PART II
As of October 31, 2015, information about our long-term debt is presented below.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Fair Value as |
| | Expected Maturity Date | | | | of October 31, |
In millions | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | Thereafter | | Total | | 2015 |
Fixed Rate Long-term Debt | | $ | 40 |
| | $ | 35 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,500 |
| | $ | 1,575 |
| | $ | 1,720.6 |
|
Average Interest Rate | | 2.92 | % | | 8.51 | % | | — | % | | — | % | | — | % | | 4.75 | % | | 4.79 | % | | |
Commodity Price RiskEnvironmental 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.
WeThe following sections outline various proposed and recently enacted legislation and regulations that may impact the Duke Energy Registrants. Refer to Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants.
Coal Combustion Residuals
In April 2015, EPA published a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation classifies CCR as nonhazardous waste and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments that are no longer receiving CCR but contain liquid located at stations currently generating electricity (regardless of fuel source). The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring, protection and remedial procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. Various industry and environmental parties have mitigatedappealed EPA's CCR rule in the cash flow risk resultingU.S. Court of Appeals for the District of Columbia (D.C. Circuit Court). On April 18, 2016, EPA filed a motion with the federal court to settle five issues raised in litigation. On June 14, 2016, the court approved the motion with respect to all of those issues. Duke Energy does not expect a material impact from commodity purchasethe settlement or that it will result in additional ARO adjustments. On September 13, 2017, EPA responded to a petition by the Utility Solid Waste Activities Group that the agency would reconsider certain provisions of the final rule, and asked the D.C. Circuit Court to suspend the litigation. The D.C. Circuit Court denied EPA’s petition to suspend the litigation and oral argument was held on November 20, 2017. The court has not issued an order in the matter. Duke Energy cannot predict the outcome of the litigation.
In a November 15, 2017, status report filed with the D.C. Circuit Court, EPA listed the provisions it intends to reconsider, including provisions that warrant revision due to passage of the Water Infrastructure Improvements for the Nation Act, which allows for implementation of the CCR rule through state or federal permit programs. EPA has indicated it will issue a proposed rule in early 2018 that includes provisions from the June 2016 settlement with petitioners and additional provisions under reconsideration. The reconsideration would not repeal the CCR rule; rather, it would modify some requirements to align with the implementation of the rule through permit programs. At this time, Duke Energy does not expect a reconsideration rulemaking to have a material impact on its coal ash basin closure plans or compliance requirements under the CCR rule.
In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions and via wholesale contracts, under our regulatory gas cost recovery mechanisms thatwhich permit the recovery of these costs in a timely manner. However, we face regulatory recovery risk associated with these costs. With regulatory commission approval, we revise rates periodically without formal rate proceedings to reflect changes in the wholesale cost of gas, includingnecessary and prudently incurred costs associated with our hedging programs underDuke Energy’s regulated operations. For more information, see Note 9 to the Consolidated Financial Statements, "Asset Retirement Obligations."
Coal Ash Management Act of 2014
AROs recorded on the Duke Energy Carolinas and Duke Energy Progress Consolidated Balance Sheets at December 31, 2017, and December 31, 2016, include the legal obligation for closure of coal ash basins and the disposal of related ash as a result of the Coal Ash Act, the EPA CCR rule and other agreements. The Coal Ash Act requires Duke Energy to undertake dam improvement projects and to provide access to a permanent alternative drinking water source to certain residents within a half-mile of coal ash basin compliance boundaries and to certain other potentially impacted residents. The legislation requires excavation of the Sutton, Riverbend and Dan River basins by August 1, 2019, and Asheville basins by August 1, 2022. Excavation at these sites may include a combination of transfer of coal ash to an engineered landfill or conversion for beneficial use. Basins at the H.F. Lee, Cape Fear and Weatherspoon sites are required to be closed through excavation no later than August 1, 2028. Excavation at these sites can include conversion of the basin to a lined industrial landfill, transfer of ash to an engineered landfill or conversion for beneficial use. The remaining basins are required to be closed no later than December 31, 2024, through conversion to a lined industrial landfill, transfer to an engineered landfill or conversion for beneficial use, unless certain dam improvement projects and alternative drinking water source projects are completed by October 15, 2018. Upon satisfactory completion of these projects, the closure deadline would be extended to December 31, 2029, and could include closure through the combination of a cap system and a groundwater monitoring system.
Additionally, the Coal Ash Act requires the installation and operation of three large-scale coal ash beneficiation projects to produce reprocessed ash for use in the concrete industry. Duke Energy selected the Buck, H.F. Lee and Cape Fear plants for these projects. Closure at these sites is required to be completed no later than December 31, 2029.
The Coal Ash Act includes a variance procedure for compliance deadlines and other issues surrounding the management of CCR and CCR surface impoundments and prohibits cost recovery mechanism allowedin 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 eachNCDEQ before closure work can begin.
For further information on AROs, see Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations.”
Clean Water Act 316(b)
EPA published the final 316(b) cooling water intake structure rule on August 15, 2014, with an effective date of ourOctober 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 regulators. Under our PGA procedures, differencesenvironmental permitting agencies to make determinations on controls, if any, that will be required for cooling water intake structures. Any required intake structure modifications and/or retrofits are expected to be installed in the 2019 to 2023 time frame. Petitions challenging the rule have been filed by several groups. Oral argument was held on September 14, 2017. It is unknown when the courts will rule on the petitions. The Duke Energy Registrants cannot predict the outcome of these matters.
Steam Electric Effluent Limitations Guidelines
On January 4, 2016, the final Steam Electric Effluent Limitations Guidelines (ELG) rule became effective. The rule establishes new requirements for wastewater streams associated with steam electric power generation and includes more stringent controls for any new coal plants that may be built in the future. As originally written, affected facilities were required to comply between 2018 and 2023, depending on the timing of Clean Water Act (CWA) discharge permits. Most of the steam electric generating facilities the Duke Energy Registrants own are affected sources. The Duke Energy Registrants are well-positioned to meet the majority of the requirements of the rule due to current efforts to convert to dry ash handling. Petitions challenging the rule have been filed by several groups. On March 16, 2015, Duke Energy Indiana filed its own legal challenge to the rule with the Seventh Circuit Court of Appeals specific to the ELG rule focused on the limits imposed on IGCC facilities (gasification wastewater). All challenges to the rule were consolidated in the Fifth Circuit Court of Appeals. On August 22, 2017, the Fifth Circuit Court of Appeals granted EPA’s Motion to Govern Further Proceedings, thereby severing and suspending the claims related to flue gas desulfurization wastewater, bottom ash transport water and gasification wastewater. Claims regarding gasification wastewater were stayed, pending the issuance of the variance to Duke Energy Indiana. The litigation will continue as to claims related to other waste streams.
On August 7, 2017, EPA issued a public notice regarding its proposed decision to grant a variance to Duke Energy Indiana for mercury and total dissolved solids for gasification wastewater at its Edwardsport facility. The public comment period has ended, but EPA has not finalized its decision. Separate from the litigation, EPA finalized a rule on September 18, 2017, postponing the earliest applicability date for bottom ash transport water and flue gas desulfurization wastewater from 2018 to 2020 and retaining the end applicability date of 2023. Also, as part of the rule, EPA reiterated its intent to review the limitation guidelines for bottom ash transport water and flue gas desulfurization wastewater and potentially to conduct a new rulemaking to revise those guidelines.
The Duke Energy Registrants cannot predict the outcome of these matters.
Estimated Cost and Impacts of Rulemakings
Duke Energy will incur capital expenditures to comply with the environmental regulations and rules discussed above. The following table provides five-year estimated costs, excluding AFUDC, of new control equipment that may need to be installed on existing power plants primarily to comply with the Coal Ash Act requirements for conversion to dry disposal of bottom ash and fly ash, CWA 316(b) and ELGs through December 31, 2022. The table excludes ash basin closure costs recorded in Asset retirement obligations on the Consolidated Balance Sheets. For more information related to AROs, see Note 9 to the Consolidated Financial Statements. |
| | | |
(in millions) | Five-Year Estimated Costs |
|
Duke Energy | $ | 920 |
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Duke Energy Carolinas | 380 |
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Progress Energy | 360 |
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Duke Energy Progress | 230 |
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Duke Energy Florida | 130 |
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Duke Energy Ohio | 70 |
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Duke Energy Indiana | 110 |
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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 and gas costs billed to customers are deferred and any under-recoveries are included in “Amounts duemay be materially different from customers” in “Regulatory Assets” or any over-recoveries are included in “Amountsthese estimates due to customers” in “Regulatory Liabilities”reasons such as presented in Note 3the timing and requirements of EPA regulations and the resolution of legal challenges to the consolidated financial statements in this Form 10-K, for collection or refund over subsequent periods. When we have “Amounts due from customers,” we earn a carrying charge that mitigates any incremental short-term borrowing costs. When we have “Amounts duerules. The Duke Energy Registrants intend to customers,” we incur a carrying charge that we must refundseek rate recovery of necessary and prudently incurred costs associated with regulated operations to our customers.comply with these regulations.
We manage our gas supply costs through81
Cross-State Air Pollution Rule
On December 3, 2015, EPA proposed a portfoliorule to lower the Cross-State Air Pollution Rule (CSAPR) Phase 2 state ozone season nitrogen oxide (NOX) emission budgets for 23 eastern states, including North Carolina, Ohio, Kentucky and Indiana. EPA also proposed to eliminate the CSAPR Phase 2 ozone season state NOX budgets for Florida and South Carolina. On September 7, 2016, EPA finalized a CSAPR Update Rule that reduces the CSAPR Phase 2 state ozone season NOX emission budgets for 22 eastern states, including Ohio, Kentucky and Indiana. In the final CSAPR Update Rule, EPA removed Florida, South Carolina and North Carolina from the ozone season NOx program. Beginning in 2017, Duke Energy Registrants in these states will not be subject to any CSAPR ozone season NOx emission limitations. For the states that remain in the program, the reduced state ozone season NOx emission budgets took effect on May 1, 2017. In Kentucky and Indiana, where Duke Energy Registrants own and operate coal-fired electric generating units (EGUs) subject to the final rule requirements, near-term responses include changing unit dispatch to run certain generating units less frequently and/or purchasing NOx allowances from the trading market. Longer term, upgrading the performance of short-existing NOx controls is an option. The Indiana Utility Group and long-term procurementthe Indiana Energy Association jointly filed a petition for reconsideration asking that EPA correct errors it made in calculating the Indiana budget and increase the budget accordingly. EPA has yet to act on the petition. Numerous parties have filed petitions with the D.C. Circuit Court challenging various aspects of the CSAPR Update Rule. Final briefs in the case are due April 9, 2018. The date for oral argument has not been established. The Duke Energy Registrants cannot predict the outcome of these matters.
Carbon Pollution Standards for New, Modified and Reconstructed Power Plants
On October 23, 2015, EPA published a final rule in the Federal Register establishing carbon dioxide (CO2) emissions limits for new, modified and reconstructed power plants. The requirements for new plants apply to plants that commenced construction after January 8, 2014. EPA set an emissions standard for coal units of 1,400 pounds of CO2 per gross MWh, which would require the application of partial carbon capture and storage contracts with various suppliers. We actively manage our supply portfolio(CCS) technology for a coal unit to balance salesbe able to meet the limit. Utility-scale CCS is not currently a demonstrated and delivery obligations. We injectcommercially available technology for coal-fired EGUs, and therefore the final standard effectively prevents the development of new coal-fired generation. EPA set a final standard of 1,000 pounds of CO2 per gross MWh for new natural gas into storage duringcombined-cycle units.
On March 28, 2017, President Trump signed an executive order directing EPA to review the summer monthsrule and withdrawdetermine whether to suspend, revise or rescind it. On the gas duringsame day, the winter heating season. InDepartment of Justice (DOJ) filed a motion with the normal courseD.C. Circuit Court requesting that the court stay the litigation of business, we utilize New York Mercantile Exchange (NYMEX) exchange traded instruments of various durations to hedge price volatility on a portion of our natural gas requirements, subject to regulatory review and approval.
We purchase firm gas from a diverse portfolio of suppliers at liquid exchange points. For term suppliers whose performance is greater than one month, we evaluate and monitor their creditworthiness and maintain the ability to require additional financial assurances, including deposits, letters of credit or surety bonds, in case a supplier defaults. Since substantially all of our commodity supply contracts are at market index prices tied to liquid exchange points and with our significant storage flexibility, we believe thatrule while it is unlikelyreviewed by EPA. Subsequent to the DOJ motion, the D.C. Circuit Court canceled oral argument in the case. On August 10, 2017, the court ordered that the litigation be suspended indefinitely. The rule remains in effect pending the outcome of litigation and EPA’s review. EPA has not announced a supplier default would have aschedule for completing its review. The Duke Energy Registrants cannot predict the outcome of these matters, but do not expect the impacts of the current final standards will be material effect on ourto Duke Energy's financial position, results of operations or cash flows.
Clean Power Plan
Our gas purchasing practicesOn October 23, 2015, EPA published in the Federal Register the final Clean Power Plan (CPP) rule that regulates CO2 emissions from existing fossil fuel-fired EGUs. The CPP established CO2 emission rates and mass cap goals that apply to existing fossil fuel-fired EGUs. Petitions challenging the rule were filed by several groups and on February 9, 2016, the Supreme Court issued a stay of the final CPP rule, halting implementation of the rule until legal challenges are subject to regulatory reviews in all three statesresolved. States in which we operate. We are responsible for following competitive and reasonable practices in purchasing gas for our customers. Coststhe Duke Energy Registrants operate have never been disallowedsuspended work on the basisCPP in response to the stay. Oral arguments before 10 of prudencethe 11 judges on D.C. Circuit Court were heard on September 27, 2016. The court has not issued its opinion in any jurisdiction.the case.
On March 28, 2017, President Trump signed an executive order directing EPA to review the CPP and determine whether to suspend, revise or rescind the rule. On the same day, the DOJ filed a motion with the D.C. Circuit Court requesting that the court stay the litigation of the rule while it is reviewed by EPA. On April 28, 2017, the court issued an order to suspend the litigation for 60 days. On August 8, 2017, the court, on its own motion, extended the suspension of the litigation for an additional 60 days. On October 16, 2017, EPA issued a Notice of Proposed Rulemaking (NPR) to repeal the CPP based on a change to EPA’s legal interpretation of the section of the Clean Air Act (CAA) on which the CPP was based. In the proposal, EPA indicates that it has not determined whether it will issue a rule to replace the CPP, and if it will do so, when and what form that rule will take. The comment period on EPA's NPR ends April 26, 2018. On December 28, 2017, EPA issued an Advance Notice of Proposed Rulemaking (ANPRM) in which it seeks public comment on various aspects of a potential CPP replacement rule. The comment period on the ANPRM ends February 26, 2018. If EPA decides to move forward with a CPP replacement rule, it will need to issue a formal proposal for public comment. Litigation of the CPP remains on hold in the D.C. Circuit Court and the February 2016 U.S. Supreme Court stay of the CPP remains in effect. The Duke Energy Registrants cannot predict the outcome of these matters.
Global Climate Change
The Duke Energy Registrants’ greenhouse gas (GHG) emissions consist primarily of CO2 and result primarily from operating a fleet of coal-fired and natural gas-fired power plants. In 2017, the Duke Energy Registrants’ power plants emitted approximately 105 million tons of CO2. Future levels of CO2 emissions will be influenced by variables that include fuel prices, compliance with new or existing regulations, economic conditions that affect electricity demand and the technologies deployed to generate the electricity necessary to meet the customer demand.
WeThe Duke Energy Registrants have taken actions that have resulted in a reduction of CO2 emissions over time. Actions have included the retirement of 47 coal-fired EGUs with a combined generating capacity of 5,425 MW. Much of that capacity has been replaced with state-of-the-art highly efficient natural gas-fired generation that produces far fewer CO2 emissions per unit of electricity generated. Duke Energy also has made investments to expand its portfolio of wind and solar projects, increase energy efficiency offerings and invest in its zero-CO2 emissions hydropower and nuclear plants. These efforts have diversified its system and significantly reduced CO2 emissions. Between 2005 and 2017, the Duke Energy Registrants have collectively lowered the CO2 emissions from their electricity generation by more than 31 percent, which lowers the exposure to any future mandatory CO2 emission reduction requirements or carbon tax, whether as a result of federal legislation, EPA regulation, state regulation or other as yet unknown emission reduction requirement. Duke Energy will continue to explore the use of currently-available and commercially-demonstrated technology to reduce CO2 emissions, including energy efficiency, wind, solar, storage, nuclear and carbon sequestration. Duke Energy will adjust to evolving and innovative technologies in a way that balances the reliability and affordability that customers expect. Under any future scenario involving mandatory CO2 limitations, the Duke Energy Registrants would plan to seek recovery of their compliance costs through appropriate regulatory mechanisms.
The Duke Energy Registrants recognize certain groups associate severe weather events with increasing levels of GHGs in the atmosphere and forecast the possibility these weather events could have a material impact on future results of operations should they occur more frequently and with greater severity. However, the uncertain nature of potential changes in extreme weather events (such as increased frequency, duration and severity), the long period of time over which any potential changes might take place and the inability to predict potential changes with any degree of accuracy, make estimating any potential future financial risk to the Duke Energy Registrants’ operations impossible. The Duke Energy Registrants have historically planned and prepared for extreme weather events, such as ice storms, tornadoes, hurricanes, severe thunderstorms, high winds and droughts they occasionally experience.
The Duke Energy Registrants annually, biannually or triennially prepare lengthy, forward-looking “integrated resource plans” (IRPs). These detailed, highly technical plans are exposedbased on the company’s thorough analysis of numerous factors that can impact the cost of producing and delivering electricity that influence long-term resource planning decisions. The IRP process helps to weatherevaluate a range of options, taking into account forecasts of future electricity demand, fuel prices, transmission improvements, new generating capacity, integration of renewables, energy storage, energy efficiency and demand response initiatives. The IRP process also helps evaluate potential environmental and regulatory scenarios to better mitigate policy and economic risks. The IRPs we file with regulators look out 10 to 20 years depending on the jurisdiction.
For a number of years, the Duke Energy Registrants have included a price on CO2 emissions in their IRP planning process to account for the potential regulation of CO2 emissions. Incorporating a price on CO2 emissions in the IRP allows for the evaluation of existing and future resource needs against potential climate change policy risk in our regulated utility segmentthe absence of policy certainty. One of the challenges with using a CO2 price, especially in South Carolinathe absence of a clear and Tennessee where revenues are collected from volumetric rates withoutcertain policy, is determining the appropriate price to use. To address this uncertainty and ensure the company remains agile, the Duke Energy Registrants typically use a margin decoupling mechanism. Our ratesrange of potential CO2 prices to reflect a range of potential policy outcomes.
The Duke Energy Registrants routinely take steps to reduce the potential impact of severe weather events on their electric distribution systems. The Duke Energy Registrants’ electric generating facilities are designed based onto withstand extreme weather events without significant damage. The Duke Energy Registrants maintain an assumptioninventory of normal weather. This risk is mitigatedcoal and oil on-site to mitigate the effects of any potential short-term disruption in fuel supply so they can continue to provide customers with an uninterrupted supply of electricity.
North Carolina Legislation
In July 2017, the North Carolina General Assembly passed House Bill 589 and it was subsequently enacted into law by the governor. The law includes, among other things, overall reform of the application of Public Utility Regulatory Policies Act of 1978 (PURPA) for new solar projects in the state, a WNA mechanismrequirement for the utility to procure approximately 2,600 MW of renewable energy through a competitive bidding process and recovery of costs related to the competitive bidding process through the fuel clause and a competitive procurement rider. The law stipulated certain deadlines for Duke Energy to file for NCUC approval of programs required under the law. Duke Energy has made some regulatory filings since the passage of the law and will continue to implement the requirements of House Bill 589.
Nuclear Matters
Following the events at the Fukushima Daiichi nuclear power station in Japan, in March 2011, the NRC formed a task force to conduct a comprehensive review of processes and regulations to determine whether the agency should make additional improvements to the nuclear regulatory system. Subsequently, the NRC targeted a set of improvements designed to offsetenhance accident mitigation, strengthen emergency preparedness and improve efficiency of NRC programs. Pursuant to the findings of the task force, in March 2012, the NRC issued three regulatory orders requiring safety enhancements related to mitigation strategies to respond to extreme natural events resulting in the loss of power at a plant, ensuring reliable hardened containment vents and enhancing spent fuel pool instrumentation. Duke Energy is committed to compliance with all safety enhancements ordered by the NRC and has completed actions on two of the three NRC orders, as required. The remaining order is focused only on enhancements to boiling water reactor designs which, for Duke Energy, is unique to Brunswick Steam Electric Plant. Actions associated with this third order will be completed by March 2019. With the NRC’s continuing review of this matter, Duke Energy cannot predict to what extent the NRC will impose additional licensing and safety-related requirements or the costs of complying with such requirements. Upon receipt of additional guidance from the NRC and a collaborative industry review, Duke Energy will be able to determine an implementation plan and associated costs. See Item 1A, “Risk Factors,” for further discussion of applicable risk factors.
New Accounting Standards
See Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” for a discussion of the impact of colder-than-normal or warmer-than-normal weather in our residential and commercial markets during the months of November through March in South Carolina and October through April in Tennessee. The WNA formulas do not ensure full recovery of approved margin during periods when customer consumption patterns vary from those used to establish the WNA factors. In North Carolina, we manage our weather risk through a year round margin decoupling mechanism that allows us to recover our approved margin from residential and commercial customers independent of volumes sold. We are exposed to weather risks in our industrial markets to the extent our margin is collected through volumetric rates in all of our jurisdictions.new accounting standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Additional information concerning market risk is set forth in “Financial Condition and Liquidity” in Item 7 of this Form 10-K in Management’s83
See “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Quantitative and Results of Operations.
Item 8. Financial Statements and Supplementary DataQualitative Disclosures About Market Risk.”
Consolidated financial statements required by this item are listed in Item 15 (a) 1 in Part IV of this Form 10-K.84
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
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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 | |
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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 | |
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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 | |
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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 | |
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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 | |
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Duke Energy Ohio, Inc. (Duke Energy Ohio) | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
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Duke Energy Indiana, LLC (Duke Energy Indiana) | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
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Piedmont Natural Gas Company, Inc. (Piedmont) | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
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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) | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors and Stockholders of Duke Energy Corporation
Piedmont Natural Gas Company, Inc.
Charlotte, North Carolina
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Piedmont Natural Gas Company, Inc.Duke Energy Corporation and subsidiaries (the “Company”"Company") as of OctoberDecember 31, 20152017 and 2014, and2016, the related consolidated statements of operations, comprehensive income, stockholders’changes in equity, and cash flows, for each of the three years in the period ended OctoberDecember 31, 2015. These financial statements are2017, and the responsibility ofrelated notes (collectively referred to as the Company’s management. Our responsibility is to express an"financial statements"). In our opinion, on the financial statements based on our audits.present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
We conducted our auditshave also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2018, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company's auditor since 1947.
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions, except per share amounts) | 2017 |
| | 2016 |
| | 2015 |
|
Operating Revenues | | | | | |
Regulated electric | $ | 21,177 |
| | $ | 21,221 |
| | $ | 21,379 |
|
Regulated natural gas | 1,734 |
| | 863 |
| | 536 |
|
Nonregulated electric and other | 654 |
| | 659 |
| | 456 |
|
Total operating revenues | 23,565 |
| | 22,743 |
| | 22,371 |
|
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 6,350 |
| | 6,625 |
| | 7,355 |
|
Cost of natural gas | 632 |
| | 265 |
| | 141 |
|
Operation, maintenance and other | 5,788 |
| | 6,085 |
| | 5,539 |
|
Depreciation and amortization | 3,527 |
| | 3,294 |
| | 3,053 |
|
Property and other taxes | 1,233 |
| | 1,142 |
| | 1,129 |
|
Impairment charges | 282 |
| | 18 |
| | 106 |
|
Total operating expenses | 17,812 |
| | 17,429 |
| | 17,323 |
|
Gains on Sales of Other Assets and Other, net | 28 |
| | 27 |
| | 30 |
|
Operating Income | 5,781 |
| | 5,341 |
| | 5,078 |
|
Other Income and Expenses | | | | | |
Equity in earnings (losses) of unconsolidated affiliates | 119 |
| | (15 | ) | | 69 |
|
Other income and expenses, net | 352 |
| | 324 |
| | 290 |
|
Total other income and expenses | 471 |
| | 309 |
| | 359 |
|
Interest Expense | 1,986 |
| | 1,916 |
| | 1,527 |
|
Income From Continuing Operations Before Income Taxes | 4,266 |
| | 3,734 |
| | 3,910 |
|
Income Tax Expense From Continuing Operations | 1,196 |
| | 1,156 |
| | 1,256 |
|
Income From Continuing Operations | 3,070 |
| | 2,578 |
| | 2,654 |
|
(Loss) Income From Discontinued Operations, net of tax | (6 | ) | | (408 | ) | | 177 |
|
Net Income | 3,064 |
| | 2,170 |
| | 2,831 |
|
Less: Net Income Attributable to Noncontrolling Interests | 5 |
| | 18 |
| | 15 |
|
Net Income Attributable to Duke Energy Corporation | $ | 3,059 |
| | $ | 2,152 |
| | $ | 2,816 |
|
| | | | | |
Earnings Per Share – Basic and Diluted | | | | | |
Income from continuing operations attributable to Duke Energy Corporation common stockholders | | | | | |
Basic | $ | 4.37 |
| | $ | 3.71 |
| | $ | 3.80 |
|
Diluted | $ | 4.37 |
| | $ | 3.71 |
| | $ | 3.80 |
|
(Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders |
| | | | |
Basic | $ | (0.01 | ) | | $ | (0.60 | ) | | $ | 0.25 |
|
Diluted | $ | (0.01 | ) | | $ | (0.60 | ) | | $ | 0.25 |
|
Net income attributable to Duke Energy Corporation common stockholders |
| | | | |
Basic | $ | 4.36 |
| | $ | 3.11 |
| | $ | 4.05 |
|
Diluted | $ | 4.36 |
| | $ | 3.11 |
| | $ | 4.05 |
|
Weighted average shares outstanding | | | | | |
Basic | 700 |
| | 691 |
| | 694 |
|
Diluted | 700 |
| | 691 |
| | 694 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Net Income | $ | 3,064 |
| | $ | 2,170 |
| | $ | 2,831 |
|
Other Comprehensive Income (Loss), net of tax | | | | | |
Foreign currency translation adjustments | — |
| | 694 |
| | (264 | ) |
Pension and OPEB adjustments | 3 |
| | (11 | ) | | (13 | ) |
Net unrealized gains on cash flow hedges | 2 |
| | 17 |
| | — |
|
Reclassification into earnings from cash flow hedges | 8 |
| | 13 |
| | 9 |
|
Unrealized gains (losses) on available-for-sale securities | 13 |
| | 2 |
| | (6 | ) |
Other Comprehensive Income (Loss), net of tax | 26 |
| | 715 |
| | (274 | ) |
Comprehensive Income | 3,090 |
| | 2,885 |
| | 2,557 |
|
Less: Comprehensive Income Attributable to Noncontrolling Interests | 5 |
| | 20 |
| | 4 |
|
Comprehensive Income Attributable to Duke Energy Corporation | $ | 3,085 |
| | $ | 2,865 |
| | $ | 2,553 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 358 |
| | $ | 392 |
|
Receivables (net of allowance for doubtful accounts of $14 at 2017 and 2016) | 779 |
| | 751 |
|
Receivables of VIEs (net of allowance for doubtful accounts of $54 at 2017 and 2016) | 1,995 |
| | 1,893 |
|
Inventory | 3,250 |
|
| 3,522 |
|
Regulatory assets (includes $51 at 2017 and $50 at 2016 related to VIEs) | 1,437 |
| | 1,023 |
|
Other | 634 |
| | 458 |
|
Total current assets | 8,453 |
| | 8,039 |
|
Property, Plant and Equipment | | | |
Cost | 127,507 |
| | 121,397 |
|
Accumulated depreciation and amortization | (41,537 | ) | | (39,406 | ) |
Generation facilities to be retired, net | 421 |
| | 529 |
|
Net property, plant and equipment | 86,391 |
| | 82,520 |
|
Other Noncurrent Assets | | | |
Goodwill | 19,396 |
| | 19,425 |
|
Regulatory assets (includes $1,091 at 2017 and $1,142 at 2016 related to VIEs) | 12,442 |
| | 12,878 |
|
Nuclear decommissioning trust funds | 7,097 |
| | 6,205 |
|
Investments in equity method unconsolidated affiliates | 1,175 |
| | 925 |
|
Other | 2,960 |
| | 2,769 |
|
Total other noncurrent assets | 43,070 |
| | 42,202 |
|
Total Assets | $ | 137,914 |
| | $ | 132,761 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 3,043 |
| | $ | 2,994 |
|
Notes payable and commercial paper | 2,163 |
| | 2,487 |
|
Taxes accrued | 551 |
| | 384 |
|
Interest accrued | 525 |
| | 503 |
|
Current maturities of long-term debt (includes $225 at 2017 and $260 at 2016 related to VIEs) | 3,244 |
| | 2,319 |
|
Asset retirement obligations | 689 |
| | 411 |
|
Regulatory liabilities | 402 |
| | 409 |
|
Other | 1,865 |
| | 2,044 |
|
Total current liabilities | 12,482 |
| | 11,551 |
|
Long-Term Debt (includes $4,306 at 2017 and $3,587 at 2016 related to VIEs) | 49,035 |
| | 45,576 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 6,621 |
| | 14,155 |
|
Asset retirement obligations | 9,486 |
| | 10,200 |
|
Regulatory liabilities | 15,330 |
| | 6,881 |
|
Accrued pension and other post-retirement benefit costs | 1,103 |
| | 1,111 |
|
Investment tax credits | 539 |
| | 493 |
|
Other | 1,581 |
| | 1,753 |
|
Total other noncurrent liabilities | 34,660 |
| | 34,593 |
|
Commitments and Contingencies |
|
| |
|
|
Equity | | | |
Common stock, $0.001 par value, 2 billion shares authorized; 700 million shares outstanding at 2017 and 2016 | 1 |
| | 1 |
|
Additional paid-in capital | 38,792 |
| | 38,741 |
|
Retained earnings | 3,013 |
| | 2,384 |
|
Accumulated other comprehensive loss | (67 | ) | | (93 | ) |
Total Duke Energy Corporation stockholders' equity | 41,739 |
| | 41,033 |
|
Noncontrolling interests | (2 | ) | | 8 |
|
Total equity | 41,737 |
| | 41,041 |
|
Total Liabilities and Equity | $ | 137,914 |
| | $ | 132,761 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 3,064 |
| | $ | 2,170 |
| | $ | 2,831 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion (including amortization of nuclear fuel) | 4,046 |
| | 3,880 |
| | 3,613 |
|
Equity component of AFUDC | (237 | ) | | (200 | ) | | (164 | ) |
(Gains) Losses on sales of other assets | (33 | ) | | 477 |
| | (48 | ) |
Impairment charges | 282 |
| | 212 |
| | 153 |
|
Deferred income taxes | 1,433 |
| | 900 |
| | 1,244 |
|
Equity in (earnings) losses of unconsolidated affiliates | (119 | ) | | 15 |
| | (69 | ) |
Accrued pension and other post-retirement benefit costs | 8 |
| | 21 |
| | 71 |
|
Contributions to qualified pension plans | (19 | ) | | (155 | ) | | (302 | ) |
Payments for asset retirement obligations | (571 | ) | | (608 | ) | | (346 | ) |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | 18 |
| | 34 |
| | (29 | ) |
Receivables | (83 | ) | | (372 | ) | | 383 |
|
Inventory | 268 |
| | 272 |
| | (237 | ) |
Other current assets | (388 | ) | | (220 | ) | | (65 | ) |
Increase (decrease) in | | | | | |
Accounts payable | (204 | ) | | 296 |
| | (6 | ) |
Taxes accrued | 149 |
| | 236 |
| | (38 | ) |
Other current liabilities | (482 | ) | | 182 |
| | 168 |
|
Other assets | (438 | ) | | (186 | ) | | (216 | ) |
Other liabilities | (60 | ) | | (137 | ) | | (243 | ) |
Net cash provided by operating activities | 6,634 |
|
| 6,817 |
|
| 6,700 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (8,052 | ) | | (7,901 | ) | | (6,766 | ) |
Contributions to equity method investments | (414 | ) | | (307 | ) | | (263 | ) |
Acquisitions, net of cash acquired | (13 | ) | | (4,778 | ) | | (1,334 | ) |
Return of investment capital | 281 |
| | 1 |
| | 3 |
|
Purchases of available-for-sale securities | (4,071 | ) | | (5,153 | ) | | (4,037 | ) |
Proceeds from sales and maturities of available-for-sale securities | 4,098 |
| | 5,236 |
| | 4,040 |
|
Proceeds from the sales of discontinued operations and other assets, net of cash divested | — |
| | 1,418 |
| | 2,968 |
|
Change in restricted cash | (10 | ) | | (4 | ) | | 191 |
|
Other | (269 | ) | | (45 | ) | | (79 | ) |
Net cash used in investing activities | (8,450 | ) |
| (11,533 | ) |
| (5,277 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the: | | | | | |
Issuance of long-term debt | 6,909 |
| | 9,238 |
| | 2,955 |
|
Issuance of common stock | — |
| | 731 |
| | 17 |
|
Payments for the redemption of long-term debt | (2,316 | ) | | (1,923 | ) | | (3,029 | ) |
Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 319 |
| | 2,081 |
| | 379 |
|
Payments for the redemption of short-term debt with original maturities greater than 90 days | (272 | ) | | (2,166 | ) | | (931 | ) |
Notes payable and commercial paper | (409 | ) | | (1,362 | ) | | 1,797 |
|
Dividends paid | (2,450 | ) | | (2,332 | ) | | (2,254 | ) |
Repurchase of common shares | — |
| | — |
| | (1,500 | ) |
Other | 1 |
| | (16 | ) | | (36 | ) |
Net cash provided by (used in) financing activities | 1,782 |
|
| 4,251 |
|
| (2,602 | ) |
Changes in cash and cash equivalents included in assets held for sale | — |
| | 474 |
| | 1,099 |
|
Net (decrease) increase in cash and cash equivalents | (34 | ) |
| 9 |
|
| (80 | ) |
Cash and cash equivalents at beginning of period | 392 |
| | 383 |
| | 463 |
|
Cash and cash equivalents at end of period | $ | 358 |
|
| $ | 392 |
|
| $ | 383 |
|
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 1,963 |
| | $ | 1,794 |
| | $ | 1,607 |
|
Cash paid for income taxes | 4 |
| | 229 |
| | 170 |
|
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 1,032 |
| | 1,000 |
| | 771 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Duke Energy Corporation Stockholders' Accumulated Other Comprehensive Loss | | | | | | |
| | | | | | | | | | | | | Net Unrealized |
| | | | Total |
| | | | |
| | | | | | | | | Foreign |
| | Net |
| | Gains (Losses) |
| | | | Duke Energy |
| | | | |
| Common |
| | | | Additional |
| | | | Currency |
| | Losses on |
| | on Available- |
| | Pension and |
| | Corporation |
| | | | |
| Stock |
| | Common |
| | Paid-in |
| | Retained |
| | Translation |
| | Cash Flow |
| | for-Sale- |
| | OPEB |
| | Stockholders' |
| | Noncontrolling |
| | Total |
|
(in millions) | Shares |
| | Stock |
| | Capital |
| | Earnings |
| | Adjustments |
| | Hedges |
| | Securities |
| | Adjustments |
| | Equity |
| | Interests |
| | Equity |
|
Balance at December 31, 2014 | 707 |
| | $ | 1 |
| | $ | 39,405 |
| | $ | 2,012 |
| | $ | (439 | ) | | $ | (59 | ) | | $ | 3 |
| | $ | (48 | ) | | $ | 40,875 |
| | $ | 24 |
| | $ | 40,899 |
|
Net income | — |
| | — |
| | — |
| | 2,816 |
| | — |
| | — |
| | — |
| | — |
| | 2,816 |
| | 15 |
| | 2,831 |
|
Other comprehensive (loss) income | — |
| | — |
| | — |
| | — |
| | (253 | ) | | 9 |
| | (6 | ) | | (13 | ) | | (263 | ) | | (11 | ) | | (274 | ) |
Common stock issuances, including dividend reinvestment and employee benefits | 1 |
| | — |
| | 63 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 63 |
| | — |
| | 63 |
|
Stock repurchase | (20 | ) | | — |
| | (1,500 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,500 | ) | | — |
| | (1,500 | ) |
Common stock dividends | — |
| | — |
| | — |
| | (2,254 | ) | | — |
| | — |
| | — |
| | — |
| | (2,254 | ) | | — |
| | (2,254 | ) |
Distributions to noncontrolling interest in subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9 | ) | | (9 | ) |
Other(a) | — |
| | — |
| | — |
| | (10 | ) | | — |
| | — |
| | — |
| | — |
| | (10 | ) | | 25 |
| | 15 |
|
Balance at December 31, 2015 | 688 |
|
| $ | 1 |
|
| $ | 37,968 |
|
| $ | 2,564 |
|
| $ | (692 | ) |
| $ | (50 | ) |
| $ | (3 | ) |
| $ | (61 | ) |
| $ | 39,727 |
|
| $ | 44 |
|
| $ | 39,771 |
|
Net income | — |
| | — |
| | — |
| | 2,152 |
| | — |
| | — |
| | — |
| | — |
| | 2,152 |
| | 18 |
| | 2,170 |
|
Other comprehensive (loss) income(b) | — |
| | — |
| | — |
| | — |
| | 692 |
| | 30 |
| | 2 |
| | (11 | ) | | 713 |
| | 2 |
| | 715 |
|
Common stock issuances, including dividend reinvestment and employee benefits | 12 |
| | — |
| | 773 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 773 |
| | — |
| | 773 |
|
Common stock dividends | — |
| | — |
| | — |
| | (2,332 | ) | | — |
| | — |
| | — |
| | — |
| | (2,332 | ) | | — |
| | (2,332 | ) |
Distributions to noncontrolling interest in subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (6 | ) |
Other(c) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (50 | ) | | (50 | ) |
Balance at December 31, 2016 | 700 |
|
| $ | 1 |
|
| $ | 38,741 |
|
| $ | 2,384 |
|
| $ | — |
|
| $ | (20 | ) |
| $ | (1 | ) |
| $ | (72 | ) |
| $ | 41,033 |
|
| $ | 8 |
|
| $ | 41,041 |
|
Net income | — |
| | — |
| | — |
| | 3,059 |
| | — |
| | — |
| | — |
| | — |
| | 3,059 |
| | 5 |
| | 3,064 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | 10 |
| | 13 |
| | 3 |
| | 26 |
| | — |
| | 26 |
|
Common stock issuances, including dividend reinvestment and employee benefits | — |
| | — |
| | 51 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 51 |
| | — |
| | 51 |
|
Common stock dividends | — |
| | — |
| | — |
| | (2,450 | ) | | — |
| | — |
| | — |
| | — |
| | (2,450 | ) | | — |
| | (2,450 | ) |
Distributions to noncontrolling interests in subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Other(d) | — |
| | — |
| | — |
| | 20 |
| | — |
| | — |
| | — |
| | — |
| | 20 |
| | (13 | ) | | 7 |
|
Balance at December 31, 2017 | 700 |
| | $ | 1 |
| | $ | 38,792 |
| | $ | 3,013 |
| | $ | — |
| | $ | (10 | ) | | $ | 12 |
| | $ | (69 | ) | | $ | 41,739 |
| | $ | (2 | ) | | $ | 41,737 |
|
| |
(a) | Noncontrolling Interests amount is primarily related to the acquisitions of a majority interest in a provider of energy management systems and services for commercial customers and a solar company. |
| |
(b) | Foreign Currency Translation Adjustments amount includes $620 million of cumulative adjustment realized as a result of the sale of the Latin American generation business. See Note 2 to the Consolidated Financial Statements. |
| |
(c) | Noncontrolling Interests amount is primarily related to the sale of the Latin American generation business. See Note 2 to the Consolidated Financial Statements. |
| |
(d) | Retained Earnings relates to a cumulative-effect adjustment due to implementation of a new accounting standard related to stock-based compensation and the associated income taxes. See Note 1 to the Consolidated Financial Statements for additional information. Noncontrolling Interests relates to the purchase of remaining interest in REC Solar. |
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Carolinas, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Carolinas, LLC and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, such consolidatedthe financial statements present fairly, in all material respects, the financial position of Piedmont Natural Gasthe Company Inc.as of December 31, 2017 and subsidiaries at October 31, 2015 and 2014,2016, and the results of theirits operations and theirits cash flows for each of the three years in the period ended OctoberDecember 31, 2015,2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We have also audited,are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company's auditor since 1947.
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Operating Revenues | $ | 7,302 |
| | $ | 7,322 |
| | $ | 7,229 |
|
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 1,822 |
|
| 1,797 |
| | 1,881 |
|
Operation, maintenance and other | 1,961 |
|
| 2,106 |
| | 2,066 |
|
Depreciation and amortization | 1,090 |
|
| 1,075 |
| | 1,051 |
|
Property and other taxes | 281 |
|
| 276 |
| | 269 |
|
Impairment charges | — |
|
| 1 |
| | 1 |
|
Total operating expenses | 5,154 |
| | 5,255 |
| | 5,268 |
|
Gain (Loss) on Sales of Other Assets and Other, net | 1 |
| | (5 | ) | | (1 | ) |
Operating Income | 2,149 |
| | 2,062 |
| | 1,960 |
|
Other Income and Expenses, net | 139 |
| | 162 |
| | 160 |
|
Interest Expense | 422 |
| | 424 |
| | 412 |
|
Income Before Income Taxes | 1,866 |
| | 1,800 |
| | 1,708 |
|
Income Tax Expense | 652 |
| | 634 |
| | 627 |
|
Net Income | $ | 1,214 |
| | $ | 1,166 |
| | $ | 1,081 |
|
Other Comprehensive Income, net of tax | | | | | |
Reclassification into earnings from cash flow hedges | 2 |
| | 2 |
| | 1 |
|
Unrealized gains on available-for-sale securities | — |
| | — |
| | 1 |
|
Other Comprehensive Income, net of tax | 2 |
| | 2 |
| | 2 |
|
Comprehensive Income | $ | 1,216 |
| | $ | 1,168 |
| | $ | 1,083 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS |
| | | | | | | | |
| | December 31, |
(in millions) | | 2017 |
| | 2016 |
|
ASSETS | | | | |
Current Assets | | | | |
Cash and cash equivalents | | $ | 16 |
| | $ | 14 |
|
Receivables (net of allowance for doubtful accounts of $2 at 2017 and 2016) | | 200 |
| | 160 |
|
Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2017 and 2016) | | 640 |
| | 645 |
|
Receivables from affiliated companies | | 95 |
| | 163 |
|
Notes receivable from affiliated companies | | — |
| | 66 |
|
Inventory | | 971 |
|
| 1,055 |
|
Regulatory assets | | 299 |
| | 238 |
|
Other | | 19 |
| | 37 |
|
Total current assets | | 2,240 |
| | 2,378 |
|
Property, Plant and Equipment | | | | |
Cost | | 42,939 |
| | 41,127 |
|
Accumulated depreciation and amortization | | (15,063 | ) | | (14,365 | ) |
Net property, plant and equipment | | 27,876 |
| | 26,762 |
|
Other Noncurrent Assets | | | | |
Regulatory assets | | 2,853 |
| | 3,159 |
|
Nuclear decommissioning trust funds | | 3,772 |
| | 3,273 |
|
Other | | 979 |
| | 943 |
|
Total other noncurrent assets | | 7,604 |
| | 7,375 |
|
Total Assets | | $ | 37,720 |
| | $ | 36,515 |
|
LIABILITIES AND EQUITY | | | | |
Current Liabilities | | | | |
Accounts payable | | $ | 842 |
| | $ | 833 |
|
Accounts payable to affiliated companies | | 209 |
| | 247 |
|
Notes payable to affiliated companies | | 104 |
| | — |
|
Taxes accrued | | 234 |
| | 143 |
|
Interest accrued | | 108 |
| | 102 |
|
Current maturities of long-term debt | | 1,205 |
| | 116 |
|
Asset retirement obligations | | 337 |
| | 222 |
|
Regulatory liabilities | | 126 |
| | 161 |
|
Other | | 486 |
| | 468 |
|
Total current liabilities | | 3,651 |
| | 2,292 |
|
Long-Term Debt | | 8,598 |
| | 9,187 |
|
Long-Term Debt Payable to Affiliated Companies | | 300 |
| | 300 |
|
Other Noncurrent Liabilities | | | | |
Deferred income taxes | | 3,413 |
| | 6,544 |
|
Asset retirement obligations | | 3,273 |
| | 3,673 |
|
Regulatory liabilities | | 6,231 |
| | 2,840 |
|
Accrued pension and other post-retirement benefit costs | | 95 |
| | 97 |
|
Investment tax credits | | 232 |
| | 203 |
|
Other | | 566 |
| | 607 |
|
Total other noncurrent liabilities | | 13,810 |
| | 13,964 |
|
Commitments and Contingencies | |
| |
|
Equity | | | | |
Member's equity | | 11,368 |
| | 10,781 |
|
Accumulated other comprehensive loss | | (7 | ) | | (9 | ) |
Total equity | | 11,361 |
| | 10,772 |
|
Total Liabilities and Equity | | $ | 37,720 |
| | $ | 36,515 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 1,214 |
| | $ | 1,166 |
| | $ | 1,081 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization (including amortization of nuclear fuel) | 1,409 |
| | 1,382 |
| | 1,361 |
|
Equity component of AFUDC | (106 | ) | | (102 | ) | | (96 | ) |
(Gains) Losses on sales of other assets | (1 | ) | | 5 |
| | 1 |
|
Impairment charges | — |
| | 1 |
| | 1 |
|
Deferred income taxes | 410 |
| | 470 |
| | 397 |
|
Accrued pension and other post-retirement benefit costs | (4 | ) | | 4 |
| | 15 |
|
Contributions to qualified pension plans | — |
| | (43 | ) | | (91 | ) |
Payments for asset retirement obligations | (271 | ) | | (287 | ) | | (167 | ) |
(Increase) decrease in |
| | | | |
Net realized and unrealized mark-to-market and hedging transactions | 9 |
| | 5 |
| | — |
|
Receivables | (9 | ) | | (76 | ) | | 42 |
|
Receivables from affiliated companies | 68 |
| | (56 | ) | | (32 | ) |
Inventory | 78 |
| | 215 |
| | (157 | ) |
Other current assets | 7 |
| | 67 |
| | (51 | ) |
Increase (decrease) in |
| | | | |
Accounts payable | 23 |
| | (69 | ) | | (4 | ) |
Accounts payable to affiliated companies | (38 | ) | | 18 |
| | 75 |
|
Taxes accrued | 86 |
| | 187 |
| | (128 | ) |
Other current liabilities | (161 | ) | | 63 |
| | 127 |
|
Other assets | (49 | ) | | 20 |
| | 76 |
|
Other liabilities | (31 | ) | | 6 |
| | (77 | ) |
Net cash provided by operating activities | 2,634 |
| | 2,976 |
| | 2,373 |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
| | | | |
Capital expenditures | (2,524 | ) | | (2,220 | ) | | (1,933 | ) |
Purchases of available-for-sale securities | (2,124 | ) | | (2,832 | ) | | (2,555 | ) |
Proceeds from sales and maturities of available-for-sale securities | 2,128 |
| | 2,832 |
| | 2,555 |
|
Notes receivable from affiliated companies | 66 |
| | 97 |
| | (13 | ) |
Other | (109 | ) | | (83 | ) | | (35 | ) |
Net cash used in investing activities | (2,563 | ) | | (2,206 | ) | | (1,981 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 569 |
| | 1,587 |
| | 516 |
|
Payments for the redemption of long-term debt | (116 | ) | | (356 | ) | | (506 | ) |
Notes payable to affiliated companies | 104 |
| | — |
| | — |
|
Distributions to parent | (625 | ) | | (2,000 | ) | | (401 | ) |
Other | (1 | ) | | — |
| | (1 | ) |
Net cash used in financing activities | (69 | ) | | (769 | ) | | (392 | ) |
Net increase in cash and cash equivalents | 2 |
| | 1 |
| | — |
|
Cash and cash equivalents at beginning of period | 14 |
| | 13 |
| | 13 |
|
Cash and cash equivalents at end of period | $ | 16 |
| | $ | 14 |
| | $ | 13 |
|
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 398 |
| | $ | 393 |
| | $ | 389 |
|
Cash paid for (received from) income taxes | 193 |
| | (60 | ) | | 342 |
|
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 315 |
| | 347 |
| | 239 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| | | | | | | | | | | | | | | |
| | | Accumulated Other | | |
| | | Comprehensive Loss | | |
| | | Net Losses |
| | Net Losses |
| | |
| | | on Cash |
| | Available- |
| | |
| Member's |
| | Flow |
| | for-Sale |
| | Total |
|
(in millions) | Equity |
| | Hedges |
| | Securities |
| | Equity |
|
Balance at December 31, 2014 | $ | 10,937 |
| | $ | (12 | ) | | $ | (1 | ) | | $ | 10,924 |
|
Net income | 1,081 |
| | — |
| | — |
| | 1,081 |
|
Other comprehensive income | — |
| | 1 |
| | 1 |
| | 2 |
|
Distributions to parent | (401 | ) | | — |
| | — |
| | (401 | ) |
Balance at December 31, 2015 | $ | 11,617 |
| | $ | (11 | ) | | $ | — |
| | $ | 11,606 |
|
Net income | 1,166 |
| | — |
| | — |
| | 1,166 |
|
Other comprehensive income | — |
| | 2 |
| | — |
| | 2 |
|
Distributions to parent | (2,000 | ) | | — |
| | — |
| | (2,000 | ) |
Other | (2 | ) | | — |
| | — |
| | (2 | ) |
Balance at December 31, 2016 | $ | 10,781 |
| | $ | (9 | ) | | $ | — |
| | $ | 10,772 |
|
Net income | 1,214 |
| | — |
| | — |
| | 1,214 |
|
Other comprehensive income | — |
| | 2 |
| | — |
| | 2 |
|
Distributions to parent | (625 | ) | | — |
| | — |
| | (625 | ) |
Other | (2 | ) | | — |
| | — |
| | (2 | ) |
Balance at December 31, 2017 | $ | 11,368 |
| | $ | (7 | ) | | $ | — |
| | $ | 11,361 |
|
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Progress Energy, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Progress Energy, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States), (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reportingreporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company's auditor since 1930.
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Operating Revenues | $ | 9,783 |
| | $ | 9,853 |
| | $ | 10,277 |
|
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 3,417 |
| | 3,644 |
| | 4,224 |
|
Operation, maintenance and other | 2,220 |
| | 2,386 |
| | 2,298 |
|
Depreciation and amortization | 1,285 |
| | 1,213 |
| | 1,116 |
|
Property and other taxes | 503 |
| | 487 |
| | 492 |
|
Impairment charges | 156 |
| | 7 |
| | 12 |
|
Total operating expenses | 7,581 |
|
| 7,737 |
|
| 8,142 |
|
Gains on Sales of Other Assets and Other, net | 26 |
| | 25 |
| | 25 |
|
Operating Income | 2,228 |
|
| 2,141 |
|
| 2,160 |
|
Other Income and Expenses, net | 128 |
| | 114 |
| | 97 |
|
Interest Expense | 824 |
| | 689 |
| | 670 |
|
Income From Continuing Operations Before Income Taxes | 1,532 |
|
| 1,566 |
|
| 1,587 |
|
Income Tax Expense From Continuing Operations | 264 |
| | 527 |
| | 522 |
|
Income From Continuing Operations | 1,268 |
|
| 1,039 |
|
| 1,065 |
|
Income (Loss) From Discontinued Operations, net of tax | — |
| | 2 |
| | (3 | ) |
Net Income | 1,268 |
|
| 1,041 |
|
| 1,062 |
|
Less: Net Income Attributable to Noncontrolling Interests | 10 |
| | 10 |
| | 11 |
|
Net Income Attributable to Parent | $ | 1,258 |
|
| $ | 1,031 |
|
| $ | 1,051 |
|
| | | | | |
Net Income | $ | 1,268 |
|
| $ | 1,041 |
|
| $ | 1,062 |
|
Other Comprehensive Income (Loss), net of tax | | | | | |
Pension and OPEB adjustments | 4 |
| | 1 |
| | (10 | ) |
Net unrealized gain on cash flow hedges | 5 |
| | — |
| | — |
|
Reclassification into earnings from cash flow hedges | — |
| | 8 |
| | 4 |
|
Unrealized gains (losses) on available-for-sale securities | 4 |
| | 1 |
| | (1 | ) |
Other Comprehensive Income (Loss), net of tax | 13 |
|
| 10 |
|
| (7 | ) |
Comprehensive Income | 1,281 |
|
| 1,051 |
|
| 1,055 |
|
Less: Comprehensive Income Attributable to Noncontrolling Interests | 10 |
| | 10 |
| | 11 |
|
Comprehensive Income Attributable to Parent | $ | 1,271 |
|
| $ | 1,041 |
|
| $ | 1,044 |
|
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 40 |
| | $ | 46 |
|
Receivables (net of allowance for doubtful accounts of $4 at 2017 and $6 at 2016) | 123 |
| | 114 |
|
Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2017 and 2016) | 780 |
| | 692 |
|
Receivables from affiliated companies | 31 |
| | 106 |
|
Notes receivable from affiliated companies | 240 |
| | 80 |
|
Inventory | 1,592 |
|
| 1,717 |
|
Regulatory assets (includes $51 at 2017 and $50 at 2016 related to VIEs) | 741 |
| | 401 |
|
Other | 334 |
| | 148 |
|
Total current assets | 3,881 |
| | 3,304 |
|
Property, Plant and Equipment | | | |
Cost | 47,323 |
| | 44,864 |
|
Accumulated depreciation and amortization | (15,857 | ) | | (15,212 | ) |
Generation facilities to be retired, net | 421 |
| | 529 |
|
Net property, plant and equipment | 31,887 |
| | 30,181 |
|
Other Noncurrent Assets | | | |
Goodwill | 3,655 |
| | 3,655 |
|
Regulatory assets (includes $1,091 at 2017 and $1,142 at 2016 related to VIEs) | 6,010 |
| | 5,722 |
|
Nuclear decommissioning trust funds | 3,324 |
| | 2,932 |
|
Other | 931 |
| | 856 |
|
Total other noncurrent assets | 13,920 |
| | 13,165 |
|
Total Assets | $ | 49,688 |
| | $ | 46,650 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 1,006 |
| | $ | 1,003 |
|
Accounts payable to affiliated companies | 251 |
| | 348 |
|
Notes payable to affiliated companies | 805 |
| | 729 |
|
Taxes accrued | 101 |
| | 83 |
|
Interest accrued | 212 |
| | 201 |
|
Current maturities of long-term debt (includes $53 at 2017 and $62 at 2016 related to VIEs) | 771 |
| | 778 |
|
Asset retirement obligations | 295 |
| | 189 |
|
Regulatory liabilities | 213 |
| | 189 |
|
Other | 729 |
| | 745 |
|
Total current liabilities | 4,383 |
| | 4,265 |
|
Long-Term Debt (includes $1,689 at 2017 and $1,741 at 2016 related to VIEs) | 16,916 |
| | 15,590 |
|
Long-Term Debt Payable to Affiliated Companies | 150 |
| | 1,173 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 3,502 |
| | 5,246 |
|
Asset retirement obligations | 5,119 |
| | 5,286 |
|
Regulatory liabilities | 5,306 |
| | 2,395 |
|
Accrued pension and other post-retirement benefit costs | 545 |
| | 547 |
|
Other | 302 |
| | 341 |
|
Total other noncurrent liabilities | 14,774 |
| | 13,815 |
|
Commitments and Contingencies |
| |
|
Equity | | | |
Common stock, $0.01 par value, 100 shares authorized and outstanding at 2017 and 2016 | — |
| | — |
|
Additional paid-in capital | 9,143 |
| | 8,094 |
|
Retained earnings | 4,350 |
| | 3,764 |
|
Accumulated other comprehensive loss | (25 | ) | | (38 | ) |
Total Progress Energy, Inc. stockholder's equity | 13,468 |
| | 11,820 |
|
Noncontrolling interests | (3 | ) | | (13 | ) |
Total equity | 13,465 |
| | 11,807 |
|
Total Liabilities and Equity | $ | 49,688 |
|
| $ | 46,650 |
|
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 1,268 |
| | $ | 1,041 |
| | $ | 1,062 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion (including amortization of nuclear fuel) | 1,516 |
| | 1,435 |
| | 1,312 |
|
Equity component of AFUDC | (92 | ) | | (76 | ) | | (54 | ) |
Gains on sales of other assets | (28 | ) | | (34 | ) | | (31 | ) |
Impairment charges | 156 |
| | 7 |
| | 12 |
|
Deferred income taxes | 703 |
| | 532 |
| | 714 |
|
Accrued pension and other post-retirement benefit costs | (28 | ) | | (24 | ) | | (5 | ) |
Contributions to qualified pension plans | — |
| | (43 | ) | | (83 | ) |
Payments for asset retirement obligations | (248 | ) | | (270 | ) | | (156 | ) |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | — |
| | 42 |
| | (6 | ) |
Receivables | (89 | ) | | 7 |
| | 105 |
|
Receivables from affiliated companies | 71 |
| | 211 |
| | (316 | ) |
Inventory | 125 |
| | 35 |
| | (67 | ) |
Other current assets | (384 | ) | | 3 |
| | 553 |
|
Increase (decrease) in | | | | | |
Accounts payable | (260 | ) | | 252 |
| | (193 | ) |
Accounts payable to affiliated companies | (97 | ) | | 37 |
| | 108 |
|
Taxes accrued | 17 |
| | 15 |
| | (63 | ) |
Other current liabilities | (166 | ) | | (42 | ) | | 136 |
|
Other assets | (301 | ) | | (248 | ) | | (167 | ) |
Other liabilities | (98 | ) | | (36 | ) | | (112 | ) |
Net cash provided by operating activities | 2,065 |
|
| 2,844 |
|
| 2,749 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (3,152 | ) | | (3,306 | ) | | (2,698 | ) |
Asset Acquisitions | — |
| | (10 | ) | | (1,249 | ) |
Purchases of available-for-sale securities | (1,806 | ) | | (2,143 | ) | | (1,174 | ) |
Proceeds from sales and maturities of available-for-sale securities | 1,824 |
| | 2,187 |
| | 1,211 |
|
Proceeds from insurance | 7 |
| | 58 |
| | — |
|
Proceeds from the sale of nuclear fuel | 20 |
| | 20 |
| | 102 |
|
Notes receivable from affiliated companies | (160 | ) | | (80 | ) | | 220 |
|
Change in restricted cash | 5 |
| | (6 | ) | | — |
|
Other | (86 | ) | | 47 |
| | (34 | ) |
Net cash used in investing activities | (3,348 | ) | | (3,233 | ) | | (3,622 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 2,118 |
| | 2,375 |
| | 1,186 |
|
Payments for the redemption of long-term debt | (813 | ) | | (327 | ) | | (1,553 | ) |
Notes payable to affiliated companies | 100 |
| | 444 |
| | 623 |
|
Capital contribution from parent | — |
| | — |
| | 625 |
|
Dividends to parent | (124 | ) | | (2,098 | ) | | — |
|
Other | (4 | ) | | (3 | ) | | (6 | ) |
Net cash provided by financing activities | 1,277 |
|
| 391 |
|
| 875 |
|
Net (decrease) increase in cash and cash equivalents | (6 | ) |
| 2 |
|
| 2 |
|
Cash and cash equivalents at beginning of period | 46 |
| | 44 |
| | 42 |
|
Cash and cash equivalents at end of period | $ | 40 |
| | $ | 46 |
| | $ | 44 |
|
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 773 |
| | $ | 673 |
| | $ | 649 |
|
Cash (received from) paid for income taxes | (146 | ) | | (187 | ) | | (426 | ) |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 391 |
| | 317 |
| | 329 |
|
Equitization of certain notes payable to affiliates | 1,047 |
| | — |
| | — |
|
Dividend to parent related to a legal entity restructuring | 547 |
| | — |
| | — |
|
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | |
| | Accumulated Other Comprehensive Loss | | |
| | |
| | |
|
| | | | | Net |
| | Net Unrealized |
| | | | Total Progress |
| | | | |
| Additional |
| | | | Losses on |
| | Gains on |
| | Pension and |
| | Energy, Inc. |
| | | | |
| Paid-in |
| | Retained |
| | Cash Flow |
| | Available-for- |
| | OPEB |
| | Stockholder's |
| | Noncontrolling |
| | Total |
|
(in millions) | Capital |
| | Earnings |
| | Hedges |
| | Sale Securities |
| | Adjustments |
| | Equity |
| | Interests |
| | Equity |
|
Balance at December 31, 2014 | $ | 7,467 |
| | $ | 3,782 |
| | $ | (35 | ) | | $ | 1 |
| | $ | (7 | ) | | $ | 11,208 |
| | $ | (32 | ) | | $ | 11,176 |
|
Net income | — |
| | 1,051 |
| | — |
| | — |
| | — |
| | 1,051 |
| | 11 |
| | 1,062 |
|
Other comprehensive income (loss) | — |
| | — |
| | 4 |
| | (1 | ) | | (10 | ) | | (7 | ) | | — |
| | (7 | ) |
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4 | ) | | (4 | ) |
Capital contribution from parent | 625 |
| | — |
| | — |
| | — |
| | — |
| | 625 |
| | — |
| | 625 |
|
Other | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) | | 3 |
| | 1 |
|
Balance at December 31, 2015 | $ | 8,092 |
|
| $ | 4,831 |
|
| $ | (31 | ) |
| $ | — |
|
| $ | (17 | ) |
| $ | 12,875 |
|
| $ | (22 | ) |
| $ | 12,853 |
|
Net income | — |
| | 1,031 |
| | — |
| | — |
| | — |
| | 1,031 |
| | 10 |
| | 1,041 |
|
Other comprehensive income | — |
| | — |
| | 8 |
| | 1 |
| | 1 |
| | 10 |
| | — |
| | 10 |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Dividends to parent | — |
| | (2,098 | ) | | — |
| | — |
| | — |
| | (2,098 | ) | | — |
| | (2,098 | ) |
Other | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Balance at December 31, 2016 | $ | 8,094 |
|
| $ | 3,764 |
|
| $ | (23 | ) |
| $ | 1 |
|
| $ | (16 | ) |
| $ | 11,820 |
|
| $ | (13 | ) |
| $ | 11,807 |
|
Net income | — |
| | 1,258 |
| | — |
| | — |
| | — |
| | 1,258 |
| | 10 |
| | 1,268 |
|
Other comprehensive income | — |
| | — |
| | 5 |
| | 4 |
| | 4 |
| | 13 |
| | — |
| | 13 |
|
Dividends to parent(a) | — |
| | (672 | ) | | — |
| | — |
| | — |
| | (672 | ) | | — |
| | (672 | ) |
Equitization of certain notes payable to affiliates | 1,047 |
| | — |
| | — |
| | — |
| | — |
| | 1,047 |
| | — |
| | 1,047 |
|
Other | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Balance at December 31, 2017 | $ | 9,143 |
|
| $ | 4,350 |
|
| $ | (18 | ) |
| $ | 5 |
|
| $ | (12 | ) |
| $ | 13,468 |
|
| $ | (3 | ) |
| $ | 13,465 |
|
(a) Includes a $547 million non-cash dividend related to a legal entity restructuring.
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Progress, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Progress, LLC and subsidiaries (the "Company") as of OctoberDecember 31, 2015,2017 and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the criteria establishedPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in Internal Control—Integrated Framework (2013) issued byaccordance with the Committee of Sponsoring OrganizationsU.S. federal securities laws and the applicable rules and regulations of the TreadwaySecurities and Exchange Commission and the PCAOB.
We conducted our report dated December 23, 2015 expressedaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an unqualifiedaudit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
December 23, 2015
Consolidated Balance SheetsFebruary 21, 2018
October 31, 2015 and 2014
ASSETS
|
| | | | | | | | |
In thousands | | 2015 | | 2014 |
Utility Plant: | | | | |
Utility plant in service | | $ | 5,426,584 |
| | $ | 5,011,497 |
|
Less accumulated depreciation | | 1,251,940 |
| | 1,166,922 |
|
Utility plant in service, net | | 4,174,644 |
| | 3,844,575 |
|
Construction work in progress | | 170,250 |
| | 141,693 |
|
Plant held for future use | | 3,155 |
| | 3,155 |
|
Total utility plant, net | | 4,348,049 |
| | 3,989,423 |
|
Other Physical Property, at cost (net of accumulated depreciation of $926 in 2015 and $904 in 2014) | | 332 |
| | 355 |
|
Current Assets: | | | | |
Cash and cash equivalents | | 13,744 |
| | 9,643 |
|
Trade accounts receivable (1) (less allowance for doubtful accounts of $1,648 in 2015 and $2,152 in 2014) | | 59,248 |
| | 65,260 |
|
Income taxes receivable | | 11,447 |
| | 36,100 |
|
Other receivables | | 10,667 |
| | 3,361 |
|
Unbilled utility revenues | | 17,422 |
| | 21,093 |
|
Inventories: | | | | |
Gas in storage | | 68,240 |
| | 84,081 |
|
Materials, supplies and merchandise | | 1,251 |
| | 1,652 |
|
Gas purchase derivative assets, at fair value | | 1,343 |
| | 4,898 |
|
Regulatory assets | | 10,936 |
| | 27,837 |
|
Prepayments | | 28,903 |
| | 39,030 |
|
Deferred income taxes | | 32,392 |
| | 53,418 |
|
Other current assets | | 344 |
| | 326 |
|
Total current assets | | 255,937 |
| | 346,699 |
|
Noncurrent Assets: | | | | |
Equity method investments in non-utility activities | | 206,956 |
| | 170,171 |
|
Goodwill | | 48,852 |
| | 48,852 |
|
Regulatory assets | | 196,726 |
| | 174,281 |
|
Income taxes receivable | | 26,023 |
| | — |
|
Marketable securities, at fair value | | 4,666 |
| | 3,727 |
|
Overfunded postretirement asset | | 17,770 |
| | 33,757 |
|
Other noncurrent assets | | 5,439 |
| | 7,042 |
|
Total noncurrent assets | | 506,432 |
| | 437,830 |
|
Total | | $ | 5,110,750 |
| | $ | 4,774,307 |
|
| | | | |
(1) See Note 13 for amounts attributable to affiliates. | | | | |
| | | | |
See notes to consolidated financial statements. | | | | |
We have served as the Company's auditor since 1930.
PART II
Consolidated Balance Sheets
October 31, 2015 and 2014
CAPITALIZATIONDUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND LIABILITIES
|
| | | | | | | | |
In thousands | | 2015 | | 2014 |
Capitalization: | | | | |
Stockholders’ equity: | | | | |
Cumulative preferred stock - no par value - 175 shares authorized | | $ | — |
| | $ | — |
|
Common stock – no par value – shares authorized: 200,000; shares outstanding: 80,883 in 2015 and 78,531 in 2014 | | 721,419 |
| | 636,835 |
|
Retained earnings | | 705,748 |
| | 672,004 |
|
Accumulated other comprehensive loss | | (855 | ) | | (237 | ) |
Total stockholders’ equity | | 1,426,312 |
| | 1,308,602 |
|
Long-term debt, net | | 1,523,677 |
| | 1,414,484 |
|
Total capitalization | | 2,949,989 |
| | 2,723,086 |
|
Current Liabilities: | | | | |
Current maturities of long-term debt | | 40,000 |
| | — |
|
Short-term debt | | 340,000 |
| | 355,000 |
|
Trade accounts payable (1) | | 99,895 |
| | 85,299 |
|
Other accounts payable | | 52,149 |
| | 54,349 |
|
Accrued interest | | 29,488 |
| | 27,982 |
|
Customers’ deposits | | 20,896 |
| | 19,994 |
|
General taxes accrued | | 27,940 |
| | 23,828 |
|
Regulatory liabilities | | 13,367 |
| | 46,231 |
|
Other current liabilities | | 11,861 |
| | 9,303 |
|
Total current liabilities | | 635,596 |
| | 621,986 |
|
Noncurrent Liabilities: | | | | |
Deferred income taxes | | 861,615 |
| | 809,467 |
|
Unamortized federal investment tax credits | | 1,027 |
| | 1,193 |
|
Accumulated provision for postretirement benefits | | 14,975 |
| | 15,471 |
|
Regulatory liabilities | | 590,301 |
| | 558,598 |
|
Conditional cost of removal obligations | | 19,712 |
| | 14,647 |
|
Other noncurrent liabilities | | 37,535 |
| | 29,859 |
|
Total noncurrent liabilities | | 1,525,165 |
| | 1,429,235 |
|
Commitments and Contingencies (Note 9) | |
| |
|
Total | | $ | 5,110,750 |
| | $ | 4,774,307 |
|
| | | | |
(1) See Note 13 for amounts attributable to affiliates. | | | | |
| | | | |
See notes to consolidated financial statements. | | | | |
Consolidated Statements of Comprehensive Income |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Operating Revenues | $ | 5,129 |
| | $ | 5,277 |
| | $ | 5,290 |
|
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 1,609 |
| | 1,830 |
| | 2,029 |
|
Operation, maintenance and other | 1,389 |
| | 1,504 |
| | 1,452 |
|
Depreciation and amortization | 725 |
| | 703 |
| | 643 |
|
Property and other taxes | 156 |
| | 156 |
| | 140 |
|
Impairment charges | 19 |
| | 1 |
| | 5 |
|
Total operating expenses | 3,898 |
| | 4,194 |
| | 4,269 |
|
Gains on Sales of Other Assets and Other, net | 4 |
| | 3 |
| | 3 |
|
Operating Income | 1,235 |
| | 1,086 |
| | 1,024 |
|
Other Income and Expenses, net | 65 |
| | 71 |
| | 71 |
|
Interest Expense | 293 |
| | 257 |
| | 235 |
|
Income Before Income Taxes | 1,007 |
| | 900 |
| | 860 |
|
Income Tax Expense | 292 |
| | 301 |
| | 294 |
|
Net Income and Comprehensive Income | $ | 715 |
| | $ | 599 |
| | $ | 566 |
|
For the Years Ended October 31, 2015, 2014 and 2013
|
| | | | | | | | | | | | |
In thousands, except per share amounts | | 2015 | | 2014 | | 2013 |
Operating Revenues (1) | | $ | 1,371,718 |
| | $ | 1,469,988 |
| | $ | 1,278,229 |
|
Cost of Gas (1) | | 644,424 |
| | 779,780 |
| | 656,739 |
|
Margin | | 727,294 |
| | 690,208 |
| | 621,490 |
|
Operating Expenses: | | | | | | |
Operations and maintenance | | 294,517 |
| | 270,877 |
| | 253,120 |
|
Depreciation | | 128,704 |
| | 118,996 |
| | 112,207 |
|
General taxes | | 42,110 |
| | 37,294 |
| | 34,635 |
|
Utility income taxes | | 76,934 |
| | 83,176 |
| | 77,334 |
|
Total operating expenses | | 542,265 |
| | 510,343 |
| | 477,296 |
|
Operating Income | | 185,029 |
| | 179,865 |
| | 144,194 |
|
Other Income (Expense): | | | | | | |
Income from equity method investments | | 34,461 |
| | 32,753 |
| | 26,056 |
|
Non-operating income | | 3,164 |
| | 1,842 |
| | 2,839 |
|
Non-operating expense | | (3,724 | ) | | (4,331 | ) | | (5,122 | ) |
Income taxes | | (13,288 | ) | | (11,642 | ) | | (8,612 | ) |
Total other income (expense) | | 20,613 |
| | 18,622 |
| | 15,161 |
|
Utility Interest Charges: | | | | | | |
Interest on long-term debt | | 70,619 |
| | 61,562 |
| | 54,158 |
|
Allowance for borrowed funds used during construction | | (11,106 | ) | | (16,427 | ) | | (30,975 | ) |
Other | | 9,118 |
| | 9,551 |
| | 1,755 |
|
Total utility interest charges | | 68,631 |
| | 54,686 |
| | 24,938 |
|
Net Income | | 137,011 |
| | 143,801 |
| | 134,417 |
|
Other Comprehensive Income (Loss), net of tax: | | | | | | |
Unrealized gain (loss) from hedging activities of equity method investments, net of tax of ($1,028), $225 and ($69) for the years ended October 31, 2015, 2014 and 2013, respectively | | (1,601 | ) | | 355 |
| | (109 | ) |
Reclassification adjustment of realized (gain) loss from hedging activities of equity method investments included in net income, net of tax of $652, ($177) and $85 for the years ended October 31, 2015, 2014 and 2013, respectively | | 1,018 |
| | (284 | ) | | 130 |
|
Net current period benefit activities of equity method investments, net of tax of ($23) and ($16) for the years ended October 31, 2015 and 2014, respectively | | (35 | ) | | (24 | ) | | |
Total other comprehensive income (loss) | | (618 | ) | | 47 |
|
| 21 |
|
Comprehensive Income | | $ | 136,393 |
| | $ | 143,848 |
|
| $ | 134,438 |
|
| | | | | | |
Average Shares of Common Stock: | | | | | | |
Basic | | 78,942 |
| | 77,883 |
| | 74,884 |
|
Diluted | | 79,231 |
| | 78,193 |
| | 75,333 |
|
| | | | | | |
Earnings Per Share of Common Stock: | | | | | | |
Basic | | $ | 1.74 |
| | $ | 1.85 |
| | $ | 1.80 |
|
Diluted | | $ | 1.73 |
| | $ | 1.84 |
| | $ | 1.78 |
|
| | | | | | |
(1) See Note 13 for amounts attributable to affiliates. | | | | | | |
| | | | | | |
See notes to consolidated financial statements. |
Consolidated Statements of Cash Flows
For the Years Ended October 31, 2015, 2014 and 2013
|
| | | | | | | | | | | | |
In thousands | | 2015 | | 2014 | | 2013 |
Cash Flows from Operating Activities: | | | | | | |
Net income | | $ | 137,011 |
| | $ | 143,801 |
| | $ | 134,417 |
|
Adjustments to reconcile net income to net cash provided by | | | | | | |
operating activities: | | | | | | |
Depreciation and amortization | | 140,217 |
| | 129,343 |
| | 120,797 |
|
Provision for doubtful accounts | | 5,095 |
| | 6,959 |
| | 5,314 |
|
Impairment loss on investment | | — |
| | 2,000 |
| | — |
|
Net gain on sale of property | | — |
| | (817 | ) | | (349 | ) |
Income from equity method investments | | (34,461 | ) | | (32,753 | ) | | (26,056 | ) |
Distributions of earnings from equity method investments | | 24,875 |
| | 24,843 |
| | 22,139 |
|
Deferred income taxes, net | | 73,407 |
| | 87,136 |
| | 57,637 |
|
Changes in assets and liabilities: | | | | | | |
Gas purchase derivatives, at fair value | | 3,555 |
| | (3,064 | ) | | 1,319 |
|
Receivables, net | | (2,637 | ) | | 9,785 |
| | (28,616 | ) |
Inventories | | 16,242 |
| | (10,079 | ) | | (2,059 | ) |
Settlement of legal asset retirement obligations | | (5,563 | ) | | (3,575 | ) | | (2,389 | ) |
Regulatory assets | | (14,917 | ) | | 20,297 |
| | 43,338 |
|
Other assets | | 16,220 |
| | (2,829 | ) | | 4,629 |
|
Accounts payable | | (7,626 | ) | | 18 |
| | 2,381 |
|
Contributions to benefit plans | | (12,728 | ) | | (22,516 | ) | | (22,415 | ) |
Accrued/deferred postretirement benefit costs | | 28,219 |
| | 20,446 |
| | (31,100 | ) |
Regulatory liabilities | | (16,065 | ) | | 49,468 |
| | 23,429 |
|
Other liabilities | | 20,791 |
| | 12,149 |
| | 10,831 |
|
Net cash provided by operating activities | | 371,635 |
| | 430,612 |
| | 313,247 |
|
| | | | | | |
Cash Flows from Investing Activities: | | | | | | |
Utility capital expenditures | | (443,654 | ) | | (460,444 | ) | | (599,999 | ) |
Allowance for borrowed funds used during construction | | (11,106 | ) | | (16,427 | ) | | (30,975 | ) |
Contributions to equity method investments | | (29,723 | ) | | (37,642 | ) | | (41,348 | ) |
Distributions of capital from equity method investments | | 1,505 |
| | 3,929 |
| | 4,700 |
|
Proceeds from sale of property | | 717 |
| | 1,883 |
| | 1,951 |
|
Investments in marketable securities | | (866 | ) | | (454 | ) | | (414 | ) |
Other | | 4,707 |
| | 4,708 |
| | 2,609 |
|
Net cash used in investing activities | | (478,420 | ) | | (504,447 | ) | | (663,476 | ) |
Consolidated Statements of Cash Flows
For the Years Ended October 31, 2015, 2014 and 2013
|
| | | | | | | | | | | | |
In thousands | | 2015 | | 2014 | | 2013 |
Cash Flows from Financing Activities: | | | | | | |
Borrowings under credit facility | | $ | — |
| | $ | — |
| | $ | 10,000 |
|
Repayments under credit facility | | — |
| | — |
| | (10,000 | ) |
Net (repayments) borrowings - commercial paper | | (15,000 | ) | | (45,000 | ) | | 35,000 |
|
Proceeds from issuance of long-term debt, net of discount | | 149,902 |
| | 249,565 |
| | 299,856 |
|
Repayment of long-term debt | | — |
| | (100,000 | ) | | — |
|
Expenses related to issuance of debt | | (1,330 | ) | | (2,871 | ) | | (3,250 | ) |
Proceeds from issuance of common stock, net of expenses | | 53,707 |
| | 47,290 |
| | 92,271 |
|
Issuance of common stock through dividend reinvestment and employee stock plans | | 26,992 |
| | 25,556 |
| | 24,610 |
|
Dividends paid | | (103,390 | ) | | (99,151 | ) | | (92,146 | ) |
Other | | 5 |
| | 26 |
| | (8 | ) |
Net cash provided by financing activities | | 110,886 |
| | 75,415 |
| | 356,333 |
|
Net Increase in Cash and Cash Equivalents | | 4,101 |
| | 1,580 |
| | 6,104 |
|
Cash and Cash Equivalents at Beginning of Year | | 9,643 |
| | 8,063 |
| | 1,959 |
|
Cash and Cash Equivalents at End of Year | | $ | 13,744 |
| | $ | 9,643 |
| | $ | 8,063 |
|
| | | | | | |
Cash Paid During the Year for: | | | | | | |
Interest | | $ | 71,519 |
| | $ | 64,276 |
| | $ | 50,275 |
|
| | | | | | |
Income Taxes: | | | | | | |
Income taxes paid | | $ | 3,680 |
| | $ | 10,840 |
| | $ | 5,760 |
|
Income taxes refunded | | 530 |
| | 30 |
| | 169 |
|
Income taxes, net | | $ | 3,150 |
| | $ | 10,810 |
| | $ | 5,591 |
|
| | | | | | |
Noncash Investing and Financing Activities: | | | | | | |
Accrued construction expenditures | | $ | 58,868 |
| | $ | 38,869 |
| | $ | 39,389 |
|
| | | | | | |
See notes to consolidated financial statements. |
Consolidated Statements of Stockholders’ Equity
For the Years Ended October 31, 2015, 2014 and 2013
|
| | | | | | | | | | | | | | | | |
In thousands, except per share amounts | | Common Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
Balance, October 31, 2012 | | $ | 442,461 |
| | $ | 584,848 |
| | $ | (305 | ) | | $ | 1,027,004 |
|
| | | | | | | | |
Comprehensive Income: | | | | | | | | |
Net income | | | | 134,417 |
| | | | 134,417 |
|
Other comprehensive income | | | | | | 21 |
| | 21 |
|
Total comprehensive income | | | | | | | | 134,438 |
|
Common Stock Issued | | 119,552 |
| | | | | | 119,552 |
|
Expenses from Issuance of Common Stock | | (369 | ) | | | | | | (369 | ) |
Tax Benefit from Dividends Paid on ESOP Shares | | | | 117 |
| | | | 117 |
|
Dividends Declared ($1.23 per share) | | | | (92,146 | ) | | | | (92,146 | ) |
Balance, October 31, 2013 | | 561,644 |
| | 627,236 |
| | (284 | ) | | 1,188,596 |
|
| | | | | | | | |
Comprehensive Income: | | | | | | | | |
Net income | | | | 143,801 |
| | | | 143,801 |
|
Other comprehensive income | | | | | | 47 |
| | 47 |
|
Total comprehensive income | | | | | | | | 143,848 |
|
Common Stock Issued | | 75,203 |
| | | | | | 75,203 |
|
Expenses from Issuance of Common Stock | | (12 | ) | | | | | | (12 | ) |
Tax Benefit from Dividends Paid on ESOP Shares | | | | 118 |
| | | | 118 |
|
Dividends Declared ($1.27 per share) | | | | (99,151 | ) | | | | (99,151 | ) |
Balance, October 31, 2014 | | 636,835 |
| | 672,004 |
| | (237 | ) | | 1,308,602 |
|
| | | | | | | | |
Comprehensive Income: | | | | | | | | |
Net income | | | | 137,011 |
| | | | 137,011 |
|
Other comprehensive loss | | | | | | (618 | ) | | (618 | ) |
Total comprehensive income | | | | | | | | 136,393 |
|
Common Stock Issued | | 84,966 |
| | | | | | 84,966 |
|
Expenses from Issuance of Common Stock | | (382 | ) | | | | | | (382 | ) |
Tax Benefit from Dividends Paid on ESOP Shares | | | | 123 |
| | | | 123 |
|
Dividends Declared ($1.31 per share) | | | | (103,390 | ) | | | | (103,390 | ) |
Balance, October 31, 2015 | | $ | 721,419 |
| | $ | 705,748 |
| | $ | (855 | ) | | $ | 1,426,312 |
|
| | | | | | | | |
See notes to consolidated financial statements. |
The components of accumulated other comprehensive income (loss) (OCIL) as of October 31, 2015 and 2014 are as follows.
|
| | | | | | | | |
In thousands | | 2015 | | 2014 |
Hedging activities of equity method investments | | $ | (796 | ) | | $ | (213 | ) |
Benefit activities of equity method investments | | (59 | ) | | (24 | ) |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 20 |
| | $ | 11 |
|
Receivables (net of allowance for doubtful accounts of $1 at 2017 and $4 at 2016) | 56 |
| | 51 |
|
Receivables of VIEs (net of allowance for doubtful accounts of $5 at 2017 and 2016) | 459 |
| | 404 |
|
Receivables from affiliated companies | 3 |
| | 5 |
|
Notes receivable from affiliated companies | — |
| | 165 |
|
Inventory | 1,017 |
|
| 1,076 |
|
Regulatory assets | 352 |
| | 188 |
|
Other | 97 |
| | 57 |
|
Total current assets | 2,004 |
| | 1,957 |
|
Property, Plant and Equipment | | | |
Cost | 29,583 |
| | 28,419 |
|
Accumulated depreciation and amortization | (10,903 | ) | | (10,561 | ) |
Generation facilities to be retired, net | 421 |
| | 529 |
|
Net property, plant and equipment | 19,101 |
| | 18,387 |
|
Other Noncurrent Assets | | | |
Regulatory assets | 3,507 |
| | 3,243 |
|
Nuclear decommissioning trust funds | 2,588 |
| | 2,217 |
|
Other | 599 |
| | 525 |
|
Total other noncurrent assets | 6,694 |
| | 5,985 |
|
Total Assets | $ | 27,799 |
| | $ | 26,329 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 402 |
| | $ | 589 |
|
Accounts payable to affiliated companies | 179 |
| | 227 |
|
Notes payable to affiliated companies | 240 |
| | — |
|
Taxes accrued | 64 |
| | 104 |
|
Interest accrued | 102 |
| | 102 |
|
Current maturities of long-term debt | 3 |
| | 452 |
|
Asset retirement obligations | 295 |
| | 189 |
|
Regulatory liabilities | 139 |
| | 158 |
|
Other | 376 |
| | 365 |
|
Total current liabilities | 1,800 |
| | 2,186 |
|
Long-Term Debt | 7,204 |
| | 6,409 |
|
Long-Term Debt Payable to Affiliated Companies | 150 |
| | 150 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 1,883 |
| | 3,323 |
|
Asset retirement obligations | 4,378 |
| | 4,508 |
|
Regulatory liabilities | 3,999 |
| | 1,946 |
|
Accrued pension and other post-retirement benefit costs | 248 |
| | 252 |
|
Investment tax credits | 143 |
| | 146 |
|
Other | 45 |
| | 51 |
|
Total other noncurrent liabilities | 10,696 |
| | 10,226 |
|
Commitments and Contingencies | | | |
Equity | | | |
Member's Equity | 7,949 |
| | 7,358 |
|
Total Liabilities and Equity | $ | 27,799 |
| | $ | 26,329 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 | | 2016 | | 2015 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 715 |
| | $ | 599 |
| | $ | 566 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion (including amortization of nuclear fuel) | 936 |
| | 907 |
| | 821 |
|
Equity component of AFUDC | (47 | ) | | (50 | ) | | (47 | ) |
Gains on sales of other assets | (5 | ) | | (6 | ) | | (7 | ) |
Impairment charges | 19 |
| | 1 |
| | 5 |
|
Deferred income taxes | 384 |
| | 384 |
| | 354 |
|
Accrued pension and other post-retirement benefit costs | (20 | ) | | (32 | ) | | (14 | ) |
Contributions to qualified pension plans | — |
| | (24 | ) | | (42 | ) |
Payments for asset retirement obligations | (192 | ) | | (212 | ) | | (109 | ) |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | (4 | ) | | 4 |
| | (3 | ) |
Receivables | (58 | ) | | (17 | ) | | 43 |
|
Receivables from affiliated companies | 2 |
| | 11 |
| | (6 | ) |
Inventory | 59 |
| | 12 |
| | (50 | ) |
Other current assets | (75 | ) | | 84 |
| | 185 |
|
Increase (decrease) in | | | | | |
Accounts payable | (230 | ) | | 181 |
| | (65 | ) |
Accounts payable to affiliated companies | (48 | ) | | 37 |
| | 70 |
|
Taxes accrued | (39 | ) | | 90 |
| | (34 | ) |
Other current liabilities | (131 | ) | | 114 |
| | 76 |
|
Other assets | (53 | ) | | (163 | ) | | (83 | ) |
Other liabilities | (18 | ) | | 12 |
| | (66 | ) |
Net cash provided by operating activities | 1,195 |
| | 1,932 |
| | 1,594 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (1,715 | ) | | (1,733 | ) | | (1,669 | ) |
Asset acquisition | — |
| | — |
| | (1,249 | ) |
Purchases of available-for-sale securities | (1,249 | ) | | (1,658 | ) | | (727 | ) |
Proceeds from sales and maturities of available-for-sale securities | 1,207 |
| | 1,615 |
| | 672 |
|
Proceeds from insurance | 4 |
| — |
| — |
| | — |
|
Notes receivable from affiliated companies | 165 |
| | (165 | ) | | 237 |
|
Other | (55 | ) | | 26 |
| | (30 | ) |
Net cash used in investing activities | (1,643 | ) | | (1,915 | ) | | (2,766 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 812 |
| | 505 |
| | 1,186 |
|
Payments for the redemption of long-term debt | (470 | ) | | (15 | ) | | (991 | ) |
Notes payable to affiliated companies | 240 |
| | (209 | ) | | 359 |
|
Capital contribution from parent | — |
| | — |
| | 626 |
|
Distributions to parent | (124 | ) | | (300 | ) | | — |
|
Other | (1 | ) | | (2 | ) | | (2 | ) |
Net cash provided by (used in) financing activities | 457 |
| | (21 | ) | | 1,178 |
|
Net increase (decrease) in cash and cash equivalents | 9 |
| | (4 | ) | | 6 |
|
Cash and cash equivalents at beginning of period | 11 |
| | 15 |
| | 9 |
|
Cash and cash equivalents at end of period | $ | 20 |
| | $ | 11 |
| | $ | 15 |
|
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 291 |
| | $ | 248 |
| | $ | 218 |
|
Cash paid for (received from) income taxes | 59 |
| | (287 | ) | | (197 | ) |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 191 |
| | 147 |
| | 143 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| | | | | | | | | | | | | | | |
| Common |
| | Retained |
| | Member's |
| | Total |
|
(in millions) | Stock |
| | Earnings |
| | Equity |
| | Equity |
|
Balance at December 31, 2014 | $ | 2,159 |
| | $ | 3,708 |
| | $ | — |
| | $ | 5,867 |
|
Net income | — |
| | 355 |
| | 211 |
| | 566 |
|
Transfer to Member's Equity | (2,159 | ) | | (4,063 | ) | | 6,222 |
| | — |
|
Capital contribution from parent | — |
| | — |
| | 626 |
| | 626 |
|
Balance at December 31, 2015 | $ | — |
| | $ | — |
| | $ | 7,059 |
| | $ | 7,059 |
|
Net income | — |
| | — |
| | 599 |
| | 599 |
|
Distribution to parent | — |
| | — |
| | (300 | ) | | (300 | ) |
Balance at December 31, 2016 | $ | — |
| | $ | — |
| | $ | 7,358 |
| | $ | 7,358 |
|
Net income | — |
| | — |
| | 715 |
| | 715 |
|
Distribution to parent | — |
| | — |
| | (124 | ) | | (124 | ) |
Balance at December 31, 2017 | $ | — |
| | $ | — |
|
| $ | 7,949 |
| | $ | 7,949 |
|
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Florida, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Florida, LLC and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company's auditor since 2001.
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Operating Revenues | $ | 4,646 |
| | $ | 4,568 |
| | $ | 4,977 |
|
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 1,808 |
| | 1,814 |
| | 2,195 |
|
Operation, maintenance and other | 818 |
| | 865 |
| | 835 |
|
Depreciation and amortization | 560 |
| | 509 |
| | 473 |
|
Property and other taxes | 347 |
| | 333 |
| | 352 |
|
Impairment charges | 138 |
| | 6 |
| | 7 |
|
Total operating expenses | 3,671 |
| | 3,527 |
| | 3,862 |
|
Gains on Sales of Other Assets and Other, net | 1 |
| | — |
| | — |
|
Operating Income | 976 |
| | 1,041 |
| | 1,115 |
|
Other Income and Expenses, net | 61 |
| | 44 |
| | 24 |
|
Interest Expense | 279 |
| | 212 |
| | 198 |
|
Income Before Income Taxes | 758 |
| | 873 |
| | 941 |
|
Income Tax Expense | 46 |
| | 322 |
| | 342 |
|
Net Income | $ | 712 |
| | $ | 551 |
| | $ | 599 |
|
Other Comprehensive Income, net of tax | | | | | |
Unrealized gains on available-for-sale securities | 3 |
| | 1 |
| | — |
|
Other Comprehensive Income, net of tax | 3 |
| | 1 |
| | — |
|
Comprehensive Income | $ | 715 |
| | $ | 552 |
| | $ | 599 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 13 |
| | $ | 16 |
|
Receivables (net of allowance for doubtful accounts of $3 at 2017 and $2 at 2016) | 65 |
| | 61 |
|
Receivables of VIEs (net of allowance for doubtful accounts of $2 at 2017 and 2016) | 321 |
| | 288 |
|
Receivables from affiliated companies | 2 |
| | 5 |
|
Notes receivable from affiliated companies | 313 |
| | — |
|
Inventory | 574 |
|
| 641 |
|
Regulatory assets (includes $51 at 2017 and $50 at 2016 related to VIEs) | 389 |
| | 213 |
|
Other (includes $40 at 2017 and $53 at 2016 related to VIEs) | 86 |
| | 125 |
|
Total current assets | 1,763 |
| | 1,349 |
|
Property, Plant and Equipment | | | |
Cost | 17,730 |
| | 16,434 |
|
Accumulated depreciation and amortization | (4,947 | ) | | (4,644 | ) |
Net property, plant and equipment | 12,783 |
| | 11,790 |
|
Other Noncurrent Assets | | | |
Regulatory assets (includes $1,091 at 2017 and $1,142 at 2016 related to VIEs) | 2,503 |
| | 2,480 |
|
Nuclear decommissioning trust funds | 736 |
| | 715 |
|
Other | 284 |
| | 278 |
|
Total other noncurrent assets | 3,523 |
| | 3,473 |
|
Total Assets | $ | 18,069 |
| | $ | 16,612 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 602 |
| | $ | 413 |
|
Accounts payable to affiliated companies | 74 |
| | 125 |
|
Notes payable to affiliated companies | — |
| | 297 |
|
Taxes accrued | 34 |
| | 33 |
|
Interest accrued | 56 |
| | 49 |
|
Current maturities of long-term debt (includes $53 at 2017 and $62 at 2016 related to VIEs) | 768 |
| | 326 |
|
Regulatory liabilities | 74 |
| | 31 |
|
Other | 334 |
| | 352 |
|
Total current liabilities | 1,942 |
| | 1,626 |
|
Long-Term Debt (includes $1,389 at 2017 and $1,442 at 2016 related to VIEs) | 6,327 |
| | 5,799 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 1,761 |
| | 2,694 |
|
Asset retirement obligations | 742 |
| | 778 |
|
Regulatory liabilities | 1,307 |
| | 448 |
|
Accrued pension and other post-retirement benefit costs | 264 |
| | 262 |
|
Other | 108 |
| | 105 |
|
Total other noncurrent liabilities | 4,182 |
| | 4,287 |
|
Commitments and Contingencies | | | |
Equity | | | |
Member's equity | 5,614 |
| | 4,899 |
|
Accumulated other comprehensive income | 4 |
| | 1 |
|
Total equity | 5,618 |
| | 4,900 |
|
Total Liabilities and Equity | $ | 18,069 |
| | $ | 16,612 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 712 |
| | $ | 551 |
| | $ | 599 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 570 |
| | 516 |
| | 480 |
|
Equity component of AFUDC | (45 | ) | | (26 | ) | | (7 | ) |
Gains on sales of other assets | (1 | ) | | — |
| | — |
|
Impairment charges | 138 |
| | 6 |
| | 7 |
|
Deferred income taxes | 245 |
| | 224 |
| | 348 |
|
Accrued pension and other post-retirement benefit costs | (13 | ) | | 2 |
| | 5 |
|
Contributions to qualified pension plans | — |
| | (20 | ) | | (40 | ) |
Payments for asset retirement obligations | (56 | ) | | (58 | ) | | (47 | ) |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | 5 |
| | 38 |
| | (3 | ) |
Receivables | (38 | ) | | 23 |
| | 61 |
|
Receivables from affiliated companies | — |
| | 21 |
| | (44 | ) |
Inventory | 66 |
| | 23 |
| | (17 | ) |
Other current assets | (125 | ) | | (133 | ) | | 116 |
|
Increase (decrease) in | | | | | |
Accounts payable | (32 | ) | | 71 |
| | (127 | ) |
Accounts payable to affiliated companies | (51 | ) | | 9 |
| | 46 |
|
Taxes accrued | 1 |
| | (117 | ) | | 67 |
|
Other current liabilities | (37 | ) | | (149 | ) | | 57 |
|
Other assets | (229 | ) | | (84 | ) | | (84 | ) |
Other liabilities | (82 | ) | | (53 | ) | | (44 | ) |
Net cash provided by operating activities | 1,028 |
| | 844 |
| | 1,373 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (1,437 | ) | | (1,583 | ) | | (1,029 | ) |
Purchases of available-for-sale securities | (557 | ) | | (485 | ) | | (447 | ) |
Proceeds from sales and maturities of available-for-sale securities | 617 |
| | 572 |
| | 538 |
|
Proceeds from insurance | 4 |
| | 58 |
| | — |
|
Proceeds from the sale of nuclear fuel | 20 |
| | 20 |
| | 102 |
|
Notes receivable from affiliated companies | (313 | ) | | — |
| | — |
|
Change in restricted cash | — |
| | (6 | ) | | — |
|
Other | (31 | ) | | 21 |
| | (3 | ) |
Net cash used in investing activities | (1,697 | ) | | (1,403 | ) | | (839 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 1,306 |
| | 1,870 |
| | — |
|
Payments for the redemption of long-term debt | (342 | ) | | (12 | ) | | (562 | ) |
Notes payable to affiliated companies | (297 | ) | | (516 | ) | | 729 |
|
Dividends to parent | — |
| | — |
| | (350 | ) |
Distribution to parent | — |
| | (775 | ) | | (350 | ) |
Other | (1 | ) | | — |
| | (1 | ) |
Net cash provided by (used in) financing activities | 666 |
| | 567 |
| | (534 | ) |
Net (decrease) increase in cash and cash equivalents | (3 | ) | | 8 |
| | — |
|
Cash and cash equivalents at beginning of period | 16 |
| | 8 |
| | 8 |
|
Cash and cash equivalents at end of period | $ | 13 |
| | $ | 16 |
| | $ | 8 |
|
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 274 |
| | $ | 208 |
| | $ | 205 |
|
Cash (received from) paid for income taxes | (197 | ) | | 216 |
| | (229 | ) |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 199 |
| | 170 |
| | 186 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | |
| | | | | | | Other | |
| | | | | | | Comprehensive | |
| | | | | | | Income | |
| | | | | | | Net Unrealized |
| | |
| | | | | | | Gains on |
| | |
| Common |
| | Retained |
| | Member's |
| | Available-for- |
| | Total |
|
(in millions) | Stock |
| | Earnings |
| | Equity |
| | Sale Securities |
| | Equity |
|
Balance at December 31, 2014 | $ | 1,762 |
| | $ | 3,460 |
| | $ | — |
| | $ | — |
| | $ | 5,222 |
|
Net income | — |
| | 351 |
| | 248 |
| | — |
| | 599 |
|
Transfer to Member's Equity | (1,762 | ) | | (3,461 | ) | | 5,223 |
| | — |
| | — |
|
Dividends to parent | — |
| | (350 | ) | | — |
| | — |
| | (350 | ) |
Distribution to parent | — |
| | — |
| | (350 | ) | | — |
| | (350 | ) |
Balance at December 31, 2015 | $ | — |
| | $ | — |
| | $ | 5,121 |
| | $ | — |
| | $ | 5,121 |
|
Net income | — |
| | — |
| | 551 |
| | — |
| | 551 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
Distribution to parent | — |
| | — |
| | (775 | ) | | — |
| | (775 | ) |
Other | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Balance at December 31, 2016 | $ | — |
| | $ | — |
| | $ | 4,899 |
| | $ | 1 |
| | $ | 4,900 |
|
Net income | — |
| | — |
| | 712 |
| | — |
| | 712 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 3 |
| | 3 |
|
Other | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
Balance at December 31, 2017 | $ | — |
| | $ | — |
| | $ | 5,614 |
| | $ | 4 |
| | $ | 5,618 |
|
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Ohio, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Ohio, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company's auditor since 2002.
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Operating Revenues | | | | | |
Regulated electric | $ | 1,373 |
| | $ | 1,410 |
| | $ | 1,331 |
|
Nonregulated electric and other | 42 |
| | 31 |
| | 33 |
|
Regulated natural gas | 508 |
| | 503 |
| | 541 |
|
Total operating revenues | 1,923 |
| | 1,944 |
| | 1,905 |
|
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power – regulated | 369 |
| | 442 |
| | 446 |
|
Fuel used in electric generation and purchased power – nonregulated | 58 |
| | 51 |
| | 47 |
|
Cost of natural gas | 107 |
| | 103 |
| | 141 |
|
Operation, maintenance and other | 524 |
| | 512 |
| | 495 |
|
Depreciation and amortization | 261 |
| | 233 |
| | 227 |
|
Property and other taxes | 278 |
| | 258 |
| | 254 |
|
Impairment charges | 1 |
| | — |
| | — |
|
Total operating expenses | 1,598 |
| | 1,599 |
| | 1,610 |
|
Gains on Sales of Other Assets and Other, net | 1 |
| | 2 |
| | 8 |
|
Operating Income | 326 |
| | 347 |
| | 303 |
|
Other Income and Expenses, net | 17 |
| | 9 |
| | 6 |
|
Interest Expense | 91 |
| | 86 |
| | 79 |
|
Income From Continuing Operations Before Income Taxes | 252 |
| | 270 |
| | 230 |
|
Income Tax Expense From Continuing Operations | 59 |
| | 78 |
| | 81 |
|
Income From Continuing Operations | 193 |
| | 192 |
| | 149 |
|
(Loss) Income From Discontinued Operations, net of tax | (1 | ) | | 36 |
| | 23 |
|
Net Income and Comprehensive Income | $ | 192 |
| | $ | 228 |
| | $ | 172 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 12 |
| | $ | 13 |
|
Receivables (net of allowance for doubtful accounts of $3 at 2017 and $2 at 2016) | 68 |
| | 71 |
|
Receivables from affiliated companies | 133 |
| | 129 |
|
Notes receivable from affiliated companies | 14 |
| | 94 |
|
Inventory | 133 |
|
| 137 |
|
Regulatory assets | 49 |
| | 37 |
|
Other | 39 |
| | 37 |
|
Total current assets | 448 |
| | 518 |
|
Property, Plant and Equipment | | | |
Cost | 8,732 |
| | 8,126 |
|
Accumulated depreciation and amortization | (2,691 | ) | | (2,579 | ) |
Net property, plant and equipment | 6,041 |
| | 5,547 |
|
Other Noncurrent Assets | | | |
Goodwill | 920 |
| | 920 |
|
Regulatory assets | 445 |
| | 520 |
|
Other | 21 |
| | 23 |
|
Total other noncurrent assets | 1,386 |
| | 1,463 |
|
Total Assets | $ | 7,875 |
| | $ | 7,528 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 313 |
| | $ | 282 |
|
Accounts payable to affiliated companies | 62 |
| | 63 |
|
Notes payable to affiliated companies | 29 |
| | 16 |
|
Taxes accrued | 190 |
| | 178 |
|
Interest accrued | 21 |
| | 19 |
|
Current maturities of long-term debt | 3 |
| | 1 |
|
Asset retirement obligations | 3 |
| | — |
|
Regulatory liabilities | 36 |
| | 21 |
|
Other | 71 |
| | 91 |
|
Total current liabilities | 728 |
| | 671 |
|
Long-Term Debt | 2,039 |
| | 1,858 |
|
Long-Term Debt Payable to Affiliated Companies | 25 |
| | 25 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 781 |
| | 1,443 |
|
Asset retirement obligations | 81 |
| | 77 |
|
Regulatory liabilities | 891 |
| | 236 |
|
Accrued pension and other post-retirement benefit costs | 59 |
| | 56 |
|
Other | 108 |
| | 166 |
|
Total other noncurrent liabilities | 1,920 |
| | 1,978 |
|
Commitments and Contingencies | | | |
Equity | | | |
Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2017 and 2016 | 762 |
| | 762 |
|
Additional paid-in capital | 2,670 |
| | 2,695 |
|
Accumulated deficit | (269 | ) | | (461 | ) |
Total equity | 3,163 |
| | 2,996 |
|
Total Liabilities and Equity | $ | 7,875 |
| | $ | 7,528 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 192 |
| | $ | 228 |
| | $ | 172 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 265 |
| | 237 |
| | 230 |
|
Equity component of AFUDC | (11 | ) | | (6 | ) | | (3 | ) |
Gains on sales of other assets | (1 | ) | | (2 | ) | | (8 | ) |
Impairment charges | 1 |
| | — |
| | 40 |
|
Deferred income taxes | 90 |
| | 55 |
| | 206 |
|
Accrued pension and other post-retirement benefit costs | 2 |
| | 6 |
| | 9 |
|
Contributions to qualified pension plans | (4 | ) | | (5 | ) | | (8 | ) |
Payments for asset retirement obligations | (7 | ) | | (5 | ) | | (4 | ) |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | — |
| | (2 | ) | | (10 | ) |
Receivables | 2 |
| | (4 | ) | | 23 |
|
Receivables from affiliated companies | (4 | ) | | (36 | ) | | 23 |
|
Inventory | 6 |
| | (32 | ) | | — |
|
Other current assets | (22 | ) | | 79 |
| | — |
|
Increase (decrease) in | | | | | |
Accounts payable | 12 |
| | 19 |
| | (1 | ) |
Accounts payable to affiliated companies | (1 | ) | | 10 |
| | (21 | ) |
Taxes accrued | 11 |
| | 3 |
| | (21 | ) |
Other current liabilities | (19 | ) | | (54 | ) | | 88 |
|
Other assets | (28 | ) | | (35 | ) | | 25 |
|
Other liabilities | (5 | ) | | (31 | ) | | (73 | ) |
Net cash provided by operating activities | 479 |
| | 425 |
| | 667 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (686 | ) | | (476 | ) | | (399 | ) |
Notes receivable from affiliated companies | 80 |
| | (94 | ) | | 145 |
|
Other | (41 | ) | | (30 | ) | | (15 | ) |
Net cash used in investing activities | (647 | ) | | (600 | ) | | (269 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 182 |
| | 341 |
| | — |
|
Payments for the redemption of long-term debt | (2 | ) | | (53 | ) | | (157 | ) |
Notes payable to affiliated companies | 13 |
| | (87 | ) | | (95 | ) |
Dividends to parent | (25 | ) | | (25 | ) | | (150 | ) |
Other | (1 | ) | | (2 | ) | | (2 | ) |
Net cash provided by (used in) financing activities | 167 |
| | 174 |
| | (404 | ) |
Net decrease in cash and cash equivalents | (1 | ) | | (1 | ) | | (6 | ) |
Cash and cash equivalents at beginning of period | 13 |
| | 14 |
| | 20 |
|
Cash and cash equivalents at end of period | $ | 12 |
| | $ | 13 |
| | $ | 14 |
|
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 85 |
| | $ | 81 |
| | $ | 76 |
|
Cash (received from) paid for income taxes | (8 | ) | | (46 | ) | | 410 |
|
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 82 |
| | 83 |
| | 20 |
|
Distribution of membership interest of Duke Energy SAM, LLC to parent | — |
| | — |
| | 1,912 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | Additional |
| | | | |
| Common |
| | Paid-in |
| | Accumulated |
| | Total |
|
(in millions) | Stock |
| | Capital |
| | Deficit |
| | Equity |
|
Balance at December 31, 2014 | $ | 762 |
| | $ | 4,782 |
| | $ | (870 | ) | | $ | 4,674 |
|
Net income | — |
| | — |
| | 172 |
| | 172 |
|
Dividends to parent | — |
| | (150 | ) | | — |
| | (150 | ) |
Distribution of membership interest of Duke Energy SAM, LLC to parent | — |
| | (1,912 | ) | | — |
| | (1,912 | ) |
Balance at December 31, 2015 | $ | 762 |
| | $ | 2,720 |
| | $ | (698 | ) | | $ | 2,784 |
|
Net income | — |
| | — |
| | 228 |
| | 228 |
|
Contribution from parent | — |
| | — |
| | 9 |
| | 9 |
|
Dividends to parent | — |
| | (25 | ) | | — |
| | (25 | ) |
Balance at December 31, 2016 | $ | 762 |
|
| $ | 2,695 |
|
| $ | (461 | ) |
| $ | 2,996 |
|
Net income | — |
| | — |
| | 192 |
| | 192 |
|
Dividends to parent | — |
| | (25 | ) | | — |
| | (25 | ) |
Balance at December 31, 2017 | $ | 762 |
| | $ | 2,670 |
| | $ | (269 | ) | | $ | 3,163 |
|
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Indiana, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Indiana, LLC and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company's auditor since 2002.
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Operating Revenues | $ | 3,047 |
| | $ | 2,958 |
| | $ | 2,890 |
|
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 966 |
|
| 909 |
| | 982 |
|
Operation, maintenance and other | 733 |
|
| 723 |
| | 682 |
|
Depreciation and amortization | 458 |
|
| 496 |
| | 434 |
|
Property and other taxes | 76 |
|
| 58 |
| | 61 |
|
Impairment charges | 18 |
|
| 8 |
| | 88 |
|
Total operating expenses | 2,251 |
| | 2,194 |
| | 2,247 |
|
Gains on Sales of Other Assets and Other, net | — |
| | 1 |
| | 1 |
|
Operating Income | 796 |
| | 765 |
| | 644 |
|
Other Income and Expenses, net | 37 |
| | 22 |
| | 11 |
|
Interest Expense | 178 |
| | 181 |
| | 176 |
|
Income Before Income Taxes | 655 |
|
| 606 |
|
| 479 |
|
Income Tax Expense | 301 |
| | 225 |
| | 163 |
|
Net Income | $ | 354 |
|
| $ | 381 |
|
| $ | 316 |
|
Other Comprehensive Loss, net of tax | | | | | |
Reclassification into earnings from cash flow hedges | — |
| | (1 | ) | | (2 | ) |
Comprehensive Income | $ | 354 |
|
| $ | 380 |
|
| $ | 314 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 9 |
| | $ | 17 |
|
Receivables (net of allowance for doubtful accounts of $2 at 2017 and $1 at 2016) | 57 |
| | 105 |
|
Receivables from affiliated companies | 125 |
| | 114 |
|
Notes receivable from affiliated companies | — |
| | 86 |
|
Inventory | 450 |
|
| 504 |
|
Regulatory assets | 165 |
| | 149 |
|
Other | 30 |
| | 45 |
|
Total current assets | 836 |
| | 1,020 |
|
Property, Plant and Equipment | | | |
Cost | 14,948 |
| | 14,241 |
|
Accumulated depreciation and amortization | (4,662 | ) | | (4,317 | ) |
Net property, plant and equipment | 10,286 |
| | 9,924 |
|
Other Noncurrent Assets | | |
|
Regulatory assets | 978 |
| | 1,073 |
|
Other | 189 |
| | 147 |
|
Total other noncurrent assets | 1,167 |
| | 1,220 |
|
Total Assets | $ | 12,289 |
| | $ | 12,164 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 196 |
| | $ | 263 |
|
Accounts payable to affiliated companies | 78 |
| | 74 |
|
Notes payable to affiliated companies | 161 |
| | — |
|
Taxes accrued | 95 |
| | 31 |
|
Interest accrued | 57 |
| | 61 |
|
Current maturities of long-term debt | 3 |
| | 3 |
|
Asset retirement obligations | 54 |
| | — |
|
Regulatory liabilities | 24 |
| | 40 |
|
Other | 104 |
| | 93 |
|
Total current liabilities | 772 |
| | 565 |
|
Long-Term Debt | 3,630 |
| | 3,633 |
|
Long-Term Debt Payable to Affiliated Companies | 150 |
| | 150 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 925 |
| | 1,900 |
|
Asset retirement obligations | 727 |
| | 866 |
|
Regulatory liabilities | 1,723 |
| | 748 |
|
Accrued pension and other post-retirement benefit costs | 76 |
| | 71 |
|
Investment tax credits | 147 |
| | 137 |
|
Other | 18 |
| | 27 |
|
Total other noncurrent liabilities | 3,616 |
| | 3,749 |
|
Commitments and Contingencies | | | |
Equity | | | |
Member's Equity | 4,121 |
| | 4,067 |
|
Total Liabilities and Equity | $ | 12,289 |
| | $ | 12,164 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 354 |
| | $ | 381 |
| | $ | 316 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 462 |
| | 499 |
| | 439 |
|
Equity component of AFUDC | (28 | ) | | (16 | ) | | (11 | ) |
Gains on sales of other assets | — |
| | — |
| | (1 | ) |
Impairment charges | 18 |
| | 8 |
| | 88 |
|
Deferred income taxes | 152 |
| | 213 |
| | 262 |
|
Accrued pension and other post-retirement benefit costs | 2 |
| | 8 |
| | 13 |
|
Contributions to qualified pension plans | — |
| | (9 | ) | | (19 | ) |
Payments for asset retirement obligations | (45 | ) | | (46 | ) | | (19 | ) |
(Increase) decrease in | | | | | |
Receivables | 59 |
| | (2 | ) | | (7 | ) |
Receivables from affiliated companies | (11 | ) | | (43 | ) | | 44 |
|
Inventory | 54 |
| | 66 |
| | (21 | ) |
Other current assets | 28 |
| | (67 | ) | | 90 |
|
Increase (decrease) in | | | | | |
Accounts payable | (86 | ) | | 8 |
| | 33 |
|
Accounts payable to affiliated companies | 4 |
| | (9 | ) | | 25 |
|
Taxes accrued | 64 |
| | (4 | ) | | 35 |
|
Other current liabilities | (10 | ) | | (81 | ) | | 26 |
|
Other assets | (28 | ) | | (27 | ) | | (82 | ) |
Other liabilities | (20 | ) | | (8 | ) | | (35 | ) |
Net cash provided by operating activities | 969 |
| | 871 |
| | 1,176 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (840 | ) | | (755 | ) | | (690 | ) |
Purchases of available-for-sale securities | (20 | ) | | (14 | ) | | (9 | ) |
Proceeds from sales and maturities of available-for-sale securities | 7 |
| | 11 |
| | 11 |
|
Proceeds from the sales of other assets | — |
| | — |
| | 17 |
|
Notes receivable from affiliated companies | 86 |
| | (3 | ) | | (83 | ) |
Other | (65 | ) | | 32 |
| | (17 | ) |
Net cash used in investing activities | (832 | ) | | (729 | ) | | (771 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | — |
| | 494 |
| | — |
|
Payments for the redemption of long-term debt | (5 | ) | | (478 | ) | | (5 | ) |
Notes payable to affiliated companies | 161 |
| | — |
| | (71 | ) |
Dividends to parent | — |
| | — |
| | (326 | ) |
Distributions to parent | (300 | ) | | (149 | ) | | — |
|
Other | (1 | ) | | (1 | ) | | — |
|
Net cash used in financing activities | (145 | ) | | (134 | ) | | (402 | ) |
Net (decrease) increase in cash and cash equivalents | (8 | ) | | 8 |
| | 3 |
|
Cash and cash equivalents at beginning of period | 17 |
| | 9 |
| | 6 |
|
Cash and cash equivalents at end of period | $ | 9 |
| | $ | 17 |
| | $ | 9 |
|
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 179 |
| | $ | 171 |
| | $ | 175 |
|
Cash paid for (received from) income taxes | 117 |
| | (7 | ) | | (253 | ) |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 125 |
| | 99 |
| | 64 |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Accumulated | | |
| | | | | | | | | Other | | |
| | | | | | | | | Comprehensive | | |
| | | | | | | | | Income | | |
| | | Additional |
| | | | | | Net Gains on |
| | |
| Common |
| | Paid-in |
| | Retained |
| | Member's |
| | Cash Flow |
| | Total |
|
(in millions) | Stock |
| | Capital |
| | Earnings |
| | Equity |
| | Hedges |
| | Equity |
|
Balance at December 31, 2014 | $ | 1 |
| | $ | 1,384 |
| | $ | 2,460 |
| | $ | — |
| | $ | 3 |
| | $ | 3,848 |
|
Net income | — |
| | — |
| | 316 |
| | — |
| | — |
| | 316 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Dividends to parent | — |
| | — |
| | (326 | ) | | — |
| | — |
| | (326 | ) |
Balance at December 31, 2015 | $ | 1 |
|
| $ | 1,384 |
|
| $ | 2,450 |
|
| $ | — |
| | $ | 1 |
|
| $ | 3,836 |
|
Net income | — |
| | — |
| | — |
| | 381 |
| | — |
| | 381 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Distributions to parent | — |
| | — |
| | — |
| | (149 | ) | | — |
| | (149 | ) |
Transfer to Member's Equity | (1 | ) | | (1,384 | ) | | (2,450 | ) | | 3,835 |
| | — |
| | — |
|
Balance at December 31, 2016 | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 4,067 |
| | $ | — |
|
| $ | 4,067 |
|
Net income | — |
| | — |
| | — |
| | 354 |
| | — |
| | 354 |
|
Distributions to parent | — |
| | — |
| | — |
| | (300 | ) | | — |
| | (300 | ) |
Balance at December 31, 2017 | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 4,121 |
| | $ | — |
|
| $ | 4,121 |
|
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Piedmont Natural Gas Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Piedmont Natural Gas Company, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the periods ended December 31, 2017, October 31, 2016, October 31, 2015 and for the 2 months ended December 31, 2016 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the periods ended December 31, 2017, October 31, 2016, October 31, 2015 and for the 2 months ended December 31, 2016, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Emphasis of Matter
As discussed in Note 1 to the financial statements, effective for fiscal year 2016, the Company changed its fiscal year end from October 31 to December 31. This resulted in a 2-month transition period beginning November 1, 2016 through December 31, 2016.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company's auditor since 1951.
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
| | | | | | | | | | | | | | | |
| Year Ended | | Two Months Ended | | Years Ended October 31, |
(in millions) | December 31, 2017 |
| | December 31, 2016 | | 2016 |
| | 2015 |
|
Operating Revenues | | | | | | | |
Regulated natural gas | $ | 1,319 |
| | $ | 320 |
| | $ | 1,139 |
| | $ | 1,372 |
|
Nonregulated natural gas and other | 9 |
| | 2 |
| | 10 |
| | 11 |
|
Total operating revenues | 1,328 |
| | 322 |
| | 1,149 |
| | 1,383 |
|
Operating Expenses | | | | | | | |
Cost of natural gas | 524 |
| | 144 |
| | 391 |
| | 644 |
|
Operation, maintenance and other | 315 |
| | 52 |
| | 353 |
| | 305 |
|
Depreciation and amortization | 148 |
| | 23 |
| | 137 |
| | 129 |
|
Property and other taxes | 48 |
| | 7 |
| | 43 |
| | 42 |
|
Impairment charges | 7 |
| | — |
| | — |
| | — |
|
Total operating expenses | 1,042 |
| | 226 |
|
| 924 |
|
| 1,120 |
|
Operating Income | 286 |
| | 96 |
|
| 225 |
|
| 263 |
|
Equity in (losses) earnings of unconsolidated affiliates | (6 | ) | | 2 |
| | 29 |
| | 34 |
|
Gain on sale of unconsolidated affiliates | — |
| | — |
| | 133 |
| | — |
|
Other income and expense, net | — |
| | — |
| | (1 | ) | | (1 | ) |
Total other income and expenses | (6 | ) | | 2 |
|
| 161 |
|
| 33 |
|
Interest Expense | 79 |
| | 12 |
| | 69 |
| | 69 |
|
Income Before Income Taxes | 201 |
| | 86 |
|
| 317 |
|
| 227 |
|
Income Tax Expense | 62 |
| | 32 |
| | 124 |
| | 90 |
|
Net Income | $ | 139 |
| | $ | 54 |
|
| $ | 193 |
|
| $ | 137 |
|
Other Comprehensive Income (Loss), net of tax | | | | | | | |
Unrealized loss from hedging activities of equity method investments | — |
| | — |
| | (3 | ) | | (2 | ) |
Reclassification into earnings from hedging activities of equity method investments | — |
| | — |
| | 4 |
| | 1 |
|
Other Comprehensive Income (Loss), net of tax | — |
| | — |
| | 1 |
| | (1 | ) |
Comprehensive Income | $ | 139 |
| | $ | 54 |
| | $ | 194 |
| | $ | 136 |
|
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
|
| | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 19 |
| | $ | 25 |
|
Receivables (net of allowance for doubtful accounts of $2 at 2017 and $3 at 2016) | 275 |
| | 232 |
|
Receivables from affiliated companies | 7 |
| | 7 |
|
Inventory | 66 |
| | 66 |
|
Regulatory assets | 95 |
| | 124 |
|
Other | 52 |
| | 21 |
|
Total current assets | 514 |
| | 475 |
|
Property, Plant and Equipment | | | |
Cost | 6,725 |
| | 6,174 |
|
Accumulated depreciation and amortization | (1,479 | ) | | (1,360 | ) |
Net property, plant and equipment | 5,246 |
| | 4,814 |
|
Other Noncurrent Assets | | | |
Goodwill | 49 |
| | 49 |
|
Regulatory assets | 283 |
| | 373 |
|
Investments in equity method unconsolidated affiliates | 61 |
| | 212 |
|
Other | 65 |
| | 21 |
|
Total other noncurrent assets | 458 |
| | 655 |
|
Total Assets | $ | 6,218 |
| | $ | 5,944 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 125 |
| | $ | 155 |
|
Accounts payable to affiliated companies | 13 |
| | 8 |
|
Notes payable and commercial paper | — |
| | 330 |
|
Notes payable to affiliated companies | 364 |
| | — |
|
Taxes accrued | 19 |
| | 67 |
|
Interest accrued | 31 |
| | 33 |
|
Current maturities of long-term debt | 250 |
| | 35 |
|
Regulatory liabilities | 3 |
| | — |
|
Other | 69 |
| | 102 |
|
Total current liabilities | 874 |
| | 730 |
|
Long-Term Debt | 1,787 |
| | 1,786 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 564 |
| | 931 |
|
Asset retirement obligations | 15 |
| | 14 |
|
Regulatory liabilities | 1,141 |
| | 608 |
|
Accrued pension and other post-retirement benefit costs | 5 |
| | 14 |
|
Other | 170 |
| | 189 |
|
Total other noncurrent liabilities | 1,895 |
| | 1,756 |
|
Commitments and Contingencies | | | |
Equity | | | |
Common stock, no par value: 100 shares authorized and outstanding at 2017 and 2016 | 860 |
| | 860 |
|
Retained earnings | 802 |
| | 812 |
|
Total equity | 1,662 |
| | 1,672 |
|
Total Liabilities and Equity | $ | 6,218 |
| | $ | 5,944 |
|
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | | | | | |
| Year Ended | | Two Months Ended | | Years Ended October 31, |
(in millions) | December 31, 2017 |
| | December 31, 2016 |
| | 2016 |
| | 2015 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | |
Net income | $ | 139 |
| | $ | 54 |
| | $ | 193 |
| | $ | 137 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | 151 |
| | 25 |
| | 148 |
| | 140 |
|
Gains on sales of other assets | — |
| | — |
| | (133 | ) | | — |
|
Impairment charges | 7 |
| | — |
| | — |
| | — |
|
Deferred income taxes | 154 |
| | 26 |
| | 74 |
| | 73 |
|
Equity in losses (earnings) from unconsolidated affiliates | 6 |
| | (2 | ) | | (29 | ) | | (34 | ) |
Accrued pension and other post-retirement benefit costs | 23 |
| | 5 |
| | 3 |
| | 8 |
|
Contributions to qualified pension plans | (11 | ) | | (10 | ) | | (14 | ) | | (13 | ) |
Payments for asset retirement obligations | — |
| | (1 | ) | | (6 | ) | | (6 | ) |
(Increase) decrease in | | | | | | | |
Receivables | (40 | ) | | (157 | ) | | 12 |
| | 3 |
|
Receivables from affiliated companies | — |
| | — |
| | (7 | ) | | — |
|
Inventory | — |
| | (11 | ) | | 14 |
| | 16 |
|
Other current assets | (20 | ) | | 8 |
| | (98 | ) | | 46 |
|
Increase (decrease) in | | | | | | | |
Accounts payable | (13 | ) | | 35 |
| | 6 |
| | (5 | ) |
Accounts payable to affiliated companies | 5 |
| | 4 |
| | 6 |
| | — |
|
Taxes accrued | (48 | ) | | (2 | ) | | 38 |
| | 4 |
|
Other current liabilities | (9 | ) | | 2 |
| | 28 |
| | (21 | ) |
Other assets | 7 |
| | (7 | ) | | (107 | ) | | (5 | ) |
Other liabilities | (2 | ) | | 5 |
| | 180 |
| | 29 |
|
Net cash provided by (used in) operating activities | 349 |
| | (26 | ) | | 308 |
| | 372 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | |
Capital expenditures | (585 | ) | | (113 | ) | | (522 | ) | | (444 | ) |
Contributions to equity method investments | (12 | ) | | (12 | ) | | (47 | ) | | (30 | ) |
Proceeds from the sales of other assets | — |
| | — |
| | 175 |
| | — |
|
Other | (6 | ) | | 1 |
| | 21 |
| | (5 | ) |
Net cash used in investing activities | (603 | ) | | (124 | ) | | (373 | ) | | (479 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | |
Proceeds from the: | | | | | | | |
Issuance of long-term debt | 250 |
| | — |
| | 295 |
| | 148 |
|
Issuance of common stock | — |
| | — |
| | 122 |
| | 81 |
|
Payments for the redemption of long-term debt | (35 | ) | | — |
| | (40 | ) | | — |
|
Notes payable and commercial paper | (330 | ) | | 185 |
| | (195 | ) | | (15 | ) |
Notes payable to affiliated companies | 364 |
| | — |
| | — |
| | — |
|
Dividends to parent | — |
| | (27 | ) | | — |
| | — |
|
Dividends paid | — |
| | — |
| | (114 | ) | | (103 | ) |
Other | (1 | ) | | — |
| | — |
| | — |
|
Net cash provided by financing activities | 248 |
| | 158 |
| | 68 |
| | 111 |
|
Net (decrease) increase in cash and cash equivalents | (6 | ) | | 8 |
| | 3 |
| | 4 |
|
Cash and cash equivalents at beginning of period | 25 |
| | 17 |
| | 14 |
| | 10 |
|
Cash and cash equivalents at end of period | $ | 19 |
| | $ | 25 |
| | $ | 17 |
| | $ | 14 |
|
Supplemental Disclosures: | | | | | | | |
Cash paid for interest, net of amount capitalized | $ | 78 |
| | $ | 11 |
| | $ | 81 |
| | $ | 72 |
|
Cash (received from) paid for income taxes | (12 | ) | | — |
| | (25 | ) | | 3 |
|
Significant non-cash transactions: | | | | | | | |
Accrued capital expenditures | 34 |
| | 48 |
| | 63 |
| | 59 |
|
Transfer of ownership interest of certain equity method investees to parent | 149 |
| | — |
| | — |
| | — |
|
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| | | | | | | | | | | | | | | |
| | | | | Accumulated | | |
| | | | | Other | | |
| | | | | Comprehensive | | |
| | | | | Income (Loss) | | |
| | | | | Net Loss on |
| | |
| | | | | Hedging Activities |
| | |
| Common |
| | Retained |
| | of Unconsolidated |
| | Total |
|
(in millions) | Stock |
| | Earnings |
| | Affiliates |
| | Equity |
|
Balance at October 31, 2014 | $ | 637 |
| | $ | 672 |
| | $ | — |
| | $ | 1,309 |
|
Net income | — |
| | 137 |
| | — |
| | 137 |
|
Other comprehensive loss | — |
| | — |
| | (1 | ) | | (1 | ) |
Common stock issuances, including dividend reinvestment and employee benefits | 85 |
| | — |
| | — |
| | 85 |
|
Expenses from issuance of common stock | (1 | ) | | — |
| | — |
| | (1 | ) |
Common stock dividends | — |
| | (103 | ) | | — |
| | (103 | ) |
Balance at October 31, 2015 | $ | 721 |
| | $ | 706 |
| | $ | (1 | ) | | $ | 1,426 |
|
Net income | — |
| | 193 |
| | — |
| | 193 |
|
Other comprehensive income | — |
| | — |
| | 1 |
| | 1 |
|
Common stock issuances, including dividend reinvestment and employee benefits | 139 |
| | — |
| | — |
| | 139 |
|
Common stock dividends | — |
| | (114 | ) | | — |
| | (114 | ) |
Balance at October 31, 2016 | $ | 860 |
| | $ | 785 |
| | $ | — |
| | $ | 1,645 |
|
Net income | — |
| | 54 |
| | — |
| | 54 |
|
Dividends to parent | — |
| | (27 | ) | | — |
| | (27 | ) |
Balance at December 31, 2016 | $ | 860 |
| | $ | 812 |
| | $ | — |
| | $ | 1,672 |
|
Net income | — |
| | 139 |
| | — |
| | 139 |
|
Transfer of ownership interest of certain equity method investees to parent | — |
| | (149 | ) | | — |
| | (149 | ) |
Balance at December 31, 2017 | $ | 860 |
| | $ | 802 |
| | $ | — |
| | $ | 1,662 |
|
See Notes to Consolidated Financial Statements
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements
For the Years Ended December 31, 2017, 2016 and 2015
Index to Combined Notes To Consolidated Financial Statements
The notes to the consolidated financial statements are a combined presentation. The following table indicates the registrants to which the notes apply. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Applicable Notes |
Registrant | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 |
Duke Energy Corporation | • | • | • | • | • | • | • | • | • | • | • | • | | • | • | • | • | • | • | • | • | • | • | • | • |
Duke Energy Carolinas, LLC | • | | • | • | • | • | | • | • | • | • | | • | • | • | • | • | | • | • | • | • | • | • | • |
Progress Energy, Inc. | • | | • | • | • | • | • | | • | • | • | | • | • | • | • | • | | • | • | • | • | • | • | • |
Duke Energy Progress, LLC | • | | • | • | • | • | | | • | • | • | | • | • | • | • | • | | • | • | • | • | • | • | • |
Duke Energy Florida, LLC | • | | • | • | • | • | | | • | • | • | | • | • | • | • | • | | • | • | • | • | • | • | • |
Duke Energy Ohio, Inc. | • | • | • | • | • | • | | • | • | • | • | | • | • | | • | • | | • | • | • | • | • | • | • |
Duke Energy Indiana, LLC | • | | • | • | • | • | | • | • | • | • | | • | • | • | • | • | | • | • | • | • | • | • | • |
Piedmont Natural Gas Company, Inc. | • | • | • | • | • | • | | | • | • | • | • | • | • | • | • | • | | • | • | • | • | • | • | • |
Tables within the notes may not sum across due to (i) Progress Energy's consolidation of Duke Energy Progress, Duke Energy Florida and other subsidiaries that are not registrants and (ii) subsidiaries that are not registrants but included in the consolidated Duke Energy balances.
1. Summary of Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Consolidation
Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy operates in the United States (U.S.) primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, LLC (Duke Energy Progress); Duke Energy Florida, LLC (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio); Duke Energy Indiana, LLC (Duke Energy Indiana) and Piedmont Natural Gas Company, Inc. (Piedmont). When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its seven separate subsidiary registrants (collectively referred to as the Subsidiary Registrants), which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
In October 2016, Duke Energy completed the acquisition of Piedmont. Duke Energy's consolidated financial statements include Piedmont's results of operations and cash flows activity subsequent to the acquisition date. Effective November 1, 2016, Piedmont's fiscal year-end was changed from October 31 to December 31, the year-end of Duke Energy. A transition report was filed on Form 10-Q (Form 10-QT) as of December 31, 2016, for the transition period from November 1, 2016, to December 31, 2016. See Note 2 for additional information regarding the acquisition.
In December 2016, Duke Energy completed an exit of the Latin American market to focus on its domestic regulated business, which was further bolstered by the acquisition of Piedmont. The sale of the International Energy business segment, excluding an equity method investment in National Methanol Company (NMC), was completed through two transactions including a sale of assets in Brazil to China Three Gorges (Luxembourg) Energy S.à.r.l. (CTG) and a sale of Duke Energy's remaining Latin American assets in Peru, Chile, Ecuador, Guatemala, El Salvador and Argentina to ISQ Enerlam Aggregator, L.P. and Enerlam (UK) Holding Ltd. (I Squared) (collectively, the International Disposal Group). See Note 2 for additional information on the sale of International Energy.
The information in these combined notes relates to each of the Duke Energy Registrants as noted in the Index to Combined Notes to Consolidated Financial Statements. However, none of the Subsidiary Registrants make any representation as to information related solely to Duke Energy or the Subsidiary Registrants of Duke Energy other than itself.
These Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries where the respective Duke Energy Registrants have control. These Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. Substantially all of the Subsidiary Registrants' operations qualify for regulatory accounting.
Duke Energy Carolinas is ana regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC), Public Service Commission of South Carolina (PSCSC), U.S. Nuclear Regulatory Commission (NRC) and FERC.
Progress Energy is a public utility holding company headquartered in Raleigh, North Carolina, subject to regulation by FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida.
Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Florida. Duke Energy Florida is subject to the regulatory provisions of the Florida Public Service Commission (FPSC), NRC and FERC.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in portions of Ohio and Kentucky, the generation and sale of electricity in portions of Kentucky and the transportation and sale of natural gas in portions of Ohio and Kentucky. Duke Energy Ohio conducts competitive auctions for retail electricity supply in Ohio whereby the energy services companyprice is recovered from retail customers and recorded in Operating Revenues on the Consolidated Statements of Operations and Comprehensive Income. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky). References herein to Duke Energy Ohio collectively include Duke Energy Ohio and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subject to the regulatory provisions of the Public Utilities Commission of Ohio (PUCO), Kentucky Public Service Commission (KPSC) and FERC. On April 2, 2015, Duke Energy completed the sale of its nonregulated Midwest generation business, which sold power into wholesale energy markets, to a subsidiary of Dynegy Inc. (Dynegy). For further information about the sale of the Midwest Generation business, refer to Note 2. Substantially all of Duke Energy Ohio's operations that remain after the sale qualify for regulatory accounting.
Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and FERC.
Piedmont is a regulated public utility primarily engaged in the distribution of natural gas to residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee. We are invested in joint venture, energy-related businesses, including unregulated retail natural gas marketing, regulated interstate natural gas transportation and storage and regulated intrastate natural gas transportation. Our utility operations are regulated by three state regulatory commissions. Unless the context requires otherwise, references to “we,” “us,” “our,” “the Company” or “Piedmont” means consolidated Piedmont Natural Gas Company, Inc. and its subsidiaries. For further information on regulatory matters, see Note 3is subject to the consolidated financial statements.regulatory provisions of the NCUC, PSCSC, Tennessee Public Utility Commission (TPUC) and FERC.
The consolidated financial statements of PiedmontCertain prior year amounts have been preparedreclassified to conform to the current year presentation.
Other Current Assets and Liabilities
The following table provides a description of amounts included in conformity with generally accepted accounting principles inOther within Current Assets or Current Liabilities that exceed 5 percent of total Current Assets or Current Liabilities on the United States of America (GAAP) and under the rules of the Securities and Exchange Commission (SEC). The consolidated financial statements reflect the accounts of Piedmont and its wholly-owned subsidiaries whose financial statements are prepared for the same reporting period as Piedmont using consistent accounting policies. Inter-company transactions have been eliminated in consolidation where appropriate; however, we have not eliminated inter-company profit on sales to affiliates and costs from affiliates in accordance with accounting regulations prescribed under rate-based regulation.
Investments in non-utility activities, or joint ventures, are accounted for under the equity method as we do not have controlling voting interests or otherwise exercise control over the management of such companies. Our ownership interest in each entity is recorded in “Equity method investments in non-utility activities” in “Noncurrent Assets” in theDuke Energy Registrants' Consolidated Balance Sheets at
cost plus post-acquisition contributions and earnings based on our share in eacheither December 31, 2017, or 2016. |
| | | | | | | | | |
| | | December 31, |
(in millions) | Location | | 2017 |
| | 2016 |
|
Duke Energy | | | | | |
Accrued compensation | Current Liabilities | | $ | 757 |
| | $ | 765 |
|
Duke Energy Carolinas | | | | | |
Accrued compensation | Current Liabilities | | $ | 252 |
| | $ | 248 |
|
Customer deposits | Current Liabilities | | 121 |
| | 155 |
|
Progress Energy | | | |
| | |
|
Income taxes receivable | Current Assets | | $ | 278 |
| | $ | 19 |
|
Customer deposits | Current Liabilities | | 338 |
| | 363 |
|
Duke Energy Progress | | | |
| | |
|
Customer deposits | Current Liabilities | | $ | 129 |
| | $ | 141 |
|
Accrued compensation | Current Liabilities | | 132 |
| | 135 |
|
Duke Energy Florida | | | |
| | |
|
Customer deposits | Current Liabilities | | $ | 208 |
| | $ | 222 |
|
Duke Energy Ohio | | | |
| | |
|
Income taxes receivable | Current Assets | | $ | 36 |
| | $ | 16 |
|
Customer deposits | Current Liabilities | | 46 |
| | 62 |
|
Duke Energy Indiana | | | |
| | |
|
Customer deposits | Current Liabilities | | $ | 45 |
| | $ | 44 |
|
Piedmont | | | | | |
Income taxes receivable | Current Assets | | $ | 43 |
| | $ | 9 |
|
Discontinued Operations
The results of operations of the joint ventures less any distributions received from the joint venture,International Disposal Group as well as Duke Energy Ohio's nonregulated Midwest Generation business and if applicable, less any impairment in value of the investment. Earnings or losses from equity method investments are recorded in “Income from equity method investments” in “Other Income (Expense)” in theDuke Energy Retail Sales, LLC (collectively, Midwest Generation Disposal Group) have been classified as Discontinued Operations on Duke Energy's Consolidated Statements of Comprehensive Income. Revenues and expensesOperations. Duke Energy has elected to present cash flows of all other non-utility activities are included in “Non-operating income” in “Other Income (Expense)” indiscontinued operations combined with cash flows of continuing operations. Unless otherwise noted, the Consolidated Statements of Comprehensive Income. For further information on equity method investments and related party transactions, see Note 13notes to thethese consolidated financial statements.statements exclude amounts related to discontinued operations for all periods presented. See Note 2 for additional information.
We monitor significant events occurring after the balance sheet date and prior to the issuance of the financial statements to determine the impacts, if any, of events on the financial statements to be issued. All subsequent events of which we are aware were evaluated. There are no subsequent events that had a material impact on our financial position, results of operations or cash flows. For further information, see Note 16 to the consolidated financial statements.129
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
On October 24, 2015, we entered into an Agreement and PlanAmounts Attributable to Controlling Interests
For the year ended December 31, 2017, the Loss From Discontinued Operations, net of Merger (Merger Agreement) withtax on Duke Energy's Consolidated Statement of Operations is entirely attributable to controlling interest. The following table presents Net Income Attributable to Duke Energy Corporation (Duke Energy). For further information, see Note 2 tofor continuing operations and discontinued operations for the consolidated financial statements.years ended December 31, 2016, and 2015. |
| | | | | | |
| Year ended December 31, |
(in millions) | 2016 | 2015 |
Income from Continuing Operations | $ | 2,578 |
| $ | 2,654 |
|
Income from Continuing Operations Attributable to Noncontrolling Interests | 7 |
| 9 |
|
Income from Continuing Operations Attributable to Duke Energy Corporation | $ | 2,571 |
| $ | 2,645 |
|
(Loss) Income From Discontinued Operations, net of tax | $ | (408 | ) | $ | 177 |
|
Income from Discontinued Operations Attributable to Noncontrolling Interests, net of tax | 11 |
| 6 |
|
(Loss) Income From Discontinued Operations Attributable to Duke Energy Corporation, net of tax | $ | (419 | ) | $ | 171 |
|
Net Income | $ | 2,170 |
| $ | 2,831 |
|
Net Income Attributable to Noncontrolling Interests | 18 |
| 15 |
|
Net Income Attributable to Duke Energy Corporation | $ | 2,152 |
| $ | 2,816 |
|
Significant Accounting Policies
Use of Estimates
In accordance with GAAP, wepreparing financial statements that conform to generally accepted accounting principles (GAAP) in the U.S., the Duke Energy Registrants must make certain estimates and assumptions regarding reported amounts of assets, liabilities, revenues and expenses and the related disclosures, using historical experience and other assumptions that we believe are reasonable at the time. Our estimates may involve complex situations requiring a high degree of judgment in the application and interpretation of existing literature or in the development of estimates that impact our financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities, as of the date of the consolidated financial statements and the reported amounts of revenues and expenses duringand the reporting period.disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from these estimates and assumptions, which are evaluated on a continual basis.those estimates.
Regulatory Accounting
Segment Reporting
Our segments are based on the componentsThe majority of the Company for which we produce separate financial information internally that is used regularly by the chief operating decision maker (CODM) in deciding how to allocate resources and in assessing performance. Our CODM is the executive management team comprised of senior level management. Our segments are identified based on products and services, regulatory environments and our current corporate organization and business decision-making activities. We evaluate the performance of the regulated utility segment based on margin, operations and
maintenance (O&M) expenses and operating income. We evaluate the performance of the regulated non-utility activities segment and the unregulated non-utility activities segment based on earnings from our cash flows in the ventures.
We have three reportable business segments, regulated utility, regulated non-utility activities and unregulated non-utility activities. The regulated utility segment is the gas distribution business, where we include the operations of merchandising and its related service work and home service agreements, with activities conducted by the utility. Although the operations of our regulated utility segment are located in three states under the jurisdiction of individual state regulatory commissions, the operations are managed as one unit having similar economic and risk characteristics. Operations of our regulated non-utility activities segment are comprised of our equity method investments in joint ventures with regulated activities that are held by our wholly-owned subsidiaries. Operations of our unregulated non-utility activities segment are comprised primarily of our equity method investment in a joint venture with unregulated activities that is held by a wholly-owned subsidiary; activities of our other minor subsidiaries are also included.
Operations of the regulated utility segment are reflected in “Operating Income” in the Consolidated Statements of
Comprehensive Income. Earnings or losses from equity method investments of the regulated and unregulated non-utility activities segments are included in “Income from equity method investments” in “Other Income (Expense)” in the Consolidated Statements of Comprehensive Income. All other revenues and expenses of the regulated and unregulated non-utility activities segments are included in “Non-operating income” in “Other Income (Expense)” in the Consolidated Statements of Comprehensive Income. See Note 15 to the consolidated financial statements for further discussion of segments.
Rate-Regulated Basis of Accounting
Our utilityDuke Energy Registrants’ operations are subject to price regulation with respect to rates, service area, accountingfor the sale of electricity and various other mattersnatural gas by state utility commissions or FERC. When prices are set on the regulatory commissions in the states in which we operate. The accounting regulations provide that rate-regulated public utilities account for and report assets and liabilities consistent with the economic effectbasis of specific costs of the mannerregulated operations and an effective franchise is in which independent third-party regulators establish rates. In applying these regulations, we capitalize certainplace such that sufficient natural gas or electric services can be sold to recover those costs, and benefits asthe Duke Energy Registrants apply regulatory assets and liabilities, respectively, in orderaccounting. Regulatory accounting changes the timing of the recognition of costs or revenues relative to provide for recovery from or refund to utility customers in future periods. Generally,a company that does not apply regulatory assets are amortized to expense and regulatory liabilities are amortized to income over the period authorized by our regulators.
Our regulatory assets are recoverable through either base rates or rate riders specifically authorized byaccounting. As a state regulatory commission. Base rates are designed to provide both a recovery of cost and a return on investment during the period the rates are in effect. As such, all of our regulatory assets are subject to review by the respective state regulatory commissions during any future rate proceedings. In the event that accounting for the effects of regulation were no longer applicable, we would recognize a write-off of theresult, regulatory assets and regulatory liabilities are recognized on the Consolidated Balance Sheets. Regulatory assets and liabilities are amortized consistent with the treatment of the related cost in the ratemaking process. See Note 4 for further information.
Regulatory accounting rules also require recognition of a disallowance (also called "impairment") loss if it becomes probable that would resultpart of the cost of a plant under construction (or a recently completed plant or an abandoned plant) will be disallowed for ratemaking purposes and a reasonable estimate of the amount of the disallowance can be made. These disallowances can require judgments on allowed future rate recovery.
When it becomes probable that regulated generation, transmission or distribution assets will be abandoned, the cost of the asset is removed from plant in service. The value that may be retained as a regulatory asset on the balance sheet for the abandoned property is dependent upon amounts that may be recovered through regulated rates, including any return. As such, an impairment charge could be partially or fully offset by the establishment of a regulatory asset if rate recovery is probable. The impairment for a disallowance of costs for regulated plants under construction, recently completed or abandoned is based on discounted cash flows.
Regulated Fuel and Purchased Gas Adjustment Clauses
The Duke Energy Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses or purchased gas adjustment clauses (PGA). These clauses allow for the recovery of fuel and fuel-related costs, portions of purchased power, natural gas costs and hedging costs through surcharges on customer rates. The difference between the costs incurred and the surcharge revenues is recorded either as an adjustment to net incomeOperating Revenues, Operating Expenses – Fuel used in electric generation or accumulated other comprehensive income (OCI). Our utility operations continue to recover their costs through cost-based rates established by the state regulatory commissions. As a result, we believe that the accounting prescribed under rate-based regulation remains appropriate. It is our opinion that all regulatory assets are recoverable in current rates or in future rate proceedings.
Utility Plant and Depreciation
Utility plant is stated at original cost, including direct labor and materials, contractor costs, allocable overhead charges, such as engineering, supervision, corporate office salaries and expenses, pensions and insurance, and an allowance for funds used during construction (AFUDC) that is calculated under a formula prescribed by our state regulators. We apply the group methodOperating Expenses – Cost of accounting, where the costs of homogeneous assets are aggregated and depreciated by applying a rate basednatural gas on the average expected useful life of the assets. Major expenditures that last longer than a year and improve or lengthen the expected useful life of the overall property from original expectations that are recoverable in regulatory rate base are capitalized while expenditures not meeting these criteria are expensed as incurred. The costs of property retired or otherwise disposed of are removed from utility plant and charged to accumulated depreciation for recovery or refund through future rates. On certain assets, like land, that are nondepreciable, we record a gain or loss upon the disposal of the property that is recorded in “Non-operating income” in “Other Income (Expense)” in the Consolidated Statements of Comprehensive Income.
The classification of total utility plant, net, for the years ended October 31, 2015 and 2014 is presented below.
|
| | | | | | | | |
In thousands | | 2015 | | 2014 |
Intangible plant | | $ | 3,374 |
| | $ | 3,374 |
|
Other storage plant | | 180,960 |
| | 180,058 |
|
Transmission plant | | 2,024,264 |
| | 1,787,990 |
|
Distribution plant | | 2,766,871 |
| | 2,623,560 |
|
General plant | | 452,301 |
| | 421,763 |
|
Asset retirement cost | | 4,159 |
| | 11 |
|
Contributions in aid of construction | | (5,345 | ) | | (5,259 | ) |
Total utility plant in service | | 5,426,584 |
| | 5,011,497 |
|
Less accumulated depreciation | | (1,251,940 | ) | | (1,166,922 | ) |
Total utility plant in service, net | | 4,174,644 |
| | 3,844,575 |
|
Construction work in progress | | 170,250 |
| | 141,693 |
|
Plant held for future use | | 3,155 |
| | 3,155 |
|
Total utility plant, net | | $ | 4,348,049 |
| | $ | 3,989,423 |
|
Contributions in aid of construction represent nonrefundable donationsOperations, with an off-setting impact on regulatory assets or contributions received from third-parties for partial or full reimbursement for construction expenditures for utility plant in service.liabilities.
AFUDC represents the estimated costs of funds from both debt and equity sources used to finance the construction of major projects and is capitalized for ratemaking purposes when the completed projects are placed in service. The portion of AFUDC attributable to borrowed funds is shown as a reduction of “Utility Interest Charges” in the Consolidated Statements of Comprehensive Income. Any portion of AFUDC attributable to equity funds would be included in “Other Income (Expense)” in the Consolidated Statements of Comprehensive Income. For the three years ended October 31, 2015, 2014 and 2013, all of our AFUDC was attributable to borrowed funds.
AFUDC for the years ended October 31, 2015, 2014 and 2013 is presented below.
|
| | | | | | | | | | | | |
In thousands |
| 2015 |
| 2014 |
| 2013 |
AFUDC |
| $ | 11,106 |
|
| $ | 16,427 |
|
| $ | 30,975 |
|
In accordance with utility accounting practice, we classified real estate and development costs associated with a liquefied natural gas (LNG) peak storage facility in the eastern part of North Carolina as “Plant held for future use” in the Consolidated Balance Sheets, due to construction being suspended in March 2009. As of 2012, approximately $3.2 million of the “Plant held for future use” related to land costs and approximately $3.5 million related to non-real estate costs. In May 2013, we filed a general rate application with the North Carolina Utilities Commission (NCUC) requesting rate recovery of the non-real estate costs. Under the settlement of the 2013 North Carolina general rate proceeding approved by the NCUC in December 2013, we agreed to the amortization and collection of $1.2 million of non-real estate costs that is recorded as a regulatory asset with amortization over 38 months beginning January 1, 2014 through February 2017. Under the settlement of our June 2014 rate stabilization adjustment (RSA) filing with the Public Service Commission of South Carolina (PSCSC) that was approved in October 2014, we agreed to the amortization and collection of $.5 million of non-real estate costs that was recorded as a regulatory asset with amortization over the 12 months beginning November 1, 2014. We recorded cumulative amortization of $1.8 million of non-real estate costs in fiscal year 2013 that is included in the Consolidated Statements of Comprehensive Income in “Other Income (Expense)” in “Non-operating expense.” For further information on the 2013 general rate proceeding settlement of these costs for North Carolina or the 2014 RSA filing for South Carolina, see Note 3 to the consolidated financial statements.
We compute depreciation expense using the straight-line method over periods ranging from 5 to 80 years. The composite weighted-average depreciation rates were 2.48% for 2015, 2.54% for 2014 and 2.77% for 2013.
Depreciation rates for utility plant are approved by our regulatory commissions. In North Carolina, we are required to conduct a depreciation study every five years and file the results with the regulatory commission. No such five-year requirement exists in South Carolina or Tennessee; however, we periodically propose revised rates in those states based on depreciation studies. Our last system-wide depreciation study based on fiscal year 2009 data was completed in 2011 and filed
with the appropriate regulatory commission in all jurisdictions. New depreciation rates were approved effective November 1, 2011 for South Carolina, March 1, 2012 for Tennessee and January 1, 2014 for North Carolina.
As authorized by our regulatory commissions, the estimated costs of removal on certain regulated properties are collected through depreciation expense through rates with a corresponding credit to accumulated depreciation. Our approved depreciation rates are comprised of two components, one based on average service life and one based on cost of removal for certain regulated properties. Therefore, through depreciation expense, we collect and record estimated non-legal costs of removal on any depreciable asset that includes cost of removal in its depreciation rate. Because the estimated removal costs are a non-legal obligation, we account for them as a regulatory liability and present the accumulated removal costs in “Regulatory Liabilities” in “Rate-Regulated Basis of Accounting” in Note 3 to the consolidated financial statements. For further discussion of this regulatory liability, see “Asset Retirement Obligations” in this Note 1.
Cash and Cash Equivalents
We consider instruments purchasedAll highly liquid investments with an original maturity at date of purchasematurities of three months or less at the date of acquisition are considered cash equivalents.
Restricted Cash
The Duke Energy Registrants have restricted cash related primarily to be cash equivalents, particularly affecting the Consolidated Statements of Cash Flows. We have no restrictions on ourcollateral assets, escrow deposits and variable interest entities (VIEs). Restricted cash balances that would impact the payment of dividends as of October 31, 2015are reflected in Other within Current Assets and 2014.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable consist of natural gas sales and transportation services, merchandise sales and service work. We bill customers monthly with payment duein Other within 30 days. We maintain an allowance for doubtful accounts, which we adjust periodically, basedOther Noncurrent Assets on the aging of receivables and our historical and projected charge-off activity. Our estimate of recoverability could differ from actual experience based on customer credit issues, the level of natural gas prices and general economic conditions. We write off our customers’ accounts when they are deemed to be uncollectible. Pursuant to orders issued by the NCUC, the PSCSC and the Tennessee Regulatory Authority (TRA), we are authorized to recover actual uncollected gas costs through the purchased gas adjustment (PGA). As a result, only the portion of accounts written off relating to the non-gas costs, or margin, is included in base rates and, accordingly, only this portion is included in the provision for uncollectibles expense. Non-regulated merchandise and service work receivables due beyond one year are included in “Other noncurrent assets” in “Noncurrent Assets” in the Consolidated Balance Sheets. At December 31, 2017, and 2016, Duke Energy had restricted cash totaling $147 million and $137 million, respectively.
We believe that we have provided an adequate allowance for any receivables which may not be ultimately collected. As of October 31, 2015 and 2014, our trade accounts receivable consisted of the following.130
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – |
| | | | | | | | |
In thousands | | 2015 | | 2014 |
Gas receivables | | $ | 57,759 |
| | $ | 64,400 |
|
Non-regulated merchandise and service work receivables | | 3,137 |
| | 3,012 |
|
Allowance for doubtful accounts | | (1,648 | ) | | (2,152 | ) |
Trade accounts receivable | | $ | 59,248 |
| | $ | 65,260 |
|
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes To Consolidated Financial Statements – (Continued)
A reconciliation ofInventory
Inventory is used for operations and is recorded primarily using the changes in the allowance for doubtful accounts for the years ended October 31, 2015, 2014 and 2013average cost method. Inventory related to regulated operations is presented below.
|
| | | | | | | | | | | | |
In thousands | | 2015 | | 2014 | | 2013 |
Balance at beginning of year | | $ | 2,152 |
| | $ | 1,604 |
| | $ | 1,579 |
|
Additions charged to uncollectibles expense | | 5,095 |
| | 6,959 |
| | 5,314 |
|
Accounts written off, net of recoveries | | (5,599 | ) | | (6,411 | ) | | (5,289 | ) |
Balance at end of year | | $ | 1,648 |
| | $ | 2,152 |
| | $ | 1,604 |
|
For information on credit risk, see "Credit and Counterparty Risk" in Note 8 of the consolidated financial statements.
Inventories
We maintain gas inventories on the basis of averagevalued at historical cost. Injections into storage are pricedInventory related to nonregulated operations is valued at the purchaselower of cost at the time of injection,or market. Materials and withdrawals from storagesupplies are priced at the weighted average purchase price in storage. The cost of gas in
storagerecorded as inventory when purchased and subsequently charged to expense or capitalized to property, plant and equipment when installed. Inventory, including excess or obsolete inventory, is recoverable under rate schedules approved by state regulatory commissions. Inventory activity is subject to regulatory review on an annual basis in gas cost recovery proceedings.
We enter into service contracts, or asset management arrangements (AMAs), with counterparties to efficiently manage portions of our gas supply, transportation capacity and storage capacity to serve our customers. These AMAs are structured in compliance with Federal Energy Regulatory Commission (FERC) Order 712. Generally, under an AMA, we receive a fixed monthly payment which is set at inception of the arrangement, and in return, we may assign the gas supply and/or storage inventory and release the transportation capacity and storage capacitywritten-down to the asset managerlower of cost or market value. Once inventory has been written-down, it creates a new cost basis for the term of the agreement. The inventory is assigned at no cost, and the same quantities are required to be returned at the expiration of the agreements. One agreement allows us to call on inventory during the summer months to satisfy operational requirements, if needed. The inventory that is assigned to the asset manager is available for our use during the winter heating season, November through March. We account for these amounts on the Consolidated Balance Sheets as a current asset in the inventories section as “Gas in storage.” From the period of April through October, the inventory that is not availablesubsequently written-up. Provisions for our use is reclassified on the Consolidated Balance Sheets as a current asset in “Prepayments,”inventory write-offs were not material at December 31, 2017, and the2016. The components of inventory that is available for our use remains in “Gas in storage.”
At October 31, 2015 and 2014, such counterparties held natural gas storage assets as recorded in “Prepayments,” with a value of $24.8 million and $35 million, respectively, through such asset management relationships. Under the terms of the agreements, we receive asset management fees, which are recorded as secondary market transactions and shared between our utility customers and our shareholders. The AMAs expire at various times through March 31, 2017. For further information on the revenue sharing of secondary market transactions, see Note 3 to the consolidated financial statements.
Materials, supplies and merchandise inventories are valued at the lower of average cost or market and removed from such inventory at average cost.
Fair Value Measurements
We have financial and nonfinancial assets and liabilities subject to fair value measurement. The financial assets and liabilities measured and carried at fair valuepresented in the
Consolidated Balance Sheets are cashtables below. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Materials and supplies | $ | 2,293 |
| | $ | 744 |
| | $ | 1,118 |
| | $ | 774 |
| | $ | 343 |
| | $ | 82 |
| | $ | 309 |
| | $ | 2 |
|
Coal | 603 |
| | 192 |
| | 255 |
| | 139 |
| | 116 |
| | 17 |
| | 139 |
| | — |
|
Natural gas, oil and other | 354 |
| | 35 |
| | 219 |
| | 104 |
| | 115 |
| | 34 |
| | 2 |
| | 64 |
|
Total inventory | $ | 3,250 |
| | $ | 971 |
| | $ | 1,592 |
| | $ | 1,017 |
| | $ | 574 |
| | $ | 133 |
| | $ | 450 |
| | $ | 66 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Materials and supplies | $ | 2,374 |
| | $ | 767 |
| | $ | 1,167 |
| | $ | 813 |
| | $ | 354 |
| | $ | 84 |
| | $ | 312 |
| | $ | 1 |
|
Coal | 774 |
| | 251 |
| | 314 |
| | 148 |
| | 166 |
| | 19 |
| | 190 |
| | — |
|
Natural gas, oil and other | 374 |
| | 37 |
| | 236 |
| | 115 |
| | 121 |
| | 34 |
| | 2 |
| | 65 |
|
Total inventory | $ | 3,522 |
| | $ | 1,055 |
| | $ | 1,717 |
| | $ | 1,076 |
| | $ | 641 |
| | $ | 137 |
| | $ | 504 |
| | $ | 66 |
|
Investments in Debt and cash equivalents, marketable securities held in rabbi trusts established for our deferred compensation plansEquity Securities
The Duke Energy Registrants classify investments into two categories – trading and derivative assets and liabilities, if any, that are held for our utility operations. The carrying values of receivables, short-term debt, accounts payable, accrued interest and other current assets and liabilities approximate fair value as all amounts reported are to be collected or paid within one year. Our nonfinancial assets and liabilities include our qualified pension and postretirement plan assets and liabilities that are recorded at fair value in the Consolidated Balance Sheets in accordance with employers’ accounting and related disclosures of postretirement plans.
Fair value is 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, or exit date. We utilize market data or assumptions that market participants would use in valuing 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, market corroborated or generally unobservable. We primarily apply the market approach for fair value measurements and endeavor to utilize the best available information. Accordingly, we use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value of our financial assets and liabilities are subject to potentially significant volatility based on changes in market prices, the portfolio valuation of our contracts, as well as the maturity and settlement of those contracts, and subsequent newly originated transactions, each of which directly affects the estimated fair value of our financial instruments. We are able to classify fair value balances based on the observance of those inputs at the lowest level that is significant to the fair value measurement, in its entirety, in the following fair value hierarchy levels as set forth in the fair value guidance.
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date. Active markets have sufficient frequency and volume to provide pricing information for the asset or liability on an ongoing basis. Our Level 1 items consist of financial instruments of exchange-traded derivatives, investments in marketable securities and benefit plan assets held in registered investment companies and individual stocks.
Level 2 inputs are inputs other than quoted prices in active markets included in Level 1 and are either directly or indirectly corroborated or observable as of the reporting date, generally using valuation methodologies. These methodologies are primarily industry-standard methodologies that consider various assumptions, including time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. We
obtain market price data from multiple sources in order to value some of our Level 2 transactions and this data is representative of transactions that occurred in the marketplace. Our Level 2 items include non-exchange-traded derivative instruments, such as some qualified pension plan assets held in common trust funds, collateralized mortgage obligations, swaps, futures, currency forwards, corporate bonds and government and agency obligations that are valued at the closing price reported in the active market for similar assets in which the individual securities are traded or based on yields currently available on comparable securities of issuers with similar credit ratings or based on the most recent available financial information for the respective funds and securities. For some qualified pension plan assets, the determination of Level 2 assets was completed through a process of reviewing each individual security while consulting research and other metrics provided by investment managers, including a pricing matrix detailing the pricing source and security type, annual audited financial statements and a review of valuation policies and procedures used by the investment managers as well as our investment advisor.
Level 3 inputs include significant pricing inputs that are generally less observable from objective sources and may be used with internally developed methodologies that result in management’s best estimate of fair value. Our Level 3 inputs include cost estimates for removal (contract fees or manpower/equipment estimates), inflation factors, risk premiums, the remaining life of long-lived assets, the credit adjusted risk free rate to discount for the time value of money over an appropriate time span, and the most recent available financial information of an investment in a diversified private equity fund of funds for some of our qualified pension plan assets. We do not have any other assets or liabilities classified as Level 3.
In determining whether to categorize the fair value measurement of an instrument as Level 2 or Level 3, we must use judgment to assess whether we have the ability as of the measurement date to redeem an investment at its net asset value per share (NAV) in the near term. We consider when we might have the ability to redeem the investment by reviewing contractual restrictions in effect as of the investment date as well as any potential restrictions that the investee may impose. Regarding our benefit plans’ investments, “near term” is the ability to redeem an investment in no more than 180 days.
Transfers between different levels of the fair value hierarchy may occur based on the level of observable inputs used to value the instruments for the period. These transfers represent existing assets or liabilities previously categorized as Level 1 or Level 2 for which the inputs to the estimate became less observable or assets and liabilities previously classified as Level 2 or Level 3 for which the lowest significant input became more observable during the period. Transfers into and out of each level are measured at the actual date of the event or change in circumstances causing the transfer.
For the fair value measurements of our derivatives and marketable securities, see Note 8 to the consolidated financial statements. For the fair value measurements of our benefit plan assets, see Note 10 to the consolidated financial statements.
Goodwill, Equity Method Investments and Long-Lived Assets
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. We annually evaluate goodwill for impairment as of October 31, or more frequently if impairment indicators arise during the year. These indicators include, but are not limited to, a significant change in operating performance, the business climate, legal or regulatory factors, or a planned sale or disposition of a significant portion of the business. When we test goodwill, we use a fair value approach at a reporting unit level, generally equivalent to our operating segments as discussed in Note 15 to the consolidated financial statements. An impairment charge would be recognized if the carrying value of the reporting unit, including goodwill, exceeded its fair value. All of our goodwill is attributable to the regulated utility segment.
Our annual goodwill impairment assessment as of October 31, 2015 was performed using a qualitative approach. As part of our qualitative assessment, we considered macroeconomic conditions such as general deterioration in economic condition, limitations on accessing capital and other developments in equity and credit markets. We evaluated industry and market considerations for any deterioration in the environment in which we operate, the increased competitive environment, a decline (both absolute and relative to our peers) in market-dependent multiples or metrics, any changes in the market for our products or services, and regulatory and political development. We assessed our overall financial performance and considered cost factors, such as increases in utility construction expenditures, labor or other costs, that would have a negative effect on earnings. We determined the relevance of any entity-specific events or events affecting our regulated utility segment which would have a negative effect on the carrying value of the reporting unit.
Based on our qualitative assessment, we have determined that it is not necessary to perform a quantitative goodwill impairment test as of October 31, 2015. The annual goodwill impairment assessments performed have indicated that it is more likely than not that the fair value of the reporting unit is substantially in excess of carrying value and not at risk of failing step one of the quantitative goodwill impairment test. No impairment was recognized during the years ended October 31, 2015, 2014 and 2013. The fair value of our regulated utility reporting unit substantially exceeds the carrying value, including goodwill.
We review our equity method investments and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. In April 2014, we recorded a $2 million write-off for an investment that was accounted for on the cost basis. The write-off was recorded to "Non-operating expense" in the Consolidated Statements of Comprehensive Income. There were no events or circumstances during the years ended October 31, 2015 and 2013 that resulted in any impairment charges. For further information on equity method investments, see Note 13 to the consolidated financial statements.
Marketable Securities
We have marketable securities that are invested in money market and mutual funds that are liquid and actively traded on the exchanges. These securities are assets that are held in rabbi trusts established for our deferred compensation plans. For further information on the deferred compensation plans, see Note 10 to the consolidated financial statements.
We have classified these marketable securities as trading securities since their inception as the assets are held in rabbi trusts. Trading securitiesavailable-for-sale. Both categories are recorded at fair value on the Consolidated Balance Sheets with anySheets. Realized and unrealized gains orand losses recognized currentlyon trading securities are included in earnings. We do not intend to engage in active tradingFor certain investments of regulated operations, such as substantially all of the Nuclear Decommissioning Trust Funds (NDTF), realized and unrealized gains and losses (including any other-than-temporary impairments (OTTIs)) on available-for-sale securities are recorded as a regulatory asset or liability. Otherwise, unrealized gains and losses are included in Accumulated Other Comprehensive Income (AOCI), unless other-than-temporarily impaired. OTTIs for equity securities and participants in the deferred compensation plans may redirect their deemed investments at any time. We have matched the currentcredit loss portion of debt securities of nonregulated operations are included in earnings. Investments in debt and equity securities are classified as either current or noncurrent based on management’s intent and ability to sell these securities, taking into consideration current market liquidity. See Note 15 for further information.
Goodwill and Intangible Assets
Goodwill
Effective with Piedmont's change in fiscal year end to December 31, as discussed above, Piedmont changed the deferred compensation liabilitydate of its annual impairment testing of goodwill from October 31 to August 31 to align with the current assetother Duke Energy Registrants.
Duke Energy, Progress Energy, Duke Energy Ohio and noncurrent deferred compensation liability withPiedmont perform annual goodwill impairment tests as of August 31 each year at the noncurrent asset;reporting unit level, which is determined to be an operating segment or one level below. Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont update these tests between annual tests if events or circumstances occur that would more likely than not reduce the current portion isfair value of a reporting unit below its carrying value.
Intangible Assets
Intangible assets are included in “Other current assets”Other in “Current Assets” inOther Noncurrent Assets on the Consolidated Balance Sheets.
The money market investments Generally, intangible assets are amortized using an amortization method that reflects the pattern in which the trusts approximate fair value due to the short period of time to maturity. The fair valueseconomic benefits of the equity securitiesintangible asset are basedconsumed or on quoted market prices as tradeda straight-line basis if that pattern is not readily determinable. Amortization of intangibles is reflected in Depreciation and amortization on the exchanges. The composition of these securities as of October 31, 2015 and 2014 is as follows.
|
| | | | | | | | | | | | | | | | |
| | 2015 | | 2014 |
In thousands | | Cost | | Fair Value | | Cost | | Fair Value |
Current trading securities: | | | | | | | | |
Money markets | | $ | 51 |
| | $ | 51 |
| | $ | 22 |
| | $ | 22 |
|
Mutual funds | | 114 |
| | 185 |
| | 106 |
| | 192 |
|
Total current trading securities | | 165 |
| | 236 |
| | 128 |
| | 214 |
|
Noncurrent trading securities: | | | | | | | | |
Money markets | | 465 |
| | 465 |
| | 447 |
| | 447 |
|
Mutual funds | | 3,625 |
| | 4,201 |
| | 2,598 |
| | 3,280 |
|
Total noncurrent trading securities | | 4,090 |
| | 4,666 |
| | 3,045 |
| | 3,727 |
|
Total trading securities | | $ | 4,255 |
| | $ | 4,902 |
| | $ | 3,173 |
| | $ | 3,941 |
|
Issuances and Repurchases of Common Stock
As discussed in Note 7 to the consolidated financial statements, from time to time we may repurchase shares on the open market and such shares are then canceled and become authorized but unissued shares. It is our policy to issue new shares for share-based employee awards and shareholder and employee investment plans. We present net shares issued under these awards and plans in “Common Stock Issued” in the Consolidated Statements of Stockholders’ Equity. Shares withheldOperations. Intangible assets are subject to impairment testing and if impaired, the carrying value is accordingly reduced.
Emission allowances permit the holder of the allowance to emit certain gaseous byproducts of fossil fuel combustion, including sulfur dioxide (SO2) and nitrogen oxide (NOX). Allowances are issued by usthe U.S. Environmental Protection Agency (EPA) at zero cost and may also be bought and sold via third-party transactions. Allowances allocated to satisfy tax withholding obligations relatedor acquired by the Duke Energy Registrants are held primarily for consumption. Carrying amounts for emission allowances are based on the cost to acquire the allowances or, in the case of a business combination, on the fair value assigned in the allocation of the purchase price of the acquired business. Emission allowances are expensed to Fuel used in electric generation and purchased power on the Consolidated Statements of Operations.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Renewable energy certificates are used to measure compliance with renewable energy standards and are held primarily for consumption. See Note 11 for further information.
Long-Lived Asset Impairments
The Duke Energy Registrants evaluate long-lived assets, excluding goodwill, for impairment when circumstances indicate the carrying value of those assets may not be recoverable. An impairment exists when a long-lived asset’s carrying value exceeds the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. The estimated cash flows may be based on alternative expected outcomes that are probability weighted. If the carrying value of the long-lived asset is not recoverable based on these estimated future undiscounted cash flows, the carrying value of the asset is written-down to its then-current estimated fair value and an impairment charge is recognized.
The Duke Energy Registrants assess fair value of long-lived assets using various methods, including recent comparable third-party sales, internally developed discounted cash flow analysis and analysis from outside advisors. Triggering events to reassess cash flows may include, but are not limited to, significant changes in commodity prices, the condition of an asset or management’s interest in selling the asset.
Property, Plant and Equipment
Property, plant and equipment are stated at the lower of depreciated historical cost net of any disallowances or fair value, if impaired. The Duke Energy Registrants capitalize all construction-related direct labor and material costs, as well as indirect construction costs such as general engineering, taxes and financing costs. See “Allowance for Funds Used During Construction (AFUDC) and Interest Capitalized” for information on capitalized financing costs. Costs of renewals and betterments that extend the useful life of property, plant and equipment are also capitalized. The cost of repairs, replacements and major maintenance projects, which do not extend the useful life or increase the expected output of the asset, are expensed as incurred. Depreciation is generally computed over the estimated useful life of the asset using the composite straight-line method. Depreciation studies are conducted periodically to update composite rates and are approved by state utility commissions and/or the FERC when required. The composite weighted average depreciation rates, excluding nuclear fuel, are included in the table that follows. |
| | | | | | | | |
| Years Ended December 31, |
| 2017 |
| | 2016 |
| | 2015 |
|
Duke Energy | 2.8 | % | | 2.8 | % | | 2.9 | % |
Duke Energy Carolinas | 2.8 | % | | 2.8 | % | | 2.8 | % |
Progress Energy | 2.6 | % | | 2.7 | % | | 2.6 | % |
Duke Energy Progress | 2.6 | % | | 2.6 | % | | 2.6 | % |
Duke Energy Florida | 2.8 | % | | 2.8 | % | | 2.7 | % |
Duke Energy Ohio | 2.8 | % | | 2.6 | % | | 2.7 | % |
Duke Energy Indiana | 3.0 | % | | 3.1 | % | | 3.0 | % |
Piedmont(a) | 2.3 | % | | | | |
| |
(a) | Piedmont's weighted average depreciation rate was 2.4 percent, 2.4 percent, and 2.5 percent for the annualized two months ended December 31, 2016 and for the years ended October 31, 2016 and 2015, respectively. |
In general, when the Duke Energy Registrants retire regulated property, plant and equipment, the original cost plus the cost of retirement, less salvage value, is charged to accumulated depreciation. However, when it becomes probable the asset will be retired substantially in advance of its original expected useful life or is abandoned, the cost of the asset and the corresponding accumulated depreciation is recognized as a separate asset. If the asset is still in operation, the net amount is classified as Generation facilities to be retired, net on the Consolidated Balance Sheets. If the asset is no longer operating, the net amount is classified in Regulatory assets on the Consolidated Balance Sheets if deemed recoverable (see discussion of long-lived asset impairments above). When it becomes probable an asset will be abandoned, the cost of the asset and accumulated depreciation is reclassified to Regulatory assets on the Consolidated Balance Sheets for amounts recoverable in rates. The carrying value of the asset is based on historical cost if the Duke Energy Registrants are allowed to recover the remaining net book value and a return equal to at least the incremental borrowing rate. If not, an impairment is recognized to the vestingextent the net book value of shares awarded under the Incentive Compensation Plan have been immaterialasset exceeds the present value of future revenues discounted at the incremental borrowing rate.
When the Duke Energy Registrants sell entire regulated operating units, or retire or sell nonregulated properties, the original cost and accumulated depreciation and amortization balances are removed from Property, Plant and Equipment on the Consolidated Balance Sheets. Any gain or loss is recorded in earnings, unless otherwise required by the applicable regulatory body.
See Note 10 for further information.
Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the Consolidated Balance Sheets, except for Duke Energy Florida. Nuclear fuel amounts at Duke Energy Florida were reclassified to date.Regulatory assets pursuant to the Revised and Restated Stipulation and Settlement Agreement approved in November 2013 among Duke Energy Florida, the Florida Office of Public Counsel (Florida OPC) and other customer advocates (the 2013 Settlement).
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Nuclear fuel in the front-end fuel processing phase is considered work in progress and not amortized until placed in service. Amortization of nuclear fuel is included within Fuel used in electric generation and purchased power on the Consolidated Statements of Operations. Amortization is recorded using the units-of-production method.
Allowance for Funds Used During Construction and Interest Capitalized
For regulated operations, the debt and equity costs of financing the construction of property, plant and equipment are reflected as AFUDC and capitalized as a component of the cost of property, plant and equipment. AFUDC equity is reported on the Consolidated Statements of Operations as non-cash income in Other income and expenses, net. AFUDC debt is reported as a non-cash offset to Interest Expense. After construction is completed, the Duke Energy Registrants are permitted to recover these costs through their inclusion in rate base and the corresponding subsequent depreciation or amortization of those regulated assets.
AFUDC equity, a permanent difference for income taxes, reduces the effective tax rate (ETR) when capitalized and increases the ETR when depreciated or amortized. See Note 22 for additional information.
For nonregulated operations, interest is capitalized during the construction phase with an offsetting non-cash credit to Interest Expense on the Consolidated Statements of Operations.
Asset Retirement Obligations
The accounting guidance for assetAsset retirement obligations (AROs) addresses the financial accounting and reportingare recognized for AROslegal obligations associated with the retirement of long-lived assets that result fromproperty, plant and equipment. Substantially all AROs are related to regulated operations. When recording an ARO, the acquisition, construction, development and operationpresent value of the assets. The accounting guidance requires the recognition of the fair value of aprojected liability for AROsis recognized in the period in which the liabilityit is incurred, if a reasonable estimate of fair value can be made. We have determined that conditional AROs exist for our underground mains and services.
We have costsThe liability is accreted over time. For operating plants, the present value of removal that are non-legal obligations as defined by the accounting guidance. The costs of removal are a component of our depreciation rates in accordance with long-standing regulatory treatment. Because these estimated
removal costs meet the requirements of rate-regulated accounting guidance, we have accounted for these non-legal AROs in “Regulatory Liabilities” as presented in Note 3liability is added to the consolidated financial statements. In the rate setting process, the liability for non-legal costs of removal is treated as a reduction to the net rate base upon which the regulated utility has the opportunity to earn its allowed rate of return. For further discussion of these costs of removal as a component of depreciation, see “Utility Plant and Depreciation” in this Note 1.
We apply the accounting guidance for conditional AROs that requires recognition of a liability for the fair value of conditional AROs when incurred if the liability can be reasonably estimated. The NCUC, the PSCSC and the TRA have approved placing these ARO costs in deferred accounts to preserve the regulatory treatment of these costs; therefore, accretion is not reflected in the Consolidated Statements of Comprehensive Income as the regulatory treatment provides for deferralcost of the accretion as a regulatoryassociated asset with a corresponding deferral of the accretion recorded as a regulatory liability. AROs are capitalized concurrently by increasing the carrying amount of the related asset by the same amount as the regulatory liability. In periods subsequent to the initial measurement, any changes in the liability resulting from the passage of time (accretion) or due to the revisions of either timing or the amount of the originally estimated cash flows to settle conditional AROs must be recognized. The estimated cash flows to settle conditional AROs are discounted using the credit adjusted risk-free rate, which ranged from 4.62% to 5.89% with a time value weighted average of 5.69% for the twelve months ended October 31, 2015. We have recorded a liability on our distribution and transmission mains and services.
The cost of removal obligations recorded in the Consolidated Balance Sheets as of October 31, 2015 and 2014 are presented below.
|
| | | | | | | | |
In thousands | | 2015 | | 2014 |
Regulatory non-legal AROs | | $ | 521,478 |
| | $ | 506,574 |
|
Conditional AROs | | 19,712 |
| | 14,647 |
|
Total cost of removal obligations | | $ | 541,190 |
| | $ | 521,221 |
|
A reconciliation of the changes in conditional AROs for the year ended October 31, 2015 and 2014 is presented below.
|
| | | | | | | | |
In thousands | | 2015 | | 2014 |
Beginning of period | | $ | 14,647 |
| | $ | 27,016 |
|
Liabilities incurred during the period | | 4,663 |
| | 2,108 |
|
Liabilities settled during the period | | (5,563 | ) | | (3,576 | ) |
Accretion | | 924 |
| | 1,548 |
|
Adjustment to estimated cash flows | | 5,041 |
| | (12,449 | ) |
End of period | | $ | 19,712 |
| | $ | 14,647 |
|
Unamortized Debt Expense
Unamortized debt expense consists of costs, such as underwriting and broker dealer fees, discounts and commissions, legal fees, accountant fees, registration fees and rating agency fees, related to issuing long-term debt and the short-term syndicated revolving credit facility. We amortize long-term debt expense on a straight-line basis, which approximates the effective interest method, over the life of the related debt with lives ranging from 5 to 30 years. With the adoption of new accounting guidance in our fourth quarter of 2015 to present debt issuance costs as a direct deduction from the carrying amount of that debt, long-term debt is now presented net of unamortized debt expenses in the accompanying Consolidated Balance Sheets. For further information on the effects on regulatory assets and our long-term debt, see Note 3 and Note 5, respectively, to the consolidated financial statements.
We amortize bank debt expense over the life of the syndicated revolving credit facility, which is 5 years.
Should we reacquire long-term debt prior to its term date and simultaneously issue new debt, we defer the gain or loss resulting from the transaction, essentially the remaining unamortized debt expense, and amortize it over the life of the new debt in accordance with established regulatory practice. Where the refunding of the debt is not simultaneous, we defer the gain or loss resulting from the reacquisition of the debt as a regulatory asset or liability and amortize itdepreciated over the remaining life of the redeemed debt in accordance with establishedasset. For retired plants, the present value of the liability is recorded as a regulatory practice. For income tax purposes, any gain or loss wouldasset unless determined not to be recognized as incurred.
recoverable.
Revenue Recognition
We record revenues when services are provided to our distribution service customers. Utility salesThe present value of the initial obligation and transportation revenuessubsequent updates are based on discounted cash flows, which include estimates regarding timing of future cash flows, selection of discount rates approved by state regulatory commissions. Baseand cost escalation rates, chargedamong other factors. These estimates are subject to jurisdictional customers may not be changed without approval bychange. Depreciation expense is adjusted prospectively for any changes to the regulatory commission in that jurisdiction; however,carrying amount of the wholesaleassociated asset. The Duke Energy Registrants receive amounts to fund the cost of gas componentthe ARO for regulated operations through a combination of rates may be adjusted periodically under PGA provisions. In North Carolina,regulated revenues and earnings on the NDTF. As a margin decoupling mechanism providesresult, 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 the recovery of our approved margin from residential and commercial customers on an annual basis independent of weather and consumption patterns. The margin decoupling mechanism provides for semi-annual rate adjustments to refund any over-collection of margin or to recover any under-collection of margin. In South Carolina, a RSA mechanism achieves the objectives of margin decoupling for residential and commercial customers with a one year lag. Under the RSA mechanism, we reset our rates in South Carolinanuclear decommissioning are based on updatedsite-specific cost studies. Duke Energy Carolinas and Duke Energy Progress assume prompt dismantlement of the nuclear facilities after operations are ceased. Duke Energy Florida assumes Crystal River Unit 3 Nuclear Plant (Crystal River Unit 3) will be placed into a safe storage configuration until eventual dismantlement is completed by 2074. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida also assume that spent fuel will be stored on-site until such time that it can be transferred to a yet to be built U.S. Department of Energy (DOE) facility.
Obligations for closure of ash basins are based upon discounted cash flows of estimated costs for site-specific plans, if known, or probability weightings of the potential closure methods if the closure plans are under development and revenuesmultiple closure options are being considered and evaluated on an annuala site-by-site basis. In South CarolinaSee Note 9 for additional information.
Revenue Recognition and Tennessee, a weather normalization adjustment (WNA)Unbilled Revenue
Revenues on sales of electricity and natural gas are recognized when service is calculated for residential and commercial customers during the winter heating season November through March, and in Tennessee, the months of April and October. The WNA mechanisms are designed to partially offset the impact that warmer-than-normal or colder-than-normal weather has on customer billings during the winter heating season. The WNA formulas do not ensure full recovery of approved margin during periods when customer consumption patterns vary from those used to establish the WNA factors. In all states, the gas cost portion of our costs is recoverable through PGA procedures and is not affected by the margin decoupling mechanismprovided or the WNA mechanism.
We have integrity management riders (IMRs) in our tariffs in North Carolina, effective February 1, 2014, and in Tennessee, effective January 1, 2014, related to our ongoing system integrity programs. These IMRs provide for rate adjustments to allow us to recover and earn on those investments without the necessity of filing general rate cases. The North Carolina IMR was initially approved in December 2013 in the settlement of our 2013 general rate case and subsequently revised in November 2015. Under the revised North Carolina IMR tariff, we will make filings semi-annually each October 31 and April 30 for certain costs closed to plant through September and March, respectively, with revised rates effective the following December 1 and June 1, respectively. Under the Tennessee IMR, we file to adjustproduct is delivered. Unbilled revenues are recognized by applying customer billing rates to be effective each January 1 based on capital expenditures related to mandated safety and integrity programs that were incurred by the previous October 31. For further discussionestimated volumes of the IMRs, see Note 3 to the consolidated financial statements.
Revenues are recognized monthly on the accrual basis, which includes estimated amounts forenergy or natural gas delivered to customers but not yet billed under the cycle-billing methodbilled. Unbilled revenues can vary significantly from the lastperiod 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 date to month end. The unbilled revenue estimate reflects factors requiring judgment related to estimated usage by customer class, customer mix, changes in weather during the periodschedules, and the impact of the WNAweather normalization or margin decoupling mechanisms,mechanisms.
Unbilled revenues are included within Receivables and Receivables of VIEs on the Consolidated Balance Sheets as applicable.shown in the following table. |
| | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
|
Duke Energy | $ | 944 |
| | $ | 831 |
|
Duke Energy Carolinas | 342 |
| | 313 |
|
Progress Energy | 228 |
| | 161 |
|
Duke Energy Progress | 143 |
| | 102 |
|
Duke Energy Florida | 85 |
| | 59 |
|
Duke Energy Ohio | 4 |
| | 2 |
|
Duke Energy Indiana | 21 |
| | 32 |
|
Piedmont | 86 |
| | 77 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Additionally, Duke Energy Ohio and Duke Energy Indiana sell, on a revolving basis, nearly all of their retail accounts receivable, including receivables for unbilled revenues, associatedto an affiliate, Cinergy Receivables Company LLC (CRC) and account for the transfers of receivables as sales. Accordingly, the receivables sold are not reflected on the Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 17 for further information. These receivables for unbilled revenues are shown in the table below. |
| | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
|
Duke Energy Ohio | $ | 104 |
| | $ | 97 |
|
Duke Energy Indiana | 132 |
| | 123 |
|
Allowance for Doubtful Accounts
Allowances for doubtful accounts are presented in the following table. |
| | | | | | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Allowance for Doubtful Accounts | | | | | |
Duke Energy | $ | 14 |
| | $ | 14 |
| | $ | 12 |
|
Duke Energy Carolinas | 2 |
| | 2 |
| | 3 |
|
Progress Energy | 4 |
| | 6 |
| | 6 |
|
Duke Energy Progress | 1 |
| | 4 |
| | 4 |
|
Duke Energy Florida | 3 |
| | 2 |
| | 2 |
|
Duke Energy Ohio | 3 |
| | 2 |
| | 2 |
|
Duke Energy Indiana | 2 |
| | 1 |
| | 1 |
|
Piedmont(a) | 2 |
| | 3 |
| | |
Allowance for Doubtful Accounts – VIEs | | | | | |
Duke Energy | $ | 54 |
| | $ | 54 |
| | $ | 53 |
|
Duke Energy Carolinas | 7 |
| | 7 |
| | 7 |
|
Progress Energy | 7 |
| | 7 |
| | 8 |
|
Duke Energy Progress | 5 |
| | 5 |
| | 5 |
|
Duke Energy Florida | 2 |
| | 2 |
| | 3 |
|
(a) Piedmont's allowance for doubtful accounts was $2 million as of October 31, 2016, and 2015.
Derivatives and Hedging
Derivative and non-derivative instruments may be used in connection with commodity price and interest rate activities, including swaps, futures, forwards and options. All derivative instruments, except those that qualify for the commoditynormal purchase/normal sale (NPNS) exception, are recorded on the Consolidated Balance Sheets at fair value. Qualifying derivative instruments may be designated as either cash flow hedges or fair value hedges. Other derivative instruments (undesignated contracts) either have not been designated or do not qualify as hedges. The effective portion of the change in the fair value of cash flow hedges is recorded in AOCI. The effective portion of the change in the fair value of a fair value hedge is offset in net income by changes in the hedged item. For activity subject to regulatory accounting, gains and losses on derivative contracts are reflected as regulatory assets or liabilities and not as other comprehensive income or current period income. As a result, changes in fair value of these derivatives have no immediate earnings impact.
Formal documentation, including transaction type and risk management strategy, is maintained for all contracts accounted for as a hedge. At inception and at least every three months thereafter, the hedge contract is assessed to see if it is highly effective in offsetting changes in cash flows or fair values of hedged items.
See Note 14 for further information.
Captive Insurance Reserves
Duke Energy has captive insurance subsidiaries that provide coverage, on an indemnity basis, to the Subsidiary Registrants as well as certain third parties, on a limited basis, for financial losses, primarily related to property, workers’ compensation and general liability. Liabilities include provisions for estimated losses incurred but not yet reported (IBNR), as well as estimated provisions for known claims. IBNR reserve estimates are primarily based upon historical loss experience, industry data and other actuarial assumptions. Reserve estimates are adjusted in future periods as actual losses differ from experience.
Duke Energy, through its captive insurance entities, also has reinsurance coverage with third parties for certain losses above a per occurrence and/or aggregate retention. Receivables for reinsurance coverage are recognized when realization is deemed probable.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Unamortized Debt Premium, Discount and Expense
Premiums, discounts and expenses incurred with the physical salesissuance of outstanding long-term debt are delivered basedamortized over the term of the debt issue. The gain or loss on contract or market prices. Asset management fees for storage and transportation remitted on a monthly basis are recognized as earned given the monthly capacity costsextinguishment associated with the contracts involved. Asset management fees remitted in a lump sum are deferred and amortized ratably into income over the period in which they are earned, which is typically the contract term. See Note 3 to the consolidated financial statements regarding revenue sharing of secondary market transactions.
Utility sales, transportation and secondary market revenues are reported net of excise taxes, sales taxes and franchise fees. For further information regarding taxes, see “Taxes” in this Note 1.
Non-regulated merchandise and service work includes the sale, installation and/or maintenance of natural gas appliances and gas piping beyond the meter. Revenue is recognized when the sale is made or the work is performed. If the customer is eligible for and elects financing through us, the finance fee income is recognized on a monthly basis based on principal, rate and term.
Cost of Gas and Deferred Purchased Gas Adjustments
We charge our utility customers for natural gas consumed using natural gas cost recovery mechanisms as set by the regulatory commissions in states in which we operate. Rate schedules for utility sales and transportation customers include PGA provisions that provide for the recovery of prudently incurred gas costs. With regulatory commission approval, we revise rates periodically without formal rate proceedings to reflect changesrefinancing higher-cost debt obligations in the wholesale cost of gas. We charge our secondary market customers for natural gas based on negotiated contract terms. Under PGA provisions, charges to cost of gas are based on the amount recoverable under approved rate schedules. Within our cost of gas, we include amounts for lost and unaccounted for gas and adjustments to reflect the gains and losses associated with gas price hedging derivatives. By jurisdiction, differences between gas costs incurred and gas costs billed to customers, such that no operating marginregulated operations is recognized related to these costs, are deferred and included in “Amounts due from customers” in “Regulatory Assets” or “Amounts due to customers” in
“Regulatory Liabilities”amortized. Amortization expense is recorded as presented in “Rate-Regulated Basis of Accounting” in Note 3 to the consolidated financial statements. We review gas costs and deferral activity periodically (including deferrals under the margin decoupling and WNA mechanisms) and, with regulatory commission approval, increase rates to collect under-recoveries or decrease rates to refund over-recoveries over a subsequent period.
Taxes
We have two categories of income taxesInterest Expense in the Consolidated Statements of Comprehensive Income:Operations and is reflected as Depreciation, amortization and accretion within Net cash provided by operating activities on the Consolidated Statements of Cash Flows.
Premiums, discounts and expenses are presented as an adjustment to the carrying value of the debt amount and included in Long-Term Debt on the Consolidated Balance Sheets presented.
Loss Contingencies and Environmental Liabilities
Contingent losses are recorded when it is probable a loss has occurred and can be reasonably estimated. When a range of the probable loss exists and no amount within the range is a better estimate than any other amount, the minimum amount in the range is recorded. Unless otherwise required by GAAP, legal fees are expensed as incurred.
Environmental liabilities are recorded on an undiscounted basis when environmental remediation or other liabilities become probable and can be reasonably estimated. Environmental expenditures related to past operations that do not generate current or future revenues are expensed. Environmental expenditures related to operations that generate current or future revenues are expensed or capitalized, as appropriate. Certain environmental expenditures receive regulatory accounting treatment and deferred. Currentare recorded as regulatory assets.
See Notes 4 and 5 for further information.
Pension and Other Post-Retirement Benefit Plans
Duke Energy maintains qualified, non-qualified and other post-retirement benefit plans. Eligible employees of the Subsidiary Registrants participate in the respective qualified, non-qualified and other post-retirement benefit plans and the Subsidiary Registrants are allocated their proportionate share of benefit costs. See Note 21 for further information, including significant accounting policies associated with these plans.
Severance and Special Termination Benefits
Duke Energy has severance plans under which, in general, the longer a terminated employee worked prior to termination the greater the amount of severance benefits. A liability for involuntary severance is recorded once an involuntary severance plan is committed to by management if involuntary severances are probable and can be reasonably estimated. For involuntary severance benefits incremental to its ongoing severance plan benefits, the fair value of the obligation is expensed at the communication date if there are no future service requirements or over the required future service period. From time to time, Duke Energy offers special termination benefits under voluntary severance programs. Special termination benefits are recorded immediately upon employee acceptance absent a significant retention period. Otherwise, the cost is recorded over the remaining service period. Employee acceptance of voluntary severance benefits is determined by management based on the facts and circumstances of the benefits being offered. See Note 19 for further information.
Guarantees
If necessary, liabilities are recognized at the time of issuance or material modification of a guarantee for the estimated fair value of the obligation it assumes. Fair value is estimated using a probability-weighted approach. The obligation is reduced over the term of the guarantee or related contract in a systematic and rational method as risk is reduced. Any additional contingent loss for guarantee contracts subsequent to the initial recognition of a liability is accounted for and recognized at the time a loss is probable and can be reasonably estimated. See Note 7 for further information.
Stock-Based Compensation
Stock-based compensation represents costs related to stock-based awards granted to employees and Duke Energy Board of Directors (Board of Directors) members. Duke Energy recognizes stock-based compensation based upon the estimated fair value of awards, net of estimated forfeitures at the date of issuance. The recognition period for these costs begins at either the applicable service inception date or grant date and continues throughout the requisite service period. Compensation cost is recognized as expense or capitalized as a component of property, plant and equipment. See Note 20 for further information.
Income Taxes
Duke Energy and its subsidiaries file a consolidated federal income tax expense consists of federalreturn and other state incomeand foreign jurisdictional returns. The Subsidiary Registrants are parties to a tax-sharing agreement with Duke Energy. Income taxes less applicable tax credits related torecorded represent amounts the current year. Deferred income tax expense generally is equal to the changes in the deferred income tax liability and regulatory tax liability during the year. Deferred taxes are primarily attributable to utility plant, deferred gas costs, revenues and cost of gas, equity method investments, benefit of loss carryforwards and employee benefits and compensation. The determination of our provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. Judgment is required in assessing the timing and amounts of deductible and taxable items.
Subsidiary Registrants would incur as separate C-Corporations. Deferred income taxes are determined based on the estimated future tax effects ofhave been provided for temporary differences between the bookGAAP and tax basisbases of assets and liabilities. We have provided valuation allowances to reduce the carrying amount of deferred tax assets to amounts that are more likely than not to be realized. To the extent that the establishment of deferred income taxes is different from the recovery of taxes through the ratemaking process,liabilities because the differences create taxable or tax-deductible amounts for future periods. Investment tax credits (ITCs) associated with regulated operations are deferred in accordance with rate-regulated accounting provisions, and amortized as a regulatory asset or liability is recognized for the impactreduction of income tax expenses or benefits that will be collected from or refunded to customers in different periods pursuant to rate orders.
Deferred investment tax credits, including energy credits, associated with our utility operations are presented in the Consolidated Balance Sheets. We amortize these deferred investment and energy tax credits to incomeexpense over the estimated useful lives of the propertyrelated properties.
Accumulated deferred income taxes are valued using the enacted tax rate expected to apply to taxable income in the periods in which the credits relate.deferred tax asset or liability is expected to be settled or realized. In the event of a change in tax rates, deferred tax assets and liabilities are remeasured as of the enactment date of the new rate. To the extent that the change in the value of the deferred tax represents an obligation to customers, the impact of the remeasurement is deferred to a regulatory liability. Remaining impacts are recorded in income from continuing operations. Other impacts of the Tax Act have been recorded on a provisional basis, see Note 22, “Income Taxes,” for additional information. If Duke Energy's estimate of the tax effect of reversing temporary differences is not reflective of actual outcomes, is modified to reflect new developments or interpretations of the tax law, revised to incorporate new accounting principles, or changes in the expected timing or manner of the reversal then Duke Energy's results of operations could be impacted.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Tax-related interest and penalties if any, related to uncertain tax positions as operating expensesare recorded in Interest Expense and Other Income and Expenses, net in the Consolidated Statements of Comprehensive Income. This is consistent withOperations.
See Note 22 for further information.
Accounting for Renewable Energy Tax Credits
When Duke Energy receives ITCs on wind or solar facilities, it reduces the recognitionbasis of these items in prior reporting periods.
Excise taxes, sales taxes and franchises fees separately stated on customer bills arethe property recorded on a net basis as liabilities payablethe Consolidated Balance Sheets by the amount of the ITC and, therefore, the ITC benefit is ultimately recognized in the statement of operations through reduced depreciation expense. Additionally, certain tax credits and government grants result in an initial tax depreciable base in excess of the book carrying value by an amount equal to one half of the applicable jurisdictions. All other taxes other than income taxesITC. Deferred tax benefits are recorded as general taxes. Generala reduction to income tax expense in the period that the basis difference is created.
Excise Taxes
Certain excise taxes consist of propertylevied by state or local governments are required to be paid even if not collected from the customer. These taxes payrollare recognized on a gross basis. Otherwise, the taxes Tennesseeare accounted for net. Excise taxes accounted for on a gross receipt taxes, franchise taxes, tax on company usebasis within both Operating Revenues and Property and other miscellaneoustaxes in the Consolidated Statements of Operations were as follows. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Duke Energy | $ | 376 |
| | $ | 362 |
| | $ | 396 |
|
Duke Energy Carolinas | 36 |
| | 31 |
| | 31 |
|
Progress Energy | 220 |
| | 213 |
| | 229 |
|
Duke Energy Progress | 19 |
| | 18 |
| | 16 |
|
Duke Energy Florida | 201 |
| | 195 |
| | 213 |
|
Duke Energy Ohio | 98 |
| | 100 |
| | 102 |
|
Duke Energy Indiana | 20 |
| | 17 |
| | 34 |
|
Piedmont(a) | 2 |
| | | | |
| |
(a) | Piedmont's excise taxes were immaterial for the two months ended December 31, 2016, and $2 million for the years ended October 31, 2016, and 2015. |
Dividend Restrictions and Unappropriated Retained Earnings
Duke Energy does not have any legal, regulatory or other restrictions on paying common stock dividends to shareholders. However, as further described in Note 4, due to conditions established by regulators in conjunction with merger transaction approvals, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio, Duke Energy Indiana and Piedmont have restrictions on paying dividends or otherwise advancing funds to Duke Energy. At December 31, 2017, and 2016, an insignificant amount of Duke Energy’s consolidated Retained earnings balance represents undistributed earnings of equity method investments.
New Accounting Standards
The new accounting standards adopted for 2017 and 2016 had no material impact on the presentation or results of operations, cash flows or financial position of the Duke Energy Registrants. The following accounting standards were adopted by the Duke Energy Registrants during 2017.
Stock-Based Compensation and Income Taxes. In first quarter 2017, Duke Energy adopted Financial Accounting Standards Board (FASB) guidance, which revised the accounting for stock-based compensation and the associated income taxes.
The adopted guidance changed certain aspects of accounting for stock-based payment awards to employees including the accounting for income taxes and classification on the Consolidated Statements of Cash FlowsFlows. The primary impact to Duke Energy as a result of implementing this guidance was a cumulative-effect adjustment to retained earnings for tax benefits not previously recognized and additional income tax expense for the 12 months ended December 31, 2017. See the Duke Energy Consolidated Statements of Changes in Equity for further information.
Goodwill Impairment. In January 2017, the FASB issued revised guidance for the subsequent measurement of goodwill. Under the guidance, a company will recognize an impairment to goodwill for the amount by which a reporting unit's carrying value exceeds the reporting unit's fair value, not to exceed the amount of goodwill allocated to that reporting unit. Duke Energy early adopted this guidance for the 2017 annual goodwill impairment test.
The following new accounting standards have been issued, but have not yet been adopted by the Duke Energy Registrants, as of December 31, 2017.
Revenue from Contracts with Customers. In May 2014, the FASB issued revised accounting guidance for revenue recognition from contracts with customers. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update also require disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Duke Energy has identified material revenue streams, which served as the basis for accounting analysis and documentation of the impact of this guidance on revenue recognition. The accounting analysis included reviewing representative contracts and tariffs for each material revenue stream. Most of Duke Energy’s revenue will be in scope of the new guidance. The majority of our sales, including energy provided to residential customers, are from tariff offerings that provide natural gas or electricity without a defined contractual term ("at-will"). For such arrangements, revenue from contracts with customers will be equivalent to the electricity or natural gas supplied and billed in that period (including estimated billings). As such, there will not be a significant shift in the timing or pattern of revenue recognition for such sales.
Also included in the accounting analysis was the evaluation of certain long-term revenue streams including electric wholesale contracts and renewables power purchase agreements (PPAs). For such arrangements, Duke Energy does not expect material changes to the pattern of revenue recognition on the registrants. In addition, Duke Energy has monitored the activities of the power and utilities industry revenue recognition task force including draft accounting positions released in October 2017 and the impact, if any, on Duke Energy’s specific contracts and conclusions. Potential revisions to processes, policies and controls, primarily related to evaluating supplemental disclosures required as a result of adopting this guidance, will be evaluated and implemented as necessary. Some revenue arrangements, such as alternative revenue programs and certain PPAs accounted for as leases, are excluded from the scope of the new revenue recognition guidance and, therefore, will be accounted for and evaluated for separate presentation and disclosure under other relevant accounting guidance.
Duke Energy intends to use the modified retrospective method of adoption effective January 1, 2018. Under the modified retrospective method of adoption, prior year reported results are not restated and a cumulative-effect adjustment, if applicable, is recorded to retained earnings at January 1, 2018, as if the standard had always been in effect. In addition, disclosures, if applicable, include a comparison to what would have been reported for 2018 under the previous revenue recognition rules to assist financial statement users in understanding how revenue recognition has changed as a result of this standard and to facilitate comparability with prior year reported results, which are not restated under the modified retrospective approach as described above. Duke Energy will utilize certain practical expedients including applying this guidance to open contracts at the date of adoption and recognizing revenues for certain contracts under the invoice practical expedient, which allows revenue recognition to be consistent with invoiced amounts (including estimated billings) provided certain criteria are met, including consideration of whether the invoiced amounts reasonably represent the value provided to customers. While the adoption of this guidance is not expected to have a material impact on either the timing or amount of revenues recognized in Duke Energy's financial statements, Duke Energy anticipates additional disclosures around the nature, amount, timing and uncertainty of our revenues and cash overdrafts, book overdraftsflows arising from contracts with customers. Duke Energy continues to evaluate what information will be most useful for users of the financial statements, including information already provided in disclosures outside of the financial statement footnotes. These additional disclosures are expected to include the disaggregation of revenues by customer class.
Financial Instruments Classification and Measurement. In January 2016, the FASB issued revised accounting guidance for the classification and measurement of financial instruments. Changes in the fair value of all equity securities will be required to be recorded in net income. Current GAAP allows some changes in fair value for available-for-sale equity securities to be recorded in AOCI. Additional disclosures will be required to present separately the financial assets and financial liabilities by measurement category and form of financial asset. An entity's equity investments that are accounted for under the equity method of accounting are not included within operating cash flows while any bank overdraftsthe scope of the new guidance.
For Duke Energy, the revised accounting guidance is effective for interim and annual periods beginning January 1, 2018, by recording a cumulative effect adjustment to retained earnings as of January 1, 2018. This guidance is expected to have minimal impact on the Duke Energy Registrant's Consolidated Statements of Operations and Comprehensive Income as changes in the fair value of most of the Duke Energy Registrants' available-for-sale equity securities are included with financing cash flows.
Accounting Standards Update (ASU) - Guidance Adopted in Fiscal Year 2015
|
| | | |
Guidance | Description | Effective date | Effect on the financial statements or other significant matters |
ASU 2015-03, April 2015, Interest: Imputation of Interest - Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30)
| The guidance is part of the Financial Accounting Standards Board's (FASB) simplification initiative to reduce complexity in accounting standards. The amendment requires that debt issuance costs related to a recognized debt liability be presented in the balance sheetdeferred as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this amendment. | Annual periods beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted for financial statements that have not been previously issued. While the guidance would have been effective for us beginning November 1, 2016, we elected to adopt this guidance effective August 1, 2015. | The adoption of this guidance had no impact on our results of operations or cash flows. We retrospectively changed the presentation of the balance sheet line items current and noncurrent "Regulatory assets," "Other noncurrent assets" and "Long-term debt, net." |
ASU 2015-15, August 2015, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting
| The guidance provides clarification to ASU 2015-03 for debt issuance costs for line-of-credit arrangements, specifically that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. | Effective upon adoption of ASU 2015-03, as adopted August 1, 2015. | The adoption of this guidance had no impact on our results of operations or cash flows. |
ASU 2015-07, May 2015, Fair Value Measurement: Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (Topic 820)
| The guidance amends the required disclosure of investments for which fair value is measured at NAV per share (or its equivalent). The amendments remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient. | Annual periods beginning after December 15, 2015, and interim periods within those fiscal years, with retrospective application to all periods presented and early adoption permitted. While the guidance would have been effective for us beginning November 1, 2016, we elected to adopt this guidance effective August 1, 2015. | The adoption of this guidance had no impact on our financial position, results of operations or cash flows. We have disclosed certain benefit plan assets under the new guidance. |
|
| | | |
Guidance | Description | Effective date | Effect on the financial statements or other significant matters |
ASU 2015-12, July 2015, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962) and Health and Welfare Benefit Plans (Topic 965)
| The FASB issued a three-part standard providing guidance on certain aspects of the accounting by employee benefit plans. The ASU: (1) requires a pension plan to use contract value as the only measure for fully benefit-responsive investment contracts; (2) simplifies and increases the effectiveness of the investment disclosure requirements for employee benefit plans by grouping investments by general type; and (3) provides benefit plans with a measurement-date practical expedient on a month-end date nearest to the employer's fiscal year end. | Annual periods beginning after December 15, 2015 with early adoption permitted. The amendments in parts (1) and (2) are retrospectively applied to all periods presented, while the amendment in part (3) is applied prospectively. While the guidance would have been effective for us beginning November 1, 2016, we elected to adopt this guidance effective August 1, 2015. | The adoption of this guidance had no impact on our financial position, results of operations or cash flows. We have disclosed certain benefit plan assets under the new guidance of part (2). Parts (1) and (2) are applicable to our future Form 11-K filing; part (3) is not applicable to us. |
Recently Issued Accounting Guidance |
| | | |
Guidance | Description | Effective date | Effect on the financial statements or other significant matters |
ASU 2014-09, May 2014, Revenue from Contracts with Customers (Topic 606)
| Under the new standard, entities will recognize revenue to depict the transfer of goods and services to customers in amounts that reflect the payment to which the entity expects to be entitled in exchange for those goods or services. The disclosure requirements will provide information about the nature, amount, timing and uncertainty of revenue and cash flows from an entity’s contracts with customers. An entity may choose to adopt the new standard on either a full retrospective basis (practical expedients available) or through a cumulative effect adjustment to retained earnings as of the start of the first period of adoption. | Annual periods beginning after December 15, 2017 (beginning November 1, 2018 for us) and interim periods within that period, with early adoption permitted for annual periods beginning after December 15, 2016. | We are currently evaluating the effect on our financial position, results of operations and cash flows, as well as the transition approach we will take. The evaluation includes identifying revenue streams by like contracts to allow for ease of implementation. In our evaluation, we are following the efforts of an accounting utility subgroup and its issuance of a revenue implementation guide. |
ASU 2014-15, August 2014, Presentation of Financial Statements - Going Concern (Subtopic 205-40)
| The amendment provides guidance on determining when and how reporting entities must disclose going concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date of issuance of the entity's financial statements. An entity must provide certain disclosures if there is a "substantial doubt about the entity's ability to continue as a going concern." | Annual periods ending after December 15, 2016 (October 31, 2017 for us), and interim and annual periods thereafter; early adoption is permitted. | The adoption of this guidance will have no impact on our financial position, results of operations or cash flows. It will require establishing a going concern assessment process to meet the standard. |
|
| | | |
Guidance | Description | Effective date | Effect on the financial statements or other significant matters |
ASU 2015-05, April 2015, Intangibles -Goodwill and Other - Internal-Use Software: Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (Subtopic 350-40)
| The guidance amends ASC 350-40 to provide customers with guidance on determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software. The guidance applies only to hosting arrangements if both of the following criteria are met: (a) the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty and (b) it is feasible for the customer to run the software on its own hardware or contract with another party to host the software. | Annual periods (and interim periods within those periods) beginning after December 15, 2015 (November 1, 2016 for us), with early adoption permitted. Entities may adopt the guidance retrospectively or prospectively to arrangements entered into, or materially modified, after the effective date. | We are currently evaluating the effect on our financial position, results of operations and cash flows. |
ASU 2015-17, November 2015, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
| The guidance eliminates the current requirement to present deferred tax assets and liabilities as current and noncurrent amounts in a classified balance sheet. The new standard requires deferred tax liabilities and assets be classified as noncurrent. The current requirement that deferred tax liabilities and assets be presented as a single amount remains unchanged. | Annual periods (and interim periods within those periods) beginning after December 15, 2016, early adoption is permitted. | The adoption of this guidance will have no impact on our results of operations or cash flows. The reclassification of amounts from current to noncurrent will affect presentation of our financial position. |
Reclassifications and Changes in Presentation
Reclassifications have been made to the prior year Consolidated Balance Sheets to conform with the current year presentation. We early adopted ASU 2015-03 requiring that issuance costs related to a long-term debt issuance be presented as a direct deduction from the carrying amount of that debt. In prior years, we presented unamortized debt expense as current and noncurrent regulatory assets. While these amounts are not regulatory assets underor liabilities pursuant to accounting guidance theyfor regulated operations.
Leases. In February 2016, the FASB issued revised accounting guidance for leases. The core principle of this guidance is that a lessee should recognize the assets and liabilities that arise from leases on the balance sheet.
For Duke Energy, this guidance is effective for interim and annual periods beginning January 1, 2019. The guidance is applied using a modified retrospective approach. Upon adoption, Duke Energy expects to elect the practical expedients, which would require no reassessment of whether existing contracts are a critical componentor contain leases as well as no reassessment of lease classification for existing leases. Additionally, we expect to adopt the embedded cost of debt financing and cost of capital utilized in rate proceedings in each of our jurisdictions. Withoptional transition practical expedient allowing the entity not to reassess the accounting for land easements that currently exist at the adoption of the new pronouncement, unamortized debt expense associated with outstanding long-term debt has been reclassified from currentlease standard on January 1, 2019. Duke Energy is currently evaluating the financial statement impact of adopting this standard and noncurrent regulatoryis continuing to monitor industry implementation issues, including easements, pole attachments and renewable PPAs. Other than an expected increase in assets to a reductionand liabilities, the ultimate impact of the carrying valuenew standard has not yet been determined. Significant system enhancements, including additional processes and controls, will be required to facilitate the identification, tracking and reporting of long-term debt aspotential leases based upon requirements of October 31, 2015the new lease standard. Duke Energy has begun the implementation of a third-party software tool to help with the adoption and 2014. For further informationongoing accounting under the new standard.
Statement of Cash Flows. In November 2016, the FASB issued revised accounting guidance to reduce diversity in practice for the presentation and classification of restricted cash on the impactstatement of cash flows. Under the updated guidance, restricted cash and restricted cash equivalents will be included within beginning-of-period and end-of-period cash and cash equivalents on the statement of cash flows.
For Duke Energy, this guidance is effective for the interim and annual periods beginning January 1, 2018. The guidance will be applied using a retrospective transition method to our presentation of regulatory assets and long-term debt, see Note 3 and Note 5, respectively,each period presented. Upon adoption by Duke Energy, the revised guidance will result in a change to the consolidated financial statements.
Reclassifications have been madeamount of cash and cash equivalents and restricted cash explained when reconciling the beginning-of-period and end-of-period total amounts shown on the Consolidated Statement of Cash Flows. Prior to adoption, the prior yearsDuke Energy Registrants reflect changes in restricted cash within Cash Flows from Investing Activities and within Cash Flows from Operating Activities on the Consolidated StatementsStatement of Cash Flows. As a result of this change, our Cash and cash equivalents balance on the Consolidated Statement of Cash Flows as of December 31, 2017 will change by $147 million.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Retirement Benefits. In March 2017, the FASB issued revised accounting guidance for the presentation of net periodic costs related to conform withbenefit plans. Current GAAP permits the aggregation of all the components of net periodic costs on the Consolidated Statement of Operations and does not require the disclosure of the location of net periodic costs on the Consolidated Statement of Operations. Under the amended guidance, the service cost component of net periodic costs must be included within Operating Income within the same line as other compensation expenses. All other components of net periodic costs must be outside of Operating Income. In addition, the updated guidance permits only the service cost component of net periodic costs to be capitalized to Inventory or Property, Plant and Equipment. This represents a change from current year presentationGAAP, which permits all components of net periodic costs to provide additional detail and to present such information within separate line items. Within “Cash Flows from Operating Activities," we have changedbe capitalized. These amendments should be applied retrospectively for the prior presentation of the cash flows line item "Allowancevarious components of net periodic costs and prospectively for doubtful accounts," comprisedthe change in eligible costs to be capitalized. The guidance allows for a practical expedient that permits a company to use amounts disclosed in prior-period financial statements as the estimation basis for applying the retrospective presentation requirements.
For Duke Energy, this guidance is effective for interim and annual periods beginning January 1, 2018. Duke Energy currently presents the total non-capitalized net periodic costs within Operation, maintenance and other on the Consolidated Statement of the provision and the charge-offs.Operations. The provision is now presented onadoption of this guidance will result in a separate line item "Provision for doubtful accounts" andretrospective change to reclassify the charges-offs are now included in the line item "Receivables, net." We have also changed the prior presentation of the cash flows line item "Provisionnon-service cost (benefit) components of net periodic costs to Other income and expenses. Duke Energy intends to utilize the practical expedient for postretirement benefits, net" comprisedretrospective presentation. The change in net periodic costs eligible for capitalization is applicable prospectively. Since Duke Energy’s service cost component is expected to be greater than the total net periodic costs, the change will result in increased capitalization of net periodic costs, higher Operation, maintenance and other and higher Other income and expenses. The resulting impact to Duke Energy is expected to be an immaterial increase in Net Income resulting from the limitation of eligible capitalization of net periodic costs to the service cost component, which is larger than the total net periodic costs.
2. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the contributions to benefit planspurchase date and other activity. The contributions are now presented on a separate line item "Contributions to benefit plans" andinclude earnings from acquisitions in consolidated earnings after the remaining activity is now presented on a separate line item "Accrued/deferred postretirement benefit costs." The presentation for 2014 and 2013 have been changed to conform to the current year presentation. The reclassifications that provide additional detail had no effect on previously reported amounts for net cash flows from operating, investing or financing activities.purchase date.
2. Proposed2016 Acquisition by Duke Energy Corporation
of Piedmont Natural Gas
On October 24, 2015, we entered into a Merger Agreement with3, 2016, Duke Energy acquired all outstanding common stock of Piedmont for a total cash purchase price of $5.0 billion and Forest Subsidiary, Inc. (Merger Sub),assumed Piedmont's existing long-term debt, which had a new wholly owned subsidiaryfair value of Duke Energy. The Merger Agreement provides forapproximately $2.0 billion at the mergertime of the Merger Subacquisition. The acquisition provides a foundation for Duke Energy to establish a broader, long-term strategic natural gas infrastructure platform to complement its existing natural gas pipeline investments and regulated natural gas business in the Midwest. In connection with and intothe closing of the acquisition, Piedmont with Piedmont surviving asbecame a wholly owned subsidiary of Duke Energy (the Acquisition). At the effective timeEnergy.
Purchase Price Allocation
The purchase price allocation of the Acquisition,Piedmont acquisition is as follows: |
| | | |
(in millions) | |
Current assets | $ | 497 |
|
Property, plant and equipment, net | 4,714 |
|
Goodwill | 3,353 |
|
Other long-term assets | 804 |
|
Total assets | 9,368 |
|
Current liabilities, including current maturities of long-term debt | 576 |
|
Long-term liabilities | 1,790 |
|
Long-term debt | 2,002 |
|
Total liabilities | 4,368 |
|
Total purchase price | $ | 5,000 |
|
The fair value of Piedmont's assets and liabilities was determined based on significant estimates and assumptions that are judgmental in nature, including the amount and timing of projected future cash flows, discount rates reflecting risk inherent in the future cash flows and market prices of long-term debt.
The majority of Piedmont’s operations are subject to receiptthe rate-setting authority of required shareholderthe NCUC, the PSCSC and the TPUC and are accounted for pursuant to accounting guidance for regulated operations. The rate-setting and cost recovery provisions currently in place for Piedmont’s regulated operations provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base. Thus, the fair value of Piedmont's assets and liabilities subject to these rate-setting provisions approximates the pre-acquisition carrying values and does not reflect any net valuation adjustments.
The significant assets and liabilities for which valuation adjustments were reflected within the purchase price allocation include the acquired equity method investments and long-term debt. The difference between the fair value and the pre-merger carrying values of long-term debt for regulated operations was recorded as a regulatory approvalsasset.
The excess of the purchase price over the fair value of Piedmont's assets and meeting specified customary closing conditions, each shareliabilities on the acquisition date was recorded as goodwill. The goodwill reflects the value paid by Duke Energy primarily for establishing a broader, long-term strategic natural gas infrastructure growth platform, an improved risk profile and expected synergies resulting from the combined entities.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Under Securities and Exchange Commission (SEC) regulations, Duke Energy elected not to apply push down accounting to the stand-alone Piedmont financial statements.
Accounting Charges Related to the Acquisition
Duke Energy incurred pretax non-recurring transaction and integration costs associated with the acquisition of $103 million, $439 million and $9 million for the years ended December 31, 2017, 2016 and 2015, respectively. Amounts recorded on the Consolidated Statements of Operations in 2017 were primarily system integration costs of $71 million related to combining the various operational and financial systems of Duke Energy and Piedmont, common stock issuedincluding a one-time software impairment resulting from planned accounting system and outstandingprocess integration. A $7 million charge was recorded within Impairment Charges, with the remaining $64 million recorded within Operation, maintenance and other.
Amounts recorded in 2016 include:
Interest expense of $234 million related to the acquisition financing, including realized losses on forward-starting interest rate swaps of $190 million. See Note 14 for additional information on the swaps.
Charges of $104 million related to commitments made in conjunction with the transaction, including charitable contributions and a one-time bill credit to Piedmont customers. $10 million was recorded as a reduction in Operating Revenues, with the remaining $94 million recorded within Operation, maintenance and other.
Other transaction and integration costs of $101 million recorded to Operation, maintenance and other, including professional fees and severance.
The majority of transition and integration activities are expected to be completed by the end of 2018.
Pro Forma Financial Information
The following unaudited pro forma financial information reflects the combined results of operations of Duke Energy and Piedmont as if the merger had occurred as of January 1, 2015. The pro forma financial information does not include potential cost savings, intercompany revenues, Piedmont’s earnings from a certain equity method investment sold immediately prior to the closing will be converted automatically into the right to receive $60 in cash per share, without interest, less any applicable withholding taxes. Upon consummation of the Acquisition, Piedmont common stock will be delisted from the New York Stock Exchange (NYSE).
Completion of the Acquisition is subject to various closing conditions, including, among others (i) the approval of the Merger Agreement by an affirmative vote of the holders of a majority of the outstanding shares of our common stock, (ii) approval from the NCUC,merger or non-recurring transaction and (iii) expiration or termination of any applicable waiting period under the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976. The Merger Agreement may be terminated by us orintegration costs incurred by Duke Energy ifand Piedmont. The after-tax non-recurring transaction and integration costs incurred by Duke Energy and Piedmont were $279 million and $19 million for the Acquisitionyears ended December 31, 2016, and 2015, respectively.
This information has been presented for illustrative purposes only and is not consummated by Octobernecessarily indicative of the consolidated results of operations that would have been achieved or the future consolidated results of operations of Duke Energy. |
| | | | | | |
| Years Ended December 31, |
(in millions) | 2016 | 2015 |
Operating Revenues | $ | 23,504 |
| $ | 23,570 |
|
Net Income Attributable to Duke Energy Corporation | 2,442 |
| 2,877 |
|
Piedmont's Earnings
Piedmont's revenues and net income included in Duke Energy's Consolidated Statements of Operations for the year ended December 31, 2016, subject to a six-month extension by eitherwere $367 million and $20 million, respectively. Piedmont's revenues and net income for the year ended December 31, 2016, include the impact of us under certain circumstances. The Merger Agreement contains certain termination rights for both companies under certain circumstances,non-recurring transaction costs of $10 million and provides that, upon termination of the Merger Agreement under specified circumstances, we would be required to pay $46 million, respectively.
Acquisition Related Financings and Other Matters
Duke Energy financed the Piedmont acquisition with a termination feecombination of $125 million, or Duke Energy would be required to pay us a termination fee of $250 million.
The Merger Agreement includes certain restrictions, limitations and prohibitions as to actions we may or may not take in the period prior to completion of the Acquisition. Among other restrictions, the Merger Agreement limits our total capital spending, limits the extent to which we can obtain financing through long-term debt and equity issuances and caps ourother cash dividend to no more thansources, including:
$3.75 billion of long-term debt issued in August 2016.
$750 million borrowed under the current annual per share dividend plus an increase of not more than $.04 per fiscal year, with record dates and payment dates consistent with our current dividend practices. Also, provision is made for a stub period dividend payment to holders of record of our$1.5 billion short-term loan facility in September 2016, which was repaid in December 2016.
10.6 million shares of common stock immediately prior to consummationissued in October 2016 for net cash proceeds of approximately $723 million.
The $4.9 billion senior unsecured bridge financing facility (Bridge Facility) with Barclays Capital, Inc. (Barclays) was terminated following the issuance of the Acquisition.long-term debt. For additional information related to the debt and equity issuances, see Notes 6 and 18, respectively. For additional information regarding Duke Energy's and Piedmont's joint investment in Atlantic Coast Pipeline, LLC (ACP), see Note 4.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
DISPOSITIONS
For the year ended December 31, 2017, the Loss from Discontinued Operations, net of tax, was immaterial. The following table summarizes the (Loss) Income from Discontinued Operations, net of tax recorded on Duke Energy's Consolidated Statements of Operations for the years ended December 31, 2016, and 2015: |
| | | | | | | |
| Years Ended December 31, |
(in millions) | 2016 |
| | 2015 |
|
International Energy Disposal Group | $ | (534 | ) | | $ | 157 |
|
Midwest Generation Disposal Group | 36 |
| | 33 |
|
Other(a) | 90 |
| | (13 | ) |
(Loss) Income from Discontinued Operations, net of tax | $ | (408 | ) | | $ | 177 |
|
| |
(a) | Relates to previously sold businesses not related to the Disposal Groups. The amount for 2016 represents an income tax benefit resulting from immaterial out of period deferred tax liability adjustments. The amount for 2015 includes indemnifications provided for certain legal, tax and environmental matters and foreign currency translation adjustments. |
2016 Sale of International Energy
In connectionFebruary 2016, Duke Energy announced it had initiated a process to divest its International Energy businesses, excluding the equity method investment in NMC (the International Disposal Group), and in October 2016, announced it had entered into two separate purchase and sale agreements to execute the divestiture. Both sales closed in December of 2016, resulting in available cash proceeds of $1.9 billion, excluding transaction costs. Proceeds were primarily used to reduce Duke Energy holding company (the parent) debt. Existing favorable tax attributes result in no immediate U.S. federal-level cash tax impacts. Details of each transaction are as follows:
On December 20, 2016, Duke Energy closed on the sale of its ownership interests in businesses in Argentina, Chile, Ecuador, El Salvador, Guatemala and Peru to I Squared Capital. The assets sold included approximately 2,230 MW of hydroelectric and natural gas generation capacity, transmission infrastructure and natural gas processing facilities. I Squared Capital purchased the businesses for an enterprise value of $1.2 billion.
On December 29, 2016, Duke Energy closed on the sale of its Brazilian business, which included approximately 2,090 MW of hydroelectric generation capacity, to CTG for an enterprise value of $1.2 billion. With the closing of the CTG deal, Duke Energy finalized its exit from the Latin American market.
Assets Held For Sale and Discontinued Operations
As a result of the transactions, the International Disposal Group was classified as held for sale and as discontinued operations in the fourth quarter of 2016. Interest expense directly associated with this transaction, we recorded Acquisition-related expensesthe International Disposal Group was allocated to discontinued operations. No interest from corporate level debt was allocated to discontinued operations.
The following table presents the results of $8.6 millionthe International Disposal Group for costs paid to outside parties in fiscalthe years ended December 31, 2016, and 2015, which are reflectedincluded in “Operations and maintenance”(Loss) Income from Discontinued Operations, net of tax in “Operating Expenses”Duke Energy's Consolidated Statements of Operations. |
| | | | | | | |
| Years Ended December 31, |
(in millions) | 2016 |
| | 2015 |
|
Operating Revenues | $ | 988 |
| | $ | 1,088 |
|
Fuel used in electric generation and purchased power | 227 |
| | 306 |
|
Cost of natural gas | 43 |
| | 53 |
|
Operation, maintenance and other | 341 |
| | 334 |
|
Depreciation and amortization(a) | 62 |
| | 92 |
|
Property and other taxes | 15 |
| | 7 |
|
Impairment charges (b) | 194 |
| | 13 |
|
(Loss) Gains on Sales of Other Assets and Other, net | (3 | ) | | 6 |
|
Other Income and Expenses, net | 58 |
| | 23 |
|
Interest Expense | 82 |
| | 85 |
|
Pretax loss on disposal(c) | (514 | ) | | — |
|
(Loss) Income before income taxes(d) | (435 | ) |
| 227 |
|
Income tax expense(e)(f) | 99 |
| | 70 |
|
(Loss) Income from discontinued operations of the International Disposal Group | $ | (534 | ) |
| $ | 157 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
| |
(a) | Upon meeting the criteria for assets held for sale, beginning in the fourth quarter of 2016 depreciation expense was ceased. |
| |
(b) | In conjunction with the advancements of marketing efforts during 2016, Duke Energy performed recoverability tests of the long-lived asset groups of International Energy. As a result, Duke Energy determined the carrying value of certain assets in Central America was not fully recoverable and recorded a pretax impairment charge of $194 million. The charge represents the excess of carrying value over the estimated fair value of the assets, which was based on a Level 3 Fair Value measurement that was primarily determined from the income approach using discounted cash flows but also considered market information obtained in 2016. |
| |
(c) | The pretax loss on disposal includes the recognition of cumulative foreign currency translation losses of $620 million as of the disposal date. See the Consolidated Statements of Changes in Equity for additional information. |
| |
(d) | Pretax (Loss) Income attributable to Duke Energy Corporation was $(445) million and $221 million for the years ended December 31, 2016 and 2015, respectively. |
| |
(e) | 2016 amount includes $126 million of income tax expense on the disposal, which primarily reflects in-country taxes incurred as a result of the sale. The after-tax loss on disposal was $640 million. |
| |
(f) | 2016 amount includes an income tax benefit of $95 million. See Note 22, "Income Taxes," for additional information. |
Duke Energy has elected not to separately disclose discontinued operations on the Consolidated Statements of Comprehensive Income. This amount doesCash Flows. The following table summarizes Duke Energy's cash flows from discontinued operations related to the International Disposal Group. |
| | | | | | | |
| Years Ended December 31, |
(in millions) | 2016 |
| | 2015 |
|
Cash flows provided by (used in): | | | |
Operating activities | $ | 204 |
| | $ | 248 |
|
Investing activities | (434 | ) | | 177 |
|
Other Sale Related Matters
During 2017, Duke Energy provided certain transition services to CTG and I Squared Capital. Cash flows related to providing the transition services were not includematerial as of December 31, 2017. All transition services related to the cost of company personnel participatingInternational Disposal Group ended in Acquisition-related activities. We also2017. Additionally, Duke Energy will reimburse CTG and I Squared Capital for all tax obligations arising from the period preceding consummation on the transactions, totaling approximately $78 million. Duke Energy has not recorded incremental share-based compensation expense of $7.2 million in "Operations and maintenance" as noted above forany other liabilities, contingent liabilities or indemnifications related to the end of period remeasurement to market valueInternational Disposal Group.
2015 Midwest Generation Exit
Duke Energy, through indirect subsidiaries, completed the sale of the incentive compensation awardsMidwest Generation Disposal Group to a subsidiary of Dynegy on April 2, 2015, for approximately $2.8 billion in cash. The nonregulated Midwest generation business included generation facilities with approximately 5,900 MW of owned capacity located in Ohio, Pennsylvania and Illinois. On April 1, 2015, prior to the sale, Duke Energy Ohio distributed its indirect ownership interest in the nonregulated Midwest generation business to a subsidiary of Duke Energy Corporation.
Duke Energy utilized a revolving credit agreement (RCA) to support the operations of the nonregulated Midwest generation business. Duke Energy Ohio had a power purchase agreement with the Midwest Generation Disposal Group for a portion of its standard service offer (SSO) supply requirement. The agreement and the retention awardSSO expired in May 2015.
The results of our President and Chief Executive Officer based uponoperations of the increaseMidwest Generation Disposal Group prior to the date of sale are classified as discontinued operations in the trading priceaccompanying Consolidated Statements of our common stock sinceOperations. Interest expense associated with the announcementRCA was allocated to discontinued operations. No other interest expense related to corporate level debt was allocated to discontinued operations. Certain immaterial costs that were eliminated as a result of the Acquisition. We treated thesesale remained in continuing operations. The following table summarizes the Midwest Generation Disposal Group activity recorded within discontinued operations. |
| | | | | | | | | | | | | | | |
| Duke Energy | | Duke Energy Ohio |
| Years Ended December 31, | | Years Ended December 31, |
(in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
|
Operating Revenues | $ | — |
| | $ | 543 |
| | $ | — |
| | $ | 412 |
|
Pretax Loss on disposal(a) | — |
| | (45 | ) | | — |
| | (52 | ) |
| | | | | | | |
Income (loss) before income taxes(b) | $ | — |
| | $ | 59 |
| | $ | — |
| | $ | 44 |
|
Income tax (benefit) expense(c) | (36 | ) | | 26 |
| | (36 | ) | | 21 |
|
Income (loss) from discontinued operations | $ | 36 |
| | $ | 33 |
| | $ | 36 |
| | $ | 23 |
|
| |
(a) | The Loss on disposal includes impairments recorded to adjust the carrying amount of the assets to the estimated fair value of the business, based on the selling price to Dynegy less cost to sell. |
| |
(b) | 2015 amounts include the impact of an $81 million charge for the settlement agreement reached in a lawsuit related to the Midwest Generation Disposal Group. Refer to Note 5 for further information about the lawsuit. |
| |
(c) | 2016 amounts result from immaterial out of period deferred tax liability adjustments. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
3. BUSINESS SEGMENTS
Operating segments are determined based on information used by the chief operating decision-maker in deciding how to allocate resources and evaluate the performance of the business. Duke Energy evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated on the Consolidated Financial Statements. Certain governance costs are allocated to each segment. In addition, direct interest expense and income taxes are included in segment income.
Products and services are sold between affiliate companies and reportable segments of Duke Energy at cost. Segment assets as tax deductible sincepresented in the requisite closing conditionstables that follow exclude all intercompany assets.
Duke Energy
Duke Energy's segment structure includes the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables.
The Electric Utilities and Infrastructure segment includes Duke Energy's regulated electric utilities in the Carolinas, Florida and the Midwest. The regulated electric utilities conduct operations through the Subsidiary Registrants that are substantially all regulated and, accordingly, qualify for regulatory accounting treatment. Electric Utilities and Infrastructure also includes Duke Energy's commercial electric transmission infrastructure investments.
The Gas Utilities and Infrastructure segment includes Piedmont, Duke Energy's natural gas local distribution companies in Ohio and Kentucky, and Duke Energy's natural gas storage and midstream pipeline investments. Gas Utilities and Infrastructure's operations are substantially all regulated and, accordingly, qualify for regulatory accounting treatment.
The Commercial Renewables segment is primarily comprised of nonregulated utility scale wind and solar generation assets located throughout the U.S.
The remainder of Duke Energy’s operations is presented as Other, which is primarily comprised of corporate interest expense, unallocated corporate costs, contributions to the Acquisition have not yet been satisfied. Upon completionDuke Energy Foundation and the operations of Duke Energy’s wholly owned captive insurance subsidiary, Bison Insurance Company Limited (Bison). Other also includes Duke Energy's interest in NMC. See Note 12 for additional information on the investment in NMC.
Business segment information is presented in the following tables. Segment assets presented exclude intercompany assets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| Electric |
| | Gas |
| | | | Total |
| | | | | | |
| Utilities and |
| | Utilities and |
| | Commercial |
| | Reportable |
| | | | | | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Renewables |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
|
Unaffiliated Revenues | $ | 21,300 |
| | $ | 1,743 |
| | $ | 460 |
| | $ | 23,503 |
| | $ | 62 |
| | $ | — |
| | $ | 23,565 |
|
Intersegment Revenues | 31 |
| | 93 |
| | — |
| | 124 |
| | 76 |
| | (200 | ) | | — |
|
Total Revenues | $ | 21,331 |
| | $ | 1,836 |
| | $ | 460 |
| | $ | 23,627 |
| | $ | 138 |
| | $ | (200 | ) | | $ | 23,565 |
|
Interest Expense | $ | 1,240 |
| | $ | 105 |
| | $ | 87 |
| | $ | 1,432 |
| | $ | 574 |
| | $ | (20 | ) | | $ | 1,986 |
|
Depreciation and amortization | 3,010 |
| | 231 |
| | 155 |
| | 3,396 |
| | 131 |
| | — |
| | 3,527 |
|
Equity in earnings (losses) of unconsolidated affiliates | 5 |
| | 62 |
| | (5 | ) | | 62 |
| | 57 |
| | — |
| | 119 |
|
Income tax expense (benefit)(a) | 1,355 |
| | 116 |
| | (628 | ) | | 843 |
| | 353 |
| | — |
| | 1,196 |
|
Segment income (loss)(b)(c)(d) | 3,210 |
| | 319 |
| | 441 |
| | 3,970 |
| | (905 | ) | | — |
| | 3,065 |
|
Add back noncontrolling interest component | |
| | |
| | |
| | |
| | |
| | |
| | 5 |
|
Loss from discontinued operations, net of tax | |
| | |
| | |
| | |
| | |
| | |
| | (6 | ) |
Net income | |
| | |
| | |
| | |
| | |
| | |
| | $ | 3,064 |
|
Capital investments expenditures and acquisitions | $ | 7,024 |
| | $ | 907 |
| | $ | 92 |
| | $ | 8,023 |
| | $ | 175 |
| | $ | — |
| | $ | 8,198 |
|
Segment assets | 119,423 |
| | 11,462 |
| | 4,156 |
| | 135,041 |
| | 2,685 |
| | 188 |
| | 137,914 |
|
| |
(a) | All segments include impacts of the Tax Cuts and Jobs Act (the Tax Act). Electric Utilities and Infrastructure includes a $231 million benefit, Gas Utilities and Infrastructure includes a $26 million benefit, Commercial Renewables includes a $442 million benefit and Other includes charges of $597 million. |
| |
(b) | Electric Utilities and Infrastructure includes after-tax regulatory settlement charges of $98 million. See Note 4 for additional information. |
| |
(c) | Commercial Renewables includes after-tax impairment charges of $74 million related to certain wind projects and the Energy Management Solutions reporting unit. See Notes 10 and 11 for additional information. |
| |
(d) | Other includes $64 million of after-tax costs to achieve the Piedmont merger. See Note 2 for additional information. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| Electric |
| | Gas |
| | | | Total |
| | | | | | |
| Utilities and |
| | Utilities and |
| | Commercial |
| | Reportable |
| | | | | | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Renewables |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
|
Unaffiliated Revenues | $ | 21,336 |
| | $ | 875 |
| | $ | 484 |
| | $ | 22,695 |
| | $ | 48 |
| | $ | — |
| | $ | 22,743 |
|
Intersegment Revenues | 30 |
| | 26 |
| | — |
| | 56 |
| | 69 |
| | (125 | ) | | — |
|
Total Revenues | $ | 21,366 |
| | $ | 901 |
| | $ | 484 |
| | $ | 22,751 |
| | $ | 117 |
| | $ | (125 | ) | | $ | 22,743 |
|
Interest Expense | $ | 1,136 |
| | $ | 46 |
| | $ | 53 |
| | $ | 1,235 |
| | $ | 693 |
| | $ | (12 | ) | | $ | 1,916 |
|
Depreciation and amortization | 2,897 |
| | 115 |
| | 130 |
| | 3,142 |
| | 152 |
| | — |
| | 3,294 |
|
Equity in earnings (losses) of unconsolidated affiliates(a) | 5 |
| | 19 |
| | (82 | ) | | (58 | ) | | 43 |
| | — |
| | (15 | ) |
Income tax expense (benefit) | 1,672 |
| | 90 |
| | (160 | ) | | 1,602 |
| | (446 | ) | | — |
| | 1,156 |
|
Segment income (loss)(b)(c) | 3,040 |
| | 152 |
| | 23 |
| | 3,215 |
| | (645 | ) | | 1 |
| | 2,571 |
|
Add back noncontrolling interest component | |
| | |
| | |
| | |
| | |
| | |
| | 7 |
|
Loss from discontinued operations, net of tax(d) | |
| | |
| | |
| | |
| | |
| | |
| | (408 | ) |
Net income | |
| | |
| | |
| | |
| | |
| | |
| | $ | 2,170 |
|
Capital investments expenditures and acquisitions(e) | $ | 6,649 |
| | $ | 5,519 |
| | $ | 857 |
| | $ | 13,025 |
| | $ | 190 |
| | $ | — |
| | $ | 13,215 |
|
Segment assets | 114,993 |
| | 10,760 |
| | 4,377 |
| | 130,130 |
| | 2,443 |
| | 188 |
| | 132,761 |
|
(a) Commercial Renewables includes a pretax impairment charge of $71 million. See Note 12 for additional information.
| |
(b) | Other includes $329 million of after-tax costs to achieve mergers. Refer to Note 2 for additional information on costs related to the Piedmont merger. |
| |
(c) | Other includes after-tax charges of $57 million related to cost savings initiatives. Refer to Note 19 for further information. |
| |
(d) | Includes a loss on sale of the International Disposal Group. Refer to Note 2 for further information. |
| |
(e) | Other includes $26 million of capital investments expenditures related to the International Disposal Group. Gas Utilities and Infrastructure includes the Piedmont acquisition of $5 billion. Refer to Note 2 for more information on the Piedmont acquisition. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2015 |
| Electric |
| | Gas |
| | | | Total |
| | | | | | |
| Utilities and |
| | Utilities and |
| | Commercial |
| | Reportable |
| | | | | | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Renewables |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
|
Unaffiliated Revenues | $ | 21,489 |
| | $ | 536 |
| | $ | 286 |
| | $ | 22,311 |
| | $ | 60 |
| | $ | — |
| | $ | 22,371 |
|
Intersegment Revenues | 32 |
| | 5 |
| | — |
| | 37 |
| | 75 |
| | (112 | ) | | — |
|
Total Revenues | $ | 21,521 |
| | $ | 541 |
| | $ | 286 |
| | $ | 22,348 |
| | $ | 135 |
| | $ | (112 | ) | | $ | 22,371 |
|
Interest Expense | $ | 1,074 |
| | $ | 25 |
| | $ | 44 |
| | $ | 1,143 |
| | $ | 393 |
| | $ | (9 | ) | | $ | 1,527 |
|
Depreciation and amortization | 2,735 |
| | 79 |
| | 104 |
| | 2,918 |
| | 135 |
| | — |
| | 3,053 |
|
Equity in (losses) earnings of unconsolidated affiliates | (2 | ) | | 1 |
| | (6 | ) | | (7 | ) | | 76 |
| | — |
| | 69 |
|
Income tax expense (benefit) | 1,602 |
| | 44 |
| | (128 | ) | | 1,518 |
| | (262 | ) | | — |
| | 1,256 |
|
Segment income (loss) (a)(b)(c) | 2,819 |
| | 73 |
| | 52 |
| | 2,944 |
| | (299 | ) | | — |
| | 2,645 |
|
Add back noncontrolling interest component | |
| | |
| | |
| | |
| | |
| | |
| | 9 |
|
Income from discontinued operations, net of tax(d) | |
| | |
| | |
| | |
| | |
| | |
| | 177 |
|
Net income | |
| | |
| | |
| | |
| | |
| | |
| | $ | 2,831 |
|
Capital investments expenditures and acquisitions(e) | $ | 6,852 |
| | $ | 234 |
| | $ | 1,019 |
| | $ | 8,105 |
| | $ | 258 |
| | $ | — |
| | $ | 8,363 |
|
Segment assets(f) | 109,097 |
| | 2,637 |
| | 3,861 |
| | 115,595 |
| | 5,373 |
| | 188 |
| | 121,156 |
|
| |
(a) | Electric Utilities and Infrastructure includes an after-tax charge of $58 million related to the Edwardsport settlement. Refer to Note 4 for further information. |
| |
(b) | Other includes $60 million of after-tax costs to achieve mergers. |
| |
(c) | Other includes after-tax charges of $77 million related to cost savings initiatives. Refer to Note 19 for further information. |
| |
(d) | Includes the impact of a settlement agreement reached in a lawsuit related to the Midwest Generation Disposal Group. Refer to Note 5 for further information related to the lawsuit and Note 2 for further information on discontinued operations. |
| |
(e) | Other includes capital investment expenditures of $45 million related to the International Disposal Group. |
| |
(f) | Other includes Assets Held for Sale balances related to the International Disposal Group. Refer to Note 2 for further information. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Geographical Information
For the years ended December 31, 2017, 2016 and 2015, all assets and revenues from continuing operations are within the U.S.
Major Customers
For the year ended December 31, 2017, revenues from one customer of Duke Energy Progress are $521 million. Duke Energy Progress has one reportable segment, Electric Utilities and Infrastructure. No other subsidiary registrant has an individual customer representing more than 10 percent of its revenues.
Products and Services
The following table summarizes revenues of the Acquisition, we will evaluate the tax deductibilityreportable segments by type. |
| | | | | | | | | | | | | | | | | | | |
| Retail |
| | Wholesale |
| | Retail |
| | | | Total |
|
(in millions) | Electric |
| | Electric |
| | Natural Gas |
| | Other |
| | Revenues |
|
2017 | | | | | | | | |
|
Electric Utilities and Infrastructure | $ | 18,177 |
| | $ | 2,104 |
| | $ | — |
| | $ | 1,050 |
| | $ | 21,331 |
|
Gas Utilities and Infrastructure | — |
| | — |
| | 1,732 |
| | 104 |
| | 1,836 |
|
Commercial Renewables | — |
| | 375 |
| | — |
| | 85 |
| | 460 |
|
Total Reportable Segments | $ | 18,177 |
| | $ | 2,479 |
| | $ | 1,732 |
|
| $ | 1,239 |
| | $ | 23,627 |
|
2016 | | | | | | | | |
|
Electric Utilities and Infrastructure | $ | 18,338 |
| | $ | 2,095 |
| | $ | — |
| | $ | 933 |
| | $ | 21,366 |
|
Gas Utilities and Infrastructure | — |
| | — |
| | 871 |
| | 30 |
| | 901 |
|
Commercial Renewables | — |
| | 303 |
| | — |
| | 181 |
| | 484 |
|
Total Reportable Segments | $ | 18,338 |
| | $ | 2,398 |
| | $ | 871 |
|
| $ | 1,144 |
| | $ | 22,751 |
|
2015 | | | | | | | | |
|
Electric Utilities and Infrastructure | $ | 18,695 |
| | $ | 2,014 |
| | $ | — |
| | $ | 812 |
| | $ | 21,521 |
|
Gas Utilities and Infrastructure | — |
| | — |
| | 546 |
| | (5 | ) | | 541 |
|
Commercial Renewables | — |
| | 245 |
| | — |
| | 41 |
| | 286 |
|
Total Reportable Segments | $ | 18,695 |
| | $ | 2,259 |
| | $ | 546 |
|
| $ | 848 |
| | $ | 22,348 |
|
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 these costsOhio and reflect any non-deductible amountsgenerates, distributes and sells electricity in the effective tax rate at the Acquisition closing date. For further information on our employee share-based plans, see Note 11 to the consolidated financial statements.
3. Regulatory Mattersportions of Northern Kentucky. Gas Utilities and Infrastructure transports and sells natural gas in portions of Ohio and Northern Kentucky. It conducts operations primarily through Duke Energy Ohio and its wholly owned subsidiary, Duke Energy Kentucky.
Rate-Regulated Basis of Accounting 144
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
RegulatoryThe remainder of Duke Energy Ohio's operations is presented as Other, which is primarily comprised of governance costs allocated by its parent, Duke Energy, and revenues and expenses related to Duke Energy Ohio's contractual arrangement to buy power from OVEC's (Ohio Valley Electric Corporation) power plants. See Note 13 for additional information on related party transactions. For the years ended December 31, 2017, 2016 and 2015, all Duke Energy Ohio assets and revenues are within the U.S. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| Electric |
| | Gas |
| | Total |
| | | | | | |
| Utilities and |
| | Utilities and |
| | Reportable |
| | | | | | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
|
Total revenues | $ | 1,373 |
| | $ | 508 |
| | $ | 1,881 |
| | $ | 42 |
| | $ | — |
| | $ | 1,923 |
|
Interest expense | $ | 62 |
| | $ | 28 |
| | $ | 90 |
| | $ | 1 |
| | $ | — |
| | $ | 91 |
|
Depreciation and amortization | 178 |
| | 83 |
| | 261 |
| | $ | — |
| | — |
| | 261 |
|
Income tax expense (benefit) | 40 |
| | 39 |
| | 79 |
| | $ | (20 | ) | | — |
| | 59 |
|
Segment income (loss) | 138 |
| | 85 |
| | 223 |
| | $ | (30 | ) | | — |
| | 193 |
|
Loss from discontinued operations, net of tax | | | | | | | | | | | (1 | ) |
Net income |
|
| |
|
| |
|
| |
|
| | | | $ | 192 |
|
Capital expenditures | $ | 491 |
| | $ | 195 |
| | $ | 686 |
| | $ | — |
| | $ | — |
| | $ | 686 |
|
Segment assets | 5,066 |
| | 2,758 |
| | 7,824 |
| | 66 |
| | (15 | ) | | 7,875 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| Electric |
| | Gas |
| | Total |
| | | | | | |
| Utilities and |
| | Utilities and |
| | Reportable |
| | | | | | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
|
Total revenues | $ | 1,410 |
| | $ | 503 |
| | $ | 1,913 |
| | $ | 31 |
| | $ | — |
| | $ | 1,944 |
|
Interest expense | $ | 58 |
| | $ | 27 |
| | $ | 85 |
| | $ | 1 |
| | $ | — |
| | $ | 86 |
|
Depreciation and amortization | 151 |
| | 80 |
| | 231 |
| | 2 |
| | — |
| | 233 |
|
Income tax expense (benefit) | 55 |
| | 44 |
| | 99 |
| | (21 | ) | | — |
| | 78 |
|
Segment income (loss) | 154 |
| | 77 |
| | 231 |
| | (39 | ) | | — |
| | 192 |
|
Income from discontinued operations, net of tax | | | | | | | | | | | 36 |
|
Net income |
|
| |
|
| |
|
| |
|
| | | | $ | 228 |
|
Capital expenditures | $ | 322 |
| | $ | 154 |
| | $ | 476 |
| | $ | — |
| | $ | — |
| | $ | 476 |
|
Segment assets | 4,782 |
| | 2,696 |
| | 7,478 |
| | 62 |
| | (12 | ) | | 7,528 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2015 |
| Electric |
| | Gas |
| | Total |
| | | | | | |
| Utilities and |
| | Utilities and |
| | Reportable |
| | | | | | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
|
Total revenues | $ | 1,331 |
| | $ | 541 |
| | $ | 1,872 |
| | $ | 33 |
| | $ | — |
| | $ | 1,905 |
|
Interest expense | $ | 53 |
| | $ | 25 |
| | $ | 78 |
| | $ | 1 |
| | $ | — |
| | $ | 79 |
|
Depreciation and amortization | 147 |
| | 79 |
| | 226 |
| | 1 |
| | — |
| | 227 |
|
Income tax expense (benefit) | 59 |
| | 45 |
| | 104 |
| | (23 | ) | | — |
| | 81 |
|
Segment income (loss) | 118 |
| | 73 |
| | 191 |
| | (41 | ) | | (1 | ) | | 149 |
|
Income from discontinued operations, net of tax | | | | | | | | | | | 23 |
|
Net income |
|
| |
|
| |
|
| |
|
| | | | $ | 172 |
|
Capital expenditures | $ | 264 |
| | $ | 135 |
| | $ | 399 |
| | $ | — |
| | $ | — |
| | $ | 399 |
|
Segment assets | 4,534 |
| | 2,516 |
| | 7,050 |
| | 56 |
| | (9 | ) | | 7,097 |
|
4. REGULATORY MATTERS
REGULATORY ASSETS AND LIABILITIES
The Duke Energy Registrants record regulatory assets and liabilities inthat result from the ratemaking process. See Note 1 for further information.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The following tables present the regulatory assets and liabilities recorded on the Consolidated Balance Sheets as of October 31, 2015Duke Energy and 2014 are as follows.Progress Energy. See separate tables below for balances by individual registrant. |
| | | | | | | | |
In thousands | | 2015 | | 2014 |
Regulatory Assets: | | | | |
Current: | | | | |
Unamortized debt expense on reacquired debt | | $ | 238 |
| | $ | 239 |
|
Amounts due from customers | | — |
| | 16,108 |
|
Environmental costs | | 1,513 |
| | 1,568 |
|
Deferred operations and maintenance expenses | | 847 |
| | 916 |
|
Deferred pipeline integrity expenses | | 3,470 |
| | 3,470 |
|
Deferred pension and other retirement benefit costs | | 2,757 |
| | 2,769 |
|
Robeson LNG development costs | | 381 |
| | 917 |
|
Other | | 1,730 |
| | 1,850 |
|
Total current | | 10,936 |
| | 27,837 |
|
| | | | |
Noncurrent: | | | | |
Unamortized debt expense on reacquired debt | | 4,666 |
| | 4,904 |
|
Environmental costs | | 5,107 |
| | 6,470 |
|
Deferred operations and maintenance expenses | | 3,997 |
| | 4,721 |
|
Deferred pipeline integrity expenses | | 29,824 |
| | 24,694 |
|
Deferred pension and other retirement benefits costs | | 17,861 |
| | 18,799 |
|
Amounts not yet recognized as a component of pension and other retirement benefit costs | | 114,854 |
| | 94,265 |
|
Regulatory cost of removal asset | | 19,087 |
| | 18,275 |
|
Robeson LNG development costs | | 127 |
| | 509 |
|
Other | | 1,203 |
| | 1,644 |
|
Total noncurrent | | 196,726 |
| | 174,281 |
|
Total | | $ | 207,662 |
| | $ | 202,118 |
|
|
| | | | | | | | | | | | | | | |
| Duke Energy | | Progress Energy |
| December 31, | | December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Regulatory Assets | | | | | | | |
AROs – coal ash | $ | 4,025 |
| | $ | 3,761 |
| | $ | 1,984 |
| | $ | 1,830 |
|
AROs – nuclear and other | 852 |
| | 684 |
| | 655 |
| | 569 |
|
Accrued pension and OPEB | 2,249 |
| | 2,387 |
| | 906 |
| | 882 |
|
Retired generation facilities | 480 |
| | 534 |
| | 386 |
| | 422 |
|
Debt fair value adjustment | 1,197 |
| | 1,313 |
| | — |
| | — |
|
Net regulatory asset related to income taxes | — |
| | 894 |
| | — |
| | 231 |
|
Storm cost deferrals | 531 |
| | 153 |
| | 526 |
| | 148 |
|
Nuclear asset securitized balance, net | 1,142 |
| | 1,193 |
| | 1,142 |
| | 1,193 |
|
Hedge costs deferrals | 234 |
| | 217 |
| | 94 |
| | 91 |
|
Derivatives – natural gas supply contracts | 142 |
| | 187 |
| | — |
| | — |
|
Demand side management (DSM)/Energy efficiency (EE) | 530 |
| | 407 |
| | 281 |
| | 278 |
|
Grid modernization | 39 |
| | 65 |
| | — |
| | — |
|
Vacation accrual | 213 |
| | 196 |
| | 42 |
| | 38 |
|
Deferred fuel and purchased power | 507 |
| | 156 |
| | 349 |
| | 111 |
|
Nuclear deferral | 119 |
| | 226 |
| | 35 |
| | 134 |
|
Post-in-service carrying costs (PISCC) and deferred operating expenses | 366 |
| | 413 |
| | 38 |
| | 42 |
|
Transmission expansion obligation | 46 |
| | 71 |
| | — |
| | — |
|
Manufactured gas plant (MGP) | 91 |
| | 99 |
| | — |
| | — |
|
Advanced metering infrastructure (AMI) | 362 |
| | 218 |
| | 150 |
| | — |
|
NCEMPA deferrals | 53 |
| | 51 |
| | 53 |
| | 51 |
|
East Bend deferrals | 45 |
| | 32 |
| | — |
| | — |
|
Deferred pipeline integrity costs | 54 |
| | 36 |
| | — |
| | — |
|
Amounts due from customers | 64 |
| | 66 |
| | — |
| | — |
|
Other | 538 |
| | 542 |
| | 110 |
| | 103 |
|
Total regulatory assets | 13,879 |
| | 13,901 |
|
| 6,751 |
|
| 6,123 |
|
Less: current portion | 1,437 |
| | 1,023 |
| | 741 |
| | 401 |
|
Total noncurrent regulatory assets | $ | 12,442 |
| | $ | 12,878 |
|
| $ | 6,010 |
|
| $ | 5,722 |
|
Regulatory Liabilities | | | | | | | |
Costs of removal | $ | 5,968 |
| | $ | 5,613 |
| | $ | 2,537 |
| | $ | 2,198 |
|
ARO – nuclear and other | 806 |
| | 461 |
| | — |
| | — |
|
Net regulatory liability related to income taxes | 8,113 |
| | — |
| | 2,802 |
| | — |
|
Amounts to be refunded to customers | 10 |
| | 45 |
| | — |
| | — |
|
Storm reserve | 20 |
| | 83 |
| | — |
| | 60 |
|
Accrued pension and OPEB | 146 |
| | 174 |
| | — |
| | — |
|
Deferred fuel and purchased power | 47 |
| | 192 |
| | 1 |
| | 81 |
|
Other | 622 |
| | 722 |
| | 179 |
| | 245 |
|
Total regulatory liabilities | 15,732 |
| | 7,290 |
| | 5,519 |
| | 2,584 |
|
Less: current portion | 402 |
| | 409 |
| | 213 |
| | 189 |
|
Total noncurrent regulatory liabilities | $ | 15,330 |
| | $ | 6,881 |
| | $ | 5,306 |
| | $ | 2,395 |
|
Descriptions of regulatory assets and liabilities summarized in the tables above and below follow. See tables below for recovery and amortization periods at the separate registrants. |
| | | | | | | | |
Regulatory Liabilities: | | | | |
Current: | | | | |
Amounts due to customers | | $ | 13,367 |
| | $ | 46,231 |
|
| | | | |
Noncurrent: | | | | |
Regulatory cost of removal obligations | | 521,478 |
| | 506,574 |
|
Deferred income taxes | | 68,738 |
| | 51,930 |
|
Amounts not yet recognized as a component of pension and other retirement benefit costs | | 85 |
| | 94 |
|
Total noncurrent | | 590,301 |
| | 558,598 |
|
Total | | $ | 603,668 |
| | $ | 604,829 |
|
AROs – coal ash. Represents deferred depreciation and accretion related to the legal obligation to close ash basins. The costs are deferred until recovery treatment has been determined. See Notes 1 and 9 for additional information.
The 2014 presentation of unamortized debt expense has been changed146
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
AROs – nuclear and other. Represents regulatory assets or liabilities, including deferred depreciation and accretion, related to conformlegal obligations associated with the current year presentation in the table above. As discussed in Note 1 to the consolidated financial statements, we early adopted ASU 2015-03 requiring that issuance costsfuture retirement of property, plant and equipment, excluding amounts related to a recognized long-term debtcoal ash. The AROs relate primarily to decommissioning nuclear power facilities. The amounts also include certain deferred gains and losses on NDTF investments. See Notes 1 and 9 for additional information.
Accrued pension and OPEB. Accrued pension and other post-retirement benefit obligations (OPEB) represent regulatory assets and liabilities related to each of the Duke Energy Registrants’ respective shares of unrecognized actuarial gains and losses and unrecognized prior service cost and credit attributable to Duke Energy’s pension plans and OPEB plans. The regulatory asset or liability is amortized with the recognition of actuarial gains and losses and prior service cost and credit to net periodic benefit costs for pension and OPEB plans. The accrued pension and OPEB regulatory asset is expected to be presented inrecovered primarily over the balance sheet as a direct deduction fromaverage remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail.
Retired generation facilities. Represents amounts to be recovered for facilities that have been retired and are probable of recovery.
Debt fair value adjustment. Purchase accounting adjustments recorded to state the carrying value of thatProgress 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. Consequently, unamortized debt expense of $.9 million current and $9 million noncurrent presented in 2014
Net regulatory asset or liability related to income taxes. Amounts for all registrants include regulatory liabilities related primarily to impacts from the Tax Act. See Note 22 for additional information. Amounts have no immediate impact on rate base as regulatory assets have been reclassified as a reduction of $9.9 millionare offset by deferred tax liabilities.
Storm cost deferrals. Represents deferred incremental costs incurred related to extraordinary weather-related events.
Nuclear asset securitized balance, net.Represents the carrying value of long-term debt. The amounts presented above in line items "Unamortized debt expense on reacquired debt" represent unamortized debt expensebalance associated with Crystal River Unit 3 retirement approved for recovery by the early retirement orFPSC on September 15, 2015, and the refundingupfront financing costs securitized in 2016 with issuance of debt in accordance with establishedthe associated bonds. The regulatory practice. Unamortized debt expenses related to short-term bank debt and unallocated expensesasset balance is net of our open debt andthe AFUDC equity shelf registration are now presented in the line item "Other noncurrent assets" as "Noncurrent Assets" in the Consolidated Balance
Sheets. See Note 1 with discussion of "Unamortized Debt Expense" and Note 5 to the consolidated financial statements for related discussion of these presentation changes.portion.
As of October 31, 2015, we have $19.1 million of AROs and $117 million of other regulatory assets on which we do not earn a return. Included in deferred pensionHedge costs and other retirement costs are amounts relateddeferrals. Amounts relate to pension funding for our Tennessee jurisdiction. The recovery of these amounts is authorized by the TRAunrealized gains and losses on a deferred cash basis.
Regulatory Oversight and Rate and Regulatory Actions
Our utility operations are regulated by the NCUC, PSCSC and TRA as to rates, service area, adequacy of service, safety standards, extensions and abandonment of facilities, accounting and depreciation. We are also regulated by the NCUC as to the issuance of long-term debt and equity securities.
The NCUC and the PSCSC regulate our gas purchasing practices under a standard of prudence and audit our gas cost accounting practices. The TRA regulates our gas purchasing practices under a gas supply incentive program which compares our actual costs to market pricing benchmarks. As part of this jurisdictional oversight, all three regulatory commissions address our gas supply hedging activities. Additionally, all three regulatory commissions allow for recovery of uncollectible gas costs through the PGA. The portion of uncollectibles related to gas costs is recovered through the deferred account and only the non-gas costs, or margin, portion of uncollectibles is included in base rates and uncollectibles expense.
North Carolina
The North Carolina General Assembly enacted the Clean Water and Natural Gas Critical Needs Act of 1998 which provided for the issuance of $200 million of general obligation bonds of the state for the purpose of providing grants, loans or other financing for the cost of constructing natural gas facilities in unserved areas of North Carolina. In 2000, the NCUC issued an order awarding Eastern North Carolina Natural Gas Company (EasternNC) an exclusive franchise to provide natural gas service to 14 counties in the eastern-most part of North Carolina that had not been able to obtain gas service because of the relatively small population of those counties and the resulting economic infeasibility of providing service and granted $38.7 million in state bond funding. In 2001, the NCUC issued an order granting EasternNC an additional $149.6 million, for a total of $188.3 million. With the 2003 acquisition and subsequent merger of EasternNC into our regulated utility segment, we are required to provide an accounting of the operational feasibility of this area to the NCUC every two years. Should this operational area become economically feasible and generate a profit, which we believe is unlikely, we would begin to repay the state bond funding.
The NCUC had allowed EasternNC to defer its O&M expenses during the first eight years of operation or until the first rate case order, whichever occurred first, with the deferred amounts accruing interest per annum. In December 2003, the NCUC confirmed that these deferred expenses should be treatedderivatives recorded as a regulatory asset or liability, respectively, until the contracts are settled.
Derivatives – natural gas supply contracts. Represents costs for certain long-dated, fixed quantity forward gas supply contracts, which are recoverable through PGA clauses.
DSM/EE. Deferred costs related to various DSM and EE programs recoverable through various mechanisms.
Grid modernization. Amounts represent deferred depreciation and operating expenses as well as carrying costs on the portion of capital expenditures placed in service but not yet reflected in retail rates as plant in service.
Vacation accrual. Generally recovered within one year.
Deferred fuel and purchased power. Represents certain energy-related costs that are recoverable or refundable as approved by the applicable regulatory body.
Nuclear deferral. Includes amounts related to levelizing nuclear plant outage costs, which allows for the recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, resulting in the deferral of operations and maintenance costs associated with refueling.
Post-in-service carrying costs and deferred operating expenses. Represents deferred depreciation and operating expenses as well as carrying costs on the portion of capital expenditures placed in service but not yet reflected in retail rates as plant in service.
Gasification services agreement buyout. The IURC authorized Duke Energy Indiana to recover costs incurred to buy out a gasification services agreement, including carrying costs through 2017.
Transmission expansion obligation. Represents transmission expansion obligations related to Duke Energy Ohio’s withdrawal from Midcontinent Independent System Operator, Inc. (MISO).
MGP. Represents remediation costs incurred at former MGP sites and the deferral of costs to be incurred at the East End and West End sites through 2019.
AMI. Represents deferred costs related to the installation of AMI meters and remaining net book value of non-AMI meters to be replaced at Duke Energy Carolinas, net book value of existing meters at Duke Energy Florida, Duke Energy Progress and Duke Energy Ohio and expected future recovery from customers to the extent they are deemed prudent and proper. Under the settlement of the 2008 general rate proceeding, the unamortized balancenet book value of the EasternNC deferred O&M expenses of $9 millionelectromechanical meters that have been replaced with AMI meters at October 31, 2008 was to be amortized over a twelve year period beginning November 1, 2008, with interest accruing at 7.84% per annum. Under the settlement of the 2013 general rate proceeding discussed below, the unamortized balance of the EasternNC deferred O&M expenses was $6.3 million as of December 31, 2013. This balance is accruing interest at a rate of 6.55% per annum with amortization beginning January 1, 2014over an 82-month period ending October 31, 2020. As of October 31, 2015 and 2014, we had unamortized balances, including accrued interest, of $4.8 million and $5.6 million, respectively.Duke Energy Indiana.
NCEMPA deferrals. Represents retail allocated cost deferrals and returns associated with the additional ownership interest in assets acquired from NCEMPA in 2015.
We incur certainEast 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.
Deferred pipeline integrity costs. Represents pipeline integrity management costs in compliance with federal regulations recovered through a rider mechanism.
Amounts due from customers. Relates primarily to margin decoupling and IMR recovery mechanisms.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Costs of removal. Represents funds received from customers to cover the Pipeline Safety Improvement Actfuture removal of 1992property, plant and equipment from retired or abandoned sites as property is retired. Also includes certain regulationsdeferred gains on NDTF investments.
Amounts to be refunded to customers. Represents required rate reductions to retail customers by the applicable regulatory body.
Storm reserve. Amounts are used to offset future incurred costs for named storms as approved by regulatory commissions.
RESTRICTIONS ON THE ABILITY OF CERTAIN SUBSIDIARIES TO MAKE DIVIDENDS, ADVANCES AND LOANS TO DUKE ENERGY
As a condition to the approval of merger transactions, the NCUC, PSCSC, PUCO, KPSC and IURC imposed conditions on the ability of Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio, Duke Energy Kentucky, Duke Energy Indiana and Piedmont to transfer funds to Duke Energy through loans or advances, as well as restricted amounts available to pay dividends to Duke Energy. Certain subsidiaries may transfer funds to the parent by obtaining approval of the United States Departmentrespective state regulatory commissions. These conditions imposed restrictions on the ability of Transportation. the public utility subsidiaries to pay cash dividends as discussed below.
Duke Energy Progress and Duke Energy Florida also have restrictions imposed by their first mortgage bond indentures, which, in certain circumstances, limit their ability to make cash dividends or distributions on common stock. Amounts restricted as a result of these provisions were not material at December 31, 2017.
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 and Progress Energy's net assets at December 31, 2017.
Duke Energy Carolinas
Duke Energy Carolinas must limit cumulative distributions subsequent to mergers to (i) the amount of retained earnings on the day prior to the closing of the mergers, plus (ii) any future earnings recorded.
Duke Energy Progress
Duke Energy Progress must limit cumulative distributions subsequent to the mergers between Duke Energy and Progress Energy and Duke Energy and Piedmont to (i) the amount of retained earnings on the day prior to the closing of the respective mergers, plus (ii) any future earnings recorded.
Duke Energy Ohio
Duke Energy Ohio will not declare and pay dividends out of capital or unearned surplus without the prior authorization of the PUCO. Duke Energy Ohio received FERC and PUCO approval to pay dividends from its equity accounts that are reflective of the amount that it would have in its retained earnings account had push-down accounting for the Cinergy Corp. (Cinergy) merger not been applied to Duke Energy Ohio’s balance sheet. The conditions include a commitment from Duke Energy Ohio that equity, adjusted to remove the impacts of push-down accounting, will not fall below 30 percent of total capital.
Duke Energy Kentucky is required to pay dividends solely out of retained earnings and to maintain a minimum of 35 percent equity in its capital structure.
Duke Energy Indiana
Duke Energy Indiana must limit cumulative distributions subsequent to the merger between Duke Energy and Cinergy to (i) the amount of retained earnings on the day prior to the closing of the merger, plus (ii) any future earnings recorded. In addition, Duke Energy Indiana will not declare and pay dividends out of capital or unearned surplus without prior authorization of the IURC.
Piedmont
Piedmont must limit cumulative distributions subsequent to the acquisition of Piedmont by Duke Energy to (i) the amount of retained earnings on the day prior to the closing of the merger, plus (ii) any future earnings recorded.
RATE RELATED INFORMATION
The NCUC, approved deferral treatmentPSCSC, FPSC, IURC, PUCO, TPUC and KPSC approve rates for retail electric and natural gas services within their states. The FERC approves rates for electric sales to wholesale customers served under cost-based rates (excluding Ohio and Indiana), as well as sales of transmission service. The FERC also regulates certification and siting of new interstate natural gas pipeline projects.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
All Registrants
Tax Act Impacts
On December 22, 2017, President Trump signed the Tax Act into law, which, among other provisions, reduces the maximum federal corporate income tax rate from 35 percent to 21 percent, effective January 1, 2018. As a result of the O&M costs applicable to certain incremental pipeline integrity external expenditures beginning November 1, 2004. The approved balance for recoveryTax Act, the Subsidiary Registrants revalued their deferred tax assets and deferred tax liabilities, as of actual pipeline integrity management O&M costs incurred between July 1, 2008 through August 31, 2013 as established in the settlement of the 2013 general rate proceeding discussed below was $17.3 million to be amortized over a five-year period from January 1, 2014 through December 31, 2018. As2017, to account for the future impact of October 31, 2015 and 2014, we had unamortized regulatory asset balances forlower corporate tax rates on these deferred pipeline integrity expenses of $33.3 million and $28.2 million, respectively. The existing regulatory asset treatment for ongoing pipeline integrity management coststax amounts. For the Subsidiary Registrants regulated operations, where the reduction is expected to continue until another recovery mechanism is establishedbe accounted for and applied to customers’ rates in future commission proceedings, including rate proceedings, the net remeasurement has been deferred as a future rate proceeding.
With the approvalregulatory liability. Each of the settlement ofSubsidiary Registrant's regulatory commissions is reviewing the 2013 NCUC general rate proceeding discussed below, certain capital expenditures that are incurred to comply with federal pipeline safety and integrity requirements will be separately tracked and recovered on an annual basis through an IMR, as revised by a subsequent settlement approved by the NCUC in November
2015. The settlement also approved recovery of $6.3 million of deferred North Carolina environmental costs over a five-year period from January 2014 through December 2018.
In North Carolina, our recovery of gas costs is subject to annual gas cost proceedingsTax Act to determine the prudencepotential impacts on customer rates. Beginning in January 2018, the Subsidiary Registrants will defer the estimated ongoing impacts of our gas purchases. Our gasthe Tax Act that are expected to be returned to customers. See Note 22 for additional information.
Duke Energy Carolinas and Duke Energy Progress
Ash Basin Closure Costs Deferral
On December 30, 2016, Duke Energy Carolinas and Duke Energy Progress filed a joint petition with the NCUC seeking an accounting order authorizing deferral of certain costs incurred in connection with federal and state environmental remediation requirements related to the permanent closure of ash basins and other ash storage units at coal-fired generating facilities that have never been disallowedprovided or are providing generation to customers located in North Carolina. Initial comments were received in March 2017, and reply comments were filed on April 19, 2017. The NCUC has consolidated Duke Energy Carolinas' and Duke Energy Progress’ coal ash deferral requests into their respective general rate case dockets for decision. See "2017 North Carolina Rate Case" sections below for additional discussion. Duke Energy Carolinas and Duke Energy Progress cannot predict the basisoutcome of prudence.this matter.
Duke Energy Carolinas
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Carolinas' Consolidated Balance Sheets. |
| | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2017 |
| 2016 |
| | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs - coal ash | $ | 1,645 |
| $ | 1,536 |
| | (i) | (b) |
AROs - nuclear and other | — |
| 9 |
| | | |
Accrued pension and OPEB | 410 |
| 481 |
| | | (j) |
Retired generation facilities(c) | 29 |
| 39 |
| | X | 2023 |
Net regulatory asset related to income taxes(d) | — |
| 484 |
| | | |
Hedge costs deferrals(c) | 109 |
| 93 |
| | X | 2041 |
DSM/EE | 210 |
| 122 |
| | (h) | (h) |
Vacation accrual | 83 |
| 76 |
| | (e) | 2018 |
Deferred fuel and purchased power | 140 |
| — |
| | (f) | 2018 |
Nuclear deferral | 84 |
| 92 |
| | | 2019 |
PISCC(c) | 35 |
| 70 |
| | X | (b) |
AMI | 185 |
| 172 |
| | X | (b) |
Other | 222 |
| 223 |
| | | (b) |
Total regulatory assets | 3,152 |
| 3,397 |
| | | |
Less: current portion | 299 |
| 238 |
| | | |
Total noncurrent regulatory assets | $ | 2,853 |
| $ | 3,159 |
| | | |
Regulatory Liabilities(a) | | | | | |
Costs of removal(c) | $ | 2,054 |
| $ | 2,015 |
| | X | (g) |
ARO - nuclear and other | 806 |
| 461 |
| | | (b) |
Net regulatory liability related to income taxes(d) | 3,028 |
| — |
| | | (b) |
Storm reserve(c) | 20 |
| 22 |
| | | (b) |
Accrued pension and OPEB | 44 |
| 46 |
| | | (j) |
Deferred fuel and purchased power | 46 |
| 105 |
| | (f) | 2018 |
Other | 359 |
| 352 |
| | | (b) |
Total regulatory liabilities | 6,357 |
| 3,001 |
| | | |
Less: current portion | 126 |
| 161 |
| | | |
Total noncurrent regulatory liabilities | $ | 6,231 |
| $ | 2,840 |
| | | |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
| |
(a) | Regulatory assets and liabilities are excluded from rate base unless otherwise noted. |
| |
(b) | The expected recovery or refund period varies or has not been determined. |
| |
(c) | Included in rate base. |
| |
(d) | Includes regulatory liabilities related to the change in the North Carolina tax rate discussed in Note 22. |
| |
(e) | Earns a return on outstanding balance in North Carolina. |
| |
(f) | Pays interest on over-recovered costs in North Carolina. Includes certain purchased power costs in North Carolina and South Carolina and costs of distributed energy in South Carolina. |
| |
(g) | Recovered over the life of the associated assets. |
| |
(h) | Includes incentives on DSM/EE investments and is recovered through an annual rider mechanism. |
| |
(i) | Earns a debt return on coal ash expenditures for North Carolina and South Carolina retail customers. |
| |
(j) | Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail. |
2017 North Carolina Rate Case
On August 25, 2017, Duke Energy Carolinas filed an application with the NCUC approved our accountingfor a rate increase for retail customers of gasapproximately $647 million, which represents an approximate 13.6 percent increase in annual base revenues. The rate increase is driven by capital investments subsequent to the previous base rate case, including grid improvement projects, AMI, investments in customer service technologies, costs forof complying with coal combustion residuals (CCR) regulations and the twelve months ended MayNorth Carolina Coal Ash Management Act of 2014 (Coal Ash Act) and recovery of costs related to licensing and development of the William States Lee III Nuclear Station (Lee Nuclear Station) discussed below. On January 23, 2018, the North Carolina Public Staff filed testimony recommending an overall rate decrease of approximately $290 million. An evidentiary hearing is scheduled to begin on February 27, 2018, and a decision and revised customer rates are expected by mid-2018. Duke Energy Carolinas cannot predict the outcome of this matter.
FERC Formula Rate Matter
On July 31, 2013. We were deemed prudent on our gas purchasing policies2017, Piedmont Municipal Power Agency (PMPA) filed a complaint with FERC against Duke Energy Carolinas alleging that Duke Energy Carolinas misapplied the formula rate under the purchase power agreement (PPA) between the parties by including regulatory amortization in its rates without FERC approval. Duke Energy Carolinas disagreed with PMPA as it believed it was properly applying its FERC filed rate. On February 15, 2018, FERC issued an order ruling in favor of PMPA and practices duringordered Duke Energy Carolinas to refund to PMPA all amounts improperly collected under the PPA. Resolution of this review period and allowed 100% recovery.matter is not expected to be material.
Lincoln County Combustion Turbine
In November 2014,On December 7, 2017, the NCUC approved our accountingissued an order approving a Certificate of Public Convenience and Necessity (CPCN) for Duke Energy Carolinas' proposed 402-megawatt (MW) simple cycle, advanced combustion turbine natural gas-fueled electric generating unit at its existing Lincoln County site. The CPCN also includes construction of related transmission and natural gas costs forpipeline interconnection facilities. Construction is scheduled to begin in 2018 with an extended commissioning and validation period from 2020-2024 and an estimated commercial operation date in 2024. As a condition of the twelve months ended May 31, 2014. We were deemed prudent on our gas purchasing policies and practices during this review period and allowed 100% recovery.
In November 2015, the NCUC approved our accounting of gas costs for the twelve months ended May 31, 2015. We were deemed prudent on our gas purchasing policies and practices during this review period and allowed 100% recovery.
Our gas cost hedging plan for North Carolina is designed to provide a level of protection against significant price increases, targets a percentage range up to 45% of annual normalized sales volumes for North Carolina and operates using historical pricing indices that are tied to future projected gas prices as traded on a national exchange. Unlike South Carolina as discussed below,approval, Duke Energy Carolinas will not seek recovery of costs associated with the project until it is placed into commercial operation.
Advanced Metering Infrastructure Deferral
On July 12, 2016, the PSCSC issued an accounting order for Duke Energy Carolinas to defer the financial effects of depreciation expense incurred for the installation of AMI meters, the carrying costs on the investment at its weighted average cost of capital (WACC) and the carrying costs on the deferred costs at its WACC not to exceed $45 million. The decision also allows Duke Energy Carolinas to continue to depreciate the non-AMI meters to be replaced. Current retail rates will not change as a result of the decision and the ability of interested parties to challenge the reasonableness of expenditures in subsequent proceedings is not limited.
William States Lee Combined Cycle Facility
On April 9, 2014, the PSCSC granted Duke Energy Carolinas and North Carolina hedging planElectric Membership Corporation (NCEMC) a Certificate of Environmental Compatibility and Public Convenience and Necessity (CECPCN) for the construction and operation of a 750-MW combined-cycle natural gas-fired generating plant at Duke Energy Carolinas' existing William States Lee Generating Station in Anderson, South Carolina. Duke Energy Carolinas began construction in July 2015 and estimates a cost to build of $600 million for its share of the facility, including allowance for funds used during construction (AFUDC). The project is expected to be commercially available in the first quarter of 2018. NCEMC will own approximately 13 percent of the project. On July 3, 2014, the South Carolina Coastal Conservation League (SCCL) and Southern Alliance for Clean Energy (SACE) jointly filed a Notice of Appeal with the Court of Appeals of South Carolina (S.C. Court of Appeals) seeking the court's review of the PSCSC's decision, claiming the PSCSC did not properly consider a request related to a proposed solar facility prior to granting approval of the CECPCN. The S.C. Court of Appeals affirmed the PSCSC's decision on February 10, 2016, and on March 24, 2016, denied a request for rehearing filed by SCCL and SACE. On April 21, 2016, SCCL and SACE petitioned the South Carolina Supreme Court for review of the S.C. Court of Appeals decision. On March 24, 2017, the South Carolina Supreme Court denied the request for review, thus concluding the matter.
Lee Nuclear Station
In December 2007, Duke Energy Carolinas applied to the NRC for combined operating licenses (COLs) for two Westinghouse AP1000 reactors for the proposed William States Lee III Nuclear Station to be located at a site in Cherokee County, South Carolina. The NCUC and PSCSC concurred with the prudency of Duke Energy Carolinas incurring certain project development and preconstruction costs through several separately issued orders, although full cost recovery is not pre-approved byguaranteed. In December 2016, the NCUC, andNRC issued a COL for each reactor. Duke Energy Carolinas is not required to build the costs are treatednuclear reactors as gas costs subject toresult of the annual gas cost prudence review. Any gain or loss recognition under the hedging program is a reduction in or an addition to gas costs, respectively, which, along with any hedging expenses, are flowed through to North Carolina customers in rates. The gas cost review orders issued November 2013, November 2014 and November 2015 found our hedging activities during the review periods to be reasonable and prudent.COLs being issued.
In April 2013, we withdrew a petition that had been150
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
On March 29, 2017, Westinghouse filed withfor voluntary Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. As part of its 2017 North Carolina Rate Case discussed above, Duke Energy Carolinas is seeking NCUC approval to cancel the development of the Lee Nuclear Station project due to the Westinghouse bankruptcy filing and other market activity and is requesting recovery of incurred licensing and development costs. Duke Energy Carolinas will maintain the license issued by the NRC in October 2012 requesting authority to transfer the total balanceDecember 2016 as an option for potential future development. As of $6.7December 31, 2017, Duke Energy Carolinas has incurred approximately $558 million of capital costs, held in “Plant held for future use” in “Utility Plant” in the Consolidated Balance Sheets to a deferred regulatory asset account, citing our intent to address the matter in a general rate application. The balance in “Plant held for future use” was comprised of real estate and non-real estate costs andincluding AFUDC, related to the developmentproject. These project costs are included in Net property, plant and equipment on Duke Energy Carolinas’ Consolidated Balance Sheets. Duke Energy Carolinas cannot predict the outcome of a LNG facility in Robeson County,this matter.
Duke Energy Progress
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Progress' Consolidated Balance Sheets. |
| | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2017 |
| 2016 |
| | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs - coal ash | $ | 1,975 |
| $ | 1,822 |
| | (i) | (b) |
AROs - nuclear and other | 359 |
| 275 |
| | | (c) |
Accrued pension and OPEB | 430 |
| 423 |
| | | (l) |
Retired generation facilities | 170 |
| 165 |
| | X | 2023 |
Net regulatory asset related to income taxes | — |
| 7 |
| | | (d) |
Storm cost deferrals(e) | 150 |
| 148 |
| | X | (b) |
Hedge costs deferrals | 64 |
| 66 |
| | | (b) |
DSM/EE(f) | 264 |
| 263 |
| | (j) | 2018 |
Vacation accrual | 42 |
| 38 |
| | | 2018 |
Deferred fuel and purchased power | 130 |
| 24 |
| | (g) | 2018 |
Nuclear deferral | 35 |
| 38 |
| | | 2019 |
PISCC and deferred operating expenses | 38 |
| 42 |
| | X | 2054 |
AMI | 75 |
| — |
| | | (b) |
NCEMPA deferrals | 53 |
| 51 |
| | (h) | 2042 |
Other | 74 |
| 69 |
| | | (b) |
Total regulatory assets | 3,859 |
| 3,431 |
| | | |
Less: current portion | 352 |
| 188 |
| | | |
Total noncurrent regulatory assets | $ | 3,507 |
| $ | 3,243 |
| | | |
Regulatory Liabilities(a) | | | | | |
Costs of removal | $ | 2,122 |
| $ | 1,840 |
| | X | (k) |
Net regulatory liability related to income taxes | 1,854 |
| — |
| | | (b) |
Deferred fuel and purchased power | 1 |
| 64 |
| | (g) | 2018 |
Other | 161 |
| 200 |
| | | (b) |
Total regulatory liabilities | 4,138 |
| 2,104 |
| | | |
Less: current portion | 139 |
| 158 |
| | | |
Total noncurrent regulatory liabilities | $ | 3,999 |
| $ | 1,946 |
| | | |
| |
(a) | Regulatory assets and liabilities are excluded from rate base unless otherwise noted. |
| |
(b) | The expected recovery or refund period varies or has not been determined. |
| |
(c) | Recovery period for costs related to nuclear facilities runs through the decommissioning period of each unit. |
| |
(d) | Recovery over the life of the associated assets. Includes regulatory liabilities related to the change in the North Carolina tax rate discussed in Note 22. |
| |
(e) | South Carolina storm costs are included in rate base. |
| |
(f) | Included in rate base. |
| |
(g) | Pays interest on over-recovered costs in North Carolina. Includes certain purchased power costs in North Carolina and South Carolina and costs of distributed energy in South Carolina. |
| |
(h) | South Carolina retail allocated costs are earning a return. |
| |
(i) | Earns a debt return on coal ash expenditures for North Carolina and South Carolina retail customers. |
| |
(j) | Includes incentives on DSM/EE investments. |
| |
(k) | Recovered over the life of the associated assets. |
| |
(l) | Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
2017 North Carolina construction of which was suspended by Piedmont in March 2009. The appropriate treatment of the Robeson County LNG costs was addressed in the general rate settlement discussed below.Rate Case
In May 2013, weOn June 1, 2017, Duke Energy Progress filed a general ratean application with the NCUC requestingfor a rate increase for retail customers of approximately $477 million, which represented an approximate 14.9 percent increase in rates and charges. In December 2013,annual base revenues. Subsequent to the NCUC approved our generalfiling, Duke Energy Progress adjusted the requested amount to $420 million, representing an approximate 13 percent increase. The rate increase is driven by capital investments subsequent to the previous base rate case, settlement agreementcosts of complying with CCR regulations and the NCUCCoal Ash Act, costs relating to storm recovery, investments in customer service technologies and recovery of costs associated with renewable purchased power. On November 22, 2017, Duke Energy Progress and the North Carolina Public Staff with new rates effective January 2014. In its order,filed an Agreement and Stipulation of Partial Settlement resolving certain portions of the proceeding, pending NCUC approvedapproval. Terms of the following:
Updatedsettlement include a return on equity of 9.9 percent and increased ratesa capital structure of 52 percent equity and 48 percent debt. As a result of the settlement, in 2017 Duke Energy Progress recorded pretax charges basedtotaling approximately $25 million to Impairment charges and Operation, maintenance and other on an overallthe Consolidated Income Statements, principally related to disallowances from rate base of $1.8 billion, an equity capital structure componentcertain projects at the Mayo and Sutton plants. The settlement does not include agreement on portions of 50.7%the rate case relating to recovery of deferred storm recovery costs and coal ash basin deferred costs, which will be decided by the NCUC separately. Taking into consideration the settled portions and Duke Energy Progress’ requested recovery of the non-settled portions, the requested rate increase is reduced to approximately $300 million. An evidentiary hearing ended December 7, 2017, and a return on common equitydecision and revised customer rates are expected in the first quarter of 10% and an overall rate2018. Duke Energy Progress cannot predict the outcome of return of 7.51%.this matter.
Increased total annual revenues of $30.7 million, a 3.58% increase in total revenues, or .7% annual increase, including $16.8 million related to gas utility margin and $13.8 million related to increased fixed gas costs, and annual pre-tax income of $24.2 million after taking into account revised depreciation rates and changes to regulatory asset amortizations.Storm Cost Deferral Filings
Implementation of a new IMR designed to separately track and recover annually outside of general rate cases the costs associated with capital expenditures incurred to comply with federal pipeline safety and integrity requirements.
Implementation of lower depreciation rates that provide increased annual pre-tax income of $10.9 million. These new lower rates reflect the most recent study conducted in 2009, as discussed in Note 1 to the consolidated financial statements.
Amortization and collection of $1.2 million of certain non-real estate costs associated with the initial development of the Robeson County LNG facility as discussed above.
Amortization and collection of certain environmental expenses and pipeline safety and integrity compliance expenses through August 31, 2013 that had been deferred since our last general rate case in 2008.
Provision for ongoing increased annual contributions to fund pipeline safety and integrity research.
Future adjustments to rates to recognize the lower state corporate income taxes from North Carolina legislation for fiscal years beginning November 1, 2014 and November 1, 2015.
In January 2014, weOn December 16, 2016, Duke Energy Progress filed a petition with the NCUC seeking authorityrequesting an accounting order to adjust rates effective February 1, 2014 under the IMR mechanism approveddefer certain costs incurred in the general rate case settlement agreementconnection with response to Hurricane Matthew and other significant storms in December 2013 discussed above.2016. The IMR provided for annual adjustments to our rates every February 1 forfinal estimate of incremental operation and maintenance and capital investments in integrity and safety projects ascosts of October 31 of the preceding year. In February 2014, the NCUC approved as$116 million was filed the initial IMR adjustment totaling $.8
million in annual margin revenues that we reflected in our rates to customers beginning that month. In December 2014, we filed a petition with the NCUC seeking authority to adjust rates to collect an additional $26.6 million in annual IMR margin revenues effective February 1, 2015 based on $241.9 million of capital investments in integrity and safety projects over the twelve-month period ending October 31, 2014. In January 2015, the NCUC issued an order authorizing the requested IMR rate adjustments, subject to further review and determination of the reasonableness and prudence of the capital investments and associated costs reflected in the adjustments in our annual IMR adjustment proceedings or next general rate case, with any adjustments to be implemented through a prospective rate adjustment at or after the time such adjustment is approved by the NCUC. We subsequently engaged in discussions with the NCUC Public Staff regarding the completion of their review of the IMR costs and the development of a future procedural schedule for the IMR audit and rate approval process. In September 2015, we and2017. On March 15, 2017, the NCUC Public Staff filed an agreement withcomments supporting deferral of a portion of Duke Energy Progress’ requested amount. Duke Energy Progress filed reply comments on April 12, 2017. On July 10, 2017, the NCUC seeking approvalconsolidated Duke Energy Progress' storm deferral request into the Duke Energy Progress rate case docket for decision. See "2017 North Carolina Rate Case" for additional discussion. As of the following stipulations regarding the operation of the IMR:
Semi-annual IMR rate adjustments each December 1 and June 1, starting December 1, 2015, based on eligible capital investments in integrity and safety projects closed to plant as of September 30 and March 31.
Extension of the IMR tariff from October 31, 2017, to October 31, 2019.Duke Energy Progress has approximately $77 million included in Regulatory assets on its Consolidated Balance Sheets. Duke Energy Progress cannot predict the outcome of this matter.
An established procedural process and time line for NCUC Public Staff’s annual review of our IMR filings.
Fixed percentages to quantify various classes of system integrity expenditures to be recovered through the IMR with the remaining to be recovered through a future rate case:
Transmission integrity: 85% IMR / 15% rate case.
Distribution integrity: 90% IMR / 10% rate case.
Right-of-way clearing for integrity projects: 15% IMR / 85% rate case.
Work and asset management system: 68% IMR / 32% rate case.
Tax-related adjustments.
An immaterial reduction in IMR margin, which we recorded in the fourth fiscal quarter of 2015.
Based on the IMR agreement, in November 2015, we filed a petition with the NCUC seeking authority to adjust rates to collect an additional $13.4 million in annual IMR margin revenues, effectiveOn December 1, 2015, based on $161.9 million of IMR-eligible capital investments in integrity and safety projects over the eleven-month period ended September 30, 2015. In November 2015, the NCUC approved the IMR settlement agreement and the requested December 2015 IMR rate increase.
In April 2014, we filed a petition with the NCUC for a limited waiver of certain billing provisions of our tariff related to emergency service and unauthorized gas taken by customers in January 2014. In August 2014, we and the NCUC Public Staff filed a joint stipulation of settlement. The terms of the settlement included the granting of a waiver of the commodity index pricing mechanism for January 2014, that we should not be penalized for our conduct in varying from the tariff in this instance as that conduct was solely for the benefit of our customers, and that we and the NCUC Public Staff would work together to develop mutually agreeable revisions to our tariff to address the situation that led to this petition. In October 2014, the NCUC issued an order rejecting the joint stipulation of settlement, finding that we must bill our customers for the higher commodity cost of gas pursuant to tariffs and assessing a $65,000 penalty against us for failure to bill and collect according to the commission-approved tariffs. The order further required us to engage in discussions with each customer served under an interruptible rate schedule to explain the service and obligation under that rate schedule and to conduct an investigation to determine if customers are receiving service under the appropriate tariff.
In April 2014, the NCUC issued an order granting us the authority to issue up to $1 billion in the aggregate of senior or subordinated debt securities or equity securities under our open shelf registration statement. This request was made by us to allow flexibility to access the capital markets as needed for business purposes, including for capital investments and to fund the operations of our subsidiaries. For further information on this shelf registration statement, see Note 5 to the consolidated financial statements.
In March 2015, we filed a petition with the NCUC seeking authority for a one-time gas cost bill credit, including applicable sales taxes, for our retail sales and transportation customers in North Carolina. In March 2015, the NCUC issued an order approving our request. The bill credit of $45.5 million was reflected on customers' April 2015 bills, reducing amounts due to customers in North Carolina.
South Carolina
We currently operate under the Natural Gas Rate Stabilization Act of 2005 in South Carolina. If a utility elects to operate under this act, the annual cost and revenue filing will provide that the utility’s rate of return on equity will remain within a 50-basis point band above or below the last approved allowed rate of return on equity.
In June 2012, we filed with the PSCSC a quarterly monitoring report for the twelve months ended March 31, 2012 and a cost and revenue study as permitted by the RSA requesting a change in rates from those approved by the PSCSC in October 2011. In October 2012, the PSCSC issued an order approving a settlement agreement between the Office of Regulatory Staff (ORS) and us that resulted in a $1.1 million annual decrease in margin based on a stipulated return on equity of 11.3%, effective November 1, 2012.
In June 2013, we filed with the PSCSC a quarterly monitoring report for the twelve months ended March 31, 2013 and a cost and revenue study as permitted by the RSA requesting a change in rates from those approved by the PSCSC in October 2012. In October 2013, the PSCSC issued an order approving a settlement agreement between the ORS and us that resulted in a $.1 million annual decrease in margin based on a stipulated return on equity of 11.3%, effective November 1, 2013. The PSCSC also approved the recovery of $.2 million of our deferred South Carolina environmental costs over a one-year period beginning November 2013 and ending October 2014.
In June 2014, we filed with the PSCSC a quarterly monitoring report for the twelve months ended March 31, 2014 and a cost and revenue study under the RSA requesting a change in rates from those approved by the PSCSC in October 2013. In October 2014, the PSCSC issued an order approving a settlement agreement between the ORS and us that resulted in a $2.9 million annual decrease in margin based on a stipulated allowed return on equity of 10.2%, effective November 1, 2014. Also in this proceeding, the PSCSC approved the recovery of $.1 million of our deferred South Carolina environmental costs and $.5 million of certain non-real estate costs associated with the initial development of the Robeson County LNG facility located in North Carolina as discussed above, both with amortization periods of one year beginning November 2014 and ending October 2015.
In June 2015, we filed with the PSCSC a quarterly monitoring report for the twelve months ended March 31, 2015 and a cost and revenue study under the RSA requesting a change in rates from those approved by the PSCSC in the October 2014 order. In October 2015, the PSCSC issued an order approving a settlement agreement between the ORS and us that resulted in a $1.65 million annual increase in margin based on a stipulated allowed return on equity of 10.2%, effective November 1, 2015.
In South Carolina, our recovery of gas costs is subject to annual gas cost proceedings to determine the prudence of our gas purchases. Costs have never been disallowed on the basis of prudence.
The PSCSC has approved a gas cost hedging plan for the purpose of cost stabilization for South Carolina customers. The plan targets a percentage range up to 45% of annual normalized sales volumes for South Carolina and operates using historical pricing indices tied to future projected gas prices as traded on a national exchange. All properly accounted for costs incurred in accordance with the plan are deemed to be prudently incurred and recovered in rates as gas costs. Any gain or loss recognized under the hedging program is a reduction in or an addition to gas costs, respectively, and flows through to South Carolina customers in rates. In an August 2011 order, the PSCSC approved a stipulation that our hedging program should no longer have a required minimum volume of hedging.
In August 2013, the PSCSC approved our PGAs and found our gas purchasing policies to be prudent for the twelve months ended March 31, 2013.
In August 2014, the PSCSC approved our PGAs and found our gas purchasing policies to be prudent for the twelve months ended March 31, 2014.
In September 2015, the PSCSC approved our PGAs and found our gas purchasing policies to be prudent for the twelve months ended March 31, 2015.
In July 2014, we16, 2016, Duke Energy Progress filed a petition with the PSCSC requesting a limited waiver ofan accounting order to defer certain billing provisions of our tariffcosts incurred related to emergencyrepairs and restoration of service for customers infollowing Hurricane Matthew. The final estimate of incremental operation and maintenance and capital costs was approximately $74 million. In January 2014. In August 2014,2017, the PSCSC granted ourapproved the deferral request and ordered us to continue to collaborate withissued an accounting order. As of December 31, 2017, Duke Energy Progress has approximately $73 million included in Regulatory assets on its Consolidated Balance Sheets.
South Carolina Rate Case
In December 2016, the PSCSC approved a rate case settlement agreement among the ORS to revise our tariff to address the situation that led to this petition.
Tennessee
In Tennessee, we operate under the Tennessee Incentive Plan (TIP) that benchmarks gas costs against amounts determined by published market indices(Office of Regulatory Staff), intervenors and by sharing secondary market (capacity release and off-system sales) activity performance. Under the TIP, the TRA established an allocationDuke Energy Progress. Terms of secondary marketing gains and losses to ratepayers and shareholders with a uniform 75/25 sharing ratio with a $1.6 million annual incentive cap for us on these gains and losses. The
TIP includes procedures for asset management transactions and provides for a triennial review of TIP operations by an independent consultant. Although the TIP replaced annual prudence reviews of our gas purchasing activities, we undergo an annual compliance audit on the accuracy of our calculations and compliance with all TRA orders and directives regarding the calculation of our deferred gas cost account balances under the Actual Cost Adjustment (ACA) mechanism.
In August 2012, we filed an annual report with the TRA reflecting the shared gas cost savings from gains and losses derived from gas purchase benchmarking and secondary market transactions for the twelve months ended June 30, 2012 under the TIP. In February 2013, the TRA Utilities Division Audit Staff (Audit Staff) submitted their report with which we concurred. In March 2013, the TRA approved the TIP account balances and issued its written order approving our TIP account balances.
In August 2013, we filed an annual report with the TRA reflecting the shared gas cost savings from gains and losses derived from gas purchase benchmarking and secondary market transactions for the twelve months ended June 30, 2013 under the TIP. In February 2014, the Audit Staff submitted their report with which we concurred. In March 2014, the TRA approved and adopted the Audit Staff’s report. The TRA’s written order was issued in April 2014.
In August 2014, we filed an annual report with the TRA reflecting the shared gas cost savings from gains and losses derived from gas purchase benchmarking and secondary market transactions for the twelve months ended June 30, 2014 under the TIP. In March 2015, the Audit Staff submitted their report with which we concurred. In April 2015, the TRA approved and adopted the Audit Staff's report. The TRA's written order was issued in May 2015.
In August 2015, we filed an annual report with the TRA reflecting the shared gas cost savings from gains and losses derived from gas purchase benchmarking and secondary market transactions for the twelve months ended June 30, 2015 under the TIP. We are waiting on a ruling from the TRA at this time.
In September 2012, we filed an annual report for the twelve months ended June 30, 2012 with the TRA that reflected the transactions in the deferred gas cost account for the ACA mechanism. In March 2013, the TRA approved the deferred gas cost account balances and issued its written order.
In August 2013, we filed a petition with the TRA to authorize us to make an adjustment to the deferred gas cost account reporting for prior periods in the amount of a $3.7 million under collection. In November 2014, we filed a joint settlement agreement with the TRA staff and the Tennessee Attorney General's Consumer Advocate and Protection Division (CAD) in which the parties agreed that we may include in our next ACA filing prior period adjustments totaling $2 million in lieu of the $3.7 million as originally petitioned. In September 2014, we recorded as expense $1.7 million in the Consolidated Statements of Comprehensive Income. In December 2014, the TRA approved the settlement agreement included an approximate $56 million increase in revenues over a two-year period. An increase of approximately $38 million in revenues was effective January 1, 2017, and we included the stipulated $2an additional increase of approximately $18.5 million of prior period adjustments in the ACA annual report filed in December 2014 for the twelve-month period ended June 30, 2013. Inrevenues was effective January 2015, the TRA issued its written order approving the settlement agreement. In October 2015, the TRA approved the deferred gas cost account balances for the twelve-month period ended June 30, 2013 and issued its written order.
In November 2015, we filed an annual report for the twelve months ended June 30, 2014 with the TRA that reflected the transactions in the deferred gas cost account for the ACA mechanism. We are waiting on a ruling1, 2018. Duke Energy Progress amortized approximately $18.5 million from the TRA at this time.
In September 2011, we filedcost of removal reserve in 2017. Other settlement terms included a general rate application with the TRA requesting authority for an increase to rates and charges, proposed to be effective March 1, 2012. In addition, the petition also requested modifications of the cost allocation and rate designs underlying our existing rates, including shifting more of our cost recovery to our fixed charges and expanding the period of the WNA to October through April. We also sought approval to implement a school-based energy education program with appropriate cost recovery mechanisms, amortization of certain regulatory assets and deferred accounts, revised depreciation rates for plant and changes to the existing service regulations and tariffs. In December 2011, we and the CAD reached a stipulation and settlement agreement resolving all issues in this proceeding, including an increase in rates and charges to all customers effective March 1, 2012 designed to produce overall incremental revenues of $11.9 million annually, or 6.3% above the current annual revenue, based upon an approved rate of return on equity of 10.2%. The new cost allocation and rate designs shifted10.1 percent, recovery of fixed chargescoal ash costs incurred from 29%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 37%occur prior to 2019, with limited exceptions.
Western Carolinas Modernization Plan
On November 4, 2015, Duke Energy Progress announced a resulting decreaseWestern Carolinas Modernization Plan, which included retirement of volumetric charges from 71%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 63%.build a third natural gas simple cycle unit in 2023 based upon the outcome of initiatives to reduce the region's power demand. The stipulationplan also included upgrades to existing transmission lines and settlement agreement did not includesubstations, installation of solar generation and a pilot battery storage project. These investments will be made within the next seven years. Duke Energy Progress is also working with the local natural gas distribution company to upgrade an existing natural gas pipeline to serve the natural gas plant.
On March 28, 2016, the NCUC issued an order approving a CPCN for the new combined-cycle natural gas plants, but denying the CPCN for the contingent simple cycle unit without prejudice to Duke Energy Progress to refile for approval in the future. On March 28, 2017, Duke Energy Progress filed an annual progress report for the construction of the combined-cycle plants with the NCUC, with an estimated cost of $893 million. Site preparation activities for the combined-cycle plants are underway and construction of these plants began in 2017, with an expected in-service date in late 2019. Duke Energy Progress plans to file for future approvals related to the proposed solar generation and pilot battery storage project.
The carrying value of the 376-MW Asheville coal-fired plant, including associated ash basin closure costs, of $385 million and $492 million are included in Generation facilities to be retired, net on Duke Energy Progress' Consolidated Balance Sheets as of December 31, 2017, and 2016, respectively.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Shearon Harris Nuclear Plant Expansion
In 2006, Duke Energy Progress selected a site at Harris to evaluate for possible future nuclear expansion. On February 19, 2008, Duke Energy Progress filed its COL application with the NRC for two Westinghouse AP1000 reactors at Harris, which the NRC docketed for review. On May 2, 2013, Duke Energy Progress filed a letter with the NRC requesting the NRC to suspend its review activities associated with the COL at the Harris site. The NCUC and PSCSC approved deferral of retail costs. Total deferred costs were approximately $47 million as of December 31, 2017, and are recorded in Regulatory assets on Duke Energy Progress’ Consolidated Balance Sheets. On November 17, 2016, the FERC approved Duke Energy Progress’ rate recovery mechanismrequest filing for the wholesale ratepayers’ share of the abandonment costs, including a school-based energy education program. In January 2012,debt only return to be recovered through revised formula rates and amortized over a hearing on this matter was held by the TRA. The TRA approved15-year period beginning May 1, 2014. As part of the settlement agreement atfor the January 2012 hearing.2017 North Carolina Rate Case discussed above, Duke Energy Progress will amortize the regulatory asset over an eight-year period. The TRA issued its written order in April 2012.settlement is subject to NCUC approval. Duke Energy Progress cannot predict the outcome of this matter.
Duke Energy Florida
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Florida's Consolidated Balance Sheets. |
| | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2017 |
| 2016 |
| | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs - coal ash(c) | $ | 9 |
| $ | 8 |
| | X | (b) |
AROs - nuclear and other(c) | 296 |
| 294 |
| | X | (b) |
Accrued pension and OPEB(c) | 476 |
| 458 |
| | X | (h) |
Retired generation facilities(c) | 216 |
| 257 |
| | X | (b) |
Net regulatory asset related to income taxes(c) | — |
| 224 |
| | X | (d) |
Storm cost deferrals(c) | 376 |
| — |
| | (f) | 2021 |
Nuclear asset securitized balance, net | 1,142 |
| 1,193 |
| | | 2036 |
Hedge costs deferrals | 30 |
| 25 |
| | | 2018 |
DSM/EE(c) | 17 |
| 15 |
| | X | 2018 |
Deferred fuel and purchased power(c) | 219 |
| 87 |
| | (g) | 2019 |
Nuclear deferral | — |
| 96 |
| | | |
AMI(c) | 75 |
| — |
| | X | 2032 |
Other | 36 |
| 36 |
| | | (b) |
Total regulatory assets | 2,892 |
| 2,693 |
| | | |
Less: current portion | 389 |
| 213 |
| | | |
Total noncurrent regulatory assets | $ | 2,503 |
| $ | 2,480 |
| | | |
Regulatory Liabilities(a) | | | | | |
Costs of removal(c) | $ | 415 |
| $ | 358 |
| | (e) | (b) |
Net regulatory liability related to income taxes(c) | 948 |
| — |
| | | (b) |
Storm reserve(c) | — |
| 60 |
| | | |
Deferred fuel and purchased power(c) | — |
| 17 |
| | (g) | |
Other | 18 |
| 44 |
| | | (b) |
Total regulatory liabilities | 1,381 |
| 479 |
| | | |
Less: current portion | 74 |
| 31 |
| | | |
Total noncurrent regulatory liabilities | $ | 1,307 |
| $ | 448 |
| | | |
| |
(a) | Regulatory assets and liabilities are excluded from rate base unless otherwise noted. |
| |
(b) | The expected recovery or refund period varies or has not been determined. |
| |
(c) | Included in rate base. |
| |
(d) | Recovery over the life of the associated assets. |
| |
(e) | Certain costs earn a return. |
| |
(f) | Earns a debt return/interest once collections begin. |
| |
(g) | Earns commercial paper rate. |
| |
(h) | Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
As a part of the rate case settlement mentioned above, the TRA approved the recovery of $1 million incurred as a result of our response to severe flooding in Nashville in May 2010. These direct incremental expenses had been approved for
deferred accounting treatment in October 2010. These deferred expenses are being amortized over eight years beginning March 1, 2012 through February 2020.
Storm Restoration Cost Recovery
In August 2013, weSeptember 2017, Duke Energy Florida’s service territory suffered significant damage from Hurricane Irma, resulting in approximately 1.3 million customers experiencing outages. In the fourth quarter of 2017, Duke Energy Florida also incurred preparation costs related to Hurricane Nate. On December 28, 2017, Duke Energy Florida filed a petition with the TRA seeking authority to implement an IMRFPSC to recover incremental storm restoration costs for Hurricanes Irma and Nate and to replenish the costs of our capital investments that are made in compliance with federal and state safety and integrity management laws or regulations. We proposed that the rider be effective October 1, 2013 with an initial adjustment on January 1, 2014 of $13.1storm reserve. The estimated recovery amount is approximately $513 million in annual margin revenue from tariff customers based on capital expenditures of $100.4 million incurred through October 2013 and for rates to be updated annually outsiderecovered over a three-year period beginning in March 2018, subject to true up, which includes reestablishment of general rate cases fora $132 million storm reserve. At December 31, 2017, Duke Energy Florida's Consolidated Balance Sheets included approximately $376 million of recoverable costs under the returnFPSC's storm rule in Regulatory assets within Other Noncurrent Assets related to storm recovery. On February 6, 2018, the FPSC approved Duke Energy Florida's motion to approve a stipulation that would apply tax savings resulting from the Tax Act toward storm costs in lieu of implementing a storm surcharge.
2017 Second Revised and on these capital investments. In September 2013,Restated Settlement Agreement
On November 20, 2017, the TRAFPSC issued an order suspending this proposed tariffto approve the 2017 Second Revised and Restated Settlement Agreement (2017 Settlement) filed by Duke Energy Florida. The 2017 Settlement replaces and supplants the 2013 Settlement. The 2017 Settlement extends the base rate case stay-out provision from the 2013 Settlement through December 30, 2013.the end of 2021 unless actual or projected return on equity falls below 9.5 percent; however, Duke Energy Florida is allowed a multiyear increase to its base rates of $67 million per year in 2019, 2020 and 2021, as well as base rate increases for solar generation. In Novemberaddition to carrying forward the provisions contained in the 2013 weSettlement related to the Crystal River 1 and 2 coal units discussed below and future generation needs in Florida, the 2017 Settlement contains provisions related to future investments in solar and renewable energy technology, future investments in AMI technology as well as recovery of existing meters, impacts of the Tax Act, an electric vehicle charging station pilot program and the CAD filed an IMR settlementtermination of the proposed Levy Nuclear Project discussed below. As part of the 2017 Settlement, Duke Energy Florida will not move forward with building the Levy nuclear plant and recorded a pretax impairment charge of approximately $135 million in 2017 to write off all unrecovered Levy Nuclear Project costs, including the COL. As a result of the 2017 Settlement, Duke Energy Florida transferred $75 million to a regulatory asset for the net book value of existing meter technology, which will be recovered over a 15-year period.
The 2017 Settlement includes provisions to recover 2017 under-recovered fuel costs of approximately $196 million over a 24-month period beginning in January 2018. On September 1, 2017, Duke Energy Florida submitted Alternate 2018 Fuel and Capacity clause projection filings consistent with the TRA. A hearingterms of the 2017 Settlement. The updated capacity filing reflects the removal of all Levy costs. The FPSC approved Duke Energy Florida's 2018 Alternate projection filings on this matterOctober 25, 2017.
Hines Chiller Uprate Project
On February 2, 2017, Duke Energy Florida filed a petition seeking approval to include in base rates the revenue requirement for a Chiller Uprate Project (Uprate Project) at the Hines Energy Complex. The Uprate Project was heldplaced into service in December 2013,March 2017 at a cost of approximately $150 million. The annual retail revenue requirement is approximately $19 million. On March 28, 2017, the FPSC issued an order approving the revenue requirement, which was included in base rates for the first billing cycle of April 2017.
Citrus County Combined Cycle Facility
On October 2, 2014, the FPSC granted Duke Energy Florida a Determination of Need for the construction of a 1,640-MW combined-cycle natural gas plant in Citrus County, Florida. On May 5, 2015, the Florida Department of Environmental Protection approved Duke Energy Florida's Site Certification Application. The project has received all required permits and approvals and construction began in October 2015. The facility is expected to be commercially available in 2018 at an estimated cost of $1.5 billion, including AFUDC. The plant will receive natural gas from the Sabal Trail Transmission, LLC (Sabal Trail) pipeline discussed below.
Purchase of Osprey Energy Center
Duke Energy Florida received a Civil Investigative Demand from the Department of Justice (DOJ) related to alleged violation of the waiting period for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 related to the purchase of the Osprey Energy Center, LLC, which was completed in January 2017. The DOJ alleged Duke Energy Florida assumed operational control of the Osprey Plant before the waiting period expiration on February 27, 2015. On January 17, 2017, Duke Energy Florida entered into a stipulation agreement to settle with the DOJ for $600,000 without admission of liability. On January 18, 2017, the DOJ filed a complaint and the TRAstipulation in the U.S. District Court for the District of Columbia, which was approved by the IMR settlement as filed for $13.1 million withcourt. A final order dismissing the IMR rate adjustments beginning January 2014. A written ordercase was issuedentered in May 2014. April 2017.
Crystal River Unit 3
In December 2014, wethe FPSC approved Duke Energy Florida's decision to construct an independent spent fuel storage installation (ISFSI) for the retired Crystal River Unit 3 nuclear plant and approved Duke Energy Florida's request to defer amortization of the ISFSI pending resolution of litigation against the federal government as a result of the Department of Energy's breach of its obligation to accept spent nuclear fuel. The return rate is based on the currently approved AFUDC rate with a return on equity of 7.35 percent, or 70 percent of the currently approved 10.5 percent. The return rate is subject to change if the return on equity changes in the future. In September 2016, the FPSC approved an amendment to the 2013 Settlement authorizing recovery of the ISFSI through the Capacity Cost Recovery Clause. Through December 31, 2017, Duke Energy Florida has deferred approximately $113 million for recovery associated with building the ISFSI. See Note 5 for additional information on spent nuclear fuel litigation.
The regulatory asset associated with the original Crystal River Unit 3 power uprate project will continue to be recovered through the NCRC over an estimated seven-year period that began in 2013 with a remaining uncollected balance of $87 million at December 31, 2017.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Crystal River Unit 3 Regulatory Asset
On September 15, 2015, the FPSC approved Duke Energy Florida's motion for approval of a settlement agreement with intervenors to reduce the value of the projected Crystal River Unit 3 regulatory asset to be recovered to $1.283 billion as of December 31, 2015. An impairment charge of $15 million was recognized in 2015 to adjust the regulatory asset balance. In November 2015, the FPSC issued a financing order approving Duke Energy Florida’s request to issue nuclear asset-recovery bonds to finance its unrecovered regulatory asset related to Crystal River Unit 3 through a wholly owned special purpose entity. Nuclear asset-recovery bonds replace the base rate recovery methodology authorized by the 2013 Settlement and result in a lower rate impact to customers with a recovery period of approximately 20 years.
Pursuant to provisions in Florida Statutes and the FPSC financing order, in 2016, Duke Energy Florida formed Duke Energy Florida Project Finance, LLC (DEFPF), a wholly owned, bankruptcy remote special purpose subsidiary for the purpose of issuing nuclear asset-recovery bonds. In June 2016, DEFPF issued $1,294 million aggregate principal amount of senior secured bonds (nuclear asset-recovery bonds) to finance the recovery of Duke Energy Florida's Crystal River 3 regulatory asset.
In connection with this financing, net proceeds to DEFPF of approximately $1,287 million, after underwriting costs, were used to acquire nuclear asset-recovery property from Duke Energy Florida and to pay transaction related expenses. The nuclear asset-recovery property includes the right to impose, bill, collect and adjust a non-bypassable nuclear asset-recovery charge, to be collected on a per kilowatt-hour basis, from all Duke Energy Florida retail customers until the bonds are paid in full. Duke Energy Florida began collecting the nuclear asset-recovery charge on behalf of DEFPF in customer rates in July 2016.
See Note 17 for additional information.
Levy Nuclear Project
On July 28, 2008, Duke Energy Florida applied to the NRC for COLs for two Westinghouse AP1000 reactors at Levy (Levy Nuclear Project). In 2008, the FPSC granted Duke Energy Florida’s petition for an affirmative Determination of Need and related orders requesting cost recovery under Florida’s nuclear cost-recovery rule, together with the associated facilities, including transmission lines and substation facilities. In October 2016, the NRC issued COLs for the proposed Levy Nuclear Plant Units 1 and 2. Duke Energy Florida is not required to build the nuclear reactors as a result of the COLs being issued.
On January 28, 2014, Duke Energy Florida terminated the Levy engineering, procurement and construction agreement (EPC). Duke Energy Florida may be required to pay for work performed under the EPC. Duke Energy Florida recorded an exit obligation in 2014 for the termination of the EPC. This liability was recorded within Other in Other Noncurrent Liabilities with an offset primarily to Regulatory assets on the Consolidated Balance Sheets. Duke Energy Florida is allowed to recover reasonable and prudent EPC cancellation costs from its retail customers. On May 1, 2017, Duke Energy Florida filed a request with the FPSC to recover approximately $82 million of Levy Nuclear Project costs from retail customers in 2018. As part of the 2017 Settlement discussed above, Duke Energy Florida is no longer seeking recovery of costs related to the Levy Nuclear Project and the ongoing Westinghouse litigation discussed in Note 5. All remaining Levy Nuclear Project issues have been resolved.
Crystal River 1 and 2 Coal Units
Duke Energy Florida has evaluated Crystal River 1 and 2 coal units for retirement in order to comply with certain environmental regulations. Based on this evaluation, those units are expected to be retired by the end of 2018. Once those units are retired Duke Energy Florida will continue recovery of existing annual depreciation expense through the end of 2020. Beginning in 2021, Duke Energy Florida will be allowed to recover any remaining net book value of the assets from retail customers through the Capacity Cost Recovery Clause.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Duke Energy Ohio
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Ohio's Consolidated Balance Sheets. |
| | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2017 |
| 2016 |
| | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs - coal ash | $ | 17 |
| $ | 12 |
| | X | (b) |
Accrued pension and OPEB | 139 |
| 135 |
| | | (g) |
Net regulatory asset related to income taxes(c) | — |
| 63 |
| | | (d) |
Storm cost deferrals | 5 |
| 5 |
| | | (b) |
Hedge costs deferrals | 6 |
| 7 |
| | | (b) |
DSM/EE | 18 |
| 6 |
| | (f) | (e) |
Grid modernization | 39 |
| 65 |
| | X | (e) |
Vacation accrual | 5 |
| 4 |
| | | 2018 |
Deferred fuel and purchased power | — |
| 5 |
| | | |
PISCC and deferred operating expenses(c) | 19 |
| 20 |
| | X | 2083 |
Transmission expansion obligation | 50 |
| 71 |
| | | (e) |
MGP | 91 |
| 99 |
| | | (b) |
AMI | 6 |
| — |
| | | (b) |
East Bend deferrals | 45 |
| 32 |
| | X | (b) |
Deferred pipeline integrity costs | 12 |
| 7 |
| | X | (b) |
Other | 42 |
| 26 |
| | | (b) |
Total regulatory assets | 494 |
| 557 |
| | | |
Less: current portion | 49 |
| 37 |
| | | |
Total noncurrent regulatory assets | $ | 445 |
| $ | 520 |
| | | |
Regulatory Liabilities(a) | | | | | |
Costs of removal | $ | 189 |
| $ | 212 |
| | | (d) |
Net regulatory liability related to income taxes | 688 |
| — |
| | | (b) |
Accrued pension and OPEB | 16 |
| 19 |
| | | (g) |
Deferred fuel and purchased power | — |
| 6 |
| | | |
Other | 34 |
| 20 |
| | | (b) |
Total regulatory liabilities | 927 |
| 257 |
| | | |
Less: current portion | 36 |
| 21 |
| | | |
Total noncurrent regulatory liabilities | $ | 891 |
| $ | 236 |
| | | |
| |
(a) | Regulatory assets and liabilities are excluded from rate base unless otherwise noted. |
| |
(b) | The expected recovery or refund period varies or has not been determined. |
| |
(c) | Included in rate base. |
| |
(d) | Recovery over the life of the associated assets. |
| |
(e) | Recovered via a rider mechanism. |
| |
(f) | Includes incentives on DSM/EE investments. |
| |
(g) | Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail. |
Duke Energy Kentucky Rate Case
On September 1, 2017, Duke Energy Kentucky filed a rate case with the KPSC requesting an increase in electric base rates of approximately $49 million, which represents an approximate 15 percent increase on the average customer bill. The rate increase is driven by increased investment in utility plant, increased operations and maintenance expenses and recovery of regulatory assets. The application also includes implementation of the Environmental Surcharge Mechanism to recover environmental costs not included in base rates, requests to establish a Distribution Capital Investment Rider to recover incremental costs of specific programs, requests to establish a FERC Transmission Cost Reconciliation Rider to recover escalating transmission costs and modification to the Profit Sharing Mechanism to increase customers' share of proceeds from the benefits of owning generation and to mitigate shareholder risks associated with that generation. An evidentiary hearing is scheduled to begin on March 6, 2018.Duke Energy Kentucky anticipates that rates will go into effect in mid-April 2018. Duke Energy Kentucky cannot predict the outcome of this matter.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
2017 Electric Security Plan
On June 1, 2017, Duke Energy Ohio filed with the PUCO a request for a standard service offer in the form of an electric security plan (ESP). If approved by the PUCO, the term of the ESP would be from June 1, 2018, to May 31, 2024. Terms of the ESP include continuation of market-based customer rates through competitive procurement processes for generation, continuation and expansion of existing rider mechanisms and proposed new rider mechanisms relating to regulatory mandates, costs incurred to enhance the customer experience and transform the grid and a service reliability rider for vegetation management. On February 15, 2018, the procedural schedule was suspended to facilitate ongoing settlement discussions. Duke Energy Ohio cannot predict the outcome of this matter.
Woodsdale Station Fuel System Filing
On June 9, 2015, the FERC ruled in favor of PJM Interconnection, LLC (PJM) on a revised Tariff and Reliability Assurance Agreement including implementation of a Capacity Performance (CP) proposal and to amend sections of the Operating Agreement related to generation non-performance. The CP proposal includes performance-based penalties for non-compliance. Duke Energy Kentucky is a Fixed Resource Requirement (FRR) entity, and therefore is subject to the compliance standards through its FRR plans. A partial CP obligation will apply to Duke Energy Kentucky in the delivery year beginning June 1, 2019, with full compliance beginning June 1, 2020. Duke Energy Kentucky has developed strategies for CP compliance investments. On December 21, 2017, the KPSC issued an order approving Duke Energy Kentucky's request for a CPCN to construct an ultra-low sulfur diesel backup fuel system for the Woodsdale Station. The backup fuel system is projected to cost approximately $55 million and is anticipated to be in service prior to the CP compliance deadline of April 2019.
Ohio Valley Electric Corporation
On March 31, 2017, Duke Energy Ohio filed for approval to adjust its existing price stabilization rider (Rider PSR), which is currently set at zero dollars, to pass through net costs related to its contractual entitlement to capacity and energy from the generating assets owned by OVEC. The filing seeks to adjust Rider PSR for OVEC costs subsequent to April 1, 2017. Duke Energy Ohio is seeking deferral authority for net costs incurred from April 1, 2017, until the new rates under Rider PSR are put into effect. Various intervenors have filed motions to dismiss or stay the proceeding and Duke Energy Ohio has opposed these filings. See Note 13 for additional discussion of Duke Energy Ohio's ownership interest in OVEC. Duke Energy Ohio cannot predict the outcome of this matter.
East Bend Coal Ash Basin Filing
On December 2, 2016, Duke Energy Kentucky filed with the KPSC a request for a CPCN for construction projects necessary to close and repurpose an ash basin at the East Bend facility as a result of current and proposed EPA regulations. Duke Energy Kentucky estimated a total cost of approximately $93 million in the filing and expects in-service date by the first quarter of 2021. On June 6, 2017, the KPSC approved the CPCN request.
Electric Base Rate Case
Duke Energy Ohio filed with the PUCO an electric distribution base rate case application and supporting testimony in March 2017. Duke Energy Ohio requested an estimated annual increase of approximately $15 million and a return on equity of 10.4 percent. The application also includes requests to continue certain current riders and establish new riders. On September 26, 2017, the PUCO staff filed a report recommending a revenue decrease between approximately $18 million and $29 million and a return on equity between 9.22 percent and 10.24 percent. On February 15, 2018, the procedural schedule was suspended to facilitate ongoing settlement discussions. Duke Energy Ohio expects rates will go into effect the second quarter of 2018. Duke Energy Ohio cannot predict the outcome of this matter.
Natural Gas Pipeline Extension
Duke Energy Ohio is proposing to install a new natural gas pipeline in its Ohio service territory to increase system reliability and enable the retirement of older infrastructure. On January 20, 2017, Duke Energy Ohio filed an amended application with the Ohio Power Siting Board for approval of one of two proposed routes. A public hearing was held on June 15, 2017, and an adjudicatory hearing was scheduled to begin September 11, 2017. On August 24, 2017, an administrative law judge (ALJ) granted a request made by Duke Energy Ohio to delay the procedural schedule while it works through various issues related to the pipeline route. If approved, construction of the pipeline extension is expected to be completed before the 2020/2021 winter season. The proposed project involves the installation of a natural gas line and is estimated to cost approximately $110 million, excluding AFUDC.
Advanced Metering Infrastructure
On April 25, 2016, Duke Energy Kentucky filed with the KPSC an application for approval of a CPCN for the construction of advanced metering infrastructure. Duke Energy Kentucky estimates the $49 million project will take two years to complete. Duke Energy Kentucky also requested approval to establish a regulatory asset for the remaining book value of existing meter equipment and inventory to be replaced. Duke Energy Kentucky and the Kentucky attorney general entered into a stipulation to settle matters related to the application. On May 25, 2017, the KPSC issued an order to approve the stipulation with certain modifications. On June 1, 2017, Duke Energy Kentucky filed its acceptance of the modifications. The deployment of AMI meters began in third quarter 2017 and is expected to be completed in early 2019. Duke Energy Ohio has approximately $6 million included in Regulatory assets on its Consolidated Balance Sheets at December 31, 2017, for the book value of existing meter equipment.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Accelerated Natural Gas Service Line Replacement Rider
On January 20, 2015, Duke Energy Ohio filed an application for approval of an accelerated natural gas service line replacement program (ASRP). Under the ASRP, Duke Energy Ohio proposed to replace certain natural gas service lines on an accelerated basis over a 10-year period. Duke Energy Ohio also proposed to complete preliminary survey and investigation work related to natural gas service lines that are customer owned and for which it does not have valid records and, further, to relocate interior natural gas meters to suitable exterior locations where such relocation can be accomplished. Duke Energy Ohio's projected total capital and operations and maintenance expenditures under the ASRP were approximately $240 million. The filing also sought approval of a rider mechanism (Rider ASRP) to recover related expenditures. Duke Energy Ohio proposed to update Rider ASRP on an annual basis. Intervenors opposed the ASRP, primarily because they believe the program is neither required nor necessary under federal pipeline regulation. On October 26, 2016, the PUCO issued an order denying the proposed ASRP. Duke Energy Ohio's application for rehearing of the PUCO decision was denied on May 17, 2017.
Energy Efficiency Cost Recovery
On March 28, 2014, Duke Energy Ohio filed an application for recovery of program costs, lost distribution revenue and performance incentives related to its energy efficiency and peak demand reduction programs. These programs are undertaken to comply with environmental mandates set forth in Ohio law. The PUCO approved Duke Energy Ohio’s application but found that Duke Energy Ohio was not permitted to use banked energy savings from previous years in order to calculate the amount of allowed incentive. This conclusion represented a change to the cost recovery mechanism that had been agreed upon by intervenors and approved by the PUCO in previous cases. The PUCO granted the applications for rehearing filed by Duke Energy Ohio and an intervenor. On January 6, 2016, Duke Energy Ohio and the PUCO Staff entered into a stipulation, pending the PUCO's approval, to resolve issues related to performance incentives and the PUCO Staff audit of 2013 costs, among other issues. In December 2015, based upon the stipulation, Duke Energy Ohio re-established approximately $20 million of the revenues that had been previously reversed. On October 26, 2016, the PUCO issued an order approving the stipulation without modification. In December 2016, the PUCO granted the intervenors request for rehearing for the purpose of further review. Duke Energy Ohio cannot predict the outcome of this matter.
On June 15, 2016, Duke Energy Ohio filed an application for approval of a three-year energy efficiency and peak demand reduction portfolio of programs. A stipulation and modified stipulation were filed on December 22, 2016, and January 27, 2017, respectively. Under the terms of the stipulations, which included support for deferral authority of all costs and a cap on shared savings incentives, Duke Energy Ohio offered its energy efficiency and peak demand reduction programs throughout 2017. On February 3, 2017, Duke Energy Ohio filed for deferral authority of its costs incurred in 2017 in respect of its proposed energy efficiency and peak demand reduction portfolio. On September 27, 2017, the PUCO issued an order approving a modified stipulation. The modifications impose an annual cap of approximately $38 million on program costs and shared savings incentives combined, but allowed for Duke Energy Ohio to file for a waiver of costs in excess of the cap in 2017. The PUCO approved the waiver request up to a total cost of $56 million. On November 21, 2017, the PUCO granted Duke Energy Ohio's and intervenor's applications for rehearing of the September 27, 2017, order. On January 10, 2018, the PUCO denied the Ohio Consumers' Counsel’s application for rehearing of the PUCO order granting Duke Energy Ohio's waiver request. Duke Energy Ohio cannot predict the outcome of this matter.
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 Ohio's specific request to include Duke Energy Ohio's entitlement to generation from OVEC in the rider at this time; however, the order allows Duke Energy Ohio to submit additional information to request recovery in the future. On May 4, 2015, Duke Energy Ohio filed an application for rehearing requesting the PUCO to modify or amend certain aspects of the order. On May 28, 2015, the PUCO granted all applications for rehearing filed in the case for future consideration. Duke Energy Ohio cannot predict the outcome of the appeals in this matter.
2012 Natural Gas Rate Case/MGP Cost Recovery
On November 13, 2013, the PUCO issued an order approving a settlement of Duke Energy Ohio’s natural gas base rate case and authorizing the recovery of costs incurred between 2008 and 2012 for environmental investigation and remediation of two former MGP sites. The PUCO order also authorized Duke Energy Ohio to continue deferring MGP environmental investigation and remediation costs incurred subsequent to 2012 and to submit annual filings to adjust the MGP rider for future costs. Intervening parties appealed this decision to the Ohio Supreme Court and on June 29, 2017, the Ohio Supreme Court issued its decision affirming the PUCO order. Appellants filed a request for reconsideration, which was denied on September 27, 2017. This matter is now final.
The PUCO order also contained deadlines for completing the MGP environmental investigation and remediation costs at the MGP sites. For the property known as the East End site, the PUCO order established a deadline of December 31, 2016, which was subsequently extended to December 31, 2019. In January 2017, intervening parties filed for rehearing of the PUCO's decision. On February 8, 2017, the PUCO denied the rehearing request. As of December 31, 2017, Duke Energy Ohio had approximately, $35 million included in Regulatory assets on the Consolidated Balance Sheets for future remediation costs expected to be incurred at the East End site.
Regional Transmission Organization Realignment
Duke Energy Ohio, including Duke Energy Kentucky, transferred control of its transmission assets from MISO to PJM Interconnection, LLC (PJM), effective December 31, 2011. The PUCO approved a settlement related to Duke Energy Ohio’s recovery of certain costs of the Regional Transmission Organization (RTO) realignment via a non-bypassable rider. Duke Energy Ohio is allowed to recover all MISO Transmission Expansion Planning (MTEP) costs, including but not limited to Multi Value Project (MVP) costs, directly or indirectly charged to Ohio customers. Duke Energy Ohio also agreed to vigorously defend against any charges for MVP projects from MISO. The KPSC also approved a request to effect the RTO realignment, subject to a commitment not to seek double recovery in a future rate case of the transmission expansion fees that may be charged by MISO and PJM in the same period or overlapping periods.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The following table provides a reconciliation of the beginning and ending balance of Duke Energy Ohio’s recorded liability for its exit obligation and share of MTEP costs, excluding MVP, recorded within Other in Current liabilities and Other in Other Noncurrent Liabilities on the Consolidated Balance Sheets. The retail portions of MTEP costs billed by MISO are recovered by Duke Energy Ohio through a non-bypassable rider. As of December 31, 2017, and 2016, $50 million and $71 million are recorded in Regulatory assets on Duke Energy Ohio's Consolidated Balance Sheets, respectively. |
| | | | | | | | | | | | | | | |
| | | Provisions/ |
| | Cash |
| | |
(in millions) | December 31, 2016 |
| | Adjustments |
| | Reductions |
| | December 31, 2017 |
|
Duke Energy Ohio | $ | 90 |
| | $ | (20 | ) | | $ | (4 | ) | | $ | 66 |
|
MVP. MISO approved 17 MVP proposals prior to Duke Energy Ohio’s exit from MISO on December 31, 2011. Construction of these projects is expected to continue through 2020. Costs of these projects, including operating and maintenance costs, property and income taxes, depreciation and an allowed return, are allocated and billed to MISO transmission owners.
On December 29, 2011, MISO filed a tariff with the FERC providing for the allocation of MVP costs to a withdrawing owner based on monthly energy usage. The FERC set for hearing (i) whether MISO’s proposed cost allocation methodology to transmission owners who withdrew from MISO prior to January 1, 2012, is consistent with the tariff at the time of their withdrawal from MISO and, (ii) if not, what the amount of and methodology for calculating any MVP cost responsibility should be. In 2012, MISO estimated Duke Energy Ohio’s MVP obligation over the period from 2012 to 2071 at $2.7 billion, on an undiscounted basis. On July 16, 2013, a FERC Administrative Law Judge (ALJ) issued an initial decision. Under this initial decision, Duke Energy Ohio would be liable for MVP costs. Duke Energy Ohio filed exceptions to the initial decision, requesting FERC to overturn the ALJ’s decision.
On October 29, 2015, the FERC issued an order reversing the ALJ's decision. The FERC ruled the cost allocation methodology is not consistent with the MISO tariff and that Duke Energy Ohio has no liability for MVP costs after its withdrawal from MISO. On May 19, 2016, the FERC denied the request for rehearing filed by MISO and the MISO Transmission Owners. On July 15, 2016, the MISO Transmission Owners filed a petition for review with the U.S. Court of Appeals for the Sixth Circuit. On June 21, 2017, a three-judge panel affirmed FERC's 2015 decision holding that Duke Energy Ohio has no liability for the cost of the MVP projects constructed after Duke Energy Ohio's withdrawal from MISO. MISO did not file further petitions for review and this matter is now final.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Duke Energy Indiana
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Indiana's Consolidated Balance Sheets. |
| | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2017 |
| 2016 |
| | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs - coal ash | $ | 380 |
| $ | 276 |
| | | (b) |
Accrued pension and OPEB | 197 |
| 222 |
| | | (g) |
Retired generation facilities(c) | 65 |
| 73 |
| | X | 2025 |
Net regulatory asset related to income taxes | — |
| 119 |
| | | (d) |
Hedge costs deferrals | 25 |
| 26 |
| | | (b) |
DSM/EE | 21 |
| — |
| | (e) | (e) |
Vacation accrual | 11 |
| 10 |
| | | 2018 |
Deferred fuel and purchased power | 18 |
| 40 |
| | | 2018 |
PISCC and deferred operating expenses(c) | 274 |
| 281 |
| | X | (b) |
Gasification services agreement buyout(f) | — |
| 8 |
| | | |
AMI(c) | 21 |
| 46 |
| | X | (b) |
Other | 131 |
| 121 |
| | | (b) |
Total regulatory assets | 1,143 |
| 1,222 |
| | | |
Less: current portion | 165 |
| 149 |
| | | |
Total noncurrent regulatory assets | $ | 978 |
| $ | 1,073 |
| | | |
Regulatory Liabilities(a) | | | | | |
Costs of removal | $ | 644 |
| $ | 660 |
| | | (d) |
Net regulatory liability related to income taxes | 998 |
| — |
| | | (b) |
Amounts to be refunded to customers | 10 |
| 45 |
| | | 2018 |
Accrued pension and OPEB | 64 |
| 72 |
| | | (g) |
Other | 31 |
| 11 |
| | | (b) |
Total regulatory liabilities | 1,747 |
| 788 |
| | | |
Less: current portion | 24 |
| 40 |
| | | |
Total noncurrent regulatory liabilities | $ | 1,723 |
| $ | 748 |
| | | |
| |
(a) | Regulatory assets and liabilities are excluded from rate base unless otherwise noted. |
| |
(b) | The expected recovery or refund period varies or has not been determined. |
| |
(c) | Included in rate base. |
| |
(d) | Recovery over the life of the associated assets. |
| |
(e) | Includes incentives on DSM/EE investments and is recovered through a tracker mechanism over a two-year period. |
| |
(f) | The IURC authorized Duke Energy Indiana to recover costs incurred to buy out a gasification services agreement, including carrying costs through 2017. |
| |
(g) | Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail. |
Coal Combustion Residual Plan
On March 17, 2016, Duke Energy Indiana filed with the IURC a request for approval of its first group of federally mandated CCR rule compliance projects (Phase I CCR Compliance Projects) to comply with the EPA's CCR rule. The projects in this Phase I filing are CCR compliance projects, including the conversion of Cayuga and Gibson stations to dry bottom ash handling and related water treatment. Duke Energy Indiana requested timely recovery of approximately $380 million in retail capital costs, including AFUDC, and recovery of incremental operating and maintenance costs under a federal mandate tracker that provides for timely recovery of 80 percent of such costs and deferral with carrying costs of 20 percent of such costs for recovery in a subsequent retail base rate case. On January 24, 2017, Duke Energy Indiana and various intervenors filed a settlement agreement with the IURC. Terms of the settlement include recovery of 60 percent of the estimated CCR compliance construction project capital costs through existing rider mechanisms and deferral of 40 percent of these costs until Duke Energy Indiana's next general retail rate case. The deferred costs will earn a return based on Duke Energy Indiana's long-term debt rate of 4.73 percent until costs are included in retail rates, at which time the deferred costs will earn a full return. Costs are to be capped at $365 million, plus actual AFUDC. Costs above the cap would be considered for recovery in the next rate case. Terms of the settlement agreement also require Duke Energy Indiana to perform certain reporting and groundwater monitoring. On May 24, 2017, the IURC approved the settlement agreement.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Edwardsport Integrated Gasification Combined Cycle Plant
Costs for the Edwardsport Integrated Gasification Combined Cycle (IGCC) Plant are recovered from retail electric customers via a tracking mechanism (IGCC rider) with updates filed by Duke Energy Indiana. The IGCC Plant was placed into commercial operation in June 2013.
On August 24, 2016, the IURC approved a settlement (IGCC Settlement) among Duke Energy Indiana and several intervenors to resolve disputes related to five IGCC riders (the 11th through 15th) and a subdocket to Duke Energy Indiana's fuel adjustment clause. The IGCC settlement resulted in customers not being billed for previously incurred plant operating costs of $87.5 million and payments and commitments from Duke Energy Indiana of $5.5 million for attorneys’ fees and consumer programs funding. Duke Energy Indiana recognized pretax impairment and related charges of $93 million in 2015. Additionally, under the IGCC settlement, the recovery of operating and maintenance expenses and ongoing maintenance capital at the plant were subject to certain caps during the years of 2016 and 2017. The IGCC settlement also included a commitment to either retire or stop burning coal by December 31, 2022, at the Gallagher Station. Pursuant to the IGCC settlement, the in-service date used for accounting and ratemaking will remain as June 2013. Remaining deferred costs will be recovered over eight years beginning in 2016 and not earn a carrying cost. As of December 31, 2017, deferred costs related to the project are approximately $152 million and are included in Regulatory assets in Current Assets and Other Noncurrent Assets on Duke Energy Indiana's Consolidated Balance Sheets. Under the IGCC settlement, future IGCC riders will be filed annually with the next filing scheduled for first quarter 2018.
The ninth semi-annual IGCC rider order was appealed by various intervenors and the matter was remanded to the IURC for further proceedings and additional findings on a tax in-service issue. On February 2, 2017, 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.
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 complaints claim, among other things, that the current base rate of return on equity earned by MISO transmission owners should be reduced to 8.67 percent. On January 5, 2015, the FERC issued an order accepting the MISO transmission owners' adder of 0.50 percent to the base rate of return on equity based on participation in an RTO subject to it being applied to a return on equity that is shown to be just and reasonable in the pending return on equity complaints. On December 22, 2015, the presiding FERC ALJ in the first complaint issued an Initial Decision in which the base rate of return on equity was set at 10.32 percent. On September 28, 2016, the Initial Decision in the first complaint was affirmed by FERC, but is subject to rehearing requests. On June 30, 2016, the presiding FERC ALJ in the second complaint issued an Initial Decision setting the base rate of return on equity at 9.70 percent. The Initial Decision in the second complaint is pending FERC review. On April 14, 2017, the U.S. Court of Appeals for the District of Columbia Circuit, in Emera Maine v. FERC, reversed and remanded certain aspects of the methodology employed by FERC to establish rates of return on equity. This decision may affect the outcome of the complaints against Duke Energy Indiana. Duke Energy Indiana currently believes these matters will not have a material impact on its results of operations, cash flows and financial position.
Grid Infrastructure Improvement Plan
On December 7, 2015, Duke Energy Indiana filed a grid infrastructure improvement plan with an estimated cost of $1.8 billion in response to guidance from IURC orders and the Indiana Court of Appeals decisions related to a new statute. The plan uses a combination of advanced technology and infrastructure upgrades to improve service to customers and provide them with better information about their energy use. It also provides for cost recovery through a transmission and distribution rider (T&D Rider). In March 2016, Duke Energy Indiana entered into a settlement with all parties to the proceeding except the Citizens Action Coalition of Indiana, Inc. The settlement agreement decreased the capital expenditures eligible for timely recovery of costs in the seven-year plan to approximately $1.4 billion, including the removal of an AMI project. Under the settlement, the return on equity to be used in the T&D Rider is 10 percent. The IURC approved the settlement and issued a final order on June 29, 2016. The order was not appealed and the proceeding is concluded.
The settlement agreement provided for deferral accounting for depreciation and post-in-service carrying costs for AMI projects outside the plan. Duke Energy Indiana withdrew its request for a regulatory asset for current meters and will retain any savings associated with future AMI installation until the next retail base rate case, which is required to be filed prior to the end of the plan. During the third quarter of 2016, Duke Energy Indiana decided to implement the AMI project. This decision resulted in a pretax impairment charge related to existing or non-AMI meters of approximately $8 million in 2016, based in part on the requirement to file a base rate case in 2022 under the approved plan. Duke Energy Indiana evaluates the need for rate cases as part of its business planning, based on the outlook of emerging costs, ongoing investment and impact related to the Tax Act enacted in late 2017 and expects to file a rate case prior to the 2022 requirement. As a result, in 2017, Duke Energy Indiana recorded an additional impairment charge of approximately $22 million. As of December 31, 2017, Duke Energy Indiana's remaining net book value of non-AMI meters is approximately $21 million and will be depreciated through July 2020.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Benton County Wind Farm Dispute
On December 16, 2013, Benton County Wind Farm LLC (BCWF) filed a lawsuit against Duke Energy Indiana seeking damages for past generation losses alleging Duke Energy Indiana violated its obligations under a 2006 PPA by refusing to offer electricity to the market at negative prices. Damage claims continue to increase during times that BCWF is not dispatched. Under 2013 revised MISO market rules, Duke Energy Indiana is required to make a price offer to MISO for the power it proposes to sell into MISO markets and MISO determines whether BCWF is dispatched. Because market prices would have been negative due to increased market participation, Duke Energy Indiana determined it would not bid at negative prices in order to balance customer needs against BCWF's need to run. BCWF contends Duke Energy Indiana must bid at the lowest negative price to ensure dispatch, while Duke Energy Indiana contends it is not obligated to bid at any particular price, that it cannot ensure dispatch with any bid and that it has reasonably balanced the parties' interests. On July 6, 2015, the U.S. District Court for the Southern District of Indiana entered judgment against BCWF on all claims. BCWF appealed the decision and on December 9, 2016, the appeals court ruled in favor of BCWF. Duke Energy Indiana recorded an obligation and a regulatory asset related to the settlement amount in fourth quarter 2016. On June 30, 2017, the parties finalized a settlement agreement. Terms of the settlement included Duke Energy Indiana paying $29 million for back damages. Additionally, the parties agreed on the method by which the contract will be bid into the market in the future. The settlement amount was paid in June 2017. The IURC issued an order on September 27, 2017, approving recovery of the settlement amount through Duke Energy Indiana's fuel clause. The IURC order has been appealed to the Indiana Court of Appeals. Duke Energy Indiana cannot predict the outcome of this matter.
Piedmont
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Piedmont's Consolidated Balance Sheets. |
| | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2017 |
| 2016 |
| | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs - other | $ | 15 |
| $ | 14 |
| | | (d) |
Accrued pension and OPEB(c) | 91 |
| 166 |
| | | (f) |
Derivatives - gas supply contracts | 142 |
| 187 |
| | | (e) |
Vacation accrual(c) | 10 |
| 13 |
| | | 2018 |
Deferred pipeline integrity costs(c) | 42 |
| 36 |
| | | 2018 |
Amount due from customers | 64 |
| 66 |
| | X | (b) |
Other | 14 |
| 15 |
| | | (b) |
Total regulatory assets | 378 |
| 497 |
| | | |
Less: current portion | 95 |
| 124 |
| | | |
Total noncurrent regulatory assets | $ | 283 |
| $ | 373 |
| | | |
Regulatory Liabilities(a) | | | | | |
Costs of removal | $ | 544 |
| $ | 528 |
| | | (d) |
Net regulatory liability related to income taxes | 597 |
| 80 |
| | | (b) |
Other | 3 |
| — |
| | | (b) |
Total regulatory liabilities | 1,144 |
| 608 |
| | | |
Less: current portion | 3 |
| — |
| | | |
Total noncurrent regulatory liabilities | $ | 1,141 |
| $ | 608 |
| | | |
| |
(a) | Regulatory assets and liabilities are excluded from rate base unless otherwise noted. |
| |
(b) | The expected recovery or refund period varies or has not been determined. |
| |
(c) | Included in rate base. |
| |
(d) | Recovery over the life of the associated assets. |
| |
(e) | Balance will fluctuate with changes in the market. Current contracts extend into 2031. |
| |
(f) | Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail. |
South Carolina Rate Stabilization Adjustment Filing
In June 2017, Piedmont filed with the PSCSC under the South Carolina Rate Stabilization Act its quarterly monitoring report for the 12-month period ending March 31, 2017. The filing included a revenue deficiency calculation and tariff rates in order to permit Piedmont the opportunity to earn the rate of return on equity of 12.6 percent established in its last general rate case. On October 4, 2017, the PSCSC approved a settlement agreement between Piedmont and the SC Office of Regulatory Staff. Terms of the settlement included implementation of rates for the 12-month period beginning November 2017 with a return on equity of 10.2 percent.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
North Carolina Integrity Management Rider Filings
In October 2017, Piedmont filed a petition with the TRA seeking authorityNCUC under the Integrity Management Rider (IMR) mechanism to collect an additional $6.5$8.9 million in annual IMR margin revenues, effective January 2015December 2017, based on $54 million ofthe eligible capital investments inclosed to integrity and safety projects over the twelve-monthsix-month period ended October 31, 2014. In January 2015,ending September 30, 2017. On November 28, 2017, the TRA accepted andNCUC approved the requested IMR rate adjustmentadjustment.
In May 2017, Piedmont filed, and issued its written order in February 2015. In November 2015, we filedthe NCUC approved, a petition withunder the TRA seeking authorityIMR mechanism to collect an additional $1.7$11.6 million in annual margin revenuerevenues, effective January 2016June 2017, based on $18.4 million ofthe eligible capital investments inclosed to integrity and safety projects over the twelve-monthsix-month period ending OctoberMarch 31, 2015. In December 2015, the TRA approved the IMR rate increase to be effective January 2016. We are waiting on the TRA's written order at this time.2017.
Tennessee Integrity Management Rider Filing
In February 2014, weNovember 2017, Piedmont filed a petition with the TRATPUC under the IMR mechanism to authorize uscollect an additional $3.3 million in annual revenues, effective January 2018, based on the eligible capital investments closed to amortizeintegrity and refund $4.7safety projects over the 12-month period ending October 31, 2017. In January 2018, Piedmont filed an amended computation under the IMR mechanism, revising the proposed increase in annual revenues to approximately $0.4 million based on the decrease in the corporate federal income tax rate effective January 1, 2018. A hearing on this matter is scheduled for March 2018.
OTHER REGULATORY MATTERS
Atlantic Coast Pipeline
On September 2, 2014, Duke Energy, Dominion Resources (Dominion), Piedmont and Southern Company Gas announced the formation of Atlantic Coast Pipeline, LLC (ACP) to build and own the proposed Atlantic Coast Pipeline (ACP pipeline), an approximately 600-mile interstate natural gas pipeline running from West Virginia to North Carolina. The ACP pipeline is designed to meet, in part, the needs identified by Duke Energy Carolinas, Duke Energy Progress and Piedmont. Dominion will build and operate the ACP pipeline and holds a leading ownership percentage in ACP of 48 percent. Duke Energy owns a 47 percent interest through its Gas Utilities and Infrastructure segment. Southern Company Gas maintains a 5 percent interest. See Notes 12 and 17 for additional information related to Duke Energy's ownership interest.
Duke Energy Carolinas, Duke Energy Progress and Piedmont, among others, will be customers of the pipeline. Purchases will be made under several 20-year supply contracts, subject to state regulatory approval. On September 18, 2015, ACP filed an application with the FERC requesting a CPCN authorizing ACP to construct the pipeline. ACP executed a construction agreement in September 2016. ACP also requested approval of an open access tariff and the precedent agreements it entered into with future pipeline customers. In December 2016, FERC issued a draft Environmental Impact Statement (EIS) indicating that the proposed pipeline would not cause significant harm to the environment or protected populations. The FERC issued the final EIS in July 2017. On October 13, 2017, FERC issued an order approving the CPCN, subject to conditions. On October 16, 2017, ACP accepted the FERC order subject to reserving its right to file a request for rehearing or clarification on a timely basis. On November 9, 2017, ACP filed a request for rehearing on several limited issues. On December 12, 2017, ACP filed an answer to intervenors’ request for rehearing of the certificate order and for stay of the certificate order.
In December 2017, West Virginia issued a waiver of the state water quality permit in reliance on the U.S. Army Corps of Engineers national water quality permit and Virginia issued a conditional water quality permit subject to completion of additional studies and stormwater plans. In early 2018, the FERC issued a series of Partial Notices to Proceed which authorized the project to begin limited construction-related activities along the pipeline route. North Carolina issued the state water quality permit in January 2018. The project remains subject to other pending federal and state approvals, which will allow full construction activities to begin. The ACP pipeline project has a targeted in-service date of late 2019.
Due to delays in obtaining the required permits to commence construction and the conditions imposed upon the project by the permits, ACP's project manager estimates the project's pipeline development costs have increased from a range of $5.0 billion to $5.5 billion to a range of $6.0 billion and $6.5 billion, excluding financing costs. Project construction activities, schedule and final costs are still subject to uncertainty due to potential additional permitting delays, construction productivity and other conditions and risks which could result in potential higher project costs and a potential delay in the targeted in-service date.
Sabal Trail Transmission Pipeline
On May 4, 2015, Duke Energy acquired a 7.5 percent ownership interest in Sabal Trail Transmission, LLC (Sabal Trail) from Spectra Energy Partners, LP, a master limited partnership, formed by Enbridge Inc. (formerly Spectra Energy Corp.). Spectra Energy Partners, LP holds a 50 percent ownership interest in Sabal Trail and NextEra Energy has a 42.5 percent ownership interest. Sabal Trail is a joint venture to construct a 515-mile natural gas pipeline (Sabal Trail pipeline) to transport natural gas to Florida. Total estimated project costs are approximately $3.2 billion. The Sabal Trail pipeline traverses Alabama, Georgia and Florida. The primary customers of the Sabal Trail pipeline, Duke Energy Florida and Florida Power & Light Company (FP&L), have each contracted to buy pipeline capacity for 25-year initial terms. See Notes 12 and 17 for additional information.
On February 3, 2016, the FERC issued an order granting the request for a CPCN to construct and operate the pipeline. The Sabal Trail pipeline received other required regulatory approvals and the phase one mainline was placed in service in July 2017. On October 12, 2017, Sabal Trail filed a request with FERC to place in-service a lateral line to Duke Energy Florida's Citrus County Combined Cycle facility, which remains pending. This request is required to support commissioning and testing activities at the facility.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
On September 21, 2016, intervenors filed an appeal of FERC's CPCN orders to the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court of Appeals). On August 22, 2017, the appeals court ruled against FERC in the case for failing to include enough information on the impact of greenhouse-gas emissions carried by the pipeline, vacated the CPCN order and remanded the case to FERC. In response to the August 2017 court decision, the FERC issued a draft Supplemental Environmental Impact Statement (SEIS) on September 27, 2017. On October 6, 2017, FERC and a group of industry intervenors, including Sabal Trail and Duke Energy Florida, filed separate petitions with the D.C. Circuit Court of Appeals requesting rehearing regarding the court's decision to vacate the CPCN order. On January 31, 2018, the D.C. Circuit Court of Appeals denied the requests for rehearing. On February 2, 2018, Sabal Trail filed a request with FERC for expedited issuance of its order on remand and reissuance of the CPCN. In the alternative, the pipeline requested that FERC issue a temporary emergency CPCN to allow for continued operations. On February 5, 2018, FERC issued the final SEIS but did not issue the order on remand. On February 6, 2018, FERC and the intervenors in this case each filed motions for stay with the D.C. Circuit Court to stay the court's mandate. The February 6, 2018 motions automatically stay the issuance of the court’s mandate until the later of seven days after the court denies the motions or the expiration of any stay granted by the court. Both motions are pending. Sabal Trail will continue to monitor the progress and the impact to the project going forward.
Constitution Pipeline
Duke Energy owns a 24 percent ownership interest in Constitution Pipeline Company, LLC (Constitution). Constitution is a natural gas pipeline project slated to transport natural gas supplies from the Marcellus supply region in northern Pennsylvania to major northeastern markets. The pipeline will be constructed and operated by Williams Partners L.P., which has a 41 percent ownership share. The remaining interest is held by Cabot Oil and Gas Corporation and WGL Holdings, Inc. Before the permitting delays discussed below, Duke Energy's total anticipated contributions were approximately $229 million. As a result of the permitting delays and project uncertainty, total anticipated contributions by Duke Energy can no longer be reasonably estimated.
In December 2014, Constitution received approval from the FERC to construct and operate the proposed pipeline. However, on April 22, 2016, the New York State Department of Environmental Conservation (NYSDEC) denied Constitution’s application for a necessary water quality certification for the New York portion of the Constitution pipeline. Constitution filed legal actions in the U.S. Court of Appeals for the Second Circuit (U.S. Court of Appeals) challenging the legality and appropriateness of the NYSDEC’s decision and on August 18, 2017, the petition was denied in part and dismissed in part. In September 2017, Constitution filed a petition for a rehearing of portions of the decision unrelated to the water quality certification, which was denied by the U.S. Court of Appeals. In January 2018, Constitution petitioned the Supreme Court of the United States to review the U.S. Court of Appeals decision. In October 2017, Constitution filed a petition for declaratory order requesting FERC to find that the NYSDEC waived its rights to issue a Section 401 water quality certification by not acting on Constitution's application within a reasonable period of time as required by statute. This petition was based on precedent established by another pipeline’s successful petition with FERC following a District of Columbia Circuit Court ruling. On January 11, 2018, FERC denied Constitution's petition. In February 2018, Constitution filed a rehearing request with FERC of its finding that the NYSDEC did not waive the Section 401 certification requirement. Constitution is currently unable to approximate an in-service date for the project due to the NYDSEC's denial of the water quality certification. The Constitution partners remain committed to the project and are evaluating next steps to move the project forward. Duke Energy cannot predict the outcome of this matter.
Since April 2016, with the actions of the NYSDEC, Constitution stopped construction and discontinued capitalization of future development costs until the project's uncertainty is resolved.
See Notes 12 and 17 for additional information related to ownership interest and carrying value of the investment.
Progress Energy Merger FERC Mitigation
Following the closing of the Progress Energy merger, outside counsel reviewed Duke Energy’s long-term FERC mitigation plan and discovered a technical error in the calculations. On December 6, 2013, Duke Energy submitted a filing to the FERC disclosing the error and arguing that no additional mitigation is necessary. The city of New Bern filed a protest and requested that FERC order additional mitigation. On October 29, 2014, the FERC ordered that the amount of the stub mitigation be increased from 25 MW to 129 MW. The stub mitigation is Duke Energy’s commitment to set aside for third parties a certain quantity of firm transmission capacity from Duke Energy Carolinas to Duke Energy Progress during summer off-peak hours. The FERC also ordered that Duke Energy operate certain phase shifters to create additional import capability and that such operation be monitored by an independent monitor. The costs to comply with this order are not material. The FERC also referred Duke Energy’s failure to expressly designate the phase shifter reactivation as a mitigation project in the original mitigation plan filing in March 2012 to the FERC Office of Enforcement for further inquiry. In response, and since December 2014, the FERC Office of Enforcement has been conducting a nonpublic investigation of Duke Energy's market power analyses included in the Progress merger filings submitted to FERC. Duke Energy cannot predict the outcome of this investigation.
Potential Coal Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in Florida and Indiana earlier than their current estimated useful lives primarily because facilities do not have the requisite emission control equipment to meet EPA regulations recently approved or proposed.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement due to a lack of requisite environmental control equipment. Dollar amounts in the table below are included in Net property, plant and equipment on the Consolidated Balance Sheets as of December 31, 2017, and exclude capitalized asset retirement costs. |
| | | | | | |
| | | Remaining Net |
|
| Capacity |
| | Book Value |
|
| (in MW) |
| | (in millions) |
|
Duke Energy Carolinas | | | |
Allen Steam Station Units 1-3(a) | 585 |
| | $ | 163 |
|
Progress Energy and Duke Energy Florida | | | |
Crystal River Units 1 and 2(b) | 873 |
| | 107 |
|
Duke Energy Indiana | | | |
Gallagher Units 2 and 4(c) | 280 |
| | 127 |
|
Total Duke Energy | 1,738 |
| | $ | 397 |
|
| |
(a) | Duke Energy Carolinas will retire Allen Steam Station Units 1 through 3 by December 31, 2024, as part of the resolution of a lawsuit involving alleged New Source Review violations. |
| |
(b) | Duke Energy Florida expects to retire these coal units by the end of 2018 to comply with environmental regulations. |
| |
(c) | Duke Energy Indiana committed to either retire or stop burning coal at Gallagher Units 2 and 4 by December 31, 2022, as part of the settlement of Edwardsport IGCC matters. |
Refer to the "Western Carolinas Modernization Plan" discussion above for details of Duke Energy Progress' planned retirements.
5. COMMITMENTS AND CONTINGENCIES
INSURANCE
General Insurance
The Duke Energy Registrants have insurance and reinsurance coverage either directly or through indemnification from Duke Energy’s captive insurance company, Bison, and its affiliates, consistent with companies engaged in similar commercial operations with similar type properties. The Duke Energy Registrants’ coverage includes (i) commercial general liability coverage for liabilities arising to third parties for bodily injury and property damage; (ii) workers’ compensation; (iii) automobile liability coverage; and (iv) property coverage for all real and personal property damage. Real and personal property damage coverage excludes electric transmission and distribution lines, but includes damages arising from boiler and machinery breakdowns, earthquakes, flood damage and extra expense, but not outage or replacement power coverage. All coverage is subject to certain deductibles or retentions, sublimits, exclusions, terms and conditions common for companies with similar types of operations. The Duke Energy Registrants self-insure their electric transmission and distribution lines against loss due to storm damage and other natural disasters. As discussed further in Note 4, Duke Energy Florida maintains a storm damage reserve and has a regulatory mechanism to recover the cost of named storms on an expedited basis.
The cost of the Duke Energy Registrants’ coverage can fluctuate from year to year reflecting claims history and conditions of the insurance and reinsurance markets.
In the event of a loss, terms and amounts of insurance and reinsurance available might not be adequate to cover claims and other expenses incurred. Uninsured losses and other expenses, to the extent not recovered by other sources, could have a material effect on the Duke Energy Registrants’ results of operations, cash flows or financial position. Each company is responsible to the extent losses may be excluded or exceed limits of the coverage available.
Nuclear Insurance
Duke Energy Carolinas owns and operates the McGuire Nuclear Station (McGuire) and the Oconee Nuclear Station (Oconee) and operates and has a partial ownership interest in the Catawba Nuclear Station (Catawba). McGuire and Catawba each have two reactors. Oconee has three reactors. The other joint owners of Catawba reimburse Duke Energy Carolinas for certain expenses associated with nuclear insurance per the Catawba joint owner agreements.
Duke Energy Progress owns and operates the Robinson Nuclear Plant (Robinson), Brunswick and Harris. Robinson and Harris each have one reactor. Brunswick has two reactors.
Duke Energy Florida owns Crystal River Unit 3, which permanently ceased operation in 2013 and reached a SAFSTOR condition in January 2018 after the successful transfer of all used nuclear fuel assemblies to an onsite dry cask storage facility.
In the event of a loss, terms and amounts of insurance available might not be adequate to cover property damage and other expenses incurred. Uninsured losses and other expenses, to the extent not recovered by other sources, could have a material effect on Duke Energy Carolinas’, Duke Energy Progress’ and Duke Energy Florida’s results of operations, cash flows or financial position. Each company is responsible to the extent losses may be excluded or exceed limits of the coverage available.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Nuclear Liability Coverage
The Price-Anderson Act requires owners of nuclear reactors to provide for public nuclear liability protection per nuclear incident up to a maximum total financial protection liability. The maximum total financial protection liability, which is approximately $13.4 billion, is subject to change every five years for inflation and for the number of licensed reactors. Total nuclear liability coverage consists of a combination of private primary nuclear liability insurance coverage and a mandatory industry risk-sharing program to provide for excess nuclear liability coverage above the maximum reasonably available private primary coverage. The U.S. Congress could impose revenue-raising measures on the nuclear industry to pay claims.
Primary Liability Insurance
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida have purchased the maximum reasonably available private primary nuclear liability insurance as required by law, which is $450 million per station.
Excess Liability Program
This program provides $13 billion of coverage per incident through the Price-Anderson Act’s mandatory industrywide excess secondary financial protection program of risk pooling. This amount is the product of potential cumulative retrospective premium assessments of $127 million times the current 102 licensed commercial nuclear reactors in the U.S. Under this program, licensees could be assessed retrospective premiums to compensate for public nuclear liability damages in the event of a nuclear incident at any licensed facility in the U.S. Retrospective premiums may be assessed at a rate not to exceed $19 million per year per licensed reactor for each incident. The assessment may be subject to state premium taxes.
Nuclear Property and Accidental Outage Coverage
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are members of Nuclear Electric Insurance Limited (NEIL), an industry mutual insurance company, which provides property damage, nuclear accident decontamination and premature decommissioning insurance for each station for losses resulting from damage to its nuclear plants, either due to accidents or acts of terrorism. Additionally, NEIL provides accidental outage coverage for each station for losses in the event of a major accidental outage at an insured nuclear station.
Pursuant to regulations of the NRC, each company’s property damage insurance policies provide that all proceeds from such insurance be applied, first, to place the plant in a safe and stable condition after a qualifying accident and second, to decontaminate the plant before any proceeds can be used for decommissioning, plant repair or restoration.
Losses resulting from acts of terrorism are covered as common occurrences, such that if terrorist acts occur against one or more commercial nuclear power plants insured by NEIL within a 12-month period, they would be treated as one event and the owners of the plants where the act occurred would share one full limit of liability. The full limit of liability is currently $3.2 billion. NEIL sublimits the total aggregate for all of their policies for non-nuclear terrorist events to approximately $1.83 billion.
Each nuclear facility has accident property damage, decontamination and premature decommissioning liability insurance from NEIL with limits of $1.5 billion, except for Crystal River Unit 3. Crystal River Unit 3’s limit is $50 million and is on an actual cash value basis. All nuclear facilities except for Catawba and Crystal River Unit 3 also share an additional $1.25 billion nuclear accident insurance limit above their dedicated underlying limit. This shared additional excess limit is not subject to reinstatement in the event of a loss. Catawba has a dedicated $1.25 billion of additional nuclear accident insurance limit above its dedicated underlying limit. Catawba and Oconee also have an additional $750 million of non-nuclear accident property damage limit. All coverages are subject to sublimits and significant deductibles.
NEIL’s Accidental Outage policy provides some coverage, such as business interruption, for losses in the event of a major accident property damage outage of a nuclear unit. Coverage is provided on a weekly limit basis after a significant waiting period deductible and at 100 percent of the available weekly limits for 52 weeks and 80 percent of the available weekly limits for the next 110 weeks. Coverage is provided until these available weekly periods are met where the accidental outage policy limit will not exceed $490 million for McGuire and Catawba, $462 million for Brunswick, $448 million for Harris, $434 million for Oconee and $378 million for Robinson. NEIL sublimits the accidental outage recovery to the first 104 weeks of coverage not to exceed $328 million from non-nuclear accidental property damage. Coverage amounts decrease in the event more than one unit at a station is out of service due to a common accident. All coverages are subject to sublimits and significant deductibles.
Potential Retroactive Premium Assessments
In the event of NEIL losses, NEIL’s board of directors may assess member companies' retroactive premiums of amounts up to 10 times their annual premiums for up to six years after a loss. NEIL has never exercised this assessment. The maximum aggregate annual retrospective premium obligations for Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are $146 million, $96 million and $1 million, respectively. Duke Energy Carolinas' maximum assessment amount includes 100 percent of potential obligations to NEIL for jointly owned reactors. Duke Energy Carolinas would seek reimbursement from the joint owners for their portion of these assessment amounts.
ENVIRONMENTAL
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all of the Duke Energy Registrants.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Remediation Activities
In addition to the ARO recorded as a result of various environmental regulations, discussed in Note 9, the Duke Energy Registrants are responsible for environmental remediation at various sites. These include certain properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. These sites are in various stages of investigation, remediation and monitoring. Managed in conjunction with relevant federal, state and local agencies, remediation activities vary based upon site conditions and location, remediation requirements, complexity and sharing of responsibility. If remediation activities involve joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for environmental impacts caused by other potentially responsible parties and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Liabilities are recorded when losses become probable and are reasonably estimable. The total costs that may be incurred cannot be estimated because the extent of environmental impact, allocation among potentially responsible parties, remediation alternatives and/or regulatory decisions have not yet been determined at all sites. Additional costs associated with remediation activities are likely to be incurred in the future and could be significant. Costs are typically expensed as Operation, maintenance and other in the Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable.
The following tables contain information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Accounts payable within Current Liabilities and Other within Other Noncurrent Liabilities on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Balance at December 31, 2014 | $ | 92 |
| | $ | 10 |
| | $ | 17 |
| | $ | 5 |
| | $ | 12 |
| | $ | 54 |
| | $ | 10 |
|
Provisions/adjustments | 11 |
| | 1 |
| | 4 |
| | — |
| | 4 |
| | 1 |
| | 5 |
|
Cash reductions | (9 | ) | | (1 | ) | | (4 | ) | | (2 | ) | | (2 | ) | | (1 | ) | | (3 | ) |
Balance at December 31, 2015 | 94 |
| | 10 |
| | 17 |
| | 3 |
| | 14 |
| | 54 |
| | 12 |
|
Provisions/adjustments | 19 |
| | 4 |
| | 7 |
| | 2 |
| | 4 |
| | 7 |
| | 1 |
|
Cash reductions | (15 | ) | | (4 | ) | | (6 | ) | | (2 | ) | | (4 | ) | | (2 | ) | | (3 | ) |
Balance at December 31, 2016 | 98 |
| | 10 |
| | 18 |
| | 3 |
| | 14 |
| | 59 |
| | 10 |
|
Provisions/adjustments | 8 |
| | 3 |
| | 3 |
| | 2 |
| | 2 |
| | 3 |
| | (4 | ) |
Cash reductions | (25 | ) | | (3 | ) | | (6 | ) | | (2 | ) | | (4 | ) | | (15 | ) | | (1 | ) |
Balance at December 31, 2017 | $ | 81 |
| | $ | 10 |
| | $ | 15 |
| | $ | 3 |
| | $ | 12 |
| | $ | 47 |
| | $ | 5 |
|
As of December 31, 2016, October 31, 2016, 2015 and 2014, Piedmont's environmental reserve was $1 million. In 2017, a $1 million provision was recorded, resulting in a reserve balance of $2 million at December 31, 2017.
Additional losses in excess of recorded reserves that could be incurred for the stages of investigation, remediation and monitoring for environmental sites that have been evaluated at this time are not material except as presented in the table below. |
| | | |
(in millions) | |
Duke Energy | $ | 56 |
|
Duke Energy Carolinas | 19 |
|
Duke Energy Ohio | 30 |
|
Piedmont | 2 |
|
North Carolina and South Carolina Ash Basins
In February 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River Steam Station caused a release of ash basin water and ash into the Dan River. Duke Energy Carolinas estimates 30,000 to 39,000 tons of ash and 24 million to customers27 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.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
LITIGATION
Duke Energy
Duke Energy no longer has exposure to litigation matters related to the International Disposal Group as a result of the divestiture of the business in December 2016. See Note 2 for additional information related to the sale of International Energy.
Ash Basin Shareholder Derivative Litigation
Five shareholder derivative lawsuits were filed in Delaware Chancery Court relating to the release at Dan River and to the management of Duke Energy’s ash basins. On October 31, 2014, the five lawsuits were consolidated in a single proceeding titled In Re Duke Energy Corporation Coal Ash Derivative Litigation. On December 2, 2014, plaintiffs filed a Corrected Verified Consolidated Shareholder Derivative Complaint (Consolidated Complaint). The Consolidated Complaint names as defendants several current and former Duke Energy officers and directors (collectively, the “Duke Energy Defendants”). Duke Energy is named as a nominal defendant.
The Consolidated Complaint alleges the Duke Energy Defendants breached their fiduciary duties by failing to adequately oversee Duke Energy’s ash basins and that these breaches of fiduciary duty may have contributed to the incident at Dan River and continued thereafter. The lawsuit also asserts claims against the Duke Energy Defendants for corporate waste (relating to the money Duke Energy has spent and will spend as a result of the fines, penalties and coal ash removal) and unjust enrichment (relating to the compensation and director remuneration that was received despite these alleged breaches of fiduciary duty). The lawsuit seeks both injunctive relief against Duke Energy and restitution from the Duke Energy Defendants. On January 21, 2015, the Duke Energy Defendants filed a Motion to Stay, which the court granted. The stay was lifted on March 24, 2016, after which plaintiffs filed an Amended Verified Consolidated Shareholder Derivative Complaint (Amended Complaint) making the same allegations as in the Consolidated Complaint. The Duke Energy Defendants filed a motion to dismiss the Amended Complaint on June 21, 2016, which was granted by the Court on December 14, 2016. Plaintiffs filed an appeal to the Delaware Supreme Court on January 9, 2017. Oral argument was held on September 27, 2017. On December 15, 2017, the Delaware Supreme Court affirmed the Chancery Court's order of dismissal.
In addition to the above derivative complaints, in 2014, Duke Energy received two shareholder litigation demand letters. The letters alleged that the members of the Board of Directors and certain officers breached their fiduciary duties by allowing the company to illegally dispose of and store coal ash pollutants. One of the letters also alleged a breach of fiduciary duty in the decision-making relating to the leadership changes following the close of the Progress Energy merger in July 2012. By letter dated September 4, 2015, attorneys for the shareholders were informed that, on the recommendation of the Demand Review Committee formed to consider such matters, the Board of Directors concluded not to pursue potential claims against individuals. One of the shareholders, Mitchell Pinsly, sent a formal demand for records and Duke Energy has responded to this request. There was no follow-up after the records were provided; therefore, this matter has been resolved.
On October 30, 2015, shareholder Saul Bresalier filed a shareholder derivative complaint (Bresalier Complaint) in the U.S. District Court for the District of Delaware. The lawsuit alleges that several current and former Duke Energy officers and directors (Bresalier Defendants) breached their fiduciary duties in connection with coal ash environmental issues, the post-merger change in Chief Executive Officer (CEO) and oversight of political contributions. Duke Energy is named as a nominal defendant. The Bresalier Complaint contends that the Demand Review Committee failed to appropriately consider the shareholder’s earlier demand for litigation and improperly decided not to pursue claims against the Bresalier Defendants. On March 30, 2017, the court granted Defendants’ Motion to Dismiss on the claims relating to coal ash environmental issues and political contributions. As discussed below, a settlement agreement was approved for the merger-related claims in the Bresalier Complaint, and those claims were dismissed. On September 8, 2017, Bresalier filed a notice of appeal to the U.S. Court of Appeals for the Third Circuit (Third Circuit Court) challenging the dismissal of his coal ash and political contribution claims. On January 19 2018, Bresalier filed a stipulation of dismissal, closing this case.
Progress Energy Merger Shareholder Litigation
Duke Energy, the 11 members of the Board of Directors who were also members of the pre-merger Board of Directors (Legacy Duke Energy Directors) and certain Duke Energy officers were defendants in a purported securities class-action lawsuit (Nieman v. Duke Energy Corporation, et al). This lawsuit consolidated three lawsuits originally filed in July 2012. The plaintiffs alleged federal Securities Act of 1933 and Securities Exchange Act of 1934 (Exchange Act) claims based on allegations of materially false and misleading representations and omissions in the Registration Statement filed on July 7, 2011, and purportedly incorporated into other documents, all in connection with the post-merger change in CEO. On August 15, 2014, the parties reached an agreement in principle to settle the litigation. On March 10, 2015, the parties filed a Stipulation of Settlement and a Motion for Preliminary Approval of the Settlement. Under the terms of the agreement, Duke Energy agreed to pay $146 million to settle the claim. On April 22, 2015, Duke Energy made a payment of $25 million into the settlement escrow account. The remainder of $121 million was paid by insurers into the settlement escrow account. The final order approving the settlement was issued on November 2, 2015, thus closing the matter.
On May 31, 2013, the Delaware Chancery Court consolidated four shareholder derivative lawsuits filed in 2012. The Court also appointed a lead plaintiff and counsel for plaintiffs and designated the case as In Re Duke Energy Corporation Derivative Litigation (Merger Chancery Litigation). The lawsuit names as defendants the Legacy Duke Energy Directors. Duke Energy is named as a nominal defendant. The case alleges claims for breach of fiduciary duties of loyalty and care in connection with the post-merger change in CEO.
Two shareholder Derivative Complaints, filed in 2012 in federal district court in Delaware, were consolidated as Tansey v. Rogers, et al. The case alleges claims against the Legacy Duke Energy Directors for breach of fiduciary duty and waste of corporate assets, as well as claims under Section 14(a) and 20(a) of the Exchange Act. Duke Energy is named as a nominal defendant. On December 21, 2015, Plaintiff filed a Consolidated Amended Complaint asserting the same claims contained in the original complaints.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The Legacy Duke Energy Directors have reached an agreement-in-principle to settle the Merger Chancery Litigation, conditioned on dismissal as well, of the Tansey v. Rogers, et al case and the merger related claims in the Bresalier Complaint discussed above, which was approved by the Delaware Chancery Court on July 13, 2017. The entire settlement amount was funded by insurance. The settlement amount, less court-approved attorney fees, totaled $20 million and was paid to Duke Energy in 2017.
Duke Energy Carolinas and Duke Energy Progress
Coal Ash Insurance Coverage Litigation
In March 2017, Duke Energy Carolinas and Duke Energy Progress filed a civil action in North Carolina Superior Court against various insurance providers. The lawsuit seeks payment for coal ash-related liabilities covered by third-party liability insurance policies. The insurance policies were issued between 1971 and 1986 and provide third-party liability insurance for property damage. The civil action seeks damages for breach of contract and indemnification for costs arising from the Coal Ash Act and the EPA CCR rule at 15 coal-fired plants in North Carolina and South Carolina. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
NCDEQ Notice of Violation
On February 8, 2016, the NCDEQ assessed a penalty of approximately $6.8 million, including enforcement costs, against Duke Energy Carolinas related to stormwater pipes and associated discharges at the Dan River Steam Station. Duke Energy Carolinas recorded excess deferred taxes. We proposed to refunda charge in December 2015 for this amount to customers over three years.penalty. In November 2015, weMarch 2016, Duke Energy Carolinas filed an appeal of this penalty. On September 23, 2016, Duke Energy Carolinas entered into a settlement agreement with the CAD stipulating that Piedmont refund the $4.7NCDEQ, 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.
NCDEQ State Enforcement Actions
In the first quarter of 2013, Southern Environmental Law Center (SELC) sent notices of intent to sue Duke Energy Carolinas and Duke Energy Progress related to alleged Clean Water Act (CWA) violations from coal ash basins at two of their coal-fired power plants in North Carolina. The NCDEQ filed enforcement actions against Duke Energy Carolinas and Duke Energy Progress alleging violations of water discharge permits and North Carolina groundwater standards. The cases have been consolidated and are being heard before a single judge in the North Carolina Superior Court.
On August 16, 2013, the NCDEQ filed an enforcement action against Duke Energy Carolinas and Duke Energy Progress related to their remaining plants in North Carolina alleging violations of the CWA and violations of the North Carolina groundwater standards. Both of these cases have been assigned to the judge handling the enforcement actions discussed above. SELC is representing several environmental groups who have been permitted to intervene in these cases.
The court issued orders in 2016 granting Motions for Partial Summary Judgment for seven of the 14 North Carolina plants with coal ash basins named in the enforcement actions. On February 13, 2017, the court issued an order denying motions for partial summary judgment brought by both the environmental groups and Duke Energy Carolinas and Duke Energy Progress for the remaining seven plants. On March 15, 2017, Duke Energy Carolinas and Duke Energy Progress filed a Notice of Appeal to challenge the trial court’s order. The parties were unable to reach an agreement at mediation in April 2017. The parties submitted briefs to the court on remaining issues to be tried and a ruling is pending. On August 22, 2017, Duke Energy Carolinas and Duke Energy Progress filed a Petition for Discretionary Review, requesting the North Carolina Supreme Court to accept the appeal. On August 24, 2017, SELC filed a motion to dismiss the appeal. Duke Energy Carolinas' and Duke Energy Progress’ opening appellate briefs were filed on October 12, 2017, and briefing is now complete. Argument was held on February 8, 2018.
It is not possible to predict any liability or estimate any damages Duke Energy Carolinas or Duke Energy Progress might incur in connection with these matters.
Federal Citizens Suits
On June 13, 2016, the Roanoke River Basin Association (RRBA) filed a federal citizen suit in the Middle District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the Mayo Plant. On August 19, 2016, Duke Energy Progress filed a Motion to Dismiss. On April 26, 2017, the court entered an order dismissing four of the claims in the federal citizen suit. Two claims relating to alleged violations of National Pollutant Discharge Elimination System (NPDES) permit provisions survived the motion to dismiss, and Duke Energy Progress filed its response on May 10, 2017. The parties are engaged in pre-trial discovery. Trial has been scheduled for July 9, 2018.
On March 16, 2017, RRBA served Duke Energy Progress with a Notice of Intent to Sue under the CWA for alleged violations of effluent standards and limitations at the Roxboro Plant. In anticipation of litigation, Duke Energy Progress filed a Complaint for Declaratory Relief in the U.S. District Court for the Western District of Virginia on May 11, 2017, which was subsequently dismissed. On May 16, 2017, RRBA filed a federal citizen suit in the U.S. District Court for the Middle District of North Carolina which asserts two claims relating to alleged violations of NPDES permit provisions and one claim relating to the use of nearby water bodies. The parties are engaged in pre-trial discovery. Trial has been scheduled for October 1, 2018.
On June 20, 2017, RRBA filed a federal citizen suit in the U.S. District Court for the Middle District of North Carolina challenging the closure plans at the Mayo Plant under the EPA CCR Rule. Duke Energy Progress filed a motion to dismiss, which was argued on January 30, 2018.
On August 2, 2017, RRBA filed a federal citizen suit in the U.S. District Court for the Middle District of North Carolina challenging the closure plans at the Roxboro Plant under the EPA CCR Rule. Duke Energy Progress filed a motion to dismiss on October 2, 2017.
On December 6, 2017, various parties filed a federal citizen suit in the U.S. District Court for the Middle District of North Carolina for alleged violations at Duke Energy Carolinas' Belews Creek Steam Station (Belews Creek) under the CWA. Duke Energy Carolinas filed a motion to dismiss on February 5, 2018.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
It is not possible to predict whether Duke Energy Carolinas or Duke Energy Progress will incur any liability or to estimate the damages, if any, they might incur in connection with these matters.
Five previously filed cases involving the Riverbend, Cape Fear, H.F. Lee, Sutton and Buck plants have been dismissed or settled during 2016.
Groundwater Contamination Claims
Beginning in May 2015, a number of residents living in the vicinity of the North Carolina facilities with ash basins received letters from the NCDEQ advising them not to drink water from the private wells on their land tested by the NCDEQ as the samples were found to have certain substances at levels higher than the criteria set by the North Carolina Department of Health and Human Services (DHHS). Results of Comprehensive Site Assessments (CSAs) testing performed by Duke Energy under the Coal Ash Act have been consistent with historical data provided to state regulators over many years. The DHHS and NCDEQ sent follow-up letters on October 15, 2015, to residents near coal ash basins who have had their wells tested, stating that private well samplings at a considerable distance from coal ash basins, as well as some municipal water supplies, contain similar levels of vanadium and hexavalent chromium, which led investigators to believe these constituents are naturally occurring. In March 2016, DHHS rescinded the advisories.
Duke Energy Carolinas and Duke Energy Progress have received formal demand letters from residents near Duke Energy Carolinas' and Duke Energy Progress' coal ash basins. The residents claim damages for nuisance and diminution in property value, among other things. The parties held three days of mediation discussions which ended at impasse. On January 6, 2017, Duke Energy Carolinas and Duke Energy Progress received the plaintiffs' notice of their intent to file suits should the matter not settle. The NCDEQ preliminarily approved Duke Energy’s permanent water solution plans on January 13, 2017, and as a result shortly thereafter, Duke Energy issued a press release, providing additional details regarding the homeowner compensation package. This package consists of three components: (i) a $5,000 goodwill payment to each eligible well owner to support the transition to a new water supply, (ii) where a public water supply is available and selected by the eligible well owner, a stipend to cover 25 years of water bills and (iii) the Property Value Protection Plan. The Property Value Protection Plan is a program offered by Duke Energy designed to guarantee eligible plant neighbors the fair market value of their residential property should they decide to sell their property during the time that the plan is offered. Duke Energy Carolinas and Duke Energy Progress recognized reserves of $19 million and $4 million, respectively.
On August 23, 2017, a class-action suit was filed in Wake County Superior Court, North Carolina, against Duke Energy Carolinas and Duke Energy Progress on behalf of certain property owners living near coal ash impoundments at Allen, Asheville, Belews Creek, Buck, Cliffside, Lee, Marshall, Mayo and Roxboro. The class is defined as those who are well-eligible under the Coal Ash Act or those to whom Duke Energy has promised a permanent replacement water supply and seeks declaratory and injunctive relief, along with compensatory damages. Plaintiffs allege that Duke Energy’s improper maintenance of coal ash impoundments caused harm, particularly through groundwater contamination. Despite NCDEQ’s preliminary approval, Plaintiffs contend that Duke Energy’s proposed permanent water solutions plan fails to comply with the Coal Ash Act. On September 28, 2017, Duke Energy Carolinas and Duke Energy Progress filed a Motion to Dismiss and Motion to Strike the class designation. The parties entered into a Settlement Agreement on January 24, 2018, which resulted in the dismissal of the underlying class action on January 25, 2018.
On September 14, 2017, a complaint was filed against Duke Energy Progress in New Hanover County Superior Court by a group of homeowners residing approximately 1 mile from Duke Energy Progress' Sutton Steam Plant. The homeowners allege that coal ash constituents have been migrating from ash impoundments at Sutton into their groundwater for decades and that in 2015, Duke Energy Progress discovered these releases of coal ash, but failed to notify any officials or neighbors and failed to take remedial action. The homeowners claim unspecified physical and mental injuries as a result of consuming their well water and seek actual damages for personal injury, medical monitoring and punitive damages. Duke Energy filed its Motion to Dismiss on October 27, 2017, and the hearing is scheduled for March 7, 2018.
It is not possible to estimate the maximum exposure of loss, if any, that may occur in connection with claims which might be made by these residents.
Duke Energy Carolinas
Asbestos-related Injuries and Damages Claims
Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement related to asbestos exposure. These claims relate to damages for bodily injuries alleged to have arisen from exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of December 31, 2017, there were 161 asserted claims for non-malignant cases with the cumulative relief sought of up to $42 million and 54 asserted claims for malignant cases with the cumulative relief sought of up to $16 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed.
Duke Energy Carolinas has recognized asbestos-related reserves of $489 million and $512 million at December 31, 2017, and 2016, respectively. These reserves are classified in Other within Other Noncurrent Liabilities and Other within Current Liabilities on the Consolidated Balance Sheets. These reserves are based upon the minimum amount of the range of loss for current and future asbestos claims through 2037, are recorded on an undiscounted basis and incorporate anticipated inflation. In light of the uncertainties inherent in a longer-term forecast, management does not believe they can reasonably estimate the indemnity and medical costs that might be incurred after 2037 related to such potential claims. It is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. Duke Energy Carolinas’ cumulative payments began to exceed the self-insurance retention in 2008. Future payments up to the policy limit will be reimbursed by the third-party insurance carrier. The insurance policy limit for potential future insurance recoveries indemnification and medical cost claim payments is $797 million in excess of the self-insured retention. Receivables for insurance recoveries were $585 million and $587 million at December 31, 2017, and 2016, respectively. These amounts are classified in Other within Other Noncurrent Assets and Receivables within Current Assets on the Consolidated Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating.
Duke Energy Progress and Duke Energy Florida
Spent Nuclear Fuel Matters
On October 16, 2014, Duke Energy Progress and Duke Energy Florida sued the U.S. in the U.S. Court of Federal Claims. The lawsuit claimed the Department of Energy breached a contract in failing to accept spent nuclear fuel under the Nuclear Waste Policy Act of 1982 and asserted damages for the cost of on-site storage. Duke Energy Progress and Duke Energy Florida asserted damages for the period January 1, 2011, through December 31, 2013, of $48 million and $25 million, respectively. On November 17, 2017, the Court awarded Duke Energy Progress and Duke Energy Florida $48 million and $21 million, respectively, subject to appeal. No appeals were filed and Duke Energy Progress and Duke Energy Florida will recognize the recoveries in the first quarter of 2018. Claims for all periods through 2013 have been resolved. Additional claims will be filed in 2018.
Duke Energy Progress
Gypsum Supply Agreements Matter
On June 30, 2017, CertainTeed Gypsum NC, Inc. (CertainTeed) filed a declaratory judgment action against Duke Energy Progress in the North Carolina Business Court relating to a gypsum supply agreement. In its complaint, CertainTeed seeks an order from the court declaring that the minimum amount of gypsum Duke Energy Progress must provide to CertainTeed under the supply agreement is 50,000 tons per month through 2029. On September 28, 2017, the Court denied CertainTeed's motion for summary judgment. Discovery in the case is underway and a trial date has not been set. In light of the volatility in future production of gypsum, Duke Energy Progress cannot predict the outcome of this matter.
Duke Energy Florida
Class-Action Lawsuit
On February 22, 2016, a lawsuit was filed in the U.S. District Court for the Southern District of Florida on behalf of a putative class of Duke Energy Florida and FP&L’s customers overin 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 twelve month period.result of the NCRS, as well as an injunction against any future charges under those statutes. The constitutionality of the NCRS has been challenged unsuccessfully in a number of prior cases on alternative grounds. Duke Energy Florida and FP&L filed motions to dismiss the complaint on May 5, 2016. On September 21, 2016, the Court granted the motions to dismiss with prejudice. Plaintiffs filed a motion for reconsideration, which was denied. On January 4, 2017, plaintiffs filed a notice of appeal to the U.S. Court of Appeals. The appeal, which has been fully briefed, was heard on August 22, 2017, and a decision is pending. Duke Energy Florida cannot predict the outcome of this appeal.
Westinghouse Contract Litigation
On March 28, 2014, Duke Energy Florida filed a lawsuit against Westinghouse in the U.S. District Court for the Western District of North Carolina. The lawsuit seeks recovery of $54 million in milestone payments in excess of work performed under the terminated EPC for Levy as well as a determination by the court of the amounts due to Westinghouse as a result of the termination of the EPC. Duke Energy Florida recognized an exit obligation as a result of the termination of the EPC contract.
On March 31, 2014, Westinghouse filed a lawsuit against Duke Energy Florida in U.S. District Court for the Western District of Pennsylvania. The Pennsylvania lawsuit alleged damages under the EPC in excess of $510 million for engineering and design work, costs to end supplier contracts and an alleged termination fee.
On June 9, 2014, the judge in the North Carolina case ruled that the litigation will proceed in the Western District of North Carolina. On July 11, 2016, Duke Energy Florida and Westinghouse filed separate Motions for Summary Judgment. On September 29, 2016, the court issued its ruling on the parties' respective Motions for Summary Judgment, ruling in favor of Westinghouse on a $30 million termination fee claim and dismissing Duke Energy Florida's $54 million refund claim, but stating that Duke Energy Florida could use the refund claim to offset any damages for termination costs. Westinghouse's claim for termination costs was unaffected by this ruling and continued to trial. At trial, Westinghouse reduced its claim for termination costs from $482 million to $424 million. Following a trial on the matter, the court issued its final order in December 2016 denying Westinghouse’s claim for termination costs and re-affirming its earlier ruling in favor of Westinghouse on the $30 million termination fee and Duke Energy Florida’s refund claim. Judgment was entered against Duke Energy Florida in the amount of approximately $34 million, which includes pre-judgment interest. Westinghouse has appealed the trial court's order and Duke Energy Florida has cross-appealed. Duke Energy Florida cannot predict the ultimate outcome of the appeal of the trial court's order.
On March 29, 2017, Westinghouse filed Chapter 11 bankruptcy in the Southern District of New York, which automatically stayed the appeal. On May 23, 2017, the bankruptcy court entered an order lifting the stay with respect to the appeal. Briefing of the appeal concluded on October 20, 2017. Oral argument in the appeal was originally set for March 2018 but has tentatively been rescheduled to May 2018, due to scheduling conflicts.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Ultimate resolution of these matters could have a material effect on the results of operations, financial position or cash flows of Duke Energy Florida. See discussion of the 2017 Settlement and the Levy Nuclear Project in Note 4 for additional information regarding recovery of costs related to Westinghouse. The 2017 Settlement does not permit recovery of any amounts paid to resolve this contract litigation.
MGP Cost Recovery Action
On December 30, 2011, Duke Energy Florida filed a lawsuit against FirstEnergy Corp. (FirstEnergy) to recover investigation and remediation costs incurred by Duke Energy Florida in connection with the restoration of two former MGP sites in Florida. Duke Energy Florida alleged that FirstEnergy, as the successor to Associated Gas & Electric Co., owes past and future contribution and response costs of up to $43 million for the investigation and remediation of MGP sites. On December 6, 2016, the trial court entered judgment against Duke Energy Florida in the case. In DecemberJanuary 2017, Duke Energy Florida appealed the decision to the U.S. Court of Appeals for the Sixth Circuit, which has been fully briefed and argued. Duke Energy Florida cannot predict the outcome of this appeal.
Duke Energy Ohio
Antitrust Lawsuit
In January 2008, four plaintiffs, including individual, industrial and nonprofit customers, filed a lawsuit against Duke Energy Ohio in federal court in the Southern District of Ohio. Plaintiffs alleged Duke Energy Ohio conspired to provide inequitable and unfair price advantages for certain large business consumers by entering into nonpublic option agreements in exchange for their withdrawal of challenges to Duke Energy Ohio’s Rate Stabilization Plan implemented in early 2005. In March 2014, a federal judge certified this matter as a class action. Plaintiffs alleged claims of antitrust violations under the federal Robinson Patman Act as well as fraud and conspiracy allegations under the federal Racketeer Influenced and Corrupt Organizations statute and the Ohio Corrupt Practices Act.
During 2015, the TRAparties 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 agreement,checks was approved by the court in January 2017 and weall settlement amounts have been paid. See Note 2 for further discussion on the Midwest Generation Exit.
Other Litigation and Legal Proceedings
The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve significant amounts. The Duke Energy Registrants believe the final disposition of these proceedings will begin refundingnot 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 $4.7 millionexit obligation discussed above related to the termination of an EPC contract. Reserves are classified on the Consolidated Balance Sheets in Other within Other Noncurrent Liabilities and Accounts payable and Other within Current Liabilities. The reasonably possible range of loss in excess of recorded reserves is not material, other than as described above. |
| | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
|
Reserves for Legal Matters | | | |
Duke Energy | $ | 88 |
| | $ | 98 |
|
Duke Energy Carolinas | 30 |
| | 23 |
|
Progress Energy | 55 |
| | 59 |
|
Duke Energy Progress | 13 |
| | 14 |
|
Duke Energy Florida | 24 |
| | 28 |
|
Duke Energy Ohio | — |
| | 4 |
|
Piedmont | 2 |
| | 2 |
|
OTHER COMMITMENTS AND CONTINGENCIES
General
As part of their normal business, the Duke Energy Registrants are party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. These guarantees involve elements of performance and credit risk, which are not fully recognized on the 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.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Purchase Obligations
Purchased Power
Duke Energy Progress, Duke Energy Florida and Duke Energy Ohio have ongoing purchased power contracts, including renewable energy contracts, with other utilities, wholesale marketers, co-generators and qualified facilities. These purchased power contracts generally provide for capacity and energy payments. In addition, Duke Energy Progress and Duke Energy Florida have various contracts to secure transmission rights.
The following table presents executory purchased power contracts with terms exceeding one year, excluding contracts classified as leases. Amounts at Duke Energy Ohio were immaterial. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Minimum Purchase Amount at December 31, 2017 |
| Contract | | | | | | | | | | | | | | |
(in millions) | Expiration | | 2018 |
| | 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | Thereafter |
| | Total |
|
Duke Energy Progress(a) | 2019-2031 | | $ | 68 |
| | $ | 68 |
| | $ | 51 |
| | $ | 52 |
| | $ | 30 |
| | $ | 239 |
| | $ | 508 |
|
Duke Energy Florida(b) | 2021-2043 | | 357 |
| | 374 |
| | 394 |
| | 378 |
| | 376 |
| | 770 |
| | 2,649 |
|
(a) Contracts represent between 15 percent and 100 percent of net plant output.
(b) Contracts represent between 81 percent and 100 percent of net plant output.
Gas Supply and Capacity Contracts
Duke Energy Ohio and Piedmont routinely enter into long-term natural gas supply commodity and capacity commitments and other agreements that commit future cash flows to acquire services needed in their businesses. These commitments include pipeline and storage capacity contracts and natural gas supply contracts to provide service to customers. Costs arising from the natural gas supply commodity and capacity commitments, while significant, are pass-through costs to customers and are generally fully recoverable through a rate decrement over the twelve month period beginning January 2016. We are waiting on the TRA's written order at this time.
In September 2014, we filed a petition with the TRA seeking authority to implement a compressed natural gas (CNG) infrastructure rider to recover the costs of our capital investmentsfuel adjustment or PGA procedures and prudence reviews in infrastructure and equipment associated with this alternative motor vehicle transportation fuel. We proposed that the tariff rider be effective October 1, 2014 with an initial rate adjustment on November 1, 2014 based on capital expenditures incurred through June 2014 and for rates to be updated annually outside of general rate cases for the return of and on these capital investments. In November 2014, the TRA consolidated this docket with a separate petition we filed seeking modifications to our tariff regarding service to customers using natural gas as a motor fuel. A hearing on this matter was held in January 2015. In February 2015, the TRA (1) denied approval of the proposed tariff rider, (2) ruled that our retail CNG motor fuel service should be unregulated and no longer provided under our regulated tariff, and (3) approved the proposed modification to our tariff providing natural gas for motor fuel purposes at customer premises. The TRA indicated that we may seek recovery of our prior investments in CNG equipment of $4.7 million since our last rate proceeding in utility rate base in our next general rate case proceeding as the investments were made in good faith under the assumption retail CNG motor fuel would be a regulated service. The TRA's written order was issued in October 2015.
All States
Due to the seasonal nature of our business, we contract with customers in the secondary market to sell supply and capacity assets when market conditions permit. In North Carolina and South Carolina we operateand under sharing mechanismsthe 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 NCUC and the PSCSC for secondary market transactions where 75% of the net margins are flowed through to jurisdictional customers in rates and 25% is retained by us. In Tennessee, we operate under the TIP where gas purchase benchmarking gains and losses are combined with secondary market transaction gains and losses and shared 75% by customers and 25% by us. Our share of net gains or losses in Tennessee is subject to an overall annual cap of $1.6 million. This sharing mechanism for secondary market activity in all three jurisdictions for the twelve months ended October 31, 2015, 2014 and 2013 is presented below.
|
| | | | | | | | | | | | |
In millions | | 2015 | | 2014 | | 2013 |
Allocated to customers as gas cost reductions | | $ | 60.1 |
| | $ | 72.2 |
| | $ | 26.9 |
|
Margin allocated to us | | 21.1 |
| | 25.4 |
| | 9.0 |
|
Margin from secondary market activity | | $ | 81.2 |
| | $ | 97.6 |
| | $ | 35.9 |
|
We currently have commission approval in all three states that place tighter credit requirements on the retail natural gas marketers that schedule gas for transportation service on our systemFERC in order to mitigatemaintain rights to access the risk exposurenatural gas storage or pipeline capacity on a firm basis during the contract term. The demand charges that are incurred in each period are recognized in the Consolidated Statements of Operations and Comprehensive Income as part of natural gas purchases and are included in Cost of natural gas.
The following table presents future unconditional purchase obligations under natural gas supply and capacity contracts as of December 31, 2017. |
| | | | | | | | | |
(in millions) | Duke Energy | Duke Energy Ohio | Piedmont |
2018 | $ | 314 |
| $ | 37 |
| $ | 277 |
|
2019 | 280 |
| 28 |
| 252 |
|
2020 | 252 |
| 25 |
| 227 |
|
2021 | 249 |
| 26 |
| 223 |
|
2022 | 226 |
| 11 |
| 215 |
|
Thereafter | 1,121 |
| 3 |
| 1,118 |
|
Total | $ | 2,442 |
| $ | 130 |
| $ | 2,312 |
|
Operating and Capital Lease Commitments
The Duke Energy Registrants lease office buildings, railcars, vehicles, computer equipment and other property and equipment with various terms and expiration dates. Additionally, Duke Energy Progress has a capital lease related to firm natural gas pipeline transportation capacity. Duke Energy Progress and Duke Energy Florida have entered into certain purchased power agreements, which are classified as leases. Consolidated capitalized lease obligations are classified as Long-Term Debt or Other within Current Liabilities on the financial conditionConsolidated Balance Sheets. Amortization of assets recorded under capital leases is included in Depreciation and amortization and Fuel used in electric generation on the marketers.
4. Earnings Per ShareConsolidated Statements of Operations.
We compute basic earnings per share (EPS) using the daily weighted average number of shares of common stock outstanding during each period. In the calculation of fully diluted EPS, shares of common stock to be issued under approved incentive compensation plans and forward sale agreements (FSAs) are contingently issuable shares, as determined by applying the treasury stock method, and are added to average common shares outstanding, resulting in a potential reduction in diluted EPS.173
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
A reconciliationThe following tables present rental expense for operating leases. These amounts are included in Operation, maintenance and other on the Consolidated Statements of basic and diluted EPS,Operations. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Duke Energy | $ | 241 |
| | $ | 242 |
| | $ | 313 |
|
Duke Energy Carolinas | 44 |
| | 45 |
| | 41 |
|
Progress Energy | 130 |
| | 140 |
| | 230 |
|
Duke Energy Progress | 75 |
| | 68 |
| | 149 |
|
Duke Energy Florida | 55 |
| | 72 |
| | 81 |
|
Duke Energy Ohio | 15 |
| | 16 |
| | 13 |
|
Duke Energy Indiana | 23 |
| | 23 |
| | 20 |
|
|
| | | | | | | | | | | | | | | |
| Year Ended | | Two Months Ended | | Years Ended October 31, |
(in millions) | December 31, 2017 | | December 31, 2016 | | 2016 |
| | 2015 |
|
Piedmont | $ | 7 |
| | $ | 1 |
| | $ | 5 |
| | $ | 5 |
|
The following table presents future minimum lease payments under operating leases, which includes contingently issuable shares that could affect EPS if performance units ultimately vest and FSAs settle, for the years ended October 31, 2015, 2014 and 2013 is presented below.
at inception had a non-cancelable term of more than one year. |
| | | | | | | | | | | | |
In thousands, except per share amounts | | 2015 | | 2014 | | 2013 |
Net Income | | $ | 137,011 |
| | $ | 143,801 |
| | $ | 134,417 |
|
| | | | | | |
Average shares of common stock outstanding for basic earnings per share | | 78,942 |
| | 77,883 |
| | 74,884 |
|
Contingently issuable shares under incentive compensation plans | | 289 |
| | 310 |
| | 289 |
|
Contingently issuable shares under forward sale agreements | | — |
| | — |
| | 160 |
|
Average shares of dilutive stock | | 79,231 |
| | 78,193 |
| | 75,333 |
|
| | | | | | |
Earnings Per Share of Common Stock: | | | | | | |
Basic | | $ | 1.74 |
| | $ | 1.85 |
| | $ | 1.80 |
|
Diluted | | $ | 1.73 |
| | $ | 1.84 |
| | $ | 1.78 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| Piedmont |
|
2018 | $ | 233 |
| | $ | 36 |
| | $ | 133 |
| | $ | 77 |
| | $ | 56 |
| | $ | 20 |
| | $ | 22 |
| $ | 6 |
|
2019 | 203 |
| | 29 |
| | 126 |
| | 72 |
| | 54 |
| | 12 |
| | 14 |
| 5 |
|
2020 | 183 |
| | 25 |
| | 117 |
| | 62 |
| | 55 |
| | 10 |
| | 10 |
| 5 |
|
2021 | 150 |
| | 19 |
| | 97 |
| | 48 |
| | 49 |
| | 7 |
| | 8 |
| 6 |
|
2022 | 135 |
| | 16 |
| | 90 |
| | 42 |
| | 48 |
| | 4 |
| | 5 |
| 6 |
|
Thereafter | 882 |
| | 52 |
| | 525 |
| | 344 |
| | 181 |
| | 5 |
| | 7 |
| 16 |
|
Total | $ | 1,786 |
| | $ | 177 |
| | $ | 1,088 |
| | $ | 645 |
| | $ | 443 |
| | $ | 58 |
| | $ | 66 |
| $ | 44 |
|
The following table presents future minimum lease payments under capital leases. 5. Long-Term Debt |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
2018 | $ | 168 |
| | $ | 13 |
| | $ | 46 |
| | $ | 21 |
| | $ | 25 |
| | $ | 3 |
| | $ | 2 |
|
2019 | 169 |
| | 13 |
| | 45 |
| | 20 |
| | 25 |
| | 1 |
| | 1 |
|
2020 | 174 |
| | 13 |
| | 47 |
| | 21 |
| | 26 |
| | — |
| | 1 |
|
2021 | 176 |
| | 8 |
| | 45 |
| | 22 |
| | 25 |
| | — |
| | 1 |
|
2022 | 169 |
| | 8 |
| | 45 |
| | 21 |
| | 24 |
| | — |
| | 1 |
|
Thereafter | 745 |
| | 109 |
| | 323 |
| | 227 |
| | 95 |
| | — |
| | 38 |
|
Minimum annual payments | 1,601 |
| | 164 |
| | 551 |
| | 332 |
| | 220 |
| | 4 |
| | 44 |
|
Less: amount representing interest | (601 | ) | | (103 | ) | | (283 | ) | | (192 | ) | | (91 | ) | | — |
| | (33 | ) |
Total | $ | 1,000 |
| | $ | 61 |
| | $ | 268 |
| | $ | 140 |
| | $ | 129 |
| | $ | 4 |
| | $ | 11 |
|
Our long-term debt consists of privately placed senior notes issued under note purchase agreements, as well as publicly issued medium-term and senior notes issued under an indenture. All of our long-term debt is unsecured and is issued at fixed rates. None of our debt is actively traded.174
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
As6. DEBT AND CREDIT FACILITIES
Summary of October 31, 2015, we early adopted the accounting standard requiring that issuance costs related to a recognized long-term debt liability be presented in the balance sheet as a direct deduction from the carrying value of that debt, consistent with the presentation of debt discounts. Debt and Related Terms
The following tables below reflect the detail of this presentation for our long-term debt as of October 31, 2015 and 2014.summarize outstanding debt. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| Weighted |
| | | | | | | | | |
| Average |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Interest |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Rate |
| | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Unsecured debt, maturing 2018-2073 | 4.17 | % | | $ | 20,409 |
| $ | 1,150 |
| $ | 3,950 |
| $ | — |
| $ | 550 |
| $ | 900 |
| $ | 411 |
| $ | 2,050 |
|
Secured debt, maturing 2018-2037 | 3.15 | % | | 4,458 |
| 450 |
| 1,757 |
| 300 |
| 1,457 |
| — |
| — |
| — |
|
First mortgage bonds, maturing 2018-2047(a) | 4.51 | % | | 23,529 |
| 7,959 |
| 11,801 |
| 6,776 |
| 5,025 |
| 1,100 |
| 2,669 |
| — |
|
Capital leases, maturing 2018-2051(b) | 4.55 | % | | 1,000 |
| 61 |
| 269 |
| 139 |
| 129 |
| 5 |
| 11 |
| — |
|
Tax-exempt bonds, maturing 2019-2041(c) | 3.23 | % | | 941 |
| 243 |
| 48 |
| 48 |
| — |
| 77 |
| 572 |
| — |
|
Notes payable and commercial paper(d) | 1.57 | % | | 2,788 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Money pool/intercompany borrowings | | | — |
| 404 |
| 955 |
| 390 |
| — |
| 54 |
| 311 |
| 364 |
|
Fair value hedge carrying value adjustment | | | 6 |
| 6 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Unamortized debt discount and premium, net(e) | | | 1,582 |
| (19 | ) | (30 | ) | (16 | ) | (10 | ) | (33 | ) | (9 | ) | (1 | ) |
Unamortized debt issuance costs(f) | | | (271 | ) | (47 | ) | (108 | ) | (40 | ) | (56 | ) | (7 | ) | (21 | ) | (12 | ) |
Total debt | 4.09 | % | | $ | 54,442 |
| $ | 10,207 |
| $ | 18,642 |
| $ | 7,597 |
| $ | 7,095 |
| $ | 2,096 |
| $ | 3,944 |
| $ | 2,401 |
|
Short-term notes payable and commercial paper | | | (2,163 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Short-term money pool/intercompany borrowings | | | — |
| (104 | ) | (805 | ) | (240 | ) | — |
| (29 | ) | (161 | ) | (364 | ) |
Current maturities of long-term debt(g) | | | (3,244 | ) | (1,205 | ) | (771 | ) | (3 | ) | (768 | ) | (3 | ) | (3 | ) | (250 | ) |
Total long-term debt(g) |
| | $ | 49,035 |
| $ | 8,898 |
| $ | 17,066 |
| $ | 7,354 |
| $ | 6,327 |
| $ | 2,064 |
| $ | 3,780 |
| $ | 1,787 |
|
| |
(a) | Substantially all electric utility property is mortgaged under mortgage bond indentures. |
| |
(b) | Duke Energy includes $81 million and $603 million of capital lease purchase accounting adjustments related to Duke Energy Progress and Duke Energy Florida, respectively, related to power purchase agreements that are not accounted for as capital leases in their respective financial statements because of grandfathering provisions in GAAP. |
| |
(c) | Substantially all tax-exempt bonds are secured by first mortgage bonds or letters of credit. |
| |
(d) | Includes $625 million that was classified as Long-Term Debt on the Consolidated Balance Sheets due to the existence of long-term credit facilities that backstop these commercial paper balances, along with Duke Energy’s ability and intent to refinance these balances on a long-term basis. The weighted average days to maturity for Duke Energy's commercial paper program was 14 days. |
| |
(e) | Duke Energy includes $1,509 million and $176 million in purchase accounting adjustments related to Progress Energy and Piedmont, respectively. |
| |
(f) | Duke Energy includes $47 million in purchase accounting adjustments primarily related to the merger with Progress Energy. |
| |
(g) | Refer to Note 17 for additional information on amounts from consolidated VIEs. |
|
| | | | | | | | | | | | |
| | Long-Term Debt as of October 31, 2015 |
In thousands | | Principal | | Unamortized Debt Issuance Expenses and Discounts | | Total |
Senior Notes: | | | | | | |
2.92%, due June 6, 2016 | | $ | 40,000 |
| | $ | (40 | ) | | $ | 39,960 |
|
8.51%, due September 30, 2017 | | 35,000 |
| | — |
| | 35,000 |
|
4.24%, due June 6, 2021 | | 160,000 |
| | (752 | ) | | 159,248 |
|
3.47%, due July 16, 2027 | | 100,000 |
| | (638 | ) | | 99,362 |
|
3.57%, due July 16, 2027 | | 200,000 |
| | (1,307 | ) | | 198,693 |
|
4.10%, due September 18, 2034 | | 250,000 |
| | (2,644 | ) | | 247,356 |
|
4.65%, due August 1, 2043 | | 300,000 |
| | (3,040 | ) | | 296,960 |
|
3.60%, due September 1, 2025 | | 150,000 |
| | (1,382 | ) | | 148,618 |
|
Medium-Term Notes: | | | | | |
|
|
6.87%, due October 6, 2023 | | 45,000 |
| | (115 | ) | | 44,885 |
|
8.45%, due September 19, 2024 | | 40,000 |
| | (115 | ) | | 39,885 |
|
7.40%, due October 3, 2025 | | 55,000 |
| | (171 | ) | | 54,829 |
|
7.50%, due October 9, 2026 | | 40,000 |
| | (126 | ) | | 39,874 |
|
7.95%, due September 14, 2029 | | 60,000 |
| | (273 | ) | | 59,727 |
|
6.00%, due December 19, 2033 | | 100,000 |
| | (720 | ) | | 99,280 |
|
Total | | 1,575,000 |
| | (11,323 | ) | | 1,563,677 |
|
Less current maturities | | 40,000 |
| | — |
| | 40,000 |
|
Total | | $ | 1,535,000 |
| | $ | (11,323 | ) | | $ | 1,523,677 |
|
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | |
| | Long-Term Debt as of October 31, 2014 |
In thousands | | Principal | | Unamortized Debt Issuance Expenses and Discounts | | Total |
Senior Notes: | | | | | | |
2.92%, due June 6, 2016 | | $ | 40,000 |
| | $ | (107 | ) | | $ | 39,893 |
|
8.51%, due September 30, 2017 | | 35,000 |
| | — |
| | 35,000 |
|
4.24%, due June 6, 2021 | | 160,000 |
| | (887 | ) | | 159,113 |
|
3.47%, due July 16, 2027 | | 100,000 |
| | (693 | ) | | 99,307 |
|
3.57%, due July 16, 2027 | | 200,000 |
| | (1,418 | ) | | 198,582 |
|
4.10%, due September 18, 2034 | | 250,000 |
| | (2,644 | ) | | 247,356 |
|
4.65%, due August 1, 2043 | | 300,000 |
| | (3,132 | ) | | 296,868 |
|
Medium-Term Notes: | | | | | | |
6.87%, due October 6, 2023 | | 45,000 |
| | (129 | ) | | 44,871 |
|
8.45%, due September 19, 2024 | | 40,000 |
| | (127 | ) | | 39,873 |
|
7.40%, due October 3, 2025 | | 55,000 |
| | (189 | ) | | 54,811 |
|
7.50%, due October 9, 2026 | | 40,000 |
| | (138 | ) | | 39,862 |
|
7.95%, due September 14, 2029 | | 60,000 |
| | (292 | ) | | 59,708 |
|
6.00%, due December 19, 2033 | | 100,000 |
| | (760 | ) | | 99,240 |
|
Total | | 1,425,000 |
| | (10,516 | ) | | 1,414,484 |
|
Less current maturities | | — |
| | — |
| | — |
|
Total | | $ | 1,425,000 |
| | $ | (10,516 | ) | | $ | 1,414,484 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Weighted |
| | | | | | | | | |
| Average |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Interest |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Rate |
| | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Unsecured debt, maturing 2017-2073 | 4.30 | % | | $ | 17,812 |
| $ | 1,150 |
| $ | 3,551 |
| $ | — |
| $ | 150 |
| $ | 810 |
| $ | 415 |
| $ | 1,835 |
|
Secured debt, maturing 2017-2037 | 2.60 | % | | 3,909 |
| 425 |
| 1,819 |
| 300 |
| 1,519 |
| — |
| — |
| — |
|
First mortgage bonds, maturing 2017-2046(a) | 4.61 | % | | 21,879 |
| 7,410 |
| 10,800 |
| 6,425 |
| 4,375 |
| 1,000 |
| 2,669 |
| — |
|
Capital leases, maturing 2018-2051(b) | 4.48 | % | | 1,100 |
| 22 |
| 285 |
| 142 |
| 143 |
| 7 |
| 11 |
| — |
|
Tax-exempt bonds, maturing 2017-2041(c) | 2.84 | % | | 1,053 |
| 355 |
| 48 |
| 48 |
| — |
| 77 |
| 572 |
| — |
|
Notes payable and commercial paper(d) | 1.01 | % | | 3,112 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Money pool/intercompany borrowings(e) | | | — |
| 300 |
| 1,902 |
| 150 |
| 297 |
| 41 |
| 150 |
| — |
|
Fair value hedge carrying value adjustment | | | 6 |
| 6 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Unamortized debt discount and premium, net(f) | | | 1,753 |
| (20 | ) | (31 | ) | (16 | ) | (10 | ) | (28 | ) | (9 | ) | (1 | ) |
Unamortized debt issuance costs(g) | | | (242 | ) | (45 | ) | (104 | ) | (38 | ) | (52 | ) | (7 | ) | (22 | ) | (13 | ) |
Total debt | 4.07 | % | | $ | 50,382 |
| $ | 9,603 |
| $ | 18,270 |
| $ | 7,011 |
| $ | 6,422 |
| $ | 1,900 |
| $ | 3,786 |
| $ | 1,821 |
|
Short-term notes payable and commercial paper | | | (2,487 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Short-term money pool/intercompany borrowings | | | — |
| — |
| (729 | ) | — |
| (297 | ) | (16 | ) | — |
| — |
|
Current maturities of long-term debt(h) | | | (2,319 | ) | (116 | ) | (778 | ) | (452 | ) | (326 | ) | (1 | ) | (3 | ) | (35 | ) |
Total long-term debt(h) |
| | $ | 45,576 |
| $ | 9,487 |
| $ | 16,763 |
| $ | 6,559 |
| $ | 5,799 |
| $ | 1,883 |
| $ | 3,783 |
| $ | 1,786 |
|
| |
(a) | Substantially all electric utility property is mortgaged under mortgage bond indentures. |
| |
(b) | Duke Energy includes $98 million and $670 million of capital lease purchase accounting adjustments related to Duke Energy Progress and Duke Energy Florida, respectively, related to power purchase agreements that are not accounted for as capital leases in their respective financial statements because of grandfathering provisions in GAAP. |
| |
(c) | Substantially all tax-exempt bonds are secured by first mortgage bonds or letters of credit. |
| |
(d) | Includes $625 million that was classified as Long-Term Debt on the Consolidated Balance Sheets due to the existence of long-term credit facilities that backstop these commercial paper balances, along with Duke Energy’s ability and intent to refinance these balances on a long-term basis. The weighted average days to maturity for Duke Energy and Piedmont's commercial paper programs were 14 days and eight days, respectively. |
| |
(e) | Progress Energy amount includes a $1 billion intercompany loan related to the sale of the International Disposal Group. See Note 2 for further discussion of the sale. |
| |
(f) | Duke Energy includes $1,653 million and $197 million purchase accounting adjustments related to the mergers with Progress Energy and Piedmont, respectively. |
| |
(g) | Duke Energy includes $53 million in purchase accounting adjustments primarily related to the merger with Progress Energy. |
| |
(h) | Refer to Note 17 for additional information on amounts from consolidated VIEs. |
Current Maturities of Long-Term Debt
The following table shows the significant components of Current maturities of Long-Term Debt on the Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings. |
| | | | | | | | |
(in millions) | Maturity Date | | Interest Rate |
| | December 31, 2017 |
|
Unsecured Debt | | | | | |
Duke Energy (Parent) | June 2018 | | 6.250 | % | | $ | 250 |
|
Duke Energy (Parent) | June 2018 | | 2.100 | % | | 500 |
|
Piedmont | December 2018 | | 2.286 | % | (b) | 250 |
|
First Mortgage Bonds | | | | | |
Duke Energy Carolinas | January 2018 | | 5.250 | % | | 400 |
|
Duke Energy Carolinas | April 2018 | | 5.100 | % | | 300 |
|
Duke Energy Florida | June 2018 | | 5.650 | % | | 500 |
|
Duke Energy Carolinas | November 2018 | | 7.000 | % | | 500 |
|
Other(a) | | | | | 544 |
|
Current maturities of long-term debt | | | | | $ | 3,244 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
| |
(a) | Includes capital lease obligations, amortizing debt and small bullet maturities. |
| |
(b) | Debt has a floating interest rate. |
CurrentMaturities and Call Options
The following table shows the annual maturities of long-term debt for the next five years ending October 31 and thereafterthereafter. Amounts presented exclude short-term notes payable and commercial paper and money pool borrowings for the Subsidiary Registrants. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy(a) |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
2018 | $ | 3,244 |
| | $ | 1,205 |
| | $ | 771 |
| | $ | 3 |
| | $ | 768 |
| | $ | 3 |
| | $ | 3 |
| | $ | 250 |
|
2019 | 3,563 |
| | 6 |
| | 2,191 |
| | 903 |
| | 490 |
| | 548 |
| | 61 |
| | — |
|
2020 | 3,699 |
| | 906 |
| | 871 |
| | 304 |
| | 568 |
| | — |
| | 502 |
| | — |
|
2021 | 3,760 |
| | 502 |
| | 1,472 |
| | 602 |
| | 371 |
| | 48 |
| | 69 |
| | 159 |
|
2022 | 3,010 |
| | 302 |
| | 1,176 |
| | 653 |
| | 74 |
| | 23 |
| | 243 |
| | — |
|
Thereafter | 33,271 |
| | 7,182 |
| | 11,356 |
| | 4,892 |
| | 4,824 |
| | 1,445 |
| | 2,905 |
| | 1,628 |
|
Total long-term debt, including current maturities | $ | 50,547 |
|
| $ | 10,103 |
|
| $ | 17,837 |
|
| $ | 7,357 |
|
| $ | 7,095 |
|
| $ | 2,067 |
|
| $ | 3,783 |
| | $ | 2,037 |
|
| |
(a) | Excludes $1,732 million in purchase accounting adjustments related to the Progress Energy merger and the Piedmont acquisition. |
The Duke Energy Registrants have the ability under certain debt facilities to call and repay the obligation prior to its scheduled maturity. Therefore, the actual timing of future cash repayments could be materially different than as presented above.
Short-Term Obligations Classified as Long-Term Debt
Tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder and certain commercial paper issuances and money pool borrowings are classified as follows.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, 2017 |
| | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Progress |
| | Ohio |
| | Indiana |
|
Tax-exempt bonds | $ | 312 |
| | $ | — |
| | $ | — |
| | $ | 27 |
| | $ | 285 |
|
Commercial paper(a) | 625 |
| | 300 |
| | 150 |
| | 25 |
| | 150 |
|
Total | $ | 937 |
|
| $ | 300 |
| | $ | 150 |
|
| $ | 52 |
|
| $ | 435 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Progress |
| | Ohio |
| | Indiana |
|
Tax-exempt bonds | $ | 347 |
| | $ | 35 |
| | $ | — |
| | $ | 27 |
| | $ | 285 |
|
Commercial paper(a) | 625 |
| | 300 |
| | 150 |
| | 25 |
| | 150 |
|
Total | $ | 972 |
|
| $ | 335 |
|
| $ | 150 |
| | $ | 52 |
|
| $ | 435 |
|
| |
(a) | Progress Energy amounts are equal to Duke Energy Progress amounts. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Summary of Significant Debt Issuances
The following tables summarize significant debt issuances (in millions). |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, 2017 |
| | | | | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Maturity | | Interest |
| | Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
Issuance Date | Date | | Rate |
| | Energy |
| | (Parent) |
| | Carolinas |
| | Progress |
| | Florida |
| | Ohio |
|
Unsecured Debt | | | | | | | | | | | | | | | |
April 2017(a) | April 2025 | | 3.364 | % | | $ | 420 |
| | $ | 420 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
June 2017(b) | June 2020 | | 2.100 | % | | 330 |
| | 330 |
| | — |
| | — |
| | — |
| | — |
|
August 2017(c) | August 2022 | | 2.400 | % | | 500 |
| | 500 |
| | — |
| | — |
| | — |
| | — |
|
August 2017(c) | August 2027 | | 3.150 | % | | 750 |
| | 750 |
| | — |
| | — |
| | — |
| | — |
|
August 2017(c) | August 2047 | | 3.950 | % | | 500 |
| | 500 |
| | — |
| | — |
| | — |
| | — |
|
December 2017(d) | December 2019 | (k) | 2.100 | % | | 400 |
| | — |
| | — |
| | — |
| | 400 |
| | — |
|
Secured Debt | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | |
February 2017(e) | June 2034 | | 4.120 | % | | 587 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
August 2017(f) | December 2036 | | 4.110 | % | | 233 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
First Mortgage Bonds | | |
| |
|
| | | | | | | |
| | |
January 2017(g) | January 2020 | | 1.850 | % | | 250 |
| | — |
| | — |
| | — |
| | 250 |
| | — |
|
January 2017(g) | January 2027 | | 3.200 | % | | 650 |
| | — |
| | — |
| | — |
| | 650 |
| | — |
|
March 2017(h) | June 2046 | | 3.700 | % | | 100 |
| | — |
| | — |
| | — |
| | — |
| | 100 |
|
September 2017(i) | September 2020 | | 1.500 | % | (l) | 300 |
| | — |
| | — |
| | 300 |
| | — |
| | — |
|
September 2017(i) | September 2047 | | 3.600 | % | | 500 |
| | — |
| | — |
| | 500 |
| | — |
| | — |
|
November 2017(j) | December 2047 | | 3.700 | % | | 550 |
| | — |
| | 550 |
| | — |
| | — |
| | — |
|
Total issuances | | | | | $ | 6,070 |
| | $ | 2,500 |
|
| $ | 550 |
| | $ | 800 |
| | $ | 1,300 |
| | $ | 100 |
|
| |
(a) | Proceeds were used to refinance $400 million of unsecured debt at maturity and to repay a portion of outstanding commercial paper. |
| |
(b) | Debt issued to repay a portion of outstanding commercial paper. |
| |
(c) | Debt issued to repay at maturity $700 million of unsecured debt, to repay outstanding commercial paper and for general corporate purposes. |
| |
(d) | Debt issued to fund storm restoration costs related to Hurricane Irma and for general corporate purposes. |
| |
(e) | Portfolio financing of four Texas and Oklahoma wind facilities. Duke Energy pledged substantially all of the assets of these wind facilities and is nonrecourse to Duke Energy. Proceeds were used to reimburse Duke Energy for a portion of previously funded construction expenditures. |
| |
(f) | Portfolio financing of eight solar facilities located in California, Colorado and New Mexico. Duke Energy pledged substantially all of the assets of these solar facilities and is nonrecourse to Duke Energy. Proceeds were used to reimburse Duke Energy for a portion of previously funded construction expenditures. |
| |
(g) | Debt issued to fund capital expenditures for ongoing construction and capital maintenance, to repay a $250 million aggregate principal amount of bonds at maturity and for general corporate purposes. |
| |
(h) | Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance and for general corporate purposes. |
| |
(i) | Debt issued to repay at maturity a $200 million aggregate principal amount of bonds at maturity, pay down intercompany short-term debt and for general corporate purposes, including capital expenditures. |
| |
(j) | Debt issued to refinance $400 million aggregate principal amount of bonds due January 2018, pay down intercompany short-term debt and for general corporate purposes. |
| |
(k) | Principal balance will be repaid in equal quarterly installments beginning in March 2018. |
| |
(l) | Debt issuance has a floating interest rate. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | |
In thousands | |
2016 | $ | 40,000 |
|
2017 | 35,000 |
|
2018 | — |
|
2019 | — |
|
2020 | — |
|
Thereafter | 1,500,000 |
|
Total | $ | 1,575,000 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, 2016 |
| | | | | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Maturity | | Interest |
| | Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
Issuance Date | Date | | Rate |
| | Energy |
| | (Parent) |
| | Carolinas |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Unsecured Debt | | | | | | | | | | | | | | | | | |
April 2016(a) | April 2023 | | 2.875 | % | | $ | 350 |
| | $ | 350 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
August 2016(b) | September 2021 | | 1.800 | % | | 750 |
| | 750 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
August 2016(b) | September 2026 | | 2.650 | % | | 1,500 |
| | 1,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
August 2016(b) | September 2046 | | 3.750 | % | | 1,500 |
| | 1,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Secured Debt | | | | | | | | | | | | | | |
|
| | |
June 2016(c) | March 2020 | | 1.196 | % | | 183 |
| | — |
| | — |
| | — |
| | 183 |
| | — |
| | — |
|
June 2016(c) | September 2022 | | 1.731 | % | | 150 |
| | — |
| | — |
| | — |
| | 150 |
| | — |
| | — |
|
June 2016(c) | September 2029 | | 2.538 | % | | 436 |
| | — |
| | — |
| | — |
| | 436 |
| | — |
| | — |
|
June 2016(c) | March 2033 | | 2.858 | % | | 250 |
| | — |
| | — |
| | — |
| | 250 |
| | — |
| | — |
|
June 2016(c) | September 2036 | | 3.112 | % | | 275 |
| | — |
| | — |
| | — |
| | 275 |
| | — |
| | — |
|
August 2016(d) | June 2034 | | 2.747 | % | (i) | 228 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
August 2016(d) | June 2020 | | 2.747 | % | (i) | 105 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
First Mortgage Bonds | | | | | | | | | | | | | | |
|
| | |
March 2016(e) | March 2023 | | 2.500 | % | | 500 |
| | — |
| | 500 |
| | — |
| | — |
| | — |
| | — |
|
March 2016(e) | March 2046 | | 3.875 | % | | 500 |
| | — |
| | 500 |
| | — |
| | — |
| | — |
| | — |
|
May 2016(f) | May 2046 | | 3.750 | % | | 500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 500 |
|
June 2016(e) | June 2046 | | 3.700 | % | | 250 |
| | — |
| | — |
| | — |
| | — |
| | 250 |
| | — |
|
September 2016(g) | October 2046 | | 3.400 | % | | 600 |
| | — |
| | — |
| | — |
| | 600 |
| | — |
| | — |
|
September 2016(e) | October 2046 | | 3.700 | % | | 450 |
| | — |
| | — |
| | 450 |
| | — |
| | — |
| | — |
|
November 2016(h) | December 2046 | | 2.950 | % | | 600 |
| | — |
| | 600 |
| | — |
| | — |
| | — |
| | — |
|
Total issuances | | | | | $ | 9,127 |
| | $ | 4,100 |
|
| $ | 1,600 |
| | $ | 450 |
|
| $ | 1,894 |
|
| $ | 250 |
| | $ | 500 |
|
| |
(a) | Proceeds were used to pay down outstanding commercial paper and for general corporate purposes. |
| |
(b) | Proceeds were used to finance a portion of the Piedmont acquisition. The $4.9 billion Bridge Facility was terminated following the issuance of this debt. See Note 2 for additional information on the Piedmont acquisition. |
| |
(c) | DEFPF issued nuclear-asset recovery bonds and used the proceeds to acquire nuclear-asset recovery property from its parent, Duke Energy Florida. The nuclear-asset recovery bonds are payable only from and secured by the nuclear asset-recovery property. DEFPF is consolidated for financial reporting purposes; however, the nuclear asset-recovery bonds do not constitute a debt, liability or other legal obligation of, or interest in, Duke Energy Florida or any of its affiliates other than DEFPF. The assets of DEFPF, including the nuclear-asset recovery property, are not available to pay creditors of Duke Energy Florida or any of its affiliates. Duke Energy Florida used the proceeds from the sale to repay short-term borrowings under the intercompany money pool borrowing arrangement and make an equity distribution of $649 million to the ultimate parent, Duke Energy (Parent), which repaid short-term borrowings. The nuclear-asset recovery bonds are sequential pay amortizing bonds. The maturity date above represents the scheduled final maturity date for the bonds. See Notes 4 and 17 for additional information. |
| |
(d) | Emerald State Solar, LLC, an indirect wholly owned subsidiary of Duke Energy entered into portfolio financing of approximately 22 North Carolina solar facilities. Tranche A of $228 million is secured by substantially all of the assets of the solar facilities and is nonrecourse to Duke Energy. Tranche B of $105 million is secured by an Equity Contribution Agreement with Duke Energy. Proceeds were used to reimburse Duke Energy for a portion of previously funded construction expenditures related to the Emerald State Solar, LLC portfolio. The initial interest rate on the loans was six months London Interbank Offered Rate (LIBOR) plus an applicable margin of 1.75 percent plus a 0.125 percent increase every three years thereafter. In connection with this debt issuance, Emerald State Solar, LLC entered into two interest rate swaps to convert the substantial majority of the loan interest payments from variable rates to fixed rates of approximately 1.81 percent for Tranche A and 1.38 percent for Tranche B, plus the applicable margin. See Note 14 for further information on the notional amounts of the interest rate swaps. |
| |
(e) | Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance and for general corporate purposes. |
| |
(f) | Proceeds were used to repay $325 million of unsecured debt due June 2016, $150 million of first mortgage bonds due July 2016 and for general corporate purposes. |
| |
(g) | Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance, to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes. |
| |
(h) | Proceeds were used to repay at maturity $350 million aggregate principal amount of certain bonds due December 2016, as well as to fund capital expenditures for ongoing construction and capital maintenance and for general corporate purposes. |
| |
(i) | Debt issuance has a floating interest rate. |
We had an open combined debt and equity shelf registration statement filed with the SEC in July 2011 that was available for future use until its expiration date of July 6, 2014. In February 2013, we sold shares of common stock under this registration statement. For further information on this transaction, see Note 7 to the consolidated financial statements.179
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
In June 2014, we filed with the SEC a combined debt and equity shelf registration statement that became effective on June 6, 2014. The NCUC has approved debt and equity issuances under this shelf registration statement up to $1 billion during its three-year life. As of October 31, 2015, we have $544.1July 2016, Piedmont issued $300 million remaining for debt and equity issuances as approved by the NCUC. Unless otherwise specified at the time such securities are offered for sale, the net proceeds from the sale of the securities will be used to finance capital expenditures, to repay outstanding short-term, unsecured notes under our commercial paper (CP) program, to refinance other indebtedness, to repurchase our common stock, to pay dividends and for general corporate purposes.
On September 18, 2014, we issued $250 million of twenty-year, unsecured senior notesmaturing in November 2046 with an interest rate of 4.10% and at a discount of .174% or $435,000 under the registration statement in effect noted above. We have3.64%. Piedmont has the option to redeem all or part of the notes before the stated maturity prior to March 18, 2034,May 1, 2046, at a redemption price equal to the greater of a) 100% of the principal amount plus any accruedof the notes to be redeemed, and unpaid interest to the date of redemption, or b) the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed, discounted to the date of redemption on a semi-annual basis at the Treasury Rate as defined in the indenture, plus 15 basis points and any accrued and unpaid interest to the date of redemption. We have the option to redeem all or part of the notes before the stated maturity on or after March 18, 2034, at 100% of the principal amount plus any accrued and unpaid interest to the date of redemption. We used the net proceeds of $247.7 million from this issuance to finance capital expenditures, to repay outstanding short-term, unsecured notes under our CP program and for general corporate purposes.
On September 14, 2015, we issued $150 million of ten-year, unsecured senior notes with an interest rate of 3.60% and at a discount of .065% or $97,500 under the registration statement in effect noted above. We have the option to redeem all or part of the notes before the stated maturity prior to June 1, 2025, at a redemption price equal to the greater of a) 100% of the principal amount plus any accrued and unpaid interest to the date of redemption, or b) the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed, discounted to the date of redemption on a semi-annual basis at the Treasury Rate as defined in the indenture,supplemented, plus 25 basis points and any accrued and unpaid interest to the date of redemption. We havePiedmont has the option to redeem all or part of the notes before the stated maturity on or after JuneMay 1, 2025,2046, at 100% of the principal amountamounts plus any accrued and unpaid interest to the date of redemption. WePiedmont used the net proceeds of $148.9 million from this issuance to financefund capital expenditures, to repay outstanding short-term unsecured notesborrowings under our CPPiedmont's commercial paper program and for general corporate purposes.
Available Credit Facilities
In March 2017, Duke Energy amended its Master Credit Facility to increase its capacity from $7.5 billion to $8 billion, and to extend the termination date of the facility from January 30, 2020, to March 16, 2022. The amendment also added Piedmont as a borrower within the Master Credit Facility. Piedmont's separate $850 million credit facility was terminated in connection with the amendment. With the amendment, the Duke Energy Registrants, excluding Progress Energy (Parent), have borrowing capacity under the Master Credit Facility up to specified sublimits for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop issuances of cash dividendscommercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be paidput to the Duke Energy Registrants at the option of the holder. Duke Energy Carolinas and Duke Energy Progress are also required to each maintain $250 million of available capacity under the Master Credit Facility as security to meet obligations under plea agreements reached with the U.S. Department of Justice in 2015 related to violations at North Carolina facilities with ash basins.
In January 2018, Duke Energy further amended its Master Credit Facility with consenting lenders to extend $7.65 billion of our existing $8 billion Master Credit Facility by one year to March 16, 2023.
The table below includes the current borrowing sublimits and available capacity under these credit facilities. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | |
| | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | (Parent) |
| | Carolinas |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Facility size(a) | $ | 8,000 |
| | $ | 2,850 |
| | $ | 1,350 |
| | $ | 1,250 |
| | $ | 800 |
| | $ | 450 |
| | $ | 600 |
| | $ | 700 |
|
Reduction to backstop issuances | | | | | | | | | | | | | | | |
Commercial paper(b) | (1,799 | ) | | (561 | ) | | (371 | ) | | (314 | ) | | — |
| | (45 | ) | | (260 | ) | | (248 | ) |
Outstanding letters of credit | (63 | ) | | (54 | ) | | (4 | ) | | (2 | ) | | (1 | ) | | — |
| | — |
| | (2 | ) |
Tax-exempt bonds | (81 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (81 | ) | | — |
|
Coal ash set-aside | (500 | ) | | — |
| | (250 | ) | | (250 | ) | | — |
| | — |
| | — |
| | — |
|
Available capacity | $ | 5,557 |
|
| $ | 2,235 |
|
| $ | 725 |
|
| $ | 684 |
|
| $ | 799 |
|
| $ | 405 |
|
| $ | 259 |
| | $ | 450 |
|
| |
(a) | Represents the sublimit of each borrower. |
| |
(b) | Duke Energy issued $625 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana. The balances are classified as Long-Term Debt Payable to Affiliated Companies in the Consolidated Balance Sheets. |
Three-Year Revolving Credit Facility
In June 2017, Duke Energy (Parent) entered into a three-year $1.0 billion revolving credit facility (the Three Year Revolver). Borrowings under this facility will be used for general corporate purposes.
As of December 31, 2017, $500 million has been drawn under the Three Year Revolver. This balance is classified as Long-Term Debt on Duke Energy's Consolidated Balance Sheets. Any undrawn commitments can be drawn, and borrowings can be prepaid, at any time throughout the term of the facility. The terms and conditions of the Three Year Revolver are generally consistent with those governing Duke Energy's Master Credit Facility.
Piedmont Term Loan Facility
In June 2017, Piedmont entered into an 18-month term loan facility with commitments totaling $250 million (the Piedmont Term Loan). Borrowings under the facility will be used for general corporate purposes.
As of December 31, 2017, the entire $250 million has been drawn under the Piedmont Term Loan. This balance is classified as Long-Term Debt on Piedmont's Consolidated Balance Sheets. The terms and conditions of the Piedmont Term Loan are generally consistent with those governing Duke Energy's Master Credit Facility.
Other Debt Matters
In September 2016, Duke Energy filed a Registration statement (Form S-3) with the SEC. Under this Form S-3, which is uncapped, the Duke Energy Registrants, excluding Progress Energy, may issue debt and other securities in the future at amounts, prices and with terms to be determined at the time of future offerings. The registration statement was filed to replace a similar prior filing upon expiration of its three-year term and also allows for the issuance of common stock is restricted by provisions containedDuke Energy.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Duke Energy has an effective Form S-3 with the SEC to sell up to $3 billion of variable denomination floating-rate demand notes, called PremierNotes. The Form S-3 states that no more than $1.5 billion of the notes will be outstanding at any particular time. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, are non-transferable and may be redeemed in certain note agreementswhole or in part by Duke Energy or at the investor’s option at any time. The balance as of December 31, 2017, and 2016 was $986 million and $1,090 million, respectively. The notes are short-term debt obligations of Duke Energy and are reflected as Notes payable and commercial paper on Duke Energy’s Consolidated Balance Sheets.
In January 2017, Duke Energy amended its Form S-3 to add Piedmont as a registrant and included in the amendment a prospectus for Piedmont under which long-termit may issue debt wassecurities in the same manner as other Duke Energy Registrants.
Duke Energy guaranteed debt issued by Duke Energy Carolinas of $650 million and $762 million, respectively, as of December 31, 2017, and 2016.
Money Pool
The Subsidiary Registrants, excluding Progress Energy, are eligible to receive support for their short-term borrowing needs through participation with Duke Energy and certain of its subsidiaries in a money pool arrangement. Under this arrangement, those forcompanies with short-term funds may provide short-term loans to affiliates participating in this arrangement. The money pool is structured such that the senior notes beingSubsidiary 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 most restrictive. We cannot paymoney 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 declare any dividends or make any other distributionLong-Term Debt Payable to Affiliated Companies on any class of stock or make any investments in subsidiaries or permit any subsidiary to do any of the above (all of the foregoing being “restricted payments”), except out of net earnings available for restricted payments. As of October 31, 2015, our net earnings available for restricted payments were $1.2 billion.Subsidiary Registrants’ Consolidated Balance Sheets.
Restrictive Debt Covenants
We are subject to default provisions related to our long-termThe Duke Energy Registrants’ debt and short-term borrowings.credit agreements contain various financial and other covenants. Duke Energy's Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio not to exceed 65 percent for each borrower, excluding Piedmont, and 70 percent for Piedmont. Failure to satisfy anymeet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the default provisions may result in total outstanding issues of debt becoming due. There are cross default provisions in all of our debt agreements. As of OctoberDecember 31, 2015, we are2017, each of the Duke Energy Registrants was in compliance with all default provisions.covenants related to their debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses.
Other Loans
As of December 31, 2017, and 2016, Duke Energy had loans outstanding of $701 million, including $38 million at Duke Energy Progress and $661 million, including $39 million at Duke Energy Progress, respectively, against the cash surrender value of life insurance policies it owns on the lives of its executives. The default provisionsamounts outstanding were carried as a reduction of some or all of our senior debt include:the related cash surrender value that is included in Other within Investments and Other Assets on the Consolidated Balance Sheets.
Failure to make principal or interest payments,7. GUARANTEES AND INDEMNIFICATIONS
Bankruptcy, liquidation or insolvency,
Final judgment against us in excess of $1 million that after 60 days is not discharged, satisfied or stayed pending appeal,
Specified events under the Employee Retirement Income Security Act of 1974,
Change in control,Duke Energy and
Failure to observe or perform covenants, including:
Interest coverage of at least 1.75 times. Interest coverage was 3.96 times as of October 31, 2015;
Funded debt cannot exceed 70% of total capitalization. Funded debt was 57% of total capitalization as of October 31, 2015;
Funded debt of all subsidiaries Progress Energy have various financial and performance guarantees and indemnifications, which are issued in the aggregate cannot exceed 15%normal course of total capitalization. There is no funded debt of our subsidiaries as of October 31, 2015;
Restrictions on permitted liens;
Restrictions on paying dividends on or repurchasing our stock or making investments in subsidiaries; and
Restrictions on burdensome agreements.
6. Short-Term Debt Instruments
At October 31, 2015, we have an $850 million five-year revolving syndicated credit facility that expires on October 1, 2017. We pay an annual fee of $35,000 plus 8.5 basis points for any unused amount. The facility provides a line of credit forbusiness. 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 $10the transaction to the third party. At December 31, 2017, Duke Energy and Progress Energy do not believe conditions are likely for significant performance under these guarantees. To the extent liabilities are incurred as a result of the activities covered by the guarantees, such liabilities are included on the accompanying Consolidated Balance Sheets.
On January 2, 2007, Duke Energy completed the spin-off of its natural gas businesses to shareholders. Guarantees issued by Duke Energy or its affiliates, or assigned to Duke Energy prior to the spin-off, remained with Duke Energy subsequent to the spin-off. Guarantees issued by Spectra Energy Capital, LLC (Spectra Capital) or its affiliates prior to the spin-off remained with Spectra Capital subsequent to the spin-off, except for guarantees that were later assigned to Duke Energy. Duke Energy has indemnified Spectra Capital against any losses incurred under certain of the guarantee obligations that remain with Spectra Capital. At December 31, 2017, the maximum potential amount of future payments associated with these guarantees was $205 million, the majority of which expires by 2028.
Duke Energy has issued performance guarantees to customers and other third parties that guarantee the payment and performance of other parties, including certain non-wholly owned entities, as well as guarantees of debt of certain non-consolidated entities and less than wholly owned consolidated entities. If such entities were to default on payments or performance, Duke Energy would be required under the guarantees to make payments on the obligations of the less than wholly owned entity. The maximum potential amount of future payments required under these guarantees as of December 31, 2017, was $326 million. Of this amount, $11 million relates to guarantees issued on behalf of less than wholly owned consolidated entities, with the remainder related to guarantees issued on behalf of third parties and unconsolidated affiliates of Duke Energy. Of the guarantees noted above, $281 million of the guarantees expire between 2019 and 2030, with the remaining performance guarantees having no contractual expiration.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
In October 2017, ACP executed a $3.4 billion revolving credit facility with a stated maturity date of October 2021. Duke Energy entered into a guarantee agreement to support its share of the ACP revolving credit facility. Duke Energy's maximum exposure to loss under the terms of the guarantee is limited to 47 percent of the outstanding borrowings under the credit facility, which $1.6was $312 million as of December 31, 2017.
Duke Energy has guaranteed certain issuers of surety bonds, obligating itself to make payment upon the failure of a wholly owned and $1.8former non-wholly owned entity to honor its obligations to a third party. Under these arrangements, Duke Energy has payment obligations that are triggered by a draw by the third party or customer due to the failure of the wholly owned or former non-wholly owned entity to perform according to the terms of its underlying contract. At December 31, 2017, Duke Energy had guaranteed $81 million were issued andof outstanding at October 31, 2015 and 2014, respectively. Thesesurety bonds, most of which have no set expiration.
Duke Energy uses bank-issued stand-by letters of credit to secure the performance of wholly owned and non-wholly owned entities to a third party or customer. Under these arrangements, Duke Energy has payment obligations to the issuing bank that are usedtriggered by a draw by the third party or customer due to guarantee claims from self-insurance under our general and automobile liability policies. The credit facility bears interest based on the 30-day London Interbank Offered Rate (LIBOR) plus from 75 to 125 basis points, based on our credit ratings. Amounts borrowed are continuously renewable until the expirationfailure of the facility in 2017 provided that we are in compliance with allwholly owned or non-wholly owned entity to perform according to the terms of its underlying contract. At December 31, 2017, Duke Energy had issued a total of $449 million in letters of credit, which expire between 2018 and 2022. The unused amount under these letters of credit was $66 million.
Duke Energy and Progress Energy have issued indemnifications for certain asset performance, legal, tax and environmental matters to third parties, including indemnifications made in connection with sales of businesses. At December 31, 2017, the agreement. See Note 5estimated maximum exposure for these indemnifications was $89 million, most of which have no set expiration. For certain matters for which Progress Energy receives timely notice, indemnity obligations may extend beyond the notice period. Certain indemnifications related to the consolidated financial statements for discussiondiscontinued operations have no limitations as to time or maximum potential future payments.
Duke Energy recognized $21 million and $13 million, as of default provisions, including cross default provisions,December 31, 2017, and 2016, respectively, primarily in all of our debt agreements.
On December 14, 2015, we entered into an agreement with the lenders under our existing $850 million five-year revolving syndicated credit facility to amend and extend the facility at substantially similar terms to our existing facility. The amended facility extended the maturity of our facility to December 14, 2020. The amended facility expressly permits the Acquisition by Duke Energy. The CP program will continue to be backstopped by the new credit facility.
We have an $850 million unsecured CP program that is backstopped by the revolving syndicated credit facility. The amounts outstanding under the revolving syndicated credit facility and the CP program, either individually or in the aggregate, cannot exceed $850 million. The notes issued under the CP program may have maturities not to exceed 397 days from the date of issuance and bear interest basedOther within Other Noncurrent Liabilities on among other things, the size and maturity date of the note, the frequency of the issuance and our credit ratings, plus a spread of 5 basis points. Any borrowings under the CP program rank equally with our other unsecured debt. The notes under the CP program are not registered and are offered and issued pursuant to an exemption from registration. Due to the seasonal nature of our business, amounts borrowed can vary significantly during the year.
As of October 31, 2015, we had $340 million of notes outstanding under the CP program, as included in “Short-term debt” in “Current Liabilities” in the Consolidated Balance Sheets, with original maturities ranging from 7for the guarantees discussed above. As current estimates change, additional losses related to 14 days fromguarantees and indemnifications to third parties, which could be material, may be recorded by the Duke Energy Registrants in the future.
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 datesrespective ownership interests. The Duke Energy Registrants pay their ownership share of issuance at a weighted average interest rateadditional construction costs, fuel inventory purchases and operating expenses. The Duke Energy Registrants share of .22%. Asrevenues and operating costs of October 31, 2014, our outstanding notes under the CP program,jointly owned facilities is included within the corresponding line in the Consolidated Balance Sheets as stated above, were $355 million at a weighted average interest rateStatements of .17%.
We did not have any borrowings under the revolving syndicated credit facility for the twelve months ended October 31, 2015. A summary of the short-term debt activity under our CP program for the twelve months ended October 31, 2015 is as follows.
|
| | | |
In thousands | |
Minimum amount outstanding | $ | 230,000 |
|
Maximum amount outstanding | $ | 580,000 |
|
Minimum interest rate | .15 | % |
Maximum interest rate | .30 | % |
Weighted average interest rate | .21 | % |
Our five-year revolving syndicated credit facility’s financial covenants require us to maintain a ratio of total debt to total capitalization of no greater than 70%, and our actual ratio was 57% at October 31, 2015.
7. Stockholders’ Equity
Capital Stock
Changes in common stock for the years ended October 31, 2015, 2014 and 2013 are as follows.
|
| | | | | | | |
In thousands | | Shares | | Amount |
Balance, October 31, 2012 | | 72,250 |
| | $ | 442,461 |
|
Issued to participants in the Employee Stock Purchase Plan (ESPP) | | 33 |
| | 1,056 |
|
Issued to the Dividend Reinvestment and Stock Purchase Plan (DRIP) | | 720 |
| | 22,791 |
|
Issued to participants in the Incentive Compensation Plan (ICP) | | 96 |
| | 3,065 |
|
Issuance of common stock through public share offering, net of underwriting fees | | 3,000 |
| | 92,640 |
|
Costs from issuance of common stock | | — |
| | (369 | ) |
Balance, October 31, 2013 | | 76,099 |
| | 561,644 |
|
Issued to ESPP | | 34 |
| | 1,143 |
|
Issued to DRIP | | 698 |
| | 23,443 |
|
Issued to ICP | | 100 |
| | 3,315 |
|
Issuance of common stock through forward sale agreements, net of expenses | | 1,600 |
| | 47,290 |
|
Balance, October 31, 2014 | | 78,531 |
| | 636,835 |
|
Issued to ESPP | | 31 |
|
| 1,239 |
|
Issued to DRIP | | 669 |
|
| 24,679 |
|
Issued to ICP | | 130 |
|
| 4,964 |
|
Issuance of common stock through forward sale agreements, net of expenses | | 1,522 |
|
| 53,702 |
|
Balance, October 31, 2015 | | 80,883 |
| | $ | 721,419 |
|
In June 2004, the Board of Directors approved a Common Stock Open Market Purchase Program that authorized the repurchase of up to three million shares of currently outstanding shares of common stock. We implemented the program in September 2004. We utilize a broker to repurchase the shares on the open market, and such shares are canceled and become authorized but unissued shares available for issuance under the ESPP, DRIP and ICP.
On December 16, 2005, the Board of Directors approved an increaseOperations. Each participant in the numberjointly owned facilities must provide its own financing.
The following table presents the Duke Energy Registrants' interest of shares in this program from three million to six million to reflect the two-for-one stock split in 2004. The Board also approved at that time an amendment of the Common Stock Open Market Purchase Program to provide for the repurchase of up to four million additional shares of common stock to maintain our debt-to-equity capitalization ratios at target levels. These combined actions increased the total authorized share repurchases from three million to ten million shares. The additional four million shares were referred to as our accelerated share repurchase (ASR) program. On March 6, 2009, the Board of Directors authorized the repurchase of up to an additional four million shares under the Common Stock Open Market Purchase Programjointly owned plant or facilities and the ASR program, which were consolidated.
Under our effective combined debt and equity shelf registration statement, we established an at-the-market (ATM) equity sales program, including a forward sale component. On January 7, 2015, we entered into separate ATM Equity Offering Sales Agreements (Sales Agreements) with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill) and J.P. Morgan Securities LLC (JP Morgan), in their capacity as agents and/or as principals (Agents). Under the terms of the Sales Agreements,
we may issue and sell, through either of the Agents, shares of our common stock, up to an aggregate sales price of $170 million (subject to certain exceptions) during the period beginning January 7, 2015 and ending October 31, 2016.
In addition to the issuance and sale of shares by us through the Agents, we may also enter into FSAs with affiliates of the Agents as Forward Purchasers. In connection with each FSA, the Forward Purchasers will, at our request, borrow from third parties and, through the Agents, sell a number of shares of our common stock equal to the number of shares underlying the FSA as its hedge. We expect to enter into separate FSAs each fiscal quarter during the term of the Sales Agreements and have done so in our second, third and fourth quarters of 2015.
Under the Sales Agreements, we specify the maximum number of our shares to be sold and the minimum price per share. We will pay each Agent (or, in the case of a FSA, the Forward Purchaser through a reduced initial forward sale price) a commission of 1.5% of the sales price of all shares sold through it as sales agent under the applicable Sales Agreement. The shares offered under the Sales Agreements may be offered, issued and sold in ATM sales through the Agents or offered in connection with one or more FSAs.
Under a FSA that we executed with Merrillamounts included on March 10, 2015, 612,000 shares were borrowed from third parties and sold by Merrill, from March 10, 2015 to April 24, 2015, at a weighted average share price of $36.83, net of adjustments. Based on the weighted average share price at the end of the trading period, the initial forward price was $36.28.
Under a FSA that we executed with JP Morgan on June 8, 2015, 795,529 shares were borrowed from third parties and sold by JP Morgan, from June 10, 2015 to July 30, 2015, at a weighted average share price of $36.42, net of adjustments. Based on the weighted average share price at the end of the trading period, the initial forward price was $35.87.
Under a FSA that we executed with Merrill on September 8, 2015, 114,500 shares were borrowed from third parties and sold by Merrill, from September 9, 2015 to September 15, 2015, at a weighted average share price of $36.58, net of adjustments. Based on the weighted average share price at the end of the trading period, the initial forward price was $36.03.
Under the terms of these FSAs, at our election, we could physically settle in shares, cash or net settle for all or a portion of our obligation under the agreements any time prior to December 15, 2015.
On October 29, 2015, we issued 1.5 million shares of our common stock to the forward counterparties by physically settling all of the FSAs entered into during 2015 and received net proceeds of $54.1 million. We recorded this amount in "Stockholders' equity" as an addition to "Common stock" in the Consolidated Balance Sheets.
Upon settlement, we usedAll facilities are operated by the
net proceeds fromDuke Energy Registrants and are included in the Electric Utilities and Infrastructure segment. |
| | | | | | | | | | | | | | |
| December 31, 2017 |
| | | | | | | Construction |
|
| Ownership |
| | Property, Plant |
| | Accumulated |
| | Work in |
|
(in millions except for ownership interest) | Interest |
| | and Equipment |
| | Depreciation |
| | Progress |
|
Duke Energy Carolinas | |
| | | | | | |
Catawba Nuclear Station (units 1 and 2)(a) | 19.25 | % | | $ | 927 |
| | $ | 651 |
| | $ | 19 |
|
Lee Combined Combustion Station(b) | 86.67 | % | | — |
| | — |
| | 552 |
|
Duke Energy Ohio | | | |
| | |
| | |
|
Transmission facilities(c) | Various |
| | 89 |
| | 63 |
| | 1 |
|
Duke Energy Indiana | |
| | |
| | |
| | |
|
Gibson Station (unit 5)(d) | 50.05 | % | | 348 |
| | 162 |
| | 9 |
|
Vermillion Generating Station(e) | 62.5 | % | | 155 |
| | 120 |
| | — |
|
Transmission and local facilities(d) | Various |
| | 4,672 |
| | 1,739 |
| | — |
|
| |
(a) | Jointly owned with North Carolina Municipal Power Agency Number 1, NCEMC and Piedmont Municipal Power Agency. |
| |
(b) | Jointly owned with NCEMC. |
| |
(c) | Jointly owned with America Electric Power Generation Resources and The Dayton Power and Light Company. |
| |
(d) | Jointly owned with Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency. |
| |
(e) | Jointly owned with WVPA. |
9. ASSET RETIREMENT OBLIGATIONS
Duke Energy records an ARO when it has a legal obligation to incur retirement costs associated with the retirement of a long-lived asset and the obligation can be reasonably estimated. Certain assets of the Duke Energy Registrants’ have an indeterminate life, such as transmission and distribution facilities, and thus the fair value of the retirement obligation is not reasonably estimable. A liability for these FSA transactions to finance capital expenditures, repay outstanding short-term, unsecured notes under our CP program and for general corporate purposes.AROs will be recorded when a fair value is determinable.
On January 29, 2013, we entered into an underwriting agreement under our open combined debt and equity shelf registration statement to sell up to 4.6 million shares of our common stock of which 3 million direct shares were issued and settled on February 4, 2013 with proceeds of $92.6 million received. The shares were purchased by the underwriters at the net price of $30.88 per share, the offering price to the public of $32 per share per the prospectus less an underwriting discount of $1.12 per share.182
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The remaining 1.6 million shares under this same underwriting agreement were under FSAs with 1 million shares borrowed by a forward counterparty and sold to the underwritersDuke Energy Registrants’ regulated operations accrue costs of removal for resale to the public on February 4, 2013 at the same price as the direct shares; the remaining .6 million shares were subject to a 30-day option by the underwriters to purchase these additional shares at the same price as the direct shares and would be, at our option, either issued at the time of purchase and delivered directly to the underwriters or borrowed and delivered to the underwriters by the forward counterparty. On February 19, 2013, the underwriters exercised their option to purchase the full additional .6 million shares of our common stock where the shares were borrowed from third parties and sold to the underwriters by the forward counterparty. Both of the FSAs had to be settled no later than mid-December 2013. Under the terms of these FSAs, at our election, we could physically settle in shares, cash or net share settle for all or a portion of ourproperty that does not have an associated legal retirement obligation under the agreements.
On December 16, 2013, we physically settled the FSAs by issuing 1.6 million shares of our common stock to the forward counterparty and received net proceeds of $47.3 million 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 net settlement priceestimated cost of $30.88 per share,removal for any nonregulated assets. See Note 4 for the original offering price, less certain adjustments. We recorded this amountestimated cost of removal for assets without an associated legal retirement obligation, which are included in "Stockholders' equity" as an addition to "Common stock" inRegulatory liabilities on the Consolidated Balance Sheets. Upon settlement, we used
The following table presents the net proceeds from these FSA transactionsAROs recorded on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Decommissioning of nuclear power facilities(a) | $ | 5,371 |
| | $ | 1,944 |
| | $ | 3,246 |
| | $ | 2,564 |
| | $ | 681 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Closure of ash impoundments | 4,525 |
| | 1,629 |
| | 2,094 |
| | 2,075 |
| | 19 |
| | 39 |
| | 763 |
| | — |
|
Other(b) | 279 |
| | 37 |
| | 74 |
| | 34 |
| | 42 |
| | 45 |
| | 18 |
| | 15 |
|
Total asset retirement obligation | $ | 10,175 |
| | $ | 3,610 |
| | $ | 5,414 |
| | $ | 4,673 |
| | $ | 742 |
| | $ | 84 |
| | $ | 781 |
|
| $ | 15 |
|
Less: current portion | 689 |
| | 337 |
| | 295 |
| | 295 |
| | — |
| | 3 |
| | 54 |
| | — |
|
Total noncurrent asset retirement obligation | $ | 9,486 |
| | $ | 3,273 |
| | $ | 5,119 |
| | $ | 4,378 |
| | $ | 742 |
| | $ | 81 |
| | $ | 727 |
|
| $ | 15 |
|
| |
(a) | Duke Energy amount includes purchase accounting adjustments related to the merger with Progress Energy. |
| |
(b) | Primarily includes obligations related to asbestos removal. Duke Energy Ohio and Piedmont also include AROs related to the retirement of natural gas mains and services. Duke Energy includes AROs related to the removal of renewable energy generation assets. |
Nuclear Decommissioning Liability
AROs related to finance capital expenditures, repay outstanding short-term, unsecured notes under our CP programnuclear decommissioning are based on site-specific cost studies. The NCUC, PSCSC and FPSC require updated cost estimates for general corporate purposes.decommissioning nuclear plants every five years.
The following table summarizes information about the most recent site-specific nuclear decommissioning cost studies. Decommissioning costs in the table below are stated in 2013 or 2014 dollars, depending on the year of the cost study, and include costs to decommission plant components not subject to radioactive contamination. |
| | | | | | | | | |
| Annual Funding |
| | Decommissioning |
| | |
(in millions) | Requirement(a) |
| | Costs(a)(b) |
| | Year of Cost Study |
Duke Energy | $ | 14 |
| | $ | 8,150 |
|
| 2013 and 2014 |
Duke Energy Carolinas | — |
| | 3,420 |
|
| 2013 |
Duke Energy Progress | 14 |
| | 3,550 |
|
| 2014 |
Duke Energy Florida | — |
| | 1,180 |
|
| 2013 |
| |
(a) | Amounts for Progress Energy equal the sum of Duke Energy Progress and Duke Energy Florida. |
| |
(b) | Amounts include the Subsidiary Registrant's ownership interest in jointly owned reactors. Other joint owners are responsible for decommissioning costs related to their interest in the reactors. |
Nuclear Decommissioning Trust Funds
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida each maintain NDTFs that are intended to pay for the decommissioning costs of their respective nuclear power plants. The NDTF investments are managed and invested in accordance with applicable requirements of various regulatory bodies including the NRC, FERC, NCUC, PSCSC, FPSC and the Internal Revenue Service (IRS).
Use of the NDTF investments is restricted to nuclear decommissioning activities including license termination, spent fuel and site restoration. The license termination and spent fuel obligations relate to contaminated decommissioning and are recorded as AROs. The site restoration obligation relates to non-contaminated decommissioning and is recorded to cost of removal within Regulatory liabilities on the Consolidated Balance Sheets.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
In accordance with accounting guidance, we classified the FSAs as equity transactions because the forward sale transactions were indexed to our own stock and physical settlement was within our control. As a result of this classification, no amounts were recorded in the consolidated financial statements until settlement of each FSA.DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Upon physical settlementThe following table presents the fair value of NDTF assets legally restricted for purposes of settling AROs associated with nuclear decommissioning. Duke Energy Florida is actively decommissioning Crystal River Unit 3 and was granted an exemption from the NRC which allows for use of the FSAs, deliveryNDTF for all aspects of our shares resulted in dilutionnuclear decommissioning. The entire balance of Duke Energy Florida's NDTF may be applied toward license termination, spent fuel and site restoration costs incurred to our EPS atdecommission Crystal River Unit 3. See Note 16 for additional information related to the datefair value of the settlement. In quarters priorDuke Energy Registrants' NDTFs. |
| | | | | | | |
| December 31, |
(in millions) | 2017 | | 2016 |
Duke Energy | $ | 5,864 |
| | $ | 5,099 |
|
Duke Energy Carolinas | 3,321 |
| | 2,882 |
|
Duke Energy Progress | 2,543 |
| | 2,217 |
|
Nuclear Operating Licenses
Operating licenses for nuclear units are potentially subject to extension. The following table includes the settlement date, any dilutive effectcurrent expiration of the FSAs on our EPS occurred during periods when the average market price per share of our common stock was above the per share adjusted forward sale price described above. See Note 4 to the consolidated financial statements for the dilutive effect of the FSAs on our EPS at October 31, 2013 with the inclusion of the incremental shares in our average shares of dilutive stock as calculated under the treasury stock method.
As of October 31, 2015, shares of common stock reserved for future issuance under various plans are as follows.
nuclear operating licenses. |
| |
Unit | Year of Expiration |
In thousandsDuke Energy Carolinas | |
ESPPCatawba Units 1 and 2 | 145 | 2043 |
DRIPMcGuire Unit 1 | 171 | 2041 |
ICPMcGuire Unit 2 | 820 | 2043 |
TotalOconee Units 1 and 2 | 1,1362033 |
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 terminate the operating license for Crystal River Unit 3 as it permanently ceased operation in February 2013. In January 2018, Crystal River Unit 3 reached a SAFSTOR status.
Other Comprehensive Income (Loss)Closure of Ash Impoundments
The Duke Energy Registrants are subject to state and federal regulations covering the closure of coal ash impoundments, including the EPA CCR rule and the Coal Ash Act, and other agreements. AROs recorded on the Duke Energy Registrants' Consolidated Balance Sheets include the legal obligation for closure of coal ash basins and the disposal of related ash as a result of these regulations and agreements.
The Coal Ash Act, as amended, requires excavation of the Sutton, Riverbend and Dan River basins by August 1, 2019, and Asheville basins by August 1, 2022. Excavation at these sites may include a combination of transfer of coal ash to an engineered landfill or conversion for beneficial use. Basins at the H.F. Lee, Cape Fear and Weatherspoon sites are required to be closed through excavation no later than August 1, 2028. Excavation at these sites can include conversion of the basin to a lined industrial landfill, transfer of ash to an engineered landfill or conversion for beneficial use. The remaining basins are required to be closed no later than December 31, 2024, through conversion to a lined industrial landfill, transfer to an engineered landfill or conversion for beneficial use, unless certain dam improvement projects and alternative drinking water source projects are completed by October 15, 2018. Upon satisfactory completion of these projects, the closure deadline would be extended to December 31, 2029, and could include closure through the combination of a cap system and a groundwater monitoring system.
The Coal Ash Act also required the installation and operation of three large-scale coal ash beneficiation projects to produce reprocessed ash for use in the concrete industry. Duke Energy selected the Buck, H.F. Lee and Cape Fear plants for these projects. Closure at these sites is required to be completed no later than December 31, 2029.
The Coal Ash Act includes a variance procedure for compliance deadlines and other issues surrounding the management of CCR and CCR surface impoundments and prohibits cost recovery in customer rates for unlawful discharge of ash impoundment waters occurring after January 1, 2014. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of ash impoundments to the normal ratemaking processes before utility regulatory commissions. Closure plans and all associated permits must be approved by NCDEQ before any closure work can begin.
The EPA CCR rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. The EPA CCR rule has certain requirements which if not met could initiate impoundment closure and require closure completion within five years. The EPA CCR rule includes extension requirements, which if met could allow the extension of closure completion by up to 10 years.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The ARO amount recorded on the Consolidated Balance Sheets is based upon estimated closure costs for impacted ash impoundments. The amount recorded represents the discounted cash flows for estimated closure costs based upon either specific closure plans or the probability weightings of the potential closure methods as evaluated on a partsite-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 ourclosure at the individual sites. Closure methods considered include removing the water from ash basins, consolidating material as necessary and capping the ash with a synthetic barrier, excavating and relocating the ash to a lined structural fill or lined landfill or recycling the ash for concrete or some other beneficial use. The ultimate method and timetable for closure will be in compliance with standards set by federal and state regulations and other agreements. The ARO amount will be adjusted as additional information is gained through the closure and post-closure process, including acceptance and approval of compliance approaches which may change management assumptions, and may result in a material change to the balance. See ARO Liability Rollforward section below for information on revisions made to the coal ash liability during 2017 and 2016.
Asset retirement costs associated with the AROs for operating plants and retired plants are included in Net property, plant and equipment and Regulatory assets, respectively, on the Consolidated Balance Sheets. See Note 4 for additional information on Regulatory assets related to AROs.
Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. See Note 4 for additional information on recovery of coal ash costs.
ARO Liability Rollforward
During 2017 and 2016, the Duke Energy Registrants updated coal ash ARO liability estimates based on additional site-specific information for the related costs, methods and timing of work to be performed. Actual closure costs incurred could be materially different from current estimates that form the basis of the recorded AROs.
The following tables present changes in the liability associated with AROs. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Balance at December 31, 2015 | $ | 10,249 |
| | $ | 3,918 |
| | $ | 5,369 |
| | $ | 4,567 |
| | $ | 802 |
| | $ | 125 |
| | $ | 525 |
|
Acquisitions(a) | 22 |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
| | — |
|
Accretion expense(b) | 400 |
| | 187 |
| | 230 |
| | 194 |
| | 35 |
| | 5 |
| | 24 |
|
Liabilities settled(c) | (613 | ) | | (287 | ) | | (272 | ) | | (212 | ) | | (60 | ) | | (5 | ) | | (49 | ) |
Liabilities incurred in the current year | 51 |
| | — |
| | 3 |
| | 3 |
| | — |
| | — |
| | 29 |
|
Revisions in estimates of cash flows | 502 |
| | 77 |
| | 143 |
| | 145 |
| | (1 | ) | | (48 | ) | | 337 |
|
Balance at December 31, 2016 | 10,611 |
|
| 3,895 |
|
| 5,475 |
|
| 4,697 |
|
| 778 |
|
| 77 |
|
| 866 |
|
Accretion expense(b) | 435 |
| | 184 |
| | 228 |
| | 195 |
| | 33 |
| | 3 |
| | 32 |
|
Liabilities settled(c) | (619 | ) | | (282 | ) | | (270 | ) | | (204 | ) | | (65 | ) | | (7 | ) | | (49 | ) |
Liabilities incurred in the current year(d) | 51 |
| | 5 |
| | — |
| | — |
| | — |
| | 7 |
| | 29 |
|
Revisions in estimates of cash flows | (303 | ) | | (192 | ) | | (19 | ) | | (15 | ) | | (4 | ) | | 4 |
| | (97 | ) |
Balance at December 31, 2017 | $ | 10,175 |
|
| $ | 3,610 |
|
| $ | 5,414 |
|
| $ | 4,673 |
|
| $ | 742 |
|
| $ | 84 |
|
| $ | 781 |
|
| |
(a) | Duke Energy amount relates to the Piedmont acquisition. See Note 2 for additional information. |
| |
(b) | Substantially all accretion expense for the years ended December 31, 2017, and 2016 relates to Duke Energy’s regulated electric operations and has been deferred in accordance with regulatory accounting treatment. |
| |
(c) | Amounts primarily relate to ash impoundment closures and nuclear decommissioning of Crystal River Unit 3. |
| |
(d) | Amounts primarily relate to AROs recorded as a result of state agency closure requirements at Duke Energy Indiana. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | |
(in millions) | | Piedmont |
Balance at October 31, 2015 | | $ | 20 |
|
Accretion expense | | 1 |
|
Liabilities settled | | (7 | ) |
Liabilities incurred in the current year | | 6 |
|
Revisions in estimates of cash flows | | (6 | ) |
Balance at October 31, 2016 | | 14 |
|
Liabilities settled | | (1 | ) |
Liabilities incurred in the current year | | 1 |
|
Balance at December 31, 2016 | | 14 |
|
Accretion expense | | 1 |
|
Liabilities settled | | (8 | ) |
Liabilities incurred in the current year | | 8 |
|
Balance at December 31, 2017 | | $ | 15 |
|
10. PROPERTY, PLANT AND EQUIPMENT
The following tables summarize the property, plant and equipment for Duke Energy and its subsidiary registrants. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| Estimated | | | | | | | | | | | | | | | | |
| Useful | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Life | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | (Years) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
Land | | | $ | 1,559 |
| | $ | 467 |
| | $ | 767 |
| | $ | 424 |
| | $ | 343 |
| | $ | 134 |
| | $ | 111 |
| | $ | 41 |
|
Plant – Regulated | | | | | | | | | | | | | | | | | |
Electric generation, distribution and transmission | 8-100 | | 93,687 |
| | 35,657 |
| | 39,419 |
| | 24,502 |
| | 14,917 |
| | 4,870 |
| | 13,741 |
| | — |
|
Natural gas transmission and distribution | 12-80 | | 8,292 |
| | — |
| | — |
| | — |
| | — |
| | 2,559 |
| | — |
| | 5,733 |
|
Other buildings and improvements | 15-100 | | 1,936 |
| | 647 |
| | 652 |
| | 316 |
| | 336 |
| | 243 |
| | 240 |
| | 154 |
|
Plant – Nonregulated | | | | | | | | | | | | | | | | | |
Electric generation, distribution and transmission(a) | 5-30 | | 4,273 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other buildings and improvements | 25-35 | | 465 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Nuclear fuel | | | 3,680 |
| | 2,120 |
| | 1,560 |
| | 1,560 |
| | — |
| | — |
| | — |
| | — |
|
Equipment | 3-55 | | 2,122 |
| | 402 |
| | 555 |
| | 416 |
| | 139 |
| | 348 |
| | 169 |
| | 266 |
|
Construction in process | | | 6,995 |
| | 2,614 |
| | 3,059 |
| | 1,434 |
| | 1,625 |
| | 350 |
| | 416 |
| | 231 |
|
Other | 3-40 | | 4,498 |
| | 1,032 |
| | 1,311 |
| | 931 |
| | 370 |
| | 228 |
| | 271 |
| | 300 |
|
Total property, plant and equipment(b)(e) | | | 127,507 |
| | 42,939 |
| | 47,323 |
| | 29,583 |
| | 17,730 |
| | 8,732 |
| | 14,948 |
| | 6,725 |
|
Total accumulated depreciation – regulated(c)(d)(e) | | | (39,742 | ) | | (15,063 | ) | | (15,857 | ) | | (10,903 | ) | | (4,947 | ) | | (2,691 | ) | | (4,662 | ) | | (1,479 | ) |
Total accumulated depreciation – nonregulated(d)(e) | | | (1,795 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Generation facilities to be retired, net | | | 421 |
| | — |
| | 421 |
| | 421 |
| | — |
| | — |
| | — |
| | — |
|
Total net property, plant and equipment | | | $ | 86,391 |
|
| $ | 27,876 |
|
| $ | 31,887 |
|
| $ | 19,101 |
|
| $ | 12,783 |
|
| $ | 6,041 |
| | $ | 10,286 |
| | $ | 5,246 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
| |
(a) | Includes a pretax impairment charge of $58 million on a wholly owned non-contracted wind project. See discussion below. |
| |
(b) | Includes capitalized leases of $1,294 million, $81 million, $272 million, $139 million, $133 million, $80 million and $35 million at Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana, respectively, primarily within Plant – Regulated. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of $114 million, $11 million and $103 million, respectively, of accumulated amortization of capitalized leases. |
| |
(c) | Includes $2,113 million, $1,283 million, $831 million and $831 million of accumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively. |
| |
(d) | Includes accumulated amortization of capitalized leases of $57 million, $11 million, $21 million and $9 million at Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana, respectively. |
| |
(e) | Includes gross property, plant and equipment cost of consolidated VIEs of $3,941 million and accumulated depreciation of consolidated VIEs of $598 million at Duke Energy. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Estimated | | | | | | | | | | | | | | | | |
| Useful | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Life | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | (Years) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
Land | | | $ | 1,501 |
| | $ | 432 |
| | $ | 735 |
| | $ | 393 |
| | $ | 342 |
| | $ | 150 |
| | $ | 106 |
| | $ | 39 |
|
Plant – Regulated | | | | | | | | | | | | | | | | | |
Electric generation, distribution and transmission | 8-100 | | 89,864 |
| | 34,515 |
| | 37,596 |
| | 23,683 |
| | 13,913 |
| | 4,593 |
| | 13,160 |
| | — |
|
Natural gas transmission and distribution | 12-67 | | 7,738 |
| | — |
| | — |
| | — |
| | — |
| | 2,456 |
| | — |
| | 5,282 |
|
Other buildings and improvements | 15-100 | | 1,692 |
| | 502 |
| | 634 |
| | 293 |
| | 341 |
| | 211 |
| | 197 |
| | 148 |
|
Plant – Nonregulated | | | | | | | | | | | | | | | | | |
Electric generation, distribution and transmission | 5-30 | | 4,298 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other buildings and improvements | 25-35 | | 421 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Nuclear fuel | | | 3,572 |
| | 2,092 |
| | 1,480 |
| | 1,480 |
| | — |
| | — |
| | — |
| | — |
|
Equipment | 3-38 | | 1,941 |
| | 358 |
| | 505 |
| | 378 |
| | 127 |
| | 338 |
| | 156 |
| | 260 |
|
Construction in process | | | 6,186 |
| | 2,324 |
| | 2,708 |
| | 1,329 |
| | 1,379 |
| | 206 |
| | 396 |
| | 210 |
|
Other | 5-40 | | 4,184 |
| | 904 |
| | 1,206 |
| | 863 |
| | 332 |
| | 172 |
| | 226 |
| | 235 |
|
Total property, plant and equipment(a)(d) | | | 121,397 |
| | 41,127 |
| | 44,864 |
| | 28,419 |
| | 16,434 |
| | 8,126 |
| | 14,241 |
| | 6,174 |
|
Total accumulated depreciation – regulated(b)(c)(d) | | | (37,831 | ) | | (14,365 | ) | | (15,212 | ) | | (10,561 | ) | | (4,644 | ) | | (2,579 | ) | | (4,317 | ) | | (1,360 | ) |
Total accumulated depreciation – nonregulated(c)(d) | | | (1,575 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Generation facilities to be retired, net | | | 529 |
| | — |
| | 529 |
| | 529 |
| | — |
| | — |
| | — |
| | — |
|
Total net property, plant and equipment | | | $ | 82,520 |
| | $ | 26,762 |
| | $ | 30,181 |
| | $ | 18,387 |
| | $ | 11,790 |
| | $ | 5,547 |
| | $ | 9,924 |
| | $ | 4,814 |
|
| |
(a) | Includes capitalized leases of $1,355 million, $40 million, $288 million, $142 million, $146 million, $81 million and $35 million at Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana, respectively, primarily within Plant – Regulated. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of $99 million, $9 million and $90 million, respectively, of accumulated amortization of capitalized leases. |
| |
(b) | Includes $1,922 million, $1,192 million, $730 million and $730 million of accumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively. |
| |
(c) | Includes accumulated amortization of capitalized leases of $50 million, $9 million, $19 million and $8 million at Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana, respectively. |
| |
(d) | Includes gross property, plant and equipment cost of consolidated VIEs of $2,591 million and accumulated depreciation of consolidated VIEs of $411 million at Duke Energy. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
During the year ended December 31, 2017, Duke Energy recorded a pretax impairment charge of $69 million on a wholly owned non-contracted wind project. The impairment was recorded within Impairment charges on Duke Energy’s Consolidated Statements of Operations. $58 million of the impairment related to property, plant and equipment and $11 million of the impairment related to a net intangible asset; see Note 11 for additional information. The charge represents the excess carrying value over the estimated fair value of the project, which was based on a Level 3 Fair Value measurement that was determined from the income approach using discounted cash flows. The impairment was primarily due to the non-contracted wind project being located in a market that has experienced continued declining market pricing during 2017 and declining long-term forecasted energy and capacity prices, driven by low natural gas prices, additional renewable generation placed in service and lack of significant load growth.
The following tables present capitalized interest, which includes the debt component of AFUDC. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Duke Energy | $ | 128 |
| | $ | 100 |
| | $ | 98 |
|
Duke Energy Carolinas | 45 |
| | 38 |
| | 38 |
|
Progress Energy | 45 |
| | 31 |
| | 24 |
|
Duke Energy Progress | 21 |
| | 17 |
| | 20 |
|
Duke Energy Florida | 24 |
| | 14 |
| | 4 |
|
Duke Energy Ohio | 10 |
| | 8 |
| | 10 |
|
Duke Energy Indiana | 9 |
| | 7 |
| | 6 |
|
|
| | | | | | | | | | | | | | | |
| Year Ended | | Two Months Ended | | Years Ended October 31, |
(in millions) | December 31, 2017 | | December 31, 2016 | | 2016 |
| | 2015 |
|
Piedmont | $ | 12 |
| | $ | 2 |
| | $ | 12 |
| | $ | 11 |
|
Operating Leases
Duke Energy's Commercial Renewables segment operates various renewable energy projects and sells the generated output to utilities, electric cooperatives, municipalities and commercial and industrial customers through long-term contracts. In certain situations, these long-term contracts and the associated renewable energy projects qualify as operating leases. Rental income from these leases is accounted for as Operating Revenues in the Consolidated Statements of Operations. There are no minimum lease payments as all payments are contingent based on actual electricity generated by the renewable energy projects. Contingent lease payments were $262 million, $216 million, and $172 million for the years ended December 31, 2017, 2016 and 2015. As of December 31, 2017, renewable energy projects owned by Duke Energy and accounted for as operating leases had a cost basis of $3,153 million and accumulated OCILdepreciation of $459 million. These assets are principally classified as nonregulated electric generation and transmission assets.
11. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Duke Energy
The following table presents goodwill by reportable operating segment for Duke Energy included on Duke Energy's Consolidated Balance Sheets at December 31, 2017, and 2016.
|
| | | | | | | | | | | | | | | |
| Electric Utilities |
| | Gas Utilities |
| | Commercial |
| | |
(in millions) | and Infrastructure |
| | and Infrastructure |
| | Renewables |
| | Total |
|
Goodwill Balance at December 31, 2016 | $ | 17,379 |
| | $ | 1,924 |
| | $ | 122 |
| | $ | 19,425 |
|
Accumulated impairment charges(a) | — |
| | — |
| | (29 | ) | | (29 | ) |
Goodwill at December 31, 2017 | $ | 17,379 |
| | $ | 1,924 |
| | $ | 93 |
| | $ | 19,396 |
|
| |
(a) | Duke Energy evaluated the recoverability of goodwill during 2017 and recorded impairment charges of $29 million related to the Energy Management Solutions reporting unit within the Commercial Renewables segment. The fair value of the reporting unit was determined based on the market approach. |
Duke Energy Ohio
Duke Energy Ohio's Goodwill balance of $920 million, allocated $596 million to Electric Utilities and Infrastructure and $324 million to Gas Utilities and Infrastructure, is comprisedpresented net of hedging activitiesaccumulated impairment charges of $216 million on the Consolidated Balance Sheets at December 31, 2017, and 2016.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Progress Energy
Progress Energy's Goodwill is included in the Electric Utilities and Infrastructure operating segment and there are no accumulated impairment charges.
Piedmont
Piedmont's Goodwill is included in the Gas Utilities and Infrastructure operating segment and there are no accumulated impairment charges. Effective with Piedmont's fiscal year being changed to December 31, as discussed in Note 1, Piedmont changed the date of its annual impairment testing of goodwill from ourOctober 31 to August 31 to align with the other Duke Energy Registrants.
Impairment Testing
Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont are required to perform an annual goodwill impairment test as of the same date each year and, accordingly, perform their annual impairment testing of goodwill as of August 31. Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont update their test between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. Except for the Energy Management Solutions reporting unit, the fair value of all other reporting units for Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont exceeded their respective carrying values at the date of the annual impairment analysis.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Intangible Assets
The following tables show the carrying amount and accumulated amortization of intangible assets included in Other within Other Noncurrent Assets on the Consolidated Balance Sheets of the Duke Energy Registrants at December 31, 2017 and 2016. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Emission allowances | $ | 19 |
| | $ | 1 |
| | $ | 5 |
| | $ | 2 |
| | $ | 3 |
| | $ | — |
| | $ | 13 |
| | $ | — |
|
Renewable energy certificates | 148 |
| | 38 |
| | 107 |
| | 107 |
| | — |
| | 3 |
| | — |
| | — |
|
Natural gas, coal and power contracts | 24 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 24 |
| | — |
|
Renewable operating and development projects | 79 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other | 6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
|
Total gross carrying amounts | 276 |
| | 39 |
| | 112 |
| | 109 |
| | 3 |
| | 3 |
| | 37 |
| | 3 |
|
Accumulated amortization – natural gas, coal and power contracts | (19 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (19 | ) | | — |
|
Accumulated amortization – renewable operating and development projects | (22 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Accumulated amortization – other | (5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) |
Total accumulated amortization | (46 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (19 | ) | | (3 | ) |
Total intangible assets, net | $ | 230 |
|
| $ | 39 |
|
| $ | 112 |
|
| $ | 109 |
|
| $ | 3 |
|
| $ | 3 |
|
| $ | 18 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 | | |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Emission allowances | $ | 19 |
| | $ | 1 |
| | $ | 6 |
| | $ | 2 |
| | $ | 4 |
| | $ | — |
| | $ | 13 |
| | $ | — |
|
Renewable energy certificates | 125 |
| | 36 |
| | 84 |
| | 84 |
| | — |
| | 4 |
| | — |
| | — |
|
Natural gas, coal and power contracts | 24 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 24 |
| | — |
|
Renewable operating and development projects | 97 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other | 6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
|
Total gross carrying amounts | 271 |
| | 37 |
| | 90 |
| | 86 |
| | 4 |
| | 4 |
| | 37 |
| | 3 |
|
Accumulated amortization – natural gas, coal and power contracts | (17 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (17 | ) | | — |
|
Accumulated amortization – renewable operating and development projects | (23 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Accumulated amortization – other | (5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) |
Total accumulated amortization | (45 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (17 | ) | | (3 | ) |
Total intangible assets, net | $ | 226 |
|
| $ | 37 |
|
| $ | 90 |
|
| $ | 86 |
|
| $ | 4 |
|
| $ | 4 |
|
| $ | 20 |
| | $ | — |
|
During the year ended December 31, 2017, Duke Energy recorded a pretax impairment charge of $69 million on a wholly owned non-contracted wind project. The impairment was recorded within Impairment charges on Duke Energy’s Consolidated Statements of Operations. $58 million of the impairment related to property, plant and equipment and $11 million of the impairment related to a net intangible asset that was recorded in 2007 when the project was acquired. Prior to the impairment, the gross amount of the intangible asset was $18 million and the accumulated amortization was $7 million. The intangible asset was fully impaired. See Note 10 for additional information.
Amortization Expense
The following table presents amortization expense for natural gas, coal and power contracts, renewable operating projects and other intangible assets. |
| | | | | | | | | | | |
| December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Duke Energy | $ | 7 |
| | $ | 6 |
| | $ | 5 |
|
Duke Energy Indiana | 1 |
| | 1 |
| | 1 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The table below shows the expected amortization expense for the next five years for intangible assets as of December 31, 2017. The expected amortization expense includes estimates of emission allowances consumption and estimates of consumption of commodities such as natural gas and coal under existing contracts, as well as estimated amortization related to renewable operating projects. The amortization amounts discussed below are estimates and actual amounts may differ from these estimates due to such factors as changes in consumption patterns, sales or impairments of emission allowances or other intangible assets, delays in the in-service dates of renewable assets, additional intangible acquisitions and other events. |
| | | | | | | | | | | | | | | | | | | |
(in millions) | 2018 |
| | 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
|
Duke Energy | $ | 3 |
| | $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | 2 |
|
Duke Energy Indiana | 1 |
| | — |
| | — |
| | — |
| | — |
|
12. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
EQUITY METHOD INVESTMENTS
Investments in domestic and international affiliates that are not controlled by Duke Energy, but over which it has significant influence, are accounted for using the equity method.
The following table presents Duke Energy’s investments in unconsolidated affiliates accounted for under the equity method, investments. For further informationas well as the respective equity in earnings, by segment. |
| | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
| | | Equity in |
| | | | Equity in |
| | Equity in |
|
(in millions) | Investments |
| | earnings |
| | Investments |
| | earnings |
| | earnings |
|
Electric Utilities and Infrastructure | $ | 89 |
| | $ | 5 |
| | $ | 93 |
| | $ | 5 |
| | $ | (2 | ) |
Gas Utilities and Infrastructure | 763 |
| | 62 |
| | 566 |
| | 19 |
| | 1 |
|
Commercial Renewables | 190 |
| | (5 | ) | | 185 |
| | (82 | ) | | (6 | ) |
Other | 133 |
| | 57 |
| | 81 |
| | 43 |
| | 76 |
|
Total | $ | 1,175 |
|
| $ | 119 |
|
| $ | 925 |
|
| $ | (15 | ) |
| $ | 69 |
|
During the years ended December 31, 2017, 2016 and 2015, Duke Energy received distributions from equity investments of $13 million, $31 million and $104 million, respectively, which are included in Other assets within Cash Flows from Operating Activities on these hedging activities by ourthe Consolidated Statements of Cash Flows. During the year ended December 31, 2017, Duke Energy received distributions from equity investments of $281 million, which are included within Cash Flows from Investing Activities on the Consolidated Statements of Cash Flows.
During the year ended December 31, 2017, the two months ended December 31, 2016, and the years ended October 31, 2016, and 2015, Piedmont received distributions from equity investments of $4 million, $1 million, $26 million and $25 million, respectively, which are included in Other assets within Cash Flows from Operating Activities and $2 million, $1 million, $18 million and $2 million, respectively, which are included within Cash Flows from Investing Activities on the Consolidated Statements of Cash Flows.
Significant investments in affiliates accounted for under the equity method investments, seeare discussed below.
Electric Utilities and Infrastructure
Duke Energy owns a 50 percent interest in Duke-American Transmission Co. (DATC) and in Pioneer Transmission, LLC (Pioneer), which build, own and operate electric transmission facilities in North America.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Gas Utilities and Infrastructure
The table below outlines Duke Energy's ownership interests in natural gas pipeline companies and natural gas storage facilities. |
| | | | | | | | | | |
| | | Investment Amount (in millions) |
| Ownership | | December 31, | | December 31, |
Entity Name | Interest | | 2017 | | 2016 |
Pipeline Investments | | | | | |
Atlantic Coast Pipeline, LLC(a) | 47 | % | | $ | 397 |
| | $ | 265 |
|
Sabal Trail Transmission, LLC | 7.5 | % | | 219 |
| | 140 |
|
Constitution Pipeline, LLC(a) | 24 | % | | 81 |
| | 82 |
|
Cardinal Pipeline Company, LLC(b) | 21.49 | % | | 11 |
| | 16 |
|
Storage Facilities | | | | | |
Pine Needle LNG Company, LLC(b) | 45 | % | | 13 |
| | 16 |
|
Hardy Storage Company, LLC(b) | 50 | % | | 42 |
| | 47 |
|
Total Investments(c) | | | $ | 763 |
| | $ | 566 |
|
| |
(a) | During the year ended December 31, 2017, Piedmont transferred its share of ownership interest in ACP and Constitution to a wholly owned subsidiary of Duke Energy at book value. |
| |
(b) | Piedmont owns the Cardinal, Pine Needle and Hardy Storage investments. |
| |
(c) | Duke Energy includes purchase accounting adjustments related to Piedmont. |
In October 2017, Duke Energy entered into a guarantee agreement to support its share of the ACP revolving credit facility. See Note 137 for additional information. As a result of the financing, ACP returned capital of $265 million to Duke Energy.
Piedmont sold its 15 percent membership interest in SouthStar on October 3, 2016, for $160 million resulting in an after tax gain of $81 million during the consolidated financial statements. Changesyear ended October 31, 2016. Piedmont's Equity in each component of accumulated OCIL are presented belowEarnings in SouthStar was $19 million for the years ended October 31, 20152016, and 2014.2015.
For regulatory matters and other information on the ACP, Sabal Trail and Constitution investments, see Notes 4 and 17. |
| | | | | | | | |
Changes in Accumulated OCIL (1) |
| | | | |
In thousands | | 2015 | | 2014 |
Accumulated OCIL beginning balance, net of tax | | $ | (237 | ) | | $ | (284 | ) |
Hedging activities of equity method investments: | | | | |
OCIL before reclassifications, net of tax | | (1,601 | ) | | 355 |
|
Amounts reclassified from accumulated OCIL, net of tax | | 1,018 |
| | (284 | ) |
Total current period activity of hedging activities of equity method investments, net of tax | | (583 | ) | | 71 |
|
Net current period benefit activities of equity method investments, net of tax | | (35 | ) | | (24 | ) |
Accumulated OCIL ending balance, net of tax | | $ | (855 | ) |
| $ | (237 | ) |
(1) Amounts in parentheses indicate debits to accumulated OCIL. |
Commercial RenewablesIn 2016, Duke Energy sold its interest in three of the Catamount Sweetwater, LLC wind farm projects. Duke Energy has a 47 percent ownership interest in each of the two other Catamount Sweetwater, LLC wind farm projects and 50 percent interest in DS Cornerstone, LLC, which owns wind farm projects in the U.S.
Impairment of Equity Method Investments
Duke Energy evaluated its investment in Constitution for OTTI as of December 31, 2017. Our impairment assessment uses a discounted cash flow income approach, including consideration of the severity and duration of any decline in fair value of our investment in the project. Our key inputs involve significant management judgments and estimates, including projections of the project’s cash flows, selection of a discount rate and probability weighting of potential outcomes of legal and regulatory proceedings. Based upon these estimates using information known as of December 31, 2017, the fair value of Duke Energy's investment in Constitution approximated its carrying value. As a result, Duke Energy did not recognize any impairment charge in the year ended December 31, 2017. However, due to the FERC’s January 2018 ruling and the resulting increase in uncertainty, Duke Energy is evaluating the potential to recognize a pretax impairment charge on its investment in Constitution during the first quarter of 2018 of up to the current carrying amount of the investment, net of salvage value and any cash and working capital returned. For additional information on the Constitution investment, see Note 4.
During the year ended December 31, 2016, Duke Energy recorded an OTTI of certain wind project investments. The $71 million pretax impairment was recorded within Equity in earnings (losses) of unconsolidated affiliates on Duke Energy's Consolidated Statements of Operations. The other-than-temporary decline in value of these investments was primarily attributable to a sustained decline in market pricing where the wind investments are located, projected net losses for the projects and a reduction in the projected cash distribution to the class of investment owned by Duke Energy.
Other
Duke Energy owns a 17.5 percent indirect interest in NMC, which owns and operates a methanol and MTBE business in Jubail, Saudi Arabia. Duke Energy's economic ownership interest decreased from 25 percent to 17.5 percent with the successful startup of NMC's polyacetal production facility in 2017. Duke Energy retains 25 percent of the board representation and voting rights of NMC. The investment in NMC is accounted for under the equity method of accounting.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
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 effectSubsidiary Registrants for balances due to or due from related parties. Material amounts related to transactions with related parties included in the Consolidated Statements of Operations and Comprehensive Income are presented in the following table. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Duke Energy Carolinas | | | | | |
Corporate governance and shared service expenses(a) | $ | 858 |
| | $ | 831 |
| | $ | 914 |
|
Indemnification coverages(b) | 23 |
| | 22 |
| | 24 |
|
JDA revenue(c) | 49 |
| | 38 |
| | 51 |
|
JDA expense(c) | 145 |
| | 156 |
| | 183 |
|
Intercompany natural gas purchases(d) | 9 |
| | 2 |
| | — |
|
Progress Energy | | | | | |
Corporate governance and shared service expenses(a) | $ | 736 |
| | $ | 710 |
| | $ | 712 |
|
Indemnification coverages(b) | 38 |
| | 35 |
| | 38 |
|
JDA revenue(c) | 145 |
| | 156 |
| | 183 |
|
JDA expense(c) | 49 |
| | 38 |
| | 51 |
|
Intercompany natural gas purchases(d) | 77 |
| | 19 |
| | — |
|
Duke Energy Progress | | | | | |
Corporate governance and shared service expenses(a) | $ | 438 |
| | $ | 397 |
| | $ | 403 |
|
Indemnification coverages(b) | 15 |
| | 14 |
| | 16 |
|
JDA revenue(c) | 145 |
| | 156 |
| | 183 |
|
JDA expense(c) | 49 |
| | 38 |
| | 51 |
|
Intercompany natural gas purchases(d) | 77 |
| | 19 |
| | — |
|
Duke Energy Florida | | | | | |
Corporate governance and shared service expenses(a) | $ | 298 |
| | $ | 313 |
| | $ | 309 |
|
Indemnification coverages(b) | 23 |
| | 21 |
| | 22 |
|
Duke Energy Ohio | | | | | |
Corporate governance and shared service expenses(a) | $ | 363 |
| | $ | 356 |
| | $ | 342 |
|
Indemnification coverages(b) | 5 |
| | 5 |
| | 6 |
|
Duke Energy Indiana | | | | | |
Corporate governance and shared service expenses(a) | $ | 370 |
| | $ | 366 |
| | $ | 349 |
|
Indemnification coverages(b) | 8 |
| | 8 |
| | 9 |
|
Piedmont | | | | | |
Corporate governance and shared service expenses(a) | $ | 50 |
| | | | |
Indemnification coverages(b)
| 2 |
| | | | |
Intercompany natural gas sales(d)
| 86 |
| | | | |
| |
(a) | The Subsidiary Registrants are charged their proportionate share of corporate governance and other shared services costs, primarily related to human resources, employee benefits, information technology, legal and accounting fees, as well as other third-party costs. These amounts are primarily recorded in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income. |
| |
(b) | The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income. |
| |
(c) | Duke Energy Carolinas and Duke Energy Progress participate in a JDA, which allows the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power and expenses from the purchase of power pursuant to the JDA are recorded in Operating Revenues and Fuel used in electric generation and purchased power, respectively, on the Consolidated Statements of Operations and Comprehensive Income. |
| |
(d) | Piedmont provides long-term natural gas delivery service to certain Duke Energy Carolinas and Duke Energy Progress natural gas-fired generation facilities. Piedmont records the sales in Regulated natural gas revenues, and Duke Energy Carolinas and Duke Energy Progress record the related purchases in Fuel used in electric generation and purchased power on their respective Consolidated Statements of Operations and Comprehensive Income. The amounts are not eliminated in accordance with rate-based accounting regulations. For the two months ended December 31, 2016, and for sales made subsequent to the acquisition for the year ended October 31, 2016, Piedmont recorded $14 million and $7 million, respectively, of natural gas sales with Duke Energy. For sales made prior to the acquisition for the year ended October 31, 2016, and for the year ended October 31, 2015, Piedmont recorded $74 million and $83 million, respectively of natural gas sales with Duke Energy. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
In addition to the amounts presented above, the Subsidiary Registrants have other affiliate transactions, including rental of office space, participation in a money pool arrangement, other operational transactions and their proportionate share of certain line itemscharged expenses. See Note 6 for more information regarding money pool. These transactions of net income on amounts reclassified out of each component of accumulated OCIL is presented belowthe Subsidiary Registrants were not material for the years ended OctoberDecember 31, 20152017, 2016 and 2014.2015.
As discussed in Note 17, certain trade receivables have been sold by Duke Energy Ohio and Duke Energy Indiana to CRC, an affiliate formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price.
Refer to Note 2 for further information on the sale of the Midwest Generation Disposal Group.
Equity Method Investments
Piedmont has related party transactions as a customer of its equity method investments in natural gas storage and transportation facilities. The following table presents expenses that are included in Cost of natural gas on Piedmont's Consolidated Statements of Operations and Comprehensive Income. |
| | | | | | | | | | | | | |
| | Year Ended December 31, | Two Months Ended December 31, | Years Ended October 31, |
(in millions) | Type of expense | 2017 | 2016 | 2016 | 2015 |
Cardinal | Transportation Costs | $ | 8 |
| $ | 2 |
| $ | 9 |
| $ | 9 |
|
Pine Needle | Natural Gas Storage Costs | 8 |
| 2 |
| 11 |
| 11 |
|
Hardy Storage | Natural Gas Storage Costs | 9 |
| 2 |
| 9 |
| 9 |
|
Total | | $ | 25 |
| $ | 6 |
| $ | 29 |
| $ | 29 |
|
Piedmont had accounts payable to its equity method investments of $2 million at December 31, 2017, and 2016 related to these transactions. These amounts are included in Accounts payable on the Consolidated Balance Sheets.
Intercompany Income Taxes
Duke Energy and the Subsidiary Registrants file a consolidated federal income tax return and other state and jurisdictional returns. The Subsidiary Registrants have a tax sharing agreement with Duke Energy for the allocation of consolidated tax liabilities and benefits. Income taxes recorded represent amounts the Subsidiary Registrants would incur as separate C-Corporations. The following table includes the balance of intercompany income tax receivables and payables for the Subsidiary Registrants.
|
| | | | | | | | | | |
| | Reclassification Out of Accumulated OCIL (1) | | |
| | |
|
| | Years Ended | | |
| | October 31 | | Affected Line Items on Statement of Comprehensive Income |
In thousands | | 2015 | | 2014 | |
Hedging activities of equity method investments | | $ | 1,670 |
| | $ | (461 | ) | | Income from equity method investments |
Income tax expense | | (652 | ) | | 177 |
| | Income taxes |
Net hedging activities | | 1,018 |
| | $ | (284 | ) | | |
Net benefit activities of equity method investments | | (58 | ) | | (40 | ) | | Income from equity method investments |
Income tax expense | | 23 |
| | 16 |
| | Income taxes |
Net benefit activities | | (35 | ) | | (24 | ) | | |
Total reclassification for the period, net of tax | | $ | 983 |
| | $ | (308 | ) | | |
(1) Amounts in parentheses indicate debits to accumulated OCIL. |
|
| | | | | | | | | | | | | | | | | | | | | |
| Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
December 31, 2017 | | | | | | | |
Intercompany income tax receivable | $ | — |
| $ | 168 |
| $ | — |
| $ | 44 |
| $ | 22 |
| $ | — |
| $ | 7 |
|
Intercompany income tax payable | 44 |
| — |
| 21 |
| — |
| — |
| 35 |
| — |
|
| | | | | | | |
December 31, 2016 | | | | | | | |
Intercompany income tax receivable | $ | 1 |
| $ | — |
| $ | — |
| $ | 37 |
| $ | — |
| $ | — |
| $ | — |
|
Intercompany income tax payable | — |
| 37 |
| 90 |
| — |
| 1 |
| 3 |
| 38 |
|
14. DERIVATIVES AND HEDGING
The Duke Energy Registrants use commodity and interest rate contracts to manage commodity price risk and interest rate risk. The primary use of commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Piedmont enters into natural gas supply contracts to provide diversification, reliability and natural gas cost benefits to its customers. Interest rate swaps are used to manage interest rate risk associated with borrowings.
All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting arrangements is offset against the collateralized derivatives on the Consolidated Balance Sheets. The cash impacts of settled derivatives are recorded as operating activities on the Consolidated Statements of Cash Flows.
INTEREST RATE RISK
The Duke Energy Registrants are exposed to changes in interest rates as a result of their issuance or anticipated issuance of variable-rate and fixed-rate debt and commercial paper. Interest rate risk is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into interest rate swaps, U.S. Treasury lock agreements and other financial contracts. In anticipation of certain fixed-rate debt issuances, a series of forward-starting interest rate swaps may be executed to lock in components of current market interest rates. These instruments are later terminated prior to or upon the issuance of the corresponding debt.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
8.Combined Notes To Consolidated Financial Instruments and Related Fair ValueStatements – (Continued)
Derivative AssetsCash 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 Liabilitiessubsequently reclassified into earnings once the future transaction impacts earnings. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt. See the Consolidated Statements of Changes in Equity for gains and losses reclassified out of AOCI for the years ended December 31, 2017, and 2016. Duke Energy's interest rate derivatives designated as hedges include interest rate swaps used to hedge existing debt within the Commercial Renewables business.
Undesignated Contracts
Undesignated contracts include contracts not designated as a hedge because they are accounted for under Master Netting Arrangementsregulatory accounting and contracts that do not qualify for hedge accounting.
Duke Energy’s interest rate swaps for its regulated operations employ regulatory accounting. With regulatory accounting, the mark-to-market gains or losses on the swaps are deferred as regulatory liabilities or regulatory assets, respectively. Regulatory assets and liabilities are amortized consistent with the treatment of the related costs in the ratemaking process. The accrual of interest on the swaps is recorded as Interest Expense.
In August 2016, Duke Energy unwound $1.4 billion of forward-starting interest rate swaps associated with the Piedmont acquisition financing described in Note 6. The swaps were considered undesignated as they did not qualify for hedge accounting. Losses on the swaps of $190 million are included within Interest Expense on the Consolidated Statements of Operations for the year ended December 31, 2016. See Note 2 for additional information related to the Piedmont acquisition.
The following tables show notional amounts of outstanding derivatives related to interest rate risk. |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
|
Cash flow hedges(a) | $ | 660 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Undesignated contracts | 927 |
| | 400 |
| | 500 |
| | 250 |
| | 250 |
| | 27 |
|
Total notional amount | $ | 1,587 |
| | $ | 400 |
| | $ | 500 |
| | $ | 250 |
| | $ | 250 |
| | $ | 27 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
|
Cash flow hedges(a) | $ | 750 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Undesignated contracts | 927 |
| | 400 |
| | 500 |
| | 250 |
| | 250 |
| | 27 |
|
Total notional amount | $ | 1,677 |
| | $ | 400 |
| | $ | 500 |
| | $ | 250 |
| | $ | 250 |
| | $ | 27 |
|
| |
(a) | Duke Energy includes amounts related to consolidated VIEs of $660 million and $750 million at December 31, 2017, and 2016, respectively. During 2016, Duke Energy entered into interest rate swaps related to solar financing with an outstanding notional amount of $300 million, including $81 million of four-year swaps and $219 million of 18-year swaps, at December 31, 2016. See note 6 for additional information related to the solar facilities financing. |
COMMODITY PRICE RISK
The Duke Energy Registrants are exposed to the impact of changes in the prices of electricity purchased and sold in bulk power markets and coal and natural gas purchases, including Piedmont's natural gas supply contracts. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets and delivery locations. For the Subsidiary Registrants, bulk power electricity and coal and natural gas purchases flow through fuel adjustment clauses, formula based contracts or other cost sharing mechanisms. Differences between the costs included in rates and the incurred costs, including undesignated derivative contracts, are largely deferred as regulatory assets or regulatory liabilities. Piedmont policies allow for the use of financial instruments to hedge commodity price risks. The strategy and objective of these hedging programs are to use the financial instruments to reduce gas cost volatility for customers.
We maintain brokerage accounts to facilitate transactions that support our gas cost hedging plans. 195
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Volumes
The accounting guidance related to derivativestables 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 hedging requires that we use a gross presentation, based on our election, forsale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown. |
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | |
| Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Indiana |
| | Piedmont |
|
Electricity (gigawatt-hours) | 34 |
| | — |
| | — |
| | — |
| | — |
| | 34 |
| | — |
|
Natural gas (millions of dekatherms) | 770 |
| | 105 |
| | 183 |
| | 133 |
| | 50 |
| | 2 |
| | 480 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | |
| Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Indiana |
| | Piedmont |
|
Electricity (gigawatt-hours) | 147 |
| | — |
| | — |
| | — |
| | — |
| | 147 |
| | — |
|
Natural gas (millions of dekatherms) | 890 |
| | 91 |
| | 269 |
| | 118 |
| | 151 |
| | 1 |
| | 529 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
The following tables show the fair value amountsand balance sheet location of our derivative instruments. We use longAlthough derivatives subject to master netting arrangements are netted on the Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Assets | | December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Commodity Contracts | | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 34 |
| | $ | 2 |
| | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 27 |
| | $ | 2 |
|
Noncurrent | | 1 |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
|
Total Derivative Assets – Commodity Contracts | | $ | 35 |
| | $ | 2 |
| | $ | 3 |
| | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | 27 |
| | $ | 2 |
|
Interest Rate Contracts | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Noncurrent | | 15 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total Derivative Assets – Interest Rate Contracts | | $ | 16 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| | $ | — |
|
Total Derivative Assets | | $ | 51 |
| | $ | 2 |
| | $ | 3 |
| | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | 27 |
| | $ | 2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Liabilities | | December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Commodity Contracts | | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 36 |
| | $ | 6 |
| | $ | 18 |
| | $ | 8 |
| | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 11 |
|
Noncurrent | | 146 |
| | 4 |
| | 10 |
| | 4 |
| | — |
| | — |
| | — |
| | 131 |
|
Total Derivative Liabilities – Commodity Contracts | | $ | 182 |
| | $ | 10 |
| | $ | 28 |
| | $ | 12 |
| | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 142 |
|
Interest Rate Contracts | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 29 |
| | $ | 25 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Noncurrent | | 6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Noncurrent | | 12 |
| | — |
| | 7 |
| | 6 |
| | 2 |
| | 4 |
| | — |
| | — |
|
Total Derivative Liabilities – Interest Rate Contracts | | $ | 48 |
| | $ | 25 |
| | $ | 8 |
| | $ | 6 |
| | $ | 2 |
| | $ | 5 |
| | $ | — |
| | $ | — |
|
Total Derivative Liabilities | | $ | 230 |
| | $ | 35 |
| | $ | 36 |
| | $ | 18 |
| | $ | 12 |
| | $ | 5 |
| | $ | — |
| | $ | 142 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Assets | | December 31, 2016 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Commodity Contracts | | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 108 |
| | $ | 23 |
| | $ | 61 |
| | $ | 35 |
| | $ | 26 |
| | $ | 4 |
| | $ | 16 |
| | $ | 3 |
|
Noncurrent | | 32 |
| | 10 |
| | 21 |
| | 10 |
| | 11 |
| | 1 |
| | — |
| | — |
|
Total Derivative Assets – Commodity Contracts | | $ | 140 |
| | $ | 33 |
| | $ | 82 |
| | $ | 45 |
| | $ | 37 |
| | $ | 5 |
| | $ | 16 |
|
| $ | 3 |
|
Interest Rate Contracts | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Noncurrent | | $ | 19 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | 3 |
| | — |
| | 3 |
| | 1 |
| | 2 |
| | — |
| | — |
| | — |
|
Total Derivative Assets – Interest Rate Contracts | | $ | 22 |
| | $ | — |
| | $ | 3 |
| | $ | 1 |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Total Derivative Assets | | $ | 162 |
| | $ | 33 |
| | $ | 85 |
| | $ | 46 |
| | $ | 39 |
| | $ | 5 |
| | $ | 16 |
| | $ | 3 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Liabilities | | December 31, 2016 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Commodity Contracts | | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 43 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 2 |
| | $ | 35 |
|
Noncurrent | | 166 |
| | 1 |
| | 7 |
| | 1 |
| | — |
| | — |
| | — |
| | 152 |
|
Total Derivative Liabilities – Commodity Contracts | | $ | 209 |
| | $ | 1 |
| | $ | 19 |
| | $ | 1 |
| | $ | 12 |
| | $ | — |
| | $ | 2 |
| | $ | 187 |
|
Interest Rate Contracts | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Noncurrent | | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Noncurrent | | 26 |
| | 15 |
| | 6 |
| | 6 |
| | — |
| | 5 |
| | — |
| | — |
|
Total Derivative Liabilities – Interest Rate Contracts | | $ | 43 |
| | $ | 15 |
| | $ | 6 |
| | $ | 6 |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | — |
|
Total Derivative Liabilities | | $ | 252 |
| | $ | 16 |
| | $ | 25 |
| | $ | 7 |
| | $ | 12 |
| | $ | 6 |
| | $ | 2 |
| | $ | 187 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
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 gas purchase optionsand include collateral posted to provide some level of protection for our customersoffset 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 significant commodity price increases. As of October 31, 2015 and 2014, we had long gas purchase options providing total coverage of 34.7 million dekatherms and 29.2 million dekatherms, respectively. The long gas purchase options held at October 31, 2015bankruptcy. These amounts are fornot included in the period from December 2015 through October 2016.tables below. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Assets | | December 31, 2017 | | |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Current | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 35 |
| | $ | 2 |
| | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 27 |
| | $ | 2 |
|
Gross amounts offset | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net amounts presented in Current Assets: Other | | $ | 35 |
|
| $ | 2 |
|
| $ | 2 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 27 |
| | $ | 2 |
|
Noncurrent | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 16 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Gross amounts offset | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net amounts presented in Other Noncurrent Assets: Other | | $ | 16 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Liabilities | | December 31, 2017 | | |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Current | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 66 |
| | $ | 31 |
| | $ | 19 |
| | $ | 8 |
| | $ | 10 |
| | $ | 1 |
| | $ | — |
| | $ | 11 |
|
Gross amounts offset | | (3 | ) | | (2 | ) | | (2 | ) | | (2 | ) | | — |
| | — |
| | — |
| | — |
|
Net amounts presented in Current Liabilities: Other | | $ | 63 |
| | $ | 29 |
| | $ | 17 |
| | $ | 6 |
| | $ | 10 |
| | $ | 1 |
| | $ | — |
| | $ | 11 |
|
Noncurrent | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 164 |
| | $ | 4 |
| | $ | 17 |
| | $ | 10 |
| | $ | 2 |
| | $ | 4 |
| | $ | — |
| | $ | 131 |
|
Gross amounts offset | | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Net amounts presented in Other Noncurrent Liabilities: Other | | $ | 163 |
| | $ | 4 |
| | $ | 16 |
| | $ | 9 |
| | $ | 2 |
| | $ | 4 |
| | $ | — |
| | $ | 131 |
|
Fair Value Measurements199
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
We use financial instruments |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Assets | | December 31, 2016 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Current | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 111 |
| | $ | 23 |
| | $ | 64 |
| | $ | 36 |
| | $ | 28 |
| | $ | 4 |
| | $ | 16 |
| | $ | 3 |
|
Gross amounts offset | | (11 | ) | | — |
| | (11 | ) | | — |
| | (11 | ) | | — |
| | — |
| | — |
|
Net amounts presented in Current Assets: Other | | $ | 100 |
| | $ | 23 |
| | $ | 53 |
| | $ | 36 |
| | $ | 17 |
| | $ | 4 |
| | $ | 16 |
| | $ | 3 |
|
Noncurrent | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 51 |
| | $ | 10 |
| | $ | 21 |
| | $ | 10 |
| | $ | 11 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
Gross amounts offset | | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Net amounts presented in Other Noncurrent Assets: Other | | $ | 49 |
| | $ | 9 |
| | $ | 20 |
| | $ | 9 |
| | $ | 11 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Liabilities | | December 31, 2016 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Current | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 52 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 12 |
| | $ | 1 |
| | $ | 2 |
| | $ | 35 |
|
Gross amounts offset | | (11 | ) | | — |
| | (11 | ) | | — |
| | (11 | ) | | — |
| | — |
| | — |
|
Net amounts presented in Current Liabilities: Other | | $ | 41 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | 2 |
| | $ | 35 |
|
Noncurrent | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 200 |
| | $ | 16 |
| | $ | 13 |
| | $ | 7 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 152 |
|
Gross amounts offset | | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Net amounts presented in Other Noncurrent Liabilities: Other | | $ | 198 |
| | $ | 15 |
| | $ | 12 |
| | $ | 6 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 152 |
|
OBJECTIVE CREDIT CONTINGENT FEATURES
Certain derivative contracts contain objective credit contingent features. These features include the requirement to post cash collateral or letters of credit if specific events occur, such as a credit rating downgrade below investment grade. The following tables show information with respect to derivative contracts that are not designatedin a net liability position and contain objective credit-risk-related payment provisions. |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
|
Aggregate fair value of derivatives in a net liability position | $ | 59 |
| | $ | 35 |
| | $ | 25 |
| | $ | 15 |
| | $ | 10 |
|
Fair value of collateral already posted | — |
| | — |
| | — |
| | — |
| | — |
|
Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered | 59 |
| | 35 |
| | 25 |
| | 15 |
| | 10 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
|
Aggregate fair value of derivatives in a net liability position | $ | 34 |
| | $ | 16 |
| | $ | 18 |
| | $ | 6 |
| | $ | 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 |
|
The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative and cash collateral must be executed with the same counterparty under the same master netting arrangement.
15. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Duke Energy Registrants classify their investments in debt and equity securities as hedges for accounting purposes to mitigate commodity price risk for our customers. We also have marketableeither trading or available-for-sale.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
TRADING SECURITIES
Piedmont's investments in debt and equity securities that are held in rabbi trusts established forassociated with certain deferred compensation plans. In developing ourplans are classified as trading securities. The fair value measurements of these investments was $1 million and $5 million as of December 31, 2017, and 2016, respectively.
AVAILABLE-FOR-SALE (AFS) SECURITIES
All other investments in debt and equity securities are classified as AFS.
Duke Energy’s AFS securities are primarily comprised of investments held in (i) the nuclear decommissioning trust funds (NDTF) at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to OPEB plans and (iii) Bison.
Duke Energy classifies all other investments in debt and equity securities as long term, unless otherwise noted.
Investment Trusts
The investments within the NDTF investments and the Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana grantor trusts (Investment Trusts) are managed by independent investment managers with discretion to buy, sell and invest pursuant to the objectives set forth by the trust agreements. The Duke Energy Registrants have limited oversight of the day-to-day management of these investments. As a result, the ability to hold investments in unrealized loss positions is outside the control of the Duke Energy Registrants. Accordingly, all unrealized losses associated with debt and equity securities within the Investment Trusts are considered OTTIs and are recognized immediately.
Investments within the Investment Trusts generally qualify for regulatory accounting and accordingly realized and unrealized gains and losses are generally deferred as a regulatory asset or liability.
Substantially all amounts of the Duke Energy Registrants' gross unrealized holding losses as of December 31, 2017, and 2016, are considered OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset.
Other AFS Securities
Unrealized gains and losses on all other AFS securities are included in other comprehensive income until realized, unless it is determined the carrying value of an investment is other-than-temporarily impaired. If an OTTI exists, the unrealized loss is included in earnings based on the criteria discussed below.
The Duke Energy Registrants analyze all investment holdings each reporting period to determine whether a decline in fair value should be considered other-than-temporary. Criteria used to evaluate whether an impairment associated with equity securities is other-than-temporary includes, but is not limited to, (i) the length of time over which the market value has been lower than the cost basis of the investment, (ii) the percentage decline compared to the cost of the investment and (iii) management’s intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value. If a decline in fair value is determined to be other-than-temporary, the investment is written down to its fair value through a charge to earnings.
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 instruments, we utilizecondition of the issuer of the security, or in the case of an asset backed security, the financial condition of the underlying loan obligors, (iii) consideration of underlying collateral and guarantees of amounts by government entities, (iv) ability of the issuer of the security to make scheduled interest or principal payments and (v) any changes to the rating of the security by rating agencies. If a credit loss exists, the amount of impairment write-down to fair value is split between credit loss and other factors. The amount related to credit loss is recognized in earnings. The amount related to other factors is recognized in other comprehensive income. There were no material credit losses as of December 31, 2017, and 2016.
Other Investments amounts are recorded in Other within Other Noncurrent Assets on the Consolidated Balance Sheets.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
DUKE ENERGY
The following table presents the estimated fair value of investments in AFS securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | |
| Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
|
(in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
|
NDTF | | | | | | | | | |
| | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 115 |
| | $ | — |
| | $ | — |
| | $ | 111 |
|
Equity securities | 2,805 |
| | 27 |
| | 4,914 |
| | 2,092 |
| | 54 |
| | 4,106 |
|
Corporate debt securities | 17 |
| | 2 |
| | 570 |
| | 10 |
| | 8 |
| | 528 |
|
Municipal bonds | 4 |
| | 3 |
| | 344 |
| | 3 |
| | 10 |
| | 331 |
|
U.S. government bonds | 11 |
| | 7 |
| | 1,027 |
| | 10 |
| | 8 |
| | 984 |
|
Other debt securities | — |
| | 1 |
| | 118 |
| | — |
| | 3 |
| | 124 |
|
Total NDTF | $ | 2,837 |
| | $ | 40 |
| | $ | 7,088 |
| | $ | 2,115 |
| | $ | 83 |
| | $ | 6,184 |
|
Other Investments | |
| | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 15 |
| | $ | — |
| | $ | — |
| | $ | 25 |
|
Equity securities | 59 |
| | — |
| | 123 |
| | 38 |
| | — |
| | 104 |
|
Corporate debt securities | 1 |
| | — |
| | 57 |
| | 1 |
| | 1 |
| | 66 |
|
Municipal bonds | 2 |
| | 1 |
| | 83 |
| | 2 |
| | 1 |
| | 82 |
|
U.S. government bonds | — |
| | — |
| | 41 |
| | — |
| | 1 |
| | 51 |
|
Other debt securities | — |
| | 1 |
| | 44 |
| | — |
| | 2 |
| | 42 |
|
Total Other Investments | $ | 62 |
| | $ | 2 |
| | $ | 363 |
| | $ | 41 |
| | $ | 5 |
| | $ | 370 |
|
Total Investments | $ | 2,899 |
| | $ | 42 |
| | $ | 7,451 |
| | $ | 2,156 |
| | $ | 88 |
| | $ | 6,554 |
|
The table below summarizes the maturity date for debt securities. |
| | | |
(in millions) | December 31, 2017 |
|
Due in one year or less | $ | 117 |
|
Due after one through five years | 552 |
|
Due after five through 10 years | 554 |
|
Due after 10 years | 1,061 |
|
Total | $ | 2,284 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Realized gains | $ | 202 |
| | $ | 246 |
| | $ | 193 |
|
Realized losses | 160 |
| | 187 |
| | 98 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
DUKE ENERGY CAROLINAS
The following table presents the estimated fair value of investments in AFS securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | |
| Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
|
(in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
|
NDTF | | | | | | | | | | | |
|
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 32 |
| | $ | — |
| | $ | — |
| | $ | 18 |
|
Equity securities | 1,531 |
| | 12 |
| | 2,692 |
| | 1,157 |
| | 28 |
| | 2,245 |
|
Corporate debt securities | 9 |
| | 2 |
| | 359 |
| | 5 |
| | 6 |
| | 354 |
|
Municipal bonds | — |
| | 1 |
| | 60 |
| | 1 |
| | 2 |
| | 67 |
|
U.S. government bonds | 3 |
| | 4 |
| | 503 |
| | 2 |
| | 5 |
| | 458 |
|
Other debt securities | — |
| | 1 |
| | 112 |
| | — |
| | 3 |
| | 116 |
|
Total NDTF | $ | 1,543 |
| | $ | 20 |
| | $ | 3,758 |
| | $ | 1,165 |
| | $ | 44 |
| | $ | 3,258 |
|
Other Investments | |
| | |
| | |
| | |
| | |
| | |
|
Other debt securities | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 3 |
|
Total Other Investments | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 3 |
|
Total Investments | $ | 1,543 |
| | $ | 20 |
| | $ | 3,758 |
| | $ | 1,165 |
| | $ | 45 |
| | $ | 3,261 |
|
The table below summarizes the maturity date for debt securities. |
| | | |
(in millions) | December 31, 2017 |
|
Due in one year or less | $ | 9 |
|
Due after one through five years | 204 |
|
Due after five through 10 years | 300 |
|
Due after 10 years | 521 |
|
Total | $ | 1,034 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Realized gains | $ | 135 |
| | $ | 157 |
| | $ | 158 |
|
Realized losses | 103 |
| | 121 |
| | 83 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
PROGRESS ENERGY
The following table presents the estimated fair value of investments in AFS securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | |
| Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
|
(in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 83 |
| | $ | — |
| | $ | — |
| | $ | 93 |
|
Equity securities | 1,274 |
| | 15 |
| | 2,222 |
| | 935 |
| | 26 |
| | 1,861 |
|
Corporate debt securities | 8 |
| | — |
| | 211 |
| | 5 |
| | 2 |
| | 174 |
|
Municipal bonds | 4 |
| | 2 |
| | 284 |
| | 2 |
| | 8 |
| | 264 |
|
U.S. government bonds | 8 |
| | 3 |
| | 524 |
| | 8 |
| | 3 |
| | 526 |
|
Other debt securities | — |
| | — |
| | 6 |
| | — |
| | — |
| | 8 |
|
Total NDTF | $ | 1,294 |
| | $ | 20 |
| | $ | 3,330 |
| | $ | 950 |
| | $ | 39 |
| | $ | 2,926 |
|
Other Investments | |
| | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | — |
| | $ | 21 |
|
Municipal bonds | 2 |
| | — |
| | 47 |
| | 2 |
| | — |
| | 44 |
|
Total Other Investments | $ | 2 |
| | $ | — |
| | $ | 59 |
| | $ | 2 |
| | $ | — |
| | $ | 65 |
|
Total Investments | $ | 1,296 |
| | $ | 20 |
| | $ | 3,389 |
| | $ | 952 |
| | $ | 39 |
| | $ | 2,991 |
|
The table below summarizes the maturity date for debt securities. |
| | | |
(in millions) | December 31, 2017 |
|
Due in one year or less | $ | 94 |
|
Due after one through five years | 301 |
|
Due after five through 10 years | 203 |
|
Due after 10 years | 474 |
|
Total | $ | 1,072 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Realized gains | $ | 65 |
| | $ | 84 |
| | $ | 33 |
|
Realized losses | 56 |
| | 64 |
| | 13 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
DUKE ENERGY PROGRESS
The following table presents the estimated fair value of investments in AFS securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | |
| Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
|
(in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 50 |
| | $ | — |
| | $ | — |
| | $ | 45 |
|
Equity securities | 980 |
| | 12 |
| | 1,795 |
| | 704 |
| | 21 |
| | 1,505 |
|
Corporate debt securities | 6 |
| |
|
| | 149 |
| | 4 |
| | 1 |
| | 120 |
|
Municipal bonds | 4 |
| | 2 |
| | 283 |
| | 2 |
| | 8 |
| | 263 |
|
U.S. government bonds | 5 |
| | 2 |
| | 310 |
| | 5 |
| | 2 |
| | 275 |
|
Other debt securities | — |
| | — |
| | 4 |
| | — |
| | — |
| | 5 |
|
Total NDTF | $ | 995 |
| | $ | 16 |
| | $ | 2,591 |
| | $ | 715 |
| | $ | 32 |
| | $ | 2,213 |
|
Other Investments | |
| | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
Total Other Investments | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
Total Investments | $ | 995 |
| | $ | 16 |
| | $ | 2,592 |
| | $ | 715 |
| | $ | 32 |
| | $ | 2,214 |
|
The table below summarizes the maturity date for debt securities. |
| | | |
(in millions) | December 31, 2017 |
|
Due in one year or less | $ | 21 |
|
Due after one through five years | 219 |
|
Due after five through 10 years | 146 |
|
Due after 10 years | 360 |
|
Total | $ | 746 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Realized gains | $ | 54 |
| | $ | 71 |
| | $ | 26 |
|
Realized losses | 48 |
| | 55 |
| | 11 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
DUKE ENERGY FLORIDA
The following table presents the estimated fair value of investments in AFS securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | |
| Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
|
(in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 33 |
| | $ | — |
| | $ | — |
| | $ | 48 |
|
Equity securities | 294 |
| | 3 |
| | 427 |
| | 231 |
| | 5 |
| | 356 |
|
Corporate debt securities | 2 |
| | — |
| | 62 |
| | 1 |
| | 1 |
| | 54 |
|
Municipal bonds | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
U.S. government bonds | 3 |
| | 1 |
| | 214 |
| | 3 |
| | 1 |
| | 251 |
|
Other debt securities | — |
| | — |
| | 2 |
| | — |
| | — |
| | 3 |
|
Total NDTF(a) | $ | 299 |
| | $ | 4 |
| | $ | 739 |
| | $ | 235 |
| | $ | 7 |
| | $ | 713 |
|
Other Investments | |
| | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 4 |
|
Municipal bonds | 2 |
| | — |
| | 47 |
| | 2 |
| | — |
| | 44 |
|
Total Other Investments | $ | 2 |
| | $ | — |
| | $ | 48 |
| | $ | 2 |
| | $ | — |
| | $ | 48 |
|
Total Investments | $ | 301 |
| | $ | 4 |
| | $ | 787 |
| | $ | 237 |
| | $ | 7 |
| | $ | 761 |
|
| |
(a) | During the year ended December 31, 2017, Duke Energy Florida continued to receive reimbursements from the NDTF for costs related to ongoing decommissioning activity of the Crystal River Unit 3 nuclear plant. |
The table below summarizes the maturity date for debt securities. |
| | | |
(in millions) | December 31, 2017 |
|
Due in one year or less | $ | 73 |
|
Due after one through five years | 82 |
|
Due after five through 10 years | 57 |
|
Due after 10 years | 114 |
|
Total | $ | 326 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Realized gains | $ | 11 |
| | $ | 13 |
| | $ | 7 |
|
Realized losses | 8 |
| | 9 |
| | 2 |
|
DUKE ENERGY INDIANA
The following table presents the estimated fair value of investments in AFS securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | |
| Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
|
(in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
|
Other Investments | | | | | | | | | | | |
Equity securities | $ | 49 |
| | $ | — |
| | $ | 97 |
| | $ | 33 |
| | $ | — |
| | $ | 79 |
|
Corporate debt securities | — |
| | — |
| | 3 |
| | — |
| | — |
| | 2 |
|
Municipal bonds | — |
| | 1 |
| | 28 |
| | — |
| | 1 |
| | 28 |
|
U.S. government bonds | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Total Other Investments | $ | 49 |
| | $ | 1 |
| | $ | 128 |
| | $ | 33 |
| | $ | 1 |
| | $ | 110 |
|
Total Investments | $ | 49 |
| | $ | 1 |
| | $ | 128 |
| | $ | 33 |
| | $ | 1 |
| | $ | 110 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The table below summarizes the maturity date for debt securities. |
| | | |
(in millions) | December 31, 2017 |
|
Due in one year or less | $ | 5 |
|
Due after one through five years | 12 |
|
Due after five through 10 years | 7 |
|
Due after 10 years | 7 |
|
Total | $ | 31 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were insignificant for the years ended December 31, 2017, 2016 and 2015.
16. FAIR VALUE MEASUREMENTS
Fair value is the exchange price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value definition focuses on an exit price versus the acquisition cost. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data, or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient.
Fair value refersmeasurements are classified in three levels based on the fair value hierarchy:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. An active market is one in which transactions for an asset or liability occur with sufficient frequency and volume to provide ongoing pricing information.
Level 2 – A fair value measurement utilizing inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly, for an asset or liability. Inputs include (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, and (iii) inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities and credit spreads. A Level 2 measurement cannot have more than an insignificant portion of its valuation based on unobservable inputs. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less than active markets.
Level 3 – Any fair value measurement which includes unobservable inputs for more than an insignificant portion of the valuation. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 measurements may include longer-term instruments that extend into periods in which observable inputs are not available.
Not Categorized – Certain investments are not categorized within the Fair Value hierarchy. These investments are measured based on the fair value of the underlying investments but may not be readily redeemable at that fair value.
Fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value.
Transfers between levels represent assets or liabilities that were previously (i) categorized at a higher level for which the inputs to the estimate became less observable or (ii) classified at a lower level for which the inputs became more observable during the period. The Duke Energy Registrant’s policy is to recognize transfers between levels of the fair value hierarchy at the end of the period. There were no transfers between levels during the years ended December 31, 2017, 2016 and 2015. In addition, for Piedmont, there were no transfers between levels during the two months ended December 31, 2016, and the years ended October 31, 2016, and 2015.
Valuation methods of the primary fair value measurements disclosed below are as follows.
Investments in equity securities
The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as the New York Stock Exchange (NYSE) and the NASDAQ Stock Market. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements.
Investments in debt securities
Most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed-income security is relatively inactive or illiquid, the measurement is Level 3.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Commodity derivatives
Commodity derivatives with clearinghouses are classified as Level 1. Other commodity derivatives, including Piedmont's natural gas supply contracts, are primarily valued using internally developed discounted cash flow models that incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or non-performance risk (after reflecting credit enhancements such as collateral) and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate the fair value of natural gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves.
Interest rate derivatives
Most over-the-counter interest rate contract derivatives are valued using financial models that utilize observable inputs for similar instruments and are classified as Level 2. Inputs include forward interest rate curves, notional amounts, interest rates and credit quality of the counterparties.
Other fair value considerations
See Note 11 for a discussion of the valuation of goodwill and intangible assets. See Note 2 related to the acquisition of Piedmont in 2016 and the purchase of NCEMPA's ownership interests in certain generating assets in 2015.
DUKE ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below for all Duke Energy Registrants exclude cash collateral, which is disclosed in Note 14. See Note 15 for additional information related to investments by major security type for the Duke Energy Registrants. |
| | | | | | | | | | | | | | | |
| December 31, 2017 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not Categorized |
|
NDTF equity securities | $ | 4,914 |
| $ | 4,840 |
| $ | — |
| $ | — |
| $ | 74 |
|
NDTF debt securities | 2,174 |
| 635 |
| 1,539 |
| — |
| — |
|
Other AFS equity securities | 123 |
| 123 |
| — |
| — |
| — |
|
Other trading and AFS debt securities | 241 |
| 57 |
| 184 |
| — |
| — |
|
Derivative assets | 51 |
| 3 |
| 20 |
| 28 |
| — |
|
Total assets | 7,503 |
| 5,658 |
| 1,743 |
| 28 |
| 74 |
|
Derivative liabilities | (230 | ) | (2 | ) | (86 | ) | (142 | ) | — |
|
Net assets (liabilities) | $ | 7,273 |
| $ | 5,656 |
| $ | 1,657 |
| $ | (114 | ) | $ | 74 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not Categorized |
|
NDTF equity securities | $ | 4,106 |
| $ | 4,029 |
| $ | — |
| $ | — |
| $ | 77 |
|
NDTF debt securities | 2,078 |
| 632 |
| 1,446 |
| — |
| — |
|
Other trading and AFS equity securities | 104 |
| 104 |
| — |
| — |
| — |
|
Other trading and AFS debt securities | 266 |
| 75 |
| 186 |
| 5 |
| — |
|
Derivative assets | 162 |
| 5 |
| 136 |
| 21 |
| — |
|
Total assets | 6,716 |
| 4,845 |
| 1,768 |
| 26 |
| 77 |
|
Derivative liabilities | (252 | ) | (2 | ) | (63 | ) | (187 | ) | — |
|
Net assets | $ | 6,464 |
| $ | 4,843 |
| $ | 1,705 |
| $ | (161 | ) | $ | 77 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Amounts included in earnings for derivatives are primarily included in Cost of natural gas on the Duke Energy Registrants' Consolidated Statements of Operations and Comprehensive Income. Amounts included in changes of net assets on the Duke Energy Registrants' Consolidated Balance Sheets are included in regulatory assets or liabilities. All derivative assets and liabilities are presented on a net basis. |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| | | | | | | | | | | |
(in millions) | Investments |
| | Derivatives (net) |
| | Total |
| | Investments |
| | Derivatives (net) |
| | Total |
|
Balance at beginning of period | $ | 5 |
| | $ | (166 | ) | | $ | (161 | ) | | $ | 5 |
| | $ | 10 |
| | $ | 15 |
|
Total pretax realized or unrealized gains included in comprehensive income | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Derivative liability resulting from the acquisition of Piedmont | — |
| | — |
| | — |
| | — |
| | (187 | ) | | (187 | ) |
Purchases, sales, issuances and settlements: | | | | |
|
| | | | | | |
Purchases | — |
| | 55 |
| | 55 |
| | — |
| | 33 |
| | 33 |
|
Sales | (6 | ) | | — |
| | (6 | ) | | — |
| | — |
| | — |
|
Settlements | — |
| | (47 | ) | | (47 | ) | | — |
| | (28 | ) | | (28 | ) |
Total gains included on the Consolidated Balance Sheet | — |
| | 44 |
| | 44 |
| | — |
| | 6 |
| | 6 |
|
Balance at end of period | $ | — |
|
| $ | (114 | ) | | $ | (114 | ) | | $ | 5 |
| | $ | (166 | ) | | $ | (161 | ) |
DUKE ENERGY CAROLINAS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | |
| December 31, 2017 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not Categorized |
|
NDTF equity securities | $ | 2,692 |
| $ | 2,618 |
| $ | — |
| $ | — |
| $ | 74 |
|
NDTF debt securities | 1,066 |
| 204 |
| 862 |
| — |
| — |
|
Derivative assets | 2 |
| — |
| 2 |
| — |
| — |
|
Total assets | 3,760 |
| 2,822 |
| 864 |
| — |
| 74 |
|
Derivative liabilities | (35 | ) | (1 | ) | (34 | ) | — |
| — |
|
Net assets | $ | 3,725 |
| $ | 2,821 |
| $ | 830 |
| $ | — |
| $ | 74 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not Categorized |
|
NDTF equity securities | $ | 2,245 |
| $ | 2,168 |
| $ | — |
| $ | — |
| $ | 77 |
|
NDTF debt securities | 1,013 |
| 178 |
| 835 |
| — |
| — |
|
Other AFS debt securities | 3 |
| — |
| — |
| 3 |
| — |
|
Derivative assets | 33 |
| — |
| 33 |
| — |
| — |
|
Total assets | 3,294 |
| 2,346 |
| 868 |
| 3 |
| 77 |
|
Derivative liabilities | (16 | ) | — |
| (16 | ) | — |
| — |
|
Net assets | $ | 3,278 |
| $ | 2,346 |
| $ | 852 |
| $ | 3 |
| $ | 77 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The following table provides reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. |
| | | | | | | |
| Investments |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
|
Balance at beginning of period | $ | 3 |
| | $ | 3 |
|
Total pretax realized or unrealized gains included in comprehensive income | 1 |
| | — |
|
Purchases, sales, issuances and settlements: | | | |
Sales | (4 | ) | | — |
|
Balance at end of period | $ | — |
|
| $ | 3 |
|
PROGRESS ENERGY
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| | Total Fair Value |
| Level 1 |
| Level 2 |
|
NDTF equity securities | $ | 2,222 |
| $ | 2,222 |
| $ | — |
| | $ | 1,861 |
| $ | 1,861 |
| $ | — |
|
NDTF debt securities | 1,108 |
| 431 |
| 677 |
| | 1,065 |
| 454 |
| 611 |
|
Other AFS debt securities | 59 |
| 12 |
| 47 |
| | 65 |
| 21 |
| 44 |
|
Derivative assets | 3 |
| 1 |
| 2 |
| | 85 |
| — |
| 85 |
|
Total assets | 3,392 |
| 2,666 |
| 726 |
| | 3,076 |
| 2,336 |
| 740 |
|
Derivative liabilities | (36 | ) | (1 | ) | (35 | ) | | (25 | ) | — |
| (25 | ) |
Net assets | $ | 3,356 |
| $ | 2,665 |
| $ | 691 |
| | $ | 3,051 |
| $ | 2,336 |
| $ | 715 |
|
DUKE ENERGY PROGRESS
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| | Total Fair Value |
| Level 1 |
| Level 2 |
|
NDTF equity securities | $ | 1,795 |
| $ | 1,795 |
| $ | — |
| | $ | 1,505 |
| $ | 1,505 |
| $ | — |
|
NDTF debt securities | 796 |
| 243 |
| 553 |
| | 708 |
| 207 |
| 501 |
|
Other AFS debt securities | 1 |
| 1 |
| — |
| | 1 |
| 1 |
| — |
|
Derivative assets | 2 |
| 1 |
| 1 |
| | 46 |
| — |
| 46 |
|
Total assets | 2,594 |
| 2,040 |
| 554 |
| | 2,260 |
| 1,713 |
| 547 |
|
Derivative liabilities | (18 | ) | (1 | ) | (17 | ) | | (7 | ) | — |
| (7 | ) |
Net assets | $ | 2,576 |
| $ | 2,039 |
| $ | 537 |
| | $ | 2,253 |
| $ | 1,713 |
| $ | 540 |
|
DUKE ENERGY FLORIDA
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| | Total Fair Value |
| Level 1 |
| Level 2 |
|
NDTF equity securities | $ | 427 |
| $ | 427 |
| $ | — |
| | $ | 356 |
| $ | 356 |
| $ | — |
|
NDTF debt securities | 312 |
| 188 |
| 124 |
| | 357 |
| 247 |
| 110 |
|
Other AFS debt securities | 48 |
| 1 |
| 47 |
| | 48 |
| 4 |
| 44 |
|
Derivative assets | 1 |
| — |
| 1 |
| | 39 |
| — |
| 39 |
|
Total assets | 788 |
| 616 |
| 172 |
| | 800 |
| 607 |
| 193 |
|
Derivative liabilities | (12 | ) | — |
| (12 | ) | | (12 | ) | — |
| (12 | ) |
Net assets | $ | 776 |
| $ | 616 |
| $ | 160 |
| | $ | 788 |
| $ | 607 |
| $ | 181 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
DUKE ENERGY OHIO
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 2 |
| Level 3 |
| | Total Fair Value |
| Level 2 |
| Level 3 |
|
Derivative assets | $ | 1 |
| $ | — |
| $ | 1 |
| | $ | 5 |
| $ | — |
| $ | 5 |
|
Derivative liabilities | (5 | ) | (5 | ) | — |
| | (6 | ) | (6 | ) | — |
|
Net (liabilities) assets | $ | (4 | ) | $ | (5 | ) | $ | 1 |
| | $ | (1 | ) | $ | (6 | ) | $ | 5 |
|
The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. |
| | | | | | | |
| Derivatives (net) |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
|
Balance at beginning of period | $ | 5 |
| | $ | 3 |
|
Purchases, sales, issuances and settlements: | | | |
Purchases | 3 |
| | 5 |
|
Settlements | (4 | ) | | (5 | ) |
Total gains included on the Consolidated Balance Sheet | (3 | ) | | 2 |
|
Balance at end of period | $ | 1 |
| | $ | 5 |
|
DUKE ENERGY INDIANA
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
�� | December 31, 2017 | | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
|
Other AFS equity securities | $ | 97 |
| $ | 97 |
| $ | — |
| $ | — |
| | $ | 79 |
| $ | 79 |
| $ | — |
| $ | — |
|
Other AFS debt securities | 31 |
| — |
| 31 |
| — |
| | 31 |
| — |
| 31 |
| — |
|
Derivative assets | 27 |
| — |
| — |
| 27 |
| | 16 |
| — |
| — |
| 16 |
|
Total assets | 155 |
| 97 |
| 31 |
| 27 |
| | 126 |
| 79 |
| 31 |
| 16 |
|
Derivative liabilities | — |
| — |
| — |
| — |
| | (2 | ) | (2 | ) | — |
| — |
|
Net assets | $ | 155 |
| $ | 97 |
| $ | 31 |
| $ | 27 |
| | $ | 124 |
| $ | 77 |
| $ | 31 |
| $ | 16 |
|
The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. |
| | | | | | | |
| Derivatives (net) |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
|
Balance at beginning of period | $ | 16 |
| | $ | 7 |
|
Purchases, sales, issuances and settlements: | | | |
Purchases | 52 |
| | 29 |
|
Settlements | (43 | ) | | (24 | ) |
Total gains included on the Consolidated Balance Sheet | 2 |
| | 4 |
|
Balance at end of period | $ | 27 |
| | $ | 16 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
PIEDMONT
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 3 |
| | Total Fair Value |
| Level 1 |
| Level 3 |
|
Other trading equity securities | $ | — |
| $ | — |
| $ | — |
| | $ | 4 |
| $ | 4 |
| $ | — |
|
Other trading debt securities | 1 |
| 1 |
| — |
| | 1 |
| 1 |
| — |
|
Derivative assets | 2 |
| 2 |
| — |
| | 3 |
| 3 |
| — |
|
Total assets | 3 |
| 3 |
| — |
| | 8 |
| 8 |
| — |
|
Derivative liabilities | (142 | ) | — |
| (142 | ) | | (187 | ) | — |
| (187 | ) |
Net assets | $ | (139 | ) | $ | 3 |
| $ | (142 | ) | | $ | (179 | ) | $ | 8 |
| $ | (187 | ) |
The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. |
| | | | | | | | | | | |
| Derivatives (net) |
| Year Ended | | Two Months Ended | | Year Ended |
(in millions) | December 31, 2017 |
| | December 31, 2016 |
| | October 31, 2016 |
|
Balance at beginning of period | $ | (187 | ) | | $ | (188 | ) | | $ | — |
|
Total gains (losses) and settlements | 45 |
| | 1 |
| | (188 | ) |
Balance at end of period | $ | (142 | ) | | $ | (187 | ) | | $ | (188 | ) |
QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS
The following tables include quantitative information about the Duke Energy Registrants' derivatives classified as Level 3. |
| | | | | | | | | | | | |
| December 31, 2017 |
| Fair Value | | | | | |
Investment Type | (in millions) | Valuation Technique | Unobservable Input | Range |
Duke Energy Ohio | | | | | | |
FTRs | $ | 1 |
| RTO auction pricing | FTR price – per MWh | $ | 0.07 |
| – | $ | 1.41 |
|
Duke Energy Indiana | | | | | | |
FTRs | 27 |
| RTO auction pricing | FTR price – per MWh | (0.77 | ) | – | 7.44 |
|
Piedmont | | | | | | |
Natural gas contracts | (142 | ) | Discounted cash flow | Forward natural gas curves - price per MMBtu | 2.10 |
| – | 2.88 |
|
Duke Energy | | | | | | |
Total Level 3 derivatives | $ | (114 | ) | | | | | |
|
| | | | | | | | | | |
| December 31, 2016 |
| Fair Value | | | | | |
Investment Type | (in millions) | Valuation Technique | Unobservable Input | Range |
Duke Energy Ohio | | | | | | |
FTRs | $ | 5 |
| RTO auction pricing | FTR price – per MWh | 0.77 |
| – | 3.52 |
|
Duke Energy Indiana | | | | | | |
FTRs | 16 |
| RTO auction pricing | FTR price – per MWh | (0.83 | ) | – | 9.32 |
|
Piedmont | | | | | | |
Natural gas contracts | (187 | ) | Discounted cash flow | Forward natural gas curves - price per MMBtu | 2.31 |
| – | 4.18 |
|
Duke Energy | | | | | | |
Total Level 3 derivatives | $ | (166 | ) | | | | | |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
OTHER FAIR VALUE DISCLOSURES
The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements. |
| | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
(in millions) | Book Value |
| | Fair Value |
| | Book Value |
| | Fair Value |
|
Duke Energy | $ | 52,279 |
| | $ | 55,331 |
| | $ | 47,895 |
| | $ | 49,161 |
|
Duke Energy Carolinas | 10,103 |
| | 11,372 |
| | 9,603 |
| | 10,494 |
|
Progress Energy | 17,837 |
| | 20,000 |
| | 17,541 |
| | 19,107 |
|
Duke Energy Progress | 7,357 |
| | 7,992 |
| | 7,011 |
| | 7,357 |
|
Duke Energy Florida | 7,095 |
| | 7,953 |
| | 6,125 |
| | 6,728 |
|
Duke Energy Ohio | 2,067 |
| | 2,249 |
| | 1,884 |
| | 2,020 |
|
Duke Energy Indiana | 3,783 |
| | 4,464 |
| | 3,786 |
| | 4,260 |
|
Piedmont | 2,037 |
| | 2,209 |
| | 1,821 |
| | 1,933 |
|
At both December 31, 2017, and December 31, 2016, fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper and nonrecourse notes payable of VIEs are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates.
17. VARIABLE INTEREST ENTITIES
A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. A qualitative analysis of control determines the party that consolidates a VIE. This assessment is based on (i) what party has the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) what party has rights to receive benefits or is obligated to absorb losses that could potentially be significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment.
CONSOLIDATED VIEs
The obligations of these VIEs discussed in the following paragraphs are nonrecourse to the Duke Energy Registrants. The registrants have no requirement to provide liquidity to, purchase assets of or guarantee performance of these VIEs unless noted in the following paragraphs.
No financial support was provided to any of the consolidated VIEs during the years ended December 31, 2017, 2016 and 2015, or is expected to be provided in the future, that was not previously contractually required.
Receivables Financing – DERF/DEPR/DEFR
Duke Energy Receivables Finance Company, LLC (DERF), Duke Energy Progress Receivables, LLC (DEPR) and Duke Energy Florida Receivables, LLC (DEFR) are bankruptcy remote, special purpose subsidiaries of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, respectively. DERF, DEPR and DEFR are wholly owned limited liability companies with separate legal existence from their parent companies and their assets are not generally available to creditors of their parent companies. On a revolving basis, DERF, DEPR and DEFR buy certain accounts receivable arising from the sale of electricity and related services from their parent companies.
DERF, DEPR and DEFR borrow amounts under credit facilities to buy these receivables. Borrowing availability from the credit facilities is limited to the amount of qualified receivables purchased. The sole source of funds to satisfy the related debt obligations is cash collections from the receivables. Amounts borrowed under the credit facilities are reflected on the Consolidated Balance Sheets as Long-Term Debt.
The most significant activity that impacts the economic performance of DERF, DEPR and DEFR are the decisions made to manage delinquent receivables. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida consolidate DERF, DEPR and DEFR, respectively, as they make those decisions.
Receivables Financing – CRC
CRC is a bankruptcy remote, special purpose entity indirectly owned by Duke Energy. On a revolving basis, CRC buys certain accounts receivable arising from the sale of electricity, natural gas and related services from Duke Energy Ohio and Duke Energy Indiana. CRC borrows amounts under a credit facility to buy the receivables from Duke Energy Ohio and Duke Energy Indiana. Borrowing availability from the credit facility is limited to the amount of qualified receivables sold to CRC. The sole source of funds to satisfy the related debt obligation is cash collections from the receivables. Amounts borrowed under the credit facility are reflected on Duke Energy's Consolidated Balance Sheets as Long-Term Debt.
The proceeds Duke Energy Ohio and Duke Energy Indiana receive from the sale of receivables to CRC are typically 75 percent cash and 25 percent in the form of a subordinated note from CRC. The subordinated note is a retained interest in the receivables sold. Depending on collection experience, additional equity infusions to CRC may be required by Duke Energy to maintain a minimum equity balance of $3 million.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
CRC is considered a VIE because (i) equity capitalization is insufficient to support its operations, (ii) power to direct the activities that most significantly impact the economic performance of the entity are not performed by the equity holder and (iii) deficiencies in net worth of CRC are funded by Duke Energy. The most significant activities that impact the economic performance of CRC are decisions made to manage delinquent receivables. Duke Energy consolidates CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy Indiana consolidate CRC.
Receivables Financing – Credit Facilities
The following table outlines amounts and expiration dates of the credit facilities described above. |
| | | | | | | | | | | | | | | |
| Duke Energy |
| | | Duke Energy |
| | Duke Energy |
| | Duke Energy |
|
| | | Carolinas |
| | Progress |
| | Florida |
|
| CRC |
| | DERF |
| | DEPR |
| | DEFR |
|
Expiration date | December 2020 |
| | December 2020 |
| | February 2019 |
| | April 2019 |
|
Credit facility amount (in millions) | $ | 325 |
| | $ | 450 |
| | $ | 300 |
| | $ | 225 |
|
Amounts borrowed at December 31, 2017 | 325 |
| | 450 |
| | 300 |
| | 225 |
|
Amounts borrowed at December 31, 2016 | 325 |
| | 425 |
| | 300 |
| | 225 |
|
Nuclear Asset-Recovery Bonds – DEFPF
Duke Energy Florida Project Finance, LLC (DEFPF) is a bankruptcy remote, wholly owned special purpose subsidiary of Duke Energy Florida. DEFPF was formed in 2016 for the sole purpose of issuing nuclear asset-recovery bonds to finance Duke Energy Florida's unrecovered regulatory asset related to Crystal River Unit 3.
In June 2016, DEFPF issued $1,294 million of senior secured bonds and used the proceeds to acquire nuclear asset-recovery property from Duke Energy Florida. The nuclear asset-recovery property acquired includes the right to impose, bill, collect and adjust a non-bypassable nuclear asset-recovery charge from all Duke Energy Florida retail customers until the bonds are paid in full and all financing costs have been recovered. The nuclear asset-recovery bonds are secured by the nuclear asset-recovery property and cash collections from the nuclear asset-recovery charges are the sole source of funds to satisfy the debt obligation. The bondholders have no recourse to Duke Energy Florida. For additional information see Notes 4 and 6.
DEFPF is considered a VIE primarily because the equity capitalization is insufficient to support its operations. Duke Energy Florida has the power to direct the significant activities of the VIE as described above and therefore Duke Energy Florida is considered the primary beneficiary and consolidates DEFPF.
The following table summarizes the impact of DEFPF on Duke Energy Florida's Consolidated Balance Sheets. |
| | | | | | |
(in millions) | December 31, 2017 |
| December 31, 2016 |
|
Receivables of VIEs | $ | 4 |
| $ | 6 |
|
Regulatory Assets: Current | 51 |
| 50 |
|
Current Assets: Other | 40 |
| 53 |
|
Other Noncurrent Assets: Regulatory assets | 1,091 |
| 1,142 |
|
Current Liabilities: Other | 10 |
| 17 |
|
Current maturities of long-term debt | 53 |
| 62 |
|
Long-Term Debt | 1,164 |
| 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, 2017 |
| December 31, 2016 |
|
Current Assets: Other | $ | 174 |
| $ | 223 |
|
Property, plant and equipment, cost | 3,923 |
| 3,419 |
|
Accumulated depreciation and amortization | (591 | ) | (453 | ) |
Current maturities of long-term debt | 170 |
| 198 |
|
Long-Term Debt | 1,700 |
| 1,097 |
|
Other Noncurrent Liabilities: Deferred income taxes | (148 | ) | 275 |
|
Other Noncurrent Liabilities: Other | 241 |
| 252 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
NON-CONSOLIDATED VIEs
The following tables summarize the impact of non-consolidated VIEs on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| Duke Energy | | Duke |
| | Duke |
|
| Pipeline |
| | Commercial |
| | Other |
| | | | Energy |
| | Energy |
|
(in millions) | Investments |
| | Renewables |
| | VIEs(a) |
| | Total |
| | Ohio |
| | Indiana |
|
Receivables from affiliated companies | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 87 |
| | $ | 106 |
|
Investments in equity method unconsolidated affiliates | 697 |
| | 180 |
| | 42 |
| | 919 |
| | — |
| | — |
|
Other noncurrent assets | 17 |
| | — |
| | — |
| | 17 |
| | — |
| | — |
|
Total assets | $ | 714 |
| | $ | 180 |
| | $ | 42 |
| | $ | 936 |
| | $ | 87 |
| | $ | 106 |
|
Taxes accrued | (29 | ) | | — |
| | — |
| | (29 | ) | | — |
| | — |
|
Other current liabilities | — |
| | — |
| | 4 |
| | 4 |
| | — |
| | — |
|
Deferred income taxes | 42 |
| | — |
| | — |
| | 42 |
| | — |
| | — |
|
Other noncurrent liabilities | — |
| | — |
| | 12 |
| | 12 |
| | — |
| | — |
|
Total liabilities | $ | 13 |
| | $ | — |
| | $ | 16 |
| | $ | 29 |
| | $ | — |
| | $ | — |
|
Net assets | $ | 701 |
| | $ | 180 |
| | $ | 26 |
| | $ | 907 |
| | $ | 87 |
| | $ | 106 |
|
| |
(a) | Duke Energy holds a 50 percent equity interest in Duke-American Transmission Company, LLC (DATC). As of December 31, 2016, DATC was considered a VIE due to having insufficient equity to finance its own activities without subordinated financial support. However, DATC is no longer considered a VIE based on sufficient equity to finance its own activities, and, therefore, is no longer considered a VIE as of December 31, 2017. Duke Energy's investment in DATC was $46 million at December 31, 2017. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 | | |
| Duke Energy | | Duke |
| | Duke |
| | |
| Pipeline |
| | Commercial |
| | | | | | Energy |
| | Energy |
| | |
(in millions) | Investments |
| | Renewables |
| | Other |
| | Total |
| | Ohio |
| | Indiana |
| | Piedmont (a) |
|
Receivables from affiliated companies | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 82 |
| | $ | 101 |
| | $ | — |
|
Investments in equity method unconsolidated affiliates | 487 |
| | 174 |
| | 90 |
| | 751 |
| | — |
| | — |
| | 139 |
|
Other noncurrent assets | 12 |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
|
Total assets | $ | 499 |
| | $ | 174 |
| | $ | 90 |
| | $ | 763 |
| | $ | 82 |
| | $ | 101 |
| | $ | 139 |
|
Other current liabilities | — |
| | — |
| | 3 |
| | 3 |
| | — |
| | — |
| | — |
|
Other noncurrent liabilities | — |
| | — |
| | 13 |
| | 13 |
| | — |
| | — |
| | 4 |
|
Total liabilities | $ | — |
| | $ | — |
| | $ | 16 |
| | $ | 16 |
| | $ | — |
| | $ | — |
| | $ | 4 |
|
Net assets | $ | 499 |
| | $ | 174 |
| | $ | 74 |
| | $ | 747 |
| | $ | 82 |
| | $ | 101 |
| | $ | 135 |
|
| |
(a) | In April 2017, Piedmont transferred its non-consolidated VIE investments to a wholly owned subsidiary of Duke Energy. See Note 12 and the "Pipeline Investments" section below for additional detail. |
The Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above except for the power purchase agreement with OVEC, which is discussed below, and various guarantees, some of which are reflected in the table above as Other noncurrent liabilities. For more information on various guarantees, refer to Note 7.
Pipeline Investments
Duke Energy has investments in various joint ventures with pipeline projects currently under construction. These entities are considered VIEs due to having insufficient equity to finance their own activities without subordinated financial support. Duke Energy does not have the power to direct the activities that most significantly impact the economic performance, the obligation to absorb losses or the right to receive benefits of these VIEs and therefore does not consolidate these entities.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The table below presents Duke Energy's ownership interest and investment balance in in these joint ventures. |
| | | | | | | | | | |
| | | Investment Amount (in millions) |
| Ownership | | December 31, | | December 31, |
Entity Name | Interest | | 2017 | | 2016 |
ACP | 47 | % | | $ | 397 |
| | $ | 265 |
|
Sabal Trail | 7.5 | % | | 219 |
| | 140 |
|
Constitution | 24 | % | | 81 |
| | 82 |
|
Total | | | $ | 697 |
| | $ | 487 |
|
Commercial Renewables
Duke Energy has investments in various renewable energy project entities. Some of these entities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves in support of debt financings. Duke Energy does not consolidate these VIEs because power to direct and control key activities is shared jointly by Duke Energy and other owners.
Other VIEs
Duke Energy holds a 50 percent equity interest in Pioneer. Pioneer is considered a VIE due to having insufficient equity to finance their own activities without subordinated financial support. The activities that most significantly impact Pioneer's economic performance are decisions related to the development of new transmission facilities. The power to direct these activities is jointly and equally shared by Duke Energy and the other joint venture partner, American Electric Power, therefore Duke Energy does not consolidate Pioneer.
OVEC
Duke Energy Ohio’s 9 percent ownership interest in OVEC is considered a non-consolidated VIE due to having insufficient equity to finance their activities without subordinated financial support. As a counterparty to an inter-company power agreement (ICPA), Duke Energy Ohio has a contractual arrangement to buy power from OVEC’s power plants through June 2040 commensurate with its power participation ratio, which is equivalent to Duke Energy Ohio's ownership interest. Costs, including fuel, operating expenses, fixed costs, debt amortization, and interest expense are allocated to counterparties to the ICPA based on their power participation ratio. The value of the ICPA is subject to variability due to fluctuation in power prices and changes in OVEC's cost of business, including costs associated with its 2,256 MW of coal-fired generation capacity. Deterioration in the credit quality, or bankruptcy of one or more parties to the ICPA could increase the costs of OVEC. In addition, certain proposed environmental rulemaking could result in future increased cost allocations.
CRC
See discussion under Consolidated VIEs for additional information related to CRC.
Amounts included in Receivables from affiliated companies in the above table for Duke Energy Ohio and Duke Energy Indiana reflect their retained interest in receivables sold to CRC. These subordinated notes held by Duke Energy Ohio and Duke Energy Indiana are stated at fair value. Carrying values of retained interests are determined by allocating carrying value of the receivables between assets sold and interests retained based on relative fair value. The allocated bases of the subordinated notes are not materially different than their face value because (i) the receivables generally turnover in less than two months, (ii) credit losses are reasonably predictable due to the broad customer base and lack of significant concentration and (iii) the equity in CRC is subordinate to all retained interests and thus would absorb losses first. The hypothetical effect on fair value of the retained interests assuming both a 10 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 | | Duke Energy Indiana |
| 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Anticipated credit loss ratio | 0.5 | % | | 0.5 | % | | 0.3 | % | | 0.3 | % |
Discount rate | 2.1 | % | | 1.5 | % | | 2.1 | % | | 1.5 | % |
Receivable turnover rate | 13.5 | % | | 13.3 | % | | 10.7 | % | | 10.6 | % |
The following table shows the gross and net receivables sold. |
| | | | | | | | | | | | | | | |
| Duke Energy Ohio | | Duke Energy Indiana |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Receivables sold | $ | 273 |
| | $ | 267 |
| | $ | 312 |
| | $ | 306 |
|
Less: Retained interests | 87 |
| | 82 |
| | 106 |
| | 101 |
|
Net receivables sold | $ | 186 |
| | $ | 185 |
| | $ | 206 |
| | $ | 205 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The following table shows sales and cash flows related to receivables sold. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Duke Energy Ohio | | Duke Energy Indiana |
| Years Ended December 31, | | Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
| | 2017 |
| | 2016 |
| | 2015 |
|
Sales | | | | | | | | | | | |
Receivables sold | $ | 1,879 |
| | $ | 1,926 |
| | $ | 1,963 |
| | $ | 2,711 |
| | $ | 2,635 |
| | $ | 2,627 |
|
Loss recognized on sale | 10 |
| | 9 |
| | 9 |
| | 12 |
| | 11 |
| | 11 |
|
Cash Flows | | | | | | | | | | | |
Cash proceeds from receivables sold | 1,865 |
| | 1,882 |
| | 1,995 |
| | 2,694 |
| | 2,583 |
| | 2,670 |
|
Collection fees received | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Return received on retained interests | 3 |
| | 2 |
| | 3 |
| | 7 |
| | 5 |
| | 5 |
|
Cash flows from the sales of receivables are reflected within Cash Flows From Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Consolidated Statements of Cash Flows.
Collection fees received in connection with servicing transferred accounts receivable are included in Operation, maintenance and other on Duke Energy Ohio’s and Duke Energy Indiana’s Consolidated Statements of Operations and Comprehensive Income. The loss recognized on sales of receivables is calculated monthly by multiplying receivables sold during the month by the required discount. The required discount is derived monthly utilizing a three-year weighted average formula that considers charge-off history, late charge history and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is the prior month-end LIBOR plus a fixed rate of 1.00 percent.
18. COMMON STOCK
Basic Earnings Per Share (EPS) is computed by dividing net income attributable to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common shares, such as stock options and equity forward sale agreements, were exercised or settled. Duke Energy’s participating securities are restricted stock units that are entitled to dividends declared on Duke Energy common stock during the restricted stock unit’s vesting periods.
The following table presents Duke Energy’s basic and diluted EPS calculations and reconciles the weighted average number of common stock outstanding to the diluted weighted average number of common stock outstanding. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions, except per share amounts) | 2017 |
| | 2016 |
| | 2015 |
|
Income from continuing operations attributable to Duke Energy common stockholders excluding impact of participating securities | $ | 3,059 |
| | $ | 2,567 |
| | $ | 2,640 |
|
Weighted average shares outstanding – basic | 700 |
| | 691 |
| | 694 |
|
Weighted average shares outstanding – diluted | 700 |
| | 691 |
| | 694 |
|
Earnings per share from continuing operations attributable to Duke Energy common stockholders | | | | | |
Basic | $ | 4.37 |
| | $ | 3.71 |
| | $ | 3.80 |
|
Diluted | $ | 4.37 |
| | $ | 3.71 |
| | $ | 3.80 |
|
Potentially dilutive items excluded from the calculation(a) | 2 |
| | 2 |
| | 2 |
|
Dividends declared per common share | $ | 3.49 |
| | $ | 3.36 |
| | $ | 3.24 |
|
| |
(a) | Performance stock awards were not included in the dilutive securities calculation because the performance measures related to the awards had not been met. |
Equity Distribution Agreement
On February 20, 2018, Duke Energy filed a prospectus supplement and executed an Equity Distribution Agreement (the EDA) under which it may sell up to $1 billion of its common stock through an at-the-market offering program, including an equity forward sales component. The EDA was entered into with Wells Fargo Securities, LLC, Citigroup Global Markets Inc., and J.P. Morgan Securities LLC (the Agents). Under the terms of the EDA, Duke Energy may issue and sell, through either of the Agents, shares of common stock during the period ending September 23, 2019.
In addition to the issuance and sales of shares by Duke Energy through the Agents, Duke Energy may enter into Equity Forward Agreements with affiliates of the Agents as Forward Purchasers. There were no transactions under the EDA from the time of execution of the EDA to the filing of this document.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Stock Issuance
In March 2016, 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. As a result of the acquisition, all of Piedmont's issued and outstanding stock became the issued and outstanding shares of a wholly owned subsidiary of Duke Energy. See Note 2 for additional information related to the Piedmont acquisition.
Accelerated Stock Repurchase Program
On April 6, 2015, Duke Energy entered into agreements with each of Goldman, Sachs & Co. and JPMorgan Chase Bank, National Association (the Dealers) to repurchase a total of $1.5 billion of Duke Energy common stock under an accelerated stock repurchase program (the ASR). Duke Energy made payments of $750 million to each of the Dealers and was delivered 16.6 million shares, with a total fair value of $1.275 billion, which represented approximately 85 percent of the total number of shares of Duke Energy common stock expected to be repurchased under the ASR. The company recorded the $1.5 billion payment as a reduction to common stock as of April 6, 2015. In June 2015, the Dealers delivered 3.2 million additional shares to Duke Energy to complete the ASR. Approximately 19.8 million shares, in total, were delivered to Duke Energy and retired under the ASR at an average price of $75.75 per share. The final number of shares repurchased was based upon the average of the daily volume weighted average stock prices of Duke Energy’s common stock during the term of the program, less a discount.
19. SEVERANCE
As part of its strategic planning processes, Duke Energy implemented targeted cost savings initiatives during 2016 and 2015 aimed at reducing operations and maintenance expense. The initiatives included efforts to reduce costs through the standardization of processes and systems, leveraging technology and workforce optimization throughout the company.
During 2016, Duke Energy and Piedmont announced severance plans covering certain eligible employees whose employment will be involuntarily terminated without cause as a result of Duke Energy's acquisition of Piedmont. These reductions continue to be implemented and are a part of the synergies expected to be realized with the acquisition. Refer to Note 2 for additional information on the Piedmont acquisition.
Severance benefit costs for initiatives and plans discussed above were accrued for a total of approximately 100 employees in 2017, 600 employees in 2016 and 900 employees in 2015. The following table presents the direct and allocated severance and related expenses recorded by the Duke Energy Registrants. Amounts are included within Operation, maintenance and other on the Consolidated Statements of Operations. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont(a) |
|
Year Ended December 31, 2017 | $ | 15 |
| $ | 2 |
| $ | 2 |
| $ | 1 |
| $ | 1 |
| $ | — |
| $ | 1 |
| $ | 9 |
|
Year Ended December 31, 2016 | 118 |
| 39 |
| 40 |
| 23 |
| 17 |
| 3 |
| 7 |
| |
Year Ended December 31, 2015 | 142 |
| 93 |
| 36 |
| 28 |
| 8 |
| 2 |
| 6 |
| |
| |
(a) | Piedmont severance benefit costs were $3 million for the two months ended December 31, 2016, and $19 million for the year ended October 31, 2016. Piedmont did not record any severance benefit costs for the year ended October 31, 2015. |
The table below presents the severance liability for past and ongoing severance plans including the plans described above. Amounts for Duke Energy Indiana and Duke Energy Ohio are not material. |
| | | | | | | | | | | | | | | | | | |
| | Duke |
| | Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Piedmont |
|
Balance at December 31, 2016 | $ | 79 |
| $ | 13 |
| $ | 14 |
| $ | 6 |
| $ | 8 |
| $ | 20 |
|
Provision/Adjustments | 17 |
| 2 |
| — |
| — |
| — |
| 9 |
|
Cash Reductions | (77 | ) | (10 | ) | (12 | ) | (5 | ) | (8 | ) | (24 | ) |
Balance at December 31, 2017 | $ | 19 |
| $ | 5 |
| $ | 2 |
| $ | 1 |
| $ | — |
| $ | 5 |
|
20. STOCK-BASED COMPENSATION
The Duke Energy Corporation 2015 Long-Term Incentive Plan (the 2015 Plan) provides for the grant of stock-based compensation awards to employees and outside directors. The 2015 Plan reserves 10 million shares of common stock for issuance. Duke Energy has historically issued new shares upon exercising or vesting of share-based awards. However, Duke Energy may use a combination of new share issuances and open market repurchases for share-based awards that are exercised or vest in the future. Duke Energy has not determined with certainty the amount of such new share issuances or open market repurchases.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The following table summarizes the total expense recognized by the Duke Energy Registrants, net of tax, for stock-based compensation. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Duke Energy | $ | 43 |
| | $ | 35 |
| | $ | 38 |
|
Duke Energy Carolinas | 15 |
| | 12 |
| | 14 |
|
Progress Energy | 16 |
| | 12 |
| | 14 |
|
Duke Energy Progress | 10 |
| | 7 |
| | 9 |
|
Duke Energy Florida | 6 |
| | 5 |
| | 5 |
|
Duke Energy Ohio | 3 |
| | 2 |
| | 2 |
|
Duke Energy Indiana | 4 |
| | 3 |
| | 4 |
|
Piedmont(a) | 3 |
| | | | |
(a) See discussion below for information on Piedmont's pre-merger stock-based compensation plans.
Duke Energy's pretax stock-based compensation costs, the tax benefit associated with stock-based compensation expense and stock-based compensation costs capitalized are included in the following table. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
Restricted stock unit awards | $ | 41 |
| | $ | 36 |
| | $ | 38 |
|
Performance awards | 27 |
| | 19 |
| | 23 |
|
Pretax stock-based compensation cost | $ | 68 |
| | $ | 55 |
| | $ | 61 |
|
Tax benefit associated with stock-based compensation expense | $ | 25 |
| | $ | 20 |
| | $ | 23 |
|
Stock-based compensation costs capitalized | 4 |
| | 2 |
| | 3 |
|
RESTRICTED STOCK UNIT AWARDS
Restricted stock unit (RSU) awards generally vest over periods from immediate to three years. Fair value amounts are based on the market price of Duke Energy's common stock on the grant date. The following table includes information related to restricted stock unit awards. |
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 |
| | 2016 |
| | 2015 |
|
Shares awarded (in thousands) | 583 |
| | 684 |
| | 524 |
|
Fair value (in millions) | $ | 47 |
| | $ | 52 |
| | $ | 41 |
|
The following table summarizes information about restricted stock unit awards outstanding. |
| | | | | | |
| | | Weighted Average |
|
| Shares |
| | Grant Date Fair Value |
|
| (in thousands) |
| | (per share) |
|
Outstanding at December 31, 2016 | 1,139 |
| | $ | 76 |
|
Granted | 583 |
| | 80 |
|
Vested | (553 | ) | | 76 |
|
Forfeited | (48 | ) | | 78 |
|
Outstanding at December 31, 2017 | 1,121 |
| | 78 |
|
Restricted stock unit awards expected to vest | 1,094 |
| | 78 |
|
The total grant date fair value of shares vested during the years ended December 31, 2017, 2016 and 2015 was $42 million, $38 million and $41 million, respectively. At December 31, 2017, Duke Energy had $29 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of twenty-three months.
PERFORMANCE AWARDS
Stock-based performance awards generally vest after three years if performance targets are met.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Performance awards granted in 2017, 2016 and 2015 contain market conditions based on the total shareholder return (TSR) of Duke Energy stock relative to a predefined peer group (relative TSR). These awards are valued using a path-dependent model that incorporates expected relative TSR into the fair value determination of Duke Energy’s performance-based share awards. The model uses three-year historical volatilities and correlations for all companies in the predefined peer group, including Duke Energy, to simulate Duke Energy’s relative TSR as of the end of the performance period. For each simulation, Duke Energy’s relative TSR associated with the simulated stock price at the end of the performance period plus expected dividends within the period results in a value per share for the award portfolio. The average of these simulations is the expected portfolio value per share. Actual life to date results of Duke Energy’s relative TSR for each grant are incorporated within the model. For performance awards granted in 2017, the model used a risk-free interest rate of 1.5 percent, which reflects the yield on three-year Treasury bonds as of the grant date, and an expected volatility of 17.2 percent based on Duke Energy's historical volatility over three years using daily stock prices.
In addition to TSR, performance awards granted in 2017 and 2016 contain a performance condition based on Duke Energy's cumulative adjusted EPS. Performance awards granted in 2017 also contain a performance condition based on the total incident case rate, one of our key employee safety metrics. The actual number of shares issued will range from zero to 200 percent of target shares depending on the level of performance achieved.
The following table includes information related to stock-based performance awards. |
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 |
| | 2016 |
| | 2015 |
|
Shares granted assuming target performance (in thousands) | 461 |
| | 338 |
| | 321 |
|
Fair value (in millions) | $ | 37 |
| | $ | 25 |
| | $ | 26 |
|
The following table summarizes information about stock-based performance awards outstanding and assumes payout at the target level. |
| | | | | | |
| | | Weighted Average |
|
| Shares |
| | Grant Date Fair Value |
|
| (in thousands) |
| | (per share) |
|
Outstanding at December 31, 2016 | 862 |
| | $ | 75 |
|
Granted | 461 |
| | 81 |
|
Forfeited | (258 | ) | | 69 |
|
Outstanding at December 31, 2017 | 1,065 |
| | 79 |
|
Stock-based performance awards expected to vest | 1,034 |
| | 79 |
|
No performance awards vested during the year ended December 31, 2017. The total grant date fair value of shares vested during the years ended December 31, 2016 and 2015 was $25 million and $26 million, respectively. At December 31, 2017, Duke Energy had $34 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of twenty-three months.
STOCK OPTIONS
Stock options, when granted, have a maximum option term of 10 years and with an exercise price not less than the market price of Duke Energy's common stock on the grant date. There were no stock options granted or exercised during the year ended December 31, 2017. There were no stock options outstanding at December 31, 2017.
The following table summarizes additional information related to stock options exercised and granted. |
| | | | | | | |
| Years Ended December 31, |
(in millions) | 2016 |
| | 2015 |
|
Intrinsic value of options exercised | $ | 1 |
| | $ | 5 |
|
Tax benefit related to options exercised | — |
| | 2 |
|
Cash received from options exercised | 7 |
| | 17 |
|
PIEDMONT
Prior to Duke Energy's acquisition of Piedmont, Piedmont had an incentive compensation plan that had a series of three-year performance and RSU awards for eligible officers and other participants. The Agreement and Plan of Merger (Merger Agreement) between Duke Energy and Piedmont provided for the conversion of the 2014-2016 and 2015-2017 performance awards and the nonvested 2016 RSU award into the right to receive $60 cash per share upon the close of the transaction. In December 2015, Piedmont's board of directors authorized the accelerated vesting, payment and taxation of the 2014-2016 and 2015-2017 performance awards, as well as the 2016 RSU award, at the election of the participant. Substantially all participants elected to accelerate the settlement of these awards. As a result of the settlement of these awards, 194 thousand shares of Piedmont shares were issued to participants, net of shares withheld for applicable federal and state income taxes, at a closing price of $56.85 and a fair value of $11 million. The 2016-2018 performance award cycle was approved subsequent to the Merger Agreement and was converted into a Duke Energy RSU award as discussed above at the consummation of the acquisition.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Piedmont's stock-based compensation costs and the tax benefit associated with stock-based compensation expense are included in the following table. Piedmont's stock-based compensation costs were not material for the two months ended December 31, 2016. |
| | | | | | | |
| Years Ended October 31, |
(in millions) | 2016 |
| | 2015 |
|
Pretax stock-based compensation cost | $ | 16 |
| | $ | 14 |
|
Tax benefit associated with stock-based compensation expense | 6 |
| | 4 |
|
Net of tax stock-based compensation cost | $ | 10 |
| | $ | 10 |
|
21. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT RETIREMENT PLANS
Duke Energy and certain subsidiaries maintain, and the Subsidiary Registrants participate in, qualified, non-contributory defined benefit retirement plans. The Duke Energy plans cover most employees using a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits based upon a percentage of current eligible earnings, age or age and years of service and interest credits. Certain employees are eligible for benefits that use a final average earnings formula. Under these final average earnings formulas, a plan participant accumulates a retirement benefit equal to the sum of percentages of their (i) highest three-year, four-year, or five-year average earnings, (ii) highest three-year, four-year, or five-year average earnings in excess of covered compensation per year of participation (maximum of 35 years), (iii) highest three-year average earnings times years of participation in excess of 35 years. Duke Energy also maintains, and the Subsidiary Registrants participate in, non-qualified, non-contributory defined benefit retirement plans that cover certain executives. The qualified and non-qualified, non-contributory defined benefit plans are closed to new participants.
Duke Energy approved plan amendments to restructure its qualified non-contributory defined benefit retirement plans, effective January 1, 2018. The restructuring involved (i) the spin-off of the majority of inactive participants from two plans into a separate inactive plan and (ii) the merger of the active participant portions of such plans, along with a pension plan acquired as part of the Piedmont transaction, into a single active plan. Benefits offered to the plan participants remain unchanged except that the Piedmont plan's final average earnings formula was frozen as of December 31, 2017, and affected participants were moved into the active plan's cash balance formula. Actuarial gains and losses associated with the Inactive Plan will be amortized over the remaining life expectancy of the inactive participants. The longer amortization period is expected to lower Duke Energy's 2018 pretax qualified pension plan expense by approximately $33 million.
Duke Energy uses a December 31 measurement date for its defined benefit retirement plan assets and obligations.
Net periodic benefit costs disclosed in the tables below represent the cost of the respective benefit plan for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment. Amounts presented in the tables below for the Subsidiary Registrants represent the amounts of pension and other post-retirement benefit cost allocated by Duke Energy for employees of the Subsidiary Registrants. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and post-retirement benefit cost for employees of Duke Energy’s shared services affiliate that provide support to the Subsidiary Registrants. These allocated amounts are included in the governance and shared service costs discussed in Note 13.
Duke Energy’s policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefit payments to be paid to plan participants. The following table includes information related to the Duke Energy Registrants’ contributions to its qualified defined benefit pension plans. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont(a) |
|
Anticipated Contributions: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Total anticipated 2018 contributions | $ | 148 |
| | $ | 46 |
| | $ | 45 |
| | $ | 25 |
| | $ | 20 |
| | $ | — |
| | $ | 8 |
| | $ | 7 |
|
Contributions made January 2, 2018 | 141 |
| | 46 |
| | 45 |
| | 25 |
| | 20 |
| | — |
| | 8 |
| | — |
|
Contributions to be made in 2018 | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 7 |
|
Contributions Made: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
2017 | $ | 19 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 11 |
|
2016 | 155 |
| | 43 |
| | 43 |
| | 24 |
| | 20 |
| | 5 |
| | 9 |
| |
|
|
2015 | 302 |
| | 91 |
| | 83 |
| | 42 |
| | 40 |
| | 8 |
| | 19 |
| |
|
|
| |
(a) | Piedmont contributed $10 million to its U.S. qualified defined benefit pension plan during the two months ended December 31, 2016, and for each of the years ended October 31, 2016, and 2015, respectively. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
QUALIFIED PENSION PLANS
Components of Net Periodic Pension Costs |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Service cost | $ | 159 |
| | $ | 48 |
| | $ | 45 |
| | $ | 26 |
| | $ | 19 |
| | $ | 4 |
| | $ | 9 |
| | $ | 10 |
|
Interest cost on projected benefit obligation | 328 |
| | 79 |
| | 100 |
| | 47 |
| | 53 |
| | 18 |
| | 26 |
| | 14 |
|
Expected return on plan assets | (545 | ) | | (142 | ) | | (167 | ) | | (82 | ) | | (85 | ) | | (27 | ) | | (42 | ) | | (24 | ) |
Amortization of actuarial loss | 146 |
| | 31 |
| | 52 |
| | 23 |
| | 29 |
| | 5 |
| | 12 |
| | 11 |
|
Amortization of prior service credit | (24 | ) | | (8 | ) | | (3 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | (2 | ) | | (2 | ) |
Settlement charge | 12 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 12 |
|
Other | 8 |
| | 2 |
| | 2 |
| | 1 |
| | 1 |
| | — |
| | 1 |
| | 1 |
|
Net periodic pension costs(a)(b) | $ | 84 |
|
| $ | 10 |
| | $ | 29 |
| | $ | 13 |
| | $ | 16 |
| | $ | (1 | ) | | $ | 4 |
| | $ | 22 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Service cost | $ | 147 |
| | $ | 48 |
| | $ | 42 |
| | $ | 24 |
| | $ | 19 |
| | $ | 4 |
| | $ | 9 |
|
Interest cost on projected benefit obligation | 335 |
| | 86 |
| | 106 |
| | 49 |
| | 55 |
| | 19 |
| | 28 |
|
Expected return on plan assets | (519 | ) | | (142 | ) | | (168 | ) | | (82 | ) | | (84 | ) | | (27 | ) | | (42 | ) |
Amortization of actuarial loss | 134 |
| | 33 |
| | 51 |
| | 23 |
| | 29 |
| | 4 |
| | 11 |
|
Amortization of prior service (credit) | (17 | ) | | (8 | ) | | (3 | ) | | (2 | ) | | (1 | ) | | — |
| | (1 | ) |
Settlement charge | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other | 8 |
| | 2 |
| | 3 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Net periodic pension costs(a)(b) | $ | 91 |
| | $ | 19 |
| | $ | 31 |
| | $ | 13 |
| | $ | 19 |
| | $ | 1 |
| | $ | 6 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2015 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Service cost | $ | 159 |
| | $ | 50 |
| | $ | 44 |
| | $ | 23 |
| | $ | 20 |
| | $ | 4 |
| | $ | 10 |
|
Interest cost on projected benefit obligation | 324 |
| | 83 |
| | 104 |
| | 48 |
| | 54 |
| | 18 |
| | 27 |
|
Expected return on plan assets | (516 | ) | | (139 | ) | | (171 | ) | | (79 | ) | | (87 | ) | | (26 | ) | | (42 | ) |
Amortization of actuarial loss | 166 |
| | 39 |
| | 65 |
| | 33 |
| | 31 |
| | 7 |
| | 13 |
|
Amortization of prior service (credit) cost | (15 | ) | | (7 | ) | | (3 | ) | | (2 | ) | | (1 | ) | | — |
| | 1 |
|
Other | 8 |
| | 2 |
| | 3 |
| | 1 |
| | 1 |
| | — |
| | 1 |
|
Net periodic pension costs(a)(b) | $ | 126 |
| | $ | 28 |
| | $ | 42 |
| | $ | 24 |
| | $ | 18 |
| | $ | 3 |
| | $ | 10 |
|
| |
(a) | Duke Energy amounts exclude $7 million, $8 million and $9 million for the years ended December 2017, 2016 and 2015, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy's merger with Cinergy in April 2006. |
| |
(b) | Duke Energy Ohio amounts exclude $3 million, $4 million and $4 million for the years ended December 2017, 2016 and 2015, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy's merger with Cinergy in April 2006. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | |
| Piedmont |
| Two Months Ended | | Years Ended October 31, |
(in millions) | December 31, 2016 | | 2016 | | 2015 |
Service cost | $ | 2 |
| | $ | 11 |
| | $ | 11 |
|
Interest cost on projected benefit obligation | 2 |
| | 9 |
| | 12 |
|
Expected return on plan assets | (4 | ) | | (24 | ) | | (24 | ) |
Amortization of actuarial loss | 2 |
| | 8 |
| | 9 |
|
Amortization of prior service credit | (1 | ) | | (2 | ) | | (2 | ) |
Settlement charge | 3 |
| | — |
| | — |
|
Net periodic pension costs | $ | 4 |
| | $ | 2 |
| | $ | 6 |
|
Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Regulatory assets, net (decrease) increase | $ | (212 | ) | | $ | (70 | ) | | $ | (49 | ) | | $ | (37 | ) | | $ | (11 | ) | | $ | 9 |
| | $ | (19 | ) | | $ | (64 | ) |
Accumulated other comprehensive loss (income) | | | | | | | | | | | | | | | |
Deferred income tax expense | $ | — |
| | — |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Prior year service cost arising during the year | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of prior year actuarial losses | (7 | ) | | — |
| | (7 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Net amount recognized in accumulated other comprehensive income | $ | (6 | ) | | $ | — |
| | $ | (4 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Regulatory assets, net increase | $ | 214 |
| | $ | 4 |
| | $ | 34 |
| | $ | 18 |
| | $ | 16 |
| | $ | 2 |
| | $ | 9 |
|
Accumulated other comprehensive (income) loss | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Deferred income tax expense | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Prior year service credit arising during the year | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of prior year actuarial losses | (7 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Net amount recognized in accumulated other comprehensive income | $ | (5 | ) | | $ | — |
| | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Piedmont's regulatory asset net increase was $34 million, $35 million and $20 million for the two months ended December 31, 2016, and for the years ended October 31, 2016, and 2015, respectively.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Reconciliation of Funded Status to Net Amount Recognized |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Change in Projected Benefit Obligation | |
| | | | | | | | | | | | | | |
Obligation at prior measurement date | $ | 8,131 |
| | $ | 1,952 |
| | $ | 2,512 |
| | $ | 1,158 |
| | $ | 1,323 |
| | $ | 447 |
| | $ | 658 |
| | $ | 344 |
|
Service cost | 159 |
| | 48 |
| | 45 |
| | 26 |
| | 19 |
| | 4 |
| | 9 |
| | 10 |
|
Interest cost | 328 |
| | 79 |
| | 100 |
| | 47 |
| | 53 |
| | 18 |
| | 26 |
| | 14 |
|
Actuarial loss | 455 |
| | 68 |
| | 158 |
| | 57 |
| | 99 |
| | 35 |
| | 26 |
| | 38 |
|
Transfers | — |
| | 27 |
| | (32 | ) | | (2 | ) | | (15 | ) | | 12 |
| | — |
| | — |
|
Plan amendments | (61 | ) | | — |
| | — |
| | — |
| | — |
| |
|
| | — |
| | (61 | ) |
Benefits paid | (537 | ) | | (145 | ) | | (146 | ) | | (75 | ) | | (69 | ) | | (37 | ) | | (50 | ) | | (5 | ) |
Benefits paid - settlements | (27 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (27 | ) |
Obligation at measurement date | $ | 8,448 |
|
| $ | 2,029 |
|
| $ | 2,637 |
|
| $ | 1,211 |
|
| $ | 1,410 |
|
| $ | 479 |
|
| $ | 669 |
| | $ | 313 |
|
Accumulated Benefit Obligation at measurement date | $ | 8,369 |
| | $ | 2,029 |
| | $ | 2,601 |
| | $ | 1,211 |
| | $ | 1,375 |
| | $ | 468 |
| | $ | 652 |
| | $ | 313 |
|
Change in Fair Value of Plan Assets | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Plan assets at prior measurement date | $ | 8,531 |
| | $ | 2,225 |
| | $ | 2,675 |
| | $ | 1,290 |
| | $ | 1,352 |
| | $ | 428 |
| | $ | 657 |
| | $ | 346 |
|
Employer contributions | 19 |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | 11 |
|
Actual return on plan assets | 1,017 |
| | 265 |
| | 317 |
| | 153 |
| | 161 |
| | 51 |
| | 77 |
| | 43 |
|
Benefits paid | (537 | ) | | (145 | ) | | (146 | ) | | (75 | ) |
| (69 | ) |
| (37 | ) |
| (50 | ) | | (5 | ) |
Benefits paid - settlements
| (27 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (27 | ) |
Transfers | — |
| | 27 |
| | (32 | ) | | (2 | ) |
| (15 | ) |
| 12 |
|
| — |
| | — |
|
Plan assets at measurement date | $ | 9,003 |
| | $ | 2,372 |
| | $ | 2,814 |
| | $ | 1,366 |
| | $ | 1,429 |
| | $ | 458 |
| | $ | 684 |
| | $ | 368 |
|
Funded status of plan | $ | 555 |
| | $ | 343 |
| | $ | 177 |
| | $ | 155 |
| | $ | 19 |
| | $ | (21 | ) | | $ | 15 |
| | $ | 55 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Change in Projected Benefit Obligation | | | | | | | | | | | | | |
Obligation at prior measurement date | $ | 7,727 |
| | $ | 1,995 |
| | $ | 2,451 |
| | $ | 1,143 |
| | $ | 1,276 |
| | $ | 453 |
| | $ | 649 |
|
Obligation assumed from acquisition | 352 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Service cost | 147 |
| | 48 |
| | 42 |
| | 24 |
| | 19 |
| | 4 |
| | 9 |
|
Interest cost | 335 |
| | 86 |
| | 106 |
| | 49 |
| | 55 |
| | 19 |
| | 28 |
|
Actuarial loss | 307 |
| | 46 |
| | 111 |
| | 52 |
| | 57 |
| | 13 |
| | 41 |
|
Transfers | — |
| | 14 |
| | (3 | ) | | (3 | ) | | — |
| | (3 | ) | | — |
|
Plan amendments | (52 | ) | | (3 | ) | | — |
| | — |
| | — |
| | (3 | ) | | (15 | ) |
Benefits paid | (679 | ) | | (234 | ) | | (195 | ) | | (107 | ) | | (84 | ) | | (36 | ) | | (54 | ) |
Impact of settlements | (6 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Obligation at measurement date | $ | 8,131 |
| | $ | 1,952 |
| | $ | 2,512 |
| | $ | 1,158 |
| | $ | 1,323 |
| | $ | 447 |
| | $ | 658 |
|
Accumulated Benefit Obligation at measurement date | $ | 8,006 |
| | $ | 1,952 |
| | $ | 2,479 |
| | $ | 1,158 |
| | $ | 1,290 |
| | $ | 436 |
| | $ | 649 |
|
Change in Fair Value of Plan Assets | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Plan assets at prior measurement date | $ | 8,136 |
| | $ | 2,243 |
| | $ | 2,640 |
| | $ | 1,284 |
| | $ | 1,321 |
| | $ | 433 |
| | $ | 655 |
|
Assets received from acquisition | 343 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Employer contributions | 155 |
| | 43 |
| | 43 |
| | 24 |
| | 20 |
| | 5 |
| | 9 |
|
Actual return on plan assets | 582 |
| | 159 |
| | 190 |
| | 92 |
| | 95 |
| | 29 |
| | 47 |
|
Benefits paid | (679 | ) | | (234 | ) | | (195 | ) | | (107 | ) | | (84 | ) | | (36 | ) | | (54 | ) |
Impact of settlements | (6 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Transfers | — |
| | 14 |
| | (3 | ) | | (3 | ) | | — |
| | (3 | ) | | — |
|
Plan assets at measurement date | $ | 8,531 |
| | $ | 2,225 |
| | $ | 2,675 |
| | $ | 1,290 |
| | $ | 1,352 |
| | $ | 428 |
| | $ | 657 |
|
Funded status of plan | $ | 400 |
| | $ | 273 |
| | $ | 163 |
| | $ | 132 |
| | $ | 29 |
| | $ | (19 | ) | | $ | (1 | ) |
|
| | | | | | | |
| Piedmont |
| Two Months Ended | | Years Ended |
(in millions) | December 31, 2016 | | October 31, 2016 |
Change in Projected Benefit Obligation | | | |
Obligation at prior measurement date | $ | 352 |
| | $ | 312 |
|
Service cost | 2 |
| | 11 |
|
Interest cost | 2 |
| | 9 |
|
Actuarial gain | (5 | ) | | 34 |
|
Benefits paid | (1 | ) | | (14 | ) |
Impact of settlements | (6 | ) | | — |
|
Obligation at measurement date | $ | 344 |
| | $ | 352 |
|
Accumulated Benefit Obligation at measurement date | $ | 289 |
| | $ | 296 |
|
Change in Fair Value of Plan Assets | |
| | |
|
Plan assets at prior measurement date | $ | 343 |
| | $ | 329 |
|
Employer contributions | 10 |
| | 10 |
|
Actual return on plan assets | — |
| | 18 |
|
Benefits paid | (1 | ) | | (14 | ) |
Impact of settlements | (6 | ) | | — |
|
Plan assets at measurement date | $ | 346 |
| | $ | 343 |
|
Funded status of plan | $ | 2 |
| | $ | (9 | ) |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Amounts Recognized in the Consolidated Balance Sheets |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Prefunded pension(a) | $ | 680 |
| | $ | 343 |
| | $ | 245 |
| | $ | 155 |
| | $ | 87 |
| | $ | 8 |
| | $ | 16 |
| | $ | 55 |
|
Noncurrent pension liability(b) | $ | 125 |
| | $ | — |
| | $ | 68 |
| | $ | — |
| | $ | 68 |
| | $ | 29 |
| | $ | 1 |
| | $ | — |
|
Net asset (liability) recognized | $ | 555 |
|
| $ | 343 |
|
| $ | 177 |
|
| $ | 155 |
|
| $ | 19 |
|
| $ | (21 | ) |
| $ | 15 |
| | $ | 55 |
|
Regulatory assets | $ | 1,886 |
| | $ | 406 |
| | $ | 756 |
| | $ | 341 |
| | $ | 415 |
| | $ | 90 |
| | $ | 152 |
| | $ | 73 |
|
Accumulated other comprehensive (income) loss | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Deferred income tax benefit | $ | (41 | ) | | $ | — |
| | $ | (3 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Prior service credit | (5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net actuarial loss | 116 |
| | — |
| | 9 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net amounts recognized in accumulated other comprehensive loss | $ | 70 |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Amounts to be recognized in net periodic pension costs in the next year | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Unrecognized net actuarial loss | $ | 132 |
| | $ | 29 |
| | $ | 44 |
| | $ | 21 |
| | $ | 23 |
| | $ | 5 |
| | $ | 7 |
| | $ | 11 |
|
Unrecognized prior service credit | (32 | ) | | (8 | ) | | (3 | ) | | (2 | ) | | (1 | ) | | — |
| | (2 | ) | | (9 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Prefunded pension(a) | $ | 518 |
| | $ | 273 |
| | $ | 225 |
| | $ | 132 |
| | $ | 91 |
| | $ | 6 |
| | $ | — |
| | 3 |
|
Noncurrent pension liability(b) | $ | 118 |
| | $ | — |
| | $ | 62 |
| | $ | — |
| | $ | 62 |
| | $ | 25 |
| | $ | 1 |
| | — |
|
Net asset recognized | $ | 400 |
| | $ | 273 |
| | $ | 163 |
| | $ | 132 |
| | $ | 29 |
| | $ | (19 | ) | | $ | (1 | ) | | $ | 3 |
|
Regulatory assets | $ | 2,098 |
| | $ | 476 |
| | $ | 805 |
| | $ | 378 |
| | $ | 426 |
| | $ | 81 |
| | $ | 171 |
| | $ | 137 |
|
Accumulated other comprehensive (income) loss | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Deferred income tax benefit | $ | (41 | ) | | $ | — |
| | $ | (6 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Prior service credit | (6 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net actuarial loss | 123 |
| | — |
| | 16 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net amounts recognized in accumulated other comprehensive loss | $ | 76 |
| | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Amounts to be recognized in net periodic pension costs in the next year | | | | | | | | | | | | | | | |
Unrecognized net actuarial loss | $ | 147 |
| | $ | 31 |
| | $ | 52 |
| | $ | 23 |
| | $ | 29 |
| | $ | 5 |
| | $ | 8 |
| | $ | 13 |
|
Unrecognized prior service credit | $ | (24 | ) | | $ | (8 | ) | | $ | (3 | ) | | $ | (2 | ) | | $ | (1 | ) | | $ | — |
| | $ | (2 | ) | | $ | (2 | ) |
| |
(a) | Included in Other within Other Noncurrent Assets on the Consolidated Balance Sheets. |
| |
(b) | Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Information for Plans with Accumulated Benefit Obligation in Excess of Plan Assets |
| | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| Duke |
|
| Duke |
| Progress |
| Energy |
| Energy |
|
(in millions) | Energy |
| Energy |
| Florida |
| Ohio |
|
Projected benefit obligation | $ | 1,386 |
| $ | 718 |
| $ | 718 |
| $ | 337 |
|
Accumulated benefit obligation | 1,326 |
| 683 |
| 683 |
| 326 |
|
Fair value of plan assets | 1,260 |
| 650 |
| 650 |
| 308 |
|
|
| | | | | | | | | | | | |
| December 31, 2016 |
| | | Duke |
| Duke |
|
| Duke |
| Progress |
| Energy |
| Energy |
|
(in millions) | Energy |
| Energy |
| Florida |
| Ohio |
|
Projected benefit obligation | $ | 1,299 |
| $ | 665 |
| $ | 665 |
| $ | 311 |
|
Accumulated benefit obligation | 1,239 |
| 633 |
| 633 |
| 299 |
|
Fair value of plan assets | 1,182 |
| 604 |
| 604 |
| 286 |
|
Assumptions Used for Pension Benefits Accounting
The discount rate used to determine the current year pension obligation and following year’s pension expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected.
The average remaining service period of active covered employees is 13 years for Duke Energy and Duke Energy Progress, 12 years for Duke Energy Carolinas, Progress Energy, and Duke Energy Florida, 14 years for Duke Energy Ohio and Duke Energy Indiana, and nine years for Piedmont.
The following tables present the assumptions or range of assumptions used for pension benefit accounting. |
| | | | | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
Benefit Obligations | | | | | | | | | | | | |
Discount rate | | | | 3.60% | | | | 4.10% | | | | 4.40% |
Salary increase | | 3.50 | % | – | 4.00% | | 4.00 | % | – | 4.50% | | 4.00 | % | – | 4.40% |
Net Periodic Benefit Cost | | | | | | | | | | | | |
Discount rate | | | | 4.10% | | | | 4.40% | |
|
| | 4.10% |
Salary increase | | 4.00 | % | – | 4.50% | | 4.00 | % | – | 4.40% | | 4.00 | % | – | 4.40% |
Expected long-term rate of return on plan assets | | 6.50 | % | – | 6.75% | | 6.50 | % | – | 6.75% | |
|
| | 6.50% |
|
| | | | | | | | | |
| | Piedmont |
| | Two Months Ended | | Years Ended October 31, |
| | December 31, 2016 | | 2016 | | 2015 |
Benefit Obligations | | | | | | |
Discount rate | | 4.10 | % | | 3.80 | % | | 4.34 | % |
Salary increase | | 4.50 | % | | 4.05 | % | | 4.07 | % |
Net Periodic Benefit Cost | | | | |
| | |
|
Discount rate | | 3.80 | % | | 4.34 | % | | 4.13 | % |
Salary increase | | 4.05 | % | | 4.07 | % | | 3.68 | % |
Expected long-term rate of return on plan assets | | 6.75 | % | | 7.25 | % | | 7.50 | % |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Expected Benefit Payments |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Years ending December 31, | | | | | | | | |
2018 | $ | 642 |
| $ | 185 |
| $ | 161 |
| $ | 85 |
| $ | 75 |
| $ | 36 |
| $ | 47 |
| $ | 29 |
|
2019 | 644 |
| 185 |
| 164 |
| 86 |
| 77 |
| 36 |
| 46 |
| 26 |
|
2020 | 661 |
| 195 |
| 172 |
| 90 |
| 80 |
| 36 |
| 44 |
| 24 |
|
2021 | 666 |
| 194 |
| 175 |
| 93 |
| 81 |
| 37 |
| 44 |
| 24 |
|
2022 | 672 |
| 197 |
| 176 |
| 92 |
| 83 |
| 36 |
| 44 |
| 23 |
|
2023-2027 | 3,099 |
| 865 |
| 888 |
| 449 |
| 435 |
| 166 |
| 210 |
| 103 |
|
NON-QUALIFIED PENSION PLANS
Components of Net Periodic Pension Costs |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Service cost | $ | 2 |
| $ | 1 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Interest cost on projected benefit obligation | 13 |
| 1 |
| 5 |
| 1 |
| 2 |
| — |
| — |
| — |
|
Amortization of actuarial loss | 8 |
| — |
| 2 |
| 1 |
| 1 |
| — |
| — |
| — |
|
Amortization of prior service credit | (2 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Net periodic pension costs | $ | 21 |
| $ | 2 |
| $ | 7 |
| $ | 2 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
Service cost | $ | 2 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Interest cost on projected benefit obligation | 14 |
| 1 |
| 5 |
| 1 |
| 2 |
| — |
| — |
|
Amortization of actuarial loss | 8 |
| 1 |
| 1 |
| 1 |
| 1 |
| — |
| — |
|
Amortization of prior service credit | (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
|
Net periodic pension costs | $ | 23 |
| $ | 2 |
| $ | 6 |
| $ | 2 |
| $ | 3 |
| $ | — |
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2015 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
Service cost | $ | 3 |
| $ | — |
| $ | 1 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Interest cost on projected benefit obligation | 13 |
| 1 |
| 4 |
| 1 |
| 2 |
| — |
| — |
|
Amortization of actuarial loss | 6 |
| — |
| 2 |
| 1 |
| 2 |
| — |
| 1 |
|
Amortization of prior service credit | (1 | ) | — |
| (1 | ) | — |
| — |
| — |
| — |
|
Net periodic pension costs | $ | 21 |
| $ | 1 |
| $ | 6 |
| $ | 2 |
| $ | 4 |
| $ | — |
| $ | 1 |
|
|
| | | | | | |
| Piedmont |
| Years Ended October 31, |
(in millions) | 2016 | 2015 |
Amortization of prior service cost | $ | — |
| $ | 1 |
|
Settlement charge | 1 |
| — |
|
Net periodic pension costs | $ | 1 |
| $ | 1 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets and Liabilities |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Regulatory assets, net (decrease) increase | $ | 5 |
| $ | (1 | ) | $ | 3 |
| $ | 1 |
| $ | 2 |
| $ | — |
| $ | — |
| $ | — |
|
Accumulated other comprehensive (income) loss | |
| |
| |
| |
| |
| |
| |
| |
|
Deferred income tax benefit | $ | (1 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Actuarial loss arising during the year | 2 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Net amount recognized in accumulated other comprehensive loss (income) | $ | 1 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
Regulatory assets, net (decrease) increase | $ | (3 | ) | $ | (2 | ) | $ | 2 |
| $ | 1 |
| $ | 1 |
| $ | — |
| $ | (1 | ) |
Accumulated other comprehensive (income) loss | | | | | | | |
Prior service credit arising during the year | $ | (1 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Actuarial gains arising during the year | 1 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Net amount recognized in accumulated other comprehensive loss (income) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Reconciliation of Funded Status to Net Amount Recognized |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Change in Projected Benefit Obligation | |
| |
| |
| |
| |
| |
| |
| |
Obligation at prior measurement date | $ | 332 |
| $ | 14 |
| $ | 114 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
Service cost | 2 |
| 1 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Interest cost | 13 |
| 1 |
| 5 |
| 1 |
| 2 |
| — |
| — |
| — |
|
Actuarial losses (gains) | 15 |
| — |
| 5 |
| 4 |
| 2 |
| — |
| — |
| — |
|
Benefits paid | (31 | ) | (2 | ) | (8 | ) | (3 | ) | (3 | ) | — |
| — |
| — |
|
Obligation at measurement date | $ | 331 |
| $ | 14 |
| $ | 116 |
| $ | 35 |
| $ | 47 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
Accumulated Benefit Obligation at measurement date | $ | 331 |
| $ | 14 |
| $ | 116 |
| $ | 35 |
| $ | 47 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
Change in Fair Value of Plan Assets | |
| |
| |
| |
| |
| |
| |
| |
|
Benefits paid | $ | (31 | ) | $ | (2 | ) | $ | (8 | ) | $ | (3 | ) | $ | (3 | ) | $ | — |
| $ | — |
| $ | — |
|
Employer contributions | 31 |
| 2 |
| 8 |
| 3 |
| 3 |
| — |
| — |
| — |
|
Plan assets at measurement date | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
Change in Projected Benefit Obligation | | |
| |
| |
| |
| |
| |
|
Obligation at prior measurement date | $ | 341 |
| $ | 16 |
| $ | 112 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 5 |
|
Obligation assumed from acquisition | 5 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Service cost | 2 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Interest cost | 14 |
| 1 |
| 5 |
| 1 |
| 2 |
| — |
| — |
|
Actuarial losses (gains) | 4 |
| (1 | ) | 5 |
| 2 |
| 1 |
| — |
| (2 | ) |
Plan amendments | (2 | ) | — |
| — |
| — |
| — |
| — |
| |
Benefits paid | (32 | ) | (2 | ) | (8 | ) | (3 | ) | (3 | ) | — |
| — |
|
Obligation at measurement date | $ | 332 |
| $ | 14 |
| $ | 114 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 3 |
|
Accumulated Benefit Obligation at measurement date | $ | 332 |
| $ | 14 |
| $ | 114 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 3 |
|
Change in Fair Value of Plan Assets | |
| |
| |
| |
| |
| |
| |
|
Benefits paid | $ | (32 | ) | $ | (2 | ) | $ | (8 | ) | $ | (3 | ) | $ | (3 | ) | — |
| — |
|
Employer contributions | 32 |
| 2 |
| 8 |
| 3 |
| 3 |
| — |
| — |
|
Plan assets at measurement date | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
| | | | | | | |
| Piedmont |
| Two Months Ended | | Years Ended |
(in millions) | December 31, 2016 | | October 31, 2016 |
Change in Projected Benefit Obligation | | | |
Obligation at prior measurement date | $ | 5 |
| | $ | 6 |
|
Actuarial gain | (1 | ) | | — |
|
Impact of settlements | — |
| | (1 | ) |
Obligation at measurement date | $ | 4 |
| | $ | 5 |
|
Accumulated Benefit Obligation at measurement date | $ | — |
| | $ | 5 |
|
Change in Fair Value of Plan Assets | |
| | |
|
Plan assets at prior measurement date | $ | — |
| | $ | 1 |
|
Impact of settlements | — |
| | (1 | ) |
Plan assets at measurement date | $ | — |
| | $ | — |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Amounts Recognized in the Consolidated Balance Sheets |
| | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Current pension liability(a) | $ | 23 |
| $ | 2 |
| $ | 8 |
| $ | 3 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | — |
|
Noncurrent pension liability(b) | 308 |
| 12 |
| 108 |
| 32 |
| 44 |
| 4 |
| 3 |
| 4 |
|
Total accrued pension liability | $ | 331 |
| $ | 14 |
| $ | 116 |
| $ | 35 |
| $ | 47 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
Regulatory assets | $ | 78 |
| $ | 4 |
| $ | 21 |
| $ | 8 |
| $ | 13 |
| $ | 1 |
| $ | — |
| $ | 1 |
|
Accumulated other comprehensive (income) loss | | |
| |
| |
| |
| |
| |
| |
|
Deferred income tax benefit | $ | (4 | ) | $ | — |
| $ | (3 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Prior service credit | (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Net actuarial loss | 12 |
| — |
| 9 |
| — |
| — |
| — |
| — |
| — |
|
Net amounts recognized in accumulated other comprehensive loss | $ | 7 |
| $ | — |
| $ | 6 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Amounts to be recognized in net periodic pension expense in the next year | | |
| |
| |
| |
| |
| |
| |
|
Unrecognized net actuarial loss | $ | 8 |
| $ | — |
| $ | 2 |
| $ | 1 |
| $ | 1 |
| $ | — |
| $ | — |
| $ | — |
|
Unrecognized prior service credit | (2 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Current pension liability(a) | $ | 28 |
| $ | 2 |
| $ | 8 |
| $ | 2 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | — |
|
Noncurrent pension liability(b) | 304 |
| 12 |
| 106 |
| 31 |
| 43 |
| 4 |
| 3 |
| 4 |
|
Total accrued pension liability | $ | 332 |
| $ | 14 |
| $ | 114 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
Regulatory assets | $ | 73 |
| $ | 5 |
| $ | 18 |
| $ | 7 |
| $ | 11 |
| $ | 1 |
| $ | — |
| $ | 1 |
|
Accumulated other comprehensive (income) loss | |
| |
| |
| |
| |
| |
| |
| |
|
Deferred income tax benefit | $ | (3 | ) | $ | — |
| $ | (3 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Prior service credit | (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Net actuarial loss | 10 |
| — |
| 9 |
| — |
| — |
| — |
| — |
| — |
|
Net amounts recognized in accumulated other comprehensive loss | $ | 6 |
| $ | — |
| $ | 6 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Amounts to be recognized in net periodic pension expense in the next year | | | | | | | | |
Unrecognized net actuarial loss | $ | 7 |
| $ | — |
| $ | 2 |
| $ | 1 |
| $ | 1 |
| $ | — |
| $ | — |
| $ | — |
|
Unrecognized prior service credit | $ | (2 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
(a) Included in Other within Current Liabilities on the Consolidated Balance Sheets.
| |
(b) | Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Information for Plans with Accumulated Benefit Obligation in Excess of Plan Assets |
| | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Projected benefit obligation | $ | 331 |
| $ | 14 |
| $ | 116 |
| $ | 35 |
| $ | 47 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
Accumulated benefit obligation | 331 |
| 14 |
| 116 |
| 35 |
| 47 |
| 4 |
| 3 |
| 4 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Projected benefit obligation | $ | 332 |
| $ | 14 |
| $ | 114 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
Accumulated benefit obligation | 332 |
| 14 |
| 114 |
| 33 |
| 46 |
| 4 |
| 3 |
| 4 |
|
Assumptions Used for Pension Benefits Accounting
The discount rate used to determine the current year pension obligation and following year’s pension expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected.
The average remaining service period of active covered employees is 11 years for Duke Energy and Duke Energy Progress, 14 years for Progress Energy, 15 years for Duke Energy Florida, eight years for Duke Energy Carolinas, Duke Energy Ohio, and Duke Energy Indiana, and nine years for Piedmont. The following tables present the assumptions used for pension benefit accounting. |
| | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | 2015 |
|
Benefit Obligations | | | | |
| | |
| | �� |
|
Discount rate | |
|
| | 3.60 | % | | 4.10 | % | | 4.40 | % |
Salary increase | | 3.50 | % | – | 4.00 | % | | 4.40 | % | | 4.40 | % |
Net Periodic Benefit Cost | | | | |
| | |
| | |
|
Discount rate | | | | 4.10 | % | | 4.40 | % | | 4.10 | % |
Salary increase | | | | 4.40 | % | | 4.40 | % | | 4.40 | % |
|
| | | | | | | | | |
| | Piedmont |
| | Two Months Ended | | Years Ended October 31, |
| | December 31, 2016 | | 2016 | | 2015 |
Benefit Obligations | | | | | | |
Discount rate | | 4.10 | % | | 3.80 | % | | 3.85 | % |
Net Periodic Benefit Cost | | | | |
| | |
|
Discount rate | | 3.80 | % | | 3.85 | % | | 3.69 | % |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Expected Benefit Payments |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Years ending December 31, | | | | | | | | |
2018 | $ | 23 |
| $ | 2 |
| $ | 8 |
| $ | 3 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | — |
|
2019 | 21 |
| 1 |
| 8 |
| 2 |
| 3 |
| — |
| — |
| — |
|
2020 | 21 |
| 1 |
| 8 |
| 2 |
| 3 |
| — |
| — |
| — |
|
2021 | 22 |
| 1 |
| 8 |
| 2 |
| 3 |
| — |
| — |
| — |
|
2022 | 25 |
| 1 |
| 8 |
| 2 |
| 3 |
| — |
| — |
| — |
|
2023-2027 | 117 |
| 6 |
| 36 |
| 11 |
| 15 |
| 1 |
| 1 |
| 2 |
|
OTHER POST-RETIREMENT BENEFIT PLANS
Duke Energy provides, and the Subsidiary Registrants participate in, some health care and life insurance benefits for retired employees on a contributory and non-contributory basis. Employees are eligible for these benefits if they have met age and service requirements at retirement, as defined in the plans. The health care benefits include medical, dental and prescription drug coverage and are subject to certain limitations, such as deductibles and copayments.
Duke Energy did not make any pre-funding contributions to its other post-retirement benefit plans during the years ended December 31, 2017, 2016 or 2015.
Components of Net Periodic Other Post-Retirement Benefit Costs |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Service cost | $ | 4 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
Interest cost on accumulated post-retirement benefit obligation | 34 |
| | 8 |
| | 13 |
| | 7 |
| | 6 |
| | 1 |
| | 3 |
| | 1 |
|
Expected return on plan assets | (14 | ) | | (8 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (2 | ) |
Amortization of actuarial loss (gain) | 10 |
| | (2 | ) | | 21 |
| | 12 |
| | 9 |
| | (2 | ) | | (1 | ) | | 1 |
|
Amortization of prior service credit | (115 | ) | | (10 | ) | | (84 | ) | | (54 | ) | | (30 | ) | | — |
| | (1 | ) | | — |
|
Curtailment credit (c) | $ | (30 | ) | | $ | (4 | ) | | $ | (16 | ) | | $ | — |
| | $ | (16 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | — |
|
Net periodic post-retirement benefit costs(a)(b) | $ | (111 | ) | | $ | (15 | ) | | $ | (66 | ) | | $ | (35 | ) | | $ | (31 | ) | | $ | (3 | ) | | $ | (2 | ) | | $ | 1 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Service cost | $ | 3 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
Interest cost on accumulated post-retirement benefit obligation | 35 |
| | 8 |
| | 15 |
| | 8 |
| | 7 |
| | 1 |
| | 4 |
|
Expected return on plan assets | (12 | ) | | (8 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Amortization of actuarial loss (gain) | 6 |
| | (3 | ) | | 22 |
| | 13 |
| | 9 |
| | (2 | ) | | (1 | ) |
Amortization of prior service credit | (141 | ) | | (14 | ) | | (103 | ) | | (68 | ) | | (35 | ) | | — |
| | (1 | ) |
Net periodic post-retirement benefit costs(a)(b) | $ | (109 | ) | | $ | (16 | ) | | $ | (65 | ) | | $ | (47 | ) | | $ | (18 | ) | | $ | (1 | ) | | $ | 1 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2015 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Service cost | $ | 6 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
|
Interest cost on accumulated post-retirement benefit obligation | 36 |
| | 9 |
| | 15 |
| | 8 |
| | 7 |
| | 2 |
| | 4 |
|
Expected return on plan assets | (13 | ) | | (8 | ) | | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Amortization of actuarial loss (gain) | 16 |
| | (2 | ) | | 28 |
| | 18 |
| | 10 |
| | (2 | ) | | (2 | ) |
Amortization of prior service credit | (140 | ) | | (14 | ) | | (102 | ) | | (68 | ) | | (35 | ) | | — |
| | — |
|
Net periodic post-retirement benefit costs(a)(b) | $ | (95 | ) | | $ | (14 | ) | | $ | (58 | ) | | $ | (41 | ) | | $ | (17 | ) | | $ | (1 | ) | | $ | 2 |
|
| |
(a) | Duke Energy amounts exclude $7 million, $8 million and $10 million for the years ended December 2017, 2016 and 2015, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy's merger with Cinergy in April 2006. |
| |
(b) | Duke Energy Ohio amounts exclude $2 million, $2 million and $3 million for the years ended December 2017, 2016 and 2015, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy's merger with Cinergy in April 2006. |
| |
(c) | Curtailment credit resulted from a reduction in average future service of plan participants due to a plan amendment. |
|
| | | | | | |
| Piedmont |
| Years Ended October 31, |
(in millions) | 2016 | 2015 |
Service cost | $ | 1 |
| $ | 1 |
|
Interest cost on projected benefit obligation | 1 |
| 2 |
|
Expected return on plan assets | (2 | ) | (2 | ) |
Amortization of actuarial loss | 1 |
| — |
|
Net periodic pension costs | $ | 1 |
| $ | 1 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets and Liabilities |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Regulatory assets, net increase (decrease) | $ | 71 |
| | $ | — |
| | $ | 81 |
| | $ | 42 |
| | $ | 39 |
| | $ | — |
| | $ | (5 | ) | | $ | (11 | ) |
Regulatory liabilities, net increase (decrease) | $ | (27 | ) | | $ | (2 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (3 | ) | | $ | (7 | ) | | $ | — |
|
Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
Deferred income tax benefit | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Amortization of prior year prior service credit | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net amount recognized in accumulated other comprehensive income | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Regulatory assets, net increase (decrease) | $ | 53 |
| | $ | — |
| | $ | 47 |
| | $ | 38 |
| | $ | 9 |
| | $ | — |
| | $ | (6 | ) |
Regulatory liabilities, net increase (decrease) | $ | (114 | ) | | $ | (22 | ) | | $ | (51 | ) | | $ | (25 | ) | | $ | (26 | ) | | $ | (2 | ) | | $ | (12 | ) |
Accumulated other comprehensive (income) loss | | | | | | | | | | | | | |
Deferred income tax benefit | $ | (2 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Actuarial losses arising during the year | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of prior year prior service credit | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
|
Net amount recognized in accumulated other comprehensive income | $ | 2 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Piedmont's regulatory assets net decreased $1 million for the two months ended December 31, 2016, and increased $2 million and $1 million for the years ended October 31, 2016, and 2015, respectively.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Reconciliation of Funded Status to Accrued Other Post-Retirement Benefit Costs |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Change in Projected Benefit Obligation | |
| | | | | | | | | | | | | | |
Accumulated post-retirement benefit obligation at prior measurement date | $ | 868 |
| | $ | 201 |
| | $ | 357 |
| | $ | 191 |
| | $ | 164 |
| | $ | 32 |
| | $ | 83 |
| | $ | 39 |
|
Service cost | 4 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Interest cost | 34 |
| | 8 |
| | 13 |
| | 7 |
| | 6 |
| | 1 |
| | 3 |
| | 1 |
|
Plan participants' contributions | 17 |
| | 3 |
| | 6 |
| | 3 |
| | 3 |
| | 1 |
| | 2 |
| | — |
|
Actuarial (gains) losses | 4 |
| | (3 | ) | | 4 |
| | 1 |
| | 3 |
| | — |
| | 3 |
| | 1 |
|
Transfers | — |
| | 2 |
| | (1 | ) | | — |
| | (1 | ) | | 1 |
| | — |
| | — |
|
Plan amendments | (28 | ) | | (5 | ) | | (3 | ) | | (1 | ) | | (2 | ) | | (2 | ) | | (2 | ) | | (9 | ) |
Benefits paid | (86 | ) | | (18 | ) | | (34 | ) | | (17 | ) | | (17 | ) | | (3 | ) | | (11 | ) | | (1 | ) |
Accumulated post-retirement benefit obligation at measurement date | $ | 813 |
| | $ | 189 |
| | $ | 342 |
| | $ | 184 |
| | $ | 156 |
| | $ | 30 |
| | $ | 78 |
| | $ | 32 |
|
Change in Fair Value of Plan Assets | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Plan assets at prior measurement date | $ | 244 |
| | $ | 137 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | 22 |
| | $ | 29 |
|
Actual return on plan assets | 25 |
| | 15 |
| | 1 |
| | — |
| | — |
| | 2 |
| | 1 |
| | 3 |
|
Benefits paid | (86 | ) | | (18 | ) | | (34 | ) | | (17 | ) | | (17 | ) | | (3 | ) | | (11 | ) | | (1 | ) |
Employer contributions (reimbursements) | 25 |
| | (4 | ) | | 26 |
| | 14 |
| | 14 |
| | — |
| | (3 | ) | | — |
|
Plan participants' contributions | 17 |
| | 3 |
| | 6 |
|
| 3 |
|
| 3 |
|
| 1 |
|
| 2 |
| | — |
|
Plan assets at measurement date | $ | 225 |
| | $ | 133 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | 11 |
| | $ | 31 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Change in Projected Benefit Obligation | | | | | | | | | | | | | |
Accumulated post-retirement benefit obligation at prior measurement date | $ | 828 |
| | $ | 200 |
| | $ | 354 |
| | $ | 188 |
| | $ | 164 |
| | $ | 35 |
| | $ | 87 |
|
Obligation assumed from acquisition | 39 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Service cost | 3 |
| | 1 |
| | 1 |
| | — |
| | 1 |
| | — |
| | — |
|
Interest cost | 35 |
| | 8 |
| | 15 |
| | 8 |
| | 7 |
| | 1 |
| | 4 |
|
Plan participants' contributions | 19 |
| | 3 |
| | 7 |
| | 4 |
| | 3 |
| | 1 |
| | 2 |
|
Actuarial (gains) losses | 33 |
| | 5 |
| | 16 |
| | 8 |
| | 8 |
| | — |
| | 3 |
|
Transfers | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Plan amendments | (1 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
|
Benefits paid | (88 | ) | | (17 | ) | | (36 | ) | | (17 | ) | | (19 | ) | | (4 | ) | | (13 | ) |
Accumulated post-retirement benefit obligation at measurement date | $ | 868 |
| | $ | 201 |
| | $ | 357 |
| | $ | 191 |
| | $ | 164 |
| | $ | 32 |
| | $ | 83 |
|
Change in Fair Value of Plan Assets | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Plan assets at prior measurement date | $ | 208 |
| | $ | 134 |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 8 |
| | $ | 19 |
|
Assets received from acquisition | 29 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Actual return on plan assets | 14 |
| | 8 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 2 |
|
Benefits paid | (88 | ) | | (17 | ) | | (36 | ) | | (17 | ) | | (19 | ) | | (4 | ) | | (13 | ) |
Employer contributions | 62 |
| | 9 |
| | 29 |
| | 13 |
| | 15 |
| | 1 |
| | 12 |
|
Plan participants' contributions | 19 |
| | 3 |
| | 7 |
| | 4 |
| | 3 |
| | 1 |
| | 2 |
|
Plan assets at measurement date | $ | 244 |
| | $ | 137 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | 22 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | |
| Piedmont |
| Two Months Ended | | Years Ended |
(in millions) | December 31, 2016 | | October 31, 2016 |
Change in Projected Benefit Obligation | | | |
Accumulated post-retirement benefit obligation at prior measurement date | $ | 39 |
| | $ | 38 |
|
Service cost | — |
| | 1 |
|
Interest cost | — |
| | 1 |
|
Actuarial gain | — |
| | 2 |
|
Benefits paid | — |
| | (3 | ) |
Accumulated post-retirement benefit obligation at measurement date | $ | 39 |
| | $ | 39 |
|
Change in Fair Value of Plan Assets | |
| | |
|
Plan assets at prior measurement date | $ | 29 |
| | $ | 28 |
|
Employer contributions | — |
| | 3 |
|
Actual return on plan assets | — |
| | 1 |
|
Benefits paid | — |
| | (3 | ) |
Plan assets at measurement date | $ | 29 |
| | $ | 29 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Amounts Recognized in the Consolidated Balance Sheets |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Current post-retirement liability(a) | $ | 36 |
| | $ | — |
| | $ | 29 |
| | $ | 15 |
| | $ | 14 |
| | $ | 2 |
| | $ | — |
| | $ | — |
|
Noncurrent post-retirement liability(b) | 552 |
| | 56 |
| | 313 |
| | 169 |
| | 142 |
| | 21 |
| | 67 |
| | 1 |
|
Total accrued post-retirement liability | $ | 588 |
| | $ | 56 |
| | $ | 342 |
| | $ | 184 |
| | $ | 156 |
| | $ | 23 |
| | $ | 67 |
| | $ | 1 |
|
Regulatory assets | $ | 125 |
| | $ | — |
| | $ | 129 |
| | $ | 80 |
| | $ | 49 |
| | $ | — |
| | $ | 46 |
| | $ | (4 | ) |
Regulatory liabilities | $ | 147 |
| | $ | 44 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 16 |
| | $ | 64 |
| | $ | — |
|
Accumulated other comprehensive (income) loss | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Deferred income tax expense | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Prior service credit | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net actuarial gain | (10 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net amounts recognized in accumulated other comprehensive income | $ | (8 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Amounts to be recognized in net periodic pension expense in the next year | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Unrecognized net actuarial loss | $ | 5 |
| | $ | 3 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Unrecognized prior service credit | (19 | ) | | (5 | ) | | (7 | ) | | (1 | ) | | (6 | ) | | (1 | ) | | (1 | ) | | (2 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Current post-retirement liability(a) | $ | 38 |
| | $ | — |
| | $ | 31 |
| | $ | 17 |
| | $ | 15 |
| | $ | 2 |
| | $ | — |
| | $ | — |
|
Noncurrent post-retirement liability(b) | 586 |
| | 64 |
| | 325 |
| | 174 |
| | 149 |
| | 23 |
| | 63 |
| | 10 |
|
Total accrued post-retirement liability | $ | 624 |
| | $ | 64 |
| | $ | 356 |
| | $ | 191 |
| | $ | 164 |
| | $ | 25 |
| | $ | 63 |
| | $ | 10 |
|
Regulatory assets | $ | 54 |
| | $ | — |
| | $ | 48 |
| | $ | 38 |
| | $ | 10 |
| | $ | — |
| | $ | 51 |
| | $ | 7 |
|
Regulatory liabilities | $ | 174 |
| | $ | 46 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 19 |
| | $ | 71 |
| | $ | — |
|
Accumulated other comprehensive (income) loss | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Deferred income tax expense | $ | 5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Prior service credit | (5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net actuarial gain | (10 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net amounts recognized in accumulated other comprehensive income | $ | (10 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Amounts to be recognized in net periodic pension expense in the next year | | | | | | | | | | | | | | | |
Unrecognized net actuarial loss (gain) | $ | 10 |
| | $ | (2 | ) | | $ | 21 |
| | $ | 12 |
| | $ | 9 |
| | $ | (2 | ) | | $ | (6 | ) | | $ | — |
|
Unrecognized prior service credit | (115 | ) | | (10 | ) | | (85 | ) | | (55 | ) | | (30 | ) | | — |
| | (1 | ) | | — |
|
| |
(a) | Included in Other within Current Liabilities on the Consolidated Balance Sheets. |
| |
(b) | Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Assumptions Used for Other Post-Retirement Benefits Accounting
The discount rate used to determine the current year other post-retirement benefits obligation and following year’s other post-retirement benefits expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected. The average remaining service period of active covered employees is nine years for Duke Energy, eight years for Duke Energy Carolinas, seven years for Duke Energy Florida, Duke Energy Ohio, and Piedmont, and six years for Progress Energy, Duke Energy Progress, and Duke Energy Indiana.
The following tables present the assumptions used for other post-retirement benefits accounting. |
| | | | | | | | | |
| | December 31, |
| | 2017 |
| | 2016 |
| | 2015 |
|
Benefit Obligations | | |
| | |
| | |
Discount rate | | 3.60 | % | | 4.10 | % | | 4.40 | % |
Net Periodic Benefit Cost | | |
| | |
| | |
Discount rate | | 4.10 | % | | 4.40 | % | | 4.10 | % |
Expected long-term rate of return on plan assets | | 6.50 | % | | 6.50 | % | | 6.50 | % |
Assumed tax rate | | 35 | % | | 35 | % | | 35 | % |
|
| | | | | | | | | |
| | Piedmont |
| | Two Months Ended | | Years Ended October 31, |
| | December 31, 2016 | | 2016 | | 2015 |
Benefit Obligations | | | | | | |
Discount rate | | 4.10 | % | | 3.80 | % | | 4.38 | % |
Net Periodic Benefit Cost | | | | |
| | |
|
Discount rate | | 3.80 | % | | 4.38 | % | | 4.03 | % |
Expected long-term rate of return on plan assets | | 6.75 | % | | 7.25 | % | | 7.50 | % |
Assumed Health Care Cost Trend Rate |
| | | | | |
| December 31, |
| 2017 |
| | 2016 |
|
Health care cost trend rate assumed for next year | 7.00 | % | | 7.00 | % |
Rate to which the cost trend is assumed to decline (the ultimate trend rate) | 4.75 | % | | 4.75 | % |
Year that rate reaches ultimate trend | 2024 |
| | 2023 |
|
Sensitivity to Changes in Assumed Health Care Cost Trend Rates |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
1-Percentage Point Increase | | | | | |
| | | |
Effect on total service and interest costs | $ | 1 |
| $ | — |
| $ | 1 |
| $ | 1 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Effect on post-retirement benefit obligation | 27 |
| 6 |
| 11 |
| 6 |
| 5 |
| 1 |
| 3 |
| 1 |
|
1-Percentage Point Decrease | | | | | | | | |
Effect on total service and interest costs | (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Effect on post-retirement benefit obligation | (24 | ) | (6 | ) | (10 | ) | (5 | ) | (5 | ) | (1 | ) | (2 | ) | (1 | ) |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Expected Benefit Payments |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Years ending December 31, | | | | | | |
| | |
2018 | $ | 78 |
| $ | 17 |
| $ | 30 |
| $ | 16 |
| $ | 14 |
| $ | 3 |
| $ | 9 |
| $ | 2 |
|
2019 | 76 |
| 17 |
| 29 |
| 15 |
| 14 |
| 3 |
| 9 |
| 2 |
|
2020 | 73 |
| 17 |
| 29 |
| 15 |
| 14 |
| 3 |
| 8 |
| 2 |
|
2021 | 71 |
| 17 |
| 28 |
| 15 |
| 13 |
| 3 |
| 7 |
| 3 |
|
2022 | 68 |
| 17 |
| 27 |
| 14 |
| 13 |
| 3 |
| 7 |
| 3 |
|
2023 – 2027 | 290 |
| 70 |
| 117 |
| 63 |
| 54 |
| 12 |
| 29 |
| 13 |
|
PLAN ASSETS
Description and Allocations
Duke Energy Master Retirement Trust
Assets for both the qualified pension and other post-retirement benefits are maintained in the Duke Energy Master Retirement Trust. Qualified pension and other post-retirement assets related to Piedmont were transferred into the Duke Energy Master Retirement Trust during 2017. Approximately 98 percent of the Duke Energy Master Retirement Trust assets were allocated to qualified pension plans and approximately 2 percent were allocated to other post-retirement plans (comprised of 401(h) accounts), as of December 31, 2017, and 2016. The investment objective of the Duke Energy Master Retirement Trust is to achieve reasonable returns, subject to a prudent level of portfolio risk, for the purpose of enhancing the security of benefits for plan participants.
As of December 31, 2017, Duke Energy assumes pension and other post-retirement plan assets will generate a long-term rate of return of 6.50 percent. The expected long-term rate of return was developed using a weighted average calculation of expected returns based primarily on future expected returns across asset classes considering the use of active asset managers, where applicable. The asset allocation targets were set after considering the investment objective and the risk profile. Equity securities are held for their higher expected returns. Debt securities are primarily held to hedge the qualified pension plan liability. Hedge funds, real estate and other global securities are held for diversification. Investments within asset classes are diversified to achieve broad market participation and reduce the impact of individual managers or investments.
In 2013, Duke Energy adopted a de-risking investment strategy for the Duke Energy Master Retirement Trust. As the funded status of the pension plans increase, the targeted allocation to fixed-income assets may be increased to better manage Duke Energy’s pension liability and reduce funded status volatility. Duke Energy regularly reviews its actual asset allocation and periodically rebalances its investments to the targeted allocation when considered appropriate.
The Duke Energy Master Retirement Trust is authorized to engage in the lending of certain plan assets. Securities lending is an investment management enhancement that utilizes certain existing securities of the Duke Energy Master Retirement Trust to earn additional income. Securities lending involves the loaning of securities to approved parties. In return for the loaned securities, the Duke Energy Master Retirement Trust receives collateral in the form of cash and securities as a safeguard against possible default of any borrower on the return of the loan under terms that permit the Duke Energy Master Retirement Trust to sell the securities. The Duke Energy Master Retirement Trust mitigates credit risk associated with securities lending arrangements by monitoring the fair value of the securities loaned, with additional collateral obtained or refunded as necessary. The fair value of securities on loan was approximately $195 million and $156 million at December 31, 2017, and 2016, respectively. Cash and securities obtained as collateral exceeded the fair value of the securities loaned at December 31, 2017, and 2016, respectively. Securities lending income earned by the Duke Energy Master Retirement Trust was immaterial for the years ended December 31, 2017, 2016 and 2015, respectively.
Qualified pension and other post-retirement benefits for the Subsidiary Registrants are derived from the Duke Energy Master Retirement Trust, as such, each are allocated their proportionate share of the assets discussed below.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The following table includes the target asset allocations by asset class at December 31, 2017, and the actual asset allocations for the Duke Energy Master Retirement Trust. |
| | | | | | | | |
| | | Actual Allocation at |
| Target |
| | December 31, |
| Allocation |
| | 2017 |
| | 2016(a) |
|
U.S. equity securities | 10 | % | | 11 | % | | 11 | % |
Non-U.S. equity securities | 8 | % | | 8 | % | | 8 | % |
Global equity securities | 10 | % | | 10 | % | | 10 | % |
Global private equity securities | 3 | % | | 2 | % | | 2 | % |
Debt securities | 63 | % | | 63 | % | | 63 | % |
Hedge funds | 2 | % | | 2 | % | | 2 | % |
Real estate and cash | 2 | % | | 2 | % | | 2 | % |
Other global securities | 2 | % | | 2 | % | | 2 | % |
Total | 100 | % | | 100 | % | | 100 | % |
| |
(a) | Excludes Piedmont Pension Assets, which had a targeted asset allocation of 60 percent return-seeking and 40 percent liability hedging fixed-income. Actual asset allocations were 61 percent return-seeking and 39 percent liability hedging fixed-income at December 31, 2016. |
Other post-retirement assets
Duke Energy's other post-retirement assets are comprised of Voluntary Employees' Beneficiary Association (VEBA) trusts and 401(h) accounts held within the Duke Energy Master Retirement Trust. Duke Energy's investment objective is to achieve sufficient returns, subject to a prudent level of portfolio risk, for the purpose of promoting the security of plan benefits for participants.
The following table presents target and actual asset allocations for the VEBA trusts at December 31, 2017. |
| | | | | | | | |
| | | Actual Allocation at |
| Target |
| | December 31, |
| Allocation |
| | 2017 |
| | 2016 |
|
U.S. equity securities | 32 | % | | 41 | % | | 39 | % |
Non-US equity securities | 6 | % | | 8 | % | | — | % |
Real estate | 2 | % | | 2 | % | | 2 | % |
Debt securities | 45 | % | | 36 | % | | 37 | % |
Cash | 15 | % | | 13 | % | | 22 | % |
Total | 100 | % | | 100 | % | | 100 | % |
Fair Value Measurements
Duke Energy classifies recurring and non-recurring fair value measurements based on the fair value hierarchy as discussed in Note 16.
Valuation methods of the primary fair value measurements disclosed below are as follows:
Investments in equity securities
Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the reporting period. Principal active markets for equity prices include published exchanges such as NASDAQ and NYSE. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. Prices have not been adjusted to reflect after-hours market activity. The majority of investments in equity securities are valued using Level 1 measurements. When the price of an institutional commingled fund is unpublished, it is not categorized in the fair value hierarchy, even though the funds are readily available at the fair value.
Investments in corporate debt securities and U.S. government securities
Most debt investments are valued based on a calculation using interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. Most debt valuations are Level 2 measurements. If the market for a particular fixed-income security is relatively inactive or illiquid, the measurement is Level 3. U.S. Treasury debt is typically Level 2.
Investments in short-term investment funds
Investments in short-term investment funds are valued at the net asset value of units held at year end and are readily redeemable at the measurement date. Investments in short-term investment funds with published prices are valued as Level 1. Investments in short-term investment funds with unpublished prices are valued as Level 2.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Investments in real estate limited partnerships
Investments in real estate limited partnerships are valued by the trustee at each valuation date (monthly). As part of the trustee’s valuation process, properties are externally appraised generally on an annual basis, conducted by reputable, independent appraisal firms, and signed by appraisers that are members of the Appraisal Institute, with the professional designation MAI. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three valuation techniques that can be used to value investments in real estate assets: the market, income or cost approach. The appropriateness of each valuation technique depends on the type of asset or business being valued. In addition, the trustee may cause additional appraisals to be performed as warranted by specific asset or market conditions. Property valuations and the salient valuation-sensitive assumptions of each direct investment property are reviewed by the trustee quarterly and values are adjusted if there has been a significant change in whichcircumstances related to the entity transacts. We classifyinvestment 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 balances based on the observanceincludes 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 inputs intonoted above used to determine the fair value hierarchy levels as set forthof 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 accounting guidancehierarchy.
Duke Energy Master Retirement Trust
The following tables provide the fair value measurement amounts for the Duke Energy Master Retirement Trust qualified pension and fully described in “Fair Value Measurements” in Note 1 to the consolidated financial statements.other post-retirement assets. |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| Total Fair |
| | | | | | | | Not |
|
(in millions) | Value |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Categorized(b) |
|
Equity securities | $ | 2,823 |
| | $ | 1,976 |
| | $ | — |
| | $ | — |
| | 847 |
|
Corporate debt securities | 4,694 |
| | — |
| | 4,694 |
| | — |
| | — |
|
Short-term investment funds | 246 |
| | 192 |
| | 54 |
| | — |
| | — |
|
Partnership interests | 137 |
| | — |
| | — |
| | — |
| | 137 |
|
Hedge funds | 226 |
| | — |
| | — |
| | — |
| | 226 |
|
Real estate limited partnerships | 135 |
| | — |
| | — |
| | — |
| | 135 |
|
U.S. government securities | 762 |
| | — |
| | 762 |
| | — |
| | — |
|
Guaranteed investment contracts | 28 |
| | — |
| | — |
| | 28 |
| | — |
|
Governments bonds – foreign | 38 |
| | — |
| | 38 |
| | — |
| | — |
|
Cash | 6 |
| | 6 |
| | — |
| | — |
| | — |
|
Government and commercial mortgage backed securities | 2 |
| | — |
| | 2 |
| | — |
| | — |
|
Net pending transactions and other investments | 17 |
| | 15 |
| | 2 |
| | — |
| | — |
|
Total assets(a) | $ | 9,114 |
| | $ | 2,189 |
| | $ | 5,552 |
| | $ | 28 |
|
| $ | 1,345 |
|
| |
(a) | Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana, and Piedmont were allocated approximately 27 percent, 30 percent, 15 percent, 15 percent, 5 percent, 8 percent, and 4 percent, respectively, of the Duke Energy Master Retirement Trust at December 31, 2017. Accordingly, all amounts included in the table above are allocable to the Subsidiary Registrants using these percentages. |
| |
(b) | Certain investments that are measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Total Fair |
| | | | | | | | Not |
|
(in millions) | Value |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Categorized(b) |
|
Equity securities | $ | 2,472 |
| | $ | 1,677 |
| | $ | 27 |
| | $ | 9 |
| | 759 |
|
Corporate debt securities | 4,330 |
| | 8 |
| | 4,322 |
| | — |
| | — |
|
Short-term investment funds | 476 |
| | 211 |
| | 265 |
| | — |
| | — |
|
Partnership interests | 157 |
| | — |
| | — |
| | — |
| | 157 |
|
Hedge funds | 232 |
| | — |
| | — |
| | — |
| | 232 |
|
Real estate limited partnerships | 144 |
| | 17 |
| | — |
| | — |
| | 127 |
|
U.S. government securities | 734 |
| | — |
| | 734 |
| | — |
| | — |
|
Guaranteed investment contracts | 29 |
| | — |
| | — |
| | 29 |
| | — |
|
Governments bonds – foreign | 32 |
| | — |
| | 32 |
| | — |
| | — |
|
Cash | 17 |
| | 15 |
| | 2 |
| | — |
| | — |
|
Net pending transactions and other investments | 32 |
| | 1 |
| | 6 |
| | — |
| | 25 |
|
Total assets(a) | $ | 8,655 |
| | $ | 1,929 |
| | $ | 5,388 |
| | $ | 38 |
| | $ | 1,300 |
|
| |
(a) | Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana were allocated approximately 27 percent, 30 percent, 15 percent, 15 percent, 5 percent and 8 percent, respectively, of the Duke Energy Master Retirement Trust and Piedmont's Pension assets at December 31, 2016. Accordingly, all amounts included in the table above are allocable to the Subsidiary Registrants using these percentages. |
| |
(b) | Certain investments that are measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy. |
The following table sets forth, by levelprovides a reconciliation of the fair value hierarchy, our financialbeginning and ending balances of Duke Energy Master Retirement Trust qualified pension and other post-retirement assets that were accounted forand Piedmont Pension Assets at fair value on a recurring basis aswhere the determination of October 31, 2015 and 2014. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input toincludes significant unobservable inputs (Level 3). |
| | | | | | | |
(in millions) | 2017 |
| | 2016 |
|
Balance at January 1 | $ | 38 |
| | $ | 31 |
|
Combination of Piedmont Pension Assets | — |
| | 9 |
|
Sales | (2 | ) | | (2 | ) |
Total gains (losses) and other, net | 1 |
| | — |
|
Transfer of Level 3 assets to other classifications | (9 | ) | | — |
|
Balance at December 31 | $ | 28 |
| | $ | 38 |
|
Other post-retirement assets
The following tables provide the fair value measurement requires judgmentamounts for VEBA trust assets. |
| | | | | | | |
| December 31, 2017 |
| Total Fair |
| | |
(in millions) | Value |
| | Level 2 |
|
Cash and cash equivalents | $ | 8 |
| | $ | 8 |
|
Real estate | 1 |
| | 1 |
|
Equity securities | 28 |
| | 28 |
|
Debt securities | 21 |
| | 21 |
|
Total assets | $ | 58 |
| | $ | 58 |
|
|
| | | | | | | |
| December 31, 2016 |
| Total Fair |
| | |
(in millions) | Value |
| | Level 2 |
|
Cash and cash equivalents | $ | 14 |
| | $ | 14 |
|
Real estate | 1 |
| | 1 |
|
Equity securities | 26 |
| | 26 |
|
Debt securities | 25 |
| | 25 |
|
Total assets | $ | 66 |
| | $ | 66 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
EMPLOYEE SAVINGS PLANS
Retirement Savings Plan
Duke Energy or its affiliates sponsor, and may affect the valuation of fair value assets and liabilities and their consideration within the fair value hierarchy levels. We have had no transfers between any level during the years ended October 31, 2015 and 2014. We present our derivative positions at fair value on a gross basis and have only asset positions forSubsidiary Registrants participate in, employee savings plans that cover substantially all periods presented for the fair value of purchased call options held for our utility operations. There are no derivative contractsU.S. employees. Most employees participate in a liability position,matching contribution formula where Duke Energy provides a matching contribution generally equal to 100 percent of employee before-tax and we have posted no cash collateral nor received any cash collateral under our master netting arrangements. Therefore, we have no offsetting disclosuresRoth 401(k) contributions of up to 6 percent of eligible pay per pay period (5 percent for financial assets or liabilities for our derivativesPiedmont employees). Dividends on Duke Energy shares held for utility operations. Our derivatives held for utility operations are held with one broker as our counterparty.
|
| | | | | | | | | | | | | | | | | | | | |
Recurring Fair Value Measurements as of October 31, 2015 |
| | | | | | | | | | |
| | | | Significant | | | | Effects of | | |
| | Quoted Prices | | Other | | Significant | | Netting and | | |
| | in Active | | Observable | | Unobservable | | Cash Collateral | | Total |
| | Markets | | Inputs | | Inputs | | Receivables/ | | Carrying |
In thousands | | (Level 1) | | (Level 2) | | (Level 3) | | Payables | | Value |
Assets: | | | | | | | | | | |
Derivatives held for distribution operations | | $ | 1,343 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,343 |
|
Debt and equity securities held as trading securities: | | | | | | | | | | |
Money markets | | 516 |
| | — |
| | — |
| | — |
| | 516 |
|
Mutual funds | | 4,386 |
| | — |
| | — |
| | — |
| | 4,386 |
|
Total fair value assets | | $ | 6,245 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 6,245 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Recurring Fair Value Measurements as of October 31, 2014 |
| | | | | | | | | | |
| | | | Significant | | | | Effects of | | |
| | Quoted Prices | | Other | | Significant | | Netting and | | |
| | in Active | | Observable | | Unobservable | | Cash Collateral | | Total |
| | Markets | | Inputs | | Inputs | | Receivables/ | | Carrying |
In thousands | | (Level 1) | | (Level 2) | | (Level 3) | | Payables | | Value |
Assets: | | | | | | | | | | |
Derivatives held for distribution operations | | $ | 4,898 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4,898 |
|
Debt and equity securities held as trading securities: | | | | | |
| | | | |
Money markets | | 469 |
| | — |
| | — |
| | — |
| | 469 |
|
Mutual funds | | 3,472 |
| | — |
| | — |
| | — |
| | 3,472 |
|
Total fair value assets | | $ | 8,839 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8,839 |
|
Our regulated utility segment derivative instruments are used in accordance with programs filed with or approved by the NCUC,savings plans are charged to retained earnings when declared and shares held in the PSCSCplans are considered outstanding in the calculation of basic and the TRAdiluted EPS.
As of January 1, 2014, for new and rehired non-union and certain unionized employees (excludes Piedmont employees until 2018 plan year, discussed below) who are not eligible to hedge the impactparticipate in Duke Energy’s defined benefit plans, an additional employer contribution of market fluctuations in natural gas prices. These derivative instruments are accounted for at fair value each reporting period. In accordance with regulatory requirements, the net gains and losses related4 percent of eligible pay per pay period, which is subject to these derivatives are reflected in purchased gas costs and ultimately passed through to customers through our PGA procedures. In accordance with accounting provisions for rate-regulated activities, the unrecovered amounts related to these instruments are reflected as a regulatory asset or liability, as appropriate, in “Amounts due from customers” or “Amounts due to customers” in Note 3three-year vesting schedule, is provided to the consolidated financial statements. These derivative instruments are exchange-traded derivative contracts. Exchange-traded contracts are generally based on unadjusted quoted prices in active markets and are classified within Level 1.employee’s savings plan account.
Trading securities include assets in rabbi trusts established for our deferred compensation plans and are included in “Marketable securities, at fair value” in “Noncurrent Assets” in the Consolidated Balance Sheets. Securities classified within Level 1 include funds held in money market and mutual funds which are highly liquid and are actively traded on the exchanges.
Our long-term debt is recorded at unamortized cost. In developing the fair value of our long-term debt, we use a discounted cash flow technique, consistently applied, that incorporates a developed discount rate using long-term debt similarly rated by credit rating agencies combined with the U.S. Treasury benchmark with consideration given to maturities, redemption terms and credit ratings. The principal and fair value of our long-term debt, which is classified within Level 2, are shown below.
|
| | | | | | | | |
In thousands | | Principal | | Fair Value |
As of October 31, 2015 | | $ | 1,575,000 |
| | $ | 1,720,586 |
|
As of October 31, 2014 | | 1,425,000 |
| | 1,617,453 |
|
Quantitative and Qualitative Disclosures
The costs of our financial price hedging options for natural gas and all other costs related to hedging activities of our regulated gas costs are recorded in accordance with our regulatory tariffs approved by our state regulatory commissions, and thus are not accounted for as designated hedging instruments under derivative accounting standards. As required by the accounting guidance, the fair value of our financial options is presented on a gross basis with only asset positions for all periods presented. There are no derivative contracts in a liability position, and we have posted no cash collateral nor received any cash collateral under our master netting arrangements; therefore, we have no offsetting disclosures for financial assets or liabilities for our financial option derivatives.
The following table presentsincludes pretax employer matching contributions made by Duke Energy and expensed by the fair value and balance sheet classification of our financial options for natural gas as of October 31, 2015 and 2014.
|
| | | | | | | | |
Fair Value of Derivative Instruments |
| | | | |
In thousands | | 2015 | | 2014 |
Derivatives Not Designated as Hedging Instruments under Derivative Accounting Standards: |
Asset Financial Instruments: | | | | |
Current Assets - Gas purchase derivative assets (December 2015 - October 2016) | | $ | 1,343 |
| | |
Current Assets - Gas purchase derivative assets (December 2014 - November 2015) | | | | $ | 4,898 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont(a) |
|
Years ended December 31, | | | | | | | | | | | | | | | |
2017 | $ | 179 |
| | $ | 61 |
| | $ | 53 |
| | $ | 37 |
| | $ | 16 |
| | $ | 3 |
| | $ | 9 |
| | $ | 7 |
|
2016 | 169 |
| | 57 |
| | 50 |
| | 35 |
| | 15 |
| | 3 |
| | 8 |
| | — |
|
2015 | 159 |
| | 54 |
| | 48 |
| | 34 |
| | 13 |
| | 3 |
| | 7 |
| | — |
|
We purchase natural gas for our regulated operations for resale under tariffs approved by state regulatory commissions. We recover the cost of gas purchased for regulated operations through PGA procedures. Our risk management policies allow us to use financial instruments to hedge commodity price risks, but not for speculative trading. The strategy and objective of our hedging programs are to use these financial instruments to reduce gas cost volatility for our customers. Accordingly, the operation of the hedging programs on the regulated utility segment as a result of the use of these financial derivatives is initially deferred as amounts due from customers included as “Regulatory Assets” or amounts due to customers included as “Regulatory Liabilities” as presented in Note 3 to the consolidated financial statements and recognized in the Consolidated Statements of Comprehensive Income as a component of “Cost of Gas” when the related costs are recovered through our rates.
The following table presents the impact that financial instruments not designated as hedging instruments under derivative accounting standards would have had on the Consolidated Statements of Comprehensive Income for the twelve months ended October 31, 2015 and 2014, absent the regulatory treatment under our approved PGA procedures.
|
| | | | | | | | | | | | | | | | | | |
| | Amount of | | Amount of | | Location of Gain (Loss) |
| | Gain (Loss) Recognized | | Gain (Loss) Deferred | | Recognized through |
| | on Derivative Instruments | | Under PGA Procedures | | PGA Procedures |
| | | | | | |
| | Twelve Months Ended | | Twelve Months Ended | | |
| | October 31 | | October 31 | | |
In thousands | | 2015 | | 2014 | | 2015 | | 2014 | | |
Gas purchase options | | $ | (4,423 | ) | | $ | 6,162 |
| | $ | (4,423 | ) | | $ | 6,162 |
| | Cost of Gas |
In Tennessee, the cost of gas purchase options and all other costs related to hedging activities up to 1% of total annual gas costs are approved for recovery under the terms and conditions of our TIP as approved by the TRA. In South Carolina, the costs of gas purchase options are subject to and are approved for recovery under the terms and conditions of our gas hedging plan as approved by the PSCSC. In North Carolina, the costs associated with our hedging program are treated as gas costs subject to an annual cost review proceeding by the NCUC.
Credit and Counterparty Risk
We are exposed to credit risk as a result of transactions for the purchase and sale of natural gas and related products and services and management agreements of our transportation capacity, storage capacity and supply contracts with major companies in the energy industry and within our utility operations serving industrial, commercial, power generation, residential and municipal energy consumers. These transactions have historically occurred in the gulf coast and mid-west regions of the United States, but our portfolio is being rebalanced and diversified by adding gas supply from northeastern United States gas supply basins. Credit risk associated with trade accounts receivable for the natural gas distribution segment is mitigated by the large number of individual customers and diversity in our customer base.
We enter into contracts with third parties to buy and sell natural gas. A significant portion of these transactions are with, or are associated with, energy producers, utility companies, off-system municipalities and natural gas marketers. The amount included in “Trade accounts receivable” in “Current Assets” in the Consolidated Balance Sheets attributable to these entities amounted to $2.9 | |
(a) | Piedmont's pretax employer matching contributions were $1 million, $7 million and $7 million or approximately 5% of our gross trade accounts receivable at October 31, 2015. Our policy requires counterparties to have an investment-grade credit rating at the time of the contract, or in situations where counterparties do not have investment-grade or functionally equivalent credit ratings, our policy requires credit enhancements that include letters of credit or parental guaranties. In either circumstance, our policy specifies limits on the contract amount and duration based on the counterparty’s credit rating and/or credit support. In order to minimize our exposure, we continually re-evaluate third-party creditworthiness and market conditions and modify our requirements accordingly.
We also enter into contracts with third parties to manage some of our supply and capacity assets for the purpose of maximizing their value. These arrangements include a counterparty credit evaluation according to our policy described above prior to contract execution and typically have durations of one year or less. In the event that a party is unable to perform under these arrangements, we have exposure to satisfy our underlying supply or demand contractual obligations that were incurred while under the management of this third party. We believe, based on our credit policies as of October 31, 2015, that our financial position, results of operations and cash flows will not be materially affected as a result of nonperformance by any single counterparty.
Natural gas distribution operating revenues and related trade accounts receivable are generated from state-regulated utility natural gas sales and transportation to over one million residential, commercial and industrial customers, including power generation and municipal customers, located in North Carolina, South Carolina and Tennessee. A change in economic conditions may affect the ability of customers to meet their obligations. We have mitigated our exposure to the risk of non-payment of utility bills by our customers. Gas costs related to uncollectible accounts are recovered through PGA procedures in all jurisdictions. To manage the non-gas cost customer credit risk, we evaluate credit quality and payment history and may require cash deposits from our high risk customers that do not satisfy our predetermined credit standards until a satisfactory payment history has been established. Significant increases in the price of natural gas and colder-than-normal weather can slow our collection efforts as customers experience increased difficulty in paying their gas bills, leading to higher than normal trade accounts receivable; however, we believe that our provision for possible losses on uncollectible trade accounts receivable is adequate for our credit loss exposure.
Risk Management
Our financial derivative instruments do not contain material credit-risk-related or other contingent features that could require us to make accelerated payments.
We seek to identify, assess, monitor and manage risk in accordance with defined policies and procedures under the direction of the Treasurer and Chief Risk Officer and our Enterprise Risk Management program, including our Energy Price Risk Management Committee. Risk management is guided by senior management with Board of Directors oversight, and senior management takes an active role in the development of policies and procedures.
9. Commitments and Contingent Liabilities
Leases
We lease certain buildings, land and equipment for use in our operations under noncancelable operating leases. We account for these leases by recognizing the future minimum lease payments as expense on a straight-line basis over the respective minimum lease terms under current accounting guidance.
Operating lease payments for the years ended October 31, 2015, 2014 and 2013 are as follows.
| | | | | | | | | | | | | | In thousands |
| 2015 | | 2014 | | 2013 | Operating lease payments (1) |
| $ | 5,024 |
| | $ | 4,701 |
| | $ | 4,729 |
|
(1) Operating lease payments do not include payments for common area maintenance, utilities or tax payments.
Future minimum lease obligations for the next five years ending October 31 and thereafter are as follows.
| | | | | In thousands | | 2016 | $ | 5,052 |
| 2017 | 4,706 |
| 2018 | 4,609 |
| 2019 | 4,433 |
| 2020 | 4,477 |
| Thereafter | 24,413 |
| Total | $ | 47,690 |
|
Long-term contracts
We routinely enter into long-term gas supply commodity and capacity commitments and other agreements that commit future cash flows to acquire services we need in our business. These commitments include pipeline and storage capacity contracts and gas supply contracts to provide service to our customers and telecommunication and information technology contracts and other purchase obligations. Costs arising from the gas supply commodity and capacity commitments, while significant, are pass-through costs to our customers and are generally fully recoverable through our PGA procedures and prudence reviews in North Carolina and South Carolina and under the TIP in Tennessee. The time periods for fixed payments under pipeline and storage capacity contracts are up to twenty years. The time periods for fixed payments under gas supply contracts are up to two years. The time period for the gas supply purchase commitments is up to fifteen years. The time periods for the telecommunications and technology outsourcing contracts, maintenance fees for hardware and software applications, usage fees, local and long-distance costs and wireless service are up to five years. Other purchase obligations consist primarily of commitments for pipeline products, equipment and contractors.
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 our right to access the natural gas storage or the 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 Comprehensive Income as part of gas purchases and included in “Cost of Gas.”
As of October 31, 2015, future unconditional purchase obligations for the next five years ending October 31 and thereafter are as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Pipeline | | Gas Supply | | Gas Supply | | Telecommunications | | | | | | | and Storage | | Reservation | | Purchase | | and Information | | | | | In thousands | | Capacity | | Fees | | Commitments | | Technology | | Other | | Total | 2016 | | $ | 178,594 |
| | $ | 4,577 |
| | $ | 65,286 |
| | $ | 6,164 |
| | $ | 45,577 |
| | $ | 300,198 |
| 2017 | | 163,806 |
| | 165 |
| | 89,784 |
| | 1,639 |
| | — |
| | 255,394 |
| 2018 | | 143,728 |
| | — |
| | 69,569 |
| | 669 |
| | — |
| | 213,966 |
| 2019 | | 132,259 |
| | — |
| | 69,569 |
| | 610 |
| | — |
| | 202,438 |
| 2020 | | 114,400 |
| | — |
| | 69,759 |
| | — |
| | — |
| | 184,159 |
| Thereafter | | 516,333 |
| | — |
| | 707,698 |
| | — |
| | — |
| | 1,224,031 |
| Total | | $ | 1,249,120 |
| | $ | 4,742 |
| | $ | 1,071,665 |
| | $ | 9,082 |
| | $ | 45,577 |
| | $ | 2,380,186 |
|
Legal
We have only routine litigation in the normal course of business. We do not expect any of these routine litigation matters to have a material effect, either individually or in the aggregate, on our financial position, results of operations or cash flows.
Letters of Credit
We use letters of credit to guarantee claims from self-insurance under our general and automobile liability policies. We had $1.6 million in letters of credit that were issued and outstanding at October 31, 2015. Additional information concerning letters of credit is included in Note 6 to the consolidated financial statements.
Surety Bonds
In the normal course of business, we are occasionally required to provide financial commitments in the form of surety bonds to third parties as a guarantee of our performance on commercial obligations. We have agreements that indemnify certain issuers of surety bonds against losses that they may incur as a result of executing surety bonds on our behalf. If we were to fail to perform according to the terms of the underlying contract, any draws upon surety bonds issued on our behalf would then trigger our payment obligation to the surety bond issuer. As of October 31, 2015, we had open surety bonds with a total contingent obligation of $6.6 million.
Environmental Matters
Our three regulatory commissions have authorized us to utilize deferral accounting in connection with costs for environmental assessments and cleanups. Accordingly, we have established regulatory assets for actual environmental costs incurred and have recorded estimated environmental liabilities, including those for our manufactured gas plant (MGP) sites, LNG facilities and underground storage tanks (USTs).
In 1997, we entered into a settlement with a third-party with respect to nine MGP sites that we have owned, leased or operated that released us from any investigation and remediation liability. Although no such claims are pending or, to our knowledge, threatened, the settlement did not cover any third-party claims for personal injury, death, property damage and diminution of property value or natural resources.
In connection with our 2003 North Carolina Natural Gas Corporation (NCNG) acquisition, several MGP sites owned by NCNG were transferred to a wholly-owned subsidiary of Progress Energy, Inc. (Progress), now a subsidiary of Duke Energy, prior to closing. Progress has complete responsibility for performing all of NCNG’s remediation obligations to conduct testing and clean-up at these sites, including both the costs of such testing and clean-up and the implementation of any affirmative remediation obligations that NCNG has related to the sites. Progress’ responsibility does not include any third-party claims for personal injury, death, property damage, and diminution of property value or natural resources. We know of no such pending or threatened claims.
As of October 31, 2015, our estimated undiscounted environmental liability totaled $1.2 million, and consisted of $1.1 million for MGP sites for which we retain responsibility and $.1 million for the Huntersville LNG facility. The costs we reasonable expect to incur are estimated using assumptions based on actual costs incurred, the timing of future payments and inflation factors, among others. We have incurred $2.2 million of remediation costs related to our MGP sites and $4.8 million related to our Huntersville LNG facility.
We continue to expand our sampling of our pipelines for coatings containing asbestos. Additionally, we continue to educate our employees on the hazards of asbestos and implemented procedures for removing these coatings from our pipelines when we must excavate and expose portions of the pipeline.
As of October 31, 2015, our regulatory assets for unamortized environmental costs in our three-state territory totaled $6.6 million. We received approval from the TRA to recover $2 million of our deferred Tennessee environmental costs over an eight-year period beginning March 2012, pursuant to the 2012 general rate case proceeding in Tennessee. We will seek recovery of the remaining Tennessee balance in future rate proceedings. The approval by the NCUC in December 2013 of the settlement of the general rate proceeding allowed recovery of $6.3 million of our deferred North Carolina environmental costs over a five-year period beginning January 2014. We received approval from the PSCSC to recover $.1 million of our deferred South Carolina environmental costs over a one-year period beginning November 2014, pursuant to the annual rate stabilization order issued in October 2014.
Further evaluation of the MGP, LNG and UST sites could significantly affect recorded amounts; however, we believe that the ultimate resolution of these matters will not have a material effect on our financial position, results of operations or cash flows.
10. Employee Benefit Plans
Under accounting guidance, we are required to recognize all obligations related to defined benefit pension and other postretirement employee benefits (OPEB) plans and quantify the plans’ funded status as an asset or liability on the Consolidated Balance Sheets. In accordance with accounting guidance, we measure the plans’ assets and obligations that determine our funded status as of the end of our fiscal year, October 31. We are required to recognize as a component of OCI the changes in the funded status that occurred during the year that are not recognized as part of net periodic benefit cost; however, in 2006, we obtained regulatory treatment from the NCUC, the PSCSC and the TRA to record the amount that would have been recorded in accumulated OCI as a regulatory asset or liability as the future recovery of pension and OPEB costs is probable. To date, our regulators have allowed future recovery of our pension and OPEB costs. For the impact of this regulatory treatment, see the following table of actuarial plan information that specifies the amounts not yet recognized as a component of cost and recognized as a regulatory asset or liability. Our plans’ assets are required to be accounted for at fair value.
Pension Benefits
We have a noncontributory, tax-qualified defined benefit pension plan (qualified pension plan) for our eligible employees. A defined benefit plan specifies the amount of benefit that an eligible participant eventually will receive upon retirement using information about that participant. An employee became eligible on the January 1 or July 1 following either the date on which he or she attained age 30 or attained age 21 and completed 1,000 hours of service during the 12-month period commencing on the employment date. Plan benefits are generally based on credited years of service and the level of compensation during the five consecutive years of the last ten years prior to retirement or termination during which the participant received the highest compensation. Our policy is to fund the plan in an amount not in excess of the amount that is deductible for income tax purposes. The qualified pension plan is closed to employees hired after December 31, 2007. Employees hired prior to January 1, 2008 continue to participate in the qualified pension plan. Employees are vested after five years of service and can be credited with up to a total of 35 years of service. When a vested employee leaves the company, his benefit payment will be calculated as the greater of the accrued benefit as of December 31, 2007 under a specific formula plus the accrued benefit calculated under a second formula for years of service after December 31, 2007, or the benefit for all years of service up to 35 years under the second formula.
The investment objectives of the qualified pension plan are oriented to meet both the current ongoing and future commitments to the participants and designed to grow at an acceptable rate of return for the risks permitted under the investment policy guidelines. Assets are structured to provide for both short-term and long-term needs and to meet the objectives of the qualified pension plan as specified by the Benefits Committee of the Board of Directors.
Our primary investment objective of the qualified pension plan is to generate sufficient assets to meet plan liabilities. The plan’s assets will therefore be invested to maximize long-term returns in a manner that is consistent with the plan’s liabilities, cash flow requirements and risk tolerance. The plan’s liabilities are defined in terms of participant salaries. Given the nature of these liabilities and recognizing the long-term benefits of investing in return-generating assets, the qualified pension plan seeks to invest in a diversified portfolio to:
Achieve full funding over the longer term, and
•Control year-to-year fluctuations in pension expense that is created by asset and liability volatility.
We consider the historical long-term return experience of our assets, the current and targeted allocation of our plan assets and the expected long-term rates of return. Investment advisors assist us in deriving expected long-term rates of return. These rates are generally based on a 20-year horizon for various asset classes, our expected investments of plan assets and active asset management instead of a passive investment strategy of an index fund.
The investment philosophy of the qualified pension plan is to maintain a balanced portfolio which is diversified across asset classes. The portfolio is primarily composed of equity and fixed income investments in order to provide diversification as to issuers, economic sectors, markets and investment instruments. Risk and quality are viewed in the context of the diversification requirements of the aggregate portfolio. We measure and monitor investment risk on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset/liability studies. We do not have a concentration of assets in a single entity, industry, country, commodity or class of investment fund.
The qualified pension plan maintains the following types of investments:
Fixed income securities: includes U.S. treasuries, corporate bonds, high yield debt (bank loans), asset-backed securities and derivatives. The derivatives in the fixed income portfolio are fully collateralized. The investment guidelines limit liabilities created with derivatives in the fixed income portfolio to cash equivalents plus 10% of the portfolio’s market value. The aggregate risk exposure of the plan can be no greater than that which could be achieved without using derivatives.
Equity securities: includes large cap growth, large cap value and small cap domestic equity securities, as well as international equity.
Real estate: includes a diversified global real estate investment trust fund.
Other investments: includes commodities, hedge funds and private equity funds that follow several diversified strategies.
The target and actual allocations of the qualified pension plan's assets are as follows:
| | | | | | | | | | | | | Target | | Assets at October 31 | Asset Allocations | | Allocation | | 2015 | | 2014 | Fixed income securities | | 45 | % | | 46 | % | | 45 | % | Equity securities | | 35 | % | | 34 | % | | 31 | % | Real estate | | 5 | % | | 5 | % | | 5 | % | Cash and cash equivalents | | — | % | | 1 | % | | 8 | % | Other investments | | 15 | % | | 14 | % | | 11 | % | Total | | 100 | % | | 100 | % | | 100 | % |
Employees hired or rehired after December 31, 2007 cannot participate in the qualified pension plan but are participants in the two months ended December 31, 2016 and for the years ended October 31, 2016 and 2015, respectively.
|
Money Purchase Pension (MPP)Plan
Piedmont sponsors the MPP plan, which is a defined contribution pension plan that allows the employeeemployees to direct the investments and assume the risk of investment returns. A defined contribution plan specifies the amount of the employer’s annual contribution to individual participant accounts established for the retirement benefit. Eligible employees who have completed 30 days of continuous service and have attained age 18 are eligible to participate. Under the MPP plan, wePiedmont annually depositdeposits a percentage of each participant’s pay into an account of the MPP plan. This contribution equals 4%4 percent of the participant’s eligible compensation plus an additional 4%4 percent of eligible compensation above the social securitySocial Security wage base up to the Internal Revenue Service (IRS)IRS compensation limit. The participant is vested in thisMPP plan after three years of service. DuringNo contributions were made to the MPP plan during the two months ended December 31, 2016. Piedmont contributed $2 million to the MPP plan during each of the years ended December 31, 2017, October 31, 2016 and 2015. Effective December 31, 2017, the MPP Plan was merged into the Retirement Savings Plan and the money purchase plan formula was discontinued. Beginning with the 2018 plan year, the former MPP Plan participants are eligible to receive the additional employer contribution under the Retirement Savings Plan, discussed above.
22. INCOME TAXES
Tax Act
On December 22, 2017, President Trump signed the Tax Act into law. Among other provisions, the Tax Act lowers the corporate federal income tax rate from 35 percent to 21 percent and eliminates bonus depreciation for regulated utilities, effective January 1, 2018. The Tax Act also could be amended or subject to technical correction, which could change the financial impacts that were recorded at December 31, 2017, or are expected to be recorded in future periods. The FERC and state utility commissions will determine the regulatory treatment of the impacts of the Tax Act for the Subsidiary Registrants. The Duke Energy Registrants’ future results of operations, financial condition and cash flows could be adversely impacted by the Tax Act, subsequent amendments or corrections or the actions of the FERC, state utility commissions or credit rating agencies related to the Tax Act. Duke Energy is reviewing orders to address the rate treatment of the Tax Act by each state utility commission in which the Subsidiary Registrants operate. See Note 4 for additional information. Beginning in January 2018, the Subsidiary Registrants will defer the estimated ongoing impacts of the Tax Act that are expected to be returned to customers.
As a result of the Tax Act, Duke Energy revalued its existing deferred tax assets and deferred tax liabilities as of December 31, 2017, to account for the estimated future impact of lower corporate tax rates on these deferred tax amounts. For Duke Energy's regulated operations, where the reduction in the net accumulated deferred income tax (ADIT) liability is expected to be returned to customers in future rates, the net remeasurement has been deferred as a regulatory liability. The regulatory liability for income taxes includes the effect of the reduction of the net deferred tax liability including the tax gross-up of the excess accumulated deferred tax liabilities and the effect of the new tax rate on the previous regulatory asset for income taxes. Excess accumulated deferred income taxes are generally classified as either “protected” or “unprotected” under IRS rules. Protected excess ADIT, resulting from accumulated tax depreciation of public utility property, are required to utilize the average rate assumption method under the IRS normalization rules for determining the timing of the return to customers. The majority of the excess ADIT is related to protected amounts associated with public utility property. See Note 4 for additional information on the Tax Act's impact to the regulatory asset and liability accounts.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which provides guidance on accounting for the Tax Act’s impact. SAB 118 provides a measurement period, which in no case should extend beyond one year from the Tax Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Act under ASC Topic 740. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Act in the reporting period in which the accounting under ASC Topic 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, a company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the first reporting period in which a reasonable estimate can be determined.
Duke Energy recorded a provisional net tax benefit of $112 million related to the Tax Act in the period ending December 31, 2017. This net benefit primarily consists of a net benefit of $534 million due to the remeasurement of deferred tax accounts to reflect the corporate rate reduction impact to net deferred tax balances, a net expense for the establishment of a valuation allowance related to foreign tax credits of $406 million and a transition tax on previously untaxed earnings and profits on foreign subsidiaries of $10 million. The majority of Duke Energy’s operations are regulated and it is expected that the Subsidiary Registrants will ultimately pass on the savings associated with the amount representing the remeasurement of deferred tax balances related to regulated operations to customers. Duke Energy recorded a regulatory liability of $8,313 million, representing the revaluation of those deferred tax balances. The Subsidiary Registrants continue to respond to requests from regulators in various jurisdictions to determine the timing and magnitude of savings they will pass on to customers.
The net provisional charge from deferred tax remeasurement and assessment of valuation allowance is based on currently available information and interpretations which are continuing to evolve. Duke Energy continues to analyze additional information and guidance related to certain aspects of the Tax Act, such as limitations on the deductibility of interest and executive compensation, conformity or decoupling by state legislatures in response to the Tax Act, and the final determination of the net deferred tax liabilities subject to the remeasurement. The prospects of supplemental legislation or regulatory processes to address questions that arise because of the Tax Act, or evolving technical interpretations of the tax law, may also cause the final impact from the Tax Act to differ from the estimated amounts. Duke Energy continues to appropriately refine such amounts within the measurement period allowed by SAB 118, which will be completed no later than the fourth quarter of 2018.
Income Tax Expense
Components of Income Tax Expense |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Current income taxes | | | | | | | | |
Federal | $ | (247 | ) | $ | 221 |
| $ | (436 | ) | $ | (95 | ) | $ | (188 | ) | $ | (37 | ) | $ | 128 |
| $ | (90 | ) |
State | 4 |
| 20 |
| (5 | ) | 2 |
| (11 | ) | 2 |
| 21 |
| (3 | ) |
Foreign | 3 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Total current income taxes | (240 | ) | 241 |
| (441 | ) | (93 | ) | (199 | ) | (35 | ) | 149 |
| (93 | ) |
Deferred income taxes | | | | | | | | |
Federal | 1,344 |
| 381 |
| 664 |
| 378 |
| 194 |
| 99 |
| 138 |
| 147 |
|
State | 102 |
| 35 |
| 44 |
| 10 |
| 51 |
| (4 | ) | 14 |
| 8 |
|
Total deferred income taxes(a) (b) | 1,446 |
| 416 |
| 708 |
| 388 |
| 245 |
| 95 |
| 152 |
| 155 |
|
Investment tax credit amortization | (10 | ) | (5 | ) | (3 | ) | (3 | ) | — |
| (1 | ) | — |
| — |
|
Income tax expense from continuing operations | 1,196 |
| 652 |
| 264 |
| 292 |
| 46 |
| 59 |
| 301 |
| 62 |
|
Tax benefit from discontinued operations | (6 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Total income tax expense included in Consolidated Statements of Operations | $ | 1,190 |
| $ | 652 |
| $ | 264 |
| $ | 292 |
| $ | 46 |
| $ | 59 |
| $ | 301 |
| $ | 62 |
|
| |
(a) | Includes utilization of NOL (Net operating loss) carryforwards and tax credit carryforwards of $428 million at Duke Energy, $74 million at Progress Energy, $36 million at Duke Energy Florida, $17 million at Duke Energy Ohio, $42 million at Duke Energy Indiana and $79 million at Piedmont. In addition the total deferred income taxes Includes benefits of NOL carryforwards and tax credit carryforwards of $10 million at Duke Energy Carolinas and $1 million at Duke Energy Progress. |
| |
(b) | As a result of the Tax Act, Duke Energy's deferred tax assets and liabilities were revalued as of December 31, 2017. See the Statutory Rate Reconciliation section below for additional information on the Tax Act's impact on income tax expense. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
Current income taxes | | | | | | | |
Federal | $ | — |
| $ | 139 |
| $ | 15 |
| $ | (59 | ) | $ | 76 |
| $ | (7 | ) | $ | 7 |
|
State | (15 | ) | 25 |
| (19 | ) | (25 | ) | 22 |
| (13 | ) | 6 |
|
Foreign | 2 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Total current income taxes | (13 | ) | 164 |
| (4 | ) | (84 | ) | 98 |
| (20 | ) | 13 |
|
Deferred income taxes | | | | | | | |
Federal | 1,064 |
| 430 |
| 486 |
| 350 |
| 199 |
| 88 |
| 202 |
|
State | 117 |
| 45 |
| 50 |
| 40 |
| 25 |
| 11 |
| 11 |
|
Total deferred income taxes(a) | 1,181 |
| 475 |
| 536 |
| 390 |
| 224 |
| 99 |
| 213 |
|
Investment tax credit amortization | (12 | ) | (5 | ) | (5 | ) | (5 | ) | — |
| (1 | ) | (1 | ) |
Income tax expense from continuing operations | 1,156 |
| 634 |
| 527 |
| 301 |
| 322 |
| 78 |
| 225 |
|
Tax (benefit) expense from discontinued operations | (30 | ) | — |
| 1 |
| — |
| — |
| (36 | ) | — |
|
Total income tax expense included in Consolidated Statements of Operations | $ | 1,126 |
| $ | 634 |
| $ | 528 |
| $ | 301 |
| $ | 322 |
| $ | 42 |
| $ | 225 |
|
| |
(a) | Includes benefits of NOL carryforwards and utilization of NOL and tax credit carryforwards of $648 million at Duke Energy, $4 million at Duke Energy Carolinas, $190 million at Progress Energy, $60 million at Duke Energy Progress, $49 million at Duke Energy Florida, $26 million at Duke Energy Ohio and $58 million at Duke Energy Indiana. |
|
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2015 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
Current income taxes | | | | | | | |
Federal | $ | — |
| $ | 216 |
| $ | (193 | ) | $ | (56 | ) | $ | 1 |
| $ | (18 | ) | $ | (86 | ) |
State | (12 | ) | 14 |
| 1 |
| (4 | ) | (7 | ) | (1 | ) | (12 | ) |
Foreign | 4 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Total current income taxes | (8 | ) | 230 |
| (192 | ) | (60 | ) | (6 | ) | (19 | ) | (98 | ) |
Deferred income taxes | | | | | | | |
Federal | 1,097 |
| 345 |
| 694 |
| 334 |
| 290 |
| 96 |
| 245 |
|
State | 181 |
| 57 |
| 27 |
| 27 |
| 58 |
| 5 |
| 17 |
|
Total deferred income taxes(a) | 1,278 |
| 402 |
| 721 |
| 361 |
| 348 |
| 101 |
| 262 |
|
Investment tax credit amortization | (14 | ) | (5 | ) | (7 | ) | (7 | ) | — |
| (1 | ) | (1 | ) |
Income tax expense from continuing operations | 1,256 |
| 627 |
| 522 |
| 294 |
| 342 |
| 81 |
| 163 |
|
Tax expense (benefit) from discontinued operations | 89 |
| — |
| (1 | ) | — |
| — |
| 22 |
| — |
|
Total income tax expense included in Consolidated Statements of Operations | $ | 1,345 |
| $ | 627 |
| $ | 521 |
| $ | 294 |
| $ | 342 |
| $ | 103 |
| $ | 163 |
|
| |
(a) | Includes utilization of NOL carryforwards and tax credit carryforwards of $264 million at Duke Energy, $15 million at Duke Energy Carolinas, $119 million at Progress Energy, $21 million at Duke Energy Progress, $84 million at Duke Energy Florida, $3 million at Duke Energy Ohio and $45 million at Duke Energy Indiana. |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | |
| Piedmont |
| Two Months Ended |
| Years Ended October 31, |
(in millions) | December 31, 2016 | 2016 | 2015 |
Current income taxes | | | |
Federal | $ | 4 |
| $ | 27 |
| $ | (1 | ) |
State | (2 | ) | 12 |
| 1 |
|
Total current income taxes | 2 |
| 39 |
| — |
|
Deferred income taxes | | | |
Federal | 24 |
| 79 |
| 78 |
|
State | 6 |
| 6 |
| 12 |
|
Total deferred income taxes(a)(b) | 30 |
| 85 |
| 90 |
|
Total income tax expense from continuing operations included in Consolidated Statements of Operations | $ | 32 |
| $ | 124 |
| $ | 90 |
|
| |
(a) | Includes benefits of NOL and tax carryforwards of $17 million and $91 million for the two months ended December 31, 2016, and the year ended October 31, 2016, respectively. |
| |
(b) | Includes benefits and utilization of NOL carryforwards of $46 million for the year ended October 31, 2015. |
Duke Energy Income from Continuing Operations before Income Taxes |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2017 | | 2016 | | 2015 |
Domestic(a) | $ | 4,207 |
| | $ | 3,689 |
| | $ | 3,831 |
|
Foreign | 59 |
| | 45 |
| | 79 |
|
Income from continuing operations before income taxes | $ | 4,266 |
| | $ | 3,734 |
| | $ | 3,910 |
|
| |
(a) | Includes a $16 million expense in 2017 related to the Tax Act impact on equity earnings included within Equity in earnings (losses) of unconsolidated affiliates on the Consolidated Statement of Operations. |
Taxes on Foreign Earnings
In February 2016, Duke Energy announced it had initiated a process to divest the International Disposal Group and, accordingly, no longer intended to indefinitely reinvest post-2014 undistributed foreign earnings. This change in the company's intent, combined with the extension of bonus depreciation by Congress in late 2015, allowed Duke Energy to more efficiently utilize foreign tax credits and reduce U.S. deferred tax liabilities associated with the historical unremitted foreign earnings by approximately $95 million during the year ended OctoberDecember 31, 2015, 2014 and 2013 we contributed $1.4 million, $.9 million and $.7 million, respectively,2016.
Due to the MPP plan.classification of the International Disposal Group as discontinued operations beginning in the fourth quarter of 2016, income tax amounts related to the International Disposal Group's foreign earnings are presented within (Loss) Income From Discontinued Operations, net of tax on the Consolidated Statements of Operations. In December 2016, Duke Energy closed on the sale of the International Disposal Group in two separate transactions to execute the divestiture. See Note 2 for additional information on the sale.
Statutory Rate Reconciliation
The following tables present a reconciliation of income tax expense at the U.S. federal statutory tax rate to the actual tax expense from continuing operations. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Income tax expense, computed at the statutory rate of 35 percent | $ | 1,493 |
| $ | 653 |
| $ | 536 |
| $ | 353 |
| $ | 265 |
| $ | 88 |
| $ | 229 |
| $ | 70 |
|
State income tax, net of federal income tax effect | 69 |
| 36 |
| 25 |
| 8 |
| 26 |
| (1 | ) | 23 |
| 3 |
|
AFUDC equity income | (81 | ) | (37 | ) | (32 | ) | (17 | ) | (16 | ) | (4 | ) | (8 | ) | — |
|
Renewable energy production tax credits | (132 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Tax Act(a) | (112 | ) | 15 |
| (246 | ) | (40 | ) | (226 | ) | (23 | ) | 55 |
| (12 | ) |
Tax true-up | (52 | ) | (24 | ) | (19 | ) | (13 | ) | (7 | ) | (5 | ) | (6 | ) | — |
|
Other items, net | 11 |
| 9 |
| — |
| 1 |
| 4 |
| 4 |
| 8 |
| 1 |
|
Income tax expense from continuing operations | $ | 1,196 |
| $ | 652 |
| $ | 264 |
| $ | 292 |
| $ | 46 |
| $ | 59 |
| $ | 301 |
| $ | 62 |
|
Effective tax rate | 28.0 | % | 34.9 | % | 17.2 | % | 29.0 | % | 6.1 | % | 23.4 | % | 46.0 | % | 30.8 | % |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
| |
(a) | Amounts primarily include but are not limited to items that are excluded for ratemaking purposes related to abandoned or impaired assets, certain wholesale fixed rate contracts, remeasurement of nonregulated net deferred tax liabilities, Federal net operating losses, and valuation allowance on foreign tax credits. |
|
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
Income tax expense, computed at the statutory rate of 35 percent | $ | 1,307 |
| $ | 630 |
| $ | 548 |
| $ | 315 |
| $ | 306 |
| $ | 95 |
| $ | 212 |
|
State income tax, net of federal income tax effect | 64 |
| 46 |
| 20 |
| 10 |
| 30 |
| (2 | ) | 11 |
|
AFUDC equity income | (70 | ) | (36 | ) | (26 | ) | (17 | ) | (9 | ) | (2 | ) | (6 | ) |
Renewable energy production tax credits | (97 | ) | — |
| — |
| — |
| — |
| — |
| — |
|
Audit adjustment | 5 |
| 3 |
| — |
| — |
| — |
| — |
| — |
|
Tax true-up | (14 | ) | (14 | ) | (11 | ) | (3 | ) | (9 | ) | (16 | ) | 2 |
|
Other items, net | (39 | ) | 5 |
| (4 | ) | (4 | ) | 4 |
| 3 |
| 6 |
|
Income tax expense from continuing operations | $ | 1,156 |
| $ | 634 |
| $ | 527 |
| $ | 301 |
| $ | 322 |
| $ | 78 |
| $ | 225 |
|
Effective tax rate | 31.0 | % | 35.2 | % | 33.7 | % | 33.4 | % | 36.9 | % | 28.9 | % | 37.1 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2015 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
Income tax expense, computed at the statutory rate of 35 percent | $ | 1,369 |
| $ | 598 |
| $ | 555 |
| $ | 302 |
| $ | 330 |
| $ | 81 |
| $ | 168 |
|
State income tax, net of federal income tax effect | 109 |
| 46 |
| 18 |
| 15 |
| 33 |
| 2 |
| 2 |
|
AFUDC equity income | (58 | ) | (34 | ) | (19 | ) | (17 | ) | (3 | ) | (1 | ) | (4 | ) |
Renewable energy production tax credits | (72 | ) | — |
| (1 | ) | — |
| — |
| — |
| — |
|
Audit adjustment | (22 | ) | — |
| (23 | ) | 1 |
| (24 | ) | — |
| — |
|
Tax true-up | 2 |
| 2 |
| (3 | ) | (4 | ) | 2 |
| (5 | ) | (9 | ) |
Other items, net | (72 | ) | 15 |
| (5 | ) | (3 | ) | 4 |
| 4 |
| 6 |
|
Income tax expense from continuing operations | $ | 1,256 |
| $ | 627 |
| $ | 522 |
| $ | 294 |
| $ | 342 |
| $ | 81 |
| $ | 163 |
|
Effective tax rate | 32.1 | % | 36.7 | % | 32.9 | % | 34.2 | % | 36.3 | % | 35.2 | % | 34.0 | % |
|
| | | | | | | | | |
| Piedmont |
| Two Months Ended |
| Years Ended October 31, |
(in millions) | December 31, 2016 | 2016 | 2015 |
Income tax expense, computed at the statutory rate of 35 percent | $ | 30 |
| $ | 111 |
| $ | 79 |
|
State income tax, net of federal income tax effect | 1 |
| 11 |
| 9 |
|
Other items, net | 1 |
| 2 |
| 2 |
|
Income tax expense from continuing operations | $ | 32 |
| $ | 124 |
| $ | 90 |
|
Effective tax rate | 37.2 | % | 39.1 | % | 39.7 | % |
Valuation allowances have been established for certain state NOL carryforwards and state income tax credits that reduce deferred tax assets to an amount that will be realized on a more-likely-than-not basis. The net change in the total valuation allowance is included in the State income tax, net of federal income tax effect in the above tables.
We provide certain postretirement health care and life insurance benefits to eligible retirees. The liability associated with such benefits is funded in irrevocable trust funds that can only be used to pay the benefits. Employees are first eligible to retire and receive these benefits at age 55 with ten or more years of service after the age of 45. Employees who met this requirement in 1993 or who retired prior to 1993 are in248
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
DEFERRED TAXES
Net Deferred Income Tax Liability Components |
| | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Deferred credits and other liabilities | $ | 143 |
| $ | 33 |
| $ | 78 |
| $ | 23 |
| $ | 49 |
| $ | 11 |
| $ | 6 |
| $ | (5 | ) |
Capital lease obligations | 49 |
| 14 |
| — |
| — |
| — |
| — |
| 2 |
| — |
|
Pension, post-retirement and other employee benefits | 295 |
| (17 | ) | 111 |
| 44 |
| 60 |
| 14 |
| 18 |
| (4 | ) |
Progress Energy merger purchase accounting adjustments(a) | 536 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Tax credits and NOL carryforwards | 4,527 |
| 234 |
| 402 |
| 156 |
| 143 |
| 25 |
| 216 |
| 70 |
|
Regulatory liabilities and deferred credits | — |
| 222 |
| — |
| — |
| — |
| 65 |
| — |
| 61 |
|
Investments and other assets | — |
| — |
| — |
| — |
| — |
| — |
| 1 |
| 18 |
|
Other | 73 |
| 10 |
| 1 |
| 4 |
| — |
| — |
| — |
| — |
|
Valuation allowance | (519 | ) | — |
| (14 | ) | — |
| — |
| — |
| — |
| — |
|
Total deferred income tax assets | 5,104 |
| 496 |
| 578 |
| 227 |
| 252 |
| 115 |
| 243 |
| 140 |
|
Investments and other assets | (1,419 | ) | (849 | ) | (470 | ) | (289 | ) | (187 | ) | — |
| (14 | ) | — |
|
Accelerated depreciation rates | (9,216 | ) | (3,060 | ) | (2,803 | ) | (1,583 | ) | (1,257 | ) | (896 | ) | (966 | ) | (697 | ) |
Regulatory assets and deferred debits, net | (1,090 | ) | — |
| (807 | ) | (238 | ) | (569 | ) | — |
| (188 | ) | — |
|
Other | — |
| — |
| — |
| — |
| — |
| — |
| — |
| (7 | ) |
Total deferred income tax liabilities | (11,725 | ) | (3,909 | ) | (4,080 | ) | (2,110 | ) | (2,013 | ) | (896 | ) | (1,168 | ) | (704 | ) |
Net deferred income tax liabilities | $ | (6,621 | ) | $ | (3,413 | ) | $ | (3,502 | ) | $ | (1,883 | ) | $ | (1,761 | ) | $ | (781 | ) | $ | (925 | ) | $ | (564 | ) |
| |
(a) | Primarily related to capital lease obligations and debt fair value adjustments. |
As noted above, as a “grandfathered” group for whom we pay the full costresult of the retiree’s coverage. Retirees notTax Act, Duke Energy revalued its existing deferred tax assets and liabilities as of December 31, 2017, to account for the estimated future impact of lower corporate tax rates on these deferred amounts. The following table shows the decrease reflected in the grandfathered group have a portionnet deferred income tax liabilities balance above: |
| | | |
(in millions) | December 31, 2017 |
Duke Energy | $ | 8,982 |
|
Duke Energy Carolinas | 3,454 |
|
Progress Energy | 3,282 |
|
Duke Energy Progress | 1,882 |
|
Duke Energy Florida | 1,420 |
|
Duke Energy Ohio | 771 |
|
Duke Energy Indiana | 1,053 |
|
Piedmont | 521 |
|
The following table presents the expiration of the cost of retiree coverage paid by us, subject to certain annual contribution limits. Retirees are responsible for the full cost of dependent coverage. Employees hired after January 1, 2008 have to complete ten years of service after age 50 to be eligible for benefits,tax credits and no benefits are provided to those employees after age 65 when they are automatically eligible for Medicare benefits to cover health costs. Our OPEB plan includes a defined dollar benefit to pay the premiums for Medicare Part D. Employees who meet the eligibility requirements to retire also receive a life insurance benefit of $15,000.NOL carryforwards. |
| | | | | | | | | |
| December 31, 2017 |
(in millions) | Amount |
| | Expiration Year |
Investment tax credits | $ | 1,406 |
| | 2024 | | — | | 2037 |
Alternative minimum tax credits | 1,147 |
| | Refundable by 2021 |
Federal NOL carryforwards | 393 |
| | 2022 | | — | | 2036 |
State NOL carryforwards and credits(a) | 296 |
| | 2018 | | — | | 2037 |
Foreign NOL carryforwards(b) | 13 |
| | 2027 | | — | | 2036 |
Foreign Tax Credits(c) | 1,272 |
| | 2024 | | — | | 2027 |
Total tax credits and NOL carryforwards | 4,527 |
| | | | | | |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
| |
(a) | A valuation allowance of $90 million has been recorded on the state NOL carryforwards, as presented in the Net Deferred Income Tax Liability Components table. |
| |
(b) | A valuation allowance of $13 million has been recorded on the foreign NOL carryforwards, as presented in the Net Deferred Income Tax Liability Components table. |
| |
(c) | A valuation allowance of $416 million has been recorded on the foreign tax credits, as presented in the Net Deferred Income Tax Liability Components table. |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Deferred credits and other liabilities | $ | 382 |
| $ | 66 |
| $ | 126 |
| $ | 40 |
| $ | 93 |
| $ | 21 |
| $ | 4 |
| $ | 71 |
|
Capital lease obligations | 60 |
| 8 |
| — |
| — |
| — |
| — |
| 1 |
| — |
|
Pension, post-retirement and other employee benefits | 561 |
| 16 |
| 199 |
| 91 |
| 96 |
| 22 |
| 37 |
| 10 |
|
Progress Energy merger purchase accounting adjustments(a) | 918 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Tax credits and NOL carryforwards | 4,682 |
| 192 |
| 1,165 |
| 222 |
| 232 |
| 49 |
| 278 |
| 192 |
|
Investments and other assets | — |
| — |
| — |
| — |
| — |
| 3 |
| — |
| — |
|
Other | 205 |
| 16 |
| 35 |
| 8 |
| — |
| 5 |
| 9 |
| 45 |
|
Valuation allowance | (96 | ) | — |
| (12 | ) | — |
| — |
| — |
| — |
| (1 | ) |
Total deferred income tax assets | 6,712 |
| 298 |
| 1,513 |
| 361 |
| 421 |
| 100 |
| 329 |
| 317 |
|
Investments and other assets | (1,892 | ) | (1,149 | ) | (597 | ) | (313 | ) | (297 | ) | — |
| (21 | ) | (21 | ) |
Accelerated depreciation rates | (14,872 | ) | (4,664 | ) | (4,490 | ) | (2,479 | ) | (2,038 | ) | (1,404 | ) | (1,938 | ) | (1,080 | ) |
Regulatory assets and deferred debits, net | (4,103 | ) | (1,029 | ) | (1,672 | ) | (892 | ) | (780 | ) | (139 | ) | (270 | ) | (147 | ) |
Total deferred income tax liabilities | (20,867 | ) | (6,842 | ) | (6,759 | ) | (3,684 | ) | (3,115 | ) | (1,543 | ) | (2,229 | ) | (1,248 | ) |
Net deferred income tax liabilities | $ | (14,155 | ) | $ | (6,544 | ) | $ | (5,246 | ) | $ | (3,323 | ) | $ | (2,694 | ) | $ | (1,443 | ) | $ | (1,900 | ) | $ | (931 | ) |
| |
(a) | Primarily related to capital lease obligations and debt fair value adjustments. |
On August 6, 2015, wepursuant to N.C. Gen. Stat. 105-130.3C, the North Carolina Department of Revenue announced the replacementNorth Carolina corporate income tax rate would be reduced from a statutory rate of the existing retiree medical and dental group coverage for eligible retirees with a tax-free Health Reimbursement Arrangement (HRA), effective5.0 percent to 4.0 percent beginning January 1, 2016. UnderDuke Energy and Piedmont recorded net reductions of approximately $95 million and $18 million to their North Carolina deferred tax liabilities in the new HRA, participating eligible retireesthird quarter of 2015. The significant majority of these deferred tax liability reductions were offset by recording a regulatory liability pending NCUC determination of the disposition of amounts related to Duke Energy Carolinas, Duke Energy Progress and their dependents will receive a subsidy each year through the HRA account to help purchase medical and dental coverage available on public and private health care exchanges using a tax-advantaged account funded by us to pay for allowable medical expenses.Piedmont. The impact of the amendment was not material to us.
OPEB plan assets are comprised of mutual funds within a 401(h) and Voluntary Employees’ Beneficiary Association trusts. The investment philosophy is similar to the qualified pension plan as discussed above, except the OPEB fixed income portfolio does not include derivatives. We dodid not have a concentrationsignificant impact on the financial position, results of assetsoperation, or cash flows of Duke Energy, Duke Energy Carolinas, Progress Energy or Duke Energy Progress.
On August 4, 2016, pursuant to N.C. Gen. Stat. 105-130.3C, the North Carolina Department of Revenue announced the North Carolina corporate income tax rate would be reduced from a statutory rate of 4.0 percent to 3.0 percent beginning January 1, 2017. Duke Energy and Piedmont recorded net reductions of approximately $80 million and $16 million to their North Carolina deferred tax liabilities in the third quarter of 2016. The significant majority of this deferred tax liability reduction was offset by recording a single entity, industry, country, commodity or class of investment fund.
The target and actual allocationsregulatory liability pending NCUC determination of the OPEB plan's assets are as follows:
|
| | | | | | | | | | |
| | Target | | | Assets at October 31 |
Asset Allocations | | Allocation | | | 2015 | | 2014 |
Fixed income securities | | 45 | % | (1) | | 47 | % | | 44 | % |
Equity securities | | 47 | % | | | 44 | % | | 42 | % |
Real estate | | 5 | % | | | 5 | % | | 5 | % |
Cash and cash equivalents | | 3 | % | | | 4 | % | | 9 | % |
Total | | 100 | % | | | 100 | % | | 100 | % |
(1) Includes 5% target allocation to high yield fixed income. |
Supplemental Executive Retirement Plans
We have pension liabilitiesdisposition of amounts related to supplemental executive retirement plans (SERPs) for certain former employees, non-employee directorsDuke Energy Carolinas, Duke Energy Progress and Piedmont. The impact did not have a significant impact on the financial position, results of operation, or surviving spouses. There are no assetscash flows of Duke Energy, Duke Energy Carolinas, Progress Energy or Duke Energy Progress.
On June 28, 2017, the North Carolina General Assembly amended N.C. Gen. Stat. 105-130.3, reducing the North Carolina corporate income tax rate from a statutory rate of 3.0 percent to 2.5 percent beginning January 1, 2019. Duke Energy recorded a net reduction of approximately $55 million to their North Carolina deferred tax liabilities in the second quarter of 2017. The significant majority of this deferred tax liability reduction was offset by recording a regulatory liability pending NCUC determination of the disposition of amounts related to these SERPs,Duke Energy Carolinas, Duke Energy Progress and no additional benefits accrue to the participants. Payments to the participants are made from operating funds during the year. Actuarial information for these nonqualified plans is presented below.
WePiedmont. The impact did not have a non-qualified defined contribution restoration plan (DCR plan) for certain officers atsignificant impact on the vice president level and above where benefits payable under the plan are informally funded annually through a rabbi trust with a bank as the trustee. We contribute 13%financial position, results of the total cash compensation (base salary, short-term incentive and MVP incentive) that exceeds the IRS compensation limit to the DCR plan account of each covered executive. Participants may not contribute to the DCR plan. Vesting under the DCR plan is five-year cliff vesting of annual contributions. Participants in the DCR plan may provide instructions to us for the deemed investment of their plan accounts. Distribution will occur upon separation of serviceoperation or death of the participant.
We have a voluntary deferred compensation plan for the benefit of all director-level employees and officers, where we make no contributions to this plan. Benefits under this plan, known as the Voluntary Deferral Plan (VDP), are also informally funded monthly through a rabbi trust with a bank as the trustee. Participants may defer up to 50% of base salary with elections made by December 31 prior to the upcoming calendar year, and up to 95% of annual incentive pay with elections made by April 30. Vesting is immediate and deferrals are held in the rabbi trust. Participants may provide instructions to us for the deemed investment of their plan accounts. Distributions can be made from the VDP on a specified date that is at least two years from the date of deferral, a change in control, on separation of service or upon death.
Our funding to the DCR plan account for the years ended October 31, 2015 and 2014, and the amounts recorded as liabilities for these two deferred compensation plans as of October 31, 2015 and 2014, are presented below.
|
| | | | | | | | |
In thousands | | 2015 | | 2014 |
Funding | | $ | 548 |
| | $ | 524 |
|
Liability: | | | | |
Current | | 236 |
| | 214 |
|
Noncurrent | | 5,089 |
| | 4,248 |
|
We provide term life insurance policies for certain officers at the vice president level and above who were former participants in a terminated SERP; the level of the insurance benefit is dependent upon the level of the benefit provided under the terminated SERP. These life insurance policies are owned exclusively by each officer. Premiums on these policies are paid and expensed. We also provide a term life insurance benefit equal to $200,000 to all officers and director-level employees for which we bear the cost of the policies. The cost of these premiums is presented below.
|
| | | | | | | | | | | | |
In thousands | | 2015 | | 2014 | | 2013 |
Term life policies of certain officers at the vice president level and above | | $ | 35 |
| | $ | 30 |
| | $ | 27 |
|
Officers and director-level employees | | 30 |
| | 32 |
| | 28 |
|
Actuarial Plan Information
A reconciliation of changes in the plans’ benefit obligations and fair value of assets for the years ended October 31, 2015 and 2014, a statement of the funded status and the amounts reflected in the Consolidated Balance Sheets for the years ended October 31, 2015 and 2014, and the weighted average assumptions used in the measurement of the benefit obligations as of October 31, 2015 and 2014 are presented below.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Qualified Pension | | Nonqualified Pension | | Other Benefits |
In thousands | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 |
Accumulated benefit obligation at year end | | $ | 263,120 |
| | $ | 252,706 |
| | $ | 5,527 |
| | $ | 5,925 |
| | N/A |
| | N/A |
|
| | | | | | | | | | | | |
Change in projected benefit obligation: | |
| | | |
| | | |
| | |
Obligation at beginning of year | | $ | 302,686 |
| | $ | 272,403 |
| | $ | 5,925 |
| | $ | 4,736 |
| | $ | 37,817 |
| | $ | 33,678 |
|
Service cost | | 11,403 |
| | 10,865 |
| | — |
| | — |
| | 1,182 |
| | 1,109 |
|
Interest cost | | 12,018 |
| | 11,781 |
| | 209 |
| | 200 |
| | 1,475 |
| | 1,448 |
|
Plan amendments | | — |
| | — |
| | — |
| | 485 |
| | (1,877 | ) | | — |
|
Actuarial (gain) loss | | 3,524 |
| | 23,646 |
| | (100 | ) | | 956 |
| | 1,697 |
| | 3,734 |
|
Participant contributions | | — |
| | — |
| | — |
| | — |
| | 611 |
| | 805 |
|
Administrative expenses | | (590 | ) | | (465 | ) | | — |
| | — |
| | — |
| | — |
|
Benefit payments | | (17,504 | ) | | (15,544 | ) | | (507 | ) | | (452 | ) | | (3,348 | ) | | (2,957 | ) |
Obligation at end of year | | 311,537 |
| | 302,686 |
| | 5,527 |
| | 5,925 |
| | 37,557 |
| | 37,817 |
|
Change in fair value of plan assets: | |
| | | |
| | | |
| | |
Fair value at beginning of year | | 336,443 |
| | 300,661 |
| | — |
| | — |
| | 27,747 |
| | 25,961 |
|
Actual return on plan assets | | 958 |
| | 31,791 |
| | — |
| | — |
| | 315 |
| | 1,874 |
|
Employer contributions | | 10,000 |
| | 20,000 |
| | 507 |
| | 452 |
| | 2,221 |
| | 2,064 |
|
Participant contributions | | — |
| | — |
| | — |
| | — |
| | 611 |
| | 805 |
|
Administrative expenses | | (590 | ) | | (465 | ) | | — |
| | — |
| | — |
| | — |
|
Benefit payments | | (17,504 | ) | | (15,544 | ) | | (507 | ) | | (452 | ) | | (3,348 | ) | | (2,957 | ) |
Fair value at end of year | | 329,307 |
| | 336,443 |
| | — |
| | — |
| | 27,546 |
| | 27,747 |
|
Funded status at year end - over (under) | | $ | 17,770 |
| | $ | 33,757 |
| | $ | (5,527 | ) | | $ | (5,925 | ) | | $ | (10,011 | ) | | $ | (10,070 | ) |
| | | | | | | | | | | | |
Noncurrent assets | | $ | 17,770 |
| | $ | 33,757 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Current liabilities | | — |
| | — |
| | (520 | ) | | (521 | ) | | — |
| | — |
|
Noncurrent liabilities | | — |
| | — |
| | (5,007 | ) | | (5,404 | ) | | (10,011 | ) | | (10,070 | ) |
Net amount recognized | | $ | 17,770 |
| | $ | 33,757 |
| | $ | (5,527 | ) | | $ | (5,925 | ) | | $ | (10,011 | ) | | $ | (10,070 | ) |
| | | | | | | | | | | | |
Amounts Not Yet Recognized as a Component | | | | | | | | | | | | |
of Cost and Recognized in a Deferred | | | | | | | | | | | | |
Regulatory Account: | | | | | | | | | | | | |
Unrecognized prior service credit (cost) | | $ | 12,848 |
| | $ | 15,046 |
| | $ | (208 | ) | | $ | (439 | ) | | $ | 1,877 |
| | $ | — |
|
Unrecognized actuarial loss | | (120,541 | ) | | (103,038 | ) | | (1,560 | ) | | (1,745 | ) | | (7,185 | ) | | (3,995 | ) |
Regulatory asset | | (107,693 | ) | | (87,992 | ) | | (1,768 | ) | | (2,184 | ) | | (5,308 | ) | | (3,995 | ) |
Cumulative employer contributions in | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
excess of cost | | 125,463 |
| | 121,749 |
| | (3,759 | ) | | (3,741 | ) | | (4,703 | ) | | (6,075 | ) |
Net amount recognized | | $ | 17,770 |
| | $ | 33,757 |
| | $ | (5,527 | ) | | $ | (5,925 | ) | | $ | (10,011 | ) | | $ | (10,070 | ) |
| | | | | | | | | | | | |
Weighted average assumptions used in the measurement of | | | | | | | | | | | | |
the benefit obligations: | | | | | | | | | | | | |
Discount rate | | 4.34 | % | | 4.13 | % | | 3.85 | % | | 3.69 | % | | 4.38 | % | | 4.03 | % |
Rate of compensation increase | | 4.07 | % | | 3.68 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
In 2006 with the implementation of accounting guidance for employers’ accounting for defined benefit pension and other postretirement plans, the NCUC, the PSCSC and the TRA approved our request to place certain defined benefit postretirement obligations in a deferred regulatory account as presented above instead of OCIL. The regulators have allowed future recovery of our pension and OPEB costs to this date.
Net periodic benefit cost components for the years ended October 31, 2015, 2014 and 2013 and the weighted average assumptions used to determine net period benefit cost as of October 31, 2015, 2014 and 2013 are presented below.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Qualified Pension | | Nonqualified Pension | | Other Benefits |
In thousands | | 2015 | | 2014 | | 2013 | | 2015 | | 2014 | | 2013 | | 2015 | | 2014 | | 2013 |
Service cost | | $ | 11,403 |
| | $ | 10,865 |
| | $ | 12,005 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,182 |
| | $ | 1,109 |
| | $ | 1,327 |
|
Interest cost | | 12,018 |
| | 11,781 |
| | 9,946 |
| | 209 |
| | 200 |
| | 157 |
| | 1,475 |
| | 1,448 |
| | 1,130 |
|
Expected return on plan assets | | (23,614 | ) | | (22,530 | ) | | (21,105 | ) | | — |
| | — |
| | — |
| | (1,837 | ) | | (1,782 | ) | | (1,663 | ) |
Amortization of transition obligation | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 667 |
|
Amortization of prior service cost | |
|
| | | | | |
|
| | | | | |
|
| | | | |
(credit) | | (2,198 | ) | | (2,198 | ) | | (2,198 | ) | | 231 |
| | 243 |
| | 81 |
| | — |
| | — |
| | — |
|
Amortization of net loss | | 8,676 |
| | 7,685 |
| | 11,202 |
| | 85 |
| | 31 |
| | 161 |
| | 29 |
| | — |
| | — |
|
Net periodic benefit cost | | 6,285 |
| | 5,603 |
| | 9,850 |
| | 525 |
| | 474 |
| | 399 |
| | 849 |
| | 775 |
| | 1,461 |
|
Other changes in plan assets and benefit | |
| | | | | |
| | | | | |
| | | | |
obligation recognized through | |
| | | | | |
| | | | | |
| | | | |
regulatory asset or liability: | |
| | | | | |
| | | | | |
| | | | |
Prior service cost (credit) | | — |
| | — |
| | — |
| | — |
| | 485 |
| | — |
| | (1,877 | ) | | — |
| | — |
|
Net loss (gain) | | 26,179 |
| | 14,385 |
| | (30,094 | ) | | (100 | ) | | 956 |
| | (540 | ) | | 3,219 |
| | 3,641 |
| | (2,278 | ) |
Amounts recognized as a component of | |
| | | | | |
| | | | | |
| | | | |
net periodic benefit cost: | |
| | | | | |
| | | | | |
| | | | |
Transition obligation | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (667 | ) |
Amortization of net loss | | (8,676 | ) | | (7,685 | ) | | (11,202 | ) | | (85 | ) | | (31 | ) | | (161 | ) | | (29 | ) | | — |
| | — |
|
Prior service (cost) credit | | 2,198 |
| | 2,198 |
| | 2,198 |
| | (231 | ) | | (243 | ) | | (81 | ) | | — |
| | — |
| | — |
|
Total recognized in regulatory asset | |
|
| | | | | |
|
| | | | | |
|
| | | | |
(liability) | | 19,701 |
| | 8,898 |
| | (39,098 | ) | | (416 | ) | | 1,167 |
| | (782 | ) | | 1,313 |
| | 3,641 |
| | (2,945 | ) |
Total recognized in net periodic benefit | |
|
| | | | | |
|
| | | | | |
|
| | | | |
and regulatory asset (liability) | | $ | 25,986 |
| | $ | 14,501 |
| | $ | (29,248 | ) | | $ | 109 |
| | $ | 1,641 |
| | $ | (383 | ) | | $ | 2,162 |
| | $ | 4,416 |
| | $ | (1,484 | ) |
| | | | | | | | | | | | | | | | | | |
Weighted average assumptions used to determine the net periodic benefit cost: | | | | | | | | | | | | | | | | | | |
Discount rate | | 4.13 | % | | 4.55 | % | | 3.51 | % | | 3.69 | % | | 3.98 | % | | 2.95 | % | | 4.03 | % | | 4.44 | % | | 3.34 | % |
Expected long-term rate of return on plan assets | | 7.50 | % | | 7.75 | % | | 8.00 | % | | N/A |
| | N/A |
| | N/A |
| | 7.50 | % | | 7.75 | % | | 8.00 | % |
Rate of compensation increase | | 3.68 | % | | 3.72 | % | | 3.76 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
|
The 2016 estimated amortization of the following items for our plans, which are recorded as a regulatory asset or liability instead of accumulated OCIL discussed above, are as follows.
|
| | | | | | | | | | | | |
| | Qualified | | Nonqualified | | Other |
In thousands | | Pension | | Pension | | Benefits |
Amortization of unrecognized prior service (credit) cost | | $ | (2,198 | ) | | $ | 208 |
| | $ | (332 | ) |
Amortization of unrecognized actuarial loss | | 8,164 |
| | 81 |
| | 459 |
|
The discount rate has been separately determined for each plan by projecting the plan’s cash flows and developing a zero-coupon spot rate yield curve using non-arbitrage pricing and non-callable bonds rated AAof Duke Energy, Duke Energy Carolinas, Progress Energy or better by either Moody’s Investors Service’s or Standard & Poor’s Ratings Services that have a yield higher than the regression mean yield curve. The discount rate can vary from plan year to plan year. As of October 31, 2015, the benchmark by plan was as follows.Duke Energy Progress.
|
| | |
Qualified pension plan | 4.34 | % |
NCNG SERP | 3.78 | % |
Directors’ SERP | 3.91 | % |
Piedmont SERP | 3.17 | % |
OPEB | 4.38 | % |
Equity market performance has a significant effect on our market-related value of plan assets. In determining the market-related value of plan assets, we use the following methodology: The asset gain or loss is determined each year by comparing the fund’s actual return to the expected return, based on the disclosed expected return on investment assumption. Such asset gain or loss is then recognized ratably over a five-year period. Thus, the market-related value of assets as of year end is determined by adjusting the market value of assets by the portion of the prior five years’ gains or losses that has not yet been recognized, meaning that 20% of the prior five years’ asset gains and losses are recognized each year. This method has been applied consistently in all years presented in the consolidated financial statements.
We amortize unrecognized prior-service cost over the average remaining service period for active employees. We amortize the unrecognized transition obligation over the average remaining service period for active employees expected to
receive benefits under the plan as of the date of transition. We amortize gains and losses in excess of 10% of the greater of the benefit obligation and the market-related value of assets over the average remaining service period for active employees. The amortization period used for the purposes mentioned above for the NCNG SERP and the Piedmont SERP is an expected future lifetime as there are no active members in these plans. The method of amortization in all cases is straight-line.
In addition to the assumptions in the above table, we also use subjective factors such as withdrawal and mortality rates in determining benefit obligations for all of our benefit plans. Our assumed mortality rates incorporate the new set of mortality tables issued by the Society of Actuaries in October 2014. We also applied the updated projection scale issued by the Society of Actuaries in October 2015.
We anticipate that we will contribute the following amounts to our plans in 2016.
|
| | | |
In thousands | |
Qualified pension plan * | $ | 10,000 |
|
Nonqualified pension plans | 520 |
|
MPP plan | 1,650 |
|
OPEB plan | 1,300 |
|
| |
* Funded in November 2015. | |
The Pension Protection Act of 2006 (PPA) specified funding requirements for single employer defined benefit pension plans. We are in compliance with the 100% funding target established in the PPA.
Benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the next ten years ending October 31 as follows.
|
| | | | | | | | | | | | |
| | Qualified | | Nonqualified | | Other |
In thousands | | Pension | | Pension | | Benefits |
2016 | | $ | 28,147 |
| | $ | 520 |
| | $ | 1,987 |
|
2017 | | 19,911 |
| | 504 |
| | 2,145 |
|
2018 | | 20,413 |
| | 482 |
| | 2,301 |
|
2019 | | 21,348 |
| | 510 |
| | 2,421 |
|
2020 | | 21,829 |
| | 491 |
| | 2,494 |
|
2021 - 2025 | | 114,267 |
| | 2,100 |
| | 13,379 |
|
Based on the retiree medical and dental group coverage changing to a HRA where the retiree subsidy provided by Piedmont is fixed and assumed to not increase, we are no longer impacted by the health care cost component (projected health care cost trend rates) for our accumulated postretirement benefit obligation as of October 31, 2015.
The assumed health care cost trend rates used in measuring the accumulated OPEB obligation for the medical plans for all participants as of October 31, 2014 is presented below.
|
| | | |
| | 2014 |
Health care cost trend rate assumed for next year | | 7.40 | % |
Rate to which the cost trend is assumed to decline (the ultimate trend rate) | | 5.00 | % |
Year that the rate reaches the ultimate trend rate | | 2027 |
|
The health care cost trend rate assumptions could have a significant effect on amounts reported as benefit cost. A change of 1% would have the following effect.
|
| | | | | | | | |
In thousands | | 1% Increase | | 1% Decrease |
Effect on total of service and interest cost components of net periodic | | | | |
postretirement health care benefit cost for the year ended October 31, 2015 | | $ | 34 |
| | $ | (35 | ) |
Beginning in 2016, we will change the method we use to estimate the service and interest cost components of net periodic benefit costs for our plans from using a developed zero-coupon spot rate yield curve as discussed above. We have elected to use a full yield curve approach in the estimation of these components of benefit costs by applying the specific spot rates along the yield curve used in the determination of the benefit obligations to the relevant projected cash flows. We will make this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. This change will not affect the measurement of our
total benefit obligations as the change in the service and interest costs is completely offset by the actuarial (gain) loss reported. We will account for this change as a change in estimate and, accordingly, will account for it prospectively beginning in 2016.
Fair Value Measurements
Following is a description of the valuation methodologies used for assets measured at fair value in our qualified pension plan.
Cash and cash equivalents – These are Level 1 assets valued at face value as they are primarily cash or cash equivalents. The assets that are Level 2 assets are valued at the market value of the shares held by the plan at the valuation date for a money market mutual fund.
Fixed income securities – These assets include:
U.S. treasuries – These are Level 2 assets whose values are based on observable market information including quotes from a quotation reporting system, established market makers or pricing services. This asset class includes long duration fixed income investments.
Corporate bonds, collateralized mortgage obligations, municipals – These are Level 2 assets valued based on primarily observable market information or broker quotes on a non-active market. This class includes long duration fixed income investments.
Derivatives – The Level 1 assets are valued using a compilation of observable market information on an active market. The Level 2 assets are valued using broker quotes on a non-active market.
Equity securities – These are level 1 assets valued at the market price of the active market on which the individual security is traded.
Mutual funds – These are Level 1 assets valued at the publicly quoted NAV per share computed as of the close of business on our balance sheet date. Mutual funds with a NAV per share that is not publicly available are classified as Level 2.
Common trust fund – These are Level 2 assets held in a common trust fund in which we own interests that are valued at the NAV of the funds as traded on international exchanges. Currently, there are no restrictions on redemptions for the fund.
Private equity fund of funds – This is a Level 3 asset invested in hedge fund of funds valued based on a quarterly compilation of the financial statements from the underlying partnerships in which the fund invests. There are currently redemption restrictions for this fund. The target allocation for this investment is 3.5% but is still being funded through capital calls; $4 million of the original $12 million subscription remains unfunded. Until a 3.5% allocation can be achieved, the balance of the 3.5% allocation is invested in a low-cost equity index fund that tracks the Standard & Poor's 500 Stock Index. Our investment is in various funds that invests in North American companies, allocate capital to private equity funds, invest in venture capital partnerships and private equity partnerships in emerging markets.
The following investments are measured at NAV and are not classified in the fair value hierarchy, in accordance with accounting guidance.
Hedge fund of funds – These investments are across a variety of markets through investment funds or managed accounts that invest in equities, equity-related instruments, fixed income and other debt-related instruments. Currently, there are no restrictions on redemptions for the fund.
Commodities fund of funds – Currently, there are no restrictions on redemptions for the fund. These investments are in commodities fund of funds that are actively managed through a well-diversified group of underlying managers.
High yield debt (bank loans) – These assets are held in a common trust fund that invest in global bank loans. Currently, there are no restrictions on redemption for the fund.
As stated above, some of our investments for the qualified pension plan have redemption limitations, restrictions and notice requirements which are further explained below.
|
| | | | | | |
| | | | | | Redemptions |
| | Redemption | | | | Notice |
Investment | | Frequency | | Other Redemption Restrictions | | Period |
Common trust fund -
International growth
| | Monthly | | None | | 30 days |
| | | |
Hedge fund of funds | | Quarterly | | Redeemed in whole or part but not less than the minimum redemption amount for each currency. Redemption within one year of purchase is subject to 1.5% redemption fee. Redeemed on “first in first out” basis. None of our investment is subject to the redemption fee. Fund’s Board of Directors may limit or suspend share redemptions until a further notification ending suspension. No such notification has been received as of October 31, 2015. | | 65 days |
| | | |
Private equity fund of funds | | Limited | | Investors have only very limited withdrawal rights for specific legal or regulatory reasons. Any transfer of interest will be subject to approval. | | (1) |
| | | |
Commodities fund of funds | | Monthly | | Redemption within one year of purchase is subject to 1% redemption fee. None of our investment is subject to the redemption fee. If 95% or more of the balance is requested, 95% of the balance will be paid within 30 days. Any outstanding balance or interest owed will be paid after the annual audit is complete. | | 35 days |
| | | | | | |
Bank loans | | Daily | | None | | 30 days |
(1) The investment cannot be redeemed. We receive distributions only through the liquidation of the underlying assets. The assets are expected to be liquidated over the next 10 to 12 years.250
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
UNRECOGNIZED TAX BENEFITS
The qualified pension plan’s asset allocations by level within the fair value hierarchy as of October 31, 2015 and 2014 are presented below. Our assessment of the significance of a particular inputfollowing tables present changes to the fair value measurement requires judgment and may affect the valuation of fair value assets and their consideration within the fair value hierarchy levels. For further information on a description of the fair value hierarchy, see “Fair Value Measurements” in Note 1 to the consolidated financial statements.unrecognized tax benefits. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Unrecognized tax benefits – January 1 | $ | 17 |
| $ | 1 |
| $ | 2 |
| $ | 2 |
| $ | 4 |
| $ | 4 |
| $ | — |
| $ | — |
|
Unrecognized tax benefits increases (decreases) | | | | | | | | |
Gross increases – tax positions in prior periods | 12 |
| 4 |
| 3 |
| 3 |
| 1 |
| 1 |
| 1 |
| 3 |
|
Gross decreases – tax positions in prior periods | (4 | ) | — |
| — |
| — |
| — |
| (4 | ) | — |
| — |
|
Total changes | 8 |
| 4 |
| 3 |
| 3 |
| 1 |
| (3 | ) | 1 |
| 3 |
|
Unrecognized tax benefits – December 31 | $ | 25 |
| $ | 5 |
| $ | 5 |
| $ | 5 |
| $ | 5 |
| $ | 1 |
| $ | 1 |
| $ | 3 |
|
|
| | | | | | | | | | | | | | | | | |
| | Qualified Pension Plan as of October 31, 2015 | |
In thousands | | Quoted Prices In Active Markets (Level 1) |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs (Level 3) |
| Total Carrying Value | |
Cash and cash equivalents | | $ | 2,782 |
| | $ | 89 |
| | $ | — |
| | $ | 2,871 |
| |
Fixed income securities | | — |
| | 84,135 |
| | — |
| | 84,135 |
| |
Equity securities | | 44,738 |
| | — |
| | — |
| | 44,738 |
| |
Mutual funds | | 78,853 |
| | 42,890 |
| | — |
| | 121,743 |
| |
Common trust fund | | — |
| | 23,571 |
| | — |
| | 23,571 |
| |
Private equity fund of funds | | — |
| | — |
| | 8,344 |
| | 8,344 |
| |
Other Investments: | | | | | | | | | |
Hedge fund of funds | | | | | | | | 19,809 |
| (1) |
Commodities fund of funds | | | | | | | | 7,688 |
| (1) |
High yield debt (bank loans) | | | | | | | | 16,408 |
| (1) |
Total assets at fair value | | $ | 126,373 |
| | $ | 150,685 |
| | $ | 8,344 |
| | $ | 329,307 |
| |
|
| | | | | | | | | | | | | | | | | |
| | Qualified Pension Plan as of October 31, 2014 | |
In thousands | | Quoted Prices In Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Carrying Value | |
Cash and cash equivalents | | $ | 27,932 |
| | $ | 435 |
| | $ | — |
| | $ | 28,367 |
| |
Fixed income securities | | 48 |
| | 78,026 |
| | — |
| | 78,074 |
| |
Equity securities | | 51,266 |
| | — |
| | — |
| | 51,266 |
| |
Mutual funds | | 54,502 |
| | 48,049 |
| | — |
| | 102,551 |
| |
Common trust fund | | — |
| | 22,877 |
| | — |
| | 22,877 |
| |
Private equity fund of funds | | — |
| | — |
| | 7,158 |
| | 7,158 |
| |
Other Investments: | | | | | | | | | |
Hedge fund of funds | | | | | | | | 19,829 |
| (1) |
Commodities fund of funds | | | | | | | | 10,134 |
| (1) |
High yield debt (bank loans) | | | | | | | | 16,187 |
| (1) |
Total assets at fair value | | $ | 133,748 |
| | $ | 149,387 |
| | $ | 7,158 |
| | $ | 336,443 |
| |
| | | | | | | | | |
(1) In accordance with accounting guidance, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables for these investments are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the reconciliation of changes in the plans’ benefit obligations and fair value of plan assets above. |
The following is a reconciliation of the assets in the qualified pension plan that are classified as Level 3 in the fair value hierarchy. |
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
Unrecognized tax benefits – January 1 | $ | 88 |
| $ | 72 |
| $ | 1 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | 1 |
|
Unrecognized tax benefits increases (decreases) | | | | | | | |
Gross increases – tax positions in prior periods | — |
| — |
| — |
| — |
| 4 |
| 4 |
| — |
|
Gross decreases – tax positions in prior periods | (4 | ) | (4 | ) | (1 | ) | (1 | ) | — |
| — |
| — |
|
Decreases due to settlements | (68 | ) | (67 | ) | — |
| — |
| — |
| — |
| (1 | ) |
Reduction due to lapse of statute of limitations | 1 |
| — |
| 2 |
| — |
| — |
| — |
| — |
|
Total changes | (71 | ) | (71 | ) | 1 |
| (1 | ) | 4 |
| 4 |
| (1 | ) |
Unrecognized tax benefits – December 31 | $ | 17 |
| $ | 1 |
| $ | 2 |
| $ | 2 |
| $ | 4 |
| $ | 4 |
| $ | — |
|
|
| | | | |
| | Private |
| | Equity Fund |
In thousands | | of Funds |
Balance, October 31, 2013 | | $ | 4,659 |
|
Actual return on plan assets: | | |
Relating to assets still held at the reporting date | | 1,031 |
|
Relating to assets sold during the period | | 113 |
|
Purchases, sales and settlements (net) | | 1,355 |
|
Transfer in/out of Level 3 | | — |
|
Balance, October 31, 2014 | | 7,158 |
|
Actual return on plan assets: | | |
Relating to assets still held at the reporting date | | 413 |
|
Relating to assets sold during the period | | 618 |
|
Purchases, sales and settlements (net) | | 155 |
|
Transfer in/out of Level 3 | | — |
|
Balance, October 31, 2015 | | $ | 8,344 |
|
During the year, the qualified pension plan raises cash from various plan assets in order to fund periodic and lump sum benefit payments. Cash is raised as needed primarily from investments that have exceeded their target allocation and is dependent upon the number of retirees seeking lump sum distributions.
There are significant unobservable inputs used in the fair value measurements of our investment in the private equity fund of funds’ limited partnerships. We are subject to the business risks inherent in the markets in which the partnerships are invested. The success or failure of the underlying businesses of the various partnerships that have been funded would result in a higher or lower fair value measurement.
Following is a description of the valuation methodologies used for assets measured at fair value in our OPEB plan.
Cash and cash equivalents – These are Level 1 assets having maturities of three months or less when purchased and are considered to be cash equivalents.
Mutual funds – These are Level 1 assets valued at the publicly quoted NAV per share computed as of the close of business on our balance sheet date.
The OPEB plan’s asset allocations by level within the fair value hierarchy as of October 31, 2015 and 2014 are presented below. 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 their placement within the fair value hierarchy levels. For further information on a description of the fair value hierarchy, see “Fair Value Measurements” in Note 1 to the consolidated financial statements.
|
| | | | | | | | | | | | | | | | |
| | Other Benefits as of October 31, 2015 |
| | | | | | | | |
In thousands | | Quoted Prices In Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Carrying Value |
Cash and cash equivalents | | $ | 1,164 |
| | $ | — |
| | $ | — |
| | $ | 1,164 |
|
Mutual funds | | 26,382 |
| | — |
| | — |
| | 26,382 |
|
Total assets at fair value | | $ | 27,546 |
| | $ | — |
| | $ | — |
| | $ | 27,546 |
|
|
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2015 |
| | Duke |
| | Duke |
| Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Indiana |
|
Unrecognized tax benefits – January 1 | $ | 213 |
| $ | 160 |
| $ | 32 |
| $ | 23 |
| $ | 8 |
| $ | 1 |
|
Unrecognized tax benefits increases (decreases) | | | | | | |
Gross increases – tax positions in prior periods | — |
| — |
| 1 |
| 1 |
| — |
| — |
|
Gross decreases – tax positions in prior periods | (48 | ) | (45 | ) | — |
| — |
| — |
| — |
|
Decreases due to settlements | (45 | ) | (43 | ) | — |
| — |
| — |
| — |
|
Reduction due to lapse of statute of limitations | (32 | ) | — |
| (32 | ) | (21 | ) | (8 | ) | — |
|
Total changes | (125 | ) | (88 | ) | (31 | ) | (20 | ) | (8 | ) | — |
|
Unrecognized tax benefits – December 31 | $ | 88 |
| $ | 72 |
| $ | 1 |
| $ | 3 |
| $ | — |
| $ | 1 |
|
|
| | | | | | | | | | | | | | | | |
| | Other Benefits as of October 31, 2014 |
| | | | | | | | |
In thousands | | Quoted Prices In Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Carrying Value |
Cash and cash equivalents | | $ | 2,590 |
| | $ | — |
| | $ | — |
| | $ | 2,590 |
|
Mutual funds | | 25,157 |
| | — |
| | — |
| | 25,157 |
|
Total assets at fair value | | $ | 27,747 |
| | $ | — |
| | $ | — |
| | $ | 27,747 |
|
401(k) Plan
We maintain a 401(k) plan that is a profit-sharing plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the Tax Code), which includes qualified cash or deferred arrangements under Tax Code Section 401(k). The 401(k) plan is subject to the provisions of the Employee Retirement Income Security Act. Eligible employees who have completed 30 days of continuous service and have attained age 18 are eligible to participate. Participants may defer a portion of their base salary and cash incentive payments to the plan, and we match a portion of their contributions. Employee contributions vest immediately, and company contributions vest after six months of service.
Employees receive a company match of 100% up to the first 5% of eligible pay contributed. Employees may contribute up to 50% of eligible pay to the 401(k) on a pre-tax basis, up to the Tax Code annual contribution and compensation limits. We automatically enroll all eligible non-participating employees in the 401(k) plan at a 2% contribution rate unless the employee chooses not to participate by notifying our record keeper. For employees who are automatically enrolled in the 401(k) plan, we automatically increase their contributions by 1% each year to a maximum of 5% unless the employee chooses to opt out of the automatic increase by contacting our record keeper. If the employee does not make an investment election, employee contributions and matches are automatically invested in a diversified portfolio of stocks and bonds. Participants may direct up to 20% of their contributions and company matching contributions as an investment in the Piedmont Stock Fund. Employees may change their contribution rate and investments at any time. For the years ended October 31, 2015, 2014 and 2013, we made matching contributions to participant accounts as follows.
|
| | | | | | | | | | | | |
In thousands | | 2015 | | 2014 | | 2013 |
401(k) matching contributions | | $ | 6,584 |
| | $ | 6,134 |
| | $ | 5,688 |
|
As a result of a plan merger effective in 2001, participants’ accounts in our employee stock ownership plan (ESOP) were transferred into the participants’ 401(k) accounts. Former ESOP participants may remain invested in Piedmont common stock in their 401(k) plan or may sell the common stock at any time and reinvest the proceeds in other available investment options. The tax benefit of any dividends paid on ESOP shares still in participants’ accounts is reflected in the Consolidated Statement of Stockholders’ Equity as an increase in retained earnings.
11. Employee Share-Based PlansPART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
Liability PlansDUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
Under our shareholder approved ICP, eligible officers and other participants are awarded units that pay out depending upon the level of performance achieved by Piedmont during three-year incentive plan performance periods. Distribution of those awards may be made in the form of shares of common stock and withholdings for payment of applicable taxes on the compensation. These plans require that a minimum threshold performance level be achieved in order for any award to be distributed. For the years ended October 31, 2015, 2014 and 2013, we recorded compensation expense, and as of October 31, 2015 and 2014, we accrued a liability for these awards based on the fair market value of our stock at the end of each quarter. The liability is re-measured to market value each quarter and at the settlement date.
We have granted three series of awards under the approved ICP, one with a three-year performance period that ended October 31, 2015 (2015 plan) and two other awards ending on October 31, 2016 (2016 plan) and October 31, 2017 (2017 plan). For each of these performance periods, awards are weighted and based on achievement relative to:
a target annual compounded increase in basic EPS (37.5% weight),
total shareholder returns compared to a group of peer companies that are domiciled in the United States, publicly traded in the U.S. energy industry with a primary focus on natural gas distribution and transmission businesses in multi-state territories and have similar annual revenues and market capitalization to ours (37.5% weight), and
an actual average return on equity compared to the weighted average return on equity allowed by our regulatory commissions (25% weight).
In December 2010, a long-term retention stock unit award under the ICP (where a stock unit equals one share of our common stock upon vesting) was approved for eligible officers and other participants to support our succession planning and retention strategies. This retention stock unit award vested for participants who met the retention requirements at the end of the three-year period ending in December 2013 and settled in the same month with payment in the form of shares of our common stock and withholdings for payment of applicable taxes on the compensation.
Also under our approved ICP, 64,700 unvested retention stock units (RSUs) were granted to our President and Chief Executive Officer (CEO) in December 2011. During the five-year vesting period, any dividend equivalents will accrue on these stock units and be converted into additional units at the same rate and based on the closing price on the same payment date as dividends on our common stock. The RSUs will vest, payable in the form of shares of common stock and withholdings for payment of applicable taxes on the compensation, over a five-year period only if he is an employee on each vesting date. In accordance with the vesting schedule, 20% of the units vested on December 15, 2014, 30% of the units vest on December 15, 2015 and 50% of the units vest on December 15, 2016. For the twelve months ended October 31, 2015, 2014 and 2013, we recorded compensation expense, and as of October 31, 2015 and 2014, we accrued a liability for this award based on the fair market value of our common stock at the end of each quarter. The liability is re-measured to market value each quarter and at the settlement date.
The December 15, 2014 vesting covered 20% of the grant, including accrued dividends, for a total of 14,461 shares of our common stock. After withholdings of $.3 million for federal and state income taxes, our President and CEO received 7,231 shares of our common stock at the NYSE composite closing price on December 12, 2014 of $37.89 per share.
The following table includes additional information regarding the Duke Energy Registrants' unrecognized tax benefits at December 15, 2015 vesting covers 30%31, 2017. During the first quarter of 2018, Duke Energy recognized an approximate $8 million reduction and Duke Energy Carolinas recognized an approximate $1 million reduction in unrecognized tax benefits. No additional material reductions are expected in the grant, including accrued dividends, for a total of 22,434 shares of our common stock. After withholdings of $.6 million for federal and state income taxes, our President and CEO received 11,732 shares of our common stock at the NYSE composite closing price on December 14, 2015 of $56.85 per share.next 12 months. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Amount that if recognized, would affect the effective tax rate or regulatory liability(a) | $ | 15 |
| $ | 4 |
| $ | 7 |
| $ | 5 |
| $ | 1 |
| $ | 1 |
| $ | 1 |
| $ | 3 |
|
Amount that if recognized, would be recorded as a component of discontinued operations | 7 |
| — |
| — |
| — |
| — |
| 2 |
| — |
| — |
|
| |
(a) | Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana and Piedmont are unable to estimate the specific amounts that would affect the effective tax rate versus the regulatory liability. |
OTHER TAX MATTERS
At the time of distribution of any award under the ICP, the number of shares of common stock issuable is reduced by the withholdings for payment of applicable income taxes for each participant. The participant may elect income tax withholdings at or above the minimum statutory withholding requirements. The maximum withholdings allowed is 50%. To date, shares withheld for payment of applicable income taxes have been immaterial. We present the net shares issuedfollowing tables include interest recognized in the Consolidated Statements of Stockholders’ EquityOperations and the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | Duke |
| | Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
|
Net interest income recognized related to income taxes | $ | — |
| $ | — |
| $ | 1 |
| $ | — |
| $ | 1 |
|
Net interest expense recognized related to income taxes | — |
| 2 |
| — |
| — |
| — |
|
Interest payable related to income taxes | 5 |
| 25 |
| 1 |
| 1 |
| — |
|
|
| | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | Duke |
| | Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
|
Net interest income recognized related to income taxes | $ | — |
| $ | — |
| $ | 1 |
| $ | — |
| $ | 2 |
|
Net interest expense recognized related to income taxes | — |
| 7 |
| — |
| — |
| — |
|
Interest payable related to income taxes | 4 |
| 23 |
| 1 |
| 1 |
| — |
|
|
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2015 |
| | Duke |
| | Duke |
| Duke |
| Duke |
|
| Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Indiana |
|
Net interest income recognized related to income taxes | $ | 12 |
| $ | — |
| $ | 2 |
| $ | 2 |
| $ | 1 |
| $ | 1 |
|
Net interest expense recognized related to income taxes | — |
| 1 |
| — |
| — |
| — |
| — |
|
Interest receivable related to income taxes | 3 |
| — |
| — |
| — |
| — |
| 3 |
|
Interest payable related to income taxes | — |
| 14 |
| — |
| 1 |
| — |
| — |
|
Piedmont recognized $1 million in Note 7 to the consolidated financial statements.
The compensation expensenet interest income recognized related to the awards under the ICP for the years ended October 31, 2015, 2014 and 2013, and the amounts recorded as liabilities in "Other noncurrent liabilities" in "Noncurrent Liabilities" with the current portion recorded in "Other current liabilities" in "Current Liabilities"income taxes in the Consolidated Balance Sheets asStatements of October 31, 2015 and 2014 are presented below.
|
| | | | | | | | | | | | |
In thousands | | 2015 | | 2014 | | 2013 |
Compensation expense | | $ | 14,173 |
| | $ | 8,496 |
| | $ | 4,526 |
|
Tax benefit | | 3,966 |
| | 2,476 |
| | 1,538 |
|
Liability | | 22,037 |
| | 15,130 |
| | |
Based on current accrual assumptions as of October 31, 2015, the expected payout for the approved incentive compensation awards at target will occur in the following fiscal years with the 2015 plan paying out in fiscal year 2016, the 2016 plan paying out in fiscal year 2017 and the 2017 plan paying out in fiscal year 2018. Payouts as currently accrued are presented net of estimated federal and state withholding payments.
|
| | | | | | | | | | | | |
In thousands |
| 2016 |
| 2017 |
| 2018 |
Amount of payout |
| $ | 10,866 |
| | $ | 8,179 |
| | $ | 2,992 |
|
The Merger Agreement provides for the conversion of the shares subject to the RSUs and ICP awards at the performance level specified in the Merger Agreement into the right to receive $60 cash per share upon the closing of the transactions contemplated in the Merger Agreement. In November and December 2015, the Compensation Committee of our Board of Directors authorized the accelerated vesting, payment and taxation of the RSUs for our President and CEO (accelerated RSUs) and the ICP awards under the 2016 plan and the 2017 plan (accelerated ICP awards) at the target level of performance to participants, at his and their elections to accelerate, in the form of restricted shares of our common stock, net of shares withheld for applicable taxes. The acceleration of the vesting and payment of these awards will mitigate the effects of Section 280G of the Tax Code, including increasing the deductibility of such payments for the Company. The acceleration and payout of the ICP awards, at a 96% election rate by the participants, and the RSUs, per the election of our President and CEO, occurred on December 15, 2015.
In connection with the election to accelerate the ICP awards and the RSUs, each respective participant executed a share repayment agreement dated December 15, 2015. Under the share repayment agreements, each participant agreed to repay to the Company the net after-tax shares of common stock issued to him/her in connection with the acceleration, as well as shares of common stock resulting from the reinvestment of dividends paid with respect to these shares of common stock that are required to be reinvested in additional shares of common stock, to the extent the shares of common stock would not otherwise have been earned or payable absent the acceleration. Under the share repayment agreements, the shares of common stock delivered to the participants, including dividends paid by the Company and reinvested as discussed above, may not be transferred or encumbered until such shares of common stock are no longer subject to repayment under the applicable repayment agreement. The restricted shares of common stock and dividends earned on those shares of common stock are subject to full or partial cancellation if the Acquisition is not consummated or the participant leaves the Company prior to consummation of the Acquisition. The participants otherwise have all rights of shareholders with respect to the restricted shares of common stock.
The accelerated ICP awards and the accelerated RSUs were priced at the NYSE composite closing price of $56.85 on December 14, 2015. Under the accelerated ICP awards, 162,390 restricted shares of our common stock were issued to participants, net of shares withheld for applicable federal and state income taxes. The gross value of the shares issued for the accelerated ICP awards was $17.4 million, or $9.2 million net of federal and state tax withholdings. Under the accelerated RSUs, 19,554 restricted shares of our common stock were issued to our President and CEO, net of shares withheld for applicable federal and state income taxes. The gross value of the shares for the accelerated RSUs was $2.1 million, or $1.1 million net of federal and state tax withholdings.
Equity Plan
On a quarterly basis, we issue shares of common stock under the ESPP and account for the issuance as an equity transaction. The exercise price is calculated as 95% of the fair market value on the purchase date of each quarter where the fair value is determined by calculating the mean average of the high and low trading prices on the purchase date.
12. Income Taxes
The components of income tax expense for the years ended October 31, 2015, 2014 and 2013 are presented below.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| 2015 |
| 2014 |
| 2013 |
In thousands |
| Federal |
| State |
| Federal |
| State |
| Federal |
| State |
Charged (Credited) to operating | | | | | | | | | | | | |
income: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
| $ | (10,449 | ) | | $ | (289 | ) | | $ | (1,653 | ) | | $ | 950 |
| | $ | (3,032 | ) | | $ | 919 |
|
Deferred (1) (2) |
| 75,644 |
| | 12,195 |
| | 70,654 |
| | 13,434 |
| | 67,885 |
| | 11,829 |
|
Tax Credits: |
| | | | | | | | | | | |
Amortization |
| (167 | ) | | — |
| | (209 | ) | | — |
| | (267 | ) | | — |
|
Total |
| 65,028 |
| | 11,906 |
| | 68,792 |
| | 14,384 |
| | 64,586 |
| | 12,748 |
|
| | | | | | | | | | | | |
Charged (Credited) to other income | | | | | | | | | | | | |
(expense): |
|
| |
| |
| |
| |
| |
|
Current |
| 9,709 |
| | 1,449 |
| | 4,233 |
| | 870 |
| | 6,049 |
| | 984 |
|
Deferred (1) (2) |
| 2,249 |
| | (119 | ) | | 5,811 |
| | 728 |
| | 2,225 |
| | (646 | ) |
Total |
| 11,958 |
| | 1,330 |
| | 10,044 |
| | 1,598 |
| | 8,274 |
| | 338 |
|
Total |
| $ | 76,986 |
| | $ | 13,236 |
| | $ | 78,836 |
| | $ | 15,982 |
| | $ | 72,860 |
| | $ | 13,086 |
|
(1) Includes benefits from net operating loss (NOL) and tax carryforwards of $64.3 million and $62.3 million for the years ended October 31, 2015 and 2013, respectively. |
(2) Includes the utilization of NOL carryforwards of $19.8 million and $28.6 million for the years ended October 31, 2015 and 2014, respectively. |
The Tax Increase Prevention Act of 2014 (the Act), enacted December 19, 2014, retroactively extended the 50% bonus depreciation that expired December 2013 for a year to December 2014. Under the Act, we were able to claim additional depreciation deductions on our tax returnOperations for the year ended October 31, 2014. As a result of this additional depreciation, we generated a NOL for our tax year ended October 31, 2014. Prior to the Act's retroactive extension to 2014, we had anticipated utilizing NOL carryforwards to offset taxable income generated in our fiscal year 2014. The benefit from NOL2016.
Duke Energy and tax carryforwards for the year ended October 31, 2015 includes $61.1 million to record the retroactive impact of the Act.
A reconciliation of income tax expense at the federal statutory rate to recorded income tax expense for the years ended October 31, 2015, 2014 and 2013 is presented below.
|
| | | | | | | | | | | | |
In thousands |
| 2015 | | 2014 | | 2013 |
Federal taxes at 35% |
| $ | 79,532 |
| | $ | 83,517 |
| | $ | 77,127 |
|
State income taxes, net of federal benefit |
| 8,604 |
| | 10,389 |
| | 8,506 |
|
Amortization of investment tax credits |
| (167 | ) | | (209 | ) | | (267 | ) |
Other, net |
| 2,253 |
| | 1,121 |
| | 580 |
|
Total |
| $ | 90,222 |
| | $ | 94,818 |
| | $ | 85,946 |
|
As of October 31, 2015 and 2014, deferred income taxes consisted of the following temporary differences.
|
| | | | | | | | |
In thousands |
| 2015 |
| 2014 |
Deferred tax assets: |
|
| |
|
Benefit of loss carryforwards |
| $ | 84,025 |
| | $ | 39,532 |
|
Revenues and cost of gas | | 3,495 |
| | 4,960 |
|
Employee benefits and compensation |
| 22,134 |
| | 16,547 |
|
Revenue requirement |
| 26,088 |
| | 20,320 |
|
Utility plant |
| 7,481 |
| | 5,631 |
|
Other |
| 10,461 |
| | 12,869 |
|
Total deferred tax assets |
| 153,684 |
| | 99,859 |
|
Valuation allowance |
| (848 | ) | | (505 | ) |
Total deferred tax assets, net |
| 152,836 |
| | 99,354 |
|
Deferred tax liabilities: |
| | | |
Utility plant |
| 849,835 |
| | 724,172 |
|
Revenues and cost of gas |
| — |
| | 4,340 |
|
Equity method investments |
| 44,778 |
| | 42,998 |
|
Deferred costs |
| 73,903 |
| | 65,828 |
|
Other |
| 13,543 |
| | 18,065 |
|
Total deferred tax liabilities |
| 982,059 |
| | 855,403 |
|
Net deferred income tax liabilities |
| $ | 829,223 |
| | $ | 756,049 |
|
As of October 31, 2015 and 2014, total net deferred income tax assets were net of a valuation allowance to reduce amounts to the amounts that we believe will be more likely than not realized. We and our wholly-ownedits subsidiaries file a consolidated federal income tax return and various state income tax returns. As of October 31, 2015 and 2014, we have federal NOL carryforwards of $219.7 million and $97 million, respectively, which expire in 2033 through 2034. We also have $5.9 million of federal NOL carryforwards as of October 31, 2015 and 2014 that expire in 2023 through 2025 and are subject to an annual limitation of $.3 million. As of October 31, 2015, we have a capital loss carryforward of $1 million which expires in 2019. We believe that it is more likely than not that the benefit from the capital loss carryforward will not be realized. Due to the uncertainty of realizing a benefit from the deferred tax asset recorded for the capital loss carryforward, we recorded a valuation allowance of $.3 million during fiscal year ended October 31, 2015. As of October 31, 2015, we have a $1.1 million alternative minimum tax credit carryforward.
As of October 31, 2015 and 2014, we have state NOL carryforwards of $115.1 million and $7.2 million, respectively, which expire from 2018 through 2030. We may use the carryforwards to offset taxable income.
We are no longer subject to U.S. federal income tax examinationsexamination for tax years ending before and including October 31, 2009, and with2015. 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 ended before and including October 31, 2009. The IRS is currently auditing the federal income tax returns for years ended October 31, 2010, 2011 and 2012.2015.
A reconciliation of changes in the deferred tax valuation allowance for the years ended October 31, 2015, 2014 and 2013 is presented below.
|
| | | | | | | | | | | | |
In thousands |
| 2015 | | 2014 | | 2013 |
Balance at beginning of year |
| $ | 505 |
| | $ | 505 |
| | $ | 505 |
|
Charged to income tax expense |
| 343 |
| | — |
| | — |
|
Balance at end of year |
| $ | 848 |
| | $ | 505 |
| | $ | 505 |
|
There were no unrecognized tax benefits for the years ended October 31, 2015 and 2014.
In July 2013, legislation was passed in North Carolina affecting corporate taxation. The legislation reduced the corporate income tax rate from 6.9% to 6% for tax years beginning after January 1, 2014 and to 5% for tax years beginning
after January 1, 2015. It also provided for two additional 1% rate reductions if the state’s tax collections exceed certain thresholds. In July 2015, the provision for a 1% state income tax rate reduction based on state tax collections exceeding certain thresholds under the North Carolina tax statutes was announced. Accordingly, the statutory income tax rate for North Carolina will decrease to 4% for our fiscal year 2017. We record deferred income taxes using the income tax rate in effect when the temporary difference is expected to reverse.
As a result of the state income tax rate reductions announced in July 2015, we adjusted our noncurrent deferred income tax balances during fiscal year 2015 by approximately $17.5 million for temporary differences expected to reverse at the lower future rate. We recognized a tax benefit in net income of approximately $.5 million, largely related to our regulated non-utility activities segment, and recorded the remainder of approximately $17 million as regulatory deferred income taxes as presented in noncurrent "Regulatory Liabilities" in Note 3 to the consolidated financial statements, reflecting a future benefit to our customers. During fiscal 2014, we recorded an additional $3 million for the difference in the tax rate included in our customers' rates and the rate at which the deferred taxes are expected to reverse. As of October 31, 2015, we have approximately $44 million related to the North Carolina tax rate change included in our deferred income taxes recorded in “Regulatory Liabilities,” which would have been an increase to net income predominately in fiscal years 2013 and 2015 without our utility regulation. The NCUC will determine the recovery period of this regulatory liability in future proceedings. In fiscal 2013, we recognized a tax benefit in net income of approximately $1 million related to the corporate income tax reduction.
13. Equity Method Investments
23. OTHER INCOME AND EXPENSES, NET
The consolidated financial statements include the accountscomponents of wholly-owned subsidiaries whose investments in joint venture, energy-related businesses are accounted for under the equity method. Our ownership interest in each entity is included in “Equity method investments in non-utility activities” in “Noncurrent Assets” in the Consolidated Balance Sheets. Earnings or losses from equity method investments are included in “Income from equity method investments” in “Other Income (Expense)” inOther income and expenses, net on the Consolidated Statements of Comprehensive Income.Operations are as follows. Amounts for Piedmont were not material.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Interest income | $ | 13 |
| | $ | 2 |
| | $ | 6 |
| | $ | 2 |
| | $ | 5 |
| | $ | 6 |
| | $ | 8 |
|
AFUDC equity | 237 |
| | 106 |
| | 92 |
| | 47 |
| | 45 |
| | 11 |
| | 28 |
|
Post in-service equity returns | 40 |
| | 28 |
| | 12 |
| | 12 |
| | — |
| | — |
| | — |
|
Nonoperating income, other | 62 |
| | 3 |
| | 18 |
| | 4 |
| | 11 |
| | — |
| | 1 |
|
Other income and expense, net | $ | 352 |
| | $ | 139 |
| | $ | 128 |
| | $ | 65 |
| | $ | 61 |
| | $ | 17 |
| | $ | 37 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Interest income | $ | 21 |
| | $ | 4 |
| | $ | 4 |
| | $ | 3 |
| | $ | 2 |
| | $ | 5 |
| | $ | 6 |
|
AFUDC equity | 200 |
| | 102 |
| | 76 |
| | 50 |
| | 26 |
| | 6 |
| | 16 |
|
Post in-service equity returns | 67 |
| | 55 |
| | 12 |
| | 12 |
| | — |
| | — |
| | — |
|
Nonoperating income (expense), other | 36 |
| | 1 |
| | 22 |
| | 6 |
| | 16 |
| | (2 | ) | | — |
|
Other income and expense, net | $ | 324 |
| | $ | 162 |
| | $ | 114 |
| | $ | 71 |
| | $ | 44 |
| | $ | 9 |
| | $ | 22 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2015 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Interest income | $ | 20 |
| | $ | 2 |
| | $ | 4 |
| | $ | 2 |
| | $ | 2 |
| | $ | 4 |
| | $ | 6 |
|
AFUDC equity | 164 |
| | 96 |
| | 54 |
| | 47 |
| | 7 |
| | 3 |
| | 11 |
|
Post in-service equity returns | 73 |
| | 60 |
| | 13 |
| | 13 |
| | — |
| | — |
| | — |
|
Nonoperating income (expense), other | 33 |
| | 2 |
| | 26 |
| | 9 |
| | 15 |
| | (1 | ) | | (6 | ) |
Other income and expense, net | $ | 290 |
| | $ | 160 |
| | $ | 97 |
| | $ | 71 |
| | $ | 24 |
| | $ | 6 |
| | $ | 11 |
|
24. SUBSEQUENT EVENTS
For information on subsequent events related to regulatory matters, commitments and contingencies, debt and credit facilities, investments in unconsolidated affiliates, variable interest entities and common stock see Notes 4, 5, 6, 12, 17 and 18, respectively.
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
25. QUARTERLY FINANCIAL DATA (UNAUDITED)
DUKE ENERGY
Quarterly EPS amounts may not sum to the full-year total due to changes in the weighted average number of common shares outstanding and rounding. |
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions, except per share data) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Operating revenues | $ | 5,729 |
| | $ | 5,555 |
| | $ | 6,482 |
| | $ | 5,799 |
| | $ | 23,565 |
|
Operating income | 1,437 |
| | 1,387 |
| | 1,695 |
| | 1,262 |
| | 5,781 |
|
Income from continuing operations | 717 |
| | 691 |
| | 957 |
| | 705 |
| | 3,070 |
|
Loss from discontinued operations, net of tax | — |
| | (2 | ) | | (2 | ) | | (2 | ) | | (6 | ) |
Net income | 717 |
| | 689 |
| | 955 |
| | 703 |
| | 3,064 |
|
Net income attributable to Duke Energy Corporation | 716 |
| | 686 |
| | 954 |
| | 703 |
| | 3,059 |
|
Earnings per share: | | | | | | | | | |
Income from continuing operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic | $ | 1.02 |
| | $ | 0.98 |
| | $ | 1.36 |
| | $ | 1.00 |
| | $ | 4.37 |
|
Diluted | $ | 1.02 |
| | $ | 0.98 |
| | $ | 1.36 |
| | $ | 1.00 |
| | $ | 4.37 |
|
Loss from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (0.01 | ) |
Diluted | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (0.01 | ) |
Net income attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic | $ | 1.02 |
| | $ | 0.98 |
| | $ | 1.36 |
| | $ | 1.00 |
| | $ | 4.36 |
|
Diluted | $ | 1.02 |
| | $ | 0.98 |
| | $ | 1.36 |
| | $ | 1.00 |
| | $ | 4.36 |
|
2016 | | | | | | | | | |
Operating revenues | $ | 5,377 |
| | $ | 5,213 |
| | $ | 6,576 |
| | $ | 5,577 |
| | $ | 22,743 |
|
Operating income | 1,240 |
| | 1,259 |
| | 1,954 |
| | 888 |
| | 5,341 |
|
Income from continuing operations | 577 |
| | 624 |
| | 1,001 |
| | 376 |
| | 2,578 |
|
Income (Loss) from discontinued operations, net of tax | 122 |
| | (112 | ) | | 180 |
| | (598 | ) | | (408 | ) |
Net income (loss) | 699 |
| | 512 |
| | 1,181 |
| | (222 | ) | | 2,170 |
|
Net income (loss) attributable to Duke Energy Corporation | 694 |
| | 509 |
| | 1,176 |
| | (227 | ) | | 2,152 |
|
Earnings per share: | | | | | | | | | |
Income from continuing operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic | $ | 0.83 |
| | $ | 0.90 |
| | $ | 1.44 |
| | $ | 0.53 |
| | $ | 3.71 |
|
Diluted | $ | 0.83 |
| | $ | 0.90 |
| | $ | 1.44 |
| | $ | 0.53 |
| | $ | 3.71 |
|
Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic | $ | 0.18 |
| | $ | (0.16 | ) | | $ | 0.26 |
| | $ | (0.86 | ) | | $ | (0.60 | ) |
Diluted | $ | 0.18 |
| | $ | (0.16 | ) | | $ | 0.26 |
| | $ | (0.86 | ) | | $ | (0.60 | ) |
Net income (loss) attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic | $ | 1.01 |
| | $ | 0.74 |
| | $ | 1.70 |
| | $ | (0.33 | ) | | $ | 3.11 |
|
Diluted | $ | 1.01 |
| | $ | 0.74 |
| | $ | 1.70 |
| | $ | (0.33 | ) | | $ | 3.11 |
|
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. |
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Costs to Achieve Piedmont Merger (see Note 2) | $ | (16 | ) | | $ | (30 | ) | | $ | (23 | ) | | $ | (34 | ) | | $ | (103 | ) |
Regulatory Settlements (see Note 4) | — |
| | — |
| | (135 | ) | | (23 | ) | | (158 | ) |
Commercial Renewables Impairments (see Notes 10 and 11) | — |
| | — |
| | (84 | ) | | (18 | ) | | (102 | ) |
Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 102 |
| | 102 |
|
Total | $ | (16 | ) | | $ | (30 | ) | | $ | (242 | ) | | $ | 27 |
| | $ | (261 | ) |
2016 | | | | | | | | | |
|
Costs to Achieve Mergers (see Note 2) | $ | (120 | ) | | $ | (111 | ) | | $ | (84 | ) | | $ | (208 | ) | | $ | (523 | ) |
Commercial Renewables Impairment (see Note 12) | — |
| | — |
| | (71 | ) | | — |
| | (71 | ) |
Loss on Sale of International Disposal Group (see Note 2) | — |
| | — |
| | — |
| | (514 | ) | | (514 | ) |
Impairment of Assets in Central America (see Note 2) | — |
| | (194 | ) | | — |
| | — |
| | (194 | ) |
Cost Savings Initiatives (see Note 19) | (20 | ) | | (24 | ) | | (19 | ) | | (29 | ) | | (92 | ) |
Total | $ | (140 | ) | | $ | (329 | ) | | $ | (174 | ) | | $ | (751 | ) | | $ | (1,394 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Operating revenues | $ | 1,716 |
| | $ | 1,729 |
| | $ | 2,136 |
| | $ | 1,721 |
| | $ | 7,302 |
|
Operating income | 484 |
| | 485 |
| | 777 |
| | 403 |
| | 2,149 |
|
Net income | 270 |
| | 273 |
| | 466 |
| | 205 |
| | 1,214 |
|
2016 | | | | | | | | | |
Operating revenues | $ | 1,740 |
| | $ | 1,675 |
| | $ | 2,226 |
| | $ | 1,681 |
| | $ | 7,322 |
|
Operating income | 481 |
| | 464 |
| | 815 |
| | 302 |
| | 2,062 |
|
Net income | 271 |
| | 261 |
| | 494 |
| | 140 |
| | 1,166 |
|
The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. |
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Costs to Achieve Piedmont Merger (see Note 2) | $ | (4 | ) | | $ | (6 | ) | | $ | (5 | ) |
| $ | (5 | ) | | $ | (20 | ) |
Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | (15 | ) | | (15 | ) |
Total | $ | (4 | ) | | $ | (6 | ) | | $ | (5 | ) | | $ | (20 | ) | | $ | (35 | ) |
2016 | | | | | | | | | |
Costs to Achieve Mergers | $ | (11 | ) | | $ | (12 | ) | | $ | (13 | ) | | $ | (68 | ) | | $ | (104 | ) |
Cost Savings Initiatives (see Note 19) | (10 | ) | | (10 | ) | | (8 | ) | | (11 | ) | | (39 | ) |
Total | $ | (21 | ) | | $ | (22 | ) | | $ | (21 | ) | | $ | (79 | ) | | $ | (143 | ) |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC �� DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Operating revenues | $ | 2,179 |
| | $ | 2,392 |
| | $ | 2,864 |
| | $ | 2,348 |
| | $ | 9,783 |
|
Operating income | 487 |
| | 591 |
| | 657 |
| | 493 |
| | 2,228 |
|
Net income | 201 |
| | 277 |
| | 343 |
| | 447 |
| | 1,268 |
|
Net income attributable to Parent | 199 |
| | 274 |
| | 341 |
| | 444 |
| | 1,258 |
|
2016 | | | | | | | | | |
Operating revenues | $ | 2,332 |
| | $ | 2,348 |
| | $ | 2,965 |
| | $ | 2,208 |
| | $ | 9,853 |
|
Operating income | 475 |
| | 560 |
| | 814 |
| | 292 |
| | 2,141 |
|
Income from continuing operations | 212 |
| | 274 |
| | 449 |
| | 104 |
| | 1,039 |
|
Net income | 212 |
| | 274 |
| | 449 |
| | 106 |
| | 1,041 |
|
Net income attributable to Parent | 209 |
| | 272 |
| | 446 |
| | 104 |
| | 1,031 |
|
The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. |
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Costs to Achieve Piedmont Merger (see Note 2) | $ | (4 | ) | | $ | (7 | ) | | $ | (6 | ) | | $ | (6 | ) | | $ | (23 | ) |
Regulatory Settlements (see Note 4) | — |
| | — |
| | (135 | ) | | (23 | ) | | (158 | ) |
Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 246 |
| | 246 |
|
Total | $ | (4 | ) | | $ | (7 | ) | | $ | (141 | ) | | $ | 217 |
| | $ | 65 |
|
2016 | | | | | | | | | |
|
Costs to Achieve Mergers | $ | (7 | ) | | $ | (8 | ) | | $ | (10 | ) | | $ | (44 | ) | | $ | (69 | ) |
Cost Savings Initiatives (see Note 19) | (8 | ) | | (8 | ) | | (10 | ) | | (14 | ) | | (40 | ) |
Total | $ | (15 | ) | | $ | (16 | ) | | $ | (20 | ) | | $ | (58 | ) | | $ | (109 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Operating revenues | $ | 1,219 |
| | $ | 1,199 |
| | $ | 1,460 |
| | $ | 1,251 |
| | $ | 5,129 |
|
Operating income | 286 |
| | 282 |
| | 411 |
| | 256 |
| | 1,235 |
|
Net income | 147 |
| | 154 |
| | 246 |
| | 168 |
| | 715 |
|
2016 | | | | | | | | | |
Operating revenues | $ | 1,307 |
| | $ | 1,213 |
| | $ | 1,583 |
| | $ | 1,174 |
| | $ | 5,277 |
|
Operating income | 258 |
| | 255 |
| | 438 |
| | 135 |
| | 1,086 |
|
Net income | 137 |
| | 131 |
| | 271 |
| | 60 |
| | 599 |
|
The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. |
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Costs to Achieve Piedmont Merger (see Note 2) | $ | (2 | ) | | $ | (4 | ) | | $ | (4 | ) | | $ | (4 | ) | | $ | (14 | ) |
Regulatory Settlements (see Note 4) | — |
| | — |
| | — |
| | (23 | ) | | (23 | ) |
Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 40 |
| | 40 |
|
Total | $ | (2 | ) |
| $ | (4 | ) |
| $ | (4 | ) |
| $ | 13 |
|
| $ | 3 |
|
2016 | | | | | | | | | |
Costs to Achieve Mergers | $ | (5 | ) | | $ | (5 | ) | | $ | (6 | ) | | $ | (40 | ) | | $ | (56 | ) |
Cost Savings Initiatives (see Note 19) | (5 | ) | | (5 | ) | | (7 | ) | | (6 | ) | | (23 | ) |
Total | $ | (10 | ) | | $ | (10 | ) | | $ | (13 | ) | | $ | (46 | ) | | $ | (79 | ) |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Operating revenues | $ | 959 |
| | $ | 1,191 |
| | $ | 1,401 |
| | $ | 1,095 |
| | $ | 4,646 |
|
Operating income | 196 |
| | 306 |
| | 240 |
| | 234 |
| | 976 |
|
Net income | 90 |
| | 158 |
| | 120 |
| | 344 |
| | 712 |
|
2016 | | | | | | | | | |
Operating revenues | $ | 1,024 |
| | $ | 1,133 |
| | $ | 1,381 |
| | $ | 1,030 |
| | $ | 4,568 |
|
Operating income | 213 |
| | 300 |
| | 373 |
| | 155 |
| | 1,041 |
|
Net income | 110 |
| | 171 |
| | 206 |
| | 64 |
| | 551 |
|
The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. |
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Costs to Achieve Piedmont Merger (see Note 2) | $ | (2 | ) | | $ | (3 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (9 | ) |
Regulatory Settlements (see Note 4) | — |
| | — |
| | (135 | ) | | — |
| | (135 | ) |
Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 226 |
| | 226 |
|
Total | $ | (2 | ) | | $ | (3 | ) | | $ | (137 | ) | | $ | 224 |
| | $ | 82 |
|
2016 | | | | | | | | | |
Costs to Achieve Mergers | $ | (2 | ) | | $ | (3 | ) | | $ | (4 | ) | | $ | (4 | ) | | $ | (13 | ) |
Cost Savings Initiatives (see Note 19) | (2 | ) | | (3 | ) | | (3 | ) | | (9 | ) | | (17 | ) |
Total | $ | (4 | ) | | $ | (6 | ) | | $ | (7 | ) | | $ | (13 | ) | | $ | (30 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Operating revenues | $ | 518 |
| | $ | 437 |
| | $ | 471 |
| | $ | 497 |
| | $ | 1,923 |
|
Operating income | 83 |
| | 65 |
| | 102 |
| | 76 |
| | 326 |
|
Loss from discontinued operations, net of tax | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Net income | 42 |
| | 30 |
| | 55 |
| | 65 |
| | 192 |
|
2016 | | | | | | | | | |
Operating revenues | $ | 516 |
| | $ | 428 |
| | $ | 489 |
| | $ | 511 |
| | $ | 1,944 |
|
Operating income | 96 |
| | 55 |
| | 106 |
| | 90 |
| | 347 |
|
Income from discontinued operations, net of tax | 2 |
| | — |
| | 34 |
| | — |
| | 36 |
|
Net income | 59 |
| | 23 |
| | 89 |
| | 57 |
| | 228 |
|
The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. |
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Costs to Achieve Piedmont Merger (see Note 2) | $ | (1 | ) | | $ | (1 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (6 | ) |
Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 23 |
| | 23 |
|
Total | $ | (1 | ) | | $ | (1 | ) | | $ | (2 | ) | | $ | 21 |
| | $ | 17 |
|
2016 | | | | | | | | | |
Costs to Achieve Mergers | $ | (1 | ) | | $ | (1 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (6 | ) |
Cost Savings Initiatives (see Note 19) | (1 | ) | | (1 | ) | | — |
| | (1 | ) | | (3 | ) |
Total | $ | (2 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (3 | ) | | $ | (9 | ) |
PART II
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes To Consolidated Financial Statements – (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Operating revenues | $ | 758 |
| | $ | 742 |
| | $ | 802 |
| | $ | 745 |
| | $ | 3,047 |
|
Operating income | 186 |
| | 210 |
| | 230 |
| | 170 |
| | 796 |
|
Net income | 91 |
| | 106 |
| | 121 |
| | 36 |
| | 354 |
|
2016 | | | | | | | | | |
Operating revenues | $ | 714 |
| | $ | 702 |
| | $ | 809 |
| | $ | 733 |
| | $ | 2,958 |
|
Operating income | 176 |
| | 174 |
| | 239 |
| | 176 |
| | 765 |
|
Net income | 95 |
| | 85 |
| | 129 |
| | 72 |
| | 381 |
|
The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax. |
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Costs to Achieve Piedmont Merger (see Note 2) | $ | (1 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (1 | ) | | $ | (6 | ) |
Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | (55 | ) | | (55 | ) |
Total | $ | (1 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (56 | ) | | $ | (61 | ) |
2016 | | | | | | | | | |
Costs to Achieve Mergers | $ | (1 | ) | | $ | (2 | ) | | $ | (3 | ) | | $ | (3 | ) | | $ | (9 | ) |
Cost Savings Initiatives (see Note 19) | (1 | ) | | (4 | ) | | (1 | ) | | (1 | ) | | (7 | ) |
Total | $ | (2 | ) | | $ | (6 | ) | | $ | (4 | ) | | $ | (4 | ) | | $ | (16 | ) |
PIEDMONT
The following tables include data for Piedmont's fiscal years ending December 31, 2017, and October 31, 2015, there2016. |
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Operating revenues | $ | 500 |
| | $ | 201 |
| | $ | 183 |
| | $ | 444 |
| | $ | 1,328 |
|
Operating income (loss) | 170 |
| | 5 |
| | (4 | ) | | 115 |
| | 286 |
|
Net income (loss) | 95 |
| | (8 | ) | | (11 | ) | | 63 |
| | 139 |
|
2016 | | | | | | | | | |
Operating revenues | $ | 464 |
| | $ | 353 |
| | $ | 160 |
| | $ | 172 |
| | $ | 1,149 |
|
Operating income (loss) | 171 |
| | 104 |
| | — |
| | (50 | ) | | 225 |
|
Net income (loss) | 98 |
| | 63 |
| | (7 | ) | | 39 |
| | 193 |
|
For the two months ended December 31, 2016, Piedmont's operating revenues, operating income, and net income were no$322 million, $96 million and $54 million, respectively.
The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts that represented undistributed earnings of our 50% or less owned equity method investments in our retained earnings.discussed below are pretax. |
| | | | | | | | | | | | | | | | | | | |
| First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
2017 | | | | | | | | | |
Costs to Achieve Piedmont Merger (see Note 2) | $ | (6 | ) | | $ | (13 | ) | | $ | (8 | ) | | $ | (19 | ) | | $ | (46 | ) |
Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 2 |
| | 2 |
|
Total | $ | (6 | ) | | $ | (13 | ) | | $ | (8 | ) | | $ | (17 | ) | | $ | (44 | ) |
2016 | | | | | | | | | |
Costs to Achieve Mergers | $ | (6 | ) | | $ | (2 | ) | | $ | (1 | ) | | $ | (53 | ) | | $ | (62 | ) |
For the two months ended December 31, 2016, Piedmont's costs to achieve merger were $7 million.
We have the following membership interests in these companies as of October 31, 2015 and 2014.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
| | | | |
Entity Name | | Interest | | Activity |
Cardinal Pipeline Company, LLC (Cardinal) | | 21.49% | | Intrastate pipeline located in North Carolina; regulated by the NCUC |
Pine Needle LNG Company, LLC (Pine Needle) | | 45% | | Interstate LNG storage facility located in North Carolina; regulated by the FERC |
SouthStar Energy Services, LLC (SouthStar) | | 15% | | Energy services company primarily selling natural gas in the unregulated retail gas market to residential, commercial and industrial customers in the eastern United States, primarily Georgia and Illinois |
Hardy Storage Company (Hardy Storage) | | 50% | | Underground interstate storage facility located in Hardy and Hampshire Counties, West Virginia; regulated by the FERC |
Constitution Pipeline Company LLC (Constitution) | | 24% | | To develop, construct, own and operate 124 miles of interstate 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 |
Atlantic Coast Pipeline, LLC (ACP) | | 10% | | To develop, construct, own and operate 564 miles of interstate natural gas pipeline with associated compression from West Virginia through Virginia into eastern North Carolina in order to provide interstate natural gas transportation services of Marcellus and Utica gas supplies into southeastern markets; regulated by the FERC |
Accumulated Other Comprehensive Income (Loss)
As an equity method investor, we record the effect of certain transactions in our accumulated OCIL. Cardinal and Pine Needle enter into interest-rate swap agreements to modify the interest expense characteristics of their unsecured long-term debt which is nonrecourse to its members. SouthStar uses financial contracts in the form of futures, options and swaps, all considered to be derivatives, to moderate the effect of price and weather changes on the timing of its earnings; fair value of these financial contracts is based on selected market indices. Retirement benefits are allocated to SouthStar by its majority member with the activity of prescribed benefit expense items reflected in accumulated OCIL. For these transactions with these equity method investees, we record our share of movements in the market value of these hedged agreements and contracts and retirement benefit items in “Accumulated other comprehensive loss” in “Stockholders’ equity” in the Consolidated Balance Sheets; the detail of our share of the market value of the various financial instruments and the retirement benefits are presented in “Other Comprehensive Income (Loss), net of tax” in the Consolidated Statements of Comprehensive Income.
Related Party Transactions
We have related party transactions as a customer of our investments. For the years ended October 31, 2015, 2014 and 2013, these gas costs and the amounts we owed to our equity method investees, as of October 31, 2015 and 2014, are as follows.
|
| | | | | | | | | | | | | | | | | | | | | | |
Related Party | | Type of Expense | | Cost of Gas (1) | | Trade accounts payable (2) |
In thousands | | | | 2015 | | 2014 | | 2013 | | 2015 | | 2014 |
Cardinal | | Transportation costs | | $ | 8,763 |
| | $ | 8,825 |
| | 8,775 |
| | $ | 744 |
| | $ | 747 |
|
Pine Needle | | Gas storage costs | | 11,441 |
| | 11,364 |
| | 11,098 |
| | 955 |
| | 989 |
|
Hardy Storage | | Gas storage costs | | 9,290 |
| | 9,461 |
| | 9,702 |
| | 774 |
| | 774 |
|
Totals | | | | $ | 29,494 |
| | $ | 29,650 |
| | $ | 29,575 |
| | $ | 2,473 |
| | $ | 2,510 |
|
| | | | | | | | | | | | |
(1) In the Consolidated Statements of Comprehensive Income. |
(2) In the Consolidated Balance Sheets. |
We have related party transactions as we sell wholesale gas supplies to SouthStar. For the years ended October 31, 2015, 2014 and 2013, our operating revenues from these sales and the amounts SouthStar owed us as of October 31, 2015 and 2014, are as follows.
|
| | | | | | | | | | | | | | | | | | | | |
| | Operating Revenues (1) | | Trade accounts receivable (2) |
In thousands | | 2015 | | 2014 | | 2013 | | 2015 | | 2014 |
Operating revenues | | $ | 1,568 |
| | $ | 3,541 |
| | $ | 3,291 |
| | $ | 183 |
| | $ | 460 |
|
(1) In the Consolidated Statements of Comprehensive Income. |
(2) In the Consolidated Balance Sheets. |
Information on Our Equity Method Investments
Cardinal
Cardinal is a North Carolina limited liability company. The other members are subsidiaries of The Williams Companies, Inc. and SCANA Corporation. Cardinal has firm, long-term service agreements with local distribution companies for 100% of the firm transportation capacity on the pipeline, of which Piedmont subscribes to approximately 53%. Cardinal is dependent on the Williams – Transco pipeline system to deliver gas into its system for service to its customers.
Summarized financial information provided to us by Cardinal for 100% of Cardinal as of September 30, 2015 and 2014, and for the twelve months ended September 30, 2015, 2014 and 2013, is presented below.
|
| | | | | | | | | | | | |
In thousands |
| 2015 | | 2014 | | 2013 |
Current assets |
| $ | 9,451 |
| | $ | 8,856 |
| | |
Noncurrent assets |
| 106,444 |
| | 111,881 |
| | |
Current liabilities |
| 1,228 |
| | 1,468 |
| | |
Noncurrent liabilities |
| 45,446 |
| | 45,402 |
| | |
Revenues |
| 16,629 |
| | 16,705 |
| | $ | 17,649 |
|
Gross profit |
| 16,629 |
| | 16,705 |
| | 17,649 |
|
Income before income taxes |
| 7,742 |
| | 8,042 |
| | 9,361 |
|
Pine Needle
Pine Needle is a North Carolina limited liability company. The other members are the Municipal Gas Authority of Georgia, and subsidiaries of The Williams Companies, Inc. and SCANA Corporation. Effective July 1, 2013, we acquired Hess Corporation’s 5% membership interest in Pine Needle for $2.9 million, increasing our membership interest from 40% to 45%. Pine Needle has firm, long-term service agreements for 100% of the storage capacity of the facility, of which Piedmont subscribes to approximately 64%. We are dependent on the Williams – Transco pipeline system for redelivery of Pine Needle volumes to our system for service to our customers.
Summarized financial information provided to us by Pine Needle for 100% of Pine Needle as of September 30, 2015 and 2014, and for the twelve months ended September 30, 2015, 2014 and 2013, is presented below.
|
| | | | | | | | | | | | |
In thousands |
| 2015 | | 2014 | | 2013 |
Current assets |
| $ | 9,863 |
| | $ | 8,812 |
| | |
Noncurrent assets |
| 71,586 |
| | 70,837 |
| | |
Current liabilities |
| 5,377 |
| | 38,029 |
| | |
Noncurrent liabilities |
| 35,112 |
| | — |
| | |
Revenues |
| 16,913 |
| | 18,025 |
| | $ | 16,810 |
|
Gross profit |
| 16,913 |
| | 18,025 |
| | 16,810 |
|
Income before income taxes |
| 6,002 |
| | 6,011 |
| | 5,804 |
|
SouthStar
SouthStar is a Delaware limited liability company. The other member is Georgia Natural Gas Company (GNGC), a wholly-owned subsidiary of AGL Resources, Inc. (AGL) who is subject to being acquired by The Southern Company. On September 4, 2015, under the terms of the SouthStar limited liability company agreement (SSE LLC Agreement) regarding GNGC's change in control, we affirmed our election by written notice to remain a member of SouthStar.
In accordance with the SSE LLC Agreement, upon the announcement of the Acquisition, we delivered a notice of change of control to GNGC. On December 9, 2015, GNGC delivered to us a written notice electing to purchase our entire 15% interest in SouthStar. GNGC’s election to purchase our entire 15% interest in SouthStar is subject to and effective with the consummation of the Acquisition.
In September 2013, GNGC contributed its retail natural gas marketing assets and customer accounts located in Illinois. AGL acquired these retail assets and customers from Nicor Inc. in December 2011 and additional retail natural gas assets and customer accounts in a separate transaction in June 2013. We made an additional $22.5 million capital contribution to SouthStar, maintaining our 15% equity ownership, related to this transaction.
SouthStar’s business is seasonal in nature as variations in weather conditions generally result in greater revenue and earnings during the winter months when weather is colder and natural gas consumption is higher. Also, because SouthStar is not a rate-regulated company, the timing of its earnings can be affected by changes in the wholesale price of natural gas. While SouthStar uses financial contracts to moderate the effect of price and weather changes on the timing of its earnings, wholesale price and weather volatility can cause variations in the timing of the recognition of earnings.
Summarized financial information provided to us by SouthStar for 100% of SouthStar as of September 30, 2015 and 2014, and for the twelve months ended September 30, 2015, 2014 and 2013, is presented below.
|
| | | | | | | | | | | | |
In thousands |
| 2015 | | 2014* | | 2013 |
Current assets |
| $ | 204,237 |
| | $ | 192,151 |
| | |
Noncurrent assets |
| 132,315 |
| | 143,958 |
| | |
Current liabilities |
| 45,953 |
| | 47,923 |
| | |
Noncurrent liabilities |
| — |
| | — |
| | |
Revenues |
| 769,295 |
| | 845,695 |
| | $ | 639,426 |
|
Gross profit |
| 224,612 |
| | 234,581 |
| | 174,993 |
|
Income before income taxes |
| 129,340 |
| | 136,569 |
| | 102,805 |
|
| | | | | | |
* Balance sheet amounts have been changed to reflect SouthStar's reclassification of cash collateral under accounting guidance. |
Hardy Storage
Hardy Storage is a West Virginia limited liability company. The other owner is a subsidiary of Columbia Gas Transmission Corporation, a subsidiary of NiSource Inc. Hardy Storage has firm, long-term service agreements for 100% of the storage capacity of the facility, of which Piedmont subscribes to approximately 40%. We are dependent on Columbia Pipeline Group and the Williams – Transco pipeline system for redelivery of Hardy Storage volumes to our system for service to our customers.
Summarized financial information provided to us by Hardy Storage for 100% of Hardy Storage as of October 31, 2015 and 2014, and for the twelve months ended October 31, 2015, 2014 and 2013, is presented below.
|
| | | | | | | | | | | | |
In thousands |
| 2015 | | 2014 | | 2013 |
Current assets |
| $ | 11,658 |
| | $ | 12,644 |
| | |
Noncurrent assets |
| 156,803 |
| | 157,861 |
| | |
Current liabilities |
| 19,078 |
| | 17,316 |
| | |
Noncurrent liabilities |
| 69,971 |
| | 78,830 |
| | |
Revenues |
| 23,350 |
| | 23,804 |
| | $ | 24,375 |
|
Gross profit |
| 23,350 |
| | 23,804 |
| | 24,375 |
|
Income before income taxes |
| 10,403 |
| | 10,497 |
| | 10,582 |
|
Constitution
Constitution is a Delaware limited liability company. The other members are subsidiaries of The Williams Companies, Inc., Cabot Oil & Gas Corporation and WGL Holdings, Inc. A subsidiary of The Williams Companies will be the operator of the pipeline. We have committed to fund an amount in proportion to our ownership interest for the development and construction of the new pipeline, which is expected to cost approximately $834 million, excluding AFUDC, in total. Our total anticipated contributions are approximately $200.2 million. As of October 31, 2015, our fiscal year contributions were $19.1 million, with our total equity contributions for the project totaling $72.7 million to date. On December 2, 2014, the FERC issued a certificate of public convenience and necessity approving construction of the Constitution pipeline. The target in-service date of the project is the fourth quarter of 2016, which has been extended due to a longer than expected regulatory and permitting process. The capacity of the pipeline is 100% subscribed under fifteen-year service agreements with two Marcellus producer-shippers with a negotiated rate structure.
Summarized financial information provided to us by Constitution for 100% of Constitution as of September 30, 2015 and 2014, and for the twelve months ended September 30, 2015, 2014 and 2013, is presented below.
|
| | | | | | | | | | | | |
In thousands |
| 2015 | | 2014 | | 2013 |
Current assets |
| $ | 6,163 |
| | $ | 11,273 |
| |
|
Noncurrent assets |
| 330,152 |
| | 219,208 |
| |
|
Current liabilities |
| 4,398 |
| | 7,667 |
| |
|
Noncurrent liabilities |
| — |
| | — |
| |
|
Revenues |
| — |
| | — |
| | $ | — |
|
Gross profit |
| — |
| | — |
| | — |
|
Income before income taxes |
| 24,604 |
| | 10,091 |
| | 3,459 |
|
ACP
On September 2, 2014, Piedmont, Duke Energy, Dominion Resources, Inc. (Dominion), and AGL announced the formation of ACP, a Delaware limited liability company. A Dominion subsidiary will be the operator of the pipeline. The pipeline will be designed with an initial capacity of 1.5 billion cubic feet per day with a target in-service date of late 2018, subject to state and other federal approvals. The capacity of ACP is substantially subscribed by the members of ACP, other utilities and related companies under twenty-year contracts.
The total cost for the project is expected to be between $4.5 billion to $5 billion, excluding financing costs. Members anticipate obtaining project financing for 60% of the total costs during the construction period, and a project capitalization ratio of 50% debt and 50% equity when operational. As of October 31, 2015, our fiscal year contributions were $10.6 million, with contributions to the project beginning November 2014.
In November 2014, the FERC authorized the ACP pre-filing process under which environmental review for the natural gas pipeline will commence. In February 2015, ACP, along with Dominion Transmission, Inc. (DTI), filed a notice of intent to prepare its environmental impact statement for the project and DTI’s supply header project affecting ACP. ACP filed its FERC application in September 2015 and expects to receive the FERC certificate of public convenience and necessity in the summer of 2016 and begin construction thereafter.
On March 2, 2015, ACP entered into a Precedent Agreement with DTI for supply header transportation services. Under the Precedent Agreement, ACP is required to provide assurance of its ability to meet its financial obligations to DTI. DTI has informed ACP that ACP, independent of its members, is not currently creditworthy as required by DTI’s FERC Gas Tariff. ACP requested that its members provide proportionate assurance of ACP’s ability to meet its financial obligations under the Precedent Agreement, which the Piedmont member provided through an Equity Contribution Agreement between Piedmont and ACP where Piedmont committed to make funds available to the Piedmont member for it to pay and perform its obligations under the ACP Limited Liability Company Agreement. This commitment is capped at $15.2 million. This commitment ceases when DTI acknowledges that ACP is independently creditworthy in accordance with the Precedent Agreement, termination or expiration of the Precedent Agreement, or when we are no longer a member of ACP.
On July 13, 2015, the parent companies of the members of ACP entered into an indemnification agreement with an insurance company to secure surety bonds in connection with preparatory and pre-construction activities on the ACP project. Liability under the indemnification agreement is several and is capped at each member’s proportionate share, based on its membership interest in ACP, of losses, if any, incurred by the insurance company.
On October 24, 2015, Piedmont entered into a Merger Agreement with Duke Energy. The ACP limited liability company agreement includes provisions to allow Dominion an option to purchase additional ownership interests in ACP to maintain a majority ownership percentage relative to all other members. After consummation of the Acquisition, Duke, together with our ownership, would have a 50% membership interest unless Dominion exercises its option.
Summarized financial information provided to us by ACP for 100% of ACP as of September 30, 2015, and for the twelve months ended September 30, 2015, is presented below. Information for 2014 is not applicable as ACP was formed on September 2, 2014.
|
| | | | |
In thousands | | 2015 |
Current assets | | $ | 23,422 |
|
Noncurrent assets | | 86,109 |
|
Current liabilities | | 9,105 |
|
Noncurrent liabilities | | — |
|
Revenues | | — |
|
Gross profit | | — |
|
(Loss) before income taxes | | (5,205 | ) |
14. Variable Interest Entities
On a quarterly basis, we evaluate our variable interests in other entities, primarily ownership interests, to determine if they represent a variable interest entity (VIE) as defined by the authoritative guidance on consolidation, and if so, which party is the primary beneficiary. As of October 31, 2015, we have determined that we are not the primary beneficiary under VIE accounting guidance in any of our equity method investments, as discussed in Note 13 to the consolidated financial statements. Based on our involvement in these investments, we do not have the power to direct the activities of these investments that most significantly impact the VIE’s economic performance, and we will continue to apply equity method accounting to these investments.
Our maximum loss exposure related to these equity method investments is limited to our equity investment in each entity included in “Equity method investments in non-utility activities” in “Noncurrent Assets” in the Consolidated Balance Sheets. As of October 31, 2015 and 2014, our investment balances are as follows.
|
| | | | | | | | |
| | October 31, | | October 31, |
In thousands | | 2015 | | 2014 |
Cardinal | | $ | 15,083 |
| | $ | 16,073 |
|
Pine Needle | | 18,396 |
| | 18,689 |
|
SouthStar | | 41,325 |
| | 40,965 |
|
Hardy Storage | | 39,706 |
| | 37,179 |
|
Constitution | | 82,403 |
| | 57,255 |
|
ACP | | 10,043 |
| | 10 |
|
Total equity method investments in non-utility activities | | $ | 206,956 |
| | $ | 170,171 |
|
We have also reviewed various lease arrangements, contracts to purchase, sell or deliver natural gas and other agreements in which we hold a variable interest. In these cases, we have determined that we are not the primary beneficiary of the related VIE because we do not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, or the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
15. Business Segments
We have three reportable business segments: regulated utility, regulated non-utility activities and unregulated non-utility activities. Our segments are identified based on products and services, regulatory environments and our current corporate organization and business decision-making activities. The regulated utility segment is the gas distribution business, where we include the operations of merchandising and its related service work and home service agreements, with activities conducted by the parent company. Although the operations of our regulated utility segment are located in three states under the jurisdiction of individual state regulatory commissions, the operations are managed as one unit having similar economic and risk characteristics within one company. Operations of our regulated non-utility activities segment are comprised of our equity method investments in joint ventures with regulated activities that are held by our wholly-owned subsidiaries. Operations of our unregulated non-utility activities segment are comprised primarily of our equity method investment in a joint venture with unregulated activities that is held by a wholly-owned subsidiary; activities of our other minor subsidiaries are also included.
All of our operations are within the United States. No single customer accounts for more than 10% of our consolidated revenues.
Operations by segment for the years ended October 31, 2015, 2014 and 2013, and as of October 31, 2015, 2014 and 2013, are presented below.
|
| | | | | | | | | | | | | | | | |
| | | | Regulated |
| Unregulated | | |
| | Regulated | | Non-Utility |
| Non-Utility | | |
In thousands | | Utility | | Activities |
| Activities | | Total |
2015 | | | | | | | | |
Revenues from external customers | | $ | 1,371,718 |
|
| $ | — |
| | $ | — |
|
| $ | 1,371,718 |
|
Margin | | 727,294 |
|
| — |
| | — |
|
| 727,294 |
|
Operations and maintenance expenses | | 294,517 |
|
| 81 |
| | 105 |
|
| 294,703 |
|
Depreciation | | 128,704 |
|
| — |
| | 18 |
|
| 128,722 |
|
Operating income (loss) before income taxes | | 261,963 |
|
| (152 | ) | | (217 | ) |
| 261,594 |
|
Income from equity method investments | | — |
|
| 15,060 |
| | 19,401 |
|
| 34,461 |
|
Interest charges | | 68,631 |
|
| — |
| | — |
|
| 68,631 |
|
Income before income taxes | | 193,140 |
|
| 14,909 |
| | 19,184 |
|
| 227,233 |
|
Total assets | | 4,742,284 |
|
| 165,630 |
| | 41,682 |
|
| 4,949,596 |
|
Equity method investments in non-utility activities | | — |
|
| 165,630 |
| | 41,326 |
|
| 206,956 |
|
Construction expenditures | | 443,654 |
|
| — |
| | — |
|
| 443,654 |
|
| | | | | | | | |
| |
|
| Regulated |
| Unregulated | | |
| | Regulated |
| Non-Utility |
| Non-Utility | | |
In thousands | | Utility |
| Activities |
| Activities | | Total |
2014 | | | | | | | | |
Revenues from external customers | | $ | 1,469,988 |
| | $ | — |
| | $ | — |
| | $ | 1,469,988 |
|
Margin | | 690,208 |
| | — |
| | — |
| | 690,208 |
|
Operations and maintenance expenses | | 270,877 |
| | 132 |
| | 92 |
| | 271,101 |
|
Depreciation | | 118,996 |
| | — |
| | 18 |
| | 119,014 |
|
Operating income (loss) before income taxes | | 263,041 |
| | (183 | ) | | (203 | ) | | 262,655 |
|
Income from equity method investments | | — |
| | 12,318 |
| | 20,435 |
| | 32,753 |
|
Interest charges | | 54,686 |
| | — |
| | — |
| | 54,686 |
|
Income before income taxes | | 206,253 |
| | 12,135 |
| | 20,231 |
| | 238,619 |
|
Total assets (1) | | 4,432,239 |
| | 129,206 |
| | 41,309 |
| | 4,602,754 |
|
Equity method investments in non-utility activities | | — |
| | 129,206 |
| | 40,965 |
| | 170,171 |
|
Construction expenditures | | 460,444 |
| | — |
| | — |
| | 460,444 |
|
| | | | | | | | |
| | | | Regulated | | Unregulated | | |
| | Regulated | | Non-Utility | | Non-Utility | | |
In thousands | | Utility | | Activities | | Activities | | Total |
2013 | | | | | | | | |
Revenues from external customers | | $ | 1,278,229 |
| | $ | — |
| | $ | — |
| | $ | 1,278,229 |
|
Margin | | 621,490 |
| | — |
| | — |
| | 621,490 |
|
Operations and maintenance expenses | | 253,120 |
| | 103 |
| | 78 |
| | 253,301 |
|
Depreciation | | 112,207 |
| | — |
| | 18 |
| | 112,225 |
|
Operating income (loss) before income taxes | | 221,528 |
| | (150 | ) | | (202 | ) | | 221,176 |
|
Income from equity method investments | | — |
| | 10,584 |
| | 15,472 |
| | 26,056 |
|
Interest charges | | 24,938 |
| | — |
| | — |
| | 24,938 |
|
Income before income taxes | | 194,659 |
| | 10,434 |
| | 15,270 |
| | 220,363 |
|
Total assets (1) | | 4,045,259 |
| | 90,097 |
| | 38,735 |
| | 4,174,091 |
|
Equity method investments in non-utility activities | | — |
| | 90,097 |
| | 38,372 |
| | 128,469 |
|
Construction expenditures | | 599,999 |
| | — |
| | — |
| | 599,999 |
|
| | | | | | | | |
(1) Regulated utility total assets have been adjusted in 2014 and 2013 to reflect the netting of debt issuance costs with its debt carrying value in accordance with the 2015 adoption of new accounting guidance related to this balance sheet presentation. |
Reconciliations to the consolidated financial statements for the years ended October 31, 2015, 2014 and 2013, and as of October 31, 2015 and 2014 are as follows.
|
| | | | | | | | | | | | |
In thousands | | 2015 | | 2014 | | 2013 |
Operating Income: | |
| | | | |
Segment operating income before income taxes | | $ | 261,594 |
| | $ | 262,655 |
| | $ | 221,176 |
|
Utility income taxes | | (76,934 | ) | | (83,176 | ) | | (77,334 | ) |
Regulated non-utility activities operating loss before income taxes | | 152 |
| | 183 |
| | 150 |
|
Unregulated non-utility activities operating loss before income taxes | | 217 |
| | 203 |
| | 202 |
|
Total | | $ | 185,029 |
| | $ | 179,865 |
| | $ | 144,194 |
|
| |
| | | | |
Net Income: | |
| | | | |
Income before income taxes for reportable segments | | $ | 227,233 |
| | $ | 238,619 |
| | $ | 220,363 |
|
Income taxes | | (90,222 | ) | | (94,818 | ) | | (85,946 | ) |
Total | | $ | 137,011 |
| | $ | 143,801 |
| | $ | 134,417 |
|
|
| | | | | | | | | | |
In thousands | | 2015 | | 2014 | | |
Consolidated Assets: | | | | | |
Total assets for reportable segments | | $ | 4,949,596 |
| | $ | 4,602,754 |
| |
Eliminations/Adjustments | | 161,154 |
| | 171,553 |
| |
Total | | $ | 5,110,750 |
| | $ | 4,774,307 |
| |
16. Subsequent Events
We monitor significant events occurring after the balance sheet date and prior to the issuance of the financial statements to determine the impacts, if any, of events on the financial statements to be issued. All subsequent events of which we are aware were evaluated. For information on subsequent event disclosure items related to regulatory matters, short-term debt instruments, employee share-based plans and equity method investments, see Note 3, Note 6, Note 11 and Note 13, respectively, to the consolidated financial statements.
17. Selected Quarterly Financial Data (In thousands except per share amounts) (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Earnings (Loss) |
| | | | | | Operating | | Net | | Per Share of |
| | Operating | | | | Income | | Income | | Common Stock |
| | Revenues | | Margin | | (Loss) | | (Loss) | | Basic | | Diluted |
Fiscal Year 2015 | | | | | | | | | | | | |
January 31 | | $ | 607,271 |
| | $ | 270,070 |
| | $ | 105,758 |
| | $ | 92,978 |
| | $ | 1.18 |
| | $ | 1.18 |
|
April 30 | | 424,924 |
| | 225,621 |
| | 75,123 |
| | 66,402 |
| | 0.84 |
| | 0.84 |
|
July 31 | | 158,266 |
| | 111,572 |
| | 5,233 |
| | (8,260 | ) | | (0.10 | ) | | (0.10 | ) |
October 31 | | 181,257 |
| | 120,031 |
| | (1,085 | ) | | (14,109 | ) | | (0.18 | ) | | (0.18 | ) |
| | | | | | | | | | | | |
Fiscal Year 2014 | | | | | | | | | | | | |
January 31 | | $ | 657,733 |
| | $ | 261,512 |
| | $ | 102,319 |
| | $ | 97,572 |
| | $ | 1.27 |
| | $ | 1.26 |
|
April 30 | | 462,247 |
| | 211,523 |
| | 67,299 |
| | 62,540 |
| | 0.80 |
| | 0.80 |
|
July 31 | | 164,187 |
| | 104,847 |
| | 3,254 |
| | (7,344 | ) | | (0.09 | ) | | (0.09 | ) |
October 31 | | 185,821 |
| | 112,326 |
| | 6,993 |
| | (8,967 | ) | | (0.11 | ) | | (0.11 | ) |
The pattern of quarterly earnings is the result of the highly seasonal nature of the business as variations in weather conditions and our regulated utility rate designs generally result in greater earnings during the winter months. Basic earnings per share are calculated using the weighted average number of shares outstanding during the quarter. The annual amount may differ from the total of the quarterly amounts due to changes in the number of shares outstanding during the year.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
PART II
Management’s Evaluation of ITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls and Procedures
Our management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Form 10-K. Such disclosureDisclosure controls and procedures are controls and other procedures that are designed to provide reasonable assuranceensure that the information we are required to disclosebe disclosed by the Duke Energy Registrants in the reports wethey file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported, within the time periods requiredspecified by the United States Securities and Exchange Commission’sSEC rules and formsforms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that such 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 our management, including ourthe Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation,
Under the Presidentsupervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Senior Vice PresidentDuke Energy Registrants have evaluated the effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2017, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this Form 10-K, our disclosurethese controls and procedures wereare effective at thein providing reasonable assurance level.of compliance.
Changes in Internal Control Over Financial Reporting
We routinely review ourUnder 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 and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. There were no changes to our internal control over financial reporting as(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange ActAct) that occurred during the fourthfiscal quarter of fiscal 2015 thatended December 31, 2017, and have concluded no change has materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGManagement’s Annual Report On Internal Control Over Financial Reporting
December 23, 2015
OurThe Duke Energy Registrants’ management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Internal control over financial reporting, as thatsuch term is defined in Exchange Act Rules 13a-15(f) under the Securities Exchange Act of 1934 isand 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. The Company’sprinciples in the United States. Due to inherent limitations, internal control over financial reporting is supported by a programmay not prevent or detect misstatements. Also, projections of internal audits and appropriate reviews by management, written policies and guidelines, careful selection and trainingany evaluation of qualified personnel and a written Codeeffectiveness of Ethics and Business Conduct adopted by the Company’s Board of Directors and applicable to all Company Directors, officers and employees.
Because of the inherent limitations, any system of internal control over financial reporting no matter how well designed, may not prevent or detect misstatements due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Also, projections of the effectiveness to future periods are subject to the risk that the internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate.
We haveThe Duke Energy Registrants’ management, including their Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of ourtheir internal control over financial reporting as of December 31, 2017, based uponon the framework in “Internal Control—the Internal Control – Integrated Framework”Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon suchon that evaluation, our management concluded that as of October 31, 2015, ourits internal controlcontrols over financial reporting was effective.were effective as of December 31, 2017.
The Company’sDeloitte & Touche LLP, Duke Energy’s independent registered public accounting firm, Deloitte & Touche LLP, has issued itsan attestation report on the effectiveness of the Company’sDuke Energy’s internal control over financial reportingreporting. 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 of October 31, 2015.these companies are not accelerated or large accelerated filers.
|
| | | | |
| | | Piedmont Natural Gas Company, Inc. |
| | | | |
| | | | /s/ Thomas E. Skains |
| | | |
PART II Chairman, President and Chief Executive Officer
|
| |
| | | | /s/ Karl W. Newlin |
| | | | Karl W. Newlin
Senior Vice President and Chief Financial Officer
|
| |
| | | | /s/ Jose M. Simon |
| | | | Jose M. Simon
Vice President and Controller
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors and Stockholders of Duke Energy Corporation
Piedmont Natural Gas Company, Inc.
Charlotte, North Carolina
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Piedmont Natural Gas Company, Inc.Duke Energy Corporation and subsidiaries (the “Company”"Company") as of OctoberDecember 31, 2015,2017, based on criteria established in Internal Control—Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2017, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows, for the period ended December 31, 2017, and the related notes of the Company and our report dated February 23, 2018, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report onOn Internal Control overOver Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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 theits 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 preventedprevent or detected on a timely basis.detect misstatements. 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 Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2015, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended October 31, 2015 of the Company and our report dated December 23, 2015 expressed an unqualified opinion on those financial statements.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
December 23, 2015
Item 9B. Other InformationFebruary 21, 2018
PART III
Item 10. Directors, Executive Officers and Corporate Governance
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information concerning our executive officers and directorsregarding Duke Energy's Executive Officers is set forth in Part I, Item 1, "Business – Executive Officers of the sections entitled “Board of Directors” and “Executive Officers” in our Proxy Statement for the 2016 Annual Meeting of Shareholders (2016 Proxy Statement), which sections are incorporatedRegistrants," in this annual reportAnnual Report on Form 10-K by reference. Information concerning compliance with Section 16(a)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 Securities Exchange Act of 1934, as amended, is set forth in the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2016 Proxy Statement, which sectionfiscal year covered by this Annual Report. That information is incorporated in this annual report on Form 10-KItem 10 by reference.
Information concerning our Audit Committee and our Audit Committee financial expertsITEM 11. EXECUTIVE COMPENSATIONDuke Energy will provide information that is set forthresponsive to this Item 11 in its definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the section entitled “Committeesend of the Board” in our 2016 Proxy Statement, which sectionfiscal year covered by this Annual Report. That information is incorporated in this annual report on Form 10-KItem 11 by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Equity Compensation Plan Information
The following table shows information as of December 31, 2017, about securities to be issued upon exercise of outstanding options, warrants and rights under Duke Energy's equity compensation plans, along with the weighted-average exercise price of the outstanding options, warrants and rights and the number of securities remaining available for future issuance under the plans. |
| | | | | | |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b)(1) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
Equity compensation plans approved by security holders | 3,566,563 |
| (2) | n/a | 7,314,882 | (3) |
Equity compensation plans not approved by security holders | 191,394 |
| (4) | n/a | n/a | (5) |
Total | 3,757,957 |
| | n/a | 7,314,882 | |
(1) As of December 31, 2017, no options were outstanding under equity compensation plans.
| |
(2) | Includes restricted stock units and performance shares (assuming the maximum payout level) granted under the Duke Energy Corporation 2010 Long-Term Incentive Plan or the Duke Energy Corporation 2015 Long-Term Incentive Plan, as well as shares that could be payable with respect to certain compensation deferred under the Duke Energy Corporation Executive Savings Plan (Executive Savings Plan) or the Duke Energy Corporation Directors' Savings Plan (Directors’ Savings Plan). |
| |
(3) | Includes shares remaining available for issuance pursuant to stock awards under the Duke Energy Corporation 2015 Long-Term Incentive Plan. |
| |
(4) | Includes shares that could be payable with respect to certain compensation deferred under the Executive Savings Plan or and the Directors' Savings Plan, each of which is a nonqualified deferred compensation plan described in more detail below. Upon the acquisition of Piedmont Natural Gas Company, Inc., performance shares granted prior to such acquisition under the Piedmont Natural Gas Company, Inc. Incentive Compensation Plan were converted into restricted stock units payable in shares of Duke Energy common stock. As of December 31, 2017, 45,173 such restricted stock units were outstanding. Following the acquisition, no further stock awards were permitted to be granted under the Piedmont Natural Gas Company, Inc. Incentive Compensation Plan. These converted awards are not listed in the table above. |
| |
(5) | The number of shares remaining available for future issuance under equity compensation plans not approved by security holders cannot be determined because it is based on the amount of future voluntary deferrals, if any, under the Executive Savings Plan and the Directors' Savings Plan. |
Under the Executive Savings Plan, participants can elect to defer a portion of their base salary and short‑term incentive compensation. Participants also receive a company matching contribution in excess of the contribution limits prescribed by the Internal Revenue Code under the Duke Energy Retirement Savings Plan, which is the 401(k) plan in which employees are generally eligible to participate. In general, payments are made following termination of employment or death in the form of a lump sum or installments, as selected by the participant. Participants may direct the deemed investment of base salary deferrals, short-term incentive compensation deferrals and matching contributions among investment options available under the Duke Energy Retirement Savings Plan, including the Duke Energy Common Stock Fund. Participants may change their investment elections on a daily basis. Deferrals of equity awards are credited with earnings and losses based on the performance of the Duke Energy Common Stock Fund. The benefits payable under the plan are unfunded and subject to the claims of Duke Energy’s creditors.
Under the Directors’ Savings Plan, outside directors may elect to defer all or a portion of their annual compensation, generally consisting of retainers. Deferred amounts are credited to an unfunded account, the balance of which is adjusted for the performance of phantom investment options, including the Duke Energy common stock fund, as elected by the director, and generally are paid when the director terminates his or her service from the Board of Directors.
We have adopted a Code of Ethics and Business Conduct262
Duke Energy will provide additional information that is applicableresponsive to all our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer, which serves asthis Item 12 in its definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions under Item 406(b) of Regulation S-K. The Code of Ethics and Business Conduct is available on the “For Investors-Corporate Governance” section of our website at www.piedmontng.com. If we amend or grant a waiver, including an implicit waiver, from the Code of Ethics and Business Conduct that apply to the principal executive officer, principal financial officer and principal accounting officer or persons performing similar functions and that relate to any elementend of the code enumerated in Item 406(b) of Regulation S-K, we will disclose the amendment or waiver on the “For Investors-Corporate Governance” section of our website within four business days of such amendment or waiver.
Item 11. Executive Compensation
Information forfiscal year covered by this item is set forth in the sections entitled “Executive Compensation,” “Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” in our 2016 Proxy Statement, which sections are incorporated in this annual report on Form 10-K by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information for this item is set forth in the section entitled “Security Ownership of Management and Certain Beneficial Owners” in our 2016 Proxy Statement, which sectionAnnual Report. That information is incorporated in this annual report on Form 10-KItem 12 by reference.
Information concerning securities authorized for issuance under our equity compensation plansITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEDuke Energy will provide information that is set forthresponsive to this Item 13 in its definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the section entitled “Equity Compensation Plan Information” in our 2016 Proxy Statement, which sectionend of the fiscal year covered by this Annual Report. That information is incorporated in this annual report on Form 10-KItem 13 by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information for this item is set forth in the section entitled “Director Independence and Related Person Transactions” in our 2016 Proxy Statement, which section is incorporated in this annual report on Form 10-K by reference.
Item 14. Principal Accounting Fees and Services
Information for this item is set forth in “Proposal 2 – Ratification of the Appointment of Deloitte & Touche LLP Asand the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, Deloitte) provided professional services to the Duke Energy Registrants. The following tables present the Deloitte fees for services rendered to the Duke Energy Registrants during 2017 and 2016. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 | | |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Types of Fees | | | | | | | | | | | | | | | |
Audit Fees(a) | $ | 13.6 |
| | $ | 4.7 |
| | $ | 5.6 |
| | $ | 3.1 |
| | $ | 2.4 |
| | $ | 0.8 |
| | $ | 1.4 |
| | $ | 0.8 |
|
Audit-Related Fees(b) | 0.2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Tax Fees(c) | 1.7 |
| | 0.6 |
| | 0.1 |
| | 0.4 |
| | — |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
Other Fees(d) | 0.1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total Fees | $ | 15.6 |
| | $ | 5.3 |
| | $ | 5.7 |
| | $ | 3.5 |
| | $ | 2.4 |
| | $ | 0.9 |
| | $ | 1.5 |
| | $ | 0.9 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Types of Fees | | | | | | | | | | | | | |
Audit Fees(a) | $ | 13.6 |
| | $ | 4.8 |
| | $ | 5.2 |
| | $ | 3.0 |
| | $ | 2.2 |
| | $ | 0.8 |
| | $ | 1.4 |
|
Audit-Related Fees(b) | 0.7 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Tax Fees(c) | 0.4 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
| | — |
| | — |
| | 0.1 |
|
Other Fees(d) | 0.2 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
| | — |
| | — |
| | — |
|
Total Fees | $ | 14.9 |
| | $ | 5.0 |
| | $ | 5.4 |
| | $ | 3.2 |
| | $ | 2.2 |
| | $ | 0.8 |
| | $ | 1.5 |
|
|
| | | | | | |
| Piedmont(e) |
| Two Months Ended |
| Year Ended October 31, |
(in millions) | December 31, 2016 | 2016 |
Types of Fees | | |
Audit Fees(a) | $ | 0.6 |
| $ | 1.3 |
|
Audit-Related Fees(b) | — |
| 0.1 |
|
Total Fees | $ | 0.6 |
| $ | 1.4 |
|
| |
(a) | Audit Fees are fees billed, or expected to be billed, by Deloitte for professional services for the financial statement audits, audit of the Duke Energy Registrants’ financial statements included in the Annual Report on Form 10-K, reviews of financial statements included in Quarterly Reports on Form 10‑Q, and services associated with securities filings such as comfort letters and consents. |
| |
(b) | Audit-Related Fees are fees billed, or expected to be billed, by Deloitte for assurance and related services that are reasonably related to the performance of an audit or review of financial statements, including statutory reporting requirements. |
| |
(c) | Tax Fees are fees billed by Deloitte for tax return assistance and preparation, tax examination assistance and professional services related to tax planning and tax strategy. |
| |
(d) | Other Fees are billed by Deloitte for attendance at Deloitte-sponsored conferences and access to Deloitte research tools and subscription services. In 2016, Other Fees also included non-audit fees related to consulting services. |
| |
(e) | Includes all accounting fees and services paid prior to and subsequent to the acquisition. Prior to the acquisition, Piedmont's Audit Committee preapproved all services provided by the independent auditor. |
To safeguard the continued independence of the independent auditor, the Audit Committee of the Board of Directors (Audit Committee) of Duke Energy adopted a policy that all services provided by the independent auditor require preapproval by the Audit Committee. Pursuant to the policy, certain audit services, audit-related services, tax services and other services have been specifically preapproved up to fee limits. In the event the cost of any of these services may exceed the fee limits, the Audit Committee must specifically approve the service. All services performed in 2017 and 2016 by the independent accountant were approved by the Audit Committee pursuant to the preapproval policy.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | |
(a) | Consolidated Financial Statements, Supplemental Financial Data and Supplemental Schedules included in Part II of this annual report are as follows: |
Duke Energy Corporation
Consolidated Financial Statements
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm For Fiscal Year 2016”
All other schedules are omitted because they are not required, or because the required information is included in ourthe Consolidated Financial Statements or Notes.
Duke Energy Carolinas, LLC
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 Proxy Statement, which sectionand 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is incorporatedincluded in this annual report on Form 10-K by reference.the Consolidated Financial Statements or Notes.
Progress Energy, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
Duke Energy Progress, LLC
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
Duke Energy Florida, LLC
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
PART IV
Item 15. Exhibits, Financial Statement Schedules
Duke Energy Ohio, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
Duke Energy Indiana, LLC
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
Piedmont Natural Gas Company, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Year Ended December 31, 2017, Two Months Ended December 31, 2016, and the Years Ended October 31, 2016, and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Year Ended December 31, 2017, Two Months Ended December 31, 2016, and the Years Ended October 31, 2016, and 2015
Consolidated Statements of Changes in Equity for the Year Ended December 31, 2017, Two Months Ended December 31, 2016, and the Years Ended October 31, 2016, and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
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 (***). |
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(a) | | 1. | | Financial Statements |
The following consolidated financial statements for the year ended October 31, 2015, are included in Item 8 of this report as follows: |
|
Consolidated Balance Sheets – October 31, 2015 and 2014
Consolidated Statements of Comprehensive Income – Years Ended October 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows – Years Ended October 31, 2015, 2014 and 2013
Consolidated Statements of Stockholders’ Equity – Years Ended October 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
|
|
(a) | | 2. | | Supplemental Consolidated Financial Statement Schedules |
None
Schedules and certain other information are omitted for the reason that they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.
|
|
(a) | | 3. | | Exhibits |
|
| | | | Where an exhibit is filed by incorporationDuke | | | | Duke | | Duke | | Duke | | Duke | | |
Exhibit | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
Number | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
2.1 | |
X |
| | | | The exhibits numbered 10.1 through 10.17 are management contracts or compensatory plans or arrangements. |
| | | | | | | | |
2.2 | | 2.1 | | |
X | | | | | | | | | | | | | | |
3.1 | | X | | 3.1 | | | | | | | | | | | | |
3.2 | | X | | | | | | | | | | | | | | |
3.3 | | | | X | | | | | | | | | | | | |
3.3.1 | | | | X | | | | | | | | | | | | |
3.4 | | | | | | | | | | | | X | | | | |
3.4.1 | | | | | | | | | | | | X | | | | |
3.5 | | | | | | | | | | | | | | X | | |
3.5.1 | | | | | | | | | | | | | | X | | |
3.5.2 | | | | | | | | | | | | | | X | | |
3.5.3 | | | | | | | | | | | | | | X | | |
3.5.4 | | | | | | | | | | | | | | X | | |
3.6 | | | | X | | | | | | | | | | | | |
3.7 | | | | | | | | | | | | X | | | | |
3.8 | | | | | | | | X | | | | | | | | |
3.8.1 | | | | | | | | X | | | | | | | | |
3.8.2 | | | | | | | | X | | | | | | | | |
3.9 | | | | | | X | | | | | | | | | | |
3.9.1 | | | | | | X | | | | | | | | | | |
3.9.2 | | | | | | X | | | | | | | | | | |
3.9.3 | | | | | | X | | | | | | | | | | |
3.10 | | | | | | | | | | X | | | | | | |
3.10.1 | | | | | | | | | | X | | | | | | |
3.10.2 | | | | | | | | | | X | | | | | | |
3.10.3 | | | | | | | | | | X | | | | | | |
3.11 | |
|
| | 3.2 | | Bylaws of Piedmont Natural Gas Company, Inc., as Amended and Restated Effective September 8, 2011 (incorporated by reference to Exhibit 3.1, Form 8-K dated September 13, 2011). |
|
| | 4.1 | | Note Agreement, dated as of September 21, 1992, between Piedmont and Provident Life and Accident Insurance Company (incorporated by reference to Exhibit 4.30,registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1992)2016, filed on December 22, 2016, File No. 001-06196). |
|
| | 4.2 | | Amendment | | | | | | | | | | X |
3.11.1 | | | | | | | | | | | | | | | | X |
4.1 | | X | | | | | | | | | | | | | | |
4.1.1 | | X | | | | | | | | | | | | | | |
4.1.2 | | X | | | | | | | | | | | | | | |
4.1.3 | | X | | | | | | | | | | | | | | |
4.1.4 | | X | | | | | | | | | | | | | | |
4.1.5 | | X | | | | | | | | | | | | | | |
4.1.6 | | X | | | | | | | | | | | | | | |
4.1.7 | | X | | | | | | | | | | | | | | |
4.1.8 | | X | | | | | | | | | | | | | | |
4.1.9 | | X | | | | | | | | | | | | | | |
4.1.10 | | X | | | | | | | | | | | | | | |
4.1.11 | | X | | | | | | | | | | | | | | |
4.1.12 | | X | | | | | | | | | | | | | | |
4.1.13 | Thirteenth Supplemental Indenture, dated as of April 18, 2016, to the indenture dated as of June 3, 2008, between Duke Energy Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 5, 2016, File No. 1-32853). | X | | | | | | | | | | | | | | |
4.1.14 | | X | | | | | | | | | | | | | | |
4.1.15 | | X | | | | | | | | | | | | | | |
4.1.16 | | X | | | | | | | | | | | | | | |
4.1.17 | | X | | | | | | | | | | | | | | |
4.2 | | | | X | | | | | | | | | | | | |
4.2.1 | | | | X | | | | | | | | | | | | |
4.2.2 | | | | X | | | | | | | | | | | | |
4.3 | First and Refunding Mortgage from Duke Energy Carolinas, LLC to The Bank of New York Mellon Trust Company, N.A., successor trustee to Guaranty Trust Company of New York, dated as of December 1, 1927, (incorporated by reference to Exhibit 7(a) to registrant's Form S-1, effective October 15, 1947, File No. 2-7224). | | | X | | | | | | | | | | | | |
4.3.1 | Instrument of Resignation, Appointment and Acceptance among Duke Energy Carolinas, LLC, JPMorgan Chase Bank, N.A., as Trustee, and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as of September 24, 2007, (incorporated by reference to Exhibit 4.6.1 to registrant's Registration Statement on Form S-3 filed on October 3, 2007, File No. 333-146483). | | | X | | | | | | | | | | | | |
4.3.2 | Ninth Supplemental Indenture, dated as of February 1, 1949, (incorporated by reference to Exhibit 7(j) to registrant's Form S-1 filed on February 3, 1949, File No. 2-7808). | | | X | | | | | | | | | | | | |
4.3.3 | Twentieth Supplemental Indenture, dated as of June 15, 1964, (incorporated by reference to Exhibit 4-B-20 to registrant's Form S-1 filed on August 23, 1966, File No. 2-25367). | | | X | | | | | | | | | | | | |
4.3.4 | Twenty-third Supplemental Indenture, dated as of February 1, 1968, (incorporated by reference to Exhibit 2-B-26 to registrant's Form S-9 filed on January 21, 1969, File No. 2-31304). | | | X | | | | | | | | | | | | |
4.3.5 | Sixtieth Supplemental Indenture, dated as of March 1, 1990, (incorporated by reference to Exhibit 4-B-61 to registrant's Annual Report on Form 10-K for the fiscal year ended OctoberDecember 31, 2007)1990, File No.1-4928). |
|
| | 4.3X | | | | | | | | | | | | |
4.3.6 | Sixty-third Supplemental Indenture, dated as of July 1, 1991, (incorporated by reference to Exhibit 4-B-64 to registrant's Registration Statement on Form S-3 filed on February 13, 1992, File No. 33-45501). | | �� | X | | | | | | | | | | | | |
4.3.7 | | | | X | | | | | | | | | | | | |
4.3.8 | | | | X | | | | | | | | | | | | |
4.3.9 | | | | X | | | | | | | | | | | | |
4.3.10 | | | | X | | | | | | | | | | | | |
4.3.11 | | | | X | | | | | | | | | | | | |
4.3.12 | | | | X | | | | | | | | | | | | |
4.3.13 | | | | X | | | | | | | | | | | | |
4.3.14 | | | | X | | | | | | | | | | | | |
4.3.15 | | | | X | | | | | | | | | | | | |
4.3.16 | | | | X | | | | | | | | | | | | |
4.3.17 | | | | X | | | | | | | | | | | | |
4.3.18 | | | | X | | | | | | | | | | | | |
4.3.19 | | | | X | | | | | | | | | | | | |
4.4 | Mortgage and Deed of Trust between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and The Bank of New York Mellon (formerly Irving Trust Company) and Frederick G. Herbst (Tina D. Gonzalez, successor), as Trustees, dated as of May 1, 1940. | | | | | | | X | | | | | | | | |
4.4.1 | First through Fifth Supplemental Indentures thereto (incorporated by reference to Exhibit 2(b), File No. 2-64189). | | | | | | | X | | | | | | | | |
4.4.2 | Sixth Supplemental Indenture dated April 1, 1960 (incorporated by reference to Exhibit 2(b)-5, File No. 2-16210). | | | | | | | X | | | | | | | | |
4.4.3 | Seventh Supplemental Indenture dated November 1, 1961 (incorporated by reference to Exhibit 2(b)-6, File No. 2-16210). | | | | | | | X | | | | | | | | |
4.4.4 | Eighth Supplemental Indenture dated July 1, 1964 (incorporated by reference to Exhibit 4(b)-8, File No. 2-19118). | | | | | | | X | | | | | | | | |
4.4.5 | Ninth Supplemental Indenture dated April 1, 1966 (incorporated by reference to Exhibit 4(b)-2, File No. 2-22439). | | | | | | | X | | | | | | | | |
4.4.6 | Tenth Supplemental Indenture dated October 1, 1967 (incorporated by reference to Exhibit 4(b)-2, File No. 2-24624). | | | | | | | X | | | | | | | | |
4.4.7 | Eleventh Supplemental Indenture dated October 1, 1968 (incorporated by reference to Exhibit 2(c), File No. 2-27297). | | | | | | | X | | | | | | | | |
4.4.8 | Twelfth Supplemental Indenture dated January 1, 1970 (incorporated by reference to Exhibit 2(c), File No. 2-30172). | | | | | | | X | | | | | | | | |
4.4.9 | Thirteenth Supplemental Indenture dated August 1, 1970 (incorporated by reference to Exhibit 2(c), File No. 2-35694). | | | | | | | X | | | | | | | | |
4.4.10 | Fourteenth Supplemental Indenture dated January 1, 1971 (incorporated by reference to Exhibit 2(c), File No. 2-37505). | | | | | | | X | | | | | | | | |
4.4.11 | Fifteenth Supplemental Indenture dated October 1, 1971 (incorporated by reference to Exhibit 2(c), File No. 2-39002). | | | | | | | X | | | | | | | | |
4.4.12 | Sixteenth Supplemental Indenture dated May 1, 1972 (incorporated by reference to Exhibit 2(c), File No. 2-41738). | | | | | | | X | | | | | | | | |
4.4.13 | Seventeenth Supplemental Indenture dated November 1, 1973 (incorporated by reference to Exhibit 2(c), File No. 2-43439). | | | | | | | X | | | | | | | | |
4.4.14 | Eighteenth Supplemental Indenture dated (incorporated by reference to Exhibit 2(c), File No. 2-47751). | | | | | | | X | | | | | | | | |
4.4.15 | Nineteenth Supplemental Indenture dated May 1, 1974 (incorporated by reference to Exhibit 2(c), File No. 2-49347). | | | | | | | X | | | | | | | | |
4.4.16 | Twentieth Supplemental Indenture dated December 1, 1974 (incorporated by reference to Exhibit 2(c), File No. 2-53113). | | | | | | | X | | | | | | | | |
4.4.17 | Twenty-first Supplemental Indenture dated April 15, 1975 (incorporated by reference to Exhibit 2(d), File No. 2-53113). | | | | | | | X | | | | | | | | |
4.4.18 | Twenty-second Supplemental Indenture dated October 1, 1977 (incorporated by reference to Exhibit 2(c), File No. 2-59511). | | | | | | | X | | | | | | | | |
4.4.19 | Twenty-third Supplemental Indenture dated June 1, 1978 (incorporated by reference to Exhibit 2(c), File No. 2-61611). | | | | | | | X | | | | | | | | |
4.4.20 | Twenty-fourth Supplemental Indenture dated May 15, 1979 (incorporated by reference to Exhibit 2(d), File No. 2-64189). | | | | | | | X | | | | | | | | |
4.4.21 | Twenty-fifth Supplemental Indenture dated November 1, 1979 (incorporated by reference to Exhibit 2(c), File No. 2-65514). | | | | | | | X | | | | | | | | |
4.4.22 | Twenty-sixth Supplemental Indenture dated November 1, 1979 (incorporated by reference to Exhibit 2(c), File No. 2-66851). | | | | | | | X | | | | | | | | |
4.4.23 | Twenty-seventh Supplemental Indenture dated April 1, 1980 (incorporated by reference to Exhibit 2 (d), File No. 2-66851). | | | | | | | X | | | | | | | | |
4.4.24 | Twenty-eighth Supplemental Indenture dated October 1, 1980 (incorporated by reference to Exhibit 4(b)-1, File No. 2-81299). | | | | | | | X | | | | | | | | |
4.4.25 | Twenty-ninth Supplemental Indenture dated October 1, 1980 (incorporated by reference to Exhibit 4(b)-2, File No. 2-81299). | | | | | | | X | | | | | | | | |
4.4.26 | Thirtieth Supplemental Indenture dated December 1, 1982 (incorporated by reference to Exhibit 4(b)- 3, File No. 2-81299). | | | | | | | X | | | | | | | | |
4.4.27 | Thirty-first Supplemental Indenture dated March 15, 1983 (incorporated by reference to Exhibit 4(c)-1, File No. 2-95505). | | | | | | | X | | | | | | | | |
4.4.28 | Thirty-second Supplemental Indenture dated March 15, 1983 (incorporated by reference to Exhibit 4(c)-2, File No. 2-95505). | | | | | | | X | | | | | | | | |
4.4.29 | Thirty-third Supplemental Indenture dated December 1, 1983 (incorporated by reference to Exhibit 4(c)-3, File No. 2-95505). | | | | | | | X | | | | | | | | |
4.4.30 | Thirty-fourth Supplemental Indenture dated December 15, 1983 (incorporated by reference to Exhibit 4(c)-4, File No. 2-95505). | | | | | | | X | | | | | | | | |
4.4.31 | Thirty-fifth Supplemental Indenture dated April 1, 1984 (incorporated by reference to Exhibit 4(c)-5, File No. 2-95505). | | | | | | | X | | | | | | | | |
4.4.32 | Thirty-sixth Supplemental Indenture dated June 1, 1984 (incorporated by reference to Exhibit 4(c)-6, File No. 2-95505). | | | | | | | X | | | | | | | | |
4.4.33 | Thirty-seventh Supplemental Indenture dated June 1, 1984 (incorporated by reference to Exhibit 4(c)-7, File No. 2-95505). | | | | | | | X | | | | | | | | |
4.4.34 | Thirty-eighth Supplemental Indenture dated June 1, 1984 (incorporated by reference to Exhibit 4(c)- 8, File No. 2-95505). | | | | | | | X | | | | | | | | |
4.4.35 | Thirty-ninth Supplemental Indenture dated April 1, 1985 (incorporated by reference to Exhibit 4(b), File No. 33-25560). | | | | | | | X | | | | | | | | |
4.4.36 | Fortieth Supplemental Indenture dated October 1, 1985 (incorporated by reference to Exhibit 4(c), File No. 33-25560). | | | | | | | X | | | | | | | | |
4.4.37 | Forty-first Supplemental Indenture dated March 1, 1986 (incorporated by reference to Exhibit 4(d), File No. 33-25560). | | | | | | | X | | | | | | | | |
4.4.38 | Forty-second Supplemental Indenture dated July 1, 1986 (incorporated by reference to Exhibit 4(e), File No. 33-25560). | | | | | | | X | | | | | | | | |
4.4.39 | Forty-third Supplemental Indenture dated January 1, 1987 (incorporated by reference to Exhibit 4(f), File No. 33-25560). | | | | | | | X | | | | | | | | |
4.4.40 | Forty-fourth Supplemental Indenture dated December 1, 1987 (incorporated by reference to Exhibit 4(g), File No. 33-25560). | | | | | | | X | | | | | | | | |
4.4.41 | Forty-fifth supplemental Indenture dated September 1, 1988 (incorporated by reference to Exhibit 4(h), File No. 33-25560). | | | | | | | X | | | | | | | | |
4.4.42 | Forty-sixth Supplemental Indenture dated April 1, 1989 (incorporated by reference to Exhibit 4(b), File No. 33-33431). | | | | | | | X | | | | | | | | |
4.4.43 | Forty-seventh Supplemental Indenture dated August 1, 1989 (incorporated by reference to Exhibit 4(c), File No. 33-33431). | | | | | | | X | | | | | | | | |
4.4.44 | Forty-eighth Supplemental Indenture dated November 15, 1990 (incorporated by reference to Exhibit 4(b), File No. 33-38298). | | | | | | | X | | | | | | | | |
4.4.45 | Forty-ninth Supplemental Indenture dated November 15, 1990 (incorporated by reference to Exhibit 4(c), File No. 33-38298). | | | | | | | X | | | | | | | | |
4.4.46 | Fiftieth Supplemental Indenture dated February 15, 1991 (incorporated by reference to Exhibit 4(h), File No. 33-42869). | | | | | | | X | | | | | | | | |
4.4.47 | Fifty-first Supplemental Indenture dated April 1, 1991 (incorporated by reference to Exhibit 4(i), File No. 33-42869). | | | | | | | X | | | | | | | | |
4.4.48 | Fifty-second Supplemental Indenture dated September 15, 1991(incorporated by reference to Exhibit 4(e), File No. 33-48607). | | | | | | | X | | | | | | | | |
4.4.49 | Fifty-third Supplemental Indenture dated January 1, 1992 (incorporated by reference to Exhibit 4(f), File No. 33-48607). | | | | | | | X | | | | | | | | |
4.4.50 | Fifty-fourth Supplemental Indenture dated April 15, 1992 (incorporated by reference to Exhibit 4 (g), File No. 33-48607). | | | | | | | X | | | | | | | | |
4.4.51 | Fifty-fifth Supplemental Indenture dated July 1, 1992 (incorporated by reference to Exhibit 4(e), File No. 33-55060). | | | | | | | X | | | | | | | | |
4.4.52 | Fifty-sixth Supplemental Indenture dated October 1, 1992 (incorporated by reference to Exhibit 4(f), File No. 33-55060). | | | | | | | X | | | | | | | | |
4.4.53 | Fifty-seventh Supplemental Indenture dated February 1, 1993 (incorporated by reference to Exhibit 4(e), File No. 33-60014). | | | | | | | X | | | | | | | | |
4.4.54 | Fifty-eighth Supplemental Indenture dated March 1, 1993 (incorporated by reference to Exhibit 4(f), File No. 33-60014). | | | | | | | X | | | | | | | | |
4.4.55 | Fifty-ninth Supplemental Indenture dated July 1, 1993 (incorporated by reference to Exhibit 4(a) to Post-Effective Amendment No. 1, File No. 33-38349). | | | | | | | X | | | | | | | | |
4.4.56 | Sixtieth Supplemental Indenture dated July 1, 1993 (incorporated by reference to Exhibit 4(b) to Post-Effective Amendment No. 1, File No. 33-38349). | | | | | | | X | | | | | | | | |
4.4.57 | Sixty-first Supplemental Indenture dated August 15, 1993 (incorporated by reference to Exhibit 4(e), File No. 33-50597). | | | | | | | X | | | | | | | | |
4.4.58 | | | | | | | | X | | | | | | | | |
4.4.59 | | | | | | | | X | | | | | | | | |
4.4.60 | | | | | | | | X | | | | | | | | |
4.4.61 | | | | | | | | X | | | | | | | | |
4.4.62 | | | | | | | | X | | | | | | | | |
4.4.63 | | | | | | | | X | | | | | | | | |
4.4.64 | | | | | | | | X | | | | | | | | |
4.4.65 | | | | | | | | X | | | | | | | | |
4.4.66 | | | | | | | | X | | | | | | | | |
4.4.67 | | | | | | | | X | | | | | | | | |
4.4.68 | | | | | | | | X | | | | | | | | |
4.4.69 | | | | | | | | X | | | | | | | | |
4.4.70 | | | | | | | | X | | | | | | | | |
4.4.71 | | | | | | | | X | | | | | | | | |
4.4.72 | | | | | | | | X | | | | | | | | |
4.4.73 | | | | | | | | X | | | | | | | | |
4.4.74 | | | | | | | | X | | | | | | | | |
4.4.75 | | | | | | | | X | | | | | | | | |
4.4.76 | | | | | | | | X | | | | | | | | |
4.4.77 | | | | | | | | X | | | | | | | | |
4.4.78 | | | | | | | | X | | | | | | | | |
4.4.79 | | | | | | | | X | | | | | | | | |
4.4.80 | | | | | | | | X | | | | | | | | |
4.4.81 | | | | | | | | X | | | | | | | | |
4.5 | | | | | | | | X | | | | | | | | |
4.6 | | | | | | | | X | | | | | | | | |
4.7 | Indenture (for First Mortgage Bonds) between Duke Energy Florida, Inc. (formerly Florida Power Corporation) and The Bank of New York Mellon (as successor to Guaranty Trust Company of New York and The Florida National Bank of Jacksonville), as Trustee, dated as of January 1, 1944, (incorporated by reference to Exhibit B-18 to registrant's Form A-2, File No. 2-5293). | | | | | | | | | X | | | | | | |
4.7.1 | Seventh Supplemental Indenture (incorporated by reference to Exhibit 4(b) to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 27, 1991, File No. 33-16788). | | | | | | | | | X | | | | | | |
4.7.2 | Eighth Supplemental Indenture (incorporated by reference to Exhibit 4(c) to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 27, 1991, File No. 33-16788). | | | | | | | | | X | | | | | | |
4.7.3 | Sixteenth Supplemental Indenture (incorporated by reference to Exhibit 4(d) to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 27, 1991, File No. 33-16788). | | | | | | | | | X | | | | | | |
4.7.4 | Twenty-ninth Supplemental Indenture (incorporated by reference to Exhibit 4(c) to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 17, 1982, File No. 2-79832). | | | | | | | | | X | | | | | | |
4.7.5 | | | | | | | | | | X | | | | | | |
4.7.6 | | | | | | | | | | X | | | | | | |
4.7.7 | | | | | | | | | | X | | | | | | |
4.7.8 | | | | | | | | | | X | | | | | | |
4.7.9 | | | | | | | | | | X | | | | | | |
4.7.10 | | | | | | | | | | X | | | | | | |
4.7.11 | | | | | | | | | | X | | | | | | |
4.7.12 | | | | | | | | | | X | | | | | | |
4.7.13 | | | | | | | | | | X | | | | | | |
4.7.14 | | | | | | | | | | X | | | | | | |
4.7.15 | | | | | | | | | | X | | | | | | |
4.7.16 | | | | | | | | | | X | | | | | | |
4.8 | 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 | | | | | | |
4.8.1 | | | | | | | | | | X | | | | | | |
4.9 | | | | | | | | | | X | | | | | | |
4.10 | | | | | | | | | | | | X | | | | |
4.10.1 | | | | | | | | | | | | X | | | | |
4.10.2 | | | | | | | | | | | | X | | | | |
4.11 | Original Indenture (First Mortgage Bonds) between Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as of August 1, 1936, (incorporated by reference to an exhibit to registrant's Registration Statement No. 2-2374). | | | | | | | | | | | X | | | | |
4.11.1 | | | | | | | | | | | | X | | | | |
4.11.2 | | | | | | | | | | | | X | | | | |
4.11.3 | | | | | | | | | | | | X | | | | |
4.11.4 | | | | | | | | | | | | X | | | | |
4.12 | Indenture between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as of November 15, 1996, (incorporated by reference to Exhibit 4(v) to the Cinergy Corp. Form 10–K for the year ended December 31, 1996, filed on March 27, 1997, File No. 1–11377). | | | | | | | | | | | | | X | | |
4.12.1 | | | | | | | | | | | | | | X | | |
4.12.2 | | | | | | | | | | | | | | X | | |
4.12.3 | | | | | | | | | | | | | | X | | |
4.12.4 | | | | | | | | | | | | | | X | | |
4.13 | Original Indenture (First Mortgage Bonds) between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and Deutsche Bank National Trust Company, as Successor Trustee, dated as of September 1, 1939, (filed as an exhibit in File No. 70-258). | | | | | | | | | | | | | X | | |
4.13.1 | Tenth Supplemental Indenture, dated as of July 1, 1952, (filed as an exhibit in File No. 2-9687). | | | | | | | | | | | | | X | | |
4.13.2 | Twenty-third Supplemental Indenture, dated as of January 1, 1977, (filed as an exhibit in File No. 2-57828). | | | | | | | | | | | | | X | | |
4.13.3 | Twenty-fifth Supplemental Indenture, dated as of September 1, 1978, (filed as an exhibit in File No. 2-62543). | | | | | | | | | | | | | X | | |
4.13.4 | Twenty-sixth Supplemental Indenture, dated as of September 1, 1978, (filed as an exhibit in File No. 2-62543). | | | | | | | | | | | | | X | | |
4.13.5 | Thirtieth Supplemental Indenture, dated as of August 1, 1980, (filed as an exhibit in File No. 2-68562). | | | | | | | | | | | | | X | | |
4.13.6 | Thirty-fifth Supplemental Indenture, dated as of March 30, 1984, (filed as an exhibit to registrant's Annual Report on Form 10-K for the year ended December 31, 1984, File No. 1-3543). | | | | | | | | | | | | | X | | |
4.13.7 | Forty-sixth Supplemental Indenture, dated as of June 1, 1990, (filed as an exhibit to registrant's Annual Report on Form 10-K for the year ended December 31, 1991, File No. 1-3543). | | | | | | | | | | | | | X | | |
4.13.8 | Forty-seventh Supplemental Indenture, dated as of July 15, 1991, (filed as an exhibit to registrant's Annual Report on Form 10-K for the year ended December 31, 1991, File No. 1-3543). | | | | | | | | | | | | | X | | |
4.13.9 | Forty-eighth Supplemental Indenture, dated as of July 15, 1992, (filed as an exhibit to registrant's Annual Report on Form 10-K for the year ended December 31, 1992, File No. 1-3543). | | | | | | | | | | | | | X | | |
4.13.10 | | | | | | | | | | | | | | X | | |
4.13.11 | | | | | | | | | | | | | | X | | |
4.13.12 | | | | | | | | | | | | | | X | | |
4.13.13 | | | | | | | | | | | | | | X | | |
4.13.14 | | | | | | | | | | | | | | X | | |
4.13.15 | | | | | | | | | | | | | | X | | |
4.13.16 | | | | | | | | | | | | | | X | | |
4.13.17 | | | | | | | | | | | | | | X | | |
4.13.18 | | | | | | | | | | | | | | X | | |
4.13.19 | | | | | | | | | | | | | | X | | |
4.13.20 | | | | | | | | | | | | | | X | | |
4.13.21 | Sixty-seventh Supplemental Indenture, dated as of January 1, 2016, between Duke Energy Indiana, Inc. and Deutsche Bank National Trust Company, as Trustee, supplementing and amending the Indenture of Mortgage or Deed of Trust, dated September 1, 1939, between Duke Energy Indiana, Inc. and Deutsche Bank National Trust Company, as Trustee (incorporated by reference to Exhibit 4.2 to Duke Energy Indiana, LLC's (formerly PSI Energy, Inc.) Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 5, 2016, File No. 1-3543). | | | | | | | | | | | | | X | | |
4.13.22 | | | | | | | | | | | | | | X | | |
4.14 | Repayment Agreement between Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) and The Dayton Power and Light Company, dated as of December 23, 1992, (filed with registrant's Annual Report on Form 10-K for the year ended December 31, 1992, File No. 1-1232). | | | | | | | | | | | X | | | | |
4.15 | | | | | | | | | | | | | | X | | |
4.16 | | | | | | | | | | | | | | X | | |
4.17 | | | | | | | | | | | | | | X | | |
4.18 | | | | | | X | | | | | | | | | | |
4.19 | | | | | | | | | | | | | | | | X |
4.20 | | | | | | | | | | | | | | | | X |
4.21 | | | | | | | | | | | | | | | | X |
4.22 | | | | | | | | | | | | | | | | X |
4.23 | | | | | | | | | | | | | | | | X |
4.24 | | | | | | | | | | | | | | | | X |
4.25 | | | | | | | | | | | | | | | | X |
4.26 | |
|
| | | | |
|
| | 4.4 | | | | | | | | | | | | X |
4.26.1 | | | | | | | | | | | | | | | | X |
4.26.2 | | | | | | | | | | | | | | | | X |
4.26.3 | | | | | | | | | | | | | | | | X |
4.26.4 | | | | | | | | | | | | | | | | X |
4.26.5 | | | | | | | | | | | | | | | | X |
4.26.6 | | | | | | | | | | | | | | | | X |
4.27 | Medium-Term Note, Series A, dated as of October 6, 1993 (incorporated by reference to Exhibit 4.8 to registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1993)1993, File No. 1-06196). |
|
| | 4.5 | | First Supplemental Indenture, dated as of February 25, 1994, between PNG Acquisition Company, Piedmont Natural Gas Company, Inc., and Citibank, N.A., Trustee (incorporated by reference to Exhibit 4.2, Form S-3 Registration Statement No. 33-59369). |
|
| | 4.6 | | | | | | | | | X |
4.28 | |
|
| | 4.7 | | | | | | | | | | | | X |
4.29 | | | | | | | | | | | | | | | | X |
4.30 | |
|
| | 4.8 | | | | | | | | | | | | X |
4.31 | |
|
| | 4.9 | | | | | | | | | | | | X |
4.32 | |
|
| | 4.10 | | Form of Master Global Note (incorporated by reference to Exhibit 4.4, Form S-3 Registration Statement No. 333-26161). |
|
| | 4.11 | | | | | | | | | X |
4.33 | |
|
| | 4.12 | | Second Supplemental Indenture, dated as of June 15, 2003, between Piedmont and Citibank, N.A., Trustee (incorporated by reference to Exhibit 4.3, Form S-3 Registration Statement No. 333-106268). |
|
| | 4.13 | | Form of 6% Medium-Term Note, Series E, dated as of December 19, 2003 (incorporated by reference to Exhibit 99.2, Form 8-K, dated December 23, 2003). |
|
| | 4.14 | | Third Supplemental Indenture, dated as of June 20, 2006, between Piedmont Natural Gas Company, Inc. and Citibank, N.A., as trustee (incorporated by reference to Exhibit 4.1, Form 8-K dated June 20, 2006). |
|
| | 4.15 | | | X |
4.34 | |
|
| | 4.16 | | Note Purchase Agreement, dated as of May 6, 2011, among Piedmont Natural Gas Company, Inc. and the Purchasers party thereto (incorporated by reference to Exhibit 10, Form 8-K, dated May 12, 2011). |
|
| | 4.17 | | Form of 2.92% Series A Senior Notes due June 6, 2016 (incorporated by reference to Exhibit 4.1, Form 8-K dated May 12, 2011). |
|
| | 4.18 | | Form of 4.24% Series B Senior Notes due June 6, 2021 (incorporated by reference to Exhibit 4.2, Form 8-K dated May 12, 2011). |
|
|
| | | | |
| | 4.19 | | Fourth Supplemental Indenture, dated as of May 6, 2011, between Piedmont Natural Gas Company, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2, Form S-3-ASR Registration Statement No. 333-175386). |
|
| | 4.20 | | Amendment to September 1992 Note Agreement dated as of April 15, 2011 by and between Piedmont Natural Gas Company, Inc., and Provident Life and Accident Insurance Company (incorporated by reference to Exhibit 10.3,registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 2011)2007, filed on June 8, 2007, File No. 1-06196). |
|
| | 4.21 | | Note Purchase Agreement, dated as of March 27, 2012, among Piedmont Natural Gas Company, Inc. and the Purchasers party thereto | | | | | | | | | | X |
10.1** | Directors’ Charitable Giving Program (incorporated by reference to Exhibit 10.1,10-P to Duke Energy Carolinas, LLC's Annual Report on Form 8-K dated March 29, 2012)10-K for the year ended December 31, 1992, File No. 1-4928). |
|
| | 4.22X | | Form of 3.47% Series A Senior Notes due July 16, 2027 (incorporated by reference to Exhibit 4.1, Form 8-K dated March 29, 2012). |
|
| | 4.23 | | Form of 3.57% Series B Senior Notes due July 16, 2027 (incorporated by reference to Exhibit 4.2, Form 8-K dated March 29, 2012). |
|
| | 4.24 | | Corporate Commercial Paper Master Note dated March 1, 2012 between U.S. Bank National Association as Paying Agent and Piedmont Natural Gas Company, Inc. as Issuer (incorporated by reference to Exhibit 4.1, Form 10-Q for the quarter ended April 30, 2012). |
|
| | 4.25 |
| Fifth Supplemental Indenture, dated August 1, 2013, between the Company and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.1, Form 8-K dated August 1, 2013). |
|
|
| 4.26 |
| Form of 4.65% Senior Notes due 2043 (incorporated by reference to Exhibit 4.2, Form 8-K dated August 1, 2013). |
|
| | 4.27 | | Sixth Supplemental Indenture, dated September 18, 2014, between the Company and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.1, Form 8-K dated September 18, 2014). |
| | | | |
10.1.1** | | 4.28 | | FormAmendment to Directors’ Charitable Giving Program, dated as of 4.10% Senior Notes due 2034June 18, 1997, (incorporated by reference to Exhibit 4.2,10-1.1 to Duke Energy Carolinas, LLC's Annual Report on Form 8-K dated September 18, 2014)10-K for the year ended December 31, 2003, filed on March 15, 2004, File No. 1-4928). |
| | X | | | | | | | | | | | | |
10.1.2** | | 4.29 | | Third Amendment to September 1992 Note Agreement,Directors’ Charitable Giving Program, dated as of October 15, 2014, between the Company and Provident Life and Accident Insurance CompanyJuly 28, 1997, (incorporated by reference to Exhibit 4.29,10-1.2 to Duke Energy Carolinas, LLC's Annual Report on Form 10-K for the fiscal year ended OctoberDecember 31, 2014)2003, filed on March 15, 2004, File No. 1-4928). |
| | X | | | | | | | | | | | | |
10.1.3** | | 4.30 | | Seventh Supplemental Indenture,Amendment to Directors’ Charitable Giving Program, dated September 14, 2015, between the Company and The Bankas of New York Mellon Trust Company, N.A.February 18, 1998, (incorporated by reference to Exhibit 4.1,10-1.3 to Duke Energy Carolinas, LLC's Annual Report on Form 8-K dated September 14, 2015)10-K for the year ended December 31, 2003, filed on March 15, 2004, File No. 1-4928). |
| | X | | | | | | | | | | | | |
10.2 | | 4.31 | | Form of 3.60% Senior Notes due 2025 |
|
| X | | | | | Compensatory Contracts: |
|
| | 10.1 | | Form | | |
10.3 | Asset Purchase Agreement between Saluda River Electric Cooperative, Inc., as Seller, and Duke Energy Carolinas, LLC, as Purchaser, dated as of Director Retirement Benefits Agreement with outside directors, dated September 1, 1999December 20, 2006, (incorporated by reference to Exhibit 10.54,10.1 to registrant's Current Report on Form 10-K for the fiscal year ended October 31, 1999)8-K filed on December 27, 2006, File No. 1-4928). |
|
|
| | | | |
| | 10.2X | | Severance Agreement with Thomas E. Skains, | | | | | | | | | | |
10.4 | | | | X | | | | | | | | | | | | |
10.5 | | | | | | | | | | | | | | | | X |
10.6 | | | | | | | | | | | | | | | | X |
10.7 | | | | | | | | | | | | | | | | X |
10.8 | | | | X | | | | | | | | | | | | |
10.9 | | | | | | | | | | | | | | | | X |
10.10 | Engineering, Procurement and Construction Management Agreement between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and Bechtel Power Corporation, dated as of December 15, 2008, (incorporated by reference to Exhibit 10.16 to registrant's Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 13, 2009, File No. 1-3543). (Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.) | | | | | | | | | | | | | X | | |
10.11 | 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 | | | | | | | | | | | | | | |
10.12 | | X | | | | | | | | | | | | | | |
10.13** | | X | | | | | | | | | | | | | | |
10.14 | | X | | | | | | | | | | | | X | | |
10.15** | | X | | | | | | | | | | | | | | |
10.16 | $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 | | | | | | | | X | | X | | |
10.16.1 | Amendment No. 1 and Consent between Duke Energy Corporation, Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC, Duke Energy Kentucky, Inc., Duke Energy Progress, Inc., Duke Energy Florida, Inc., and Wells Fargo Bank, National Association, dated as of December 18, 2013, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on December 23, 2013, File Nos. 1-32853, 1-4928, 1-3382, 1-3274, 1-1232 and 1-3543). | X | | X | | | | X | | X | | X | | X | | |
10.16.2 | 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 | | |
10.16.3 | Amendment No. 3 and Consent, dated as of March 16, 2017, among the registrants, the Lenders party thereto, the issuing Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent and Swingline Lender (incorporated by reference to Exhibit 10.1 to registrants' Current Report on Form 8-K filed on March 17, 2017, File Nos. 1-32853, 1-04928, 1-03382, 1-03274, 1-01232, 1-03543, 1-06196). | X | | X | | | | X | | X | | X | | X | | X |
10.17** | | X | | | | | | | | | | | | | | |
10.17.1** | | X | | | | | | | | | | | | | | |
10.18** | | X | | | | | | | | | | | | | | |
10.19** | | X | | | | | | | | | | | | | | |
10.20** | | X | | | | | | | | | | | | | | |
10.21** | | X | | | | | | | | | | | | | | |
10.22** | | X | | | | | | | | | | | | | | |
10.23** | | X | | | | | | | | | | | | | | |
*10.24** | | X | | | | | | | | | | | | | | |
10.25** | | X | | | | | | | | | | | | | | |
10.26** | | X | | | | | | | | | | | | | | |
*10.27* | | X | | | | | | | | | | | | | | |
10.28 | | X | | | | | | | | | | | | | | |
10.29 | | X | | | | | | | | | | | | | | |
10.30** | | X | | | | | | | | | | | | | | |
10.31** | | X | | | | | | | | | | | | | | |
10.32 | 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 | | | | | | | | |
10.33 | 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 | | | | | | | | |
10.34 | 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 | | | | | | | | |
10.35 | Amendment, dated as of December 16, 1982, to Purchase, Construction and Ownership Agreement, dated as of July 30, 1981, between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina Eastern Municipal Power Agency (incorporated by reference to Exhibit 10(d) to registrant's File No. 33-25560). | | | | | | | X | | | | | | | | |
10.36** | | | | | | X | | | | | | | | | | |
10.37** | | | | | | X | | | | | | | | | | |
10.38** | Progress Energy, Inc. Management Change-in-Control Plan, Amended and Restated, effective July 13, 2011, (incorporated by reference to Exhibit 10(d) to registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed on November 8, 2011, File Nos. 1-15929, 1-3382 and 1-3274). | | | | | X | | X | | X | | | | | | |
10.39 | Precedent and Related Agreements between Duke Energy Florida, Inc. (formerly Florida PowerCorporation d/b/a Progress Energy Florida, Inc. (“PEF”)), Southern Natural Gas Company, FloridaGas Transmission Company (“FGT”), and BG LNG Services, LLC (“BG”), including:a) Precedent Agreement between Southern Natural Gas Company and PEF, dated as ofDecember 2, 2004;b) Gas Sale and Purchase Contract between BG and PEF, dated as of December 1, 2004;c) Interim Firm Transportation Service Agreement by and between FGT and PEF, dated as ofDecember 2, 2004;d) Letter Agreement between FGT and PEF, dated as of December 2, 2004, andFirm Transportation Service Agreement between FGT and PEF to be entered into upon satisfactionof certain conditions precedent;e) Discount Agreement between FGT and PEF, dated as of December 2, 2004;f) Amendment to Gas Sale and Purchase Contract between BG and PEF, dated as of January 28,2005; andg) Letter Agreement between FGT and PEF, dated as of January 31, 2005, (incorporated byreference to Exhibit 10.1 to registrant's Current Report on Form 8-K/A filed on March 15, 2005, FileNos. 1-15929 and 1-3274). (Portions of the exhibit have been omitted and filed separately with theSecurities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.) | | | | | X | | | | X | | | | | | |
10.40 | Engineering, Procurement and Construction Agreement between Duke Energy Florida, Inc. (formerly Florida Power Corporation d/b/a/ Progress Energy Florida, Inc.), as owner, and a consortium consisting of Westinghouse Electric Company LLC and Stone & Webster, Inc., as contractor, for a two-unit AP1000 Nuclear Power Plant, dated as of December 31, 2008, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on March 2, 2009, File Nos. 1-15929 and 1-3274). (Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.) | | | | | X | | | | X | | | | | | |
10.41** | | X | | | | | | | | | | | | | | |
10.41.1** | | X | | | | | | | | | | | | | | |
10.42** | | X | | | | | | | | | | | | | | |
10.43** | | X | | | | | | | | | | | | | | |
10.44** | | X | | | | | | | | | | | | | | |
10.44.1 | | X | | | | | | | | | | | | | | |
10.45 | 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 | | | | | | | | | | X | | | | |
10.46 | | X | | | | | | X | | | | | | | | |
10.47 | | X | | | | | | | | | | | | | | |
10.48 | | X | | | | | | | | | | | | | | |
10.49 | | X | | | | | | | | | | | | | | |
10.50 | | X | | | | | | | | | | | | | | |
10.51 | $1,500,000,000 Amended and Restated Term Loan Agreement among Duke Energy Corporation, as Borrower, the Lenders listed therein, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., Santander Bank, N.A. and TD Bank, N.A., as Joint Lead Arrangers and Bookrunners, dated as of August 1, 2016, (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30,2016, filed on August 4, 2016, File No. 1-32853). | X | | | | | | | | | | | | | | |
10.52 | | X | | | | | | | | | | | | | | |
10.53 | Purchase and Sale Agreement by and among Duke Energy Brazil Holdings II, C.V., Duke Energy International Uruguay Investments SRL, Duke Energy International Group S.à.r.l., Duke Energy International España Holdings SL, Duke Energy International Investments No. 2 Ltd., ISQ Enerlam Aggregator, L.P., and Enerlam (UK) Holdings Ltd., dated as of October 10, 2016, (incorporated by reference to Exhibit 2.2. to registrant's Current Report on Form 8-K filed on October 13, 2016, File No. 1-32853). | X | | | | | | | | | | | | | | |
10.54** | | X | | | | | | | | | | | | | | |
10.55** | |
X |
| | 10.3 | | Schedule of Severance Agreements with Executives (incorporated by reference to Exhibit 10.2a, Form 10-Q for the quarter ended July 31, 2007). |
|
| | 10.4 | | Piedmont Natural Gas Company, Inc. Incentive Compensation Plan as Amended and Restated Effective December 15, 2010 (incorporated by reference to Appendix A, Form DEF14A dated January 14, 2011). |
|
| | 10.5 | | Form of Performance Unit Award Agreement. |
|
| | 10.6 | | |
10.56** | 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)2009, filed on March 9, 2009, File No. 1-06196). |
X |
| | 10.7 | | Amendment No. 1 to Director Retirement Benefits Agreements with outside directors, dated as of December 31, 2008 (incorporated by reference to Exhibit 10.1, Form 10-Q for the quarter ended July 31, 2009). |
|
| | 10.8 | | Severance Agreement between Piedmont Natural Gas Company, Inc. and Karl W. Newlin, dated as of June 4, 2010 (incorporated by reference to Exhibit 10.3, Form 10-Q for the quarter ended July 31, 2010). |
|
| | 10.9 | | | | | |
10.56.1** | |
X |
| | 10.10 | | 2011 Retention Award Agreement, dated December 15, 2011, between | | | | | | | | | |
10.56.2** | | X | | | | | | | | | | | | | | |
10.57** | | X | | | | | | | | | | | | | | |
10.57.1** | | X | | | | | | | | | | | | | | |
10.58** | |
X |
| | 10.11 | | Severance Agreement, dated February 1, 2012, between Piedmont Natural Gas Company, Inc. and Victor M. Gaglio (incorporated by reference to Exhibit 10.2, Form 10-Q for the quarter ended April 30, 2012). |
|
| | 10.12 | | Amended and Restated Employment Agreement, dated May 25, 2012, between Piedmont Natural Gas Company, Inc. and Thomas E. Skains (substantially identical agreements have been entered into with Victor M. Gaglio, Jane R. Lewis-Raymond, Karl W. Newlin, Kevin M. O’Hara and Franklin H. Yoho) (incorporated by reference to Exhibit 10.1, Form 10-Q for the quarter ended July 31, 2012). |
|
| | 10.13 | | Schedule of Amended and Restated Employment Agreements with Executives (incorporated by reference to Exhibit 10.2, Form 10-Q for the quarter ended July 31, 2012). |
|
| | 10.14 | | Resolution of Board of Directors, June 6, 2014, establishing compensation for non-management directors (incorporated by reference to Exhibit 10.1, Form 10-Q for the quarter ended July 31, 2014). |
|
| | 10.15 | | Piedmont Natural Gas Company Employee Stock Purchase Plan Amended and Restated as of November 1, 2014, dated as of January 30, 2015 (incorporated by reference to Exhibit 10.1, Form 10-Q for the quarter ended January 31, 2015). |
| | | | |
|
10.59** | | X | | |
| | 10.16 | | Piedmont Natural Gas Company, | | | | | | | | | |
10.60** | | X | | | | | | | | | | | | | | |
10.61** | | X | | | | | | | | | | | | | | |
10.62 | | X | | | | | | | | | | | | | | |
10.62.1 | | X | | | | | | | | | | | | | | |
10.63 | $1,000,000,000 Credit Agreement, dated May 1, 2015as of June 14, 2017, among Duke Energy Corporation, the lenders listed therein, The Bank of Nova Scotia, as Administrative Agent, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation and TD Bank, N.A., as C0-Syndication Agents, and Bank of China, New York Branch, BNP Paribas, Santander Bank, N.A. and U.S. Bank National Association, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 10-Q for the quarter ended July 31, 2015)8-K filed on June 14, 2017, File No. 1-32853). |
|
| X | 10.17 | | Resolution of Board of Directors, June 5, 2015, establishing compensation for non-management directors (incorporated by reference to Exhibit 10.2, Form 10-Q for the quarter ended July 31, 2015). |
|
| | | | Other Contracts: |
|
| | 10.18 | | | | | | |
10.64 | $250,000,000 Term Loan Credit Agreement, dated as of June 14, 2017, among Piedmont Natural Gas Company, Inc. the lenders listed therein, U.S. Bank National Association, as Administrative Agent, Branch Banking and Trust Company and Regions Bank, as Co-Syndication Agents and PNC Bank, National Association, as Documentation Agent (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on June 14, 2017, File No. 1-06196). | | | | | | | | | | | | | | | X |
10.65 | |
|
| | 10.19 | | Amended and Restated Credit Agreement dated as of October 1, 2012 among Piedmont Natural Gas Company, Inc., Wells Fargo Bank, National Association, as Administrative Agent, Swing Line Lender, L/C Issuer and a Lender, and Branch Banking and Trust Company, Bank of America, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National Association, U.S. Bank National Association and Royal Bank of Canada, each a Lender (incorporated by reference to Exhibit 10.34, Form 10-K for the fiscal year ended October 31, 2012). |
|
| | 10.20 | | | | | | | | | X |
10.66 | |
|
| | 10.21 | | | | | | | | | | | | X |
10.66.1 | First Amendment to Amended and Restated Limited Liability Company Agreement of Constitution Pipeline Company, LLC, dated as of November 9, 2012, by and among Constitution Pipeline Company, LLC, Williams Partners Operating LLC, Cabot Pipeline Holdings LLC, and Piedmont Constitution Pipeline Company, LLC (incorporated by reference to Exhibit 10.2 to registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 2013)2013, filed on March 6, 2013, File No. 1-06196). |
|
| | 10.22 | | | | | | | | | | | | X |
10.66.2 | Second Amendment to Amended and Restated Limited Liability Company Agreement of Constitution Pipeline Company, LLC, dated as of May 29, 2013, by and among Constitution Pipeline Company, LLC, Williams Partners Operating LLC, Cabot Pipeline Holdings LLC, Piedmont Constitution Pipeline Company, LLC, and Capitol Energy Ventures Corp. (incorporated by reference to Exhibit 99.1 to registrant's Current Report on Form 8-K filed on September 4, 2013)2013, File No. 1-06196). |
|
| | 10.23 | | | | | | | | | | | | X |
10.67 | |
|
| | 10.24 | | Increasing Lender Agreement dated as of November 1, 2013 among Wells Fargo Bank, National Association, Bank of America, N.A., Branch Banking and Trust Company, JPMorgan Chase Bank, N.A., PNC Bank, National Association, U.S. Bank National Association and Royal Bank of Canada, each as a Lender (incorporated by reference to Exhibit 10.1, Form 8-K dated November 4, 2013). |
|
| | 10.25 * | | | | | | | | | X |
10.68 | Limited Liability Company Agreement of Atlantic Coast Pipeline, LLC, dated as of September 2, 2014, by and between Dominion Atlantic Coast Pipeline, LLC, Duke Energy ACP, LLC, Piedmont ACP Company, LLC, and Maple Enterprise Holdings, Inc. (incorporated by reference to Exhibit 10.35 to registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 2014)2014, filed on December 23, 2014, File No. 1-06196). |
|
| | 10.26 | | ATM Equity Offering Sales Agreement dated January 7, 2015 between the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 1.1, Form 8-K dated January 7, 2015). |
|
|
| | | | |
| | 10.27 | | ATM Equity Offering Sales Agreement dated January 7, 2015 between the Company and J.P. Morgan Securities LLC (incorporated by reference to Exhibit 1.2, Form 8-K dated January 7, 2015). |
|
| | 12 | | | | | | X |
*12.1 | |
X |
| | 21 | | List of Subsidiaries. |
|
| | 23.1 | | | | | | | | |
*12.2 | | | | X | | | | | | | | | | | | |
*12.3 | | | | | | X | | | | | | | | | | |
*12.4 | | | | | | | | X | | | | | | | | |
*12.5 | | | | | | | | | | X | | | | | | |
*12.6 | | | | | | | | | | | | X | | | | |
*12.7 | | | | | | | | | | | | | | X | | |
*12.8 | | | | | | | | | | | | | | | | X |
*21 | | X | | | | | | | | | | | | | | |
*23.1.1 | |
X |
| | 31.1 | | | | | | | | | | | |
*23.1.2 | | | | X | | | | | | | | | | | | |
*23.1.3 | | | | | | | | X | | | | | | | | |
*23.1.4 | | | | | | | | | | X | | | | | | |
*23.1.5 | | | | | | | | | | | | X | | | | |
*23.1.6 | | | | | | | | | | | | | | X | | |
*23.1.7 | | | | | | | | | | | | | | | | X |
*24.1 | | X | | | | | | | | | | | | | | |
*24.2 | | X | | | | | | | | | | | | | | |
*31.1.1 | | X | | | | | | | | | | | | | | |
*31.1.2 | |
|
| | 31.2 | | CertificationOfficer Pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002. | | | X | | | | | | | | | | | | |
*31.1.3 | | | | | | X | | | | | | | | | | |
*31.1.4 | | | | | | | | X | | | | | | | | |
*31.1.5 | | | | | | | | | | X | | | | | | |
*31.1.6 | | | | | | | | | | | | X | | | | |
*31.1.7 | | | | | | | | | | | | | | X | | |
*31.1.8 | | | | | | | | | | | | | | | | X |
*31.2.1 | |
X |
| | 32.1 | | | | | | | | | | | |
*31.2.2 | | | | X | | | | | | | | | | | | |
*31.2.3 | | | | | | X | | | | | | | | | | |
*31.2.4 | | | | | | | | X | | | | | | | | |
*31.2.5 | | | | | | | | | | X | | | | | | |
*31.2.6 | | | | | | | | | | | | X | | | | |
*31.2.7 | | | | | | | | | | | | | | X | | |
*31.2.8 | | | | | | | | | | | | | | | | X |
*32.1.1 | |
X |
| | 32.2 | | | | | | | | | | | |
*32.1.2 | |
|
| | 101.INSX | | | | | | | | | | | | |
*32.1.3 | | | | | | X | | | | | | | | | | |
*32.1.4 | | | | | | | | X | | | | | | | | |
*32.1.5 | | | | | | | | | | X | | | | | | |
*32.1.6 | | | | | | | | | | | | X | | | | |
*32.1.7 | | | | | | | | | | | | | | X | | |
*32.1.8 | | | | | | | | | | | | | | | | X |
*32.2.1 | | X | | | | | | | | | | | | | | |
*32.2.2 | | | | X | | | | | | | | | | | | |
*32.2.3 | | | | | | X | | | | | | | | | | |
*32.2.4 | | | | | | | | X | | | | | | | | |
*32.2.5 | | | | | | | | | | X | | | | | | |
*32.2.6 | | | | | | | | | | | | X | | | | |
*32.2.7 | | | | | | | | | | | | | | X | | |
*32.2.8 | | | | | | | | | | | | | | | | X |
*101.INS | XBRL Instance Document |
X | | 101.SCHX | | X | | X | | X | | X | | X | | X |
*101.SCH | XBRL Taxonomy Extension Schema Document |
X | | 101.CALX | | X | | X | | X | | X | | X | | X |
*101.CAL | XBRL Taxonomy Calculation Linkbase Document |
X | | 101.DEFX | | X | | X | | X | | X | | X | | X |
*101.LAB | XBRL Taxonomy Label Linkbase Document | X | | X | | X | | X | | X | | X | | X | | X |
*101.PRE | XBRL Taxonomy Presentation Linkbase Document | X | | X | | X | | X | | X | | X | | X | | X |
*101.DEF | XBRL Taxonomy Definition Linkbase Document |
X | | 101.LABX | | XBRL Taxonomy Extension Label Linkbase |
X | | 101.PREX | | XBRL Taxonomy Extension Presentation Linkbase |
|
X | | *X | | Certain portions of this Exhibit have been omitted pursuant to a request for confidential treatment. The non-public information has been filed separately with the SEC pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
|
X | | Attached as Exhibit 101 to this Annual Report are the following documents formatted in extensible business reporting language (XBRL): (1) Document and Entity Information; (2) Consolidated Balance Sheets as of October 31, 2015 and 2014; (3) Consolidated Statements of Comprehensive Income for the years ended October 31, 2015, 2014 and 2013; (4) Consolidated Statements of Cash Flows for the years ended October 31, 2015, 2014 and 2013; (5) Consolidated Statements of Stockholders’ Equity for the years ended October 31, 2015, 2014 and 2013; and Notes to Consolidated Financial Statements.X |
The total amount of securities of each respective registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10 percent of the total assets of such registrant and its subsidiaries on a consolidated basis. Each registrant agrees, upon request of the SEC, to furnish copies of any or all of such instruments to it.
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.
|
| | | |
| 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 G. Browning* | James B. Hyler, Jr.* | |
| | | |
| Theodore F. Craver, Jr.* | William E. Kennard* | |
| | | |
| Robert M. Davis* | E. Marie McKee* | |
| | | |
| Daniel R. DiMicco* | Charles W. Moorman IV* | |
| | | |
| John H. Forsgren* | Carlos A. Saladrigas* | |
| | | |
| Lynn J. Good* | Thomas E. Skains* | |
| | | |
| John T. Herron* | William E. Webster, Jr.* | |
Steven K. Young, by signing his name hereto, does hereby sign this document on behalf of the registrant and on behalf of each of the above-named persons previously indicated by asterisk (*) pursuant to a power of attorney duly executed by the registrant and such persons, filed with the Securities and Exchange Commission as an exhibit hereto. |
| | | | |
| | |
| By: | /s/ STEVEN K. YOUNG |
| Attorney-In-Fact | |
| | | | |
Date: February 21, 2018
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 21, 2018
|
| | | |
| DUKE ENERGY CAROLINAS, LLC (Registrant) | |
| By: | /s/ LYNN J. GOOD |
| | |
Piedmont Natural Gas Company, Inc. |
| | (Registrant) |
| |
By: | | /s/ Thomas E. Skains |
| | Thomas E. Skains |
| | Chairman of the Board, President |
| | and Lynn J. Good Chief Executive Officer |
| |
Date: | | December 23, 2015 |
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 datesdate indicated.
|
| | |
| | |
Signature (i) | /s/ LYNN J. GOOD | | Title
|
| Lynn J. Good | |
/s/ Thomas E. Skains | | Chairman of the Board, President and |
Thomas E. Skains | | Chief Executive Officer |
| | (Principal (Principal Executive Officer) |
| | |
Date: December 23, 2015(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/ Karl W. NewlinLYNN J. GOOD | | Senior Vice President and |
Karl W. Newlin | | Chief Financial Officer |
| | (Principal Financial Officer) |
Lynn J. Good | |
Date: December 23, 2015 | | |
| /s/ DHIAA M. JAMIL | |
/s/ Jose | Dhiaa M. Simon Jamil | | Vice President and Controller |
Jose M. Simon | | (Principal Accounting Officer) |
| | |
Date: December 23, 2015 | /s/ LLOYD M. YATES | |
| Lloyd M. Yates | |
Date: February 21, 2018
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.
|
| | | |
| 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. |
| | |
| | |
Signature (i) | /s/ LYNN J. GOOD | |
Title | Lynn J. Good | |
| Chief Executive Officer (Principal Executive Officer) |
| | |
(ii) | /s/ E. James BurtonSTEVEN K. YOUNG | |
| Steven K. Young | |
| Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
| | Director |
(iii) | /s/ WILLIAM E. James BurtonCURRENS JR. | |
| William E. Currens Jr. | |
| Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) |
| | |
(iv) | Directors: | |
| | |
| /s/ LYNN J. GOOD | |
/s/ Malcolm E. Everett III | Lynn J. Good | | Director |
Malcolm E. Everett III | | |
| |
/s/ Gary A. Garfield | | Director |
Gary A. Garfield | JULIA S. JANSON | |
| |
/s/ Frank B. Holding, Jr. | | Director |
Frank B. Holding, Jr. | Julia S. Janson | |
| |
/s/ Frankie T. Jones, Sr. | | Director |
Frankie T. Jones, Sr. | | |
| |
/s/ Vicki W. McElreath | | Director |
Vicki W. McElreath | | |
| | |
Date: February 21, 2018
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.
|
| | | |
| DUKE ENERGY PROGRESS, LLC (Registrant) | |
| By: | /s/ Thomas M. PashleyLYNN J. GOOD |
| | Director | 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. |
Thomas M. Pashley | | |
(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/ Minor M. ShawDOUGLAS F ESAMANN | | Director |
Minor M. Shaw | |
|
| Douglas F Esamann | |
/s/ Jo Anne Sanford | | Director |
Jo Anne Sanford | | |
| /s/ LYNN J. GOOD | |
/s/ David E. Shi | Lynn J. Good | | Director |
David E. Shi | | |
| /s/ DHIAA M. JAMIL | |
/s/ Michael C. Tarwater | Dhiaa M. Jamil | | Director |
Michael C. Tarwater | |
|
| | |
| /s/ Phillip D. WrightJULIA S. JANSON | |
Director | Julia S. Janson | |
Phillip D. Wright | | |
| /s/ LLOYD M. YATES | |
| Lloyd M. Yates | |
Date: February 21, 2018
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 21, 2018 |
| | | |
| DUKE ENERGY 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. |
| | |
| | Piedmont Natural Gas Company, Inc. |
(i) | /s/ LYNN J. GOOD | |
| Lynn J. Good | |
| Chief Executive Officer (Principal Executive Officer) |
| | Form 10-K |
(ii) | /s/ STEVEN K. YOUNG | |
| Steven K. Young | |
| Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
| | For the Fiscal Year Ended October 31, 2015 |
(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 | Exhibits |
| Douglas F Esamann | |
| | |
10.5 | /s/ LYNN J. GOOD | |
Form of Performance Unit Award Agreement | Lynn J. Good | |
| | |
12 | /s/ DHIAA M. JAMIL | |
Computation of Ratio of Earnings to Fixed Charges | Dhiaa M. Jamil | |
| | |
21 | /s/ JULIA S. JANSON | |
List of Subsidiaries | Julia S. Janson | |
| | |
23.1 | /s/ LLOYD M. YATES | |
Consent of Independent Registered Public Accounting Firm | Lloyd M. Yates | |
Date: February 21, 2018
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.
|
| | | |
| DUKE ENERGY OHIO, INC. (Registrant) | |
| By: | /s/ LYNN J. GOOD |
| |
31.1 | | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the 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. |
| | |
| | |
31.2(i) | /s/ LYNN J. GOOD | |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the | Lynn J. Good | |
| Chief FinancialExecutive Officer (Principal Executive Officer) |
| | |
32.1(ii) | /s/ STEVEN K. YOUNG | |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the | Steven K. Young | |
| Executive Vice President and Chief ExecutiveFinancial Officer (Principal Financial Officer) |
| | |
32.2(iii) | /s/ WILLIAM E. CURRENS JR. | |
| William E. Currens Jr. | |
| Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) |
| | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(iv) | Directors: | |
| | |
| /s/ DOUGLAS F ESAMANN | |
| Douglas F Esamann | |
| | |
| /s/ LYNN J. GOOD | |
| Lynn J. Good | |
| | |
| /s/ DHIAA M. JAMIL | |
| Dhiaa M. Jamil | |
Date: February 21, 2018
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.
|
| | | |
| 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 21, 2018
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.
|
| | | |
| PIEDMONT NATURAL GAS COMPANY, INC. (Registrant) | |
| By: | /s/ LYNN J. GOOD |
| | | Lynn J. Good Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. |
| | |
| | |
(i) | /s/ LYNN J. GOOD | |
| Lynn J. Good | |
| Chief Executive Officer (Principal Executive Officer) |
| | |
(ii) | /s/ STEVEN K. YOUNG | |
| Steven K. Young | |
| Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
| | |
(iii) | /s/ WILLIAM E. CURRENS JR. | |
| William E. Currens Jr. | |
| Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) |
| | |
(iv) | Directors: | |
| | |
| /s/ LYNN J. GOOD | |
| Lynn J. Good | |
| | |
| /s/ FRANKLIN H. YOHO | |
| Franklin H. Yoho | |
| | |
| /s/ DHIAA M. JAMIL | |
| Dhiaa M. Jamil | |
Date: February 21, 2018