UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~For the quarterly period ended September 30, 2011~~

For the quarterly period ended September 30, 2012 or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~For the transition period from to~~


	For the transition period from to


Commission file number	Exact name of registrants as specified in their charters, addresses of principal executiveoffices, ~~offices,~~ telephone numbers and states of incorporation	IRS Employer Identification No.
1-32853	DUKE ENERGY CORPORATION 550 South Tryon Street Charlotte, NC ~~28202-4200~~28202-1803 ~~704-594-6200~~704-382-3853 State of Incorporation: Delaware	20-2777218

1-4928	DUKE ENERGY CAROLINAS, LLC 526 South Church Street Charlotte, NC ~~28202-4200~~28202-1803 ~~704-594-6200~~704-382-3853 State of Incorporation: North Carolina	56-0205520

1-1232	DUKE ENERGY OHIO, INC. 139 East Fourth Street Cincinnati, OH 45202 ~~704-594-6200~~704-382-3853 State of Incorporation: Ohio	31-0240030

1-3543	DUKE ENERGY INDIANA, INC. 1000 East Main Street Plainfield, IN 46168 ~~704-594-6200~~704-382-3853 State of Incorporation: Indiana	35-0594457

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Duke Energy Corporation (Duke Energy)	Yes x	No ¨		Duke Energy Ohio, Inc. (Duke Energy Ohio)	Yes x	No ¨
Energy Carolinas, LLC (Duke Energy Carolinas)	Yes x	No ¨		Duke Energy Indiana, Inc. (Duke Energy Indiana)	Yes x	No ¨

~~Duke Energy Corporation (Duke Energy) Yes~~ x No ¨

~~Duke Energy Carolinas, LLC (Duke Energy Carolinas) Yes~~ x No ¨

~~Duke Energy Ohio, Inc. (Duke Energy Ohio) Yes~~ x No ¨

~~Duke Energy Indiana, Inc. (Duke Energy Indiana) Yes~~ x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate ~~Web site,~~website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Duke Energy	Yes x	No ¨		Duke Energy Ohio	Yes x	No ¨
Duke Energy Carolinas	Yes x	No ¨		Duke Energy Indiana	Yes x	No ¨

~~Duke Energy Yes~~ x No ¨

~~Duke Energy Carolinas Yes~~ x No ¨

~~Duke Energy Ohio Yes~~ x No ¨

~~Duke Energy Indiana Yes~~ x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Duke Energy	Large accelerated filerx	x	Accelerated filer¨	¨
	Non-accelerated filer¨	¨	Smaller reporting company	¨

Duke Energy Carolinas	Large accelerated filer¨	¨	Accelerated filer¨	¨
	Non-accelerated filerx	x	Smaller reporting company	¨

Duke Energy Ohio	Large accelerated filer¨	¨	Accelerated filer¨	¨
	Non-accelerated filerx	x	Smaller reporting company	¨

Duke Energy Indiana	Large accelerated filer¨	¨	Accelerated filer¨	¨
	Non-accelerated filerx	x	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Duke Energy	Yes ¨	No x		Duke Energy Ohio	Yes ¨	No x
Duke Energy Carolinas	Yes ¨	No x		Duke Energy Indiana	Yes ¨	No x

~~Duke Energy Yes~~ ¨ No x

~~Duke Energy Carolinas Yes~~ ¨ No x

~~Duke Energy Ohio Yes~~ ¨ No x

~~Duke Energy Indiana Yes~~ ¨ No x

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date.


Outstanding as of November ~~4, 2011~~ 5, 2012 Registrant	Description		Shares

Duke Energy	Common Stock, par value $0.001			~~1,332,733,321~~
		704,243,727
Duke Energy Carolinas		All of the registrant’s limited liability company member interests are directly owned by Duke Energy.

Duke Energy Ohio		All of the registrant’s common stock is indirectly owned by Duke Energy.

Duke Energy Indiana		All of the registrant’s common stock is indirectly owned by Duke Energy.

This combined Form 10-Q is filed separately by four registrants: Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants.

Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.

~~INDEX~~

~~FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2011~~
TABLE OF CONTENTS
Safe Harbor for Forward-Looking Statements
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Duke Energy Corporation (Duke Energy)
Unaudited Condensed Consolidated Statements of Operations
5
Unaudited Condensed Consolidated Comprehensive Income
6
Unaudited Condensed Consolidated Balance Sheets
7
Unaudited Condensed Consolidated Statements of Cash Flows
8
Unaudited Condensed Consolidated Statements of Equity
9
Duke Energy Carolinas, LLC (Duke Energy Carolinas)
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
10
Unaudited Condensed Consolidated Balance Sheets
11
Unaudited Condensed Consolidated Statements of Cash Flows
12
Unaudited Condensed Consolidated Statements of Member’s Equity
13
Duke Energy Ohio, Inc. (Duke Energy Ohio)
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
14
Unaudited Condensed Consolidated Balance Sheets
15
Unaudited Condensed Consolidated Statements of Cash Flows
16
Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity
17
Duke Energy Indiana, Inc. (Duke Energy Indiana)
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
18
Unaudited Condensed Consolidated Balance Sheets
19
Unaudited Condensed Consolidated Statements of Cash Flows
20
Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity
21
Combined Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Organization and Basis of Presentation
22
Note 2 - Acquisitions and Sales of Other Assets
23
Note 3 - Business Segments
27
Note 4 - Regulatory Matters
30
Note 5 - Commitments and Contingencies
39
Note 6 - Debt and Credit Facilities
45
Note 7 - Goodwill, Intangible Assets and Impairments
47
Note 8 - Risk Management, Derivative Instruments and Hedging Activities
48
Note 9 - Fair Value of Financial Instruments
54
Note 10 - Investments in Debt and Equity Securities
61
Note 11 - Variable Interest Entities
64
Note 12 - Earnings Per Common Share
69
Note 13 - Stock-Based Compensation
70
Note 14 - Employee Benefit Plans
71
Note 15 - Severance
74
Note 16 - Income Taxes and Other Taxes
74
Note 17 - Related Party Transactions
75
Note 18 - Guarantees and Indemnifications
76
Note 19 - New Accounting Standards
77
Note 20 - Subsequent Events
77
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
78
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
94
Item 4.
Controls and Procedures
94
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
95
Item 1A.
Risk Factors
95
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
95
Item 6.
Exhibits
96
Signatures
97

   Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements    3
Duke Energy Corporation (Duke Energy)

Unaudited Condensed Consolidated Statements of Operations
   3

Unaudited Condensed Consolidated Balance Sheets
   4

Unaudited Condensed Consolidated Statements of Cash Flows
   6

Unaudited Condensed Consolidated Statements of Equity and Comprehensive Income
   7
Duke Energy Carolinas, LLC (Duke Energy Carolinas)

Unaudited Condensed Consolidated Statements of Operations
   8

Unaudited Condensed Consolidated Balance Sheets
   9

Unaudited Condensed Consolidated Statements of Cash Flows
   11

Unaudited Condensed Consolidated Statements of Member’s Equity and Comprehensive Income
   12
Duke Energy Ohio, Inc. (Duke Energy Ohio)

Unaudited Condensed Consolidated Statements of Operations
   13

Unaudited Condensed Consolidated Balance Sheets
   14

Unaudited Condensed Consolidated Statements of Cash Flows
   16

Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity and Comprehensive Income (Loss)
   17
Duke Energy Indiana, Inc. (Duke Energy Indiana)

Unaudited Condensed Consolidated Statements of Operations
   18

Unaudited Condensed Consolidated Balance Sheets
   19

Unaudited Condensed Consolidated Statements of Cash Flows
   21

Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity and Comprehensive Income
   22
Combined Notes to Unaudited Condensed Consolidated Financial Statements for Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana    23
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations    89
3. Quantitative and Qualitative Disclosures About Market Risk    105
4. Controls and Procedures    105
PART II. OTHER INFORMATION

1. Legal Proceedings    106
1A. Risk Factors    106
2. Unregistered Sales of Equity Securities and Use of Proceeds    106
6. Exhibits    107
Signatures    109

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management’s beliefs and assumptions. These forward-looking statements, which are intended to cover Duke Energy and the applicable Duke Energy Registrants, are identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” ~~“outlook”~~“outlook,” and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:

·State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements, as well as rulings that affect cost and investment recovery or have an impact on rate structures;

·The ability to recover eligible costs and earn an adequate return on investment through the regulatory process;

·The scope of necessary repairs of the delamination of Crystal River Unit 3 Nuclear Plant could prove more extensive or costly than is currently identified, such repairs could prove not to be feasible resulting in early retirement of the unit, the cost of repair and/or replacement power could exceed estimates and insurance coverage or may not be recoverable through the regulatory process;

·The ability to maintain relationships with customers, employees or suppliers post-merger;

·The ability to successfully integrate the Progress Energy businesses and realize cost savings and any other synergies expected from the merger;

·The risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect;

·The impact of compliance with material restrictions of conditions related to the Progress Energy merger imposed by regulators could exceed our expectations;

·Costs and effects of legal and administrative proceedings, settlements, investigations and claims;

·Industrial, commercial and residential growth or decline in the respective Duke Energy Registrants’ service territories, customer base or customer usage patterns;

·Additional competition in electric markets and continued industry consolidation;

·Political and regulatory uncertainty in other countries in which Duke Energy conducts business;

·The influence of weather and other natural phenomena on each of the Duke Energy Registrants’ operations, including the economic, operational and other effects of storms, hurricanes, droughts and ~~tornados;~~tornadoes;

·The ability to successfully operate electric generating facilities and deliver electricity to customers;

·The ability to recover, in a timely manner, if at all, costs associated with future significant weather events through the regulatory process;

·The impact on the Duke Energy Registrants’ facilities and business from a terrorist ~~attack;~~attack, cyber security threats and other catastrophic events;

·The inherent risks associated with the operation and potential construction orof nuclear facilities, including environmental, health, safety, regulatory and financial risks;

·The timing and extent of changes in commodity prices, interest rates and foreign currency exchange ~~rates;~~rates and the ability to recover such costs through the regulatory process, where appropriate;

·Unscheduled generation outages, unusual maintenance or repairs and electric transmission system constraints;

·The performance of electric generation facilities and of projects undertaken by Duke Energy’s non-regulated businesses;

·The results of financing efforts, including the Duke Energy Registrants’ ability to obtain financing on favorable terms, which can be affected by various factors, including the respective Duke Energy Registrants’ credit ratings and general economic conditions;

·Declines in the market prices of equity securities and resultant cash funding requirements for Duke Energy’s defined benefit pension ~~plans;~~plans and nuclear decommissioning trust funds;

·The level of creditworthiness of counterparties to Duke Energy Registrants’ transactions;

·Employee workforce factors, including the potential inability to attract and retain key personnel;

·Growth in opportunities for the respective Duke Energy Registrants’ business units, including the timing and success of efforts to develop domestic and international power and other projects;

·Construction and development risks associated with the completion of Duke Energy Registrants’ capital investment projects in existing and new generation facilities, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards, as well as the ability to recover costs from ratepayers in a timely manner or at all;

·The Subsidiary Registrants ability to pay dividends or distributions to Duke Energy Corporation holding company (the Parent);

·The effect of accounting pronouncements issued periodically by accounting standard-setting bodies;

·The ~~expected timing~~impact of potential goodwill impairments; and likelihood of completion of the proposed merger with Progress Energy, Inc. (Progress Energy), including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed merger that could reduce anticipated benefits or cause the parties to abandon the merger, the diversion of management’s time and attention from Duke Energy’s ongoing business during this time period, the ability to maintain relationships with customers, employees or suppliers as well as the ability to successfully integrate the businesses and realize cost savings and any other synergies and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect;

~~The risk that the proposed merger with Progress Energy is terminated prior to completion and results in significant transaction costs to Duke Energy; and~~

·The ability to successfully complete future merger, acquisition or divestiture plans.

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than Duke Energy has described. The Duke Energy Registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

~~PART I. FINANCIAL INFORMATION~~

~~DUKE ENERGY CORPORATION~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(Unaudited)~~

~~(In millions, except per-share amounts)~~

~~Item 1. Financial Statements~~

   Three Months Ended
September 30, Nine Months Ended
September 30,
   2011 2010 2011    2010
Operating Revenues

Regulated electric
   $ 3,016    $ 3,077    $ 8,165       $ 8,233
Non-regulated electric, natural gas, and other
   867    791    2,586       2,159
Regulated natural gas
   81    78    410       435




Total operating revenues
   3,964    3,946    11,161       10,827




Operating Expenses

Fuel used in electric generation and purchased power—regulated
   957    990    2,603       2,598
Fuel used in electric generation and purchased power—non-regulated
   383    335    1,147       895
Cost of natural gas and coal sold
   48    36    262       272
Operation, maintenance and other
   866    881    2,705       2,724
Depreciation and amortization
   455    447    1,346       1,329
Property and other taxes
   183    182    538       538
Goodwill and other impairment charges
   300    44    309       700




Total operating expenses
   3,192    2,915    8,910       9,056




(Losses) Gains on Sales of Other Assets and Other, net
   (5 ) 2    9       9




Operating Income
   767    1,033    2,260       1,780




Other Income and Expenses

Equity in earnings of unconsolidated affiliates
   43    21    123       86
(Losses) gains on sales of unconsolidated affiliates
   (3 ) (1 ) 11       (3 )
Other income and expenses, net
   83    116    297       297




Total other income and expenses
   123    136    431       380




Interest Expense
   213    202    635       624




Income From Continuing Operations Before Income Taxes
   677    967    2,056       1,536
Income Tax Expense from Continuing Operations
   208    301    633       643




Income From Continuing Operations
   469    666    1,423       893
Income From Discontinued Operations, net of tax
   1    —      1       1




Net Income
   470    666    1,424       894
Less: Net (Loss) Income Attributable to Noncontrolling Interests
   (2 ) (4 ) 6       1




Net Income Attributable to Duke Energy Corporation
   $ 472    $ 670    $ 1,418       $ 893




Earnings Per Share—Basic and Diluted

Income from continuing operations attributable to Duke Energy Corporation common shareholders

Basic
   $ 0.35    $ 0.51    $ 1.06       $ 0.68
Diluted
   $ 0.35    $ 0.51    $ 1.06       $ 0.68
Income from discontinued operations attributable to Duke Energy Corporation common shareholders

Basic
   $ —      $ —      $ —         $ —
Diluted
   $ —      $ —      $ —         $ —
Net income attributable to Duke Energy Corporation common shareholders

Basic
   $ 0.35    $ 0.51    $ 1.06       $ 0.68
Diluted
   $ 0.35    $ 0.51    $ 1.06       $ 0.68
Dividends declared per share
   $ —      $ —      $ 0.74       $ 0.725
Weighted-average shares outstanding

Basic
   1,332    1,320    1,331       1,315
Diluted
   1,333    1,322    1,332       1,316

~~See Notes to Unaudited Condensed Consolidated Financial Statements~~

~~PART I~~

~~DUKE ENERGY CORPORATION~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~(Unaudited)~~

~~(In millions)~~

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DUKE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
(in millions, except per-share amounts)			2012		2011		2012		2011
Operating Revenues
	Regulated electric		$	5,763	$	3,016	$	10,892	$	8,165
	Non-regulated electric, natural gas, and other			882		867		2,708		2,586
	Regulated natural gas			77		81		329		410
	Total operating revenues			6,722		3,964		13,929		11,161
Operating Expenses
	Fuel used in electric generation and purchased power - regulated			2,222		957		3,848		2,603
	Fuel used in electric generation and purchased power - non-regulated			484		383		1,328		1,147
	Cost of natural gas and coal sold			40		48		184		262
	Operation, maintenance and other			1,654		866		3,262		2,705
	Depreciation and amortization			666		455		1,620		1,346
	Property and other taxes			326		183		681		538
	Impairment charges			266		300		668		309
		Total operating expenses		5,658		3,192		11,591		8,910
Gains (Losses) on Sales of Other Assets and Other, net				14		(5)		21		9
Operating Income				1,078		767		2,359		2,260
Other Income and Expenses
	Equity in earnings of unconsolidated affiliates			33		43		118		123
	Impairments and gains on sales of unconsolidated affiliates			―		(3)		(6)		11
	Other income and expenses, net			132		83		291		297
		Total other income and expenses		165		123		403		431
Interest Expense				401		213		857		635
Income From Continuing Operations Before Income Taxes				842		677		1,905		2,056
Income Tax Expense from Continuing Operations				248		208		565		633
Income From Continuing Operations				594		469		1,340		1,423
Income From Discontinued Operations, net of tax				4		1		5		1
Net Income				598		470		1,345		1,424
Less: Net Income (Loss) Attributable to Noncontrolling Interests				4		(2)		12		6
Net Income Attributable to Duke Energy Corporation			$	594	$	472	$	1,333	$	1,418


Earnings Per Share - Basic and Diluted
	Income from continuing operations attributable to Duke Energy Corporation common shareholders
		Basic	$	0.84	$	1.06	$	2.50	$	3.19
		Diluted	$	0.84	$	1.06	$	2.50	$	3.19
	Income from discontinued operations attributable to Duke Energy Corporation common shareholders
		Basic	$	0.01	$	―	$	0.01	$	―
		Diluted	$	0.01	$	―	$	0.01	$	―
	Net Income attributable to Duke Energy Corporation common shareholders
		Basic	$	0.85	$	1.06	$	2.51	$	3.19
��		Diluted	$	0.85	$	1.06	$	2.51	$	3.19
	Dividends declared per share		$	―	$	―	$	2.265	$	2.22
	Weighted-average shares outstanding
		Basic		699		444		531		444
		Diluted		699		444		531		444

   September 30,
2011    December 31,
2010
ASSETS

Current Assets

Cash and cash equivalents
   $ 2,032       $ 1,670
Short-term investments
   146       —
Receivables (net of allowance for doubtful accounts of $35 at September 30, 2011 and $34 at December 31, 2010)
   764       855
Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $39 at September 30, 2011 and $34 at December 31, 2010)
   1,152       1,302
Inventory
   1,421       1,318
Other
   758       1,078




Total current assets
   6,273       6,223




Investments and Other Assets

Investments in equity method unconsolidated affiliates
   459       444
Nuclear decommissioning trust funds
   1,924       2,014
Goodwill
   3,847       3,858
Intangibles, net
   371       467
Notes receivable
   59       42
Restricted other assets of variable interest entities
   176       139
Other
   2,236       2,300




Total investments and other assets
   9,072       9,264




Property, Plant and Equipment

Cost
   59,861       57,597
Cost, variable interest entities
   921       942
Less accumulated depreciation and amortization
   18,905       18,195




Net property, plant and equipment
   41,877       40,344




Regulatory Assets and Deferred Debits

Deferred debt expense
   232       246
Regulatory assets related to income taxes
   843       780
Other
   2,479       2,233




Total regulatory assets and deferred debits
   3,554       3,259




Total Assets
   $ 60,776       $ 59,090

~~PART I~~

~~DUKE ENERGY CORPORATION~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued)~~

~~(Unaudited)~~

~~(In millions, except per-share amounts)~~

   September 30,
2011 December 31,
2010
LIABILITIES AND EQUITY

Current Liabilities

Accounts payable
   $ 1,080    $ 1,587
Notes payable
   480    —
Non-recourse notes payable of variable interest entities
   275    216
Taxes accrued
   438    412
Interest accrued
   269    237
Current maturities of long-term debt
   1,527    275
Other
   1,046    1,170


Total current liabilities
   5,115    3,897


Long-term Debt
   16,625    16,959


Non-recourse Long-term Debt of Variable Interest Entities
   959    976


Deferred Credits and Other Liabilities

Deferred income taxes
   7,466    6,978
Investment tax credits
   377    359
Asset retirement obligations
   1,905    1,816
Other
   5,430    5,452


Total deferred credits and other liabilities
   15,178    14,605


Commitments and Contingencies

Equity

Common Stock, $0.001 par value, 2 billion shares authorized; 1,332 million and 1,329 million shares outstanding at September 30, 2011 and December 31, 2010, respectively
   1    1
Additional paid-in capital
   21,061    21,023
Retained earnings
   1,920    1,496
Accumulated other comprehensive income
   (188 ) 2


Total Duke Energy Corporation shareholders’ equity
   22,794    22,522
Noncontrolling interests
   105    131


Total equity
   22,899    22,653


Total Liabilities and Equity
   $ 60,776    $ 59,090

DUKE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

(in millions)

2012

2011

2012

2011

Net income

598

470

1,345

1,424

Other comprehensive (loss) income, net of tax

Foreign currency translation adjustments

(246)

(85)

(150)

Pension and OPEB adjustments^(a)

(21)

(15)

(6)

Net unrealized loss on cash flow hedges^(b)

(2)

(47)

(19)

(52)

Reclassification into earnings from cash flow hedges^(c)

(2)

―

Unrealized gain on investments in auction rate securities^(d)

Unrealized gain on investments in available for sale securities^(e)

―

Reclassification into earnings from available for sale securities^(f)

(1)

―

(4)

―

Other comprehensive income (loss), net of tax

(20)

(288)

(110)

(198)

Comprehensive income

578

182

1,235

1,226

Less: Comprehensive income (loss) attributable to Noncontrolling Interests

(13)

(2)

Comprehensive income attributable to Duke Energy Corporation

574

195

1,227

1,228

(a)

Net of $10 million tax benefit and $7 million tax benefit for the three and nine months ended September 30, 2012 and insignificant tax expense and $3 tax benefit for the three and nine months ended September 30, 2011.

(b)

Net of $1 million tax benefit and $10 million tax benefit for the three and nine months ended September 30, 2012 and $26 million tax benefit and $28 million tax benefit for the three and nine months ended September 30, 2011.

(c)

Net of insignificant tax benefit for each of the three and nine months ended September 30, 2012 and insignificant tax expense and $1 million tax expense for the three and nine months ended September 30, 2011, respectively.

(d)

Net of $1 million tax benefit and $2 million tax expense for the three and nine months ended September 30, 2012 and $5 million tax expense and $6 million tax expense for the three and nine months ended September 30, 2011.

(e)

Net of $2 million tax expense for the three and nine months ended September 30, 2012.

(f)

Net of $2 million tax benefit for the three and nine months ended September 30, 2012.

DUKE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		September 30,		December 31,
(in millions, except per-share amounts)		2012		2011
ASSETS
Current Assets
Cash and cash equivalents		$	1,761	$	2,110
Short-term investments			335		190
Receivables (net of allowance for doubtful accounts of $31 at September 30, 2012 and $35 at December 31, 2011)			1,596		784
Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $43 at September 30, 2012 and $40 at December 31, 2011)			1,250		1,157
Inventory			3,041		1,588
Other			2,123		1,051
	Total current assets		10,106		6,880
Investments and Other Assets
Investments in equity method unconsolidated affiliates			542		460
Nuclear decommissioning trust funds			4,155		2,060
Goodwill			16,180		3,849
Intangibles, net			359		363
Notes receivable			74		62
Restricted other assets of variable interest entities			115		135
Other			2,186		2,231
	Total investments and other assets		23,611		9,160
Property, Plant and Equipment
Cost			100,156		60,377
Cost, variable interest entities			961		913
Accumulated depreciation and amortization			(32,318)		(18,709)
Generation facilities to be retired, net			232		80
	Net property, plant and equipment		69,031		42,661
Regulatory Assets and Deferred Debits
Regulatory assets			9,097		3,672
Other			163		153
	Total regulatory assets and deferred debits		9,260		3,825
Total Assets		$	112,008	$	62,526
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable		$	1,912	$	1,433
Notes payable and commercial paper			600		154
Non-recourse notes payable of variable interest entities			275		273
Taxes accrued			601		431
Interest accrued			474		252
Current maturities of long-term debt			2,488		1,894
Other			2,206		1,091
	Total current liabilities		8,556		5,528
Long-term Debt			35,198		17,730
Non-recourse long-term debt of variable interest entities			911		949
Deferred Credits and Other Liabilities
Deferred income taxes			10,317		7,581
Investment tax credits			462		384
Accrued pension and other post-retirement benefit costs			2,542		856
Asset retirement obligations			4,846		1,936
Regulatory liabilities			5,739		2,919
Other			2,349		1,778
	Total deferred credits and other liabilities		26,255		15,454
Commitments and Contingencies
Preferred stock of subsidiaries			93		―
Equity
Common stock, $0.001 par value, 2 billion shares authorized; 704 million and 445 million shares outstanding at September 30, 2012 and December 31, 2011, respectively			1		1
Additional paid-in capital			39,249		21,132
Retained earnings			1,995		1,873
Accumulated other comprehensive loss			(340)		(234)
	Total Duke Energy Corporation shareholders' equity		40,905		22,772
Noncontrolling interests			90		93
	Total equity		40,995		22,865
Total Liabilities and Equity		$	112,008	$	62,526

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY CORPORATION~~PART I

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

~~(In millions)~~

   Nine Months Ended
September 30,
   2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES

Net Income
   $ 1,424    $ 894
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization (including amortization of nuclear fuel)
   1,508    1,481
Equity component of AFUDC
   (193 ) (173 )
Severance expense
   —      77
Gains on sales of other assets
   (19 ) (10 )
Impairment of goodwill and other long-lived assets
   309    703
Deferred income taxes
   526    527
Equity in earnings of unconsolidated affiliates
   (123 ) (86 )
(Increase) decrease in

Net realized and unrealized mark-to-market and hedging transactions
   37    44
Receivables
   115    87
Inventory
   (87 ) 289
Other current assets
   248    123
Increase (decrease) in

Accounts payable
   (455 ) (100 )
Taxes accrued
   30    (76 )
Other current liabilities
   (172 ) (94 )
Other assets
   91    30
Other liabilities
   (212 ) (55 )


Net cash provided by operating activities
   3,027    3,661


CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures
   (2,990 ) (3,481 )
Investment expenditures
   (36 ) (61 )
Acquisitions
   (50 ) —
Purchases of available-for-sale securities
   (2,409 ) (1,742 )
Proceeds from sales and maturities of available-for-sale securities
   2,313    1,773
Net proceeds from the sales of other assets, and sales of and collections on notes receivable
   115    8
Purchases of emission allowances
   (6 ) (11 )
Sales of emission allowances
   8    20
Change in restricted cash
   (19 ) (29 )
Other
   4    (2 )


Net cash used in investing activities
   (3,070 ) (3,525 )


CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from the:

Issuance of long-term debt
   1,015    2,450
Issuance of common stock related to employee benefit plans
   13    215
Payments for the redemption of long-term debt
   (179 ) (1,599 )
Notes payable and commercial paper
   537    16
Distributions to noncontrolling interests
   (19 ) (5 )
Dividends paid
   (994 ) (957 )
Other
   32    10


Net cash provided by financing activities
   405    130


Net increase in cash and cash equivalents
   362    266
Cash and cash equivalents at beginning of period
   1,670    1,542


Cash and cash equivalents at end of period
   $ 2,032    $ 1,808


Supplemental Disclosures

Significant non-cash transactions:

Accrued capital expenditures
   $ 276    $ 524
Debt associated with the consolidation of variable interest entities
   $ —      $ 342

DUKE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

					Nine Months Ended
					September 30,
(in millions)					2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income				$	1,345	$	1,424
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation, amortization and accretion (including amortization of nuclear fuel)			1,865		1,508
			Equity component of AFUDC			(209)		(193)
			Severance expense			73		―
			FERC mitigation costs			117		―
			Community support and charitable contributions expense			100		―
			Gains on sales of other assets			(21)		(19)
			Impairment of other long-lived assets			588		309
			Deferred income taxes			437		526
			Equity in earnings of unconsolidated affiliates			(118)		(123)
			Voluntary opportunity cost deferral			(101)		―
			Contributions to qualified pension plans			(79)		―
			Accrued pension and other post-retirement benefit costs			152		78
			(Increase) decrease in
				Net realized and unrealized mark-to-market and hedging transactions		68		37
				Receivables		(83)		115
				Inventory		(22)		(87)
				Other current assets		101		248
			Increase (decrease) in
				Accounts payable		(222)		(455)
				Taxes accrued		(7)		30
				Other current liabilities		128		(172)
			Other assets			(167)		91
			Other liabilities			34		(290)
				Net cash provided by operating activities		3,979		3,027
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures					(3,845)		(2,990)
	Investment expenditures					(7)		(36)
	Acquisitions					(36)		(50)
	Cash acquired from the merger with Progress Energy					71		―
	Purchases of available-for-sale securities					(2,159)		(2,409)
	Proceeds from sales and maturities of available-for-sale securities					1,947		2,313
	Net proceeds from the sales of other assets, and sales of and collections on notes receivable					29		115
	Change in restricted cash					(27)		(19)
	Other					38		6
				Net cash used in investing activities		(3,989)		(3,070)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from the:
		Issuance of long-term debt				2,626		1,015
		Issuance of common stock related to employee benefit plans				16		13
	Payments for the redemption of long-term debt					(1,934)		(179)
	Notes payable and commercial paper					98		537
	Distributions to noncontrolling interests					(14)		(19)
	Contributions from noncontrolling interests					76		―
	Dividends paid					(1,211)		(994)
	Other					4		32
				Net cash (used in) provided by financing activities		(339)		405
	Net (decrease) increase in cash and cash equivalents					(349)		362
	Cash and cash equivalents at beginning of period					2,110		1,670
	Cash and cash equivalents at end of period				$	1,761	$	2,032
	Supplemental Disclosures:
	Merger with Progress Energy
		Fair value of assets acquired			$	48,698	$	―
		Fair value of liabilities assumed			$	30,627	$	―
		Issuance of common stock			$	18,071	$	―
	Significant non-cash transactions:
		Accrued capital expenditures			$	407	$	276
		Extinguishment of debt related to investment in Attiki Gas Supply, S. A.			$	66	$	―

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY CORPORATION~~PART I

~~CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME~~

~~(Unaudited)~~

~~(In millions)~~

Duke Energy Corporation Shareholders
Accumulated Other Comprehensive Income (Loss)
Common
Stock
Shares Common
Stock Additional
Paid-in
Capital Retained
Earnings Foreign
Currency
Adjustments Net (Losses)
Gains on
Cash Flow
Hedges Other Pension and
OPEB Related
Adjustments
to AOCI Common
Stockholders’
Equity Noncontrolling
Interests Total
Equity
Balance at December 31, 2009
1,309    $ 1    $ 20,661    $ 1,460    $ 17    $ (22 ) $ (31 ) $ (336 ) $ 21,750    $ 136    $ 21,886

Net income
—      —      —      893    —      —      —      —      893    1    894
Other comprehensive income

Foreign currency translation adjustments
—      —      —      —      58    —      —      —      58    (1 ) 57
Pension and OPEB related adjustments to AOCI(a)
—      —      —      —      —      —      —      19    19    —      19
Net unrealized loss on cash flow hedges(b)
—      —      —      —      —      (9 ) —      —      (9 ) —      (9 )
Reclassification into earnings from cash flow hedges(c)
—      —      —      —      —      2    —      —      2    —      2
Unrealized gain on investments in auction rate securities(d)
—      —      —      —      —      8    —      8    —      8

Total comprehensive income
971    —      971
Common stock issuances, including dividend reinvestment and employee benefits
15    —      251    —      —      —      —      —      251    —      251
Common stock dividends
—      —      —      (957 ) —      —      —      —      (957 ) —      (957 )
Changes in noncontrolling interest in subsidiaries
—      —      —      —      —      —      —      —      —      (2 ) (2 )

Balance at September 30, 2010
1,324    $ 1    $ 20,912    $ 1,396    $ 75    $ (29 ) $ (23 ) $ (317 ) $ 22,015    $ 134    $ 22,149

Balance at December 31, 2010
1,329    $ 1    $ 21,023    $ 1,496    $ 97    $ (18 ) $ (17 ) $ (60 ) $ 22,522    $ 131    $ 22,653

Net income
—      —      —      1,418    —      —      —      —      1,418    6    1,424
Other Comprehensive income
—
Foreign currency translation adjustments
—      —      —      —      (142 ) —      —      —      (142 ) (8 ) (150 )
Pension and OPEB related adjustments to AOCI(a)
—      —      —      —      —      —      —      (6 ) (6 ) —      (6 )
Net unrealized loss on cash flow hedges(b)
—      —      —      —      —      (52 ) —      —      (52 ) —      (52 )
Reclassification into earnings from cash flow hedges(c)
—      —      —      —      —      3    —      —      3    —      3
Unrealized gain on investments of auction rate securities(d)
—      —      —      —      —      —      7    —      7    —      7

Total comprehensive income
1,228    (2 ) 1,226
Common stock issuances, including dividend reinvestment and employee benefits
3    —      38    —      —      —      —      —      38    —      38
Common stock dividends
—      —      —      (994 ) —      —      —      —      (994 ) —      (994 )
Changes in noncontrolling interest in subsidiaries(e)
—      —      —      —      —      —      —      —      —      (24 ) (24 )

Balance at September 30, 2011
1,332    $ 1    $ 21,061    $ 1,920    $ (45 ) $ (67 ) $ (10 ) $ (66 ) $ 22,794    $ 105    $ 22,899

~~(a)~~

~~Net of $3 tax benefit in 2011 and $5 tax expense in 2010.~~

~~(b)~~

~~Net of $28 tax benefit in 2011 and $3 tax benefit in 2010.~~

~~(c)~~

~~Net of $1 tax expense in 2011 and insignificant tax benefit in 2010.~~

~~(d)~~

~~Net of $6 tax expense in 2011 and $4 tax expense in 2010.~~

~~(e)~~

~~Includes $19M in cash distributions to noncontrolling interests~~

DUKE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

Duke Energy Corporation Shareholders

Accumulated Other Comprehensive Income (Loss)

Net Gains

Pension and

Common

Additional

Foreign

(Losses) on

OPEB Related

Common

Stock

Common

Paid-in

Retained

Currency

Cash Flow

Adjustments

Stockholders'

Noncontrolling

Total

(in millions)

Stock

Capital

Earnings

Adjustments

Hedges

Other

to AOCI

Equity

Interests

Equity

Balance at December 31, 2010

443

21,023

1,496

(18)

(17)

(60)

22,522

131

22,653

Net income

―

1,418

―

1,418

1,424

Other comprehensive (loss) income

―

(142)

(49)

(6)

(190)

(8)

(198)

Common stock issuances, including dividend reinvestment and employee benefits

―

Common stock dividends

―

(994)

―

(994)

―

(994)

Changes in noncontrolling interest in subsidiaries

―

(24)

Balance at September 30, 2011

444

21,061

1,920

(45)

(67)

(10)

(66)

22,794

105

22,899

Balance at December 31, 2011

445

21,132

1,873

(45)

(71)

(9)

(109)

22,772

22,865

Net income ^(a)

―

1,333

―

1,333

1,344

Other comprehensive (loss) income

―

(81)

(19)

(15)

(106)

(4)

(110)

Common stock issued in connection with the Progress Energy Merger

258

18,071

Common stock issuances, including dividend reinvestment and employee benefits

―

Common stock dividends

―

(1,211)

―

(1,211)

―

(1,211)

Deconsolidation of DS Cornerstone, LLC^(b)

(82)

Contribution from noncontrolling interest in DS Cornerstone, LLC^(b)

Changes in noncontrolling interest in subsidiaries^(c)

―

(4)

Balance at September 30, 2012

704

39,249

1,995

(126)

(90)

―

(124)

40,905

40,995

(a)

For the nine months ended September 30, 2012, consolidated net income of $1,345 million includes $1 million attributable to preferred shareholders of subsidiaries. Income attributable to preferred shareholders of subsidiaries is not a component of total equity and is excluded from the table above.

(b)

Refer to Note 2 for further information on the deconsolidation of DS Cornerstone, LLC.

(c)

Includes $14 million of payments to noncontrolling interests.

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY CAROLINAS, LLC~~PART I

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(Unaudited)~~

~~(In millions)~~

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2011    2010    2011    2010
Operating Revenues-Regulated Electric
   $ 1,868       $ 1,877       $ 5,027       $ 4,935








Operating Expenses

Fuel used in electric generation and purchased power
   577       594       1,557       1,506
Operation, maintenance and other
   447       471       1,377       1,401
Depreciation and amortization
   210       200       601       585
Property and other taxes
   94       93       259       269








Total operating expenses
   1,328       1,358       3,794       3,761








Gains on Sales of Other Assets and Other, net
   1       2       2       7








Operating Income
   541       521       1,235       1,181
Other Income and Expenses, net
   47       51       139       163
Interest Expense
   93       95       264       271








Income Before Income Taxes
   495       477       1,110       1,073
Income Tax Expense
   184       162       401       364




��



Net Income
   $ 311       $ 315       $ 709       $ 709

DUKE ENERGY CAROLINAS, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
(in millions)			2012		2011		2012		2011
Operating Revenues-Regulated Electric			$	1,939	$	1,868	$	5,056	$	5,027
Operating Expenses
	Fuel used in electric generation and purchased power			576		577		1,398		1,557
	Operation, maintenance and other			562		447		1,369		1,377
	Depreciation and amortization			233		210		687		601
	Property and other taxes			100		94		279		259
	Impairment charges			31		―		31		―
		Total operating expenses		1,502		1,328		3,764		3,794
Gains on Sales of Other Assets and Other, net				3		1		9		2
Operating Income				440		541		1,301		1,235
Other Income and Expenses, net				48		47		130		139
Interest Expense				95		93		285		264
Income Before Income Taxes				393		495		1,146		1,110
Income Tax Expense				135		184		411		401
Net Income				258		311		735		709
Other comprehensive income, net of tax
Reclassification into earnings from cash flow hedges^(a)				―		2		2		3
Comprehensive Income			$	258	$	313	$	737	$	712

(a)	Net of insignificant tax expense and $2 million tax expense for the three and nine months ended September 30, 2012, and $1 million tax benefit and $1 million tax expense for the three and nine months ended September 30, 2011.

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY CAROLINAS, LLC~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~(Unaudited)~~

~~(In millions)~~

   September 30,
2011    December 31,
2010
ASSETS

Current Assets

Cash and cash equivalents
   $ 318       $ 153
Receivables (net of allowance for doubtful accounts of $3 at September 30, 2011 and December 31, 2010)
   825       669
Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $6 at September 30, 2011 and December 31, 2010)
   637       637
Inventory
   757       716
Other
   283       398




Total current assets
   2,820       2,573




Investments and Other Assets

Nuclear decommissioning trust funds
   1,924       2,014
Other
   1,026       1,119




Total investments and other assets
   2,950       3,133




Property, Plant and Equipment

Cost
   32,623       31,191
Less accumulated depreciation and amortization
   11,458       11,126




Net property, plant and equipment
   21,165       20,065




Regulatory Assets and Deferred Debits

Deferred debt expense
   161       169
Regulatory assets related to income taxes
   661       601
Other
   1,080       847




Total regulatory assets and deferred debits
   1,902       1,617




Total Assets
   $ 28,837       $ 27,388

PART I

~~DUKE ENERGY CAROLINAS, LLC~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued)~~

~~(Unaudited)~~

~~(In millions)~~

   September 30,
2011 December 31,
2010
LIABILITIES AND MEMBER’S EQUITY

Current Liabilities

Accounts payable
   $ 545    $ 856
Taxes accrued
   132    114
Interest accrued
   148    109
Current maturities of long-term debt
   757    8
Other
   468    485


Total current liabilities
   2,050    1,572


Long-term Debt
   7,216    7,462


Non-recourse Long-term Debt of Variable Interest Entities
   300    300


Deferred Credits and Other Liabilities

Deferred income taxes
   4,530    3,988
Investment tax credits
   226    205
Accrued pension and other post-retirement benefits
   237    242
Asset retirement obligations
   1,814    1,728
Other
   2,836    2,975


Total deferred credits and other liabilities
   9,643    9,138


Commitments and Contingencies

Member’s Equity

Member’s Equity
   9,647    8,938
Accumulated other comprehensive loss
   (19 ) (22 )


Total member’s equity
   9,628    8,916


Total Liabilities and Member’s Equity
   $ 28,837    $ 27,388

DUKE ENERGY CAROLINAS, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		September 30,		December 31,
(in millions)		2012		2011
ASSETS
Current Assets
Cash and cash equivalents		$	314	$	289
Receivables (net of allowance for doubtful accounts of $3 at September 30, 2012 and December 31, 2011)			135		262
Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $6 at September 30, 2012 and December 31, 2011)			738		581
Receivables from affiliated companies			2		2
Note receivable from affiliated companies			811		923
Inventory			993		917
Other			445		278
	Total current assets		3,438		3,252
Investments and Other Assets
Nuclear decommissioning trust funds			2,311		2,060
Other			804		968
	Total investments and other assets		3,115		3,028
Property, Plant and Equipment
Cost			33,961		32,840
Accumulated depreciation and amortization			(11,553)		(11,269)
Generation facilities to be retired, net			68		80
	Net property, plant and equipment		22,476		21,651
Regulatory Assets and Deferred Debits
Regulatory assets			1,814		1,894
Other			72		71
	Total regulatory assets and deferred debits		1,886		1,965
Total Assets		$	30,915	$	29,896
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities
Accounts payable		$	426	$	637
Accounts payable to affiliated companies			148		156
Taxes accrued			142		126
Interest accrued			145		115
Current maturities of long-term debt			427		1,178
Other			519		398
	Total current liabilities		1,807		2,610
Long-term Debt			8,139		7,496
Non-recourse long-term debt of variable interest entities			300		300
Long-term debt payable to affiliated companies			300		300
Deferred Credits and Other Liabilities
Deferred income taxes			5,063		4,555
Investment tax credits			216		233
Accrued pension and other post-retirement benefit costs			226		248
Asset retirement obligations			1,934		1,846
Regulatory liabilities			2,034		1,928
Other			955		926
	Total deferred credits and other liabilities		10,428		9,736
Commitments and Contingencies
Member's Equity
Member's Equity			9,958		9,473
Accumulated other comprehensive loss			(17)		(19)
	Total member's equity		9,941		9,454
Total Liabilities and Member's Equity		$	30,915	$	29,896

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY CAROLINAS, LLC~~PART I

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

~~(In millions)~~

   Nine Months Ended
September 30,
   2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES

Net income
   $ 709    $ 709
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization (including amortization of nuclear fuel)
   752    730
Equity component of AFUDC
   (125 ) (129 )
Severance expense
   —      61
Gains on sales of other assets and other, net
   (2 ) (7 )
Deferred income taxes
   498    260
Accrued pension and other post-retirement benefit costs
   25    26
(Increase) decrease in

Net realized and unrealized mark-to-market and hedging transactions
   2    —
Receivables
   96    (37 )
Inventory
   (25 ) 217
Other current assets
   122    (1 )
Increase (decrease) in

Accounts payable
   (288 ) 42
Taxes accrued
   18    4
Other current liabilities
   (34 ) (50 )
Other assets
   25    26
Other liabilities
   (206 ) (117 )


Net cash provided by operating activities
   1,567    1,734


CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures
   (1,604 ) (1,737 )
Purchases of available-for-sale securities
   (1,598 ) (871 )
Proceeds from sales and maturities of available-for-sale securities
   1,561    845
Sales of emission allowances
   2    7
Change in restricted cash
   2    7
Notes due from affiliate
   (250 ) 267
Other
   (9 ) (8 )


Net cash used in investing activities
   (1,896 ) (1,490 )


CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from the issuance of long-term debt
   499    692
Payments for the redemption of long-term debt
   (2 ) (602 )
Distribution to parent
   —      (350 )
Other
   (3 ) (4 )


Net cash provided by (used in) financing activities
   494    (264 )


Net increase (decrease) in cash and cash equivalents
   165    (20 )
Cash and cash equivalents at beginning of period
   153    394


Cash and cash equivalents at end of period
   $ 318    $ 374


Supplemental Disclosures

Significant non-cash transactions:

Accrued capital expenditures
   $ 122    $ 212

DUKE ENERGY CAROLINAS, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

					Nine Months Ended
					September 30,
(in millions)					2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income				$	735	$	709
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization (including amortization of nuclear fuel)			860		752
			Equity component of AFUDC			(116)		(125)
			FERC mitigation costs			46		―
			Community support and charitable contributions expense			59		―
			Gains on sales of other assets and other, net			(9)		(2)
			Deferred income taxes			400		498
			Voluntary opportunity cost deferral			(101)		―
			Accrued pension and other post-retirement benefit costs			32		25
			(Increase) decrease in
				Net realized and unrealized mark-to-market and hedging transactions		―		2
				Receivables		(28)		7
				Receivables from affiliated companies		―		89
				Inventory		(62)		(25)
				Other current assets		42		122
			Increase (decrease) in
				Accounts payable		(152)		(218)
				Accounts payable to affiliated companies		(9)		(70)
				Taxes accrued		16		18
				Other current liabilities		202		(34)
			Other assets			(53)		25
			Other liabilities			(99)		(206)
				Net cash provided by operating activities		1,763		1,567
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures					(1,453)		(1,604)
	Purchases of available-for-sale securities					(672)		(1,598)
	Proceeds from sales and maturities of available-for-sale securities					644		1,561
	Change in restricted cash					―		2
	Notes receivable from affiliated companies					112		(250)
	Other					(6)		(7)
				Net cash used in investing activities		(1,375)		(1,896)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from the issuance of long-term debt					645		499
	Payments for the redemption of long-term debt					(752)		(2)
	Distributions to parent					(250)		―
	Other					(6)		(3)
				Net cash (used in) provided by financing activities		(363)		494
	Net increase in cash and cash equivalents					25		165
	Cash and cash equivalents at beginning of period					289		153
	Cash and cash equivalents at end of period				$	314	$	318
	Supplemental Disclosures:
	Significant non-cash transactions:
		Accrued capital expenditures			$	126	$	122

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY CAROLINAS, LLC~~PART I

~~CONDENSED CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY AND COMPREHENSIVE INCOME~~

~~(Unaudited)~~

~~(In millions)~~

   Accumulated Other Comprehensive
(Loss) Income
   Member’s
Equity Net (Losses)
Gains on
Cash Flow Hedges Other Total
Balance at December 31, 2009
   $ 8,304    $ (24 ) $ (9 ) $ 8,271


Net income
   709    —      —      709
Other comprehensive income

Reclassification into earnings from cash flow hedges(a)
   —      2    —      2
Unrealized gain on investments in auction rate securities(b)
   —      —      2    2


Total comprehensive income
   713
Distribution to parent
   (350 ) —      —      (350 )


Balance at September 30, 2010
   $ 8,663    $ (22 ) $ (7 ) $ 8,634





Balance at December 31, 2010
   $ 8,938    $ (20 ) $ (2 ) $ 8,916


Net income
   709    —      —      709
Other comprehensive income
   —
Reclassification into earnings from cash flow hedges(a)
   3    —      3


Total comprehensive income
   712


Balance at September 30, 2011
   $ 9,647    $ (17 ) $ (2 ) $ 9,628

~~(a)~~

~~Net of $1 tax expense in 2011 and 2010.~~

~~(b)~~

~~Net of $1 tax expense in 2010.~~

DUKE ENERGY CAROLINAS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY

(Unaudited)

Accumulated

Other Comprehensive Income

(Loss)

Net Gains

(Losses) on

Member's

Cash Flow

(in millions)

Equity

Hedges

Other

Total

Balance at December 31, 2010

8,938

(20)

(2)

8,916

Net income

709

―

709

Other comprehensive income

Balance at September 30, 2011

9,647

(17)

(2)

9,628

Balance at December 31, 2011

9,473

(17)

(2)

9,454

Net income

735

―

735

Other comprehensive income

Distributions to Parent

(250)

Balance at September 30, 2012

9,958

(15)

(2)

9,941

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY OHIO, INC.~~PART I

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(Unaudited)~~

~~(In millions)~~

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2011    2010    2011    2010
Operating Revenues

Regulated electric
   $ 442       $ 520       $ 1,175       $ 1,449
Non-regulated electric and other
   315       325       825       664
Regulated natural gas
   81       78       411       436








Total operating revenues
   838       923       2,411       2,549








Operating Expenses

Fuel used in electric generation and purchased power—regulated
   111       140       299       410
Fuel used in electric generation and purchased power—non-regulated
   189       138       500       319
Cost of natural gas and coal sold
   12       13       153       191
Operation, maintenance and other
   186       191       606       577
Depreciation and amortization
   83       97       259       300
Property and other taxes
   64       65       200       198
Goodwill and other impairment charges
   79       —         88       837








Total operating expenses
   724       644       2,105       2,832








Gains on Sales of Other Assets and Other, net
   2       —         4       3








Operating Income (Loss)
   116       279       310       (280 )
Other Income and Expenses, net
   8       8       17       22
Interest Expense
   27       26       78       84








Income (Loss) Before Income Taxes
   97       261       249       (342 )
Income Tax Expense
   46       85       92       111








Net Income (Loss)
   $ 51       $ 176       $ 157       $ (453 )

DUKE ENERGY OHIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
(in millions)			2012		2011		2012		2011
Operating Revenues
	Regulated electric		$	387	$	442	$	1,047	$	1,175
	Non-regulated electric and other			292		315		1,008		825
	Regulated natural gas			78		81		331		411
		Total operating revenues		757		838		2,386		2,411
Operating Expenses
	Fuel used in electric generation and purchased power - regulated			141		111		375		299
	Fuel used in electric generation and purchased power - non-regulated			234		189		649		500
	Cost of natural gas			8		12		95		153
	Operation, maintenance and other			208		186		579		606
	Depreciation and amortization			86		83		249		259
	Property and other taxes			38		64		166		200
	Impairment charges			―		79		―		88
		Total operating expenses		715		724		2,113		2,105
Gains on Sales of Other Assets and Other, net				―		2		2		4
Operating Income				42		116		275		310
Other Income and Expenses, net				5		8		13		17
Interest Expense				21		27		70		78
Income Before Income Taxes				26		97		218		249
Income Tax Expense				12		46		85		92
Net Income				14		51		133		157
Other Comprehensive Income, net of tax
	Pension and OPEB adjustments^(a)			―		(1)		1		―
Comprehensive Income			$	14	$	50	$	134	$	157

(a)	Net of insignificant tax expense and $1 million tax expense for the three and nine months ended September 30, 2012, and $1 million tax benefit for the three months ended September 30, 2011.

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY OHIO, INC.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~(Unaudited)~~

~~(In millions)~~

   September 30,
2011    December 31,
2010
ASSETS

Current Assets

Cash and cash equivalents
   $ 216       $ 228
Receivables (net of allowance for doubtful accounts of $16 at September 30, 2011 and $18 at December 31, 2010)
   497       888
Inventory
   283       254
Other
   149       121




Total current assets
   1,145       1,491




Investments and Other Assets

Goodwill
   921       921
Intangibles, net
   148       248
Other
   55       62




Total investments and other assets
   1,124       1,231




Property, Plant and Equipment

Cost
   10,516       10,259
Less accumulated depreciation and amortization
   2,579       2,411




Net property, plant and equipment
   7,937       7,848




Regulatory Assets and Deferred Debits

Deferred debt expense
   21       23
Regulatory assets related to income taxes
   74       78
Other
   358       353




Total regulatory assets and deferred debits
   453       454




Total Assets
   $ 10,659       $ 11,024

PART I

~~DUKE ENERGY OHIO, INC.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued)~~

~~(Unaudited)~~

~~(In millions, except share and per-share amounts)~~

   September 30,
2011 December 31,
2010
LIABILITIES AND COMMON STOCKHOLDER’S EQUITY

Current Liabilities

Accounts payable
   $ 295    $ 467
Taxes accrued
   155    153
Interest accrued
   33    22
Current maturities of long-term debt
   507    7
Other
   92    99


Total current liabilities
   1,082    748


Long-term Debt
   2,051    2,557


Deferred Credits and Other Liabilities

Deferred income taxes
   1,802    1,640
Investment tax credits
   8    9
Accrued pension and other post-retirement benefit costs
   188    207
Asset retirement obligations
   28    27
Other
   364    372


Total deferred credits and other liabilities
   2,390    2,255


Commitments and Contingencies

Common Stockholder’s Equity

Common Stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at September 30, 2011 and December 31, 2010
   762    762
Additional paid-in capital
   5,085    5,570
Retained deficit
   (689 ) (846 )
Accumulated other comprehensive loss
   (22 ) (22 )


Total common stockholder’s equity
   5,136    5,464


Total Liabilities and Common Stockholder’s Equity
   $ 10,659    $ 11,024

DUKE ENERGY OHIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		September 30,		December 31,
(in millions)		2012		2011
ASSETS
Current Assets
Cash and cash equivalents		$	13	$	99
Receivables (net of allowance for doubtful accounts of $2 at September 30, 2012 and $16 at December 31, 2011)			96		137
Receivables from affiliated companies			92		143
Notes receivable from affiliated companies			84		401
Inventory			221		243
Other			259		220
	Total current assets		765		1,243
Investments and Other Assets
Goodwill			921		921
Intangibles, net			132		143
Other			62		58
	Total investments and other assets		1,115		1,122
Property, Plant and Equipment
Cost			10,708		10,632
Accumulated depreciation and amortization			(2,646)		(2,594)
	Net property, plant and equipment		8,062		8,038
Regulatory Assets and Deferred Debits
Regulatory assets			538		520
Other			14		16
	Total regulatory assets and deferred debits		552		536
Total Assets		$	10,494	$	10,939
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable		$	248	$	318
Accounts payable to affiliated companies			68		84
Notes payable to affiliated companies			86		―
Taxes accrued			131		180
Interest accrued			30		23
Current maturities of long-term debt			261		507
Other			105		122
	Total current liabilities		929		1,234
Long-term Debt			1,785		2,048
Deferred Credits and Other Liabilities
Deferred income taxes			1,882		1,853
Investment tax credits			6		8
Accrued pension and other post-retirement benefit costs			140		147
Asset retirement obligations			28		27
Regulatory liabilities			264		273
Other			187		182
	Total deferred credits and other liabilities		2,507		2,490
Commitments and Contingencies
Common Stockholder's Equity
Common stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at September 30, 2012 and December 31, 2011			762		762
Additional paid-in capital			5,057		5,085
Accumulated deficit			(519)		(652)
Accumulated other comprehensive loss			(27)		(28)
	Total common stockholder's equity		5,273		5,167
Total Liabilities and Common Stockholder's Equity		$	10,494	$	10,939

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY OHIO, INC.~~PART I

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

~~(In millions)~~

   Nine Months Ended
September 30,
   2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)
   $ 157    $ (453 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization
   261    301
Severance expense
   —      23
Gains on sales of other assets and other, net
   (4 ) (3 )
Impairment of goodwill and other long-lived assets
   88    837
Deferred income taxes
   165    28
Accrued pension and other post-retirement benefit costs
   11    11
(Increase) decrease in

Net realized and unrealized mark-to-market and hedging transactions
   15    (34 )
Receivables
   170    56
Inventory
   (29 ) 1
Other current assets
   (35 ) 66
Increase (decrease) in

Accounts payable
   (150 ) (217 )
Taxes accrued
   2    (2 )
Other current liabilities
   18    (17 )
Other assets
   9    15
Other liabilities
   (55 ) (31 )


Net cash provided by operating activities
   623    581


CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures
   (344 ) (242 )
Purchases of emission allowances
   (5 ) (10 )
Sales of emission allowances
   6    10
Notes due from affiliate
   221    (113 )
Change in restricted cash
   (18 ) —
Other
   (3 ) —


Net cash used in investing activities
   (143 ) (355 )


CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from the issuance of long-term debt
   —      7
Payments for the redemption of long-term debt
   (7 ) (7 )
Notes payable and commercial paper
   —      (12 )
Dividends to parent
   (485 ) —


Net cash used in financing activities
   (492 ) (12 )


Net (decrease) increase in cash and cash equivalents
   (12 ) 214
Cash and cash equivalents at beginning of period
   228    127


Cash and cash equivalents at end of period
   $ 216    $ 341


Supplemental Disclosures

Significant non-cash transactions:

Accrued capital expenditures
   $ 18    $ 92

DUKE ENERGY OHIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

						Nine Months Ended
						September 30,
(in millions)						2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income				$	133	$	157
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization			252		261
			Gains on sales of other assets and other, net			(2)		(4)
			Impairment charges			―		88
			Deferred income taxes			78		165
			Accrued pension and other post-retirement benefit costs			8		11
			(Increase) decrease in
				Net realized and unrealized mark-to-market and hedging transactions		18		15
				Receivables		40		163
				Receivables from affiliated companies		51		7
				Inventory		21		(29)
				Other current assets		17		(35)
			Increase (decrease) in
				Accounts payable		(56)		(121)
				Accounts payable to affiliated companies		(16)		(29)
				Taxes accrued		(49)		2
				Other current liabilities		(16)		18
			Other assets			(39)		9
			Other liabilities			(73)		(55)
				Net cash provided by operating activities		367		623
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures					(386)		(344)
	Net proceeds from the sales of other assets					82		―
	Notes receivable from affiliated companies					317		221
	Change in restricted cash					(46)		(18)
	Other					1		(2)
				Net cash used in investing activities		(32)		(143)
CASH FLOWS FROM FINANCING ACTIVITIES
	Payments for the redemption of long-term debt					(507)		(7)
	Notes payable to affiliated companies					86		―
	Dividends to parent					―		(485)
				Net cash used in financing activities		(421)		(492)
	Net decrease in cash and cash equivalents					(86)		(12)
	Cash and cash equivalents at beginning of period					99		228
	Cash and cash equivalents at end of period				$	13	$	216
	Supplemental Disclosures:
	Significant non-cash transactions:
		Accrued capital expenditures			$	26	$	18
		Transfer of Vermillion Generating Station to Duke Energy Indiana			$	28	$	―

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY OHIO, INC.~~PART I

~~CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY AND COMPREHENSIVE INCOME~~

~~(Unaudited)~~

~~(In millions)~~

      Accumulated Other
Comprehensive (Loss) Income
   Common
Stock    Additional
Paid-in
Capital Retained
Earnings Net Gains
(Losses) on
Cash Flow
Hedges Pension and
OPEB Related
Adjustments
to AOCI Total
Balance at December 31, 2009
   $ 762       $ 5,570    $ (405 ) $ 1    $ (30 ) $ 5,898




Net loss
   —         —      (453 ) —      —      (453 )
Other comprehensive income

Reclassification into earnings from cash flow hedges(a)
   —         —      —      (1 ) —      (1 )
Pension and OPEB related adjustments to AOCI(b)
   —         —      —      —      1    1


Total comprehensive loss
      (453 )




Balance at September 30, 2010
   $ 762       $ 5,570    $ (858 ) $ —      $ (29 ) $ 5,445









Balance at December 31, 2010
   $ 762       $ 5,570    $ (846 ) $ —      $ (22 ) $ 5,464




Net income and total comprehensive income
      157    157
Dividends to parent
      (485 ) (485 )




Balance at September 30, 2011
   $ 762       $ 5,085    $ (689 ) $ —      $ (22 ) $ 5,136

~~(a)~~

~~Net of insignificant tax benefit in 2010.~~

~~(b)~~

~~Net of insignificant tax expense in 2010.~~

DUKE ENERGY OHIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY

(Unaudited)

Accumulated Other

Comprehensive Income (Loss)

Additional

Retained

Pension and

Common

Paid-in

Earnings

OPEB

(in millions)

Stock

Capital

(Deficit)

Adjustments

Total

Balance at December 31, 2010

762

5,570

(846)

(22)

5,464

Net income

―

157

―

157

Dividend to parent

―

(485)

―

(485)

Balance at September 30, 2011

762

5,085

(689)

(22)

5,136

Balance at December 31, 2011

762

5,085

(652)

(28)

5,167

Net income

―

133

―

133

Other comprehensive income

―

Transfer of Vermillion Generating Station to Duke Energy Indiana

―

(28)

―

(28)

Balance at September 30, 2012

762

5,057

(519)

(27)

5,273

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY INDIANA, INC.~~PART I

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(Unaudited)~~

~~(In millions)~~

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2011 2010    2011    2010
Operating Revenues-Regulated Electric
   $ 718    $ 694       $ 1,997       $ 1,883






Operating Expenses

Fuel used in electric generation and purchased power
   270    256       748       682
Operation, maintenance and other
   148    131       472       445
Depreciation and amortization
   100    95       297       281
Property and other taxes
   20    19       61       52
Impairment charges
   222    44       222       44






Total operating expenses
   760    545       1,800       1,504






Operating (Loss) Income
   (42 ) 149       197       379






Other Income and Expenses, net
   26    19       70       51
Interest Expense
   34    32       104       99






(Loss) Income Before Income Taxes
   (50 ) 136       163       331
Income Tax (Benefit) Expense
   (19 ) 44       50       112






Net (Loss) Income
   $ (31 ) $ 92       $ 113       $ 219

DUKE ENERGY INDIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
(in millions)			2012		2011		2012		2011
Operating Revenues-Regulated Electric			$	718	$	718	$	2,091	$	1,997
Operating Expenses
	Fuel used in electric generation and purchased power			283		270		853		748
	Operation, maintenance and other			162		148		473		472
	Depreciation and amortization			100		100		292		297
	Property and other taxes			23		20		61		61
	Impairment charges			180		222		580		222
		Total operating expenses		748		760		2,259		1,800
Operating (Loss) Income				(30)		(42)		(168)		197
Other Income and Expenses, net				24		26		66		70
Interest Expense				35		34		105		104
(Loss) Income Before Income Taxes				(41)		(50)		(207)		163
Income Tax (Benefit) Expense				(22)		(19)		(98)		50
Net (Loss) Income				(19)		(31)		(109)		113
Other Comprehensive Income, net of tax
	Reclassification into earnings from cash flow hedges^(a)			―		(1)		(1)		(1)
Comprehensive (Loss) Income			$	(19)	$	(32)	$	(110)	$	112

(a)	Net of insignificant tax benefit for the three and nine months ended September 30, 2012, and $1 million tax benefit for the three and nine months ended September 30, 2011.

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY INDIANA, INC.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~(Unaudited)~~

~~(In millions)~~

   September 30,
2011    December 31,
2010
ASSETS

Current Assets

Cash and cash equivalents
   $ 21       $ 54
Receivables (net of allowance for doubtful accounts of $1 at both September 30, 2011 and December 31, 2010)
   223       431
Inventory
   283       267
Other
   35       85




Total current assets
   562       837




Investments and Other Assets

Intangibles, net
   53       64
Other
   120       126




Total investments and other assets
   173       190




Property, Plant and Equipment

Cost
   11,711       11,213
Less accumulated depreciation and amortization
   3,445       3,341




Net property, plant and equipment
   8,266       7,872




Regulatory Assets and Deferred Debits

Deferred debt expense
   40       43
Regulatory assets related to income taxes
   108       101
Other
   614       588




Total regulatory assets and deferred debits
   762       732




Total Assets
   $ 9,763       $ 9,631

PART I

~~DUKE ENERGY INDIANA, INC.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued)~~

~~(Unaudited)~~

~~(In millions, except share and per-share amounts)~~

   September 30,
2011    December 31,
2010
LIABILITIES AND COMMON STOCKHOLDER’S EQUITY

Current Liabilities

Accounts payable
   $ 277       $ 314
Notes payable
   14       —
Taxes accrued
   122       45
Interest accrued
   49       47
Current maturities of long-term debt
   13       11
Other
   90       99




Total current liabilities
   565       516




Long-term Debt
   3,456       3,461




Deferred Credits and Other Liabilities

Deferred income taxes
   881       973
Investment tax credits
   143       145
Accrued pension and other post-retirement benefit costs
   261       270
Asset retirement obligations
   47       46
Other
   731       653




Total deferred credits and other liabilities
   2,063       2,087




Commitments and Contingencies

Common Stockholder’s Equity

Common Stock, no par; $0.01 stated value, 60,000,000 shares authorized; 53,913,701 shares outstanding at September 30, 2011 and December 31, 2010
   1       1
Additional paid-in capital
   1,358       1,358
Retained earnings
   2,313       2,200
Accumulated other comprehensive income
   7       8




Total common stockholder’s equity
   3,679       3,567




Total Liabilities and Common Stockholder’s Equity
   $ 9,763       $ 9,631

DUKE ENERGY INDIANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		September 30,		December 31,
(in millions)		2012		2011
ASSETS
Current Assets
Cash and cash equivalents		$	18	$	16
Receivables (net of allowance for doubtful accounts of $1 at September 30, 2012 and December 31, 2011)			23		42
Receivables from affiliated companies			133		156
Inventory			356		330
Other			124		135
	Total current assets		654		679
Investments and Other Assets
Intangibles, net			43		50
Other			110		113
	Total investments and other assets		153		163
Property, Plant and Equipment
Cost			11,843		11,791
Accumulated depreciation and amortization			(3,638)		(3,393)
	Net property, plant and equipment		8,205		8,398
Regulatory Assets and Deferred Debits
Regulatory assets			784		798
Other			23		24
	Total regulatory assets and deferred debits		807		822
Total Assets		$	9,819	$	10,062
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable		$	147	$	201
Accounts payable to affiliated companies			52		72
Notes payable to affiliated companies			55		300
Taxes accrued			58		74
Interest accrued			49		50
Current maturities of long-term debt			404		6
Other			170		93
	Total current liabilities		935		796
Long-term Debt			3,150		3,303
Long-term Debt payable to affiliated companies			150		150
Deferred Credits and Other Liabilities
Deferred income taxes			826		927
Investment tax credits			142		143
Accrued pension and other post-retirement benefit costs			152		161
Asset retirement obligations			44		43
Regulatory liabilities			706		683
Other			64		122
	Total deferred credits and other liabilities		1,934		2,079
Commitments and Contingencies
Common Stockholder's Equity
Common Stock, no par; $0.01 stated value, 60,000,000 shares authorized; 53,913,701 shares outstanding at September 30, 2012 and December 31, 2011			1		1
Additional paid-in capital			1,384		1,358
Retained earnings			2,259		2,368
Accumulated other comprehensive income			6		7
	Total common stockholder's equity		3,650		3,734
Total Liabilities and Common Stockholder's Equity		$	9,819	$	10,062

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY INDIANA, INC.~~PART I

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

~~(In millions)~~

   Nine Months Ended
September 30,
   2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES

Net income
   $ 113    $ 219
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
   301    285
Equity component of AFUDC
   (64 ) (40 )
Severance expense
   —      26
Impairment charges
   222    44
Deferred income taxes and investment tax credit amortization
   (67 ) 82
Accrued pension and other post-retirement benefit costs
   16    18
(Increase) decrease in

Receivables
   97    (2 )
Inventory
   (17 ) 66
Other current assets
   18    8
Increase (decrease) in

Accounts payable
   (35 ) (98 )
Taxes accrued
   76    1
Other current liabilities
   (9 ) (21 )
Other assets
   19    4
Other liabilities
   (47 ) (38 )


Net cash provided by operating activities
   623    554


CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures
   (783 ) (922 )
Purchases of available-for-sale securities
   (7 ) (17 )
Proceeds from sales and maturities of available-for-sale securities
   5    19
Purchases of emission allowances
   —      (1 )
Sales of emission allowances
   1    3
Notes due from affiliate
   115    (160 )
Change in restricted cash
   6    (5 )
Other
   (3 ) —


Net cash used in investing activities
   (666 ) (1,083 )


CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from the issuance of long-term debt
   —      571
Payments for the redemption of long-term debt
   (4 ) (197 )
Notes payable to affiliate
   14    —
Capital contribution from parent
   —      350
Other
   —      (3 )


Net cash provided by financing activities
   10    721


Net (decrease) increase in cash and cash equivalents
   (33 ) 192
Cash and cash equivalents at beginning of period
   54    20


Cash and cash equivalents at end of period
   $ 21    $ 212


Supplemental Disclosures

Significant non-cash transactions:

Accrued capital expenditures
   $ 127    $ 155

DUKE ENERGY INDIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

					Nine Months Ended
					September 30,
(in millions)					2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES
	Net (loss) income				$	(109)	$	113
	Adjustments to reconcile net (loss) income to net cash provided by operating activities:
			Depreciation and amortization			296		301
			Equity component of AFUDC			(61)		(64)
			Impairment charges			580		222
			Deferred income taxes and investment tax credit amortization			(97)		(67)
			Accrued pension and other post-retirement benefit costs			12		16
			(Increase) decrease in
				Receivables		16		93
				Receivables from affiliated companies		23		4
				Inventory		(26)		(17)
				Other current assets		5		18
			Increase (decrease) in
				Accounts payable		20		(22)
				Accounts payable to affiliated companies		(20)		(13)
				Taxes accrued		(35)		76
				Other current liabilities		(7)		(9)
			Other assets			15		19
			Other liabilities			(28)		(47)
				Net cash provided by operating activities		584		623
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures					(582)		(783)
	Purchases of available-for-sale securities					(12)		(7)
	Proceeds from sales and maturities of available-for-sale securities					14		5
	Notes receivable from affiliated companies					―		115
	Change in restricted cash					―		6
	Other					(1)		(2)
				Net cash used in investing activities		(581)		(666)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from the issuance of long-term debt					250		―
	Payments for the redemption of long-term debt					(4)		(4)
	Notes payable to affiliated companies					(245)		14
	Other					(2)		―
				Net cash (used in) provided by financing activities		(1)		10
	Net increase (decrease) in cash and cash equivalents					2		(33)
	Cash and cash equivalents at beginning of period					16		54
	Cash and cash equivalents at end of period				$	18	$	21
	Supplemental Disclosures:
	Significant non-cash transactions:
		Accrued capital expenditures			$	37	$	127
		Transfer of Vermillion Generating Station from Duke Energy Ohio			$	26	$	―

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY INDIANA, INC.~~PART I

~~CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY AND COMPREHENSIVE INCOME~~

~~(Unaudited)~~

~~(In millions)~~

            Accumulated
Other Comprehensive
Income (Loss)
   Common
Stock    Additional
Paid-in
Capital    Retained
Earnings    Net Gains
(Losses) on
Cash Flow
Hedges Total
Balance at December 31, 2009
   $ 1       $ 1,008       $ 1,915       $ 10    $ 2,934








Net income
   —         —         219       —      219
Other comprehensive loss

Reclassification into earnings from cash flow hedges(a)
   —         —         —         (2 ) (2 )


Total comprehensive income
            217
Capital contribution from parent
   —         350       —         —      350








Balance at September 30, 2010
   $ 1       $ 1,358       $ 2,134       $ 8    $ 3,501

















Balance at December 31, 2010
   $ 1       $ 1,358       $ 2,200       $ 8    $ 3,567








Net income
   —         —         113       —      113
Other comprehensive loss

Reclassification into earnings from cash flow hedges(a)
            (1 ) (1 )


Total comprehensive income
   —         —         —         112








Balance at September 30, 2011
   $ 1       $ 1,358       $ 2,313       $ 7    $ 3,679

~~(a)~~

~~Net of $1 tax benefit in 2011 and 2010.~~

DUKE ENERGY INDIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY
(Unaudited)

								Accumulated
								Other Comprehensive
								Income (Loss)
								Net Gains
				Additional				(Losses) on
		Common		Paid-in		Retained		Cash Flow
(in millions)		Stock		Capital		Earnings		Hedges		Total
Balance at December 31, 2010		$	1	$	1,358	$	2,200	$	8	$	3,567
	Net income		―		―		113		―		113
	Other comprehensive loss		―		―		―		(1)		(1)
Balance at September 30, 2011		$	1	$	1,358	$	2,313	$	7	$	3,679

Balance at December 31, 2011		$	1	$	1,358	$	2,368	$	7	$	3,734
	Net income		―		―		(109)		―		(109)
	Other comprehensive loss		―		―		―		(1)		(1)
	Transfer of Vermillion Generating Station from Duke Energy Ohio		―		26		―		―		26
Balance at September 30, 2012		$	1	$	1,384	$	2,259	$	6	$	3,650

See Notes to Unaudited Condensed Consolidated Financial Statements

~~PART I~~

~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~PART I

~~DUKE ENERGY INDIANA, INC.~~

~~Combined Notes To Unaudited Condensed Consolidated Financial Statements~~

~~Index to Combined Notes To Unaudited Condensed Consolidated Financial Statements~~

~~The unaudited notes to the condensed consolidated financial statements that follow are a combined presentation. The following list indicates the registrants to which the footnotes apply:~~

Index to Combined Notes To Unaudited Condensed Consolidated Financial Statements

The unaudited notes to the condensed consolidated financial statements that follow are a combined presentation. The following

list indicates the registrants to which the footnotes apply:

Applicable Notes

Registrant

Duke Energy Corporation

•

Duke Energy Carolinas, LLC

•

Duke Energy Ohio, Inc.

•

Duke Energy Indiana, Inc.

•


~~Registrant~~		~~Applicable Notes~~
~~Duke Energy Corporation~~		~~1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 18, 19, 20~~

~~Duke Energy Carolinas, LLC~~		~~1, 2, 4, 5, 6, 8, 9, 10, 11, 14, 15, 16, 17, 18, 19, 20~~

~~Duke Energy Ohio, Inc.~~		~~1, 2, 3, 4, 5, 6, 7, 8, 9, 11, 14, 15, 16, 17, 18, 19, 20~~

~~Duke Energy Indiana, Inc.~~		~~1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 14, 15, 16, 17, 18, 19, 20~~

1. Organization and Basis of Presentation

Organization.Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company ~~primarily located~~headquartered in ~~the Americas.~~Charlotte, North Carolina. Duke Energy operates in the United States (U.S.) and Latin America primarily through its direct and indirect ~~wholly-owned~~wholly owned subsidiaries. Duke Energy’s wholly owned subsidiaries included Duke Energy Carolinas, LLC (Duke Energy Carolinas), Duke Energy Ohio, Inc. (Duke Energy Ohio), ~~which includes Duke Energy Kentucky, Inc. (Duke Energy Kentucky),~~ and Duke Energy Indiana, Inc. (Duke Energy Indiana) prior to the merger with Progress Energy, Inc (Progress Energy). On July 2, 2012 Duke Energy merged with Progress Energy, with Duke Energy continuing as the surviving corporation, and Progress Energy becoming a wholly owned subsidiary of Duke Energy. Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc. (Progress Energy Carolinas) and Florida Power Corporation d/b/a Progress Energy Florida, Inc. (Progress Energy Florida), ~~as well as in South~~Progress Energy’s regulated utility subsidiaries, are now indirect wholly owned subsidiaries of Duke Energy. Duke Energy’s consolidated financial statements include Progress Energy, Progress Energy Carolinas and ~~Central America~~Progress Energy Florida activity from July 2, 2012 through ~~International Energy.~~September 30, 2012. See Note 2 for additional information regarding the merger. When discussing Duke Energy’s condensed consolidated financial information, it necessarily includes the results of its ~~three~~six separate subsidiary registrants, Duke Energy Carolinas, Progress Energy, Progress Energy Carolinas, Progress Energy Florida, Duke Energy Ohio and Duke Energy Indiana (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants.

Progress Energy, Progress Energy Carolinas and Progress Energy Florida (collectively referred to as the Progress Energy Registrants) continue to maintain reporting requirements as SEC registrants. The information presented in the Progress Energy Registrants separately filed Form 10-Q represents the results of operations of the Progress Energy Registrants for the three and nine months ended September 30, 2012 and 2011 and the financial position as of September 30, 2012 and December 31, 2011, presented on a comparable basis. In accordance with SEC guidance, the Progress Energy Registrants did not reflect the impacts of acquisition accounting, whereby the adjustments of assets and liabilities to fair value and the resultant goodwill would be shown on the financial statements of the Progress Energy Registrants. These adjustments were recorded by Duke Energy.

The information in these combined notes relates to ~~each of the~~ Duke Energy, ~~Registrants~~Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana as noted in the Index to the Combined Notes. However, none of the registrants makes any representation as to information related solely to Duke Energy or the ~~subsidiaries~~Subsidiary Registrants of Duke Energy other than itself. As discussed further in Note 3, Duke Energy operates in three reportable business segments: U.S. Franchised Electric and Gas (USFE&G), Commercial Power and International Energy. The remainder of Duke Energy’s operations is presented as Other.

These Unaudited Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana and all majority-owned subsidiaries where these respective Duke Energy Registrants have control and those variable interest entities (VIEs) where these respective Duke Energy Registrants are the primary beneficiary. These Unaudited Condensed Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain generation and transmission facilities. In January 2012, Duke Energy Ohio completed the sale of its 75% ownership of the Vermillion Generating Station (Vermillion); upon the close, Duke Energy Indiana purchased a 62.5% interest in the station. See Note 2 for ~~information related to reportable operating segments for each of the Duke Energy Registrants.~~further discussion.

Duke Energy Carolinas, a wholly owned subsidiary of Duke Energy, is an electric utility company that generates, transmits, distributes and sells electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC), the Public Service Commission of South Carolina (PSCSC), the U.S. Nuclear Regulatory Commission (NRC) and the Federal Energy Regulatory Commission (FERC). Substantially all of Duke Energy Carolinas’ operations are regulated and qualify for regulatory accounting treatment. As discussed further in Note 3, Duke Energy Carolinas’ operations include one reportable business segment, Franchised Electric.

Progress Energy is a holding company headquartered in Raleigh, North Carolina, subject to regulation by the FERC. Progress Energy conducts operations through its wholly owned subsidiaries Progress Energy Carolinas and Progress Energy Florida. Progress Energy’s operations include one reportable segment, Franchised Electric. The remainder of Progress Energy’s operations is presented as Other. Other primarily includes amounts applicable to the activities of the holding company and Progress Energy Service Company, LLC (PESC) and other miscellaneous nonregulated businesses that do not separately meet the quantitative disclosure requirements as a reportable business segment.

Progress 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. Progress Energy Carolinas is subject to the regulatory provisions of the NCUC, the PSCSC, the NRC and the FERC. Substantially all of Progress Energy Carolinas’ operations are regulated and qualify for regulatory accounting treatment.

Progress Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in west central Florida. Progress Energy Florida is subject to the regulatory jurisdiction of the Florida Public Service Commission (FPSC), the NRC and the FERC. Substantially all of Progress Energy Florida’s operations are regulated and qualify for regulatory accounting treatment.

Duke Energy Ohio is ~~a wholly-owned subsidiary of Cinergy Corp. (Cinergy), which is a wholly-owned~~an indirect wholly owned subsidiary of Duke Energy. Duke Energy Ohio is a combination electric and gas public utility that provides service in the southwestern portion of Ohio and in northern Kentucky through its ~~wholly-owned~~wholly owned subsidiary Duke Energy Kentucky, Inc. (Duke Energy Kentucky) as well as electric generation in parts of Ohio, Illinois ~~Indiana~~ and Pennsylvania. Duke Energy Ohio’s principal lines of business include generation, transmission and distribution of electricity, the sale of and/or transportation of natural gas, and energy marketing. Duke Energy Ohio

See Notes to Unaudited Condensed Consolidated Financial Statements

PART I
conducts competitive auctions for retail electricity supply in Ohio whereby the energy price is recovered from retail customers. Duke Energy Kentucky’s principal lines of business include generation, transmission and distribution of electricity, as well as the sale of and/or transportation of natural gas. Duke Energy Ohio is subject to the regulatory provisions of the Public Utilities Commission of Ohio (PUCO), the Kentucky Public Service Commission (KPSC) and the FERC. Duke Energy Ohio applies regulatory accounting treatment to substantially all of the operations of its ~~U.S.~~ Franchised Electric and Gas operating ~~segment and~~segment. Through November 2011, Duke Energy Ohio applied regulatory accounting treatment to certain rate riders associated with retail generation of its Commercial Power operating segment. See Note 23 for information about business segments.
Duke Energy Indiana is ~~a wholly-owned~~an indirect wholly owned subsidiary of ~~Cinergy.~~Duke Energy. Duke Energy Indiana is an electric utility that provides service in north central, central, and southern Indiana. Its primary line of business is generation, transmission and distribution of electricity. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and the FERC. The substantial majority of Duke Energy Indiana’s operations are regulated and qualify for regulatory accounting treatment.
~~See~~ As discussed further in Note 3, ~~for information regarding~~ Duke ~~Energy’s pending merger with Progress~~ Energy ~~Inc (Progress Energy).~~Indiana’s operations include one reportable business segment, Franchised Electric.
Basis of ~~Presentation.~~Presentation. These Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Unaudited Condensed Consolidated Financial Statements do not include all of the information and notes required by GAAP in the U.S. for annual financial statements. Because the interim Unaudited Condensed Consolidated Financial Statements and Notes do not include all of the information and notes required by GAAP in the U.S. for annual financial statements, the Unaudited Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the respective Consolidated Financial Statements and Notes in ~~Duke Energy’s,~~the Duke Energy ~~Carolinas’, Duke~~Registrants combined Form 10-K and the Progress Energy ~~Ohio’s and Duke Energy Indiana’s respective~~combined Form 10-K for the year ended December 31, ~~2010.~~ 2011.
These Unaudited Condensed Consolidated Financial Statements, in the opinion of management, reflect all normal recurring adjustments that are, in the opinion of the respective ~~company’s~~companies’ management, necessary to fairly present the financial position and results of operations of each Duke Energy Registrant. Amounts reported in Duke Energy’s interim Unaudited Condensed Consolidated Statements of Operations and each ~~Duke Energy~~of the Subsidiary Registrants’ interim Unaudited Condensed Consolidated Statements of ~~Operations~~Income and Comprehensive Income are not necessarily indicative of amounts expected for the respective annual periods due to the effects of seasonal temperature variations on energy consumption, regulatory rulings, the timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors.
These Unaudited Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and all majority-owned subsidiaries where the respective Duke Energy Registrants have control and those variable interest entities (VIEs) where the respective Duke Energy Registrants are the primary beneficiary. These Unaudited Condensed Consolidated Financial Statements also reflect Duke Energy Carolinas’ approximate 19.25% proportionate share of the Catawba Nuclear Station, as well as Duke Energy Ohio’s proportionate share of certain generation and transmission facilities in Ohio, Indiana and Kentucky and Duke Energy Indiana’s proportionate share of certain generation and transmission facilities.
~~Use of Estimates.~~ToIn preparing financial statements that conform to GAAP, ~~in the U.S.,~~ management ~~makes~~must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported inamounts of revenues and expenses and the ~~Unaudited Condensed Consolidated Financial Statements~~disclosure of contingent assets and ~~Notes. Although these estimates are based on management’s best available information~~liabilities at the ~~time, actual~~date of the financial statements. Actual results could ~~differ.~~differ from those estimates.
Certain amounts for 2011 have been reclassified to conform to the 2012 presentation.
Reverse Stock Split. On July 2, 2012, just prior to the close of the merger with Progress Energy, Duke Energy executed a one-for-three reverse stock split with respect to the issued and outstanding shares of Duke Energy common stock. All per-share amounts included in this 10-Q are presented as if the one-for-three reverse stock split had been effective January 1, 2011.
Unbilled ~~Revenue~~Revenue.. Revenues on sales of electricity and gas are recognized when either the service is provided or the product is delivered. Unbilled retail revenues are estimated by applying either weighted average or average revenue per kilowatt-hour or per thousand cubic feet (Mcf) for all customer classes to the number of estimated kilowatt-hours or Mcfs delivered but not billed. Unbilled wholesale energy revenues are calculated by applying the contractual rate per megawatt-hour (MWh) to the number of estimated MWh delivered but not yet billed. Unbilled wholesale demand revenues are calculated by applying the contractual rate per megawatt (MW) to the MW volume delivered but not yet billed. The amount of unbilled revenues can vary significantly from period to period as a result of numerous factors, including seasonality, weather, customer usage patterns and customer mix.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~At September 30, 2011 and December 31, 2010,~~The Duke Energy ~~Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana~~Registrants had unbilled revenues within Restricted Receivables of Variable Interest Entities and Receivables on their respective Condensed Consolidated Balance Sheets as follows:

   September 30,
2011    December 31,
2010
   (in millions)
(in millions)

September 30, 2012

December 31, 2011
Duke Energy
   $ 599       $ 751

$
822

$
674
Duke Energy Carolinas
   265       322

$
282

$
293
Duke Energy Ohio^(a)
   46       54
Duke Energy Ohio

$
36

$
50
Duke Energy Indiana
   6       12

$
3

$
2

~~(a)~~ ~~Primarily relates to wholesale sales within the Commercial Power segment.~~
Additionally, Duke Energy Ohio and Duke Energy Indiana sell, on a revolving basis, ~~a portion~~nearly all of their retail and wholesale accounts receivable to Cinergy ~~Receivables.~~Receivables Company, LLC (CRC). These transfers meet sales/derecognition criteria and therefore, Duke Energy Ohio and Duke Energy Indiana, account for the transfers of receivables to Cinergy Receivables as sales, and accordingly the receivables sold are not reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. ~~Amounts~~Receivables for unbilled revenues related to retail and wholesale accounts receivable at Duke Energy Ohio and Duke Energy Indiana included in the sales of accounts receivable to ~~Cinergy Receivables at September 30, 2011 and December 31, 2010~~CRC were as follows:

(in millions)
(in millions)

September 30, 2012

December 31, 2011
Duke Energy Ohio
Duke Energy Ohio

$
63

$
89
Duke Energy Indiana
Duke Energy Indiana

$
110

$
115







   September
30, 2011    December 31,
2010
See Note 11 for additional information.
   (in millions)
Duke Energy Ohio
   $ 61       $ 112
Duke Energy Indiana
   98       125
2. Acquisitions and Sales of Other Assets
See Notes to Unaudited Condensed Consolidated Financial Statements
21
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements
Acquisitions.
The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date, and include earnings from acquisitions in consolidated earnings after the purchase date.
Merger with Progress Energy
Description of Transaction
On July 2, 2012, Duke Energy completed the merger contemplated by the Agreement and Plan of Merger (Merger Agreement), among Diamond Acquisition Corporation, a North Carolina corporation and Duke Energy’s wholly owned subsidiary (Merger Sub) and Progress Energy, a North Carolina corporation engaged in the regulated utility business of generation, transmission and distribution and sale of electricity in portions of North Carolina, South Carolina and Florida. As a result of the merger, Merger Sub was merged into Progress Energy and Progress Energy became a wholly owned subsidiary of Duke Energy.
The merger between Duke Energy and Progress Energy provides increased scale and diversity with potentially enhanced access to capital over the long-term and a greater ability to undertake the significant construction programs necessary to respond to increasing environmental regulation, plant retirements and customer demand growth. Duke Energy’s business risk profile is expected to improve over time due to the increased proportion of the business that is regulated. Additionally, cost savings, efficiencies and other benefits are expected from the combined operations.
Progress Energy’s shareholders received 0.87083 shares of Duke Energy common stock in exchange for each share of Progress Energy common stock outstanding as of July 2, 2012. Generally, all outstanding Progress Energy equity-based compensation awards were converted into Duke Energy equity-based compensation awards using the same ratio. The merger was structured as a tax-free exchange of shares.
Merger Related Regulatory Matters
Federal Energy Regulatory Commission. On June 8, 2012, the FERC conditionally approved the merger including Duke Energy and Progress Energy’s revised market power mitigation plan, the Joint Dispatch Agreement (JDA) and the joint Open Access Transmission Tariff (OATT). The revised market power mitigation plan provides for the acceleration of one transmission project and the construction of seven other transmission projects (Long-term FERC Mitigation) and interim firm power sale agreements during the construction of the transmission projects (Interim FERC Mitigation). The Long-term FERC Mitigation will increase power imported into the Duke Energy Carolinas and Progress Energy Carolinas service areas and enhance competitive power supply options in the service areas. The construction of these projects will occur over the next two to three years. In conjunction with the Interim FERC Mitigation, Duke Energy Carolinas and Progress Energy Carolinas entered into power sale agreements with various counterparties that were effective with the consummation of the merger. These agreements, or similar power sale agreements, will be in place until the Long-term FERC Mitigation is operational. Under the agreements Duke Energy will deliver around-the-clock power during the winter and summer in quantities that vary by season and by peak period.
The FERC order requires an independent party to monitor whether the power sale agreements remain in effect during construction of the transmission projects and provide quarterly reports to the FERC regarding the status of construction of the transmission projects.
·On June 25, 2012, Duke Energy and Progress Energy accepted the conditions imposed by the FERC.
·On July 9, 2012, certain intervenors requested a rehearing seeking to overturn the June 8, 2012 order by the FERC. On August 8, 2012, FERC granted rehearing for further consideration.
North Carolina Utilities Commission and Public Service Commission of South Carolina. In September 2011, Duke Energy and Progress Energy reached settlements with the Public Staff of the North Carolina Utilities Commission (NC Public Staff) and the South Carolina Office of Regulatory Staff (ORS) and certain other interested parties in connection with the regulatory proceedings related to the merger, the JDA and the OATT that were pending before the NCUC and PSCSC. These settlements were updated in May 2012 to reflect the results of ongoing merger related applications pending before the FERC. As part of these settlements and the application for approval of the merger by the NCUC and PSCSC, Duke Energy Carolinas and Progress Energy Carolinas agreed to the conditions and obligations listed below.
·Guarantee of $650 million in system fuel and fuel-related savings over 60 to 78 months for North Carolina and South Carolina retail customers. The savings are expected to be achieved through coal blending, coal commodity and transportation savings, gas transportation savings, and the joint dispatch of Duke Energy Carolinas and Progress Energy Carolinas generation fleets.
·Duke Energy Carolinas and Progress Energy Carolinas will not seek recovery from retail customers for the cost of the Long-term FERC Mitigation for five years following merger consummation. After five years, Duke Energy Carolinas and Progress Energy Carolinas may seek to recover the costs of the Long-term FERC Mitigation, but must show that the projects are needed to provide adequate and reliable retail service regardless of the merger.
·A $65 million rate reduction over the term of the Interim FERC Mitigation to reflect the cost of capacity not available to Duke Energy Carolinas and Progress Energy Carolinas wholesale and retail customers during the Interim FERC Mitigation. The rate reduction will be achieved through retail decrement riders apportioned between Duke Energy Carolinas and Progress Energy Carolinas retail customers.
·Duke Energy Carolinas and Progress Energy Carolinas will not seek recovery from retail customers for any revenue shortfalls or fuel-related costs associated with the Interim FERC Mitigation.
·Duke Energy Carolinas and Progress Energy Carolinas will not seek recovery from retail customers for any of their allocable share of merger related severance costs.
·Duke Energy Carolinas and Progress Energy Carolinas will provide community support and charitable contributions for four years, workforce development, low income energy assistance, and funding for green energy at a total cost of approximately $99 million, which cannot be recovered from retail customers.
·Duke Energy Carolinas and Progress Energy Carolinas will abide by revised North Carolina Regulatory Conditions and Code of Conduct governing their operations.
22
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements
On June 29, 2012, the NCUC approved the merger application and the JDA application with conditions that were reflective of the settlement agreements described above. On July 2, 2012, the PSCSC approved the JDA application subject to Duke Energy Carolinas and Progress Energy Carolinas providing their South Carolina retail customers pro rata benefits equivalent to those approved by the NCUC in its merger approval order.
On July 6, 2012, the NCUC issued an order initiating investigation and scheduling hearings on the Duke Energy board of directors’ decision on July 2, 2012, to replace William D. Johnson with James E. Rogers as President and CEO of Duke Energy subsequent to the merger close, as well as other related matters. See Note 4 for further information.
Kentucky Public Service Commission. On June 24, 2011, Duke Energy and Progress Energy filed a settlement agreement with the Kentucky Attorney General. On August 2, 2011, the KPSC issued an order conditionally approving the merger and required Duke Energy and Progress Energy to accept all conditions contained in the order. Duke Energy and Progress Energy requested and were granted rehearing on the limited issue of the wording of one condition relating to the composition of Duke Energy’s post-merger board of directors. On October 28, 2011, the KPSC issued its order approving a settlement with the Kentucky Attorney General on the revised condition relating to the composition of the post-merger Duke Energy board. Duke Energy and Progress Energy filed their acceptance of the condition on November 2, 2011. Duke Energy Kentucky agreed to (i) not file new gas or electric base rate applications for two years from the date of the KPSC’s final order in the merger proceedings, (ii) make five annual shareholder contributions of $165,000 to support low-income weatherization efforts and economic development within Duke Energy Kentucky’s service territory and (iii) not seek recovery from retail customers for any of their allocable share of merger related costs.
Accounting Charges Related to the Merger Consummation
The following pre-tax consummation charges were recognized upon closing of the merger and are included in the Duke Energy Registrant’s Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2012.
(in millions)

Duke Energy Carolinas

Progress Energy Carolinas

Progress Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Duke Energy
FERC Mitigation

$
46

$
71

$
―

$
―

$
―

$
117
Severance costs


48


42


24


15


13


146
Community support, charitable contributions and other


73


54


9


5


5


149
Total

$
167

$
167

$
33


20

$
18

$
412
The FERC Mitigation charges reflect the portion of transmission project costs that are probable of disallowance, the impairment of the carrying value of the generation assets serving the Interim FERC Mitigation, and the mark-to-market loss recognized on the power sale agreements upon closing of the merger. Subsequent changes in the fair value of the interim power sale agreements are reflected in Regulated electric operating revenues over the life of the contracts. The charges related to the transmission projects and the impairment of the carrying value of generation assets were recorded within Impairment charges in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2012. The mark-to-market loss on the power sale agreements was recorded in Regulated electric operating revenues in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2012. Realized gains or losses on the interim contract sales are also recorded within Regulated electric operating revenues. The ability to successfully defend future recovery of a portion of the transmission projects in rates and any future changes to estimated transmission project costs could impact the amount that is not expected to be recovered.
In conjunction with the merger, in November 2011, Duke Energy and Progress Energy each offered a voluntary severance plan (VSP) to certain eligible employees. VSP and other severance costs incurred during the three and nine months ended September 30, 2012, were recorded primarily within Operation, maintenance and other in the Condensed Consolidated Statements of Operations. See Note 15 for further information related to employee severance expenses.
Community support, charitable contributions and other reflect (i) the unconditional obligation to provide funding at a level comparable to historic practices over the next four years, and (ii) financial and legal advisory costs that were incurred upon the closing of the merger, retention and relocation costs paid to certain employees. These charges were recorded within Operation, maintenance and other in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2012.
Purchase Price
Pursuant to the merger, all Progress Energy common shares were exchanged at the fixed exchange ratio of 0.87083 common shares of Duke Energy for each Progress Energy common share. The total consideration transferred in the merger was based on the closing price of Duke Energy common shares on July 2, 2012, and was calculated as follows:
(dollars in millions, except per share amounts; shares in thousands)
Progress Energy common shares outstanding at July 2, 2012
296,116
Exchange ratio
0.87083
Duke Energy common shares issued for Progress Energy common shares outstanding
257,867
Closing price of Duke Energy common shares on July 2, 2012
$
69.84
Purchase price for common stock
$
18,009
Fair value of outstanding earned stock compensation awards
62
Total purchase price
$
18,071
23
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
Progress Energy’s stock-based compensation awards, including performance shares and restricted stock, were replaced with Duke Energy awards upon consummation of the merger. In accordance with accounting guidance for business combinations, a portion of the fair value of these awards is included in the purchase price as it represents consideration transferred in the merger.
Purchase Price Allocation
The fair value of Progress Energy’s assets acquired and liabilities assumed was determined based on significant estimates and assumptions, including level 3 inputs that are judgmental in nature, including projected timing and amount of future cash flows; discount rates reflecting risk inherent in the future cash flows and future market prices. The fair value of Progress Energy’s assets acquired and liabilities assumed utilized for the purchase price allocation are preliminary and subject to revision until the valuations are completed and to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date, including assumptions regarding Progress Energy Florida’s Crystal River Unit 3.
The significant assets and liabilities for which preliminary valuation amounts are reflected as of the filing of this Form 10-Q include the fair value of the acquired long-term debt, asset retirement obligations, capital leases and pension and other post-retirement benefit (OPEB) plans. The preliminary fair value of the outstanding stock compensation awards is included in the purchase price as consideration transferred.
The majority of Progress Energy’s operations are subject to the rate-setting authority of the FERC, the NCUC, the PSCSC, and the FPSC and are accounted for pursuant to U.S. GAAP, including the accounting guidance for regulated operations. The rate-setting and cost recovery provisions currently in place for Progress Energy’s regulated operations provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base. Except for long-term debt, asset retirement obligations, capital leases and pension and OPEB plans, the fair values of Progress Energy’s tangible and intangible assets and liabilities subject to these rate-setting provisions approximate their carrying values, and the assets and liabilities acquired and pro forma financial information do not reflect any net adjustments related to these amounts. The difference between fair value and the pre-merger carrying amounts for Progress Energy’s long-term debt, asset retirement obligations, capital leases and pension and OPEB plans for the regulated operations were recorded as a regulatory asset.
The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was recognized as goodwill at the acquisition date. The goodwill reflects the value paid primarily for the long-term potential for enhanced access to capital as a result of the company’s increased scale and diversity, opportunities for synergies, and an improved risk profile. The goodwill resulting from Duke Energy’s merger with Progress Energy was preliminarily allocated entirely to the USFE&G segment, but is subject to change as additional information is obtained. None of the goodwill recognized is deductible for income tax purposes, and as such, no deferred taxes have been recorded related to goodwill.
The preliminary purchase price allocation of the merger was as follows:
(in millions)
Current assets
$
3,258
Property, plant and equipment
24,949
Goodwill
12,342
Other long-term assets, excluding goodwill
8,149
Total assets
48,698
Current liabilities, including current maturities of long-term debt
3,567
Long-term liabilities, preferred stock and noncontrolling interests
10,314
Long-term debt
16,746
Total liabilities and preferred stock
30,627
Total estimated purchase price
$
18,071
Impact of Merger
The impact of Progress Energy on Duke Energy’s revenues and net income attributable to Duke Energy in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2012, was an increase of $2,749 million and $226 million, respectively.
Duke Energy incurred pre-tax merger consummation costs, integration and other related costs (collective referred to as costs to achieve), including those discussed above, of $457 million and $472 million, for the three and nine months ended September 30, 2012, respectively, and $13 million and $29 million, for the three and nine months ended September 30, 2011, respectively, substantially all of which are recorded in Operating expenses in Duke Energy’s Condensed Consolidated Statements of Operations.
Duke Energy expects to incur significant system integration and other merger-related transition costs primarily through 2016 that are necessary in order to achieve certain cost savings, efficiencies and other benefits anticipated to result from the merger with Progress Energy.
Pro Forma Financial Information
The following unaudited pro forma financial information reflects the consolidated results of operations of Duke Energy and reflects the amortization of purchase accounting adjustments assuming the merger had taken place on January 1, 2011. The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or the future consolidated results of operations of Duke Energy. This information is preliminary in nature and subject to change based on final purchase price adjustments.
Non-recurring merger consummation, integration and other costs incurred by both Duke Energy and Progress Energy during the period have been excluded from the pro forma earnings presented below. After-tax non-recurring merger consummation, integration and other costs incurred by both Duke Energy and Progress Energy were $293 million and $311 million, respectively, for the three and nine months ended September 30, 2012, and $15 million and $34 million, respectively, for the three and nine months ended September 30, 2011. The pro forma financial information also excludes potential future cost savings or non-recurring charges related to the merger.
24
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)



Three Months Ended September 30,

Nine Months Ended September 30,
(in millions, except per share amounts)

2012

2011

2012

2011
Revenues

$
6,727

$
6,700

$
18,284

$
18,333
Net Income Attributable to Duke Energy Corporation


889


783


1,876


2,124
Basic and Diluted Earnings Per Share

$
1.26

$
1.12

$
2.66

$
3.03
Refer to Note 5 for information regarding Progress Energy merger shareholder litigation.
Vermillion Generating Station.
On January 12, 2012, after receiving approvals from the FERC and the IURC on August 12, 2011 and December 28, 2011, respectively, Duke Energy Vermillion II, LLC (Duke Energy Vermillion), an indirect wholly owned subsidiary of Duke Energy Ohio, completed the sale of its 75% undivided ownership interest in Vermillion to Duke Energy Indiana and Wabash Valley Power Association (WVPA). Upon the closing of the sale, Duke Energy Indiana and WVPA held 62.5% and 37.5% interests in Vermillion, respectively. Duke Energy Ohio received net proceeds of $82 million, consisting of $68 million and $14 million from Duke Energy Indiana and WVPA, respectively. Following the transaction, Duke Energy Indiana retired Gallagher Units 1 and 3 effective February 1, 2012.
As Duke Energy Indiana is an affiliate of Duke Energy Vermillion the transaction has been accounted for as a transfer between entities under common control with no gain or loss recorded and did not have a significant impact to Duke Energy Ohio or Duke Energy Indiana’s results of operations. The proceeds received from Duke Energy Indiana are included in Net proceeds from the sales of other assets on Duke Energy Ohio’s Condensed Consolidated Statements of Cash Flows. The cash paid to Duke Energy Ohio is included in Capital expenditures on Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows. Duke Energy Ohio and Duke Energy Indiana recognized non-cash equity transfers of $28 million and $26 million, respectively, in their Condensed Consolidated Statements of Common Stockholder’s Equity on the transaction representing the difference between cash exchanged and the net book value of Vermillion. These amounts are not reflected in Duke Energy’s Condensed Consolidated Statements of Cash Flows or Condensed Consolidated Statements of Equity as the transaction is eliminated in consolidation.
The proceeds from WVPA are included in Net proceeds from the sales of other assets, and sale of and collections on notes receivable on Duke Energy and Duke Energy Ohio’s Condensed Consolidated Statements of Cash Flows. In the second quarter of 2011, Duke Energy Ohio recorded a pre-tax impairment charge of $9 million to adjust the carrying value of the proportionate share of Vermillion to be sold to WVPA to the proceeds to be received from WVPA less costs to sell. The sale of the proportionate share of Vermillion to WVPA did not result in a significant additional gain or loss upon close of the transaction.
Wind Projects Joint Venture.
In April 2012, Duke Energy executed a joint venture agreement with Sumitomo Corporation of America (SCOA). Under the terms of the agreement, Duke Energy and SCOA each own a 50% interest in the joint venture (DS Cornerstone, LLC), which owns two wind generation projects. The facilities began commercial operations in June 2012 and August 2012. Beginning September 2012, the joint venture is no longer consolidated into Duke Energy’s consolidated financial statements and is now accounted for by Duke Energy as an equity method investment. The deconsolidation of the joint venture did not result in a significant gain or loss. Cash flows of the joint venture are included in Duke Energy’s Condensed Consolidated Statements of Cash Flows up to the date of deconsolidation. Duke Energy and SCOA also negotiated a $330 million, Construction and 12-year amortizing Term Loan Facility on behalf of the borrower, a wholly owned subsidiary of the joint venture. The loan agreement is non-recourse to Duke Energy. Duke Energy received proceeds of $319 million upon execution of the loan agreement. This amount represents reimbursement of a significant portion of Duke Energy’s construction costs incurred as of the date of the agreement. See Note 11 for ~~additional~~further information.
2.3. Business Segments
~~Management evaluates~~Effective with the first quarter of 2012, management began evaluating segment performance based on ~~earnings before interest and taxes~~Segment Income. Segment Income is defined as income from continuing operations ~~(excluding certain allocated corporate governance costs), after deducting expenses~~net of income attributable to noncontrolling ~~interests related~~interests. In conjunction with management’s use of the new reporting measure, certain governance costs that were previously unallocated have now been allocated to ~~those profits (EBIT). On a~~each of the segments. In addition, direct interest expense and income taxes are included in segment ~~basis, EBIT excludes discontinued operations, represents all profits from continuing operations (both~~income. Prior year segment profitability information has been recast to conform to the current year presentation. None of these changes impacts the reportable operating and non-operating) before deducting interest and taxes, and is net of amounts attributable to noncontrolling interests related to those profits. Segment EBIT includes transactions between reportable segments. Cash, cash equivalents and short-term investments are managed centrally bysegments or the Duke Energy ~~so the associated interest and dividend~~Registrants’ previously reported consolidated revenues, net income ~~and realized and unrealized gains and losses from foreign currency transactions on those balances are excluded from segment EBIT.~~or earnings-per-share.
Duke Energy
Duke Energy has the following reportable operating segments: ~~U.S. Franchised Electric and Gas (USFE&G),~~USFE&G, Commercial Power and International Energy.
USFE&G generates, transmits, distributes and sells electricity in ~~central and western~~ North Carolina, ~~western~~ South Carolina, west central Florida, central, north central and southern Indiana, and northern Kentucky. USFE&G also transmits, and distributes electricity in southwestern Ohio. Additionally, USFE&G transports and sells natural gas in southwestern Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Carolinas, Progress Energy Carolinas, Progress Energy Florida, certain regulated portions of Duke Energy Ohio ~~including~~(including Duke Energy ~~Kentucky,~~Kentucky), and Duke Energy Indiana.
Commercial Power owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants, as well as other contractual positions. Commercial Power also has a retail sales subsidiary, Duke Energy Retail Sales, LLC (Duke Energy Retail), which is certified by the PUCO as a Competitive Retail Electric Service provider in Ohio. Through Duke Energy Generation Services, Inc. and its affiliates (DEGS), Commercial Power ~~develops, owns and operates electric generation for large energy consumers, municipalities, utilities and industrial facilities. In addition, DEGS~~ engages in the development, construction and operation of renewable energy ~~projects and is also developing~~projects. In addition, DEGS develops commercial transmission projects.
International Energy principally operates and manages power generation facilities and engages in sales and marketing of electric power and natural gas outside the U.S. It conducts operations primarily through Duke Energy International, LLC ~~(Duke Energy International)~~ and its affiliates and its activities principally target
25
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
power generation in Latin America. Additionally, International Energy owns a 25% interest in National Methanol Company, located in Saudi Arabia, which is a large regional producer of methanol and methyl tertiary butyl ether.
The remainder of Duke Energy’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes ~~certain~~ unallocated corporate costs, which include ~~certain~~ costs not allocable to Duke ~~Energy’~~Energy’s reportable business segments, primarily ~~governance,~~interest expense on corporate debt instruments, costs to achieve mergers and divestitures, and costs associated with certain corporate severance programs. It also includes, Bison Insurance Company Limited (Bison), Duke Energy’s ~~wholly-owned,~~wholly owned, captive insurance subsidiary, Duke Energy’s 50% interest in DukeNet Communications, LLC (DukeNet) and related telecommunications businesses, and Duke Energy Trading and Marketing, LLC, ~~(DETM),~~ which is 40% owned by Exxon Mobil Corporation and 60% owned by Duke Energy. Prior to the sale of a 50% ownership in DukeNet to investment funds managed by Alinda Capital Partners, LLC (collectively Alinda) in December 2010, Other reflected the results of Duke Energy’s 100% ownership of DukeNet.
Business Segment Data






















Segment Income/


Unaffiliated

Intersegment

Total

Consolidated
(in millions)
Revenues

Revenues

Revenues

Net Income^(a)
Three Months Ended September 30, 2012











USFE&G
$
5,830

$
12

$
5,842

$
790
Commercial Power

508


17


525


12
International Energy

382


―


382


103

Total reportable segments

6,720


29


6,749


905
Other^(c)

2


18


20


(315)
Eliminations

―


(47)


(47)


―
Add back of noncontrolling interest component

―


―


―


4
Income from Discontinued Operations, net of tax

―


―


―


4

Total consolidated
$
6,722

$
―

$
6,722

$
598
Three Months Ended September 30, 2011











USFE&G^(b)
$
2,917

$
9

$
2,926

$
337
Commercial Power

684


3


687


24
International Energy

360


―


360


115

Total reportable segments

3,961


12


3,973


476
Other

3


11


14


(5)
Eliminations

―


(23)


(23)


―
Add back of noncontrolling interest component

―


―


―


(2)
Income from Discontinued Operations, net of tax

―


―


―


1

Total consolidated
$
3,964

$
―

$
3,964

$
470











Segment Income/


Unaffiliated

Intersegment

Total

Consolidated
(in millions)
Revenues

Revenues

Revenues

Net Income^(a)
Nine Months Ended September 30, 2012











USFE&G^(b)
$
11,178

$
29

$
11,207

$
1,263
Commercial Power

1,560


47


1,607


71
International Energy

1,181


―


1,181


350

Total reportable segments

13,919


76


13,995


1,684
Other^(c)

10


41


51


(356)
Eliminations

―


(117)


(117)


―
Add back of noncontrolling interest component

―


―


―


12
Income from Discontinued Operations, net of tax

―


―


―


5

Total consolidated
$
13,929

$
―

$
13,929

$
1,345
Nine Months Ended September 30, 2011











USFE&G^(b)
$
8,131

$
27

$
8,158

$
975
Commercial Power

1,918


8


1,926


103
International Energy

1,114


―


1,114


370

Total reportable segments

11,163


35


11,198


1,448
Other

(2)


36


34


(31)
Eliminations

―


(71)


(71)


―
Add back of noncontrolling interest component

―


―


―


6
Income from Discontinued Operations, net of tax

―


―


―


1

Total consolidated
$
11,161

$
―

$
11,161

$
1,424













(a)
Segment results exclude noncontrolling interests and results of entities classified as discontinued operations.
(b)
As discussed further in Note 4, Duke Energy recorded pre-tax impairment and other charges of $600 million and $222 million for the nine months ended September 30, 2012 and 2011, respectively, related to the Edwardsport Integrated Gasification Combined Cycle (IGCC) project.
(c)
Includes after-tax costs to achieve of $293 million and $306 million for the three and nine months ended September 30, 2012, respectively, related to the Progress merger on July 2, 2012 (net of tax of $164 and $166 million for the three and nine months ended September 30, 2012, respectively).
26
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)
Segment Assets














Segment assets in the following table exclude all intercompany assets.








(in millions)
September 30, 2012

December 31, 2011
USFE&G
$
96,919

$
47,977
Commercial Power

6,897


6,939
International Energy

4,790


4,539

Total reportable segments

108,606


59,455
Other

3,206


2,961
Reclassifications^(a)

196


110

Total consolidated assets
$
112,008

$
62,526








(a)
Primarily represents reclassification of federal tax balances in consolidation.

~~Business Segment Data~~

   Unaffiliated
Revenues Intersegment
Revenues Total
Revenues Segment EBIT /
Consolidated
Income
From Continuing
Operations Before
Income Taxes Depreciation and
Amortization
   (in millions)
Three Months Ended September 30, 2011

USFE&G⁽^a⁾
   $ 2,917    $ 9    $ 2,926    $ 721    $ 352
Commercial Power
   684    3    687    67    56
International Energy
   360    —      360    168    23


Total reportable segments
   3,961    12    3,973    956    431
Other
   3    11    14    (74 ) 24
Eliminations
   —      (23 ) (23 ) —      —
Interest expense
   —      —      —      (213 ) —
Interest income and other⁽^d⁾
   —      —      —      7    —
Add back of noncontrolling interest component of reportable segment and Other EBIT
   —      —      —      1    —


Total consolidated
   $ 3,964    $ —      $ 3,964    $ 677    $ 455


Three Months Ended September 30, 2010

USFE&G^(a)
   $ 2,934    $ 10    $ 2,944    $ 946    $ 350
Commercial Power
   736    1    737    188    54
International Energy
   273    —      273    110    21


Total reportable segments
   3,943    11    3,954    1,244    425
Other⁽^c⁾
   3    14    17    (100 ) 22
Eliminations
   —      (25 ) (25 ) —      —
Interest expense
   —      —      —      (202 ) —
Interest income and other⁽^d⁾
   —      —      —      25    —


Total consolidated
   $ 3,946    $ —      $ 3,946    $ 967    $ 447


Nine Months Ended September 30, 2011

USFE&G⁽^a⁾
   $ 8,131    $ 27    $ 8,158    $ 2,052    $ 1,032
Commercial Power
   1,918    8    1,926    217    173
International Energy
   1,114    —      1,114    527    66


Total reportable segments
   11,163    35    11,198    2,796    1,271
Other
   (2 ) 36    34    (176 ) 75
Eliminations
   —      (71 ) (71 ) —      —
Interest expense
   —      —      —      (635 ) —
Interest income and other⁽^d⁾
   —      —      —      53    —
Add back of noncontrolling interest component of reportable segment and Other EBIT
   —      —      —      18    —


Total consolidated
   $ 11,161    $ —      $ 11,161    $ 2,056    $ 1,346


~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~

   Unaffiliated
Revenues    Intersegment
Revenues Total
Revenues Segment EBIT /
Consolidated
Income
From Continuing
Operations Before
Income Taxes Depreciation and
Amortization
   (in millions)
Nine Months Ended September 30, 2010

USFE&G⁽^a⁾
   $ 8,017       $ 25    $ 8,042    $ 2,361    $ 1,033
Commercial Power⁽^b⁾
   1,850       6    1,856    (287 ) 167
International Energy
   919       —      919    376    63




Total reportable segments
   10,786       31    10,817    2,450    1,263
Other⁽^c⁾
   41       41    82    (368 ) 66
Eliminations
   —         (72 ) (72 ) —      —
Interest expense
   —         —      —      (624 ) —
Interest income and other⁽^d⁾
   —         —      —      62    —
Add back of noncontrolling interest component of reportable segment and Other EBIT
   —         —      —      16    —




Total consolidated
   $ 10,827       $ —      $ 10,827    $ 1,536    $ 1,329




~~(a)~~ As discussed in Note 4, Duke Energy recorded a pre-tax charge of $222 million in the third quarter of 2011 and a $44 million pre-tax charge in the third quarter of 2010 related to the Edwardsport IGCC project.
~~(b)~~ As discussed in Note 7, in the second quarter of 2010, Commercial Power recorded impairment charges of $660 million, which consisted of a $500 million goodwill impairment charge associated with the non-regulated Midwest generation operations and a $160 million charge to write-down the value of certain non-regulated Midwest generating assets and emission allowances primarily associated with these generation assets.
~~(c)~~ During the three and nine months ended September 30, 2010, Other recorded a $20 million and $164 million expense, respectively, related to the 2010 voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina (See Note 15).
~~(d)~~ ~~Other within Interest Income and Other includes foreign currency transaction gains and losses and additional noncontrolling interest amounts not allocated to the reportable segments and Other results.~~
~~Segment assets in the following table exclude all intercompany assets.~~
~~Segment Assets~~

   September 30,
2011    December 31,
2010
   (in millions)
USFE&G
   $ 46,827       $ 45,210
Commercial Power
   6,739       6,704
International Energy
   4,379       4,310




Total reportable segments
   57,945       56,224
Other
   2,730       2,845
Reclassifications^(a)
   101       21




Total consolidated assets
   $ 60,776       $ 59,090




~~(a)~~ ~~Primarily represents reclassification of federal tax balances in consolidation.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~Duke Energy Carolinas~~
Duke Energy Carolinas has one reportable operating segment, Franchised Electric, which generates, transmits, distributes and sells electricity and conducts operations through Duke Energy Carolinas, which consists of the regulated electric utility business in North Carolina and South Carolina.
The remainder of Duke Energy Carolinas’ operations is presented as Other. While it is not considered an operating segment, Other primarily includes certain corporate governance costs allocated by its parent, Duke Energy (see Note 17).
~~Business Segment Data~~

   Segment EBIT/ Consolidated Income
Before Income Taxes
   Three Months Ended September 30, Nine Months Ended September 30,
   2011 2010 2011 2010
   (in millions)
Franchised Electric
   $ 627    $ 654    $ 1,486    $ 1,567


Total reportable segment
   627    654    1,486    1,567
Other^(a)
   (40 ) (85 ) (121 ) (244 )
Interest expense
   (93 ) (95 ) (264 ) (271 )
Interest income
   1    3    9    21


Total consolidated
   $ 495    $ 477    $ 1,110    $ 1,073


~~(a)~~ During the three and nine months ended September 30, 2010, Other recorded a $13 million and a $98 million expense, respectively, related to the 2010 voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina (See Note 15).
~~Unaffiliated Revenues~~
For the three and nine months ended September 30, 2011 and 2010, substantially all of Duke Energy Carolinas’ revenues are from its Franchised Electric operating segment. There were no intersegment revenues for the three and nine months ended September 30, 2011 and 2010.
~~Depreciation and Amortization~~
~~For the three and nine months ended September 30, 2011 and 2010, substantially all of Duke Energy Carolinas’ depreciation and amortization are from its Franchised Electric operating segment.~~
~~Segment Assets~~
~~At September 30, 2011 and December 31, 2010, substantially all of Duke Energy Carolinas’ assets are owned by its Franchised Electric operating segment.~~
Duke Energy Ohio
Duke Energy Ohio has two reportable operating segments, Franchised Electric and Gas and Commercial Power.
Franchised Electric and Gas transmits and distributes electricity in southwestern Ohio and generates, transmits, distributes and sells electricity in northern Kentucky. Franchised Electric and Gas also transports and sells natural gas in southwestern Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Ohio and its ~~wholly-owned~~wholly owned subsidiary Duke Energy Kentucky.
Commercial Power owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants, as well as other contractual positions. Duke Energy Ohio’s Commercial Power reportable operating segment does not include the operations of DEGS or Duke Energy Retail, which is included in the Commercial Power reportable operating segment at Duke Energy.
The remainder of Duke Energy Ohio’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes certain governance costs allocated by its parent, Duke Energy (see Note 17).
Business Segment Data
Segment Income (Loss)/
Unaffiliated
Consolidated
(in millions)
Revenues^(a)
Net Income
Three Months Ended September 30, 2012
Franchised Electric and Gas
$
431
$
49
Commercial Power
341
(17)
Total reportable segments
772
32
Other
―
(18)
Eliminations
(15)
―
Total consolidated
$
757
$
14
Three Months Ended September 30, 2011
Franchised Electric and Gas
$
333
$
38
Commercial Power
505
16
Total reportable segments
838
54
Other
―
(3)
Total consolidated
$
838
$
51
Segment Income/
Unaffiliated
Consolidated
(in millions)
Revenues^(a)
Net Income
Nine Months Ended September 30, 2012
Franchised Electric and Gas
$
1,291
$
113
Commercial Power
1,137
44
Total reportable segments
2,428
157
Other
―
(24)
Eliminations
(42)
―
Total consolidated
$
2,386
$
133
Nine Months Ended September 30, 2011
Franchised Electric and Gas
$
1,112
$
115
Commercial Power
1,299
50
Total reportable segments
2,411
165
Other
―
(8)
Total consolidated
$
2,411
$
157
(a)
There was an insignificant amount of intersegment revenues for the three and nine months ended September 30, 2011.
27
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)
Segment Assets
















Segment assets in the following table exclude all intercompany assets.









(in millions)
September 30, 2012

December 31, 2011
Franchised Electric and Gas

$
6,399

$
6,293
Commercial Power


4,157


4,740

Total reportable segments


10,556


11,033
Other


110


259
Reclassifications^(a)


(172)


(353)

Total consolidated assets

$
10,494

$
10,939









(a)
Primarily represents reclassification of federal tax balances in consolidation.
Duke Energy Carolinas and Duke Energy Indiana
Duke Energy Carolinas and Duke Energy Indiana each have one reportable operating segment, Franchised Electric, which generates, transmits, distributes and sells electricity in central and western North Carolina and western South Carolina, and north central, central and southern Indiana, respectively.
The remainder of Duke Energy Carolinas’ and Duke Energy Indiana’s operations are included in Other. While it is not considered an operating segment, Other primarily includes costs to achieve certain mergers and divestitures, certain corporate severance programs, and certain costs for use of corporate assets as allocated to Duke Energy Carolinas or Duke Energy Indiana. Duke Energy Carolinas had a net loss of $119 million and $137 million for the three and nine months ended September 30, 2012 recorded in Other primarily as a result of costs to achieve related to the Progress Energy merger. Duke Energy Indiana had a net loss was $14 million and $19 million for the three and nine months ended September 30, 2012 recorded in Other. Duke Energy Carolinas’ and Duke Energy Indiana’s net loss for the three and nine months ended September 30, 2011 recorded in Other was not material.
At September 30, 2012 and December 31, 2011 all of Duke Energy Carolinas’ and Duke Energy Indiana’s assets are each owned by the Franchised Electric operating segment. For the three and nine months ended September 30, 2012 and 2011, substantially all revenues and expenses are from the Franchised Electric operating segment of each registrant.

~~Business Segment Data~~4. Regulatory Matters
Rate Related Information.
The NCUC, PSCSC, FPSC, IURC, PUCO and KPSC approve rates for retail electric and gas services within their states. Non-regulated sellers of gas and electric generation are also allowed to operate in Ohio once certified by the PUCO. The FERC approves rates for electric sales to certain wholesale customers served under cost-based rates, as well as sales of transmission service.
Duke Energy Carolinas
Cliffside Unit 6. On March 21, 2007, the NCUC issued an order allowing Duke Energy Carolinas to build an 800 MW coal-fired unit. Following final equipment selection and the completion of detailed engineering, Cliffside Unit 6 is expected to have a net output of 825 MW. On January 31, 2008, Duke Energy Carolinas filed its updated cost estimate of $1.8 billion (excluding AFUDC of $600 million) for Cliffside Unit 6. In March 2010, Duke Energy Carolinas filed an update to the cost estimate of $1.8 billion (excluding AFUDC) with the NCUC where it reduced the estimated AFUDC financing costs to $400 million as a result of the December 2009 rate case settlement with the NCUC that allowed the inclusion of construction work in progress in rate
28

   Unaffiliated
Revenues ^(a)    Segment EBIT/
Consolidated Income
(Loss)
Before Income
Taxes Depreciation and
Amortization
   (in millions)
Three Months Ended September 30, 2011

Franchised Electric and Gas
   $ 333       $ 93    $ 42
Commercial Power
   505       44    41




Total reportable segments
   838       137    83
Other
   —         (16 ) —
Interest expense
   —         (27 ) —
Interest income and other
   —         3    —




Total consolidated
   $ 838       $ 97    $ 83




Three Months Ended September 30, 2010

Franchised Electric and Gas
   $ 367       $ 102    $ 56
Commercial Power^(c)
   556       196    41




Total reportable segments
   923       298    97
Other
   —         (19 ) —
Interest expense
   —         (26 ) —
Interest income and other
   —         8    —




Total consolidated
   $ 923       $ 261    $ 97




Nine Months Ended September 30, 2011

Franchised Electric and Gas
   $ 1,112       $ 251    $ 133
Commercial Power
   1,299       118    126




Total reportable segments
   2,411       369    259
Other
   —         (52 ) —
Interest expense
   —         (78 ) —
Interest income and other
   —         10    —




Total consolidated
   $ 2,411       $ 249    $ 259




Nine Months Ended September 30, 2010

Franchised Electric and Gas^(b)
   $ 1,204       $ 69    $ 168
Commercial Power^(c)
   1,345       (273 ) 132




Total reportable segments
   2,549       (204 ) 300
Other
   —         (71 ) —
Interest expense
   —         (84 ) —
Interest income and other
   —         17    —




Total consolidated
   $ 2,549       $ (342 ) $ 300




~~(a)~~ ~~There was an insignificant amount of intersegment revenues for the three and nine months ended September 30, 2011 and 2010.~~
~~(b)~~ In the second quarter of 2010, Franchised Electric and Gas recorded a goodwill impairment charge of $216 million related to the Ohio Transmission and Distribution (Ohio T&D) reporting unit. This impairment charge was not applicable to Duke Energy. See Note 7 for additional information.
~~(c)~~ As discussed in Note 7, in the second quarter of 2010, Commercial Power recorded impairment charges of $621 million, which consisted of a $461 million goodwill impairment charge associated with the non-regulated Midwest generation operations and a $160 million charge to write-down the value of certain non-regulated Midwest generating assets and emission allowances primarily associated with these generation assets.
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)
~~Segment Assets~~

   September 30,
2011 December 31,
2010
   (in millions)
Franchised Electric and Gas
   $ 6,210    $ 6,258
Commercial Power
   4,573    4,821


Total reportable segments
   10,783    11,079
Other
   162    192
Eliminations and reclassifications
   (286 ) (247 )


Total consolidated assets
   $ 10,659    $ 11,024


~~Duke Energy Indiana~~
Duke Energy Indiana has one reportable operating segment, Franchised Electric, which generates, transmits, distributes and sells electricity and conducts operations through Duke Energy Indiana, which consists of the regulated electric utility business in north central, central and southern Indiana.
The remainder of Duke Energy Indiana’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes certain governance costs allocated by its parent, Duke Energy (see Note 17).
~~Business Segment Data~~

   Segment EBIT/Consolidated (Loss)/Income
Before Income Taxes
   Three Months Ended September 30, Nine Months Ended September 30,
   2011 2010 2011 2010
   (in millions)
Franchised Electric^(a)
   $ (6 ) $ 178    $ 295    $ 484


Total reportable segment
   (6 ) 178    295    484
Other
   (13 ) (15 ) (39 ) (65 )
Interest expense
   (34 ) (32 ) (104 ) (99 )
Interest income and other
   3    5    11    11


Total consolidated
   $ (50 ) $ 136    $ 163    $ 331


~~(a)~~ As discussed in Note 4, Duke Energy Indiana recorded a pre-tax charge of $222 million in the third quarter of 2011 and a $44 million pre-tax charge in the third quarter of 2010 related to the Edwardsport IGCC project.
~~Unaffiliated Revenues~~
For the three and nine months ended September 30, 2011 and 2010, substantially all of Duke Energy Indiana’s revenues are from its Franchised Electric operating segment. There were no intersegment revenues for the three and nine months ended September 30, 2011 and 2010.
~~Depreciation and Amortization~~
~~For the three and nine months ended September 30, 2011 and 2010, substantially all of Duke Energy Indiana’s depreciation and amortization are from its Franchised Electric operating segment.~~
~~Segment Assets~~
~~At September 30, 2011 and December 31, 2010, all of Duke Energy Indiana’s assets are owned by its Franchised Electric operating segment.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~3. Acquisitions and Sales of Other Assets~~
~~Acquisitions.~~~~The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date, and include earnings from acquisitions in consolidated earnings after the purchase date.~~
~~Duke Energy~~
On January 8, 2011, Duke Energy entered into an Agreement and Plan of Merger (Merger Agreement) among Diamond Acquisition Corporation, a North Carolina corporation and Duke Energy’s wholly-owned subsidiary (Merger Sub) and Progress Energy, a North Carolina corporation. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Progress Energy with Progress Energy continuing as the surviving corporation and a wholly-owned subsidiary of Duke Energy.
Pursuant to the Merger Agreement, upon the closing of the merger, each issued and outstanding share of Progress Energy common stock will automatically be cancelled and converted into the right to receive 2.6125 shares of common stock of Duke Energy, subject to appropriate adjustment for a reverse stock split of the Duke Energy common stock as contemplated in the Merger Agreement and except that any shares of Progress Energy common stock that are owned by Progress Energy or Duke Energy, other than in a fiduciary capacity, will be cancelled without any consideration therefor. Each outstanding option to acquire, and each outstanding equity award relating to, one share of Progress Energy common stock will be converted into an option to acquire, or an equity award relating to 2.6125 shares of Duke Energy common stock, as applicable, subject to appropriate adjustment for the reverse stock split. Based on Progress Energy shares outstanding at September 30, 2011, Duke Energy would issue 771 million shares of common stock to convert the Progress Energy common shares in the merger under the unadjusted exchange ratio of 2.6125. The exchange ratio will be adjusted proportionately to reflect a 1-for-3 reverse stock split with respect to the issued and outstanding Duke Energy common stock that Duke Energy plans to implement prior to, and conditioned on, the completion of the merger. The resulting adjusted exchange ratio is 0.87083 of a share of Duke Energy common stock for each share of Progress Energy common stock. Based on Progress Energy shares outstanding at September 30, 2011, Duke Energy would issue 257 million shares of common stock, after the effect of the 1-for-3 reverse stock split, to convert the Progress Energy common shares in the merger. The merger will be accounted for under the acquisition method of accounting with Duke Energy treated as the acquirer, for accounting purposes. Based on the market price of Duke Energy common stock on September 30, 2011, the transaction would be valued at $15.4 billion and would result in incremental recorded goodwill to Duke Energy of $9.3 billion, according to current estimates. Duke Energy would also assume all of Progress Energy’s outstanding debt, which is estimated to be $15.1 billion based on the approximate fair value of Progress Energy’s outstanding indebtedness at September 30, 2011. The Merger Agreement has been unanimously approved by both companies’ Boards of Directors.
The merger is conditioned upon, among other things, approval by the shareholders of both companies, as well as expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval by the FERC, the Federal Communications Commission (FCC), the NRC, the NCUC, and the KPSC. Duke Energy and Progress Energy also are seeking review of the merger by the PSCSC and approval of the joint dispatch agreement by the PSCSC. Although there are no merger-specific regulatory approvals required in Indiana, Ohio or Florida, the companies will continue to update the public services commissions in those states on the merger, as applicable and as required. The status of these matters is as follows:
On March 17, 2011, Duke Energy filed an initial registration statement on Form S-4 with the Securities and Exchange Commission (SEC) for shares to be issued to consummate the merger with Progress Energy. On July 7, 2011, the Form S-4 was declared effective by the SEC, and the joint proxy statement/prospectus contained in the Form S-4 was mailed to the shareholders of both companies thereafter. On August 23, 2011, Duke Energy and Progress Energy shareholders approved the proposed merger. In addition, Duke Energy shareholders approved a 1-for-3 reverse stock split.
On March 28, 2011, Duke Energy and Progress Energy submitted Hart-Scott-Rodino antitrust filings to the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC). The parties have met their obligations under the Hart-Scott-Rodino Act, which is no longer a bar to closing the transaction.
On March 30, 2011, Progress Energy made filings with the NRC for approval for indirect transfer of control of licenses for Progress Energy’s nuclear facilities to include Duke Energy as the ultimate parent corporation on these licenses.
On April 4, 2011, Duke Energy and Progress Energy filed a merger application and joint dispatch agreement with the NCUC. On September 2, 2011, Duke Energy, Progress Energy and the NC Public Staff filed a settlement agreement with the NCUC. Under the settlement agreement, the companies will guarantee North Carolina customers their allocable share of $650 million in savings related to fuel and joint dispatch of generation assets over the first five years after the merger closes, continue community financial support for a minimum of four years, contribute to weatherization efforts of low-income customers and workforce development and agree not to recover direct merger-related costs. A public hearing occurred September 20-22, 2011 and proposed orders and/or briefs must be filed by November 14, 2011.
On April 4, 2011, Duke Energy and Progress Energy filed a merger application with the KPSC. On June 24, 2011, Duke Energy and Progress Energy filed a settlement agreement with the Attorney General. A public hearing occurred on July 8, 2011. An order conditionally approving the merger was issued on August 2, 2011. The KPSC required Duke Energy and Progress Energy to accept all the conditions contained in the order within seven days of the order. After seeking an extension, on August 19, 2011, Duke Energy and Progress Energy filed for clarification of one of the merger conditions. On September 15, 2011, Duke Energy and Progress Energy filed for approval of a stipulation revising the merger condition. On October 28, 2011, the KPSC issued an order approving the stipulation and merger.
On April 4, 2011, Duke Energy and Progress Energy, jointly filed applications with the FERC for the approval of the merger, the Joint Dispatch Agreement and the joint Open Access Transmission Tariff (OATT). On September 30, 2011, the FERC conditionally approved the merger, subject to approval of mitigation measures to address its finding that the combined company could have an adverse effect on competition in wholesale power markets in thebase prospectively. Duke Energy Carolinas ~~and Progress Energy Carolinas East balancing authority areas. On October 17, 2011, Duke Energy and Progress Energy filed their plan for mitigating~~believes that the ~~FERC’s concerns by proposing to offer on a daily basis a certain quantity~~overall cost of ~~power during summer and winter periods to the extent it is available after serving native load and existing firm obligations. The price~~Cliffside Unit 6 will be ~~incremental cost, plus 10 percent. Intervenors may comment on the plan~~further reduced by November 16, 2011, after which time, the FERC will rule on whether the mitigation plan adequately addresses the market power issues. FERC has not yet ruled on the Joint Dispatch Agreement or the joint OATT. On October 31, 2011, Duke Energy and Progress Energy filed a request for rehearing with the FERC. The request states that the FERC applied a more stringent analysis to the proposed merger than required by its current rules. Duke Energy and Progress Energy also requested that the FERC address the companies’ previously filed mitigation plan no later than December 15, 2011.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
On April 25, 2011, Duke Energy and Progress Energy, on behalf of their utility companies Duke Energy Carolinas and Progress Energy Carolinas, filed an application requesting the PSCSC to review the merger and approve the proposed Joint Dispatch Agreement and the prospective future merger of Duke Energy Carolinas and Progress Energy Carolinas. On September 13, 2011, Duke Energy and Progress Energy withdrew their application seeking approval for the future merger of their Carolinas utility companies, Duke Energy Carolinas and Progress Energy Carolinas,$125 million in federal advanced clean coal tax credits, as ~~the merger of these entities~~discussed in Note 5. Cliffside Unit 6 is not likely to occur for several years after the close of the merger. On October 13, 2011 the PSCSC issued an order suspending all scheduled deadlines and the hearing date until Duke Energy and Progress Energy file their proposed mitigation measures with the FERC and the PSCSC. Duke Energy and Progress Energy made that filing on October 17, 2011. On November 2, 2011, the PSCSC adopted a revised procedural schedule for its review of the merger. Hearings are scheduledexpected to begin ~~the week of December 12, 2011. The docket will remain open pending FERC issuance of its final orders on the merger related actions before the FERC.~~
~~On July 12, 2011, Duke Energy and Progress Energy filed an application with the FCC for approval of radio system license transfers. The FCC approved the transfers on July 27, 2011.~~
~~Duke Energy is targeting completion of the merger~~commercial operation by the end of ~~2011, however no assurances can be given as~~2012.
Dan River Combined Cycle Facility. In June 2008, the NCUC issued its order approving the Certificate of Public Convenience and Necessity (CPCN) applications to ~~the timing~~construct a 620 MW combined cycle natural gas fired generating facility at Duke Energy Carolinas’ existing Dan River Steam Station. The Division of Air Quality (DAQ) issued a final air permit authorizing construction of the ~~satisfaction of all closing conditions or that all required approvals will be received.~~
Dan River combined cycle natural gas-fired generating unit in August 2009. The Merger Agreement contains certain termination rights for both Duke Energy and Progress Energy, and further provides for the payment of a termination fee of $400 million by Progress Energy under specified circumstances and a termination fee of $675 million by Duke Energy under specified circumstances.
For the three and nine months ended September 30, 2011, Duke Energy incurred transaction and integration costs related to the Progress Energy merger of $13 million and $29 million, respectively, which are recorded within Operating Expenses in Duke Energy’s Condensed Consolidated Statement of Operations.
~~See Note 5 for information regarding litigation related to the pending merger with Progress Energy.~~
~~Vermillion Generating Station.~~
~~Duke Energy Ohio and Duke Energy Indiana~~
In May 2011, Duke Energy Vermillion II, LLC (Duke Energy Vermillion), an indirect wholly-owned subsidiary of Duke Energy Ohio, entered into an agreement to sell its 75% undivided ownership interest in the Vermillion Generating Station to Duke Energy Indiana and Wabash Valley Power Association (WVPA). On August 12, 2011, the FERC approved the Vermillion transaction. An IURC hearing was held in September 2011 with an order expected in the fourth quarter of 2011. If approved by the IURC, Duke Energy Indiana and WVPA will acquire 62.5% and 12.5% interests in the Vermillion Generating Station, respectively. As Duke Energy Indiana is an affiliate of Duke Energy Vermillion the transaction will be accounted for as a transfer between entities under common control with no gain or loss recorded and is not expected to have a significant impact to Duke Energy Ohio or Duke Energy Indiana’s results of operations. At June 30, 2011, the carrying value of the proportionate share of Vermillion Generating Station whichDan River project is expected to ~~be sold to WVPA exceeded its estimated fair value. The estimated fair value was determined based~~begin operation by the end of 2012. Based on the ~~expected proceeds~~most updated cost estimates, total costs (including AFUDC) for the Dan River project are estimated to be received from WVPA less costs to sell. Accordingly, Duke Energy Ohio’s Commercial Power segment recorded an impairment of $9 million in the second quarter of 2011. This amount is presented in Goodwill and other impairment charges in Duke Energy and Duke Energy Ohio’s condensed consolidated statements of operations. See Note 5 for further discussion of the Vermillion transaction.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~4. Regulatory Matters~~$715 million.
~~Progress Energy Merger.~~ ~~See Note 3 for information regarding Duke Energy’s pending merger with Progress Energy.~~
~~Rate Related Information.~~ The NCUC, PSCSC, IURC and KPSC approve rates for retail electric and gas services within their states. The PUCO approves rates for retail gas and electric service within Ohio, except that non-regulated sellers of gas and electric generation also are allowed to operate in Ohio. The FERC approves rates for electric sales to wholesale customers served under cost-based rates, as well as sales of transmission service.
~~Duke Energy Ohio Standard Service Offer (SSO).~~Ohio law provides the PUCO authority to approve an electric utility’s generation SSO. A SSO may include an Electric Security Plan (ESP), which would allow for the pricing structures used by Duke Energy Ohio since 2004, or a Market Rate Offer (MRO), in which pricing is determined through a competitive bidding process. On November 15, 2010, Duke Energy Ohio filed for approval of its next SSO to replace the existing ESP that expires on December 31, 2011. The filing requested approval of a MRO. On February 23, 2011, the PUCO stated that Duke Energy Ohio did not file an application for a five-year MRO as required under Ohio statute. On June 20, 2011, Duke Energy Ohio filed an application with the PUCO for approval of an ESP for its customers beginning January 1, 2012, with rates in effect through May 31, 2021.
On October 24, 2011, Duke Energy Ohio and most intervenors, including the PUCO Staff, entered into a settlement stipulation. If approved by the PUCO, the stipulation would establish an ESP with competitive auctions for a term of January 1, 2012 through May 31, 2015. The stipulation also includes provision for a non-bypassable stability charge of $110 million per year to be collected from 2012-2014 and requires Duke Energy Ohio to transfer its generation assets to a non-regulated affiliate on or before December 31, 2014. The stipulation requests that the PUCO approve the settlement on or before November 15, 2011, to allow Duke Energy Ohio to conduct auctions to serve SSO customers effective January 1, 2012. A hearing on the stipulation occured on November 3, 2011.
~~Duke Energy Carolinas North Carolina Rate Case~~. On July 1, 2011, Duke Energy Carolinas filed a rate case with the NCUC to request an average 15% increase in retail revenues, or approximately $646 million, with a rate of return on equity of 11.5%. The increase is designed to recover the cost of the ongoing generation fleet modernization program, environmental compliance and other capital investments made since 2009.
On November 1, 2011, the NC Public Staff filed testimony to limit Duke Energy Carolinas to an average 4.8% increase in retail rates, or approximately $211 million, with a rate of return on equity of 9.25%.
~~A hearing is scheduled to begin with the NCUC on November 28, 2011. Duke Energy Carolinas expects revised rates would likely go into effect in February 2012.~~
~~Duke Energy Carolinas South Carolina Rate Case.~~On August 5, 2011, Duke Energy Carolinas filed a rate case with the PSCSC to request an average 15% increase in retail revenues, or approximately $216 million, with a rate of return on equity of 11.5%. The increase is designed to recover the cost of the ongoing generation fleet modernization program, environmental compliance and other capital investments made since 2009. A hearing is scheduled with the PSCSC on December 7, 2011. If approved by the PSCSC, rates would likely go into effect in February 2012.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~Duke Energy Indiana Energy Efficiency.~~On September 28, 2010, Duke Energy Indiana filed a petition for new energy efficiency programs to enable meeting the IURC’s energy efficiency mandates. Duke Energy Indiana’s proposal requests recovery of costs through a rider including lost revenues and incentives for core plus energy efficiency programs and lost revenues and cost recovery for core energy efficiency programs. The hearing occurred in July 2011 and an order is expected in the fourth quarter of 2011.
~~Duke Energy Indiana Storm Cost Deferrals.~~ On July 14, 2010, the IURC approved Duke Energy Indiana’s deferral of $12 million of retail jurisdictional storm expense until the next retail rate proceeding. This amount represents a portion of costs associated with a January 27, 2009 ice storm, which damaged Duke Energy Indiana’s distribution system. On August 12, 2010, the Indiana Office of Utility Consumer Counselor (OUCC) filed a notice of appeal with the IURC. On December 7, 2010, the IURC issued an order reopening this proceeding for review in consideration of the evidence presented as a result of an internal audit performed as part of an IURC investigation of Duke Energy Indiana’s hiring of an attorney from the IURC staff which resulted in the IURC’s termination of the employment of the Chairman of the IURC. The audit did not find that the order conflicted with the staff report; however, it did note that the staff report offered no specific recommendation to either approve or deny the requested relief, and that the original order was appealed. The IURC set a new procedural schedule to take supplemental testimony and an evidentiary hearing was held in June 2011. On October 19, 2011, the IURC issued an order denying Duke Energy Indiana the right to defer the storm expense discussed above.
~~Duke Energy Ohio Storm Cost Recovery.~~ On December 11, 2009, Duke Energy Ohio filed an application with the PUCO to recover Hurricane Ike storm restoration costs of $31 million through a discrete rider. The PUCO granted the request to defer the costs associated with the storm recovery; however, they further ordered Duke Energy Ohio to file a separate action pursuant to which the actual amount of recovery would be determined. On January 11, 2011, the PUCO approved recovery of $14 million plus carrying costs which will be spread over a three-year period. Duke Energy Ohio filed an application for rehearing on February 10, 2011, as did the consumer advocate, the office of the Ohio Consumers’ Council (OCC). On March 9, 2011, the PUCO denied the rehearing requests of Duke Energy Ohio and the OCC. Duke Energy Ohio filed a notice of appeal with the Ohio Supreme Court on May 6, 2011 and briefs have been filed by Duke Energy Ohio and the PUCO. Oral arguments are to be scheduled by the Court.
~~Capital Expansion Projects.~~
~~Overview.~~USFE&G is engaged in planning efforts to meet projected load growth in its service territories. Capacity additions may include new nuclear, Integrated Gasification Combined Cycle (IGCC), coal facilities or gas-fired generation units. Because of the long lead times required to develop such assets, USFE&G is taking steps now to ensure those options are available.
~~Duke Energy Carolinas~~ William States Lee III Nuclear Station.In December 2007, Duke Energy Carolinas filed an application with the NRC, which has been docketed for review, for a combined Construction and Operating License (COL) for two Westinghouse AP1000 (advanced passive) reactors for the proposed William States Lee III Nuclear Station (Lee Nuclear Station) at a site in Cherokee County, South Carolina. Each reactor is capable of producing 1,117 MW. Submitting the COL application does not commit Duke Energy Carolinas to build nuclear units. ~~Duke Energy Carolinas had previously received approval to incur project development costs associated with Lee Nuclear Station from both the NCUC and the PSCSC.~~ Through several separate orders, the NCUC and PSCSC have ~~deemed~~concurred with the prudency of Duke ~~Energy’s decision to incur~~Energy incurring project development and pre-construction costs for the project as reasonable and prudent through December 31, 2009 and up to an aggregate maximum amount of $230 million. On November 15, 2010 and January 7, 2011, Duke Energy Carolinas filed amended project development applications with the NCUC and PSCSC, respectively. These applications request approval of Duke Energy Carolinas’ decision to continue to incur project development and pre-construction costs for the project through December 31, 2013, and up to $459 million. The hearing before the NCUC occurred March 15, 2011. The PSCSC hearing occurred on May 16 and May 17, 2011.costs.
On July 1, 2011, the PSCSC issued an order stating Duke Energy Carolinas must incur only those costs necessary to keep the project available as an option in the 2021 time frame, not to exceed South Carolina’s allocable share of $120 million, including allowance for funds used during construction (AFUDC), for the period of January 1, 2011 through June 30, 2012. Also, pursuant to the terms of the settlement agreement, Duke Energy Carolinas shall provide certain monthly reports to the PSCSC and the Office of Regulatory Staff (ORS). Duke Energy Carolinas has also agreed to provide a monthly report to certain parties on the progress of negotiations to acquire an interest in the V.C. Summer Nuclear Station (refer to discussion below) expansion being developed by South Carolina Public Service Authority (Santee Cooper) and South Carolina Electric & Gas Company (SCE&G). Any change in ownership interest, output allocation, sharing of costs or control and any future option agreements concerning Lee Nuclear Station shall be subject to prior approval of the PSCSC.
On August 5, 2011, the NCUC issued an order approving Duke Energy’s decision to incur project development costs up to North Carolina’s allocable share of $120 million and subject to the limitation that it is only appropriate to incur such costs necessary to maintain the status quo with respect to the Lee Nuclear Station, including the COL application at the NRC.
On April 18, 2011, the Blue Ridge Environmental Defense League (BREDL) filed a petition requesting that the NRC suspend all pending reactor licensing decisions pending the investigation of lessons learned from the Fukushima Daiichi Nuclear Power Station accident in Japan. Duke Energy Carolinas filed a response opposing this petition. In addition to its emergency petition, on August 11, 2011, BREDL also filed a “Motion to Admit new Contention Regarding the Safety and Environmental Implications of the Nuclear Regulatory Commission Task Force Report on the Fukushima Dai-ichi Accident.” Duke Energy Carolinas filed a response opposing admission of this new contention. On September 9, 2011, the NRC issued a decision denying BREDL’s emergency petition, and on October 18, 2011, the Atomic Safety and Licensing Board issued a decision denying admission of the new contention.
The NRC review of the COL application continues and the estimated receipt of the COL is in mid 2013. Duke Energy Carolinas filed with the DOE for a federal loan guarantee, which has the potential to significantly lower financing costs associated with the proposed Lee Nuclear Station; however, it was not among the four projects selected by the DOE for the final phase of due diligence for the federal loan guarantee program. The project could be selected in the future if the program funding is expanded or if any of the current finalists drop out of the program.
Duke Energy Carolinas is seeking partners for Lee Nuclear Station by issuing options to purchase an ownership interest in the plant. In the first quarter of 2011, Duke Energy Carolinas entered into an agreement with JEA that provides JEA with an option to purchase up to a 20% undivided ownership interest in Lee Nuclear Station. JEA has 90 days following Duke Energy Carolinas’ receipt of the COL to exercise the option.
~~Duke Energy Carolinas~~ V.C. Summer Nuclear Station Letter of Intent. In July 2011, Duke Energy Carolinas signed a letter of intent with Santee Cooper related to the potential acquisition by Duke Energy Carolinas of a ~~five percent~~5% to ~~ten percent~~10% ownership interest in the V.C. Summer Nuclear Station being developed by Santee Cooper and SCE&G near Jenkinsville, South Carolina. The letter of intent provides a path for Duke Energy Carolinas to conduct the necessary due diligence to determine if future participation in this project is beneficial for its customers.
2011 North Carolina Rate Case. On January 27, 2012, the NCUC approved a settlement agreement between Duke Energy Carolinas ~~Cliffside Unit 6.~~and the North Carolina Utilities Public Staff (Public Staff). The terms of the agreement include an average 7.2% increase in retail revenues, or approximately $309 million annually beginning in February 2012. The agreement includes a 10.5% return on equity and a capital structure of 53% equity and 47% long-term debt.
On March ~~21, 2007,~~28, 2012, the North Carolina Attorney General filed a notice of appeal with the NCUC ~~issued an order allowing~~challenging the rate of return approved in the agreement. On April 17, 2012, the NCUC denied Duke Energy ~~Carolinas~~Carolinas’ request to ~~build one 800 MW coal-fired unit. Following final equipment selection~~dismiss the notice of appeal. Briefs were filed on August 22, 2012 by the North Carolina Attorney General and the ~~completion of detailed engineering, Cliffside Unit 6~~AARP with the North Carolina Supreme Court, which is ~~expected to have a net output of 825 MW. On January 31, 2008,~~hearing the appeal. Duke Energy Carolinas filed ~~its updated cost estimate~~a motion to dismiss the appeal on August 31, 2012 and the North Carolina Attorney General filed a response to that motion on September 13, 2012. Briefs by the appellees, Duke Energy Carolinas and the Public Staff, were filed on September 21, 2012. The North Carolina Supreme Court denied Duke Energy Carolinas’ motion to dismiss on procedural grounds and set the matter for oral arguments on November 13, 2012.
2011 South Carolina Rate Case. On January 25, 2012, the PSCSC approved a settlement agreement between Duke Energy Carolinas and the ORS, Wal-Mart Stores East, LP, and Sam’s East, Inc. The Commission of ~~$1.8 billion (excluding AFUDC of $600 million)~~Public Works for the ~~approved new Cliffside Unit 6. In March 2010, Duke~~city of Spartanburg, South Carolina and the Spartanburg Sanitary Sewer District were not parties to the agreement; however, they did not object to the agreement. The terms of the agreement include an average 5.98% increase in retail and commercial revenues, or approximately $93 million annually beginning February 6, 2012. The agreement includes a 10.5% return on equity, a capital structure of 53% equity and 47% long-term debt.
Progress Energy Carolinas
2012 North Carolina Rate Case. On October 12, 2012, Progress Energy Carolinas filed an ~~update to the cost estimate of $1.8 billion (excluding AFUDC)~~application with the NCUC ~~where it reduced~~for an increase in base rates of approximately $387 million, or an average 12% increase in revenues. The request for increase is based upon an 11.25% return on equity and a capital structure of 55% equity and 45% long-term debt. The rate increase is designed primarily to recover the cost of plant modernization and other capital investments in generation, transmission and distribution systems, as well as increased expenditures for nuclear plants and personnel, vegetation management and other operating costs. The rate case includes a corresponding decrease in Progress Energy Carolinas’ energy efficiency and demand side management rider, resulting in a net requested increase of $359 million, or 11% increase in revenues.
Progress Energy Carolinas expects revised rates, if approved, to go into effect in the second or third quarter of 2013.
HF Lee and L.V. Sutton Combined Cycle Facilities. Progress Energy Carolinas is in the process of constructing two new generating facilities, which consist of an approximately 920 MW combined cycle natural gas-fired generating facility at the HF Lee Energy Complex (Lee) in Wayne County, N.C., and an approximately 625 MW natural gas-fired generating facility at its existing L.V. Sutton Steam Station (Sutton) in New Hanover County, N.C. Lee has an expected in-service date of December 2012 and Sutton has an expected in-service date of December 2013. Based on updated cost estimates, total costs (including AFUDC) for the Lee and Sutton projects are estimated ~~AFUDC financing costs~~ to ~~$400~~be approximately $750 million and $600 million, respectively.
Harris Nuclear Station Expansion. In 2006, Progress Energy Carolinas selected a site at its existing Harris Nuclear Station (Harris) to evaluate for possible future nuclear expansion. On February 19, 2008, Progress Energy Carolinas filed its COL application with the NRC for two Westinghouse Electric AP1000 reactors at Harris, which the NRC docketed on April 17, 2008. No petitions to intervene have been admitted in the Harris COL application.
Progress Energy Florida
2012 FPSC Settlement Agreement. On February 22, 2012, the FPSC approved a comprehensive settlement agreement among Progress Energy Florida, the Florida Office of Public Counsel and other consumer advocates. The 2012 FPSC Settlement Agreement will continue through the last billing cycle of December 2016. The agreement addresses three principal matters: (i) Progress Energy Florida’s proposed Levy Nuclear Project cost recovery, (ii) the Crystal River Nuclear Station – Unit 3 (Crystal River Unit 3) delamination prudence review then pending before the FPSC, and (iii) certain base rate issues. Refer to each of these respective sections for further discussion.
Crystal River Nuclear Station - Unit 3 (Crystal River Unit 3). In September 2009, Crystal River Unit 3 began an outage for normal refueling and maintenance as well as an uprate project to increase its generating capability and to replace two steam generators. During preparations to replace the steam generators, workers discovered a ~~result~~delamination (or separation) within the concrete at the periphery of the ~~December 2009 rate case settlement with~~containment building, which resulted in an extension of the ~~NCUC~~outage. After analysis, it was determined that ~~allowed~~ the ~~inclusion~~concrete delamination at Crystal River Unit 3 was caused by redistribution of ~~construction~~stresses in the containment wall that occurred when an opening was created to accommodate the replacement of the unit’s steam generators. In March 2011, the work to return the plant to service was suspended after monitoring equipment identified a new delamination that occurred in ~~progress in rate base prospectively. Duke Energy~~a different section
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of the outer wall after the repair work was completed and during the late stages of retensioning the containment building. Crystal River Unit 3 has remained out of service while Progress Energy Florida conducted an engineering analysis and review of the new delamination and evaluates possible repair options.
Subsequent to March 2011, monitoring equipment has detected additional changes and further damage in the partially tensioned containment building and additional cracking or delaminations could occur.
Progress Energy Florida worked with two potential vendors for repair work and received repair proposals from both vendors. After analyzing those proposals, Progress Energy Florida selected a single vendor that would be engaged to complete the repair of Crystal River Unit 3 should the choice to repair be made. See discussion below regarding Crystal River Unit 3 cost recovery and other provisions, as a result of a 2012 settlement agreement with the FPSC.
Based on an analysis of possible repair options performed by outside engineering consultants, Progress Energy Florida selected an option, which would entail systematically removing and replacing concrete in substantial portions of the containment structure walls. The preliminary cost estimate of $900 million to $1.3 billion is currently under review and could change following completion of further detailed engineering studies, vendor negotiations and final risk assessments. These engineering studies and risk assessments include analyses by independent entities currently in progress. The risk assessment process includes analysis of events that, although currently deemed unlikely, could have a significant impact on the cost estimate or feasibility of repair. This preliminary cost estimate and project scope are under review, as described further below, however, the cost estimate is trending upward.
In March 2012, Duke Energy commissioned an independent review team led by Zapata Incorporated (Zapata) to review and assess the Progress Energy Florida Crystal River Unit 3 repair plan, including the repair scope, risks, costs and schedule. In its final report, Zapata found that the current repair scope appears to be technically feasible, but there are significant risks that need to be addressed regarding the approach, construction methodology, scheduling and licensing. Zapata performed four separate analyses of the estimated project cost and schedule to repair Crystal River Unit 3, including; (i) an independent review of the current repair scope (without existing assumptions or data), of which Zapata estimated costs of $1.49 billion with a project duration of 35 months; (ii) a review of Progress Energy Florida’s previous bid information, which included cost estimate data from Progress Energy Florida, of which Zapata estimated costs of $1.55 billion with a project duration of 31 months; (iii) an expanded scope of work scenario, that included the Progress Energy Florida scope plus the replacement of the containment building dome and the removal and replacement of concrete in the lower building elevations, of which Zapata estimated costs of approximately $2.44 billion with a project duration of 60 months, and; (iv) a “worst case” scenario, assuming Progress Energy Florida performed the more limited scope of work, and at the conclusion of that work, additional damage occurred in the dome and in the lower elevations, which forced replacement of each, of which Zapata estimated costs of $3.43 billion with a project duration of 96 months. The principal difference between Zapata’s estimate and Progress Energy Florida’s previous estimate appears to be due to the respective levels of contingencies included by each party, including higher project risk and longer project duration. Progress Energy Florida has filed a copy of the Zapata report with the FPSC and with the NRC. The FPSC held a status conference on October 30, 2012 to discuss Duke Energy’s analysis of the Zapata report.
Progress Energy Florida continues to analyze the various aspects of the repair option as well as the option of early retirement. This analysis includes the evaluation of the potential implications to scope, cost estimate and schedule from the project risks identified in the Zapata report. A number of factors could affect the decision to repair, the return-to-service date and repair costs incurred, including, but not limited to, state regulatory and NRC reviews, insurance recoveries from Nuclear Electric Insurance Limited (NEIL), the ability to obtain builder’s risk insurance with appropriate coverage, final engineering designs, vendor contract negotiations, the ultimate work scope completion, performance testing, weather and the impact of new information discovered during additional testing and analysis. Duke Energy will proceed with the repair option only if there is a high degree of confidence that the repair can be successfully completed and licensed within the final estimated costs and schedule, and it is in the best interests of Duke Energy’s customers, joint owners and investors.
Progress Energy Florida maintains insurance coverage against incremental costs of replacement power resulting from prolonged accidental outages at Crystal River Unit 3 through NEIL. NEIL provides insurance coverage for repair costs for covered events, as well as the cost of replacement power of up to $490 million per event when the unit is out of service as a result of these events. Actual replacement power costs have exceeded the insurance coverage. Progress Energy Florida also maintains insurance coverage through NEIL’s accidental property damage program, which provides insurance coverage up to $2.25 billion with a $10 million deductible per claim.
Progress Energy Florida is continuing to work with NEIL for recovery of applicable repair costs and associated replacement power costs. NEIL has made payments on the first delamination; however, NEIL has withheld payment of approximately $70 million of replacement power cost claims and repair cost claims related to the first delamination event. NEIL has unresolved concerns and has not made any payments on the second delamination and has not provided a written coverage decision for either delamination. In addition, no replacement power reimbursements have been received from NEIL since May 2011. These considerations led Progress Energy Florida to conclude that it was not probable that NEIL will voluntarily pay the full coverage amounts that Progress Energy Florida believes them to owe under the applicable insurance policies. Consistent with the terms and procedures under the insurance coverage with NEIL, Progress Energy Florida has agreed to mediation prior to commencing any formal dispute resolution. Progress Energy Florida is in the process of providing information as requested by NEIL and currently have scheduled the mediation to commence in November 2012. Given the circumstances, accounting standards require full recovery to be probable to recognize an insurance receivable. As of the merger date and September 30, 2012, Progress Energy Florida has no insurance receivables from NEIL related to either the first or second delamination. Progress Energy Florida continues to believe that all applicable costs associated with bringing Crystal River Unit 3 back into service are covered under all insurance policies.
The following table summarizes the Crystal River Unit 3 replacement power and repair costs and recovery, as discussed above, through September 30, 2012:

(in millions)
Replacement Power Costs


Repair Costs
Spent to date
$
573


$
324
NEIL proceeds received to date

(162)



(143)
Balance for recovery^(a)
$
411


$
181








(a)
See discussion below of Progress Energy Florida's ability to recover prudently incurred fuel and purchased power costs and Crystal River Unit 3 repair costs.

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As a result of the 2012 FPSC Settlement Agreement, Progress Energy Florida will be permitted to recover prudently incurred fuel and purchased power costs through its fuel clause without regard for the absence of Crystal River Unit 3 for the period from the beginning of the Crystal River Unit 3 outage through the earlier of the return of Crystal River Unit 3 to commercial service or December 31, 2016. If Progress Energy Florida does not begin repairs of Crystal River Unit 3 prior to the end of 2012, Progress Energy Florida will refund replacement power costs on a pro rata basis based on the in-service date of up to $40 million in 2015 and $60 million in 2016.
As a result of the ongoing analysis of repair options, including scope, schedule, cost estimate and project risks, Progress Energy Florida has determined that it is unlikely to be in a position to begin the repair of Crystal River Unit 3 prior to December 31, 2012. Consistent with the 2012 Settlement Agreement regarding the timing of commencement of repairs, Progress Energy Florida recorded a Regulatory liability of $100 million related to replacement power obligations. This amount is reflected as part of the purchase price allocation of the merger with Progress Energy in Duke Energy’s condensed consolidated financial statements.
In the event that repair activities continue beyond December 31, 2016, the parties are not prohibited from contesting Progress Energy Florida’s right to recover replacement power costs incurred after 2016. The parties to the agreement maintain the right to challenge the prudence and reasonableness of Progress Energy Florida’s fuel acquisition and power purchases, and other fuel prudence issues unrelated to the Crystal River Unit 3 outage. All prudence issues from the steam generator project inception through the date of settlement approval by the FPSC are resolved.
To the extent that Progress Energy Florida pursues the repair of Crystal River Unit 3, Progress Energy Florida will establish an estimated cost and repair schedule with ongoing consultation with the parties to the agreement. The established cost, to be approved by Duke Energy’s Board of Directors, will be the basis for project measurement. If costs exceed the board-approved estimate, overruns will be split evenly between Duke Energy shareholders and Progress Energy Florida customers up to $400 million. The parties to the agreement agree to discuss the method of recovery of any overruns in excess of $400 million, with final decision by the FPSC if resolution cannot be reached. If the repairs begin prior to the end of 2012, the parties to the agreement waive their rights to challenge Progress Energy Florida’s decision to repair and the repair plan chosen by Progress Energy Florida. In addition, there will be limited rights to challenge recovery of the repair execution costs incurred prior to the final resolution on NEIL coverage. The parties to the agreement will discuss the treatment of any potential gap between NEIL repair coverage and the estimated cost, with final decision by the FPSC if resolution cannot be reached. If the repairs do not begin prior to the end of 2012, the parties to the agreement reserve the right to challenge the prudence of Progress Energy Florida’s repair decision, plan and implementation.
Progress Energy Florida also retains sole discretion and flexibility to retire the unit without challenge from the parties to the agreement. If Progress Energy Florida decides to retire Crystal River Unit 3, Progress Energy Florida is allowed to recover all remaining Crystal River Unit 3 investments and to earn a return on the Crystal River Unit 3 investments set at its current authorized overall cost of ~~Cliffside~~capital, adjusted to reflect a return on equity set at 70 percent of the current FPSC-authorized return on equity, no earlier than the first billing cycle of January 2017. The wholesale portion of Crystal River Unit 63 investments, which are not covered by the 2012 FSPC Settlement Agreement, totals approximately $130 million as of September 30, 2012. The recoverability of the wholesale portion of Crystal River Unit 3 will continue to be evaluated as decisions are made regarding repair or retirement. Recovery of the wholesale portion of Crystal River Unit 3 under the retirement option is at risk based on prior treatment of early retired plants in wholesale rates. Any NEIL proceeds received after the settlement will be ~~reduced by $125~~applied first to replacement power costs incurred after December 31, 2012, with the remainder used to write down the remaining Crystal River Unit 3 investments. Retirement of the plant could impact funding obligations associated with Progress Energy Florida’s nuclear decommissioning trust fund.
Progress Energy Florida believes the actions taken and costs incurred in response to the Crystal River 3 delamination have been prudent and, accordingly, considers replacement power and capital costs not recoverable through insurance to be recoverable through its fuel cost-recovery clause or base rates. Additional replacement power costs and repair and maintenance costs incurred until Crystal River 3 is returned to service could be material. Additionally, Progress Energy Florida cannot be assured that Crystal River 3 can be repaired and brought back to service until full engineering and other analyses are completed.
Progress Energy Florida is a party to a master participation agreement and other related agreements with the joint owners of Crystal River Unit 3 which convey certain rights and obligations on Progress Energy Florida and the joint owners. Progress Energy Florida is meeting with the joint owners on a regular basis to discuss the parties’ mutual obligations under these agreements and to better understand their views and positions on these issues. Progress Energy Florida cannot predict the outcome of this matter.
Base Rate Matters. As a result of the 2012 FPSC Settlement Agreement, Progress Energy Florida will maintain base rates at the current levels through the last billing cycle of December 2016, except as described as follows. The agreement provides for a $150 million increase in revenue requirements effective with the first billing cycle of January 2013, while maintaining the current return on equity range of 9.5 percent to 11.5 percent. Additionally, costs associated with Crystal River Unit 3 investments will be removed from retail rate base effective with the first billing cycle of January 2013. Progress Energy Florida will accrue, for future rate-setting purposes, a carrying charge on the Crystal River Unit 3 investment until Crystal River Unit 3 is returned to service and placed back into retail rate base. Upon return of Crystal River Unit 3 to commercial service, Progress Energy Florida will be authorized to increase its base rates for the annual revenue requirements of all Crystal River Unit 3 investments. In the month following Crystal River Unit 3’s return to commercial service, Progress Energy Florida’s return on equity range will increase to between 9.7 percent and 11.7 percent. If Progress Energy Florida’s retail base rate earnings fall below the return on equity range, as reported on a FPSC-adjusted or pro-forma basis on a Progress Energy Florida monthly earnings surveillance report, Progress Energy Florida may petition the FPSC to amend its base rates during the term of the agreement. Refer to the discussion above regarding recovery of Crystal River Unit 3 investments if the plant is retired.
Progress Energy Florida will refund $288 million to customers through its fuel clause. Progress Energy Florida will refund $129 million in ~~federal advanced clean coal tax credits,~~each of 2013 and 2014, and an additional $10 million annually to residential and small commercial customers in 2014, 2015 and 2016. A regulatory liability for this refund is reflected in Duke Energy’s Condensed Consolidated Balance Sheets as ~~discussed~~of September 30, 2012.
Levy Nuclear Station. On July 30, 2008, Progress Energy Florida filed its COL application with the NRC for two Westinghouse AP1000 reactors at its proposed Levy Nuclear Station (Levy), which the NRC docketed on October 6, 2008. Various parties filed a joint petition to intervene in ~~Note 5. Cliffside Unit 6~~the Levy COL application. In 2008, the FPSC granted Progress Energy Florida’s petition for an affirmative Determination of Need and related orders requesting
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cost recovery under Florida’s nuclear cost-recovery rule for Levy, together with the associated facilities, including transmission lines and substation facilities.
On April 30, 2012, as part of its annual nuclear cost recovery filing, Progress Energy Florida updated the Levy project schedule and cost. Due to lower-than-projected customer demand, the lingering economic slowdown, uncertainty regarding potential carbon regulation and current low natural gas prices, Progress Energy Florida has shifted the in-service date for the first Levy unit to 2024, with the second unit following 18 months later. The revised schedule is ~~expected~~consistent with the recovery approach included in the 2012 FPSC Settlement Agreement. Although the scope and overnight cost for Levy, including land acquisition, related transmission work and other required investments, remain essentially unchanged, the shift in schedule will increase escalation and carrying costs and raise the total estimated project cost to between $19 billion and $24 billion.
Along with the FPSC’s annual prudence reviews, Progress Energy Florida will continue to evaluate the project on an ongoing basis based on certain criteria, including, but not limited to, cost; potential carbon regulation; fossil fuel prices; the benefits of fuel diversification; public, regulatory and political support; adequate financial cost-recovery mechanisms; appropriate levels of joint owner participation; customer rate impacts; project feasibility; DSM and EE programs; and availability and terms of capital financing. Taking into account these criteria, Levy is considered to be Progress Energy Florida’s preferred baseload generation option.
Under the terms of the 2012 FSPC Settlement Agreement, Progress Energy Florida will begin ~~operation~~residential cost-recovery of its proposed Levy Nuclear Station effective in the first billing cycle of January 2013 at the fixed rates contained in the settlement and continuing for a five-year period. Progress Energy Florida will not recover any additional Levy costs from customers through the term of the agreement, or file for any additional recovery before March 1, 2017, unless otherwise agreed to by the parties to the agreement. This amount is intended to recover the estimated retail project costs to date plus costs necessary to obtain the COL and any engineering, procurement and construction cancellation costs, if Progress Energy Florida ultimately chooses to cancel that contract. In addition, the consumer parties will not oppose Progress Energy Florida continuing to pursue a COL for Levy. Progress Energy Florida will true up any actual costs not recovered during the five year period. The 2012 FSPC Settlement Agreement also provides that Progress Energy Florida will treat the allocated wholesale cost of Levy (approximately $60 million) as a retail regulatory asset and include this asset as a component of rate base and amortization expense for regulatory reporting. Progress Energy Florida will have the discretion to accelerate and/or suspend such amortization in full or in part provided that it amortizes all of the regulatory asset by December 31, 2016.
Cost of Removal Reserve. The 2012 and 2010 FPSC settlement agreements provide Progress Energy Florida the discretion to reduce cost of removal amortization expense by up to the balance in the cost of removal reserve until the earlier of (a) its applicable cost of removal reserve reaches zero, or (b) the expiration of the 2012 FPSC settlement agreement at the end of 2016. Progress Energy Florida may not reduce amortization expense if the reduction would cause it to exceed the appropriate high point of the return on equity range, as established in the settlement agreements. Pursuant to the settlement agreements, Progress Energy Florida recognized a reduction in amortization expense of $60 million three months ended September 30, 2012. Progress Energy Florida had eligible cost of removal reserves of $169 million remaining at September 30, 2012, which is impacted by accruals in accordance with its latest depreciation study, removal costs expended and reductions in amortization expense as permitted by the settlement agreements.
Anclote Units 1 and 2. On March 29, 2012, Progress Energy Florida announced plans to convert the 1,010-MW Anclote Units 1 and 2 (Anclote) from oil and natural gas fired to 100 percent natural gas fired and requested that the FPSC permit recovery of the estimated $79 million conversion cost through the Environmental Cost Recovery Clause (ECRC). Progress Energy Florida believes this conversion is the most cost-effective alternative for Anclote to achieve and maintain compliance with applicable environmental regulations. On September 13, 2012, the FPSC approved Progress Energy Florida’s request to seek cost recovery through the ECRC. Progress Energy Florida anticipates that both converted units will be placed in service by the end of ~~2012. Also, see Note 5 for information related to the Cliffside Unit 6 air permit.~~
~~Duke Energy Carolinas Dan River and Buck Combined Cycle Facilities.~~ In June 2008, the NCUC issued its order approving the Certificate of Public Convenience and Necessity (CPCN) applications to construct a 620 MW combined cycle natural gas fired generating facility at each of Duke Energy Carolinas’ existing Dan River Steam Station and Buck Steam Station. The Division of Air Quality (DAQ) issued a final air permit authorizing construction of the Buck and Dan River combined cycle natural gas-fired generating units in October 2008 and August 2009, respectively.2013.
The Buck project is expected to begin operation by the end of 2011. The Dan River project is expected to begin operation by the end of 2012. Based on the most updated cost estimates, total costs (including AFUDC) for the Buck and Dan River projects are $700 million and $716 million, respectively.
Duke Energy Indiana
Edwardsport IGCC Plant.On September 7, 2006, Duke Energy Indiana and Southern Indiana Gas and Electric Company d/b/a Vectren Energy Delivery of Indiana (Vectren) filed a joint petition with the IURC seeking a CPCN for the construction of a 618 MW IGCC power plant at Duke Energy Indiana’s Edwardsport Generating Station in Knox County, Indiana. The facility was initially estimated to cost approximately $1.985 billion (including $120 million of AFUDC). In August 2007, Vectren formally withdrew its participation in the IGCC plant and a hearing was conducted on the CPCN petition based on Duke Energy Indiana owning 100% of the project. On November 20, 2007, the IURC issued an order granting Duke Energy Indiana a CPCN for the proposed IGCC project, approved the cost estimate of $1.985 billion and approved the timely recovery of costs related to the project. On January 25, 2008, Duke Energy Indiana received the final air permit from the Indiana Department of Environmental Management. The Citizens Action Coalition of Indiana, Inc. (CAC), Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc., all intervenors in the CPCN proceeding, have appealed the air permit.
On May 1, 2008, Duke Energy Indiana filed its first semi-annual IGCC rider and ongoing review proceeding with the IURC as required under the CPCN order issued by the IURC. In its filing, Duke Energy Indiana requested approval of a new cost estimate for the IGCC project of $2.35 billion (including $125 million of AFUDC) and for approval of plans to study carbon capture as required by the IURC’s CPCN order. On January 7, 2009, the IURC approved Duke Energy Indiana’s request, including the new cost estimate of $2.35 billion, and cost recovery associated with a study on carbon capture. On November 3, 2008 and May 1, 2009, Duke Energy Indiana filed its second and third semi-annual IGCC riders, respectively, both of which were approved by the IURC in full.
On November 24, 2009, Duke Energy Indiana filed a petition for its fourth semi-annual IGCC rider and ongoing review proceeding with the IURC. As Duke Energy Indiana experienced design modifications, quantity increases and scope growth above what was anticipated from the preliminary engineering design, capital costs to the IGCC project were anticipated to increase. Duke Energy Indiana forecasted that the additional capital cost items would use the remaining contingency and escalation amounts in the current $2.35 billion cost estimate and add $150 million, excluding the impact associated with the need to add more contingency. Duke Energy Indiana did not request approval of an increased cost estimate in the fourth semi-annual update proceeding; rather, Duke Energy Indiana requested, and the IURC approved, a subdocket proceeding in which Duke Energy Indiana would present additional evidence regarding an updated estimated cost for the IGCC project and in which a more comprehensive review of the IGCC project could occur. The evidentiary hearing for the fourth semi-annual update proceeding was held April 6, 2010, and an interim order was received on July 28, 2010. The order approves the implementation of an updated IGCC rider to recover costs incurred through September 30, 2009, effective immediately. The approvals are on an interim basis pending the outcome of the sub-docket proceeding involving the revised cost estimate as discussed further below.
32
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
On April 16, ~~2011,~~2010, Duke Energy Indiana filed a revised cost estimate for the IGCC project reflecting an estimated cost increase of $530 million. Duke Energy Indiana requested approval of the revised cost estimate of $2.88 billion (including $160 million of AFUDC), and for continuation of the existing cost recovery treatment. A major driver of the cost increase included quantity increases and design changes, ~~reflected in~~which impacted the ~~final engineering leading to increased~~ scope, productivity and ~~complexity.~~schedule of the IGCC project. On September 17, 2010, an agreement was reached with the ~~OUCC,~~Indiana Office of Utility Consumer Counselor (OUCC), Duke Energy Indiana Industrial Group and Nucor Steel – Indiana to increase the authorized cost estimate of $2.35 billion to $2.76 billion, and to cap the project’s costs that could be passed on to customers at $2.975 billion. Any construction cost amounts above $2.76 billion would be subject to a prudence review similar to most other rate base investments in Duke Energy Indiana’s next general rate increase request before the IURC. Duke Energy Indiana agreed to accept a 150 basis point reduction in the equity return for any project construction costs greater than $2.35 billion. Additionally, Duke Energy Indiana agreed not to file for a general rate case increase before March 2012. Duke Energy Indiana also agreed to reduce depreciation rates earlier than would otherwise be required and to forego a deferred tax incentive related to the IGCC project. As a result of the settlement, Duke Energy Indiana recorded a pre-tax charge to earnings of approximately $44 million in the third quarter of 2010 to reflect the impact of the reduction in the return on equity. The charge is recorded in ~~Goodwill and other impairment charges on Duke Energy’s Condensed Consolidated Statement of Operations. This charge is recorded in~~ Impairment charges on ~~Duke Energy Indiana’s~~the Condensed Consolidated Statements of Operations. ~~Due to the IURC investigation discussed below, the~~The IURC convened a technical conference on November 3, 2010, related to the continuing need for the Edwardsport IGCC facility. On December 9, 2010, the parties to the settlement withdrew the settlement agreement to provide an opportunity to assess whether and to what extent the settlement agreement remained a reasonable allocation of risks and rewards and whether modifications to the settlement agreement were appropriate. Management determined that the approximate $44 million charge discussed above was not impacted by the withdrawal of the settlement agreement.
~~Additionally, the~~During 2010, Duke Energy Indiana filed petitions for its fifth and sixth semi-annual IGCC riders. Evidentiary hearings were held on April 24, 2012 and April 25, 2012.
The CAC, Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc. filed motions for two subdocket proceedings alleging improper communications, undue influence, fraud, concealment and gross mismanagement, and a request for field hearing in this proceeding. Duke Energy Indiana opposed the requests. ~~During 2010, Duke Energy Indiana filed petitions for its fifth and sixth semi-annual IGCC riders. Evidentiary hearings are set for November 17, 2011 and November 21, 2011, respectively.~~
On February 25, 2011, the IURC issued an order which denied the request for a subdocket to investigate the allegations of improper communications and undue influence at this time, finding there were other agencies better suited for such investigation. The IURC also found that allegations of fraud, concealment and gross mismanagement related to the IGCC project should be heard in a Phase II proceeding of the cost estimate subdocket and set evidentiary hearings on both Phase I (cost estimate increase) and Phase II beginning in August 2011. ~~In April 2011, after an attorneys’ conference, and in response to the other parties’ request for more time, the IURC scheduled~~After procedural delays, hearings ~~for~~began on Phase I ~~to begin~~on October 26, 2011 and on Phase II ~~hearings to begin~~on November 3,21, 2011.
On March 10, 2011, Duke Energy Indiana filed testimony with the IURC proposing a framework designed to mitigate customer rate impacts associated with the Edwardsport IGCC project. Duke Energy Indiana’s filing proposed a cap on the project’s construction costs, (excluding financing costs), which can be recovered through rates at $2.72 billion. It also proposed rate-related adjustments that will lower the overall customer rate increase related to the project from an average of 19% to approximately 16%. ~~The proposal is subject to the approval of the IURC in the Phase I hearings.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
On June 27, 2011, Duke Energy Indiana filed testimony with the IURC in connection with its seventh semi-annual rider request which included an update on the current cost forecast of the Edwardsport IGCC project. ~~The evidentiary hearing is set for December 13, 2011.~~ The updated forecast excluding AFUDC increased from $2.72 billion to $2.82 billion, not including any contingency for unexpected start-up events. On June 30, 2011, the OUCC and intervenors filed testimony in Phase I recommending that Duke Energy Indiana be disallowed cost recovery of any of the additional cost estimate increase above the previously approved cost estimate of $2.35 billion. Duke Energy Indiana filed rebuttal testimony on August 3, 2011.
OnIn the subdocket proceeding, on July 14, 2011, the OUCC and certain intervenors filed testimony in Phase II alleging that Duke Energy Indiana concealed information and grossly mismanaged the project, and therefore Duke Energy Indiana should only be permitted to recover from customers $1.985 billion, the original IGCC project cost estimate approved by the IURC. Other intervenors recommended that Duke Energy Indiana not be able to rely on any cost recovery granted under the CPCN or the first cost increase order. Duke Energy Indiana believes it has diligently and prudently managed the project. On September 9, 2011, Duke Energy defended against the allegations in its responsive testimony. The OUCC and intervenors filed their final rebuttal testimony in Phase II on or before October 7, 2011, making similar claims of fraud, concealment and gross mismanagement and recommending the same outcome of limiting Duke Energy Indiana’s recovery to the $1.985 billion initial cost estimate. Additionally, the CAC ~~parties~~ recommended that recovery be limited to the costs incurred on the IGCC project as of November 30, 2009, ~~(Duke Energy Indiana estimates it had committed costs of $1.6 billion),~~ with further IURC proceedings to be held to determine the financial consequences of this recommendation. As of November 30, 2009, Duke Energy Indiana estimates it had committed costs of $1.6 billion.
On October 19, 2011, Duke Energy Indiana revised its project cost estimate from approximately ~~$2.72~~$2.82 billion, excluding financing costs, to approximately $2.98 billion, excluding financing costs. The revised estimate reflects additional cost pressures resulting from ~~unfavorable labor~~quantity increases and the resulting impact on the scope, productivity ~~trends~~ and ~~incremental material quantity and scope changes.~~schedule of the IGCC project. Duke Energy Indiana previously proposed to the IURC a cost cap of approximately $2.72 billion, plus the actual AFUDC that accrues on that amount. As a result, ~~for the quarter ended September 30, 2011,~~ Duke Energy Indiana recorded a pre-tax impairment charge of approximately $222 million in the third quarter of 2011 related to costs expected to be incurred above the cost cap. This charge is in addition to athe previous pre-tax impairment charge ~~of approximately $44 million recorded in~~related to the ~~third quarter of 2010 as~~Edwardsport project discussed ~~above. The approximate $222 million charge~~above and is recorded ~~in Goodwill and other impairment charges on Duke Energy’s Condensed Consolidated Statement of Operations, and~~ in Impairment charges on ~~Duke Energy Indiana’s~~the Condensed Consolidated Statements of Operations. The cost cap, if approved by the IURC, limits the amount of project construction costs that may be incorporated into customer rates in Indiana. As a result of the proposed cost cap, recovery of these cost increases is not considered probable. Additional updates to the cost estimate could occur through the completion of the plant in ~~2012.~~2013.
On ~~October 26,~~November 30, 2011, ~~hearings before~~Duke Energy Indiana filed a petition with the IURC ~~commenced pursuant~~in connection with its eighth semi-annual rider request for the Edwardsport IGCC project. Evidentiary hearings for the seventh and eighth semi-annual rider requests were held for August 6, 2012 and August 7, 2012.
Phase I and Phase II hearings concluded on January 24, 2012. The CAC has filed repeated requests for the IURC to consider issues of ethics, undue influence, due process violations and appearance of impropriety. The IURC denied the ~~previously established schedule~~most recent motion in March 2012. In April 2012, the CAC filed a motion requesting the IURC to certify questions of law for appeal regarding allegations of fraud on the commission and ~~will continue until all evidence is presented~~due process violations. This motion was denied.
On April 30, 2012, Duke Energy Indiana entered into a settlement agreement with the OUCC, the Duke Energy Indiana Industrial Group and Nucor Steel-Indiana on the cost increase for construction of the Edwardsport IGCC plant, including both Phase I and Phase ~~II.~~II of the sub docket. Pursuant to the agreement, there would be a cap on costs to be reflected in customer rates of $2.595 billion, including estimated financing costs through June 30, 2012. Pursuant to the agreement, Duke Energy Indiana would be able to recover additional financing costs until November 30, 2012, and 85% of financing costs that accrue thereafter. Duke Energy Indiana also agrees not to request a retail electric base rate increase prior to March 2013, with rates in effect no earlier than April 1, 2014. The agreement is subject to approval by the IURC. As a result of the agreement, Duke Energy Indiana
33
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
recorded pre-tax impairment and other charges of approximately $420 million in the first quarter of 2012. Approximately $400 million is recorded in Impairment charges and the remaining approximately $20 million is recorded in Operation, maintenance and other on Duke Energy’s Condensed Consolidated Statement of Operations and in Duke Energy Indiana’s Condensed Consolidated Statements of Operations and Comprehensive Income. The $20 million recorded in Operation, maintenance and other, is attributed to legal fees Duke Energy Indiana will be responsible for on behalf of certain intervenors, as well as funding for low income energy assistance, as required by the settlement agreement. These charges are in addition to previous pre-tax impairment charges related to the Edwardsport project as discussed above.
The CAC, Sierra Club Indiana chapter, Save the Valley and Valley Watch, filed testimony in opposition to the April 30, 2012 settlement agreement contending the agreement should not be approved, and that the amount of costs recovered from customers should be less than what the settlement agreement provides, potentially even zero. In addition to reiterating their prior concerns with the Edwardsport IGCC project, the intervenors noted above also contend new settlement terms should be added to mitigate carbon emissions, conditions should be added prior to the plant being declared in-service and the IURC should consider their allegations of undue influence. Duke Energy Indiana, the Industrial Group and the OUCC, filed rebuttal testimony supporting the settlement as reasonable and in the public interest. An evidentiary hearing on the settlement agreement concluded on July 19, 2012. Post-hearing briefing has been completed.
On June 8, 2012, Duke Energy Indiana filed a petition with the IURC in connection with its ninth semi-annual rider request for the Edwardsport IGCC project. Evidentiary hearings for the ninth semi-annual rider requests are scheduled for January 14, 2013 and January 15, 2013.
On October 30, 2012, Duke Energy Indiana revised its project cost estimate from approximately $2.98 billion, excluding financing costs, to approximately $3.154 billion, excluding financing costs, and revised the projected in-service date from the first quarter of 2013 to the second quarter of 2013. The revised estimate is due primarily to lower than projected revenues from test output and delays due to more extensive testing conditions. As a result, Duke Energy Indiana recorded a pre-tax impairment charge of approximately $180 million in the third quarter of 2012 related to costs expected to be incurred above the cost cap proposed in the settlement agreement filed in April 2012. This amount is in addition to previous pre-tax impairment charges related to the Edwardsport project and is recorded in Impairment charges on the Condensed Consolidated Statements of Operations.
Duke Energy is unable to predict the ultimate outcome of ~~these proceedings.~~the various regulatory proceedings described above. In the event the IURC disallows a portion of the remaining plant costs, including financing costs, or if cost estimates for the plant increase, additional charges to expense, which could ~~occur~~.~~An order is expected in the first quarter of 2012.~~be material, could occur.
~~Construction of the Edwardsport IGCC plant is ongoing and is currently expected to be completed and placed in-service in 2012.~~
~~Duke Energy Indiana Carbon Sequestration.~~Phase 2 Environmental Compliance Proceeding. On June 28, 2012, Duke Energy Indiana filed ~~a petition~~ with the IURC ~~requesting approval~~a plan for the addition of certain environmental pollution control projects on several of its ~~plans~~coal-fired generating units in order to comply with existing and proposed environmental rules and regulations. The plan calls for ~~studying~~a combination of selective catalytic reduction systems, dry sorbent injection systems for SO₃ mitigation, activated carbon ~~storage, sequestration~~injection systems and/or ~~enhanced oil recovery for the carbon dioxide (CO~~₂ ~~) from the Edwardsport IGCC facility on March 6, 2009. On July 7, 2009,~~mercury re-emission chemical injection systems. The capital costs are estimated at $450 million (excluding AFUDC). Duke Energy Indiana ~~filed its case-in-chief testimony requesting approval for cost recovery~~also indicated that it preliminarily anticipates the retirement of ~~a $121 million site assessment~~Wabash River Units 2 through 5 in 2015 and ~~characterization plan for CO~~₂ ~~sequestration options including deep saline sequestration, depleted oil and gas sequestration and enhanced oil recovery for the CO~~₂ ~~from the Edwardsport IGCC facility. The OUCC filed testimony supportive~~is still evaluating future equipment additions or retirement of the continuing study of carbon storage, but recommended that Duke Energy Indiana break its plan into phases, recommending approval of only $33 million in expenditures at this time and deferral of expenditures rather than cost recovery through a tracking mechanism as proposed by Duke Energy Indiana. The CAC, an intervenor, recommended against approval of the carbon storage plan stating customers should not be required to pay for research and development costs. Duke Energy Indiana’s rebuttal testimony was filed October 30, 2009, wherein it amended its request to seek deferral of $42 million to cover the carbon storage site assessment and characterization activities scheduled to occur through the end of 2010, with further required study expenditures subject to future IURC proceedings.Wabash River Unit 6. An evidentiary hearing ~~was held on November 9, 2009, and~~is scheduled in December 2012, with an order is expected byin the ~~end~~second quarter of ~~2011.~~2013.
Duke Energy ~~Indiana IURC Investigation.~~Ohio
Capacity Rider Filing. On August 29, 2012, Duke Energy Ohio filed an application with the PUCO for the establishment of a charge, pursuant to Ohio’s state compensation mechanism, for capacity provided consistent with its obligations as a Fixed Resource Requirement (FRR) entity. The application included a request for deferral authority and for a new tariff to implement the charge. The deferral being sought is the difference between its costs and market-based prices for capacity. The requested tariff would implement a charge to be collected via a rider through which such deferred balances will subsequently be recovered. 24 parties moved to intervene. Additionally, the PUCO has issued a procedural schedule that includes deadlines for the submission of comments and testimony leading up to a hearing currently scheduled on April 2, 2013. Duke Energy Ohio has moved to vacate this procedural schedule and to seek a schedule that will enable an opinion and order on its filings by March 1, 2013. On October ~~5, 2010,~~4, 2012, various customer groups filed a motion to dismiss the ~~Governor of Indiana terminated the employment of the Chairman of the IURC in connection with~~application. On October 19, 2012, Duke Energy ~~Indiana’s hiring of an attorney from~~Ohio made a filing opposing the ~~IURC staff. As requested by~~motion to dismiss. Under the ~~governor, the Indiana Inspector General initiated an investigation into whether the IURC attorney violated any state ethics rules, and the IURC announced it would internally audit the~~current procedural schedule, Duke Energy ~~Indiana cases dating from January 1, 2010 through September 30, 2010, on which this attorney worked while at~~Ohio expects an order in 2013.
2012 Electric Rate Case. On July 9, 2012, Duke Energy Ohio filed an application with the ~~IURC, which includes~~PUCO for an increase in electric distribution rates of approximately $87 million. On average, total electric rates would increase approximately 5.1% under the ~~Indiana storm~~filing. The rate increase is designed to recover the cost of investments in projects to improve reliability for customers and upgrades to the distribution system. Pursuant to a stipulation in another case, Duke Energy Ohio will continue recovering its costs ~~deferral request discussed above,~~associated with grid modernization in a separate rider.
Duke Energy Ohio expects revised rates, if approved, to go into effect in the first half of 2013.
2012 Natural Gas Rate Case. On July 9, 2012, Duke Energy Ohio filed an application with the PUCO for an increase in natural gas distribution rates of approximately $45 million. On average, total natural gas rates would increase approximately 6.6% under the filing. The rate increase is designed to recover the cost of upgrades to the distribution system, as well as ~~all Edwardsport IGCC cases dating back~~environmental cleanup of manufactured gas plant sites. In addition to ~~2006. Duke Energy Indiana engaged~~the recovery of costs associated with the manufactured gas plants, the rate request includes a proposal for an ~~outside law firm~~accelerated service line replacement program and a new rider to ~~conduct its own investigation regarding Duke Energy Indiana’s hiring of an IURC attorney and Duke Energy Indiana’s related hiring practices. On October 5, 2010, Duke Energy Indiana placed~~recover the ~~attorney and President~~associated incremental cost. The filing also requests that the PUCO renew the rider recovery of Duke Energy Indiana on administrative leave. They were subsequently terminated on November 8, 2010. On December 7, 2010, the IURC released its internal audit findings concluding that the previous rulings were supported by sound, legal reasoning consistent with the Indiana Rules of EvidenceOhio’s accelerated main replacement program and historical practice and procedures of the IURC and that the previous rulings appeared to be balanced and consistent among the parties. The audit concluded it did not reveal any bias or a resultant unfair advantage obtained by grid modernization program.
Duke Energy ~~Indiana as a result of the evidentiary rulings of the former IURC attorney. As noted above,~~Ohio expects revised rates, if approved, to go into effect in the storm cost deferral case, the IURC found no conflict between the order and the staff report; however, the audit report noted the staff report offered no specific recommendation to either approve or deny the requested relief and that this was the only order that was subject to an appeal. As such, the IURC reopened that proceeding for further review and considerationfirst half of the evidence presented. The Inspector General’s investigation into whether the former IURC attorney violated any state ethics rules was the subject of an Indiana Ethics Commission hearing that was held on2013.
Generation Asset Transfer. On April ~~14, 2011, and a final report was issued on May 14, 2011. The final report pertained only to the conduct of the former IURC attorney as Duke Energy Indiana was not a subject of the investigation.~~
~~Other Matters.~~
2, 2012, Duke Energy Ohio and various affiliated entities filed an Application for Authorization for Disposition of Jurisdictional Facilities with FERC. The application seeks to transfer, from Duke Energy ~~Kentucky~~ Ohio’s rate-regulated Ohio utility company, the legacy coal-fired and combustion gas turbine assets to a non-regulated affiliate, consistent with ESP stipulation approved on November 22, 2011. The application outlines a potential additional step in the reorganization that would result in a transfer of all of Duke Energy Ohio’s Commercial Power business to an indirect wholly owned subsidiary of Duke Energy. The process of determining the optimal corporate structure is an ongoing evaluation of factors, such as tax considerations, that may change between now and the transfer date. In conjunction with the transfer, Duke Energy Ohio’s capital structure will be restructured to reflect appropriate debt and equity ratios for its regulated Franchised Electric and Gas operations. The transfer could instead be accomplished within a wholly owned non-regulated subsidiary of Duke Energy Ohio depending on final tax structuring analysis. On June 22,
34
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
2012, Duke Energy Ohio amended its Application to include several small additional generation units to be transferred. The FERC approved the application on September 5, 2012.
Standard Service Offer (SSO). The PUCO approved Duke Energy Ohio’s current Electric Security Plan (ESP) on November 22, 2011. The ESP effectively separates the generation of electricity from Duke Energy Ohio’s retail load obligation and requires Duke Energy Ohio to transfer its generation assets to a non-regulated affiliate on or before December 31, 2014. The ESP includes competitive auctions for electricity supply whereby the energy price is recovered from retail customers. As a result, Duke Energy Ohio now earns retail margin on the transmission and distribution of electricity only and not on the cost of the underlying energy. New rates for Duke Energy Ohio went into effect for SSO customers on January 1, 2012. The ESP also includes a provision for a non-bypassable stability charge of $110 million per year to be collected from January 1, 2012 through December 31, 2014.
On January 18, 2012, the PUCO denied a request for rehearing of its decision on Duke Energy Ohio’s ESP filed by Columbus Southern Power and Ohio Power Company.
Regional Transmission Organization Realignment. ~~Realignment~~.Duke Energy Ohio, which includes its ~~wholly-owned~~wholly owned subsidiary Duke Energy Kentucky, ~~is in the advanced planning stages to transfer~~transferred control of its transmission assets to effect a Regional Transmission Organization (RTO) realignment from ~~the Midwest ISO~~MISO to PJM, ~~Interconnection, LLC (PJM),~~ effective ~~January 1, 2012.~~December 31, 2011.
The FERC issued an order which approved Duke Energy Ohio and Duke Energy Kentucky’s RTO realignment request on October 21, 2010, and authorized Duke Energy Ohio and Duke Energy Kentucky to terminate their existing obligations to the Midwest ISO, subject to certain conditions.
~~In a related FERC proceeding, on~~On December 16, 2010, the FERC issued an order related to ~~the Midwest ISO’s~~MISO’s cost allocation methodology surrounding Multi-Value Projects (MVP), a type of ~~Midwest ISO transmission expansion~~MISO Transmission Expansion Planning (MTEP) project cost. ~~The Midwest ISO~~MISO expects that MVP will fund the costs of large transmission projects designed to bring renewable generation from the upper Midwest to load centers in the eastern portion of the ~~Midwest ISO~~MISO footprint. ~~It is expected that the Midwest ISO will approve~~MISO approved MVP proposals with estimated project costs ~~in excess~~ of $5approximately $5.2 billion byprior to the date of Duke Energy Ohio’s ~~planned~~ exit from ~~the Midwest ISO~~MISO on December 31, 2011. These projects are expected to be undertaken by the constructing transmission owners from 2012 through 2020 with costs recovered through ~~the Midwest ISO~~MISO over the useful life of the projects. The FERC order ~~provides~~did not clearly and expressly approve MISO’s apparent interpretation that a withdrawing transmission owner ~~shall remain responsible for~~is obligated to pay its share of costs of all ~~financial obligations incurred while it was a member for the allocation of~~ MVP ~~costs to withdrawing transmission owners for~~ projects approved by ~~the Midwest ISO~~MISO up to the date of the withdrawing transmission owners’ exit from ~~the Midwest ISO. The basis for allocating such MVP costs will be the withdrawing transmission owners’ historical usage of the Midwest ISO system.~~MISO. Duke Energy Ohio, ~~including Duke Energy Kentucky,~~ has historically represented approximately five-percent of the ~~Midwest ISO~~MISO system. The impact of this order is not fully known, but could result in a substantial increase in ~~the Midwest ISO~~MISO transmission expansion costs allocated to Duke Energy Ohio ~~and Duke Energy Kentucky~~ subsequent to a withdrawal from ~~the Midwest ISO.~~MISO. Duke Energy Ohio, ~~and Duke Energy Kentucky,~~ among other parties, sought rehearing of the FERC MVP order. On October 21, 2011, the FERC issued an order on rehearing in this matter largely affirming its original MVP order and conditionally accepting ~~Midwest ISO’s~~MISO’s compliance filing as well as determining that the MVP allocation methodology is consistent with cost causation principles and FERC precedent. The FERC also reiterated that it will not prejudge any settlement agreement between an RTO and a withdrawing transmission owner for fees that a withdrawing transmission owner owes to the RTO. The order further states that any such fees that a withdrawing transmission owner owes to an RTO are a matter for those parties to negotiate, subject to review by the FERC. The FERC also ruled that Duke Energy ~~Ohio and Duke Energy Kentucky’s~~Ohio’s challenge of ~~the Midwest ISO’s~~MISO’s ability to allocate MVP costs to a withdrawing transmission owner is beyond the scope of ~~this~~the proceeding. The ~~Order~~order further stated that ~~Midwest ISO’s~~MISO’s tariff withdrawal language establishes that once cost responsibility for transmission upgrades is determined, withdrawing transmission owners retain any costs incurred prior to the withdrawal date. In order to preserve its rights, Duke Energy ~~will continue to pursue its challenge in regards to this issue~~Ohio filed an appeal of the FERC order in the ~~appropriate proceeding.~~D.C. Circuit Court of Appeals. The case was consolidated with appeals of the FERC order by other parties in the Seventh Circuit Court of Appeals.
On October 14, 2011, Duke Energy Ohio ~~and Duke Energy Kentucky~~ filed an application with the FERC to establish new wholesale customer rates for transmission service under PJM’s Open Access Transmission Tariff. In this filing, Duke Energy Ohio sought recovery of its legacy MTEP costs, including MVP costs, and submitted an analysis showing that the benefits of the RTO realignment outweigh the costs to the customers. The new rates ~~are expected to go~~went into effect, subject to refund, on January 1, 2012. ~~The~~Protests were filed by certain transmission customers. On April 24, 2012, FERC ~~has not yet established a procedural schedule~~issued an order in which it, among other things, denied recovery of legacy MTEP costs without prejudice to ~~review~~ the ~~filing but is expected to do so in the fourth quarter~~right of ~~2011.~~
Duke Energy Ohio ~~and Duke Energy Kentucky have entered into settlements or have received state regulatory approvals associated~~to make another filing including a more comprehensive cost-benefit analysis to support such recovery. Settlement discussions are underway with the ~~RTO realignment, including~~relevant intervening parties that address matters raised in the ~~recovery~~initial October 14, 2011 filing.
On December 29, 2011, MISO filed with FERC a Schedule 39 to MISO’s tariff. Schedule 39 provides for the allocation of MVP costs to a withdrawing owner based on the owner’s actual transmission load after the owner’s withdrawal from MISO, or, if ~~ultimately allocated~~the owner fails to report such load, based on the owner’s historical usage in MISO assuming annual load growth. On January 19, 2012, Duke Energy Ohio filed with FERC a protest of the allocation of MVP costs to them under Schedule 39. On February 27, 2012, the FERC accepted Schedule 39 as a just and reasonable basis for MISO to charge for MVP costs, a transmission owner that withdraws from MISO after January 1, 2012. The FERC set for hearing whether MISO’s proposal to use the methodology in Schedule 39 to calculate the obligation of transmission owners who withdrew from MISO prior to January 1, 2012 (such as Duke Energy ~~Kentucky.~~ Ohio) to pay for MVP costs is consistent with the MVP-related withdrawal obligations in the tariff at the time that they withdrew from MISO, and, if not, what amount of, and methodology for calculating, any MVP cost responsibility should be. On March 28, 2012, Duke Energy Ohio filed a request for rehearing of FERC’s order on MISO’s Schedule 39. This hearing has been scheduled for April 2013.
On December 22, 2010, the KPSC issued an order granting approval of Duke Energy Kentucky’s request to effect the RTO realignment, subject to several conditions. The conditions accepted by Duke Energy Kentucky include a commitment to not seek to double-recover in a future rate case the transmission expansion fees that may be charged by the Midwest ISO and PJM in the same period or overlapping periods. On January 25, 2011, the KPSC issued an order stating that the order had been satisfied and is now unconditional. The order further requires Duke Energy Kentucky to submit to the KPSC internal procedures for the receipt and tracking of notices from PJM regarding customer requests to participate in PJM demand-response programs. Duke Energy Kentucky submitted its filing describing these internal procedures on March 30, 2011.
~~On April 26,~~31, 2011, Duke Energy Ohio ~~Ohio Energy Group, The Office of Ohio Consumers’ Counsel and the Commission Staff filed an Application and~~recorded a Stipulation with the PUCO regarding Duke Energy Ohio’s recovery of certain costs related to its proposed RTO realignment. Under the Stipulation, Duke Energy Ohio would recover through retail rates all Midwest ISO Transmission Expansion Planning (MTEP) costs, including but not limited to MVP costs, directly or indirectly charged to Duke Energy Ohio via a non-bypassable rider. Duke Energy Ohio would not seek to recover any portion of the Midwest ISO exit obligation, PJM integration fees, or internal costs associated with the RTO realignment. Also, Duke Energy Ohio would not seek to recover the first $121 million of PJM transmission expansion costs from Ohio retail customers. On May 25, 2011, the Stipulation was approved by the PUCO. An application for rehearing filed by Ohio Partners for Affordable Energy was denied by the PUCO on July 15, 2011.
~~Duke Energy Ohio currently estimates the~~ liability for its ~~Midwest ISO~~MISO exit obligation and share of MTEP costs, excluding MVP, ~~will be~~of approximately ~~$90~~$110 million. ~~The~~This liability ~~will be~~was recorded within Other in Current liabilities and Other in Deferred credits and other liabilities on Duke Energy Ohio’s ~~consolidated balance sheet~~Condensed Consolidated Balance Sheets upon exit from ~~the Midwest ISO~~MISO on December 31, 2011. Approximately ~~$60~~$74 million of this amount ~~will be~~was recorded as a regulatory asset while ~~the remainder will be~~$36 million was recorded to Operation, maintenance and other in Duke Energy Ohio’s ~~consolidated statement~~Condensed Consolidated Statements of ~~operations.~~Operations and Comprehensive Income. In addition to the above amounts, Duke Energy Ohio may also be responsible for costs associated with ~~the Midwest ISO~~MISO MVP projects. Duke Energy Ohio is contesting its obligation to pay for such costs. However, depending on the final outcome of this matter, Duke Energy Ohio could incur ~~significant~~material costs associated with MVP ~~projects. The appropriate regulatory~~projects, which are not reasonably estimable at this time. Regulatory accounting treatment will be pursued for any costs incurred in connection with the resolution of this matter.
The following table provides a reconciliation of the beginning and ending balance of Duke Energy Ohio’s recorded obligations related to its withdrawal from MISO:



Balance at

Provision /

Cash

Balance at
(in millions)

December 31, 2011

Adjustments

Reductions

September 30, 2012
Duke Energy Ohio

$
110

$
3

$
(18)

$
95

35
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)
Other Regulatory Matters
Progress Energy Merger NCUC and North Carolina Department of Justice (NCDOJ) Investigations. On July 6, 2012, the NCUC issued an order initiating investigation and scheduling hearings addressing the timing of the Duke Energy board of directors’ decision on July 2, 2012, to replace William D. Johnson with James E. Rogers as President and Chief Executive Officer (CEO) of Duke Energy, as well as other related matters.
Pursuant to the merger agreement, William D. Johnson, Chairman, President and CEO of Progress Energy became President and CEO of Duke Energy and James E. Rogers, Chairman, President and CEO of Duke Energy became Executive Chairman of Duke Energy upon close of the merger. Mr. Johnson subsequently resigned as the President and CEO of Duke Energy, effective July 3, 2012 and Mr. Rogers was appointed to be CEO.
Pursuant to the NCUC’s July 6, 2012 order, Mr. Rogers appeared before the NCUC on July 10, 2012, and provided testimony regarding the approval and closing of the merger and his replacement of Mr. Johnson as the President and CEO of Duke Energy. On July 19, 2012, Mr. Johnson, as well as E. Marie McKee and James B. Hyler, Jr., both former members of the Progress Energy board of directors and current members of the post-merger Duke Energy board of directors, appeared before the NCUC. Ann M. Gray and Michael G. Browning, both members of the pre-merger and post-merger Duke Energy board of directors, appeared before the NCUC on July 20, 2012. All provided testimony on the timing of the decision to replace Mr. Johnson with Mr. Rogers, as well as other related matters.
The NCUC’s order also requests that Duke Energy provide certain documents related to the issue for its review.Duke Energy also received an Investigative Demand issued by the NCDOJ on July 6, 2012, requesting the production of certain documents related to the issues which are also the subject of the NCUC Investigation. Duke Energy’s responses to these requests were submitted on August 7, 2012. On August 1, 2012, the NCUC engaged the law firm of Jenner & Block to conduct an investigation of these matters. That investigation is underway and to date has involved the production of more documents to the NCUC and a series of informal interviews by Jenner & Block of a number of persons with knowledge of these matters, including executive officers of Duke Energy. This process is ongoing and will also involve interviews of the members of the legacy Duke Energy Board of Directors.
Duke Energy has also been contacted by the SEC to explain the circumstances surrounding the NCUC Investigation and shareholder lawsuits in connection with the closing of the merger with Progress Energy. A meeting was held with the SEC staff in late October. Duke Energy intends to continue to assist the SEC staff, as they request.
Duke Energy is unable to predict the ultimate outcome of these proceedings.
Joint Dispatch Agreement (JDA). On June 29, 2012, and July 2, 2012, the NCUC and the PSCSC, respectively, approved the JDA between Duke Energy Carolinas and Progress Energy Carolinas. The JDA provides for joint dispatch of the generating facilities of both Duke Energy Carolinas and Progress Energy Carolinas for the purpose of reducing the cost of serving the native loads of both companies. As set forth in the JDA, Duke Energy Carolinas will act as the joint dispatcher, on behalf of both Duke Energy Carolinas and Progress Energy Carolinas. As joint dispatcher, Duke Energy Carolinas will direct the dispatch of both Duke Energy Carolinas’ and Progress Energy Carolinas’ power supply resources, determine payments between the parties for the purchase and sale of energy between Duke Energy Carolinas and Progress Energy Carolinas as a result of the JDA, and calculate and allocate the fuel cost savings to the parties as a result of the JDA.
Potential Plant Retirements.
The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (15-20 years), and options being considered to meet those needs. The IRP’s filed by the Subsidiary Registrants in 2012, 2011 and 2010 included planning assumptions to potentially retire by 2015, certain coal-fired generating facilities in North Carolina, South Carolina, Indiana and Ohio that do not have the requisite emission control equipment, primarily to meet Environmental Protection Agency (EPA) regulations that are not yet effective. Additionally, management is considering the impact pending environmental regulations might have on certain coal-fired generating facilities in Florida.
The Duke Energy Registrants classify generating facilities that are still operating but are expected to be retired significantly before the end of their previously estimated useful lives as Generation facilities to be retired, net, on the Condensed Consolidated Balance Sheets. Amounts are reclassified from the cost and accumulated depreciation of Property, plant and equipment when it becomes probable the plant will be retired. Duke Energy continues to depreciate these generating facilities based on current depreciable lives. When such facilities are removed from service, the remaining net carrying value, if any, is then reclassified to regulatory assets, in accordance with the expected ratemaking treatment.
The table below contains the net carrying value of generating facilities being evaluated for potential retirement included in the Condensed Consolidated Balance Sheets.

36
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
September 30, 2012
Duke Energy
Duke Energy Carolinas^(b)(e)
Progress Energy Carolinas^(c)(e)
Progress Energy Florida^(d)
Duke Energy Ohio^(f)
Duke Energy Indiana^(g)
Capacity (in MW)
4,642
910
1,166
873
1,025
668
Remaining net book value (in millions)^(a)
$
583
$
117
$
164
$
155
$
13
$
134
(a)
Included in Property, plant and equipment, net as of September 30, 2012, on the Condensed Consolidated Balance Sheets, unless otherwise noted.
(b)
Includes Riverbend Units 4 through 7, Lee Units 1 and 2 and Buck Units 5 and 6. Duke Energy Carolinas has committed to retire 1,667 MW in conjunction with a Cliffside air permit settlement, of which 587 MW have already been retired as of September 30, 2012. Excludes 170 MW Lee Unit 3 that is expected to be converted to gas in 2014. The Lee Unit 3 conversion will be considered a retirement towards meeting the 1,667 MW retirement commitment.
(c)
Includes Cape Fear, Robinson and six combustion turbine units, which were retired on October 1, 2012, and Sutton, which is expected to be retired by the end of 2013.
(d)
Includes Crystal River Units 1 and 2.
(e)
Net book value of Duke Energy Carolinas' Buck Units 5 and 6 of $68 million, and Progress Energy Carolinas' Cape Fear, Robinson, Sutton and six combustion turbine units of $164 million is included in Generation facilities to be retired, net, on the Condensed Consolidated Balance Sheets at September 30, 2012.
(f)
Includes Beckjord Station and Miami Fort Unit 6. Beckjord has no remaining book value.
(g)
Includes Wabash River Units 2 through 6.
           Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives, and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired. However, such recovery, including recovery of carrying costs on remaining book values, could be subject to future regulatory approvals and therefore cannot be assured.
5. Commitments and Contingencies
~~Environmental~~Environmental.
Duke Energy is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants.
The following environmental matters impact all of the Duke Energy Registrants.
Remediation ~~Activities~~Activities. . The Duke Energy Registrants are responsible for environmental remediation at various contaminated sites. These include some properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities, such as historic manufactured gas plant (MGP) sites. Most of these sites were decommissioned in the 1960s. While a majority of the MGP by-products were sold off-site during the time period when the plants operated, some residuals remained on-site during plant decommissioning. Remediation activities typically focus on the containment, removal and/or the management of these by-products.entities. In some cases, Duke Energy no longer owns the property. Managed in conjunction with relevant federal, state and local agencies, activities vary with site conditions and locations, remediation requirements, complexity and sharing of responsibility. If remediation activities involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for contamination caused by other parties. In some instances, the Duke Energy Registrants may share liability associated with contamination with other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Reserves associated with remediation activities at certain sites have been recorded and it is anticipated that additional costs associated with remediation activities at certain sites will be incurred in the future. All of these sites generally are managed in the normal course of business or affiliate operations.
The Duke Energy Registrants have accrued costs associated with remediation activities at some of its current and former sites, as well as other relevant environmental contingent liabilities. Management, in the normal course of business, continually assesses the nature and extent of known or potential ~~environmental-related~~environmentally related contingencies and records liabilities when losses become probable and are reasonably estimable. Costs associated with remediation activities within the Duke Energy Registrants’ operations are typically expensed unless regulatory recovery of the costs is deemed probable.
~~As of September 30, 2011,~~The following tables contain information regarding reserves for probable and estimable costs related to Duke Energy’s various environmental sites. These amounts are recorded in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Duke Energy ~~Ohio had a total reserve of $36 million, related to remediation work at certain MGP sites.~~ Registrants’ Consolidated Balance Sheets.
(in millions)
Balance at December 31, 2011

Provisions / Adjustments^(b)
Cash Reductions

Balance at September 30, 2012
Duke Energy^(a)
$
61

$
43
$
(19)

$
85
Duke Energy Carolinas

12


1

―


13
Duke Energy Ohio^(a)

28


10

(15)


23
Duke Energy Indiana

9


2

(2)


9












(in millions)
Balance at December 31, 2010

Provisions / Adjustments
Cash Reductions

Balance at September 30, 2011
Duke Energy^(a)
$
88

$
5
$
(21)

$
72
Duke Energy Carolinas

13


―

―


13
Duke Energy Ohio^(a)

50


3

(17)


36
Duke Energy Indiana

11


1

(2)


10












(a)
Environmental reserves relate primarily to former Manufactured Gas Plants (MGP) and Other Sites.
(b)
Amounts at Duke Energy include $32 million in environmental reserves assumed during the Progress Energy merger.
37
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
Duke Energy Ohio has received an order from the PUCO to defer the costs ~~incurred. As of September 30, 2011, Duke Energy Ohio has deferred $64 million of costs related to~~incurred as noted in the ~~MGP sites.~~above table. The PUCO will rule on the recovery of these costs at a future proceeding.
Management believes it is probable that additional liabilities will be incurred as work progresses at Duke Energy Ohio and Progress Energy Florida MGP sites; however, costs associated with future remediation cannot currently be reasonably estimated.
Clean Water Act 316(b). . The ~~Environmental Protection Agency (EPA)~~EPA published its proposed cooling water intake structures rule on April 20, ~~2011. Duke Energy submitted comments on the proposed rule on August 16,~~ 2011. The proposed rule advances one main approach and three alternatives. The main approach establishes aquatic protection requirements for existing facilities and new on-site facility additions that withdraw 2 million gallons or more of water per day from rivers, streams, lakes, reservoirs, estuaries, oceans, or other U.S. waters for cooling purposes. Based on the main approach proposed, most, if not all of the 23 coal, natural gas and nuclear-fueled steam electric generating facilities in which the Duke Energy Registrants are either a whole or partial owner are likely affected ~~sources. Additional~~ sources ~~including some combined-cycle combustion turbine facilities, may also be impacted, at least for intake modifications.~~unless retired prior to implementation of the 316(b) requirements.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
The EPA ~~has plans~~recently modified a previous settlement agreement that now calls for the EPA to finalize the 316(b) rule ~~in July 2012.~~by June 2013. Compliance with portions of the rule could begin as early as ~~2015.~~2016. Because of the wide range of potential outcomes, including the other three alternative proposals, the Duke Energy Registrants are unable to predict the outcome of the rulemaking or estimate its costs to comply at this time.
Cross-State Air Pollution Rule (CSAPR). . On August 8, 2011, the ~~EPA published its~~ final Cross-State Air Pollution Rule (CSAPR) was published in the Federal Register. The CSAPR ~~establishes~~established state-level annual SO₂ and NO_x budgets that were to take effect on January 1, 2012, and state-level ozone-season NO_x budgets that were to take effect on May 1, 2012, ~~and allocates~~allocating emission allowances to affected sources in each state equal to the state budget less an allowance set-aside for new sources. The budget levels were set to decline in 2014 for ~~most~~many states, including each state that the Duke Energy Registrants operate in, except for South Carolina and Florida where the ~~budget levels~~applicable budgets were to remain constant. The rule ~~allows~~allowed both intrastate and limited interstate allowance trading.
~~The stringency~~Numerous petitions for review of the CSAPR were filed with the United States Court of Appeals for the District of Columbia (D.C. Circuit or The Court). On August 21, 2012, ~~and 2014 CSAPR requirements vary among~~by a 2-1 decision, the D.C Circuit vacated the CSAPR. The Court also directed the EPA to continue administering the Clean Air Interstate Rule (CAIR) that the Duke Energy Registrants have been complying with since 2009 pending completion of a remand rulemaking to replace CSAPR with a valid rule. CAIR requires additional Phase II reductions in SO₂and ~~each is currently evaluating options for achieving~~NO_x emissions beginning in 2015. The court’s decision to vacate the CSAPR ~~requirements. Where~~leaves the future of the rule uncertain. The EPA has filed a petition with the D.C. Circuit for en banc rehearing of the CSAPR decision. If the court’s August 21, 2012 decision is upheld, the CAIR will remain in force for an unknown period of time until EPA develops a replacement rule. If the decision is overturned on rehearing, it is not known when EPA would move to implement the CSAPR.
The Duke Energy Registrants cannot predict the outcome of the rehearing process or how it could affect future emission reduction requirements ~~will be constraining, activities being evaluated~~that might apply to ~~meet the requirements include purchasing emission allowances, power purchases, curtailing generation and utilizing low sulfur fuel to reduce levels of SO~~₂ ~~or NO~~_x ~~emissions. Technical adjustments to CSAPR proposed by the EPA in October 2011, if finalized, are not expected to materially impact~~ the Duke Energy ~~Registrants. See Note 7 for further information regarding impairment of emissions allowances~~Registrants as a result of a potential CSAPR replacement rulemaking. The continued implementation of the ~~CSAPR.~~
~~Coal Combustion Product (CCP) Management~~~~. Duke Energy currently estimates that it will spend $369 million ($131 million at Duke Energy Carolinas, $70 million at Duke Energy Ohio and $168 million at Duke Energy Indiana) over~~CAIR pending the ~~period 2011-2015 to install synthetic caps and liners at existing and new CCP landfills and to convert some~~outcome of ~~its CCP handling systems from wet to dry systems to comply with current regulations. The EPA~~the rehearing process and a ~~number~~potential CSAPR replacement rulemaking, including the potential implementation of ~~states are considering additional regulatory measures that~~CAIR Phase II in 2015, will ~~contain specific and more detailed requirements for the management and disposal of CCPs, primarily ash, from~~not result in the Duke Energy ~~Registrants’ coal-fired power plants.~~Registrants adding new emission controls.
Coal Combustion Residuals (CCR). On June 21, 2010, the EPA issued a proposal to regulate, under the Resource Conservation and Recovery Act, coal combustion residuals (CCR), a term the EPA uses to describe the CCPs associated with the generation of electricity. The EPA proposal contains two regulatory options whereby CCRs not employed in approved beneficial use applications would either be regulated as hazardous waste or would continue to be regulated as non-hazardous waste. The Duke Energy Registrants cannot predict the outcome of this rulemaking. However, based on the proposal, the cost of complying with the final regulation will be ~~significant. The~~material. In response to a motion filed in federal court by environmental groups asking the court to compel the EPA ~~is not expected~~ to issue a final rule, ~~until~~the EPA filed a declaration on October 11, 2012, ~~or later.~~suggesting that it could take more than a year to complete the regulation.
~~Utility Boiler Maximum Achievable Control Technology (MACT) Standards.~~Mercury and Air Toxics Standards (MATS). ~~On May 3, 2011,~~The final Mercury and Air Toxics Standards rule (previously referred to as the ~~proposed~~ Utility MACT ~~Standards rule~~Rule) was published in the Federal ~~Register.~~Register on February 16, 2012. The final rule ~~proposes to establish~~establishes emission limits for hazardous air pollutants from new and existing coal-fired and oil-fired steam electric generating ~~units, including mercury. On October 24, 2011, the Court modified its earlier consent decree, giving the EPA until December 16, 2011,~~units. The rule requires sources to ~~finalize the MACT rule. Based on this date, compliance~~comply with the ~~final~~ emission limits ~~will be required in early 2015, three years after~~by April 16, 2015. Under the ~~rule takes effect. The proposed rule gives~~Clean Air Act, permitting authorities have the discretion to grant up to a 1-year compliance extension, on a case-by-case basis, to sources that are unable to ~~install~~complete the installation of emission controls before the ~~three year~~ compliance deadline. The Duke Energy Registrants continue to evaluate the requirements of the rule and develop strategies for complying with the rule’s requirements. Strategies to achieve compliance with the final MATS rules are likely to include installing new or upgrading existing air emission control equipment, developing monitoring processes, fuel switching and accelerating retirement of some coal-fired electric-generating units. For additional information, refer to Note 4, Regulatory Matters, regarding potential plant retirements.
Numerous petitions for review of the final MATS rule have been filed with the United States Court of Appeals for the District of Columbia. The court established a schedule for the litigation that has final briefs being filed on April 8, 2013. Oral arguments have not been scheduled. The Duke Energy Registrants cannot predict the outcome of ~~this rulemaking. However, based on~~ the ~~proposal,~~litigation or how it might affect the MATS requirements as they apply to the Duke Energy Registrants.
As finalized, the cost ~~of complying~~to the Duke Energy Registrants to comply with the ~~final~~ regulation will be ~~significant.~~material.
~~Litigation~~
~~Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana~~
EPA Greenhouse Gas New Source ~~Review (NSR)~~Performance Standards (NSPS). ~~. In 1999-2000, the DOJ, acting on behalf of~~On April 13, 2012, the EPA and joined by various citizen groups and states, filed a number of complaints and notices of violation against multiple utilities across the country for alleged violations of the NSR provisions of the Clean Air Act (CAA). Generally, the government alleges that projects performed at various coal-fired units were major modifications, as definedpublished in the ~~CAA,~~Federal Register its proposed rule to establish carbon dioxide (CO₂) emissions standards for pulverized coal, IGCC, and ~~that the utilities violated the CAA when they undertook those projects without obtaining permits and installing the best available emission controls for SO~~₂~~, NO~~_x ~~and particulate matter. The complaints seek injunctive relief to require installation of pollution control technology on various~~natural gas combined cycle electric generating units that ~~allegedly violated~~are permitted and constructed in the ~~CAA, and unspecified civil penalties in amounts of up~~future. The proposal would not apply to ~~$32,500 per day for each violation. A number~~any of the Duke Energy Registrants’ coal (which includes IGCC) and natural gas electric generation plants that are currently under construction or in operation. Any future pulverized coal and IGCC units will have ~~been subject~~ to these allegations. The Duke Energy Registrants assert that there were no CAA violations because the applicable regulations do not require permitting in cases where the projects undertaken are “routine” or otherwise do not result in a net increase in emissions.employ
38
In 2000, the government brought a lawsuit against Duke Energy Carolinas in the U.S. District Court in Greensboro, North Carolina. The EPA claims that 29 projects performed at 25 of Duke Energy Carolinas’ coal-fired units violate these NSR provisions. Three environmental groups have intervened in the case. In August 2003, the trial court issued a summary judgment opinion adopting Duke Energy Carolinas’ legal positions on the standard to be used for measuring an increase in emissions, and granted judgment in favor of Duke Energy Carolinas. The trial court’s decision was appealed and ultimately reversed and remanded for trial by the U.S. Supreme Court. At trial, Duke Energy Carolinas will continue to assert that the projects were routine or not projected to increase emissions. On July 29, 2010, the district court issued an order on outstanding motions for summary judgment filed in response to the Supreme Court remand. The court vacated large portions of the previous trial court’s opinion in light of the Supreme Court ruling and found that Duke Energy Carolinas has the burden of proof for the Routine Maintenance Repair and Replacement exclusion, but that the exception must be viewed in light of industry practice, not only in light of an individual unit. The court also clarified that it will apply the “actual-to-projected-actual” emissions test to determine whether Duke Energy Carolinas should reasonably have sought a pre-project permit for any of the projects at issue. On February 11, 2011, the trial judge held an initial status conference and on March 22, 2011, the judge entered an interim scheduling order. The parties have filed a stipulation in which the United States and Plaintiff-Intervenors have dismissed with prejudice 16 claims. In exchange, Duke Energy Carolinas dismissed certain affirmative defenses. The parties have filed motions for summary judgment on the remaining claims. No trial date has been set, but a trial is not expected in 2011.
In November 1999, the U.S. brought a lawsuit in the U.S. Federal District Court for the Southern District of Indiana against Cinergy, Duke Energy Ohio, and Duke Energy Indiana alleging various violations of the CAA for various projects at six owned and co-owned generating stations in the Midwest. Three northeast states and two environmental groups intervened in the case. A jury verdict was returned on May 22, 2008. The jury found in favor of Cinergy, Duke Energy Ohio and Duke Energy Indiana on all but three units at Duke Energy Indiana’s Wabash River Station, including Duke Energy Indiana’s Gallagher Station units discussed below. Additionally, the plaintiffs had claimed that these were a violation of an Administrative Consent Order entered into in 1998 between the EPA and Cinergy relating to alleged violations of Ohio’s State Implementation Plan provisions governing particulate matter at Duke Energy Ohio’s W.C. Beckjord Station. On May 29, 2009, the court issued its remedy ruling for violations previously established at the Wabash River and W.C. Beckjord Stations and ordered the following relief: (i) Wabash River Units 2, 3 and 5 to be permanently retired by September 30, 2009; (ii) surrender of SO₂ allowances equal to the emissions from Wabash River Units 2, 3 and 5 from May 22, 2008 through September 30, 2009; (iii) civil penalty in the amount of $687,500 for W.C. Beckjord violations; and (iv) installation of a particulate continuous emissions monitoring system at W.C. Beckjord Units 1 and 2. The civil penalty has been paid. On October 12, 2010, the Seventh Circuit Court of Appeals issued a decision reversing the trial court and ordered issuance of judgment in favor of Cinergy (~~USA v. Cinergy~~~~), which includes Duke Energy Indiana and~~
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)
carbon capture and storage (CCS) technology to meet the CO₂ emission standard the EPA has proposed. The proposed standard will not require new natural gas combined cycle facilities to install CCS technology.
Management does not expect any material impact on the Duke Energy ~~Ohio.~~Registrants’ future results of operations or cash flows based on the EPA’s proposal. The ~~plaintiff’s motion for rehearing was denied on December 29, 2010. On January 6, 2011, the mandate~~final rule, however, could be significantly different from the ~~Seventh Circuit was issued returning~~proposal. It is not known when the ~~case~~EPA might finalize the rule.
Estimated Cost and Impacts of EPA Rulemakings. While the ultimate compliance requirements for the Duke Energy Registrants for MATS, Clean Water Act 316(b) and CCRs will not be known until all the rules have been finalized, for planning purposes, the Duke Energy Registrants currently estimate that the cost of new control equipment that may need to be installed on existing power plants to comply with this group of rules could total $6 billion to $7 billion, excluding AFUDC, over the next 10 years. The Duke Energy Registrants also expect to incur increased fuel, purchased power, operation and maintenance, and other expenses in conjunction with these EPA regulations, and also expect to incur costs for replacement generation for potential coal-fired power plant retirements. Until the final regulatory requirements of the group of EPA regulations are known and can be fully evaluated, the potential compliance costs associated with these EPA regulatory actions are subject to considerable uncertainty. Therefore, the actual compliance costs incurred may be materially different from these estimates based on the timing and requirements of the final EPA regulations.
The Duke Energy Registrants intend to seek regulatory recovery of amounts incurred associated with regulated operations in complying with these regulations. Refer to Note 4 for further information regarding potential plant retirements and regulatory filings related to the ~~District~~Duke Energy Registrants.
Litigation.
Duke Energy
Progress Energy Merger Shareholder Litigation. On July 20, 2012, Duke Energy was served with a shareholder Derivative Complaint filed in the Delaware Chancery Court (Rupp v. Rogers, et al.). The lawsuit names as defendants Jim Rogers and ~~on April 15, 2011,~~ the ~~District~~ten other members of the Duke Energy board of directors who were also members of the pre-merger Duke Energy board of directors (Legacy Duke Directors). Duke Energy is named as a nominal defendant. Raul v. Rogers, also filed in Delaware Chancery Court ~~issued its Final Amended Judgment in favor of Cinergy. Plaintiffs did not file a petition for certiorari~~was consolidated with the ~~United State Supreme Court prior to~~Rupp case on September 24, 2012. The lawsuit alleges claims for breach of fiduciary duties of loyalty and care by the ~~March 29, 2011 filing deadline. This ruling allowed Wabash River Units 2, 3 and 5 to be placed back into service.~~
~~Regarding the Gallagher Station units, on October 21, 2008, plaintiffs filed a motion for a new liability trial claiming that~~ defendants misled the plaintiffs and the jury by, among other things, not disclosing a consulting agreement with a fact witness and by referring to that witness as “retired” during the liability trial when in fact he was working for Duke Energy Indiana under the referenced consulting agreement in connection with the ~~trial.~~ post-merger change in CEO, as discussed in Note 4.
On ~~December 18, 2008,~~August 3, 2012, Duke Energy was served with a shareholder Derivative Complaint, which has been transferred to the ~~court granted plaintiffs’ motion for~~North Carolina Business Court (Krieger v. Johnson, et al.). The lawsuit names as defendants, William D. Johnson, James E. Rogers and the Legacy Duke Energy Directors. Duke Energy is named as a ~~new liability trial on~~nominal defendant. The lawsuit alleges claims for ~~which~~ breach of fiduciary duty in granting excessive compensation to Mr. Johnson.
Duke Energy ~~Indiana was not previously found liable. On May 19, 2009, the jury announced its verdict finding~~has been served with two cases shareholder Derivative Complaints, filed in ~~favor~~federal district court in Delaware. The plaintiffs in Tansey v. Rogers, et al., served on August 17, 2012, allege claims of breach of fiduciary duty and waste of corporate assets. The plaintiffs in Pinchuck v. Rogers, et al., served on October 31, 2012, also alleges claims for breach of fiduciary duty. The Legacy Duke Energy ~~Indiana on four~~Directors are named as defendants in both of the remaining six projects at issue. The two projects in which the jury found violations were undertaken at Gallagher Station Units 1 and 3. The parties to the remedy trial reached a negotiated agreement on those issues and filed a proposed consent decree with the court, which was approved and entered on March 18, 2010. The substantive terms of the proposed consent decree require: (i) conversion of Gallagher Station Units 1 and 3 to natural gas combustion by 2013 (or retirement of the units by February 2012); (ii) installation of additional pollution controls at Gallagher Station Units 2 and 4 by 2011; and (iii) additional environmental projects, payments and penalties. these cases.
Duke Energy ~~Indiana estimates that these~~was also served in July 2012 with three purported securities class action lawsuits. These three cases (Craig v. Duke Energy Corporation, et al.; Nieman v. Duke Energy Corporation, et al.; and ~~other actions~~Sunner v. Duke Energy Corporation, et al.), have been consolidated in the settlement will cost $88 million. Due to the NSR remedy order and consent decree, Duke Energy Indiana requested several approvals from the IURC including approval to add a dry sorbent injection system on Gallagher Station Units 2 and 4, approval to convert to natural gas or retire Gallagher Station Units 1 and 3, and approval to recover expenses for certain SO₂ emission allowance expenses required to be surrendered. On September 8, 2010, the IURC approved the implementation of the dry sorbent injection system. On September 28, 2010, Duke Energy Indiana filed a petition requesting the recovery of costs associated with the Gallagher consent decree. Testimony in support of the petition was filed in early December 2010. Duke Energy Indiana subsequently requested the IURC suspend the procedural schedule to allow it time to do a solicitation for capacity options to compare to the proposed conversion of Gallagher Units 1 and 3 to natural gas.
On May 26, 2011, Duke Energy Indiana filed testimony seeking approval of the purchase of a portion of the Vermillion Generating Station from its affiliate, Duke Energy Vermillion II, LLC, an indirect wholly-owned subsidiary of Duke Energy Ohio. Refer to Note 3 for further information on the Vermillion transaction. As a result of the proposed purchase, Duke Energy Indiana may retire Gallagher Units 1 and 3. The approval of the Vermillion transaction by the FERC and IURC under terms acceptable to Duke Energy Indiana is a condition to the closing of the transaction and the option of converting Gallagher Units 1 and 3 to gas is being preserved until such approvals have been obtained. On August 12, 2011, the FERC approved the Vermillion transaction. An IURC hearing was held in September 2011 with an order expected in the fourth quarter of 2011.
~~On April 3, 2008, the Sierra Club filed another lawsuit in the U.S.~~United States District Court for the ~~Southern~~Western District of Indiana against Duke Energy Indiana and certain affiliated companies alleging CAA violations at Edwardsport Station. On October 20, 2009, the defendants filed a motion for summary judgment alleging that the applicable statuteNorth Carolina. The cases are purportedly brought on behalf of ~~limitations bars all~~classes of the plaintiffs’ claims. On September 14, 2010, the Court granted defendants’ motion for summary judgment in its entirety; however, entry of final judgment was stayed pending a decision from the Seventh Circuit Court of Appeals in~~USA v. Cinergy, referenced above, on a similar and potentially dispositive statute of limitations issue pending before that court. On October 12, 2010, the Seventh Circuit issued its decision in~~~~USA v. Cinergy~~ in which the court ruled in favor of Cinergy and declined to address the referenced statute of limitations issue. The Seventh circuit issued its mandate on January 6, 2011 and the District Court issued final judgment in favorvarious persons who purchased stock of Duke Energy ~~Indiana on March 1, 2011. On March 2, 2011,~~and Progress Energy and name as defendants the ~~Sierra Club agreed not to pursue an appeal~~Legacy Duke Energy Directors and certain officers of the ~~case in exchange for Duke Energy Indiana’s waiver of its right to seek reimbursement of costs.~~company.
It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might ~~be incurred~~incur in connection with ~~the unresolved matters discussed above. Ultimate resolution of~~ these ~~matters could have a material adverse effect on the Duke Energy Registrants’ consolidated results of operations, cash flows or financial position. However, the appropriate regulatory treatment will~~lawsuits. Additional lawsuits may be ~~pursued for any costs incurred in connection with such resolution.~~filed.
~~Duke Energy~~
CO₂ ~~Litigation.~~Spent Nuclear Fuel Matters. Pursuant to the Nuclear Waste Policy Act of 1982, Progress Energy Carolinas and Progress Energy Florida entered into contracts with the U.S. Department of Energy (DOE) under which the DOE agreed to begin taking spent nuclear fuel by no later than January 31, 1998. All similarly situated utilities were required to sign the same Standard Contract for Disposal of Spent Nuclear Fuel.
The DOE failed to begin taking spent nuclear fuel by January 31, 1998. In ~~July~~January 2004, ~~the states of Connecticut, New York, California, Iowa, New Jersey, Rhode Island, Vermont, Wisconsin~~Progress Energy Carolinas and ~~the City of New York brought~~Progress Energy Florida filed a ~~lawsuit~~complaint in the U.S. ~~District~~ Court of Federal Claims against the DOE, claiming that the DOE breached the standard contract and asserting damages incurred through 2005. In 2011, the judge in the U.S. Court of Federal Claims issued a ruling to award Progress Energy Carolinas substantially all their asserted damages. As a result, Progress Energy Carolinas recorded the award in 2011 as an offset for past spent fuel storage costs incurred.
On December 12, 2011, Progress Energy Carolinas and Progress Energy Florida filed another complaint in the ~~Southern District~~U.S. Court of ~~New York~~Federal Claims against ~~Cinergy, AEP, American Electric Power Service Corporation, Southern Company, Tennessee Valley Authority,~~the DOE, claiming damages incurred from January 1, 2006 through December 31, 2010. The damages stem from the same breach of contract asserted in the previous litigation. On March 23, 2012, Progress Energy Carolinas and ~~Xcel~~Progress Energy ~~Inc. A similar~~Florida filed its initial disclosure of $113 million of damages with the U.S. Court of Federal Claims and the DOE. The next status conference to discuss trial dates is scheduled for May 10, 2013. Progress Energy Carolinas and Progress Energy Florida may file subsequent damage claims as they incur additional costs. The next status conference to discuss trial dates is scheduled for January 10, 2013. Duke Energy cannot predict the outcome of this matter.
Synthetic Fuels Matters. In October 2009, a jury delivered a verdict in a lawsuit against Progress Energy and a number of its subsidiaries and affiliates arising out of an Asset Purchase Agreement dated as of October 19, 1999, and amended as of August 23, 2000 (the Asset Purchase Agreement) by and among U.S. Global, LLC (Global); Earthco synthetic fuels facilities (Earthco); certain affiliates of Earthco; EFC Synfuel LLC (which was owned indirectly by Progress Energy) and certain of its affiliates, including Solid Energy LLC; Solid Fuel LLC; Ceredo Synfuel LLC; Gulf Coast Synfuel LLC (renamed Sandy River Synfuel LLC) (collectively, the Progress Affiliates), as amended by an amendment to the Asset Purchase Agreement. In a case filed in the ~~U.S.~~Circuit Court for Broward County, Fla., in March 2003 (the Florida Global Case), Global requested an unspecified amount of compensatory damages, as well as declaratory relief. Global asserted (i) that pursuant to the Asset Purchase Agreement, it was entitled to an interest in two synthetic fuels facilities previously owned by the Progress Affiliates and an option to purchase additional interests in the two synthetic fuels facilities and (ii) that it was entitled to damages because the Progress Affiliates prohibited it from procuring purchasers for the synthetic fuels facilities. As a result of the 2007 expiration of the Internal Revenue Code Section 29 tax credit program, all of Progress Energy’s synthetic fuels businesses were abandoned and the synthetic fuels businesses were reclassified as discontinued operations.
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The jury awarded Global $78 million. In November 2009, the court assessed $55 million in prejudgment interest and entered judgment in favor of Global in a total amount of $133 million. In December 2009, Progress Energy appealed the Broward County judgment to the Florida Fourth District Court of Appeals. Also, in December 2009, Progress Energy made a $154 million payment, which represented payment of the total judgment and a required premium equivalent to two years of interest at the then statutory rate, to the Broward County Clerk of Court bond account. The appellate briefing process has been completed. Oral argument on the appeal was held on September 27, 2011. On October 3, 2012, the Florida appellate court reversed the trial court ruling and directed a verdict on damages. The case was remanded to the trial court to determine whether specific performance is an appropriate remedy. On October 18, 1012, Global filed a Motion for Clarification and Rehearing of Panel Decision which has yet to be ruled upon. On November 1, 2012, Progress Energy filed a response in opposition to U.S. Global’s motion. Duke Energy cannot predict the ~~Southern District~~outcome of ~~New York against~~this matter.
In a second suit filed in the ~~same companies by Open Space Institute,~~Superior Court for Wake County, N.C., Progress Synfuel Holdings, Inc. et al. v. U.S. Global, LLC (the North Carolina Global Case), ~~Open Space Conservancy, Inc., and The Audubon Society~~the Progress Affiliates seek declaratory relief consistent with their interpretation of ~~New Hampshire. These lawsuits allege~~the Asset Purchase Agreement. Global was served with the North Carolina Global Case on April 17, 2003. In May 2003, Global moved to dismiss the North Carolina Global Case for lack of personal jurisdiction over Global. In the alternative, Global requested that the ~~defendants’ emissions of CO~~₂ ~~from~~court decline to exercise its discretion to hear the ~~combustion of fossil fuels at electric generating facilities contribute to global warming and amount to a public nuisance. The complaints also allege that~~Progress Affiliates’ declaratory judgment action. In August 2003, the ~~defendants could generate the same amount of electricity while emitting significantly less CO~~₂~~. The plaintiffs were seeking an injunction requiring each defendant to cap its CO~~₂~~emissions and then reduce them by a specified percentage each year for at least a decade. In September 2005, the District~~Wake County Superior Court ~~granted the defendants’~~denied Global’s motion to dismiss, but stayed the ~~lawsuit.~~North Carolina Global Case, pending the outcome of the Florida Global Case. The ~~plaintiffs~~Progress Affiliates appealed ~~this ruling to~~ the ~~Second Circuit Court of Appeals. Oral arguments were held before~~superior court’s order staying the ~~Second Circuit~~case. By order dated September 7, 2004, the North Carolina Court of Appeals ~~on June 7, 2006. In September 2009,~~dismissed the ~~Court~~Progress Affiliates’ appeal. Based upon the outcome of ~~Appeals issued an opinion reversing~~ the ~~district court and reinstating~~Florida Global Case, Duke Energy anticipates dismissal of the lawsuit. Defendants filed a petition for rehearing en banc, which was subsequently denied. Defendants filed a petition for certiorari to the U.S. Supreme Court on August 2, 2010. On December 6, 2010, the Supreme Court granted certiorari. Argument on this matter was held on April 19, 2011. On June 20, 2011, the Supreme Court held that the Second Court of Appeals decision should be reversed on the basis that plaintiffs’ claims cannot proceed under federal common law, which was displaced by the CAA and actual or potential EPA regulations. The Court’s decision did not address plaintiffs’ state law claims as those claims had not been presented. On September 2, 2011, plaintiffs notified the Court that they had decided to withdraw their complaints. This effectively ends the proceedings in this case.North Carolina Global Case.
Alaskan Global Warming Lawsuit.On February 26, 2008, plaintiffs, the governing bodies of an Inupiat village in Alaska, filed suit in the U.S. Federal Court for the Northern District of California against Peabody Coal and various oil and power company defendants, including Duke Energy and certain of its subsidiaries. Plaintiffs brought the action on their own behalf and on behalf of the village’s 400 residents. The lawsuit alleges that defendants’ emissions of CO₂contributed to global warming and constitute a private and public nuisance. Plaintiffs also allege that certain defendants, including Duke Energy, conspired to mislead the public with respect to global warming. ~~Plaintiffs seek unspecified monetary~~The plaintiffs in the case have requested damages ~~attorney’s fees and expenses.~~in the range of $95 million to $400 million related to the cost of relocating the Village of Kivalina. On June 30, 2008, the defendants filed a motion to dismiss on jurisdictional grounds, together with a motion to dismiss the conspiracy claims. On October 15, 2009, the District Court granted defendants motion to dismiss. The plaintiffs filed a notice of appeal and ~~briefing is complete. By Order dated February 23, 2011,~~ the U.S. Court ~~stayed oral argument in this case pending the Supreme Court’s ruling in the CO~~₂ ~~litigation discussed above. Following the Supreme Court’s June 20, 2011 decision~~of Appeals for the Ninth Circuit ~~Court~~(Court of ~~Appeals set~~Appeals) held argument in the case ~~for argument~~ on November 28, 2011. ItOn September 21, 2012, the Court of Appeals ruled that the case could not proceed, affirming the District Court’s motion to dismiss. The Plaintiffs have filed a motion for rehearing en banc by the Court of Appeals. Although Duke Energy believes the likelihood of loss is remote based on current case law, it is not possible to predict ~~with certainty whether Duke Energy will incur any liability or to estimate~~ the ~~damages, if any, that Duke Energy might incur in connection with~~ultimate outcome of this matter.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
Price Reporting Cases.A total of five lawsuits were filed against Duke Energy affiliates and other energy companies and remain pending in a consolidated, single federal court proceeding in Nevada.
In November 2009, the judge granted defendants’ motion for reconsideration of the denial of defendants’ summary judgment motion in two of the remaining five cases to which Duke Energy affiliates are a party. A hearing on that motion occurred on July 15, 2011, and on July 19, 2011, the judge granted the motion for summary judgment. Plaintiffs have filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit. In December 2009, plaintiffs in the consolidated cases filed a motion to amend their complaints in the individual cases to add a claim for treble damages under the Sherman Act, including additional factual allegations regarding fraudulent concealment of defendants’ allegedly conspiratorial conduct. Those motions were deniedCircuit, which held argument on October ~~29, 2010.~~19, 2012.
Each of these cases contains similar claims, that the respective plaintiffs, and the classes they claim to represent, were harmed by the defendants’ alleged manipulation of the natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs seek damages in unspecified amounts. It is not possible to predict ~~with certainty~~ whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with the remaining matters. However, based on Duke Energy’s past experiences with similar cases of this nature, it does not believe its exposure under these remaining matters is material.
Duke Energy International Paranapanema Lawsuit.On July 16, 2008, Duke Energy International Geracao Paranapanema S.A. (DEIGP) filed a lawsuit in the Brazilian federal court challenging transmission fee assessments imposed under two new resolutions promulgated by the Brazilian ~~electricity regulatory agency~~Electricity Regulatory Agency (ANEEL) (collectively, the Resolutions). The Resolutions purport to impose additional transmission fees (retroactive to July 1, 2004 and effective through June 30, 2009) on generation companies located in the State of São Paulo for utilization of the electric transmission system. The new charges are based upon a flat-fee that fails to take into account the locational usage by each generator. DEIGP’s additional assessment under these Resolutions amounts to approximately ~~$69~~$60 million, inclusive of interest, through September ~~2011.~~2012. Based on DEIGP’s continuing refusal to tender payment of the disputed sums, on April 1, 2009, ANEEL imposed an additional fine against DEIGP in the current amount of $9$10 million. DEIGP filed a request to enjoin payment of the fine and for an expedited decision on the merits or, alternatively, an order requiring that all disputed sums be deposited in the court’s registry in lieu of direct payment to the distribution companies.
On June 30, 2009, the court issued a ruling in which it granted DEIGP’s request for injunction regarding the additional fine, but denied DEIGP’s request for an expedited decision on the original assessment or payment into the court registry. Under the court’s order, DEIGP was required to make installment payments on the original assessment directly to the distribution companies pending resolution on the merits. DEIGP filed an appeal and on August 28, 2009, the order was modified to allow DEIGP to deposit the disputed portion of each installment, which was most of the assessed amount, into an escrow account pending resolution on the merits. In the second quarter of 2009, Duke Energy recorded a pre-tax charge of $33 million associated with this matter.
Brazil Expansion Lawsuit.On August 9, 2011, the State of São Paulo filed a lawsuit in Brazilian state court against DEIGP based upon a claim that DEIGP is under a continuing obligation to expand installed generation capacity by 15% pursuant to a stock purchase agreement under which DEIGP purchased generation assets from the state. On August 10, 2011, a judge granted an ex parte injunction ordering DEIGP to present ~~within 60 days of service,~~ a detailed expansion plan in satisfaction of the 15% ~~obligation or face civil penalties in the amount of approximately $16,000 per day. Both~~obligation. DEIGP ~~and ANEEL have~~has previously taken a position that the 15% expansion obligation is no longer viable given the changes that have occurred in the electric energy sector since privatization of that sector. ~~ANEEL has also stated that it is not within~~After filing various objections, defenses and appeals regarding the referenced order, DEIGP submitted its jurisdiction to apply sanctions for failure to comply with the alleged expansion obligation. In September, 2011, DEIGP filed (i) a request for reconsideration of the injunction order with the original court; (ii) a request for stay of the order with the appellate court; (iii) an appeal of the order; and (iv) a substantive defense of the lawsuit in the original court. On September 29, 2011, DEIGP’s request for stay of the injunction was denied. The remaining requests for relief are pending. DEIGP plans to submit anproposed expansion plan byon November 11, 2011, but reserved its objections regarding enforceability. The parties will in due course present evidence to the court ~~ordered deadline of November 11, 2011.~~regarding their respective positions. No trial date has been set.
~~Duke Energy Retirement Cash Balance Plan.~~ A class action lawsuit was filed in federal court in South Carolina against Duke Energy and the Duke Energy Retirement Cash Balance Plan, alleging violations of Employee Retirement Income Security Act (ERISA) and the Age Discrimination in Employment Act (ADEA). These allegations arise out of the conversion of the Duke Energy Company Employees’ Retirement Plan into the Duke Energy Retirement Cash Balance Plan. The case also raises some Plan administration issues, alleging errors in the application of Plan provisions (i.e., the calculation of interest rate credits in 1997 and 1998 and the calculation of lump-sum distributions). Six causes of action were alleged, ranging from age discrimination, to various alleged ERISA violations, to allegations of breach of fiduciary duty. Plaintiffs sought a broad array of remedies, including a retroactive reformation of the Duke Energy Retirement Cash Balance Plan and a recalculation of participants’/ beneficiaries’ benefits under the revised and reformed plan. Duke Energy filed its answer in March 2006. A portion of this contingent liability was assigned to Spectra Energy Corp (Spectra Energy) in connection with the spin-off in January 2007. A hearing on the plaintiffs’ motion to amend the complaint to add an additional age discrimination claim, defendant’s motion to dismiss and the respective motions for summary judgment was held in December 2007. On June 2, 2008, the court issued its ruling denying plaintiffs’ motion to add the additional claim and dismissing a number of plaintiffs’ claims, including the claims for ERISA age discrimination. Subsequently, plaintiffs notified Duke Energy that they were withdrawing their ADEA claim. On September 4, 2009, the court issued its order certifying classes for three of the remaining claims but not certifying their claims as to plaintiffs’ fiduciary duty claims. At an unsuccessful mediation in September 2008, Plaintiffs quantified their claims as being in excess of $150 million. After mediation on September 21, 2010, the parties reached an agreement in principle to settle the lawsuit, subject to execution of a definitive settlement agreement, notice to the class members and approval of the settlement by the Court. In the third quarter of 2010, Duke Energy recorded a provision related to the settlement agreement. At a hearing on May 16, 2011, the court issued its final confirmation order and payments have been made in accordance with the settlement agreement.
Crescent Litigation.On September 3, 2010, the Crescent Resources Litigation Trust filed suit against Duke Energy along with various affiliates and several individuals, including current and former employees of Duke Energy, in the U.S. Bankruptcy Court for the Western District of Texas. The Crescent Resources Litigation Trust was established in May 2010 pursuant to the plan of reorganization approved in the Crescent bankruptcy proceedings in the same court. The complaint alleges that in 2006 the defendants caused Crescent to borrow approximately $1.2 billion from a
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consortium of banks and immediately thereafter distribute most of the loan proceeds to Crescent’s parent company without benefit to Crescent. The complaint further alleges that Crescent was rendered insolvent by the transactions, and that the distribution is subject to recovery by the Crescent bankruptcy estate as an alleged fraudulent transfer. The plaintiff requests return of the funds as well as other statutory and equitable relief, punitive damages and attorneys’ fees. Duke Energy and its affiliated defendants believe that the referenced 2006 transactions were legitimate and did not violate any state or federal law. Defendants filed a motion to dismiss in December 2010. On March 21, 2011, the plaintiff filed a response to the defendant’s motion to dismiss and a motion for leave to file an amended complaint, which was granted. The Defendants filed a second motion to dismiss in response to plaintiffs’ amended complaint.
~~A hearing~~The plaintiffs filed a demand for a jury trial, a motion to transfer the case to the federal district court, and a motion to consolidate the case with a separate action filed by the plaintiffs against Duke Energy’s legal counsel. On March 22, 2012, the federal District Court issued an order denying the defendant’s motion to dismiss and granting the plaintiffs’ motions for transfer and consolidation. The court has not yet made a final ruling on whether the ~~motion was~~plaintiffs are entitled to a jury trial. Trial on this matter has been set to commence in January 2014. Mediation, held on August ~~31, 2011. No trial date has been set.~~21 and 22, 2012, was unsuccessful. It is not possible to predict ~~at this time~~ whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with this lawsuit.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
On October 14, 2010, a suit was filed in Mecklenburg County, North Carolina by a group of Duke Energy shareholders alleging breach of duty of loyalty and good faith by certain Duke Energy directors who were directors at the time of the 2006 Crescent transaction. On January 5, 2011, defendants filed a Notice of Designation of this case for the North Carolina Business Court. On July 22, 2011, the court granted the defendants’ motion to dismiss the lawsuit and the plaintiffs did not appeal the ruling.
~~Progress Energy Merger Litigation.~~ Duke Energy and Diamond Acquisition Corporation, a wholly owned subsidiary of Duke Energy have been named as defendants in 10 purported shareholder actions filed in North Carolina state court and two cases filed in federal court in North Carolina. The actions, which contain similar allegations, were brought by individual shareholders against the following defendants: Progress Energy, Duke Energy, Diamond Acquisition Corporation and Directors of Progress Energy. The lawsuits allege that the individual defendants breached their fiduciary duties to Progress Energy shareholders and that Duke Energy and Diamond Acquisition Corporation, aided and abetted the individual defendants. The plaintiffs seek damages and to enjoin the merger. One of the state court cases was voluntarily dismissed. On July 11, 2011, the parties to the remaining nine state court cases entered into a Memorandum of Understanding for a disclosure-based settlement of the litigation. On August 2, 2011, preliminary approval of the settlement was granted by the Court. An order approving the proposed settlement is expected in the fourth quarter of 2011.
The plaintiff in one of the federal court lawsuits filed a motion for voluntary withdrawal, leaving one federal case pending. The complaint in the federal action includes allegations that defendants violated federal securities laws in connection with the statements contained in Duke Energy’s Registration Statement on Form S-4, as amended, and is now subject to the notice requirements of the Private Securities Litigation Reform Act. Plaintiff’s counsel in the federal case have sent a total of four derivative demand letters to Progress Energy demanding that Progress Energy’s board of directors make certain disclosures, desist from moving forward with the merger and engage in an auction of the company. Progress Energy has indicated that it is evaluating those demands. On August 3, 2011, the Court issued a scheduling order granting the plaintiffs’ unopposed motion for preliminary approval of the proposed settlement. On October 27, 2011, a hearing regarding the final approval of the proposed settlement was held.
Federal Advanced Clean Coal Tax Credits.Duke Energy Carolinas has been awarded $125 million of federal advanced clean coal tax credits associated with its construction of Cliffside Unit 6 and Duke Energy Indiana has been awarded $134 million of federal advanced clean coal tax credits associated with its construction of the Edwardsport IGCC plant. In March 2008, two environmental groups, Appalachian Voices and the Canary Coalition, filed suit against the Federal government challenging the tax credits awarded to incentivize certain clean coal projects. Although Duke Energy was not a party to the case, the allegations center on the tax incentives provided for the Cliffside and Edwardsport projects. The initial complaint alleged a failure to comply with the National Environmental Policy Act. The first amended complaint, filed in August 2008, added an Endangered Species Act claim and also sought declaratory and injunctive relief against the DOE and the U.S. Department of the Treasury. In 2008, the District Court dismissed the case. On September 23, 2009, the District Court issued an order granting plaintiffs’ motion to amend their complaint and denying, as moot, the motion for reconsideration. Plaintiffs have filed their second amended complaint. The Federal government has moved to dismiss the second amended complaint; the motion is pending. On July 26, 2010, the District Court denied plaintiffs’ motion for preliminary injunction seeking to halt the issuance of the tax credits.
Duke Energy Carolinas
~~Duke Energy Carolinas Cliffside Unit 6 Permit.~~New Source Review (NSR). ~~On July 16, 2008,~~In 1999-2000, the ~~Southern Alliance~~DOJ, acting on behalf of the EPA and joined by various citizen groups and states, filed a number of complaints and notices of violation against multiple utilities across the country for ~~Clean Energy, Environmental Defense Fund, National Parks Conservation Association, Natural Resources Defenses Council,~~alleged violations of the NSR provisions of the CAA. Generally, the government alleges that projects performed at various coal-fired units were major modifications, as defined in the CAA, and ~~Sierra Club (collectively referred to as Citizen Groups) filed suit in U.S District Court for~~that the ~~Western District of North Carolina alleging that Duke Energy Carolinas~~utilities violated the CAA when ~~it commenced construction of Cliffside Unit 6~~they undertook those projects without obtaining ~~a determination that~~permits and installing the ~~MACT~~best available emission ~~limits will be met~~controls for ~~all prospective hazardous air emissions at that plant.~~SO₂, NO_x and particulate matter. The ~~Citizen Groups claim the right to~~complaints seek injunctive relief ~~against further construction at~~to require installation of pollution control technology on various generating units that allegedly violated the ~~plant as well as~~CAA, and unspecified civil penalties in ~~the amount~~amounts of up to $32,500 per day for each ~~alleged~~ violation. ~~In July 2008,~~A number of Duke Energy Carolinas’ plants have been subject to these allegations. Duke Energy Carolinas ~~voluntarily~~asserts that there were no CAA violations because the applicable regulations do not require permitting in cases where the projects undertaken are “routine” or otherwise do not result in a net increase in emissions.
In 2000, the government brought a lawsuit against Duke Energy Carolinas in the U.S. District Court in Greensboro, North Carolina. The EPA claims that 29 projects performed at 25 of Duke Energy Carolinas’ coal-fired units violate these NSR provisions. Three environmental groups have intervened in the case. In August 2003, the trial court issued a ~~MACT assessment of air emission controls planned~~summary judgment opinion adopting Duke Energy Carolinas’ legal positions on the standard to be used for ~~Cliffside Unit 6~~measuring an increase in emissions, and ~~submitted the results to the Department of Environment and Natural Resources (DENR). On December 2, 2008, the Court~~ granted ~~summary~~ judgment in favor of Duke Energy Carolinas. The trial court’s decision was appealed and ultimately reversed and remanded for trial by the ~~Plaintiffs and entered judgment ordering~~U.S. Supreme Court. At trial, Duke Energy Carolinas will continue to ~~initiate~~assert that the projects were routine or not projected to increase emissions. On February 11, 2011, the trial judge held an initial status conference and on March 22, 2011, the judge entered an interim scheduling order. The parties have filed a ~~MACT process before~~stipulation in which the ~~DAQ. The court did not order an injunction against further construction, but retained jurisdiction to monitor the MACT proceedings. On December 4, 2008,~~United States and Plaintiff-Intervenors have dismissed with prejudice 16 claims. In exchange, Duke Energy Carolinas ~~submitted its MACT filing and supporting information to~~dismissed certain affirmative defenses. The parties have filed motions for summary judgment on the ~~DAQ specifically seeking DAQ’s concurrence as~~remaining claims. No trial date has been set, but a ~~threshold matter that construction of Cliffside Unit 6~~trial is not ~~a major source subject~~expected until the second half of 2012, at the earliest.
It is not possible to ~~section 112 of~~estimate the ~~CAA and submitting a MACT determination application. Concurrent~~damages, if any, that might be incurred in connection with the ~~initiation of the MACT process,~~unresolved matters related to Duke Energy Carolinas ~~filed~~discussed above. Ultimate resolution of these matters could have a ~~notice~~material effect on the consolidated results of ~~appeal to the Fourth Circuit Court~~operations, cash flows or financial position of ~~Appeals of the Court’s December 2, 2008 order to reverse the Court’s determination that~~ Duke Energy ~~Carolinas violated~~Carolinas. However, the CAA. The DAQ issued the revised permit on March 13, 2009, finding that Cliffside Unit 6 is a minor source of HAPs and imposing operating conditions to assure that emissions stay below the major source threshold. Based upon DAQ’s minor-source determination, Duke Energy Carolinas filed a motion requesting that the court abstain from further action on the matter and dismiss the plaintiffs’ complaint. The court granted Duke Energy Carolinas motion to abstain and dismissed the plaintiffs’ complaint without prejudice, but also ordered Duke Energy Carolinas to pay the plaintiffs’ attorneys’ fees. On August 3, 2009, plaintiffs filed a notice of appeal of the court’s order and Duke Energy Carolinas likewise appealed on the grounds, among others, that the dismissal should have beenappropriate regulatory treatment will be pursued for any costs incurred in connection with prejudice and the court should not have ordered payment of attorneys’ fees. The appeals have been consolidated. On April 14, 2011, the Fourth Circuit Court of Appeals affirmed the district court’s ruling awarding fees to defendants. Duke Energy Carolinas filed a request for rehearing, which was denied, on May 10, 2011.such resolution.
Asbestos-related Injuries and Damages Claims.Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement relating to damages for bodily injuries alleged to have arisen from the exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of September 30, ~~2011,~~2012, there were ~~271~~132 asserted claims for non-malignant cases with the cumulative relief sought of up to ~~$57~~$33 million, and 5347 asserted claims for malignant cases with the cumulative relief sought of up to ~~$14~~$16 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed.
Amounts recognized as asbestos-related reserves related to Duke Energy Carolinas in the respective Condensed Consolidated Balance Sheets totaled ~~$815~~$763 million and ~~$853~~$801 million as of September 30, ~~2011~~2012 and December 31, ~~2010,~~2011, respectively, and are classified in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities. These reserves are based upon the minimum amount in Duke Energy Carolinas’ best estimate of the range of loss for current and future asbestos claims through 2030. Management believes that it is possible there will be additional claims filed against Duke Energy Carolinas after 2030. In light of the uncertainties inherent in a longer-term forecast, management does not believe that they can reasonably estimate the indemnity and medical costs that might be incurred after 2030 related to such potential claims. Asbestos-related loss estimates incorporate anticipated inflation, if applicable, and are recorded on an undiscounted basis. These reserves are based upon current estimates and are subject to greater uncertainty as the projection period lengthens. A significant upward or downward trend in the number of claims filed, the nature of the alleged injury, and the average cost of resolving each such claim could change our estimated liability, as could any substantial ~~adverse~~ or favorable verdict at trial. A federal legislative solution, further state tort reform or structured settlement transactions could also change the estimated liability. Given the uncertainties associated with projecting matters into the future and numerous other factors outside our control, management believes that it is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves.
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Duke Energy Carolinas has a third-party insurance policy to cover certain losses related to asbestos-related injuries and damages above an aggregate self insured retention of $476 million. Duke Energy Carolinas’ cumulative payments began to exceed the self insurance retention on its insurance policy ~~during the second quarter of~~in 2008. Future payments up to the policy limit will be reimbursed by Duke Energy Carolinas’ third party insurance carrier. The insurance policy limit for potential future insurance recoveries for indemnification and medical cost claim payments is ~~$968~~$935 million in excess of the self insured retention. Insurance recoveries of ~~$813 million~~$781 and ~~$850~~$813 million related to this policy are classified in the respective Condensed Consolidated Balance Sheets in Other within Investments and Other Assets and Receivables as of September 30, ~~2011~~2012 and December 31, ~~2010,~~2011, respectively. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Management believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating.
Duke Energy Ohio
Antitrust Lawsuit.In January 2008, four plaintiffs, including individual, industrial and nonprofit customers, filed a lawsuit against Duke Energy Ohio in federal court in the Southern District of Ohio. Plaintiffs alleged that Duke Energy Ohio (then The Cincinnati Gas & Electric Company), conspired to provide inequitable and unfair price advantages for certain large business consumers by entering into non-public option agreements with such consumers in exchange for their withdrawal of challenges to Duke Energy Ohio’s pending ~~RSP,~~Rate Stabilization Plan (RSP), which was implemented in early 2005. On March 31, 2009, the District Court granted Duke Energy Ohio’s motion to dismiss. Plaintiffs filed a motion to alter or set aside the judgment, which was denied by an order dated March 31, 2010. In April 2010, the plaintiffs filed their appeal of that order with the U.S. Court of Appeals for the Sixth ~~Circuit. The~~Circuit, which heard argument on that appeal on January 11, 2012. On June 4, 2012, the Sixth Circuit Court of Appeals reversed the district court’s decision and remanded the matter ~~is fully briefed~~on all claims for trial on the merits and on July 25, 2012, the ~~parties are awaiting~~Court denied Duke Energy Ohio’s petition for an en banc review of the ~~scheduling of oral argument.~~case, and on October 15, 2012, Duke Energy filed a petition for certiorari to the United States Supreme Court. It is not possible to predict at this time whether Duke Energy Ohio will incur any liability or to estimate the damages, if any, that Duke Energy Ohio might incur in connection with this lawsuit.
~~Duke Energy Indiana~~
~~Prosperity Mine, LLC.~~ On October 12, 2009, Prosperity Mine, LLC (Prosperity) filed for arbitration under an Agreement for the Sale and Purchase of Coal dated October 30, 2008. The Agreement provided for sale by Prosperity and purchase by Duke Energy Indiana of 500,000 tons of coal per year, commencing on January 1, 2009 and continuing until December 31, 2014, unless sooner terminated under the terms of the Agreement. Duke Energy Indiana could terminate the Agreement if a force majeure event lasted more than three months. Prosperity declared a force majeure event on February 13, 2010 and, when Prosperity did not notify Duke Energy Indiana that the force majeure had ended; Duke Energy Indiana sent written notice of termination on May 14, 2010. Prosperity contends that the termination was improper and that it is owed damages, quantified at $88 million, for the full contractual volumes through 2014. On November 17, 2010, the arbitrators issued their decision, ruling in favor of Duke Energy Indiana on all counts. On January 7, 2011, Prosperity filed a lawsuit in Indiana state court alleging that the arbitrators exceeded their power and acted without authority and asking that the arbitrators’ award be vacated. The parties reached a commercial arrangement pursuant to which Prosperity agreed to dismiss the lawsuit.
Asbestos-related Injuries and Damages ~~Claims~~Claims. .Duke Energy ~~Indiana~~Ohio has been named as a defendant or co-defendant in lawsuits related to asbestos at its electric generating stations. The impact on Duke Energy ~~Indiana’s~~Ohio’s consolidated results of operations, cash flows or financial position of these cases to date has not been material. Based on estimates under varying assumptions concerning uncertainties, such as, among others: (i) the number of contractors potentially exposed to asbestos during construction or maintenance of Duke Energy ~~Indiana~~Ohio generating plants; (ii) the possible incidence of various illnesses among exposed workers, and (iii) the potential settlement costs without federal or other legislation that addresses asbestos tort actions, Duke Energy ~~Indiana~~Ohio estimates that the range of reasonably possible exposure in existing and future suits over the foreseeable future is not material. This estimated range of exposure may change as additional settlements occur and claims are made and more case law is established.
Other Litigation and Legal ~~Proceedings~~Proceedings.
The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve substantial amounts. Management believes that the final disposition of these proceedings will not have a material ~~adverse~~ effect on its consolidated results of operations, cash flows or financial position.
The Duke Energy Registrants expense legal costs related to the defense of loss contingencies as incurred.
The Duke Energy Registrants have exposure to certain legal matters that are described herein. The Duke Energy ~~has~~Registrants have recorded reserves ~~including reserves related to the aforementioned asbestos-related injuries and damages claims, of $830 million and $900 million as of September 30, 2011 and December 31, 2010, respectively,~~ for these proceedings and exposures ~~(the total of which is primarily related to Duke Energy Carolinas).~~as presented in the table below. These reserves represent management’s best estimate of probable loss as defined in the accounting guidance for contingencies. The estimated reasonably possible range of loss for non-asbestos related matters in excess of the recorded reserves is not material. Duke Energy has insurance coverage for certain of these losses incurred. As of September 30, 2011 and December 31, 2010, Duke Energy recognized $813 million and $850 million, respectively, of probable insurance recoveries related to these losses (the total of which is related to Duke Energy Carolinas).incurred as presented in the table below.
~~The Duke Energy Registrants expense legal costs related to the defense of loss contingencies as incurred.~~
(in millions)
September 30, 2012

December 31, 2011
Reserves for Legal Matters^(a)





Duke Energy^(b)
$
975

$
810
Duke Energy Carolinas^(b)

763


801
Duke Energy Indiana

7


4
Probable Insurance Recoveries^(c)





Duke Energy^(d)
$
781

$
813
Duke Energy Carolinas^(d)

781


813







(a)
Reserves are classified in the respective Condensed Consolidated Balance Sheets in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities.
(b)
Includes reserves for aforementioned asbestos-related injuries and damages claims.
(c)
Insurance recoveries are classified in the respective Condensed Consolidated Balance Sheets in Other within Investments and Other Assets and Receivables.
(d)
Relates to recoveries associated with aforementioned asbestos-related injuries and damages claims.

Other Commitments and Contingencies
General.
As part of its normal business, the Duke Energy Registrants are a party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. To varying degrees, these guarantees involve elements of performance and credit risk, which are not included on the respective Condensed Consolidated Balance Sheets. The possibility of any of the Duke Energy Registrants having to honor their contingencies is largely dependent upon future operations of various subsidiaries, investees and other third parties, or the occurrence of certain future events.
42
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
In addition, the Duke Energy Registrants enter into various fixed-price, non-cancelable commitments to purchase or sell power (tolling arrangements or power purchase contracts), take-or-pay arrangements, transportation or throughput agreements and other contracts that may or may not be recognized on the respective Condensed Consolidated Balance Sheets. Some of these arrangements may be recognized at fair value on the respective Condensed Consolidated Balance Sheets if such contracts meet the definition of a derivative and the ~~NPNS~~normal purchase normal sale (NPNS) exception does not apply.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
6. Debt and Credit Facilities
Duke Energy’s outstanding long-term debt, including current maturities as of September 30, 2012, includes approximately $17.2 billion related to Progress Energy. This amount includes $3.5 billion of fair value adjustments recorded in connection with purchase accounting for the Progress Energy merger, which are not part of future principal payments and will amortize over the remaining life of the debt. See Note 2 for additional information related to the merger with Progress Energy.
~~Significant~~Additional significant changes to the Duke Energy Registrants’ debt and credit facilities since December 31, ~~2010~~2011 are as follows:
~~Unsecured Debt.~~In August 2011, Duke Energy issued $500 million principal amount of senior notes, which carry a fixed interest rate of 3.55% and mature September 15, 2021. Proceeds from the issuance will be used to repay a portion of Duke Energy’s commercial paper as it matures, to fund capital expenditures in Duke Energy’s unregulated businesses in the U.S. and for general corporate purposes.
First Mortgage Bonds. In ~~May 2011,~~September 2012, Duke Energy Carolinas issued ~~$500~~$650 million principal amount of first mortgage bonds, which carry a fixed interest rate of ~~3.90%~~4.00% and mature ~~June 15, 2021.~~September 30, 2042. Proceeds from ~~this~~the issuance will be used to repay at maturity the $420 million debentures due through November 2012, as well as for general corporate purposes, including the funding of capital expenditures.
In March 2012, Duke Energy Indiana issued $250 million principal amount of first mortgage bonds, which carry a fixed interest rate of 4.20% and mature March 15, 2042. Proceeds from the issuance were used to ~~fund capital expenditures~~repay a portion of Duke Energy Indiana’s outstanding short-term debt.
Other Debt. In August 2012, Duke Energy Corporation issued $1.2 billion of senior unsecured notes, of which $700 million carry a fixed interest rate of 1.625% and mature August 15, 2017 and $500 million carry a fixed interest rate of 3.05% and mature August 15, 2022. Proceeds from the issuances were used to repay at maturity Duke Energy Ohio’s $500 million debentures due September 15, 2012, as well as for general corporate ~~purposes.~~purposes, including the repayment of commercial paper. See Note 17 for further discussion of the repayment of Duke Energy Ohio’s debentures and changes in its capital structure.
~~Other Debt.~~In January 2012, Duke Energy Carolinas used proceeds from its December 2011 $1 billion issuance of principal amount of first mortgage bonds to repay $750 million 6.25% senior unsecured notes that matured January 15, 2012.
In the first quarter of 2012, Duke Energy completed the previously announced sale of International Energy’s indirect 25% ownership interest in Attiki Gas Supply, S.A (Attiki), a Greek corporation, to an existing equity owner in a series of transactions that resulted in the full discharge of the related debt obligation. No gain or loss was recognized on these transactions. As of December 31, 2011, Duke Energy’s investment balance was $64 million and the related debt obligation of $64 million was reflected in Current Maturities of Long-Term Debt on Duke Energy’s Condensed Consolidated Balance Sheets.
On April 4, 2011, Duke Energy filed a registration statement (Form S-3) with the SEC to sell up to $1 billion of variable denomination floating rate demand notes, called PremierNotes. The Form S-3 states that no more than $500 million of the notes will be outstanding at any particular time. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, but may be redeemed in whole or in part by Duke Energy at any time. The notes are non-transferable and may be redeemed in whole or in part at the investor’s option. Proceeds from the sale of the notes will be used for general corporate purposes. The balance as of September 30, 2012 and December 31, 2011, is ~~$30 million.~~$288 million and $79 million, respectively. The notes reflect a short-term debt obligation of Duke Energy and are reflected as Notes payable and commercial paper on Duke Energy’s Condensed Consolidated Balance Sheets.
At September 30, 2012 and December 31, 2011, Duke Energy Carolinas had ~~$750~~$400 million principal amount of ~~6.25%~~5.625% senior unsecured notes due ~~January~~November 2012 classified as Current maturities of long-term debt on ~~Duke Energy Carolinas’ Condensed Consolidated Balance Sheets. At December 31, 2010, these notes were classified as Long-term Debt on Duke Energy Carolinas’~~its Condensed Consolidated Balance Sheets. Duke Energy Carolinas will satisfy this obligation with proceeds from the September 2012 $650 million first mortgage bond issuance.
At September 30, 2012 Progress Energy Florida had $425 million principal amount of 4.80% first mortgage bonds due March 2013 classified as Current maturities of long-term debt on Duke Energy’s Condensed Consolidated Balance Sheets. Progress Energy Florida currently anticipates satisfying this obligation with proceeds from additional borrowings.
At September 30, 2012 Duke Energy had $250 million principal amount of 5.65% senior unsecured notes due June 2013 classified as Current maturities of long-term debt on Duke Energy’s Condensed Consolidated Balance Sheets. At December 31, 2011, these notes were classified as Long-term Debt on Duke Energy’s Condensed Consolidated Balance Sheets. Duke Energy currently anticipates satisfying this obligation with proceeds from additional borrowings.
At September 30, 2012 Duke Energy Ohio had ~~$500~~$250 million principal amount of ~~5.70% debentures~~2.10% first mortgage bonds due ~~September 2012~~June 2013 classified as Current maturities of long-term debt on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. At December 31, ~~2010,~~2011, these notes were classified as Long-term Debt on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. Duke Energy Ohio currently anticipates satisfying this obligation with proceeds from additional borrowings.
~~As discussed below,~~At September 30, 2012 Duke Energy ~~also issued an additional $450~~Indiana had $400 million ~~in Commercial Paper in the third quarter~~principal amount of ~~2011, for general corporate purposes, which is~~5.00% senior unsecured notes due September 2013 classified as ~~Notes payable and commercial paper~~Current maturities of long-term debt on Duke Energy Indiana’s Condensed Consolidated Balance Sheets. At December 31, 2011, these notes were classified as Long-term Debt on Duke Energy Indiana’s Condensed Consolidated Balance Sheets. Duke Energy Indiana currently anticipates satisfying this obligation with proceeds from additional borrowings.
At September 30, 2012 Progress Energy Carolinas had $400 million principal amount of 5.125% first mortgage bonds due September 2013 classified as Current maturities of long-term debt on Duke Energy’s Condensed Consolidated Balance Sheets. Progress Energy Carolinas currently anticipates satisfying this obligation with proceeds from additional borrowings.
Accounts Receivable Securitization.Duke Energy Carolinas securitizes certain accounts receivable through Duke Energy Receivables Finance Company, LLC (DERF), a bankruptcy remote, special purpose subsidiary. DERF is a wholly owned limited liability company with a separate legal existence from its parent, and its assets are not intended to be generally available to creditors of Duke Energy Carolinas. As a result of the securitization,
43
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
on a daily basis Duke Energy Carolinas sells certain accounts receivable, arising from the sale of electricity and/or related services as part of Duke Energy Carolinas’ franchised electric business, to DERF. In order to fund its purchases of accounts receivable, DERF has a $300 million secured credit facility with a commercial paper conduit. In August 2012, DERF extended the expiration date for an additional year to August 2014.
Non-Recourse Notes Payable of VIEs.To fund the purchase of receivables, ~~Cinergy Receivables~~CRC borrows from third parties and such borrowings fluctuate based on the amount of receivables sold to ~~Cinergy Receivables.~~CRC. The borrowings are secured by the assets of ~~Cinergy Receivables~~CRC and are non-recourse to Duke Energy. The debt is ~~recorded as~~ short-term ~~and Duke Energy extended~~because the facility had an expiration date toin October 2012. On November 2, 2012, ~~subsequent to September 30, 2011.~~the facility was extended one year with a new expiration date of November 1, 2013. At September 30, 2012 and December 31, 2011, ~~Cinergy Receivables~~CRC borrowings were $275 million and $273 million, respectively, and are reflected as ~~Non-Recourse Notes Payable~~Non-recourse notes payable of VIEs on Duke Energy’s Condensed Consolidated Balance Sheets.
Money Pool. The Subsidiary Registrants receive support for their short-term borrowing needs through participation with Duke Energy and certain of its subsidiaries in a money pool arrangement. Under this arrangement, those companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. The money pool is structured such that the Subsidiary Registrants separately manage their cash needs and working capital requirements. Accordingly, there is no net settlement of receivables and payables ~~related to the money pool~~ between the money pool participants. Per the terms of the money pool arrangement, the parent ~~companies,~~company, Duke Energy ~~and Cinergy~~ may loan funds to its participating subsidiaries, but may not borrow funds through the money pool. Accordingly, as the money pool activity is between Duke Energy and its ~~wholly-owned~~wholly owned subsidiaries, all money pool balances are eliminated within Duke Energy’s Condensed Consolidated Balance Sheets. The following table shows the Subsidiary Registrants’ money pool balances and classification within their respective Condensed Consolidated Balance ~~Sheets as of September 30, 2011 and December 31, 2010:~~Sheets:

September 30, 2012

December 31, 2011
   September 30, 2011    December 31, 2010
   Receivables    Notes Payable    Long-term Debt    Receivables    Long-term Debt
         (in millions)
(in millions)
Notes receivable from affiliated companies

Notes payable to affiliated companies

Long-term debt payable to affiliated companies

Notes receivable from affiliated companies

Notes payable to affiliated companies

Long-term debt payable to affiliated companies
Duke Energy Carolinas
   $ 589       $ —         $ 300       $ 339       $ 300
$
811

$
―

$
300

$
923

$
―

$
300
Duke Energy Ohio
   259       —         —         480       —

84

2

―


311

―

―
Duke Energy Indiana
   —         14       150       115       150

―

55

150


―

300

150
Increases or decreases in money pool receivables are reflected within investing activities on the respective Subsidiary Registrants’ Condensed Consolidated Statements of Cash Flows, while increases or decreases in money pool borrowings are reflected within financing activities on the respective Subsidiary Registrants Condensed Consolidated Statements of Cash Flows.
Available Credit Facilities.~~The total capacity under~~In November 2011, Duke ~~Energy’s~~Energy entered into a $6 billion, five-year master credit facility, ~~which expires~~expiring in ~~June~~November 2016, with $4 billion available at closing and the remaining $2 billion became effective July 2, 2012, ~~is $3.14 billion. The~~following the closing of the merger with Progress Energy. In October 2012, the Duke Energy Registrants reached an agreement with banks representing $5.63 billion of commitments under the master credit facility ~~contains an option allowing borrowing up~~ to extend the ~~full amount of~~expiration date by one year to November 2017. Through November 2016, the available credit under this facility ~~on the day of initial expiration for up to one year.~~remains $6 billion. The Duke Energy Registrants each have borrowing capacity under the master credit facility up to specified ~~sub limits~~sublimits for each borrower. However, Duke Energy has the unilateral ability at any time to increase or decrease the borrowing ~~sub limits~~sublimits of each borrower, subject to a maximum ~~sub limit~~sublimit for each borrower. See the table below for the borrowing ~~sub limits~~sublimits for each of the borrowers as of September 30, ~~2011.~~2012. The amount available under the master credit facility has been reduced, as indicated in the table below, by the use of the master credit facility to backstop the issuances of commercial paper, letters of credit and certain tax-exempt bonds. As indicated, borrowing sub limits for the Subsidiary Registrants are also reduced for certain amounts outstanding under the money pool arrangement.
~~Master Credit Facility Summary~~This summary only includes Duke Energy’s master credit facility and, accordingly excludes certain demand facilities and committed facilities that are immaterial in size or which generally support very specific requirements, which primarily include facilities that backstop various puttable outstanding tax-exempt bonds. These facilities that backstop various outstanding tax-exempt bonds generally have non-cancelable terms in excess of one year from the balance sheet date, such that the Duke Energy Registrants have the ability to refinance such borrowings on a long-term basis. Accordingly, such borrowings are reflected as Long-term Debt on the Condensed Consolidated Balance Sheets of ~~September 30, 2011 (in millions)~~^(a)(b)the respective Duke Energy Registrant.

   Duke Energy Duke Energy
Carolinas Duke Energy
Ohio Duke Energy
Indiana Total
Facility Size^(c)
   $ 1,097    $ 840    $ 750    $ 450    $ 3,137
Less:

Notes Payable and Commercial Paper^(d)
   (450 ) (300 ) —      (150 ) (900 )
Outstanding Letters of Credit
   (46 ) (7 ) (27 ) —      (80 )
Tax-Exempt Bonds
   (25 ) (95 ) (84 ) (81 ) (285 )


Available Capacity
   $ 576    $ 438    $ 639    $ 219    $ 1,872


~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~




September 30, 2012
(in millions)

Duke Energy (Parent)

Duke Energy Carolinas

Progress Energy Carolinas

Progress Energy Florida


Duke Energy Ohio

Duke Energy Indiana
Total Duke Energy
Facility Size

$
1,750

$
1,250

$
750

$
750

$
750

$
750

$
6,000

Notes Payable and Commercial Paper


(57)


(300)


(134)


(121)


―


(150)


(762)

Outstanding Letters of Credit


(51)


(7)


(2)


(1)


―


―


(61)

Tax-Exempt Bonds


―


(95)


―


―


(84)


(81)


(260)
Available Capacity

$
1,642

$
848

$
614

$
628

$
666

$
519

$
4,917

~~(a)~~ ~~This summary only includes Duke Energy’s~~
Restrictive Debt Covenants. The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. The master credit facility and, accordingly, excludes certain demand facilities and committed facilities that are insignificant in size or which generally support very specific requirements, which primarily include facilities that backstop various outstanding tax-exempt bonds. These facilities that backstop various outstanding tax-exempt bonds generally have non-cancelable terms in excess of one year from the balance sheet date, such that the Duke Energy Registrants have the ability to refinance such borrowings on a long-term basis. Accordingly, such borrowings are reflected as Long-term Debt on the Condensed Consolidated Balance Sheets of the respective Duke Energy Registrant.
~~(b)~~ ~~Credit~~ facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower.
~~(c)~~ ~~Represents the sub limit of each borrower at September 30, 2011. The Duke Energy Ohio sub limit includes $100 million for Duke Energy Kentucky.~~
~~(d)~~ Duke Energy issued $450 million of Commercial Paper and loaned the proceeds through the money pool to Duke Energy Carolinas and Duke Energy Indiana (see money pool table above). The balances are classified as long-term borrowings within Long-term Debt in Duke Energy Carolinas’ and Duke Energy Indiana’s Condensed Consolidated Balance Sheets. Duke Energy issued an additional $450 million of Commercial Paper in the third quarter of 2011. The balance is classified as Notes payable and commercial paper on Duke Energy’s Condensed Consolidated Balance Sheets.
Duke Energy began negotiating a replacement of its master credit facility in October 2011. Duke Energy expects to execute a new five-year $6 billion master credit facility in the fourth quarter of 2011, with $4 billion available at closing and the remaining $2 billion available on or soon after the closing of the proposed merger with Progress Energy. The master credit facility will include borrowing sub limits for certain subsidiaries, similar to the current facility.
~~Restrictive Debt Covenants.~~~~The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants.~~ Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of September 30, ~~2011,~~2012, each of the Duke Energy Registrants ~~was~~were in compliance with all covenants related to its significant debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the significant debt or credit agreements contain material adverse change clauses.
~~7. Goodwill, Intangible Assets and Impairments~~
~~Goodwill~~
~~The following table shows goodwill by reportable operating segment for Duke Energy and Duke Energy Ohio at September 30, 2011, and December 31, 2010:~~44

   USFE&G    Commercial Power International Total
   (in millions)
Duke Energy

Balance at December 31, 2010:

Goodwill
   $ 3,483       $ 940    $ 306    $ 4,729
Accumulated Impairment Charges
   —         (871 ) —      (871 )




Balance at December 31, 2010, as adjusted for accumulated impairment charges
   3,483       69    306    3,858
Foreign Exchange and Other Changes
   —         —      (11 ) (11 )




Balance as of September 30, 2011:

Goodwill
   3,483       940    295    4,718
Accumulated Impairment Charges
   —         (871 ) —      (871 )




Balance at September 30, 2011, as adjusted for accumulated impairment charges, foreign exchange and other charges
   $ 3,483       $ 69    $ 295    $ 3,847




   USFE&G Commercial Power Total
   (in millions)
Duke Energy Ohio

Balance at December 31, 2010:

Goodwill
   $ 1,137    $ 1,188    $ 2,325
Accumulated Impairment Charges
   (216 ) (1,188 ) (1,404 )


Balance at December 31, 2010, as adjusted for accumulated impairment charges
   921    —      921
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)

   USFE&G Commercial Power Total
   (in millions)
Balance as of September 30, 2011:

Goodwill
   1,137    1,188    2,325
Accumulated Impairment Charges
   (216 ) (1,188 ) (1,404 )


Balance at September 30, 2011, as adjusted for accumulated impairment charges
   $ 921    $ —      $ 921


~~Duke Energy.~~7. Goodwill, Intangible Assets and Impairments
Goodwill













The following tables show goodwill by segment for Duke Energy and Duke Energy Ohio:














Duke Energy












(in millions)

USFE&G

Commercial Power

International Energy

Total
Balance at December 31, 2011:












Goodwill

$
3,483

$
940

$
297

$
4,720
Accumulated Impairment Charges


―


(871)


―


(871)
Balance at December 31, 2011, as adjusted for accumulated impairment charges


3,483


69


297


3,849
Balance at September 30, 2012:












Goodwill


3,483


940


297


4,720
Acquisitions ^(a)


12,342


―


―


12,342
Accumulated Impairment Charges


―


(871)


―


(871)
Foreign Exchange and Other Changes


―


(7)


(4)


(11)
Balance at September 30, 2012, as adjusted for accumulated impairment charges

$
15,825

$
62

$
293

$
16,180














(a)
Represents goodwill resulting from the merger with Progress Energy. See Note 2 for additional information.
Duke Energy Ohio









(in millions)

Franchised Electric & Gas

Commercial Power

Total
Balance at December 31, 2011:









Goodwill

$
1,137

$
1,188

$
2,325
Accumulated Impairment Charges


(216)


(1,188)


(1,404)
Balance at December 31, 2011, as adjusted for accumulated impairment charges


921


―


921
Balance at September 30, 2012:









Goodwill


1,137


1,188


2,325
Accumulated Impairment Charges


(216)


(1,188)


(1,404)
Balance at September 30, 2012, as adjusted for accumulated impairment charges

$
921

$
―

$
921
Duke Energy isand Duke Energy Ohio are required to perform an annual goodwill impairment test as of the same date each year and, accordingly, ~~performs its~~perform their annual impairment testing of goodwill as of August 31. Duke Energy ~~updates the~~and Duke Energy Ohio update their test between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value.
Duke Energy early adopted the revised goodwill impairment accounting guidance during the third quarter of 2011 and applied this revised guidance to its August 31, 2011 annual goodwill impairment test. Pursuant to the revised guidance an entity may first assess qualitative factors to determine whether it is necessary to perform the two step goodwill impairment test. If deemed necessary, the two-step impairment test shall be used to identify potential goodwill impairment and measure the amount of a goodwill impairment loss, if any, to be recognized. Duke Energy’s qualitative assessment included, among other things, reviews of current forecasts and recent fair value calculations, updates to weighted average cost of capital calculations and consideration of overall economic factors and recent financial performance. Duke Energy determined it was more likely than not that the fair value of each of its reporting units exceeded their carrying value at August 31, 2011 and that the two step goodwill impairment test was not required.
In the second quarter of 2010, based on circumstances discussed below, management determined that it was more likely than not that the fair value of Commercial Power’s non-regulated Midwest generation reporting unit was below its respective carrying value. Accordingly, an interim impairment test was performed for this reporting unit. Determination of reporting unit fair value was based on a combination of the income approach, which estimates the fair value of Duke Energy’s reporting units based on discounted future cash flows, and the market approach, which estimates the fair value of Duke Energy’s reporting units based on market comparables within the utility and energy industries. Based on completion of step one of the second quarter 2010 impairment analysis, management determined that the fair value of Commercial Power’s non-regulated Midwest generation reporting unit was less than its carrying value, which included goodwill of $500 million.
Commercial Power’s non-regulated Midwest generation reporting unit includes nearly 4,000 MW of primarily coal-fired generation capacity in Ohio which is dedicated under the ESP through December 31, 2011. These assets also generate revenues through sales outside the ESP load customer base if circumstances arise that result in availability of excess capacity. Additionally, this reporting unit has approximately 3,600 MW of gas-fired generation capacity in Ohio, Pennsylvania, Illinois and Indiana which provides generation to unregulated energy markets in the Midwest. The businesses within Commercial Power’s non-regulated Midwest generation reporting unit operate in market structures that are, to a degree, unregulated and allow for customer choice among suppliers. As ~~a result, the operations within this reporting unit are subjected to competitive pressures that do not exist in any of Duke Energy’s regulated jurisdictions.~~
Commercial Power’s other businesses, including the renewable generation assets, are in a separate reporting unit for goodwill impairment testing purposes. No impairment existed with respect to Commercial Power’s renewable generation assets.
The fair value of Commercial Power’s non-regulated Midwest generation reporting unit is impacted by a multitude of factors, including current and forecasted customer demand, forecasted power and commodity prices, uncertainty of environmental costs, competition, the cost of capital, valuation of peer companies and regulatory and legislative developments. Management’s assumptions and views of these factors continually evolve, and certain views and assumptions used in determining the fair value of the reporting unit in the 2010 interim impairment test changed significantly from those used in the 2009 annual impairment test. These factors had a significant impact on the valuation of Commercial Power’s non-regulated Midwest generation reporting unit. More specifically, the following factors significantly impacted management’s valuation of the reporting unit:
•
~~Sustained lower forward power prices~~—In Ohio, Duke Energy provides power to retail customers under the ESP, which utilizes rates approved by the PUCO through 2011. These rates in 2010 were above market prices for generation services, resulting in customers switching to other generation providers. As discussed in Note 4, Duke Energy Ohio will establish a new SSO for retail load customers for generation after the current ESP expires on December 31, 2011. Given forward power prices, which declined from the time of the 2009 impairment, significant uncertainty existed with respect to the generation margin that would be earned under the new SSO.
•
~~Potentially more stringent environmental regulations from the U.S. EPA~~—In May and July of 2010, the EPA issued proposed rules associated with the regulation of CCRs to address risks from the disposal of CCRs (e.g., ash ponds) and to limit the interstate transport of emissions of NO_x ~~and SO~~₂. These proposed regulations, along with other pending EPA regulations, could result in significant expenditures for coal fired generation plants, and could result in the early retirement of certain generation assets, which do not currently have control equipment for NO_x ~~and SO~~₂~~, as soon as 2015.~~
•
~~Customer switching~~—ESP customers have increasingly selected alternative generation service providers, as allowed by Ohio legislation, which further erodes margins on sales. In the second quarter of 2010, Duke Energy Ohio’s residential class became the target of an intense marketing campaign offering significant discounts to residential customers that switch to alternate power suppliers. Customer switching levels were at approximately 55% at June 30, 2010 compared to approximately 29% in the third quarter of 2009.
As a result of the factors above, a non-cash goodwill impairment charge of $500 million was recorded during the second quarter of 2010. This impairment charge represented the entire remaining goodwill balance for Commercial Power’s non-regulated Midwest generation reporting unit. In addition to the goodwill impairment charge, and as a result of factors similar to those described above, Commercial Power recorded $160 million of pre-tax impairment charges related to certain generating assets and emission allowances primarily associated with these generation assets in the Midwest to write-down the value of these assets to their estimated fair value. The generation assets that were subject to this impairment charge were those coal-fired generating assets that do not have certain environmental emissions control equipment, causing these generation assets to be heavily impacted by the EPA’s proposed rules on emissions of NO_x ~~and SO~~₂~~. These impairment charges are recorded in Goodwill and Other Impairment Charges on Duke Energy’s Consolidated Statement of Operations.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
The fair values of Commercial Power’s non-regulated Midwest generation reporting unit and generating assets for which impairments were recorded were determined using significant unobservable inputs (i.e., Level 3 inputs) as defined by the accounting guidance for fair value measurements.
~~Duke Energy Ohio.~~Duke Energy Ohio early adopted the revised goodwill impairment accounting guidance, discussed above, during the third quarter of 2011 and applied this revised guidance to its August 31, 2011 annual goodwill impairment test. Duke Energy Ohio’s qualitative assessment included, among other things, reviews of current forecasts and recent fair value calculations, updates to weighted average cost of capital calculations and consideration of overall economic factors and recent financial performance. Duke Energy Ohio determined it was more likely than not that the fair value of each of its reporting units exceeded their carrying value at August 31, 2011 and that the two step goodwill impairment test was not required.
~~In the second quarter of 2010, based on circumstances discussed above for Duke Energy, management determined that is was more likely than not that~~ the fair value of Duke Energy and Duke Energy Ohio’s ~~non-regulated Midwest generation~~ reporting ~~unit was less than its~~units exceeded their respective carrying ~~value. Accordingly,~~values at the date of the annual impairment analysis, Duke Energy and Duke Energy Ohio ~~also impaired its entire goodwill balance of $461 million related to this reporting unit during~~did not record any impairment charges in the ~~second~~third quarter of 2010. Also, as discussed above, Duke Energy Ohio recorded $160 million of pre-tax impairment charges related to certain generating assets and emission allowances primarily associated with these generation assets in the Midwest to write-down the value of these assets to their estimated fair value.2012
In the second quarter of 2010, goodwill for Ohio Transmission and Distribution (Ohio T&D) was also analyzed. The fair value of the Ohio T&D reporting unit is impacted by a multitude of factors, including current and forecasted customer demand, discount rates, valuation of peer companies, and regulatory and legislative developments. Management periodically updates the load forecasts to reflect current trends and expectations based on the current environment and future assumptions. The spring and summer 2010 load forecast indicated that load would not return to 2007 weather-normalized levels for several more years. Based on the results of the second quarter 2010 impairment analysis, the fair value of the Ohio T&D reporting unit was $216 million below its book value at Duke Energy Ohio and $40 million higher than its book value at Duke Energy. Accordingly, this goodwill impairment charge was only recorded by Duke Energy Ohio.
The fair value of Duke Energy Ohio’s Ohio T&D reporting unit for which an impairment was recorded was determined using significant unobservable inputs (i.e., Level 3 inputs) as defined by the accounting guidance for fair value measurements.
As management is not aware of any recent market transactions for comparable assets with sufficient transparency to develop a market approach fair value, Duke Energy Ohio relied heavily on the income approach to estimate the fair value of the impaired assets.
~~All of the above impairment charges are recorded in Goodwill and Other Impairment Charges on Duke Energy Ohio’s Consolidated Statements of Operations.~~
Intangible Assets.On August 8, 2011, the EPA’s final rule to replace CAIR was published in the Federal Register. As further discussed in Note 5, the CSAPR ~~establishes~~established state-level annual SO₂ and NO_x caps that were required to take effect on January 1, 2012, and state-level ozone-season NO_xcaps that were to take effect on May 1, 2012. The ~~cap levels decline in 2014 for most states, including each state in which Duke Energy operates, except for South Carolina where the cap levels remain constant. The~~ CSAPR ~~will~~did not utilize CAA emission allowances as the original CAIR provided. ~~The~~Under the CSAPR, the EPA ~~will~~was expected to issue new emission allowances to be used exclusively for purposes of complying with the CSAPR cap-and-trade program. After this ruling was published in 2011, Duke Energy ~~has~~ evaluated the effect of the CSAPR on the carrying value of emission allowances recorded at its USFE&G and Commercial Power segments. Based on the provisions of the CSAPR, Duke Energy Ohio ~~has~~had more SO₂ allowances than ~~will be~~were needed to comply with the continuing CAA acid rain cap-and-trade program (excess emission allowances). Duke Energy Ohio incurred a pre-tax impairment of $79 million in the third quarter of 2011 to write down the carrying value of excess emission allowances held by Commercial Power to fair value. The charge is recorded in ~~Goodwill and other impairment~~Impairment charges on Duke Energy and Duke Energy Ohio’s Condensed Consolidated Statement of Operations. This amount iswas based on the fair value of ~~total~~excess allowances held by Commercial Power for compliance under the continuing CAA acid rain cap-and-trade program as of September 30, 2011.
The changes in net carrying amounts of intangible assets during the nine months ended September 30, 2011 relates primarily to the CSAPR impairments discussed above, as well as the consumption, purchases and/or sales of emission allowances.45
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
Other Impairments.As a result of project cost overages related to the Edwardsport IGCC plant, Duke Energy Indiana recorded pre-tax charges to earnings of $600 million and $222 million infor the ~~third quarter of~~nine months ended September 30, 2012 and 2011, ~~and $44 million in the third quarter of 2010.~~
~~Refer to~~respectively. See Note 4 for a further discussion of the Edwardsport IGCC project.
In the third quarter of 2012, Duke Energy and Duke Energy Carolinas recorded pre-tax impairment charges of $86 million and $31 million, respectively, in conjunction with the merger with Progress Energy. See Note 2 for additional information.
8. Risk Management, Derivative Instruments and Hedging Activities
The Duke Energy Registrants utilize various derivative instruments to manage risks primarily associated with commodity prices, foreign exchange and interest rates. The primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to changes in the prices of power and fuel. Interest rate derivatives are entered into to manage interest rate and foreign exchange risk associated with variable-rate and fixed-rate borrowings.
Certain derivative instruments qualify for hedge accounting and are designated as either cash flow hedges or fair value hedges, while others either do not qualify as accounting hedges (such as economic hedges) or have not been designated as ~~accounting~~ hedges (hereinafter referred to as undesignated contracts). All derivative instruments not meeting the criteria for the ~~normal purchase normal sale (NPNS)~~NPNS exception are recognized as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. As the regulated operations of the Duke Energy Registrants meet the criteria for regulatory accounting treatment, the majority of the derivative contracts entered into by the regulated operations are not designated as hedges since gains and losses on such contracts are deferred as regulatory liabilities and assets, ~~respectively, thus~~respectively. Thus there is no immediate earnings impact associated with changes in fair values of such derivative contracts. Cash flows relative to derivative instruments are considered operating activities based on the nature of the underlying transactions.
For derivative instruments that qualify and are designated as cash flow hedges, the effective portion of the gain or loss is reported as a component of Accumulated Other Comprehensive Income (AOCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gains or losses on the derivative that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For derivative instruments that qualify and are designated as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item are recognized in earnings in the current period. Any gains or losses on the derivative are included in the same line item as the offsetting loss or gain on the hedged item in the Condensed Consolidated Statements of ~~Operations. Regulatory~~Operations for Duke Energy, or in the Condensed Consolidated Statements of Comprehensive Income for Duke Energy Carolinas, Duke Energy Ohio, and Duke Energy Indiana.
Information presented in the tables below relates to Duke Energy and Duke Energy Ohio. As regulatory accounting treatment is applied to substantially all of ~~the derivative instruments at~~ Duke Energy Carolinas and Duke Energy ~~Indiana.~~Indiana derivative instruments, and the carrying value of the respective derivative instruments comprise a small portion of Duke Energy’s overall balance, separate disclosures for each of these registrants is not presented.
Commodity Price Risk
The Duke Energy Registrants are exposed to the impact of market changes in the future prices of electricity (energy, capacity and financial transmission rights), coal, oil, natural gas and emission allowances (SO₂, seasonal NO_X and annual NO_X) as a result of their energy operations such as electricity generation and the transportation and sale of natural gas. With respect to commodity price risks associated
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
with electricity generation, the Duke Energy Registrants are exposed to changes including, but not limited to, the cost of the coal and natural gas used to generate electricity, the prices of electricity in wholesale markets, the cost of capacity ~~required to purchase~~ and ~~sell~~ electricity purchased for resale in wholesale markets and the cost of emission allowances primarily at the Duke Energy Registrants’ coal fired power plants. Risks associated with commodity price changes on future operations are closely monitored and, where appropriate, various commodity contracts are used to mitigate the effect of such fluctuations on operations. Exposure to commodity price risk is influenced by a number of factors, including, but not limited to, the term of the contract, the liquidity of the market and delivery location.
Commodity Fair Value Hedges.At September 30, ~~2011,~~2012, there were no open commodity derivative instruments that were designated as fair value hedges.
Commodity Cash Flow Hedges. At September 30, ~~2011,~~2012, there were no open commodity derivative instruments that were designated as cash flow hedges.
Undesignated Contracts. The Duke Energy Registrants use derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. These undesignated contracts expire as late as 2016.
Undesignated contracts also include contracts associated with operations that Duke Energy continues to wind down or has included as discontinued operations. As these undesignated contracts expire as late as 2021, Duke Energy has entered into economic hedges that leave it minimally exposed to changes in prices over the duration of these contracts.
Duke Energy Carolinas uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. ~~At September 30, 2011,~~ Duke Energy Carolinas ~~does not have any undesignated commodity contracts.~~has also entered into a firm power sale agreement, which is accounted for as a derivative instrument, as part of the Interim FERC Mitigation in connection with Duke Energy’s merger with Progress Energy. See Note 2. Undesignated contracts at September 30, 2012 are primarily associated with forward sales and purchases of power.
Duke Energy Ohio uses derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts at September 30, ~~2011~~2012 are primarily associated with forward sales and purchases of power, coal, natural gas and emission allowances, for the Commercial Power segment.
46
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
Duke Energy Indiana uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at September 30, ~~2011~~2012 are primarily associated with forward purchases and sales of power, coal, natural gas, financial transmission rights and emission allowances.
Interest Rate Risk
The Duke Energy Registrants are exposed to risk resulting from changes in interest rates as a result of their issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Interest rate exposure is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into financial contracts; primarily interest rate swaps and U.S. Treasury lock agreements. Additionally, in anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of the market interest rates at the time and terminated prior to or upon the issuance of the corresponding debt. When these transactions occur within a business that meets the criteria for regulatory accounting treatment, these contracts may be treated as undesignated and any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded as a regulatory liability or asset and amortized as a component of interest expense over the life of the debt. Alternatively, these derivatives may be designated as hedges whereby, any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded in AOCI and amortized as a component of interest expense over the life of the debt.
The following table shows the notional amounts for derivatives related to interest rate ~~risk at September 30, 2011 and December 31, 2010.~~
~~Notional Amounts of Derivative Instruments Related to Interest Rate Risk~~risk:

   Duke Energy
Corporation    Duke Energy
Carolinas    Duke Energy
Ohio    Duke Energy
Indiana
      (in millions)
Cash Flow Hedges^(a)
   $ 846       $ —         $ —         $ —
Undesignated Contracts
   748       500       27       200
Fair Value Hedges
   275       25       250       —








Total Notional Amount at September 30, 2011
   $ 1,869       $ 525       $ 277       $ 200








   Duke Energy
Corporation    Duke Energy
Carolinas    Duke Energy
Ohio
      (in millions)
Cash Flow Hedges^(a)
   $ 492       $ —         $ —
Undesignated Contracts
   561       500       27
Fair Value Hedges
   275       25       250






Total Notional Amount at December 31, 2010
   $ 1,328       $ 525       $ 277






~~(a)~~ ~~Includes amounts related to non-recourse variable rate long-term debt of VIEs of $470 million at September 30, 2011 and $492 million at December 31, 2010.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
Notional Amounts of Derivative Instruments Related to Interest Rate

















Duke
Energy

Duke
Energy
Carolinas

Duke
Energy
Ohio

Duke
Energy
Indiana
(in millions)

September 30, 2012
Cash Flow Hedges^(a)

$
869

$
―

$
―

$
―
Undesignated Contracts


342


―


27


200
Fair Value Hedges


275


25


250


―

Total Notional Amount

$
1,486

$
25

$
277

$
200














(in millions)

December 31, 2011
Cash Flow Hedges^(a)

$
841

$
―

$
―

$
―
Undesignated Contracts


247


―


27


200
Fair Value Hedges


275


25


250


―

Total Notional Amount

$
1,363

$
25

$
277

$
200














(a)
Includes amounts related to non-recourse variable rate long-term debt of VIEs of $442 million at September 30, 2012 and $466 million at December 31, 2011.

Volumes
The following tables show information relating to the volume of Duke Energy and Duke Energy Ohio’s outstanding commodity derivative ~~activity outstanding as of September 30, 2011 and December 31, 2010.~~activity. Amounts disclosed represent the notional volumes of commodities contracts accounted for at fair value. For option contracts, notional amounts include only the delta-equivalent volumes which represent the notional volumes times the probability of exercising the option based on current price volatility. Volumes associated with contracts qualifying for the NPNS exception have been excluded from the table below. Amounts disclosed represent the absolute value of notional amounts. Duke Energy and Duke Energy Ohio have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown below. For additional information on notional dollar amounts of debt subject to derivative contracts accounted for at fair value, see “Interest Rate Risk” section above.
~~Underlying Notional Amounts for Derivative Instruments Accounted for At Fair Value~~
Underlying Notional Amounts for Commodity Derivative Instruments Accounted for At Fair Value









Duke Energy

Duke Energy Ohio


September 30, 2012
Commodity contracts





Electricity-energy (Gigawatt-hours)^(a)(c)

27,820


29,770
Electricity-capacity (Gigawatt-months)

5


―
Oil (millions of gallons)

6


―
Natural gas (millions of decatherms)^(b)

436


131









December 31, 2011
Commodity contracts





Electricity-energy (Gigawatt-hours)^(a)

14,118


14,655
Emission allowances NOX (thousands of tons)

9


9
Natural gas (millions of decatherms)

40


2







(a)
Amounts at Duke Energy Ohio include intercompany positions that are eliminated at Duke Energy.
(b)
Amounts at Duke Energy include 297 million decatherms of natural gas relate to Progress Energy.
(c)
Amounts at Duke Energy include amounts related to Duke Energy Carolinas and Progress Energy Carolinas Interim FERC mitigation contracts entered into as part of the Progress Energy merger.
47

Duke Energy
   September 30,
2011    December 31,
2010
Commodity contracts

Electricity-energy (Gigawatt-hours)
   7,048       8,200
Electricity-capacity (Gigawatt-months)
   —         58
Emission allowances: SO₂ (thousands of tons)
   8       8
Natural gas (millions of decatherms)
   37       37
Duke Energy Ohio
   September 30,
2011    December 31,
2010
Commodity contracts

Electricity-energy (Gigawatt-hours)^(a)
   11,947       13,183
Electricity-capacity (Gigawatt-months)
   —         60
~~(a)~~ ~~Amounts include intercompany positions that are eliminated at Duke Energy.~~
The following table shows fair value amounts of derivative contracts as of September 30, 2011 and December 31, 2010, and the line item(s) in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts.
~~Location and Fair Value Amounts of Derivatives Reflected in the Condensed Consolidated Balance Sheets~~
~~Balance Sheet Location~~

Duke Energy
   September 30, 2011    December 31, 2010
   Asset    Liability    Asset    Liability
   (in millions)
Derivatives Designated as Hedging Instruments

Interest rate contracts

Current Assets: Other
   5       —         5       —
Investments and Other Assets: Other
   4       —         16       —
Current Liabilities: Other
   —         13       —         13
Deferred Credits and Other Liabilities: Other
   —         71       —         —








Total Derivatives Designated as Hedging Instruments
   $ 9       $ 84       $ 21       $ 13
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)

The following tables show fair value amounts of derivative contracts, and the line item(s) in the Condensed Consolidated Balance Sheets
in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts.













Location and Fair Value Amounts of Derivatives Reflected in the Condensed Consolidated Balance Sheets















Duke Energy

Duke Energy Ohio


September 30, 2012
(in millions)
Asset

Liability

Asset

Liability
Derivatives Designated as Hedging Instruments











Commodity contracts











Current Liabilities: Other
$
―

$
1

$
―

$
―
Interest rate contracts











Current Assets: Other

5


―


4


―
Current Liabilities: Other

―


11


―


―
Deferred Credits and Other Liabilities: Other

―


107


―


―
Total Derivatives Designated as Hedging Instruments
$
5

$
119

$
4

$
―
Derivatives Not Designated as Hedging Instruments











Commodity contracts











Current Assets: Other^(a)
$
55

$
5

$
33

$
12
Investments and Other Assets: Other

35


1


16


1
Current Liabilities: Other

94


377


85


110
Deferred Credits and Other Liabilities: Other

55


325


39


51
Interest rate contracts











Current Liabilities: Other^(b)

―


96


―


1
Deferred Credits and Other Liabilities: Other

―


8


―


8
Total Derivatives Not Designated as Hedging Instruments
$
239

$
812

$
173

$
183
Total Derivatives
$
244

$
931

$
177

$
183













(a)
Amount at Duke Energy includes $17 million related to commodity contracts at Duke Energy Indiana which receive regulatory accounting treatment.
(b)
Amount at Duke Energy includes $71 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment.
48

Derivatives Not Designated as Hedging Instruments

Commodity contracts

Current Assets: Other
   $ 73       $ 30       $ 108       $ 54
Investments and Other Assets: Other
   43       6       55       4
Current Liabilities: Other
   15       50       75       118
Deferred Credits and Other Liabilities: Other
   9       77       3       72
Interest rate contracts

Investments and Other Assets: Other^(a)
   —         —         60       —
Current Liabilities: Other^(a)^(b)
   —         94       —         2
Deferred Credits and Other Liabilities: Other^(c)
   —         68       —         5








Total Derivatives Not Designated as Hedging Instruments
   $ 140       $ 325       $ 301       $ 255








Total Derivatives
   $ 149       $ 409       $ 322       $ 268








~~(a)~~ ~~As of December 31, 2010, includes $60 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.~~
~~(b)~~ ~~As of September 30, 2011, includes $92 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.~~
~~(c)~~ ~~As of September 30, 2011, includes $60 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment.~~

Duke Energy Ohio
   September 30, 2011    December 31, 2010
   Asset    Liability    Asset    Liability
   (in millions)
Derivatives Designated as Hedging Instruments

Interest rate contracts

Current Assets: Other
   4       —         4       —
Investments and Other Assets: Other
   4       —         2       —








Total Derivatives Designated as Hedging Instruments
   $ 8       $ —         $ 6       $ —








PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)


Duke Energy

Duke Energy Ohio


December 31, 2011
(in millions)
Asset

Liability

Asset

Liability
Derivatives Designated as Hedging Instruments











Interest rate contracts











Current Assets: Other
$
4

$
―

$
3

$
―
Investments and Other Assets: Other

2


―


2


―
Current Liabilities: Other

―


11


―


―
Deferred Credits and Other Liabilities: Other

―


76


―


―
Total Derivatives Designated as Hedging Instruments
$
6

$
87

$
5

$
―
Derivatives Not Designated as Hedging Instruments











Commodity contracts











Current Assets: Other
$
81

$
31

$
79

$
39
Investments and Other Assets: Other

35


17


29


18
Current Liabilities: Other

136


168


136


146
Deferred Credits and Other Liabilities: Other

25


93


22


33
Interest rate contracts











Current Liabilities: Other

―


2


―


1
Deferred Credits and Other Liabilities: Other^(a)

―


75


―


8
Total Derivatives Not Designated as Hedging Instruments
$
277

$
386

$
266

$
245
Total Derivatives
$
283

$
473

$
271

$
245













(a)
Amounts at Duke Energy include $67 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment.

The following table shows the amount of the gains and losses recognized on derivative instruments designated and qualifying as
cash flow hedges by type of derivative contract, and the Condensed Consolidated Statements of Operations line items in which such gains and losses are included for Duke Energy.







Cash Flow Hedges—Location and Amount of Pre-Tax Gains (Losses) Recognized in Comprehensive Income



��





Three Months Ended


September 30,
(in millions)
2012

2011
Pre-tax Gains (Losses) Recorded in AOCI





Interest rate contracts
$
(4)

$
(73)
Commodity contracts

1


―
Total Pre-tax Gains (Losses) Recorded in AOCI
$
(3)

$
(73)
Location of Pre-tax Gains (Losses) Reclassified from AOCI into Earnings^(a)





Interest rate contracts





Interest expense
$
2

$
(1)
Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings
$
2

$
(1)







(a)
Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period.


Nine Months Ended


September 30,
(in millions)
2012

2011
Pre-tax Gains (Losses) Recorded in AOCI





Interest rate contracts
$
(30)

$
(80)
Commodity Contracts

1


―
Total Pre-tax Gains (Losses) Recorded in AOCI
$
(29)

$
(80)
Location of Pre-tax Gains and (Losses) Reclassified from AOCI into Earnings^(a)





Interest rate contracts





Interest expense
$
―

$
(4)
Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings
$
―

$
(4)







(a)
Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period.
49

Derivatives Not Designated as Hedging Instruments

Commodity contracts

Current Assets: Other
   $ 55       $ 34       $ 106       $ 57
Investments and Other Assets: Other
   7       2       6       2
Current Liabilities: Other
   16       30       75       98
Deferred Credits and Other Liabilities: Other
   12       17       3       7
Interest rate contracts

Current Liabilities: Other
   —         1       —         1
Deferred Credits and Other Liabilities: Other
   —         7       —         4








Total Derivatives Not Designated as Hedging Instruments
   $ 90       $ 91       $ 190       $ 169








Total Derivatives
   $ 98       $ 91       $ 196       $ 169








~~The following table shows the amount of the~~PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
There were no gains ~~and~~or losses ~~recognized~~ on ~~derivative instruments designated and qualifying as~~ cash flow hedges ~~by type of derivative contract during~~recorded or reclassified at Duke Energy Ohio for the ~~three and~~ nine months ended September 30, 2012 and 2011, ~~and 2010, and the Condensed Consolidated Statements of Operations line items in which such gains and losses are included.~~
~~Cash Flow Hedges—Location and Amount of Pre-Tax Gains and (Losses) Recognized in Comprehensive Income~~

Duke Energy
   Three Months Ended
September 30, Nine months Ended
September 30,
   2011 2010 2011 2010
   (in millions) (in millions)
Location of Pre-tax Gains (Losses) Reclassified from AOCI into Earnings^(a)

Commodity contracts

Fuel used in electric generation and purchased power—non-regulated
   —      1    —      1
Interest rate contracts

Interest expense
   (1 ) (2 ) (4 ) (4 )


Total Pre-tax Losses Reclassified from AOCI into Earnings
   $ (1 ) $ (1 ) $ (4 ) $ (3 )


Duke Energy Ohio
   Three Months Ended
September 30,    Nine months Ended
September 30,
   2011    2010    2011    2010
   (in millions)    (in millions)
Location of Pre-tax Gains Reclassified from AOCI into Earnings^(a)

Commodity contracts

Fuel used in electric generation and purchased power—non-regulated
   —         1       —         1








Total Pre-tax Gains Reclassified from AOCI into Earnings
   $ —         $ 1       $ —         $ 1








~~(a)~~ ~~Represents the gains and losses on cash flow hedges previously recorded in AOCI~~respectively. There were no hedge ineffectiveness during the ~~term of the hedging relationship and reclassified into earnings during the current period.~~
~~Duke Energy’s effective portion of losses on cash flow hedges that were recognized in AOCI during the three and~~ nine months ended September 30, ~~2011 were pre-tax losses of $73 million~~2012 and $80 million, respectively, and pre-tax losses of $1 million and $14 million, respectively, during the three and nine months ended September 30, 2010. In addition, there was no hedge ineffectiveness during the three and nine months ended September 30, 2011, ~~and 2010,~~ and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods for all Duke Energy Registrants.
Duke Energy. At September 30, 2012, and December 31, 2011, ~~$108~~$136 million and $115 million, respectively of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges remains in AOCI and a $7$2 million pre-tax gain is expected to be recognized in earnings during the next 12 months as the hedged transactions occur.
Duke Energy Ohio. At September 30, 2012, and December 31, 2011 there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI.
The following table shows the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument during the three and nine months ended September 30, 2011 and 2010, and the line item(s) in the Condensed Consolidated Statements of Operations in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities.

The following tables show the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative
instrument, and the line item(s) in the Condensed Consolidated Statements of Comprehensive Income in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities.

Undesignated Contracts—Location and Amount of Pre-Tax Gains and (Losses) Recognized in Income or as Regulatory Assets
or Liabilities















Duke Energy

Duke Energy Ohio


Three Months Ended September 30,
(in millions)
2012

2011

2012

2011
Location of Pre-tax Gains and (Losses) Recognized in Earnings











Commodity contracts











Revenue, regulated electric
$
(22)

$
―

$
―

$
―
Revenue, non-regulated electric, natural gas and other

(28)


―


(42)


(6)
Other income and expenses

(1)


―


―


―
Fuel used in electric generation and purchased power - Regulated

(135)


―


―


―
Interest rate contracts











Interest expense

(4)


―


―


―
Total Pre-tax (Losses) Gains Recognized in Earnings
$
(190)

$
―

$
(42)

$
(6)
Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities











Commodity contracts











Regulatory Asset
$
61

$
2

$
―

$
2
Regulatory Liability^(a)

12


2


―


―
Interest rate contracts











Regulatory Asset^(b)

7


(146)


―


(4)
Regulatory Liability^(c)

―


(60)


―


―
Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities
$
80

$
(202)

$
―

$
(2)













(a)
Amounts relate to commodity contracts at Duke Energy Indiana for the three months ended September 30, 2012.
(b)
Includes $82 million and $60 million related to interest rate swaps at Duke Energy Carolinas and Duke Energy Indiana, respectively for the three months ended September 30, 2011.
(c)
Amounts relate to interest rate swaps at Duke Energy Carolinas for the three months ended September 30, 2011.















Duke Energy

Duke Energy Ohio


Nine Months Ended September 30,
(in millions)
2012

2011

2012

2011
Location of Pre-tax Gains and (Losses) Recognized in Earnings











Commodity contracts











Revenue, regulated electric
$
(22)

$
―

$
―

$
―
Revenue, non-regulated electric, natural gas and other

8


(25)


33


(28)
Other income and expenses

(1)


―


―


―
Fuel used in electric generation and purchased power - Regulated

(135)


―


―


―
Fuel used in electric generation and purchased power - non-regulated

―


(1)


―


(1)
Interest rate contracts











Interest expense

(4)


―


(1)


(1)
Total Pre-tax (Losses) Gains Recognized in Earnings
$
(154)

$
(26)

$
32

$
(30)
Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities











Commodity contracts











Regulatory Asset
$
61

$
1

$
(2)

$
1
Regulatory Liability^(a)

34


12


1


―
Interest rate contracts











Regulatory Asset^(b)

(3)


(155)


―


(4)
Regulatory Liability^(c)

―


(60)


―


―
Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities
$
92

$
(202)

$
(1)

$
(3)













(a)
Amounts relate to commodity contracts at Duke Energy Indiana for the nine months ended September 30, 2012
(b)
Includes $91 million and $60 million related to interest rate swaps at Duke Energy Carolinas and Duke Energy Indiana, respectively for the nine months ended September 30, 2011.
(c)
Amounts relate to interest rate swaps at Duke Energy Carolinas for the nine months ended September 30, 2011.
50
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)

~~Undesignated Contracts—Location and Amount of Pre-Tax Gains and (Losses) Recognized in~~
~~Income or as Regulatory Assets or Liabilities~~

Duke Energy
   Three Months Ended
September 30, Nine months Ended
September 30,
   2011 2010 2011 2010
   (in millions) (in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings

Commodity contracts

Revenue, regulated electric
   $ —      $ —      $ —      $ 1
Revenue, non-regulated electric, natural gas and other
   —      3    (25 ) (31 )
Fuel used in electric generation and purchased power-non-regulated
   —      —      (1 ) 6


Total Pre-tax Gains (Losses) Recognized in Earnings
   $ —      $ 3    $ (26 ) $ (24 )


Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets or Liabilities

Commodity contracts

Regulatory Asset
   $ 2    $ —      $ 1    $ 2
Regulatory Liability
   2    (2 ) 12    10
Interest rate contracts

Regulatory Asset^(a)
   (146 ) (6 ) (155 ) (8 )
Regulatory Liability^(b)
   (60 ) —      (60 ) —


Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities
   $ (202 ) $ (8 ) $ (202 ) $ 4


~~(a)~~ Includes amounts related to interest rate swaps at Duke Energy Carolinas during the three and nine months ended September 30, 2011 of $82 million and $91 million, respectively, and includes $60 million related to interest rate swaps at Duke Energy Indiana for both the three and nine months ended September 30, 2011.
~~(b)~~ ~~Amounts relate to interest rate swaps at Duke Energy Carolinas.~~

Duke Energy Ohio
   Three Months Ended
September 30, Nine months Ended
September 30,
   2011 2010 2011 2010
   (in millions) (in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings

Commodity contracts

Revenue, non-regulated electric and other
   $ (6 ) $ 46    $ (28 ) $ 28
Fuel used in electric generation and purchased power-non-regulated
   —      —      (1 ) 6
Interest rate contracts

Interest expense
   —      (1 ) (1 ) (1 )


Total Pre-tax Gains (Losses) Recognized in Earnings^(a)
   $ (6 ) $ 45    $ (30 ) $ 33


Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets

Commodity contracts

Regulatory Asset
   $ 2    $ —      $ 1    $ 2
Interest rate contracts

Regulatory Asset
   (4 ) (2 ) (4 ) (4 )


Total Pre-tax Losses Recognized as Regulatory Assets
   $ (2 ) $ (2 ) $ (3 ) $ (2 )


~~(a)~~ ~~Amounts include intercompany positions that are eliminated at Duke Energy.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
Credit Risk
Certain of Duke Energy and Duke Energy Ohio’s derivative contracts contain contingent credit features, such as material adverse change clauses or payment acceleration clauses that could result in immediate payments, the posting of letters of credit or the termination of the derivative contract before maturity if specific events occur, such as a downgrade of Duke Energy or Duke Energy Ohio’s credit rating below investment grade.
The following table shows information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions. The amounts disclosed in the table below represent the aggregate fair value amounts of such derivative instruments at the end of the reporting period, the aggregate fair value of assets that are already posted as collateral under such derivative instruments at the end of the reporting period, and the aggregate fair value of additional assets that would be required to be transferred in the event that credit-risk-related contingent features were ~~triggered at September 30, 2011 and December 31, 2010.~~
~~Information Regarding Derivative Instruments that Contain Credit-risk Related Contingent Features~~triggered.

Information Regarding Derivative Instruments that Contain Credit-risk Related Contingent Features
Information Regarding Derivative Instruments that Contain Credit-risk Related Contingent Features







Duke Energy
   September 30,
2011    December 31,
2010
   (in millions)


Duke Energy

Duke Energy Ohio
(in millions)
(in millions)

September 30, 2012
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position
   $ 66       $ 148
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position

$
524

$
195
Collateral Already Posted
   $ 25       $ 2
Collateral Already Posted

$
158

$
84
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period
   $ 4       $ 14
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period

$
259

$
7







Duke Energy Ohio
   September 30,
2011    December 31,
2010
   (in millions)
(in millions)
(in millions)

December 31, 2011
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position
   $ 65       $ 147
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position

$
96

$
94
Collateral Already Posted
   $ 25       $ 2
Collateral Already Posted

$
36

$
35
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period
   $ 4       $ 14
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period

$
5

$
5
Netting of Cash Collateral and Derivative Assets and Liabilities Under Master Netting Arrangements.In accordance with applicable accounting rules, Duke Energy and Duke Energy Ohio have elected to offset fair value amounts (or amounts that approximate fair value) recognized on their Condensed Consolidated Balance Sheets related to cash collateral amounts receivable or payable against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting agreement. The amounts disclosed in the table below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting ~~arrangements as of September 30, 2011 and December 31, 2010.~~arrangements. See Note 9 for additional information on fair value disclosures related to derivatives.
~~Information Regarding Cash Collateral under Master Netting Arrangements~~
Information Regarding Cash Collateral under Master Netting Arrangements















Duke Energy

Duke Energy Ohio


September 30, 2012
(in millions)
Receivables

Payable

Receivables

Payable
Amounts offset against net derivative positions
$
93

$
―

$
20

$
―
Amounts not offset against net derivative positions
$
72

$
―

$
70

$
―















December 31, 2011
(in millions)
Receivables

Payable

Receivables

Payable
Amounts offset against net derivative positions
$
10

$
―

$
9

$
―
Amounts not offset against net derivative positions
$
30

$
―

$
28

$
―
51

   September 30, 2011    December 31, 2010
   (in millions)    (in millions)
Duke Energy
   Receivables    Payables    Receivables    Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets
   $ 7       —         $ 2       —
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets^(a)
   $ 28       —         $ 2       $ 3
   September 30, 2011    December 31, 2010
   (in millions)    (in millions)
Duke Energy Ohio
   Receivables    Payables    Receivables    Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets
   $ 7       —         $ 2       —
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets^(a)
   $ 16    $ —         —         $ 3
~~(a)~~ ~~Amounts for payables primarily represent margin deposits related to futures contracts.~~
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)

9. Fair Value of Financial Assets and Liabilities
Under existing accounting guidance, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. The fair value definition focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability versus an entry price, which would be the price paid to acquire an asset or received to assume a liability.
The Duke Energy Registrants classify recurring and non-recurring fair value measurements based on the following fair value hierarchy, as prescribed by the accounting guidance for fair value, which prioritizes the inputs to valuation techniques used to measure fair value into three levels:
Level 1—unadjusted quoted prices in active markets for identical assets or liabilities that Duke Energy has the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability ~~occur~~occurs with sufficient frequency and volume to provide ongoing pricing information. Duke Energy does not adjust quoted market prices on Level 1 for any blockage factor.
Level 2—a fair value measurement utilizing inputs other than a quoted market price that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates. A Level 2 measurement cannot have more than an insignificant portion of the valuation based on unobservable inputs.
Level 3—any fair value measurements which include unobservable inputs for the asset or liability for more than an insignificant portion of the valuation. A ~~Level~~level 3 measurement may be based primarily on ~~level~~Level 2 inputs.
The fair value accounting guidance for financial instruments permits entities to elect to measure many financial instruments and certain other items at fair value that are not required to be accounted for at fair value under other GAAP. There are no financial assets or financial liabilities that are not required to be accounted for at fair value under GAAP for which the option to record at fair value has been elected by the Duke Energy Registrants. However, in the future, the Duke Energy Registrants may elect to measure certain financial instruments at fair value in accordance with this accounting guidance.
Transfers into (out of) Levels 1, 2 or 3 represent existing assets or liabilities previously categorized as a higher level for which the inputs to the estimate became less observable or assets and liabilities that were previously classified as Level 2 or 3 for which the lowest significant input became more observable during the period. The Duke Energy Registrant’s Policy for the recognition of transfers between levels of the fair value hierarchy is to recognize the transfer at the end of the period. There were no transfers into (out of) Levels 1, 2 and 3 during the period.
Valuation methods of the primary fair value measurements disclosed below are as follows:
Investments in equity securities.Investments in equity securities, other than those accounted for as equity and cost method investments, are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as NASDAQ and NYSE. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. Prices have not been adjusted to reflect for after-hours market activity. The majority of investments in equity securities are valued using Level 1 measurements. For certain investments that are valued on a net asset value per share (or its equivalent), or the net asset value basis, when Duke Energy does not have the ability to redeem the investment in the near term at net asset value per share (or its equivalent), or the net asset value is not available as of the measurement date, the fair value measurement of the investment is categorized as Level 3.
Investments in available-for-sale auction rate securities. Duke Energy ~~held $115 million par value ($97 million carrying value) and $149 million par value ($118 million carrying value) as of September 30, 2011, and December 31, 2010, respectively of~~holds auction rate securities for which an active market does not currently exist. During the nine months ended September 30, ~~2011, $34~~2012, $39 million of these investments in auction rate securities were redeemed ~~by the issuer~~ at full par value plus accrued interest. ~~Duke Energy Carolinas~~Auction rate securities held ~~$16 million par value ($12 million carrying value)~~are student loan securities for which approximately 90% is ultimately backed by the U.S. government. Approximately 18% of these ~~auction rate~~ securities ~~at both~~are AAA rated. As of September 30, ~~2011,~~2012 and December 31, ~~2010. The vast majority~~2011 all of these auction rate securities are ~~AAA rated student loan securities for which substantially all the values are ultimately backed by the U.S. government. Those auction rate securities which are~~ classified as long-term investments and are valued ~~using~~as Level 3 measurements. The methods and significant assumptions used to determine the fair values of the investment in auction rate debt securities represent estimations of fair value using internal discounted cash flow models which incorporate primarily management’s own assumptions as to the term over which such investments will be recovered at par (ranging from 7 to 17 years), the current level of interest rates (less than 0.5%), and the appropriate risk-adjusted discount rates ~~when relevant observable inputs are not available~~(up to ~~determine the present value~~5.0% reflecting a tenor of ~~such cash flows.~~up to 17 years). In preparing the valuations, all significant value drivers were considered, including the underlying ~~collateral. Those auction~~collateral (primarily evaluated on the basis of credit ratings, parity ratios and the percentage of loans backed by the U.S. government). Auction rate securities which are classified as Short-term investments are valued using Level 2 measurements, as they are valued at par based on a commitment by the issuer to redeem at par value. ~~As of September 30, 2011, Duke Energy held $25 million of~~There were no auction rate securities classified as ~~short-term investments. In October 2011, Duke Energy received $25 million from the issuer who redeemed the securities at par value. As a result, at~~Short-term investments as of September 30, ~~2011, Duke Energy recorded the fair value equal to the par value and transferred these securities from Level 3 to Level 2.~~2012 or December 31, 2011.
There were no other-than-temporary impairments associated with investments in auction rate debt securities during the three months ended and nine months ended September 30, ~~2011~~2012 or ~~2010.~~2011.
Investments in debt securities. Most debt investments (including those held in the Nuclear ~~Decomissioning~~Decommissioning Trust Funds (NDTF)) are valued based on a calculation using interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. Most debt valuations are Level 2 measurements. If the market for a particular fixed income security is relatively inactive or illiquid, the measurement is a Level 3 measurement. U.S. Treasury debt is typically a Level 1 measurement.
53
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
Commodity derivatives. The pricing for commodity derivatives is primarily a calculated value which incorporates the forward price and is adjusted for liquidity (bid-ask spread), credit or non-performance risk (after reflecting credit enhancements such as collateral) and discounted to present value. The primary difference between a Level 2 and a Level 3 measurement has to do with the level of activity in forward markets for the commodity. If the market is relatively inactive, the measurement is deemed to be a Level 3 measurement. ~~Some commodity~~Commodity derivatives ~~are exchange traded contracts, which~~with clearinghouses are classified as Level 1 measurements.
Duke Energy















The following tables provide the fair value measurement amounts for financial assets and liabilities recorded at fair value on Duke Energy's Condensed
Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type.

















Total Fair Value Amounts at









(in millions)

September 30, 2012

Level 1

     Level 2

    Level 3
Investments in available-for-sale auction rate securities^(a)

$
41

$
―

$
―

$
41
Nuclear decommissioning trust fund equity securities


2,779


2,707


53


19
Nuclear decommissioning trust fund debt securities


1,376


234


1,095


47
Other long-term trading and available-for-sale equity securities^(b)


77


68


9


―
Other trading and available-for-sale debt securities^(c)


650


66


584


―
Derivative assets^(b)


89


―


10


79

Total Assets


5,012


3,075


1,751


186
Derivative liabilities^(d)


(776)


(24)


(598)


(154)

Net Assets

$
4,236

$
3,051

$
1,153

$
32



Total Fair Value Amounts at









(in millions)

December 31, 2011

Level 1

Level 2

Level 3
Investments in available-for-sale auction rate securities^(a)

$
71

$
―

$
―

$
71
Nuclear decommissioning trust fund equity securities


1,337


1,285


46


6
Nuclear decommissioning trust fund debt securities


723


109


567


47
Other long-term trading and available-for-sale equity securities^(b)


68


61


7


―
Other trading and available-for-sale debt securities^(c)


382


22


360


―
Derivative assets^(b)


74


43


6


25

Total Assets


2,655


1,520


986


149
Derivative liabilities^(d)


(264)


(36)


(164)


(64)

Net Assets

$
2,391

$
1,484

$
822

$
85














(a)
Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.
(b)
Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheet.
(c)
Included in Other within Investments and Other Assets and Short-term Investments on the Condensed Consolidated Balance Sheets.
(d)
Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

The following tables provide a reconciliation of beginning and ending balances of assets and liabilities measured at fair value on a
recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):














(in millions)
Available-for-Sale Auction Rate Securities

Available-for-Sale NDTF Investments

Derivatives (net)

Total
Three Months Ended September 30, 2012











Balance at June 30, 2012
$
41

$
64

$
(19)

$
86
Amounts acquired in Progress Energy Merger

―


―


(30)


(30)

Total pre-tax realized or unrealized losses included in earnings:













Regulated electric

―


―


12


12


Revenue, non-regulated electric, natural gas, and other

―


―


(6)


(6)

Purchases, sales, issuances and settlements:













Purchases

―


1


―


1


Issuances

―


―


(24)


(24)


Settlements

―


―


(10)


(10)

Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability

―


1


2


3
Balance at September 30, 2012
$
41

$
66

$
(75)

$
32
Three Months Ended September 30, 2011











Balance at June 30, 2011
$
90

$
53

$
(22)

$
121

Total pre-tax realized or unrealized gains (losses) included in earnings:













Revenue, non-regulated electric, natural gas, and other

―


―


8


8

Total pre-tax losses included in other comprehensive income:













Gains on available for sale securities and other

8


―


―


8

Purchases, sales, issuances and settlements:













Purchases

―


―


8


8


Settlements

(1)


―


(2)


(3)

Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory asset or liability

―


1


(16)


(15)

Transfers out of Level 3

(25)


―


―


(25)
Balance at September 30, 2011
$
72

$
54

$
(24)

$
102
54
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)
(in millions)
Available-for-Sale Auction Rate Securities

Available-for-Sale NDTF Investments

Derivatives (net)

Total
Nine Months Ended September 30, 2012











Balance at December 31, 2011
$
71

$
53

$
(39)

$
85
Amounts acquired in Progress Energy Merger

―


―


(30)


(30)

Total pre-tax realized or unrealized losses included in earnings:













Regulated electric

―


―


37


37


Revenue, non-regulated electric, natural gas, and other

―


―


(9)


(9)

Total pre-tax gains included in other comprehensive income:













Gains on available for sale securities and other

9


―


―


9

Purchases, sales, issuances and settlements:

��











Purchases

―


10


22


32


Issuances

―


―


(24)


(24)


Settlements

(39)


―


(34)


(73)

Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability

―


3


2


5
Balance at September 30, 2012
$
41

$
66

$
(75)

$
32
Pre-tax amounts included in the Condensed Consolidated Statements of Comprehensive Income related to Level 3 measurements outstanding at September 30, 2012












Revenue, non-regulated electric, natural gas, and other
―


―


5


5
Total
$
―

$
―

$
5

$
5
Nine Months Ended September 30, 2011











Balance at December 31, 2010
$
118

$
47

$
(19)

$
146

Total pre-tax realized or unrealized gains (losses) included in earnings:













Regulated electric

―


―


8


8


Revenue, non-regulated electric, natural gas, and other

―


―


(19)


(19)

Total pre-tax gains included in other comprehensive income:













Gains on available for sale securities and other

13


―


―


13

Purchases, sales, issuances and settlements:













Purchases

―


7


8


15


Sales

―


(3)


―


(3)


Settlements

(25)


―


(5)


(30)

Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability

―


3


3


6

Transfers out of Level 3

(34)


―


―


(34)
Balance at September 30, 2011
$
72

$
54

$
(24)

$
102
Pre-tax amounts included in the Condensed Consolidated Statements of Comprehensive Income related to Level 3 measurements outstanding at September 30, 2011












Revenue, non-regulated electric, natural gas, and other
―


―


(12)


(12)
Total
$
―

$
―

$
(12)

$
(12)
55

~~Duke Energy~~
The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy’s Condensed Consolidated Balance Sheets at fair value at September 30, 2011 and December 31, 2010. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type.

   Total Fair
Value
Amounts at
September 30,
2011 Level 1 Level 2 Level 3
   (in millions)
Description

Investments in available-for-sale auction rate securities^(a)
   $ 97    $ —      $ 25    $ 72
Nuclear decommissioning trust fund equity securities
   1,206    1,154    46    6
Nuclear decommissioning trust fund debt securities
   718    151    519    48
Other long-term trading and available-for-sale equity securities^(b)
   62    55    7    —
Other trading and available-for-sale debt securities⁽^c⁾
   330    27    303    —
Derivative assets⁽^d⁾
   89    15    9    65


Total Assets
   $ 2,502    $ 1,402    $ 909    $ 191
Derivative liabilities⁽^e⁾
   (349 ) (57 ) (203 ) (89 )


Net Assets
   $ 2,153    $ 1,345    $ 706    $ 102


~~(a)~~ ~~$72 million of these securities are included in Other within Investments and Other Assets and $25 million are classified as Short-Term Investments on the Condensed Consolidated Balance Sheets.~~
~~(b)~~ ~~Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(c)~~ ~~$209 million of these securities are included in Other within Investments and Other Assets and $121 million are classified as Short-Term Investments on the Condensed Consolidated Balance Sheets.~~
~~(d)~~ ~~Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(e)~~ ~~Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.~~

   Total Fair
Value
Amounts at
December 31,
2010 Level 1 Level 2 Level 3
   (in millions)
Description

Investments in available-for-sale auction rate securities^(a)
   $ 118    $ —      $ —      $ 118
Nuclear decommissioning trust fund equity securities
   1,365    1,313    46    6
Nuclear decommissioning trust fund debt securities
   649    35    573    41
Other long-term trading and available-for-sale equity securities^(a)
   164    157    7    —
Other long-term trading and available-for-sale debt securities^(a)
   221    10    211    —
Derivative assets^(b)
   186    21    81    84


Total Assets
   $ 2,703    $ 1,536    $ 918    $ 249
Derivative liabilities^(c)
   (132 ) (8 ) (21 ) (103 )


Net Assets
   $ 2,571    $ 1,528    $ 897    $ 146


~~(a)~~ ~~Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(b)~~ ~~Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(c)~~ ~~Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.~~
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)
Duke Energy Carolinas















The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Carolinas’
Condensed Consolidated Balance Sheets at fair value. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type.





Total Fair Value Amounts at









(in millions)
September 30, 2012

Level 1

Level 2

Level 3
Investments in available-for-sale auction rate securities^(a)

$
6

$
―

$
―

$
6
Nuclear decommissioning trust fund equity securities


1,553


1,487


47


19
Nuclear decommissioning trust fund debt securities


758


102


609


47

Total Assets

$
2,317

$
1,589

$
656

$
72
Derivative liabilities^(c)


(12)


―


―


(12)

Net Assets

$
2,305

$
1,589

$
656

$
60



Total Fair Value Amounts at









(in millions)

December 31, 2011

Level 1

Level 2

Level 3
Investments in available-for-sale auction rate securities^(a)

$
12

$
―

$
―

$
12
Nuclear decommissioning trust fund equity securities


1,337


1,285


46


6
Nuclear decommissioning trust fund debt securities


723


109


567


47
Derivative assets^(b)


1


―


1


―

Total Assets

$
2,073

$
1,394

$
614

$
65














(a)
Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.
(b)
Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

The following tables provide a reconciliation of beginning and ending balances of assets and liabilities measured at fair value
on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):














(in millions)
Available-for-Sale Auction Rate Securities

Available-for-Sale NDTF Investments

Derivatives (net)

Total
Three Months Ended September 30, 2012











Balance at June 30, 2012
$
6

$
64

$
―

$
70

Purchases, sales, issuances and settlements:













Purchases

―


1


―


1


Issuances

―


―


(14)


(14)


Settlements

―


―


2


2

Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability

―


1


―


1
Balance at September 30, 2012

6

$
66

$
(12)

$
60
Three Months Ended September 30, 2011











Balance at June 30, 2011
$
12

$
53

$
―

$
65

Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability

―


1


―


1
Balance at September 30, 2011
$
12

$
54

$
―

$
66
56

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):
~~Rollforward of Level 3 Measurements~~

   Available-for-
Sale
Auction Rate
Securities Available-for-
Sale
NDTF
Investments    Derivatives
(net) Total
Three Months Ended September 30, 2011

Balance at July 1, 2011
   $ 90    $ 53       $ (22 ) $ 121
Total pre-tax realized or unrealized gains included in earnings:

Revenue, regulated electric^(a)
   —      —         8    8
Total pre-tax gains included in other comprehensive income:

Gains on available for sale securities and other
   8    —         —      8
Purchases, sales, issuances and settlements:

Purchases^(a)
   —      —         8 8
Settlements
   (1 ) —         (2 ) (3 )
Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
   —      1    (16 ) (15 )
Transfers out of Level 3
   (25 )    (25 )




Balance at September 30, 2011
   $ 72    $ 54       $ (24 ) $ 102




(a)    Derivative amounts relate to financial transmission rights.

Three Months Ended September 30, 2010

Balance at July 1, 2010
   $ 178    $ 48       $ (7 ) $ 219
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)



Available-for-Sale Auction Rate Securities

Available-for-Sale NDTF Investments

Derivatives (net)

Total
Nine Months Ended September 30, 2012











Balance at December 31, 2011
$
12

$
53

$
―

$
65

Total pre-tax gains included in other comprehensive income:













Gains on available for sale securities and other

2


―


―


2

Purchases, sales, issuances and settlements:













Purchases

―


10


―


10


Issuances

―


―


(14)


(14)


Settlements

(8)


―


2


(6)

Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability

―


3


―


3
Balance at September 30, 2012
$
6

$
66

$
(12)

$
60
Nine Months Ended September 30, 2011











Balance at December 31, 2010
$
12

$
47

$
―

$
59

Purchases, sales, issuances and settlements:













Purchases

―


7


―


7


Sales

―


(3)


―


(3)

Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability

―


3


―


3
Balance at September 30, 2011
$
12

$
54

$
―

$
66
Duke Energy Ohio















The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Ohio’s
Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8.

















Total Fair Value Amounts at









(in millions)

September 30, 2012

Level 1

     Level 2

    Level 3
Derivative assets^(a)

$
40

$
27

$
4

$
9
Derivative liabilities^(b)


(46)


(20)


(9)


(17)

Net Assets (Liabilities)

$
(6)

$
7

$
(5)

$
(8)



Total Fair Value Amounts at









(in millions)

December 31, 2011

Level 1

     Level 2

    Level 3
Derivative assets^(a)

$
56

$
42

$
5

$
9
Derivative liabilities^(b)


(30)


(10)


(8)


(12)

Net Assets (Liabilities)

$
26

$
32

$
(3)

$
(3)














(a)
Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.
(b)
Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.
The following tables provide a reconciliation of beginning and ending balances of assets and liabilities measured at fair value on a
recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):
(in millions)
Derivatives (net)
Three Months Ended September 30, 2012
Balance at June 30, 2012
$
(2)
Total pre-tax realized or unrealized gains (losses) included in earnings:
Regulated electric
1
Revenue, non-regulated electric, natural gas, and other
(6)
Purchases, sales, issuances and settlements:
Settlements
(1)
Balance at September 30, 2012
$
(8)
Three Months Ended September 30, 2011
Balance at June 30, 2011
$
7
Total pre-tax realized or unrealized gains (losses) included in earnings:
Revenue, non-regulated electric, natural gas, and other
(1)
Purchases, sales, issuances and settlements:
Settlements
(1)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
2
Balance at September 30, 2011
$
7
57

Total pre-tax realized or unrealized losses included in earnings:

Revenue, non-regulated electric, natural gas, and other
   —      —      (15 ) (15 )
Fuel used in electric generation and purchased power—non-regulated
   —      —      (3 ) (3 )
Total pre-tax gains included in other comprehensive income:

Gains on available for sale securities and other
   2    —      —      2
Net purchases, sales, issuances and settlements
   (3 ) (4 ) 2    (5 )
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
   —      2 1    3


Balance at September 30, 2010
   $ 177    $ 46    $ (22 ) $ 201


   Available-for-
Sale
Auction Rate
Securities Available-for-
Sale
NDTF
Investments Derivatives
(net) Total
Nine months Ended September 30, 2011

Balance at January 1, 2011
   $ 118    $ 47    $ (19 ) $ 146
Total pre-tax realized or unrealized gains (losses) included in earnings:

Revenue, regulated electric^(a)
   —      —      8    8
Revenue, non-regulated electric, natural gas, and other
   —      —      (19 ) (19 )
Total pre-tax gains included in other comprehensive income:

Gains on available for sale securities and other
   13    —      —      13
Net purchases, sales, issuances and settlements:

Purchases^(a)
   —      7 8 15
Sales
   —      (3 ) —      (3 )
Settlements
   (25 ) —      (5 ) (30 )
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability or as non-current liability
   —      3    3    6
Transfers out of Level 3
   (34 ) (34 )


Balance at September 30, 2011
   $ 72    $ 54    $ (24 ) $ 102


Pre-tax amounts included in the Condensed Consolidated Statements of Operations related to Level 3 measurements outstanding at September 30, 2011:

Revenue, non-regulated electric, natural gas, and other
   $ —      $ —      $ (12 ) $ (12 )


Total
   $ —      $ —      $ (12 ) $ (12 )


(a)    Derivative amounts relate to financial transmission rights

Nine months Ended September 30, 2010

Balance at January 1, 2010
   $ 198    $ —      $ 25    $ 223
Total pre-tax realized or unrealized losses included in earnings:

Revenue, non-regulated electric, natural gas, and other
   —      —      (44 ) (44 )
Fuel used in electric generation and purchased power-non-regulated
   —      —   (14 ) (14 )
Total pre-tax gains included in other comprehensive income:

Gains on available for sale securities and other
   12    —      —      12
Net purchases, sales, issuances and settlement
   (33 ) 44    (5 ) 6
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability or as non-current liability
   —      2 16    18


Balance at September 30, 2010
   $ 177    $ 46    $ (22 ) $ 201


PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)

Pre-tax amounts included in the Condensed Consolidated Statements of Operations related to Level 3 measurements outstanding at September 30, 2010:

Revenue, non-regulated electric, natural gas, and other
   $ —         $ —         $ 15    $ 15
Fuel used in electric generation and purchased power-non-regulated
   —         —         (1 ) (1 )






Total
   $ —         $ —         $ 14    $ 14






~~Duke Energy Carolinas~~
The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Carolinas’ Condensed Consolidated Balance Sheets at fair value at September 30, 2011 and December 31, 2010. Amounts presented in the tables below exclude cash collateral amounts. See Note 10 for additional information related to investments by major security type.

   Total Fair
Value
Amounts at
September 30,
2011 Level 1    Level 2 Level 3
   (in millions)
Description

Investments in available-for-sale auction rate securities^(a)
   $ 12    $ —         $ —      $ 12
Nuclear decommissioning trust fund equity securities
   1,206    1,154       46    6
Nuclear decommissioning trust fund debt securities
   718    151       519    48
Derivative assets^(b)
   1    —         1    —




Total assets
   1,937    1,305       566    66
Derivative liabilities^(c)
   (92 ) —         (92 ) —




Net Assets
   $ 1,845    $ 1,305       $ 474    $ 66




(in millions)

Derivatives (net)
~~(a)~~
Nine Months Ended September 30, 2012
~~Included~~
Balance at December 31, 2011
$
(3)
Total pre-tax realized or unrealized gains (losses) included in ~~Other within Investments~~earnings:
Regulated Electric
1
Revenue, non-regulated electric, natural gas, and ~~Other Assets~~other
(5)
Purchases, sales, issuances and settlements:
Settlements
1
Total gains included on the Condensed Consolidated Balance ~~Sheets.~~Sheet as regulatory asset or liability
(2)
~~(b)~~
Balance at September 30, 2012
~~Included~~
$
(8)
Pre-tax amounts included in ~~Other within Current Assets~~the Condensed Consolidated Statements of Comprehensive Income related to Level 3 measurements outstanding at September 30, 2012:
Revenue, non-regulated electric and ~~Other within Investments~~other
$
1
Total
$
1
Nine Months Ended September 30, 2011
Balance at December 31, 2010
$
13
Total pre-tax realized or unrealized gains (losses) included in earnings:
Revenue, non-regulated electric, natural gas, and ~~Other Assets~~other
(7)
Purchases, sales, issuances and settlements:
Settlements
(2)
Total gains included on the Condensed Consolidated Balance ~~Sheets.~~Sheet as regulatory asset or liability
3
~~(c)~~
Balance at September 30, 2011
~~Included~~
$
7
Pre-tax amounts included in ~~Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on~~ the Condensed Consolidated ~~Balance Sheets.~~Statements of Comprehensive Income related to Level 3 measurements outstanding at September 30, 2011:
Revenue, non-regulated electric and other
$
1
Total
$
1

   Total Fair
Value
Amounts at
December 31,
2010 Level 1 Level 2    Level 3
   (in millions)
Description

Investments in available-for-sale auction rate securities^(a)
   $ 12    $ —      $ —         $ 12
Nuclear decommissioning trust fund equity securities
   1,365    1,313    46       6
Nuclear decommissioning trust fund debt securities
   649    35    573       41
Derivative assets^(b)
   62    1    61       —




Total assets
   2,088    1,349    680       59
Derivative liabilities^(c)
   (1 ) (1 ) —         —




Net Assets
   $ 2,087    $ 1,348    $ 680       $ 59




Duke Energy Indiana














         The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Indiana’s
Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type.

















Total Fair Value Amounts at









(in millions)

September 30, 2012

Level 1

     Level 2

    Level 3
Available-for-sale equity securities^(a)

$
49

$
49

$
―

$
―
Available-for-sale debt securities^(a)


28


―


28


―
Derivative assets^(b)


17


―


―


17

Total Assets


94


49


28

$
17
Derivative liabilities^(c)


(71)


―


(71)


―

Net Assets (Liabilities)

$
23

$
49

$
(43)

$
17
58

~~(a)~~ ~~Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(b)~~ ~~Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(c)~~ ~~Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.~~
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)



Total Fair Value Amounts at









(in millions)

December 31, 2011

Level 1

     Level 2

    Level 3
Available-for-sale equity securities^(a)

$
46

$
46

$
―

$
―
Available-for-sale debt securities^(a)


28


―


28


―
Derivative assets^(b)


4


―


―


4

Total Assets


78


46


28

$
4
Derivative liabilities^(c)


(69)


(1)


(68)


―

Net Assets (Liabilities)

$
9

$
45

$
(40)

$
4














(a)
Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.
(b)
Included in Other within Current Assets on the Condensed Consolidated Balance Sheets.
(c)
Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.
The following tables provide a reconciliation of beginning and ending balances of assets and liabilities measured at fair value
on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):
Derivatives
(in millions)
(net)
Three Months Ended September 30, 2012
Balance at June 30, 2012
$
22
Total pre-tax realized or unrealized gains (losses) included in earnings:
Regulated electric
11
Purchases, sales, issuances and settlements:
Settlements
(16)
Balance at September 30, 2012
$
17
Three Months Ended September 30, 2011
Balance at June 30, 2011
$
10
Total pre-tax realized or unrealized gains (losses) included in earnings:
Regulated electric
8
Purchases, sales, issuances and settlements:
Purchases
8
Settlements
(2)
Total losses included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
(18)
Balance at September 30, 2011
$
6
Derivatives
(in millions)
(net)
Nine Months Ended September 30, 2012
Balance at December 31, 2011
$
4
Total pre-tax realized or unrealized gains (losses) included in earnings:
Regulated electric
35
Purchases, sales, issuances and settlements:
Sales
22
Settlements
(45)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
1
Balance at September 30, 2012
$
17
Nine Months Ended September 30, 2011
Balance at December 31, 2010
$
4
Total pre-tax realized or unrealized gains (losses) included in earnings:
Regulated electric
8
Purchases, sales, issuances and settlements:
Purchases
8
Settlements
(14)
Balance at September 30, 2011
$
6
59

The following table provides a reconciliation of beginning and ending balances of assets measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):
~~Rollforward of Level 3 Measurements~~

   Available-for-
Sale
Auction Rate
Securities    Available-for-
Sale
NDTF
Investments Total
   (in millions)
Three Months Ended September 30, 2011

Balance at July 1, 2011
   $ 12       $ 53    $ 65
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
   —         1    1




Balance at September 30, 2011
   $ 12       $ 54    $ 66




   Available-for-
Sale
Auction Rate
Securities    Available-for-
Sale
NDTF
Investments Total
   (in millions)
Three Months Ended September 30, 2010

Balance at July 1, 2010
   $ 60       $ 48    $ 108
Total pre-tax gains included in other comprehensive income:

Gains on available for sale securities and other
   1       —      1
Net purchases, sales, issuances and settlements
   —         (4 ) (4 )
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
   —         2    2




Balance at September 30, 2010
   $ 61       $ 46    $ 107




PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)

   Available-for-
Sale
Auction Rate
Securities Available-for-
Sale
NDTF
Investments Total
   (in millions)
Nine months Ended September 30, 2011

Balance at January 1, 2011
   $ 12    $ 47    $ 59
Purchases, sales, issuances and settlements:

Purchases
   —      7    7
Sales
   —      (3 ) (3 )
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
   —      3    3


Balance at September 30, 2011
   $ 12    $ 54    $ 66


   Available-for-
Sale
Auction Rate
Securities Available-for-
Sale
NDTF
Investments Total
   (in millions)
Nine months Ended September 30, 2010

Balance at January 1, 2010
   $ 66    $ —      $ 66
Total pre-tax gains included in other comprehensive income:

Gains on available for sale securities and other
   3    —      3
Net purchases, sales, issuances and settlements
   —      44    44
Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
   (8 ) 2    (6 )


Balance at September 30, 2010
   $ 61    $ 46    $ 107


~~Duke Energy Ohio~~
The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Ohio’s Condensed Consolidated Balance Sheets at fair value at September 30, 2011 and December 31, 2010. Amounts presented in the tables below exclude cash collateral amounts which are disclosed separately in Note 8.
Additional Fair Value Disclosures—Long-term debt, including current maturities:















         The fair value of long-term debt is summarized in the following table. Judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates determined are not necessarily indicative of the amounts the Duke Energy Registrants could have settled in current markets. The fair value of the long-term debt is determined using Level 2 measurements.





As of September 30, 2012

As of December 31, 2011
(in millions)
Book Value

Fair Value

Book Value

Fair Value
Duke Energy ^(a)
$
38,597

$
43,908

$
20,573

$
23,053
Duke Energy Carolinas^(b)
$
9,166

$
10,744

$
9,274

$
10,629
Duke Energy Ohio
$
2,046

$
2,236

$
2,555

$
2,688
Duke Energy Indiana
$
3,704

$
4,427

$
3,459

$
4,048















(a)
Includes book value of Non-recourse long-term debt of variable interest entities of $911 million and $949 million September 30, 2012 and December 31, 2011, respectively.
(b)
Includes book value of Non-recourse long-term debt of variable interest entities of $300 million at both September 30, 2012 and December 31, 2011, respectively.

   Total Fair
Value
Amounts at
September 30,
2011 Level 1 Level 2 Level 3
   (in millions)
Description

Derivative assets^(a)
   $ 34    $ 11    $ 8    $ 15
Derivative liabilities^(b)
   (27 ) (11 ) (8 ) (8 )


Net Assets
   $ 7    $ —      $ —      $ 7


~~(a)~~ ~~Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(b)~~ ~~Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~

   Total Fair
Value
Amounts at
December 31,
2010 Level 1 Level 2 Level 3
   (in millions)
Description

Derivative assets^(a)
   $ 59    $ 20    $ 6    $ 33
Derivative liabilities^(b)
   (32 ) (7 ) (5 ) (20 )


Net Assets
   $ 27    $ 13    $ 1    $ 13


~~(a)~~ ~~Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(b)~~ ~~Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.~~
The following table provides a reconciliation of beginning and ending balances of assets measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):
~~Rollforward of Level 3 Measurements~~

   Derivatives
(net)
Three Months Ended September 30, 2011

Balance at July 1, 2011
   $ 7
Total pre-tax realized or unrealized losses included in earnings:

Revenue, non-regulated electric and other
   (1 )
Purchases, sales, issuances and settlements:

Settlements
   (1 )
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
   2


Balance at September 30, 2011
   $ 7


Three Ended September 30, 2010

Balance at July 1, 2010
   $ (4 )
Total pre-tax realized or unrealized gains (losses) included in earnings:

Revenue, non-regulated electric and other
   29
Fuel used in electric generation and purchased power—non-regulated
   (2 )
Net purchases, sales, issuances and settlements
   9


Balance at September 30, 2010
   $ 32


   Derivatives
(net)
Nine months Ended September 30, 2011

Balance at January 1, 2011
   $ 13
Total pre-tax realized or unrealized losses included in earnings:

Revenue, non-regulated electric and other
   (7 )
Purchases, sales, issuances and settlements:

Settlements
   (2 )
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
   3


Balance at September 30, 2011
   $ 7


Pre-tax amounts included in the Condensed Consolidated Statements of Operations related to Level 3 measurements outstanding at September 30, 2011:

Revenue, non-regulated electric and other
   $ 1


Total
   $ 1


~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~

   Derivatives
(net)
Nine months Ended September 30, 2010

Balance at January 1, 2010
   $ 7
Total pre-tax realized or unrealized gains (losses) included in earnings:

Revenue, non-regulated electric and other
   27
Fuel used in electric generation and purchased power—non-regulated
   (13 )
Net purchases, sales, issuances and settlements
   8
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
   3


Balance at September 30, 2010
   $ 32


Pre-tax amounts included in the Condensed Consolidated Statements of Operations related to Level 3 measurements outstanding at September 30, 2010:

Revenue, non-regulated electric and other
   $ 31
Fuel used in electric generation and purchased power—non-regulated
   (1 )


Total
   $ 30


~~Duke Energy Indiana~~
The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Indiana’s Condensed Consolidated Balance Sheets at fair value at September 30, 2011 and December 31, 2010. Amounts presented in the tables below exclude cash collateral amounts. See Note 10 for additional information related to investments by major security type.

   Total Fair
Value
Amounts at
September 30,
2011 Level 1    Level 2 Level 3
   (in millions)
Description

Available-for-sale equity securities^(a)
   $ 42    $ 42       $ —      $ —
Available-for-sale debt securities^(a)
   28    —         28    —
Derivative assets^(b)
   6    —         —      6




Total Assets
   76    42       28    6
Derivative liabilities^(c)
   (62 ) —         (62 ) —




Net Assets
   $ 14    $ 42       $ (34 ) $ 6




~~(a)~~ ~~Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(b)~~ ~~Included in Other within Current Assets on the Condensed Consolidated Balance Sheets.~~
~~(c)~~ ~~Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.~~

   Total Fair
Value
Amounts at
December 31,
2010 Level 1    Level 2 Level 3
   (in millions)
Description

Available-for-sale equity securities^(a)
   $ 47    $ 47       $ —      $ —
Available-for-sale debt securities^(a)
   26    —         26    —
Derivative assets^(b)
   4    —         —      4




Total Assets
   77    47       26    4
Derivative liabilities^(c)
   (2 ) —         (2 ) —




Net Assets
   $ 75    $ 47       $ 24    $ 4




~~(a)~~ ~~Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(b)~~ ~~Included in Other within Current Assets on the Condensed Consolidated Balance Sheets.~~
~~(c)~~ ~~Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
The following table provides a reconciliation of beginning and ending balances of assets measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):
~~Rollforward of Level 3 measurements~~

   Derivatives
(net)
   (in millions)
Three Months Ended September 30, 2011

Balance at July 1, 2011
   $ 10
Total pre-tax realized or unrealized gains included in earnings:

Revenue, regulated electric^(a)
   8
Net purchases, sales, issuances and settlements:

Purchases^(a)
   8
Settlements
   (2 )
Total losses included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
   (18 )


Balance at September 30, 2011
   $ 6


Three Months Ended September 30, 2010

Balance at July 1, 2010
   $ 7
Net purchases, sales, issuances and settlements
   (3 )


Balance at September 30, 2010
   $ 4


~~(a)~~ ~~Amounts relate to financial transmission rights.~~

   Derivatives
(net)
   (in millions)
Nine months Ended September 30, 2011

Balance at January 1, 2011
   $ 4
Total pre-tax realized or unrealized gains included in earnings:

Revenue, regulated electric^(a)
   8
Net purchases, sales, issuances and settlements:

Purchases^(a)
   8
Settlements
   (14 )


Balance at September 30, 2011
   $ 6


Nine months Ended September 30, 2010

Balance at January 1, 2010
   $ 4
Net purchases, sales, issuances and settlements
   (12 )
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability
   12


Balance at September 30, 2010
   $ 4


~~(a)~~ ~~Amounts relate to financial transmission rights.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~Additional Fair Value Disclosures - Long-term debt:~~ The fair value of long-term debt is summarized in the following table. Judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates determined as of September 30, 2011 and December 31, 2010 are not necessarily indicative of the amounts the Duke Energy Registrants could have settled in current markets.

   As of September 30, 2011
   Duke Energy    Duke Energy
Carolinas    Duke Energy Ohio    Duke Energy
Indiana
   Book
Value^(a)    Fair
Value    Book
Value    Fair
Value    Book
Value    Fair
Value    Book
Value    Fair
Value
   (in millions)
Long-term debt, including current maturities^(a)
   $ 19,111       $ 21,346       $ 8,273       $ 9,469       $ 2,558       $ 2,685       $ 3,469       $ 3,977
~~(a)~~ ~~Includes Non-recourse long-term debt of variable interest entities of $959 million for Duke Energy and $300 million for Duke Energy Carolinas.~~

   As of December 31, 2010
   Duke Energy    Duke Energy
Carolinas    Duke Energy Ohio    Duke Energy
Indiana
   Book
Value    Fair
Value    Book
Value    Fair
Value    Book
Value    Fair
Value    Book
Value    Fair
Value
   (in millions)
Long-term debt, including current maturities^(a)
   $ 18,210       $ 19,484       $ 7,770       $ 8,376       $ 2,564       $ 2,614       $ 3,472       $ 3,746
~~(a)~~ ~~Includes Non-recourse long-term debt of variable interest entities of $976 million for Duke Energy and $300 million for Duke Energy Carolinas.~~
At both September 30, ~~2011~~2012 and December 31, ~~2010,~~2011, the fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper and non-recourse notes ~~payables~~payable of variable interest entities are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
10. Investments in Debt and Equity Securities
The Duke Energy Registrants classify their investments in debt and equity securities into two categories – trading and available-for-sale.
Trading Securities.Investments in debt and equity securities held in grantor trusts associated with certain deferred compensation plans and certain other investments are classified as trading securities and are reported at fair value in the Condensed Consolidated Balance Sheets with net realized and unrealized gains and losses included in earnings each period. At both September 30, 2012 and December 31, 2011, the fair value of these investments was $32 million.
Available for Sale Securities. All other investments in debt and equity securities are classified as available-for-sale securities, which are also reported at fair value on the Condensed Consolidated Balance Sheets with unrealized gains and losses excluded from earnings and reported either as a regulatory asset or liability, as discussed further below, or as a component of other comprehensive income until realized.
~~Trading Securities.~~Duke Energy holds investments in debt and equity securities in grantor trusts that are associated with certain deferred compensation plans. At September 30, 2011 and December 31, 2010, the fair value of these investments was $30 million and $29 million, respectively. Additionally, at December 31, 2010, Duke Energy held Windstream Corp. (Windstream) equity securities, which were received as proceeds from the sale of Duke Energy’s equity investment in Q-Comm Corporation during the fourth quarter of 2010. The fair value of these securities at December 31, 2010 was $87 million. Duke Energy subsequently sold these securities in the first quarter of 2011. Proceeds received from the sale of Windstream equity securities are reflected in Net proceeds from the sale of equity investments and other assets, and sales of and collections on notes receivable in the Duke Energy Condensed Consolidated Statement of Cash Flows.
~~Available for Sale Securities.~~Duke Energy’s available-for-sale securities are primarily comprised of investments held in the ~~NDTF~~Nuclear Decommissioning Trust Fund (NDTF) at Duke Energy Carolinas and Progress Energy, investments in a grantor ~~trust~~trusts at both Duke Energy Indiana and Progress Energy related to other post-retirement benefit plans as required by the IURC and FPSC, respectively. Duke Energy captive insurance investment portfolio, ~~investments in short-term securities at~~ Duke ~~Energy International~~Energy’s foreign operations investment portfolio and investments of Duke Energy and Duke Energy Carolinas in auction rate debt securities.
The investments within the Duke Energy Carolinas and Progress Energy NDTF and the Duke Energy Indiana and Progress Energy grantor ~~trust~~trusts are managed by independent investment managers with discretion to buy, sell and invest pursuant to the objectives set forth by the trust agreements. Therefore, Duke Energy Carolinas, Progress Energy and Duke Energy Indiana have limited oversight of the day-to-day management of these investments. Since day-to-day investment decisions, including buy and sell decisions, are made by the investment manager, the ability to hold investments in unrealized loss positions is outside the control of Duke Energy Carolinas, Progress Energy and Duke Energy Indiana. Accordingly, all unrealized gains and losses associated with debt and equity securities within the Duke Energy Carolinas NDTF, Progress Energy NDTF and the Duke Energy Indiana and Progress Energy grantor ~~trust~~trusts are considered other-than-temporary and are recognized immediately when the fair value of individual investments is less than the cost basis of the investment. Pursuant to regulatory accounting, substantially all unrealized losses associated with investments in debt and equity securities within the Duke Energy Carolinas NDTF, Progress Energy NDTF and the Duke Energy Indiana and Progress Energy grantor ~~trust~~trusts are deferred as a regulatory asset or liability. As a result there is no immediate impact on the earnings of Duke Energy Carolinas, ~~and~~Progress Energy, or Duke Energy Indiana.
For investments in debt and equity securities held in the captive insurance investment portfolio, ~~investments in short-term securities at~~ Duke ~~Energy International~~Energy’s foreign operations investment portfolio and investments in auction rate debt securities, unrealized gains and losses are included in other comprehensive income until realized, unless it is determined that the carrying value of an investment is other-than-temporarily impaired. If so, the write-down to fair value may be included in earnings based on the criteria discussed below.
60
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
For available-for-sale securities outside of the Duke Energy Carolinas NDTF, Progress Energy NDTF, and the Duke Energy Indiana and Progress Energy grantor ~~trust,~~trusts, which are discussed separately above, Duke Energy analyzes all investment holdings each reporting period to determine whether a decline in fair value should be considered other-than-temporary. Criteria used to evaluate whether an impairment associated with equity securities is other-than-temporary includes, but is not limited to, the length of time over which the market value has been lower than the cost basis of the investment, the percentage decline compared to the cost of the investment and management’s intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. If a decline in fair value is determined to be other-than-temporary, the investment is written down to its fair value through a charge to earnings.
With respect to investments in debt securities, under the accounting guidance for other-than-temporary impairment, if the entity does not have an intent to sell the security and it is not more likely than not that management will be required to sell the debt security before the recovery of its cost basis, the impairment write-down to fair value would be recorded as a component of other comprehensive income, except for when it is determined that a credit loss exists. In determining whether a credit loss exists, management considers, among other things, the length of time and the extent to which the fair value has been less than the amortized cost basis, changes in the financial condition of the issuer of the security, or in the case of an asset backed security, the financial condition of the underlying loan obligors, consideration of underlying collateral and guarantees of amounts by government entities, ability of the issuer of the security to make scheduled interest or principal payments and any changes to the rating of the security by rating agencies. If it is determined that a credit loss exists, the amount of impairment write-down to fair value would be split between the credit loss, which would be recognized in earnings, and the amount attributable to all other factors, which would be recognized in other comprehensive income. Management believes, based on consideration of the criteria above, that no credit loss exists as of September 30, ~~2011~~2012 and December 31, ~~2010.~~2011. Management does not have the intent to sell such investments in auction rate debt securities and the investments in debt securities within its captive insurance investment portfolio and foreign operations investment portfolio, and it is not more likely than not that management will be required to sell these securities before the anticipated recovery of their cost basis. ~~Therefore, management~~Management has concluded that there were no other-than-temporary impairments for debt or equity securities necessary as of September 30, ~~2011~~2012 and December 31, ~~2010.~~2011. Accordingly, all changes in the market value of investments ~~in auction rate debt securities, short-term investments at~~other than the Duke Energy ~~International~~Carolinas NDTF, Progress Energy NDTF and ~~captive insurance investments~~the Duke Energy Indiana and Progress Energy grantor trusts were reflected as a component of other comprehensive income in ~~2011~~2012 and ~~2010.~~2011.
See Note 9 for additional information related to fair value measurements for investments in auction rate debt securities.
~~Management will continue to monitor the carrying value of its entire portfolio of~~Short-term and Long-term investments ~~in the future to determine if any other-than-temporary impairment losses should be recognized.~~
. Investments in debt and equity securities are classified as either short-term investments or long-term investments based on management’s intent and ability to sell these securities, taking into consideration illiquidity factors in the current markets.
Duke Energy holds corporate debt securities which were purchased using excess cash from its foreign operations. These investments are classified as Short-term Investments on the balance sheet and ~~Long-term~~are available for current operations of Duke Energy’s foreign business. Duke Energy held short-term investments. with a fair value of $335 million as of September 30, 2012 and $190 million as of December 31, 2011.
Duke Energy classifies its investments in debt and equity securities held in the Duke Energy Carolinas NDTF, Progress Energy NDTF (see Note 9 for further information), the Duke Energy Indiana and Progress Energy grantor ~~trust~~trusts and the captive insurance investment portfolio as long-term. ~~Investments at Duke Energy International are classified as short-term and are available for current operations.~~ Additionally, Duke Energy has classified ~~$72~~$41 million carrying value ($9050 million par value) and ~~$118~~$71 million carrying value ($~~149~~89 million par value) of investments in auction rate debt securities as long-term at September 30, ~~2011~~2012 and December 31, ~~2010,~~2011, respectively, due to market illiquidity factors as a result of continued failed ~~auctions.~~auctions, and since management does not intend to use these investments in current operations. All of these investments are classified as available-for-sale and, therefore, are reflected on the Condensed Consolidated Balance Sheets at estimated fair value based on either quoted market prices or management’s best estimate of fair value based on expected future cash flow using appropriate risk-adjusted discount rates. ~~Since management does not intend to use these investments in current operations, these investments are classified as long-term.~~
61
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)

The estimated fair values of short-term and long-term investments for Duke Energy, Duke Energy Carolinas, Progress Energy and
Duke Energy Indiana are as follows (in millions):





















September 30, 2012

December 31, 2011
(in millions)
Gross Unrealized Holding Gains

Gross Unrealized Holding Losses

Estimated Fair Value

Gross Unrealized Holding Gains

Gross Unrealized Holding Losses

Estimated Fair Value
Duke Energy Carolinas NDTF

















Equity Securities
$
587

$
5

$
1,553

$
443

$
16

$
1,337
Corporate Debt Securities

13


1


234


8


2


205
Municipal Bonds

3


―


62


2


―


51
U.S. Government Bonds

13


―


306


16


―


306
Other

7


1


156


4


4


161
Total Duke Energy Carolinas NDTF^(a)
$
623

$
7

$
2,311

$
473

$
22

$
2,060
Progress Energy NDTF

















Equity Securities

534


21


1,226


―


―


―
Corporate Debt Securities

9


―


85


―


―


―
Municipal Bonds

10


1


134


―


―


―
U.S. Government Bonds

17


―


295


―


―


―
Other

3


1


104


―


―


―
Total Progress Energy NDTF^(a)
$
573

$
23

$
1,844

$
―

$
―

$
―
Duke Energy Indiana Grantor Trust

















Equity Securities
$
9

$
―

$
49

$
5

$
1

$
46
Municipal Bonds

1


―


28


1


―


28
Total Duke Energy Indiana Grantor Trust^(a)
$
10

$
―

$
77

$
6

$
1

$
74
Other Investments

















Equity Securities

2


1


19


―


1


14
Corporate Debt Securities

3


―


384


1


1


241
Municipal Bonds

3


―


40


―


―


―
U.S. Government Bonds

―


―


46


1


―


21
Other

2


1


128


2


―


68
Auction Rate Securities^(b)

―


9


41


―


17


71
Total Other Investments
$
10

$
11

$
658

$
4

$
19

$
415
Total Duke Energy Investments
$
1,216

$
41

$
4,890

$
483

$
42

$
2,549



















(a)
Unrealized gains and losses on investments within the Duke Energy Carolinas NDTF, Progress Energy NDTF, and the Duke Energy Indiana and Progress Energy grantor trusts are deferred as regulatory assets and regulatory liabilities, respectively, pursuant to regulatory accounting treatment.
(b)
At September 30, 2012 and December 31, 2011, $6 million and $12 million of these securities were held by Duke Energy Carolinas, respectively. Gross unrealized holding gains on these securities held by Duke Energy Carolinas were insignificant at both September 30, 2012 and December 31, 2011. Gross unrealized holding losses on these securities held by Duke Energy Carolinas were $1 million at September 30, 2012 and $3 million at December 31, 2011.

The table below summarizes the fair value of debt securities held by Duke Energy, Duke Energy Carolinas, and Duke Energy Indiana
by contractual maturity date.













(in millions)
< 1 Year

1-5 Years

6-10 Years

Thereafter
Duke Energy^(a)
$
325

$
428

$
363

$
776
Duke Energy Carolinas^(a)
$
44

$
152

$
191

$
371
Duke Energy Indiana
$
―

$
22

$
4

$
2













(a)
Excludes auction rate securities based on the stated maturity date. See Note 9 for information about fair value measurements related to investments in auction rate debt securities.
62

~~The estimated fair values of short-term and long-term investments classified as available-for-sale for Duke Energy, Duke Energy Carolinas and Duke Energy Indiana are as follows (in millions):~~PART I
~~Duke Energy~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.

   September 30, 2011    December 31, 2010
   Gross
Unrealized
Holding
Gains^(a)    Gross
Unrealized
Holding
Losses^(a) Estimated
Fair
Value    Gross
Unrealized
Holding
Gains^(a)    Gross
Unrealized
Holding
Losses^(a) Estimated
Fair
Value
Short-term Investments^(b)
   $ —         $ —      $ 146       $ —         $ —      $ —








Total short-term investments
   $ —         $ —      $ 146    $ —         $ —      $ —








Equity Securities
   $ 334       $ (60 ) $ 1,261       $ 481       $ (16 ) $ 1,435
Corporate Debt Securities
   8       (4 ) 226       12       (3 ) 270
Municipal Bonds
   2       —      62       1       (9 ) 69
U.S. Government Bonds
   21       —      373       10       (1 ) 235
Auction Rate Debt Securities^(c)
   —         (19 ) 72       —         (31 ) 118
Other
   5       (2 ) 243       11       (5 ) 274








Total long-term investments
   $ 370       $ (85 ) $ 2,237       $ 515       $ (65 ) $ 2,401








Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
~~(a)~~ The table above includes unrealized gains and losses of $364 million and $63 million, respectively, at September 30, 2011 and unrealized gains and losses of $505 million and $32 million, respectively, at December 31, 2010 associated with investments held in the NDTF. Additionally, the table above includes unrealized gains and losses of $2 million and $1 million respectively, at September 30, 2011 and unrealized gains of $6 million and an insignificant amount of unrealized losses, respectively, at December 31, 2010 associated with investments held in the Duke Energy Indiana grantor trust. As discussed above, unrealized losses on investments within the NDTF and Duke Energy Indiana grantor trust are deferred as a regulatory asset pursuant to regulatory accounting treatment.
~~(b)~~ ~~At September 30, 2011, auction rate securities estimated fair value of $25 million are classified as Short-Term Investments on the Condensed Consolidated Balance Sheets.~~
~~(c)~~ ~~At September 30, 2011, auction rate securities estimated fair value of $72 million are included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
Debt securities held at September 30, 2011, which excludes auction rate securities based on the stated maturity date, mature as follows: $115 million in less than one year, $292 million in one to five years, $235 million in six to 10 years and $383 million thereafter.
The fair values and gross unrealized losses of available-for-sale debt and equity securities which are in an unrealized loss position for which other-than-temporary impairment losses have not been recorded, summarized by investment type and length of time that the securities have been in a continuous loss position, are presented in the table below ~~as of September 30, 2011 and December 31, 2010.~~

   As of September 30, 2011 As of December 31, 2010
   Fair
Value^(a)    Unrealized
Loss
Position
>12 months Unrealized
Loss
Position
<12 months Fair
Value^(a)    Unrealized
Loss
Position
>12 months Unrealized
Loss
Position
<12 months
Equity Securities
   $ 241       $ (13 ) $ (47 ) $ 85       $ (11 ) $ (5 )
Corporate Debt Securities
   195       (1 ) (3 ) 73       (2 ) (2 )
Municipal Bonds
   9       —      —      42       (8 ) (1 )
U.S. Government Bonds
   84       —      —      38       —      (1 )
Auction Rate Debt Securities^(b)
   71       (19 ) —      118       (31 ) —
Other
   115       (1 ) (1 ) 84       (1 ) (3 )






Total long-term investments
   $ 715       $ (34 ) $ (51 ) $ 440       $ (53 ) $ (12 )






~~(a)~~ The table above includes fair values of $459 million and $226 million at September 30, 2011 and December 31, 2010, respectively, associated with investments held in the NDTF. Additionally, the table above includes fair values of $15 million and $5 million at September 30, 2011 and December 31, 2010, respectively, associated with investments held in thefor Duke Energy, ~~Indiana grantor trust.~~
~~(b)~~ ~~See Note 9 for information about fair value measurements related to investments in auction rate debt securities.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
Duke Energy Carolinas, Progress Energy and Duke Energy Indiana.

   September 30, 2011    December 31, 2010
   Gross
Unrealized
Holding
Gains    Gross
Unrealized
Holding
Losses Estimated
Fair
Value    Gross
Unrealized
Holding
Gains    Gross
Unrealized
Holding
Losses Estimated
Fair
Value
Equity Securities
   $ 333       $ (57 ) $ 1,206       $ 475       $ (16 ) $ 1,365
Corporate Debt Securities
   6       (3 ) 174       10       (3 ) 227
Municipal Bonds
   1    —      34       1       (9 ) 43
U.S. Government Bonds
   20       —      346       10       —      224
Auction Rate Debt Securities
   —         (3 ) 12       —         (3 ) 12
Other
   4       (3 ) 164       9       (4 ) 155








Total long-term investments
   $ 364       $ (66 ) $ 1,936       $ 505       $ (35 ) $ 2,026








Debt securities held at September 30, 2011, which excludes auction rate securities based on the stated maturity date, mature as follows: $83 million in less than one year, $131 million in one to five years, $202 million in six to 10 years and $302 million thereafter.
The fair values and gross unrealized losses of available-for-sale debt and equity securities which are in an unrealized loss position for which other-than-temporary impairment losses have not been recorded, summarized by investment type and length of time that the securities have been in a continuous loss position, are presented in the table below as of September 30, 2011 and December 31, 2010.


September 30, 2012

December 31, 2011





Unrealized

Unrealized




Unrealized

Unrealized





Loss

Loss




Loss

Loss





Position

Position




Position

Position
(in millions)
Fair Value

>12 months

<12 months

Fair Value

>12 months

<12 months
Duke Energy Carolinas NDTF

















Equity Securities
$
60

$
―

$
5

$
111

$
4

$
12
Corporate Debt Securities

10


―


1


57


1


1
Municipal Bonds

1


―


―


―


―


―
U.S. Government Bonds

27


―


―


8


―


―
Other

16


―


1


113


1


3
Total Duke Energy Carolinas NDTF^(a)
$
114

$
―

$
7

$
289

$
6

$
16
Progress Energy NDTF

















Equity Securities
$
89

$
13

$
8

$
―

$
―

$
―
Corporate Debt Securities

3


―


―


―


―


―
Municipal Bonds

14


1


―


―


―


―
U.S. Government Bonds

10


―


―


―


―


―
Other

1


―


1


―


―


―
Total Progress Energy NDTF^(a)
$
117

$
14

$
9

$
―

$
―

$
―
Duke Energy Indiana Grantor Trust

















Equity Securities
$
9

$
―

$
―

$
8

$
―

$
1
Municipal Bonds

6


―


―


3


―


―
Total Duke Energy Indiana Grantor Trust^(a)
$
15

$
―

$
―

$
11

$
―

$
1
Other Investments

















Equity Securities
$
6

$
1

$
―

$
4

$
1

$
―
Corporate Debt Securities

1


―


―


201


1


―
Municipal Bonds

4


―


―


―


―


―
U.S. Government Bonds

6


―


―


―


―


―
Other

18


14


16


8


―


―
Auction Rate Securities^(b)

41


9


―


71


17


―
Total Other Investments
$
76

$
24

$
16

$
284

$
19

$
―
Total Duke Energy Investments
$
322

$
38

$
32

$
584

$
25

$
17



















(a)
Unrealized losses on investments within the Duke Energy Carolinas NDTF, Progress Energy NDTF, and the Duke Energy Indiana and Progress Energy grantor trusts are deferred as regulatory assets pursuant to regulatory accounting treatment.
(b)
At September 30, 2012 and December 31, 2011, $6 million and $12 million of these securities, respectively, were held by Duke Energy

Carolinas. The gross unrealized losses on these securities held by Duke Energy Carolinas which were in an unrealized loss position greater than 12 months were $1million at September 30, 2012 and $3 million at December 31, 2011.

   As of September 30, 2011 As of December 31, 2010
   Fair
Value    Unrealized
Loss
Position
>12 months Unrealized
Loss
Position
<12 months Fair
Value    Unrealized
Loss
Position
>12 months Unrealized
Loss
Position
<12 months
Equity Securities
   $ 220       $ (13 ) $ (44 ) $ 79       $ (11 ) $ (5 )
Corporate Debt Securities
   60       (1 ) (2 ) 59       (2 ) (1 )
Municipal Bonds
   2       —      —      28       (8 ) (1 )
U.S. Government Bonds
   76       —      —      33       —      —
Auction Rate Debt Securities^(a)
   12       (3 ) —      12       (3 ) —
Other
   101       (1 ) (2 ) 27       (1 ) (3 )






Total long-term investments
   $ 471       $ (18 ) $ (48 ) $ 238       $ (25 ) $ (10 )






~~(a)~~ ~~See Note 9 for information about fair value measurements related to investments in auction rate debt securities.~~
~~Duke Energy Indiana~~

   September 30, 2011    December 31, 2010
   Gross
Unrealized
Holding
Gains    Gross
Unrealized
Holding
Losses Estimated
Fair
Value    Gross
Unrealized
Holding
Gains    Gross
Unrealized
Holding
Losses    Estimated
Fair
Value
Equity Securities
   $ 1       $ (1 ) $ 42       $ 6       $ —         $ 47
Municipal Bonds
   1       —      28       —         —         26










Total long-term investments
   $ 2       $ (1 ) $ 70       $ 6       $ —         $ 73










~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~Debt securities held at September 30, 2011 mature as follows: $1 million in less than one year, $19 million in one to five years, $7 million in six to 10 years and $1 million thereafter.~~
The fair values and gross unrealized losses of available-for-sale debt and equity securities which are in an unrealized loss position for which other-than-temporary impairment losses have not been recorded, summarized by investment type and length of time that the securities have been in a continuous loss position, are presented in the table below as of September 30, 2011 and December 31, 2010.

   As of September 30, 2011 As of December 31, 2010
   Fair
Value    Unrealized
Loss
Position
>12 months    Unrealized
Loss
Position
<12 months Fair
Value    Unrealized
Loss
Position
>12 months    Unrealized
Loss
Position
<12 months
Equity Securities
   $ 8       $ —         $ (1 ) $ —         $ —         $ —
Municipal Bonds
   7       —         —      14       —         —










Total long-term investments
   $ 15       $ —         $ (1 ) $ 14       $ —         $ —










11. Variable Interest Entities
A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. If an entity is determined to be a VIE, a qualitative analysis of control determines the party that consolidates a VIE based on what party has the power to direct the most significant activities of the VIE that impact its economic performance as well as what party has rights to receive benefits or is obligated to absorb losses that are significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment.
CONSOLIDATED VIEs
The table below shows the VIEs that Duke Energy and Duke Energy Carolinas consolidate and how these entities impact Duke Energy’s and Duke Energy Carolinas’ respective Condensed Consolidated Balance Sheets. None of these entities isare consolidated by Duke Energy Ohio or Duke Energy Indiana.
Other than the discussion below related to Cinergy Receivables, no financial support was provided to any of the consolidated VIEs during the three or nine months ended September 30, 2011 and the year ended December 31, 2010, respectively, or is expected to be provided in the future, that was not previously contractually required.63
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)
Other than the discussion below related to CRC, no financial support was provided to any of the consolidated VIEs during the nine months ended September 30, 2012 and the year ended December 31, 2011, or is expected to be provided in the future, that was not previouslycontractually required.



September 30, 2012



Duke Energy


















Receivables


















Financing















(in millions)

LLC (DERF)^(a)

CRC

CinCapV

Renewables

Other

Total
Restricted Receivables of VIEs

$
738

$
486

$
15

$
8

$
3

$
1,250
Other Current Assets


―


―


2


143


11


156
Intangibles, net


―


―


―


12


―


12
Restricted Other Assets of VIEs


―


―


55


3


57


115
Other Assets


―


―


11


―


1


12
Property, Plant and Equipment, Cost


―


―


―


945


16


961
Accumulated Depreciation and Amortization


―


―


―


(89)


(5)


(94)
Other Deferred Debits


―


―


―


23


1


24

Total Assets


738


486


83


1,045


84


2,436
Accounts Payable


―


―


―


1


2


3
Non-Recourse Notes Payable


―


275


―


―


―


275
Taxes Accrued


―


―


―


5


―


5
Current Maturities of Long-Term Debt


―


―


12


31


5


48
Other Current Liabilities


―


―


3


20


(1)


22
Non-Recourse Long-Term Debt


300


―


51


502


58


911
Deferred Income Taxes


―


―


―


158


―


158
Asset Retirement Obligations


―


―


―


14


―


14
Other Liabilities


―


―


10


45


(1)


54

Total Liabilities


300


275


76


776


63


1,490
Noncontrolling Interests


―


―


―


―


2


2
Net Assets of Consolidated VIEs

$
438

$
211

$
7

$
269

$
19

$
944




















(a)
DERF is a wholly owned limited liability company of Duke Energy Carolinas.
64

   Duke Energy
   Duke Energy
Carolinas
   Duke Energy
Receivables
Financing LLC
(DERF)    Cinergy
Receivables    CinCap V    Renewables Other    Total
   (in millions)
At September 30, 2011

VIE Balance Sheets

Restricted Receivables of VIEs
   $ 637       $ 492       $ 13       $ 7    $ 3       $ 1,152
Other Current Assets
   —         —         4       82    8       94
Intangibles, net
   —         —         —         12    —         12
Restricted Other Assets of VIEs
   —         —         67       48    61       176
Other Assets
   —         —         21       —      —         21
Property, Plant and Equipment Cost, VIEs
   —         —         —         921    —         921
Less Accumulated Depreciation and Amortization
   —         —         —         (53 ) —         (53 )
Other Assets and Deferred Debits
   —         —         —         25    9       34










Total Assets
   637       492       105       1,042    81       2,357
Accounts Payable
   —         —         —         1    2       3
Non-Recourse Notes Payable
   —         275       —         —      —         275
Taxes Accrued
   —         —         —         3    �� —         3
Current Maturities of Long-Term Debt
   —         —         10       57    5       72
Other Current Liabilities
   —         —         5       57    —         62
Non-Recourse Long-Term Debt
   300       —         63       533    63       959
Deferred Income Taxes
   —         —         —         173    —         173
Asset Retirement Obligation
   —         —         —         12    —         12
Other Liabilities
   —         —         20       37    1       58










Total Liabilities
   300       275       98       873    71       1,617










Noncontrolling interests
   —         —         —         —      2       2










Net Duke Energy Corporation Shareholders’ Equity
   $ 337       $ 217       $ 7       $ 169    $ 8       $ 738










PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)



December 31, 2011
   Duke Energy


Duke Energy















   Duke Energy
Carolinas


Receivables















   Duke Energy
Receivables
Financing LLC
(DERF)    Cinergy
Receivables    CinCap V    Renewables Other Total


Financing















   (in millions)
At December 31, 2010

VIE Balance Sheets

(in millions)
(in millions)

LLC (DERF)^(a)

CRC

CinCapV

Renewables

Other

Total
Restricted Receivables of VIEs
   $ 637       $ 629       $ 12       $ 20    $ 4    $ 1,302
Restricted Receivables of VIEs

$
581

$
547

$
13

$
13

$
3

$
1,157
Other Current Assets
   —         —         4       282    8    294
Other Current Assets

―


―

2

124

8

134
Intangibles, net
   —         —         —         13    —      13
Intangibles, net

―


―

―

12

―

12
Restricted Other Assets of VIEs
   —         —         76       (2 ) 65    139
Restricted Other Assets of VIEs

―


―

65

10

60

135
Other Assets
   —         —         23       —      —      23
Other Assets

―


―

14

36

―

50
Property, Plant and Equipment Cost, VIEs
   —         —         —         892    50    942
Less Accumulated Depreciation and Amortization
   —         —         —         (26 ) (29 ) (55 )
Other Assets and Deferred Debits
   —         —         —         24    (3 ) 21
Property, Plant and Equipment, Cost
Property, Plant and Equipment, Cost

―


―

―

913

―

913
Accumulated Depreciation and Amortization
Accumulated Depreciation and Amortization

―


―

―

(62)

―

(62)
Other Deferred Debits
Other Deferred Debits

―


―

―

24

2

26








Total Assets

581


547

94

1,070

73

2,365
Total Assets
   637       629       115       1,203    95    2,679
Accounts Payable
   —         —         —         2    2    4
Accounts Payable

―


―

―

1

1

2
Non-Recourse Notes Payable
   —         216       —         —      —      216
Non-Recourse Notes Payable

―


273

―

―

―

273
Taxes Accrued
   —         —         —         1    —      1
Taxes Accrued

―


―

―

3

―

3
Current Maturities of Long-Term Debt
   —         —         9       45    7    61
Current Maturities of Long-Term Debt

―


―

11

49

5

65
Other Current Liabilities
   —         —         5       16    —      21
Other Current Liabilities

―


―

3

59

―

62
Non-Recourse Long-Term Debt
   300       —         71       518    87    976
Non-Recourse Long-Term Debt

300


―

60

528

61

949
Deferred Income Taxes
   —         —         —         191    —      191
Deferred Income Taxes

―


―

―

160

―

160
Asset Retirement Obligation
   —         —         —         12    —      12
Asset Retirement Obligation

―


―

―

13

―

13
Other Liabilities
   —         —         22       4    —      26
Other Liabilities

―


―

13

37

―

50








Total Liabilities

300


273

87

850

67

1,577
Total Liabilities
   300       216       107       789    96    1,508
Noncontrolling Interests
Noncontrolling Interests

―


―

―

―

1

1
Net Assets of Consolidated VIEs
Net Assets of Consolidated VIEs

$
281

$
274

$
7

$
220

$
5

$
787






















Noncontrolling interests
   —         —         —         —      1    1








Net Duke Energy Corporation Shareholders’ Equity
   $ 337       $ 413       $ 8       $ 414    $ (2 ) $ 1,170








(a)
DERF is a wholly owned limited liability company of Duke Energy Carolinas.
DERF. Duke Energy Carolinas securitizes certain accounts receivable through DERF, a bankruptcy remote, special purpose subsidiary. DERF is a ~~wholly-owned~~wholly owned limited liability company of Duke Energy Carolinas with a separate legal existence from its parent, and its assets are not intended to be generally available to creditors of Duke Energy Carolinas. As a result of the securitization, on a daily basis Duke Energy Carolinas sells certain accounts receivable, arising from the sale of electricity and/or related services as part of Duke Energy Carolinas’ franchised electric business, to DERF. In order to fund its purchases of accounts receivable, DERF has a $300 million secured credit facility with a commercial paper conduit, which expires in August ~~2013.~~2014. Duke Energy Carolinas provides the servicing for the receivables (collecting and applying the cash to the appropriate receivables). Duke Energy Carolinas’ borrowing under the credit facility is limited to the amount of qualified receivables sold, which has been and is expected to be in excess of the amount borrowed, which is maintained at $300 million. The debt is classified as long-term since the facility has an expiration date of greater than one year from the balance sheet date.
The obligations of DERF under the facility are non-recourse to Duke Energy Carolinas. Duke Energy and its subsidiaries have no requirement to provide liquidity, purchase assets of DERF or guarantee performance. DERF is considered a VIE because the equity capitalization is insufficient to support its operations. If deficiencies in the net worth of DERF were to occur, those deficiencies would be cured through funding from Duke Energy Carolinas. In addition, the most significant activity of DERF relates to the decisions made with respect to the management of delinquent receivables. Since those decisions are made by Duke Energy Carolinas and any net worth deficiencies of DERF would be cured through funding from Duke Energy Carolinas, Duke Energy Carolinas consolidates DERF.
~~Cinergy Receivables~~CRC. ~~Cinergy Receivables~~CRC was formed in order to secure low cost financing for Duke Energy Ohio, including Duke Energy Kentucky, and Duke Energy Indiana. Duke Energy Ohio and Duke Energy Indiana sell on a revolving basis at a discount, nearly all of their customer accounts receivable and related collections to ~~Cinergy Receivables.~~CRC. The receivables which are sold are selected in order to avoid any significant concentration of credit risk and exclude delinquent receivables. The receivables sold are securitized by ~~Cinergy Receivables~~CRC through a facility managed by two unrelated third parties and the receivables are used as collateral for commercial paper issued by the unrelated third parties. These loans provide the cash portion of the proceeds paid by ~~Cinergy Receivables~~CRC to Duke Energy Ohio and Duke Energy Indiana. The proceeds obtained by Duke Energy Ohio and Duke Energy Indiana from the sales of receivables are cash and a subordinated note from ~~Cinergy Receivables~~CRC (subordinated retained interest in the sold receivables) for a portion of the purchase price (typically approximates 25% of the total proceeds). The amount borrowed by ~~Cinergy Receivables~~CRC against these receivables is non-recourse to the general credit of Duke Energy, and the associated cash collections from the accounts receivable sold is the sole source of funds to satisfy the related debt obligation. Borrowing is limited to approximately 75% of the transferred receivables. Losses on collection in excess of the discount are first absorbed by the equity of ~~Cinergy Receivables~~CRC and next by the subordinated retained interests held by Duke Energy
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
Ohio and Duke Energy Indiana. The discount on the receivables reflects interest expense plus an allowance for bad debts net of a servicing fee charged by Duke Energy Ohio and Duke Energy Indiana. Duke Energy Ohio and Duke Energy Indiana are responsible for the servicing of the receivables (collecting and applying the cash to the appropriate receivables). Depending on the experience with collections, additional equity infusions to ~~Cinergy Receivables~~CRC may be required to be made by Duke Energy in order to maintain a minimum equity balance of $3 million. ~~For~~There were no equity infusions to CRC during the nine months ended September 30, 2012. During the nine months ended September 30, 2011, Duke Energy infused $6 million of equity to Cinergy ~~Receivables to remedy net worth deficiencies. For the three and nine months ended September 30, 2010, Duke Energy infused $4 million and $10 million, respectively, of equity to Cinergy Receivables~~receivables to remedy net worth deficiencies. The amount borrowed fluctuates based on the amount of
65
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
receivables sold. The debt is ~~short-term~~short term because the facility has an expiration date of less than one year from the balance sheet date. The current expiration date is ~~October 2011; however, Duke Energy extended the expiration date to October 2012 subsequent to September 30, 2011. Cinergy Receivables~~November 2013. CRC is considered a VIE because the equity capitalization is insufficient to support its operations, the power to direct the most significant activities of the entity are not performed by the equity holder, Cinergy, and deficiencies in the net worth of Cinergy Receivables are not funded by Cinergy, but by Duke Energy.operations. The most significant activity of ~~Cinergy Receivables~~CRC relates to the decisions made with respect to the management of delinquent receivables. These decisions, as well as the requirement to make up deficiencies in net worth, are made by Duke Energy and not by Duke Energy Ohio, Duke Energy Kentucky or Duke Energy Indiana. Thus, Duke Energy consolidates ~~Cinergy Receivables. Neither~~CRC. Duke Energy Ohio orand Duke Energy Indiana do not consolidate ~~Cinergy Receivables.~~CRC.
CinCap V.CinCap V was created to finance and execute a power sale agreement with Central Maine Power Company for approximately 35 MW of capacity and energy. This agreement expires in 2016. CinCap V is considered a VIE because the equity capitalization is insufficient to support its operations. As Duke Energy has the power to direct the most significant activities of the entity, which are the decisions to hedge and finance the power sales agreement, CinCap V is consolidated by Duke Energy.
Renewables. Duke Energy’s renewable energy facilities include Green Frontier Windpower, LLC, Top of The World Wind Energy LLC, and various solar projects, all subsidiaries of DEGS, an indirect ~~wholly-owned~~wholly owned subsidiary of Duke Energy.
~~These renewable energy facilities~~Green Frontier Windpower, LLC, Top of the World Wind Energy, LLC and the various solar projects are VIEs due to power purchase agreements with terms that approximate the expected life of the projects. These fixed price agreements effectively transfer the commodity price risk to the buyer of the power. Duke Energy has consolidated these entities since inception because the most significant activities that impact the economic performance of these renewable energy facilities were the decisions associated with the siting, negotiation of the purchase power agreement, engineering, procurement and construction, and decisions associated with ongoing operations and maintenance related activities, all of which were made solely by Duke Energy.
The debt held by these renewable energy facilities is non-recourse to the general credit of Duke Energy. Duke Energy and its subsidiaries have no requirement to provide liquidity or purchase the assets of these renewable energy facilities. Duke Energy does not guarantee performance except for, an immaterial multi-purpose letter of credit and various immaterial debt service reserve and operations and maintenance reserve guarantees. The assets are restricted and they cannot be pledged as collateral or sold to third parties without the prior approval of the debt holders.
Other. Duke Energy has other VIEs with restricted assets and non-recourse debt. These VIEs include certain on-site power generation facilities. Duke Energy consolidates these particular on-site power generation entities because Duke Energy has the power to direct the majority of the most significant activities, which, most notably involve the oversight of operation and maintenance related activities that impact the economic performance of these entities.
During the second quarter of 2011, the customer for an on-site generation facility cancelled its contract. As a result, the entity providing the on-site generation services no longer has any activity or assets, other than a receivable with payments to be collected through 2017. As of September 30, 2011, Duke Energy no longer consolidates this entity.
NON-CONSOLIDATED VIEs
The ~~table~~tables below ~~shows~~show the VIEs that the Duke Energy Registrants do not consolidate and how these entities impact ~~Duke Energy’s,~~the Duke Energy ~~Ohio’s and Duke Energy Indiana’s~~Registrants respective Condensed Consolidated Balance Sheets. As discussed above, while Duke Energy ~~consolidates Cinergy Receivables,~~consolidated CRC, Duke Energy Ohio and Duke Energy Indiana do not consolidate ~~Cinergy Receivables~~CRC as they are not the primary beneficiary.



September 30, 2012
         Duke Energy



Duke Energy




   Duke Energy
Ohio    Duke Energy
Indiana    DukeNet    Renewables    Other    Total
At September 30, 2011
Consolidated Balance Sheets

(in millions)
(in millions)

DukeNet

Renewables

FPC Capital I Trust

Other

Total

Duke Energy Ohio

Duke Energy Indiana
Receivables
   $ 87       $ 122       $ —         $ —         $ —         $ —
Receivables

$
―

$
―

―

$
―

$
―

$
85

$
118
Investments in equity method unconsolidated affiliates
   —         —         130       84       25       239
Investments in equity method unconsolidated affiliates


120

154

9

27

310

―

―
Intangibles
   113       —         —         —         113       113
Intangibles


―



―

106

106

106

―












Total Assets


120

154

9

133

416

191

118
Total Assets
   200       122       130       84       138       352
Other Current Liabilities
   —         —         —         —         1       1
Other Current Liabilities


―

―

―

2

2

―

―
Deferred Credits and Other Liabilities
   —         —         —         —         18       18
Deferred Credits and Other Liabilities


―

―

320

17

337

―

―












Total Liabilities


―

―

320

19

339

―

―
Total Liabilities
   —         —         —         —         19       19












Net Duke Energy Corporation Shareholders’ Equity
   $ 200       $ 122       $ 130       $ 84       $ 119       $ 333












Net Assets (Liabilities)
Net Assets (Liabilities)

$
120

$
154

(311)

$
114

$
77

$
191

$
118



December 31, 2011



Duke Energy

Duke Energy

Duke Energy
(in millions)

DukeNet

Renewables

Other

Total

Ohio

Indiana
Receivables

$
―

$
―

$
―

$
―

$
129

$
139
Investments in equity method unconsolidated affiliates


129


81


25


235


―


―
Intangibles


―


―


111


111


111


―

Total Assets


129


81


136


346


240


139
Other Current Liabilities


―


―


3


3


―


―
Deferred Credits and Other Liabilities


―


―


18


18


―


―

Total Liabilities


―


―


21


21


―


―
Net Assets

$
129

$
81

$
115

$
325

$
240

$
139
66
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)

         Duke Energy
   Duke Energy
Ohio    Duke Energy
Indiana    DukeNet    Renewables    Other    Total
At December 31, 2010
Consolidated Balance Sheets

Receivables
   $ 216       $ 192       $ —         $ —         $ —         $ —
Investments in equity method unconsolidated affiliates
   —         —         137       95       23       255
Intangibles
   119       —         —         —         119       119












Total Assets
   335       192       137       95       142       374
Other Current Liabilities
   —         —         —         —         3       3
Deferred Credits and Other Liabilities
   —         —         —         —         28       28












Total Liabilities
   —         —         —         —         31       31












Net Duke Energy Corporation Shareholders’ Equity
   $ 335       $ 192       $ 137       $ 95       $ 111       $ 343












No financial support that was not previously contractually required was provided to any of the unconsolidated VIEs during the ~~three and~~ nine months ended September 30, ~~2011~~2012 and ~~the year ended December 31, 2010, respectively,~~2011, or is expected to be provided in the future.
With the exception of the power purchase agreement with the Ohio Valley Electric Corporation (OVEC), which is discussed below, and various guarantees, reflected in the table above as “Deferred Credits and Other Liabilities”, the Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above.
~~Cinergy Receivables~~DukeNet. As discussed above, Cinergy Receivables is consolidated only by Duke Energy. Accordingly, the retained interest in the sold receivables recorded on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana are eliminated in consolidation at Duke Energy.
The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from Cinergy Receivables for a portion of the purchase price (typically approximates 25% of the total proceeds). The subordinated note is a retained interest (right to receive a specified portion of cash flows from the sold assets) and is classified within Receivables in Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010. The retained interests reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana approximate fair value.
The carrying values of the retained interests are determined by allocating the carrying value of the receivables between the assets sold and the interests retained based on relative fair value. Because the receivables generally turnover in less than two months, credit losses are reasonably predictable due to the broad customer base and lack of significant concentration, and the purchased beneficial interest (equity in Cinergy Receivables) is subordinate to all retained interests and thus would absorb losses first, the allocated basis of the subordinated notes are not materially different than their face value. The hypothetical effect on the fair value of the retained interests assuming both a 10% and a 20% unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio, Duke Energy Indiana and Duke Energy Kentucky on the retained interests using the accretable yield method, which generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both the retained interests and purchased beneficial interest whenever it is determined that an other-than-temporary impairment has occurred. The key assumptions used in estimating the fair value in 2011 and 2010 is detailed in the following table:

   2011 2010
Duke Energy Ohio

Anticipated credit loss ratio
   0.8 % 0.8 %
Discount rate
   2.6 % 2.7 %
Receivable turnover rate
   12.7 % 12.6 %
Duke Energy Indiana

Anticipated credit loss ratio
   0.4 % 0.5 %
Discount rate
   2.6 % 2.7 %
Receivable turnover rate
   10.2 % 10.2 %
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~The following table shows the gross and net receivables sold as of September 30, 2011 and December 31, 2010, respectively:~~

   Duke Energy Ohio    Duke Energy Indiana
Receivables sold as of September 30, 2011
   $ 262       $ 262
Less: Retained interests
   87       122




Net receivables sold as of September 30, 2011
   $ 175       $ 140




~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~

   Duke Energy Ohio    Duke Energy Indiana
Receivables sold as of December 31, 2010
   $ 373       $ 284
Less: Retained interests
   216       192




Net receivables sold as of December 31, 2010
   $ 157       $ 92




~~The following table shows the retained interests, sales, and cash flows during the three and nine months ended September 30, 2011 and 2010, respectively:~~

Three Months Ended September 30, 2011    Duke Energy Ohio    Duke Energy Indiana
Sales

Receivables sold
   $ 592       $ 711
Loss recognized on sale
   5       5
Cash flows

Cash proceeds from receivables sold
   $ 615       $ 696
Return received on retained interests
   3       3
Three Months Ended September 30, 2010    Duke Energy Ohio    Duke Energy Indiana
Sales

Receivables sold
   $ 672       $ 686
Loss recognized on sale
   5       5
Cash flows

Cash proceeds from receivables sold
   $ 707       $ 704
Collection fees received
   —         1
Return received on retained interests
   4       3
Nine Months Ended September 30, 2011    Duke Energy Ohio    Duke Energy Indiana
Sales

Receivables sold
   $ 1,832       $ 2,009
Loss recognized on sale
   16       13
Cash flows

Cash proceeds from receivables sold
   $ 1,952       $ 2,051
Collection fees received
   1       1
Return received on retained interests
   10       10
Nine Months Ended September 30, 2010    Duke Energy Ohio    Duke Energy Indiana
Sales

Receivables sold
   $ 2,178       $ 1,893
Loss recognized on sale
   19       13
Cash flows

Cash proceeds from receivables sold
   $ 2,236       $ 1,904
Collection fees received
   1       1
Return received on retained interests
   12       10
~~Cash flows from the sale of receivables are reflected within Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows.~~
Collection fees received in connection with the servicing of transferred accounts receivable are included in Operation, Maintenance and Other on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Operations. The loss recognized on the sale of receivables is calculated monthly by multiplying the receivables sold during the month by the required discount which is derived monthly utilizing a three year weighted average formula that considers charge-off history, late charge history, and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is calculated monthly by summing the prior month-end LIBOR plus a fixed rate of 2.39%.
~~DukeNet~~.In 2010, Duke Energy sold a 50% ownership interest in DukeNet to Alinda. The sale resulted in DukeNet becoming a joint venture with Duke Energy and Alinda each owning a 50% interest. In connection with the formation of the new DukeNet joint venture, a five-year, $150 million senior secured credit facility was executed with a syndicate of ten external financial institutions. This credit facility is non-recourse to Duke Energy. DukeNet is considered a VIE because it has entered into certain contractual arrangements that provide DukeNet with additional forms of subordinated financial support. The most significant activities that impact DukeNet’s economic performance relate to its business development and fiber optic capacity marketing and management activities. The power to direct these activities is jointly and equally shared by Duke Energy and Alinda. As a result, Duke Energy does not consolidate the DukeNet joint venture. Accordingly, DukeNet is a non-consolidated VIE that is reported as an equity method investment.
Unless consent by Duke Energy is given otherwise, Duke Energy and its subsidiaries have no requirement to provide liquidity, purchase the assets of DukeNet, or guarantee performance.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~Renewables
~~Renewables~~.Duke ~~Energy’s Commercial Power business segment~~Energy has investments in various entities that generate electricity through the use of renewable energy technology. Some of these entities, which were part of the Catamount acquisition, are VIEs which are not consolidated due to the joint ownership of the entities when they were ~~created.~~created and the power to direct and control key activities is shared jointly Instead, Duke Energy’s investment is recorded under the equity method of accounting. These entities are VIEs due to power purchase agreements with terms that approximate the expected life of the project. These fixed price agreements effectively transfer the commodity price risk to the buyer of the power.
DS Cornerstone, LLC, a 50/50 joint venture entity with a third-party joint venture partner, owns two windpower projects and has executed a third party financing against the two windpower projects. DS Cornerstone was a consolidated VIE of Duke Energy through August 31, 2012, as the members equity was not sufficient to support the operations of the joint venture as demonstrated by the third party financing. Duke Energy provided a Production Tax Credit (PTC) Remedy Agreement to the joint venture partner whereby Duke Energy guaranteed the two windpower projects would achieve commercial operation in 2012 and an agreed to number of wind turbines would qualify for production tax credits. In the event the agreed to number of wind turbines of the two wind generating facilities failed to qualify, the joint venture partner had the option to put its equity ownership interest back to Duke Energy. The PTC Remedy Agreement resulted in greater loss exposure to Duke Energy and, as a result, Duke Energy consolidated DS Cornerstone, LLC through August 31, 2012, until both projects reached commercial operation and the appropriate number of wind turbines qualified for PTC. As of September 30, 2012, both projects have reached commercial operation, and the agreed to number of wind turbines are now eligible for PTC, therefore Duke Energy no longer consolidated DS Cornerstone, LLC as of September 30, 2012.
FPC Capital Trust I. Progress Energy has variable interests in the FPC Capital I Trust (the Trust) which is a VIE of which Duke Energy is not the primary beneficiary. The Trust, a finance subsidiary, was established in 1999 for the sole purpose of issuing $300 million of 7.10% Cumulative Quarterly Income Preferred Securities due 2039, and using the proceeds thereof to purchase from Florida Progress Funding Corporation (Funding Corp.), a wholly owned subsidiary of Progress Energy, $300 million of 7.10% Junior Subordinated Deferrable Interest Notes due 2039. The Trust has no other operations and its sole assets are the subordinated notes and related guarantees. Funding Corp. was formed for the sole purpose of providing financing to Progress Energy Florida and its subsidiaries. Funding Corp. does not engage in business activities other than such financing and has no independent operations. Progress Energy has guaranteed the payments of all distributions required by the Trust.
Other.Duke ~~Energy’s Commercial Power business segment~~Energy has investments in various other entities that are VIEs which are not consolidated. The most significant of these investments is Duke Energy Ohio’s 9% ownership interest in OVEC. Through its ownership interest in OVEC, Duke Energy Ohio has a contractual arrangement through June 2040 to buy power from OVEC’s power plants. The proceeds from the sale of power by OVEC to its power purchase agreement counterparties, including Duke Energy Ohio, are designed to be sufficient for OVEC to meet its operating expenses, fixed costs, debt amortization and interest expense, as well as earn a return on equity. Accordingly, the value of this contract is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business, including costs associated with its 2,256 megawatts of coal-fired generation capacity. As discussed in Note 5, the proposed rulemaking on cooling water intake structures, ~~utility boiler MACT,~~MATS, CSAPR and CCP’s could increase the costs of OVEC which would be passed through to Duke Energy Ohio. The initial carrying value of this contract was recorded as an intangible asset when Duke Energy acquired Cinergy in April 2006.
In addition, the company has guaranteed the performance of certain entities in which the company no longer has an equity interest. As a result, the company has a variable interest in certain other VIEs that are non-consolidated.
CRC. As discussed above, CRC is consolidated only by Duke Energy. Accordingly, the retained interest in the sold receivables recorded on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana are eliminated in consolidation at Duke Energy.
The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price (typically approximates 25% of the total proceeds). The subordinated note is a retained interest (right to receive a specified portion of cash flows from the sold assets) and is classified within Receivables in Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Balance Sheets. The retained interests reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana approximate fair value.
The carrying values of the retained interests are determined by allocating the carrying value of the receivables between the assets sold and the interests retained based on relative fair value. Because the receivables generally turnover in less than two months, credit losses are reasonably predictable due to the broad customer base and lack of significant concentration, and the purchased beneficial interest (equity in CRC) is subordinate to all retained interests and thus would absorb losses first, the allocated basis of the subordinated notes are not materially different than their face value. The hypothetical effect on the fair value of the retained interests assuming both a 10% and a 20% unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio, Duke Energy Indiana and Duke Energy Kentucky on the retained interests using the accretable yield method, which generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both the retained interests and purchased beneficial interest whenever it is determined that an other-than-temporary impairment has occurred. The key assumptions used in estimating the fair value in 2012 and 2011 is detailed in the following table:
67
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)


Duke Energy Ohio

Duke Energy Indiana


2012

2011

2012

2011
Anticipated credit loss ratio

0.8
%

0.8
%

0.4
%

0.4
%
Discount rate

1.2
%

2.6
%

1.2
%

2.6
%
Receivable turnover rate

12.7
%

12.7
%

10.2
%

10.2
%

The following table shows the gross and net receivables sold:







Duke Energy Ohio

Duke Energy Indiana
(in millions)

September 30, 2012

December 31, 2011

September 30, 2012

December 31, 2011
Receivables sold

$
241

$
302

$
282

$
279
Less: Retained interests


85


129


118


139
Net receivables sold

$
156

$
173

$
164

$
140

The following tables show the retained interests, sales, and cash flows related to receivables sold:




















Duke Energy Ohio

Duke Energy Indiana



Three Months Ended September 30,

Three Months Ended September 30,
(in millions)

2012

2011

2012

2011
Sales












Receivables sold

$
518

$
592

$
711

$
711
Loss recognized on sale

$
3

$
5

$
3

$
5
Cash flows












Cash proceeds from receivables sold

$
531

$
615

$
733

$
696
Collection fees received

$
―

$
―

$
―

$
―
Return received on retained interests

$
1

$
3

$
2

$
3



Duke Energy Ohio

Duke Energy Indiana



Nine Months Ended September 30,

Nine Months Ended September 30,
(in millions)

2012

2011

2012

2011
Sales












Receivables sold

$
1,618

$
1,832

$
2,118

$
2,009
Loss recognized on sale

$
10

$
16

$
9

$
13
Cash flows












Cash proceeds from receivables sold

$
1,651

$
1,952

$
2,130

$
2,051
Collection fees received

$
1

$
1

$
1

$
1
Return received on retained interests

$
4

$
10

$
5

$
10
Cash flows from the sale of receivables are reflected within Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Consolidated Statements of Cash Flows.
Collection fees received in connection with the servicing of transferred accounts receivable are included in Operation, Maintenance and Other on Duke Energy Ohio’s and Duke Energy Indiana’s Consolidated Statements of Operations. The loss recognized on the sale of receivables is calculated monthly by multiplying the receivables sold during the month by the required discount which is derived monthly utilizing a three year weighted average formula that considers charge-off history, late charge history, and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is calculated monthly by summing the prior month-end LIBOR plus a fixed rate of 1.00% as of September 30, 2012, as compared to prior month-end LIBOR plus 2.39% as of September 30, 2011.
68
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)
12. Earnings Per Common Share (EPS)
Basic ~~EPS~~Earnings Per Share (EPS) is computed by dividing net income attributable to Duke Energy common ~~stockholders,~~shareholders, adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common ~~stockholders,~~shareholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, phantom shares and stock-based performance unit awards were exercised or settled.
On July 2, 2012, just prior to the close of the merger with Progress Energy, Duke Energy executed a one-for-three reverse stock split. All earnings per share amounts included in this 10-Q are presented as if the one-for-three reverse stock split had been effective January 1, 2011. The following table, which includes the effects of the reverse stock split, illustrates Duke Energy’s basic and diluted EPS calculations and reconciles the weighted-average number of common shares outstanding to the diluted weighted-average number of common shares ~~outstanding for the three and nine months ended September 30, 2011 and 2010.~~outstanding:

   Income    Average
Shares    EPS
   (in millions, except per-
share amounts)
Three Months Ended September 30, 2011

Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—basic
   $ 471       1,332       $ 0.35


Effect of dilutive securities:

Stock options, performance and restricted stock
      1





Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—diluted
   $ 471       1,333       $ 0.35






Three Months Ended September 30, 2010

Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—basic
   $ 669       1,320       $ 0.51


Effect of dilutive securities:

Stock options, performance and restricted stock
      2





Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—diluted
   $ 669       1,322       $ 0.51






~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~





Average



(in millions, except per-share amounts)
Income

Shares


EPS
Three Months Ended September 30, 2012








Income from continuing operations attributable to Duke Energy common shareholders, as adjusted for participating securities — basic and diluted
$
589


699

$
0.84
Three Months Ended September 30, 2011








Income from continuing operations attributable to Duke Energy common shareholders, as adjusted for participating securities — basic and diluted
$
471


444

$
1.06

   Income    Average
Shares    EPS
   (in millions, except per-
share amounts)
Nine Months Ended September 30, 2011

Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—basic
   $ 1,415       1,331       $ 1.06


Effect of dilutive securities:

Stock options, performance and restricted stock
      1





Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—diluted
   $ 1,415       1,332       $ 1.06






Nine Months Ended September 30, 2010

Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—basic
   $ 891       1,315       $ 0.68


Effect of dilutive securities:

Stock options, performance and restricted stock
      1





Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—diluted
   $ 891       1,316       $ 0.68











Average



(In millions, except per-share amounts)
Income

Shares

EPS
Nine Months Ended September 30, 2012








Income from continuing operations attributable to Duke Energy common shareholders, as adjusted for participating securities — basic and diluted
$
1,326


531

$
2.50
Nine Months Ended September 30, 2011








Income from continuing operations attributable to Duke Energy common shareholders, as adjusted for participating securities — basic and diluted
$
1,415


444

$
3.19
As of September 30, 2012 and 2011, ~~and 2010, 11~~1 million and 164 million, respectively, of stock options and performance and unvested stock awards were not included in the “effect of dilutive securities” in the above table because either the option exercise prices were greater than the average market price of the common shares during those periods, or performance measures related to the awards had not yet been met.
During the three and nine months ended September 30, 2010, Duke Energy received proceeds of $98 million and $205 million, respectively, from the sale of common stock issued to fulfill obligations under its Dividend Reinvestment Plan (DRIP) and other internal plans, including 401(k) plans.
13. Stock-Based Compensation
For employee awards, equity classified stock-based compensation cost is measured at the service inception date or the grant date, based on the estimated achievement of certain performance metrics or the fair value of the award, and is recognized as expense or capitalized as a component of property, plant and equipment over the requisite service period.
In connection with the acquisition of Progress Energy in July 2012, Duke Energy assumed Progress Energy’s 1997 Equity Incentive Plan (EIP), which was continued under the 2002 and 2007 EIPs, as amended and restated from time to time. Stock-based awards granted under the Progress Energy EIPs and held by Progress Energy employees were generally converted into outstanding Duke Energy stock-based compensation awards with the estimated fair value of the awards allocated to purchase price determined to be $62 million. Refer to 2 – Acquisitions and Sales of Other Assets for further information regarding the merger transaction.
Duke Energy recorded pre-tax stock-based compensation expense for ~~each of~~ the three and nine months ended September 30, ~~2011~~2012 and ~~2010~~2011 as follows:

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2011^(a)    2010^(a)    2011^(a)    2010^(a)
   (in millions)    (in millions)
Stock Options
   $ —         $ —         $ 2       $ 2
Phantom Awards
   6       7       20       21
Performance Awards
   6       11       17       23
Other Stock Awards
   —         1       —         1








Total
   $ 12       $ 19       $ 39       $ 47










Three Months Ended

Nine Months Ended


September 30,

September 30,
(in millions)
2012

2011

2012

2011
Stock Options
$
―

$
―

$
2

$
2
Restricted Stock Unit Awards

16


6


30


20
Performance Awards

16


6


19


17
Total^(a)(b)(c)(d)
$
32

$
12

$
51

$
39













(a)
Excludes stock-based compensation cost capitalized of an insignificant amount and $1 million for the three months ended September 30, 2012 and 2011.
(b)
Excludes stock-based compensation cost capitalized of $1 million and $3 million for the nine months ended September 30, 2012 and 2011, respectively.
(c)
The tax benefit associated with the recorded expense was $13 million and $5 million for the three months ended September 30, 2012 and 2011, respectively.
(d)
The tax benefit associated with the recorded expense was $20 million and $16 million for the nine months ended September 30, 2012 and 2011, respectively.
69

~~(a)~~ ~~Excludes stock-based compensation cost capitalized of approximately $1 million and $3 million for each of the three and nine months, respectively, ended September 30, 2011 and 2010.~~
The tax benefit associated with the recorded expense for each of the three months ended September 30, 2011 and 2010 was $5 million and $7 million, respectively. The tax benefit associated with the recorded expense for each of the nine months ended September 30, 2011 and 2010 was $16 million and $18 million, respectively.
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)

14. Employee Benefit Obligations
Net periodic benefit costs disclosed in the tables below for the qualified pension, non-qualified pension and other post-retirement benefit plans represent the cost of the respective benefit plan to the Duke Energy Registrants for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment.
~~Duke Energy~~
~~The following table shows the components of the net periodic benefit costs for the Duke Energy U.S. qualified and non-qualified pension plans and other post-retirement benefit plans.~~

   Three Months Ended
September 30, 2011 Three Months Ended
September 30, 2010
   Qualified
pension
plans^(a) Non-
Qualified
pension
plans    Other Post-
Retirement
Benefit
plans^(b) Qualified
pension
plans^(a) Non-
Qualified
pension
plans    Other Post-
Retirement
Benefit
plans^(b)
   (in millions)
Service cost
   $ 24    $ —         $ 1    $ 24    $ —         $ 1
Interest cost on benefit obligation
   58    2       8    62    2       9
Expected return on plan assets
   (96 ) —         (3 ) (94 ) —         (3 )
Amortization of prior service cost (credit)
   1    —         (2 ) 1    1       (2 )
Amortization of net transition liability
   —      —         2    —      —         4
Amortization of loss (gain)
   20    1       —      12    —         (2 )
Other
   4    —         —      5    —         —






Net periodic costs
   $ 11    $ 3       $ 6    $ 10    $ 3       $ 7






~~(a)~~ Excludes regulatory asset amortization of $4 million for each of the three months ended September 30, 2011 and 2010, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.
~~(b)~~ Excludes regulatory asset amortization of $2 million for each of the three months ended September 30, 2011 and 2010, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~

   Nine Months Ended
September 30, 2011 Nine Months Ended
September 30, 2010
   Qualified
pension
plans^(a) Non-
Qualified
pension
plans    Other Post-
Retirement
Benefit
plans^(b) Qualified
pension
plans^(a) Non-
Qualified
pension
plans    Other Post-
Retirement
Benefit
plans^(b)
   (in millions)
Service cost
   $ 72    $ 1       $ 5    $ 72    $ 1       $ 5
Interest cost on benefit obligation
   174    6       26    186    6       29
Expected return on plan assets
   (288 ) —         (11 ) (283 ) —         (11 )
Amortization of prior service cost (credit)
   4    1       (6 ) 4    2       (6 )
Amortization of net transition liability
   —      —         7    —      —         8
Amortization of loss (gain)
   58    1       (2 ) 37    —         (4 )
Contractual termination benefit cost
   —      —         —      10    —         —
Other
   13    —         —      14    —         —






Net periodic costs
   $ 33    $ 9       $ 19    $ 40    $ 9       $ 21






~~(a)~~ Excludes regulatory asset amortization of $11 million and $12 million for the nine months ended September 30, 2011 and 2010, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.
~~(b)~~ Excludes regulatory asset amortization of $6 million and $7 million for the nine months ended September 30, 2011 and 2010, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.
Each of the Subsidiary Registrants participate in qualified pension plans, non-qualified pension plans and other post-retirement benefit plans sponsored by Duke Energy. The net periodic benefit costs shown in the tables below represent the allocated cost of the respective benefit plan for the periods presented. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and other post-retirement benefit cost for employees of Duke Energy’s shared services affiliate that provide support to the respective Subsidiary Registrant. These allocated amounts are included in the governance and shared services costs for each Subsidiary Registrant discussed in Note 17.
Duke Energy ~~Carolinas~~
The following table shows the components of the net periodic benefit costs for the Duke Energy U.S. qualified pension, non-qualified pension and other post-retirement benefit plans.


Three Months Ended

Three Months Ended
   Three Months Ended
September 30, 2011 Three Months Ended
September 30, 2010

September 30, 2012

September 30, 2011
   Qualified
pension
plans Non-
Qualified
pension
plans    Other Post-
Retirement
Benefit
plans Qualified
pension
plans Non-
Qualified
pension
plans    Other Post-
Retirement
Benefit
plans
   (in millions)
(in millions)
(in millions)
Qualified Pension Plans^(a)
Non-Qualified Pension Plans

Other Post-Retirement Benefit Plans^(b)

Qualified Pension Plans^(a)

Non-Qualified Pension Plans

Other Post-Retirement Benefit Plans^(b)
Service cost
   $ 9    $ —         $ —      $ 9    $ —         $ 1
Service cost
$
39
$
―

$
7

$
24

$
―

$
1
Interest cost on benefit obligation
   21    —         4    23    —         4
Interest cost on projected benefit obligation
Interest cost on projected benefit obligation

94

5

19

58

2

8
Expected return on plan assets
   (37 ) —         (2 ) (37 ) —         (3 )
Expected return on plan assets

(142)

―

(4)

(96)

―

(3)
Amortization of prior service cost (credit)
   1    —         (1 ) 1    1    (1 )
Amortization of prior service cost (credit)

3

―

(2)

1

―

(2)
Amortization of net transition liability
   —      —         2    —      —         2
Amortization of net transition liability

―

―

3

―

―

2
Amortization of loss
   9    —         1    6    —         1
Amortization of loss

47

1

8

20

1

―
Special termination charge
Special termination charge

―

―

9

―

―

―
Other
   1    —         —      2    —         —
Other

2

―

―

4

―

―






Net periodic costs
   $ 4    $ —         $ 4    $ 4    $ 1    $ 4
Net periodic costs
$
43
$
6

$
40

$
11

$
3

$
6



















(a)
Excludes regulatory asset amortization of $3 million and $4 million for each of the three months ended September 30, 2012 and 2011, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.
(b)
Excludes regulatory asset amortization of $3 million and $2 million for the three months ended September 30, 2012 and 2011, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.


Nine Months Ended

Nine Months Ended


September 30, 2012

September 30, 2011
(in millions)
Qualified Pension Plans^(a)

Non-Qualified Pension Plans

Other Post-Retirements Benefit Plans^(b)

Qualified Pension Plans^(a)
Non-Qualified Pension Plans

Other Post-Retirements Benefit Plans^(b)
Service cost
$
84

$
1

$
10

$
72
$
1

$
5
Interest cost on projected benefit obligation

214


8


36


174

6


26
Expected return on plan assets

(330)


―


(12)


(288)

―


(11)
Amortization of prior service cost (credit)

6


1


(6)


4

1


(6)
Amortization of net transition liability

―


―


7


―

―


7
Amortization of loss (gain)

96


2


5


58

1


(2)
Special termination charge

―


―


9


―

―


―
Other

4


―


―


13

―


―
Net periodic costs
$
74

$
12

$
49

$
33
$
9

$
19


















(a)
Excludes regulatory asset amortization of $10 million and $11 million for the nine months ended September 30, 2012 and 2011, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.
(b)
Excludes regulatory asset amortization of $7 million and $6 million for the nine months ended September 30, 2012 and 2011, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.
71
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)
Duke Energy Carolinas













Three Months Ended

Three Months Ended


September 30, 2012

September 30, 2011
(in millions)

Qualified Pension Plans


Other Post-Retirement Benefit Plans


Qualified Pension Plans


Other Post-Retirement Benefit Plans
Service cost
$
9

$
1

$
9

$
―
Interest cost on projected benefit obligation

23


4


21


4
Expected return on plan assets

(36)


(3)


(37)


(2)
Amortization of prior service (credit) cost

―


(2)


1


(1)
Amortization of net transition liability

―


2


―


2
Amortization of loss

11


1


9


1
Special termination charge

―


1


―


―
Other

―


―


1


―
Net periodic costs^(a)
$
7

$
4

$
4

$
4













(a)
Components of net periodic costs for Duke Energy Carolinas' non-qualified pension plans were an insignificant amount for the three months ended September 30, 2012 and 2011.

   Nine Months Ended
September 30, 2011 Nine Months Ended
September 30, 2010
   Qualified
pension
plans Non-
Qualified
pension
plans    Other Post-
Retirement
Benefit
plans Qualified
pension
plans Non-
Qualified
pension
plans    Other Post-
Retirement
Benefit
plans
   (in millions)
Service cost
   $ 28    $ —         $ 1    $ 27    $ —         $ 2
Interest cost on benefit obligation
   64    1       12    68    1       13
Expected return on plan assets
   (112 ) —         (7 ) (110 ) —         (8 )
Amortization of prior service credit
   1 —         (4 ) 1    1       (4 )
Amortization of net transition liability
   —      —         7    —      —         7
Amortization of loss
   27    —         2    20    —         2
Other
   5    —         —      6    —         —






Net periodic costs
   $ 13    $ 1       $ 11    $ 12    $ 2       $ 12






See Note 17 for additional information related to amounts reflected on Duke Energy Carolinas’ Condensed Consolidated Balance Sheets associated with obligations related to qualified pension plans, non-qualified pension plans and other post-retirement benefit plans, which are allocated to Duke Energy Carolinas by Duke Energy.
~~Duke Energy Ohio~~


Nine Months Ended

Nine Months Ended


September 30, 2012

September 30, 2011
(in millions)

Qualified Pension Plans


Non-Qualified Pension Plans


Other Post-Retirement Benefit Plans


Qualified Pension Plans


Non-Qualified Pension Plans


Other Post-Retirement Benefit Plans
Service cost
$
26

$
―

$
2

$
28

$
―

$
1
Interest cost on projected benefit obligation

68


1


12


64


1


12
Expected return on plan assets

(109)


―


(8)


(112)


―


(7)
Amortization of prior service cost (credit)

1


―


(4)


1


―


(4)
Amortization of net transition liability

―


―


5


―


―


7
Amortization of loss

34


―


2


27


―


2
Special termination charge

―


―


1


―


―


―
Other

1


―


―


5


―


―
Net periodic costs
$
21

$
1

$
10

$
13

$
1

$
11




















   Three Months Ended
September 30, 2011 Three Months Ended
September 30, 2010
   Qualified
pension
plans^(a) Other Post-
Retirement
Benefit
plans^(b) Qualified
pension
plans^(a) Other Post-
Retirement
Benefit
plans^(b)
   (in millions)
Service cost
   $ 2    $ 1    $ 2    $ 1
Interest cost on projected benefit obligation
   8    1    8    2
Expected return on plan assets
   (11 ) —      (11 ) (1 )
Amortization of prior service (credit) cost
   —      (1 ) 1    (1 )
Amortization of loss (gain)
   2    (1 ) 1    (1 )
Other
   1    —      —      —


Net periodic costs
   $ 2    $ —      $ 1    $ —


Duke Energy Ohio

~~(a)~~
Three Months Ended
Three Months Ended
September 30, 2012
September 30, 2011
(in millions)
Qualified Pension Plans^(a)
Other Post-Retirement Benefit Plans^(b)
Qualified Pension Plans^(a)
Other Post-Retirement Benefit Plans^(b)
Service cost
$
2
$
1
$
2
$
1
Interest cost on projected benefit obligation
7
1
8
1
Expected return on plan assets
(11)
(1)
(11)
―
Amortization of prior service credit
―
―
―
(1)
Amortization of loss (gain)
2
(1)
2
(1)
Other
―
―
1
―
Net periodic costs^(c)
$
―
$
―
$
2
$
―
(a)
Excludes regulatory asset amortization of $2 million for each of the three months ended September 30, ~~2011~~2012 and ~~2010,~~2011, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.
(b)
Excludes regulatory asset amortization of an insignificant amount and $1 million ~~and $2 million~~ for each of the three months ended September 30, ~~2011~~2012 and ~~2010, respectively,~~2011, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.

   Nine Months Ended
September 30, 2011 Nine Months Ended
September 30, 2010
   Qualified
pension
plans^(a) Other Post-
Retirement
Benefit
plans^(b) Qualified
pension
plans^(a) Other Post-
Retirement
Benefit
plans^(b)
   (in millions)
Service cost
   $ 5    $ 1    $ 5    $ 1
Interest cost on projected benefit obligation
   24    2    25    3
Expected return on plan assets
   (33 ) —      (32 ) (1 )
Amortization of prior service (credit) cost
   —      (1 ) 1    (1 )
Amortization of loss (gain)
   6    (2 ) 3    (2 )
Other
   2    —      1    —


Net periodic costs
   $ 4    $ —      $ 3    $ —


~~(a)~~
(c)
~~Excludes regulatory asset amortization~~
Components of ~~$5 million~~net periodic costs for Duke Energy Ohio's other post-retirement benefit plans and ~~$6 million~~non-qualified pension plans were an insignificant amount for each of the ~~nine~~three months ended September 30, ~~2011~~2012 and ~~2010, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.~~2011.
72

~~(b)~~ Excludes regulatory asset amortization of $2 million for each of the nine months ended September 30, 2011 and 2010, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)
Nine Months Ended
Nine Months Ended
September 30, 2012
September 30, 2011
(in millions)
Qualified Pension Plans^(a)
Other Post-Retirement Benefit Plans^(b)
Qualified Pension Plans^(a)
Other Post-Retirement Benefit Plans^(b)
Service cost
$
5
$
1
$
5
$
1
Interest cost on projected benefit obligation
23
2
24
2
Expected return on plan assets
(33)
(1)
(33)
―
Amortization of prior service credit
―
―
―
(1)
Amortization of loss (gain)
7
(2)
6
(2)
Other
―
―
2
―
Net periodic costs^(c)
$
2
$
―
$
4
$
―
(a)
Excludes regulatory asset amortization of $5 million for each of the nine months ended September 30, 2012 and 2011, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.
(b)
Excludes regulatory asset amortization of $1 million and $2 million for the nine months ended September 30, 2012 and 2011, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.
(c)
Components of net periodic costs for Duke Energy Ohio's non-qualified pension plans were an insignificant amount for each of the nine months ended September 30, 2012 and 2011.
Duke Energy Indiana













Three Months Ended

Three Months Ended


September 30, 2012

September 30, 2011
(in millions)

Qualified Pension Plans


Other Post-Retirement Benefit Plans


Qualified Pension Plans


Other Post-Retirement Benefit Plans
Service cost
$
2

$
1

$
3

$
1
Interest cost on projected benefit obligation

8


1


8


1
Expected return on plan assets

(12)


―


(12)


―
Amortization of prior service cost

1


―


―


―
Amortization of loss

3


―


3


―
Other


―


―


1


―
Net periodic costs^(a)
$
2

$
2

$
3

$
2













(a)
Components of net periodic costs for Duke Energy Indiana's non-qualified pension plans were an insignificant amount for each of the three months ended September 30, 2012 and 2011.


Nine Months Ended

Nine Months Ended


September 30, 2012

September 30, 2011
(in millions)

Qualified Pension Plans


Other Post-Retirement Benefit Plans


Qualified Pension Plans


Other Post-Retirement Benefit Plans
Service cost
$
7

$
1

$
8

$
1
Interest cost on projected benefit obligation

23


5


23


5
Expected return on plan assets

(35)


(1)


(34)


(1)
Amortization of prior service cost

2


1


1


―
Amortization of loss (gain)

10


(1)


10


1
Other

―


―


2


―
Net periodic costs^(a)
$
7

$
5

$
10

$
6













(a)
Components of net periodic costs for Duke Energy Indiana's non-qualified pension plans were an insignificant amount for each of the nine months ended September 30, 2012 and 2011.

~~Components of net periodic costs for Duke Energy Ohio’s non-qualified pension plans were an insignificant amount for the three and nine months ended September 30, 2011 and 2010.~~
See Note 17 for additional information related to amounts reflected on Duke Energy Ohio’s Condensed Consolidated Balance Sheets associated with obligations related to qualified pension plans, non-qualified pension plans and other post-retirement benefit plans, which are allocated to Duke Energy Ohio by Duke Energy.
~~Duke Energy Indiana~~

   Three Months Ended
September 30, 2011 Three Months Ended
September 30, 2010
   Qualified
pension
plans Other Post-
Retirement
Benefit
plans Qualified
pension
plans Other Post-
Retirement
Benefit
plans
   (in millions)
Service cost
   $ 3    $ 1    $ 3    $ 1
Interest cost on projected benefit obligation
   8    1    8    2
Expected return on plan assets
   (12 ) —      (11 ) —
Amortization of prior service cost
   —      —      1    —
Amortization of loss
   3    —      3    —
Other
   1    —      —      —


Net periodic costs
   $ 3    $ 2    $ 4    $ 3


   Nine Months Ended
September 30, 2011 Nine Months Ended
September 30, 2010
   Qualified
pension
plans Other Post-
Retirement
Benefit
plans Qualified
pension
plans Other Post-
Retirement
Benefit
plans
   (in millions)
Service cost
   $ 8    $ 1    $ 8    $ 1
Interest cost on projected benefit obligation
   23    5    24    6
Expected return on plan assets
   (34 ) (1 ) (33 ) (1 )
Amortization of prior service cost
   1    —      2    —
Amortization of loss
   10    1    9    1
Other
   2    —      1    —


Net periodic costs
   $ 10    $ 6    $ 11    $ 7


~~Components of net periodic costs for Duke Energy Indiana’s non-qualified pension plans were an insignificant amount for the three and nine months ended September 30, 2011 and 2010.~~
See Note 17 for additional information related to amounts reflected on Duke Energy Indiana’s Condensed Consolidated Balance Sheets associated with obligations related to qualified pension plans, non-qualified pension plans and other post-retirement benefit plans, which are allocated to Duke Energy Indiana by Duke Energy.
Employee Savings Plan
Duke Energy sponsors employee savings plans that cover substantially all U.S. employees. Duke Energy made pre-tax employer ~~matching~~ contributions of $30 million and $18 million ~~and $68 million during~~for the three ~~and nine~~ months ended September 30, 2012 and 2011, respectively. Duke Energy made pre-tax employer ~~matching~~ contributions of ~~$18~~$77 million and ~~$67~~$68 million ~~during~~for the ~~three and~~ nine months ended September 30, ~~2010,~~2012 and 2011, respectively.
The Subsidiary Registrants participate in Duke Energy sponsored employee savings plans. The following table shows the respective Subsidiary Registrants’ expense related to its proportionate share of pre-tax employer ~~matching~~ contributions.
73
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2011    2010    2011    2010
   (in millions)
Duke Energy Carolinas
   $ 8       $ 8       $ 28       $ 28
Duke Energy Ohio
   1       —         3       3
Duke Energy Indiana
   1       —         6       4
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~


Three Months Ended

Nine Months Ended


September 30,

September 30,
(in millions)

2012


2011


2012


2011
Duke Energy Carolinas
$
8

$
8

$
28

$
28
Duke Energy Ohio

1


1


3


3
Duke Energy Indiana

2


1


5


6

15. Severance
2011 Severance ~~Plans.~~Plan. In conjunction with the ~~proposed~~ merger with Progress Energy, in ~~August~~November 2011 Duke Energy ~~announced plans to offer~~and Progress Energy offered a voluntary severance plan to ~~approximately 4,850~~certain eligible employees. As this iswas a voluntary severance plan, all severance benefits offered under this plan are considered special termination benefits under U.S. GAAP. Special termination benefits are measured upon employee acceptance and recorded immediately absent aany significant retention period. If a significant retention period exists, the cost of the special termination benefits are recorded ratably over the ~~remaining service periods of the affected employees. The window for~~retention period. Approximately 1,100 employees ~~to request to voluntarily end their employment under this plan opened on November 7, 2011 and will close on November 30, 2011.~~from Duke Energy ~~is unable to estimate the amount of severance payments associated with this voluntary plan until the close of the window. Duke~~and Progress Energy reserves the right to reject any request to volunteer based on business needs and/or excessive participation. The voluntary severance plan is contingent upon the successful close of the proposed merger with Progress Energy.
~~2010 Severance Plans.~~ During 2010, the majority of severance charges were related to a voluntary severance plan whereby eligible employees were provided a window during which to accept termination benefits. As this was a voluntary plan, all severance benefits offered under this plan were considered special termination benefits under GAAP. Special termination benefits are measured upon employee acceptance and recorded immediately absent a significant retention period. If a significant retention period exists, the cost of the special termination benefits are recorded ratably over the remaining service periods of the affected employees. Approximately 900 employees accepted the termination benefits during the voluntary window period, which closed ~~March 31, 2010. Future~~on November 30, 2011. The estimated amount of severance payments associated with this voluntary plan and other severance benefits through 2014, excluding amounts incurred through September 30, 2012, are expected to range from $80 million to $110 million and most of the costs ~~under~~will be charged to Duke ~~Energy’s ongoing~~Energy Carolinas, Progress Energy Carolinas and Progress Energy Florida.
Additionally, in the third quarter of 2012, a voluntary severance plan ~~if any, are currently~~was offered to certain Union employees of Duke Energy Ohio. The plan was offered to approximately 330 employees, and the expense associated with this plan is not ~~estimable.~~expected to be material.
Amounts included in the table below represent direct and allocated severance expense recorded by the Duke Energy Registrants, ~~during 2010.~~and are recorded in Operation, maintenance, and other within Operating Expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income. The Duke Energy Registrants recorded insignificant amounts for severance expense during the three and nine months ended September 30, 2011.

   Three Months
Ended
September 30,
2010^(a)    Nine Months
Ended
September 30,
2010^(a)
Duke Energy
   $ 20       $ 164
Duke Energy Carolinas
   13       98
Duke Energy Ohio
   2       23
Duke Energy Indiana
   3       29
(in millions)

Three Months Ended September 30, 2012^(a)
Nine Months Ended September 30, 2012^(a)
Duke Energy^(a)
~~These amounts are recorded in Operation, Maintenance~~
$
146
$
146
Duke Energy Carolinas
$
48
$
48
Duke Energy Ohio
$
15
$
15
Duke Energy Indiana
$
13
$
13
(a)
Includes $16 million of COBRA and ~~Other within Operating Expenses on the Condensed Consolidated Statements~~healthcare reimbursement expenses and $14 million of ~~Operations.~~accelerated stock award expense.
The severance costs discussed above for the Subsidiary Registrants include an allocation of their proportionate share of severance costs for employees of Duke Energy’s shared services affiliate that provides support to the Subsidiary Registrants.
Amounts included in the table below represent the severance liability ~~recorded by~~for Duke Energy and Duke Energy Carolina’s past and on-going severance plans. Amounts for Duke Energy Carolinas do not include allocated expense or cash payments. Amounts for Duke Energy Ohio and Duke Energy Indiana ~~for employees of those registrants, and excludes costs allocated from and paid by Duke Energy’s shared services affiliate.~~are not material.

   Balance at
December 31, 2010    Provision/
Adjustments Cash
Reductions Balance at
September 30, 2011
   (in millions)
(in millions)
(in millions)

Balance at December 31, 2011

Provision / Adjustments^(a)

Cash Reductions

Balance at September 30, 2012
Duke Energy
   $ 87       $ 1    $ (52 ) $ 36
Duke Energy

$
32

$
118

$
(39)

$
111
Duke Energy Carolinas
   21       (1 ) (18 ) 2
Duke Energy Carolinas

1

14

(5)

10
Duke Energy Indiana
   1       —      (1 ) —










(a)
Balance for Duke Energy includes a $12 million severance liability acquired in the merger with Progress Energy.










~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited~~                As part of Duke Energy Carolinas’ 2011 rate case, the NCUC approved the recovery of $101 million of previously recorded expenses related to a prior year Voluntary Opportunity Plan. This amount was recorded as a reduction to Operation, maintenance, and other within Operating Expenses on the Condensed Consolidated ~~Financial~~ Statements ~~– (Continued)~~
of Operations and recognized as a Regulatory Asset on the Condensed Consolidated Balance Sheets in 2012.

16. Income Taxes and Other Taxes
Income Taxes.Duke Energy and its subsidiaries file income tax returns in the U.S. with federal and various state governmental authorities, and in certain foreign jurisdictions. The taxable income of Duke Energy and its subsidiaries is reflected in Duke Energy’s U.S. federal and state income tax returns. These subsidiaries have a tax sharing agreement with Duke Energy where the separate return method is used to allocate tax expenses and benefits to the subsidiaries whose investments or results of operations provide these tax expenses and benefits. The accounting for income taxes essentially represents the income taxes that each of these subsidiaries would incur if it were a separate company filing its own tax return as a C-Corporation.
The ~~following table includes information regarding the Duke Energy Registrants unrecognized tax benefits.~~

September 30, 2011    Duke
Energy    Duke
Energy
Carolinas    Duke
Energy
Ohio    Duke
Energy
Indiana
   (in millions)
Unrecognized tax benefits^(a)
   $ 392       $ 262       $ 33       $ 22
Amount that if recognized, would affect the effective tax rate or regulatory liability^(b)
   121       113       —         —
Amount that if recognized, would be recorded as a component of discontinued operations
   11       —         —         —
December 31, 2010

Unrecognized tax benefits^(a)
   342       217       29       21
~~(a)~~ ~~The Duke Registrants do not anticipate a significant increase or decrease in unrecognized tax benefits in the next twelve months.~~
~~(b)~~ ~~Duke Energy and Duke Energy Carolinas are unable to estimate the specific amounts that would affect the effective tax rate or regulatory liability.~~
Duke Energy and its subsidiaries are no longer subject to U.S. federal examination for years before 2004. The years 2004 and 2005 are in Appeals. The Internal Revenue Service (IRS) is currently auditing the federal income tax returns for years 2006 and 2007. With few exceptions, Duke Energy and its subsidiaries are no longer subject to state, local or non-U.S. income tax examinations by tax authorities for years before 1999.
~~The~~ effective tax rates for each of the Duke Energy Registrants are as follows:
74

   Three Months Ended
September 30, Nine Months Ended
September 30,
   2011 2010 2011 2010
Duke Energy
   30.7 % 31.2 % 30.8 % 41.9 %
Duke Energy Carolinas
   37.0 % 33.8 % 36.1 % 33.9 %
Duke Energy Ohio
   47.3 % 32.6 % 36.9 % (32.6 )%
Duke Energy Indiana
   37.2 % 32.2 % 30.8 % 33.8 %
~~As discussed in Note 7,~~PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements - (Continued)



Three Months Ended

Nine Months Ended



September 30,

September 30,



2012

2011

2012

2011
Duke Energy

29.4
%

30.7
%

29.6
%

30.8
%
Duke Energy Carolinas

34.2
%

37.0
%

35.8
%

36.1
%
Duke Energy Ohio

45.2
%

47.3
%

38.9
%

36.9
%
Duke Energy Indiana

55.1
%

37.2
%

47.7
%

30.8
%
For nine months ended September 30, 2012, Duke Energy Ohio’s effective tax rate increased primarily due to a $10 million reduction of deferred tax liabilities as a result of an election related to the transfer of certain gas-fired generation assets to its wholly owned subsidiary DECAM in the second quarter of ~~2010,~~2011. Duke Energy recorded a non-deductible goodwill impairment charge of $500 million and Duke Energy Ohio recorded non-deductible goodwill impairment charges of $677 million. In the third quarter of 2011, federal true ups related to the 2010 tax return filing were recorded, which resulted in an increase in income tax expense for Duke Energy Carolinas, Duke Energy Ohio, and Duke Energy Indiana. Duke Energy Indiana ~~has~~ reflected an increase in ~~AFUDC equity~~its effective tax rate primarily due to an increase in ~~2011, as well as a reduction in pre-tax income due~~pretax loss related to the Edwardsport IGCC project impairment incharges. See Note 4 for further details on the ~~third quarter of 2011.~~impairment charges.
Excise Taxes. Certain excise taxes levied by state or local governments are collected by the Duke Energy Registrants from its customers. These taxes, which are required to be paid regardless of the Duke Energy Registrants’ ability to collect from the customer, are accounted for on a gross basis. When each of the Duke Energy Registrants act as an agent, and the tax is not required to be remitted if it is not collected from the customer, the taxes are accounted for on a net basis. Excise taxes for each Duke Energy Registrant are accounted for on a gross basis and recorded as revenues and other tax expense in the respective Condensed Consolidated Statements of Operations were as follows:



Three Months Ended

Nine Months Ended
   Three Months Ended
September 30,    Nine Months Ended
September 30,


September 30,

September 30,
   2011    2010    2011    2010
   (in millions)    (in millions)
(in millions)
(in millions)

2012

2011

2012

2011
Duke Energy
Duke Energy

$
178

$
81

$
325

$
228
Duke Energy Carolinas
   $ 45       $ 47       $ 118       $ 123
Duke Energy Carolinas


47

45


125

118
Duke Energy Ohio
   27       28       86       90
Duke Energy Ohio


26

27


79

86
Duke Energy Indiana
   9       8       24       22
Duke Energy Indiana


9

9


25

24








Total Duke Energy
   $ 81       $ 83       $ 228       $ 235








17. Related Party Transactions
The Subsidiary Registrants engage in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Refer to the Condensed Consolidated Balance Sheets of Duke Energy Carolinas, Duke Energy Ohio, and Duke Energy Indiana for balances due to or due from related parties. Amounts related to transactions with related parties included in the Condensed Consolidated Statements of Operations and Comprehensive Income are presented in the following table.

















Three Months Ended

Nine Months Ended
(in millions)
September 30,

September 30,
Duke Energy Carolinas

2012


2011


2012


2011
Corporate governance and shared service expenses^(a)
$
309

$
265

$
798

$
769
Indemnification coverages^(b)
$
5

$
5

$
16

$
15
Joint dispatch agreement (JDA) revenue^(c)
$
8


―

$
8


―
Joint dispatch agreement (JDA) expense^(d)
$
37


―

$
37


―
Duke Energy Ohio











Corporate governance and shared service expenses^(a)
$
103

$
104

$
279

$
290
Indemnification coverages^(b)
$
4

$
5

$
11

$
13
Duke Energy Indiana











Corporate governance and shared service expenses^(a)
$
118

$
100

$
317

$
306
Indemnification coverages^(b)
$
2

$
1

$
6

$
5














(a)
The Subsidiary Registrants are charged their proportionate share of corporate governance and other costs by an unconsolidated affiliate that is a consolidated affiliate of Duke Energy. Corporate governance and other shared services costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, maintenance and other within Operating Expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income.
(b)
The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation, maintenance and other within Operating Expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income.
(c)
Effective with the consummation of the merger, Duke Energy Carolinas and Progress Energy Carolinas began to participate in a JDA which allowed the collective dispatch of power plants between the service territories to reduce customers' rates. The revenues from the sale of power to Progress Energy Carolinas are recorded in Regulated electric within Operating Revenue on the Condensed Consolidated Statements of Operations and Comprehensive Income.
(d)
Effective with the consummation of the merger, Duke Energy Carolinas and Progress Energy Carolinas began to participate in a JDA which allowed the collective dispatch of power plants between the service territories to reduce customers' rates. The expenses from the purchase of power from Progress Energy Carolinas are recorded in Fuel used in electric generation and purchased power - regulated within Operating Expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income.
75
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)

~~17. Related Party Transactions~~
In addition to the amounts presented above, the Subsidiary Registrants record income associated with the rental of office space to consolidated affiliates of Duke Energy, ~~Carolinas~~
as well as their proportionate share of certain charged expenses from affiliates of Duke Energy. The Duke Energy ~~Carolinas engages~~registrants participate in a money pool arrangement with Duke Energy and certain of its subsidiaries. See Note 6 for more information regarding money pool. As discussed in Note 11, certain trade receivables have been sold by Duke Energy Ohio and Duke Energy Indiana to CRC, an unconsolidated entity formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price. Rental income, interest income and interest expense on these transactions were not material for the three and nine months ended September 30, 2012 and 2011.
In January 2012, Duke Energy Ohio recorded a non-cash equity transfer of $28 million related to the sale of Vermilion to Duke Energy Indiana. Duke Energy Indiana recorded a non-cash equity after tax transfer of $26 million for the purchase of Vermillion from Duke Energy Ohio. See note 2 for further discussion.
DECAM is a non-regulated, direct subsidiary of Duke Energy Ohio. DECAM conducts business activities including the execution of commodity transactions and executing third party ~~transactions, which~~vendor and supply contracts as well as service contracts for certain of Duke Energy’s non-regulated entities. The commodity contracts that DECAM enters either do not qualify as hedges or are ~~generally performed at cost~~accounted for as undersigned contracts, thus the mark-to-market impacts of these contracts are reflected in Duke Energy Ohio’s Condensed Consolidated Statements of Comprehensive Income. In addition, equal and offsetting mark-to-market impacts of intercompany contracts with non regulated entities are reflected in Duke Energy Ohio’s Condensed Consolidated Statements of Comprehensive Income representing the pass through of the economics of the original contracts to non-regulated entities in accordance with contractual arrangements between Duke Energy Ohio and non-regulated entities. See Note 8 for additional information. Because it is not a rated entity, DECAM receives its credit support from Duke Energy or its non-regulated subsidiaries and not the ~~applicable state and federal commission regulations. Balances due~~regulated utility operations of Duke Energy Ohio. DECAM meets its funding needs through an intercompany loan agreement from a subsidiary of Duke Energy. The intercompany loan agreement was executed in February 2011. An additional intercompany loan agreement was executed in October 2011 so that DECAM can also loan money to ~~or due from related parties included in~~ the ~~Condensed Consolidated Balance Sheets~~subsidiary of Duke Energy. DECAM had no intercompany loan receivable with the subsidiary of Duke Energy as of September 30, ~~2011 and~~2012. DECAM had a $90 million intercompany loan receivable with the subsidiary of Duke Energy as of December 31, ~~2010 are~~2011. This amount is recorded in Notes receivable from affiliated companies on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. DECAM had an outstanding intercompany loan payable with the subsidiary of Duke Energy of approximately $84 million as ~~follows:~~
~~Assets/(Liabilities)~~of September 30, 2012. This amount is recorded in Notes payable to affiliated companies on Duke Energy Ohio’s Condensed Consolidated Balance Sheets. DECAM had no intercompany loan receivable with the subsidiary of Duke Energy as of September 30, 2012. As discussed in Note 6, in August 2012, Duke Energy issued $1.2 billion of senior unsecured notes. Proceeds from the issuances were used in part to repay outstanding notes of $500 million to DECAM, and such funds were ultimately used to repay at maturity Duke Energy Ohio’s $500 million debentures due September 15, 2012. In conjunction with the generation asset transfer discussed in Note 4, Duke Energy Ohio’s capital structure is being restructured to reflect appropriate debt and equity ratios for its regulated Franchised Electric and Gas operations.

   September 30,
2011^(a) December 31,
2010^(a)
   (in millions)
Current assets^(b)
   $ 82    $ 293
Non-current assets^(c)
   110    104
Current liabilities^(d)
   (125 ) (195 )
Non-current liabilities^(e)
   (65 ) (93 )
Net deferred tax liabilities^(f)
   (4,442 ) (3,906 )
18. Guarantees and Indemnifications
~~(a)~~ ~~Balances exclude assets or liabilities associated with accrued pension and other post-retirement benefits and with money pool arrangements as discussed below.~~
~~(b)~~ Of the balances at September 30, 2011, $1 million is classified as Receivables and $81 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balances at December 31, 2010, $90 million is classified as Receivables and $203 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.
~~(c)~~ ~~The balances at September 30, 2011 and December 31, 2010 are classified as Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(d)~~ ~~The balances at September 30, 2011, and December 31, 2010, are classified as Accounts payable on the Condensed Consolidated Balance Sheets.~~
~~(e)~~ ~~The balances at September 30, 2011 and December 31, 2010 are classified as Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.~~
~~(f)~~ Of the balance at September 30, 2011, $(4,530) million is classified as Deferred income taxes and $88 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $(3,988) million is classified as Deferred income taxes and $82 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.
Duke Energy and its subsidiaries have various financial and performance guarantees and indemnifications which are issued in the normal course of business. As discussed ~~further in Note 14,~~below, these contracts include performance guarantees, stand-by letters of credit, debt guarantees, surety bonds and indemnifications. Duke Energy ~~Carolinas participates~~and its subsidiaries enter into these arrangements to facilitate commercial transactions with third parties by enhancing the value of the transaction to the third party.
On January 2, 2007, Duke Energy completed the spin-off of its natural gas businesses to shareholders. Guarantees that were issued by Duke Energy or its affiliates, or were assigned to Duke Energy prior to the spin-off remained with Duke Energy subsequent to the spin-off. Guarantees issued by Spectra Energy Capital, LLC (Spectra Capital) or its affiliates prior to the spin-off remained with Spectra Capital subsequent to the spin-off, except for certain guarantees that are in the process of being assigned to Duke ~~Energy’s qualified pension plan, non-qualified pension plan and other post-retirement benefit plans and is allocated its proportionate share~~Energy. During this assignment period, Duke Energy has indemnified Spectra Capital against any losses incurred under these guarantee obligations. The maximum potential amount of ~~expenses~~future payments associated with ~~these plans. Additionally, Duke Energy Carolinas has been allocated accrued pension and other post-retirement benefit obligations of $247 million~~the guarantees issued by Spectra Capital at September 30, ~~2011~~2012 is $206 million.
Duke Energy has issued performance guarantees to customers and ~~$252~~other third parties that guarantee the payment and performance of other parties, including certain non-wholly-owned entities, as well as guarantees of debt of certain non-consolidated entities and less than wholly-owned consolidated entities. If such entities were to default on payments or performance, Duke Energy would be required under the guarantees to make payments on the obligations of the less than wholly-owned entity. The maximum potential amount of future payments Duke Energy could have been required to make under these guarantees as of September 30, 2012 was $283 million. Of this amount, $62 million ~~at December 31, 2010. This amount~~relates to guarantees issued on behalf of less than wholly-owned consolidated entities, with the remainder related to guarantees issued on behalf of third parties and unconsolidated affiliates of Duke Energy.
Of the guarantees noted above, $350 million of the guarantees expire between 2012 and 2028, with the remaining performance guarantees having no contractual expiration.
Progress Energy has ~~been classified~~issued guarantees and indemnifications of and for certain asset performance, legal, tax and environmental matters to third parties, including indemnifications made in connection with sales of businesses. The estimated maximum exposure for these guarantees and indemnifications for which a maximum exposure is determinable was $219 million. Related to the sales of businesses, the latest specified notice period extends until 2013 for the majority of legal, tax and environmental matters provided for in the ~~Consolidated Balance Sheets~~indemnification provisions. Indemnifications for the performance of assets extend to 2016. For certain matters for which Progress Energy receives timely notice, indemnity obligations may extend beyond the notice period. Certain indemnifications related to discontinued operations have no limitations as ~~follows:~~to time or maximum potential future payments.
In addition, Progress Energy has issued $300 million in guarantees for certain payments of two wholly-owned indirect subsidiaries, FPC Capital I Trust and Florida Progress Funding Corporation. See Note 11 for additional information.
76

   September 30,
2011    December 31,
2010
   (in millions)
Other current liabilities
   $ 10       $ 10
Accrued pension and other post-retirement benefit costs
   237       242
~~Other Related Party Amounts~~

   Three months ended    Nine months ended
   September 30, 2011 September 30, 2010    September 30, 2011 September 30, 2010
   (in millions)
Corporate governance and shared service expenses^(a)
   $ 265    $ 276       $ 769    $ 744
Indemnification coverages^(b)
   5    7       15    19
Rental income and other charged expenses, net^(c)
   (1 ) 1       (5 ) 3
~~(a)~~ Duke Energy Carolinas is charged its proportionate share of corporate governance and other costs by an unconsolidated affiliate that is a consolidated affiliate of Duke Energy. Corporate governance and other shared services costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.
~~(b)~~ Duke Energy Carolinas incurs expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly-owned captive insurance subsidiary. These expenses are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.
~~(c)~~ Duke Energy Carolinas records income associated with the rental of office space to a consolidated affiliate of Duke Energy, as well as its proportionate share of certain charged expenses from affiliates of Duke Energy.
PART I
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -
DUKE ENERGY INDIANA, INC.
Combined Notes To Unaudited Condensed Consolidated Financial Statements –- (Continued)
~~As discussed further in Note 6,~~ Duke Energy ~~Carolinas participates in~~has entered into various indemnification agreements related to purchase and sale agreements and other types of contractual agreements with vendors and other third parties. These agreements typically cover environmental, tax, litigation and other matters, as well as breaches of representations, warranties and covenants. Typically, claims may be made by third parties for various periods of time, depending on the nature of the claim. Duke Energy’s potential exposure under these indemnification agreements can range from a ~~money pool arrangement with~~specified amount, such as the purchase price, to an unlimited dollar amount, depending on the nature of the claim and the particular transaction. Duke Energy is unable to estimate the total potential amount of future payments under these indemnification agreements due to several factors, such as the unlimited exposure under certain guarantees.
At September 30, 2012 and ~~certain of its subsidiaries. Interest income associated with money pool activity~~December 31, 2011, the amounts recorded on the Consolidated Balance Sheets for the guarantees and indemnifications mentioned above is $47 million $19 million, respectively. This amount is primarily recorded in Other ~~Income~~within Deferred Credits and ~~Expenses, net~~Other Liabilities on the Condensed Consolidated Statements of Operations, was insignificant for each of the three months ended September 30, 2011 and 2010 and $1 million for each of the nine months ended September 30, 2011 and 2010. Interest expense associated with money pool activity is recorded in Interest Expense on the Condensed Consolidated Statements of Operations was insignificant for the three months ended September 30, 2011 and 2010 and $1 million for each of the nine months ended September 30, 2011 and 2010.
~~In February 2010, Duke Energy Carolinas made a $200 million distribution to its parent, Duke Energy. In June 2010, Duke Energy Carolinas made a $150 million distribution to its parent, Duke Energy.~~
~~Duke Energy Ohio~~
Duke Energy Ohio engages in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Balances due to or due from related parties included in the Condensed Consolidated Balance ~~Sheets as of September 30, 2011 and December 31, 2010 are as follows:~~
~~Assets/(Liabilities)~~Sheets.

   September 30,
2011^(a) December 31,
2010^(a)
   (in millions)
Current assets^(b)
   $ 84    $ 82
Non-current assets^(c)
   12    15
Current liabilities^(d)
   (60 ) (86 )
Non-current liabilities^(e)
   —      (42 )
Net deferred tax liabilities^(f)
   (1,739 ) (1,579 )
~~(a)~~ ~~Balances exclude assets or liabilities associated with accrued pension and other post-retirement benefits, Cinergy Receivables and money pool arrangements as discussed below.~~
~~(b)~~ Of the balance at September 30, 2011, $17 million is classified as Receivables and $67 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $24 million is classified as Receivables and $58 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.
~~(c)~~ ~~The balances at September 30, 2011 and December 31, 2010 are classified as Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.~~
~~(d)~~ Of the balance at September 30, 2011, ($54) million is classified as Accounts payable, ($4) million is classified as Taxes accrued and ($2) million is classified as Other within Current Liabilities on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $(83) million is classified as Accounts payable and $(3) million is classified as Other within Current Liabilities on the Condensed Consolidated Balance Sheets.
~~(e)~~ ~~The balances at September 30, 2011 and December 31, 2010, are classified as Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.~~
~~(f)~~ Of the balance at September 30, 2011, $(1,755) million is classified as Deferred income taxes, and $16 million is classified as Other within Current Assets, on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $(1,588) million is classified as Deferred income taxes, and $9 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.
As discussed further in Note 14, Duke Energy Ohio participates in Duke Energy’s qualified pension plan, non-qualified pension plan and other post-retirement benefit plans and is allocated its proportionate share of expenses associated with these plans. Additionally, Duke Energy Ohio has been allocated accrued pension and other post-retirement benefit obligations of $192 million at September 30, 2011 and $211 million at December 31, 2010. These amounts have been classified in the Condensed Consolidated Balance Sheets as follows:

   September 30,
2011    December 31,
2010
   (in millions)
Other current liabilities
   $ 4       $ 4
Accrued pension and other post-retirement benefit costs
   188       207
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~Other Related Party Amounts~~

   Three months ended    Nine months ended
   September 30, 2011 September 30, 2010    September 30, 2011 September 30, 2010
   (in millions)
Corporate governance and shared service expenses^(a)
   $ 104    $ 99       $ 290    $ 257
Indemnification coverages^(b)
   5    5       13    14
Rental income and other charged expenses, net^(c)
   —   ^(e) 3       —   ^(e) 5
Cinergy receivables interest income^(d)
   3    4       10    12
~~(a)~~ Duke Energy Ohio is charged its proportionate share of corporate governance and other costs by an unconsolidated affiliate that is a consolidated affiliate of Duke Energy. Corporate governance and other shared services costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.
~~(b)~~ Duke Energy Ohio incurs expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly-owned captive insurance subsidiary. These expenses are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.
~~(c)~~ Duke Energy Ohio records income associated with the rental of office space to a consolidated affiliate of Duke Energy, as well as its proportionate share of certain charged expenses from affiliates of Duke Energy.
~~(d)~~ As discussed in Note 11, certain trade receivables have been sold by Duke Energy Ohio to Cinergy Receivables, a consolidated entity formed by Cinergy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from Cinergy Receivables for a portion of the purchase price. The interest income associated with the subordinated note is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Operations.
~~(e)~~ ~~For the three and six months ended September 30, 2011, net rental income was insignificant.~~
As discussed further in Note 6, Duke Energy Ohio participates in a money pool arrangement with Duke Energy and certain of its subsidiaries. Interest income associated with money pool activity is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Operations was insignificant for each of the three months ended September 30, 2011 and 2010 and $1 million for each of the nine months ended September 30, 2011 and 2010. Interest expense associated with money pool activity is recorded in Interest Expense on the Condensed Consolidated Statements of Operations was insignificant for each of the three and nine months ended September 30, 2011 and 2010.
Duke Energy Ohio enters into certain derivative positions on behalf of Duke Energy Retail, a consolidated affiliate of Duke Energy. These contracts are undesignated, thus the mark-to-market impacts of these contracts are reflected in Duke Energy Ohio’s Condensed Consolidated Statements of Operations. See Note 8 for additional information.
DECAM conducts hedging activities for certain of Duke Energy’s non-regulated entities. DECAM meets its funding needs through an intercompany loan agreement from Duke Energy Ohio’s parent entity, Cinergy. The intercompany loan was executed in February 2011. DECAM had no outstanding intercompany loan balance with Cinergy as of September 30, 2011.
In May 2011, Duke Energy Vermillion, an indirect wholly-owned subsidiary of Duke Energy Ohio, entered into an agreement to sell its 75% undivided ownership interest in the Vermillion Generating Station to Duke Energy Indiana and WVPA. Refer to Note 3 and Note 4 for further discussion.
~~In September 2011 and March 2011, Duke Energy Ohio paid dividends of $200 million and $285 million, respectively, to its parent, Cinergy.~~
~~Duke Energy Indiana~~
Duke Energy Indiana engages in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Balances due to or due from related parties included in the Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010 are as follows:
~~Assets/(Liabilities)~~

   September 30,
2011^(a) December 31,
2010^(a)
   (in millions)
Current assets^(b)
   $ 27    $ 51
Current liabilities^(c)
   (127 ) (69 )
Non-current liabilities^(d)
   (22 ) (20 )
Net deferred tax liabilities^(e)
   (872 ) (932 )
~~(a)~~ ~~Balances exclude assets or liabilities associated with accrued pension and other post-retirement benefits, Cinergy Receivables and money pool arrangements as discussed below.~~
~~(b)~~ Of the balance at September 30, 2011, $23 million is classified as Receivables and $4 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $27 million is classified as Receivables and $24 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.
~~(c)~~ Of the balance at September 30, 2011, $(54) million is classified as Accounts payable and $(73) million is classified as Taxes accrued on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $(67) million is classified as Accounts payable and $(2) million is classified as Taxes accrued on the Condensed Consolidated Balance Sheets.
~~(d)~~ ~~The balances at September 30, 2011 and December 31, 2010 are classified as Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.~~
~~(e)~~ Of the balance at September 30, 2011, $(881) million is classified as Deferred income taxes and $9 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $(973) million is classified as Deferred income taxes and $41 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
As discussed further in Note 14, Duke Energy Indiana participates in Duke Energy’s qualified pension plan, non-qualified pension plan and other post-retirement benefit plans and is allocated its proportionate share of expenses associated with these plans. Additionally, Duke Energy Indiana has been allocated accrued pension and other post-retirement benefit obligations of $263 million at September 30, 2011 and $272 million at December 31, 2010. These amounts have been classified in the Condensed Consolidated Balance Sheets as follows:

   September 30,
2011    December 31,
2010
   (in millions)
Other current liabilities
   $ 2       $ 2
Accrued pension and other post-retirement benefit costs
   261       270
~~Other Related Party Amounts~~

   Three months ended    Nine months ended
   September 30, 2011    September 30, 2010    September 30, 2011    September 30, 2010
   (in millions)
Corporate governance and shared service expenses^(a)
   $ 100       $ 90       $ 306       $ 266
Indemnification coverages^(b)
   1       2       5       6
Rental income and other charged expenses, net^(c)
   1       2       4       6
Cinergy receivables interest income^(d)
   3       4       10       10
~~(a)~~ Duke Energy Indiana is charged its proportionate share of corporate governance and other costs by an unconsolidated affiliate that is a consolidated affiliate of Duke Energy. Corporate governance and other shared services costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.
~~(b)~~ Duke Energy Indiana incurs expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly-owned captive insurance subsidiary. These expenses are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.
~~(c)~~ Duke Energy Indiana records income associated with the rental of office space to a consolidated affiliate of Duke Energy, as well as its proportionate share of certain charged expenses from affiliates of Duke Energy.
~~(d)~~ As discussed in Note 11, certain trade receivables have been sold by Duke Energy Indiana to Cinergy Receivables, a consolidated entity formed by Cinergy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from Cinergy Receivables for a portion of the purchase price. The interest income associated with the subordinated note is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Operations.
As discussed further in Note 6, Duke Energy Indiana participates in a money pool arrangement with Duke Energy and certain of its subsidiaries. Interest income associated with money pool activity is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Operations and was insignificant for each of the three and nine months ended September 30, 2011 and 2010. Interest expense associated with money pool activity is recorded in Interest Expense on the Condensed Consolidated Statements of Operations. For each of the three and nine months ended September 30, 2011 and 2010 interest expense was insignificant.
In May 2011, Duke Energy Vermillion, an indirect wholly-owned subsidiary of Duke Energy Ohio, entered into an agreement to sell its 75% undivided ownership interest in the Vermillion Generating Station to Duke Energy Indiana and WVPA. Refer to Note 3 and Note 4 for further discussion.
In February 2010, Duke Energy Indiana received a $225 million capital contribution from its parent, Cinergy. In June 2010, Duke Energy Indiana received a $125 million capital contribution from its parent, Cinergy.
~~18.~~19. New Accounting Standards
The following new accounting standards were adopted by the Duke Energy Registrants subsequent to September 30, ~~2010~~2011 and the impact of such adoption, if applicable, has been presented in the respective Condensed Consolidated Financial Statements of the Duke Energy Registrants:
~~Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605—Revenue Recognition (ASC 605).~~ASC 220 — Comprehensive Income. In ~~October 2009,~~June 2011, the FASB ~~issued new revenue recognition accounting~~amended the existing requirements for presenting comprehensive income in financial statements primarily to increase the prominence of items reported in other comprehensive income (OCI) and to facilitate the convergence of U.S. GAAP and IFRS. Specifically, the revised guidance eliminates the option previously provided to present components of OCI as part of the statement of changes in ~~response~~stockholders’ equity. Accordingly, all non-owner changes in stockholders’ equity are required to ~~practice concerns related to the accounting for revenue arrangements with multiple deliverables. This new accounting guidance primarily applies to all contractual arrangements~~be presented either in ~~which~~ a ~~vendor will perform multiple revenue generating activities and addresses the unit~~single continuous statement of ~~accounting for arrangements involving multiple deliverables, as well as how arrangement consideration should be allocated to the~~comprehensive income or in two separate ~~units of accounting.~~but consecutive financial statements. For the Duke Energy Registrants, ~~the new accounting~~this revised guidance was effective on a retrospective basis for interim and annual periods beginning January 1, ~~2011 and applied on a prospective basis. This new accounting guidance did not have a material impact to~~2012. The adoption of this standard changed the ~~consolidated results of operations, cash flows or financial position~~presentation of the Duke Energy ~~Registrants.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~ASC 805—Business Combinations (ASC~~805). In November 2010, the FASB issued new accounting guidance in response to diversity in the interpretation of pro forma information disclosure requirements for business combinations. The new accounting guidance requires an entity to present pro forma financial information as if a business combination occurred at the beginning of the earliest period presented as well as additional disclosures describing the nature and amount of material, nonrecurring pro forma adjustments. This new accounting guidance was effective January 1, 2011 and will be applied to all business combinations consummated after that date.
~~ASC 820—Fair Value Measurements and Disclosures (ASC 820).~~In January 2010, the FASB amended existing fair value measurements and disclosures accounting guidance to clarify certain existing disclosure requirements and to require a number of additional disclosures, including amounts and reasons for significant transfers between the three levels of the fair value hierarchy, and presentation of certain information in the reconciliation of recurring Level 3 measurements on a gross basis. For the Duke Energy Registrants, certain portions of this revised accounting guidance were effective on January 1, 2010, with additional disclosures effective for periods beginning January 1, 2011. The adoption of this accounting guidance resulted in additional disclosure in the notes to the consolidatedRegistrants’ financial statements but did not ~~have an impact on~~affect the ~~Duke Energy Registrants’ consolidated results~~calculation of ~~operations, cash flows~~net income, comprehensive income or ~~financial position. See note 9 for additional disclosures required by the revised accounting guidance in ASC 820.~~earnings per share.
ASC ~~350–Intangibles–Goodwill and Other.~~In September 2011, the FASB amended existing goodwill impairment testing accounting guidance to provide an entity testing goodwill for impairment with the option of performing a qualitative assessment prior to calculating the fair value of a reporting unit in step one of a goodwill impairment test. Under this revised guidance, a qualitative assessment would require an evaluation of economic, industry, and company-specific considerations. If an entity determines, on a basis of such qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying value of a reporting unit, the two-step impairment test, as currently required under existing applicable accounting guidance, would be required. Otherwise, no further impairment testing would be required. The revised goodwill impairment testing accounting guidance is effective for the Duke Energy Registrants’ annual and interim goodwill impairment tests performed for fiscal years beginning January 1, 2012, with early adoption of this revised guidance permitted for annual and interim goodwill impairment tests performed as of a date before September 15, 2011. Since annual goodwill impairment tests are performed by Duke Energy as of August 31, the Duke Energy Registrants early adopted this revised accounting guidance during the third quarter of 2011 and applied that guidance to their annual goodwill impairment tests for 2011.
~~The following new Accounting Standards Updates (ASU) have been issued, but have not yet been adopted by Duke Energy, as of September 30, 2011:~~
~~ASC 820—~~820 — Fair Value Measurements and ~~Disclosures (ASC 820).~~Disclosures. In May 2011, the FASB amended existing requirements for measuring fair value and for disclosing information about fair value measurements. This revised guidance results in a consistent definition of fair value, as well as common requirements for measurement and disclosure of fair value information between U.S. GAAP and International Financial Reporting Standards (IFRS). In addition, the amendments set forth enhanced disclosure requirements with respect to recurring Level 3 measurements, nonfinancial assets measured or disclosed at fair value, transfers between levels in the fair value hierarchy, and assets and liabilities disclosed but not recorded at fair value. For the Duke Energy Registrants, the revised fair value measurement guidance iswas effective on a prospective basis for interim and annual periods beginning January 1, 2012. ~~Duke Energy is currently evaluating the potential impact of the~~The adoption of this ~~revised~~new guidance ~~and is unable to estimate at this time~~did not have a significant impact on the ~~impact of adoption on its~~Duke Energy Registrants disclosures or their consolidated results of operations, cash flows, or financial position.
The following new Accounting Standards Update (ASU) has been issued, but have not yet been adopted by Duke Energy, as of September 30, 2012.
ASC ~~220—Comprehensive Income (ASC 220).~~210—Balance Sheet. In ~~June~~December 2011, the FASB ~~amended~~issued revised accounting guidance to amend the existing disclosure requirements for ~~presenting comprehensive income in~~offsetting financial ~~statements primarily~~assets and liabilities to ~~increase the prominence~~enhance current disclosures, as well as to improve comparability of ~~items reported in other comprehensive income (OCI) and to facilitate the convergence of~~balance sheets prepared under U.S. GAAP and IFRS. ~~Specifically,~~The revised disclosure guidance affects all companies that have financial instruments and derivative instruments that are either offset in the balance sheet (i.e., presented on a net basis) or subject to an enforceable master netting arrangement and/or similar agreement. The revised guidance ~~eliminates the option currently provided under existing requirements~~requires that certain enhanced quantitative and qualitative disclosures be made with respect to ~~present components~~a company’s netting arrangements and/or rights of OCI as part of the statement of changes in stockholders’ equity. Accordingly, all non-owner changes in stockholders’ equity will be required to be presented either in a single continuous statement of comprehensive income setoff associated with its financial instruments and/or ~~in two separate but consecutive financial statements.~~derivative instruments including associated collateral. For the Duke Energy Registrants, ~~this~~the revised disclosure guidance is effective on a retrospective basis for interim and annual periods beginning January 1, ~~2012. Early adoption of~~2013. Other than additional disclosures, this revised guidance ~~is permitted. Duke Energy is currently evaluating~~does not impact the ~~revised requirements for presenting comprehensive income in its financial statements and is unable to estimate at this time the impact of adoption of this revised guidance on its~~ consolidated results of operations, cash flows or financial ~~position.~~
~~19. Comprehensive Income and Accumulated Other Comprehensive Income (Loss)~~
~~Comprehensive income (loss) for the~~position of Duke Energy Registrants includes net income and all other non-owner changes in equity. The tables below provide the components of other comprehensive income (loss) and total comprehensive income (loss) for the three months ended September 30, 2011 and 2010. Components of other comprehensive income (loss) and total comprehensive income (loss) for the nine months ended September 30, 2011 and 2010 are presented in the respective Condensed Consolidated Statements of Equity and Comprehensive Income.
~~Duke Energy~~Energy.

   Common
Stockholders’
Equity Noncontrolling
Interests Total
Equity
   (in millions)
Three Months Ended September 30, 2011

Net Income
   $ 472    $ (2 ) $ 470


Other comprehensive income

Foreign currency translation adjustments
   (235 ) (11 ) (246 )
Pension and OPEB related adjustments to AOCI^(a)
   1    —      1
Net unrealized loss on cash flow hedges^(b)
   (47 ) —      (47 )
Reclassification into earnings from cash flow hedges^(c)
   1    —      1
Unrealized gain on investments in auction rate securities^(d)
   3    —      3


Other comprehensive income, net of tax
   (277 ) (11 ) (288 )


Total Comprehensive Income
   $ 195    $ (13 ) $ 182


~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~(a)~~ ~~Net of insignificant tax expense.~~
~~(b)~~ ~~Net of $26 million tax benefit.~~
~~(c)~~ ~~Net of insignificant tax expense.~~
~~(d)~~ ~~Net of $5 million tax expense.~~

   Common
Stockholders’
Equity    Noncontrolling
Interests Total
Equity
   (in millions)
Three Months Ended September 30, 2010

Net Income (Loss)
   $ 670       $ (4 ) $ 666




Other comprehensive income

Foreign currency translation adjustments
   88       4    92
Pension and OPEB related adjustments to AOCI^(a)
   4       —      4
Net unrealized gain on cash flow hedges^(b)
   1       —      1
Unrealized gain on investments in auction rate securities⁽^c⁾
   2       —      2




Other comprehensive income, net of tax
   95       4    99




Total Comprehensive Income
   $ 765       $ —      $ 765




~~(a)~~ ~~Net of $5 million tax expense.~~
~~(b)~~ ~~Net of insignificant tax expense.~~
~~(c)~~ ~~Net of insignificant tax expense.~~
~~Duke Energy Carolinas~~

   Three Months Ended
September 30,
   2011    2010
   (in millions)
Net Income
   $ 311       $ 315




Other comprehensive income

Reclassification into earnings from cash flow hedges⁽^a⁾
   2       1
Unrealized gain on investments in auction rate securities⁽^b⁾
   —         1




Other comprehensive income, net of tax
   2       2




Total Comprehensive Income
   $ 313       $ 317




~~(a)~~ ~~Net of $1 million tax benefit for the three months ended September 30, 2011 and insignificant tax expense for the three months ended September 30, 2010.~~
~~(b)~~ ~~Net of insignificant tax expense for the three months ended September 30, 2011 and insignificant tax expense for the three months ended September 30, 2010.~~
~~PART I~~
~~DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -~~
~~DUKE ENERGY INDIANA, INC.~~
~~Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)~~
~~Duke Energy Ohio~~

   Three Months Ended
September 30,
   2011 2010
   (in millions)
Net Income
   $ 51    $ 176


Other comprehensive loss

Pension and OPEB related adjustments to AOCI^(a)
   (1 )
Reclassification into earnings from cash flow hedges^(b)
   —      (1 )


Other comprehensive loss, net of tax
   (1 ) (1 )


Total Comprehensive Income
   $ 50    $ 175


~~(a)~~ ~~Net of $1 million tax benefit for the three months ended September 30, 2011.~~
~~(b)~~ ~~Net of insignificant tax benefit for the three months ended September 30, 2010.~~
~~Duke Energy Indiana~~

   Three Months Ended
September 30,
   2011 2010
   (in millions)
Net (Loss) Income
   $ (31 ) $ 92


Other comprehensive loss

Reclassification into earnings from cash flow hedges⁽^a⁾
   (1 ) (1 )


Other comprehensive loss, net of tax
   (1 ) (1 )


Total Comprehensive Income
   $ (32 ) $ 91


~~(a)~~ ~~Net of $1 million tax benefit for the three months ended September 30, 2011 September 30, 2010.~~
20. Subsequent Events
For information on subsequent events related to ~~acquisitions and sales of other assets,~~ regulatory matters, commitments and contingencies and debt and credit facilities ~~fair value of financial asset and liabilities, variable interest entities and severance,~~ see Notes 3, 4, 5, and 6 ~~9, 11, and 15,~~ respectively.
77
PART I
~~Item~~ITEM 2. ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
~~INTRODUCTION~~
~~Proposed Merger with Progress Energy, Inc. (Progress Energy)~~
On January 8, 2011, Duke Energy entered into an Agreement and Plan of Merger (Merger Agreement) among Diamond Acquisition Corporation, a North Carolina corporation and Duke Energy’s wholly-owned subsidiary (Merger Sub) and Progress Energy, a North Carolina corporation. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Progress Energy with Progress Energy continuing as the surviving corporation and a wholly-owned subsidiary of Duke Energy.
Pursuant to the Merger Agreement, upon the closing of the merger, each issued and outstanding share of Progress Energy common stock will automatically be cancelled and converted into the right to receive 2.6125 shares of common stock of Duke Energy, subject to appropriate adjustment for a reverse stock split of the Duke Energy common stock as contemplated in the Merger Agreement and except that any shares of Progress Energy common stock that are owned by Progress Energy or Duke Energy, other than in a fiduciary capacity, will be cancelled without any consideration therefor. Each outstanding option to acquire, and each outstanding equity award relating to, one share of Progress Energy common stock will be converted into an option to acquire, or an equity award relating to 2.6125 shares of Duke Energy Common stock, as applicable, subject to appropriate adjustment for the reverse stock split. Based on Progress Energy shares outstanding at September 30, 2011, Duke Energy would issue 771 million shares of common stock to convert the Progress Energy common shares in the merger under the unadjusted exchange ratio of 2.6125. The exchange ratio will be adjusted proportionately to reflect a 1-for-3 reverse stock split with respect to the issued and outstanding Duke Energy common stock that Duke Energy plans to implement prior to, and conditioned on, the completion of the merger. The resulting adjusted exchange ratio is 0.87083 of a share of Duke Energy common stock for each share of Progress Energy common stock. Based on Progress Energy shares outstanding at September 30, 2011, Duke Energy would issue 257 million shares of common stock, after the effect of the 1-for-3 reverse stock split, to convert the Progress Energy common shares in the merger. The merger will be accounted for under the acquisition method of accounting with Duke Energy treated as the acquirer, for accounting purposes. Based on the market price of Duke Energy common stock on September 30, 2011, the transaction would be valued at $15.4 billion and would result in incremental recorded goodwill to Duke Energy of $9.3 billion, according to current estimates. Duke Energy would also assume all of Progress Energy’s outstanding debt, which is estimated to be $15.1 billion based on the approximate fair value of Progress Energy’s outstanding indebtedness at September 30, 2011. The Merger Agreement has been unanimously approved by both companies’ Boards of Directors.
The merger is conditioned upon, among other things, approval by the shareholders of both companies, as well as expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval by the FERC, the Federal Communications Commission (FCC), the NRC, the NCUC, and the KPSC. Duke Energy and Progress Energy also are seeking review of the merger by the PSCSC and approval of the joint dispatch agreement by the PSCSC. Although there are no merger-specific regulatory approvals required in Indiana, Ohio or Florida, the companies will continue to update the public services commissions in those states on the merger, as applicable and as required. The status of these matters is as follows:
On March 17, 2011, Duke Energy filed an initial registration statement on Form S-4 with the Securities and Exchange Commission (SEC) for shares to be issued to consummate the merger with Progress Energy. On July 7, 2011, the Form S-4 was declared effective by the SEC, and the joint proxy statement/prospectus contained in the Form S-4 was mailed to the shareholders of both companies thereafter. On August 23, 2011, Duke Energy and Progress Energy shareholders approved the proposed merger. In addition, Duke Energy shareholders approved a 1-for-3 reverse stock split.

On March 28, 2011, Duke Energy and Progress Energy submitted Hart-Scott-Rodino antitrust filings to the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC). The parties have met their obligations under the Hart-Scott-Rodino Act, which is no longer a bar to closing the transaction.INTRODUCTION
On March 30, 2011, Progress Energy made filings with the NRC for approval for indirect transfer of control of licenses for Progress Energy’s nuclear facilities to include Duke Energy as the ultimate parent corporation on these licenses.
On April 4, 2011, Duke Energy and Progress Energy filed a merger application and joint dispatch agreement with the NCUC. On September 2, 2011, Duke Energy, Progress Energy and the NC Public Staff filed a settlement agreement with the NCUC. Under the settlement agreement, the companies will guarantee North Carolina customers their allocable share of $650 million in savings related to fuel and joint dispatch of generation assets over the first five years after the merger closes, continue community financial support for a minimum of four years, contribute to weatherization efforts of low-income customers and workforce development and agree not to recover direct merger-related costs. A public hearing occurred September 20-22, 2011 and proposed orders and/or briefs must be filed by November 14, 2011.
On April 4, 2011, Duke Energy and Progress Energy filed a merger application with the KPSC. On June 24, 2011, Duke Energy and Progress Energy filed a settlement agreement with the Attorney General. A public hearing occurred on July 8, 2011. An order conditionally approving the merger was issued on August 2, 2011. The KPSC required Duke Energy and Progress Energy to accept all the conditions contained in the order within seven days of the order. After seeking an extension, on August 19, 2011, Duke Energy and Progress Energy filed for clarification of one of the merger conditions. On September 15, 2011, Duke Energy and Progress Energy filed for approval of a stipulation revising the merger condition. On October 28, 2011, the KPSC issued an order approving the stipulation and merger.
On April 4, 2011, Duke Energy and Progress Energy, jointly filed applications with the FERC for the approval of the merger, the Joint Dispatch Agreement and the joint Open Access Transmission Tariff (OATT). On September 30, 2011, the FERC conditionally approved the merger, subject to approval of mitigation measures to address its finding that the combined company could have an adverse effect on competition in wholesale power markets in the Duke Energy Carolinas and Progress Energy Carolinas East balancing authority areas. On October 17, 2011 Duke Energy and Progress Energy filed their plan for mitigating the FERC’s concerns by proposing to offer on a daily basis a certain quantity of power during summer and winter periods to the extent it is available after serving native load and existing firm obligations. The price will be incremental cost, plus 10 percent. Intervenors may comment on the plan by November 16, after which time, the FERC will rule on whether the mitigation plan adequately addresses the market power issues. FERC has not yet ruled on the Joint Dispatch Agreement or the joint OATT. On October 31, 2011, Duke Energy and Progress Energy filed a request for rehearing with the FERC. The request states that the FERC applied a more stringent analysis to the proposed merger than required by its current rules. Duke Energy and Progress Energy also requested that the FERC address the companies’ previously filed mitigation plan no later than December 15, 2011.
On April 25, 2011, Duke Energy and Progress Energy, on behalf of their utility companies Duke Energy Carolinas and Progress Energy Carolinas, filed an application requesting the PSCSC to review the merger and approve the proposed Joint Dispatch Agreement and the prospective future merger of Duke Energy Carolinas and Progress Energy Carolinas. On September 13, 2011, Duke Energy and Progress Energy withdrew their application seeking approval for the future merger of
~~PART I~~
their Carolinas utility companies, Duke Energy Carolinas and Progress Energy Carolinas, as the merger of these entities is not likely to occur for several years after the close of the merger. On October 13, 2011 the PSCSC issued an order suspending all scheduled deadlines and the hearing date until Duke Energy and Progress Energy file their proposed mitigation measures with the FERC and the PSCSC. Duke Energy and Progress Energy made that filing on October 17, 2011. On November 2, 2011, the PSCSC adopted a revised procedural schedule for its review of the merger. Hearings are scheduled to begin the week of December 12, 2011. The docket will remain open pending FERC issuance of its final orders on the merger related actions before the FERC.
~~On July 12, 2011, Duke Energy and Progress Energy filed an application with the FCC for approval of radio system license transfers. The FCC approved the transfers on July 27, 2011.~~
Duke Energy is targeting completion of the merger by the end of 2011, however no assurances can be given as to the timing of the satisfaction of all closing conditions or that all required approvals will be received.
The Merger Agreement contains certain termination rights for both Duke Energy and Progress Energy, and further provides for the payment of a termination fee of $400 million by Progress Energy under specified circumstances and a termination fee of $675 million by Duke Energy under specified circumstances.
For the three and nine months ended September 30, 2011, Duke Energy incurred transaction and integration costs related to the Progress Energy merger of $13 million and $29 million, respectively, which are recorded within Operating Expenses in Duke Energy’s Condensed Consolidated Statement of Operations.
Duke Energy ~~Corporation~~
Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company ~~primarily located~~headquartered in ~~the Americas.~~Charlotte, North Carolina. Duke Energy operates in the United States (U.S.) and Latin America primarily through its ~~wholly-owned~~direct and indirect wholly owned subsidiaries. Duke Energy’s wholly owned subsidiaries included Duke Energy Carolinas, LLC (Duke Energy Carolinas), Duke Energy Ohio, Inc. (Duke Energy Ohio), ~~which includes Duke Energy Kentucky, Inc. (Duke Energy Kentucky),~~ and Duke Energy Indiana, Inc. (Duke Energy Indiana) prior to the merger with Progress Energy, Inc (Progress Energy). On July 2, 2012 Duke Energy merged with Progress Energy, with Duke Energy continuing as the surviving corporation, and Progress Energy becoming a wholly owned subsidiary of Duke Energy. Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc. (Progress Energy Carolinas) and Florida Power Corporation d/b/a Progress Energy Florida, Inc. (Progress Energy Florida), Progress Energy’s regulated utility subsidiaries, are now indirect wholly owned subsidiaries of Duke Energy. Duke Energy’s consolidated financial statements include Progress Energy, Progress Energy Carolinas and Progress Energy Florida activity from July 2, 2012 through September 30, 2012. See Note 2 to the Condensed Consolidated Financial Statements, Acquisitions and Sales of Other Assets, for additional information regarding the merger.
Progress Energy, Progress Energy Carolinas and Progress Energy Florida (collectively referred to as the Progress Energy Registrants) continue to maintain reporting requirements as SEC registrants. The information presented in the Progress Energy Registrants’ separately filed Form 10-Q represents the results of operations of the Progress Energy Registrants for the three and nine months ended September 30, 2012 and 2011 and the financial position as of September 30, 2012 and December 31, 2011, presented on a comparable basis. In accordance with SEC regulations, the Progress Energy Registrants did not reflect the impacts of acquisition accounting, whereby the adjustments of assets and liabilities to fair value and the resultant goodwill would be shown on the financial statements of the Progress Energy Registrants. These adjustments were recorded by Duke Energy.
Management’s Discussion and Analysis includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings and adjusted earnings per share (EPS), discussed below. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in ~~South America~~(or excluded from) the most directly comparable measure calculated and ~~Central America through International Energy.~~presented in accordance with GAAP. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.
When discussing Duke Energy’s condensed consolidated financial information, it necessarily includes the results of its ~~three~~six separate subsidiary registrants, Duke Energy Carolinas, Progress Energy, Progress Energy Carolinas, Progress Energy Florida, Duke Energy Ohio and Duke Energy Indiana (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana. However, none of the registrants makes any representation as to information related solely to Duke Energy or the Subsidiary Registrants of Duke Energy other than itself.
Management’s Discussion and Analysis should be read in conjunction with the ~~respective~~ Unaudited Condensed Consolidated Financial ~~Statements.~~Statements and Notes.
Merger with Progress Energy
On July 2, 2012, Duke Energy completed the merger contemplated by the Agreement and Plan of Merger (Merger Agreement), among Diamond Acquisition Corporation, a North Carolina corporation and Duke Energy’s wholly owned subsidiary (Merger Sub) and Progress Energy, Inc. (Progress Energy), a North Carolina corporation engaged in the regulated utility business of generation, transmission and distribution and sale of electricity in portions of North Carolina, South Carolina and Florida. As a result of the merger, Merger Sub was merged into Progress Energy and Progress Energy became a wholly owned subsidiary of Duke Energy.
Immediately preceding the merger, Duke Energy completed a one-for-three reverse stock split with respect to the issued and outstanding shares of Duke Energy common stock. The shareholders of Duke Energy approved the reverse stock split at Duke Energy’s special meeting of shareholders held on August 23, 2011. All share and per share amounts presented herein reflect the impact of the one-for-three reverse stock split.
Progress Energy’s shareholders received 0.87083 shares of Duke Energy common stock in exchange for each share of Progress Energy common stock outstanding as of July 2, 2012. Generally, all outstanding Progress Energy equity-based compensation awards were converted into Duke Energy equity-based compensation awards using the same ratio. The merger was structured as a tax-free exchange of shares.
See Note 2 to the Condensed Consolidated Financial Statements, Acquisitions and Sales of Other Assets, for information related to the merger with Progress Energy, including accounting charges recognized.
RESULTS OF OPERATIONS
In this section, Duke Energy provides analysis and discussion of earnings and factors affecting earnings on both a GAAP and non-GAAP basis.
Management evaluates financial performance in part based on the non-GAAP financial measure, adjusted earnings and adjusted diluted EPS, which are measured as income from continuing operations after deducting income attributable to noncontrolling interests, adjusted for the dollar and per-share impact of special items and the mark-to-market impacts of economic hedges in the Commercial Power segment. Special items represent certain charges and credits, which management believes will not be recurring on a regular basis, although it is reasonably possible such charges and credits could recur. Mark-to-market adjustments reflect the mark-to-market impact of derivative contracts, which is recognized in GAAP earnings immediately as such derivative contracts do not qualify for hedge accounting or regulatory accounting treatment, used in Duke Energy’s hedging of a portion of economic value of its generation assets in the Commercial Power segment. The economic value of the generation assets is subject to fluctuations in fair value due to market price volatility of the input and output commodities (e.g., coal, power) and, as such, the economic hedging involves both purchases and sales of those input and output commodities related to the generation assets. Because the operations of the generation assets are accounted for under the accrual method, management believes that excluding the impact of mark-to-market changes of the economic hedge contracts from operating earnings until settlement better matches the financial impacts of the hedge contract with the portion of economic value of the underlying hedged asset. Management believes that the presentation of adjusted earnings and adjusted diluted EPS provide useful information to investors, as it provides them an additional relevant comparison of Duke Energy’s performance across periods. Management uses these non-GAAP financial measures for planning and forecasting and for reporting results to the Board of Directors, employees, shareholders, analysts and investors concerning Duke Energy’s financial
78
PART I
performance. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are net income and diluted EPS attributable to Duke Energy common shareholders, which include the dollar and per-share impact of special items, the mark-to-market impacts of economic hedges in the Commercial Power segment and discontinued operations.
~~EXECUTIVE OVERVIEW~~Executive Overview
~~Net~~The following tables reconcile adjusted earnings to GAAP net income attributable to Duke Energy ~~was $472 million for the three months ended September 30, 2011, as compared~~and adjusted diluted EPS to ~~$670 million for the three months ended September 30, 2010. Diluted earnings per share decreased from $0.51 per share for the three months ended September 30, 2010,~~GAAP diluted EPS attributable to ~~$0.35 per share for the three months ended September 30, 2011 primarily due to the decrease in net income in the third quarter of 2011~~Duke Energy:


Three Months Ended September 30,


2012


2011
(in millions, except per-share amounts)

Amount


EPS


Amount


EPS
Total Adjusted Earnings
$
1,025

$
1.47

$
666

$
1.50
Costs to Achieve Progress Energy Merger, net of tax

(293)


(0.42)


(10)


(0.02)
Democratic National Convention Host Committee Support, net of tax

(6)


(0.01)


―


―
Economic Hedges (Mark-to-Market), net of tax

(19)


(0.03)


1


―
Edwardsport Impairment, net of tax

(117)


(0.17)


(135)


(0.30)
Emission Allowance Impairment, net of tax

―


―


(51)


(0.12)
Income from Discontinued Operations, net of tax

4


0.01


1


―
Net Income Attributable to Duke Energy
$
594

$
0.85

$
472

$
1.06
The variance as compared to the ~~same~~prior period in 2010, as a result of a larger impairment related to the Edwardsport integrated gasification combined cycle (IGCC) plant in 2011 than in 2010, along with other factors described further below. Income from continuing operations was $469 million for the three months ended September 30, 2011 as compared to $666 million for the same period in 2010. Total reportable segment EBIT (defined below in “Segment Results” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations) was $956 million for the three months ended September 30, 2011, as compared to $1,244 million for the same period in 2010.
Net income attributable to Duke Energy Corporation was $1,418 million for the nine months ended September 30, 2011, as compared to $893 million for the same period in 2010. Diluted earnings per share increased from $0.68 per share for the nine months ended September 30, 2010, to $1.06 per share for the nine months ended September 30, 2011, primarily due to:
·The inclusion of Progress Energy results beginning in July 2012, and
·Increased retail pricing and riders primarily resulting from the implementation of revised rates in North Carolina and South Carolina.
Partially offset by:
·Lower non-regulated Midwest coal generation results,
·Unfavorable weather, and
·Incremental shares issued to complete the ~~increase in net income in the nine months ended September 30, 2011,~~Progress Energy merger (impacts Adjusted EPS only).

Nine Months Ended September 30,


2012


2011
(in millions, except per-share amounts)

Amount


EPS


Amount


EPS
Total Adjusted Earnings
$
1,987

$
3.74

$
1,628

$
3.67
Costs to Achieve Progress Energy Merger, net of tax

(306)


(0.58)


(23)


(0.05)
Democratic National Convention Host Committee Support, net of tax

(6)


(0.01)


―


―
Economic Hedges (Mark-to-Market), net of tax

(22)


(0.04)


(2)


(0.01)
Edwardsport Impairment, net of tax

(385)


(0.72)


(135)


(0.30)
Emission Allowance Impairment, net of tax

―


―


(51)


(0.12)
Voluntary Opportunity Plan Deferral, net of tax

60


0.11


―


―
Income from Discontinued Operations, net of tax

5


0.01


1


―
Net Income Attributable to Duke Energy
$
1,333

$
2.51

$
1,418

$
3.19
The variance as compared to the ~~same~~prior period ~~in 2010,~~is primarily as a result of a 2010 impairment of goodwill and certain generation assets associated with non-regulated generation operations in the Midwest, partially offset by a 2011 impairment related to the Edwardsport IGCC plant, and other factors described below. Income from continuing operations was $1,423 million for the nine months ended September 30, 2011, as compared to $893 million for the same period in 2010. Total reportable segment EBIT (defined below in “Segment Results” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations) was $2,796 million for the nine months ended September 30, 2011, as compared to $2,450 million for the same period in 2010.
See “Results of Operations” below for a detailed discussion of the consolidated results of operations, as well as a detailed discussion of EBIT results for each of Duke Energy’s reportable business segments, as well as Other.due to:
~~RESULTS OF OPERATIONS~~·The inclusion of Progress Energy results beginning in July 2012,
~~Results~~·Increased retail pricing and riders primarily resulting from the implementation of ~~Operations~~revised rates in North Carolina and ~~Variances~~

   Three Months Ended
September 30, Nine Months Ended
September 30,
   2011 2010    Increase
(Decrease) 2011    2010    Increase
(Decrease)
   (in millions)
Operating revenues
   $ 3,964    $ 3,946       $ 18    $ 11,161       $ 10,827       $ 334
Operating expenses
   3,192    2,915       277    8,910       9,056       (146 )
(Losses) gains on sales of other assets and other, net
   (5 ) 2       (7 ) 9       9       —








Operating income
   767    1,033       (266 ) 2,260       1,780       480
~~PART I~~

   Three Months Ended
September 30, Nine Months Ended
September 30,
   2011 2010 Increase
(Decrease) 2011    2010    Increase
(Decrease)
   (in millions)
Other income and expenses, net
   123    136    (13 ) 431       380       51
Interest expense
   213    202    11    635       624       11






Income from continuing operations before income taxes
   677    967    (290 ) 2,056       1,536       520
Income tax expense from continuing operations
   208    301    (93 ) 633       643       (10 )






Income from continuing operations
   469    666    (197 ) 1,423       893       530
Income from discontinued operations, net of tax
   1    —      1    1       1       —






Net income
   470    666    (196 ) 1,424       894       530
Less: Net (loss) income attributable to noncontrolling interests
   (2 ) (4 ) 2    6       1       5






Net income attributable to Duke Energy Corporation
   $ 472    $ 670    $ (198 ) $ 1,418       $ 893       $ 525






~~The following is a summary discussion of the consolidated results of operations~~South Carolina, and ~~variances, which is followed by a discussion of results by segment.~~
~~Consolidated Operating Revenues~~
~~Three Months Ended September 30, 2011, as Compared~~·Lower operation and maintenance and governance expenses.
Partially offset by:
·Unfavorable weather,
·Lower non-regulated Midwest coal generation results,
·Higher depreciation and amortization expense, and
·Incremental shares issued to ~~September 30, 2010.~~~~Consolidated operating revenues for~~complete the ~~three months ended September 30, 2011, increased $18 million compared to the same period in 2010. This change was primarily driven by the following:~~Progress Energy merger (impacts Adjusted EPS only).

~~An $87 million increase at International Energy. See Operating Revenues discussion within “Segment Results” for International Energy below for further information.~~
~~Partially offsetting this increase was:~~79

~~A $50 million decrease at Commercial Power. See Operating Revenues discussion within “Segment Results” for Commercial Power below for further information;~~
~~An $18 million decrease at U.S. Franchised Electric and Gas (USFE&G). See Operating Revenues discussion within “Segment Results” for USFE&G below for further information; and~~
~~A $3 million decrease at Other. See Operating Revenues discussion within “Segment Results” for Other below for further information.~~
~~Nine Months Ended September 30, 2011, as Compared to September 30, 2010.~~~~Consolidated operating revenues for the nine months ended September 30, 2011, increased $334 million compared to the same period in 2010. This change was primarily driven by the following:~~
~~A $195 million increase at International Energy. See Operating Revenues discussion within “Segment Results” for International Energy below for further information;~~
~~A $116 million increase at USFE&G. See Operating Revenues discussion within “Segment Results” for USFE&G below for further information; and~~
~~A $70 million increase at Commercial Power. See Operating Revenues discussion within “Segment Results” for Commercial Power below for further information.~~
~~Partially offsetting these increases was:~~
~~A $48 million decrease at Other. See Operating Revenues discussion within “Segment Results” for Other below for further information.~~
~~Consolidated Operating Expenses~~
~~Three Months Ended September 30, 2011, as Compared to September 30, 2010.~~~~Consolidated operating expenses for the three months ended September 30, 2011, increased $277 million compared to the same period in 2010. This change was primarily driven by the following:~~
~~A $213 million increase at USFE&G. See Operating Expenses discussion within “Segment Results” for USFE&G below for further information;~~
~~A $68 million increase at Commercial Power. See Operating Expenses discussion within “Segment Results” for Commercial Power below for further information; and~~
~~A $56 million increase at International Energy. See Operating Expenses discussion within “Segment Results” for International Energy below for further information.~~
~~Partially offsetting these increases was:~~
~~A $62 million decrease at Other. See Operating Expenses discussion within “Segment Results” for Other below for further information.~~
~~Nine Months Ended September 30, 2011, as Compared to September 30, 2010.~~~~Consolidated operating expenses for the nine months ended September 30, 2011, decreased $146 million compared to the same period in 2010. This change was primarily driven by the following:~~
~~A $443 million decrease at Commercial Power. See Operating Expenses discussion within “Segment Results” for Commercial Power below for further information; and~~
PART I
~~A $236 million decrease at Other. See Operating Expenses discussion within “Segment Results” for Other below for further information.~~
~~Partially offsetting these decreases were:~~
~~A $430 million increase at USFE&G. See Operating Expenses discussion within “Segment Results” for USFE&G below for further information; and~~
~~A $102 million increase at International Energy. See Operating Expenses discussion within “Segment Results” for International Energy below for further information.~~
~~Consolidated (Losses) Gains on Sales of Other Assets and Other, Net~~
Consolidated (losses) gains on sales of other assets and other, net, was a loss of $5 million and a gain of $2 million for the three months ended September 30, 2011, and 2010, respectively. The decrease is attributable to a loss on the sale of a corporate asset in 2011 compared to net gains on the sales of emission allowances in 2010 at USFE&G and Commercial Power.
~~Consolidated (losses) gains on sales of other assets and other, net for the nine months ended September 30, 2011, is consistent when compared to the same period in 2010.~~
~~Consolidated Other Income and Expenses, Net~~
Consolidated other income and expenses, net, for the three months ended September 30, 2011, decreased $13 million compared to the same period in 2010. The decrease was driven primarily by unfavorable returns on investments that support benefit obligations; partially offset by higher equity earnings of $21 million primarily from International Energy’s investment in National Methanol Company (NMC),
Consolidated other income and expenses, net, for the nine months ended September 30, 2011, increased $51 million compared to the same period in 2010. The increase was driven primarily by higher equity earnings of $34 million primarily from International Energy’s investment in NMC, a higher equity component of allowance for funds used during construction (AFUDC) of $20 million due to additional capital spending for ongoing construction projects, and a $20 million Peru arbitration award; partially offset by unfavorable returns on investments that support benefit obligations.
~~Consolidated Interest Expense~~
Consolidated interest expense for both the three and nine months ended September 30, 2011, increased $11 million compared to the same periods in 2010. The increase is due primarily to higher interest expense related to income taxes and higher debt balances in 2011.
~~Consolidated Income Tax Expense from Continuing Operations~~
Consolidated income tax expense from continuing operations for the three months ended September 30, 2011, decreased $93 million compared to the same period in 2010, primarily due to a decrease in pre-tax income. The effective tax rate for each of the three months ended September 30, 2011 and 2010 was 31%.
Consolidated income tax expense from continuing operations for the nine months ended September 30, 2011, decreased $10 million compared to the same period in 2010, primarily due to a decrease in the effective tax rate. The effective tax rate for the nine months ended September 30, 2011, and 2010 was 31% and 42%, respectively. The change in the effective tax rate is primarily due to a $500 million impairment of non-deductible goodwill in 2010.
Segment Results
~~Management evaluates~~Effective with the first quarter of 2012, management began evaluating segment performance based on ~~earnings before interest and taxes~~segment income. Segment Income is defined as income from continuing operations ~~(excluding certain allocated corporate governance costs), after deducting amounts~~net of income attributable to noncontrolling ~~interests related to those profits (EBIT). On a segment basis, EBIT excludes discontinued operations, represents all profits from continuing operations (both operating~~interests. Segment Income, as discussed below, includes intercompany revenues and ~~non-operating) before deducting interest and taxes, and is net~~expenses that are eliminated in the Condensed Consolidated Financial Statements. In conjunction with management’s use of the ~~amounts attributable~~new reporting measure, certain governance costs that were previously unallocated have now been allocated to ~~noncontrolling interests related~~each of the segments. In addition, direct interest expense and income taxes are included in segment income. Prior year financial information has been recast to ~~those profits. Cash, cash equivalents and short-term investments are managed centrally by~~conform to the current year presentation. None of these changes impacts the reportable operating segments or the Duke Energy ~~so interest and dividend~~Registrants’ previously reported consolidated revenues, net income on those balances, as well as gains and losses on remeasurement of foreign currency denominated balances, are excluded from the segments’ EBIT. Management considers segment EBIT to be a good indicator of each segment’s operating performance from its continuing operations, as it represents the results of Duke Energy’s ownership interest in operations without regard to financing methods or ~~capital structures.~~EPS.
See Note 23 to the Unaudited Condensed Consolidated Financial Statements, “Business Segments,” for a discussion of Duke Energy’s segment structure.
Duke Energy’s ~~segment EBIT~~Segment Income may not be comparable to a similarly titled measure of another company because other entities may not calculate ~~EBIT~~segment income in the same manner. Segment ~~EBIT~~Income is summarized in the following table, and detailed discussions follow.
~~EBIT by Business Segment~~
Segment Income by Business Segment















Three Months Ended September 30,

Nine Months Ended September 30,
(in millions)

2012

2011


2012

2011
USFE&G

$
790

$
337

$
1,263

$
975
Commercial Power


12


24


71


103
International Energy


103


115


350


370
Total reportable segment net income


905


476


1,684


1,448
Other


(315)


(5)


(356)


(31)
Discontinued Operations


4


1


5


1
Net Income Attributable to Duke Energy

$
594

$
472

$
1,333

$
1,418

   Three Months Ended
September 30, Nine Months Ended
September 30,
   2011 2010 2011 2010
   (in millions)
U.S. Franchised Electric and Gas
   $ 721    $ 946    $ 2,052    $ 2,361
Commercial Power
   67    188    217    (287 )
International Energy
   168    110    527    376


Total reportable segment EBIT
   956    1,244    2,796    2,450
Other
   (74 ) (100 ) (176 ) (368 )


Total reportable segment and other EBIT
   882    1,144    2,620    2,082
Interest expense
   (213 ) (202 ) (635 ) (624 )
Interest income and other^(a)
   7    25    53    62
Add back of noncontrolling interest component of reportable segment and Other EBIT
   1    —      18    16


Consolidated income from continuing operations before income taxes
   $ 677    $ 967    $ 2,056    $ 1,536


~~PART I~~
~~(a)~~ ~~Other within Interest Income and other includes foreign currency transaction gains and losses and additional noncontrolling interest amounts not allocated to the reportable segment and Other EBIT.~~
Noncontrolling interest amounts presented in certain tables below includes only expenses and benefits related to EBIT of Duke Energy’s joint ventures. It does not include the noncontrolling interest component related to interest and taxes of the joint ventures.
~~Segment EBIT, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements.~~
~~USFE&G~~
~~USFE&G includes the regulated operations of Duke Energy Carolinas, Duke Energy Indiana, Duke Energy Kentucky and certain regulated operations of Duke Energy Ohio.~~

   Three Months Ended September 30, Nine Months Ended September 30,
   2011    2010    Increase
(Decrease) 2011    2010    Increase
(Decrease)
(in millions, except where noted)

Operating revenues
   $ 2,926       $ 2,944       $ (18 ) $ 8,158       $ 8,042       $ 116
Operating expenses
   2,278       2,065       213    6,305       5,875       430
Gains on sales of other assets and other, net
   1       1       —      2       6       (4 )










Operating income
   649       880       (231 ) 1,855       2,173       (318 )
Other income and expenses, net
   72       66       6    197       188       9










EBIT
   $ 721       $ 946       $ (225 ) $ 2,052       $ 2,361       $ (309 )










Duke Energy Carolinas’ GWh sales^(a)
   22,832       23,608       (776 ) 63,626       65,432       (1,806 )
Duke Energy Midwest’s GWh sales^(a)(b)
   16,127       16,592       (465 ) 44,816       46,196       (1,380 )
Net proportional MW capacity in operation^(c)
         26,907       26,877       30
~~(a)~~ ~~Gigawatt-hours (GWh).~~
~~(b)~~ ~~Duke Energy Ohio (Ohio transmission and distribution only), Duke Energy Indiana and Duke Energy Kentucky collectively referred to as Duke Energy Midwest within this USFE&G segment discussion.~~
~~(c)~~ ~~Megawatt (MW).~~
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Carolinas for the three and nine months ended September 30, 2011, compared to the same period in the prior year. Except as otherwise noted, the below percentages represent billed sales only and are not weather normalized.

   Three Months Ended
September 30, 2011 Nine Months Ended
September 30, 2011
Increase (decrease) over prior year

Residential sales^(a)
   (4.3 %) (4.3 %)
General service sales^(a)
   (1.7 %) (1.0 %)
Industrial sales^(a)
   (0.1 %) 1.3 %
Wholesale power sales
   4.4 % 3.4 %
Total Duke Energy Carolinas sales^(b)
   (3.3 %) (2.8 %)
Average number of customers
   0.4 % 0.3 %
~~(a)~~ ~~Major components of Duke Energy Carolinas’ retail sales.~~
~~(b)~~ Consists of all components of Duke Energy Carolinas’ sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers.
~~PART I~~
USFE&G





































USFE&G includes the regulated operations of Duke Energy Carolinas, Progress Energy Carolinas, Progress Energy Florida, Duke Energy Ohio and Duke Energy Indiana. Progress Energy Carolinas and Progress Energy Florida's results are included beginning in July 2012.





















Three Months Ended September 30,

Nine Months Ended September 30,
(in millions, except where noted)
2012

2011

Variance

2012

2011

Variance
Operating revenues
$
5,842

$
2,926

$
2,916

$
11,207

$
8,158

$
3,049
Operating expenses

4,433


2,323


2,110


8,914


6,446


2,468
Gains on sales of other assets and other, net

6


1


5


13


2


11
Operating income

1,415


604


811


2,306


1,714


592
Other income and expenses, net

103


72


31


227


201


26
Interest expense

257


145


112


546


419


127
Income before income taxes

1,261


531


730


1,987


1,496


491
Income tax expense

470


194


276


723


521


202
Less: Income attributable to noncontrolling interest

1


―


1


1


―


1
Segment Income
$
790

$
337

$
453

$
1,263

$
975

$
288



















Duke Energy Carolinas’ GWh sales^(a)(b)

22,780


22,832


(52)


61,815


63,626


(1,811)
Progress Energy Carolinas’ GWh sales^(a)(c)

16,754


―


16,754


16,754


―


16,754
Progress Energy Florida GWh sales^(a)

11,466


―


11,466


11,466


―


11,466
Duke Energy Ohio GWh sales^(a)

6,804


7,056


(252)


18,600


19,315


(715)
Duke Energy Indiana GWh sales^(a)

8,923


9,071


(148)


25,684


25,501


183
Net proportional MW capacity in operation^(d)










47,450


26,907


20,543



















(a)
Gigawatt-hours (GWh).
(b)
Includes 318 GWh associated with mitigation sales, which are not included in the operating results in the table above, for the three and nine months ended September 30, 2012.
(c)
Includes 577 GWh associated with mitigation sales, which are not included in the operating results in the table above, for the three and nine months ended September 30, 2012.
(d)
Megawatt (MW).

The following table shows the percent changes in GWh sales and average number of electric customers for Duke Energy Midwest for the three and nine months ended September 30, 2011, compared to the same period in the prior year. Except as otherwise noted, the below percentages represent billed sales only and are not weather normalized.

   Three Months Ended
September 30, 2011 Nine Months Ended
September 30, 2011
Increase (decrease) over prior year

Residential sales^(a)
   (3.2 %) (1.7 %)
General service sales^(a)
   (1.2 %) (0.7 %)
Industrial sales^(a)
   0.5 % (0.1 %)
Wholesale power sales
   (11.6 %) (13.3 %)
Total Duke Energy Midwest sales^(b)
   (2.8 %) (3.0 %)
Average number of customers
   0.1 % 0.1 %
~~(a)~~ ~~Major components of Duke Energy Midwest’s retail sales.~~
~~(b)~~ Consists of all components of Duke Energy Midwest’s sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers.
Three Months Ended September 30, ~~2011,~~2012 as Compared to September 30, ~~2010~~2011
Operating Revenues.The ~~decrease~~increase was driven primarily by:
·A ~~$41~~$2,741 million ~~decrease in GWh sales to retail customers~~increase due to ~~less favorable weather conditions~~the inclusion of Progress Energy operating revenues beginning in 2011 compared to the same period in 2010. For the Carolinas, cooling degree days for the third quarter of 2011 were 17% above normal as compared to 27% above normal during the same period in 2010. For the Midwest, cooling degree days for the third quarter of 2011 were 29% above normal as compared to 32% above normal during the same period in 2010. For the Carolinas, the third quarter 2010 was the warmest third quarter on record (dating back to 1961).
~~Partially offsetting this decrease was:~~July 2012;
·A ~~$33~~$117 million net increase in retail rates and rate riders primarily due to revised retail rates resulting from the ~~implementation~~2011 North Carolina and South Carolina rate cases implemented in the first quarter of 2012, and revenues recognized for energy efficiency programs; and
80
PART I
·An $88 million increase in fuel revenues (including emission allowances) driven primarily by higher fuel rates for electric retail customers in all regions and higher revenues in Ohio for purchases of power as a result of the ~~North Carolina construction work in progress (CWIP) rider~~new Ohio Electric Security Plan (ESP) which became effective January ~~2011,~~1, 2012, and ~~Indiana’s~~higher revenues for purchases of power in Indiana and the Carolinas, partially offset by decreased demand ~~side management (DSM) rider.~~from electric retail customers mainly due to less favorable weather conditions.
Partially offsetting these increases was:
·A $67 million decrease in electric sales (net of fuel) to retail customers due to overall less favorable weather conditions in 2012 compared to the same period in 2011. For the Carolinas, cooling degree days for the third quarter of 2012 were 1% below normal as compared to 17% above normal during the same period in 2011. For the Midwest, cooling degree days for the third quarter of 2012 were 20% above normal as compared to 29% above normal during the same period in 2011.
Operating Expenses.The increase was driven primarily by:
·A ~~$178~~$2,054 million increase due to anthe inclusion of Progress Energy operating expenses beginning in July 2012;
·A $98 million increase in fuel expense (including purchased power and natural gas purchases for resale) primarily related to higher purchases of power in Ohio as a result of the new Ohio ESP, higher volumes of natural gas used in electric generation, higher coal prices, higher purchased power costs in Indiana and the Carolinas, partially offset by lower volume of coal used in electric generation resulting from less favorable weather conditions and lower coal-fired generation due to low natural gas prices, and lower prices for natural gas used in electric generation; and
·A $25 million increase in depreciation and amortization primarily due to increases in depreciation as a result of additional plant in service and amortization of regulatory assets.
Partially offsetting these increases was:
·A $42 million decrease due to impairment ~~charge~~charges of $180 million in 2012, compared to $220 million in 2011, related to the Edwardsport integrated gasification combined cycle (IGCC) plant that is currently under construction. See Note 4 to the Unaudited Condensed Consolidated Financial Statements, ~~“Regulatory~~"Regulatory Matters,”" for additional ~~information;~~information.
Other Income and
~~A $42 million~~ expenses, net. The increase was driven primarily by the inclusion of Progress Energy other income and expense beginning in ~~operating and maintenance~~July 2012.
Interest expense. The increase was driven primarily by the inclusion of Progress Energy interest expense beginning in July 2012.
Income tax expense. The increase is primarily due to ~~higher non-outage costs at nuclear~~an increase in pretax income. The effective tax rate for the three months ended September 30, 2012 and ~~fossil generation stations, higher storm costs~~2011 was 37.2% and ~~increased scheduled outage costs at nuclear and fossil generation stations, partially offset by lower benefit costs.~~36.6%, respectively.
~~Other~~Segment Income ~~and Expenses, net.~~. The increase resulted primarily from athe inclusion of Progress Energy results beginning in July 2012 and higher ~~equity component of AFUDC from additional capital spending for increased construction expenditures related to new generation.~~
~~EBIT.~~ ~~As discussed above, the decrease resulted primarily from the additional impairment charge related to the Edwardsport IGCC plant, higher operating~~net retail pricing and ~~maintenance expenses and less favorable weather.~~rate riders. These ~~negative~~positive impacts were partially offset by ~~overall net~~ higher ~~retail rates~~income tax expense, higher interest expense, less favorable weather, and ~~rate riders.~~increased depreciation and amortization.
Nine Months Ended September 30, ~~2011,~~2012 as Compared to September 30, ~~2010.~~2011
Operating Revenues.The increase was driven primarily by:
·A ~~$143~~$2,741 million increase due to the inclusion of Progress Energy operating revenues beginning in July 2012;
·A $305 million net increase in retail rates and rate riders primarily due to ~~new~~revised retail rates resulting from the ~~implementation of the~~2011 North Carolina ~~CWIP rider, riders~~and South Carolina rate cases implemented in the first quarter of 2012, and revenues recognized for the ~~Edwardsport IGCC plant that is currently under construction, the save-a-watt (SAW) program,~~energy efficiency programs; and ~~DSM program;~~
~~An $86~~·A $151 million increase in fuel revenues (including emission allowances) driven primarily by higher revenues in Ohio for purchases of power as a result of the new Ohio ESP, higher fuel rates for electric retail customers in ~~the Midwest and South Carolina,~~all jurisdictions, and higher ~~purchased~~revenues for purchases of power ~~costs~~ in Indiana and the Carolinas, partially offset by decreased demand from electric retail customers in ~~2011~~2012 compared to the same period in ~~2010~~2011 mainly due to less favorable weather conditions, and lower ~~fuel rates for electric retail customers in North Carolina, lower natural gas~~demand and fuel rates in Ohio and Kentucky ~~and lower demand~~ from natural gas retail ~~customers.~~customers . Fuel revenues represent sales to retail and wholesale ~~customers; and~~customers.
A $19 million increase in wholesale power revenues, net of sharing, primarily due to the addition of new customers served and additional volumes under long-term contracts and increases in charges for capacity.
Partially offsetting these increases was:
·A ~~$130~~$186 million decrease in ~~GWh~~electric and ~~thousand cubic feet (Mcf)~~gas sales (net of fuel) to retail customers due to less favorable weather conditions in ~~2011~~2012 compared to the same period in ~~2010.~~2011. For the Carolinas, weather statistics for cooling degree days in 2012 were less favorable compared to the same period in 2011, while cooling degree days in the Midwest were favorable in 2012 compared to the same period in 2011. For the Carolinas and Midwest, weather statistics for ~~both~~ heating degree days ~~and cooling degree days~~ in ~~2011~~2012 were unfavorable compared to the same period in ~~2010.~~2011.
Operating Expenses.The increase was driven primarily by:
·A ~~$178~~$2,054 million increase due to ~~an additional~~the inclusion of Progress Energy operating expenses beginning in July 2012;
·A $378 million increase due to impairment ~~charge~~and other charges recorded in 2012 related to the Edwardsport IGCC plant that is currently under ~~construction.~~construction of $600 million, partially offset by a 2011 Edwardsport IGCC impairment charge of $222 million. See Note 4 to the Unaudited Condensed Consolidated Financial Statements, ~~“Regulatory~~"Regulatory Matters,”" for additional information;
·A $170 million increase in operating and maintenance expense primarily due to higher storm costs, higher non-outage costs at nuclear and fossil generation stations, higher power and gas delivery maintenance costs, increased scheduled outage costs at nuclear generation stations, and increased costs related to the implementation of the SAW program; and
~~A $75~~$142 million increase in fuel expense (including purchased power and natural gas purchases for resale) primarily related to higher purchases of power in ~~Indiana (mainly~~Ohio as a result of ~~decreased~~the new Ohio ESP, higher volumes of natural gas used in electric generation, ~~caused~~higher coal prices, higher purchased power costs in Indiana and the Carolinas, partially offset by lower volume of coal used in electric generation resulting from less favorable weather conditions and lower coal-fired generation due to low natural gas prices, lower prices for natural gas used in electric generation, and lower gas volumes and prices to full-service retail gas customers; and
·A $74 million increase in depreciation and amortization primarily due to increases in depreciation as a result of additional plant in service and amortization of regulatory assets.
Partially offsetting these increases was:
81
PART I
·A $148 million decrease in operating and maintenance expense primarily due to the establishment of regulatory assets in the first quarter of 2012, pursuant to regulatory orders, for future recovery of certain employee severance costs related to the 2010 voluntary severance plan and other costs, and lower storm costs, partially offset by increased ~~outages in 2011 compared to~~
~~PART I~~
costs associated with energy efficiency programs.
the same period in 2010) and in the Carolinas, and higher prices of coal used in electric generation, partially offset by lower volume of coal used in electric generation resulting from less favorable weather conditions, and lower natural gas prices and volumes to full-service retail customers.
Gains on ~~Sales~~sales of ~~Other Assets~~other assets and ~~Other, Net.~~other, net. The ~~decrease is attributable~~increase was driven primarily ~~to lower~~by higher net gains on sales of emission allowances, and the inclusion of Progress Energy transactions beginning in ~~2011 compared to 2010.~~July 2012.
~~EBIT.~~Other Income and expenses, net. ~~As discussed above,~~The increase was driven primarily by the ~~decrease~~inclusion of Progress Energy other income and expense beginning in July 2012.
Interest Expense. The increase was primarily driven bythe inclusion of Progress Energy interest expense beginning in July 2012, and higher debt balances in 2012.
Income tax expense. The increase is primarily due to an increase in pretax income. The effective tax rate for the nine months ended September 30, 2012 and 2011 was 36.4% and 34.8%, respectively.
Segment Income. The increase resulted primarily from the inclusion of Progress Energy results beginning in July 2012, higher net retail pricing and rate riders, and decrease in operating and maintenance expenses. These positive impacts were partially offset by the additional impairment ~~charge~~and other charges related to the Edwardsport IGCC plant, ~~higher operating and maintenance expenses and~~ less favorable ~~weather. These negative impacts were partially offset by overall net~~weather, higher ~~retail rates~~income tax expense, higher interest expense and ~~rate riders~~increased depreciation and ~~higher wholesale power revenues.~~amortization.
Matters Impacting Future USFE&G Results
Results of USFE&G are impacted by the completion of its major generation fleet modernization projects. See Note 4 to the ~~Unaudited~~ Condensed Consolidated Financial Statements, “Regulatory Matters,” for a discussion of the significant increase in the estimated cost of the 618 MW IGCC plant at Duke Energy Indiana’s Edwardsport Generating ~~Station. Additional updates~~Station (Edwardsport IGCC). On April 30, 2012, Duke Energy Indiana entered into a settlement agreement with certain intervenors to cap the construction cost recoverable in retail rates which resulted in the recognition of a $420 million pre-tax charge to earnings in the first quarter of 2012. The settlement agreement is subject to approval by the IURC, a final order is expected by the end of 2012. An additional pre-tax impairment charge of $180 million was recorded in the third quarter of 2012 due to an increase in the estimated cost to complete the project. Duke Energy Indiana is unable to predict the ultimate outcome of the various regulatory proceedings related to the Edwardsport project. In the event the IURC disallows a portion of the remaining plant costs, including financing costs, or if cost estimates for the plant increase, additional charges to expense, which could be material, could occur.
The decision related to repairing or retiring Crystal River Unit 3 is complex and subject to a number of unknown factors, including but not limited to, the cost ~~estimate~~of repair and the likelihood of obtaining NRC approval to restart the reactor after repair. In addition, the scope and estimated costs of necessary repairs of the delamination of Crystal River Unit 3 could ~~occur~~prove more extensive than is currently identified, such repairs could prove not to be feasible resulting in the retirement of the unit, the costs of repair and/or replacement power could exceed estimates and insurance coverage or may not be recoverable through the ~~completion~~regulatory process; the occurrence of ~~the plant in 2012.~~any of which could adversely affect USFE&G’s financial condition, results of operations and cash flows.
~~Duke Energy Carolinas has filed rate cases in North Carolina and South Carolina during 2011.~~ Duke Energy Carolinas plans to file rate cases in North Carolina and South Carolina during ~~2012. Duke~~2013. Progress Energy ~~Indiana plans to file~~Carolinas filed a rate case in North Carolina in October 2012. Duke Energy Ohio ~~is evaluating the need for an~~filed electric and gas distribution rate ~~case~~cases in July 2012. These planned rates cases are needed to recover investments in Duke Energy’s ongoing infrastructure modernization projects and operating costs. USFE&G’s earnings could be adversely impacted if ~~any of~~ these rate cases are denied or delayed by any of the ~~various~~ state regulatory commissions.
~~Commercial Power~~The ability to integrate Progress Energy businesses and realize cost savings and any other synergies expected from the merger with Progress Energy could be different from what USFE&G expects and may have a significant impact on USFE&G’s results of operations.

Commercial Power
Commercial Power












   Three Months Ended
September 30, Nine Months Ended
September 30,













   2011    2010    Increase
(Decrease) 2011    2010 Increase
(Decrease)

Three Months Ended September 30,

Nine Months Ended September 30,
(in millions, except where noted)

(in millions, except where noted)
2012

2011

Variance

2012

2011

Variance
Operating revenues
   $ 687       $ 737       $ (50 ) $ 1,926       $ 1,856    $ 70
Operating revenues
$
525

$
687

$
(162)

$
1,607

$
1,926

$
(319)
Operating expenses
   621       553       68    1,723       2,166    (443 )
Operating expenses

522

627

(105)


1,512

1,741

(229)
Losses on sales of other assets and other, net
   2       1       1    15       4    11








Gains on sales of other assets and other, net
Gains on sales of other assets and other, net

10

2

8


11

15

(4)
Operating income
   68       185       (117 ) 218       (306 ) 524
Operating income

13

62

(49)


106

200

(94)
Other income and expenses, net
   1       5       (4 ) 11       26    (15 )
Other income and expenses, net

1

4

(3)


26

21

5
Expense attributable to noncontrolling interest
   2       2       —      12       7    5
Interest expense
Interest expense

14

21

(7)


55

67

(12)
Income before income taxes
Income before income taxes

―

45

(45)


77

154

(77)
Income tax expense
Income tax expense

(13)

20

(33)


5

43

(38)
Less: Income attributable to noncontrolling interests
Less: Income attributable to noncontrolling interests

1

1

―


1

8

(7)
Segment Income
Segment Income
$
12

$
24

$
(12)

$
71

$
103

$
(32)





















EBIT
   $ 67       $ 188       $ (121 ) $ 217       $ (287 ) $ 504








Actual Plant Production, GWh
   8,813       7,606       1,207    24,182       20,731    3,451
Proportional MW capacity in operation
         8,300       8,005    295
Actual coal-fired plant production, GWh
Actual coal-fired plant production, GWh

5,054

5,013

41


12,421

13,420

(999)
Actual gas-fired plant production, GWh
Actual gas-fired plant production, GWh

4,387

3,255

1,132


13,483

8,476

5,007
Actual renewable plant production, GWh
Actual renewable plant production, GWh

615

545

70


2,399

2,286

113
Total plant production, GWh
Total plant production, GWh

10,056

8,813

1,243


28,303

24,182

4,121
Net proportional MW capacity in operation
Net proportional MW capacity in operation








7,760

8,300

(540)
Three Months Ended September 30, ~~2011,~~2012 as Compared to September 30, ~~2010~~2011
82
PART I
Operating Revenues.The decrease was driven primarily by:
·A ~~$56~~$92 million decrease in ~~retail~~ electric revenues ~~resulting~~ from ~~lower sales volumes~~the coal-fired generation assets driven primarily by ~~increased customer switching levels and unfavorable weather,~~the expiration of the 2009-2011 ESP which dedicated Commercial Power’s coal-fired generation to Duke Energy Ohio’s retail customers, net of ~~higher retail pricing under~~stability charge revenues, partially offset by the ~~Electric Security Plan (ESP)~~coal-fired generation assets participating in ~~2011;~~the PJM Interconnection, LLC (PJM) wholesale energy market in 2012;
·A ~~$30 million decrease in Duke Energy Generation Services, Inc. (DEGS) revenues, excluding renewables, due primarily to a contract termination and plant maintenance;~~
~~A $24~~$31 million decrease in net mark-to-market revenues on non-qualifying power and capacity hedge contracts, consisting of mark-to-market losses of $29 million in 2012 compared to gains of $2 million in ~~2011 compared to gains of $26~~2011;
·A $24 million decrease in ~~2010; and~~electric revenues from the gas-fired generation assets driven primarily by lower power prices, partially offset by increased volumes;
·A $9$23 million decrease in PJM ~~Interconnection, LLC (PJM)~~ capacity revenues ~~due to~~primarily from lower average cleared auction pricing in ~~2011~~2012 compared to ~~2010, partially offset by additional megawatts participating~~2011, net of an increase from the move of coal-fired generation assets from MISO to PJM in ~~the auction.~~2012; and
·An $18 million decrease in electric revenues from Duke Energy Retail Sales, LLC (Duke Energy Retail) resulting from lower volumes and unfavorable pricing.
Partially offsetting these decreases were:
·A ~~$60~~$16 million increase from participation in competitive retail load auctions; and
·A $5 million increase in ~~wholesale~~ electric revenues ~~due to~~from higher ~~generation volumes, net of lower pricing; and~~
~~A $12 million increase~~production in the renewables ~~generation revenues due primarily to additional wind generation facilities placed in service after the third quarter of 2010.~~portfolio.
Operating ~~Expenses~~Expenses..The ~~increase~~decrease was driven primarily by:
·A $79 million ~~impairment charge recorded in~~decrease from the ~~third quarter of~~ 2011 ~~to write down the carrying value~~impairment of excess emission allowances ~~held to fair value~~ as a result of the Environmental Protection Agency’s (EPA) issuance of the Cross-State Air Pollution Rule (CSAPR)~~. See Note 7 to~~;
·A $29 million decrease in fuel expenses from the ~~Unaudited Condensed Consolidated Financial Statements, “Goodwill, Intangible Assets~~gas-fired generation assets driven by lower natural gas costs; and ~~Impairments,” for additional information;~~
·An $18 million decrease in operating and maintenance expenses resulting primarily from lower 2012 transmission costs, lower expenses at the generating stations, and 2011 regulatory asset amortization expenses.
Partially offsetting these decreases was:
·A ~~$46~~$14 million increase in ~~wholesale fuel expenses due~~purchase power to ~~higher generation volumes;~~serve competitive retail auctions.
~~An $8 million~~Gains on Sales of Other Assets and Other, net.The increase in ~~mark-to-market fuel expense on non-qualifying fuel hedge contracts, consisting of mark-to-market losses of $1 million in 2011 compared to gains of $7 million in 2010.~~
~~Partially offsetting these increases were:~~
~~A $37 million decrease in retail fuel and purchased power expenses due to lower generation and purchased power volumes in 2011~~2012 as compared to ~~2010; and~~
~~A $25 million decrease~~2011 is attributable to 2012 gains on the sale of a 50% interest in ~~DEGS fuel expense, excluding renewables, due primarily to a contract termination and plant maintenance.~~
~~PART I~~
certain renewable portfolio assets.
~~Other Income and Expenses, net.~~Interest Expenses.The decrease in ~~2011~~2012 as compared to ~~2010~~2011 is primarily due to ~~distributions from South Houston Green Power received~~higher capitalized interest on wind construction projects.
Income Tax Expense. The decrease is primarily due to a decrease in ~~2010 which did not recur~~pretax income. The effective tax rate for the three months ended September 30, 2012 was significantly impacted by the decrease in ~~2011.~~pre-tax income and tax credits on certain renewable energy projects. The effective tax rate for the three months ended September 30, 2011 was 44.7%.
~~EBIT~~Segment Income.The decrease is primarily attributable to ~~higher emission allowance impairment charges,~~ lower revenues driven by the expiration of the 2009-2011 ESP and the impact of competitive market dispatch for the Duke Energy Ohio coal-fired assets, unfavorable earnings from the gas-fired generation assets, unfavorable net mark-to-market ~~gains~~results on non-qualifying commodity hedge contracts, ~~in 2011 compared to 2010,~~ and lower ~~PJM capacity revenues.~~Duke Energy Retail earnings. These negative impacts were partially offset by lower operating expenses and the recognition of investment tax credits for certain renewable assets.
Nine Months Ended September 30, ~~2011,~~2012 as Compared to September 30, ~~2010~~2011
Operating Revenues.The ~~increase~~decrease was driven primarily by:
·A ~~$213~~$223 million ~~increase~~decrease in ~~wholesale~~ electric revenues ~~due~~from the coal-fired generation assets driven primarily by the expiration of the 2009-2011 ESP which dedicated Commercial Power’s coal-fired generation to ~~higher generation volumes,~~Duke Energy Ohio’s retail customers, net of ~~lower pricing and margin earned from participation in wholesale auctions in 2011;~~
~~A $47 million increase in renewables~~stability charge revenues, partially offset by the coal-fired generation ~~revenues due to additional wind generation facilities placed in service after the third quarter of 2010; and~~
~~An $18 million increase in PJM capacity revenues due to higher average cleared auction pricing in 2011 compared to 2010 and additional megawatts~~assets participating in the ~~auction.~~
~~Partially offsetting these increases were:~~PJM wholesale energy market in 2012;
·A ~~$163~~$93 million decrease in ~~retail~~ electric revenues from Duke Energy Retail resulting from lower ~~sales~~ volumes ~~driven by increased customer switching levels~~ and unfavorable ~~weather net of higher retail pricing under the ESP in 2011;~~pricing;
·A ~~$38 million decrease in DEGS revenues, excluding renewables, due primarily to a contract termination and plant maintenance; and~~
~~A $9~~$33 million decrease in net mark-to-market revenues on non-qualifying power and capacity hedge contracts, consisting of ~~insignificant~~ mark-to-market ~~gains~~losses of $33 million in ~~2011~~2012 compared to no gains or losses in 2011;
·A $23 million decrease in electric revenues from Duke Energy Generation Services, Inc. (DEGS), excluding renewables, due primarily to the termination of $9certain operations at the end of the first quarter of 2011 and a reduction of coal sales volumes as a result of lower natural gas prices; and
·A $13 million decrease in ~~2010.~~electric revenues from the gas-fired generation assets driven primarily by lower power prices, partially offset by increased volumes.
Partially offsetting these decreases were:
·A $51 million increase from participation in competitive retail load auctions;
·A $10 million increase in electric revenues from higher production in the renewables portfolio; and
·A $5 million increase primarily due to PJM capacity revenues associated with the move of the coal-fired generation assets from MISO to PJM in 2012, net of a decrease related to lower average cleared capacity auction pricing in 2012 compared to 2011 for the gas-fired generation assets.
Operating Expenses.The decrease was driven primarily by:
~~A $572~~·An $88 million decrease inprimarily from the 2011 impairment charges primarily related to a $660 million charge related to goodwill and non-regulated coal-fired generation asset impairments in the Midwest in 2010, as compared to a $79 million impairment in 2011 to write down the carrying value of excess emission allowances ~~held to fair value~~ as a result of the EPA’s issuance of the Cross-State Air Pollution Rule (CSAPR) and a $9 million impairment of the Vermillion generation station in 2011. See Note 7 to the Unaudited Condensed Consolidated Financial Statements, “Goodwill, Intangible Assets and Impairments,” for additional information;CSAPR.
83
PART I
·A ~~$71~~$72 million decrease in ~~retail fuel~~operating and ~~purchased power expenses due to lower generation volumes net of higher purchased power volumes in 2011 as compared to 2010; and~~
~~A $26 million decrease in DEGS fuel expense due primarily to a contract termination and plant maintenance.~~
~~Partially offsetting these decreases were:~~
~~A $158 million increase in wholesale fuel expenses due to higher generation volumes in 2011 as compared to 2010;~~
~~A $37 million increase in operating~~maintenance expenses resulting primarily from higher ~~maintenance expenses at operated and non-operated generation stations and higher~~ transmission costs, prior year station outages, and 2011 regulatory asset amortization expenses;
·A $60 million decrease in fuel expenses from the gas-fired generation assets driven by lower natural gas costs, partially offset by higher volumes;
·A $21 million decrease in DEGS, excluding renewables, fuel used due primarily to the termination of certain operations at the end of the first quarter of 2011 ~~compared~~and from lower natural gas prices;
·A $15 million decrease due to ~~2010;~~the receipt of funds in 2012 related to a previously written off receivable associated with the Lehman Brothers bankruptcy;
·A ~~$23~~$10 million decrease in purchased power to serve Duke Energy Retail customers; and
·A $9 million decrease in fuel used for the coal-fired generation assets driven primarily by lower generation volumes.
Partially offsetting these decreases was:
·A $44 million increase in ~~mark-to-market fuel expense on non-qualifying fuel hedge contracts, consisting of mark-to-market losses of $3 million in 2011 compared~~purchase power to ~~gains of $20 million in 2010; and~~serve competitive retail load auctions.
Gains on Sales of Other Assets and Other, net.The ~~increase~~decrease in ~~2011~~2012 as compared to ~~2010~~2011 is primarily attributable to 2011 gains on sales of certain assets resulting from a contract ~~termination.~~termination and a reduction in gains related to emission allowance sales, partially offset by 2012 gains on the sale of a 50% interest in certain renewable portfolio assets.
Other Income and Expenses, net.The ~~decrease~~increase in ~~2011~~2012 as compared to ~~2010~~2011 is primarily due to ~~distributions~~equity earnings from ~~South Houston Green Power received~~the renewables portfolio.
Interest Expenses.The decrease in ~~2010 which did not recur~~2012 as compared to 2011 is primarily due to higher capitalized interest on wind construction projects.
Income Tax Expense. The decrease is primarily due to a decrease in ~~2011.~~pretax income. The effective tax rate for the nine months ended September 30, 2012 and 2011 was 6.3% and 28.2%, respectively. The decrease in the effective tax rate is primarily due to the decrease in pretax income and tax credits on certain renewable energy projects.
~~EBIT~~Segment Income.The ~~increase~~decrease is primarily attributable to lower ~~goodwill, generation~~revenues driven by the expiration of the 2009-2011 ESP and ~~other asset~~the impact of competitive market dispatch for the Duke Energy Ohio coal-fired assets, lower Duke Energy Retail earnings, and unfavorable net mark-to-market results on non-qualifying commodity hedge contracts. These negative impacts were partially offset by lower impairment charges, ~~an increase in renewables generation revenues,~~lower operating expenses, and higher PJM capacity ~~revenues, net of higher net mark-to-market losses on non-qualifying commodity hedge contracts in 2011 compared to 2010 and lower retail margins driven by customer switching.~~revenues.
Matters Impacting Future Commercial Power Results
~~Commercial Power operates~~Changes or variability in ~~Ohio under an ESP that expires on December 31, 2011. On June 20, 2011, Duke Energy Ohio filed~~assumptions used in calculating the fair value of the renewables reporting unit for ~~approval~~goodwill testing purposes including but not limited to, legislative actions related to tax credit extensions and long-term growth rates, could significantly impact the estimated fair value of ~~its next Standard Service Offer (SSO) to replace~~ the ~~existing ESP. On October 24, 2011, Commercial Power entered into~~renewables reporting unit. In the event of a ~~settlement stipulation. If approved by~~significant decline in the ~~Public Utilities Commission~~estimated fair value of ~~Ohio (PUCO),~~ the ~~stipulation would establish an ESP~~renewables reporting unit, goodwill and other asset impairment charges could be recorded. The carrying value of goodwill, and intangible assets associated with competitive auctions for a term of January 1, 2012, through May 31, 2015. The stipulation also includes a provision for a non-bypassable stability charge of $110 million per year to be collected from 2012 through 2014 and requires Commercial Power to transfer its Ohio generation assets to a non-regulated affiliate at net book value on or before December 31, 2014. The stipulation requests that the PUCO approve the settlement on or before November 15, 2011, to allow Commercial Power to conduct auctions to serve SSO customers effective January 1, 2012. A hearing on the stipulation was held on November 3, 3011.proposed renewable projects within Commercial Power’s ~~earnings after the expiration of the current ESP could be significantly different than its historical earnings.~~
The majority of Commercial Power’s gas-fired non-regulated generation assets earn capacity revenues from PJM. PJM capacity prices are determined through an auction process for planning years from June through May of the following year and are conductedrenewables reporting unit was approximately three years in advance of the capacity delivery period. Capacity prices for periods beginning June 2011 and continuing through May 2014 will be significantly lower than current and historical capacity prices. As a result, Commercial Power’s operating revenues and EBIT will be negatively impacted through 2014.
~~PART I~~
$120 million at September 30, 2012.

~~International Energy~~
International Energy









































Three Months Ended September 30,

Nine Months Ended September 30,
(in millions, except where noted)

2012

2011

Variance

2012

2011

Variance
Operating revenues

$
382

$
360

$
22

$
1,181

$
1,114

$
67
Operating expenses


266


239


27


768


715


53
Operating income


116


121


(5)


413


399


14
Other income and expenses, net


46


52


(6)


136


166


(30)
Interest expense


23


4


19


60


31


29
Income before income taxes


139


169


(30)


489


534


(45)
Income tax expense


34


51


(17)


129


154


(25)
Less: Income attributable to noncontrolling interest


2


3


(1)


10


10


―
Segment Income

$
103

$
115

$
(12)

$
350

$
370

$
(20)




















Sales, GWh


5,308


4,565


743


15,264


13,868


1,396
Proportional MW capacity in operation











4,465


4,190


275

   Three Months Ended
September 30, Nine Months Ended
September 30,
   2011    2010    Increase
(Decrease) 2011    2010 Increase
(Decrease)
(in millions, except where noted)

Operating revenues
   $ 360       $ 273       $ 87    $ 1,114       $ 919    $ 195
Operating expenses
   236       180       56    707       605    102
Gains on sales of other assets and other, net
   —         —         —      —         (1 ) 1








Operating income
   124       93       31    407       313    94
Other income and expenses, net
   49       23       26    138       82    56
Expense attributable to noncontrolling interest
   5       6       (1 ) 18       19    (1 )








EBIT
   $ 168       $ 110       $ 58    $ 527       $ 376    $ 151








Sales, GWh
   4,565       4,426       139    13,868       15,158    (1,290 )
Proportional MW capacity in operation
         4,190       4,203    (13 )
Three Months Ended September 30, ~~2011,~~2012 as Compared to September 30, ~~2010~~2011
Operating Revenues.The increase was driven primarily by:
·A ~~$32~~$25 million increase in Central America due to higher sales volumes as a result of Las Palmas II commercial operations and favorable weather;
·A $12 million increase in Peru as a result of higher average energy prices.
Partially offsetting these increases was:
·An $18 million decrease in Brazil due to exchange rates, offset by higher average prices and ~~energy sales volumes;~~volumes.
Operating Expenses.The increase was driven primarily by:
84
PART I
·A $28 million increase in Central America primarily due to higher ~~average prices and dispatch~~fuel consumption as a result of ~~favorable hydrology;~~increased generation and
~~A $26 million increase in Brazil due to favorable exchange rates, higher spot volumes as a result of favorable hydrology,~~ Las Palmas II commercial operations; and ~~higher average contract prices.~~
~~Operating Expenses.~~~~The increase was driven primarily by:~~
~~A $26~~·An $11 million increase in Peru as a result of higher ~~power purchased costs, increased~~ fuel consumption and ~~other variable costs~~gas royalty costs.
Partially offsetting this increase was:
·A $12 million decrease in Brazil due to ~~increased dispatch;~~exchange rates.
Interest Expense.The increase was primarily due to lower capitalized interest in Central America and Brazil.
Income Tax Expense. The decrease is primarily due to a decrease in pretax income. The effective tax rate for the three months ended September 30, 2012 and 2011 was 24.9% and 30.4%, respectively.
Segment Income. The decrease was primarily due to unfavorable exchange rates in Brazil.
Nine Months Ended September 30, 2012 as Compared to September 30, 2011
Operating Revenues.The increase was driven primarily by:
·A ~~$19~~$31 million increase in Peru due to higher average energy prices;
·A $22 million increase in Central America due to higher ~~fuel costs and consumption~~sales volumes as a result of ~~increased dispatch;~~Las Palmas II commercial operations partially offset by lower average prices;
·An $11 million increase in Argentina as a result of higher sales volumes due to favorable hydrology; and
·A ~~$13~~$6 million increase in Brazil due to ~~the absence of prior year environmental provision reversals, a provision for a revenue tax audit,~~higher average prices and sales volumes, partially offset by unfavorable exchange rates.
~~Other Income and Expenses, net.~~~~The increase was driven primarily by a $21 million increase in equity earnings from NMC due to higher methyl tertiary butyl ether (MTBE) prices partially offset by higher butane costs.~~
~~EBIT.~~Operating Expenses.~~As discussed above, the increase was primarily due to higher average prices in Peru, Central America and Brazil, higher margins at NMC and favorable exchange rates, primarily in Brazil.~~
~~Nine Months Ended September 30, 2011, as Compared to September 30, 2010~~
~~Operating Revenues.~~The increase was driven primarily by:
~~An $84 million increase in Brazil due to favorable exchange rates, higher average contract prices, and higher spot volumes as a result of favorable hydrology;~~
·A ~~$78~~$57 million increase in Central America ~~as a result of favorable hydrology~~primarily due to higher fuel consumption, purchased power and ~~higher average prices;~~Las Palmas II commercial operations; and
·A ~~$58~~$12 million increase in Peru as a result of higher ~~average prices~~fuel and ~~energy sales volumes and higher hydrocarbon revenues.~~variable costs, offset by lower purchased power.
Partially offsetting ~~these increases~~this increase was:
·A ~~$26~~$17 million decrease in ~~Ecuador as a result of lower dispatch~~Brazil due to ~~new hydro competitor commencing operations in~~favorable exchange rates, offset by higher variable costs.
Other Income and Expenses, net.The decrease was primarily driven by the ~~fourth quarter~~absence of ~~2010.~~prior year Peru arbitration.
~~Operating Expenses.~~Interest Expense.The increase was ~~driven~~ primarily ~~by:~~
~~A $50 million increase~~due to lower capitalized interest in Central America and Brazil.
Income Tax Expense. The decrease is primarily due to ~~higher fuel costs~~a decrease in pretax income. The effective tax rate for the nine months ended September 30, 2012 and ~~consumption as a result of increased dispatch;~~
~~A $46 million increase in Peru due to higher fuel costs~~2011 was 26.5% and ~~consumption as a result of increased dispatch, and higher purchased power and hydrocarbon royalty costs; and~~28.9%, respectively.
~~A $27 million increase in Brazil~~Segment Income. The decrease was primarily due to unfavorable exchange rates ~~absence of prior year environmental provision reversals and a provision for a revenue tax audit.~~
~~Partially offsetting these increases was:~~
~~A $24 million decrease in Ecuador due to lower fuel consumption as a result of lower dispatch, as well as lower operating costs.~~
~~Other Income and Expenses, net.~~~~The increase was primarily driven~~offset by ~~a $34 million increase in equity earnings from NMC due to~~ higher average prices ~~partially offset by higher butane costs,~~ and ~~an arbitration award in Peru.~~
~~EBIT.~~~~As discussed above, the increase was primarily due to favorable contract prices and exchange rates~~volumes in Brazil anand absence of Peru arbitration ~~award and higher revenues in Peru, favorable hydrology in Central America, and higher equity earnings from NMC.~~
~~PART I~~
~~Other~~award.

Other
Other

























   Three Months Ended
September 30, Nine Months Ended
September 30,

Three Months Ended September 30,

Nine Months Ended September 30,
   2011 2010 Increase
(Decrease) 2011 2010 Increase
(Decrease)
   (in millions)
(in millions)
(in millions)
2012

2011

Variance

2012

2011

Variance
Operating revenues
   $ 14    $ 17    $ (3 ) $ 34    $ 82    $ (48 )
Operating revenues
$
20

$
14

$
6

$
51

$
34

$
17
Operating expenses
   80    142    (62 ) 246    482    (236 )
Operating expenses

484

26

458


514

79

435
Losses on sales of other assets and other, net
   (6 ) —      (6 ) (6 ) —      (6 )
Losses on sales of other assets and other, net

(2)

(8)

6


(3)

(8)

5


Operating income
   (72 ) (125 ) 53    (218 ) (400 ) 182
Operating loss
Operating loss

(466)

(20)

(446)


(466)

(53)

(413)
Other income and expenses, net
   (8 ) 17    (25 ) 30    22    8
Other income and expenses, net

15

(5)

20


14

43

(29)
Benefit attributable to noncontrolling interests
   (6 ) (8 ) 2    (12 ) (10 ) (2 )


EBIT
   $ (74 ) $ (100 ) $ 26    $ (176 ) $ (368 ) $ 192


Interest expense
Interest expense

107

43

64


196

118

78
Loss before income taxes
Loss before income taxes

(558)

(68)

(490)


(648)

(128)

(520)
Income tax benefit
Income tax benefit

(243)

(57)

(186)


(292)

(85)

(207)
Less: Loss attributable to noncontrolling interest
Less: Loss attributable to noncontrolling interest

―

(6)

6


―

(12)

12
Net Expense
Net Expense
$
(315)

$
(5)

$
(310)

$
(356)

$
(31)

$
(325)
Three Months Ended September 30, ~~2011,~~2012 as Compared to September 30, ~~2010~~2011
Operating Revenues.The ~~decrease~~increase was driven primarily by higher premiums earned at Bison Insurance Company Limited (Bison) as a result of the ~~deconsolidation~~addition of ~~DukeNet Communications, LLC (DukeNet) in December 2010~~Progress Energy.
Operating Expenses.The increase was driven primarily by charges related to the Progress Energy merger (see Note 2), including severance costs, higher current year donations, and ~~the subsequent accounting for Duke Energy’s investment in DukeNet as an equity method investment;~~unfavorable loss experience at Bison. These negative impacts were partially offset by ~~mark-to-market activity at~~higher JV costs related to Duke Energy Trading and Marketing LLC, (DETM). in the prior year.
~~Operating Expenses.~~Other Income and Expenses, net. The ~~decrease~~increase was driven primarily by a prior year litigation reserve, $20 million of 2010 employee severance costs related to the voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina, and a decrease as a result of the DukeNet deconsolidation in December 2010 and the subsequent accounting for Duke Energy’s investment in DukeNet as an equity method investment.
~~Losses on sales of other assets and other, net.~~ ~~The decrease is attributable to a loss on the sale of a corporate asset in 2011.~~
~~Other Income and Expenses, net~~. ~~The decrease was driven primarily by unfavorable~~higher returns on investments that support benefit obligations in ~~2011 as~~2012 compared to ~~gains in 2010.~~2011.
~~EBIT.~~Interest Expense.~~As discussed above, the~~ The increase was due primarily to higher debt balances as a result of debt issuances and inclusion of Progress Energy interest expense beginning in July 2012.
85
PART I
Income Tax Benefit. The increase is primarily due to an increase in pretax loss. The effective tax rate for the ~~prior year litigation reserve, 2010 employee~~three months ended September 30, 2012 and 2011 was 43.5% and 84.5%, respectively.
Net Expense. The increase was due primarily to charges related to the Progress Energy merger, increased severance costs, and ~~mark-to-market activity at DETM;~~higher interest expense. These negative impacts were partially offset by ~~unfavorable~~higher income tax benefit due to increased net expense and higher returns on investments that support benefit obligations.
Nine Months Ended September 30, ~~2011,~~2012 as Compared to September 30, ~~2010~~2011
Operating Revenues.The increase was driven primarily by mark-to-market activity at DETM and higher premiums earned at Bison as a result of the addition of Progress Energy.
Operating ~~Revenues.~~Expenses.The increase was driven primarily by charges related to the Progress Energy merger, including severance costs, and higher current year donations. These negative impacts were partially offset by higher JV costs related to DETM in the prior year, and favorable loss experience at Bison.
Other Income and Expenses, net. The decrease was driven primarily by ~~the deconsolidation of DukeNet in December 2010~~current year impairments and ~~the subsequent accounting for Duke Energy’s investment in DukeNet as an equity method investment; partially offset by lower mark-to-market losses in 2011 compared to 2010 at DETM.~~
~~Operating Expenses.~~The decrease was driven primarily by $164 million of 2010 employee severance costs related to the voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina, a decrease as a result of the DukeNet deconsolidation in December 2010 and the subsequent accounting for Duke Energy’s investment in DukeNet as an equity method investment, a prior year litigation reserve, and a $16 million donation to the Duke Energy Foundation, which is a non-profit organization funded by Duke Energy shareholders that makes charitable contributions to selected non-profits and government subdivisions.
~~Losses~~gains on sales of ~~other assets and other, net.~~ ~~The decrease is attributable~~investments, higher interest income recorded in 2011 following the resolution of certain income tax matters related to ~~a loss on the sale of a corporate asset in 2011~~
~~Other Income and Expenses, net~~. ~~The increase was driven primarily by a~~prior years, reversal of reserves related to certain guarantees Duke Energy had issued on behalf of ~~the~~ Crescent ~~Joint Venture (Crescent) and an increase due to the final settlement of the sale of a 50% ownership interest~~ in ~~DukeNet in the fourth quarter of 2010,~~2011. These negative impacts were partially offset by ~~unfavorable~~higher returns on investments that support benefit obligations in ~~2011 as~~2012 compared to ~~gains in 2010.~~2011.
~~EBIT.~~Interest Expense.~~As discussed above, the~~ The increase was due primarily to ~~2010 employee~~higher debt balances as a result of debt issuances and the inclusion of Progress Energy interest expense beginning in July 2012.
Income Tax Benefit. The increase is primarily due to an increase in pretax loss. The effective tax rate for the nine months ended September 30, 2012 and 2011 was 45.1% and 67.0%, respectively.
Net Expense. The increase was due primarily to charges related to the Progress Energy merger, increased severance costs, ~~a prior year litigation reserve~~ and ~~a donation~~higher interest expense. These negative impacts were partially offset by higher income tax benefit due to ~~the Duke Energy Foundation in the prior year.~~increased net expense and higher returns on investments that support benefit obligations.
Matters Impacting Future Other Results
Duke Energy previously held an effective 50% interest in Crescent, which was ~~Duke Energy’s~~a real estate joint venture formed by Duke Energy in 2006 that filed for Chapter 11 bankruptcy protection in June 2009. On June 9, 2010, Crescent restructured and emerged from bankruptcy and Duke Energy forfeited its entire 50% ownership interest to Crescent debt holders. This forfeiture caused Duke Energy to recognize a loss, for tax purposes, on its ~~share of the net tax loss~~interest in the second quarter of 2010. Although Crescent has reorganized and emerged from bankruptcy with creditors owning all Crescent interest, there remains uncertainty as to the tax treatment associated with the restructuring. Based on this uncertainty, it is possible that Duke Energy could incur a future tax liability related to ~~its inability to fully utilize~~the tax losses associated with its partnership interest in Crescent and the resolution of issues associated with Crescent’s emergence from bankruptcy.
~~PART I~~DUKE ENERGY CAROLINAS
~~Duke Energy Carolinas~~
INTRODUCTION
Management’s Discussion and Analysis should be read in conjunction with Duke Energy ~~Carolinas’~~Carolinas’s Unaudited Condensed Consolidated Financial Statements.
Duke Energy Carolinas is a ~~wholly-owned~~wholly owned subsidiary of Duke Energy. Duke Energy Carolinas is an electric utility company that generates, transmits, distributes and sells electricity in ~~central and western~~ North Carolina and ~~western~~ South Carolina.
BASIS OF PRESENTATION
The results of operations and variance discussion for Duke Energy Carolinas is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q.

Nine Months Ended September 30,
   Nine Months Ended
September 30,
   2011    2010    Increase
(Decrease)
   (in millions)
(in millions)
(in millions)
2012

2011

Variance
Operating revenues
   $ 5,027       $ 4,935       $ 92
Operating revenues
$
5,056

$
5,027

$
29
Operating expenses
   3,794       3,761       33
Operating expenses

3,764

3,794

(30)
Gains on sales of other assets and other, net
   2       7       (5 )
Gains on sales of other assets and other, net

9

2

7






Operating income
   1,235       1,181       54
Operating income

1,301

1,235

66
Other income and expenses, net
   139       163       (24 )
Other income and expenses, net

130

139

(9)
Interest expense
   264       271       (7 )
Interest expense

285

264

21






Income before income taxes
   1,110       1,073       37
Income before income taxes

1,146

1,110

36
Income tax expense
   401       364       37
Income tax expense

411

401

10






Net income
   $ 709       $ 709       $ 0






Net Income
Net Income
$
735

$
709

$
26
The following table shows the percent changes in GWh sales and average number of customers for the current
nine month period compared to the same period in the prior year. Except as otherwise noted, the below percentages represent billed sales only and are not weather normalized.
Increase (decrease) over prior year
Nine Months Ended September 30, 2012
Residential sales^(a)
(9.5)
%
General service sales^(a)
(0.8)
%
Industrial sales^(a)
0.7
%
Wholesale power sales
(10.2)
%
Total Duke Energy Carolinas sales^(b)
(2.8)
%
Average number of customers
0.6
%
(a)
Major components of Duke Energy Carolinas’ retail sales.
(b)
Consists of all components of Duke Energy Carolinas’ sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers.
86
PART I
The increase in Duke Energy Carolinas’ net income ~~was flat~~ for the nine months ended September 30, ~~2011,~~2012 compared to September 30, ~~2010,~~2011 was primarily due to the following factors:
Operating Revenues.The increase was primarily due to:
·A ~~$135~~$305 million ~~net~~ increase in net retail ~~rates~~pricing and rate riders primarily due to ~~the implementation of the~~revised retail base rates implemented in North Carolina ~~CWIP rider effective January 2011, riders for the SAW program,~~ and ~~year-over-year impact related to a phase-in of the new retail rates resulting from the~~ South Carolina ~~rate case~~ in the first quarter of ~~2010;~~2012, and revenues recognized for energy efficiency programs;
·A ~~$57~~$37 million increase due to higher unbilled revenues in 2011, as compared to 2012; and
·A $24 million increase in weather adjusted sales volumes to customers primarily due to an extra day of revenues due to 2012 being a leap year.
Partially offsetting these increases were:
·A $168 million decrease in fuel revenues driven primarily by ~~increased~~decreased demand from retail customers mainly due to overall unfavorable weather conditions, partially offset by higher fuel rates in both North Carolina and South ~~Carolina; partially offset by lower fuel rates in North~~ Carolina. Fuel revenues represent sales to retail and wholesale customers; and
~~An $18~~·A $164 million ~~increase in wholesale power revenues, net~~(net of sharing, primarily due to the addition of new customers served and additional volumes under long-term contracts and increased capacity charges; partially offset by volume decreases and lower pricing for near-term sales.
~~Partially offsetting these increases was:~~
~~A $109 million~~fuel) decrease in ~~GWh~~ sales to retail customers due to ~~less favorable weather. Weather statistics for both~~overall unfavorable weather conditions. The number of heating degree days ~~and cooling degree days in 2011 were unfavorable~~for 2012 was 25% below normal as compared to ~~2010. Heating degree days were~~ essentially flat to normal ~~for 2011 as compared to 13% above normal~~ in ~~2010 and cooling~~2011. Cooling degree days for ~~2011~~2012 were ~~22%~~3% above normal compared to ~~34%~~22% above normal in ~~2010.~~2011.
Operating Expenses.The ~~increase~~decrease was primarily due to:
·A ~~$50~~$159 million ~~increase~~decrease in fuel expense (including purchased power) primarily related to ~~higher economic purchases~~lower volume of ~~power largely~~coal used in electric generation due to ~~increased scheduled nuclear outages in 2011 compared to the same period in 2010.~~
~~A $16 million increase in depreciation~~lower demand from retail customers based on overall unfavorable weather conditions and ~~amortization expense primarily~~lower coal-fired generation due to ~~increased production plant base~~low natural gas prices; and ~~software projects amortization; partially offset by the 2011 deferral of the wholesale portion of GridSouth costs.~~
~~Partially offsetting these increases were:~~
·A ~~$24~~$7 million decrease in operating and maintenance expenses primarily ~~related~~due to ~~decreased~~the establishment of regulatory assets in the first quarter of 2012, pursuant to regulatory orders for future recovery of certain employee severance costs ~~associated with~~related to the 2010 voluntary severance plan and ~~a litigation settlement;~~other costs, decreased storm costs and lower nuclear station outage costs, partially offset by ~~higher non-outage~~Duke Energy Carolinas’ portion of the costs associated with the Progress Energy merger including donations, severance, and ~~outage~~certain other costs, ~~at nuclear generation plants, costs~~and required donations resulting from the most recent North Carolina and South Carolina rate cases.
Partially offsetting these decreases were:
·A $85 million increase in depreciation and amortization primarily due to increases in depreciation as a result of additional plant in service and amortization of certain regulatory assets;
·A $31 million increase in impairment charges related to the ~~implementation of~~merger with Progress Energy. These charges relate to planned transmission project costs for which no recovery is expected, and certain costs associated with mitigation sales pursuant to merger settlement agreements with the ~~SAW program, higher storm costs~~Federal Energy Regulatory Commission (FERC); and ~~higher power delivery costs.~~
·A ~~$10~~$20 million ~~decrease~~increase in general taxes primarily due to ~~lower~~higher revenue related taxes in 2012, a favorable prior year resolution of a property tax issue related to pollution control equipment exemptions and a sales and use tax ~~refund; partially offset by overall higher property taxes.~~refund in 2011 with no comparable refund in 2012.
Other Income and Expenses, net.The decrease is primarily due to ~~higher interest income recorded in 2010 following the resolution of certain income tax matters related to prior years, lower deferred returns and~~a lower equity component of AFUDC and lower interest income in 2012 related to the current year resolution of certain prior year income tax matters; partially offset by higher deferred returns.
Interest Expense. The increase is primarily due to lower debt return on deferred projects and lower debt component of AFUDC.
Income Tax ~~Expense~~Expense. .~~Income tax expense for the nine months ended September 30, 2011, increased compared to the same period in 2010~~The increase is primarily due to an increase in ~~pre-tax income and the effective tax rate.~~pretax income. The effective tax rate for the nine months ended September 30, 2012 and 2011 was 35.8% and ~~2010 was~~ 36.1% ~~and 33.9%~~, respectively. The increase in the effective tax rate is primarily due to a decrease in the manufacturing deduction in 2011 and a state tax benefit recorded in 2010, partially offset by the write-off of a deferred tax asset in 2010 due to a change in the tax treatment of the Medicare Part D subsidy due to the passing of health care reform legislation.
~~PART I~~
Matters Impacting Future Duke Energy Carolinas Results
~~Duke Energy Carolinas has filed rate cases in North Carolina and South Carolina during 2011.~~ Duke Energy Carolinas plans to file rate cases in North Carolina and South Carolina during ~~2012.~~2013. These planned rates cases are needed to recover investments in Duke Energy Carolinas’ ongoing infrastructure modernization projects and operating costs. Duke Energy Carolinas’ earnings could be adversely impacted if these rate cases are denied or delayed by either of the state regulatory commissions.
The ability to integrate with Progress Energy businesses and realize cost savings and any other synergies expected from the merger with Progress Energy could be different from what Duke Energy ~~Ohio~~Carolinas expects and may have a significant impact on Duke Energy Carolinas’ results of operations.
DUKE ENERGY OHIO
INTRODUCTION
87
PART I
Management’s Discussion and Analysis should be read in conjunction with Duke Energy Ohio’s Unaudited Condensed Consolidated Financial Statements.
Duke Energy Ohio is ~~a wholly-owned subsidiary of Cinergy Corp. (Cinergy), which is a wholly-owned~~an indirect wholly owned subsidiary of Duke Energy. Duke Energy Ohio’s principal lines of business include generation, transmission and distribution of electricity, the sale of and/or transportation of natural gas, and energy ~~marketing.~~marketing in parts of Ohio, Illinois and Pennsylvania.
BASIS OF PRESENTATION
The results of operations and variance discussion for Duke Energy Ohio is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q.

Nine Months Ended September 30,
   Nine Months Ended
September 30,
   2011    2010 Increase
(Decrease)
   (in millions)
(in millions)
(in millions)
2012

2011

Variance
Operating revenues
   $ 2,411       $ 2,549    $ (138 )
Operating revenues
$
2,386

$
2,411

$
(25)
Operating expenses
   2,105       2,832    (727 )
Operating expenses

2,113

2,105

8
Gains on sales of other assets and other, net
   4       3    1
Gains on sales of other assets and other, net

2

4

(2)




Operating income (loss)
   310       (280 ) 590
Operating income
Operating income

275

310

(35)
Other income and expenses, net
   17       22    (5 )
Other income and expenses, net

13

17

(4)
Interest expense
   78       84    (6 )
Interest expense

70

78

(8)




Income (loss) before income taxes
   249       (342 ) 591
Income before income taxes
Income before income taxes

218

249

(31)
Income tax expense
   92       111    (19 )
Income tax expense

85

92

(7)




Net income (loss)
   $ 157       $ (453 ) $ 610




Net Income
Net Income
$
133

$
157

$
(24)
The following table shows the percent changes in GWh sales and average number of customers for the current
nine month period compared to the same period in the prior year. Except as otherwise noted, the below percentages represent billed sales only and are not weather normalized.
Increase (decrease) over prior year
Nine Months Ended September 30, 2012
Residential sales^(a)
(4.7)
%
General service sales^(a)
(3.4)
%
Industrial sales^(a)
(0.7)
%
Wholesale power sales
(53.0)
%
Total Duke Energy Ohio sales^(b)
(3.7)
%
Average number of customers
0.5
%
(a)
Major components of Duke Energy Ohio’s retail sales.
(b)
Consists of all components of Duke Energy Ohio’s sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers.
The ~~$610 million increase~~decrease in Duke Energy Ohio’s net income for the nine months ended September 30, ~~2011,~~2012 compared to September 30, ~~2010,~~2011 was primarily due to the following factors:
Operating Revenues.The decrease was primarily driven by:
·A ~~$199~~$223 million decrease in electric revenues from the coal-fired generation assets driven primarily by the expiration of the 2009-2011 ESP, net of stability charge revenues, partially offset by the coal-fired generation assets participating in the PJM wholesale energy market in 2012; and
·A $14 million decrease in retail ~~electric~~ revenues ~~resulting from lower sales volumes driven by increased customer switching levels net of higher retail pricing under the ESP~~related to unfavorable weather conditions in ~~2011;~~
~~A $71 million decrease in net mark-to-market revenues on non-qualifying power and capacity hedge contracts, consisting of mark-to-market losses of $16 million in 2011~~2012 compared to ~~gains of $55~~2011.
Partially offsetting these decreases were:
·A $218 million ~~in 2010;~~
~~A $57 million decrease in retail electric revenues resulting from the expiration of the Ohio electric Regulatory Transition Charge for non-residential customers;~~
~~A $43 million decrease~~increase in regulated fuel revenues driven primarily by higher purchased power revenues collected under the new Ohio ESP which became effective January 1, 2012, partially offset by reduced gas sales volumes and lower natural gas ~~costs and reduced sales volumes; and~~
~~A $19 million decrease related to less favorable weather conditions in 2011 compared to 2010.~~
~~Partially offsetting these decreases were:~~costs.
~~A $213 million increase in wholesale electric revenues due to higher generation volumes net of lower pricing and lower margin earned from participation in wholesale auctions in 2011;~~
~~An $18 million increase in PJM capacity revenues due to higher average cleared auction pricing and additional megawatts participating in the auction in 2011 compared to 2010; and~~
~~An $11 million increase due to higher Midwest Independent Transmission Operator, Inc (Midwest ISO) transmission revenue.~~
Operating Expenses. The ~~decrease~~increase was primarily driven by:
·A ~~$749~~$212 million increase in regulated fuel expense driven primarily by higher purchased power expense as a result of the new ESP, net of stability charge revenues, partially offset by reduced gas sales volumes and lower natural gas costs; and
·A $12 million increase in employee severance costs associated with the close of Duke Energy’s merger with Progress Energy.
Partially offsetting these increases were:
·An $88 million decrease in impairment charges primarily ~~related to a $677 million~~from the impairment ~~of goodwill and a $160 million impairment of certain generation assets~~taken in ~~2010 compared to a $79 million impairment in~~the third quarter 2011 to write down the carrying value of excess emission allowances held to fair value as a result of the EPA’s issuance of ~~the CSAPR. See Note 7 to the Unaudited Condensed Consolidated Financial Statements, “Goodwill, Intangible Assets and Impairments,” for additional information;~~CSAPR;
·A ~~$108~~$60 million decrease in ~~retail~~ fuel ~~and purchased power expenses due to lower~~expense for the gas-fired generation ~~volumes~~assets driven by ~~increased customer switching levels in 2011 compared to 2010;~~
~~A $42 million decrease in regulated fuel expense primarily due to~~ lower natural gas costs, ~~and reduced sales~~partially offset by higher volumes;
·A ~~$40~~$37 million decrease ~~in depreciation and amortization costs primarily due to decreased regulatory amortization; and~~
A $23 million decrease in employee severance costs related to the 2010 voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina.
~~Partially offsetting these decreases were:~~
~~A $158 million increase in wholesale fuel expenses due to higher generation volumes;~~
~~PART I~~
~~A $46 million increase~~ in operating and maintenance expenses resulting primarily from higher prior year station outages and regulatory asset amortization expense; and
·A $32 million decrease in property and other taxes driven primarily by an Ohio property tax settlement recorded in 2012.
88
PART I
Interest Expense. The decrease was primarily due to ~~higher maintenance expenses and 2011 storm costs; and~~
~~A $23 million increase in mark-to-market fuel expense on non-qualifying fuel hedge contracts, consisting of mark-to-market losses of $3 million in 2011 compared~~post in-service carrying charges related to ~~gains of $20 million in 2010.~~
~~Other Income and Expenses, net.~~ ~~The decrease in 2011 compared to 2010 is primarily attributable to reduced interest income accrued for uncertain income tax positions.~~new projects.
Income Tax Expense. ~~Income tax expense for the nine months ended September 30, 2011, decreased compared~~The decrease is primarily due to ~~the same period~~a decrease in ~~2010.~~pretax income. The effective tax rate for the nine months ended September 30, 2012 and 2011 ~~and 2010~~ was ~~36.9% and (32.6)%~~38.9% and.36.9%, respectively. The increase in the effective tax rate is primarily due to a ~~$677~~$10 million ~~non-deductible impairment~~reduction of ~~goodwill~~deferred tax liabilities as a result of an election related to the transfer of certain gas fired generation assets to its wholly owned subsidiary Duke Energy Commercial Asset Management, LLC (DECAM) in ~~2010, as discussed above.~~the second quarter of 2011.
Matters Impacting Future Duke Energy Ohio Results
Duke Energy Ohio ~~operates under an ESP that expires on December 31, 2011. On June 20, 2011, Duke Energy Ohio~~ filed ~~for approval of its next Standard Service Offer (SSO)~~electric and gas distribution rate cases in July 2012. These planned rate cases are needed to ~~replace the existing ESP. On October 24, 2011, Duke Energy Ohio~~recover capital investments and most intervenors, including the PUCO Staff, entered into a settlement stipulation. If approved by the PUCO, the stipulation would establish an ESP with competitive auctions for a term of January 1, 2012 through May 31, 2015. The stipulation also includes a provision for a non-bypassable stability charge of $110 million per year to be collected from 2012 through 2014 and requires Duke Energy Ohio to transfer its generation assets to a non-regulated affiliate at net book value on or before December 31, 2014. The stipulation requests that the PUCO approve the settlement on or before November 15, 2011, to allow Duke Energy Ohio to conduct auctions to serve SSO customers effective January 1, 2012. A hearing on the stipulation was held on November 3, 3011.operating costs. Duke Energy Ohio’s earnings ~~after the expiration of the current ESP~~ could be ~~significantly different than its historical earnings.~~adversely impacted if these rate cases are denied or delayed by the state regulatory commission.
The majority of Duke Energy Ohio’s gas-fired non-regulated generation assets earn capacity revenues from PJM. PJM capacity prices are determined through an auction process for planning years from June through May of the following year and are conducted approximately three years in advance of the capacity delivery period. Capacity prices for periods beginning June 2011 and continuing through May 2014 will be significantly lower than current and historical capacity prices. As a result, Duke Energy Ohio’s operating revenues and EBIT will be negatively impacted through 2014.
~~Duke Energy Indiana~~DUKE ENERGY INDIANA
INTRODUCTION
Management’s Discussion and Analysis should be read in conjunction with Duke Energy Indiana’s Unaudited Condensed Consolidated Financial Statements.
Duke Energy Indiana is ~~a wholly-owned subsidiary of Cinergy, which is a wholly-owned~~an indirect wholly owned subsidiary of Duke Energy. Duke Energy Indiana is an electric utility company that generates, transmits, distributes and sells electricity in north central, central and southern Indiana.
BASIS OF PRESENTATION
The results of operations and variance discussion for Duke Energy Indiana is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q.

Nine Months Ended September 30,
   Nine Months Ended
September 30,
   2011    2010    Increase
(Decrease)
   (in millions)
(in millions)
(in millions)
2012

2011

Variance
Operating revenues
   $ 1,997       $ 1,883       $ 114
Operating revenues
$
2,091

$
1,997

$
94
Operating expenses
   1,800       1,504       296
Operating expenses

2,259

1,800

459






Operating income
   197       379       (182 )
Operating income

(168)

197

(365)
Other income and expenses, net
   70       51       19
Other income and expenses, net

66

70

(4)
Interest expense
   104       99       5
Interest expense

105

104

1






Income before income taxes
   163       331       (168 )
Income tax expense
   50       112       (62 )






(Loss) income before income taxes
(Loss) income before income taxes

(207)

163

(370)
Income tax (benefit) expense
Income tax (benefit) expense

(98)

50

(148)
Net income
   $ 113       $ 219       $ (106 )
Net income
$
(109)

$
113

$
(222)






The following table shows the percent changes in GWh sales and average number of customers for the current
nine month period compared to the same period in the prior year. Except as otherwise noted, the below percentages represent billed sales only and are not weather normalized.
Increase (decrease) over prior year
Nine Months Ended September 30, 2012
Residential sales^(a)
(6.3)
%
General service sales^(a)
(0.5)
%
Industrial sales^(a)
2.5
%
Wholesale power sales
5.0
%
Total Duke Energy Indiana sales^(b)
0.7
%
Average number of customers
0.6
%
(a)
Major components of Duke Energy Indiana’s retail sales.
(b)
Consists of all components of Duke Energy Indiana’s sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers.
The ~~$106 million~~ decrease in Duke Energy Indiana’s net income for the nine months ended September 30, ~~2011,~~2012 compared to the nine months ended September 30, ~~2010,~~2011 was primarily due to the following factors:
Operating Revenues.The increase was primarily due to:
·A ~~$72~~$93 million net increase in fuel revenues (including ~~the rider for emission~~emissions allowances) primarily due to an increase in fuel rates as a result of higher fuel and purchased power costs; and
·A ~~$40~~$10 million ~~net~~ increase in rate ~~riders primarily related~~pricing due to the ~~Edwardsport IGCC plant that is currently under construction and higher recoveries~~positive impact on overall average prices of ~~DSM costs.~~lower sales volumes.
Partially offsetting these increases ~~was:~~were:
·An ~~$11~~$8 million decrease in retail revenues related to less favorable weather conditions in ~~2011~~2012 compared to ~~2010.~~2011.
Operating Expenses.The increase was primarily due to:
89

PART I
·A ~~$178~~$378 million increase due to ~~an additional~~ impairment ~~charge~~and other charges recorded in 2012 related to the Edwardsport IGCC plant that is currently under ~~construction.~~construction of $600 million, partially offset by a 2011 Edwardsport IGCC impairment charge of $222 million. See Note 4 to the Unaudited Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information;
~~PART I~~
and
·A ~~$66~~$105 million increase in fuel costs primarily due to ~~an increase in fuel rates as a result~~higher purchases of power (reflective of favorable market prices); and increased generation cost at coal plants due to higher ~~fuel and purchased power costs;~~generation levels.
·A ~~$27~~$6 million increase in Bulk Power Marketing due to unfavorable price and unfavorable emissions costs over prior year, partially offset by favorable fuel and favorable volume variance compared to prior year.
Partially offsetting these increases were:
·A $37 million decrease in operation and maintenance ~~costs~~ primarily due to higher storm ~~related~~ costs in the prior year, and ~~increased legal~~lower generation and corporate allocations, partially offset by decreased costs associated with the 2010 voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina;outage maintenance costs.
~~A $16 million increase in depreciation and amortization expense~~Income Tax (Benefit) Expense. The decrease is primarily due to ~~higher amortization of DSM regulatory assets and increase~~a decrease in ~~production plant base; and~~
~~A $10 million increase in general taxes primarily due to certain property~~pretax income. The effective tax ~~true-ups, higher property tax~~ rates ~~in 2011, and increases in gross receipts and payroll taxes.~~
~~Other Income and Expenses, net.~~~~The increase in 2011 compared to 2010 was primarily attributable to increased AFUDC in 2011 for additional capital spending related to the Edwardsport IGCC plant that is currently under construction.~~
~~Income Tax Expense.~~ ~~Income tax expense~~ for the nine months ended September 30, 2012 and 2011 ~~decreased compared to the same period in 2010 primarily due to a decrease in pre-tax income~~were 47.7% and ~~the effective tax rate. The effective tax rate for the nine months ended September 30, 2011 and 2010 was~~ 30.8% ~~and 33.8%~~, respectively. The ~~decrease~~increase in the effective tax rate is primarily due to ~~an increase~~the decrease in ~~AFUDC equity.~~pretax income in 2012 related to the Edwardsport impairment.
Matters Impacting Future Duke Energy Indiana Results
Duke Energy Indiana’s results are impacted by the completion of its major generation fleet modernization projects. See Note 4 to the ~~Unaudited~~ Condensed Consolidated Financial Statements, “Regulatory Matters,” for a discussion of the significant increase in the estimated cost of the 618 MW IGCC plant at Duke Energy Indiana’s Edwardsport Generating ~~Station. Additional updates to the cost estimate could occur through the completion of the plant in 2012.~~
Station (Edwardsport IGCC). On April 30, 2012, Duke Energy Indiana ~~plans~~entered into a settlement agreement with certain intervenors to ~~file~~cap the construction cost recoverable in retail rates which resulted in the recognition of a ~~rate case~~$420 million pre-tax charge to earnings in the first quarter of 2012. ~~This planned rate case~~The settlement agreement is ~~needed~~subject to ~~recover investments~~approval by the IURC, a final order is expected by the end of 2012. An additional pre-tax impairment charge of $180 million was recorded in the third quarter of 2012 due to an increase in the estimated cost to complete the project. Duke Energy ~~Indiana’s ongoing infrastructure modernization projects and operating costs. Duke Energy Indiana’s earnings~~Indiana is unable to predict the ultimate outcome of the various regulatory proceedings related to the Edwardsport project. In the event the IURC disallows a portion of the remaining plant costs, including financing costs, or if cost estimates for the plant increase, additional charges to expense, which could be ~~adversely impacted if this rate case is denied or delayed by the Indiana Utility Regulatory Commission.~~
~~PART I~~
material, could occur.

LIQUIDITY AND CAPITAL RESOURCES
The following discussion of liquidity and capital resources is on a consolidated Duke Energy basis. Duke Energy’s significant cash requirements are largely due to the capital intensive nature of its operations, including capital expansion projects, fleet modernization and other expenditures for environmental compliance. Duke Energy relies upon its cash flows from operations, as well as its ability to access the long-term debt and equity capital markets for sources of domestic liquidity. Additionally, Duke Energy has access to unsecured revolving credit facilities, which are not restricted upon general market conditions, as discussed further below.
~~Operating~~ Cash ~~Flows~~Flow Information
Net cash provided by operating activities was $3,027 million for the nine months ended September 30, 2011 compared to $3,661 million for the same period in 2010, a decrease in cash provided of $634 million. This change was driven primarily by:

The following table summarizes Duke Energy’s cash flows:









Nine Months Ended September 30,
(in millions)

2012


2011
Cash flows provided by (used in):






Operating activities
$
3,979

$
3,027

Investing activities

(3,989)


(3,070)

Financing activities

(339)


405
Net (decrease) increase in cash and cash equivalents

(349)


362
Cash and cash equivalents at beginning of period

2,110


1,670
Cash and cash equivalents at end of period
$
1,761

$
2,032

Operating Cash Flows. The following table summarizes key components of Duke Energy’s operating cash flows.









Nine Months Ended September 30,
(in millions)

2012


2011
Net income
$
1,345

$
1,424
Non-cash adjustments to net income

2,883


2,086
Contributions to qualified pension plans

(79)


―
Working capital

(170)


(483)
Net cash provided by operating activities
$
3,979

$
3,027







The increase in cash provided by operating activities in 2012 as compared to 2011 was driven primarily by:







•
An approximately $720 million increase in net income after non-cash adjustments (depreciation and amortizations, higher Edwardsport impairments, severance expense, and other Progress Energy merger related costs), resulting from the inclusion of Progress Energy's results beginning July 2, 2012 and the impact of the 2011 North Carolina and South Carolina rate cases, net of less favorable weather; and







•
An approximately $310 million increase in traditional working capital, mainly due to prior year refund of North Carolina overcollected fuel costs and current year overcollection of North Carolina and South Carolina fuel costs.
90

~~Traditional working capital decreased cash provided from operations $560 million, primarily due to an increase in coal inventory.~~
~~Investing Cash Flows~~
Net cash used in investing activities was $3,070 million for the nine months ended September 30, 2011 compared to $3,525 million for the same period in 2010, a decrease in cash used of $455 million. This change was driven primarily by:
~~A $520 million decrease in capital and investment expenditures and~~PART I


Investing Cash Flows. The following table summarizes key components of Duke Energy’s investing cash flows.









Nine Months Ended September 30,
(in millions)

2012


2011
Capital, investment and acquisition expenditures
$
(3,888)

$
(3,076)
Available for sale securities, net

(212)


(96)
Proceeds from sales of equity investments and other assets, and sales of and collections on notes receivable

29


115
Other investing items

82


(13)
Net cash used in investing activities
$
(3,989)

$
(3,070)







The increase in cash used in investing activities in 2012 as compared to 2011 was driven primarily by:







•
An approximately $810 million increase in capital, investment and acquisition expenditures due to higher expenditures on renewable energy projects and the inclusion of Progress Energy capital expenditures beginning in July 2012 net of lower spending on Duke Energy's ongoing infrastructure modernization program as these projects near completion;







•
An approximately $120 million decrease in proceeds of available for sale securities, net of purchases; and







•
An approximately $90 million decrease primarily as a result of the prior year sale of Windstream Corp. stock received in conjunction with the sale of Q-Comm Corporation in December 2010.
~~A $100 million cash inflow~~

Financing Cash Flows. The following table summarizes key components of Duke Energy’s financing cash flows.









Nine Months Ended September 30,
(in millions)

2012


2011
Issuance of common stock related to employee benefit plans
$
16

$
13
Issuances of long-term debt, net

692


836
Notes payable and commercial paper

98


537
Dividends paid

(1,211)


(994)
Other financing items

66


13
Net cash (used in) provided by financing activities
$
(339)

$
405







The increase in cash used in financing activities in 2012 as compared to 2011 was driven primarily by:







•
An approximately $440 million decrease due to the paydown of commercial paper, net of an increase in PremierNotes outstanding;







•
An approximately $220 million increase in quarterly dividends primarily due to an increase in common shares outstanding, resulting from the merger with Progress Energy and an increase in dividends per share from $0.75 to $0.765; and







•
An approximately $140 million increase in payments for the redemption of long-term debt, net of proceeds from issuances, primarily due to the timing of redemptions and issuances between years.
Significant Notes Payable and Long-Term Debt Activities - 2012.
Duke Energy’s outstanding long-term debt, including current maturities as of September 30, 2012, includes approximately $17.2 billion related to Progress Energy. This amount includes $3.5 billion of fair value adjustments recorded in ~~2011 primarily as a result~~connection with purchase accounting for the Progress Energy merger, which are not part of future principal payments and will amortize over the remaining life of the ~~sale~~debt. See Note 2 for additional information related to the merger with Progress Energy.
In September 2012, Duke Energy Carolinas issued $650 million principal amount of ~~Windstream Corp. stock received in conjunction with the sale~~first mortgage bonds, which carry a fixed interest rate of ~~Q-Comm Corporation in December 2010, partially offset by~~
~~A $130 million increase in purchases of available-for-sale securities, net of proceeds from sales.~~
~~Financing Cash Flows~~4.00% and ~~Liquidity~~
~~Net cash provided by financing activities was $405 million for the nine months ended~~mature September 30, ~~2011 compared to $130 million for the same period in 2010, an increase in cash provided of $275 million. This change was driven primarily by:~~
~~A $520 million increase in proceeds from net issuances of notes payable and commercial paper, partially offset by~~
~~A $200 million decrease in proceeds~~2042. Proceeds from the issuance will be used to repay at maturity the $420 million debentures due through November 2012, as well as for general corporate purposes, including the funding of ~~common stock primarily related to the Dividend Reinvestment Plan, due to the discontinuance of new share issuances in the first quarter of 2011, and other internal plans and~~capital expenditures.
~~A $40 million increase in dividend payments.~~
~~Significant Financing Activities~~.In August 2012, Duke Energy ~~issues shares~~Corporation issued $1.2 billion of ~~its common stock~~senior unsecured notes, of which $700 million carry a fixed interest rate of 1.625% and mature August 15, 2017 and $500 million carry a fixed interest rate of 3.05% and mature August 15, 2022. Proceeds from the issuances were used to ~~meet certain employee benefit and long-term incentive obligations. Beginning in~~repay at maturity Duke Ohio’s $500 million debentures due September 15, 2012 as well as for general corporate purposes, including the ~~first quarter~~repayment of ~~2011,~~commercial paper.
In March 2012, Duke Energy ~~discontinued issuing authorized but unissued shares~~Indiana issued $250 million principal amount of ~~common stock~~first mortgage bonds, which carry a fixed interest rate of 4.20% and mature March 15, 2042. Proceeds from the issuance were used to ~~fulfill obligations under its DRIP and other internal plans, including 401(k) plans.~~repay a portion of Duke Energy Indiana’s outstanding short-term debt.
In January 2012, Duke Energy Carolinas used proceeds from its December 2011 $1 billion issuance of principal amount of first mortgage bonds to repay $750 million 6.25% senior unsecured notes that matured January 15, 2012.
On April 4, 2011, Duke Energy filed a registration statement (Form S-3) with the Securities and Exchange Commission (SEC) to sell up to $1 billion (maximum of $500 million of notes outstanding at any particular time) of variable denomination floating rate demand notes, called PremierNotes. ~~The Form S-3 states that no more than $500 million of the notes will be outstanding at any particular time.~~ The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or
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PART I
its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, but may be redeemed in whole or in part by Duke Energy at any time. The notes are non-transferable and may be redeemed in whole or in part at the investor’s option. Proceeds from the sale of the notes will be used for general corporate purposes. The balance as of September 30, 2012 and December 31, 2011, is ~~$30 million.~~$288 million and $79 million, respectively. The notes reflect a short-term debt obligation of Duke Energy and ~~are~~will be reflected as Notes ~~payable~~Payable and Commercial Paper on Duke Energy’s Condensed Consolidated Balance Sheets.
Available Credit Facilities.In ~~May~~November 2011, Duke Energy ~~Carolinas issued $500 million principal amount of first mortgage bonds, which carry~~entered into a ~~fixed interest rate of 3.90% and mature June 15, 2021. Proceeds from this issuance were used to fund capital expenditures and for general corporate purposes.~~
In August 2011, Duke Energy issued $500 million principal amount of senior notes, which carry a fixed interest rate of 3.55% and mature September 15, 2021. Proceeds from the issuance will be used to repay a portion of Duke Energy’s commercial paper as it matures, to fund capital expenditures in Duke Energy’s unregulated businesses in the United States (U.S.) and for general corporate purposes.
~~In the third quarter of 2011, Duke Energy issued an additional $450 million in Commercial Paper. Proceeds from this issuance were used for general corporate purposes,~~
~~At September 30, 2011, Duke Energy had $1.5~~$6 billion, classified as Current maturities of long-term debt on the Condensed Consolidated Balance Sheets. These are principally comprised of $750 million, maturing in January 2012, at Duke Energy Carolinas, and $500 million, maturing in September 2012 at Duke Energy Ohio. At December 31, 2010, these notes were classified as Long-term Debt on Duke Energy Carolinas’ and Duke Energy Ohio’s Condensed Consolidated Balance Sheets. Duke Energy Carolinas and Duke Energy Ohio currently anticipate satisfying these obligations with proceeds from additional borrowings.
~~Available Credit Facilities and Restrictive Debt Covenants~~.~~The total capacity under Duke Energy’s~~five-year master credit facility, ~~which expires~~expiring in ~~June~~November 2016, with $4 billion available at closing and the remaining $2 billion available following successful completion of the merger with Progress Energy. In October 2012, ~~is $3.14~~the Duke Energy Registrants reached an agreement with banks representing $5.63 billion of commitments under the master credit facility to extend the expiration date by one year to November 2017. Through November 2016, the available credit under this facility remains $6 billion. The ~~credit facility contains an option allowing borrowing up to the full amount of the facility on the day of initial expiration for up to one year.~~ Duke Energy ~~Duke Energy Carolinas, Duke Energy Ohio, including Duke Energy Kentucky, and Duke Energy Indiana (collectively referred to as the borrowers),~~Registrants each have borrowing capacity under the master credit facility up to specified ~~sub limits~~sublimits for each borrower. However, Duke Energy has the unilateral ability at any time to increase or decrease the borrowing ~~sub limits~~sublimits of each borrower, subject to a maximum ~~sub limit~~sublimit for each borrower. See the table below for the borrowing ~~sub limits~~sublimits for each of the borrowers as of September 30, ~~2011.~~2012. The amount available under the master credit facility ~~has been~~is reduced ~~as indicated in the table below,~~ by the use of the master credit facility to backstop the issuances of commercial paper, letters of credit and certain tax-exempt bonds. ~~As indicated, borrowing~~Borrowing sub limits for the Subsidiary Registrants are also reduced for amounts outstanding under the money pool arrangement.
~~PART I~~

September 30, 2012
(in millions)
Duke Energy (Parent)

Duke Energy Carolinas

Progress Energy Carolinas

Progress Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Total Duke Energy
Facility Size
$
1,750

$
1,250

$
750

$
750

$
750

$
750

$
6,000

Notes Payable and Commercial Paper

(57)


(300)


(134)


(121)


―


(150)


(762)

Outstanding Letters of Credit

(51)


(7)


(2)


(1)


―


―


(61)

Tax-Exempt Bonds

―


(95)


―





(84)


(81)


(260)
Available Capacity
$
1,642

$
848

$
614

$
628

$
666

$
519

$
4,917

~~Master Credit Facility Summary as~~First Mortgage Bond Restrictions. The Subsidiary Registrants’ first mortgage bonds are secured under their respective mortgage indentures. Each mortgage constitutes a first lien on substantially all of the fixed properties of the respective company, subject to certain permitted encumbrances and exceptions. The lien of each mortgage also covers subsequently acquired property. Each mortgage allows the issuance of additional first mortgage bonds based on property additions, retirements of first mortgage bonds and the deposit of cash if certain conditions are satisfied. Each Subsidiary Registrant is required to pass a “net earnings” test in order to issue new first mortgage bonds, other than on the basis of retired bonds under certain circumstances. The test requires that the issuer’s adjusted net earnings, which is calculated based on results for 12 consecutive months within the prior 15 to 18 months, be at least twice the annual interest requirement for bonds currently outstanding and to be outstanding. Duke Energy Indiana’s ratio of net earnings to the annual interest requirement for bonds outstanding was below 2.0 times during the twelve month periods ending in the quarter ended September 30, ~~2011 (in millions)~~^(a)(b)2012. As discussed in Note 4, Regulatory Matters, Duke Energy Indiana’s net earnings were impacted by charges recorded related to the Edwardsport IGCC project. Until this ratio is above 2.0 times, Duke Energy Indiana’s capacity to issue first mortgage bonds is limited to a portion of its retired first mortgage bonds. Progress Energy Florida’s ratio of net earnings to the annual interest requirement for bonds outstanding was slightly above 2.0 times during certain twelve month periods ending in the quarter ended September 30, 2012, and thus Progress Energy Florida can currently issue first mortgage bonds. However, as discussed in Note 4, Regulatory Matters, Progress Energy Florida’s net earnings have been impacted by charges recorded for amounts to be refunded to customers under the terms of a February 2012 settlement agreement approved by the Florida Public Service Commission, which may impact future net earnings tests. In the event Duke Energy Indiana’s or Progress Energy Florida’s long-term debt requirements exceed its first mortgage bond capacity, Duke Energy Indiana or Progress Energy Florida can access alternative sources of capital, including, but not limited, to issuing unsecured debt, borrowing under the money pool, entering into bilateral direct loan arrangements, and, if necessary, utilizing available capacity under the master credit facility. All other DEC registrants have earnings in excess of the net earnings test requirement for issuing first mortgage bonds.

   Duke Energy Duke Energy
Carolinas Duke Energy
Ohio Duke Energy
Indiana Total
Facility Size^(c)
   $ 1,097    $ 840    $ 750    $ 450    $ 3,137
Less:

Notes Payable and Commercial Paper^(d)
   (450 ) (300 ) —      (150 ) (900 )
Outstanding Letters of Credit
   (46 ) (7 ) (27 ) —      (80 )
Tax-Exempt Bonds
   (25 ) (95 ) (84 ) (81 ) (285 )


Available Capacity
   $ 576    $ 438    $ 639    $ 219    $ 1,872


~~(a)~~ ~~This summary only includes Duke Energy’s~~Restrictive Debt Covenants.The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. The master credit facility and, accordingly, excludes certain demand facilities and committed facilities that are insignificant in size or which generally support very specific requirements, which primarily include facilities that backstop various outstanding tax-exempt bonds. These facilities that backstop various outstanding tax-exempt bonds generally have non-cancelable terms in excess of one year from the balance sheet date, such that the Duke Energy Registrants have the ability to refinance such borrowings on a long-term basis. Accordingly, such borrowings are reflected as Long-term Debt on the Condensed Consolidated Balance Sheets of the respective Duke Energy Registrant.
~~(b)~~ ~~Credit~~ facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower.
~~(c)~~ ~~Represents the sub limit of each borrower at September 30, 2011. The Duke Energy Ohio sub limit includes $100 million for Duke Energy Kentucky.~~
~~(d)~~ Duke Energy issued $450 million of Commercial Paper and loaned the proceeds through the money pool to Duke Energy Carolinas and Duke Energy Indiana. The balances are classified as long-term borrowings within Long-term Debt in Duke Energy Carolina’s and Duke Energy Indiana’s Condensed Consolidated Balance Sheets. Duke Energy issued an additional $450 million of Commercial Paper in the third quarter of 2011. The balance is classified as Notes payable and commercial paper on Duke Energy’s Condensed Consolidated Balance Sheets.
Duke Energy began negotiating a replacement of its master credit facility in October 2011. Duke Energy expects to execute a new five-year, $6 billion master credit facility in the fourth quarter of 2011, with $4 billion available at closing and the remaining $2 billion available on or soon after the closing of the proposed merger with Progress Energy, Inc. (Progress Energy). The master credit facility will include borrowing sub limits for certain subsidiaries, including Progress Energy subsidiaries, similar to the current facility.
~~Restrictive Debt Covenants.~~~~The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants.~~ Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of September 30, ~~2011,~~2012, each of the Duke Energy Registrants was in compliance with all covenants related to its significant debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the significant debt or credit agreements contain material adverse change clauses.
~~Other Issues~~Credit Ratings. On July 25, 2012, Standard and Poor’s affirmed Duke Energy and Progress Energy's short-term credit ratings of A-2. Standard and Poor’s also affirmed its ratings on Duke Energy Carolinas, Progress Energy Carolinas, Progress Energy Florida, Duke Energy Ohio and Duke Energy Indiana’s first-mortgage bonds at A. However, Standard and Poor’s lowered its corporate credit rating for Duke Energy, Duke Energy Carolinas, Duke Energy Indiana, Duke Energy Ohio and Duke Energy Kentucky to BBB+ from A- with a negative outlook, citing lack of transparency and heightened regulatory risk around the CEO transition. Standard and Poor’s affirmed Progress Energy’s corporate credit rating and its subsidiaries ratings at BBB+ as well as its A-2 short-term rating. Standard and Poor’s negative outlook for Duke Energy and all of its subsidiaries’ is based on concerns over increased regulatory risk in North Carolina and Florida and concerns over Duke Energy’s ability to successfully integrate Progress Energy.
~~Global Climate Change~~On July 3, 2012, Moody’s affirmed their ratings for the newly merged Duke Energy and ~~Other Environmental Protection Agency (EPA) Regulations Recently Published~~its subsidiaries with a stable outlook. On July 6, 2012, Fitch Ratings initiated coverage on Duke Energy and ~~Under Development.~~its subsidiaries. These ratings are investment grade and are on stable outlook. On June 22, Fitch Ratings affirmed their ratings for Progress Energy and its subsidiaries prior to the merger consummation.
~~The EPA has issued~~A further downgrade below the Duke Energy Registrants’, including Progress Energy and isits subsidiaries, current investment grade ratings would likely result in ~~various stages~~an increase in the entities’ borrowing costs, perhaps significantly. In addition, the Duke Energy Registrants’, including Progress Energy and its subsidiaries, potential pool of ~~developing several non-greenhouse gas (non-GHG) environmental regulations that will affect~~investors and funding sources would likely decrease. A downgrade below investment grade could also require the Duke Energy Registrants, including Progress Energy and its subsidiaries, to post additional collateral in the ~~final Cross-State Air Pollution Rule (CSAPR),~~form of letters of credit or cash under various commodity contracts and ~~proposed regulations for coal combustion residuals, cooling water intake structures under the Clean Water Act 316(b)~~credit agreements and ~~Utility Boiler Maximum Achievable Control Technology (MACT) emission standards for hazardous air pollutants. As a group,~~trigger termination clauses in some interest rate derivative agreements, which would require cash
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PART I
payments. All of these ~~non-GHG environmental regulations will require~~events would likely reduce the Duke Energy ~~Registrants to install additional environmental controls~~Registrants’, including Progress Energy and ~~may result in the accelerated retirement of some coal-fired units. While the ultimate regulatory requirements for~~its subsidiaries, liquidity and profitability and could have a material adverse effect on the Duke Energy ~~Registrants from~~Registrants’, including Progress Energy and its subsidiaries, financial position, results of operations or cash flows.
Undistributed Foreign Earnings. Undistributed earnings associated with Duke Energy’s foreign operations are considered indefinitely reinvested, thus no U.S. tax is recorded on such earnings. This assertion is based on management’s determination that the ~~EPA’s regulatory actions will~~cash held in Duke Energy’s foreign jurisdictions is not ~~be known until all the rules have been finalized, for planning purposes, the~~needed to fund its U.S. operations and that Duke Energy ~~Registrants currently estimate~~either has invested or has intentions to reinvest such earnings. Duke Energy periodically evaluates the ~~cost~~impact of ~~new control equipment~~repatriation of cash generated and held in foreign countries. While Duke Energy’s current intent is to indefinitely reinvest foreign earnings, circumstances could arise that may ~~need~~alter that view, including a future change in tax law governing U.S. taxation of foreign earnings or changes in Duke Energy’s U.S. cash flow requirements. If Duke Energy were to decide to repatriate foreign generated and held cash previously designated as undistributed earnings, recognition of material U.S. federal income tax liabilities would be required to be ~~installed to comply with this group~~recognized in the period such determination is made. The cumulative undistributed earnings as of ~~rules could total $5 billion to $6 billion over the next 10 years. The~~September 30, 2012, on which Duke Energy ~~Registrants also expect~~has not provided deferred U.S. income taxes and foreign withholding taxes is $2.1 billion. The amount of unrecognized deferred tax liability related to incur increased fuel, purchased power, operation and maintenance, and other expenses in conjunction with the non-GHG EPA regulations. In addition to the planned retirements associated with new generation the Duke Energy Registrants are constructing, the Duke Energy Registrants are evaluating the need to retire additional coal fired generating capacity if itthese undistributed earnings is not economic to bring it into compliance with the EPA’s regulations. Total, planned and additional retirements could exceed 3,300 MWs of coal-fired generating capacity. Until the final regulatory requirements are known and can be fully evaluated, the potential compliance costs associated with these EPA regulatory actions are subject to considerable uncertainty. Therefore, the actual compliance costs incurred and MWsestimated to be ~~retired may be materially different from these estimates based on the timing~~between $175 million and ~~requirements of the final EPA regulations.~~$250 million.
OTHER ISSUES
Global Climate Change.For ~~further~~ information on global climate change ~~and other EPA regulations under development~~ and the potential impacts on Duke Energy, see “Other Issues” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, ~~2010 and Note 5 to~~2011.
Nuclear Matters.Following the ~~Unaudited Condensed Consolidated Financial Statements, “Commitments and Contingencies”.~~
~~Merger with Progress Energy~~~~. See Note 3 to the Unaudited Condensed Consolidated Financial Statements, “Acquisitions and Sales of Other Assets” for information related to Duke Energy’s pending merger with Progress Energy.~~
~~Nuclear Matters.~~ ~~In March 2011, a magnitude 9.0 earthquake and subsequent tsunami caused significant damage~~events at the Fukushima Daiichi nuclear power station in ~~northeast Japan. As~~Japan, Duke Energy conducted thorough inspections at each of its four nuclear sites during 2011. Progress Energy also conducted inspections in 2011 at each of its three sites. The initial inspections have not identified any significant vulnerabilities, however, Duke Energy is reviewing designs to evaluate safety margins to external events. Emergency-response capabilities, written procedures and engineering specifications were reviewed to verify each site’s ability to respond in the unlikely event of station blackout. In 2012, Duke Energy is working within the nuclear industry to improve the safety standards and margin using the three layers of safety approach used in the U.S.: protection, mitigation and emergency response. Emergency equipment is currently being added at each station to perform key safety functions in the event that backup power sources are lost permanently. These improvements are in addition to the numerous layers of safety measures and systems previously in place.
In March 2011, the NRC formed a ~~result, a Nuclear Regulatory Commission (NRC) special~~ task force ~~initiated~~to conduct a comprehensive review of processes and regulations to determine whether the agency should make additional improvements to the nuclear regulatory system. On July 13, 2011, the task force proposed a set of improvements designed to ensure protection, enhance accident mitigation, strengthen emergency preparedness and improve efficiency of NRC programs. The ~~Institute~~recommendations were further prioritized into three tiers based on the safety enhancement level. On March 12, 2012, the NRC issued three regulatory orders requiring safety enhancements related to mitigation strategies to respond to extreme natural events resulting in the loss of ~~Nuclear Power Operations (INPO) is leading U.S. nuclear industry reviews~~power at a plant, ensuring reliable hardened containment vents and enhancing spent fuel pool instrumentation. On August 30, 2012, the NRC issued implementation guidance to enable power plants to achieve compliance with the orders issued in March 2012. Plants are then required to submit implementation plans to the NRC by February 28, 2013, and complete implementation of the ~~Fukushima Daiichi event,~~safety enhancements within two refueling outages or by December 31, 2016, whichever comes first. Each plant is also required to reassess their seismic and ~~additional reviews by other national~~flooding hazards using present-day methods and ~~international organizations are ongoing or expected. Such reviews may impact future operations and/or capital requirements at U.S. nuclear facilities, including those owned by~~ information, conduct inspections to ensure protection against hazards in the current design basis, and re-evaluate emergency communications systems and staffing levels. In May 2012, the NRC issued guidance on re-evaluating emergency communications systems and staffing levels and performing seismic and flooding walkdowns. The NRC is expected to issue guidance on performing seismic and flooding re-evaluations in November 2012. On July 13, 2012 the NRC outlined plans for implementing Tier 2 and Tier 3 recommendations.
Duke Energy ~~Carolinas. These events could also cause increased regulatory review and scrutiny~~is committed to compliance with all safety enhancements ordered by the NRC in connection with the March 12, 2012 regulatory orders noted above, the cost of which could be material. Until such time as the NRC mandated reassessment of flooding and seismic hazards is complete the exact scope and cost of compliance modifications to our four sites will not be known. With the NRC’s continuing review of the remaining recommendations, Duke Energy cannot predict to what extent the NRC will impose additional licensing and safety-related requirements, or the costs of complying with such requirements. The tight timeframe required to complete the necessary safety enhancements by no later than 2016 could lead to ~~delays in~~even higher costs. Upon receipt of additional guidance from the ~~process for obtaining required regulatory approvals.~~NRC and a collaborative industry review, Duke Energy will be able to determine an implementation plan and associated costs. See Item 1A, “Risk Factors”, in the ~~2010~~2011 Form 10-K for further discussion of applicable risk factors.
OFF-BALANCE SHEET ARRANGEMENTS
~~Off-Balance Sheet Arrangements~~
The following discussion of ~~off-balance~~off balance sheet arrangements and contractual obligations is on a consolidated Duke Energy basis.
During the nine months ended September 30, ~~2011,~~2012, there were no material changes to Duke Energy’s off-balance sheet arrangements. For information on Duke Energy’s off-balance sheet arrangements, see “Off-Balance Sheet Arrangements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, ~~2010.~~2011.For information on Progress Energy’s off-balance sheet arrangements, see “Off-Balance Sheet Arrangements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Progress Energy’s Annual Report on Form 10-K for the year ended December 31, 2011.
~~PART I~~
~~Contractual Obligations~~CONTRACTUAL OBLIGATIONS
Duke Energy enters into contracts that require cash payment at specified periods, based on specified minimum quantities and prices. During the nine months ended September 30, ~~2011,~~2012, there were no material changes in Duke Energy’s contractual obligations. For an in-depth discussion of Duke Energy’s contractual obligations, see “Contractual Obligations” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, ~~2010.~~2011. For an in-depth discussion of Progress Energy’s contractual obligations, see “Contractual Obligations” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Progress Energy’s Annual Report on Form 10-K for the year ended December 31, 2011.
~~New Accounting Standards~~NEW ACCOUNTING STANDARDS
The following new Accounting Standards ~~Updates~~Update (ASU) ~~have~~has been issued, but ~~have~~has not yet been adopted by Duke Energy, as of September 30, ~~2011:~~2012.
ASC ~~820—Fair Value Measurements and Disclosures (ASC 820).~~210—Balance Sheet. In ~~May~~December 2011, the FASB ~~amended~~issued revised accounting guidance to amend the existing disclosure requirements for ~~measuring fair value~~offsetting financial assets and ~~for disclosing information about fair value measurements. This revised guidance results in a consistent definition of fair value,~~liabilities to enhance current disclosures, as well as ~~common requirements for measurement and disclosure~~to improve comparability of ~~fair value information between~~balance sheets prepared under U.S. GAAP and ~~International Financial Reporting Standards (IFRS). In addition,~~IFRS. The revised disclosure guidance affects all companies that have financial instruments and derivative instruments that are either offset in the ~~amendments set forth~~balance sheet (i.e., presented on a net basis) or subject to an enforceable master netting arrangement and/or similar agreement. The revised
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PART I
guidance requires that certain enhanced ~~disclosure requirements~~quantitative and qualitative disclosures be made with respect to ~~recurring Level 3 measurements, nonfinancial assets measured~~ a company’s netting arrangements and/or ~~disclosed at fair value, transfers between levels in the fair value hierarchy, and assets and liabilities disclosed but not recorded at fair value.~~rights of setoff associated with its financial instruments and/or derivative instruments including associated collateral. For the Duke Energy Registrants, the revised fair value measurement guidance is effective on a prospective basis for interim and annual periods beginning January 1, 2012. Duke Energy is currently evaluating the potential impact of the adoption of this revised guidance and is unable to estimate at this time the impact of adoption on its consolidated results of operations, cash flows, or financial position.
~~ASC 220—Comprehensive Income (ASC 220).~~In June 2011, the FASB amended the existing requirements for presenting comprehensive income in financial statements primarily to increase the prominence of items reported in other comprehensive income (OCI) and to facilitate the convergence of U.S. GAAP and IFRS. Specifically, the revised guidance eliminates the option currently provided under existing requirements to present components of OCI as part of the statement of changes in stockholders’ equity. Accordingly, all non-owner changes in stockholders’ equity will be required to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. For the Duke Energy Registrants, this reviseddisclosure guidance is effective on a retrospective basis for interim and annual periods beginning January 1, ~~2012. Early adoption of~~2013. Other than additional disclosures, this revised guidance ~~is permitted. Duke Energy is currently evaluating~~does not impact the ~~revised requirements for presenting comprehensive income in its financial statements and is unable to estimate at this time the impact of adoption of this revised guidance on its~~ consolidated results of operations, cash flows or financial ~~position.~~position of Duke Energy.
~~Subsequent Events~~SUBSEQUENT EVENTS
For information on subsequent events related to ~~acquisitions and sales of other assets,~~ regulatory matters, commitments and contingencies and debt and credit facilities, see Notes 4, 5 and ~~severance, see Note 3, “Acquisitions and Sales of Other Assets,” Note 4, “Regulatory Matters,” Note 5, “Commitments and Contingencies,” Note~~ 6, ~~“Debt and Credit Facilities,” Note 9, “Fair Value of Financial Assets and Liabilities,” and Note 15, “Severance,”~~respectively, to the Unaudited Condensed Consolidated Financial Statements.
~~Item~~ITEM 3. ~~Quantitative and Qualitative Disclosures about Market Risk~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes from the disclosures presented in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, ~~2010.~~2011. For an in-depth discussion of Duke Energy’s market risks, see “Management’s Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, ~~2010.~~2011.
~~Item~~ITEM 4. ~~Controls and Procedures.~~CONTROLS AND PROCEDURES. – ~~Duke Energy, Duke Energy Carolinas, Duke Energy Ohio, Duke Energy Indiana~~DUKE ENERGY, DUKE ENERGY CAROLINAS, DUKE ENERGY OHIO, DUKE ENERGY INDIANA
DISCLOSURE CONTROLS AND PROCEDURES
~~Disclosure Controls and Procedures~~
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized, and reported, within the time periods specified by the Securities and Exchange Commission’s (SEC) rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated their effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, ~~2011,~~2012, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance.
~~Changes in Internal Control over Financial Reporting~~CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, ~~2011~~2012 and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
On July 2, 2012, the previously announced merger between Duke Energy and Progress Energy closed. Duke Energy is currently in the process of integrating Progress Energy’s operations and will be conducting control reviews pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. See Note 2 of the “Notes to the Condensed Consolidated Financial Statements” in “Item 1 Financial Statements” for additional information relating to the merger.
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PART ~~II.~~II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
~~Item 1.~~~~Legal Proceedings.~~
For information regarding legal proceedings that became reportable events or in which there were material developments in the third quarter of ~~2011,~~2012, see Note 4 to the Unaudited Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 5 to the Unaudited Condensed Consolidated Financial Statements, “Commitments and Contingencies” under the heading “Litigation.”
ITEM 1A. RISK FACTORS.
Please see below an update to risk factors affecting Duke Energy’s business in addition to those presented in our Annual Report on Form 10-K, Part I, Item ~~1A.~~1A, for the year ended December 31, 2011. Except for the update below, there have been no material changes in our assessment of our risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2011.
~~Risk Factors.~~The ability to fully utilize tax credits may be limited.
In accordance with the provisions of Internal Revenue Code Section 29/45K, tax credits have been generated based on the content and quantity of coal-based solid synthetic fuels produced and sold to unrelated parties. This tax credit program expired at the end of 2007. The timing of the utilization of the tax credits is dependent upon Duke Energy’s taxable income, which can be impacted by a number of factors. The timing of the utilization can also be impacted by certain substantial changes in ownership, including the merger between Duke Energy and Progress Energy on July 2, 2012. Additionally, in the normal course of business, tax returns are audited by the IRS. If tax credits were disallowed in whole or in part as a result of an IRS audit, there could be significant additional tax liabilities and associated interest for previously recognized tax credits, which could have a material adverse impact on earnings and cash flows. Although Duke Energy is unaware of any currently proposed legislation or new IRS regulations or interpretations impacting previously recorded synthetic fuels tax credits, the value of credits generated could be unfavorably impacted by such legislation or IRS regulations and interpretations.
The scope of necessary repairs of the delamination of Progress Energy Florida’s Crystal River Unit 3 could prove more extensive than is currently identified, such repairs could prove not to be feasible resulting in early retirement of the unit, the costs of repair and/or replacement power could exceed estimates and insurance coverage or may not be recoverable through the regulatory process; the occurrence of any of which could adversely affect Duke Energy’s and Progress Energy Florida’s financial condition, results of operations and cash flows.
In September 2009, Crystal River Unit 3 began an outage for normal refueling and maintenance as well as an uprate project to increase its generating capability and to replace two steam generators. During preparations to replace the steam generators, workers discovered a delamination (or separation) within the concrete at the periphery of the containment building, which resulted in an extension of the outage. After analysis, Progress Energy Florida determined that the concrete delamination was caused by redistribution of stresses in the containment wall that occurred when Progress Energy Florida engineers created an opening to accommodate the replacement of the unit’s steam generators.
In March 2011, the work to return the plant to service was suspended after monitoring equipment at the repair site identified a new delamination that occurred in a different section of the outer wall after the repair work was completed and during the late stages of retensioning the containment building. Subsequent to March 2011, monitoring equipment has detected additional changes and further damage in the partially tensioned containment building and additional cracking or delaminations could occur during the repair process. Crystal River Unit 3 has remained out of service while Progress Energy Florida conducted an engineering analysis and review of the new delamination and evaluated repair options.
In June 2011, Progress Energy Florida notified the NRC and the FPSC that it plans to repair the Crystal River Unit 3 containment structure and estimates the unit will return to service in 2014. The repair option selected entails systematically removing and replacing concrete in substantial portions of the containment structure walls. The preliminary estimate of $900 million to $1.3 billion, as filed with the FPSC on June 27, 2011, is currently under review and could change following completion of further detailed engineering studies, vendor negotiations and final risk assessments. These engineering studies and risk assessments include analyses by independent entities currently in progress. The risk assessment process includes analysis of events that, although currently deemed unlikely, could have a significant impact on the cost estimate or feasibility of repair. The cost range of the repair option, based on preliminary analysis, appears to be trending upward. Progress Energy Florida believes the actions taken and costs incurred in response to the Crystal River Unit 3 delamination have been prudent and, accordingly, believe that replacement power and repair costs not recoverable through insurance to be recoverable through Progress Energy Florida’s fuel cost-recovery clause or base rates.
Additionally, as of result of the potential repair challenges, the unit could be forced to be retired early. Early retirement could result in continued purchases of replacement power, additional capital and operating costs associated with construction of replacement capacity resources, and impairments of unrecoverable portions of the retired plant.
While the foregoing reflects Progress Energy Florida’s current intentions and estimates with respect to Crystal River Unit 3, the costs, timing and feasibility of additional repairs to Crystal River Unit 3, the cost of replacement power, and the degree of recoverability of these costs, are all subject to significant uncertainties. Additional developments with respect to the condition of the Crystal River Unit 3 structures, costs that are greater than anticipated, recoverability that is less than anticipated and/or the inability to return Crystal River Unit 3 to service all could adversely affect Duke Energy’s and Progress Energy Florida’s financial condition, results of operations and cash flows.
In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in Duke Energy’s, Duke Energy Carolinas’, Duke Energy Ohio’s and Duke Energy Indiana’s Annual Report on Form 10-K for the year ended December 31, ~~2010,~~2011, which could materially affect the Duke Energy Registrants’ financial condition or future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
~~Item 2.~~~~Unregistered Sales~~ISSUER PURCHASES OF EQUITY SECURITIES FOR THE THIRD QUARTER of ~~Equity Securities and Use of Proceeds.~~2012
~~Issuer Purchases of Equity Securities for Third Quarter of 2011~~
There were no issuer purchases of equity securities during the third quarter of ~~2011.~~2012.
95
PART II

~~Item 6. Exhibits~~
~~(a) Exhibits~~
~~Exhibits filed or furnished herewith are designated by an asterisk (*).~~
ITEM 6. EXHIBITS
(a)
Exhibits
Exhibits filed or furnished herewith are designated by an asterisk (*).
Exhibit
Number
Duke Energy
Duke Energy
Carolinas
Duke Energy
Ohio
Duke Energy
Indiana
*10.1
Amendment to Duke Energy Corporation Executive Savings Plan, dated January 1, 2008
X
*12
Computation of Ratio of Earnings to Fixed Charges
X
X
*31.1
*31.1
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
X
*31.2
*31.2
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
X
*31.3
*31.3
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
X
*31.4
*31.4
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
X
*31.5
*31.5
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
X
*31.6
*31.6
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
X
*31.7
*31.7
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
*31.8
*31.8
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
*32.1
*32.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
X
*32.2
*32.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
X
*32.3
*32.3
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
X
*32.4
*32.4
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
X
*32.5
*32.5
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
X
*32.6
*32.6
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
~~PART II~~

X
~~Exhibit~~
~~Number~~*32.7
~~Duke Energy~~ ~~Duke Energy~~
~~Carolinas~~ ~~Duke Energy~~
~~Ohio~~ ~~Duke Energy~~
~~Indiana~~
*32.7
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
*32.8
*32.8
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
*101.INS
XBRL Instance Document
X
X
X
X
*~~101~~101.SCH
XBRL Taxonomy Extension Schema Document
~~Financials in~~
X
X
X
X
*101.CAL
XBRL ~~Format.~~Taxonomy Calculation Linkbase Document
X
X
X
X
*101.LAB
XBRL Taxonomy Label Linkbase Document
X
X
X
X
*101.PRE
XBRL Taxonomy Presentation Linkbase Document
X
X
X
X
*101.DEF
XBRL Taxonomy Definition Linkbase Document
X
X
X
X
The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt
not filed as an exhibit does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The
registrant agrees, upon request of the Securities and Exchange Commission (SEC), to furnish copies of any or all of such instruments to it.
The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the Securities and Exchange Commission (SEC), to furnish copies of any or all of such instruments to it.96
PART II
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

DUKE ENERGY CORPORATION
DUKE ENERGY CAROLINAS, LLC
DUKE ENERGY OHIO, INC.
DUKE ENERGY INDIANA, INC.
Date: November 8, ~~2011~~
2012
/S/S/    LYNN J. GOOD
Lynn J. Good
Executive Vice President and Chief Financial Officer
Date: November 8, ~~2011~~
2012
/S/S/    STEVEN K. YOUNG
Steven K. Young
~~Senior~~ Vice President, Chief Accounting Officer, and Controller
97

~~109~~