Progress Energy (PREX) 10-Q 2017 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2017

OR

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

For the transition period from              to

________________________

Commission file number	Registrant, State of Incorporation or Organization, Address of Principal Executive Offices and Telephone Number	IRS Employer Identification No.
1-32853	DUKE ENERGY CORPORATION (a Delaware corporation) 550 South Tryon Street Charlotte, North Carolina 28202-1803 704-382-3853	20-2777218

Commission file number	Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number	Commission file number	Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number
1-4928	DUKE ENERGY CAROLINAS, LLC (a North Carolina limited liability company) 526 South Church Street Charlotte, North Carolina 28202-1803 704-382-3853 56-0205520	1-3274	DUKE ENERGY FLORIDA, LLC (a Florida limited liability company) 299 First Avenue North St. Petersburg, Florida 33701 704-382-3853 59-0247770
1-15929	PROGRESS ENERGY, INC. (a North Carolina corporation) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 704-382-3853 56-2155481	1-1232	DUKE ENERGY OHIO, INC. (an Ohio corporation) 139 East Fourth Street Cincinnati, Ohio 45202 704-382-3853 31-0240030
1-3382	DUKE ENERGY PROGRESS, LLC (a North Carolina limited liability company) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 704-382-3853 56-0165465	1-3543	DUKE ENERGY INDIANA, LLC (an Indiana limited liability company) 1000 East Main Street Plainfield, Indiana 46168 704-382-3853 35-0594457
1-6196	PIEDMONT NATURAL GAS COMPANY, INC. (a North Carolina corporation) 4720 Piedmont Row Drive Charlotte, North Carolina 28210 704-364-3120 56-0556998

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)	Yesx	No ¨	Duke Energy Florida, LLC (Duke Energy Florida)	Yesx	No ¨
Duke Energy Carolinas, LLC (Duke Energy Carolinas)	Yesx	No ¨	Duke Energy Ohio, Inc. (Duke Energy Ohio)	Yesx	No ¨
Progress Energy, Inc. (Progress Energy)	Yesx	No ¨	Duke Energy Indiana, LLC (Duke Energy Indiana)	Yesx	No ¨
Duke Energy Progress, LLC (Duke Energy Progress)	Yesx	No ¨	Piedmont Natural Gas Company, Inc. (Piedmont)	Yesx	No ¨

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

Duke Energy	Yesx	No ¨	Duke Energy Florida	Yesx	No ¨
Duke Energy Carolinas	Yesx	No ¨	Duke Energy Ohio	Yesx	No ¨
Progress Energy	Yesx	No ¨	Duke Energy Indiana	Yesx	No ¨
Duke Energy Progress	Yesx	No ¨	Piedmont	Yesx	No ¨

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

Duke Energy	Large accelerated filerx	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging Growth Company ¨
Duke Energy Carolinas	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filerx	Smaller reporting company ¨	Emerging Growth Company ¨
Progress Energy	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filerx	Smaller reporting company ¨	Emerging Growth Company ¨
Duke Energy Progress	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filerx	Smaller reporting company ¨	Emerging Growth Company ¨
Duke Energy Florida	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filerx	Smaller reporting company ¨	Emerging Growth Company ¨
Duke Energy Ohio	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filerx	Smaller reporting company ¨	Emerging Growth Company ¨
Duke Energy Indiana	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filerx	Smaller reporting company ¨	Emerging Growth Company ¨
Piedmont	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filerx	Smaller reporting company ¨	Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

Duke Energy	Yes ¨	Nox	Duke Energy Florida	Yes ¨	Nox
Duke Energy Carolinas	Yes ¨	Nox	Duke Energy Ohio	Yes ¨	Nox
Progress Energy	Yes ¨	Nox	Duke Energy Indiana	Yes ¨	Nox
Duke Energy Progress	Yes ¨	Nox	Piedmont	Yes ¨	Nox

Number of shares of Common stock outstanding at June 30, 2017:

Registrant	Description	Shares
Duke Energy	Common stock, $0.001 par value	699,950,383

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

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

TABLE OF CONTENTS

	Cautionary Statement Regarding Forward-Looking Information
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Duke Energy Corporation Financial Statements	6
	Duke Energy Carolinas, LLC Financial Statements	11
	Progress Energy, Inc. Financial Statements	15
	Duke Energy Progress, LLC Financial Statements	19
	Duke Energy Florida, LLC Financial Statements	23
	Duke Energy Ohio, Inc. Financial Statements	27
	Duke Energy Indiana, LLC Financial Statements	31
	Piedmont Natural Gas Company, Inc. Financial Statements	35
	Combined Notes to Condensed Consolidated Financial Statements
	Note 1 – Organization and Basis of Presentation	39
	Note 2 – Acquisitions and Dispositions	43
	Note 3 – Business Segments	46
	Note 4 – Regulatory Matters	49
	Note 5 – Commitments and Contingencies	55
	Note 6 – Debt and Credit Facilities	60
	Note 7 – Goodwill and Intangible Assets	62
	Note 8 – Related Party Transactions	63
	Note 9 – Derivatives and Hedging	64
	Note 10 – Investments in Debt and Equity Securities	70
	Note 11 – Fair Value Measurements	76
	Note 12 – Variable Interest Entities	82
	Note 13 – Common Stock	87
	Note 14 – Stock-Based Compensation	87
	Note 15 – Employee Benefit Plans	88
	Note 16 – Income Taxes	92
	Note 17 – Subsequent Events	93
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	94
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	121
Item 4.	Controls and Procedures	121
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	123
Item 1A.	Risk Factors	123
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	123
Item 6.	Exhibits	124
	Signatures	127

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management’s beliefs and assumptions and can often be identified by terms and phrases that include “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook” or other similar terminology. Various factors may cause actual results to be materially different than the suggested outcomes within forward-looking statements; accordingly, there is no assurance that such results will be realized. These factors include, but are not limited to:

◦ State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements, including those related to climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices;

◦ The extent and timing of costs and liabilities to comply with federal and state laws, regulations and legal requirements related to coal ash remediation, including amounts for required closure of certain ash impoundments, are uncertain and difficult to estimate;

◦ The ability to recover eligible costs, including amounts associated with coal ash impoundment retirement obligations and costs related to significant weather events, and to earn an adequate return on investment through rate case proceedings and the regulatory process;

◦ The costs of decommissioning Crystal River Unit 3 and other nuclear facilities could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process;

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

◦ Industrial, commercial and residential growth or decline in service territories or customer bases resulting from sustained downturns of the economy and the economic health of our service territories or variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, such as self-generation and distributed generation technologies;

◦ Federal and state regulations, laws and other efforts designed to promote and expand the use of energy efficiency measures and distributed generation technologies, such as private solar and battery storage, in Duke Energy service territories could result in customers leaving the electric distribution system, excess generation resources as well as stranded costs;

◦ Advancements in technology;

◦ Additional competition in electric and natural gas markets and continued industry consolidation;

◦ The influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts, earthquakes and tornadoes, including extreme weather associated with climate change;

◦ The ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to the company resulting from an incident that affects the U.S. electric grid or generating resources;

◦ The ability to complete necessary or desirable pipeline expansion or infrastructure projects in our natural gas business;

◦ Operational interruptions to our gas distribution and transmission activities;

◦ The availability of adequate interstate pipeline transportation capacity and natural gas supply;

◦ The impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches, and other catastrophic events such as fires, explosions, pandemic health events or other similar occurrences;

◦ The inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks, including the financial stability of third-party service providers;

◦ The timing and extent of changes in commodity prices and interest rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets;

◦ The results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, interest rate fluctuations, and general economic conditions;

◦ Credit ratings of the Duke Energy Registrants may be different from what is expected;

◦ Declines in the market prices of equity and fixed-income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans and nuclear decommissioning trust funds;

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

◦ Changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants;

◦ The ability to control operation and maintenance costs;

◦ The level of creditworthiness of counterparties to transactions;

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

◦ The ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent);

◦ The performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities;

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

◦ Substantial revision to the U.S. tax code, such as changes to the corporate tax rate or material change in the deductibility of interest;

◦ The impact of potential goodwill impairments;

◦ The ability to successfully complete future merger, acquisition or divestiture plans;

◦ The ability to successfully integrate the natural gas businesses following the acquisition of Piedmont Natural Gas Company, Inc. and realize anticipated benefits; and

◦ The ability to implement our business strategy.

Additional risks and uncertainties are identified and discussed in the Duke Energy Registrants' reports filed with the SEC and available at the SEC's website at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made and the Duke Energy Registrants expressly disclaim an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DUKE ENERGY CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in millions, except per-share amounts)	2017			2016			2017			2016
Operating Revenues
Regulated electric	$	5,118		$	4,965		$	10,031		$	10,018
Regulated natural gas	275			97			921			266
Nonregulated electric and other	162			151			332			306
Total operating revenues	5,555			5,213			11,284			10,590
Operating Expenses
Fuel used in electric generation and purchased power	1,541			1,521			2,990			3,109
Cost of natural gas	76			9			334			58
Operation, maintenance and other	1,407			1,351			2,840			2,767
Depreciation and amortization	835			790			1,694			1,583
Property and other taxes	307			290			611			585
Impairment charges	9			1			9			4
Total operating expenses	4,175			3,962			8,478			8,106
Gains on Sales of Other Assets and Other, net	7			8			18			15
Operating Income	1,387			1,259			2,824			2,499
Other Income and Expenses
Equity in earnings of unconsolidated affiliates	36			15			65			23
Other income and expenses, net	81			81			167			151
Total other income and expenses	117			96			232			174
Interest Expense	486			478			977			967
Income From Continuing Operations Before Income Taxes	1,018			877			2,079			1,706
Income Tax Expense from Continuing Operations	327			253			671			505
Income From Continuing Operations	691			624			1,408			1,201
(Loss) Income From Discontinued Operations, net of tax	(2		)	(112		)	(2		)	10
Net Income	689			512			1,406			1,211
Less: Net Income Attributable to Noncontrolling Interests	3			3			4			8
Net Income Attributable to Duke Energy Corporation	$	686		$	509		$	1,402		$	1,203
Earnings Per Share – Basic and Diluted
Income from continuing operations attributable to Duke Energy Corporation common stockholders
Basic	$	0.98		$	0.90		$	2.00		$	1.73
Diluted	$	0.98		$	0.90		$	2.00		$	1.73
(Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders
Basic	$	—		$	(0.16	)	$	—		$	0.01
Diluted	$	—		$	(0.16	)	$	—		$	0.01
Net income attributable to Duke Energy Corporation common stockholders
Basic	$	0.98		$	0.74		$	2.00		$	1.74
Diluted	$	0.98		$	0.74		$	2.00		$	1.74
Weighted average shares outstanding
Basic	700			689			700			689
Diluted	700			690			700			689

See Notes to Condensed Consolidated Financial Statements

6

PART I

DUKE ENERGY CORPORATION

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in millions)	2017			2016			2017			2016
Net Income	$	689		$	512		$	1,406		$	1,211
Other Comprehensive Income, net of tax
Foreign currency translation adjustments	—			58			—			107
Pension and OPEB adjustments	1			2			2			2
Net unrealized losses on cash flow hedges	(6		)	(11		)	(4		)	(25		)
Reclassification into earnings from cash flow hedges	4			—			5			2
Unrealized gains on available-for-sale securities	4			3			8			7
Other Comprehensive Income, net of tax	3			52			11			93
Comprehensive Income	692			564			1,417			1,304
Less: Comprehensive Income Attributable to Noncontrolling Interests	3			6			4			12
Comprehensive Income Attributable to Duke Energy Corporation	$	689		$	558		$	1,413		$	1,292

See Notes to Condensed Consolidated Financial Statements

7

PART I

DUKE ENERGY CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions)	June 30, 2017			December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	298		$	392
Receivables (net of allowance for doubtful accounts of $13 at 2017 and $14 at 2016)	498			751
Receivables of VIEs (net of allowance for doubtful accounts of $56 at 2017 and $54 at 2016)	1,880			1,893
Inventory	3,369			3,522
Regulatory assets (includes $52 at 2017 and $50 at 2016 related to VIEs)	1,192			1,023
Other	436			458
Total current assets	7,673			8,039
Property, Plant and Equipment
Cost	124,439			121,397
Accumulated depreciation and amortization	(40,522		)	(39,406		)
Generation facilities to be retired, net	487			529
Net property, plant and equipment	84,404			82,520
Other Noncurrent Assets
Goodwill	19,425			19,425
Regulatory assets (includes $1,121 at 2017 and $1,142 at 2016 related to VIEs)	12,808			12,878
Nuclear decommissioning trust funds	6,601			6,205
Investments in equity method unconsolidated affiliates	1,267			925
Other	2,826			2,769
Total other noncurrent assets	42,927			42,202
Total Assets	$	135,004		$	132,761
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	2,177		$	2,994
Notes payable and commercial paper	3,488			2,487
Taxes accrued	432			384
Interest accrued	506			503
Current maturities of long-term debt (includes $212 at 2017 and $260 at 2016 related to VIEs)	3,472			2,319
Asset retirement obligations	397			411
Regulatory liabilities	286			409
Other	1,708			2,044
Total current liabilities	12,466			11,551
Long-Term Debt (includes $4,018 at 2017 and $3,587 at 2016 related to VIEs)	46,043			45,576
Other Noncurrent Liabilities
Deferred income taxes	14,695			14,155
Asset retirement obligations	10,165			10,200
Regulatory liabilities	7,048			6,881
Accrued pension and other post-retirement benefit costs	1,108			1,111
Investment tax credits	534			493
Other	1,651			1,753
Total other noncurrent liabilities	35,201			34,593
Commitments and Contingencies
Equity
Common stock, $0.001 par value, 2 billion shares authorized; 700 million shares outstanding at 2017 and 2016	1			1
Additional paid-in capital	38,758			38,741
Retained earnings	2,607			2,384
Accumulated other comprehensive loss	(82		)	(93		)
Total Duke Energy Corporation stockholders' equity	41,284			41,033
Noncontrolling interests	10			8
Total equity	41,294			41,041
Total Liabilities and Equity	$	135,004		$	132,761

See Notes to Condensed Consolidated Financial Statements

8

PART I

DUKE ENERGY CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
(in millions)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,406		$	1,211
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion (including amortization of nuclear fuel)	1,953			1,868
Equity component of AFUDC	(125		)	(87		)
Gains on sales of other assets	(20		)	(18		)
Impairment charges	9			198
Deferred income taxes	669			285
Equity in earnings of unconsolidated affiliates	(65		)	(23		)
Accrued pension and other post-retirement benefit costs	13			8
Payments for asset retirement obligations	(272		)	(263		)
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions	(12		)	199
Receivables	293			(38		)
Inventory	153			178
Other current assets	(148		)	(51		)
Increase (decrease) in
Accounts payable	(505		)	(153		)
Taxes accrued	41			216
Other current liabilities	(531		)	(281		)
Other assets	(101		)	(9		)
Other liabilities	(2		)	(15		)
Net cash provided by operating activities	2,756			3,225
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(3,931		)	(3,393		)
Contributions to equity method investments	(287		)	(136		)
Purchases of available-for-sale securities	(2,412		)	(3,033		)
Proceeds from sales and maturities of available-for-sale securities	2,439			3,059
Change in restricted cash	(44		)	(21		)
Other	(89		)	(84		)
Net cash used in investing activities	(4,324		)	(3,608		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the:
Issuance of long-term debt	2,734			3,514
Issuance of common stock related to employee benefit plans	—			7
Payments for the redemption of long-term debt	(1,009		)	(795		)
Proceeds from the issuance of short-term debt with original maturities greater than 90 days	230			500
Payments for the redemption of short-term debt with original maturities greater than 90 days	(32		)	(492		)
Notes payable and commercial paper	783			(1,349		)
Dividends paid	(1,200		)	(1,140		)
Other	(32		)	(43		)
Net cash provided by financing activities	1,474			202
Changes in cash and cash equivalents associated with assets held for sale	—			79
Net decrease in cash and cash equivalents	(94		)	(102		)
Cash and cash equivalents at beginning of period	392			383
Cash and cash equivalents at end of period	$	298		$	281
Supplemental Disclosures:
Significant non-cash transactions:
Accrued capital expenditures	$	589		$	670

See Notes to Condensed Consolidated Financial Statements

9

PART I

DUKE ENERGY CORPORATION

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

									Accumulated Other Comprehensive Loss
															Net Unrealized						Total
									Foreign			Net			(Losses) Gains						Duke Energy
	Common			Additional					Currency			Losses on			on Available-			Pension and			Corporation
	Stock	Common		Paid-in		Retained			Translation			Cash Flow			for-Sale-			OPEB			Stockholders'			Noncontrolling			Total
(in millions)	Shares	Stock		Capital		Earnings			Adjustments			Hedges			Securities			Adjustments			Equity			Interests			Equity
Balance at December 31, 2015	688	$	1	$	37,968	$	2,564		$	(692	)	$	(50	)	$	(3	)	$	(61	)	$	39,727		$	44		$	39,771
Net income	—	—		—		1,203			—			—			—			—			1,203			8			1,211
Other comprehensive income (loss)	—	—		—		—			103			(23		)	7			2			89			4			93
Common stock issuances, including dividend reinvestment and employee benefits	1	—		16		—			—			—			—			—			16			—			16
Common stock dividends	—	—		—		(1,140		)	—			—			—			—			(1,140		)	—			(1,140		)
Distributions to noncontrolling interest in subsidiaries	—	—		—		—			—			—			—			—			—			(3		)	(3		)
Balance at June 30, 2016	689	$	1	$	37,984	$	2,627		$	(589	)	$	(73	)	$	4		$	(59	)	$	39,895		$	53		$	39,948
Balance at December 31, 2016	700	$	1	$	38,741	$	2,384		$	—		$	(20	)	$	(1	)	$	(72	)	$	41,033		$	8		$	41,041
Net income	—	—		—		1,402			—			—			—			—			1,402			4			1,406
Other comprehensive income	—	—		—		—			—			1			8			2			11			—			11
Common stock issuances, including dividend reinvestment and employee benefits	—	—		17		—			—			—			—			—			17			—			17
Common stock dividends	—	—		—		(1,200		)	—			—			—			—			(1,200		)	—			(1,200		)
Distributions to noncontrolling interest in subsidiaries	—	—		—		—			—			—			—			—			—			(2		)	(2		)
Other(a)	—	—		—		21			—			—			—			—			21			—			21
Balance at June 30, 2017	700	$	1	$	38,758	$	2,607		$	—		$	(19	)	$	7		$	(70	)	$	41,284		$	10		$	41,294

(a) Cumulative-effect adjustment due to implementation of a new accounting standard related to stock-based compensation and the associated income taxes. See Note 1 for more information.

See Notes to Condensed Consolidated Financial Statements

10

PART I

DUKE ENERGY CAROLINAS, LLC

Condensed Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Operating Revenues	$	1,729	$	1,675	$	3,445	$	3,415
Operating Expenses
Fuel used in electric generation and purchased power	435		389		863		810
Operation, maintenance and other	469		476		951		988
Depreciation and amortization	269		275		523		534
Property and other taxes	71		71		139		138
Total operating expenses	1,244		1,211		2,476		2,470
Operating Income	485		464		969		945
Other Income and Expenses, net	36		45		73		82
Interest Expense	103		107		206		214
Income Before Income Taxes	418		402		836		813
Income Tax Expense	145		141		293		281
Net Income	$	273	$	261	$	543	$	532
Other Comprehensive Income, net of tax
Reclassification into earnings from cash flow hedges	1		—		1		1
Comprehensive Income	$	274	$	261	$	544	$	533

See Notes to Condensed Consolidated Financial Statements

11

PART I

DUKE ENERGY CAROLINAS, LLC

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions)	June 30, 2017			December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	16		$	14
Receivables (net of allowance for doubtful accounts of $2 at 2017 and 2016)	165			160
Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2017 and 2016)	611			645
Receivables from affiliated companies	85			163
Notes receivable from affiliated companies	—			66
Inventory	1,066			1,055
Regulatory assets	249			238
Other	34			37
Total current assets	2,226			2,378
Property, Plant and Equipment
Cost	41,881			41,127
Accumulated depreciation and amortization	(14,632		)	(14,365		)
Net property, plant and equipment	27,249			26,762
Other Noncurrent Assets
Regulatory assets	3,060			3,159
Nuclear decommissioning trust funds	3,499			3,273
Other	929			943
Total other noncurrent assets	7,488			7,375
Total Assets	$	36,963		$	36,515
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	639		$	833
Accounts payable to affiliated companies	127			247
Notes payable to affiliated companies	534			—
Taxes accrued	162			143
Interest accrued	104			102
Current maturities of long-term debt	704			116
Asset retirement obligations	227			222
Regulatory liabilities	115			161
Other	409			468
Total current liabilities	3,021			2,292
Long-Term Debt	8,520			9,187
Long-Term Debt Payable to Affiliated Companies	300			300
Other Noncurrent Liabilities
Deferred income taxes	6,742			6,544
Asset retirement obligations	3,644			3,673
Regulatory liabilities	2,885			2,840
Accrued pension and other post-retirement benefit costs	103			97
Investment tax credits	235			203
Other	574			607
Total other noncurrent liabilities	14,183			13,964
Commitments and Contingencies
Equity
Member's equity	10,947			10,781
Accumulated other comprehensive loss	(8		)	(9		)
Total equity	10,939			10,772
Total Liabilities and Equity	$	36,963		$	36,515

See Notes to Condensed Consolidated Financial Statements

12

PART I

DUKE ENERGY CAROLINAS, LLC

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
(in millions)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	543		$	532
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of nuclear fuel)	688			673
Equity component of AFUDC	(59		)	(48		)
Deferred income taxes	283			273
Accrued pension and other post-retirement benefit costs	—			2
Payments for asset retirement obligations	(123		)	(118		)
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions	24			3
Receivables	36			(48		)
Receivables from affiliated companies	78			36
Inventory	(14		)	102
Other current assets	(21		)	24
Increase (decrease) in
Accounts payable	(125		)	(226		)
Accounts payable to affiliated companies	(120		)	(56		)
Taxes accrued	19			188
Other current liabilities	(140		)	28
Other assets	(44		)	22
Other liabilities	(15		)	(14		)
Net cash provided by operating activities	1,010			1,373
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(1,092		)	(1,031		)
Purchases of available-for-sale securities	(1,225		)	(1,395		)
Proceeds from sales and maturities of available-for-sale securities	1,228			1,395
Notes receivable from affiliated companies	66			(89		)
Other	(29		)	(41		)
Net cash used in investing activities	(1,052		)	(1,161		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	—			992
Payments for the redemption of long-term debt	(114		)	(1		)
Notes payable to affiliated companies	534			—
Distributions to parent	(375		)	(1,200		)
Other	(1		)	—
Net cash provided by (used in) financing activities	44			(209		)
Net increase in cash and cash equivalents	2			3
Cash and cash equivalents at beginning of period	14			13
Cash and cash equivalents at end of period	$	16		$	16
Supplemental Disclosures:
Significant non-cash transactions:
Accrued capital expenditures	$	200		$	228

See Notes to Condensed Consolidated Financial Statements

13

PART I

DUKE ENERGY CAROLINAS, LLC

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

				Accumulated Other
				Comprehensive
				Loss
				Net Losses on
	Member's			Cash Flow			Total
(in millions)	Equity			Hedges			Equity
Balance at December 31, 2015	$	11,617		$	(11	)	$	11,606
Net income	532			—			532
Other comprehensive income	—			1			1
Distributions to parent	(1,200		)	—			(1,200		)
Balance at June 30, 2016	$	10,949		$	(10	)	$	10,939
Balance at December 31, 2016	$	10,781		$	(9	)	$	10,772
Net income	543			—			543
Other comprehensive income	—			1			1
Distributions to parent	(375		)	—			(375		)
Other	(2		)	—			(2		)
Balance at June 30, 2017	$	10,947		$	(8	)	$	10,939

See Notes to Condensed Consolidated Financial Statements

14

PART I

PROGRESS ENERGY, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Operating Revenues	$	2,392	$	2,348	$	4,571	$	4,680
Operating Expenses
Fuel used in electric generation and purchased power	831		852		1,557		1,712
Operation, maintenance and other	534		525		1,078		1,117
Depreciation and amortization	311		296		624		586
Property and other taxes	129		120		246		239
Impairment charges	2		1		2		3
Total operating expenses	1,807		1,794		3,507		3,657
Gains on Sales of Other Assets and Other, net	6		6		14		12
Operating Income	591		560		1,078		1,035
Other Income and Expenses, net	21		28		45		48
Interest Expense	196		160		402		320
Income Before Income Taxes	416		428		721		763
Income Tax Expense	139		154		243		277
Net Income	277		274		478		486
Less: Net Income Attributable to Noncontrolling Interests	3		2		5		5
Net Income Attributable to Parent	$	274	$	272	$	473	$	481
Net Income	$	277	$	274	$	478	$	486
Other Comprehensive Income, net of tax
Pension and OPEB adjustments	1		1		2		2
Net unrealized gain on cash flow hedges	5		—		6		—
Reclassification into earnings from cash flow hedges	—		2		—		3
Unrealized gains on available-for-sale securities	1		—		2		1
Other Comprehensive Income, net of tax	7		3		10		6
Comprehensive Income	284		277		488		492
Less: Comprehensive Income Attributable to Noncontrolling Interests	3		2		5		5
Comprehensive Income Attributable to Parent	$	281	$	275	$	483	$	487

See Notes to Condensed Consolidated Financial Statements

15

PART I

PROGRESS ENERGY, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions)	June 30, 2017			December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	39		$	46
Receivables (net of allowance for doubtful accounts of $4 at 2017 and $6 at 2016)	95			114
Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2017 and 2016)	777			692
Receivables from affiliated companies	3			106
Notes receivable from affiliated companies	140			80
Inventory	1,621			1,717
Regulatory assets (includes $52 at 2017 and $50 at 2016 related to VIEs)	533			401
Other	196			148
Total current assets	3,404			3,304
Property, Plant and Equipment
Cost	46,317			44,864
Accumulated depreciation and amortization	(15,652		)	(15,212		)
Generation facilities to be retired, net	487			529
Net property, plant and equipment	31,152			30,181
Other Noncurrent Assets
Goodwill	3,655			3,655
Regulatory assets (includes $1,121 at 2017 and $1,142 at 2016 related to VIEs)	5,853			5,722
Nuclear decommissioning trust funds	3,102			2,932
Other	865			856
Total other noncurrent assets	13,475			13,165
Total Assets	$	48,031		$	46,650
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	649		$	1,003
Accounts payable to affiliated companies	208			348
Notes payable to affiliated companies	1,070			729
Taxes accrued	165			83
Interest accrued	228			201
Current maturities of long-term debt (includes $55 at 2017 and $62 at 2016 related to VIEs)	1,022			778
Asset retirement obligations	170			189
Regulatory liabilities	120			189
Other	660			745
Total current liabilities	4,292			4,265
Long-Term Debt (includes $1,711 at 2017 and $1,741 at 2016 related to VIEs)	15,950			15,590
Long-Term Debt Payable to Affiliated Companies	1,173			1,173
Other Noncurrent Liabilities
Deferred income taxes	5,662			5,246
Asset retirement obligations	5,288			5,286
Regulatory liabilities	2,511			2,395
Accrued pension and other post-retirement benefit costs	537			547
Other	321			341
Total other noncurrent liabilities	14,319			13,815
Commitments and Contingencies
Equity
Common stock, $0.01 par value, 100 shares authorized and outstanding at 2017 and 2016	—			—
Additional paid-in capital	8,096			8,094
Retained earnings	4,237			3,764
Accumulated other comprehensive loss	(28		)	(38		)
Total Progress Energy, Inc. stockholders' equity	12,305			11,820
Noncontrolling interests	(8		)	(13		)
Total equity	12,297			11,807
Total Liabilities and Equity	$	48,031		$	46,650

See Notes to Condensed Consolidated Financial Statements

16

PART I

PROGRESS ENERGY, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
(in millions)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	478		$	486
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion (including amortization of nuclear fuel)	733			696
Equity component of AFUDC	(48		)	(30		)
Gains on sales of other assets	(15		)	(15		)
Impairment charges	2			3
Deferred income taxes	412			285
Accrued pension and other post-retirement benefit costs	(5		)	(12		)
Payments for asset retirement obligations	(128		)	(126		)
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions	—			32
Receivables	(64		)	(66		)
Receivables from affiliated companies	99			306
Inventory	95			25
Other current assets	(200		)	45
Increase (decrease) in
Accounts payable	(211		)	(26		)
Accounts payable to affiliated companies	(140		)	(79		)
Taxes accrued	81			90
Other current liabilities	(148		)	(162		)
Other assets	(70		)	(72		)
Other liabilities	(18		)	15
Net cash provided by operating activities	853			1,395
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(1,733		)	(1,441		)
Purchases of available-for-sale securities	(1,108		)	(1,570		)
Proceeds from sales and maturities of available-for-sale securities	1,123			1,594
Proceeds from insurance	4			58
Notes receivable from affiliated companies	(60		)	—
Change in restricted cash	5			(6		)
Other	(26		)	(14		)
Net cash used in investing activities	(1,795		)	(1,379		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	923			1,338
Payments for the redemption of long-term debt	(326		)	(320		)
Notes payable to affiliated companies	341			(392		)
Dividends to parent	—			(651		)
Other	(3		)	(1		)
Net cash provided by (used in) financing activities	935			(26		)
Net decrease in cash and cash equivalents	(7		)	(10		)
Cash and cash equivalents at beginning of period	46			44
Cash and cash equivalents at end of period	$	39		$	34
Supplemental Disclosures:
Significant non-cash transactions:
Accrued capital expenditures	$	174		$	288

See Notes to Condensed Consolidated Financial Statements

17

PART I

PROGRESS ENERGY, INC.

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

						Accumulated Other Comprehensive Loss
									Net Unrealized					Total Progress
	Additional					Net Losses on			Gains on		Pension and			Energy, Inc.
	Paid-in		Retained			Cash Flow			Available-for-		OPEB			Stockholders'			Noncontrolling			Total
(in millions)	Capital		Earnings			Hedges			Sale Securities		Adjustments			Equity			Interests			Equity
Balance at December 31, 2015	$	8,092	$	4,831		$	(31	)	$	—	$	(17	)	$	12,875		$	(22	)	$	12,853
Net income	—		481			—			—		—			481			5			486
Other comprehensive income	—		—			3			1		2			6			—			6
Distributions to noncontrolling interests	—		—			—			—		—			—			(1		)	(1		)
Dividends to parent	—		(651		)	—			—		—			(651		)	—			(651		)
Balance at June 30, 2016	$	8,092	$	4,661		$	(28	)	$	1	$	(15	)	$	12,711		$	(18	)	$	12,693
Balance at December 31, 2016	$	8,094	$	3,764		$	(23	)	$	1	$	(16	)	$	11,820		$	(13	)	$	11,807
Net income	—		473			—			—		—			473			5			478
Other comprehensive income	—		—			6			2		2			10			—			10
Other	2		—			—			—		—			2			—			2
Balance at June 30, 2017	$	8,096	$	4,237		$	(17	)	$	3	$	(14	)	$	12,305		$	(8	)	$	12,297

See Notes to Condensed Consolidated Financial Statements

18

PART I

DUKE ENERGY PROGRESS, LLC

Condensed Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Operating Revenues	$	1,199	$	1,213	$	2,418	$	2,520
Operating Expenses
Fuel used in electric generation and purchased power	375		424		739		872
Operation, maintenance and other	330		321		680		707
Depreciation and amortization	173		175		354		350
Property and other taxes	40		38		80		79
Total operating expenses	918		958		1,853		2,008
Gains on Sales of Other Assets and Other, net	1		—		3		1
Operating Income	282		255		568		513
Other Income and Expenses, net	14		12		33		29
Interest Expense	70		64		152		127
Income Before Income Taxes	226		203		449		415
Income Tax Expense	72		72		148		147
Net Income and Comprehensive Income	$	154	$	131	$	301	$	268

See Notes to Condensed Consolidated Financial Statements

19

PART I

DUKE ENERGY PROGRESS, LLC

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions)	June 30, 2017			December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	12		$	11
Receivables (net of allowance for doubtful accounts of $1 at 2017 and $4 at 2016)	32			51
Receivables of VIEs (net of allowance for doubtful accounts of $5 at 2017 and 2016)	422			404
Receivables from affiliated companies	5			5
Notes receivable from affiliated companies	—			165
Inventory	1,053			1,076
Regulatory assets	212			188
Other	76			57
Total current assets	1,812			1,957
Property, Plant and Equipment
Cost	28,936			28,419
Accumulated depreciation and amortization	(10,734		)	(10,561		)
Generation facilities to be retired, net	487			529
Net property, plant and equipment	18,689			18,387
Other Noncurrent Assets
Regulatory assets	3,379			3,243
Nuclear decommissioning trust funds	2,380			2,217
Other	536			525
Total other noncurrent assets	6,295			5,985
Total Assets	$	26,796		$	26,329
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	277		$	589
Accounts payable to affiliated companies	169			227
Notes payable to affiliated companies	633			—
Taxes accrued	61			104
Interest accrued	101			102
Current maturities of long-term debt	203			452
Asset retirement obligations	170			189
Regulatory liabilities	113			158
Other	308			365
Total current liabilities	2,035			2,186
Long-Term Debt	6,407			6,409
Long-Term Debt Payable to Affiliated Companies	150			150
Other Noncurrent Liabilities
Deferred income taxes	3,539			3,323
Asset retirement obligations	4,520			4,508
Regulatory liabilities	2,048			1,946
Accrued pension and other post-retirement benefit costs	246			252
Investment tax credits	145			146
Other	47			51
Total other noncurrent liabilities	10,545			10,226
Commitments and Contingencies
Equity
Member's Equity	7,659			7,358
Total Liabilities and Equity	$	26,796		$	26,329

See Notes to Condensed Consolidated Financial Statements

20

PART I

DUKE ENERGY PROGRESS, LLC

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
(in millions)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	301		$	268
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of nuclear fuel)	453			451
Equity component of AFUDC	(26		)	(20		)
Gains on sales of other assets	(4		)	(3		)
Deferred income taxes	224			172
Accrued pension and other post-retirement benefit costs	(10		)	(16		)
Payments for asset retirement obligations	(101		)	(100		)
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions	(3		)	(1		)
Receivables	3			(19		)
Receivables from affiliated companies	—			7
Inventory	23			20
Other current assets	(50		)	131
Increase (decrease) in
Accounts payable	(218		)	(28		)
Accounts payable to affiliated companies	(58		)	(56		)
Taxes accrued	(43		)	56
Other current liabilities	(111		)	(12		)
Other assets	(37		)	(26		)
Other liabilities	(9		)	(6		)
Net cash provided by operating activities	334			818
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(840		)	(704		)
Purchases of available-for-sale securities	(819		)	(1,299		)
Proceeds from sales and maturities of available-for-sale securities	805			1,284
Notes receivable from affiliated companies	165			—
Other	(22		)	(19		)
Net cash used in investing activities	(711		)	(738		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	15			59
Payments for the redemption of long-term debt	(269		)	(15		)
Notes payable to affiliated companies	633			(131		)
Other	(1		)	—
Net cash provided by (used in) financing activities	378			(87		)
Net increase (decrease) in cash and cash equivalents	1			(7		)
Cash and cash equivalents at beginning of period	11			15
Cash and cash equivalents at end of period	$	12		$	8
Supplemental Disclosures:
Significant non-cash transactions:
Accrued capital expenditures	$	52		$	73

See Notes to Condensed Consolidated Financial Statements

21

PART I

DUKE ENERGY PROGRESS, LLC

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

	Member's
(in millions)	Equity
Balance at December 31, 2015	$	7,059
Net income	268
Balance at June 30, 2016	$	7,327
Balance at December 31, 2016	$	7,358
Net income	301
Balance at June 30, 2017	$	7,659

See Notes to Condensed Consolidated Financial Statements

22

PART I

DUKE ENERGY FLORIDA, LLC

Condensed Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Operating Revenues	$	1,191	$	1,133	$	2,150	$	2,157
Operating Expenses
Fuel used in electric generation and purchased power	455		429		817		841
Operation, maintenance and other	203		199		394		404
Depreciation and amortization	137		122		269		236
Property and other taxes	89		82		166		160
Impairment charges	1		1		2		3
Total operating expenses	885		833		1,648		1,644
Operating Income	306		300		502		513
Other Income and Expenses, net	14		14		30		19
Interest Expense	70		40		140		81
Income Before Income Taxes	250		274		392		451
Income Tax Expense	92		103		144		170
Net Income	$	158	$	171	$	248	$	281
Other Comprehensive Income, net of tax
Unrealized gains on available-for-sale securities	1		—		2		1
Comprehensive Income	$	159	$	171	$	250	$	282

See Notes to Condensed Consolidated Financial Statements

23

PART I

DUKE ENERGY FLORIDA, LLC

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions)	June 30, 2017			December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	8		$	16
Receivables (net of allowance for doubtful accounts of $3 at 2017 and $2 at 2016)	61			61
Receivables of VIEs (net of allowance for doubtful accounts of $2 at 2017 and 2016)	354			288
Receivables from affiliated companies	1			5
Notes receivable from affiliated companies	230			—
Inventory	568			641
Regulatory assets (includes $52 at 2017 and $50 at 2016 related to VIEs)	321			213
Other (includes $33 at 2017 and $53 at 2016 related to VIEs)	50			125
Total current assets	1,593			1,349
Property, Plant and Equipment
Cost	17,369			16,434
Accumulated depreciation and amortization	(4,910		)	(4,644		)
Net property, plant and equipment	12,459			11,790
Other Noncurrent Assets
Regulatory assets (includes $1,121 at 2017 and $1,142 at 2016 related to VIEs)	2,474			2,480
Nuclear decommissioning trust funds	723			715
Other	279			278
Total other noncurrent assets	3,476			3,473
Total Assets	$	17,528		$	16,612
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	372		$	413
Accounts payable to affiliated companies	42			125
Notes payable to affiliated companies	—			297
Taxes accrued	112			33
Interest accrued	58			49
Current maturities of long-term debt (includes $55 at 2017 and $62 at 2016 related to VIEs)	819			326
Regulatory liabilities	7			31
Other	322			352
Total current liabilities	1,732			1,626
Long-Term Debt (includes $1,414 at 2017 and $1,442 at 2016 related to VIEs)	6,160			5,799
Other Noncurrent Liabilities
Deferred income taxes	2,893			2,694
Asset retirement obligations	768			778
Regulatory liabilities	462			448
Accrued pension and other post-retirement benefit costs	258			262
Other	103			105
Total other noncurrent liabilities	4,484			4,287
Commitments and Contingencies
Equity
Member's equity	5,149			4,899
Accumulated other comprehensive income	3			1
Total equity	5,152			4,900
Total Liabilities and Equity	$	17,528		$	16,612

See Notes to Condensed Consolidated Financial Statements

24

PART I

DUKE ENERGY FLORIDA, LLC

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
(in millions)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	248		$	281
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	274			239
Equity component of AFUDC	(22		)	(9		)
Impairment charges	2			3
Deferred income taxes	186			113
Accrued pension and other post-retirement benefit costs	2			1
Payments for asset retirement obligations	(27		)	(25		)
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions	2			34
Receivables	(65		)	(49		)
Receivables from affiliated companies	—			23
Inventory	72			5
Other current assets	(47		)	(13		)
Increase (decrease) in
Accounts payable	7			3
Accounts payable to affiliated companies	(83		)	(16		)
Taxes accrued	78			5
Other current liabilities	(57		)	(142		)
Other assets	(32		)	(47		)
Other liabilities	(5		)	20
Net cash provided by operating activities	533			426
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(893		)	(737		)
Purchases of available-for-sale securities	(289		)	(271		)
Proceeds from sales and maturities of available-for-sale securities	318			310
Proceeds from insurance	4			58
Notes receivable from affiliated companies	(230		)	—
Change in restricted cash	—			(6		)
Other	(4		)	5
Net cash used in investing activities	(1,094		)	(641		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	908			1,278
Payments for the redemption of long-term debt	(57		)	(5		)
Notes payable to affiliated companies	(297		)	(407		)
Distributions to parent	—			(649		)
Other	(1		)	(2		)
Net cash provided by financing activities	553			215
Net decrease in cash and cash equivalents	(8		)	—
Cash and cash equivalents at beginning of period	16			8
Cash and cash equivalents at end of period	$	8		$	8
Supplemental Disclosures:
Significant non-cash transactions:
Accrued capital expenditures	$	122		$	215

See Notes to Condensed Consolidated Financial Statements

25

PART I

DUKE ENERGY FLORIDA, LLC

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

				Accumulated
				Other
				Comprehensive
				Income
				Net Unrealized
				Gains on
	Member's			Available-for-Sale		Total
(in millions)	Equity			Securities		Equity
Balance at December 31, 2015	$	5,121		$	—	$	5,121
Net income	281			—		281
Other comprehensive income	—			1		1
Distribution to parent	(649		)	—		(649		)
Balance at June 30, 2016	$	4,753		$	1	$	4,754
Balance at December 31, 2016	$	4,899		$	1	$	4,900
Net income	248			—		248
Other comprehensive income	—			2		2
Other	2			—		2
Balance at June 30, 2017	$	5,149		$	3	$	5,152

See Notes to Condensed Consolidated Financial Statements

26

PART I

DUKE ENERGY OHIO, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Operating Revenues
Regulated electric	$	328	$	323	$	665	$	663
Regulated natural gas	100		99		270		269
Nonregulated electric and other	9		6		20		12
Total operating revenues	437		428		955		944
Operating Expenses
Fuel used in electric generation and purchased power – regulated	86		100		183		211
Fuel used in electric generation and purchased power – nonregulated	14		13		29		23
Cost of natural gas	10		9		64		58
Operation, maintenance and other	131		122		261		241
Depreciation and amortization	63		64		130		125
Property and other taxes	67		65		139		136
Impairment charges	1		—		1		—
Total operating expenses	372		373		807		794
Gains on Sales of Other Assets and Other, net	—		—		—		1
Operating Income	65		55		148		151
Other Income and Expenses, net	4		1		8		3
Interest Expense	23		21		45		41
Income From Continuing Operations Before Income Taxes	46		35		111		113
Income Tax Expense From Continuing Operations	16		12		39		33
Income From Continuing Operations	30		23		72		80
Income From Discontinued Operations, net of tax	—		—		—		2
Net Income and Comprehensive Income	$	30	$	23	$	72	$	82

See Notes to Condensed Consolidated Financial Statements

27

PART I

DUKE ENERGY OHIO, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions)	June 30, 2017			December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	9		$	13
Receivables (net of allowance for doubtful accounts of $2 at 2017 and 2016)	61			71
Receivables from affiliated companies	74			129
Notes receivable from affiliated companies	63			94
Inventory	134			137
Regulatory assets	42			37
Other	38			37
Total current assets	421			518
Property, Plant and Equipment
Cost	8,348			8,126
Accumulated depreciation and amortization	(2,626		)	(2,579		)
Net property, plant and equipment	5,722			5,547
Other Noncurrent Assets
Goodwill	920			920
Regulatory assets	519			520
Other	23			23
Total other noncurrent assets	1,462			1,463
Total Assets	$	7,605		$	7,528
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	267		$	282
Accounts payable to affiliated companies	47			63
Notes payable to affiliated companies	24			16
Taxes accrued	100			178
Interest accrued	19			19
Current maturities of long-term debt	1			1
Regulatory liabilities	16			21
Other	77			91
Total current liabilities	551			671
Long-Term Debt	1,951			1,858
Long-Term Debt Payable to Affiliated Companies	25			25
Other Noncurrent Liabilities
Deferred income taxes	1,506			1,443
Asset retirement obligations	76			77
Regulatory liabilities	240			236
Accrued pension and other post-retirement benefit costs	56			56
Other	157			166
Total other noncurrent liabilities	2,035			1,978
Commitments and Contingencies
Equity
Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2017 and 2016	762			762
Additional paid-in capital	2,670			2,695
Accumulated deficit	(389		)	(461		)
Total equity	3,043			2,996
Total Liabilities and Equity	$	7,605		$	7,528

See Notes to Condensed Consolidated Financial Statements

28

PART I

DUKE ENERGY OHIO, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
(in millions)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	72		$	82
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	132			127
Equity component of AFUDC	(5		)	(2		)
Gains on sales of other assets	—			(1		)
Impairment charges	1			—
Deferred income taxes	64			68
Accrued pension and other post-retirement benefit costs	2			3
Payments for asset retirement obligations	(3		)	(3		)
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions	—			(2		)
Receivables	11			3
Receivables from affiliated companies	55			49
Inventory	6			(5		)
Other current assets	(11		)	49
Increase (decrease) in
Accounts payable	(4		)	8
Accounts payable to affiliated companies	(16		)	23
Taxes accrued	(79		)	(68		)
Other current liabilities	(15		)	(66		)
Other assets	(12		)	(8		)
Other liabilities	(8		)	(9		)
Net cash provided by operating activities	190			248
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(286		)	(214		)
Notes receivable from affiliated companies	31			(186		)
Other	(13		)	(13		)
Net cash used in investing activities	(268		)	(413		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	93			341
Payments for the redemption of long-term debt	(1		)	(52		)
Notes payable to affiliated companies	8			(103		)
Dividends to parent	(25		)	(25		)
Other	(1		)	—
Net cash provided by financing activities	74			161
Net decrease in cash and cash equivalents	(4		)	(4		)
Cash and cash equivalents at beginning of period	13			14
Cash and cash equivalents at end of period	$	9		$	10
Supplemental Disclosures:
Significant non-cash transactions:
Accrued capital expenditures	$	59		$	30

See Notes to Condensed Consolidated Financial Statements

29

PART I

DUKE ENERGY OHIO, INC.

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

			Additional
	Common		Paid-in			Accumulated			Total
(in millions)	Stock		Capital			Deficit			Equity
Balance at December 31, 2015	$	762	$	2,720		$	(698	)	$	2,784
Net income	—		—			82			82
Dividends to parent	—		(25		)	—			(25		)
Balance at June 30, 2016	$	762	$	2,695		$	(616	)	$	2,841
Balance at December 31, 2016	$	762	$	2,695		$	(461	)	$	2,996
Net income	—		—			72			72
Dividends to parent	—		(25		)	—			(25		)
Balance at June 30, 2017	$	762	$	2,670		$	(389	)	$	3,043

See Notes to Condensed Consolidated Financial Statements

30

PART I

DUKE ENERGY INDIANA, LLC

Condensed Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Operating Revenues	$	742	$	702	$	1,500	$	1,416
Operating Expenses
Fuel used in electric generation and purchased power	234		220		485		448
Operation, maintenance and other	192		189		366		351
Depreciation and amortization	91		97		216		222
Property and other taxes	15		22		37		45
Total operating expenses	532		528		1,104		1,066
Operating Income	210		174		396		350
Other Income and Expenses, net	9		6		17		10
Interest Expense	44		47		88		91
Income Before Income Taxes	175		133		325		269
Income Tax Expense	69		48		128		89
Net Income	$	106	$	85	$	197	$	180
Other Comprehensive Loss, net of tax
Reclassification into earnings from cash flow hedges	—		—		—		(1		)
Comprehensive Income	$	106	$	85	$	197	$	179

See Notes to Condensed Consolidated Financial Statements

31

PART I

DUKE ENERGY INDIANA, LLC

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions)	June 30, 2017				December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	17			$	17
Receivables (net of allowance for doubtful accounts of $1 at 2017 and 2016)	45				105
Receivables from affiliated companies	87				114
Notes receivable from affiliated companies	19				86
Inventory	470				504
Regulatory assets	159				149
Other	88				45
Total current assets	885				1,020
Property, Plant and Equipment
Cost	14,573				14,241
Accumulated depreciation and amortization	(4,484		)		(4,317		)
Net property, plant and equipment	10,089				9,924
Other Noncurrent Assets
Regulatory assets	1,100				1,073
Other	159				147
Total other noncurrent assets	1,259				1,220
Total Assets	$	12,233			$	12,164
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	171			$	263
Accounts payable to affiliated companies	50				74
Taxes accrued	28				31
Interest accrued	59				61
Current maturities of long-term debt	3				3
Regulatory liabilities	36				40
Other	122				93
Total current liabilities	469				565
Long-Term Debt	3,631				3,633
Long-Term Debt Payable to Affiliated Companies	150				150
Other Noncurrent Liabilities
Deferred income taxes	2,011				1,900
Asset retirement obligations	865			��	866
Regulatory liabilities	745				748
Accrued pension and other post-retirement benefit costs	77				71
Investment tax credits	148				137
Other	23				27
Total other noncurrent liabilities	3,869				3,749
Commitments and Contingencies
Equity
Member's Equity	4,114				4,067
Total Liabilities and Equity	$	12,233			$	12,164

See Notes to Condensed Consolidated Financial Statements

32

PART I

DUKE ENERGY INDIANA, LLC

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
(in millions)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	197		$	180
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	218			223
Equity component of AFUDC	(12		)	(7		)
Deferred income taxes	131			36
Accrued pension and other post-retirement benefit costs	3			4
Payments for asset retirement obligations	(17		)	(16		)
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions	1			—
Receivables	73			12
Receivables from affiliated companies	27			11
Inventory	34			62
Other current assets	(15		)	(19		)
Increase (decrease) in
Accounts payable	(68		)	(22		)
Accounts payable to affiliated companies	(24		)	4
Taxes accrued	(3		)	(42		)
Other current liabilities	(11		)	(60		)
Other assets	(13		)	(29		)
Other liabilities	(9		)	44
Net cash provided by operating activities	512			381
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(397		)	(325		)
Purchases of available-for-sale securities	(10		)	(7		)
Proceeds from sales and maturities of available-for-sale securities	4			5
Notes receivable from affiliated companies	67			(64		)
Other	(23		)	(6		)
Net cash used in investing activities	(359		)	(397		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	—			495
Payments for the redemption of long-term debt	(2		)	(326		)
Distributions to parent	(150		)	(149		)
Other	(1		)	(1		)
Net cash (used in) provided by financing activities	(153		)	19
Net increase in cash and cash equivalents	—			3
Cash and cash equivalents at beginning of period	17			9
Cash and cash equivalents at end of period	$	17		$	12
Supplemental Disclosures:
Significant non-cash transactions:
Accrued capital expenditures	$	81		$	43

See Notes to Condensed Consolidated Financial Statements

33

PART I

DUKE ENERGY INDIANA, LLC

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

													Accumulated
													Other
													Comprehensive
													Income
				Additional									Net Gains on
	Common			Paid-in			Retained			Member's			Cash Flow			Total
(in millions)	Stock			Capital			Earnings			Equity			Hedges			Equity
Balance at December 31, 2015	$	1		$	1,384		$	2,450		$	—		$	1		$	3,836
Net income	—			—			—			180			—			180
Other comprehensive loss	—			—			—			—			(1		)	(1		)
Distributions to parent	—			—			—			(149		)	—			(149		)
Transfer to Member's Equity	(1		)	(1,384		)	(2,450		)	3,835			—			—
Balance at June 30, 2016	$	—		$	—		$	—		$	3,866		$	—		$	3,866
Balance at December 31, 2016	$	—		$	—		$	—		$	4,067		$	—		$	4,067
Net income	—			—			—			197			—			197
Distributions to parent	—			—			—			(150		)	—			(150		)
Balance at June 30, 2017	$	—		$	—		$	—		$	4,114		$	—		$	4,114

See Notes to Condensed Consolidated Financial Statements

34

PART I

PIEDMONT NATURAL GAS COMPANY, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2017			2016		2017			2016
Operating Revenues
Regulated natural gas	$	198		$	179	$	696		$	660
Nonregulated natural gas and other	3			3		5			5
Total operating revenues	201			182		701			665
Operating Expenses
Cost of natural gas	65			50		270			247
Operation, maintenance and other	76			73		153			147
Depreciation and amortization	36			34		71			68
Property and other taxes	12			11		25			22
Impairment charges	7			—		7			—
Total operating expenses	196			168		526			484
Operating Income	5			14		175			181
Equity in Earnings of Unconsolidated Affiliates	2			7		5			23
Other income and expenses, net	(1		)	—		(1		)	—
Total other income and expenses	1			7		4			23
Interest Expense	19			16		39			33
(Loss) Income Before Income Taxes	(13		)	5		140			171
Income Tax (Benefit) Expense	(5		)	2		53			65
Net (Loss) Income and Comprehensive (Loss) Income	$	(8	)	$	3	$	87		$	106

See Notes to Condensed Consolidated Financial Statements

35

PART I

PIEDMONT NATURAL GAS COMPANY, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions)	June 30, 2017			December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	14		$	25
Receivables (net of allowance for doubtful accounts of $4 at 2017 and $3 at 2016)	80			232
Receivables from affiliated companies	8			7
Inventory	38			66
Regulatory assets	119			124
Other	87			21
Total current assets	346			475
Property, Plant and Equipment
Cost	6,430			6,174
Accumulated depreciation and amortization	(1,424		)	(1,360		)
Net property, plant and equipment	5,006			4,814
Other Noncurrent Assets
Goodwill	49			49
Regulatory assets	346			373
Investments in equity method unconsolidated affiliates	74			212
Other	12			21
Total other noncurrent assets	481			655
Total Assets	$	5,833		$	5,944
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	105		$	155
Accounts payable to affiliated companies	50			8
Notes payable and commercial paper	—			330
Notes payable to affiliated companies	167			—
Taxes accrued	21			67
Interest accrued	30			33
Current maturities of long-term debt	35			35
Other	67			102
Total current liabilities	475			730
Long-Term Debt	1,911			1,786
Other Noncurrent Liabilities
Deferred income taxes	1,019			931
Asset retirement obligations	15			14
Regulatory liabilities	625			608
Accrued pension and other post-retirement benefit costs	14			14
Other	164			189
Total other noncurrent liabilities	1,837			1,756
Commitments and Contingencies
Equity
Common stock, no par value: 100 shares authorized and outstanding at 2017 and 2016	860			860
Retained earnings	750			812
Total equity	1,610			1,672
Total Liabilities and Equity	$	5,833		$	5,944

See Notes to Condensed Consolidated Financial Statements

36

PART I

PIEDMONT NATURAL GAS COMPANY, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
(in millions)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	87		$	106
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	74			74
Impairment charges	7			—
Deferred income taxes	100			70
Equity in earnings from unconsolidated affiliates	(5		)	(23		)
Accrued pension and other post-retirement benefit costs	6			2
Payments for asset retirement obligations	—			(4		)
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions	(39		)	41
Receivables	155			90
Receivables from affiliated companies	(1		)	48
Inventory	28			—
Other current assets	(64		)	(93		)
Increase (decrease) in
Accounts payable	(44		)	(21		)
Accounts payable to affiliated companies	42			—
Taxes accrued	(46		)	8
Other current liabilities	(23		)	(4		)
Other assets	28			49
Other liabilities	(6		)	3
Net cash provided by operating activities	299			346
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(260		)	(247		)
Contributions to equity method investments	(12		)	(22		)
Other	1			(1		)
Net cash used in investing activities	(271		)	(270		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the:
Issuance of long-term debt	125			—
Issuance of common stock	—			12
Payments for the redemption of long-term debt	—			(40		)
Notes payable and commercial paper	(330		)	(5		)
Notes payable to affiliated companies	167			—
Dividends paid	—			(55		)
Other	(1		)	—
Net cash used in financing activities	(39		)	(88		)
Net decrease in cash and cash equivalents	(11		)	(12		)
Cash and cash equivalents at beginning of period	25			33
Cash and cash equivalents at end of period	$	14		$	21
Supplemental Disclosures:
Significant non-cash transactions:
Accrued capital expenditures	$	45		$	50
Transfer of ownership interest of certain equity method investees to parent	149			—

See Notes to Condensed Consolidated Financial Statements

37

PART I

PIEDMONT NATURAL GAS COMPANY, INC.

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

						Accumulated
						Other
						Comprehensive
						Income
						Net Loss on
						Hedging Activities
	Common		Retained			of Unconsolidated			Total
(in millions)	Stock		Earnings			Affiliates			Equity
Balance at December 31, 2015	$	728	$	731		$	(1	)	$	1,458
Net income	—		106			—			106
Common stock issuances, including dividend reinvestments and employee benefits	12		—			—			12
Common stock dividends	—		(55		)	—			(55		)
Balance at June 30, 2016	$	740	$	782		$	(1	)	$	1,521
Balance at December 31, 2016	$	860	$	812		$	—		$	1,672
Net income	—		87			—			87
Transfer of ownership interest of certain equity method investees to parent	—		(149		)	—			(149		)
Balance at June 30, 2017	$	860	$	750		$	—		$	1,610

See Notes to Condensed Consolidated Financial Statements

38

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited)

Index to Combined Notes to Condensed Consolidated Financial Statements

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

Applicable Notes

Registrant

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

Duke Energy Corporation

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

Duke Energy Carolinas, LLC

•

•

•

•

•

•

•

•

•

•

•

•

•

Progress Energy, Inc.

•

•

•

•

•

•

•

•

•

•

•

•

•

•

Duke Energy Progress, LLC

•

•

•

•

•

•

•

•

•

•

•

•

•

Duke Energy Florida, LLC

•

•

•

•

•

•

•

•

•

•

•

•

•

Duke Energy Ohio, Inc.

•

•

•

•

•

•

•

•

•

•

•

•

•

Duke Energy Indiana, LLC

•

•

•

•

•

•

•

•

•

•

•

•

•

Piedmont Natural Gas Company, Inc.

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

Tables within the notes may not sum across due to (i) Progress Energy's consolidation of Duke Energy Progress, Duke Energy Florida and other subsidiaries that are not registrants, (ii) subsidiaries that are not registrants but included in the consolidated Duke Energy balances and (iii) the Piedmont registrant not included in the consolidated Duke Energy results for the three and six months ended June 30, 2016, as Piedmont results were not consolidated by Duke Energy until after the acquisition date of October 3, 2016.

1. ORGANIZATION AND BASIS OF PRESENTATION

NATURE OF OPERATIONS AND BASIS OF CONSOLIDATION

Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy operates in the United States (U.S.) primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, LLC (Duke Energy Progress); Duke Energy Florida, LLC (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio), Duke Energy Indiana, LLC (Duke Energy Indiana) and Piedmont Natural Gas Company, Inc. (Piedmont). When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its separate subsidiary registrants (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants.

On October 3, 2016, Duke Energy completed the acquisition of Piedmont. Piedmont's results of operations and cash flows are included in the accompanying condensed consolidated financial statements of Duke Energy for the three and six months ended June 30, 2017, but not for the three and six months ended June 30, 2016, as Piedmont's earnings and cash flows are only included in Duke Energy's consolidated results subsequent to the acquisition date. See Note 2 for additional information regarding the acquisition.

In December 2016, Duke Energy completed an exit of the Latin American market to focus on its domestic regulated business, which was further bolstered by the acquisition of Piedmont. The sale of the International Energy business segment, excluding an equity method investment in National Methanol Company (NMC), was completed through two transactions including a sale of assets in Brazil to China Three Gorges (Luxembourg) Energy S.à.r.l. (China Three Gorges) and a sale of Duke Energy's remaining Latin American assets in Peru, Chile, Ecuador, Guatemala, El Salvador and Argentina to ISQ Enerlam Aggregator, L.P. and Enerlam (UK) Holding Ltd. (I Squared Capital) (collectively, the International Disposal Group). See Note 2 for additional information on the sale of International Energy.

The results of operations of the International Disposal Group have been classified as Discontinued Operations on the Condensed Consolidated Statements of Operations. Duke Energy has elected to present cash flows of discontinued operations combined with cash flows of continuing operations. Unless otherwise noted, the notes to these Condensed Consolidated Financial Statements exclude amounts related to discontinued operations. See Note 2 for additional information.

These Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries where the respective Duke Energy Registrants have control. These Condensed Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. Substantially all of the Subsidiary Registrants' operations qualify for regulatory accounting.

Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC), Public Service Commission of South Carolina (PSCSC), U.S. Nuclear Regulatory Commission (NRC) and FERC.

Progress Energy is a public utility holding company headquartered in Raleigh, North Carolina, subject to regulation by FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida.

Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.

Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Florida. Duke Energy Florida is subject to the regulatory provisions of the Florida Public Service Commission (FPSC), NRC and FERC.

39

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in portions of Ohio and Kentucky, the generation and sale of electricity in portions of Kentucky and the transportation and sale of natural gas in portions of Ohio and Kentucky. Duke Energy Ohio conducts competitive auctions for retail electricity supply in Ohio whereby the energy price is recovered from retail customers and recorded in Operating Revenues on the Condensed Consolidated Statements of Operations and Comprehensive Income. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky). References herein to Duke Energy Ohio collectively include Duke Energy Ohio and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subject to the regulatory provisions of the Public Utilities Commission of Ohio (PUCO), Kentucky Public Service Commission (KPSC) and FERC.

Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and FERC.

Piedmont is a regulated public utility primarily engaged in the distribution of natural gas in portions of North Carolina, South Carolina and Tennessee. Piedmont is subject to the regulatory provisions of the NCUC, PSCSC, Tennessee Public Utility Commission (formerly the Tennessee Regulatory Authority) (TPUC) and FERC.

BASIS OF PRESENTATION

These Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all information and notes required by GAAP in the U.S. for annual financial statements. Since the interim Condensed Consolidated Financial Statements and Notes do not include all information and notes required by GAAP in the U.S. for annual financial statements, the Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and Notes in the Duke Energy Registrants’ combined Annual Report on Form 10-K for the year ended December 31, 2016, and the Consolidated Financial Statements and Notes in the Piedmont Annual Report on Form 10‑K for the year ended October 31, 2016.

Effective November 1, 2016, Piedmont's fiscal year-end was changed from October 31 to December 31, the year-end of Duke Energy. A transition report was filed on Form 10-Q (Form 10-QT) as of December 31, 2016, for the transition period from November 1, 2016 to December 31, 2016.

The information in these combined notes relates to each of the Duke Energy Registrants as noted in the Index to Combined Notes to Condensed Consolidated Financial Statements. However, none of the registrants make any representations as to information related solely to Duke Energy or the subsidiaries of Duke Energy other than itself.

These Condensed Consolidated Financial Statements, in the opinion of the respective companies’ management, reflect all normal recurring adjustments necessary to fairly present the financial position and results of operations of each of the Duke Energy Registrants. Amounts reported in Duke Energy’s interim Condensed Consolidated Statements of Operations and each of the Subsidiary Registrants’ interim Condensed Consolidated Statements of Operations and Comprehensive Income are not necessarily indicative of amounts expected for the respective annual periods due to effects of seasonal temperature variations on energy consumption, regulatory rulings, timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors.

In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Certain prior year amounts have been reclassified to conform to the current year presentation.

UNBILLED REVENUE

Revenues on sales of electricity and natural gas are recognized when service is provided or the product is delivered. Unbilled revenues are recognized by applying customer billing rates to the estimated volumes of energy and natural gas delivered but not yet billed. Unbilled revenues can vary significantly from period to period as a result of seasonality, weather, customer usage patterns, customer mix, average price in effect for customer classes, timing of rendering customer bills, meter reading schedules, and the impact of weather normalization or margin decoupling mechanisms.

Unbilled revenues are included within Receivables and Receivables of variable interest entities (VIEs) on the Condensed Consolidated Balance Sheets as shown in the following table.

(in millions)	June 30, 2017		December 31, 2016
Duke Energy	$	761	$	831
Duke Energy Carolinas	310		313
Progress Energy	220		161
Duke Energy Progress	125		102
Duke Energy Florida	95		59
Duke Energy Ohio	1		2
Duke Energy Indiana	13		32
Piedmont	1		77

40

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Additionally, Duke Energy Ohio and Duke Energy Indiana sell nearly all of their retail accounts receivable to an affiliate, Cinergy Receivables Company, LLC (CRC), on a revolving basis. These transfers of receivables are accounted for as sales and include receivables for unbilled revenues. Accordingly, the receivables sold are not reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 12 for further information. These receivables for unbilled revenues are shown in the table below.

(in millions)	June 30, 2017		December 31, 2016
Duke Energy Ohio	$	70	$	97
Duke Energy Indiana	118		123

AMOUNTS ATTRIBUTABLE TO CONTROLLING INTERESTS

For the three and six months ended June 30, 2017, the Loss from Discontinued Operations, net of tax on Duke Energy's Condensed Consolidated Statements of Operations is entirely attributable to controlling interests. The following table presents Net Income Attributable to Duke Energy Corporation for continuing operations and discontinued operations for the three and six months ended June 30, 2016.

	Three Months Ended			Six Months Ended
(in millions)	June 30, 2016			June 30, 2016
Income from Continuing Operations	$	624		$	1,201
Income from Continuing Operations Attributable to Noncontrolling Interests	—			3
Income from Continuing Operations Attributable to Duke Energy Corporation	$	624		$	1,198
(Loss) Income from Discontinued Operations, net of tax	$	(112	)	$	10
Income from Discontinued Operations Attributable to Noncontrolling Interests, net of tax	3			5
(Loss) Income from Discontinued Operations Attributable to Duke Energy Corporation, net of tax	$	(115	)	$	5
Net Income	$	512		$	1,211
Net Income Attributable to Noncontrolling Interests	3			8
Net Income Attributable to Duke Energy Corporation	$	509		$	1,203

INVENTORY

Inventory is used for operations and is recorded primarily using the average cost method. Inventory related to regulated operations is valued at historical cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Materials and supplies are recorded as inventory when purchased and subsequently charged to expense or capitalized to property, plant and equipment when installed. Inventory, including excess or obsolete inventory, is written-down to the lower of cost or market value. Once inventory has been written-down, it creates a new cost basis for the inventory that is not subsequently written-up. Provisions for inventory write-offs were not material at June 30, 2017, and December 31, 2016. The components of inventory are presented in the tables below.

	June 30, 2017
			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Materials and supplies	$	2,368	$	791	$	1,129	$	782	$	347	$	85	$	321	$	2
Coal	665		239		262		161		101		17		147		—
Natural gas, oil and other fuel	336		36		230		110		120		32		2		36
Total inventory	$	3,369	$	1,066	$	1,621	$	1,053	$	568	$	134	$	470	$	38

	December 31, 2016
			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Materials and supplies	$	2,374	$	767	$	1,167	$	813	$	354	$	84	$	312	$	1
Coal	774		251		314		148		166		19		190		—
Natural gas, oil and other fuel	374		37		236		115		121		34		2		65
Total inventory	$	3,522	$	1,055	$	1,717	$	1,076	$	641	$	137	$	504	$	66

EXCISE TAXES

Certain excise taxes levied by state or local governments are required to be paid even if not collected from the customer. These taxes are recognized on a gross basis. Otherwise, excise taxes are accounted for on a net basis.

41

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Excise taxes accounted for on a gross basis as both operating revenues and property and other taxes on the Condensed Consolidated Statements of Operations were as follows.

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2017		2016		2017		2016
Duke Energy	$	91	$	87	$	182	$	178
Duke Energy Carolinas	9		7		18		15
Progress Energy	55		50		101		96
Duke Energy Progress	4		4		9		9
Duke Energy Florida	51		46		92		87
Duke Energy Ohio	23		22		51		51
Duke Energy Indiana	3		8		10		16
Piedmont	1		—		2		1

NEW ACCOUNTING STANDARDS

The new accounting standards adopted for 2017 and 2016 had no material impact on the presentation or results of operations, cash flows or financial position of the Duke Energy Registrants. While immaterial, adoption of the following accounting standard had the most significant impact on the Duke Energy results of operations, cash flows and financial position for the six months ended June 30, 2017.

Stock-Based Compensation and Income Taxes. In first quarter 2017, Duke Energy adopted Financial Accounting Standards Board (FASB) guidance, which revised the accounting for stock-based compensation and the associated income taxes. The adopted guidance changes certain aspects of accounting for stock-based payment awards to employees including the accounting for income taxes and classification on the Condensed Consolidated Statements of Cash Flows. The primary impact to Duke Energy as a result of implementing this guidance was a cumulative-effect adjustment to retained earnings for tax benefits not previously recognized and additional income tax expense for the six months ended June 30, 2017. See the Duke Energy Condensed Consolidated Statements of Changes in Equity for further information.

The following new Accounting Standards Updates (ASUs) have been issued, but have not yet been adopted by Duke Energy, as of June 30, 2017.

Retirement Benefits. In March 2017, the FASB issued revised accounting guidance for the presentation of net periodic costs related to benefit plans. Current GAAP permits the aggregation of all the components of net periodic costs on the income statement and does not require the disclosure of the location of net periodic costs on the Condensed Consolidated Statement of Operations. Under the amended guidance, the service cost component of net periodic costs must be included within Operating income within the same line as other compensation expenses. All other components of net periodic costs must be outside of Operating income. In addition, the updated guidance permits only the service cost component of net periodic costs to be capitalized to Inventory or Property, Plant and Equipment. This represents a change from current GAAP, which permits all components of net periodic costs to be capitalized. The guidance allows for a practical expedient that permits a company to use amounts disclosed in prior-period financial statements as the estimation basis for applying the retrospective presentation requirements.

For Duke Energy, this guidance is effective for interim and annual periods beginning January 1, 2018. These amendments should be applied retrospectively for the presentation of the various components of net periodic costs and prospectively for the change in eligible costs to be capitalized. Duke Energy currently presents all of the components of net periodic costs that are not capitalized within Operation, maintenance and other on the Condensed Consolidated Statement of Operations. Under this updated guidance, Duke Energy will retrospectively reclassify all the components of net periodic costs except for the service cost component to be presented outside of Operating income. However, Duke Energy will continue to present the service cost amount not capitalized within Operation, maintenance and other as this line item includes other compensation expense. Duke Energy is currently evaluating the financial statement impact, if any, of adopting this standard and whether or not the practical expedient will be utilized.

Goodwill Impairment. In January 2017, the FASB issued revised guidance for subsequent measurement of goodwill. Under the guidance, a company will recognize an impairment to goodwill for the amount by which a reporting unit's carrying value exceeds the reporting unit's fair value, not to exceed the amount of goodwill allocated to that reporting unit. For Duke Energy, this guidance is effective for interim and annual periods beginning January 1, 2020. However, Duke Energy expects to early adopt this guidance on a prospective basis for the next annual goodwill impairment test. Duke Energy does not expect adopting this guidance will have a material impact to its results of operations or financial position.

Revenue from Contracts with Customers. In May 2014, the FASB issued revised accounting guidance for revenue recognition from contracts with customers. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update also require disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

Most of Duke Energy’s revenue is expected to be in scope of the new guidance. The majority of our sales, including energy provided to residential customers, are from tariff offerings that provide natural gas or electricity without a defined contractual term ("at-will"). For such arrangements, Duke Energy expects that the revenue from contracts with customers will be equivalent to the electricity or natural gas supplied and billed in that period (including estimated billings). As such, Duke Energy does not expect that there will be a significant shift in the timing or pattern of revenue recognition for such sales. The evaluation of other revenue streams is ongoing, including long-term contracts with industrial customers and long-term purchase power agreements (PPA).

42

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Duke Energy continues to evaluate what information would be most useful for users of the financial statements, including information already provided in disclosures outside of the financial statement footnotes. These additional disclosures could include the disaggregation of revenues by geographic location, type of service, customer class or by duration of contract ("at-will" versus contracted revenue). Revenues from contracts with customers, revenue recognized under regulated operations accounting and revenue from lease accounting will also be disclosed.

Duke Energy intends to use the modified retrospective method of adoption effective January 1, 2018. This method results in a cumulative-effect adjustment that will be recorded to retained earnings as of January 1, 2018, as if the standard had always been in effect. Disclosures for 2018 will include a comparison to what would have been reported for 2018 under the current revenue recognition rules in order to assist financial statement users in understanding how revenue recognition has changed as a result of this standard and to facilitate comparability with prior year reported results, which are not restated under the modified retrospective approach.

Leases. In February 2016, the FASB issued revised accounting guidance for leases. The core principle of this guidance is that a lessee should recognize the assets and liabilities that arise from leases on the balance sheet.

For Duke Energy, this guidance is effective for interim and annual periods beginning January 1, 2019, although it can be early adopted. The guidance is applied using a modified retrospective approach. Duke Energy is currently evaluating the financial statement impact of adopting this standard and is continuing to monitor industry implementation issues, including easements, pole attachments and renewable power purchase agreements. Other than an expected increase in assets and liabilities, the ultimate impact of the new standard has not yet been determined. Significant system enhancements may be required to facilitate the identification, tracking and reporting of potential leases based upon requirements of the new lease standard.

Statement of Cash Flows. In November 2016, the FASB issued revised accounting guidance to reduce diversity in practice for the presentation and classification of restricted cash on the statement of cash flows. Under the updated guidance, restricted cash and restricted cash equivalents will be included within beginning-of-period and end-of-period cash and cash equivalents on the statement of cash flows.

For Duke Energy, this guidance is effective for the interim and annual periods beginning January 1, 2018, although it can be early adopted. The guidance will be applied using a retrospective transition method to each period presented. Upon adoption by Duke Energy, the revised guidance will result in a change to the amount of cash and cash equivalents and restricted cash explained when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Prior to adoption, the Duke Energy Registrants reflect changes in restricted cash within Cash Flows from Investing Activities on the Condensed Consolidated Statement of Cash Flows.

Financial Instruments Classification and Measurement. In January 2016, the FASB issued revised accounting guidance for the classification and measurement of financial instruments. Changes in the fair value of all equity securities will be required to be recorded in net income. Current GAAP allows some changes in fair value for available-for-sale equity securities to be recorded in Accumulated other comprehensive income (AOCI). Additional disclosures will be required to present separately the financial assets and financial liabilities by measurement category and form of financial asset. An entity's equity investments that are accounted for under the equity method of accounting are not included within the scope of the new guidance.

For Duke Energy, the revised accounting guidance is effective for interim and annual periods beginning January 1, 2018, by recording a cumulative-effect adjustment to retained earnings as of January 1, 2018. This guidance is expected to have minimal impact on the Duke Energy Registrant's Condensed Consolidated Statements of Operations and Comprehensive Income as changes in the fair value of most of the Duke Energy Registrants' available-for-sale equity securities are deferred as regulatory assets or liabilities pursuant to accounting guidance for regulated operations.

2. ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS

The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date, and include earnings from acquisitions in consolidated earnings after the purchase date.

Acquisition of Piedmont Natural Gas

On October 3, 2016, Duke Energy acquired all outstanding common stock of Piedmont for a total cash purchase price of $5.0 billion and assumed Piedmont's existing long-term debt, which had a fair value of approximately $2.0 billion at the time of the acquisition. The acquisition provides a foundation for Duke Energy to establish a broader, long-term strategic natural gas infrastructure platform to complement its existing natural gas pipeline investments and regulated natural gas business in the Midwest. In connection with the closing of the acquisition, Piedmont became a wholly owned subsidiary of Duke Energy.

43

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Purchase Price Allocation

The purchase price allocation of the Piedmont acquisition is as follows:

(in millions)
Current assets	$	497
Property, plant and equipment, net	4,714
Goodwill	3,353
Other long-term assets	804
Total assets	9,368
Current liabilities, including current maturities of long-term debt	576
Long-term liabilities	1,790
Long-term debt	2,002
Total liabilities	4,368
Total purchase price	$	5,000

The fair value of Piedmont's assets and liabilities were determined based on significant estimates and assumptions that are judgmental in nature, including the amount and timing of projected future cash flows, discount rates reflecting risk inherent in the future cash flows and market prices of long-term debt.

The majority of Piedmont’s operations are subject to the rate-setting authority of the NCUC, the PSCSC and the TPUC and are accounted for pursuant to accounting guidance for regulated operations. The rate-setting and cost recovery provisions currently in place for Piedmont’s regulated operations provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base. Thus, the fair value of Piedmont's assets and liabilities subject to these rate-setting provisions approximates the pre-acquisition carrying value and does not reflect any net valuation adjustments.

The significant assets and liabilities for which valuation adjustments were reflected within the purchase price allocation include the acquired equity method investments and long-term debt. The difference between the fair value and the pre-acquisition carrying value of long-term debt for regulated operations was recorded as a regulatory asset.

The excess of the purchase price over the fair value of Piedmont's assets and liabilities on the acquisition date was recorded as goodwill. The goodwill reflects the value paid by Duke Energy primarily for establishing a broader, long-term strategic natural gas infrastructure platform, an improved risk profile and expected synergies resulting from the combined entities.

Under Securities and Exchange Commission (SEC) regulations, Duke Energy elected not to apply push down accounting to the stand-alone Piedmont financial statements.

Other Acquisition Related Matters

Duke Energy recorded unrealized losses on forward-starting interest rate swaps related to the acquisition financing of $75 million and $168 million for the three and six months ended June 30, 2016, respectively. See Note 9 for additional information.

During the three months ended June 30, 2017, Piedmont recorded a $7 million software impairment resulting from planned accounting system and process integration.

Pro Forma Financial Information

The following unaudited pro forma financial information reflects the combined results of operations of Duke Energy and Piedmont as if the merger had occurred as of January 1, 2016. The pro forma financial information excludes potential cost savings, intercompany revenues, Piedmont’s earnings from the equity method investment in SouthStar Energy Services, LLC (SouthStar) sold immediately prior to the merger, and after-tax nonrecurring transaction and integration costs incurred by Duke Energy and Piedmont of $57 million and $120 million for the three and six months ended June 30, 2016, respectively. See Note 3 for additional information on Piedmont's sale of SouthStar.

This 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.

	Three Months Ended		Six Months Ended
(in millions)	June 30, 2016		June 30, 2016
Operating Revenues	$	5,374	$	11,214
Net Income Attributable to Duke Energy Corporation	540		1,372

44

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

DISPOSITIONS

Sale of International Energy

In December 2016, Duke Energy sold its International Energy businesses, excluding the equity method investment in NMC (the International Disposal Group), in two separate transactions. Duke Energy sold its Brazilian business to China Three Gorges for approximately $1.2 billion, including the assumption of debt, and its remaining Central and South American businesses to I Squared Capital in a deal also valued at approximately $1.2 billion, including the assumption of debt. The transactions generated cash proceeds of $1.9 billion, excluding transaction costs, which were primarily used to reduce Duke Energy holding company debt.

The following table presents the results of the International Disposal Group, which are included in Income from Discontinued Operations, net of tax in Duke Energy's Condensed Consolidated Statements of Operations. Interest expense directly associated with the International Disposal Group was allocated to discontinued operations. No interest from corporate level debt was allocated to discontinued operations.

	Three Months Ended			Six Months Ended
(in millions)	June 30, 2016			June 30, 2016
Operating Revenues	$	270		$	516
Fuel used in electric generation and purchased power	70			117
Cost of natural gas	12			23
Operation, maintenance and other	84			155
Depreciation and amortization	22			44
Property and other taxes	2			5
Impairment charges (a)	194			194
Gains on Sales of Other Assets and Other, net	1			1
Other Income and Expenses, net	11			21
Interest Expense	22			44
Loss before income taxes	(124		)	(44		)
Income tax benefit(b)	(13		)	(52		)
(Loss) Income from discontinued operations of the International Disposal Group	(111		)	8
(Loss) Income from discontinued operations of other businesses	(1		)	2
(Loss) Income from Discontinued Operations, net of tax	$	(112	)	$	10

(a) In conjunction with the advancements of marketing efforts during 2016, Duke Energy performed recoverability tests of the long-lived asset groups of International Energy. As a result, Duke Energy determined the carrying value of certain assets in Central America was not fully recoverable and recorded a pretax impairment charge of $194 million. The charge represents the excess carrying value over the estimated fair value of the assets, which was based on a Level 3 Fair Value measurement that was primarily determined from the income approach using discounted cash flows but also considered market information obtained in 2016.

(b) Includes an income tax benefit of $95 million for the six months ended June 30, 2016 related to historical undistributed foreign earnings. See Note 16 for additional information.

Duke Energy has elected not to separately disclose discontinued operations on the Condensed Consolidated Statements of Cash Flows. The following table summarizes Duke Energy's cash flows from discontinued operations related to the International Disposal Group.

	Six Months Ended
(in millions)	June 30, 2016
Cash flows provided by (used in):
Operating activities	$	144
Investing activities	(24		)

Other Sale Related Matters

Duke Energy will provide certain transition services to China Three Gorges and I Squared Capital for a period not to extend beyond November 2017 and December 2017, respectively. Cash flows related to providing the transition services are not material. In addition, Duke Energy will reimburse China Three Gorges and I Squared Capital for all tax obligations arising from the period preceding consummation on the transactions, totaling approximately $78 million. Duke Energy has not recorded any other liabilities, contingent liabilities or indemnifications related to the International Disposal Group.

45

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

3. BUSINESS SEGMENTS

Operating segments are determined based on information used by the chief operating decision-maker in deciding how to allocate resources and evaluate the performance of the business. Duke Energy evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income includes intercompany revenues and expenses that are eliminated on the Condensed Consolidated Financial Statements.

Duke Energy

Due to the Piedmont acquisition and the sale of International Energy in the fourth quarter of 2016, Duke Energy's segment structure has been realigned to include the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. Prior period information has been recast to conform to the current segment structure. See Note 2 for further information on the Piedmont and International Energy transactions.

The Electric Utilities and Infrastructure segment includes Duke Energy's regulated electric utilities in the Carolinas, Florida and the Midwest. The regulated electric utilities conduct operations through the Subsidiary Registrants that are substantially all regulated and, accordingly, qualify for regulatory accounting treatment. Electric Utilities and Infrastructure also includes Duke Energy's electric transmission infrastructure investments.

The Gas Utilities and Infrastructure segment includes Piedmont, Duke Energy's natural gas local distribution companies in Ohio and Kentucky, and Duke Energy's natural gas storage and midstream pipeline investments. Gas Utilities and Infrastructure's operations are substantially all regulated and, accordingly, qualify for regulatory accounting treatment.

Commercial Renewables is primarily comprised of nonregulated utility scale wind and solar generation assets located throughout the U.S.

The remainder of Duke Energy’s operations is presented as Other, which is primarily comprised of unallocated corporate interest expense, unallocated corporate costs, contributions to the Duke Energy Foundation and the operations of Duke Energy’s wholly owned captive insurance subsidiary, Bison Insurance Company Limited (Bison). Other also includes Duke Energy's 25 percent interest in NMC, a large regional producer of methyl tertiary butyl ether (MTBE) located in Saudi Arabia. The investment in NMC is accounted for under the equity method of accounting.

Business segment information is presented in the following tables. Segment assets presented exclude intercompany assets.

	Three Months Ended June 30, 2017
	Electric		Gas				Total
	Utilities and		Utilities and		Commercial		Reportable
(in millions)	Infrastructure		Infrastructure		Renewables		Segments		Other			Eliminations			Consolidated
Unaffiliated revenues	$	5,150	$	279	$	110	$	5,539	$	16		$	—		$	5,555
Intersegment revenues	8		22		—		30		19			(49		)	—
Total revenues	$	5,158	$	301	$	110	$	5,569	$	35		$	(49	)	$	5,555
Segment income (loss)(a)	$	729	$	27	$	26	$	782	$	(94	)	$	—		$	688
Add back noncontrolling interests															3
Loss from discontinued operations, net of tax															(2		)
Net income															$	689
Segment assets	$	117,009	$	11,073	$	4,306	$	132,388	$	2,435		$	181		$	135,004

	Three Months Ended June 30, 2016
	Electric		Gas				Total
	Utilities and		Utilities and		Commercial		Reportable
(in millions)	Infrastructure		Infrastructure		Renewables		Segments		Other			Eliminations			Consolidated
Unaffiliated revenues	$	4,993	$	97	$	112	$	5,202	$	11		$	—		$	5,213
Intersegment revenues	8		2		—		10		19			(29		)	—
Total revenues	$	5,001	$	99	$	112	$	5,212	$	30		$	(29	)	$	5,213
Segment income (loss)(a)	$	704	$	16	$	11	$	731	$	(107	)	$	—		$	624
Loss from discontinued operations, net of tax															(112		)
Net income															$	512

46

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

	Six Months Ended June 30, 2017
	Electric		Gas				Total
	Utilities and		Utilities and		Commercial		Reportable
(in millions)	Infrastructure		Infrastructure		Renewables		Segments		Other			Eliminations			Consolidated
Unaffiliated revenues	$	10,090	$	927	$	238	$	11,255	$	29		$	—		$	11,284
Intersegment revenues	15		44		—		59		39			(98		)	—
Total revenues	$	10,105	$	971	$	238	$	11,314	$	68		$	(98	)	$	11,284
Segment income (loss)(a)	$	1,364	$	160	$	51	$	1,575	$	(171	)	$	—		$	1,404
Add back noncontrolling interests															4
Loss from discontinued operations, net of tax															(2		)
Net income															$	1,406

	Six Months Ended June 30, 2016
	Electric		Gas				Total
	Utilities and		Utilities and		Commercial		Reportable
(in millions)	Infrastructure		Infrastructure		Renewables		Segments		Other			Eliminations			Consolidated
Unaffiliated revenues	$	10,074	$	266	$	226	$	10,566	$	24		$	—		$	10,590
Intersegment revenues	16		3		—		19		35			(54		)	—
Total revenues	$	10,090	$	269	$	226	$	10,585	$	59		$	(54	)	$	10,590
Segment income (loss)(a)	$	1,368	$	48	$	37	$	1,453	$	(255	)	$	—		$	1,198
Add back noncontrolling interests															3
Income from discontinued operations, net of tax															10
Net income															$	1,211

(a) Other includes costs to achieve the Piedmont acquisition. See Notes 2 and 9 for additional information.

Duke Energy Ohio

Duke Energy Ohio has two reportable operating segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure.

Electric Utilities and Infrastructure transmits and distributes electricity in portions of Ohio and generates, distributes and sells electricity in portions of northern Kentucky. Gas Utilities and Infrastructure transports and sells natural gas in portions of Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Ohio and its wholly owned subsidiary, Duke Energy Kentucky.

47

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

The remainder of Duke Energy Ohio's operations is presented as Other, which is primarily comprised of governance costs allocated by its parent, Duke Energy, and revenues and expenses related to Duke Energy Ohio's contractual arrangement to buy power from the Ohio Valley Electric Corporation's (OVEC) power plants. See Note 8 for additional information on related party transactions.

	Three Months Ended June 30, 2017
	Electric		Gas		Total
	Utilities and		Utilities and		Reportable
(in millions)	Infrastructure		Infrastructure		Segments		Other			Consolidated
Total revenues	$	329	$	100	$	429	$	8		$	437
Segment income (loss)/Net Income	22		17		39		(9		)	30
Segment assets	4,879		2,672		7,551		54			7,605

	Three Months Ended June 30, 2016
	Electric		Gas		Total
	Utilities and		Utilities and		Reportable
(in millions)	Infrastructure		Infrastructure		Segments		Other			Consolidated
Total revenues	$	323	$	98	$	421	$	7		$	428
Segment income (loss)/Net Income	19		14		33		(10		)	23

	Six Months Ended June 30, 2017
	Electric		Gas		Total
	Utilities and		Utilities and		Reportable
(in millions)	Infrastructure		Infrastructure		Segments		Other			Consolidated
Total revenues	$	665	$	270	$	935	$	20		$	955
Segment income (loss)/Net Income	46		42		88		(16		)	72

	Six Months Ended June 30, 2016
	Electric		Gas		Total
	Utilities and		Utilities and		Reportable
(in millions)	Infrastructure		Infrastructure		Segments		Other			Consolidated
Total revenues	$	663	$	269	$	932	$	12		$	944
Segment income (loss)	$	55	$	45	$	100	$	(20	)	$	80
Income from discontinued operations, net of tax										2
Net income										82

DUKE ENERGY CAROLINAS, PROGRESS ENERGY, DUKE ENERGY PROGRESS, DUKE ENERGY FLORIDA, DUKE ENERGY INDIANA AND PIEDMONT

Piedmont has one reportable segment, Gas Utilities and Infrastructure, which transports and sells natural gas. The remainder of Piedmont's operations is presented as Other, which is comprised of certain unallocated corporate costs, including acquisition-related expenses, and earnings from Piedmont's equity method investment in SouthStar prior to its sale. Piedmont sold its 15 percent membership interest in SouthStar on October 3, 2016. Piedmont's income, net of tax, from SouthStar for the three and six months ended June 30, 2016, was $3 million and $10 million, respectively.

The remaining Subsidiary Registrants each have one reportable operating segment, Electric Utilities and Infrastructure, which generates, transmits, distributes and sells electricity. The remainder of each company's operations is presented as Other, which is comprised of certain unallocated corporate costs. Other for Progress Energy also includes interest expense on corporate debt instruments of $56 million and $111 million for the three and six months ended June 30, 2017, respectively, and $55 million and $111 million for the three and six months ended June 30, 2016, respectively. The following table summarizes the net (loss) income of Other for each of these entities.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in millions)	2017			2016			2017			2016
Duke Energy Carolinas	$	(6	)	$	(17	)	$	(12	)	$	(34	)
Progress Energy	(45		)	(45		)	(88		)	(94		)
Duke Energy Progress	(4		)	(8		)	(7		)	(16		)
Duke Energy Florida	(3		)	(5		)	(5		)	(9		)
Duke Energy Indiana	(1		)	(5		)	(3		)	(7		)
Piedmont	(9		)	1			(13		)	7

The assets at Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana are substantially all included within the Electric Utilities and Infrastructure segment at June 30, 2017. The assets at Piedmont are substantially all included within the Gas Utilities and Infrastructure segment at June 30, 2017.

48

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

4. REGULATORY MATTERS

RATE RELATED INFORMATION

The NCUC, PSCSC, FPSC, IURC, PUCO, TPUC and KPSC approve rates for retail electric and natural gas services within their states. The FERC approves rates for electric sales to wholesale customers served under cost-based rates (excluding Ohio and Indiana), as well as sales of transmission service. The FERC also regulates certification and siting of new interstate natural gas pipeline projects.

Duke Energy Carolinas and Duke Energy Progress

Ash Basin Closure Costs Deferral

On December 30, 2016, Duke Energy Carolinas and Duke Energy Progress filed a joint petition with the NCUC seeking an accounting order authorizing deferral of certain costs incurred in connection with federal and state environmental remediation requirements related to the permanent closure of ash basins and other ash storage units at coal-fired generating facilities that have provided or are providing generation to customers located in North Carolina. Initial comments were received in March 2017, and reply comments were filed on April 19, 2017. On July 10, 2017, the NCUC consolidated Duke Energy Progress’ coal ash deferral request into the Duke Energy Progress rate case docket for decision. See "2017 North Carolina Rate Case" section below for additional discussion. The NCUC also indicated that the Duke Energy Carolinas coal ash deferral request will be consolidated into Duke Energy Carolinas' next base rate case proceeding. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.

Duke Energy Carolinas

Lincoln County Combustion Turbine Addition

On June 12, 2017, Duke Energy Carolinas filed an application with the NCUC for a Certificate of Public Convenience and Necessity (CPCN) to construct and operate a new 402-megawatt (MW) simple cycle advanced combustion turbine natural gas-fueled electric generating unit at its existing Lincoln County site. The request also included construction of related transmission and natural gas pipeline interconnection facilities. If approved, construction would begin in 2018 with an estimated commercial operation date in 2024. An evidentiary hearing is scheduled for August 30, 2017. Duke Energy Carolinas cannot predict the outcome of this matter.

William States Lee Combined Cycle Facility

On April 9, 2014, the PSCSC granted Duke Energy Carolinas and North Carolina Electric Membership Corporation (NCEMC) a Certificate of Environmental Compatibility and Public Convenience and Necessity (CECPCN) for the construction and operation of a 750-MW combined-cycle natural gas-fired generating plant at Duke Energy Carolinas' existing William States Lee Generating Station in Anderson, South Carolina. Duke Energy Carolinas began construction in July 2015 and estimates a cost to build of $600 million for its share of the facility, including allowance for funds used during construction (AFUDC). The project is expected to be commercially available in late 2017. NCEMC will own approximately 13 percent of the project. On July 3, 2014, the South Carolina Coastal Conservation League (SCCL) and Southern Alliance for Clean Energy (SACE) jointly filed a Notice of Appeal with the Court of Appeals of South Carolina (S.C. Court of Appeals) seeking the court's review of the PSCSC's decision, claiming the PSCSC did not properly consider a request related to a proposed solar facility prior to granting approval of the CECPCN. The S.C. Court of Appeals affirmed the PSCSC's decision on February 10, 2016, and on March 24, 2016, denied a request for rehearing filed by SCCL and SACE. On April 21, 2016, SCCL and SACE petitioned the South Carolina Supreme Court for review of the S.C. Court of Appeals decision. On March 24, 2017, the South Carolina Supreme Court denied the request for review, thus concluding the matter.

William States Lee III Nuclear Station

In December 2007, Duke Energy Carolinas applied to the NRC for combined operating licenses (COLs) for two Westinghouse Electric Company (Westinghouse) AP1000 reactors for the proposed William States Lee III Nuclear Station (Lee Nuclear Station) to be located at a site in Cherokee County, South Carolina. The NCUC and PSCSC have concurred with the prudency of Duke Energy Carolinas decisions to incur certain project development and preconstruction costs through several separately issued orders through 2011, although full cost recovery is not guaranteed. In December 2016, the NRC issued a COL for each reactor. Duke Energy Carolinas is not required to build the nuclear reactors as a result of the COLs being issued.

On March 29, 2017, Westinghouse filed for voluntary Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. Duke Energy Carolinas is monitoring the bankruptcy proceedings to assess the impact it will have on the future construction of nuclear plants. On May 15, 2017, the NCUC issued an order requiring Duke Energy Carolinas to provide information regarding potential impacts of the Westinghouse bankruptcy on the Lee Nuclear Station, as well as Duke Energy Carolinas' plans for cost recovery and additional financial information regarding the project. The NCUC granted an extension until August 30, 2017, to provide that information. Duke Energy Carolinas cannot predict the outcome of this matter.

Duke Energy Progress

2017 North Carolina Rate Case

On June 1, 2017, Duke Energy Progress filed an application with the NCUC for a rate increase for retail customers of approximately $477 million, which represents an approximate 14.9 percent increase in annual revenues. The rate increase is driven by capital investments subsequent to the previous base rate case, costs of complying with coal combustion residuals (CCR) regulations and the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act), costs relating to storm recovery, investments in customer service technologies and recovery of costs associated with renewable purchased power. An evidentiary hearing is scheduled to begin November 20, 2017. Duke Energy Progress cannot predict the outcome of this matter.

49

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Storm Cost Deferral Filing

On December 16, 2016, Duke Energy Progress filed a petition with the NCUC requesting an accounting order to defer certain costs incurred in connection with response to Hurricane Matthew and other significant storms in 2016. Duke Energy Progress proposed in the filing to true-up the total costs quarterly through August 2017. The current estimate of incremental operation and maintenance and capital costs is $116 million. On March 15, 2017, the North Carolina Utilities Commission Public Staff filed comments supporting deferral of a portion of Duke Energy Progress’ requested amount. Duke Energy Progress filed reply comments on April 12, 2017. On July 10, 2017, the NCUC consolidated Duke Energy Progress' storm deferral request into the Duke Energy Progress rate case docket for decision. See "2017 North Carolina Rate Case" for additional discussion. Duke Energy Progress cannot predict the outcome of this matter.

Western Carolinas Modernization Plan

On November 4, 2015, Duke Energy Progress announced a Western Carolinas Modernization Plan, which included retirement of the existing Asheville coal-fired plant, the construction of two 280‑MW combined-cycle natural gas plants having dual fuel capability, with the option to build a third natural gas simple cycle unit in 2023 based upon the outcome of initiatives to reduce the region's power demand. The plan also included upgrades to existing transmission lines and substations, installation of solar generation and a pilot battery storage project. These investments will be made within the next seven years. Duke Energy Progress is also working with the local natural gas distribution company to upgrade an existing natural gas pipeline to serve the natural gas plant.

On March 28, 2016, the NCUC issued an order approving a CPCN for the new combined-cycle natural gas plants, but denying the CPCN for the contingent simple cycle unit without prejudice to Duke Energy Progress to refile for approval in the future. On March 28, 2017, Duke Energy Progress filed an annual progress report for the construction of the combined-cycle plants with the NCUC, with an estimated cost of $893 million. Site preparation activities for the combined-cycle plants are underway and construction of these plants is scheduled to begin in fall 2017, with an expected in-service date in late 2019. Duke Energy Progress plans to file for future approvals related to the proposed solar generation and pilot battery storage project.

The carrying value of the 376-MW Asheville coal-fired plant, including associated ash basin closure costs, of $450 million and $492 million are included in Generation facilities to be retired, net on Duke Energy Progress' Condensed Consolidated Balance Sheet as of June 30, 2017 and December 31, 2016, respectively.

Duke Energy Florida

Hines Chiller Uprate Project

On February 2, 2017, Duke Energy Florida filed a petition seeking approval to include in base rates the revenue requirement for a Chiller Uprate Project (Uprate Project) at the Hines Energy Complex. The Uprate Project was placed into service in March 2017 at a cost of approximately $150 million. The annual retail revenue requirement is approximately $19 million. On March 28, 2017, the FPSC issued an order approving the revenue requirement, which was included in base rates for the first billing cycle of April 2017.

Levy Nuclear Project

On July 28, 2008, Duke Energy Florida applied to the NRC for COLs for two Westinghouse AP1000 reactors at Levy. In 2008, the FPSC granted Duke Energy Florida’s petition for an affirmative Determination of Need and related orders requesting cost recovery under Florida’s nuclear cost-recovery rule, together with the associated facilities, including transmission lines and substation facilities. In October 2016, the NRC issued COLs for the proposed Levy Nuclear Plant Units 1 and 2. Duke Energy Florida is not required to build the nuclear reactors as a result of the COLs being issued.

On January 28, 2014, Duke Energy Florida terminated the Levy engineering, procurement and construction agreement (EPC). Duke Energy Florida may be required to pay for work performed under the EPC. Duke Energy Florida recorded an exit obligation in 2014 for the termination of the EPC. This liability was recorded within Other in Other Noncurrent Liabilities with an offset primarily to Regulatory assets on the Condensed Consolidated Balance Sheets. Duke Energy Florida is allowed to recover reasonable and prudent EPC cancellation costs from its retail customers. On May 1, 2017, Duke Energy Florida filed a request with the FPSC to recover approximately $82 million of Levy Nuclear Project costs from retail customers in 2018. A hearing is scheduled in October 2017. Duke Energy Florida cannot predict the outcome of this matter.

On March 29, 2017, Westinghouse filed for voluntary Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. Duke Energy Florida is monitoring the bankruptcy proceedings to assess the impact it will have on the future construction of nuclear plants.

Duke Energy Ohio

Electric Security Plan Filing

On June 1, 2017, Duke Energy Ohio filed with the PUCO a request for a standard service offer in the form of an electric security plan (ESP). If approved by the PUCO, the term of the ESP would be from June 1, 2018, to May 31, 2024. Terms of the ESP included continuation of market-based customer rates through competitive procurement processes for generation, continuation of existing rider mechanisms and proposed new rider mechanisms relating to regulatory mandates, costs incurred to enhance the customer experience and transform the grid and a service reliability rider for vegetation management. Duke Energy Ohio cannot predict the outcome of this matter.

50

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Woodsdale Station Fuel System Filing

On June 9, 2015, the FERC ruled in favor of PJM Interconnection, LLC (PJM) on a revised Tariff and Reliability Assurance Agreement including implementation of a Capacity Performance (CP) proposal and to amend sections of the Operating Agreement related to generation non-performance. The CP proposal includes performance-based penalties for non-compliance. Duke Energy Kentucky is a Fixed Resource Requirement (FRR) entity, and therefore is subject to the compliance standards through its FRR plans. A partial CP obligation will apply to Duke Energy Kentucky in the delivery year beginning June 1, 2019, with full compliance beginning June 1, 2020. Duke Energy Kentucky has developed strategies for CP compliance investments. On May 31, 2017, Duke Energy Kentucky filed an application with the KPSC requesting authority to construct an ultra-low sulfur diesel backup fuel system for the Woodsdale Station. The back-up fuel system is projected to cost approximately $55 million and, if approved, is anticipated to be in service prior to the CP compliance deadline of April 2019. Duke Energy Kentucky cannot predict the outcome of this proceeding at this time.

Ohio Valley Electric Corporation

On March 31, 2017, Duke Energy Ohio filed for approval to adjust its existing price stabilization rider (Rider PSR) to pass through net costs related to its contractual entitlement to capacity and energy from the generating assets owned by OVEC. The PUCO approved Rider PSR, but set it at zero dollars in connection with the most recent ESP. The application seeks to adjust Rider PSR as of April 1, 2017. Duke Energy Ohio is seeking deferral authority for net costs incurred from April 1, 2017, until the new rates under Rider PSR are put into effect. Various intervenors have filed motions to dismiss or stay the proceeding and Duke Energy Ohio has opposed these filings. See Note 12 for additional discussion of Duke Energy Ohio's ownership interest in OVEC. Duke Energy Ohio cannot predict the outcome of this proceeding.

East Bend Coal Ash Basin Filing

On December 2, 2016, Duke Energy Kentucky filed with the KPSC a request for a CPCN for construction projects necessary to close and repurpose an ash basin at the East Bend facility as a result of current and proposed U.S. Environmental Protection Agency (EPA) regulations. Duke Energy Kentucky estimated a total cost of approximately $93 million in the filing and expects in-service date in the fourth quarter of 2018. On June 6, 2017, the KPSC approved the CPCN request.

Base Rate Case

Duke Energy Ohio filed with the PUCO an electric distribution base rate case application and supporting testimony in March 2017. Duke Energy Ohio has requested an estimated annual increase of approximately $15 million and a return on equity of 10.4 percent. The application also includes requests to continue certain current riders and establish new riders related to LED Outdoor Lighting Service and regulatory mandates. Duke Energy Ohio cannot predict the outcome of this matter.

Natural Gas Pipeline Extension

Duke Energy Ohio is proposing to install a new natural gas pipeline in its Ohio service territory to increase system reliability and enable the retirement of older infrastructure. On January 20, 2017, Duke Energy Ohio filed an amended application with the Ohio Power Siting Board for approval of one of two proposed routes. If approved, construction of the pipeline extension is expected to be completed before the 2019/2020 winter season. A public hearing was held on June 15, 2017, and an adjudicatory hearing is scheduled to begin September 11, 2017. The proposed project involves the installation of a natural gas line and is estimated to cost between $86 million and $110 million, excluding AFUDC.

Advanced Metering Infrastructure

On April 25, 2016, Duke Energy Kentucky filed with the KPSC an application for approval of a CPCN for the construction of advanced metering infrastructure. Duke Energy Kentucky estimates the $49 million project will take two years to complete. Duke Energy Kentucky also requested approval to establish a regulatory asset of approximately $10 million for the remaining book value of existing meter equipment and inventory to be replaced. Duke Energy Kentucky and the Kentucky Attorney General entered into a stipulation to settle matters related to the application. On May 25, 2017, the KPSC issued an order to approve the stipulation with certain modifications. On June 1, 2017, Duke Energy Kentucky filed its acceptance of the modifications.

Accelerated Natural Gas Service Line Replacement Rider

On January 20, 2015, Duke Energy Ohio filed an application for approval of an accelerated natural gas service line replacement program (ASRP). Under the ASRP, Duke Energy Ohio proposed to replace certain natural gas service lines on an accelerated basis over a 10-year period. Duke Energy Ohio also proposed to complete preliminary survey and investigation work related to natural gas service lines that are customer owned and for which it does not have valid records and, further, to relocate interior natural gas meters to suitable exterior locations where such relocation can be accomplished. Duke Energy Ohio's projected total capital and operations and maintenance expenditures under the ASRP were approximately $240 million. The filing also sought approval of a rider mechanism (Rider ASRP) to recover related expenditures. Duke Energy Ohio proposed to update Rider ASRP on an annual basis. Intervenors opposed the ASRP, primarily because they believe the program is neither required nor necessary under federal pipeline regulation. On October 26, 2016, the PUCO issued an order denying the proposed ASRP. Duke Energy Ohio's application for rehearing of the PUCO decision was denied on May 17, 2017.

51

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Energy Efficiency Cost Recovery

On March 28, 2014, Duke Energy Ohio filed an application for recovery of program costs, lost distribution revenue and performance incentives related to its energy efficiency and peak demand reduction programs. These programs are undertaken to comply with environmental mandates set forth in Ohio law. The PUCO approved Duke Energy Ohio’s application, but found that Duke Energy Ohio was not permitted to use banked energy savings from previous years in order to calculate the amount of allowed incentive. This conclusion represented a change to the cost recovery mechanism that had been agreed upon by intervenors and approved by the PUCO in previous cases. The PUCO granted the applications for rehearing filed by Duke Energy Ohio and an intervenor. On January 6, 2016, Duke Energy Ohio and the PUCO Staff entered into a stipulation, pending the PUCO's approval, to resolve issues related to performance incentives and the PUCO Staff audit of 2013 costs, among other issues. In December 2015, based upon the stipulation, Duke Energy Ohio re-established approximately $20 million of the revenues that had been previously reversed. On October 26, 2016, the PUCO issued an order approving the stipulation without modification. Intervenors requested a rehearing of the PUCO decision. In December 2016, the PUCO granted a rehearing for the purpose of further review. Duke Energy Ohio cannot predict the outcome of this matter.

2012 Natural Gas Rate Case/Manufactured Gas Plant Cost Recovery

On November 13, 2013, the PUCO issued an order approving a settlement of Duke Energy Ohio’s natural gas base rate case and authorizing the recovery of costs incurred between 2008 and 2012 for environmental investigation and remediation of two former manufactured gas plant (MGP) sites. The PUCO order also authorized Duke Energy Ohio to continue deferring MGP environmental investigation and remediation costs incurred subsequent to 2012 and to submit annual filings to adjust the MGP rider for future costs. Intervening parties appealed this decision to the Ohio Supreme Court and on June 29, 2017, the Ohio Supreme Court issued its decision affirming the PUCO order. Appellants have filed a request for reconsideration with the court. Duke Energy Ohio and the PUCO opposed the request. Incurred and projected investigation and remediation expenses at these MGP sites that have not been collected through the MGP rider are approximately $95 million and are recorded as Regulatory assets on Duke Energy Ohio's Condensed Consolidated Balance Sheet as of June 30, 2017. Duke Energy Ohio cannot predict the outcome of this matter.

Regional Transmission Organization Realignment

Duke Energy Ohio, including Duke Energy Kentucky, transferred control of its transmission assets from Midcontinent Independent System Operator, Inc. (MISO) to PJM, effective December 31, 2011. The PUCO approved a settlement related to Duke Energy Ohio’s recovery of certain costs of the Regional Transmission Organization (RTO) realignment via a non-bypassable rider. Duke Energy Ohio is allowed to recover all MISO Transmission Expansion Planning (MTEP) costs, including but not limited to Multi Value Project (MVP) costs, directly or indirectly charged to Ohio customers. Duke Energy Ohio also agreed to vigorously defend against any charges for MVP projects from MISO. The KPSC also approved a request to effect the RTO realignment, subject to a commitment not to seek double recovery in a future rate case of the transmission expansion fees that may be charged by MISO and PJM in the same period or overlapping periods.

Duke Energy Ohio had a recorded liability for its exit obligation and share of MTEP costs, excluding MVP, of $90 million at June 30, 2017, and December 31, 2016, recorded within Other in Current liabilities and Other in Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets. The retail portions of MTEP costs billed by MISO are recovered by Duke Energy Ohio through a non-bypassable rider. As of June 30, 2017, and December 31, 2016, Duke Energy Ohio had $71 million recorded in Regulatory assets on the Condensed Consolidated Balance Sheets.

MVP. MISO approved 17 MVP proposals prior to Duke Energy Ohio’s exit from MISO on December 31, 2011. Construction of these projects is expected to continue through 2020. Costs of these projects, including operating and maintenance costs, property and income taxes, depreciation and an allowed return, are allocated and billed to MISO transmission owners.

On December 29, 2011, MISO filed a tariff with the FERC providing for the allocation of MVP costs to a withdrawing owner based on monthly energy usage. The FERC set for hearing (i) whether MISO’s proposed cost allocation methodology to transmission owners who withdrew from MISO prior to January 1, 2012, is consistent with the tariff at the time of their withdrawal from MISO and, (ii) if not, what the amount of and methodology for calculating any MVP cost responsibility should be. In 2012, MISO estimated Duke Energy Ohio’s MVP obligation over the period from 2012 to 2071 at $2.7 billion, on an undiscounted basis. On July 16, 2013, a FERC Administrative Law Judge (ALJ) issued an initial decision. Under this Initial Decision, Duke Energy Ohio would be liable for MVP costs. Duke Energy Ohio filed exceptions to the initial decision, requesting FERC to overturn the ALJ’s decision.

On October 29, 2015, the FERC issued an order reversing the ALJ's decision. The FERC ruled the cost allocation methodology is not consistent with the MISO tariff and that Duke Energy Ohio has no liability for MVP costs after its withdrawal from MISO. On May 19, 2016, the FERC denied the request for rehearing filed by MISO and the MISO Transmission Owners. On July 15, 2016, the MISO Transmission Owners filed a petition for review with the U.S. Court of Appeals for the Sixth Circuit. On June 21, 2017, a three-judge panel affirmed FERC's 2015 decision holding that Duke Energy Ohio has no liability for the cost of the MVP projects constructed after Duke Energy Ohio's withdrawal from MISO. MISO has the right to file a petition for rehearing by all the Sixth Circuit judges or to file a petition with the U.S. Supreme Court seeking a review of the decision. Duke Energy Ohio cannot predict the outcome of this matter.

52

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Duke Energy Indiana

Coal Combustion Residual Plan

On March 17, 2016, Duke Energy Indiana filed with the IURC a request for approval of its first group of federally mandated CCR rule compliance projects (Phase I CCR Compliance Projects) to comply with the EPA's CCR rule. The projects in this Phase I filing are CCR compliance projects, including the conversion of Cayuga and Gibson stations to dry bottom ash handling and related water treatment. Duke Energy Indiana has requested timely recovery of approximately $380 million in retail capital costs, including AFUDC, and recovery of incremental operating and maintenance costs under a federal mandate tracker that provides for timely recovery of 80 percent of such costs and deferral with carrying costs of 20 percent of such costs for recovery in a subsequent retail base rate case. On January 24, 2017, Duke Energy Indiana and various Intervenors filed a settlement agreement with the IURC. Terms of the settlement include recovery of 60 percent of the estimated CCR compliance construction project capital costs through existing rider mechanisms and deferral of 40 percent of these costs until Duke Energy Indiana's next general retail rate case. The deferred costs will earn a return based on Duke Energy Indiana's long-term debt rate of 4.73 percent until costs are included in retail rates, at which time the deferred costs will earn a full return. Costs are to be capped at $365 million, plus actual AFUDC. Costs above the cap would be considered for recovery in the next rate case. Terms of the settlement agreement also require Duke Energy Indiana to perform certain reporting and groundwater monitoring. An evidentiary hearing was held on February 23, 2017, and Duke Energy Indiana filed a proposed order with the IURC on March 30, 2017. On May 24, 2017, the IURC approved the settlement agreement.

FERC Transmission Return on Equity Complaints

Customer groups have filed with the FERC complaints against MISO and its transmission-owning members, including Duke Energy Indiana, alleging, among other things, that the current base rate of return on equity earned by MISO transmission owners of 12.38 percent is unjust and unreasonable. The complaints, among other things, claim that the current base rate of return on equity earned by MISO transmission owners should be reduced to 8.67 percent. On January 5, 2015, the FERC issued an order accepting the MISO transmission owners' adder of 0.50 percent to the base rate of return on equity based on participation in an RTO subject to it being applied to a return on equity that is shown to be just and reasonable in the pending return on equity complaints. On December 22, 2015, the presiding FERC ALJ in the first complaint issued an Initial Decision in which the base rate of return on equity was set at 10.32 percent. On September 28, 2016, the Initial Decision in the first complaint was affirmed by FERC, but is subject to rehearing requests. On June 30, 2016, the presiding FERC ALJ in the second complaint issued an Initial Decision setting the base rate of return on equity at 9.70 percent. The Initial Decision in the second complaint is pending FERC review. On April 14, 2017, the U.S. Court of Appeals for the District of Columbia Circuit, in Emera Maine v. FERC, reversed and remanded certain aspects of the methodology employed by FERC to establish rates of return on equity. This decision may affect the outcome of the complaints against Duke Energy Indiana. Duke Energy Indiana currently believes these matters will not have a material impact on its results of operations, cash flows and financial position.

Piedmont

South Carolina Rate Stabilization Adjustment Filing

In June 2017, Piedmont filed with the PSCSC under the South Carolina Rate Stabilization Act its quarterly monitoring report for the 12-month period ending March 31, 2017. The filing includes a revenue deficiency calculation and tariff rates in order to permit Piedmont the opportunity to earn the rate of return on common equity established in its last general rate case. This filing is currently under review and audit by the South Carolina Office of Regulatory Staff. Piedmont cannot predict the outcome of this matter.

North Carolina Integrity Management Rider Filings

In May 2017, Piedmont filed, and the NCUC approved, a petition under the Integrity Management Rider mechanism to collect an additional $11.6 million in annual revenues, effective June 2017, based on the eligible capital investments closed to integrity and safety projects over the six-month period ending March 31, 2017.

OTHER REGULATORY MATTERS

Atlantic Coast Pipeline

On September 2, 2014, Duke Energy, Dominion Resources (Dominion), Piedmont and Southern Company Gas announced the formation of Atlantic Coast Pipeline, LLC (ACP) to build and own the proposed Atlantic Coast Pipeline (ACP pipeline), an approximately 600-mile interstate natural gas pipeline running from West Virginia to North Carolina. The ACP pipeline is designed to meet the needs identified in RFPs by Duke Energy Carolinas, Duke Energy Progress and Piedmont. The ACP pipeline development costs are estimated between $5.0 billion to $5.5 billion. Dominion will build and operate the ACP pipeline and holds a leading ownership percentage in ACP of 48 percent. Duke Energy owns a 47 percent interest through its Gas Utilities and Infrastructure segment. Southern Company Gas maintains a 5 percent interest. See Note 12 for additional information related to Duke Energy's ownership interest.

Duke Energy Carolinas, Duke Energy Progress and Piedmont, among others, will be customers of the pipeline. Purchases will be made under several 20-year supply contracts, subject to state regulatory approval. On September 18, 2015, ACP filed an application with the FERC requesting a CPCN authorizing ACP to construct the pipeline. ACP executed a construction agreement in September 2016. ACP also requested approval of an open access tariff and the precedent agreements it entered into with future pipeline customers. In December 2016, FERC issued a draft Environmental Impact Statement (EIS) indicating that the proposed pipeline would not cause significant harm to the environment or protected populations. The FERC issued the final EIS in July 2017. FERC approval of the application is expected in the fall of 2017 if the FERC reaches a quorum. Construction is projected to begin in the fourth quarter of 2017, with a targeted in-service date in the second half of 2019.

53

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Sabal Trail Transmission, LLC Pipeline

On May 4, 2015, Duke Energy acquired a 7.5 percent ownership interest in Sabal Trail Transmission, LLC (Sabal Trail) from Spectra Energy Partners, LP, a master limited partnership, formed by Enbridge Inc. (formerly Spectra Energy Corp.). Spectra Energy Partners, LP holds a 50 percent ownership interest in Sabal Trail and NextEra Energy has a 42.5 percent ownership interest. Sabal Trail is a joint venture to construct a 515-mile natural gas pipeline (Sabal Trail pipeline) to transport natural gas to Florida. Total estimated project costs are approximately $3.2 billion. The Sabal Trail pipeline traverses Alabama, Georgia and Florida. The primary customers of the Sabal Trail pipeline, Duke Energy Florida and Florida Power & Light Company (FP&L), have each contracted to buy pipeline capacity for 25-year initial terms. On February 3, 2016, the FERC issued an order granting the request for a CPCN to construct and operate the pipeline. On September 7, 2016, FERC denied the intervenors' rehearing requests. On September 21, 2016, intervenors filed an appeal of FERC's CPCN orders to the U.S. Court of Appeals for the District of Columbia Circuit. Oral argument on the appeal was held on April 18, 2017, and a decision is expected in the summer of 2017. The Sabal Trail pipeline has received other required regulatory approvals and the phase one mainline was placed in service in July 2017. Completion of a lateral line to Citrus County is expected in October 2017. See Note 12 for additional information related to Duke Energy's ownership interest.

Constitution Pipeline Company, LLC

Duke Energy has a 24 percent ownership interest in Constitution Pipeline Company, LLC (Constitution). Constitution is a natural gas pipeline project slated to transport natural gas supplies from the Marcellus supply region in northern Pennsylvania to major northeastern markets. The pipeline will be constructed and operated by Williams Partners L.P., which has a 41 percent ownership share. The remaining interest is held by Cabot Oil and Gas Corporation and WGL Holdings, Inc. Duke Energy's total anticipated contributions are approximately $229 million.

On April 22, 2016, the New York State Department of Environmental Conservation (NYSDEC) denied Constitution’s application for a necessary water quality certification for the New York portion of the Constitution pipeline. Constitution filed legal actions in the U.S. Court of Appeals for the Second Circuit (U.S. Court of Appeals) challenging the legality and appropriateness of the NYSDEC’s decision. On November 16, 2016, oral arguments were heard in the U.S. Court of Appeals. Constitution has revised the target in-service date to as early as the first half of 2019 due to the NYDSEC's denial of the water quality certification and the delay in a ruling from the U.S. Court of Appeals.

Since April 2016, with the actions of the NYSDEC, Constitution stopped construction and discontinued capitalization of future development costs until the project's uncertainty is resolved. To the extent the legal and regulatory proceedings have unfavorable outcomes, or if Constitution concludes that the project is not viable or does not go forward, an impairment charge of up to the recorded investment in the project, net of any cash and working capital returned, may be recorded.

See Note 12 for additional information related to ownership interest and carrying value of the investment.

Potential Coal Plant Retirements

The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in North Carolina, Florida and Indiana earlier than their current estimated useful lives primarily because facilities do not have the requisite emission control equipment to meet EPA regulations recently approved or proposed.

The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement. Dollar amounts in the table below are included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets as of June 30, 2017, and exclude capitalized asset retirement costs.

		Remaining Net
	Capacity	Book Value
	(in MW)	(in millions)
Duke Energy Carolinas
Allen Steam Station Units 1-3(a)	585	$	172
Progress Energy and Duke Energy Florida
Crystal River Units 1 and 2(b)	873	113
Duke Energy Indiana
Gallagher Units 2 and 4(c)	280	131
Total Duke Energy	1,738	$	416

(a) Duke Energy Carolinas will retire Allen Steam Station Units 1 through 3 by December 31, 2024, as part of the resolution of a lawsuit involving alleged New Source Review violations.

(b) Duke Energy Florida will likely retire these coal units by 2018 to comply with environmental regulations.

(c) Duke Energy Indiana committed to either retire or stop burning coal at Gallagher Units 2 and 4 by December 31, 2022, as part of the settlement of Edwardsport IGCC matters.

Refer to the "Western Carolinas Modernization Plan" discussion above for details of Duke Energy Progress' planned retirements.

54

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

5. COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL

The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all of the Duke Energy Registrants.

Remediation Activities

In addition to asset retirement obligations recorded as a result of various environmental regulations, the Duke Energy Registrants are responsible for environmental remediation at various sites. These include certain properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. These sites are in various stages of investigation, remediation and monitoring. Managed in conjunction with relevant federal, state and local agencies, remediation activities vary based upon site conditions and location, remediation requirements, complexity and sharing of responsibility. If remediation activities involve joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for environmental impacts caused by other potentially responsible parties and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Liabilities are recorded when losses become probable and are reasonably estimable. The total costs that may be incurred cannot be estimated because the extent of environmental impact, allocation among potentially responsible parties, remediation alternatives and/or regulatory decisions have not yet been determined at all sites. Additional costs associated with remediation activities are likely to be incurred in the future and could be significant. Costs are typically expensed as Operation, maintenance and other on the Condensed Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable.

The following tables contain information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets.

	Six Months Ended June 30, 2017
				Duke						Duke		Duke			Duke			Duke
	Duke			Energy			Progress			Energy		Energy			Energy			Energy
(in millions)	Energy			Carolinas			Energy			Progress		Florida			Ohio			Indiana			Piedmont
Balance at beginning of period	$	98		$	10		$	18		$	3	$	14		$	59		$	10		$	1
Provisions/adjustments	—			1			—			—		1			(2		)	—			—
Cash reductions	(8		)	(1		)	(2		)	—		(2		)	(4		)	(1		)	—
Balance at end of period	$	90		$	10		$	16		$	3	$	13		$	53		$	9		$	1

	Six Months Ended June 30, 2016
				Duke						Duke			Duke			Duke			Duke
	Duke			Energy			Progress			Energy			Energy			Energy			Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida			Ohio			Indiana			Piedmont
Balance at beginning of period	$	94		$	10		$	17		$	3		$	14		$	54		$	12		$	1
Provisions/adjustments	27			3			4			1			3			1			21			—
Cash reductions	(7		)	(2		)	(4		)	(1		)	(3		)	(1		)	(1		)	—
Balance at end of period	$	114		$	11		$	17		$	3		$	14		$	54		$	32		$	1

Additional losses in excess of recorded reserves that could be incurred for the stages of investigation, remediation and monitoring for environmental sites that have been evaluated at this time are not material except as presented in the table below.

(in millions)
Duke Energy	$	70
Duke Energy Carolinas	23
Duke Energy Ohio	35
Duke Energy Indiana	7
Piedmont	2

North Carolina and South Carolina Ash Basins

In February 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River Steam Station caused a release of ash basin water and ash into the Dan River. Duke Energy Carolinas estimates 30,000 to 39,000 tons of ash and 24 million to 27 million gallons of basin water were released into the river. In July 2014, Duke Energy completed remediation work identified by the EPA. Future costs related to the Dan River release, including future civil enforcement, future regulatory directives, natural resources damages, future claims or litigation and long-term environmental impact costs, cannot be reasonably estimated at this time.

55

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

The North Carolina Department of Environmental Quality (NCDEQ) has historically assessed Duke Energy Carolinas and Duke Energy Progress with Notice of Violations (NOV) for violations that were most often resolved through satisfactory corrective actions and minor, if any, fines or penalties. Subsequent to the Dan River ash release, Duke Energy Carolinas and Duke Energy Progress have been served with a higher level of NOVs, including assessed penalties for violations at L.V. Sutton Combined Cycle Plant (Sutton) and Dan River Steam Station. Duke Energy Carolinas and Duke Energy Progress cannot predict whether the NCDEQ will assess future penalties related to existing unresolved NOVs and if such penalties would be material. See "NCDEQ Notices of Violation" section below for additional discussion.

LITIGATION

Duke Energy

Duke Energy no longer has exposure to litigation matters related to the International Disposal Group as a result of the divestiture of the business in December 2016. See Note 2 for additional information related to the sale of International Energy.

Ash Basin Shareholder Derivative Litigation

Five shareholder derivative lawsuits were filed in Delaware Chancery Court relating to the release at Dan River and to the management of Duke Energy’s ash basins. On October 31, 2014, the five lawsuits were consolidated in a single proceeding titled In Re Duke Energy Corporation Coal Ash Derivative Litigation. On December 2, 2014, plaintiffs filed a Corrected Verified Consolidated Shareholder Derivative Complaint (Consolidated Complaint). The Consolidated Complaint names as defendants several current and former Duke Energy officers and directors (collectively, the Duke Energy Defendants). Duke Energy is named as a nominal defendant.

The Consolidated Complaint alleges the Duke Energy Defendants breached their fiduciary duties by failing to adequately oversee Duke Energy’s ash basins and that these breaches of fiduciary duty may have contributed to the incident at Dan River and continued thereafter. The lawsuit also asserts claims against the Duke Energy Defendants for corporate waste (relating to the money Duke Energy has spent and will spend as a result of the fines, penalties and coal ash removal) and unjust enrichment (relating to the compensation and director remuneration that was received despite these alleged breaches of fiduciary duty). The lawsuit seeks both injunctive relief against Duke Energy and restitution from the Duke Energy Defendants. On April 22, 2016, plaintiffs filed an Amended Verified Consolidated Shareholder Derivative Complaint (Amended Complaint) making the same allegations as in the Consolidated Complaint. The Duke Energy Defendants filed a motion to dismiss the Amended Complaint on June 21, 2016. On December 14, 2016, the Delaware Chancery Court entered an order dismissing the Amended Complaint. Plaintiffs filed an appeal to the Delaware Supreme Court on January 9, 2017. The parties have completed briefing in the case and oral argument is scheduled for September 27, 2017.

On October 30, 2015, shareholder Saul Bresalier filed a shareholder derivative complaint (Bresalier Complaint) in the U.S. District Court for the District of Delaware. The lawsuit alleges that several current and former Duke Energy officers and directors (Bresalier Defendants) breached their fiduciary duties in connection with coal ash environmental issues, the post-merger change in Chief Executive Officer (CEO) and oversight of political contributions. Duke Energy is named as a nominal defendant. The Bresalier Complaint contends that the appointed Demand Review Committee failed to appropriately consider the shareholder’s earlier demand for litigation and improperly decided not to pursue claims against the Bresalier Defendants. On March 30, 2017, the court granted Defendants’ Motion to Dismiss on the claims relating to coal ash environmental issues and political contributions. A notice of appeal has not been filed. As discussed below, an agreement-in-principle has been reached to settle the merger related claims in the Bresalier Complaint, and those claims were also dismissed subject to that agreement.

It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with these matters.

Progress Energy Merger Shareholder Litigation

On May 31, 2013, the Delaware Chancery Court consolidated four shareholder derivative lawsuits filed in 2012. The Court also appointed a lead plaintiff and counsel for plaintiffs and designated the case as In Re Duke Energy Corporation Derivative Litigation (Merger Chancery Litigation). The lawsuit names as defendants the Legacy Duke Energy Directors. Duke Energy is named as a nominal defendant. The case alleges claims for breach of fiduciary duties of loyalty and care in connection with the post-merger change in CEO.

Two shareholder Derivative Complaints, filed in 2012 in federal district court in Delaware, were consolidated as Tansey v. Rogers, et al. The case alleges claims against the Legacy Duke Energy Directors for breach of fiduciary duty and waste of corporate assets, as well as claims under Section 14(a) and 20(a) of the Exchange Act. Duke Energy is named as a nominal defendant. On December 21, 2015, Plaintiff filed a Consolidated Amended Complaint asserting the same claims contained in the original complaints.

The Legacy Duke Energy Directors reached an agreement-in-principle to settle the Merger Chancery Litigation, conditioned on dismissal as well, of the Tansey v. Rogers, et al case and the merger related claims in the Bresalier Complaint discussed above, for a total of $27 million, which was approved by the Delaware Chancery Court on July 13, 2017. The entire settlement amount is to be funded by insurance. The settlement amount, less court-approved attorney fees, will be payable to Duke Energy.

Price Reporting Cases

Duke Energy Trading and Marketing, LLC (DETM), a non-operating Duke Energy affiliate, was a defendant, along with numerous other energy companies, in four class-action lawsuits and a fifth single-plaintiff lawsuit in a consolidated federal court proceeding in Nevada. Each of these lawsuits contained similar claims that defendants allegedly manipulated natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs sought damages in unspecified amounts. In February 2016, DETM reached agreements in principle to settle all of the pending lawsuits. Settlement of the single-plaintiff settlement was finalized and paid in March 2016. The proposed settlement of the class action lawsuits was approved by the Court and all settlement amounts, which are not material to Duke Energy, have been paid.

56

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Duke Energy Carolinas and Duke Energy Progress

Coal Ash Insurance Coverage Litigation

In March 2017, Duke Energy Carolinas and Duke Energy Progress filed a civil action in North Carolina Superior Court against various insurance providers. The lawsuit seeks payment for coal ash related liabilities covered by third-party liability insurance policies. The insurance policies were issued between 1971 and 1986 and provide third-party liability insurance for property damage. The civil action seeks damages for breach of contract and indemnification for costs arising from the Coal Ash Act and the EPA CCR rule at 15 coal-fired plants in North Carolina and South Carolina. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.

NCDEQ State Enforcement Actions

In the first quarter of 2013, the Southern Environmental Law Center (SELC) sent notices of intent to sue Duke Energy Carolinas and Duke Energy Progress related to alleged Clean Water Act (CWA) violations from coal ash basins at two of their coal-fired power plants in North Carolina. The NCDEQ filed enforcement actions against Duke Energy Carolinas and Duke Energy Progress alleging violations of water discharge permits and North Carolina groundwater standards. The cases have been consolidated and are being heard before a single judge.

On August 16, 2013, the NCDEQ filed an enforcement action against Duke Energy Carolinas and Duke Energy Progress related to their remaining plants in North Carolina, alleging violations of the CWA and violations of the North Carolina groundwater standards. Both of these cases have been assigned to the judge handling the enforcement actions discussed above. SELC is representing several environmental groups who have been permitted to intervene in these cases.

The court issued orders in 2016 granting Motions' for Partial Summary Judgment for seven of the 14 North Carolina plants named in the enforcement actions. The litigation is concluded for these seven plants. Litigation continues for the remaining seven plants. In response to a motion for partial summary judgment on the groundwater claims filed by the environmental groups, on October 17, 2016, Duke Energy Carolinas and Duke Energy Progress filed a cross-motion for partial summary judgment on the groundwater claims. On February 13, 2017, the court issued an order denying both the environmental groups' motion for partial summary judgment and Duke Energy Carolinas and Duke Energy Progress' cross-motion for partial summary judgment. On March 15, 2017, Duke Energy Carolinas and Duke Energy Progress filed a Notice of Appeal to challenge the trial court’s denial of their cross-motion for partial summary judgment. The parties were unable to reach an agreement at mediation on April 18, 2017. The court has requested the parties to make submissions on what issues remain to be tried.

It is not possible to predict any liability or estimate any damages Duke Energy Carolinas or Duke Energy Progress might incur in connection with these matters.

Federal Citizens Suits

On June 13, 2016, the Roanoke River Basin Association (RRBA) filed a federal citizen suit in the Middle District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the Mayo Plant. On August 19, 2016, Duke Energy Progress filed a Motion to Dismiss. On April 26, 2017, the court entered an order dismissing four of the claims in the federal citizen suit. Two claims relating to alleged violations of National Pollutant Discharge Elimination System permit provisions survived the motion to dismiss, and Duke Energy Progress filed its response on May 10, 2017. The parties are engaged in pre-trial discovery.

On March 16, 2017, RRBA served Duke Energy Progress with a Notice of Intent to Sue under the CWA for alleged violations of effluent standards and limitations at the Roxboro Plant. In anticipation of litigation, Duke Energy Progress filed a Complaint for Declaratory Relief in the U.S. District Court for the Western District of Virginia on May 11, 2017, disputing RRBA's claims and requesting declaratory judgment in its favor. RRBA then filed a motion to dismiss or transfer venue of the declaratory action filed by Duke Energy Progress in the Western District of Virginia. Duke Energy Progress' motion of opposition was heard on July 24, 2017, and a ruling is pending. On May 16, 2017, RRBA filed a federal citizen suit in the U.S. District Court for the Middle District of North Carolina. On July 17, 2017, Duke Energy Progress filed a motion to dismiss that action in favor of the pending action in the Western District of Virginia.

On June 20, 2017, RRBA filed a federal citizen suit in the U.S. District Court for the Middle District of North Carolina challenging the closure plans at the Mayo Plant under the EPA CCR Rule. Duke Energy Progress' response is due by August 21, 2017.

On August 2, 2017, RRBA filed a federal citizen suit in the U.S. District Court for the Middle District of North Carolina challenging the closure plans at the Roxboro Plant under the EPA CCR Rule. Duke Energy Progress' response is due by October 2, 2017.

It is not possible to predict whether Duke Energy Progress will incur any liability or to estimate the damages, if any, it might incur in connection with these matters.

Five previously filed cases involving the Riverbend, Cape Fear, H.F. Lee, Sutton and Buck plants were dismissed or settled in 2016.

57

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Potential Groundwater Contamination Claims

Beginning in May 2015, a number of residents living in the vicinity of the North Carolina facilities with ash basins received letters from the NCDEQ advising them not to drink water from the private wells on their land tested by the NCDEQ as the samples were found to have certain substances at levels higher than the criteria set by the North Carolina Department of Health and Human Services (DHHS). The criteria, in some cases, are considerably more stringent than federal drinking water standards established to protect human health and welfare. The Coal Ash Act requires additional groundwater monitoring and assessments for each of the 14 coal-fired plants in North Carolina, including sampling of private water supply wells. The data gathered through these Comprehensive Site Assessments (CSAs) will be used by NCDEQ to determine whether the water quality of these private water supply wells has been adversely impacted by the ash basins. Duke Energy has submitted CSAs documenting the results of extensive groundwater monitoring around coal ash basins at all 14 of the plants with coal ash basins. Generally, the data gathered through the installation of new monitoring wells and soil and water samples across the state have been consistent with historical data provided to state regulators over many years. The DHHS and NCDEQ sent follow-up letters on October 15, 2015, to residents near coal ash basins who have had their wells tested, stating that private well samplings at a considerable distance from coal ash basins, as well as some municipal water supplies, contain similar levels of vanadium and hexavalent chromium, which leads investigators to believe these constituents are naturally occurring. In March 2016, DHHS rescinded the advisories.

Duke Energy Carolinas and Duke Energy Progress have received formal demand letters from residents near Duke Energy Carolinas' and Duke Energy Progress' coal ash basins. The residents claim damages for nuisance and diminution in property value, among other things. The parties held three days of mediation discussions that ended at impasse. On January 6, 2017, Duke Energy Carolinas and Duke Energy Progress received the plaintiffs' notice of their intent to file suits should the matter not settle. The NCDEQ preliminarily approved Duke Energy’s permanent water solution plans on January 13, 2017, and as a result shortly thereafter, Duke Energy issued a press release, providing additional details regarding the homeowner compensation package. This package consists of three components: (i) a $5,000 goodwill payment to each eligible well owner to support the transition to a new water supply, (ii) where a public water supply is available and selected by the eligible well owner, a stipend to cover 25 years of water bills and (iii) the Property Value Protection Plan. The Property Value Protection Plan is a program offered by Duke Energy designed to guarantee eligible plant neighbors the fair market value of their residential property should they decide to sell their property during the time that the plan is offered. Duke Energy received a letter from Plaintiffs' counsel indicating their intent to file suit on February 2, 2017, should a settlement not be reached by that date. Plaintiff’s counsel did not file suit upon the expiration of the tolling agreement on February 2, 2017, and no suit has been filed to date. Duke Energy Carolinas and Duke Energy Progress have recognized reserves of $18 million and $4 million, respectively.

It is not possible to estimate the maximum exposure of loss, if any, that may occur in connection with claims, which might be made by these residents.

Asbestos-related Injuries and Damages Claims

Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement related to asbestos exposure. These claims relate to damages for bodily injuries alleged to have arisen from exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of June 30, 2017, there were 87 asserted claims for non-malignant cases with cumulative relief sought of up to $23 million, and 58 asserted claims for malignant cases with cumulative relief sought of up to $16 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed.

Duke Energy Carolinas has recognized asbestos-related reserves of $497 million at June 30, 2017 and $512 million at December 31, 2016. These reserves are classified in Other within Other Noncurrent Liabilities and Other within Current Liabilities on the Condensed Consolidated Balance Sheets. These reserves are based upon the minimum amount of the range of loss for current and future asbestos claims through 2036, are recorded on an undiscounted basis and incorporate anticipated inflation. In light of the uncertainties inherent in a longer-term forecast, management does not believe they can reasonably estimate the indemnity and medical costs that might be incurred after 2036 related to such potential claims. It is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves.

Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. Duke Energy Carolinas’ cumulative payments began to exceed the self-insurance retention in 2008. Future payments up to the policy limit will be reimbursed by the third-party insurance carrier. The insurance policy limit for potential future insurance recoveries indemnification and medical cost claim payments is $814 million in excess of the self-insured retention. Receivables for insurance recoveries were $587 million at June 30, 2017 and December 31, 2016. These amounts are classified in Other within Other Noncurrent Assets and Receivables within Current Assets on the Condensed Consolidated Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating.

Duke Energy Florida

Class Action Lawsuit

On February 22, 2016, a lawsuit was filed in the U.S. District Court for the Southern District of Florida on behalf of a putative class of Duke Energy Florida and FP&L’s customers in Florida. The suit alleges the State of Florida’s nuclear power plant cost recovery statutes (NCRS) are unconstitutional and pre-empted by federal law. Plaintiffs claim they are entitled to repayment of all money paid by customers of Duke Energy Florida and FP&L as a result of the NCRS, as well as an injunction against any future charges under those statutes. The constitutionality of the NCRS has been challenged unsuccessfully in a number of prior cases on alternative grounds. Duke Energy Florida and FP&L filed motions to dismiss the complaint on May 5, 2016. On September 21, 2016, the Court granted the motions to dismiss with prejudice. Plaintiffs filed a motion for reconsideration, which was denied. On January 4, 2017, plaintiffs filed a notice of appeal to the Eleventh Circuit U.S. Court of Appeals. Plaintiffs filed an appellate brief on March 16, 2017, and Duke Energy Florida filed responses on April 17, 2017. Oral argument is scheduled for August 22, 2017. Duke Energy Florida cannot predict the outcome of this appeal.

58

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Westinghouse Contract Litigation

On March 28, 2014, Duke Energy Florida filed a lawsuit against Westinghouse in the U.S. District Court for the Western District of North Carolina. The lawsuit seeks recovery of $54 million in milestone payments in excess of work performed under an EPC for Levy as well as a determination by the court of the amounts due to Westinghouse as a result of the termination of the EPC. Duke Energy Florida recognized an exit obligation as a result of the termination of the EPC.

On March 31, 2014, Westinghouse filed a lawsuit against Duke Energy Florida in U.S. District Court for the Western District of Pennsylvania. The Pennsylvania lawsuit alleged damages under the EPC in excess of $510 million for engineering and design work, costs to end supplier contracts and an alleged termination fee.

On June 9, 2014, the judge in the North Carolina case ruled that the litigation will proceed in the Western District of North Carolina. On July 11, 2016, Duke Energy Florida and Westinghouse filed separate Motions for Summary Judgment. On September 29, 2016, the court issued its ruling on the parties' respective Motions for Summary Judgment, ruling in favor of Westinghouse on a $30 million termination fee claim and dismissing Duke Energy Florida's $54 million refund claim, but stating that Duke Energy Florida could use the refund claim to offset any damages for termination costs. Westinghouse's claim for termination costs was unaffected by this ruling and continued to trial. At trial, Westinghouse reduced its claim for termination costs from $482 million to $424 million. Following a trial on the matter, the court issued its final order in December 2016 denying Westinghouse’s claim for termination costs and re-affirming its earlier ruling in favor of Westinghouse on the $30 million termination fee and Duke Energy Florida’s refund claim. Judgment was entered against Duke Energy Florida in the amount of approximately $34 million, which includes prejudgment interest. Westinghouse has appealed the trial court's order and Duke Energy Florida has cross-appealed. Duke Energy Florida cannot predict the ultimate outcome of the appeal of the trial court's order.

On March 29, 2017, Westinghouse filed Chapter 11 bankruptcy in the Southern District of New York, which automatically stayed the appeal. On May 23, 2017, the bankruptcy court entered an order lifting the stay with respect to the appeal. The Fourth Circuit has issued a revised briefing schedule that provides for completion of briefing by October 20, 2017.

Ultimate resolution of these matters could have a material effect on the results of operations, financial position or cash flows of Duke Energy Florida. However, appropriate regulatory recovery will be pursued for the retail portion of any costs incurred in connection with such resolution.

MGP Cost Recovery Action

On December 30, 2011, Duke Energy Florida filed a lawsuit against FirstEnergy Corp. (FirstEnergy) to recover investigation and remediation costs incurred by Duke Energy Florida in connection with the restoration of two former MGP sites in Florida. Duke Energy Florida alleged that FirstEnergy, as the successor to Associated Gas & Electric Co., owes past and future contribution and response costs of up to $43 million for the investigation and remediation of MGP sites. On December 6, 2016, the trial court entered judgment against Duke Energy Florida in the case. In January 2017, Duke Energy Florida appealed the decision to the U.S. Court of Appeals for the 6th Circuit and briefing has been completed. Duke Energy Florida cannot predict the outcome of this appeal.

Duke Energy Indiana

Benton County Wind Farm Dispute

On December 16, 2013, Benton County Wind Farm LLC (BCWF) filed a lawsuit against Duke Energy Indiana seeking damages for past generation losses totaling approximately $16 million alleging Duke Energy Indiana violated its obligations under a 2006 PPA by refusing to offer electricity to the market at negative prices. Damage claims continue to increase during times that BCWF is not dispatched. Under 2013 revised MISO market rules, Duke Energy Indiana is required to make a price offer to MISO for the power it proposes to sell into MISO markets and MISO determines whether BCWF is dispatched. Because market prices would have been negative due to increased market participation, Duke Energy Indiana determined it would not bid at negative prices in order to balance customer needs against BCWF's need to run. BCWF contends Duke Energy Indiana must bid at the lowest negative price to ensure dispatch, while Duke Energy Indiana contends it is not obligated to bid at any particular price, that it cannot ensure dispatch with any bid and that it has reasonably balanced the parties' interests. On July 6, 2015, the U.S. District Court for the Southern District of Indiana entered judgment against BCWF on all claims. BCWF appealed the decision and on December 9, 2016, the appeals court ruled in favor of BCWF. On June 30, 2017, the parties finalized a settlement agreement. Terms of the settlement included Duke Energy Indiana paying $29 million for back damages. Additionally, the parties agreed on the method by which the contract will be bid into the market in the future. Duke Energy Indiana recorded an obligation and a regulatory asset related to the settlement amount in fourth quarter 2016. The settlement amount was paid in June 2017.

Other Litigation and Legal Proceedings

The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve significant amounts. The Duke Energy Registrants believe the final disposition of these proceedings will not have a material effect on their results of operations, cash flows or financial position.

59

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

The table below presents recorded reserves based on management’s best estimate of probable loss for legal matters, excluding asbestos-related reserves and the exit obligation discussed above related to the termination of an EPC contract. Reserves are classified on the Condensed Consolidated Balance Sheets in Other within Other Noncurrent Liabilities and Accounts payable and Other within Current Liabilities. The reasonably possible range of loss in excess of recorded reserves is not material, other than as described above.

(in millions)	June 30, 2017		December 31, 2016
Reserves for Legal Matters
Duke Energy	$	82	$	98
Duke Energy Carolinas	23		23
Progress Energy	57		59
Duke Energy Progress	12		14
Duke Energy Florida	28		28
Duke Energy Ohio	—		4
Piedmont	2		2

OTHER COMMITMENTS AND CONTINGENCIES

General

As part of their normal business, the Duke Energy Registrants are party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. These guarantees involve elements of performance and credit risk, which are not fully recognized on the Condensed Consolidated Balance Sheets and have unlimited maximum potential payments. However, the Duke Energy Registrants do not believe these guarantees will have a material effect on their results of operations, cash flows or financial position.

In addition, the Duke Energy Registrants enter into various fixed-price, noncancelable commitments to purchase or sell power or natural gas, take-or-pay arrangements, transportation, or throughput agreements and other contracts that may or may not be recognized on their respective Condensed Consolidated Balance Sheets. Some of these arrangements may be recognized at fair value on their respective Condensed Consolidated Balance Sheets if such contracts meet the definition of a derivative and the normal purchase/normal sale (NPNS) exception does not apply. In most cases, the Duke Energy Registrants’ purchase obligation contracts contain provisions for price adjustments, minimum purchase levels and other financial commitments.

6. DEBT AND CREDIT FACILITIES

SUMMARY OF SIGNIFICANT DEBT ISSUANCES

The following table summarizes significant debt issuances (in millions). Refer to the "Available Credit Facilities" section below regarding amounts issued under the Three Year Revolver and the Piedmont Term Loan facilities.

				Six Months Ended June 30, 2017
						Duke		Duke		Duke
	Maturity	Interest		Duke		Energy		Energy		Energy
Issuance Date	Date	Rate		Energy		(Parent)		Florida		Ohio
Unsecured Debt
April 2017(a)	April 2025	3.364	%	$	420	$	420	$	—	$	—
June 2017(b)	June 2020	2.100	%	330		330		—		—
Secured Debt
February 2017(c)	June 2034	4.120	%	587		—		—		—
First Mortgage Bonds
January 2017(d)	January 2020	1.850	%	250		—		250		—
January 2017(d)	January 2027	3.200	%	650		—		650		—
March 2017(e)	June 2046	3.700	%	100		—		—		100
Total issuances				$	2,337	$	750	$	900	$	100

(a) Proceeds were used to refinance $400 million of unsecured debt at maturity and to repay a portion of outstanding commercial paper.

(b) Debt issued to repay a portion of outstanding commercial paper.

(c) Portfolio financing of four Texas and Oklahoma wind facilities. Secured by substantially all of the assets of these wind facilities and nonrecourse to Duke Energy. Proceeds were used to reimburse Duke Energy for a portion of previously funded construction expenditures.

(d) Debt issued to fund capital expenditures for ongoing construction and capital maintenance, to repay at maturity a $250 million aggregate principal amount of bonds due September 2017 and for general corporate purposes.

(e) Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance and for general corporate purposes.

60

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

CURRENT MATURITIES OF LONG-TERM DEBT

The following table shows the significant components of Current Maturities of Long-Term Debt on the Condensed Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings.

(in millions)	Maturity Date	Interest Rate		June 30, 2017
Unsecured Debt
Duke Energy (Parent)	August 2017	1.625	%	$	700
Piedmont	September 2017	8.510	%	35
Duke Energy (Parent)	June 2018	6.250	%	250
Duke Energy (Parent)	June 2018	2.100	%	500
First Mortgage Bonds
Duke Energy Florida	September 2017	5.800	%	250
Duke Energy Progress	November 2017	1.372	%	200
Duke Energy Carolinas	January 2018	5.250	%	400
Duke Energy Carolinas	April 2018	5.100	%	300
Duke Energy Florida	June 2018	5.650	%	500
Other(a)				337
Current maturities of long-term debt				$	3,472

(a)    Includes capital lease obligations, amortizing debt and small bullet maturities.

AVAILABLE CREDIT FACILITIES

Master Credit Facility

In March 2017, Duke Energy amended its Master Credit Facility to increase its capacity from $7.5 billion to $8 billion, and to extend the termination date of the facility from January 30, 2020, to March 16, 2022. The amendment also added Piedmont as a borrower within the Master Credit Facility. Piedmont's separate $850 million credit facility was terminated in connection with the amendment. With the amendment, the Duke Energy Registrants, excluding Progress Energy (Parent), have borrowing capacity under the Master Credit Facility up to a specified sublimit for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. Duke Energy Carolinas and Duke Energy Progress are also required to each maintain $250 million of available capacity under the Master Credit Facility as security to meet obligations under plea agreements reached with the U.S. Department of Justice in 2015 related to violations at North Carolina facilities with ash basins. The table below includes the current borrowing sublimits and available capacity under the Master Credit Facility.

	June 30, 2017
				Duke			Duke			Duke			Duke			Duke			Duke
	Duke			Energy			Energy			Energy			Energy			Energy			Energy
(in millions)	Energy			(Parent)			Carolinas			Progress			Florida			Ohio			Indiana			Piedmont
Facility size(a)	$	8,000		$	3,150		$	1,350		$	1,250		$	700		$	450		$	600		$	500
Reduction to backstop issuances
Commercial paper(b)	(3,115		)	(1,392		)	(732		)	(661		)	—			(45		)	(150		)	(135		)
Outstanding letters of credit	(68		)	(59		)	(4		)	(2		)	(1		)	—			—			(2		)
Tax-exempt bonds	(81		)	—			—			—			—			—			(81		)	—
Coal ash set-aside	(500		)	—			(250		)	(250		)	—			—			—			—
Available capacity under the Master Credit Facility	$	4,236		$	1,699		$	364		$	337		$	699		$	405		$	369		$	363

(a) Represents the sublimit of each borrower.

(b) Duke Energy issued $625 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana. The balances are classified as Long-Term Debt Payable to Affiliated Companies on the Condensed Consolidated Balance Sheets.

Three Year Revolving Credit Facility

In June 2017, Duke Energy (Parent) entered into a three-year $1.0 billion revolving credit facility (the Three Year Revolver). Borrowings under this facility will be used for general corporate purposes.

61

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

As of June 30, 2017, $270 million has been drawn under the Three Year Revolver. This balance is classified as Long-Term Debt on Duke Energy's Condensed Consolidated Balance Sheets. Any undrawn commitments can be drawn, and borrowings can be prepaid, at any time throughout the term of the facility. The terms and conditions of the Three Year Revolver are generally consistent with those governing Duke Energy's Master Credit Facility.

Piedmont Term Loan Facility

In June 2017, Piedmont entered into an 18-month term loan facility with commitments totaling $250 million (the Piedmont Term Loan). Borrowings under the facility will be used for general corporate purposes.

As of June 30, 2017, $125 million has been drawn under the Piedmont Term Loan. This balance is classified as Long-Term Debt on Piedmont's Condensed Consolidated Balance Sheets. The remaining $125 million can be drawn in one additional borrowing, which must occur within 90 days of the closing date of the facility. Piedmont anticipates borrowing the remaining $125 million in the third quarter of 2017. The terms and conditions of the Piedmont Term Loan are generally consistent with those governing Duke Energy's Master Credit Facility.

7. GOODWILL AND INTANGIBLE ASSETS

GOODWILL

Duke Energy

The following table presents the goodwill by reportable operating segment on Duke Energy's Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016.

	Electric Utilities		Gas Utilities		Commercial
(in millions)	and Infrastructure		and Infrastructure		Renewables		Total
Goodwill	$	17,379	$	1,924	$	122	$	19,425

Duke Energy Ohio

Duke Energy Ohio's Goodwill balance of $920 million, allocated $596 million to Electric Utilities and Infrastructure and $324 million to Gas Utilities and Infrastructure, is presented net of accumulated impairment charges of $216 million on the Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016.

Progress Energy

Progress Energy's Goodwill is included in the Electric Utilities and Infrastructure operating segment and there are no accumulated impairment charges.

Piedmont

Piedmont's Goodwill is included in the Gas Utilities and Infrastructure operating segment and there are no accumulated impairment charges. Effective November 1, 2016, Piedmont's fiscal year was changed from October 31 to December 31. Effective with this change, Piedmont changed the date of their annual impairment testing of goodwill from October 31 to August 31 to align with the other Duke Energy Registrants.

62

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

8. RELATED PARTY TRANSACTIONS

The Subsidiary Registrants engage in related party transactions in accordance with applicable state and federal commission regulations. Refer to the Condensed Consolidated Balance Sheets of the Subsidiary Registrants for balances due to or due from related parties. Material amounts related to transactions with related parties included on the Condensed Consolidated Statements of Operations and Comprehensive Income are presented in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2017		2016		2017		2016
Duke Energy Carolinas
Corporate governance and shared service expenses(a)	$	178	$	199	$	377	$	416
Indemnification coverages(b)	6		5		12		11
JDA revenue(c)	17		2		33		11
JDA expense(c)	21		50		52		91
Intercompany natural gas purchases(d)	1		—		2		—
Progress Energy
Corporate governance and shared service expenses(a)	$	173	$	160	$	342	$	334
Indemnification coverages(b)	9		9		19		17
JDA revenue(c)	21		50		52		91
JDA expense(c)	17		2		33		11
Intercompany natural gas purchases(d)	19		—		38		—
Duke Energy Progress
Corporate governance and shared service expenses(a)	$	102	$	89	$	205	$	189
Indemnification coverages(b)	3		4		7		7
JDA revenue(c)	21		50		52		91
JDA expense(c)	17		2		33		11
Intercompany natural gas purchases(d)	19		—		38		—
Duke Energy Florida
Corporate governance and shared service expenses(a)	$	71	$	71	$	137	$	145
Indemnification coverages(b)	6		5		12		10
Duke Energy Ohio
Corporate governance and shared service expenses(a)	$	84	$	87	$	174	$	172
Indemnification coverages(b)	1		1		2		2
Duke Energy Indiana
Corporate governance and shared service expenses(a)	$	87	$	89	$	177	$	183
Indemnification coverages(b)	2		2		4		4
Piedmont
Corporate governance and shared service expenses(a)	$	8	$	—	$	14	$	—
Indemnification coverages(b)	—		—		1		—
Intercompany natural gas sales(d)	20		—		40		—

(a) The Subsidiary Registrants are charged their proportionate share of corporate governance and other shared services costs, primarily related to human resources, employee benefits, information technology, legal and accounting fees, as well as other third-party costs. These amounts are primarily recorded in Operation, maintenance and other on the 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 on the Condensed Consolidated Statements of Operations and Comprehensive Income.

(c) Duke Energy Carolinas and Duke Energy Progress participate in a Joint Dispatch Agreement (JDA), which allows the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power and expenses from the purchase of power under the JDA are recorded in Operating Revenues and Fuel used in electric generation and purchased power, respectively, on the Condensed Consolidated Statements of Operations and Comprehensive Income.

(d) Piedmont provides long-term natural gas delivery service to certain Duke Energy Carolinas and Duke Energy Progress' natural gas-fired generation facilities. Piedmont records the sales in Regulated natural gas revenues, and Duke Energy Carolinas and Duke Energy Progress record the related purchases in Fuel used in electric generation and purchased power on their respective Condensed Consolidated Statements of Operations and Comprehensive Income. The amounts are not eliminated in accordance with rate-based accounting regulations. For the three and six months ended June 30, 2016, which was prior to the Piedmont acquisition, Piedmont recorded $19 million and $38 million, respectively, of natural gas sales with Duke Energy Progress and $1 million and 2 million, respectively, with Duke Energy Carolinas.

63

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

In addition to the amounts presented above, the Subsidiary Registrants have other affiliate transactions, including rental of office space, participation in a money pool arrangement, other operational transactions and their proportionate share of certain charged expenses. See Note 6 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2016, for more information regarding the money pool. These transactions of the Subsidiary Registrants were not material for the three and six months ended June 30, 2017 and 2016.

As discussed in Note 12, certain trade receivables have been sold by Duke Energy Ohio and Duke Energy Indiana to CRC, an affiliate formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but also include a subordinated note from the affiliate for a portion of the purchase price.

Equity Method Investments

Piedmont has related party transactions as a customer of its equity method investments in natural gas storage and transportation facilities. The following table presents expenses for the three and six months ended June 30, 2017 and 2016, which are included in Cost of natural gas on Piedmont's Condensed Consolidated Statement of Operations and Comprehensive Income.

		Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	Type of expense	2017		2016		2017		2016
Cardinal	Transportation Costs	$	2	$	2	$	4	$	4
Pine Needle	Gas Storage Costs	2		2		4		5
Hardy Storage	Gas Storage Costs	3		3		5		5
Total		$	7	$	7	$	13	$	14

Piedmont had accounts payable to its equity method investments of $2 million at June 30, 2017, and December 31, 2016, related to these transactions. These amounts are included in Accounts payable on the Condensed Consolidated Balance Sheets.

Intercompany Income Taxes

Duke Energy and the Subsidiary Registrants file a consolidated federal income tax return and other state and jurisdictional returns. The Subsidiary Registrants have a tax sharing agreement with Duke Energy for the allocation of consolidated tax liabilities and benefits. Income taxes recorded represent amounts the Subsidiary Registrants would incur as separate C-Corporations. The following table includes the balance of intercompany income tax receivables and payables for the Subsidiary Registrants.

	Duke				Duke		Duke		Duke		Duke
	Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
June 30, 2017
Intercompany income tax receivable	$	—	$	102	$	35	$	—	$	19	$	25	$	56
Intercompany income tax payable	20		—		—		3		—		—		—
December 31, 2016
Intercompany income tax receivable	$	1	$	—	$	—	$	37	$	—	$	—	$	—
Intercompany income tax payable	—		37		90		—		1		3		38

9. DERIVATIVES AND HEDGING

The Duke Energy Registrants use commodity and interest rate contracts to manage commodity price risk and interest rate risk. The primary use of commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Piedmont enters into gas supply contracts to provide diversification, reliability and gas cost benefits to their customers. Interest rate swaps are used to manage interest rate risk associated with borrowings.

All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Condensed Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting arrangements is offset against the collateralized derivatives on the Condensed Consolidated Balance Sheets. The cash impacts of settled derivatives are recorded as operating activities on the Condensed Consolidated Statements of Cash Flows.

INTEREST RATE RISK

The Duke Energy Registrants are exposed to changes in interest rates as a result of their issuance or anticipated issuance of variable-rate and fixed-rate debt and commercial paper. Interest rate risk is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into interest rate swaps, U.S. Treasury lock agreements and other financial contracts. In anticipation of certain fixed-rate debt issuances, a series of forward-starting interest rate swaps or Treasury locks may be executed to lock in components of current market interest rates. These instruments are later terminated prior to or upon the issuance of the corresponding debt.

64

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Cash Flow Hedges

For a derivative designated as hedging the exposure to variable cash flows of a future transaction, referred to as a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings once the future transaction impacts earnings. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt. Gains and losses reclassified out of AOCI for the three and six months ended June 30, 2017, were not material. Duke Energy's interest rate derivatives designated as hedges include interest rate swaps used to hedge existing debt within the Commercial Renewables business.

In July and August 2017, Duke Energy entered into $200 million notional amount of Treasury locks that were designated as hedges of debt anticipated to be issued in 2017.

Undesignated Contracts

Undesignated contracts include contracts not designated as a hedge because they are accounted for under regulatory accounting and contracts that do not qualify for hedge accounting.

Duke Energy’s interest rate swaps for its regulated operations employ regulatory accounting. With regulatory accounting, the mark-to-market gains or losses on the swaps are deferred as regulatory liabilities or regulatory assets, respectively. Regulatory assets and liabilities are amortized consistent with the treatment of the related costs in the ratemaking process. The accrual of interest on the swaps is recorded as Interest Expense.

As of June 30, 2016, Duke Energy entered into $1.4 billion of forward-starting interest rate swaps to manage interest rate exposure related to the Piedmont acquisition financing. The swaps did not qualify for hedge accounting and were marked-to-market, with any gains or losses included within earnings. For the three and six months ended June 30, 2016, unrealized losses on the swaps of $75 million and $168 million, respectively, were included within Interest Expense on Duke Energy's Condensed Consolidated Statements of Operations. The swaps were unwound in August 2016 in conjunction with the acquisition financing. See Note 2 for additional information related to the Piedmont acquisition.

The following table shows notional amounts of outstanding derivatives related to interest rate risk.

	June 30, 2017
			Duke				Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio
Cash flow hedges(a)	$	703	$	—	$	—	$	—	$	—	$	—
Undesignated contracts	927		400		500		250		250		27
Total notional amount	$	1,630	$	400	$	500	$	250	$	250	$	27

	December 31, 2016
			Duke				Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio
Cash flow hedges(a)	$	750	$	—	$	—	$	—	$	—	$	—
Undesignated contracts	927		400		500		250		250		27
Total notional amount	$	1,677	$	400	$	500	$	250	$	250	$	27

(a) Duke Energy includes amounts related to consolidated VIEs of $703 million and $750 million as of June 30, 2017 and December 31, 2016, respectively.

COMMODITY PRICE RISK

The Duke Energy Registrants are exposed to the impact of changes in the prices of electricity purchased and sold in bulk power markets and coal and natural gas purchases, including Piedmont's gas supply contracts. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets and delivery locations. For the Subsidiary Registrants, bulk power electricity and coal and natural gas purchases flow through fuel adjustment clauses, formula based contracts or other cost sharing mechanisms. Differences between the costs included in rates and the incurred costs, including undesignated derivative contracts, are largely deferred as regulatory assets or regulatory liabilities. Piedmont policies allow for the use of financial instruments to hedge commodity price risks. The strategy and objective of these hedging programs are to use the financial instruments to reduce gas costs volatility for customers.

65

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Volumes

The tables below include volumes of outstanding commodity derivatives. Amounts disclosed represent the absolute value of notional volumes of commodity contracts excluding NPNS. The Duke Energy Registrants have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown.

	June 30, 2017
		Duke		Duke	Duke	Duke
	Duke	Energy	Progress	Energy	Energy	Energy
	Energy	Carolinas	Energy	Progress	Florida	Indiana	Piedmont
Electricity (gigawatt-hours)	178	—	—	—	—	178	—
Natural gas (millions of dekatherms)	791	92	202	106	96	2	495

	December 31, 2016
		Duke		Duke	Duke	Duke
	Duke	Energy	Progress	Energy	Energy	Energy
	Energy	Carolinas	Energy	Progress	Florida	Indiana	Piedmont
Electricity (gigawatt-hours)	147	—	—	—	—	147	—
Natural gas (millions of dekatherms)	890	91	269	118	151	1	529

66

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED ON THE CONDENSED CONSOLIDATED BALANCE SHEETS

The following tables show the fair value and balance sheet location of derivative instruments. Although derivatives subject to master netting arrangements are netted on the Condensed Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown.

Derivative Assets	June 30, 2017
			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Commodity Contracts
Not Designated as Hedging Instruments
Current	$	76	$	7	$	11	$	7	$	4	$	3	$	54	$	2
Noncurrent	3		1		2		1		1		—		—		—
Total Derivative Assets – Commodity Contracts	$	79	$	8	$	13	$	8	$	5	$	3	$	54	$	2
Interest Rate Contracts
Designated as Hedging Instruments
Noncurrent	$	14	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Not Designated as Hedging Instruments
Current	2		—		2		—		1		—		—		—
Total Derivative Assets – Interest Rate Contracts	$	16	$	—	$	2	$	—	$	1	$	—	$	—	$	—
Total Derivative Assets	$	95	$	8	$	15	$	8	$	6	$	3	$	54	$	2

Derivative Liabilities	June 30, 2017
			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Commodity Contracts
Not Designated as Hedging Instruments
Current	$	40	$	1	$	21	$	2	$	19	$	—	$	—	$	18
Noncurrent	140		3		10		3		1		—		—		127
Total Derivative Liabilities – Commodity Contracts	$	180	$	4	$	31	$	5	$	20	$	—	$	—	$	145
Interest Rate Contracts
Designated as Hedging Instruments
Current	$	6	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Noncurrent	9		—		—		—		—		—		—		—
Not Designated as Hedging Instruments
Current	23		22		—		—		—		1		—		—
Noncurrent	9		—		4		3		—		4		—		—
Total Derivative Liabilities – Interest Rate Contracts	$	47	$	22	$	4	$	3	$	—	$	5	$	—	$	—
Total Derivative Liabilities	$	227	$	26	$	35	$	8	$	20	$	5	$	—	$	145

67

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Derivative Assets	December 31, 2016
			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Commodity Contracts
Not Designated as Hedging Instruments
Current	$	108	$	23	$	61	$	35	$	26	$	4	$	16	$	3
Noncurrent	32		10		21		10		11		1		—		—
Total Derivative Assets – Commodity Contracts	$	140	$	33	$	82	$	45	$	37	$	5	$	16	$	3
Interest Rate Contracts
Designated as Hedging Instruments
Noncurrent	$	19	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Not Designated as Hedging Instruments
Current	3		—		3		1		2		—		—		—
Total Derivative Assets – Interest Rate Contracts	$	22	$	—	$	3	$	1	$	2	$	—	$	—	$	—
Total Derivative Assets	$	162	$	33	$	85	$	46	$	39	$	5	$	16	$	3

Derivative Liabilities	December 31, 2016
			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Commodity Contracts
Not Designated as Hedging Instruments
Current	$	43	$	—	$	12	$	—	$	12	$	—	$	2	$	35
Noncurrent	166		1		7		1		—		—		—		152
Total Derivative Liabilities – Commodity Contracts	$	209	$	1	$	19	$	1	$	12	$	—	$	2	$	187
Interest Rate Contracts
Designated as Hedging Instruments
Current	$	8	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Noncurrent	8		—		—		—		—		—		—		—
Not Designated as Hedging Instruments															—
Current	1		—		—		—		—		1		—		—
Noncurrent	26		15		6		6		—		5		—		—
Total Derivative Liabilities – Interest Rate Contracts	$	43	$	15	$	6	$	6	$	—	$	6	$	—	$	—
Total Derivative Liabilities	$	252	$	16	$	25	$	7	$	12	$	6	$	2	$	187

OFFSETTING ASSETS AND LIABILITIES

The following tables present the line items on the Condensed Consolidated Balance Sheets where derivatives are reported. Substantially all of Duke Energy's outstanding derivative contracts are subject to enforceable master netting arrangements. The Gross amounts offset in the tables below show the effect of these netting arrangements on financial position, and include collateral posted to offset the net position. The amounts shown are calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.

68

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Derivative Assets	June 30, 2017
				Duke					Duke		Duke			Duke		Duke
	Duke			Energy		Progress			Energy		Energy			Energy		Energy
(in millions)	Energy			Carolinas		Energy			Progress		Florida			Ohio		Indiana		Piedmont
Current
Gross amounts recognized	$	78		$	7	$	13		$	7	$	5		$	3	$	54	$	2
Gross amounts offset	(3		)	—		(4		)	—		(3		)	—		—		—
Net amounts presented in Current Assets: Other	$	75		$	7	$	9		$	7	$	2		$	3	$	54	$	2
Noncurrent
Gross amounts recognized	$	17		$	1	$	2		$	1	$	1		$	—	$	—	$	—
Gross amounts offset	(1		)	—		(1		)	—		(1		)	—		—		—
Net amounts presented in Other Noncurrent Assets: Other	$	16		$	1	$	1		$	1	$	—		$	—	$	—	$	—

Derivative Liabilities	June 30, 2017
				Duke						Duke			Duke			Duke		Duke
	Duke			Energy			Progress			Energy			Energy			Energy		Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida			Ohio		Indiana		Piedmont
Current
Gross amounts recognized	$	69		$	23		$	21		$	2		$	19		$	1	$	—	$	18
Gross amounts offset	(4		)	(1		)	(4		)	(1		)	(3		)	—		—		—
Net amounts presented in Current Liabilities: Other	$	65		$	22		$	17		$	1		$	16		$	1	$	—	$	18
Noncurrent
Gross amounts recognized	$	158		$	3		$	14		$	6		$	1		$	4	$	—	$	127
Gross amounts offset	(2		)	(1		)	(1		)	(1		)	(1		)	—		—		—
Net amounts presented in Other Noncurrent Liabilities: Other	$	156		$	2		$	13		$	5		$	—		$	4	$	—	$	127

Derivative Assets	December 31, 2016
				Duke						Duke			Duke			Duke		Duke
	Duke			Energy			Progress			Energy			Energy			Energy		Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida			Ohio		Indiana		Piedmont
Current
Gross amounts recognized	$	111		$	23		$	64		$	36		$	28		$	4	$	16	$	3
Gross amounts offset	(11		)	—			(11		)	—			(11		)	—		—		—
Net amounts presented in Current Assets: Other	$	100		$	23		$	53		$	36		$	17		$	4	$	16	$	3
Noncurrent
Gross amounts recognized	$	51		$	10		$	21		$	10		$	11		$	1	$	—	$	—
Gross amounts offset	(2		)	(1		)	(1		)	(1		)	—			—		—		—
Net amounts presented in Other Noncurrent Assets: Other	$	49		$	9		$	20		$	9		$	11		$	1	$	—	$	—

69

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Derivative Liabilities	December 31, 2016
				Duke						Duke			Duke			Duke		Duke
	Duke			Energy			Progress			Energy			Energy			Energy		Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida			Ohio		Indiana		Piedmont
Current
Gross amounts recognized	$	52		$	—		$	12		$	—		$	12		$	1	$	2	$	35
Gross amounts offset	(11		)	—			(11		)	—			(11		)	—		—		—
Net amounts presented in Current Liabilities: Other	$	41		$	—		$	1		$	—		$	1		$	1	$	2	$	35
Noncurrent
Gross amounts recognized	$	200		$	16		$	13		$	7		$	—		$	5	$	—	$	152
Gross amounts offset	(2		)	(1		)	(1		)	(1		)	—			—		—		—
Net amounts presented in Other Noncurrent Liabilities: Other	$	198		$	15		$	12		$	6		$	—		$	5	$	—	$	152

OBJECTIVE CREDIT CONTINGENT FEATURES

Certain derivative contracts contain objective credit contingent features. These features include the requirement to post cash collateral or letters of credit if specific events occur, such as a credit rating downgrade below investment grade. The following tables show information with respect to derivative contracts that are in a net liability position and contain objective credit-risk-related payment provisions. Amounts for Duke Energy Ohio, Duke Energy Indiana and Piedmont were not material.

	June 30, 2017
			Duke				Duke		Duke
	Duke		Energy		Progress		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida
Aggregate fair value of derivatives in a net liability position	$	51	$	25	$	26	$	7	$	19
Fair value of collateral already posted	—		—		—		—		—
Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered	51		25		26		7		19

	December 31, 2016
			Duke				Duke		Duke
	Duke		Energy		Progress		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida
Aggregate fair value of derivatives in a net liability position	$	34	$	16	$	18	$	6	$	12
Fair value of collateral already posted	—		—		—		—		—
Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered	34		16		18		6		12

The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative and cash collateral must be executed with the same counterparty under the same master netting arrangement.

10.INVESTMENTS IN DEBT AND EQUITY SECURITIES

The Duke Energy Registrants classify their investments in debt and equity securities as either trading or available-for-sale.

TRADING SECURITIES

Piedmont's investments in debt and equity securities held in rabbi trusts associated with certain deferred compensation plans are classified as trading securities. The fair value of these investments was $2 million and $5 million as of June 30, 2017 and December 31, 2016, respectively.

AVAILABLE-FOR-SALE (AFS) SECURITIES

All other investments in debt and equity securities are classified as AFS.

Duke Energy’s available-for-sale securities are primarily comprised of investments held in (i) the nuclear decommissioning trust fund (NDTF) at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to Other Post-Retirement Benefit Obligations (OPEB) plans and (iii) Bison.

Duke Energy classifies all other investments in debt and equity securities as long term, unless otherwise noted.

70

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Investment Trusts

The investments within the NDTF investments and the Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana grantor trusts (Investment Trusts) are managed by independent investment managers with discretion to buy, sell, and invest pursuant to the objectives set forth by the trust agreements. The Duke Energy Registrants have limited oversight of the day-to-day management of these investments. As a result, the ability to hold investments in unrealized loss positions is outside the control of the Duke Energy Registrants. Accordingly, all unrealized losses associated with debt and equity securities within the Investment Trusts are considered other-than-temporary impairments (OTTIs) and are recognized immediately.

Investments within the Investment Trusts generally qualify for regulatory accounting, and accordingly realized and unrealized gains and losses are deferred as a regulatory asset or liability.

Substantially all amounts of the Duke Energy Registrants' gross unrealized holding losses as of June 30, 2017 and December 31, 2016, are considered OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset.

Other AFS Securities

Unrealized gains and losses on all other AFS securities are included in other comprehensive income until realized, unless it is determined the carrying value of an investment is other-than-temporarily impaired. The Duke Energy Registrants analyze all investment holdings each reporting period to determine whether a decline in fair value should be considered other-than-temporary. If an OTTI exists, the unrealized credit loss is included in earnings. There were no material credit losses as of June 30, 2017 and December 31, 2016.

Other Investments amounts are recorded in Other within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets.

DUKE ENERGY

The following table presents the estimated fair value of investments in AFS securities.

	June 30, 2017						December 31, 2016
	Gross		Gross				Gross		Gross
	Unrealized		Unrealized		Estimated		Unrealized		Unrealized		Estimated
	Holding		Holding		Fair		Holding		Holding		Fair
(in millions)	Gains		Losses		Value		Gains		Losses		Value
NDTF
Cash and cash equivalents	$	—	$	—	$	116	$	—	$	—	$	111
Equity securities	2,373		29		4,422		2,092		54		4,106
Corporate debt securities	15		2		611		10		8		528
Municipal bonds	4		3		340		3		10		331
U.S. government bonds	12		6		961		10		8		984
Other debt securities	—		1		142		—		3		124
Total NDTF	$	2,404	$	41	$	6,592	$	2,115	$	83	$	6,184
Other Investments
Cash and cash equivalents	$	—	$	—	$	15	$	—	$	—	$	25
Equity securities	47		—		110		38		—		104
Corporate debt securities	1		—		63		1		1		66
Municipal bonds	3		1		82		2		1		82
U.S. government bonds	—		—		49		—		1		51
Other debt securities	—		—		36		—		2		42
Total Other Investments	$	51	$	1	$	355	$	41	$	5	$	370
Total Investments	$	2,455	$	42	$	6,947	$	2,156	$	88	$	6,554

The table below summarizes the maturity date for debt securities.

(in millions)	June 30, 2017
Due in one year or less	$	86
Due after one through five years	631
Due after five through 10 years	503
Due after 10 years	1,064
Total	$	2,284

71

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Realized gains	$	40	$	64	$	133	$	118
Realized losses	37		42		99		92

DUKE ENERGY CAROLINAS

The following table presents the estimated fair value of investments in AFS securities.

	June 30, 2017						December 31, 2016
	Gross		Gross				Gross		Gross
	Unrealized		Unrealized		Estimated		Unrealized		Unrealized		Estimated
	Holding		Holding		Fair		Holding		Holding		Fair
(in millions)	Gains		Losses		Value		Gains		Losses		Value
NDTF
Cash and cash equivalents	$	—	$	—	$	33	$	—	$	—	$	18
Equity securities	1,299		14		2,441		1,157		28		2,245
Corporate debt securities	9		2		407		5		6		354
Municipal bonds	1		1		60		1		2		67
U.S. government bonds	3		3		417		2		5		458
Other debt securities	—		1		132		—		3		116
Total NDTF	$	1,312	$	21	$	3,490	$	1,165	$	44	$	3,258
Other Investments
Other debt securities	—		—		—		—		1		3
Total Investments	$	1,312	$	21	$	3,490	$	1,165	$	45	$	3,261

The table below summarizes the maturity date for debt securities.

(in millions)	June 30, 2017
Due in one year or less	$	4
Due after one through five years	224
Due after five through 10 years	245
Due after 10 years	543
Total	$	1,016

Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Realized gains	$	24	$	33	$	90	$	67
Realized losses	23		19		63		56

72

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

PROGRESS ENERGY

The following table presents the estimated fair value of investments in AFS securities.

	June 30, 2017						December 31, 2016
	Gross		Gross				Gross		Gross
	Unrealized		Unrealized		Estimated		Unrealized		Unrealized		Estimated
	Holding		Holding		Fair		Holding		Holding		Fair
(in millions)	Gains		Losses		Value		Gains		Losses		Value
NDTF
Cash and cash equivalents	$	—	$	—	$	83	$	—	$	—	$	93
Equity securities	1,074		15		1,981		935		26		1,861
Corporate debt securities	6		—		204		5		2		174
Municipal bonds	3		2		280		2		8		264
U.S. government bonds	9		3		544		8		3		526
Other debt securities	—		—		10		—		—		8
Total NDTF	$	1,092	$	20	$	3,102	$	950	$	39	$	2,926
Other Investments
Cash and cash equivalents	$	—	$	—	$	12	$	—	$	—	$	21
Municipal bonds	3		—		47		2		—		44
Total Other Investments	$	3	$	—	$	59	$	2	$	—	$	65
Total Investments	$	1,095	$	20	$	3,161	$	952	$	39	$	2,991

The table below summarizes the maturity date for debt securities.

(in millions)	June 30, 2017
Due in one year or less	$	72
Due after one through five years	347
Due after five through 10 years	196
Due after 10 years	470
Total	$	1,085

Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Realized gains	$	15	$	31	$	42	$	50
Realized losses	14		23		35		36

73

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

DUKE ENERGY PROGRESS

The following table presents the estimated fair value of investments in AFS securities.

	June 30, 2017						December 31, 2016
	Gross		Gross				Gross		Gross
	Unrealized		Unrealized		Estimated		Unrealized		Unrealized		Estimated
	Holding		Holding		Fair		Holding		Holding		Fair
(in millions)	Gains		Losses		Value		Gains		Losses		Value
NDTF
Cash and cash equivalents	$	—	$	—	$	31	$	—	$	—	$	45
Equity securities	816		12		1,607		704		21		1,505
Corporate debt securities	5		—		142		4		1		120
Municipal bonds	3		2		279		2		8		263
U.S. government bonds	6		2		314		5		2		275
Other debt securities	—		—		6		—		—		5
Total NDTF	$	830	$	16	$	2,379	$	715	$	32	$	2,213
Other Investments
Cash and cash equivalents	$	—	$	—	$	1	$	—	$	—	$	1
Total Investments	$	830	$	16	$	2,380	$	715	$	32	$	2,214

The table below summarizes the maturity date for debt securities.

(in millions)	June 30, 2017
Due in one year or less	$	18
Due after one through five years	220
Due after five through 10 years	144
Due after 10 years	359
Total	$	741

Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Realized gains	$	11	$	27	$	35	$	42
Realized losses	11		20		30		31

74

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

DUKE ENERGY FLORIDA

The following table presents the estimated fair value of investments in AFS securities.

	June 30, 2017						December 31, 2016
	Gross		Gross				Gross		Gross
	Unrealized		Unrealized		Estimated		Unrealized		Unrealized		Estimated
	Holding		Holding		Fair		Holding		Holding		Fair
(in millions)	Gains		Losses		Value		Gains		Losses		Value
NDTF
Cash and cash equivalents	$	—	$	—	$	52	$	—	$	—	$	48
Equity securities	258		3		374		231		5		356
Corporate debt securities	1		—		62		1		1		54
Municipal bonds	—		—		1		—		—		1
U.S. government bonds	3		1		230		3		1		251
Other debt securities	—		—		4		—		—		3
Total NDTF(a)	$	262	$	4	$	723	$	235	$	7	$	713
Other Investments
Cash and cash equivalents	$	—	$	—	$	1	$	—	$	—	$	4
Municipal bonds	3		—		47		2		—		44
Total Other Investments	$	3	$	—	$	48	$	2	$	—	$	48
Total Investments	$	265	$	4	$	771	$	237	$	7	$	761

(a) During the six months ended June 30, 2017, Duke Energy Florida continued to receive reimbursements from the NDTF for costs related to ongoing decommissioning activity of the Crystal River Unit 3 nuclear plant.

The table below summarizes the maturity date for debt securities.

(in millions)	June 30, 2017
Due in one year or less	$	54
Due after one through five years	127
Due after five through 10 years	52
Due after 10 years	111
Total	$	344

Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Realized gains	$	4	$	4	$	7	$	8
Realized losses	3		3		5		5

75

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

DUKE ENERGY INDIANA

The following table presents the estimated fair value of investments in AFS securities.

	June 30, 2017						December 31, 2016
	Gross		Gross				Gross		Gross
	Unrealized		Unrealized		Estimated		Unrealized		Unrealized		Estimated
	Holding		Holding		Fair		Holding		Holding		Fair
(in millions)	Gains		Losses		Value		Gains		Losses		Value
Investments
Equity securities	$	40	$	—	$	87	$	33	$	—	$	79
Corporate debt securities	—		—		3		—		—		2
Municipal bonds	—		1		27		—		1		28
U.S. government bonds	—		—		1		—		—		1
Total Investments	$	40	$	1	$	118	$	33	$	1	$	110

The table below summarizes the maturity date for debt securities.

(in millions)	June 30, 2017
Due in one year or less	$	3
Due after one through five years	14
Due after five through 10 years	8
Due after 10 years	6
Total	$	31

Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were insignificant for the three and six months ended June 30, 2017 and 2016.

11. FAIR VALUE MEASUREMENTS

Fair value is the exchange price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value definition focuses on an exit price versus the acquisition cost. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data, or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient.

Fair value measurements are classified in three levels based on the fair value hierarchy:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. An active market is one in which transactions for an asset or liability occur with sufficient frequency and volume to provide ongoing pricing information.

Level 2 – A fair value measurement utilizing inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly, for an asset or liability. Inputs include (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities and credit spreads. A Level 2 measurement cannot have more than an insignificant portion of its valuation based on unobservable inputs. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less-than-active markets.

Level 3 – Any fair value measurement that includes unobservable inputs for more than an insignificant portion of the valuation. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 measurements may include longer-term instruments that extend into periods in which observable inputs are not available.

Not Categorized – Certain investments are not categorized within the Fair Value hierarchy. These investments are measured based on the fair value of the underlying investments but may not be readily redeemable at that fair value.

Fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value.

Transfers between levels represent assets or liabilities that were previously (i) categorized at a higher level for which the inputs to the estimate became less observable or (ii) classified at a lower level for which the inputs became more observable during the period. The Duke Energy Registrant’s policy is to recognize transfers between levels of the fair value hierarchy at the end of the period. There were no transfers between levels during the three and six months ended June 30, 2017 and 2016.

76

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Valuation methods of the primary fair value measurements disclosed below are as follows.

Investments in equity securities

The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as New York Stock Exchange (NYSE) and Nasdaq Stock Market. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements.

Investments in debt securities

Most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed-income security is relatively inactive or illiquid, the measurement is Level 3.

Commodity derivatives

Commodity derivatives with clearinghouses are classified as Level 1. Other commodity derivatives, including Piedmont's gas supply contracts, are primarily valued using internally developed discounted cash flow models that incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or non-performance risk (after reflecting credit enhancements such as collateral), and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate the fair value of gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves.

Interest rate derivatives

Most over-the-counter interest rate contract derivatives are valued using financial models that utilize observable inputs for similar instruments and are classified as Level 2. Inputs include forward interest rate curves, notional amounts, interest rates and credit quality of the counterparties.

Other fair value considerations

See Note 2 related to the acquisition of Piedmont in 2016. See Note 11 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, for a discussion of the valuation of goodwill and intangible assets.

DUKE ENERGY

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the tables below for all Duke Energy Registrants exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type for the Duke Energy Registrants.

	June 30, 2017
(in millions)	Total Fair Value			Level 1			Level 2			Level 3			Not categorized
NDTF equity securities	$	4,422		$	4,345		$	—		$	—		$	77
NDTF debt securities	2,170			593			1,577			—			—
Other trading and AFS equity securities	112			112			—			—			—
Other trading and AFS debt securities	245			63			182			—			—
Derivative assets	95			4			37			54			—
Total assets	7,044			5,117			1,796			54			77
Derivative liabilities	(227		)	(1		)	(81		)	(145		)	—
Net assets (liabilities)	$	6,817		$	5,116		$	1,715		$	(91	)	$	77

77

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

	December 31, 2016
(in millions)	Total Fair Value			Level 1			Level 2			Level 3			Not categorized
NDTF equity securities	$	4,106		$	4,029		$	—		$	—		$	77
NDTF debt securities	2,078			632			1,446			—			—
Other trading and AFS equity securities	104			104			—			—			—
Other trading and AFS debt securities	266			75			186			5			—
Derivative assets	162			5			136			21			—
Total assets	6,716			4,845			1,768			26			77
Derivative liabilities	(252		)	(2		)	(63		)	(187		)	—
Net assets (liabilities)	$	6,464		$	4,843		$	1,705		$	(161	)	$	77

The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Amounts included in earnings for derivatives are primarily included in Cost of natural gas on the Duke Energy Registrants' Condensed Consolidated Statements of Operations and Comprehensive Income. Amounts included in changes of net assets on the Duke Energy Registrants' Condensed Consolidated Balance Sheets are included in regulatory assets or liabilities. All derivative assets and liabilities are presented on a net basis.

	Three Months Ended June 30, 2017									Three Months Ended June 30, 2016
(in millions)	Investments			Derivatives (net)			Total			Investments		Derivatives (net)			Total
Balance at beginning of period	$	5		$	(135	)	$	(130	)	$	4	$	2		$	6
Total pretax realized or unrealized gains included in comprehensive income	1			—			1			—		—			—
Purchases, sales, issuances and settlements:
Purchases	—			55			55			—		34			34
Sales	(6		)	—			(6		)	—		—			—
Settlements	—			(9		)	(9		)	—		(6		)	(6		)
Total (losses) gains included on the Condensed Consolidated Balance Sheet	—			(2		)	(2		)	—		4			4
Balance at end of period	$	—		$	(91	)	$	(91	)	$	4	$	34		$	38

	Six Months Ended June 30, 2017									Six Months Ended June 30, 2016
(in millions)	Investments			Derivatives (net)			Total			Investments			Derivatives (net)			Total
Balance at beginning of period	$	5		$	(166	)	$	(161	)	$	5		$	10		$	15
Total pretax realized or unrealized gains included in comprehensive income	1			—			1			—			—			—
Purchases, sales, issuances and settlements:
Purchases	—			55			55			—			34			34
Sales	(6		)	—			(6		)	(1		)	—			(1		)
Settlements	—			(18		)	(18		)	—			(13		)	(13		)
Total gains included on the Condensed Consolidated Balance Sheet	—			38			38			—			3			3
Balance at end of period	$	—		$	(91	)	$	(91	)	$	4		$	34		$	38

78

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

DUKE ENERGY CAROLINAS

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	June 30, 2017
(in millions)	Total Fair Value			Level 1		Level 2			Level 3		Not categorized
NDTF equity securities	$	2,441		$	2,364	$	—		$	—	$	77
NDTF debt securities	1,049			141		908			—		—
Derivative assets	8			—		8			—		—
Total assets	3,498			2,505		916			—		77
Derivative liabilities	(26		)	—		(26		)	—		—
Net assets	$	3,472		$	2,505	$	890		$	—	$	77

	December 31, 2016
(in millions)	Total Fair Value			Level 1		Level 2			Level 3		Not categorized
NDTF equity securities	$	2,245		$	2,168	$	—		$	—	$	77
NDTF debt securities	1,013			178		835			—		—
Other AFS debt securities	3			—		—			3		—
Derivative assets	33			—		33			—		—
Total assets	3,294			2,346		868			3		77
Derivative liabilities	(16		)	—		(16		)	—		—
Net assets	$	3,278		$	2,346	$	852		$	3	$	77

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.

	Investments
	Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2017			2016		2017			2016
Balance at beginning of period	3			$	3	$	3		3
Total pretax realized or unrealized gains included in comprehensive income	1			—		1			—
Purchases, sales, issuances and settlements:
Sales	(4		)	—		(4		)	—
Balance at end of period	$	—		$	3	$	—		$	3

PROGRESS ENERGY

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	June 30, 2017								December 31, 2016
(in millions)	Total Fair Value			Level 1		Level 2			Total Fair Value			Level 1		Level 2
NDTF equity securities	$	1,981		$	1,981	$	—		$	1,861		$	1,861	$	—
NDTF debt securities	1,121			452		669			1,065			454		611
Other AFS debt securities	59			12		47			65			21		44
Derivative assets	15			—		15			85			—		85
Total assets	3,176			2,445		731			3,076			2,336		740
Derivative liabilities	(35		)	—		(35		)	(25		)	—		(25		)
Net assets	$	3,141		$	2,445	$	696		$	3,051		$	2,336	$	715

79

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

DUKE ENERGY PROGRESS

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	June 30, 2017								December 31, 2016
(in millions)	Total Fair Value			Level 1		Level 2			Total Fair Value			Level 1		Level 2
NDTF equity securities	$	1,607		$	1,607	$	—		$	1,505		$	1,505	$	—
NDTF debt securities and other	772			226		546			708			207		501
Other AFS debt securities and other	1			1		—			1			1		—
Derivative assets	8			—		8			46			—		46
Total assets	2,388			1,834		554			2,260			1,713		547
Derivative liabilities	(8		)	—		(8		)	(7		)	—		(7		)
Net assets	$	2,380		$	1,834	$	546		$	2,253		$	1,713	$	540

DUKE ENERGY FLORIDA

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	June 30, 2017								December 31, 2016
(in millions)	Total Fair Value			Level 1		Level 2			Total Fair Value			Level 1		Level 2
NDTF equity securities	$	374		$	374	$	—		$	356		$	356	$	—
NDTF debt securities and other	349			226		123			357			247		110
Other AFS debt securities and other	48			1		47			48			4		44
Derivative assets	6			—		6			39			—		39
Total assets	777			601		176			800			607		193
Derivative liabilities	(20		)	—		(20		)	(12		)	—		(12		)
Net assets	$	757		$	601	$	156		$	788		$	607	$	181

DUKE ENERGY OHIO

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	June 30, 2017								December 31, 2016
(in millions)	Total Fair Value			Level 2			Level 3		Total Fair Value			Level 2			Level 3
Derivative assets	$	3		$	—		$	3	$	5		$	—		$	5
Derivative liabilities	(5		)	(5		)	—		(6		)	(6		)	—
Net (liabilities) assets	$	(2	)	$	(5	)	$	3	$	(1	)	$	(6	)	$	5

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.

	Derivatives (net)
	Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2017			2016		2017			2016
Balance at beginning of period	$	1		$	—	$	5		$	3
Purchases, sales, issuances and settlements:
Purchases	3			5		3			5
Settlements	(1		)	—		(2		)	(2		)
Total losses included on the Condensed Consolidated Balance Sheet	—			—		(3		)	(1		)
Balance at end of period	$	3		$	5	$	3		$	5

80

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

DUKE ENERGY INDIANA

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	June 30, 2017								December 31, 2016
(in millions)	Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value			Level 1			Level 2		Level 3
Other AFS equity securities	$	87	$	87	$	—	$	—	$	79		$	79		$	—	$	—
Other AFS debt securities and other	31		—		31		—		31			—			31		—
Derivative assets	54		3		—		51		16			—			—		16
Total assets	172		90		31		51		126			79			31		16
Derivative liabilities	—		—		—		—		(2		)	(2		)	—		—
Net assets	$	172	$	90	$	31	$	51	$	124		$	77		$	31	$	16

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.

	Derivatives (net)
	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2017			2016			2017			2016
Balance at beginning of period	$	9		$	2		$	16		$	7
Purchases, sales, issuances and settlements:
Purchases	52			29			52			29
Settlements	(9		)	(6		)	(16		)	(11		)
Total (losses) gains included on the Condensed Consolidated Balance Sheet	(1		)	4			(1		)	4
Balance at end of period	$	51		$	29		$	51		$	29

PIEDMONT

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	June 30, 2017								December 31, 2016
(in millions)	Total Fair Value			Level 1		Level 3			Total Fair Value			Level 1		Level 3
Other trading equity securities	2			2		—			$	4		$	4	$	—
Other trading debt securities	—			—		—			1			1		—
Derivative assets	2			2		—			3			3		—
Total assets	4			4		—			8			8		—
Derivative liabilities	(145		)	—		(145		)	(187		)	—		(187		)
Net (liabilities) assets	$	(141	)	$	4	$	(145	)	$	(179	)	$	8	$	(187	)

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.

	Derivatives (net)
	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2017			2016			2017			2016
Balance at beginning of period	$	(145	)	$	(126	)	$	(187	)	$	(149	)
Total (losses) gains and settlements	—			(64		)	42			(41		)
Balance at end of period	$	(145	)	$	(190	)	$	(145	)	$	(190	)

81

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS

The following table includes quantitative information about the Duke Energy Registrants' derivatives classified as Level 3.

	June 30, 2017
	Fair Value
Investment Type	(in millions)			Valuation Technique	Unobservable Input	Range
Duke Energy Ohio
Financial Transmission Rights (FTRs)	$	3		RTO auction pricing	FTR price – per megawatt-hour (MWh)	$	(5.24	)	-	$	1.82
Duke Energy Indiana
FTRs	51			RTO auction pricing	FTR price – per MWh	(1.65		)	-	6.66
Piedmont
Natural gas contracts	(145		)	Discounted cash flow	Forward natural gas curves – price per million British thermal unit (MMBtu)	2.21			-	3.78
Duke Energy
Total Level 3 derivatives	$	(91	)

	December 31, 2016
	Fair Value
Investment Type	(in millions)			Valuation Technique	Unobservable Input	Range
Duke Energy Ohio
FTRs	$	5		RTO auction pricing	FTR price – per MWh	$	0.77		-	$	3.52
Duke Energy Indiana
FTRs	16			RTO auction pricing	FTR price – per MWh	(0.83		)	-	9.32
Piedmont
Natural gas contracts	(187		)	Discounted cash flow	Forward natural gas curves – price per MMBtu	2.31			-	4.18
Duke Energy
Total Level 3 derivatives	$	(166	)

OTHER FAIR VALUE DISCLOSURES

The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements.

	June 30, 2017				December 31, 2016
(in millions)	Book Value		Fair Value		Book Value		Fair Value
Duke Energy	$	49,515	$	51,947	$	47,895	$	49,161
Duke Energy Carolinas	9,524		10,657		9,603		10,494
Progress Energy	18,145		20,101		17,541		19,107
Duke Energy Progress	6,760		7,266		7,011		7,357
Duke Energy Florida	6,979		7,753		6,125		6,728
Duke Energy Ohio	1,977		2,155		1,884		2,020
Duke Energy Indiana	3,784		4,379		3,786		4,260
Piedmont	1,946		2,107		1,821		1,933

At both June 30, 2017 and December 31, 2016, fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper, and nonrecourse notes payable of VIEs are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates.

12. VARIABLE INTEREST ENTITIES

A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. A qualitative analysis of control determines the party that consolidates a VIE. This assessment is based on (i) what party has the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) what party has rights to receive benefits or is obligated to absorb losses that could potentially be significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment.

82

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

CONSOLIDATED VIEs

The obligations of the consolidated VIEs discussed in the following paragraphs are nonrecourse to the Duke Energy registrants. The registrants have no requirement to provide liquidity to, purchase assets of or guarantee performance of these VIEs unless noted in the following paragraphs.

No financial support was provided to any of the consolidated VIEs during the six months ended June 30,��2017 and the year ended December 31, 2016, or is expected to be provided in the future, that was not previously contractually required.

Receivables Financing – DERF / DEPR / DEFR

Duke Energy Receivables Finance Company, LLC (DERF), Duke Energy Progress Receivables, LLC (DEPR) and Duke Energy Florida Receivables, LLC (DEFR) are bankruptcy remote, special purpose subsidiaries of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, respectively. DERF, DEPR and DEFR are wholly owned limited liability companies with separate legal existence from their parent companies, and their assets are not generally available to creditors of their parent companies. On a revolving basis, DERF, DEPR and DEFR buy certain accounts receivable arising from the sale of electricity and related services from their parent companies.

DERF, DEPR and DEFR borrow amounts under credit facilities to buy these receivables. Borrowing availability from the credit facilities is limited to the amount of qualified receivables purchased. The sole source of funds to satisfy the related debt obligations is cash collections from the receivables. Amounts borrowed under the credit facilities are reflected on the Condensed Consolidated Balance Sheets as Long-Term Debt.

The most significant activity that impacts the economic performance of DERF, DEPR and DEFR are the decisions made to manage delinquent receivables. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida consolidate DERF, DEPR and DEFR, respectively, as they make those decisions.

Receivables Financing – CRC

CRC is a bankruptcy remote, special purpose entity indirectly owned by Duke Energy. On a revolving basis, CRC buys certain accounts receivable arising from the sale of electricity, natural gas and related services from Duke Energy Ohio and Duke Energy Indiana. CRC borrows amounts under a credit facility to buy the receivables from Duke Energy Ohio and Duke Energy Indiana. Borrowing availability from the credit facility is limited to the amount of qualified receivables sold to CRC. The sole source of funds to satisfy the related debt obligation is cash collections from the receivables. Amounts borrowed under the credit facility are reflected on Duke Energy's Condensed Consolidated Balance Sheets as Long-Term Debt.

The proceeds Duke Energy Ohio and Duke Energy Indiana receive from the sale of receivables to CRC are typically 75 percent cash and 25 percent in the form of a subordinated note from CRC. The subordinated note is a retained interest in the receivables sold. Depending on collection experience, additional equity infusions to CRC may be required by Duke Energy to maintain a minimum equity balance of $3 million.

CRC is considered a VIE because (i) equity capitalization is insufficient to support its operations, (ii) power to direct the activities that most significantly impact the economic performance of the entity are not performed by the equity holder, and (iii) deficiencies in net worth of CRC are funded by Duke Energy. The most significant activities that impact the economic performance of CRC are decisions made to manage delinquent receivables. Duke Energy consolidates CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy Indiana consolidate CRC.

Receivables Financing – Credit Facilities

The following table summarizes the amounts and expiration dates of the credit facilities described above.

	Duke Energy
			Duke Energy		Duke Energy		Duke Energy
			Carolinas		Progress		Florida
(in millions)	CRC		DERF		DEPR		DEFR
Expiration date	December 2018		December 2018		February 2019		April 2019
Credit facility amount	$	325	$	425	$	300	$	225
Amounts borrowed at June 30, 2017	325		425		297		225
Amounts borrowed at December 31, 2016	325		425		300		225

Nuclear Asset-Recovery Bonds – DEFPF

Duke Energy Florida Project Finance, LLC (DEFPF) is a bankruptcy remote, wholly owned special purpose subsidiary of Duke Energy Florida. DEFPF was formed in 2016 for the sole purpose of issuing nuclear asset-recovery bonds to finance Duke Energy Florida's unrecovered regulatory asset related to Crystal River Unit 3.

In June 2016, DEFPF issued $1,294 million of senior secured bonds and used the proceeds to acquire nuclear asset-recovery property from Duke Energy Florida. The nuclear asset-recovery property acquired includes the right to impose, bill, collect and adjust a non-bypassable nuclear asset-recovery charge from all Duke Energy Florida retail customers until the bonds are paid in full and all financing costs have been recovered. The nuclear asset-recovery bonds are secured by the nuclear asset-recovery property, and cash collections from the nuclear asset-recovery charges are the sole source of funds to satisfy the debt obligation. The bondholders have no recourse to Duke Energy Florida.

DEFPF is considered a VIE primarily because the equity capitalization is insufficient to support its operations. Duke Energy Florida has the power to direct the significant activities of the VIE as described above, and therefore Duke Energy Florida is considered the primary beneficiary and consolidates DEFPF.

83

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

The following table summarizes the impact of DEFPF on Duke Energy Florida's Condensed Consolidated Balance Sheets.

(in millions)	June 30, 2017		December 31, 2016
Receivables of VIEs	$	5	$	6
Current Assets: Regulatory assets	52		50
Current Assets: Other	33		53
Other Noncurrent Assets: Regulatory assets	1,121		1,142
Current Liabilities: Other	10		17
Current maturities of long-term debt	55		62
Long-Term Debt	1,189		1,217

Commercial Renewables

Certain of Duke Energy’s renewable energy facilities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves in support of debt financings. Assets are restricted and cannot be pledged as collateral or sold to third parties without prior approval of debt holders. The activities that most significantly impact the economic performance of these renewable energy facilities were decisions associated with siting, negotiating PPAs, engineering, procurement and construction and decisions associated with ongoing operations and maintenance-related activities. Duke Energy consolidates the entities as it is responsible for all of these decisions. The table below presents material balances reported on Duke Energy's Condensed Consolidated Balance Sheets related to renewables VIEs.

(in millions)	June 30, 2017			December 31, 2016
Current Assets: Other	$	293		$	223
Property, plant and equipment, cost	3,695			3,419
Accumulated depreciation and amortization	(518		)	(453		)
Current maturities of long-term debt	157			198
Long-Term Debt	1,557			1,097
Deferred income taxes	300			275
Other Noncurrent Liabilities: Other	249			252

NON-CONSOLIDATED VIEs

The following tables summarize the impact of non-consolidated VIEs on the Condensed Consolidated Balance Sheets.

	June 30, 2017
	Duke Energy								Duke		Duke
	Pipeline		Commercial		Other				Energy		Energy
(in millions)	Investments		Renewables		VIEs		Total		Ohio		Indiana
Receivables from affiliated companies	$	—	$	—	$	—	$	—	$	44	$	72
Investments in equity method unconsolidated affiliates	800		176		92		1,068		—		—
Other noncurrent assets	12		—		—		12		—		—
Total assets	$	812	$	176	$	92	$	1,080	$	44	$	72
Other current liabilities	10		—		—		10		—		—
Other noncurrent liabilities	—		—		13		13		—		—
Total liabilities	$	10	$	—	$	13	$	23	$	—	$	—
Net assets	$	802	$	176	$	79	$	1,057	$	44	$	72

84

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

	December 31, 2016
	Duke Energy								Duke		Duke
	Pipeline		Commercial		Other				Energy		Energy
(in millions)	Investments		Renewables		VIEs		Total		Ohio		Indiana		Piedmont(a)
Receivables from affiliated companies	$	—	$	—	$	—	$	—	$	82	$	101	$	—
Investments in equity method unconsolidated affiliates	487		174		90		751		—		—		139
Other noncurrent assets	12		—		—		12		—		—		—
Total assets	$	499	$	174	$	90	$	763	$	82	$	101	$	139
Other current liabilities	—		—		3		3		—		—		—
Other noncurrent liabilities	—		—		13		13		—		—		4
Total liabilities	$	—	$	—	$	16	$	16	$	—	$	—	4
Net assets	$	499	$	174	$	74	$	747	$	82	$	101	$	135

(a) In April 2017, Piedmont transferred its non-consolidated VIE investments to a wholly owned subsidiary of Duke Energy. See "Pipeline Investments" section below for additional detail.

The Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above except for the power purchase agreement with OVEC, which is discussed below, and various guarantees, some of which are reflected in the table above as Other noncurrent liabilities. For more information on various guarantees, refer to Note 5.

Pipeline Investments

Duke Energy has investments in various joint ventures with pipeline projects currently under construction. These entities are considered VIEs due to having insufficient equity to finance their own activities without subordinated financial support. Duke Energy does not have the power to direct the activities that most significantly impact the economic performance, the obligation to absorb losses or the right to receive benefits of these VIEs and therefore does not consolidate these entities.

The table below presents the ownership interest and investment balances in these joint ventures.

	Duke Energy
			VIE Investment Amount (in millions)
	Ownership		June 30,		December 31,
Entity Name	Interest		2017		2016
ACP	47	%	$	507	$	265
Sabal Trail	7.5	%	211		140
Constitution	24	%	82		82
Total			$	800	$	487

At December 31, 2016, Piedmont had a 7 percent ownership interest in ACP and a 24 percent ownership interest in Constitution. In April 2017, Piedmont transferred its ownership interests in ACP and Constitution to a wholly owned subsidiary of Duke Energy at book value.

Commercial Renewables

Duke Energy has investments in various renewable energy project entities. Some of these entities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves in support of debt financings. Duke Energy does not consolidate these VIEs because power to direct and control key activities is shared jointly by Duke Energy and other owners.

Other VIEs

Duke Energy holds a 50 percent equity interest in Duke-American Transmission Company, LLC (DATC). DATC is considered a VIE due to having insufficient equity to finance their own activities without subordinated financial support. The activities that most significantly impact DATC's economic performance are decisions related to investing in existing and development of new transmission facilities. The power to direct these activities is jointly and equally shared by Duke Energy and the other joint venture partner, American Transmission Company, LLC, therefore Duke Energy does not consolidate DATC.

Duke Energy holds a 50 percent equity interest in Pioneer Transmission, LLC (Pioneer). Pioneer is considered a VIE due to having insufficient equity to finance their own activities without subordinated financial support. The activities that most significantly impact Pioneer's economic performance are decisions related to the development of new transmission facilities. The power to direct these activities is jointly and equally shared by Duke Energy and the other joint venture partner, American Electric Power, therefore Duke Energy does not consolidate Pioneer.

85

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

OVEC

Duke Energy Ohio’s 9 percent ownership interest in OVEC is considered a non-consolidated VIE due to OVEC having insufficient equity to finance their activities without subordinated financial support. As a counterparty to an inter-company power agreement (ICPA), Duke Energy Ohio has a contractual arrangement to receive entitlements to capacity and energy from OVEC’s power plants through June 2040 commensurate with its power participation ratio, which is equivalent to Duke Energy Ohio's ownership interest. Costs, including fuel, operating expenses, fixed costs, debt amortization, and interest expense are allocated to counterparties to the ICPA based on their power participation ratio. The value of the ICPA is subject to variability due to fluctuation in power prices and changes in OVEC's cost of business, including costs associated with its 2,256 MW of coal-fired generation capacity. Deterioration in the credit quality, or bankruptcy of one or more parties to the ICPA could increase the costs of OVEC. In addition, certain proposed environmental rulemaking could result in future increased cost allocations.

CRC

See discussion under Consolidated VIEs for additional information related to CRC.

Amounts included in Receivables from affiliated companies in the above table for Duke Energy Ohio and Duke Energy Indiana reflect their retained interest in receivables sold to CRC. These subordinated notes held by Duke Energy Ohio and Duke Energy Indiana are stated at fair value. Carrying values of retained interests are determined by allocating carrying value of the receivables between assets sold and interests retained based on relative fair value. The allocated bases of the subordinated notes are not materially different than their face value because (i) the receivables generally turn over in less than two months, (ii) credit losses are reasonably predictable due to the broad customer base and lack of significant concentration, and (iii) the equity in CRC is subordinate to all retained interests and thus would absorb losses first. The hypothetical effect on fair value of the retained interests assuming both a 10 percent and a 20 percent unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio and Duke Energy Indiana on the retained interests using the acceptable yield method. This method generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both retained interests and purchased beneficial interest whenever it is determined that an OTTI has occurred.

Key assumptions used in estimating fair value are detailed in the following table.

	Duke Energy Ohio				Duke Energy Indiana
	2017		2016		2017		2016
Anticipated credit loss ratio	0.5	%	0.5	%	0.3	%	0.3	%
Discount rate	1.9	%	1.5	%	1.9	%	1.5	%
Receivable turnover rate	13.4	%	13.3	%	10.7	%	10.6	%

The following table shows the gross and net receivables sold.

	Duke Energy Ohio				Duke Energy Indiana
(in millions)	June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Receivables sold	$	210	$	267	$	299	$	306
Less: Retained interests	44		82		72		101
Net receivables sold	$	166	$	185	$	227	$	205

The following table shows sales and cash flows related to receivables sold.

	Duke Energy Ohio								Duke Energy Indiana
	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
(in millions)	2017		2016		2017		2016		2017		2016		2017		2016
Sales
Receivables sold	$	421	$	429	$	954	$	961	$	663	$	623	$	1,327	$	1,258
Loss recognized on sale	3		2		5		5		3		2		6		5
Cash flows
Cash proceeds from receivables sold	$	428	$	427	$	987	$	964	$	658	$	612	$	1,351	$	1,255
Collection fees received	—		—		—		—		1		1		1		1
Return received on retained interests	1		—		2		1		1		1		3		2

Cash flows from sales of receivables are reflected within Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows.

86

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Collection fees received in connection with servicing transferred accounts receivable are included in Operation, maintenance and other on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Operations and Comprehensive Income. The loss recognized on sales of receivables is calculated monthly by multiplying receivables sold during the month by the required discount. The required discount is derived monthly utilizing a three-year weighted average formula that considers charge-off history, late charge history and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is the prior month-end LIBOR plus a fixed rate of 1.00 percent.

13. COMMON STOCK

Basic Earnings Per Share (EPS) is computed by dividing net income attributable to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options and equity forward sale agreements, were exercised or settled. Duke Energy’s participating securities are restricted stock units that are entitled to dividends declared on Duke Energy common stock during the restricted stock unit’s vesting periods.

The following table presents Duke Energy’s basic and diluted EPS calculations and reconciles the weighted average number of common shares outstanding to the diluted weighted average number of common shares outstanding.

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per-share amounts)	2017		2016		2017		2016
Income from continuing operations attributable to Duke Energy common stockholders excluding impact of participating securities	$	687	$	621	$	1,402	$	1,195
Weighted average shares outstanding – basic	700		689		700		689
Equity Forwards	—		1		—		—
Weighted average shares outstanding – diluted	700		690		700		689
Earnings per share from continuing operations attributable to Duke Energy common stockholders
Basic	$	0.98	$	0.90	$	2.00	$	1.73
Diluted	$	0.98	$	0.90	$	2.00	$	1.73
Potentially dilutive items excluded from the calculation(a)	2		2		2		2
Dividends declared per common share	$	0.855	$	0.825	$	1.71	$	1.65

(a) Performance stock awards were not included in the dilutive securities calculation because the performance measures related to the awards had not been met.

Equity Forwards

In March 2016, Duke Energy marketed an equity offering of 10.6 million shares of common stock. In lieu of issuing equity at the time of the offering, Duke Energy entered into equity forward sale agreements with Barclays (the Equity Forwards). The Equity Forwards required Duke Energy to either physically settle the transactions by issuing 10.6 million shares, or net settle in whole or in part through the delivery or receipt of cash or shares. As of June 30, 2016, share dilution resulting from the agreements was determined under the treasury stock method.

Duke Energy physically settled the Equity Forwards in full in October 2016 following the close of the Piedmont acquisition. See Note 2 for additional information related to the Piedmont acquisition.

14. STOCK-BASED COMPENSATION

For employee awards, equity classified stock-based compensation cost is measured at the service inception date or the grant date, based on the estimated achievement of certain performance metrics or the fair value of the award, and is recognized as expense or capitalized as a component of property, plant and equipment over the requisite service period.

Pretax stock-based compensation costs, the tax benefit associated with stock-based compensation expense and stock-based compensation costs capitalized are included in the following table.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2017		2016		2017		2016
Restricted stock unit awards	$	12	$	10	$	20	$	17
Performance awards	6		5		13		10
Pretax stock-based compensation cost	$	18	$	15	$	33	$	27
Tax benefit associated with stock-based compensation expense	$	7	$	5	$	12	$	9
Stock-based compensation costs capitalized	—		1		1		2

87

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

Prior to Duke Energy acquiring Piedmont, Piedmont had an incentive compensation plan for eligible officers and other participants. Piedmont's total pretax stock-based compensation costs were approximately $2 million and $3 million for the three and six months ended June 30, 2016, respectively. The tax benefit associated with Piedmont's stock based compensation expense for the three and six months ended June 30, 2016, was immaterial.

15. EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT RETIREMENT PLANS

Duke Energy maintains, and the Subsidiary Registrants participate in, qualified and non-qualified, non-contributory defined benefit retirement plans. Duke Energy’s policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefit payments to be paid to plan participants. Duke Energy did not make any contributions to its U.S. qualified defined benefit pension plans during the six months ended June 30, 2017 and 2016.

Net periodic benefit costs disclosed in the tables below represent the cost of the respective benefit plan for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment. Amounts presented in the tables below for the Subsidiary Registrants represent the amounts of pension and other post-retirement benefit costs allocated by Duke Energy for employees of the Subsidiary Registrants. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and post-retirement benefit costs for employees of Duke Energy’s shared services affiliate that provides support to the Subsidiary Registrants. These allocated amounts are included in the governance and shared service costs discussed in Note 8. Duke Energy uses a December 31 measurement date for its defined benefit retirement plan assets and obligations.

88

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

QUALIFIED PENSION PLANS

The following tables include the components of net periodic pension costs for qualified pension plans.

	Three Months Ended June 30, 2017
				Duke						Duke			Duke			Duke			Duke
	Duke			Energy			Progress			Energy			Energy			Energy			Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida			Ohio			Indiana			Piedmont
Service cost	$	40		$	12		$	12		$	6		$	5		$	1		$	2		$	3
Interest cost on projected benefit obligation	82			20			25			12			13			5			7			3
Expected return on plan assets	(136		)	(36		)	(43		)	(21		)	(21		)	(7		)	(11		)	(6		)
Amortization of actuarial loss	36			8			14			6			7			1			3			3
Amortization of prior service credit	(6		)	(2		)	(1		)	—			—			—			—			(1		)
Other	2			—			1			1			—			—			—			1
Net periodic pension costs	$	18		$	2		$	8		$	4		$	4		$	—		$	1		$	3

	Three Months Ended June 30, 2016
				Duke						Duke			Duke			Duke			Duke
	Duke			Energy			Progress			Energy			Energy			Energy			Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida			Ohio			Indiana			Piedmont
Service cost	$	37		$	12		$	10		$	6		$	5		$	1		$	2		$	2
Interest cost on projected benefit obligation	83			22			27			13			14			5			7			3
Expected return on plan assets	(129		)	(36		)	(42		)	(20		)	(21		)	(7		)	(11		)	(6		)
Amortization of actuarial loss	33			8			13			5			7			1			3			2
Amortization of prior service credit	(4		)	(2		)	(1		)	(1		)	—			—			—			(1		)
Other	1			—			—			1			—			—			—			—
Net periodic pension costs	$	21		$	4		$	7		$	4		$	5		$	—		$	1		$	—

	Six Months Ended June 30, 2017
				Duke						Duke			Duke			Duke			Duke
	Duke			Energy			Progress			Energy			Energy			Energy			Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida			Ohio			Indiana			Piedmont
Service cost	$	80		$	24		$	24		$	12		$	10		$	2		$	4		$	6
Interest cost on projected benefit obligation	164			40			50			24			26			10			14			6
Expected return on plan assets	(272		)	(71		)	(86		)	(42		)	(42		)	(14		)	(22		)	(12		)
Amortization of actuarial loss	72			16			28			12			14			2			6			6
Amortization of prior service credit	(12		)	(4		)	(2		)	—			—			—			—			(2		)
Other	4			—			2			1			—			—			—			1
Net periodic pension costs	$	36		$	5		$	16		$	7		$	8		$	—		$	2		$	5

	Six Months Ended June 30, 2016
				Duke						Duke			Duke			Duke			Duke
	Duke			Energy			Progress			Energy			Energy			Energy			Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida			Ohio			Indiana			Piedmont
Service cost	$	73		$	24		$	21		$	12		$	10		$	2		$	4		$	5
Interest cost on projected benefit obligation	166			43			53			25			28			10			14			5
Expected return on plan assets	(258		)	(71		)	(84		)	(41		)	(42		)	(14		)	(21		)	(12		)
Amortization of actuarial loss	66			16			27			11			14			2			6			4
Amortization of prior service credit	(8		)	(4		)	(2		)	(1		)	—			—			—			(1		)
Other	4			1			1			1			—			—			—			—
Net periodic pension costs	$	43		$	9		$	16		$	7		$	10		$	—		$	3		$	1

89

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

NON-QUALIFIED PENSION PLANS

The following tables include the components of net periodic pension costs for non-qualified pension plans for registrants with non-qualified pension costs.

	Three Months Ended June 30, 2017
			Duke				Duke		Duke
	Duke		Energy		Progress		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida
Service cost	$	—	$	—	$	—	$	—	$	—
Interest cost on projected benefit obligation	3		1		1		—		—
Amortization of actuarial loss	2		—		1		—		—
Net periodic pension costs	$	5	$	1	$	2	$	—	$	—

	Three Months Ended June 30, 2016
			Duke				Duke		Duke
	Duke		Energy		Progress		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida
Service cost	$	1	$	—	$	—	$	—	$	—
Interest cost on projected benefit obligation	3		1		1		1		1
Amortization of actuarial loss	2		—		—		—		—
Net periodic pension costs	$	6	$	1	$	1	$	1	$	1

	Six Months Ended June 30, 2017
			Duke				Duke		Duke
	Duke		Energy		Progress		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida
Service cost	$	—	$	—	$	—	$	—	$	—
Interest cost on projected benefit obligation	6		1		2		1		1
Amortization of actuarial loss	4		—		2		—		—
Net periodic pension costs	$	10	$	1	$	4	$	1	$	1

	Six Months Ended June 30, 2016
			Duke				Duke		Duke
	Duke		Energy		Progress		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida
Service cost	$	1	$	—	$	—	$	—	$	—
Interest cost on projected benefit obligation	7		1		2		1		1
Amortization of actuarial loss	4		—		1		—		—
Net periodic pension costs	$	12	$	1	$	3	$	1	$	1

OTHER POST-RETIREMENT BENEFIT PLANS

Duke Energy provides, and the Subsidiary Registrants participate in, some health care and life insurance benefits for retired employees on a contributory and non-contributory basis.

90

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

The following tables include the components of net periodic other post-retirement benefit costs.

	Three Months Ended June 30, 2017
				Duke						Duke			Duke			Duke			Duke
	Duke			Energy			Progress			Energy			Energy			Energy			Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida			Ohio			Indiana		Piedmont
Service cost	$	1		$	—		$	—		$	—		$	—		$	—		$	—	$	—
Interest cost on accumulated post-retirement benefit obligation	9			2			3			2			2			—			—		—
Expected return on plan assets	(4		)	(2		)	—			—			—			—			—		—
Amortization of actuarial loss (gain)	2			(1		)	5			3			2			(1		)	—		—
Amortization of prior service credit	(29		)	(2		)	(21		)	(13		)	(7		)	—			—		—
Net periodic other post-retirement benefit costs	$	(21	)	$	(3	)	$	(13	)	$	(8	)	$	(3	)	$	(1	)	$	—	$	—

	Three Months Ended June 30, 2016
				Duke						Duke				Duke			Duke			Duke
	Duke			Energy			Progress			Energy				Energy			Energy			Energy
(in millions)	Energy			Carolinas			Energy			Progress				Florida			Ohio			Indiana			Piedmont
Service cost	$	1		$	—		$	—		$	—			$	—		$	—		$	—		$	—
Interest cost on accumulated post-retirement benefit obligation	9			2			3			2				1			1			1			—
Expected return on plan assets	(4		)	(2		)	—			—				—			—			(1		)	—
Amortization of actuarial loss (gain)	2			(1		)	6			3				3			(1		)	—			—
Amortization of prior service credit	(36		)	(3		)	(25		)	(17		)		(9		)	—			—			—
Net periodic other post-retirement benefit costs	$	(28	)	$	(4	)	$	(16	)	$	(12	)	��	$	(5	)	$	—		$	—		$	—

	Six Months Ended June 30, 2017
				Duke						Duke			Duke			Duke			Duke
	Duke			Energy			Progress			Energy			Energy			Energy			Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida			Ohio			Indiana		Piedmont
Service cost	$	2		$	—		$	—		$	—		$	—		$	—		$	—	$	—
Interest cost on accumulated post-retirement benefit obligation	18			4			7			4			4			—			—		—
Expected return on plan assets	(7		)	(4		)	—			—			—			—			—		—
Amortization of actuarial loss (gain)	4			(2		)	10			6			4			(1		)	—		—
Amortization of prior service credit	(58		)	(4		)	(42		)	(27		)	(15		)	—			—		—
Net periodic other post-retirement benefit costs	$	(41	)	$	(6	)	$	(25	)	$	(17	)	$	(7	)	$	(1	)	$	—	$	—

	Six Months Ended June 30, 2016
				Duke						Duke			Duke			Duke			Duke
	Duke			Energy			Progress			Energy			Energy			Energy			Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida			Ohio			Indiana			Piedmont
Service cost	$	2		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Interest cost on accumulated post-retirement benefit obligation	17			4			7			4			3			1			2			1
Expected return on plan assets	(7		)	(4		)	—			—			—			—			(1		)	(1		)
Amortization of actuarial loss (gain)	3			(2		)	11			6			5			(1		)	(1		)	—
Amortization of prior service credit	(71		)	(6		)	(51		)	(34		)	(18		)	—			—			—
Net periodic other post-retirement benefit costs	$	(56	)	$	(8	)	$	(33	)	$	(24	)	$	(10	)	$	—		$	—		$	—

91

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

DEFINED CONTRIBUTION RETIREMENT PLANS

EMPLOYEE SAVINGS PLANS

Duke Energy sponsors, and the Subsidiary Registrants participate in, employee savings plans that cover substantially all U.S. employees. The following table presents employer contributions made by Duke Energy and expensed by the Subsidiary Registrants.

			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Three Months Ended June 30,
2017	$	39	$	13	$	12	$	8	$	4	$	1	$	2	$	1
2016	39		13		12		8		4		1		2		1
Six Months Ended June 30,
2017	$	104	$	35	$	30	$	21	$	9	$	2	$	5	$	3
2016	91		31		27		19		8		2		4		3

MONEY PURCHASE PENSION PLAN

Duke Energy provides, and Piedmont participates in, the Money Purchase Pension (MPP) plan, which is a defined contribution pension plan that allows certain employees to direct investments and assume risk of investment returns. In January 2017, a $2 million contribution was made to the MPP plan.

16. INCOME TAXES

EFFECTIVE TAX RATES

The effective tax rates from continuing operations for each of the Duke Energy Registrants are included in the following table.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Duke Energy	32.1	%	28.8	%	32.3	%	29.6	%
Duke Energy Carolinas	34.7	%	35.1	%	35.0	%	34.6	%
Progress Energy	33.4	%	36.0	%	33.7	%	36.3	%
Duke Energy Progress	31.9	%	35.5	%	33.0	%	35.4	%
Duke Energy Florida	36.8	%	37.6	%	36.7	%	37.7	%
Duke Energy Ohio	34.8	%	34.3	%	35.1	%	29.2	%
Duke Energy Indiana	39.4	%	36.1	%	39.4	%	33.1	%
Piedmont	38.5	%	40.0	%	37.9	%	38.0	%

The increase in the effective tax rate (ETR) for Duke Energy for the three and six months ended June 30, 2017, is primarily due to favorable impacts in the prior year of finalizing federal tax audits and unfavorable tax levelization in the current year, partially offset by higher production tax credits related to wind projects placed in service.

The decrease in the ETR for Progress Energy for the three and six months ended June 30, 2017, is primarily due to lower North Carolina corporate tax rates.

The decrease in the ETR for Duke Energy Progress for the three and six months ended June 30, 2017, is primarily due to lower North Carolina corporate tax rates.

The increase in the ETR for Duke Energy Ohio for the six months ended June 30, 2017, is primarily due to an immaterial out of period adjustment in the prior year related to deferred tax balances associated with property, plant and equipment.

The increase in the ETR for Duke Energy Indiana for the three months ended June 30, 2017, is primarily due to favorable state tax credits recorded in the prior year. The increase in the ETR for Duke Energy Indiana for the six months ended June 30, 2017, is primarily due to an immaterial out of period adjustment in the prior year related to deferred tax balances associated with property, plant and equipment.

The decrease in the ETR for Piedmont for the three months ended June 30, 2017, is primarily due to lower North Carolina corporate tax rates.

92

PART I

DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –

DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC – PIEDMONT NATURAL GAS COMPANY, INC.

Combined Notes to Condensed Consolidated Financial Statements – (Unaudited) – (Continued)

TAXES ON FOREIGN EARNINGS

As of December 31, 2015, Duke Energy's intention was to indefinitely reinvest any future undistributed foreign earnings earned after December 31, 2014. In February 2016, Duke Energy announced it had initiated a process to divest the International Disposal Group and, accordingly, no longer intended to indefinitely reinvest post-2014 undistributed foreign earnings. This change in the company's intent, combined with the extension of bonus depreciation by Congress in late 2015, allowed Duke Energy to more efficiently utilize foreign tax credits and reduce U.S. deferred tax liabilities associated with historical unremitted foreign earnings by approximately $95 million for the six months ended June 30, 2016. Due to the classification of the International Disposal Group as discontinued operations, income tax amounts related to the International Disposal Group's foreign earnings are presented within (Loss) Income from Discontinued Operations, net of tax on the Condensed Consolidated Statements of Operations. See Note 2 for additional information related to the sale of the International Disposal Group.

17. SUBSEQUENT EVENTS

For information on additional subsequent events related to regulatory matters, commitments and contingencies and derivatives and hedging see Notes 4, 5 and 9.

93

PART I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) and Duke Energy Carolinas, LLC (Duke Energy Carolinas), Progress Energy, Inc. (Progress Energy), Duke Energy Progress, LLC (Duke Energy Progress), Duke Energy Florida, LLC (Duke Energy Florida), Duke Energy Ohio, Inc. (Duke Energy Ohio), Duke Energy Indiana, LLC (Duke Energy Indiana) and Piedmont Natural Gas Company, Inc. (Piedmont) (collectively referred to as the Subsidiary Registrants). However, none of the registrants make any representation as to information related solely to Duke Energy or the Subsidiary Registrants of Duke Energy other than itself.

DUKE ENERGY

Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the United States (U.S.) primarily through its wholly owned subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. Piedmont's results of operations are included in Duke Energy's results for the three and six months ended June 30, 2017, but not for the three and six months ended June 30, 2016, as Piedmont's earnings are only included in Duke Energy's consolidated results subsequent to the acquisition date. See below for additional information regarding the acquisition.

Management’s Discussion and Analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2017, and with Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2016, Piedmont's Annual Report on Form 10-K for the year ended October 31, 2016, and the transition report filed by Piedmont on Form 10-Q (Form 10-QT) as of December 31, 2016, for the transition period from November 1, 2016 to December 31, 2016.

Executive Overview

Acquisition of Piedmont Natural Gas

On October 3, 2016, Duke Energy completed the acquisition of Piedmont for a total cash purchase price of $5.0 billion and assumed Piedmont's existing long-term debt, which had a fair value of approximately $2.0 billion at the time of the acquisition. The acquisition provides a foundation for Duke Energy to establish a broader, long-term strategic natural gas infrastructure platform to complement its existing natural gas pipeline investments and regulated natural gas business in the Midwest.

Duke Energy incurred pretax nonrecurring transaction and integration costs associated with the acquisition of $30 million and $46 million for the three and six months ended June 30, 2017, respectively, and $90 million and $191 million for the three and six months ended June 30, 2016, respectively. Acquisition-related costs in the prior year were principally due to unrealized losses on forward-starting interest rate swaps related to the acquisition financing of $75 million and $168 million for the three and six months ended June 30, 2016, respectively. For additional information on the swaps see Note 9 to the Condensed Consolidated Financial Statements, "Derivatives and Hedging."

Duke Energy expects to incur system integration and other acquisition-related transition costs, primarily through 2018, that are necessary to achieve certain anticipated cost savings, efficiencies and other benefits. See Note 2 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions," for additional information regarding the transaction.

Sale of International Energy

In December 2016, Duke Energy sold its Latin American generation businesses (International Disposal Group) in two separate transactions for a combined enterprise value of $2.4 billion. Duke Energy sold its Brazilian business to China Three Gorges for approximately $1.2 billion, including the assumption of debt, and its remaining Central and South American businesses to I Squared Capital in a deal also valued at approximately $1.2 billion, including the assumption of debt. The transactions generated cash proceeds of $1.9 billion, excluding transaction costs, which were primarily used to reduce Duke Energy holding company debt. Existing favorable tax attributes resulted in no immediate U.S. federal-level cash tax impacts.

In conjunction with the advancements of marketing efforts during the second quarter of 2016, Duke Energy performed recoverability tests of the long-lived asset groups of International Energy. As a result, Duke Energy determined the carrying value of certain assets in Central America was not fully recoverable and recorded a pretax impairment charge of $194 million. The charge represents the excess carrying value over the estimated fair value of the assets.

Due to the transactions, results of the International Disposal Group, including the impairment described above, are classified as discontinued operations. See Note 2 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions" for additional information.

Results of Operations

Non-GAAP Measures

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. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures presented may not be comparable to similarly titled measures used by other companies because other companies may not calculate the measures in the same manner.

94

PART I

Management evaluates financial performance in part based on non-GAAP financial measures, including adjusted earnings and adjusted diluted earnings per share (EPS). Adjusted earnings and adjusted diluted EPS represent income from continuing operations attributable to Duke Energy, adjusted for the dollar and per share impact of special items. As discussed below, special items represent certain charges and credits, which management believes are not indicative of Duke Energy's ongoing performance.

Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them with an additional relevant comparison of Duke Energy’s performance across periods. Management uses these non-GAAP financial measures for planning and forecasting and for reporting financial results to the Duke Energy Board of Directors, employees, stockholders, analysts and investors. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation (GAAP Reported Earnings) and Diluted EPS Attributable to Duke Energy Corporation common stockholders (GAAP Reported EPS), respectively.

Special items included in the periods presented include the following items, which management believes do not reflect ongoing costs:

• Costs to Achieve Mergers represent charges that result from strategic acquisitions.

• Cost Savings Initiatives represent severance charges related to companywide initiatives, excluding merger integration, to standardize processes and systems, leverage technology and workforce optimization.

Adjusted earnings also include operating results of the International Disposal Group, which have been classified as discontinued operations. Management believes inclusion of the operating results of the Disposal Group within adjusted earnings and adjusted diluted EPS results in a better reflection of Duke Energy's financial performance during the period.

Three Months Ended June 30, 2017 as compared to June 30, 2016

GAAP Reported EPS was $0.98 for the second quarter of 2017 compared to $0.74 for the second quarter of 2016. The increase in GAAP Reported EPS was primarily driven by the prior year impairment charge related to certain assets in Central America recorded within Loss from Discontinued Operations.

As discussed above, management also evaluates financial performance based on adjusted diluted EPS. Duke Energy’s second quarter 2017 adjusted diluted EPS was $1.01 compared to $1.07 for the second quarter of 2016. The following table reconciles non-GAAP measures, including adjusted diluted EPS, to their most directly comparable GAAP measures.

	Three Months Ended June 30,
	2017				2016
(in millions, except per-share amounts)	Earnings		EPS		Earnings		EPS
GAAP Reported Earnings/GAAP Reported EPS	$	686	$	0.98	$	509	$	0.74
Adjustments:
Costs to Achieve Mergers(a)	19		0.03		69		0.10
Cost Savings Initiatives(b)	—		—		15		0.02
Discontinued Operations(c)	2		—		146		0.21
Adjusted Earnings/Adjusted Diluted EPS	$	707	$	1.01	$	739	$	1.07

(a) Net of tax of $11 million in 2017 and $42 million in 2016.

(b) Net of tax of $9 million in 2016.

(c) The 2016 amount is net of tax of $49 million and primarily represents an impairment charge related to certain assets in Central America that were sold in 2016.

The decrease in adjusted earnings for the three months ended June 30, 2017, compared to the same period in 2016, was primarily due to:

• Lower regulated electric revenues due to less favorable weather in the current year;

• The prior year operating results of the International Disposal Group, which was sold in December 2016; and

• Higher financing costs, primarily due to the Piedmont acquisition.

Partially offset by:

• Higher regulated electric revenues from increased pricing and riders driven by new rates in Duke Energy Progress South Carolina, base rate adjustments in Florida, and energy efficiency rider revenues in North Carolina;

• Additional earnings from investments in the Atlantic Coast Pipeline (ACP) and Sabal Trail natural gas pipelines; and

• Improved resources and new wind projects placed in service at Commercial Renewables.

Six Months Ended June 30, 2017 as compared to June 30, 2016

Duke Energy's GAAP Reported EPS was $2.00 for the six months ended June 30, 2017, compared to $1.74 for the six months ended June 30, 2016. The increase in GAAP Reported EPS was driven by regulatory activity and additional investments at the electric utilities, the inclusion of Piedmont's earnings in the current year and losses in the prior year on interest rate swaps related to the Piedmont acquisition financing; partially offset by unfavorable weather in the current year.

95

PART I

As discussed above, management also evaluates financial performance based on adjusted diluted EPS. Duke Energy’s adjusted diluted EPS for the six months ended June 30, 2017, was $2.05 compared to $2.20 for the six months ended June 30, 2016. The following table reconciles non-GAAP measures, including adjusted diluted EPS, to their most directly comparable GAAP measures.

	Six Months Ended June 30,
	2017				2016
(in millions, except per-share amounts)	Earnings		EPS		Earnings		EPS
GAAP Reported Earnings/GAAP Reported EPS	$	1,402	$	2.00	$	1,203	$	1.74
Adjustments:
Costs to Achieve Mergers(a)	29		0.05		143		0.21
Cost Savings Initiatives(b)	—		—		27		0.04
Discontinued Operations(c)	2		—		143		0.21
Adjusted Earnings/Adjusted Diluted EPS	$	1,433	$	2.05	$	1,516	$	2.20

(a) Net of tax of $17 million in 2017 and $88 million in 2016.

(b) Net of tax of $17 million in 2016.

(c) The 2016 amount is net of tax of $49 million and primarily represents an impairment charge related to certain assets in Central America that were sold in 2016.

The decrease in adjusted earnings for the six months ended June 30, 2017, compared to the same period in 2016, was primarily due to:

• Lower regulated electric revenues due to unfavorable weather in the current year; and

• The prior year operating results of the International Disposal Group, which was sold in December 2016. The 2016 operating results included a benefit from the revaluation of deferred income taxes. See Note 16 to the Condensed Consolidated Financial Statements, "Income Taxes," for additional information.

Partially offset by:

• Higher regulated electric revenues from increased pricing and riders driven by new rates in Duke Energy Progress South Carolina, base rate adjustments in Florida, and energy efficiency rider revenues in North Carolina, as well as growth in weather-normal retail volumes;

• Lower operations and maintenance expense, net of amounts recoverable in rates, at Electric Utilities and Infrastructure resulting from ongoing cost efficiency efforts and significant storm costs in the prior year; and

• Piedmont's earnings contribution, net of financing costs, due to the acquisition on October 3, 2016.

SEGMENT RESULTS

Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income includes intercompany revenues and expenses that are eliminated on the Condensed Consolidated Financial Statements.

Due to the Piedmont acquisition and the sale of International Energy in the fourth quarter of 2016, Duke Energy's segment structure has been realigned to include the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. The remainder of Duke Energy’s operations is presented as Other. Prior period information has been recast to conform to the current segment structure. See Note 2 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions," for further information on the Piedmont acquisition and International Energy sale and Note 3, “Business Segments,” for additional information on Duke Energy’s segments.

96

PART I

Electric Utilities and Infrastructure

	Three Months Ended June 30,							Six Months Ended June 30,
(in millions)	2017		2016		Variance			2017		2016		Variance
Operating Revenues	$	5,158	$	5,001	$	157		$	10,105	$	10,090	$	15
Operating Expenses
Fuel used in electric generation and purchased power	1,549		1,509		40			3,003		3,086		(83		)
Operation, maintenance and other	1,265		1,230		35			2,536		2,528		8
Depreciation and amortization	714		701		13			1,451		1,410		41
Property and other taxes	270		263		7			531		525		6
Impairment charges	2		1		1			2		3		(1		)
Total operating expenses	3,800		3,704		96			7,523		7,552		(29		)
Gains on Sales of Other Assets and Other, net	1		1		—			4		2		2
Operating Income	1,359		1,298		61			2,586		2,540		46
Other Income and Expenses	76		77		(1		)	155		140		15
Interest Expense	305		272		33			620		542		78
Income Before Income Taxes	1,130		1,103		27			2,121		2,138		(17		)
Income Tax Expense	401		399		2			757		770		(13		)
Segment Income	$	729	$	704	$	25		$	1,364	$	1,368	$	(4	)
Duke Energy Carolinas Gigawatt-hours (GWh) sales	21,243		20,757		486			42,024		42,382		(358		)
Duke Energy Progress GWh sales	15,562		16,829		(1,267		)	31,199		33,978		(2,779		)
Duke Energy Florida GWh sales	10,740		10,646		94			19,045		19,102		(57		)
Duke Energy Ohio GWh sales	5,901		5,796		105			11,960		11,903		57
Duke Energy Indiana GWh sales	7,972		8,157		(185		)	16,180		17,551		(1,371		)
Total Electric Utilities and Infrastructure GWh sales	61,418		62,185		(767		)	120,408		124,916		(4,508		)
Net proportional Megawatt (MW) capacity in operation								48,877		49,620		(743		)

Three Months Ended June 30, 2017 as Compared to June 30, 2016

Electric Utilities and Infrastructure’s growth was driven by higher retail revenues from pricing and riders, as well as higher weather-normal retail sales volumes, partially offset by less favorable weather. The following is a detailed discussion of the variance drivers by line item.

Operating Revenues. The variance was driven primarily by:

• a $147 million increase in rider revenues related to energy efficiency programs, Duke Energy Florida's nuclear asset securitization revenues, Midwest transmission and distribution revenues, and Duke Energy Indiana's clean coal equipment, as well as increased retail pricing due to Duke Energy Florida's base rate adjustments for the Osprey acquisition and Hines Chillers, and the Duke Energy Progress South Carolina rate case;

• a $32 million increase in weather-normal sales volumes to retail customers in the current year; and

• an $11 million increase in transmission and other miscellaneous revenues.

Partially offset by:

• a $61 million decrease in retail sales, net of fuel revenues, due to less favorable weather in the current year.

Operating Expenses. The variance was driven primarily by:

• a $40 million increase in fuel expense, including purchased power, primarily due to higher costs at fossil plants;

• a $35 million increase in operations and maintenance (O&M) expense primarily due to higher operational costs that are recoverable in rates; and

• a $13 million increase in depreciation and amortization expense primarily due to additional plant in service.

Interest Expense. The increase was primarily due to higher debt outstanding in the current year to fund growth, as well as Duke Energy Florida's Crystal River Unit 3 (CR3) regulatory asset debt return ending in June 2016 upon securitization.

Income Tax Expense. The variance was primarily due to an increase in pretax income, partially offset by lower North Carolina corporate tax rates. The effective tax rates for the three months ended June 30, 2017 and 2016 were 35.5 percent and 36.2 percent, respectively.

97

PART I

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Electric Utilities and Infrastructure’s results were impacted by unfavorable weather in the first half of the year, partially offset by higher pricing and riders and O&M efficiencies. The following is a detailed discussion of the variance drivers by line item.

Operating Revenues. The variance was driven primarily by:

• a $256 million increase in rider revenues related to energy efficiency programs, Duke Energy Florida's nuclear asset securitization revenues, Midwest transmission and distribution revenues, and Duke Energy Indiana's clean coal equipment, as well as increased retail pricing due to Duke Energy Florida's base rate adjustments for the Osprey acquisition and Hines Chillers, and the Duke Energy Progress South Carolina rate case;

• a $43 million increase in weather-normal sales volumes to retail customers in the current year;

• a $21 million increase in transmission and other miscellaneous revenues; and

• a $6 million increase in wholesale power revenues, net of sharing and fuel.

Partially offset by:

• a $220 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year; and

• a $94 million decrease in fuel revenues due to lower retail sales volumes, partially offset by higher fuel prices included in rates.

Operating Expenses. The variance was driven primarily by:

• an $83 million decrease in fuel expense, including purchased power, primarily due to lower retail sales volumes, partially offset by higher fuel prices.

Partially offset by:

• a $41 million increase in depreciation and amortization expense primarily due to additional plant in service; and

• an $8 million increase in operations and maintenance expense primarily due to higher operational costs that are recoverable in rates, partially offset by lower storm restoration costs and O&M efficiencies, including decreased labor costs.

Other Income and Expenses. The increase was driven primarily by higher allowance for funds used during construction (AFUDC) equity.

Interest Expense. The increase was primarily due to higher debt outstanding in the current year, and Duke Energy Florida's CR3 regulatory asset debt return ending in June 2016 upon securitization.

Income Tax Expense. The variance was primarily due to a decrease in pretax income and lower North Carolina corporate tax rates. The effective tax rates for the six months ended June 30, 2017 and 2016 were 35.7 percent and 36.0 percent, respectively.

Matters Impacting Future Electric Utilities and Infrastructure Results

An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Electric Utilities and Infrastructure's financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," for additional information.

On May 18, 2016, the North Carolina Department of Environmental Quality (NCDEQ) issued proposed risk classifications for all coal ash surface impoundments in North Carolina. All ash impoundments not previously designated as high priority by the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) were designated as intermediate risk. Certain impoundments classified as intermediate risk, however, may be reassessed in the future as low risk pursuant to legislation signed by the former North Carolina governor on July 14, 2016. Electric Utilities and Infrastructure's estimated asset retirement obligations (AROs) related to the closure of North Carolina ash impoundments are based upon the mandated closure method or a probability weighting of potential closure methods for the impoundments that may be reassessed to low risk. As the final risk ranking classifications in North Carolina are delineated, final closure plans and corrective action measures are developed and approved for each site, the closure work progresses and the closure method scope and remedial methods are determined, the complexity of work and the amount of coal combustion material could be different than originally estimated and, therefore, could materially impact Electric Utilities and Infrastructure's financial position. See Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," for additional information.

Duke Energy is a party to multiple lawsuits and could be subject to fines and other penalties related to operations at certain North Carolina facilities with ash basins. The outcome of these lawsuits and potential fines and penalties could have an adverse impact on Electric Utilities and Infrastructure's financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.

In the fourth quarter of 2016, Hurricane Matthew caused historic flooding, extensive damage and widespread power outages within the Duke Energy Progress service territory. Duke Energy Progress filed a petition with the North Carolina Utilities Commission (NCUC) requesting an accounting order to defer incremental operation and maintenance and capital costs incurred in response to Hurricane Matthew and other significant 2016 storms. Current estimated incremental costs are approximately $116 million. The NCUC will address this request in Duke Energy Progress' currently pending rate case. A final order from the NCUC that disallows the deferral and future recovery of all or a significant portion of the incremental storm restoration costs incurred could result in an adverse impact on Electric Utilities and Infrastructure's financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.

98

PART I

Duke Energy Progress has filed and Duke Energy Carolinas intends to file rate cases in North Carolina in 2017 to recover costs of complying with Coal Combustion Residuals (CCR) regulations and the Coal Ash Act, as well as costs of capital investments in generation, transmission and distribution systems and any increase in expenditures subsequent to previous rate cases. Duke Energy Progress filed a general rate case with the NCUC on June 1, 2017. On July 25, 2017, Duke Energy Carolinas filed notice with the NCUC that it intends to file a general rate case on or about August 25, 2017. In March 2017, Duke Energy Ohio filed an electric distribution base rate case application and supporting testimony. Electric Utilities and Infrastructure's earnings could be adversely impacted if these rate increases are delayed or denied by the NCUC or Public Utility Commission of Ohio (PUCO).

Gas Utilities and Infrastructure

	Three Months Ended June 30,							Six Months Ended June 30,
(in millions)	2017		2016		Variance			2017		2016		Variance
Operating Revenues	$	301	$	99	$	202		$	971	$	269	$	702
Operating Expenses
Cost of natural gas	76		9		67			334		58		276
Operation, maintenance and other	93		28		65			198		60		138
Depreciation and amortization	57		20		37			114		40		74
Property and other taxes	26		14		12			56		32		24
Total operating expenses	252		71		181			702		190		512
Operating Income	49		28		21			269		79		190
Other Income and Expenses	20		3		17			38		6		32
Interest Expense	26		6		20			52		13		39
Income Before Income Taxes	43		25		18			255		72		183
Income Tax Expense	16		9		7			95		24		71
Segment Income	$	27	$	16	$	11		$	160	$	48	$	112
Piedmont LDC throughput (dekatherms) (a)	94,013,754		—		94,013,754			227,290,541		—		227,290,541
Duke Energy Midwest LDC throughput (Mcf)	12,204,767		12,714,127		(509,360		)	43,035,766		47,455,646		(4,419,880		)

(a)     Includes throughput subsequent to Duke Energy's acquisition of Piedmont on October 3, 2016.

Three Months Ended June 30, 2017 as Compared to June 30, 2016

Gas Utilities and Infrastructure’s higher results were primarily due to increased investments in the ACP and Sabal Trail midstream gas pipelines. Piedmont's earnings included in Gas Utilities and Infrastructure's results were $1 million for the three months ended June 30, 2017. All variances are related to the inclusion of Piedmont's results of operations as a result of Duke Energy's acquisition of Piedmont on October 3, 2016, except for the following:

Other Income and Expenses. The variance was driven primarily by increased investments in the ACP and Sabal Trail midstream gas pipelines.

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Gas Utilities and Infrastructure’s higher results were almost entirely due to the inclusion of Piedmont's earnings in the current year as a result of Duke Energy's acquisition of Piedmont on October 3, 2016. Piedmont's earnings included in Gas Utilities and Infrastructure's results were $100 million for the six months ended June 30, 2017. All variances are related to the inclusion of Piedmont's results of operations, except for the following:

Other Income and Expenses. The variance was driven primarily by increased investments in the ACP and Sabal Trail midstream gas pipelines.

Matters Impacting Future Gas Utilities and Infrastructure Results

Gas Utilities and Infrastructure has a 24 percent ownership interest in Constitution Pipeline Company, LLC (Constitution), a natural gas pipeline project slated to transport natural gas supplies to major northeastern markets. On April 22, 2016, the New York State Department of Environmental Conservation denied Constitution’s application for a necessary water quality certification for the New York portion of the Constitution pipeline. Constitution has stopped construction and discontinued capitalization of future development costs until the project's uncertainty is resolved. To the extent the legal and regulatory proceedings have unfavorable outcomes, or if Constitution concludes that the project is not viable or does not go forward, an impairment charge of up to the recorded investment in the project, net of any cash and working capital returned, may be recorded. With the project on hold, funding of project costs has ceased until resolution of legal actions.

99

PART I

Commercial Renewables

	Three Months Ended June 30,									Six Months Ended June 30,
(in millions)	2017			2016			Variance			2017			2016			Variance
Operating Revenues	$	110		$	112		$	(2	)	$	238		$	226		$	12
Operating Expenses
Operation, maintenance and other	58			82			(24		)	135			155			(20		)
Depreciation and amortization	38			32			6			77			62			15
Property and other taxes	8			6			2			17			12			5
Total operating expenses	104			120			(16		)	229			229			—
Gains on Sales of Other Assets and Other, net	2			1			1			4			2			2
Operating Income (Loss)	8			(7		)	15			13			(1		)	14
Other Income and Expenses	(1		)	—			(1		)	(2		)	(2		)	—
Interest Expense	23			12			11			42			23			19
Loss Before Income Taxes	(16		)	(19		)	3			(31		)	(26		)	(5		)
Income Tax Benefit	(42		)	(29		)	(13		)	(81		)	(62		)	(19		)
Less: Loss Attributable to Noncontrolling Interests	—			(1		)	1			(1		)	(1		)	—
Segment Income	$	26		$	11		$	15		$	51		$	37		$	14
Renewable plant production, GWh	2,231			1,758			473			4,516			3,818			698
Net proportional MW capacity in operation										2,908			1,978			930

Three Months Ended June 30, 2017 as Compared to June 30, 2016

Commercial Renewables' results were impacted by improved wind resources and higher production tax credits (PTCs) from new wind facilities placed in service at the end of 2016, partially offset by lower investment tax credits (ITCs). The following is a detailed discussion of the variance drivers by line item.

Operating Revenues. The decrease was primarily due to lower revenues from Duke Energy's REC Solar investment, partially offset by higher revenues from improved wind and solar resources and new wind facilities placed in service.

Operating Expenses. The decrease was primarily due to lower operations and maintenance expense at REC Solar, partially offset by higher operating expenses related to new wind projects placed in service.

Interest Expense. The increase was driven primarily by new project financings and less capitalized interest due to fewer projects under construction.

Income Tax Benefit.The variance was primarily due to higher PTCs related to wind projects placed in service, partially offset by lower ITCs due to lower solar investments in the current year.

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Commercial Renewables' results were impacted by improved resources and higher PTCs from new wind facilities placed in service at the end of 2016, partially offset by lower ITCs. The following is a detailed discussion of the variance drivers by line item.

Operating Revenues. The increase was primarily due to higher revenue from new wind facilities placed in service, partially offset by lower revenues from Duke Energy's REC Solar investment.

Operating Expenses. Lower operations and maintenance expense at REC Solar was offset by higher operating expenses related to new wind projects placed in service.

Interest Expense. The variance was driven primarily by new project financings and less capitalized interest due to fewer projects under construction.

Income Tax Benefit.The variance was primarily due to higher PTCs related to wind projects placed in service, partially offset by lower ITCs due to lower solar investments in the current year.

Matters Impacting Future Commercial Renewables Results

Changes or variability in assumptions used in calculating the fair value of the Commercial Renewables reporting units for goodwill testing purposes including but not limited to, legislative actions related to tax credit extensions, long-term growth rates and discount rates, could significantly impact the estimated fair value of the Commercial Renewables reporting units. In the event of a significant decline in the estimated fair value of the Commercial Renewables reporting units, goodwill impairment charges could be recorded. The carrying value of goodwill within Commercial Renewables was approximately $122 million at June 30, 2017.

Persistently low market pricing for wind resources, primarily in the Electric Reliability Council of Texas West market, and the future expiration of tax incentives including ITCs and PTCs could result in adverse impacts to the future results of Commercial Renewables.

100

PART I

Other

	Three Months Ended June 30,									Six Months Ended June 30,
(in millions)	2017			2016			Variance			2017			2016			Variance
Operating Revenues	$	35		$	30		$	5		$	68		$	59		$	9
Operating Expenses
Fuel used in electric generation and purchased power	14			12			2			29			23			6
Operation, maintenance and other	18			39			(21		)	26			75			(49		)
Depreciation and amortization	26			37			(11		)	52			71			(19		)
Property and other taxes	4			8			(4		)	7			17			(10		)
Impairment charges	7			—			7			7			2			5
Total operating expenses	69			96			(27		)	121			188			(67		)
Gains on Sales of Other Assets and Other, net	6			6			—			11			11			—
Operating Loss	(28		)	(60		)	32			(42		)	(118		)	76
Other Income and Expenses	28			19			9			49			36			13
Interest Expense	139			191			(52		)	273			396			(123		)
Loss Before Income Taxes	(139		)	(232		)	93			(266		)	(478		)	212
Income Tax Benefit	(48		)	(126		)	78			(100		)	(227		)	127
Less: Income Attributable to Noncontrolling Interests	3			1			2			5			4			1
Net Expense	$	(94	)	$	(107	)	$	13		$	(171	)	$	(255	)	$	84

Three Months Ended June 30, 2017 as Compared to June 30, 2016

Other's results were impacted by lower interest expense related to the Piedmont acquisition financing and decreased severance expenses. The following is a detailed discussion of the variance drivers by line item.

Operating Expenses. The decrease was primarily due to prior year severance expenses related to cost savings initiatives.

Other Income and Expenses. The increase was driven by higher earnings from National Methanol Company (NMC).

Interest Expense. The decrease was primarily due to Piedmont pre-acquisition financing costs in the prior year, including $75 million of unrealized losses on forward-starting interest rate swaps, partially offset by interest costs on $3.75 billion of debt issued in August 2016 to fund the acquisition. For additional information see Notes 2 and 9 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions" and "Derivatives and Hedging," respectively.

Income Tax Benefit. The variance was primarily due to a decrease in pretax losses and a lower effective tax rate due to favorable impacts in the prior year of finalizing federal tax audits. The effective tax rates for the three months ended June 30, 2017 and 2016 were 34.5 percent and 54.3 percent, respectively.

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Other's results were impacted by lower interest expense related to the Piedmont acquisition financing and decreased severance expenses. The following is a detailed discussion of the variance drivers by line item.

Operating Expenses. The decrease was primarily due to prior year severance expenses related to cost savings initiatives.

Other Income and Expenses. The increase was primarily driven by higher earnings from NMC.

Interest Expense. The decrease was primarily due to Piedmont pre-acquisition financing costs in the prior year, including $168 million of unrealized losses on forward-starting interest rate swaps, partially offset by interest costs on $3.75 billion of debt issued in August 2016 to fund the acquisition. For additional information see Notes 2 and 9 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions" and "Derivatives and Hedging," respectively.

Income Tax Benefit. The variance was primarily due to a decrease in pretax losses and a lower effective tax rate due to favorable impacts in the prior year of finalizing federal tax audits. The effective tax rates for the six months ended June 30, 2017 and 2016 were 37.6 percent and 47.5 percent, respectively.

Matters Impacting Future Other Results

Included in Other is Duke Energy Ohio's 9 percent ownership interest in the Ohio Valley Electric Corporation (OVEC), which owns 2,256 MW of coal-fired generation capacity. As a counterparty to an inter-company power agreement (ICPA), Duke Energy Ohio has a contractual arrangement to receive entitlements to capacity and energy from OVEC’s power plants through June 2040 commensurate with its power participation ratio, which is equivalent to Duke Energy Ohio's ownership interest. Costs, including fuel, operating expenses, fixed costs, debt amortization, and interest expense, are allocated to counterparties to the ICPA, including Duke Energy Ohio, based on their power participation ratio. The value of the ICPA is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business. Deterioration in the credit quality or bankruptcy of one or more parties to the ICPA could increase the costs of OVEC. In addition, certain proposed environmental rulemaking costs could result in future increased cost allocations.

101

PART I

The retired Beckjord generating station (Beckjord), a nonregulated facility retired during 2014, is not subject to the U.S. Environmental Protection Agency (EPA) rule related to the disposal of CCR from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with on-site storage of coal ash, the costs could have an adverse impact on Other's financial position, results of operations and cash flows.

Earnings from an equity method investment in NMC reflect sales of methanol and methyl tertiary butyl ether (MTBE), which generate margins that are directionally correlated with Brent crude oil prices. Weakness in the market price of Brent crude oil and related commodities may result in a decline in earnings. Duke Energy's economic ownership interest will decrease from 25 percent to 17.5 percent upon successful startup of NMC's polyacetal production facility, which is expected to occur in the third quarter of 2017.

U.S. federal tax reform has become an important priority of Congress and the Administration. Any substantial revision to the U.S. tax code, including a loss of the ability to deduct interest expense, could adversely impact Duke Energy's future earnings, cash flows or financial position.

INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX

Three Months Ended June 30, 2017 as Compared to June 30, 2016

Discontinued Operations, Net of Tax. The variance was driven by a 2016 impairment charge related to certain assets in Central America that were sold in 2016, partially offset by the operating results of the International Disposal Group. See Note 2 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions," for additional information.

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Discontinued Operations, Net of Tax. The variance was driven by 2016 earnings from the International Disposal Group, which was sold in December 2016, partially offset by an impairment charge related to certain assets in Central America that were sold in 2016. See Note 2 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions," for additional information.

DUKE ENERGY CAROLINAS

Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2017 and 2016 and the Annual Report on Form 10-K for the year ended December 31, 2016.

Results of Operations

	Six Months Ended June 30,
(in millions)	2017		2016		Variance
Operating Revenues	$	3,445	$	3,415	$	30
Operating Expenses
Fuel used in electric generation and purchased power	863		810		53
Operation, maintenance and other	951		988		(37		)
Depreciation and amortization	523		534		(11		)
Property and other taxes	139		138		1
Total operating expenses	2,476		2,470		6
Operating Income	969		945		24
Other Income and Expenses	73		82		(9		)
Interest Expense	206		214		(8		)
Income Before Income Taxes	836		813		23
Income Tax Expense	293		281		12
Net Income	$	543	$	532	$	11

The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.

Increase (Decrease) over prior year	2017
Residential sales	(4.1	)%
General service sales	(0.5	)%
Industrial sales	0.1	%
Wholesale power sales	5.5	%
Joint dispatch sales	181.6	%
Total sales	(0.8	)%
Average number of customers	1.5	%

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Operating Revenues.The variance was driven primarily by:

• a $70 million increase in rider revenues related to energy efficiency programs;

102

PART I

• a $67 million increase in fuel revenues primarily due to changes in generation mix;

• a $16 million increase in weather-normal retail sales volumes, net of fuel revenues; and

• a $5 million increase in wholesale power revenues, net of sharing and fuel, primarily due to additional volumes for customers served under long-term contracts.

Partially offset by:

• a $132 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year.

Operating Expenses. The variance was driven primarily by:

• a $53 million increase in fuel expense primarily due to changes in generation mix and higher costs at fossil plants, partially offset by lower retail sales.

Partially offset by:

• a $37 million decrease in operations and maintenance expense primarily due to lower expenses at generating plants, lower storm restoration costs, and lower severance expenses, partially offset by higher energy efficiency program costs and higher distribution maintenance expenses; and

• an $11 million decrease in depreciation and amortization expense primarily due to lower amortization of certain regulatory assets, partially offset by higher depreciation due to additional plant in service.

Other Income and Expenses. The variance was primarily due to a decrease in recognition of post in-service equity returns for projects that had been completed prior to being reflected in customer rates.

Income Tax Expense. The variance was primarily due to an increase in pretax income and a favorable state resolution recorded in the prior year, partially offset by lower North Carolina corporate tax rates. The effective tax rates for the six months ended June 30, 2017 and 2016 were 35.0 percent and 34.6 percent, respectively.

Matters Impacting Future Results

An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Duke Energy Carolinas' financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," for additional information.

On May 18, 2016, the NCDEQ issued proposed risk classifications for all coal ash surface impoundments in North Carolina. All ash impoundments not previously designated as high priority by the Coal Ash Act were designated as intermediate risk. Certain impoundments classified as intermediate risk, however, may be reassessed in the future as low risk pursuant to legislation signed by the former North Carolina governor on July 14, 2016. Duke Energy Carolinas' estimated AROs related to the closure of North Carolina ash impoundments are based upon the mandated closure method or a probability weighting of potential closure methods for the impoundments that may be reassessed to low risk. As the final risk ranking classifications in North Carolina are delineated, final closure plans and corrective action measures are developed and approved for each site, the closure work progresses, and the closure method scope and remedial action methods are determined, the complexity of work and the amount of coal combustion material could be different than originally estimated and, therefore, could materially impact Duke Energy Carolinas' financial position. See Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," for additional information.

Duke Energy Carolinas is a party to multiple lawsuits and subject to fines and other penalties related to operations at certain North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact on Duke Energy Carolinas’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.

Duke Energy Carolinas filed notice with the NCUC that it intends to file a general rate case on or about August 25, 2017, to recover costs of complying with CCR regulations and the Coal Ash Act, as well as costs of capital investments in generation, transmission and distribution systems and any increase in expenditures subsequent to previous rate cases. Duke Energy Carolinas' earnings could be adversely impacted if the rate increase is delayed or denied by the NCUC.

103

PART I

PROGRESS ENERGY

Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2017 and 2016 and the Annual Report on Form 10-K for the year ended December 31, 2016.

Results of Operations

	Six Months Ended June 30,
(in millions)	2017		2016		Variance
Operating Revenues	$	4,571	$	4,680	$	(109	)
Operating Expenses
Fuel used in electric generation and purchased power	1,557		1,712		(155		)
Operation, maintenance and other	1,078		1,117		(39		)
Depreciation and amortization	624		586		38
Property and other taxes	246		239		7
Impairment charges	2		3		(1		)
Total operating expenses	3,507		3,657		(150		)
Gains on Sales of Other Assets and Other, net	14		12		2
Operating Income	1,078		1,035		43
Other Income and Expenses	45		48		(3		)
Interest Expense	402		320		82
Income Before Income Taxes	721		763		(42		)
Income Tax Expense	243		277		(34		)
Net Income	478		486		(8		)
Less: Net Income Attributable to Noncontrolling Interests	5		5		—
Net Income Attributable to Parent	$	473	$	481	$	(8	)

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Operating Revenues. The variance was driven primarily by:

• a $168 million decrease in fuel revenues driven by lower retail sales and changes in generation mix at Duke Energy Progress, as well as decreased demand and capacity rates to retail customers at Duke Energy Florida, partially offset by an increase in fuel rates to retail customers; and

• a $72 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year.

Partially offset by:

• a $67 million increase in rider revenues related to energy efficiency programs at Duke Energy Progress, as well as nuclear asset securitization beginning in July 2016 and extended uprate project revenues beginning in 2017 at Duke Energy Florida; and

• a $41 million increase in retail pricing due to the base rate adjustment for the Osprey acquisition and the completion of the Hines Energy Complex Chiller Uprate Project, as well as the Duke Energy Progress South Carolina rate case.

Operating Expenses. The variance was driven primarily by:

• a $155 million decrease in fuel expense primarily due to lower retail sales and changes in generation mix at Duke Energy Progress, as well as decreased purchased power and lower deferred fuel and capacity costs at Duke Energy Florida; and

• a $39 million decrease in operations and maintenance expense due to lower storm restoration costs at Duke Energy Progress and lower planned outage costs at Duke Energy Florida.

Partially offset by:

• a $38 million increase in depreciation and amortization expense primarily due to additional plant in service and nuclear regulatory asset amortization at Duke Energy Florida.

Interest Expense. The variance was primarily due to higher debt outstanding, and lower debt returns driven by the CR3 regulatory asset debt return ending in June 2016 upon securitization.

Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rates for the six months ended June 30, 2017 and 2016 were 33.7 percent and 36.3 percent, respectively. The decrease in the effective tax rate was primarily due to lower North Carolina corporate tax rates.

104

PART I

Matters Impacting Future Results

An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Progress Energy’s financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," for additional information.

On May 18, 2016, the NCDEQ issued proposed risk classifications for all coal ash surface impoundments in North Carolina. All ash impoundments not previously designated as high priority by the Coal Ash Act were designated as intermediate risk. Certain impoundments classified as intermediate risk, however, may be reassessed in the future as low risk pursuant to legislation signed by the former North Carolina governor on July 14, 2016. Progress Energy's estimated AROs related to the closure of North Carolina ash impoundments are based upon the mandated closure method or a probability weighting of potential closure methods for the impoundments that may be reassessed to low risk. As the final risk ranking classifications in North Carolina are delineated, final closure plans and corrective action measures are developed and approved for each site, the closure work progresses, and the closure method scope and remedial action methods are determined, the complexity of work and the amount of coal combustion material could be different than originally estimated and, therefore, could materially impact Progress Energy's financial position. See Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," for additional information.

Duke Energy Progress is a party to multiple lawsuits and subject to fines and other penalties related to operations at certain North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact on Progress Energy’s financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.

In the fourth quarter of 2016, Hurricane Matthew caused historic flooding, extensive damage and widespread power outages within the Duke Energy Progress service territory. Duke Energy Progress filed a petition with the NCUC requesting an accounting order to defer incremental operation and maintenance and capital costs incurred in response to Hurricane Matthew and other significant 2016 storms. Current estimated incremental costs are approximately $116 million. The NCUC will address this request in Duke Energy Progress's currently pending rate case. A final order from the NCUC that disallows the deferral and future recovery of all or a significant portion of the incremental storm restoration costs incurred could result in an adverse impact on Progress Energy's financial position, results of operations and cash flows.

Duke Energy Progress filed a general rate case with the NCUC on June 1, 2017. Duke Energy Progress will seek to recover costs of complying with CCR regulations and the Coal Ash Act, as well as costs of capital investments in generation, transmission and distribution systems and any increase in expenditures subsequent to previous rate cases. Progress Energy's earnings could be adversely impacted if the rate increase is delayed or denied by the NCUC.

105

PART I

DUKE ENERGY PROGRESS

Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2017 and 2016 and the Annual Report on Form 10-K for the year ended December 31, 2016.

Results of Operations

	Six Months Ended June 30,
(in millions)	2017		2016		Variance
Operating Revenues	$	2,418	$	2,520	$	(102	)
Operating Expenses
Fuel used in electric generation and purchased power	739		872		(133		)
Operation, maintenance and other	680		707		(27		)
Depreciation and amortization	354		350		4
Property and other taxes	80		79		1
Total operating expenses	1,853		2,008		(155		)
Gains on Sales of Other Assets and Other, net	3		1		2
Operating Income	568		513		55
Other Income and Expenses	33		29		4
Interest Expense	152		127		25
Income Before Income Taxes	449		415		34
Income Tax Expense	148		147		1
Net Income and Comprehensive Income	$	301	$	268	$	33

The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.

Increase (Decrease) over prior period	2017
Residential sales	(3.0	)%
General service sales	(0.9	)%
Industrial sales	2.1	%
Wholesale power sales	(17.9	)%
Joint dispatch sales	(46.8	)%
Total sales	(8.2	)%
Average number of customers	1.3	%

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Operating Revenues. The variance was driven primarily by:

• a $146 million decrease in fuel revenues driven by lower retail sales and changes in generation mix; and

• a $37 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year.

Partially offset by:

• a $29 million increase in rider revenues related to energy efficiency programs;

• a $28 million increase in wholesale power revenues, net of fuel, primarily due to higher peak demand; and

• an $18 million increase in retail pricing due to the Duke Energy Progress South Carolina rate case.

Operating Expenses. The variance was driven primarily by:

• a $133 million decrease in fuel expense primarily due to lower retail sales and changes in generation mix; and

• a $27 million decrease in operations and maintenance expense primarily due to lower storm restoration costs.

Interest Expense. The increase was primarily due to higher debt outstanding, as well as interest charges on North Carolina fuel overcollections.

Income Tax Expense. The variance was primarily due to an increase in pretax income, partially offset by a lower effective tax rate due to lower North Carolina corporate tax rates. The effective tax rates for the six months ended June 30, 2017 and 2016 were 33.0 percent and 35.4 percent, respectively.

106

PART I

Matters Impacting Future Results

An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Duke Energy Progress’ financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," for additional information.

On May 18, 2016, the NCDEQ issued proposed risk classifications for all coal ash surface impoundments in North Carolina. All ash impoundments not previously designated as high priority by the Coal Ash Act were designated as intermediate risk. Certain impoundments classified as intermediate risk, however, may be reassessed in the future as low risk pursuant to legislation signed by the former North Carolina governor on July 14, 2016. Duke Energy Progress' estimated AROs related to the closure of North Carolina ash impoundments are based upon the mandated closure method or a probability weighting of potential closure methods for the impoundments that may be reassessed to low risk. As the final risk ranking classifications in North Carolina are delineated, final closure plans and corrective action measures are developed and approved for each site, the closure work progresses, and the closure method scope and remedial action methods are determined, the complexity of work and the amount of coal combustion material could be different than originally estimated and, therefore, could materially impact Duke Energy Progress' financial position. See Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," for additional information.

Duke Energy Progress is a party to multiple lawsuits and subject to fines and other penalties related to operations at certain North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact on Duke Energy Progress’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.

In the fourth quarter of 2016, Hurricane Matthew caused historic flooding, extensive damage and widespread power outages within the Duke Energy Progress service territory. Duke Energy Progress filed a petition with the NCUC requesting an accounting order to defer incremental operation and maintenance and capital costs incurred in response to Hurricane Matthew and other significant 2016 storms. Current estimated incremental costs are approximately $116 million. The NCUC will address this request in Duke Energy Progress's currently pending rate case. A final order from the NCUC that disallows the deferral and future recovery of all or a significant portion of the incremental storm restoration costs incurred could result in an adverse impact on Duke Energy Progress' financial position, results of operations and cash flows.

Duke Energy Progress filed a general rate case with the NCUC on June 1, 2017. Duke Energy Progress will seek to recover costs of complying with CCR regulations and the Coal Ash Act, as well as costs of capital investments in generation, transmission and distribution systems and any increase in expenditures subsequent to previous rate cases. Duke Energy Progress' earnings could be adversely impacted if the rate increase is delayed or denied by the NCUC.

107

PART I

DUKE ENERGY FLORIDA

Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2017 and 2016 and the Annual Report on Form 10-K for the year ended December 31, 2016.

Results of Operations

	Six Months Ended June 30,
(in millions)	2017		2016		Variance
Operating Revenues	$	2,150	$	2,157	$	(7	)
Operating Expenses
Fuel used in electric generation and purchased power	817		841		(24		)
Operation, maintenance and other	394		404		(10		)
Depreciation and amortization	269		236		33
Property and other taxes	166		160		6
Impairment charges	2		3		(1		)
Total operating expenses	1,648		1,644		4
Operating Income	502		513		(11		)
Other Income and Expenses	30		19		11
Interest Expense	140		81		59
Income Before Income Taxes	392		451		(59		)
Income Tax Expense	144		170		(26		)
Net Income	$	248	$	281	$	(33	)

The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.

Increase (Decrease) over prior period	2017
Residential sales	(3.1	)%
General service sales	(0.1	)%
Industrial sales	(1.4	)%
Wholesale and other	32.9	%
Total sales	(0.3	)%
Average number of customers	1.5	%

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Operating Revenues. The variance was driven primarily by:

• a $35 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year;

• a $30 million decrease in wholesale power revenues primarily due to contracts that expired in the prior year; and

• a $22 million decrease in fuel and capacity revenues primarily due to a decrease in capacity rates to retail customers, partially offset by an increase in fuel rates to retail customers.

Partially offset by:

• a $38 million increase in rider revenues primarily due to nuclear asset securitization beginning in July 2016 and extended power uprate project revenues beginning in 2017;

• a $23 million increase in retail pricing due to the base rate adjustment for the Osprey acquisition and the completion of the Hines Energy Complex Chiller Uprate Project; and

• a $20 million increase in weather-normal sales volumes to retail customers in the current year.

Operating Expenses. The variance was driven primarily by:

• a $33 million increase in depreciation and amortization expense primarily due to nuclear regulatory asset amortization, as well as additional plant in service.

Partially offset by:

• a $24 million decrease in fuel expense primarily due to decreased purchased power and lower deferred fuel and capacity costs, partially offset by higher generation costs; and

• a $10 million decrease in operations and maintenance expense primarily due to lower planned outage costs.

108

PART I

Other Income and Expenses. The variance was driven by higher AFUDC equity return on the Citrus County Combined Cycle and Hines Energy Complex Chiller Uprate projects in the current year.

Interest Expense. The variance was primarily due to higher debt outstanding and lower debt returns driven by the CR3 regulatory asset debt return ending in June 2016 upon securitization.

Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rates for the six months ended June 30, 2017 and 2016 were 36.7 percent and 37.7 percent, respectively.

109

PART I

DUKE ENERGY OHIO

Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2017 and 2016 and the Annual Report on Form 10-K for the year ended December 31, 2016.

Results of Operations

	Six Months Ended June 30,
(in millions)	2017		2016		Variance
Operating Revenues
Regulated electric	$	665	$	663	$	2
Regulated natural gas	270		269		1
Nonregulated electric and other	20		12		8
Total operating revenues	955		944		11
Operating Expenses
Fuel used in electric generation and purchased power – regulated	183		211		(28		)
Fuel used in electric generation and purchased power – nonregulated	29		23		6
Cost of natural gas	64		58		6
Operation, maintenance and other	261		241		20
Depreciation and amortization	130		125		5
Property and other taxes	139		136		3
Impairment Charges	1		—		1
Total operating expenses	807		794		13
Gains on Sales of Other Assets and Other, net	—		1		(1		)
Operating Income	148		151		(3		)
Other Income and Expenses	8		3		5
Interest Expense	45		41		4
Income from Continuing Operations Before Income Taxes	111		113		(2		)
Income Tax Expense from Continuing Operations	39		33		6
Income from Continuing Operations	72		80		(8		)
Income from Discontinued Operations, net of tax	—		2		(2		)
Net Income	$	72	$	82	$	(10	)

The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.

Increase (Decrease) over prior year	2017
Residential sales	(0.9	)%
General service sales	(1.1	)%
Industrial sales	0.1	%
Wholesale power sales	178.4	%
Total sales	0.5	%
Average number of customers	0.8	%

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Operating Revenues. The variance was driven primarily by:

• a $24 million increase in rider revenues primarily due to energy efficiency programs and a rate increase for the distribution capital investment rider, partially offset by a decrease in the percentage of income payment plan rider due to a rate decrease;

• a $10 million increase in PJM Interconnection, LLC (PJM) transmission revenues;

• a $7 million increase in other revenues related to OVEC; and

• a $5 million increase in Bulk Power Marketing (BPM) sales.

Partially offset by:

• a $24 million decrease in fuel revenues primarily due to lower electric fuel prices and sales volumes, partially offset by higher costs passed through to natural gas customers due to higher natural gas prices; and

• a $13 million decrease in electric retail sales, net of fuel revenues, due to unfavorable weather in the current year.

110

PART I

Operating Expenses. The variance was driven primarily by:

• a $20 million increase in operations and maintenance expense due to higher energy efficiency program costs and higher transmission and distribution operations costs;

• a $6 million increase in natural gas costs due to higher gas prices; and

• a $5 million increase in depreciation and amortization expense due to additional plant in service.

Partially offset by:

• a $28 million decrease in fuel expense driven by lower sales volumes and lower electric fuel costs.

Income Tax Expense. The variance was primarily due to a higher effective tax rate, partially offset by lower pretax income. The effective tax rates for the six months ended June 30, 2017 and 2016 were 35.1 percent and 29.2 percent, respectively. The increase in the effective tax rate was primarily due to an immaterial out of period adjustment in the prior year related to deferred tax balances associated with property, plant and equipment.

Matters Impacting Future Results

An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact on Duke Energy Ohio's financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," for additional information.

Duke Energy Ohio’s nonregulated Beckjord station, a facility retired during 2014, is not subject to the EPA rule related to the disposal of CCR from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with on-site storage of coal ash at the facility, the costs could have an adverse impact on Duke Energy Ohio's financial position, results of operations and cash flows.

Duke Energy Ohio has a 9 percent ownership interest in OVEC, which owns 2,256 MW of coal-fired generation capacity. As a counterparty to an ICPA, Duke Energy Ohio has a contractual arrangement to receive entitlements to capacity and energy from OVEC’s power plants through June 2040 commensurate with its power participation ratio, which is equivalent to Duke Energy Ohio’s ownership interest. Costs, including fuel, operating expenses, fixed costs, debt amortization, and interest expense, are allocated to counterparties to the ICPA, including Duke Energy Ohio, based on their power participation ratio. The value of the ICPA is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business. Deterioration in the credit quality or bankruptcy of one or more parties to the ICPA could increase the costs of OVEC. In addition, certain proposed environmental rulemaking costs could result in future increased cost allocations.

On March 2, 2017, Duke Energy Ohio filed an electric distribution base rate application with the PUCO to address recovery of electric distribution system capital investments and any increase in expenditures subsequent to previous rate cases. The application also includes requests to continue certain current riders and establish new riders related to LED Outdoor Lighting Service and regulatory mandates. Duke Energy Ohio's earnings could be adversely impacted if the rate case and requested riders are delayed or denied by the PUCO. See Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.

On August 2, 2017, Duke Energy Kentucky filed notice with the Kentucky Public Service Commission (KPSC) that it intends to file a general rate case for its electric business on or about September 1, 2017, to recover costs of capital investments in generation, transmission and distribution systems and to recover other incremental expenses since its last rate case filed in 2006. Duke Energy Kentucky’s earnings could be adversely impacted if the rate increase is delayed or denied by the KPSC.

111

PART I

DUKE ENERGY INDIANA

Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2017 and 2016 and the Annual Report on Form 10-K for the year ended December 31, 2016.

Results of Operations

	Six Months Ended June 30,
(in millions)	2017		2016		Variance
Operating Revenues	$	1,500	$	1,416	$	84
Operating Expenses
Fuel used in electric generation and purchased power	485		448		37
Operation, maintenance and other	366		351		15
Depreciation and amortization	216		222		(6		)
Property and other taxes	37		45		(8		)
Total operating expenses	1,104		1,066		38
Operating Income	396		350		46
Other Income and Expenses	17		10		7
Interest Expense	88		91		(3		)
Income Before Income Taxes	325		269		56
Income Tax Expense	128		89		39
Net Income	$	197	$	180	$	17

The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.

Increase (Decrease) over prior year	2017
Residential sales	(2.5	)%
General service sales	(0.3	)%
Industrial sales	0.2	%
Wholesale power sales	(29.0	)%
Total sales	(7.8	)%
Average number of customers	0.9	%

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Operating Revenues.The variance was driven primarily by:

• a $56 million increase in rider revenues related to Edwardsport Integrated Gasification Combined Cycle (IGCC) and energy efficiency programs; and

• a $34 million increase in fuel revenues primarily due to higher purchased power costs passed through to customers and higher financial transmission right (FTR) revenues.

Operating Expenses.The variance was driven primarily by:

• a $37 million increase in fuel and purchased power expense, primarily due to higher purchased power volumes and prices; and

• a $15 million increase in operations and maintenance expense due to growth in energy efficiency programs and higher expenses at Edwardsport IGCC.

Partially offset by:

• an $8 million decrease in property and other taxes primarily due to utilization of ITCs.

Other Income and Expenses. The increase was primarily driven by higher AFUDC equity.

Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rates for the six months ended June 30, 2017 and 2016 were 39.4 percent and 33.1 percent, respectively. The increase in the effective tax rate was primarily due to an immaterial out of period adjustment in the prior year related to deferred tax balances associated with property, plant and equipment.

112

PART I

Matters Impacting Future Results

On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. Duke Energy Indiana has interpreted the rule to identify the coal ash basin sites impacted and has assessed the amounts of coal ash subject to the rule and a method of compliance. Duke Energy Indiana's interpretation of the requirements of the CCR rule is subject to potential legal challenges and further regulatory approvals, which could result in additional ash basin closure requirements, higher costs of compliance and greater AROs. Additionally, Duke Energy Indiana has retired facilities that are not subject to the CCR rule. Duke Energy Indiana may incur costs at these facilities to comply with environmental regulations or to mitigate risks associated with on-site storage of coal ash. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact on Duke Energy Indiana's financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.

The Indiana Utility Regulatory Commission (IURC) approved a settlement agreement between Duke Energy Indiana and multiple parties that resolves all disputes, claims and issues from the IURC proceedings related to post-commercial operating performance and recovery of ongoing operating and capital costs at the Edwardsport IGCC generating facility. The settlement agreement imposed a cost cap for retail recoverable operations and maintenance costs through 2017. An inability to manage operating costs in accordance with caps imposed pursuant to the agreement could have an adverse impact on Duke Energy Indiana's financial position, results of operations and cash flows.

113

PART I

PIEDMONT

Management’s Discussion and Analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2017, Piedmont's Annual Report on Form 10-K for the year ended October 31, 2016, and the transition report filed on Form 10-Q (Form 10-QT) as of December 31, 2016, for the transition period from November 1, 2016 to December 31, 2016.

Results of Operations

	Six Months Ended June 30,
(in millions)	2017			2016		Variance
Operating Revenues
Regulated natural gas	$	696		$	660	$	36
Nonregulated natural gas and other	5			5		—
Total operating revenues	701			665		36
Operating Expenses
Cost of natural gas	270			247		23
Operation, maintenance and other	153			147		6
Depreciation and amortization	71			68		3
Property and other taxes	25			22		3
Impairment charges	7			—		7
Total operating expenses	526			484		42
Operating Income	175			181		(6		)
Equity in Earnings of Unconsolidated Affiliates	5			23		(18		)
Other income and expenses, net	(1		)	—		(1		)
Total other income and expenses	4			23		(19		)
Interest Expense	39			33		6
Income Before Income Taxes	140			171		(31		)
Income Tax Expense	53			65		(12		)
Net Income	$	87		$	106	$	(19	)

The following table shows the percent changes in dekatherms delivered and average number of customers. The percentages for all throughput deliveries represent billed and unbilled sales. Amounts are not weather-normalized.

Increase (Decrease) over prior year	2017
Residential deliveries	(21.9	)%
Commercial deliveries	(17.2	)%
Industrial deliveries	(5.0	)%
Power generation deliveries	(13.1	)%
For resale	(10.6	)%
Total throughput deliveries	(13.0	)%
Secondary market volumes	2.5	%
Average number of customers	1.6	%

Piedmont's throughput was 227,290,541 dekatherms and 261,343,238 dekatherms for the six months ended June 30, 2017 and 2016, respectively. Due to the margin decoupling mechanism in North Carolina and weather normalization adjustment (WNA) mechanisms in South Carolina and Tennessee, changes in throughput deliveries do not have a material impact on Piedmont's revenues or earnings. The margin decoupling mechanism adjusts for variations in residential and commercial use per customer, including those due to weather and conservation. The WNA mechanisms mostly offset the impact of weather on bills rendered, but do not ensure full recovery of approved margin during periods when winter weather is significantly warmer or colder than normal.

Six Months Ended June 30, 2017 as Compared to June 30, 2016

Operating Revenues.The variance was driven primarily by:

• a $23 million increase due to higher natural gas costs passed through to customers primarily due to higher natural gas prices; and

• a $13 million increase in revenues to residential and commercial customers, net of natural gas costs passed through to customers, primarily due to Integrity Management Rider (IMR) rate adjustments, customer growth and wholesale marketing revenue.

Operating Expenses.The variance was driven by:

• a $23 million increase in costs of natural gas primarily due to higher natural gas prices;

• a $6 million increase in operations and maintenance expense primarily due to higher severance and contract labor expenses; and

• a $7 million increase due to an impairment of software resulting from planned accounting system and process integration in 2018.

114

PART I

Equity in Earnings of Unconsolidated Affiliates. The decrease was primarily due to equity earnings from the investment in SouthStar Energy Services, LLC (SouthStar) in the prior year. Piedmont sold its 15 percent membership interest in SouthStar on October 3, 2016.

Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rates for the six months ended June 30, 2017 and 2016 were 37.9 percent and 38.0 percent, respectively.

115

PART I

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

Duke Energy relies primarily upon cash flows from operations, debt issuances and its existing cash and cash equivalents to fund its liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders. See Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2016, for a summary and detailed discussion of projected primary sources and uses of cash for 2017 to 2019.

The Subsidiary Registrants generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Subsidiary Registrants, excluding Progress Energy (Parent), support their short-term borrowing needs through participation with Duke Energy and certain of its other subsidiaries in a money pool arrangement. The companies with short-term funds may provide short-term loans to affiliates participating under this arrangement.

Duke Energy and the Subsidiary Registrants, excluding Progress Energy (Parent), may also use short-term debt, including commercial paper and the money pool, as a bridge to long-term debt financings. The levels of borrowing may vary significantly over the course of the year due to the timing of long-term debt financings and the impact of fluctuations in cash flows from operations. From time to time, Duke Energy’s current liabilities may exceed current assets resulting from the use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate due to the seasonality of its business.

CREDIT FACILITIES AND REGISTRATION STATEMENTS

Refer to Note 6 to the Condensed Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding Duke Energy's available credit facilities including the Master Credit Facility.

Shelf Registration

In September 2016, Duke Energy filed a registration statement (Form S-3) with the U.S. Securities and Exchange Commission (SEC). Under this Form S-3, which is uncapped, the Duke Energy Registrants, excluding Progress Energy, may issue debt and other securities in the future at amounts, prices and with terms to be determined at the time of future offerings. The registration statement also allows for the issuance of common stock by Duke Energy.

In January 2017, Duke Energy amended its Form S-3 to add Piedmont as a registrant and included in the amendment a prospectus for Piedmont under which it may issue debt securities in the same manner as other Duke Energy Registrants.

DEBT MATURITIES

Refer to Note 6 to the Condensed Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant components of Current Maturities of Long-Term Debt on the Condensed Consolidated Balance Sheets.

CASH FLOWS FROM OPERATING ACTIVITIES

Cash flows from operations of Electric Utilities and Infrastructure and Gas Utilities and Infrastructure are primarily driven by sales of electricity and natural gas, respectively, and costs of operations. These cash flows from operations are relatively stable and comprise a substantial portion of Duke Energy’s operating cash flows. Weather conditions, working capital and commodity price fluctuations, and unanticipated expenses including unplanned plant outages, storms, legal costs and related settlements can affect the timing and level of cash flows from operations.

Duke Energy believes it has sufficient liquidity resources through the commercial paper markets, and ultimately the Master Credit and Revolving Facilities, to support these operations. Cash flows from operations are subject to a number of other factors, including but not limited to regulatory constraints, economic trends and market volatility (see “Item 1A. Risk Factors,” in the Duke Energy Registrants’ Annual Reports on Form 10-K for additional information).

Restrictive Debt Covenants

The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. The Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio not to exceed 65 percent for all borrowers except Piedmont. The debt-to-total capitalization ratio for Piedmont is not to exceed 70 percent. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of June 30, 2017, each of the Duke Energy Registrants were in compliance with all covenants related to their debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses.

Credit Ratings

Credit ratings are intended to provide credit lenders a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the rating agencies’ assessments of their ability to meet their debt principal and interest obligations when they come due. If, as a result of market conditions or other factors, the Duke Energy Registrants are unable to maintain current balance sheet strength or if earnings and cash flow outlook materially deteriorate, credit ratings could be negatively impacted.

The Duke Energy Registrants each hold credit ratings by Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Rating Services (S&P). In April 2017, Fitch Ratings, Inc. (Fitch) withdrew credit ratings of the Subsidiary Registrants, with the exclusion of Piedmont who was not previously rated by Fitch, due to commercial reasons. Fitch will continue to provide credit ratings for Duke Energy Corporation.

In May 2017, Moody’s changed their rating outlook for Duke Energy Corporation to stable from negative and affirmed Duke Energy Corporation's credit ratings.

116

PART I

Cash Flow Information

The following table summarizes Duke Energy’s cash flows.

	Six Months Ended
	June 30,
(in millions)	2017			2016
Cash flows provided by (used in):
Operating activities	$	2,756		$	3,225
Investing activities	(4,324		)	(3,608		)
Financing activities	1,474			202
Changes in cash and cash equivalents included in assets held for sale	—			79
Net decrease in cash and cash equivalents	(94		)	(102		)
Cash and cash equivalents at beginning of period	392			383
Cash and cash equivalents at end of period	$	298		$	281

OPERATING CASH FLOWS

The following table summarizes key components of Duke Energy’s operating cash flows.

	Six Months Ended
	June 30,
(in millions)	2017			2016
Net income	$	1,406		$	1,211
Non-cash adjustments to net income	2,434			2,231
Payments for asset retirement obligations	(272		)	(263		)
Working capital	(812		)	46
Net cash provided by operating activities	$	2,756		$	3,225

The variance was primarily due to:

• an $858 million decrease in cash flows from working capital due to the timing of the payment of accruals; increased taxes accrued resulting from an increased effective tax rate; warmer winter weather; and the absence of the International Disposal Group's operating cash flows.

Partially offset by:

• a $398 million increase in net income after non-cash adjustments, primarily due to higher regulated electric revenues from increased pricing; lower operations and maintenance expense; and the additional Piedmont earnings contribution in the current year.

INVESTING CASH FLOWS

The following table summarizes key components of Duke Energy’s investing cash flows.

	Six Months Ended
	June 30,
(in millions)	2017			2016
Capital, investment and acquisition expenditures	$	(4,218	)	$	(3,529	)
Other investing items	(106		)	(79		)
Net cash used in investing activities	$	(4,324	)	$	(3,608	)

The variance was primarily due to:

• a $689 million increase in capital, investment and acquisition expenditures due to growth in regulated generation investments and natural gas infrastructure; partially offset by a reduction in Commercial Renewables capital expenditures.

117

PART I

FINANCING CASH FLOWS

The following table summarizes key components of Duke Energy’s financing cash flows.

	Six Months Ended
	June 30,
(in millions)	2017			2016
Issuances of long-term debt, net	$	1,725		$	2,719
Notes payable and commercial paper	981			(1,341		)
Dividends paid	(1,200		)	(1,140		)
Other financing items	(32		)	(36		)
Net cash provided by financing activities	$	1,474		$	202

The variance was due to:

• a $2,322 million decrease in cash outflows for the net payments of notes payable and commercial paper primarily through the use of the proceeds from $1,294 million nuclear asset-recovery bonds issued at Duke Energy Florida in the prior year, further increased by the repayment of commercial paper at the end of 2016 with proceeds from the sale of the international business.

Partially offset by:

• a $994 million decrease in issuances of long-term debt caused by the prior year $1,294 million nuclear asset-recovery bonds issued at Duke Energy Florida net of a $300 million increase in proceeds from net issuances of long-term debt.

Summary of Significant Debt Issuances

Refer to Note 6 to the Condensed Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant debt issuances.

OTHER MATTERS

Environmental Regulations

The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants.

The following sections outline various proposed and recently enacted regulations that may impact the Duke Energy Registrants. Refer to Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants.

Coal Combustion Residuals

In April 2015, the EPA published a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation classifies CCR as nonhazardous waste and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments that are no longer receiving CCR but contain liquid located at stations currently generating electricity (regardless of fuel source). The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring, protection and remedial procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. As a result of the EPA rule, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana recorded additional ARO amounts during 2015. Various industry and environmental parties have appealed the EPA's CCR rule in the U.S. Court of Appeals for the District of Columbia (D.C. Circuit Court). On April 18, 2016, the EPA filed a motion with the federal court to settle five issues raised in litigation. On June 14, 2016, the court approved the motion with respect to all of those issues. Oral argument on the remaining issues has not been scheduled. Duke Energy does not expect a material impact from the settlement or that it will result in additional ARO adjustments. The Utility Solid Waste Activities Group filed a petition with the EPA seeking to have EPA reconsider certain provisions of the final rule, extend remaining compliance deadlines and ask the D.C. Circuit Court to hold the litigation in abeyance.

In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions and via wholesale contracts, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. For more information, see Note 9, “Asset Retirement Obligations,” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2016.

118

PART I

Coal Ash Management Act of 2014

Asset retirement obligations recorded on the Duke Energy Carolinas and Duke Energy Progress Condensed Consolidated Balance Sheets at June 30, 2017, and December 31, 2016, include the legal obligation for closure of coal ash basins and the disposal of related ash as a result of the Coal Ash Act, the EPA CCR rule and other agreements. On July 14, 2016, the Coal Ash Act was amended requiring Duke Energy to undertake dam improvement projects and to provide access to a permanent alternative drinking water source to certain residents within a half mile of coal ash basin compliance boundaries and to certain other potentially impacted residents. The legislation ranked basins at the H.F. Lee, Cape Fear and Weatherspoon stations as intermediate risk consistent with Duke Energy's previously announced plans to excavate those basins. These specific intermediate-risk basins require closure through excavation including a combination of transferring ash to an appropriate engineered landfill or conversion of the ash for beneficial use. Closure of these specific intermediate-risk basins is required to be completed no later than August 1, 2028. Upon satisfactory completion of the dam improvement projects and installation of alternative drinking water sources by October 15, 2018, the legislation requires the NCDEQ to reclassify all remaining sites, excluding H.F. Lee, Cape Fear and Weatherspoon, as low risk. In January 2017, NCDEQ issued preliminary approval of Duke Energy's plans for the alternative water sources.

Additionally, the July 2016 legislation requires the installation and operation of three large-scale coal ash beneficiation projects, which are expected to produce reprocessed ash for use in the concrete industry. Closure of basins at sites with these beneficiation projects are required to be completed no later than December 31, 2029. On October 5, 2016, Duke Energy announced Buck Steam Station as a first location for one of the beneficiation projects. On December 13, 2016, Duke Energy announced H.F. Lee as the second location. On June 30, 2017, Duke Energy announced the Cape Fear Plant as the third beneficiation location.

Provisions of the Coal Ash Act prohibit cost recovery in customer rates for unlawful discharge of ash impoundment waters occurring after January 1, 2014. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of ash impoundments to the normal ratemaking processes before utility regulatory commissions. Consistent with the requirements of the Coal Ash Act, Duke Energy has submitted comprehensive site assessments and groundwater corrective plans to NCDEQ and will submit to NCDEQ site-specific coal ash impoundment closure plans in advance of closure. These plans and all associated permits must be approved by NCDEQ before closure work can begin.

For more information, see Note 9, “Asset Retirement Obligations,” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2016.

Clean Water Act 316(b)

The EPA published the final 316(b) cooling water intake structure rule on August 15, 2014, with an effective date of October 14, 2014. The rule applies to 26 of the electric generating facilities the Duke Energy Registrants own and operate. The rule allows for several options to demonstrate compliance and provides flexibility to the state environmental permitting agencies to make determinations on controls, if any, that will be required for cooling water intake structures. Any required intake structure modifications and/or retrofits are expected to be installed in the 2019 to 2022 time frame. Petitions challenging the rule have been filed by several groups. It is unknown when the courts will rule on the petitions. The Duke Energy Registrants cannot predict the outcome of these matters.

Steam Electric Effluent Limitations Guidelines

On January 4, 2016, the final Steam Electric Effluent Limitations Guidelines (ELG) rule became effective. The rule establishes new requirements for wastewater streams associated with steam electric power generation and includes more stringent controls for any new coal plants that may be built in the future. Affected facilities must comply between 2018 and 2023, depending on timing of new Clean Water Act (CWA) permits. Most, if not all, of the steam electric generating facilities the Duke Energy Registrants own are likely affected sources. The Duke Energy Registrants are well-positioned to meet the majority of the requirements of the rule due to current efforts to convert to dry ash handling. Petitions challenging the rule have been filed by several groups. On March 16, 2015, Duke Energy Indiana filed its own legal challenge to the rule with the Seventh Circuit Court of Appeals specific to the ELG for wastewater associated rule focused on the limits imposed on integrated gas combined-cycle facilities. All challenges to the rule have been consolidated in the Fifth Circuit Court of Appeals. On April 13, 2017, the EPA administrator granted petitions from the Utility Water Act Group and U.S. Small Business Administration requesting reconsideration and an administrative stay of compliance dates in the ELG rule that have not yet passed pending judicial review, effective April 25, 2017. Briefing in the case was scheduled to conclude on July 5, 2017, however, on April 24, 2017, the Fifth Circuit Court of Appeals granted EPA's request to stay the pending litigation on the ELG rule until August 12, 2017. By the end of the stay period, EPA intends to inform the court of the portions of the rule, if any, that it will seek to have remanded to the agency for further rulemaking. On June 6, 2017, the EPA issued a proposed rule seeking comment on postponing the compliance deadlines for direct and indirect discharges of fly ash transport water, bottom ash transport water, flue gas desulfurization wastewater, flue gas mercury control wastewater and IGCC gasification wastewater. The Duke Energy Registrants cannot predict the outcome of these matters.

119

PART I

Estimated Cost and Impacts of Rulemakings

Duke Energy will incur capital expenditures to comply with the environmental regulations and rules discussed above. The following table provides five-year estimated costs, excluding AFUDC, of new control equipment that may need to be installed on existing power plants primarily to comply with the Coal Ash Act requirements for conversion to dry disposal of bottom ash and fly ash, CWA 316(b) and ELGs through December 31, 2021. The table excludes ash basin closure costs recorded in Asset retirement obligations on the Condensed Consolidated Balance Sheets. For more information related to AROs, see Note 9, “Asset Retirement Obligations” in Duke Energy’s Annual Report on Form 10‑K for the year ended December 31, 2016.

(in millions)	Estimated Cost
Duke Energy	$	1,225
Duke Energy Carolinas	530
Progress Energy	350
Duke Energy Progress	260
Duke Energy Florida	90
Duke Energy Ohio	125
Duke Energy Indiana	220

The Duke Energy Registrants also expect to incur increased fuel, purchased power, operation and maintenance and other expenses, in addition to costs for replacement generation for potential coal-fired power plant retirements, as a result of these regulations. Actual compliance costs incurred may be materially different from these estimates due to reasons such as the timing and requirements of EPA regulations and the resolution of legal challenges to the rules. The Duke Energy Registrants intend to seek rate recovery of necessary and prudently incurred costs associated with regulated operations to comply with these regulations.

Cross-State Air Pollution Rule

On December 3, 2015, the EPA proposed a rule to lower the Cross-State Air Pollution Rule (CSAPR) Phase 2 state ozone season nitrogen oxide (NOX) emission budgets for 23 eastern states, including North Carolina, Ohio, Kentucky and Indiana. The EPA also proposed to eliminate the CSAPR Phase 2 ozone season state NOX budgets for Florida and South Carolina. On September 7, 2016, the EPA finalized the CSAPR Update Rule that reduces the CSAPR Phase 2 state ozone season NOX emission budgets for 22 eastern states, including Ohio, Kentucky and Indiana. In the final CSAPR Update Rule, the EPA removed Florida, South Carolina and North Carolina from the ozone season NOx program. Beginning in 2017, Duke Energy Registrants in these states will not be subject to any CSAPR ozone season NOx emission limitations. For the states that remain in the program, the reduced state ozone season NOx emission budgets took effect on May 1, 2017. In Kentucky and Indiana, where Duke Energy Registrants own and operate coal-fired electric generating units (EGUs) subject to the final rule requirements, potential near-term responses could include changing unit dispatch to run certain generating units less frequently and/or purchasing NOx allowances from the trading market. Longer term, upgrading the performance of existing NOx controls is an option. The Indiana Utility Group and the Indiana Energy Association jointly filed a petition for reconsideration asking that the EPA correct errors it made in calculating the Indiana budget and increase the budget accordingly. EPA has yet to act on the petition. Numerous parties have filed petitions with the D.C. Circuit Court challenging various aspects of the CSAPR Update Rule. Briefing in the case is scheduled to begin on August 21, 2017. The date for oral argument has not been established. The Duke Energy Registrants cannot predict the outcome of these matters.

Carbon Pollution Standards for New, Modified and Reconstructed Power Plants

On October 23, 2015, the EPA published a final rule in the Federal Register establishing carbon dioxide (CO2) emissions limits for new, modified and reconstructed power plants. The requirements for new plants apply to plants that commenced construction after January 8, 2014. The EPA set an emissions standard for coal units of 1,400 pounds of CO₂ per gross MWh, which would require the application of partial carbon capture and storage (CCS) technology for a coal unit to be able to meet the limit. Utility-scale CCS is not currently a demonstrated and commercially available technology for coal-fired EGUs, and therefore the final standard effectively prevents the development of new coal-fired generation. The EPA set a final standard of 1,000 pounds of CO2 per gross MWh for new natural gas combined-cycle units.

On March 28, 2017, President Trump signed an Executive Order directing EPA to review the rule and determine whether to suspend, revise or rescind it. On the same day, the Department of Justice (DOJ) filed a motion with the D.C. Circuit Court requesting that the court stay the litigation of the rule while it is reviewed by EPA. Subsequent to the DOJ motion, the D.C. Circuit Court canceled oral argument in the case, which had been scheduled for April 17, 2017. On April 28, 2017, the court ordered that the litigation be suspended for 60 days and directing parties to file supplemental briefs by May 15, 2017, addressing whether the rule should be remanded to EPA rather than be suspended. The court has yet to issue an order. The rule remains in effect pending the outcome of litigation and EPA’s review. EPA has not announced a schedule for completing its review. The Duke Energy Registrants cannot predict the outcome of these matters, but do not expect the impacts of the current final standards will be material to Duke Energy's financial position, results of operations or cash flows.

Clean Power Plan

On October 23, 2015, the EPA published in the Federal Register the final Clean Power Plan (CPP) rule that regulates CO₂ emissions from existing fossil fuel-fired EGUs. The CPP established CO₂ emission rates and mass cap goals that apply to existing fossil fuel-fired EGUs. Petitions challenging the rule have been filed by several groups and on February 9, 2016, the Supreme Court issued a stay of the final CPP rule, halting implementation of the CPP until legal challenges are resolved. States in which the Duke Energy Registrants operate have suspended work on the CPP in response to the stay. Oral arguments before 10 of the 11 judges on D.C. Circuit Court were heard on September 27, 2016. The court has not issued its opinion in the case.

120

PART I

On March 28, 2017, President Trump signed an Executive Order directing EPA to review the CPP and determine whether to suspend, revise or rescind the rule. On the same day the DOJ filed a motion with the D.C. Circuit Court requesting that the court stay the litigation of the rule while it is reviewed by EPA. On April 28, 2017, the court issued an order to suspend the litigation for 60 days and directing parties to file supplemental briefs by May 15, 2017, addressing whether the rule should be remanded to the EPA rather than be suspended. The court has yet to issue an order. Neither the Executive Order nor the court's order change the current status of the CPP, which is under a legal hold by the U.S. Supreme Court. The EPA has not announced a schedule for completing its review. The Duke Energy Registrants cannot predict the outcome of these matters.

Global Climate Change

For other information on global climate change and the potential impacts on Duke Energy, see “Other Matters” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2016.

North Carolina Legislation

In July 2017, the North Carolina General Assembly passed House Bill 589 and it was subsequently enacted into law by the Governor. The law includes, among other things, overall reform of the application of the Public Utility Regulatory Policies Act of 1978 (PURPA) for new solar projects in the state, a requirement for the utility to procure approximately 2,600 MW of renewable energy through a competitive bidding process and recovery of costs related to the competitive bidding process through the fuel clause and a competitive procurement rider. Duke Energy is evaluating the impact of this law.

Nuclear Matters

For other information on nuclear matters and the potential impacts on Duke Energy, see “Other Matters” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2016.

New Accounting Standards

See Note 1 to the Condensed Consolidated Financial Statements, “Organization and Basis of Presentation,” for a discussion of the impact of new accounting standards.

Off-Balance Sheet Arrangements

During the three and six months ended June 30, 2017, 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, 2016.

Contractual Obligations

Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. During the three and six months ended June 30, 2017, 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, 2016.

Subsequent Events

See Note 17 to the Condensed Consolidated Financial Statements, “Subsequent Events,” for a discussion of subsequent events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the three and six months ended June 30, 2017, there were no material changes to the Duke Energy Registrants' disclosures about market risk. For an in-depth discussion of the Duke Energy Registrants' market risks, see “Quantitative and Qualitative Disclosures about Market Risk” in Item 7 of the Annual Report on Form 10-K for the Duke Energy Registrants.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Securities Exchange Act of 1934 (Exchange Act) are recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act are accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated the effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2017, 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.

121

PART I

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 June 30, 2017, and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

122

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information regarding material legal proceedings, including regulatory and environmental matters, see Note 4, "Regulatory Matters," and Note 5, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements. For additional information, see Item 3, "Legal Proceedings," in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in the Duke Energy Registrants' Annual Report on Form 10-K, which could materially affect the Duke Energy Registrants’ financial condition or future results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUERPURCHASES OF EQUITY SECURITIES

There were no issuer purchases of equity securities during the second quarter of 2017.

123

PART II

ITEM 6. EXHIBITS

Exhibits filed herein are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**). The Company agrees to furnish upon request to the Commission a copy of any omitted schedules or exhibits upon request on all items designated by a triple asterisk (***).

			Duke		Duke	Duke	Duke	Duke
Exhibit		Duke	Energy	Progress	Energy	Energy	Energy	Energy
Number		Energy	Carolinas	Energy	Progress	Florida	Ohio	Indiana	Piedmont
*4.1	Sixteenth Supplemental Indenture, dated as of June 13, 2017.	X
10.1	$1,000,000,000 Credit Agreement, dated as of June 14, 2017, among Duke Energy Corporation, the lenders listed therein, The Bank of Nova Scotia, as Administrative Agent, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation and TD Bank, N.A., as Co-Syndication Agents, and Bank of China, New York Branch, BNP Paribas, Santander Bank, N.A. and U.S. Bank National Association, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on June 14, 2017, File No. 1-32853).	X
10.2	$250,000,000 Term Loan Credit Agreement, dated as of June 14, 2017, among Piedmont Natural Gas Company, Inc., the lenders listed therein, U.S. Bank National Association, as Administrative Agent, Branch Banking and Trust Company and Regions Bank, as Co-Syndication Agents, and PNC Bank, National Association, as Documentation Agent (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on June 14, 2017, File No. 1-32853).								X
*10.3	Duke Energy Corporation Director Compensation Program Summary	X
*12	Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY CORPORATION.	X
*31.1.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X
*31.1.2	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		X
*31.1.3	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.			X
*31.1.4	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
*31.1.5	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
*31.1.6	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.						X
*31.1.7	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.							X
*31.1.8	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.								X

124

PART II

*31.2.1	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X
*31.2.2	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		X
*31.2.3	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.			X
*31.2.4	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
*31.2.5	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
*31.2.6	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.						X
*31.2.7	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.							X
*31.2.8	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.								X
*32.1.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	X
*32.1.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		X
*32.1.3	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.			X
*32.1.4	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X
*32.1.5	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
*32.1.6	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.						X
*32.1.7	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.							X
*32.1.8	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.								X
*32.2.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	X
*32.2.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		X
*32.2.3	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.			X
*32.2.4	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X

125

PART II

*32.2.5	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
*32.2.6	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.						X
*32.2.7	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.							X
*32.2.8	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	X	X	X	X
*101.SCH	XBRL Taxonomy Extension Schema Document.	X	X	X	X	X	X	X	X
*101.CAL	XBRL Taxonomy Calculation Linkbase Document.	X	X	X	X	X	X	X	X
*101.LAB	XBRL Taxonomy Label Linkbase Document.	X	X	X	X	X	X	X	X
*101.PRE	XBRL Taxonomy Presentation Linkbase Document.	X	X	X	X	X	X	X	X
*101.DEF	XBRL Taxonomy Definition Linkbase Document.	X	X	X	X	X	X	X	X

The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the SEC, to furnish copies of any or all of such instruments to it.

126

PART II

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

		DUKE ENERGY CORPORATION DUKE ENERGY CAROLINAS, LLC PROGRESS ENERGY, INC. DUKE ENERGY PROGRESS, LLC DUKE ENERGY FLORIDA, LLC DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, LLC PIEDMONT NATURAL GAS COMPANY, INC.
Date:	August 3, 2017	/s/ STEVEN K. YOUNG
		Steven K. Young Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date:	August 3, 2017	/s/ WILLIAM E. CURRENS JR.
		William E. Currens Jr. Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)

127