On August 21, 2014, Duke Energy entered into an agreement to sell its nonregulated Midwest generation business (Disposal Group) to Dynegy Inc. (Dynegy) for approximately $2.8 billion in cash subject to adjustments at closing for changes in working capital and PEF (collectively, the Utilities).capital expenditures. The term “Progress Registrants” refers to each of the three separate registrants: ProgressDisposal Group primarily includes Duke Energy PECOhio's coal-fired and PEF. However, neither of the Utilities makes any representation as to information related solely to Progress Energy or the subsidiaries of Progress Energy other than itself. The Parent was incorporated on August 19, 1999, initially as CP&L Energy, Inc. and became the holding company for PEC on June 19, 2000. We acquired PEF through our November 2000 acquisition of its parent, Florida Progress Corporation (Florida Progress).

Duke Energy conducts its operations in a stock-for-stock transactionthree business segments; Regulated Utilities, International Energy and become a wholly owned subsidiaryCommercial Power. The remainder of Duke Energy’s operations are presented as Other. Duke Energy’s chief operating decision maker regularly reviews financial information about each of these business segments in deciding how to allocate resources and evaluate performance. For additional information on each of these business segments, including financial and geographic information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”

Regulated Utilities conducts operations primarily through Duke Energy (the Merger). Both companies’ shareholders have approvedCarolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana, and Duke Energy Ohio. These electric and gas operations are subject to the Merger. However, consummationrules and regulations of the Merger is subject to customary conditions, including, among other things, expiration or termination of the applicable Hart-Scott-Rodino Act waiting period, and receipt of approval, to the extent required, from the Federal Energy Regulatory Commission

Although there is no pending legislation at this time, if the retail jurisdictions served by theRegulated Utilities become subject to deregulation, the recovery of “stranded costs”stranded costs could become a significant consideration. Stranded costs primarily include the generation assets of utilitiesRegulated Utilities whose value in a competitive marketplace wouldmay be less than their current book value, as well as above-market purchased power commitments to qualifiedfrom qualifying facilities (QFs). The Public Utility Regulatory Policies Act of 1978 (PURPA) established a new class of generating facilities as QFs, typically small power production facilities that generate power within a utility company’s service territory for which the utility companies are legally obligated to purchase the energy at an avoided cost rate. Thus far, all states that have passed restructuring legislation have provided for the opportunity to recover a substantial portion of stranded costs.

Increased competition in the wholesale electric utility industry and the availability of transmission access could affect theRegulated Utilities’ load forecasts, plans for power supply and wholesale energy sales and related revenues. Wholesale energy sales will be impacted by the extent to which additional generation is available to sell to the wholesale market and the ability of theRegulated Utilities to attract new wholesale customers and to retain current wholesale customers who have existing customers.

Energy and capacity are also supplied through contracts with PECother generators and purchased on the open market. Factors that could cause Regulated Utilities to purchase power for its customers include generating plant outages, extreme weather conditions, generation reliability, growth, and price. Regulated Utilities has interconnections and arrangements with its neighboring utilities to facilitate planning, emergency assistance, sale and purchase of capacity and energy, and reliability of power supply.

The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and PEF are subjectoptions being considered to regulationmeet those needs. Recent IRPs filed by the FERC with respectSubsidiary Registrants included planning assumptions to transmission service, including generator interconnection service forpotentially retire certain coal-fired generating facilities making sales for resale and wholesale sales of electric energy.

Regulated Utilities meets its coal demand through a portfolio of long-term purchase contracts and short-term spot market purchase agreements. Large amounts of coal are purchased under long-term contracts with mining operators who mine both underground and at the surface. Regulated Utilities uses spot-market purchases to generate electricity, thereby maintainingmeet coal requirements not met by long-term contracts. Expiration dates for its long-term contracts, which have various price adjustment provisions and market re-openers, range from 2015 to 2016 for Duke Energy Carolinas, 2015 to 2018 for Duke Energy Progress, 2015 to 2016 for Duke Energy Florida, and 2015 to 2025 for Duke Energy Indiana. Regulated Utilities expects to renew these contracts or enter into similar contracts with other suppliers as existing contracts expire, though prices will fluctuate over time as coal markets change. Coal purchased for the Carolinas is primarily produced from mines in Central Appalachia, Northern Appalachia and the Illinois Basin. Coal purchased for Florida is primarily produced from mines in Central Appalachia and the Illinois Basin. Coal purchased for Indiana is primarily produced in Indiana and Illinois. Regulated Utilities has an adequate supply of coal under contract to fuel its projected 2015 operations and a diversesignificant portion of supply to fuel mixits projected 2016 operations. Current coal inventory levels for Regulated Utilities are at adequate levels and are expected to remain at adequate levels for the remainder of 2015. Changing natural gas prices continue to influence the level of coal generation.

Regulated Utilities has contracted for uranium materials and services to fuel its nuclear reactors. Uranium concentrates, conversion services and enrichment services are primarily met through a diversified portfolio of long-term supply contracts. The contracts are diversified by supplier, country of origin and pricing. Regulated Utilities staggers its contracting so that helps mitigateits portfolio of long-term contracts covers the impactmajority of cost increasesits fuel requirements in any one fuel.the near term and decreasing portions of its fuel requirements over time thereafter. Near-term requirements not met by long-term supply contracts have been and are expected to be fulfilled with spot market purchases. Due to the associated regulatory treatmenttechnical complexities of changing suppliers of fuel fabrication services, Regulated Utilities generally sources these services to a single domestic supplier on a plant-by-plant basis using multiyear contracts.

Regulated Utilities has entered into fuel contracts that cover 100 percent of its uranium concentrates, conversion services, and the method allowedenrichment services requirements through at least 2015 and cover fabrication services requirements for recovery, changes inthese plants through at least 2018. For future requirements not already covered under long-term contracts, Regulated Utilities believes it will be able to renew contracts as they expire, or enter into similar contractual arrangements with other suppliers of nuclear fuel costsmaterials and services.

Natural gas and oil supply for Regulated Utilities’ generation fleet is purchased under term and spot contracts from yearvarious suppliers. Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana use derivative instruments to year have no material impact on operating results of the Utilities, unless a commission findslimit a portion of such coststheir exposure to have been imprudent.price fluctuations for natural gas. Regulated Utilities has certain dual-fuel generating facilities that can operate with both natural gas and oil. The cost of Regulated Utilities’ natural gas and oil is either at a fixed price or determined by market prices as reported in certain industry publications. Regulated Utilities believes it has access to an adequate supply of gas and oil for the reasonably foreseeable future. Regulated Utilities’ natural gas transportation for its gas generation is purchased under long-term firm transportation contracts with interstate and intrastate pipelines. Regulated Utilities may also purchase additional shorter-term transportation for its load requirements during peak periods. The Regulated Utilities natural gas plants are served by several supply zones and multiple pipelines.

Regulated Utilities purchased approximately 14.3 million megawatt-hours (MWh), 11.7 million MWh and 19.8 million MWh of its system energy requirements during 2014, 2013, and 2012, respectively, under purchase obligations and leases and had 4,500 and 3,800 MW of firm purchased capacity under contract during 2014 and 2013, respectively. These amounts include MWh for Duke Energy Progress and Duke Energy Florida for all periods presented. These agreements include amounts contracted with certain QFs. Regulated Utilities may need to acquire additional purchased power capacity in the future to accommodate a portion of its system load needs. Regulated Utilities believes it can obtain adequate purchased power to meet these needs. However, delays betweenduring periods of high demand, the expenditureprice and availability of purchased power may be significantly affected.

Regulated Utilities is responsible for the purchase and recovery from ratepayers can adversely impact the timingsubsequent delivery of cash flownatural gas to retail customers in its Ohio and Kentucky service territories. Regulated Utilities’ natural gas procurement strategy is to buy firm natural gas supplies and firm interstate pipeline transportation capacity during the winter season and during the non-heating season through a combination of firm supply and transportation capacity along with spot supply and interruptible transportation capacity. This strategy allows Regulated Utilities to assure reliable natural gas supply for its non-curtailable customers during peak winter conditions and provides Regulated Utilities the flexibility to reduce its contract commitments if firm customers choose alternate gas. In 2014, firm supply purchase commitment agreements provided approximately 97 percent of the Utilities. PEFnatural gas supply.

Generation of electricity is obligated to file for a midcourse recovery between annual fuel hearings in the event its estimated over- or under-recovery of fuel costs meets or exceeds a threshold of 10 percent of estimated total retail fuel revenues and, accordingly, has the ability to mitigate the cash flow impacts due to the timing of recoverycapital intensive. Regulated Utilities must maintain an adequate stock of fuel and purchased power costs.materials and supplies in order to ensure continuous operation of generating facilities and reliable delivery to customers. As of December 31, 2014, the inventory balance for Regulated Utilities was $3,348 million. For additional information on inventory see Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.”

Regulated Utilities owns, wholly or partially, 12 nuclear reactors located at seven stations. Nuclear insurance includes: nuclear liability coverage; property, decontamination and premature decommissioning coverage; and replacement power expense coverage. Joint owners reimburse Regulated Utilities for certain expenses associated with nuclear insurance in accordance with joint owner agreements. The Price-Anderson Act requires plant owners to provide for public nuclear liability claims resulting from nuclear incidents to the maximum total financial protection liability, which mustcurrently is $13.6 billion. For additional information on nuclear insurance see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.”

The NCUC, PSCSC and FPSC have allowed Regulated Utilities’ to recover estimated decommissioning costs through retail rates over the expected remaining service periods of their nuclear stations. Regulated Utilities believes the decommissioning costs being recovered through rates, when coupled with the existing fund balance and expected fund earnings, will be approvedsufficient to provide for the cost of future decommissioning. For additional information see Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations.”

The Nuclear Waste Policy Act of 1982 (as amended) (NWPA) provides the framework for development by the respective utility commissions. We cannot predict the outcomefederal government of DSMinterim storage and EE filings currently pending approval or whether the implemented programspermanent disposal facilities for high-level radioactive waste materials. The NWPA promotes increased usage of interim storage of spent nuclear fuel at existing nuclear plants. Regulated Utilities will produce the expected operational and economic results.

Under federal law, the U.S. Department of energy-efficiency measuresEnergy (DOE) is responsible for the selection and construction of a facility for the permanent disposal of spent nuclear fuel and high-level radioactive waste. Delays have occurred in the DOE’s proposed permanent repository to be located at Yucca Mountain, Nevada.

Until the DOE begins to accept the spent nuclear fuel, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida will continue to safely manage their spent nuclear fuel. With certain modifications and additional approvals by the state’s electric utilities beginning with a 3 percent requirement in 2012 and increasingNuclear Regulatory Commission (NRC), including the expansion of on-site dry cask storage facilities, spent nuclear fuel storage facilities will be sufficient to 12.5 percent in 2021provide storage space for regulated public utilities, including PEC. PEC is on track to meetspent fuel through the 3 percent of retail electric sales target in 2012. PEC has worked diligently to meet the set aside requirements in NC REPS, however, our ability to do so is contingent upon developers meeting proposed project sizes and timelines. In the event that PEC is unable to meet anyexpiration of the NC REPS set-aside requirements, PEC will seek to modify or delay the set-aside provisions as permitted by the NCUC. The premium to be paid by electric utilities to comply with the requirements above the cost they would have otherwise incurred to meet consumer demand is to be recovered through an annual clause. The annual amount that can be recoveredoperating licenses, including any license renewals, for all sites except Shearon Harris Nuclear Station (Harris) and Crystal River Unit 3 Nuclear Station (Crystal River Unit 3). Under current regulatory guidelines, Harris has sufficient storage capacity in its spent fuel pools through the NC REPS clause is capped and once a utility has expended monies equalexpiration of its renewed operating license. Crystal River Unit 3 was retired in 2013, with plans to place the cap, the utility is deemedfacility in SAFSTOR prior to have met its obligations, regardlessfinal decommissioning. An independent spent fuel storage installation will be installed to accommodate storage of the actual renewables generated or purchased. The NCUC has the authority to modify or alter the NC REPS requirements if the NCUC determines it is in the public interest to do so.

The nuclear power industry faces uncertainties with respect to the cost and long-term availability of disposal sites for spent nuclear fuel and other radioactive waste, compliance with changing regulatory requirements, capital outlays for modifications and new plant construction, the technological and financial aspects of decommissioning plants at the end of their licensed lives, and requirements relating to nuclear insurance. Nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, repairs, uprates and certain other modifications.

The NRC issues orders with regard to security at nuclear plants in response to new or emerging threats. The most recent orders include additional restrictions on nuclear plant access, increased security measures at nuclear facilities and closer coordination with our partners in intelligence, military, law enforcement and emergency response functions at the federal, state and local levels. We are in compliance with the requirements outlined in the orders through the use of additional security measures until permanent construction projects are completed in 2012. As the NRC, other governmental entities and the industry continue to consider security issues, it is possible that more extensive security plans could be required.

The Nuclear Waste Policy Act of 1982 (as amended) providesNCUC, PSCSC, FPSC, PUCO, IURC and KPSC (collectively, the frameworkstate utility commissions) approve rates for development by the federal government of interim storageretail electric and permanent disposal facilities for high-level radioactive waste materials. The Nuclear Waste Policy Act of 1982 promotes increased usage of interim storage of spent nuclear fuel at existing nuclear plants. We will continue to maximize the use of spent fuel storage capabilitygas service within our own facilities for as long as feasible.

Each of the state utility commissions allow recovery of certain costs through various cost-recovery clauses to the extent the respective commission determines in periodic hearings that such costs, including any past over or under-recovered costs, are prudent. The clauses are in addition to approved base rates.

Duke Energy Ohio is a member of PJM and Duke Energy Indiana is a member of MISO. Transmission owners in these RTOs have turned over control of their transmission facilities, and their transmission systems are currently under the dispatch control of the RTOs. Transmission service is provided on a region-wide, open-access basis using the transmission facilities of the RTO members at rates based on site-specific estimates that include the costs for removal of all radioactive and other structures attransmission service.

See Note 5C“Other Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion about potential Global Climate Change legislation and other EPA regulations under development and the potential impacts such legislation and regulation could have on Duke Energy’s operations.

International Energy principally operates and manages power generation facilities and engages in sales and marketing of electric power, natural gas, and natural gas liquids outside the U.S. Its activities principally target power generation in Latin America. Additionally, International Energy owns a 25 percent interest in National Methanol Company (NMC), a large regional producer of methanol and methyl tertiary butyl ether (MTBE) located in Saudi Arabia. International Energy’s economic ownership interest will decrease to 17.5 percent upon successful startup of NMC's polyacetal production facility, which is expected to occur after June 2016. International Energy will retain 25 percent of the Utilities’ nuclear decommissioning costs.board representation and voting rights of NMC. The investment in NMC is accounted for under the equity method of accounting.

International Energy’s operations are subject to both country-specific and international laws and regulations. See “Environmental Matters” in this section.

Commercial Power is subject to regulation at the federal level, primarily from the FERC. Regulations of the FERC govern access to regulated electric customer and other data by nonregulated entities, services provided between regulated and nonregulated energy affiliates, and Commercial Power’s investments in transmission projects. These regulations affect the activities of Commercial Power.

The remainder of Duke Energy’s operations is presented as Other. While it is not an operating segment, Other primarily includes unallocated corporate interest expense, certain unallocated corporate costs, Bison Insurance Company Limited (Bison), Duke Energy’s wholly owned, captive insurance subsidiary, contributions to the Duke Energy Foundation, and other investments in businesses the Company is in various stages of exiting or winding down. On December 31, 2013, Duke Energy sold its interest in DukeNet Communications Holdings, LLC (DukeNet) to Time Warner Cable, Inc. Following the repayment of existing DukeNet indebtedness at closing, transaction expenses and other purchase price adjustments, Duke Energy received cash proceeds of approximately $215 million.

The Duke Energy Registrants are subject to federal, state and local authorities in the areas oflaws and regulations with regard to air quality,and water quality, control of toxic substances and hazardous and solid wastes,waste disposal and other environmental matters. We believe that we are in substantial complianceDuke Energy is also subject to international laws and regulations with thoseregard to air and water quality, hazardous and solid waste disposal and other environmental regulations currently applicable to our business and operations and believe we have all necessary permits to conduct such operations.matters. Environmental laws and regulations frequently change andaffecting the ultimate costs of compliance cannot be precisely estimated. Duke Energy Registrants include, but are not limited to:

See “Other Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion about potential Global Climate Change legislation and the statepotential impacts such legislation could have on the Duke Energy Registrants’ operations. Additionally, other recently passed and potential future environmental laws and regulations could have a significant impact on the Duke Energy Registrants’ results of North Carolina,operations, cash flows or financial position. However, if and when such laws and regulations become effective, the state of Florida or potentially responsible parties (PRP) groups. Various organic materials associated with the production of manufactured gas, generally referred to as coal tar, are regulated under federal and state laws. PEC and PEF are each PRPs at several manufactured gas plant (MGP) sites. We are also currently in the process of assessing potential costs and exposures at other sites. These costs are eligible forDuke Energy Registrants will seek appropriate regulatory recovery through either base rates or cost-recovery clauses (See Notes 8 and 21). Both PEC and PEF evaluate potential claims against other PRPs and insurance carriers and plan to submit claims for cost recovery where appropriate. The outcome of potential and pending claims cannot be predicted.

For more information on environmental matters involving the requirements of new regulations will be determined when any new regulations are finalized.

Substantially all of Duke Energy Carolinas operations are regulated and qualify for regulatory accounting. Duke Energy Carolinas operates one reportable business segment, Regulated Utility. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”

Progress Energy is a public utility holding company headquartered in Raleigh, North Carolina, extending fromprimarily engaged in the Piedmontregulated electric utility business and is subject to regulation by the FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. When discussing Progress Energy’s financial information, it necessarily includes the results of Duke Energy Progress and Duke Energy Florida.

Substantially all of Progress Energy’s operations are regulated and qualify for regulatory accounting. Progress Energy operates one reportable business segment, Regulated Utilities. For additional information regarding this business segment, including financial information, see Note 3 to the Atlantic coast between the Pamlico River and the South Carolina border, the lower Piedmont section of North Carolina, an area in western North Carolina in and around the city of Asheville and an area in the northeastern portion of South Carolina. At December 31, 2011, PEC was providing electric services, retail and wholesale, to approximately 1.5 million customers. Major wholesale power sales customers include North Carolina Electric Membership Corporation, North Carolina Eastern Municipal Power Agency (Power Agency) and Public Works Commission of the City of Fayetteville, North Carolina. Major industries in PEC’s service area include chemicals, textiles, paper, food, metals, wood products, rubber and plastics and stone products. No single customer accounts for more than 10 percent of PEC’s revenues.Consolidated Financial Statements, “Business Segments.”

Duke Energy Florida in 1899 and is a regulated public utility primarily engaged in the generation, transmission, distribution, and sale of electricity in portions of Florida. At December 31, 2011, PEF had a total summerDuke Energy Florida’s service area covers approximately 13,000 square miles and supplies electric service to approximately 1.7 million residential, commercial and industrial customers. For information about Duke Energy Florida’s generating capacity (including jointly owned capacity)plants, see Item 2, “Properties.” Duke Energy Florida is subject to the regulatory provisions of 10,019 MW.the FPSC, NRC and FERC.

Substantially all of Duke Energy Florida’s operations are regulated and qualify for regulatory accounting. Duke Energy Florida operates one reportable business segment, Regulated Utility. For additional information about PEF’s generating plants,regarding this business segment, including financial information, see “Electric – PEF” in Item 2, “Properties.” PEF’s system normally experiences its highest peak demands duringNote 3 to the winter, and the all-time system peak of 10,822 MWh was set on January 11, 2010.Consolidated Financial Statements, “Business Segments.”