio, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.1.7 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Indiana, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.1 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) 2) I have reviewed this quarterly report on Form 10-Q of Duke Energy Carolinas, LLC; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.3 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Progress Energy, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.4 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Progress, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.5 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Florida, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.6 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Ohio, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 31.2.7 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Indiana, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 9, 2014 /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Vice Chairman, President and Chief Executive Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy. /S/ LYNN J. GOOD Lynn J. Good Vice Chairman, President and Chief Executive Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Carolinas, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) (2) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Carolinas. /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Progress Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Progress Energy. /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Progress, Inc. (“Duke Energy Progress”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Progress, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Progress. /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Florida, Inc. (“Duke Energy Florida”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Florida, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Florida. /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.6 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Ohio, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Ohio. /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.1.7 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana. /S/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy. /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Carolinas, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) (2) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Carolinas. /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Progress Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Progress Energy. /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Progress, Inc. (“Duke Energy Progress”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer Controller of Duke Energy Progress, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Progress. /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Florida, Inc. (“Duke Energy Florida”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Florida, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Florida. /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.6 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Ohio, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Ohio. /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 9, 2014 @196 JEQELQ KEN m? ?an? EXHIBIT 32.2.7 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana. /S/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 9, 2014 @196 JEQELQ KEN m? ?an? @196 JEQELQ KEN m? ?an? DUKE 1st Quarter 2014 Statistical Supplement Aug 25 2mm? mum CONTENTS DUKE ENERGY CORPORATION 2 Consolidating Statement of Operations 4 Consolidating Balance Sheet REGULATED UTILITIES 6 Consolidating Segment Income 8 Consolidating Balance Sheet 10 Operating Statistics (Regulated Utilities) 12 Operating Statistics (Duke Energy Carolinas) 14 Operating Statistics (Duke Energy Progress) 16 Operating Statistics (Duke Energy Florida) 18 Operating Statistics (Duke Energy Ohio - Electric) 20 Operating Statistics (Duke Energy Ohio - Gas) 21 Operating Statistics (Duke Energy Indiana) INTERNATIONAL ENERGY 23 Operating Statistics COMMERCIAL POWER 24 Operating Statistics DUKE ENERGY OHIO SUPPLEMENT 25 Consolidating Statement of Operations DUKE ENERGY CORPORATION Consolidating Statement of Operations (Unaudited) (in millions) Operating Revenues Regulated electric (a) Nonregulated electric, natural gas, and other Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges (b) Total operating expenses Gains on Sales of Other Assets and Other, Net Operating Income (Loss) Other Income and Expenses Interest Expense Income (Loss) from Continuing Operations before Income Taxes Income Tax Expense (Benefit) Income (Loss) from Continuing Operations Less: Net Income Attributable to Non-controlling Interest Segment Income (Loss) / Net Expense Income from Discontinued Operations, Net of Tax Net Loss Attributable to Duke Energy Corporation Three Months Ended March 31, 2014 International Commercial Energy Power Other Regulated Utilities $ $ 5,583 222 5,805 2,000 100 1,306 677 343 1 4,427 1 1,379 69 270 1,178 441 737 737 $ $ 382 382 107 16 83 23 2 231 151 57 23 185 51 134 4 130 $ $ 28 421 449 Eliminations/ Adjustments Duke Energy $ (2) $ 27 25 (31) $ (6) (37) 5,578 824 222 6,624 293 6 109 61 12 1,381 1,862 (1,413) 5 15 (1,423) (544) (879) (879) $ 16 38 29 1 84 (59) 7 105 (157) (75) (82) (82) $ (7) (30) (37) (7) (7) - $ 2,000 409 122 1,506 790 358 1,382 6,567 1 58 131 406 (217) (127) (90) 4 (94) (3) (97) $ (a) The amount for Commercial Power is primarily due to stability charge revenues included in Duke Energy Ohio's current Electric Stability Plan (ESP). (b) The amount for Commercial Power relates to the planned disposition of the Midwest Generation business. 2 DUKE ENERGY CORPORATION Consolidating Statement of Operations (Unaudited) (in millions) Operating Revenues Regulated electric (a) Nonregulated electric, natural gas, and other Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas and coal sold Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses Gains on Sales of Other Assets and Other, Net Operating Income (Loss) Other Income and Expenses Interest Expense Income (Loss) from Continuing Operations before Income Taxes Income Tax Expense (Benefit) Income (Loss) from Continuing Operations Less: Net Income (Loss) Attributable to Non-controlling Interest Segment Income(Loss)/Net Expense Income from Discontinued Operations, Net of Tax Net Income Attributable to Duke Energy Corporation Three Months Ended March 31, 2013 International Commercial Energy Power Other Regulated Utilities $ $ 4,874 186 5,060 1,703 76 1,199 536 326 3,840 2 1,222 61 236 1,047 391 656 656 $ $ 392 392 131 17 87 26 2 263 129 33 21 141 42 99 2 97 $ $ 27 425 452 $ 329 11 117 63 13 533 (81) 11 15 (85) (43) (42) (42) $ 16 19 35 Eliminations/ Adjustments Duke Energy $ (28) $ (12) (1) (41) 4,889 824 185 5,898 5 46 36 3 90 (55) 11 95 (139) (60) (79) (2) (77) $ (11) (28) (1) (1) (41) - $ 1,703 454 104 1,421 660 343 4,685 2 1,215 116 367 964 330 634 634 634 $ (a) The amount for Commercial Power is primarily due to stability charge revenues included in Duke Energy Ohio's current Electric Stability Plan (ESP). 3 DUKE ENERGY CORPORATION Consolidating Balance Sheet - Assets (Unaudited) (in millions) Current Assets Cash and cash equivalents Short-term investments Receivables, net Restricted receivables of variable interest entities, net Receivables from affiliated companies Notes receivable from affiliated companies Inventory Assets held for sale Regulatory assets Other Total current assets Investments and Other Assets Investments in equity method unconsolidated affiliates Investments and advances (from) to subsidiaries Nuclear decommissioning trust funds Goodwill Assets held for sale Other Total investments and other assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets Regulated Utilities $ Segment reclassifications, intercompany balances and other adjustments Reportable Segment Assets 100 284 2,161 710 787 2,810 1,068 766 8,686 $ 1,194 6 221 133 78 50 1,682 $ 233 118 12,502 305 16 80 703 13,957 54 43,630 1,139 44,823 79 (17) 328 106 1,207 1,703 250 (10) 64 2,235 138 2,677 92,345 (31,404) 60,941 3,528 (992) 2,536 2,403 (277) 2,126 8,695 102 8,797 101,291 6 6 5,927 71 33 104 6,609 100,097 (863) $ 5,064 5,666 $ 1,598 (846) 752 (943) $ Eliminations/ Adjustments Other 4 $ (26) 38 883 85 4 515 199 1,702 3 (283) 5,231 15,950 1,966 22,867 (1,194) $ March 31, 2014 Commercial Power International Energy $ - $ (14,228) (1,177) (57) (15,462) 1,531 6 597 2,199 2,908 515 1,148 1,661 10,565 (43,320) (1,199) (44,519) 386 5,231 16,342 2,341 3,251 27,551 - 372 42 414 59,946 (59,981) (57,157) 60,157 2,789 Duke Energy $ 176 99,874 (33,519) 66,355 9,138 183 9,321 113,792 $ 113,792 4 DUKE ENERGY CORPORATION Consolidating Balance Sheet - Liabilities and Equity (Unaudited) (in millions) Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Notes payable and commercial paper Taxes accrued Interest accrued Current maturities of long-term debt Liabilities associated with assets held for sale Regulatory liabilities Other Total current liabilities Long-term Debt Notes Payable to Affiliated Companies Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Liabilities associated with assets held for sale Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Equity Total Duke Energy Corporation shareholders' equity Noncontrolling interests Total equity Total Liabilities and Equity Regulated Utilities $ Segment reclassifications, intercompany balances and other adjustments Reportable Segment Liabilities and Equity 1,522 13,155 10 424 358 345 243 1,228 17,285 26,610 450 $ 41 4 52 29 103 86 315 959 - $ 19 63 308 2 1 483 222 63 1,161 948 - 12,710 438 896 4,956 6,068 1,185 26,253 212 1 15 2 72 302 753 29 56 36 116 990 30,693 30,693 101,291 4,289 62 4,351 5,927 3,496 14 3,510 6,609 (1,194) $ March 31, 2014 Commercial Power International Energy 100,097 (863) $ 5,064 $ 5,666 310 $ 986 869 1,737 (55) 96 (46) 299 4,196 10,483 747 (1,823) 344 57 388 (1,034) (943) $ Eliminations/ Adjustments Other $ - $ (14,208) (1,187) (6) (64) (15,465) (1,197) - 45,550 4 45,554 59,946 (43,319) (43,319) (59,981) (57,157) 60,157 2,789 Duke Energy $ 176 1,892 1,737 423 478 885 222 243 1,612 7,492 39,000 11,852 438 1,270 71 4,994 6,125 1,761 26,511 40,709 80 40,789 113,792 - $ 113,792 5 REGULATED UTILITIES Consolidating Segment Income (Unaudited) (in millions) Operating Revenues Regulated electric Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Cost of natural gas Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, Net Operating Income Other Income and Expenses (a) Interest Expense Income from Continuing Operations before Income Taxes Income Tax Expense Segment Income Duke Energy Carolinas, LLC $ $ 2,000 2,000 646 465 242 104 1,457 543 49 101 491 184 307 Three Months Ended March 31, 2014 Duke Energy Duke Energy Duke Energy Florida, Inc. Ohio, Inc. Indiana, Inc. Duke Energy Progress, Inc. $ $ 1,422 1,422 570 368 144 67 1,149 1 274 9 57 226 83 143 $ $ 1,116 1,116 470 203 132 84 1 890 226 5 49 182 70 112 $ $ 339 223 562 124 99 106 55 66 450 112 3 20 95 31 64 $ $ 845 845 339 162 102 23 626 219 7 43 183 67 116 Eliminations/ Adjustments $ $ Regulated Utilities (139) $ (1) (140) 5,583 222 5,805 (149) 1 2 2 (1) (145) 5 (4) 1 6 (5) $ 2,000 100 1,306 677 343 1 4,427 1 1,379 69 270 1,178 441 737 (a) Contains an equity component of allowance for funds used during construction of $22 million for Duke Energy Carolinas. 6 REGULATED UTILITIES Consolidating Segment Income (Unaudited) (in millions) Operating Revenues Regulated electric Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Cost of natural gas Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses Gains on Sales of Other Assets and Other, Net Operating Income Other Income and Expenses (a) Interest Expense Income from Continuing Operations before Income Taxes Income Tax Expense Segment Income Duke Energy Carolinas, LLC $ $ 1,720 1,720 513 422 222 100 1,257 2 465 37 83 419 156 263 Three Months Ended March 31, 2013 Duke Energy Duke Energy Duke Energy Florida, Inc. Ohio, Inc. Indiana, Inc. Duke Energy Progress, Inc. $ $ 1,210 1,210 455 336 137 59 987 223 14 48 189 72 117 $ $ 968 968 405 203 52 79 739 229 8 49 188 73 115 $ $ 306 186 492 103 76 104 49 65 397 95 2 17 80 27 53 $ $ 724 724 293 143 78 22 536 188 4 41 151 57 94 Eliminations/ Adjustments $ $ Regulated Utilities (54) $ (54) 4,874 186 5,060 (66) (9) (2) 1 (76) 22 (4) (2) 20 6 14 $ 1,703 76 1,199 536 326 3,840 2 1,222 61 236 1,047 391 656 (a) Contains an equity component of allowance for funds used during construction of $26 million for Duke Energy Carolinas and $11 million for Duke Energy Progress. 7 REGULATED UTILITIES Consolidating Balance Sheet - Assets (Unaudited) (in millions) Current Assets Cash and cash equivalents Receivables, net Restricted receivables of variable interest entities, net Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other Total current assets Investment and Other Assets Investments in equity method unconsolidated affiliates Investments and advances to subsidiaries Nuclear decommissioning trust funds Goodwill Other Total investments and other assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets Duke Energy Carolinas, LLC $ Segment reclassifications, intercompany balances and other adjustments Reportable Segment Assets 17 114 705 134 337 886 320 226 2,739 Duke Energy Progress, Inc. $ $ 10 35 318 38 110 568 214 83 1,376 $ 38 75 319 83 89 27 35 666 Duke Energy Indiana, Inc. $ 1 (347) 1,569 458 1,681 2 9 761 250 1,022 35,296 (12,125) 23,171 22,477 (8,749) 13,728 13,973 (4,337) 9,636 7,029 (2,196) 4,833 12,578 (3,994) 8,584 1,459 45 1,504 31,355 1,404 35 1,439 19,363 2,711 44 2,755 14,789 426 9 435 6,894 669 25 694 10,623 31,179 (622) $ 18,741 (1) 920 41 960 26 46 141 190 444 178 108 1,133 47 2,900 994 3,941 (176) $ 9 14 538 457 65 823 315 294 2,515 March 31, 2014 Duke Energy Ohio, Inc. Duke Energy Florida, Inc. (134) $ 14,655 6,736 $ 212 212 (158) $ Eliminations/ Adjustments (a) 10,566 - $ 600 (379) 2 14 20 257 9 1 15,030 11 15,051 92,345 (31,404) 60,941 2,026 (56) 1,970 18,267 8,695 102 8,797 101,291 (47) $ 18,220 100 284 2,161 710 787 2,810 1,068 766 8,686 3 (283) 5,231 15,950 1,966 22,867 992 (3) 989 (57) $ Regulated Utilities (1,194) $ 100,097 (a) In addition to the elimination of intercompany balances, amounts include purchase accounting adjustments and restricted receivables related to Cinergy Receivables Company. 8 REGULATED UTILITIES Consolidating Balance Sheet - Liabilities and Equity (Unaudited) (in millions) Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies Taxes accrued Interest accrued Current maturities of long-term debt Regulatory liabilities Other Total current liabilities Long-term Debt Notes Payable to Affiliated Companies Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs Asset retirement obligations Regulatory liabilities Other Total deferred credits and other liabilities Equity Total Liabilities and Equity Duke Energy Carolinas, LLC $ $ 5,757 208 158 1,617 2,601 667 11,008 10,511 31,355 Segment reclassifications, intercompany balances and other adjustments Reportable Segment Liabilities and Equity 540 175 157 136 47 44 348 1,447 8,089 300 Duke Energy Progress, Inc. 31,179 $ 2,658 83 316 1,758 1,792 129 6,736 5,758 19,363 (176) $ 345 297 36 77 6 68 329 1,158 5,711 - Duke Energy Florida, Inc. 18,741 $ 1,834 1 284 829 609 275 3,832 4,782 14,789 (622) $ 311 101 77 66 11 104 406 1,076 5,099 - March 31, 2014 Duke Energy Ohio, Inc. 14,655 197 $ 15 (3) 6 30 197 12 57 511 1,576 1,237 6 32 23 264 69 1,631 3,176 6,894 (134) $ Duke Energy Indiana, Inc. 6,736 $ 1,193 140 107 30 796 45 2,311 4,097 10,623 (158) $ 129 140 51 5 15 84 424 3,641 150 Eliminations/ Adjustments (a) 10,566 - $ 12,567 13 8 (2) 79 4 12,669 2,494 31 (1) 699 6 735 2,369 18,267 (57) $ Regulated Utilities 12,710 438 896 4,956 6,068 1,185 26,253 30,693 101,291 (47) $ 18,220 1,522 13,155 10 424 358 345 243 1,228 17,285 26,610 450 (1,194) $ 100,097 (a) In addition to the elimination of intercompany balances, amounts include purchase accounting adjustments and notes payable related to Cinergy Receivables Company. 9 REGULATED UTILITIES Operating Statistics (Regulated Utilities) (Unaudited) Three Months Ended March 31, 2014 2013 Sources of Electric Energy (GWh) Generated - net output (a): Coal Nuclear Hydro Oil & gas Renewable Energy Total generation (b) (c) Purchased power and net interchange Total sources of energy Less: Line loss and company usage Total GWh Sources 25,665 16,966 813 10,758 3 54,205 7,374 61,579 3,021 58,558 20,919 17,182 970 10,783 3 49,857 7,566 57,423 2,823 54,600 Electric Energy Sales (GWh) (d) Residential General service Industrial Other energy and wholesale Change in unbilled Total GWh Sales 24,193 18,147 12,055 10,057 (584) 63,868 21,734 17,545 11,925 8,649 (206) 59,647 49,595 52,951 49,641 52,948 95 97 Owned MW Capacity Summer Winter (a) Nuclear Capacity Factor (%) (e) (a) Statistics reflect Duke Energy's ownership share of jointly owned stations. (b) Generation by source is reported net of auxiliary power. (c) Purchased Power includes Renewable Energy purchases. (d) Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. (e) Statistics reflect 100% of jointly owned stations. Note: Total GWh Sources will not equal Total GWh Sales. Sources include only Duke Energy Kentucky's regulated generation for all periods. Sales include Duke Energy Ohio's and Duke Energy Kentucky's retail sales. Ohio retail sales are fulfilled through auction purchases under the current ESP. 10 REGULATED UTILITIES Operating Statistics (Regulated Utilities) (Unaudited) Three Months Ended March 31, 2014 2013 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential General service Industrial Other energy and wholesale (a) Change in unbilled Total Revenues Average Number of Customers (in thousands) Residential General service Industrial Other energy and wholesale Total Average Number of Customers $ $ 2,556 $ 1,513 731 656 (40) 5,416 $ 2,170 1,379 671 562 (22) 4,760 6,265 939 18 23 7,245 6,201 932 19 22 7,174 (a) Net of JDA Intercompany sales. 11 REGULATED UTILITIES Operating Statistics (Duke Energy Carolinas) (Unaudited) Three Months Ended March 31, 2014 2013 Sources of Electric Energy (GWh) Generated - net output (a): Coal Nuclear Hydro Oil & gas Renewable Energy Total generation (b) (c) Purchased power and net interchange Total sources of energy Less: Line loss and company usage Total GWh Sources 10,285 11,406 500 1,345 3 23,539 1,515 25,054 1,361 23,693 8,260 11,019 614 2,219 3 22,115 1,441 23,556 1,310 22,246 Electric Energy Sales (GWh) (d) Residential General service Industrial Other energy and wholesale Change in unbilled Total GWh Sales 8,564 6,781 4,914 3,615 (181) 23,693 7,705 6,526 4,811 3,194 10 22,246 19,770 20,496 20,407 21,136 101 99 Owned MW Capacity Summer Winter (a) Nuclear Capacity Factor (%) (e) (a) Statistics reflect Duke Energy Carolinas' ownership share of jointly owned stations. (b) Generation by source is reported net of auxiliary power. (c) Purchased Power includes Renewable Energy purchases. (d) Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. (e) Statistics reflect 100% of jointly owned stations. 12 REGULATED UTILITIES Operating Statistics (Duke Energy Carolinas) (Unaudited) Three Months Ended March 31, 2014 2013 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential General service Industrial Other energy and wholesale Change in unbilled Total Revenues Average Number of Customers (in thousands) Residential General service Industrial Other energy and wholesale Total Average Number of Customers $ $ 883 $ 541 276 240 (14) 1,926 $ 748 502 253 163 (5) 1,661 2,082 340 7 14 2,443 2,062 338 7 14 2,421 13 REGULATED UTILITIES Operating Statistics (Duke Energy Progress) (Unaudited) Three Months Ended March 31, 2014 2013 Sources of Electric Energy (GWh) Generated - net output (a): Coal Nuclear Hydro Oil & gas Total generation (b) (c) Purchased power and net interchange Total sources of energy Less: Line loss and company usage Total GWh Sources 4,877 5,560 254 3,877 14,568 2,279 16,847 686 16,161 3,130 6,163 282 3,567 13,142 2,190 15,332 631 14,701 Electric Energy Sales (GWh) (d) Residential General service Industrial Other energy and wholesale Change in unbilled Total GWh Sales 5,580 3,641 2,381 4,556 3 16,161 4,959 3,482 2,444 3,781 35 14,701 12,221 13,334 12,202 13,240 85 93 Owned MW Capacity Summer Winter (a) Nuclear Capacity Factor (%) (e) (a) Statistics include Duke Energy Progress' ownership share of jointly owned stations. (b) Generation by source is reported net of auxiliary power. (c) Purchased Power includes Renewable Energy purchases. (d) Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. (e) Statistics reflect 100% of jointly owned stations. 14 REGULATED UTILITIES Operating Statistics (Duke Energy Progress) (Unaudited) Three Months Ended March 31, 2014 2013 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential General service Industrial Other energy and wholesale Change in unbilled Total Revenues Average Number of Customers (in thousands) Residential General service Industrial Other energy and wholesale Total Average Number of Customers $ $ 563 315 157 350 1 1,386 1,252 222 4 2 1,480 $ $ 485 294 154 235 3 1,171 1,238 220 4 2 1,464 15 REGULATED UTILITIES Operating Statistics (Duke Energy Florida) (Unaudited) Three Months Ended March 31, 2014 2013 Sources of Electric Energy (GWh) Generated - net output (a): Coal Oil & gas Total generation (b) (c) Purchased power and net interchange Total sources of energy Less: Line loss and company usage Total GWh Sources 2,739 5,269 8,008 1,064 9,072 411 8,661 2,169 4,806 6,975 1,683 8,658 641 8,017 Electric Energy Sales (GWh) (d) Residential General service Industrial Other energy and wholesale Change in unbilled Total GWh Sales 4,051 3,248 801 422 139 8,661 3,744 3,224 755 260 34 8,017 9,072 10,109 9,095 10,191 Owned MW Capacity Summer Winter (a) (a) Statistics reflect Duke Energy Florida's ownership share of jointly owned stations. (b) Generation by source is reported net of auxiliary power. (c) Purchased Power includes Renewable Energy purchases. (d) Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as single amount and not allocated to the respective retail classes. 16 REGULATED UTILITIES Operating Statistics (Duke Energy Florida) (Unaudited) Three Months Ended March 31, 2014 2013 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential General service Industrial Other energy and wholesale Change in unbilled Total Revenues Average Number of Customers (in thousands) Residential General service Industrial Other energy and wholesale Total Average Number of Customers $ $ 560 348 74 113 14 1,109 1,492 191 2 2 1,687 $ $ 466 302 61 130 3 962 1,474 188 2 2 1,666 17 REGULATED UTILITIES Operating Statistics (Duke Energy Ohio - Electric) (Unaudited) Three Months Ended March 31, 2014 2013 Sources of Electric Energy (GWh) Generated - net output (a): Coal (b) Total generation (c) Purchased power and net interchange Total sources of energy Less: Line loss and company usage Total GWh Sources 804 804 475 1,279 110 1,169 943 943 247 1,190 59 1,131 Electric Energy Sales (GWh) (d) Residential General service Industrial Other energy and wholesale Change in unbilled Total GWh Sales 2,779 2,372 1,436 134 (242) 6,479 2,498 2,282 1,396 148 (146) 6,178 1,039 1,141 1,039 1,141 Owned MW Capacity Summer Winter (a) (a) Statistics reflect Duke Energy Ohio's ownership share of jointly owned stations. (b) Generation by source is reported net of auxiliary power. (c) Purchased Power includes Renewable Energy purchases. (d) Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. Note: Total GWh Sources will not equal Total GWh Sales. Sources include only Duke Energy Kentucky's regulated generation for all periods. Sales include Duke Energy Ohio's and Duke Energy Kentucky's retail sales. Ohio retail sales are fulfilled through auction purchases under the current ESP. 18 REGULATED UTILITIES Operating Statistics (Duke Energy Ohio - Electric) (Unaudited) Three Months Ended March 31, 2014 2013 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential General service Industrial Other energy and wholesale Change in unbilled Total Revenues Average Number of Electric Customers (in thousands) Residential General service Industrial Other energy and wholesale Total Average Number of Electric Customers $ $ 204 $ 110 28 10 (14) 338 $ 183 101 25 7 (10) 306 744 86 3 3 836 737 86 3 3 829 19 REGULATED UTILITIES Operating Statistics (Duke Energy Ohio - Gas) (Unaudited) Three Months Ended March 31, 2014 2013 MCF Sales (a) Residential General service Industrial Other energy and wholesale Change in unbilled Total MCF Sales Revenues from Distribution of Gas (in millions) Residential General service Industrial Other energy and wholesale Change in unbilled Total Revenues Average Number of Gas Customers (in thousands) Residential General service Industrial Total Average Number of Gas Customers 23,585,941 13,692,491 2,812,830 6,597,030 (2,467,000) 44,221,292 $ $ 20,044,850 11,648,545 2,407,491 6,154,498 (912,000) 39,343,384 150 $ 65 9 6 (9) 221 $ 126 54 8 4 (6) 186 476 45 2 523 471 45 2 518 (a) Represents non-weather normalized billed sales, with gas delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. 20 REGULATED UTILITIES Operating Statistics (Duke Energy Indiana) (Unaudited) Three Months Ended March 31, 2014 2013 Sources of Electric Energy (GWh) Generated - net output (a): Coal Hydro Gas Total generation (b) (c) Purchased power and net interchange Total sources of energy Less: Line loss and company usage Total GWh Sources 6,977 59 250 7,286 2,041 9,327 453 8,874 6,415 74 193 6,682 2,005 8,687 182 8,505 Electric Energy Sales (GWh) (d) Residential General service Industrial Other energy and wholesale Change in unbilled Total GWh Sales 3,219 2,105 2,523 1,330 (303) 8,874 2,828 2,031 2,519 1,266 (139) 8,505 7,493 7,871 6,898 7,240 Owned MW Capacity Summer Winter (a) (a) Statistics reflect Duke Energy Indiana's ownership share of jointly owned stations. (b) Generation by source is reported net of auxiliary power. (c) Purchased Power includes Renewable Energy purchases. (d) Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as single amount and not allocated to the respective retail classes. 21 REGULATED UTILITIES Operating Statistics (Duke Energy Indiana) (Unaudited) Three Months Ended March 31, 2014 2013 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential General service Industrial Other energy and wholesale Change in unbilled Total Revenues Average Number of Customers (in thousands) Residential General service Industrial Other energy and wholesale Total Average Number of Customers $ $ 346 $ 199 196 82 (27) 796 $ 288 180 178 80 (13) 713 696 100 3 1 800 690 100 3 2 795 22 INTERNATIONAL ENERGY Operating Statistics (Unaudited) Sales, GWh Net proportional megawatt capacity in operation Three Months Ended March 31, 2014 2013 5,421 4,756 4,600 4,584 23 COMMERCIAL POWER Operating Statistics (Unaudited) Three Months Ended March 31, 2014 2013 Generation (GWh) Coal Gas Renewables Actual plant generation Net proportional megawatt capacity in operation 4,711 3,792 1,589 10,092 4,549 3,897 1,405 9,851 7,770 8,094 24 DUKE ENERGY OHIO SUPPLEMENT Consolidating Statement of Operations (Unaudited) (in millions) Operating Revenues Regulated electric (a) Nonregulated electric and other Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas sold Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges (b) Total operating expenses Operating Income (Loss) Other Income and Expenses Interest Expense Income (Loss) before Income Taxes Income Tax Expense (Benefit) Net Income (Loss) Three Months Ended March 31, 2014 Commercial Power Other Regulated Utilities Ohio Transmission & Duke Energy Distribution Kentucky, Inc. $ $ 239 163 402 70 66 72 44 63 315 87 2 16 73 23 50 $ $ 100 60 160 54 33 34 11 3 135 25 1 4 22 8 14 $ $ 28 180 208 139 3 71 36 9 1,417 1,675 (1,467) 2 (1,469) (518) (951) $ $ Duke Energy Ohio - $ (7) (7) (8) 4 (4) (3) (3) (3) $ 367 173 223 763 124 131 102 181 91 75 1,417 2,121 (1,358) 3 22 (1,377) (487) (890) (a) The amount for Commercial Power is primarily due to stability charge revenues included in Duke Energy Ohio's current Electric Stability Plan (ESP). (b) The amount for Commercial Power relates to the planned disposition of the Midwest Generation business. 25 DUKE ENERGY OHIO SUPPLEMENT Consolidating Statement of Operations (Unaudited) (in millions) Operating Revenues Regulated electric (a) Nonregulated electric and other Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas sold Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses Operating Income (Loss) Other Income and Expenses Interest Expense Income (Loss) before Income Taxes Income Tax Expense (Benefit) Net Income (Loss) Three Months Ended March 31, 2013 Commercial Power Other Regulated Utilities Ohio Transmission & Duke Energy Distribution Kentucky, Inc. $ 220 141 361 70 54 76 38 61 299 62 2 13 51 17 34 $ 86 45 131 33 22 28 11 4 98 33 4 29 10 19 $ 27 239 266 251 72 39 7 369 (103) 1 (104) (37) (67) $ Duke Energy Ohio - $ (11) (11) 333 228 186 747 (11) 9 (2) (9) (9) (2) (7) 103 240 76 185 88 72 764 (17) 2 18 (33) (12) (21) (a) The amount for Commercial Power is primarily due to stability charge revenues included in Duke Energy Ohio's current Electric Stability Plan (ESP). 26 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2015 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. 1-32853 DUKE ENERGY CORPORATION 20-2777218 (a Delaware corporation) 550 South Tryon Street Charlotte, North Carolina 28202-1803 704-382-3853 Commission file number 1-4928 Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number Commission file number Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number DUKE ENERGY CAROLINAS, LLC 1-3274 DUKE ENERGY FLORIDA, INC. (a North Carolina limited liability company) 526 South Church Street Charlotte, North Carolina 28202-1803 704-382-3853 56-0205520 1-15929 (a Florida corporation) 299 First Avenue North St. Petersburg, Florida 33701 704-382-3853 59-0247770 1-1232 PROGRESS ENERGY, INC. (a North Carolina corporation) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 704-382-3853 56-2155481 1-3382 DUKE ENERGY OHIO, INC. (an Ohio corporation) 139 East Fourth Street Cincinnati, Ohio 45202 704-382-3853 31-0240030 1-3543 DUKE ENERGY PROGRESS, INC. (a North Carolina corporation) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 704-382-3853 56-0165465 DUKE ENERGY INDIANA, INC. (an Indiana corporation) 1000 East Main Street Plainfield, Indiana 46168 704-382-3853 35-0594457 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Duke Energy Corporation (Duke Energy) Yes x No ¨ Duke Energy Florida, Inc. (Duke Energy Florida) Yes x No ¨ Duke Energy Carolinas, LLC (Duke Energy Carolinas) Yes x No ¨ Duke Energy Ohio, Inc. (Duke Energy Ohio) Yes x No ¨ Progress Energy, Inc. (Progress Energy) Yes x No ¨ Duke Energy Indiana, Inc. (Duke Energy Indiana) Yes x No ¨ Duke Energy Progress, Inc. (Duke Energy Progress) Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Duke Energy Yes x No ¨ Duke Energy Florida Yes x No ¨ Duke Energy Carolinas Yes x No ¨ Duke Energy Ohio Yes x No ¨ Progress Energy Yes x No ¨ Duke Energy Indiana Yes x No ¨ Duke Energy Progress Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Duke Energy Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ Duke Energy Carolinas Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Progress Energy Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Progress Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Florida Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Ohio Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Indiana Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress No x Duke Energy Florida Yes ¨ No x Yes ¨ No x Duke Energy Ohio Yes ¨ No x Yes ¨ No x Duke Energy Indiana Yes ¨ No x Yes ¨ No x Yes ¨ Number of shares of Common Stock outstanding at May 5, 2015: Registrant Description Duke Energy Common Stock, $0.001 par value Duke Energy Carolinas All of the registrant's limited liability company member interests are directly owned by Duke Energy. Progress Energy All of the registrant's common stock is directly owned by Duke Energy. Duke Energy Progress All of the registrant's common stock is indirectly owned by Duke Energy. Duke Energy Florida All of the registrant's common stock is indirectly owned by Duke Energy. Duke Energy Ohio All of the registrant's common stock is indirectly owned by Duke Energy. Duke Energy Indiana All of the registrant's common stock is indirectly owned by Duke Energy. Shares 691,537,400 This combined Form 10-Q is filed separately by seven registrants: Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants. Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q. TABLE OF CONTENTS Cautionary Statement Regarding Forward-Looking Information PART I. FINANCIAL INFORMATION Item 1. Financial Statements Duke Energy Corporation Financial Statements 6 Duke Energy Carolinas, LLC Financial Statements 11 Progress Energy, Inc. Financial Statements 15 Duke Energy Progress, Inc. Financial Statements 19 Duke Energy Florida, Inc. Financial Statements 23 Duke Energy Ohio, Inc. Financial Statements 27 Duke Energy Indiana, Inc. Financial Statements 31 Combined Notes to Condensed Consolidated Financial Statements Note 1 – Organization and Basis of Presentation 35 Note 2 – Acquisitions and Dispositions 38 Note 3 – Business Segments 40 Note 4 – Regulatory Matters 42 Note 5 – Commitments and Contingencies 46 Note 6 – Debt and Credit Facilities 53 Note 7 – Goodwill 55 Note 8 – Related Party Transactions 56 Note 9 – Derivatives and Hedging 57 Note 10 – Investments in Debt and Equity Securities 65 Note 11 – Fair Value Measurements 71 Note 12 – Variable Interest Entities 80 Note 13 – Common Stock 85 Note 14 – Stock-Based Compensation 86 Note 15 – Employee Benefit Plans 86 Note 16 – Income Taxes 89 Note 17 – Subsequent Events 89 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 90 Item 3. Quantitative and Qualitative Disclosures About Market Risk 111 Item 4. Controls and Procedures 111 Item 1. Legal Proceedings 112 Item 1A. Risk Factors 112 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 112 Item 6. Exhibits 113 Signatures 115 PART II. OTHER INFORMATION 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. These forward-looking statements are identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook,” and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to: ◦ State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements or climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices; ◦ The extent and timing of the costs and liabilities relating to the Dan River ash basin release and compliance with current regulations and any future regulatory changes related to the management of coal ash; ◦ The ability to recover eligible costs, including those associated with future significant weather events, and earn an adequate return on investment through the regulatory process; ◦ The costs of decommissioning Crystal River Unit 3 could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process; ◦ Credit ratings of the Duke Energy Registrants may be different from what is expected; ◦ Costs and effects of legal and administrative proceedings, settlements, investigations and claims; ◦ Industrial, commercial and residential growth or decline in service territories or customer bases resulting from customer usage patterns, including energy efficiency efforts and use of alternative energy sources, including self-generation and distributed generation technologies; ◦ Additional competition in electric markets and continued industry consolidation; ◦ Political and regulatory uncertainty in other countries in which Duke Energy conducts business; ◦ The influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts and tornadoes; ◦ The ability to successfully operate electric generating facilities and deliver electricity to customers; ◦ The impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches and other catastrophic events; ◦ The inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks; ◦ The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets; ◦ The results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general economic conditions; ◦ Declines in the market prices of equity and fixed income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans and nuclear decommissioning trust funds; ◦ Construction and development risks associated with the completion of Duke Energy Registrants’ capital investment projects in existing and new generation facilities, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards, as well as the ability to recover costs from customers in a timely manner or at all; ◦ Changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants; ◦ The ability to control operation and maintenance costs; ◦ The level of creditworthiness of counterparties to transactions; ◦ Employee workforce factors, including the potential inability to attract and retain key personnel; ◦ The ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent); ◦ The performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities; ◦ The effect of accounting pronouncements issued periodically by accounting standard-setting bodies; ◦ The impact of potential goodwill impairments; ◦ The ability to reinvest prospective undistributed earnings of foreign subsidiaries or repatriate such earnings on a tax-efficient basis; and ◦ The ability to successfully complete future merger, acquisition or divestiture plans. 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; the Duke Energy Registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise that occur after that date. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DUKE ENERGY CORPORATION Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, (in millions, except per-share amounts) 2015 2014 Operating Revenues Regulated electric $ 5,457 $ 5,550 Nonregulated electric and other 377 Regulated natural gas 231 222 6,065 6,263 Total operating revenues 491 Operating Expenses Fuel used in electric generation and purchased power – regulated 1,941 2,000 Fuel used in electric generation and purchased power – nonregulated 104 136 Cost of natural gas and other 111 116 1,426 1,449 Depreciation and amortization 777 755 Property and other taxes 264 350 Operation, maintenance and other Impairment charges — 96 4,623 4,902 14 1 1,456 1,362 Equity in earnings of unconsolidated affiliates 13 36 Other income and expenses, net 74 95 87 131 Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses Total other income and expenses Interest Expense 403 404 1,140 1,089 Income Tax Expense from Continuing Operations 364 339 Income From Continuing Operations 776 750 91 (843) 867 (93) Income From Continuing Operations Before Income Taxes Income (Loss) From Discontinued Operations, net of tax Net Income (Loss) Less: Net Income Attributable to Noncontrolling Interests Net Income (Loss) Attributable to Duke Energy Corporation 3 4 $ 864 $ (97) Basic $ 1.09 $ 1.05 Diluted $ 1.09 $ 1.05 Basic $ 0.13 $ (1.19) Diluted $ 0.13 $ (1.19) Basic $ 1.22 $ (0.14) Diluted $ 1.22 $ (0.14) Earnings Per Share – Basic and Diluted Income from continuing operations attributable to Duke Energy Corporation common shareholders Income (Loss) from discontinued operations attributable to Duke Energy Corporation common shareholders Net Income (Loss) attributable to Duke Energy Corporation common shareholders Weighted-average shares outstanding Basic 708 706 Diluted 708 706 See Notes to Condensed Consolidated Financial Statements 6 PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2015 Net Income (Loss) $ 867 2014 $ (93) Other Comprehensive (Loss) Income, net of tax Foreign currency translation adjustments (125) 24 Pension and OPEB adjustments (5) (1) Net unrealized losses on cash flow hedges (7) — Reclassification into earnings from cash flow hedges 4 Other Comprehensive (Loss) Income, net of tax Comprehensive Income (Loss) Less: Comprehensive (Loss) Income Attributable to Noncontrolling Interests Comprehensive Income (Loss) Attributable to Duke Energy Corporation See Notes to Condensed Consolidated Financial Statements 7 — (133) 23 734 (70) (1) $ 735 5 $ (75) PART I DUKE ENERGY CORPORATION Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2015 December 31, 2014 ASSETS Current Assets Cash and cash equivalents $ Receivables (net of allowance for doubtful accounts of $16 at March 31, 2015 and $17 at December 31, 2014) 2,821 $ 2,036 750 791 Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $54 at March 31, 2015 and $51 at December 31, 2014) 2,016 1,973 Inventory 3,413 3,459 Assets held for sale 354 364 Regulatory assets 960 1,115 Other Total current assets 2,008 1,837 12,322 11,575 Investments and Other Assets Investments in equity method unconsolidated affiliates Nuclear decommissioning trust funds Goodwill 343 358 5,576 5,546 16,329 16,321 Assets held for sale 2,603 2,642 Other 3,207 3,008 28,058 27,875 Cost 105,692 104,861 Accumulated depreciation and amortization (35,400) (34,824) Total investments and other assets Property, Plant and Equipment Generation facilities to be retired, net Net property, plant and equipment 9 9 70,301 70,046 11,279 11,042 182 171 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 11,461 11,213 $ 122,142 $ 120,709 $ 1,920 $ 2,271 LIABILITIES AND EQUITY Current Liabilities Accounts payable Notes payable and commercial paper 3,790 2,514 Taxes accrued 508 569 Interest accrued 490 418 2,800 2,807 Liabilities associated with assets held for sale 146 262 Regulatory liabilities 235 204 2,014 2,188 11,903 11,233 37,173 37,213 Deferred income taxes 13,914 13,423 Investment tax credits 424 427 1,170 1,145 Current maturities of long-term debt Other Total current liabilities Long-Term Debt Deferred Credits and Other Liabilities Accrued pension and other post-retirement benefit costs Liabilities associated with assets held for sale 26 35 Asset retirement obligations 8,541 8,466 Regulatory liabilities 6,237 6,193 Other 1,667 1,675 31,979 31,364 1 1 Total deferred credits and other liabilities Commitments and Contingencies Equity Common stock, $0.001 par value, 2 billion shares authorized; 708 million and 707 million shares outstanding at March 31, 2015 and December 31, 2014, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss 39,405 2,309 2,012 (672) Total Duke Energy Corporation stockholders' equity (543) 41,051 Noncontrolling interests Total equity Total Liabilities and Equity 39,413 $ See Notes to Condensed Consolidated Financial Statements 8 40,875 36 24 41,087 40,899 122,142 $ 120,709 PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 867 $ (93) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) 883 884 Equity component of AFUDC (42) (28) Gains on sales of other assets (16) Impairment charges — 43 1,382 Deferred income taxes 368 (178) Equity in earnings of unconsolidated affiliates (13) (36) 18 27 (132) — Net realized and unrealized mark-to-market and hedging transactions (47) 45 Receivables (41) 29 57 272 (63) (297) Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans (Increase) decrease in Inventory Other current assets Increase (decrease) in Accounts payable (201) (97) Taxes accrued (63) (175) Other current liabilities (85) (346) Other assets 30 (22) Other liabilities (123) Net cash provided by operating activities 6 1,440 1,373 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (1,411) (1,232) Investment expenditures (14) (36) Acquisitions (29) Purchases of available-for-sale securities — (1,035) Proceeds from sales and maturities of available-for-sale securities (967) 1,069 Net proceeds from the sales of equity investments and other assets Change in restricted cash Other Net cash used in investing activities 1,004 1 4 (36) (27) (1) (32) (1,456) (1,286) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the: Issuance of long-term debt 497 Issuance of common stock related to employee benefit plans Payments for the redemption of long-term debt 19 (403) Proceeds from the issuance of short-term debt with original maturities greater than 90 days 187 Payments for the redemption of short-term debt with original maturities greater than 90 days (643) Notes payable and commercial paper (1,287) — — 1,727 Distributions to noncontrolling interests 898 — Dividends paid (3) (564) Other Net cash provided by (used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 875 15 (553) (15) (6) 801 (57) 785 30 2,036 1,501 $ 2,821 $ 1,531 $ 438 $ 361 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 9 mm Aug 25 2mm? PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements of Changes in Equity (Unaudited) Accumulated Other Comprehensive Loss (in millions) Balance at December 31, 2013 Common Additional Stock Common Paid-in Retained Shares Stock Capital Earnings 706 $ 1 $ 39,365 $ 2,363 Foreign Currency Translation Adjustments Net Losses on Cash Flow Hedges Net Gains on Availablefor-Sale Securities Pension and OPEB Adjustments Common Stockholders' Equity Noncontrolling Interests $ $ $ $ $ $ (307) (40) — (52) 41,330 78 Total Equity $41,408 Net (loss) income — — — (97) — — — — (97) 4 (93) Other comprehensive income (loss) — — — — 23 — — (1) 22 1 23 Common stock issuances, including dividend reinvestment and employee benefits 1 — 7 — — — — — 7 — 7 Common stock dividends — — — — — — — Distributions to noncontrolling interest in subsidiaries — — — — — — — Balance at March 31, 2014 707 $ Balance at December 31, 2014 707 $ (553) — 1 $ 39,372 $ 1,713 $ (284) $ (40) $ 1 $ 39,405 $ 2,012 $ (439) $ (59) $ $ (53) $ 40,709 $ 80 $40,789 3 $ (48) $ 40,875 $ $40,899 3 867 (3) — (5) (129) (4) (133) — — — — (564) — — — — (564) — (564) (3) — — — — (3) 13 10 36 $41,087 Other comprehensive (loss) income — — — — Common stock issuances, including dividend reinvestment and employee benefits 1 — 8 — Common stock dividends — — — Other — — — (a) — 24 864 39,413 $ (3) 864 — 1 $ (3) — — 708 $ — (553) — — Balance at March 31, 2015 — — Net income (a) (553) 2,309 — (121) $ (560) $ (62) $ 3 $ (53) 8 $ 41,051 — $ 8 The $13 million change in Noncontrolling Interests is primarily related to an acquisition of majority interest in a solar company for an insignificant amount of cash consideration. See Notes to Condensed Consolidated Financial Statements 10 PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2015 Operating Revenues $ 1,901 2014 $ 2,000 Operating Expenses Fuel used in electric generation and purchased power 578 658 Operation, maintenance and other 489 487 Depreciation and amortization 249 242 Property and other taxes Total operating expenses Operating Income Other Income and Expenses, net 70 104 1,386 1,491 515 509 42 49 Interest Expense 102 101 Income Before Income Taxes 455 457 Income Tax Expense 163 Net Income $ 292 $ 292 171 $ 286 $ 287 Other Comprehensive Income, net of tax Reclassification into earnings from cash flow hedges — Comprehensive Income See Notes to Condensed Consolidated Financial Statements 11 1 PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2015 December 31, 2014 ASSETS Current Assets Cash and cash equivalents $ 30 $ 13 Receivables (net of allowance for doubtful accounts of $3 at March 31, 2015 and December 31, 2014) 106 129 Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $6 at March 31, 2015 and December 31, 2014) 658 647 Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other Total current assets 91 75 755 150 1,117 1,124 376 399 41 77 3,174 2,614 3,118 3,042 996 959 4,114 4,001 Investments and Other Assets Nuclear decommissioning trust funds Other Total investments and other assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Net property, plant and equipment 37,682 37,372 (12,935) (12,700) 24,747 24,672 2,460 2,465 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 45 42 2,505 2,507 $ 34,540 $ 33,794 $ 504 $ 709 LIABILITIES AND MEMBER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies 204 154 Taxes accrued 129 146 Interest accrued 135 95 Current maturities of long-term debt 506 507 Regulatory liabilities 26 34 398 434 1,902 2,079 8,079 7,584 300 300 Deferred income taxes 5,901 5,812 Investment tax credits 203 204 Accrued pension and other post-retirement benefit costs 109 111 Asset retirement obligations 3,460 3,428 Regulatory liabilities 2,730 2,710 Other Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Other Total deferred credits and other liabilities 640 642 13,043 12,907 11,229 10,937 Commitments and Contingencies Member's Equity Member's equity Accumulated other comprehensive loss (13) Total member's equity Total Liabilities and Member's Equity (13) 11,216 $ 34,540 10,924 $ 33,794 See Notes to Condensed Consolidated Financial Statements 12 mm Aug 25 2mm? PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 292 $ 286 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including amortization of nuclear fuel) 324 309 Equity component of AFUDC (24) (22) Deferred income taxes 113 87 Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans 4 6 (42) — (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions — 3 Receivables 16 11 Receivables from affiliated companies (16) (27) Inventory 7 181 Other current assets 2 (59) Increase (decrease) in Accounts payable Accounts payable to affiliated companies (133) (100) 50 21 Taxes accrued (17) (3) Other current liabilities (27) (26) Other assets 44 14 Other liabilities (17) Net cash provided by operating activities 576 672 Capital expenditures (448) (426) Purchases of available-for-sale securities (643) (584) (9) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other 643 579 (605) (115) 4 Net cash used in investing activities (6) (1,049) (552) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt 496 Distributions to parent — — Other (126) (6) Net cash provided by (used in) financing activities — 490 (126) Net increase (decrease) in cash and cash equivalents 17 (6) Cash and cash equivalents at beginning of period 13 23 Cash and cash equivalents at end of period $ 30 $ 17 $ 102 $ 133 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 13 PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements of Changes in Member's Equity (Unaudited) Accumulated Other Comprehensive Loss Member's Equity (in millions) Balance at December 31, 2013 $ Net income 10,365 — Distributions to parent (126) Balance at March 31, 2014 $ 10,525 Balance at December 31, 2014 $ 10,937 Net income Balance at March 31, 2015 $ 286 Other comprehensive income 11,229 (14) $ — 1 — — — (13) $ (12) $ $ — $ (1) — $ 292 $ Unrealized Losses on Available-forSale Securities Net Losses on Cash Flow Hedges (12) See Notes to Condensed Consolidated Financial Statements 14 Total $ 286 1 (126) (1) $ 10,511 (1) $ 10,924 $ 11,216 — $ 10,350 (1) 292 PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2015 Operating Revenues $ 2,536 2014 $ 2,541 Operating Expenses Fuel used in electric generation and purchased power 1,032 1,043 Operation, maintenance and other 565 595 Depreciation and amortization 287 276 Property and other taxes 111 151 1,995 2,065 8 1 549 477 Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net 27 15 Interest Expense 168 169 Income From Continuing Operations Before Taxes 408 323 Income Tax Expense From Continuing Operations 144 119 Income From Continuing Operations 264 204 Loss From Discontinued Operations, net of tax (1) Net Income (1) 263 Less: Net Income Attributable to Noncontrolling Interest 203 3 1 Net Income Attributable to Parent $ 260 $ 202 Net Income $ 263 $ 203 Other Comprehensive Income (Loss), net of tax Pension and OPEB adjustments 1 1 Net unrealized gain on cash flow hedges — 1 Reclassification into earnings from cash flow hedges (2) — Other Comprehensive (Loss) Income, net of tax (1) 2 Comprehensive Income 262 Less: Comprehensive Income Attributable to Noncontrolling Interests Comprehensive Income Attributable to Parent $ See Notes to Condensed Consolidated Financial Statements 15 205 3 259 1 $ 204 PART I PROGRESS ENERGY, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2015 December 31, 2014 ASSETS Current Assets Cash and cash equivalents $ 44 $ 42 Receivables (net of allowance for doubtful accounts of $7 at March 31, 2015 and $8 at December 31, 2014) 129 129 Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $8 at March 31, 2015 and December 31, 2014) 779 741 Receivables from affiliated companies Notes receivable from affiliated companies Inventory 80 59 178 220 1,543 1,590 Regulatory assets 392 491 Other 793 1,285 3,938 4,557 Nuclear decommissioning trust funds 2,458 2,503 Goodwill 3,655 3,655 Total current assets Investments and Other Assets Other Total investments and other assets 777 670 6,890 6,828 Property, Plant and Equipment Cost Accumulated depreciation and amortization Net property, plant and equipment 39,067 38,650 (13,714) (13,506) 25,353 25,144 5,687 5,408 90 91 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 5,777 5,499 $ 41,958 $ 42,028 $ 667 $ 847 LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies 286 203 Notes payable to affiliated companies 650 835 Taxes accrued 161 114 Interest accrued 203 184 1,564 1,507 Current maturities of long-term debt Regulatory liabilities 125 106 Other 961 1,021 4,617 4,817 12,946 13,247 4,834 4,759 Total current liabilities Long-Term Debt Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs 561 533 Asset retirement obligations 4,738 4,711 Regulatory liabilities 2,413 2,379 Other Total deferred credits and other liabilities 411 406 12,957 12,788 Commitments and Contingencies Common Stockholder's Equity Common stock, $0.01 par value, 100 shares authorized and outstanding at March 31, 2015 and December 31, 2014 — — Additional paid-in capital 7,467 7,467 Retained earnings 4,039 3,782 Accumulated other comprehensive loss Total common stockholder's equity (42) 11,464 (41) 11,208 Noncontrolling interests (26) Total equity Total Liabilities and Common Stockholder's Equity (32) 11,438 $ See Notes to Condensed Consolidated Financial Statements 16 41,958 11,176 $ 42,028 PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 263 $ 203 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) 329 Equity component of AFUDC (14) Gains on sales of other assets and other, net 316 (1) (8) Deferred income taxes (1) 196 Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans 183 (1) 7 (42) — (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions (22) 13 Receivables (66) (45) Receivables from affiliated companies (21) — 47 72 302 (134) Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued (107) (53) 83 114 47 Other current liabilities 3 (10) (116) Other assets (21) (52) Other liabilities (48) Net cash provided by operating activities 907 503 Capital expenditures (563) (475) Purchases of available-for-sale securities (298) (266) (6) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other Net cash used in investing activities 367 269 42 (101) (20) (25) (472) (598) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt — 875 Payments for the redemption of long-term debt (245) (469) Notes payable to affiliated companies (185) (291) Distributions to noncontrolling interests — (3) Other (3) (39) Net cash (used in) provided by financing activities (433) Net increase (decrease) in cash and cash equivalents 73 2 Cash and cash equivalents at beginning of period (22) 42 Cash and cash equivalents at end of period 58 $ 44 $ 36 $ 176 $ 158 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 17 PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements of Changes in Common Stockholder's Equity (Unaudited) Accumulated Other Comprehensive Loss (in millions) Balance at December 31, 2013 Common Stock $ — Additional Paid-in Capital Retained Earnings $ 7,467 $ 3,452 Net Losses on Cash Flow Hedges $ (43) Net Gains on Available for Sale Securities $ — Pension and OPEB Adjustments $ (16) Common Stockholder's Equity $ 10,860 $ Noncontrolling Interests Total Equity 4 $10,864 203 Net income — — 202 — — — 202 1 Other comprehensive income — — — 1 — 1 2 — 2 Distributions to noncontrolling interests — — — — — — — (3) (3) Transfer of service company net assets to Duke Energy — — (542) 3 — — Balance at March 31, 2014 $ — $ 7,467 $ 3,112 $ (39) $ — $ Balance at December 31, 2014 $ — $ $ (35) $ 1 $ (539) — (539) (15) $ 10,525 $ 2 $10,527 (7) $ 11,208 $ (32) $11,176 7,467 $ 3,782 Net income — — 260 Other comprehensive (loss) income — — — (2) — 1 (1) — (1) Other — — (3) — — — (3) 3 — Balance at March 31, 2015 $ — $ 7,467 $ 4,039 — $ (37) — $ 1 $ See Notes to Condensed Consolidated Financial Statements 18 (6) 260 $ 11,464 3 $ (26) 263 $11,438 PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2015 Operating Revenues $ 1,449 2014 $ 1,422 Operating Expenses Fuel used in electric generation and purchased power 575 573 Operation, maintenance and other 375 381 Depreciation and amortization 152 144 Property and other taxes Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income 32 67 1,134 1,165 1 1 316 258 Other Income and Expenses, net 20 9 Interest Expense 60 57 276 210 Income Before Income Taxes Income Tax Expense 93 Net Income and Comprehensive Income $ See Notes to Condensed Consolidated Financial Statements 19 183 77 $ 133 PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2015 December 31, 2014 ASSETS Current Assets Cash and cash equivalents $ Receivables (net of allowance for doubtful accounts of $6 at March 31, 2015 and $7 at December 31, 2014) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $4 at March 31, 2015 and $5 at December 31, 2014) Receivables from affiliated companies 6 $ 9 49 43 479 436 4 10 Notes receivable from affiliated companies 205 237 Inventory 929 966 Regulatory assets 267 287 Other Total current assets 99 384 2,038 2,372 1,738 1,701 Investments and Other Assets Nuclear decommissioning trust funds Other 450 412 2,188 2,113 Cost 24,444 24,207 Accumulated depreciation and amortization (9,162) (9,021) 15,282 15,186 2,857 2,675 34 34 Total investments and other assets Property, Plant and Equipment Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits 2,891 Total Assets 2,709 $ 22,399 $ 22,380 $ 363 $ 481 LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies 183 120 Taxes accrued 61 47 Interest accrued 87 81 702 945 Current maturities of long-term debt Regulatory liabilities Other Total current liabilities Long-Term Debt 80 71 359 409 1,835 2,154 5,255 5,256 2,978 2,908 Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs 287 290 Asset retirement obligations 3,936 3,905 Regulatory liabilities 1,883 1,832 Other 175 168 9,259 9,103 Common stock, no par value, 200 million shares authorized; 160 million shares outstanding at March 31, 2015 and December 31, 2014 2,159 2,159 Retained earnings 3,891 3,708 Total deferred credits and other liabilities Commitments and Contingencies Common Stockholder's Equity Total common stockholder's equity Total Liabilities and Common Stockholder's Equity 6,050 $ See Notes to Condensed Consolidated Financial Statements 20 22,399 5,867 $ 22,380 PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 183 $ 133 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) 193 Equity component of AFUDC (13) Gains on sales of other assets and other, net 183 (2) (1) Deferred income taxes (1) 138 Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans 117 (4) (2) (21) — (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets (4) 6 (92) 10 6 (5) 37 53 170 (183) Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued (52) (37) 63 139 14 — (28) (41) Other assets (2) (13) Other liabilities (23) Net cash provided by operating activities 564 356 Capital expenditures (338) (299) Purchases of available-for-sale securities (149) (151) 144 149 32 (65) Other current liabilities (1) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other Net cash used in investing activities (12) (18) (323) (384) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt — Payments for the redemption of long-term debt 650 (243) Notes payable to affiliated companies — Other (1) Net cash (used in) provided by financing activities (168) (462) (4) (244) Net decrease in cash and cash equivalents 16 (3) Cash and cash equivalents at beginning of period (12) 9 Cash and cash equivalents at end of period 21 $ 6 $ 9 $ 82 $ 116 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 21 PART I DUKE ENERGY PROGRESS, INC. Condensed Consolidated Statements of Changes in Common Stockholder's Equity (Unaudited) Common Stock (in millions) Balance at December 31, 2013 $ Net income 2,159 Retained Earnings $ — 3,466 Total Equity $ 5,625 133 133 Balance at March 31, 2014 $ 2,159 $ 3,599 $ 5,758 Balance at December 31, 2014 $ 2,159 $ 3,708 $ 5,867 Net income Balance at March 31, 2015 — $ See Notes to Condensed Consolidated Financial Statements 22 2,159 183 $ 3,891 183 $ 6,050 PART I DUKE ENERGY FLORIDA, INC. Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2015 Operating Revenues $ 1,086 2014 $ 1,116 Operating Expenses Fuel used in electric generation and purchased power 457 470 Operation, maintenance and other 188 211 Depreciation and amortization 134 132 Property and other taxes Total operating expenses Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense 80 84 859 897 227 219 6 5 49 49 184 175 71 Net Income $ 113 $ 113 67 $ 108 $ 109 Other Comprehensive Income, net of tax Net unrealized gain on cash flow hedges — Comprehensive Income See Notes to Condensed Consolidated Financial Statements 23 1 PART I DUKE ENERGY FLORIDA, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2015 December 31, 2014 ASSETS Current Assets Cash and cash equivalents $ Receivables (net of allowance for doubtful accounts of $2 at March 31, 2015 and December 31, 2014) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $3 at March 31, 2015 and $3 at December 31, 2014) Receivables from affiliated companies 10 $ 8 77 84 301 305 60 40 Inventory 614 623 Regulatory assets 124 203 Other 333 521 1,519 1,784 Nuclear decommissioning trust funds 720 803 Other 270 204 990 1,007 Cost 14,613 14,433 Accumulated depreciation and amortization (4,545) (4,478) 10,068 9,955 2,830 2,733 Total current assets Investments and Other Assets Total investments and other assets Property, Plant and Equipment Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 39 39 2,869 2,772 $ 15,446 $ 15,518 $ 302 $ 365 LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies 85 70 Notes payable to affiliated companies 192 84 Taxes accrued 126 65 Interest accrued 68 47 562 562 Current maturities of long-term debt Regulatory liabilities Other Total current liabilities Long-Term Debt 45 35 577 586 1,957 1,814 4,296 4,298 Deferred Credits and Other Liabilities Deferred income taxes 2,465 2,452 Accrued pension and other post-retirement benefit costs 254 221 Asset retirement obligations 803 806 Regulatory liabilities 529 547 Other 157 158 4,208 4,184 Common Stock, no par; 60 million shares authorized; 100 shares outstanding at March 31, 2015 and December 31, 2014 1,762 1,762 Retained earnings 3,223 3,460 Total deferred credits and other liabilities Commitments and Contingencies Common Stockholder's Equity Total common stockholder's equity Total Liabilities and Common Stockholder's Equity 4,985 $ See Notes to Condensed Consolidated Financial Statements 24 15,446 5,222 $ 15,518 PART I DUKE ENERGY FLORIDA, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 113 $ 108 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 136 133 Equity component of AFUDC (1) — Deferred income taxes 39 60 Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans 1 7 (21) — (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets (20) 5 24 21 (20) (7) 10 20 143 68 Increase (decrease) in Accounts payable (54) 24 Accounts payable to affiliated companies 15 28 Taxes accrued 61 10 Other current liabilities 24 (63) Other assets (17) (36) Other liabilities (29) (13) Net cash provided by operating activities 404 365 Capital expenditures (224) (176) Purchases of available-for-sale securities (149) (115) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of available-for-sale securities 223 Notes receivable from affiliated companies 120 — Other Net cash used in investing activities (110) (7) (8) (157) (289) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt — Payments for the redemption of long-term debt (2) Notes payable to affiliated companies Dividends to parent Other Net cash used in financing activities 225 (1) 108 (181) (350) (124) (1) (1) (245) (82) Net increase (decrease) in cash and cash equivalents 2 (6) Cash and cash equivalents at beginning of period 8 16 Cash and cash equivalents at end of period $ 10 $ 10 $ 94 $ 42 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 25 PART I DUKE ENERGY FLORIDA, INC. Condensed Consolidated Statements of Changes in Common Stockholder's Equity (Unaudited) Accumulated Other Comprehensive Loss Common Stock (in millions) Balance at December 31, 2013 $ 1,762 Retained Earnings $ 3,036 Net Loss on Cash Flow Hedges $ (1) Net income — 108 — Other comprehensive income — — 1 Dividends to parent — (124) Total $ 4,797 108 1 — (124) Balance at March 31, 2014 $ 1,762 $ 3,020 $ — $ 4,782 Balance at December 31, 2014 $ 1,762 $ 3,460 $ — $ 5,222 Net income — 113 — 113 Dividends to parent — (350) — (350) Balance at March 31, 2015 $ 1,762 $ See Notes to Condensed Consolidated Financial Statements 26 3,223 $ — $ 4,985 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2015 2014 Operating Revenues Regulated electric $ Nonregulated electric and other Regulated natural gas Total operating revenues 339 $ 339 14 13 233 223 586 575 Operating Expenses Fuel used in electric generation and purchased power – regulated 115 124 Fuel used in electric generation and purchased power – nonregulated 14 13 Cost of natural gas 97 99 128 127 Depreciation and amortization 57 57 Property and other taxes 70 68 Impairment charges — 94 481 582 6 — Operation, maintenance and other Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income (Loss) 111 Other Income and Expenses, net (7) 3 3 Interest Expense 20 20 Income (Loss) From Continuing Operations Before Income Taxes 94 (24) Income Tax Expense (Benefit) From Continuing Operations 35 (9) Income (Loss) From Continuing Operations 59 (15) Income (Loss) From Discontinued Operations, net of tax Net Income (Loss) and Comprehensive Income (Loss) See Notes to Condensed Consolidated Financial Statements 27 90 $ 149 (875) $ (890) PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2015 December 31, 2014 ASSETS Current Assets Cash and cash equivalents $ 52 $ 20 Receivables (net of allowance for doubtful accounts of $2 at March 31, 2015 and December 31, 2014) 98 93 Receivables from affiliated companies 91 107 40 145 Notes receivable from affiliated companies Inventory 109 97 Assets held for sale 295 316 Regulatory assets 21 49 Other 97 167 803 994 Total current assets Investments and Other Assets Goodwill Assets held for sale Other Total investments and other assets 920 920 2,565 2,605 35 23 3,520 3,548 Property, Plant and Equipment Cost Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment 7,208 7,141 (2,264) (2,213) 9 9 4,953 4,937 512 512 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 8 8 520 520 $ 9,796 $ 9,999 $ 221 $ 209 LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies 123 74 Notes payable to affiliated companies 298 491 Taxes accrued 181 163 Interest accrued 29 19 Current maturities of long-term debt 56 157 Liabilities associated with assets held for sale 129 246 Regulatory liabilities 24 10 Other 64 66 1,125 1,435 1,525 1,584 25 25 1,790 1,765 Accrued pension and other post-retirement benefit costs 48 48 Liabilities associated with assets held for sale 25 34 Asset retirement obligations 26 27 243 241 Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Deferred income taxes Regulatory liabilities Other Total deferred credits and other liabilities 166 166 2,298 2,281 762 762 Commitments and Contingencies Common Stockholder's Equity Common stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at March 31, 2015 and December 31, 2014 Additional paid-in capital 4,782 Accumulated deficit Total common stockholder's equity Total Liabilities and Common Stockholder's Equity 4,782 (721) (870) 4,823 $ See Notes to Condensed Consolidated Financial Statements 28 9,796 4,674 $ 9,999 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 149 $ (890) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 58 Equity component of AFUDC (1) (1) Gains on sales of other assets and other, net (6) — Impairment charges 40 Deferred income taxes 25 Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans 92 1,417 (501) 2 1 (1) — (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions (28) 39 Receivables (8) (16) Receivables from affiliated companies 16 (6) Inventory (3) 29 Other current assets 80 (92) Increase (decrease) in Accounts payable 20 21 Accounts payable to affiliated companies 49 (13) Taxes accrued (4) (38) Other current liabilities 24 (7) Other assets 15 (9) Other liabilities (74) 7 Net cash provided by operating activities 353 33 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (81) (83) Notes receivable from affiliated companies 105 (110) 24 (193) Net cash provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payments for the redemption of long-term debt (151) Notes payable to affiliated companies (193) (1) 263 Dividends to parent — Other (1) — (345) 162 Net cash (used in) provided by financing activities (100) Net increase in cash and cash equivalents 32 2 Cash and cash equivalents at beginning of period 20 36 Cash and cash equivalents at end of period $ 52 $ 38 $ 15 $ 24 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 29 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements of Changes in Common Stockholder's Equity (Unaudited) (in millions) Balance at December 31, 2013 Additional Paid-in Capital Common Stock $ 762 Net loss — Dividends to parent — $ 4,882 Accumulated Deficit $ — (375) Total $ (890) (100) 5,269 (890) — (100) Balance at March 31, 2014 $ 762 $ 4,782 $ (1,265) $ 4,279 Balance at December 31, 2014 $ 762 $ 4,782 $ (870) $ 4,674 $ 762 $ 4,782 $ (721) $ 4,823 Net income Balance at March 31, 2015 — — See Notes to Condensed Consolidated Financial Statements 30 149 149 PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2015 Operating Revenues $ 788 2014 $ 845 Operating Expenses Fuel used in electric generation and purchased power 294 339 Operation, maintenance and other 181 166 Depreciation and amortization 104 102 Property and other taxes (1) Total operating expenses Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense 23 578 630 210 215 5 7 45 43 170 179 62 Net Income $ 108 $ 107 66 $ 113 $ 114 Other Comprehensive (Loss) Income, net of tax Reclassification into earnings from cash flow hedges (1) Comprehensive Income See Notes to Condensed Consolidated Financial Statements 31 1 PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2015 December 31, 2014 ASSETS Current Assets Cash and cash equivalents $ Receivables (net of allowance for doubtful accounts of $1 at March 31, 2015 and December 31, 2014) 16 $ 6 83 87 Receivables from affiliated companies 114 115 Notes receivable from affiliated companies 106 — Inventory 542 537 Regulatory assets 88 93 240 326 1,189 1,164 257 251 257 251 Cost 13,180 13,034 Accumulated depreciation and amortization (4,314) (4,219) 8,866 8,815 686 685 Other Total current assets Investments and Other Assets Other Total investments and other assets Property, Plant and Equipment Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 23 24 709 709 $ 11,021 $ 10,939 $ 173 $ 179 LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies 59 58 Notes payable to affiliated companies — 71 Taxes accrued 67 54 Interest accrued 51 56 Current maturities of long-term debt 5 5 Regulatory liabilities 60 54 Other 88 98 Total current liabilities 503 575 3,636 3,636 150 150 Deferred income taxes 1,656 1,591 Investment tax credits 139 139 Accrued pension and other post-retirement benefit costs 81 82 Asset retirement obligations 33 32 790 796 78 90 2,777 2,730 Long-Term Debt Long-Term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Regulatory liabilities Other Total deferred credits and other liabilities Commitments and Contingencies Common Stockholder's Equity Common Stock, no par; $0.01 stated value, 60,000,000 shares authorized; 53,913,701 shares outstanding at March 31, 2015 and December 31, 2014 1 1 Additional paid-in capital 1,384 1,384 Retained earnings 2,568 2,460 Accumulated other comprehensive income Total common stockholder's equity Total Liabilities and Common Stockholder's Equity $ 2 3 3,955 3,848 11,021 $ 10,939 See Notes to Condensed Consolidated Financial Statements 32 mm Aug 25 2mm? PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 108 $ 113 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 105 Equity component of AFUDC 103 (3) Deferred income taxes (4) 140 Accrued pension and other post-retirement benefit costs (39) 3 4 (9) — Receivables 3 (23) Receivables from affiliated companies 1 10 (5) (10) 9 (41) 21 (36) Contributions to qualified pension plans (Increase) decrease in Inventory Other current assets Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued Other current liabilities 1 12 13 110 6 (6) Other assets (8) (3) Other liabilities (24) 50 Net cash provided by operating activities 361 240 (188) (133) (3) (3) CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities 2 Notes receivable from affiliated companies 3 (106) Other (94) 16 Net cash used in investing activities — (279) (227) CASH FLOWS FROM FINANCING ACTIVITIES Payments for the redemption of long-term debt Notes payable to affiliated companies Other Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period — (1) (71) — (1) (1) (72) (2) 10 11 6 Cash and cash equivalents at end of period 15 $ 16 $ 26 $ 60 $ 32 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 33 PART I DUKE ENERGY INDIANA, INC. Condensed Consolidated Statements of Changes in Common Stockholder's Equity (Unaudited) Accumulated Other Comprehensive Income (in millions) Balance at December 31, 2013 Additional Paid-in Capital Common Stock $ 1 $ 1,384 Retained Earnings $ 2,551 Net Gains on Cash Flow Hedges $ 3 Net income — — 113 — Other comprehensive income — — — 1 Balance at March 31, 2014 $ Balance at December 31, 2014 $ 1 $ 1,384 $ 2,664 $ 1 $ 1,384 $ 2,460 $ Net income — — 108 Other comprehensive loss — — — Balance at March 31, 2015 $ 1 $ 1,384 $ 2,568 See Notes to Condensed Consolidated Financial Statements 34 Total $ 113 1 4 $ 4,053 3 $ 3,848 — 108 (1) $ 3,939 2 (1) $ 3,955 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements (Unaudited) Index to Combined Notes to Condensed Consolidated Financial Statements The unaudited notes to the condensed consolidated financial statements that follow are a combined presentation. The following list indicates the registrants to which the footnotes apply. Applicable Notes Registrant 1 2 3 4 5 6 7 Duke Energy Corporation • • • • • • • Duke Energy Carolinas, LLC • • • • • Progress Energy, Inc. • • • • • • Duke Energy Progress, Inc. • • • • • Duke Energy Florida, Inc. • • • Duke Energy Ohio, Inc. • • Duke Energy Indiana, Inc. • • • 9 10 11 12 13 14 15 16 17 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 8 • 1. ORGANIZATION AND BASIS OF PRESENTATION NATURE OF OPERATIONS AND BASIS OF CONSOLIDATION Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy operates in the United States (U.S.) and Latin America primarily through its direct and indirect subsidiaries. Duke Energy’s subsidiaries include its subsidiary registrants, Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, Inc. (Duke Energy Progress); Duke Energy Florida, Inc. (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio) and Duke Energy Indiana, Inc. (Duke Energy Indiana). When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its six separate subsidiary registrants (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants (Duke Energy Registrants). These Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries where the respective Duke Energy Registrants have control. These Condensed Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC), Public Service Commission of South Carolina (PSCSC), U.S. Nuclear Regulatory Commission (NRC) and FERC. Substantially all of Duke Energy Carolinas’ operations qualify for regulatory accounting. Progress Energy is a public utility holding company headquartered in Raleigh, North Carolina, subject to regulation by the FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Substantially all of Progress Energy’s operations qualify for regulatory accounting. Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC. Substantially all of Duke Energy Progress’ operations qualify for regulatory accounting. Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Florida. Duke Energy Florida is subject to the regulatory provisions of the Florida Public Service Commission (FPSC), NRC and FERC. Substantially all of Duke Energy Florida’s operations qualify for regulatory accounting. Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in portions of Ohio and Kentucky, 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 conducts competitive auctions for retail electricity supply in Ohio whereby the energy price is recovered from retail customers. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky). References herein to Duke Energy Ohio collectively include Duke Energy Ohio and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subject to the regulatory provisions of the Public Utilities Commission of Ohio (PUCO), Kentucky Public Service Commission (KPSC) and FERC. Duke Energy Ohio applied regulatory accounting to a portion of its operations. On April 2, 2015, Duke Energy completed the sale of its nonregulated Midwest generation business, which sold power into wholesale energy markets, to a subsidiary of Dynegy Inc. (Dynegy). See Note 2 for additional information. Substantially all of Duke Energy Ohio’s operations that remain after the sale qualify for regulatory accounting. Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and FERC. Substantially all of Duke Energy Indiana’s operations qualify for regulatory accounting. 35 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) BASIS OF PRESENTATION Duke Energy completed the sale of Duke Energy Ohio's nonregulated Midwest generation business and Duke Energy Retail Sales LLC to Dynegy on April 2, 2015. The results of operations of these businesses have been classified as Discontinued Operations on the Condensed Consolidated Statements of Operations for all periods presented. Duke Energy has elected to present cash flows of discontinued operations combined with cash flows of continuing operations. Unless otherwise noted, the notes to these Condensed Consolidated Financial Statements exclude amounts related to discontinued operations for all periods presented, assets held for sale and liabilities associated with assets held for sale as of March 31, 2015. See Note 2 for additional information. These Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all information and notes required by GAAP in the U.S. for annual financial statements. Since the interim Condensed Consolidated Financial Statements and Notes do not include all information and notes required by GAAP in the U.S. for annual financial statements, the Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and Notes in the Duke Energy Registrants’ combined Annual Report on Form 10-K for the year ended December 31, 2014. The information in these combined notes relate to each of the Duke Energy Registrants as noted in the Index to the Combined Notes to Condensed Consolidated Financial Statements. However, none of the registrants makes any representations as to information related solely to Duke Energy or the subsidiaries of Duke Energy other than itself. These Condensed Consolidated Financial Statements reflect all normal recurring adjustments in the opinion of the respective companies’ management, necessary to fairly present the financial position and results of operations of each of the Duke Energy Registrants. Amounts reported in Duke Energy’s interim Condensed Consolidated Statements of Operations and each of the Subsidiary Registrants’ interim Condensed Consolidated Statements of Operations and Comprehensive Income are not necessarily indicative of amounts expected for the respective annual periods due to effects of seasonal temperature variations on energy consumption, regulatory rulings, timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors. In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation. UNBILLED REVENUE Revenues on sales of electricity and natural gas are recognized when service is provided or the product is delivered. Unbilled revenues are recognized by applying customer billing rates to the estimated volumes of energy delivered but not yet billed. Unbilled revenues can vary significantly from period to period as a result of seasonality, weather, customer usage patterns, customer mix, average price in effect for customer classes and meter reading schedules. Unbilled revenues are included within Receivables and Restricted receivables of variable interest entities on the Condensed Consolidated Balance Sheets as shown in the following table. (in millions) March 31, 2015 Duke Energy $ 710 December 31, 2014 $ 827 Duke Energy Carolinas 257 295 Progress Energy 188 217 Duke Energy Progress 114 135 74 82 Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 1 — 28 27 Additionally, Duke Energy Ohio and Duke Energy Indiana sell, on a revolving basis, nearly all of their retail accounts receivable, including receivables for unbilled revenues, to an affiliate, Cinergy Receivables Company, LLC (CRC), and account for the transfers of receivables as sales. Accordingly, the receivables sold are not reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 12 for further information. These receivables for unbilled revenues are shown in the table below. (in millions) March 31, 2015 Duke Energy Ohio $ Duke Energy Indiana 62 91 36 December 31, 2014 $ 79 112 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) AMOUNTS ATTRIBUTABLE TO CONTROLLING INTERESTS Loss From Discontinued Operations, net of tax presented on the respective Condensed Consolidated Statements of Operations for Duke Energy and Progress Energy, is attributable only to controlling interests for all periods presented. Other comprehensive income reported on the Condensed Consolidated Statements of Changes in Equity for Progress Energy is attributable only to controlling interests for all periods presented. ACCUMULATED OTHER COMPREHENSIVE INCOME For the three months ended March 31, 2015 and 2014, reclassifications out of accumulated other comprehensive income (AOCI) for the Duke Energy Registrants were not material. Changes in AOCI for the Duke Energy Registrants are presented in their respective Condensed Consolidated Statements of Equity. EXCISE TAXES Certain excise taxes levied by state or local governments are required to be paid even if not collected from the customer. These taxes are recognized on a gross basis. Otherwise, excise taxes are accounted for net. Excise taxes recognized on a gross basis are recorded as Operating Revenues and Property and other taxes on the Condensed Consolidated Statements of Operations. The following table provides the amount of excise taxes accounted for on a gross basis. Three Months Ended March 31, (in millions) 2015 Duke Energy $ Duke Energy Carolinas 100 2014 $ 167 9 46 49 77 4 32 Duke Energy Florida 45 45 Duke Energy Ohio 32 34 Duke Energy Indiana 10 10 Progress Energy Duke Energy Progress NEW ACCOUNTING STANDARDS The new accounting standards adopted for 2015 and 2014 had no significant impact on the presentation or results of operations, cash flows or financial position of the Duke Energy Registrants. ASC 205 — Reporting Discontinued Operations. In April 2014, the Financial Accounting Standards Board (FASB) issued revised accounting guidance for reporting discontinued operations. A discontinued operation would be either (i) a component of an entity or a group of components of an entity that represents a separate major line of business or major geographical area of operations that either has been disposed of or is part of a single coordinated plan to be classified as held for sale or (ii) a business that, on acquisition, meets the criteria to be classified as held for sale. For the Duke Energy Registrants, this revised accounting guidance is effective on a prospective basis for interim and annual periods beginning January 1, 2015. Duke Energy has not reported any discontinued operations under the revised accounting guidance. The following new Accounting Standards Updates (ASUs) have been issued, but have not yet been adopted by the Duke Energy Registrants, as of March 31, 2015. ASC 606 — Revenue from Contracts with Customers. In May 2014, the FASB issued revised accounting guidance for revenue recognition from contracts with customers. The core principle of this revised accounting guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update also require disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. For the Duke Energy Registrants, this revised accounting guidance is effective for interim and annual periods beginning January 1, 2017. However, the FASB is considering allowing companies to delay implementation for one year. Duke Energy is currently evaluating requirements, and the ultimate impact of the revised accounting guidance has not yet been determined. ASC 835 — Presentation of Debt Issuance Costs. In April 2015, the FASB issued revised accounting guidance for the presentation of debt issuance costs. The core principle of this revised accounting guidance is that debt issuance costs are not assets, but adjustments to the carrying cost of debt. This revised accounting guidance would be effective retroactively beginning January 1, 2016 for Duke Energy, but can be adopted earlier. Based on the amount of debt issuance costs reported as of December 31, 2014 in the Consolidated Balance Sheets, Duke Energy would record a 37 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) reduction of $137 million in Regulatory Assets and Deferred Debits and Long-Term Debt. Duke Energy is currently evaluating whether implementation will occur prior to the first quarter of 2016. 2. ACQUISITIONS AND DISPOSITIONS ACQUISITIONS Purchase of NCEMPA's Generation On September 5, 2014, Duke Energy Progress executed an agreement to purchase North Carolina Eastern Municipal Power Agency’s (NCEMPA) ownership interests in certain generating assets jointly owned with and operated by Duke Energy Progress. The agreement provides for the acquisition of a total of approximately 700 megawatts (MW) at Brunswick Nuclear Station, Shearon Harris Nuclear Station (Harris), Mayo Steam Station and Roxboro Steam Station. The purchase price for the ownership interest and fuel and spare parts inventory is approximately $1.2 billion. On December 9, 2014, the FERC approved Duke Energy Progress' request to purchase NCEMPA's interests in the generation assets, approved Duke Energy Progress' 30-year wholesale power supply agreement with NCEMPA and approved Duke Energy Progress' inclusion of the acquisition adjustment resulting from the asset purchase in wholesale power formula rates. On December 22, 2014, Duke Energy Progress and NCEMPA filed a request with the NRC to transfer the Brunswick Nuclear Station and Harris operating licenses from NCEMPA to Duke Energy Progress. On April 2, 2015, North Carolina legislation was passed that, among other things, allows Duke Energy Progress to recover its retail investment, including the acquisition adjustment, and operating costs associated with the acquisition through a rider mechanism. On April 13, 2015, Duke Energy Progress and NCEMPA filed a Joint Notice of Transfer and Request for Approval of Certificate of Public Convenience and Necessity (CPCN) with the NCUC, seeking to transfer the CPCN for NCEMPA's ownership interests to Duke Energy Progress. Closing of the transaction is conditioned on approval from the NCUC, the NRC and all municipality members of NCEMPA. The transaction is expected to close by the end of 2015. DISPOSITIONS Midwest Generation Exit Duke Energy, through indirect subsidiaries, completed the sale of the nonregulated Midwest generation business and Duke Energy Retail Sales LLC (Disposal Group) to a subsidiary of Dynegy on April 2, 2015, for approximately $2.8 billion in cash. Prior to the sale, Duke Energy Ohio distributed its indirect ownership interest in the nonregulated Midwest generation business to a subsidiary of Duke Energy Corporation on April 1, 2015. The assets and liabilities of the Disposal Group were included in the Commercial Power segment and are classified as held for sale in Duke Energy's and Duke Energy Ohio's Condensed Consolidated Balance Sheet. The following table presents information related to the Duke Energy Ohio generation plants included in the Disposal Group. Plant Type Primary Fuel Location Total MW Capacity(d) Owned MW Capacity(d) Stuart(a)(c) Fossil Steam Coal OH 2,308 900 39% Zimmer (a) Fossil Steam Coal OH 1,300 605 46.5% Facility Hanging Rock Ownership Interest Combined Cycle Natural Gas OH 1,226 1,226 100% Miami Fort (Units 7 and 8) (b) Fossil Steam Coal OH 1,020 652 64% Conesville(a)(c) Fossil Steam Coal OH 780 312 40% Washington Combined Cycle Natural Gas OH 617 617 100% Fayette Combined Cycle Natural Gas PA 614 614 100% Fossil Steam Coal OH 600 198 33% Lee Combustion Turbine Natural Gas IL 568 568 100% Dick's Creek Combustion Turbine Natural Gas OH 136 136 100% Miami Fort Combustion Turbine Oil OH 56 56 100% 9,225 5,884 Killen(b)(c) Total Midwest Generation (a) (b) (c) (d) Jointly owned with America Electric Power Generation Resources and The Dayton Power & Light Company. Jointly owned with The Dayton Power & Light Company. Facility is not operated by Duke Energy Ohio. Total MW capacity is based on summer capacity. The Disposal Group also includes a retail sales business owned by Duke Energy. The results of operations of the Disposal Group are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. Certain immaterial costs that may be eliminated as a result of the sale have remained in continuing operations. The following table presents the results of discontinued operations. 38 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Duke Energy Three Months Ended March 31, (in millions) 2015 Operating Revenues $ 2014 543 Estimated loss on disposition $ (43) Income (loss) before income taxes $ 368 (1,287) 147 $ (1,303) Income tax expense (benefit) 51 (466) Income (loss) from discontinued operations of the Disposal Group 96 (837) Other, net of tax (a) (5) Income (Loss) from Discontinued Operations, net of tax (a) $ (6) 91 $ (843) Other discontinued operations relates to prior sales of businesses and includes indemnifications provided for certain legal, tax and environmental matters, and foreign currency translation adjustments. Duke Energy Ohio Three Months Ended March 31, (in millions) 2015 Operating Revenues $ 2014 412 Estimated loss on disposition $ (44) Income (loss) before income taxes $ 140 Income tax expense (benefit) $ 50 Income (Loss) from Discontinued Operations, net of tax $ 195 (1,323) (1,354) (479) 90 $ (875) The Duke Energy and Duke Energy Ohio held for sale assets include net pretax impairments of approximately $43 million and $44 million, respectively, for the three months ended March 31, 2015, and approximately $1,287 million and $1,323 million, respectively, for the three months ended March 31, 2014. The impairment was recorded to write down the carrying amount of the assets to the estimated fair value of the business, based on the expected selling price to Dynegy less cost to sell. These losses were included in Income (Loss) from Discontinued Operations, net of tax in the Condensed Consolidated Statements of Operations and Comprehensive Income. The final loss on disposition is not expected to result in a material impact on Duke Energy's or Duke Energy Ohio's operations in the second quarter of 2015. Commercial Power has a revolving credit agreement (RCA) to support the operations of the nonregulated Midwest generation business. Interest expense associated with the RCA has been allocated to discontinued operations. No other interest expense related to corporate level debt has been allocated to discontinued operations. The following table presents the Disposal Group's carrying values in the Condensed Consolidated Balance Sheets' major classes of Assets held for sale and Liabilities associated with assets held for sale. March 31, 2015 Duke Energy Ohio Duke Energy (in millions) Current assets $ 354 $ 295 Investments and other assets 50 45 Property, plant and equipment 2,553 2,520 Total Assets held for sale $ 2,957 $ 2,860 Current liabilities $ 146 $ 129 $ 154 Deferred credits and other liabilities 26 Total Liabilities associated with assets held for sale $ 172 25 Duke Energy Ohio has a power purchase agreement with the Disposal Group for a portion of its standard service offer (SSO) supply requirement through May 2015. Duke Energy will also provide, and receive reimbursement for, transition services provided to Dynegy for a period of up to 12 months. The continuing cash flows are not considered direct cash flows and are not expected to be material. Duke Energy or Duke Energy Ohio will not significantly influence the operations of the Disposal Group during the transition service period. See Notes 4 and 5 for a discussion of contingencies related to the Disposal Group that will be retained by Duke Energy Ohio subsequent to the sale. 39 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) 3. BUSINESS SEGMENTS Duke Energy evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. Certain governance costs are allocated to each segment. In addition, direct interest expense and income taxes are included in segment income. Operating segments are determined based on information used by the chief operating decision-maker in deciding how to allocate resources and evaluate the performance. Products and services are sold between affiliate companies and reportable segments of Duke Energy at cost. Segment assets as presented in the following tables exclude all intercompany assets. DUKE ENERGY Duke Energy has the following reportable operating segments: Regulated Utilities, International Energy and Commercial Power. Regulated Utilities conducts operations primarily through Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana, and the regulated transmission and distribution operations of Duke Energy Ohio. These electric and natural gas operations are subject to the rules and regulations of the FERC, NRC, NCUC, PSCSC, FPSC, PUCO, IURC and KPSC. Substantially all of Regulated Utilities’ operations are regulated and, accordingly, these operations qualify for regulatory accounting treatment. International Energy principally operates and manages power generation facilities and engages in sales and marketing of electric power, natural gas and natural gas liquids outside the U.S. Its activities principally target power generation in Latin America. Additionally, International Energy owns a 25 percent interest in National Methanol Company (NMC), a large regional producer of methyl tertiary butyl ether (MTBE) located in Saudi Arabia. The investment in NMC is accounted for under the equity method of accounting. Commercial Power builds, develops and operates wind and solar renewable generation and energy transmission projects throughout the continental U.S. As discussed in Note 2, Duke Energy completed the sale of Commercial Power's nonregulated Midwest generation business to Dynegy in a transaction that closed on April 2, 2015. The results of operations of the nonregulated Midwest generation business have been classified as Discontinued Operations on the Condensed Consolidated Statements of Operations for all periods presented. Certain costs such as interest and general and administrative expenses previously allocated to the Disposal Group were not reclassified to discontinued operations. As a result of the sale, Commercial Power will no longer qualify as a Duke Energy Ohio reportable operating segment. The remaining assets and related results of operations previously reported in Commercial Power will be presented as Other. The remainder of Duke Energy’s operations is presented as Other. While it is not an operating segment, Other primarily includes unallocated corporate interest expense, certain unallocated corporate costs, Bison Insurance Company Limited (Bison), Duke Energy’s wholly owned, captive insurance subsidiary, and contributions to The Duke Energy Foundation. Three Months Ended March 31, 2015 Regulated Utilities (in millions) Unaffiliated revenues $ Intersegment revenues Total revenues Segment income (loss) (a) 5,713 International Energy $ 10 273 Total Reportable Segments Commercial Power $ 73 — $ — 6,059 Other $ 10 6 Eliminations $ 21 — Consolidated $ 6,065 (31) — $ 5,723 $ 273 $ 73 $ 6,069 $ 27 $ (31) $ 6,065 $ 774 $ 36 $ 1 $ 811 $ (37) $ (1) $ 773 Add back noncontrolling interests component 3 Income from discontinued operations, net of tax 91 Net income Segment assets (a) $ 106,642 $ 4,892 $ 6,202 Other includes after-tax costs to achieve the Progress Energy merger of $13 million. 40 $ 117,736 $ 4,230 $ 176 $ 867 $ 122,142 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Three Months Ended March 31, 2014 Regulated Utilities (in millions) Unaffiliated revenues $ 5,795 Intersegment revenues Total revenues Segment income (loss) (a)(b) International Energy $ 382 10 Total Reportable Segments Commercial Power $ 81 — $ Other 6,258 — $ 10 Eliminations 5 $ 20 — Consolidated $ 6,263 (30) — $ 5,805 $ 382 $ 81 $ 6,268 $ 25 $ (30) $ 6,263 $ 737 $ 130 $ (32) $ 835 $ (87) $ (2) $ 746 Add back noncontrolling interest 4 Loss from discontinued operations, net of tax (843) Net loss (a) (b) $ (93) Commercial Power recorded a pretax impairment charge of $94 million related to Ohio Valley Electric Corporation (OVEC). See Note 12 for additional information. Other includes after-tax costs to achieve the Progress Energy merger of $34 million. DUKE ENERGY OHIO Duke Energy Ohio has two reportable operating segments, Regulated Utilities and Commercial Power. Regulated Utilities transmits and distributes electricity in portions of Ohio and generates, distributes and sells electricity in portions of Kentucky. Regulated Utilities also transports and sells natural gas in portions of Ohio and Northern Kentucky. It conducts operations primarily through Duke Energy Ohio and its wholly owned subsidiary, Duke Energy Kentucky. As discussed in Note 2, Duke Energy completed the sale of Commercial Power's nonregulated Midwest generation business to Dynegy in a transaction that closed on April 2, 2015. The results of operations of the nonregulated Midwest generation business have been classified as Discontinued Operations on the Condensed Consolidated Statements of Operations and Comprehensive Income for all periods presented. Amounts remaining in Commercial Power relate to assets not included in the Disposal Group. Certain costs such as interest and general and administrative expenses previously allocated to the Disposal Group were not reclassified to discontinued operations. As a result of the sale, Commercial Power will no longer qualify as a Duke Energy Ohio reportable operating segment. The remaining assets and related results of operations previously reported in Commercial Power will be presented as Other. The remainder of Duke Energy Ohio’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes certain governance costs allocated by its parent, Duke Energy. See Note 8 for additional information. All of Duke Energy Ohio’s revenues are generated domestically and its long-lived assets are all in the U.S. Three Months Ended March 31, 2015 Regulated Utilities (in millions) Unaffiliated revenues Total revenues Segment income (loss) Total Reportable Segments Commercial Power Other Eliminations Consolidated $ 572 $ 14 $ 586 $ — $ — $ 586 $ 572 $ 14 $ 586 $ — $ — $ 586 $ 70 $ (9) $ 61 $ (2) $ — $ 59 $ 149 $ 9,796 Income from discontinued operations, net of tax 90 Net income Segment assets $ 6,782 $ 2,984 $ 9,766 $ 43 $ (13) Three Months Ended March 31, 2014 Regulated Utilities (in millions) Unaffiliated revenues Total revenues Segment income (loss) (a) Total Reportable Segments Commercial Power Other Eliminations Consolidated $ 562 $ 13 $ 575 $ — $ — $ 575 $ 562 $ 13 $ 575 $ — $ — $ 575 $ 61 $ (74) $ (13) $ (2) $ — $ (15) Loss from discontinued operations, net of tax (875) Net loss (a) $ Commercial Power recorded a pretax impairment charge of $94 million related to OVEC. See Note 12 for additional information. 41 (890) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY CAROLINAS, PROGRESS ENERGY, DUKE ENERGY PROGRESS, DUKE ENERGY FLORIDA AND DUKE ENERGY INDIANA The remaining Subsidiary Registrants each have one reportable operating segment, Regulated Utility, which generates, transmits, distributes and sells electricity. The remainder of each company’s operations is classified as Other. While not considered a reportable segment for any of these companies, Other consists of certain unallocated corporate costs. The following table summarizes the net loss for Other at each of these registrants. Three Months Ended March 31, (in millions) 2015 Duke Energy Carolinas $ Progress Energy (a) (8) 2014 $ (21) (42) (52) Duke Energy Progress (4) (10) Duke Energy Florida (3) (4) Duke Energy Indiana (2) (3) (a) Other for Progress Energy also includes interest expense on corporate debt instruments of $60 million and $63 million for the three months ended March 31, 2015 and 2014, respectively. The respective Regulated Utility operating segments include substantially all of Duke Energy Carolinas’, Progress Energy’s, Duke Energy Progress’, Duke Energy Florida’s and Duke Energy Indiana’s assets at March 31, 2015 and 2014. 4. REGULATORY MATTERS RATE RELATED INFORMATION The NCUC, PSCSC, FPSC, IURC, PUCO and KPSC approve rates for retail electric and natural gas services within their states. The FERC approves rates for electric sales to wholesale customers served under cost-based rates (excluding Ohio and Indiana), as well as sales of transmission service. Duke Energy Carolinas William States Lee Combined Cycle Facility On April 9, 2014, the PSCSC granted Duke Energy Carolinas and North Carolina Electric Membership Corporation (NCEMC) a Certificate of Environmental Compatibility and Public Convenience and Necessity (CECPCN) for the construction and operation of a 750 MW combined cycle natural gas-fired generating plant at Duke Energy Carolinas' existing William States Lee Generating Station in Anderson, South Carolina. On May 16, 2014, Duke Energy Carolinas announced its intention to begin construction in summer 2015 and estimates a cost to build of $600 million for its share of the facility, including allowance for funds used during construction (AFUDC). The project is expected to be commercially available in late 2017. NCEMC will own approximately 13 percent of the project. On July 3, 2014, the South Carolina Coastal Conservation League (SCCCL) and Southern Alliance for Clean Energy (SACE) jointly filed a Notice of Appeal with the Court of Appeals of South Carolina seeking the court's review of the PSCSC's decision. The case has been fully briefed and is pending in the Court of Appeals. Duke Energy Carolinas cannot predict the outcome of this matter. Duke Energy Progress Sutton Black Start Combustion Turbine CPCN On April 15, 2015, Duke Energy Progress filed a CPCN application with the NCUC for approval to construct an 84 MW black start combustion turbine (CT) project at the existing Sutton plant (Sutton Black Start CT Project). The Sutton Black Start CT Project would replace three existing CTs with total capacity of 61 MW with two new 42 MW CT units with black start and fast start capability. In addition to peaking system capacity, the Sutton Black Start CT Project will provide regional black start capability and tertiary backup power services for the Brunswick Nuclear Plant. The NCUC has scheduled an evidentiary hearing on June 22, 2015 and a decision is expected by October 2015. Duke Energy Florida FERC Transmission Return on Equity Complaint Seminole Electric Cooperative, Inc. and Florida Municipal Power Agency filed multiple complaints with the FERC alleging Duke Energy Florida's current rate of return on equity in transmission formula rates of 10.8 percent is unjust and unreasonable. The latest complaint, filed on August 12, 2014, claims the rate of return should be reduced to 8.69 percent. The FERC consolidated all complaints for the purposes of settlement, hearing and decision. The parties are engaged in settlement discussions. The outcome of this matter is not expected to be material. Citrus County Combined Cycle Facility On October 2, 2014, the FPSC granted Duke Energy Florida a Determination of Need for the construction of a 1,640 MW combined cycle natural gas plant in Citrus County, Florida. The facility is expected to be commercially available in 2018 at an estimated cost of $1.5 billion, including AFUDC. Additional environmental and governmental approvals will be sought for the Citrus County project. 42 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Purchase of Osprey Energy Center In December 2014, Duke Energy Florida and Osprey Energy Center, LLC, a wholly owned subsidiary of Calpine Corporation (Calpine), entered into an Asset Purchase and Sale Agreement for the purchase of a 599 MW combined cycle natural gas plant in Auburndale, Florida (Osprey Plant acquisition) for approximately $166 million. Closing is subject to the approval of the FERC, FPSC and the expiration of the Hart Scott Rodino waiting period and is expected to occur by the first quarter of 2017 upon the expiration of an existing Power Purchase Agreement between Calpine and Duke Energy Florida. On January 30, 2015, Duke Energy Florida petitioned the FPSC requesting a determination that the Osprey Plant acquisition or, alternatively, the construction of a 320 MW combustion turbine at its existing Suwannee generating facility with an estimated cost of $197 million is the most cost-effective generation alternative to meet Duke Energy Florida's remaining generation need prior to 2018. A hearing with the FPSC is scheduled for June 2015. On March 13, 2015, Duke Energy Florida made a filing requesting FERC approval of the Osprey Plant acquisition by July 30, 2015. In the FERC proceeding, no protests were filed. Seminole Electric Cooperative intervened to request clarification concerning the transmission facilities to be constructed in connection with the Osprey Plant acquisition. If timely approval of the Osprey Plant acquisition is not received from the FERC, the Suwannee project would be constructed. Duke Energy Ohio 2014 Electric Security Plan In April 2015, the PUCO modified and approved Duke Energy Ohio's proposed ESP, with a three-year term and an effective date of June 1, 2015. The PUCO approved a competitive procurement process for SSO load, a distribution capital investment rider, and a tracking mechanism for incremental distribution expenses caused by major storms. The PUCO order also approved a placeholder tariff for a price stabilization rider, but denied Duke Energy Ohio's specific request to include OVEC in the rider at this time; however, the order allows Duke Energy Ohio to submit additional information to request recovery in the future. On May 4, 2015, Duke Energy Ohio filed an application for rehearing requesting the PUCO to modify or amend certain aspects of the order. 2012 Natural Gas Rate Case On November 13, 2013, the PUCO issued an order approving a settlement among Duke Energy Ohio, the PUCO Staff and intervening parties (the Gas Settlement). The Gas Settlement provided for (i) no increase in base rates for natural gas distribution service and (ii) a return on equity of 9.84 percent. The Gas Settlement provided for a subsequent hearing on Duke Energy Ohio’s request for rider recovery of environmental remediation costs associated with its former manufactured gas plant (MGP) sites. After the conclusion of the evidentiary hearing and briefs, the PUCO authorized Duke Energy Ohio to recover $56 million, excluding carrying costs, of environmental remediation costs. The MGP rider became effective in April 2014 for a five-year period. On March 31, 2014, Duke Energy Ohio filed an application with the PUCO to adjust the MGP rider for investigation and remediation costs incurred in 2013. Certain consumer groups appealed the PUCO’s decision to the Ohio Supreme Court and further asked the court to stay implementation of the PUCO’s order and collections under the MGP rider pending their appeal. The Ohio Supreme Court granted the motion to stay and subsequently required the posting of a bond to effectuate the stay. When the bond was not posted, the PUCO approved Duke Energy Ohio’s request, in January 2015, to reinstate collections under the MGP rider and Duke Energy Ohio resumed billings. Amounts collected prior to the suspension of the rider were immaterial. On March 31, 2015, Duke Energy Ohio filed an application to adjust the MGP rider to recover remediation costs incurred in 2014. Duke Energy Ohio cannot predict the outcome of the appeal of this matter. Regional Transmission Organization (RTO) Realignment Duke Energy Ohio, including Duke Energy Kentucky, transferred control of its transmission assets from Midcontinent Independent System Operator, Inc. (MISO) to PJM Interconnection, LLC (PJM), effective December 31, 2011. On December 22, 2010, the KPSC approved Duke Energy Kentucky’s request to effect the RTO realignment, subject to a commitment not to seek double recovery in a future rate case of the transmission expansion fees that may be charged by MISO and PJM in the same period or overlapping periods. On May 25, 2011, the PUCO approved a settlement between Duke Energy Ohio, Ohio Energy Group, the Office of Ohio Consumers’ Counsel and the PUCO Staff related to Duke Energy Ohio’s recovery of certain costs of the RTO realignment via a non-bypassable rider. Duke Energy Ohio is allowed to recover all MISO Transmission Expansion Planning (MTEP) costs, including but not limited to Multi-Value Project (MVP) costs, directly or indirectly charged to Ohio customers. Duke Energy Ohio also agreed to vigorously defend against any charges for MVP projects from MISO. Upon its exit from MISO on December 31, 2011, Duke Energy Ohio recorded a liability for its exit obligation and share of MTEP costs, excluding MVP. This liability was recorded within Other in Current liabilities and Other in Deferred credits and other liabilities on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. The following table provides a reconciliation of the beginning and ending balances of Duke Energy Ohio’s recorded obligations related to its withdrawal from MISO. As of March 31, 2015, $73 million is recorded as a Regulatory asset on Duke Energy Ohio's Condensed Consolidated Balance Sheets. (in millions) Duke Energy Ohio Provision / Adjustments December 31, 2014 $ 94 43 $ — Cash Reductions $ (1) March 31, 2015 $ 93 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) MVP. MISO approved 17 MVP proposals prior to Duke Energy Ohio’s exit from MISO on December 31, 2011. Construction of these projects is expected to continue through 2020. Costs of these projects, including operating and maintenance costs, property and income taxes, depreciation and an allowed return, are allocated and billed to MISO transmission owners. On December 29, 2011, MISO filed a tariff with the FERC providing for the allocation of MVP costs to a withdrawing owner based on monthly energy usage. The FERC set for hearing (i) whether MISO’s proposed cost allocation methodology to transmission owners who withdrew from MISO prior to January 1, 2012 is consistent with the tariff at the time of their withdrawal from MISO, and, (ii) if not, what the amount of and methodology for calculating any MVP cost responsibility should be. On July 16, 2013, a FERC Administrative Law Judge (ALJ) issued an initial decision. Under this initial decision, Duke Energy Ohio would be liable for MVP costs. Duke Energy Ohio filed exceptions to the initial decision, requesting the FERC overturn the ALJ’s decision. After reviewing the initial decision, along with all exceptions and responses filed by the parties, the FERC will issue a final decision. Duke Energy Ohio fully intends to appeal to the federal court of appeals if the FERC affirms the ALJ’s decision. Duke Energy Ohio cannot predict the outcome of these proceedings. In 2012, MISO estimated Duke Energy Ohio’s MVP obligation over the period from 2012 to 2071 at $2.7 billion, on an undiscounted basis. The estimated obligation is subject to great uncertainty including the ultimate cost of the projects, the annual costs of operations and maintenance, taxes and return over the project lives, the number of years in service for the projects and the allocation to Duke Energy Ohio. Any liability related to the MISO MVP matter attributable to the Disposal Group was not transferred to Dynegy upon the sale of the nonregulated Midwest generation business. FERC Transmission Return on Equity and MTEP Cost Settlement On October 14, 2011, Duke Energy Ohio and Duke Energy Kentucky submitted with the FERC proposed modifications to the PJM Interconnection Open Access Transmission Tariff pertaining to recovery of the transmission revenue requirement as PJM transmission owners. The filing was made in connection with Duke Energy Ohio's and Duke Energy Kentucky's move from MISO to PJM effective January 1, 2012. On April 24, 2012, the FERC issued an order accepting the proposed filing effective January 1, 2012, except that the order denied a request to recover certain costs associated with the move from MISO to PJM without prejudice to the right to submit another filing seeking such recovery and including certain additional evidence, and set the rate of return on equity of 12.38 percent for settlement and hearing. On April 16, 2015, the FERC approved a settlement agreement between Duke Energy Ohio, Duke Energy Kentucky and six PJM transmission customers with load in the Duke Energy Ohio and Duke Energy Kentucky zone. The principal terms of the settlement agreement are that, effective upon the date of FERC approval, (i) the return on equity for wholesale transmission service is reduced to 11.38 percent, (ii) the settling parties agreed not to seek a change in the return on equity that would be effective prior to June 1, 2017 and (iii) Duke Energy Ohio and Duke Energy Kentucky will recover 30 percent of the wholesale portion of costs arising from their obligation to pay any portion of the costs of projects included in any MTEP that was approved prior to the date of Duke Energy Ohio's and Duke Energy Kentucky's integration into PJM. Duke Energy Indiana Edwardsport Integrated Gasification Combined Cycle (IGCC) Plant On November 20, 2007, the IURC granted Duke Energy Indiana a CPCN for the construction of the Edwardsport IGCC power plant. The Citizens Action Coalition of Indiana, Inc., Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc. (collectively, the Joint Intervenors) were intervenors in several matters related to the Edwardsport IGCC Plant. The Edwardsport IGCC plant was placed in commercial operation in June 2013. Costs for the Edwardsport IGCC plant are recovered from retail electric customers via a tracking mechanism, the IGCC rider. Updates to the IGCC rider are filed semi-annually. An order on the eleventh semi-annual IGCC rider is currently pending. The twelfth and thirteenth semi-annual IGCC riders were combined for hearings which were held in February 2015. Issues in this proceeding include whether the IGCC plant was properly declared in service for ratemaking purposes in June 2013 and the operational performance of the plant during its initial ten months of operations. The ninth and tenth semi-annual IGCC rider orders have been appealed by the Joint Intervenors. On August 21, 2014, the Indiana Court of Appeals affirmed the IURC order in the tenth IGCC rider proceeding and on October 29, 2014 denied Joint Intervenors' request for rehearing. The Joint Intervenors requested the Indiana Supreme Court to review the decision, which was denied on April 23, 2015, concluding the appeal. On September 8, 2014, the Indiana Court of Appeals remanded the IURC order in the ninth IGCC rider proceeding back to the IURC for further findings. On February 25, 2015, the IURC issued a new order upholding its prior decision and providing additional detailed findings. Joint Intervenors have appealed this remand order to the Indiana Court of Appeals. On April 2, 2014, the IURC established a subdocket to Duke Energy Indiana’s current fuel adjustment clause proceeding. In this fuel adjustment subdocket, the IURC intends to review underlying causes for net negative generation amounts at the Edwardsport IGCC plant during the period September through November 2013. Duke Energy Indiana contends the net negative generation is related to the consumption of fuel and auxiliary power when the plant was in start-up or off line. In addition to the OUCC, the Duke Energy Indiana Industrial Group, Nucor Steel-Indiana, Steel Dynamics, Inc., and the Joint Intervenors are parties to the subdocket. The IURC has deferred the fuel adjustment subdocket until resolution of the twelfth and thirteenth semi-annual IGCC rider proceedings. In addition, although the IURC approved fuel adjustment clause recovery for the period December 2013 through March 2014, it determined such fuel costs reasonably related to the operational performance of the Edwardsport IGCC plant shall be subject to refund pending the outcome of the twelfth and thirteenth semi-annual IGCC riders. Duke Energy Indiana cannot predict the outcome of the fuel adjustment clause proceedings or pending and future IGCC rider proceedings. 44 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) FERC Transmission Return on Equity Complaint Customer groups have filed with the FERC complaints against MISO and its transmission-owning members, including Duke Energy Indiana, alleging, among other things, that the current base rate of return on equity earned by MISO transmission owners of 12.38 percent is unjust and unreasonable. The latest complaint, filed on February 12, 2015, claims the base rate of return should be reduced to 8.67 percent and requests a consolidation of complaints. On January 5, 2015, the FERC issued an order accepting the MISO transmission owners 0.50 percent adder to the base rate of return on equity based on participation in an RTO subject to it being applied to a return on equity that is shown to be just and reasonable in the pending return on equity complaint. Settlement procedures in the base return on equity proceeding were terminated and a hearing is scheduled for August 17, 2015. Duke Energy Indiana cannot predict the outcome of this matter. Grid Infrastructure Improvement Plan On August 29, 2014, Duke Energy Indiana filed a seven-year grid infrastructure improvement plan with the IURC with an estimated cost of $1.9 billion, focusing on the reliability, integrity and modernization of the transmission and distribution system. If approved, 80 percent of the costs will be recovered through a rate tracker. The remaining 20 percent are subject to deferral and subsequent recovery through future rate case proceedings. Hearings were held in January 2015 and Duke Energy Indiana expects a decision in mid-2015. OTHER REGULATORY MATTERS Atlantic Coast Pipeline On September 2, 2014, Duke Energy, Dominion Resources (Dominion), Piedmont Natural Gas and AGL Resources announced the formation of a company, Atlantic Coast Pipeline, LLC (ACP), to build and own the proposed Atlantic Coast Pipeline (the pipeline), a 550-mile interstate natural gas pipeline. The pipeline is designed to meet the needs identified in requests for proposals by Duke Energy Carolinas, Duke Energy Progress and Piedmont Natural Gas. Dominion will build and operate the pipeline and will own 45 percent. Duke Energy will have a 40 percent ownership interest in ACP through its Commercial Power segment. The remaining share will be owned by Piedmont Natural Gas and AGL Resources. Duke Energy Carolinas and Duke Energy Progress, among others, will be customers of the pipeline. Purchases will be made under several 20-year supply contracts, subject to state regulatory approval. In October 2014, the NCUC and PSCSC approved the Duke Energy Carolinas and Duke Energy Progress requests to enter into certain affiliate agreements, pay compensation to ACP and to grant a waiver of certain Code of Conduct provisions relating to contractual and jurisdictional matters. The project will require FERC approval, which ACP will seek to secure by summer 2016. The estimated in-service date of the pipeline is late 2018. Sabal Trail Transmission, LLC Pipeline On May 4, 2015, Duke Energy acquired a 7.5 percent ownership interest from Spectra Energy in the proposed 500-mile Sabal Trail natural gas pipeline. Spectra Energy will continue to own 59.5 percent of the pipeline and NextEra Energy will own the remaining 33 percent of the pipeline. The pipeline will traverse Alabama, Georgia and Florida to meet rapidly growing demand for natural gas in those states. The primary customers of the pipeline, Duke Energy Florida and Florida Power & Light Company, have each contracted to buy pipeline capacity for 25-year initial terms. The pipeline, scheduled to begin service in 2017, requires federal and other regulatory approvals. NC WARN FERC Complaint On December 16, 2014, NC WARN filed a complaint with the FERC against Duke Energy Carolinas and Duke Energy Progress that alleged (i) Duke Energy Carolinas and Duke Energy Progress manipulated the electricity market by constructing costly and unneeded generation facilities leading to unjust and unreasonable rates; (ii) Duke Energy Carolinas and Duke Energy Progress failed to comply with Order 1000 by not effectively connecting their transmission systems with neighboring utilities which also have excess capacity; (iii) the plans of Duke Energy Carolinas and Duke Energy Progress for unrealistic future growth lead to unnecessary and expensive generating plants; (iv) the FERC should investigate the practices of Duke Energy Carolinas and Duke Energy Progress and the potential benefits of having them enter into a regional transmission organization; and (v) the FERC should force Duke Energy Carolinas and Duke Energy Progress to purchase power from other utilities rather than construct wasteful and redundant power plants. A copy of the complaint was filed with the PSCSC on January 6, 2015. Duke Energy Carolinas and Duke Energy Progress have filed responses requesting dismissal of the complaint with the FERC and the PSCSC. In April 2015, the FERC and the PSCSC issued separate orders dismissing the NC WARN petition. Planned and Potential Coal Plant Retirements The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years), and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in Florida, Ohio and Indiana earlier than their current estimated useful lives. These facilities do not have the requisite emission control equipment, primarily to meet United States Environmental Protection Agency (EPA) regulations recently approved or proposed. 45 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The table below contains the net carrying value of generating facilities planned for retirement or being evaluated for potential retirement included in recent IRPs. Dollar amounts in the table below are included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets. March 31, 2015 Progress Energy(b) Duke Energy Capacity (in MW) 1,704 Remaining net book value (in millions) (a) (a) (b) (c) (d) $ Duke Energy Florida(b) 873 243 $ 120 Duke Energy Ohio (c) 873 $ Duke Energy Indiana(d) 163 120 $ 9 668 $ 114 Included in Property, plant and equipment, net as of March 31, 2015, on the Condensed Consolidated Balance Sheets. Includes Crystal River Units 1 and 2. Includes Miami Fort Unit 6, which is expected to be retired by June 1, 2015. Includes Wabash River Units 2 through 6. Wabash River Unit 6 is being evaluated for potential conversion to natural gas. Duke Energy Indiana committed to retire or convert the Wabash River Units 2 through 5 by June 2018 in conjunction with a settlement agreement associated with the Edwardsport air permit. In addition to evaluations based on the extent facilities are equipped to comply with environmental regulations, Duke Energy continually monitors and evaluates the appropriate generation mix and fuel diversity for its generation fleet when making retirement decisions. Duke Energy Carolinas and Duke Energy Progress are evaluating the potential for coal-fired generating unit retirements with a net carrying value of approximately $110 million and $150 million, respectively, included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets. Duke Energy continues to evaluate the potential need to retire generating facilities earlier than the current estimated useful lives, and plans to seek regulatory recovery, as necessary, for amounts that would not be otherwise recovered when any of these assets are retired. However, such recovery, including recovery of carrying costs on remaining book values, could be subject to future regulatory approvals and therefore cannot be assured. 5. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL Duke Energy is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, and other environmental matters. The Subsidiary Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all of the Duke Energy Registrants. Remediation Activities The Duke Energy Registrants are responsible for environmental remediation at various contaminated sites. These include some properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. These sites are in various stages of investigation, remediation and monitoring. Managed in conjunction with relevant federal, state and local agencies, activities vary with site conditions and locations, remediation requirements, complexity and sharing of responsibility. If remediation activities involve joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for contamination caused by other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Liabilities are recorded when losses become probable and are reasonably estimable. The total costs that may be incurred cannot be estimated because the extent of environmental impact, allocation among potentially responsible parties, remediation alternatives and/or regulatory decisions have not yet been determined. Additional costs associated with remediation activities are likely to be incurred in the future and could be significant. Costs are typically expensed as Operation, maintenance and other in the Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable. The following tables contain information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. Three Months Ended March 31, 2015 (in millions) Balance at beginning of period Duke Energy $ Provisions/adjustments Cash reductions Balance at end of period Duke Energy Carolinas $ 97 $ 10 Progress Energy $ 17 Duke Energy Progress $ 5 Duke Energy Florida $ 12 Duke Energy Ohio $ 54 Duke Energy Indiana $ 10 2 — — — — 1 2 (3) — — — — (1) (1) 96 $ 10 $ 17 46 $ 5 $ 12 $ 54 $ 11 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Three Months Ended March 31, 2014 (in millions) Balance at beginning of period Duke Energy $ Provisions/adjustments Cash reductions Balance at end of period Duke Energy Carolinas $ 79 $ 11 Progress Energy $ 27 Duke Energy Progress $ 8 Duke Energy Florida $ 19 Duke Energy Ohio $ 27 Duke Energy Indiana $ 7 3 — 3 2 1 — — (1) — (1) — (1) — — 81 $ 11 $ 29 $ 10 $ 19 $ 27 $ 7 Additional losses in excess of recorded reserves that could be incurred for the stages of investigation, remediation and monitoring for environmental sites that have been evaluated at this time are presented in the table below. (in millions) Duke Energy $ 89 Duke Energy Carolinas 25 Progress Energy 15 Duke Energy Progress 1 Duke Energy Florida 14 Duke Energy Ohio 42 Duke Energy Indiana 7 North Carolina and South Carolina Ash Basins On February 2, 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the river. Duke Energy Carolinas estimates 30,000 to 39,000 tons of ash and 24 million to 27 million gallons of basin water were released into the river. In July 2014, Duke Energy completed remediation work identified by the EPA and continues to cooperate with the EPA's civil enforcement process. Total repairs and remediation expenses incurred by Duke Energy Carolinas related to the release were approximately $24 million. No additional expenses were recorded in the first quarter of 2015. Duke Energy Carolinas will not seek recovery of these costs from ratepayers. See the "Litigation" section below for additional information on litigation, investigations and enforcement actions related to ash basins, including the Memorandum of Plea Agreement (Plea Agreements) in connection to the North Carolina Ash Basin Grand Jury Investigation. Other costs related to the Dan River release, including pending or future state or federal civil enforcement proceedings, future regulatory directives, natural resources damages, additional pending litigation, future claims or litigation, and long-term environmental impact costs cannot be reasonably estimated at this time. On September 20, 2014, the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) became law. The Coal Ash Act (i) establishes a Coal Ash Management Commission (Coal Ash Commission) to oversee handling of coal ash within the state; (ii) prohibits construction of new and expansion of existing ash impoundments and use of existing impoundments at retired facilities; (iii) requires closure of ash impoundments at Duke Energy Progress' Asheville and Sutton stations and Duke Energy Carolinas' Riverbend and Dan River stations no later than August 1, 2019; (iv) requires dry disposal of fly ash at active plants not retired by December 31, 2018; (v) requires dry disposal of bottom ash at active plants by December 31, 2019, or retirement of active plants; (vi) requires all remaining ash impoundments in North Carolina to be categorized as highrisk, intermediate-risk or low-risk no later than December 31, 2015 by the North Carolina Department of Environment and Natural Resources (DENR) with the method of closure and timing to be based upon the assigned risk, with closure no later than December 31, 2029; (vii) establishes requirements to deal with groundwater and surface water impacts from impoundments; and (viii) enhances the level of regulation for structural fills utilizing coal ash. The Coal Ash Act includes a variance procedure for compliance deadlines and modification of requirements regarding structural fills and compliance boundaries. Provisions of the Coal Ash Act prohibit cost recovery for unlawful discharge of ash basin waters occurring after January 1, 2014. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of coal combustion residual (CCR) surface impoundments (ash basins or impoundments) to the normal ratemaking processes before utility regulatory commissions. Duke Energy has and will periodically submit to DENR site-specific coal ash impoundment closure plans. These plans and all associated permits must be approved by DENR before any excavation work can begin. In September 2014, Duke Energy Carolinas executed a consent agreement with the South Carolina Department of Health and Environmental Control (SCDHEC) requiring the excavation of an inactive ash basin and ash fill area at the W.S. Lee Steam Station. As part of this agreement, in December 2014, Duke Energy Carolinas filed an ash removal plan and schedule with SCDHEC. Asset retirement obligations are recorded on the Duke Energy Carolinas and Duke Energy Progress Condensed Consolidated Balance Sheets at March 31, 2015 based upon the legal obligation for closure of coal ash basins and the disposal of related ash as a result of the Coal Ash Act and the agreement with SCDHEC. 47 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Coal Combustion Residuals On April 17, 2015, the EPA published in the Federal Registry a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation classifies CCR as nonhazardous waste under the Resource Conservation and Recovery Act. The regulation applies to all new and existing landfills, new and existing surface impoundments, structural fills and CCR piles. The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. Duke Energy records an asset retirement obligation when it has a legal obligation to incur retirement costs associated with the retirement of a long-lived asset and the obligation can be reasonably estimated. Duke Energy Registrants impacted by the rule will record additional asset retirement obligation amounts in the second quarter of 2015. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. LITIGATION Duke Energy Ash Basin Shareholder Derivative Litigation Five shareholder derivative lawsuits were filed in Delaware Chancery Court relating to the release at Dan River and to the management of Duke Energy’s ash basins. On October 31, 2014, the five lawsuits were consolidated in a single proceeding titled "In Re Duke Energy Corporation Coal Ash Derivative Litigation." On December 2, 2014, plaintiffs filed a Corrected Verified Consolidated Shareholder Derivative Complaint (Consolidated Complaint). The Consolidated Complaint names as defendants several current and former Duke Energy officers and directors (collectively, the “Duke Energy Defendants”). Duke Energy is named as a nominal defendant. The Consolidated Complaint alleges the Duke Energy Defendants breached their fiduciary duties to the company by failing to adequately oversee Duke Energy’s ash basins and that these breaches of fiduciary duty may have contributed to the incident at Dan River and continued thereafter. The lawsuit also asserts claims against the Duke Energy Defendants for corporate waste (relating to the money Duke Energy has spent and will spend as a result of the fines, penalties and coal ash removal) and unjust enrichment (relating to the compensation and director remuneration that was received despite these alleged breaches of fiduciary duty). The lawsuit seeks both injunctive relief against Duke Energy and restitution from the Duke Energy Defendants. On January 21, 2015, the Duke Energy Defendants filed a Motion to Stay and an alternative Motion to Dismiss. On March 5, 2015, shareholder Judy Mesirov filed a shareholder derivative complaint (Mesirov Complaint) in North Carolina state court. The lawsuit, styled Mesirov v. Good, is similar to the consolidated derivative action pending in Delaware Chancery Court and was filed against the same current directors and former directors and officers as the Delaware litigation. Duke Energy Corporation, Duke Energy Progress and Duke Energy Carolinas are named as nominal defendants. The Mesirov Complaint alleges that the Duke Energy Board of Directors was aware of Clean Water Act (CWA) compliance issues and failures to maintain structures in ash basins, but that the Board of Directors did not require Duke Energy Carolinas and Duke Energy Progress to take action to remedy deficiencies. The Mesirov Complaint further alleges that the Board of Directors sanctioned activities to avoid compliance with the law by allowing improper influence of DENR to minimize regulation and by opposing previously anticipated citizen suit litigation. The Mesirov Complaint seeks corporate governance reforms and damages relating to costs associated with the Dan River release, remediation of ash basins that are out of compliance with the CWA and defending and payment of fines, penalties and settlements relating to criminal and civil investigations and lawsuits. In addition to the above derivative complaints, Duke Energy has also received two shareholder litigation demand letters. On May 28, 2014, Duke Energy received a shareholder litigation demand letter sent on behalf of shareholder Mitchell Pinsly. The letter alleges that the members of the Board of Directors and certain officers breached their fiduciary duties by allowing the company to illegally dispose of and store coal ash pollutants. The letter demands that the Board of Directors take action to recover damages associated with those breaches of fiduciary duty; otherwise, the attorney will file a shareholder derivative action. By letter dated July 3, 2014, counsel for the shareholder was informed that the Board of Directors appointed a Demand Review Committee to evaluate the allegations in the Demand Letter. On March 24, 2015, Duke Energy received a shareholder litigation demand letter sent on behalf of shareholder Saul Bresalier. The letter alleges that the members of the Board of Directors and certain officers breached their fiduciary duties in their management of the company's environmental practices, as well as in their decision-making relating to the leadership changes following the close of the Progress Energy merger in July 2012. The letter demands that the Board of Directors take action to recover damages associated with those alleged breaches of fiduciary duty; otherwise, the attorney will file a shareholder derivative action. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with these matters. 48 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Progress Energy Merger Shareholder Litigation Duke Energy, the eleven members of the Board of Directors who were also members of the pre-merger Board of Directors (Legacy Duke Energy Directors) and certain Duke Energy officers are defendants in a purported securities class action lawsuit (Nieman v. Duke Energy Corporation, et al). This lawsuit consolidates three lawsuits originally filed in July 2012, and is pending in the United States District Court for the Western District of North Carolina. The plaintiffs allege federal Securities Act and Exchange Act claims based on allegations of materially false and misleading representations and omissions in the Registration Statement filed on July 7, 2011, and purportedly incorporated into other documents, all in connection with the post-merger change in Chief Executive Officer (CEO). On August 15, 2014, the parties reached an agreement in principle to settle the litigation for an amount which, net of the expected proceeds of insurance policies, is not anticipated to have a material effect on the results of operations, cash flows or financial position of Duke Energy. On March 10, 2015, the parties filed a Stipulation of Settlement and a Motion for Preliminary Approval of the Settlement. The court issued an order for preliminary approval of the settlement on March 25, 2015. Notice has been sent to members of the class and a final approval hearing is expected to occur in the second half of 2015. On May 31, 2013, the Delaware Chancery Court consolidated four shareholder derivative lawsuits filed in 2012. The Court also appointed a lead plaintiff and counsel for plaintiffs and designated the case as In Re Duke Energy Corporation Derivative Litigation. The lawsuit names as defendants the Legacy Duke Energy Directors. Duke Energy is named as a nominal defendant. The case alleges claims for breach of fiduciary duties of loyalty and care in connection with the post-merger change in CEO. The case is stayed pending resolution of the Nieman v. Duke Energy Corporation, et al. case in North Carolina. Two shareholder Derivative Complaints, filed in 2012 in federal district court in Delaware, were consolidated as Tansey v. Rogers, et al. The case alleges claims for breach of fiduciary duty and waste of corporate assets, as well as claims under Section 14(a) and 20(a) of the Exchange Act. Duke Energy is named as a nominal defendant. Pursuant to an order entered on September 2, 2014, the court administratively closed this consolidated derivative action. The parties filed a status report with the court on December 1, 2014, and will continue to do so every six months thereafter until the Nieman v. Duke Energy Corporation, et al. case in North Carolina has been resolved. It is not possible to estimate the maximum exposure of loss that may occur in connection with these lawsuits. Price Reporting Cases Five lawsuits were filed against a Duke Energy affiliate, Duke Energy Trading and Marketing, LLC, and other energy companies and remain pending in a consolidated, single federal court proceeding in Nevada. Each of these lawsuits contain similar claims that defendants allegedly manipulated natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs seek damages in unspecified amounts. On July 18, 2011, the judge granted a defendant’s motion for summary judgment in two of five cases. The U.S. Court of Appeals for the Ninth Circuit subsequently reversed the lower court’s decision. On April 21, 2015, the Supreme Court affirmed the U.S. Court of Appeals decision. The case will be remanded to the federal district court for further proceedings. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with the remaining matters. However, based on Duke Energy’s past experiences with similar cases of this nature, it does not believe its exposure under these remaining matters is material. Brazil Expansion Lawsuit On August 9, 2011, the State of São Paulo sued Duke Energy International Geracao Paranapenema S.A. (DEIGP) in Brazilian state court. The lawsuit claims DEIGP is under a continuing obligation to expand installed generation capacity in the State of São Paulo by 15 percent pursuant to a stock purchase agreement under which DEIGP purchased generation assets from the state. On August 10, 2011, a judge granted an ex parte injunction ordering DEIGP to present a detailed expansion plan in satisfaction of the 15 percent obligation. DEIGP has previously taken a position the expansion obligation is no longer viable given changes that have occurred in the electric energy sector since privatization. DEIGP submitted its proposed expansion plan on November 11, 2011, but reserved objections regarding enforceability. In January 2013, DEIGP filed appeals in the federal courts regarding various procedural issues. A decision on the merits in the first instance court is pending. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with this matter. Duke Energy Carolinas and Duke Energy Progress DENR State Enforcement Actions In the first quarter of 2013, environmental organizations sent notices of intent to sue Duke Energy Carolinas and Duke Energy Progress related to alleged groundwater violations and CWA violations from coal ash basins at two of their coal-fired power plants in North Carolina. DENR filed enforcement actions against Duke Energy Carolinas and Duke Energy Progress alleging violations of water discharge permits and North Carolina groundwater standards. The case against Duke Energy Carolinas was filed in Mecklenburg County Superior Court. The case against Duke Energy Progress was filed in Wake County Superior Court. The cases are being heard before a single judge. On October 4, 2013, Duke Energy Carolinas, Duke Energy Progress and DENR negotiated a proposed consent order covering these two plants. The consent order would have assessed civil penalties and imposed a compliance schedule requiring Duke Energy Carolinas and Duke Energy Progress to undertake monitoring and data collection activities toward making appropriate corrective action to address any substantiated violations. In light of the coal ash release that occurred at Dan River on February 2, 2014, on March 21, 2014, DENR withdrew its support of the consent orders and requested that the court proceed with the litigation. 49 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) On August 16, 2013, DENR filed an enforcement action against Duke Energy Carolinas and Duke Energy Progress related to their remaining plants in North Carolina, alleging violations of the CWA and violations of the North Carolina groundwater standards. The case against Duke Energy Carolinas was filed in Mecklenburg County Superior Court. The case against Duke Energy Progress was filed in Wake County Superior Court. Both of these cases have been assigned to the judge handling the enforcement actions discussed above. The SELC, on behalf of several environmental groups, has been permitted to intervene in these cases. In August 2014, DENR issued a Notice of Violation (NOV) for alleged groundwater violations at Duke Energy Progress' L.V. Sutton plant. On March 10, 2015, DENR issued a civil penalty of approximately $25 million to Duke Energy Progress for environmental damages related to the groundwater contamination at the L.V. Sutton station. On April 9, 2015, Duke Energy Progress filed a Petition for Contested Case hearing in the Office of Administrative Hearings, which has been assigned to an Administrative Judge. Duke Energy Progress has appealed the penalty on the basis that DENR exceeded its statutory authority. Hearing is set for August 24, 2015. In February 2015, DENR issued an NOV for alleged groundwater violations at Duke Energy Progress' Asheville plant. Duke Energy Progress has responded to DENR regarding this NOV. DENR has not taken any enforcement action for this NOV, but penalties may be assessed in the future. It is not possible to predict any liability or estimate any damages Duke Energy Carolinas or Duke Energy Progress might incur in connection with these matters. North Carolina Declaratory Judgment Action On October 10, 2012, the SELC, on behalf of the same environmental groups that were permitted to challenge the consent decrees discussed above, filed a petition with the North Carolina Environmental Management Commission (EMC) asking for a declaratory ruling seeking to clarify the application of the state’s groundwater protection rules to coal ash basins. The petition sought to change the interpretation of regulations that permitted DENR to assess the extent, cause and significance of any groundwater contamination before ordering action to eliminate the source of contamination, among other issues. Duke Energy Carolinas and Duke Energy Progress were both permitted to intervene in the matter. On December 3, 2012, the EMC affirmed this interpretation of the regulations. On March 6, 2014, the North Carolina State Court judge overturned the ruling of the EMC holding that in the case of groundwater contamination, DENR was required to issue an order to immediately eliminate the source of the contamination before an assessment of the nature, significance and extent of the contamination or the continuing damage to the groundwater was conducted. Duke Energy Carolinas, Duke Energy Progress and the EMC appealed the ruling in April 2014. On May 16, 2014, the North Carolina Court of Appeals denied a petition to stay the case during the appeal. On October 10, 2014, the parties were notified the case has been transferred to the NCSC. Oral argument was held on March 16, 2015. Federal Citizens Suits There are currently five cases filed in various North Carolina federal courts contending that the DENR state enforcement actions discussed above do not adequately address the issues raised in the notices of intent to sue related to the Riverbend, Sutton, Cape Fear, H.F. Lee and Buck plants. On June 11, 2013, Catawba Riverkeeper Foundation, Inc. (Catawba Riverkeeper) filed a separate action in the United States Court for the Western District of North Carolina. The lawsuit contends the state enforcement action discussed above does not adequately address issues raised in Catawba Riverkeeper’s notice of intent to sue relating to the Riverbend plant. On April 11, 2014, the Court denied Catawba Riverkeeper’s objections to the Magistrate Judge’s recommendation that plaintiff’s case be dismissed as well as Duke Energy Carolinas’ motion to dismiss. The Court allowed limited discovery, after which Duke Energy Carolinas may file any renewed motions to dismiss. On September 12, 2013, Cape Fear River Watch, Inc., Sierra Club and Waterkeeper Alliance filed a citizen suit in the Federal District Court for the Eastern District of North Carolina. The lawsuit alleges unpermitted discharges to surface water and groundwater violations at the Sutton plant. On June 9, 2014, the court granted Duke Energy Progress' request to dismiss the groundwater claims but rejected its request to dismiss the surface water claims. In response to a motion filed by the SELC, on August 1, 2014, the court modified the original June 9 order to dismiss only the plaintiff's federal law claim based on hydrologic connections at Sutton Lake. The claims related to the alleged state court violations of the permits are back in the case. On September 3, 2014, three cases were filed by various environmental groups: (i) a citizen suit in the United States Court for the Middle District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the Cape Fear plant; (ii) a citizen suit in the United States Court for the Eastern District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the H.F. Lee plant; and (iii) a citizen suit in the United States Court for the Middle District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the Buck plant. Motions to Stay the proceedings were filed in each of the three cases. It is not possible to predict whether Duke Energy Carolinas or Duke Energy Progress will incur any liability or to estimate the damages, if any, they might incur in connection with these matters. North Carolina Ash Basin Grand Jury Investigation As a result of the Dan River ash basin water release discussed above, DENR issued a Notice of Violation and Recommendation of Assessment of Civil Penalties with respect to this matter on February 28, 2014, which the company responded to on March 13, 2014. Duke Energy and certain Duke Energy employees received subpoenas issued by the United States Attorney for the Eastern District of North Carolina in connection with a criminal investigation related to all 14 of the North Carolina facilities with ash basins and the nature of Duke Energy's contacts with DENR with respect to those facilities. This is a multidistrict investigation that also involves state law enforcement authorities. 50 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) On February 20, 2015, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Business Services LLC (DEBS), a wholly owned subsidiary of Duke Energy, each entered into Plea Agreements in connection with the investigation initiated by the United States Department of Justice Environmental Crimes Section and the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina and the Western District of North Carolina (collectively, USDOJ). The Plea Agreements are subject to the approval of the United States District Court for the Eastern District of North Carolina and, if approved, will end the grand jury investigation related to the Dan River ash basin release and the management of coal ash basins at 14 plants in North Carolina with coal ash basins, as discussed above. A hearing on the Plea Agreements is scheduled for May 14, 2015. Under the Plea Agreements, the USDOJ charged DEBS and Duke Energy Progress with four misdemeanor CWA violations related to violations at Duke Energy Progress’ H.F. Lee Steam Electric Plant, Cape Fear Steam Electric Plant and Asheville Steam Electric Generating Plant. The USDOJ charged Duke Energy Carolinas and DEBS with five misdemeanor CWA violations related to violations at Duke Energy Carolinas’ Dan River Steam Station and Riverbend Steam Station. DEBS, Duke Energy Carolinas and Duke Energy Progress also agreed (i) to a five-year probation period, (ii) to pay a total of approximately $68 million in fines and restitution and $34 million for community service and mitigation (the Payments), (iii) to fund and establish environmental compliance plans subject to the oversight of a court-appointed monitor in addition to certain other conditions set out in the Plea Agreements. Duke Energy Carolinas and Duke Energy Progress also agree to each maintain $250 million under their Master Credit Facility as security to meet their obligations under the Plea Agreements. Payments under the Plea Agreements will be borne by shareholders and are not tax deductible. Duke Energy Corporation has agreed to issue a guarantee of all payments and performance due from DEBS, Duke Energy Carolinas and Duke Energy Progress, including but not limited to payments for fines, restitution, community service, mitigation and the funding of, and obligations under, the environmental compliance plans. As a result of the Plea Agreements, Duke Energy Carolinas and Duke Energy Progress have liabilities of $72 million and $30 million, respectively, within Accounts payable on the Condensed Consolidated Balance Sheets. The Plea Agreements do not cover pending civil claims related to the Dan River coal ash release and operations at other North Carolina coal plants. Duke Energy Corporation will continue to cooperate with government agencies and defend against remaining civil litigation associated with these matters. Duke Energy Carolinas New Source Review In 1999-2000, the U.S. Department of Justice (DOJ) on behalf of the EPA filed a number of complaints and notices of violation against multiple utilities, including Duke Energy Carolinas, for alleged violations of the New Source Review (NSR) provisions of the Clean Air Act (CAA). The government alleges the utilities violated the CAA when undertaking certain maintenance and repair projects at certain coal plants without (i) obtaining NSR permits and (ii) installing the best available emission controls for sulfur dioxide, nitrogen oxide and particulate matter. The complaints seek the installation of pollution control technology on generating units that allegedly violated the CAA, and unspecified civil penalties in amounts of up to $37,500 per day for each violation. Duke Energy Carolinas asserts there were no CAA violations because the applicable regulations do not require NSR permitting in cases where the projects undertaken are “routine” or otherwise do not result in a net increase in emissions. In 2000, the government sued Duke Energy Carolinas in the U.S. District Court in Greensboro, North Carolina, claiming NSR violations for 29 projects performed at 25 of Duke Energy Carolinas’ coal-fired units. Duke Energy Carolinas asserts the projects were routine and not projected to increase emissions. The parties subsequently filed a stipulation agreeing to dismiss with prejudice all but 13 claims at 13 generating units, 11 of which have since been retired. Trial date has been set for October 2015. It is not possible to predict whether Duke Energy Carolinas will incur any liability or to estimate the damages, if any, it might incur in connection with this matter. Ultimate resolution of these matters could have a material effect on the results of operations, cash flows or financial position of Duke Energy Carolinas. However, the appropriate regulatory recovery will be pursued for costs incurred in connection with such resolution. Asbestos-related Injuries and Damages Claims Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement related to asbestos exposure. These claims relate to damages for bodily injuries alleged to have arisen from exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of March 31, 2015, there were 121 asserted claims for non-malignant cases with the cumulative relief sought of up to $26 million, and 32 asserted claims for malignant cases with the cumulative relief sought of up to $10 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed. Duke Energy Carolinas has recognized asbestos-related reserves of $570 million at March 31, 2015 and $575 million at December 31, 2014. These reserves are classified in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities on the Condensed Consolidated Balance Sheets. These reserves are based upon the minimum amount of the range of loss for current and future asbestos claims through 2033, are recorded on an undiscounted basis and incorporate anticipated inflation. In light of the uncertainties inherent in a longer-term forecast, management does not believe they can reasonably estimate the indemnity and medical costs that might be incurred after 2033 related to such potential claims. It is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves. Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention of $476 million. Duke Energy Carolinas’ cumulative payments began to exceed the self-insurance retention in 2008. Future payments up to the policy limit will be reimbursed by the thirdparty insurance carrier. The insurance policy limit for potential future insurance recoveries indemnification and medical cost claim payments is $864 million in excess of the selfinsured retention. Receivables for insurance recoveries were $617 million at March 31, 2015, and $616 million at December 31, 2014. These amounts are classified in Other within Investments and Other Assets and Receivables on the Condensed Consolidated Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating. 51 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Duke Energy Florida Westinghouse Contract Litigation On March 28, 2014, Duke Energy Florida filed a lawsuit against Westinghouse in the U.S. District Court for the Western District of North Carolina. The lawsuit seeks recovery of $54 million in milestone payments in excess of work performed under the terminated engineering, procurement and construction agreement (EPC) for Levy as well as a determination by the court of the amounts due to Westinghouse as a result of the termination of the EPC. On March 31, 2014, Westinghouse filed a lawsuit against Duke Energy Florida in U.S. District Court for the Western District of Pennsylvania. The Pennsylvania lawsuit alleged damages under the EPC in excess of $510 million for engineering and design work, costs to end supplier contracts and an alleged termination fee. On June 9, 2014, the judge in the North Carolina case ruled that the litigation will proceed in the Western District of North Carolina. In November 2014, Westinghouse filed a Motion for Partial Judgment on the pleadings, which was denied on March 30, 2015. Trial is set for February 2016. It is not possible to predict the outcome of the litigation and whether Duke Energy Florida will incur any liability for terminating the EPC or to estimate the damages, if any, it might incur in connection with these matters. Ultimate resolution of these matters could have a material effect on the results of operations, financial position or cash flows of Duke Energy Florida. However, appropriate regulatory recovery will be pursued for the retail portion of any costs incurred in connection with such resolution. Duke Energy Ohio Antitrust Lawsuit In January 2008, four plaintiffs, including individual, industrial and nonprofit customers, filed a lawsuit against Duke Energy Ohio in federal court in the Southern District of Ohio. Plaintiffs alleged Duke Energy Ohio conspired to provide inequitable and unfair price advantages for certain large business consumers by entering into non-public option agreements in exchange for their withdrawal of challenges to Duke Energy Ohio’s Rate Stabilization Plan implemented in early 2005. In March 2014, a federal judge certified this matter as a class action. Plaintiffs allege claims for antitrust violations under the federal Robinson Patman Act as well as fraud and conspiracy allegations under the federal Racketeer Influenced and Corrupt Organizations statute and the Ohio Corrupt Practices Act which could exceed $500 million. Plaintiffs also claim to be entitled to treble damages. A March 31, 2015 mediation was unsuccessful. Duke Energy Ohio's motion for summary judgment is pending. Trial has been set to begin on July 27, 2015. It is not possible to predict whether Duke Energy Ohio will incur any liability or to estimate the damages, if any, that may be incurred in connection with this matter. Ultimate resolution of this matter could have a material effect on the results of operations, cash flows or financial position of Duke Energy Ohio. Any liability related to the lawsuit attributable to the Disposal Group was not transferred to Dynegy upon the sale of the Disposal Group. See Note 2 for further discussion on the Midwest Generation Exit. Duke Energy Indiana Edwardsport IGCC On December 11, 2012, Duke Energy Indiana filed an arbitration action against General Electric Company and Bechtel Corporation in connection with their work at the Edwardsport IGCC facility. Duke Energy Indiana is seeking damages equaling some or all of the additional costs incurred in the construction of the project not recovered at the IURC. The arbitration hearing concluded in December 2014. Post-hearing briefs have been submitted and a ruling is pending. Duke Energy Indiana cannot predict the outcome of this matter. Other Litigation and Legal Proceedings The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve significant amounts. The Duke Energy Registrants believe the final disposition of these proceedings will not have a material effect on their results of operations, cash flows or financial position. 52 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The table below presents recorded reserves based on management’s best estimate of probable loss for legal matters discussed above, excluding asbestos-related reserves. Reserves are classified on the Condensed Consolidated Balance Sheets in Other within Deferred Credits and Other Liabilities and Accounts payable and Other within Current Liabilities. The reasonably possible range of loss for all non-asbestos-related matters in excess of recorded reserves is not material. (in millions) March 31, 2015 December 31, 2014 Reserves for Legal Matters Duke Energy $ 331 $ 323 Duke Energy Carolinas 72 72 Progress Energy 93 93 Duke Energy Progress 37 37 Duke Energy Florida 34 36 Duke Energy Ohio 10 — OTHER COMMITMENTS AND CONTINGENCIES General As part of their normal business, the Duke Energy Registrants are party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. These guarantees involve elements of performance and credit risk, which are not fully recognized on the Condensed Consolidated Balance Sheets and have unlimited maximum potential payments. However, the Duke Energy Registrants do not believe these guarantees will have a material effect on their results of operations, cash flows or financial position. In addition, the Duke Energy Registrants enter into various fixed-price, non-cancelable commitments to purchase or sell power, take-or-pay arrangements, transportation, or throughput agreements and other contracts that may or may not be recognized on their respective Condensed Consolidated Balance Sheets. Some of these arrangements may be recognized at fair value on their respective Condensed Consolidated Balance Sheets if such contracts meet the definition of a derivative and the normal purchase/normal sale (NPNS) exception does not apply. In most cases, the Duke Energy Registrants’ purchase obligation contracts contain provisions for price adjustments, minimum purchase levels and other financial commitments. 6. DEBT AND CREDIT FACILITIES SUMMARY OF SIGNIFICANT DEBT ISSUANCES The following table summarizes significant debt issuances (in millions). Three Months Ended March 31, 2015 Issuance Date Maturity Date Duke Energy Carolinas Duke Energy Interest Rate First Mortgage Bonds March 2015(a) June 2045 Total issuances (a) 3.750% $ 500 $ 500 $ 500 $ 500 Proceeds will be used to redeem $500 million of first mortgage bonds due October 2015. CURRENT MATURITIES OF LONG-TERM DEBT The following table shows the significant components of Current maturities of long-term debt on the Condensed Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings. 53 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) (in millions) Maturity Date Interest Rate March 31, 2015 Unsecured Debt Duke Energy (Parent) April 2015 3.350% January 2016 5.625% 300 Duke Energy Progress April 2015 5.150% 300 Duke Energy Carolinas October 2015 5.300% 500 Duke Energy Florida November 2015 0.650% 250 Duke Energy Florida December 2015 5.100% 300 Duke Energy Progress December 2015 5.250% 400 Progress Energy (Parent) $ 450 First Mortgage Bonds Other 300 Current maturities of long-term debt $ 2,800 MASTER CREDIT FACILITY Duke Energy has a Master Credit Facility with a capacity of $7.5 billion through January 2020. The Duke Energy Registrants, excluding Progress Energy (Parent), have borrowing capacity under the Master Credit Facility up to a specified sublimit for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. The table below includes the current borrowing sublimits and available capacity under the Master Credit Facility. March 31, 2015 (in millions) Facility size(a) Duke Energy (Parent) Duke Energy $ 7,500 $ 3,200 Duke Energy Carolinas $ 1,200 Duke Energy Progress $ 1,000 Duke Energy Florida $ 900 Duke Energy Ohio $ 600 Duke Energy Indiana $ 600 Reduction to backstop issuances Commercial paper (b) Outstanding letters of credit Tax-exempt bonds Available capacity (a) (b) $ (3,256) (2,764) (300) — (17) (25) (66) (60) (4) (1) (1) — — (116) — (35) — — — (81) 4,062 $ 376 $ 861 $ 999 $ 882 $ 575 (150) $ 369 Represents the sublimit of each borrower. Duke Energy issued $475 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana. The balances are classified as Long-Term Debt Payable to Affiliated Companies in the Condensed Consolidated Balance Sheets. In April 2015, Duke Energy paid down its outstanding commercial paper by approximately $1.3 billion using a portion of the proceeds from the sale of the nonregulated Midwest generation business. See Note 2 for additional information. On February 20, 2015, Duke Energy Carolinas, Duke Energy Progress and DEBS, a wholly owned subsidiary of Duke Energy, each entered into Plea Agreements in connection with the investigation initiated by the USDOJ. Duke Energy Carolinas and Duke Energy Progress are required to each maintain $250 million of available capacity under the Master Credit Facility as security to meet their obligations under the Plea Agreements, in addition to certain other conditions. The Plea Agreements are subject to court approval. See Note 5 for further details. 54 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) 7. GOODWILL AND INTANGIBLE ASSETS GOODWILL The following tables present goodwill by reportable operating segment for Duke Energy and Duke Energy Ohio. Duke Energy Regulated Utilities (in millions) International Energy Commercial Power Total Balance at December 31, 2014 Goodwill $ Accumulated impairment charges Balance at December 31, 2014, as adjusted for accumulated impairment charges 15,950 $ 307 — — 15,950 $ 935 $ (871) 17,192 (871) 307 64 Foreign exchange and other changes — (16) — 16,321 (16) Acquisitions — — 24 24 15,950 291 959 17,200 — — Balance at March 31, 2015 Goodwill Accumulated impairment charges Balance at March 31, 2015, as adjusted for accumulated impairment charges $ 15,950 $ 291 (871) $ 88 (871) $ 16,329 Duke Energy Ohio Regulated Utilities (in millions) Commercial Power Total Balance at December 31, 2014 Goodwill $ Accumulated impairment charges 1,136 $ (216) Balance at December 31, 2014, as adjusted for accumulated impairment charges 1,188 $ (1,188) 920 2,324 (1,404) — 920 Balance at March 31, 2015 Goodwill 1,136 Accumulated impairment charges (216) Balance at March 31, 2015, as adjusted for accumulated impairment charges $ 920 $ 1,188 2,324 (1,188) (1,404) — $ 920 Progress Energy Progress Energy's Goodwill is included in the Regulated Utilities operating segment and there are no accumulated impairment charges. INTANGIBLE ASSETS During 2014, Duke Energy Ohio reduced the carrying amount of OVEC to zero. A charge of $94 million is recorded in Impairment charges on Duke Energy Ohio's Condensed Consolidated Statement of Operations. See Note 12 for additional information. 55 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) 8. RELATED PARTY TRANSACTIONS The Subsidiary Registrants engage in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Refer to the Condensed Consolidated Balance Sheets of the Subsidiary Registrants for balances due to or due from related parties. Material amounts related to transactions with related parties included in the Condensed Consolidated Statements of Operations and Comprehensive Income are presented in the following table. Three Months Ended March 31, (in millions) 2015 2014 Duke Energy Carolinas Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 219 $ 222 6 5 Joint Dispatch Agreement (JDA) revenue(c) 26 97 Joint Dispatch Agreement (JDA) expense(c) 57 51 Progress Energy Corporate governance and shared services provided by Duke Energy (a) $ 167 $ 178 Indemnification coverages (b) 10 8 JDA revenue(c) 57 51 JDA expense(c) 26 97 Duke Energy Progress Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 101 $ 96 4 4 JDA revenue(c) 57 51 JDA expense(c) 26 97 Duke Energy Florida Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 66 $ 6 81 4 Duke Energy Ohio Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 85 $ 3 77 3 Duke Energy Indiana Corporate governance and shared service expenses (a) $ Indemnification coverages (b) (a) (b) (c) 89 2 $ 105 3 The Subsidiary Registrants are charged their proportionate share of corporate governance and other shared services costs, primarily related to human resources, employee benefits, legal and accounting fees, as well as other third-party costs. These amounts are recorded in Operation, maintenance and other on the Condensed Consolidated Statements of Operations and Comprehensive Income. The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation, maintenance and other on the Condensed Consolidated Statements of Operations and Comprehensive Income. Duke Energy Carolinas and Duke Energy Progress participate in a JDA which allows the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power under the JDA are recorded in Operating Revenues on the Condensed Consolidated Statements of Operations and Comprehensive Income. Expenses from the purchase of power under the JDA are recorded in Fuel used in electric generation and purchased power on the Condensed Consolidated Statements of Operations and Comprehensive Income. In addition to the amounts presented above, the Subsidiary Registrants record the impact on net income of other affiliate transactions, including rental of office space, participation in a money pool arrangement, other operational transactions and their proportionate share of certain charged expenses. See Note 6 to the Consolidated Financial Statements in the Annual Report on Form 10-K for more information regarding money pool. The net impact of these transactions was not material for the three months ended March 31, 2015 and 2014 for the Subsidiary Registrants. See Note 12 for information relative to sale of receivables to an affiliate consolidated by Duke Energy. Duke Energy Commercial Asset Management (DECAM) was a nonregulated, indirect subsidiary of Duke Energy Ohio that owned generating plants included in the Disposal Group discussed in Note 2. DECAM's business activities included the execution of commodity transactions, third-party vendor and supply contracts, and service contracts for certain of Duke Energy’s nonregulated entities. The commodity contracts DECAM entered were accounted for as undesignated contracts or NPNS. Consequently, mark-tomarket impacts of intercompany contracts with, and sales of power to, nonregulated entities are included in Income (Loss) From Discontinued Operations, net of tax in Duke Energy Ohio’s Condensed Consolidated Statements of Operations and Comprehensive Income. These amounts totaled net expense of $3 million and $54 million for the three months ended March 31, 2015 and 2014, respectively. 56 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DECAM, not a credit rated entity, received credit support from Duke Energy or its nonregulated subsidiaries and not from the regulated utility operations of Duke Energy Ohio. DECAM met its funding needs through an intercompany loan agreement with a subsidiary of Duke Energy. DECAM also had the ability to loan money to the subsidiary of Duke Energy. DECAM had an outstanding intercompany loan payable of $294 million and $459 million, respectively, as of March 31, 2015 and December 31, 2014. These amounts are recorded in Notes payable to affiliated companies on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. The intercompany loan payable was repaid on April 2, 2015 with funds received from the sale of the Disposal Group. Refer to Note 2 for further information on this disposition. 9. DERIVATIVES AND HEDGING The Duke Energy Registrants use commodity and interest rate contracts to manage commodity price and interest rate risks. The primary use of energy commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Interest rate swaps are used to manage interest rate risk associated with borrowings. All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Condensed Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting agreement is offset against the collateralized derivatives on the balance sheet. Changes in the fair value of derivative agreements that either do not qualify for or have not been designated as hedges are reflected in current earnings or as regulatory assets or liabilities. COMMODITY PRICE RISK The Duke Energy Registrants are exposed to the impact of changes in the future prices of electricity, coal and natural gas. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets and delivery locations. Fair Value and Cash Flow Hedges At March 31, 2015, there were no open commodity derivative instruments designated as hedges. Undesignated Contracts Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. These contracts expire as late as 2018. Volumes The tables below show information relating to volumes of outstanding commodity derivatives. Amounts disclosed represent the absolute value of notional volumes of commodity contracts excluding NPNS. Amounts disclosed represent the absolute value of notional amounts. The Duke Energy Registrants have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown. March 31, 2015 Duke Energy Electricity (gigawatt-hours) (a) Natural gas (millions of decatherms) Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana 22,810 — — — — 17,734 571 666 57 333 111 222 276 — Duke Energy Florida Duke Energy Ohio Duke Energy Indiana December 31, 2014 Duke Energy Electricity (gigawatt-hours) (a) Natural gas (millions of decatherms) (a) Duke Energy Carolinas Progress Energy Duke Energy Progress 25,370 — — — — 19,141 — 676 35 328 116 212 313 — Amounts at Duke Energy Ohio include intercompany positions that eliminate at Duke Energy. INTEREST RATE RISK The Duke Energy Registrants are exposed to changes in interest rates as a result of their issuance or anticipated issuance of variable-rate and fixed-rate debt and commercial paper. Interest rate risk is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into interest rate swaps, U.S. Treasury lock agreements and other financial contracts. In anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of current market interest rates. These instruments are later terminated prior to or upon the issuance of the corresponding debt. Pretax gains or losses recognized from inception to termination of the hedges are amortized as a component of interest expense over the life of the debt. Duke Energy has a combination foreign exchange, pay fixed-receive floating interest rate swap to fix the US dollar equivalent payments on a floating-rate Chilean debt issue. 57 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) In January 2015, Duke Energy Progress executed fixed-to-floating rate swaps. The swaps were issued to economically convert $250 million of fixed rate first mortgage bonds due September 15, 2021, to floating rate with an initial rate of approximately 1.75 percent. The following table shows notional amounts for derivatives related to interest rate risk. March 31, 2015 Duke Energy (in millions) Cash flow hedges (a) $ 750 Undesignated contracts $ 527 Total notional amount (a) Duke Energy Progress $ 1,277 — $ 250 $ December 31, 2014 Duke Energy Florida Duke Energy Ohio — $ 250 250 $ — $ 27 250 $ 27 Duke Energy Florida Duke Energy 750 $ 277 $ 1,027 — Duke Energy Ohio $ — 250 $ 250 27 $ 27 Duke Energy includes amounts related to consolidated Variable Interest Entities (VIEs) of $541 million at March 31, 2015 and December 31, 2014, respectively. LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED IN THE CONDENSED CONSOLIDATED BALANCE SHEETS The following tables show the fair value of derivatives and the line items in the Condensed Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Condensed Consolidated Balance Sheets, the fair values presented below show gross and cash collateral on the derivatives has not been netted against the fair values shown. Derivative Assets March 31, 2015 Duke Energy (in millions) Duke Energy Carolinas Progress Energy Duke Energy Florida Duke Energy Progress Duke Energy Ohio Duke Energy Indiana Commodity Contracts Not Designated as Hedging Instruments Current Assets: Other $ 4 $ — $ — $ — $ — $ — $ 3 Current Assets: Assets held for sale 45 — — — — 78 — Investments and Other Assets: Assets held for sale 21 — — — — 48 — 1 — 1 — 1 — — 206 — — — — 206 — 2 — 2 — 2 — — Current Liabilities: Other Current Liabilities: Assets held for sale Deferred Credits and Other Liabilities: Other Deferred Credits and Other Liabilities: Assets held for sale Total Derivative Assets - Commodity Contracts 123 — — — — 123 — $ 402 $ — $ 3 $ — $ 3 $ 455 $ 3 $ 3 $ — $ — $ — $ — $ — $ — Interest Rate Contracts Designated as Hedging Instruments Investments and Other Assets: Other Not Designated as Hedging Instruments Current Assets: Other 5 — 5 2 3 — — Investments and Other Assets: Other 1 — 1 — 1 — — Total Derivative Assets - Interest Rate Contracts 9 — 6 2 4 — — Total Derivative Assets $ 411 $ — 58 $ 9 $ 2 $ 7 $ 455 $ 3 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Derivative Liabilities March 31, 2015 Duke Energy (in millions) Duke Energy Carolinas Duke Energy Progress Progress Energy Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Commodity Contracts Not Designated as Hedging Instruments Current Assets: Assets held for sale $ 21 Investments and Other Assets: Assets held for sale $ — $ — $ — $ — $ 59 $ — 7 — — — — 23 — Current Liabilities: Other 308 19 289 100 189 — — Current Liabilities: Assets held for sale 263 — — — — 249 — Deferred Credits and Other Liabilities: Other 112 8 104 26 78 — — Deferred Credits and Other Liabilities: Assets held for sale 209 — — — — 207 — Total Derivative Liabilities - Commodity Contracts $ 920 $ 27 $ 393 $ 126 $ 267 $ 538 $ — $ 14 $ — $ — $ — $ — $ 1 $ — Interest Rate Contracts Designated as Hedging Instruments Current Liabilities: Other Deferred Credits and Other Liabilities: Other 38 — — — — 6 — Not Designated as Hedging Instruments Current Liabilities: Other 1 — — — — — — Deferred Credits and Other Liabilities: Other 11 — 5 5 — — — Total Derivative Liabilities - Interest Rate Contracts 64 — 5 5 — 7 Total Derivative Liabilities $ 984 $ 27 $ 398 Derivative Assets $ 131 $ 267 $ 545 — $ — December 31, 2014 Duke Energy (in millions) Duke Energy Carolinas Progress Energy Duke Energy Florida Duke Energy Progress Duke Energy Ohio Duke Energy Indiana Commodity Contracts Not Designated as Hedging Instruments Current Assets: Other $ 18 $ — $ — $ — $ — $ 1 $ — Current Assets: Assets Held for sale 15 — — — — 28 — Investments and Other Assets: Other 3 — — — — — — 15 — — — — 26 — 1 — — — — — — 174 — — — — 175 — 2 — — — — — — Investments and Other Assets: Assets held for sale Current Liabilities: Other Current Liabilities: Assets held for sale Deferred Credits and Other Liabilities: Other Deferred Credits and Other Liabilities: Assets held for sale Total Derivative Assets - Commodity Contracts 111 $ — — — — 111 — 339 $ — $ — $ — $ — $ 341 $ — — $ — $ — $ — $ — $ — $ 14 Interest Rate Contracts Designated as Hedging Instruments Current Assets: Other $ Investments and Other Assets: Other 10 — — — — — — 2 — 2 — 2 — — Not Designated as Hedging Instruments Current Assets: Other Total Derivative Assets - Interest Rate Contracts Total Derivative Assets 12 $ 351 — $ — 59 2 $ 2 — $ — 2 $ 2 — $ 341 14 $ 14 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Derivative Liabilities December 31, 2014 Duke Energy (in millions) Duke Energy Carolinas Duke Energy Progress Progress Energy Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Commodity Contracts Designated as Hedging Instruments Current Liabilities: Other $ — $ — $ 1 $ 1 $ — $ — $ — Not Designated as Hedging Instruments Current Assets: Assets held for sale — — — — — 4 — Investments and Other Assets: Assets held for sale — — — — — 4 — Current Liabilities: Other 307 14 288 108 180 — — Current Liabilities: Assets held for sale 253 — — — — 252 — 91 5 80 23 57 — — Deferred Credits and Other Liabilities: Other Deferred Credits and Other Liabilities: Assets held for sale Total Derivative Liabilities - Commodity Contracts 208 — — — — 207 — $ 859 $ 19 $ 369 $ 132 $ 237 $ 467 $ — $ 13 $ — $ — $ — $ — $ 1 $ — Interest Rate Contracts Designated as Hedging Instruments Current Liabilities: Other Deferred Credits and Other Liabilities: Other 29 — — — — 5 — Current Liabilities: Other 1 — — — — — — Deferred Credits and Other Liabilities: Other 7 — 2 — 2 — — 50 — 2 — 2 6 Not Designated as Hedging Instruments Total Derivative Liabilities - Interest Rate Contracts Total Derivative Liabilities $ 909 $ 19 $ 371 $ 132 $ 239 $ 473 — $ — OFFSETTING ASSETS AND LIABILITIES The following tables show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below. Derivative Assets March 31, 2015 Duke Energy (in millions) Duke Energy Carolinas Duke Energy Progress Progress Energy Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Current (a) Gross amounts recognized $ Gross amounts offset 261 $ — $ 6 (227) — Net amounts subject to master netting 34 — 5 Amounts not subject to master netting — — — Net amounts recognized on the Condensed Consolidated Balance Sheet $ $ (1) 34 $ — $ 150 $ — $ 2 $ — 4 $ 284 $ 3 (1) (265) 2 3 19 3 — — — — 5 $ 2 $ 3 $ — $ 3 $ 3 $ — 19 $ 3 171 $ — Non-Current (b) Gross amounts recognized $ Gross amounts offset (131) — Net amounts subject to master netting 19 Amounts not subject to master netting — Net amounts recognized on the Condensed Consolidated Balance Sheet (a) $ 19 $ (2) — — 1 — — — $ 1 $ (2) (145) — — 1 26 — — — — — — $ 1 $ 26 $ Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Current Assets on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Assets held for sale within Current Assets on the Condensed Consolidated Balance Sheets. 60 — PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) (b) Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Assets held for sale within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Derivative Liabilities March 31, 2015 Duke Energy (in millions) Duke Energy Carolinas Duke Energy Progress Progress Energy Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Current (c) Gross amounts recognized $ Gross amounts offset 607 $ 19 $ 289 $ 100 $ 189 $ 309 $ — (32) (1) (31) Net amounts subject to master netting 314 19 257 99 158 9 — Amounts not subject to master netting — — — — — — — Net amounts recognized on the Condensed Consolidated Balance Sheet $ 314 $ 377 $ 19 $ 257 $ 99 $ 8 $ 109 $ 31 $ (300) — (293) 158 $ 78 $ — 9 $ — 236 $ — Non-Current (d) Gross amounts recognized $ Gross amounts offset (216) — (14) — (14) (218) — Net amounts subject to master netting 161 8 95 31 64 18 — Amounts not subject to master netting — — — — — — — Net amounts recognized on the Condensed Consolidated Balance Sheet (c) (d) $ 161 $ 8 $ 95 $ 31 $ 64 $ 18 $ — Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Current Liabilities on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Liabilities associated with assets held for sale within Current Liabilities on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Liabilities associated with assets held for sale within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. Derivative Assets December 31, 2014 Duke Energy (in millions) Duke Energy Carolinas Progress Energy Duke Energy Florida Duke Energy Progress Duke Energy Ohio Duke Energy Indiana Current (a) Gross amounts recognized $ Gross amounts offset 210 $ — $ 2 $ — $ 2 $ 204 $ 14 (153) — (2) — (2) (179) — Net amounts subject to master netting 57 — — — — 25 14 Amounts not subject to master netting — — — — — — — Net amounts recognized on the Condensed Consolidated Balance Sheet $ 57 $ — $ — $ — $ — $ $ 136 $ — $ — $ — $ — $ 25 $ 14 137 $ — Non-Current (b) Gross amounts recognized Gross amounts offset (88) — — — — (114) — Net amounts subject to master netting 48 — — — — 23 — Amounts not subject to master netting 5 — — — — — — Net amounts recognized on the Condensed Consolidated Balance Sheet (a) (b) $ 53 $ — $ — $ — $ — $ 23 $ — Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Current Assets on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Assets held for sale within Current Assets on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Assets held for sale within Investments and Other Assets on the Condensed Consolidated Balance Sheets. 61 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Derivative Liabilities December 31, 2014 Duke Energy (in millions) Duke Energy Carolinas Duke Energy Progress Progress Energy Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Current (c) Gross amounts recognized $ Gross amounts offset 573 $ 14 $ 289 (213) — (17) Net amounts subject to master netting 360 14 272 Amounts not subject to master netting 1 — — Net amounts recognized on the Condensed Consolidated Balance Sheet $ 361 $ 319 $ $ 109 $ 180 — $ 257 $ — (17) (222) — 109 163 35 — — — — — 14 $ 272 $ 109 $ 163 $ 5 $ 82 $ 23 $ 59 $ 35 $ — 216 $ — Non-Current (d) Gross amounts recognized $ Gross amounts offset (173) — (8) — (8) (193) — Net amounts subject to master netting 146 5 74 23 51 23 — Amounts not subject to master netting 16 — — — — — — Net amounts recognized on the Condensed Consolidated Balance Sheet (c) (d) $ 162 $ 5 $ 74 $ 23 $ 51 $ 23 $ — Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Current Liabilities on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Liabilities associated with assets held for sale within Current Liabilities on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Liabilities associated with assets held for sale within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. GAINS AND LOSSES RECOGNIZED ON CASH FLOW HEDGES The following tables show the gains and losses recognized on cash flow hedges and the line items on the Condensed Consolidated Statements of Operations or Condensed Consolidated Balance Sheets where such gains and losses are included when reclassified from AOCI. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt. There was no hedge ineffectiveness during the three months ended March 31, 2015 and 2014, and no gains or losses were excluded from the assessment of hedge effectiveness during the same periods. Three Months Ended March 31, 2015 (in millions) Duke Energy Carolinas Duke Energy(a) Duke Energy Indiana Pretax Gains (Losses) Recorded in AOCI Interest rate contracts $ Total Pretax Gains (Losses) Recorded in AOCI (11) $ (11) — $ — — — Location of Pretax Gains (Losses) Reclassified from AOCI into Earnings Interest rate contracts Interest expense (1) Total Pretax Gains (Losses) Reclassified from AOCI into Earnings (a) $ A $5 million pretax gain is expected to be recognized in earnings during the next 12 months as interest expense. 62 (1) (1) $ (1) 1 $ 1 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Three Months Ended March 31, 2014 (in millions) Duke Energy Carolinas Duke Energy Duke Energy Indiana Pretax Gains (Losses) Recorded in AOCI Interest rate contracts $ 2 Total Pretax Gains (Losses) Recorded in AOCI $ — 2 $ — — — Location of Pretax Gains (Losses) Reclassified from AOCI into Earnings Interest rate contracts Interest expense (1) Total Pretax Gains (Losses) Reclassified from AOCI into Earnings $ (1) — $ — — $ — GAINS AND LOSSES RECOGNIZED ON UNDESIGNATED CONTRACTS The following tables show the gains and losses during the year recognized on undesignated derivatives and the line items on the Condensed Consolidated Statements of Operations or the Condensed Consolidated Balance Sheets where the pretax gains and losses were reported. Amounts included in Regulatory Assets or Liabilities for commodity contracts are reclassified to earnings to match recovery through the fuel clause. Amounts included in Regulatory Assets or Liabilities for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt. These amounts reclassified to earnings from Regulated Assets or Liabilities for commodity and interest rate contracts are excluded from the following tables. Three Months Ended March 31, 2015 Duke Energy Carolinas Duke Energy (in millions) Duke Energy Progress Progress Energy Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Location of Pretax Gains (Losses) Recognized in Earnings Commodity contracts Revenue: Regulated electric $ 1 $ — $ — $ — $ — $ — $ 1 Revenue: Nonregulated electric and other 17 — — — — 13 — Fuel used in electric generation and purchased power nonregulated 37 — — — — 37 — Interest rate contracts Interest expense Total Pretax Gains (Losses) Recognized in Earnings (1) — (1) — $ 54 $ — $ (1) $ $ (340) $ (28) $ (314) $ — (1) — — $ (1) $ 50 $ $ (187) $ — $ 1 Location of Pretax (Losses) Gains Recognized as Regulatory Assets or Liabilities Commodity contracts Regulatory assets Regulatory liabilities (127) (2) — — — — Regulatory assets (5) — (4) (5) Regulatory liabilities 3 — 3 2 2 2 (4) 1 (1) — 1 — — Interest rate contracts Total Pretax Gains (Losses) Recognized as Regulatory Assets or Liabilities $ (344) $ (28) 63 $ (315) $ (130) $ (185) $ 1 $ (2) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Three Months Ended March 31, 2014 Duke Energy (in millions) Duke Energy Carolinas Duke Energy Progress Progress Energy Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Location of Pretax Gains (Losses) Recognized in Earnings Commodity contracts Revenue: Regulated electric $ Revenue: Nonregulated electric and other (4) $ (397) — $ (3) $ (3) $ — — — — — $ — $ — (449) — Fuel used in electric generation and purchased power regulated 7 — 7 7 — — — Fuel used in electric generation and purchased power nonregulated 138 — — — — 138 — Interest rate contracts Interest expense Total Pretax Gains (Losses) Recognized in Earnings (4) $ — (4) (260) $ — $ (2) $ — $ (3) (1) — — $ 1 $ (1) $ (2) $ 17 $ (19) $ — (311) $ — $ — Location of Pretax Gains (Losses) Recognized as Regulatory Assets or Liabilities Commodity contracts Regulatory assets $ Regulatory liabilities — 27 — — — — 2 — 4 — 4 3 1 — — Interest rate contracts Regulatory assets Total Pretax Gains (Losses) Recognized as Regulatory Assets or Liabilities $ 29 $ — $ 2 $ 20 $ (18) $ 2 $ — CREDIT RISK Certain derivative contracts contain contingent credit features. These features may include (i) material adverse change clauses or payment acceleration clauses that could result in immediate payments or (ii) the posting of letters of credit or termination of the derivative contract before maturity if specific events occur, such as a credit rating downgrade below investment grade. The following tables show information with respect to derivative contracts that are in a net liability position and contain objective credit-risk-related payment provisions. Amounts for Duke Energy Indiana were not material. March 31, 2015 (in millions) Duke Energy Duke Energy Carolinas Duke Energy Progress Progress Energy Duke Energy Florida Duke Energy Ohio Aggregate fair value amounts of derivative instruments in a net liability position $ 834 Fair value of collateral already posted 219 — 43 1 42 176 Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered 326 11 301 109 192 14 Duke Energy Progress Duke Energy Florida Duke Energy Ohio $ 11 $ 344 $ 110 $ 234 $ 479 December 31, 2014 (in millions) Duke Energy Duke Energy Carolinas Progress Energy Aggregate fair value amounts of derivative instruments in a net liability position $ 845 Fair value of collateral already posted 209 — 23 — 23 186 Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered 407 19 347 131 216 41 $ 19 64 $ 370 $ 131 $ 239 $ 456 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative must be executed with the same counterparty under the same master netting agreement. Amounts disclosed below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements. Amounts for Duke Energy Carolinas and Duke Energy Indiana were not material. (in millions) March 31, 2015 December 31, 2014 Receivables Receivables Duke Energy Amounts offset against net derivative positions $ Amounts not offset against net derivative positions 151 $ 145 68 64 43 23 1 — 42 23 108 122 68 64 Progress Energy Amounts offset against net derivative positions Duke Energy Progress Amounts offset against net derivative positions Duke Energy Florida Amounts offset against net derivative positions Duke Energy Ohio Amounts offset against net derivative positions Amounts not offset against net derivative positions 10. INVESTMENTS IN DEBT AND EQUITY SECURITIES The Duke Energy Registrants classify their investments in debt and equity securities as either trading or available-for-sale. TRADING SECURITIES Investments in debt and equity securities held in grantor trusts associated with certain deferred compensation plans and certain other investments are classified as trading securities. The fair value of these investments was $10 million at March 31, 2015 and $7 million at December 31, 2014. AVAILABLE-FOR-SALE SECURITIES All other investments in debt and equity securities are classified as available-for-sale securities. Duke Energy’s available-for-sale securities are primarily comprised of investments held in (i) the Nuclear Decommissioning Trust Fund (NDTF) at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to other post-retirement benefit obligations (OPEB) plans, (iii) Duke Energy’s captive insurance investment portfolio and (iv) Duke Energy’s foreign operations investment portfolio. Duke Energy classifies all other investments in debt and equity securities as long-term, unless otherwise noted. Investment Trusts The investments within the NDTF at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida and the Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana grantor trusts (Investment Trusts) are managed by independent investment managers with discretion to buy, sell and invest pursuant to the objectives set forth by the trust agreements. The Duke Energy Registrants have limited oversight of the day-to-day management of these investments. As a result, the ability to hold investments in unrealized loss positions is outside the control of the Duke Energy Registrants. Accordingly, all unrealized losses associated with debt and equity securities within the Investment Trusts are considered other-than-temporary impairments and are recognized immediately. Pursuant to regulatory accounting, substantially all realized and unrealized gains and losses associated with investments within the Investment Trusts are deferred as a regulatory asset or liability. As a result, there is no immediate impact on earnings of the Duke Energy Registrants. Other Available-for-Sale Securities Unrealized gains and losses on all other available-for-sale securities are included in other comprehensive income until realized, unless it is determined the carrying value of an investment is other-than-temporarily impaired. If an other-than-temporary impairment exists, the unrealized loss is included in earnings based on the criteria discussed below. The Duke Energy Registrants analyze all investment holdings each reporting period to determine whether a decline in fair value should be considered other-than-temporary. Criteria used to evaluate whether an impairment associated with equity securities is other-than-temporary includes, but is not limited to, (i) the length of time over which the market value has been lower than the cost basis of the investment, (ii) the percentage decline compared to the cost of the investment and (iii) management’s intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value. If a decline in fair value is determined to be other-than-temporary, the investment is written down to its fair value through a charge to earnings. 65 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) If the entity does not have an intent to sell a debt security and it is not more likely than not management will be required to sell the debt security before the recovery of its cost basis, the impairment write-down to fair value would be recorded as a component of other comprehensive income, except for when it is determined a credit loss exists. In determining whether a credit loss exists, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than the amortized cost basis, (ii) changes in the financial condition of the issuer of the security, or in the case of an asset-backed security, the financial condition of the underlying loan obligors, (iii) consideration of underlying collateral and guarantees of amounts by government entities, (iv) ability of the issuer of the security to make scheduled interest or principal payments and (v) any changes to the rating of the security by rating agencies. If a credit loss exists, the amount of impairment write-down to fair value is split between credit loss and other factors. The amount related to credit loss is recognized in earnings. The amount related to other factors is recognized in other comprehensive income. There were no credit losses as of March 31, 2015 and December 31, 2014. There were no other-than-temporary impairments for debt or equity securities as of March 31, 2015 and December 31, 2014. DUKE ENERGY The following table presents the estimated fair value of investments in available-for-sale securities. March 31, 2015 (in millions) Gross Unrealized Holding Gains December 31, 2014 Gross Unrealized Holding Losses(b) Estimated Fair Value(c) Gross Unrealized Holding Gains Gross Unrealized Holding Losses(b) Estimated Fair Value NDTF Cash and cash equivalents $ Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities Total NDTF (d) $ — $ — $ 106 $ — 1,916 28 3,643 1,926 19 1 482 7 2 227 24 1 2 2 $ — $ 136 29 3,650 14 2 454 5 — 184 864 19 2 978 148 1 2 1,968 $ 34 $ 5,470 $ — $ — $ 29 $ 147 1,965 $ 35 $ 5,549 — $ — $ 15 Other Investments Cash and cash equivalents $ Equity securities 36 — 98 34 — 96 Corporate debt securities 3 — 81 1 1 58 Municipal bonds 3 1 75 3 1 76 — — 45 — — 27 1 2 83 1 1 U.S. government bonds Other debt securities 80 Total Other Investments(a) $ 43 $ 3 $ 411 $ 39 $ 3 $ 352 Total Investments $ 2,011 $ 37 $ 5,881 $ 2,004 $ 38 $ 5,901 (a) (b) (c) (d) These amounts are recorded in Other with Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. These amounts exclude net pending trade receivables of $107 million as of March 31, 2015. The decrease in the estimated fair value of the NDTF for the three months ended March 31, 2015 is primarily due to reimbursement from the NDTF for Duke Energy Florida's costs related to ongoing decommissioning activity of the Crystal River Unit 3 Nuclear Station. The table below summarizes the maturity date for debt securities. (in millions) March 31, 2015 Due in one year or less $ 110 Due after one through five years 603 Due after five through 10 years 488 Due after 10 years 804 Total $ 2,005 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Three Months Ended March 31, (in millions) 2015 Realized gains $ Realized losses 102 14 66 2014 $ 31 4 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY CAROLINAS The following table presents the estimated fair value of investments in available-for-sale securities. March 31, 2015 Gross Unrealized Holding Losses(b) Gross Unrealized Holding Gains (in millions) December 31, 2014 Estimated Fair Value(c) Gross Unrealized Holding Gains $ $ Gross Unrealized Holding Losses(b) Estimated Fair Value NDTF Cash and cash equivalents $ Equity securities — $ — 42 — 1,076 16 2,127 1,102 Corporate debt securities $ — $ 51 17 2,162 316 11 1 329 8 2 Municipal bonds 2 1 90 1 — 62 U.S. government bonds 8 1 296 7 1 308 Other debt securities Total NDTF 2 2 128 1 2 133 $ 1,099 $ 21 $ 3,012 $ 1,119 $ 22 $ 3,032 Other debt securities $ — $ 1 $ 3 $ — $ 1 $ 3 Total Other Investments(a) $ — $ 1 $ 3 $ — $ 1 $ 3 Total Investments $ 1,099 $ 22 $ 3,015 $ 1,119 $ 23 $ 3,035 Other Investments (a) (b) (c) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. These amounts exclude net pending trade receivables of $107 million as of March 31, 2015. The table below summarizes the maturity date for debt securities. (in millions) March 31, 2015 Due in one year or less $ 5 Due after one through five years 177 Due after five through 10 years 257 Due after 10 years 407 Total $ 846 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Three Months Ended March 31, (in millions) 2015 Realized gains $ Realized losses 90 12 67 2014 $ 23 1 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) PROGRESS ENERGY The following table presents the estimated fair value investments in available-for-sale securities. March 31, 2015 Gross Unrealized Holding Losses(b) Gross Unrealized Holding Gains (in millions) December 31, 2014 Estimated Fair Value Gross Unrealized Holding Losses(b) Gross Unrealized Holding Gains Estimated Fair Value NDTF Cash and cash equivalents $ Equity securities — $ — $ 64 $ — $ — $ 85 840 12 1,516 824 12 1,488 Corporate debt securities 8 — 153 6 — 138 Municipal bonds 5 1 137 4 — 122 U.S. government bonds 16 — 568 12 1 670 Other debt securities — — 20 — — Total NDTF (c) 14 $ 869 $ 13 $ 2,458 $ 846 $ 13 $ 2,517 $ — $ — $ 18 $ — $ — $ 15 Other Investments Cash and cash equivalents Municipal bonds 3 — 42 3 — 43 Total Other Investments(a) $ 3 $ — $ 60 $ 3 $ — $ 58 Total Investments $ 872 $ 13 $ 2,518 $ 849 $ 13 $ 2,575 (a) (b) (c) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. The decrease in the estimated fair value of the NDTF for the three months ended March 31, 2015 is primarily due to reimbursement from the NDTF for Duke Energy Florida's costs related to ongoing decommissioning activity of the Crystal River Unit 3 Nuclear Station. The table below summarizes the maturity date for debt securities. (in millions) March 31, 2015 Due in one year or less $ 84 Due after one through five years 350 Due after five through 10 years 160 Due after 10 years 326 Total $ 920 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Three Months Ended March 31, (in millions) 2015 Realized gains $ Realized losses 12 1 68 2014 $ 7 2 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY PROGRESS The following table presents the estimated fair value of investments in available-for-sale securities. March 31, 2015 Gross Unrealized Holding Gains (in millions) December 31, 2014 Gross Unrealized Holding Losses(b) Gross Unrealized Holding Gains Estimated Fair Value Gross Unrealized Holding Losses(b) Estimated Fair Value NDTF Cash and cash equivalents $ Equity securities — $ — $ 40 $ — $ — $ 50 626 10 1,194 612 10 Corporate debt securities 6 — 107 5 — 97 Municipal bonds 5 1 135 4 — 120 U.S. government bonds 10 — 251 9 1 265 Other debt securities — — 12 — — 8 Total NDTF 1,171 $ 647 $ 11 $ 1,739 $ 630 $ 11 $ 1,711 Cash and cash equivalents $ — $ — $ 1 $ — $ — $ — Total Other Investments(a) $ — $ — $ 1 $ — $ — $ — Total Investments $ 647 $ 11 $ 1,740 $ 630 $ 11 $ 1,711 Other Investments (a) (b) These amounts are recorded in Other with Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. The table below summarizes the maturity date for debt securities. (in millions) March 31, 2015 Due in one year or less $ 12 Due after one through five years 147 Due after five through 10 years 113 Due after 10 years 233 Total $ 505 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Three Months Ended March 31, (in millions) 2015 Realized gains $ Realized losses 9 1 69 2014 $ 6 2 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY FLORIDA The following table presents the estimated fair value of investments in available-for-sale securities. March 31, 2015 Gross Unrealized Holding Gains (in millions) December 31, 2014 Gross Unrealized Holding Losses(b) Gross Unrealized Holding Gains Estimated Fair Value Gross Unrealized Holding Losses(b) Estimated Fair Value NDTF Cash and cash equivalents $ Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities Total NDTF — $ — $ 24 214 2 322 $ — $ — $ 35 212 2 317 41 2 — 46 1 — — — 2 — — 2 6 — 317 3 — 405 — — 8 — — 6 $ 222 $ 2 $ $ — $ — $ 719 $ 216 $ 2 $ 2 $ — $ — $ 806 Other Investments Cash and cash equivalents Municipal bonds 3 — 42 3 1 — 43 Total Other Investments(a) $ 3 $ — $ 44 $ 3 $ — $ 44 Total Investments $ 225 $ 2 $ 763 $ 219 $ 2 $ 850 (a) (b) (c) These amounts are recorded in Other with Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. The decrease in the estimated fair value of the NDTF for the three months ended March 31, 2015 is primarily due to reimbursement from the NDTF for Duke Energy Florida's costs related to ongoing decommissioning activity of the Crystal River Unit 3 Nuclear Station. The table below summarizes the maturity date for debt securities. (in millions) March 31, 2015 Due in one year or less $ 72 Due after one through five years 203 Due after five through 10 years 47 Due after 10 years 93 Total $ 415 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Three Months Ended March 31, (in millions) 2015 Realized gains $ Realized losses 3 — 70 2014 $ 1 1 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY INDIANA The following table presents the estimated fair value of investments in available-for-sale securities. March 31, 2015 (in millions) December 31, 2014 Gross Unrealized Holding Gains Gross Unrealized Holding Losses(b) $ $ Estimated Fair Value Gross Unrealized Holding Gains Gross Unrealized Holding Losses(b) $ $ Estimated Fair Value Other Investments Equity securities Municipal bonds 30 — — $ 1 73 30 28 — — $ 71 1 30 Total Other Investments(a) $ 30 $ 1 $ 103 $ 28 $ 1 $ 101 Total Investments $ 30 $ 1 $ 103 $ 28 $ 1 $ 101 (a) (b) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. The table below summarizes the maturity date for debt securities. (in millions) March 31, 2015 Due in one year or less $ 2 Due after one through five years 17 Due after five through 10 years 8 Due after 10 years 3 Total $ 30 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were insignificant for the three months ended March 31, 2015 and 2014. 11. FAIR VALUE MEASUREMENTS Fair value is the exchange price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value definition focuses on an exit price versus the acquisition cost. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient. Fair value measurements are classified in three levels based on the fair value hierarchy: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. An active market is one in which transactions for an asset or liability occur with sufficient frequency and volume to provide ongoing pricing information. Level 2 – A fair value measurement utilizing inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly, for an asset or liability. Inputs include (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active and (iii) inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities and credit spreads. A Level 2 measurement cannot have more than an insignificant portion of its valuation based on unobservable inputs. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less than active markets. Level 3 – Any fair value measurement which includes unobservable inputs for more than an insignificant portion of the valuation. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 measurements may include longer-term instruments that extend into periods in which observable inputs are not available. The fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value. 71 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Transfers between levels represent assets or liabilities that were previously (i) categorized at a higher level for which the inputs to the estimate became less observable or (ii) classified at a lower level for which the inputs became more observable during the period. The Duke Energy Registrant’s policy is to recognize transfers between levels of the fair value hierarchy at the end of the period. There were no transfers between levels 1 and 2 during the three months ended March 31, 2015 and 2014. Transfers out of Level 3 during the three months ended March 31, 2015 are the result of forward commodity prices becoming observable due to the passage of time. Valuation methods of the primary fair value measurements disclosed below are as follows. Investments in equity securities The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as Nasdaq composite (NASDAQ) and New York Stock Exchange (NYSE). Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements. Investments in equity securities that are Level 2 or 3 are typically ownership interests in commingled investment funds. Investments in debt securities With the exception of U.S. Treasuries which are classified as Level 1, most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed income security is relatively inactive or illiquid, the measurement is Level 3. Commodity derivatives Commodity derivatives with clearinghouses are classified as Level 1. Other commodity derivatives are primarily fair valued using internally developed discounted cash flow models which incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or non-performance risk (after reflecting credit enhancements such as collateral), and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for natural gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate fair value of natural gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves. Interest rate derivatives Most over-the-counter interest rate contract derivatives are valued using financial models which utilize observable inputs for similar instruments and are classified as Level 2. Inputs include forward interest rate curves, notional amounts, interest rates and credit quality of the counterparties. Goodwill, Long-lived Assets and Assets Held for Sale See Note 7 for a discussion of the valuation of goodwill and long-lived assets and Note 2 related to the assets and related liabilities of the Disposal Group classified as held for sale. DUKE ENERGY The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ 3,643 Nuclear decommissioning trust fund debt securities Other trading and available-for-sale equity securities Other trading and available-for-sale debt securities Derivative assets Total assets Derivative liabilities Net assets Level 1 $ 3 Level 3 $ 164 542 1,285 — 98 98 — — 323 73 245 5 52 7 22 23 5,943 4,196 1,555 192 5,318 72 Level 2 $ 1,827 (625) $ 3,476 (119) $ 4,077 (497) $ 1,058 (9) $ 183 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) December 31, 2014 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ 3,650 Nuclear decommissioning trust fund debt securities Level 1 $ 3,493 Level 2 $ 6 Level 3 $ 151 1,899 648 1,251 — 96 96 — — Other trading and available-for-sale debt securities 263 41 217 5 Derivative assets 110 49 24 37 6,018 4,327 1,498 193 Other trading and available-for-sale equity securities Total assets Derivative liabilities Net assets (668) $ 5,350 (162) $ 4,165 (468) $ 1,030 (38) $ 155 The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Amounts included in earnings for derivatives are primarily included in Operating Revenues. Three Months Ended March 31, 2015 (in millions) Investments Balance at beginning of period $ Total pretax realized or unrealized gains (losses) included in earnings 156 Derivatives (net) $ (1) — 24 Total $ 155 24 Purchases, sales, issuances and settlements: Purchases 9 — 9 Sales (1) — (1) Settlements — (10) (10) Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period 5 $ 169 1 $ 14 6 $ 183 Three Months Ended March 31, 2014 (in millions) Investments Balance at beginning of period $ Total pretax realized or unrealized gains (losses) included in earnings 98 Derivatives (net) $ 13 — 18 Total $ 111 18 Purchases, sales, issuances and settlements: Purchases 1 — 1 Sales (1) — (1) Settlements — (39) (39) — (5) (5) Transfers out of Level 3 due to observability of inputs Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities 1 (1) — Balance at end of period $ 99 $ (14) $ 85 Pretax amounts included in the Condensed Consolidated Statements of Comprehensive Income related to Level 3 measurements outstanding $ — $ 7 $ 7 73 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY CAROLINAS The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ 2,127 Level 1 $ 1,960 Level 2 $ 3 Level 3 $ 164 Nuclear decommissioning trust fund debt securities 885 131 754 Other trading and available-for-sale debt securities 3 — — 3 3,015 2,091 757 167 Total assets Derivative liabilities Net assets (27) $ 2,988 — $ 2,091 — (27) $ 730 — $ 167 December 31, 2014 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ 2,162 Level 1 $ 2,005 Level 2 $ 6 Level 3 $ 151 Nuclear decommissioning trust fund debt securities 870 138 732 — Other trading and available-for-sale debt securities 3 — — 3 3,035 2,143 738 154 Total assets Derivative liabilities Net assets (19) $ 3,016 74 — $ 2,143 (19) $ 719 — $ 154 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Three Months Ended March 31, 2015 (in millions) Investments Balance at beginning of period $ 154 Derivatives (net) $ — Total $ 154 Purchases, sales, issuances and settlements: Purchases 9 — 9 Issuances (1) — (1) 5 — 5 Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period $ 167 $ — $ 167 Three Months Ended March 31, 2014 (in millions) Investments Balance at beginning of period $ 81 Derivatives (net) $ (2) Total $ 79 Purchases, sales, issuances and settlements: Purchases 1 — 1 Sales (1) — (1) Settlements — (2) (2) Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period 1 $ 82 — $ (4) 1 $ 78 PROGRESS ENERGY The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ 1,516 Level 1 $ 1,516 Level 2 $ — Level 3 $ — Nuclear decommissioning trust fund debt securities 942 411 531 — Other trading and available-for-sale debt securities 60 16 44 — 6 — 6 — 2,524 1,943 581 — Derivative assets Total assets Derivative liabilities Net assets (395) $ 2,129 — $ 1,943 (395) $ 186 — $ — December 31, 2014 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ 1,488 Level 1 $ 1,488 Level 2 $ — Level 3 $ — Nuclear decommissioning trust fund debt securities 1,029 510 519 — Other trading and available-for-sale debt securities 58 15 43 — 4 — 4 — 2,579 2,013 566 — Derivative assets Total assets Derivative liabilities Net assets (373) $ 2,206 75 — $ 2,013 (373) $ 193 — $ — PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Derivatives (net) Three Months Ended March 31, (in millions) 2015 Balance at beginning of period $ — Total pretax realized or unrealized gains included in earnings 2014 $ — — (3) Balance at end of period $ — $ (3) Pretax amounts included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to Level 3 measurements outstanding at March 31, 2014 $ — $ (3) DUKE ENERGY PROGRESS The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ 1,194 Level 1 $ 1,194 Level 2 $ — Level 3 $ — Nuclear decommissioning trust fund debt securities 545 140 405 — Other trading and available-for-sale debt securities 1 1 — — Derivative assets 2 — 2 — 1,742 1,335 407 — Total assets Derivative liabilities Net assets (131) $ 1,611 — $ 1,335 (131) $ 276 — $ — December 31, 2014 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ 1,171 Nuclear decommissioning trust fund debt securities Total assets Derivative liabilities Net assets Level 1 $ 1,171 — Level 3 $ — 540 151 389 — 1,711 1,322 389 — (132) $ Level 2 $ 1,579 — $ 1,322 (132) $ 257 — $ — The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Derivatives (net) Three Months Ended March 31, (in millions) 2015 Balance at beginning of period $ Total pretax realized or unrealized gains included in earnings — 2014 $ — — (3) Balance at end of period $ — $ (3) Pretax amounts included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to Level 3 measurements outstanding at March 31, 2014 $ — $ (3) 76 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY FLORIDA The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ 322 Level 1 $ 322 Level 2 $ — Level 3 $ — Nuclear decommissioning trust fund debt securities and other 397 271 126 — Other trading and available-for-sale debt securities and other 44 — 44 — 4 — 4 — 767 593 174 — Derivative assets Total assets Derivative liabilities Net assets (liabilities) (264) $ 503 — $ 593 (264) $ (90) — $ — December 31, 2014 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ 317 Level 1 $ 317 Level 2 $ — Level 3 $ — Nuclear decommissioning trust fund debt securities and other 489 359 130 — Other trading and available-for-sale debt securities and other 44 — 44 — 4 — 4 — 854 676 178 — Derivative assets Total assets Derivative liabilities Net assets (liabilities) (241) $ 613 — $ 676 (241) $ (63) — $ — DUKE ENERGY OHIO The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. March 31, 2015 (in millions) Derivative assets Total Fair Value $ 44 Derivative liabilities Net liabilities Level 1 $ (134) $ (90) 20 Level 2 $ (108) $ (88) 8 Level 3 $ (17) $ (9) 16 (9) $ 7 December 31, 2014 (in millions) Derivative assets Total Fair Value $ 49 Derivative liabilities Net liabilities Level 1 $ (181) $ (132) 77 20 Level 2 $ (117) $ (97) 9 Level 3 $ (26) $ (17) 20 (38) $ (18) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Derivatives (net) Three Months Ended March 31, (in millions) 2015 Balance at beginning of period $ 2014 (18) Total pretax realized or unrealized gains (losses) included in earnings $ (4) 25 (6) — (4) Purchases, sales, issuances and settlements: Settlements Transfers out of Level 3 due to observability of inputs — Balance at end of period $ 7 Pretax amounts included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to Level 3 measurements outstanding at March 31, 2014 $ — (5) $ (19) (7) DUKE ENERGY INDIANA The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2015 (in millions) Available-for-sale equity securities Total Fair Value $ 73 Available-for-sale debt securities Derivative assets Net assets $ Level 1 $ 73 Level 2 $ — 30 — 30 3 — — 106 $ 73 $ 30 Level 3 $ — — 3 $ 3 December 31, 2014 (in millions) Available-for-sale equity securities Total Fair Value $ 71 Level 1 $ 71 Level 2 $ — Level 3 $ — Available-for-sale debt securities 30 — 30 — Derivative assets 14 — — 14 Net assets $ 115 $ 71 $ 30 $ 14 The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Derivatives (net) Three Months Ended March 31, (in millions) 2015 Balance at beginning of period $ Total pretax realized or unrealized gains (losses) included in earnings 14 2014 $ 12 (3) 27 (9) (31) 1 (1) Purchases, sales, issuances and settlements: Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period $ 78 3 $ 7 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) QUANTITATIVE DISCLOSURES ABOUT UNOBSERVABLE INPUTS The following table includes quantitative information about the Duke Energy Registrants' derivatives classified as Level 3. March 31, 2015 Fair Value (in millions) Investment Type Valuation Technique Unobservable Input Range Duke Energy Natural gas contracts $ 11 Discounted cash flow Forward natural gas curves – price per MMBtu $ 1.96 -$ 3.78 Financial transmission rights (FTRs) 3 RTO auction pricing FTR price – per MWh (0.83) - 8.47 Electricity contracts 8 Discounted cash flow Forward electricity curves – price per MWh 24.96 - 51.33 1 Discounted cash flow Forward capacity option curves – price per MW day 19.00 - 109.50 25.05 - 51.33 1.96 - 3.78 (0.83) - 8.47 Commodity capacity option contracts Commodity contract reserves Total Level 3 derivatives (9) $ Bid-ask spreads, implied volatility, probability of default 14 Duke Energy Ohio Electricity contracts $ 2 Discounted cash flow Forward electricity curves – price per MWh Natural gas contracts 11 Discounted cash flow Forward natural gas curves – price per MMBtu Commodity contract reserves (6) Bid-ask spreads, implied volatility, probability of default Total Level 3 derivatives $ 7 $ 3 RTO auction pricing Duke Energy Indiana FTRs FTR price – per MWh December 31, 2014 Fair Value (in millions) Investment Type Valuation Technique Unobservable Input Range Duke Energy Natural gas contracts (5) Discounted cash flow Forward natural gas curves – price per MMBtu Financial transmission rights (FTRs) $ 14 RTO auction pricing FTR price – per MWh (1.92) - 9.86 Electricity contracts (1) Discounted cash flow Forward electricity curves – price per MWh 25.16 - 51.75 Forward capacity option curves – price per MW day 21.00 - 109.00 25.25 - 51.75 2.12 - 4.35 (1.92) - 9.86 Commodity capacity option contracts 2 Discounted cash flow Commodity contract reserves Total Level 3 derivatives (11) $ (1) $ $ 2.12 -$ 4.35 Bid-ask spreads, implied volatility, probability of default Duke Energy Ohio Electricity contracts (6) Discounted cash flow Forward electricity curves – price per MWh Natural gas contracts (5) Discounted cash flow Forward natural gas curves – price per MMBtu Commodity contract reserves (7) Bid-ask spreads, implied volatility, probability of default Total Level 3 derivatives $ (18) Duke Energy Indiana FTRs $ 14 RTO auction pricing FTR price – per MWh 79 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) OTHER FAIR VALUE DISCLOSURES The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements. March 31, 2015 (in millions) Book Value Duke Energy $ Duke Energy Carolinas 39,973 $ December 31, 2014 Fair Value 45,113 Book Value $ 40,020 $ Fair Value 44,566 8,885 10,301 8,391 9,626 14,510 16,956 14,754 16,951 Duke Energy Progress 5,957 6,549 6,201 6,696 Duke Energy Florida 4,858 5,867 4,860 5,767 Duke Energy Ohio 1,606 1,810 1,766 1,970 Duke Energy Indiana 3,791 4,529 3,791 4,456 Progress Energy At both March 31, 2015 and December 31, 2014, the fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper, and non-recourse notes payable of variable interest entities are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates. 12. VARIABLE INTEREST ENTITIES A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. A qualitative analysis of control determines the party that consolidates a VIE. This assessment is based on (i) what party has the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) what party has rights to receive benefits or is obligated to absorb losses that could potentially be significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment. No financial support was provided to any of the consolidated VIEs during the three months ended March 31, 2015 and the year ended December 31, 2014, or is expected to be provided in the future, that was not previously contractually required. 80 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) CONSOLIDATED VIEs The following tables summarize the impact of VIEs consolidated by Duke Energy and the Subsidiary Registrants on the Condensed Consolidated Balance Sheets. March 31, 2015 Duke Energy Duke Energy Carolinas Duke Energy Progress Duke Energy Florida DERF DEPR(c) DEFR(c) (in millions) CRC Renewables Other Total ASSETS Current Assets Restricted receivables of variable interest entities (net of allowance for doubtful accounts) $ Other 658 $ 478 $ 300 $ 540 $ 18 $ 22 $ 2,016 — — — — 102 7 109 — — — — 22 15 37 Property, plant and equipment, cost(a) — — — — 1,854 19 1,873 Accumulated depreciation and amortization — — — — Investments and Other Assets Other Property, Plant and Equipment (267) (6) (273) Regulatory Assets and Deferred Debits Other Total assets — 1 1 — 36 — 38 $ 658 $ 479 $ 301 $ 540 $ 1,765 $ 57 $ 3,800 $ — $ — $ — $ — $ 2 $ — $ 2 LIABILITIES AND EQUITY Current Liabilities Accounts payable Taxes accrued Current maturities of long-term debt Other 2 2 1 — 4 — 9 — — — — 68 17 85 — — — — 23 8 31 400 300 225 325 967 12 2,229 Deferred income taxes — — — — 270 — 270 Asset retirement obligations — — — — 30 — 30 Other — — — — 40 — Long-Term Debt (b) Deferred Credits and Other Liabilities 40 Total liabilities $ 402 $ 302 $ 226 $ 325 $ 1,404 $ 37 $ 2,696 Net assets of consolidated variable interest entities $ 256 $ 177 $ 75 $ 215 $ 361 $ 20 $ 1,104 (a) (b) (c) Restricted as collateral for non-recourse debt of VIEs. Non-recourse to the general assets of the applicable registrant. The amount for Progress Energy is equal to the sum of the amounts for Duke Energy Progress Receivables Company, LLC (DEPR) and Duke Energy Florida Receivables Company, LLC (DEFR). 81 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) December 31, 2014 Duke Energy Duke Energy Carolinas Duke Energy Progress Duke Energy Florida DERF DEPR(c) DEFR(c) (in millions) CRC Renewables Other Total ASSETS Current Assets Restricted receivables of variable interest entities (net of allowance for doubtful accounts) $ Other 647 $ 436 $ 305 $ 547 $ 20 $ 18 $ 1,973 — — — — 68 6 74 — — — — 25 25 50 Property, plant and equipment, cost(a) — — — — 1,855 18 1,873 Accumulated depreciation and amortization — — — — Investments and Other Assets Other Property, Plant and Equipment (250) (5) (255) Regulatory Assets and Deferred Debits Other Total assets — — — — 34 2 36 $ 647 $ 436 $ 305 $ 547 $ 1,752 $ 64 $ 3,751 $ — $ — $ — $ — $ 3 $ — $ 3 LIABILITIES AND EQUITY Current Liabilities Accounts payable Taxes accrued — — — — 6 — 6 Current maturities of long-term debt — — — — 68 16 84 Other — — — — 16 5 21 400 300 225 325 967 17 2,234 Deferred income taxes — — — — 283 — 283 Asset retirement obligations — — — — 29 — 29 Other — — — — 34 4 Long-Term Debt (b) Deferred Credits and Other Liabilities 38 Total liabilities $ 400 $ 300 $ 225 $ 325 $ 1,406 $ 42 $ 2,698 Net assets of consolidated variable interest entities $ 247 $ 136 $ 80 $ 222 $ 346 $ 22 $ 1,053 (a) (b) (c) Restricted as collateral for non-recourse debt of VIEs. Non-recourse to the general assets of the applicable registrant. The amount for Progress Energy is equal to the sum of the amounts for DEPR and DEFR. The obligations of these VIEs are non-recourse to Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress and Duke Energy Florida. These entities have no requirement to provide liquidity to, purchase assets of or guarantee performance of these VIEs unless noted in the following paragraphs. 82 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DERF / DEPR / DEFR Duke Energy Receivables Finance Company, LLC (DERF), DEPR and DEFR are bankruptcy remote, special purpose subsidiaries of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, respectively. On a daily basis, DERF, DEPR and DEFR buy certain accounts receivable arising from the sale of electricity and/or related services from their parent companies. DERF, DEPR and DEFR are wholly owned limited liability companies with separate legal existence from their parents, and their assets are not generally available to creditors of their parent companies. DERF, DEPR and DEFR borrow amounts under credit facilities to buy the receivables. Borrowing availability is limited to the amount of qualified receivables sold, which is generally expected to be in excess of the credit facilities. The credit facilities are reflected on the Condensed Consolidated Balance Sheets as Long-Term Debt. The secured credit facilities were not structured to meet the criteria for sale accounting treatment under the accounting guidance for transfers and servicing of financial assets. The following table summarizes the amounts and expiration dates of the credit facilities reflected on the Condensed Consolidated Balance Sheets as Long-Term Debt. DERF Credit facility amount (in millions) $ DEPR 400 $ Expiration date October 2016 DEFR 300 $ 225 December 2016 March 2017 The activity that most significantly impacts the economic performance of DERF, DEPR and DEFR are the decisions made to manage delinquent receivables. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida consolidate DERF, DEPR and DEFR, respectively, as they are the related parties most closely associated with the VIE. CRC On a revolving basis, CRC buys certain accounts receivable arising from the sale of electricity and/or related services from Duke Energy Ohio and Duke Energy Indiana. Receivables sold are securitized by CRC through a credit facility managed by two unrelated third parties. The proceeds Duke Energy Ohio and Duke Energy Indiana receive from the sale of receivables to CRC are typically 75 percent cash and 25 percent in the form of a subordinated note from CRC. The subordinated note is a retained interest in the receivables sold. Cash collections from the receivables are the sole source of funds to satisfy the related debt obligation. Depending on experience with collections, additional equity infusions to CRC may be required by Duke Energy to maintain a minimum equity balance of $3 million. Borrowing availability is limited to the amount of qualified receivables sold, which is generally expected to be in excess of the credit facility. The credit facility expires in November 2016 and is reflected on the Condensed Consolidated Balance Sheets as Long-Term Debt. CRC is considered a VIE because (i) equity capitalization is insufficient to support its operations, (ii) power to direct the activities that most significantly impact the economic performance of the entity are not performed by the equity holder, Cinergy, and (iii) deficiencies in net worth of CRC are not funded by Cinergy, but by Duke Energy. The most significant activities of CRC are decisions made related to the management of delinquent receivables. Duke Energy consolidates CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy Indiana consolidate CRC. Renewables Certain of Duke Energy’s renewable energy facilities are VIEs due to long-term fixed-price power purchase agreements. These fixed-price agreements effectively transfer commodity price risk to the buyer of the power. Certain other of Duke Energy’s renewable energy facilities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves in support of debt financings. For certain VIEs, assets are restricted and cannot be pledged as collateral or sold to third parties without prior approval of debt holders. The activities that most significantly impact the economic performance of these renewable energy facilities were decisions associated with siting, negotiating purchase power agreements, engineering, procurement and construction, and decisions associated with ongoing operations and maintenance-related activities. Duke Energy consolidates the entities as it makes all of these decisions. NON-CONSOLIDATED VIEs The following tables include VIEs not consolidated and how these entities impact the Condensed Consolidated Balance Sheets. March 31, 2015 Duke Energy (in millions) Receivables Renewables $ — Investments in equity method unconsolidated affiliates Investments and other assets Other $ 90 $ 105 213 — $ — — 3 3 — 147 $ Other current liabilities $ — $ Deferred credits and other liabilities — 69 $ 2 $ 14 — $ Duke Energy Indiana 66 $ $ Duke Energy Ohio 147 Total assets — Total — 216 $ 90 $ 105 2 $ — $ — 14 — — Total liabilities $ — $ 16 $ 16 $ — $ — Net assets (liabilities) $ 147 $ 53 $ 200 $ 90 $ 105 83 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) December 31, 2014 Duke Energy (in millions) Receivables Renewables $ — Investments in equity method unconsolidated affiliates Investments and other assets Total assets $ Other $ — Total $ — Duke Energy Ohio $ 91 150 38 188 — — 4 4 — 150 $ 42 $ 192 $ 91 Other current liabilities — 3 3 — Deferred credits and other liabilities — 14 14 — Duke Energy Indiana $ 113 — — $ 113 — — Total liabilities $ — $ 17 $ 17 $ — $ — Net assets $ 150 $ 25 $ 175 $ 91 $ 113 The Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above except for the power purchase agreement with OVEC, which is discussed below, and various guarantees, reflected in the table above as Deferred credits and other liabilities. For more information on various guarantees, refer to Note 5, "Commitments and Contingencies". Renewables Duke Energy has investments in various renewable energy project entities. Some of these entities are VIEs due to long-term fixed-price power purchase agreements. These fixed-price agreements effectively transfer commodity price risk to the buyer of the power. Duke Energy does not consolidate these VIEs because power to direct and control key activities is shared jointly by Duke Energy and other owners. Other Duke Energy holds a 50 percent equity interest in Duke-American Transmission Company, LLC (DATC). DATC is considered a VIE due to insufficient equity at risk to permit DATC to finance its own activities without additional subordinated financial support. The activities that most significantly impact DATC’s economic performance are the decisions related to investing in existing and development of new transmission facilities. The power to direct these activities is jointly and equally shared by Duke Energy and the other joint venture partner and, therefore, Duke Energy does not consolidate. Duke Energy has a 40 percent equity interest in ACP, which is considered a VIE as the equity is not sufficient to permit the entity to finance its activities without additional subordinated financial support. The activity that most significantly impacts the economic performance of ACP is construction. Duke Energy does not control these activities and therefore does not consolidate ACP. OVEC Duke Energy Ohio’s 9 percent ownership interest in OVEC is considered a non-consolidated VIE. Through its ownership interest in OVEC, Duke Energy Ohio has a contractual arrangement to buy power from OVEC’s power plants through June 2040. Proceeds from the sale of power by OVEC to its power purchase agreement counterparties are designed to be sufficient to meet its operating expenses, fixed costs, debt amortization and interest expense, as well as earn a return on equity. Accordingly, the value of this contract is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business, including costs associated with its 2,256 MW of coal-fired generation capacity. Proposed environmental rule-making could increase the costs of OVEC, which would be passed through to Duke Energy Ohio. In 2014, Duke Energy recorded a $94 million impairment related to OVEC. CRC See discussion under Consolidated VIEs for additional information related to CRC. Amounts included in Receivables in the above table for Duke Energy Ohio and Duke Energy Indiana reflect their retained interest in receivables sold to CRC. These subordinated notes held by Duke Energy Ohio and Duke Energy Indiana are stated at fair value. Carrying values of retained interests are determined by allocating carrying value of the receivables between assets sold and interests retained based on relative fair value. The allocated bases of the subordinated notes are not materially different than their face value because (i) the receivables generally turnover in less than two months, (ii) credit losses are reasonably predictable due to the broad customer base and lack of significant concentration, and (iii) the equity in CRC is subordinate to all retained interests and thus would absorb losses first. The hypothetical effect on fair value of the retained interests assuming both a 10 percent and a 20 percent unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio and Duke Energy Indiana on the retained interests using the acceptable yield method. This method generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both retained interests and purchased beneficial interest whenever it is determined that an other-than-temporary impairment has occurred. 84 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Key assumptions used in estimating fair value are detailed in the following table. Duke Energy Ohio Duke Energy Indiana 2015 2014 2015 2014 Anticipated credit loss ratio 0.6% 0.6% 0.3% Discount rate 1.2% 1.2% 1.2% 1.2% 12.8% 12.8% 10.5% 10.4% Receivable turnover rate 0.3% The following table shows the gross and net receivables sold. Duke Energy Ohio (in millions) Receivables sold March 31, 2015 $ 284 Less: Retained interests Net receivables sold $ 273 90 $ 194 Duke Energy Indiana December 31, 2014 March 31, 2015 $ 296 91 $ 182 December 31, 2014 $ 310 105 $ 191 113 $ 197 The following table shows sales and cash flows related to receivables sold. (in millions) Duke Energy Ohio Duke Energy Indiana Three Months Ended March 31, Three Months Ended March 31, 2015 2014 2015 2014 Sales Receivables sold Loss recognized on sale $ 644 $ 741 $ 716 $ 755 3 4 3 3 Cash proceeds from receivables sold 640 723 722 761 Return received on retained interests 1 2 2 2 Cash flows Cash flows from sales of receivables are reflected within Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows. Collection fees received in connection with servicing transferred accounts receivable are included in Operation, maintenance and other on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Operations and Comprehensive Income. The loss recognized on sales of receivables is calculated monthly by multiplying receivables sold during the month by the required discount. The required discount is derived monthly utilizing a three-year weighted average formula that considers charge-off history, late charge history and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is the prior month-end London Interbank Offered Rate (LIBOR) plus a fixed rate of 1.00 percent. 13. COMMON STOCK Basic Earnings Per Share (EPS) is computed by dividing net income attributable to Duke Energy common shareholders, adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common shareholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, phantom shares and stock-based performance unit awards, were exercised or settled. Duke Energy’s participating securities are restricted stock units that are entitled to dividends declared on Duke Energy common shares during the restricted stock unit’s vesting periods. 85 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following table presents Duke Energy’s basic and diluted EPS calculations and reconciles the weighted-average number of common shares outstanding to the diluted weighted-average number of common shares outstanding. Three Months Ended March 31, (in millions, except per share amounts) 2015 Income from continuing operations attributable to Duke Energy common shareholders $ Weighted-average shares outstanding – basic 772 2014 $ 708 Weighted-average shares outstanding – diluted 744 706 708 706 Earnings per share from continuing operations attributable to Duke Energy common shareholders Basic $ 1.09 $ 1.05 Diluted $ 1.09 $ 1.05 $ 0.78 Potentially dilutive items excluded from the calculation(a) 2 Dividends declared per common share $ 0.795 2 (a)Certain stock options and performance stock awards were not included in the dilutive securities calculation because either the option exercise prices were greater than the average market price of the common shares during the presented periods, or performance measures related to the awards had not yet been met. On April 6, 2015, Duke Energy entered into agreements with each of Goldman, Sachs & Co. and JPMorgan Chase Bank, National Association (the Dealers) to repurchase a total of $1.5 billion of Duke Energy common stock under an accelerated stock repurchase program (the ASR). Duke Energy made payments of $750 million to each of the Dealers and was delivered 16.6 million shares, which is approximately 85 percent of the total number of shares of Duke Energy common stock expected to be repurchased under the ASR. The total fair market value of the delivered shares, based on the closing Duke Energy stock price of $76.97 per share at the commencement of the ASR, was $1.275 billion. The final number of shares to be repurchased is dependent upon the average of the daily volume-weighted average stock prices of Duke Energy’s common stock during the term of the program, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreements. The delivery of additional shares of common stock to Duke Energy or delivery of shares of common stock or cash payment, at Duke Energy’s election, to the Dealers from Duke Energy may be required under certain circumstances. Final settlement of the ASR transaction is expected to occur by the end of the third quarter of 2015. The $225 million unsettled portion of the ASR meets the criteria to be accounted for as a forward contract indexed to Duke Energy's stock and qualifies as an equity instrument. The company recorded the $1.5 billion payment as a reduction to common stock, which included the $1.275 billion of initial shares repurchased and the unsettled forward contract of $225 million, as of April 6, 2015. The initial delivery of shares will result in a reduction to Duke Energy's common stock outstanding used to calculate earnings per share beginning in the second quarter of 2015. 14. STOCK-BASED COMPENSATION For employee awards, equity classified stock-based compensation cost is measured at the service inception date or the grant date, based on the estimated achievement of certain performance metrics or the fair value of the award, and is recognized as expense or capitalized as a component of property, plant and equipment over the requisite service period. Duke Energy recorded pretax stock-based compensation expense as follows. Three Months Ended March 31, (in millions) 2015 Restricted stock unit awards $ Performance awards 9 2014 $ 11 5 5 Total $ 14 $ 16 Tax benefit associated with stock-based compensation expense $ 5 $ 6 Stock-based compensation costs capitalized 1 1 15. EMPLOYEE BENEFIT PLANS DEFINED BENEFIT RETIREMENT PLANS Duke Energy maintains, and the Subsidiary Registrants participate in, qualified, non-contributory defined benefit retirement plans. The plans cover most U.S. employees using a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits equal to a percentage of current eligible earnings based on age and/or years of service, and interest credits. Certain employees are covered under plans that use a final average earnings formula. Under these average earnings formulas, a plan participant accumulates a retirement benefit equal to the sum of percentages of their (i) highest three-year or four-year average earnings, (ii) highest three-year or four-year average earnings in excess of covered compensation per year of participation (maximum of 35 years) and/or (iii) highest three-year or fouryear average earnings times years of participation in excess of 35 years. Duke Energy also maintains, and the Subsidiary Registrants participate in, non-qualified, noncontributory defined benefit retirement plans which cover certain executives. As of January 1, 2014, the qualified and non-qualified non-contributory defined benefit plans are closed to new and rehired non-union and certain unionized employees. 86 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Duke Energy uses a December 31 measurement date for its defined benefit retirement plan assets and obligations. Duke Energy’s policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefit payments to be paid to plan participants. The following table includes information related to the Duke Energy Registrants’ contributions to its U.S. qualified defined benefit pension plans. Three Months Ended March 31, 2015 (in millions) Duke Energy Carolinas Duke Energy Contributions $ 132 $ 42 Progress Energy $ Duke Energy Progress 42 $ 21 Duke Energy Florida $ Duke Energy Ohio 21 $ 1 Duke Energy Indiana $ 9 Duke Energy did not make any contributions to its U.S. qualified defined benefit pension plans during the three months ended March 31, 2014. Net periodic benefit costs disclosed in the tables below represent the cost of the respective benefit plan for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment. Amounts presented in the tables below for the Subsidiary Registrants represent the amounts of pension and other post-retirement benefit costs allocated by Duke Energy for employees of the Subsidiary Registrants. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and post-retirement benefit costs for employees of Duke Energy’s shared services affiliate that provide support to the Subsidiary Registrants. These allocated amounts are included in the governance and shared service costs discussed in Note 8. QUALIFIED PENSION PLANS The following tables include the components of net periodic pension costs for qualified pension plans. Three Months Ended March 31, 2015 (in millions) Service cost Duke Energy $ 40 Interest cost on projected benefit obligation Duke Energy Carolinas $ 13 Progress Energy $ 11 Duke Energy Progress $ 6 Duke Energy Florida $ 5 Duke Energy Ohio $ 1 Duke Energy Indiana $ 3 82 21 26 12 14 5 7 (129) (36) (43) (20) (22) (6) (10) Amortization of actuarial loss 43 10 17 8 8 2 3 Amortization of prior service credit (4) (2) (1) — — — — Expected return on plan assets Other Net periodic pension costs 2 $ 34 1 $ 7 1 $ 11 — $ 6 — $ 5 — $ 2 — $ 3 Three Months Ended March 31, 2014 (in millions) Service cost Duke Energy $ Interest cost on projected benefit obligation Expected return on plan assets 34 Duke Energy Carolinas $ 10 Progress Energy $ 10 Duke Energy Progress $ 5 Duke Energy Florida $ 5 Duke Energy Ohio $ 1 Duke Energy Indiana $ 2 86 21 28 13 14 5 7 (128) (33) (43) (21) (21) (7) (9) Amortization of actuarial loss 37 9 17 8 8 1 3 Amortization of prior service credit (4) (2) (1) — — — — Other Net periodic pension costs 2 $ 27 1 $ 6 1 $ 12 — $ 5 — $ NON-QUALIFIED PENSION PLANS The net periodic pension costs for non-qualified pension plans were not material for the three months ended March 31, 2015 and 2014. 87 6 — $ — — $ 3 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) OTHER POST-RETIREMENT BENEFIT PLANS Duke Energy provides, and the Subsidiary Registrants participate in, some health care and life insurance benefits for retired employees on a contributory and non-contributory basis. Employees are eligible for these benefits if they have met age and service requirements at retirement, as defined in the plans. The health care benefits include medical, dental and prescription drug coverage and are subject to certain limitations, such as deductibles and co-payments. Duke Energy did not make any pre-funding contributions to its other post-retirement benefit plans during the three months ended March 31, 2015 and 2014. The following tables include the components of net periodic other post-retirement benefit costs. Three Months Ended March 31, 2015 (in millions) Duke Energy Carolinas Duke Energy Service cost $ 2 Interest cost on accumulated post-retirement benefit obligation Expected return on plan assets Net periodic other post-retirement benefit costs $ — $ Duke Energy Progress — $ Duke Energy Florida — $ Duke Energy Ohio — $ — Duke Energy Indiana $ — 9 2 4 2 2 — — (3) (2) — — — — — 6 — 7 5 3 — — (35) (4) (26) (17) (9) — — Amortization of actuarial loss Amortization of prior service credit $ Progress Energy (21) $ (4) $ (15) $ (10) $ (4) $ — $ — Three Months Ended March 31, 2014 (in millions) Service cost Duke Energy Carolinas Duke Energy $ 2 $ — Progress Energy $ 1 Duke Energy Progress $ Duke Energy Florida — $ Duke Energy Ohio 1 $ — Duke Energy Indiana $ — Interest cost on accumulated postretirement benefit obligation 12 3 6 3 3 — 1 Expected return on plan assets (3) (2) — — — — — Amortization of actuarial loss 10 1 10 7 2 — — (31) (3) (24) (18) (5) — — Amortization of prior service credit Net periodic other post-retirement benefit costs $ (10) $ (1) $ (7) $ (8) $ 1 $ — $ 1 EMPLOYEE SAVINGS PLANS Duke Energy sponsors, and the Subsidiary Registrants participate in, employee savings plans that cover substantially all U.S. employees. Effective January 1, 2015, all employee savings plans were merged into a single plan. Most employees participate in a matching contribution formula where Duke Energy provides a matching contribution generally equal to 100 percent of employee before-tax and Roth 401(k) contributions of up to 6 percent of eligible pay per pay period. Prior to 2015, Duke Energy also provided a match on after-tax contributions for certain plans. Dividends on Duke Energy shares held by the savings plans are charged to retained earnings when declared and shares held in the plans are considered outstanding in the calculation of basic and diluted earnings per share. As of January 1, 2014, for new and rehired non-union and certain unionized employees who are not eligible to participate in Duke Energy’s defined benefit plans, an additional employer contribution of 4 percent of eligible pay per pay period, subject to three-year vesting, is provided to the employee’s savings plan account. The following table includes pretax employer matching contributions, as well as the additional contribution of 4 percent of eligible pay per pay period for employees not eligible to participate in a defined benefit plan, made by Duke Energy and expensed by the Subsidiary Registrants. (in millions) Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana Three Months Ended March 31, 2015 2014 $ 49 43 $ 16 $ 14 14 12 88 $ 11 9 $ 4 4 $ 1 1 $ 2 2 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, INC. Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) 16. INCOME TAXES The effective tax rates from continuing operations for each of the Duke Energy Registrants are included in the following table. Three Months Ended March 31, 2015 2014 Duke Energy 31.9% 31.2% Duke Energy Carolinas 35.8% 37.4% Progress Energy 35.4% 36.9% Duke Energy Progress 33.8% 36.6% Duke Energy Florida 38.6% 38.5% Duke Energy Ohio 36.7% 36.4% Duke Energy Indiana 36.6% 36.8% The decrease in the effective tax rate for Duke Energy Carolinas for the three months ended March 31, 2015 is primarily due to the reduction of state rates in certain jurisdictions and the tax benefit related to the manufacturing deduction in 2015 as the prior-year deduction was limited by taxable income. The decrease in the effective tax rate for Progress Energy for the three months ended March 31, 2015 is primarily due to an increase in AFUDC-equity. The decrease in the effective tax rate for Duke Energy Progress for the three months ended March 31, 2015 is primarily due to an increase in AFUDC-equity. 17. SUBSEQUENT EVENTS For information on subsequent events related to acquisitions and dispositions, regulatory matters, commitments and contingencies, debt and credit facilities and common stock see Notes 2, 4, 5, 6 and 13, respectively. 89 PART I ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) and Duke Energy Carolinas, LLC (Duke Energy Carolinas), Progress Energy, Inc. (Progress Energy), Duke Energy Progress, Inc. (Duke Energy Progress), Duke Energy Florida, Inc. (Duke Energy Florida), Duke Energy Ohio, Inc. (Duke Energy Ohio) and Duke Energy Indiana, Inc. (Duke Energy Indiana) (collectively referred to as the Subsidiary Registrants). However, none of the registrants makes any representation as to information related solely to Duke Energy or the Subsidiary Registrants of Duke Energy other than itself. DUKE ENERGY Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the United States (U.S.) primarily through its wholly owned subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana, as well as in Latin America. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. Management’s Discussion and Analysis includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings, adjusted diluted earnings per share (EPS) and adjusted segment income, discussed below. Generally, a nonGAAP 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 presented herein may not be comparable to similarly titled measures used by other companies. Management’s Discussion and Analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2015, and with Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014. Midwest Generation Exit Duke Energy, through indirect subsidiaries, completed the sale of the nonregulated Midwest generation business and Duke Energy Retail Sales LLC (Disposal Group) to a subsidiary of Dynegy Inc. (Dynegy) on April 2, 2015, for approximately $2.8 billion in cash. Refer to Note 2 to the Condensed Consolidated Financial Statements, “Acquisitions and Dispositions,” for additional information on this transaction. Accelerated Stock Repurchase Program On April 6, 2015, Duke Energy entered into agreements with each of Goldman, Sachs & Co. and JPMorgan Chase Bank, National Association (the Dealers) to repurchase a total of $1.5 billion of Duke Energy common stock under an accelerated stock repurchase program (the ASR). Duke Energy made payments of $750 million to each of the Dealers and was delivered 16.6 million shares, which is approximately 85 percent of the total number of shares of Duke Energy common stock expected to be repurchased under the ASR. The total fair market value of the delivered shares, based on the closing Duke Energy stock price of $76.97 per share at the commencement of the ASR, was $1.275 billion. The final number of shares to be repurchased is dependent upon the average of the daily volume-weighted average stock prices of Duke Energy’s common stock during the term of the program, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreements. The delivery of additional shares of common stock to Duke Energy or delivery of shares of common stock or cash payment, at Duke Energy’s election, to the Dealers from Duke Energy may be required under certain circumstances. Final settlement of the ASR transaction is expected to occur by the end of the third quarter of 2015. For additional information on the details of this transaction, see Note 13 to the Condensed Consolidated Financial Statements, “Common Stock.” 90 PART I Results of Operations In this section, Duke Energy provides analysis and discussion of earnings and factors affecting earnings on both a GAAP and non-GAAP basis. Management evaluates financial performance in part based on the non-GAAP financial measures, adjusted earnings and adjusted diluted EPS. These items are measured as income from continuing operations net of income (loss) attributable to noncontrolling interests, adjusted for the dollar and per-share impact of mark-to-market impacts of economic hedges in the Commercial Power segment and special items including the operating results of the Disposal Group classified as discontinued operations for GAAP purposes. Special items represent certain charges and credits, which management believes will not be recurring on a regular basis, although it is reasonably possible such charges and credits could recur. As result of the agreement in August 2014 to sell the Disposal Group to Dynegy, the operating results of the Disposal Group are classified as discontinued operations, including a portion of the mark-to-market adjustments associated with derivative contracts. Management believes that including the operating results of the Disposal Group classified as discontinued operations better reflects its financial performance and therefore has included these results in adjusted earnings and adjusted diluted EPS. Derivative contracts are used in Duke Energy’s hedging of a portion of the economic value of its generation assets in the Commercial Power segment. The markto-market impact of derivative contracts is recognized in GAAP earnings immediately and, if associated with the Disposal Group, classified as discontinued operations, as such derivative contracts do not qualify for hedge accounting or regulatory treatment. The economic value of generation assets is subject to fluctuations in fair value due to market price volatility of input and output commodities (e.g., coal, electricity, natural gas). Economic hedging involves both purchases and sales of those input and output commodities related to generation assets. Operations of the generation assets are accounted for under the accrual method. Management believes excluding impacts of mark-to-market changes of the derivative contracts from adjusted earnings until settlement better matches the financial impacts of the derivative contract with the portion of economic value of the underlying hedged asset. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them 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 results to the Duke Energy Board of Directors (Board of Directors), employees, shareholders, analysts and investors concerning Duke Energy’s financial performance. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation and Diluted EPS Attributable to Duke Energy Corporation common shareholders, which include the dollar and per-share impact of special items, mark-to-market impacts of economic hedges in the Commercial Power segment and discontinued operations. Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Consolidated Financial Statements. Management also uses adjusted segment income as a measure of historical and anticipated future segment performance. Adjusted segment income is a non-GAAP financial measure, as it is based upon segment income adjusted for the mark-to-market impacts of economic hedges in the Commercial Power segment and special items, including the operating results of the Disposal Group classified as discontinued operations for GAAP purposes. Management believes the presentation of adjusted segment income as presented provides useful information to investors, as it provides them with an additional relevant comparison of a segment’s performance across periods. The most directly comparable GAAP measure for adjusted segment income is segment income, which represents segment income from continuing operations, including any special items and the mark-to-market impacts of economic hedges in the Commercial Power segment. Duke Energy’s adjusted earnings, adjusted diluted EPS and adjusted segment income may not be comparable to similarly titled measures of another company because other entities may not calculate the measures in the same manner. See Note 3 to the Condensed Consolidated Financial Statements, “Business Segments,” for a discussion of Duke Energy’s segment structure. Executive Overview The following table reconciles non-GAAP measures to their most directly comparable GAAP measures. Three Months Ended March 31, 2015 Regulated Utilities (in millions, except per-share amounts) Adjusted segment income/Adjusted earnings $ 774 International Energy $ 36 Total Reportable Segments Commercial Power $ 95 $ 905 Eliminations/ Discontinued Operations Other $ (24) $ — $ 881 Midwest generation operations — — (94) (94) — 94 — Costs to achieve Progress Energy merger — — — — (13) — (13) Discontinued operations — — — — — (4) (4) Segment income (loss)/Net Income Attributable to Duke Energy Corporation $ 774 $ 36 $ 1 91 $ 811 $ (37) $ 90 Per Diluted Share Duke Energy $ 864 $ 1.24 — (0.02) — $ 1.22 PART I Three Months Ended March 31, 2014 Regulated Utilities (in millions, except per-share amounts) Adjusted segment income/Adjusted earnings $ 737 International Energy $ 130 Total Reportable Segments Commercial Power $ 10 $ 877 Eliminations/ Discontinued Operations Other $ (48) $ — Per Diluted Share Duke Energy $ 829 $ 1.17 Asset impairment — — (59) (59) — — (59) (0.08) Costs to achieve Progress Energy merger — — — — (34) — (34) (0.04) Economic hedges (mark-to-market) — — (3) (3) — — (3) (0.01) Midwest generation operations — — 20 20 (5) (15) — Discontinued operations — — — — — (830) Segment income (loss)/Net Loss Attributable to Duke Energy Corporation $ 737 $ 130 $ (32) $ 835 $ (87) $ (845) — (830) $ (97) (1.18) $ (0.14) The variance in adjusted earnings for three months ended March 31, 2015, compared to the same period in 2014, was primarily due to: • Higher results at the nonregulated Midwest generation business due to higher PJM Interconnection LLC (PJM) capacity revenues and increased generation margins; • Increased wholesale net margins largely due to increases in contracted amounts and prices; • Increased retail pricing primarily due to higher base rates and rate riders in certain jurisdictions, including increased revenues related to energy efficiency programs; and • The impact of a lower effective income tax rate. Partially offset by: • Lower results in Latin America primarily due to lower hydro generation volumes and higher purchased power costs resulting from the multi-year drought in Brazil; • Higher operations and maintenance expense primarily due to higher nuclear costs, including impacts of nuclear outage levelization deferrals and related amortization, and higher outage costs at fossil generation stations, partially offset by lower storm costs; • Lower weather-normal retail sales volumes in the residential sector; and • Lower margins at National Methanol Company (NMC), largely driven by lower methyl tertiary butyl ether (MTBE) prices. SEGMENT RESULTS The remaining information in this discussion of results of operations is presented on a GAAP basis. Regulated Utilities Three Months Ended March 31, (in millions) 2015 Operating Revenues $ Operating Expenses 5,723 2014 $ 4,305 Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Segment Income $ 5,805 Variance $ 4,427 (82) (122) 7 1 6 1,425 1,379 46 72 69 3 275 270 5 1,222 1,178 44 448 441 774 $ 737 7 $ 37 Duke Energy Carolinas GWh sales 22,468 23,693 Duke Energy Progress GWh sales 16,765 16,161 604 Duke Energy Florida GWh sales 8,473 8,661 (188) Duke Energy Ohio GWh sales 6,767 6,479 288 Duke Energy Indiana GWh sales 8,728 8,874 (146) Total Regulated Utilities GWh sales 63,201 63,868 (667) Net proportional MW capacity in operation 49,739 49,595 144 92 (1,225) PART I Three Months Ended March 31, 2015 as Compared to March 31, 2014 Regulated Utilities’ results were positively impacted by an increase in wholesale power margins and higher rate riders. These impacts were partially offset by lower weathernormal sales volumes, higher depreciation and amortization expense, and higher operation and maintenance costs. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was driven primarily by: • A $73 million decrease in gross receipts tax revenue due to the N.C. Tax Simplification and Rate Reduction Act which terminated the collection of the North Carolina gross receipts tax effective July 1, 2014; • A $58 million decrease in fuel revenues driven primarily by overall lower fuel rates for electric retail customers for all jurisdictions, except South Carolina and Florida. Fuel revenues represent sales to retail and wholesale customers; and • A $26 million decrease in weather-normal sales volumes to residential retail customers (net of fuel revenue), reflecting decreased demand. Partially offset by: • A $45 million increase in wholesale power revenues, net of sharing, primarily due to additional volumes and capacity charges for customers served under long-term contracts; and • A $16 million net increase in retail pricing primarily due to increased revenues related to energy efficiency programs. Operating Expenses. The variance was driven primarily by: • A $95 million decrease in property and other taxes primarily due to the termination of the collection of the North Carolina gross receipts tax as mentioned above, and lower sales and use tax; and • A $62 million decrease in fuel expense (including purchased power and natural gas purchases for resale) primarily due to (i) lower natural gas and coal prices, and (ii) lower volumes of coal and oil used in electric generation, partially offset by (iii) higher volumes of gas used in electric generation. Partially offset by: • A $21 million increase in depreciation and amortization expense primarily due to increases in depreciation as a result of additional plant in service and an absence of a prior-year decrease in the reduction of the cost of removal component of amortization expense; and • A $14 million increase in operating and maintenance expense primarily due to higher nuclear costs, including impacts of nuclear outage levelization deferrals and related amortization, higher outage costs at fossil generation stations, and higher maintenance costs for distribution, partially offset by lower storm costs. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2015 and 2014 was 36.7 percent and 37.5 percent, respectively. Matters Impacting Future Regulated Utilities Results Duke Energy is a party to multiple lawsuits and could be subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits and potential fines and penalties could have an adverse impact to Regulated Utilities’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact to the Regulated Utilities' financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. In 2013, a FERC Administrative Law Judge issued an initial decision holding that Duke Energy is responsible for costs associated with Multi Value Projects (MVP), a type of Transmission Expansion Planning (MTEP) cost, approved by Midcontinent Independent System Operator, Inc. (MISO) prior to the date of Duke Energy’s withdrawal. The initial decision will be reviewed by the FERC. If the FERC upholds the initial decision, Duke Energy intends to file an appeal in federal court. If Duke Energy is deemed responsible for these costs, and if a portion of these costs is not eligible for recovery, there may be an adverse impact to its financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. In 2015, the Indiana Utility Regulatory Commission (IURC) is examining intervenors' allegations regarding the Edwardsport IGCC in-service date for ratemaking purposes, operational performance of the plant, the level of operating costs and financing charges associated with construction delays. The outcome of these proceedings could have an adverse impact to Regulated Utilities' financial position, results of operations and cash flows. Regulated Utilities cannot predict the outcome of these proceedings. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. In April 2015, the Florida Legislature passed legislation, which is pending approval by the governor, to allow utilities to issue securitization bonds as an option to recover the costs of certain retired generation facilities. If enacted, this legislation would apply to Duke Energy Florida’s retired Crystal River Unit 3 nuclear station. Securitization of the costs of the retired Crystal River Unit 3 nuclear station would result in an initial acceleration of cash, followed by a reduction to Regulated Utilities’ future results of operations and ongoing cash flows as it would no longer earn an equity return on these costs. Under the settlement agreement with the FPSC, the allowed return on equity for Crystal River Unit 3 is limited to 70 percent of the approved return on equity, which is currently 10.5 percent. 93 PART I International Energy Three Months Ended March 31, (in millions) 2015 Operating Revenues $ Operating Expenses 273 2014 $ 382 Variance $ (109) 207 231 (24) Operating Income 66 151 (85) Other Income and Expense, net 14 57 (43) Interest Expense 23 23 Income Before Income Taxes 57 185 (128) Income Tax Expense 20 51 (31) 1 4 Less: Income Attributable to Noncontrolling Interests Segment Income $ 36 $ 130 — (3) $ (94) Sales, GWh 4,470 5,241 (771) Net proportional MW capacity in operation 4,335 4,600 (265) Three Months Ended March 31, 2015 as Compared to March 31, 2014 International Energy’s results were impacted by unfavorable hydrology in Brazil, lower sales volumes in Central America and lower equity earnings in NMC. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was driven primarily by: • A $52 million decrease in Brazil due to unfavorable exchange rates and lower spot energy sales volumes; • A $37 million decrease in Central America due to lower energy sales volumes and average prices; and • A $15 million decrease in Peru due to lower average energy and hydrocarbon prices and unfavorable exchanges rates. Operating Expenses. The variance was driven primarily by: • A $21 million decrease in Central America due to lower fuel consumption partially offset by higher purchased power; and • A $15 million decrease in Peru due to lower hydrocarbon royalty and purchased power costs, and lower fuel consumption. Partially offset by: • A $14 million increase in Brazil due to higher purchased power as a result of unfavorable hydrology, partially offset by favorable exchange rates. Other Income and Expenses, net. The variance is primarily due to a net remeasurement loss in Latin America, lower interest income in Brazil and lower equity earnings in NMC as a result of lower average MTBE and methanol prices, partially offset by lower butane costs. Income Tax Expense. The variance in tax expense is primarily due to a decrease in pretax income. The effective tax rate for three months ended March 31, 2015 and 2014 was 35.6 percent and 27.7 percent, respectively. The increase in the effective tax rate is primarily due to unfavorable Brazilian exchange rates. Matters Impacting Future International Energy Results International Energy's operations include conventional hydroelectric power generation facilities located in Brazil where water reservoirs are currently at abnormally low levels due to a lack of rainfall. Weather and economic conditions within Brazil have resulted in higher energy prices and a reduction in demand. In addition, International Energy’s equity earnings from NMC reflect sales of methanol and MTBE, which generate margins that are directionally correlated with crude oil prices. International Energy's earnings and future cash flows could be adversely impacted by either a sustained period of low reservoir levels, especially if the government of Brazil were to implement rationing or some other mandatory conservation program, changes to power prices that further impact demand, further decline of economic conditions within Brazil or a significant decrease in crude oil prices. 94 PART I Commercial Power Three Months Ended March 31, (in millions) 2015 Operating Revenues $ Operating Expenses Operating Loss Other Income and Expense, net 73 2014 $ 81 Variance $ (8) 89 188 (99) (16) (107) 91 2 5 12 14 (2) Loss Before Income Taxes (26) (116) 90 Income Tax Benefit (27) (84) 57 Interest Expense Segment Income (Loss) $ Coal-fired plant production, GWh 1 $ (32) (3) $ 33 — 471 (471) Renewable plant production, GWh 1,310 1,589 (279) Total Commercial Power production, GWh 1,310 2,060 (750) Net proportional MW capacity in operation 1,415 1,886 (471) Three Months Ended March 31, 2015 as Compared to March 31, 2014 Commercial Power’s results were positively impacted by the prior-period impairment recorded for an intangible asset. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was driven primarily by an $8 million decrease in electric revenues from lower production in the renewables portfolio due to changes in wind patterns. Operating Expenses. The variance was driven primarily by a $94 million increase driven by the 2014 impairment taken related to Ohio Valley Electric Corporation (OVEC). See Note 7 to the Condensed Consolidated Financial Statements, "Goodwill and Intangible Assets" for additional information. Income Tax Benefit. The variance was primarily due to larger pretax loss in 2014 as compared to 2015. The effective tax rate for the years ended December 31, 2015 and 2014 was 104.7 percent and 72.5 percent, respectively. The change in the effective tax rate is due to a prior-year state tax benefit and a reduction in renewable energy credits relative to pretax loss. Matters Impacting Future Commercial Power Results As a result of the completion of the sale of the Disposal Group on April 2, 2015, Commercial Power will record a tax charge in the second quarter of 2015. The estimated charge of approximately $35 million to $50 million will not qualify for classification as discontinued operations. Other Three Months Ended March 31, (in millions) 2015 Operating Revenues $ Operating Expenses 27 2014 $ 25 50 Gains on Sales of Other Assets and Other, net Operating Loss Other Income and Expense, net Interest Expense Loss Before Income Taxes Income Tax Benefit Less: Income Attributable to Noncontrolling Interests Net Expense $ Variance $ 84 7 — 7 (16) (59) 43 1 6 (5) 97 103 (6) (112) (156) 44 (77) (69) (8) 2 — (37) $ (87) 2 $ Three Months Ended March 31, 2015 as Compared to March 31, 2014 Other’s results were positively impacted by a decrease in operating expenses. The following is a detailed discussion of the variance drivers by line item. Operating Expenses. The decrease was primarily due to lower charges related to the Progress Energy merger and higher prior-year captive insurance loss experience. Gains on sales of other assets. The increase was primarily due to monetization of telecommunication leases. 95 2 (34) 50 PART I Income Tax Benefit. The variance was primarily due to the increase in the effective tax rate, partially offset by a decrease in pretax loss. The effective tax rate for the three months ended March 31, 2015 and 2014 was 69.5 percent and 44.5 percent, respectively. The increase in the effective tax rate is primarily due to tax levelization. Matters Impacting Future Other Results Duke Energy Ohio’s retired Beckjord generating station (Beckjord) became an asset of Other after the sale of the nonregulated Midwest Generation business in the second quarter of 2015. Beckjord, a nonregulated facility retired during 2014, is not subject to the recently enacted Environmental Protection Agency (EPA) rule related to the disposal of coal combustion residuals (CCR) from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with coal ash, the costs could have an adverse impact on Other's financial position, results of operations and cash flows. See Note 3, “Business Segments” and Note 5, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements for additional information. INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX Discontinued Operations, Net of Tax. The variance was primarily driven by the 2014 impairment recognized for the nonregulated Midwest generation business and favorable operating results in 2015 primarily due to higher PJM capacity revenues related to higher average cleared capacity auction pricing, increased generation margins and lower depreciation expense. Included in the variance is the impact of ceasing depreciation on the assets of the Disposal Group beginning in the second quarter of 2014. The foregone depreciation for the three months ended March 31, 2015 was approximately $40 million. 96 PART I DUKE ENERGY CAROLINAS Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, (in millions) 2015 Operating Revenues $ Operating Expenses Operating Income Other Income and Expenses, net 1,901 2014 $ 2,000 Variance $ (99) 1,386 1,491 (105) 515 509 6 (7) 42 49 Interest Expense 102 101 1 Income Before Income Taxes 455 457 (2) Income Tax Expense 163 Net Income $ 292 171 $ 286 (8) $ 6 The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized. (Decrease) increase over prior year 2015 Residential sales (1.0)% General service sales 1.2 % Industrial sales 3.3 % Wholesale power sales (30.9)% Total sales (5.2)% Average number of customers 1.2 % Three Months Ended March 31, 2015 as Compared to March 31, 2014 Operating Revenues. The variance was driven primarily by: • A $63 million decrease in fuel revenues driven primarily by lower natural gas and coal prices, and decreased demand from retail customers in the residential sector. Fuel revenues represent sales to retail and wholesale customers; • A $42 million decrease in gross receipts tax revenue due to the North Carolina Tax Simplification and Rate Reduction Act, which terminated the collection of North Carolina gross receipts tax effective July 1, 2014; and • An $11 million decrease in weather-normal sales volumes to residential retail customers (net of fuel revenue) reflecting decreased demand. Partially offset by: • An $18 million increase in retail pricing and rate riders, which primarily reflects increased revenues related to the energy efficiency programs and the second year base rate step-up from the 2013 South Carolina rate case. Operating Expenses. The variance was driven primarily by: • An $80 million decrease in fuel expense (including purchased power) primarily related to lower natural gas and coal prices, and decreased generation due to lower sales volumes; and • A $34 million decrease in property and other tax expenses primarily due to lower revenue-related taxes driven by the elimination of the North Carolina gross receipts tax as mentioned above. Income Tax Expense. The effective tax rate for the three months ended March 31, 2015 and 2014 was 35.8 percent and 37.4 percent, respectively. The decrease in the effective tax rate is primarily due to the reduction of state rates in certain jurisdictions and the tax benefit related to the manufacturing deduction in 2015 as the prior-year deduction was limited by taxable income. Matters Impacting Future Results Duke Energy Carolinas is a party to multiple lawsuits and subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact to Duke Energy Carolinas’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact to Duke Energy Carolinas' financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. 97 PART I PROGRESS ENERGY Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, (in millions) 2015 Operating Revenues $ Operating Expenses 2,536 2014 $ 2,541 Variance $ (5) 1,995 2,065 8 1 7 549 477 72 27 15 12 Interest Expense 168 169 (1) Income From Continuing Operations Before Taxes 408 323 85 Income Tax Expense From Continuing Operations 144 119 25 Income From Continuing Operations 264 204 60 Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Loss From Discontinued Operations, net of tax (1) Net Income (1) 263 Less: Net Income Attributable to Noncontrolling Interest $ 260 — 203 3 Net Income Attributable to Parent (70) 60 1 $ 202 2 $ 58 Three Months Ended March 31, 2015 as Compared to March 31, 2014 Operating Revenues. The variance was driven primarily by: • A $31 million decrease in gross receipts tax revenue due to the North Carolina Tax Simplification and Rate Reduction Act, which terminated the collection of North Carolina gross receipts tax effective July 1, 2014; • A $16 million decrease in fuel revenues (including emission allowances) and capacity revenues primarily due to decreased usage in the current year for Duke Energy Florida; and • A $20 million decrease in retail pricing primarily for Duke Energy Florida due to a reduction in energy conservation cost recovery clause and environmental cost recovery clause revenues due to lower recovery rates in the current year. Partially offset by: • A $46 million increase in wholesale power revenues primarily driven by increased capacity rates on contracts in the current year for Duke Energy Florida and increased capacity rates and higher peak demand for Duke Energy Progress; and • A $17 million increase in retail pricing and rate riders for Duke Energy Progress, which primarily reflects increased revenues related to the energy efficiency programs and the second year base rate step-up from the 2013 North Carolina rate case. Operating Expenses. The variance was driven primarily by: • A $40 million decrease in property and other taxes primarily due to the termination of the collection of the North Carolina gross receipts tax as mentioned above; • A $30 million decrease in operations and maintenance primarily due to decreased expenses that were recoverable through the energy conservation and environmental cost recovery clauses and a decrease related to prior-year nuclear decommissioning costs at Duke Energy Florida. Other Income and Expenses, net. The variance is due to higher AFUDC-equity, primarily due to nuclear plant expenditures. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2015 and 2014 was 35.4 percent and 36.9 percent, respectively. The decrease in the effective tax rate is primarily due to an increase in AFUDC-equity. Matters Impacting Future Results Duke Energy is a party to multiple lawsuits and subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact to Progress Energy’s financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. 98 PART I An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact to Progress Energy’s financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. In April 2015, the Florida Legislature passed legislation, which is pending approval by the governor, to allow utilities to issue securitization bonds as an option to recover the costs of certain retired generation facilities. If enacted, this legislation would apply to Duke Energy Florida’s retired Crystal River Unit 3 nuclear station. Securitization of the costs of the retired Crystal River Unit 3 nuclear station would result in a reduction to Progress Energy's future results of operations and cash flows as it would no longer earn an equity return on these costs. Under the current settlement agreement with the FPSC, allowed return on equity is limited to 70 percent of the approved rate of 10.5 percent. 99 PART I DUKE ENERGY PROGRESS Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, (in millions) 2015 Operating Revenues $ Operating Expenses Gains on Sales of Other Assets and Other, net Operating Income 1,449 2014 $ 1,422 Variance $ 27 1,134 1,165 (31) 1 1 — 316 258 58 Other Income and Expenses, net 20 9 11 Interest Expense 60 57 3 276 210 66 Income Before Income Taxes Income Tax Expense 93 Net Income and Comprehensive Income $ 183 77 $ 133 16 $ 50 The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized. Increase over prior period 2015 Residential sales 3.4% General service sales 3.0% Industrial sales 2.4% Wholesale power sales 15.4% Total sales 3.7% Average number of customers 1.3% Three Months Ended March 31, 2015 as Compared to March 31, 2014 Operating Revenues. The variance was driven primarily by: • A $34 million increase in wholesale power revenues primarily due to increased capacity rates and higher peak demand; and • A $17 million increase in retail pricing and rate riders, which primarily reflects increased revenues related to the energy efficiency programs and the second year base rate step-up from the 2013 North Carolina rate case. Partially offset by: • A $31 million decrease in gross receipts tax revenue due to the North Carolina Tax Simplification and Rate Reduction Act, which terminated the collection of North Carolina gross receipts tax effective July 1, 2014. Operating Expenses. The variance was driven primarily by a: • $35 million decrease in property and other taxes primarily due to the termination of the collection of the North Carolina gross receipts tax as mentioned above. Other Income and Expenses, net. The variance is due to higher AFUDC-equity, primarily due to nuclear plant expenditures. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2015 and 2014 was 33.8 percent and 36.6 percent, respectively. The decrease in the effective tax rate is primarily due to an increase in AFUDC-equity. Matters Impacting Future Results Duke Energy Progress is a party to multiple lawsuits and subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact to Duke Energy Progress’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact to Duke Energy Progress’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. 100 PART I DUKE ENERGY FLORIDA Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, (in millions) 2015 Operating Revenues $ 1,086 2014 $ 1,116 Variance $ (30) Operating Expenses 859 897 (38) Operating Income 227 219 8 Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Net Income $ 6 5 1 49 49 — 184 175 9 71 67 113 $ 108 4 $ 5 The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized. Increase (decrease) over prior period 2015 Residential sales 1.3 % General service sales (0.4)% Industrial sales (5.1)% Wholesale power sales (38.9)% Total sales (2.2)% Average number of customers 1.6 % Three Months Ended March 31, 2015 as Compared to March 31, 2014 Operating Revenues. The variance was driven primarily by: • A $20 million decrease in energy conservation cost recovery clause and environmental cost recovery clause revenues due to lower recovery rates in the current year; and • A $16 million decrease in fuel and capacity revenues primarily due to decreased usage in the current year. Partially offset by: • A $12 million increase in wholesale power revenues primarily driven by increased capacity rates on contracts in the current year. Operating Expenses. The variance was driven primarily by: • A $23 million decrease in operations and maintenance primarily due to decreased expenses that were recoverable through the energy conservation and environmental cost recovery clauses and a decrease related to prior-year nuclear decommissioning costs; and • A $13 million decrease in fuel used in electric generation and purchased power primarily due to lower fuel prices and lower volumes. Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2015 and 2014 was 38.6 percent and 38.5 percent, respectively. Matters Impacting Future Results In April 2015, the Florida Legislature passed legislation, which is pending approval by the governor, to allow utilities to issue securitization bonds as an option to recover the costs of certain retired generation facilities. If enacted, this legislation would apply to Duke Energy Florida’s retired Crystal River Unit 3 nuclear station. Securitization of the costs of the retired Crystal River Unit 3 nuclear station would result in an initial acceleration of cash, followed by a reduction to Regulated Utilities’ future results of operations and ongoing cash flows as it would no longer earn an equity return on these costs. Under the settlement agreement with the FPSC, the allowed return on equity for Crystal River Unit 3 is limited to 70 percent of the approved return on equity, which is currently 10.5 percent. 101 PART I DUKE ENERGY OHIO Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, (in millions) 2015 Operating Revenues $ Operating Expenses Gains on Sales of Other Assets and Other, net Operating Income (Loss) 586 2014 $ 481 582 6 — 111 Other Income and Expenses, net 575 Variance $ 11 (101) 6 (7) 118 3 3 Interest Expense 20 20 Income (Loss) from Continuing Operations Before Income Taxes 94 (24) 118 Income Tax Expense (Benefit) from Continuing Operations 35 (9) 44 Income (Loss) from Continuing Operations 59 (15) 74 Income (Loss) from Discontinued Operations, net of tax 90 (875) 965 Net Income (Loss) $ 149 $ (890) — — $ 1,039 The following table shows the percent changes in Regulated Utilities' GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized. (Decrease) increase over prior year 2015 Residential sales (3.5)% General service sales (0.4)% Industrial sales 0.8 % Wholesale power sales 258.5 % Total sales 4.4 % Average number of customers 0.6 % Three Months Ended March 31, 2015 as Compared to March 31, 2014 Operating Revenues. The variance was driven primarily by: • A $9 million increase in Kentucky wholesale revenues due to the purchase of the additional capacity in the East Bend generating station in December 2014; and • A $10 million increase in regulated natural gas rate riders primarily due to rate increases. Partially offset by: • A $9 million decrease in regulated fuel revenues primarily driven by lower fuel costs offset by increased sales volumes. Operating Expenses. The variance was driven primarily by a $94 million impairment taken in 2014 related to OVEC. Gain/(Loss) on Sales of Other Assets. The variance was driven primarily by a gain on the disposition of certain nonutility assets. Income Tax Expense/(Benefit). The variance was primarily due to an increase in pretax income. The effective tax rate for the three months ended March 31, 2015 and 2014 was 36.7 percent and 36.4 percent, respectively. Discontinued Operations, Net of Tax. The variance was primarily driven by the 2014 impairment recognized for the nonregulated Midwest generation business and favorable operating results in 2015 primarily due to higher PJM capacity revenues related to higher average cleared capacity auction pricing, increased generation margins and lower depreciation expense. Included in the variance is the impact of ceasing depreciation on the assets of the Disposal Group beginning in the second quarter of 2014. The foregone depreciation for the three months ended March 31, 2015 was approximately $40 million. Matters Impacting Future Results In 2013, a FERC Administrative Law Judge issued an initial decision that Duke Energy Ohio is responsible for costs associated with certain MVP costs, a type of MTEP cost, approved by MISO prior to the date of Duke Energy Ohio’s withdrawal. The initial decision will be reviewed by the FERC. If the FERC upholds the initial decision, Duke Energy Ohio intends to file an appeal in federal court. If Duke Energy Ohio is deemed responsible for these costs, and if a portion of these costs is not eligible for recovery, there may be an adverse impact to its financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. 102 PART I Duke Energy Ohio’s nonregulated Beckjord generating station (Beckjord), a facility retired during 2014, is not subject to the recently enacted EPA rule related to the disposal of CCR from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with coal ash, the costs could have an adverse impact on Duke Energy Ohio's financial position, results of operations and cash flows. See Note 5, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements for additional information. Duke Energy Ohio is the defendant in a class action lawsuit in which plaintiffs allege antitrust violations under the federal Robinson Patman Act, as well as fraud and conspiracy allegations under the federal Racketeer Influenced and Corrupt Organizations statute and the Ohio Corrupt Practices Act, which could exceed $500 million, for inequitable and unfair price advantages for certain large business consumers by entering into non-public option agreements in exchange for their withdrawal of challenges to Duke Energy Ohio’s Rate Stabilization Plan implemented in early 2005. Plaintiffs allege claims for antitrust violations and also claim to be entitled to treble damages. Trial has been set to begin on July 27, 2015. Ultimate resolution of this matter could have a material adverse effect on the results of operations, cash flows or financial position of Duke Energy Ohio. See Note 5 to the Condensed Consolidated Financial Statements, "Commitments and Contingencies," for additional information 103 PART I DUKE ENERGY INDIANA Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations and variance discussion is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q. Results of Operations Three Months Ended March 31, (in millions) 2015 Operating Revenues $ 788 2014 $ 845 Variance $ (57) Operating Expenses 578 630 (52) Operating Income 210 215 (5) (2) Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense 5 7 45 43 2 170 179 (9) 62 Net Income $ 108 66 $ 113 (4) $ (5) The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized. (Decrease) increase over prior year 2015 Residential sales (6.8)% General service sales (1.4)% Industrial sales 0.8 % Wholesale power sales (9.5)% Total sales (1.6)% Average number of customers 0.6 % Three Months Ended March 31, 2015 as Compared to March 31, 2014 Operating Revenues. The variance was driven primarily by: • A $51 million decrease in fuel revenues (including emission allowances) primarily due to a decrease in fuel rates as a result of lower fuel and purchased power costs, and lower sales volumes. Operating Expenses. The variance was driven primarily by: • A $45 million decrease in fuel used in electric generation and purchased power primarily due to lower sales volumes and lower fuel prices; and • A $24 million decrease in property and other taxes, primarily as a result of lower sales and use tax. Partially offset by: • A $15 million increase in operation and maintenance primarily due to timing and increased scope of outage work at generation plants. Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rate for the three months ended March 31, 2015 and 2014 was 36.6 percent and 36.8 percent, respectively. Matters Impacting Future Results Duke Energy Indiana is evaluating converting Wabash River Unit 6 to a natural gas-fired unit or retiring the unit earlier than its current estimated useful life. If Duke Energy Indiana elects early retirement of the unit, recovery of remaining book values and associated carrying costs totaling approximately $40 million could be subject to future regulatory approvals and therefore cannot be assured. In 2015, the Indiana Utility Regulatory Commission (IURC) is examining intervenors' allegations regarding the Edwardsport IGCC in-service date for ratemaking purposes, operational performance of the plant, the level of operating costs and financing charges associated with construction delays. The outcome of these proceedings could have an adverse impact to Regulated Utilities' financial position, results of operations and cash flows. Regulated Utilities cannot predict the outcome of these proceedings. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. 104 PART I LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash Duke Energy relies primarily upon cash flows from operations, debt issuances and its existing cash and cash equivalents to fund its domestic liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders. See Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014 for a summary of primary sources and uses of cash for 2015-2017 and a more detailed discussion of each. The Subsidiary Registrants generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Subsidiary Registrants, excluding Progress Energy (Parent), support their short-term borrowing needs through participation with Duke Energy and certain of its other subsidiaries in a money pool arrangement. The companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. Duke Energy and the Subsidiary Registrants, excluding Progress Energy (Parent), may also use short-term debt, including commercial paper and the money pool, as a bridge to long-term debt financings. The levels of borrowing may vary significantly over the course of the year due to the timing of long-term debt financings and the impact of fluctuations in cash flows from operations. Duke Energy’s current liabilities may at times exceed current assets resulting from the use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate due to the seasonality of its business. Credit Facility and Registration Statements Master Credit Facility Summary Duke Energy has a Master Credit Facility with a capacity of $7.5 billion through January 2020. The Duke Energy Registrants, excluding Progress Energy (Parent), have borrowing capacity under the Master Credit Facility up to a specified sublimit for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. The table below includes the current borrowing sublimits and available capacity under the Master Credit Facility. March 31, 2015 (in millions) Facility size(a) Duke Energy (Parent) Duke Energy $ 7,500 $ 3,200 Duke Energy Carolinas $ 1,200 Duke Energy Progress $ 1,000 Duke Energy Florida $ 900 Duke Energy Ohio $ 600 Duke Energy Indiana $ 600 Reduction to backstop issuances Commercial paper (b) Outstanding letters of credit Tax-exempt bonds Available capacity (a) (b) $ (3,256) (2,764) (300) — (17) (25) (66) (60) (4) (1) (1) — — (116) — (35) — — — (81) 4,062 $ 376 $ 861 $ 999 $ 882 $ 575 (150) $ 369 Represents the sublimit of each borrower. Duke Energy issued $475 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana. The balances are classified as Long-Term Debt Payable to Affiliated Companies in the Condensed Consolidated Balance Sheets. On April 2, 2015, Duke Energy completed the sale of the nonregulated Midwest generation business to Dynegy for approximately $2.8 billion in cash. Duke Energy used the proceeds to pay down its outstanding commercial paper by approximately $1.3 billion and initiated an agreement to repurchase $1.5 billion of Duke Energy common stock under the ASR. See Notes 2 and 13 to the Condensed Consolidated Financial Statements, “Acquisitions and Dispositions” and "Common Stock", respectively, for additional information. On February 20, 2015, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Business Services LLC (DEBS), a wholly owned subsidiary of Duke Energy, each entered into Plea Agreements in connection with the investigation initiated by the USDOJ. Duke Energy Carolinas and Duke Energy Progress are required to each maintain $250 million of available capacity under the Master Credit Facility as security to meet their obligations under the Plea Agreements, in addition to certain other conditions. The Plea Agreements are subject to court approval. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. PremierNotes Duke Energy has an effective Form S-3 with the Securities and Exchange Commission (SEC) to sell up to $3 billion of variable denomination floating-rate demand notes, called PremierNotes. The Form S-3 states that no more than $1.5 billion of the notes will be outstanding at any particular time. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, are non-transferable and may be redeemed in whole or in part by Duke Energy or at the investor’s option at any time. The balance as of March 31, 2015 and December 31, 2014 was $1,010 million and $968 million, respectively. The notes are short-term debt obligations of Duke Energy and are classified within Notes payable and commercial paper on Duke Energy’s Condensed Consolidated Balance Sheets. 105 PART I Shelf Registration In September 2013, Duke Energy filed a Form S-3 with the SEC. Under this Form S-3, which is uncapped, the Duke Energy Registrants, excluding Progress Energy, may issue debt and other securities in the future at amounts, prices and with terms to be determined at the time of future offerings. The registration statement also allows for the issuance of common stock by Duke Energy. DEBT MATURITIES The following table shows the significant components of Current maturities of long-term debt on the Condensed Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings. (in millions) Maturity Date Interest Rate March 31, 2015 Unsecured Debt Duke Energy (Parent) April 2015 3.350% January 2016 5.625% 300 Duke Energy Progress April 2015 5.150% 300 Duke Energy Carolinas October 2015 5.300% 500 Duke Energy Florida November 2015 0.650% 250 Duke Energy Florida December 2015 5.100% 300 Duke Energy Progress December 2015 5.250% 400 Progress Energy (Parent) $ 450 First Mortgage Bonds Other 300 Current maturities of long-term debt $ 2,800 CASH FLOWS FROM OPERATING ACTIVITIES The relatively stable operating cash flows of Regulated Utilities compose a substantial portion of Duke Energy’s cash flows from operations. Regulated Utilities’ cash flows from operations are primarily driven by sales of electricity and natural gas and costs of operations. Weather conditions, commodity price fluctuations and unanticipated expenses, including unplanned plant outages and storms, can affect the timing and level of cash flows from operations. Cash flows from operations are subject to a number of other factors, including but not limited to regulatory constraints, economic trends and market volatility (see “Item 1A. Risk Factors,” in the Duke Energy Registrants’ Annual Report on Form 10-K for the year ended December 31, 2014 for additional information). At March 31, 2015, Duke Energy had cash and cash equivalents and short-term investments of $2.8 billion, of which $1.7 billion is held by entities domiciled in foreign jurisdictions. In December 2014, Duke Energy declared a taxable dividend of historical foreign earnings in the form of notes payable that will result in the repatriation of approximately $2.7 billion of cash held and expected to be generated by International Energy over a period of up to eight years. Approximately $1.2-$1.4 billion will be remitted in 2015, with the remaining amount remitted by 2022. The remittances will principally be used to support Duke Energy's dividend and growth in the domestic business. As a result of the decision to repatriate all cumulative historic undistributed foreign earnings, during the fourth quarter of 2014, Duke Energy recorded U.S. income tax expense of approximately $373 million. Duke Energy’s intention is to indefinitely reinvest prospective undistributed earnings generated by Duke Energy's foreign subsidiaries. As of March 31, 2015, the amount of unrecognized deferred tax liability related to undistributed earnings was not material. See Note 17 to the Condensed Consolidated Financial Statements, “Income Taxes,” for additional information. Restrictive Debt Covenants The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. The Master Credit Facility contains a covenant requiring the debt-tototal capitalization ratio to not exceed 65 percent for each borrower. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of March 31, 2015, each of the Duke Energy Registrants was in compliance with all covenants related to their significant debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the significant debt or credit agreements contain material adverse change clauses. Credit Ratings Credit ratings are intended to provide credit lenders a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the rating agencies’ assessments of their ability to meet their debt principal and interest obligations when they come due. If, as a result of market conditions or other factors, the Duke Energy Registrants are unable to maintain current balance sheet strength, or if earnings and cash flow outlook materially deteriorate, credit ratings could be negatively impacted. The Duke Energy Registrants each hold credit ratings by Fitch Ratings, Inc. (Fitch), Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Rating Services (S&P). On April 2, 2015, S&P upgraded Duke Energy's and Progress Energy's corporate credit rating to A- from BBB+ and their unsecured credit rating to BBB+ from BBB. The unsecured credit ratings of the other Subsidiary Registrants were upgraded to A- from BBB+. 106 PART I Cash Flow Information The following table summarizes Duke Energy’s cash flows. Three Months Ended March 31, (in millions) 2015 2014 Cash flows provided by (used in): Operating activities $ 1,440 Investing activities $ (1,456) 1,373 (1,286) Financing activities 801 Net increase in cash and cash equivalents 785 30 2,036 1,501 Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period $ 2,821 (57) $ 1,531 OPERATING CASH FLOWS The following table summarizes key components of Duke Energy’s operating cash flows. Three Months Ended March 31, (in millions) 2015 Net income (loss) $ 867 Non-cash adjustments to net income (loss) 2014 $ 1,241 Contributions to qualified pension plans (132) Working capital (536) Net cash provided by operating activities $ 1,440 (93) 2,051 — (585) $ 1,373 The variance was driven primarily due to: • A $150 million increase in net income after non-cash adjustments, mainly due to higher PJM capacity prices and operating margins in the Commercial Power segment, higher wholesale origination results primarily due to increases in volume and capacity rates, and higher retail pricing and rate riders, partially offset by a $132 million increase in contributions to qualified pension plans. INVESTING CASH FLOWS The following table summarizes key components of Duke Energy’s investing cash flows. Three Months Ended March 31, (in millions) 2015 Capital, investment and acquisition expenditures $ (1,454) Available for sale securities, net 2014 $ (1,268) 34 Proceeds from sales of other assets Other investing items Net cash used in investing activities $ 37 1 4 (37) (59) (1,456) $ (1,286) The variance was primarily due to: • A $186 million increase in capital, investment and acquisition expenditures mainly due to expansion projects at the Regulated Utilities. FINANCING CASH FLOWS The following table summarizes key components of Duke Energy’s financing cash flows. Three Months Ended March 31, (in millions) 2015 Issuance of common stock related to employee benefit plans $ Issuance (Redemptions) of long-term debt, net 15 2014 $ 94 Notes payable and commercial paper 1,271 Dividends paid 898 (564) Other financing items (553) (15) Net cash provided by (used in) financing activities $ 107 801 19 (412) (9) $ (57) PART I The variance was due primarily to: • A $506 million increase in net issuances of long-term debt, primarily due to the timing of issuances and redemptions across years; and • A $373 million increase in proceeds from net issuances of notes payable and commercial paper, primarily to fund short-term working capital needs. Summary of Significant Debt Issuances The following table summarizes significant debt issuances (in millions). Three Months Ended March 31, 2015 Issuance Date Maturity Date Interest Rate Duke Energy Carolinas Duke Energy First Mortgage Bonds March 2015(a) June 2045 Total issuances (a) 3.750% $ 500 $ 500 $ 500 $ 500 Proceeds will be used to redeem $500 million of first mortgage bonds due October 2015. OTHER MATTERS Environmental Regulations Duke Energy is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, and other environmental matters. The Subsidiary Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants. The following sections outline various proposed and recently enacted regulations that may impact the Duke Energy Registrants. The Duke Energy Registrants also expect to incur increased fuel, purchased power, operation and maintenance, and other costs for replacement generation for potential coal-fired power plant retirements as a result of these proposed and final regulations. The actual compliance costs may be materially different from these estimates based on the timing and requirements of the final EPA regulations. Refer to Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants. Coal Combustion Residuals On April 17, 2015, the EPA published in the Federal Registry a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation classifies CCR as nonhazardous waste under the Resource Conservation and Recovery Act. The regulation applies to all new and existing landfills, new and existing surface impoundments, structural fills and CCR piles. The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. Duke Energy records an asset retirement obligation (ARO) when it has a legal obligation to incur retirement costs associated with the retirement of a long-lived asset and the obligation can be reasonably estimated. Duke Energy Registrants impacted by the rule will record additional asset retirement obligation amounts in the second quarter of 2015. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. For more information, see Note 5 to the Condensed Consolidated Financial Statements, "Commitments and Contingencies." The following table provides estimated cost ranges for compliance with the CCR regulation incremental to existing state statutes. (in millions) Range Duke Energy $ 290 – Duke Energy Carolinas 30 – 105 Progress Energy 40 – 235 Duke Energy Progress 40 – 235 Duke Energy Ohio 35 – 110 185 – 1,105 Duke Energy Indiana 108 $ 1,555 PART I Coal Ash Management Act of 2014 On September 20, 2014, the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) became law. The Coal Ash Act (i) establishes a Coal Ash Management Commission (Coal Ash Commission) to oversee handling of coal ash within the state; (ii) prohibits construction of new and expansion of existing ash impoundments and use of existing impoundments at retired facilities; (iii) requires closure of ash impoundments at Duke Energy Progress' Asheville and Sutton stations and Duke Energy Carolinas' Riverbend and Dan River stations no later than August 1, 2019; (iv) requires dry disposal of fly ash at active plants not retired by December 31, 2018; (v) requires dry disposal of bottom ash at active plants by December 31, 2019, or retirement of active plants; (vi) requires all remaining ash impoundments in North Carolina to be categorized as highrisk, intermediate-risk or low-risk no later than December 31, 2015 by the North Carolina Department of Environment and Natural Resources (DENR) with the method of closure and timing to be based upon the assigned risk, with closure no later than December 31, 2029; (vii) establishes requirements to deal with groundwater and surface water impacts from impoundments; and (viii) enhances the level of regulation for structural fills utilizing coal ash. The Coal Ash Act includes a variance procedure for compliance deadlines and modification of requirements regarding structural fills and compliance boundaries. Provisions of the Coal Ash Act prohibit cost recovery for unlawful discharge of ash basin waters occurring after January 1, 2014. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of CCR surface impoundments (ash basins or impoundments) to the normal ratemaking processes before utility regulatory commissions. Duke Energy has and will periodically submit to DENR site-specific coal ash impoundment closure plans. These plans and all associated permits must be approved by DENR before any excavation work can begin. In September 2014, Duke Energy Carolinas executed a consent agreement with the South Carolina Department of Health and Environmental Control (SCDHEC) requiring the excavation of an inactive ash basin and ash fill area at the W.S. Lee Steam Station. As part of this agreement, in December 2014, Duke Energy Carolinas filed an ash removal plan and schedule with SCDHEC. For further information, refer to Note 5 of the Condensed Consolidated Financial Statements, “Commitments and Contingencies.” Mercury and Air Toxics Standards The final Mercury and Air Toxics Standards (MATS) rule was issued on February 16, 2012. The rule establishes emission limits for hazardous air pollutants from new and existing coal-fired and oil-fired steam electric generating units. The rule requires sources to comply with emission limits by April 16, 2015. Under the Clean Air Act (CAA), permitting authorities have the discretion to grant up to a one-year compliance extension, on a case-by-case basis, to sources that are unable to complete the installation of emission controls before the compliance deadline. The Duke Energy Registrants have requested and received compliance extensions for a number of its plants and have met the rule requirements where a compliance extension was not received. Strategies to achieve compliance include installation of new air emission control equipment, development of monitoring processes, fuel switching and acceleration of retirement for some coal-fired electric-generation units. For additional information, refer to Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," regarding potential plant retirements. In April 2014, several petitions for review of the final rule were denied by the U.S. Court of Appeals for the District of Columbia (D.C. Circuit Court). On November 25, 2014, the Supreme Court granted a petition for review based on the issue of whether the EPA unreasonably refused to consider costs in determining whether it is appropriate to regulate hazardous air pollutants from coal-fired and oil-fired steam electric generating units. Oral arguments were held on March 25, 2015. The Duke Energy Registrants cannot predict the outcome of the Supreme Court review of the D.C. Circuit Court decision. Clean Water Act 316(b) The EPA published the final 316(b) cooling water intake structure rule on August 15, 2014, with an effective date of October 14, 2014. The rule applies to 27 of the electric generating facilities the Duke Energy Registrants own and operate depending on unit retirement dates, excluding stations included in the Disposal Group. The rule allows several options for demonstrating compliance and provides flexibility to the state environmental permitting agencies to make determinations on controls, if any, that will be required for cooling water intake structures. Any required intake structure modifications and/or retrofits are expected to be installed in the 2019 to 2022 time frame. Petitions challenging the rule have been filed by several groups. It is unknown at this time when the courts will rule on the petitions. Steam Electric Effluent Limitations Guidelines On June 7, 2013, the EPA proposed Steam Electric Effluent Limitations Guidelines (ELG). The EPA is under a revised court order to finalize the rule by September 30, 2015. The EPA has proposed eight options for the rule, which vary in stringency and cost. The proposed regulation applies to seven waste streams, including wastewater from air pollution control equipment and ash transport water. Most, if not all, of the steam electric generating facilities the Duke Energy Registrants own are likely affected sources. Requirements to comply with the final rule may begin as early as late 2018 for some facilities. Estimated Cost and Impacts of Rulemakings The ultimate compliance requirements for currently proposed environmental regulations will not be known until all the rules have been finalized. 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. The actual compliance costs incurred may be materially different from these estimates based on the timing and requirements of the final regulations. The Duke Energy Registrants intend to seek rate recovery of appropriate amounts incurred associated with regulated operations in complying with these regulations. Refer to Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants. 109 PART I The following table provides estimated costs, excluding AFUDC, of new control equipment that may need to be installed on existing power plants over the five years ended December 31, 2019, These costs are primarily to comply with the Coal Ash Act requirements for conversion to dry disposal of bottom ash and fly ash, MATS, Clean Water Act 316(b) and ELGs. The table excludes ash basin closure costs recorded as ARO. (in millions) Estimated 5-Year Cost Duke Energy $ 1,800 Duke Energy Carolinas 625 Progress Energy 475 Duke Energy Progress 375 Duke Energy Florida 100 Duke Energy Ohio 100 Duke Energy Indiana 600 Cross-State Air Pollution Rule On August 8, 2011, the final Cross-State Air Pollution Rule (CSAPR) was published in the Federal Register. The CSAPR established state-level annual sulfur dioxide (SO 2) budgets and annual and seasonal nitrogen oxide (NO x ) budgets that were to take effect on January 1, 2012. On August 21, 2012, the D.C. Circuit Court vacated the CSAPR. The court also directed the EPA to continue administering the Clean Air Interstate Rule (CAIR), which required additional reductions in SO 2 and NO x emissions beginning in 2015. On April 29, 2014, the U.S. Supreme Court (Supreme Court) reversed the D.C. Circuit Court’s decision, finding that with CSAPR the EPA reasonably interpreted the good neighbor provision of the CAA. The case was remanded to the D.C. Circuit Court for further proceedings consistent with the Supreme Court’s opinion. On October 23, 2014, the D.C. Circuit Court lifted the CSAPR stay, which allowed Phase 1 of the rule to take effect on January 1, 2015, terminating the CAIR. Where the CSAPR requirements are constraining, actions to meet the requirements could include purchasing emission allowances, power purchases, curtailing generation and utilizing low sulfur fuel. The CSAPR will not result in Duke Energy Registrants adding new emission controls. Additional legal challenges to the CSAPR filed in 2012, not addressed by the D.C. Circuit Court decision to vacate the CSAPR, are still ongoing. Oral arguments were held February 25, 2015. The Duke Energy Registrants cannot predict the outcome of these proceedings or how the requirements of the CSAPR may be impacted going forward. Carbon Dioxide New Source Performance Standards On January 8, 2014, the EPA proposed a rule to establish carbon dioxide (CO 2) emissions standards for new pulverized coal, IGCC, natural gas combined cycle, and simple cycle electric generating units commencing construction on or after that date. Based on the proposal, future coal and IGCC units will be required to employ carbon capture and storage technology to meet the proposed standard. In January 2015, the EPA announced that it would finalize the rule for new power plants in the summer of 2015. The Duke Energy Registrants do not expect a material impact on their future results of operations or cash flows based on the EPA’s proposal. The final rule, however, could be significantly different from the proposal. CO 2 Existing Source Performance Standards and Standards for Reconstructed and Modified Units On June 18, 2014, the EPA’s proposed Clean Power Plan (CPP) for regulating CO 2 emissions from existing fossil fuel-fired electric generating units (EGUs) was published in the Federal Register. On the same date the EPA proposed carbon pollution standards for reconstructed and modified EGUs. The comment period ended October 16, 2014 for the reconstructed and modified proposal and December 1, 2014 for the CPP. Duke Energy submitted comments on both proposals. In January 2015 the EPA announced that it would finalize both proposals in the summer of 2015. Once the CPP is finalized, states will be required to develop plans to implement its requirements. The CPP will not directly impose any regulatory requirements on Duke Energy Registrants. State implementation plans will include the regulatory requirements that will apply to Duke Energy Registrants. Based on the EPA’s June 18, 2014 proposal, states will have from one to three years after the CPP is finalized to submit a plan for EPA’s review. In January 2015 the EPA announced that it would also propose a federal implementation plan for public comment in the summer of 2015. A federal plan would be EPA’s plan for meeting the requirements of the CPP and could take the place of a state plan if a state either fails to submit a plan or submits a plan that is not approved by the EPA. The EPA has proposed to phase CO 2 emission reductions in over the period 2020 to 2030. The final requirements of the CPP, however, including the implementation schedule, are uncertain and could be significantly different from the proposal. In addition, it will be several years before the requirements of the subsequent state plans are known. Also unknown at this time are the requirements of any federal plan that might be imposed on states in which the Duke Energy Registrants operate should a state fail to submit a plan or have their plan disapproved by the EPA. The Duke Energy Registrants are therefore unable to predict the outcome of this rulemaking, or how it might impact them, but the impact could be significant. Global Climate Change For other information on global climate change and the potential impacts on Duke Energy, see “Other Issues” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014. 110 PART I Nuclear Matters For other information on nuclear matters and the potential impacts on Duke Energy, see “Other Issues” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014. New Accounting Standards See Note 1 to the Condensed Consolidated Financial Statements, “Organization and Basis of Presentation,” for a discussion of the impact of new accounting standards. Off-Balance Sheet Arrangements During the three months ended March 31, 2015, there were no material changes to Duke Energy’s off-balance sheet arrangements. For information on Duke Energy’s offbalance sheet arrangements, see “Off-Balance Sheet Arrangements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014. Contractual Obligations Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. During the three months ended March 31, 2015, there were no material changes in Duke Energy’s contractual obligations. For an in-depth discussion of Duke Energy’s contractual obligations, see “Contractual Obligations” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014. Subsequent Events See Note 17 to the Condensed Consolidated Financial Statements, “Subsequent Events,” for a discussion of subsequent events. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During the three months ended March 31, 2015, there were no material changes to Duke Energy’s disclosures about market risk. For an in-depth discussion of Duke Energy’s market risks, see “Management’s Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated the effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2015, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance. Changes in Internal Control over Financial Reporting Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2015 and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. 111 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For information regarding legal proceedings that became reportable events or in which there were material developments in the first quarter of 2015, see Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies — Litigation” and “Commitments and Contingencies — Environmental.” Virginia Department of Environmental Quality Civil Enforcement In April 2015, Duke Energy Carolinas and the Virginia Department of Environmental Quality (VDEQ) announced a proposed consent order to resolve VDEQ's civil enforcement claims related to the February 2014 Dan River coal ash release. Pursuant to the terms of the proposed consent order, Duke Energy Carolinas will pay a total of $2.5 million, with a near-term $250,000 cash payment to be placed in a fund VDEQ uses to respond to environmental emergencies. The balance of the settlement amount will be satisfied through Duke Energy Carolinas funding of environmental projects in Virginia. Failure to perform sufficient funding of environmental projects will require Duke Energy Carolinas to make a cash payment in the amount of the shortfall. The settlement is subject to public notice and approval by the Virginia State Water Control Board. ITEM 1A. RISK FACTORS In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors.” in the Duke Energy Registrants’ Annual Report on Form 10-K for the year ended December 31, 2014, which could materially affect the Duke Energy Registrants’ financial condition or future results. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ISSUER PURCHASES OF EQUITY SECURITIES There were no issuer purchases of equity securities during the first quarter of 2015. 112 PART II ITEM 6. EXHIBITS Exhibits filed herein are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**). The Company agrees to furnish upon request to the Commission a copy of any omitted schedules or exhibits upon request on all items designated by a triple asterisk (***). Exhibit Number Duke Energy Duke Energy Carolinas 4.1 Ninety-Sixth Supplemental Indenture, dated as March 12, 2015, between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to Duke Energy Carolina, LLC's Current Report on Form 8-K filed on March 12, 2015, File No. 1-04928). X 10.1 Amendment No. 2 and Consent among Duke Energy X Corporation, Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, Inc., Duke Energy Kentucky, Inc., Duke Energy Progress, Inc. (f/k/a Progress Energy Carolinas, Inc.) and Duke Energy Florida, Inc. (f/k/a Progress Energy Florida, Inc.), the Lenders party hereto, the Issuing Lenders party hereto, Wells Fargo Bank, National Association, as Administrative Agent and Swingline Lender, dated as of January 30, 2015 (incorporated by reference to Exhibit 10.1 of registrants' Current Report on Form 8-K filed on February 5, 2015, File Nos. 1-32853, 1-04928, 1-01232, 1-03543, 1-03382 and 1-03274). X *12 Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY CORPORATION X *31.1.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.1.2 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.3 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.4 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.5 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.6 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.7 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.1 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.3 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.4 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.5 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Progress Energy Duke Energy Progress X Duke Energy Florida X Duke Energy Ohio X Duke Energy Indiana X X X X X X X X X X X X 113 PART II *31.2.6 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.2.7 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32.1.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.7 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.7 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *101.INS XBRL Instance Document X X X X X X X *101.SCH XBRL Taxonomy Extension Schema Document X X X X X X X *101.CAL XBRL Taxonomy Calculation Linkbase Document X X X X X X X *101.LAB XBRL Taxonomy Label Linkbase Document X X X X X X X *101.PRE XBRL Taxonomy Presentation Linkbase Document X X X X X X X *101.DEF XBRL Taxonomy Definition Linkbase Document X X X X X X X X X X X X X X X X X X X X X X The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the SEC, to furnish copies of any or all of such instruments to it. 114 PART II SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. DUKE ENERGY CORPORATION DUKE ENERGY CAROLINAS, LLC PROGRESS ENERGY, INC. DUKE ENERGY PROGRESS, INC. DUKE ENERGY FLORIDA, INC. DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC. Date: May 8, 2015 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer Date: May 8, 2015 /s/ BRIAN D. SAVOY Brian D. Savoy Senior Vice President, Chief Accounting Officer and Controller 115 EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DUKE ENERGY CORPORATION The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines. Three Months Ended March 31, (in millions) Years Ended December 31, 2015 2014 2013(d) 2012(a) (d) 2011(d) 2010(d) Earnings as defined for fixed charges calculation Add: Pretax income from continuing operations (b) $ Fixed charges Distributed income of equity investees 1,123 $ 3,998 $ 3,657 $ 2,068 $ 1,975 $ 2,062 476 1,871 1,886 1,510 1,057 1,045 31 136 109 151 149 111 — — — 3 — — 5 7 8 30 46 54 Deduct: Preferred dividend requirements of subsidiaries Interest capitalized Total earnings $ 1,625 $ 5,998 $ 5,644 $ 3,696 $ 3,135 $ 3,164 $ 437 $ 1,733 $ 1,760 $ 1,420 $ 1,026 $ 1,008 Fixed charges: Interest on debt, including capitalized portions Estimate of interest within rental expense 39 138 126 87 31 Preferred dividend requirements — — — 3 — Total fixed charges $ 476 $ 1,871 $ 1,886 $ 1,510 $ 1,057 37 — $ 1,045 Ratio of earnings to fixed charges 3.4 3.2 3.0 2.4 3.0 3.0 Ratio of earnings to fixed charges and preferred dividends combined(c) 3.4 3.2 3.0 2.4 3.0 3.0 (a) (b) (c) (d) Includes the results of Progress Energy, Inc. beginning on July 2, 2012. Excludes amounts attributable to noncontrolling interests and income or loss from equity investees. For the period presented, Duke Energy Corporation had no preferred stock outstanding. Operating results have been revised to reflect the impact of discontinued operations. EXHIBIT 31.1.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ LYNN J. GOOD Lynn J. Good Vice Chairman, President and Chief Executive Officer EXHIBIT 31.1.2 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Carolinas, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.1.3 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Progress Energy, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.1.4 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Progress, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.1.5 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Florida, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.1.6 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Ohio, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.1.7 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Indiana, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.2.1 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Carolinas, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.3 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Progress Energy, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.4 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Progress, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.5 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Florida, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.6 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Ohio, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.7 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Indiana, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 8, 2015 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 32.1.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Vice Chairman, President and Chief Executive Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy. /s/ LYNN J. GOOD Lynn J. Good Vice Chairman, President and Chief Executive Officer May 8, 2015 EXHIBIT 32.1.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Carolinas, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Carolinas. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 8, 2015 EXHIBIT 32.1.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Progress Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Progress Energy. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 8, 2015 EXHIBIT 32.1.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Progress, Inc. (“Duke Energy Progress”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Progress, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Progress. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 8, 2015 EXHIBIT 32.1.5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Florida, Inc. (“Duke Energy Florida”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Florida, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Florida. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 8, 2015 EXHIBIT 32.1.6 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Ohio, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Ohio. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 8, 2015 EXHIBIT 32.1.7 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 8, 2015 EXHIBIT 32.2.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 8, 2015 EXHIBIT 32.2.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Carolinas, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Carolinas. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 8, 2015 EXHIBIT 32.2.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Progress Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Progress Energy. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 8, 2015 EXHIBIT 32.2.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Progress, Inc. (“Duke Energy Progress”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Progress, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Progress. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 8, 2015 EXHIBIT 32.2.5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Florida, Inc. (“Duke Energy Florida”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Florida, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Florida. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 8, 2015 EXHIBIT 32.2.6 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Ohio, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Ohio. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 8, 2015 EXHIBIT 32.2.7 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 8, 2015 @196 JEQELQ KEN m? ?an? [5 DUKE 9: ENERGYE 1st Quarter 2015 Statistical Supplement mm Aug 25 2mm? Table of Contents DUKE ENERGY CORPORATION (Unaudited) 3 Consolidating Statements of Operations 5 Consolidating Balance Sheet REGULATED UTILITIES (Unaudited) 7 Consolidating Segment Income 9 Consolidating Balance Sheet 11 Operating Statistics (Regulated Utilities) 13 Operating Statistics (Duke Energy Carolinas) 15 Operating Statistics (Duke Energy Progress) 17 Operating Statistics (Duke Energy Florida) 19 Operating Statistics (Duke Energy Ohio - Electric) 21 Operating Statistics (Duke Energy Ohio - Natural Gas) 22 Operating Statistics (Duke Energy Indiana) DUKE ENERGY OHIO SUPPLEMENT (Unaudited) 24 Consolidating Statements of Operations NONREGULATED MIDWEST GENERATION DISCONTINUED OPERATIONS SUPPLEMENT (Unaudited) 26 Duke Energy Corporation 27 Duke Energy Ohio DUKE ENERGY CORPORATION Consolidating Statement of Operations (Unaudited) Three Months Ended March 31, 2015 Regulated Utilities (in millions) International Energy Commercial Power (a) Other Eliminations / Adjustments Duke Energy Operating Revenues Regulated electric $ Nonregulated electric, natural gas and other 5,490 $ — — $ 273 — $ 73 1 $ 26 (34) $ 5 5,457 377 233 — — — (2) 231 5,723 273 73 27 (31) 6,065 1,941 — — — — 1,941 Fuel used in electric generation and purchased power - nonregulated — 90 14 — — 104 Cost of natural gas and other 97 14 — — — 1,320 78 46 11 (29) 698 23 24 32 — Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses Gains on Sales of Other Assets and Other, Net Operating Income (Loss) Other Income and Expenses Interest Expense 249 2 5 7 1 4,305 207 89 50 (28) 7 — — 7 — 1,425 66 (16) (16) (3) 111 1,426 777 264 4,623 14 1,456 72 14 2 1 (2) 87 275 23 12 97 (4) 403 1,140 1,222 57 (26) (112) (1) Income Tax Expense (Benefit) 448 20 (27) (77) — 364 Income (Loss) from Continuing Operations 774 37 1 (35) (1) 776 — 1 — 2 — Income (Loss) from Continuing Operations Before Income Taxes Less: Net Income Attributable to Noncontrolling Interest Segment Income / Net Expense $ 774 $ 36 $ 1 $ (37) $ 3 (1) $ Income from Discontinued Operations, Net of Tax(b) Net Income Attributable to Duke Energy Corporation (a) (b) 773 91 $ 864 Commercial Power includes Duke Energy's renewables portfolio, Ohio Valley Electric Corporations (OVEC), Beckjord Steam Station, costs related to MISO Transmission Expansion Project (MTEP) and Regional Transmission Expansion Plan (RTEP), and corporate allocations that were not classified as discontinued operations. See page 26 for details of Discontinued Operations related to the nonregulated Midwest generation disposal group. 3 DUKE ENERGY CORPORATION Consolidating Statement of Operations (Unaudited) (in millions) Operating Revenues Regulated electric Nonregulated electric, natural gas and other Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas and other Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges(c) Total operating expenses Gains on Sales of Other Assets and Other, Net Operating Income (Loss) Other Income and Expenses Interest Expense Income (Loss) from Continuing Operations Before Income Taxes Income Tax Expense (Benefit) Income (Loss) from Continuing Operations Less: Net Income Attributable to Noncontrolling Interest Segment Income (Loss) / Net Expense Loss from Discontinued Operations, Net of Tax(d) Net Loss Attributable to Duke Energy Corporation (a) (b) (c) (d) Regulated Utilities $ $ Three Months Ended March 31, 2014(a) International Commercial Eliminations / Other Adjustments Energy Power (b) Duke Energy 5,583 $ — 222 5,805 — $ 382 — 382 — $ 81 — 81 (3) $ 28 — 25 (30) $ — — (30) 5,550 491 222 6,263 2,000 — 100 1,306 677 343 1 4,427 1 1,379 69 270 1,178 441 737 — 737 $ — 107 16 83 23 2 — 231 — 151 57 23 185 51 134 4 130 $ — 13 — 50 27 4 94 188 — (107) 5 14 (116) (84) (32) — (32) $ — 16 — 38 28 1 1 84 — (59) 6 103 (156) (69) (87) — (87) $ — — — (28) — — — (28) — (2) (6) (6) (2) — (2) — (2) $ 2,000 136 116 1,449 755 350 96 4,902 1 1,362 131 404 1,089 339 750 4 746 (843) (97) $ Reflects reclassifications due to the impact of discontinued operations. Commercial Power includes Duke Energy's renewables portfolio, OVEC, Beckjord Steam Station, costs related to MTEP and RTEP, and corporate allocations that were not classified as discontinued operations. The amount for Commercial Power include an impairment taken related to OVEC. See page 26 for details of Discontinued Operations related to the nonregulated Midwest generation disposal group. 4 DUKE ENERGY CORPORATION Consolidating Balance Sheet - Assets (Unaudited) March 31, 2015 Regulated Utilities (in millions) International Energy Commercial Power Other Eliminations / Adjustments Duke Energy Current Assets Cash and cash equivalents $ Receivables, net Restricted receivables of variable interest entities, net Receivables from affiliated companies Notes receivable from affiliated companies Inventory Assets held for sale Regulatory assets Other Total current assets 113 $ 1,725 $ 5 $ 978 $ — $ 418 165 — 180 (13) 1,977 — 18 21 — 105 110 523 12,965 (13,703) (1,298) 2,821 750 2,016 — 958 — — 340 3,311 68 5 29 — 3,413 — — 354 — — 354 893 — — 67 — 960 — 796 34 146 1,087 (55) 2,008 8,571 2,102 1,051 15,667 (15,069) 12,322 3 51 263 26 74 Investments and Other Assets Investments in equity method unconsolidated affiliates Investments and advances to (from) subsidiaries Nuclear decommissioning trust funds Goodwill Assets held for sale Other Total investments and other assets — 343 (21) (7) 5,576 — — — — 5,576 15,950 291 88 — — 16,329 — — 2,603 — — 2,603 43,033 (43,079) — 1,971 413 81 1,213 (471) 3,207 23,574 734 3,028 44,272 (43,550) 28,058 98,053 3,074 2,946 1,619 Property, Plant and Equipment Cost Accumulated depreciation and amortization (33,222) Generation facilities to be retired, net Net property, plant and equipment (934) (362) (882) — 105,692 — (35,400) 9 — — — — 9 64,840 2,140 2,584 737 — 70,301 10,739 — — 540 — 11,279 101 5 37 39 — 182 10,840 5 37 579 — 11,461 107,825 4,981 6,700 61,255 (58,619) (57,025) 58,795 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets Segment reclassifications, intercompany balances and other Reportable Segment Assets $ (1,183) (89) (498) 106,642 $ 4,892 $ 6,202 $ 4,230 $ 176 $ 122,142 — 122,142 5 DUKE ENERGY CORPORATION Consolidating Balance Sheet - Liabilities and Equity (Unaudited) March 31, 2015 Regulated Utilities (in millions) International Energy Commercial Power Other Eliminations / Adjustments Duke Energy Current Liabilities Accounts payable $ 1,565 $ 33 $ 63 $ 259 $ — $ 1,920 13,108 5 156 374 (13,643) Notes payable to affiliated companies 46 — 294 958 (1,298) Notes payable and commercial paper — — — 3,790 — 3,790 Taxes accrued 560 1,115 (55) (1,112) — 508 Interest accrued 369 23 1 97 — 490 1,927 31 68 774 — 2,800 — — 146 — — 146 Accounts payable to affiliated companies Current maturities of long-term debt Liabilities associated with assets held for sale Regulatory liabilities Other Total current liabilities Long-Term Debt Notes Payable to Affiliated Companies — — 235 — — — 1,482 78 44 533 (123) 2,014 19,292 1,285 717 5,673 (15,064) 11,903 25,155 898 967 10,153 475 — — — — — (475) 235 37,173 — Deferred Credits and Other Liabilities 14,416 Deferred income taxes Investment tax credits 424 Accrued pension and other post-retirement benefit costs 740 — Asset retirement obligations 8,496 Regulatory liabilities 6,178 Liabilities associated with assets held for sale Other Total deferred credits and other liabilities (568) 802 — 13,914 — — — 424 1 — 429 — 1,170 — 26 — — 26 2 42 1 — 8,541 — — 59 — 6,237 — (736) 1,067 70 66 464 — 1,667 31,321 (495) 936 217 — 31,979 4,080 45,214 Equity 31,582 Total Duke Energy Corporation shareholders' equity Noncontrolling interests Total equity Total Liabilities and Equity Segment reclassifications, intercompany balances and other Reportable Segment Liabilities and Equity $ 3,255 — 38 — 31,582 3,293 4,080 107,825 4,981 6,700 (1,183) (89) (498) 106,642 $ 4,892 $ 6,202 $ (2) (43,080) — 41,051 36 45,212 (43,080) 41,087 61,255 (58,619) 122,142 (57,025) 58,795 4,230 $ 176 $ — 122,142 6 REGULATED UTILITIES Consolidating Segment Income (Unaudited) Three Months Ended March 31, 2015 (in millions) Duke Energy Duke Energy Carolinas, LLC Progress, Inc. Duke Energy Florida, Inc. Duke Energy Ohio, Inc. Duke Energy Indiana, Inc. Eliminations / Adjustments Regulated Utilities Operating Revenues Regulated electric $ Regulated natural gas Total operating revenues 1,901 $ 1,449 $ 1,086 $ — — — 339 $ 233 788 $ — (73) $ 1,901 1,449 1,086 572 788 (73) 5,723 578 575 457 115 294 (78) 1,941 — 5,490 233 Operating Expenses Fuel used in electric generation and purchased power - regulated Cost of natural gas — — — 97 — — 97 Operation, maintenance and other 476 368 183 112 179 2 1,320 Depreciation and amortization 249 152 134 57 104 70 32 80 70 1,373 1,127 854 451 576 — — — 6 — 528 322 232 127 212 42 20 6 3 5 (4) 72 Interest Expense 102 60 49 20 45 (1) 275 Income from Continuing Operations Before Income Taxes 468 282 189 110 172 1 1,222 73 40 62 10 448 (9) $ 774 Property and other taxes Total operating expenses Gains on Sales of Other Assets and Other, Net Operating Income Other Income and Expenses(a) 168 Income Tax Expense Segment Income (a) $ 300 $ 95 187 $ 116 $ 70 $ (1) 110 $ 2 698 (2) 249 (76) 4,305 1 7 4 1,425 Includes an equity component of allowance for funds used during construction of $24 million for Duke Energy Carolinas, $13 million for Duke Energy Progress, $1 million for Duke Energy Florida, $1 million for Duke Energy Ohio, and $3 million for Duke Energy Indiana. 7 REGULATED UTILITIES Consolidating Segment Income (Unaudited) Three Months Ended March 31, 2014 (a) (in millions) Duke Energy Duke Energy Carolinas, LLC Progress, Inc. Duke Energy Florida, Inc. Duke Energy Ohio, Inc. Duke Energy Indiana, Inc. Eliminations / Adjustments Regulated Utilities Operating Revenues Regulated electric $ Regulated natural gas Total operating revenues 2,000 $ 1,422 $ 1,116 $ 845 $ (139) $ — — — 339 $ 223 — (1) 222 2,000 1,422 1,116 562 845 (140) 5,805 646 570 470 124 339 (149) 2,000 5,583 Operating Expenses Fuel used in electric generation and purchased power - regulated Cost of natural gas — — — 99 — 1 100 Operation, maintenance and other 465 368 203 106 162 2 1,306 Depreciation and amortization 242 144 132 55 102 2 677 Property and other taxes 104 67 84 66 23 (1) 343 Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, Net Operating Income Other Income and Expenses (b) — — 1 — — 1,457 1,149 890 450 626 — (145) 1 4,427 — 1 — — — — 1 543 274 226 112 219 5 1,379 49 9 5 3 7 (4) 69 Interest Expense 101 57 49 20 43 — 270 Income from Continuing Operations Before Income Taxes 491 226 182 95 183 1 1,178 Income Tax Expense 184 83 70 34 67 3 441 Segment Income (a) (b) $ 307 $ 143 $ 112 $ 61 $ 116 $ (2) $ 737 Reflects reclassifications due to the impact of discontinued operations. Includes an equity component of allowance for funds used during construction of $22 million for Duke Energy Carolinas, $2 million for Duke Energy Progress, $1 million for Duke Energy Ohio, and $4 million for Duke Energy Indiana. 8 REGULATED UTILITIES Consolidating Balance Sheet - Assets (Unaudited) March 31, 2015 Duke Energy Carolinas, LLC (in millions) Duke Energy Progress, Inc. Duke Energy Florida, Inc. Duke Energy Ohio, Inc. Duke Energy Indiana, Inc. Eliminations / Adjustments (a) Regulated Utilities Current Assets Cash and cash equivalents $ 30 $ 10 $ 52 $ 16 $ Receivables, net 106 49 77 98 83 Restricted receivables of variable interest entities, net 658 479 301 — 91 4 60 91 (148) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other Total current assets 6 $ (1) $ 113 5 418 — 539 1,977 25 (166) 105 755 205 — 40 106 1,117 929 614 109 542 — 3,311 376 267 124 16 88 22 893 41 99 350 45 240 21 796 3,174 2,038 1,536 451 1,100 272 8,571 958 Investments and Other Assets Investments in equity method unconsolidated affiliates — 1 2 — — — 3 Investments and advances to subsidiaries 20 30 2 — — 22 74 3,118 1,738 720 — — — 5,576 — — — 920 — 15,030 15,950 Nuclear decommissioning trust funds Goodwill Other Total investments and other assets 996 450 269 32 252 4,134 2,219 993 952 252 15,024 37,682 24,444 14,613 7,208 13,180 926 (12,935) (9,162) (4,545) (2,264) (4,314) (28) 1,971 23,574 Property, Plant and Equipment Cost Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment (2) 98,053 (33,222) — — — 9 — — 9 24,747 15,282 10,068 4,953 8,866 924 64,840 2,460 2,814 2,830 447 686 1,502 10,739 46 34 39 8 23 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets Segment reclassifications, intercompany balances and other Reportable Segment Assets (a) $ (49) 101 2,506 2,848 2,869 455 709 1,453 10,840 34,561 22,387 15,466 6,811 10,927 17,673 107,825 (181) (473) 34,380 $ 21,914 $ (85) 15,381 $ (29) 6,782 $ 35 10,962 $ (450) 17,223 $ (1,183) 106,642 Includes the elimination of intercompany balances, purchase accounting adjustments and restricted receivables related to Cinergy Receivables Company. 9 REGULATED UTILITIES Consolidating Balance Sheet - Liabilities and Equity (Unaudited) March 31, 2015 Duke Energy Carolinas, LLC (in millions) Duke Energy Progress, Inc. Duke Energy Florida, Inc. Duke Energy Ohio, Inc. Duke Energy Indiana, Inc. Eliminations / Adjustments (a) Regulated Utilities Current Liabilities Accounts payable $ Accounts payable to affiliated companies 504 $ 363 $ 198 183 302 $ 85 221 $ 11 173 $ 2 2 $ 12,629 1,565 13,108 — — 192 4 — (150) 46 Taxes accrued 138 61 126 132 86 17 560 Interest accrued 135 87 68 29 51 (1) Current maturities of long-term debt 506 702 562 56 5 96 Notes payable to affiliated companies Regulatory liabilities Other Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies 369 1,927 26 80 45 24 60 — 398 359 577 64 88 (4) 1,905 1,835 1,957 541 465 12,589 19,292 8,079 5,255 4,296 1,525 3,636 2,364 25,155 300 — — 25 150 — 475 5,919 2,966 2,484 1,351 1,656 40 14,416 203 77 — 5 139 — 424 235 1,482 Deferred Credits and Other Liabilities Deferred income taxes Investment tax credits Accrued pension and other post-retirement benefit costs 109 287 254 48 81 (39) Asset retirement obligations 3,460 3,936 803 26 33 238 8,496 Regulatory liabilities 2,730 1,883 529 243 790 3 6,178 640 98 158 90 78 3 1,067 13,061 9,247 4,228 1,763 2,777 245 31,321 Equity 11,216 6,050 4,985 2,957 3,899 2,475 31,582 Total Liabilities and Equity 34,561 22,387 15,466 6,811 10,927 17,673 107,825 Other Total deferred credits and other liabilities Segment reclassifications, intercompany balances and other Reportable Segment Liabilities and Equity (a) $ (181) (473) 34,380 $ 21,914 $ (85) 15,381 $ (29) 6,782 $ 35 10,962 $ (450) 17,223 $ 740 (1,183) 106,642 Includes the elimination of intercompany balances, purchase accounting adjustments and restricted receivables related to Cinergy Receivables Company. 10 REGULATED UTILITIES Operating Statistics (Regulated Utilities) (Unaudited) Three Months Ended March 31, 2015 2014 Coal 20,961 25,665 Nuclear 17,389 16,966 495 813 Oil and natural gas 14,271 10,758 Renewable energy 3 3 (b) 53,119 54,205 7,719 7,374 60,838 61,579 2,966 3,021 57,872 58,558 Residential 24,030 24,193 General service 18,282 18,147 Industrial 12,264 12,055 9,671 10,057 Sources of Electric Energy (GWh) Generated - net output (a) Hydro Total generation Purchased power and net interchange (c) Total sources of energy Less: Line loss and company usage Total GWh Sources Electric Energy Sales (GWh) (d) Other energy and wholesale Change in unbilled (1,046) Total GWh Sales 63,201 63,868 (584) Summer 49,739 49,595 Winter 52,994 52,951 94 95 Owned MW Capacity (a) Nuclear Capacity Factor (%) (e) (a) (b) (c) (d) (e) Statistics reflect Duke Energy's ownership share of jointly owned stations. Generation by source is reported net of auxiliary power. Purchased power includes renewable energy purchases. Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. Statistics reflect 100% of jointly owned stations. Note: Total GWh Sources will not equal Total GWh Sales. Sources include Duke Energy Kentucky's regulated generation for all periods. Sales include Duke Energy Ohio's and its subsidiary Duke Energy Kentucky's retail sales. Ohio retail sales are fulfilled through auction purchases under the current ESP. 11 REGULATED UTILITIES Operating Statistics (Regulated Utilities) (Unaudited) Three Months Ended March 31, 2015 2014 2,550 $ 2,556 1,493 1,513 Industrial 732 731 Other energy and wholesale (a) 655 656 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential $ General service Change in unbilled Total Revenues (107) $ (40) 5,323 $ 5,416 6,342 6,265 948 939 18 18 Average Number of Customers (in thousands) Residential General service Industrial Other energy and wholesale Total Average Number of Customers (a) 23 23 7,331 7,245 Net of Joint Dispatch Agreement intercompany sales. 12 REGULATED UTILITIES Operating Statistics (Duke Energy Carolinas) (Unaudited) Three Months Ended March 31, 2015 2014 7,835 10,285 11,316 11,406 257 500 Oil and natural gas 2,233 1,345 Renewable energy 3 3 (b) 21,644 23,539 2,122 1,515 23,766 25,054 1,298 1,361 22,468 23,693 Residential 8,478 8,564 General service 6,859 6,781 Industrial 5,075 4,914 Other energy and wholesale 2,545 3,615 Sources of Electric Energy (GWh) Generated - net output (a) Coal Nuclear Hydro Total generation Purchased power and net interchange (c) Total sources of energy Less: Line loss and company usage Total GWh Sources Electric Energy Sales (GWh) (d) Change in unbilled Total GWh Sales (489) (181) 22,468 23,693 Summer 19,645 19,770 Winter 20,357 20,496 95 101 Owned MW Capacity (a) Nuclear Capacity Factor (%) (e) (a) (b) (c) (d) (e) Statistics reflect Duke Energy Carolinas' ownership share of jointly owned stations. Generation by source is reported net of auxiliary power. Purchased power includes renewable energy purchases. Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. Statistics reflect 100% of jointly owned stations. 13 REGULATED UTILITIES Operating Statistics (Duke Energy Carolinas) (Unaudited) Three Months Ended March 31, 2015 2014 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential 878 $ 883 General service 533 541 Industrial 288 276 Other energy and wholesale 160 240 $ Change in unbilled Total Revenues (42) $ (14) 1,817 $ 1,926 2,109 2,082 343 340 6 7 Average Number of Customers (in thousands) Residential General service Industrial Other energy and wholesale Total Average Number of Customers 15 14 2,473 2,443 14 REGULATED UTILITIES Operating Statistics (Duke Energy Progress) (Unaudited) Three Months Ended March 31, 2015 2014 Coal 4,004 4,877 Nuclear 6,073 5,560 182 254 Sources of Electric Energy (GWh) Generated - net output (a) Hydro Oil and natural gas 5,821 3,877 Total generation (b) 16,080 14,568 Purchased power and net interchange (c) Total sources of energy Less: Line loss and company usage 1,514 2,279 17,594 16,847 829 686 16,765 16,161 Residential 5,767 5,580 General service 3,749 3,641 Industrial 2,437 2,381 Other energy and wholesale 5,253 4,556 Total GWh Sources Electric Energy Sales (GWh) (d) Change in unbilled 3 (441) Total GWh Sales 16,765 16,161 Summer 12,222 12,221 Winter 13,319 13,334 92 85 Owned MW Capacity (a) Nuclear Capacity Factor (%) (a) (b) (c) (d) (e) (e) Statistics reflect Duke Energy Progress' ownership share of jointly owned stations. Generation by source is reported net of auxiliary power. Purchased power includes renewable energy purchases. Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. Statistics reflect 100% of jointly owned stations. 15 REGULATED UTILITIES Operating Statistics (Duke Energy Progress) (Unaudited) Three Months Ended March 31, 2015 2014 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential 593 $ 563 General service 326 315 Industrial 159 157 Other energy and wholesale 351 350 $ Change in unbilled Total Revenues (26) $ 1 1,403 $ 1,386 1,269 1,252 224 222 4 4 Average Number of Customers (in thousands) Residential General service Industrial Other energy and wholesale Total Average Number of Customers 2 2 1,499 1,480 16 REGULATED UTILITIES Operating Statistics (Duke Energy Florida) (Unaudited) Three Months Ended March 31, 2015 2014 Coal 2,153 2,739 Oil and natural gas 5,483 5,269 Total generation (b) 7,636 8,008 1,384 1,064 9,020 9,072 Sources of Electric Energy (GWh) Generated - net output (a) Purchased power and net interchange Total sources of energy Less: Line loss and company usage (c) 547 411 8,473 8,661 Residential 4,104 4,051 General service Total GWh Sources Electric Energy Sales (GWh) (d) 3,235 3,248 Industrial 760 801 Other energy and wholesale 260 422 Change in unbilled 114 139 8,473 8,661 Total GWh Sales Owned MW Capacity (a) Summer Winter (a) (b) (c) (d) 9,154 9,072 10,120 10,109 Statistics reflect Duke Energy Florida's ownership share of jointly owned stations. Generation by source is reported net of auxiliary power. Purchased power includes renewable energy purchases. Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. 17 REGULATED UTILITIES Operating Statistics (Duke Energy Florida) (Unaudited) Three Months Ended March 31, 2015 2014 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential $ General service Industrial Other energy and wholesale Change in unbilled Total Revenues 556 $ 560 335 348 69 74 126 113 (9) $ 14 1,077 $ 1,109 1,516 1,492 193 191 2 2 Average Number of Customers (in thousands) Residential General service Industrial Other energy and wholesale Total Average Number of Customers 2 2 1,713 1,687 18 REGULATED UTILITIES Operating Statistics (Duke Energy Ohio - Electric) (Unaudited) Three Months Ended March 31, 2015 2014 1,220 787 Sources of Electric Energy (GWh) Generated - net output (a) Coal Natural gas Total generation (b) Purchased power and net interchange (c) Total sources of energy Less: Line loss and company usage 20 17 1,240 804 285 475 1,525 1,279 87 110 1,438 1,169 Residential 2,681 2,779 General service 2,363 2,372 Industrial 1,448 1,436 Total GWh Sources Electric Energy Sales (GWh) (d) Other energy and wholesale Change in unbilled Total GWh Sales 408 134 (133) (242) 6,767 6,479 Summer 1,225 1,039 Winter 1,327 1,141 Owned MW Capacity (a) (a) (b) (c) (d) Statistics reflect Duke Energy Ohio's ownership share of jointly owned stations. Generation by source is reported net of auxiliary power. Purchased power includes renewable energy purchases. Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. Note: Total GWh Sources will not equal Total GWh Sales. Sources include only Duke Energy Kentucky's regulated generation for all periods. Sales include Duke Energy Ohio's and its subsidiary Duke Energy Kentucky's retail sales. Ohio retail sales are fulfilled through auction purchases under the current ESP. 19 REGULATED UTILITIES Operating Statistics (Duke Energy Ohio - Electric) (Unaudited) Three Months Ended March 31, 2015 2014 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential $ General service Industrial Other energy and wholesale Change in unbilled Total Revenues $ 202 $ 204 109 110 28 28 8 10 (9) (14) 338 $ 338 748 744 87 86 3 3 Average Number of Electric Customers (in thousands) Residential General service Industrial Other energy and wholesale Total Average Number of Customers 3 3 841 836 20 REGULATED UTILITIES Operating Statistics (Duke Energy Ohio - Natural Gas) (Unaudited) Three Months Ended March 31, 2015 2014 Residential 22,178,905 23,585,941 General service 13,071,081 13,692,491 Industrial 3,075,861 2,812,830 Other energy and wholesale 6,216,151 6,597,030 MCF Sales (a) Change in unbilled (353,000) Total MCF Sales 44,188,998 (2,467,000) 44,221,292 Revenues from Distribution of Natural Gas (in millions) Residential $ 155 $ 150 General service 67 65 Industrial 10 9 Other energy and wholesale Change in unbilled Total Revenues $ 6 6 (4) (9) 234 $ 221 478 476 45 45 Average Number of Natural Gas Customers (in thousands) Residential General service Industrial Total Average Number of Customers (a) 2 2 525 523 Represents non-weather normalized billed sales, with gas delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. 21 REGULATED UTILITIES Operating Statistics (Duke Energy Indiana) (Unaudited) Three Months Ended March 31, 2015 2014 5,749 6,977 Sources of Electric Energy (GWh) Generated - net output (a) Coal Hydro 56 59 714 250 Total generation (b) 6,519 7,286 Purchased power and net interchange (c) 2,414 2,041 Total sources of energy 8,933 9,327 205 453 8,728 8,874 Residential 3,000 3,219 General service 2,076 2,105 Industrial 2,544 2,523 Other energy and wholesale 1,205 1,330 Natural gas Less: Line loss and company usage Total GWh Sources Electric Energy Sales (GWh) (d) Change in unbilled Total GWh Sales (97) (303) 8,728 8,874 Summer 7,493 7,493 Winter 7,871 7,871 Owned MW Capacity (a) (a) (b) (c) (d) Statistics reflect Duke Energy Indiana's ownership share of jointly owned stations. Generation by source is reported net of auxiliary power. Purchased power includes renewable energy purchases. Represents non-weather normalized billed sales, with energy delivered but not yet billed (i.e. unbilled sales) reflected as a single amount and not allocated to the respective retail classes. 22 REGULATED UTILITIES Operating Statistics (Duke Energy Indiana) (Unaudited) Three Months Ended March 31, 2015 2014 Revenues from Generation, Transmission and Distribution of Electricity (in millions) Residential 321 $ 346 General service 190 199 Industrial 188 196 80 82 $ Other energy and wholesale Change in unbilled (21) (27) 758 $ 796 Residential 700 696 General service 101 100 3 3 Total Revenues $ Average Number of Customers (in thousands) Industrial Other energy and wholesale Total Average Number of Customers 1 1 805 800 23 DUKE ENERGY OHIO SUPPLEMENT Consolidating Statement of Operations (Unaudited) Three Months Ended March 31, 2015 Commercial Power (a) Regulated Utilities (in millions) Ohio Transmission& Distribution Duke Energy Ohio Other Duke Energy Kentucky Operating Revenues Regulated electric $ Nonregulated electric, natural gas and other 245 $ 94 $ — $ — $ 339 — — 14 — 14 178 55 — — 233 423 149 14 — 586 Fuel used in electric generation and purchased power - regulated 75 40 — — 115 Fuel used in electric generation and purchased power - nonregulated — — 14 — 14 Cost of natural gas and other 69 28 — — 97 Operation, maintenance and other 77 35 11 5 128 Depreciation and amortization 45 12 — — 57 Property and other taxes 67 3 2 (2) 70 333 118 27 3 481 6 — — — 6 96 31 (13) (3) 2 1 (1) 1 3 Interest Expense 16 4 — — 20 Income (Loss) Before Income Taxes 82 28 (14) (2) 94 30 10 — 35 52 $ 18 (2) $ 59 $ 149 Regulated natural gas Total operating revenues Operating Expenses Total operating expenses Gain on Sales of Other Assets and Other, net Operating Income (Loss) Other Income and Expenses Income Tax Expense (Benefit) Segment Income (Loss) / Net Expense $ (5) $ (9) $ 111 Income from Discontinued Operations, Net of Tax(b) Net Income (a) (b) 90 Commercial Power includes OVEC, Beckjord Steam Station, costs related to MTEP and RTEP, and corporate allocations that were not classified as discontinued operations. See page 27 for details of Discontinued Operations related to the nonregulated Midwest generation disposal group. 24 DUKE ENERGY OHIO SUPPLEMENT Consolidating Statement of Operations (Unaudited) Three Months Ended March 31, 2014(a) Commercial Power (b) Regulated Utilities Ohio Transmission & Distribution (in millions) Duke Energy Ohio Other Duke Energy Kentucky Operating Revenues Regulated electric $ Nonregulated electric, natural gas and other 239 $ 100 $ — $ — $ 339 — — 13 — 13 163 60 — — 223 402 160 13 — 575 Fuel used in electric generation and purchased power - regulated 70 54 — — 124 Fuel used in electric generation and purchased power - nonregulated — — 13 — 13 Cost of natural gas and other 66 33 — — 99 Operation, maintenance and other 72 34 18 3 127 Depreciation and amortization 44 11 2 — 57 Property and other taxes 63 3 1 1 68 Regulated natural gas Total operating revenues Operating Expenses Impairment charges (c) — — 94 — 94 Total operating expenses 315 135 128 4 582 Operating Income (Loss) 87 25 (115) 2 1 Other Income and Expenses Interest Expense 16 4 Income (Loss) before Income Taxes 73 22 26 Income Tax Expense (Benefit) Segment Income (Loss) / Net Expense $ 47 $ 8 14 $ (4) (7) — — 3 — — 20 (115) (4) (24) (41) (2) (74) $ (2) (9) $ Loss from Discontinued Operations, Net of Tax(d) Net Loss (a) (b) (c) (d) (15) (875) $ (890) Reflects reclassifications due to the impact of discontinued operations. Commercial Power includes OVEC, Beckjord Steam Station, costs related to MTEP and RTEP, and corporate allocations that were not classified as discontinued operations. The amount for Commercial Power includes an impairment taken related to OVEC. See page 27 for details of Discontinued Operations related to the nonregulated Midwest generation disposal group. 25 NONREGULATED MIDWEST GENERATION DISCONTINUED OPERATIONS SUPPLEMENT Duke Energy Corporation (Unaudited) Three Months Ended March 31, (in millions) 2015 Operating Revenues $ 543 2014 $ 368 Operating Expenses Fuel used in electric generation and purchased power - nonregulated 282 280 4 6 Operation, maintenance and other 65 55 Depreciation and amortization — 35 6 8 43 1,287 400 1,671 Cost of coal and other Property and other taxes Impairment charges (a) Total operating expenses Gains on Sales of Other Assets and Other, net Income Tax Expense (Benefit) Income (Loss) from the Nonregulated Midwest Generation Disposal Group — 4 Income (Loss) before Income Taxes $ 147 (1,303) 51 (466) 96 $ (837) Note: This schedule is a supplemental presentation of the components of Income (Loss) from Discontinued Operations, net of tax, as presented on pages 3 and 4. The amounts presented relate only to the nonregulated Midwest generation disposal group. (a) The first quarter 2015 impairment charge on the nonregulated Midwest generation business primarily relates to changes in the carrying value of mark-to-market positions. 26 NONREGULATED MIDWEST GENERATION DISCONTINUED OPERATIONS SUPPLEMENT Duke Energy Ohio (Unaudited) Three Months Ended March 31, (in millions) 2015 Operating Revenues $ 412 2014 $ 195 Operating Expenses Fuel used in electric generation and purchased power - nonregulated 160 126 4 2 Operation, maintenance and other 58 53 Depreciation and amortization — 35 6 8 44 1,323 272 1,547 3 — Cost of coal and other Property and other taxes Impairment charges (a) Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income (Loss) Interest Expense 2 3 Income (Loss) before Income Taxes Income Tax Expense (Benefit) Income (Loss) from the Nonregulated Midwest Generation Disposal Group (1,352) 143 $ 140 (1,354) 50 (479) 90 $ (875) Note: This schedule is a supplemental presentation of the components of Income (Loss) from Discontinued Operations, net of tax, as presented on pages 24 and 25. The amounts presented relate only to the nonregulated Midwest generation disposal group. (a) The first quarter 2015 impairment charge on the nonregulated Midwest generation business primarily relates to changes in the carrying value of mark-to-market positions. 27 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2016 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. 1-32853 DUKE ENERGY CORPORATION 20-2777218 (a Delaware corporation) 550 South Tryon Street Charlotte, North Carolina 28202-1803 704-382-3853 Commission file number 1-4928 Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number Commission file number Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number DUKE ENERGY CAROLINAS, LLC 1-3274 DUKE ENERGY FLORIDA, LLC (a North Carolina limited liability company) 526 South Church Street Charlotte, North Carolina 28202-1803 704-382-3853 56-0205520 1-15929 (a Florida limited liability company) 299 First Avenue North St. Petersburg, Florida 33701 704-382-3853 59-0247770 1-1232 PROGRESS ENERGY, INC. (a North Carolina corporation) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 704-382-3853 56-2155481 1-3382 DUKE ENERGY OHIO, INC. (an Ohio corporation) 139 East Fourth Street Cincinnati, Ohio 45202 704-382-3853 31-0240030 1-3543 DUKE ENERGY PROGRESS, LLC (a North Carolina limited liability company) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 704-382-3853 56-0165465 DUKE ENERGY INDIANA, LLC (an Indiana limited liability company) 1000 East Main Street Plainfield, Indiana 46168 704-382-3853 35-0594457 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Duke Energy Corporation (Duke Energy) Yes x No ¨ Duke Energy Florida, LLC (Duke Energy Florida) Yes x No ¨ Duke Energy Carolinas, LLC (Duke Energy Carolinas) Yes x No ¨ Duke Energy Ohio, Inc. (Duke Energy Ohio) Yes x No ¨ Progress Energy, Inc. (Progress Energy) Yes x No ¨ Duke Energy Indiana, LLC (Duke Energy Indiana) Yes x No ¨ Duke Energy Progress, LLC (Duke Energy Progress) Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Duke Energy Yes x No ¨ Duke Energy Florida Yes x No ¨ Duke Energy Carolinas Yes x No ¨ Duke Energy Ohio Yes x No ¨ Progress Energy Yes x No ¨ Duke Energy Indiana Yes x No ¨ Duke Energy Progress Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Duke Energy Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ Duke Energy Carolinas Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Progress Energy Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Progress Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Florida Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Ohio Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Duke Energy Indiana Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress No x Duke Energy Florida Yes ¨ No x Yes ¨ No x Duke Energy Ohio Yes ¨ No x Yes ¨ No x Duke Energy Indiana Yes ¨ No x Yes ¨ No x Yes ¨ Number of shares of Common stock outstanding at April 30, 2016: Registrant Description Duke Energy Common stock, $0.001 par value Duke Energy Carolinas All of the registrant's limited liability company member interests are directly owned by Duke Energy. Progress Energy All of the registrant's common stock is directly owned by Duke Energy. Duke Energy Progress All of the registrant's limited liability company member interests are indirectly owned by Duke Energy. Duke Energy Florida All of the registrant's limited liability company member interests are indirectly owned by Duke Energy. Duke Energy Ohio All of the registrant's common stock is indirectly owned by Duke Energy. Duke Energy Indiana All of the registrant's limited liability company member interests are indirectly owned by Duke Energy. Shares 688,903,766 This combined Form 10-Q is filed separately by seven registrants: Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants. Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q. TABLE OF CONTENTS Cautionary Statement Regarding Forward-Looking Information PART I. FINANCIAL INFORMATION Item 1. Financial Statements Duke Energy Corporation Financial Statements 6 Duke Energy Carolinas, LLC Financial Statements 11 Progress Energy, Inc. Financial Statements 15 Duke Energy Progress, LLC Financial Statements 19 Duke Energy Florida, LLC Financial Statements 23 Duke Energy Ohio, Inc. Financial Statements 27 Duke Energy Indiana, LLC Financial Statements 31 Combined Notes to Condensed Consolidated Financial Statements Note 1 – Organization and Basis of Presentation 35 Note 2 – Acquisitions and Dispositions 38 Note 3 – Business Segments 40 Note 4 – Regulatory Matters 42 Note 5 – Commitments and Contingencies 46 Note 6 – Debt and Credit Facilities 53 Note 7 – Goodwill and Intangible Assets 55 Note 8 – Related Party Transactions 56 Note 9 – Derivatives and Hedging 57 Note 10 – Investments in Debt and Equity Securities 62 Note 11 – Fair Value Measurements 68 Note 12 – Variable Interest Entities 74 Note 13 – Common Stock 79 Note 14 – Stock-Based Compensation 80 Note 15 – Employee Benefit Plans 80 Note 16 – Income Taxes 82 Note 17 – Subsequent Events 83 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 84 Item 3. Quantitative and Qualitative Disclosures About Market Risk 108 Item 4. Controls and Procedures 108 Item 1. Legal Proceedings 109 Item 1A. Risk Factors 109 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 109 Item 6. Exhibits 110 Signatures 112 PART II. OTHER INFORMATION CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management’s beliefs and assumptions and can often be identified by terms and phrases that include “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook” or other similar terminology. Various factors may cause actual results to be materially different than the suggested outcomes within forward-looking statements; accordingly, there is no assurance that such results will be realized. These factors include, but are not limited to: ◦ State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements or climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices; ◦ The extent and timing of costs and liabilities to comply with federal and state laws, regulations, and legal requirements related to coal ash remediation, including amounts for required closure of certain ash impoundments, are uncertain and difficult to estimate; ◦ The ability to recover eligible costs, including amounts associated with coal ash impoundment retirement obligations and costs related to significant weather events, and to earn an adequate return on investment through the regulatory process; ◦ The costs of decommissioning Crystal River Unit 3 and other nuclear facilities could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process; ◦ Credit ratings of the Duke Energy Registrants may be different from what is expected; ◦ Costs and effects of legal and administrative proceedings, settlements, investigations and claims; ◦ Industrial, commercial and residential growth or decline in service territories or customer bases resulting from variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, including self-generation and distributed generation technologies; ◦ Federal and state regulations, laws and other efforts designed to promote and expand the use of energy efficiency measures and distributed generation technologies, such as rooftop solar and battery storage, in Duke Energy service territories could result in customers leaving the electric distribution system, excess generation resources as well as stranded costs; ◦ Advancements in technology; ◦ Additional competition in electric markets and continued industry consolidation; ◦ Political, economic and regulatory uncertainty in Brazil and other countries in which Duke Energy conducts business; ◦ The influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts, earthquakes and tornadoes; ◦ The ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to the company resulting from an incident that affects the U.S. electric grid or generating resources; ◦ The impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches, and other catastrophic events such as fires, explosions, pandemic health events or other similar occurrences; ◦ The inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks; ◦ The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets; ◦ The results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, interest rate fluctuations, and general economic conditions; ◦ Declines in the market prices of equity and fixed income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans and nuclear decommissioning trust funds; ◦ Construction and development risks associated with the completion of Duke Energy Registrants’ capital investment projects, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards, as well as the ability to recover costs from customers in a timely manner or at all; ◦ Changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants; ◦ The ability to control operation and maintenance costs; ◦ The level of creditworthiness of counterparties to transactions; ◦ Employee workforce factors, including the potential inability to attract and retain key personnel; ◦ The ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent); ◦ The performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities; ◦ The effect of accounting pronouncements issued periodically by accounting standard-setting bodies; ◦ The impact of potential goodwill impairments; ◦ The ability to successfully complete future merger, acquisition or divestiture plans; ◦ The expected timing and likelihood of completion of the proposed acquisition of Piedmont Natural Gas Company, Inc. (Piedmont), including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed acquisition that could reduce anticipated benefits or cause the parties to abandon the acquisition, and under certain specified circumstances pay a termination fee of $250 million, as well as the ability to successfully integrate the businesses and realize anticipated benefits and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; and ◦ The likelihood, terms and timing of the potential sale of International Energy, excluding the equity investment in National Methanol Company (NMC), could change the presentation of certain assets, liabilities and results of operations as assets held for sale, liabilities associated with assets held for sale, and discontinued operations, respectively. Additional risks and uncertainties are identified and discussed in the Duke Energy Registrants' reports filed with the SEC and available at the SEC's website at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made and the Duke Energy Registrants expressly disclaim an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DUKE ENERGY CORPORATION Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, (in millions, except per-share amounts) 2016 2015 Operating Revenues Regulated electric $ 5,053 $ 5,457 Nonregulated electric and other 400 Regulated natural gas 169 231 5,622 6,065 Total operating revenues 377 Operating Expenses Fuel used in electric generation and purchased power – regulated 1,577 1,941 Fuel used in electric generation and purchased power – nonregulated 58 104 Cost of natural gas 60 111 1,489 1,426 Depreciation and amortization 814 777 Property and other taxes 297 264 Operation, maintenance and other Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income 3 — 4,298 4,623 9 14 1,333 1,456 8 13 79 74 Other Income and Expenses Equity in earnings of unconsolidated affiliates Other income and expenses, net Total other income and expenses 87 87 Interest Expense 511 403 Income From Continuing Operations Before Income Taxes 909 1,140 Income Tax Expense from Continuing Operations 213 364 Income From Continuing Operations 696 776 Income From Discontinued Operations, net of tax Net Income Less: Net Income Attributable to Noncontrolling Interests Net Income Attributable to Duke Energy Corporation 3 91 699 867 5 3 $ 694 $ 864 Basic $ 1.00 $ 1.09 Diluted $ 1.00 $ 1.09 Basic $ 0.01 $ 0.13 Diluted $ 0.01 $ 0.13 Basic $ 1.01 $ 1.22 Diluted $ 1.01 $ 1.22 Earnings Per Share – Basic and Diluted Income from continuing operations attributable to Duke Energy Corporation common stockholders Income from discontinued operations attributable to Duke Energy Corporation common stockholders Net income attributable to Duke Energy Corporation common stockholders Weighted average shares outstanding Basic 689 708 Diluted 689 708 See Notes to Condensed Consolidated Financial Statements 6 PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2016 Net Income $ 699 2015 $ 867 Other Comprehensive Income (Loss), net of tax Foreign currency translation adjustments 49 (125) Pension and OPEB adjustments — (5) (14) (7) Net unrealized losses on cash flow hedges Reclassification into earnings from cash flow hedges 2 4 Unrealized gains on available-for-sale securities 4 — Other Comprehensive Income (Loss), net of tax Comprehensive Income Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests Comprehensive Income Attributable to Duke Energy Corporation See Notes to Condensed Consolidated Financial Statements 7 41 (133) 740 734 6 $ 734 (1) $ 735 PART I DUKE ENERGY CORPORATION Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2016 December 31, 2015 ASSETS Current Assets Cash and cash equivalents $ Receivables (net of allowance for doubtful accounts of $18 at March 31, 2016 and December 31, 2015) 778 $ 857 609 703 Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $55 at March 31, 2016 and $53 at December 31, 2015) 1,714 1,748 Inventory 3,721 3,810 Regulatory assets 813 877 Other 308 327 7,943 8,322 Total current assets Investments and Other Assets Investments in equity method unconsolidated affiliates Nuclear decommissioning trust funds Goodwill Other 547 499 5,880 5,825 16,349 16,343 3,036 3,042 25,812 25,709 Cost 113,942 112,826 Accumulated depreciation and amortization (38,154) (37,665) Total investments and other assets Property, Plant and Equipment Generation facilities to be retired, net Net property, plant and equipment 644 548 76,432 75,709 11,483 11,373 39 43 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 11,522 11,416 $ 121,709 $ 121,156 $ 2,086 $ 2,400 LIABILITIES AND EQUITY Current Liabilities Accounts payable Notes payable and commercial paper 3,486 3,633 Taxes accrued 394 348 Interest accrued 481 430 2,075 2,074 Current maturities of long-term debt Regulatory liabilities 404 400 1,965 2,115 10,891 11,400 38,232 37,495 Deferred income taxes 12,825 12,705 Investment tax credits 493 472 1,077 1,088 Other Total current liabilities Long-Term Debt Deferred Credits and Other Liabilities Accrued pension and other post-retirement benefit costs Asset retirement obligations 10,269 10,264 Regulatory liabilities 6,278 6,255 Other 1,703 1,706 32,645 32,490 Total deferred credits and other liabilities Commitments and Contingencies Equity Common stock, $0.001 par value, 2 billion shares authorized; 689 million and 688 million shares outstanding at March 31, 2016 and December 31, 2015, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total Duke Energy Corporation stockholders' equity 1 1 37,969 37,968 2,688 2,564 (766) 39,892 (806) 39,727 Noncontrolling interests Total equity Total Liabilities and Equity $ See Notes to Condensed Consolidated Financial Statements 8 49 44 39,941 39,771 121,709 $ 121,156 PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 699 $ 867 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) 931 883 Equity component of AFUDC (42) (42) (9) (16) Gains on sales of other assets Impairment charges Deferred income taxes Equity in earnings of unconsolidated affiliates 3 43 181 368 (8) Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans Payments for asset retirement obligations (13) 4 18 — (132) (112) (26) Net realized and unrealized mark-to-market and hedging transactions 102 (47) Receivables 121 (41) (Increase) decrease in Inventory 89 57 Other current assets 13 (63) (210) (201) 40 (63) (81) (85) Increase (decrease) in Accounts payable Taxes accrued Other current liabilities Other assets 45 30 Other liabilities (102) (97) Net cash provided by operating activities 1,664 1,440 (1,645) (1,411) (59) (14) CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Investment expenditures Acquisitions — Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities Net proceeds from the sales of other assets Change in restricted cash Other Net cash used in investing activities (29) (1,347) (1,035) 1,362 1,069 1 1 (32) (36) (38) (1) (1,758) (1,456) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the: Issuance of long-term debt 1,140 Issuance of common stock related to employee benefit plans 497 7 Payments for the redemption of long-term debt 15 (389) (403) Proceeds from the issuance of short-term debt with original maturities greater than 90 days — 187 Payments for the redemption of short-term debt with original maturities greater than 90 days (92) (643) Notes payable and commercial paper (66) Distributions to noncontrolling interests (1) Dividends paid Net cash provided by financing activities (15) 15 801 (79) Cash and cash equivalents at beginning of period 857 Significant non-cash transactions: $ (564) (14) Net (decrease) increase in cash and cash equivalents Supplemental Disclosures: — (570) Other Cash and cash equivalents at end of period 1,727 778 785 2,036 $ 2,821 Accrued capital expenditures $ See Notes to Condensed Consolidated Financial Statements 9 576 $ 438 PART I DUKE ENERGY CORPORATION Condensed Consolidated Statements of Changes in Equity (Unaudited) Accumulated Other Comprehensive Loss Common Balance at December 31, 2014 Shares 707 $ Stock Total Duke Energy Foreign Net Gains (Losses) Currency Losses on on Available- Paid-in Retained Translation Cash Flow Capital Earnings Adjustments Hedges $ $ Additional Stock Common (in millions) Net Unrealized 1 $ 39,405 $ 2,012 Net income — — — 864 Other comprehensive (loss) income — — — — Common stock issuances, including dividend reinvestment and employee benefits 1 — 8 — Common stock dividends — — — Other (a) — — — (439) — (59) Pension and Corporation for-Sale- OPEB Stockholders' Noncontrolling Total Securities Adjustments Equity Interests Equity 24 $40,899 $ 3 $ (48) $ 40,875 $ — — — 864 3 867 (3) — (5) (129) (4) (133) — — — — (564) — — — — (564) — (564) (3) — — — — (3) 13 10 (121) 8 — 8 Balance at March 31, 2015 708 $ 1 $ 39,413 $ 2,309 $ (560) $ (62) $ 3 $ (53) $ 41,051 $ 36 $41,087 Balance at December 31, 2015 688 $ 1 $ 37,968 $ 2,564 $ (692) $ (50) $ (3) $ (61) $ 39,727 $ 44 $39,771 Net income — — — 694 — — — — 694 5 699 Other comprehensive income (loss) — — — — 48 (12) 4 — 40 1 41 Common stock issuances, including dividend reinvestment and employee benefits 1 — 1 — — — — — 1 — 1 Common stock dividends — — — — — — — Distributions to noncontrolling interest in subsidiaries — — — — — — — Balance at March 31, 2016 (a) 689 $ 1 $ 37,969 $ (570) — 2,688 $ (644) $ (62) $ 1 $ (61) (570) — — $ 39,892 (570) (1) $ 49 (1) $39,941 The $13 million change in Noncontrolling Interests is primarily related to an acquisition of majority interest in a solar company for an insignificant amount of cash consideration. See Notes to Condensed Consolidated Financial Statements 10 PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2016 Operating Revenues $ 1,740 2015 $ 1,901 Operating Expenses Fuel used in electric generation and purchased power 421 578 Operation, maintenance and other 512 489 Depreciation and amortization 259 249 Property and other taxes 67 70 1,259 1,386 481 515 37 42 Interest Expense 107 102 Income Before Income Taxes 411 455 Income Tax Expense 140 Total operating expenses Operating Income Other Income and Expenses, net Net Income $ 271 $ 272 163 $ 292 $ 292 Other Comprehensive Income, net of tax Reclassification into earnings from cash flow hedges 1 Comprehensive Income See Notes to Condensed Consolidated Financial Statements 11 — PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2016 December 31, 2015 ASSETS Current Assets Cash and cash equivalents $ 17 $ 13 Receivables (net of allowance for doubtful accounts of $2 at March 31, 2016 and $3 at December 31, 2015) 129 142 Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $7 at March 31, 2016 and December 31, 2015) 615 596 74 107 Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other 854 163 1,236 1,276 269 305 32 128 3,226 2,730 Nuclear decommissioning trust funds 3,081 3,050 Other 1,003 999 4,084 4,049 Total current assets Investments and Other Assets Total investments and other assets Property, Plant and Equipment Cost Accumulated depreciation and amortization Net property, plant and equipment 39,833 39,398 (13,769) (13,521) 26,064 25,877 2,801 2,766 4 4 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 2,805 2,770 $ 36,179 $ 35,426 $ 597 $ 753 LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies 250 229 Taxes accrued 76 25 Interest accrued 134 95 Current maturities of long-term debt 468 356 Regulatory liabilities 48 39 452 519 2,025 2,016 8,592 7,711 300 300 Deferred income taxes 6,298 6,146 Investment tax credits 197 199 Accrued pension and other post-retirement benefit costs 105 107 Asset retirement obligations 3,913 3,918 Regulatory liabilities 2,829 2,802 Other Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Other Total deferred credits and other liabilities 642 621 13,984 13,793 11,288 11,617 Commitments and Contingencies Equity Member's equity Accumulated other comprehensive loss (10) Total equity Total Liabilities and Equity (11) 11,278 $ See Notes to Condensed Consolidated Financial Statements 12 36,179 11,606 $ 35,426 E99 EEK m? Qua. PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 271 $ 292 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including amortization of nuclear fuel) 330 Equity component of AFUDC (23) (24) Deferred income taxes 145 113 Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans Payments for asset retirement obligations 324 1 4 — (42) (52) (6) (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions 3 — Receivables 2 16 Receivables from affiliated companies 33 (16) Inventory 40 7 102 2 Other current assets Increase (decrease) in Accounts payable (165) (133) Accounts payable to affiliated companies 21 50 Taxes accrued 52 (17) Other current liabilities 21 (27) Other assets 26 44 Other liabilities (26) (11) Net cash provided by operating activities 781 576 Capital expenditures (459) (448) Purchases of available-for-sale securities (785) (643) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other 785 643 (691) (605) (18) Net cash used in investing activities 4 (1,168) (1,049) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt 992 Payments for the redemption of long-term debt Distributions to parent Other 496 (1) — (600) — — Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period (6) 391 490 4 17 13 Cash and cash equivalents at end of period 13 $ 17 $ 30 $ 179 $ 102 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 13 PART I DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements of Changes in Equity (Unaudited) Accumulated Other Comprehensive Loss Net Losses on (in millions) Balance at December 31, 2014 $ Net income Cash Flow Available-for- Total Equity Hedges Sale Securities Equity 10,937 Balance at March 31, 2015 $ 11,229 Balance at December 31, 2015 $ 11,617 Other comprehensive income Distributions to parent Balance at March 31, 2016 $ 292 Net income (12) $ — $ (12) $ (11) (1) $ — 10,924 292 $ (1) $ 11,216 $ — $ 11,606 271 — — 271 — 1 — 1 (600) $ Net Losses on Member's 11,288 — $ (10) See Notes to Condensed Consolidated Financial Statements 14 — $ — (600) $ 11,278 PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2016 Operating Revenues $ 2,332 2015 $ 2,536 Operating Expenses Fuel used in electric generation and purchased power 860 1,032 Operation, maintenance and other 592 565 Depreciation and amortization 290 287 Property and other taxes 119 111 Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net 2 — 1,863 1,995 6 8 475 549 20 27 Interest Expense 160 168 Income From Continuing Operations Before Income Taxes 335 408 Income Tax Expense From Continuing Operations 123 144 Income From Continuing Operations 212 264 Loss From Discontinued Operations, net of tax — Net Income (1) 212 Less: Net Income Attributable to Noncontrolling Interests 263 3 3 Net Income Attributable to Parent $ 209 $ 260 Net Income $ 212 $ 263 Other Comprehensive Income (Loss), net of tax Pension and OPEB adjustments 1 1 Reclassification into earnings from cash flow hedges 1 (2) Unrealized gains on available-for-sale securities 1 — Other Comprehensive Income (Loss), net of tax 3 (1) Comprehensive Income 215 Less: Comprehensive Income Attributable to Noncontrolling Interests Comprehensive Income Attributable to Parent $ See Notes to Condensed Consolidated Financial Statements 15 262 3 212 3 $ 259 PART I PROGRESS ENERGY, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2016 December 31, 2015 ASSETS Current Assets Cash and cash equivalents $ 41 $ 44 Receivables (net of allowance for doubtful accounts of $6 at March 31, 2016 and December 31, 2015) 110 151 Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $8 at March 31, 2016 and December 31, 2015) 627 658 Receivables from affiliated companies 37 375 1,748 1,751 Regulatory assets 333 362 Other 237 156 3,133 3,497 Nuclear decommissioning trust funds 2,798 2,775 Goodwill 3,655 3,655 Inventory Total current assets Investments and Other Assets Other Total investments and other assets 876 834 7,329 7,264 Property, Plant and Equipment Cost Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment 43,166 42,666 (15,008) (14,867) 531 548 28,689 28,347 5,498 5,435 5 5 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 5,503 5,440 $ 44,654 $ 44,548 $ 666 $ 722 LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Notes payable to affiliated companies 256 311 1,436 1,308 Taxes accrued 95 53 Interest accrued 185 195 Current maturities of long-term debt 265 315 Regulatory liabilities 279 286 Other 861 891 4,043 4,081 13,795 13,999 150 150 4,937 4,790 Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs 533 536 Asset retirement obligations 5,372 5,369 Regulatory liabilities 2,386 2,387 Other Total deferred credits and other liabilities 371 383 13,599 13,465 Commitments and Contingencies Equity Common stock, $0.01 par value, 100 shares authorized and outstanding at March 31, 2016 and December 31, 2015 — — Additional paid-in capital 8,092 8,092 Retained earnings 5,040 4,831 Accumulated other comprehensive loss (45) (48) Total Progress Energy, Inc. stockholders' equity 13,087 Noncontrolling interests Total equity Total Liabilities and Equity 12,875 (20) (22) 13,067 $ See Notes to Condensed Consolidated Financial Statements 16 44,654 12,853 $ 44,548 PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 212 $ 263 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) 342 329 Equity component of AFUDC (14) (14) Gains on sales of other assets Impairment charges Deferred income taxes (7) (8) 2 — 182 196 Accrued pension and other post-retirement benefit costs (6) (1) Contributions to qualified pension plans — (42) (54) (20) Payments for asset retirement obligations (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory Other current assets 6 (22) 70 (66) 295 (21) 3 47 (76) 302 9 (107) (55) 83 Increase (decrease) in Accounts payable Accounts payable to affiliated companies Taxes accrued 42 47 (64) (10) Other assets (46) (21) Other liabilities (7) Other current liabilities Net cash provided by operating activities (28) 834 907 Capital expenditures (750) (563) Purchases of available-for-sale securities (533) (298) 548 367 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of available-for-sale securities Proceeds from insurance 43 — Notes receivable from affiliated companies — 42 Other Net cash used in investing activities (15) (20) (707) (472) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt 53 Payments for the redemption of long-term debt (310) (245) 128 (185) Notes payable to affiliated companies Distributions to noncontrolling interests (1) Other — Net cash used in financing activities — — (3) (130) (433) Net (decrease) increase in cash and cash equivalents (3) 2 Cash and cash equivalents at beginning of period 44 42 Cash and cash equivalents at end of period $ 41 $ 44 $ 228 $ 176 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 17 PART I PROGRESS ENERGY, INC. Condensed Consolidated Statements of Changes in Equity (Unaudited) Accumulated Other Comprehensive Loss Net Net Unrealized Additional Losses on Gains on Pension and Energy, Inc. Paid-in Cash Flow Available-for- OPEB Stockholders' Hedges Sale Securities Common (in millions) Balance at December 31, 2014 Stock $ — $ Retained Capital Earnings 7,467 $ 3,782 Net income — — 260 Other comprehensive (loss) income — — Other — — $ (35) $ 1 Total Progress Adjustments $ (7) Noncontrolling Equity $ — 11,208 Interests $ 260 (32) 3 Total Equity $11,176 — — 263 — (2) — 1 (1) — (1) (3) — — — (3) 3 — Balance at March 31, 2015 $ — $ 7,467 $ 4,039 $ (37) $ 1 $ (6) $ 11,464 $ (26) $11,438 Balance at December 31, 2015 $ — $ 8,092 $ 4,831 $ (31) $ — $ (17) $ 12,875 $ (22) $12,853 Net income — — 209 — Other comprehensive income — — — 1 Distributions to noncontrolling interests Balance at March 31, 2016 — $ — $ — — 8,092 $ 5,040 1 — $ (30) — $ 1 — 209 3 212 1 3 — 3 — $ See Notes to Condensed Consolidated Financial Statements 18 (16) — $ 13,087 (1) $ (20) (1) $13,067 PART I DUKE ENERGY PROGRESS, LLC Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2016 Operating Revenues $ 1,307 2015 $ 1,449 Operating Expenses Fuel used in electric generation and purchased power 448 575 Operation, maintenance and other 386 375 Depreciation and amortization 175 152 Property and other taxes Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income 41 32 1,050 1,134 1 1 258 316 Other Income and Expenses, net 17 20 Interest Expense 63 60 212 276 Income Before Income Taxes Income Tax Expense 75 Net Income and Comprehensive Income $ See Notes to Condensed Consolidated Financial Statements 19 137 93 $ 183 PART I DUKE ENERGY PROGRESS, LLC Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2016 December 31, 2015 ASSETS Current Assets Cash and cash equivalents $ Receivables (net of allowance for doubtful accounts of $4 at March 31, 2016 and December 31, 2015) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $5 at March 31, 2016 and December 31, 2015) Receivables from affiliated companies Inventory Regulatory assets Other Total current assets 11 $ 15 47 87 372 349 6 16 1,074 1,088 222 264 51 121 1,783 1,940 2,068 2,035 Investments and Other Assets Nuclear decommissioning trust funds Other Total investments and other assets 521 486 2,589 2,521 Property, Plant and Equipment Cost Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment 27,503 27,313 (10,266) (10,141) 531 548 17,768 17,720 2,768 2,710 2 3 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 2,770 2,713 $ 24,910 $ 24,894 $ 295 $ 399 LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies 176 190 Notes payable to affiliated companies 108 209 Taxes accrued 33 15 Interest accrued 80 96 Current maturities of long-term debt Regulatory liabilities Other 252 2 93 85 382 412 1,419 1,408 6,163 6,366 150 150 Deferred income taxes 3,089 3,027 Investment tax credits 154 132 Accrued pension and other post-retirement benefit costs 261 262 Asset retirement obligations 4,573 4,567 Regulatory liabilities 1,876 1,878 Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Other Total deferred credits and other liabilities 29 45 9,982 9,911 7,196 7,059 Commitments and Contingencies Equity Member's Equity Total equity Total Liabilities and Equity 7,196 $ See Notes to Condensed Consolidated Financial Statements 20 24,910 7,059 $ 24,894 E99 EEK m? Qua. PART I DUKE ENERGY PROGRESS, LLC Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 137 $ 183 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion (including amortization of nuclear fuel) 223 193 Equity component of AFUDC (10) (13) Gains on sales of other assets (2) Deferred income taxes (1) 100 138 Accrued pension and other post-retirement benefit costs (8) (4) Contributions to qualified pension plans — (21) (42) (6) Payments for asset retirement obligations (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions (1) (4) Receivables 18 (92) Receivables from affiliated companies 10 6 Inventory 15 37 Other current assets 83 170 Accounts payable (16) (52) Accounts payable to affiliated companies (14) 63 Increase (decrease) in Taxes accrued Other current liabilities 18 14 (39) (28) Other assets (17) (2) Other liabilities (4) (17) Net cash provided by operating activities 451 564 Capital expenditures (379) (338) Purchases of available-for-sale securities (390) (149) 384 144 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of available-for-sale securities Notes receivable from affiliated companies Other Net cash used in investing activities — 32 (13) (12) (398) (323) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt 53 Payments for the redemption of long-term debt (8) Notes payable to affiliated companies — (243) (101) Other — (1) (1) (57) (244) Net decrease in cash and cash equivalents (4) (3) Cash and cash equivalents at beginning of period 15 Net cash used in financing activities Cash and cash equivalents at end of period 9 $ 11 $ 6 $ 55 $ 82 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 21 PART I DUKE ENERGY PROGRESS, LLC Condensed Consolidated Statements of Changes in Equity (Unaudited) (in millions) Balance at December 31, 2014 Common Retained Member's Total Stock Earnings Equity Equity $ 2,159 Balance at March 31, 2015 $ Balance at December 31, 2015 $ Net income 3,708 2,159 $ 3,891 $ — $ — $ — Net income Balance at March 31, 2016 $ 183 — $ — $ See Notes to Condensed Consolidated Financial Statements 22 — $ 5,867 — $ 6,050 7,059 $ 7,059 $ 7,196 — — $ — 183 137 $ 7,196 137 PART I DUKE ENERGY FLORIDA, LLC Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2016 Operating Revenues $ 1,024 2015 $ 1,086 Operating Expenses Fuel used in electric generation and purchased power 412 457 Operation, maintenance and other 205 188 Depreciation and amortization 114 134 78 80 Property and other taxes Impairment charges Total operating expenses Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense 2 — 811 859 213 227 5 6 41 49 177 184 67 Net Income $ 110 $ 111 71 $ 113 $ 113 Other Comprehensive Income, net of tax Unrealized gains on investments in available-for-sale securities Comprehensive Income See Notes to Condensed Consolidated Financial Statements 23 1 — PART I DUKE ENERGY FLORIDA, LLC Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2016 December 31, 2015 ASSETS Current Assets Cash and cash equivalents $ Receivables (net of allowance for doubtful accounts of $2 at March 31, 2016 and December 31, 2015) Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $3 at March 31, 2016 and December 31, 2015) Receivables from affiliated companies 12 $ 8 61 60 256 308 27 84 Inventory 674 663 Regulatory assets 111 98 Other 52 21 1,193 1,242 Nuclear decommissioning trust funds 730 740 Other 301 292 1,031 1,032 Cost 15,652 15,343 Accumulated depreciation and amortization (4,734) (4,720) 10,918 10,623 2,730 2,725 Total current assets Investments and Other Assets Total investments and other assets Property, Plant and Equipment Net property, plant and equipment Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 2 2 2,732 2,727 $ 15,874 $ 15,624 $ 371 $ 322 LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies 76 116 948 813 Taxes accrued 62 132 Interest accrued 59 43 Current maturities of long-term debt 13 13 186 200 Notes payable to affiliated companies Regulatory liabilities Other Total current liabilities Long-Term Debt 451 452 2,166 2,091 4,252 4,253 Deferred Credits and Other Liabilities Deferred income taxes 2,544 2,460 Accrued pension and other post-retirement benefit costs 240 242 Asset retirement obligations 799 802 Regulatory liabilities 509 509 Other 132 146 4,224 4,159 5,231 5,121 Total deferred credits and other liabilities Commitments and Contingencies Equity Member's equity Accumulated other comprehensive income Total equity Total Liabilities and Equity $ See Notes to Condensed Consolidated Financial Statements 24 1 — 5,232 5,121 15,874 $ 15,624 PART I DUKE ENERGY FLORIDA, LLC Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 110 $ 113 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 116 Equity component of AFUDC Impairment charges Deferred income taxes Accrued pension and other post-retirement benefit costs Contributions to qualified pension plans Payments for asset retirement obligations 136 (4) (1) 2 — 83 39 1 1 — (21) (12) (14) 7 (20) (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables 52 24 Receivables from affiliated companies 14 (20) Inventory (12) 10 Other current assets (44) 143 Increase (decrease) in Accounts payable 25 (54) Accounts payable to affiliated companies (40) 15 Taxes accrued (70) 61 Other current liabilities (14) 24 (30) (17) Other assets Other liabilities (6) Net cash provided by operating activities (15) 178 404 Capital expenditures (370) (224) Purchases of available-for-sale securities (143) (149) 164 223 Proceeds from insurance 43 — Other (1) (7) (307) (157) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of available-for-sale securities Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payments for the redemption of long-term debt (2) Notes payable to affiliated companies (2) 135 108 Dividends to parent — Other — (1) 133 (245) Net cash provided by (used in) financing activities Net increase in cash and cash equivalents 4 Cash and cash equivalents at beginning of period 8 Cash and cash equivalents at end of period (350) 2 8 $ 12 $ 10 $ 173 $ 94 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 25 PART I DUKE ENERGY FLORIDA, LLC Condensed Consolidated Statements of Changes in Equity (Unaudited) Accumulated Other Comprehensive Income Net Unrealized Gains on (in millions) Balance at December 31, 2014 $ Common Retained Member's Available-for-Sale Total Stock Earnings Equity Securities Equity 1,762 $ 3,460 $ — $ — $ 5,222 Net income — 113 — — 113 Dividends to parent — (350) — — (350) Balance at March 31, 2015 $ 1,762 $ 3,223 $ — $ — $ 4,985 Balance at December 31, 2015 $ — $ — $ 5,121 $ — $ 5,121 Net income — — 110 — Other comprehensive income — — — 1 Balance at March 31, 2016 $ — $ — $ 5,231 See Notes to Condensed Consolidated Financial Statements 26 $ 1 110 1 $ 5,232 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2016 2015 Operating Revenues Regulated electric $ Nonregulated electric and other Regulated natural gas Total operating revenues 340 $ 339 6 14 170 233 516 586 Operating Expenses Fuel used in electric generation and purchased power – regulated 111 115 Fuel used in electric generation and purchased power – nonregulated 10 14 Cost of natural gas 49 97 119 128 Depreciation and amortization 61 57 Property and other taxes 71 70 421 481 Operation, maintenance and other Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net 1 6 96 111 2 3 Interest Expense 20 20 Income From Continuing Operations Before Income Taxes 78 94 Income Tax Expense From Continuing Operations 21 35 Income From Continuing Operations 57 59 Income From Discontinued Operations, net of tax 2 Net Income and Comprehensive Income $ See Notes to Condensed Consolidated Financial Statements 27 59 90 $ 149 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2016 December 31, 2015 ASSETS Current Assets Cash and cash equivalents $ 19 $ 14 Receivables (net of allowance for doubtful accounts of $2 at March 31, 2016 and December 31, 2015) 85 66 Receivables from affiliated companies 93 84 Notes receivable from affiliated companies 19 — 105 105 Inventory Regulatory assets 26 36 Other 32 110 379 415 920 920 Total current assets Investments and Other Assets Goodwill Other Total investments and other assets 20 20 940 940 Property, Plant and Equipment Cost Accumulated depreciation and amortization Net property, plant and equipment 7,803 7,750 (2,515) (2,507) 5,288 5,243 503 497 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets 2 2 505 499 $ 7,112 $ 7,097 $ 211 $ 207 LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies 53 53 8 103 Taxes accrued 141 171 Interest accrued 29 18 Current maturities of long-term debt 55 106 Notes payable to affiliated companies Regulatory liabilities Other Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies 18 12 151 153 666 823 1,562 1,467 25 25 1,427 1,407 Deferred Credits and Other Liabilities Deferred income taxes Accrued pension and other post-retirement benefit costs 55 56 Asset retirement obligations 125 125 Regulatory liabilities 245 245 Other 164 165 2,016 1,998 Total deferred credits and other liabilities Commitments and Contingencies Equity Common stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at March 31, 2016 and December 31, 2015 Additional paid-in capital Accumulated deficit 762 2,720 (639) Total equity Total Liabilities and Equity 762 2,720 (698) 2,843 $ See Notes to Condensed Consolidated Financial Statements 7,112 2,784 $ 7,097 E99 EEK m? Qua. 28 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 59 $ 149 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 62 58 Equity component of AFUDC (1) (1) Gains on sales of other assets and other, net (1) (6) Impairment charges — 40 Deferred income taxes 11 25 Accrued pension and other post-retirement benefit costs 1 2 Contributions to qualified pension plans — (1) Payments for asset retirement obligations (1) — 2 (28) (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions Receivables Receivables from affiliated companies Inventory (18) (8) (9) 16 1 (3) 78 80 Accounts payable (1) 20 Accounts payable to affiliated companies — 49 Other current assets Increase (decrease) in Taxes accrued Other current liabilities (31) (4) 14 24 Other assets (2) 15 Other liabilities — (74) Net cash provided by operating activities 164 353 (85) (81) CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Net proceeds from the sales of other assets 1 Notes receivable from affiliated companies — (19) Other Net cash (used in) provided by investing activities 105 (5) — (108) 24 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of long-term debt 95 Payments for the redemption of long-term debt (51) (151) Notes payable to affiliated companies (95) (193) Other — — Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period (1) (51) (345) 5 32 14 Cash and cash equivalents at end of period 20 $ 19 $ 52 $ 31 $ 15 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 29 PART I DUKE ENERGY OHIO, INC. Condensed Consolidated Statements of Changes in Equity (Unaudited) Additional (in millions) Balance at December 31, 2014 Common Paid-in Accumulated Total Stock Capital Deficit Equity $ 762 Balance at March 31, 2015 $ Balance at December 31, 2015 $ Net Income 4,782 762 $ 762 $ — Net income Balance at March 31, 2016 $ 762 (870) 4,782 $ 2,720 $ — — $ $ See Notes to Condensed Consolidated Financial Statements 30 2,720 4,674 (721) $ 4,823 (698) $ 2,784 $ 2,843 149 — $ $ 149 59 $ (639) 59 PART I DUKE ENERGY INDIANA, LLC Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, (in millions) 2016 Operating Revenues $ 714 2015 $ 788 Operating Expenses Fuel used in electric generation and purchased power 228 294 Operation, maintenance and other 162 181 Depreciation and amortization 125 104 Property and other taxes 23 Total operating expenses Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense (1) 538 578 176 210 4 5 44 45 136 170 41 Net Income $ 95 $ 94 62 $ 108 $ 107 Other Comprehensive Loss, net of tax Reclassification into earnings from cash flow hedges (1) Comprehensive Income See Notes to Condensed Consolidated Financial Statements 31 (1) PART I DUKE ENERGY INDIANA, LLC Condensed Consolidated Balance Sheets (Unaudited) (in millions) March 31, 2016 December 31, 2015 ASSETS Current Assets Cash and cash equivalents $ Receivables (net of allowance for doubtful accounts of $1 at March 31, 2016 and December 31, 2015) Receivables from affiliated companies 17 $ 9 82 96 64 71 Notes receivable from affiliated companies 102 83 Inventory 525 570 Regulatory assets 114 102 16 15 Total current assets 920 946 Investments and Other Assets 208 212 Cost 13,864 14,007 Accumulated depreciation and amortization (4,472) (4,484) Other Property, Plant and Equipment Generation facilities to be retired, net Net property, plant and equipment 113 — 9,505 9,523 766 716 2 2 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits 768 Total Assets 718 $ 11,401 $ 11,399 $ 124 $ 189 LIABILITIES AND EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies 61 83 Taxes accrued 119 89 Interest accrued 51 56 547 547 Regulatory liabilities 60 62 Other 78 97 1,040 1,123 3,071 3,071 150 150 Deferred income taxes 1,650 1,657 Investment tax credits 138 138 Current maturities of long-term debt Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies Deferred Credits and Other Liabilities Accrued pension and other post-retirement benefit costs 78 80 Asset retirement obligations 525 525 Regulatory liabilities 759 754 Other Total deferred credits and other liabilities 60 65 3,210 3,219 3,930 — Commitments and Contingencies Equity Member's equity Common stock, no par; $0.01 stated value, 60,000,000 shares authorized; 53,913,701 shares outstanding at December 31, 2015 — 1 Additional paid-in capital — 1,384 Retained earnings — 2,450 Accumulated other comprehensive income — 1 3,930 3,836 Total equity Total Liabilities and Equity $ See Notes to Condensed Consolidated Financial Statements 11,401 $ 11,399 E99 EEK m? Qua. 32 PART I DUKE ENERGY INDIANA, LLC Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in millions) 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 95 $ 108 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 127 Equity component of AFUDC 105 (3) Deferred income taxes (3) (16) Accrued pension and other post-retirement benefit costs 140 2 3 Contributions to qualified pension plans — (9) Payments for asset retirement obligations (5) — 16 3 (Increase) decrease in Receivables Receivables from affiliated companies 7 1 45 (5) (19) 9 Accounts payable (44) 21 Accounts payable to affiliated companies (22) 1 30 13 Inventory Other current assets Increase (decrease) in Taxes accrued Other current liabilities Other assets (18) 6 (4) (8) Other liabilities (11) (24) Net cash provided by operating activities 180 361 (151) (188) (5) (3) CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Purchases of available-for-sale securities Proceeds from sales and maturities of available-for-sale securities 4 Notes receivable from affiliated companies 2 (19) Other (106) (1) Net cash used in investing activities 16 (172) (279) CASH FLOWS FROM FINANCING ACTIVITIES Notes payable to affiliated companies — Other — (1) Net cash used in financing activities — (72) Net increase in cash and cash equivalents 8 10 Cash and cash equivalents at beginning of period 9 Cash and cash equivalents at end of period (71) 6 $ 17 $ 16 $ 42 $ 60 Supplemental Disclosures: Significant non-cash transactions: Accrued capital expenditures See Notes to Condensed Consolidated Financial Statements 33 PART I DUKE ENERGY INDIANA, LLC Condensed Consolidated Statements of Changes in Equity (Unaudited) Accumulated Other Comprehensive Income Additional (in millions) Balance at December 31, 2014 $ Net Gains on Common Paid-in Retained Member's Cash Flow Total Stock Capital Earnings Equity Hedges Equity 1 $ 1,384 $ 2,460 $ — $ 3 Net income — — 108 — — Other comprehensive loss — — — — (1) Balance at March 31, 2015 $ Balance at December 31, 2015 $ 1 $ 1,384 $ 2,568 $ 1 $ 1,384 $ 2,450 $ — $ — $ $ 3,848 108 (1) 2 $ 3,955 1 $ 3,836 Net income — — — 95 — Other comprehensive loss — — — — (1) (1) Transfer to Member's Equity (1) — — Balance at March 31, 2016 $ — (1,384) $ — (2,450) $ — 3,835 $ See Notes to Condensed Consolidated Financial Statements 34 3,930 $ — 95 $ 3,930 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements (Unaudited) Index to Combined Notes to Condensed Consolidated Financial Statements The unaudited notes to the condensed consolidated financial statements that follow are a combined presentation. The following list indicates the registrants to which the footnotes apply. Tables within the notes may not sum across due to Progress Energy's consolidation of Duke Energy Progress, Duke Energy Florida and other subsidiaries that are not registrants as the Duke Energy amounts include balances from subsidiaries that are not registrants. Applicable Notes Registrant 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Duke Energy Corporation • • • • • • • • • • • • • • • • • Duke Energy Carolinas, LLC • • • • • • • • • • • • • Progress Energy, Inc. • • • • • • • • • • • • • • Duke Energy Progress, LLC • • • • • • • • • • • • • • Duke Energy Florida, LLC • • • • • • • • • • • • • Duke Energy Ohio, Inc. • • • • • • • • • • • • Duke Energy Indiana, LLC • • • • • • • • • • • • • • • • 1. ORGANIZATION AND BASIS OF PRESENTATION NATURE OF OPERATIONS AND BASIS OF CONSOLIDATION Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy operates in the United States (U.S.) and Latin America primarily through its direct and indirect subsidiaries. Duke Energy’s subsidiaries include its subsidiary registrants, Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, LLC (Duke Energy Progress); Duke Energy Florida, LLC (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio) and Duke Energy Indiana, LLC (Duke Energy Indiana, formerly Duke Energy Indiana, Inc.). When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its six separate subsidiary registrants (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants (Duke Energy Registrants). These Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries where the respective Duke Energy Registrants have control. These Condensed Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC), Public Service Commission of South Carolina (PSCSC), U.S. Nuclear Regulatory Commission (NRC) and FERC. Substantially all of Duke Energy Carolinas’ operations qualify for regulatory accounting. Progress Energy is a public utility holding company headquartered in Raleigh, North Carolina, subject to regulation by the FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Substantially all of Progress Energy’s operations qualify for regulatory accounting. Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC. Substantially all of Duke Energy Progress’ operations qualify for regulatory accounting. Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Florida. Duke Energy Florida is subject to the regulatory provisions of the Florida Public Service Commission (FPSC), NRC and FERC. Substantially all of Duke Energy Florida’s operations qualify for regulatory accounting. Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in portions of Ohio and Kentucky, the generation and sale of electricity in portions of Kentucky, and the transportation and sale of natural gas in portions of Ohio and Kentucky. Duke Energy Ohio conducts competitive auctions for retail electricity supply in Ohio whereby the energy price is recovered from retail customers and recorded in Operating Revenues on the Condensed Consolidated Statements of Operations and Comprehensive Income. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky). References herein to Duke Energy Ohio collectively include Duke Energy Ohio and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subject to the regulatory provisions of the Public Utilities Commission of Ohio (PUCO), Kentucky Public Service Commission (KPSC) and FERC. On April 2, 2015, Duke Energy completed the sale of its nonregulated Midwest generation business, which sold power into wholesale energy markets, to a subsidiary of Dynegy Inc. (Dynegy). See Note 2 for additional information. Substantially all of Duke Energy Ohio’s operations that remain after the sale qualify for regulatory accounting. Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and FERC. Substantially all of Duke Energy Indiana’s operations qualify for regulatory accounting. On January 1, 2016, Duke Energy Indiana, an Indiana corporation, converted into an Indiana limited liability company. 35 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) BASIS OF PRESENTATION Duke Energy completed the sale of Duke Energy Ohio's nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, the Disposal Group), a retail sales business owned by Duke Energy, to Dynegy on April 2, 2015. The results of operations of these businesses prior to the date of sale have been classified as Discontinued Operations on the Condensed Consolidated Statements of Operations. Duke Energy has elected to present cash flows of discontinued operations combined with cash flows of continuing operations. Unless otherwise noted, the notes to these Condensed Consolidated Financial Statements exclude amounts related to discontinued operations, assets held for sale and liabilities associated with assets held for sale. See Note 2 for additional information. These Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all information and notes required by GAAP in the U.S. for annual financial statements. Since the interim Condensed Consolidated Financial Statements and Notes do not include all information and notes required by GAAP in the U.S. for annual financial statements, the Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and Notes in the Duke Energy Registrants’ combined Annual Report on Form 10-K for the year ended December 31, 2015. The information in these combined notes relates to each of the Duke Energy Registrants as noted in the Index to Combined Notes to Condensed Consolidated Financial Statements. However, none of the registrants make any representations as to information related solely to Duke Energy or the subsidiaries of Duke Energy other than itself. These Condensed Consolidated Financial Statements, in the opinion of the respective companies’ management, reflect all normal recurring adjustments necessary to fairly present the financial position and results of operations of each of the Duke Energy Registrants. Amounts reported in Duke Energy’s interim Condensed Consolidated Statements of Operations and each of the Subsidiary Registrants’ interim Condensed Consolidated Statements of Operations and Comprehensive Income are not necessarily indicative of amounts expected for the respective annual periods due to effects of seasonal temperature variations on energy consumption, regulatory rulings, timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors. In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation. UNBILLED REVENUE Revenues on sales of electricity and natural gas are recognized when service is provided or the product is delivered. Unbilled revenues are recognized by applying customer billing rates to the estimated volumes of energy delivered but not yet billed. Unbilled revenues can vary significantly from period to period as a result of seasonality, weather, customer usage patterns, customer mix, average price in effect for customer classes, timing of rendering customer bills and meter reading schedules. Unbilled revenues, which are included within Receivables and Restricted receivables of variable interest entities on the Condensed Consolidated Balance Sheets, are presented in the following table. (in millions) March 31, 2016 Duke Energy $ 715 December 31, 2015 $ 748 Duke Energy Carolinas 288 283 Progress Energy 158 172 Duke Energy Progress 85 102 Duke Energy Florida 73 70 Duke Energy Ohio Duke Energy Indiana 2 3 33 31 Additionally, Duke Energy Ohio and Duke Energy Indiana sell nearly all of their retail accounts receivable to an affiliate, Cinergy Receivables Company, LLC (CRC), on a revolving basis. These transfers of receivables are accounted for as sales and include receivables for unbilled revenues. Accordingly, the receivables sold are not reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 12 for further information. These receivables for unbilled revenues are shown in the table below. (in millions) March 31, 2016 Duke Energy Ohio $ Duke Energy Indiana 61 88 36 December 31, 2015 $ 71 97 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) AMOUNTS ATTRIBUTABLE TO CONTROLLING INTERESTS Income from Discontinued Operations, net of tax presented on the respective Condensed Consolidated Statements of Operations for Duke Energy and Progress Energy is attributable only to controlling interests for all periods presented. Other comprehensive income reported on the Condensed Consolidated Statements of Changes in Equity for Progress Energy is attributable only to controlling interests for all periods presented. ACCUMULATED OTHER COMPREHENSIVE INCOME For the three months ended March 31, 2016 and 2015, reclassifications out of accumulated other comprehensive income (AOCI) for the Duke Energy Registrants were not material. Changes in AOCI for the Duke Energy Registrants are presented in their respective Condensed Consolidated Statements of Equity. EXCISE TAXES Certain excise taxes levied by state or local governments are required to be paid even if not collected from the customer. These taxes are recognized on a gross basis. Otherwise, excise taxes are accounted for net. Excise taxes accounted for on a gross basis as both operating revenues and property and other taxes on the Condensed Consolidated Statements of Operations were as follows. Three Months Ended March 31, (in millions) 2016 Duke Energy $ Duke Energy Carolinas Progress Energy Duke Energy Progress 91 2015 $ 100 8 9 47 49 5 4 Duke Energy Florida 42 45 Duke Energy Ohio 28 32 8 10 Duke Energy Indiana NEW ACCOUNTING STANDARDS The new accounting standards adopted for 2016 and 2015 had no material impact on the presentation or results of operations, cash flows or financial position of the Duke Energy Registrants. The following accounting standards were adopted by the Duke Energy Registrants during 2015. Reporting Discontinued Operations. In April 2014, the Financial Accounting Standards Board (FASB) issued revised accounting guidance for reporting discontinued operations. A discontinued operation would be either (i) a component of an entity or a group of components of an entity that represents a separate major line of business or major geographical area of operations that either has been disposed of or is part of a single coordinated plan to be classified as held for sale or (ii) a business that, upon acquisition, meets the criteria to be classified as held for sale. For Duke Energy, the revised accounting guidance is effective on a prospective basis for qualified disposals of components or classifications as held for sale that occur after January 1, 2015. Duke Energy has not reported any discontinued operations under the revised accounting guidance. Balance Sheet Classification of Deferred Taxes. In November 2015, the FASB issued revised accounting guidance for the Balance Sheet classification of deferred taxes. The core principle of this revised accounting guidance is that all deferred tax assets and liabilities should be classified as noncurrent. For Duke Energy, this revised accounting guidance was adopted prospectively for December 31, 2015. Balance Sheet Presentation of Debt Issuance Costs. In April and August of 2015, the FASB issued revised accounting guidance for the presentation of debt issuance costs. The core principle of this revised accounting guidance is that debt issuance costs are not assets, but adjustments to the carrying cost of debt. For Duke Energy, this revised accounting guidance was adopted retrospectively. The implementation of this accounting standard resulted in a reduction of Other within Regulatory Assets and Deferred Debits and in Long-Term Debt of $173 million and $170 million on the Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015, respectively. Fair Value Disclosures for Certain Investments. In May 2015, the FASB issued revised accounting guidance for investments in certain entities that use net asset value per share (or its equivalent) as a practical expedient to determine fair value. The core principle of this revised accounting guidance is that the valuation of investments using the practical expedient should not be categorized within the fair value hierarchy (i.e., as Level 1, 2 or 3). The practical expedient applies to investments in investment companies for which there is not a readily determinable fair value (market quote) or the investment is not in a mutual fund with a publicly available net asset value. For Duke Energy, this revised accounting guidance was adopted retrospectively. The implementation of this guidance is reflected in Note 11, "Fair Value Measurements." 37 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following new Accounting Standards Updates (ASUs) have been issued, but have not yet been adopted by Duke Energy, as of March 31, 2016. Revenue from Contracts with Customers. In May 2014, the FASB issued revised accounting guidance for revenue recognition from contracts with customers. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update also require disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. For Duke Energy, the revised accounting guidance is effective for interim and annual periods beginning January 1, 2018, although it can be early adopted for annual periods beginning January 1, 2017. The guidance can be applied retrospectively to all prior reporting periods presented or retrospectively with a cumulative effect as of the initial date of application. Duke Energy is currently evaluating the requirements. The ultimate impact of the new standard has not yet been determined. Financial Instruments Classification and Measurement. In January 2016, the FASB issued revised accounting guidance for the classification and measurement of financial instruments. Changes in the fair value of all equity securities will be required to be recorded in net income. Current GAAP allows some changes in fair value for available-for-sale equity securities to be recorded in AOCI. Additional disclosures will be required to present separately the financial assets and financial liabilities by measurement category and form of financial asset. Investments accounted for using the equity method of accounting are not included within the scope of this revised guidance. For Duke Energy, the revised accounting guidance is effective for interim and annual periods beginning January 1, 2018, by recording a cumulative effect to the balance sheet as of January 1, 2018. This guidance is expected to have a minimal impact on Duke Energy's Condensed Consolidated Statements of Comprehensive Income as changes in the fair value of most of Duke Energy's available-for-sale equity securities are deferred as regulatory assets or liabilities. Leases. In February 2016, the FASB issued revised accounting guidance for leases. The core principle of this guidance is that a lessee should recognize the assets and liabilities that arise from leases on the balance sheet. For Duke Energy, this guidance is effective for interim and annual periods beginning January 1, 2019, although it can be early adopted. The guidance is applied using a modified retrospective approach. Duke Energy is currently evaluating the requirements. Other than an expected increase in assets and liabilities, the ultimate impact of the new standard has not yet been determined. Stock-Based Compensation and Income Taxes. In March 2016, the FASB issued revised accounting guidance for stock-based compensation and the associated income taxes. This is a simplification initiative of the FASB. This standard changes certain aspects of accounting for share-based payment awards to employees including the accounting for income taxes, statutory tax withholding requirements, as well as the classification on the Condensed Consolidated Statements of Cash Flows. This guidance will be applied prospectively, retrospectively, or using a modified retrospective transition method depending on the item changed. For Duke Energy, this guidance is effective for interim and annual periods beginning January 1, 2017, although it can be early adopted. Duke Energy is currently evaluating the requirements. The primary change expected is an increase in the volatility of income tax expense. 2. ACQUISITIONS AND DISPOSITIONS ACQUISITIONS The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date, and include earnings from acquisitions in consolidated earnings after the purchase date. Acquisition of Piedmont Natural Gas On October 24, 2015, Duke Energy entered into an Agreement and Plan of Merger (Merger Agreement) with Piedmont Natural Gas Company, Inc. (Piedmont), a North Carolina corporation. Under the terms of the Merger Agreement, Duke Energy will acquire Piedmont for $4.9 billion in cash and Piedmont will become a wholly owned subsidiary of Duke Energy. In addition, Duke Energy will assume Piedmont's existing debt, which was approximately $2.0 billion at January 31, 2016, the end of Piedmont's most recent quarter. Duke Energy expects to finance the transaction with a combination of debt, equity issuances and other cash sources. As of March 31, 2016, Duke Energy entered into $1.4 billion of forward-starting interest rate swaps to manage interest rate exposure for the expected financing of the Piedmont acquisition. For additional information on the forwardstarting swaps, see Note 9. In March, 2016, Duke Energy marketed an equity offering of 10.6 million shares of Duke Energy common stock. In lieu of issuing equity at the time of the offering, Duke Energy entered into equity forward sale agreements (the Equity Forwards) with Barclays Capital, Inc. (Barclays). Duke Energy expects to settle the Equity Forwards on or around the closing date of the Piedmont acquisition. The net proceeds received upon settlement are expected to be used to finance a portion of the acquisition of Piedmont. For additional information regarding the Equity Forwards, see Note 13. In connection with the Merger Agreement with Piedmont, Duke Energy entered into a $4.9 billion senior unsecured bridge financing facility (Bridge Facility) with Barclays. The Bridge Facility, if drawn upon, may be used to (i) fund the cash consideration for the transaction and (ii) pay certain fees and expenses in connection with the transaction. In November 2015, Barclays syndicated its commitment under the Bridge Facility to a broader group of lenders. Duke Energy does not expect to draw upon the Bridge Facility. The amount of the Bridge Facility is reduced by any financings related to the Piedmont acquisition entered into by Duke Energy, and has accordingly been reduced to $4.2 billion as a result of the Equity Forwards. 38 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Piedmont's shareholders have approved the company's acquisition by Duke Energy and the Federal Trade Commission (FTC) has granted early termination of the 30-day waiting period under the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976. On January 15, 2016, Duke Energy and Piedmont filed an application with the NCUC for approval of the proposed business combination and associated financing transactions. On January 29, 2016, the NCUC approved Duke Energy's proposed financing transactions. The NCUC issued its Scheduling Order on March 2, 2016, setting a public and evidentiary hearing to begin on July 18, 2016. On March 7, 2016, the KPSC granted Duke Energy's declaratory request that the transaction does not constitute a change in control and does not require KPSC approval. The Tennessee Regulatory Authority approved Duke Energy's and Piedmont's request of the change in control resulting from the transaction at its March 14, 2016 meeting. Subject to receipt of required regulatory approvals and meeting closing conditions, Duke Energy and Piedmont expect to close the transaction by the end of 2016. The Merger Agreement contains certain termination rights for both Duke Energy and Piedmont, and provides that, upon termination of the Merger Agreement under specified circumstances, Duke Energy would be required to pay a termination fee of $250 million to Piedmont and Piedmont would be required to pay Duke Energy a termination fee of $125 million. See Note 4 for additional information regarding Duke Energy and Piedmont's joint investment in Atlantic Coast Pipeline, LLC (ACP). Purchase of NCEMPA's Generation On July 31, 2015, Duke Energy Progress completed the purchase of North Carolina Eastern Municipal Power Agency’s (NCEMPA) ownership interests in certain generating assets, fuel and spare parts inventory jointly owned with and operated by Duke Energy Progress for approximately $1.25 billion. This purchase was accounted for as an asset acquisition. The purchase resulted in the acquisition of a total of approximately 700 megawatts (MW) of generating capacity at Brunswick Nuclear Plant, Shearon Harris Nuclear Plant, Mayo Steam Plant and Roxboro Steam Plant. In connection with this transaction, Duke Energy Progress and NCEMPA entered into a 30-year wholesale power agreement, whereby Duke Energy Progress will sell power to NCEMPA to continue to meet the needs of NCEMPA customers. The purchase price exceeds the historical carrying value of the acquired assets by $350 million, which was recognized as an acquisition adjustment, and recorded in property, plant and equipment. Duke Energy Progress established a rider in North Carolina to recover the costs to acquire, operate and maintain interests in the assets purchased as allocated to its North Carolina retail operations, including the purchase acquisition adjustment, and included the purchase acquisition adjustment in wholesale power formula rates. Duke Energy Progress received an order from the PSCSC to defer the recovery of the South Carolina retail allocated costs of the asset purchased until the Company's next general rate case. DISPOSITIONS Potential Sale of International Energy In February 2016, Duke Energy announced it had initiated a process to divest the International Energy business segment, excluding the equity method investment in National Methanol Company (NMC). Duke Energy is in the early stages and there have been no binding or non-binding offers submitted. Duke Energy can provide no assurance that this process will result in a transaction and there is no specific timeline for execution of a potential transaction. Proceeds from a successful exit would be used by Duke Energy to fund the operations and growth of domestic businesses. If the potential of a sale were to progress, it could result in classification of International Energy as assets held for sale and as a discontinued operation. As of March 31, 2016, the International Energy segment had a carrying value of approximately $2.6 billion, adjusted for $644 million of cumulative foreign currency translation losses currently classified as accumulated other comprehensive loss. Midwest Generation Exit Duke Energy, through indirect subsidiaries, completed the sale of the Disposal Group to a subsidiary of Dynegy on April 2, 2015, for approximately $2.8 billion in cash. The nonregulated Midwest generation business included generation facilities with approximately 5,900 MW of owned capacity located in Ohio, Pennsylvania, and Illinois. On April 1, 2015, prior to the sale, Duke Energy Ohio distributed its indirect ownership interest in the nonregulated Midwest generation business to a subsidiary of Duke Energy Corporation. The Disposal Group's results of operations are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. Current-year activity primarily relates to tax adjustments related to the Disposal Group. The following table presents the results of discontinued operations for the three months ended March 31, 2015. Duke Duke (in millions) Energy Energy Operating Revenues $ Loss on disposition 543 Ohio $ (43) Income before income taxes $ 147 412 (44) $ 140 Income tax expense 51 50 Income from discontinued operations of the Disposal Group 96 90 Other, net of tax (a) (5) — Income from Discontinued Operations, net of tax $ 39 91 $ 90 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) (a) Relates to discontinued operations of businesses not related to the Disposal Group and includes indemnifications provided for certain legal, tax and environmental matters, and foreign currency translation adjustments. Commercial Portfolio utilized a revolving credit agreement (RCA) to support the operations of the nonregulated Midwest generation business. Interest expense associated with the RCA was allocated to discontinued operations. No other interest expense related to corporate level debt was allocated to discontinued operations. Duke Energy Ohio had a power purchase agreement with the Disposal Group for a portion of its standard service offer (SSO) supply requirement. The agreement and the SSO expired in May 2015. 3. BUSINESS SEGMENTS Duke Energy evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. Certain governance costs are allocated to each segment. In addition, direct interest expense and income taxes are included in segment income. During the first quarter of 2016, the Duke Energy chief operating decision-maker began to evaluate interim period segment performance based on financial information that includes the impact of income tax levelization within segment income. This represents a change from the previous measure, where the interim period impacts of income tax levelization were included within Other, and therefore excluded from segment income. As a result, prior period segment results presented have been recast to conform to this change. Operating segments are determined based on information used by the chief operating decision-maker in deciding how to allocate resources and evaluate the performance of the business. Products and services are sold between affiliate companies and reportable segments of Duke Energy at cost. Segment assets as presented in the tables that follow exclude all intercompany assets. DUKE ENERGY Duke Energy has the following reportable operating segments: Regulated Utilities, International Energy and Commercial Portfolio. Regulated Utilities conducts electric and natural gas operations that are substantially all regulated and, accordingly, qualify for regulatory accounting treatment. These operations are primarily conducted through the Subsidiary Registrants and are subject to the rules and regulations of the FERC, NRC, NCUC, PSCSC, FPSC, PUCO, IURC and KPSC. International Energy principally operates and manages power generation facilities and engages in sales and marketing of electric power, natural gas and natural gas liquids outside the U.S. Its activities principally target power generation in Latin America. Additionally, International Energy owns a 25 percent interest in NMC, a large regional producer of methyl tertiary butyl ether (MTBE) located in Saudi Arabia. The investment in NMC is accounted for under the equity method of accounting. In February 2016, Duke Energy announced it had initiated a process to potentially divest its International Energy business segment, excluding the investment in NMC. See Note 2 for further information. Commercial Portfolio builds, develops and operates wind and solar renewable generation and energy transmission projects throughout the U.S. For periods subsequent to the sale of the Disposal Group, beginning in the second quarter of 2015, certain immaterial results of operations and related assets previously presented in the Commercial Portfolio segment are presented in Regulated Utilities and Other. The remainder of Duke Energy’s operations is presented as Other, which is primarily comprised of unallocated corporate interest expense, unallocated corporate costs, contributions to the Duke Energy Foundation and the operations of Duke Energy’s wholly owned captive insurance subsidiary, Bison Insurance Company Limited (Bison). Three Months Ended March 31, 2016 Total Regulated (in millions) Unaffiliated revenues Utilities $ Intersegment revenues Total revenues Segment income (loss) (a) International 5,250 Commercial Energy $ 9 246 Reportable Portfolio $ 114 — Segments $ — 5,610 Other $ 9 12 Eliminations $ 17 — Consolidated $ 5,622 (26) — $ 5,259 $ 246 $ 114 $ 5,619 $ 29 $ (26) $ 5,622 $ 695 $ 123 $ 27 $ 845 $ (154) $ — $ 691 Add back noncontrolling interests 5 Income from discontinued operations, net of tax 3 Net income Segment assets (a) $ 111,838 $ 3,247 $ 4,183 $ 119,268 $ 2,263 $ Other includes $74 million of after-tax costs to achieve mergers and a $12 million after-tax charge related to cost savings initiatives. 40 178 $ 699 $ 121,709 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Three Months Ended March 31, 2015 Total Regulated (in millions) Unaffiliated revenues Utilities $ 5,713 Intersegment revenues Total revenues Segment income (loss) (a) International Commercial Energy $ 273 10 Reportable Portfolio $ Segments 73 — $ Other 6,059 — $ 10 6 Eliminations $ — 21 Consolidated $ 6,065 (31) — $ 5,723 $ 273 $ 73 $ 6,069 $ 27 $ (31) $ 6,065 $ 774 $ 36 $ 7 $ 817 $ (43) $ (1) $ 773 Add back noncontrolling interests 3 Income from discontinued operations, net of tax 91 Net income Segment assets (a) $ 106,642 $ 4,892 $ 6,202 $ 117,736 $ 4,230 $ 176 $ 867 $ 122,142 Other includes after-tax costs to achieve the 2012 Progress Energy merger of $13 million. DUKE ENERGY CAROLINAS, PROGRESS ENERGY, DUKE ENERGY PROGRESS, DUKE ENERGY FLORIDA, DUKE ENERGY OHIO AND DUKE ENERGY INDIANA The Subsidiary Registrants each have one reportable operating segment, Regulated Utilities, which generates, transmits, distributes and sells electricity, and for Duke Energy Ohio, also transports and sells natural gas. The remainder of each company’s operations is classified as Other. While not considered a reportable segment for any of these companies, Other consists of certain unallocated corporate costs. Other for Progress Energy also includes interest expense on corporate debt instruments of $56 million and $60 million for the three months ended March 31, 2016 and 2015, respectively. Other for Duke Energy Ohio also includes amounts related to Duke Energy Ohio's contractual arrangement to buy power from Ohio Valley Electric Corporations (OVEC's) power plants. The following table summarizes the net loss for Other for each of these entities. Three Months Ended March 31, (in millions) 2016 Duke Energy Carolinas $ (17) Progress Energy 2015 $ (8) (49) (42) Duke Energy Progress (8) (4) Duke Energy Florida (4) (3) Duke Energy Ohio (9) (2) Duke Energy Indiana (2) (2) The assets at Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana are substantially all included within the Regulated Utilities segment at March 31, 2016. Duke Energy Ohio Duke Energy Ohio had two reportable operating segments, Regulated Utilities and Commercial Portfolio, prior to the sale of the nonregulated Midwest generation business. As a result of the sale discussed in Note 2, Commercial Portfolio no longer qualifies as a Duke Energy Ohio reportable operating segment. Therefore, for periods subsequent to the sale, beginning in the second quarter of 2015, all of the remaining assets and related results of operations previously presented in Commercial Portfolio are presented in Regulated Utilities and Other. The following table summarizes segment information prior to the sale of the nonregulated Midwest generation business. Three Months Ended March 31, 2015 Total Regulated (in millions) Commercial Utilities Reportable Portfolio Segments Other Eliminations Consolidated Total revenues $ 572 $ 14 $ 586 $ — $ — $ 586 Segment income (loss) $ 70 $ (9) $ 61 $ (2) $ — $ 59 $ 149 $ 9,796 Income from discontinued operations, net of tax 90 Net income Segment assets $ 6,782 $ 2,984 41 $ 9,766 $ 43 $ (13) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) 4. REGULATORY MATTERS RATE RELATED INFORMATION The NCUC, PSCSC, FPSC, IURC, PUCO and KPSC approve rates for retail electric and natural gas services within their states. The FERC approves rates for electric sales to wholesale customers served under cost-based rates (excluding Ohio, Kentucky and Indiana), as well as sales of transmission service. Duke Energy Carolinas and Duke Energy Progress FERC Transmission Return on Equity Complaints On January 7, 2016, a group of transmission service customers filed a complaint with the FERC that the rate of return on equity of 10.2 percent in Duke Energy Carolinas' transmission formula rates is excessive and should be reduced to no higher than 8.49 percent, effective upon the complaint date. On the same date a similar complaint was filed with the FERC claiming that the rate of return on equity of 10.8 percent in Duke Energy Progress' transmission formula rates is excessive and should be reduced to no higher than 8.49 percent, effective upon the complaint date. On April 21, 2016, the FERC issued an order which consolidated the cases, set a refund effective date of January 7, 2016, and set the consolidated case for settlement and hearing. Duke Energy Carolinas and Duke Energy Progress do not expect the potential impact on results of operations, cash flows or financial position to be material. It is not possible to predict the outcome of this matter. Duke Energy Carolinas William States Lee Combined Cycle Facility On April 9, 2014, the PSCSC granted Duke Energy Carolinas and North Carolina Electric Membership Corporation (NCEMC) a Certificate of Environmental Compatibility and Public Convenience and Necessity (CECPCN) for the construction and operation of a 750 MW combined-cycle natural gas-fired generating plant at Duke Energy Carolinas' existing William States Lee Generating Station in Anderson, South Carolina. Duke Energy Carolinas began construction in July 2015 and estimates a cost to build of $600 million for its share of the facility, including AFUDC. The project is expected to be commercially available in late 2017. NCEMC will own approximately 13 percent of the project. On July 3, 2014, the South Carolina Coastal Conservation League (SCCL) and Southern Alliance for Clean Energy (SACE) jointly filed a Notice of Appeal with the Court of Appeals of South Carolina (S.C. Court of Appeals) seeking the court's review of the PSCSC's decision, claiming the PSCSC did not properly consider a request related to a proposed solar facility prior to granting approval of the CECPCN. The S.C. Court of Appeals affirmed the PSCSC's decision on February 10, 2016, and on March 24, 2016, denied a request for rehearing filed by SCCL and SACE. On April 21, 2016, SCCL and SACE petitioned the South Carolina Supreme Court for review of the S.C. Court of Appeals decision. Duke Energy Carolinas has 30 days to respond. Duke Energy Carolinas cannot predict the outcome of this matter. Duke Energy Progress Western Carolinas Modernization Plan On November 4, 2015, in response to community feedback, Duke Energy Progress announced a revised Western Carolinas Modernization Plan with an estimated cost of $1.1 billion. The revised plan includes retirement of the existing Asheville coal-fired plant, the construction of two 280 MW combined-cycle natural gas plants having dual fuel capability, with the option to build a third natural gas simple cycle unit in 2023 based upon the outcome of initiatives to reduce the region's power demand. The revised plan includes upgrades to existing transmission lines and substations, but eliminates the need for a new transmission line and a new substation associated with the project in South Carolina. The revised plan has the same overall project cost as the original plan and the plans to install solar generation remain unchanged. Duke Energy Progress has also proposed to add a pilot battery storage project. These investments will be made within the next seven years. Duke Energy Progress is also working with the local natural gas distribution company to upgrade an existing natural gas pipeline to serve the natural gas plant. The plan requires various approvals including regulatory approvals in North Carolina. Duke Energy Progress filed for a Certificate of Public Convenience and Necessity (CPCN) with the NCUC for the new natural gas units on January 15, 2016. On March 28, 2016, the NCUC issued an order approving the CPCN for the new combined-cycle natural gas plants, but denying the CPCN for the contingent simple cycle unit without prejudice to Duke Energy Progress to refile for approval in the future. Construction of these plants is scheduled to begin in 2016 and the plants are expected to be in service by late 2019. Duke Energy Progress plans to file for future approvals related to the proposed solar generation and pilot battery storage project. On April 26, 2016, the NCUC granted a motion from North Carolina Waste Awareness and Reduction Network (NC WARN) and The Climate Times to extend the deadline for parties to appeal the CPCN order until May 27, 2016. On April 27, 2016, the NCUC issued an order to establish the procedure to set the appeal bond related to this motion. The carrying value of the 376 MW Asheville coal-fired plant, including associated ash basin closure costs, of $531 million and $548 million are included in Generation facilities to be retired, net on Duke Energy Progress' Condensed Consolidated Balance Sheet as of March 31, 2016 and December 31, 2015, respectively. Duke Energy Florida Purchase of Osprey Energy Center In December 2014, Duke Energy Florida and Osprey Energy Center, LLC, a wholly owned subsidiary of Calpine Corporation (Calpine), entered into an Asset Purchase and Sale Agreement for the purchase of a 599 MW combined-cycle natural gas plant in Auburndale, Florida (Osprey Plant acquisition) for approximately $166 million. In July 2015, the FERC and the FPSC issued separate orders of approval for the Osprey Plant acquisition. Closing of the acquisition is contingent upon the expiration of the Hart-ScottRodino waiting period and is expected to occur by the first quarter of 2017, upon the expiration of an existing Power Purchase Agreement between Calpine and Duke Energy Florida. On March 31, 2016, Duke Energy Florida and Calpine made Hart-Scott-Rodino filings with the Federal Trade Commission and the Department of Justice. 42 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Crystal River Unit 3 On May 22, 2015, Duke Energy Florida petitioned the FPSC for approval to include in base rates the revenue requirement for the projected $1.298 billion Crystal River Unit 3 Nuclear Plant (Crystal River Unit 3) regulatory asset as authorized by the 2013 Revised and Restated Stipulation and Settlement Agreement (2013 Agreement). On September 15, 2015, the FPSC approved Duke Energy Florida's motion for approval of a settlement agreement with intervenors to reduce the value of the projected Crystal River Unit 3 regulatory asset to be recovered to $1.283 billion. On April 5, 2016, the FPSC granted Duke Energy Florida’s motion to reduce the value of the Crystal River Unit 3 regulatory asset by $36 million and allow recovery of this amount, including carrying costs, through the capacity cost recovery clause over the years 2017 and 2018. In June 2015, the governor of Florida signed legislation to allow utilities to issue nuclear asset-recovery bonds to finance the recovery of certain retired nuclear generation assets, with approval of the FPSC. On November 19, 2015, the FPSC issued a financing order approving Duke Energy Florida’s request to issue nuclear asset-recovery bonds to finance its unrecovered regulatory asset related to Crystal River Unit 3 through a wholly owned special purpose entity. Nuclear asset-recovery bonds would replace the base rate recovery methodology authorized by the 2013 Agreement and result in a lower rate impact to customers with an approximately 20‑year recovery period. On March 31, 2016, Duke Energy Florida filed its Second Amendment to the registration statement for the proposed initial public offering of the bonds. The registration statement is subject to review and declaration of its effectiveness by the Securities and Exchange Commission. Duke Energy Florida expects to issue nuclear asset-recovery bonds in mid-2016. Duke Energy Ohio Accelerated Natural Gas Service Line Replacement Rider On January 20, 2015, Duke Energy Ohio filed an application for approval of an accelerated natural gas service line replacement program (ASRP). Under the ASRP, Duke Energy Ohio proposes to replace certain natural gas service lines on an accelerated basis. The program is proposed to last 10 years. Through the ASRP, Duke Energy Ohio also proposes to complete preliminary survey and investigation work related to natural gas service lines that are customer owned and for which it does not have valid records and, further, to relocate interior natural gas meters to suitable exterior locations where such relocation can be accomplished. Duke Energy Ohio projects total capital and operations and maintenance expenditures under the ASRP to approximate $320 million. The filing also seeks approval of Rider ASRP to recover related expenditures. Duke Energy Ohio proposes to update Rider ASRP on an annual basis. Duke Energy Ohio’s application is pending before the PUCO and it is uncertain when an order will be issued. Intervenors oppose the ASRP, primarily because they believe the program is neither required nor necessary under federal pipeline regulation. The hearing concluded on November 19, 2015, and initial and reply briefs were filed, with briefing complete on December 23, 2015. Duke Energy Ohio cannot predict the outcome of this matter. Energy Efficiency Cost Recovery On March 28, 2014, Duke Energy Ohio filed an application for recovery of program costs, lost distribution revenue and performance incentives related to its energy efficiency and peak demand reduction programs. These programs are undertaken to comply with environmental mandates set forth in Ohio law. After a comment period, the PUCO approved Duke Energy Ohio’s application, but found that Duke Energy Ohio was not permitted to use banked energy savings from previous years in order to calculate the amount of allowed incentive. This conclusion represented a change to the cost recovery mechanism that had been agreed to by intervenors and approved by the PUCO in previous cases. The PUCO granted the applications for rehearing filed by Duke Energy Ohio and an intervenor on July 8, 2015. Substantive ruling on the application for rehearing is pending. On January 6, 2016, Duke Energy Ohio and PUCO Staff entered into a stipulation pending PUCO approval, resolving the issues related to, among other things, performance incentives and the PUCO Staff audit of 2013 costs. Based on the stipulation, in December 2015, Duke Energy Ohio re-established approximately $20 million of revenues that had been reversed in the second quarter of 2015. A hearing on the stipulation commenced on March 10, 2016 and the post-hearing briefing schedule will conclude by May 13, 2016. Duke Energy Ohio cannot predict the outcome of this matter. Regional Transmission Organization (RTO) Realignment Duke Energy Ohio, including Duke Energy Kentucky, transferred control of its transmission assets from Midcontinent Independent System Operator, Inc. (MISO) to PJM Interconnection, LLC (PJM), effective December 31, 2011. The PUCO approved a settlement related to Duke Energy Ohio’s recovery of certain costs of the RTO realignment via a non-bypassable rider. Duke Energy Ohio is allowed to recover all MISO Transmission Expansion Planning (MTEP) costs, including but not limited to Multi Value Project (MVP) costs, directly or indirectly charged to Ohio customers. Duke Energy Ohio also agreed to vigorously defend against any charges for MVP projects from MISO. The KPSC also approved a request to effect the RTO realignment, subject to a commitment not to seek double recovery in a future rate case of the transmission expansion fees that may be charged by MISO and PJM in the same period or overlapping periods. Duke Energy Ohio had a recorded liability for its exit obligation and share of MTEP costs, excluding MVP, of $91 million and $92 million, respectively, at March 31, 2016 and December 31, 2015, within Other in Current liabilities and Other in Deferred credits and other liabilities on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. MTEP costs billed by MISO are recovered by Duke Energy Ohio through a non-bypassable rider. As of March 31, 2016 and December 31, 2015, Duke Energy Ohio had $72 million recorded in Regulatory assets on the Condensed Consolidated Balance Sheets. MVP. MISO approved 17 MVP proposals prior to Duke Energy Ohio’s exit from MISO on December 31, 2011. Construction of these projects is expected to continue through 2020. Costs of these projects, including operating and maintenance costs, property and income taxes, depreciation and an allowed return, are allocated and billed to MISO transmission owners. 43 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) On December 29, 2011, MISO filed a tariff with the FERC providing for the allocation of MVP costs to a withdrawing owner based on monthly energy usage. The FERC set for hearing (i) whether MISO’s proposed cost allocation methodology to transmission owners who withdrew from MISO prior to January 1, 2012, is consistent with the tariff at the time of their withdrawal from MISO and, (ii) if not, what the amount of and methodology for calculating any MVP cost responsibility should be. In 2012, MISO estimated Duke Energy Ohio’s MVP obligation over the period from 2012 to 2071 at $2.7 billion, on an undiscounted basis. On July 16, 2013, a FERC Administrative Law Judge (ALJ) issued an initial decision. Under this initial decision, Duke Energy Ohio would be liable for MVP costs. Duke Energy Ohio filed exceptions to the initial decision, requesting FERC to overturn the ALJ’s decision. On October 29, 2015, the FERC issued an order reversing the ALJ's decision. The FERC ruled the cost allocation methodology is not consistent with the MISO tariff and that Duke Energy Ohio has no liability for MVP costs after its withdrawal from MISO. On November 30, 2015, MISO filed with the FERC a request for rehearing. Duke Energy Ohio cannot predict the outcome of this matter. Duke Energy Indiana Coal Combustion Residual (CCR) Plan On March 17, 2016, Duke Energy Indiana filed for approval of its first group of federally mandated CCR rule compliance projects (Phase I CCR Compliance Projects) to comply with the U.S. Environmental Protection Agency's (EPA) CCR rule. The projects in this Phase I filing are CCR compliance projects, including the conversion of Cayuga and Gibson Stations to dry bottom ash handling and related water treatment. Duke Energy Indiana has requested timely recovery of costs under a federal mandate tracker which provides for timely recovery of 80 percent of such costs and deferral with carrying costs of 20 percent of such costs for recovery in a subsequent retail base rate case. A procedural schedule has not been set for this matter. Duke Energy Indiana cannot predict the outcome of this matter. Edwardsport Integrated Gasification Combined Cycle (IGCC) Plant On November 20, 2007, the IURC granted Duke Energy Indiana a CPCN for the construction of the Edwardsport IGCC Plant. The Citizens Action Coalition of Indiana, Inc., Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc. (collectively, the Joint Intervenors) were intervenors in several matters related to the Edwardsport IGCC Plant. The Edwardsport IGCC Plant was placed in commercial operation in June 2013. Costs for the Edwardsport IGCC Plant are recovered from retail electric customers via a tracking mechanism, the IGCC rider. The ninth semi-annual IGCC rider order was appealed by the Joint Intervenors. The proceeding will be remanded to the IURC for further proceedings and additional findings on the tax in-service issue. An evidentiary hearing has been set for August 31, 2016. The 11th through 15th semi-annual IGCC riders and a subdocket to Duke Energy Indiana's fuel adjustment clause remain pending at the IURC. Issues in these filings include the determination whether the IGCC plant was properly declared in service for ratemaking purposes in June 2013 and a review of the operational performance of the plant. On September 17, 2015, Duke Energy Indiana, the Office of Utility Consumer Counselor, the Industrial Group and Nucor Steel Indiana reached a settlement agreement to resolve these pending issues. On January 15, 2016, The Citizens Action Coalition of Indiana, Inc., Sierra Club, Save the Valley and Valley Watch joined a revised settlement (IGCC settlement). The IGCC settlement will result in customers not being billed for previously incurred operating costs of $87.5 million, and for additional Duke Energy Indiana payments and commitments of $5.5 million for attorneys’ fees and amounts to fund consumer programs. Attorneys’ fees and expenses for the new settling parties will be addressed in a separate proceeding. Duke Energy Indiana recognized pretax impairment and related charges of $93 million in the third quarter of 2015. Additionally, under the IGCC settlement, the operating and maintenance expenses and ongoing maintenance capital at the plant are subject to certain caps during the years of 2016 and 2017. The IGCC settlement also includes a commitment to either retire or stop burning coal by December 31, 2022, at the Gallagher Station. Pursuant to the IGCC settlement, the inservice date used for accounting and ratemaking will remain as June 2013. Remaining deferred costs will be recovered over eight years and not earn a carrying cost. The IGCC settlement, which is opposed by a residential customer and his spouse, is subject to IURC approval. An evidentiary hearing on the IGCC settlement was held on April 18, 2016, and a decision is expected in the third quarter of 2016. As of March 31, 2016, deferred costs related to the project are approximately $147 million. Under the IGCC settlement, future IGCC riders will be filed annually, rather than every six months, with the next filing scheduled for first quarter 2017. Duke Energy Indiana cannot predict the outcome of these matters or future IGCC rider proceedings. FERC Transmission Return on Equity Complaint Customer groups have filed with the FERC complaints against MISO and its transmission-owning members, including Duke Energy Indiana, alleging, among other things, that the current base rate of return on equity earned by MISO transmission owners of 12.38 percent is unjust and unreasonable. The latest complaint, filed on February 12, 2015, claims the base rate of return on equity should be reduced to 8.67 percent and requests a consolidation of complaints. The motion to consolidate complaints was denied. On January 5, 2015, the FERC issued an order accepting the MISO transmission owners 0.50 percent adder to the base rate of return on equity based on participation in an RTO subject to it being applied to a return on equity that is shown to be just and reasonable in the pending return on equity complaint. A hearing in the base return on equity proceeding was held in August 2015. On December 22, 2015, the presiding FERC ALJ issued an Initial Decision in which he set the base rate of return on equity at 10.32 percent. The Initial Decision will be reviewed by the FERC. Duke Energy Indiana currently believes these matters will have an immaterial impact on its results of operations, cash flows and financial position. 44 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Grid Infrastructure Improvement Plan On August 29, 2014, pursuant to a new statute, Duke Energy Indiana filed a seven-year grid infrastructure improvement plan with the IURC with an estimated cost of $1.9 billion, focusing on the reliability, integrity and modernization of the transmission and distribution system. The plan also provided for cost recovery through a transmission and distribution rider (T&D Rider). In May 2015, the IURC denied the original proposal due to an insufficient level of detailed projects and cost estimates in the plan. On December 7, 2015, Duke Energy Indiana filed a revised infrastructure improvement plan with an estimated cost of $1.8 billion in response to guidance from IURC orders and the Indiana Court of Appeals decisions related to this new statute. The revised plan uses a combination of advanced technology and infrastructure upgrades to improve service to customers and provide them with better information about their energy use. It also provides for cost recovery through a T&D rider. In March 2016, Duke Energy Indiana entered into a settlement with all parties to the proceeding except the Indiana Citizens Action Coalition, Inc. The settlement agreement decreased the capital expenditures eligible for timely recovery of costs in the seven-year plan to approximately $1.4 billion, including the removal of an automated metering infrastructure (AMI) project. The settlement provides for deferral accounting for depreciation and post-in-service carrying costs for AMI projects outside the seven-year plan. Duke Energy Indiana withdrew its request for a regulatory asset for current meters and retains the savings associated with AMI prior to the next retail base rate case, which is required to be filed prior to the end of the seven-year plan. Under the settlement, the return on equity to be used in the T&D Rider is 10 percent. The settlement is subject to approval of the IURC. An order is expected in August 2016. Duke Energy Indiana cannot predict the outcome of this matter. OTHER REGULATORY MATTERS Atlantic Coast Pipeline On September 2, 2014, Duke Energy, Dominion Resources (Dominion), Piedmont and AGL Resources announced the formation of a company, ACP, to build and own the proposed Atlantic Coast Pipeline (the pipeline), a 564-mile interstate natural gas pipeline. The pipeline is designed to meet the needs identified in requests for proposals by Duke Energy Carolinas, Duke Energy Progress and Piedmont. Dominion will build and operate the pipeline and has a 45 percent ownership percentage in ACP. Duke Energy has a 40 percent ownership interest in ACP through its Commercial Portfolio segment. Piedmont owns 10 percent and the remaining share is owned by AGL Resources. Duke Energy Carolinas and Duke Energy Progress, among others, will be customers of the pipeline. Purchases will be made under several 20-year supply contracts, subject to state regulatory approval. In October 2014, the NCUC and PSCSC approved the Duke Energy Carolinas and Duke Energy Progress requests to enter into certain affiliate agreements, pay compensation to ACP and to grant a waiver of certain Code of Conduct provisions relating to contractual and jurisdictional matters. On September 18, 2015, ACP filed an application with the FERC requesting a CPCN authorizing ACP to construct the pipeline. FERC approval of the application is expected in early 2017 and construction is projected to begin in summer of 2017, with a targeted in-service date of late 2018. ACP is working with various agencies to develop the final pipeline route. ACP also requested approval of an open access tariff and the precedent agreements it entered into with future pipeline customers, including Duke Energy Carolinas and Duke Energy Progress. On October 24, 2015, Duke Energy entered into a Merger Agreement with Piedmont. The ACP partnership agreement includes provisions to allow Dominion an option to purchase additional ownership interest in ACP to maintain a leading ownership percentage. Any change in ownership interests is not expected to be material to Duke Energy. Refer to Note 2 for further information related to Duke Energy's proposed acquisition of Piedmont. Sabal Trail Transmission, LLC Pipeline On May 4, 2015, Duke Energy acquired a 7.5 percent ownership interest from Spectra Energy in the proposed 500-mile Sabal Trail natural gas pipeline. Spectra Energy will continue to own 59.5 percent of the Sabal Trail pipeline and NextEra Energy will own the remaining 33 percent. The Sabal Trail pipeline will traverse Alabama, Georgia and Florida to meet rapidly growing demand for natural gas in those states. The primary customers of the Sabal Trail pipeline, Duke Energy Florida and Florida Power & Light Company (FP&L), have each contracted to buy pipeline capacity for 25-year initial terms. On February 3, 2016, the FERC issued an order granting the request for a CPCN to construct and operate the Sabal Trail pipeline. The Sabal Trail pipeline requires additional regulatory approvals and is scheduled to begin service in 2017. Potential Coal Plant Retirements The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years), and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in Florida and Indiana earlier than their current estimated useful lives. These facilities do not have the requisite emission control equipment, primarily to meet EPA regulations recently approved or proposed. 45 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement due to a lack of requisite environmental control equipment. Dollar amounts in the table below are included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets as of March 31, 2016. Remaining Net Duke Energy Capacity Book Value(a) (in MW) (in millions) 873 128 Florida(b) Crystal River Units 1 and 2 Duke Energy Indiana Wabash River Unit 6(c) 318 35 Gallagher Units 2 and 4(d) 280 137 1,471 300 Total Duke Energy (a) (b) (c) (d) Remaining net book value amounts exclude any capitalized asset retirement costs. Progress Energy amounts are equal to Duke Energy Florida amounts. In April 2016, Wabash River 6 terminated coal burning operations and is targeted for retirement by the end of 2016. The total net book value of $113 million for the retail portion of Wabash River Unit 6 and the retail portion of capitalized asset retirement costs for Wabash River Units 2 through 6 is classified as Generation facilities to be retired, net on Duke Energy Indiana's Condensed Consolidated Balance Sheet at March 31, 2016. Duke Energy Indiana committed to either retire or stop burning coal at Gallagher Units 2 and 4 by December 31, 2022, as part of the proposed settlement of Edwardsport IGCC matters. On October 23, 2015, the EPA published in the Federal Register the Clean Power Plan (CPP) rule for regulating carbon dioxide (CO 2) emissions from existing fossil fuel-fired electric generating units (EGUs). The CPP establishes CO 2 emission rates and mass cap goals that apply to fossil fuel-fired generation. Under the CPP, states are required to develop and submit a final compliance plan, or an initial plan with an extension request, to the EPA by September 6, 2016, or no later than September 6, 2018, with an approved extension. These state plans are subject to EPA approval, with a federal plan applied to states that fail to submit a plan to the EPA or if a state plan is not approved. Legal challenges to the CPP have been filed by stakeholders and motions to stay the requirements of the rule pending the outcome of the litigation were granted by the U.S. Supreme Court in February 2016. Final resolution of these legal challenges could take several years. Compliance with CPP could cause the industry to replace coal generation with natural gas and renewables, especially in states that have significant CO 2 reduction targets under the rule. Costs to operate coal-fired generation plants continue to grow due to increasing environmental compliance requirements, including ash management costs unrelated to CPP, and this may result in the retirement of coal-fired generation plants earlier than the current useful lives. Duke Energy continues to evaluate the need to retire generating facilities and plans to seek regulatory recovery, where appropriate, for amounts that have not been recovered upon asset retirements. However, recovery is subject to future regulatory approval, including the recovery of carrying costs on remaining book values, and therefore cannot be assured. Refer to the "Western Carolinas Modernization Plan" discussion above for details of Duke Energy Progress' planned retirements. 5. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL Duke Energy is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. The Subsidiary Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all of the Duke Energy Registrants. Remediation Activities In addition to Asset Retirement Obligations recorded as a result of various environmental regulations, the Duke Energy Registrants are responsible for environmental remediation at various sites. These include certain properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. These sites are in various stages of investigation, remediation and monitoring. Managed in conjunction with relevant federal, state and local agencies, remediation activities vary based upon site conditions and location, remediation requirements, complexity and sharing of responsibility. If remediation activities involve joint and several liability provisions, strict liability or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for environmental impacts caused by other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Liabilities are recorded when losses become probable and are reasonably estimable. The total costs that may be incurred cannot be estimated because the extent of environmental impact, allocation among potentially responsible parties, remediation alternatives and/or regulatory decisions have not yet been determined. Additional costs associated with remediation activities are likely to be incurred in the future and could be significant. Costs are typically expensed as Operation, maintenance and other in the Condensed Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable. 46 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following tables contain information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. Three Months Ended March 31, 2016 Duke Duke (in millions) Balance at beginning of period Energy Energy $ 97 Progress Carolinas $ 10 Energy $ 17 Duke Duke Duke Duke Energy Energy Energy Energy Progress $ 3 Florida $ 14 Ohio $ 54 Indiana $ 12 Provisions/adjustments 10 2 1 — 1 — 6 Cash reductions (3) (1) (2) (1) (1) — — Balance at end of period $ 104 $ 11 $ 16 $ 2 $ 14 $ 54 $ 18 Three Months Ended March 31, 2015 Duke Duke (in millions) Balance at beginning of period Energy $ Provisions/adjustments Cash reductions Balance at end of period Energy $ 97 Progress Carolinas $ 10 Energy $ 17 Duke Duke Duke Duke Energy Energy Energy Energy Progress $ 5 Florida $ 12 Ohio $ 54 Indiana $ 10 2 — — — — 1 2 (3) — — — — (1) (1) 96 $ 10 $ 17 $ 5 $ 12 $ 54 $ 11 Additional losses in excess of recorded reserves that could be incurred for the stages of investigation, remediation and monitoring for environmental sites that have been evaluated at this time are not material except as presented in the table below. (in millions) Duke Energy $ 83 Duke Energy Carolinas 22 Duke Energy Ohio 42 Duke Energy Indiana 15 North Carolina and South Carolina Ash Basins On February 2, 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River Steam Station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the river. Duke Energy Carolinas estimates 30,000 to 39,000 tons of ash and 24 million to 27 million gallons of basin water were released into the river. In July 2014, Duke Energy completed remediation work identified by the EPA and continues to cooperate with the EPA's civil enforcement process. Future costs related to the Dan River release, including pending or future state or federal civil enforcement proceedings, future regulatory directives, natural resources damages, additional pending litigation, future claims or litigation and long-term environmental impact costs, cannot be reasonably estimated at this time. North Carolina Department of Environmental Quality (NCDEQ), formerly the North Carolina Department of Environment and Natural Resources, has historically assessed Duke Energy Carolinas and Duke Energy Progress with Notice of Violations (NOV) for violations that were most often resolved through satisfactory corrective actions and minor, if any, fines or penalties. Subsequent to the Dan River matter discussed above, Duke Energy Carolinas and Duke Energy Progress have been served with a higher level of NOVs, including for violations at L.V. Sutton Plant and Dan River Steam Station. In August 2014, NCDEQ issued an NOV for alleged groundwater violations at Duke Energy Progress' L.V. Sutton Plant. On March 10, 2015, NCDEQ issued a civil penalty of approximately $25 million to Duke Energy Progress for environmental damages related to groundwater contamination at the L.V. Sutton Plant. On February 8, 2016, NCDEQ assessed a penalty of approximately $6.8 million, including enforcement costs, against Duke Energy Carolinas related to stormwater pipes and associated discharges at the Dan River Steam Station. Duke Energy Carolinas recorded a charge in December 2015 for this penalty. See "Litigation" section below for additional discussion of matters related to these penalties. These fines and penalties are unprecedented and were not consistent with historic enforcement practices of NCDEQ. Based on historic practices the expected liability of any existing notice of violations would not be material. Duke Energy Carolinas and Duke Energy Progress cannot predict whether the NCDEQ will assess future penalties related to existing NOVs and if such penalties would be material. 47 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Asset retirement obligations recorded on the Duke Energy Carolinas and Duke Energy Progress Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015, include the legal obligation for closure of coal ash basins and the disposal of related ash as a result of the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) and other agreements. In January 2016, NCDEQ published draft proposed risk classifications for sites not specifically delineated by the Coal Ash Act as high priority. These risk rankings were generally determined based on three primary criteria: structural integrity of the impoundments and impact to both surface and groundwaters. NCDEQ categorized 12 basins at four sites as intermediate risk and four basins at three plants as low risk. NCDEQ also categorized nine basins at six plants as “low-to-intermediate” risk, thereby not assigning a definitive risk ranking at that time. The risk rankings of these sites will be based upon receipt of additional data primarily related to groundwater quality and the completion of specific modifications and repairs to the impoundments. NCDEQ is expected to finalize proposed classifications in May 2016, based on results of the public comment period which ended in April 2016. Duke Energy cannot predict the final classifications. Per the Coal Ash Act, final proposed classifications are subject to Coal Ash Management Commission (Coal Ash Commission) adjustments and approval but may become law if the Commission fails to act within 60 days of receiving the final proposed classifications. In March 2016, the Coal Ash Commission originally created by the Coal Ash Act was disbanded by the Governor of North Carolina based on a North Carolina Supreme Court ruling regarding the constitutionality of the body. As a result, the finality of NCDEQ's classifications may be subject to challenge. Estimated asset retirement obligations have been recognized based on the assigned risk categories or, if not assigned, based on a probability weighting of potential closure methods. Actual closure costs incurred could be materially different from current estimates that form the basis of the recorded asset retirement obligations. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. Coal Combustion Residuals On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation, which became effective in October 2015, classifies CCR as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments that are no longer receiving CCR but contain liquid located at stations currently generating electricity (regardless of fuel source). The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. Various industry and environmental parties have appealed the EPA's CCR rule in the D.C. Circuit Court of Appeals. On April 18, 2016, the EPA filed a motion with the federal court to settle five issues raised in litigation. The Duke Energy Registrants cannot predict the court's response to the proposed settlement, but would not expect a material impact from the settlement if approved as proposed by the EPA. Duke Energy is reviewing the proposed settlement to determine if additional asset retirement obligation adjustments will be required. In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. As a result of the EPA rule, the Subsidiary Registrants recorded asset retirement obligation amounts during 2015. LITIGATION Duke Energy Ash Basin Shareholder Derivative Litigation Five shareholder derivative lawsuits were filed in Delaware Chancery Court relating to the release at Dan River and to the management of Duke Energy’s ash basins. On October 31, 2014, the five lawsuits were consolidated in a single proceeding titled "In Re Duke Energy Corporation Coal Ash Derivative Litigation." On December 2, 2014, plaintiffs filed a Corrected Verified Consolidated Shareholder Derivative Complaint (Consolidated Complaint). The Consolidated Complaint names as defendants several current and former Duke Energy officers and directors (collectively, the “Duke Energy Defendants”). Duke Energy is named as a nominal defendant. The Consolidated Complaint alleges the Duke Energy Defendants breached their fiduciary duties by failing to adequately oversee Duke Energy’s ash basins and that these breaches of fiduciary duty may have contributed to the incident at Dan River and continued thereafter. The lawsuit also asserts claims against the Duke Energy Defendants for corporate waste (relating to the money Duke Energy has spent and will spend as a result of the fines, penalties and coal ash removal) and unjust enrichment (relating to the compensation and director remuneration that was received despite these alleged breaches of fiduciary duty). The lawsuit seeks both injunctive relief against Duke Energy and restitution from the Duke Energy Defendants. On January 21, 2015, the Duke Energy Defendants filed a Motion to Stay and an alternative Motion to Dismiss. On August 31, 2015, the court issued an order staying the case which was lifted on March 24, 2016. On April 22, 2016, plaintiffs filed an Amended Verified Consolidated Shareholder Derivative Complaint (Amended Complaint) making the same allegations as in the Consolidated Complaint. The Duke Energy Defendants anticipate filing a Motion to Dismiss the Amended Complaint. 48 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) On March 5, 2015, shareholder Judy Mesirov filed a shareholder derivative complaint (Mesirov Complaint) in North Carolina state court. The lawsuit, styled Mesirov v. Good, is similar to the consolidated derivative action pending in Delaware Chancery Court and was filed against the same current directors and former directors and officers as the Delaware litigation. Duke Energy Corporation, Duke Energy Progress and Duke Energy Carolinas are named as nominal defendants. The Mesirov Complaint alleges that the Duke Energy Board of Directors was aware of Clean Water Act (CWA) compliance issues and failures to maintain structures in ash basins, but that the Board of Directors did not require Duke Energy Carolinas and Duke Energy Progress to take action to remedy deficiencies. The Mesirov Complaint further alleges that the Board of Directors sanctioned activities to avoid compliance with the law by allowing improper influence of NCDEQ to minimize regulation and by opposing previously anticipated citizen suit litigation. The Mesirov Complaint seeks corporate governance reforms and damages relating to costs associated with the Dan River release, remediation of ash basins that are out of compliance with the CWA and defending and payment of fines, penalties and settlements relating to criminal and civil investigations and lawsuits. On December 7, 2015, the Duke Energy Defendants filed a Motion to Stay the proceedings. The proceedings are currently stayed until July 1, 2016, after which the Duke Energy Defendants may seek an additional stay. In addition to the above derivative complaints, in 2014, Duke Energy also received two shareholder litigation demand letters. The letters alleged that the members of the Board of Directors and certain officers breached their fiduciary duties by allowing the company to illegally dispose of and store coal ash pollutants. One of the letters also alleged a breach of fiduciary duty in the decision-making relating to the leadership changes following the close of the Progress Energy merger in July 2012. By letter dated September 4, 2015, attorneys for the shareholders were informed that, on the recommendation of the Demand Review Committee formed to consider such matters, the Board of Directors concluded not to pursue potential claims against individuals. One of the shareholders, Mitchell Pinsly, sent a formal demand for records and Duke Energy responded to this request. On October 30, 2015, shareholder Saul Bresalier filed a shareholder derivative complaint in the U.S. District Court for the District of Delaware. The lawsuit alleges that several current and former Duke Energy officers and directors (Bresalier Defendants) breached their fiduciary duties in connection with coal ash environmental issues, the post-merger change in Chief Executive Officer and oversight of political contributions. Duke Energy is named as a nominal defendant. The Bresalier Complaint contends that the Demand Review Committee failed to appropriately consider the shareholder’s earlier demand for litigation and improperly decided not to pursue claims against the Bresalier Defendants. The Bresalier Defendants filed a Motion to Dismiss the Bresalier litigation on January 15, 2016. In lieu of a response to the Motion to Dismiss, the plaintiff filed a Motion to Convert the Bresalier Defendants' Motion to Dismiss into a Motion for Summary Judgment and also for limited discovery. Briefing on the Motion to Convert is complete. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with these matters. Progress Energy Merger Shareholder Litigation On May 31, 2013, the Delaware Chancery Court consolidated four shareholder derivative lawsuits filed in 2012. The Court also appointed a lead plaintiff and counsel for plaintiffs and designated the case as In Re Duke Energy Corporation Derivative Litigation. The lawsuit names as defendants the 11 members of the Board of Directors who were also members of the pre-merger Board of Directors. Duke Energy is named as a nominal defendant. The case alleges claims for breach of fiduciary duties of loyalty and care in connection with the post-merger change in CEO. On December 10, 2015, the Duke Energy defendants filed a Motion to Dismiss the litigation. Oral argument on the motion is scheduled for May 9, 2016. Two shareholder Derivative Complaints, filed in 2012 in federal district court in Delaware, were consolidated as Tansey v. Rogers, et al. The case alleges claims for breach of fiduciary duty and waste of corporate assets, as well as claims under Section 14(a) and 20(a) of the Exchange Act. Duke Energy is named as a nominal defendant. On December 21, 2015, Plaintiff filed a Consolidated Amended Complaint asserting the same claims contained in the original complaints. Duke Energy filed a Motion to Dismiss on February 19, 2016. On March 18, 2016, the Chancery Court Plaintiffs moved to intervene in the Tansey proceeding, asking the federal district court to stay the federal litigation in favor of the Delaware Chancery litigation. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with the remaining litigation. Price Reporting Cases Duke Energy Trading and Marketing, LLC (DETM), a non-operating Duke Energy affiliate, was a defendant, along with numerous other energy companies, in four class-action lawsuits and a fifth single-plaintiff lawsuit pending in a consolidated federal court proceeding in Nevada. Each of these lawsuits contains similar claims that defendants allegedly manipulated natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs seek damages in unspecified amounts. In February 2016, DETM reached agreements in principle to settle all of the pending lawsuits. Settlement of the single-plaintiff settlement was finalized and paid in March 2016. Settlement of the class-action lawsuits are currently being finalized and will be subject to court approval. The settlement amounts are not material to Duke Energy. 49 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Brazil Expansion Lawsuit On August 9, 2011, the State of São Paulo sued Duke Energy International Geracao Paranapenema S.A. (DEIGP) in Brazilian state court. The lawsuit claims DEIGP is under a continuing obligation to expand installed generation capacity in the State of São Paulo by 15 percent pursuant to a stock purchase agreement under which DEIGP purchased generation assets from the state. On August 10, 2011, a judge granted an injunction ordering DEIGP to present a detailed expansion plan in satisfaction of the 15 percent obligation. DEIGP has previously taken a position that the expansion obligation is no longer viable given changes that have occurred in the electric energy sector since privatization. DEIGP submitted its proposed expansion plan on November 11, 2011, but reserved objections regarding enforceability. In January 2013, DEIGP filed appeals in the federal courts, which are still pending, regarding various procedural issues. A decision on the merits in the first instance court is also pending. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with this matter. Brazil Generation Record drought conditions in Brazil during 2014 and 2015 negatively impacted DEIGP. A number of electric generators have filed lawsuits seeking relief in the Brazilian courts to mitigate hydrological exposure and diminishing dispatch levels. Some courts have granted injunction orders to limit the financial exposure of certain generators. The implication of these orders is that other electricity market participants not covered by the injunctions may be required to compensate for the financial impact of the liability limitations. The Independent Power Producer Association (APINE) filed one such lawsuit on behalf of DEIGP and other hydroelectric generators against the Brazilian electric regulatory agency (ANEEL). On July 2, 2015, an injunction was granted in favor of APINE limiting the financial exposure of DEIGP and the other plaintiff generators, until the merits of the lawsuit are determined. ANEEL's appeal of the injunction was denied on December 18, 2015. The outcome of these lawsuits is uncertain. It is not possible to predict the impact to Duke Energy from the outcome of these matters. Duke Energy Carolinas and Duke Energy Progress NCDEQ Notices of Violation (NOV) In August 2014, NCDEQ issued an NOV for alleged groundwater violations at Duke Energy Progress' L.V. Sutton Plant. On March 10, 2015, NCDEQ issued a civil penalty of approximately $25 million to Duke Energy Progress for environmental damages related to the groundwater contamination at the L.V. Sutton Plant. On April 9, 2015, Duke Energy Progress filed a Petition for Contested Case hearing in the Office of Administrative Hearings. In February 2015, NCDEQ issued an NOV for alleged groundwater violations at Duke Energy Progress' Asheville Plant. Duke Energy Progress responded to NCDEQ regarding this NOV. On September 29, 2015, Duke Energy Progress and Duke Energy Carolinas entered into a settlement agreement with NCDEQ resolving all former, current and future groundwater penalties at all Duke Energy Carolinas and Duke Energy Progress coal facilities in North Carolina. Under the agreement, Duke Energy Progress paid approximately $6 million and Duke Energy Carolinas paid approximately $1 million. In addition to these payments, Duke Energy Progress and Duke Energy Carolinas will accelerate remediation actions at the Sutton, Asheville, Belews Creek and H.F. Lee plants. The ALJ entered a consent order resolving the contested case relating to the Sutton Plant and NCDEQ rescinded the NOVs relating to alleged groundwater violations at both the Sutton and Asheville plants. On October 13, 2015, the Southern Environmental Law Center (SELC), representing multiple conservation groups, filed a lawsuit in North Carolina Superior Court seeking judicial review of the order approving the settlement agreement with NCDEQ. The conservation groups contend that the ALJ exceeded his statutory authority in approving a settlement that provided for past, present, and future resolution of groundwater issues at facilities which were not at issue in the penalty appeal. On December 18, 2015, Duke Energy Carolinas and Duke Energy Progress filed a Motion to Dismiss the complaint. On February 12, 2016, the ALJ entered a new order clarifying that the dismissal of the contested case only applied to the specific issues before the ALJ in the Petition for Contested Case. On March 10, 2016, the court dismissed the SELC lawsuit based on the ALJ's entry of the new order. On February 8, 2016, NCDEQ assessed a penalty of approximately $6.8 million, including enforcement costs, against Duke Energy Carolinas related to storm-water pipes and associated discharges at the Dan River Steam Station. Duke Energy Carolinas recorded a charge in December 2015 for this penalty. In March 2016, Duke Energy Carolinas filed an appeal of this penalty. Trial date is set for August 22, 2016, for this proceeding. Duke Energy Carolinas cannot predict the outcome of this matter. NCDEQ State Enforcement Actions In the first quarter of 2013, SELC sent notices of intent to sue Duke Energy Carolinas and Duke Energy Progress related to alleged CWA violations from coal ash basins at two of their coal-fired power plants in North Carolina. NCDEQ filed enforcement actions against Duke Energy Carolinas and Duke Energy Progress alleging violations of water discharge permits and North Carolina groundwater standards. The cases have been consolidated and are being heard before a single judge. On August 16, 2013, NCDEQ filed an enforcement action against Duke Energy Carolinas and Duke Energy Progress related to their remaining plants in North Carolina, alleging violations of the CWA and violations of the North Carolina groundwater standards. Both of these cases have been assigned to the judge handling the enforcement actions discussed above. SELC is representing several environmental groups who have been permitted to intervene in these cases. 50 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) On July 10, 2015, Duke Energy Carolinas and Duke Energy Progress filed two Motions for Partial Summary Judgment in the case on the basis that there is no longer either a genuine controversy or disputed material facts about the relief for seven of the 14 North Carolina plants with coal ash basins. On September 14, 2015, the court granted the Motions for Partial Summary Judgment pending court approval of the terms through an order. In November 2015, NCDEQ submitted a proposed order. On November 23, 2015, Duke Energy Carolinas, Duke Energy Progress and SELC filed separate objections to portions of the NCDEQ filing. Following a hearing held on February 12, 2016, Duke Energy Carolinas and Duke Energy Progress submitted a revised proposed order to comply with rulings made by the judge at the hearing. On April 4, 2016, the court issued an order granting Duke Energy Progress' motion for partial summary judgment for cases involving the H.F. Lee, Cape Fear and Weatherspoon plants, thus concluding the litigation for those plants. Duke Energy Carolinas and Duke Energy Progress have submitted a proposed order relating to the remaining plants for which summary judgment has been granted. A ruling related to the proposed order for the remaining plants is pending. It is not possible to predict any liability or estimate any damages Duke Energy Carolinas or Duke Energy Progress might incur in connection with these matters. Federal Citizens Suits There are currently five cases filed in various North Carolina federal courts related to the Riverbend, Sutton, Cape Fear, H.F. Lee and Buck plants. On June 11, 2013, Catawba Riverkeeper Foundation, Inc. (Catawba Riverkeeper) filed a separate action in the United States Court for the Western District of North Carolina. The lawsuit contends the state enforcement action discussed above does not adequately address issues raised in Catawba Riverkeeper’s notice of intent to sue relating to the Riverbend Steam Station. On April 11, 2014, the Court denied Catawba Riverkeeper’s objections to the Magistrate Judge’s recommendation that plaintiff’s case be dismissed as well as Duke Energy Carolinas’ motion to dismiss. On August 13, 2015, the court issued an order suspending all proceedings until further order from the court. On September 12, 2013, Cape Fear River Watch, Inc., Sierra Club and Waterkeeper Alliance filed a citizen suit in the Federal District Court for the Eastern District of North Carolina. The lawsuit alleges unpermitted discharges to surface water and groundwater violations at the Sutton Plant. On June 9, 2014, the court granted Duke Energy Progress' request to dismiss the groundwater claims but rejected its request to dismiss the surface water claims. In response to a motion filed by the SELC, on August 1, 2014, the court modified the original June 9 order to dismiss only the plaintiff's federal law claim based on hydrologic connections at Sutton Lake. The claims related to the alleged state court violations of the permits are back in the case. On August 26, 2015, the court suspended the proceedings until further order from the court. On September 3, 2014, three citizen suits were filed by various environmental groups: (i) a citizen suit in the United States Court for the Middle District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the Cape Fear Plant; (ii) in the United States Court for the Eastern District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the H.F. Lee Plant; and (iii) in the United States Court for the Middle District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the Buck Steam Station. Motions to Stay or Dismiss the proceedings were filed in each of the three cases. The proceedings related to Cape Fear and H.F. Lee have been stayed. On October 20, 2015, the court issued an order denying the motions in the Buck proceedings. Duke Energy Carolinas' motion seeking appellate review of the District Court's decision was denied on January 29, 2016. On April 11, 2016, the Roanoke River Basin Association served a Notice of Intent to Sue under the CWA, alleging unpermitted discharges to surface water and groundwater violations at the Mayo Plant. A federal citizen suit may be filed 60 days after service of the Notice of Intent to Sue. It is not possible to predict whether Duke Energy Carolinas or Duke Energy Progress will incur any liability or to estimate the damages, if any, they might incur in connection with these matters. Potential Groundwater Contamination Claims Beginning in May 2015, a number of residents living in the vicinity of the North Carolina facilities with ash basins received letters from NCDEQ advising them not to drink water from the private wells on their land tested by NCDEQ as the samples were found to have certain substances at levels higher than the criteria set by the North Carolina Department of Health and Human Services (DHHS). The criteria, in some cases, are considerably more stringent than federal drinking water standards established to protect human health and welfare. The Coal Ash Act requires additional groundwater monitoring and assessments for each of the 14 coal-fired plants in North Carolina, including sampling of private water supply wells. The data gathered through these Comprehensive Site Assessments (CSAs) will be used by NCDEQ to determine whether the water quality of these private water supply wells has been adversely impacted by the ash basins. Duke Energy has submitted CSAs documenting the results of extensive groundwater monitoring around coal ash basins at all 14 of the plants with coal ash basins. Generally, the data gathered through the installation of new monitoring wells and soil and water samples across the state have been consistent with historical data provided to state regulators over many years. The DHHS and NCDEQ sent follow-up letters on October 15, 2015, to residents near coal ash basins who have had their wells tested, stating that private well samplings at a considerable distance from coal ash impoundments, as well as some municipal water supplies, contain similar levels of vanadium and hexavalent chromium which leads investigators to believe these constituents are naturally occurring. In March 2016, DHHS rescinded the advisories. It is not possible to estimate the maximum exposure of loss, if any, that may occur in connection with claims which might be made by these residents. Asbestos-related Injuries and Damages Claims Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement related to asbestos exposure. These claims relate to damages for bodily injuries alleged to have arisen from exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of March 31, 2016, there were 118 asserted claims for non-malignant cases with the cumulative relief sought of up to $30 million, and 68 asserted claims for malignant cases with the cumulative relief sought of up to $10 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed. 51 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Duke Energy Carolinas has recognized asbestos-related reserves of $527 million at March 31, 2016 and $536 million at December 31, 2015. These reserves are classified in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities on the Condensed Consolidated Balance Sheets. These reserves are based upon the minimum amount of the range of loss for current and future asbestos claims through 2033, are recorded on an undiscounted basis and incorporate anticipated inflation. In light of the uncertainties inherent in a longer-term forecast, management does not believe they can reasonably estimate the indemnity and medical costs that might be incurred after 2033 related to such potential claims. It is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves. Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. Duke Energy Carolinas’ cumulative payments began to exceed the self-insurance retention in 2008. Future payments up to the policy limit will be reimbursed by the third-party insurance carrier. The insurance policy limit for potential future insurance recoveries indemnification and medical cost claim payments is $847 million in excess of the selfinsured retention. Receivables for insurance recoveries were $600 million at March 31, 2016 and $599 million at December 31, 2015. These amounts are classified in Other within Investments and Other Assets and Receivables on the Condensed Consolidated Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating. Duke Energy Florida Class Action Lawsuit On February 22, 2016, Newton, et al v. FP&L, was filed in the U.S. District Court for the Southern District of Florida on behalf of a putative class of Duke Energy Florida and FP&L’s customers in Florida. The suit alleges the State of Florida’s nuclear power plant cost recovery statutes (NCRS) are unconstitutional and pre-empted by federal law. Plaintiffs claim they are entitled to repayment of all money paid by customers of Duke Energy Florida and FP&L as a result of the NCRS, as well as an injunction against any future charges under those statutes. The constitutionality of the NCRS has been challenged unsuccessfully in a number of prior cases on alternative grounds. Duke Energy Florida's response to the complaint was due May 5, 2016. Duke Energy Florida cannot predict the outcome of this matter. Westinghouse Contract Litigation On March 28, 2014, Duke Energy Florida filed a lawsuit against Westinghouse in the U.S. District Court for the Western District of North Carolina. The lawsuit seeks recovery of $54 million in milestone payments in excess of work performed under the terminated Engineering, Procurement and Construction agreement (EPC) for Levy as well as a determination by the court of the amounts due to Westinghouse as a result of the termination of the EPC. Duke Energy Florida recognized an exit obligation as a result of the termination of the EPC contract. On March 31, 2014, Westinghouse filed a lawsuit against Duke Energy Florida in U.S. District Court for the Western District of Pennsylvania. The Pennsylvania lawsuit alleged damages under the EPC in excess of $510 million for engineering and design work, costs to end supplier contracts and an alleged termination fee. On June 9, 2014, the judge in the North Carolina case ruled that the litigation will proceed in the Western District of North Carolina. In November 2014, Westinghouse filed a Motion for Partial Judgment on the pleadings, which was denied on March 30, 2015. The trial date is set for October 17, 2016. It is not possible to predict the outcome of the litigation, whether Duke Energy Florida will ultimately have any liability for terminating the EPC contract or to estimate the damages, if any, it might incur in connection with these matters. Ultimate resolution of these matters could have a material effect on the results of operations, financial position or cash flows of Duke Energy Florida. However, appropriate regulatory recovery will be pursued for the retail portion of any costs incurred in connection with such resolution. Duke Energy Ohio Antitrust Lawsuit In January 2008, four plaintiffs, including individual, industrial and nonprofit customers, filed a lawsuit against Duke Energy Ohio in federal court in the Southern District of Ohio. Plaintiffs alleged Duke Energy Ohio conspired to provide inequitable and unfair price advantages for certain large business consumers by entering into nonpublic option agreements in exchange for their withdrawal of challenges to Duke Energy Ohio’s Rate Stabilization Plan implemented in early 2005. In March 2014, a federal judge certified this matter as a class action. Plaintiffs allege claims for antitrust violations under the federal Robinson Patman Act as well as fraud and conspiracy allegations under the federal Racketeer Influenced and Corrupt Organizations statute and the Ohio Corrupt Practices Act. On October 21, 2015, the parties received preliminary court approval for a settlement agreement. A litigation settlement reserve was recorded for the full amount of $81 million and classified in Other within Current Liabilities on Duke Energy Ohio's Condensed Consolidated Balance Sheets as of March 31, 2016. The settlement was approved at a hearing held on April 19, 2016. W.C. Beckjord Fuel Release On August 18, 2014, approximately 9,000 gallons of fuel oil were inadvertently discharged into the Ohio River during a fuel oil transfer at the W.C. Beckjord generating station. The Ohio Environmental Protection Agency (Ohio EPA) issued a Notice of Violation related to the discharge. Duke Energy Ohio is cooperating with the Ohio EPA, the EPA and the U.S. Attorney for the Southern District of Ohio. No Notice of Violation has been issued by the EPA and no penalty has been assessed. Total repair and remediation costs related to the release were not material. Other costs related to the release, including state or federal civil or criminal enforcement proceedings, cannot be reasonably estimated at this time. 52 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Other Litigation and Legal Proceedings The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve significant amounts. The Duke Energy Registrants believe the final disposition of these proceedings will not have a material effect on their results of operations, cash flows or financial position. The table below presents recorded reserves based on management’s best estimate of probable loss for legal matters, excluding asbestos related reserves and the exit obligation discussed above related to the termination of an EPC contract. Reserves are classified on the Condensed Consolidated Balance Sheets in Other within Deferred Credits and Other Liabilities and Accounts payable and Other within Current Liabilities. The reasonably possible range of loss in excess of recorded reserves is not material, other than as described above. (in millions) March 31, 2016 December 31, 2015 Reserves for Legal Matters Duke Energy $ 181 $ 166 Duke Energy Carolinas 11 11 Progress Energy 54 54 Duke Energy Progress 6 6 Duke Energy Florida 31 31 Duke Energy Ohio 80 80 OTHER COMMITMENTS AND CONTINGENCIES General As part of their normal business, the Duke Energy Registrants are party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. These guarantees involve elements of performance and credit risk, which are not fully recognized on the Condensed Consolidated Balance Sheets and have unlimited maximum potential payments. However, the Duke Energy Registrants do not believe these guarantees will have a material effect on their results of operations, cash flows or financial position. In addition, the Duke Energy Registrants enter into various fixed-price, noncancelable commitments to purchase or sell power, take-or-pay arrangements, transportation, or throughput agreements and other contracts that may or may not be recognized on their respective Condensed Consolidated Balance Sheets. Some of these arrangements may be recognized at fair value on their respective Condensed Consolidated Balance Sheets if such contracts meet the definition of a derivative and the normal purchase/normal sale (NPNS) exception does not apply. In most cases, the Duke Energy Registrants’ purchase obligation contracts contain provisions for price adjustments, minimum purchase levels and other financial commitments. 6. DEBT AND CREDIT FACILITIES SUMMARY OF SIGNIFICANT DEBT ISSUANCES The following table summarizes significant debt issuances (in millions). Three Months Ended March 31, 2016 Duke Issuance Date Maturity Interest Duke Energy Date Rate Energy Carolinas First Mortgage Bonds March 2016(a) March 2023 2.500% March 2016(a) March 2046 3.875% Total issuances (a) $ 500 $ 500 $ 1,000 500 $ 1,000 500 Proceeds will be used to fund capital expenditures for ongoing construction, capital maintenance and for general corporate purposes. In April 2016, Duke Energy issued $350 million principal amount of senior unsecured notes with a fixed interest rate of 2.875% and maturity date of April 2023. Proceeds will be used to pay down outstanding commercial paper and for general corporate purposes. 53 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) CURRENT MATURITIES OF LONG-TERM DEBT The following table shows the significant components of Current maturities of long-term debt on the Condensed Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings. (in millions) Maturity Date Interest Rate March 31, 2016 Unsecured Debt Duke Energy Indiana Duke Energy (Parent) June 2016 6.050% November 2016 2.150% $ 325 500 First Mortgage Bonds Duke Energy Indiana July 2016 0.937% 150 Duke Energy Carolinas December 2016 1.750% 350 Duke Energy Progress March 2017 0.836% 250 February 2017 3.600% 77 August 2027 1.266% Tax-exempt Bonds Duke Energy Carolinas Duke Energy Ohio(a) 50 Other 373 Current maturities of long-term debt (a) $ 2,075 Represents Duke Energy Kentucky's bonds with a mandatory put in December 2016. AVAILABLE CREDIT FACILITIES Master Credit Facility Duke Energy has a Master Credit Facility with a capacity of $7.5 billion through January 2020. The Duke Energy Registrants, excluding Progress Energy (Parent), have borrowing capacity under the Master Credit Facility up to a specified sublimit for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. Duke Energy Carolinas and Duke Energy Progress are also required to each maintain $250 million of available capacity under the Master Credit Facility as security to meet obligations under plea agreements reached with the U.S. Department of Justice in 2015 related to violations at North Carolina facilities with ash basins. The table below includes the current borrowing sublimits and available capacity under the Master Credit Facility. March 31, 2016 Duke (in millions) Facility size(a) Energy $ 7,500 Duke Duke Duke Duke Duke Duke Energy Energy Energy Energy Energy Energy (Parent) $ 3,475 Carolinas $ 800 Progress $ 1,000 Florida $ 1,200 Ohio $ 425 Indiana $ 600 Reduction to backstop issuances Commercial paper (b) Outstanding letters of credit Tax-exempt bonds Coal ash set-aside Available capacity (a) (b) (2,980) (1,816) (300) (205) (480) (79) (72) (4) (2) (1) — — (116) — (35) — — — (81) (500) $ 3,825 — $ 1,587 (250) $ 211 (250) $ 543 (29) — $ 719 (150) — $ 396 — $ 369 Represents the sublimit of each borrower. Duke Energy issued $625 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana. The balances are classified as Long-Term Debt Payable to Affiliated Companies in the Condensed Consolidated Balance Sheets. Piedmont Bridge Facility In connection with the Merger Agreement with Piedmont, Duke Energy entered into a $4.9 billion Bridge Facility with Barclays. The Bridge Facility, if drawn upon, may be used (i) to fund the cash consideration for the transaction and (ii) to pay certain fees and expenses in connection with the transaction. In November 2015, Barclays syndicated its commitment under the Bridge Facility to a broader group of lenders. Duke Energy does not expect to draw upon the Bridge Facility. The amount of the Bridge Facility is reduced by any financings related to the Piedmont acquisition entered into by Duke Energy, and has accordingly been reduced to $4.2 billion as a result of the Equity Forwards described in Note 13, "Common Stock." Refer to Note 2 for additional information on the Piedmont acquisition. 54 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Short-Term Loan Facility On April 7, 2016, Duke Energy borrowed $500 million under a delayed-draw term loan facility (Term Loan) arranged on February 22, 2016. The Term Loan borrowing is due on or before August 19, 2016 and will bear interest at 30-day LIBOR plus 75 basis points. The Term Loan is pre-payable at par and the terms are generally consistent with those governing the Master Credit Facility. 7. GOODWILL AND INTANGIBLE ASSETS GOODWILL The following table presents goodwill by reportable operating segment for Duke Energy. Duke Energy (in millions) Goodwill at December 31, 2015 Regulated International Utilities Energy $ 15,950 $ 15,950 Foreign exchange and other changes $ 271 $ 277 — Goodwill at March 31, 2016 Commercial Portfolio $ 122 $ 122 6 Total $ 16,343 $ 16,349 — 6 Duke Energy Ohio Duke Energy Ohio's Goodwill balance of $920 million is included in the Regulated Utilities operating segment and presented net of accumulated impairment charges of $216 million on the Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015. Progress Energy Progress Energy's Goodwill is included in the Regulated Utilities operating segment and there are no accumulated impairment charges. 55 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) 8. RELATED PARTY TRANSACTIONS The Subsidiary Registrants engage in related party transactions in accordance with applicable state and federal commission regulations. Refer to the Condensed Consolidated Balance Sheets of the Subsidiary Registrants for balances due to or due from related parties. Material amounts related to transactions with related parties included in the Condensed Consolidated Statements of Operations and Comprehensive Income are presented in the following table. Three Months Ended March 31, (in millions) 2016 2015 Duke Energy Carolinas Corporate governance and shared service expenses (a) $ 217 $ 219 Indemnification coverages (b) 5 6 Joint Dispatch Agreement (JDA) revenue(c) 9 26 41 57 JDA expense(c) Progress Energy Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 174 $ 167 9 10 JDA revenue(c) 41 57 JDA expense(c) 9 26 Duke Energy Progress Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 100 $ 101 4 4 JDA revenue(c) 41 57 JDA expense(c) 9 26 Duke Energy Florida Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 74 $ 5 66 6 Duke Energy Ohio Corporate governance and shared service expenses (a) $ Indemnification coverages (b) 85 $ 1 85 3 Duke Energy Indiana Corporate governance and shared service expenses (a) $ Indemnification coverages (b) (a) (b) (c) 94 2 $ 89 2 The Subsidiary Registrants are charged their proportionate share of corporate governance and other shared services costs, primarily related to human resources and employee benefits, information technology, legal and accounting fees, as well as other third-party costs. These amounts are recorded in Operation, maintenance and other on the Condensed Consolidated Statements of Operations and Comprehensive Income. The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation, maintenance and other on the Condensed Consolidated Statements of Operations and Comprehensive Income. Duke Energy Carolinas and Duke Energy Progress participate in a JDA which allows the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power under the JDA are recorded in Operating Revenues on the Condensed Consolidated Statements of Operations and Comprehensive Income. Expenses from the purchase of power under the JDA are recorded in Fuel used in electric generation and purchased power on the Condensed Consolidated Statements of Operations and Comprehensive Income. In addition to the amounts presented above, the Subsidiary Registrants record the impact on net income of other affiliate transactions, including rental of office space, participation in a money pool arrangement, other operational transactions and their proportionate share of certain charged expenses. See Note 6 to the Consolidated Financial Statements in the Annual Report on Form 10-K for more information regarding money pool. The net impact of these transactions was not material for the three months ended March 31, 2016 and 2015 for the Subsidiary Registrants. As discussed in Note 12, certain trade receivables have been sold by Duke Energy Ohio and Duke Energy Indiana to CRC, an affiliate formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but also include a subordinated note from the affiliate for a portion of the purchase price. Duke Energy Ohio's nonregulated indirect subsidiary, Duke Energy Commercial Asset Management (DECAM), owned generating plants included in the Disposal Group sold to Dynegy on April 2, 2015. On April 1, 2015, Duke Energy Ohio distributed its indirect ownership interest in DECAM to a Duke Energy subsidiary and non-cash settled DECAM's intercompany loan payable of $294 million. Refer to Note 2 for further information on the sale of the Disposal Group. 56 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Intercompany Income Taxes Duke Energy and its subsidiaries file a consolidated federal income tax return and other state and jurisdictional returns. The Subsidiary Registrants have a tax sharing agreement with Duke Energy for the allocation of consolidated tax liabilities and benefits. Income taxes recorded represent amounts the Subsidiary Registrants would incur as separate C-Corporations. The following table includes the balance of intercompany income tax receivables and payables for the Subsidiary Registrants. Duke (in millions) Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana March 31, 2016 Intercompany income tax receivable $ — $ Intercompany income tax payable 6 170 $ — 22 $ 16 $ — — — $ 9 — 60 December 31, 2015 Intercompany income tax receivable Intercompany income tax payable $ 122 $ — 120 $ — 104 $ — — $ 54 $ — 96 — 47 9. DERIVATIVES AND HEDGING The Duke Energy Registrants use commodity and interest rate contracts to manage commodity price risk and interest rate risk. The primary use of commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Interest rate swaps are used to manage interest rate risk associated with borrowings. All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Condensed Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting arrangements is offset against the collateralized derivatives on the Condensed Consolidated Balance Sheets. The cash impacts of settled derivatives are recorded as operating activities on the Condensed Consolidated Statements of Cash Flows. INTEREST RATE RISK The Duke Energy Registrants are exposed to changes in interest rates as a result of their issuance or anticipated issuance of variable-rate and fixed-rate debt and commercial paper. Interest rate risk is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into interest rate swaps, U.S. Treasury lock agreements and other financial contracts. In anticipation of certain fixed-rate debt issuances, a series of forward-starting interest rate swaps may be executed to lock in components of current market interest rates. These instruments are later terminated prior to or upon the issuance of the corresponding debt. Cash Flow Hedges For a derivative designated as hedging the exposure to variable cash flows of a future transaction, referred to as a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings once the future transaction affects earnings. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt. Gains and losses reclassified out of AOCI for the three months ended March 31, 2016, were not material. Duke Energy's interest rate derivatives designated as hedges include interest rate swaps used to hedge existing debt within the International Energy and Renewables' businesses. Undesignated Contracts Undesignated contracts include contracts not designated as a hedge because they are accounted for under regulatory accounting and contracts that do not qualify for hedge accounting. Duke Energy’s interest rate swaps for its Regulated Utilities operations employ regulatory accounting. With regulatory accounting, the mark-to-market gains or losses on the swaps are deferred as regulatory liabilities or regulatory assets, respectively. Regulatory assets and liabilities are amortized consistent with the treatment of the related costs in the ratemaking process. The accrual of interest on the swaps is recorded as Interest Expense. During the three months ended March 31, 2016, Duke Energy entered into an additional $500 million of forward-starting interest rate swaps to manage interest rate exposure for the expected financing of the Piedmont acquisition, bringing the total outstanding to $1.4 billion. The swaps do not qualify for hedge accounting and are marked-to-market, with any gains or losses included within earnings. For the three months ended March 31, 2016, unrealized losses on the swaps of $93 million were included within Interest Expense on the Condensed Consolidated Statements of Operations. The swaps will be terminated in conjunction with the acquisition financing. See Note 2 for additional information related to the Piedmont acquisition. 57 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following table shows notional amounts for derivatives related to interest rate risk. March 31, 2016 Duke Duke (in millions) Cash flow hedges (a) Energy $ 700 Undesignated contracts Total notional amount Energy Carolinas $ — 2,327 $ 3,027 Progress Energy $ — 400 $ 400 Duke Duke Duke Energy Energy Energy Progress $ — 500 $ 500 Florida $ 250 $ 250 Ohio — $ — 250 $ 27 250 $ 27 December 31, 2015 Duke Duke (in millions) Cash flow hedges (a) Energy $ 700 Undesignated contracts Total notional amount (a) Energy Carolinas $ — 1,827 $ 2,527 Progress Energy $ — 400 $ 400 500 Duke Duke Energy Energy Progress $ — 500 $ Duke Energy Florida $ 250 $ 250 Ohio — $ — 250 $ 27 250 $ 27 Duke Energy includes amounts related to consolidated Variable Interest Entities (VIEs) of $497 million at March 31, 2016 and December 31, 2015. COMMODITY PRICE RISK The Duke Energy Registrants are exposed to the impact of changes in the prices of electricity, coal and natural gas. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets and delivery locations. Regulated public utilities may have cost-based rate regulations and various other cost recovery mechanisms that result in a limited exposure to market volatility of commodity fuel prices. Financial derivative contracts, where approved by the respective state regulatory commissions, can be used to manage the risk of price volatility. At March 31, 2016, all of Duke Energy's open commodity derivative instruments were undesignated because they are accounted for under regulatory accounting. Mark-to-market gains or losses on contracts that use regulatory accounting are deferred as regulatory liabilities or regulatory assets, respectively. Undesignated contracts expire as late as 2048. The Subsidiary Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses. These clauses allow for the recovery of fuel and fuel-related costs, including settlements of undesignated derivatives for fuel commodities, and portions of purchased power costs through surcharges on customer rates. The difference between the costs incurred and the surcharge revenues is recorded as an adjustment to Fuel used in electric generation and purchased power – regulated or as Operating Revenues: Regulated electric on the Condensed Consolidated Statements of Operations, with an offsetting impact on regulatory assets or liabilities. Therefore, due to the regulatory accounting followed by the Subsidiary Registrants for undesignated derivatives, realized and unrealized gains and losses on undesignated commodity derivatives do not have an immediate impact on reported net income. Volumes The tables below show information relating to volumes of outstanding commodity derivatives. Amounts disclosed represent the absolute value of notional volumes of commodity contracts excluding NPNS. The Duke Energy Registrants have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown. March 31, 2016 Duke Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana Electricity (gigawatt-hours) 183 — — — — 144 39 Natural gas (millions of decatherms) 470 92 378 131 247 — — December 31, 2015 Duke Electricity (gigawatt-hours) Natural gas (millions of decatherms) Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana 70 — — — — 34 36 398 66 332 117 215 — — 58 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED IN THE CONDENSED CONSOLIDATED BALANCE SHEETS The following tables show the fair value and balance sheet location of derivative instruments. Although derivatives subject to master netting arrangements are netted on the Condensed Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown. Derivative Assets March 31, 2016 Duke (in millions) Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana Commodity Contracts Not Designated as Hedging Instruments Current $ Noncurrent Total Derivative Assets – Commodity Contracts 4 $ 1 7 $ $ 3 1 $ — 4 $ 2 — $ 2 — $ — 2 — 11 $ 4 $ 5 $ 2 $ 2 $ — $ 2 3 $ — $ 3 $ — $ 3 $ — $ — Interest Rate Contracts Not Designated as Hedging Instruments Current $ Noncurrent 19 9 9 3 6 — — Total Derivative Assets – Interest Rate Contracts $ 22 $ 9 $ 12 $ 3 $ 9 $ — $ — Total Derivative Assets $ 33 $ 13 $ 17 $ 5 $ 11 $ — $ 2 Derivative Liabilities March 31, 2016 Duke (in millions) Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana Commodity Contracts Not Designated as Hedging Instruments Current $ Noncurrent Total Derivative Liabilities – Commodity Contracts 270 $ 37 71 $ 5 232 $ 78 66 $ 9 154 $ 52 — $ — — — $ 341 $ 42 $ 298 $ 87 $ 206 $ — $ — $ 12 $ — $ — $ — $ — $ — $ — Interest Rate Contracts Designated as Hedging Instruments Current Noncurrent 45 — — — — — — — Not Designated as Hedging Instruments Current(a) 94 — — — — 1 Noncurrent 45 39 — — — 6 — Total Derivative Liabilities – Interest Rate Contracts $ 196 $ 39 $ — $ — $ — $ 7 $ — Total Derivative Liabilities $ 537 $ 81 $ 298 $ 87 $ 206 $ 7 $ — (a) Duke Energy amount includes $93 million of forward-starting interest rate swaps related to the Piedmont acquisition. 59 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Derivative Assets December 31, 2015 Duke (in millions) Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana Commodity Contracts Not Designated as Hedging Instruments Current $ Noncurrent Total Derivative Assets – Commodity Contracts 12 $ — 4 $ — 1 $ 4 — $ — 1 $ 4 3 $ — 7 — $ 16 $ — $ 5 $ — $ 5 $ 3 $ 7 $ 4 $ — $ — $ — $ — $ — $ — Total Derivative Assets – Interest Rate Contracts $ 10 $ — $ 6 $ 2 $ 2 $ — $ — Total Derivative Assets $ 26 $ — $ 11 $ 2 $ 7 $ 3 $ 7 Interest Rate Contracts Designated as Hedging Instruments Noncurrent Not Designated as Hedging Instruments Current 6 — 6 Derivative Liabilities 2 2 — — December 31, 2015 Duke (in millions) Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana Commodity Contracts Not Designated as Hedging Instruments Current $ Noncurrent Total Derivative Liabilities – Commodity Contracts 256 $ 32 100 $ 8 222 $ 92 77 $ 16 145 $ 71 — $ — — — $ 356 $ 40 $ 314 $ 93 $ 216 $ — $ — $ 11 $ — $ — $ — $ — $ — $ — Interest Rate Contracts Designated as Hedging Instruments Current Noncurrent 33 — — — — — — 4 — 3 — — 1 — 15 5 5 5 — 6 — Not Designated as Hedging Instruments Current Noncurrent Total Derivative Liabilities – Interest Rate Contracts $ 63 $ 5 $ 8 $ 5 $ — $ 7 $ — Total Derivative Liabilities $ 419 $ 45 $ 322 $ 98 $ 216 $ 7 $ — OFFSETTING ASSETS AND LIABILITIES The following tables present the line items on the Condensed Consolidated Balance Sheets where derivatives are reported. Substantially all of Duke Energy's outstanding derivative contracts are subject to enforceable master netting arrangements. The Gross amounts offset in the tables below show the effect of these netting arrangements on financial position, and include collateral posted to offset the net position. The amounts shown are calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below. 60 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Derivative Assets March 31, 2016 Duke (in millions) Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana Current Gross amounts recognized $ 7 Gross amounts offset Net amounts presented in Current Assets: Other $ (1) $ 1 $ (1) 6 $ 26 $ 4 $ (1) — $ — — $ 3 $ 12 $ 13 $ 3 $ — — $ 5 $ — $ — 2 — 3 $ — $ 2 8 $ — $ — Noncurrent Gross amounts recognized $ Gross amounts offset Net amounts presented in Investments and Other Assets: Other (15) $ 11 (12) $ — (3) $ (2) 10 Derivative Liabilities $ 3 (1) $ — 7 $ — — $ — March 31, 2016 Duke (in millions) Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana Current Gross amounts recognized $ Gross amounts offset Net amounts presented in Current Liabilities: Other 376 $ (16) 37 $ (1) $ 360 $ $ 161 $ 232 $ (15) 36 $ 44 $ 78 $ — 217 $ 66 $ 154 $ 1 (15) $ — 78 $ 139 $ 9 $ 52 $ — — 1 $ — 6 $ — Noncurrent Gross amounts recognized Gross amounts offset Net amounts presented in Deferred Credits and Other Liabilities: Other (23) $ 138 (12) $ 32 (11) $ Derivative Assets 55 (2) $ 7 (9) $ 43 — $ 6 — $ — December 31, 2015 Duke (in millions) Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana Current Gross amounts recognized $ 18 $ 15 $ — $ 8 $ — $ Gross amounts offset Net amounts presented in Current Assets: Other $ (3) — $ — 7 $ (2) 2 $ — 3 $ (2) 5 $ 2 $ 4 $ — $ 3 $ — 7 — 1 $ 3 $ 7 4 $ — $ — Noncurrent Gross amounts recognized $ Gross amounts offset Net amounts presented in Investments and Other Assets: Other (4) $ 4 — $ — (4) $ Derivative Liabilities — — $ — (4) $ — — $ — — $ — December 31, 2015 Duke (in millions) Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana Current Gross amounts recognized $ Gross amounts offset Net amounts presented in Current Liabilities: Other 271 $ (22) 32 $ — 225 $ (21) $ 249 $ 32 $ $ 148 $ 13 $ 77 $ (1) 145 $ (20) 204 $ 76 $ 97 $ 21 $ 1 $ — 125 $ 71 $ — — 1 $ — 6 $ — Noncurrent Gross amounts recognized Gross amounts offset Net amounts presented in Deferred Credits and Other Liabilities: Other (16) $ 132 — $ 13 (15) $ 82 — $ 21 (15) $ 56 — $ 6 — $ — E99 Again?Q Eng m? 61 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) OBJECTIVE CREDIT CONTINGENT FEATURES Certain derivative contracts contain objective credit contingent features. These features include the requirement to post cash collateral or letters of credit if specific events occur, such as a credit rating downgrade below investment grade. The following tables show information with respect to derivative contracts that are in a net liability position and contain objective credit-risk-related payment provisions. Amounts for Duke Energy Ohio and Duke Energy Indiana were not material. March 31, 2016 Duke Duke (in millions) Aggregate fair value of derivatives in a net liability position Energy Energy $ 453 Fair value of collateral already posted Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered Progress Carolinas $ 81 Energy $ 279 Duke Duke Energy Energy Progress $ 83 Florida $ 196 23 — 23 — 23 430 81 256 83 173 December 31, 2015 Duke Duke (in millions) Aggregate fair value of derivatives in a net liability position Energy $ 334 Fair value of collateral already posted Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered Energy Progress Carolinas $ 45 Energy $ 290 Duke Duke Energy Energy Progress $ 93 Florida $ 194 30 — 30 — 30 304 45 260 93 164 The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative must be executed with the same counterparty under the same master netting arrangement. Amounts disclosed below represent the receivables related to the right to reclaim cash collateral under master netting arrangements. All receivables presented below were offset against net derivative positions on the Condensed Consolidated Balance Sheets. March 31, 2016 (in millions) December 31, 2015 Receivables Duke Energy $ Receivables 23 $ 30 Progress Energy 23 30 Duke Energy Florida 23 30 10. INVESTMENTS IN DEBT AND EQUITY SECURITIES AVAILABLE-FOR-SALE SECURITIES The Duke Energy Registrants classify their investments in debt and equity securities as available-for-sale. Duke Energy’s available-for-sale securities are primarily comprised of investments held in (i) the nuclear decommissioning fund (NDTF) at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to OPEB plans, and (iii) Duke Energy’s captive insurance investment portfolio. Duke Energy classifies all other investments in debt and equity securities as long-term, unless otherwise noted. Investment Trusts The investments within the NDTF investments and the Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana grantor trusts (Investment Trusts) are managed by independent investment managers with discretion to buy, sell, and invest pursuant to the objectives set forth by the trust agreements. The Duke Energy Registrants have limited oversight of the day-to-day management of these investments. As a result, the ability to hold investments in unrealized loss positions is outside the control of the Duke Energy Registrants. Accordingly, all unrealized losses associated with debt and equity securities within the Investment Trusts are considered other-than-temporary impairments and are recognized immediately. Investments within the Investment Trusts generally qualify for regulatory accounting, and accordingly realized and unrealized gains and losses are deferred as a regulatory asset or liability. Certain investments held in Duke Energy Florida's NDTF were acquired in a settlement with Florida Municipal Joint Owners (FMJO) and do not qualify for regulatory accounting. Unrealized gains and losses on these assets are included in other comprehensive income until realized, unless it is determined the carrying value of an investment is other-than-temporarily impaired, and realized gains and losses are included within Other income and expense, net on the Condensed Consolidated Statements of Operations. The value of these assets has not materially changed since the assets were acquired from FMJO. As a result, there is no material impact on earnings of the Duke Energy Registrants. 62 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Other Available-for-Sale Securities Unrealized gains and losses on all other available-for-sale securities are included in other comprehensive income until realized, unless it is determined the carrying value of an investment is other-than-temporarily impaired. If an other-than-temporary impairment exists, the unrealized loss is included in earnings based on the criteria discussed below. The Duke Energy Registrants analyze all investment holdings each reporting period to determine whether a decline in fair value should be considered other-than-temporary. Criteria used to evaluate whether an impairment associated with equity securities is other-than-temporary includes, but is not limited to, (i) the length of time over which the market value has been lower than the cost basis of the investment, (ii) the percentage decline compared to the cost of the investment, and (iii) management’s intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value. If a decline in fair value is determined to be other-than-temporary, the investment is written down to its fair value through a charge to earnings. If the entity does not have an intent to sell a debt security and it is not more likely than not management will be required to sell the debt security before the recovery of its cost basis, the impairment write-down to fair value would be recorded as a component of other comprehensive income, except for when it is determined a credit loss exists. In determining whether a credit loss exists, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than the amortized cost basis, (ii) changes in the financial condition of the issuer of the security, or in the case of an asset backed security, the financial condition of the underlying loan obligors, (iii) consideration of underlying collateral and guarantees of amounts by government entities, (iv) ability of the issuer of the security to make scheduled interest or principal payments, and (v) any changes to the rating of the security by rating agencies. If a credit loss exists, the amount of impairment write-down to fair value is split between credit loss and other factors. The amount related to credit loss is recognized in earnings. The amount related to other factors is recognized in other comprehensive income. There were no credit losses as of March 31, 2016 and December 31, 2015. DUKE ENERGY The following table presents the estimated fair value of investments in available-for-sale securities. March 31, 2016 (in millions) December 31, 2015 Gross Gross Gross Unrealized Unrealized Gross Estimated Unrealized Unrealized Holding Holding Fair Holding Holding Gains Fair Losses(b) Value Gains Losses(b) Value Estimated NDTF Cash and cash equivalents $ Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities Total NDTF — $ 1,823 $ 201 $ — $ — $ 179 3,592 1,823 58 3,590 16 3 454 7 8 432 6 — 211 5 1 185 33 — 1,288 11 5 1,254 1 $ — 64 4 148 — 1,879 $ 71 $ 5,894 $ — $ — $ 29 $ 4 177 1,846 $ 76 $ 5,817 — $ — $ 29 Other Investments Cash and cash equivalents $ Equity securities 33 1 97 32 1 95 Corporate debt securities 1 2 91 1 3 92 Municipal bonds 3 1 76 3 1 74 U.S. government bonds 2 — 56 — — 45 — 2 55 — 2 Other debt securities 62 Total Other Investments(a) $ 39 $ 6 $ 404 $ 36 $ 7 $ 397 Total Investments $ 1,918 $ 77 $ 6,298 $ 1,882 $ 83 $ 6,214 (a) (b) These amounts are recorded in Other with Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts are considered other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. 63 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The table below summarizes the maturity date for debt securities. (in millions) March 31, 2016 Due in one year or less $ 136 Due after one through five years 769 Due after five through 10 years 559 Due after 10 years 915 Total $ 2,379 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Three Months Ended March 31, (in millions) 2016 Realized gains $ 2015 54 Realized losses $ 102 50 14 DUKE ENERGY CAROLINAS The following table presents the estimated fair value of investments in available-for-sale securities. March 31, 2016 (in millions) Gross Gross Unrealized Unrealized Holding Gains December 31, 2015 Gross Gross Estimated Unrealized Unrealized Holding Fair Holding Holding Fair Losses(b) Value Gains Losses(b) Value Estimated NDTF Cash and cash equivalents $ Equity securities — $ — 1,022 $ 50 $ — 31 2,088 1,021 $ — $ 34 27 2,094 292 Corporate debt securities 8 2 257 3 5 Municipal bonds 1 — 53 1 — 33 12 — 502 3 3 438 U.S. government bonds Other debt securities Total NDTF 1 4 138 — 4 147 $ 1,044 $ 37 $ 3,088 $ 1,028 $ 39 $ 3,038 Other debt securities $ — $ 1 $ 3 $ — $ 1 $ 3 Total Other Investments(a) $ — $ 1 $ 3 $ — $ 1 $ 3 Total Investments $ 1,044 $ 38 $ 3,091 $ 1,028 $ 40 $ 3,041 Other Investments (a) (b) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. The table below summarizes the maturity date for debt securities. (in millions) March 31, 2016 Due in one year or less $ 14 Due after one through five years 195 Due after five through 10 years 224 Due after 10 years 520 Total $ 64 953 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Three Months Ended March 31, (in millions) 2016 Realized gains $ 2015 34 Realized losses $ 90 37 12 PROGRESS ENERGY The following table presents the estimated fair value investments in available-for-sale securities. March 31, 2016 (in millions) Gross Gross Unrealized Unrealized Holding Gains December 31, 2015 Gross Gross Estimated Unrealized Unrealized Holding Fair Holding Holding Fair Losses(b) Value Gains Losses(b) Value Estimated NDTF Cash and cash equivalents $ Equity securities — $ — 801 $ 151 $ — $ — $ 145 33 1,504 802 31 1,496 Corporate debt securities 8 1 197 4 3 140 Municipal bonds 5 — 158 4 1 152 U.S. government bonds 21 — 786 8 2 816 Other debt securities — — 10 — — Total NDTF 30 $ 835 $ 34 $ 2,806 $ 818 $ 37 $ 2,779 $ — $ — $ 17 $ — $ — $ 18 Other Investments Cash and cash equivalents Municipal bonds 3 — 46 3 — 45 Total Other Investments(a) $ 3 $ — $ 63 $ 3 $ — $ 63 Total Investments $ 838 $ 34 $ 2,869 $ 821 $ 37 $ 2,842 (a) (b) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. The table below summarizes the maturity date for debt securities. (in millions) March 31, 2016 Due in one year or less $ 101 Due after one through five years 486 Due after five through 10 years 264 Due after 10 years 346 Total $ 1,197 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Three Months Ended March 31, (in millions) 2016 Realized gains $ Realized losses 19 13 65 2015 $ 12 1 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY PROGRESS The following table presents the estimated fair value of investments in available-for-sale securities. March 31, 2016 (in millions) December 31, 2015 Gross Gross Gross Unrealized Unrealized Gross Estimated Unrealized Unrealized Holding Holding Fair Holding Holding Gains Fair Losses(b) Value Gains Losses(b) Value Estimated NDTF Cash and cash equivalents $ Equity securities — $ 595 — $ 100 $ — $ — 27 1,184 596 25 $ 110 1,178 Corporate debt securities 6 1 145 3 2 96 Municipal bonds 5 — 158 4 1 150 U.S. government bonds 15 — 479 6 2 486 Other debt securities — — 6 — — Total NDTF 18 $ 621 $ 28 $ 2,072 $ 609 $ 30 $ 2,038 Cash and cash equivalents $ — $ — $ 1 $ — $ — $ 1 Total Other Investments(a) $ — $ — $ 1 $ — $ — $ 1 Total Investments $ 621 $ 28 $ 2,073 $ 609 $ 30 $ 2,039 Other Investments (a) (b) These amounts are recorded in Other with Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. The table below summarizes the maturity date for debt securities. (in millions) March 31, 2016 Due in one year or less $ 37 Due after one through five years 282 Due after five through 10 years 219 Due after 10 years 250 Total $ 788 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Three Months Ended March 31, (in millions) 2016 Realized gains $ Realized losses 15 11 66 2015 $ 9 1 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY FLORIDA The following table presents the estimated fair value of investments in available-for-sale securities. March 31, 2016 (in millions) December 31, 2015 Gross Gross Gross Unrealized Unrealized Gross Estimated Unrealized Unrealized Holding Holding Fair Holding Holding Gains Fair Losses(b) Value Gains Losses(b) Value Estimated NDTF Cash and cash equivalents $ Equity securities Corporate debt securities Municipal bonds U.S. government bonds Other debt securities Total NDTF (c) — $ — $ 51 206 6 320 $ — $ — 206 $ 35 6 318 44 2 — 52 1 1 — — — — — 2 6 — 307 2 — 330 — — 4 $ 214 $ 6 $ $ — $ — $ — — 12 734 $ 209 $ 7 $ 1 $ — $ — $ 741 Other Investments Cash and cash equivalents Municipal bonds 3 — 46 3 6 — 45 Total Other Investments(a) $ 3 $ — $ 47 $ 3 $ — $ 51 Total Investments $ 217 $ 6 $ 781 $ 212 $ 7 $ 792 (a) (b) (c) These amounts are recorded in Other with Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. The decrease in estimated fair value of the NDTF as of March 31, 2016, is primarily due to reimbursements from the NDTF for Duke Energy Florida's cost related to ongoing decommissioning activity of the Crystal River Unit 3 Nuclear Plant. The table below summarizes the maturity date for debt securities. (in millions) March 31, 2016 Due in one year or less $ 64 Due after one through five years 204 Due after five through 10 years 45 Due after 10 years 96 Total $ 409 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. Three Months Ended March 31, (in millions) 2016 Realized gains $ Realized losses 4 2 67 2015 $ 3 — PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY INDIANA The following table presents the estimated fair value of investments in available-for-sale securities. March 31, 2016 (in millions) December 31, 2015 Gross Gross Gross Unrealized Unrealized Gross Estimated Unrealized Unrealized Holding Holding Fair Holding Holding Gains Fair Losses(b) Value Gains Losses(b) Value Estimated Other Investments Cash and cash equivalents $ — $ — Equity securities 27 — Corporate debt securities — Municipal bonds — $ 1 $ — $ — $ 2 72 27 — 71 — 2 — — 2 1 27 — 1 26 Total Other Investments(a) $ 27 $ 1 $ 102 $ 27 $ 1 $ 101 Total Investments $ 27 $ 1 $ 102 $ 27 $ 1 $ 101 (a) (b) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. The table below summarizes the maturity date for debt securities. (in millions) March 31, 2016 Due in one year or less $ 2 Due after one through five years 14 Due after five through 10 years 9 Due after 10 years 4 Total $ 29 Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were insignificant for the three months ended March 31, 2016 and 2015. 11. FAIR VALUE MEASUREMENTS Fair value is the exchange price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value definition focuses on an exit price versus the acquisition cost. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data, or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient. Fair value measurements are classified in three levels based on the fair value hierarchy: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. An active market is one in which transactions for an asset or liability occur with sufficient frequency and volume to provide ongoing pricing information. Level 2 – A fair value measurement utilizing inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly, for an asset or liability. Inputs include (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities and credit spreads. A Level 2 measurement cannot have more than an insignificant portion of its valuation based on unobservable inputs. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less than active markets. Level 3 – Any fair value measurement which includes unobservable inputs for more than an insignificant portion of the valuation. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 measurements may include longer-term instruments that extend into periods in which observable inputs are not available. Not Categorized – As discussed in Note 1, certain investments are not categorized within the Fair Value hierarchy. These investments are measured based on the fair value of the underlying investments but may not be readily redeemable at that fair value. Fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value. 68 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Transfers between levels represent assets or liabilities that were previously (i) categorized at a higher level for which the inputs to the estimate became less observable or (ii) classified at a lower level for which the inputs became more observable during the period. The Duke Energy Registrant’s policy is to recognize transfers between levels of the fair value hierarchy at the end of the period. There were no transfers between levels during the three months ended March 31, 2016 and 2015. Valuation methods of the primary fair value measurements disclosed below are as follows. Investments in equity securities The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as Nasdaq Composite (NASDAQ) and New York Stock Exchange (NYSE). Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements. Investments in debt securities Most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed income security is relatively inactive or illiquid, the measurement is Level 3. Commodity derivatives Commodity derivatives with clearinghouses are classified as Level 1. Other commodity derivatives are primarily valued using internally developed discounted cash flow models which incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or non-performance risk (after reflecting credit enhancements such as collateral), and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for natural gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate the fair value of natural gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves. Interest rate derivatives Most over-the-counter interest rate contract derivatives are valued using financial models which utilize observable inputs for similar instruments and are classified as Level 2. Inputs include forward interest rate curves, notional amounts, interest rates and credit quality of the counterparties. DUKE ENERGY The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2016 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ Nuclear decommissioning trust fund debt securities Other available-for-sale equity securities Other available-for-sale debt securities Level 1 3,592 $ 3,426 $ 2,302 935 97 307 Level 2 1 $ — 97 — — 85 218 4 2 33 — 31 Total assets 6,331 4,543 1,617 Net assets (537) $ (6) 5,794 $ 69 — $ 1,367 Derivative assets Derivative liabilities Level 3 4,537 $ (531) 1,086 $ 6 Not categorized 165 — 165 — 6 $ 165 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) December 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ Nuclear decommissioning trust fund debt securities Other available-for-sale equity securities Other available-for-sale debt securities Level 1 3,590 $ 3,418 $ 2,227 672 95 302 Level 2 Level 3 — $ 1,555 — 95 — — 75 222 5 Derivative assets 26 — 16 10 Total assets 6,240 4,260 1,793 15 Derivative liabilities Net assets (419) $ — 5,821 $ 4,260 $ Not categorized — $ (419) 172 — 172 — 1,374 $ 15 $ 172 The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Amounts included in earnings for derivatives are primarily included in Operating Revenues. Three Months Ended March 31, 2016 (in millions) Investments Balance at beginning of period $ Derivatives (net) 5 $ 10 Total $ 15 Purchases, sales, issuances and settlements: Sales (1) — (1) Settlements — (7) (7) — (1) Total losses included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period $ 4 $ 2 (1) $ 6 Three Months Ended March 31, 2015 (in millions) Investments Balance at beginning of period $ Total pretax realized or unrealized gains included in earnings 5 Derivatives (net) $ (1) Total $ 4 — 24 24 — (10) (10) — 1 Purchases, sales, issuances and settlements: Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period $ 70 5 $ 14 1 $ 19 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY CAROLINAS The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2016 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ Nuclear decommissioning trust fund debt securities Other available-for-sale debt securities Level 1 2,088 $ Level 2 1,922 $ 1,000 264 Level 3 1 $ 736 3 — — 3 13 — 13 — Total assets 3,104 2,186 750 3 (81) — Net assets $ (81) — 3,023 $ 2,186 $ 165 — Derivative assets Derivative liabilities Not categorized — $ 669 $ 165 3 $ 165 December 31, 2015 (in millions) Nuclear decommissioning trust fund equity securities Total Fair Value $ Nuclear decommissioning trust fund debt securities 2,094 $ 944 Other available-for-sale debt securities Total assets Derivative liabilities Net assets Level 1 $ Level 2 1,922 $ Level 3 — $ 246 698 — 3 3 — — 3,041 2,168 698 3 (45) — (45) — 2,996 $ 2,168 $ Not categorized — $ 653 $ 172 172 3 $ 172 There was no change to the Level 3 balance during the three months ended March 31, 2016 and March 31, 2015. PROGRESS ENERGY The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2016 (in millions) Total Fair Value Nuclear decommissioning trust fund equity securities $ Nuclear decommissioning trust fund debt securities Level 1 1,504 $ 1,504 $ Level 2 — 1,302 671 631 Other available-for-sale debt securities 63 17 46 Derivative assets 17 — 17 Total assets 2,886 2,192 694 Derivative liabilities (298) Net assets $ 2,588 $ — (298) 2,192 $ 396 December 31, 2015 (in millions) Total Fair Value Nuclear decommissioning trust fund equity securities $ Nuclear decommissioning trust fund debt securities 1,496 $ Level 1 1,496 $ Level 2 — 1,283 426 857 Other available-for-sale debt securities 63 18 45 Derivative assets 11 — 11 Total assets 2,853 1,940 913 Derivative liabilities (322) Net assets $ 71 2,531 $ — (322) 1,940 $ 591 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY PROGRESS The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2016 (in millions) Total Fair Value Nuclear decommissioning trust fund equity securities $ Nuclear decommissioning trust fund debt securities and other Level 1 1,184 $ 888 1,184 $ Level 2 — 389 499 — Other available-for-sale debt securities and other 1 1 Derivative assets 5 — 5 Total assets 2,078 1,574 504 Derivative liabilities Net assets $ (87) — (87) 1,991 $ 1,574 $ 417 December 31, 2015 (in millions) Total Fair Value Nuclear decommissioning trust fund equity securities $ Nuclear decommissioning trust fund debt securities and other Level 1 1,178 $ 860 1,178 $ Level 2 — 141 719 — Other available-for-sale debt securities and other 1 1 Derivative assets 2 — 2 Total assets 2,041 1,320 721 Derivative liabilities Net assets $ (98) — (98) 1,943 $ 1,320 $ 623 DUKE ENERGY FLORIDA The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2016 (in millions) Total Fair Value Nuclear decommissioning trust fund equity securities $ Nuclear decommissioning trust fund debt securities and other Level 1 Level 2 320 $ 320 $ 414 282 132 — 46 Other available-for-sale debt securities and other 47 1 Derivative assets 11 — 11 Total assets 792 603 189 Derivative liabilities (206) Net assets (liabilities) $ — 586 $ 603 $ (206) (17) December 31, 2015 (in millions) Total Fair Value Nuclear decommissioning trust fund equity securities $ Nuclear decommissioning trust fund debt securities and other Other available-for-sale debt securities and other Level 1 Level 2 318 $ 318 $ 423 285 138 — 45 51 6 Derivative assets 7 — 7 Total assets 799 609 190 Derivative liabilities (216) Net assets (liabilities) $ 72 583 $ — 609 $ (216) (26) PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) DUKE ENERGY OHIO The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which are disclosed in Note 9. March 31, 2016 (in millions) Derivative liabilities Net liabilities Total Fair Value Level 1 Level 2 Level 3 $ (7) $ — $ (7) $ — $ (7) $ — $ (7) $ — December 31, 2015 (in millions) Derivative assets Total Fair Value $ Derivative liabilities Net (liabilities) assets Level 1 3 $ $ Level 2 Level 3 — $ — $ (7) — (7) (4) $ — $ (7) $ 3 — 3 The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Derivatives (net) Three Months Ended March 31, (in millions) 2016 Balance at beginning of period $ 3 Total pretax realized or unrealized gains included in earnings 2015 $ (18) — 25 (2) — (1) — Purchases, sales, issuances and settlements: Settlements Total losses included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities Balance at end of period $ — $ 7 DUKE ENERGY INDIANA The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. March 31, 2016 (in millions) Other available-for-sale equity securities Total Fair Value $ 72 $ Other available-for-sale debt securities and other Derivative assets Net assets $ Level 1 72 $ Level 2 Level 3 — $ — 30 1 29 — 2 — — 2 73 $ 29 $ 2 104 $ December 31, 2015 (in millions) Other available-for-sale equity securities Total Fair Value $ 71 $ Other available-for-sale debt securities and other Derivative assets Net assets $ 71 $ Level 2 Level 3 — $ — 30 2 28 — 7 — — 7 73 $ 28 $ 7 108 $ 73 Level 1 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Derivatives (net) Three Months Ended March 31, (in millions) 2016 Balance at beginning of period $ Total pretax realized or unrealized losses included in earnings 7 2015 $ 14 — (3) (5) (9) Purchases, sales, issuances and settlements: Settlements Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities — Balance at end of period $ 2 1 $ 3 QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS The following table includes quantitative information about the Duke Energy Registrants' derivatives classified as Level 3. As of March 31, 2016 and December 31, 2015 all Level 3 derivatives were financial transmission rights (FTRs). March 31, 2016 Fair Value of FTRs (in millions) Duke Energy $ Duke Energy Indiana Valuation Technique Unobservable Input 2 RTO auction pricing FTR price – per Megawatt-Hour (MWh) 2 RTO auction pricing FTR price – per MWh Range $ (1.67) - $ 5.29 (1.67) - 5.29 December 31, 2015 Fair Value of FTRs (in millions) Duke Energy $ Valuation Technique Unobservable Input 10 RTO auction pricing FTR price – per MWh Duke Energy Ohio 3 RTO auction pricing FTR price – per MWh Duke Energy Indiana 7 RTO auction pricing FTR price – per MWh Range $ (0.74) - $ 0.67 7.29 - 2.53 (0.74) - 7.29 OTHER FAIR VALUE DISCLOSURES The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements. March 31, 2016 (in millions) Duke Energy Book Value $ 40,307 Duke Energy Carolinas December 31, 2015 Fair Value $ 44,785 Book Value $ 39,569 Fair Value $ 42,537 9,360 10,567 8,367 9,156 14,210 16,245 14,464 15,856 Duke Energy Progress 6,565 7,134 6,518 6,757 Duke Energy Florida 4,265 5,109 4,266 4,908 Duke Energy Ohio 1,642 1,836 1,598 1,724 Duke Energy Indiana 3,768 4,362 3,768 4,219 Progress Energy At both March 31, 2016 and December 31, 2015, fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper, and non-recourse notes payable of VIEs are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates. 12. VARIABLE INTEREST ENTITIES A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. A qualitative analysis of control determines the party that consolidates a VIE. This assessment is based on (i) what party has the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) what party has rights to receive benefits or is obligated to absorb losses that could potentially be significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment. 74 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) No financial support was provided to any of the consolidated VIEs during the three months ended March 31, 2016 and the year ended December 31, 2015, or is expected to be provided in the future, that was not previously contractually required. CONSOLIDATED VIEs The following tables summarize the impact of VIEs consolidated by Duke Energy and the Subsidiary Registrants on the Condensed Consolidated Balance Sheets. March 31, 2016 Duke Energy Duke (in millions) Duke Duke Energy Energy Energy Carolinas Progress(c) Florida(c) DERF DEPR DEFR CRC Renewables Other Total ASSETS Current Assets Cash and Cash Equivalents $ Restricted receivables of variable interest entities (net of allowance for doubtful accounts) — $ — $ — $ — $ — $ 2 $ 2 615 372 256 437 20 14 1,714 — — — — 149 2 151 — — — — 58 — 58 Property, plant and equipment, cost(a) — — — — 2,027 20 2,047 Accumulated depreciation and amortization — — — — Other Investments and Other Assets Other Property, Plant and Equipment Total assets (340) (6) (346) $ 615 $ 372 $ 256 $ 437 $ 1,914 $ 32 $ 3,626 $ — $ — $ — $ — $ 23 $ — $ 23 LIABILITIES AND EQUITY Current Liabilities Accounts payable Taxes accrued — — — — 4 — 4 Current maturities of long-term debt — — — — 82 12 94 Other — — — — 22 — 22 425 300 225 325 995 — 2,270 Deferred income taxes — — — — 240 — 240 Asset retirement obligations — — — — 37 — 37 Other — — — — 42 — Long-Term Debt (b) Deferred Credits and Other Liabilities 42 Total liabilities $ 425 $ 300 $ 225 $ 325 $ 1,445 $ 12 $ 2,732 Net assets of consolidated variable interest entities $ 190 $ 72 $ 31 $ 112 $ 469 $ 20 $ 894 75 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) December 31, 2015 Duke Energy Duke (in millions) Duke Duke Energy Energy Energy Carolinas Progress(c) Florida(c) DERF DEPR DEFR CRC Renewables Other Total ASSETS Current Assets Cash and Cash Equivalents $ Restricted receivables of variable interest entities (net of allowance for doubtful accounts) Other — $ — $ — $ — $ — $ 2 $ 2 596 349 309 454 19 21 1,748 — — — — 138 4 142 — — — — 70 — 70 — — — — 2,015 20 2,035 Investments and Other Assets Other Property, Plant and Equipment Property, plant and equipment, cost(a) Accumulated depreciation and amortization Total assets — — — — (321) (6) (327) $ 596 $ 349 $ 309 $ 454 $ 1,921 $ 41 $ 3,670 $ — $ — $ — $ — $ 35 $ — $ 35 LIABILITIES AND EQUITY Current Liabilities Accounts payable Taxes accrued Current maturities of long-term debt Other 5 3 — — 5 1 14 — — — — 108 17 125 — — — — 15 2 17 425 254 225 325 968 — 2,197 Deferred income taxes — — — — 289 — 289 Asset retirement obligations — — — — 35 — 35 Other — — — — 33 — Long-Term Debt (b) Deferred Credits and Other Liabilities 33 Total liabilities $ 430 $ 257 $ 225 $ 325 $ 1,488 $ 20 $ 2,745 Net assets of consolidated variable interest entities $ 166 $ 92 $ 84 $ 129 $ 433 $ 21 $ 925 (a) (b) (c) Restricted as collateral for nonrecourse debt of VIEs. Nonrecourse to the general assets of the applicable registrant. The amount for Progress Energy is equal to the total amount for Duke Energy Progress and Duke Energy Florida. The obligations of these VIEs are nonrecourse to Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress and Duke Energy Florida. These entities have no requirement to provide liquidity to, purchase assets of or guarantee performance of these VIEs unless noted in the following paragraphs. DERF / DEPR / DEFR Duke Energy Receivables Finance Company, LLC (DERF), Duke Energy Progress Receivables, LLC (DEPR) and Duke Energy Florida Receivables, LLC (DEFR) are bankruptcy remote, special purpose subsidiaries of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, respectively. On a daily basis, DERF, DEPR and DEFR buy certain accounts receivable arising from the sale of electricity and related services from their parent companies. DERF, DEPR and DEFR are wholly owned limited liability companies with separate legal existence from their parent companies, and their assets are not generally available to creditors of their parent companies. DERF, DEPR and DEFR borrow amounts under credit facilities to buy the receivables from their parents companies. Borrowing availability is limited to the amount of qualified receivables sold, which is generally expected to be in excess of the credit facilities. The credit facilities are reflected on the Condensed Consolidated Balance Sheets as LongTerm Debt. The secured credit facilities were not structured to meet the criteria for sale accounting treatment under the accounting guidance for transfers and servicing of financial assets. The most significant activity that impacts the economic performance of DERF, DEPR and DEFR are the decisions made to manage delinquent receivables. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida consolidate DERF, DEPR and DEFR, respectively, as they make those decisions. 76 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following table summarizes the amounts and expiration dates of the credit facilities reflected on the Condensed Consolidated Balance Sheets as Long-Term Debt. DERF Credit facility amount (in millions) $ DEPR 425 $ Expiration date December 2018 DEFR 300 $ 225 February 2019 April 2019 CRC CRC is a bankruptcy remote, special purpose entity indirectly owned by Duke Energy. On a revolving basis, Duke Energy Ohio and Duke Energy Indiana sell to CRC certain accounts receivable arising from the sale of electricity and related services. The receivables sold are securitized by CRC through a credit facility managed by two unrelated third parties. Borrowing availability from the credit facility is limited to the amount of qualified receivables sold to CRC. The sole source of funds to satisfy the related debt obligation is cash collections from the receivables. The credit facility expires in December 2018 and is reflected on Duke Energy's Condensed Consolidated Balance Sheets as Long-Term Debt. The proceeds Duke Energy Ohio and Duke Energy Indiana receive from the sale of receivables to CRC are typically 75 percent cash and 25 percent in the form of a subordinated note from CRC. The subordinated note is a retained interest in the receivables sold. Depending on collection experience, additional equity infusions to CRC may be required by Duke Energy to maintain a minimum equity balance of $3 million. CRC is considered a VIE because (i) equity capitalization is insufficient to support its operations, (ii) power to direct the activities that most significantly impact the economic performance of the entity are not performed by the equity holder, Cinergy, and (iii) deficiencies in net worth of CRC are not funded by Cinergy, but by Duke Energy. The most significant activities that impact the economic performance of CRC are decisions made to manage delinquent receivables. Duke Energy consolidates CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy Indiana consolidate CRC. Renewables Certain Duke Energy renewable energy facilities are VIEs due to long-term fixed-price power purchase agreements. These fixed-price agreements effectively transfer commodity price risk to the buyer of the power. Certain other Duke Energy renewable energy facilities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves in support of debt financings. For certain VIEs, assets are restricted and cannot be pledged as collateral or sold to third parties without prior approval of debt holders. The activities that most significantly impact the economic performance of these renewable energy facilities were decisions associated with siting, negotiating purchase power agreements, engineering, procurement and construction, and decisions associated with ongoing operations and maintenance-related activities. Duke Energy consolidates the entities as it makes all of these decisions. NON-CONSOLIDATED VIEs The following tables include VIEs not consolidated and how these entities impact the Condensed Consolidated Balance Sheets. March 31, 2016 Duke Energy (in millions) Receivables from affiliated companies Renewables $ — Investments in equity method unconsolidated affiliates Total assets Other $ 227 $ 227 — Total $ 186 $ 186 — 413 Duke Energy Ohio $ 413 $ Duke Energy 39 Indiana $ 50 $ 50 — $ 39 — Other current liabilities — 2 2 — — Deferred credits and other liabilities — 14 14 — — Total liabilities $ — $ 16 $ 16 $ — $ — Net assets $ 227 $ 170 $ 397 $ 39 $ 50 December 31, 2015 Duke Energy (in millions) Receivables from affiliated companies Renewables $ — Investments in equity method unconsolidated affiliates Total assets Other $ 235 $ 235 — Total $ 152 $ 152 — 387 Duke Energy Ohio $ 387 $ Duke Energy 47 Indiana $ — $ 47 Other current liabilities — 3 3 — Deferred credits and other liabilities — 14 14 — 60 — $ 60 — — Total liabilities $ — $ 17 $ 17 $ — $ — Net assets $ 235 $ 135 $ 370 $ 47 $ 60 77 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above except for the power purchase agreement with OVEC, which is discussed below, and various guarantees, reflected in the table above as Deferred credits and other liabilities. For more information on various guarantees, refer to Note 5, "Commitments and Contingencies." Renewables Duke Energy has investments in various renewable energy project entities. Some of these entities are VIEs due to long-term fixed-price power purchase agreements. These fixed-price agreements effectively transfer commodity price risk to the buyer of the power. Duke Energy does not consolidate these VIEs because power to direct and control key activities is shared jointly by Duke Energy and other owners. Other Duke Energy holds a 50 percent equity interest in Duke-American Transmission Company, LLC (DATC). DATC is considered a VIE due to insufficient equity at risk to permit DATC to finance its own activities without additional subordinated financial support. The activities that most significantly impact DATC’s economic performance are the decisions related to investing in existing and development of new transmission facilities. The power to direct these activities is jointly and equally shared by Duke Energy and the other joint venture partner and, therefore, Duke Energy does not consolidate. Duke Energy has a 40 percent equity interest and a 7.5 percent equity interest in ACP and Sabal Trail Transmission, LLC (Sabal Trail), respectively. These entities are considered VIEs as their equity is not sufficient to permit the entities to finance their activities without additional subordinated financial support. The activity that most significantly impacts the economic performance of both ACP and Sabal Trail is construction. Duke Energy does not control these activities and therefore does not consolidate ACP or Sabal Trail. OVEC Duke Energy Ohio’s 9 percent ownership interest in OVEC is considered a non-consolidated VIE. Through its ownership interest in OVEC, Duke Energy Ohio has a contractual arrangement to buy power from OVEC’s power plants through June 2040. Proceeds from the sale of power by OVEC to its power purchase agreement counterparties are designed to be sufficient to meet its operating expenses, fixed costs, debt amortization and interest expense, as well as earn a return on equity. Accordingly, the value of this contract is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business, including costs associated with its 2,256 MW of coal-fired generation capacity. Proposed environmental rulemaking could increase the costs of OVEC, which would be passed through to Duke Energy Ohio. CRC See discussion under Consolidated VIEs for additional information related to CRC. Amounts included in Receivables from affiliated companies in the above table for Duke Energy Ohio and Duke Energy Indiana reflect their retained interest in receivables sold to CRC. These subordinated notes held by Duke Energy Ohio and Duke Energy Indiana are stated at fair value. Carrying values of retained interests are determined by allocating carrying value of the receivables between assets sold and interests retained based on relative fair value. The allocated bases of the subordinated notes are not materially different than their face value because (i) the receivables generally turn over in less than two months, (ii) credit losses are reasonably predictable due to the broad customer base and lack of significant concentration, and (iii) the equity in CRC is subordinate to all retained interests and thus would absorb losses first. The hypothetical effect on fair value of the retained interests assuming both a 10 percent and a 20 percent unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio and Duke Energy Indiana on the retained interests using the acceptable yield method. This method generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both retained interests and purchased beneficial interest whenever it is determined that an other-than-temporary impairment has occurred. Key assumptions used in estimating fair value are detailed in the following table. Duke Energy Ohio 2016 Duke Energy Indiana 2015 2016 2015 Anticipated credit loss ratio 0.6% 0.6% 0.3% 0.3% Discount rate 1.4% 1.2% 1.4% 1.2% 13.2% 12.9% 10.6% 10.6% Receivable turnover rate The following table shows the gross and net receivables sold. Duke Energy Ohio (in millions) Receivables sold March 31, 2016 $ Less: Retained interests Net receivables sold 225 December 31, 2015 $ 233 39 $ 186 Duke Energy Indiana March 31, 2016 $ 47 $ 186 78 253 December 31, 2015 $ 260 $ 200 50 $ 203 60 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) The following table shows sales and cash flows related to receivables sold. Duke Energy Ohio Duke Energy Indiana Three Months Ended Three Months Ended March 31, (in millions) 2016 March 31, 2015 2016 2015 Sales Receivables sold $ Loss recognized on sale 532 $ 644 $ 635 $ 716 3 3 3 3 Cash proceeds from receivables sold 537 640 643 722 Return received on retained interests 1 1 1 2 Cash flows Cash flows from sales of receivables are reflected within Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows. Collection fees received in connection with servicing transferred accounts receivable are included in Operation, maintenance and other on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Operations and Comprehensive Income. The loss recognized on sales of receivables is calculated monthly by multiplying receivables sold during the month by the required discount. The required discount is derived monthly utilizing a three-year weighted average formula that considers charge-off history, late charge history and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is the prior month-end London Interbank Offered Rate (LIBOR) plus a fixed rate of 1.00 percent. 13. COMMON STOCK Basic Earnings Per Share (EPS) is computed by dividing net income attributable to Duke Energy common stockholders, adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted average number of common stock outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted average number of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options and the Equity Forwards, were exercised or settled. Duke Energy’s participating securities are restricted stock units that are entitled to dividends declared on Duke Energy common stock during the restricted stock unit’s vesting periods. The following table presents Duke Energy’s basic and diluted EPS calculations and reconciles the weighted average number of common stock outstanding to the diluted weighted average number of common shares outstanding. Three Months Ended March 31, (in millions, except per share amounts) 2016 Income from continuing operations attributable to Duke Energy common stockholders excluding impact of participating securities $ Weighted average shares outstanding – basic 2015 691 $ 689 Weighted average shares outstanding – diluted 772 708 689 708 Earnings per share from continuing operations attributable to Duke Energy common stockholders Basic $ 1.00 $ 1.09 Diluted $ 1.00 $ 1.09 $ 0.795 Potentially dilutive items excluded from the calculation(a) 2 Dividends declared per common share $ 0.825 2 (a)Performance stock awards and certain stock options were not included in the dilutive securities calculation because either the performance measures related to the awards had not been met or the option exercise prices were greater than the average market price of the common shares during the presented periods. Equity Forwards In March 2016, Duke Energy marketed an equity offering of 10.6 million shares of common stock. In lieu of issuing equity at the time of the offering, Duke Energy entered into Equity Forwards with Barclays. No amounts have or will be recorded in Duke Energy’s Condensed Consolidated Financial Statements with respect to the equity offering until settlements of the Equity Forwards occur. The Equity Forwards require Duke Energy to, at its election prior to June 30, 2017, either physically settle the transactions by issuing the total of 10.6 million of its common stock to Barclays in exchange for net proceeds at the then-applicable forward sale price specified by the agreements (initially $69.84 per share) or Duke Energy can net settle the transactions in whole or in part through the delivery or receipt of cash or shares. The forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor and will decrease by other fixed amounts specified in the agreements. The net proceeds received upon settlement are expected to be used to finance a portion of the acquisition of Piedmont. 79 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Until settlement of the Equity Forwards, earnings per share dilution resulting from the agreements, if any, will be determined under the treasury stock method. If Duke Energy had elected to net share settle the contract as of March 31, 2016, Duke Energy would have been required to deliver 1.4 million shares. Accelerated Stock Repurchase Program On April 6, 2015, Duke Energy entered into agreements with each of Goldman, Sachs & Co. and JPMorgan Chase Bank, National Association (the Dealers) to repurchase a total of $1.5 billion of Duke Energy common stock under an accelerated stock repurchase program (the ASR). Duke Energy made payments of $750 million to each of the Dealers and was delivered 16.6 million shares, with a total fair value of $1.275 billion, which represented approximately 85 percent of the total number of shares of Duke Energy common stock expected to be repurchased under the ASR. The $225 million unsettled portion met the criteria to be accounted for as a forward contract indexed to Duke Energy's stock and qualified as an equity instrument. The company recorded the $1.5 billion payment as a reduction to common stock as of April 6, 2015. In June 2015, the Dealers delivered 3.2 million additional shares to Duke Energy to complete the ASR. Approximately 19.8 million shares, in total, were delivered to Duke Energy and retired under the ASR at an average price of $75.75 per share. The final number of shares repurchased was based upon the average of the daily volume weighted average stock prices of Duke Energy’s common stock during the term of the program, less a discount. 14. STOCK-BASED COMPENSATION For employee awards, equity classified stock-based compensation cost is measured at the service inception date or the grant date, based on the estimated achievement of certain performance metrics or the fair value of the award, and is recognized as expense or capitalized as a component of property, plant and equipment over the requisite service period. Pretax stock-based compensation costs, the tax benefit associated with stock-based compensation expense, and stock-based compensation costs capitalized are included in the following table. Three Months Ended March 31, (in millions) 2016 Restricted stock unit awards $ 2015 7 Performance awards $ 9 5 5 Pretax stock-based compensation cost $ 12 $ 14 Tax benefit associated with stock-based compensation expense $ 4 $ 5 Stock-based compensation costs capitalized 1 1 15. EMPLOYEE BENEFIT PLANS DEFINED BENEFIT RETIREMENT PLANS Duke Energy maintains, and the Subsidiary Registrants participate in, qualified, non-contributory defined benefit retirement plans. The plans cover most U.S. employees using a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits equal to a percentage of current eligible earnings based on age or the combination of age and years of service, and interest credits. Certain employees are covered under plans that use a final average earnings formula. Under these average earnings formulas, a plan participant accumulates a retirement benefit equal to the sum of percentages of their (i) highest three-year or four-year average earnings, (ii) highest three-year or four-year average earnings in excess of covered compensation per year of participation (maximum of 35 years) and/or (iii) highest three-year average earnings times years of participation in excess of 35 years. Duke Energy also maintains, and the Subsidiary Registrants participate in, non-qualified, noncontributory defined benefit retirement plans which cover certain executives. The qualified and non-qualified, non-contributory defined benefit plans are closed to new and rehired non-union and certain unionized employees. Duke Energy’s policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefit payments to be paid to plan participants. The following table includes information related to the Duke Energy Registrants’ contributions to its U.S. qualified defined benefit pension plans. Duke Energy did not make any contributions to its U.S. qualified defined benefit pension plans during the three months ended March 31, 2016. Three Months Ended March 31, 2015 Duke Duke (in millions) Contributions Energy Energy $ 132 Progress Carolinas $ 42 Energy $ 42 80 Duke Duke Duke Duke Energy Energy Energy Energy Progress $ 21 Florida $ 21 Ohio $ 1 Indiana $ 9 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Net periodic benefit costs disclosed in the tables below represent the cost of the respective benefit plan for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment. Amounts presented in the tables below for the Subsidiary Registrants represent the amounts of pension and other post-retirement benefit costs allocated by Duke Energy for employees of the Subsidiary Registrants. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and post-retirement benefit costs for employees of Duke Energy’s shared services affiliate that provides support to the Subsidiary Registrants. These allocated amounts are included in the governance and shared service costs discussed in Note 8. Duke Energy uses a December 31 measurement date for its defined benefit retirement plan assets and obligations. QUALIFIED PENSION PLANS The following tables include the components of net periodic pension costs for qualified pension plans. Three Months Ended March 31, 2016 Duke (in millions) Service cost $ Interest cost on projected benefit obligation Expected return on plan assets Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana 36 $ 12 $ 11 $ 6 $ 5 $ 1 $ 2 83 21 26 12 14 5 7 (129) (35) (42) (21) (21) (7) (10) Amortization of actuarial loss 33 8 14 6 7 1 3 Amortization of prior service credit (4) (2) (1) — — — — Other Net periodic pension costs 3 $ 22 1 $ 5 1 $ 9 — $ 3 — $ 5 — $ — — $ 2 Three Months Ended March 31, 2015 Duke Duke (in millions) Service cost Energy Energy $ Interest cost on projected benefit obligation 40 Progress Carolinas $ 13 Energy $ 11 Duke Duke Duke Duke Energy Energy Energy Energy Progress $ 6 Florida $ 5 Ohio $ 1 Indiana $ 3 82 21 26 12 14 5 7 (129) (36) (43) (20) (22) (6) (10) Amortization of actuarial loss 43 10 17 8 8 2 3 Amortization of prior service credit (4) (2) (1) — — — — 2 1 1 — — — — Expected return on plan assets Other Net periodic pension costs $ 34 $ 7 $ 11 $ 6 $ 5 $ 2 $ 3 NON-QUALIFIED PENSION PLANS Net periodic pension costs for non-qualified pension plans were not material for the three months ended March 31, 2016 and 2015. OTHER POST-RETIREMENT BENEFIT PLANS Duke Energy provides, and the Subsidiary Registrants participate in, some health care and life insurance benefits for retired employees on a contributory and non-contributory basis. Employees are eligible for these benefits if they have met age and service requirements at retirement, as set forth in the plans. The health care benefits include medical, dental, vision, and prescription drug coverage and are subject to certain limitations, such as deductibles and co-payments. The following tables include the components of net periodic other post-retirement benefit costs. 81 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) Three Months Ended March 31, 2016 Duke (in millions) Service cost Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana $ 1 Interest cost on accumulated post-retirement benefit obligation $ — $ — $ — $ — $ — $ — 8 2 4 2 2 — 1 (3) (2) — — — — — Amortization of actuarial loss (gain) 1 (1) 5 3 2 — (1) Amortization of prior service credit (35) (3) (26) (17) (9) — — Expected return on plan assets Net periodic other post-retirement benefit costs $ (28) $ (4) $ (17) $ (12) $ (5) $ — $ — Three Months Ended March 31, 2015 Duke Duke (in millions) Energy Energy Service cost $ Expected return on plan assets Net periodic other post-retirement benefit costs $ $ Energy — $ Duke Duke Duke Duke Energy Energy Energy Energy Progress — $ Florida — $ Ohio — $ — Indiana $ — 9 2 4 2 2 — — (3) (2) — — — — — 6 — 7 5 3 — — (35) (4) (26) (17) (9) — — Amortization of actuarial loss Amortization of prior service credit Carolinas 2 Interest cost on accumulated post-retirement benefit obligation Progress (21) $ (4) $ (15) $ (10) $ (4) $ — $ — EMPLOYEE SAVINGS PLAN Duke Energy sponsors, and the Subsidiary Registrants participate in, an employee savings plan that covers substantially all U.S. employees. Most employees participate in a matching contribution formula where Duke Energy provides a matching contribution generally equal to 100 percent of employee before-tax and Roth 401(k) contributions of up to 6 percent of eligible pay per pay period. Dividends on Duke Energy shares held by the savings plan are charged to retained earnings when declared and shares held in the plans are considered outstanding in the calculation of basic and diluted earnings per share. For new and rehired non-union and certain unionized employees who are not eligible to participate in Duke Energy’s defined benefit plans, an additional employer contribution of 4 percent of eligible pay per pay period, subject to a three-year vesting requirement, is provided to the employee’s savings plan account. The following table presents employer contributions made by Duke Energy and expensed by the Subsidiary Registrants. Duke (in millions) Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana Three Months Ended March 31, 2016 2015 $ 52 49 $ 18 $ 15 16 14 $ 11 11 $ 4 4 $ 1 $ 1 2 2 16. INCOME TAXES TAXES ON FOREIGN EARNINGS As of December 31, 2015, the Company’s intention was to indefinitely reinvest foreign earnings of International Energy earned after December 31, 2014. In February 2016, Duke Energy announced it had initiated a process to divest the International Energy business segment, excluding the investment in NMC. Accordingly, Duke Energy no longer intends to indefinitely reinvest the undistributed earnings of International Energy. The Company recorded U.S. income taxes of approximately $12 million in the first quarter of 2016 related to such earnings and will prospectively provide U.S. income taxes on future foreign earnings. This change in the Company's intent, combined with the extension of bonus depreciation by Congress in late 2015, allows Duke Energy to more efficiently utilize foreign tax credits and reduce U.S. deferred tax liabilities associated with historic unremitted foreign earnings by approximately $95 million. 82 PART I DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC Combined Notes to Condensed Consolidated Financial Statements – (Continued) (Unaudited) EFFECTIVE TAX RATES The effective tax rates from continuing operations for each of the Duke Energy Registrants are included in the following table. Three Months Ended March 31, 2016 2015 Duke Energy 23.4% 31.9% Duke Energy Carolinas 34.1% 35.8% Progress Energy 36.7% 35.4% Duke Energy Progress 35.4% 33.8% Duke Energy Florida 37.9% 38.6% Duke Energy Ohio 26.9% 36.7% Duke Energy Indiana 30.2% 36.6% The decrease in the effective tax rate for Duke Energy for the three months ended March 31, 2016, is primarily due to lower income taxes on foreign earnings as a result of the Company's intent to no longer indefinitely reinvest the foreign earnings of the International Energy segment combined with more efficient utilization of foreign tax credits. Refer to "Taxes on Foreign Earnings" above for additional information. The decrease in the effective tax rate for Duke Energy Carolinas for the three months ended March 31, 2016, is primarily due to a favorable state resolution related to prior-year tax returns. The increase in the effective tax rate for Progress Energy for the three months ended March 31, 2016, is primarily due to an unfavorable tax levelization in 2016 compared to a favorable tax levelization in 2015. The increase in the effective tax rate for Duke Energy Progress for the three months ended March 31, 2016, is primarily due to an unfavorable tax levelization in 2016 compared to a favorable tax levelization in 2015. The decrease in the effective tax rate for Duke Energy Ohio for the three months ended March 31, 2016, is primarily due to a favorable prior-period adjustment for depreciation and other property, plant and equipment. The decrease in the effective tax rate for Duke Energy Indiana for the three months ended March 31, 2016, is primarily due to a favorable prior-period adjustment for depreciation and other property, plant and equipment. 17. SUBSEQUENT EVENTS For information on subsequent events related to regulatory matters, commitments and contingencies, and debt and credit facilities see Notes 4, 5 and 6, respectively. 83 PART I ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) and Duke Energy Carolinas, LLC (Duke Energy Carolinas), Progress Energy, Inc. (Progress Energy), Duke Energy Progress, LLC (Duke Energy Progress), Duke Energy Florida, LLC (Duke Energy Florida), Duke Energy Ohio, Inc. (Duke Energy Ohio) and Duke Energy Indiana, LLC (Duke Energy Indiana) (collectively referred to as the Subsidiary Registrants). However, none of the registrants make any representation as to information related solely to Duke Energy or the Subsidiary Registrants of Duke Energy other than itself. DUKE ENERGY Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the United States (U.S.) primarily through its wholly owned subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana, as well as in Latin America. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. Management’s Discussion and Analysis includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings, adjusted diluted earnings per share (EPS) and adjusted segment income, discussed below. Generally, a nonGAAP 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 presented herein may not be comparable to similarly titled measures used by other companies. Management’s Discussion and Analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2016, and with Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015. Acquisition of Piedmont Natural Gas On October 24, 2015, Duke Energy entered into an Agreement and Plan of Merger (Merger Agreement) with Piedmont Natural Gas Company, Inc., (Piedmont) a North Carolina corporation. Under the terms of the Merger Agreement, Duke Energy will acquire Piedmont for approximately $4.9 billion in cash. Upon closing, Piedmont will become a wholly owned subsidiary of Duke Energy. In addition, Duke Energy will assume Piedmont's existing debt, which was approximately $2.0 billion at January 31, 2016, the end of Piedmont's most recent quarter. Duke Energy expects to finance the transaction with a combination of debt, equity issuances and other cash sources. As of March 31, 2016, Duke Energy entered into $1.4 billion of forward-starting interest rate swaps to manage interest rate exposure for the expected financing of the Piedmont acquisition. For additional information on the forward-starting swaps, see Note 9 to the Condensed Consolidated Financial Statements, "Derivatives and Hedging." In March, 2016, Duke Energy marketed an equity offering of 10.6 million shares of Duke Energy common stock. In lieu of issuing equity at the time of the offering, Duke Energy entered into equity forward sale agreements (the Equity Forwards) with Barclays Capital, Inc. (Barclays). Duke Energy expects to settle the Equity Forwards on or around the closing date of the Piedmont acquisition. The net proceeds received upon settlement are expected to be used to finance a portion of the acquisition of Piedmont. For additional information regarding the Equity Forwards, see Note 13 to the Condensed Consolidated Financial Statements, "Common Stock." In connection with the Merger Agreement with Piedmont, Duke Energy entered into a $4.9 billion senior unsecured bridge financing facility (Bridge Facility) with Barclays. The Bridge Facility, if drawn upon, may be used to (i) fund the cash consideration for the transaction and (ii) pay certain fees and expenses in connection with the transaction. In November 2015, Barclays syndicated its commitment under the Bridge Facility to a broader group of lenders. Duke Energy does not expect to draw upon the Bridge Facility. The amount of the Bridge Facility is reduced by any financings related to the Piedmont acquisition entered into by Duke Energy, and has accordingly been reduced to $4.2 billion as a result of the Equity Forwards previously discussed. Piedmont's shareholders have approved the company's acquisition by Duke Energy and the Federal Trade Commission (FTC) has granted early termination of the 30-day waiting period under the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976. On January 15, 2016, Duke Energy and Piedmont filed an application with the North Carolina Utilities Commission (NCUC) for approval of the proposed business combination and associated financing transactions. On January 29, 2016, the NCUC approved Duke Energy's proposed financing transactions. The NCUC issued its Scheduling Order on March 2, 2016, setting a public and evidentiary hearing to begin on July 18, 2016. On March 7, 2016, the Kentucky Public Service Commission (KPSC) granted Duke Energy's declaratory request that the transaction does not constitute a change in control and does not require KPSC approval. The Tennessee Regulatory Authority approved Duke Energy's and Piedmont's request of the change in control resulting from the transaction at its March 14, 2016, meeting. Subject to receipt of required regulatory approvals and meeting closing conditions, Duke Energy and Piedmont expect to close the transaction by the end of 2016. The Merger Agreement contains certain termination rights for both Duke Energy and Piedmont, and provides that, upon termination of the Merger Agreement under specified circumstances, Duke Energy would be required to pay a termination fee of $250 million to Piedmont and Piedmont would be required to pay Duke Energy a termination fee of $125 million. See Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information regarding Duke Energy and Piedmont's joint investment in Atlantic Coast Pipeline, LLC (ACP). 84 PART I Change In Segment Income During the first quarter of 2016, the Duke Energy chief operating decision-maker began to evaluate interim period segment performance based on financial information that includes the impact of income tax levelization within segment income. This represents a change from the previous measure, where the interim period impacts of income tax levelization were included within Other, and therefore excluded from segment income. As a result, prior period segment results presented have been recast to conform to this change. Potential Sale of International Energy In February 2016, Duke Energy announced it had initiated a process to divest the International Energy business segment, excluding the equity method investment in National Methanol Company (NMC). Duke Energy is in the preliminary stage and there have been no binding or non-binding offers submitted. Duke Energy can provide no assurance that this process will result in a transaction and there is no specific timing for execution of a potential transaction. Proceeds from a successful exit would be used by Duke Energy to fund the operations and growth of domestic businesses. If the potential of a sale were to progress, it could result in classification of International Energy as assets held for sale and as a discontinued operation. As of March 31, 2016, the International Energy segment had a carrying value of approximately $2.6 billion, adjusted for $644 million of cumulative foreign currency translation losses currently classified as accumulated other comprehensive loss. Results of Operations In this section, Duke Energy provides analysis and discussion of earnings and factors affecting earnings on both a GAAP and non-GAAP basis. Management evaluates financial performance in part based on non-GAAP financial measures, adjusted earnings and adjusted diluted EPS. These items represent income from continuing operations net of income (loss) attributable to noncontrolling interests, adjusted for the dollar and per-share impact of special items. Special items represent certain charges and credits, which management believes will not be recurring on a regular basis. The special items for the period ended March 31, 2015, include the operating results of the nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, the Disposal Group) which are classified as discontinued operations for GAAP purposes. Management believes inclusion of the Disposal Group's operating results within adjusted earnings and adjusted diluted EPS results in a better reflection of Duke Energy's financial performance. Costs to achieve mergers includes financing costs related to the Bridge Facility and the mark-to-market unrealized losses related to the forward-starting interest rate swaps used by Duke Energy to manage interest rate exposure for the expected financing of the Piedmont acquisition. The mark-to-market impact of forward-starting interest rate swaps is recognized in GAAP earnings immediately as the contracts do not qualify for hedge accounting or regulatory treatment. Management believes excluding the impact of the mark-to-market losses of the forward-starting interest rate swaps from adjusted earnings better reflects Duke Energy's financial performance and therefore has excluded these impacts from adjusted earnings and adjusted diluted EPS. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them 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 results to the Duke Energy Board of Directors (Board of Directors), employees, stockholders, analysts and investors concerning Duke Energy’s financial performance. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation and Diluted EPS Attributable to Duke Energy Corporation common stockholders. Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. Management also uses adjusted segment income as a measure of historical and anticipated future segment performance. Adjusted segment income is a nonGAAP financial measure, as it is based upon segment income adjusted for special items, including the operating results of the Disposal Group classified as discontinued operations for GAAP purposes. Management believes the presentation of adjusted segment income provides useful information to investors as it provides an additional relevant comparison of a segment’s performance across periods. The most directly comparable GAAP measure for adjusted segment income is segment income, which represents segment income from continuing operations not adjusted for any special items. Duke Energy’s adjusted earnings, adjusted diluted EPS, and adjusted segment income may not be comparable to similarly titled measures of another company because other entities may not calculate the measures in the same manner. See Note 3 to the Condensed Consolidated Financial Statements, “Business Segments,” for a discussion of Duke Energy’s segment structure. 85 PART I Executive Overview (a) See below for Duke Energy's definition of adjusted earnings and adjusted diluted earnings per share as well as a reconciliation of this non-GAAP financial measure to net income attributable to Duke Energy and net income attributable to Duke Energy per diluted share. The following table reconciles non-GAAP measures to their most directly comparable GAAP measures. Three Months Ended March 31, 2016 Regulated Utilities (in millions, except per-share amounts) Adjusted segment income/Adjusted earnings $ International Energy 695 $ 123 Total Reportable Segments Commercial Portfolio $ 27 $ 845 Eliminations/ Discontinued Operations Other $ (68) $ — Per Diluted Share Duke Energy $ 777 $ 1.13 Costs to achieve mergers — — — — (74) — (74) (0.11) Cost savings initiatives — — — — (12) — (12) (0.02) Discontinued operations — — — — — 3 3 0.01 Segment income (loss)/Net Income Attributable to Duke Energy Corporation $ 695 $ 123 $ 27 $ 845 $ (154) $ 3 $ 694 $ 1.01 Three Months Ended March 31, 2015 Regulated Utilities (in millions, except per-share amounts) Adjusted segment income/Adjusted earnings $ 774 International Energy $ 36 Total Reportable Segments Commercial Portfolio $ 101 $ 911 Eliminations/ Discontinued Operations Other $ (30) $ — $ 881 Midwest generation operations — — (94) (94) — 94 — Costs to achieve Progress Energy merger — — — — (13) — (13) Discontinued operations — — — — — (4) (4) Segment income (loss)/Net Income Attributable to Duke Energy Corporation $ 774 $ 36 $ 7 $ 817 $ (43) $ 90 Per Diluted Share Duke Energy $ 864 $ 1.24 — (0.02) — $ The variance in adjusted earnings for three months ended March 31, 2016, compared to the same period in 2015, was primarily due to: • Lower results due to the absence of earnings from the nonregulated Midwest generation business, which was sold in April 2015; • Milder winter weather in 2016 compared to extremely cold weather in the prior year; • Increased depreciation and amortization expense primarily due to a higher amount of property, plant and equipment in service, including the additional ownership interest in generating assets acquired from North Carolina Eastern Municipal Power Agency (NCEMPA) in the third quarter of 2015; and • Increase in storm restoration costs due to more severe winter storms in the Carolinas. Partially offset by: 1.22 • Lower income tax expense at International Energy as a result of the Company's intent to no longer indefinitely reinvest the foreign earnings of the International Energy segment combined with more efficient utilization of foreign tax credits, net of additional tax expense recognized in 2016 on International Energy's unremitted earnings. See Note 16 to the Condensed Consolidated Financial Statements, "Income Taxes," for additional information; • Higher results in Latin America primarily due to favorable hydrology in Brazil partially offset by weaker foreign currency exchange rates; 86 PART I • Increased pricing and riders driven by additional ownership interest in generating assets acquired from NCEMPA in the third quarter of 2015 and energy efficiency programs; and • Reduction in shares outstanding primarily due to the prior-year accelerated stock repurchase (only impacts per diluted share amounts in the tables above). SEGMENT RESULTS The remaining information in this discussion of results of operations is presented on a GAAP basis. Regulated Utilities Three Months Ended March 31, (in millions) 2016 Operating Revenues $ Operating Expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense 5,259 2015 $ $ $ (464) 3,967 4,305 1 7 (6) 1,293 1,425 (132) (8) 64 72 277 275 1,080 1,222 385 Segment Income 5,723 Variance 695 (338) 2 (142) 448 $ 774 (63) $ (79) Duke Energy Carolinas Gigawatt-hours (GWh) sales 21,625 22,468 (843) Duke Energy Progress GWh sales 17,149 16,765 384 Duke Energy Florida GWh sales 8,456 8,473 (17) Duke Energy Ohio GWh sales 6,107 6,767 (660) Duke Energy Indiana GWh sales 9,394 8,728 666 Total Regulated Utilities GWh sales 62,731 63,201 (470) Net proportional Megawatt (MW) capacity in operation 50,111 49,739 372 Three Months Ended March 31, 2016 as Compared to March 31, 2015 Regulated Utilities’ results were impacted by more mild winter weather in the Carolinas and Midwest, increased depreciation and amortization, and higher property and other tax expense. These impacts were partially offset by increased retail pricing primarily due to lower sales volumes, and rate riders. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was driven primarily by: • a $413 million decrease in fuel revenues driven primarily by lower fuel prices included in electric retail rates and lower volumes; and • a $114 million decrease in electric retail sales (net of fuel revenue) due to milder winter weather in the Carolinas and Midwest compared to extremely cold weather in the prior year. Partially offset by: • a $59 million increase in retail electric pricing primarily due to lower sales volumes which resulted in higher average customer rates, and rate riders, including increased revenues related to Duke Energy Progress’ purchase of NCEMPA's ownership interest in certain generating assets in the third quarter of 2015 and energy efficiency programs, partially offset by decreased revenues in Duke Energy Florida’s nuclear cost recovery clause as a result of suspending Levy recovery in 2015. Operating Expenses. The variance was driven primarily by: • a $412 million decrease in fuel expense (including purchased power and natural gas purchases for resale) primarily due to lower natural gas and coal prices, lower volumes of coal and oil used in electric generation, and lower natural gas prices and volumes to full-service retail natural gas customers, partially offset by higher volumes of natural gas used in electric generation; and • a $49 million increase in storm restoration costs due to more severe winter storms in the Carolinas. Partially offset by: • a $31 million increase in property and other taxes primarily due to higher sales and use tax at Duke Energy Indiana, and higher property taxes across multiple jurisdictions; and 87 PART I • a $30 million increase in depreciation and amortization expense primarily due to a higher amount of property, plant and equipment in service, including the additional ownership interest in generating assets acquired from NCEMPA in the third quarter of 2015. Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rates for the three months ended March 31, 2016 and 2015 were 35.7 percent and 36.7 percent, respectively. The decrease in the effective tax rate was primarily due to a favorable state resolution related to prior year tax returns. Matters Impacting Future Regulated Utilities Results Regulated Utilities estimated retirement obligations related to closure of North Carolina ash impoundments based upon proposed risk rankings issued by North Carolina Department of Environmental Quality (NCDEQ), or if not assigned to a risk category, based on a probability weighting of potential closure methods. The proposed risk rankings included nine basins classified as “low-to-intermediate,” thereby not assigning a definitive risk ranking. NCDEQ is expected to establish the final risk ranking recommendation by the end of May 2016. If basins are classified as higher risk than originally proposed, or if basins previously categorized as “low-to-intermediate” are classified as “intermediate” or “high,” the resulting increase in asset retirement obligations could materially impact Regulated Utilities’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. Duke Energy is a party to multiple lawsuits and could be subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits and potential fines and penalties could have an adverse impact on Regulated Utilities’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Regulated Utilities' financial position, results of operations and cash flows. See Notes 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015, "Asset Retirement Obligations," for additional information. In September 2015, Duke Energy Indiana entered into a settlement agreement with multiple parties that will resolve all disputes, claims and issues from the Indiana Utility Regulatory Commission (IURC) proceedings regarding the Edwardsport Integrated Gasification Combined Cycle (IGCC) generating facility. In January 2016, additional parties joined a revised settlement. Pursuant to the terms of the agreement, Regulated Utilities recognized an impairment and related charges of $93 million. Additionally, the agreement stipulates the recovery of the remaining regulatory asset over an eight-year period and confirms the conclusion that the in-service date for accounting and ratemaking purposes will remain June 7, 2013. The settlement agreement will also impose a cost cap for recoverable operations and maintenance retail costs of $73 million in 2016 and $77 million in 2017 as well as a cost cap for ongoing capital expenditures through 2017. As part of the settlement, Duke Energy Indiana committed to cease burning coal at Gallagher Station Units 2 and 4 by the end of 2022. The settlement is subject to IURC approval and if approved would resolve and close a number of outstanding issues pending before the IURC related to post commercial operating performance and recovery of ongoing operating and capital costs at Edwardsport. If the settlement is not approved, outstanding issues before the IURC related to Edwardsport would resume, the ultimate resolution of which could have an adverse impact on Regulated Utilities' financial position, results of operations and cash flows. In addition, the inability to manage operating and capital costs under caps imposed under the settlement could have an adverse impact on Regulated Utilities' financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. 88 PART I International Energy Three Months Ended March 31, (in millions) 2016 Operating Revenues $ Operating Expenses 246 2015 $ 273 Variance $ (27) 154 207 (53) Operating Income 92 66 26 Other Income and Expense, net 16 14 2 Interest Expense 22 23 (1) Income Before Income Taxes 86 57 29 Income Tax (Benefit) Expense (39) 20 (59) Less: Income Attributable to Noncontrolling Interests 2 Segment Income $ 123 1 $ 36 Sales, GWh 5,880 4,470 Net proportional MW capacity in operation 4,315 4,335 1 $ 87 1,410 (20) Three Months Ended March 31, 2016 as Compared to March 31, 2015 International Energy’s results were impacted by lower income taxes as a result of the Company's intent to no longer indefinitely reinvest the foreign earnings of the International Energy segment combined with more efficient utilization of foreign tax credits and improved hydrology in Brazil, partially offset by weaker exchange rates in Latin America and lower equity earnings in NMC. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was driven primarily by: • a $20 million decrease in Brazil due to weaker foreign currency exchange rates partially offset by higher spot volumes; and • a $12 million decrease in Central America due to lower average prices. Operating Expenses. The variance was driven primarily by: • a $38 million decrease in Brazil due to lower purchased power costs and weaker foreign currency exchange rates; and • a $17 million decrease in Central America due to lower purchased power costs. Other Income and Expenses, net. The variance is primarily due to the absence of a prior-year net currency remeasurement loss in Latin America, partially offset by lower equity earnings in NMC as a result of lower average methyl tertiary butyl ether (MTBE) and methanol prices, and lower MTBE sales volumes driven by planned maintenance, partially offset by lower butane costs. Income Tax (Benefit) Expense. The variance is primarily due to a lower effective tax rate, which decreased due to lower income taxes as a result of the Company's intent to no longer indefinitely reinvest the foreign earnings of the International Energy segment combined with more efficient utilization of foreign tax credits. See Note 16 to the Condensed Consolidated Financial Statements, "Income Taxes," for additional information. The effective tax rates for the three months ended March 31, 2016 and 2015 were (45.4) percent and 35.6 percent, respectively. Matters Impacting Future International Energy Results International Energy's operations include conventional hydroelectric power generation facilities located in Brazil. The weather and recessionary economic conditions in Brazil during recent years has resulted in higher energy prices, lower electricity demand and unfavorable impacts to the exchange rate of Brazil's currency. These weather and economic conditions have also resulted in lawsuits brought to the Brazilian courts by certain hydroelectric generators to limit the financial exposure to the generators. International Energy's earnings and future cash flows could be adversely impacted if reservoir levels return to the recent low levels, further decline of economic and political conditions within Brazil, or from the outcome of legal matters in the Brazilian courts. International Energy's equity earnings from NMC reflect sales of methanol and MTBE, which generate margins that are directionally correlated with Brent crude oil prices and the recent decline in crude oil prices have reduced the equity earnings realized from NMC. Continued weakness in the market price of Brent crude oil and related commodities will likely result in a further decline in equity earnings from NMC. In February 2016, Duke Energy announced it had initiated a process to divest the International Energy business segment, excluding the equity method investment in NMC. Duke Energy is in the early stages and there have been no binding or non-binding offers submitted. Duke Energy can provide no assurance that this process will result in a transaction and there is no specific timeline for execution of a potential transaction. Proceeds from a successful exit would be used by Duke Energy to fund the operations and growth of domestic businesses. If the potential of a sale were to progress, it could result in classification of International Energy as assets held for sale and as a discontinued operation. As of March 31, 2016, the International Energy segment had a carrying value of approximately $2.6 billion, adjusted for $644 million of cumulative foreign currency translation losses currently classified as accumulated other comprehensive loss. 89 PART I Commercial Portfolio Three Months Ended March 31, (in millions) 2016 Operating Revenues $ 2015 114 Operating Expenses $ 73 Variance $ 41 111 89 Gains on Sales of Other Assets and Other, net 1 — 1 Operating Income (Loss) 4 (16) 20 — Other Income and Expense, net 22 2 2 Interest Expense 12 12 — Loss Before Income Taxes (6) (26) 20 (33) (33) — Income Tax Benefit Segment Income $ 27 $ 7 $ 20 Renewable plant production, GWh 2,060 1,310 750 Net proportional MW capacity in operation 1,963 1,415 548 Three Months Ended March 31, 2016 as Compared to March 31, 2015 Commercial Portfolio’s higher revenues and earnings are primarily due to new wind and solar generation placed in service or acquired and improved wind production. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was driven primarily by: • a $30 million increase in electric revenues due to acquired businesses; and • a $22 million increase in electric revenues from new wind and solar generation placed in service and improved wind production. Operating Expenses. The variance was driven primarily by a $31 million increase in operating expenses due to acquired businesses. Income Tax Benefit. The decrease in pretax losses was primarily offset by an increase in production tax credits in the renewables portfolio, partially offset by a higher effective tax rate. The effective tax rates for the three months ended March 31, 2016 and 2015 were 550 percent and 126.9 percent, respectively. The increase in the effective tax rate was primarily due to the increase in renewable energy credits relative to pretax losses. Other Three Months Ended March 31, (in millions) 2016 Operating Revenues $ Operating Expenses 29 2015 $ 92 Gains on Sales of Other Assets and Other, net Operating Loss Other Income and Expense, net 27 Variance $ 50 2 42 7 7 — (56) (16) (40) 10 1 9 205 97 108 Loss Before Income Taxes (251) (112) (139) Income Tax Benefit (100) (71) (29) 2 1 Interest Expense Less: Income Attributable to Noncontrolling Interests 3 Net Expense $ (154) $ (43) $ (111) Three Months Ended March 31, 2016 as Compared to March 31, 2015 Other's higher net expense was due to increased interest expense as a result of unrealized losses on forward-starting swaps related to the expected financing of the Piedmont Natural Gas acquisition and higher severance accruals. The following is a detailed discussion of the variance drivers by line item. Operating Expenses. The increase was primarily due to an increase in severance accruals and a contribution to the Duke Energy Foundation. Other Income and Expenses, net. The variance was primarily due to interest income from the resolution of an income tax matter. Interest Expense. The increase was primarily due to unrealized losses on forward-starting interest rate swaps related to the expected financing of the Piedmont acquisition. For additional information see Notes 2 and 9 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions" and "Derivatives and Hedging," respectively. 90 PART I Income Tax Benefit. The variance was primarily due to an increase in pretax losses partially offset by a decrease in the effective tax rate. The effective tax rates for the three months ended March 31, 2016 and 2015 were 39.8 percent and 63.4 percent, respectively. The decrease in the effective tax rate was primarily due to a reduction in tax levelization. Matters Impacting Future Other Results Duke Energy Ohio’s retired Beckjord generating station (Beckjord), previously an asset of Commercial Portfolio, became an asset of Other after the sale of the Disposal Group. Beckjord, a nonregulated facility retired during 2014, is not subject to the recently enacted U.S. Environmental Protection Agency (EPA) rule related to the disposal of Coal Combustion Residuals (CCR) from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with on-site storage of coal ash, the costs could have an adverse impact on Other's financial position, results of operations and cash flows. INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX Three Months Ended March 31, 2016 as Compared to March 31, 2015 Discontinued Operations, Net of Tax. The variance was primarily driven by the Disposal Group's operating results in 2015. DUKE ENERGY CAROLINAS Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015. Results of Operations Three Months Ended March 31, (in millions) 2016 Operating Revenues $ Operating Expenses 1,740 2015 $ 1,901 Variance $ (161) 1,259 1,386 (127) 481 515 (34) 37 42 (5) Interest Expense 107 102 5 Income Before Income Taxes 411 455 (44) Operating Income Other Income and Expenses, net Income Tax Expense 140 Net Income $ 271 163 $ 292 (23) $ (21) The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized. (Decrease) increase over prior year 2016 Residential sales (10.6)% General service sales (2.8)% Industrial sales 0.1 % Wholesale power sales (1.1)% Joint dispatch sales (38.5)% Total sales (3.8)% Average number of customers 1.4 % Three Months Ended March 31, 2016 as Compared to March 31, 2015 Operating Revenues. The variance was driven primarily by: • a $169 million decrease in fuel revenues driven primarily by lower natural gas and coal prices, as well as change in fuel mix; and • a $44 million decrease in electric sales (net of fuel revenues) to retail customers due to milder winter weather conditions compared to the extremely cold weather in the prior year. Partially offset by: • a $35 million increase in retail pricing and rate riders, which primarily reflects increased revenues related to the energy efficiency programs and the second year base rate step-up from the 2013 South Carolina rate case. Operating Expenses. The variance was driven primarily by: • a $157 million decrease in fuel used in electric generation and purchased power primarily related to lower natural gas and coal prices, and decreased generation due to lower sales volumes. Partially offset by: • a $23 million increase in operating and maintenance expenses primarily due to higher storm restoration costs; and 91 PART I • a $10 million increase in depreciation and amortization expenses primarily due to a higher amount of property, plant and equipment in service Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rates for the three months ended March 31, 2016 and 2015 were 34.1 percent and 35.8 percent, respectively. The decrease in the effective tax rate was primarily due to a favorable state resolution related to prior-year tax returns. Matters Impacting Future Results Duke Energy Carolinas estimated retirement obligations related to closure of North Carolina ash impoundments based upon proposed risk rankings issued by NCDEQ, or if not assigned to a risk category, based on a probability weighting of potential closure methods. The proposed risk ranking included eight ash basins at five Duke Energy Carolinas plants classified as “low-to-intermediate,” thereby not assigning a definitive risk ranking. NCDEQ is expected to establish the final risk ranking recommendation by the end of May 2016. If basins are classified as higher risk than originally proposed, or if basins previously categorized as “low-to-intermediate” are classified as “intermediate” or “high,” the resulting increase in asset retirement obligations could materially impact Duke Energy Carolinas’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. Duke Energy Carolinas is a party to multiple lawsuits and subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact on Duke Energy Carolinas’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Duke Energy Carolinas' financial position, results of operations and cash flows. See Notes 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015, "Asset Retirement Obligations," for additional information. 92 PART I PROGRESS ENERGY Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015. Results of Operations Three Months Ended March 31, (in millions) 2016 Operating Revenues $ Operating Expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net 2,332 2015 $ 2,536 Variance $ (204) 1,863 1,995 6 8 (132) (2) 475 549 (74) (7) 20 27 Interest Expense 160 168 (8) Income From Continuing Operations Before Taxes 335 408 (73) Income Tax Expense From Continuing Operations 123 144 (21) Income From Continuing Operations 212 264 (52) Loss From Discontinued Operations, net of tax — Net Income Less: Net Income Attributable to Noncontrolling Interest Net Income Attributable to Parent $ (1) 212 263 3 3 209 $ 260 1 (51) — $ (51) Three Months Ended March 31, 2016 as Compared to March 31, 2015 Operating Revenues. The variance was driven primarily by: • a $174 million decrease in fuel revenues primarily due to decreased fuel prices to retail customers at Duke Energy Florida and decreased demand from wholesale and retail customers at Duke Energy Progress; and • a $39 million decrease in retail sales (net of fuel revenue) to retail customers due to milder winter weather conditions compared to the extremely cold weather in the prior year at Duke Energy Progress. Partially offset by: • an $11 million increase in rate rider revenues due to the purchase of NCEMPA's ownership interest in certain generating assets and energy efficiency programs at Duke Energy Progress, offset by a decrease in nuclear cost recovery clause revenues as a result of suspending Levy recovery in 2015, partially offset by an increase in energy conservation cost recovery clause and environmental cost recovery clause revenues due to higher recovery rates at Duke Energy Florida. Operating Expenses. The variance was driven primarily by: • a $172 million decrease in fuel used in electric generation and purchased power primarily due to lower fuel prices and lower volumes at Duke Energy Florida and decreased sales volumes and a change in generation mix at Duke Energy Progress. Partially offset by: • a $27 million increase in operations and maintenance expenses primarily due to higher storm restoration costs in the current year at Duke Energy Progress and an increase in costs recoverable through the energy conservation cost recovery clause and employee benefits at Duke Energy Florida; and • an $8 million increase in property and other taxes due to a 2015 North Carolina Franchise Tax refund and increase in current year property taxes in North Carolina and South Carolina at Duke Energy Progress. Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rates for the three months ended March 31, 2016 and 2015 were 36.7 percent and 35.4 percent, respectively. The increase in the effective tax rate was primarily due to an unfavorable tax levelization in 2016 compared to a favorable tax levelization in 2015. Matters Impacting Future Results Progress Energy estimated retirement obligations related to closure of North Carolina ash impoundments based upon proposed risk rankings issued by NCDEQ, or if not assigned to a risk category, based on a probability weighting of potential closure methods. The proposed risk rankings included a Progress Energy ash pond classified as “lowto-intermediate,” thereby not assigning a definitive risk ranking. NCDEQ is expected to establish the final risk ranking recommendation by the end of May 2016. If basins are classified as higher risk than originally proposed, or if the ash pond previously categorized as “low-to-intermediate” is classified as “intermediate” or “high,” the resulting increase in asset retirement obligations could materially impact Progress Energy's financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. 93 PART I Progress Energy is a party to multiple lawsuits and subject to fines and other penalties related to operations at certain North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact on Progress Energy’s financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Progress Energy’s financial position, results of operations and cash flows. See Notes 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015, "Asset Retirement Obligations," for additional information. 94 PART I DUKE ENERGY PROGRESS Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015. Results of Operations Three Months Ended March 31, (in millions) 2016 Operating Revenues $ Operating Expenses 1,307 2015 $ 1,449 Variance $ (142) 1,050 1,134 1 1 258 316 (58) Other Income and Expenses, net 17 20 (3) Interest Expense 63 60 3 212 276 (64) Gains on Sales of Other Assets and Other, net Operating Income Income Before Income Taxes Income Tax Expense 75 Net Income and Comprehensive Income $ 137 (84) — 93 $ 183 (18) $ (46) The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized. (Decrease) Increase over prior period 2016 Residential sales (13.3)% General service sales (2.4)% Industrial sales 0.1 % Wholesale power sales 17.4 % Joint dispatch sales 19.5 % Total sales 2.3 % Average number of customers 1.3 % Three Months Ended March 31, 2016 as Compared to March 31, 2015 Operating Revenues. The variance was driven primarily by: • a $123 million decrease in fuel revenues driven by decreased demand from wholesale and retail customers; and • a $39 million decrease in retail sales (net of fuel revenue) to retail customers due to milder winter weather conditions compared to the extremely cold weather in the prior year. Partially offset by: • a $33 million increase in rate rider revenues due to the purchase of NCEMPA's ownership interest in certain generating assets and energy efficiency programs. Operating Expenses. The variance was driven primarily by: • a $127 million decrease in fuel used in electric generation and purchased power primarily due to decreased sales volumes and a change in generation mix. Partially offset by: • a $23 million increase in depreciation and amortization expenses primarily due to a higher amount of property, plant and equipment in service, including the additional ownership interest in generating assets acquired from NCEMPA in the third quarter of 2015; • an $11 million increase in operations and maintenance expenses mostly due to higher storm restoration costs in the current year; and • a $9 million increase in property and other taxes due to a 2015 North Carolina Franchise Tax refund and increases in current year property taxes in North Carolina and South Carolina. Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rates for the three months ended March 31, 2016 and 2015 were 35.4 percent and 33.8 percent, respectively. The increase in the effective tax rate was primarily due to an unfavorable tax levelization in 2016 compared to a favorable tax levelization in 2015. Matters Impacting Future Results Duke Energy Progress estimated retirement obligations related to closure of North Carolina ash impoundments based upon proposed risk rankings issued by NCDEQ, or if not assigned to a risk category, based on a probability weighting of potential closure methods. The proposed risk rankings included a Duke Energy Progress ash pond classified as “low-to-intermediate,” thereby not assigning a definitive risk ranking. 95 PART I NCDEQ is expected to establish the final risk ranking recommendation by the end of May 2016. If basins are classified as higher risk than originally proposed, or if the ash pond previously categorized as “low-to-intermediate” is classified as “intermediate” or “high,” the resulting increase in asset retirement obligations could materially impact Duke Energy Progress' financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. Duke Energy Progress is a party to multiple lawsuits and subject to fines and other penalties related to operations at certain North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact on Duke Energy Progress’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Duke Energy Progress’ financial position, results of operations and cash flows. See Notes 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015, "Asset Retirement Obligations," for additional information. 96 PART I DUKE ENERGY FLORIDA Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015. Results of Operations Three Months Ended March 31, (in millions) 2016 Operating Revenues $ 1,024 2015 $ 1,086 Variance $ (62) Operating Expenses 811 859 (48) Operating Income 213 227 (14) 5 6 (1) 41 49 (8) 177 184 (7) 67 71 Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense Net Income $ 110 $ 113 (4) $ (3) The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized. Increase (decrease) over prior period 2016 Residential sales 1.7 % General service sales 0.2 % Industrial sales (1.1)% Wholesale and other 16.1 % Total sales (0.2)% Average number of customers 1.6 % Three Months Ended March 31, 2016 as Compared to March 31, 2015 Operating Revenues. The variance was driven primarily by: • a $51 million decrease in fuel and capacity revenues primarily due to decreased fuel prices to retail customers, partially offset by increased capacity rates to retail customers; and • a $22 million decrease in rider revenues primarily due to a decrease in nuclear cost recovery clause revenues as a result of suspending Levy recovery in 2015, partially offset by an increase in energy conservation cost recovery clause and environmental cost recovery clause revenues due to higher recovery rates. Partially offset by: • an $11 million increase in other revenue primarily due to a transmission customer settlement charge taken in the prior year. Operating Expenses. The variance was driven primarily by: • a $45 million decrease in fuel used in electric generation and purchased power primarily due to lower fuel prices and lower volumes; and • a $20 million decrease in depreciation and amortization expenses primarily due to a decrease in amortization related to the nuclear cost recovery clause, partially offset by increased depreciation due to higher amount of property, plant and equipment in service. Partially offset by: • a $17 million increase in operations and maintenance expenses primarily due to an increase in costs that were recoverable through the energy conservation cost recovery clause and an increase in employee benefits. Income Tax Expense. The effective tax rates for the three months ended March 31, 2016 and 2015 were 37.9 percent and 38.6 percent, respectively. 97 PART I DUKE ENERGY OHIO Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015. Results of Operations Three Months Ended March 31, (in millions) 2016 Operating Revenues $ Operating Expenses Gains on Sales of Other Assets and Other, net Operating Income Other Income and Expenses, net 516 2015 $ 586 Variance $ (70) 421 481 1 6 (60) (5) 96 111 (15) 2 3 (1) Interest Expense 20 20 — Income from Continuing Operations Before Income Taxes 78 94 (16) Income Tax Expense from Continuing Operations 21 35 (14) Income from Continuing Operations 57 59 (2) 2 90 (88) Income from Discontinued Operations, net of tax Net Income $ 59 $ 149 $ (90) The following table shows the percent changes in Regulated Utilities' GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized. (Decrease) increase over prior year 2016 Residential sales (13.5)% General service sales (2.8)% Industrial sales (0.3)% Wholesale power sales (70.8)% Total sales (9.8)% Average number of customers 0.7 % Three Months Ended March 31, 2016 as Compared to March 31, 2015 Operating Revenues. The variance was driven primarily by: • a $44 million decrease in fuel revenues primarily driven by lower electric fuel and natural gas prices and decreased sales volume; and • a $14 million decrease driven by milder winter weather conditions compared to the extremely cold weather in the prior year. Operating Expenses. The variance was driven primarily by a $48 million decrease in cost of natural gas primarily due to decreased sales volumes and lower natural gas prices. Income Tax Expense. The variance was primarily due to a decrease in pretax income and a favorable prior-period adjustment for depreciation and other property, plant and equipment, which lowered the effective tax rate to 26.9 percent for the three months ended March 31, 2016, from 36.7 percent for the three months ended March 31, 2015. Discontinued Operations, Net of Tax. The variance was primarily driven by the Disposal Group's operating results in 2015. Matters Impacting Future Results An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact on Duke Energy Ohio's financial position, results of operations and cash flows. See Notes 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015, "Asset Retirement Obligations," for additional information. Beckjord, a facility retired during 2014, is not subject to the recently enacted EPA rule related to the disposal of CCR from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with on-site storage of coal ash at the facility, the costs could have an adverse impact on Duke Energy Ohio's financial position, results of operations and cash flows. 98 PART I DUKE ENERGY INDIANA Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015. Results of Operations Three Months Ended March 31, (in millions) 2016 Operating Revenues $ 714 2015 $ 788 Variance $ (74) Operating Expenses 538 578 (40) Operating Income 176 210 (34) 4 5 (1) 44 45 (1) 136 170 (34) Other Income and Expenses, net Interest Expense Income Before Income Taxes Income Tax Expense 41 Net Income $ 95 62 $ 108 (21) $ (13) The following table shows the percent changes in GWh sales and average number of customers. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized. (Decrease) increase over prior year 2016 Residential sales (13.7)% General service sales (4.2)% Industrial sales 0.6 % Wholesale power sales 97.7 % Total sales 7.6 % Average number of customers 0.7 % Three Months Ended March 31, 2016 as Compared to March 31, 2015 Operating Revenues. The variance was driven primarily by: • a $56 million decrease in fuel revenues (including emission allowances) primarily due to a decrease in fuel prices and lower sales volumes; and • a $17 million decrease in electric sales (net of fuel revenue) to retail customers due to milder weather conditions compared to the extremely cold weather in the prior year. Operating Expenses. The variance was driven primarily by: • a $66 million decrease in fuel used in electric generation and purchased power primarily due to lower sales volumes and lower fuel prices; and • a $19 million decrease in operations and maintenance expenses due to a decrease in outage work at generation plants. Partially offset by: • a $24 million increase in property and other taxes, primarily driven by higher sales and use tax due to the partial reversal in 2015 of a tax reserve upon settlement of the matter; and • a $21 million increase in depreciation and amortization expenses primarily due to a higher amount of property, plant and equipment in service and increased amortization of asset retirement costs related to wholesale customers. Income Tax Expense. The variance was primarily due to a decrease in pretax income and a favorable prior-period adjustment for depreciation and other property, plant and equipment, which lowered the effective tax rate to 30.2 percent for the three months ended March 31, 2016, from 36.6 percent for the three months ended March 31, 2015. Matters Impacting Future Results On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. Duke Energy Indiana has interpreted the rule to identify the coal ash basin sites impacted and has assessed the amounts of coal ash subject to the rule and a method of compliance. Duke Energy Indiana's interpretation of the requirements of the CCR rule is subject to potential legal challenges and further regulatory approvals, which could result in additional ash basin closure requirements, higher costs of compliance and greater asset retirement obligations. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact on Duke Energy Indiana's financial position, results of operations and cash flows. 99 PART I In September 2015, Duke Energy Indiana entered into a settlement agreement with multiple parties that will resolve all disputes, claims and issues from the IURC proceedings regarding the Edwardsport IGCC generating facility. In January 2016, additional parties joined a revised settlement. Pursuant to the terms of the agreement, Duke Energy Indiana recognized an impairment and related charges of $93 million. Additionally, the settlement agreement stipulates the recovery of the remaining regulatory asset over an eight-year period and confirms the conclusion that the in-service date for accounting and ratemaking purposes will remain June 7, 2013. The settlement agreement will also impose a cost cap for recoverable operations and maintenance retail costs of $73 million in 2016 and $77 million in 2017 as well as a cost cap for ongoing capital expenditures through 2017. As part of the settlement, Duke Energy Indiana committed to cease burning coal at Gallagher Station Unit 2 and 4 by the end of 2022. The settlement is subject to IURC approval and, if approved, would resolve and close a number of outstanding issues pending before the IURC related to post commercial operating performance and recovery of ongoing operating and capital costs at Edwardsport. If the settlement is not approved, outstanding issues before the IURC related to Edwardsport would resume, the ultimate resolution of which could have an adverse impact on Duke Energy Indiana's financial position, results of operations and cash flows. In addition, the inability to manage operating and capital costs under caps imposed under the settlement could have an adverse impact on Duke Energy Indiana's financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information. In March 2016, Duke Energy Indiana entered into a settlement agreement related to a grid infrastructure improvement plan filed with the IURC. As part of the settlement, Duke Energy Indiana agreed to defer depreciation and other post-in-service carrying costs related to a planned automated metering infrastructure (AMI) project until the next retail base rate case. Also as part of the settlement, Duke Energy Indiana agreed to withdraw its request for the creation of a regulatory asset for the remaining book value of the existing meters that would be replaced as part of the AMI project. If the settlement is approved by the IURC and Duke Energy Indiana proceeds with the AMI project, an impairment charge could be incurred for some or all of the remaining book value of the existing meters. 100 PART I LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash Duke Energy relies primarily upon cash flows from operations, debt issuances and its existing cash and cash equivalents to fund its domestic liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders. See Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015, for a summary of primary sources and uses of cash for 2016 to 2018 and a more detailed discussion of each. On October 24, 2015, Duke Energy entered into a Merger Agreement with Piedmont, a North Carolina corporation. Under the terms of the Merger Agreement, Duke Energy will acquire Piedmont for $4.9 billion in cash. In addition, Duke Energy will assume Piedmont's existing debt, which was approximately $2.0 billion at January 31, 2016, the end of Piedmont's most recent fiscal quarter. Duke Energy expects to finance the transaction with a combination of debt, equity issuances and other cash sources. For additional information on the Piedmont acquisition, refer to Note 2 to the Condensed Consolidated Financial Statements, “Acquisitions and Dispositions." In March, 2016, Duke Energy marketed an equity offering of 10.6 million shares of Duke Energy common stock. In lieu of issuing equity at the time of the offering, Duke Energy entered into the Equity Forwards with Barclays. Duke Energy expects to settle the Equity Forwards on or around the closing date of the Piedmont acquisition. The net proceeds received upon settlement are expected to be used to finance a portion of the acquisition of Piedmont. For additional information regarding the Equity Forwards, see Note 13 to the Condensed Consolidated Financial Statements, "Common Stock." The Subsidiary Registrants generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Subsidiary Registrants, excluding Progress Energy (Parent), support their short-term borrowing needs through participation with Duke Energy and certain of its other subsidiaries in a money pool arrangement. The companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. Duke Energy and the Subsidiary Registrants, excluding Progress Energy (Parent), may also use short-term debt, including commercial paper and the money pool, as a bridge to long-term debt financings. The levels of borrowing may vary significantly over the course of the year due to the timing of long-term debt financings and the impact of fluctuations in cash flows from operations. From time to time, Duke Energy’s current liabilities may at times exceed current assets resulting from the use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate due to the seasonality of its business. CREDIT FACILITIES AND REGISTRATION STATEMENTS Master Credit Facility Summary Duke Energy has a Master Credit Facility with a capacity of $7.5 billion through January 2020. The Duke Energy Registrants, excluding Progress Energy (Parent), have borrowing capacity under the Master Credit Facility up to a specified sublimit for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. Duke Energy Carolinas and Duke Energy Progress are also required to each maintain $250 million of available capacity under the Master Credit Facility as security to meet obligations under plea agreements reached with the U.S. Department of Justice in 2015 related to violations at North Carolina facilities with ash basins. The table below includes the current borrowing sublimits and available capacity under the Master Credit Facility. March 31, 2016 Duke (in millions) Facility size(a) Energy $ 7,500 Duke Duke Duke Duke Duke Duke Energy Energy Energy Energy Energy Energy (Parent) $ 3,475 Carolinas $ 800 Progress $ 1,000 Florida $ 1,200 Ohio $ 425 Indiana $ 600 Reduction to backstop issuances Commercial paper (b) Outstanding letters of credit Tax-exempt bonds Coal ash set-aside Available capacity (a) (b) (2,980) (1,816) (300) (205) (480) (79) (72) (4) (2) (1) — — (116) — (35) — — — (81) (500) $ 3,825 — $ 1,587 (250) $ 211 (250) $ 543 (29) — $ 719 (150) — $ 396 — $ 369 Represents the sublimit of each borrower. Duke Energy issued $625 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana. The balances are classified as Long-Term Debt Payable to Affiliated Companies in the Condensed Consolidated Balance Sheets. Piedmont Bridge Facility In connection with the Merger Agreement with Piedmont, Duke Energy entered into a $4.9 billion senior unsecured Bridge Facility with Barclays. The Bridge Facility, if drawn upon, may be used (i) to fund the cash consideration for the transaction and (ii) to pay certain fees and expenses in connection with the transaction. In November 2015, Barclays syndicated its commitment under the Bridge Facility to a broader group of lenders. Duke Energy does not expect to draw upon the Bridge Facility. The amount of the Bridge Facility is reduced by any financings related to the Piedmont acquisition entered into by Duke Energy, and has accordingly been reduced to $4.2 billion as a result of the Equity Forwards described above. 101 PART I Short-Term Loan Facility On April 7, 2016, Duke Energy Corporation borrowed $500 million under a delayed-draw term loan facility (Term Loan) arranged on February 22, 2016. The Term Loan borrowing is due on or before August 19, 2016 and will bear interest at 30-day London Interbank Offered Rate (LIBOR) plus 75 basis points. The Term Loan is pre-payable at par and the terms are generally consistent with those governing the Master Credit Facility. Shelf Registration In September 2013, Duke Energy filed a Form S-3 with the Securities and Exchange Commission (SEC). Under this Form S-3, which is uncapped, the Duke Energy Registrants, excluding Progress Energy, may issue debt and other securities in the future at amounts, prices and with terms to be determined at the time of future offerings. The registration statement also allows for the issuance of common stock by Duke Energy. Duke Energy will file a new Form S-3 to be effective prior to the expiration of the current registration statement in September 2016. DEBT MATURITIES The following table shows the significant components of Current maturities of long-term debt on the Condensed Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings. (in millions) Maturity Date Interest Rate March 31, 2016 Unsecured Debt Duke Energy Indiana Duke Energy (Parent) June 2016 6.05% November 2016 2.15% $ 325 500 First Mortgage Bonds Duke Energy Indiana July 2016 0.937% 150 Duke Energy Carolinas December 2016 1.750% 350 Duke Energy Progress March 2017 0.836% 250 February 2017 3.600% 77 August 2027 1.266% Tax-exempt Bonds Duke Energy Carolinas Duke Energy Ohio(a) 50 Other 373 Current maturities of long-term debt (a) $ 2,075 Represents Duke Energy Kentucky's bonds with a mandatory put in December 2016. CASH FLOWS FROM OPERATING ACTIVITIES The relatively stable operating cash flows of Regulated Utilities compose a substantial portion of Duke Energy’s cash flows from operations. Regulated Utilities’ cash flows from operations are primarily driven by sales of electricity and natural gas and costs of operations. Weather conditions, commodity price fluctuations and unanticipated expenses, including unplanned plant outages, storms and legal costs and related settlements, can affect the timing and level of cash flows from operations. Cash flows from operations are subject to a number of other factors, including but not limited to regulatory constraints, economic trends and market volatility (see “Item 1A. Risk Factors,” in the Duke Energy Registrants’ Annual Report on Form 10-K for the year ended December 31, 2015, for additional information). At March 31, 2016, Duke Energy had cash and cash equivalents of $778 million, of which $504 million is held by entities domiciled in foreign jurisdictions. In December 2014, Duke Energy declared a taxable dividend of historical foreign earnings in the form of notes payable to repatriate approximately $2.7 billion of cash held and expected to be generated by International Energy over a period of up to eight years. As of March 31, 2016, approximately $1.6 billion has been remitted. Proceeds from the notes payable or from a successful sale of International Energy will principally be used to fund the operations and growth of its domestic businesses. As of December 31, 2015, the Company’s intention was to indefinitely reinvest foreign earnings of International Energy earned after December 31, 2014. In February 2016, Duke Energy announced it had initiated a process to divest the International Energy business segment, excluding the investment in NMC. Accordingly, Duke Energy no longer intends to indefinitely reinvest the undistributed earnings of International Energy. The Company recorded U.S. income taxes of approximately $12 million in the first quarter of 2016 related to such earnings and will prospectively provide U.S. income taxes on future foreign earnings. This change in the Company's intent, combined with the extension of bonus depreciation by Congress in late 2015, allows Duke Energy to more efficiently utilize foreign tax credits and reduce U.S. deferred tax liabilities associated with historic unremitted foreign earnings by approximately $95 million. 102 PART I Restrictive Debt Covenants The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. The Master Credit Facility contains a covenant requiring the debt-tototal capitalization ratio to not exceed 65 percent for each borrower. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of March 31, 2016, each of the Duke Energy Registrants were in compliance with all covenants related to their debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses. Credit Ratings Credit ratings are intended to provide credit lenders a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the rating agencies’ assessments of their ability to meet their debt principal and interest obligations when they come due. If, as a result of market conditions or other factors, the Duke Energy Registrants are unable to maintain current balance sheet strength, or if earnings and cash flow outlook materially deteriorate, credit ratings could be negatively impacted. The Duke Energy Registrants each hold credit ratings by Fitch Ratings, Inc. (Fitch), Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Rating Services (S&P). The Duke Energy Registrants' credit ratings and outlooks from Fitch, Moody's and S&P have not changed since February 2016. Cash Flow Information The following table summarizes Duke Energy’s cash flows. Three Months Ended March 31, (in millions) 2016 2015 Cash flows provided by (used in): Operating activities $ Investing activities 1,664 $ (1,758) Financing activities 1,440 (1,456) 15 Net (decrease) increase in cash and cash equivalents (79) Cash and cash equivalents at beginning of period 857 Cash and cash equivalents at end of period $ 778 801 785 2,036 $ 2,821 OPERATING CASH FLOWS The following table summarizes key components of Duke Energy’s operating cash flows. Three Months Ended March 31, (in millions) 2016 Net income $ Non-cash adjustments to net income 699 2015 $ 1,060 Contributions to qualified pension plans — Payments for asset retirement obligations Working capital Net cash provided by operating activities $ 867 1,241 (132) (112) (26) 17 (510) 1,664 $ 1,440 The variance was driven primarily due to: • a $527 million increase in working capital primarily due to lower current year receivables driven by more mild winter weather and timing of collections, liabilities on forwardstarting interest rate swaps related to expected financing of the Piedmont acquisition and timing of property tax payments and accruals; and • a $132 million increase due to prior year contributions to qualified pension plans. Partially offset by: • a $349 million decrease in net income after non-cash adjustments, primarily due to the 2015 earnings of the nonregulated Midwest generation business and more mild winter weather in 2016 compared to extremely cold weather in the prior year. 103 PART I INVESTING CASH FLOWS The following table summarizes key components of Duke Energy’s investing cash flows. Three Months Ended March 31, (in millions) 2016 Capital, investment and acquisition expenditures $ (1,704) Available for sale securities, net 2015 $ (1,454) 15 Proceeds from sales of other assets Other investing items Net cash used in investing activities $ 34 1 1 (70) (37) (1,758) $ (1,456) The variance was primarily due to: • a $250 million increase in capital, investment and acquisition expenditures primarily due to growth in regulated generation investments, natural gas infrastructure and renewable energy projects. FINANCING CASH FLOWS The following table summarizes key components of Duke Energy’s financing cash flows. Three Months Ended March 31, (in millions) 2016 Issuance of common stock related to employee benefit plans $ 7 Issuances of long-term debt, net 2015 $ 751 Notes payable and commercial paper (158) Dividends paid (570) Other financing items 94 1,271 (564) (15) Net cash provided by financing activities $ 15 15 (15) $ 801 The variance was due primarily to: • a $1,429 million decrease in proceeds from net issuances of notes payable and commercial paper, primarily due to prior year financing with short-term debt in anticipation of the 2015 receipt of proceeds from the sale of the nonregulated Midwest generation business. Partially offset by: • a $657 million increase in proceeds from net issuances of long-term debt, primarily due to the timing of issuances and redemptions across years. Summary of Significant Debt Issuances The following table summarizes significant debt issuances (in millions). Three Months Ended March 31, 2016 Duke Issuance Date Maturity Interest Duke Energy Date Rate Energy Carolinas First Mortgage Bonds March 2016(a) March 2023 2.500% March 2016(a) March 2046 3.875% Total issuances (a) $ 500 $ 500 $ 1,000 500 $ 1,000 500 Proceeds will be used to fund capital expenditures for ongoing construction, capital maintenance and for general corporate purposes. In April 2016, Duke Energy issued $350 million principal amount of senior unsecured notes with a fixed interest rate of 2.875% and maturity of April 2023. Proceeds will be used to pay down outstanding commercial paper and for general corporate purposes. 104 PART I OTHER MATTERS Environmental Regulations Duke Energy is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. The Subsidiary Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants. The following sections outline various proposed and recently enacted regulations that may impact the Duke Energy Registrants. Refer to Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants. Coal Combustion Residuals On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation, which became effective in October 2015, classifies CCR as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments that are no longer receiving CCR but contain liquid located at stations currently generating electricity (regardless of fuel source). The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. Various industry and environmental parties have appealed the EPA's CCR rule in the D.C. Circuit Court of Appeals. On April 18, 2016, the EPA filed a motion with the federal court to settle five issues raised in litigation. The Duke Energy Registrants cannot predict the court's response to the proposed settlement, but would not expect a material impact from the settlement if approved as proposed by the EPA. Duke Energy is reviewing the proposed settlement to determine if additional asset retirement obligation adjustments will be required. In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. As a result of the EPA rule, the Subsidiary Registrants recorded asset retirement obligation amounts during 2015. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions and via wholesale contracts, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. For more information, see Note 9, "Asset Retirement Obligations," in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015. Beckjord, a facility retired during 2014, is not subject to the recently enacted EPA rule related to the disposal of CCR from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with on-site storage of coal ash at the facility, the costs could have an adverse impact on Duke Energy Ohio's financial position, results of operations and cash flows. Costs incurred by Ohio Valley Electric Corporation (OVEC) related to environmental regulations could also have an adverse impact on Duke Energy Ohio's financial position, results of operations and cash flows. Coal Ash Management Act of 2014 On September 20, 2014, the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) became law and was amended on June 24, 2015, by the North Carolina Mountain Energy Act. The Coal Ash Act, as amended, established requirements regarding the use and closure of existing ash impoundments, the disposal of ash at active coal plants and the handling of surface and groundwater impacts from ash basins in North Carolina. The Coal Ash Act, as amended, deemed eight ash impoundments at four facilities to be high priority and requires closure no later than August 1, 2019, with a potential extension for closure of the Asheville impoundment until 2022. The Coal Ash Act requires state regulators to provide risk ranking classifications for the remaining 25 ash impoundments at 10 North Carolina facilities. The method and timing of closure of these ash impoundments will be determined by the specific risk classifications, with closure no later than December 31, 2029. Other than the high priority sites specifically delineated by the Coal Ash Act, the NCDEQ has issued preliminary draft risk rankings. These risk rankings were generally determined based on three primary criteria: structural integrity of impoundments and impact to both surface and groundwaters. NCDEQ categorized 12 basins at four sites as intermediate risk and four basins at three plants as low risk. NCDEQ also categorized nine basins at six plants as "low-to-intermediate" risk, thereby not assigning a definitive risk ranking at that time. The risk rankings of these sites will be based upon receipt of additional data primarily related to groundwater quality and the completion of specific modifications and repairs to the impoundments. NCDEQ is expected to finalize proposed classifications in May 2016 based on results of the public comment period which ended in April 2016. Duke Energy cannot predict the final classifications. Per the Coal Ash Act, final proposed classifications are subject to Coal Ash Management Commission (Coal Ash Commission) adjustments and approval, but may become law if the Commission fails to act within 60 days of receiving the final proposed classifications. In March 2016, the Coal Ash Commission originally created by the Coal Ash Act was disbanded by the Governor of North Carolina based on a North Carolina Supreme Court ruling regarding the constitutionality of the body. As a result, the finality of NCDEQ's classifications may be subject to challenge. Estimated asset retirement obligations have been recognized based on the assigned risk categories or, if not assigned, based on a probability weighting of potential closure methods. Actual closure costs incurred could be materially different from current estimates that form the basis of the recorded asset retirement obligations. 105 PART I Mercury and Air Toxics Standards The final Mercury and Air Toxics Standards (MATS) rule was issued on February 16, 2012. The rule established emission limits for hazardous air pollutants from new and existing coal-fired and oil-fired steam electric generating units. The rule required sources to comply with emission limits by April 16, 2015, or by April 16, 2016 with approved extension. Strategies to achieve compliance included installation of new air emission control equipment, development of monitoring processes, fuel switching and acceleration of retirement for some coal-fired electric-generation units. All of Duke Energy's coal-fired units are in compliance with the emission limits, work practices standards and other requirements of the MATS rule. For additional information, refer to Note 4 of the Condensed Consolidated Financial Statements, “Regulatory Matters,” regarding potential plant retirements. In April 2014, several petitions for review of the final rule were denied by the U.S. Court of Appeals for the District of Columbia (D.C. Circuit Court). On November 25, 2014, the U.S. Supreme Court (Supreme Court) granted a petition for review based on the issue of whether the EPA unreasonably refused to consider costs in determining whether it is appropriate and necessary to regulate hazardous air pollutants from coal-fired and oil-fired steam electric generating units. In June 2015, the Supreme Court reversed the D.C. Circuit Court's decision and remanded the case to the D.C. Circuit Court for further proceedings, finding that the EPA erred in refusing to consider costs when deciding whether it was appropriate and necessary to regulate emissions of hazardous air pollutants from steam electric generating units. In December 2015, the D.C. Circuit Court granted the EPA's request to keep the rule in effect while the agency completes the rulemaking in response to the Supreme Court's ruling. On April 15, 2016, the EPA finalized a supplemental finding that the regulation is appropriate based on available information and with consideration of cost. The finding results in no changes to the current MATS regulatory requirements. Clean Water Act 316(b) The EPA published the final 316(b) cooling water intake structure rule on August 15, 2014, with an effective date of October 14, 2014. The rule applies to 26 of the electric generating facilities the Duke Energy Registrants own and operate. The rule allows for several options to demonstrate compliance and provides flexibility to the state environmental permitting agencies to make determinations on controls, if any, that will be required for cooling water intake structures. Any required intake structure modifications and/or retrofits are expected to be installed in the 2019 to 2022 time frame. Petitions challenging the rule have been filed by several groups. It is unknown at this time when the courts will rule on the petitions. Steam Electric Effluent Limitations Guidelines On January 4, 2016, the final Steam Electric Effluent Limitations Guidelines (ELG) rule became effective. The rule establishes new requirements for wastewater streams associated with steam electric power generation and includes more stringent controls for any new coal plants that may be built in the future. Affected facilities must comply between 2018 and 2023, depending on timing of new Clean Water Act (CWA) permits. Most, if not all, of the steam electric generating facilities the Duke Energy Registrants own are likely affected sources. The Duke Energy Registrants are well positioned to meet the majority of the requirements of the rule due to current efforts to convert to dry ash handling. Petitions challenging the rule have been filed by several groups. On March 16, 2015, Duke Energy Indiana filed its own legal challenge to the rule with the Seventh Circuit Court of Appeals specific to the ELG for wastewater associated rule focused on the limits imposed on integrated gas combined-cycle facilities. All challenges to the rule have been consolidated in the Fifth Circuit Court of Appeals. It is unknown at this time when the courts will rule on the petitions. Estimated Cost and Impacts of Rulemakings Duke Energy will incur capital expenditures to comply with the environmental regulations and rules discussed above. The following table provides five-year estimated costs, excluding Allowance for Funds Used During Construction (AFUDC), of new control equipment that may need to be installed on existing power plants primarily to comply with the Coal Ash Act requirements for conversion to dry disposal of bottom ash and fly ash, MATS, CWA 316(b) and ELGs, through December 31, 2020. The table excludes ash basin closure costs recorded as Asset retirement obligations on the Condensed Consolidated Balance Sheets. For more information related to asset retirement obligations, see Note 9 in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015. (in millions) Estimated Cost Duke Energy $ 1,350 Duke Energy Carolinas 625 Progress Energy 350 Duke Energy Progress 300 Duke Energy Florida 50 Duke Energy Ohio 100 Duke Energy Indiana 275 The Duke Energy Registrants also expect to incur increased fuel, purchased power, operation and maintenance and other expenses, in addition to costs for replacement generation for potential coal-fired power plant retirements, as a result of these regulations. Actual compliance costs incurred may be materially different from these estimates due to reasons such as the timing and requirements of EPA regulations and the resolution of legal challenges to the rules. The Duke Energy Registrants intend to seek rate recovery of necessary and prudently incurred costs associated with regulated operations to comply with these regulations. Cross-State Air Pollution Rule On August 8, 2011, the final Cross-State Air Pollution Rule (CSAPR) was published in the Federal Register. The CSAPR established state-level annual sulfur dioxide (SO 2) budgets and annual and seasonal nitrogen oxide (NO x ) budgets that were to take effect on January 1, 2012. 106 PART I On August 21, 2012, the D.C. Circuit Court vacated the CSAPR. The court also directed the EPA to continue administering the Clean Air Interstate Rule (CAIR), which required additional reductions in SO 2 and NO X emissions beginning in 2015. On April 29, 2014, the Supreme Court reversed the D.C. Circuit Court’s decision, finding that with CSAPR the EPA reasonably interpreted the good neighbor provision of the CAA. The case was remanded to the D.C. Circuit Court for further proceedings consistent with the Supreme Court’s opinion. On October 23, 2014, the D.C. Circuit Court lifted the CSAPR stay, which allowed Phase 1 of the rule to take effect on January 1, 2015, terminating the CAIR. Where the CSAPR requirements are constraining, actions to meet the requirements could include purchasing emission allowances, power purchases, curtailing generation and utilizing low sulfur fuel. The CSAPR did not result in Duke Energy Registrants adding new emission controls. Additional legal challenges to the CSAPR filed in 2012, not addressed by the D.C. Circuit Court decision to vacate the CSAPR, are still ongoing. Oral arguments were held February 25, 2015. On July 28, 2015, the court issued decisions finding certain Phase 1 and 2 emissions budgets invalid, which impact South Carolina, North Carolina and Florida. The court remanded the CSAPR to the EPA for reconsideration of the budgets in question. On December 3, 2015, the EPA proposed a rule to lower the current CSAPR Phase 2 state ozone season NO X emission budgets for 23 Eastern states, including North Carolina, Ohio, Kentucky and Indiana. The EPA also proposed to eliminate the CSAPR Phase 2 ozone season state NO X budgets for Florida and South Carolina. The EPA proposed that these changes to state budgets take effect on May 1, 2017. The EPA has indicated that it plans to finalize a rule during the summer of 2016. The EPA's proposed changes would impose requirements to achieve emission reduction targets within short timelines and could result in an impact on the emission allowance trading market, increase costs for customers, and hamper the ability to demonstrate compliance. Duke Energy Registrants cannot predict the outcome of these proceedings. Carbon Pollution Standards for New, Modified and Reconstructed Power Plants On October 23, 2015, the EPA published a final rule in the Federal Register establishing carbon dioxide (CO 2) emissions limits for new, modified and reconstructed power plants. The requirements for new plants do not apply to any facility that Duke Energy currently has in operation, but would apply to plants that commenced construction after January 8, 2014. The EPA set an emissions standard for coal units of 1,400 pounds which would require the application of partial carbon capture and storage (CCS) technology for a coal unit to be able to meet the limit. Utility-scale CCS is not currently a demonstrated and commercially available technology for coal-fired electric generating units, and therefore the final standard effectively prevents the development of new coal-fired generation. The EPA set a final standard of 1,000 pounds of CO 2 per gross MWh for new natural gas combined-cycle units. Petitions challenging the rule have been filed by several groups. Briefing in the case is scheduled to conclude on October 21, 2016. Oral arguments have not been scheduled. It is unknown at this time when the courts will rule on the petitions. The Duke Energy Registrants do not expect the impacts of the final standards will be material to Duke Energy's financial position, results of operations or cash flows. Clean Power Plan (CPP) On October 23, 2015, the EPA published in the Federal Register the final CPP rule that regulates CO 2 emissions from existing fossil fuel-fired electric generating units. The CPP establishes CO 2 emission rates and mass cap goals that apply to existing fossil fuel-fired electric generation units. Under the CPP, states are required to develop and submit a final compliance plan, or an initial plan with an extension request, to the EPA by September 6, 2016. States that receive an extension must submit a final completed plan to the EPA by September 6, 2018. The EPA intends to review and approve or disapprove state plans within 12 months of receipt. The CPP does not directly impose regulatory requirements on the Duke Energy Registrants. State implementation plans will include the regulatory requirements that will apply to the Duke Energy Registrants. The EPA also published a proposed federal plan for public comment. A federal plan would be applied to states that fail to submit a plan to EPA or where a state plan is not approved by the EPA. Comments on the proposed federal plan were due by January 21, 2016. Legal challenges to the final CPP have been filed by stakeholders. On January 21, 2016, the U.S. Court of Appeals for the District of Columbia denied motions from petitioners to stay the CPP pending court review. The court did grant petitioner requests for expedited briefing in the case. Oral arguments are scheduled for June 2, 2016. The court ordered that final briefs in the case be filed by April 22, 2016. On February 9, 2016, the Supreme Court granted a stay in the matter, halting implementation of the CPP until legal challenges are resolved. The states in which Duke Energy's regulated operations are located have suspended work on the CPP in response to the stay. Compliance with CPP could cause the industry to replace coal generation with natural gas and renewables. Costs to operate coal-fired generation plants continue to grow due to increasing environmental compliance requirements, including ash management costs unrelated to CPP, which may result in the retirement of coal-fired generation plants earlier than the current useful lives. If the CPP is ultimately upheld by the courts and implementation goes forward, the Duke Energy Registrants could incur increased fuel, purchased power, operation and maintenance and other costs for replacement generation as a result of this rule. Due to the uncertainties related to the implementation of the CPP, the Duke Energy Registrants cannot predict the outcome of these matters. Global Climate Change For other information on global climate change and the potential impacts on Duke Energy, see “Other Matters” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015. Nuclear Matters For other information on nuclear matters and the potential impacts on Duke Energy, see “Other Matters” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015. New Accounting Standards See Note 1 to the Condensed Consolidated Financial Statements, “Organization and Basis of Presentation,” for a discussion of the impact of new accounting standards. 107 PART I Off-Balance Sheet Arrangements During the three months ended March 31, 2016, there were no material changes to Duke Energy’s off-balance sheet arrangements. For information on Duke Energy’s offbalance sheet arrangements, see “Off-Balance Sheet Arrangements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015. Contractual Obligations Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. During the three months ended March 31, 2016, there were no material changes in Duke Energy’s contractual obligations. For an in-depth discussion of Duke Energy’s contractual obligations, see “Contractual Obligations” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015. Subsequent Events See Note 17 to the Condensed Consolidated Financial Statements, “Subsequent Events,” for a discussion of subsequent events. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During the three months ended March 31, 2016, there were no material changes to Duke Energy’s disclosures about market risk. For an in-depth discussion of Duke Energy’s market risks, see “Management’s Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated the effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2016, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance. Changes in Internal Control over Financial Reporting Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2016, and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. 108 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For information regarding legal proceedings, including regulatory and environmental matters, that became reportable events or in which there were material developments in the first quarter of 2016, see Note 4, "Regulatory Matters," and Note 5, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements. MTBE Litigation On June 29, 2007, the New Jersey Department of Environmental Protection (NJDEP) filed suit against, among others, Duke Energy Merchants (DEM), alleging contamination of “waters of the state” by MTBE from leaking gasoline storage tanks. MTBE is a gasoline additive intended to increase the oxygen level in gasoline and make it burn cleaner. The case was moved to federal court and consolidated in an existing multidistrict litigation docket of pending MTBE cases. DEM and NJDEP have reached an agreement in principle to settle the case for a payment by DEM of $1.7 million. On February 19, 2016, the Court approved a Consent Decree executed by the parties which settles the case. Payment was made in February 2016. The case was dismissed by the Court on April 29, 2016. DEM is also a defendant in a similar case filed by the Commonwealth of Pennsylvania on June 19, 2014. That case has been moved to the consolidated multidistrict proceeding. Discovery in this case continues. ITEM 1A. RISK FACTORS In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in the Duke Energy Registrants’ Annual Report on Form 10-K for the year ended December 31, 2015, which could materially affect the Duke Energy Registrants’ financial condition or future results. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ISSUER PURCHASES OF EQUITY SECURITIES There were no issuer purchases of equity securities during the first quarter of 2016. 109 PART II ITEM 6. EXHIBITS Exhibits filed herein are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**). The Company agrees to furnish upon request to the Commission a copy of any omitted schedules or exhibits upon request on all items designated by a triple asterisk (***). Duke Exhibit Number Duke Duke Duke Duke Duke Energy Progress Energy Energy Energy Energy Energy Carolinas Energy Progress Florida Ohio Indiana *4.1 Thirteenth Supplemental Indenture, dated as of April 18, 2016, to the indenture, dated as of June 3, 2008, between Duke Energy Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee. X *4.2 Sixty-seventh Supplemental Indenture, dated as of January 1, 2016, between Duke Energy Indiana, Inc. and Deutsche Bank National Trust Company, as Trustee, supplementing and amending the Indenture of Mortgage or Deed of Trust, dated September 1, 1939, between Duke Energy Indiana, Inc. and Deutsche Bank National Trust Company, as Trustee. 4.3 Ninety-seventh Supplemental Indenture, dated as of March 11, 2016 (incorporated by reference to Exhibit 4.1 to registrant's Current Report on Form 8-K filed on March 11, 2016, File No. 1-04928). 10.1 Confirmation of Forward Sale Transaction, dated as of March 1, 2016, between Duke Energy Corporation and Barclays Capital Inc. (incorporated by referenced to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on March 7, 2016, File No. 1-32853). X 10.2 Additional Confirmation of Forward Sale Transaction, dated as of March 2, 2016, between Duke Energy Corporation and Barclays Capital Inc. (incorporated by reference to Exhibit 10.2 to registrant's Current Report on Form 8-K filed on March 7, 2016, File No. 1-32853). X *12 Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY CORPORATION. X *31.1.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.1.2 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.3 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.4 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.5 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.6 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.1.7 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.1 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.3 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X X X X X X X X X X X 110 PART II *31.2.4 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X *31.2.5 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.6 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2.7 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32.1.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.1.7 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2.7 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *101.INS XBRL Instance Document. X X X X X X X *101.SCH XBRL Taxonomy Extension Schema Document. X X X X X X X *101.CAL XBRL Taxonomy Calculation Linkbase Document. X X X X X X X *101.LAB XBRL Taxonomy Label Linkbase Document. X X X X X X X *101.PRE XBRL Taxonomy Presentation Linkbase Document. X X X X X X X *101.DEF XBRL Taxonomy Definition Linkbase Document. X X X X X X X X X X X X X X X X X X X X X X X X The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the SEC, to furnish copies of any or all of such instruments to it. 111 PART II SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. DUKE ENERGY CORPORATION DUKE ENERGY CAROLINAS, LLC PROGRESS ENERGY, INC. DUKE ENERGY PROGRESS, LLC DUKE ENERGY FLORIDA, LLC DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, LLC Date: May 4, 2016 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: May 4, 2016 /s/ BRIAN D. SAVOY Brian D. Savoy Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) 112 DUKE ENERGY CORPORATION TO THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. Trustee Thirteenth Supplemental Indenture Dated as of April 18, 2016 $350,000,000 2.875% SENIOR NOTES DUE 2023 TABLE OF CONTENTS1 ARTICLE I 2.875% SENIOR NOTES DUE 2023 Section 1.01. Establishment Section 1.02. Definitions Section 1.03. Payment of Principal and Interest Section 1.04. Denominations Section 1.05. Global Securities Section 1.06. Redemption Section 1.07. Paying Agent Section 1.08. Legends 1 2 2 3 3 4 5 5 ARTICLE II MISCELLANEOUS PROVISIONS Section 2.01. Recitals by the Corporation 6 Section 2.02. Ratification and Incorporation of Original Indenture Section 2.03. Executed in Counterparts 6 6 Exhibit A - Form of 2.875% Senior Note Due 2023 Exhibit B - Certificate of Authentication Exhibit C - Certificate of Transfer Exhibit D - Schedule of Increases or Decreases in Global Security 1 This Table of Contents does not constitute part of the Indenture or have any bearing upon the interpretation of any of its terms and provisions. THIS THIRTEENTH SUPPLEMENTAL INDENTURE is made as of the 18 th day of April, 2016, by and among DUKE ENERGY CORPORATION, a Delaware corporation, having its principal office at 550 South Tryon Street, Charlotte, North Carolina 28202-1803 (the “Corporation”), and The Bank of New York Mellon Trust Company, N.A. (formerly known as The Bank of New York Trust Company, N.A.), a national banking association, as Trustee (herein called the “Trustee”). WITNESSETH: WHEREAS, the Corporation has heretofore entered into an Indenture, dated as of June 3, 2008 (the “Original Indenture”), with The Bank of New York Mellon Trust Company, N.A., as Trustee; WHEREAS, the Original Indenture is incorporated herein by this reference and the Original Indenture, as it may be amended and supplemented to the date hereof, including by this Thirteenth Supplemental Indenture, is herein called the “Indenture”; WHEREAS, under the Indenture, a new series of Securities may at any time be established in accordance with the provisions of the Indenture and the terms of such series may be described by a supplemental indenture executed by the Corporation and the Trustee; WHEREAS, the Corporation hereby proposes to create under the Indenture one additional series of Securities; WHEREAS, additional Securities of other series hereafter established, except as may be limited in the Indenture as at the time supplemented and modified, may be issued from time to time pursuant to the Indenture as at the time supplemented and modified; and WHEREAS, all conditions necessary to authorize the execution and delivery of this Thirteenth Supplemental Indenture and to make it a valid and binding obligation of the Corporation have been done or performed. NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I 2.875% SENIOR NOTES DUE 2023 Section 1.01 Establishment. There is hereby established a new series of Securities to be issued under the Indenture, to be designated as the Corporation’s 2.875% Senior Notes due 2023 (the “2023 Notes”). There are to be authenticated and delivered $350,000,000 principal amount of the 2023 Notes, and no further 2023 Notes shall be authenticated and delivered except as provided by Section 304, 305, 306, 906 or 1106 of the Original Indenture and the last paragraph of Section 301 thereof. The 2023 Notes shall be issued in fully registered form without coupons. The 2023 Notes shall be in substantially the form set out in Exhibit A hereto, and the form of the Trustee’s Certificate of Authentication for the 2023 Notes shall be in substantially the form set forth in Exhibit B hereto. Each 2023 Note shall be dated the date of authentication thereof and shall bear interest from the date of original issuance thereof or from the most recent Interest Payment Date to which interest has been paid or duly provided for. Section 1.02 Definitions. The following defined terms used in this Article I shall, unless the context otherwise requires, have the meanings specified below for purposes of the 2023 Notes. Capitalized terms used herein for which no definition is provided herein shall have the meanings set forth in the Original Indenture. “Business Day” means any day other than a Saturday or Sunday that is neither a Legal Holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close, or a day on which the Corporate Trust Office is closed for business. “Interest Payment Date” means each April 18 and October 18 of each year, commencing on October 18, 2016. “Legal Holiday” means any day that is a legal holiday in New York, New York. “Original Issue Date” means April 18, 2016. “Regular Record Date” means, with respect to each Interest Payment Date, the close of business on the 15th calendar day prior to such Interest Payment Date (whether or not a Business Day). “Stated Maturity” means April 18, 2023. Section 1.03 Payment of Principal and Interest. The principal of the 2023 Notes shall be due at Stated Maturity (unless earlier redeemed). The unpaid principal amount of the 2023 Notes shall bear interest at the rate of 2.875% per annum until paid or duly provided for, such interest to accrue from April 18, 2016 or from the most recent Interest Payment Date to which interest has been paid or duly provided for. Interest shall be paid semi-annually in arrears on each Interest Payment Date to the Person or Persons in whose name the 2023 Notes are registered on the Regular Record Date for such Interest Payment Date; provided that interest payable at the Stated Maturity or on a Redemption Date as provided herein shall be paid to the Person to whom principal is payable. Any such interest that is not so punctually paid or duly provided for shall forthwith cease to be payable to the Holders on such Regular Record Date and may either be paid to the Person or Persons in whose name the 2023 Notes are registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee (“Special Record Date”), notice whereof shall be given to Holders of the 2023 Notes not less than ten (10) days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange, if any, on which the 2023 Notes may be listed, and upon such notice as may be required by any such exchange, all as more fully provided in the Original Indenture. Payments of interest on the 2023 Notes shall include interest accrued to but excluding the respective Interest Payment Dates. Interest payments for the 2023 Notes shall be computed and paid on the basis of a 360-day year consisting of twelve 30-day months. In the event that any date on which interest is payable on the 2023 Notes is not a Business Day, then payment of the interest payable on such date shall be made on the next succeeding day that is a Business Day (and without any interest or payment in respect of any such delay) with the same force and effect as if made on the date the payment was originally payable. Payment of principal of, premium, if any, and interest on the 2023 Notes shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payments of principal of, premium, if any, and interest on 2023 Notes represented by a Global Security shall be made by wire transfer of immediately available funds to the Holder of such Global Security, provided that, in the case of payments of principal and premium, if any, such Global Security is first surrendered to the Paying Agent. If any of the 2023 Notes are no longer represented by a Global Security, (i) payments of principal, premium, if any, and interest due at the Stated Maturity or earlier redemption of such 2023 Notes shall be made at the office of the Paying Agent upon surrender of such 2023 Notes to the Paying Agent and (ii) payments of interest shall be made, at the option of the Corporation, subject to such surrender where applicable, by (A) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (B) wire transfer at such place and to such account at a banking institution in the United States as may be designated in writing to the Trustee at least sixteen (16) days prior to the date for payment by the Person entitled thereto. Section 1.04 Denominations. The 2023 Notes shall be issued in denominations of $2,000 or any integral multiple of $1,000 in excess thereof. Section 1.05 Global Securities. The 2023 Notes shall initially be issued in the form of one or more Global Securities registered in the name of the Depositary (which initially shall be The Depository Trust Company) or its nominee. The 2023 Notes will be initially issued pursuant to an exemption or exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). Beneficial interests in the 2023 Notes offered and sold to “qualified institutional buyers” (as defined in Rule 144A under the Securities Act) in reliance upon Rule 144A under the Securities Act shall be represented by one or more separate Global Securities (each, a “Rule 144A Global Note”). Each Rule 144A Global Note shall bear the non-registration legend in substantially the form set forth in Exhibit A hereto (the “Rule 144A Legend”). Beneficial interests in the 2023 Notes offered and sold to purchasers outside of the United States pursuant to Regulation S under the Securities Act shall be represented by one or more separate Global Securities (each, a “Regulation S Global Note”) and shall bear the Regulation S legend in substantially the form set forth in Exhibit A hereto (the “Regulation S Legend”). Except under the limited circumstances described below, 2023 Notes represented by such Global Security or Global Securities shall not be exchangeable for, and shall not otherwise be issuable as, 2023 Notes in definitive form. The Global Securities described in this Article I may not be transferred except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or to a successor Depositary or its nominee. Nothing in the Indenture or the 2023 Notes shall be construed to require the Corporation to register any 2023 Note under the Securities Act, or to make any transfer of such 2023 Note in violation of applicable law. A Global Security representing the 2023 Notes shall be exchangeable for 2023 Notes registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary notifies the Corporation that it is unwilling or unable to continue as a Depositary for such Global Security and no successor Depositary shall have been appointed by the Corporation within 90 days of receipt by the Corporation of such notification, or if at any time the Depositary ceases to be a clearing agency registered under the Exchange Act at a time when the Depositary is required to be so registered to act as such Depositary and no successor Depositary shall have been appointed by the Corporation within 90 days after it becomes aware of such cessation, (ii) an Event of Default has occurred and is continuing with respect to the 2023 Notes and beneficial owners of a majority in aggregate principal amount of the 2023 Notes represented by Global Securities advise the Depositary to cease acting as Depositary, or (iii) the Corporation in its sole discretion, and subject to the procedures of the Depositary, determines that such Global Security shall be so exchangeable. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for 2023 Notes registered in such names as the Depositary shall direct. A Rule 144A Global Note may not be transferred on the Security Register except in compliance with the restrictions on transfer contained in the Rule 144A Legend and upon receipt by the Security Registrar of a completed and executed Certificate of Transfer in the form contained in Exhibit C hereto. Prior to the expiration of 40 days beginning on and including the later of (i) the day on which the offering of the 2023 Notes commences and (ii) the original issue date of the 2023 Notes, a Regulation S Global Note may not be transferred on the Security Register except in compliance with the restrictions on transfer contained in the Regulation S Legend and upon receipt by the Security Registrar of a completed and executed Certificate of Transfer in the form contained in Exhibit C hereto. Neither the Trustee or the Security Registrar shall have any obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under the Indenture or under applicable law with respect to any transfer of any interest in any Global Security (including any transfers between or among Depositary participants, members or holders of any Global Security) other than, in connection with a registration of transfer of the 2023 Note on the Security Register, to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of the Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. Transfers of beneficial interests between a Rule 144A Global Note and a Regulation S Global Note, and other transfers relating to beneficial interests in the Global Securities, shall be reflected by endorsements of the Trustee, as custodian for DTC, on the schedules attached to such Rule 144A Global Note and Regulation S Global Note. Neither the Corporation nor the Trustee shall have any liability for acts or omissions of any Depositary, for any Depositary records of beneficial interest, for any transactions between the Depositary, any participant member of the Depositary and/or beneficial owner of any interest in any 2023 Notes, or in respect of any transfers effected by the Depositary or by any participant member of the Depositary or any beneficial owner of any interest in any 2023 Notes held through any such participant member of the Depositary. No service charge shall be made for any registration of transfer or exchange of the 2023 Notes, but the Corporation may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Section 1.06 Redemption. At any time and from time to time, the 2023 Notes shall be redeemable, in whole or in part, at the option of the Corporation, on any date (a “Redemption Date”), at a redemption price equal to the greater of (i) 100% of the principal amount of the 2023 Notes being redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to such Redemption Date) discounted to such Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points, plus, in either case, accrued and unpaid interest on the principal amount of the 2023 Notes being redeemed to, but excluding, such Redemption Date. For purposes of this Section 1.06, the following terms have the following meanings: “Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having an actual or interpolated maturity comparable to the remaining term of the 2023 Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such 2023 Notes. “Comparable Treasury Price” means, with respect to any Redemption Date for the 2023 Notes, (1) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (2) if fewer than three of such Reference Treasury Dealer Quotations are obtained, the average of all such Reference Treasury Dealer Quotations. “Quotation Agent” means a Reference Treasury Dealer appointed by the Corporation. “Reference Treasury Dealer” means Morgan Stanley & Co. LLC, plus two other financial institutions appointed by the Corporation at the time of any redemption of the 2023 Notes, or their respective affiliates or successors, each of which is a primary U.S. Government securities dealer in the United States (a “Primary Treasury Dealer”); provided, however, that if any of the foregoing or their affiliates or successors shall cease to be a Primary Treasury Dealer, the Corporation will substitute therefor another Primary Treasury Dealer. “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any Redemption Date for the 2023 Notes, the average, as determined by the Quotation Agent, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Quotation Agent by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such Redemption Date. “Treasury Rate” means, with respect to any Redemption Date for the 2023 Notes, the rate per annum equal to the semi-annual equivalent yield to maturity or interpolated maturity (on a day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be calculated on the third Business Day preceding the Redemption Date. The Corporation shall notify the Trustee of the redemption price with respect to any redemption of the 2023 Notes promptly after the calculation thereof. The Trustee shall not be responsible for calculating said redemption price. If less than all of the 2023 Notes are to be redeemed, the Trustee shall select the 2023 Notes or portions of 2023 Notes to be redeemed by such method as the Trustee shall deem fair and appropriate. The Trustee may select for redemption 2023 Notes and portions of 2023 Notes in amounts of $2,000 or any integral multiple of $1,000 in excess thereof. As long as the 2023 Notes are represented by Global Securities, beneficial interests in such Notes shall be selected for redemption by the Depositary in accordance with its standard procedures therefor. The 2023 Notes shall not have a sinking fund. Section 1.07 Paying Agent. The Trustee shall initially serve as Paying Agent with respect to the 2023 Notes, with the Place of Payment initially being the Corporate Trust Office. Section 1.08 Legends. Each 2023 Note, whether in a global form or in a definitive form, shall bear the Rule 144A Legend, or the Regulation S Legend, as applicable, in substantially the form set forth in Exhibit A hereto. ARTICLE II MISCELLANEOUS PROVISIONS Section 2.01 Recitals by the Corporation. The recitals in this Thirteenth Supplemental Indenture are made by the Corporation only and not by the Trustee, and all of the provisions contained in the Original Indenture in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of the 2023 Notes and this Thirteenth Supplemental Indenture as fully and with like effect as if set forth herein in full. Section 2.02 Ratification and Incorporation of Original Indenture. As supplemented hereby, the Original Indenture is in all respects ratified and confirmed, and the Original Indenture and this Thirteenth Supplemental Indenture shall be read, taken and construed as one and the same instrument. Section 2.03 Executed in Counterparts. This Thirteenth Supplemental Indenture may be executed in several counterparts, each of which shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. [Signature Page to Thirteenth Supplemental Indenture] IN WITNESS WHEREOF, each party hereto has caused this instrument to be signed in its name and behalf by its duly authorized officer, all as of the day and year first above written. Duke Energy Corporation By: Name: Title: John L. Sullivan, III Assistant Treasurer The Bank of New York Mellon Trust Company, N.A., as Trustee By: Name: Title: EXHIBIT A [DEPOSITARY LEGEND] [UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE Corporation OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] [Rule 144 A LEGEND] [NEITHER THIS SECURITY NOR ANY BENEFICIAL INTEREST HEREIN HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). EACH HOLDER HEREOF, AND EACH OWNER OF A BENEFICIAL INTEREST HEREIN, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF DUKE ENERGY CORPORATION (THE “CORPORATION”) THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED PRIOR TO THE DATE WHICH IS SIX MONTHS (IF ALL APPLICABLE CONDITIONS TO SUCH RESALE UNDER RULE 144 UNDER THE SECURITIES ACT (“Rule 144A”) (OR ANY SUCCESSOR PROVISION THEREOF) ARE SATISFIED) AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE THEREOF, THE ISSUANCE DATE OF ANY SUBSEQUENT ISSUANCE OF ADDITIONAL SECURITIES OF THE SAME SERIES AND THE LAST DATE ON WHICH THE CORPORATION OR ANY AFFILIATE THEREOF WAS THE OWNER OF THIS SECURITY OR THE EXPIRATION OF SUCH SHORTER PERIOD AS MAY BE PRESCRIBED BY SUCH RULE 144 (OR SUCH SUCCESSOR PROVISION) PERMITTING RESALES OF THIS SECURITY WITHOUT ANY CONDITIONS (THE “RESALE RESTRICTION TERMINATION DATE”) OTHER THAN (A)(1) TO THE CORPORATION, (2) IN A TRANSACTION ENTITLED TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT, (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ATTACHED TO THIS SECURITY), (4) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ATTACHED TO THIS SECURITY), (5) IN ACCORDANCE WITH ANOTHER APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION), OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE FOREGOING RESTRICTIONS ON RESALE WILL NOT APPLY SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE CORPORATION THAT IT IS (i) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (ii) A NON‑U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF, OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF, PARAGRAPH (k)(2) OF RULE 902 UNDER REGULATION S UNDER THE SECURITIES ACT. THE HOLDER OF THIS SECURITY ACKNOWLEDGES THAT THE CORPORATION RESERVES THE RIGHT PRIOR TO ANY OFFER, SALE OR OTHER TRANSFER (1) PURSUANT TO CLAUSE (A)(2) PRIOR TO THE RESALE RESTRICTION TERMINATION DATE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS OR OTHER INFORMATION SATISFACTORY TO THE CORPORATION AND (2) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE AS TO COMPLIANCE WITH CERTAIN CONDITIONS TO TRANSFER IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE CORPORATION.] [Regulation S Legend] [THE SECURITIES COVERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (I) AS PART OF THEIR DISTRIBUTION AT ANY TIME OR (II) OTHERWISE UNTIL 40 DAYS AFTER THE LATER OF THE DATE OF THE COMMENCEMENT OF THE OFFERING OF THE SECURITIES AND THE DATE OF ORIGINAL ISSUANCE OF THE SECURITIES, EXCEPT IN EITHER CASE IN ACCORDANCE WITH REGULATION S OR RULE 144A UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. TERMS USED ABOVE HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S.] FORM OF 2.875% SENIOR NOTE DUE 2023 No. Rule 144A CUSIP No. 26441C AQ8 Regulation S CUSIP No. U2648M AA0 DUKE ENERGY CORPORATION 2.875% SENIOR NOTE DUE 2023 Principal Amount: $ Regular Record Date: Close of business on the 15th calendar day prior to the relevant Interest Payment Date (whether or not a Business Day) Original Issue Date: April 18, 2016 Stated Maturity: April 18, 2023 Interest Payment Dates: Semi-annually on April 18 and October 18 of each year, commencing on October 18, 2016 Interest Rate: 2.875% per annum Authorized Denomination: $2,000 or any integral multiple of $1,000 in excess thereof Duke Energy Corporation, a Delaware corporation (the “Corporation”, which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to , or registered assigns, the principal sum of DOLLARS ($ ) on the Stated Maturity shown above and to pay interest thereon from the Original Issue Date shown above, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on each Interest Payment Date as specified above, commencing on October 18, 2016 and on the Stated Maturity at the rate per annum shown above until the principal hereof is paid or made available for payment and at such rate on any overdue principal and on any overdue installment of interest. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date (other than an Interest Payment Date that is the Stated Maturity or a Redemption Date) will, as provided in the Indenture, be paid to the Person in whose name this 2.875% Senior Note due 2023 (this “Security”) is registered on the Regular Record Date as specified above next preceding such Interest Payment Date; provided that any interest payable at Stated Maturity or on a Redemption Date will be paid to the Person to whom principal is payable. Except as otherwise provided in the Indenture, any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange, if any, on which the Securities shall be listed, and upon such notice as may be required by any such exchange, all as more fully provided in the Indenture. Payments of interest on this Security will include interest accrued to but excluding the respective Interest Payment Dates. Interest payments for this Security shall be computed and paid on the basis of a 360-day year consisting of twelve 30-day months and will accrue from April 18, 2016 or from the most recent Interest Payment Date to which interest has been paid or duly provided for. In the event that any date on which interest is payable on this Security is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or payment in respect of any such delay) with the same force and effect as if made on the date the payment was originally payable. “Business Day” means any day other than a Saturday or Sunday that is neither a Legal Holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close, or a day on which the Corporate Trust Office is closed for business. “Legal Holiday” means any day that is a legal holiday in New York, New York. Payment of principal of, premium, if any, and interest on the Securities of this series shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payments of principal of, premium, if any, and interest on the Securities of this series represented by a Global Security shall be made by wire transfer of immediately available funds to the Holder of such Global Security, provided that, in the case of payments of principal and premium, if any, such Global Security is first surrendered to the Paying Agent. If any of the Securities of this series are no longer represented by a Global Security, (i) payments of principal, premium, if any, and interest due at the Stated Maturity or earlier redemption of such Securities shall be made at the office of the Paying Agent upon surrender of such Securities to the Paying Agent, and (ii) payments of interest shall be made, at the option of the Corporation, subject to such surrender where applicable, by (A) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (B) wire transfer at such place and to such account at a banking institution in the United States as may be designated in writing to the Trustee at least sixteen (16) days prior to the date for payment by the Person entitled thereto. At any time and from time to time, at the option of the Corporation, the Securities of this series shall be redeemable, in whole or in part, on any date (a “Redemption Date”), at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities of this series being redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to such Redemption Date) discounted to such Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points, plus, in either case, accrued and unpaid interest on the principal amount being redeemed to, but excluding, such Redemption Date. For purposes of the second preceding paragraph, the following terms have the following meanings: “Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having an actual or interpolated maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Securities of this series. “Comparable Treasury Price” means, with respect to any Redemption Date for the Securities of this series, (1) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (2) if fewer than three of such Reference Treasury Dealer Quotations are obtained, the average of all such Reference Treasury Dealer Quotations. “Quotation Agent” means a Reference Treasury Dealer appointed by the Corporation. “Reference Treasury Dealer” means Morgan Stanley & Co. LLC, plus two other financial institutions appointed by the Corporation at the time of any redemption of the Securities of this series, or their respective affiliates or successors, each of which is a primary U.S. Government securities dealer in the United States (a “Primary Treasury Dealer”); provided, however, that if any of the foregoing or their affiliates or successors shall cease to be a Primary Treasury Dealer, the Corporation will substitute therefor another Primary Treasury Dealer. “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any Redemption Date for the Securities of this series, the average, as determined by the Quotation Agent, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Quotation Agent by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such Redemption Date. “Treasury Rate” means, with respect to any Redemption Date for the Securities of this series, the rate per annum equal to the semi-annual equivalent yield to maturity or interpolated maturity (on a day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be calculated on the third Business Day preceding the Redemption Date. The Corporation shall notify the Trustee of the redemption price with respect to any redemption of the Securities of this series promptly after the calculation thereof. The Trustee shall not be responsible for calculating said redemption price. Notice of any redemption by the Corporation will be mailed (or, as long as the Securities of this series are represented by one or more Global Securities, transmitted in accordance with the Depositary’s standard procedures therefor) at least 30 days but not more than 60 days before any Redemption Date to each Holder of Securities of this series to be redeemed. If Notice of a redemption is provided and funds are deposited as required, interest will cease to accrue on and after the Redemption Date on the Securities of this series or portions of Securities of this series called for redemption. In the event that any Redemption Date is not a Business Day, the Corporation will pay the redemption price on the next Business Day without any interest or other payment in respect of any such delay. If less than all the Securities of this series are to be redeemed at the option of the Corporation, the Trustee shall select, in such manner as it shall deem fair and appropriate, the Securities of this series to be redeemed in whole or in part. The Trustee may select for redemption Securities of this series and portions of the Securities of this series in amounts of $2,000 or any integral multiple of $1,000 in excess thereof. As long as the Securities of this series are represented by Global Securities, beneficial interests in such Securities shall be selected for redemption by the Depositary in accordance with its standard procedures therefor. In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the surrender hereof. The Securities of this series shall not have a sinking fund. The Securities of this series shall constitute the direct unsecured and unsubordinated debt obligations of the Corporation and shall rank equally in priority with the Corporation’s existing and future unsecured and unsubordinated indebtedness. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly executed as of April 18, 2016. Duke Energy Corporation By: Name: Title: CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: April 18, 2016 The Bank of New York Mellon Trust Company, N.A., as Trustee By: Authorized Signatory (Reverse Side of Security) This 2.875% Senior Note due 2023 is one of a duly authorized issue of Securities of the Corporation (the “Securities”), issued and issuable in one or more series under an Indenture, dated as of June 3, 2008, as supplemented (the “Indenture”), between the Corporation and The Bank of New York Mellon Trust Company, N.A. (formerly known as The Bank of New York Trust Company, N.A.), as Trustee (the “Trustee,” which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitation of rights, duties and immunities thereunder of the Corporation, the Trustee and the Holders of the Securities issued thereunder and of the terms upon which said Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof as 2.875% Senior Notes due 2023 initially in the aggregate principal amount of $350,000,000. Capitalized terms used herein for which no definition is provided herein shall have the meanings set forth in the Indenture. If an Event of Default with respect to the Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Corporation and the rights of the Holders of the Securities of all series affected under the Indenture at any time by the Corporation and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of all series affected thereby (voting as one class). The Indenture contains provisions permitting the Holders of not less than a majority in principal amount of the Outstanding Securities of all series with respect to which a default under the Indenture shall have occurred and be continuing (voting as one class), on behalf of the Holders of the Securities of all such series, to waive, with certain exceptions, such default under the Indenture and its consequences. The Indenture also permits the Holders of not less than a majority in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Corporation with certain provisions of the Indenture affecting such series. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay the principal of and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Corporation for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Corporation and the Security Registrar and duly executed by, the Holder hereof or his attorney duly authorized in writing, together with the completed and executed Certificate of Transfer attached hereto, and thereupon one or more new Securities of this series, of authorized denominations and of like tenor and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Corporation may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Indenture contains provisions for defeasance at any time of the entire indebtedness of the Securities of this series and for covenant defeasance at any time of certain covenants in the Indenture upon compliance with certain conditions set forth in the Indenture. Prior to due presentment of this Security for registration of transfer, the Corporation, the Trustee and any agent of the Corporation or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Corporation, the Trustee nor any such agent shall be affected by notice to the contrary. The Securities of this series are issuable only in registered form without coupons in denominations of $2,000 or any integral multiple of $1,000 in excess thereof. As provided in the Indenture and subject to the limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same upon surrender of the Security or Securities to be exchanged at the office or agency of the Corporation. This Security shall be governed by, and construed in accordance with, the laws of the State of New York. ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT Custodian (Cust) (Minor) TEN ENT - as tenants by the entireties JT TEN - as joint tenants with rights of survivorship and not as tenants in common under Uniform Gifts to Minors Act (State) Additional abbreviations may also be used though not on the above list. FOR VALUE RECEIVED, the undersigned hereby sell(s) and transfer(s) unto (please insert Social Security or other identifying number of assignee) PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF ASSIGNEE the within Security and all rights thereunder, hereby irrevocably constituting and appointing on the books of the Corporation, with full power of substitution in the premises. agent to transfer said Security Dated: NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement, or any change whatever. Signature Guarantee: SIGNATURE GUARANTEE Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Security Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. EXHIBIT B CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: The Bank of New York Mellon Trust Company, N.A., as Trustee By: Authorized Signatory EXHIBIT C CERTIFICATE OF TRANSFER Re: DUKE ENERGY CORPORATION 2.875% SENIOR NOTE DUE 2023 (the “Securities”) This Certificate relates to $_____ principal amount of the Securities held in ** Fill in blank or check appropriate box, as applicable.______ book-entry or *______ definitive form by _____________________ (the “Transferor”). The Transferor certifies that said beneficial interest in said Security is being resold, pledged or otherwise transferred as follows:* 1 to the Corporation; or 2 pursuant to an exemption from registration provided by Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”); or 3 to a person whom the Transferor reasonably believes is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or other transfer is being made in reliance on Rule 144A under the Securities Act; or 4 pursuant to an offshore transaction in accordance with Rule 903 or 904 of Regulation S under the Securities Act; or 5 pursuant to another applicable exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel acceptable to the Corporation); or 6 pursuant to an effective registration statement under the Securities Act. Unless one of the boxes is checked, the Trustee may refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (2) is checked, the Corporation or the Trustee, prior to registering any such transfer of the Notes, reserves the right to require the delivery of an opinion of counsel, certifications or other information satisfactory to the Corporation and the Trustee. Dated: NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement, or any change whatever. Signature Guarantee: SIGNATURE GUARANTEE Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Security Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. EXHIBIT D SCHEDULE I TO GLOBAL SECURITY The initial amount of the Global Securities evidenced by this certificate is $_______________. SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made Date Amount of increase in Principal Amount of this Global Security Principal Amount of this Global Security following each decrease or increase Signature of authorized signatory of Trustee or Securities Registrar SIXTY-SEVENTH SUPPLEMENTAL INDENTURE TO INDENTURE DATED SEPTEMBER 1, 1939 _____________ DUKE ENERGY INDIANA, INC. TO DEUTSCHE BANK NATIONAL TRUST COMPANY AS TRUSTEE _____________ DATED AS OF JANUARY 1, 2016 _____________ SUPPLEMENTING AND AMENDING THE INDENTURE TABLE OF CONTENTS _____________ Page Parties: Company (Duke Energy Indiana, Inc., formerly named each of PSI Energy, Inc. and Public Service Company of Indiana, Inc., and successor by consolidation to Initial Mortgagor (Public Service Company of Indiana)), and Trustee...............................................................1 Recitals: Indenture of the Initial Mortgagor, dated September 1, 1939, and First Supplemental Indenture thereto of the Initial Mortgagor, dated as of March 1, 1941...................................................1 Consolidation of Initial Mortgagor (and four other companies) into the Company.....................1 Execution by Company of Second Supplemental Indenture to the original Indenture................1 Company substituted for Initial Mortgagor under Indenture........................................................1 Execution by Company of Third through the Sixty-Sixth Supplemental Indentures to the original Indenture...................................................................................................................2 LaSalle Bank National Association appointed as Successor Trustee...........................................3 Resignation of Bank of America, N.A., as successor by merger to LaSalle Bank National Association, and appointment of Deutsche Bank National Trust Company as Successor Trustee.................................................................................................................................... 3 Change of name of Company from Public Service Company of Indiana, Inc. to PSI Energy, Inc., and thereafter to Duke Energy Indiana, Inc....................................................................3 Amount of bonds presently outstanding under the Indenture.......................................................3 Entity Conversion authorized by Board of Directors and shareholder.........................................4 Sixty-Seventh Supplemental Indenture authorized......................................................................4 Conditions precedent performed..................................................................................................5 Executing Clause................................................................................................................................5 ARTICLE I. Indenture Amendments. Section 1. Amendments to Article I of the Indenture 5 Section 2. Amendment to Article V of the Indenture 5 ARTICLE II. Concerning the Trustee. Acceptance of trusts by Trustee..............................................................................................6 Trustee not responsible for validity or sufficiency of Sixty-Seventh Supplemental Indenture, etc....................................................................................................................6 Terms and conditions of Article XVII of the Indenture to be applied to the Sixty-Seventh Supplemental Indenture....................................................................................................6 ARTICLE III. Miscellaneous Provisions. Section 1. References in any article or section of the original Indenture refer to such article or section as amended by all SixtySeven Supplemental Indentures thereto................6 Section 2. Operation and construction of amendments to the original Indenture......................6 Section 3. All covenants, etc., for sole benefit of parties to the Sixty-Seventh Supplemental Indenture and holders of bonds.................................................................................7 Section 4. Table of contents and headings of articles not part of Sixty-Seventh Supplemental Indenture...................................................................................................................7 Section 5. Execution of Sixty-Seventh Supplemental Indenture in counterparts......................7 Attestation Clause...............................................................................................................................8 Signatures...........................................................................................................................................8 Acknowledgment by Company.........................................................................................................10 Acknowledgment by Trustee.............................................................................................................11 Sixty-Seventh Supplemental Indenture dated as of the 1st day of January, 2016, made and entered into by and between Duke Energy Indiana, Inc. (hereinafter commonly referred to as the “Company”), a corporation organized and existing under the laws of the State of Indiana, formerly named each of PSI Energy, Inc. and Public Service Company of Indiana, Inc., and the successor by consolidation to Public Service Company of Indiana, an Indiana corporation, party of the first part, and Deutsche Bank National Trust Company, a national banking association organized and existing under the laws of the United States and having its office or place of business in the City of Chicago, State of Illinois, successor trustee to Bank of America, N.A., as successor by merger to LaSalle Bank National Association, which was the successor trustee to The First National Bank of Chicago (hereinafter commonly referred to as the “Trustee”), party of the second part, Witnesseth: Whereas, Public Service Company of Indiana (hereinafter commonly referred to as the “Initial Mortgagor”), prior to its consolidation with certain other corporations to form the Company, executed and delivered to the Trustee a certain indenture of mortgage or deed of trust (hereinafter called the “original Indenture” when referred to as existing prior to any amendment thereto, and the “Indenture” when referred to as heretofore, now or hereafter amended), dated September 1, 1939, and a First Supplemental Indenture thereto, dated as of March 1, 1941, to secure the bonds of the Initial Mortgagor, its successors and assigns, issued from time to time under the Indenture in series for the purposes of and subject to the limitations specified in the Indenture; and Whereas, the Company on September 6, 1941, became, through a consolidation, the successor of the Initial Mortgagor (and four other companies) and succeeded to all the rights and became liable for all the obligations of the Initial Mortgagor (and such other companies); and Whereas, after said consolidation, the Company executed and delivered a Second Supplemental Indenture, dated as of November 1, 1941, to the original Indenture for the purposes, among others, of (i) the making by the Company of an agreement of assumption and adoption by it of the Indenture, (ii) the assumption by the Company of the bonds (and interest and premium, if any, thereon) issued or to be issued under the Indenture, and of all terms, covenants and conditions binding upon it under the Indenture, and the agreeing by the Company to pay, perform and fulfill the same, and (iii) the conveying to the Trustee upon the trusts declared in the Indenture, but subject to any outstanding liens and encumbrances, all the property which the Company then owned or which it might thereafter acquire, except property of a character similar to the property of the Initial Mortgagor which is excluded from the lien of the Indenture; and Whereas, all conditions have been met and all acts and things necessary have been done and performed to make the Indenture the valid and binding agreement of the Company and to substitute the Company for the Initial Mortgagor under the Indenture, and to vest the Company with each and every right and power of the Initial Mortgagor, including the right and power to issue bonds thereunder; and Whereas, the Company has subsequently executed and delivered, for purposes authorized under the Indenture, a Third Supplemental Indenture dated as of March 1, 1942, a Fourth Supplemental Indenture dated as of May 1, 1943, a Fifth Supplemental Indenture dated as of August 1, 1944, a Sixth Supplemental Indenture dated as of September 1, 1945, a Seventh Supplemental Indenture dated as of November 1, 1947, an Eighth Supplemental Indenture dated as of January 1, 1949, a Ninth Supplemental Indenture dated as of May 1, 1950, a Tenth Supplemental Indenture dated as of July 1, 1952, an Eleventh Supplemental Indenture dated as of January 1, 1954, a Twelfth Supplemental Indenture dated as of October 1, 1957, a Thirteenth Supplemental Indenture dated as of February 1, 1959, a Fourteenth Supplemental Indenture dated as of July 15, 1960, a Fifteenth Supplemental Indenture dated as of June 15, 1964, a Sixteenth Supplemental Indenture dated as of January 1, 1969, a Seventeenth Supplemental Indenture dated as of March 1, 1970, an Eighteenth Supplemental Indenture dated as of January 1, 1971, a Nineteenth Supplemental Indenture dated as of January 1, 1972, a Twentieth Supplemental Indenture dated as of February 1, 1974, a Twenty-First Supplemental Indenture dated as of August 1, 1974, a Twenty-Second Supplemental Indenture dated as of August 1, 1975, a Twenty-Third Supplemental Indenture dated as of January 1, 1977, a Twenty-Fourth Supplemental Indenture dated as of October 1, 1977, a Twenty-Fifth Supplemental Indenture dated as of September 1, 1978, a Twenty-Sixth Supplemental Indenture dated as of September 1, 1978, a Twenty-Seventh Supplemental Indenture dated as of March 1, 1979, a Twenty-Eighth Supplemental Indenture dated as of May 1, 1979, a Twenty-Ninth Supplemental Indenture dated as of March 1, 1980, a Thirtieth Supplemental Indenture dated as of August 1, 1980, a Thirty-First Supplemental Indenture dated as of February 1, 1981, a Thirty-Second Supplemental Indenture dated as of August 1, 1981, a Thirty-Third Supplemental Indenture dated as of December 1, 1981, a Thirty-Fourth Supplemental Indenture dated as of December 1, 1982, a Thirty-Fifth Supplemental Indenture dated as of March 30, 1984, a Thirty-Sixth Supplemental Indenture dated as of November 15, 1984, a Thirty-Seventh Supplemental Indenture dated as of August 15, 1985, a Thirty-Eighth Supplemental Indenture dated as of October 1, 1986, a Thirty-Ninth Supplemental Indenture dated as of March 15, 1987, a Fortieth Supplemental Indenture dated as of June 1, 1987, a Forty-First Supplemental Indenture dated as of June 15, 1988, a Forty-Second Supplemental Indenture dated as of August 1, 1988, a Forty-Third Supplemental Indenture dated as of September 15, 1989, a Forty-Fourth Supplemental Indenture dated as of March 15, 1990, a FortyFifth Supplemental Indenture dated as of March 15, 1990, a Forty-Sixth Supplemental Indenture dated as of June 1, 1990, a FortySeventh Supplemental Indenture dated as of July 15, 1991, a Forty-Eighth Supplemental Indenture dated as of July 15, 1992, a FortyNinth Supplemental Indenture dated as of February 15, 1993, a Fiftieth Supplemental Indenture dated as of February 15, 1993, a FiftyFirst Supplemental Indenture dated as of February 1, 1994, a Fifty-Second Supplemental Indenture dated as of April 30, 1999, a FiftyThird Supplemental Indenture dated as of June 15, 2001, a Fifty-Fourth Supplemental Indenture dated as of September 1, 2002, a Fifty-Fifth Supplemental Indenture dated as of February 15, 2003, a Fifty-Sixth Supplemental Indenture dated as of December 1, 2004, a Fifty-Seventh Supplemental Indenture dated as of August 21, 2008, a Fifty-Eighth Supplemental Indenture dated as of December 19, 2008, a Fifty-Ninth Supplemental Indenture dated as of March 23, 2009, a Sixtieth Supplemental Indenture dated as of June 1, 2009, a Sixty-First Supplemental Indenture dated as of October 1, 2009, a Sixty-Second Supplemental Indenture dated as of July 9, 2010, a Sixty-Third Supplemental Indenture dated as of September 23, 2010, a Sixty-Fourth Supplemental Indenture dated as of December 1, 2011, a Sixty-Fifth Supplemental Indenture dated as of March 15, 2012, and a Sixty-Sixth Supplemental Indenture dated as of July 11, 2013, each supplementing and amending the Indenture; and Whereas, the Thirty-Fifth Supplemental Indenture authorized and appointed LaSalle Bank National Association, a national banking association duly organized and existing under the laws of the United States of America with its principal office in Chicago, Illinois and formerly named LaSalle National Bank, as Successor Trustee to The First National Bank of Chicago, which appointment was accepted, and all trust powers under the Indenture were thereby transferred from The First National Bank of Chicago to LaSalle Bank National Association; and Whereas, by an Instrument of Resignation, Appointment and Acceptance dated as of December 15, 2008, Bank of America, N.A., as successor by merger to LaSalle Bank National Association, resigned as trustee and the Company appointed the Trustee as Successor Trustee thereto, which appointment was thereby accepted by the Trustee effective as of that date, and all trust powers were thereby transferred from Bank of America, N.A. to the Trustee; and Whereas, the Forty-Sixth Supplemental Indenture amended the Indenture to reflect a change in the name of the Company from Public Service Company of Indiana, Inc. to PSI Energy, Inc. effective as of April 20, 1990, and the Fifty-Seventh Supplemental Indenture amended the Indenture to reflect a change in the name of the Company from PSI Energy, Inc. to Duke Energy Indiana, Inc., effective as of October 1, 2006; and Whereas, as of January 1, 2016, the only bonds that have been heretofore issued under the Indenture which are now outstanding are $28,000,000 aggregate principal amount of “PSI Energy, Inc. First Mortgage Bonds, Series WW, Due August 15, 2027” and $53,055,000 aggregate principal amount of “PSI Energy, Inc. First Mortgage Bonds, Series CCC, 8.85%, Due January 15, 2022” and $38,000,000 aggregate principal amount of “PSI Energy, Inc. First Mortgage Bonds, Series DDD, 8.31%, Due September 1, 2032” and $500,000,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series LLL, 6.35%, Due August 15, 2038” and $45,985,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, 2005A Pledge Series, Due July 1, 2035” and $450,000,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series MMM, 6.45%, Due April 1, 2039” and $55,000,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series NNN, 6%, Due August 1, 2039” and $50,000,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series OOO, 4.95%, Due October 1, 2040” and $500,000,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series PPP, 3,75%, Due July 15, 2020” and $10,000,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series QQQ, 3¾%, Due April 1, 2022” and $59,600,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series RRR, 3⅜%, Due March 1, 2019” and $44,025,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series SSS, Due May 1, 2035” and $23,000,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series TTT, Due March 1, 2031” and $250,000,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series UUU, 4.20%, Due March 15, 2042” and $150,000,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series VVV, Floating Rate, Due July 11, 2016” and $350,000,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series WWW, 4.90%, Due July 15, 2043”; and Whereas, the Board of Directors of the Company has determined that it is advisable and in the best interests of the Company to convert its corporate form from an Indiana corporation to an Indiana limited liability company, by the name of “Duke Energy Indiana, LLC”, pursuant to Ind. Code § 23-18-7-10 and Ind. Code § 23-1-38.5 (the “Entity Conversion”), and has recommended approval of the Entity Conversion to the shareholder of the Company and the shareholder has approved the Entity Conversion; and Whereas, upon the Entity Conversion, under the laws of the State of Indiana, (i) the Company is considered for all purposes to (a) be the same entity, without interruption, as the entity that existed prior to the Entity Conversion, and (b) have been organized on the date that the Company was originally incorporated, (ii) the title to all real and personal property, both tangible and intangible, owned by the Company prior to the Entity Conversion, remains in the Company, upon the Entity Conversion, without reversion or impairment, and (iii) the liabilities of the Company that existed prior to the Entity Conversion will remain the liabilities of the Company on and after the Entity Conversion; and Whereas, the Entity Conversion shall take effect, as determined pursuant to Ind. Code § 23-1-18-4, upon the filing with the Indiana Secretary of State of the documents required under Ind. Code § 23-1-38.5-13; and Whereas, in connection with the Entity Conversion and in accordance with the provisions of Section 1 of Article XVIII of the Indenture, the Board of Directors has authorized the execution and delivery by the Company of a Sixty-Seventh Supplemental Indenture, substantially in the form of this Sixty-Seventh Supplemental Indenture, for the purpose of including covenants and agreements of the Company reaffirming the Company’s obligations to, and the rights of, the holders of bonds outstanding under the Indenture and the Trustee, upon the Entity Conversion, which covenants and agreements are deemed necessary or desirable, are not inconsistent with the terms of the Indenture and do not impair the security of the same, and are therefore permitted by the Indenture; and Whereas, all conditions and requirements necessary to make this Sixty-Seventh Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized: Now, Therefore, in consideration of the premises, and of the acceptance and purchase of the Bonds of each Series by the holders and registered owners thereof, and of the sum of One Dollar ($1.00) duly paid by the Trustee to the Company, the receipt whereof is hereby acknowledged, and in accordance with and subject to the terms and provisions of the Indenture, the Company and the Trustee, respectively, have entered into, executed and delivered this Sixty-Seventh Supplemental Indenture for the uses and purposes hereinafter expressed, that is to say: ARTICLE I. Indenture Amendments. Article I of the Indenture, as heretofore amended, is hereby further amended (i) by adding immediately after subdivision “(106)” thereof, the additional subdivisions numbered “(107),” “(108)” and “(109) and reading as follows: “(107) The term ‘Sixty-Seventh Supplemental Indenture’ shall mean the Sixty-Seventh Supplemental Indenture executed by the Company and the Trustee, dated as of January 1, 2016, supplementing and amending this Indenture.” Section 1. “(108) The term ‘Entity Conversion’ shall mean the conversion of the Company’s corporate form from an Indiana corporation to an Indiana limited liability company, by the name of “Duke Energy Indiana, LLC”, pursuant to Ind. Code § 23-18-7-10 and Ind. Code § 23-1-38.5, as further described in the Sixty-Seventh Supplemental Indenture.” “(109) The term ‘Conversion Effective Date’ shall mean the date, as determined pursuant to Ind. Code § 23-118-4, that the Entity Conversion shall take effect by the filing with the Indiana Secretary of State of the documents required under Ind. Code § 23-1-38.5-13.” and (ii) by changing the numbering of the present subdivision “(107)” thereof to “(110)”. Section 2. Article V of the Indenture, as heretofore amended, is hereby further amended by inserting therein immediately after Section 24 thereof, a new section designated “Section 25” and reading as follows: “Section 25. As of the Conversion Effective Date, the Company, as a limited liability company formed under the laws of the State of Indiana, hereby expressly covenants, agrees and confirms, notwithstanding the Entity Conversion, (i) that its obligation promptly to pay, perform and discharge when due each and every debt, obligation, covenant and agreement incurred, made or to be paid, performed or discharged by the Company under this Indenture continues upon the Entity Conversion, (ii) that, pursuant to Ind. Code § 23-1-38.5-15, the title to all real and personal property, both tangible and intangible, owned by the Company prior to the Entity Conversion, remains in the Company, upon the Entity Conversion, without reversion or impairment, and the liabilities of the Company that existed prior to the Entity Conversion will remain the liabilities of the Company on and after the Entity Conversion, (iii) that all rights of holders of bonds outstanding under this Indenture and of the Trustee which existed immediately prior to the Entity Conversion are preserved unimpaired, and (iv) that all debts, liabilities and duties of the Company under this Indenture which existed immediately prior to the Entity Conversion may be enforced against it to the same extent as if said debts, liabilities and duties had originally been incurred or contracted by it in its capacity as an Indiana limited liability company.” ARTICLE II. Concerning the Trustee. The Trustee hereby accepts the trusts hereby declared and agrees to perform the same upon the terms and conditions in the Indenture and in this Sixty-Seventh Supplemental Indenture set forth. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Sixty-Seventh Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XVII of the Indenture shall apply to this Sixty-Seventh Supplemental Indenture. ARTICLE III. Miscellaneous Provisions. Wherever in the original Indenture or in any of the sixty-seven supplemental indentures thereto reference is made to any article or section of the original Indenture, such reference shall be deemed to refer to such article or section as amended by such supplemental indentures. Section 1. Section 2. Upon the execution and delivery hereof, the Indenture shall thereupon be deemed to be amended as hereinabove set forth as fully and with the same effect as if the amendments made hereby were set forth in the original Indenture and each of the sixty-seven supplemental indentures to the Indenture shall henceforth be read, taken and construed as one and the same instrument; but such amendments shall not operate so as to render invalid or improper any action heretofore taken under the original Indenture or said supplemental indentures. Section 3. All the covenants, stipulations and agreements in this Sixty-Seventh Supplemental Indenture contained are and shall be for the sole and exclusive benefit of the parties hereto, their successors and assigns, and of the holders from time to time of the bonds. Section 4. The table of contents to, and the headings of the different articles of, this Sixty-Seventh Supplemental Indenture are inserted for convenience of reference, and are not to be taken to be any part of the provisions hereof, nor to control or affect the meaning, construction or effect of the same. Section 5. This Sixty-Seventh Supplemental Indenture may be simultaneously executed in any number of counterparts, and all such counterparts shall constitute but one and the same instrument. [The remainder of this page has been left blank intentionally.] In Witness Whereof, said Duke Energy Indiana, Inc. has caused this instrument to be executed in its corporate name by its President or one of its Vice Presidents and to be attested by its Secretary or one of its Assistant Secretaries and said Deutsche Bank National Trust Company has caused this instrument to be executed in its corporate name by, and to be attested by, its authorized officers, in several counterparts, all as of the day and year first above written. Duke Energy Indiana, Inc. (Corporate Seal) By /s/ Stephen G. De May Stephen G. De May Senior Vice President and Treasurer Attest: /s/ Robert T. Lucas III Robert T. Lucas III Assistance Corporate Secretary Deutsche Bank National Trust Company, as Trustee and not in its individual capacity (Corporate Seal) By /s/ Kathryn Fischer Kathryn Fischer, Assistant Vice President By /s/ Chris Niesz Chris Niesz, Assistant Vice President Attest: /s/ Jeffrey Schoenfeld Jeffrey Schoenfeld, Vice President State of North Carolina ) County of Mecklenburg ) ) ss: Be It Remembered, that on this 31st day of December, 2015, before me, the undersigned, a notary public in and for the County and State aforesaid, duly commissioned and qualified, personally appeared Stephen G. De May and Robert T. Lucas III, personally known to me to be the same persons whose names are subscribed to the foregoing instrument, and personally known to me to be the Senior Vice President and Treasurer and an Assistant Corporate Secretary, respectively, of Duke Energy Indiana, Inc., an Indiana corporation, and acknowledged that they signed and delivered said instrument as their free and voluntary act as such Senior Vice President and Treasurer and Assistant Corporate Secretary, respectively, and as the free and voluntary act of said Duke Energy Indiana, Inc., for the uses and purposes therein set forth; in pursuance of the power and authority granted to them by resolution of the Board of Directors of said Company. In Witness Whereof, I have hereunto set my hand and affixed my notarial seal the day and year aforesaid. (Notarial Seal) Phoebe P. Elliott Notary Public Mecklenburg County, NC /s/ Phoebe P. Elliott Phoebe P. Elliott, Notary Public Commission expires: June 26, 2016 State Of New Jersey ) ) ss: County Of Hudson ) Be It Remembered, that on this 22nd day of December, 2015, before me, the undersigned, a notary public in and for the County and State aforesaid, duly commissioned and qualified, personally appeared Kathryn Fischer and Chris Niesz personally known to me to be the same persons whose names are subscribed to the foregoing instrument, and personally known to me to each be an Assistant Vice President of Deutsche Bank National Trust Company, a national banking association, and acknowledged that they each signed and delivered said instrument as their free and voluntary act as an Assistant Vice President, and as the free and voluntary act of said Deutsche Bank National Trust Company, for the uses and purposes therein set forth; in pursuance of the power and authority granted to them by the bylaws of said association. In Witness Whereof, I have hereunto set my hand and affixed my notarial seal the day and year aforesaid. (Notarial Seal) /s/ Robert S. Peschler Notary Public ROBERT S. PESCHLER ID # 2427815 NOTARY PUBLIC STATE OF NEW JERSEY My Commission Expires Dec. 11, 2017 This instrument was prepared by: Bradley C. Arnett, Esq.* Bingham Greenebaum Doll LLP 255 E. Fifth Street, Suite 2350 Cincinnati, Ohio 45202 *Admitted in Ohio; not admitted in Indiana 16971070 EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DUKE ENERGY CORPORATION The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines. Three Months Ended March 31, (in millions) Years Ended December 31, 2016 2015 2014 2013 2012 (a) 2011 Earnings as defined for fixed charges calculation Add: Pretax income from continuing operations (b) $ Fixed charges Distributed income of equity investees 897 $ 4,053 $ 3,998 $ 3,657 $ 2,068 $ 1,975 550 1,859 1,871 1,886 1,510 1,057 — 104 136 109 151 149 — — — — 3 — 4 18 7 8 30 46 Deduct: Preferred dividend requirements of subsidiaries Interest capitalized Total earnings $ 1,443 $ 5,998 $ 5,998 $ 5,644 $ 3,696 $ 3,135 $ 534 $ 1,733 $ 1,733 $ 1,760 $ 1,420 $ 1,026 Fixed charges: Interest on debt, including capitalized portions Estimate of interest within rental expense 16 126 138 126 87 Preferred dividend requirements — — — — 3 Total fixed charges $ 550 $ 1,859 $ 1,871 $ 1,886 $ 1,510 31 — $ 1,057 Ratio of earnings to fixed charges 2.6 3.2 3.2 3.0 2.4 3.0 Ratio of earnings to fixed charges and preferred dividends combined(c) 2.6 3.2 3.2 3.0 2.4 3.0 (a) (b) (c) Includes the results of Progress Energy, Inc. beginning on July 2, 2012. Excludes amounts attributable to noncontrolling interests and income or loss from equity investees. For the periods presented, Duke Energy Corporation had no preferred stock outstanding. EXHIBIT 31.1.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ LYNN J. GOOD Lynn J. Good Chairman, President and Chief Executive Officer EXHIBIT 31.1.2 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Carolinas, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.1.3 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Progress Energy, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.1.4 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Progress, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.1.5 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Florida, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.1.6 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Ohio, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.1.7 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lynn J. Good, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Indiana, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer EXHIBIT 31.2.1 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Carolinas, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.3 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Progress Energy, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.4 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Progress, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.5 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Florida, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.6 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Ohio, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 31.2.7 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven K. Young, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Indiana, LLC; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 5) a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 4, 2016 /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer EXHIBIT 32.1.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chairman, President and Chief Executive Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy. /s/ LYNN J. GOOD Lynn J. Good Chairman, President and Chief Executive Officer May 4, 2016 EXHIBIT 32.1.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Carolinas, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Carolinas. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 4, 2016 EXHIBIT 32.1.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Progress Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Progress Energy. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 4, 2016 EXHIBIT 32.1.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Progress, LLC (“Duke Energy Progress”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Progress, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Progress. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 4, 2016 EXHIBIT 32.1.5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Florida, LLC (“Duke Energy Florida”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Florida, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Florida. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 4, 2016 EXHIBIT 32.1.6 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Ohio, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Ohio. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 4, 2016 EXHIBIT 32.1.7 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Indiana, LLC (“Duke Energy Indiana”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana. /s/ LYNN J. GOOD Lynn J. Good Chief Executive Officer May 4, 2016 EXHIBIT 32.2.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 4, 2016 EXHIBIT 32.2.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Carolinas, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Carolinas. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 4, 2016 EXHIBIT 32.2.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Progress Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Progress Energy. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 4, 2016 EXHIBIT 32.2.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Progress, LLC (“Duke Energy Progress”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Progress, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Progress. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 4, 2016 EXHIBIT 32.2.5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Florida, LLC (“Duke Energy Florida”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Florida, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Florida. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 4, 2016 EXHIBIT 32.2.6 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Ohio, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Ohio. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 4, 2016 EXHIBIT 32.2.7 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Duke Energy Indiana, LLC (“Duke Energy Indiana”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana. /s/ STEVEN K. YOUNG Steven K. Young Executive Vice President and Chief Financial Officer May 4, 2016 @196 JEQELQ KEN m? ?an? [5 DUKE 9: ENERGYE 1st Quarter 2016 Statistical Supplement mm Aug 25 2mm? Table of Contents DUKE ENERGY CORPORATION (Unaudited) 3 Consolidating Statements of Operations (a) 5 Consolidating Balance Sheets REGULATED UTILITIES (Unaudited) 7 Consolidating Segment Income (a) 9 Consolidating Balance Sheets 11 Revenues by Customer Class DUKE ENERGY MONEYPOOL SUPPLEMENT (Unaudited) 12 Schedule of Moneypool Balances Non-GAAP Disclosures (Unaudited) 13 Adjusted to Reported Earnings Reconciliations (a) 15 Non-GAAP Financial Measures This Statistical Supplement should be read in conjunction with Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2015, and the most recently filed Form 10-Q. DUKE ENERGY CORPORATION Consolidating Statements of Operations (Unaudited) Three Months Ended March 31, 2016 (in millions) Operating Revenues Regulated electric Nonregulated electric and other Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas Operation, maintenance and other Depreciation and amortization Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income (Loss) Other Income and Expenses, net Interest Expense (a) Income (Loss) from Continuing Operations Before Income Taxes Income Tax Expense (Benefit) from Continuing Operations (b) (c) Income (Loss) from Continuing Operations Less: Net Income Attributable to Noncontrolling Interest Segment Income / Other Net Expense Income from Discontinued Operations, net of tax Net Income Attributable to Duke Energy Corporation Segment Income / Other Net Expense Special Items Adjusted Earnings (d) (a) (b) (c) (d) Regulated Utilities $ $ $ $ International Energy Commercial Portfolio Other Eliminations / Adjustments Duke Energy 5,089 $ — 170 5,259 — $ 246 — 246 — $ 114 — 114 — $ 29 — 29 (36) $ 11 (1) (26) 5,053 400 169 5,622 1,577 — 49 1,332 728 279 2 3,967 1 1,293 64 277 1,080 385 695 — 695 $ — 47 11 71 22 3 — 154 — 92 16 22 86 (39) 125 2 123 $ — — — 75 30 6 — 111 1 4 2 12 (6) (33) 27 — 27 $ — 11 — 36 34 9 2 92 7 (56) 10 205 (251) (100) (151) 3 (154) $ — — — (25) — — (1) (26) — — (5) (5) — — — — — $ $ 1,577 58 60 1,489 814 297 3 4,298 9 1,333 87 511 909 213 696 5 691 3 694 — $ — — $ 691 86 777 695 $ — 695 $ 123 $ — 123 $ 27 $ — 27 $ (154) $ 86 (68) $ Other includes costs to achieve mergers of $100 million related to the mark-to-market unrealized losses related to the forward-starting interest rate swaps and other financing costs for the expected financing of the Piedmont Natural Gas (Piedmont) acquisition. International Energy includes a net tax benefit of $84 million related to more efficient utilization of foreign tax credits combined with the Company's intent to no longer indefinitely reinvest the foreign earnings of the International Energy segment, net of additional tax expense recognized in 2016 on International Energy's undistributed earnings. Other includes a tax benefit of $54 million related to costs to achieve mergers and cost savings initiatives. See page 13 for a detailed reconciliation of Segment Income / Other Net Expense to Adjusted Earnings. 3 DUKE ENERGY CORPORATION Consolidating Statements of Operations (Unaudited) (in millions) Operating Revenues Regulated electric Nonregulated electric and other Regulated natural gas Total operating revenues Operating Expenses Fuel used in electric generation and purchased power - regulated Fuel used in electric generation and purchased power - nonregulated Cost of natural gas Operation, maintenance and other Depreciation and amortization Property and other taxes Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income (Loss) Other Income and Expenses, net Interest Expense Income (Loss) from Continuing Operations Before Income Taxes Income Tax Expense (Benefit) from Continuing Operations Income (Loss) from Continuing Operations Less: Net Income Attributable to Noncontrolling Interest Segment Income / Other Net Expense Income from Discontinued Operations, net (b) Net Income Attributable to Duke Energy Corporation Segment Income / Other Net Expense Special Items Adjusted Earnings (c) (a) (b) (c) Regulated Utilities $ $ $ $ Three Months Ended March 31, 2015 (a) International Commercial Eliminations / Other Adjustments Energy Portfolio Duke Energy 5,490 $ — 233 5,723 — $ 273 — 273 — $ 73 — 73 1 $ 26 — 27 (34) $ 5 (2) (31) 5,457 377 231 6,065 1,941 — 97 1,320 698 249 4,305 7 1,425 72 275 1,222 448 774 — 774 $ — 90 14 78 23 2 207 — 66 14 23 57 20 37 1 36 $ — 14 — 46 24 5 89 — (16) 2 12 (26) (33) 7 — 7 $ — — — 11 32 7 50 7 (16) 1 97 (112) (71) (41) 2 (43) $ — — — (29) — 1 (28) — (3) (2) (4) (1) — (1) — (1) $ $ 1,941 104 111 1,426 777 264 4,623 14 1,456 87 403 1,140 364 776 3 773 91 864 (1) $ 1 — $ 773 108 881 774 $ — 774 $ 36 $ — 36 $ 7 $ 94 101 $ (43) $ 13 (30) $ During the first quarter of 2016, Duke Energy began to evaluate interim period segment performance based on financial information that includes the impact of income tax levelization within segment income. This represents a change from the previous measure, where the interim period impacts of income tax levelization were included within Other, and therefore excluded from segment income. As a result, prior-period segment results presented have been recast to conform to this change. Income from Discontinued Operations, net primarily relates to the operating results of the nonregulated Midwest generation business, which was sold in April 2015. See page 14 for a detailed reconciliation of Segment Income / Other Net Expense to Adjusted Earnings. 4 DUKE ENERGY CORPORATION Consolidating Balance Sheets - Assets (Unaudited) March 31, 2016 Regulated Utilities (in millions) International Energy Commercial Portfolio Other Eliminations / Adjustments Duke Energy Current Assets Cash and cash equivalents $ Receivables, net Restricted receivables of variable interest entities, net Receivables from affiliated companies Notes receivable from affiliated companies Inventory 504 $ 14 $ 404 146 20 40 (1) 1,679 — 20 15 — 58 — 428 3,260 (3,746) (990) 76 $ 185 $ 451 — — 539 3,614 64 18 25 (1) $ — 778 609 1,714 — — 3,721 Regulatory assets 733 — — 81 (1) 813 Other 174 25 109 50 (50) 308 7,189 739 609 4,195 (4,789) 7,943 2 46 474 26 (1) 547 47 (23) (56) 50,032 (50,000) — Total current assets Investments and Other Assets Investments in equity method unconsolidated affiliates Investments and advances to (from) subsidiaries Nuclear decommissioning trust funds Goodwill 5,880 — — — — 5,880 15,950 277 122 — — 16,349 2,007 205 119 1,345 (640) 3,036 23,886 505 659 51,403 (50,641) 25,812 Cost 105,512 2,957 3,757 1,715 Accumulated depreciation and amortization (35,759) Other Total investments and other assets Property, Plant and Equipment Generation facilities to be retired, net Net property, plant and equipment (977) (470) (948) 1 113,942 — (38,154) 644 — — — — 644 70,397 1,980 3,287 767 1 76,432 10,950 — — 533 — 11,483 13 — — 26 — 39 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets — — 559 3,224 4,555 56,924 (55,429) (54,661) 55,607 (597) Segment reclassifications, intercompany balances and other Segment Assets 10,963 112,435 $ 111,838 $ 23 (372) 3,247 $ 4,183 $ 2,263 $ — 178 $ 11,522 121,709 — 121,709 5 DUKE ENERGY CORPORATION Consolidating Balance Sheets - Liabilities and Equity (Unaudited) March 31, 2016 Regulated Utilities (in millions) International Energy Commercial Portfolio Other Eliminations / Adjustments Duke Energy Current Liabilities Accounts payable $ 1,596 $ 52 $ 91 $ 347 $ — $ 2,086 3,336 127 227 26 (3,716) Notes payable to affiliated companies 539 — — 451 (990) Notes payable and commercial paper — — — 3,486 — 3,486 Taxes accrued 426 47 183 — 394 Interest accrued 352 22 — 107 — 481 1,413 68 82 512 — 2,075 404 — — — — 404 Accounts payable to affiliated companies Current maturities of long-term debt Regulatory liabilities Other Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies (262) — — 1,436 55 49 508 (83) 1,965 9,502 371 187 5,620 (4,789) 10,891 25,879 653 995 10,704 625 — 17 — 1 (642) 38,232 — Deferred Credits and Other Liabilities 15,057 189 315 Investment tax credits 493 — — — — 493 Accrued pension and other post-retirement benefit costs 678 1 — 398 — 1,077 Deferred income taxes (2,736) — 12,825 10,186 16 67 1 (1) 10,269 Regulatory liabilities 6,218 — — 60 — 6,278 Other 1,018 84 281 318 2 1,703 33,650 290 663 1 32,645 42,779 1,869 2,671 — 41 22 42,779 1,910 2,693 112,435 3,224 4,555 Asset retirement obligations Total deferred credits and other liabilities (1,959) Equity Total Duke Energy Corporation stockholders' equity Noncontrolling interests Total equity(a) Total Liabilities and Equity (597) Segment reclassifications, intercompany balances and other Segment Liabilities and Equity (a) $ 111,838 $ 23 (372) 3,247 $ 4,183 $ 42,573 (14) (50,000) — 39,892 49 42,559 (50,000) 39,941 56,924 (55,429) 121,709 (54,661) 55,607 2,263 $ 178 $ — 121,709 As of March 31, 2016, the International Energy segment had a carrying value of approximately $2.6 billion, adjusted for $644 million of cumulative foreign currency translation losses currently classified as accumulated other comprehensive loss. 6 REGULATED UTILITIES Consolidating Segment Income (Unaudited) Three Months Ended March 31, 2016 Duke Energy Carolinas (in millions) Duke Energy Progress Duke Energy Florida Duke Energy Ohio(a) Duke Energy Kentucky Duke Energy Indiana Eliminations / Adjustments Regulated Utilities Operating Revenues Regulated electric $ Regulated natural gas Total operating revenues 1,740 $ 1,307 $ 1,024 $ 256 $ 84 $ 714 $ (36) $ 5,089 — — — 133 37 — 1,740 1,307 1,024 389 121 714 (36) — 5,259 421 448 412 79 32 228 (43) 1,577 170 Operating Expenses Fuel used in electric generation and purchased power Cost of natural gas — — — 34 15 — — 49 Operation, maintenance and other 492 373 199 77 32 158 1 1,332 Depreciation and amortization 254 175 114 50 11 125 (1) 728 67 41 78 68 3 23 (1) 279 Property and other taxes Impairment charges Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income — — 2 — — — 1,234 1,037 805 308 93 534 (44) (1) — 1 — 1 — — 506 271 219 82 28 180 — 2 3,967 1 7 1,293 37 17 5 1 1 4 (1) 64 Interest Expense 107 63 41 16 4 44 2 277 Income Before Income Taxes 436 225 183 67 25 140 4 1,080 Income Tax Expense 148 80 69 18 6 43 21 385 Other Income and Expenses, net Segment Income (a) $ 288 $ 145 $ 114 $ 49 $ 19 $ 97 $ (17) $ 695 Amounts exclude results from the wholly owned subsidiary, Duke Energy Kentucky. 7 REGULATED UTILITIES Consolidating Segment Income (Unaudited) Three Months Ended March 31, 2015 Duke Energy Carolinas (in millions) Duke Energy Progress Duke Energy Florida Duke Energy Ohio (a) Duke Energy Kentucky Duke Energy Indiana Eliminations / Adjustments Regulated Utilities Operating Revenues Regulated electric $ Regulated natural gas 1,901 $ 1,449 $ 1,086 $ 245 $ 94 $ 788 $ (73) $ 5,490 — — — 178 55 — 1,901 1,449 1,086 423 149 788 (73) 5,723 578 575 457 75 40 294 (78) 1,941 — — — 69 28 — — 97 Operation, maintenance and other 476 368 183 77 35 179 2 1,320 Depreciation and amortization 249 152 134 45 12 104 2 698 Total operating revenues — 233 Operating Expenses Fuel used in electric generation and purchased power Cost of natural gas Property and other taxes Total operating expenses Gains on Sales of Other Assets and Other, net Operating Income 70 32 80 67 3 1,373 1,127 854 333 118 (1) 576 (2) 249 (76) 4,305 — — — 6 — — 1 7 528 322 232 96 31 212 4 1,425 42 20 6 2 1 5 (4) 72 Interest Expense 102 60 49 16 4 45 (1) 275 Income Before Income Taxes 468 282 189 82 28 172 1 1,222 Income Tax Expense 168 95 73 30 10 62 10 448 52 $ 18 $ (9) $ 774 Other Income and Expenses, net Segment Income (a) $ 300 $ 187 $ 116 $ 110 $ Amounts exclude results from the wholly owned subsidiary, Duke Energy Kentucky. 8 REGULATED UTILITIES Consolidating Balance Sheets - Assets (Unaudited) March 31, 2016 Duke Energy Carolinas (in millions) Duke Energy Progress Duke Energy Florida Duke Energy Ohio(a) Duke Energy Kentucky Duke Energy Indiana Eliminations / Adjustments Regulated Utilities Current Assets Cash and cash equivalents $ 12 $ 129 47 61 80 2 Restricted receivables of variable interest entities, net 615 372 256 — — — 78 5 26 8 9 106 (174) (524) Receivables from affiliated companies Notes receivable from affiliated companies Inventory Regulatory assets Other Total current assets 17 $ 8 $ 11 $ Receivables, net 11 $ 17 $ 82 — $ 76 3 404 436 1,679 58 854 — — — 19 102 1,236 1,074 674 64 41 525 — 3,614 269 222 111 10 7 114 — 733 32 47 53 9 17 16 — 174 3,230 1,778 1,193 179 106 962 (259) 451 7,189 Investments and Other Assets Investments in equity method unconsolidated affiliates — — 2 — — — — 2 Investments and advances to subsidiaries 10 19 18 — — — — 47 3,081 2,068 730 — — — 1 5,880 — — — 920 — — 15,030 15,950 Nuclear decommissioning trust funds Goodwill Other Total investments and other assets 1,002 520 298 24 6 204 4,093 2,607 1,048 944 6 204 14,984 23,886 39,833 27,503 15,652 5,710 2,093 13,864 857 105,512 (13,769) (10,266) (4,734) (1,585) (47) 2,007 Property, Plant and Equipment Cost Accumulated depreciation and amortization Generation facilities to be retired, net Net property, plant and equipment (930) (4,472) (3) (35,759) — 531 — — — 113 — 644 26,064 17,768 10,918 4,125 1,163 9,505 854 70,397 2,801 2,725 2,730 441 71 766 1,416 10,950 4 3 2 2 — 2 — 13 Regulatory Assets and Deferred Debits Regulatory assets Other Total regulatory assets and deferred debits Total Assets Intercompany balances and other Reportable Segment Assets (a) $ 2,805 2,728 2,732 443 71 768 1,416 10,963 36,192 24,881 15,891 5,691 1,346 11,439 16,995 112,435 (251) (162) 35,941 $ 24,719 $ (91) 15,800 $ (11) — 5,680 $ 1,346 $ (98) 11,341 $ 16 17,011 $ (597) 111,838 Excludes the balances of the wholly owned subsidiary, Duke Energy Kentucky. 9 REGULATED UTILITIES Consolidating Balance Sheets - Liabilities and Equity (Unaudited) March 31, 2016 Duke Energy Carolinas (in millions) Duke Energy Progress Duke Energy Florida Duke Energy Ohio(a) Duke Energy Kentucky Duke Energy Indiana Eliminations / Adjustments Regulated Utilities Current Liabilities 597 $ 295 $ 236 168 73 (2) 14 11 Notes payable to affiliated companies — 108 948 8 — — Taxes accrued 83 33 64 111 11 119 Accounts payable $ Accounts payable to (from) affiliated companies 371 $ 188 $ 17 $ 124 $ 4 $ 2,836 (525) 5 Interest accrued 134 80 59 26 3 51 (1) Current maturities of long-term debt 468 252 13 4 51 547 78 Regulatory liabilities Other Total current liabilities Long-Term Debt Long-Term Debt Payable to Affiliated Companies 1,596 3,336 539 426 352 1,413 48 93 186 15 3 60 (1) 452 382 450 53 18 79 2 2,018 1,411 2,164 403 117 991 2,398 9,502 8,592 6,163 4,252 1,275 287 3,071 2,239 25,879 300 150 — — 25 150 — 625 404 1,436 Deferred Credits and Other Liabilities 6,318 3,067 2,563 1,145 298 1,650 16 15,057 Investment tax credits 197 154 — 3 1 138 — 493 Accrued pension and other post-retirement benefit costs 105 261 240 40 12 78 (58) Asset retirement obligations 3,913 4,573 799 22 103 525 251 10,186 Regulatory liabilities 2,829 1,876 509 192 53 759 — 6,218 642 31 132 134 27 59 (7) 14,004 9,962 4,243 1,536 494 3,209 202 33,650 Equity 11,278 7,195 5,232 2,477 423 4,018 12,156 42,779 Total Liabilities and Equity 36,192 24,881 15,891 5,691 1,346 11,439 16,995 112,435 Deferred income taxes Other Total deferred credits and other liabilities Intercompany balances and other Reportable Segment Liabilities and Equity (a) $ (251) (162) 35,941 $ 24,719 $ (91) 15,800 $ (11) — 5,680 $ 1,346 $ (98) 11,341 $ 16 17,011 $ 678 1,018 (597) 111,838 Excludes the balances of the wholly owned subsidiary, Duke Energy Kentucky. 10 REGULATED UTILITIES Revenues By Customer Class (Unaudited) (in millions) Regulated Electric Revenues Residential General service Industrial Wholesale Change in unbilled Other revenues Total Revenues Regulated Natural Gas Revenues Residential General service Industrial Change in unbilled Other revenues Total Revenues (in millions) Regulated Electric Revenues Residential General service Industrial Wholesale Change in unbilled Other revenues Total Revenues Regulated Natural Gas Revenues Residential General service Industrial Change in unbilled Other revenues Total Revenues (a) Duke Energy Carolinas $ $ $ $ $ $ $ Three Months Ended March 31, 2016 Duke Energy Duke Energy Duke Energy Duke Energy Eliminations / Florida Ohio(a) Kentucky Indiana Adjustments Regulated Utilities 787 $ 526 287 114 6 20 1,740 $ 514 $ 311 148 268 (9) 75 1,307 $ 520 $ 307 62 58 2 75 1,024 $ 164 $ 76 16 — (5) 5 256 $ 34 $ 32 13 5 (1) 1 84 $ 269 $ 171 171 88 (9) 24 714 $ — $ — — — — (36) (36) $ 2,288 1,423 697 533 (16) 164 5,089 — $ — — — — — $ — $ — — — — — $ — $ — — — — — $ 87 $ 38 5 (2) 5 133 $ 28 $ 10 2 (1) (2) 37 $ — $ — — — — — $ — $ — — — — — $ 115 48 7 (3) 3 170 Duke Energy Carolinas $ Duke Energy Progress Duke Energy Progress Three Months Ended March 31, 2015 Duke Energy Duke Energy Duke Energy Duke Energy Eliminations / Florida Ohio(a) Kentucky Indiana Adjustments Regulated Utilities 878 $ 533 288 116 (42) 128 1,901 $ 593 $ 326 159 299 (26) 98 1,449 $ 556 $ 335 69 76 (9) 59 1,086 $ 164 $ 75 15 — (7) (2) 245 $ 38 $ 34 13 14 (2) (3) 94 $ 321 $ 190 188 78 (21) 32 788 $ — $ — — — — (73) (73) $ 2,550 1,493 732 583 (107) 239 5,490 — $ — — — — — $ — $ — — — — — $ — $ — — — — — $ 116 $ 51 8 (3) 6 178 $ 39 $ 16 2 (1) (1) 55 $ — $ — — — — — $ — $ — — — — — $ 155 67 10 (4) 5 233 Amounts exclude results from the wholly owned subsidiary, Duke Energy Kentucky. 11 DUKE ENERGY MONEYPOOL SUPPLEMENT Schedule of Moneypool Balances (Unaudited) March 31, 2016 (in millions) Duke Energy(a) Moneypool lendings (borrowings) of commercial paper(c) Moneypool (borrowings) lendings (a) (b) (c) (d) (d) $ Duke Energy Carolinas 1,164 $ (451) Duke Energy Progress (300) $ 855 Duke Energy Florida (205) $ (53) Duke Energy Ohio(b) Duke Energy Kentucky (480) $ (4) $ (468) (4) Duke Energy Indiana Consolidated (25) $ 19 (150) $ 102 — — Duke Energy only includes Duke Energy Corporation (the Parent) and Duke Energy Business Services (DEBS). Excludes amounts of the wholly owned subsidiary, Duke Energy Kentucky. Duke Energy issues commercial paper and loans a portion of the proceeds through the moneypool to the subsidiary Public Utilities. Duke Energy participates in a moneypool arrangement with the subsidiary Public Utilities. Under the arrangement, short-term loans may be provided to affiliates. The Parent may loan funds through the moneypool but is prohibited from borrowing funds. DEBS is permitted to both borrow and loan funds into the moneypool. Borrowings presented for Duke Energy are borrowed by DEBS. 12 DUKE ENERGY CORPORATION ADJUSTED TO REPORTED EARNINGS RECONCILIATION Three Months Ended March 31, 2016 (Dollars in millions, except per-share amounts) Special Items Costs to Achieve, Mergers Adjusted Earnings Cost Savings Initiatives Discontinued Operations Total Adjustments Reported Earnings SEGMENT INCOME Regulated Utilities $ 695 $ — $ — $ — $ — $ 695 International Energy 123 — — — — 123 Commercial Portfolio 27 — — — — 27 845 — — — — 845 Total Reportable Segment Income Other Total Reportable Segment Income and Other Net Expense Discontinued Operations (68) (74) A (12) B — (86) (154) 777 (74) (12) — (86) 691 — — — 3 C 3 3 Net Income Attributable to Duke Energy Corporation $ 777 $ (74) $ (12) $ 3 $ (83) $ 694 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, BASIC $ 1.13 $ (0.11) $ (0.02) $ 0.01 $ (0.12) $ 1.01 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, DILUTED $ 1.13 $ (0.11) $ (0.02) $ 0.01 $ (0.12) $ 1.01 A - Net of $46 million tax benefit. Includes $1 million recorded within Operating Revenues, $19 million recorded within Operating Expenses and $100 million recorded within Interest Expense on the Condensed Consolidated Statements of Operations. B - Net of $8 million tax benefit. Consists of severance costs recorded within Operation, maintenance and other on the Condensed Consolidated Statements of Operations. C - Recorded in Income (Loss) From Discontinued Operations, net of tax on the Condensed Consolidated Statements of Operations. Weighted Average Shares (reported and adjusted) - in millions Basic 689 Diluted 689 13 DUKE ENERGY CORPORATION ADJUSTED TO REPORTED EARNINGS RECONCILIATION Three Months Ended March 31, 2015 (Dollars in millions, except per-share amounts) Special Items Costs to Achieve, Progress Merger Adjusted Earnings Midwest Generation Operations Discontinued Operations Total Adjustments $ $ Reported Earnings SEGMENT INCOME Regulated Utilities $ 774 $ — International Energy 36 — Commercial Portfolio 101 — 911 — Total Reportable Segment Income Intercompany Eliminations — 881 Total Reportable Segment Income and Other Net Expense Discontinued Operations — — $ 774 — — 36 (94) B — (94) 7 (94) — (94) 817 — — (13) (43) — — (1) D (1) (1) (13) (94) — — — — (13) A (30) Other $ (1) 94 B (3) C (108) 773 91 91 Net Income Attributable to Duke Energy Corporation $ 881 $ (13) $ — $ (4) $ (17) $ 864 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, BASIC $ 1.24 $ (0.02) $ — $ — $ (0.02) $ 1.22 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, DILUTED $ 1.24 $ (0.02) $ — $ — $ (0.02) $ 1.22 A - Net of $8 million tax benefit. Recorded within Operating Expenses on the Condensed Consolidated Statements of Operations. B - Operating results of the nonregulated Midwest generation business that had been classified from discontinued operations after adjustment for special items and economic hedges (net of $53 million tax benefit). C - Recorded in Income (Loss) From Discontinued Operations, net of tax on the Condensed Consolidated Statements of Operations. D - Reverses the impact on eliminations of classifying the nonregulated Midwest generation business as discontinued operations. Weighted Average Shares (reported and adjusted) - in millions Basic 708 Diluted 708 14 DUKE ENERGY CORPORATION Non-GAAP Financial Measures Management evaluates financial performance in part based on non-GAAP financial measures, adjusted earnings and adjusted diluted EPS. These items represent income from continuing operations net of income (loss) attributable to noncontrolling interests, adjusted for the dollar and per-share impact of special items. Special items represent certain charges and credits, which management believes will not be recurring on a regular basis. The special items for the period ended March 31, 2015, include the operating results of the nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, the Disposal Group) which are classified as discontinued operations for GAAP purposes. Management believes inclusion of the Disposal Group's operating results within adjusted earnings and adjusted diluted EPS results in a better reflection of Duke Energy's financial performance. Costs to achieve mergers includes financing costs related to the unsecured bridge facility to support the acquisition of Piedmont and the mark-to-market unrealized losses related to the forward-starting interest rate swaps used by Duke Energy to manage interest rate exposure for the expected financing of the Piedmont acquisition. The mark-to-market impact of forward-starting interest rate swaps is recognized in GAAP earnings immediately as the contracts do not qualify for hedge accounting or regulatory treatment. Management believes excluding the impact of the mark-to-market losses of the forward-starting interest rate swaps from adjusted earnings better reflects Duke Energy's financial performance and therefore has excluded these impacts from adjusted earnings and adjusted diluted EPS. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them 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 results to the Duke Energy Board of Directors, employees, stockholders, analysts and investors concerning Duke Energy’s financial performance. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation and Diluted EPS Attributable to Duke Energy Corporation common stockholders. Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. Management also uses adjusted segment income as a measure of historical and anticipated future segment performance. Adjusted segment income is a nonGAAP financial measure, as it is based upon segment income adjusted for special items, including the operating results of the Disposal Group classified as discontinued operations for GAAP purposes. Management believes the presentation of adjusted segment income provides useful information to investors as it provides an additional relevant comparison of a segment’s performance across periods. The most directly comparable GAAP measure for adjusted segment income is segment income, which represents segment income from continuing operations not adjusted for any special items. Duke Energy’s adjusted earnings, adjusted diluted EPS, and adjusted segment income may not be comparable to similarly titled measures of another company because other entities may not calculate the measures in the same manner. 15 BEFORE THE NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 In the Matter of Application of Duke Energy Carolinas, LLC, for Adjustment of Rates and Charges Applicable to Electric Utility Service in North Carolina ) ) ) ) ) TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 1 BEFORE THE NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 TESTIMONY OF MICHELLE M. BOSWELL ON BEHALF OF THE PUBLIC STAFF NORTH CAROLINA UTILITIES COMMISSION JANUARY 23, 2018 1 Q. 2 3 PLEASE STATE YOUR NAME, BUSINESS ADDRESS, AND PRESENT POSITION. A. My name is Michelle M. Boswell. My business address is 430 North 4 Salisbury Street, Dobbs Building, Raleigh, North Carolina. I am a 5 Staff Accountant with the Accounting Division of the Public Staff - 6 North Carolina Utilities Commission. 7 Q. BRIEFLY STATE YOUR QUALIFICATIONS AND DUTIES. 8 A. My qualifications and duties are included in Appendix A. 9 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY? 10 A. The purpose of my testimony is to present the accounting and 11 ratemaking adjustments I am recommending, as well as those 12 recommended by other Public Staff witnesses, as a result of the 13 Public Staff's investigation of the revenue, expenses, and rate base 14 presented by Duke Energy Carolinas, LLC (DEC or the Company) in TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-2, SUB 1142 Page 2 1 support of its August 25, 2017, request for $612,647,000 in additional 2 North Carolina retail revenue. On December 18, 2017, DEC filed 3 supplemental testimony and exhibits that detailed a $13,928,000 4 reduction in its request for additional North Carolina retail revenue. 5 The impact of this supplemental filing reduced the Company 6 proposed increase to $598,719,000. 7 Q. 8 9 WHAT REVENUE DECREASE IS THE PUBLIC STAFF RECOMMENDING? A. Based on the level of rate base, revenue, and expenses annualized 10 at December 31, 2016, with certain updates, the Public Staff is 11 recommending a decrease in annual operating revenue of 12 ($289,267,000). 13 Q. 14 15 MS. BOSWELL, PLEASE DESCRIBE THE SCOPE OF YOUR INVESTIGATION INTO THE COMPANY'S FILING. A. My investigation included a review of the application, testimony, 16 exhibits, and other data filed by the Company, an examination of the 17 books and records for the test year, and a review of the Company's 18 accounting, end-of-period, and after-period adjustments to test year 19 revenue, expenses, and rate base. 20 conducted extensive discovery in this matter, including the review of 21 numerous data responses provided by the Company in response to 22 data requests, participation in conference calls with the Company, The Public Staff has also TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 3 1 on-site visits to review documents and interview personnel, and tours 2 of the Company's plants. 3 Q. 4 5 PLEASE BRIEFLY DESCRIBE THE PUBLIC STAFF'S PRESENTATION OF THE ISSUES IN THIS CASE. A. Each Public Staff witness will present testimony and exhibits 6 supporting his or her position and recommend any appropriate 7 adjustments to the Company's proposed rate base and cost of 8 service. My exhibits reflect and summarize these adjustments, as 9 well as the adjustments I recommend. 10 Q. 11 12 PLEASE GIVE A MORE DETAILED DESCRIPTION OF THE ORGANIZATION OF YOUR EXHIBITS. A. Schedule 1 of Boswell Exhibit 1 presents a reconciliation of the 13 difference between the Company's requested 14 $612,647,000 and the Public Staff's recommended decrease of 15 ($289,267,000). 16 Schedule 2 presents the Public Staff's adjusted North Carolina retail 17 original cost rate base. The adjustments made to the Company's 18 proposed level of rate base are summarized on Schedule 2-1 and 19 are detailed on backup schedules. 20 Schedule 3 presents a statement of net operating income for return 21 under present rates as adjusted by the Public Staff. Schedule 3-1 TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 increase of Page 4 1 summarizes the Public Staff's adjustments, which are detailed on 2 backup schedules. 3 Schedule 4 presents the calculation of required net operating 4 income, based on the rate base and cost of capital recommended by 5 the Public Staff. 6 Schedule 5 presents the calculation of the required decrease in 7 operating revenue necessary to achieve the required net operating 8 income. 9 recommended decrease shown at the bottom of Schedule 1. 10 . 11 12 Boswell Exhibit 2 sets forth the calculation of an annual excess deferred income taxes (EDIT) Rider to be in effect for two years. Q. 13 14 This revenue decrease is equal to the Public Staff's MS. BOSWELL, WHAT ADJUSTMENTS TO THE COMPANY'S COST OF SERVICE DO YOU RECOMMEND? A. I am recommending adjustments in the following areas: 15 1) Adjust Test Year Revenues 16 2) Updated Net Plant and Depreciation Expense 17 3) Update for New Depreciation Rates 18 19 4) Updated Revenues and Non-Fuel Variable Operation and Maintenance (O&M) Expenses 20 5) Lee Nuclear 21 6) Lee Combined Cycle (Lee CC) Plant Addition 22 7) Lee Combined Cycle (Lee CC) Deferral 23 8) Cash Working Capital Under Present Rates 24 9) Coal Inventory TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 5 1 10) Effect of Base Fuel Factor 2 11) Effect of Inflation on Non-Fuel O&M Expenses 3 12) Payroll 4 13) Executive Compensation and Benefits 5 14) Board of Directors Expenses 6 15) Incentive Plans 7 16) Aviation Expenses 8 17) Outside Services 9 10 18) Removal of Costs to Achieve the Duke-Piedmont Merger 11 19) Allocations from DEBS 12 20) Lobbying Expenses 13 21) Distribution Vegetation Management 14 22) Customer Connect 15 23) Income Taxes 16 24) Sponsorships and Donations 17 25) Interest Synchronization 18 26) Cash Working Capital Effect of Increase 19 27) Excess Deferred Income Taxes (EDIT) 20 28) Establishment of a Grid Reliability and Resiliency 21 22 Rider (GRR) Q. 23 24 WHAT ADJUSTMENTS RECOMMENDED BY OTHER PUBLIC STAFF WITNESSES DO YOUR EXHIBITS INCORPORATE? A. My exhibits reflect the following adjustments recommended by other 25 Public Staff witnesses: 26 1) The recommendations of Public Staff witness Parcell of 27 Technical Associates, Inc. regarding the capital structure, 28 embedded cost of long-term debt, and return on common 29 equity. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 6 1 2) 2 The recommendations of Public Staff witness Floyd regarding Customer Connect. 3 3) 4 The recommendations of Public Staff witness Metz regarding Coal Inventory, Lee Nuclear, and Lee CC. 5 4) 6 The recommendations of Public Staff witness Lucas regarding beneficial reuse of coal ash. 7 5) The recommendations of Public Staff witness McCullar of 8 William Dunkel and Associates regarding the Company's 9 depreciation study. 10 6) 11 The recommendations of Public Staff witness Williamson regarding Vegetation Management and the GRR. 12 7) The recommendations of Public Staff witness Maness 13 regarding deferred and ongoing environmental costs, legacy 14 meters that are to be replaced by Advanced Metering 15 Infrastructure (AMI) meters, allowance for funds used during 16 construction 17 decommissioning, and GRR. 18 8) 19 (AFUDC) at Lee Nuclear, nuclear The recommendation of Public Staff witness Saillor regarding customer growth. 20 Q. PLEASE DESCRIBE YOUR RECOMMENDED ADJUSTMENTS. 21 A. My adjustments are described below. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 7 1 2 ADJUST TEST YEAR REVENUES Q. 3 4 PLEASE EXPLAIN YOUR ADJUSTMENT TO TEST YEAR REVENUES. A. I have adjusted test year revenues to reflect usage and customer 5 growth adjustments recommended by Public Staff witness Saillor, as 6 well as a weather normalization adjustment recommended by Public 7 Staff witness Hinton. I have made a corresponding adjustment for 8 the increase in customer-related O&M expenses that result from the 9 additional customers from the Company's adjustment to revenues. I 10 have also made corresponding adjustments to fuel and energy- 11 related non-fuel O&M expenses for the change in kilowatt hours 12 resulting from the Company's and the Public Staff's adjustments to 13 revenues. 14 15 UPDATED NET PLANT AND DEPRECIATION EXPENSE Q. PLEASE EXPLAIN 16 DEPRECIATION 17 RELATED. 18 A. AND HOW PLANT, DEPRECIATION ACCUMULATED EXPENSE ARE As the Company places new plant into service, it increases its rate 19 base. Upon being placed in service, the plant begins to depreciate, 20 and depreciation expense is recorded each accounting period (and 21 recovered from ratepayers) as the plant is used in providing service. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 8 1 The cumulative amount of depreciation expense is reflected on the 2 balance sheet as accumulated depreciation, which is deducted from 3 the original cost of the plant to determine net plant. Net plant (i.e., 4 total plant, net of accumulated depreciation) is used to calculate the 5 rate base on which the Company is allowed to earn a return, while 6 depreciation expense is an input in the calculation of net operating 7 income. 8 Q. 9 10 PLEASE EXPLAIN THE COMPANY'S COMPUTATION OF NET PLANT. A. The Company began its calculation of net plant with the plant and 11 accumulated depreciation amounts recorded at the end of December 12 31, 2016 (the test year in this case), and then updated for actual plant 13 additions through November 30, 2017, including the annual level of 14 depreciation on the plant additions as well as the matching amount 15 of accumulated depreciation. 16 growth-related additions. The Company excluded customer 17 Q. PLEASE EXPLAIN HOW YOU HAVE COMPUTED NET PLANT. 18 A. My calculation begins with plant, accumulated depreciation, and net 19 plant based on the Company's actual per books plant in service and 20 accumulated depreciation amounts as of November 30, 2017, which 21 include rate base customer growth-related actual plant additions. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 9 1 Q. 2 3 PLEASE EXPLAIN THE DIFFERENCE BETWEEN YOUR AMOUNT OF NET PLANT AND THE COMPANY'S AMOUNT. A. I have reflected $35.571 million less net plant than the Company, 4 primarily because I have updated net plant for known and actual 5 changes to depreciation expense and non-generation plant 6 retirements that have been recorded between the end of the test year 7 (December 31, 2016) and the update period ending November 30, 8 2017. Because I have updated plant and accumulated depreciation 9 to reflect the Company's actual November 30, 2017, per books 10 amounts, I have also considered the effect of normal retirements on 11 the computation of depreciation expense. Pursuant to the FERC 12 Uniform System of Accounts, normal retirements of plant reduce 13 plant and accumulated depreciation by offsetting amounts, and thus, 14 do not affect the amount of net plant reflected as a component of rate 15 base. If retirements are not properly reflected in the amount of plant 16 used to compute depreciation expense, depreciation expense will be 17 overstated. Because the Company has not properly reflected the 18 effect of normal retirements, its computation of depreciation expense 19 includes depreciation expense on plant that was retired as of 20 November 30, 2017 and consequently is overstated. 21 Q. BY MAKING THIS ADJUSTMENT TO UPDATE ACCUMULATED 22 DEPRECIATION FOR DEPRECIATION EXPENSE THAT HAS 23 BEEN RECOVERED FROM RATEPAYERS SINCE THE END OF TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 10 1 THE TEST PERIOD, IS THE PUBLIC STAFF CHANGING THE 2 TEST PERIOD? 3 A. No. Consistent with G.S. 62-133, we have used the historic test year 4 to determine the cost of service for DEC. When justified, we have 5 updated expenses, revenues, and investment to reflect the 6 Company's most recent ongoing levels for these items, based on 7 actual known and measurable changes occurring after the test year, 8 just as DEC did in its initial and supplemental testimony. The costs 9 of the plant additions that the Company included are known and 10 measurable, as are the plant retirements that have occurred and the 11 depreciation that has been recovered from ratepayers since the end 12 of the test period. 13 changes in accumulated depreciation, as the Company has done, 14 fails to properly take into account the relationships among plant, 15 depreciation expense and accumulated depreciation, as well as the 16 relationship between net plant and other cost of service items. The 17 Public Staff updated plant and accumulated depreciation to reflect 18 actual per books amounts as of November 30, 2017, because that 19 date represents the same point in time that the Public Staff used to 20 update customer growth. 21 While the Public Staff's adjustment to accumulated depreciation is 22 beyond the test year, it recognizes and maintains its relationship with 23 plant and other cost of service items and is permitted by G.S. 62- Including only plant additions and omitting TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 11 1 133(c) and (d). G.S. 62-133(c) provides that the Commission shall 2 consider evidence of changes in costs, revenues, or rate base after 3 the test year, while G.S. 62-133(d) requires the Commission to 4 consider all material facts to allow it to set just and reasonable rates. 5 The changes in plant, depreciation expense, and accumulated 6 depreciation since the test year are exactly the type of changes and 7 material facts that the Commission must consider pursuant to G.S. 8 62-133(c) and (d). 9 The adjustment I recommend is consistent with the Commission's 10 past treatment of comprehensive plant updates beyond the end of 11 the test year. Adjustments like this have been consistently approved 12 by the Commission in rate cases for natural gas utilities since the 13 1990's and were used by Dominion Energy North Carolina in its most 14 recent general rate cases. 1 15 16 UPDATE FOR NEW DEPRECIATION RATES Q. PLEASE DESCRIBE YOUR ADJUSTMENT TO DEPRECIATION 17 EXPENSE TO REFLECT NEW DEPRECIATION RATES. 1 Per Commission Orders in Public Service Company of North Carolina, Inc., Docket No. G-5, Sub 565; Piedmont Natural Gas Company, Inc., Docket No. G-9, Sub 631; and Dominion North Carolina Power, Docket Nos. E-22, Sub 479 and Sub 532. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 12 1 A. Based on the recommendations of Public Staff witness McCullar, I 2 have made an adjustment to depreciation expense to reflect her 3 recommended depreciation rates. 4 UPDATED REVENUES AND NON-FUEL VARIABLEO&M 5 EXPENSES 6 Q. 7 8 PLEASE EXPLAIN YOUR ADJUSTMENT TO UPDATE REVENUES AND VARIABLE NON-FUEL O&M EXPENSES. A. 9 As part of my update to plant and related items, I have updated revenues to reflect the effect of usage and customer growth 10 adjustments 11 recommendation of Public Staff witness Saillor. 12 corresponding adjustment for the increase in customer-related O&M 13 expenses that result from the additional customers. I have also 14 made corresponding adjustments to fuel and energy-related non-fuel 15 O&M expenses for the additional kilowatt hours resulting from 16 increased sales. 17 as of November 30, 2017, based on the I have made a LEE NUCLEAR 18 Q. PLEASE EXPLAIN YOUR ADJUSTMENT TO LEE NUCLEAR. 19 A. I have adjusted the balance for amortization to reflect the following: 20 1) removal of the costs associated with design of a visitor's center as 21 recommended by Public Staff witness Metz; (2) removal of a portion TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 13 1 of AFUDC as recommended by Public Staff witness Maness; and (3) 2 removal of the unamortized balance and associated accumulated 3 deferred income taxes (ADIT) from rate base. 4 excluding the unamortized balance and associated ADIT from rate 5 base, as opposed to including the amount and calculating a rate of 6 return as the Company has done, is consistent with the 7 Commission's long-standing policy regarding abandonment losses 8 related to nuclear plants: 2 that it is neither fair nor reasonable to 9 include in rate base any portion of the unamortized balance of 10 prudently incurred abandonment losses associated with an 11 abandoned unit in rate base, and that no adjustment should be 12 allowed which would, effectively enable the Company to earn a 13 return on the unamortized balance. The Commission has concluded 14 that this treatment provides the most equitable allocation of the loss 15 between the utility and the consumer, as it places some of the risk of 16 abandonment on the utility rather than imposing the entire loss of 17 expenditures onto the ratepayers. 18 unreasonable to ask ratepayers to bear all the risk of the Company's 19 investment. The premise for The Public Staff believes it is 2 Per Commission Orders in Docket Nos. E-22, Subs 224 and 273; E-2, Subs 461, 481, 526, and 537; and E-7, Subs 338, 358, 373, 391, 408, and 487. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 14 1 2 LEE CC PLANT ADDITION Q. 3 4 PLEASE EXPLAIN YOUR ADJUSTMENTS TO LEE CC PLANT ADDITION. A. I have incorporated three adjustments into my calculation of the Lee 5 CC plant addition. First, pursuant to a data request response 6 provided by the Company, I have reduced the estimated incremental 7 inventory on a North Carolina retail basis from $23,319,000 to 8 $5,330,000. 9 amount to reflect actual material and supplies inventory as of the The Public Staff reserves the right to update this 10 date the plant becomes operational. 11 Next, the Company updated its response to a data request that 12 reduces the estimated incremental O&M expenses on a North 13 Carolina retail basis from $6,031,000 to $1,982,000. 14 Additionally, I have removed the $1,982,000 O&M expenses from the 15 calculation, as it represents an estimate, not actual O&M expenses 16 needed to operate the plant. 17 expense is calculated based on actual expenses incurred to run the 18 plant for the months it was in service prior to setting rates in the rate 19 case, and a corresponding displacement adjustment is made to 20 reflect the fact that existing plant(s) in the Company's fleet will not 21 run as frequently due to the availability of the new plant. However, 22 since the plant is not in service, there is no period with actual O&M Historically, an annualized O&M TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 15 1 expenses that can be used to calculate a reasonable annualized 2 O&M expense level. Since I have not included an annualized O&M 3 expense in the adjustment, I have not made a displacement 4 adjustment to reduce the costs associated with other plant(s) that will 5 run less due to the addition of Lee CC. 6 Finally, based on the recommendation of Public Staff wtiness 7 McCullar, I reduced the depreciation rate from the 2.83% proposed 8 by the Company to 2.75%. 9 Q. 10 11 DO YOU HAVE ANY ADDITIONAL CONCERNS ABOUT THE LEE CC PLANT ADDITIONS? A. Yes. As of the date of my testimony in this proceeding, the Lee CC 12 plant is not in service. I have included the plant addition in the 13 calculation of revenue requirement as the Company is projecting the 14 plant to be in service by the beginning of February 2018. However, 15 if the plant is not in service as of the close of the hearing, I 16 recommend removing the plant and related deferral adjustments 17 from rates, and including the plant in CWIP to be included in rate 18 base. I have reflected the impact of these adjustments on Boswell 19 Exhibit 1, Schedule 1, Line 45. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 16 1 LEE CC DEFERRAL 2 Q. PLEASE EXPLAIN THE ADJUSTMENT TO LEE CC DEFERRAL. 3 A. I have incorporated several adjustments into the calculation of the 4 Lee CC deferral. First, I have incorporated all of the adjustments 5 included in the Lee CC plant additions calculation discussed 6 previously. Second, I have included only three months of deferral 7 costs, the period of February through April 2018, in calculating the 8 deferral, as the plant will not be in operation until the end of January 9 2018 at the earliest. The deferral accounts are for the period from 10 when the plant is in service until new rates are effective. 11 Third, I have adjusted the Company's pre-tax rate of retun used in 12 the calculation of the deferred balance to reflect the capital structure 13 and cost rates as approved in DEC's last rate case in Docket No. E- 14 7, Sub 1026 and the current income tax rates. 15 Finally, I recommend that the Lee CC deferral costs for North 16 Carolina retail be recovered through a levelized amortization over a 17 five-year period. I have calculated the levelized amortization amount 18 based upon my recommended five-year period and the after-tax rate 19 of return using the capital structure, cost rates, and combined income 20 tax rate recommended by the Public Staff in this proceeding. Both TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 17 1 the five-year amortization period and the levelized amortization 2 calculation have historically been proposed by the Public Staff as a 3 reasonable method for the Company to recover the deferral costs of 4 adding a baseload plant. 5 6 CASH WORKING CAPITAL UNDER PRESENT RATES Q. 7 8 PLEASE EXPLAIN THE ADJUSTMENT TO CASH WORKING CAPITAL UNDER PRESENT RATES. A. The Company computed cash working capital using the lead-lag 9 study method and then adjusted it to fully reflect all of the Company's 10 proposed adjustments, before the amount of the proposed rate 11 increase. 12 present rates to reflect all of the Public Staff's adjustments, in 13 accordance with the Commission's Order in Docket No. M-100, Sub 14 137. This cash working capital adjustment is reflected on Schedule 15 2-1 and incorporates the effect of the Public Staff's adjustments, 16 before the rate increase, on lead-lag study cash working capital. 17 I have likewise adjusted cash working capital under COAL INVENTORY 18 Q. PLEASE EXPLAIN THE ADJUSTMENT TO COAL INVENTORY. 19 A. I have adjusted coal inventory to reflect the recommendations of 20 Public Staff witness Metz. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 18 1 2 EFFECT OF BASE FUEL FACTOR Q. 3 4 PLEASE EXPLAIN YOUR ADJUSTMENT TO THE BASE FUEL FACTOR. A. I have incoporated the fuel factor approved by the Commission in 5 DEC's last fuel case in Docket No. E-2, Sub 1129 to calculate the 6 fuel expenses and revenues in this case. The Company utilized the 7 fuel factor it originally filed in the same docket, not the Commission- 8 approved factor. The net effect of the adjustment is zero, as the 9 adjustment to expenses is offset by the change to revenues. 10 The fuel revenue presented in the present rates column as filed by 11 the Company should reflect fuel under present Commission- 12 approved rates. It is inappropriate to state fuel revenues at present 13 rates at a level other than what the Commission has already 14 approved. The Public Staff inquired about the Company's rationale 15 for the fuel factors used by the Company; DEC responded: "Due to 16 the timing of the HB589 legislation, the fuel factors approved in E-7, 17 Sub 1129 do not include the PURPA purchased power costs. As a 18 result the approved factors are lower than what the Company 19 expects will be proposed in its next fuel proceeding. The Company 20 believes the higher fuel factors proposed in this general rate case 21 proceeding are more representative of the fuel costs the Company 22 expects to incur and recover in future fuel proceedings." TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 The Page 19 1 Company did not provide any documentation to support the usage of 2 a fuel factor which was calculated to incorporate the effects of HB589 3 approval. 4 It appears that the Company is attempting to have the Commission 5 implement a base fuel factor that reflects a level of fuel expense that 6 the Company estimates will be found appropriate, or close to 7 appropriate, in a future fuel case. The Public Staff does not believe 8 that this type of rough estimate is appropriate for setting a base fuel 9 factor in a general rate case. The Public Staff believes that if DEC 10 wanted a base fuel factor higher than the most recently Commission- 11 approved factor, the Company should have presented the cost 12 support to fully justify the change in fuel expense and the resulting 13 proposed fuel factor, and increase fuel expense, not fuel revenue 14 under present rates, to justify the increase. 15 expense would have then be used to propose an increase in the base 16 fuel factor as part of the overall rate change. 17 18 EFFECT OF INFLATION ON NON-FUEL O&M EXPENSES Q. 19 20 The increased fuel WHAT ADJUSTMENT HAVE YOU MADE TO THE COMPANY'S INFLATION ADJUSTMENT? A. The Company made an adjustment to annual non-labor, non-fuel 21 O&M costs, to reflect the increase in costs during the test year that 22 occurred due to the effect of inflation as of October 2017. I have TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 20 1 adjusted the amount to reflect the inflation factor through November 2 30, 2017, so as to coordinate with other items updated through that 3 same point in time. I have also modified the Company's inflation 4 adjustment to reflect the Public Staff's adjustment to include variable 5 O&M expenses for changes in customer growth and the removal of 6 aviation expenses, Board of Directors (BOD) expenses, outside 7 services expenses, uncollectibles, and sponsorships and donations. 8 PAYROLL 9 Q. 10 11 PLEASE EXPLAIN THE PUBLIC STAFF'S ADJUSTMENT TO PAYROLL. A. I have adjusted the Company's updated payroll provided in its 12 December 18, 2017 supplemental filing to include the updated 13 payroll allocation factors through November 2017 as provided by the 14 Company in response to a data request. For Duke Energy Business 15 Services, LLC (DEBS) payroll allocated to DEC, I have applied the 16 updated allocation factor only to the increase in payroll between 17 December 31, 2016 and November 30, 2017, as the test year 18 amount is included in the DEBS to DEC allocation adjustment 19 discussed later in my testimony. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 21 1 2 EXECUTIVE COMPENSATION AND BENEFITS Q. 3 4 WHAT ADJUSTMENT HAVE YOU MADE TO EXECUTIVE COMPENSATION AND BENEFITS? A. The Company made an adjustment to remove 50 percent of the 5 compensation of the four Duke Energy executives with the highest 6 level of compensation allocated to DEC in the test period. 7 adjustment includes the removal of 50 percent of the compensation 8 of an additional executive. 9 compensation of the top five Duke Energy executives, as opposed 10 to the top four executives as the Company has done, is to reflect the 11 fact that the additional executive's duties and compensation 12 encompass a substantial amount of activities that are closely linked 13 to shareholder interests, just as in the case of the other four 14 executives. 15 I have also made an adjustment to remove 50 percent of the benefits 16 associated with these top five Duke Energy executives. 17 adjustment is consistent with the positions taken by the Public Staff 18 and approved by the Commission in past general rate cases 19 involving investor-owned electric utilities serving North Carolina retail 20 customers. The Public Staff believes that it would be inconsistent to 21 remove the compensation of these five executives without also 22 removing the benefits related to that compensation. My The premise of including the TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 This Page 22 1 Q. IS YOUR RECOMMENDATION BASED ON THE PREMISE THAT 2 THE COMPENSATION AND BENEFITS OF THE EXECUTIVE 3 OFFICERS YOU HAVE SELECTED ARE EXCESSIVE OR 4 SHOULD BE REDUCED? 5 A. No. This recommendation is based on the Public Staff's belief that it 6 is appropriate and reasonable for the shareholders of the larger 7 electric utilities to bear some of the cost of compensating those 8 individuals who are most closely linked to furthering shareholder 9 interests, which are not always the same as those of ratepayers. 10 Officers have fiduciary duties of care and loyalty to shareholders, but 11 not to customers. Consequently, the Company's executive officers 12 are obligated to direct their efforts not only to minimizing the costs 13 and maximizing the reliability of DEC's service to customers, but also 14 to maximizing the Company's earnings and the value of its shares. 15 It is reasonable to expect that management will serve the 16 shareholders as well as the ratepayers; therefore, a portion of 17 management salary and benefits should be borne by the 18 shareholders. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 23 1 BOARD OF DIRECTORS (BOD) EXPENSES 2 Q. PLEASE EXPLAIN YOUR ADJUSTMENT TO BOD EXPENSES. 3 A. I have made an adjustment to remove 50 percent of the expenses 4 associated with the BOD of Duke Energy Corporation that have been 5 allocated to DEC. The expenses allocated to DEC encompass the 6 BOD's 7 expenses. The premise of this adjustment is closely linked to the 8 premise of the adjustment made by the Public Staff related to 9 executive compensation. compensation, insurance, and other miscellaneous We believe that it is appropriate and 10 reasonable for the shareholders of the larger electric utilities to bear 11 a reasonable share of the costs of compensating those individuals 12 who have a fiduciary duty to protect the interests of shareholders, 13 which may differ from the interests of ratepayers. Further, Directors' 14 and Officers' liability insurance, while a necessary expense for a 15 corporation, has been utilized to defend the Board in suits brought 16 by shareholders regarding issues such as coal ash. It is appropriate 17 for shareholders to share the cost of the insurance with ratepayers. 18 INCENTIVE PLANS 19 20 Q. PLEASE EXPLAIN YOUR ADJUSTMENT FOR THE COMPANY'S LONG AND SHORT TERM INCENTIVE PLANS. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 24 1 A. DEC offers two incentive plans to its employees: the Short-Term 2 Incentive Plan (STIP) and the Long-Term Incentive Plan (LTIP). The 3 STIP is offered to all employees, including executives. The LTIP is 4 offered to employees at the Director level and above. Approximately 5 700 employees of Duke Energy Corporation qualify for the LTIP. 6 The STIP consists of goals set and approved by the BOD for a one- 7 year term. In 2016, the test year in this case, the goals consisted of 8 Earnings per Share (EPS), Operational Excellence, Customer 9 Satisfaction, and Safety, as well as team and individual goals. The 10 LTIP goals consist of Performance Shares, which are further 11 categorized between EPS and Total Shareholder Return (TSR), and 12 Restricted Stock Units (RSU). Both offerings are set and approved 13 by the BOD for a three-year period. 14 The Company's payout of STIP is based on the achievement of 15 targets at minimum, target and maximum levels. During the test 16 year, the Company included an adjustment to reduce the STIP from 17 the 2016 payout level to the 2017 target level. With regard to LTIP, 18 the Company made an adjustment to remove the 2016 accruals and 19 replace them with 2017 target accruals. 20 I have adjusted the allowable costs of STIP to exclude the incentive 21 accruals that were based on the EPS metric. 22 believes that the incentives related to EPS should be excluded TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 The Public Staff Page 25 1 because they provide a direct benefit to shareholders rather than to 2 ratepayers. 3 STIP only accounts for 30% of the non-executive level employees 4 accrual, and 50% of the executive level employees accrual. 5 I have also adjusted the allowable LTIP costs to exclude the 6 Performance Shares, which include the EPS and TSR metrics. The 7 Public Staff believes that the incentives related to EPS and TSR 8 should be excluded because they provide a direct benefit to 9 shareholders rather than to ratepayers. It should be further noted that the EPS portion of the The Company's BOD 10 mintues depict a direct link and benefit between the Company's goals 11 and shareholder's interests. Therefor, these costs should be borne 12 by shareholders. 13 14 AVIATION EXPENSES Q. 15 16 WHAT ADJUSTMENT DO YOU RECOMMEND RELATED TO AVIATION EXPENSES? A. The Company made an adjustment to O&M expenses to remove an 17 amount for corporate aviation, and updated this adjustment in its 18 December 18, 2017 supplemental filing. The Public Staff made a 19 further adjustment after investigating the aviation expenses charged 20 to DEC during the test year. The aviation expenses are incurred by 21 Duke Energy Corporation, and then a portion is allocated to DEC TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 26 1 through the use of a corporate allocation factor. Based on the Public 2 Staff's review of flight logs, the corporate aircraft are available for use 3 by Duke Energy Corporation's Chief Executive Officer (CEO) and her 4 staff. 5 removed due to the nature of the flights involved. Some of these 6 flights appear to be unrelated to the provision of utility service; in 7 other instances, the costs of the flights have been incorrectly 8 allocated; and in other cases, the Company has not justified the costs 9 of using Company-owned aircraft rather than purchasing tickets for 10 I recommend that certain expenses allocated to DEC be commercial flights. 11 12 OUTSIDE SERVICES Q. 13 14 PLEASE EXPLAIN YOUR ADJUSTMENT TO OUTSIDE SERVICES. A. During 2016, the test year in this case, the Public Staff reviewed 15 costs for outside services associated with expenses that were 16 indirectly charged to DEC by DEBS as well as those incurred by DEC 17 directly. Our investigation revealed charges that were related to legal 18 services for coal ash and groundwater issues related to coal ash. I 19 have removed these expenses from O&M in the test period based 20 on the advice of counsel. 21 expenses that were allocated to DEC that should have been directly 22 assigned to other jurisdictions, as well as costs allocated to DEC The Public Staff also found certain TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 27 1 which the Public Staff believes should not be charged to ratepayers, 2 and costs for the Duke-Piedmont merger. The costs allocated to 3 DEC for the Duke-Piedmont merger are discussed in the next section 4 of my testimony. As for certain expenses that were allocated to DEC 5 that should have been directly assigned to other jurisdictions, the 6 Company has agreed to remove these items based on the Public 7 Staff's audit. DEC ratepayers should be charged only the reasonable 8 costs of providing electric service to North Carolina retail customers. 9 REMOVAL OF COSTS TO ACHIEVE DUKE-PIEDMONT MERGER 10 Q. 11 12 PLEASE EXPLAIN YOUR ADJUSTMENT TO COSTS TO ACHIEVE THE MERGER. A. On September 29, 2016, in Docket No. E-7, Sub 1100, Docket No. 13 E-2, Sub 1095, and Docket No. G-9, Sub 682, the Commission 14 issued its Order Approving Merger Subject to Regulatory Conditions 15 and Code of Conduct (Merger Order), which approved the merger 16 between Duke Energy Corporation and Piedmont Natural Gas 17 (PNG). 18 addresses the ratemaking treatment of costs incurred to achieve the 19 merger, states (emphasis added): 20 21 22 23 24 25 Ordering paragraph 7(b) of the Merger Order, which DEC, DEP, and Piedmont may request recovery through depreciation or amortization, and inclusion in rate base, as appropriate and in accordance with normal ratemaking practices, their respective shares of capital costs associated with achieving merger savings [emphasis added], such as system integration TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 28 1 2 3 4 5 6 7 8 9 costs and the adoption of best practices, including information technology, provided that such costs are incurred no later than three years from the close of the merger and result in quantifiable cost savings that offset the revenue requirement effect of including the costs in rate base. Only the net depreciated costs of such system integration projects at the time the request is made may be included, and no request for deferrals of these costs may be made. 10 On October 4, 2017, Duke Energy Corporation filed a letter indicating 11 that both it and Piedmont accepted and agreed to all the terms, 12 conditions, and provisions of the Merger Order, including the 13 Regulatory Conditions and Code of Conduct. During the test year in 14 this case, DEC has included in operating expenses approximately 15 $6.5 million on a North Carolina retail basis that it identified as 16 systems and transition costs to achieve merger savings. 17 Since the Merger Order states in ordering paragraph 7(b) that DEC 18 shall only be allowed to recover the capital costs associated with 19 achieving merger savings, such as system integration costs, the 20 Public Staff has removed the $6.5 million of O&M expenses that DEC 21 identified as systems and transitions costs to achieve the merger that 22 were included in its North Carolina retail operating expenses in this 23 case. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 29 1 2 ALLOCATIONS FROM DEBS Q. 3 4 PLEASE EXPLAIN YOUR ADJUSTMENT TO ALLOCATIONS FROM DEBS. A. DEBS is the company that provides services to various affiliated 5 entities of Duke Energy Corporation. The affiliated entities have a 6 Cost Allocation Manual (CAM) that documents the guidelines and 7 procedures for allocating costs between the entities to ensure that 8 one entity does not subsidize another. 9 Energy acquired PNG, and the merger was approved by the During the test year, Duke 10 Commission on September 29, 2016. 11 updates related to other affiliated entities, has caused the DEC 12 allocation factors to decrease on a going-forward basis. As a result, 13 I have made an adjustment to reflect the fact that O&M expenses 14 allocated to DEC from DEBS will be less going forward. 15 16 LOBBYING EXPENSES Q. 17 18 This change, along with PLEASE EXPLAIN YOUR ADJUSMTENT TO LOBBYING EXPENSES. A. The Company made an adjustment to remove some lobbying 19 expenses from the test year. I have further adjusted O&M expenses 20 to remove additional lobbying costs. In determining what costs TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 30 1 should be removed, I applied the "but for" test for reporting lobbying 2 costs as used in a Formal Advisory Opinion of the State Ethics 3 Commission dated February 12, 2010. The Commission recognized 4 at pages 70-71 of its 2012 Dominion North Carolina Power order in 5 Docket No. E-22, Sub 479, that lobbying included not only 6 employees' direct contact with legislators, but also other activities 7 preparing for or surrounding lobbying that would not have been 8 conducted but for the lobbying itself. In applying this test, I removed 9 O&M expenses associated with stakeholder engagement, state 10 government affairs, and federal affairs that were recorded above the 11 line. 12 13 DISTRIBUTION VEGETATION MANAGEMENT Q. 14 15 PLEASE EXPLAIN THE PUBLIC STAFF'S ADJUSTMENT TO DISTRIBUTION VEGETATION MANAGEMENT. A. I have made an adjustment to distribution vegetation management 16 expenses (VM) to include a reasonable level for the test period in this 17 case. The adjustment to distribution VM is calculated based on the 18 production costs incurred during the test period and adjusted to 19 reflect the actual cost increases for which the Company has signed 20 contracts. Vegetation Management for distribution and transmission 21 is further discussed in the testimony of Public Staff witness 22 Williamson. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 31 1 2 CUSTOMER CONNECT Q. 3 4 PLEASE EXPLAIN YOUR ADJUSTMENT TO CUSTOMER CONNECT. A. In this case, the Company included an amount of forecasted O&M 5 costs that it expects to incur during the 2018-2020 time frame related 6 to its Customer Connect project. 7 testimony and data request responses, the Customer Connect 8 project is currently planned to be in service in 2022 and will replace 9 the Company's current billing system. I have made an adjustment to 10 remove the forecasted O&M amounts the Company plans to spend 11 between 2018 and the in-service date. The rationale for this 12 adjustment is that the system is in the analytics stage and is currently 13 non-functional. 14 gathering customer data to build and develop a platform to enhance 15 customer interactions with the Company. 16 understanding of this project, full functionality of this project for DEC 17 is not expected until the summer of 2022. 18 Although the Public Staff cannot agree that the forecasted O&M 19 costs related to a currently non-functional system should be 20 recovered in current rates, we do not oppose the approval of a 21 regulatory asset for the Customer Connect project, based on the 22 language of section III(K) of the Agreement and Stipulation of Partial As stated in the Company's Specifically, the Company is in the process of TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Based on my Page 32 1 Settlement filed on November 27, 2017, by Duke Energy Progress, 2 LLC and the Public Staff, in Docket No. E-2, Sub 1142. By approving 3 a regulatory asset for the Customer Connect project, the 4 Commission will enable the Company to move forward with the 5 project while protecting ratepayers from funding estimated costs for 6 a system that is not yet functional. Public Staff witness Floyd will 7 provide further testimony on Customer Connect. 8 INCOME TAXES 9 Q. PLEASE EXPLAIN YOUR ADJUSTMENT TO INCOME TAXES. 10 A. I have updated the income taxes expense to reflect the decrease in 11 the federal income tax rate from 35% to 21% as well as to remove 12 the Manufacturing Tax Deduction to align with the Federal Tax Cuts 13 and Jobs Act signed into law in December 2017. 14 The Public Staff reserves the right to supplement its filing in this 15 docket at a later date to include the flowback of EDIT related to the 16 federal tax rate decrease to ratepayers. Currently, the Public Staff is 17 awaiting information from the Company that will not be available until 18 early February in order to appropriately calculate this amount. 19 Furthermore, the Public Staff reserves the right to true-up 20 adjustments related to the federal tax decrease, including EDIT, 21 based upon a Commission Order in Docket No. M-100, Sub 148. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 33 1 2 SPONSORSHIPS AND DONATIONS Q. 3 4 WHAT ADJUSTMENT HAVE YOU MADE FOR SPONSORSHIPS AND DONATIONS? A. I have adjusted O&M expenses to remove amounts charged to O&M 5 expense for sponsorships and charitable donations. Specifically, I 6 have excluded from expenses amounts paid to the U.S. Chamber of 7 Commerce, other chambers of commerce, the NC Chamber 8 Foundation, and political related donations. These expenses should 9 be disallowed because they do not represent actual costs of 10 providing electric service to customers. 11 12 INTEREST SYNCHRONIZATION ADJUSTMENT Q. 13 14 PLEASE EXPLAIN YOUR INTEREST SYNCHRONIZATION ADJUSTMENT. A. The Company adjusted income tax expense to reflect interest 15 synchronization with its proposed capital structure, cost of debt and 16 rate base. I have also adjusted income tax expense to reflect the 17 deduction of the pro forma level of interest resulting from the 18 application of the Public Staff's recommended return and capital 19 structure to its recommended rate base. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 34 1 2 CASH WORKING CAPITAL EFFECT OF INCREASE Q. 3 4 PLEASE EXPLAIN THE ADJUSTMENT TO CASH WORKING CAPITAL FOR THE PROPOSED INCREASE. A. The cash working capital lead-lag effect of the proposed revenue 5 decrease as recommended by the Public Staff has been calculated 6 on Boswell Exhibit 1, Schedule 2-1(e). 7 EXCESS DEFERRED INCOME TAXES (EDIT) 8 Q. PLEASE EXPLAIN THE EDIT RIDER. 9 A. In this case, the Company included an adjustment to amortize the 10 excess deferred state taxes that it collected pursuant to the 11 Commission's May 13, 2014 order in Docket No. M-100, Sub 138. 12 The Company proposes that the excess deferred income taxes 13 (EDIT) addressed in this order be returned to customers over a five- 14 year period. 15 beneficial to return the EDIT to customers through a rider that will 16 expire at the end of a two-year period. Boswell Exhibit 2 sets forth 17 the Public Staff's calculations for the EDIT Rider. The Public Staff believes that it would be more TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 35 1 ESTABLISHMENT OF A 2 GRID RELIABILITY AND RESILIENCY RIDER (GRR) 3 Q. PLEASE EXPLAIN THE GRR. 4 A. In this case, the Company has requested a Grid Reliability and 5 Resiliency Rider and included $35,666,000 as part of the total 6 requested increase, as shown on Company witness McManeus 7 Exhibit 2. Based on the recommendations of Public Staff witnesses 8 Williamson and Maness, I have removed this amount, as shown on 9 Boswell Exhibit 1, Schedule 1. 10 ADDITIONAL COMMENTS 11 Q. DO YOU HAVE ADDITIONAL COMMENTS? 12 A. Yes. I have additional comments with regard to the following items: 13 (1) Lead-Lag study 14 (2) Company's January 16, 2018 supplemental filing 15 Q. 16 17 WHAT ADDITIONAL COMMENTS DO YOU HAVE CONCERNING THE LEAD-LAG STUDY? A. As part of its filing in this case, DEC submitted a lead-lag study 18 performed by Ernst & Young, LLP in 2010 using fiscal year 2009 data 19 (the 2009 E&Y study). In conversations with Company personnel, 20 DEC has informally advised the Public Staff that it did not TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 36 1 commission a new lead-lag study for this case because the Company 2 believed the existing study was still valid. The Public Staff reviewed 3 documentation corresponding to samples of select 2016 test year 4 transactions. The purpose of this sampling was to verify that the 5 Company's 2016 test year lead-lag metrics were materially 6 consistent with those determined in connection with the prior rate 7 cases in Docket Nos. E-7, Sub 1026 and Sub 989. Based upon the 8 Public Staff's request of the sample items, the Company submitted 9 files containing updated computations based upon 2016 data for 10 certain schedules. The Public Staff recalculated the lead- lag study 11 utilizing the sampled updated lead day metrics and found that the 12 Company's lead day times using the 2016 data were materially 13 different for several of the schedules presented. 14 adjustment to the lead-lag metrics would require a fully updated lead- 15 lag study on all components of DEC's revenues and expenses. 16 The Public Staff believes that a fully updated lead- lag study on all 17 components should have been completed and recommends that the 18 Commission direct the Company to prepare and file a lead-lag study 19 in its next rate case. 20 21 Q. However, any WHAT ARE YOUR ADDITIONAL COMMENTS REGARDING THE COMPANY'S JANUARY 16, 2018 SUPPLEMENTAL FILING? TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 37 1 A. The Public Staff is aware of the supplemental filing; however, given 2 the timing of the supplemental filing and the the due date of the 3 Public Staff's testimony, the Public Staff could not perform an audit 4 on the Company's updated information in the short time before it was 5 due to file testimony. The Public Staff reserves the right to file its 6 own supplemental testimony related to the Company's January 16, 7 2018 supplemental filing once an audit of the updated information is 8 completed. 9 Q. DOES THIS CONCLUDE YOUR TESTIMONY? 10 A. Yes, it does. TESTIMONY OF MICHELLE M. BOSWELL PUBLIC STAFF - NORTH CAROLINA UTILITIES COMMISSION DOCKET NO. E-7, SUB 1146 Page 38 Appendix A MICHELLE M. BOSWELL Qualifications and Experience I graduated from North Carolina State University in 2000 with a Bachelor of Science degree in Accounting. I am a Certified Public Accountant. I joined the Public Staff in September 2000. I have performed numerous audits and/or presented testimony and exhibits before the Commission addressing a wide range of electric, natural gas, and water topics. I have performed audits and/or presented testimony in Duke Energy's 2010 REPS Cost Recovery Rider; the 2008 REPS Compliance Reports for North Carolina Municipal Power Agency 1, North Carolina Eastern Municipal Power Agency, GreenCo Solutions, Inc., and EnergyUnited Electric Membership; four recent Piedmont rate cases; PSNC's 2016 rate case, DNCP's 2012 rate case, DEP's 2013 rate case, several Piedmont, NUI, and Toccoa annual gas cost reviews; Piedmont and NUI's merger; and Piedmont and NCNG's merger. Additionally, I have filed testimony and exhibits in numerous water rate cases and performed investigations addressing a wide range of topics and issues related to the water, electric, and telephone industries. INDEX TO BOSWELL EXHIBIT 1 Title Schedule Number 1 REVENUE IMPACT OF PUBLIC STAFF ADJUSTMENTS 2 SUPPORT FOR RECONCILIATION SCHEDULE 1-1 3 CALCULATION OF GROSS REVENUE EFFECT FACTORS 1-2 4 CALCULATION OF COMPOSITE INCOME TAX RATE 1-3 5 CALCULATION OF IMPACT OF INCLUDING LEE COMBINED CYCLE IN PLANT 1-4 6 ORIGINAL COST RATE BASE 7 SUMMARY OF PUBLIC STAFF RATE BASE ADJUSTMENTS 8 ADJUSTMENT TO UPDATE PLANT AND ACCUMULATED DEPRECIATION 2-1(a) 9 ADJUSTMENT TO UPDATE PLANT IN SERVICE TO NOVEMBER 30, 2017 2-1(a)(1) 10 ADJUSTMENT TO UPDATE ACCUMULATED DEPRECIATION TO NOVEMBER 30, 2017 2-1(a)(2) 11 ADJUSTMENT TO ACCUMULATED DEPRECIATION FOR ANNUALIZATION OF DEPRECIATION EXPENSE 2-1(a)(3) 1 2 2-1 12 ADJUSTMENT TO LEE COMBINED CYCLE ADDITION IMPACT TO RATE BASE 2-1(b) 13 ADJUSTMENT TO COAL INVENTORY 2-1(c) 14 CALCULATION OF WORKING CAPITAL FROM LEAD / LAG STUDY UNDER PRESENT RATES 2-1(d) 15 PUBLIC STAFF ADJUSTMENTS TO BE REFLECTED IN LEAD / LAG CALCULATION 16 CALCULATION OF WORKING CAPITAL FROM LEAD / LAG STUDY AFTER RATE DECREASE 17 SUMMARY OF REGULATORY ASSETS & LIABILITIES 18 NET OPERATING INCOME FOR RETURN 19 SUMMARY OF PUBLIC STAFF NET OPERATING INCOME ADJUSTMENTS 20 ADJUSTMENT TO INCOME TAX EXPENSE TO REFLECT TAX CUTS AND JOBS ACT 3-1(a) 21 ADJUSTMENT TO TEST YEAR REVENUES AND RELATED EXPENSES 3-1(b) 22 CALCULATION OF ADJUSTMENT TO TEST YEAR REVENUES AND FUEL RELATED EXPENSES FOR WEATHER 3-1(b)(1) CALCULATION OF CUSTOMER GROWTH ADJUSTMENT TO TEST YEAR REVENUES AND FUEL RELATED EXPENSES 3-1(b)(2) CALCULATION OF USAGE ADJUSTMENT TO TEST YEAR REVENUES AND FUEL RELATED EXPENSES 3-1(b)(3) 25 CALCULATION OF ENERGY-RELATED EXPENSES 3-1(b)(4) 26 CALCULATION OF BILL-RELATED EXPENSES 3-1(b)(5) 27 ADJUSTMENT TO DEPRECIATION EXPENSE AND PROPERTY TAXES FOR PLANT UPDATE 28 CALCULATION OF DEPRECIATION EXPENSE ON PLANT UPDATE 29 ADJUSTMENT TO UPDATE REVENUES TO NOVEMBER 30, 2017 30 CALCULATION OF ADJUSTMENT TO REVENUES AND FUEL RELATED EXPENSES TO UPDATE CUSTOMER GROWTH TO NOVEMBER 30, 2017 23 24 2-1(d)(1) 2-1(e) 2-2 3 3-1 3-1(c) 3-1(c)(1) 3-1(d) 3-1(d)(1) INDEX TO BOSWELL EXHIBIT 1 Title 31 CALCULATION OF ADJUSTMENT TO REVENUES AND FUEL RELATED EXPENSES TO UPDATE USAGE TO NOVEMBER 30, 2017 Schedule Number 3-1(d)(2) 32 ADJUSTMENT TO DISTRIBUTION VEGETATION MANAGEMENT 3-1(e) 33 ADJUSTMENT TO ALLOCATIONS FROM DEBS 3-1(f) 34 ADJUSTMENT TO REMOVE EDIT LIABILITY FROM BASE RATES 3-1(g) 35 ADJUSTMENT TO CUSTOMER CONNECT EXPENSES 3-1(h) 36 ADJUSTMENT TO DUKE PIEDMONT COSTS TO ACHIEVE 3-1(i) 37 ADJUSTMENT FOR CHANGE IN DEPRECIATION RATES 3-1(j) 38 ADJUSTMENT TO INCENTIVES 3-1(k) 39 ADJUSTMENT TO EXECUTIVE COMPENSATION 3-1(l) 40 ADJUSTMENT TO AVIATION EXPENSES 3-1(m) 41 ADJUSTMENT TO OUTSIDE SERVICES 3-1(n) 42 ADJUSTMENT TO LEE COMBINED CYCLE ADDITION IMPACT TO INCOME STATEMENT 3-1(o) 43 ADJUSTMENT TO LEE COMBINED CYCLE DEFERRAL 3-1(p) 44 CALCULATION OF DEFERRED COSTS FOR LEE COMBINED CYCLE 3-1(p)(1) 45 CALCULATION OF PRE-TAX RATE BASED ON LAST RATE CASE 3-1(p)(2) 46 ADJUSTMENT TO SPONSORSHIPS AND DONATIONS 3-1(q) 47 ADJUSTMENT TO LOBBYING EXPENSE 3-1(r) 48 ADJUSTMENT TO BOARD OF DIRECTORS EXPENSE 3-1(s) 49 ADJUSTMENT TO FUEL AND FUEL-RELATED COST CLAUSE REVENUES AND EXPENSES 3-1(t) 50 ADJUSTMENT TO LEE NUCLEAR COST AMORTIZATION 3-1(u) 51 ADJUSTMENT TO SALARIES AND WAGES 3-1(v) 52 ADJUSTMENT TO NUCLEAR DECOMMISSIONING EXPENSE 3-1(w) 53 ADJUSTMENT TO COMPANY'S INFLATION ADJUSTMENT 3-1(x) 54 CALCULATION OF INFLATION RATE 54 INTEREST SYNCHRONIZATION ADJUSTMENT 55 CALCULATION OF COMPANY'S INTEREST SYNCHRONIZATION ADJUSTMENT 56 RETURN ON EQUITY AND ORIGINAL COST RATE BASE BEFORE AND AFTER PUBLIC STAFF PROPOSED DECREASE 4 57 CALCULATION OF PUBLIC STAFF'S ADDITIONAL GROSS REVENUE REQUIREMENT 5 3-1(x)(1) 3-1(y) 3-1(y)(1) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations REVENUE IMPACT OF PUBLIC STAFF ADJUSTMENTS For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 1 Page 1 of 2 Amount 1 2 3 Revenue requirement increase per Company application Revenue impact of Company update Revenue requirement increase per Company after updates $612,647 1/ (13,928) 2/ 598,719 4 Revenue impact of Public Staff adjustments: 3/ 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Change in equity ratio from 53.00% to 50.00% equity Change in debt cost rate from 4.740% to 4.570% Change in return on equity from 10.75% to 9.10% Reflect impact of Tax Cuts and Jobs Act on income tax expense Adjust test year revenues Update plant and accumulated depreciation to November 30, 2017 Update revenues to November 30, 2017 Adjust distribution vegetation management Adjust allocations by DEBS to DEC Remove EDIT refund from base rates for treatment as a rider Remove Customer Connect expenses Adjust aviation expenses Adjust executive compensation Adjust outside services Remove Duke-Piedmont costs to achieve (CTAs) Adjust Lee CC addition to plant in service Adjust Lee CC deferral Remove ongoing environmental costs Adjust depreciation rates Adjust incentives Adjust deferred environmental costs Adjust coal inventory Adjust Lee nuclear cost amortization Adjust fuel & fuel related revenue and expenses Adjust sponsorships & donations Adjust lobbying expense Adjust Board of Directors expense Adjust salaries and wages expense Adjust nuclear decommissioning expense Adjust inflation to November 30, 2017 Adjust cash working capital under present rates Adjust cash working capital under proposed rates Rounding Total revenue impact of Public Staff adjustments 39 Public Staff recommended increase / (decrease) in base rate revenue requirement ($289,267) 6/ 40 41 42 Public Staff recommended increase / (decrease) in base rate revenue requirement (L39) Annual EDIT Rider recommended by Public Staff for two year period Public Staff recommended change in revenue requirement for first two years (L40 + L41) ($289,267) (136,389) 5/ ($425,656) 43 44 45 Public Staff recommended increase / (decrease) in base rate revenue requirement (L39) Adjustment to remove Lee CC from plant in service and include in CWIP Public Staff recommended change in base rate revenue requirement if Lee CC is not in service ($289,267) (9,011) 7/ ($298,278) 46 47 48 Revenue requirement impact of Company proposed Grid Reliability and Resiliency Rider Public Staff adjustment to remove Grid Reliability and Resiliency Rider Revenue requirement impact of Grid Reliability and Resiliency Rider per Public Staff (38,846) (11,781) (149,795) (210,542) 4/ (9,518) (39,650) (11,565) (12,863) (4,123) 62,024 5/ (10,730) (1,690) (344) (2,124) (6,472) (7,822) (5,120) (201,226) (40,519) (25,226) (113,677) (3,058) (17,778) 0 (488) (549) (2,430) (628) (18,270) 397 2,356 (5,928) (1) (887,986) $35,666 8/ (35,666) 9/ $0 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations REVENUE IMPACT OF PUBLIC STAFF ADJUSTMENTS For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ Boswell Exhibit 1 Schedule 1 Page 2 of 2 Amount McManeus Exhibit 1, Page 2, Line 8. Based on McManeus Exhibit 1, Page 2 after November 2017 update provided by Company to Public Staff on December 18, 2017. Calculated based on Boswell Exhibit 1, Schedules 2, 3, 4, 5, and backup schedules. Boswell Exhibit 1, Schedule 3-1, Line 17, Column (a) plus impact of federal income tax rate decrease on Company proposed revenue increase of ($105,941). The Public Staff is recommending that the EDIT regulatory liability be refunded through a two year rider. As a result, the Public Staff has removed the amounts included by the Company in the calculation of its revenue requirement associated with the EDIT refund, and instead has calculated a separate rider that will credit customers for the EDIT refund over a two year period. The calculation of the annual EDIT rider is shown on Boswell Exhibit 2. Boswell Exhibit 1, Schedule 5, Line 5. Boswell Exhibit 1, Schedule 1-4, Line 22. McManeus Exhibit 2, Line 4. Based on the recommendation of Public Staff witness Maness. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations SUPPORT FOR RECONCILIATION SCHEDULE For the Test Year Ended December 31, 2016 (in Thousands) Line No. 1 2 3 4 5 6 7 8 Item Update plant and accumulated depreciation to November 30, 2017 Remove EDIT refund for treatment as a rider Adjust depreciation rates Adjust deferred environmental costs Adjust Lee nuclear cost amortization Adjust Lee CC costs Adjust Lee CC deferral Adjust nuclear decommissioning expense 1/ Boswell Exhibit 1, Schedule 2-1, Line 13. 2/ Boswell Exhibit 1, Schedule 3-1, Line 17. 3/ Column (a) plus Column (b). Boswell Exhibit 1 Schedule 1-1 Rate Base Impact (a) ($30,400) 10,649 3,641 (22,434) (16,989) (1,463) (750) 1,227 1/ Income Statement Impact (b) ($9,250) 51,375 (44,160) (91,243) (789) (6,359) (4,370) (19,497) 2/ Total Revenue Impact (c) ($39,650) 62,024 (40,519) (113,677) (17,778) (7,822) (5,120) (18,270) 3/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF GROSS REVENUE EFFECT FACTORS For the Test Year Ended December 31, 2016 (in Thousands) Line No. Capital Structure (a) Item 1 2 3 4 Rate Base Factor Long-term debt Common equity Total (Sum of Lines 2 and 3) 5 6 7 8 9 10 11 12 13 14 Net Income Factor Total revenue Uncollectibles Balance (L6 - L7) Regulatory fee (L8 x 0.140%) Balance (L8 - L9) State income tax (L10 x 3.3695%) Balance (L10 - L11) Federal income tax (L12 x 21%) Retention factor (L12 - L13) Boswell Exhibit 1 Schedule 1-2 50.000% 1/ 50.000% 1/ 100.000% Cost Rates (b) 4.570% 1/ 9.10% 1/ Retention Factor (c) 0.9966903 2/ 0.7608544 3/ Gross Revenue Effect (d) 0.0229259 4/ 0.0598012 4/ 0.0827271 Amount 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 6/ 7/ 8/ Per Public Staff witness Parcell. Line 10. Line 14. Column (a) times Column (b) divided by Column (c). NCUC Form E-1, Item No. 10, NC-0105, Line 4. Current regulatory fee rate effective July 1, 2016. Boswell Exhibit 1, Schedule 1-3, Line 4, Column (a). Statutory rate. 1.0000000 0.0019124 5/ 0.9980876 0.0013973 0.9966903 0.0335835 0.9631068 0.2022524 0.7608544 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF COMPOSITE INCOME TAX RATE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 Weighted state income tax rate Apportionment factor State income tax rate Weighted state income tax rate 5 6 7 8 Composite income tax rate Weighted state income tax rate (L4) Federal income tax rate Composite income tax rate 1/ 2/ 3/ 4/ 5/ 6/ Boswell Exhibit 1 Schedule 1-3 Total System (a) 3.3695% 1/ 3.3695% 21% 5/ 23.6619% 6/ Sum of Columns (b) and (c). NCUC Form E-1, Item No. 10, NC-0104, Column (b). NCUC Form E-1, Item No. 10, NC-0104, Column (a). Line 2 times Line 3. Statutory rate. 1 minus ((1 minus Line 6) times (1 minus Line 7)). North Carolina (b) 68.3525% 2/ 3.00% 3/ 2.05058% 4/ South Carolina (c) 26.3780% 2/ 5.00% 3/ 1.31890% 4/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF IMPACT OF INCLUDING LEE COMBINED CYCLE IN PLANT For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 9 10 Rate Base Items Plant in service Accumulated depreciation Accumulated deferred income taxes: ADIT associated with plant addition ADIT associated with unamortized balance of deferral Materials and supplies Regulatory assets and liabilities Construction work in progress Total impact to rate base (Sum of L2 thru L9) 11 12 13 14 15 16 17 18 19 20 21 Income Statement Items Other O&M expense Depreciation and amortization expense: Depreciation expense on plant addition Amortization expense on deferral General taxes Income taxes: Income tax impact of plant addition Income tax impact of deferral Total electric operating expenses (Sum of L12 thru L19) Total impact to net operating income (-L20) 22 Total revenue impact (L10 + L21) 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ 10/ 11/ 12/ Boswell Exhibit 1 Schedule 1-4 Amounts Included by Company (a) Public Staff Adjustments (b) $381,433 1/ (10,795) 1/ (71,838) (5,359) 23,319 14,424 0 $331,184 Amounts Included by Public Staff (c) 1/ 2/ 1/ 2/ $0 306 3/ 0 5,359 (17,989) (14,424) 0 ($26,748) 3/ 4/ 3/ 4/ 8/ $381,433 (10,489) (71,838) 0 5,330 0 0 $304,436 Adjustment If Not In Service by Hearing (d) Revenue Impact (e) ($381,433) 10,489 71,838 0 (5,330) 0 381,433 10/ $76,997 $6,031 1/ ($6,031) 5/ $0 10,795 1/ 7,212 2/ 1,985 1/ (306) 5/ (4,355) 4/ 0 10,489 2,857 1,985 (10,489) (2,857) (1,985) (6,995) 1/ (2,682) 2/ 16,346 ($16,346) 4,043 6/ 2,006 7/ (4,643) $4,643 (2,952) (676) 11,703 ($11,703) 2,952 676 (11,703) $11,703 McManeus Revised Supplemental Exhibit 1, Page 23, NC-1200(C). McManeus Revised Supplemental Exhibit 1, Page 28, NC-1300(C). Boswell Exhibit 1, Schedule 2-1(b). Boswell Exhibit 1. Schedule 3-1(p). Boswell Exhibit 1, Schedule 3-1(o). (Company tax adjustment in Column (a) divided by 37.1902% times 23.6619%) minus Company tax adjustment in Column (a) plus tax impact of Public Staff adjustment from Boswell Exhibit 1, Schedule 3-1, Column (q). (Company tax adjustment in Column (a) divided by 37.1902% times 23.6619%) minus Company tax adjustment in Column (a) plus tax impact of Public Staff adjustment from Boswell Exhibit 1, Schedule 3-1, Column (r). Column (a) plus Column (b). Negative of amount in Column (c) unless footnoted otherwise. Plant amount from Column (c), Line 2. Line 10, Column (d) times Boswell Exhibit 1, Schedule 1-2, Line 4, Column (d). Negative of amount in Line 21, Column (d) divided by Boswell Exhibit 1, Schedule 1-2, Line 14. 9/ $6,370 11/ $0 (15,381) 12/ ($9,011) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ORIGINAL COST RATE BASE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 9 10 11 12 Electric plant in service Accumulated depreciation and amortization Net electric plant in service (L1 + L2) Materials and supplies Operating funds per lead-lag study Unamortized debt Regulatory assets and liabilities Customer deposits Accumulated deferred income taxes Operating reserves Construction work in progress Total original cost rate base (Sum of L3 thru L11) 1/ 2/ 3/ 4/ 5/ Boswell Exhibit 1 Schedule 2 Under Present Rates NC Retail Adjusted Public Staff Per Company 1/ Adjustments 2/ (a) (b) $26,475,675 (10,044,872) 16,430,803 681,625 163,887 81,373 1,847,118 (102,720) (5,000,198) (287,107) $13,814,781 ($35,571) (287,589) (323,160) (54,949) 28,484 (548,426) 206,370 ($691,681) After Public Staff Adjustments 3/ (c) $26,440,104 (10,332,461) 16,107,643 626,676 192,371 81,373 1,298,692 (102,720) (4,793,828) (287,107) $13,123,100 After Public Staff Recommended Decrease Rate After Rate Decrease Decrease (d) (e) $0 (23,909) 4/ ($23,909) Based on McManeus Exhibit 1 after November 2017 update provided by Company to Public Staff on December 18, 2017. Boswell Exhibit 1, Schedule 2-1, Column (k). Column (a) plus Column (b). Boswell Exhibit 1, Schedule 2-1(e), Line 71, Column (k). Column (c) plus Column (d). $26,440,104 (10,332,461) 16,107,643 626,676 168,462 81,373 1,298,692 (102,720) (4,793,828) (287,107) $13,099,191 5/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations SUMMARY OF PUBLIC STAFF RATE BASE ADJUSTMENTS For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 9 10 11 12 Electric plant in service Accumulated depreciation and amortization Net electric plant in service (L1 + L2) Materials and supplies Operating funds per lead-lag study Unamortized debt Regulatory assets and liabilities Customer deposits Accumulated deferred income taxes Operating reserves Construction work in progress Total original cost rate base (Sum of L3 thru L11) 13 Revenue requirement impact Boswell Exhibit 1 Schedule 2-1 Page 1 of 2 Update Plant and Accumulated Depreciation to 11/30/17 1/ (a) 12/ Remove EDIT Refund for Treatment as a Rider (b) 2/ Adjust Depreciation Rates 3/ (c) Remove Deferred Environmental Costs 4/ (d) Adjust Lee CC Costs (e) 5/ Adjust Lee CC Deferral (f) ($35,571) (331,908) (367,479) ($367,479) $0 204,821 (76,094) $128,727 $0 44,013 44,013 $44,013 $0 (431,491) 160,305 ($271,186) $0 306 306 (17,989) ($17,683) $0 (14,424) 5,359 ($9,065) ($30,400) $10,649 $3,641 ($22,434) ($1,463) ($750) 1/ 2/ 3/ 4/ 5/ 6/ Boswell Exhibit 1, Schedule 2-1(a), Line 3. Boswell Exhibit 1, Schedule 3-1(g). Boswell Exhibit 1, Schedule 3-1(j), Line 9. Based on recommendation of Public Staff witness Maness. Boswell Exhibit 1, Schedule 2-1(b). Boswell Exhibit 1, Schedule 3-1(p). 6/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations SUMMARY OF PUBLIC STAFF RATE BASE ADJUSTMENTS For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 9 10 11 12 Electric plant in service Accumulated depreciation and amortization Net electric plant in service (L1 + L2) Materials and supplies Operating funds per lead-lag study Unamortized debt Regulatory assets and liabilities Customer deposits Accumulated deferred income taxes Operating reserves Construction work in progress Total original cost rate base (Sum of L3 thru L11) 13 Revenue requirement impact Boswell Exhibit 1 Schedule 2-1 Page 2 of 2 Adjust Coal Inventory (g) 12/ 7/ Adjust Lee Nuclear Cost (h) Adjust Nuclear Decommissioning 8/ Expense 9/ (i) Adjust Cash Working Capital 10/ (j) Total Rate Base Adjustments 11/ (k) $0 (36,960) ($36,960) $0 (326,764) 121,398 ($205,366) $0 19,432 (4,598) $14,834 $0 28,484 $28,484 ($35,571) (287,589) (323,160) (54,949) 28,484 (548,426) 206,370 ($691,681) ($3,058) ($16,989) $1,227 $2,356 ($57,221) 7/ 8/ 9/ 10/ 11/ 12/ Boswell Exhibit 1, Schedule 2-1(c). Boswell Exhibit 1, Schedule 3-1(u). Boswell Exhibit 1, Schedule 3-1(w). Boswell Exhibit 1, Schedule 2-1(d), Line 75. Sum of Column (a) through Column (j). Line 12 times rate base retention factor of 0.0827271 from Boswell Exhibit 1, Schedule 1-2. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO UPDATE PLANT AND ACCUMULATED DEPRECIATION For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 Adjustment to update balances to 11/30/17 Adjustment for annualization of depreciation expense Total adjustment to update plant and accumulated depreciation (L1 + L2) 1/ Boswell Exhibit 1, Schedule 2-1(a)(1), Line 15, Column (e). 2/ Boswell Exhibit 1, Schedule 2-1(a)(2), Line 11, Column (e). 3/ Boswell Exhibit 1, Schedule 2-1(a)(3), Line 10. Boswell Exhibit 1 Schedule 2-1(a) Plant in Service (a) ($35,571) 1/ 0 ($35,571) Accumulated Depreciation (b) ($330,037) 2/ (1,871) 3/ ($331,908) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO UPDATE PLANT IN SERVICE TO NOVEMBER 30, 2017 For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 9 10 Steam plant Hydro plant Other production plant Nuclear plant Total production plant Transmission plant Distribution plant General plant Intangible plant Total plant in service 11 12 13 14 15 Update to plant (L10) Less: additional plant related to REPS Update to plant per Public Staff (L11 - L12) Company adjustment for 2017 plant additions Public Staff adjustment to update plant (L13 - L14) 1/ 2/ 3/ 4/ 5/ 6/ 7/ Boswell Exhibit 1 Schedule 2-1(a)(1) Amount As Of 11/30/2017 (a) $7,684,676 2,142,175 2,539,725 8,336,754 20,703,330 3,839,173 11,346,224 1,108,303 940,372 $37,937,402 1/ Total System Amount As Of 12/31/2016 2/ (b) Change in Plant in Service (c) $7,547,932 2,102,576 2,411,931 8,197,484 20,259,923 3,568,697 10,753,028 903,892 817,550 $36,303,090 $136,744 39,599 127,794 139,270 443,407 270,476 593,196 204,411 122,822 $1,634,312 3/ NC Retail Percentage (d) 67.0068% 51.2819% 73.9544% 68.8082% 68.8082% Based on Company response to Public Staff Data Request No. 41, Item 3. Based on Company response to Public Staff Data Request No. 41, Item 2. Column (a) minus Column (b). McManeus Revised Supplemental Exhibit 1, Page 17, NC-1101(C), Lines 15 through 18, NC Retail Allocation Column. Column (c) times Column (d). Based on response to Public Staff Data Request No. 79, Item 4. McManeus Revised Supplemental Exhibit 1, Page 17, NC-1101(C), Line 19, Total NC Retail Column. 4/ NC Retail Amount (e) $297,113 138,705 438,695 140,652 84,512 $1,099,677 5/ 5/ 5/ 5/ 5/ $1,099,677 4,600 6/ 1,095,077 1,130,648 7/ ($35,571) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO UPDATE ACCUMULATED DEPRECIATION TO NOVEMBER 30, 2017 For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 Production plant Transmission plant Distribution plant General plant Intangible plant Total accumulated depreciation 7 8 9 10 11 Change in accumulated depreciation (L6) Less: Non-fuel rider activity Public Staff adjustment to update to 11/30/17 Company adjustment to update to 11/30/17 Public Staff adjustment (L9 - L10) 1/ 2/ 3/ 4/ 5/ 6/ 7/ Boswell Exhibit 1 Schedule 2-1(a)(2) Amount As Of 11/30/2017 (a) ($8,236,429) (1,400,626) (4,689,515) (397,080) (538,817) ($15,262,467) 1/ Total System Amount As Of 12/31/2016 2/ (b) ($7,889,891) (1,389,507) (4,561,336) (361,957) (502,789) ($14,705,480) Change in Accumulated Depreciation 3/ (c) ($346,538) (11,119) (128,179) (35,123) (36,028) ($556,987) NC Retail Percentage (d) 67.0068% 51.2819% 73.9544% 68.8082% 68.8082% Based on Company response to Public Staff Data Request No. 41, Item 8. Based on Company response to Public Staff Data Request No. 41, Item 7. Column (a) minus Column (b). McManeus Revised Supplemental Exhibit 1, Page 17, NC-1101(C), Lines 22 thru 25, NC Retail Allocation Column. Column (c) times Column (d). Based on response to Public Staff Data Request No. 79, Item 4. McManeus Revised Supplemental Exhibit 1, Page 17, NC-1101(C), Line 26, NC Retail Allocation Column. 4/ NC Retail Amount (e) ($232,204) (5,702) (94,794) (24,168) (24,790) ($381,658) 5/ 5/ 5/ 5/ 5/ ($381,658) (355) 6/ (381,303) (51,266) 7/ ($330,037) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO ACCUMULATED DEPRECIATION FOR ANNUALIZATION OF DEPRECIATION EXPENSE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 Production plant Transmission plant NC Distribution plant SC Distribution plant General plant Intangible plant Total accumulated depreciation 8 9 10 Adjustment to accumulated depreciation (-L7) Company adjustment Public Staff adjustment to accumulated depreciation 1/ 2/ 3/ 4/ 5/ Boswell Exhibit 1 Schedule 2-1(a)(3) Annualized Depreciation Expense at 11/30/17 1/ (a) $599,580 79,181 185,082 65,537 57,590 49,940 $1,036,910 Per Books Depreciation Expense for Twelve Months Ended 11/30/17 1/ (b) $589,098 75,536 179,506 61,086 61,862 49,940 $1,017,028 Based on Company revised response to Public Staff Data Request No. 79, Item 14. Column (a) minus Column (b). NCUC Form E-1, Item No. 10, NC-0801, Page 1, Lines 3 thru 8, NC Retail Allocation Column. Column (c) times Column (d). NCUC Form E-1, Item No. 10, NC-0801, Page 1, Line 29, Total NC Retail Column. Difference (c) $10,482 3,645 5,576 4,451 (4,272) $19,882 2/ NC Retail Percentage (d) 67.0068% 51.2819% 99.5866% 0.0000% 68.8082% 68.8082% 3/ NC Retail Amount (e) $7,024 1,869 5,553 (2,939) $11,507 4/ 4/ 4/ 4/ 4/ 4/ ($11,507) (9,636) 5/ ($1,871) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO LEE COMBINED CYCLE ADDITION IMPACT TO RATE BASE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 Accumulated Depreciation Adjustment to accumulated depreciation 3 4 5 6 7 8 Materials and Supplies Lee Combined Cycle - estimated incremental inventory updated per Company NC Retail Allocation Lee Combined Cycle - estimated incremental inventory NC Retail (L4 x L5) Lee Combined Cycle - estimated incremental inventory as filed by Company Public Staff adjustment to Lee Combined Cycle estimated incremental inventory (L6 - L7) 1/ 2/ 3/ 4/ Boswell Exhibit 1 Schedule 2-1(b) Amount $306 1/ $8,000 2/ 66.6244% 3/ 5,330 23,319 4/ ($17,989) Negative of Boswell Exhibit 1, Schedule 3-1(o), Line 15. From Company response to Public Staff Data Request No. 93, Item 3. McManeus Revised Supplemental Exhibit 1, Page 24, NC-1201(C), Line 28, NC Retail Allocation Column. McManeus Revised Supplemental Exhibit 1, Page 24, NC-1201(C), Line 28, Total NC Retail Column. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO COAL INVENTORY For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 9 10 Estimated full load burn - excluding retirements (December 2016) Coal burn percentage per Public Staff Target number of days in inventory per Public Staff Target coal inventory balance per Public Staff (tons) (L1 x L2 x L3) Average delivered coal costs per ton Coal inventory balance per Public Staff (L4 x L5 / 1,000) NC retail percentage Coal inventory balance per Public Staff - NC retail (L6 x L7) Coal inventory balance per Company Adjustment to coal inventory (L8 - L9) 1/ 2/ 3/ 4/ 5/ NCUC Form E-1, Item No. 10, NC-1601, Line 2. Based on recommendation of Public Staff witness Metz. NCUC Form E-1, Item No. 10, NC-1601, Line 5. NCUC Form E-1, Item No. 10, NC-1601, Line 6, NC Retail Allocation Column. NCUC Form E-1, Item No. 10, NC-1601, Line 6, Total NC Retail Column. Boswell Exhibit 1 Schedule 2-1(c) Amount 63,129 70.00% 40 1,767,612 $73.23 129,442 66.6244% 86,240 123,200 ($36,960) 1/ 2/ 2/ 3/ 4/ 5/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF WORKING CAPITAL FROM LEAD / LAG STUDY UNDER PRESENT RATES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Electric operating revenues: Rate revenues Sales for resale revenues Forfeited discounts Miscellaneous service revenues Rent revenues - extra facilities - depreciation Rent revenues - extra facilities - other Rent revenues - pole & line attachments Tower lease revenues Other electric rents Return & depr - Catawba general plant Other misc revenues - CIAC & comp for svc Other misc revenues - timber sales Profit or loss on sale of M&S Deferred DSM costs - NC Other revenue affiliate Revenues from transm of electricity to others Other electric and transmission revenues Electric operating revenues 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Fuel used in electric generation Account 555 - Purchased Power NRC license fees in Acct 524 NRC inspection fees in Acct 524 Labor expense Benefits expense Uncollectibles expense Regulatory commission expense Property insurance Injuries and damages for corp Other O&M expense Remove non-fuel rider costs and update fuel Include Lee CC addition Adjust for inflation and amortize rate case costs Adjust for ongoing environmental costs Adjust for customer connect project Adjust veg mgmt, storm, aviation & outside svcs Adjust NC regulatory fee Other adjustments to reg fees and uncoll. Total O&M expenses Boswell Exhibit 1 Schedule 2-1(d) After Company Adjustments 3/ (c) $4,837,757 28,216 15,254 10,374 6,155 19,019 25,802 7,415 1,852 8,218 14,253 13 523 (59) 9,132 4,703 2,672 4,991,299 ($263,448) (263,448) $4,574,309 28,216 15,254 10,374 6,155 19,019 25,802 7,415 1,852 8,218 14,253 13 523 (59) 9,132 4,703 2,672 4,727,851 ($49,305) (49,305) $4,525,004 28,216 15,254 10,374 6,155 19,019 25,802 7,415 1,852 8,218 14,253 13 523 (59) 9,132 4,703 2,672 4,678,546 38.42 34.61 68.84 117.77 38.42 132.59 (153.00) 40.21 (15.72) (15.21) 38.42 45.21 40.46 35.50 38.42 38.58 $476,280 2,675 2,877 3,347 2,002 9,373 (3,108) 204 (354) (594) 1 65 1,012 457 281 494,518 977,925 222,185 22,444 4,944 520,599 96,102 9,586 8,146 20,667 5,598 685,929 2,574,125 205,134 (205,795) (7,133) (4,638) (131,780) 6,031 17,232 200,561 10,694 (4,068) 849 (841) 86,246 1,183,059 16,390 22,444 4,944 513,466 91,464 9,586 8,146 20,667 5,598 685,929 (131,780) 6,031 17,232 200,561 10,694 (4,068) 849 (841) 2,660,371 (70,917) (26,623) (12,855) (6,031) 396 (200,561) (10,694) (16,599) (108) 93 (343,899) 1,112,142 16,390 22,444 4,944 486,843 91,464 9,586 8,146 20,667 5,598 673,074 (131,780) 17,628 (20,667) 741 (748) 2,316,472 (23.13) (36.23) 9.91 (101.54) (40.87) (14.51) (91.19) 142.50 128.36 (26.56) (26.77) (26.77) (26.77) (40.87) (27.84) (27.84) (26.77) (41.89) (70,473) (1,627) 609 (1,375) (54,518) (3,636) (2,035) 8,069 1,969 (48,978) 9,665 (1,293) 1,576 (54) 86 (162,015) Per Books Amounts (a) 1/ Public Staff Adjustments 4/ (d) After Public Staff Adjustments 5/ (e) Working Capital From Lead/ Lag Study (g) Company Ratemaking Adjustments 2/ (b) (Lead) / Lag Days 6/ (f) 7/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF WORKING CAPITAL FROM LEAD / LAG STUDY UNDER PRESENT RATES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 2-1(d) Per Books Amounts (a) 1/ Company Ratemaking Adjustments 2/ (b) After Company Adjustments 3/ (c) Public Staff Adjustments 4/ (d) After Public Staff Adjustments 5/ (e) (Lead) / Lag Days 6/ (f) Working Capital From Lead/ Lag Study (g) 40 41 42 43 44 45 Depreciation expense REPS rider NC amortization expense Annual NOx proceeds Other amortization expense Remove non-fuel rider costs Depreciation and amortization expense 681,452 24,580 (84) 73,044 778,992 128,000 27,958 (12,381) 143,577 809,452 24,580 (84) 101,002 (12,381) 922,569 (117,702) (117,702) 691,750 24,580 (84) 101,002 (12,381) 804,867 (38.42) (3.34) (76.28) (2,587) 1 2,587 1 46 47 48 49 50 51 52 53 54 55 56 57 58 59 Other taxes - NC property tax Other taxes - NC franchise & deferred prop. tax Other taxes - NC state unemployment tax Other taxes - NC industrial comm - electric Other taxes - SC property tax Other taxes - SC property tax - license fee Other taxes - NC franchise tax Other taxes - SC state unemployment tax Other taxes - federal payroll taxes Other taxes - federal unemployment tax Other taxes - federal highway use tax Other taxes - highway use tax & other state tax Adjust payroll taxes Total taxes other than income 55,622 902 831 172 72,323 2,391 19,924 253 31,877 291 26 (107) 184,505 12,803 836 13,639 68,425 902 831 172 72,323 2,391 19,924 253 31,877 291 26 (107) 836 198,144 (146) (59) (205) 68,279 902 831 172 72,323 2,391 19,924 253 31,877 291 26 (107) 777 197,939 (187.00) (14.42) (86.73) (21.08) (197.00) 108.00 (34,981) (36) (197) (10) (39,035) 707 (79) (3,699) (73) 10 11 (299) (77,681) 60 Interest on customer deposits 61 62 63 64 Current state and federal income tax Deferred income taxes Adjust income taxes Total income taxes 65 Amortization of ITC 66 Total electric operating expenses 3,969,590 35,128 67 68 69 Interest expense Income available for common equity Net operating income for return 282,803 738,906 1,021,709 70 Total requirement $4,991,299 7,558 99,340 328,575 427,915 (3,505) - 7,558 - 7,558 (208,310) (208,310) 99,340 328,575 (208,310) 219,605 20,169 20,169 99,340 328,575 (188,141) 239,774 (24) (3,529) - (3,529) 4,004,718 (441,637) 3,563,081 25,495 (324,071) (298,576) 308,298 414,835 723,133 (9,086) 401,418 392,332 299,212 816,253 1,115,465 ($263,448) $4,727,851 ($49,305) $4,678,546 (114.43) (42.35) (91.46) 145.99 (38.42) (140.25) (210.50) (4,359) (36.03) (36.50) (9,806) 18,814 9,008 - (235,046) (89.75) - (73,573) (73,573) ($308,619) 7/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF WORKING CAPITAL FROM LEAD / LAG STUDY UNDER PRESENT RATES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 71 72 73 74 75 Boswell Exhibit 1 Schedule 2-1(d) Per Books Amounts (a) 1/ Company Ratemaking Adjustments 2/ (b) After Company Adjustments 3/ (c) Cash working capital before sales tax requirement Working capital related to sales tax Cash working capital per Public Staff Amount per Company application Adjustment to cash working capital 1/ 2/ 3/ 4/ 5/ 6/ 7/ NCUC Form E-1, Item No. 14, Appendix A, Lead Lag Details, NC Retail Jurisdictional Amount. NCUC Form E-1, Item 10, NC-3302. Column (a) plus Column (b). Boswell Exhibit 1, Schedule 2-1(d)(1), Column (aa). Column (c) plus Column (d). NCUC Form E-1, Item No. 14, Appendix A, Lead Lag Details, Lead Lag Days. Column (e) divided by 365 days times Column (f). Public Staff Adjustments 4/ (d) After Public Staff Adjustments 5/ (e) (Lead) / Lag Days 6/ (f) Working Capital From Lead/ Lag Study (g) 7/ $185,899 6,472 192,371 163,887 2/ $28,484 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations PUBLIC STAFF ADJUSTMENTS TO BE REFLECTED IN LEAD / LAG CALCULATION For the Test Year Ended December 31, 2016 (in Thousands) Line No. Boswell Exhibit 1 Schedule 2-1(d)(1) Page 1 of 5 Adjust Income Tax Expense for Tax Cuts & Jobs Act 1/ (a) Item Adjust Test Year Revenues & Related Expenses (b) Update Plant to 11/30/2017 (c) 1/ Update Customer Growth & Usage to 11/30/2017 (d) 1/ Adjust Distribution Vegetation Management 1/ (e) Adjust Allocations from DEBS to DEC (f) 1/ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Electric operating revenues: Rate revenues Sales for resale revenues Forfeited discounts Miscellaneous service revenues Rent revenues - extra facilities - depreciation Rent revenues - extra facilities - other Rent revenues - pole & line attachments Tower lease revenues Other electric rents Return & depr - Catawba general plant Other misc revenues - CIAC & comp for svc Other misc revenues - timber sales Profit or loss on sale of M&S Deferred DSM costs - NC Other revenue affiliate Revenues from transm of electricity to others Other electric and transmission revenues Electric operating revenues 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Fuel used in electric generation Account 555 - Purchased Power NRC license fees in Acct 524 NRC inspection fees in Acct 524 Labor expense Benefits expense Uncollectibles expense Regulatory commission expense Property insurance Injuries and damages for corp Other O&M expense Remove non-fuel rider costs and update fuel Include Lee CC addition Adjust for inflation and amortize rate case costs Adjust for ongoing environmental costs Adjust for customer connect project Adjust veg mgmt, storm, aviation & outside svcs Adjust NC regulatory fee Other adjustments to reg fees and uncoll. Total O&M expenses - 40 41 42 43 44 45 Depreciation expense REPS rider NC amortization expense Annual NOx proceeds Other amortization expense Remove non-fuel rider costs Depreciation and amortization expense - - (9,074) (9,074) - - - 46 47 48 49 50 51 52 53 54 55 56 57 58 59 Other taxes - NC property tax Other taxes - NC franchise & deferred prop. tax Other taxes - NC state unemployment tax Other taxes - NC industrial comm - electric Other taxes - SC property tax Other taxes - SC property tax - license fee Other taxes - NC franchise tax Other taxes - SC state unemployment tax Other taxes - federal payroll taxes Other taxes - federal unemployment tax Other taxes - federal highway use tax Other taxes - highway use tax & other state tax Adjust payroll taxes Total taxes other than income - - (146) (146) - - - 60 Interest on customer deposits - - - - - - 61 62 63 64 Current state and federal income tax Deferred income taxes Adjust income taxes Total income taxes 2,245 2,245 2,182 2,182 2,728 2,728 3,034 3,034 973 973 65 Amortization of ITC - - - - - 66 Total electric operating expenses 67 68 69 Interest expense Income available for common equity Net operating income for return 70 Total requirement $0 - (79,586) (79,586) - 2/ $11,589 11,589 $2,490 (427) 39 2,102 $0 - $16,315 16,315 - $3,694 1,040 54 4,788 $0 (12,821) (12,821) $0 (4,110) (4,110) (79,586) 4,347 (7,038) 7,516 (9,787) (3,137) 79,586 79,586 7,242 7,242 7,038 7,038 8,799 8,799 9,787 9,787 3,137 3,137 $0 $11,589 $0 $16,315 $0 $0 1/ Based on adjustments made by Public Staff in Boswell Exhibit 1, Schedule 3-1. 2/ Line 19 minus Line 66 minus Line 67. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations PUBLIC STAFF ADJUSTMENTS TO BE REFLECTED IN LEAD / LAG CALCULATION For the Test Year Ended December 31, 2016 (in Thousands) Line No. Boswell Exhibit 1 Schedule 2-1(d)(1) Page 2 of 5 Adjust Salaries and Wages (g) Item 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Electric operating revenues: Rate revenues Sales for resale revenues Forfeited discounts Miscellaneous service revenues Rent revenues - extra facilities - depreciation Rent revenues - extra facilities - other Rent revenues - pole & line attachments Tower lease revenues Other electric rents Return & depr - Catawba general plant Other misc revenues - CIAC & comp for svc Other misc revenues - timber sales Profit or loss on sale of M&S Deferred DSM costs - NC Other revenue affiliate Revenues from transm of electricity to others Other electric and transmission revenues Electric operating revenues 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Fuel used in electric generation Account 555 - Purchased Power NRC license fees in Acct 524 NRC inspection fees in Acct 524 Labor expense Benefits expense Uncollectibles expense Regulatory commission expense Property insurance Injuries and damages for corp Other O&M expense Remove non-fuel rider costs and update fuel Include Lee CC addition Adjust for inflation and amortize rate case costs Adjust for ongoing environmental costs Adjust for customer connect project Adjust veg mgmt, storm, aviation & outside svcs Adjust NC regulatory fee Other adjustments to reg fees and uncoll. Total O&M expenses 40 41 42 43 44 45 Depreciation expense REPS rider NC amortization expense Annual NOx proceeds Other amortization expense Remove non-fuel rider costs Depreciation and amortization expense 46 47 48 49 50 51 52 53 54 55 56 57 58 59 Other taxes - NC property tax Other taxes - NC franchise & deferred prop. tax Other taxes - NC state unemployment tax Other taxes - NC industrial comm - electric Other taxes - SC property tax Other taxes - SC property tax - license fee Other taxes - NC franchise tax Other taxes - SC state unemployment tax Other taxes - federal payroll taxes Other taxes - federal unemployment tax Other taxes - federal highway use tax Other taxes - highway use tax & other state tax Adjust payroll taxes Total taxes other than income 60 Interest on customer deposits 61 62 63 64 Current state and federal income tax Deferred income taxes Adjust income taxes Total income taxes 65 Amortization of ITC 66 Total electric operating expenses 67 68 69 Interest expense Income available for common equity Net operating income for return 70 Total requirement 1/ $0 (591) (591) (35) (35) 148 148 - 2/ Remove EDIT Refund for Treatment as a Rider (h) 1/ $0 - Remove Customer Connect Expenses (i) 1/ $0 (10,694) (10,694) Remove Duke Piedmont CTAs (j) 1/ $0 (6,450) (6,450) Adjust Depreciation Rates 1/ (k) $0 - 1/ $0 (25,142) (25,142) 51,205 51,205 - - - - - - - - - - - - 2,530 2,530 1,526 1,526 10,414 10,414 5,949 5,949 - - - - (12,116) (12,116) - (44,013) (44,013) Adjust Incentives (l) - (478) 39,089 (8,164) (4,924) (33,599) (19,193) 478 478 (39,089) (39,089) 8,164 8,164 4,924 4,924 33,599 33,599 19,193 19,193 $0 $0 $0 $0 $0 $0 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations PUBLIC STAFF ADJUSTMENTS TO BE REFLECTED IN LEAD / LAG CALCULATION For the Test Year Ended December 31, 2016 (in Thousands) Line No. Boswell Exhibit 1 Schedule 2-1(d)(1) Page 3 of 5 Remove Ongoing Environmental Costs 1/ (m) Item Adjust Executive Compensation 1/ (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Electric operating revenues: Rate revenues Sales for resale revenues Forfeited discounts Miscellaneous service revenues Rent revenues - extra facilities - depreciation Rent revenues - extra facilities - other Rent revenues - pole & line attachments Tower lease revenues Other electric rents Return & depr - Catawba general plant Other misc revenues - CIAC & comp for svc Other misc revenues - timber sales Profit or loss on sale of M&S Deferred DSM costs - NC Other revenue affiliate Revenues from transm of electricity to others Other electric and transmission revenues Electric operating revenues 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Fuel used in electric generation Account 555 - Purchased Power NRC license fees in Acct 524 NRC inspection fees in Acct 524 Labor expense Benefits expense Uncollectibles expense Regulatory commission expense Property insurance Injuries and damages for corp Other O&M expense Remove non-fuel rider costs and update fuel Include Lee CC addition Adjust for inflation and amortize rate case costs Adjust for ongoing environmental costs Adjust for customer connect project Adjust veg mgmt, storm, aviation & outside svcs Adjust NC regulatory fee Other adjustments to reg fees and uncoll. Total O&M expenses 40 41 42 43 44 45 Depreciation expense REPS rider NC amortization expense Annual NOx proceeds Other amortization expense Remove non-fuel rider costs Depreciation and amortization expense - - 46 47 48 49 50 51 52 53 54 55 56 57 58 59 Other taxes - NC property tax Other taxes - NC franchise & deferred prop. tax Other taxes - NC state unemployment tax Other taxes - NC industrial comm - electric Other taxes - SC property tax Other taxes - SC property tax - license fee Other taxes - NC franchise tax Other taxes - SC state unemployment tax Other taxes - federal payroll taxes Other taxes - federal unemployment tax Other taxes - federal highway use tax Other taxes - highway use tax & other state tax Adjust payroll taxes Total taxes other than income - - 60 Interest on customer deposits - - 61 62 63 64 Current state and federal income tax Deferred income taxes Adjust income taxes Total income taxes 47,457 47,457 81 81 65 Amortization of ITC - - 66 Total electric operating expenses 67 68 69 Interest expense Income available for common equity Net operating income for return 70 Total requirement $0 (200,561) (200,561) 2/ $0 (343) (343) Adjust Aviation Expenses (o) 1/ $0 (1,661) (1,661) (24) (24) Adjust Fuel & Fuel Related Expenses 1/ (p) ($77,209) (77,209) (77,101) (108) (77,209) - Adjust Lee CC Costs (q) 1/ $0 (6,031) (6,031) (306) (306) Adjust Lee CC Deferral (r) 1/ $0 (4,355) (4,355) - - - - - - - 399 399 - 1,499 1,499 1,030 1,030 - - - - (153,104) (262) (1,286) 153,104 153,104 262 262 1,286 1,286 $0 $0 $0 (77,209) 0 0 ($77,209) (4,838) (3,325) 4,838 4,838 3,325 3,325 $0 $0 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations PUBLIC STAFF ADJUSTMENTS TO BE REFLECTED IN LEAD / LAG CALCULATION For the Test Year Ended December 31, 2016 (in Thousands) Line No. Boswell Exhibit 1 Schedule 2-1(d)(1) Page 4 of 5 Adjust Lee Nuclear Costs (s) Item 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Electric operating revenues: Rate revenues Sales for resale revenues Forfeited discounts Miscellaneous service revenues Rent revenues - extra facilities - depreciation Rent revenues - extra facilities - other Rent revenues - pole & line attachments Tower lease revenues Other electric rents Return & depr - Catawba general plant Other misc revenues - CIAC & comp for svc Other misc revenues - timber sales Profit or loss on sale of M&S Deferred DSM costs - NC Other revenue affiliate Revenues from transm of electricity to others Other electric and transmission revenues Electric operating revenues 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Fuel used in electric generation Account 555 - Purchased Power NRC license fees in Acct 524 NRC inspection fees in Acct 524 Labor expense Benefits expense Uncollectibles expense Regulatory commission expense Property insurance Injuries and damages for corp Other O&M expense Remove non-fuel rider costs and update fuel Include Lee CC addition Adjust for inflation and amortize rate case costs Adjust for ongoing environmental costs Adjust for customer connect project Adjust veg mgmt, storm, aviation & outside svcs Adjust NC regulatory fee Other adjustments to reg fees and uncoll. Total O&M expenses 40 41 42 43 44 45 Depreciation expense REPS rider NC amortization expense Annual NOx proceeds Other amortization expense Remove non-fuel rider costs Depreciation and amortization expense 46 47 48 49 50 51 52 53 54 55 56 57 58 59 Other taxes - NC property tax Other taxes - NC franchise & deferred prop. tax Other taxes - NC state unemployment tax Other taxes - NC industrial comm - electric Other taxes - SC property tax Other taxes - SC property tax - license fee Other taxes - NC franchise tax Other taxes - SC state unemployment tax Other taxes - federal payroll taxes Other taxes - federal unemployment tax Other taxes - federal highway use tax Other taxes - highway use tax & other state tax Adjust payroll taxes Total taxes other than income 60 Interest on customer deposits 61 62 63 64 Current state and federal income tax Deferred income taxes Adjust income taxes Total income taxes 65 Amortization of ITC 66 Total electric operating expenses 67 68 69 Interest expense Income available for common equity Net operating income for return 70 Total requirement $0 (786) (786) 2/ Adjust Lobbying Expense (t) 1/ $0 (547) (547) Adjust Board of Directors Expense (u) 1/ $0 (2,422) (2,422) - - - - - - - 186 186 129 129 - - Adjust Deferred Environmental Costs 1/ (v) $0 (90,941) (90,941) Adjust Outside Services (w) 1/ $0 (2,117) (2,117) Adjust Sponsorships and Donations 1/ (x) $0 (486) (486) - - - - - - - - - 573 573 21,518 21,518 501 501 115 115 - - - - (600) (418) (1,849) (69,423) (1,616) (371) 600 600 418 418 1,849 1,849 69,423 69,423 1,616 1,616 371 371 $0 $0 $0 $0 $0 $0 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations PUBLIC STAFF ADJUSTMENTS TO BE REFLECTED IN LEAD / LAG CALCULATION For the Test Year Ended December 31, 2016 (in Thousands) Line No. Boswell Exhibit 1 Schedule 2-1(d)(1) Page 5 of 5 Adjust Nuclear Decommissioning Expense 1/ (y) Item 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Electric operating revenues: Rate revenues Sales for resale revenues Forfeited discounts Miscellaneous service revenues Rent revenues - extra facilities - depreciation Rent revenues - extra facilities - other Rent revenues - pole & line attachments Tower lease revenues Other electric rents Return & depr - Catawba general plant Other misc revenues - CIAC & comp for svc Other misc revenues - timber sales Profit or loss on sale of M&S Deferred DSM costs - NC Other revenue affiliate Revenues from transm of electricity to others Other electric and transmission revenues Electric operating revenues 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Fuel used in electric generation Account 555 - Purchased Power NRC license fees in Acct 524 NRC inspection fees in Acct 524 Labor expense Benefits expense Uncollectibles expense Regulatory commission expense Property insurance Injuries and damages for corp Other O&M expense Remove non-fuel rider costs and update fuel Include Lee CC addition Adjust for inflation and amortize rate case costs Adjust for ongoing environmental costs Adjust for customer connect project Adjust veg mgmt, storm, aviation & outside svcs Adjust NC regulatory fee Other adjustments to reg fees and uncoll. Total O&M expenses 40 41 42 43 44 45 Depreciation expense REPS rider NC amortization expense Annual NOx proceeds Other amortization expense Remove non-fuel rider costs Depreciation and amortization expense 46 47 48 49 50 51 52 53 54 55 56 57 58 59 Other taxes - NC property tax Other taxes - NC franchise & deferred prop. tax Other taxes - NC state unemployment tax Other taxes - NC industrial comm - electric Other taxes - SC property tax Other taxes - SC property tax - license fee Other taxes - NC franchise tax Other taxes - SC state unemployment tax Other taxes - federal payroll taxes Other taxes - federal unemployment tax Other taxes - federal highway use tax Other taxes - highway use tax & other state tax Adjust payroll taxes Total taxes other than income 60 Interest on customer deposits 61 62 63 64 Current state and federal income tax Deferred income taxes Adjust income taxes Total income taxes 65 Amortization of ITC 66 Total electric operating expenses 67 68 69 Interest expense Income available for common equity Net operating income for return 70 Total requirement Interest Synchronization 1/ (aa) Total Public Staff Adjustments 1/ (bb) $0 - $0 - $0 - ($49,305) (49,305) - 396 396 - (70,917) (26,623) (12,855) (6,031) 396 (200,561) (10,694) (16,599) (108) 93 (343,899) - - (117,702) (117,702) - - - (146) (59) (205) - - - - 2,150 2,150 20,169 20,169 - - (19,432) (19,432) 4,598 4,598 - 2/ Adjustment to Inflation Adjustment 1/ (z) (94) (94) - (14,834) 302 2,150 (441,637) 14,834 14,834 (302) (302) (9,086) 6,936 (2,150) (9,086) 401,418 392,332 $0 $0 $0 ($49,305) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF WORKING CAPITAL FROM LEAD / LAG STUDY AFTER RATE DECREASE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Electric operating revenues: Rate revenues Sales for resale revenues Forfeited discounts Miscellaneous service revenues Rent revenues - extra facilities - depreciation Rent revenues - extra facilities - other Rent revenues - pole & line attachments Tower lease revenues Other electric rents Return & depr - Catawba general plant Other misc revenues - CIAC & comp for svc Other misc revenues - timber sales Profit or loss on sale of M&S Deferred DSM costs - NC Other revenue affiliate Revenues from transm of electricity to others Other electric and transmission revenues Electric operating revenues 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Fuel used in electric generation Account 555 - Purchased Power NRC license fees in Acct 524 NRC inspection fees in Acct 524 Labor expense Benefits expense Uncollectibles expense Regulatory commission expense Property insurance Injuries and damages for corp Other O&M expense Remove non-fuel rider costs and update fuel Include Lee CC addition Adjust for inflation and amortize rate case costs Adjust for ongoing environmental costs Adjust for customer connect project Adjust veg mgmt, storm, aviation & outside svcs Adjust NC regulatory fee Other adjustments to reg fees and uncoll. Total O&M expenses 40 41 42 43 44 45 Boswell Exhibit 1 Schedule 2-1(e) Page 1 of 2 Under Present Rates After Adjustments 1/ (a) (Lead) Lag Days (b) 4/ Increase (c) Iteration 1 With Increase 11/ (d) CWC Change (e) 13/ $4,525,004 28,216 15,254 10,374 6,155 19,019 25,802 7,415 1,852 8,218 14,253 13 523 (59) 9,132 4,703 2,672 4,678,546 38.42 34.61 68.84 117.77 38.42 132.59 (153.00) 40.21 (15.72) (15.21) 38.42 45.21 40.46 35.50 38.42 ($286,366) 5/ (1,668) 6/ (288,034) 7/ $4,238,638 28,216 15,254 8,706 6,155 19,019 25,802 7,415 1,852 8,218 14,253 13 523 (59) 9,132 4,703 2,672 4,390,512 1,112,142 16,390 22,444 4,944 486,843 91,464 9,586 8,146 20,667 5,598 673,074 (131,780) 17,628 (20,667) 741 (748) 2,316,472 (23.13) (36.23) 9.91 (101.54) (40.87) (14.51) (91.19) 142.50 128.36 (26.56) (26.77) (26.77) (26.77) (40.87) (27.84) (27.84) (26.77) (41.89) (953) 8/ (953) 1,112,142 16,390 22,444 4,944 486,843 91,464 9,586 8,146 20,667 5,598 673,074 (131,780) 17,628 (20,667) 741 (1,701) 2,315,519 109 109 Depreciation expense REPS rider NC amortization expense Annual NOx proceeds Other amortization expense Remove non-fuel rider costs Depreciation and amortization expense 691,750 24,580 (84) 101,002 (12,381) 804,867 (38.42) (3.34) (76.28) - 691,750 24,580 (84) 101,002 (12,381) 804,867 - 46 47 48 49 50 51 52 53 54 55 56 57 58 59 Other taxes - NC property tax Other taxes - NC franchise & deferred prop. tax Other taxes - NC state unemployment tax Other taxes - NC industrial comm - electric Other taxes - SC property tax Other taxes - SC property tax - license fee Other taxes - NC franchise tax Other taxes - SC state unemployment tax Other taxes - federal payroll taxes Other taxes - federal unemployment tax Other taxes - federal highway use tax Other taxes - highway use tax & other state tax Adjust payroll taxes Current state and federal income tax 68,279 902 831 172 72,323 2,391 19,924 253 31,877 291 26 (107) 777 197,939 (187.00) (14.42) (86.73) (21.08) (197.00) 108.00 (114.43) (42.35) (91.46) 145.99 (38.42) (140.25) - 68,279 902 831 172 72,323 2,391 19,924 253 31,877 291 26 (107) 777 197,939 - 60 Interest on customer deposits (210.50) - 61 62 63 64 Current state and federal income tax Deferred income taxes Adjust income taxes Total income taxes 65 Amortization of ITC 66 Total electric operating expenses 3,563,081 67 68 69 Interest expense Income available for common equity Net operating income for return 299,212 816,253 1,115,465 70 Total requirement 71 72 73 Cumulative change in working capital Rate base under present rates Rate base after rate increase 74 75 Overall rate of return Target rate of return 1/ 2/ 3/ 4/ 5/ 6/ 7/ 7,558 99,340 328,575 (188,141) 239,774 (36.03) (36.50) (3,529) - (68,882) (89.75) - $4,678,546 (219,152) 10/ (219,152) ($288,034) $13,123,100 2/ Boswell Exhibit 1, Schedule 2-1(d), Column (e). Boswell Exhibit 1, Schedule 2, Line 12, Column (c). Boswell Exhibit 1, Schedule 4, Line 3, Column (h). Boswell Exhibit 1, Schedule 2-1(d), Column (f). Line 19 minus (Sum of Line 3 thru Line 18). Boswell Exhibit 1, Schedule 3, Line 3, Column (d). Line 68 divided by retention factor of 0.7608544. (67,929) 9/ (67,929) 8.50% 6.84% 3/ ($30,142) (538) (30,680) 7,558 99,340 328,575 (256,070) 171,845 6,793 6,793 (3,529) 3,494,199 6,902 299,212 597,101 12/ 896,313 $4,390,512 $6,902 ($23,778) 13,123,100 $13,099,322 6.84% 6.84% 3/ 8/ Line 19 times (uncollectibles rate of 0.19124% plus regulatory fee rate, net of uncollectibles, of 0.13973%). 9/ (Line 68 divided by (1 minus 23.6619%)) minus Line 68. 10/ Column (d) minus Column (a). 11/ Column (a) plus Column (c), unless footnoted otherwise. 12/ Line 73, Column (a) times 50.000% times 9.100%. 13/ Column (c) divided by 365 days times Column (b). DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF WORKING CAPITAL FROM LEAD / LAG STUDY AFTER RATE INCREASE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Electric operating revenues: Rate revenues Sales for resale revenues Forfeited discounts Miscellaneous service revenues Rent revenues - extra facilities - depreciation Rent revenues - extra facilities - other Rent revenues - pole & line attachments Tower lease revenues Other electric rents Return & depr - Catawba general plant Other misc revenues - CIAC & comp for svc Other misc revenues - timber sales Profit or loss on sale of M&S Deferred DSM costs - NC Other revenue affiliate Revenues from transm of electricity to others Other electric and transmission revenues Electric operating revenues 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Fuel used in electric generation Account 555 - Purchased Power NRC license fees in Acct 524 NRC inspection fees in Acct 524 Labor expense Benefits expense Uncollectibles expense Regulatory commission expense Property insurance Injuries and damages for corp Other O&M expense Remove non-fuel rider costs and update fuel Include Lee CC addition Adjust for inflation and amortize rate case costs Adjust for ongoing environmental costs Adjust for customer connect project Adjust veg mgmt, storm, aviation & outside svcs Adjust NC regulatory fee Other adjustments to reg fees and uncoll. Total O&M expenses 40 41 42 43 44 45 Depreciation expense REPS rider NC amortization expense Annual NOx proceeds Other amortization expense Remove non-fuel rider costs Depreciation and amortization expense 46 47 48 49 50 51 52 53 54 55 56 57 58 59 Boswell Exhibit 1 Schedule 2-1(e) Page 2 of 2 Iteration 2 With Increase 15/ (g) Increase (f) ($1,313) 5/ $4,237,325 28,216 15,254 8,706 6,155 19,019 25,802 7,415 1,852 8,218 14,253 13 523 (59) 9,132 4,703 2,672 (1,313) 14/ 4,389,199 16/ 19/ ($138) (138) 1,112,142 16,390 22,444 4,944 486,843 91,464 9,586 8,146 20,667 5,598 673,074 (131,780) 17,628 (20,667) 741 (1,705) 2,315,515 - - 691,750 24,580 (84) 101,002 (12,381) 804,867 - Other taxes - NC property tax Other taxes - NC franchise & deferred prop. tax Other taxes - NC state unemployment tax Other taxes - NC industrial comm - electric Other taxes - SC property tax Other taxes - SC property tax - license fee Other taxes - NC franchise tax Other taxes - SC state unemployment tax Other taxes - federal payroll taxes Other taxes - federal unemployment tax Other taxes - federal highway use tax Other taxes - highway use tax & other state tax Adjust payroll taxes Current state and federal income tax - 68,279 902 831 172 72,323 2,391 19,924 253 31,877 291 26 (107) 777 197,939 60 Interest on customer deposits - 61 62 63 64 Current state and federal income tax Deferred income taxes Adjust income taxes Total income taxes 65 Amortization of ITC 66 Total electric operating expenses 67 68 69 Interest expense Income available for common equity Net operating income for return 70 Total requirement 71 72 73 Cumulative change in working capital Rate base under present rates Rate base after rate increase 74 75 Overall rate of return Target rate of return 14/ 15/ 16/ 17/ 18/ 19/ 20/ Column (g) minus Column (d). Column (d) plus Column (f), unless footnoted otherwise. Line 70. Line 73, Column (e) times 50.000% times 4.570%. Line 73, Column (e) times 50.000% times 9.100%. Column (f) divided by 365 days times Column (b). Column (j) minus Column (g). (4) 8/ (4) CWC Change (h) (335) 9/ (335) (339) 108 14/ (1,082) 14/ (974) ($1,313) 7,558 99,340 328,575 (256,405) 171,510 (3,529) 3,493,860 $4,389,199 ($11) 5/ (11) 20/ CWC Change (k) $4,237,314 28,216 15,254 8,706 6,155 19,019 25,802 7,415 1,852 8,218 14,253 13 523 (59) 9,132 4,703 2,672 4,389,188 16/ ($1) (1) - 691,750 24,580 (84) 101,002 (12,381) 804,867 - - - 68,279 902 831 172 72,323 2,391 19,924 253 31,877 291 26 (107) 777 197,939 - - - - (27) (27) $7 ($23,909) 13,123,100 $13,099,191 (2) 9/ (2) (2) (3) 20/ (6) 20/ (9) ($11) 7,558 - 99,340 328,575 (256,407) 171,508 - (3,529) - 3,493,858 - 299,317 22/ 596,013 23/ 895,330 1 1 $4,389,188 $1 ($23,909) 13,123,100 $13,099,191 6.84% 6.84% 3/ 21/ 22/ 23/ 24/ 24/ - 34 34 (0) 8/ (0) Iteration 3 With Increase 21/ (j) 1,112,142 16,390 22,444 4,944 486,843 91,464 9,586 8,146 20,667 5,598 673,074 (131,780) 17,628 (20,667) 741 (1,705) 2,315,515 34 299,320 17/ 596,019 18/ 895,339 Increase (i) Column (g) plus Column (i), unless footnoted otherwise. Line 73, Column (h) times 50.000% times 4.570%. Line 73, Column (h) times 50.000% times 9.100%. Column (i) divided by 365 days times Column (b). 6.84% 6.84% 3/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations SUMMARY OF REGULATORY ASSETS & LIABILITIES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 Required Bank Balance Pension Funding: 0182318 - Other Reg Assets - Gen Acct 0182801 - Pension Post Retire P Acctg - FAS87 NQ 0254689 - Reg Liability - NQ Injuries and Damages: 0186060 - I and D Insurance Receivable 0186090 - I&D O/S Svcs Receivable 0254120 - I and D Regulatory Liability Regulatory Assets & Liabilities - Tax: Other: 0182323 - Rate Case Cost NC CUR 0182329 - Reg Asset Section 124 Asset 0182391 - NPL Extraordinary Repairs 0182410 - Interest Rate Swap Reg Asset 0182433 - Rate Case Cost NC LT 0182438 - Billing System Deferral - Ltg 0182483 - Rotable Fleet Spare Reg Asset 0182484 - NC Regulatory Fee 0182495 - SC Non-AMI Meter NBV 0183000 - Prelim Survey and Investigation 0186181 - COR Settlement - NC 0186195 - Deferred PEC Rate Case Expense - NCR 0186316 - Coal Ash Spend - NC Retail 0186500 - Other Long Term Receivable 0186910 - Deferred Benefit Plan - As 0186998 - Fukushima Pooled Inventory Opt 0253036 - JEA Option Agreement 0253820 - Schm Deferred Benefit Plan - NPL 0253890 - Schm Tax and S/L For Surplus Mat'ls 0253910 - Pole Attach - Advance Billing 0253920 - Other Deferred Credits 0253990 - Deferred Prepaid Ef - Lighting - NCR 0254021 - Nuclear Fuel Last Core Reserve 0254022 - M and S Inventory Reserve PEC RC 0254150 - Reg Liab - NC Tax Rate Change 0254690 - OPEB Regulatory Liability 0820000 - Fabricated Equipment Lee Combined Cycle Deferral Lee Nuclear Amortization Nuclear Decommissioning Expense Rounding Total Regulatory Assets and Liabilities 1/ 2/ 3/ Boswell Exhibit 1 Schedule 2-2 NC Retail Adjusted Per Company 1/ (a) $205 324,052 3,496 (28,396) 393,283 58 (21,299) 579,059 457 1,291 393 53,093 1,435 656 1,921 1,111 314 7,418 55,954 8 431,491 13,077 44 3,038 (5,026) (44) (85) (78) (1,114) (18,412) (48,492) (35,704) (204,821) (3,136) 582 14,424 326,764 101 $1,847,118 Based on review of Company Item 10 workpapers, and Company response to DR 31. Based on adjustments recommended by Public Staff. Column (a) plus Column (b). Public Staff Adjustments 2/ (b) $0 (431,491) 204,821 (14,424) (326,764) 19,432 ($548,426) NC Retail Adjusted Per Public Staff 3/ (c) $205 324,052 3,496 (28,396) 393,283 58 (21,299) 579,059 457 1,291 393 53,093 1,435 656 1,921 1,111 314 7,418 55,954 8 13,077 44 3,038 (5,026) (44) (85) (78) (1,114) (18,412) (48,492) (35,704) (3,136) 582 19,432 101 $1,298,692 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations NET OPERATING INCOME FOR RETURN For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3 Under Present Rates NC Retail Adjusted Public Staff Per Company 1/ Adjustments 2/ (a) (b) 1 2 3 4 Electric operating revenues: Sales of electricity Other revenues Electric operating revenues (L2 + L3) 5 6 7 8 9 10 11 12 13 14 15 Electric operating expenses: Operations and maintenance: Fuel used in electric generation Purchased power Other operations and maintenance expenses Depreciation and amortization General taxes Interest on customer deposits Net income taxes Amortization of investment tax credit Total electric operating expenses (Sum of L7 thru L14) 1,183,059 16,390 1,460,920 922,570 198,144 7,558 219,803 (3,529) 4,004,915 (70,917) (272,982) (117,702) (205) 19,889 (441,917) 16 Net operating income for return (L4 minus L15) $722,937 $392,612 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ $4,579,161 148,691 4,727,852 ($49,305) (49,305) After Public Staff Adjustments 3/ (c) $4,529,856 148,691 4,678,547 1,112,142 16,390 1,187,938 804,868 197,939 7,558 239,692 (3,529) 3,562,998 $1,115,549 After Public Staff Recommended Decrease Rate After Rate Decrease Decrease (d) (e) ($287,599) 4/ (1,668) 5/ (289,267) 6/ (957) 7/ (68,090) 8/ (69,047) ($220,220) 9/ $4,242,257 147,023 4,389,280 1,112,142 16,390 1,186,981 804,868 197,939 7,558 171,602 (3,529) 3,493,951 $895,329 Based on McManeus Exhibit 1 after November 2017 update provided by Company to Public Staff on December 18, 2017. Boswell Exhibit 1, Schedule 3-1, Column (bb). Column (a) plus Column (b). Line 4 minus Line 3. McManeus Exhibit 2, Line 3. Boswell Exhibit 1, Schedule 5, Line 5, Column (c). Line 4 times (1 minus retention factor after uncollectibles and regulatory fee of 0.9966903 from Boswell Exhibit 1, Schedule 1-2, Line 10.) Line 4 minus Line 9 minus change in interest expense from Boswell Exhibit 1, Schedule 5, Line 3, Column (a), times composite income tax rate of 23.6619%. Column (c) plus Column (d). DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations SUMMARY OF PUBLIC STAFF NET OPERATING INCOME ADJUSTMENTS For the Test Year Ended December 31, 2016 (in Thousands) Line No. Boswell Exhibit 1 Schedule 3-1 Page 1 of 4 Adjust Income Tax Expense for Tax Cuts & Jobs Act (a) Item 1 2 3 4 Electric operating revenues: Sales of electricity Other revenues Electric operating revenues (L2 + L3) 5 6 7 8 9 10 11 12 13 14 15 Electric operating expenses: Operations and maintenance: Fuel used in electric generation Purchased power Other operations and maintenance expenses Depreciation and amortization General taxes Interest on customer deposits Net income taxes Amortization of investment tax credit Total electric operating expenses (Sum of L7 thru L14) 16 Net operating income for return (L4 minus L15) 17 Calculated revenue requirement impact $0 - (79,586) 1/ (79,586) 79,586 ($104,601) 9/ 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ Adjust Test Year Revenues & Related Expenses (b) $11,589 2/ 11,589 2,490 2/ (388) 2/ 2,245 3/ 4,347 Update Plant to 11/30/2017 (c) $0 - (9,074) 4/ (146) 4/ 2,182 3/ (7,038) 7,242 7,038 ($9,518) ($9,250) Update Customer Growth & Usage to 11/30/2017 (d) $16,315 5/ 16,315 3,694 5/ 1,094 5/ 2,728 3/ 7,516 8,799 ($11,565) Adjust Distribution Vegetation Management (e) $0 - (12,821) 6/ 3,034 3/ (9,787) 9,787 ($12,863) Adjust Allocations from DEBS to DEC (f) Remove EDIT Refund for Treatment as a Rider (g) $0 - (4,110) 7/ 973 3/ (3,137) $0 - 51,205 8/ (12,116) 3/ 39,089 3,137 (39,089) ($4,123) $51,375 Boswell Exhibit 1, Schedule 3-1(a), Line 14, Column (e). Boswell Exhibit 1, Schedule 3-1(b). Line 4 minus Sum of Lines 7 through 12 times composite income tax rate of 23.6619%. Boswell Exhibit 1, Schedule 3-1(c). Boswell Exhibit 1, Schedule 3-1(d). Boswell Exhibit 1, Schedule 3-1(e). Boswell Exhibit 1, Schedule 3-1(f), Line 5. Boswell Exhibit 1, Schedule 3-1(g), Line 1. Negative of Line 16 divided by expense retention factor of 0.7608544 from Boswell Exhibit 1, Schedule 1-2, Line 14. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations SUMMARY OF PUBLIC STAFF NET OPERATING INCOME ADJUSTMENTS For the Test Year Ended December 31, 2016 (in Thousands) Line No. Boswell Exhibit 1 Schedule 3-1 Page 2 of 4 Adjust Customer Connect Expenses (h) Item 1 2 3 4 Electric operating revenues: Sales of electricity Other revenues Electric operating revenues (L2 + L3) 5 6 7 8 9 10 11 12 13 14 15 Electric operating expenses: Operations and maintenance: Fuel used in electric generation Purchased power Other operations and maintenance expenses Depreciation and amortization General taxes Interest on customer deposits Net income taxes Amortization of investment tax credit Total electric operating expenses (Sum of L7 thru L14) 16 Net operating income for return (L4 minus L15) 17 Calculated revenue requirement impact Remove Duke Piedmont CTA (i) Adjust Incentives (k) $0 - $0 - $0 - $0 - (10,694) 10/ 2,530 3/ (8,164) (6,450) 11/ 1,526 3/ (4,924) (44,013) 12/ 10,414 3/ (33,599) (25,142) 13/ 5,949 3/ (19,193) 8,164 9/ Adjust Depreciation Rates (j) ($10,730) 10/ 11/ 12/ 13/ 14/ 15/ 16/ Remove Ongoing Environmental Costs (l) $0 - (200,561) 14/ 47,457 3/ (153,104) Adjust Executive Compensation (m) $0 - (343) 15/ 81 3/ (262) Adjust Aviation Expenses (n) $0 - (1,661) 16/ (24) 16/ 399 3/ (1,286) 4,924 33,599 19,193 153,104 262 1,286 ($6,472) ($44,160) ($25,226) ($201,226) ($344) ($1,690) Boswell Exhibit 1, Schedule 3-1(h). Boswell Exhibit 1, Schedule 3-1(i). Boswell Exhibit 1, Schedule 3-1(j), Line 8, Column (c). Boswell Exhibit 1, Schedule 3-1(k). Based on the recommendation of Public Staff witness Maness. Boswell Exhibit 1, Schedule 3-1(l), Line 14. Boswell Exhibit 1, Schedule 3-1(m). DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations SUMMARY OF PUBLIC STAFF NET OPERATING INCOME ADJUSTMENTS For the Test Year Ended December 31, 2016 (in Thousands) Line No. Boswell Exhibit 1 Schedule 3-1 Page 3 of 4 Adjust Deferred Environmental Costs (o) Item 1 2 3 4 Electric operating revenues: Sales of electricity Other revenues Electric operating revenues (L2 + L3) 5 6 7 8 9 10 11 12 13 14 15 Electric operating expenses: Operations and maintenance: Fuel used in electric generation Purchased power Other operations and maintenance expenses Depreciation and amortization General taxes Interest on customer deposits Net income taxes Amortization of investment tax credit Total electric operating expenses (Sum of L7 thru L14) 16 Net operating income for return (L4 minus L15) 17 Calculated revenue requirement impact 9/ Adjust Outside Services (p) Adjust Lee CC Costs (q) Adjust Lee CC Deferral (r) Adjust Sponsorships & Donations (s) $0 - $0 - $0 - $0 - (90,941) 14/ 21,518 3/ (69,423) (2,117) 17/ 501 3/ (1,616) (6,031) 18/ (306) 18/ 1,499 3/ (4,838) (4,355) 19/ 1,030 3/ (3,325) $0 - (486) 20/ 115 3/ (371) Adjust Lobbying Expense (t) $0 - (547) 21/ 129 3/ (418) Adjust Board of Directors Expense (u) $0 - (2,422) 22/ 573 3/ (1,849) 69,423 1,616 4,838 3,325 371 418 1,849 ($91,243) ($2,124) ($6,359) ($4,370) ($488) ($549) ($2,430) 17/ 18/ 19/ 20/ 21/ 22/ Boswell Exhibit 1, Schedule 3-1(n), Line 6. Boswell Exhibit 1, Schedule 3-1(o). Boswell Exhibit 1, Schedule 3-1(p), Line 11. Boswell Exhibit 1, Schedule 3-1(q), Line 6. Boswell Exhibit 1, Schedule 3-1(r), Line 6. Boswell Exhibit 1, Schedule 3-1(s), Line 12. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations SUMMARY OF PUBLIC STAFF NET OPERATING INCOME ADJUSTMENTS For the Test Year Ended December 31, 2016 (in Thousands) Line No. Boswell Exhibit 1 Schedule 3-1 Page 4 of 4 Adjust Fuel & Fuel Related Revenues & Expenses (v) Item 1 2 3 4 Electric operating revenues: Sales of electricity Other revenues Electric operating revenues (L2 + L3) 5 6 7 8 9 10 11 12 13 14 15 Electric operating expenses: Operations and maintenance: Fuel used in electric generation Purchased power Other operations and maintenance expenses Depreciation and amortization General taxes Interest on customer deposits Net income taxes Amortization of investment tax credit Total electric operating expenses (Sum of L7 thru L14) 16 Net operating income for return (L4 minus L15) 17 Calculated revenue requirement impact Adjust Lee Nuclear Cost (w) ($77,209) 23/ (77,209) (77,101) 23/ (108) 23/ - 3/ (77,209) 9/ Adjust Salaries & Wages (x) $0 - (786) 24/ 186 3/ (600) Adjust Nuclear Decommissioning Expense (y) $0 - (591) 25/ (35) 25/ 148 3/ (478) $0 - (19,432) 26/ 4,598 3/ (14,834) Adjustment to Inflation Adjustment (z) $0 - 396 27/ (94) 3/ 302 Interest Synchronization Adjustment (aa) Total NOI Adjustments 29/ (bb) $0 - ($49,305) (49,305) 1,870 28/ 1,870 (70,917) (272,982) (117,702) (205) 19,889 (441,917) 0 600 478 14,834 (302) (1,870) 392,612 $0 ($789) ($628) ($19,497) $397 $2,458 ($516,015) 23/ 24/ 25/ 26/ 27/ 28/ 29/ Boswell Exhibit 1, Schedule 3-1(t), Column (d). Boswell Exhibit 1, Schedule 3-1(u), Line 8. Boswell Exhibit 1, Schedule 3-1(v). Boswell Exhibit 1. Schedule 3-1(w), Line 3. Boswell Exhibit 1, Schedule 3-1(x), Line 12. Boswell Exhibit 1, Schedule 3-1(y), Line 8. Sum of Column (a) through Column (aa). DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO INCOME TAX EXPENSE TO REFLECT TAX CUTS AND JOBS ACT For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3-1(a) NC Retail Tax Expense Per Company (a) 2017 Rate (b) 2018 Rate (c) 1 2 Per books income taxes Per books income tax expense 3 4 5 6 Federal impact of state income tax rate change Federal tax impact related to state rate change - current Federal tax impact related to state rate change - deferred Federal tax impact of Company pro forma for state tax rate change (L4 + L5) 7 8 Repeal of manufacturing tax deduction Company pro forma adjustment to manufacturing tax deduction 9 10 11 12 13 Other Company pro forma adjustments to income taxes Company pro forma adjustment to income taxes Less: adjustment to manufacturing tax deduction Less: adjustment to per books income taxes for state tax rate change Income tax impact of other Company adjustments (L10 - L11 - L12) 14 Adjustment to income tax expense (L2 + L6 + L8 + L13) 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ 10/ 11/ 12/ NCUC Form E-1, Item No. 10, NC-2901, Line 6, Column (g). Negative of NCUC Form E-1, Item No. 10, NC-2901, Line 13, Column (g) divided by (1 minus 35% federal tax rate) times 35% federal tax rate. McManeus Revised Supplemental Exhibit 1, Page 155, NC-3600(C), Line 14. Based on McManeus Exhibit 1, Page 3 after November 17 update provided by Company to Public Staff on December 18, 2017. NCUC Form E-1, Item No. 10, NC-2901, Line 6, Column (e). NCUC Form E-1, Item No. 10, NC-0104, Line 10. Statutory rate. Boswell Exhibit 1, Schedule 1-3, Line 8. Column (a) divided by Column (b) times Column (c). Based on repeal of manufacturing tax deduction in the Tax Cuts and Jobs Act. Based on Company response to Public Staff Data Request No. 123, Item 1. Column (d) minus Column (a). Taxes at New Rate (d) Adjustment (e) ($155,526) 11/ $758 1/ 2,099 2/ 2,857 35.00% 5/ 35.00% 5/ 21.00% 7/ 21.00% 7/ (5,202) 3/ (208,113) 4/ (5,202) 4/ (5,306) 4/ (197,605) $455 9/ 1,259 9/ 1,714 - 37.1902% 6/ 23.6619% 8/ 10/ (125,724) 9/ (303) 12/ (840) 12/ (1,143) 5,202 12/ 71,881 12/ ($79,586) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO TEST YEAR REVENUES AND RELATED EXPENSES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3-1(b) Public Staff Amount (a) Company Amount (b) 1 2 3 4 Revenues Adjust test year revenues for weather Adjust test year revenues for customer growth Adjust test year revenues for usage Adjust revenues for test year (Sum of L1 thru L3) 5 6 7 8 Fuel and Fuel Related Expense Adjust fuel expense for change in kwh due to weather Adjust fuel expense for change in kwh due to customer growth Adjust fuel expense for change in kwh due to usage Adjust fuel expense for change in kwh (Sum of L5 thru L7) 9 10 11 12 13 14 Other O&M Expense Public Staff adjustment to MWH sales for weather Public Staff adjustment to MWH sales for customer growth Public Staff adjustment to MWH sales for usage Total change in MWH (Sum of L9 thru L11) Energy-related non-fuel variable O&M exp. per MWH in dollars Adjustment to energy-related non-fuel variable O&M expense 15 16 17 18 19 Company NC retail customer growth change in bills Public Staff change in bills Total change in bills (L15 + L16) Annual customer-related variable O&M expense per bill in dollars Adjustment to customer-related variable O&M expense 20 21 22 Adjust variable non-fuel O&M expense (L14 + L19) Adjust regulatory fees and uncollectibles Total adjustment to other O&M expenses (L20 + L21) 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ 10/ 11/ 12/ 13/ Boswell Exhibit 1, Schedule 3-1(b)(1), Line 4. Boswell Exhibit 1, Schedule 3-1(b)(2), Line 10. Boswell Exhibit 1, Schedule 3-1(b)(3), Line 2. Boswell Exhibit 1, Schedule 3-1(b)(4), Line 27. Line 12 times Line 13 divided by 1,000. Based on information provided by Public Staff witness Saillor. Boswell Exhibit 1, Schedule 3-1(b)(5), Line 20. Line 17 times Line 18 divided by 1,000. Line 4 times (uncollectibles rate of 0.19124% plus regulatory fee rate, net of uncollectibles, of 0.13973%). NCUC Form E-1, Item No. 10, NC-0300. NCUC Form E-1, Item No. 10, NC-0400. NCUC Form E-1, Item No. 10, NC-0300, Line 10 plus NCUC Form E-1, Item No. 10, NC-0400, Line 10. Column (a) minus Column (b). Public Staff Adjustment 13/ (c) ($29,785) 1/ 15,386 2/ 2,549 3/ ($11,850) ($36,919) 10/ 13,480 11/ ($23,439) $7,134 1,906 2,549 $11,589 ($8,487) 1/ 3,096 2/ 561 3/ ($4,830) ($9,878) 10/ 2,558 11/ ($7,320) $1,391 538 561 $2,490 (411,945) 159,564 29,330 (223,051) 2.86657 ($639) 1/ 109,916 109,916 1.93043 $212 6/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ ($427) (39) 9/ ($466) $0 (78) 12/ ($78) ($427) 39 ($388) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF ADJUSTMENT TO TEST YEAR REVENUES AND FUEL RELATED EXPENSES FOR WEATHER For the Test Year Ended December 31, 2016 (in Thousands) Boswell Exhibit 1 Schedule 3-1(b)(1) Revenues Line No. Item 1 Total NC Residential 2 Public Staff NC KWH Weather Adjustment (a) 1/ Cents per KWH (b) Fuel & Fuel Related Expenses 2/ Public Staff Adjustment (c) 3/ Fuel Costs in Cents per KWH (d) 4/ Public Staff Adjustment (e) (59,998,332) 9.8088 ($5,885) 1.9131 ($1,148) Total NC General Service (243,575,214) 7.1618 (17,444) 2.0570 (5,010) 3 Total NC Industrial (108,371,252) 5.9574 (6,456) 2.1491 (2,329) 4 Total NC Retail (L1 + L2 + L3) (411,944,798) 1/ 2/ 3/ 4/ 5/ Amounts per Public Staff witness Hinton. NCUC Form E-1, Item No. 10, NC-0301, Line 11. (Column (a) times Column (b)) divided by 100,000. NCUC Form E-1, Item No. 10, NC-0301, Line 15. (Column (a) times Column (d)) divided by 100,000. ($29,785) ($8,487) 5/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF CUSTOMER GROWTH ADJUSTMENT TO TEST YEAR REVENUES AND FUEL RELATED EXPENSES For the Test Year Ended December 31, 2016 (in Thousands) Boswell Exhibit 1 Schedule 3-1(b)(2) Revenues Line No. Item Public Staff NC KWH Growth Adjustment (a) 1 Total NC Residential 2 3 4 5 General Service Small and Large T2 Flood Lighting / Outdoor Lighting Miscellaneous Total NC General (L2 + L3 + L4) 6 7 8 T TS Total NC Street Lighting (L6 + L7) 4,002,564 58,750 4,061,314 9 Total NC Industrial 6,044,923 10 Total NC Retail (L1 + L5 + L8 + L9) 1/ 2/ 3/ 4/ 5/ 1/ Cents per KWH (b) Fuel & Fuel Related Expenses 2/ Public Staff Adjustment (c) 3/ Fuel Costs in Cents per KWH (d) 4/ Public Staff Adjustment (e) 132,208,056 9.81 $12,970 1.9131 $2,529 15,215,008 1,330,596 704,237 17,249,841 7.16 18.35 17.52 1,089 244 123 1,456 2.0570 2.0570 2.0570 313 27 14 354 591 9 600 2.0570 2.0570 82 1 83 360 2.1491 130 159,564,134 Amounts per Public Staff witness Saillor. NCUC Form E-1, Item No. 10, NC-0402, Column (b). (Column (a) times Column (b)) divided by 100,000. NCUC Form E-1, Item No. 10, NC-0401, Line 5. (Column (a) times Column (d)) divided by 100,000. 14.76 14.97 1/ 5.96 $15,386 $3,096 5/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF USAGE ADJUSTMENT TO TEST YEAR REVENUES AND FUEL RELATED EXPENSES For the Test Year Ended December 31, 2016 (in Thousands) Boswell Exhibit 1 Schedule 3-1(b)(3) Revenues Line No. Item Public Staff NC KWH Usage Adjustment (a) 1 Total NC Residential 29,329,823 2 Total NC Retail 29,329,823 1/ 2/ 3/ 4/ Amounts per Public Staff witness Saillor. (Column (a) times Column (b)) divided by 100,000. NCUC Form E-1, Item No. 10, NC-0201, Line 9. (Column (a) times Column (d)) divided by 100,000. 1/ Cents per KWH (b) 8.69 Fuel & Fuel Related Expenses 1/ Public Staff Adjustment (c) $2,549 $2,549 2/ Fuel Costs in Cents per KWH (d) 1.9131 3/ Public Staff Adjustment (e) $561 $561 4/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF ENERGY-RELATED EXPENSES For the Test Year Ended December 31, 2016 (in Thousands) Boswell Exhibit 1 Schedule 3-1(b)(4) Line No. Item 1 2 3 4 5 6 7 2016 per books energy-related production O&M expense Fuel expense included in Line 1 Salaries and wages included in Line 1 - system amount NC retail allocation factor NC retail salaries and wages included in Line 1 (L3 x L4) Non-fuel rider energy-related costs removed from base rates Total non-fuel, non-payroll energy related production O&M expense (L1 - L2 - L5 - L6) 8 9 10 Total O&M expense, excluding A&G expense Total non-fuel O&M expense, excluding A&G expense (L8 - L2) Ratio (L7 / L9) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 26 Total per books A&G expense Salaries and wages in Line 10 - system amount Per books employee pensions and benefits - system amount Subtotal (L12 + L13) NC retail allocation factor NC retail per books salaries, wages, pensions, and employee benefits (L14 x L15) Aviation expense removed elsewhere NC regulatory fee adjusted elsewhere Outside services removed elsewhere Sponsorships and donations removed elsewhere Board of Directors expense removed elsewhere Total of A&G items adjusted elsewhere (Sum of Lines 16 thru 21) Total A&G expense not adjusted elsewhere (L11 - L22) Portion of A&G not adjusted elsewhere related to non-fuel non-payroll energy-related production O&M expense (L10 x L23) Total non-fuel, non-payroll energy-related production O&M expense plus related non-payroll A&G expense (L7 + L24) Per books NC retail MWH sales 27 Cost per MWH ($) (L25 x 1,000 / L26) 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ 10/ 11/ 12/ 13/ 14/ 15/ 16/ NCUC Form E-1, Item No. 45A, Page 42. NCUC Form E-1, Item No. 10, NC-0201, Total NC Retail Column, Sum of Lines 2, 4, and 5. Amount provided by Company at request of Public Staff. NCUC Form E-1, Item No. 45A, Page 1, Factor 5 - MWH at Generation Level. NCUC Form E-1, Item No. 10, NC-0601, Line 12, Total NC Retail Column. NCUC Form E-1, Item No. 45A, Page 46. NCUC Form E-1, Item No. 45A, Page 48. McManeus Revised Supplemental Exhibit 1, Page 86, NC-2206, Line 27. McManeus Revised Supplemental Exhibit 1, Page 93, NC-2209, Line 6. NCUC Form E-1, Item No. 45A, Page 13, Factor 59 - Wages & Salaries Excluding A&G. McManeus Revised Supplemental Exhibit 1, Page 108, NC-2601(C), Line 2 plus Boswell Exhibit 1, Schedule 3-1(m), Line 9. McManeus Revised Supplemental Exhibit 1, Page 115, NC-2701(B), Line 4 plus Line 11. McManeus Revised Supplemental Exhibit 1, Page 153, NC-3501(C), Line 2 plus Boswell Exhibit 1, Schedule 3-1(n), Line 6. Boswell Exhibit 1, Schedule 3-1(q). Line 6. Boswell Exhibit 1, Schedule 3-1(s), Line 12. NCUC Form E-1, Item No. 10, NC-0201, Line 10 divided by 1,000. 25 NC Retail Amount (a) Sub-Calculations (b) $1,387,955 1/ 1,138,527 2/ 3,792 90,057 5/ 155,579 5,692 3/ 66.6244% 4/ $3,792 2,266,208 6/ 1,127,681 0.137964 307,917 7/ 240,003 67,914 186,379 141,457 327,836 68.0211% 222,998 3,382 8,440 2,275 486 2,422 $240,003 9,370 164,949 57,542,362 16/ $2.86657 8/ 9/ 10/ 11/ 12/ 13/ 14/ 15/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF BILL-RELATED EXPENSES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 2016 per books bill-related O&M expenses: Account 586 - Meters (operation) Account 597 - Meters (maintenance) Account 587 - Customer - installations Accounts 901-905 - Customer accounts Accounts 908-910 - Customer service and information Total 2016 per books bill-related expenses (Sum of Lines 2 thru 6) 8 9 10 11 12 Salaries and wages included in Line 7 - system amount NC retail allocation factor NC retail salaries and wages included in Line 7 Uncollectibles expense adjusted elsewhere Total non-payroll bill-related O&M expenses not adjusted elsewhere (L7 - L10 - L11) 13 14 15 Total O&M expense, excluding A&G expense Total non-fuel O&M expense, excluding A&G expense Ratio (L12 / L14) 16 17 19 Total A&G expense not adjusted elsewhere Portion of A&G not adjusted elsewhere related to non-payroll bill-related O&M expense (L15 x L16) Total non-payroll bill-related O&M expenses plus related non-payroll A&G expense (L12 + L17) Per books NC retail 2016 bills 20 Cost per bill ($) (L18 x 1,000 / L19) 18 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ Boswell Exhibit 1 Schedule 3-1(b)(5) NC Retail Amount (a) $7,300 1,944 8,447 63,797 15,736 97,224 Sub-Calculations (b) 1/ 1/ 1/ 2/ 2/ 38,171 9,585 5/ 49,468 2,266,208 6/ 1,127,681 7/ 0.043867 67,914 8/ 2,979 52,447 27,168,598 9/ $1.93043 NCUC Form E-1, Item No. 45A, Page 44. NCUC Form E-1, Item No. 45A, Page 46. Based on information provided by Company. Average NC retail allocation factor for the accounts listed on Lines 2 thru 6 per NCUC Form E-1, Item 45A. NCUC Form E-1, Item No. 10, NC-0601, Line 12. Boswell Exhibit 1, Schedule 3-1(b)(4), Line 8. Boswell Exhibit 1, Schedule 3-1(b)(4), Line 9. Boswell Exhibit 1, Schedule 3-1(b)(4), Line 23. Based on response to Public Staff Data Request No. 54, Item 2. 49,914 3/ 76.4742% 4/ $38,171 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO DEPRECIATION EXPENSE AND PROPERTY TAXES FOR PLANT UPDATE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 Depreciation expense Depreciation expense on increase in plant per Public Staff Company adjustment Public Staff adjustment to depreciation expense for update of plant (L2 - L3) 5 6 7 8 9 10 11 12 General taxes Update to plant per Public Staff Less: adjustment to intangible plant Adjustment to plant excluding intangible plant (L6 - L7) Property tax rate per $1000 Impact to property taxes of Public Staff plant update (L8 x L9) Company adjustment Public Staff adjustment to property taxes (L10 - L11) 1/ 2/ 3/ 4/ 5/ 6/ Boswell Exhibit 1 Schedule 3-1(c) Amount $42,192 1/ 51,266 2/ ($9,074) 1,095,077 84,512 1,010,565 0.0052032 5,258 5,404 ($146) Boswell Exhibit 1, Schedule 3-1(c)(1), Line 12, Column (e). McManeus Revised Supplemental Exhibit 1, Page 18, NC-1101(C), Line 57. Boswell Exhibit 1, Schedule 2-1(a)(1), Line 13, Column (e). Boswell Exhibit 1, Schedule 2-1(a)(1), Line 9, Column (e). McManeus Revised Supplemental Exhibit 1, Page 18, NC-1101(C), Line 63. McManeus Revised Supplemental Exhibit 1, Page 18, NC-1101(C), Line 70 minus Line 66. 3/ 4/ 5/ 6/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF DEPRECIATION EXPENSE ON PLANT UPDATE For the Test Year Ended December 31, 2016 (in Thousands) Line No. 1 2 3 4 5 6 7 8 9 10 11 12 1/ 2/ 3/ 4/ 5/ 6/ 7/ Item Steam plant Hydro plant Other production plant Nuclear plant Total production plant Transmission plant Distribution plant General plant Intangible plant Total Less: depreciation on REPS additions Depreciation expense per Public Staff Boswell Exhibit 1 Schedule 3-1(c)(1) Increase in Plant in Service (a) $136,744 39,599 127,794 139,270 443,407 270,476 593,196 204,411 122,822 $1,634,312 1/ Depreciation Rate 2/ (b) 3.32% 1.79% 2.95% 3.38% 2.03% 2.13% 5.53% various 4/ Increase in Depreciation 3/ (c) $4,540 709 3,770 4,707 13,726 5,491 12,635 11,304 19,174 4/ $62,330 NC Retail Percentage 5/ (d) 67.0068% 51.2819% 73.9544% 68.8082% 68.8082% Boswell Exhibit 1, Schedule 2-1(a)(1), Column (c). Based on recommendation of Public Staff witness McCullar, unless footnoted otherwise. Column (a) times Column (b). Based on Company response to Public Staff Data Request No. 109, Item 4. McManeus Revised Supplemental Exhibit 1, Page 18, Lines 53 thru 56. Column (c) times Column (d). Boswell Exhibit 1, Schedule 2-1(a)(1), Line 12 times other production depreciation rate from Line 3, Column (b). NC Retail Amount (e) 6/ $9,197 2,816 9,344 7,778 13,193 42,328 136 7/ $42,192 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO UPDATE REVENUES TO NOVEMBER 30, 2017 For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 Revenues Update revenues for customer growth Update revenues for usage Adjust revenues for update (L1 + L2) 4 5 6 Fuel and Fuel Related Expense Adjust fuel and fuel-related expense for customer growth update Adjust fuel and fuel-related expense for usage update Adjust fuel expense for change in kwh (L4 + L5) 7 8 9 10 11 Other O&M Expense Public Staff update adjustment to MHW sales for growth Public Staff update adjustment to MHW sales for usage Public Staff adjustment to MWH sales (L7 + L8) Energy-related non-fuel variable O&M expense per kWh in dollars Adjustment to energy-related non-fuel variable O&M expense (L9 x L10 / 1000) 12 13 14 Public Staff change in bills Annual customer-related variable O&M expense per bill in dollars Adjustment to customer-related variable O&M expense (L12 x L13 / 1,000) 15 16 17 18 Adjust variable non-fuel O&M expense (L11 + L14) Adjust uncollectibles for increase in revenues Adjust regulatory fee for increase in revenues, net of uncollectibles Total adjustment to other O&M expenses (L15 + L16 + L17) 1/ 2/ 3/ 4/ 5/ 6/ 7/ Boswell Exhibit 1, Schedule 3-1(d)(1), Line 10. Boswell Exhibit 1, Schedule 3-1(d)(2), Line 2. Boswell Exhibit 1, Schedule 3-1(b)(4), Line 27. Based on the recommendation of Public Staff witness Saillor. Boswell Exhibit 1, Schedule 3-1(b)(5), Line 20. Line 3 times uncollectibles rate of 0.19124%. (Line 3 minus Line 16) times regulatory fee rate of 0.14000%. Boswell Exhibit 1 Schedule 3-1(d) Amount $43,681 1/ (27,366) 2/ $16,315 $9,719 1/ (6,025) 2/ $3,694 492,912 1/ (314,917) 2/ 177,995 2.86657 3/ 510 274,309 4/ 1.93043 5/ 530 $1,040 31 6/ 23 7/ $1,094 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF ADJUSTMENT TO REVENUES AND FUEL RELATED EXPENSES TO UPDATE CUSTOMER GROWTH TO NOVEMBER 30, 2017 For the Test Year Ended December 31, 2016 (in Thousands) Boswell Exhibit 1 Schedule 3-1(d)(1) Revenues Line No. Item Public Staff Growth NC KWH Adjustment (a) 1/ Cents per KWH (b) 1 Total NC Residential 304,101,678 9.81 2 3 4 5 General Service Small and Large T2 Flood Lighting / Outdoor Lighting Miscellaneous Total NC General (L2 + L3 + L4) 161,495,449 (635,290) 699,706 161,559,865 7.16 18.35 17.52 6 7 8 T TS Total NC Street Lighting (L6 + L7) 9 Total NC Industrial 10 Total NC Retail (L1 + L5 + L8 + L9) 1/ 2/ 3/ 4/ 5/ 7,445,634 9,020 7,454,654 19,795,881 492,912,078 Amounts per Public Staff witness Saillor. NCUC Form E-1, Item No. 10, NC-0402, Column (b). (Column (a) times Column (b)) divided by 100,000. NCUC Form E-1, Item No. 10, NC-0401, Line 5. (Column (a) times Column (d)) divided by 100,000. Fuel & Fuel Related Expenses 2/ 14.76 14.97 1/ 5.96 Public Staff Adjustment (c) $29,832 3/ Fuel Costs in Cents per KWH (d) 1.9131 4/ Public Staff Adjustment (e) $5,818 11,563 (117) 123 11,569 2.0570 2.0570 2.0570 3,322 (13) 14 3,323 1,099 1 1,100 2.0570 2.0570 153 0 153 1,180 2.1491 425 $43,681 $9,719 5/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF ADJUSTMENT TO REVENUES AND FUEL RELATED EXPENSES TO UPDATE USAGE TO NOVEMBER 30, 2017 For the Test Year Ended December 31, 2016 (in Thousands) Boswell Exhibit 1 Schedule 3-1(d)(2) Revenues Line No. Item Public Staff NC KWH Usage Adjustment (a) 1 Total NC Residential (314,916,793) 2 Total NC Retail (314,916,793) 1/ 2/ 3/ 4/ Amounts per Public Staff witness Saillor. (Column (a) times Column (b)) divided by 100,000. NCUC Form E-1, Item No. 10, NC-0201, Line 9. (Column (a) times Column (d)) divided by 100,000. 1/ Cents per KWH (b) 8.69 Fuel & Fuel Related Expenses 1/ Public Staff Adjustment (c) ($27,366) ($27,366) 2/ Fuel Costs in Cents per KWH (d) 1.9131 3/ Public Staff Adjustment (e) ($6,025) ($6,025) 4/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO DISTRIBUTION VEGETATION MANAGEMENT For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 Number of trim miles per year: Urban Miles Mountain Miles Other Miles Total number of trim miles (L2 + L3 + L4) Cost per mile (in dollars) per Public Staff (L7 x 1,000 / L5) 7 8 9 10 11 Production cost Demand cost Herbicide cost Hazard Tree Program cost Total distribution Vegetation Management (VM) per Public Staff (Sum of L7 thru L10) Boswell Exhibit 1 Schedule 3-1(e) Total Miles (a) 2,180 1/ 7,831 1/ 41,603 1/ 51,614 Target Cycle (In Years) (b) 5 2/ 7 2/ 9 2/ Amount (c) 436 3/ 1,119 3/ 4,623 3/ 6,178 $7,263 $44,872 2,364 3,086 786 4/ 5/ 5/ 5/ 51,108 12 13 14 Adjusted VM - contractor rates and trim per Company VM program enhancements per Company Adjusted distribution VM per Company (L12 + L13) 15 16 Public Staff adjustment to VM (L11 - L14) NC retail percentage (17,446) 73.4889% 8/ 17 Public Staff adjustment to distribution VM - NC retail (L15 x L16) ($12,821) 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 60,054 6/ 8,500 7/ 68,554 McManeus Revised Supplemental Exhibit 1, Page 133, NC-3102(A), Column (a). McManeus Revised Supplemental Exhibit 1, Page 133, NC-3102(A), Column (b). Column (a) divided by Column (b). McManeus Revised Supplemental Exhibit 1, Page 133, NC-3102(A), Column (d), Line 8 times 1.07. McManeus Revised Supplemental Exhibit 1, Page 133, NC-3102(A), Column (e), Lines 9 thru 11. McManeus Revised Supplemental Exhibit 1, Page 133, NC-3102(A), Column (e), Line 12. McManeus Revised Supplemental Exhibit 1, Page 133, NC-3102(A), Column (e), Line 16. McManeus Revised Supplemental Exhibit 1, Page 133, NC-3101(A), NC Retail Allocation Column, Line 2. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO ALLOCATIONS FROM DEBS For the Test Year Ended December 31, 2016 (in Thousands) Line No. 1 2 3 4 5 Item Updated allocations from DEBS to DEC Test year allocations from DEBS to DEC Adjustment to expense allocations from DEBS to DEC (L1 - L2) NC retail allocation factor Adjustment to expense for allocations from DEBS - NC Retail (L3 x L4) Boswell Exhibit 1 Schedule 3-1(f) Amount $374,481 1/ 380,615 2/ (6,134) 67.0068% 3/ ($4,110) 1/ From Company Response to Public Staff Data Request No. 96, Item 1 in this proceeding. 2/ From Company Response to Public Staff Data Request No. 15, Item 7 in Docket No. E-2, Sub 1142. 3/ NCUC Form E-1, Item 45A, Factor 1, Total KW (production) factor. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO REMOVE EDIT LIABILITY FROM BASE RATES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Boswell Exhibit 1 Schedule 3-1(g) Item Amount 1 Depreciation and amortization expense Remove EDIT liability amortization included in base rates by Company 2 Regulatory assets and liabilities Remove unamortized balance included in rate base by Company $204,821 2/ 3 Accumulated deferred income taxes (ADIT) Remove ADIT associated with unamortized balance ($76,094) 3/ 1/ 2/ 3/ McManeus Revised Supplemental Exhibit 1, NC-2801(C), Page 128, Line 8. McManeus Revised Supplemental Exhibit 1, NC-2801(C), Page 128, Line 19. McManeus Revised Supplemental Exhibit 1, Page 128, Line 19 times Line 23. $51,205 1/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO CUSTOMER CONNECT EXPENSES For the Test Year Ended December 31, 2016 (in Thousands) Line No. 1 Item Remove 2018-2020 forecasted Customer Connect costs 1/ NCUC Form E-1, Item No. 10, NC-3001, Line 14. Boswell Exhibit 1 Schedule 3-1(h) Amount ($10,694) 1/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO DUKE PIEDMONT COSTS TO ACHIEVE For the Test Year Ended December 31, 2016 (in Thousands) Line No. 1 2 3 Item Remove Duke Piedmont CTAs from O&M expenses NC retail allocation percentage Adjustment to remove NC retail portion of Duke Piedmont CTAs (L1 x L2) 1/ From Company Response to Public Staff Data Request No. 95, Item 9. 2/ NCUC Form E-1, Item 45A, Factor 1, Total KW (production) factor. Boswell Exhibit 1 Schedule 3-1(i) Amount ($9,626) 1/ 67.0068% 2/ ($6,450) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT FOR CHANGE IN DEPRECIATION RATES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 Change in depreciation and amortization per Public Staff Production Transmission Distribution General General amortization Public Staff adjustment to depreciation and amortization expense (Sum of L1 thru L5) Adjustment per Company Adjustment to depreciation and amortization expense (L6 - L7) 9 Adjustment to accumulated depreciation (-L8) 1/ 2/ 3/ 4/ Boswell Exhibit 1 Schedule 3-1(j) Total System (a) 1/ $56,117 (3,120) (9,636) (12,492) (10,159) $20,710 Based on recommendation of Public Staff witness McCullar. McManeus Revised Supplemental Exhibit 1, Page 13, NC-1001(B), Lines 3 thru 7, NC Retail Allocation Column. Column (a) times Column (b). McManeus Revised Supplemental Exhibit 1, Page 13, NC-1001(B), Line 8, Total NC Retail Column. NC Retail Percentage 2/ (b) 67.0068% 51.2819% 73.9544% 68.8082% 68.8082% NC Retail Amount (c) $37,602 (1,600) (7,126) (8,596) (6,990) 13,290 57,303 ($44,013) $44,013 3/ 3/ 3/ 3/ 3/ 4/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO INCENTIVES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3-1(k) Amount 1 2 3 4 5 6 7 8 9 Short Term Incentive Plan (STIP) Total Company STIP pay accrued expense associated with earnings per share (EPS) Total Company STIP accrual Percentage of STIP related to EPS (L1 / L2) STIP at target level associated with O&M expense per Company, net of Joint Owners Adjustment to remove STIP related to EPS outcomes - total system (-L3 x L4) NC retail percentage Adjustment to remove STIP related to EPS outcomes - NC retail (L5 x L6) Executive STIP already removed in executive compensation adjustment Adjustment to STIP (L7 + L8) 10 Long Term Incentive Plan (LTIP) LTIP Performance Shares associated with EPS and TSR at target, net Joint Owners 11 12 13 14 15 Adjustment to remove LTIP associated with EPS and TSR - total system (-L10) NC retail percentage Adjustment to remove LTIP associated with EPS and TSR - NC retail (L11 x L12) Executive LTIP already removed in executive compensation adjustment Adjustment to LTIP (L13 + L14) (7,830) 68.0211% 3/ (5,326) 572 4/ ($4,754) 16 Total adjustment to incentive pay (L9 + L15) ($25,142) 1/ 2/ 3/ 4/ 5/ $121,273 363,807 33.33% 90,787 (30,263) 68.0211% (20,585) 197 ($20,388) 1/ 1/ 2/ 3/ 4/ $7,830 5/ From Company Response to Public Staff Data Request No. 35, Item 7. McManeus Revised Supplemental Exhibit 1, Page 94, NC-2210, Line 13, net of Catawba Joint Owners. McManeus Revised Supplemental Exhibit 1, Page 81, NC-2201(C), Line 46, NC Retail Allocation Column. Based on executive compensation adjustment. McManeus Revised Supplemental Exhibit 1, Page 97, NC-2210-3, Line 13, Column (b), net of Catawba Joint Owners. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 Boswell Exhibit 1 Schedule 3-1(l) North Carolina Retail Operations ADJUSTMENT TO EXECUTIVE COMPENSATION For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Executive compensation for top 4 executives per Company Inclusion of additional executive in adjustment Inclusion of executive benefits in adjustment Executive compensation subject to exclusion adjustment per Public Staff (L1 + L2 + L3) Catawba reimbursement allocation rate Non-ownership percentage in Catawba plant Costs reimbursed by Catawba Joint Owners (L4 x L5 x L6) Compensation subject to exclusion after Joint Owners' Share (L4 - L7) $7,854 759 390 9,004 15.218% 80.754% 1,106 7,897 NC retail Allocation Factor 68.0211% 6/ NC retail portion of executive compensation subject to exclusion adjustment (L8 x L9) Exclusion percentage Public Staff adjustment to exclude executive compensation (L10 x L11) Adjustment per Company Adjustment to remove additional executive compensation (L12 x L13) 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ Amount 5,372 50.00% (2,686) (2,343) ($343) 1/ 2/ 3/ 4/ 5/ 7/ 8/ NCUC Form E-1, Item No. 10, NC-0701, Line 4. From Company response to Public Staff Data Request No. 29, Item 3. From Company response to Public Staff DEP Data Request No. 106, Item 2, utilizing DEC DGEX and UTEX allocation factors. NCUC Form E-1, Item No. 10, NC-0701, Line 5. NCUC Form E-1, Item No. 10, NC-0701, Line 6. NCUC Form E-1, Item No. 10, NC-0701, Line 10. NCUC Form E-1, Item No. 10, NC-0701, Line 12. NCUC Form E-1, Item No. 10, NC-0701, Line 13. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO AVIATION EXPENSES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3-1(m) Amount 1 2 3 4 5 6 7 8 9 Wages, benefits, materials, etc. Corporate aviation O&M and depreciation expense Percentage to be excluded per Public Staff Corporate aviation expenses to be excluded per Public Staff (L1 x L2) Specific charter flights to be excluded Total corporate aviation expenses to be excluded per Public Staff (L3 + L4) Corporate aviation expenses to be excluded per Company Additional aviation O&M expenses to be excluded (L5 - L6) NC retail percentage Public Staff adjustment to aviation O&M expenses (-L7 x L8) $6,392 78.48% 5,016 5,016 2,553 2,463 67.4240% ($1,661) 1/ 2/ 10 11 12 13 14 15 16 General taxes Corporate aviation general taxes Percentage to be excluded per Public Staff Corporate aviation general taxes to be excluded per Public Staff (L10 x L11) Corporate aviation general taxes to be excluded per Company Additional aviation general taxes to be excluded (L12 - L13) NC retail percentage Public Staff adjustment to aviation general taxes (-L14 x L15) $92 78.48% 72 37 35 68.0211% ($24) 5/ 2/ 1/ McManeus Revised Supplemental Exhibit 1, Page 109, NC-2602(C), Line 29. 2/ Calculated by Public Staff based on Company response to Public Staff Data Request No. 13, Item 10 and Public Staff Data Request No. 48. 3/ McManeus Revised Supplemental Exhibit 1, Page 109, NC-2602(C), Line 31. 4/ McManeus Revised Supplemental Exhibit 1, Page 108, NC-2601(C), Line 2, NC Retail Allocation Column. 5/ McManeus Revised Supplemental Exhibit 1, Page 109, NC-2602(C), Line 1, Total Duke Energy Carolinas Column. 6/ McManeus Revised Supplemental Exhibit 1, Page 109, NC-2602(C), Line 3, Total Duke Energy Carolinas Column. 7/ McManeus Revised Supplemental Exhibit 1, Page 108, NC-2601(C), Line 5, NC Retail Allocation Column. 3/ 4/ 6/ 7/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO OUTSIDE SERVICES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3-1(n) Amount 1 Remove items related to coal ash litigation ($2,109) 1/ 2 Items identified by Public Staff that Company has agreed to remove (678) 1/ 3 Items identified by Public Staff that should be removed (325) 1/ 4 Total Public Staff adjustment to outside services (L1 + L2 + L3) 5 NC retail percentage 6 Public Staff adjustment to outside services - NC retail (L4 x L5) (3,112) 68.0211% 2/ ($2,117) 1/ Based on information provided by Company in response to Public Staff Data Request No. 77, Items 1 and 2 and advice of legal counsel. 2/ NCUC Form E-1, Item No. 45A, Factor 59 - Labor (Wage and Salary Related Items). DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO LEE COMBINED CYCLE ADDITION IMPACT TO INCOME STATEMENT For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3-1(o) Amount 1 2 3 4 5 6 7 8 Other O&M Expense: Lee Combined Cycle - estimated incremental O&M updated per Company Adjustment to remove estimated amount for incremental O&M expense (-L1) Lee Combined Cycle incremental O&M per Public Staff (L1 + L2) NC retail allocation factor Lee Combined Cycle incremental O&M NC Retail per Public Staff (L4 x L5) Lee Combined Cycle - estimated incremental O&M as originally filed Public Staff adjustment to Lee Combined Cycle incremental O&M (L6 - L7) $2,958 1/ (2,958) $0 67.0068% 2/ 0 6,031 3/ ($6,031) 9 10 11 12 13 14 15 Depreciation Expense: Lee Combined Cycle plant addition NC retail allocation percentage Lee Combined Cycle plant addition - NC retail (L9 x L10) Depreciation rate per Public Staff Lee Combined Cycle depreciation expense (L11 x L12) Amount per Company Adjustment to depreciation expense (L13 - L14) $569,245 67.0068% 381,433 2.75% 10,489 10,795 ($306) 1/ 2/ 3/ 4/ 5/ 6/ 7/ 4/ 5/ 6/ 7/ Per Company revised response to Public Staff Data Request No. 93, Item 2. McManeus Revised Supplemental Exhibit 1, Page 25, NC-1201(C), Line 34, NC Retail Allocation Column. McManeus Revised Supplemental Exhibit 1, Page 25, NC-1201(C), Line 34, Total NC Retail Column. McManeus Revised Supplemental Exhibit 1, Page 24, NC-1201(C), Line 7, Total Carolinas Column. McManeus Revised Supplemental Exhibit 1, Page 24, NC-1201(C), Line 7, NC Retail Allocation Column. Based on recommendation of Public Staff witness McCullar. McManeus Revised Supplemental Exhibit 1, Page 25, NC-1201(C), Line 37, Total NC Retail Column. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO LEE COMBINED CYCLE DEFERRAL For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Annuity Factor Amortization period recommended by Public Staff in years Payment per period After tax rate of return 1 2 3 4 5 6 Present value of 1 dollar over number of years with 1 payment per year 1 plus (interest rate divided by two) Annuity factor (L4 x L5) 7 8 9 10 11 Deferred costs per Public Staff Annuity factor per Public Staff (L6) Annual levelized amortization expense per Public Staff (L7 / L8) Annual amortization expense per Company Adjustment to Lee CC deferral amortization expense (L9 - L10) 12 13 Unamortized balance included in rate base by Company Adjustment to remove unamortized balance from rate base (-L12) 14 15 ADIT included in rate base by Company Adjustment to ADIT (-L14) 1/ 2/ 3/ 4/ 5/ Boswell Exhibit 2, Schedule 1(a), Line 9, Column (d). Boswell Exhibit 1, Schedule 3-1(p)(1), Line 22, Column (e). McManeus Revised Supplemental Exhibit 1, Page 29, NC-1301(C), Line 4. McManeus Revised Supplemental Exhibit 1, Page 29, NC-1301(C), Line 15. McManeus Revised Supplemental Exhibit 1, Page 29, NC-1301(C), Line 18. Boswell Exhibit 1 Schedule 3-1(p) Amount 5 1 6.2940% 1/ 4.1789 1.0315 4.3105 $12,316 2/ 4.3105 2,857 7,212 3/ ($4,355) $14,424 4/ ($14,424) ($5,359) 5/ $5,359 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF DEFERRED COSTS FOR LEE COMBINED CYCLE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 Prior plant balance Plant placed in service for month Plant balance (L1 + L2) ADIT balance (bonus depreciation) Average inventory balance Rate base balance for return (L3 + L4 + L5) Monthly pre-tax cost of capital rate Deferred cost of capital (L6 x L7) 9 10 11 Plant balance (L3) Monthly depreciation rate Deferred depreciation expense (L9 x L10) 12 Deferred O&M expense 13 14 15 Plant balance (L3) Monthly property tax rate Deferred property tax expense (L13 x L14) 16 17 18 19 20 21 Cumulative deferred costs Composite income tax rate Income tax on deferred expenses (-L16 x L17) Deferred costs, net of tax (L16 + L18) Monthly pre-tax cost of capital rate (L7) Pre-tax return on deferred expenses (L19 x L20) 22 Total deferred costs per Public Staff (L8 + L11 + L12 + L15 + L21) 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ 10/ 11/ Boswell Exhibit 1 Schedule 3-1(p)(1) January 2018 (a) February 2018 (b) $0 0 0 0 0 0 0.796158% 4/ 0 $0 381,433 381,433 (3,761) 5,330 383,002 0.796158% 3,049 0 0.2292% 5/ 0 March 2018 (c) 10/ 1/ 2/ 3/ 4/ April 2018 (d) $381,433 0 381,433 (7,522) 5,330 379,241 0.796158% 3,019 10/ 2/ 3/ 4/ Total (e) $381,433 0 381,433 (11,283) 5,330 375,480 0.796158% 2,989 11/ 10/ 2/ 3/ 4/ 9,057 381,433 0.2292% 5/ 874 381,433 0.2292% 5/ 874 381,433 0.2292% 5/ 874 2,622 0 6/ 0 6/ 0 6/ 0 0 0.043360% 7/ 0 381,433 0.043360% 7/ 165 381,433 0.043360% 7/ 165 381,433 0.043360% 7/ 165 495 0 23.6619% 9/ 0 0 0.796158% 0 3,923 8/ 23.6619% 9/ (928) 2,995 0.796158% 24 7,816 8/ 23.6619% 9/ (1,849) 5,967 0.796158% 48 11,679 8/ 23.6619% 9/ (2,763) 8,916 0.796158% 71 142 $4,112 $4,106 $4,099 0 $0 Boswell Exhibit 1, Schedule 3-1(o), Line 11. Negative of Line 3 times 50% divided by twelve times composite tax rate of 23.6619% plus ADIT balance from prior month. Boswell Exhibit 1, Schedule 2-1(b), Line 6. Boswell Exhibit 1, Schedule 3-1(p)(2), Line 4, Column (d) divided by twelve. Depreciation rate per Public Staff witness McCullar of 2.75% divided by twelve. Boswell Exhibit 1, Schedule 3-1(o), Line 6 divided by twelve. Boswell Exhibit 1, Schedule 3-1(c), Line 9 divided by twelve. Amounts for current month from Lines 8, 11, and 12 plus deferred costs from prior month from Line 16. Boswell Exhibit 1, Schedule 1-3, Line 8. Plant balance from prior month from Line 3. Sum of Columns (a) through (d). $12,316 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF PRE-TAX RATE BASED ON LAST RATE CASE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 Pre-tax rate based on last rate case Long term debt Equity Pre-tax rate (L2 + L3) 1/ 2/ 3/ 4/ Boswell Exhibit 1 Schedule 3-1(p)(2) Capital Structure (a) 47.00% 1/ 53.00% 1/ Cost Rates (b) 5.26% 1/ 10.20% 1/ 2018 Tax Rate (c) 23.6619% 2/ Order Granting General Rate Increase issued on September 24, 2013, in Docket No. E-7, Sub 1026, Page 69. Boswell Exhibit 1, Schedule 1-3, Line 8. Column (a) times Column (b). (Column (a) times Column (b)) divided by (1 minus Column (c)). Rate (d) 2.4722% 3/ 7.0817% 4/ 9.5539% DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO SPONSORSHIPS AND DONATIONS For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 Remove sponsorships and donations related to chambers of commerce 2 Remove donations related to RIPON society and NC Chamber Foundation 3 Remove miscellaneous dues and contributions 4 Total sponsorships and donations to be removed per Public Staff (L1 + L2 + L3) 5 NC retail percentage 6 Public Staff adjustment to remove sponsorships and donations - NC retail (L4 x L5) 1/ 2/ 3/ 4/ From Company response to Public Staff Data Request No. 80, Item 3. From Company response to Public Staff Data Request No. 80, Item 4. Based on review of NCUC Form E-1, Item No. 16(c). Factor 1 - Total KW (production factor) from NCUC Form E-1, Item No.45A, Page 1. Boswell Exhibit 1 Schedule 3-1(q) Amount ($498) 1/ (154) 2/ (73) 3/ (725) 67.0068% 4/ ($486) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO LOBBYING EXPENSE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3-1(r) Amount 1 Remove Stakeholder Engagement O&M charges related to lobbying ($289) 1/ 2 Remove State Government Affairs O&M charges related to lobbying (161) 1/ 3 Remove Federal Affairs O&M charges related to lobbying (353) 1/ 4 Total lobbying costs to be removed from O&M expense (L1 + L2 + L3) (804) 5 NC retail percentage 6 Public Staff adjustment to remove lobbying expense (L4 x L5) 1/ Based on Company response to Public Staff Data Request No. 24, Items 3 and 4. 2/ Labor allocation factor. 68.0211% 2/ ($547) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO BOARD OF DIRECTORS EXPENSE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 Total Board of Directors (BOD) cash compensation Percentage of exclusion per Public Staff Public Staff adjustment to BOD compensation (-L1 x L2) 4 5 6 BOD insurance charged to DEC Percentage of exclusion per Public Staff Public Staff adjustment to BOD insurance (-L4 x L5) 7 8 9 BOD and executive members expenses allocated to DEC Percentage of exclusion per Public Staff Public Staff adjustment to BOD and executive members expenses (-L7 x L8) 10 11 12 Total Public Staff adjustment to BOD compensation and expenses (L3 + L6 + L9) NC retail percentage Public Staff adjustment to BOD expenses - NC retail (L10 x L11) 1/ 2/ 3/ 4/ 5/ Amount from 2017 Proxy Statement page 35, allocated to DEC. Recommended by Public Staff. Company Response to Public Staff Data Request No. 42, Item 1. Company Response to Public Staff Data Request No. 42 , Item 2. Factor 1 - Total KW (production factor) from NCUC Form E-1, Item No.45A, Page 1. Boswell Exhibit 1 Schedule 3-1(s) Amount $778 1/ 50% 2/ (389) 6,042 3/ 50% 2/ (3,021) 410 4/ 50% 2/ (205) (3,615) 67.0068% 5/ ($2,422) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO FUEL AND FUEL-RELATED COST CLAUSE REVENUES AND EXPENSES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3-1(t) General Service & Lighting (b) Residential (a) Industrial (c) Total (d) 1 2 3 4 Fuel and fuel-related cost (F&FRC) expense at present rates: NC retail adjusted kWh sales (L12) Present F&FRC expense factors F&FRC expense per Public Staff (L2 x L3 / 100,000) 21,382,977,186 $1.7828 1/ 381,216 23,318,279,540 $1.9163 1/ 446,848 12,796,049,987 $2.0207 1/ 258,570 5 6 7 8 9 10 11 12 13 14 F&FRC clause expense previously included in case: NC retail kWh actual sales Public Staff kWh adjustment to test year weather Public Staff kWh adjustment for test year customer growth Public Staff kWh adjustment to test year usage Public Staff kWh adjustment to update growth to 11-30-17 Public Staff kWh adjustment to update usage to 11-30-17 NC retail adjusted kWh sales (Sum of L6 thru L11) F&FRC expense factor proposed by Company Total F&FRC expense previously included in case (L12 x L13 / 100,000) 21,292,252,754 (59,998,332) 132,208,056 29,329,823 304,101,678 (314,916,793) 21,382,977,186 $1.9131 409,078 23,371,529,080 (243,575,214) 21,311,155 169,014,519 23,318,279,540 $2.0570 479,657 12,878,580,435 (108,371,252) 6,044,923 19,795,881 12,796,049,987 $2.1491 275,000 15 Public Staff adjustment to fuel & fuel related expense (L4 - L14) ($77,101) 16 Public Staff adjustment to base fuel revenues ($77,209) 10/ 17 Public Staff adjustment to regulatory fee expense 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ 10/ 11/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 2/ 3/ 4/ 6/ 8/ Prospective component of fuel and fuel-related cost rate approved by the Commission on August 14, 2017 in Docket No. E-7, Sub 1129. NCUC Form E-1, Item No. 10, NC-0201, Line 10. Boswell Exhibit 1, Schedule 3-1(b)(1), Column (a). Boswell Exhibit 1, Schedule 3-1(b)(2), Column (a). Boswell Exhibit 1, Schedule 3-1(b)(3), Column (a). Boswell Exhibit 1, Schedule 3-1(d)(1), Column (a). Boswell Exhibit 1, Schedule 3-1(d)(2), Column (a). NCUC Form E-1, Item No. 10, NC-0201, Line 9. Sum of Columns (a) thru (c). Line 15 divided by (1 minus regulatory fee rate of 0.1400%). Line 16 times regulatory fee rate of 0.1400%. $1,086,634 9/ 2/ 3/ 4/ 6/ 8/ 1,163,735 9/ ($108) 11/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO LEE NUCLEAR COST AMORTIZATION For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 2 3 4 5 6 7 8 Depreciation and amortization expense Balance for amortization per Company Adjustment to remove costs associated with design of visitor center Adjustment to AFUDC Balance for amortization per Public Staff (L1 + L2 + L3) Amortization period in years Annual amortization expense per Public Staff (L4 / L5) Amount per Company Adjustment to depreciation and amortization expense (L6 - L7) 9 10 Rate base line items Remove unamortized balance of Lee Nuclear costs from rate base Remove impact to ADIT Boswell Exhibit 1 Schedule 3-1(u) Amount $356,470 (340) (9,087) 347,043 12 28,920 29,706 ($786) 1/ 2/ 3/ 4/ 5/ ($326,764) 6/ 121,398 7/ 1/ McManeus Revised Supplemental Exhibit 1, Page 36, Line 2. 2/ Based on the recommendation of Public Staff witness Metz, allocated utilizing Factor 1. 3/ McManeus Revised Supplemental Exhibit 1, Page 37, NC-1402(C), AFUDC amounts for the months of January through April 2018, based on the recommendation of Public Staff witness Maness. 4/ McManeus Revised Supplemental Exhibit 1, Page 36, Line 3. 5/ McManeus Revised Supplemental Exhibit 1, Page 36, Line 4. 6/ Negative of amount from McManeus Revised Supplemental Exhibit 1, Page 36, Line 15. 7/ Negative of amount from McManeus Revised Supplemental Exhibit 1, Page 36, Line 18. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO SALARIES AND WAGES For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3-1(v) Duke Energy Carolinas (a) Labor per payroll company at November 30, 2017 November 2017 allocation percentages Annual salaries as of November 30, 2017 per Public Staff (L1 x L2) Per books salaries Adjustment to salaries and wages for DEC & DEP employees per Public Staff Company adjustment to salaries and wages for DEC & DEP employees Adjustment to salaries and wages for DEC & DEP employees 8 9 10 11 12 Service Company salaries and wages at 11/30/17 Service Company salaries and wages at 12/31/16 Change in service company salaries from 12/31/16 to 11/30/17 (L8 - L9) Change in service company allocation percentage Adjustment to salaries and wages for service company employees (L10 x L11) 13 14 15 Public Staff adjustment to total salaries and wages (L7 + L12) Percent charged to electric expense Adjustment to net electric O&M salaries and wages (L13 x L14) (1,116) 67.36% 8/ (752) 16 17 18 Adjustment to net electric O&M salaries and wages (L15) Fringe benefits contribution rate Adjustment to fringe benefits (L16 x L17) (752) 15.56% 9/ (117) 19 20 21 Total adjustment to O&M expense - total system (L15 + L18) NC retail percentage Total adjustment to O&M expense - NC retail (L19 x L20) (869) 68.0211% 10/ ($591) 22 23 24 25 26 Impact on payroll taxes before Medicare Impact on Medicare payroll taxes Adjustment to payroll taxes - total system (L22 + L23) NC retail percentage Adjustment to payroll taxes - NC retail (L24 x L25) ($40) 11/ (11) 12/ (51) 68.0211% 10/ ($35) 8/ 9/ 10/ 11/ 12/ 1/ 2/ 3/ 4/ $448,266 6.85% 30,706 28,985 1,721 (150) $1,871 Total (c) 1 2 3 4 5 6 7 1/ 2/ 3/ 4/ 5/ 6/ 7/ $792,393 85.77% 679,635 658,235 21,400 24,141 ($2,741) Duke Energy Progress (b) 1/ 2/ 3/ 4/ $23,121 5/ 23,991 5/ (870) 692,839 1/ 664,222 6/ 28,617 -0.86% 7/ (246) McManeus Revised Supplemental Exhibit 1, Page 84, NC-2204(C). From Company response to Public Staff Data Request No. 101, Item 1. McManeus Revised Supplemental Exhibit 1, Page 80, NC-2201(C), Labor per Books Column. McManeus Revised Supplemental Exhibit 1, Page 80, NC-2201(C), Pro Forma HR Salaries Column. Column (a) plus Column (b). Amount provided by Company at Public Staff request. Percentage at November 30, 2017 of 27.24% from Company response to Public Staff Data Request No. 101, Item 1 less percentage per Company of 28.10% from McManeus Revised Supplemental Exhibit 1, Page 84, NC-2204(C), Line 7. McManeus Revised Supplemental Exhibit 1, Page 80, NC-2201(C), Line 18. McManeus Revised Supplemental Exhibit 1, Page 80, NC-2201(C), Line 37. McManeus Revised Supplemental Exhibit 1, Page 81, NC-2201(C), NC Retail Allocation Column. Line 15 times 86.74% subject to OASDI times 6.2% OASDI tax rate from McManeus Revised Supplemental Exhibit 1, Page 80, NC-2201(C). Line 15 times 1.45% Medicare tax rate from McManeus Revised Supplemental Exhibit 1, Page 80, NC-2201(C). DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO NUCLEAR DECOMMISSIONING EXPENSE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3-1(w) Amount 1 2 3 Adjustment to nuclear decommissioning expense - total system NC retail allocation percentage Adjustment to nuclear decommissioning expense - NC retail (L1 x L2) ($29,000) 1/ 67.0068% 2/ ($19,432) 4 Adjustment to regulatory assets and liabilities (-L3) $19,432 5 Adjustment to accumulated deferred income taxes ($4,598) 3/ 1/ Based on the recommendation of Public Staff witness Hinton. 2/ Factor 1 - Total KW (production factor) from NCUC Form E-1, Item No.45A, Page 1. 3/ Negative of Line 4 times composite tax rate of 23.6619% from Boswell Exhibit 1, Schedule 1-3, Line 8. DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations ADJUSTMENT TO COMPANY'S INFLATION ADJUSTMENT For the Test Year Ended December 31, 2016 (in Thousands) Line No. 1 2 3 4 5 6 7 8 9 10 11 12 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ Item Total non-labor O&M expense to be adjusted per Company Remove uncollectibles adjusted elsewhere Public Staff adjustment to variable O&M expenses for changes in customer growth Public Staff adjustment to aviation expense Public Staff adjustment to outside services Public Staff adjustment to sponsorships and donations Public Staff adjustment to Board of Directors expenses Total adjusted O&M subject to inflation (Sum of L1 thru L6) Inflation percentage based on November 30, 2017 update Public Staff inflation adjustment (L7 x L8) Inflation adjustment per Company Public Staff adjustment to inflation adjustment (L9 - L10) Boswell Exhibit 1 Schedule 3-1(x) Amount $526,207 1/ (9,585) 2/ 613 (1,661) (2,117) (486) (2,422) 510,549 3.35% 17,103 16,707 $396 3/ 4/ 5/ 6/ 7/ 8/ 9/ McManeus Revised Supplemental Exhibit 1, Page 72, NC-2101, Line 22, Column (c). NCUC Form E-1, Item No. 45A, Page 46, Account 904 - Uncollectible Accounts, NC Retail amount. Boswell Exhibit 1, Schedule 3-1(b), Line 20, Column (c) plus Boswell Exhibit 1, Schedule 3-1(d), Line 15. Boswell Exhibit 1, Schedule 3-1(m), Line 9. Boswell Exhibit 1, Schedule 3-1(n), Line 6. Boswell Exhibit 1, Schedule 3-1(q), Line 6. Boswell Exhibit 1, Schedule 3-1(s), Line 12. Boswell Exhibit 1, Schedule 3-1(x)(1), Line 4, Column (e). McManeus Revised Supplemental Exhibit 1, Page 72, NC-2101(C), Line 24, Column (c). DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF INFLATION RATE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item 1 November 2017 2 Thirteen month average for test year 3 Increase from average to November 2017 (L1 - L2) 4 Percentage increase 1/ 2/ 3/ 4/ 5/ Boswell Exhibit 1 Schedule 3-1(x)(1) PPI Finished Goods Less Food & Energy (b) CPI (a) PPI Processed Materials Less Food & Energy (c) 246.669 1/ 200.7 1/ 195.7 1/ 239.7 2/ 195.1 2/ 186.9 2/ 7.0 5.6 8.8 2.91% 3/ 2.87% 3/ 4.71% 3/ PPI Average (d) Based on information from Bureau of Labor & Statistics, provided in response to Public Staff Data Request No. 99, Item 1. McManeus Revised Supplemental Exhibit 1, Page 73, NC-2102(C), Line 15. Line 3 divided by Line 2. Average of percentage increases in Columns (b) and (c). Average of CPI percentage increase and PPI average percentage increase in Columns (a) and (d). 3.79% 4/ Inflation Rate (e) 3.35% 5/ DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations INTEREST SYNCHRONIZATION ADJUSTMENT For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 3-1(y) Amount 1 2 3 Public Staff original cost rate base Public Staff long term debt ratio Public Staff embedded cost of debt 4 Public Staff interest expense income tax deduction (L1 x L2 x L3) 299,863 5 Company interest expense income tax deduction 307,766 4/ 6 Adjustment to interest expense (L4 - L5) 7 Composite tax rate 8 Adjustment to income taxes (-L6 x L7) 1/ 2/ 3/ 4/ 5/ Boswell Exhibit 1, Schedule 2, Line 12, Column (c). Boswell Exhibit 1, Schedule 4, Line 1, Column (a). Boswell Exhibit 1, Schedule 4, Line 1, Column (c). Boswell Exhibit 1, Schedule 3-1(y)(1), Line 4. Boswell Exhibit 1, Schedule 1-3, Line 8. $13,123,100 1/ 50.000% 2/ 4.570% 3/ (7,903) 23.6619% 5/ $1,870 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF COMPANY'S INTEREST SYNCHRONIZATION ADJUSTMENT For the Test Year Ended December 31, 2016 (in Thousands) Line No. Boswell Exhibit 1 Schedule 3-1(y)(1) Item 1 NC retail rate base per Company 2 Long tern debt ratio per Company 3 Long term debt cost rate per Company 4 Interest tax deduction per Company (L1 x L2 x L3) 1/ Boswell Exhibit 1, Schedule 2, Line 12, Column (a). 2/ McManeus Revised Supplemental Exhibit 1, Page 136, NC-3201(C), Line 6. 3/ McManeus Revised Supplemental Exhibit 1, Page 136, NC-3201(C), Line 9. Amount $13,814,781 1/ 47.000% 2/ 4.740% 3/ $307,766 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations RETURN ON EQUITY AND ORIGINAL COST RATE BASE BEFORE AND AFTER PUBLIC STAFF PROPOSED DECREASE For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Capitalization Ratio (a) NC Retail Rate Base (b) Boswell Exhibit 1 Schedule 4 Before Public Staff Proposed Decrease Embedded Weighted Cost or Cost or Return Return (c) (d) Net Operating Income (e) NC Retail Rate Base (f) After Public Staff Proposed Decrease Embedded Weighted Cost or Cost or Return Return (g) (h) Net Operating Income (i) 1 Long-term debt 50.000% 1/ $6,561,550 2/ 4.570% 1/ 2.29% 5/ $299,863 6/ $6,549,596 9/ 4.570% 1/ 2.29% 11/ $299,317 12/ 2 Common equity 50.000% 1/ 6,561,550 2/ 12.43% 4/ 6.22% 5/ 815,686 7/ 6,549,596 9/ 9.10% 1/ 4.55% 11/ 596,013 12/ 3 Total (L1 + L2) 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ 10/ 11/ 12/ Per Public Staff witness Parcell. Column (b), Line 3 times Column (a) Boswell Exhibit 1, Schedule 2, Line 12, Column (c). Column (e) divided by Column (b). Column (a) times Column (c). Column (b) times Column (c). Line 3, Column (e) minus Line 1, Column (e). Boswell Exhibit 1, Schedule 3, Line 16, Column (c). Column (f), Line 3 times Column (a) Boswell Exhibit 1, Schedule 2, Line 12, Column (e). Column (a) times Column (g). Column (f) times Column (g). 100.000% $13,123,100 3/ 8.51% $1,115,549 8/ $13,099,191 10/ 6.84% $895,330 DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF PUBLIC STAFF'S ADDITIONAL GROSS REVENUE REQUIREMENT For the Test Year Ended December 31, 2016 (in Thousands) Line No. Item Boswell Exhibit 1 Schedule 5 Debt (a) Equity (b) Total (c) 1 Calculation of additional gross revenue requirement Required net operating income $299,317 1/ $596,013 4/ $895,330 2 Net operating income before proposed increase $299,863 2/ 815,686 5/ 1,115,549 3 Additional net operating income requirement (L1 - L2) 4 Retention factor 5 Additional revenue requirement (L3 / L4) 1/ 2/ 3/ 4/ 5/ 6/ 7/ Boswell Exhibit 1, Schedule 4, Line 1, Column (i). Boswell Exhibit 1, Schedule 4, Line 1, Column (e). Boswell Exhibit 1, Schedule 1-2, Line 10. Boswell Exhibit 1, Schedule 4, Line 2, Column (i). Boswell Exhibit 1, Schedule 4, Line 2, Column (e). Boswell Exhibit 1, Schedule 1-2, Line 14. Column (a) plus Column (b). (546) 0.9966903 3/ ($548) (219,673) (220,219) 0.7608544 6/ ($288,719) ($289,267) 7/ INDEX TO BOSWELL EXHIBIT 2 Title 1 CALCULATION OF LEVELIZED EDIT RIDER CREDIT 2 CALCULATION OF ANNUITY FACTOR FOR EDIT LIABILITY RIDER Schedule Number 1 1(a) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF LEVELIZED EDIT RIDER CREDIT For the Test Year Ended December 31, 2016 (in Thousands) Line No. 1 2 3 4 5 6 7 Item Total NC retail regulatory liability to be amortized Annuity factor Levelized rider EDIT regulatory liability (L1 / L2) One minus composite income tax rate Net operating income effect (L3 x L4) Retention factor Levelized rider EDIT credit (L5 / L6) 1/ 2/ 3/ 4/ 5/ McManeus Revised Supplemental Exhibit 1, Page 128, Line 5. Boswell Exhibit 2, Schedule 1(a), Line 6. One minus composite income tax rate of 23.6619%. Boswell Exhibit 1, Schedule 1-2, Line 14, Column (d). Column (a) plus Column (b). Boswell Exhibit 2 Schedule 1 Year 1 Revenue Requirement (a) ($256,026) 1.8834 (135,938) 76.3381% (103,772) 0.7608544 ($136,389) Year 2 Revenue Requirement (b) 1/ 2/ 3/ 4/ ($256,026) 1.8834 (135,938) 76.3381% (103,772) 0.7608544 ($136,389) Total Revenue Requirement (c) 1/ 2/ 3/ 4/ ($271,876) 5/ 76.3381% (207,545) 0.7608544 ($272,779) DUKE ENERGY CAROLINAS, LLC Docket No. E-7, Sub 1146 North Carolina Retail Operations CALCULATION OF ANNUITY FACTOR FOR EDIT LIABILITY RIDER For the Test Year Ended December 31, 2016 (in Thousands) Line No. 1 2 3 4 5 6 Item 2 1/ 1 6.294% Present value of 1 dollar over number of years with with 1 payment per year 1 plus (interest rate divided by two) Annuity factor (L4 x L5) 1.8259 1.0315 1.8834 After Tax Rate of Return Long-term debt Common equity Total 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ Amount Annuity Factor Number of years Payment per period After tax rate of return (L9) Capital Structure (a) 7 8 9 Boswell Exhibit 2 Schedule 1(a) 50.00% 2/ 50.00% 3/ 100.00% Cost Rates (b) 4.570% 4/ 9.100% 5/ Rider period recommended by Public Staff. Boswell Exhibit 1, Schedule 4, Line 1, Column (a). Boswell Exhibit 1, Schedule 4, Line 2, Column (a). Boswell Exhibit 1, Schedule 4, Line 1, Column (g). Boswell Exhibit 1, Schedule 4, Line 2, Column (g). Column (a) times Column (b). Column (c) times (1 minus combined income tax rate of 23.6619%). Amount from Column (c). Overall Rate of Return (c) 2.285% 4.550% 6.835% 6/ Net of Tax Rate (d) 1.744% 7/ 4.550% 8/ 6.294%