We have audited the accompanying consolidated balance sheets of Duke Energy Florida, LLC and subsidiaries (the "Company") as of December 31, 20182020 and 2017,2019, 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, 2018,2020, 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, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with accounting principles generally accepted in the United States of America.
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.
We have served as the Company's auditor since 2001.
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, 20182020 and 2017,2019, 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, 2018,2020, 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, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
CriticalAuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Public Utilities Commission of Ohio and by the Kentucky Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric and gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $650 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 28, 201925, 2021
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, | | Years Ended December 31, |
(in millions) | 2018 |
| | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 | | 2018 |
Operating Revenues | | | | | | Operating Revenues | | | | | |
Regulated electric | $ | 1,450 |
| | $ | 1,373 |
| | $ | 1,410 |
| Regulated electric | $ | 1,405 | | | $ | 1,456 | | | $ | 1,450 | |
Regulated natural gas | 506 |
| | 508 |
| | 503 |
| Regulated natural gas | 453 | | | 484 | | | 506 | |
Nonregulated electric and other | 1 |
| | 42 |
| | 31 |
| Nonregulated electric and other | — | | | — | | | 1 | |
Total operating revenues | 1,957 |
| | 1,923 |
| | 1,944 |
| Total operating revenues | 1,858 | | | 1,940 | | | 1,957 | |
Operating Expenses | | | | | | Operating Expenses | | | | | |
Fuel used in electric generation and purchased power – regulated | 412 |
| | 369 |
| | 442 |
| Fuel used in electric generation and purchased power – regulated | 339 | | | 388 | | | 412 | |
Fuel used in electric generation and purchased power – nonregulated | — |
| | 58 |
| | 51 |
| |
| Cost of natural gas | 113 |
| | 107 |
| | 103 |
| Cost of natural gas | 73 | | | 95 | | | 113 | |
Operation, maintenance and other | 480 |
| | 530 |
| | 514 |
| Operation, maintenance and other | 463 | | | 520 | | | 480 | |
Depreciation and amortization | 268 |
| | 261 |
| | 233 |
| Depreciation and amortization | 278 | | | 265 | | | 268 | |
Property and other taxes | 290 |
| | 278 |
| | 258 |
| Property and other taxes | 324 | | | 308 | | | 290 | |
Impairment charges | — |
| | 1 |
| | — |
| |
| Total operating expenses | 1,563 |
| | 1,604 |
| | 1,601 |
| Total operating expenses | 1,477 | | | 1,576 | | | 1,563 | |
(Losses) Gains on Sales of Other Assets and Other, net | (106 | ) | | 1 |
| | 2 |
| |
Losses on Sales of Other Assets and Other, net | | Losses on Sales of Other Assets and Other, net | — | | | — | | | (106) | |
Operating Income | 288 |
| | 320 |
| | 345 |
| Operating Income | 381 | | | 364 | | | 288 | |
Other Income and Expenses, net | 23 |
| | 23 |
| | 11 |
| Other Income and Expenses, net | 16 | | | 24 | | | 23 | |
Interest Expense | 92 |
| | 91 |
| | 86 |
| Interest Expense | 102 | | | 109 | | | 92 | |
Income From Continuing Operations Before Income Taxes | 219 |
| | 252 |
| | 270 |
| Income From Continuing Operations Before Income Taxes | 295 | | | 279 | | | 219 | |
Income Tax Expense From Continuing Operations | 43 |
| | 59 |
| | 78 |
| Income Tax Expense From Continuing Operations | 43 | | | 40 | | | 43 | |
Income From Continuing Operations | 176 |
| | 193 |
| | 192 |
| Income From Continuing Operations | 252 | | | 239 | | | 176 | |
(Loss) Income From Discontinued Operations, net of tax | — |
| | (1 | ) | | 36 |
| |
Loss From Discontinued Operations, net of tax | | Loss From Discontinued Operations, net of tax | — | | | (1) | | | — | |
Net Income and Comprehensive Income | $ | 176 |
| | $ | 192 |
| | $ | 228 |
| Net Income and Comprehensive Income | $ | 252 | | | $ | 238 | | | $ | 176 | |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS | | | December 31, | | December 31, |
(in millions) | 2018 |
| | 2017 |
| (in millions) | 2020 | | 2019 |
ASSETS | | | | ASSETS | | | |
Current Assets | | | | Current Assets | | | |
Cash and cash equivalents | $ | 21 |
| | $ | 12 |
| Cash and cash equivalents | $ | 14 | | | $ | 17 | |
Receivables (net of allowance for doubtful accounts of $2 at 2018 and $3 at 2017) | 102 |
| | 68 |
| |
Receivables (net of allowance for doubtful accounts of $4 at 2020 and $4 at 2019) | | Receivables (net of allowance for doubtful accounts of $4 at 2020 and $4 at 2019) | 98 | | | 84 | |
Receivables from affiliated companies | 114 |
| | 133 |
| Receivables from affiliated companies | 102 | | | 92 | |
Notes receivable from affiliated companies | — |
| | 14 |
| |
| Inventory | 126 |
|
| 133 |
| Inventory | 110 | | | 135 | |
| Regulatory assets | 33 |
| | 49 |
| Regulatory assets | 39 | | | 49 | |
Other | 24 |
| | 39 |
| Other | 31 | | | 21 | |
Total current assets | 420 |
| | 448 |
| Total current assets | 394 | | | 398 | |
Property, Plant and Equipment | | | | Property, Plant and Equipment | | | |
Cost | 9,360 |
| | 8,732 |
| Cost | 11,022 | | | 10,241 | |
Accumulated depreciation and amortization | (2,717 | ) | | (2,691 | ) | Accumulated depreciation and amortization | (3,013) | | | (2,843) | |
| Net property, plant and equipment | 6,643 |
| | 6,041 |
| Net property, plant and equipment | 8,009 | | | 7,398 | |
Other Noncurrent Assets | | | | Other Noncurrent Assets | | | |
Goodwill | 920 |
| | 920 |
| Goodwill | 920 | | | 920 | |
Regulatory assets | 531 |
| | 445 |
| Regulatory assets | 610 | | | 549 | |
Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 20 | | | 21 | |
| Other | 41 |
| | 21 |
| Other | 72 | | | 52 | |
Total other noncurrent assets | 1,492 |
| | 1,386 |
| Total other noncurrent assets | 1,622 | | | 1,542 | |
Total Assets | $ | 8,555 |
| | $ | 7,875 |
| Total Assets | $ | 10,025 | | | $ | 9,338 | |
LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
Current Liabilities | | | | Current Liabilities | | | |
Accounts payable | $ | 316 |
| | $ | 313 |
| Accounts payable | $ | 279 | | | $ | 288 | |
Accounts payable to affiliated companies | 78 |
| | 62 |
| Accounts payable to affiliated companies | 68 | | | 68 | |
Notes payable to affiliated companies | 274 |
| | 29 |
| Notes payable to affiliated companies | 169 | | | 312 | |
Taxes accrued | 202 |
| | 190 |
| Taxes accrued | 247 | | | 219 | |
Interest accrued | 22 |
| | 21 |
| Interest accrued | 31 | | | 30 | |
Current maturities of long-term debt | 551 |
| | 3 |
| Current maturities of long-term debt | 50 | | | — | |
| Asset retirement obligations | 6 |
| | 3 |
| Asset retirement obligations | 3 | | | 1 | |
Regulatory liabilities | 57 |
| | 36 |
| Regulatory liabilities | 65 | | | 64 | |
Other | 74 |
| | 71 |
| Other | 70 | | | 75 | |
Total current liabilities | 1,580 |
| | 728 |
| Total current liabilities | 982 | | | 1,057 | |
Long-Term Debt | 1,589 |
| | 2,039 |
| Long-Term Debt | 3,014 | | | 2,594 | |
Long-Term Debt Payable to Affiliated Companies | 25 |
| | 25 |
| Long-Term Debt Payable to Affiliated Companies | 25 | | | 25 | |
Other Noncurrent Liabilities | | | | Other Noncurrent Liabilities | | | |
Deferred income taxes | 817 |
| | 781 |
| Deferred income taxes | 981 | | | 922 | |
Asset retirement obligations | 87 |
| | 81 |
| Asset retirement obligations | 108 | | | 79 | |
Regulatory liabilities | 840 |
| | 891 |
| Regulatory liabilities | 748 | | | 763 | |
Operating lease liabilities | | Operating lease liabilities | 20 | | | 21 | |
Accrued pension and other post-retirement benefit costs | 79 |
| | 59 |
| Accrued pension and other post-retirement benefit costs | 113 | | | 100 | |
| Other | 93 |
| | 108 |
| Other | 99 | | | 94 | |
Total other noncurrent liabilities | 1,916 |
| | 1,920 |
| Total other noncurrent liabilities | 2,069 | | | 1,979 | |
Commitments and Contingencies | | | | Commitments and Contingencies | 0 | | 0 |
Equity | | | | Equity | | | |
Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2018 and 2017 | 762 |
| | 762 |
| |
Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2020 and 2019 | | Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2020 and 2019 | 762 | | | 762 | |
Additional paid-in capital | 2,776 |
| | 2,670 |
| Additional paid-in capital | 2,776 | | | 2,776 | |
Accumulated deficit | (93 | ) | | (269 | ) | |
Retained earnings | | Retained earnings | 397 | | | 145 | |
| Total equity | 3,445 |
| | 3,163 |
| Total equity | 3,935 | | | 3,683 | |
Total Liabilities and Equity | $ | 8,555 |
| | $ | 7,875 |
| Total Liabilities and Equity | $ | 10,025 | | | $ | 9,338 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | Years Ended December 31, | | Years Ended December 31, |
(in millions) | 2018 |
| | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 176 |
| | $ | 192 |
| | $ | 228 |
| Net income | $ | 252 | | | $ | 238 | | | $ | 176 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 271 |
| | 265 |
| | 237 |
| Depreciation, amortization and accretion | 283 | | | 269 | | | 271 | |
Equity component of AFUDC | (11 | ) | | (11 | ) | | (6 | ) | Equity component of AFUDC | (7) | | | (13) | | | (11) | |
Losses (Gains) on sales of other assets | 106 |
| | (1 | ) | | (2 | ) | |
Impairment charges | — |
| | 1 |
| | — |
| |
Losses on sales of other assets | | Losses on sales of other assets | 0 | | | 0 | | | 106 | |
| Deferred income taxes | 25 |
| | 90 |
| | 55 |
| Deferred income taxes | 31 | | | 81 | | | 25 | |
Accrued pension and other post-retirement benefit costs | 3 |
| | 2 |
| | 6 |
| |
Contributions to qualified pension plans | — |
| | (4 | ) | | (5 | ) | |
| Payments for asset retirement obligations | (3 | ) | | (7 | ) | | (5 | ) | Payments for asset retirement obligations | (2) | | | (8) | | | (3) | |
Provision for rate refunds | 24 |
| | — |
| | — |
| Provision for rate refunds | 14 | | | 7 | | | 24 | |
(Increase) decrease in | | | | | | (Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | — |
| | — |
| | (2 | ) | |
| Receivables | (33 | ) | | 2 |
| | (4 | ) | Receivables | (13) | | | 20 | | | (33) | |
Receivables from affiliated companies | 19 |
| | (4 | ) | | (36 | ) | Receivables from affiliated companies | 9 | | | 22 | | | 19 | |
Inventory | 7 |
| | 6 |
| | (32 | ) | Inventory | 25 | | | (9) | | | 7 | |
Other current assets | 16 |
| | (22 | ) | | 79 |
| Other current assets | (18) | | | (5) | | | 16 | |
Increase (decrease) in | | | | | | Increase (decrease) in | | | | | |
Accounts payable | (19 | ) | | 12 |
| | 19 |
| Accounts payable | 2 | | | (17) | | | (19) | |
Accounts payable to affiliated companies | 16 |
| | (1 | ) | | 10 |
| Accounts payable to affiliated companies | 0 | | | (10) | | | 16 | |
Taxes accrued | 12 |
| | 11 |
| | 3 |
| Taxes accrued | 30 | | | 17 | | | 12 | |
Other current liabilities | 14 |
| | (19 | ) | | (54 | ) | Other current liabilities | 3 | | | 1 | | | 14 | |
Other assets | (26 | ) | | (28 | ) | | (35 | ) | Other assets | (32) | | | (26) | | | (24) | |
Other liabilities | (27 | ) | | (5 | ) | | (31 | ) | Other liabilities | (2) | | | (41) | | | (26) | |
Net cash provided by operating activities | 570 |
| | 479 |
| | 425 |
| Net cash provided by operating activities | 575 | | | 526 | | | 570 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (827 | ) | | (686 | ) | | (476 | ) | Capital expenditures | (834) | | | (952) | | | (827) | |
| Notes receivable from affiliated companies | 14 |
| | 80 |
| | (94 | ) | Notes receivable from affiliated companies | (19) | | | — | | | 14 | |
| Other | (89 | ) | | (41 | ) | | (30 | ) | Other | (48) | | | (68) | | | (89) | |
Net cash used in investing activities | (902 | ) | | (647 | ) | | (600 | ) | Net cash used in investing activities | (901) | | | (1,020) | | | (902) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 99 |
| | 182 |
| | 341 |
| Proceeds from the issuance of long-term debt | 467 | | | 1,003 | | | 99 | |
Payments for the redemption of long-term debt | (3 | ) | | (2 | ) | | (53 | ) | Payments for the redemption of long-term debt | — | | | (551) | | | (3) | |
Notes payable to affiliated companies | 245 |
| | 13 |
| | (87 | ) | Notes payable to affiliated companies | (144) | | | 38 | | | 245 | |
Dividends to parent | — |
| | (25 | ) | | (25 | ) | |
Other | — |
| | (1 | ) | | (2 | ) | |
| Net cash provided by financing activities | 341 |
| | 167 |
| | 174 |
| Net cash provided by financing activities | 323 | | | 490 | | | 341 | |
Net increase (decrease) in cash and cash equivalents | 9 |
| | (1 | ) | | (1 | ) | |
Net (decrease) increase in cash and cash equivalents | | Net (decrease) increase in cash and cash equivalents | (3) | | | (4) | | | 9 | |
Cash and cash equivalents at beginning of period | 12 |
| | 13 |
| | 14 |
| Cash and cash equivalents at beginning of period | 17 | | | 21 | | | 12 | |
Cash and cash equivalents at end of period | $ | 21 |
| | $ | 12 |
| | $ | 13 |
| Cash and cash equivalents at end of period | $ | 14 | | | $ | 17 | | | $ | 21 | |
Supplemental Disclosures: | | | | | | Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 87 |
| | $ | 85 |
| | $ | 81 |
| Cash paid for interest, net of amount capitalized | $ | 97 | | | $ | 97 | | | $ | 87 | |
Cash received from income taxes | (6 | ) | | (8 | ) | | (46 | ) | Cash received from income taxes | — | | | (37) | | | (6) | |
Significant non-cash transactions: | | | | | | Significant non-cash transactions: | |
Accrued capital expenditures | 95 |
| | 82 |
| | 83 |
| Accrued capital expenditures | 104 | | | 109 | | | 95 | |
Non-cash equity contribution from parent | 106 |
| | — |
| | — |
| Non-cash equity contribution from parent | — | | | — | | | 106 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | | | | | | | Additional |
| | | | | | Additional | | Retained | | | |
| Common |
| | Paid-in |
| | Accumulated |
| | Total |
| | Common | | Paid-in | | Earnings | | | Total |
(in millions) | Stock |
| | Capital |
| | Deficit |
| | Equity |
| (in millions) | Stock | | Capital | | (Deficit) | | | Equity |
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 |
| Balance at December 31, 2017 | $ | 762 | | | $ | 2,670 | | | $ | (269) | | | | $ | 3,163 | |
Net income | — |
| | — |
| | 176 |
| | 176 |
| Net income | — | | | — | | | 176 | | | | 176 | |
Contribution from parent | — |
| | 106 |
| | — |
| | 106 |
| Contribution from parent | — | | | 106 | | | — | | | | 106 | |
| Balance at December 31, 2018 | $ | 762 |
| | $ | 2,776 |
| | $ | (93 | ) | | $ | 3,445 |
| Balance at December 31, 2018 | $ | 762 | | | $ | 2,776 | | | $ | (93) | | | | $ | 3,445 | |
Net income | | Net income | — | | | — | | | 238 | | | | 238 | |
| Balance at December 31, 2019 | | Balance at December 31, 2019 | $ | 762 | | | $ | 2,776 | | | $ | 145 | | | | $ | 3,683 | |
Net income | | Net income | — | | | — | | | 252 | | | | 252 | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | 762 | | | $ | 2,776 | | | $ | 397 | | | | $ | 3,935 | |
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, 20182020 and 2017,2019, 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, 2018,2020, 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, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Indiana Utility Regulatory Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $1.3 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
Duke Energy Indiana Coal Ash Asset Retirement Obligations – Refer to Notes 3, 4, and 9 to the financial statements
Critical Audit Matter Description
Duke Energy Indiana has asset retirement obligations associated with coal ash impoundments at operating and retired coal generation facilities. These legal obligations are the result of Indiana state and federal regulations. There is significant judgment in determining the assumptions used in estimating the closure costs for each site since Duke Energy Indiana does not have approved closure plans for certain sites. Potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods (“probability weightings”) creates estimation uncertainty. The liability for coal ash asset retirement obligations at Duke Energy Indiana was $1,140 million at December 31, 2020.
We identified the asset retirement obligations associated with coal ash impoundments at Duke Energy Indiana as a critical audit matter because of the significant management estimates and assumptions, including projected closure costs as well as the different potential closure methods. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods required a high degree of auditor judgment and an increased extent of effort, including the need to involve our environmental specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the underlying estimated closure costs for coal ash asset retirement obligations at Duke Energy Indiana included the following, among others:
•We tested the effectiveness of controls over management’s coal ash asset retirement obligation estimate, including those over management’s determination of the estimated closure costs and probability weightings.
•We evaluated management’s ability to accurately estimate future closure costs by comparing actual closure costs to management’s historical estimates.
•We tested the mathematical accuracy of management’s coal ash asset retirement obligation calculations, including the application of probability weightings.
•We made inquiries of internal and external legal counsel regarding the status of the legal matters associated with the probability weightings.
•We inspected the opinions from internal and external legal counsel supporting the probability weightings.
•We inspected the Company’s filings with and orders from the Indiana Department of Environmental Management, for evidence that might contradict management’s assertions regarding the estimated closure costs and probability weightings.
•With the assistance of our environmental specialists, we evaluated the reasonableness of management’s estimated closure costs by comparing the costs to actual costs incurred at comparable coal ash impoundments, underlying contracts, and publicly available industry cost data, as applicable.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 28, 201925, 2021
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, | | Years Ended December 31, |
(in millions) | 2018 |
| | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 | | 2018 |
Operating Revenues | $ | 3,059 |
| | $ | 3,047 |
| | $ | 2,958 |
| Operating Revenues | $ | 2,795 | | | $ | 3,004 | | | $ | 3,059 | |
Operating Expenses | | | | | | Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 1,000 |
|
| 966 |
| | 909 |
| Fuel used in electric generation and purchased power | 767 | | | 935 | | | 1,000 | |
Operation, maintenance and other | 788 |
|
| 743 |
| | 727 |
| Operation, maintenance and other | 762 | | | 790 | | | 788 | |
Depreciation and amortization | 520 |
|
| 458 |
| | 496 |
| Depreciation and amortization | 569 | | | 525 | | | 520 | |
Property and other taxes | 78 |
|
| 76 |
| | 58 |
| Property and other taxes | 81 | | | 69 | | | 78 | |
Impairment charges | 30 |
|
| 18 |
| | 8 |
| Impairment charges | — | | | — | | | 30 | |
Total operating expenses | 2,416 |
| | 2,261 |
| | 2,198 |
| Total operating expenses | 2,179 | | | 2,319 | | | 2,416 | |
Gains on Sales of Other Assets and Other, net | — |
| | — |
| | 1 |
| |
| Operating Income | 643 |
| | 786 |
| | 761 |
| Operating Income | 616 | | | 685 | | | 643 | |
Other Income and Expenses, net | 45 |
| | 47 |
| | 26 |
| Other Income and Expenses, net | 37 | | | 41 | | | 45 | |
Interest Expense | 167 |
| | 178 |
| | 181 |
| Interest Expense | 161 | | | 156 | | | 167 | |
Income Before Income Taxes | 521 |
|
| 655 |
|
| 606 |
| Income Before Income Taxes | 492 | | | 570 | | | 521 | |
Income Tax Expense | 128 |
| | 301 |
| | 225 |
| Income Tax Expense | 84 | | | 134 | | | 128 | |
Net Income | $ | 393 |
|
| $ | 354 |
|
| $ | 381 |
| |
Other Comprehensive Loss, net of tax | | | | | | |
Reclassification into earnings from cash flow hedges | — |
| | — |
| | (1 | ) | |
Comprehensive Income | $ | 393 |
|
| $ | 354 |
|
| $ | 380 |
| |
Net Income and Comprehensive Income | | Net Income and Comprehensive Income | $ | 408 | | | $ | 436 | | | $ | 393 | |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED BALANCE SHEETS | | | December 31, | | December 31, |
(in millions) | 2018 |
| | 2017 |
| (in millions) | 2020 | | 2019 |
ASSETS | | | | ASSETS | | | |
Current Assets | | | | Current Assets | | | |
Cash and cash equivalents | $ | 24 |
| | $ | 9 |
| Cash and cash equivalents | $ | 7 | | | $ | 25 | |
Receivables (net of allowance for doubtful accounts of $2 at 2018 and 2017) | 52 |
| | 57 |
| |
Receivables (net of allowance for doubtful accounts of $3 at 2020 and $3 at 2019) | | Receivables (net of allowance for doubtful accounts of $3 at 2020 and $3 at 2019) | 55 | | | 60 | |
Receivables from affiliated companies | 122 |
| | 125 |
| Receivables from affiliated companies | 112 | | | 79 | |
| Inventory | 422 |
|
| 450 |
| Inventory | 473 | | | 517 | |
Regulatory assets | 175 |
| | 165 |
| Regulatory assets | 125 | | | 90 | |
Other | 35 |
| | 30 |
| Other | 37 | | | 60 | |
Total current assets | 830 |
| | 836 |
| Total current assets | 809 | | | 831 | |
Property, Plant and Equipment | | | | Property, Plant and Equipment | | | |
Cost | 15,443 |
| | 14,948 |
| Cost | 17,382 | | | 16,305 | |
Accumulated depreciation and amortization | (4,914 | ) | | (4,662 | ) | Accumulated depreciation and amortization | (5,661) | | | (5,233) | |
| Net property, plant and equipment | 10,529 |
| | 10,286 |
| Net property, plant and equipment | 11,721 | | | 11,072 | |
Other Noncurrent Assets | | |
| Other Noncurrent Assets | | |
Regulatory assets | 982 |
| | 978 |
| Regulatory assets | 1,203 | | | 1,082 | |
Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 55 | | | 57 | |
| Other | 194 |
| | 189 |
| Other | 253 | | | 234 | |
Total other noncurrent assets | 1,176 |
| | 1,167 |
| Total other noncurrent assets | 1,511 | | | 1,373 | |
Total Assets | $ | 12,535 |
| | $ | 12,289 |
| Total Assets | $ | 14,041 | | | $ | 13,276 | |
LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
Current Liabilities | | | | Current Liabilities | | | |
Accounts payable | $ | 200 |
| | $ | 196 |
| Accounts payable | $ | 188 | | | $ | 201 | |
Accounts payable to affiliated companies | 83 |
| | 78 |
| Accounts payable to affiliated companies | 88 | | | 87 | |
Notes payable to affiliated companies | 167 |
| | 161 |
| Notes payable to affiliated companies | 131 | | | 30 | |
Taxes accrued | 43 |
| | 95 |
| Taxes accrued | 62 | | | 49 | |
Interest accrued | 58 |
| | 57 |
| Interest accrued | 51 | | | 58 | |
Current maturities of long-term debt | 63 |
| | 3 |
| Current maturities of long-term debt | 70 | | | 503 | |
Asset retirement obligations | 109 |
| | 54 |
| Asset retirement obligations | 168 | | | 189 | |
Regulatory liabilities | 25 |
| | 24 |
| Regulatory liabilities | 111 | | | 55 | |
Other | 107 |
| | 104 |
| Other | 83 | | | 112 | |
Total current liabilities | 855 |
| | 772 |
| Total current liabilities | 952 | | | 1,284 | |
Long-Term Debt | 3,569 |
| | 3,630 |
| Long-Term Debt | 3,871 | | | 3,404 | |
Long-Term Debt Payable to Affiliated Companies | 150 |
| | 150 |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
Other Noncurrent Liabilities | | | | Other Noncurrent Liabilities | | | |
Deferred income taxes | 1,009 |
| | 925 |
| Deferred income taxes | 1,228 | | | 1,150 | |
Asset retirement obligations | 613 |
| | 727 |
| Asset retirement obligations | 1,008 | | | 643 | |
Regulatory liabilities | 1,722 |
| | 1,723 |
| Regulatory liabilities | 1,627 | | | 1,685 | |
Operating lease liabilities | | Operating lease liabilities | 53 | | | 55 | |
Accrued pension and other post-retirement benefit costs | 115 |
| | 76 |
| Accrued pension and other post-retirement benefit costs | 171 | | | 148 | |
Investment tax credits | 147 |
| | 147 |
| Investment tax credits | 168 | | | 164 | |
Other | 16 |
| | 18 |
| Other | 30 | | | 18 | |
Total other noncurrent liabilities | 3,622 |
| | 3,616 |
| Total other noncurrent liabilities | 4,285 | | | 3,863 | |
Commitments and Contingencies | | | | Commitments and Contingencies | 0 | | 0 |
Equity | | | | Equity | | | |
Member's Equity | 4,339 |
| | 4,121 |
| Member's Equity | 4,783 | | | 4,575 | |
| Total Liabilities and Equity | $ | 12,535 |
| | $ | 12,289 |
| Total Liabilities and Equity | $ | 14,041 | | | $ | 13,276 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | Years Ended December 31, | | Years Ended December 31, |
(in millions) | 2018 |
| | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 393 |
| | $ | 354 |
| | $ | 381 |
| Net income | $ | 408 | | | $ | 436 | | | $ | 393 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization, and accretion | 524 |
| | 462 |
| | 499 |
| Depreciation, amortization, and accretion | 572 | | | 531 | | | 524 | |
Equity component of AFUDC | (32 | ) | | (28 | ) | | (16 | ) | Equity component of AFUDC | (23) | | | (18) | | | (32) | |
| Impairment charges | 30 |
| | 18 |
| | 8 |
| Impairment charges | — | | | — | | | 30 | |
Deferred income taxes | 95 |
| | 152 |
| | 213 |
| Deferred income taxes | 29 | | | 156 | | | 95 | |
Accrued pension and other post-retirement benefit costs | 7 |
| | 2 |
| | 8 |
| |
Contributions to qualified pension plans | (8 | ) | | — |
| | (9 | ) | |
| Payments for asset retirement obligations | (69 | ) | | (45 | ) | | (46 | ) | Payments for asset retirement obligations | (63) | | | (48) | | | (69) | |
Provision for rate refunds | 53 |
| | — |
| | — |
| Provision for rate refunds | — | | | — | | | 53 | |
(Increase) decrease in | | | | | | (Increase) decrease in | | | | | |
| Receivables | 7 |
| | 59 |
| | (2 | ) | Receivables | 8 | | | (8) | | | 7 | |
Receivables from affiliated companies | 3 |
| | (11 | ) | | (43 | ) | Receivables from affiliated companies | 0 | | | 41 | | | 3 | |
Inventory | 28 |
| | 54 |
| | 66 |
| Inventory | 44 | | | (95) | | | 28 | |
Other current assets | (25 | ) | | 28 |
| | (67 | ) | Other current assets | (3) | | | 76 | | | (25) | |
Increase (decrease) in | | | | | | Increase (decrease) in | | | | | |
Accounts payable | 37 |
| | (86 | ) | | 8 |
| Accounts payable | (12) | | | (10) | | | 37 | |
Accounts payable to affiliated companies | 5 |
| | 4 |
| | (9 | ) | Accounts payable to affiliated companies | 1 | | | 4 | | | 5 | |
Taxes accrued | (52 | ) | | 64 |
| | (4 | ) | Taxes accrued | 13 | | | (25) | | | (52) | |
Other current liabilities | 14 |
| | (10 | ) | | (81 | ) | Other current liabilities | 6 | | | 15 | | | 14 | |
Other assets | 29 |
| | (28 | ) | | (27 | ) | Other assets | (68) | | | (74) | | | 26 | |
Other liabilities | (33 | ) | | (20 | ) | | (8 | ) | Other liabilities | 26 | | | 16 | | | (31) | |
Net cash provided by operating activities | 1,006 |
| | 969 |
| | 871 |
| Net cash provided by operating activities | 938 | | | 997 | | | 1,006 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (832 | ) | | (840 | ) | | (755 | ) | Capital expenditures | (888) | | | (876) | | | (832) | |
Purchases of debt and equity securities | (48 | ) | | (20 | ) | | (14 | ) | Purchases of debt and equity securities | (37) | | | (26) | | | (48) | |
Proceeds from sales and maturities of debt and equity securities | 44 |
| | 7 |
| | 11 |
| Proceeds from sales and maturities of debt and equity securities | 22 | | | 20 | | | 44 | |
Proceeds from the sales of other assets | 15 |
| | — |
| | — |
| |
| Notes receivable from affiliated companies | — |
| | 86 |
| | (3 | ) | Notes receivable from affiliated companies | (33) | | | — | | | — | |
| Other | 3 |
| | (65 | ) | | 32 |
| Other | 48 | | | (49) | | | 18 | |
Net cash used in investing activities | (818 | ) | | (832 | ) | | (729 | ) | Net cash used in investing activities | (888) | | | (931) | | | (818) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | — |
| | — |
| | 494 |
| Proceeds from the issuance of long-term debt | 544 | | | 485 | | | — | |
Payments for the redemption of long-term debt | (3 | ) | | (5 | ) | | (478 | ) | Payments for the redemption of long-term debt | (513) | | | (213) | | | (3) | |
Notes payable to affiliated companies | 6 |
| | 161 |
| | — |
| Notes payable to affiliated companies | 101 | | | (137) | | | 6 | |
| Distributions to parent | (175 | ) | | (300 | ) | | (149 | ) | Distributions to parent | (200) | | | (200) | | | (175) | |
Other | (1 | ) | | (1 | ) | | (1 | ) | Other | — | | | — | | | (1) | |
Net cash used in financing activities | (173 | ) | | (145 | ) | | (134 | ) | Net cash used in financing activities | (68) | | | (65) | | | (173) | |
Net increase (decrease) in cash and cash equivalents | 15 |
| | (8 | ) | | 8 |
| |
Net (decrease) increase in cash and cash equivalents | | Net (decrease) increase in cash and cash equivalents | (18) | | | 1 | | | 15 | |
Cash and cash equivalents at beginning of period | 9 |
| | 17 |
| | 9 |
| Cash and cash equivalents at beginning of period | 25 | | | 24 | | | 9 | |
Cash and cash equivalents at end of period | $ | 24 |
| | $ | 9 |
| | $ | 17 |
| Cash and cash equivalents at end of period | $ | 7 | | | $ | 25 | | | $ | 24 | |
Supplemental Disclosures: | | | | | | Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 162 |
| | $ | 179 |
| | $ | 171 |
| Cash paid for interest, net of amount capitalized | $ | 164 | | | $ | 150 | | | $ | 162 | |
Cash paid for (received from) income taxes | 75 |
| | 117 |
| | (7 | ) | Cash paid for (received from) income taxes | 36 | | | (6) | | | 75 | |
Significant non-cash transactions: | | | | | | Significant non-cash transactions: | |
Accrued capital expenditures | 88 |
| | 125 |
| | 99 |
| Accrued capital expenditures | 101 | | | 102 | | | 88 | |
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, 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 |
|
Net income | — |
| | — |
| | — |
| | 393 |
| | — |
| | 393 |
|
Distributions to parent | — |
| | — |
| | — |
| | (175 | ) | | — |
| | (175 | ) |
Balance at December 31, 2018 | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 4,339 |
| | $ | — |
|
| $ | 4,339 |
|
| | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | Member's | | | | |
(in millions) | | | | | | | Equity | | | | |
Balance at December 31, 2017 | | | | | | | $ | 4,121 | | | | | |
Net income | | | | | | | 393 | | | | | |
| | | | | | | | | | | |
Distributions to parent | | | | | | | (175) | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2018 | | | | | | | $ | 4,339 | | | | | |
Net income | | | | | | | 436 | | | | | |
| | | | | | | | | | | |
Distributions to parent | | | | | | | (200) | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2019 | | | | | | | $ | 4,575 | | | | | |
Net income | | | | | | | 408 | | | | | |
Distributions to parent | | | | | | | (200) | | | | | |
Balance at December 31, 2020 | | | | | | | $ | 4,783 | | | | | |
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, 20182020 and 2017,2019, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the periodsperiod ended December 31, 2018, December 31, 2017, October 31 2016, and for the two months ended December 31, 20162020, 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, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the periodsperiod ended December 31, 2018, December 31, 2017, October 31, 2016, and for the two months ended December 31, 2016,2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Emphasis
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of Matter
As discussed in Note 1the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements effectiveand (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, the Public Service Commission of South Carolina, and the Tennessee Public Utility Commission (collectively the “Commissions”), which have jurisdiction with respect to the gas rates of the Company. Management has determined it meets the criteria for fiscal year 2016,the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company changedhas approximately $450 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its fiscal year endassertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from October 31 to December 31. This resulted in a two-month transition period beginning November 1, 2016 through December 31, 2016.management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 28, 201925, 2021
We have served as the Company's auditor since 1951.
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | | | Years Ended December 31, | | Two Months Ended December 31, | | Year Ended October 31, | | Years Ended December 31, |
(in millions) | 2018 |
| | 2017 |
| | 2016 |
| | 2016 |
| (in millions) | 2020 | | 2019 | | 2018 |
Operating Revenues | | | | | | | | Operating Revenues | |
Regulated natural gas | $ | 1,365 |
| | $ | 1,319 |
| | $ | 320 |
| | $ | 1,139 |
| Regulated natural gas | $ | 1,286 | | | $ | 1,369 | | | $ | 1,365 | |
Nonregulated natural gas and other | 10 |
| | 9 |
| | 2 |
| | 10 |
| Nonregulated natural gas and other | 11 | | | 12 | | | 10 | |
| Total operating revenues | 1,375 |
| | 1,328 |
| | 322 |
| | 1,149 |
| Total operating revenues | 1,297 | | | 1,381 | | | 1,375 | |
Operating Expenses | | | | | | | | Operating Expenses | | |
Cost of natural gas | 584 |
| | 524 |
| | 144 |
| | 391 |
| Cost of natural gas | 386 | | | 532 | | | 584 | |
Operation, maintenance and other | 357 |
| | 304 |
| | 50 |
| | 353 |
| Operation, maintenance and other | 322 | | | 328 | | | 357 | |
Depreciation and amortization | 159 |
| | 148 |
| | 23 |
| | 137 |
| Depreciation and amortization | 180 | | | 172 | | | 159 | |
Property and other taxes | 49 |
| | 48 |
| | 7 |
| | 43 |
| Property and other taxes | 53 | | | 45 | | | 49 | |
Impairment charges | — |
| | 7 |
| | — |
| | — |
| Impairment charges | 7 | | | — | | | — | |
Total operating expenses | 1,149 |
| | 1,031 |
|
| 224 |
| | 924 |
| Total operating expenses | 948 | | | 1,077 | | | 1,149 | |
| Operating Income | 226 |
| | 297 |
|
| 98 |
| | 225 |
| Operating Income | 349 | | | 304 | | | 226 | |
Equity in earnings (losses) of unconsolidated affiliates | 7 |
| | (6 | ) | | 2 |
| | 29 |
| |
Gain on sale of unconsolidated affiliates | — |
| | — |
| | — |
| | 133 |
| |
Equity in earnings of unconsolidated affiliates | | Equity in earnings of unconsolidated affiliates | 9 | | | 8 | | | 7 | |
| Other income and expense, net | 14 |
| | (11 | ) | | (2 | ) | | (1 | ) | Other income and expense, net | 51 | | | 20 | | | 14 | |
Total other income and expenses | 21 |
| | (17 | ) |
| — |
| | 161 |
| Total other income and expenses | 60 | | | 28 | | | 21 | |
Interest Expense | 81 |
| | 79 |
| | 12 |
| | 69 |
| Interest Expense | 118 | | | 87 | | | 81 | |
Income Before Income Taxes | 166 |
| | 201 |
|
| 86 |
| | 317 |
| Income Before Income Taxes | 291 | | | 245 | | | 166 | |
Income Tax Expense | 37 |
| | 62 |
| | 32 |
| | 124 |
| Income Tax Expense | 18 | | | 43 | | | 37 | |
Net Income | $ | 129 |
| | $ | 139 |
|
| $ | 54 |
| | $ | 193 |
| |
Other Comprehensive Income, net of tax | | | | | | | | |
Unrealized loss from hedging activities of equity method investments | — |
| | — |
| | — |
| | (3 | ) | |
Reclassification into earnings from hedging activities of equity method investments | — |
| | — |
| | — |
| | 4 |
| |
Other Comprehensive Income, net of tax | — |
| | — |
| | — |
| | 1 |
| |
Comprehensive Income | $ | 129 |
| | $ | 139 |
| | $ | 54 |
| | $ | 194 |
| |
Net Income and Comprehensive Income | | Net Income and Comprehensive Income | $ | 273 | | | $ | 202 | | | $ | 129 | |
|
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
| | | December 31, | | December 31, |
(in millions) | 2018 |
| | 2017 |
| (in millions) | 2020 | | 2019 |
ASSETS | | | | ASSETS | |
Current Assets | | | | Current Assets | |
Cash and cash equivalents | $ | — |
| | $ | 19 |
| |
Receivables (net of allowance for doubtful accounts of $2 at 2018 and 2017) | 266 |
| | 275 |
| |
| Receivables (net of allowance for doubtful accounts of $12 at 2020 and $6 at 2019) | | Receivables (net of allowance for doubtful accounts of $12 at 2020 and $6 at 2019) | $ | 250 | | | $ | 241 | |
Receivables from affiliated companies | 22 |
| | 7 |
| Receivables from affiliated companies | 10 | | | 10 | |
Inventory | 70 |
| | 66 |
| Inventory | 68 | | | 72 | |
Regulatory assets | 54 |
| | 95 |
| Regulatory assets | 153 | | | 73 | |
| Other | 19 |
| | 52 |
| Other | 20 | | | 28 | |
Total current assets | 431 |
| | 514 |
| Total current assets | 501 | | | 424 | |
Property, Plant and Equipment | | | | Property, Plant and Equipment | |
Cost | 7,486 |
| | 6,725 |
| Cost | 9,134 | | | 8,446 | |
Accumulated depreciation and amortization | (1,575 | ) | | (1,479 | ) | Accumulated depreciation and amortization | (1,749) | | | (1,681) | |
Net property, plant and equipment | 5,911 |
| | 5,246 |
| Net property, plant and equipment | 7,385 | | | 6,765 | |
Other Noncurrent Assets | | | | Other Noncurrent Assets | |
Goodwill | 49 |
| | 49 |
| Goodwill | 49 | | | 49 | |
Regulatory assets | 303 |
| | 283 |
| Regulatory assets | 302 | | | 290 | |
Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 20 | | | 24 | |
Investments in equity method unconsolidated affiliates | 64 |
| | 61 |
| Investments in equity method unconsolidated affiliates | 88 | | | 83 | |
Other | 52 |
| | 65 |
| Other | 270 | | | 121 | |
Total other noncurrent assets | 468 |
| | 458 |
| Total other noncurrent assets | 729 | | | 567 | |
Total Assets | $ | 6,810 |
| | $ | 6,218 |
| Total Assets | $ | 8,615 | | | $ | 7,756 | |
LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | |
Current Liabilities | | | | Current Liabilities | |
Accounts payable | $ | 203 |
| | $ | 125 |
| Accounts payable | $ | 230 | | | $ | 215 | |
Accounts payable to affiliated companies | 38 |
| | 13 |
| Accounts payable to affiliated companies | 79 | | | 3 | |
| Notes payable to affiliated companies | 198 |
| | 364 |
| Notes payable to affiliated companies | 530 | | | 476 | |
Taxes accrued | 84 |
| | 19 |
| Taxes accrued | 23 | | | 24 | |
Interest accrued | 31 |
| | 31 |
| Interest accrued | 34 | | | 33 | |
Current maturities of long-term debt | 350 |
| | 250 |
| Current maturities of long-term debt | 160 | | | 0 | |
Regulatory liabilities | 37 |
| | 3 |
| Regulatory liabilities | 88 | | | 81 | |
Other | 58 |
| | 69 |
| Other | 69 | | | 67 | |
Total current liabilities | 999 |
| | 874 |
| Total current liabilities | 1,213 | | | 899 | |
Long-Term Debt | 1,788 |
| | 1,787 |
| Long-Term Debt | 2,620 | | | 2,384 | |
| Other Noncurrent Liabilities | | | | Other Noncurrent Liabilities | |
Deferred income taxes | 551 |
| | 564 |
| Deferred income taxes | 821 | | | 708 | |
Asset retirement obligations | 19 |
| | 15 |
| Asset retirement obligations | 20 | | | 17 | |
Regulatory liabilities | 1,181 |
| | 1,141 |
| Regulatory liabilities | 1,044 | | | 1,131 | |
Operating lease liabilities | | Operating lease liabilities | 19 | | | 23 | |
Accrued pension and other post-retirement benefit costs | 4 |
| | 5 |
| Accrued pension and other post-retirement benefit costs | 8 | | | 3 | |
Other | 177 |
| | 170 |
| Other | 155 | | | 148 | |
Total other noncurrent liabilities | 1,932 |
| | 1,895 |
| Total other noncurrent liabilities | 2,067 | | | 2,030 | |
Commitments and Contingencies | | | | Commitments and Contingencies | 0 | | 0 |
Equity | | | | Equity | |
Common stock, no par value: 100 shares authorized and outstanding at 2018 and 2017 | 1,160 |
| | 860 |
| |
Common stock, 0 par value: 100 shares authorized and outstanding at 2020 and 2019 | | Common stock, 0 par value: 100 shares authorized and outstanding at 2020 and 2019 | 1,310 | | | 1,310 | |
| Retained earnings | 931 |
| | 802 |
| Retained earnings | 1,405 | | | 1,133 | |
| Total equity | 2,091 |
| | 1,662 |
| Total equity | 2,715 | | | 2,443 | |
Total Liabilities and Equity | $ | 6,810 |
| | $ | 6,218 |
| Total Liabilities and Equity | $ | 8,615 | | | $ | 7,756 | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Years Ended December 31, | | Two Months Ended December 31, | | Year Ended October 31, | | Years Ended December 31, |
(in millions) | 2018 |
| | 2017 |
| | 2016 |
| | 2016 |
| (in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | |
Net income | $ | 129 |
| | $ | 139 |
| | $ | 54 |
| | $ | 193 |
| Net income | $ | 273 | | | $ | 202 | | | $ | 129 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | 161 |
| | 151 |
| | 25 |
| | 148 |
| Depreciation and amortization | 182 | | | 174 | | | 161 | |
Gains on sales of other assets | — |
| | — |
| | — |
| | (133 | ) | |
Equity component of AFUDC | | Equity component of AFUDC | (19) | | | — | | | — | |
| Impairment charges | — |
| | 7 |
| | — |
| | — |
| Impairment charges | 7 | | | — | | | — | |
Deferred income taxes | (31 | ) | | 154 |
| | 26 |
| | 74 |
| Deferred income taxes | 53 | | | 136 | | | (31) | |
Equity in (earnings) losses from unconsolidated affiliates | (7 | ) | | 6 |
| | (2 | ) | | (29 | ) | Equity in (earnings) losses from unconsolidated affiliates | (9) | | | (8) | | | (7) | |
Accrued pension and other post-retirement benefit costs | (4 | ) | | 23 |
| | 5 |
| | 3 |
| |
Contributions to qualified pension plans | — |
| | (11 | ) | | (10 | ) | | (14 | ) | |
Payments for asset retirement obligations | — |
| | — |
| | (1 | ) | | (6 | ) | |
| Provision for rate refunds | 43 |
| | — |
| | — |
| | — |
| Provision for rate refunds | (33) | | | 2 | | | 43 | |
(Increase) decrease in | | | | | | | | (Increase) decrease in | |
| Receivables | 7 |
| | (40 | ) | | (157 | ) | | 12 |
| Receivables | 10 | | | 28 | | | 7 | |
Receivables from affiliated companies | (15 | ) | | — |
| | — |
| | (7 | ) | Receivables from affiliated companies | — | | | 12 | | | (15) | |
Inventory | (4 | ) | | — |
| | (11 | ) | | 14 |
| Inventory | 3 | | | (2) | | | (4) | |
Other current assets | 71 |
| | (20 | ) | | 8 |
| | (98 | ) | Other current assets | (66) | | | (25) | | | 71 | |
Increase (decrease) in | | | | | | | | Increase (decrease) in | |
Accounts payable | 15 |
| | (13 | ) | | 35 |
| | 6 |
| Accounts payable | 16 | | | (7) | | | 15 | |
Accounts payable to affiliated companies | 25 |
| | 5 |
| | 4 |
| | 6 |
| Accounts payable to affiliated companies | 76 | | | (35) | | | 25 | |
Taxes accrued | 65 |
| | (48 | ) | | (2 | ) | | 38 |
| Taxes accrued | 3 | | | (60) | | | 65 | |
Other current liabilities | 21 |
| | (9 | ) | | 2 |
| | 28 |
| Other current liabilities | (11) | | | 1 | | | 21 | |
Other assets | 6 |
| | 7 |
| | (7 | ) | | (91 | ) | Other assets | (11) | | | 1 | | | 3 | |
Other liabilities | (4 | ) | | (2 | ) | | 5 |
| | 180 |
| Other liabilities | 7 | | | (10) | | | (5) | |
Net cash provided by (used in) operating activities | 478 |
| | 349 |
| | (26 | ) | | 324 |
| |
Net cash provided by operating activities | | Net cash provided by operating activities | 481 | | | 409 | | | 478 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | |
Capital expenditures | (721 | ) | | (585 | ) | | (113 | ) | | (522 | ) | Capital expenditures | (901) | | | (1,053) | | | (721) | |
Contributions to equity method investments | — |
| | (12 | ) | | (12 | ) | | (47 | ) | Contributions to equity method investments | — | | | (16) | | | — | |
Proceeds from the sales of other assets | — |
| | — |
| | — |
| | 175 |
| |
| Other | (10 | ) | | (6 | ) | | 1 |
| | 5 |
| Other | (28) | | | (14) | | | (10) | |
Net cash used in investing activities | (731 | ) | | (603 | ) | | (124 | ) | | (389 | ) | Net cash used in investing activities | (929) | | | (1,083) | | | (731) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | |
Proceeds from the: | | | | | | | | |
Issuance of long-term debt | 100 |
| | 250 |
| | — |
| | 295 |
| |
Issuance of common stock | — |
| | — |
| | — |
| | 122 |
| |
Proceeds from the issuance of long-term debt | | Proceeds from the issuance of long-term debt | 394 | | | 596 | | | 100 | |
| Payments for the redemption of long-term debt | — |
| | (35 | ) | | — |
| | (40 | ) | Payments for the redemption of long-term debt | — | | | (350) | | | — | |
Notes payable and commercial paper | — |
| | (330 | ) | | 185 |
| | (195 | ) | |
| Notes payable to affiliated companies | (166 | ) | | 364 |
| | — |
| | — |
| Notes payable to affiliated companies | 54 | | | 278 | | | (166) | |
| Capital contribution from parent | 300 |
| | — |
| | — |
| | — |
| Capital contribution from parent | — | | | 150 | | | 300 | |
Dividends to parent | — |
| | — |
| | (27 | ) | | — |
| |
Dividends paid | — |
| | — |
| | — |
| | (114 | ) | |
Other | — |
| | (1 | ) | | — |
| | — |
| |
| Net cash provided by financing activities | 234 |
| | 248 |
| | 158 |
| | 68 |
| Net cash provided by financing activities | 448 | | | 674 | | | 234 | |
Net (decrease) increase in cash and cash equivalents | (19 | ) | | (6 | ) | | 8 |
| | 3 |
| |
Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | — | | | — | | | (19) | |
Cash and cash equivalents at beginning of period | 19 |
| | 25 |
| | 17 |
| | 14 |
| Cash and cash equivalents at beginning of period | — | | | — | | | 19 | |
Cash and cash equivalents at end of period | $ | — |
| | $ | 19 |
| | $ | 25 |
| | $ | 17 |
| Cash and cash equivalents at end of period | $ | — | | | $ | — | | | $ | — | |
Supplemental Disclosures: | | | | | | | | Supplemental Disclosures: | |
Cash paid for interest, net of amount capitalized | $ | 79 |
| | $ | 78 |
| | $ | 11 |
| | $ | 81 |
| Cash paid for interest, net of amount capitalized | $ | 115 | | | $ | 84 | | | $ | 79 | |
Cash received from income taxes | (16 | ) | | (12 | ) | | — |
| | (25 | ) | Cash received from income taxes | (36) | | | (31) | | | (16) | |
Significant non-cash transactions: | | | | | | | | Significant non-cash transactions: | |
Accrued capital expenditures | 96 |
| | 34 |
| | 48 |
| | 63 |
| Accrued capital expenditures | 106 | | | 109 | | | 96 | |
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 Gain on |
| | | |
| | | | | Hedging Activities |
| | | |
| Common |
| | Retained |
| | of Unconsolidated |
| | Total |
| | Common | | Retained | | | Total |
(in millions) | Stock |
| | Earnings |
| | Affiliates |
| | Equity |
| (in millions) | Stock | | Earnings | | | Equity |
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 |
| Balance at December 31, 2017 | $ | 860 | | | $ | 802 | | | | $ | 1,662 | |
Net income | — |
| | 129 |
| | — |
| | 129 |
| Net income | — | | | 129 | | | | 129 | |
| Contribution from parent | 300 |
| | — |
| | — |
| | 300 |
| Contribution from parent | 300 | | | — | | | | 300 | |
| Balance at December 31, 2018 | $ | 1,160 |
| | $ | 931 |
| | $ | — |
| | $ | 2,091 |
| Balance at December 31, 2018 | $ | 1,160 | | | $ | 931 | | | | $ | 2,091 | |
Net income | | Net income | — | | | 202 | | | | 202 | |
| Contribution from parent | | Contribution from parent | 150 | | | — | | | | 150 | |
| Balance at December 31, 2019 | | Balance at December 31, 2019 | $ | 1,310 | | | $ | 1,133 | | | | $ | 2,443 | |
Net income | | Net income | — | | | 273 | | | | 273 | |
| Other | | Other | — | | | (1) | | | | (1) | |
Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | 1,310 | | | $ | 1,405 | | | | $ | 2,715 | |
See Notes to Consolidated Financial Statements
|
| | | | |
FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 | | 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 | 26 | 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 | • | | • | Duke Energy | • | | • | | • | |
Duke Energy Carolinas | • | | • | | • | | • | Duke Energy Carolinas | • | | • | | • | | • | | • | |
Progress Energy | • | | • | | • | | • | | • | Progress Energy | • | | • | | • | | • | | • | |
Duke Energy Progress | • | | • | | | • | | • | | • | Duke Energy Progress | • | | • | | | • | | • | | • | |
Duke Energy Florida | • | | • | | • | | • | | • | Duke Energy Florida | • | | • | | • | | • | | • | |
Duke Energy Ohio | • | | • | | • | | • | | • | | • | Duke Energy Ohio | • | | • | | | • | | • | | • | | • | |
Duke Energy Indiana | • | | • | | • | | • | | • | Duke Energy Indiana | • | | • | | • | | • | | • | |
Piedmont | • | | • | | • | | • | | • | Piedmont | • | | • | | • | | • | | • | | • | |
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
Nature of Operations and Basis of Consolidation
Duke Energy is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the FERC and other regulatory agencies listed below. Duke Energy operates in the U.S. primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas; Progress Energy; Duke Energy Progress; Duke Energy Florida; Duke Energy Ohio; Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its separate Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
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) 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 NMC, was completed through two transactions including a sale of assets in Brazil to CTG and a sale of Duke Energy's remaining Latin American assets in Peru, Chile, Ecuador, Guatemala, El Salvador and Argentina to 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 or VIEs where the respective Duke Energy Registrants have control. See Note 17 for additional information on VIEs. These Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. See Note 8 for additional information on joint ownership. Substantially all of the Subsidiary Registrants' operations qualify for regulatory accounting.
Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Progress Energy is a public utility holding company, which conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Progress Energy is subject to regulation by FERC and other regulatory agencies listed below.
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 FPSC, NRC and FERC.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in portions of Ohio and Kentucky, the generation and sale of electricity in portions of Kentucky and the transportation and sale of natural gas in portions of Ohio and Kentucky. Duke Energy Ohio conducts competitive auctions for retail electricity supply in Ohio whereby the energy price is recovered from retail customers and recorded in Operating Revenues on the Consolidated Statements of Operations and Comprehensive Income. Operations in Kentucky are conducted through its wholly owned subsidiary, 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 PUCO, KPSC and FERC.
Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the IURC and FERC.
Piedmont is a regulated public utility primarily engaged in the distribution of natural gas in portions of North Carolina, South Carolina and Tennessee. Piedmont is subject to the regulatory provisions of the NCUC, PSCSC, TPUC and FERC.
Certain prior year amounts have been reclassified to conform to the current year presentation.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
COVID-19
The COVID-19 pandemic is having a significant impact on global health and economic environments. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and the federal government proclaimed that the COVID-19 outbreak in the United States constitutes a national emergency. The Duke Energy Registrants are monitoring developments closely and responding appropriately. The company incurred approximately $112 million of incremental COVID-19 costs before deferral for the year ended December 31, 2020, included in Operation, maintenance and other on the Consolidated Statements of Operations. Further, the company waived approximately $64 million of late payment fees for the year ended December 31, 2020. The company has deferred approximately $76 million of the incremental costs, which were primarily bad debt expense, personal protective equipment and cleaning supplies, and a cost component of late payment fees. See Notes 3, 6, 17, 18 and 23 for additional information as well as steps taken to mitigate the impacts to our business and customers from the COVID-19 pandemic.
Other Current Assets and Liabilities
The following table provides a description of amounts included in Other within Current Assets or Current Liabilities that exceed 5 percent5% of total Current Assets or Current Liabilities on the Duke Energy Registrants' Consolidated Balance Sheets at either December 31, 2018,2020, or 2017.2019. | | | | December 31, | | December 31, |
(in millions) | Location | | 2018 |
| | 2017 |
| (in millions) | Location | | 2020 | | 2019 |
Duke Energy | | | | | Duke Energy | |
Income taxes receivable | Current Assets | | $ | 729 |
| | $ | 330 |
| |
| Other accrued liabilities | | Other accrued liabilities | Current Liabilities | | $ | 1,455 | | | $ | 604 | |
Accrued compensation | Current Liabilities | | 793 |
| | 757 |
| Accrued compensation | Current Liabilities | | 662 | | | 862 | |
Duke Energy Carolinas | | | | | Duke Energy Carolinas | |
Accrued compensation | Current Liabilities | | $ | 251 |
| | $ | 252 |
| Accrued compensation | Current Liabilities | | $ | 213 | | | $ | 271 | |
Other accrued liabilities | | Other accrued liabilities | Current Liabilities | | 178 | | | 147 | |
Progress Energy | | | |
| | |
| Progress Energy | | | | | |
Income taxes receivable | Current Assets | | $ | 66 |
| | $ | 278 |
| |
| Customer deposits | Current Liabilities | | 345 |
| | 338 |
| Customer deposits | Current Liabilities | | $ | 347 | | | $ | 354 | |
Duke Energy Progress | | | |
| | |
| |
Customer deposits | Current Liabilities | | $ | 137 |
| | $ | 129 |
| |
Accrued compensation | Current Liabilities | | 130 |
| | 132 |
| |
| Duke Energy Florida | | | |
| | |
| Duke Energy Florida | | | | | |
Customer deposits | Current Liabilities | | $ | 208 |
| | $ | 208 |
| Customer deposits | Current Liabilities | | $ | 203 | | | $ | 209 | |
Other accrued liabilities | Current Liabilities | | 85 |
| | 16 |
| |
| Duke Energy Ohio | | | |
| | |
| Duke Energy Ohio | | | | | |
Gas Storage | | Gas Storage | Current Assets | | $ | 21 | | | $ | 0 | |
| Duke Energy Indiana | | Duke Energy Indiana | | | | | |
Income taxes receivable | Current Assets | | $ | 13 |
| | $ | 36 |
| Income taxes receivable | Current Assets | | $ | 9 | | | $ | 44 | |
Customer deposits | Current Liabilities | | 44 |
| | 46 |
| |
Duke Energy Indiana | | | |
| | |
| |
Customer deposits | Current Liabilities | | $ | 47 |
| | $ | 45 |
| |
Piedmont | | | | | |
Income taxes receivable | Current Assets | | $ | 11 |
| | $ | 43 |
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Discontinued Operations
The results of operations of the International Disposal Group have been classified as Discontinued Operations on Duke Energy's Consolidated Statements of Operations. Duke Energy has elected to present cash flows of discontinued operations combined with cash flows of continuing operations. Unless otherwise noted, the notes to these consolidated financial statements exclude amounts related to discontinued operations for all periods presented. See Note 2 for additional information.
Amounts Attributable to Controlling Interests
For the years ended December 31, 2018,2020, 2019 and 2017,2018, the Income (Loss) From Discontinued Operations, net of tax on Duke Energy's Consolidated Statements of Operations is entirely attributable to controlling interest. For
Noncontrolling Interest
Duke Energy maintains a controlling financial interest in certain less than wholly owned nonregulated subsidiaries. As a result, Duke Energy consolidates these subsidiaries and presents the year ended December 31, 2016, $18 millionthird-party investors' portion of Duke Energy's net income (loss), net assets and comprehensive income (loss) as noncontrolling interest. Noncontrolling interest is attributableincluded as a component of equity on the Consolidated Balance Sheet.
Several operating agreements of Duke Energy's subsidiaries with noncontrolling interest are subject to noncontrolling interests, which consisted of $7 million included in Income from Continuing Operations and $11 million included in Income (Loss) From Discontinued Operations, netallocations of tax attributes and cash flows in accordance with contractual agreements that vary throughout the lives of the subsidiaries. Therefore, Duke Energy and the other investors' (the owners) interests in the subsidiaries are not fixed, and the subsidiaries apply the HLBV method in allocating income or loss and other comprehensive income or loss (all measured on a pretax basis) to the owners. The HLBV method measures the amounts that each owner would hypothetically claim at each balance sheet reporting date, including tax benefits realized by the owners, most of which is over the IRS recapture period, upon a hypothetical liquidation of the subsidiary at the net book value of its underlying assets. The change in the amount that each owner would hypothetically receive at the reporting date compared to the amount it would have received on the previous reporting date represents the amount of income or loss allocated to each owner for the reporting period.
Other operating agreements of Duke Energy's Consolidated Statementsubsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of Operations.
the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net income or loss and other comprehensive income or loss of these subsidiaries to the owners based on their pro rata shares.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
During the third quarter of 2019, Duke Energy completed a sale of minority interest in a portion of certain renewable assets within the Commercial Renewables Segment for pretax proceeds to Duke Energy of $415 million. The portion of Duke Energy's commercial renewables energy portfolio sold includes 49% of 37 operating wind, solar and battery storage assets and 33% of 11 operating solar assets across the U.S. Duke Energy retained control of these assets, and, therefore, no gain or loss was recognized on the Consolidated Statements of Operations. The difference between the consideration received and the carrying value of the noncontrolling interest claim on net assets is $466 million, net of tax benefit of $8 million, and was recorded to equity.
The following table presents cash received for the sale of noncontrolling interest and allocated losses to noncontrolling interest for the years ended December 31, 2020, and 2019.
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
Noncontrolling Interest Capital Contributions | | | |
Cash received for the sale of noncontrolling interest to tax equity members | $ | 426 | | | $ | 428 | |
Cash received for the sale of noncontrolling interest to pro rata share members | — | | | 415 | |
Total Noncontrolling Interest Capital Contributions | $ | 426 | | | $ | 843 | |
Noncontrolling Interest Allocation of Income | | | |
Allocated losses to noncontrolling tax equity members utilizing the HLBV method | $ | 271 | | | $ | 165 | |
Allocated losses to noncontrolling members based on pro rata shares of ownership | 24 | | | 12 | |
Total Noncontrolling Interest Allocated Losses | $ | 295 | | | $ | 177 | |
2021 Sale of Minority Interest in Duke Energy Indiana
In January 2021, Duke Energy entered into a definitive agreement providing for the sale of a 19.9% minority interest in Duke Energy Indiana with an affiliate of GIC, Singapore's sovereign wealth fund and an experienced investor in U.S. infrastructure. To facilitate the transaction, Duke Energy will issue and sell membership interests in Duke Energy Indiana Holdco, LLC. a newly created holding company that will own 100% of the issued and outstanding membership interests in Duke Energy Indiana. The transaction will be completed following two closings for an aggregate purchase price of approximately $2 billion. The first closing is expected to be completed in the second quarter of 2021 and Duke Energy will issue and sell 11.1% of the membership interests in exchange for 50% of the purchase price. Under the terms of the agreement, Duke Energy has the discretion to determine the timing of the second closing, but it will occur no later than January 2023. At the second closing, Duke Energy will issue and sell additional membership interests such that GIC will own 19.9% of the membership interests for the remaining 50% of the purchase price. Duke Energy will continue to operate and retain control of Duke Energy Indiana and, therefore, no gain or loss is expected to be recognized in the Consolidated Statements of Operations. Additionally, the transaction will be reflected within Duke Energy Corporations' stockholders' equity as a sale of a noncontrolling interest.
Acquisitions
The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date and include earnings from acquisitions in consolidated earnings after the purchase date.
Significant Accounting Policies
Use of Estimates
In preparing financial statements that conform to GAAP, the Duke Energy Registrants must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Regulatory Accounting
The majority of the Duke Energy Registrants’ operations are subject to price regulation for the sale of electricity and natural gas by state utility commissions or FERC. When prices are set on the basis of specific costs of the regulated operations and an effective franchise is in place such that sufficient natural gas or electric services can be sold to recover those costs, the Duke Energy Registrants apply regulatory accounting. Regulatory accounting changes the timing of the recognition of costs or revenues relative to a company that does not apply regulatory accounting. As a result, 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. Regulatory assets are reviewed for recoverability each reporting period. If a regulatory asset is no longer deemed probable of recovery, the deferred cost is charged to earnings. See Note 43 for further information.
Regulatory accounting rules also require recognition of a disallowance (also called "impairment") loss if it becomes probable that part of the cost of a plant under construction (or a recently completed plant or an abandoned plant) will be disallowed for ratemaking purposes and a reasonable estimate of the amount of the disallowance can be made. For example, if a cost cap is set for a plant still under construction, the amount of the disallowance is a result of a judgment as to the ultimate cost of the plant. These disallowances can require judgments on allowed future rate recovery.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 charge for a disallowance of costs for regulated plants under construction, recently completed or abandoned is based on discounted cash flows.
The Duke Energy Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses or PGA clauses. 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 Operating Revenues, Operating Expenses – Fuel used in electric generation or Operating Expenses – Cost of natural gas on the Consolidated Statements of Operations, with an off-setting impact on regulatory assets or liabilities.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Cash, Cash Equivalents and Restricted Cash
All highly liquid investments with maturities of three months or less at the date of acquisition are considered cash equivalents. Duke Energy, Progress Energy and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and VIEs. See Note 17 for additional information. Restricted cash amounts are included in Other within Current Assets and Other Noncurrent Assets on the Consolidated Balance Sheets. The following table presents the components of cash, cash equivalents and restricted cash included in the Consolidated Balance Sheets.
| | | December 31, 2018 | | December 31, 2017 | | December 31, 2020 | | December 31, 2019 |
| | Duke |
| | | Duke |
| | | Duke | | | Duke |
| Duke |
| Progress |
| Energy |
| | Duke |
| Progress |
| Energy |
| | Duke | Progress | Energy | | Duke | Progress | Energy |
| Energy |
| Energy |
| Florida |
| | Energy |
| Energy |
| Florida |
| | Energy | Florida | | Energy | Florida |
Current Assets | | | | Current Assets | |
Cash and cash equivalents | $ | 442 |
| $ | 67 |
| $ | 36 |
| | $ | 358 |
| $ | 40 |
| $ | 13 |
| Cash and cash equivalents | $ | 259 | | $ | 59 | | $ | 11 | | | $ | 311 | | $ | 48 | | $ | 17 | |
Other | 141 |
| 39 |
| 39 |
| | 138 |
| 40 |
| 40 |
| Other | 194 | | 39 | | 39 | | | 222 | | 39 | | 39 | |
Other Noncurrent Assets | | | | Other Noncurrent Assets | |
Other | 8 |
| 6 |
| — |
| | 9 |
| 7 |
| — |
| Other | 103 | | 102 | | — | | | 40 | | 39 | | — | |
Total cash, cash equivalents and restricted cash | $ | 591 |
| $ | 112 |
| $ | 75 |
| | $ | 505 |
| $ | 87 |
| $ | 53 |
| Total cash, cash equivalents and restricted cash | $ | 556 | | $ | 200 | | $ | 50 | | | $ | 573 | | $ | 126 | | $ | 56 | |
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Inventory
Inventory is used for operations and is recorded primarily using the average cost method. Inventory related to regulated operations is valued at historical cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Materials and supplies are recorded as inventory when purchased and subsequentlyInventory is charged to expense or capitalized to property, plant and equipment when installed. Inventory, including excessissued, primarily using the average cost method. Excess or obsolete inventory is written-downwritten down to the lower of cost or marketnet realizable value. Once inventory has been written-down,written down, it creates a new cost basis for the inventory that is not subsequently written-up.written up. Provisions for inventory write-offs were not material at December 31, 2018,2020, and 2017.2019, respectively. The components of inventory are presented in the tables below. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| | | 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 | $ | 2,238 |
| | $ | 731 |
| | $ | 1,049 |
| | $ | 734 |
| | $ | 315 |
| | $ | 84 |
| | $ | 312 |
| | $ | 2 |
|
Coal | 491 |
| | 175 |
| | 192 |
| | 106 |
| | 86 |
| | 14 |
| | 109 |
| | — |
|
Natural gas, oil and other | 355 |
| | 42 |
| | 218 |
| | 114 |
| | 103 |
| | 28 |
| | 1 |
| | 68 |
|
Total inventory | $ | 3,084 |
| | $ | 948 |
| | $ | 1,459 |
| | $ | 954 |
| | $ | 504 |
| | $ | 126 |
| | $ | 422 |
| | $ | 70 |
|
| | | December 31, 2017 | | December 31, 2020 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Materials and supplies | $ | 2,293 |
| | $ | 744 |
| | $ | 1,118 |
| | $ | 774 |
| | $ | 343 |
| | $ | 82 |
| | $ | 309 |
| | $ | 2 |
| Materials and supplies | $ | 2,312 | | | $ | 785 | | | $ | 999 | | | $ | 673 | | | $ | 325 | | | $ | 78 | | | $ | 307 | | | $ | 12 | |
Coal | 603 |
| | 192 |
| | 255 |
| | 139 |
| | 116 |
| | 17 |
| | 139 |
| | — |
| Coal | 561 | | | 186 | | | 193 | | | 131 | | | 63 | | | 16 | | | 165 | | | — | |
Natural gas, oil and other | 354 |
| | 35 |
| | 219 |
| | 104 |
| | 115 |
| | 34 |
| | 2 |
| | 64 |
| Natural gas, oil and other | 294 | | | 39 | | | 183 | | | 107 | | | 76 | | | 16 | | | 1 | | | 56 | |
Total inventory | $ | 3,250 |
| | $ | 971 |
| | $ | 1,592 |
| | $ | 1,017 |
| | $ | 574 |
| | $ | 133 |
| | $ | 450 |
| | $ | 66 |
| Total inventory | $ | 3,167 | | | $ | 1,010 | | | $ | 1,375 | | | $ | 911 | | | $ | 464 | | | $ | 110 | | | $ | 473 | | | $ | 68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | 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 | $ | 2,297 | | | $ | 768 | | | $ | 1,038 | | | $ | 686 | | | $ | 351 | | | $ | 79 | | | $ | 318 | | | $ | 5 | |
Coal | 586 | | | 187 | | | 186 | | | 138 | | | 48 | | | 15 | | | 198 | | | — | |
Natural gas, oil and other | 349 | | | 41 | | | 199 | | | 110 | | | 90 | | | 41 | | | 1 | | | 67 | |
Total inventory | $ | 3,232 | | | $ | 996 | | | $ | 1,423 | | | $ | 934 | | | $ | 489 | | | $ | 135 | | | $ | 517 | | | $ | 72 | |
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Investments in Debt and Equity Securities
The Duke Energy Registrants classify investments in equity securities as FV-NI and investments in debt securities as AFS. Both categories are recorded at fair value on the Consolidated Balance Sheets. Realized and unrealized gains and losses on securities classified as FV-NI are reported through net income. Unrealized gains and losses for debt securities classified as AFS are included in AOCI until realized, except OTTIs that are included in earnings immediately. Atunless it is determined the time gains and losses for debt securities are realized, they are reported through net income.carrying value of an investment has a credit loss. For certain investments of regulated operations, such as substantially all of the NDTF, realized and unrealized gains and losses (including any OTTIs)credit losses) on debt securities are recorded as a regulatory asset or liability. The credit 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.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Goodwill and Intangible Assets
Goodwill
Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont perform annual goodwill impairment tests as of August 31 each year at the reporting unit level, which is determined to be a business 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 fair value of a reporting unit below its carrying value. See Note 11 for further information.
Intangible Assets
Intangible assets are included in Other in Other Noncurrent Assets on the Consolidated Balance Sheets. Generally, intangible assets are amortized using an amortization method that reflects the pattern in which the economic benefits of the intangible asset are consumed or on a straight-line basis if that pattern is not readily determinable. Amortization of intangibles is reflected in Depreciation and amortization on the Consolidated Statements of Operations. 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 SO2 and NOX. Allowances are issued by the EPA at zero cost and may also be bought and sold via third-party transactions. Allowances allocated to or 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.
RECs 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-downwritten down to its then-currentthen 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.
Equity Method Investment Impairments
Investments in affiliates that are not controlled by Duke Energy, but over which it has significant influence, are accounted for using the equity method. Equity method investments are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If the decline in value is considered to be other than temporary, the investment is written down to its estimated fair value, which establishes a new cost basis in the investment.
Impairment assessments use a discounted cash flow income approach and include consideration of the severity and duration of any decline in the fair value of the investments. The estimated cash flows may be based on alternative expected outcomes that are probability weighted. Key inputs that involve estimates and significant management judgment include cash flow projections, selection of a discount rate, probability weighting of potential outcomes, and whether any decline in value is considered temporary.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 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, | | Years Ended December 31, |
| 2018 |
| | 2017 |
| | 2016 |
| | 2020 | | 2019 | | 2018 |
Duke Energy | 3.0 | % | | 2.8 | % | | 2.8 | % | Duke Energy | 3.0 | % | | 3.1 | % | | 3.0 | % |
Duke Energy Carolinas | 2.8 | % | | 2.8 | % | | 2.8 | % | Duke Energy Carolinas | 2.8 | % | | 2.8 | % | | 2.8 | % |
Progress Energy | 2.9 | % | | 2.6 | % | | 2.7 | % | Progress Energy | 3.2 | % | | 3.1 | % | | 2.9 | % |
Duke Energy Progress | 2.9 | % | | 2.6 | % | | 2.6 | % | Duke Energy Progress | 3.1 | % | | 3.1 | % | | 2.9 | % |
Duke Energy Florida | 3.0 | % | | 2.8 | % | | 2.8 | % | Duke Energy Florida | 3.3 | % | | 3.1 | % | | 3.0 | % |
Duke Energy Ohio | 2.8 | % | | 2.8 | % | | 2.6 | % | Duke Energy Ohio | 2.9 | % | | 2.6 | % | | 2.8 | % |
Duke Energy Indiana | 3.3 | % | | 3.0 | % | | 3.1 | % | Duke Energy Indiana | 3.5 | % | | 3.3 | % | | 3.3 | % |
Piedmont(a) | 2.5 | % | | 2.3 | % | | | |
Piedmont | | Piedmont | 2.3 | % | | 2.4 | % | | 2.5 | % |
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(a) | Piedmont's weighted average depreciation rate was 2.4 percent for the annualized two months ended December 31, 2016, and for the year ended October 31, 2016. |
In general, when the Duke Energy Registrants retire regulated property, plant and equipment, the original cost plus the cost of retirement, less salvage value and any depreciation already recognized, 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 extent the net book value of the asset 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 additional information.
Leases
Duke Energy determines if an arrangement is a lease at contract inception based on whether the arrangement involves the use of a physically distinct identified asset and whether Duke Energy has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period as well as the right to direct the use of the asset. As a policy election, Duke Energy does not evaluate arrangements with initial contract terms of less than one year as leases.
Operating leases are included in Operating lease ROU assets, net, Other current liabilities and Operating lease liabilities on the Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, Current maturities of long-term debt and Long-Term Debt on the Consolidated Balance Sheets.
For lessee and lessor arrangements, Duke Energy has elected a policy to not separate lease and non-lease components for all asset classes. For lessor arrangements, lease and non-lease components are only combined under one arrangement and accounted for under the lease accounting framework if the non-lease components are not the predominant component of the arrangement and the lease component would be classified as an operating lease.
Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the Consolidated Balance Sheets.
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.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
AFUDC equity, a permanent difference for income taxes, reduces the ETR when capitalized and increases the ETR when depreciated or amortized. See Note 23 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
AROs are recognized for legal obligations associated with the retirement of property, plant and equipment. Substantially all AROs are related to regulated operations. When recording an ARO, the present value of the projected liability is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The liability is accreted over time. For operating plants, the present value of the liability is added to the cost of the associated asset and depreciated over the remaining life of the asset. For retired plants, the present value of the liability is recorded as a regulatory asset unless determined not to be probable of recovery.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding timing of future cash flows, selection of discount rates and cost escalation rates, among other factors. These estimates are subject to change. Depreciation expense is adjusted prospectively for any changes to the carrying amount of the associated asset. The Duke Energy Registrants receive amounts to fund the cost of the ARO for regulated operations through a combination of regulated revenues and earnings on the NDTF. As a result, amounts recovered in regulated revenues, earnings on the NDTF, accretion expense and depreciation of the associated asset are netted and deferred as a regulatory asset or liability.
Obligations for nuclear decommissioningAccounts Payable
During 2020, Duke Energy established a supply chain finance program (the “program”) with a global financial institution. The program is voluntary and allows Duke Energy suppliers, at their sole discretion, to sell their receivables from Duke Energy to the financial institution at a rate that leverages Duke Energy’s credit rating and, which may result in favorable terms compared to the rate available to the supplier on their own credit rating. Suppliers participating in the program, determine at their sole discretion which invoices they will sell to the financial institution. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on site-specific cost studies.commercial terms negotiated between Duke Energy Carolinas and the supplier regardless of program participation. The commercial terms negotiated between Duke Energy Progress assume prompt dismantlementand its suppliers are consistent regardless of whether the supplier elects to participate in the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program.
At December 31, 2020, $15 million, $1 million and $14 million of the nuclear facilities after operations are ceased.outstanding Accounts payable balance for Duke Energy, Florida assumes Crystal River Unit 3 will be placed into a safe storage configuration until eventual dismantlement is completed by 2074. Duke Energy Carolinas,Ohio and Piedmont, respectively, was sold to the financial institution by our suppliers. Suppliers invoices sold to the financial institution under the program totaled $45 million, $9 million and $36 million for the year ended December 31, 2020, for Duke Energy, Progress and Duke Energy Florida also assume that spent fuel will be stored on-site until such time that it can be transferredOhio and Piedmont, respectively. All activity related to a yetamounts due to be built DOE facility.
Obligations for closuresuppliers who elected to participate in the program are included within Net cash provided by operating activities on the Consolidated Statements of ash basins are based upon discounted cash flows of estimated costs for site-specific plans, if known, or probability weightings of the potential closure methods if the closure plans are under development and multiple closure options are being considered and evaluated on a site-by-site basis. See Note 9 for additional information.Cash Flows.
Revenue Recognition
Duke Energy recognizes revenue as customers obtain control of promised goods and services in an amount that reflects consideration expected in exchange for those goods or services. Generally, the delivery of electricity and natural gas results in the transfer of control to customers at the time the commodity is delivered and the amount of revenue recognized is equal to the amount billed to each customer, including estimated volumes delivered when billings have not yet occurred. See Note 18 for further information.
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 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 IBNR,incurred but not 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.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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.
Unamortized Debt Premium, Discount and Expense
Premiums, discounts and expenses incurred with the issuance of outstanding long-term debt are amortized over the term of the debt issue. The gain or loss on extinguishment associated with refinancing higher-cost debt obligations in the regulated operations is amortized.amortized over the remaining life of the original instrument. Amortization expense is recorded as Interest Expense in the Consolidated Statements of 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.
Preferred Stock
Preferred stock is reviewed to determine the appropriate balance sheet classification and embedded features, such as call options, are evaluated to determine if they should be bifurcated and accounted for separately. Costs directly related to the issuance of preferred stock is recorded as a reduction of the proceeds received. The liability for the dividend is recognized when declared. The accumulated dividends on the cumulative preferred stock is recognized to net income available to Duke Energy Corporation in the EPS calculation. See Note 19 for further information.
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 are recorded as regulatory assets.
See Notes 43 and 54 for further information.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 22 for further information, including significant accounting policies associated with these plans.
SeveranceNew Accounting Standards
See Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” for a discussion of the impact of new accounting standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See “Management’s Discussion and Special Termination BenefitsAnalysis of Results of Operations and Financial Condition – Quantitative and Qualitative Disclosures About Market Risk.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | | | | | |
Duke Energy | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations | |
Consolidated Statements of Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
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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 | |
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 | |
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 | |
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 | |
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 | |
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 | |
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 | |
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Note 2 – Business Segments | |
Note 3 – Regulatory Matters | |
Note 4 – Commitments and Contingencies | |
Note 5 – Leases | |
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 – Revenue | |
Note 19 – Stockholders' Equity | |
Note 20 – Severance | |
Note 21 – Stock-Based Compensation | |
Note 22 – Employee Benefit Plans | |
Note 23 – Income Taxes | |
Note 24 – Other Income and Expenses, Net | |
Note 25 – Subsequent Events | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Duke Energy Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Corporation and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, 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 25, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to regulation by federal and state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s electric and natural gas distribution companies. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $14 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | | | | | |
Regulated electric | $ | 21,461 | | | $ | 22,615 | | | $ | 22,097 | |
Regulated natural gas | 1,642 | | | 1,759 | | | 1,773 | |
Nonregulated electric and other | 765 | | | 705 | | | 651 | |
Total operating revenues | 23,868 | | | 25,079 | | | 24,521 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 6,051 | | | 6,826 | | | 6,831 | |
Cost of natural gas | 460 | | | 627 | | | 697 | |
Operation, maintenance and other | 5,788 | | | 6,066 | | | 6,463 | |
Depreciation and amortization | 4,705 | | | 4,548 | | | 4,074 | |
Property and other taxes | 1,337 | | | 1,307 | | | 1,280 | |
Impairment charges | 984 | | | (8) | | | 402 | |
Total operating expenses | 19,325 | | | 19,366 | | | 19,747 | |
Gains (Losses) on Sales of Other Assets and Other, net | 10 | | | (4) | | | (89) | |
Operating Income | 4,553 | | | 5,709 | | | 4,685 | |
Other Income and Expenses | | | | | |
Equity in (losses) earnings of unconsolidated affiliates | (2,005) | | | 162 | | | 83 | |
| | | | | |
Other income and expenses, net | 453 | | | 430 | | | 399 | |
Total other income and expenses | (1,552) | | | 592 | | | 482 | |
Interest Expense | 2,162 | | | 2,204 | | | 2,094 | |
Income From Continuing Operations Before Income Taxes | 839 | | | 4,097 | | | 3,073 | |
Income Tax (Benefit) Expense From Continuing Operations | (236) | | | 519 | | | 448 | |
Income From Continuing Operations | 1,075 | | | 3,578 | | | 2,625 | |
Income (Loss) From Discontinued Operations, net of tax | 7 | | | (7) | | | 19 | |
Net Income | 1,082 | | | 3,571 | | | 2,644 | |
Add: Net Loss Attributable to Noncontrolling Interests | 295 | | | 177 | | | 22 | |
Net Income Attributable to Duke Energy Corporation | 1,377 | | | 3,748 | | | 2,666 | |
Less: Preferred Dividends | 107 | | | 41 | | | — | |
Net Income Available to Duke Energy Corporation Common Stockholders | $ | 1,270 | | | $ | 3,707 | | | $ | 2,666 | |
| | | | | |
Earnings Per Share – Basic and Diluted | | | | | |
Income from continuing operations available to Duke Energy Corporation common stockholders | | | | | |
Basic and Diluted | $ | 1.71 | | | $ | 5.07 | | | $ | 3.73 | |
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Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | |
Basic and Diluted | $ | 0.01 | | | $ | (0.01) | | | $ | 0.03 | |
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Net income available to Duke Energy Corporation common stockholders | | | | | |
Basic and Diluted | $ | 1.72 | | | $ | 5.06 | | | $ | 3.76 | |
| | | | | |
Weighted average shares outstanding | | | | | |
Basic | 737 | | | 729 | | | 708 | |
Diluted | 738 | | | 729 | | | 708 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
Net Income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
Other Comprehensive (Loss) Income, net of tax(a) | | | | | |
| | | | | |
Pension and OPEB adjustments | 6 | | | 9 | | | (6) | |
Net unrealized losses on cash flow hedges | (138) | | | (47) | | | (10) | |
Reclassification into earnings from cash flow hedges | 11 | | | 6 | | | 6 | |
Unrealized gains (losses) on available-for-sale securities | 3 | | | 8 | | | (3) | |
| | | | | |
Other Comprehensive Loss, net of tax | (118) | | | (24) | | | (13) | |
Comprehensive Income | 964 | | | 3,547 | | | 2,631 | |
Add: Comprehensive Loss Attributable to Noncontrolling Interests | 306 | | | 177 | | | 22 | |
Comprehensive Income Attributable to Duke Energy Corporation | 1,270 | | | 3,724 | | | 2,653 | |
Less: Preferred Dividends | 107 | | | 41 | | | — | |
Comprehensive Income Available to Duke Energy Corporation Common Stockholders | $ | 1,163 | | | $ | 3,683 | | | $ | 2,653 | |
(a) Net of income tax impacts of approximately $35 million for the year ended December 31, 2020. Tax impacts are immaterial for other periods presented.
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 259 | | | $ | 311 | |
| | | |
Receivables (net of allowance for doubtful accounts of $29 at 2020 and $22 at 2019) | 1,009 | | | 1,066 | |
Receivables of VIEs (net of allowance for doubtful accounts of $117 at 2020 and $54 at 2019) | 2,144 | | | 1,994 | |
Inventory | 3,167 | | | 3,232 | |
| | | |
Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 1,641 | | | 1,796 | |
Other (includes $296 at 2020 and $242 at 2019 related to VIEs) | 462 | | | 764 | |
Total current assets | 8,682 | | | 9,163 | |
Property, Plant and Equipment | | | |
Cost | 155,580 | | | 147,654 | |
Accumulated depreciation and amortization | (48,827) | | | (45,773) | |
Generation facilities to be retired, net | 29 | | | 246 | |
Net property, plant and equipment | 106,782 | | | 102,127 | |
Other Noncurrent Assets | | | |
Goodwill | 19,303 | | | 19,303 | |
Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 12,421 | | | 13,222 | |
Nuclear decommissioning trust funds | 9,114 | | | 8,140 | |
Operating lease right-of-use assets, net | 1,524 | | | 1,658 | |
Investments in equity method unconsolidated affiliates | 961 | | | 1,936 | |
| | | |
Other (includes $81 at 2020 and $110 at 2019 related to VIEs) | 3,601 | | | 3,289 | |
Total other noncurrent assets | 46,924 | | | 47,548 | |
Total Assets | $ | 162,388 | | | $ | 158,838 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 3,144 | | | $ | 3,487 | |
Notes payable and commercial paper | 2,873 | | | 3,135 | |
Taxes accrued | 482 | | | 392 | |
Interest accrued | 537 | | | 565 | |
Current maturities of long-term debt (includes $472 at 2020 and $216 at 2019 related to VIEs) | 4,238 | | | 3,141 | |
| | | |
Asset retirement obligations | 718 | | | 881 | |
Regulatory liabilities | 1,377 | | | 784 | |
Other | 2,936 | | | 2,367 | |
Total current liabilities | 16,305 | | | 14,752 | |
Long-Term Debt (includes $3,535 at 2020 and $3,997 at 2019 related to VIEs) | 55,625 | | | 54,985 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 9,244 | | | 8,878 | |
Asset retirement obligations | 12,286 | | | 12,437 | |
Regulatory liabilities | 15,029 | | | 15,264 | |
Operating lease liabilities | 1,340 | | | 1,432 | |
Accrued pension and other post-retirement benefit costs | 969 | | | 934 | |
Investment tax credits | 687 | | | 624 | |
| | | |
Other (includes $316 at 2020 and $228 at 2019 related to VIEs) | 1,719 | | | 1,581 | |
Total other noncurrent liabilities | 41,274 | | | 41,150 | |
Commitments and Contingencies | 0 | | 0 |
| | | |
Equity | | | |
Preferred stock, Series A, $0.001 par value, 40 million depositary shares authorized and outstanding at 2020 and 2019 | 973 | | | 973 | |
Preferred stock, Series B, $0.001 par value, 1 million shares authorized and outstanding at 2020 and 2019 | 989 | | | 989 | |
Common stock, $0.001 par value, 2 billion shares authorized; 769 million shares outstanding at 2020 and 733 million shares outstanding at 2019 | 1 | | | 1 | |
Additional paid-in capital | 43,767 | | | 40,881 | |
Retained earnings | 2,471 | | | 4,108 | |
Accumulated other comprehensive loss | (237) | | | (130) | |
Total Duke Energy Corporation stockholders' equity | 47,964 | | | 46,822 | |
Noncontrolling interests | 1,220 | | | 1,129 | |
Total equity | 49,184 | | | 47,951 | |
Total Liabilities and Equity | $ | 162,388 | | | $ | 158,838 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion (including amortization of nuclear fuel) | 5,486 | | | 5,176 | | | 4,696 | |
Equity in losses (earnings) of unconsolidated affiliates | 2,005 | | | (162) | | | (83) | |
Equity component of AFUDC | (154) | | | (139) | | | (221) | |
| | | | | |
| | | | | |
| | | | | |
(Gains) Losses on sales of other assets | (10) | | | 4 | | | 88 | |
Impairment charges | 984 | | | (8) | | | 402 | |
Deferred income taxes | 54 | | | 806 | | | 1,079 | |
| | | | | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (610) | | | (746) | | | (533) | |
Payment for the disposal of other assets | — | | | — | | | (105) | |
| | | | | |
Provision for rate refunds | (22) | | | 60 | | | 425 | |
Refund of AMT credit carryforwards | 572 | | | 573 | | | — | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | 63 | | | (48) | | | 22 | |
Receivables | (56) | | | 78 | | | (345) | |
Inventory | 66 | | | (122) | | | 156 | |
Other current assets | 205 | | | 10 | | | (721) | |
Increase (decrease) in | | | | | |
Accounts payable | (21) | | | (164) | | | 479 | |
Taxes accrued | 117 | | | (224) | | | 23 | |
Other current liabilities | (65) | | | 172 | | | 270 | |
Other assets | (398) | | | (559) | | | (1,062) | |
Other liabilities | (442) | | | (69) | | | (28) | |
Net cash provided by operating activities | 8,856 | | | 8,209 | | | 7,186 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (9,907) | | | (11,122) | | | (9,389) | |
Contributions to equity method investments | (370) | | | (324) | | | (416) | |
| | | | | |
Return of investment capital | 133 | | | 11 | | | 137 | |
Purchases of debt and equity securities | (8,011) | | | (3,348) | | | (3,762) | |
Proceeds from sales and maturities of debt and equity securities | 7,949 | | | 3,343 | | | 3,747 | |
| | | | | |
| | | | | |
Other | (398) | | | (517) | | | (377) | |
Net cash used in investing activities | (10,604) | | | (11,957) | | | (10,060) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the: | | | | | |
Issuance of long-term debt | 6,330 | | | 7,091 | | | 5,299 | |
Issuance of preferred stock | — | | | 1,962 | | | — | |
Issuance of common stock | 2,745 | | | 384 | | | 1,838 | |
| | | | | |
Payments for the redemption of long-term debt | (4,506) | | | (3,476) | | | (2,906) | |
Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 3,009 | | | 397 | | | 472 | |
Payments for the redemption of short-term debt with original maturities greater than 90 days | (2,147) | | | (479) | | | (282) | |
Notes payable and commercial paper | (1,181) | | | (298) | | | 981 | |
| | | | | |
Contributions from noncontrolling interests | 426 | | | 843 | | | 41 | |
Dividends paid | (2,812) | | | (2,668) | | | (2,471) | |
| | | | | |
Other | (133) | | | (26) | | | (12) | |
Net cash provided by financing activities | 1,731 | | | 3,730 | | | 2,960 | |
| | | | | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | (17) | | | (18) | | | 86 | |
Cash, cash equivalents, and restricted cash at beginning of period | 573 | | | 591 | | | 505 | |
Cash, cash equivalents, and restricted cash at end of period | $ | 556 | | | $ | 573 | | | $ | 591 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 2,186 | | | $ | 2,195 | | | $ | 2,086 | |
Cash received from income taxes | (585) | | | (651) | | | (266) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 1,116 | | | 1,356 | | | 1,112 | |
Non-cash dividends | 110 | | | 108 | | | 107 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Duke Energy Corporation Stockholders' Accumulated Other Comprehensive Income (Loss) | | | | | | |
| | | | | | | | | | | | | | Net Unrealized | | | | Total | | | | |
| | | | | | | | | | | | Net | | Gains (Losses) | | | | Duke Energy | | | | |
| | Common | | | | Additional | | | | | | Losses on | | on Available- | | Pension and | | Corporation | | | | |
| Preferred | Stock | | Common | | Paid-in | | Retained | | | | Cash Flow | | for-Sale- | | OPEB | | Stockholders' | | Noncontrolling | | Total |
(in millions) | Stock | Shares | | Stock | | Capital | | Earnings | | | | Hedges | | Securities | | Adjustments | | Equity | | Interests | | Equity |
Balance at December 31, 2017 | $ | — | | 700 | | | $ | 1 | | | $ | 38,792 | | | $ | 3,013 | | | | | $ | (10) | | | $ | 12 | | | $ | (69) | | | $ | 41,739 | | | $ | (2) | | | $ | 41,737 | |
Net income | — | | — | | | — | | | — | | | 2,666 | | | | | — | | | — | | | — | | | 2,666 | | | (22) | | | 2,644 | |
Other comprehensive loss | — | | — | | | — | | | — | | | — | | | | | (4) | | | (3) | | | (6) | | | (13) | | | — | | | (13) | |
Common stock issuances, including dividend reinvestment and employee benefits | — | | 27 | | | — | | | 2,003 | | | — | | | | | — | | | — | | | — | | | 2,003 | | | — | | | 2,003 | |
| | | | | | | | | | | | | | | | | | | | | | |
Common stock dividends | — | | — | | | — | | | — | | | (2,578) | | | | | — | | | — | | | — | | | (2,578) | | | — | | | (2,578) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Other(a) | — | | — | | | — | | | — | | | 12 | | | | | — | | | (12) | | | — | | | — | | | 42 | | | 42 | |
Balance at December 31, 2018 | $ | — | | 727 | | | $ | 1 | | | $ | 40,795 | | | $ | 3,113 | | | | | $ | (14) | | | $ | (3) | | | $ | (75) | | | $ | 43,817 | | | $ | 17 | | | $ | 43,834 | |
Net income | — | | — | | | — | | | — | | | 3,707 | | | | | — | | | — | | | — | | | 3,707 | | | (177) | | | 3,530 | |
Other comprehensive (loss) Income | — | | — | | | — | | | — | | | — | | | | | (41) | | | 8 | | | 9 | | | (24) | | | — | | | (24) | |
Preferred stock, Series A, issuances, net of issuance costs(b) | 973 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 973 | | | — | | | 973 | |
Preferred stock, Series B, issuances, net of issuance costs(b) | 989 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 989 | | | — | | | 989 | |
Common stock issuances, including dividend reinvestment and employee benefits | — | | 6 | | | — | | | 552 | | | — | | | | | — | | | — | | | — | | | 552 | | | — | | | 552 | |
| | | | | | | | | | | | | | | | | | | | | | |
Common stock dividends | — | | — | | | — | | | — | | | (2,735) | | | | | — | | | — | | | — | | | (2,735) | | | — | | | (2,735) | |
Sale of noncontrolling interest(c) | — | | — | | | — | | | (466) | | | — | | | | | 10 | | | — | | | — | | | (456) | | | 863 | | | 407 | |
Contribution from noncontrolling interest (f) | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 428 | | | 428 | |
Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (4) | | | (4) | |
Other(d) | — | | — | | | — | | | — | | | 23 | | | | | (6) | | | (2) | | | (16) | | | (1) | | | 2 | | | 1 | |
Balance at December 31, 2019 | $ | 1,962 | | 733 | | | $ | 1 | | | $ | 40,881 | | | $ | 4,108 | | | | | $ | (51) | | | $ | 3 | | | $ | (82) | | | $ | 46,822 | | | $ | 1,129 | | | $ | 47,951 | |
Net income | — | | — | | | — | | | — | | | 1,270 | | | | | — | | | — | | | — | | | 1,270 | | | (295) | | | 975 | |
Other comprehensive (loss) income | — | | — | | | — | | | — | | | — | | | | | (116) | | | 3 | | | 6 | | | (107) | | | (11) | | | (118) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Common stock issuances, including dividend reinvestment and employee benefits | — | | 36 | | | — | | | 2,902 | | | — | | | | | — | | | — | | | — | | | 2,902 | | | — | | | 2,902 | |
| | | | | | | | | | | | | | | | | | | | | | |
Common stock dividends | — | | — | | | — | | | — | | | (2,815) | | | | | — | | | — | | | — | | | (2,815) | | | — | | | (2,815) | |
| | | | | | | | | | | | | | | | | | | | | | |
Contribution from noncontrolling interest, net of transaction costs(f) | — | | — | | | — | | | (17) | | | — | | | | | — | | | — | | | — | | | (17) | | | 426 | | | 409 | |
Distributions to noncontrolling interests in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (30) | | | (30) | |
Other(e) | — | | — | | | — | | | 1 | | | (92) | | | | | — | | | — | | | — | | | (91) | | | 1 | | | (90) | |
Balance at December 31, 2020 | $ | 1,962 | | 769 | | | $ | 1 | | | $ | 43,767 | | | $ | 2,471 | | | | | $ | (167) | | | $ | 6 | | | $ | (76) | | | $ | 47,964 | | | $ | 1,220 | | | $ | 49,184 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information. Amount in Noncontrolling Interests primarily relates to tax equity financing activity in the Commercial Renewables segment.
(b) Duke Energy issued 40 million depositary shares of preferred stock, Series A, in the first quarter of 2019 and 1 million shares of preferred stock, Series B, in the third quarter of 2019.
(c) See Note 1 for additional discussion of the transaction.
(d) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
(e) Amounts in Retained earnings primarily represent impacts due to implementation of a new accounting standard related to Current Estimated Credit Losses. See Note 1 for additional discussion.
(f) Relates to tax equity financing activity in the Commercial Renewables segment.
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $3.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | $ | 7,015 | | | $ | 7,395 | | | $ | 7,300 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 1,682 | | | 1,804 | | | 1,821 | |
Operation, maintenance and other | 1,743 | | | 1,868 | | | 2,130 | |
Depreciation and amortization | 1,462 | | | 1,388 | | | 1,201 | |
Property and other taxes | 299 | | | 292 | | | 295 | |
Impairment charges | 476 | | | 17 | | | 192 | |
Total operating expenses | 5,662 | | | 5,369 | | | 5,639 | |
Gains (Losses) on Sales of Other Assets and Other, net | 1 | | | — | | | (1) | |
Operating Income | 1,354 | | | 2,026 | | | 1,660 | |
Other Income and Expenses, net | 177 | | | 151 | | | 153 | |
Interest Expense | 487 | | | 463 | | | 439 | |
Income Before Income Taxes | 1,044 | | | 1,714 | | | 1,374 | |
Income Tax Expense | 88 | | | 311 | | | 303 | |
Net Income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
Other Comprehensive Income, net of tax | | | | | |
Reclassification into earnings from cash flow hedges | — | | | — | | | 1 | |
| | | | | |
Other Comprehensive Income, net of tax | — | | | — | | | 1 | |
Comprehensive Income | $ | 956 | | | $ | 1,403 | | | $ | 1,072 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2020 | | 2019 |
ASSETS | | | | |
Current Assets | | | | |
Cash and cash equivalents | | $ | 21 | | | $ | 18 | |
Receivables (net of allowance for doubtful accounts of $1 at 2020 and $3 at 2019) | | 247 | | | 324 | |
Receivables of VIEs (net of allowance for doubtful accounts of $22 at 2020 and $7 at 2019) | | 696 | | | 642 | |
Receivables from affiliated companies | | 124 | | | 114 | |
| | | | |
Inventory | | 1,010 | | | 996 | |
Regulatory assets | | 473 | | | 550 | |
Other | | 20 | | | 21 | |
Total current assets | | 2,591 | | | 2,665 | |
Property, Plant and Equipment | | | | |
Cost | | 50,640 | | | 48,922 | |
Accumulated depreciation and amortization | | (17,453) | | | (16,525) | |
| | | | |
Net property, plant and equipment | | 33,187 | | | 32,397 | |
Other Noncurrent Assets | | | | |
| | | | |
Regulatory assets | | 2,996 | | | 3,360 | |
Nuclear decommissioning trust funds | | 4,977 | | | 4,359 | |
Operating lease right-of-use assets, net | | 110 | | | 123 | |
Other | | 1,187 | | | 1,149 | |
Total other noncurrent assets | | 9,270 | | | 8,991 | |
Total Assets | | $ | 45,048 | | | $ | 44,053 | |
LIABILITIES AND EQUITY | | | | |
Current Liabilities | | | | |
Accounts payable | | $ | 1,000 | | | $ | 954 | |
Accounts payable to affiliated companies | | 199 | | | 210 | |
Notes payable to affiliated companies | | 506 | | | 29 | |
Taxes accrued | | 76 | | | 46 | |
Interest accrued | | 117 | | | 115 | |
Current maturities of long-term debt | | 506 | | | 458 | |
Asset retirement obligations | | 264 | | | 206 | |
Regulatory liabilities | | 473 | | | 255 | |
Other | | 546 | | | 611 | |
Total current liabilities | | 3,687 | | | 2,884 | |
Long-Term Debt | | 11,412 | | | 11,142 | |
Long-Term Debt Payable to Affiliated Companies | | 300 | | | 300 | |
Other Noncurrent Liabilities | | | | |
Deferred income taxes | | 3,842 | | | 3,921 | |
Asset retirement obligations | | 5,086 | | | 5,528 | |
Regulatory liabilities | | 6,535 | | | 6,423 | |
Operating lease liabilities | | 97 | | | 102 | |
Accrued pension and other post-retirement benefit costs | | 73 | | | 84 | |
Investment tax credits | | 236 | | | 231 | |
Other | | 626 | | | 627 | |
Total other noncurrent liabilities | | 16,495 | | | 16,916 | |
Commitments and Contingencies | | 0 | | 0 |
Equity | | | | |
Member's equity | | 13,161 | | | 12,818 | |
Accumulated other comprehensive loss | | (7) | | | (7) | |
Total equity | | 13,154 | | | 12,811 | |
Total Liabilities and Equity | | $ | 45,048 | | | $ | 44,053 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization (including amortization of nuclear fuel) | 1,731 | | | 1,671 | | | 1,487 | |
Equity component of AFUDC | (62) | | | (42) | | | (73) | |
| | | | | |
| | | | | |
| | | | | |
(Gains) Losses on sales of other assets | (1) | | | — | | | 1 | |
Impairment charges | 476 | | | 17 | | | 192 | |
Deferred income taxes | (260) | | | 133 | | | 305 | |
| | | | | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (162) | | | (278) | | | (230) | |
Provision for rate refunds | (5) | | | 36 | | | 182 | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | (4) | | | (8) | | | 2 | |
Receivables | 52 | | | (21) | | | (86) | |
Receivables from affiliated companies | (10) | | | 68 | | | (87) | |
Inventory | (14) | | | (48) | | | 25 | |
Other current assets | 209 | | | (73) | | | (161) | |
Increase (decrease) in | | | | | |
Accounts payable | 55 | | | (50) | | | 168 | |
Accounts payable to affiliated companies | (11) | | | (20) | | | 21 | |
Taxes accrued | 30 | | | (127) | | | (65) | |
Other current liabilities | (56) | | | 127 | | | 89 | |
Other assets | (101) | | | (42) | | | (221) | |
Other liabilities | (47) | | | (37) | | | (90) | |
Net cash provided by operating activities | 2,776 | | | 2,709 | | | 2,530 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (2,669) | | | (2,714) | | | (2,706) | |
Purchases of debt and equity securities | (1,602) | | | (1,658) | | | (1,810) | |
Proceeds from sales and maturities of debt and equity securities | 1,602 | | | 1,658 | | | 1,810 | |
| | | | | |
| | | | | |
Other | (164) | | | (204) | | | (147) | |
Net cash used in investing activities | (2,833) | | | (2,918) | | | (2,853) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 998 | | | 886 | | | 1,983 | |
Payments for the redemption of long-term debt | (813) | | | (6) | | | (1,205) | |
Notes payable to affiliated companies | 477 | | | (410) | | | 335 | |
Distributions to parent | (600) | | | (275) | | | (750) | |
Other | (2) | | | (1) | | | (23) | |
Net cash provided by financing activities | 60 | | | 194 | | | 340 | |
Net increase (decrease) in cash and cash equivalents | 3 | | | (15) | | | 17 | |
Cash and cash equivalents at beginning of period | 18 | | | 33 | | | 16 | |
Cash and cash equivalents at end of period | $ | 21 | | | $ | 18 | | | $ | 33 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 481 | | | $ | 433 | | | $ | 452 | |
Cash paid for income taxes | 321 | | | 122 | | | 89 | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 365 | | | 347 | | | 302 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | Accumulated Other | | |
| | | Comprehensive | | |
| | | Loss | | | | |
| | | Net Gains | | | | |
| | | (Losses) on | | | | |
| Member's | | Cash Flow | | | | Total |
(in millions) | Equity | | Hedges | | | | Equity |
Balance at December 31, 2017 | $ | 11,368 | | | $ | (7) | | | | | $ | 11,361 | |
Net income | 1,071 | | | — | | | | | 1,071 | |
Other comprehensive income | — | | | 1 | | | | | 1 | |
Distributions to parent | (750) | | | — | | | | | (750) | |
| | | | | | | |
Balance at December 31, 2018 | $ | 11,689 | | | $ | (6) | | | | | $ | 11,683 | |
Net income | 1,403 | | | — | | | | | 1,403 | |
| | | | | | | |
Distributions to parent | (275) | | | — | | | | | (275) | |
Other | 1 | | | (1) | | | | | 0 | |
Balance at December 31, 2019 | $ | 12,818 | | | $ | (7) | | | | | $ | 12,811 | |
Net income | 956 | | | — | | | | | 956 | |
| | | | | | | |
Distributions to parent | (600) | | | — | | | | | (600) | |
Other(a) | (13) | | | — | | | | | (13) | |
Balance at December 31, 2020 | $ | 13,161 | | | $ | (7) | | | | | $ | 13,154 | |
(a) Amounts primarily represent impacts due to implementation of a new accounting standard related to Credit Losses. See Note 1 for additional discussion.
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, South Carolina Public Service Commission and Florida Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $6.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | $ | 10,627 | | | $ | 11,202 | | | $ | 10,728 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 3,479 | | | 4,024 | | | 3,976 | |
Operation, maintenance and other | 2,479 | | | 2,495 | | | 2,613 | |
Depreciation and amortization | 1,818 | | | 1,845 | | | 1,619 | |
Property and other taxes | 545 | | | 561 | | | 529 | |
Impairment charges | 495 | | | (24) | | | 87 | |
Total operating expenses | 8,816 | | | 8,901 | | | 8,824 | |
Gains on Sales of Other Assets and Other, net | 9 | | | — | | | 24 | |
Operating Income | 1,820 | | | 2,301 | | | 1,928 | |
Other Income and Expenses, net | 129 | | | 141 | | | 165 | |
Interest Expense | 790 | | | 862 | | | 842 | |
Income Before Income Taxes | 1,159 | | | 1,580 | | | 1,251 | |
Income Tax Expense | 113 | | | 253 | | | 218 | |
| | | | | |
| | | | | |
Net Income | 1,046 | | | 1,327 | | | 1,033 | |
Less: Net Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
Net Income Attributable to Parent | $ | 1,045 | | | $ | 1,327 | | | $ | 1,027 | |
| | | | | |
Net Income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
Other Comprehensive Income, net of tax | | | | | |
Pension and OPEB adjustments | (1) | | | 2 | | | 5 | |
Net unrealized gain on cash flow hedges | 5 | | | 5 | | | 6 | |
| | | | | |
| | | | | |
Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
Other Comprehensive Income, net of tax | 3 | | | 8 | | | 10 | |
Comprehensive Income | 1,049 | | | 1,335 | | | 1,043 | |
Less: Comprehensive Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
Comprehensive Income Attributable to Parent | $ | 1,048 | | | $ | 1,335 | | | $ | 1,037 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 59 | | | $ | 48 | |
Receivables (net of allowance for doubtful accounts of $8 at 2020 and $7 at 2019) | 228 | | | 220 | |
Receivables of VIEs (net of allowance for doubtful accounts of $29 at 2020 and $9 at 2019) | 901 | | | 830 | |
Receivables from affiliated companies | 157 | | | 76 | |
Notes receivable from affiliated companies | — | | | 164 | |
Inventory | 1,375 | | | 1,423 | |
Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 758 | | | 946 | |
Other (includes $39 at 2020 and 2019 related to VIEs) | 109 | | | 210 | |
Total current assets | 3,587 | | | 3,917 | |
Property, Plant and Equipment | | | |
Cost | 57,892 | | | 55,070 | |
Accumulated depreciation and amortization | (18,368) | | | (17,159) | |
Generation facilities to be retired, net | 29 | | | 246 | |
Net property, plant and equipment | 39,553 | | | 38,157 | |
Other Noncurrent Assets | | | |
Goodwill | 3,655 | | | 3,655 | |
Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 5,775 | | | 6,346 | |
Nuclear decommissioning trust funds | 4,137 | | | 3,782 | |
Operating lease right-of-use assets, net | 690 | | | 788 | |
Other | 1,227 | | | 1,049 | |
Total other noncurrent assets | 15,484 | | | 15,620 | |
Total Assets | $ | 58,624 | | | $ | 57,694 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 919 | | | $ | 1,104 | |
Accounts payable to affiliated companies | 289 | | | 310 | |
Notes payable to affiliated companies | 2,969 | | | 1,821 | |
Taxes accrued | 121 | | | 46 | |
Interest accrued | 202 | | | 228 | |
Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 1,426 | | | 1,577 | |
Asset retirement obligations | 283 | | | 485 | |
Regulatory liabilities | 640 | | | 330 | |
Other | 793 | | | 902 | |
Total current liabilities | 7,642 | | | 6,803 | |
Long-Term Debt (includes $1,252 at 2020 and $1,632 at 2019 related to VIEs) | 17,688 | | | 17,907 | |
Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 4,396 | | | 4,462 | |
Asset retirement obligations | 5,866 | | | 5,986 | |
Regulatory liabilities | 5,051 | | | 5,225 | |
Operating lease liabilities | 623 | | | 697 | |
Accrued pension and other post-retirement benefit costs | 505 | | | 488 | |
Other | 462 | | | 383 | |
Total other noncurrent liabilities | 16,903 | | | 17,241 | |
Commitments and Contingencies | 0 | | 0 |
Equity | | | |
Common stock, $0.01 par value, 100 shares authorized and outstanding at 2020 and 2019 | — | | | — | |
Additional paid-in capital | 9,143 | | | 9,143 | |
Retained earnings | 7,109 | | | 6,465 | |
Accumulated other comprehensive loss | (15) | | | (18) | |
Total Progress Energy, Inc. stockholder's equity | 16,237 | | | 15,590 | |
Noncontrolling interests | 4 | | | 3 | |
Total equity | 16,241 | | | 15,593 | |
Total Liabilities and Equity | $ | 58,624 | | | $ | 57,694 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion (including amortization of nuclear fuel) | 2,327 | | | 2,207 | | | 1,987 | |
Equity component of AFUDC | (42) | | | (66) | | | (104) | |
| | | | | |
| | | | | |
| | | | | |
Gains on sales of other assets | (9) | | | — | | | (24) | |
Impairment charges | 495 | | | (24) | | | 87 | |
Deferred income taxes | (197) | | | 433 | | | 358 | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (384) | | | (412) | | | (230) | |
| | | | | |
Provision for rate refunds | 2 | | | 15 | | | 122 | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | (9) | | | (34) | | | 18 | |
Receivables | (69) | | | 47 | | | (207) | |
Receivables from affiliated companies | (81) | | | 81 | | | (137) | |
Inventory | 49 | | | 62 | | | 121 | |
Other current assets | 223 | | | 184 | | | (12) | |
Increase (decrease) in | | | | | |
Accounts payable | (62) | | | (4) | | | 217 | |
Accounts payable to affiliated companies | (21) | | | (50) | | | 109 | |
Taxes accrued | 75 | | | (74) | | | 8 | |
Other current liabilities | 139 | | | 25 | | | 129 | |
Other assets | (128) | | | (341) | | | (896) | |
Other liabilities | (177) | | | (167) | | | (35) | |
Net cash provided by operating activities | 3,177 | | | 3,209 | | | 2,544 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (3,488) | | | (3,952) | | | (3,854) | |
| | | | | |
Purchases of debt and equity securities | (5,998) | | | (1,511) | | | (1,753) | |
Proceeds from sales and maturities of debt and equity securities | 6,010 | | | 1,504 | | | 1,769 | |
| | | | | |
| | | | | |
| | | | | |
Notes receivable from affiliated companies | 164 | | | (164) | | | 240 | |
| | | | | |
Other | (160) | | | (190) | | | (162) | |
Net cash used in investing activities | (3,472) | | | (4,313) | | | (3,760) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 1,791 | | | 2,187 | | | 1,833 | |
Payments for the redemption of long-term debt | (2,157) | | | (1,667) | | | (771) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Notes payable to affiliated companies | 1,148 | | | 586 | | | 430 | |
| | | | | |
| | | | | |
| | | | | |
Dividends to parent | (400) | | | — | | | (250) | |
Other | (13) | | | 12 | | | (1) | |
Net cash provided by financing activities | 369 | | | 1,118 | | | 1,241 | |
Net increase in cash, cash equivalents, and restricted cash | 74 | | | 14 | | | 25 | |
Cash, cash equivalents, and restricted cash at beginning of period | 126 | | | 112 | | | 87 | |
Cash, cash equivalents, and restricted cash at end of period | $ | 200 | | | $ | 126 | | | $ | 112 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 819 | | | $ | 892 | | | $ | 798 | |
Cash paid for (received from) income taxes | 149 | | | (79) | | | (348) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 363 | | | 447 | | | 478 | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated Other Comprehensive Income (Loss) | | | | | | |
| | | | | | | Net Gains | | Net Unrealized | | | | Total Progress | | | | |
| | | Additional | | | | (Losses) on | | Gains (Losses) | | Pension and | | Energy, Inc. | | | | |
| | | Paid-in | | Retained | | Cash Flow | | on Available-for- | | OPEB | | Stockholder's | | Noncontrolling | | Total |
(in millions) | | | Capital | | Earnings | | Hedges | | Sale Securities | | Adjustments | | Equity | | Interests | | Equity |
Balance at December 31, 2017 | | | $ | 9,143 | | | $ | 4,350 | | | $ | (18) | | | $ | 5 | | | $ | (12) | | | $ | 13,468 | | | $ | (3) | | | $ | 13,465 | |
Net income | | | — | | | 1,027 | | | — | | | — | | | — | | | 1,027 | | | 6 | | | 1,033 | |
Other comprehensive income (loss) | | | — | | | — | | | 6 | | | (1) | | | 5 | | | 10 | | | — | | | 10 | |
| | | | | | | | | | | | | | | | | |
Distributions to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
| | | | | | | | | | | | | | | | | |
Dividends to parent | | | — | | | (250) | | | — | | | — | | | — | | | (250) | | | — | | | (250) | |
| | | | | | | | | | | | | | | | | |
Other(a) | | | — | | | 4 | | | — | | | (5) | | | — | | | (1) | | | 1 | | | 0 | |
Balance at December 31, 2018 | | | $ | 9,143 | | | $ | 5,131 | | | $ | (12) | | | $ | (1) | | | $ | (7) | | | $ | 14,254 | | | $ | 3 | | | $ | 14,257 | |
Net income | | | — | | | 1,327 | | | — | | | — | | | — | | | 1,327 | | | — | | | 1,327 | |
Other comprehensive income | | | — | | | — | | | 5 | | | 1 | | | 2 | | | 8 | | | — | | | 8 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other(b) | | | — | | | 7 | | | (3) | | | (1) | | | (2) | | | 1 | | | — | | | 1 | |
Balance at December 31, 2019 | | | $ | 9,143 | | | $ | 6,465 | | | $ | (10) | | | $ | (1) | | | $ | (7) | | | $ | 15,590 | | | $ | 3 | | | $ | 15,593 | |
Net income | | | — | | | 1,045 | | | — | | | — | | | — | | | 1,045 | | | 1 | | | 1,046 | |
Other comprehensive income (loss) | | | — | | | — | | | 5 | | | (1) | | | (1) | | | 3 | | | — | | | 3 | |
| | | | | | | | | | | | | | | | | |
Dividends to parent | | | — | | | (400) | | | — | | | — | | | — | | | (400) | | | — | | | (400) | |
| | | | | | | | | | | | | | | | | |
Other | | | — | | | (1) | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
Balance at December 31, 2020 | | | $ | 9,143 | | | $ | 7,109 | | | $ | (5) | | | $ | (2) | | | $ | (8) | | | $ | 16,237 | | | $ | 4 | | | $ | 16,241 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
(b) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Progress, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Progress, LLC and subsidiaries (the "Company") as of December 31, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $4.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1930.
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
Operating Revenues | $ | 5,422 | | | $ | 5,957 | | | $ | 5,699 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 1,743 | | | 2,012 | | | 1,892 | |
Operation, maintenance and other | 1,332 | | | 1,446 | | | 1,578 | |
Depreciation and amortization | 1,116 | | | 1,143 | | | 991 | |
Property and other taxes | 167 | | | 176 | | | 155 | |
Impairment charges | 499 | | | 12 | | | 33 | |
Total operating expenses | 4,857 | | | 4,789 | | | 4,649 | |
Gains on Sales of Other Assets and Other, net | 8 | | | — | | | 9 | |
Operating Income | 573 | | | 1,168 | | | 1,059 | |
Other Income and Expenses, net | 75 | | | 100 | | | 87 | |
Interest Expense | 269 | | | 306 | | | 319 | |
Income Before Income Taxes | 379 | | | 962 | | | 827 | |
Income Tax (Benefit) Expense | (36) | | | 157 | | | 160 | |
Net Income and Comprehensive Income | $ | 415 | | | $ | 805 | | | $ | 667 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 39 | | | $ | 22 | |
Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 132 | | | 123 | |
Receivables of VIEs (net of allowance for doubtful accounts of $19 at 2020 and $5 at 2019) | 500 | | | 489 | |
Receivables from affiliated companies | 50 | | | 52 | |
| | | |
Inventory | 911 | | | 934 | |
Regulatory assets | 492 | | | 526 | |
Other | 60 | | | 60 | |
Total current assets | 2,184 | | | 2,206 | |
Property, Plant and Equipment | | | |
Cost | 35,759 | | | 34,603 | |
Accumulated depreciation and amortization | (12,801) | | | (11,915) | |
Generation facilities to be retired, net | 29 | | | 246 | |
Net property, plant and equipment | 22,987 | | | 22,934 | |
Other Noncurrent Assets | | | |
Regulatory assets | 3,976 | | | 4,152 | |
Nuclear decommissioning trust funds | 3,500 | | | 3,047 | |
Operating lease right-of-use assets, net | 346 | | | 387 | |
Other | 740 | | | 651 | |
Total other noncurrent assets | 8,562 | | | 8,237 | |
Total Assets | $ | 33,733 | | | $ | 33,377 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 454 | | | $ | 629 | |
Accounts payable to affiliated companies | 215 | | | 203 | |
Notes payable to affiliated companies | 295 | | | 66 | |
Taxes accrued | 85 | | | 17 | |
Interest accrued | 99 | | | 110 | |
Current maturities of long-term debt | 603 | | | 1,006 | |
Asset retirement obligations | 283 | | | 485 | |
Regulatory liabilities | 530 | | | 236 | |
Other | 411 | | | 478 | |
Total current liabilities | 2,975 | | | 3,230 | |
Long-Term Debt | 8,505 | | | 7,902 | |
Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 2,298 | | | 2,388 | |
Asset retirement obligations | 5,352 | | | 5,408 | |
Regulatory liabilities | 4,394 | | | 4,232 | |
Operating lease liabilities | 323 | | | 354 | |
Accrued pension and other post-retirement benefit costs | 242 | | | 238 | |
Investment tax credits | 132 | | | 137 | |
Other | 102 | | | 92 | |
Total other noncurrent liabilities | 12,843 | | | 12,849 | |
Commitments and Contingencies | 0 | | 0 |
Equity | | | |
Member's Equity | 9,260 | | | 9,246 | |
| | | |
| | | |
| | | |
Total Liabilities and Equity | $ | 33,733 | | | $ | 33,377 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 415 | | | $ | 805 | | | $ | 667 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization (including amortization of nuclear fuel) | 1,299 | | | 1,329 | | | 1,183 | |
Equity component of AFUDC | (29) | | | (60) | | | (57) | |
| | | | | |
| | | | | |
| | | | | |
Gains on sales of other assets | (8) | | | — | | | (9) | |
Impairment charges | 499 | | | 12 | | | 33 | |
Deferred income taxes | (234) | | | 197 | | | 236 | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (304) | | | (390) | | | (195) | |
| | | | | |
Provisions for rate refunds | 2 | | | 12 | | | 122 | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | 1 | | | (6) | | | 5 | |
Receivables | (4) | | | 21 | | | (107) | |
Receivables from affiliated companies | 2 | | | (29) | | | (20) | |
Inventory | 23 | | | 20 | | | 63 | |
Other current assets | 98 | | | 101 | | | (201) | |
Increase (decrease) in | | | | | |
Accounts payable | (127) | | | 32 | | | 219 | |
Accounts payable to affiliated companies | 12 | | | (75) | | | 99 | |
Taxes accrued | 68 | | | (46) | | | (11) | |
Other current liabilities | 157 | | | 68 | | | 46 | |
Other assets | (207) | | | (205) | | | (465) | |
Other liabilities | 3 | | | 37 | | | 20 | |
Net cash provided by operating activities | 1,666 | | | 1,823 | | | 1,628 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (1,581) | | | (2,108) | | | (2,220) | |
| | | | | |
Purchases of debt and equity securities | (1,555) | | | (842) | | | (1,236) | |
Proceeds from sales and maturities of debt and equity securities | 1,516 | | | 810 | | | 1,206 | |
| | | | | |
| | | | | |
| | | | | |
Other | (57) | | | (119) | | | (95) | |
Net cash used in investing activities | (1,677) | | | (2,259) | | | (2,345) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 1,296 | | | 1,269 | | | 845 | |
Payments for the redemption of long-term debt | (1,085) | | | (605) | | | (3) | |
| | | | | |
Notes payable to affiliated companies | 229 | | | (228) | | | 54 | |
| | | | | |
Distributions to parent | (400) | | | — | | | (175) | |
| | | | | |
Other | (12) | | | (1) | | | (1) | |
Net cash provided by financing activities | 28 | | | 435 | | | 720 | |
Net increase (decrease) in cash and cash equivalents | 17 | | | (1) | | | 3 | |
Cash and cash equivalents at beginning of period | 22 | | | 23 | | | 20 | |
Cash and cash equivalents at end of period | $ | 39 | | | $ | 22 | | | $ | 23 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 301 | | | $ | 331 | | | $ | 303 | |
Cash paid for (received from) income taxes | 123 | | | (30) | | | (112) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 149 | | | 175 | | | 220 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | |
| | | | | Member's | | | | |
(in millions) | | | | | Equity | | | | |
Balance at December 31, 2017 | | | | | $ | 7,949 | | | | | |
Net income | | | | | 667 | | | | | |
Distribution to parent | | | | | (175) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2018 | | | | | $ | 8,441 | | | | | |
Net income | | | | | 805 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2019 | | | | | $ | 9,246 | | | | | |
Net income | | | | | 415 | | | | | |
Distribution to parent | | | | | (400) | | | | | |
| | | | | | | | | |
Other | | | | | (1) | | | | | |
Balance at December 31, 2020 | | | | | $ | 9,260 | | | | | |
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Florida Public Service Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $2.1 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, including the settlement agreement filed with the Commission subsequent to December 31, 2020, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | $ | 5,188 | | | $ | 5,231 | | | $ | 5,021 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 1,737 | | | 2,012 | | | 2,085 | |
Operation, maintenance and other | 1,131 | | | 1,034 | | | 1,025 | |
Depreciation and amortization | 702 | | | 702 | | | 628 | |
Property and other taxes | 381 | | | 392 | | | 374 | |
Impairment charges | (4) | | | (36) | | | 54 | |
Total operating expenses | 3,947 | | | 4,104 | | | 4,166 | |
Gains on Sales of Other Assets and Other, net | 1 | | | — | | | 1 | |
Operating Income | 1,242 | | | 1,127 | | | 856 | |
Other Income and Expenses, net | 53 | | | 48 | | | 86 | |
Interest Expense | 326 | | | 328 | | | 287 | |
Income Before Income Taxes | 969 | | | 847 | | | 655 | |
Income Tax Expense | 198 | | | 155 | | | 101 | |
Net Income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other Comprehensive Income (Loss), net of tax | | | | | |
Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
| | | | | |
Other Comprehensive (Loss) Income, net of tax | (1) | | | 1 | | | (1) | |
Comprehensive Income | $ | 770 | | | $ | 693 | | | $ | 553 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 11 | | | $ | 17 | |
Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 94 | | | 96 | |
Receivables of VIEs (net of allowance for doubtful accounts of $10 at 2020 and $4 at 2019) | 401 | | | 341 | |
Receivables from affiliated companies | 3 | | | — | |
Notes receivable from affiliated companies | — | | | 173 | |
Inventory | 464 | | | 489 | |
Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 265 | | | 419 | |
Other (includes $39 at 2020 and 2019 related to VIEs) | 41 | | | 58 | |
Total current assets | 1,279 | | | 1,593 | |
Property, Plant and Equipment | | | |
Cost | 22,123 | | | 20,457 | |
Accumulated depreciation and amortization | (5,560) | | | (5,236) | |
Net property, plant and equipment | 16,563 | | | 15,221 | |
Other Noncurrent Assets | | | |
| | | |
Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 1,799 | | | 2,194 | |
Nuclear decommissioning trust funds | 637 | | | 734 | |
Operating lease right-of-use assets, net | 344 | | | 401 | |
Other | 335 | | | 311 | |
Total other noncurrent assets | 3,115 | | | 3,640 | |
Total Assets | $ | 20,957 | | | $ | 20,454 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 465 | | | $ | 474 | |
Accounts payable to affiliated companies | 85 | | | 131 | |
Notes payable to affiliated companies | 196 | | | — | |
Taxes accrued | 82 | | | 43 | |
Interest accrued | 69 | | | 75 | |
Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 823 | | | 571 | |
| | | |
Regulatory liabilities | 110 | | | 94 | |
Other | 374 | | | 415 | |
Total current liabilities | 2,204 | | | 1,803 | |
Long-Term Debt (includes $1,002 at 2020 and $1,307 at 2019 related to VIEs) | 7,092 | | | 7,416 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 2,191 | | | 2,179 | |
| | | |
Asset retirement obligations | 514 | | | 578 | |
Regulatory liabilities | 658 | | | 993 | |
Operating lease liabilities | 300 | | | 343 | |
Accrued pension and other post-retirement benefit costs | 231 | | | 218 | |
| | | |
Other | 209 | | | 136 | |
Total other noncurrent liabilities | 4,103 | | | 4,447 | |
Commitments and Contingencies | 0 | | 0 |
| | | |
Equity | | | |
Member's equity | 7,560 | | | 6,789 | |
| | | |
| | | |
Accumulated other comprehensive loss | (2) | | | (1) | |
Total equity | 7,558 | | | 6,788 | |
Total Liabilities and Equity | $ | 20,957 | | | $ | 20,454 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 771 | | | $ | 692 | | | $ | 554 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 1,019 | | | 869 | | | 793 | |
Equity component of AFUDC | (12) | | | (6) | | | (47) | |
| | | | | |
Gains on sales of other assets | (1) | | | — | | | (1) | |
Impairment charges | (4) | | | (36) | | | 54 | |
Deferred income taxes | 27 | | | 180 | | | 159 | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (80) | | | (22) | | | (35) | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | (14) | | | (33) | | | 7 | |
Receivables | (64) | | | 26 | | | (100) | |
Receivables from affiliated companies | (3) | | | 17 | | | (26) | |
Inventory | 26 | | | 42 | | | 58 | |
Other current assets | 40 | | | 156 | | | 59 | |
Increase (decrease) in | | | | | |
Accounts payable | 66 | | | (36) | | | (1) | |
Accounts payable to affiliated companies | (46) | | | 40 | | | 17 | |
Taxes accrued | 39 | | | (31) | | | 40 | |
Other current liabilities | (7) | | | (36) | | | 82 | |
Other assets | 85 | | | (131) | | | (429) | |
Other liabilities | (181) | | | (213) | | | (75) | |
Net cash provided by operating activities | 1,661 | | | 1,478 | | | 1,109 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (1,907) | | | (1,844) | | | (1,634) | |
| | | | | |
Purchases of debt and equity securities | (4,443) | | | (669) | | | (517) | |
Proceeds from sales and maturities of debt and equity securities | 4,495 | | | 695 | | | 563 | |
| | | | | |
| | | | | |
Notes receivable from affiliated companies | 173 | | | (173) | | | 313 | |
| | | | | |
Other | (103) | | | (67) | | | (65) | |
Net cash used in investing activities | (1,785) | | | (2,058) | | | (1,340) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 495 | | | 918 | | | 988 | |
Payments for the redemption of long-term debt | (572) | | | (262) | | | (769) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Notes payable to affiliated companies | 196 | | | (108) | | | 108 | |
| | | | | |
Distribution to parent | — | | | — | | | (75) | |
| | | | | |
Other | (1) | | | 13 | | | 1 | |
Net cash provided by financing activities | 118 | | | 561 | | | 253 | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | (6) | | | (19) | | | 22 | |
Cash, cash equivalents, and restricted cash at beginning of period | 56 | | | 75 | | | 53 | |
Cash, cash equivalents, and restricted cash at end of period | $ | 50 | | | $ | 56 | | | $ | 75 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 321 | | | $ | 332 | | | $ | 270 | |
Cash paid for (received from) income taxes | 138 | | | 1 | | | (120) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 214 | | | 272 | | | 258 | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | |
| | | | | | | Other | | |
| | | | | | | Comprehensive | | |
| | | | | | | Income (Loss) | | |
| | | | | | | Net Unrealized | | | | |
| | | | | | | Gains (Losses) on | | | | |
| | | | | Member's | | Available-for- | | | | Total |
(in millions) | | | | | Equity | | Sale Securities | | | | Equity |
Balance at December 31, 2017 | | | | | $ | 5,614 | | | $ | 4 | | | | | $ | 5,618 | |
Net income | | | | | 554 | | | — | | | | | 554 | |
Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Distribution to parent | | | | | (75) | | | — | | | | | (75) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other(a) | | | | | 4 | | | (5) | | | | | (1) | |
Balance at December 31, 2018 | | | | | $ | 6,097 | | | $ | (2) | | | | | $ | 6,095 | |
Net income | | | | | 692 | | | — | | | | | 692 | |
Other comprehensive income | | | | | — | | | 1 | | | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2019 | | | | | $ | 6,789 | | | $ | (1) | | | | | $ | 6,788 | |
Net income | | | | | 771 | | | — | | | | | 771 | |
Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2020 | | | | | $ | 7,560 | | | $ | (2) | | | | | $ | 7,558 | |
(a) Amounts represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
CriticalAuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Public Utilities Commission of Ohio and by the Kentucky Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric and gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $650 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | | | | | |
Regulated electric | $ | 1,405 | | | $ | 1,456 | | | $ | 1,450 | |
Regulated natural gas | 453 | | | 484 | | | 506 | |
Nonregulated electric and other | — | | | — | | | 1 | |
Total operating revenues | 1,858 | | | 1,940 | | | 1,957 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power – regulated | 339 | | | 388 | | | 412 | |
| | | | | |
Cost of natural gas | 73 | | | 95 | | | 113 | |
Operation, maintenance and other | 463 | | | 520 | | | 480 | |
Depreciation and amortization | 278 | | | 265 | | | 268 | |
Property and other taxes | 324 | | | 308 | | | 290 | |
| | | | | |
Total operating expenses | 1,477 | | | 1,576 | | | 1,563 | |
Losses on Sales of Other Assets and Other, net | — | | | — | | | (106) | |
Operating Income | 381 | | | 364 | | | 288 | |
Other Income and Expenses, net | 16 | | | 24 | | | 23 | |
Interest Expense | 102 | | | 109 | | | 92 | |
Income From Continuing Operations Before Income Taxes | 295 | | | 279 | | | 219 | |
Income Tax Expense From Continuing Operations | 43 | | | 40 | | | 43 | |
Income From Continuing Operations | 252 | | | 239 | | | 176 | |
Loss From Discontinued Operations, net of tax | — | | | (1) | | | — | |
Net Income and Comprehensive Income | $ | 252 | | | $ | 238 | | | $ | 176 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 14 | | | $ | 17 | |
Receivables (net of allowance for doubtful accounts of $4 at 2020 and $4 at 2019) | 98 | | | 84 | |
Receivables from affiliated companies | 102 | | | 92 | |
| | | |
Inventory | 110 | | | 135 | |
| | | |
Regulatory assets | 39 | | | 49 | |
Other | 31 | | | 21 | |
Total current assets | 394 | | | 398 | |
Property, Plant and Equipment | | | |
Cost | 11,022 | | | 10,241 | |
Accumulated depreciation and amortization | (3,013) | | | (2,843) | |
| | | |
Net property, plant and equipment | 8,009 | | | 7,398 | |
Other Noncurrent Assets | | | |
Goodwill | 920 | | | 920 | |
Regulatory assets | 610 | | | 549 | |
Operating lease right-of-use assets, net | 20 | | | 21 | |
| | | |
| | | |
| | | |
Other | 72 | | | 52 | |
Total other noncurrent assets | 1,622 | | | 1,542 | |
Total Assets | $ | 10,025 | | | $ | 9,338 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 279 | | | $ | 288 | |
Accounts payable to affiliated companies | 68 | | | 68 | |
Notes payable to affiliated companies | 169 | | | 312 | |
Taxes accrued | 247 | | | 219 | |
Interest accrued | 31 | | | 30 | |
Current maturities of long-term debt | 50 | | | — | |
| | | |
Asset retirement obligations | 3 | | | 1 | |
Regulatory liabilities | 65 | | | 64 | |
Other | 70 | | | 75 | |
Total current liabilities | 982 | | | 1,057 | |
Long-Term Debt | 3,014 | | | 2,594 | |
Long-Term Debt Payable to Affiliated Companies | 25 | | | 25 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 981 | | | 922 | |
Asset retirement obligations | 108 | | | 79 | |
Regulatory liabilities | 748 | | | 763 | |
Operating lease liabilities | 20 | | | 21 | |
Accrued pension and other post-retirement benefit costs | 113 | | | 100 | |
| | | |
| | | |
Other | 99 | | | 94 | |
Total other noncurrent liabilities | 2,069 | | | 1,979 | |
Commitments and Contingencies | 0 | | 0 |
Equity | | | |
Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2020 and 2019 | 762 | | | 762 | |
Additional paid-in capital | 2,776 | | | 2,776 | |
Retained earnings | 397 | | | 145 | |
| | | |
Total equity | 3,935 | | | 3,683 | |
Total Liabilities and Equity | $ | 10,025 | | | $ | 9,338 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 252 | | | $ | 238 | | | $ | 176 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 283 | | | 269 | | | 271 | |
Equity component of AFUDC | (7) | | | (13) | | | (11) | |
Losses on sales of other assets | 0 | | | 0 | | | 106 | |
| | | | | |
Deferred income taxes | 31 | | | 81 | | | 25 | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (2) | | | (8) | | | (3) | |
Provision for rate refunds | 14 | | | 7 | | | 24 | |
(Increase) decrease in | | | | | |
| | | | | |
Receivables | (13) | | | 20 | | | (33) | |
Receivables from affiliated companies | 9 | | | 22 | | | 19 | |
Inventory | 25 | | | (9) | | | 7 | |
Other current assets | (18) | | | (5) | | | 16 | |
Increase (decrease) in | | | | | |
Accounts payable | 2 | | | (17) | | | (19) | |
Accounts payable to affiliated companies | 0 | | | (10) | | | 16 | |
Taxes accrued | 30 | | | 17 | | | 12 | |
Other current liabilities | 3 | | | 1 | | | 14 | |
Other assets | (32) | | | (26) | | | (24) | |
Other liabilities | (2) | | | (41) | | | (26) | |
Net cash provided by operating activities | 575 | | | 526 | | | 570 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (834) | | | (952) | | | (827) | |
| | | | | |
| | | | | |
Notes receivable from affiliated companies | (19) | | | — | | | 14 | |
| | | | | |
Other | (48) | | | (68) | | | (89) | |
Net cash used in investing activities | (901) | | | (1,020) | | | (902) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 467 | | | 1,003 | | | 99 | |
Payments for the redemption of long-term debt | — | | | (551) | | | (3) | |
Notes payable to affiliated companies | (144) | | | 38 | | | 245 | |
| | | | | |
| | | | | |
Net cash provided by financing activities | 323 | | | 490 | | | 341 | |
Net (decrease) increase in cash and cash equivalents | (3) | | | (4) | | | 9 | |
Cash and cash equivalents at beginning of period | 17 | | | 21 | | | 12 | |
Cash and cash equivalents at end of period | $ | 14 | | | $ | 17 | | | $ | 21 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 97 | | | $ | 97 | | | $ | 87 | |
Cash received from income taxes | — | | | (37) | | | (6) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 104 | | | 109 | | | 95 | |
Non-cash equity contribution from parent | — | | | — | | | 106 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | Additional | | Retained | | | | |
| Common | | Paid-in | | Earnings | | | | Total |
(in millions) | Stock | | Capital | | (Deficit) | | | | Equity |
Balance at December 31, 2017 | $ | 762 | | | $ | 2,670 | | | $ | (269) | | | | | $ | 3,163 | |
Net income | — | | | — | | | 176 | | | | | 176 | |
Contribution from parent | — | | | 106 | | | — | | | | | 106 | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2018 | $ | 762 | | | $ | 2,776 | | | $ | (93) | | | | | $ | 3,445 | |
Net income | — | | | — | | | 238 | | | | | 238 | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2019 | $ | 762 | | | $ | 2,776 | | | $ | 145 | | | | | $ | 3,683 | |
Net income | — | | | — | | | 252 | | | | | 252 | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2020 | $ | 762 | | | $ | 2,776 | | | $ | 397 | | | | | $ | 3,935 | |
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Indiana Utility Regulatory Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $1.3 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
Duke Energy Indiana Coal Ash Asset Retirement Obligations – Refer to Notes 3, 4, and 9 to the financial statements
Critical Audit Matter Description
Duke Energy Indiana has asset retirement obligations associated with coal ash impoundments at operating and retired coal generation facilities. These legal obligations are the result of Indiana state and federal regulations. There is significant judgment in determining the assumptions used in estimating the closure costs for each site since Duke Energy Indiana does not have approved closure plans for certain sites. Potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods (“probability weightings”) creates estimation uncertainty. The liability for coal ash asset retirement obligations at Duke Energy Indiana was $1,140 million at December 31, 2020.
We identified the asset retirement obligations associated with coal ash impoundments at Duke Energy Indiana as a critical audit matter because of the significant management estimates and assumptions, including projected closure costs as well as the different potential closure methods. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods required a high degree of auditor judgment and an increased extent of effort, including the need to involve our environmental specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the underlying estimated closure costs for coal ash asset retirement obligations at Duke Energy Indiana included the following, among others:
•We tested the effectiveness of controls over management’s coal ash asset retirement obligation estimate, including those over management’s determination of the estimated closure costs and probability weightings.
•We evaluated management’s ability to accurately estimate future closure costs by comparing actual closure costs to management’s historical estimates.
•We tested the mathematical accuracy of management’s coal ash asset retirement obligation calculations, including the application of probability weightings.
•We made inquiries of internal and external legal counsel regarding the status of the legal matters associated with the probability weightings.
•We inspected the opinions from internal and external legal counsel supporting the probability weightings.
•We inspected the Company’s filings with and orders from the Indiana Department of Environmental Management, for evidence that might contradict management’s assertions regarding the estimated closure costs and probability weightings.
•With the assistance of our environmental specialists, we evaluated the reasonableness of management’s estimated closure costs by comparing the costs to actual costs incurred at comparable coal ash impoundments, underlying contracts, and publicly available industry cost data, as applicable.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | $ | 2,795 | | | $ | 3,004 | | | $ | 3,059 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 767 | | | 935 | | | 1,000 | |
Operation, maintenance and other | 762 | | | 790 | | | 788 | |
Depreciation and amortization | 569 | | | 525 | | | 520 | |
Property and other taxes | 81 | | | 69 | | | 78 | |
Impairment charges | — | | | — | | | 30 | |
Total operating expenses | 2,179 | | | 2,319 | | | 2,416 | |
| | | | | |
Operating Income | 616 | | | 685 | | | 643 | |
Other Income and Expenses, net | 37 | | | 41 | | | 45 | |
Interest Expense | 161 | | | 156 | | | 167 | |
Income Before Income Taxes | 492 | | | 570 | | | 521 | |
Income Tax Expense | 84 | | | 134 | | | 128 | |
Net Income and Comprehensive Income | $ | 408 | | | $ | 436 | | | $ | 393 | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 7 | | | $ | 25 | |
Receivables (net of allowance for doubtful accounts of $3 at 2020 and $3 at 2019) | 55 | | | 60 | |
Receivables from affiliated companies | 112 | | | 79 | |
| | | |
Inventory | 473 | | | 517 | |
Regulatory assets | 125 | | | 90 | |
Other | 37 | | | 60 | |
Total current assets | 809 | | | 831 | |
Property, Plant and Equipment | | | |
Cost | 17,382 | | | 16,305 | |
Accumulated depreciation and amortization | (5,661) | | | (5,233) | |
| | | |
Net property, plant and equipment | 11,721 | | | 11,072 | |
Other Noncurrent Assets | | | |
Regulatory assets | 1,203 | | | 1,082 | |
Operating lease right-of-use assets, net | 55 | | | 57 | |
| | | |
Other | 253 | | | 234 | |
Total other noncurrent assets | 1,511 | | | 1,373 | |
Total Assets | $ | 14,041 | | | $ | 13,276 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 188 | | | $ | 201 | |
Accounts payable to affiliated companies | 88 | | | 87 | |
Notes payable to affiliated companies | 131 | | | 30 | |
Taxes accrued | 62 | | | 49 | |
Interest accrued | 51 | | | 58 | |
Current maturities of long-term debt | 70 | | | 503 | |
Asset retirement obligations | 168 | | | 189 | |
Regulatory liabilities | 111 | | | 55 | |
Other | 83 | | | 112 | |
Total current liabilities | 952 | | | 1,284 | |
Long-Term Debt | 3,871 | | | 3,404 | |
Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 1,228 | | | 1,150 | |
Asset retirement obligations | 1,008 | | | 643 | |
Regulatory liabilities | 1,627 | | | 1,685 | |
Operating lease liabilities | 53 | | | 55 | |
Accrued pension and other post-retirement benefit costs | 171 | | | 148 | |
Investment tax credits | 168 | | | 164 | |
Other | 30 | | | 18 | |
Total other noncurrent liabilities | 4,285 | | | 3,863 | |
Commitments and Contingencies | 0 | | 0 |
Equity | | | |
Member's Equity | 4,783 | | | 4,575 | |
| | | |
| | | |
Total Liabilities and Equity | $ | 14,041 | | | $ | 13,276 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 408 | | | $ | 436 | | | $ | 393 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization, and accretion | 572 | | | 531 | | | 524 | |
Equity component of AFUDC | (23) | | | (18) | | | (32) | |
| | | | | |
Impairment charges | — | | | — | | | 30 | |
Deferred income taxes | 29 | | | 156 | | | 95 | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (63) | | | (48) | | | (69) | |
Provision for rate refunds | — | | | — | | | 53 | |
(Increase) decrease in | | | | | |
| | | | | |
Receivables | 8 | | | (8) | | | 7 | |
Receivables from affiliated companies | 0 | | | 41 | | | 3 | |
Inventory | 44 | | | (95) | | | 28 | |
Other current assets | (3) | | | 76 | | | (25) | |
Increase (decrease) in | | | | | |
Accounts payable | (12) | | | (10) | | | 37 | |
Accounts payable to affiliated companies | 1 | | | 4 | | | 5 | |
Taxes accrued | 13 | | | (25) | | | (52) | |
Other current liabilities | 6 | | | 15 | | | 14 | |
Other assets | (68) | | | (74) | | | 26 | |
Other liabilities | 26 | | | 16 | | | (31) | |
Net cash provided by operating activities | 938 | | | 997 | | | 1,006 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (888) | | | (876) | | | (832) | |
Purchases of debt and equity securities | (37) | | | (26) | | | (48) | |
Proceeds from sales and maturities of debt and equity securities | 22 | | | 20 | | | 44 | |
| | | | | |
Notes receivable from affiliated companies | (33) | | | — | | | — | |
| | | | | |
Other | 48 | | | (49) | | | 18 | |
Net cash used in investing activities | (888) | | | (931) | | | (818) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 544 | | | 485 | | | — | |
Payments for the redemption of long-term debt | (513) | | | (213) | | | (3) | |
Notes payable to affiliated companies | 101 | | | (137) | | | 6 | |
| | | | | |
Distributions to parent | (200) | | | (200) | | | (175) | |
Other | — | | | — | | | (1) | |
Net cash used in financing activities | (68) | | | (65) | | | (173) | |
Net (decrease) increase in cash and cash equivalents | (18) | | | 1 | | | 15 | |
Cash and cash equivalents at beginning of period | 25 | | | 24 | | | 9 | |
Cash and cash equivalents at end of period | $ | 7 | | | $ | 25 | | | $ | 24 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 164 | | | $ | 150 | | | $ | 162 | |
Cash paid for (received from) income taxes | 36 | | | (6) | | | 75 | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 101 | | | 102 | | | 88 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | Member's | | | | |
(in millions) | | | | | | | Equity | | | | |
Balance at December 31, 2017 | | | | | | | $ | 4,121 | | | | | |
Net income | | | | | | | 393 | | | | | |
| | | | | | | | | | | |
Distributions to parent | | | | | | | (175) | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2018 | | | | | | | $ | 4,339 | | | | | |
Net income | | | | | | | 436 | | | | | |
| | | | | | | | | | | |
Distributions to parent | | | | | | | (200) | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2019 | | | | | | | $ | 4,575 | | | | | |
Net income | | | | | | | 408 | | | | | |
Distributions to parent | | | | | | | (200) | | | | | |
Balance at December 31, 2020 | | | | | | | $ | 4,783 | | | | | |
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, the Public Service Commission of South Carolina, and the Tennessee Public Utility Commission (collectively the “Commissions”), which have jurisdiction with respect to the gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $450 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1951.
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
Operating Revenues | | | | | |
Regulated natural gas | $ | 1,286 | | | $ | 1,369 | | | $ | 1,365 | |
Nonregulated natural gas and other | 11 | | | 12 | | | 10 | |
| | | | | |
Total operating revenues | 1,297 | | | 1,381 | | | 1,375 | |
Operating Expenses | | | | | |
Cost of natural gas | 386 | | | 532 | | | 584 | |
Operation, maintenance and other | 322 | | | 328 | | | 357 | |
Depreciation and amortization | 180 | | | 172 | | | 159 | |
Property and other taxes | 53 | | | 45 | | | 49 | |
Impairment charges | 7 | | | — | | | — | |
Total operating expenses | 948 | | | 1,077 | | | 1,149 | |
| | | | | |
Operating Income | 349 | | | 304 | | | 226 | |
Equity in earnings of unconsolidated affiliates | 9 | | | 8 | | | 7 | |
| | | | | |
Other income and expense, net | 51 | | | 20 | | | 14 | |
Total other income and expenses | 60 | | | 28 | | | 21 | |
Interest Expense | 118 | | | 87 | | | 81 | |
Income Before Income Taxes | 291 | | | 245 | | | 166 | |
Income Tax Expense | 18 | | | 43 | | | 37 | |
Net Income and Comprehensive Income | $ | 273 | | | $ | 202 | | | $ | 129 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
| | | |
Receivables (net of allowance for doubtful accounts of $12 at 2020 and $6 at 2019) | $ | 250 | | | $ | 241 | |
Receivables from affiliated companies | 10 | | | 10 | |
Inventory | 68 | | | 72 | |
Regulatory assets | 153 | | | 73 | |
| | | |
Other | 20 | | | 28 | |
Total current assets | 501 | | | 424 | |
Property, Plant and Equipment | | | |
Cost | 9,134 | | | 8,446 | |
Accumulated depreciation and amortization | (1,749) | | | (1,681) | |
Net property, plant and equipment | 7,385 | | | 6,765 | |
Other Noncurrent Assets | | | |
Goodwill | 49 | | | 49 | |
Regulatory assets | 302 | | | 290 | |
Operating lease right-of-use assets, net | 20 | | | 24 | |
Investments in equity method unconsolidated affiliates | 88 | | | 83 | |
Other | 270 | | | 121 | |
Total other noncurrent assets | 729 | | | 567 | |
Total Assets | $ | 8,615 | | | $ | 7,756 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 230 | | | $ | 215 | |
Accounts payable to affiliated companies | 79 | | | 3 | |
| | | |
Notes payable to affiliated companies | 530 | | | 476 | |
Taxes accrued | 23 | | | 24 | |
Interest accrued | 34 | | | 33 | |
Current maturities of long-term debt | 160 | | | 0 | |
Regulatory liabilities | 88 | | | 81 | |
Other | 69 | | | 67 | |
Total current liabilities | 1,213 | | | 899 | |
Long-Term Debt | 2,620 | | | 2,384 | |
| | | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 821 | | | 708 | |
Asset retirement obligations | 20 | | | 17 | |
Regulatory liabilities | 1,044 | | | 1,131 | |
Operating lease liabilities | 19 | | | 23 | |
Accrued pension and other post-retirement benefit costs | 8 | | | 3 | |
Other | 155 | | | 148 | |
Total other noncurrent liabilities | 2,067 | | | 2,030 | |
Commitments and Contingencies | 0 | | 0 |
Equity | | | |
Common stock, 0 par value: 100 shares authorized and outstanding at 2020 and 2019 | 1,310 | | | 1,310 | |
| | | |
Retained earnings | 1,405 | | | 1,133 | |
| | | |
Total equity | 2,715 | | | 2,443 | |
Total Liabilities and Equity | $ | 8,615 | | | $ | 7,756 | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 273 | | | $ | 202 | | | $ | 129 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 182 | | | 174 | | | 161 | |
Equity component of AFUDC | (19) | | | — | | | — | |
| | | | | |
Impairment charges | 7 | | | — | | | — | |
Deferred income taxes | 53 | | | 136 | | | (31) | |
Equity in (earnings) losses from unconsolidated affiliates | (9) | | | (8) | | | (7) | |
| | | | | |
| | | | | |
| | | | | |
Provision for rate refunds | (33) | | | 2 | | | 43 | |
(Increase) decrease in | | | | | |
| | | | | |
Receivables | 10 | | | 28 | | | 7 | |
Receivables from affiliated companies | — | | | 12 | | | (15) | |
Inventory | 3 | | | (2) | | | (4) | |
Other current assets | (66) | | | (25) | | | 71 | |
Increase (decrease) in | | | | | |
Accounts payable | 16 | | | (7) | | | 15 | |
Accounts payable to affiliated companies | 76 | | | (35) | | | 25 | |
Taxes accrued | 3 | | | (60) | | | 65 | |
Other current liabilities | (11) | | | 1 | | | 21 | |
Other assets | (11) | | | 1 | | | 3 | |
Other liabilities | 7 | | | (10) | | | (5) | |
Net cash provided by operating activities | 481 | | | 409 | | | 478 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (901) | | | (1,053) | | | (721) | |
Contributions to equity method investments | — | | | (16) | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other | (28) | | | (14) | | | (10) | |
Net cash used in investing activities | (929) | | | (1,083) | | | (731) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 394 | | | 596 | | | 100 | |
| | | | | |
Payments for the redemption of long-term debt | — | | | (350) | | | — | |
| | | | | |
| | | | | |
Notes payable to affiliated companies | 54 | | | 278 | | | (166) | |
| | | | | |
| | | | | |
Capital contribution from parent | — | | | 150 | | | 300 | |
| | | | | |
| | | | | |
| | | | | |
Net cash provided by financing activities | 448 | | | 674 | | | 234 | |
Net decrease in cash and cash equivalents | — | | | — | | | (19) | |
Cash and cash equivalents at beginning of period | — | | | — | | | 19 | |
Cash and cash equivalents at end of period | $ | — | | | $ | — | | | $ | — | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 115 | | | $ | 84 | | | $ | 79 | |
Cash received from income taxes | (36) | | | (31) | | | (16) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 106 | | | 109 | | | 96 | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Common | | Retained | | | | Total |
(in millions) | Stock | | Earnings | | | | Equity |
Balance at December 31, 2017 | $ | 860 | | | $ | 802 | | | | | $ | 1,662 | |
Net income | — | | | 129 | | | | | 129 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Contribution from parent | 300 | | | — | | | | | 300 | |
| | | | | | | |
Balance at December 31, 2018 | $ | 1,160 | | | $ | 931 | | | | | $ | 2,091 | |
Net income | — | | | 202 | | | | | 202 | |
| | | | | | | |
Contribution from parent | 150 | | | — | | | | | 150 | |
| | | | | | | |
Balance at December 31, 2019 | $ | 1,310 | | | $ | 1,133 | | | | | $ | 2,443 | |
Net income | — | | | 273 | | | | | 273 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other | — | | | (1) | | | | | (1) | |
Balance at December 31, 2020 | $ | 1,310 | | | $ | 1,405 | | | | | $ | 2,715 | |
See Notes to Consolidated Financial Statements
| | | | | |
FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 | • | | • | • | • | • | • | • | • | • | • | • | • | | • | • | • | • | • | • | • | • | • | • | • | • | |
Duke Energy Carolinas | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Progress Energy | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Duke Energy Progress | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Duke Energy Florida | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Duke Energy Ohio | • | | • | • | • | • | • | | | • | • | • | | • | • | | • | • | • | | • | • | • | • | • | • | |
Duke Energy Indiana | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Piedmont | • | | • | • | • | • | • | | | • | • | • | • | • | • | | • | | • | | • | • | • | • | • | • | |
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
Nature of Operations and Basis of Consolidation
Duke Energy is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the FERC and other regulatory agencies listed below. Duke Energy operates in the U.S. primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas; Progress Energy; Duke Energy Progress; Duke Energy Florida; Duke Energy Ohio; Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its separate Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
The 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 or VIEs where the respective Duke Energy Registrants have control. See Note 17 for additional information on VIEs. These Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. See Note 8 for additional information on joint ownership. Substantially all of the Subsidiary Registrants' operations qualify for regulatory accounting.
Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Progress Energy is a public utility holding company, which conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Progress Energy is subject to regulation by FERC and other regulatory agencies listed below.
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 FPSC, NRC and FERC.
Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in portions of Ohio and Kentucky, the generation and sale of electricity in portions of Kentucky and the transportation and sale of natural gas in portions of Ohio and Kentucky. Duke Energy Ohio conducts competitive auctions for retail electricity supply in Ohio whereby the energy price is recovered from retail customers and recorded in Operating Revenues on the Consolidated Statements of Operations and Comprehensive Income. Operations in Kentucky are conducted through its wholly owned subsidiary, 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 PUCO, KPSC and FERC.
Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the IURC and FERC.
Piedmont is a regulated public utility primarily engaged in the distribution of natural gas in portions of North Carolina, South Carolina and Tennessee. Piedmont is subject to the regulatory provisions of the NCUC, PSCSC, TPUC and FERC.
Certain prior year amounts have been reclassified to conform to the current year presentation.
| | | | | |
FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
COVID-19
The COVID-19 pandemic is having a significant impact on global health and economic environments. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and the federal government proclaimed that the COVID-19 outbreak in the United States constitutes a national emergency. The Duke Energy Registrants are monitoring developments closely and responding appropriately. The company incurred approximately $112 million of incremental COVID-19 costs before deferral for the year ended December 31, 2020, included in Operation, maintenance and other on the Consolidated Statements of Operations. Further, the company waived approximately $64 million of late payment fees for the year ended December 31, 2020. The company has deferred approximately $76 million of the incremental costs, which were primarily bad debt expense, personal protective equipment and cleaning supplies, and a cost component of late payment fees. See Notes 3, 6, 17, 18 and 23 for additional information as well as steps taken to mitigate the impacts to our business and customers from the COVID-19 pandemic.
Other Current Assets and Liabilities
The following table provides a description of amounts included in Other within Current Assets or Current Liabilities that exceed 5% of total Current Assets or Current Liabilities on the Duke Energy Registrants' Consolidated Balance Sheets at either December 31, 2020, or 2019.
| | | | | | | | | | | | | | | | | |
| | | December 31, |
(in millions) | Location | | 2020 | | 2019 |
Duke Energy | | | | | |
| | | | | |
Other accrued liabilities | Current Liabilities | | $ | 1,455 | | | $ | 604 | |
Accrued compensation | Current Liabilities | | 662 | | | 862 | |
Duke Energy Carolinas | | | | | |
Accrued compensation | Current Liabilities | | $ | 213 | | | $ | 271 | |
Other accrued liabilities | Current Liabilities | | 178 | | | 147 | |
Progress Energy | | | | | |
| | | | | |
Customer deposits | Current Liabilities | | $ | 347 | | | $ | 354 | |
| | | | | |
| | | | | |
| | | | | |
Duke Energy Florida | | | | | |
Customer deposits | Current Liabilities | | $ | 203 | | | $ | 209 | |
| | | | | |
Duke Energy Ohio | | | | | |
Gas Storage | Current Assets | | $ | 21 | | | $ | 0 | |
| | | | | |
Duke Energy Indiana | | | | | |
Income taxes receivable | Current Assets | | $ | 9 | | | $ | 44 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Discontinued Operations
Duke Energy has severance plans underelected to present cash flows of discontinued operations combined with cash flows of continuing operations. Unless otherwise noted, the notes to these consolidated financial statements exclude amounts related to discontinued operations for all periods presented. For the years ended December 31, 2020, 2019 and 2018, the Income (Loss) From Discontinued Operations, net of tax on Duke Energy's Consolidated Statements of Operations is entirely attributable to controlling interest.
Noncontrolling Interest
Duke Energy maintains a controlling financial interest in certain less than wholly owned nonregulated subsidiaries. As a result, Duke Energy consolidates these subsidiaries and presents the third-party investors' portion of Duke Energy's net income (loss), net assets and comprehensive income (loss) as noncontrolling interest. Noncontrolling interest is included as a component of equity on the Consolidated Balance Sheet.
Several operating agreements of Duke Energy's subsidiaries with noncontrolling interest are subject to allocations of tax attributes and cash flows in accordance with contractual agreements that vary throughout the lives of the subsidiaries. Therefore, Duke Energy and the other investors' (the owners) interests in the subsidiaries are not fixed, and the subsidiaries apply the HLBV method in allocating income or loss and other comprehensive income or loss (all measured on a pretax basis) to the owners. The HLBV method measures the amounts that each owner would hypothetically claim at each balance sheet reporting date, including tax benefits realized by the owners, most of which is over the IRS recapture period, upon a hypothetical liquidation of the subsidiary at the net book value of its underlying assets. The change in general, the longer a terminated employee worked prioramount that each owner would hypothetically receive at the reporting date compared to termination the greateramount it would have received on the previous reporting date represents the amount of severance benefits. Aincome or loss allocated to each owner for the reporting period.
Other operating agreements of Duke Energy's subsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net income or loss and other comprehensive income or loss of these subsidiaries to the owners based on their pro rata shares.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
During the third quarter of 2019, Duke Energy completed a sale of minority interest in a portion of certain renewable assets within the Commercial Renewables Segment for pretax proceeds to Duke Energy of $415 million. The portion of Duke Energy's commercial renewables energy portfolio sold includes 49% of 37 operating wind, solar and battery storage assets and 33% of 11 operating solar assets across the U.S. Duke Energy retained control of these assets, and, therefore, no gain or loss was recognized on the Consolidated Statements of Operations. The difference between the consideration received and the carrying value of the noncontrolling interest claim on net assets is $466 million, net of tax benefit of $8 million, and was recorded to equity.
The following table presents cash received for the sale of noncontrolling interest and allocated losses to noncontrolling interest for the years ended December 31, 2020, and 2019.
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
Noncontrolling Interest Capital Contributions | | | |
Cash received for the sale of noncontrolling interest to tax equity members | $ | 426 | | | $ | 428 | |
Cash received for the sale of noncontrolling interest to pro rata share members | — | | | 415 | |
Total Noncontrolling Interest Capital Contributions | $ | 426 | | | $ | 843 | |
Noncontrolling Interest Allocation of Income | | | |
Allocated losses to noncontrolling tax equity members utilizing the HLBV method | $ | 271 | | | $ | 165 | |
Allocated losses to noncontrolling members based on pro rata shares of ownership | 24 | | | 12 | |
Total Noncontrolling Interest Allocated Losses | $ | 295 | | | $ | 177 | |
2021 Sale of Minority Interest in Duke Energy Indiana
In January 2021, Duke Energy entered into a definitive agreement providing for the sale of a 19.9% minority interest in Duke Energy Indiana with an affiliate of GIC, Singapore's sovereign wealth fund and an experienced investor in U.S. infrastructure. To facilitate the transaction, Duke Energy will issue and sell membership interests in Duke Energy Indiana Holdco, LLC. a newly created holding company that will own 100% of the issued and outstanding membership interests in Duke Energy Indiana. The transaction will be completed following two closings for an aggregate purchase price of approximately $2 billion. The first closing is expected to be completed in the second quarter of 2021 and Duke Energy will issue and sell 11.1% of the membership interests in exchange for 50% of the purchase price. Under the terms of the agreement, Duke Energy has the discretion to determine the timing of the second closing, but it will occur no later than January 2023. At the second closing, Duke Energy will issue and sell additional membership interests such that GIC will own 19.9% of the membership interests for the remaining 50% of the purchase price. Duke Energy will continue to operate and retain control of Duke Energy Indiana and, therefore, no gain or loss is expected to be recognized in the Consolidated Statements of Operations. Additionally, the transaction will be reflected within Duke Energy Corporations' stockholders' equity as a sale of a noncontrolling interest.
Acquisitions
The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date and include earnings from acquisitions in consolidated earnings after the purchase date.
Significant Accounting Policies
Use of Estimates
In preparing financial statements that conform to GAAP, the Duke Energy Registrants must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Regulatory Accounting
The majority of the Duke Energy Registrants’ operations are subject to price regulation for the sale of electricity and natural gas by state utility commissions or FERC. When prices are set on the basis of specific costs of the regulated operations and an effective franchise is in place such that sufficient natural gas or electric services can be sold to recover those costs, the Duke Energy Registrants apply regulatory accounting. Regulatory accounting changes the timing of the recognition of costs or revenues relative to a company that does not apply regulatory accounting. As a result, 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. Regulatory assets are reviewed for recoverability each reporting period. If a regulatory asset is no longer deemed probable of recovery, the deferred cost is charged to earnings. See Note 3 for further information.
Regulatory accounting rules also require recognition of a disallowance (also called "impairment") loss if it becomes probable that part of the cost of a plant under construction (or a recently completed plant or an abandoned plant) will be disallowed for ratemaking purposes and a reasonable estimate of the amount of the disallowance can be made. For example, if a cost cap is set for a plant still under construction, the amount of the disallowance is a result of a judgment as to the ultimate cost of the plant. These disallowances can require judgments on allowed future rate recovery.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 charge for a disallowance of costs for regulated plants under construction, recently completed or abandoned is based on discounted cash flows.
The Duke Energy Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses or PGA clauses. 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 Operating Revenues, Operating Expenses – Fuel used in electric generation or Operating Expenses – Cost of natural gas on the Consolidated Statements of Operations, with an off-setting impact on regulatory assets or liabilities.
Cash, Cash Equivalents and Restricted Cash
All highly liquid investments with maturities of three months or less at the date of acquisition are considered cash equivalents. Duke Energy, Progress Energy and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and VIEs. See Note 17 for additional information. Restricted cash amounts are included in Other within Current Assets and Other Noncurrent Assets on the Consolidated Balance Sheets. The following table presents the components of cash, cash equivalents and restricted cash included in the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | Duke | | | | Duke |
| Duke | Progress | Energy | | Duke | Progress | Energy |
| Energy | Energy | Florida | | Energy | Energy | Florida |
Current Assets | | | | | | | |
Cash and cash equivalents | $ | 259 | | $ | 59 | | $ | 11 | | | $ | 311 | | $ | 48 | | $ | 17 | |
Other | 194 | | 39 | | 39 | | | 222 | | 39 | | 39 | |
Other Noncurrent Assets | | | | | | | |
Other | 103 | | 102 | | — | | | 40 | | 39 | | — | |
Total cash, cash equivalents and restricted cash | $ | 556 | | $ | 200 | | $ | 50 | | | $ | 573 | | $ | 126 | | $ | 56 | |
| | | | | | | |
Inventory
Inventory related to regulated operations is valued at historical cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Inventory is charged to expense or capitalized to property, plant and equipment when issued, primarily using the average cost method. Excess or obsolete inventory is written down to the lower of cost or net realizable value. Once inventory has been written down, it creates a new cost basis for the inventory that is not subsequently written up. Provisions for inventory write-offs were not material at December 31, 2020, and 2019, respectively. The components of inventory are presented in the tables below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | 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 | $ | 2,312 | | | $ | 785 | | | $ | 999 | | | $ | 673 | | | $ | 325 | | | $ | 78 | | | $ | 307 | | | $ | 12 | |
Coal | 561 | | | 186 | | | 193 | | | 131 | | | 63 | | | 16 | | | 165 | | | — | |
Natural gas, oil and other | 294 | | | 39 | | | 183 | | | 107 | | | 76 | | | 16 | | | 1 | | | 56 | |
Total inventory | $ | 3,167 | | | $ | 1,010 | | | $ | 1,375 | | | $ | 911 | | | $ | 464 | | | $ | 110 | | | $ | 473 | | | $ | 68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | 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 | $ | 2,297 | | | $ | 768 | | | $ | 1,038 | | | $ | 686 | | | $ | 351 | | | $ | 79 | | | $ | 318 | | | $ | 5 | |
Coal | 586 | | | 187 | | | 186 | | | 138 | | | 48 | | | 15 | | | 198 | | | — | |
Natural gas, oil and other | 349 | | | 41 | | | 199 | | | 110 | | | 90 | | | 41 | | | 1 | | | 67 | |
Total inventory | $ | 3,232 | | | $ | 996 | | | $ | 1,423 | | | $ | 934 | | | $ | 489 | | | $ | 135 | | | $ | 517 | | | $ | 72 | |
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Investments in Debt and Equity Securities
The Duke Energy Registrants classify investments in equity securities as FV-NI and investments in debt securities as AFS. Both categories are recorded at fair value on the Consolidated Balance Sheets. Realized and unrealized gains and losses on securities classified as FV-NI are reported through net income. Unrealized gains and losses for debt securities classified as AFS are included in AOCI until realized, unless it is determined the carrying value of an investment has a credit loss. For certain investments of regulated operations, such as substantially all of the NDTF, realized and unrealized gains and losses (including any credit losses) on debt securities are recorded as a regulatory asset or liability. The credit 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
Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont perform annual goodwill impairment tests as of August 31 each year at the reporting unit level, which is determined to be a business 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 fair value of a reporting unit below its carrying value. See Note 11 for further information.
Intangible Assets
Intangible assets are included in Other in Other Noncurrent Assets on the Consolidated Balance Sheets. Generally, intangible assets are amortized using an amortization method that reflects the pattern in which the economic benefits of the intangible asset are consumed or on a straight-line basis if that pattern is not readily determinable. Amortization of intangibles is reflected in Depreciation and amortization on the Consolidated Statements of Operations. Intangible assets are subject to impairment testing and if impaired, the carrying value is accordingly reduced.
RECs 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.
Equity Method Investment Impairments
Investments in affiliates that are not controlled by Duke Energy, but over which it has significant influence, are accounted for using the equity method. Equity method investments are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If the decline in value is considered to be other than temporary, the investment is written down to its estimated fair value, which establishes a new cost basis in the investment.
Impairment assessments use a discounted cash flow income approach and include consideration of the severity and duration of any decline in the fair value of the investments. The estimated cash flows may be based on alternative expected outcomes that are probability weighted. Key inputs that involve estimates and significant management judgment include cash flow projections, selection of a discount rate, probability weighting of potential outcomes, and whether any decline in value is considered temporary.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 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, |
| 2020 | | 2019 | | 2018 |
Duke Energy | 3.0 | % | | 3.1 | % | | 3.0 | % |
Duke Energy Carolinas | 2.8 | % | | 2.8 | % | | 2.8 | % |
Progress Energy | 3.2 | % | | 3.1 | % | | 2.9 | % |
Duke Energy Progress | 3.1 | % | | 3.1 | % | | 2.9 | % |
Duke Energy Florida | 3.3 | % | | 3.1 | % | | 3.0 | % |
Duke Energy Ohio | 2.9 | % | | 2.6 | % | | 2.8 | % |
Duke Energy Indiana | 3.5 | % | | 3.3 | % | | 3.3 | % |
Piedmont | 2.3 | % | | 2.4 | % | | 2.5 | % |
In general, when the Duke Energy Registrants retire regulated property, plant and equipment, the original cost plus the cost of retirement, less salvage value and any depreciation already recognized, 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). 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 extent the net book value of the asset 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 additional information.
Leases
Duke Energy determines if an arrangement is a lease at contract inception based on whether the arrangement involves the use of a physically distinct identified asset and whether Duke Energy has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period as well as the right to direct the use of the asset. As a policy election, Duke Energy does not evaluate arrangements with initial contract terms of less than one year as leases.
Operating leases are included in Operating lease ROU assets, net, Other current liabilities and Operating lease liabilities on the Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, Current maturities of long-term debt and Long-Term Debt on the Consolidated Balance Sheets.
For lessee and lessor arrangements, Duke Energy has elected a policy to not separate lease and non-lease components for all asset classes. For lessor arrangements, lease and non-lease components are only combined under one arrangement and accounted for under the lease accounting framework if the non-lease components are not the predominant component of the arrangement and the lease component would be classified as an operating lease.
Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the Consolidated Balance Sheets.
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.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
AFUDC equity, a permanent difference for income taxes, reduces the ETR when capitalized and increases the ETR when depreciated or amortized. See Note 23 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
AROs are recognized for legal obligations associated with the retirement of property, plant and equipment. Substantially all AROs are related to regulated operations. When recording an ARO, the present value of the projected liability is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The liability is accreted over time. For operating plants, the present value of the liability is added to the cost of the associated asset and depreciated over the remaining life of the asset. For retired plants, the present value of the liability is recorded as a regulatory asset unless determined not to be probable of recovery.
The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding timing of future cash flows, selection of discount rates and cost escalation rates, among other factors. These estimates are subject to change. Depreciation expense is adjusted prospectively for any changes to the carrying amount of the associated asset. The Duke Energy Registrants receive amounts to fund the cost of the ARO for regulated operations through a combination of regulated revenues and earnings on the NDTF. As a result, amounts recovered in regulated revenues, earnings on the NDTF, accretion expense and depreciation of the associated asset are netted and deferred as a regulatory asset or liability.
Accounts Payable
During 2020, Duke Energy established a supply chain finance program (the “program”) with a global financial institution. The program is voluntary and allows Duke Energy suppliers, at their sole discretion, to sell their receivables from Duke Energy to the financial institution at a rate that leverages Duke Energy’s credit rating and, which may result in favorable terms compared to the rate available to the supplier on their own credit rating. Suppliers participating in the program, determine at their sole discretion which invoices they will sell to the financial institution. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. The commercial terms negotiated between Duke Energy and its suppliers are consistent regardless of whether the supplier elects to participate in the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program.
At December 31, 2020, $15 million, $1 million and $14 million of the outstanding Accounts payable balance for Duke Energy, Duke Energy Ohio and Piedmont, respectively, was sold to the financial institution by our suppliers. Suppliers invoices sold to the financial institution under the program totaled $45 million, $9 million and $36 million for the year ended December 31, 2020, for Duke Energy, Duke Energy Ohio and Piedmont, respectively. All activity related to amounts due to suppliers who elected to participate in the program are included within Net cash provided by operating activities on the Consolidated Statements of Cash Flows.
Revenue Recognition
Duke Energy recognizes revenue as customers obtain control of promised goods and services in an amount that reflects consideration expected in exchange for those goods or services. Generally, the delivery of electricity and natural gas results in the transfer of control to customers at the time the commodity is delivered and the amount of revenue recognized is equal to the amount billed to each customer, including estimated volumes delivered when billings have not yet occurred. See Note 18 for further information.
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 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 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.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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.
Unamortized Debt Premium, Discount and Expense
Premiums, discounts and expenses incurred with the issuance of outstanding long-term debt are amortized over the term of the debt issue. The gain or loss on extinguishment associated with refinancing higher-cost debt obligations in the regulated operations is amortized over the remaining life of the original instrument. Amortization expense is recorded as Interest Expense in the Consolidated Statements of 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.
Preferred Stock
Preferred stock is reviewed to determine the appropriate balance sheet classification and embedded features, such as call options, are evaluated to determine if they should be bifurcated and accounted for separately. Costs directly related to the issuance of preferred stock is recorded as a reduction of the proceeds received. The liability for involuntary severancethe dividend is recognized when declared. The accumulated dividends on the cumulative preferred stock is recognized to net income available to Duke Energy Corporation in the EPS calculation. See Note 19 for further information.
Loss Contingencies and Environmental Liabilities
Contingent losses are recorded oncewhen 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 involuntary severance plan is committed to by management if involuntary severances areundiscounted basis when environmental remediation or other liabilities become probable and can be reasonably estimated. For involuntary severance benefits incrementalEnvironmental expenditures related to its ongoing severance plan benefits, the fair value of the obligation ispast operations that do not generate current or future revenues are expensed. Environmental expenditures related to operations that generate current or future revenues are expensed at the communication date if there are no future service requirements or over the required future service period. Duke Energy also offers special termination benefits under voluntary severance programs. Special termination benefitscapitalized, as appropriate. Certain environmental expenditures receive regulatory accounting treatment and 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 factsas regulatory assets.
See Notes 3 and circumstances of the benefits being offered. See Note 204 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 systematicPension 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 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 21 for further information.
Income TaxesOther Post-Retirement Benefit Plans
Duke Energy and its subsidiaries file a consolidated federal income tax returnmaintains qualified, non-qualified and other statepost-retirement benefit plans. Eligible employees of the Subsidiary Registrants participate in the respective qualified, non-qualified and foreign jurisdictional returns. Theother post-retirement benefit plans and the Subsidiary Registrants are parties to a tax-sharing agreement with Duke Energy. Income taxes recorded represent amounts the Subsidiary Registrants would incur as separate C-Corporations. Deferred income taxes have been providedallocated their proportionate share of benefit costs. See Note 22 for temporary differences between GAAP and tax bases of assets and liabilities because the differences create taxable or tax-deductible amounts for future periods. ITCsfurther information, including significant accounting policies associated with regulated operations are deferred and amortized as a reduction of income tax expense over the estimated useful lives of the related properties.these plans.
Accumulated deferred income taxes are valued using the enacted tax rate expected to apply to taxable income in the periods in which the 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. 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.
Tax-related interest and penalties are recorded in Interest Expense and Other Income and Expenses, net in the Consolidated Statements of Operations.
See Note 23 for further information.
Accounting for Renewable Energy Tax Credits
When Duke Energy receives ITCs on wind or solar facilities, it reduces the basis of the property recorded on the 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 ITC. Deferred tax benefits are recorded as a reduction to income tax expense in the period that the basis difference is created.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Excise Taxes
Certain excise taxes levied by state or local governments are required to be paid even if not collected from the customer. These taxes are recognized on a gross basis. Otherwise, the taxes are accounted for net. Excise taxes accounted for on a gross basis within both Operating Revenues and Property and other taxes in the Consolidated Statements of Operations were as follows. |
| | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2018 |
| | 2017 |
| | 2016 |
|
Duke Energy | $ | 405 |
| | $ | 376 |
| | $ | 362 |
|
Duke Energy Carolinas | 35 |
| | 36 |
| | 31 |
|
Progress Energy | 241 |
| | 220 |
| | 213 |
|
Duke Energy Progress | 19 |
| | 19 |
| | 18 |
|
Duke Energy Florida | 222 |
| | 201 |
| | 195 |
|
Duke Energy Ohio | 105 |
| | 98 |
| | 100 |
|
Duke Energy Indiana | 22 |
| | 20 |
| | 17 |
|
Piedmont(a) | 2 |
| | 2 |
| | |
| |
(a) | Piedmont's excise taxes were immaterial for the two months ended December 31, 2016, and $2 million for the year ended October 31, 2016. |
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, 2018, and 2017, an insignificant amount of Duke Energy’s consolidated Retained earnings balance represents undistributed earnings of equity method investments.
New Accounting Standards
TheSee Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” for a discussion of the impact of new accounting standards adopted for 2018standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See “Management’s Discussion and 2017 had no material impact on the presentation or resultsAnalysis of operations, cash flows or financial positionResults of the Duke Energy Registrants. The following accounting standards were adopted by the Duke Energy Registrants during 2018.
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 expected in exchange for those goods or services. The amendments also required disclosure of sufficient information to allow users to understand the nature, amount, timingOperations and uncertainty of revenueFinancial Condition – Quantitative and cash flows arising from contracts with customers. The majority of Duke Energy’s revenue is in scope of the new guidance. Other revenue arrangements, such as alternative revenue programs and certain PPAs and lighting agreements accounted for as leases, are excluded from the scope of this guidance and, therefore, are accounted for and evaluated for separate presentation and disclosure under other relevant accounting guidance.
Duke Energy elected the modified retrospective method of adoption effective January 1, 2018. Under the modified retrospective method of adoption, prior year reported results are not restated. Adoption of this standard did not result in a material change in the timing or pattern of revenue recognition and a cumulative-effect adjustment was not recorded at January 1, 2018. Duke Energy utilized certain practical expedients including applying this guidance to open contracts at the date of adoption, expensing costs to obtain a contract where the amortization period of the asset would have been one year or less, ignoring the effects of a significant financing when the period between transfer of the good or service and payment is one year or less and recognizing revenues for certain contracts under the invoice practical expedient, which allows revenue recognition to be consistent with invoiced amounts (including unbilled estimates) provided certain criteria are met, including consideration of whether the invoiced amounts reasonably represent the value provided to customers.
In preparation for adoption, Duke Energy identified material revenue streams and reviewed representative contracts and tariffs, including those associated with certain long-term customer contracts such as wholesale contracts, PPAs and other customer arrangements. Duke Energy also monitored the activities of the power and utilities industry revenue recognition task force and has reviewed published positions on specific industry issues to evaluate the impact, if any, on Duke Energy’s specific contracts and conclusions. Duke Energy applied the available practical expedient to portfolios of tariffs and contracts with similar characteristics. The vast majority of sales, including energy provided to retail customers, are from tariff offerings that provide natural gas or electricity without a defined contractual term ("at-will"). In most circumstances, revenue from contracts with customers is equivalent to the electricity or natural gas supplied and billed in that period (including unbilled estimates). As such, adoption of the new rules did not result in a shift in the timing or pattern of revenue recognition for such sales. While there have been changes to the captions and descriptions of revenues in Duke Energy’s financial statements, the most significant impact as a result of adopting the standard are additional disclosures around the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers. See Note 18 for further information.
Qualitative Disclosures About Market Risk.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | | | | | |
Duke Energy | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations | |
Consolidated Statements of Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Duke Energy Carolinas | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Progress Energy | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Duke Energy Progress | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Duke Energy Florida | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Duke Energy Ohio | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Duke Energy Indiana | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Piedmont | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| | | | | |
| |
Combined Notes to Consolidated Financial Statements | |
Note 1 – Summary of Significant Accounting Policies | |
| |
Note 2 – Business Segments | |
Note 3 – Regulatory Matters | |
Note 4 – Commitments and Contingencies | |
Note 5 – Leases | |
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 – Revenue | |
Note 19 – Stockholders' Equity | |
Note 20 – Severance | |
Note 21 – Stock-Based Compensation | |
Note 22 – Employee Benefit Plans | |
Note 23 – Income Taxes | |
Note 24 – Other Income and Expenses, Net | |
Note 25 – Subsequent Events | |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Duke Energy Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Corporation and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, 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 25, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to regulation by federal and state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s electric and natural gas distribution companies. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $14 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | | | | | |
Regulated electric | $ | 21,461 | | | $ | 22,615 | | | $ | 22,097 | |
Regulated natural gas | 1,642 | | | 1,759 | | | 1,773 | |
Nonregulated electric and other | 765 | | | 705 | | | 651 | |
Total operating revenues | 23,868 | | | 25,079 | | | 24,521 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 6,051 | | | 6,826 | | | 6,831 | |
Cost of natural gas | 460 | | | 627 | | | 697 | |
Operation, maintenance and other | 5,788 | | | 6,066 | | | 6,463 | |
Depreciation and amortization | 4,705 | | | 4,548 | | | 4,074 | |
Property and other taxes | 1,337 | | | 1,307 | | | 1,280 | |
Impairment charges | 984 | | | (8) | | | 402 | |
Total operating expenses | 19,325 | | | 19,366 | | | 19,747 | |
Gains (Losses) on Sales of Other Assets and Other, net | 10 | | | (4) | | | (89) | |
Operating Income | 4,553 | | | 5,709 | | | 4,685 | |
Other Income and Expenses | | | | | |
Equity in (losses) earnings of unconsolidated affiliates | (2,005) | | | 162 | | | 83 | |
| | | | | |
Other income and expenses, net | 453 | | | 430 | | | 399 | |
Total other income and expenses | (1,552) | | | 592 | | | 482 | |
Interest Expense | 2,162 | | | 2,204 | | | 2,094 | |
Income From Continuing Operations Before Income Taxes | 839 | | | 4,097 | | | 3,073 | |
Income Tax (Benefit) Expense From Continuing Operations | (236) | | | 519 | | | 448 | |
Income From Continuing Operations | 1,075 | | | 3,578 | | | 2,625 | |
Income (Loss) From Discontinued Operations, net of tax | 7 | | | (7) | | | 19 | |
Net Income | 1,082 | | | 3,571 | | | 2,644 | |
Add: Net Loss Attributable to Noncontrolling Interests | 295 | | | 177 | | | 22 | |
Net Income Attributable to Duke Energy Corporation | 1,377 | | | 3,748 | | | 2,666 | |
Less: Preferred Dividends | 107 | | | 41 | | | — | |
Net Income Available to Duke Energy Corporation Common Stockholders | $ | 1,270 | | | $ | 3,707 | | | $ | 2,666 | |
| | | | | |
Earnings Per Share – Basic and Diluted | | | | | |
Income from continuing operations available to Duke Energy Corporation common stockholders | | | | | |
Basic and Diluted | $ | 1.71 | | | $ | 5.07 | | | $ | 3.73 | |
| | | | | |
Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | |
Basic and Diluted | $ | 0.01 | | | $ | (0.01) | | | $ | 0.03 | |
| | | | | |
Net income available to Duke Energy Corporation common stockholders | | | | | |
Basic and Diluted | $ | 1.72 | | | $ | 5.06 | | | $ | 3.76 | |
| | | | | |
Weighted average shares outstanding | | | | | |
Basic | 737 | | | 729 | | | 708 | |
Diluted | 738 | | | 729 | | | 708 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
Net Income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
Other Comprehensive (Loss) Income, net of tax(a) | | | | | |
| | | | | |
Pension and OPEB adjustments | 6 | | | 9 | | | (6) | |
Net unrealized losses on cash flow hedges | (138) | | | (47) | | | (10) | |
Reclassification into earnings from cash flow hedges | 11 | | | 6 | | | 6 | |
Unrealized gains (losses) on available-for-sale securities | 3 | | | 8 | | | (3) | |
| | | | | |
Other Comprehensive Loss, net of tax | (118) | | | (24) | | | (13) | |
Comprehensive Income | 964 | | | 3,547 | | | 2,631 | |
Add: Comprehensive Loss Attributable to Noncontrolling Interests | 306 | | | 177 | | | 22 | |
Comprehensive Income Attributable to Duke Energy Corporation | 1,270 | | | 3,724 | | | 2,653 | |
Less: Preferred Dividends | 107 | | | 41 | | | — | |
Comprehensive Income Available to Duke Energy Corporation Common Stockholders | $ | 1,163 | | | $ | 3,683 | | | $ | 2,653 | |
(a) Net of income tax impacts of approximately $35 million for the year ended December 31, 2020. Tax impacts are immaterial for other periods presented.
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 259 | | | $ | 311 | |
| | | |
Receivables (net of allowance for doubtful accounts of $29 at 2020 and $22 at 2019) | 1,009 | | | 1,066 | |
Receivables of VIEs (net of allowance for doubtful accounts of $117 at 2020 and $54 at 2019) | 2,144 | | | 1,994 | |
Inventory | 3,167 | | | 3,232 | |
| | | |
Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 1,641 | | | 1,796 | |
Other (includes $296 at 2020 and $242 at 2019 related to VIEs) | 462 | | | 764 | |
Total current assets | 8,682 | | | 9,163 | |
Property, Plant and Equipment | | | |
Cost | 155,580 | | | 147,654 | |
Accumulated depreciation and amortization | (48,827) | | | (45,773) | |
Generation facilities to be retired, net | 29 | | | 246 | |
Net property, plant and equipment | 106,782 | | | 102,127 | |
Other Noncurrent Assets | | | |
Goodwill | 19,303 | | | 19,303 | |
Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 12,421 | | | 13,222 | |
Nuclear decommissioning trust funds | 9,114 | | | 8,140 | |
Operating lease right-of-use assets, net | 1,524 | | | 1,658 | |
Investments in equity method unconsolidated affiliates | 961 | | | 1,936 | |
| | | |
Other (includes $81 at 2020 and $110 at 2019 related to VIEs) | 3,601 | | | 3,289 | |
Total other noncurrent assets | 46,924 | | | 47,548 | |
Total Assets | $ | 162,388 | | | $ | 158,838 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 3,144 | | | $ | 3,487 | |
Notes payable and commercial paper | 2,873 | | | 3,135 | |
Taxes accrued | 482 | | | 392 | |
Interest accrued | 537 | | | 565 | |
Current maturities of long-term debt (includes $472 at 2020 and $216 at 2019 related to VIEs) | 4,238 | | | 3,141 | |
| | | |
Asset retirement obligations | 718 | | | 881 | |
Regulatory liabilities | 1,377 | | | 784 | |
Other | 2,936 | | | 2,367 | |
Total current liabilities | 16,305 | | | 14,752 | |
Long-Term Debt (includes $3,535 at 2020 and $3,997 at 2019 related to VIEs) | 55,625 | | | 54,985 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 9,244 | | | 8,878 | |
Asset retirement obligations | 12,286 | | | 12,437 | |
Regulatory liabilities | 15,029 | | | 15,264 | |
Operating lease liabilities | 1,340 | | | 1,432 | |
Accrued pension and other post-retirement benefit costs | 969 | | | 934 | |
Investment tax credits | 687 | | | 624 | |
| | | |
Other (includes $316 at 2020 and $228 at 2019 related to VIEs) | 1,719 | | | 1,581 | |
Total other noncurrent liabilities | 41,274 | | | 41,150 | |
Commitments and Contingencies | 0 | | 0 |
| | | |
Equity | | | |
Preferred stock, Series A, $0.001 par value, 40 million depositary shares authorized and outstanding at 2020 and 2019 | 973 | | | 973 | |
Preferred stock, Series B, $0.001 par value, 1 million shares authorized and outstanding at 2020 and 2019 | 989 | | | 989 | |
Common stock, $0.001 par value, 2 billion shares authorized; 769 million shares outstanding at 2020 and 733 million shares outstanding at 2019 | 1 | | | 1 | |
Additional paid-in capital | 43,767 | | | 40,881 | |
Retained earnings | 2,471 | | | 4,108 | |
Accumulated other comprehensive loss | (237) | | | (130) | |
Total Duke Energy Corporation stockholders' equity | 47,964 | | | 46,822 | |
Noncontrolling interests | 1,220 | | | 1,129 | |
Total equity | 49,184 | | | 47,951 | |
Total Liabilities and Equity | $ | 162,388 | | | $ | 158,838 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion (including amortization of nuclear fuel) | 5,486 | | | 5,176 | | | 4,696 | |
Equity in losses (earnings) of unconsolidated affiliates | 2,005 | | | (162) | | | (83) | |
Equity component of AFUDC | (154) | | | (139) | | | (221) | |
| | | | | |
| | | | | |
| | | | | |
(Gains) Losses on sales of other assets | (10) | | | 4 | | | 88 | |
Impairment charges | 984 | | | (8) | | | 402 | |
Deferred income taxes | 54 | | | 806 | | | 1,079 | |
| | | | | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (610) | | | (746) | | | (533) | |
Payment for the disposal of other assets | — | | | — | | | (105) | |
| | | | | |
Provision for rate refunds | (22) | | | 60 | | | 425 | |
Refund of AMT credit carryforwards | 572 | | | 573 | | | — | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | 63 | | | (48) | | | 22 | |
Receivables | (56) | | | 78 | | | (345) | |
Inventory | 66 | | | (122) | | | 156 | |
Other current assets | 205 | | | 10 | | | (721) | |
Increase (decrease) in | | | | | |
Accounts payable | (21) | | | (164) | | | 479 | |
Taxes accrued | 117 | | | (224) | | | 23 | |
Other current liabilities | (65) | | | 172 | | | 270 | |
Other assets | (398) | | | (559) | | | (1,062) | |
Other liabilities | (442) | | | (69) | | | (28) | |
Net cash provided by operating activities | 8,856 | | | 8,209 | | | 7,186 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (9,907) | | | (11,122) | | | (9,389) | |
Contributions to equity method investments | (370) | | | (324) | | | (416) | |
| | | | | |
Return of investment capital | 133 | | | 11 | | | 137 | |
Purchases of debt and equity securities | (8,011) | | | (3,348) | | | (3,762) | |
Proceeds from sales and maturities of debt and equity securities | 7,949 | | | 3,343 | | | 3,747 | |
| | | | | |
| | | | | |
Other | (398) | | | (517) | | | (377) | |
Net cash used in investing activities | (10,604) | | | (11,957) | | | (10,060) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the: | | | | | |
Issuance of long-term debt | 6,330 | | | 7,091 | | | 5,299 | |
Issuance of preferred stock | — | | | 1,962 | | | — | |
Issuance of common stock | 2,745 | | | 384 | | | 1,838 | |
| | | | | |
Payments for the redemption of long-term debt | (4,506) | | | (3,476) | | | (2,906) | |
Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 3,009 | | | 397 | | | 472 | |
Payments for the redemption of short-term debt with original maturities greater than 90 days | (2,147) | | | (479) | | | (282) | |
Notes payable and commercial paper | (1,181) | | | (298) | | | 981 | |
| | | | | |
Contributions from noncontrolling interests | 426 | | | 843 | | | 41 | |
Dividends paid | (2,812) | | | (2,668) | | | (2,471) | |
| | | | | |
Other | (133) | | | (26) | | | (12) | |
Net cash provided by financing activities | 1,731 | | | 3,730 | | | 2,960 | |
| | | | | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | (17) | | | (18) | | | 86 | |
Cash, cash equivalents, and restricted cash at beginning of period | 573 | | | 591 | | | 505 | |
Cash, cash equivalents, and restricted cash at end of period | $ | 556 | | | $ | 573 | | | $ | 591 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 2,186 | | | $ | 2,195 | | | $ | 2,086 | |
Cash received from income taxes | (585) | | | (651) | | | (266) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 1,116 | | | 1,356 | | | 1,112 | |
Non-cash dividends | 110 | | | 108 | | | 107 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Duke Energy Corporation Stockholders' Accumulated Other Comprehensive Income (Loss) | | | | | | |
| | | | | | | | | | | | | | Net Unrealized | | | | Total | | | | |
| | | | | | | | | | | | Net | | Gains (Losses) | | | | Duke Energy | | | | |
| | Common | | | | Additional | | | | | | Losses on | | on Available- | | Pension and | | Corporation | | | | |
| Preferred | Stock | | Common | | Paid-in | | Retained | | | | Cash Flow | | for-Sale- | | OPEB | | Stockholders' | | Noncontrolling | | Total |
(in millions) | Stock | Shares | | Stock | | Capital | | Earnings | | | | Hedges | | Securities | | Adjustments | | Equity | | Interests | | Equity |
Balance at December 31, 2017 | $ | — | | 700 | | | $ | 1 | | | $ | 38,792 | | | $ | 3,013 | | | | | $ | (10) | | | $ | 12 | | | $ | (69) | | | $ | 41,739 | | | $ | (2) | | | $ | 41,737 | |
Net income | — | | — | | | — | | | — | | | 2,666 | | | | | — | | | — | | | — | | | 2,666 | | | (22) | | | 2,644 | |
Other comprehensive loss | — | | — | | | — | | | — | | | — | | | | | (4) | | | (3) | | | (6) | | | (13) | | | — | | | (13) | |
Common stock issuances, including dividend reinvestment and employee benefits | — | | 27 | | | — | | | 2,003 | | | — | | | | | — | | | — | | | — | | | 2,003 | | | — | | | 2,003 | |
| | | | | | | | | | | | | | | | | | | | | | |
Common stock dividends | — | | — | | | — | | | — | | | (2,578) | | | | | — | | | — | | | — | | | (2,578) | | | — | | | (2,578) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Other(a) | — | | — | | | — | | | — | | | 12 | | | | | — | | | (12) | | | — | | | — | | | 42 | | | 42 | |
Balance at December 31, 2018 | $ | — | | 727 | | | $ | 1 | | | $ | 40,795 | | | $ | 3,113 | | | | | $ | (14) | | | $ | (3) | | | $ | (75) | | | $ | 43,817 | | | $ | 17 | | | $ | 43,834 | |
Net income | — | | — | | | — | | | — | | | 3,707 | | | | | — | | | — | | | — | | | 3,707 | | | (177) | | | 3,530 | |
Other comprehensive (loss) Income | — | | — | | | — | | | — | | | — | | | | | (41) | | | 8 | | | 9 | | | (24) | | | — | | | (24) | |
Preferred stock, Series A, issuances, net of issuance costs(b) | 973 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 973 | | | — | | | 973 | |
Preferred stock, Series B, issuances, net of issuance costs(b) | 989 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 989 | | | — | | | 989 | |
Common stock issuances, including dividend reinvestment and employee benefits | — | | 6 | | | — | | | 552 | | | — | | | | | — | | | — | | | — | | | 552 | | | — | | | 552 | |
| | | | | | | | | | | | | | | | | | | | | | |
Common stock dividends | — | | — | | | — | | | — | | | (2,735) | | | | | — | | | — | | | — | | | (2,735) | | | — | | | (2,735) | |
Sale of noncontrolling interest(c) | — | | — | | | — | | | (466) | | | — | | | | | 10 | | | — | | | — | | | (456) | | | 863 | | | 407 | |
Contribution from noncontrolling interest (f) | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 428 | | | 428 | |
Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (4) | | | (4) | |
Other(d) | — | | — | | | — | | | — | | | 23 | | | | | (6) | | | (2) | | | (16) | | | (1) | | | 2 | | | 1 | |
Balance at December 31, 2019 | $ | 1,962 | | 733 | | | $ | 1 | | | $ | 40,881 | | | $ | 4,108 | | | | | $ | (51) | | | $ | 3 | | | $ | (82) | | | $ | 46,822 | | | $ | 1,129 | | | $ | 47,951 | |
Net income | — | | — | | | — | | | — | | | 1,270 | | | | | — | | | — | | | — | | | 1,270 | | | (295) | | | 975 | |
Other comprehensive (loss) income | — | | — | | | — | | | — | | | — | | | | | (116) | | | 3 | | | 6 | | | (107) | | | (11) | | | (118) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Common stock issuances, including dividend reinvestment and employee benefits | — | | 36 | | | — | | | 2,902 | | | — | | | | | — | | | — | | | — | | | 2,902 | | | — | | | 2,902 | |
| | | | | | | | | | | | | | | | | | | | | | |
Common stock dividends | — | | — | | | — | | | — | | | (2,815) | | | | | — | | | — | | | — | | | (2,815) | | | — | | | (2,815) | |
| | | | | | | | | | | | | | | | | | | | | | |
Contribution from noncontrolling interest, net of transaction costs(f) | — | | — | | | — | | | (17) | | | — | | | | | — | | | — | | | — | | | (17) | | | 426 | | | 409 | |
Distributions to noncontrolling interests in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (30) | | | (30) | |
Other(e) | — | | — | | | — | | | 1 | | | (92) | | | | | — | | | — | | | — | | | (91) | | | 1 | | | (90) | |
Balance at December 31, 2020 | $ | 1,962 | | 769 | | | $ | 1 | | | $ | 43,767 | | | $ | 2,471 | | | | | $ | (167) | | | $ | 6 | | | $ | (76) | | | $ | 47,964 | | | $ | 1,220 | | | $ | 49,184 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information. Amount in Noncontrolling Interests primarily relates to tax equity financing activity in the Commercial Renewables segment.
(b) Duke Energy issued 40 million depositary shares of preferred stock, Series A, in the first quarter of 2019 and 1 million shares of preferred stock, Series B, in the third quarter of 2019.
(c) See Note 1 for additional discussion of the transaction.
(d) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
(e) Amounts in Retained earnings primarily represent impacts due to implementation of a new accounting standard related to Current Estimated Credit Losses. See Note 1 for additional discussion.
(f) Relates to tax equity financing activity in the Commercial Renewables segment.
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $3.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | $ | 7,015 | | | $ | 7,395 | | | $ | 7,300 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 1,682 | | | 1,804 | | | 1,821 | |
Operation, maintenance and other | 1,743 | | | 1,868 | | | 2,130 | |
Depreciation and amortization | 1,462 | | | 1,388 | | | 1,201 | |
Property and other taxes | 299 | | | 292 | | | 295 | |
Impairment charges | 476 | | | 17 | | | 192 | |
Total operating expenses | 5,662 | | | 5,369 | | | 5,639 | |
Gains (Losses) on Sales of Other Assets and Other, net | 1 | | | — | | | (1) | |
Operating Income | 1,354 | | | 2,026 | | | 1,660 | |
Other Income and Expenses, net | 177 | | | 151 | | | 153 | |
Interest Expense | 487 | | | 463 | | | 439 | |
Income Before Income Taxes | 1,044 | | | 1,714 | | | 1,374 | |
Income Tax Expense | 88 | | | 311 | | | 303 | |
Net Income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
Other Comprehensive Income, net of tax | | | | | |
Reclassification into earnings from cash flow hedges | — | | | — | | | 1 | |
| | | | | |
Other Comprehensive Income, net of tax | — | | | — | | | 1 | |
Comprehensive Income | $ | 956 | | | $ | 1,403 | | | $ | 1,072 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2020 | | 2019 |
ASSETS | | | | |
Current Assets | | | | |
Cash and cash equivalents | | $ | 21 | | | $ | 18 | |
Receivables (net of allowance for doubtful accounts of $1 at 2020 and $3 at 2019) | | 247 | | | 324 | |
Receivables of VIEs (net of allowance for doubtful accounts of $22 at 2020 and $7 at 2019) | | 696 | | | 642 | |
Receivables from affiliated companies | | 124 | | | 114 | |
| | | | |
Inventory | | 1,010 | | | 996 | |
Regulatory assets | | 473 | | | 550 | |
Other | | 20 | | | 21 | |
Total current assets | | 2,591 | | | 2,665 | |
Property, Plant and Equipment | | | | |
Cost | | 50,640 | | | 48,922 | |
Accumulated depreciation and amortization | | (17,453) | | | (16,525) | |
| | | | |
Net property, plant and equipment | | 33,187 | | | 32,397 | |
Other Noncurrent Assets | | | | |
| | | | |
Regulatory assets | | 2,996 | | | 3,360 | |
Nuclear decommissioning trust funds | | 4,977 | | | 4,359 | |
Operating lease right-of-use assets, net | | 110 | | | 123 | |
Other | | 1,187 | | | 1,149 | |
Total other noncurrent assets | | 9,270 | | | 8,991 | |
Total Assets | | $ | 45,048 | | | $ | 44,053 | |
LIABILITIES AND EQUITY | | | | |
Current Liabilities | | | | |
Accounts payable | | $ | 1,000 | | | $ | 954 | |
Accounts payable to affiliated companies | | 199 | | | 210 | |
Notes payable to affiliated companies | | 506 | | | 29 | |
Taxes accrued | | 76 | | | 46 | |
Interest accrued | | 117 | | | 115 | |
Current maturities of long-term debt | | 506 | | | 458 | |
Asset retirement obligations | | 264 | | | 206 | |
Regulatory liabilities | | 473 | | | 255 | |
Other | | 546 | | | 611 | |
Total current liabilities | | 3,687 | | | 2,884 | |
Long-Term Debt | | 11,412 | | | 11,142 | |
Long-Term Debt Payable to Affiliated Companies | | 300 | | | 300 | |
Other Noncurrent Liabilities | | | | |
Deferred income taxes | | 3,842 | | | 3,921 | |
Asset retirement obligations | | 5,086 | | | 5,528 | |
Regulatory liabilities | | 6,535 | | | 6,423 | |
Operating lease liabilities | | 97 | | | 102 | |
Accrued pension and other post-retirement benefit costs | | 73 | | | 84 | |
Investment tax credits | | 236 | | | 231 | |
Other | | 626 | | | 627 | |
Total other noncurrent liabilities | | 16,495 | | | 16,916 | |
Commitments and Contingencies | | 0 | | 0 |
Equity | | | | |
Member's equity | | 13,161 | | | 12,818 | |
Accumulated other comprehensive loss | | (7) | | | (7) | |
Total equity | | 13,154 | | | 12,811 | |
Total Liabilities and Equity | | $ | 45,048 | | | $ | 44,053 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization (including amortization of nuclear fuel) | 1,731 | | | 1,671 | | | 1,487 | |
Equity component of AFUDC | (62) | | | (42) | | | (73) | |
| | | | | |
| | | | | |
| | | | | |
(Gains) Losses on sales of other assets | (1) | | | — | | | 1 | |
Impairment charges | 476 | | | 17 | | | 192 | |
Deferred income taxes | (260) | | | 133 | | | 305 | |
| | | | | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (162) | | | (278) | | | (230) | |
Provision for rate refunds | (5) | | | 36 | | | 182 | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | (4) | | | (8) | | | 2 | |
Receivables | 52 | | | (21) | | | (86) | |
Receivables from affiliated companies | (10) | | | 68 | | | (87) | |
Inventory | (14) | | | (48) | | | 25 | |
Other current assets | 209 | | | (73) | | | (161) | |
Increase (decrease) in | | | | | |
Accounts payable | 55 | | | (50) | | | 168 | |
Accounts payable to affiliated companies | (11) | | | (20) | | | 21 | |
Taxes accrued | 30 | | | (127) | | | (65) | |
Other current liabilities | (56) | | | 127 | | | 89 | |
Other assets | (101) | | | (42) | | | (221) | |
Other liabilities | (47) | | | (37) | | | (90) | |
Net cash provided by operating activities | 2,776 | | | 2,709 | | | 2,530 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (2,669) | | | (2,714) | | | (2,706) | |
Purchases of debt and equity securities | (1,602) | | | (1,658) | | | (1,810) | |
Proceeds from sales and maturities of debt and equity securities | 1,602 | | | 1,658 | | | 1,810 | |
| | | | | |
| | | | | |
Other | (164) | | | (204) | | | (147) | |
Net cash used in investing activities | (2,833) | | | (2,918) | | | (2,853) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 998 | | | 886 | | | 1,983 | |
Payments for the redemption of long-term debt | (813) | | | (6) | | | (1,205) | |
Notes payable to affiliated companies | 477 | | | (410) | | | 335 | |
Distributions to parent | (600) | | | (275) | | | (750) | |
Other | (2) | | | (1) | | | (23) | |
Net cash provided by financing activities | 60 | | | 194 | | | 340 | |
Net increase (decrease) in cash and cash equivalents | 3 | | | (15) | | | 17 | |
Cash and cash equivalents at beginning of period | 18 | | | 33 | | | 16 | |
Cash and cash equivalents at end of period | $ | 21 | | | $ | 18 | | | $ | 33 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 481 | | | $ | 433 | | | $ | 452 | |
Cash paid for income taxes | 321 | | | 122 | | | 89 | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 365 | | | 347 | | | 302 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | Accumulated Other | | |
| | | Comprehensive | | |
| | | Loss | | | | |
| | | Net Gains | | | | |
| | | (Losses) on | | | | |
| Member's | | Cash Flow | | | | Total |
(in millions) | Equity | | Hedges | | | | Equity |
Balance at December 31, 2017 | $ | 11,368 | | | $ | (7) | | | | | $ | 11,361 | |
Net income | 1,071 | | | — | | | | | 1,071 | |
Other comprehensive income | — | | | 1 | | | | | 1 | |
Distributions to parent | (750) | | | — | | | | | (750) | |
| | | | | | | |
Balance at December 31, 2018 | $ | 11,689 | | | $ | (6) | | | | | $ | 11,683 | |
Net income | 1,403 | | | — | | | | | 1,403 | |
| | | | | | | |
Distributions to parent | (275) | | | — | | | | | (275) | |
Other | 1 | | | (1) | | | | | 0 | |
Balance at December 31, 2019 | $ | 12,818 | | | $ | (7) | | | | | $ | 12,811 | |
Net income | 956 | | | — | | | | | 956 | |
| | | | | | | |
Distributions to parent | (600) | | | — | | | | | (600) | |
Other(a) | (13) | | | — | | | | | (13) | |
Balance at December 31, 2020 | $ | 13,161 | | | $ | (7) | | | | | $ | 13,154 | |
(a) Amounts primarily represent impacts due to implementation of a new accounting standard related to Credit Losses. See Note 1 for additional discussion.
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, South Carolina Public Service Commission and Florida Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $6.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | $ | 10,627 | | | $ | 11,202 | | | $ | 10,728 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 3,479 | | | 4,024 | | | 3,976 | |
Operation, maintenance and other | 2,479 | | | 2,495 | | | 2,613 | |
Depreciation and amortization | 1,818 | | | 1,845 | | | 1,619 | |
Property and other taxes | 545 | | | 561 | | | 529 | |
Impairment charges | 495 | | | (24) | | | 87 | |
Total operating expenses | 8,816 | | | 8,901 | | | 8,824 | |
Gains on Sales of Other Assets and Other, net | 9 | | | — | | | 24 | |
Operating Income | 1,820 | | | 2,301 | | | 1,928 | |
Other Income and Expenses, net | 129 | | | 141 | | | 165 | |
Interest Expense | 790 | | | 862 | | | 842 | |
Income Before Income Taxes | 1,159 | | | 1,580 | | | 1,251 | |
Income Tax Expense | 113 | | | 253 | | | 218 | |
| | | | | |
| | | | | |
Net Income | 1,046 | | | 1,327 | | | 1,033 | |
Less: Net Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
Net Income Attributable to Parent | $ | 1,045 | | | $ | 1,327 | | | $ | 1,027 | |
| | | | | |
Net Income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
Other Comprehensive Income, net of tax | | | | | |
Pension and OPEB adjustments | (1) | | | 2 | | | 5 | |
Net unrealized gain on cash flow hedges | 5 | | | 5 | | | 6 | |
| | | | | |
| | | | | |
Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
Other Comprehensive Income, net of tax | 3 | | | 8 | | | 10 | |
Comprehensive Income | 1,049 | | | 1,335 | | | 1,043 | |
Less: Comprehensive Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
Comprehensive Income Attributable to Parent | $ | 1,048 | | | $ | 1,335 | | | $ | 1,037 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 59 | | | $ | 48 | |
Receivables (net of allowance for doubtful accounts of $8 at 2020 and $7 at 2019) | 228 | | | 220 | |
Receivables of VIEs (net of allowance for doubtful accounts of $29 at 2020 and $9 at 2019) | 901 | | | 830 | |
Receivables from affiliated companies | 157 | | | 76 | |
Notes receivable from affiliated companies | — | | | 164 | |
Inventory | 1,375 | | | 1,423 | |
Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 758 | | | 946 | |
Other (includes $39 at 2020 and 2019 related to VIEs) | 109 | | | 210 | |
Total current assets | 3,587 | | | 3,917 | |
Property, Plant and Equipment | | | |
Cost | 57,892 | | | 55,070 | |
Accumulated depreciation and amortization | (18,368) | | | (17,159) | |
Generation facilities to be retired, net | 29 | | | 246 | |
Net property, plant and equipment | 39,553 | | | 38,157 | |
Other Noncurrent Assets | | | |
Goodwill | 3,655 | | | 3,655 | |
Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 5,775 | | | 6,346 | |
Nuclear decommissioning trust funds | 4,137 | | | 3,782 | |
Operating lease right-of-use assets, net | 690 | | | 788 | |
Other | 1,227 | | | 1,049 | |
Total other noncurrent assets | 15,484 | | | 15,620 | |
Total Assets | $ | 58,624 | | | $ | 57,694 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 919 | | | $ | 1,104 | |
Accounts payable to affiliated companies | 289 | | | 310 | |
Notes payable to affiliated companies | 2,969 | | | 1,821 | |
Taxes accrued | 121 | | | 46 | |
Interest accrued | 202 | | | 228 | |
Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 1,426 | | | 1,577 | |
Asset retirement obligations | 283 | | | 485 | |
Regulatory liabilities | 640 | | | 330 | |
Other | 793 | | | 902 | |
Total current liabilities | 7,642 | | | 6,803 | |
Long-Term Debt (includes $1,252 at 2020 and $1,632 at 2019 related to VIEs) | 17,688 | | | 17,907 | |
Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 4,396 | | | 4,462 | |
Asset retirement obligations | 5,866 | | | 5,986 | |
Regulatory liabilities | 5,051 | | | 5,225 | |
Operating lease liabilities | 623 | | | 697 | |
Accrued pension and other post-retirement benefit costs | 505 | | | 488 | |
Other | 462 | | | 383 | |
Total other noncurrent liabilities | 16,903 | | | 17,241 | |
Commitments and Contingencies | 0 | | 0 |
Equity | | | |
Common stock, $0.01 par value, 100 shares authorized and outstanding at 2020 and 2019 | — | | | — | |
Additional paid-in capital | 9,143 | | | 9,143 | |
Retained earnings | 7,109 | | | 6,465 | |
Accumulated other comprehensive loss | (15) | | | (18) | |
Total Progress Energy, Inc. stockholder's equity | 16,237 | | | 15,590 | |
Noncontrolling interests | 4 | | | 3 | |
Total equity | 16,241 | | | 15,593 | |
Total Liabilities and Equity | $ | 58,624 | | | $ | 57,694 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion (including amortization of nuclear fuel) | 2,327 | | | 2,207 | | | 1,987 | |
Equity component of AFUDC | (42) | | | (66) | | | (104) | |
| | | | | |
| | | | | |
| | | | | |
Gains on sales of other assets | (9) | | | — | | | (24) | |
Impairment charges | 495 | | | (24) | | | 87 | |
Deferred income taxes | (197) | | | 433 | | | 358 | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (384) | | | (412) | | | (230) | |
| | | | | |
Provision for rate refunds | 2 | | | 15 | | | 122 | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | (9) | | | (34) | | | 18 | |
Receivables | (69) | | | 47 | | | (207) | |
Receivables from affiliated companies | (81) | | | 81 | | | (137) | |
Inventory | 49 | | | 62 | | | 121 | |
Other current assets | 223 | | | 184 | | | (12) | |
Increase (decrease) in | | | | | |
Accounts payable | (62) | | | (4) | | | 217 | |
Accounts payable to affiliated companies | (21) | | | (50) | | | 109 | |
Taxes accrued | 75 | | | (74) | | | 8 | |
Other current liabilities | 139 | | | 25 | | | 129 | |
Other assets | (128) | | | (341) | | | (896) | |
Other liabilities | (177) | | | (167) | | | (35) | |
Net cash provided by operating activities | 3,177 | | | 3,209 | | | 2,544 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (3,488) | | | (3,952) | | | (3,854) | |
| | | | | |
Purchases of debt and equity securities | (5,998) | | | (1,511) | | | (1,753) | |
Proceeds from sales and maturities of debt and equity securities | 6,010 | | | 1,504 | | | 1,769 | |
| | | | | |
| | | | | |
| | | | | |
Notes receivable from affiliated companies | 164 | | | (164) | | | 240 | |
| | | | | |
Other | (160) | | | (190) | | | (162) | |
Net cash used in investing activities | (3,472) | | | (4,313) | | | (3,760) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 1,791 | | | 2,187 | | | 1,833 | |
Payments for the redemption of long-term debt | (2,157) | | | (1,667) | | | (771) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Notes payable to affiliated companies | 1,148 | | | 586 | | | 430 | |
| | | | | |
| | | | | |
| | | | | |
Dividends to parent | (400) | | | — | | | (250) | |
Other | (13) | | | 12 | | | (1) | |
Net cash provided by financing activities | 369 | | | 1,118 | | | 1,241 | |
Net increase in cash, cash equivalents, and restricted cash | 74 | | | 14 | | | 25 | |
Cash, cash equivalents, and restricted cash at beginning of period | 126 | | | 112 | | | 87 | |
Cash, cash equivalents, and restricted cash at end of period | $ | 200 | | | $ | 126 | | | $ | 112 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 819 | | | $ | 892 | | | $ | 798 | |
Cash paid for (received from) income taxes | 149 | | | (79) | | | (348) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 363 | | | 447 | | | 478 | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated Other Comprehensive Income (Loss) | | | | | | |
| | | | | | | Net Gains | | Net Unrealized | | | | Total Progress | | | | |
| | | Additional | | | | (Losses) on | | Gains (Losses) | | Pension and | | Energy, Inc. | | | | |
| | | Paid-in | | Retained | | Cash Flow | | on Available-for- | | OPEB | | Stockholder's | | Noncontrolling | | Total |
(in millions) | | | Capital | | Earnings | | Hedges | | Sale Securities | | Adjustments | | Equity | | Interests | | Equity |
Balance at December 31, 2017 | | | $ | 9,143 | | | $ | 4,350 | | | $ | (18) | | | $ | 5 | | | $ | (12) | | | $ | 13,468 | | | $ | (3) | | | $ | 13,465 | |
Net income | | | — | | | 1,027 | | | — | | | — | | | — | | | 1,027 | | | 6 | | | 1,033 | |
Other comprehensive income (loss) | | | — | | | — | | | 6 | | | (1) | | | 5 | | | 10 | | | — | | | 10 | |
| | | | | | | | | | | | | | | | | |
Distributions to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
| | | | | | | | | | | | | | | | | |
Dividends to parent | | | — | | | (250) | | | — | | | — | | | — | | | (250) | | | — | | | (250) | |
| | | | | | | | | | | | | | | | | |
Other(a) | | | — | | | 4 | | | — | | | (5) | | | — | | | (1) | | | 1 | | | 0 | |
Balance at December 31, 2018 | | | $ | 9,143 | | | $ | 5,131 | | | $ | (12) | | | $ | (1) | | | $ | (7) | | | $ | 14,254 | | | $ | 3 | | | $ | 14,257 | |
Net income | | | — | | | 1,327 | | | — | | | — | | | — | | | 1,327 | | | — | | | 1,327 | |
Other comprehensive income | | | — | | | — | | | 5 | | | 1 | | | 2 | | | 8 | | | — | | | 8 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other(b) | | | — | | | 7 | | | (3) | | | (1) | | | (2) | | | 1 | | | — | | | 1 | |
Balance at December 31, 2019 | | | $ | 9,143 | | | $ | 6,465 | | | $ | (10) | | | $ | (1) | | | $ | (7) | | | $ | 15,590 | | | $ | 3 | | | $ | 15,593 | |
Net income | | | — | | | 1,045 | | | — | | | — | | | — | | | 1,045 | | | 1 | | | 1,046 | |
Other comprehensive income (loss) | | | — | | | — | | | 5 | | | (1) | | | (1) | | | 3 | | | — | | | 3 | |
| | | | | | | | | | | | | | | | | |
Dividends to parent | | | — | | | (400) | | | — | | | — | | | — | | | (400) | | | — | | | (400) | |
| | | | | | | | | | | | | | | | | |
Other | | | — | | | (1) | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
Balance at December 31, 2020 | | | $ | 9,143 | | | $ | 7,109 | | | $ | (5) | | | $ | (2) | | | $ | (8) | | | $ | 16,237 | | | $ | 4 | | | $ | 16,241 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
(b) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Progress, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Progress, LLC and subsidiaries (the "Company") as of December 31, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $4.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1930.
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
Operating Revenues | $ | 5,422 | | | $ | 5,957 | | | $ | 5,699 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 1,743 | | | 2,012 | | | 1,892 | |
Operation, maintenance and other | 1,332 | | | 1,446 | | | 1,578 | |
Depreciation and amortization | 1,116 | | | 1,143 | | | 991 | |
Property and other taxes | 167 | | | 176 | | | 155 | |
Impairment charges | 499 | | | 12 | | | 33 | |
Total operating expenses | 4,857 | | | 4,789 | | | 4,649 | |
Gains on Sales of Other Assets and Other, net | 8 | | | — | | | 9 | |
Operating Income | 573 | | | 1,168 | | | 1,059 | |
Other Income and Expenses, net | 75 | | | 100 | | | 87 | |
Interest Expense | 269 | | | 306 | | | 319 | |
Income Before Income Taxes | 379 | | | 962 | | | 827 | |
Income Tax (Benefit) Expense | (36) | | | 157 | | | 160 | |
Net Income and Comprehensive Income | $ | 415 | | | $ | 805 | | | $ | 667 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 39 | | | $ | 22 | |
Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 132 | | | 123 | |
Receivables of VIEs (net of allowance for doubtful accounts of $19 at 2020 and $5 at 2019) | 500 | | | 489 | |
Receivables from affiliated companies | 50 | | | 52 | |
| | | |
Inventory | 911 | | | 934 | |
Regulatory assets | 492 | | | 526 | |
Other | 60 | | | 60 | |
Total current assets | 2,184 | | | 2,206 | |
Property, Plant and Equipment | | | |
Cost | 35,759 | | | 34,603 | |
Accumulated depreciation and amortization | (12,801) | | | (11,915) | |
Generation facilities to be retired, net | 29 | | | 246 | |
Net property, plant and equipment | 22,987 | | | 22,934 | |
Other Noncurrent Assets | | | |
Regulatory assets | 3,976 | | | 4,152 | |
Nuclear decommissioning trust funds | 3,500 | | | 3,047 | |
Operating lease right-of-use assets, net | 346 | | | 387 | |
Other | 740 | | | 651 | |
Total other noncurrent assets | 8,562 | | | 8,237 | |
Total Assets | $ | 33,733 | | | $ | 33,377 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 454 | | | $ | 629 | |
Accounts payable to affiliated companies | 215 | | | 203 | |
Notes payable to affiliated companies | 295 | | | 66 | |
Taxes accrued | 85 | | | 17 | |
Interest accrued | 99 | | | 110 | |
Current maturities of long-term debt | 603 | | | 1,006 | |
Asset retirement obligations | 283 | | | 485 | |
Regulatory liabilities | 530 | | | 236 | |
Other | 411 | | | 478 | |
Total current liabilities | 2,975 | | | 3,230 | |
Long-Term Debt | 8,505 | | | 7,902 | |
Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 2,298 | | | 2,388 | |
Asset retirement obligations | 5,352 | | | 5,408 | |
Regulatory liabilities | 4,394 | | | 4,232 | |
Operating lease liabilities | 323 | | | 354 | |
Accrued pension and other post-retirement benefit costs | 242 | | | 238 | |
Investment tax credits | 132 | | | 137 | |
Other | 102 | | | 92 | |
Total other noncurrent liabilities | 12,843 | | | 12,849 | |
Commitments and Contingencies | 0 | | 0 |
Equity | | | |
Member's Equity | 9,260 | | | 9,246 | |
| | | |
| | | |
| | | |
Total Liabilities and Equity | $ | 33,733 | | | $ | 33,377 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 415 | | | $ | 805 | | | $ | 667 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization (including amortization of nuclear fuel) | 1,299 | | | 1,329 | | | 1,183 | |
Equity component of AFUDC | (29) | | | (60) | | | (57) | |
| | | | | |
| | | | | |
| | | | | |
Gains on sales of other assets | (8) | | | — | | | (9) | |
Impairment charges | 499 | | | 12 | | | 33 | |
Deferred income taxes | (234) | | | 197 | | | 236 | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (304) | | | (390) | | | (195) | |
| | | | | |
Provisions for rate refunds | 2 | | | 12 | | | 122 | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | 1 | | | (6) | | | 5 | |
Receivables | (4) | | | 21 | | | (107) | |
Receivables from affiliated companies | 2 | | | (29) | | | (20) | |
Inventory | 23 | | | 20 | | | 63 | |
Other current assets | 98 | | | 101 | | | (201) | |
Increase (decrease) in | | | | | |
Accounts payable | (127) | | | 32 | | | 219 | |
Accounts payable to affiliated companies | 12 | | | (75) | | | 99 | |
Taxes accrued | 68 | | | (46) | | | (11) | |
Other current liabilities | 157 | | | 68 | | | 46 | |
Other assets | (207) | | | (205) | | | (465) | |
Other liabilities | 3 | | | 37 | | | 20 | |
Net cash provided by operating activities | 1,666 | | | 1,823 | | | 1,628 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (1,581) | | | (2,108) | | | (2,220) | |
| | | | | |
Purchases of debt and equity securities | (1,555) | | | (842) | | | (1,236) | |
Proceeds from sales and maturities of debt and equity securities | 1,516 | | | 810 | | | 1,206 | |
| | | | | |
| | | | | |
| | | | | |
Other | (57) | | | (119) | | | (95) | |
Net cash used in investing activities | (1,677) | | | (2,259) | | | (2,345) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 1,296 | | | 1,269 | | | 845 | |
Payments for the redemption of long-term debt | (1,085) | | | (605) | | | (3) | |
| | | | | |
Notes payable to affiliated companies | 229 | | | (228) | | | 54 | |
| | | | | |
Distributions to parent | (400) | | | — | | | (175) | |
| | | | | |
Other | (12) | | | (1) | | | (1) | |
Net cash provided by financing activities | 28 | | | 435 | | | 720 | |
Net increase (decrease) in cash and cash equivalents | 17 | | | (1) | | | 3 | |
Cash and cash equivalents at beginning of period | 22 | | | 23 | | | 20 | |
Cash and cash equivalents at end of period | $ | 39 | | | $ | 22 | | | $ | 23 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 301 | | | $ | 331 | | | $ | 303 | |
Cash paid for (received from) income taxes | 123 | | | (30) | | | (112) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 149 | | | 175 | | | 220 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | |
| | | | | Member's | | | | |
(in millions) | | | | | Equity | | | | |
Balance at December 31, 2017 | | | | | $ | 7,949 | | | | | |
Net income | | | | | 667 | | | | | |
Distribution to parent | | | | | (175) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2018 | | | | | $ | 8,441 | | | | | |
Net income | | | | | 805 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2019 | | | | | $ | 9,246 | | | | | |
Net income | | | | | 415 | | | | | |
Distribution to parent | | | | | (400) | | | | | |
| | | | | | | | | |
Other | | | | | (1) | | | | | |
Balance at December 31, 2020 | | | | | $ | 9,260 | | | | | |
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Florida Public Service Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $2.1 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, including the settlement agreement filed with the Commission subsequent to December 31, 2020, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | $ | 5,188 | | | $ | 5,231 | | | $ | 5,021 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 1,737 | | | 2,012 | | | 2,085 | |
Operation, maintenance and other | 1,131 | | | 1,034 | | | 1,025 | |
Depreciation and amortization | 702 | | | 702 | | | 628 | |
Property and other taxes | 381 | | | 392 | | | 374 | |
Impairment charges | (4) | | | (36) | | | 54 | |
Total operating expenses | 3,947 | | | 4,104 | | | 4,166 | |
Gains on Sales of Other Assets and Other, net | 1 | | | — | | | 1 | |
Operating Income | 1,242 | | | 1,127 | | | 856 | |
Other Income and Expenses, net | 53 | | | 48 | | | 86 | |
Interest Expense | 326 | | | 328 | | | 287 | |
Income Before Income Taxes | 969 | | | 847 | | | 655 | |
Income Tax Expense | 198 | | | 155 | | | 101 | |
Net Income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other Comprehensive Income (Loss), net of tax | | | | | |
Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
| | | | | |
Other Comprehensive (Loss) Income, net of tax | (1) | | | 1 | | | (1) | |
Comprehensive Income | $ | 770 | | | $ | 693 | | | $ | 553 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 11 | | | $ | 17 | |
Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 94 | | | 96 | |
Receivables of VIEs (net of allowance for doubtful accounts of $10 at 2020 and $4 at 2019) | 401 | | | 341 | |
Receivables from affiliated companies | 3 | | | — | |
Notes receivable from affiliated companies | — | | | 173 | |
Inventory | 464 | | | 489 | |
Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 265 | | | 419 | |
Other (includes $39 at 2020 and 2019 related to VIEs) | 41 | | | 58 | |
Total current assets | 1,279 | | | 1,593 | |
Property, Plant and Equipment | | | |
Cost | 22,123 | | | 20,457 | |
Accumulated depreciation and amortization | (5,560) | | | (5,236) | |
Net property, plant and equipment | 16,563 | | | 15,221 | |
Other Noncurrent Assets | | | |
| | | |
Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 1,799 | | | 2,194 | |
Nuclear decommissioning trust funds | 637 | | | 734 | |
Operating lease right-of-use assets, net | 344 | | | 401 | |
Other | 335 | | | 311 | |
Total other noncurrent assets | 3,115 | | | 3,640 | |
Total Assets | $ | 20,957 | | | $ | 20,454 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 465 | | | $ | 474 | |
Accounts payable to affiliated companies | 85 | | | 131 | |
Notes payable to affiliated companies | 196 | | | — | |
Taxes accrued | 82 | | | 43 | |
Interest accrued | 69 | | | 75 | |
Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 823 | | | 571 | |
| | | |
Regulatory liabilities | 110 | | | 94 | |
Other | 374 | | | 415 | |
Total current liabilities | 2,204 | | | 1,803 | |
Long-Term Debt (includes $1,002 at 2020 and $1,307 at 2019 related to VIEs) | 7,092 | | | 7,416 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 2,191 | | | 2,179 | |
| | | |
Asset retirement obligations | 514 | | | 578 | |
Regulatory liabilities | 658 | | | 993 | |
Operating lease liabilities | 300 | | | 343 | |
Accrued pension and other post-retirement benefit costs | 231 | | | 218 | |
| | | |
Other | 209 | | | 136 | |
Total other noncurrent liabilities | 4,103 | | | 4,447 | |
Commitments and Contingencies | 0 | | 0 |
| | | |
Equity | | | |
Member's equity | 7,560 | | | 6,789 | |
| | | |
| | | |
Accumulated other comprehensive loss | (2) | | | (1) | |
Total equity | 7,558 | | | 6,788 | |
Total Liabilities and Equity | $ | 20,957 | | | $ | 20,454 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 771 | | | $ | 692 | | | $ | 554 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 1,019 | | | 869 | | | 793 | |
Equity component of AFUDC | (12) | | | (6) | | | (47) | |
| | | | | |
Gains on sales of other assets | (1) | | | — | | | (1) | |
Impairment charges | (4) | | | (36) | | | 54 | |
Deferred income taxes | 27 | | | 180 | | | 159 | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (80) | | | (22) | | | (35) | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | (14) | | | (33) | | | 7 | |
Receivables | (64) | | | 26 | | | (100) | |
Receivables from affiliated companies | (3) | | | 17 | | | (26) | |
Inventory | 26 | | | 42 | | | 58 | |
Other current assets | 40 | | | 156 | | | 59 | |
Increase (decrease) in | | | | | |
Accounts payable | 66 | | | (36) | | | (1) | |
Accounts payable to affiliated companies | (46) | | | 40 | | | 17 | |
Taxes accrued | 39 | | | (31) | | | 40 | |
Other current liabilities | (7) | | | (36) | | | 82 | |
Other assets | 85 | | | (131) | | | (429) | |
Other liabilities | (181) | | | (213) | | | (75) | |
Net cash provided by operating activities | 1,661 | | | 1,478 | | | 1,109 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (1,907) | | | (1,844) | | | (1,634) | |
| | | | | |
Purchases of debt and equity securities | (4,443) | | | (669) | | | (517) | |
Proceeds from sales and maturities of debt and equity securities | 4,495 | | | 695 | | | 563 | |
| | | | | |
| | | | | |
Notes receivable from affiliated companies | 173 | | | (173) | | | 313 | |
| | | | | |
Other | (103) | | | (67) | | | (65) | |
Net cash used in investing activities | (1,785) | | | (2,058) | | | (1,340) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 495 | | | 918 | | | 988 | |
Payments for the redemption of long-term debt | (572) | | | (262) | | | (769) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Notes payable to affiliated companies | 196 | | | (108) | | | 108 | |
| | | | | |
Distribution to parent | — | | | — | | | (75) | |
| | | | | |
Other | (1) | | | 13 | | | 1 | |
Net cash provided by financing activities | 118 | | | 561 | | | 253 | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | (6) | | | (19) | | | 22 | |
Cash, cash equivalents, and restricted cash at beginning of period | 56 | | | 75 | | | 53 | |
Cash, cash equivalents, and restricted cash at end of period | $ | 50 | | | $ | 56 | | | $ | 75 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 321 | | | $ | 332 | | | $ | 270 | |
Cash paid for (received from) income taxes | 138 | | | 1 | | | (120) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 214 | | | 272 | | | 258 | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | |
| | | | | | | Other | | |
| | | | | | | Comprehensive | | |
| | | | | | | Income (Loss) | | |
| | | | | | | Net Unrealized | | | | |
| | | | | | | Gains (Losses) on | | | | |
| | | | | Member's | | Available-for- | | | | Total |
(in millions) | | | | | Equity | | Sale Securities | | | | Equity |
Balance at December 31, 2017 | | | | | $ | 5,614 | | | $ | 4 | | | | | $ | 5,618 | |
Net income | | | | | 554 | | | — | | | | | 554 | |
Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Distribution to parent | | | | | (75) | | | — | | | | | (75) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other(a) | | | | | 4 | | | (5) | | | | | (1) | |
Balance at December 31, 2018 | | | | | $ | 6,097 | | | $ | (2) | | | | | $ | 6,095 | |
Net income | | | | | 692 | | | — | | | | | 692 | |
Other comprehensive income | | | | | — | | | 1 | | | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2019 | | | | | $ | 6,789 | | | $ | (1) | | | | | $ | 6,788 | |
Net income | | | | | 771 | | | — | | | | | 771 | |
Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2020 | | | | | $ | 7,560 | | | $ | (2) | | | | | $ | 7,558 | |
(a) Amounts represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
CriticalAuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Public Utilities Commission of Ohio and by the Kentucky Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric and gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $650 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | | | | | |
Regulated electric | $ | 1,405 | | | $ | 1,456 | | | $ | 1,450 | |
Regulated natural gas | 453 | | | 484 | | | 506 | |
Nonregulated electric and other | — | | | — | | | 1 | |
Total operating revenues | 1,858 | | | 1,940 | | | 1,957 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power – regulated | 339 | | | 388 | | | 412 | |
| | | | | |
Cost of natural gas | 73 | | | 95 | | | 113 | |
Operation, maintenance and other | 463 | | | 520 | | | 480 | |
Depreciation and amortization | 278 | | | 265 | | | 268 | |
Property and other taxes | 324 | | | 308 | | | 290 | |
| | | | | |
Total operating expenses | 1,477 | | | 1,576 | | | 1,563 | |
Losses on Sales of Other Assets and Other, net | — | | | — | | | (106) | |
Operating Income | 381 | | | 364 | | | 288 | |
Other Income and Expenses, net | 16 | | | 24 | | | 23 | |
Interest Expense | 102 | | | 109 | | | 92 | |
Income From Continuing Operations Before Income Taxes | 295 | | | 279 | | | 219 | |
Income Tax Expense From Continuing Operations | 43 | | | 40 | | | 43 | |
Income From Continuing Operations | 252 | | | 239 | | | 176 | |
Loss From Discontinued Operations, net of tax | — | | | (1) | | | — | |
Net Income and Comprehensive Income | $ | 252 | | | $ | 238 | | | $ | 176 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 14 | | | $ | 17 | |
Receivables (net of allowance for doubtful accounts of $4 at 2020 and $4 at 2019) | 98 | | | 84 | |
Receivables from affiliated companies | 102 | | | 92 | |
| | | |
Inventory | 110 | | | 135 | |
| | | |
Regulatory assets | 39 | | | 49 | |
Other | 31 | | | 21 | |
Total current assets | 394 | | | 398 | |
Property, Plant and Equipment | | | |
Cost | 11,022 | | | 10,241 | |
Accumulated depreciation and amortization | (3,013) | | | (2,843) | |
| | | |
Net property, plant and equipment | 8,009 | | | 7,398 | |
Other Noncurrent Assets | | | |
Goodwill | 920 | | | 920 | |
Regulatory assets | 610 | | | 549 | |
Operating lease right-of-use assets, net | 20 | | | 21 | |
| | | |
| | | |
| | | |
Other | 72 | | | 52 | |
Total other noncurrent assets | 1,622 | | | 1,542 | |
Total Assets | $ | 10,025 | | | $ | 9,338 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 279 | | | $ | 288 | |
Accounts payable to affiliated companies | 68 | | | 68 | |
Notes payable to affiliated companies | 169 | | | 312 | |
Taxes accrued | 247 | | | 219 | |
Interest accrued | 31 | | | 30 | |
Current maturities of long-term debt | 50 | | | — | |
| | | |
Asset retirement obligations | 3 | | | 1 | |
Regulatory liabilities | 65 | | | 64 | |
Other | 70 | | | 75 | |
Total current liabilities | 982 | | | 1,057 | |
Long-Term Debt | 3,014 | | | 2,594 | |
Long-Term Debt Payable to Affiliated Companies | 25 | | | 25 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 981 | | | 922 | |
Asset retirement obligations | 108 | | | 79 | |
Regulatory liabilities | 748 | | | 763 | |
Operating lease liabilities | 20 | | | 21 | |
Accrued pension and other post-retirement benefit costs | 113 | | | 100 | |
| | | |
| | | |
Other | 99 | | | 94 | |
Total other noncurrent liabilities | 2,069 | | | 1,979 | |
Commitments and Contingencies | 0 | | 0 |
Equity | | | |
Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2020 and 2019 | 762 | | | 762 | |
Additional paid-in capital | 2,776 | | | 2,776 | |
Retained earnings | 397 | | | 145 | |
| | | |
Total equity | 3,935 | | | 3,683 | |
Total Liabilities and Equity | $ | 10,025 | | | $ | 9,338 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 252 | | | $ | 238 | | | $ | 176 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 283 | | | 269 | | | 271 | |
Equity component of AFUDC | (7) | | | (13) | | | (11) | |
Losses on sales of other assets | 0 | | | 0 | | | 106 | |
| | | | | |
Deferred income taxes | 31 | | | 81 | | | 25 | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (2) | | | (8) | | | (3) | |
Provision for rate refunds | 14 | | | 7 | | | 24 | |
(Increase) decrease in | | | | | |
| | | | | |
Receivables | (13) | | | 20 | | | (33) | |
Receivables from affiliated companies | 9 | | | 22 | | | 19 | |
Inventory | 25 | | | (9) | | | 7 | |
Other current assets | (18) | | | (5) | | | 16 | |
Increase (decrease) in | | | | | |
Accounts payable | 2 | | | (17) | | | (19) | |
Accounts payable to affiliated companies | 0 | | | (10) | | | 16 | |
Taxes accrued | 30 | | | 17 | | | 12 | |
Other current liabilities | 3 | | | 1 | | | 14 | |
Other assets | (32) | | | (26) | | | (24) | |
Other liabilities | (2) | | | (41) | | | (26) | |
Net cash provided by operating activities | 575 | | | 526 | | | 570 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (834) | | | (952) | | | (827) | |
| | | | | |
| | | | | |
Notes receivable from affiliated companies | (19) | | | — | | | 14 | |
| | | | | |
Other | (48) | | | (68) | | | (89) | |
Net cash used in investing activities | (901) | | | (1,020) | | | (902) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 467 | | | 1,003 | | | 99 | |
Payments for the redemption of long-term debt | — | | | (551) | | | (3) | |
Notes payable to affiliated companies | (144) | | | 38 | | | 245 | |
| | | | | |
| | | | | |
Net cash provided by financing activities | 323 | | | 490 | | | 341 | |
Net (decrease) increase in cash and cash equivalents | (3) | | | (4) | | | 9 | |
Cash and cash equivalents at beginning of period | 17 | | | 21 | | | 12 | |
Cash and cash equivalents at end of period | $ | 14 | | | $ | 17 | | | $ | 21 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 97 | | | $ | 97 | | | $ | 87 | |
Cash received from income taxes | — | | | (37) | | | (6) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 104 | | | 109 | | | 95 | |
Non-cash equity contribution from parent | — | | | — | | | 106 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | Additional | | Retained | | | | |
| Common | | Paid-in | | Earnings | | | | Total |
(in millions) | Stock | | Capital | | (Deficit) | | | | Equity |
Balance at December 31, 2017 | $ | 762 | | | $ | 2,670 | | | $ | (269) | | | | | $ | 3,163 | |
Net income | — | | | — | | | 176 | | | | | 176 | |
Contribution from parent | — | | | 106 | | | — | | | | | 106 | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2018 | $ | 762 | | | $ | 2,776 | | | $ | (93) | | | | | $ | 3,445 | |
Net income | — | | | — | | | 238 | | | | | 238 | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2019 | $ | 762 | | | $ | 2,776 | | | $ | 145 | | | | | $ | 3,683 | |
Net income | — | | | — | | | 252 | | | | | 252 | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2020 | $ | 762 | | | $ | 2,776 | | | $ | 397 | | | | | $ | 3,935 | |
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Indiana Utility Regulatory Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $1.3 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
Duke Energy Indiana Coal Ash Asset Retirement Obligations – Refer to Notes 3, 4, and 9 to the financial statements
Critical Audit Matter Description
Duke Energy Indiana has asset retirement obligations associated with coal ash impoundments at operating and retired coal generation facilities. These legal obligations are the result of Indiana state and federal regulations. There is significant judgment in determining the assumptions used in estimating the closure costs for each site since Duke Energy Indiana does not have approved closure plans for certain sites. Potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods (“probability weightings”) creates estimation uncertainty. The liability for coal ash asset retirement obligations at Duke Energy Indiana was $1,140 million at December 31, 2020.
We identified the asset retirement obligations associated with coal ash impoundments at Duke Energy Indiana as a critical audit matter because of the significant management estimates and assumptions, including projected closure costs as well as the different potential closure methods. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods required a high degree of auditor judgment and an increased extent of effort, including the need to involve our environmental specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the underlying estimated closure costs for coal ash asset retirement obligations at Duke Energy Indiana included the following, among others:
•We tested the effectiveness of controls over management’s coal ash asset retirement obligation estimate, including those over management’s determination of the estimated closure costs and probability weightings.
•We evaluated management’s ability to accurately estimate future closure costs by comparing actual closure costs to management’s historical estimates.
•We tested the mathematical accuracy of management’s coal ash asset retirement obligation calculations, including the application of probability weightings.
•We made inquiries of internal and external legal counsel regarding the status of the legal matters associated with the probability weightings.
•We inspected the opinions from internal and external legal counsel supporting the probability weightings.
•We inspected the Company’s filings with and orders from the Indiana Department of Environmental Management, for evidence that might contradict management’s assertions regarding the estimated closure costs and probability weightings.
•With the assistance of our environmental specialists, we evaluated the reasonableness of management’s estimated closure costs by comparing the costs to actual costs incurred at comparable coal ash impoundments, underlying contracts, and publicly available industry cost data, as applicable.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
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) | 2020 | | 2019 | | 2018 |
Operating Revenues | $ | 2,795 | | | $ | 3,004 | | | $ | 3,059 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 767 | | | 935 | | | 1,000 | |
Operation, maintenance and other | 762 | | | 790 | | | 788 | |
Depreciation and amortization | 569 | | | 525 | | | 520 | |
Property and other taxes | 81 | | | 69 | | | 78 | |
Impairment charges | — | | | — | | | 30 | |
Total operating expenses | 2,179 | | | 2,319 | | | 2,416 | |
| | | | | |
Operating Income | 616 | | | 685 | | | 643 | |
Other Income and Expenses, net | 37 | | | 41 | | | 45 | |
Interest Expense | 161 | | | 156 | | | 167 | |
Income Before Income Taxes | 492 | | | 570 | | | 521 | |
Income Tax Expense | 84 | | | 134 | | | 128 | |
Net Income and Comprehensive Income | $ | 408 | | | $ | 436 | | | $ | 393 | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 7 | | | $ | 25 | |
Receivables (net of allowance for doubtful accounts of $3 at 2020 and $3 at 2019) | 55 | | | 60 | |
Receivables from affiliated companies | 112 | | | 79 | |
| | | |
Inventory | 473 | | | 517 | |
Regulatory assets | 125 | | | 90 | |
Other | 37 | | | 60 | |
Total current assets | 809 | | | 831 | |
Property, Plant and Equipment | | | |
Cost | 17,382 | | | 16,305 | |
Accumulated depreciation and amortization | (5,661) | | | (5,233) | |
| | | |
Net property, plant and equipment | 11,721 | | | 11,072 | |
Other Noncurrent Assets | | | |
Regulatory assets | 1,203 | | | 1,082 | |
Operating lease right-of-use assets, net | 55 | | | 57 | |
| | | |
Other | 253 | | | 234 | |
Total other noncurrent assets | 1,511 | | | 1,373 | |
Total Assets | $ | 14,041 | | | $ | 13,276 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 188 | | | $ | 201 | |
Accounts payable to affiliated companies | 88 | | | 87 | |
Notes payable to affiliated companies | 131 | | | 30 | |
Taxes accrued | 62 | | | 49 | |
Interest accrued | 51 | | | 58 | |
Current maturities of long-term debt | 70 | | | 503 | |
Asset retirement obligations | 168 | | | 189 | |
Regulatory liabilities | 111 | | | 55 | |
Other | 83 | | | 112 | |
Total current liabilities | 952 | | | 1,284 | |
Long-Term Debt | 3,871 | | | 3,404 | |
Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 1,228 | | | 1,150 | |
Asset retirement obligations | 1,008 | | | 643 | |
Regulatory liabilities | 1,627 | | | 1,685 | |
Operating lease liabilities | 53 | | | 55 | |
Accrued pension and other post-retirement benefit costs | 171 | | | 148 | |
Investment tax credits | 168 | | | 164 | |
Other | 30 | | | 18 | |
Total other noncurrent liabilities | 4,285 | | | 3,863 | |
Commitments and Contingencies | 0 | | 0 |
Equity | | | |
Member's Equity | 4,783 | | | 4,575 | |
| | | |
| | | |
Total Liabilities and Equity | $ | 14,041 | | | $ | 13,276 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 408 | | | $ | 436 | | | $ | 393 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization, and accretion | 572 | | | 531 | | | 524 | |
Equity component of AFUDC | (23) | | | (18) | | | (32) | |
| | | | | |
Impairment charges | — | | | — | | | 30 | |
Deferred income taxes | 29 | | | 156 | | | 95 | |
| | | | | |
| | | | | |
Payments for asset retirement obligations | (63) | | | (48) | | | (69) | |
Provision for rate refunds | — | | | — | | | 53 | |
(Increase) decrease in | | | | | |
| | | | | |
Receivables | 8 | | | (8) | | | 7 | |
Receivables from affiliated companies | 0 | | | 41 | | | 3 | |
Inventory | 44 | | | (95) | | | 28 | |
Other current assets | (3) | | | 76 | | | (25) | |
Increase (decrease) in | | | | | |
Accounts payable | (12) | | | (10) | | | 37 | |
Accounts payable to affiliated companies | 1 | | | 4 | | | 5 | |
Taxes accrued | 13 | | | (25) | | | (52) | |
Other current liabilities | 6 | | | 15 | | | 14 | |
Other assets | (68) | | | (74) | | | 26 | |
Other liabilities | 26 | | | 16 | | | (31) | |
Net cash provided by operating activities | 938 | | | 997 | | | 1,006 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (888) | | | (876) | | | (832) | |
Purchases of debt and equity securities | (37) | | | (26) | | | (48) | |
Proceeds from sales and maturities of debt and equity securities | 22 | | | 20 | | | 44 | |
| | | | | |
Notes receivable from affiliated companies | (33) | | | — | | | — | |
| | | | | |
Other | 48 | | | (49) | | | 18 | |
Net cash used in investing activities | (888) | | | (931) | | | (818) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 544 | | | 485 | | | — | |
Payments for the redemption of long-term debt | (513) | | | (213) | | | (3) | |
Notes payable to affiliated companies | 101 | | | (137) | | | 6 | |
| | | | | |
Distributions to parent | (200) | | | (200) | | | (175) | |
Other | — | | | — | | | (1) | |
Net cash used in financing activities | (68) | | | (65) | | | (173) | |
Net (decrease) increase in cash and cash equivalents | (18) | | | 1 | | | 15 | |
Cash and cash equivalents at beginning of period | 25 | | | 24 | | | 9 | |
Cash and cash equivalents at end of period | $ | 7 | | | $ | 25 | | | $ | 24 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 164 | | | $ | 150 | | | $ | 162 | |
Cash paid for (received from) income taxes | 36 | | | (6) | | | 75 | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 101 | | | 102 | | | 88 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | Member's | | | | |
(in millions) | | | | | | | Equity | | | | |
Balance at December 31, 2017 | | | | | | | $ | 4,121 | | | | | |
Net income | | | | | | | 393 | | | | | |
| | | | | | | | | | | |
Distributions to parent | | | | | | | (175) | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2018 | | | | | | | $ | 4,339 | | | | | |
Net income | | | | | | | 436 | | | | | |
| | | | | | | | | | | |
Distributions to parent | | | | | | | (200) | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2019 | | | | | | | $ | 4,575 | | | | | |
Net income | | | | | | | 408 | | | | | |
Distributions to parent | | | | | | | (200) | | | | | |
Balance at December 31, 2020 | | | | | | | $ | 4,783 | | | | | |
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, the Public Service Commission of South Carolina, and the Tennessee Public Utility Commission (collectively the “Commissions”), which have jurisdiction with respect to the gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $450 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1951.
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
Operating Revenues | | | | | |
Regulated natural gas | $ | 1,286 | | | $ | 1,369 | | | $ | 1,365 | |
Nonregulated natural gas and other | 11 | | | 12 | | | 10 | |
| | | | | |
Total operating revenues | 1,297 | | | 1,381 | | | 1,375 | |
Operating Expenses | | | | | |
Cost of natural gas | 386 | | | 532 | | | 584 | |
Operation, maintenance and other | 322 | | | 328 | | | 357 | |
Depreciation and amortization | 180 | | | 172 | | | 159 | |
Property and other taxes | 53 | | | 45 | | | 49 | |
Impairment charges | 7 | | | — | | | — | |
Total operating expenses | 948 | | | 1,077 | | | 1,149 | |
| | | | | |
Operating Income | 349 | | | 304 | | | 226 | |
Equity in earnings of unconsolidated affiliates | 9 | | | 8 | | | 7 | |
| | | | | |
Other income and expense, net | 51 | | | 20 | | | 14 | |
Total other income and expenses | 60 | | | 28 | | | 21 | |
Interest Expense | 118 | | | 87 | | | 81 | |
Income Before Income Taxes | 291 | | | 245 | | | 166 | |
Income Tax Expense | 18 | | | 43 | | | 37 | |
Net Income and Comprehensive Income | $ | 273 | | | $ | 202 | | | $ | 129 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
ASSETS | | | |
Current Assets | | | |
| | | |
Receivables (net of allowance for doubtful accounts of $12 at 2020 and $6 at 2019) | $ | 250 | | | $ | 241 | |
Receivables from affiliated companies | 10 | | | 10 | |
Inventory | 68 | | | 72 | |
Regulatory assets | 153 | | | 73 | |
| | | |
Other | 20 | | | 28 | |
Total current assets | 501 | | | 424 | |
Property, Plant and Equipment | | | |
Cost | 9,134 | | | 8,446 | |
Accumulated depreciation and amortization | (1,749) | | | (1,681) | |
Net property, plant and equipment | 7,385 | | | 6,765 | |
Other Noncurrent Assets | | | |
Goodwill | 49 | | | 49 | |
Regulatory assets | 302 | | | 290 | |
Operating lease right-of-use assets, net | 20 | | | 24 | |
Investments in equity method unconsolidated affiliates | 88 | | | 83 | |
Other | 270 | | | 121 | |
Total other noncurrent assets | 729 | | | 567 | |
Total Assets | $ | 8,615 | | | $ | 7,756 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 230 | | | $ | 215 | |
Accounts payable to affiliated companies | 79 | | | 3 | |
| | | |
Notes payable to affiliated companies | 530 | | | 476 | |
Taxes accrued | 23 | | | 24 | |
Interest accrued | 34 | | | 33 | |
Current maturities of long-term debt | 160 | | | 0 | |
Regulatory liabilities | 88 | | | 81 | |
Other | 69 | | | 67 | |
Total current liabilities | 1,213 | | | 899 | |
Long-Term Debt | 2,620 | | | 2,384 | |
| | | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 821 | | | 708 | |
Asset retirement obligations | 20 | | | 17 | |
Regulatory liabilities | 1,044 | | | 1,131 | |
Operating lease liabilities | 19 | | | 23 | |
Accrued pension and other post-retirement benefit costs | 8 | | | 3 | |
Other | 155 | | | 148 | |
Total other noncurrent liabilities | 2,067 | | | 2,030 | |
Commitments and Contingencies | 0 | | 0 |
Equity | | | |
Common stock, 0 par value: 100 shares authorized and outstanding at 2020 and 2019 | 1,310 | | | 1,310 | |
| | | |
Retained earnings | 1,405 | | | 1,133 | |
| | | |
Total equity | 2,715 | | | 2,443 | |
Total Liabilities and Equity | $ | 8,615 | | | $ | 7,756 | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 273 | | | $ | 202 | | | $ | 129 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 182 | | | 174 | | | 161 | |
Equity component of AFUDC | (19) | | | — | | | — | |
| | | | | |
Impairment charges | 7 | | | — | | | — | |
Deferred income taxes | 53 | | | 136 | | | (31) | |
Equity in (earnings) losses from unconsolidated affiliates | (9) | | | (8) | | | (7) | |
| | | | | |
| | | | | |
| | | | | |
Provision for rate refunds | (33) | | | 2 | | | 43 | |
(Increase) decrease in | | | | | |
| | | | | |
Receivables | 10 | | | 28 | | | 7 | |
Receivables from affiliated companies | — | | | 12 | | | (15) | |
Inventory | 3 | | | (2) | | | (4) | |
Other current assets | (66) | | | (25) | | | 71 | |
Increase (decrease) in | | | | | |
Accounts payable | 16 | | | (7) | | | 15 | |
Accounts payable to affiliated companies | 76 | | | (35) | | | 25 | |
Taxes accrued | 3 | | | (60) | | | 65 | |
Other current liabilities | (11) | | | 1 | | | 21 | |
Other assets | (11) | | | 1 | | | 3 | |
Other liabilities | 7 | | | (10) | | | (5) | |
Net cash provided by operating activities | 481 | | | 409 | | | 478 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (901) | | | (1,053) | | | (721) | |
Contributions to equity method investments | — | | | (16) | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other | (28) | | | (14) | | | (10) | |
Net cash used in investing activities | (929) | | | (1,083) | | | (731) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 394 | | | 596 | | | 100 | |
| | | | | |
Payments for the redemption of long-term debt | — | | | (350) | | | — | |
| | | | | |
| | | | | |
Notes payable to affiliated companies | 54 | | | 278 | | | (166) | |
| | | | | |
| | | | | |
Capital contribution from parent | — | | | 150 | | | 300 | |
| | | | | |
| | | | | |
| | | | | |
Net cash provided by financing activities | 448 | | | 674 | | | 234 | |
Net decrease in cash and cash equivalents | — | | | — | | | (19) | |
Cash and cash equivalents at beginning of period | — | | | — | | | 19 | |
Cash and cash equivalents at end of period | $ | — | | | $ | — | | | $ | — | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 115 | | | $ | 84 | | | $ | 79 | |
Cash received from income taxes | (36) | | | (31) | | | (16) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 106 | | | 109 | | | 96 | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Common | | Retained | | | | Total |
(in millions) | Stock | | Earnings | | | | Equity |
Balance at December 31, 2017 | $ | 860 | | | $ | 802 | | | | | $ | 1,662 | |
Net income | — | | | 129 | | | | | 129 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Contribution from parent | 300 | | | — | | | | | 300 | |
| | | | | | | |
Balance at December 31, 2018 | $ | 1,160 | | | $ | 931 | | | | | $ | 2,091 | |
Net income | — | | | 202 | | | | | 202 | |
| | | | | | | |
Contribution from parent | 150 | | | — | | | | | 150 | |
| | | | | | | |
Balance at December 31, 2019 | $ | 1,310 | | | $ | 1,133 | | | | | $ | 2,443 | |
Net income | — | | | 273 | | | | | 273 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other | — | | | (1) | | | | | (1) | |
Balance at December 31, 2020 | $ | 1,310 | | | $ | 1,405 | | | | | $ | 2,715 | |
See Notes to Consolidated Financial Statements
| | | | | |
FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Index to Combined Notes To Consolidated Financial Statements
Financial Instruments Classification and Measurement. On January 1, 2018,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 | • | | • | • | • | • | • | • | • | • | • | • | • | | • | • | • | • | • | • | • | • | • | • | • | • | |
Duke Energy Carolinas | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Progress Energy | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Duke Energy Progress | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Duke Energy Florida | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Duke Energy Ohio | • | | • | • | • | • | • | | | • | • | • | | • | • | | • | • | • | | • | • | • | • | • | • | |
Duke Energy Indiana | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Piedmont | • | | • | • | • | • | • | | | • | • | • | • | • | • | | • | | • | | • | • | • | • | • | • | |
Tables within the notes may not sum across due to (i) Progress Energy's consolidation of Duke Energy adopted FASB guidance, which revised the classificationProgress, Duke Energy Florida and measurement of certain financial instruments. The adopted guidance changes the presentation of realized and unrealized gains and losses in certain equity securities that were previously recorded in AOCI. These gains and losses are now recorded in net income. An entity's equity investmentsother subsidiaries that are accounted for under the equity method of accountingnot registrants and (ii) subsidiaries that are not registrants but included withinin the scopeconsolidated Duke Energy balances.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Consolidation
Duke Energy is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the new guidance. This guidance had a minimal impact onFERC and other regulatory agencies listed below. Duke Energy operates in the U.S. primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas; Progress Energy; Duke Energy Progress; Duke Energy Florida; Duke Energy Ohio; Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its separate Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrant's Consolidated Statements of Operations and Comprehensive Income as changesRegistrants.
The information in the fair value of mostthese combined notes relates to each of the Duke Energy Registrants' equity securities are deferredRegistrants as regulatory assets or liabilities pursuantnoted in the Index to accounting guidance for regulated operations. The resulting adjustmentCombined Notes to Consolidated Financial Statements. However, none of unrealized gains and losses in AOCIthe Subsidiary Registrants make any representation as to retained earnings was immaterial. The primary impactinformation related solely to Duke Energy as a resultor the Subsidiary Registrants of implementing this guidance is adding disclosure requirements to present separately the financial assets and financial liabilities by measurement category and form of financial asset. See Notes 15 and 16 for further information.
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 Consolidated Statements of Cash Flows. Under the updated guidance, restricted cash and restricted cash equivalents are included within beginning-of-period and end-of-period cash and cash equivalents on the Consolidated Statements of Cash Flows. Duke Energy adopted this guidance on January 1, 2018. The guidance has been applied using a retrospective transition method to each period presented. The adoption by Duke Energyother than itself.
These Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the revised guidance resulted in a change to the amount of Cash, cash equivalents and restricted cash explained when reconciling the beginning-of-period and end-of-period total amounts shown on the Consolidated Statements of Cash Flows. In addition, a reconciliation has been provided of Cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sums to the total of the same such amounts in the Consolidated Statements of Cash Flows. Prior to adoption, the Duke Energy Registrants reflected changes in noncurrent restricted cash within Cash Flows from Investing Activities and changes in current restricted cash within Cash Flows from Operating Activitiessubsidiaries or VIEs where the respective Duke Energy Registrants have control. See Note 17 for additional information on VIEs. These Consolidated Financial Statements also reflect the Consolidated StatementsDuke Energy Registrants’ proportionate share of Cash Flows.
In August 2016, the FASB issued accounting guidance addressing diversity in practicecertain jointly owned generation and transmission facilities. See Note 8 for eight separate cash flow issues. The guidance requires entities to classify distributions received from equity method investees using either the cumulative earnings approach or the natureadditional information on joint ownership. Substantially all of the distribution approach. Subsidiary Registrants' operations qualify for regulatory accounting.
Duke Energy adopted this guidance on January 1, 2018,Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and electedsale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the nature of distribution approach. This approach requires all distributions received to be categorized based on legal documentation describing the natureregulatory provisions of the activities generatingNCUC, PSCSC, NRC and FERC.
Progress Energy is a public utility holding company, which conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Progress Energy is subject to regulation by FERC and other regulatory agencies listed below.
Duke Energy Progress is a regulated public utility primarily engaged in the distribution. Cash inflows resultinggeneration, transmission, distribution and sale of electricity in a return on investment (surplus) will be reflected in Cash Flows from Operating Activities on the Consolidated Statementsportions of Cash Flows, whereas cash inflows resulting in a return of investment (capital) will be reflected in Cash Flows from Investing Activities on the Consolidated Statements of Cash Flows. The guidance has been applied using the retrospective transition method to each period presented. There are no changesNorth Carolina and South Carolina. Duke Energy Progress is subject to the Consolidated Statementsregulatory provisions of Cash Flowsthe 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 FPSC, NRC and FERC.
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 periods presented as a result of this accounting change.
Retirement Benefits. In March 2017, the FASB issued revised accounting guidance for the presentation of net periodic costs related to benefit plans. Previous guidance required the aggregation of all the components of net periodic costsenergy price is recovered from retail customers and recorded in Operating Revenues on the Consolidated Statements of Operations and did not requireComprehensive Income. Operations in Kentucky are conducted through its wholly owned subsidiary, 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 disclosureregulatory provisions of the location of net periodic costs on the Consolidated Statements of Operations. Under the amended guidance, the service cost component of net periodic costs is included within Operating Income within the same line as other compensation expenses. All other components of net periodic costs are 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, PlantPUCO, KPSC and Equipment. This represents a change from previous guidance, which permitted all components of net periodic costs to be eligible for capitalization.FERC.
Duke Energy adopted this guidance on January 1, 2018. Under previous guidance,Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy presentedIndiana is subject to the total non-capitalized net periodicregulatory provisions of the IURC and FERC.
Piedmont is a regulated public utility primarily engaged in the distribution of natural gas in portions of North Carolina, South Carolina and Tennessee. Piedmont is subject to the regulatory provisions of the NCUC, PSCSC, TPUC and FERC.
Certain prior year amounts have been reclassified to conform to the current year presentation.
| | | | | |
FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
COVID-19
The COVID-19 pandemic is having a significant impact on global health and economic environments. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and the federal government proclaimed that the COVID-19 outbreak in the United States constitutes a national emergency. The Duke Energy Registrants are monitoring developments closely and responding appropriately. The company incurred approximately $112 million of incremental COVID-19 costs withinbefore deferral for the year ended December 31, 2020, included in Operation, maintenance and other on the Consolidated Statements of Operations. Further, the company waived approximately $64 million of late payment fees for the year ended December 31, 2020. The adoption of this guidance resulted in a retrospective change to reclassify the presentationcompany has deferred approximately $76 million of the non-serviceincremental costs, which were primarily bad debt expense, personal protective equipment and cleaning supplies, and a cost (benefit) componentscomponent of net periodic costslate payment fees. See Notes 3, 6, 17, 18 and 23 for additional information as well as steps taken to mitigate the impacts to our business and customers from the COVID-19 pandemic.
Other incomeCurrent Assets and expenses.Liabilities
The following table provides a description of amounts included in Other within Current Assets or Current Liabilities that exceed 5% of total Current Assets or Current Liabilities on the Duke Energy utilizedRegistrants' Consolidated Balance Sheets at either December 31, 2020, or 2019.
| | | | | | | | | | | | | | | | | |
| | | December 31, |
(in millions) | Location | | 2020 | | 2019 |
Duke Energy | | | | | |
| | | | | |
Other accrued liabilities | Current Liabilities | | $ | 1,455 | | | $ | 604 | |
Accrued compensation | Current Liabilities | | 662 | | | 862 | |
Duke Energy Carolinas | | | | | |
Accrued compensation | Current Liabilities | | $ | 213 | | | $ | 271 | |
Other accrued liabilities | Current Liabilities | | 178 | | | 147 | |
Progress Energy | | | | | |
| | | | | |
Customer deposits | Current Liabilities | | $ | 347 | | | $ | 354 | |
| | | | | |
| | | | | |
| | | | | |
Duke Energy Florida | | | | | |
Customer deposits | Current Liabilities | | $ | 203 | | | $ | 209 | |
| | | | | |
Duke Energy Ohio | | | | | |
Gas Storage | Current Assets | | $ | 21 | | | $ | 0 | |
| | | | | |
Duke Energy Indiana | | | | | |
Income taxes receivable | Current Assets | | $ | 9 | | | $ | 44 | |
| | | | | |
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Discontinued Operations
Duke Energy has elected to present cash flows of discontinued operations combined with cash flows of continuing operations. Unless otherwise noted, the practical expedientnotes to these consolidated financial statements exclude amounts related to discontinued operations for retrospective presentation.all periods presented. For the years ended December 31, 2020, 2019 and 2018, the Income (Loss) From Discontinued Operations, net of tax on Duke Energy's Consolidated Statements of Operations is entirely attributable to controlling interest.
Noncontrolling Interest
Duke Energy maintains a controlling financial interest in certain less than wholly owned nonregulated subsidiaries. As a result, Duke Energy consolidates these subsidiaries and presents the third-party investors' portion of Duke Energy's net income (loss), net assets and comprehensive income (loss) as noncontrolling interest. Noncontrolling interest is included as a component of equity on the Consolidated Balance Sheet.
Several operating agreements of Duke Energy's subsidiaries with noncontrolling interest are subject to allocations of tax attributes and cash flows in accordance with contractual agreements that vary throughout the lives of the subsidiaries. Therefore, Duke Energy and the other investors' (the owners) interests in the subsidiaries are not fixed, and the subsidiaries apply the HLBV method in allocating income or loss and other comprehensive income or loss (all measured on a pretax basis) to the owners. The HLBV method measures the amounts that each owner would hypothetically claim at each balance sheet reporting date, including tax benefits realized by the owners, most of which is over the IRS recapture period, upon a hypothetical liquidation of the subsidiary at the net book value of its underlying assets. The change in componentsthe amount that each owner would hypothetically receive at the reporting date compared to the amount it would have received on the previous reporting date represents the amount of income or loss allocated to each owner for the reporting period.
Other operating agreements of Duke Energy's subsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net periodic costs eligible for capitalization is applicable prospectively. Since Duke Energy’s service cost component is greater than the total net periodic costs, the change results in increased capitalization of net periodic costs, higher Operation, maintenanceincome or loss and other and higher Othercomprehensive income and expenses. The resulting prospective impactor loss of these subsidiaries to the owners based on their pro rata shares.
| | | | | |
FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
During the third quarter of 2019, Duke Energy completed a sale of minority interest in a portion of certain renewable assets within the Commercial Renewables Segment for pretax proceeds to Duke Energy is an immaterial increase in Net Income. See Note 22 for further information.
Forof $415 million. The portion of Duke Energy's commercial renewables energy portfolio sold includes 49% of 37 operating wind, solar and battery storage assets and 33% of 11 operating solar assets across the U.S. Duke Energy retained control of these assets, and, therefore, no gain or loss was recognized on the retrospective change resulted in higher Operation, maintenanceConsolidated Statements of Operations. The difference between the consideration received and other and higher Other income and expenses,the carrying value of the noncontrolling interest claim on net assets is $466 million, net of $156tax benefit of $8 million, and $139 millionwas recorded to equity.
The following table presents cash received for the sale of noncontrolling interest and allocated losses to noncontrolling interest for the years ended December 31, 2017,2020, and 2016, respectively. There was no change to Net Income for these prior periods.2019.
The following new accounting standards have been issued, but have not yet been adopted by the | | | | | | | | | | | |
| December 31, |
(in millions) | 2020 | | 2019 |
Noncontrolling Interest Capital Contributions | | | |
Cash received for the sale of noncontrolling interest to tax equity members | $ | 426 | | | $ | 428 | |
Cash received for the sale of noncontrolling interest to pro rata share members | — | | | 415 | |
Total Noncontrolling Interest Capital Contributions | $ | 426 | | | $ | 843 | |
Noncontrolling Interest Allocation of Income | | | |
Allocated losses to noncontrolling tax equity members utilizing the HLBV method | $ | 271 | | | $ | 165 | |
Allocated losses to noncontrolling members based on pro rata shares of ownership | 24 | | | 12 | |
Total Noncontrolling Interest Allocated Losses | $ | 295 | | | $ | 177 | |
2021 Sale of Minority Interest in Duke Energy Registrants, as of December 31, 2018.Indiana
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.
ForJanuary 2021, Duke Energy this guidance is effectiveentered into a definitive agreement providing for interimthe sale of a 19.9% minority interest in Duke Energy Indiana with an affiliate of GIC, Singapore's sovereign wealth fund and annual periods beginning January 1, 2019.an experienced investor in U.S. infrastructure. To facilitate the transaction, Duke Energy will issue and sell membership interests in Duke Energy Indiana Holdco, LLC. a newly created holding company that will own 100% of the issued and outstanding membership interests in Duke Energy Indiana. The guidancetransaction will be applied using a modified retrospective approach.completed following two closings for an aggregate purchase price of approximately $2 billion. The first closing is expected to be completed in the second quarter of 2021 and Duke Energy will issue and sell 11.1% of the membership interests in exchange for 50% of the purchase price. Under the modified retrospective approachterms of adoption, prior year reported results are not restatedthe agreement, Duke Energy has the discretion to determine the timing of the second closing, but it will occur no later than January 2023. At the second closing, Duke Energy will issue and a cumulative-effect adjustment, if applicable, is recorded to retained earnings at January 1, 2019. Upon adoption, agreements considered leasessell additional membership interests such that GIC will own 19.9% of the membership interests for the useremaining 50% of certain aircraft, space on communication towers, industrial equipment, fleet vehicles, fuel transportation (bargesthe purchase price. Duke Energy will continue to operate and railcars), landretain control of Duke Energy Indiana and, office spacetherefore, no gain or loss is expected to be recognized in the Consolidated Statements of Operations. Additionally, the transaction will be recognized on the balance sheet.reflected within Duke Energy expects to adopt the following practical expedients:Corporations' stockholders' equity as a sale of a noncontrolling interest.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
| | |
Practical Expedient | Description | Election |
Package of transition practical expedients (for leases commenced prior to adoption date and must be adopted as a package) | Do not need to 1) reassess whether any expired or existing contracts are/or contain leases, 2) reassess the lease classification for any expired or existing leases and 3) reassess initial direct costs for any existing leases. | Duke Energy plans to elect this practical expedient. |
Short-term lease expedient (elect by class of underlying asset) | Elect as an accounting policy to not apply the recognition requirements to short-term leases by asset class. | Duke Energy plans to elect this practical expedient for all asset classes. |
Lease and non-lease components (elect by class of underlying asset) | Elect as an accounting policy to not separate non-lease components from lease components and instead account for each lease and associated non-lease component as a single lease component by asset class. | Duke Energy plans to elect this practical expedient for all asset classes. |
Hindsight expedient (when determining lease term) | Elect to use hindsight to determine the lease term. | Duke Energy plans to elect this practical expedient. |
Existing and expired land easements not previously accounted for as leases | Elect to not evaluate existing or expired easements under the new guidance and carry forward current accounting treatment. | Duke Energy plans to elect this practical expedient. |
Comparative reporting requirements for initial adoption
| Elect to apply transition requirements at adoption date, recognize cumulative effect adjustment to retained earnings in period of adoption and not apply ASC 842 to comparative periods, including disclosures. | Duke Energy plans to elect this practical expedient. |
Lessor expedient (elect by class of underlying asset)
| Elect as an accounting policy to aggregate non-lease components with the related lease component when specified conditions are met by asset class. Account for the combined component based on its predominant characteristic (revenue or operating lease). | Duke Energy plans to elect this practical expedient for all asset classes. |
Duke Energy currently expects to record right-of-use assets and operating lease liabilities on its balance sheet as shown in approximate amounts in the table below: |
| | | |
| (in millions) |
|
Duke Energy | $ | 1,700 |
|
Duke Energy Carolinas | 150 |
|
Progress Energy | 850 |
|
Duke Energy Progress | 400 |
|
Duke Energy Florida | 450 |
|
Duke Energy Ohio | 25 |
|
Duke Energy Indiana | 60 |
|
Piedmont | 30 |
|
In addition to the recognition of operating leases on the balance sheet, Duke Energy expects additional disclosures including both finance and operating lease costs, short-term lease costs, variable lease costs, weighted-average remaining lease term as well as weighted-average discount rates. Duke Energy does not expect a material change to its financial statements from adoption of the new standard for contracts where it is the lessor.
2. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONSAcquisitions
The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date and include earnings from acquisitions in consolidated earnings after the purchase date.
2016 AcquisitionSignificant Accounting Policies
Use of Piedmont Natural GasEstimates
On October 3, 2016,In preparing financial statements that conform to GAAP, the Duke Energy acquired all outstanding common stockRegistrants must make estimates and assumptions that affect the reported amounts of Piedmontassets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Regulatory Accounting
The majority of the Duke Energy Registrants’ operations are subject to price regulation for the sale of electricity and natural gas by state utility commissions or FERC. When prices are set on the basis of specific costs of the regulated operations and an effective franchise is in place such that sufficient natural gas or electric services can be sold to recover those costs, the Duke Energy Registrants apply regulatory accounting. Regulatory accounting changes the timing of the recognition of costs or revenues relative to a company that does not apply regulatory accounting. As a result, 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. Regulatory assets are reviewed for recoverability each reporting period. If a regulatory asset is no longer deemed probable of recovery, the deferred cost is charged to earnings. See Note 3 for further information.
Regulatory accounting rules also require recognition of a disallowance (also called "impairment") loss if it becomes probable that part of the cost of a plant under construction (or a recently completed plant or an abandoned plant) will be disallowed for ratemaking purposes and a reasonable estimate of the amount of the disallowance can be made. For example, if a cost cap is set for a total cash purchase price of $5.0 billion and assumed Piedmont's existing long-term debt, which had a fair value of approximately $2.0 billion atplant still under construction, the timeamount of the acquisition. The acquisition providesdisallowance is a foundation for Duke Energyresult of a judgment as 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 the closingultimate cost of the acquisition, Piedmont became a wholly owned subsidiary of Duke Energy.
plant. These disallowances can require judgments on allowed future rate recovery.
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FINANCIAL STATEMENTS | ACQUISITIONS AND DISPOSITIONSSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 charge for a disallowance of costs for regulated plants under construction, recently completed or abandoned is based on discounted cash flows.
Accounting Charges Related to the Acquisition
The Duke Energy incurred pretax transaction and integration costs associated with the acquisition of $84 million, $103 million and $439 millionRegistrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses or PGA clauses. These clauses allow for the years ended December 31, 2018, 2017recovery of fuel and 2016, respectively. Amountsfuel-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 Operating Revenues, Operating Expenses – Fuel used in electric generation or Operating Expenses – Cost of natural gas on the Consolidated Statements of Operations, with an off-setting impact on regulatory assets or liabilities.
Cash, Cash Equivalents and Restricted Cash
All highly liquid investments with maturities of three months or less at the date of acquisition are considered cash equivalents. Duke Energy, Progress Energy and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and VIEs. See Note 17 for additional information. Restricted cash amounts are included in 2018Other within Current Assets and 2017Other Noncurrent Assets on the Consolidated Balance Sheets. The following table presents the components of cash, cash equivalents and restricted cash included in the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | Duke | | | | Duke |
| Duke | Progress | Energy | | Duke | Progress | Energy |
| Energy | Energy | Florida | | Energy | Energy | Florida |
Current Assets | | | | | | | |
Cash and cash equivalents | $ | 259 | | $ | 59 | | $ | 11 | | | $ | 311 | | $ | 48 | | $ | 17 | |
Other | 194 | | 39 | | 39 | | | 222 | | 39 | | 39 | |
Other Noncurrent Assets | | | | | | | |
Other | 103 | | 102 | | — | | | 40 | | 39 | | — | |
Total cash, cash equivalents and restricted cash | $ | 556 | | $ | 200 | | $ | 50 | | | $ | 573 | | $ | 126 | | $ | 56 | |
| | | | | | | |
Inventory
Inventory related to regulated operations is valued at historical cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Inventory is charged to expense or capitalized to property, plant and equipment when issued, primarily using the average cost method. Excess or obsolete inventory is written down to the lower of cost or net realizable value. Once inventory has been written down, it creates a new cost basis for the inventory that is not subsequently written up. Provisions for inventory write-offs were not material at December 31, 2020, and 2019, respectively. The components of inventory are presented in the tables below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | 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 | $ | 2,312 | | | $ | 785 | | | $ | 999 | | | $ | 673 | | | $ | 325 | | | $ | 78 | | | $ | 307 | | | $ | 12 | |
Coal | 561 | | | 186 | | | 193 | | | 131 | | | 63 | | | 16 | | | 165 | | | — | |
Natural gas, oil and other | 294 | | | 39 | | | 183 | | | 107 | | | 76 | | | 16 | | | 1 | | | 56 | |
Total inventory | $ | 3,167 | | | $ | 1,010 | | | $ | 1,375 | | | $ | 911 | | | $ | 464 | | | $ | 110 | | | $ | 473 | | | $ | 68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | 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 | $ | 2,297 | | | $ | 768 | | | $ | 1,038 | | | $ | 686 | | | $ | 351 | | | $ | 79 | | | $ | 318 | | | $ | 5 | |
Coal | 586 | | | 187 | | | 186 | | | 138 | | | 48 | | | 15 | | | 198 | | | — | |
Natural gas, oil and other | 349 | | | 41 | | | 199 | | | 110 | | | 90 | | | 41 | | | 1 | | | 67 | |
Total inventory | $ | 3,232 | | | $ | 996 | | | $ | 1,423 | | | $ | 934 | | | $ | 489 | | | $ | 135 | | | $ | 517 | | | $ | 72 | |
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Investments in Debt and Equity Securities
The Duke Energy Registrants classify investments in equity securities as FV-NI and investments in debt securities as AFS. Both categories are recorded at fair value on the Consolidated Balance Sheets. Realized and unrealized gains and losses on securities classified as FV-NI are reported through net income. Unrealized gains and losses for debt securities classified as AFS are included in AOCI until realized, unless it is determined the carrying value of an investment has a credit loss. For certain investments of regulated operations, such as substantially all of the NDTF, realized and unrealized gains and losses (including any credit losses) on debt securities are recorded as a regulatory asset or liability. The credit 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
Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont perform annual goodwill impairment tests as of August 31 each year at the reporting unit level, which is determined to be a business 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 fair value of a reporting unit below its carrying value. See Note 11 for further information.
Intangible Assets
Intangible assets are included in Other in Other Noncurrent Assets on the Consolidated Balance Sheets. Generally, intangible assets are amortized using an amortization method that reflects the pattern in which the economic benefits of the intangible asset are consumed or on a straight-line basis if that pattern is not readily determinable. Amortization of intangibles is reflected in Depreciation and amortization on the Consolidated Statements of Operations. Intangible assets are subject to impairment testing and if impaired, the carrying value is accordingly reduced.
RECs are used to measure compliance with renewable energy standards and are held primarily system integrationfor 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.
Equity Method Investment Impairments
Investments in affiliates that are not controlled by Duke Energy, but over which it has significant influence, are accounted for using the equity method. Equity method investments are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If the decline in value is considered to be other than temporary, the investment is written down to its estimated fair value, which establishes a new cost basis in the investment.
Impairment assessments use a discounted cash flow income approach and include consideration of the severity and duration of any decline in the fair value of the investments. The estimated cash flows may be based on alternative expected outcomes that are probability weighted. Key inputs that involve estimates and significant management judgment include cash flow projections, selection of a discount rate, probability weighting of potential outcomes, and whether any decline in value is considered temporary.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 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, |
| 2020 | | 2019 | | 2018 |
Duke Energy | 3.0 | % | | 3.1 | % | | 3.0 | % |
Duke Energy Carolinas | 2.8 | % | | 2.8 | % | | 2.8 | % |
Progress Energy | 3.2 | % | | 3.1 | % | | 2.9 | % |
Duke Energy Progress | 3.1 | % | | 3.1 | % | | 2.9 | % |
Duke Energy Florida | 3.3 | % | | 3.1 | % | | 3.0 | % |
Duke Energy Ohio | 2.9 | % | | 2.6 | % | | 2.8 | % |
Duke Energy Indiana | 3.5 | % | | 3.3 | % | | 3.3 | % |
Piedmont | 2.3 | % | | 2.4 | % | | 2.5 | % |
In general, when the Duke Energy Registrants retire regulated property, plant and equipment, the original cost plus the cost of retirement, less salvage value and any depreciation already recognized, 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). 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 extent the net book value of the asset 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 additional information.
Leases
Duke Energy determines if an arrangement is a lease at contract inception based on whether the arrangement involves the use of a physically distinct identified asset and whether Duke Energy has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period as well as the right to direct the use of the asset. As a policy election, Duke Energy does not evaluate arrangements with initial contract terms of less than one year as leases.
Operating leases are included in Operating lease ROU assets, net, Other current liabilities and Operating lease liabilities on the Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, Current maturities of long-term debt and Long-Term Debt on the Consolidated Balance Sheets.
For lessee and lessor arrangements, Duke Energy has elected a policy to not separate lease and non-lease components for all asset classes. For lessor arrangements, lease and non-lease components are only combined under one arrangement and accounted for under the lease accounting framework if the non-lease components are not the predominant component of the arrangement and the lease component would be classified as an operating lease.
Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the Consolidated Balance Sheets.
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 $78 millionfinancing the construction of property, plant and $71 million, respectively,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.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
AFUDC equity, a permanent difference for income taxes, reduces the ETR when capitalized and increases the ETR when depreciated or amortized. See Note 23 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
AROs are recognized for legal obligations associated with the retirement of property, plant and equipment. Substantially all AROs are related to combiningregulated operations. When recording an ARO, the various operationalpresent value of the projected liability is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The liability is accreted over time. For operating plants, the present value of the liability is added to the cost of the associated asset and depreciated over the remaining life of the asset. For retired plants, the present value of the liability is recorded as a regulatory asset unless determined not to be probable of recovery.
The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding timing of future cash flows, selection of discount rates and cost escalation rates, among other factors. These estimates are subject to change. Depreciation expense is adjusted prospectively for any changes to the carrying amount of the associated asset. The Duke Energy Registrants receive amounts to fund the cost of the ARO for regulated operations through a combination of regulated revenues and earnings on the NDTF. As a result, amounts recovered in regulated revenues, earnings on the NDTF, accretion expense and depreciation of the associated asset are netted and deferred as a regulatory asset or liability.
Accounts Payable
During 2020, Duke Energy established a supply chain finance program (the “program”) with a global financial systems ofinstitution. The program is voluntary and allows Duke Energy suppliers, at their sole discretion, to sell their receivables from Duke Energy to the financial institution at a rate that leverages Duke Energy’s credit rating and, which may result in favorable terms compared to the rate available to the supplier on their own credit rating. Suppliers participating in the program, determine at their sole discretion which invoices they will sell to the financial institution. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and Piedmont, including a one-time software impairment resulting from planned accounting system and process integration in 2017. A $7 million charge was recorded within Impairment Charges, with the remaining $64 million recorded within Operation, maintenance and other in 2017.
Amounts recorded in 2016 include:
Interest expensesupplier regardless 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 charges.
program participation. The majority of transition and integration activities were completed by the end of 2018.
Pro Forma Financial Information
The following unaudited pro forma financial information reflects the combined results of operations ofcommercial terms negotiated between Duke Energy and Piedmont as ifits suppliers are consistent regardless of whether the merger had occurred as of January 1, 2015. The pro forma financial informationsupplier elects to participate in the program. Duke Energy does not include potential cost savings, intercompany revenues, Piedmont’s earnings from a certain equity method investment sold immediately priorissue any guarantees with respect to the merger or non-recurring transactionprogram and integration costs incurred bydoes not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and Piedmont. The after-tax transactionreceives no interest, fees or other benefit from the financial institution based on supplier participation in the program.
At December 31, 2020, $15 million, $1 million and integration costs incurred by$14 million of the outstanding Accounts payable balance for Duke Energy, Duke Energy Ohio and Piedmont, were $279respectively, was sold to the financial institution by our suppliers. Suppliers invoices sold to the financial institution under the program totaled $45 million, $9 million and $36 million for the year ended December 31, 2016.
This information has been presented2020, for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or the future consolidated results of operations of Duke Energy. |
| | | |
| Year Ended December 31, |
(in millions) | 2016 |
Operating Revenues | $ | 23,504 |
|
Net Income Attributable to Duke Energy Corporation | 2,442 |
|
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, were $367 million and $20 million, respectively. Piedmont's revenues and net income for the year ended December 31, 2016, include the impact of non-recurring transaction costs of $10 million and $46 million, respectively.
DISPOSITIONS
For the years ended December 31, 2018, and 2017, the Income (Loss) from Discontinued Operations, net of tax, was immaterial. The following table summarizes the Loss from Discontinued Operations, net of tax recorded on Duke Energy's Consolidated Statements of Operations for the year ended December 31, 2016: |
| | | |
| Year Ended December 31, |
(in millions) | 2016 |
|
International Disposal Group | $ | (534 | ) |
Other(a) | 126 |
|
Loss from Discontinued Operations, net of tax | $ | (408 | ) |
| |
(a) | Amount represents an income tax benefit resulting from immaterial out of period deferred tax liability adjustments for previously sold businesses not related to the International Disposal Group. |
2016 Sale of International Energy
In February 2016, Duke Energy, announced it had initiated a process to divest the International Disposal Group, and in October 2016, announced it had entered into two separate 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 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:
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FINANCIAL STATEMENTS | ACQUISITIONS AND DISPOSITIONS |
On December 20, 2016, Duke Energy closed on the sale of its ownership interests in businesses in Argentina, Chile, Ecuador, El Salvador, GuatemalaOhio and PeruPiedmont, respectively. All activity related 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,amounts due 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 operationssuppliers who elected to participate in the fourth quarter of 2016. Interest expense directly associated with the International Disposal Group was allocated to discontinued operations. No interest from corporate level debt was allocated to discontinued operations.
The following table presents the results of the International Disposal Group for the year ended December 31, 2016, whichprogram are included in Loss from Discontinued Operations, net of tax in Duke Energy's Consolidated Statements of Operations. |
| | | |
| Year Ended December 31, |
(in millions) | 2016 |
|
Operating Revenues | $ | 988 |
|
Fuel used in electric generation and purchased power | 227 |
|
Cost of natural gas | 43 |
|
Operation, maintenance and other | 341 |
|
Depreciation and amortization(a) | 62 |
|
Property and other taxes | 15 |
|
Impairment charges (b) | 194 |
|
(Losses) Gains on Sales of Other Assets and Other, net | (3 | ) |
Other Income and Expenses, net | 58 |
|
Interest Expense | 82 |
|
Pretax loss on disposal(c) | (514 | ) |
Loss before income taxes(d) | (435 | ) |
Income tax expense(e)(f) | 99 |
|
Loss from discontinued operations of the International Disposal Group | $ | (534 | ) |
| |
(a) | Upon meeting the criteria for assets held for sale, beginning in the fourth quarter of 2016 depreciation expense 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 attributable to Duke Energy Corporation was $(445) million for the year ended December 31, 2016. |
| |
(e) | 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) | Amount includes an income tax benefit of $95 million. See Note 23, "Income Taxes," for additional information. |
Duke Energy has elected not to separately disclose discontinued operationswithin Net cash provided by operating activities on the Consolidated Statements of Cash Flows.
Revenue Recognition
Duke Energy recognizes revenue as customers obtain control of promised goods and services in an amount that reflects consideration expected in exchange for those goods or services. Generally, the delivery of electricity and natural gas results in the transfer of control to customers at the time the commodity is delivered and the amount of revenue recognized is equal to the amount billed to each customer, including estimated volumes delivered when billings have not yet occurred. See Note 18 for further information.
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 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 following table summarizes Duke Energy'seffective 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 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 discontinuedexperience.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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.
Unamortized Debt Premium, Discount and Expense
Premiums, discounts and expenses incurred with the issuance of outstanding long-term debt are amortized over the term of the debt issue. The gain or loss on extinguishment associated with refinancing higher-cost debt obligations in the regulated operations is amortized over the remaining life of the original instrument. Amortization expense is recorded as Interest Expense in the Consolidated Statements of 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.
Preferred Stock
Preferred stock is reviewed to determine the appropriate balance sheet classification and embedded features, such as call options, are evaluated to determine if they should be bifurcated and accounted for separately. Costs directly related to the
International Disposal Group. |
| | | |
| Year Ended December 31, |
(in millions) | 2016 |
|
Cash flows provided by (used in): | |
Operating activities | $ | 204 |
|
Investing activities | (434 | ) |
Other Sale Related Matters
During 2017,issuance of preferred stock is recorded as a reduction of the proceeds received. The liability for the dividend is recognized when declared. The accumulated dividends on the cumulative preferred stock is recognized to net income available to Duke Energy provided certain transition services to CTGCorporation in the EPS calculation. See Note 19 for further information.
Loss Contingencies and I Squared Capital. Cash flowsEnvironmental 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 providingpast 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 are recorded as regulatory assets.
See Notes 3 and 4 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 transition servicesSubsidiary 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 22 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. Duke Energy also 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 20 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. Duke Energy recognizes a liability for the best estimate of its loss due to the nonperformance of the guaranteed party. This liability is recognized at the inception of a guarantee and is updated periodically. See Note 7 for further information.
Stock-Based Compensation
Stock-based compensation represents costs related to stock-based awards granted to employees and 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 21 for further information.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Income Taxes
Duke Energy and its subsidiaries file a consolidated federal income tax return and other state and foreign jurisdictional returns. The Subsidiary Registrants are parties to a tax-sharing agreement with Duke Energy. Income taxes recorded represent amounts the Subsidiary Registrants would incur as separate C-Corporations. Deferred income taxes have been provided for temporary differences between GAAP and tax bases of assets and liabilities because the differences create taxable or tax-deductible amounts for future periods. ITCs associated with regulated operations are deferred and amortized as a reduction of income tax expense over the estimated useful lives of the related properties. For ITCs associated with nonregulated operations see “Accounting for Renewable Energy Tax Credits.”
Accumulated deferred income taxes are valued using the enacted tax rate expected to apply to taxable income in the periods in which the 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. Duke Energy's results of operations could be impacted if the 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 a reversal.
Tax-related interest and penalties are recorded in Interest Expense and Other Income and Expenses, net in the Consolidated Statements of Operations.
See Note 23 for further information.
Accounting for Renewable Energy Tax Credits
When Duke Energy receives ITCs on wind or solar facilities associated with its nonregulated operations, it reduces the basis of the property recorded on the 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 ITC. Deferred tax benefits are recorded as a reduction to income tax expense in the period that the basis difference is created.
When Duke Energy receives ITCs on wind or solar facilities associated with its regulated operations, the ITC is deferred and amortized as a reduction of income tax expense over the estimated useful lives of the related properties.
Duke Energy receives PTCs on wind facilities that are recognized as electricity is produced and records related amounts as a reduction of income tax expense.
Excise Taxes
Certain excise taxes levied by state or local governments are required to be paid even if not collected from the customer. These taxes are recognized on a gross basis. Taxes for which Duke Energy operates merely as a collection agent for the state and local government are accounted for on a net basis. Excise taxes accounted for on a gross basis within both Operating Revenues and Property and other taxes in the Consolidated Statements of Operations were as follows.
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| Years Ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
Duke Energy | $ | 415 | | | $ | 421 | | | $ | 405 | |
Duke Energy Carolinas | 43 | | | 39 | | | 35 | |
Progress Energy | 249 | | | 256 | | | 241 | |
Duke Energy Progress | 26 | | | 21 | | | 19 | |
Duke Energy Florida | 223 | | | 235 | | | 222 | |
Duke Energy Ohio | 96 | | | 101 | | | 105 | |
Duke Energy Indiana | 25 | | | 23 | | | 22 | |
Piedmont | 2 | | | 2 | | | 2 | |
Dividend Restrictions and Unappropriated Retained Earnings
Duke Energy does not materialhave any current legal, regulatory or other restrictions on paying common stock dividends to shareholders. However, if Duke Energy were to defer dividend payments on the preferred stock, the declaration of common stock dividends would be prohibited. See Note 19 for more information. Additionally, as further described in Note 3, 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 due to conditions established by regulators in conjunction with merger transaction approvals. At December 31, 2020, and 2019, an insignificant amount of Duke Energy’s consolidated Retained earnings balance represents undistributed earnings of equity method investments.
New Accounting Standards
The following new accounting standard was adopted by Duke Energy Registrants in 2020.
Credit Losses. In June 2016, the FASB issued new accounting guidance for credit losses. Duke Energy adopted the new accounting guidance for credit losses effective January 1, 2020, using the modified retrospective method of adoption, which does not require restatement of prior year results. Duke Energy did not adopt any practical expedients.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Duke Energy recognizes allowances for credit losses based on management's estimate of losses expected to be incurred over the lives of certain assets or guarantees. Management monitors credit quality, changes in expected credit losses and the appropriateness of the allowance for credit losses on a forward-looking basis. Management reviews the risk of loss periodically as part of the existing assessment of collectability of receivables.
Duke Energy reviews the credit quality of its counterparties as part of its regular risk management process and requires credit enhancements, such as deposits or letters of credit, as appropriate and as allowed by regulators.
Duke Energy recorded cumulative effects of changes in accounting principles related to the adoption of new credit loss standard, for allowances and credit losses of trade and other receivables, insurance receivables and financial guarantees. These amounts are included in the Condensed Consolidated Balance Sheets in Receivables, Receivables of VIEs, Other Noncurrent Assets and Other Noncurrent Liabilities. See Notes 7 and 18 for more information.
Duke Energy recorded an adjustment for the cumulative effect of a change in accounting principle due to the adoption of this standard on January 1, 2020, as shown in the table below:
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| December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | | | | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | | | | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | | | | | Piedmont |
Total pretax impact to Retained Earnings | $ | 120 | | | $ | 16 | | | $ | 2 | | | $ | 1 | | | $ | 1 | | | | | | | $ | 1 | |
The following new accounting standard has been issued but not yet adopted by the Duke Energy Registrants as of December 31, 2017. All2020.
Reference Rate Reform. In March 2020, the FASB issued new accounting guidance for reference rate reform. This guidance is elective and provides expedients to facilitate financial reporting for the anticipated transition services related to the International Disposal Group ended in 2017. Additionally, Duke Energy will reimburse CTG and I Squared Capital for all tax obligations arisingaway from the period preceding consummation onLondon Inter-bank Offered Rate (LIBOR) and other interbank reference rates by the transactions, and recorded a liabilityend of $54 million and $78 million as2021. The optional expedients are effective for modification of existing contracts or new arrangements executed between March 12, 2020, through December 31, 2018, and 2017, respectively. 2022.
Duke Energy has variable-rate debt and manages interest rate risk by entering into financial contracts including interest rate swaps that are generally indexed to LIBOR. Impacted financial arrangements extending beyond 2021 may require contractual amendment or termination to fully adapt to a post-LIBOR environment. Duke Energy is assessing these financial arrangements and is evaluating the use of optional expedients outlined in the new accounting guidance. Alternative index provisions are also being assessed and incorporated into new financial arrangements that extend beyond 2021. The full outcome of the transition away from LIBOR cannot be determined at this time, but is not recorded any other liabilities, contingent liabilities or indemnifications relatedexpected to have a material impact on the International Disposal Group.financial statements.
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FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
3.2. BUSINESS SEGMENTS
Reportable 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.interests and preferred stock dividends. 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 presented in the tables 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 scaleutility-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 interest expense on holding company debt, unallocated corporate costs and Duke Energy’s wholly owned captive insurance company, Bison. Other also includes Duke Energy's interest in NMC. See Note 12 for additional information on the investment in NMC.
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FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
Business segment information is presented in the following tables. Segment assets presented exclude intercompany assets.
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| Year Ended December 31, 2020 |
| Electric | | Gas | | | | Total | | | | | | |
| Utilities and | | Utilities and | | Commercial | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Renewables | | Segments | | Other | | Eliminations | | Total |
Unaffiliated Revenues | $ | 21,687 | | | $ | 1,653 | | | $ | 502 | | | $ | 23,842 | | | $ | 26 | | | $ | — | | | $ | 23,868 | |
Intersegment Revenues | 33 | | | 95 | | | — | | | 128 | | | 71 | | | (199) | | | — | |
Total Revenues | $ | 21,720 | | | $ | 1,748 | | | $ | 502 | | | $ | 23,970 | | | $ | 97 | | | $ | (199) | | | $ | 23,868 | |
Interest Expense | $ | 1,320 | | | $ | 135 | | | $ | 66 | | | $ | 1,521 | | | $ | 657 | | | $ | (16) | | | $ | 2,162 | |
Depreciation and amortization | 4,068 | | | 258 | | | 199 | | | 4,525 | | | 209 | | | (29) | | | 4,705 | |
Equity in earnings (losses) of unconsolidated affiliates | (1) | | | (2,017) | | | — | | | (2,018) | | | 13 | | | — | | | (2,005) | |
Income tax expense (benefit) | 340 | | | (349) | | | (65) | | | (74) | | | (162) | | | — | | | (236) | |
Segment income (loss)(a)(b)(c) | 2,669 | | | (1,266) | | | 286 | | | 1,689 | | | (426) | | | — | | | 1,263 | |
Less noncontrolling interest | | | | | | | | | | | | | 295 | |
Add back preferred stock dividend | | | | | | | | | | | | | 107 | |
Income from discontinued operations, net of tax | | | | | | | | | | | | | 7 | |
Net income | | | | | | | | | | | | | $ | 1,082 | |
Capital investments expenditures and acquisitions | $ | 7,629 | | | $ | 1,309 | | | $ | 1,219 | | | $ | 10,157 | | | $ | 264 | | | $ | — | | | $ | 10,421 | |
Segment assets | 138,225 | | | 13,849 | | | 6,716 | | | 158,790 | | | 3,598 | | | — | | | 162,388 | |
(a) Electric Utilities and Infrastructure includes $948 million of Impairment charges and a reversal of $152 million included in Regulated electric operating revenue related to the CCR Settlement Agreement filed with the NCUC. Additionally, Electric Utilities and Infrastructure includes $19 million of Impairment charges related to the Clemson University Combined Heat and Power Plant, $5 million of Impairment charges related to the gas pipeline assets and $16 million of shareholder contributions within Operations, maintenance and other related to Duke Energy Carolinas' and Duke Energy Progress' 2019 North Carolina rate cases. See Note 3 for additional information.
(b) Gas Utilities and Infrastructure includes $2.1 billion recorded within Equity in (losses) earnings of unconsolidated affiliates and $7 million of Impairment charges related to gas pipeline investments. See Notes 3 and 12 for additional information.
(c) Other includes a $98 million reversal of 2018 severance costs due to a partial settlement in the Duke Energy Carolinas' 2019 North Carolina rate case. See Note 3 and 20 for additional information.
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| Year Ended December 31, 2019 |
| Electric | | Gas | | | | Total | | | | | | |
| Utilities and | | Utilities and | | Commercial | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Renewables | | Segments | | Other | | Eliminations | | Total |
Unaffiliated Revenues | $ | 22,798 | | | $ | 1,770 | | | $ | 487 | | | $ | 25,055 | | | $ | 24 | | | $ | — | | | $ | 25,079 | |
Intersegment Revenues | 33 | | | 96 | | | — | | | 129 | | | 71 | | | (200) | | | — | |
Total Revenues | $ | 22,831 | | | $ | 1,866 | | | $ | 487 | | | $ | 25,184 | | | $ | 95 | | | $ | (200) | | | $ | 25,079 | |
Interest Expense | $ | 1,345 | | | $ | 117 | | | $ | 95 | | | $ | 1,557 | | | $ | 705 | | | $ | (58) | | | $ | 2,204 | |
Depreciation and amortization | 3,951 | | | 256 | | | 168 | | | 4,375 | | | 178 | | | (5) | | | 4,548 | |
Equity in earnings (losses) of unconsolidated affiliates | 9 | | | 114 | | | (4) | | | 119 | | | 43 | | | — | | | 162 | |
Income tax expense (benefit) | 785 | | | 22 | | | (115) | | | 692 | | | (173) | | | — | | | 519 | |
Segment income (loss)(a)(b) | 3,536 | | | 432 | | | 198 | | | 4,166 | | | (452) | | | — | | | 3,714 | |
Less noncontrolling interest | | | | | | | | | | | | | 177 | |
Add back preferred stock dividend | | | | | | | | | | | | | 41 | |
Loss from discontinued operations, net of tax | | | | | | | | | | | | | (7) | |
Net income | | | | | | | | | | | | | $ | 3,571 | |
Capital investments expenditures and acquisitions | $ | 8,263 | | | $ | 1,539 | | | $ | 1,423 | | | $ | 11,225 | | | $ | 221 | | | $ | — | | | $ | 11,446 | |
Segment assets | 135,561 | | | 13,921 | | | 6,020 | | | 155,502 | | | 3,148 | | | 188 | | | 158,838 | |
(a) Electric Utilities and Infrastructure includes a $27 million reduction of a prior year impairment at Citrus County CC related to the plant's cost cap. See Note 3 for additional information.
(b) Gas Utilities and Infrastructure includes an after-tax impairment charge of $19 million for the remaining investment in Constitution. See Note 12 for additional information.
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| Year Ended December 31, 2018 |
| Electric |
| | Gas |
| | | | Total |
| | | | | | |
| Utilities and |
| | Utilities and |
| | Commercial |
| | Reportable |
| | | | | | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Renewables |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
|
Unaffiliated Revenues | $ | 22,242 |
| | $ | 1,783 |
| | $ | 477 |
| | $ | 24,502 |
| | $ | 19 |
| | $ | — |
| | $ | 24,521 |
|
Intersegment Revenues | 31 |
| | 98 |
| | — |
| | 129 |
| | 70 |
| | (199 | ) | | — |
|
Total Revenues | $ | 22,273 |
| | $ | 1,881 |
| | $ | 477 |
| | $ | 24,631 |
| | $ | 89 |
| | $ | (199 | ) | | $ | 24,521 |
|
Interest Expense | $ | 1,288 |
| | $ | 106 |
| | $ | 88 |
| | $ | 1,482 |
| | $ | 657 |
| | $ | (45 | ) | | $ | 2,094 |
|
Depreciation and amortization | 3,523 |
| | 245 |
| | 155 |
| | 3,923 |
| | 152 |
| | (1 | ) | | 4,074 |
|
Equity in earnings (losses) of unconsolidated affiliates | 5 |
| | 27 |
| | (1 | ) | | 31 |
| | 52 |
| | — |
| | 83 |
|
Income tax expense (benefit)(a) | 799 |
| | 78 |
| | (147 | ) | | 730 |
| | (282 | ) | | — |
| | 448 |
|
Segment income (loss)(b)(c)(d)(e) | 3,058 |
| | 274 |
| | 9 |
| | 3,341 |
| | (694 | ) | | — |
| | 2,647 |
|
Add back noncontrolling interest component | |
| | |
| | |
| | |
| | |
| | |
| | (22 | ) |
Income from discontinued operations, net of tax | |
| | |
| | |
| | |
| | |
| | |
| | 19 |
|
Net income | |
| | |
| | |
| | |
| | |
| | |
| | $ | 2,644 |
|
Capital investments expenditures and acquisitions | $ | 8,086 |
| | $ | 1,133 |
| | $ | 193 |
| | $ | 9,412 |
| | $ | 256 |
| | $ | — |
| | $ | 9,668 |
|
Segment assets | 125,364 |
| | 12,361 |
| | 4,204 |
| | 141,929 |
| | 3,275 |
| | 188 |
| | 145,392 |
|
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(a) | All segments include adjustments to the December 31, 2017 estimate of the income tax effects of the Tax Act. Electric Utilities and Infrastructure includes a $24 million expense, Gas Utilities and Infrastructure includes a $1 million expense, Commercial Renewables includes a $3 million benefit and Other includes a $2 million benefit. See Note 23 for additional information. |
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(b) | Electric Utilities and Infrastructure includes after-tax regulatory and legislative impairment charges of $202 million related to rate case orders, settlements or other actions of regulators or legislative bodies and an after-tax impairment charge of $46 million related to the Citrus County CC at Duke Energy Florida. See Note 4 for additional information. |
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(c) | Gas Utilities and Infrastructure includes an after-tax impairment charge of $42 million for the investment in Constitution. See Note 12 for additional information. |
| |
(d) | Commercial Renewables includes an impairment charge of $91 million, net of $2 million Noncontrolling interests, related to goodwill. See Note 11 for additional information. |
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FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| Electric | | Gas | | | | Total | | | | | | |
| Utilities and | | Utilities and | | Commercial | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Renewables | | Segments | | Other | | Eliminations | | Total |
Unaffiliated Revenues | $ | 22,242 | | | $ | 1,783 | | | $ | 477 | | | $ | 24,502 | | | $ | 19 | | | $ | — | | | $ | 24,521 | |
Intersegment Revenues | 31 | | | 98 | | | — | | | 129 | | | 70 | | | (199) | | | — | |
Total Revenues | $ | 22,273 | | | $ | 1,881 | | | $ | 477 | | | $ | 24,631 | | | $ | 89 | | | $ | (199) | | | $ | 24,521 | |
Interest Expense | $ | 1,288 | | | $ | 106 | | | $ | 88 | | | $ | 1,482 | | | $ | 657 | | | $ | (45) | | | $ | 2,094 | |
Depreciation and amortization | 3,523 | | | 245 | | | 155 | | | 3,923 | | | 152 | | | (1) | | | 4,074 | |
Equity in earnings (losses) of unconsolidated affiliates | 5 | | | 27 | | | (1) | | | 31 | | | 52 | | | — | | | 83 | |
Income tax expense (benefit)(a) | 799 | | | 78 | | | (147) | | | 730 | | | (282) | | | — | | | 448 | |
Segment income (loss)(b)(c)(d)(e) | 3,058 | | | 274 | | | 9 | | | 3,341 | | | (694) | | | — | | | 2,647 | |
Less noncontrolling interest | | | | | | | | | | | | | 22 | |
Income from discontinued operations, net of tax | | | | | | | | | | | | | 19 | |
Net income | | | | | | | | | | | | | $ | 2,644 | |
Capital investments expenditures and acquisitions | $ | 8,086 | | | $ | 1,133 | | | $ | 193 | | | $ | 9,412 | | | $ | 256 | | | $ | — | | | $ | 9,668 | |
Segment assets | 125,364 | | | 12,361 | | | 4,204 | | | 141,929 | | | 3,275 | | | 188 | | | 145,392 | |
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(e) | Other includes $65 million of after-tax costs to achieve the Piedmont merger, $144 million of after-tax severance charges related to a companywide initiative and an $82 million after-tax loss on the sale of the retired Beckjord Generating Station described below. For additional information, see Note 2 for the Piedmont Merger and Note 20 for severance charges. |
(a) All segments include adjustments to the December 31, 2017, estimate of the income tax effects of the Tax Act. Electric Utilities and Infrastructure includes a $24 million expense, Gas Utilities and Infrastructure includes a $1 million expense, Commercial Renewables includes a $3 million benefit and Other includes a $2 million benefit. See Note 23 for additional information.
(b) Electric Utilities and Infrastructure includes after-tax regulatory and legislative impairment charges of $202 million related to rate case orders, settlements or other actions of regulators or legislative bodies and an after-tax impairment charge of $46 million related to the Citrus County CC at Duke Energy Florida. See Note 3 for additional information.
(c) Gas Utilities and Infrastructure includes an after-tax impairment charge of $42 million for the investment in Constitution. See Note 12 for additional information.
(d) Commercial Renewables includes an impairment charge of $91 million, net of $2 million Noncontrolling interests, related to goodwill. See Note 11 for additional information.
(e) Other includes $65 million of after-tax costs to achieve the Piedmont merger, $144 million of after-tax severance charges related to a companywide initiative and an $82 million after-tax loss on the sale of Beckjord described below. For additional information, see Note 1 for the Piedmont merger and Note 20 for severance charges.
In February 2018, Duke Energy sold Beckjord, a nonregulated facility retired during 2014, and recorded a pretax loss of $106 million within Gains (Losses) Gains on Sales of Other Assets and Other, net and $1 million within Operation, maintenance and other on Duke Energy's Consolidated Statements of Operations for the year ended December 31, 2018. The sale included the transfer of coal ash basins and other real property and indemnification from any and all potential future claims related to the property, whether arising under environmental laws or otherwise.
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| 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 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. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
|
|
| |
FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
| |
(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. See 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. See Note 20 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 investment expenditures related to the International Disposal Group. Gas Utilities and Infrastructure includes the Piedmont acquisition of $5 billion. See Note 2 for more information on the Piedmont acquisition. |
Geographical Information
AllSubstantially all assets and revenues from continuing operations are within the U.S.
Major Customers
For the year ended December 31, 2018,2020, revenues from one customer of Duke Energy Progress are $633$553 million. Duke Energy Progress has one1 reportable segment, Electric Utilities and Infrastructure. No other Subsidiary Registrant has an individual customer representing more than 10 percent10% of its revenues.
| | | | | |
FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
Products and Services
The following table summarizes revenues of the reportable segments by type. | | | Retail |
| | Wholesale |
| | Retail |
| | | | Total |
| | Retail | | Wholesale | | Retail | | | | Total |
(in millions) | Electric |
| | Electric |
| | Natural Gas |
| | Other |
| | Revenues |
| (in millions) | Electric | | Electric | | Natural Gas | | | Other | | Revenues |
2020 | | 2020 | | | |
Electric Utilities and Infrastructure | | Electric Utilities and Infrastructure | $ | 18,898 | | | $ | 1,878 | | | $ | — | | | | $ | 944 | | | $ | 21,720 | |
Gas Utilities and Infrastructure | | Gas Utilities and Infrastructure | — | | | — | | | 1,691 | | | | 57 | | | 1,748 | |
Commercial Renewables | | Commercial Renewables | — | | | 434 | | | — | | | | 68 | | | 502 | |
Total Reportable Segments | | Total Reportable Segments | $ | 18,898 | | | $ | 2,312 | | | $ | 1,691 | | | | $ | 1,069 | | | $ | 23,970 | |
2019 | | 2019 | | | |
Electric Utilities and Infrastructure | | Electric Utilities and Infrastructure | $ | 19,745 | | | $ | 2,231 | | | $ | — | | | | $ | 855 | | | $ | 22,831 | |
Gas Utilities and Infrastructure | | Gas Utilities and Infrastructure | — | | | — | | | 1,782 | | | | 84 | | | 1,866 | |
Commercial Renewables | | Commercial Renewables | — | | | 389 | | | — | | | | 98 | | | 487 | |
Total Reportable Segments | | Total Reportable Segments | $ | 19,745 | | | $ | 2,620 | | | $ | 1,782 | | | | $ | 1,037 | | | $ | 25,184 | |
2018 | | | | | | | | |
| 2018 | | | |
Electric Utilities and Infrastructure | $ | 19,013 |
| | $ | 2,345 |
| | $ | — |
| | $ | 915 |
| | $ | 22,273 |
| Electric Utilities and Infrastructure | $ | 19,013 | | | $ | 2,345 | | | $ | — | | | | $ | 915 | | | $ | 22,273 | |
Gas Utilities and Infrastructure | — |
| | — |
| | 1,817 |
| | 64 |
| | 1,881 |
| Gas Utilities and Infrastructure | — | | | — | | | 1,817 | | | | 64 | | | 1,881 | |
Commercial Renewables | — |
| | 375 |
| | — |
| | 102 |
| | 477 |
| Commercial Renewables | — | | | 375 | | | — | | | | 102 | | | 477 | |
Total Reportable Segments | $ | 19,013 |
| | $ | 2,720 |
| | $ | 1,817 |
|
| $ | 1,081 |
| | $ | 24,631 |
| Total Reportable Segments | $ | 19,013 | | | $ | 2,720 | | | $ | 1,817 | | | | $ | 1,081 | | | $ | 24,631 | |
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 |
| |
Duke Energy Ohio
Duke Energy Ohio has two2 reportable segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure.
Electric Utilities and Infrastructure transmits and distributes electricity in portions of Ohio and generates, distributes and sells electricity in portions of Northern Kentucky. Gas Utilities and Infrastructure transports and sells natural gas in portions of Ohio and Northern Kentucky. Both reportable segments conduct operations primarily through Duke Energy Ohio and its wholly owned subsidiary, Duke Energy Kentucky.
The remainder of Duke Energy Ohio's operations is presented as Other. In December 2018, the PUCO approved an order which allows the recovery or credit of revenues and expenses related to Duke Energy Ohio's contractual arrangement to buy power from OVEC power plants. Due to the change in regulatory treatment of these amounts, OVEC revenues and expenses are now reflected in the Electric Utilities and Infrastructure segment. Previously, OVEC revenues and expense were included in Other. These amounts are deemed immaterial for Duke Energy Ohio. Therefore, no prior period amounts were restated. See Note 4 for additional information on the PUCO order.
|
| |
FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
All Duke Energy Ohio assets and revenues from continuing operations are within the U.S.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Electric | | Gas | | Total | | | | | | |
| Utilities and | | Utilities and | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Segments | | Other | | Eliminations | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total revenues | $ | 1,405 | | | $ | 453 | | | $ | 1,858 | | | $ | — | | | $ | — | | | $ | 1,858 | |
Interest expense | $ | 85 | | | $ | 17 | | | $ | 102 | | | $ | — | | | $ | — | | | $ | 102 | |
Depreciation and amortization | 200 | | | 78 | | | 278 | | | — | | | — | | | 278 | |
Income tax expense (benefit) | 19 | | | 26 | | | 45 | | | (2) | | | — | | | 43 | |
Segment income (loss)/Net income | 162 | | | 96 | | | 258 | | | (6) | | | — | | | 252 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Capital expenditures | $ | 548 | | | $ | 286 | | | $ | 834 | | | $ | — | | | $ | — | | | $ | 834 | |
Segment assets | 6,615 | | | 3,380 | | | 9,995 | | | 32 | | | (2) | | | 10,025 | |
| | | | | |
FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
| | | Year Ended December 31, 2018 | | Year Ended December 31, 2019 |
| Electric |
| | Gas |
| | Total |
| | | | | | Electric | | Gas | | Total | |
| Utilities and |
| | Utilities and |
| | Reportable |
| | | | | | Utilities and | | Utilities and | | Reportable | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Segments |
| | Other |
| | Total |
| (in millions) | Infrastructure | | Infrastructure | | Segments | | Other | | Eliminations | | Total |
| Total revenues | $ | 1,450 |
| | $ | 506 |
| | $ | 1,956 |
| | $ | 1 |
| | $ | 1,957 |
| Total revenues | $ | 1,456 | | | $ | 484 | | | $ | 1,940 | | | $ | — | | | $ | — | | | $ | 1,940 | |
Interest expense | $ | 67 |
| | $ | 24 |
| | $ | 91 |
| | $ | 1 |
| | $ | 92 |
| Interest expense | $ | 80 | | | $ | 29 | | | $ | 109 | | | $ | — | | | $ | — | | | $ | 109 | |
Depreciation and amortization | 183 |
| | 85 |
| | 268 |
| | — |
| | 268 |
| Depreciation and amortization | 182 | | | 83 | | | 265 | | | — | | | — | | | 265 | |
Income tax expense (benefit) | 47 |
| | 24 |
| | 71 |
| | (28 | ) | | 43 |
| Income tax expense (benefit) | 20 | | | 21 | | | 41 | | | (1) | | | — | | | 40 | |
Segment income (loss)/Net income(a) | 186 |
| | 93 |
| | 279 |
| | (103 | ) | | 176 |
| |
Segment income (loss) | | Segment income (loss) | 159 | | | 85 | | | 244 | | | (5) | | | — | | | 239 | |
Loss from discontinued operations, net of tax | | Loss from discontinued operations, net of tax | | (1) | |
Net income | | Net income | | $ | 238 | |
Capital expenditures | $ | 655 |
| | $ | 172 |
| | $ | 827 |
| | $ | — |
| | $ | 827 |
| Capital expenditures | $ | 680 | | | $ | 272 | | | $ | 952 | | | $ | — | | | $ | — | | | $ | 952 | |
Segment assets | 5,643 |
| | 2,874 |
| | 8,517 |
| | 38 |
| | 8,555 |
| Segment assets | 6,188 | | | 3,116 | | | 9,304 | | | 34 | | | — | | | 9,338 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| Electric | | Gas | | Total | | | | | | |
| Utilities and | | Utilities and | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Segments | | Other | | Eliminations | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total revenues | $ | 1,450 | | | $ | 506 | | | $ | 1,956 | | | $ | 1 | | | $ | — | | | $ | 1,957 | |
Interest expense | $ | 67 | | | $ | 24 | | | $ | 91 | | | $ | 1 | | | $ | — | | | $ | 92 | |
Depreciation and amortization | 183 | | | 85 | | | 268 | | | — | | | — | | | 268 | |
Income tax expense (benefit) | 47 | | | 24 | | | 71 | | | (28) | | | — | | | 43 | |
Segment income (loss)/Net Income(a) | 186 | | | 93 | | | 279 | | | (103) | | | — | | | 176 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Capital expenditures | $ | 655 | | | $ | 172 | | | $ | 827 | | | $ | — | | | $ | — | | | $ | 827 | |
Segment assets | 5,643 | | | 2,874 | | | 8,517 | | | 38 | | | — | | | 8,555 | |
(a) Other includes the loss on the sale of Beckjord, see discussion above.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
|
|
| |
FINANCIAL STATEMENTS | REGULATORY MATTERS |
4.3. REGULATORY MATTERS
REGULATORY ASSETS AND LIABILITIES
The Duke Energy Registrants record regulatory assets and liabilities that result from the ratemaking process. See Note 1 for further information.
| | | | | |
FINANCIAL STATEMENTS | REGULATORY MATTERS |
The following tables present the regulatory assets and liabilities recorded on the Consolidated Balance Sheets of Duke Energy and Progress Energy. See separate tables below for balances by individual registrant.
| | | Duke Energy | | Progress Energy | | Duke Energy | | Progress Energy | |
| December 31, | | December 31, | | December 31, | | December 31, | |
(in millions) | 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
| (in millions) | 2020 | | 2019 | | 2020 | | 2019 | |
Regulatory Assets | | | | | | | | Regulatory Assets | | |
AROs – coal ash | $ | 4,255 |
| | $ | 4,025 |
| | $ | 2,061 |
| | $ | 1,984 |
| AROs – coal ash | $ | 3,408 | | | $ | 4,084 | | | $ | 1,357 | | | $ | 1,843 | | |
AROs – nuclear and other | 772 |
| | 852 |
| | 601 |
| | 655 |
| AROs – nuclear and other | 754 | | | 739 | | | 685 | | | 668 | | |
Accrued pension and OPEB | 2,654 |
| | 2,249 |
| | 1,074 |
| | 906 |
| Accrued pension and OPEB | 2,317 | | | 2,391 | | | 875 | | | 897 | | |
Retired generation facilities | 445 |
| | 480 |
| | 367 |
| | 386 |
| |
Debt fair value adjustment | 1,099 |
| | 1,197 |
| | — |
| | — |
| |
Deferred asset – Lee COLA | 383 |
| | — |
| | — |
| | — |
| |
Storm cost deferrals | 1,117 |
| | 531 |
| | 953 |
| | 526 |
| Storm cost deferrals | 1,102 | | | 1,399 | | | 893 | | | 1,214 | | |
Nuclear asset securitized balance, net | 1,093 |
| | 1,142 |
| | 1,093 |
| | 1,142 |
| Nuclear asset securitized balance, net | 991 | | | 1,042 | | | 991 | | | 1,042 | | |
Debt fair value adjustment | | Debt fair value adjustment | 950 | | | 1,019 | | | — | | | — | | |
Retired generation facilities | | Retired generation facilities | 417 | | | 331 | | | 363 | | | 266 | | |
Post-in-service carrying costs (PISCC) and deferred operating expenses | | Post-in-service carrying costs (PISCC) and deferred operating expenses | 402 | | | 329 | | | 51 | | | 33 | | |
Deferred asset – Lee and Harris COLA | | Deferred asset – Lee and Harris COLA | 356 | | | 388 | | | 32 | | | 38 | | |
Hedge costs deferrals | 204 |
| | 234 |
| | 74 |
| | 94 |
| Hedge costs deferrals | 351 | | | 356 | | | 148 | | | 129 | | |
Derivatives – natural gas supply contracts | 141 |
| | 142 |
| | — |
| | — |
| |
Demand side management (DSM)/Energy efficiency (EE) | 449 |
| | 530 |
| | 256 |
| | 281 |
| |
Grid modernization | 31 |
| | 39 |
| | — |
| | — |
| |
Advanced metering infrastructure (AMI) | | Advanced metering infrastructure (AMI) | 311 | | | 338 | | | 102 | | | 114 | | |
Demand side management (DSM)/Energy Efficiency (EE) | | Demand side management (DSM)/Energy Efficiency (EE) | 288 | | | 343 | | | 241 | | | 241 | | |
Vacation accrual | 213 |
| | 213 |
| | 41 |
| | 42 |
| Vacation accrual | 221 | | | 214 | | | 42 | | | 41 | | |
Deferred fuel and purchased power | 838 |
| | 507 |
| | 600 |
| | 349 |
| Deferred fuel and purchased power | 213 | | | 528 | | | 162 | | | 305 | | |
COR settlement | | COR settlement | 128 | | | 133 | | | 33 | | | 35 | | |
NCEMPA deferrals | | NCEMPA deferrals | 124 | | | 72 | | | 124 | | | 72 | | |
Nuclear deferral | 133 |
| | 119 |
| | 46 |
| | 35 |
| Nuclear deferral | 123 | | | 107 | | | 35 | | | 40 | | |
Post-in-service carrying costs (PISCC) and deferred operating expenses | 320 |
| | 366 |
| | 36 |
| | 38 |
| |
Transmission expansion obligation | 39 |
| | 46 |
| | — |
| | — |
| |
Derivatives – natural gas supply contracts | | Derivatives – natural gas supply contracts | 122 | | | 117 | | | — | | | — | | |
CEP deferral | | CEP deferral | 117 | | | 76 | | | — | | | — | | |
Amounts due from customers | | Amounts due from customers | 110 | | | 36 | | | — | | | — | | |
Qualifying facility contract buyouts | | Qualifying facility contract buyouts | 107 | | | 121 | | | 107 | | | 121 | | |
Customer connect project | | Customer connect project | 105 | | | 65 | | | 55 | | | 37 | | |
Manufactured gas plant (MGP) | 99 |
| | 91 |
| | — |
| | — |
| Manufactured gas plant (MGP) | 104 | | | 102 | | | — | | | — | | |
Advanced metering infrastructure (AMI) | 367 |
| | 362 |
| | 127 |
| | 150 |
| |
NCEMPA deferrals | 50 |
| | 53 |
| | 50 |
| | 53 |
| |
East Bend deferrals | 47 |
| | 45 |
| | — |
| | — |
| |
ABSAT, coal ash basin closure | | ABSAT, coal ash basin closure | 98 | | | 65 | | | 27 | | | 15 | | |
Deferred pipeline integrity costs | 65 |
| | 54 |
| | — |
| | — |
| Deferred pipeline integrity costs | 92 | | | 79 | | | — | | | — | | |
Amounts due from customers | 24 |
| | 64 |
| | — |
| | — |
| |
Deferred severance charges | | Deferred severance charges | 86 | | | — | | | 29 | | | — | | |
Incremental COVID-19 expenses | | Incremental COVID-19 expenses | 76 | | | — | | | 23 | | | — | | |
| Other | 784 |
| | 538 |
| | 322 |
| | 110 |
| Other | 589 | | | 544 | | | 158 | | | 141 | | |
Total regulatory assets | 15,622 |
| | 13,879 |
|
| 7,701 |
|
| 6,751 |
| Total regulatory assets | 14,062 | | | 15,018 | | | 6,533 | | | 7,292 | | |
Less: current portion | 2,005 |
| | 1,437 |
| | 1,137 |
| | 741 |
| Less: current portion | 1,641 | | | 1,796 | | | 758 | | | 946 | | |
Total noncurrent regulatory assets | $ | 13,617 |
| | $ | 12,442 |
|
| $ | 6,564 |
|
| $ | 6,010 |
| Total noncurrent regulatory assets | $ | 12,421 | | | $ | 13,222 | | | $ | 5,775 | | | $ | 6,346 | | |
Regulatory Liabilities | | | | | | | | Regulatory Liabilities | | | |
Net regulatory liability related to income taxes | | Net regulatory liability related to income taxes | $ | 7,368 | | | $ | 7,872 | | | $ | 2,411 | | | $ | 2,595 | | |
Costs of removal | $ | 5,421 |
| | $ | 5,968 |
| | $ | 2,135 |
| | $ | 2,537 |
| Costs of removal | 5,883 | | | 5,756 | | | 2,666 | | | 2,561 | | |
AROs – nuclear and other | 538 |
| | 806 |
| | — |
| | — |
| AROs – nuclear and other | 1,512 | | | 1,100 | | | — | | | — | | |
Net regulatory liability related to income taxes | 8,058 |
| | 8,113 |
| | 2,710 |
| | 2,802 |
| |
Provision for rate refunds | | Provision for rate refunds | 344 | | | 370 | | | 123 | | | 123 | | |
Accrued pension and OPEB | | Accrued pension and OPEB | 177 | | | 176 | | | — | | | — | | |
Amounts to be refunded to customers | 34 |
| | 10 |
| | — |
| | — |
| Amounts to be refunded to customers | 51 | | | 34 | | | — | | | — | | |
Storm reserve | — |
| | 20 |
| | — |
| | — |
| |
Accrued pension and OPEB | 301 |
| | 146 |
| | 149 |
| | — |
| |
Deferred fuel and purchased power | 16 |
| | 47 |
| | 16 |
| | 1 |
| Deferred fuel and purchased power | 18 | | | 1 | | | — | | | 1 | | |
Other | 1,064 |
| | 622 |
| | 319 |
| | 179 |
| Other | 1,053 | | | 739 | | | 491 | | | 275 | | |
Total regulatory liabilities | 15,432 |
| | 15,732 |
| | 5,329 |
| | 5,519 |
| Total regulatory liabilities | 16,406 | | | 16,048 | | | 5,691 | | | 5,555 | | |
Less: current portion | 598 |
| | 402 |
| | 280 |
| | 213 |
| Less: current portion | 1,377 | | | 784 | | | 640 | | | 330 | | |
Total noncurrent regulatory liabilities | $ | 14,834 |
| | $ | 15,330 |
| | $ | 5,049 |
| | $ | 5,306 |
| Total noncurrent regulatory liabilities | $ | 15,029 | | | $ | 15,264 | | | $ | 5,051 | | | $ | 5,225 | | |
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.
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 parentParent by obtaining approval of the respective state regulatory commissions. These conditions imposed restrictions on the ability of the public utility subsidiaries to pay cash dividends as discussed below.
Duke Energy Progress and Duke Energy Florida also have restrictions imposed by their first mortgage bond indentures, 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, 2018.2020.
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 not a material amount of Duke Energy's and Progress Energy's net assets at December 31, 2018.2020.
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 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 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 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 percent30% of total capital.
Duke Energy Kentucky is required to pay dividends solely out of retained earnings and to maintain a minimum of 35 percent35% equity in its capital structure.
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 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.
The NCUC, PSCSC, FPSC, IURC, PUCO, TPUC and KPSC approve rates for retail electric and natural gas services within their states. The FERC approves rates for electric sales to wholesale customers served under cost-based rates (excluding Ohio and Indiana), as well as sales of transmission service. The FERC also regulates certification and siting of new interstate natural gas pipeline projects.
On August 25, 2017, Duke Energy Carolinas filed an application with the NCUC for a rate increase for retail customers of approximately $647 million, which represented an approximate 13.6 percent increase in annual base revenues. The rate increase was driven by capital investments subsequent to the previous base rate case, including the W.S. Lee CC discussed below, grid improvement projects, AMI, investments in customer service technologies, costs of complying with CCR regulations and the Coal Ash Act and recovery of costs related to licensing and development of the Lee Nuclear Station discussed below.
On June 22, 2018, the NCUC issued an order approving the Stipulation of Partial Settlement and requiring a revenue reduction. The order also included the following material components not covered in the Stipulation:
On November 8, 2018, Duke Energy Carolinas filed an application with the PSCSC for a rate increase for retail customers of approximately $168 million,million.