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Duke Energy
DUK
#228
Rank
$98.07 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$126.11
Share price
0.73%
Change (1 day)
11.33%
Change (1 year)
๐Ÿ›ข Oil&Gas๐Ÿ”‹ Electricity๐Ÿšฐ Utility companies โšก Energy
Categories
  1. Duke Energy
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2019 Q2

Duke Energy - 10-Q quarterly report FY2019 Q2


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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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 Number
 
dukeenergylogo4ca57.jpg
 
1-32853 DUKE ENERGY CORPORATION             20-2777218
(a Delaware corporation)
550 South Tryon Street
Charlotte, North Carolina 28202-1803
704-382-3853
__________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Registrant, State of Incorporation     Registrant, State of Incorporation
or Organization, Address of     or Organization, Address of
Principal Executive Offices, Telephone    Principal Executive Offices, Telephone
Commission
Number and IRS Employer    Commission    Number and IRS Employer
file number
Identification Number    file number    Identification Number
_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________
1-4928DUKE ENERGY CAROLINAS, LLC1-3274DUKE ENERGY FLORIDA, LLC     
(a North Carolina limited liability company)        (a Florida limited liability company)    
526 South Church Street 299 First Avenue North
Charlotte, North Carolina 28202-1803                 St. Petersburg, Florida 33701
704-382-3853                         704-382-3853
56-0205520                  59-0247770
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________
1-15929PROGRESS ENERGY, INC. 1-1232     DUKE ENERGY OHIO, INC.
(a North Carolina corporation)                     (an Ohio corporation)
410 South Wilmington Street 139 East Fourth Street
Raleigh, North Carolina 27601-1748                 Cincinnati, Ohio 45202
704-382-3853                         704-382-3853
56-2155481 31-0240030
_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________
1-3382DUKE ENERGY PROGRESS, LLC 1-3543     DUKE ENERGY INDIANA, LLC
(a North Carolina limited liability company)              (an Indiana limited liability company)
410 South Wilmington Street 1000 East Main Street
Raleigh, North Carolina 27601-1748                 Plainfield, Indiana 46168
704-382-3853                         704-382-3853
56-0165465 35-0594457
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________
1-6196PIEDMONT NATURAL GAS COMPANY, INC.
(a North Carolina corporation)
4720 Piedmont Row Drive
Charlotte, North Carolina 28210
704-364-3120
56-0556998
_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Registrant
Title of each class    Trading symbols        which registered
Duke Energy
Common Stock, $0.001 par value    DUK    New York Stock Exchange LLC

Duke Energy
5.125% Junior Subordinated Debentures due    DUKH    New York Stock Exchange LLC
January 15, 2073
Duke Energy
5.625% Junior Subordinated Debentures due    DUKB    New York Stock Exchange LLC
September 15, 2078
Duke Energy
Depositary Shares, each representing a 1/1,000th    DUK PR A    New York Stock Exchange LLC
interest in a share of 5.75% Series A Cumulative
Redeemable Perpetual Preferred Stock, par value
$0.001 per share



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Duke Energy Corporation (Duke Energy)
Yes
☒
No
☐
 
Duke Energy Florida, LLC (Duke Energy Florida)
Yes
☒
No
☐
Duke Energy Carolinas, LLC (Duke Energy Carolinas)
Yes
☒
No
☐
 
Duke Energy Ohio, Inc. (Duke Energy Ohio)
Yes
☒
No
☐
Progress Energy, Inc. (Progress Energy)
Yes
☒
No
☐
 
Duke Energy Indiana, LLC (Duke Energy Indiana)
Yes
☒
No
☐
Duke Energy Progress, LLC (Duke Energy Progress)
Yes
☒
No
☐
 
Piedmont Natural Gas Company, Inc. (Piedmont)
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Duke Energy
Yes
☒
No
☐
 
Duke Energy Florida
Yes
☒
No
☐
Duke Energy Carolinas
Yes
☒
No
☐
 
Duke Energy Ohio
Yes
☒
No
☐
Progress Energy
Yes
☒
No
☐
 
Duke Energy Indiana
Yes
☒
No
☐
Duke Energy Progress
Yes
☒
No
☐
 
Piedmont
Yes
☒
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 filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
Duke Energy Carolinas
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
☐
Progress Energy
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
☐
Duke Energy Progress
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
☐
Duke Energy Florida
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
☐
Duke Energy Ohio
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
☐
Duke Energy Indiana
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
☐
Piedmont
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
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
☐
No
☒
 
Duke Energy Florida
Yes
☐
No
☒
Duke Energy Carolinas
Yes
☐
No
☒
 
Duke Energy Ohio
Yes
☐
No
☒
Progress Energy
Yes
☐
No
☒
 
Duke Energy Indiana
Yes
☐
No
☒
Duke Energy Progress
Yes
☐
No
☒
 
Piedmont
Yes
☐
No
☒
Number of shares of Common stock outstanding at July 31, 2019:
Registrant
Description
Shares
Duke Energy
Common stock, $0.001 par value
728,601,060
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
9
 
 
 
 
Duke Energy Carolinas, LLC Financial Statements
15
 
 
 
 
Progress Energy, Inc. Financial Statements
19
 
 
 
 
Duke Energy Progress, LLC Financial Statements
23
 
 
 
 
Duke Energy Florida, LLC Financial Statements 
27
 
 
 
 
Duke Energy Ohio, Inc. Financial Statements
31
 
 
 
 
Duke Energy Indiana, LLC Financial Statements
35
 
 
 
 
Piedmont Natural Gas Company, Inc. Financial Statements
39
 
 
 
 
Combined Notes to Condensed Consolidated Financial Statements
 
 
Note 1 – Organization and Basis of Presentation
43
 
Note 2 – Business Segments
45
 
Note 3 – Regulatory Matters
47
 
Note 4 – Commitments and Contingencies
58
 
Note 5 – Leases
62
 
Note 6 – Debt and Credit Facilities
67
 
Note 7 – Asset Retirement Obligations
69
 
Note 8 – Goodwill
70
 
Note 9 – Related Party Transactions
71
 
Note 10 – Derivatives and Hedging
72
 
Note 11 – Investments in Debt and Equity Securities
77
 
Note 12 – Fair Value Measurements
82
 
Note 13 – Variable Interest Entities
87
 
Note 14 – Revenue
91
 
Note 15 – Stockholders' Equity
96
 
Note 16 – Employee Benefit Plans
97
 
Note 17 – Income Taxes
99
 
Note 18 – Subsequent Events
99
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
100
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
122
 
 
 
Item 4.
Controls and Procedures
122
 
 
 
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
124
 
 
 
Item 1A.
Risk Factors
124
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
124
 
 
 
Item 6.
Exhibits
125
 
 
 
 
Signatures
128



FORWARD LOOKING STATEMENTS
 


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 obtain the necessary permits and approvals and to complete necessary or desirable pipeline expansion or infrastructure projects in our natural gas business;
•
Operational interruptions to our natural 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, operational accidents, information technology failures or other catastrophic events, such as fires, explosions, pandemic health events or other similar occurrences;
•
The inherent risks associated with the operation 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, compliance with debt covenants and conditions and general market and 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);


FORWARD LOOKING STATEMENTS
 


•
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;
•
The impact of U.S. tax legislation to our financial condition, results of operations or cash flows and our credit ratings;
•
The impacts from potential impairments of goodwill or equity method investment carrying values; and
•
The ability to implement our business strategy, including enhancing existing technology systems.
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 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.


GLOSSARY OF TERMS
 


Glossary of Terms 
The following terms or acronyms used in this Form 10-Q are defined below:
Term or Acronym
Definition
 
 
2013 Settlement
Revised and Restated Stipulation and Settlement Agreement approved in November 2013 among Duke Energy Florida, the Florida OPC and other customer advocates
 
 
2017 Settlement
Second Revised and Restated Settlement Agreement in 2017 among Duke Energy Florida, the Florida OPC and other customer advocates, which replaces and supplants the 2013 Settlement
 
 
ACP
Atlantic Coast Pipeline, LLC, a limited liability company owned by Dominion, Duke Energy and Southern Company Gas
 
 
ACP pipeline
The approximately 600-mile proposed interstate natural gas pipeline
 
 
AFS
Available for Sale
 
 
AFUDC
Allowance for funds used during construction
 
 
the Agents
Wells Fargo Securities, LLC, Citigroup Global Market Inc., J.P. Morgan Securities, LLC
 
 
ALJ
Administrative Law Judge
 
 
AMI
Advanced Metering Infrastructure
 
 
AMT
Alternative Minimum Tax
 
 
AOCI
Accumulated Other Comprehensive Income (Loss)
 
 
ARO
Asset retirement obligations
 
 
ATM
At-the-market
 
 
Beckjord
Beckjord Generating Station
 
 
Belews Creek
Belews Creek Steam Station
 
 
Bison
Bison Insurance Company Limited
 
 
Cardinal
Cardinal Pipeline Company, LLC
 
 
CC
Combined Cycle
 
 
CCR
Coal Combustion Residuals
 
 
Citrus County CC
Citrus County Combined Cycle Facility
 
 
Coal Ash Act
North Carolina Coal Ash Management Act of 2014
 
 
the Company
Duke Energy Corporation and its subsidiaries
 
 
Constitution
Constitution Pipeline Company, LLC
 
 
CPCN
Certificate of Public Convenience and Necessity
 
 
CPRE
Competitive Procurement of Renewable Energy
 
 
CRC
Cinergy Receivables Company LLC
 
 
Crystal River Unit 3
Crystal River Unit 3 Nuclear Plant
 
 
CWA
Clean Water Act
 
 
D.C. Circuit Court
U.S. Court of Appeals for the District of Columbia Circuit
 
 
DEFPF
Duke Energy Florida Project Finance, LLC
 
 
DEFR
Duke Energy Florida Receivables, LLC
 
 
DEPR
Duke Energy Progress Receivables, LLC
 
 
DERF
Duke Energy Receivables Finance Company, LLC
 
 
DRIP
Dividend Reinvestment Program
 
 
Duke Energy
Duke Energy Corporation (collectively with its subsidiaries)
 
 
Duke Energy Ohio
Duke Energy Ohio, Inc.
 
 
Duke Energy Progress
Duke Energy Progress, LLC
 
 


GLOSSARY OF TERMS
 


Duke Energy Carolinas
Duke Energy Carolinas, LLC
 
 
Duke Energy Florida
Duke Energy Florida, LLC
 
 
Duke Energy Indiana
Duke Energy Indiana, LLC
 
 
Duke Energy Kentucky
Duke Energy Kentucky, Inc.
 
 
Duke Energy Registrants
Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont
 
 
the EDA
Equity Distribution Agreement
 
 
EDIT
Excess deferred income tax
 
 
EPA
U.S. Environmental Protection Agency
 
 
EPC
Engineering, Procurement and Construction agreement
 
 
EPS
Earnings Per Share
 
 
ESP
Electric Security Plan
 
 
ETR
Effective tax rate
 
 
Exchange Act
Securities Exchange Act of 1934
 
 
FASB
Financial Accounting Standards Board
 
 
FERC
Federal Energy Regulatory Commission
 
 
FES
FirstEnergy Solutions Corp.
 
 
Fitch
Fitch Ratings, Inc.
 
 
Fluor
Fluor Enterprises, Inc.
 
 
FPSC
Florida Public Service Commission
 
 
FTR
Financial transmission rights
 
 
FV-NI
Fair value through net income
 
 
GAAP
Generally accepted accounting principles in the U.S.
 
 
GAAP Reported Earnings
Net Income Attributable to Duke Energy Corporation
 
 
GAAP Reported EPS
Diluted EPS Attributable to Duke Energy Corporation common stockholders
 
 
GWh
Gigawatt-hours
 
 
Hardy Storage
Hardy Storage Company, LLC
 
 
HLBV
Hypothetical Liquidation at Book Value
 
 
ICPA
Inter-Company Power Agreement
 
 
IGCC
Integrated Gasification Combined Cycle
 
 
IMR
Integrity Management Rider
 
 
IRP
Integrated Resource Plan
 
 
IRS
Internal Revenue Service
 
 
Investment Trusts
NDTF investments and grantor trusts of Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana
 
 
IURC
Indiana Utility Regulatory Commission
 
 
JDA
Joint Dispatch Agreement
 
 
KPSC
Kentucky Public Service Commission
 
 
Lee Nuclear Station
William States Lee III Nuclear Station
 
 
MGP
Manufactured gas plant
 
 
MISO
Midcontinent Independent System Operator, Inc.
 
 
MMBtu
Million British Thermal Unit
 
 
Moody's
Moody's Investors Service, Inc.
 
 


GLOSSARY OF TERMS
 


MW
Megawatt
 
 
MWh
Megawatt-hour
 
 
NAV
Net asset value
 
 
NCDEQ
North Carolina Department of Environmental Quality (formerly the North Carolina Department of Environment and Natural Resources)
 
 
NCUC
North Carolina Utilities Commission
 
 
NDTF
Nuclear decommissioning trust funds
 
 
NMC
National Methanol Company
 
 
NPDES
National Pollutant Discharge Elimination System
 
 
NPNS
Normal purchase/normal sale
 
 
NRC
U.S. Nuclear Regulatory Commission
 
 
OPEB
Other Post-Retirement Benefit Obligations
 
 
ORS
South Carolina Office of Regulatory Staff
 
 
OTTI
Other-than-temporary impairment
 
 
OVEC
Ohio Valley Electric Corporation
 
 
Piedmont
Piedmont Natural Gas Company, Inc.
 
 
Piedmont Term Loan
Term loan facility with commitments totaling $350M entered in June 2017
 
 
Pine Needle
Pine Needle LNG Company, LLC
 
 
Pioneer
Pioneer Transmission, LLC
 
 
PJM
PJM Interconnection, LLC
 
 
PMPA
Piedmont Municipal Power Agency
 
 
PPAs
Purchase Power Agreements
 
 
Progress Energy
Progress Energy, Inc.
 
 
PSCSC
Public Service Commission of South Carolina
 
 
PUCO
Public Utilities Commission of Ohio
 
 
REC
Renewable Energy Certificate
 
 
REC Solar
REC Solar Corp.
 
 
ROU assets
Right-of-use assets
 
 
RRBA
Roanoke River Basin Association
 
 
SELC
Southern Environmental Law Center
 
 
S&P
Standard & Poor's Rating Services
 
 
Subsidiary Registrants
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont
 
 
the Tax Act
Tax Cuts and Jobs Act
 
 
TPUC
Tennessee Public Utility Commission
 
 
U.S.
United States
 
 
VIE
Variable Interest Entity
 
 
WACC
Weighted Average Cost of Capital
 
 
WNA
Weather normalization adjustment
 
 
W.S. Lee CC
William States Lee Combined Cycle Facility
 
 



FINANCIAL STATEMENTS
 


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)
2019

 
2018

 
2019

 
2018

Operating Revenues
 
 
 
 
 
 
 
Regulated electric
$
5,423

 
$
5,178

 
$
10,708

 
$
10,462

Regulated natural gas
280

 
291

 
1,008

 
991

Nonregulated electric and other
170

 
174

 
320

 
325

Total operating revenues
5,873

 
5,643

 
12,036

 
11,778

Operating Expenses
 
 
 
 

 

Fuel used in electric generation and purchased power
1,641

 
1,574

 
3,250

 
3,250

Cost of natural gas
76

 
89

 
403

 
402

Operation, maintenance and other
1,434

 
1,544

 
2,853

 
3,008

Depreciation and amortization
1,089

 
973

 
2,178

 
1,940

Property and other taxes
334

 
315

 
677

 
631

Impairment charges
4

 
172

 
4

 
215

Total operating expenses
4,578

 
4,667

 
9,365

 
9,446

Gains (Losses) on Sales of Other Assets and Other, net
3

 
3

 
—

 
(97
)
Operating Income
1,298

 
979

 
2,671

 
2,235

Other Income and Expenses
 
 
 
 


 


Equity in earnings of unconsolidated affiliates
44

 
36

 
87

 
12

Other income and expenses, net
89

 
110

 
204

 
196

Total other income and expenses
133

 
146

 
291

 
208

Interest Expense
542

 
518

 
1,085

 
1,033

Income From Continuing Operations Before Income Taxes
889

 
607

 
1,877

 
1,410

Income Tax Expense From Continuing Operations
141

 
100

 
236

 
281

Income From Continuing Operations
748

 
507

 
1,641

 
1,129

Loss From Discontinued Operations, net of tax
—

 
(5
)
 
—

 
(5
)
Net Income
748

 
502

 
1,641

 
1,124

Less: Net (Loss) Income Attributable to Noncontrolling Interests
(84
)
 
2

 
(91
)
 
4

Less: Preferred Dividends
12

 
—

 
12

 
—

Net Income Attributable to Duke Energy Corporation
$
820

 
$
500

 
$
1,720

 
$
1,120

 
 
 
 
 
 
 
 
Earnings Per Share – Basic and Diluted
 
 
 
 
 
 
 
Income from continuing operations attributable to Duke Energy Corporation common stockholders
 
 
 
 
 
 
 
Basic and Diluted
$
1.12

 
$
0.72

 
$
2.36

 
$
1.60

Loss from discontinued operations attributable to Duke Energy Corporation common stockholders
 
 
 
 
 
 
 
Basic and Diluted
$
—

 
$
(0.01
)
 
$
—

 
$
(0.01
)
Net income attributable to Duke Energy Corporation common stockholders
 
 
 
 
 
 
 
Basic and Diluted
$
1.12

 
$
0.71

 
$
2.36

 
$
1.59

Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
728

 
703

 
728

 
702

Diluted
728

 
704

 
728

 
702


See Notes to Condensed Consolidated Financial Statements
9


FINANCIAL STATEMENTS
 

DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in millions)
2019

 
2018

 
2019

 
2018

Net Income
$
748

 
$
502

 
$
1,641

 
$
1,124

Other Comprehensive (Loss) Income, net of tax
 
 
 
 
 
 
 
Pension and OPEB adjustments
3

 
1

 
3

 
2

Net unrealized (losses) gains on cash flow hedges
(29
)
 
1

 
(46
)
 
13

Reclassification into earnings from cash flow hedges
2

 
(2
)
 
3

 
(1
)
Unrealized gains (losses) on available-for-sale securities
4

 
(2
)
 
8

 
(5
)
Other Comprehensive (Loss) Income, net of tax
(20
)
 
(2
)
 
(32
)
 
9

Comprehensive Income
728

 
500

 
1,609

 
1,133

Less: Comprehensive (Loss) Income Attributable to Noncontrolling Interests
(84
)
 
2

 
(91
)
 
4

Less: Preferred Dividends
12

 
—

 
12

 
—

Comprehensive Income Attributable to Duke Energy Corporation
$
800

 
$
498

 
$
1,688

 
$
1,129




See Notes to Condensed Consolidated Financial Statements
10


FINANCIAL STATEMENTS
 

DUKE ENERGY CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2019
 
December 31, 2018
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
336

 
$
442

Receivables (net of allowance for doubtful accounts of $16 at 2019 and 2018)
646

 
962

Receivables of VIEs (net of allowance for doubtful accounts of $55 at 2019 and 2018)
2,153

 
2,172

Inventory
3,189

 
3,084

Regulatory assets (includes $52 at 2019 and 2018 related to VIEs)
1,918

 
2,005

Other (includes $140 at 2019 and $162 at 2018 related to VIEs)
1,267

 
1,049

Total current assets
9,509

 
9,714

Property, Plant and Equipment
 
 
 
Cost
141,363

 
134,458

Accumulated depreciation and amortization
(44,482
)
 
(43,126
)
Generation facilities to be retired, net
317

 
362

Net property, plant and equipment
97,198

 
91,694

Other Noncurrent Assets
 
 
 
Goodwill
19,303

 
19,303

Regulatory assets (includes $1,019 at 2019 and $1,041 at 2018 related to VIEs)
13,393

 
13,617

Nuclear decommissioning trust funds
7,621

 
6,720

Operating lease right-of-use assets, net
1,735

 
—

Investments in equity method unconsolidated affiliates
1,715

 
1,409

Other (includes $289 at 2019 and $261 at 2018 related to VIEs)
2,975

 
2,935

Total other noncurrent assets
46,742

 
43,984

Total Assets
$
153,449

 
$
145,392

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
2,512

 
$
3,487

Notes payable and commercial paper
3,793

 
3,410

Taxes accrued
521

 
577

Interest accrued
564

 
559

Current maturities of long-term debt (includes $232 at 2019 and $227 at 2018 related to VIEs)
2,698

 
3,406

Asset retirement obligations
739

 
919

Regulatory liabilities
600

 
598

Other
2,020

 
2,085

Total current liabilities
13,447

 
15,041

Long-Term Debt (includes $4,070 at 2019 and $3,998 at 2018 related to VIEs)
54,342

 
51,123

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
8,532

 
7,806

Asset retirement obligations
11,889

 
9,548

Regulatory liabilities
15,294

 
14,834

Operating lease liabilities
1,502

 
—

Accrued pension and other post-retirement benefit costs
959

 
988

Investment tax credits
569

 
568

Other (includes $222 at 2019 and $212 at 2018 related to VIEs)
1,583

 
1,650

Total other noncurrent liabilities
40,328

 
35,394

Commitments and Contingencies


 


Equity
 
 
 
Preferred stock, $0.001 par value, 40 million depositary shares authorized and outstanding at 2019
973

 
—

Common stock, $0.001 par value, 2 billion shares authorized; 728 million shares outstanding at 2019 and 727 million shares outstanding at 2018
1

 
1

Additional paid-in capital
40,885

 
40,795

Retained earnings
3,502

 
3,113

Accumulated other comprehensive loss
(148
)
 
(92
)
Total Duke Energy Corporation stockholders' equity
45,213

 
43,817

Noncontrolling interests
119

 
17

Total equity
45,332

 
43,834

Total Liabilities and Equity
$
153,449

 
$
145,392


See Notes to Condensed Consolidated Financial Statements
11


FINANCIAL STATEMENTS
 

DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
June 30,
(in millions)
2019

 
2018

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
1,641

 
$
1,124

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion (including amortization of nuclear fuel)
2,483

 
2,250

Equity component of AFUDC
(67
)
 
(106
)
Losses on sales of other assets
—

 
97

Impairment charges
4

 
215

Deferred income taxes
527

 
289

Equity in earnings of unconsolidated affiliates
(87
)
 
(12
)
Accrued pension and other post-retirement benefit costs
4

 
31

Contributions to qualified pension plans
—

 
(141
)
Payments for asset retirement obligations
(336
)
 
(245
)
Payment for disposal of other assets
—

 
(105
)
Other rate case adjustments
—

 
37

Provision for rate refunds
57

 
281

(Increase) decrease in
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
(11
)
 
7

Receivables
304

 
(27
)
Inventory
(110
)
 
70

Other current assets
(265
)
 
21

Increase (decrease) in
 
 
 
Accounts payable
(700
)
 
(142
)
Taxes accrued
(56
)
 
(58
)
Other current liabilities
(378
)
 
(214
)
Other assets
7

 
(112
)
Other liabilities
39

 
42

Net cash provided by operating activities
3,056

 
3,302

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(5,465
)
 
(4,375
)
Contributions to equity method investments
(162
)
 
(140
)
Purchases of debt and equity securities
(2,316
)
 
(1,908
)
Proceeds from sales and maturities of debt and equity securities
2,302

 
1,866

Other
(147
)
 
(88
)
Net cash used in investing activities
(5,788
)
 
(4,645
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the:
 
 
 
Issuance of long-term debt
4,622

 
2,727

Issuance of preferred stock
973

 
—

Issuance of common stock
27

 
820

Payments for the redemption of long-term debt
(2,155
)
 
(2,190
)
Proceeds from the issuance of short-term debt with original maturities greater than 90 days
240

 
201

Payments for the redemption of short-term debt with original maturities greater than 90 days
(299
)
 
(160
)
Notes payable and commercial paper
383

 
1,090

Dividends paid
(1,312
)
 
(1,199
)
Other
143

 
(24
)
Net cash provided by financing activities
2,622

 
1,265

Net decrease in cash, cash equivalents and restricted cash
(110
)
 
(78
)
Cash, cash equivalents and restricted cash at beginning of period
591

 
505

Cash, cash equivalents and restricted cash at end of period
$
481

 
$
427

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
917

 
$
978

Non-cash dividends
54

 
52


See Notes to Condensed Consolidated Financial Statements
12

FINANCIAL STATEMENTS
 




DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Three Months Ended June 30, 2018 and 2019
 
 
 
 
 
 
Accumulated Other Comprehensive
 
 
 
 
 
 
 
 
 
 (Loss) Income
 
 
 
 
 
 
 
 
 
 
Net Unrealized

 
Total

 
 
 
 
 
 
 
 
Net Gains

(Losses) Gains

 
Duke Energy

 
 
 
 
Common

 
Additional

 
(Losses) on

on Available-

Pension and

Corporation

 
 
 
Preferred

Stock

Common

Paid-in

Retained

Cash Flow

for-Sale-

OPEB

Stockholders'

Noncontrolling

Total

(in millions)
Stock

Shares

Stock

Capital

Earnings

Hedges

Securities

Adjustments

Equity

Interests

Equity

Balance at March 31, 2018
$
—

701

$
1

$
38,839

$
3,021

$
3

$
(4
)
$
(68
)
$
41,792

$
6

$
41,798

Net income
—

—

—

—

500

—

—

—

500

2

502

Other comprehensive (loss) income
—

—

—

—

—

(1
)
(2
)
1

(2
)
—

(2
)
Common stock issuances, including dividend reinvestment and employee benefits
—

11

—

843

—

—

—

—

843

—

843

Common stock dividends
—

—

—

—

(626
)
—

—

—

(626
)
—

(626
)
Other
—

—

—

—

(1
)
—

1

—

—

—

—

Balance at June 30, 2018
$
—

712

$
1

$
39,682

$
2,894

$
2

$
(5
)
$
(67
)
$
42,507

$
8

$
42,515

 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
$
974

728

$
1

$
40,823

$
3,360

$
(36
)
$
—

$
(92
)
$
45,030

$
15

$
45,045

Net income (loss)
—

—

—

—

820

—

—

—

820

(84
)
736

Other comprehensive (loss) income
—

—

—

—

—

(27
)
4

3

(20
)
—

(20
)
Preferred stock issuances, net of issuance costs
(1
)
—

—

—

—

—

—

—

(1
)
—

(1
)
Common stock issuances, including dividend reinvestment and employee benefits
—

—

—

61

—

—

—

—

61

—

61

Common stock dividends
—

—

—

—

(678
)
—

—

—

(678
)
—

(678
)
Contribution from noncontrolling interest in subsidiaries(c)
—

—

—

—

—

—

—

—

—

193

193

Distributions to noncontrolling interest in subsidiaries
—

—

—

—

—

—

—

—

—

(1
)
(1
)
Other
—

—

—

1

—

—

—

—

1

(4
)
(3
)
Balance at June 30, 2019
$
973

728

$
1

$
40,885

$
3,502

$
(63
)
$
4

$
(89
)
$
45,213

$
119

$
45,332


See Notes to Condensed Consolidated Financial Statements
13

FINANCIAL STATEMENTS
 




DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Six Months Ended June 30, 2018 and 2019
 
 
 
 
 
 
Accumulated Other Comprehensive
 
 
 
 
 
 
 
 
 
 (Loss) Income
 
 
 
 
 
 
 
 
 
 
Net Unrealized

 
Total

 
 
 
 
 
 
 
 
Net Gains

(Losses) Gains

 
Duke Energy

 
 
 
 
Common

 
Additional

 
(Losses) on

on Available-

Pension and

Corporation

 
 
 
Preferred

Stock

Common

Paid-in

Retained

Cash Flow

for-Sale-

OPEB

Stockholders'

Noncontrolling

Total

(in millions)
Stock

Shares

Stock

Capital

Earnings

Hedges

Securities

Adjustments

Equity

Interests

Equity

Balance at December 31, 2017
$
—

700

$
1

$
38,792

$
3,013

$
(10
)
$
12

$
(69
)
$
41,739

$
(2
)
$
41,737

Net income
—

—

—

—

1,120

—

—

—

1,120

4

1,124

Other comprehensive income (loss)
—

—

—

—

—

12

(5
)
2

9

—

9

Common stock issuances, including dividend reinvestment and employee benefits
—

12

—

890

—

—

—

—

890

—

890

Common stock dividends
—

—

—

—

(1,251
)
—

—

—

(1,251
)
—

(1,251
)
Distributions to noncontrolling interest in subsidiaries
—

—

—

—

—

—

—

—

—

(1
)
(1
)
Other(a)
—

—

—

—

12

—

(12
)
—

—

7

7

Balance at June 30, 2018
$
—

712

$
1

$
39,682

$
2,894

$
2

$
(5
)
$
(67
)
$
42,507

$
8

$
42,515

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
—

727

$
1

$
40,795

$
3,113

$
(14
)
$
(3
)
$
(75
)
$
43,817

$
17

$
43,834

Net income (loss)
—

—

—

—

1,720

—

—

—

1,720

(91
)
1,629

Other comprehensive (loss) income
—

—

—

—

—

(43
)
8

3

(32
)
—

(32
)
Preferred stock issuances, net of issuance costs(b)
973

—

—

—

—

—

—

—

973

—

973

Common stock issuances, including dividend reinvestment and employee benefits
—

1

—

89

—

—

—

—

89

—

89

Common stock dividends
—

—

—

—

(1,354
)
—

—

—

(1,354
)
—

(1,354
)
Contributions from noncontrolling interest in subsidiaries(c)
—

—

—

—

—

—

—

—

—

193

193

Distributions to noncontrolling interest in subsidiaries
—

—

—

—

—

—

—

—

—

(1
)
(1
)
Other(d)
—

—

—

1

23

(6
)
(1
)
(17
)
—

1

1

Balance at June 30, 2019
$
973

728

$
1

$
40,885

$
3,502

$
(63
)
$
4

$
(89
)
$
45,213

$
119

$
45,332


(a)
Amounts in Retained Earnings and Accumulated Other Comprehensive (Loss) Income represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement.
(b)
Duke Energy issued 40 million depositary shares of preferred stock in the first quarter of 2019.
(c)
Relates to tax equity financing activity in the Commercial Renewables segment.
(d)
Amounts in Retained Earnings and Accumulated Other Comprehensive (Loss) Income primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

See Notes to Condensed Consolidated Financial Statements
14


FINANCIAL STATEMENTS
 


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)
2019

 
2018

 
2019

 
2018

Operating Revenues
$
1,713

 
$
1,672

 
$
3,457

 
$
3,435

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power
395

 
407

 
867

 
880

Operation, maintenance and other
441

 
499

 
881

 
950

Depreciation and amortization
346

 
289

 
663

 
561

Property and other taxes
75

 
75

 
155

 
147

Impairment charges
5

 
177

 
5

 
190

Total operating expenses
1,262

 
1,447

 
2,571

 
2,728

Losses on Sales of Other Assets and Other, net
—

 
(1
)
 
—

 
(1
)
Operating Income
451

 
224

 
886

 
706

Other Income and Expenses, net
41

 
35

 
72

 
74

Interest Expense
117

 
110

 
227

 
217

Income Before Income Taxes
375

 
149

 
731

 
563

Income Tax Expense
74

 
32

 
137

 
123

Net Income
$
301

 
$
117

 
$
594

 
$
440

Other Comprehensive Income, net of tax
 
 
 
 
 
 
 
Reclassification into earnings from cash flow hedges
—

 
—

 
—

 
1

Comprehensive Income
$
301

 
$
117

 
$
594

 
$
441


See Notes to Condensed Consolidated Financial Statements
15


FINANCIAL STATEMENTS
 

DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2019

 
December 31, 2018

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
15

 
$
33

Receivables (net of allowance for doubtful accounts of $2 at 2019 and 2018)
164

 
219

Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2019 and 2018)
671

 
699

Receivables from affiliated companies
101

 
182

Inventory
1,025

 
948

Regulatory assets
605

 
520

Other
17

 
72

Total current assets
2,598

 
2,673

Property, Plant and Equipment
 
 
 
Cost
47,249

 
44,741

Accumulated depreciation and amortization
(16,047
)
 
(15,496
)
Net property, plant and equipment
31,202

 
29,245

Other Noncurrent Assets
 
 
 
Regulatory assets
3,392

 
3,457

Nuclear decommissioning trust funds
4,059

 
3,558

Operating lease right-of-use assets, net
141

 
—

Other
1,085

 
1,027

Total other noncurrent assets
8,677

 
8,042

Total Assets
$
42,477

 
$
39,960

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
640

 
$
988

Accounts payable to affiliated companies
189

 
230

Notes payable to affiliated companies
804

 
439

Taxes accrued
209

 
171

Interest accrued
106

 
102

Current maturities of long-term debt
456

 
6

Asset retirement obligations
203

 
290

Regulatory liabilities
191

 
199

Other
499

 
571

Total current liabilities
3,297


2,996

Long-Term Debt
10,208

 
10,633

Long-Term Debt Payable to Affiliated Companies
300

 
300

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
3,779

 
3,689

Asset retirement obligations
5,139

 
3,659

Regulatory liabilities
6,392

 
5,999

Operating lease liabilities
117

 
—

Accrued pension and other post-retirement benefit costs
90

 
99

Investment tax credits
234

 
231

Other
645

 
671

Total other noncurrent liabilities
16,396

 
14,348

Commitments and Contingencies


 


Equity
 
 
 
Member's equity
12,283

 
11,689

Accumulated other comprehensive loss
(7
)
 
(6
)
Total equity
12,276

 
11,683

Total Liabilities and Equity
$
42,477

 
$
39,960


See Notes to Condensed Consolidated Financial Statements
16


FINANCIAL STATEMENTS
 

DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
June 30,
(in millions)
2019

 
2018

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
594

 
$
440

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization (including amortization of nuclear fuel)
804

 
707

Equity component of AFUDC
(21
)
 
(39
)
Losses on sales of other assets
—

 
1

Impairment charges
5

 
190

Deferred income taxes
54

 
90

Accrued pension and other post-retirement benefit costs
(4
)
 
2

Contributions to qualified pension plans
—

 
(46
)
Payments for asset retirement obligations
(131
)
 
(114
)
Provision for rate refunds
35

 
121

(Increase) decrease in
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
(8
)
 
8

Receivables
83

 
(33
)
Receivables from affiliated companies
81

 
(22
)
Inventory
(77
)
 
(16
)
Other current assets
(133
)
 
(33
)
Increase (decrease) in
 
 
 
Accounts payable
(282
)
 
(59
)
Accounts payable to affiliated companies
(41
)
 
(51
)
Taxes accrued
38

 
(78
)
Other current liabilities
(71
)
 
(123
)
Other assets
91

 
(6
)
Other liabilities
(18
)
 
(29
)
Net cash provided by operating activities
999

 
910

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(1,357
)
 
(1,270
)
Purchases of debt and equity securities
(1,114
)
 
(976
)
Proceeds from sales and maturities of debt and equity securities
1,114

 
976

Other
(46
)
 
(64
)
Net cash used in investing activities
(1,403
)
 
(1,334
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt
25

 
991

Payments for the redemption of long-term debt
(3
)
 
(702
)
Notes payable to affiliated companies
365

 
636

Distributions to parent
—

 
(500
)
Other
(1
)
 
(1
)
Net cash provided by financing activities
386

 
424

Net decrease in cash and cash equivalents
(18
)
 
—

Cash and cash equivalents at beginning of period
33

 
16

Cash and cash equivalents at end of period
$
15

 
$
16

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
252

 
$
343


See Notes to Condensed Consolidated Financial Statements
17


FINANCIAL STATEMENTS
 

DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Three Months Ended June 30, 2018 and 2019
 
 
 
Accumulated Other
 
 
 
 
 
Comprehensive
 
 
 
 
 
Loss
 
 
 
 
 
Net Losses on

 
 
 
Member's

 
Cash Flow

 
Total

(in millions)
Equity

 
Hedges

 
Equity

Balance at March 31, 2018
$
11,441

 
$
(6
)
 
$
11,435

Net income
117

 
—

 
117

Distributions to parent
(250
)
 
—

 
(250
)
Balance at June 30, 2018
$
11,308

 
$
(6
)
 
$
11,302

 
 
 
 
 
 
Balance at March 31, 2019
$
11,982

 
$
(7
)
 
$
11,975

Net income
301

 
—

 
301

Balance at June 30, 2019
$
12,283

 
$
(7
)
 
$
12,276

 
 
 
 
 
 
 
Six Months Ended June 30, 2018 and 2019
 
 
 
Accumulated Other
 
 
 
 
 
Comprehensive
 
 
 
 
 
Loss
 
 
 
 
 
Net Losses on

 
 
 
Member's

 
Cash Flow

 
Total

(in millions)
Equity

 
Hedges

 
Equity

Balance at December 31, 2017
$
11,368

 
$
(7
)
 
$
11,361

Net income
440

 
—

 
440

Other comprehensive income
—

 
1

 
1

Distributions to parent
(500
)
 
—

 
(500
)
Balance at June 30, 2018
$
11,308

 
$
(6
)
 
$
11,302

 
 
 
 
 
 
Balance at December 31, 2018
$
11,689

 
$
(6
)
 
$
11,683

Net income
594

 
—

 
594

Other
—

 
(1
)
 
(1
)
Balance at June 30, 2019
$
12,283

 
$
(7
)
 
$
12,276


See Notes to Condensed Consolidated Financial Statements
18


FINANCIAL STATEMENTS
 


PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in millions)
2019

 
2018

 
2019

 
2018

Operating Revenues
$
2,744

 
$
2,498

 
$
5,316

 
$
5,074

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power
988

 
895

 
1,913

 
1,871

Operation, maintenance and other
606

 
610

 
1,173

 
1,233

Depreciation and amortization
426

 
380

 
881

 
764

Property and other taxes
143

 
131

 
280

 
254

Impairment charges
—

 
4

 
—

 
33

Total operating expenses
2,163

 
2,020

 
4,247

 
4,155

(Losses) Gains on Sales of Other Assets and Other, net
(1
)
 
6

 
(1
)
 
12

Operating Income
580

 
484

 
1,068

 
931

Other Income and Expenses, net
34

 
42

 
65

 
77

Interest Expense
219

 
203

 
438

 
412

Income Before Income Taxes
395

 
323

 
695

 
596

Income Tax Expense
66

 
56

 
118

 
92

Net Income
329

 
267

 
577

 
504

Less: Net Income Attributable to Noncontrolling Interests
1

 
2

 
—

 
4

Net Income Attributable to Parent
$
328

 
$
265

 
$
577

 
$
500

 
 
 
 
 
 
 
 
Net Income
$
329

 
$
267

 
$
577

 
$
504

Other Comprehensive Income, net of tax
 
 
 
 
 
 
 
Pension and OPEB adjustments
1

 
2

 
2

 
2

Net unrealized gains on cash flow hedges
1

 
1

 
3

 
3

Unrealized gains (losses) on available-for-sale securities
1

 
(1
)
 
1

 
(1
)
Other Comprehensive Income, net of tax
3


2


6


4

Comprehensive Income
332

 
269

 
583

 
508

Less: Comprehensive Income Attributable to Noncontrolling Interests
1

 
2

 
—

 
4

Comprehensive Income Attributable to Parent
$
331


$
267


$
583


$
504



See Notes to Condensed Consolidated Financial Statements
19


FINANCIAL STATEMENTS
 

PROGRESS ENERGY, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2019

 
December 31, 2018

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
51

 
$
67

Receivables (net of allowance for doubtful accounts of $6 at 2019 and $5 at 2018)
139

 
220

Receivables of VIEs (net of allowance for doubtful accounts of $8 at 2019 and 2018)
998

 
909

Receivables from affiliated companies
49

 
168

Inventory
1,480

 
1,459

Regulatory assets (includes $52 at 2019 and 2018 related to VIEs)
1,024

 
1,137

Other (includes $31 at 2019 and $39 at 2018 related to VIEs)
107

 
125

Total current assets
3,848

 
4,085

Property, Plant and Equipment
 
 
 
Cost
52,758

 
50,260

Accumulated depreciation and amortization
(16,808
)
 
(16,398
)
Generation facilities to be retired, net
317

 
362

Net property, plant and equipment
36,267

 
34,224

Other Noncurrent Assets
 
 
 
Goodwill
3,655

 
3,655

Regulatory assets (includes $1,019 at 2019 and $1,041 at 2018 related to VIEs)
6,423

 
6,564

Nuclear decommissioning trust funds
3,562

 
3,162

Operating lease right-of-use assets, net
839

 
—

Other
982

 
974

Total other noncurrent assets
15,461

 
14,355

Total Assets
$
55,576

 
$
52,664

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
720

 
$
1,172

Accounts payable to affiliated companies
235

 
360

Notes payable to affiliated companies
1,920

 
1,235

Taxes accrued
191

 
109

Interest accrued
226

 
246

Current maturities of long-term debt (includes $54 at 2019 and $53 at 2018 related to VIEs)
1,026

 
1,672

Asset retirement obligations
416

 
514

Regulatory liabilities
250

 
280

Other
863

 
821

Total current liabilities
5,847

 
6,409

Long-Term Debt (includes $1,657 at 2019 and $1,636 at 2018 related to VIEs)
18,023

 
17,089

Long-Term Debt Payable to Affiliated Companies
150

 
150

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
4,141

 
3,941

Asset retirement obligations
5,777

 
4,897

Regulatory liabilities
5,191

 
5,049

Operating lease liabilities
747

 
—

Accrued pension and other post-retirement benefit costs
509

 
521

Other
352

 
351

Total other noncurrent liabilities
16,717

 
14,759

Commitments and Contingencies

 

Equity
 
 
 
Common stock, $0.01 par value, 100 shares authorized and outstanding at 2019 and 2018
—

 
—

Additional paid-in capital
9,143

 
9,143

Retained earnings
5,715

 
5,131

Accumulated other comprehensive loss
(21
)
 
(20
)
Total Progress Energy, Inc. stockholders' equity
14,837

 
14,254

Noncontrolling interests
2

 
3

Total equity
14,839

 
14,257

Total Liabilities and Equity
$
55,576

 
$
52,664


See Notes to Condensed Consolidated Financial Statements
20


FINANCIAL STATEMENTS
 

PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
June 30,
(in millions)
2019

 
2018

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
577

 
$
504

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion (including amortization of nuclear fuel)
1,061

 
945

Equity component of AFUDC
(31
)
 
(52
)
Losses (gains) on sales of other assets
1

 
(12
)
Impairment charges
—

 
33

Deferred income taxes
126

 
240

Accrued pension and other post-retirement benefit costs
8

 
12

Contributions to qualified pension plans
—

 
(45
)
Payments for asset retirement obligations
(183
)
 
(108
)
Other rate case adjustments
—

 
37

Provision for rate refunds
10

 
65

(Increase) decrease in
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
(1
)
 
14

Receivables
(42
)
 
(196
)
Receivables from affiliated companies
119

 
28

Inventory
(26
)
 
71

Other current assets
114

 
(214
)
Increase (decrease) in
 
 
 
Accounts payable
(196
)
 
15

Accounts payable to affiliated companies
(125
)
 
(19
)
Taxes accrued
82

 
80

Other current liabilities
(162
)
 
(58
)
Other assets
(83
)
 
(186
)
Other liabilities
17

 
4

Net cash provided by operating activities
1,266

 
1,158

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(1,988
)
 
(1,727
)
Purchases of debt and equity securities
(1,094
)
 
(812
)
Proceeds from sales and maturities of debt and equity securities
1,089

 
820

Notes receivable from affiliated companies
—

 
(69
)
Other
(59
)
 
(81
)
Net cash used in investing activities
(2,052
)
 
(1,869
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt
1,295

 
989

Payments for the redemption of long-term debt
(1,188
)
 
(635
)
Notes payable to affiliated companies
685

 
347

Other
2

 
(3
)
Net cash provided by financing activities
794

 
698

Net increase (decrease) in cash, cash equivalents and restricted cash
8

 
(13
)
Cash, cash equivalents and restricted cash at beginning of period
112

 
87

Cash, cash equivalents and restricted cash at end of period
$
120

 
$
74

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
278

 
$
366


See Notes to Condensed Consolidated Financial Statements
21

FINANCIAL STATEMENTS
 




PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Three Months Ended June 30, 2018 and 2019
 
 
 
 
 
Accumulated Other Comprehensive (Loss) Income
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Unrealized

 
 
 
Total Progress

 
 
 
 
 
Additional

 
 
 
Net Losses on

 
Gains (Losses) 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 March 31, 2018
$
9,142

 
$
4,591

 
$
(16
)
 
$
(1
)
 
$
(12
)
 
$
13,704

 
$
(1
)
 
$
13,703

Net income
—

 
265

 
—

 
—

 
—

 
265

 
2

 
267

Other comprehensive income (loss)
—

 
—

 
1

 
(1
)
 
2

 
2

 
—

 
2

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(1
)
 
(1
)
Other(a)
1

 
(1
)
 
—

 
1

 
—

 
1

 
—

 
1

Balance at June 30, 2018
$
9,143

 
$
4,855

 
$
(15
)
 
$
(1
)
 
$
(10
)
 
$
13,972

 
$
—

 
$
13,972

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
$
9,143

 
$
5,386

 
$
(14
)
 
$
(1
)
 
$
(8
)
 
$
14,506

 
$
2

 
$
14,508

Net income
—

 
328

 
—

 
—

 
—

 
328

 
1

 
329

Other comprehensive income
—

 
—

 
1

 
1

 
1

 
3

 
—

 
3

Other
—

 
1

 
—

 
—

 
(1
)
 
—

 
(1
)
 
(1
)
Balance at June 30, 2019
$
9,143

 
$
5,715

 
$
(13
)
 
$
—

 
$
(8
)
 
$
14,837

 
$
2

 
$
14,839

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018 and 2019
 
 
 
 
 
Accumulated Other Comprehensive (Loss) Income
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Unrealized

 
 
 
Total Progress

 
 
 
 
 
Additional

 
 
 
Net Losses on

 
Gains (Losses) on

 
Pension and

 
Energy, Inc.

 
 
 
 
 
Paid-in

 
Retained

 
Cash Flow

 
Available-for-

 
OPEB

 
Stockholders'

 
Noncontrolling

 
Total

 
Capital

 
Earnings

 
Hedges

 
Sale Securities

 
Adjustments

 
Equity

 
Interests

 
Equity

Balance at December 31, 2017
$
9,143

 
$
4,350

 
$
(18
)
 
$
5

 
$
(12
)
 
$
13,468

 
$
(3
)
 
$
13,465

Net income
—

 
500

 
—

 
—

 
—

 
500

 
4

 
504

Other comprehensive income (loss)
—

 
—

 
3

 
(1
)
 
2

 
4

 
—

 
4

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(1
)
 
(1
)
Other(a)
—

 
5

 
—

 
(5
)
 
—

 
—

 
—

 
—

Balance at June 30, 2018
$
9,143


$
4,855


$
(15
)

$
(1
)

$
(10
)
 
$
13,972


$
—


$
13,972

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
9,143

 
$
5,131

 
$
(12
)
 
$
(1
)
 
$
(7
)
 
$
14,254

 
$
3

 
$
14,257

Net income
—

 
577

 
—

 
—

 
—

 
577

 
—

 
577

Other comprehensive income
—

 
—

 
3

 
1

 
2

 
6

 
—

 
6

Other(b)
—

 
7

 
(4
)
 
—

 
(3
)
 
—

 
(1
)
 
(1
)
Balance at June 30, 2019
$
9,143


$
5,715


$
(13
)

$
—


$
(8
)
 
$
14,837


$
2


$
14,839

(a)
Amounts in Retained Earnings and Accumulated Other Comprehensive (Loss) Income represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement.
(b)
Amounts in Retained Earnings and Accumulated Other Comprehensive (Loss) Income primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

See Notes to Condensed Consolidated Financial Statements
22


FINANCIAL STATEMENTS
 


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)
2019

 
2018

 
2019

 
2018

Operating Revenues
$
1,387

 
$
1,291

 
$
2,871

 
$
2,751

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power
479

 
408

 
994

 
917

Operation, maintenance and other
357

 
375

 
692

 
756

Depreciation and amortization
251

 
235

 
541

 
470

Property and other taxes
41

 
40

 
85

 
75

Impairment charges
—

 
1

 
—

 
33

Total operating expenses
1,128

 
1,059

 
2,312

 
2,251

Gains on Sales of Other Assets and Other, net
—

 
1

 
—

 
2

Operating Income
259

 
233

 
559

 
502

Other Income and Expenses, net
24

 
19

 
48

 
37

Interest Expense
81

 
78

 
158

 
159

Income Before Income Taxes
202

 
174

 
449

 
380

Income Tax Expense
33

 
35

 
77

 
64

Net Income and Comprehensive Income
$
169

 
$
139

 
$
372

 
$
316



See Notes to Condensed Consolidated Financial Statements
23


FINANCIAL STATEMENTS
 

DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2019

 
December 31, 2018

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
28

 
$
23

Receivables (net of allowance for doubtful accounts of $2 at 2019 and 2018)
53

 
75

Receivables of VIEs (net of allowance for doubtful accounts of $5 at 2019 and 2018)
518

 
547

Receivables from affiliated companies
40

 
23

Inventory
980

 
954

Regulatory assets
572

 
703

Other
34

 
62

Total current assets
2,225

 
2,387

Property, Plant and Equipment
 
 
 
Cost
33,288

 
31,459

Accumulated depreciation and amortization
(11,728
)
 
(11,423
)
Generation facilities to be retired, net
317

 
362

Net property, plant and equipment
21,877

 
20,398

Other Noncurrent Assets
 
 
 
Regulatory assets
4,124

 
4,111

Nuclear decommissioning trust funds
2,833

 
2,503

Operating lease right-of-use assets, net
407

 
—

Other
586

 
612

Total other noncurrent assets
7,950

 
7,226

Total Assets
$
32,052

 
$
30,011

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
315

 
$
660

Accounts payable to affiliated companies
182

 
278

Notes payable to affiliated companies
127

 
294

Taxes accrued
106

 
53

Interest accrued
110

 
116

Current maturities of long-term debt
6

 
603

Asset retirement obligations
413

 
509

Regulatory liabilities
167

 
178

Other
395

 
408

Total current liabilities
1,821

 
3,099

Long-Term Debt
8,893

 
7,451

Long-Term Debt Payable to Affiliated Companies
150

 
150

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
2,181

 
2,119

Asset retirement obligations
5,203

 
4,311

Regulatory liabilities
4,150

 
3,955

Operating lease liabilities
377

 
—

Accrued pension and other post-retirement benefit costs
232

 
237

Investment tax credits
141

 
142

Other
91

 
106

Total other noncurrent liabilities
12,375

 
10,870

Commitments and Contingencies

 

Equity
 
 
 
Member's Equity
8,813

 
8,441

Total Liabilities and Equity
$
32,052

 
$
30,011


See Notes to Condensed Consolidated Financial Statements
24


FINANCIAL STATEMENTS
 

DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
June 30,
(in millions)
2019

 
2018

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
372

 
$
316

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization (including amortization of nuclear fuel)
634

 
565

Equity component of AFUDC
(28
)
 
(26
)
Gains on sales of other assets
—

 
(2
)
Impairment charges
—

 
33

Deferred income taxes
26

 
53

Accrued pension and other post-retirement benefit costs
1

 
7

Contributions to qualified pension plans
—

 
(25
)
Payments for asset retirement obligations
(166
)
 
(89
)
Other rate case adjustments
—

 
37

Provision for rate refunds
10

 
65

(Increase) decrease in
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
(5
)
 
6

Receivables
58

 
(104
)
Receivables from affiliated companies
(17
)
 
2

Inventory
(26
)
 
41

Other current assets
115

 
(111
)
Increase (decrease) in
 
 
 
Accounts payable
(223
)
 
(17
)
Accounts payable to affiliated companies
(96
)
 
(4
)
Taxes accrued
53

 
26

Other current liabilities
(74
)
 
(38
)
Other assets
—

 
10

Other liabilities
21

 
13

Net cash provided by operating activities
655

 
758

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(1,115
)
 
(996
)
Purchases of debt and equity securities
(473
)
 
(573
)
Proceeds from sales and maturities of debt and equity securities
458

 
556

Other
(20
)
 
(45
)
Net cash used in investing activities
(1,150
)
 
(1,058
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt
1,270

 
—

Payments for the redemption of long-term debt
(602
)
 
—

Notes payable to affiliated companies
(167
)
 
300

Other
(1
)
 
(2
)
Net cash provided by financing activities
500

 
298

Net increase (decrease) in cash and cash equivalents
5

 
(2
)
Cash and cash equivalents at beginning of period
23

 
20

Cash and cash equivalents at end of period
$
28

 
$
18

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
112

 
$
172


See Notes to Condensed Consolidated Financial Statements
25


FINANCIAL STATEMENTS
 

DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Three Months Ended
 
June 30, 2018 and 2019
 
Member's
(in millions)
Equity
Balance at March 31, 2018
$
8,126

Net income
139

Balance at June 30, 2018
$
8,265

 
 
Balance at March 31, 2019
$
8,644

Net income
169

Balance at June 30, 2019
$
8,813

 
 
 
Six Months Ended
 
June 30, 2018 and 2019
 
Member's
(in millions)
Equity
Balance at December 31, 2017
$
7,949

Net income
316

Balance at June 30, 2018
$
8,265

 
 
Balance at December 31, 2018
$
8,441

Net income
372

Balance at June 30, 2019
$
8,813



See Notes to Condensed Consolidated Financial Statements
26


FINANCIAL STATEMENTS
 


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)
2019

 
2018

 
2019

 
2018

Operating Revenues
$
1,353

 
$
1,203

 
$
2,439

 
$
2,318

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power
509

 
486

 
919

 
953

Operation, maintenance and other
244

 
237

 
474

 
474

Depreciation and amortization
175

 
144

 
340

 
294

Property and other taxes
103

 
91

 
196

 
179

Total operating expenses
1,031

 
958

 
1,929

 
1,900

Losses on Sales of Other Assets and Other, net
(1
)
 
—

 
(1
)
 
—

Operating Income
321

 
245

 
509

 
418

Other Income and Expenses, net
12

 
26

 
25

 
47

Interest Expense
83

 
66

 
165

 
137

Income Before Income Taxes
250

 
205

 
369

 
328

Income Tax Expense
49

 
37

 
72

 
57

Net Income
$
201

 
$
168

 
$
297

 
$
271

Other Comprehensive Income (Loss), net of tax

 

 


 


Unrealized (losses) gains on available-for-sale securities
—

 
(1
)
 
1

 
(1
)
Comprehensive Income
$
201

 
$
167

 
$
298


$
270



See Notes to Condensed Consolidated Financial Statements
27


FINANCIAL STATEMENTS
 

DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2019

 
December 31, 2018

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
16

 
$
36

Receivables (net of allowance for doubtful accounts of $3 at 2019 and 2018)
84

 
143

Receivables of VIEs (net of allowance for doubtful accounts of $3 at 2019 and 2018)
480

 
362

Receivables from affiliated companies
18

 
28

Inventory
499

 
504

Regulatory assets (includes $52 at 2019 and 2018 related to VIEs)
452

 
434

Other (includes $31 at 2019 and $39 at 2018 related to VIEs)
46

 
46

Total current assets
1,595

 
1,553

Property, Plant and Equipment
 
 
 
Cost
19,461

 
18,792

Accumulated depreciation and amortization
(5,073
)
 
(4,968
)
Net property, plant and equipment
14,388

 
13,824

Other Noncurrent Assets
 
 
 
Regulatory assets (includes $1,019 at 2019 and $1,041 at 2018 related to VIEs)
2,299

 
2,454

Nuclear decommissioning trust funds
729

 
659

Operating lease right-of-use assets, net
432

 
—

Other
311

 
311

Total other noncurrent assets
3,771

 
3,424

Total Assets
$
19,754

 
$
18,801

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
403

 
$
511

Accounts payable to affiliated companies
62

 
91

Notes payable to affiliated companies
477

 
108

Taxes accrued
148

 
74

Interest accrued
70

 
75

Current maturities of long-term debt (includes $54 at 2019 and $53 at 2018 related to VIEs)
671

 
270

Asset retirement obligations
3

 
5

Regulatory liabilities
83

 
102

Other
461

 
406

Total current liabilities
2,378

 
1,642

Long-Term Debt (includes $1,332 at 2019 and $1,336 at 2018 related to VIEs)
6,542

 
7,051

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
2,105

 
1,986

Asset retirement obligations
574

 
586

Regulatory liabilities
1,040

 
1,094

Operating lease liabilities
370

 
—

Accrued pension and other post-retirement benefit costs
248

 
254

Other
104

 
93

Total other noncurrent liabilities
4,441

 
4,013

Commitments and Contingencies

 

Equity
 
 
 
Member's equity
6,394

 
6,097

Accumulated other comprehensive loss
(1
)
 
(2
)
Total equity
6,393

 
6,095

Total Liabilities and Equity
$
19,754

 
$
18,801


See Notes to Condensed Consolidated Financial Statements
28


FINANCIAL STATEMENTS
 

DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
June 30,
(in millions)
2019

 
2018

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
297

 
$
271

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
423

 
374

Equity component of AFUDC
(2
)
 
(26
)
Losses on sales of other assets
1

 
—

Deferred income taxes
82

 
206

Accrued pension and other post-retirement benefit costs
5

 
3

Contributions to qualified pension plans
—

 
(20
)
Payments for asset retirement obligations
(17
)
 
(19
)
(Increase) decrease in
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
2

 
6

Receivables
(101
)
 
(92
)
Receivables from affiliated companies
10

 
(4
)
Inventory
1

 
28

Other current assets
8

 
(114
)
Increase (decrease) in
 
 
 
Accounts payable
27

 
34

Accounts payable to affiliated companies
(29
)
 
(11
)
Taxes accrued
74

 
81

Other current liabilities
(80
)
 
(21
)
Other assets
(81
)
 
(196
)
Other liabilities
(9
)
 
(10
)
Net cash provided by operating activities
611

 
490

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(873
)
 
(731
)
Purchases of debt and equity securities
(621
)
 
(239
)
Proceeds from sales and maturities of debt and equity securities
631

 
264

Notes receivable from affiliated companies
—

 
(110
)
Other
(37
)
 
(35
)
Net cash used in investing activities
(900
)
 
(851
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt
25

 
989

Payments for the redemption of long-term debt
(136
)
 
(635
)
Notes payable to affiliated companies
369

 
—

Other
3

 
(1
)
Net cash provided by financing activities
261

 
353

Net decrease in cash, cash equivalents and restricted cash
(28
)
 
(8
)
Cash, cash equivalents and restricted cash at beginning of period
75

 
53

Cash, cash equivalents and restricted cash at end of period
$
47

 
$
45

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
166

 
$
194


See Notes to Condensed Consolidated Financial Statements
29


FINANCIAL STATEMENTS
 

DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Three Months Ended June 30, 2018 and 2019
 
 
 
Accumulated
 
 
 
 
 
Other
 
 
 
 
 
Comprehensive
 
 
 
 
 
Income (Loss)
 
 
 
 
 
Net Unrealized

 
 
 
 
 
Gains (Losses) on

 
 
 
Member's

 
Available-for-Sale

 
Total

(in millions)
Equity

 
Securities

 
Equity

Balance at March 31, 2018
$
5,723

 
$
(2
)
 
$
5,721

Net income
168

 
—

 
168

Other comprehensive loss
—

 
(1
)
 
(1
)
Other(a)
(1
)
 
1

 
—

Balance at June 30, 2018
$
5,890

 
$
(2
)
 
$
5,888

 
 
 
 
 
 
Balance at March 31, 2019
$
6,193

 
$
(1
)
 
$
6,192

Net income
201

 
—

 
201

Balance at June 30, 2019
$
6,394

 
$
(1
)
 
$
6,393

 
 
 
 
 
 
 
Six Months Ended June 30, 2018 and 2019
 
 
 
Accumulated
 
 
 
 
 
Other
 
 
 
 
 
Comprehensive
 
 
 
 
 
Income (Loss)
 
 
 
 
 
Net Unrealized

 
 
 
 
 
Gains (Losses) on

 
 
 
Member's

 
Available-for-Sale

 
Total

(in millions)
Equity

 
Securities

 
Equity

Balance at December 31, 2017
$
5,614

 
$
4

 
$
5,618

Net income
271

 
—

 
271

Other comprehensive loss
—

 
(1
)
 
(1
)
Other(a)
5

 
(5
)
 
—

Balance at June 30, 2018
$
5,890

 
$
(2
)
 
$
5,888

 
 
 
 
 
 
Balance at December 31, 2018
$
6,097

 
$
(2
)
 
$
6,095

Net income
297

 
—

 
297

Other comprehensive income
—

 
1

 
1

Balance at June 30, 2019
$
6,394

 
$
(1
)
 
$
6,393


(a)
Amounts in Member's Equity and Accumulated Other Comprehensive Income (Loss) represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement.

See Notes to Condensed Consolidated Financial Statements
30


FINANCIAL STATEMENTS
 


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)
2019

 
2018

 
2019


2018

Operating Revenues
 
 
 
 
 
 
 
Regulated electric
$
336

 
$
346

 
$
691

 
$
682

Regulated natural gas
97

 
103

 
273

 
277

Nonregulated electric and other
—

 
10

 
—

 
24

Total operating revenues
433

 
459

 
964

 
983

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power – regulated
86

 
93

 
179

 
185

Fuel used in electric generation and purchased power – nonregulated
—

 
14

 
—

 
29

Cost of natural gas
10

 
15

 
64

 
69

Operation, maintenance and other
123

 
130

 
255

 
261

Depreciation and amortization
66

 
62

 
130

 
132

Property and other taxes
74

 
68

 
158

 
145

Total operating expenses
359

 
382

 
786

 
821

Losses on Sales of Other Assets and Other, net
—

 
—

 
—

 
(106
)
Operating Income
74

 
77

 
178

 
56

Other Income and Expenses, net
6

 
8

 
15

 
14

Interest Expense
24

 
23

 
54

 
45

Income Before Income Taxes
56

 
62

 
139

 
25

Income Tax Expense
9

 
16

 
23

 
4

Net Income and Comprehensive Income
$
47

 
$
46

 
$
116

 
$
21



See Notes to Condensed Consolidated Financial Statements
31


FINANCIAL STATEMENTS
 

DUKE ENERGY OHIO, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2019

 
December 31, 2018

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
8

 
$
21

Receivables (net of allowance for doubtful accounts of $3 at 2019 and $2 at 2018)
80

 
102

Receivables from affiliated companies
50

 
114

Inventory
124

 
126

Regulatory assets
47

 
33

Other
32

 
24

Total current assets
341

 
420

Property, Plant and Equipment
 
 
 
Cost
9,776

 
9,360

Accumulated depreciation and amortization
(2,761
)
 
(2,717
)
Net property, plant and equipment
7,015

 
6,643

Other Noncurrent Assets
 
 
 
Goodwill
920

 
920

Regulatory assets
545

 
531

Operating lease right-of-use assets, net
22

 
—

Other
46

 
41

Total other noncurrent assets
1,533

 
1,492

Total Assets
$
8,889

 
$
8,555

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
257

 
$
316

Accounts payable to affiliated companies
78

 
78

Notes payable to affiliated companies
203

 
274

Taxes accrued
135

 
202

Interest accrued
31

 
22

Current maturities of long-term debt
100

 
551

Asset retirement obligations
6

 
6

Regulatory liabilities
67

 
57

Other
76

 
74

Total current liabilities
953

 
1,580

Long-Term Debt
2,384

 
1,589

Long-Term Debt Payable to Affiliated Companies
25

 
25

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
872

 
817

Asset retirement obligations
83

 
87

Regulatory liabilities
802

 
840

Operating lease liabilities
21

 
—

Accrued pension and other post-retirement benefit costs
94

 
79

Other
94

 
93

Total other noncurrent liabilities
1,966

 
1,916

Commitments and Contingencies
 
 
 
Equity
 
 
 
Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2019 and 2018
762

 
762

Additional paid-in capital
2,776

 
2,776

Retained Earnings (Accumulated deficit)
23

 
(93
)
Total equity
3,561

 
3,445

Total Liabilities and Equity
$
8,889

 
$
8,555


See Notes to Condensed Consolidated Financial Statements
32


FINANCIAL STATEMENTS
 

DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
June 30,
(in millions)
2019

 
2018

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
116

 
$
21

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
132

 
134

Equity component of AFUDC
(7
)
 
(8
)
Losses on sales of other assets
—

 
106

Deferred income taxes
45

 
(2
)
Accrued pension and other post-retirement benefit costs
—

 
2

Payments for asset retirement obligations
(5
)
 
(2
)
Provision for rate refunds
3

 
19

(Increase) decrease in
 
 
 
Receivables
24

 
(7
)
Receivables from affiliated companies
64

 
62

Inventory
2

 
9

Other current assets
(13
)
 
24

Increase (decrease) in
 
 
 
Accounts payable
(44
)
 
(34
)
Accounts payable to affiliated companies
—

 
(15
)
Taxes accrued
(67
)
 
(63
)
Other current liabilities
2

 
8

Other assets
(18
)
 
(7
)
Other liabilities
(15
)
 
(18
)
Net cash provided by operating activities
219

 
229

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(473
)
 
(392
)
Notes receivable from affiliated companies
—

 
14

Other
(31
)
 
(43
)
Net cash used in investing activities
(504
)
 
(421
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt
794

 
—

Payments for the redemption of long-term debt
(451
)
 
(3
)
Notes payable to affiliated companies
(71
)
 
190

Net cash provided by financing activities
272

 
187

Net decrease in cash and cash equivalents
(13
)
 
(5
)
Cash and cash equivalents at beginning of period
21

 
12

Cash and cash equivalents at end of period
$
8

 
$
7

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
93

 
$
70

Non-cash equity contribution from parent
—

 
106


See Notes to Condensed Consolidated Financial Statements
33


FINANCIAL STATEMENTS
 

DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Three Months Ended June 30, 2018 and 2019
 
 
 
Additional

 
Retained

 
 
 
Common

 
Paid-in

 
Earnings

 
Total

(in millions)
Stock

 
Capital

 
(Deficit)

 
Equity

Balance at March 31, 2018
$
762

 
$
2,670

 
$
(294
)
 
$
3,138

Net income
—

 
—

 
46

 
46

Contribution from parent(a)
—

 
106

 
—

 
106

Balance at June 30, 2018
$
762

 
$
2,776

 
$
(248
)
 
$
3,290

 
 
 
 
 
 
 
 
Balance at March 31, 2019
$
762

 
$
2,776

 
$
(24
)
 
$
3,514

Net income
—

 
—

 
47

 
47

Balance at June 30, 2019
$
762

 
$
2,776

 
$
23

 
$
3,561

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018 and 2019
 
 
 
Additional

 
Retained

 
 
 
Common

 
Paid-in

 
Earnings

 
Total

(in millions)
Stock

 
Capital

 
(Deficit)

 
Equity

Balance at December 31, 2017
$
762

 
$
2,670

 
$
(269
)
 
$
3,163

Net income
—

 
—

 
21

 
21

Contribution from parent(a)
—

 
106

 
—

 
106

Balance at June 30, 2018
$
762

 
$
2,776

 
$
(248
)
 
$
3,290

 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
762

 
$
2,776

 
$
(93
)
 
$
3,445

Net income
—

 
—

 
116

 
116

Balance at June 30, 2019
$
762


$
2,776


$
23


$
3,561


(a)
Represents a non-cash settlement through equity of an intercompany payable from Duke Energy Ohio to its parent.

See Notes to Condensed Consolidated Financial Statements
34


FINANCIAL STATEMENTS
 


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)
2019

 
2018

 
2019

 
2018

Operating Revenues
$
714

 
$
738

 
$
1,482

 
$
1,469

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power
229

 
226

 
486

 
458

Operation, maintenance and other
188

 
197

 
377

 
378

Depreciation and amortization
132

 
126

 
263

 
256

Property and other taxes
20

 
20

 
39

 
40

Total operating expenses
569

 
569

 
1,165

 
1,132

Gains on Sales of Other Assets and Other, net
3


—

 
—

 
—

Operating Income
148

 
169


317


337

Other Income and Expenses, net
8

 
6

 
27

 
13

Interest Expense
28

 
43

 
71

 
83

Income Before Income Taxes
128

 
132


273


267

Income Tax Expense
31

 
34

 
66

 
69

Net Income and Comprehensive Income
$
97

 
$
98


$
207


$
198



See Notes to Condensed Consolidated Financial Statements
35


FINANCIAL STATEMENTS
 

DUKE ENERGY INDIANA, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2019

 
December 31, 2018

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
12

 
$
24

Receivables (net of allowance for doubtful accounts of $3 at 2019 and $2 at 2018)
49

 
52

Receivables from affiliated companies
83

 
122

Inventory
463

 
422

Regulatory assets
130

 
175

Other
42

 
35

Total current assets
779

 
830

Property, Plant and Equipment
 
 
 
Cost
15,831

 
15,443

Accumulated depreciation and amortization
(5,104
)
 
(4,914
)
Net property, plant and equipment
10,727

 
10,529

Other Noncurrent Assets
 
 
 
Regulatory assets
1,038

 
982

Operating lease right-of-use assets, net
60

 
—

Other
203

 
194

Total other noncurrent assets
1,301

 
1,176

Total Assets
$
12,807

 
$
12,535

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
224

 
$
200

Accounts payable to affiliated companies
66

 
83

Notes payable to affiliated companies
165

 
167

Taxes accrued
25

 
43

Interest accrued
59

 
58

Current maturities of long-term debt
3

 
63

Asset retirement obligations
115

 
109

Regulatory liabilities
24

 
25

Other
120

 
107

Total current liabilities
801

 
855

Long-Term Debt
3,570

 
3,569

Long-Term Debt Payable to Affiliated Companies
150

 
150

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
1,084

 
1,009

Asset retirement obligations
604

 
613

Regulatory liabilities
1,693

 
1,722

Operating lease liabilities
56

 
—

Accrued pension and other post-retirement benefit costs
142

 
115

Investment tax credits
147

 
147

Other
14

 
16

Total other noncurrent liabilities
3,740

 
3,622

Commitments and Contingencies
 
 
 
Equity
 
 
 
Member's Equity
4,546

 
4,339

Total Liabilities and Equity
$
12,807

 
$
12,535


See Notes to Condensed Consolidated Financial Statements
36


FINANCIAL STATEMENTS
 

DUKE ENERGY INDIANA, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
June 30,
(in millions)
2019

 
2018

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
207

 
$
198

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
265

 
258

Equity component of AFUDC
(9
)
 
(7
)
Deferred income taxes
60

 
36

Accrued pension and other post-retirement benefit costs
2

 
3

Contributions to qualified pension plans
—

 
(8
)
Payments for asset retirement obligations
(17
)
 
(21
)
Provision for rate refunds
—

 
49

(Increase) decrease in
 
 
 
Receivables
5

 
2

Receivables from affiliated companies
39

 
36

Inventory
(41
)
 
(20
)
Other current assets
48

 
(35
)
Increase (decrease) in
 
 
 
Accounts payable
26

 
33

Accounts payable to affiliated companies
(17
)
 
(19
)
Taxes accrued
(18
)
 
(41
)
Other current liabilities
(13
)
 
3

Other assets
(34
)
 
20

Other liabilities
14

 
(21
)
Net cash provided by operating activities
517

 
466

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(443
)
 
(416
)
Purchases of debt and equity securities
(14
)
 
(34
)
Proceeds from sales and maturities of debt and equity securities
11

 
13

Other
(21
)
 
2

Net cash used in investing activities
(467
)
 
(435
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Payments for the redemption of long-term debt
(60
)
 
—

Notes payable to affiliated companies
(2
)
 
60

Distributions to parent
—

 
(75
)
Other
—

 
(1
)
Net cash used in financing activities
(62
)
 
(16
)
Net (decrease) increase in cash and cash equivalents
(12
)

15

Cash and cash equivalents at beginning of period
24

 
9

Cash and cash equivalents at end of period
$
12

 
$
24

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
84

 
$
62


See Notes to Condensed Consolidated Financial Statements
37


FINANCIAL STATEMENTS
 

DUKE ENERGY INDIANA, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
Three Months Ended
 
 
June 30, 2018 and 2019
 
 
Member's
(in millions)
 
Equity
Balance at March 31, 2018
 
$
4,221

Net income
 
98

Distributions to parent
 
(75
)
Balance at June 30, 2018
 
$
4,244

 
 
 
Balance at March 31, 2019
 
$
4,449

Net income
 
97

Balance at June 30, 2019
 
$
4,546

 
 
 
 
 
Six Months Ended
 
 
June 30, 2018 and 2019
 
 
Member's
(in millions)
 
Equity
Balance at December 31, 2017
 
$
4,121

Net income
 
198

Distributions to parent
 
(75
)
Balance at June 30, 2018

$
4,244

 
 
 
Balance at December 31, 2018
 
$
4,339

Net income
 
207

Balance at June 30, 2019

$
4,546



See Notes to Condensed Consolidated Financial Statements
38


FINANCIAL STATEMENTS
 


PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in millions)
2019

 
2018

 
2019

 
2018

Operating Revenues
$
209

 
$
215

 
$
788

 
$
768

Operating Expenses
 
 
 
 
 
 
 
Cost of natural gas
65

 
74

 
338

 
333

Operation, maintenance and other
83

 
85

 
163

 
167

Depreciation and amortization
42

 
39

 
84

 
78

Property and other taxes
13

 
12

 
25

 
24

Total operating expenses
203

 
210

 
610

 
602

Operating Income
6

 
5

 
178

 
166

Other Income and Expenses, net
6

 
4

 
12

 
9

Interest Expense
21

 
20

 
43

 
41

(Loss) Income Before Income Taxes
(9
)
 
(11
)
 
147

 
134

Income Tax (Benefit) Expense
(2
)
 
(3
)
 
32

 
32

Net (Loss) Income and Comprehensive (Loss) Income
$
(7
)
 
$
(8
)
 
$
115

 
$
102


See Notes to Condensed Consolidated Financial Statements
39


FINANCIAL STATEMENTS
 

PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2019

 
December 31, 2018

ASSETS
 
 
 
Current Assets
 
 
 
Receivables (net of allowance for doubtful accounts of $2 at 2019 and 2018)
$
100

 
$
266

Receivables from affiliated companies
17

 
22

Notes receivable from affiliated companies
16

 
—

Inventory
33

 
70

Regulatory assets
30

 
54

Other
57

 
19

Total current assets
253

 
431

Property, Plant and Equipment
 
 
 
Cost
7,966

 
7,486

Accumulated depreciation and amortization
(1,620
)
 
(1,575
)
Net property, plant and equipment
6,346

 
5,911

Other Noncurrent Assets
 
 
 
Goodwill
49

 
49

Regulatory assets
280

 
303

Operating lease right-of-use assets, net
26

 
—

Investments in equity method unconsolidated affiliates
81

 
64

Other
60

 
52

Total other noncurrent assets
496

 
468

Total Assets
$
7,095

 
$
6,810

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
156

 
$
203

Accounts payable to affiliated companies
52

 
38

Notes payable to affiliated companies
—

 
198

Taxes accrued
23

 
84

Interest accrued
33

 
31

Current maturities of long-term debt
—

 
350

Regulatory liabilities
67

 
37

Other
62

 
58

Total current liabilities
393

 
999

Long-Term Debt
2,384

 
1,788

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
593

 
551

Asset retirement obligations
19

 
19

Regulatory liabilities
1,174

 
1,181

Operating lease liabilities
25

 
—

Accrued pension and other post-retirement benefit costs
6

 
4

Other
145

 
177

Total other noncurrent liabilities
1,962

 
1,932

Commitments and Contingencies

 

Equity
 
 
 
Common stock, no par value: 100 shares authorized and outstanding at 2019 and 2018
1,310

 
1,160

Retained earnings
1,046

 
931

Total equity
2,356

 
2,091

Total Liabilities and Equity
$
7,095

 
$
6,810


See Notes to Condensed Consolidated Financial Statements
40


FINANCIAL STATEMENTS
 

PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
June 30,
(in millions)
2019

 
2018

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
115

 
$
102

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
85

 
79

Deferred income taxes
40

 
4

Equity in earnings from unconsolidated affiliates
(4
)
 
(3
)
Accrued pension and other post-retirement benefit costs
(5
)
 
(2
)
Provision for rate refunds
9

 
27

(Increase) decrease in
 
 
 
Receivables
168

 
166

Receivables from affiliated companies
5

 
(4
)
Inventory
37

 
28

Other current assets
(17
)
 
74

Increase (decrease) in
 
 
 
Accounts payable
(70
)
 
(32
)
Accounts payable to affiliated companies
14

 
(12
)
Taxes accrued
(61
)
 
4

Other current liabilities
10

 
28

Other assets
(5
)
 
2

Other liabilities
(1
)
 
(2
)
Net cash provided by operating activities
320

 
459

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(480
)
 
(327
)
Contributions to equity method investments
(16
)
 
—

Notes receivable from affiliated companies
(16
)
 
(77
)
Other
(6
)
 
(2
)
Net cash used in investing activities
(518
)
 
(406
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt
596

 
—

Payments for the redemption of long-term debt
(350
)
 
—

Notes payable to affiliated companies
(198
)
 
(364
)
Capital contributions from parent
150

 
300

Net cash provided by (used in) financing activities
198

 
(64
)
Net decrease in cash and cash equivalents
—

 
(11
)
Cash and cash equivalents at beginning of period
—

 
19

Cash and cash equivalents at end of period
$
—

 
$
8

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
115

 
$
73


See Notes to Condensed Consolidated Financial Statements
41


FINANCIAL STATEMENTS
 

PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Three Months Ended June 30, 2018 and 2019
 
Common

 
Retained

 
Total

(in millions)
Stock

 
Earnings

 
Equity

Balance at March 31, 2018
$
860

 
$
912

 
$
1,772

Net loss
—

 
(8
)
 
(8
)
Contribution from parent
300

 
—

 
300

Balance at June 30, 2018
$
1,160

 
$
904

 
$
2,064

 
 
 
 
 
 
Balance at March 31, 2019
$
1,160

 
$
1,053

 
$
2,213

Net loss
—

 
(7
)
 
(7
)
Contribution from parent
150

 
—

 
150

Balance at June 30, 2019
$
1,310

 
$
1,046

 
$
2,356

 
 
 
 
 
 
 
Six Months Ended June 30, 2018 and 2019
 
Common

 
Retained

 
Total

(in millions)
Stock

 
Earnings

 
Equity

Balance at December 31, 2017
$
860

 
$
802

 
$
1,662

Net income
—

 
102

 
102

Contribution from parent
300

 
—

 
300

Balance at June 30, 2018
$
1,160

 
$
904

 
$
2,064

 
 
 
 
 
 
Balance at December 31, 2018
$
1,160

 
$
931

 
$
2,091

Net income
—

 
115

 
115

Contribution from parent
150

 
—

 
150

Balance at June 30, 2019
$
1,310

 
$
1,046

 
$
2,356



See Notes to Condensed Consolidated Financial Statements
42



FINANCIAL STATEMENTS
ORGANIZATION AND BASIS OF PRESENTATION


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
 
18
Duke Energy
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
Duke Energy Carolinas
•
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
•
 
•
Progress Energy
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
•
 
•
Duke Energy Progress
•
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
•
 
•
Duke Energy Florida
•
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
•
 
•
Duke Energy Ohio
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
•
 
•
 
 
 
•
 
•
 
•
Duke Energy Indiana
•
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
•
 
•
Piedmont
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
•
 
 
 
•
 
 
 
•
 
 
 
•
 
•
 
•
Tables within the notes may not sum across due to (i) Progress Energy's consolidation of Duke Energy Progress, Duke Energy Florida and other subsidiaries that are not registrants and (ii) subsidiaries that are not registrants but included in the consolidated Duke Energy balances.
1. ORGANIZATION AND BASIS OF PRESENTATION
BASIS OF PRESENTATION
These Condensed Consolidated Financial Statements have been prepared in accordance with GAAP 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 for annual financial statements and should be read in conjunction with the Consolidated Financial Statements in the Duke Energy Registrants’ combined Annual Report on Form 10-K for the year ended December 31, 2018.
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.
BASIS OF CONSOLIDATION
These Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries or VIEs where the respective Duke Energy Registrants have control. See Note 13 for additional information on VIEs. These Condensed Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities.
NONCONTROLLING INTEREST
Duke Energy maintains a controlling financial interest in certain less-than wholly owned non-regulated subsidiaries. As a result, Duke Energy consolidates these subsidiaries and presents the third-party investors' portion of Duke Energy's net income (loss), net assets and comprehensive income (loss) as noncontrolling interest. Noncontrolling interest is included as a component of equity on the Condensed Consolidated Balance Sheet.
Several operating agreements of Duke Energy's subsidiaries with noncontrolling interest are subject to allocations of earnings, tax attributes and cash flows in accordance with contractual agreements that vary throughout the lives of the subsidiaries. Therefore, Duke Energy and the other investors' (the owners) interests in the subsidiaries are not fixed, and the subsidiaries apply the HLBV method in allocating book profit or loss and other comprehensive income or loss (all measured on a pretax basis) to the owners. The HLBV method measures the amounts that each owner would hypothetically claim at each balance sheet reporting date, including tax benefits realized by the owners, upon a hypothetical liquidation of the subsidiary at the net book value of its underlying assets. The change in the amount that each owner would hypothetically receive at the reporting date compared to the amount it would have received on the previous reporting date represents the amount of profit or loss allocated to each owner for the reporting period. During the second quarter of 2019, Duke Energy’s North Rosamond solar farm commenced commercial operations resulting in the allocation of losses to the noncontrolling tax equity members of $74 million utilizing the HLBV method.

43



FINANCIAL STATEMENTS
ORGANIZATION AND BASIS OF PRESENTATION


Other operating agreements of Duke Energy's subsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net income or loss and other comprehensive income or loss of these subsidiaries to the owners based on their pro rata shares.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Duke Energy, Progress Energy and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and VIEs. See Note 13 for additional information. Restricted cash amounts are included in Other within Current Assets and Other Noncurrent Assets on the Condensed Consolidated Balance Sheets. The following table presents the components of cash, cash equivalents and restricted cash included in the Condensed Consolidated Balance Sheets.
 
June 30, 2019
 
December 31, 2018
 
 
 
Duke

 
 
 
Duke

 
Duke

Progress

Energy

 
Duke

Progress

Energy

 
Energy

Energy

Florida

 
Energy

Energy

Florida

Current Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
336

$
51

$
16

 
$
442

$
67

$
36

Other
106

31

31

 
141

39

39

Other Noncurrent Assets
 
 
 
 
 
 
 
Other
39

38

—

 
8

6

—

Total cash, cash equivalents and restricted cash
$
481

$
120

$
47

 
$
591

$
112

$
75


INVENTORY
Provisions for inventory write-offs were not material at June 30, 2019, and December 31, 2018. The components of inventory are presented in the tables below.
 
June 30, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
 (in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Materials and supplies
$
2,252

 
$
749

 
$
1,036

 
$
709

 
$
327

 
$
76

 
$
323

 
$
3

Coal
624

 
235

 
234

 
160

 
74

 
17

 
139

 
—

Natural gas, oil and other fuel
313

 
41

 
210

 
111

 
98

 
31

 
1

 
30

Total inventory
$
3,189

 
$
1,025

 
$
1,480

 
$
980

 
$
499

 
$
124

 
$
463

 
$
33

 
December 31, 2018
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Materials and supplies
$
2,238

 
$
731

 
$
1,049

 
$
734

 
$
315

 
$
84

 
$
312

 
$
2

Coal
491

 
175

 
192

 
106

 
86

 
14

 
109

 
—

Natural gas, oil and other fuel
355

 
42

 
218

 
114

 
103

 
28

 
1

 
68

Total inventory
$
3,084

 
$
948

 
$
1,459

 
$
954

 
$
504

 
$
126

 
$
422

 
$
70


NEW ACCOUNTING STANDARDS
Except as noted below, the new accounting standards adopted for 2018 and 2019 had no material impact on the presentation or results of operations, cash flows or financial position of the Duke Energy Registrants.
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. This resulted in a material impact on the presentation for the statement of financial position of the Duke Energy Registrants for the period ended June 30, 2019, and an immaterial impact to the Duke Energy Registrants' results of operations for the three and six months ended June 30, 2019, and cash flows for the six months ended June 30, 2019.

44



FINANCIAL STATEMENTS
ORGANIZATION AND BASIS OF PRESENTATION


Duke Energy elected the modified retrospective method of adoption effective January 1, 2019. Under the modified retrospective method of adoption, prior year reported results are not restated. For adoption, Duke Energy has elected to apply the following practical expedients:
Practical Expedient
Description
Package of transition practical expedients (for leases commenced prior to adoption date and must be adopted as a package)
Do not need to 1) reassess whether any expired or existing contracts are/or contain leases, 2) reassess the lease classification for any expired or existing leases and 3) reassess initial direct costs for any existing leases.
Short-term lease expedient (elect by class of underlying asset)
Elect as an accounting policy to not apply the recognition requirements to short-term leases by asset class.
Lease and non-lease components (elect by class of underlying asset)
Elect as an accounting policy to not separate non-lease components from lease components and instead account for each lease and associated non-lease component as a single lease component by asset class.
Hindsight expedient (when determining lease term)
Elect to use hindsight to determine the lease term.
Existing and expired land easements not previously accounted for as leases
Elect to not evaluate existing or expired easements under the new guidance and carry forward current accounting treatment.
Comparative reporting requirements for initial adoption

Elect to apply transition requirements at adoption date, recognize cumulative effect adjustment to retained earnings in period of adoption and not apply the new requirements to comparative periods, including disclosures.
Lessor expedient (elect by class of underlying asset)

Elect as an accounting policy to aggregate non-lease components with the related lease component when specified conditions are met by asset class. Account for the combined component based on its predominant characteristic (revenue or operating lease).

Duke Energy evaluated the financial statement impact of adopting the standard and monitored industry implementation issues. Under agreements considered leases, where Duke Energy is the lessee, for the use of certain aircraft, space on communication towers, industrial equipment, fleet vehicles, fuel transportation (barges and railcars), land, office space and PPAs are now recognized on the balance sheet. The Duke Energy Registrants did not have a material change to the financial statements from the adoption of the new standard for contracts where it is the lessor. See Note 5 for further information.
No new accounting standards, issued but not yet adopted, are expected to have a material impact on the Duke Energy Registrants as of June 30, 2019.
2. BUSINESS SEGMENTS
Duke Energy
Duke Energy's segment structure includes the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. The Electric Utilities and Infrastructure segment primarily includes Duke Energy's regulated electric utilities in the Carolinas, Florida and the Midwest. 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.
The Commercial Renewables segment is primarily comprised of nonregulated utility-scale wind and solar generation assets located throughout the U.S. On April 24, 2019, Duke Energy executed an agreement to sell a minority interest in a portion of certain renewable assets. The portion of Duke Energy’s commercial renewables energy portfolio to be sold includes 49 percent of 37 operating wind, solar and battery storage assets and 33 percent of 11 operating solar assets across the U.S. The sale will result in pretax proceeds to Duke Energy of $415 million. Duke Energy will retain control of these assets, and, therefore, no gain or loss is expected to be recognized on the Condensed Consolidated Statements of Operations upon closing of the transaction. The sale is subject to customary closing conditions, including approvals from the FERC, the Public Utility Commission of Texas and the Committee on Foreign Investment in the U.S. Duke Energy received FERC approval on July 26, 2019. The transaction is expected to close in the second half of 2019.
During the three months ended June 30, 2019, Duke Energy evaluated recoverability of its renewable merchant plants principally located in the Electric Reliability Council of Texas West market due to declining market pricing and declining long-term forecasted energy and capacity prices, primarily driven by lower forecasted natural gas prices. Duke Energy determined that the assets were not impaired because the carrying value of $160 million approximates the aggregate estimated future cash flows and further testing was not required. A continued decline in pricing would likely result in a future impairment.
The remainder of Duke Energy’s operations is presented as Other, which is primarily comprised of interest expense on holding company debt, unallocated corporate costs, Duke Energy’s wholly owned captive insurance company, Bison, and Duke Energy's interest in NMC.

45



FINANCIAL STATEMENTS
BUSINESS SEGMENTS


Business segment information is presented in the following tables. Segment assets presented exclude intercompany assets.
 
Three Months Ended June 30, 2019
 
Electric

 
Gas

 
 
 
Total

 
 
 
 
 
 
 
Utilities and

 
Utilities and

 
Commercial

 
Reportable

 
 
 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Renewables

 
Segments

 
Other

 
Eliminations

 
Total

Unaffiliated revenues
$
5,467

 
$
282

 
$
118

 
$
5,867

 
$
6

 
$
—

 
$
5,873

Intersegment revenues
8

 
24

 
—

 
32

 
19

 
(51
)
 
—

Total revenues
$
5,475

 
$
306

 
$
118

 
$
5,899

 
$
25

 
$
(51
)
 
$
5,873

Segment income (loss)
$
809

 
$
40

 
$
86

 
$
935

 
$
(115
)
 
$
—

 
$
820

Add back noncontrolling interests(a)
 
 
 
 
 
 
 
 
 
 
 
 
(84
)
Add back preferred stock dividend
 
 
 
 
 
 
 
 
 
 
 
 
12

Net income
 
 
 
 
 
 
 
 
 
 
 
 
$
748

Segment assets
$
131,640

 
$
12,943

 
$
4,870

 
$
149,453

 
$
3,815

 
$
181

 
$
153,449


 
Three Months Ended June 30, 2018
 
Electric

 
Gas

 
 
 
Total

 
 
 
 
 
 
 
Utilities and

 
Utilities and

 
Commercial

 
Reportable

 
 
 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Renewables

 
Segments

 
Other

 
Eliminations

 
Total

Unaffiliated revenues
$
5,215

 
$
294

 
$
119

 
$
5,628

 
$
15

 
$
—

 
$
5,643

Intersegment revenues
8

 
24

 
—

 
32

 
17

 
(49
)
 
—

Total revenues
$
5,223

 
$
318

 
$
119

 
$
5,660

 
$
32

 
$
(49
)
 
$
5,643

Segment income (loss)(b)(c)
$
575

 
$
28

 
$
38

 
$
641

 
$
(136
)
 
$
—

 
$
505

Add back noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
2

Loss from discontinued operations, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
(5
)
Net income
 
 
 
 
 
 
 
 
 
 
 
 
$
502


 
Six Months Ended June 30, 2019
 
Electric

 
Gas

 
 
 
Total

 
 
 
 
 
 
 
Utilities and

 
Utilities and

 
Commercial

 
Reportable

 
 
 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Renewables

 
Segments

 
Other

 
Eliminations

 
Total

Unaffiliated revenues
$
10,788

 
$
1,014

 
$
224

 
$
12,026

 
$
10

 
$
—

 
$
12,036

Intersegment revenues
16

 
48

 
—

 
64

 
36

 
(100
)
 
—

Total revenues
$
10,804

 
$
1,062

 
$
224

 
$
12,090

 
$
46

 
$
(100
)
 
$
12,036

Segment income (loss)
$
1,559

 
$
266

 
$
99

 
$
1,924

 
$
(204
)
 
$
—

 
$
1,720

Add back noncontrolling interests(a)
 
 
 
 
 
 
 
 
 
 
 
 
(91
)
Add back preferred stock dividend
 
 
 
 
 
 
 
 
 
 
 
 
12

Net income
 
 
 
 
 
 
 
 
 
 
 
 
$
1,641

 
Six Months Ended June 30, 2018
 
Electric

 
Gas

 
 
 
Total

 
 
 
 
 
 
 
Utilities and

 
Utilities and

 
Commercial

 
Reportable

 
 
 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Renewables

 
Segments

 
Other

 
Eliminations

 
Total

Unaffiliated revenues
$
10,530

 
$
997

 
$
220

 
$
11,747

 
$
31

 
$
—

 
$
11,778

Intersegment revenues
16

 
48

 
—

 
64

 
36

 
(100
)
 
—

Total revenues
$
10,546

 
$
1,045

 
$
220

 
$
11,811

 
$
67

 
$
(100
)
 
$
11,778

Segment income (loss)(b)(c)(d)(e)
$
1,325

 
$
144

 
$
58

 
$
1,527

 
$
(402
)
 
$
—

 
$
1,125

Add back noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
4

Loss from discontinued operations, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
(5
)
Net income
 
 
 
 
 
 
 
 
 
 
 
 
$
1,124


46



FINANCIAL STATEMENTS
BUSINESS SEGMENTS


(a)
Includes the allocation of losses to noncontrolling tax equity members. See Note 1 for additional information.
(b)
Electric Utilities and Infrastructure includes regulatory and legislative impairment charges related to rate case orders, settlements or other actions of regulators or legislative bodies. See Note 3 for additional information.
(c)
Other includes costs to achieve the Piedmont acquisition.
(d)
Gas Utilities and Infrastructure includes an impairment of the investment in Constitution. See Note 3 for additional information.
(e)
Other includes the loss on the sale of Beckjord described below and a valuation allowance recorded against the AMT credits.
In February 2018, Duke Energy sold Beckjord, a nonregulated facility retired during 2014, and recorded a pretax loss of $106 million within Gains (Losses) on Sales of Other Assets and Other, net and $1 million within Operation, maintenance and other on Duke Energy's Condensed Consolidated Statements of Operations for the six months ended June 30, 2018. The sale included the transfer of coal ash basins and other real property and indemnification from any and all potential future claims related to the property, whether arising under environmental laws or otherwise.
Duke Energy Ohio
Duke Energy Ohio has two reportable segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure. The remainder of Duke Energy Ohio's operations is presented as Other.
 
Three Months Ended June 30, 2019
 
Electric

 
Gas

 
Total

 
 
 
 
 
Utilities and

 
Utilities and

 
Reportable

 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Segments

 
Other

 
Total

Total revenues
$
336

 
$
97

 
$
433

 
$
—

 
$
433

Segment income/Net (loss) income
$
31

 
$
17

 
$
48

 
$
(1
)
 
$
47

Segment assets
$
5,914

 
$
2,948

 
$
8,862

 
$
27

 
$
8,889

 
Three Months Ended June 30, 2018
 
Electric

 
Gas

 
Total

 
 
 
 
 
Utilities and

 
Utilities and

 
Reportable

 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Segments

 
Other

 
Total

Total revenues
$
346

 
$
103

 
$
449

 
$
10

 
$
459

Segment income/Net (loss) income
$
39

 
$
18

 
$
57

 
$
(11
)
 
$
46


 
Six Months Ended June 30, 2019
 
Electric

 
Gas

 
Total

 
 
 
 
 
Utilities and

 
Utilities and

 
Reportable

 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Segments

 
Other

 
Total

Total revenues
$
691

 
$
273

 
$
964

 
$
—

 
$
964

Segment income/Net (loss) income
$
67

 
$
52

 
$
119

 
$
(3
)
 
$
116

 
Six Months Ended June 30, 2018
 
Electric

 
Gas

 
Total

 
 
 
 
 
Utilities and

 
Utilities and

 
Reportable

 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Segments

 
Other

 
Total

Total revenues
$
682

 
$
277

 
$
959

 
$
24

 
$
983

Segment income/Net (loss) income(a)
$
72

 
$
52

 
$
124

 
$
(103
)
 
$
21

(a)    Other includes the loss on the sale of Beckjord described above.
3. 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.

47



FINANCIAL STATEMENTS
REGULATORY MATTERS


Duke Energy Carolinas and Duke Energy Progress
Hurricane Florence, Hurricane Michael and Winter Storm Diego Deferral Filings
On December 21, 2018, Duke Energy Carolinas and Duke Energy Progress filed with the NCUC petitions for approval to defer the incremental costs incurred in connection with the response to Hurricane Florence, Hurricane Michael and Winter Storm Diego to a regulatory asset for recovery in the next base rate case. The NCUC issued an order requesting comments on the deferral positions. On March 5, 2019, the North Carolina Public Staff (Public Staff) filed comments. On April 2, 2019, Duke Energy Carolinas and Duke Energy Progress filed reply comments, which included revised estimates of approximately $553 million in incremental operation and maintenance expenses ($171 million and $382 million for Duke Energy Carolinas and Duke Energy Progress, respectively) and approximately $96 million in capital costs ($20 million and $76 million for Duke Energy Carolinas and Duke Energy Progress, respectively). Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter. Duke Energy Progress filed a similar request with the PSCSC on January 11, 2019, which also included a request for the continuation of prior deferrals requested for ice storms and Hurricane Matthew, and on January 30, 2019, the PSCSC issued a directive approving the deferral request, followed by an order issued on February 21, 2019. On March 15, 2019, Duke Energy Progress filed a request with FERC requesting permission to defer transmission-related storm costs that would be charged to wholesale transmission customers through Duke Energy Progress' Open Access Transmission Tariff (OATT) and to recover those costs from wholesale transmission customers over a three-year recovery period. FERC accepted the filing on May 14, 2019, which allows Duke Energy Progress to proceed with the proposed cost deferral and recovery.
Duke Energy Carolinas
2017 North Carolina Rate Case
On August 25, 2017, Duke Energy Carolinas filed an application with the NCUC for a rate increase for retail customers of approximately $647 million, which represented an approximate 13.6 percent increase in annual base revenues. The rate increase was driven by capital investments subsequent to the previous base rate case, including the W.S. Lee CC, grid improvement projects, AMI, investments in customer service technologies, costs of complying with CCR regulations and the Coal Ash Act and recovery of costs related to licensing and development of the Lee Nuclear Station.
On February 28, 2018, Duke Energy Carolinas and the Public Staff filed an Agreement and Stipulation of Partial Settlement resolving certain portions of the proceeding. Terms of the settlement included a return on equity of 9.9 percent and a capital structure of 52 percent equity and 48 percent debt. As a result of the settlement, Duke Energy Carolinas recorded a pretax charge of approximately $4 million in the first quarter of 2018 to Operation, maintenance and other on the Condensed Consolidated Statements of Operations.
On June 22, 2018, the NCUC issued an order approving the Stipulation of Partial Settlement and requiring a revenue reduction. As a result of the order, Duke Energy Carolinas recorded a pretax charge of approximately $150 million in the second quarter of 2018 to Impairment charges and Operation, maintenance and other on the Condensed Consolidated Statements of Operations. The charge was primarily related to the denial of a return on the Lee Nuclear Project and the assessment of a $70 million management penalty by reducing the annual recovery of deferred coal ash costs by $14 million per year over a five-year recovery period. On July 27, 2018, NCUC approved Duke Energy Carolinas' compliance filing. As a result, revised customer rates were effective on August 1, 2018.
On July 20, 2018, the North Carolina Attorney General filed a Notice of Appeal to the North Carolina Supreme Court from the June 22, 2018, Order Accepting Stipulation, Deciding Contested Issues and Requiring Revenue Reduction issued by the NCUC. The Attorney General contends the commission’s order should be reversed and remanded, as it is in excess of the commission’s statutory authority; affected by errors of law; unsupported by competent, material and substantial evidence in view of the entire record as submitted; and arbitrary or capricious. The Sierra Club, North Carolina Sustainable Energy Association, North Carolina Justice Center, North Carolina Housing Coalition, Natural Resource Defense Council and Southern Alliance for Clean Energy also filed Notices of Appeal to the North Carolina Supreme Court. On August 8, 2018, the Public Staff filed a Notice of Cross Appeal to the North Carolina Supreme Court, which contends the commission’s June 22, 2018, order should be reversed and remanded, as it is affected by errors of law, and is unsupported by substantial evidence with regard to the commission’s failure to consider substantial evidence of coal ash related environmental violations. On November 29, 2018, the North Carolina Attorney General's Office filed a motion with the North Carolina Supreme Court requesting the court consolidate the Duke Energy Carolinas and Duke Energy Progress appeals and enter an order adopting the parties’ proposed briefing schedule as set out in the filing. On November 29, 2018, the North Carolina Supreme Court adopted a schedule for briefing set forth in the motion to consolidate the Duke Energy Carolinas and Duke Energy Progress appeals. Appellant’s brief was filed on April 26, 2019. The Appellee response briefs are due on September 25, 2019. Duke Energy Carolinas cannot predict the outcome of this matter.
2018 South Carolina Rate Case
On November 8, 2018, Duke Energy Carolinas filed an application with the PSCSC for a rate increase for retail customers of approximately $168 million, which represents an approximate 10.0 percent increase in retail revenues. The request for rate increase was driven by capital investments and environmental compliance progress made by Duke Energy Carolinas since its previous rate case, including the further implementation of Duke Energy Carolinas’ generation modernization program, which consists of retiring, replacing and upgrading generation plants, investments in customer service technologies and continued investments in base work to maintain its transmission and distribution systems. The request included net tax benefits resulting from the Tax Act of $66 million to reflect the change in ongoing tax expense, primarily from the reduction in the federal income tax rate from 35 to 21 percent. The request also included $46 million to return EDIT resulting from the federal tax rate change and deferred revenues since January 2018 related to the change and benefits of $17 million from a reduction in North Carolina state income taxes allocable to South Carolina (EDIT Rider).

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Duke Energy Carolinas also requested approval of its proposed Grid Improvement Plan (GIP), adjustments to its Prepaid Advantage Program and a variety of accounting orders related to ongoing costs for environmental compliance, including recovery over a five-year period of $242 million of deferred coal ash related compliance costs, grid investments between rate changes, incremental depreciation expense, a result of new depreciation rates from the depreciation study approved in the 2017 North Carolina Rate Case above, and the balance of development costs associated with the cancellation of the Lee Nuclear Project. Finally, Duke Energy Carolinas sought approval to establish a reserve and accrual for end-of-life nuclear costs for nuclear fuel and materials and supplies. On March 8, 2019, the ORS moved to establish a new and separate hearing docket to review and consider the GIP proposed by Duke Energy Carolinas. Subsequently, on March 12, 2019, the ORS and Duke Energy Carolinas executed a Stipulation resolving the ORS’s motion. The Stipulation provides that costs incurred after January 1, 2019, for the GIP will be deferred with a return, subject to evaluation in a future rate proceeding, and that Duke Energy Carolinas will refile for consideration of the GIP in a new docket for resolution by January 1, 2020. The Stipulation was approved by the PSCSC on June 19, 2019.
After hearings in March 2019, the PSCSC issued an order on May 21, 2019, which included a return on equity of 9.5 percent and a capital structure of 53 percent equity and 47 percent debt. The order also included the following material components:
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Approval of cancellation of the Lee Nuclear Project, with Duke Energy Carolinas maintaining the Combined Operating License;
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Approval of recovery of $125 million (South Carolina retail portion) of Lee Nuclear Project development costs (including AFUDC through December 2017) over a 12-year period, but denial of a return on the deferred balance of costs;
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Approval of recovery of $96 million of coal ash costs over a five-year period with a return at Duke Energy Carolinas' WACC;
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Denial of recovery of $115 million of certain coal ash costs deemed to be related to the Coal Ash Act and incremental to the federal CCR rule;
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Approval of a $66 million decrease to base rates to reflect the change in ongoing tax expense, primarily the reduction in the federal income tax rate from 35 to 21 percent;
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Approval of a $45 million decrease through the EDIT Rider to return EDIT resulting from the federal tax rate change and deferred revenues since January 2018 related to the change, to be returned in accordance with the Average Rate Assumption Method (ARAM) for protected EDIT, over a 20-year period for unprotected EDIT associated with Property, Plant and Equipment, over a five-year period for unprotected EDIT not associated with Property, Plant and Equipment and over a five-year period for the deferred revenues; and
•
Approval of a $17 million decrease through the EDIT Rider related to reductions in the North Carolina state income tax rate from 6.9 to 2.5 percent to be returned over a five-year period.
As a result of the May 21, 2019 order, revised customer rates were effective June 1, 2019. On May 31, 2019, Duke Energy Carolinas filed a Petition for Rehearing or Reconsideration of that order contending substantial rights of Duke Energy Carolinas were prejudiced by unlawful, arbitrary and capricious rulings by the commission on certain issues presented in the proceeding. On June 19, 2019, the PSCSC issued a Directive denying Duke Energy Carolinas' request to rehear or reconsider the commission's rulings on certain issues presented in the proceeding including coal ash remediation and disposal costs, return on equity and the recovery of a return on deferred operation and maintenance expenses. Duke Energy Carolinas awaits the order on reconsideration detailing the commission's decision. Based upon legal analysis and Duke Energy Carolinas' intention to file a notice of appeal with the South Carolina Supreme Court within 30 days of receipt of the order, Duke Energy Carolinas has not recorded an adjustment for its deferred coal ash costs. Duke Energy Carolinas cannot predict the outcome of this matter.
FERC Formula Rate Matter
On July 31, 2017, PMPA filed a complaint with FERC alleging that Duke Energy Carolinas misapplied the formula rate under the PPA between the parties by including in its rates amortization expense associated with regulatory assets and recorded in a certain account without FERC approval. On February 15, 2018, FERC issued an order ruling in favor of PMPA and ordered Duke Energy Carolinas to refund to PMPA all amounts improperly collected under the PPA. Duke Energy Carolinas has issued to PMPA and similarly situated wholesale customers refunds of approximately $25 million. FERC also set the matter for settlement and hearing. PMPA and other customers filed a protest to Duke Energy Carolinas' refund report claiming that the refunds are inadequate in that (1) Duke Energy Carolinas invoked the limitations periods in the contracts to limit the time period for which the refunds were paid and the customers disagree that this limitation applies, and (2) Duke Energy Carolinas refunded only amounts recovered through a certain account and the customers have asserted that the order applies to all regulatory assets. On July 3, 2018, FERC issued an order accepting Duke Energy Carolinas' refund report and ruling that these two claims are outside the scope of FERC's February order. The settlement agreements and revised formula rates for all parties to the proceeding were filed on December 28, 2018. On April 2, 2019, FERC issued an order approving the settlement agreement as filed. Since then, Duke Energy Carolinas has implemented the terms of the settlement in rates with all wholesale customers, including non-intervening customers. On July 25, 2019, Duke Energy Carolinas received FERC approval for the accounting treatment requested for certain assets included in the settlement agreements. This is the final approval needed from FERC and concludes this proceeding.
Sale of Hydroelectric (Hydro) Plants
In May 2018, Duke Energy Carolinas entered an agreement for the sale of five hydro plants with a combined 18.7-MW generation capacity in the Western Carolinas region to Northbrook Energy. The completion of the transaction is subject to approval from FERC for the four FERC-licensed plants, as well as other state regulatory agencies and is contingent upon regulatory approval from the NCUC and PSCSC to defer the total estimated loss on the sale of approximately $40 million. On July 5, 2018, Duke Energy Carolinas filed with NCUC for approval of the sale of the five hydro plants to Northbrook, to transfer the CPCNs for the four North Carolina hydro plants and to establish a regulatory asset for the North Carolina retail portion of the difference between sales proceeds and net book value. On June 5, 2019, the NCUC issued an order approving the transfer of the hydro plants from Duke Energy Carolinas to Northbrook, granting deferral accounting and denying the Public Staff's motion for reconsideration.

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On August 28, 2018, Duke Energy Carolinas filed with PSCSC an Application for Approval of Transfer and Sale of Hydroelectric Generation Facilities, Acceptance for Filing of a Power Purchase Agreement and an Accounting Order to Establish a Regulatory Asset. On September 10, 2018, the ORS provided a letter to the commission stating its position on the application and on September 18, 2018, Duke Energy Carolinas requested this matter be carried over to allow Duke Energy Carolinas time to discuss certain accounting issues with the ORS. At their June 26, 2019, agenda meeting, the PSCSC voted to approve the transfer and sale subject to the recommendation of the ORS that the issuance of an Accounting Order will not preclude the ORS, the commission or any other party from addressing the reasonableness of these costs, any return sought and including any carrying costs in the next rate case.
On August 9, 2018, Duke Energy Carolinas and Northbrook filed a joint Application for Transfer of Licenses with the FERC. On December 27, 2018, the FERC issued its Order Approving Transfer of Licenses (“Order”) for the four FERC-licensed hydro plants. On January 18, 2019, Duke Energy Carolinas and Northbrook Carolina Hydro II, LLC requested a six-month extension of time to comply with the requirement of the Order that Northbrook submit to FERC certified copies of all instruments of conveyance and signed acceptance sheets within 60 days of the date of the Order. On February 14, 2019, FERC issued an order granting extensions until August 26, 2019, to comply with the requirements of the December 27, 2018 Order.
The closing is expected to occur in 2019. After closing, Duke Energy Carolinas will purchase all the capacity and energy generated by these facilities at the avoided cost for five years through power purchase agreements. 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 represented an approximate 14.9 percent increase in annual base revenues. Subsequent to the filing, Duke Energy Progress adjusted the requested amount to $420 million, representing an approximate 13 percent increase. The rate increase was driven by capital investments subsequent to the previous base rate case, costs of complying with CCR regulations and the Coal Ash Act, costs relating to storm recovery, investments in customer service technologies and recovery of costs associated with renewable purchased power.
On November 22, 2017, Duke Energy Progress and the Public Staff filed an Agreement and Stipulation of Partial Settlement resolving certain portions of the proceeding. Terms of the settlement included a return on equity of 9.9 percent and a capital structure of 52 percent equity and 48 percent debt. On February 23, 2018, the NCUC issued an order approving the stipulation.
The order also impacted certain amounts that were similarly recorded on Duke Energy Carolinas' Condensed Consolidated Balance Sheets. As a result of the order, Duke Energy Progress and Duke Energy Carolinas recorded pretax charges of $68 million and $14 million, respectively, in the first quarter of 2018 to Impairment charges, Operation, maintenance and other and Interest Expense on the Condensed Consolidated Statements of Operations. Revised customer rates became effective on March 16, 2018.
On May 15, 2018, the Public Staff filed a Notice of Cross Appeal to the North Carolina Supreme Court from the NCUC's February 23, 2018, Order. The Public Staff contends the NCUC’s order should be reversed and remanded, as it is affected by errors of law, and is unsupported by competent, material and substantial evidence in view of the entire record as submitted. The North Carolina Attorney General and Sierra Club also filed Notices of Appeal to the North Carolina Supreme Court from the February 23, 2018, Order. On November 29, 2018, the North Carolina Attorney General's Office filed a motion with the North Carolina Supreme Court requesting the court consolidate the Duke Energy Progress and Duke Energy Carolinas appeals and enter an order adopting the parties’ proposed briefing schedule as set out in the filing. Appellant’s brief was filed on April 26, 2019. The Appellee response briefs are due on September 25, 2019. Duke Energy Progress cannot predict the outcome of this matter.
2018 South Carolina Rate Case
On November 8, 2018, Duke Energy Progress filed an application with the PSCSC for a rate increase for retail customers of approximately $59 million, which represents an approximate 10.3 percent increase in annual base revenues. The rate increase is driven by capital investments and environmental compliance progress made by Duke Energy Progress since its previous rate case, including the further implementation of Duke Energy Progress’ generation modernization program, which consists of retiring, replacing and upgrading generation plants, investments in customer service technologies and continued investments in base work to maintain its transmission and distribution systems. The request included a decrease resulting from the Tax Act of $17 million to reflect the change in ongoing tax expense, primarily the reduction in the federal income tax rate from 35 to 21 percent. The request also included $10 million to return EDIT resulting from the federal tax rate change and deferred revenues since January 2018 related to the change (EDIT Rider) and a $12 million increase due to the expiration of EDITs related to reductions in North Carolina state income taxes allocable to South Carolina.
Duke Energy Progress also requested approval of its proposed GIP, approval of a Prepaid Advantage Program and a variety of accounting orders related to ongoing costs for environmental compliance, including recovery over a five-year period of $51 million of deferred coal ash related compliance costs, AMI deployment, grid investments between rate changes and regulatory asset treatment related to the retirement of a generating plant located in Asheville, North Carolina. Finally, Duke Energy Progress sought approval to establish a reserve and accrual for end-of-life nuclear costs for materials and supplies and nuclear fuel. On March 8, 2019, the ORS moved to establish a new and separate hearing docket to review and consider the GIP proposed by Duke Energy Progress. Subsequently, on March 12, 2019, the ORS and Duke Energy Carolinas executed a Stipulation resolving the ORS’s motion, and Duke Energy Progress agreed to the Stipulation, as did other parties in the rate case. The Stipulation provides that costs incurred after January 1, 2019, for the GIP will be deferred with a return, with all costs subject to evaluation in a future rate proceeding, and that Duke Energy Progress will refile for consideration of the GIP in a new docket for resolution by January 1, 2020. The Stipulation was approved by the PSCSC on June 19, 2019.

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After hearings in April 2019, the PSCSC issued an order on May 21, 2019, which included a return on equity of 9.5 percent and a capital structure of 53 percent equity and 47 percent debt. The order also included the following material components:
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Approval of recovery of $4 million of coal ash costs over a five-year period with a return at Duke Energy Progress' WACC;
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Denial of recovery of $65 million of certain coal ash costs deemed to be related to the Coal Ash Act and incremental to the federal CCR rule;
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Approval of a $17 million decrease to base rates to reflect the change in ongoing tax expense, primarily the reduction in the federal income tax rate from 35 to 21 percent;
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Approval of a $12 million decrease through the EDIT Tax Savings Rider resulting from the federal tax rate change and deferred revenues since January 2018 related to the change, to be returned in accordance with ARAM for protected EDIT, over a 20-year period for unprotected EDIT associated with Property, Plant and Equipment, over a five-year period for unprotected EDIT not associated with Property, Plant and Equipment and over a three-year period for the deferred revenues; and
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Approval of a $12 million increase due to the expiration of EDIT related to reductions in the North Carolina state income tax rate from 6.9 to 2.5 percent.
As a result of the order, revised customer rates were effective June 1, 2019. On May 31, 2019, Duke Energy Progress filed a Petition for Rehearing or Reconsideration of that order contending substantial rights of Duke Energy Progress were prejudiced by unlawful, arbitrary and capricious rulings by the commission on certain issues presented in the proceeding. On June 19, 2019, the PSCSC issued a Directive denying Duke Energy Progress' request to rehear or reconsider the commission's rulings on certain issues presented in the proceeding including coal ash remediation and disposal costs, return on equity and the recovery of a return on deferred operation and maintenance expenses, but allowing additional litigation-related costs. As a result of the Directive allowing litigation-related costs, customer rates were revised effective July 1, 2019. Duke Energy Progress awaits the order on reconsideration detailing the commission's decision. Based upon legal analysis and Duke Energy Progress' intention to file a notice of appeal with the South Carolina Supreme Court within 30 days of receipt of the order, Duke Energy Progress has not recorded an adjustment for its deferred coal ash costs. 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 worked with the local natural gas distribution company to upgrade an existing natural gas pipeline to serve the natural gas plant. The lease became effective on March 2, 2019.
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, 2019, 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 complete and construction of these plants began in 2017, with an expected in-service date in late 2019.
On October 8, 2018, Duke Energy Progress filed an application with the NCUC for a CPCN to construct the Hot Springs Microgrid Solar and Battery Storage Facility. On March 22, 2019, Duke Energy Progress and the Public Staff filed a Joint Proposed Order. On May 10, 2019, the NCUC issued an Order Granting Certificate of Public Convenience and Necessity with Conditions.
The carrying value of the 376-MW Asheville coal-fired plant, including associated ash basin closure costs, of $284 million and $327 million is included in Generation facilities to be retired, net on Duke Energy Progress' Condensed Consolidated Balance Sheets as of June 30, 2019, and December 31, 2018, respectively. Duke Energy Progress' request for a regulatory asset at the time of retirement with amortization over a 10-year period was approved by the NCUC on February 23, 2018.

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Duke Energy Florida
Storm Restoration Cost Recovery
In September 2017, Duke Energy Florida’s service territory suffered significant damage from Hurricane Irma, resulting in approximately 1 million customers experiencing outages. In the fourth quarter of 2017, Duke Energy Florida also incurred preparation costs related to Hurricane Nate. On December 28, 2017, Duke Energy Florida filed a petition with the FPSC to recover incremental storm restoration costs for Hurricane Irma and Hurricane Nate and to replenish the storm reserve. On February 6, 2018, the FPSC approved a stipulation that would apply tax savings resulting from the Tax Act toward storm costs effective January 2018 in lieu of implementing a storm surcharge. On May 31, 2018, Duke Energy Florida filed a petition for approval of actual storm restoration costs and associated recovery process related to Hurricane Irma and Hurricane Nate. The petition sought the approval for the recovery in the amount of $510 million in actual recoverable storm restoration costs, including the replenishment of Duke Energy Florida’s storm reserve of $132 million, and the process for recovering these recoverable storm costs. On August 20, 2018, the FPSC approved Duke Energy Florida's unopposed Motion for Continuance filed August 17, 2018, to allow for an evidentiary hearing in this matter. On January 28, 2019, Duke Energy Florida made a supplemental filing to reduce the total storm cost recovery from $510 million to $508 million. On April 3, 2019, the FPSC issued an Order abating all remaining filing dates. On April 9, 2019, Duke Energy Florida filed an unopposed motion to approve a settlement agreement resolving all outstanding issues in this docket. On June 13, 2019, the FPSC issued its order approving the settlement agreement. The Storm Cost Settlement Agreement obligates Duke Energy Florida to capitalize $18 million of storm costs and remove $6 million of operating and maintenance expense, thereby reducing the requested storm cost recovery amount by $24 million. Duke Energy Florida will also implement process changes with respect to storm cost restoration. At June 30, 2019, and December 31, 2018, Duke Energy Florida's Condensed Consolidated Balance Sheets included approximately $118 million and $217 million, respectively, of recoverable costs under the FPSC's storm rule in Regulatory assets within Current Assets and Other Noncurrent Assets related to storm recovery for Hurricane Irma and Hurricane Nate.
In October 2018, Duke Energy Florida’s service territory suffered damage when Hurricane Michael made landfall as a Category 5 hurricane with maximum sustained winds of 160 mph. The storm caused catastrophic damage from wind and storm surge, particularly from Panama City Beach to Mexico Beach, resulting in widespread outages and significant damage to transmission and distribution facilities across the central Florida Panhandle. In response to Hurricane Michael, Duke Energy Florida restored service to approximately 72,000 customers. Total current estimated incremental operation and maintenance and capital costs are $360 million. Approximately $82 million and $35 million of the costs are included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets as of June 30, 2019, and December 31, 2018, respectively. Approximately $225 million and $165 million of costs are included in Regulatory assets within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets as of June 30, 2019, and December 31, 2018, respectively, representing recoverable costs under the FPSC’s storm rule and Duke Energy Florida's OATT formula rates. Additional costs could be incurred in 2019 related to this fourth quarter 2018 storm.
Duke Energy Florida filed a petition with the FPSC on April 30, 2019, to recover the retail portion of incremental storm restoration costs for Hurricane Michael. The estimated recovery amount is approximately $221 million. On June 11, 2019, the FPSC approved the petition for recovery of incremental storm restoration costs related to Hurricane Michael. The FPSC also approved the stipulation Duke Energy Florida filed, which will allow Duke Energy Florida to use the tax savings resulting from the Tax Act to recover these storm costs in lieu of implementing a storm surcharge. Approved storm costs are currently expected to be fully recovered by approximately year-end 2021. Duke Energy Florida expects to file actual costs for approval with the FPSC in 2019. Duke Energy Florida cannot predict the outcome of this matter.
Tax Act
Pursuant to Duke Energy Florida's 2017 Settlement, on May 31, 2018, Duke Energy Florida filed a petition related to the Tax Act, which included revenue requirement impacts of annual tax savings of $134 million and estimated annual amortization of EDIT of $67 million for a total of $201 million. Of this amount, $50 million would be offset by accelerated depreciation of Crystal River 4 and 5 coal units and an estimated $151 million would be offset by Hurricane Irma storm cost recovery as explained in the Storm Restoration Cost Recovery section above. On December 27, 2018, Duke Energy Florida filed actual EDIT balances and amortization based on its 2017 filed tax return. This increased the revenue requirement impact of the amortization of EDIT by $4 million, from $67 million to $71 million, which increased the total storm amortization from $151 million to $155 million. On January 8, 2019, the FPSC approved a joint motion by Duke Energy Florida and the Office of Public Counsel resolving all stipulated positions. As part of that stipulation, Duke Energy Florida agreed to seek a Private Letter Ruling (PLR) from the IRS on its treatment of cost of removal (COR) as mostly protected by tax normalization rules. If the IRS rules that COR is not protected by tax normalization rules, then Duke Energy Florida will make a final adjustment to the amortization of EDIT and an adjustment to the storm recovery amount retroactive to January 2018. The IRS has communicated that it will not issue individual PLRs on the treatment of COR. Rather, the IRS is drafting a notice that will request comments on a number of issues, including COR, and the IRS plans to issue industrywide guidance on those issues. Duke Energy Florida cannot predict the outcome of this matter.
Solar Base Rate Adjustment
On July 31, 2018, Duke Energy Florida petitioned the FPSC to include in base rates the revenue requirements for its first two solar generation projects, the Hamilton Project and the Columbia Project, as authorized by the 2017 Settlement. The Hamilton Project, which was placed into service on December 22, 2018, has an annual retail revenue requirement of $15 million. At its October 30, 2018, Agenda Conference, the FPSC approved the rate increase related to the Hamilton Project to go into effect beginning with the first billing cycle in January 2019 under its file and suspend authority, and revised customer rates became effective in January 2019. The Columbia Project has a projected annual revenue requirement of $14 million and a projected in-service date in early 2020; the associated rate increase would take place with the first month’s billing cycle after the Columbia Project goes into service. On April 2, 2019, the commission approved both solar projects as filed.

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On March 25, 2019, Duke Energy Florida petitioned the FPSC to include in base rates the revenue requirements for its next wave of solar generation projects, the Trenton, Lake Placid and DeBary Solar Projects, as authorized by the 2017 Settlement. The annual retail revenue requirement for the Trenton and Lake Placid Projects is $13 million and $8 million, respectively, with projected in-service dates in the fourth quarter of 2019. The DeBary Project has a projected annual revenue requirement of $11 million and a projected in-service date in the first quarter of 2020. The associated rate increase would take place with the first month’s billing cycle after each solar generation project goes into service. On July 22, 2019, the FPSC issued an order approving Duke Energy Florida's request.
Crystal River Unit 3 Accelerated Decommissioning Filing
On May 29, 2019, Duke Energy Florida entered into a Decommissioning Services Agreement for the accelerated decommissioning of the Crystal River Unit 3 nuclear power station located in Citrus County, Florida, with ADP CR3, LLC and ADP SF1, LLC, each of which is a wholly owned subsidiary of Accelerated Decommissioning Partners, LLC, a joint venture between NorthStar Group Services, Inc. and Orano USA LLC. Closing of this Agreement is contingent upon the approval of the NRC and FPSC. If approved, the decommissioning will be accelerated starting in 2020 and continuing through 2027, rather than the expected time frame under SAFSTOR of starting in 2067 and ending in 2074. Duke Energy Florida expects that the assets of the Nuclear Decommissioning Trust Fund will be sufficient to cover the contract price. On July 10, 2019, Duke Energy Florida petitioned the FPSC for approval of the Agreement. Duke Energy Florida cannot predict the outcome of this matter.
Duke Energy Ohio
2017 Electric Security Plan
On June 1, 2017, Duke Energy Ohio filed with the PUCO a request for a standard service offer in the form of an ESP. On February 15, 2018, the procedural schedule was suspended to facilitate ongoing settlement discussions. On April 13, 2018, Duke Energy Ohio filed a Motion to consolidate this proceeding with several other cases pending before the PUCO, including, but not limited to, its Electric Base Rate Case. Additionally, on April 13, 2018, Duke Energy Ohio, along with certain intervenors, filed a Stipulation and Recommendation (Stipulation) with the PUCO resolving certain issues in this proceeding. The term of the ESP would be from June 1, 2018, to May 31, 2025, and included continuation of market-based customer rates through competitive procurement processes for generation, continuation and expansion of existing rider mechanisms and proposed new rider mechanisms relating to regulatory mandates, costs incurred to enhance the customer experience and transform the grid and a service reliability rider for vegetation management. The Stipulation established a regulatory model for the next seven years via the approval of the ESP and continued the current model for procuring supply for non-shopping customers, including recovery mechanisms. On December 19, 2018, the PUCO approved the Stipulation without material modification. Several parties filed applications for rehearing. On February 6, 2019, the PUCO granted the parties rehearing. The PUCO issued its Second Entry on Rehearing on July 17, 2019, upholding its December 19, 2018 order and denying all assignments of error raised by the non-stipulating parties. The parties have the ability to appeal to the Ohio Supreme Court within 60 days of the July entry. Duke Energy Ohio cannot predict the outcome of this matter.
Electric Base Rate Case
Duke Energy Ohio filed with the PUCO an electric distribution base rate case application and supporting testimony in March 2017. Duke Energy Ohio requested an estimated annual increase of approximately $15 million and a return on equity of 10.4 percent. The application also included requests to continue certain current riders and establish new riders. On September 26, 2017, the PUCO staff filed a report recommending a revenue decrease between approximately $18 million and $29 million and a return on equity between 9.22 percent and 10.24 percent. On April 13, 2018, Duke Energy Ohio filed a Motion to consolidate this proceeding with several other cases pending before the PUCO. On April 13, 2018, Duke Energy Ohio, along with certain intervenors, filed the Stipulation with the PUCO resolving numerous issues including those in this base rate proceeding. Major components of the Stipulation related to the base distribution rate case included a $19 million decrease in annual base distribution revenue with a return on equity unchanged from the current rate of 9.84 percent based upon a capital structure of 50.75 percent equity and 49.25 percent debt. Upon approval of new rates, Duke Energy Ohio's rider for recovering its initial SmartGrid implementation ended as these costs would be recovered through base rates. The Stipulation also renewed 14 existing riders, some of which were included in the company's ESP, and added two new riders including the Enhanced Service Reliability Rider to recover vegetation management costs not included in base rates, up to $10 million per year (operation and maintenance only) and the PowerForward Rider to recover costs incurred to enhance the customer experience and further transform the grid (operation and maintenance and capital). In addition to the changes in revenue attributable to the Stipulation, Duke Energy Ohio’s capital-related riders, including the Distribution Capital Investments Rider, began to reflect the lower federal income tax rate associated with the Tax Act with updates to customers’ bills beginning April 1, 2018. This change reduced electric revenue by approximately $20 million on an annualized basis. On December 19, 2018, the PUCO approved the Stipulation without material modification. New base rates were implemented effective January 2, 2019. Several parties filed applications for rehearing. On February 6, 2019, the PUCO granted the parties rehearing. The PUCO issued its Second Entry on Rehearing on July 17, 2019, upholding its December 19, 2018 order and denying all assignments of error raised by the non-stipulating parties. The parties have the ability to appeal to the Ohio Supreme Court within 60 days of the July entry. Duke Energy Ohio cannot predict the outcome of this matter.
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. Duke Energy Ohio sought deferral authority for net costs incurred from April 1, 2017, until the new rates under Rider PSR were put into effect. On April 13, 2018, Duke Energy Ohio filed a Motion to consolidate this proceeding with several other cases currently pending before the PUCO. Also, on April 13, 2018, Duke Energy Ohio, along with certain intervenors, filed a Stipulation with the PUCO resolving numerous issues including those related to Rider PSR. The Stipulation activated Rider PSR for recovery of net costs incurred from January 1, 2018, through May 2025. On December 19, 2018, the PUCO approved the Stipulation without material modification. The PSR rider became effective April 1, 2019. Several parties filed applications for rehearing. On February 6, 2019, the PUCO granted the parties rehearing. The PUCO issued its Second Entry on Rehearing on July 17, 2019, upholding its December 19, 2018 order and denying all assignments of error raised by the non-stipulating parties. The parties have the ability to appeal to the Ohio Supreme Court within 60 days of the July entry. Duke Energy Ohio cannot predict the outcome of this matter.

53



FINANCIAL STATEMENTS
REGULATORY MATTERS


On July 23, 2019, an Ohio bill was signed into law that will be effective January 1, 2020. Among other things, the bill allows for recovery of prudently incurred costs, net of any revenues, for Ohio Investor-owned utilities that are participants under the OVEC power agreement. The recovery shall be through a non-bypassable rider that is to replace any existing recovery mechanism approved by the PUCO and will remain in place through 2030. The amounts recoverable from customers will be subject to an annual cap, with incremental costs that exceed such cap eligible for deferral and recovery subject to review. See Note 13 for additional discussion of Duke Energy Ohio's ownership interest in OVEC.
Tax Act – Ohio
On July 25, 2018, Duke Energy Ohio filed an application to establish a new rider to implement the benefits of the Tax Act for electric distribution customers. The new rider will flow through to customers the benefit of the lower statutory federal tax rate from 35 to 21 percent since January 1, 2018, all future benefits of the lower tax rates and a full refund of deferred income taxes collected at the higher tax rates in prior years. Deferred income taxes subject to normalization rules will be refunded consistent with federal law and deferred income taxes not subject to normalization rules will be refunded over a 10-year period. Duke Energy Ohio's transmission rates reflect lower federal income tax but guidance from FERC on amortization of both protected and unprotected transmission-related EDITs is still pending. On October 24, 2018, the PUCO issued a Finding and Order that, among other things, directed all utilities over which the commission has rate-making authority to file an application to pass the benefits of the Tax Act to customers by January 1, 2019, unless otherwise exempted or directed by the PUCO. Duke Energy Ohio's July 25, 2018, filing for electric distribution operations is consistent with the commission's October 24, 2018, Finding and Order and no further action is needed. On February 20, 2019, the PUCO approved the application without material modification. Rates became effective March 1, 2019.
On December 21, 2018, Duke Energy Ohio filed an application to change its base rates and establish a new rider to implement the benefits of the Tax Act for natural gas customers. Duke Energy Ohio requested commission approval to implement the changes and rider effective April 1, 2019. The new rider will flow through to customers the benefit of the lower statutory federal tax rate from 35 to 21 percent since January 1, 2018, all future benefits of the lower tax rates and a full refund of deferred income taxes collected at the higher tax rates in prior years. Deferred income taxes subject to normalization rules will be refunded consistent with federal law and deferred income taxes not subject to normalization rules will be refunded over a 10-year period. The PUCO established a procedural schedule and testimony was filed on July 31, 2019. An evidentiary hearing will take place on August 7, 2019. Duke Energy Ohio cannot predict the outcome of this matter.
Energy Efficiency Cost Recovery
On March 28, 2014, Duke Energy Ohio filed an application for recovery of program costs, lost distribution revenue and performance incentives related to its energy efficiency and peak demand reduction programs. These programs are undertaken to comply with environmental mandates set forth in Ohio law. The PUCO approved Duke Energy Ohio’s application but found that Duke Energy Ohio was not permitted to use banked energy savings from previous years in order to calculate the amount of allowed incentive. This conclusion represented a change to the cost recovery mechanism that had been agreed upon by intervenors and approved by the PUCO in previous cases. The PUCO granted the applications for rehearing filed by Duke Energy Ohio and an intervenor. On January 6, 2016, Duke Energy Ohio and the PUCO Staff entered into a stipulation, pending the PUCO's approval, to resolve issues related to performance incentives and the PUCO Staff audit of 2013 costs, among other issues. In December 2015, based upon the stipulation, Duke Energy Ohio re-established approximately $20 million of the revenues that had been previously reversed. On October 26, 2016, the PUCO issued an order approving the stipulation without modification. In December 2016, the PUCO granted the intervenors request for rehearing for the purpose of further review. On April 10, 2019, the PUCO issued an Entry on Rehearing denying the rehearing applications.
On June 15, 2016, Duke Energy Ohio filed an application for approval of a three-year energy efficiency and peak demand reduction portfolio of programs. A stipulation and modified stipulation were filed on December 22, 2016, and January 27, 2017, respectively. Under the terms of the stipulations, which included support for deferral authority of all costs and a cap on shared savings incentives, Duke Energy Ohio has offered its energy efficiency and peak demand reduction programs throughout 2017. On February 3, 2017, Duke Energy Ohio filed for deferral authority of its costs incurred in 2017 in respect of its proposed energy efficiency and peak demand reduction portfolio. On September 27, 2017, the PUCO issued an order approving a modified stipulation. The modifications impose an annual cap of approximately $38 million on program costs and shared savings incentives combined, but allowed for Duke Energy Ohio to file for a waiver of costs in excess of the cap in 2017. The PUCO approved the waiver request for 2017 up to a total cost of $56 million. On November 21, 2017, the PUCO granted Duke Energy Ohio's and intervenor's applications for rehearing of the September 27, 2017, order. On January 10, 2018, the PUCO denied the Ohio Consumers' Counsel’s application for rehearing of the PUCO order granting Duke Energy Ohio's waiver request; however, a decision on Duke Energy Ohio's application for rehearing remains pending. Duke Energy Ohio cannot predict the outcome of this matter.
2014 Electric Security Plan
On May 30, 2018, the PUCO approved an extension of Duke Energy Ohio’s then-current ESP, including all terms and conditions thereof, excluding an extension of Duke Energy Ohio’s Rider DCI. Following rehearing, on July 25, 2018, the PUCO granted the request and allowed a continuing cap on recovery under Rider DCI. The orders were upheld on rehearing requested by OMA and OCC. The time period for parties to file for rehearing or appeal has expired.
In 2018, the OMA and OCC filed separate appeals of PUCO's approval of Duke Energy Ohio’s ESP with the Ohio Supreme Court, challenging PUCO's approval of Duke Energy Ohio’s Price Stability Rider as a placeholder and its Rider DCI to recover incremental revenue requirement for distribution capital since Duke Energy Ohio’s last base rate case. The Ohio Supreme Court issued an order on March 13, 2019, for the appellants to show cause why the appeals should not be dismissed as moot in light of the commission’s approval of Duke Energy Ohio’s current ESP. The OCC and OMA made the requested filings on March 20, 2019, and Duke Energy Ohio filed its response on March 27, 2019. Subsequent to OCC and OMA making the requested filings, the Ohio Supreme Court dismissed the appeals as moot on May 8, 2019.

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FINANCIAL STATEMENTS
REGULATORY MATTERS


Natural Gas Pipeline Extension
Duke Energy Ohio is proposing to install a new natural gas pipeline (the Central Corridor Project) in its Ohio service territory to increase system reliability and enable the retirement of older infrastructure. Duke Energy Ohio currently estimates the pipeline development costs and construction activities will range from $163 million to $245 million in direct costs (excluding overheads and AFUDC). On January 20, 2017, Duke Energy Ohio filed an amended application with the Ohio Power Siting Board (OPSB) for approval of one of two proposed routes. A public hearing was held on June 15, 2017. In April 2018, Duke Energy Ohio filed a motion with OPSB to establish a procedural schedule and filed supplemental information supporting its application. On December 18, 2018, the OPSB established a procedural schedule that included a local public hearing on March 21, 2019. An evidentiary hearing began on April 9, 2019, and concluded on April 11, 2019. Briefs were filed on May 13, 2019, and reply briefs were filed on June 10, 2019. If approved, construction of the pipeline extension is expected to be completed before the 2021/2022 winter season. Duke Energy Ohio expects a decision by the end of 2019. Duke Energy Ohio cannot predict the outcome of this matter.
2012 Natural Gas Rate Case/MGP Cost Recovery
As part of its 2012 natural gas base rate case, Duke Energy Ohio has approval to defer and recover costs related to environmental remediation at two sites (East End and West End) that housed former MGP operations. Duke Energy Ohio has made annual applications for recovery of these deferred costs. Duke Energy Ohio is currently recovering approximately $55 million in environmental remediation costs between 2009 through 2012 through a separate rider, Rider MGP. Duke Energy Ohio has made annual applications with the PUCO to recover its incremental remediation costs consistent with the PUCO’s directive in Duke Energy Ohio’s 2012 natural gas rate case. To date, the PUCO has not ruled on Duke Energy Ohio’s annual applications for the calendar years 2013 through 2017. On September 28, 2018, the staff of the PUCO issued a report recommending a disallowance of approximately $12 million of the $26 million in MGP remediation costs incurred between 2013 through 2017 that staff believes are not eligible for recovery. Staff interprets the PUCO’s 2012 Order granting Duke Energy Ohio recovery of MGP remediation as limiting the recovery to work directly on the East End and West End sites. On October 30, 2018, Duke Energy Ohio filed reply comments objecting to the staff’s recommendations and explaining, among other things, the obligation Duke Energy Ohio has under Ohio law to remediate all areas impacted by the former MGPs and not just physical property that housed the former plants and equipment. To date, the PUCO has not issued a procedural schedule and has not ruled on Duke Energy Ohio’s applications. On March 29, 2019, Duke Energy Ohio filed its annual application to recover incremental remediation expense for the calendar year 2018 seeking recovery of approximately $20 million in remediation costs. On July 12, 2019, the staff recommended a disallowance of approximately $11 million for work that staff believes occurred in areas not authorized for recovery. Duke Energy Ohio cannot predict the outcome of this matter.
The 2012 PUCO order also contained conditional deadlines for completing the MGP environmental investigation and remediation costs at the MGP sites. Subsequent to the order, the deadline was extended to December 31, 2019. On May 10, 2019, Duke Energy Ohio filed an application requesting a continuation of its existing deferral authority for MGP remediation and investigation that must occur after December 31, 2019. Duke Energy Ohio cannot predict the outcome of this matter.
Duke Energy Kentucky Natural Gas Base Rate Case
On August 31, 2018, Duke Energy Kentucky filed an application with the KPSC requesting an increase in natural gas base rates of approximately $11 million, an approximate 11.1 percent average increase across all customer classes. The increase was net of approximately $5 million in annual savings as a result of the Tax Act. The drivers for this case are capital invested since Duke Energy Kentucky’s last rate case in 2009. Duke Energy Kentucky also sought implementation of a Weather Normalization Adjustment Mechanism, amortization of regulatory assets and to implement the impacts of the Tax Act, prospectively. On January 30, 2019, Duke Energy Kentucky entered into a settlement agreement with the Attorney General of Kentucky, the only intervenor in the case. The settlement provided for an approximate $7 million increase in natural gas base revenue, a return on equity of 9.7 percent and approval of the proposed Weather Normalization Mechanism. A hearing was held on February 5, 2019. The commission issued its Order approving the settlement without material modification on March 27, 2019. Revised customer rates were effective April 1, 2019.
Duke Energy Kentucky Electric Base Rate Case
On August 1, 2019, Duke Energy Kentucky filed a notice with the KPSC of its intent to file a general electric rate case application no earlier than 30 days from the notice submittal date.
Duke Energy Indiana
2019 Indiana Rate Case
On July 2, 2019, Duke Energy Indiana filed a general rate case with the IURC, its first general rate case in Indiana in 16 years, for a rate increase for retail customers of approximately $395 million, which represents an approximate 15 percent increase in retail revenues. The rate increase is driven by strategic investments to generate cleaner electricity, improve reliability and serve a growing customer base. The request is premised upon a Duke Energy Indiana rate base of $10.2 billion as of December 31, 2018, and adjusted for projected changes through December 31, 2020. Hearings are expected to commence in early 2020, with rates to be effective by mid-2020. Duke Energy Indiana cannot predict the outcome of this matter.

55



FINANCIAL STATEMENTS
REGULATORY MATTERS


FERC Transmission Return on Equity Complaint
Customer groups have filed with the FERC complaints against MISO and its transmission-owning members, including Duke Energy Indiana, alleging, among other things, that the current base rate of return on equity earned by MISO transmission owners of 12.38 percent is unjust and unreasonable. The complaints claim, among other things, that the current base rate of return on equity earned by MISO transmission owners should be reduced to 8.67 percent. On January 5, 2015, the FERC issued an order accepting the MISO transmission owners' adder of 0.50 percent to the base rate of return on equity based on participation in an RTO subject to it being applied to a return on equity that is shown to be just and reasonable in the pending return on equity complaints. On December 22, 2015, the presiding FERC ALJ in the first complaint issued an Initial Decision in which the base rate of return on equity was set at 10.32 percent. On September 28, 2016, the Initial Decision in the first complaint was affirmed by FERC, but is subject to rehearing requests. On June 30, 2016, the presiding FERC ALJ in the second complaint issued an Initial Decision setting the base rate of return on equity at 9.70 percent. The Initial Decision in the second complaint is pending FERC review. On April 14, 2017, the D.C. Circuit Court, in Emera Maine v. FERC, reversed and remanded certain aspects of the methodology employed by FERC to establish rates of return on equity. On October 16, 2018, FERC issued an order in response to the Emera remand proceeding proposing a new method for determining whether an existing return on equity is unjust and unreasonable, and a new process for determining a just and reasonable return on equity. On November 14, 2018, FERC directed parties to the MISO complaints to file briefs on how the new process for determining return on equity proposed in the Emera proceeding should be applied to the complaints involving the MISO transmission owners’ return on equity. Initial briefs were filed on February 13, 2019, and reply briefs were filed April 10, 2019. Duke Energy Indiana currently believes these matters will not have a material impact on its results of operations, cash flows and financial position.
Edwardsport Integrated Gasification Combined Cycle Plant
On September 20, 2018, Duke Energy Indiana, the Indiana Office of Utility Consumer Counselor, the Duke Industrial Group and Nucor Steel – Indiana entered into a settlement agreement to resolve IGCC ratemaking issues for calendar years 2018 and 2019. The agreement will remain in effect until new rates are established in Duke Energy Indiana's next base rate case, which was filed on July 2, 2019, with rates to be effective in mid-2020. An evidentiary hearing was held in December 2018, and on June 5, 2019, the IURC issued an Order approving the 2018 Settlement Agreement.
Piedmont
North Carolina Integrity Management Rider Filing
On April 30, 2019, Piedmont filed a petition under the IMR mechanism to update rates, based on the eligible capital investments closed to integrity and safety projects over the six-month period ending March 31, 2019. The NCUC approved the petition on May 29, 2019, and rates became effective June 1, 2019. The effect of the update was an increase to annual revenues of approximately $9 million.
Tennessee Integrity Management Rider Filing
In November 2018, Piedmont filed a petition with the TPUC under the IMR mechanism to collect an additional $3 million in annual revenues, effective January 2019, based on the eligible capital investments closed to integrity and safety projects over the 12-month period ending October 31, 2018. A hearing on the matter was held on March 11, 2019. On May 20, 2019, the TPUC approved Piedmont's IMR application as filed and revised customer rates were effective June 1, 2019.
2019 North Carolina Rate Case
On April 1, 2019, Piedmont filed an application with the NCUC, its first general rate case in North Carolina in six years, for a rate increase for retail customers of approximately $83 million, which represents an approximate 9 percent increase in retail revenues. The rate increase is driven by significant infrastructure upgrade investments (plant additions) since the last general rate case, offset by savings that customers will begin receiving due to federal and state tax reform. Approximately half of the plant additions being rolled into rate base are categories of plant investment not covered under the IMR mechanism, which was originally approved as part of the 2013 North Carolina Rate Case. An evidentiary hearing is scheduled to begin on August 19, 2019, and a decision and revised customer rates are expected by the end of 2019. Piedmont cannot predict the outcome of this matter.
OTHER REGULATORY MATTERS
Atlantic Coast Pipeline, LLC
On September 2, 2014, Duke Energy, Dominion Resources (Dominion), Piedmont and Southern Company Gas announced the formation of Atlantic Coast Pipeline, LLC (ACP) to build and own the proposed Atlantic Coast Pipeline (ACP pipeline), an approximately 600-mile interstate natural gas pipeline running from West Virginia to North Carolina. The ACP pipeline is designed to meet, in part, the needs identified by Duke Energy Carolinas, Duke Energy Progress and Piedmont. Dominion will be responsible for building and operating the ACP pipeline and holds a leading ownership percentage in ACP of 48 percent. Duke Energy owns a 47 percent interest, which is accounted for as an equity method investment through its Gas Utilities and Infrastructure segment. Southern Company Gas maintains a 5 percent interest. See Note 13 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.

56



FINANCIAL STATEMENTS
REGULATORY MATTERS


In 2018, the FERC issued a series of Notices to Proceed, which authorized the project to begin certain construction-related activities along the pipeline route, including supply header and compressors. On May 11, 2018, and October 19, 2018, FERC issued Notices to Proceed allowing full construction activities in all areas of West Virginia except in the Monongahela National Forest. On July 24, 2018, FERC issued a Notice to Proceed allowing full construction activities along the project route in North Carolina. On October 19, 2018, the conditions to effectiveness of the Virginia 401 water quality certification were satisfied. Immediately following receipt of the Virginia 401 certification, ACP filed a request for FERC to issue a Notice to Proceed with full construction activities in Virginia. We appreciate the professional and collaborative process by the permitting agencies designed to ensure that this critical energy infrastructure project will meet the stringent environmental standards required by law and regulation.
ACP is the subject of challenges in state and federal courts and agencies, including, among others, challenges of the project’s biological opinion (BiOp) and incidental take statement (ITS), crossings of the Blue Ridge Parkway, the Appalachian Trail, and the Monongahela and George Washington National Forests, the project’s U.S. Army Corps of Engineers (USACE) 404 permit, the Virginia conditional 401 water quality certification, the project's air permit for a compressor station at Buckingham, Virginia, the FERC Environmental Impact Statement order and the FERC order approving the Certificate of Public Convenience and Necessity. Each of these challenges alleges non-compliance on the part of federal and state permitting authorities and adverse ecological consequences if the project is permitted to proceed. Since December 2018, notable developments in these challenges include a stay in December 2018 issued by the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) and the same court's ultimate vacatur of the project's BiOp and ITS (which stay has halted most project construction activity), a Fourth Circuit decision vacating the project's permits to cross the Monongahela and George Washington National Forests and the Appalachian Trail, the Fourth Circuit's remand to USACE of ACP's Huntington District 404 verification and the Fourth Circuit’s remand to the National Park Service of the ACP’s Blue Ridge Parkway right-of-way. ACP is vigorously defending these challenges and coordinating with the federal and state authorities which are the direct parties to the challenges. The Solicitor General of the United States and ACP filed petitions for certiorari to the Supreme Court of the United States on June 25, 2019, regarding the Appalachian Trail crossing and anticipate a decision in October 2019 from the Supreme Court of the United States as to whether it will hear the case. ACP is also evaluating possible legislative remedies to this issue. On July 26, 2019, the Fourth Circuit issued an order vacating ACP's BiOp and ITS, finding that the U.S. Fish and Wildlife Service (FWS) had reached arbitrary conclusions in issuing the vacated BiOp and ITS. In anticipation of such an order by the Fourth Circuit, ACP and the FWS commenced work in mid-May of 2019 to set the basis for a reissued BiOp and ITS. ACP continues coordinating and working with FWS and other parties in preparation for a reissuance of the BiOp and ITS.
The delays resulting from the legal challenges described above have impacted the cost and schedule for the project. As a result, project cost estimates have increased to $7.0 billion to $7.8 billion, excluding financing costs. ACP expects to achieve a late 2020 in-service date for key segments of the project, while it expects the remainder to extend into 2021. Abnormal weather, work delays (including delays due to judicial or regulatory action) and other conditions may result in cost or schedule modifications in the future.
Constitution Pipeline Company, LLC
Duke Energy owns a 24 percent ownership interest in Constitution, which is accounted for as an equity method investment. Constitution is a natural gas pipeline project slated to transport natural gas supplies from the Marcellus supply region in northern Pennsylvania to major northeastern markets. The pipeline will be constructed and operated by Williams Partners L.P., which has a 41 percent ownership share. The remaining interest is held by Cabot Oil and Gas Corporation and WGL Holdings, Inc. Before the permitting delays discussed below, Duke Energy's total anticipated contributions were approximately $229 million. As a result of the permitting delays and project uncertainty, total anticipated contributions by Duke Energy can no longer be reasonably estimated. Since April 2016, with the actions of the New York State Department of Environmental Conservation (NYSDEC), Constitution stopped construction and discontinued capitalization of future development costs until the project's uncertainty is resolved.
In December 2014, Constitution received approval from the FERC to construct and operate the proposed pipeline. However, on April 22, 2016, the NYSDEC denied Constitution’s application for a necessary water quality certification for the New York portion of the Constitution pipeline. Constitution filed a series of legal actions challenging the legality and appropriateness of the NYSDEC’s decision, culminating in an appeal to the Supreme Court of the United States, which appeal was denied on April 30, 2018. In addition, in October 2017, Constitution filed a petition for declaratory order requesting FERC to find that the NYSDEC waived its rights to issue a Section 401 water quality certification by not acting on Constitution's application within a reasonable period of time as required by statute, which petition was denied on January 11, 2018.
On January 25, 2019, the D.C. Circuit Court rendered a decision in Hoopa Valley Tribe v. FERC that withdrawal and resubmission of an application for a Section 401 water quality certification constituted a waiver by the relevant state agency when such withdrawals and resubmissions were intended to extend the one-year limit on accepting or rejecting such an application. As Constitution had made similar arguments in its 2018 petition to FERC for a declaratory order, on April 1, 2019, Constitution filed a new petition for declaratory order requesting FERC find a waiver on the part of NYSDEC in accordance with the D.C. Circuit Court’s newly established precedent. On May 1, 2019, Constitution filed its response to supplemental pleadings filed by NYSDEC and others in this proceeding. A FERC response is expected later this year.
Constitution is currently unable to approximate an in-service date for the project due to the NYSDEC's denial of the water quality certification. The Constitution partners remain committed to the project and are evaluating next steps to move the project forward. On June 25, 2018, Constitution filed with FERC a Request for Extension of Time until December 2, 2020, for construction of the project. On November 5, 2018, FERC issued an Order Granting Extension of Time.
During the six months ended June 30, 2018, Duke Energy recorded an OTTI of $55 million within Equity in earnings of unconsolidated affiliates on Duke Energy's Condensed Consolidated Statements of Income. The charge represented the excess carrying value over the estimated fair value of the project, which was based on a Level 3 Fair Value measurement that was determined from the income approach using discounted cash flows. The impairment was primarily due to actions taken by the courts and regulators to uphold the NYSDEC's denial of the certification and uncertainty associated with the remaining legal and regulatory challenges.
See Note 13 for additional information related to ownership interest and carrying value of the investment.

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FINANCIAL STATEMENTS
REGULATORY MATTERS


Potential Coal Plant Retirements
The Subsidiary Registrants periodically file IRPs 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. IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in North Carolina and Indiana earlier than their current estimated useful lives. Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired.
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, 2019, 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

 
156

Duke Energy Indiana
 
 
 
Gallagher Units 2 and 4(b)
280

 
118

Gibson Units 1-5(c)
3,132

 
1,960

Cayuga Units 1-2(c)
1,005

 
983

Total Duke Energy
5,002

 
$
3,217

(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 Indiana committed to either retire or stop burning coal at Gallagher Units 2 and 4 by December 31, 2022, as part of the 2016 settlement of Edwardsport IGCC matters.
(c)
On July 1, 2019, Duke Energy Indiana filed its 2018 IRP with the IURC. The 2018 IRP included scenarios evaluating the potential retirement of coal-fired generating units at Gibson and Cayuga. The rate case filed July 2, 2019, includes proposed depreciation rates reflecting retirement dates from 2026 to 2038.
Refer to the "Western Carolinas Modernization Plan" discussion above for details of Duke Energy Progress' planned retirements.
4. 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, coal ash 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 Duke Energy Registrants.
Remediation Activities
In addition to AROs 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.

58



FINANCIAL STATEMENTS
COMMITMENTS AND CONTINGENCIES


The following tables contain information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Accounts Payable within Current Liabilities and Other within Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets.
 
Six Months Ended June 30, 2019
 
 
 
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
$
77

 
$
11

 
$
11

 
$
4

 
$
6

 
$
48

 
$
5

 
$
2

Provisions/adjustments
9

 
4

 
3

 
2

 
1

 
2

 
—

 
—

Cash reductions
(22
)
 
(3
)
 
(1
)
 
(1
)
 
—

 
(18
)
 
—

 
—

Balance at end of period
$
64

 
$
12

 
$
13

 
$
5

 
$
7

 
$
32

 
$
5

 
$
2

 
Six Months Ended June 30, 2018
 
 
 
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
$
81

 
$
10

 
$
15

 
$
3

 
$
12

 
$
47

 
$
5

 
$
2

Provisions/adjustments
1

 
2

 
2

 
2

 
(1
)
 
(3
)
 
1

 
—

Cash reductions
(14
)
 
(1
)
 
(2
)
 
(1
)
 
(1
)
 
(9
)
 
(1
)
 
—

Balance at end of period
$
68

 
$
11

 
$
15

 
$
4

 
$
10

 
$
35

 
$
5

 
$
2


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
$
51

Duke Energy Carolinas
12

Duke Energy Ohio
29

Piedmont
2
LITIGATION
Duke Energy Carolinas and Duke Energy Progress
NCDEQ Closure Litigation
The Coal Ash Act requires CCR surface impoundments in North Carolina to be closed, with the closure method and timing based on a risk ranking classification determined by legislation or state regulators. The NCDEQ previously classified the impoundments at Allen, Belews Creek, Rogers, Marshall, Mayo and Roxboro as low risk and Duke Energy expected to close those sites through a combination of a cap system and a groundwater monitoring system. However, on April 1, 2019, NCDEQ issued a closure determination (NCDEQ's April 1 Order) requiring Duke Energy Carolinas and Duke Energy Progress to excavate all remaining coal ash impoundments at these facilities. On April 26, 2019, Duke Energy Carolinas and Duke Energy Progress filed Petitions for Contested Case Hearings in the Office of Administrative Hearings to challenge NCDEQ's April 1 Order. On May 9, 2019, NCDEQ issued a supplemental order requiring that closure plans be submitted on December 31, 2019, but providing that the corrective action plans are not due until March 31, 2020. Duke Energy Carolinas and Duke Energy Progress filed amended petitions on May 24, 2019, incorporating the May 9, 2019 order.
On June 14, 2019, NCDEQ filed a motion to dismiss several claims in Duke Energy Carolinas' and Duke Energy Progress' appeals. On August 2, 2019, the court entered an order granting NCDEQ's motion to dismiss several of the claims. The lawsuit will proceed on the remaining issues, including whether the NCDEQ's decision was arbitrary and capricious. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
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. On May 14, 2019, the court granted an extension of stay, until September 15, 2019, to allow the parties to discuss potential resolution. If the case is not fully resolved at that time, litigation will resume. The trial is now scheduled for February 2021. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.

59



FINANCIAL STATEMENTS
COMMITMENTS AND CONTINGENCIES


NCDEQ State Enforcement Actions
In the first quarter of 2013, the SELC sent notices of intent to sue Duke Energy Carolinas and Duke Energy Progress related to alleged CWA violations from coal ash basins at two of their coal-fired power plants in North Carolina. The NCDEQ filed enforcement actions against Duke Energy Carolinas and Duke Energy Progress alleging violations of water discharge permits and North Carolina groundwater standards. The cases have been consolidated and are being heard before a single judge in the North Carolina Superior Court.
On August 16, 2013, the NCDEQ filed an enforcement action against Duke Energy Carolinas and Duke Energy Progress related to their remaining plants in North Carolina, alleging violations of the CWA and violations of the North Carolina groundwater standards. Both of these cases have been assigned to the judge handling the enforcement actions discussed above. SELC is representing several environmental groups who have been permitted to intervene in these cases.
The court issued orders in 2016 granting Motions for Partial Summary Judgment for seven of the 14 North Carolina plants named in the enforcement actions. On February 13, 2017, the court issued an order denying motions for partial summary judgment brought by both the environmental groups and Duke Energy Carolinas and Duke Energy Progress for the remaining seven plants. On March 15, 2017, Duke Energy Carolinas and Duke Energy Progress filed a Notice of Appeal with the North Carolina Court of Appeals to challenge the trial court’s order. The parties were unable to reach an agreement at mediation in April 2017 and submitted briefs to the trial court on remaining issues to be tried. On August 1, 2018, the Court of Appeals dismissed the appeal and the matter is proceeding before the trial court. In light of the NCDEQ's April 1 Order, on April 29, 2019, the court decided to stay any activity in the case until August 2019, at which time the court will hold another status conference. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
Federal Citizens Suits
On June 13, 2016, the 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 NPDES permit provisions survived the motion to dismiss, and Duke Energy Progress filed its response on May 10, 2017. Duke Energy Progress and RRBA each filed motions for summary judgment on March 23, 2018. The court has not yet ruled on these motions.
On May 16, 2017, RRBA filed a federal citizen suit in the U.S. District Court for the Middle District of North Carolina, which asserts two claims relating to alleged violations of NPDES permit provisions at the Roxboro Plant and one claim relating to the use of nearby water bodies. Duke Energy Progress and RRBA each filed motions for summary judgment on April 17, 2018, and the court has not yet ruled on these motions.
On May 8, 2018, on motion from Duke Energy Progress, the court ordered trial in both of the above matters to be consolidated. On April 5, 2019, Duke Energy Progress filed a motion to stay the case following the NCDEQ’s April 1 Order. On August 2, 2019, the court ordered that this case is stayed and shall remain stayed pending further order from the court.
On December 5, 2017, various parties filed a federal citizen suit in the U.S. District Court for the Middle District of North Carolina for alleged violations at Duke Energy Carolinas' Belews Creek under the CWA. Duke Energy Carolinas' answer to the complaint was filed on August 27, 2018. On October 10, 2018, Duke Energy Carolinas filed Motions to Dismiss for lack of standing, Motion for Judgment on the Pleadings and Motion to Stay Discovery. On January 9, 2019, the court entered an order denying Duke Energy Carolinas' motion to stay discovery. There has been no ruling on the other pending motions. On April 5, 2019, Duke Energy Carolinas filed a motion to stay the case following the NCDEQ’s April 1 Order. On August 2, 2019, the court ordered that this case is stayed and shall remain stayed pending further order from the court.
Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of these matters.
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, 2019, there were 145 asserted claims for non-malignant cases with cumulative relief sought of up to $38 million, and 50 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 $607 million at June 30, 2019, and $630 million at December 31, 2018. 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 Duke Energy Carolinas' best estimate for current and future asbestos claims through 2038 and are recorded on an undiscounted basis. 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 2038 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-insured 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 $764 million in excess of the self-insured retention. Receivables for insurance recoveries were $739 million at June 30, 2019, and December 31, 2018. 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.

60



FINANCIAL STATEMENTS
COMMITMENTS AND CONTINGENCIES


Duke Energy Progress and Duke Energy Florida
Spent Nuclear Fuel Matters
On June 18, 2018, Duke Energy Progress and Duke Energy Florida sued the U.S. in the U.S. Court of Federal Claims for damages incurred for the period 2014 through 2018. The lawsuit claimed the Department of Energy breached a contract in failing to accept spent nuclear fuel under the Nuclear Waste Policy Act of 1982 and asserted damages for the cost of on-site storage in the amount of $100 million and $203 million for Duke Energy Progress and Duke Energy Florida, respectively. Discovery is ongoing and a trial is expected to occur in 2020.
Duke Energy Florida
Fluor Contract Litigation
On January 29, 2019, Fluor filed a breach of contract lawsuit in the U.S. District Court for the Middle District of Florida against Duke Energy Florida related to an EPC agreement for the combined-cycle natural gas plant in Citrus County, Florida. Fluor filed an amended complaint on February 13, 2019. Fluor’s multicount complaint seeks civil, statutory and contractual remedies related to Duke Energy Florida’s $67 million draw in early 2019, on Fluor’s letter of credit and offset of invoiced amounts. Duke Energy Florida moved to dismiss all counts of Fluor's amended complaint, and on April 16, 2019, the court dismissed Fluor's complaint without prejudice. On April 26, 2019, Fluor filed a second amended complaint. Duke Energy Florida is attempting to recover from Fluor $110 million in additional costs incurred by Duke Energy Florida.
On August 1, 2019, Duke Energy Florida and Fluor reached a settlement to resolve the pending litigation and other outstanding issues related to completing the Citrus County combined-cycle plant. The terms of the settlement will not have a material impact on Duke Energy Florida's results of operations, cash flows or financial position.
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.
The table below presents recorded reserves based on management’s best estimate of probable loss for legal matters, excluding asbestos-related reserves discussed above. Reserves are classified on the Condensed Consolidated Balance Sheets in Other within Other Noncurrent Liabilities 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, 2019

 
December 31, 2018

Reserves for Legal Matters
 
 
 
Duke Energy
$
64

 
$
65

Duke Energy Carolinas
7

 
9

Progress Energy
55

 
54

Duke Energy Progress
14

 
12

Duke Energy Florida
24

 
24

Piedmont
1

 
1


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 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.

61



FINANCIAL STATEMENTS
LEASES


5. LEASES
As described in Note 1, Duke Energy adopted the revised accounting guidance for Leases effective January 1, 2019, using the modified retrospective method of adoption, which does not require restatement of prior year reported results. Adoption of the new standard resulted in the recording of ROU assets and operating lease liabilities as follows:
 
As of January 1, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

ROU assets
$
1,750

 
$
153

 
$
863

 
$
407

 
$
456

 
$
23

 
$
61

 
$
26

Operating lease liabilities – current
205

 
28

 
96

 
35

 
61

 
1

 
4

 
4

Operating lease liabilities – noncurrent
1,504

 
127

 
766

 
371

 
395

 
22

 
58

 
25


As part of its operations, Duke Energy leases certain aircraft, space on communication towers, industrial equipment, fleet vehicles, fuel transportation (barges and railcars), land and office space under various terms and expiration dates. Additionally, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Indiana have finance leases related to firm natural gas pipeline transportation capacity. Duke Energy Progress and Duke Energy Florida have entered into certain PPAs, which are classified as finance and operating leases.
Duke Energy has certain lease agreements, which include variable lease payments that are based on the usage of an asset. These variable lease payments are not included in the measurement of the ROU assets or operating lease liabilities on the Condensed Consolidated Financial Statements.
Certain Duke Energy lease agreements include options for renewal and early termination. The intent to renew a lease varies depending on the lease type and asset. Renewal options that are reasonably certain to be exercised are included in the lease measurements. The decision to terminate a lease early is dependent on various economic factors. No termination options have been included in any of the lease measurements.
Duke Energy operates various renewable energy projects and sells the generated output to utilities, electric cooperatives, municipalities and commercial and industrial customers through long-term PPAs. In certain situations, these PPAs and the associated renewable energy projects qualify as operating leases. Rental income from these leases is accounted for as Nonregulated electric and other revenues in the Condensed Consolidated Statements of Operations. There are no minimum lease payments as all payments are contingent based on actual electricity generated by the renewable energy projects. Contingent lease payments were $72 million and $136 million for the three and six months ended June 30, 2019, respectively. As of June 30, 2019, renewable energy projects owned by Duke Energy and accounted for as operating leases had a cost basis of $3,344 million and accumulated depreciation of $661 million. These assets are principally classified as nonregulated electric generation and transmission assets.

62



FINANCIAL STATEMENTS
LEASES


The following table presents the components of lease expense.
 
Three Months Ended June 30, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Operating lease expense(a)
$
73

 
$
11

 
$
40

 
$
17

 
$
23

 
$
3

 
$
5

 
$
2

Short-term lease expense(a)
6

 
2

 
4

 
2

 
2

 
1

 
—

 
—

Variable lease expense(a)
10

 
4

 
5

 
2

 
3

 
—

 
—

 
—

Finance lease expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of leased assets(b)
29

 
1

 
5

 
1

 
4

 
1

 
—

 
—

Interest on lease liabilities(c)
20

 
3

 
13

 
10

 
3

 
—

 
1

 
—

Total finance lease expense
49

 
4

 
18

 
11

 
7

 
1

 
1

 
—

Total lease expense
$
138

 
$
21

 
$
67

 
$
32

 
$
35

 
$
5

 
$
6

 
$
2

 
Six Months Ended June 30, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Operating lease expense(a)
$
145

 
$
23

 
$
82

 
$
36

 
$
46

 
$
6

 
$
10

 
$
3

Short-term lease expense(a)
13

 
4

 
7

 
3

 
4

 
1

 
1

 
—

Variable lease expense(a)
21

 
12

 
7

 
3

 
4

 
—

 
—

 
—

Finance lease expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of leased assets(b)
56

 
2

 
8

 
2

 
6

 
1

 
—

 
—

Interest on lease liabilities(c)
37

 
7

 
19

 
14

 
5

 
—

 
1

 
—

Total finance lease expense
93

 
9

 
27

 
16

 
11

 
1

 
1

 
—

Total lease expense
$
272

 
$
48

 
$
123

 
$
58

 
$
65

 
$
8

 
$
12

 
$
3

(a)
Included in Operations, maintenance and other or, for barges and railcars, Fuel used in electric generation and purchased power on the Condensed Consolidated Statements of Operations.
(b)
Included in Depreciation and amortization on the Condensed Consolidated Statements of Operations.
(c)
Included in Interest Expense on the Condensed Consolidated Statements of Operations.
The following table presents rental expense for operating leases, as reported under the old lease standard. These amounts are included in Operation, maintenance and other and Fuel used in electric generation and purchased power on the Condensed Consolidated Statements of Operations.
(in millions)
Year Ended December 31, 2018
Duke Energy
$
268

Duke Energy Carolinas
49

Progress Energy
143

Duke Energy Progress
75

Duke Energy Florida
68

Duke Energy Ohio
13

Duke Energy Indiana
21

Piedmont
11



63



FINANCIAL STATEMENTS
LEASES


The following table presents operating lease maturities and a reconciliation of the undiscounted cash flows to operating lease liabilities.
 
Twelve Months Ended June 30,
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

2020
$
279

 
$
33

 
$
129

 
$
51

 
$
78

 
$
2

 
$
6

 
$
5

2021
239

 
28

 
112

 
52

 
60

 
2

 
5

 
5

2022
199

 
19

 
94

 
40

 
54

 
2

 
4

 
5

2023
190

 
18

 
95

 
40

 
55

 
2

 
4

 
5

2024
178

 
15

 
96

 
41

 
55

 
2

 
4

 
5

Thereafter
1,055

 
61

 
513

 
306

 
207

 
22

 
65

 
7

Total operating lease payments
2,140

 
174

 
1,039

 
530

 
509

 
32

 
88

 
32

Less: present value discount
(425
)
 
(30
)
 
(192
)
 
(117
)
 
(75
)
 
(10
)
 
(28
)
 
(3
)
Total operating lease liabilities(a)
$
1,715

 
$
144

 
$
847

 
$
413

 
$
434

 
$
22

 
$
60

 
$
29

(a)
Certain operating lease payments include renewal options that are reasonably certain to be exercised.
The following table presents future minimum lease payments under operating leases, which at inception had a non-cancelable term of more than one year, as reported under the old lease standard.
 
December 31, 2018
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

2019
$
239

 
$
33

 
$
97

 
$
49

 
$
48

 
$
2

 
$
6

 
$
5

2020
219

 
29

 
90

 
46

 
44

 
2

 
5

 
5

2021
186

 
19

 
79

 
37

 
42

 
2

 
4

 
5

2022
170

 
19

 
76

 
34

 
42

 
2

 
4

 
5

2023
160

 
17

 
77

 
35

 
42

 
2

 
5

 
6

Thereafter
1,017

 
68

 
455

 
314

 
141

 
23

 
66

 
11

Total
$
1,991

 
$
185

 
$
874

 
$
515

 
$
359

 
$
33

 
$
90

 
$
37


The following table presents finance lease maturities and a reconciliation of the undiscounted cash flows to finance lease liabilities.
 
Twelve Months Ended June 30,
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Indiana

2020
$
177

 
$
19

 
$
69

 
$
44

 
$
25

 
$
1

2021
183

 
17

 
69

 
44

 
25

 
1

2022
180

 
14

 
69

 
44

 
25

 
1

2023
171

 
14

 
69

 
44

 
25

 
1

2024
172

 
14

 
64

 
44

 
20

 
1

Thereafter
847

 
191

 
560

 
547

 
13

 
28

Total finance lease payments
1,730

 
269

 
900

 
767

 
133

 
33

Less: amounts representing interest
(708
)
 
(162
)
 
(483
)
 
(457
)
 
(26
)
 
(23
)
Total finance lease liabilities
$
1,022

 
$
107

 
$
417

 
$
310

 
$
107

 
$
10



64



FINANCIAL STATEMENTS
LEASES


The following table presents future minimum lease payments under finance leases, as reported under the old lease standard.
 
December 31, 2018
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

2019
$
170

 
$
20

 
$
45

 
$
20

 
$
25

 
$
2

 
$
1

2020
174

 
20

 
46

 
21

 
25

 
—

 
1

2021
177

 
15

 
45

 
20

 
25

 
—

 
1

2022
165

 
15

 
45

 
21

 
24

 
—

 
1

2023
165

 
15

 
45

 
21

 
24

 
—

 
1

Thereafter
577

 
204

 
230

 
209

 
21

 
—

 
27

Minimum annual payments
1,428

 
289

 
456

 
312

 
144

 
2

 
32

Less: amount representing interest
(487
)
 
(180
)
 
(205
)
 
(175
)
 
(30
)
 
—

 
(22
)
Total
$
941

 
$
109

 
$
251

 
$
137

 
$
114

 
$
2

 
$
10


The following tables contain additional information related to leases.
 
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Classification
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating
Operating lease ROU assets, net
$
1,735

 
$
141

 
$
839

 
$
407

 
$
432

 
$
22

 
$
60

 
$
26

Finance
Net property, plant and equipment
1,013

 
122

 
423

 
309

 
114

 
—

 
10

 
—

Total lease assets
 
$
2,748

 
$
263

 
$
1,262

 
$
716

 
$
546

 
$
22

 
$
70

 
$
26

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating
Other current liabilities
$
213

 
$
27

 
$
100

 
$
36

 
$
64

 
$
1

 
$
4

 
$
4

Finance
Current maturities of long-term debt
115

 
6

 
23

 
6

 
17

 
—

 
—

 
—

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating
Operating lease liabilities
1,502

 
117

 
747

 
377

 
370

 
21

 
56

 
25

Finance
Long-Term Debt
907

 
101

 
394

 
304

 
90

 
—

 
10

 
—

Total lease liabilities
 
$
2,737

 
$
251

 
$
1,264

 
$
723

 
$
541

 
$
22

 
$
70

 
$
29



65



FINANCIAL STATEMENTS
LEASES


 
Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Cash paid for amounts included in the measurement of lease liabilities(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating cash flows from operating leases
$
136

 
$
15

 
$
60

 
$
23

 
$
37

 
$
1

 
$
3

 
$
5

Operating cash flows from finance leases
37

 
7

 
19

 
14

 
5

 
—

 
1

 
—

Financing cash flows from finance leases
56

 
2

 
8

 
2

 
6

 
1

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease assets obtained in exchange for new lease liabilities (non-cash)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating(b)
$
78

 
$
2

 
$
30

 
$
30

 
$
—

 
$
—

 
$
—

 
$
1

Finance
175

 
—

 
175

 
175

 
—

 
—

 
—

 
—

(a)
No amounts were classified as investing cash flows from operating leases for the six months ended June 30, 2019.
(b)
Does not include ROU assets recorded as a result of the adoption of the new lease standard.
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Weighted-average remaining lease term (years)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating leases
11

 
9

 
10

 
12

 
9

 
18

 
19

 
6

Finance leases
16

 
19

 
17

 
18

 
12

 
—

 
27

 
—

Weighted-average discount rate(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating leases
3.9
%
 
3.7
%
 
3.8
%
 
3.8
%
 
3.7
%
 
4.2
%
 
4.1
%
 
3.6
%
Finance leases
7.9
%
 
12.9
%
 
11.8
%
 
12.4
%
 
8.3
%
 
—
%
 
11.9
%
 
—
%
(a)
The discount rate is calculated using the rate implicit in a lease if it is readily determinable. Generally, the rate used by the lessor is not provided to Duke Energy and in these cases the incremental borrowing rate is used. Duke Energy will typically use its fully collateralized incremental borrowing rate as of the commencement date to calculate and record the lease. The incremental borrowing rate is influenced by the lessee’s credit rating and lease term and as such may differ for individual leases, embedded leases or portfolios of leased assets.

66



FINANCIAL STATEMENTS
DEBT AND CREDIT FACILITIES


6. DEBT AND CREDIT FACILITIES
SUMMARY OF SIGNIFICANT DEBT ISSUANCES
The following table summarizes significant debt issuances (in millions).
 
 
 
 
Six Months Ended June 30, 2019
 
 
 
 
 
 
 
Duke

 
Duke

 
Duke

 
 
 
Maturity
Interest

 
Duke

 
Energy

 
Energy

 
Energy

 
 
Issuance Date
Date
Rate

 
Energy

 
(Parent)

 
Progress

 
Ohio

 
Piedmont

Unsecured Debt
 
 
 
 
 
 
 
 
 
 
 
 
March 2019(a)
March 2022
3.251
%
(b) 
$
300

 
$
300

 
$
—

 
$
—

 
$
—

March 2019(a)
March 2022
3.227
%
 
300

 
300

 
—

 
—

 
—

May 2019(e)
June 2029
3.500
%
 
600

 
—

 
—

 
—

 
600

June 2019(a)
June 2029
3.400
%
 
600

 
600

 
—

 
—

 
—

June 2019(a)
June 2049
4.200
%
 
600

 
600

 
—

 
—

 
—

First Mortgage Bonds
 
 
 
 
 
 
 
 
 
 
 
 
January 2019(c)
February 2029
3.650
%
 
400

 
—

 
—

 
400

 
—

January 2019(c)
February 2049
4.300
%
 
400

 
—

 
—

 
400

 
—

March 2019(d)
March 2029
3.450
%

600


—

 
600

 
—

 
—

Total issuances
 
 
 
$
3,800

 
$
1,800


$
600

 
$
800


$
600

(a)
Debt issued to pay down short-term debt and for general corporate purposes.
(b)
Debt issuance has a floating interest rate.
(c)
Debt issued to repay at maturity $450 million first mortgage bonds due April 2019, pay down short-term debt and for general corporate purposes.
(d)
Debt issued to fund eligible green energy projects in the Carolinas.
(e)
Debt issued to repay in full the outstanding $350 million Piedmont unsecured term loan due September 2019, pay down short-term debt and for general corporate purposes.
In June 2019, Duke Energy Kentucky priced $210 million of unsecured debentures of which $95 million carry a fixed interest rate of 3.23 percent and mature October 2025, $75 million carry a fixed interest rate of 3.56 percent and mature October 2029, and $40 million carry a fixed interest rate of 4.32 percent and mature July 2049. The $40 million tranche closed and funded in July 2019, and the remaining tranches are expected to close in September 2019 upon receipt of necessary regulatory approvals. The proceeds will be used to refinance Duke Energy Kentucky's $100 million, 4.65 percent debentures maturing October 2019, to pay down short-term intercompany debt and for general corporate purposes.
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, 2019

Unsecured Debt
 
 
 
 
 
Duke Energy (Parent)
September 2019
 
5.050
%
 
$
500

Duke Energy Kentucky
October 2019
 
4.650
%
 
100

Progress Energy
December 2019
 
4.875
%
 
350

Duke Energy (Parent)
June 2020
 
2.100
%
 
330

First Mortgage Bonds
 
 
 
 
 
Duke Energy Florida
January 2020
 
1.850
%
 
250

Duke Energy Florida
April 2020
 
4.550
%
 
250

Duke Energy Carolinas
June 2020
 
4.300
%
 
450

Other(a)
 
 
 
 
468

Current maturities of long-term debt
 
 
 
 
$
2,698


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

67



FINANCIAL STATEMENTS
DEBT AND CREDIT FACILITIES


AVAILABLE CREDIT FACILITIES
Master Credit Facility
In March 2019, Duke Energy amended its existing $8 billion Master Credit Facility to extend the termination date to March 2024. 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, 2019
 


 
Duke

 
Duke

 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Energy

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
(Parent)

 
Carolinas

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Facility size(a)
$
8,000

 
$
2,650

 
$
1,750

 
$
1,250

 
$
800

 
$
450

 
$
600

 
$
500

Reduction to backstop issuances
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper(b)
(3,420
)
 
(1,009
)
 
(1,099
)
 
(276
)
 
(474
)
 
(236
)
 
(326
)
 
—

Outstanding letters of credit
(53
)
 
(45
)
 
(4
)
 
(2
)
 
—

 
—

 
—

 
(2
)
Tax-exempt bonds
(81
)
 
—

 
—

 
—

 
—

 
—

 
(81
)
 
—

Coal ash set-aside
(500
)
 
—

 
(250
)
 
(250
)
 
—

 
—

 
—

 
—

Available capacity under the Master Credit Facility
$
3,946


$
1,596


$
397


$
722


$
326


$
214


$
193

 
$
498

(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.
Other Credit Facilities
 
June 30, 2019
(in millions)
Facility size

 
Amount drawn

Duke Energy (Parent) Three-Year Revolving Credit Facility(a)
$
1,000

 
$
500

Duke Energy Progress Term Loan Facility(b)
700

 
700

(a)
In May 2019, Duke Energy (Parent) extended the termination date to May 2022.
(b)
$650 million was drawn under the term loan in January and February 2019.
In May 2019, the $350 million Piedmont term loan was paid off in full with proceeds from the $600 million Piedmont debt offering.

68



FINANCIAL STATEMENTS
ASSET RETIREMENT OBLIGATIONS


7. ASSET RETIREMENT OBLIGATIONS
The Duke Energy Registrants record AROs when there is a legal obligation to incur retirement costs associated with the retirement of a long-lived asset and the obligation can be reasonably estimated. Actual closure costs incurred could be materially different from current estimates that form the basis of the recorded AROs.
The following table presents the AROs recorded on the Condensed Consolidated Balance Sheets.
 
June 30, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Decommissioning of nuclear power facilities(a)
$
5,807

 
$
2,401

 
$
3,265

 
$
2,739

 
$
526

 
$
—

 
$
—

 
$
—

Closure of ash impoundments
6,498

 
2,894

 
2,858

 
2,839

 
19

 
47

 
699

 
—

Other
323

 
47

 
70

 
38

 
32

 
42

 
20

 
19

Total ARO
$
12,628

 
$
5,342

 
$
6,193

 
$
5,616

 
$
577

 
$
89

 
$
719

 
$
19

Less: current portion
739

 
203

 
416

 
413

 
3

 
6

 
115

 
—

Total noncurrent ARO
$
11,889


$
5,139


$
5,777


$
5,203


$
574


$
83


$
604

 
$
19

(a)    Duke Energy amount includes purchase accounting adjustments related to the merger with Progress Energy.
ARO Liability Rollforward
The following table presents the change in liability associated with AROs for the Duke Energy Registrants.
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Balance at December 31, 2018(a)
$
10,467

 
$
3,949

 
$
5,411

 
$
4,820

 
$
591

 
$
93

 
$
722

 
$
19

Accretion expense(b)
245

 
111

 
124

 
111

 
13

 
2

 
14

 
—

Liabilities settled(c)
(404
)
 
(155
)
 
(225
)
 
(197
)
 
(28
)
 
(6
)
 
(17
)
 
—

Revisions in estimates of cash flows(d)
2,320

 
1,437

 
883

 
882

 
1

 
—

 
—

 
—

Balance at June 30, 2019
$
12,628

 
$
5,342

 
$
6,193

 
$
5,616

 
$
577

 
$
89

 
$
719

 
$
19

(a)
Primarily relates to decommissioning nuclear power facilities, closure of ash impoundments, asbestos removal, closure of landfills at fossil generation facilities, retirement of natural gas mains and removal of renewable energy generation assets.
(b)
For the six months ended June 30, 2019, substantially all accretion expense relates to Duke Energy's regulated operations and has been deferred in accordance with regulatory accounting treatment.
(c)
Primarily relates to ash impoundment closures.
(d)
Relates to increases in closure estimates for certain ash impoundments as a result of the NCDEQ's April 1 Order. See Note 4 for more information. The incremental amount recorded represents the discounted cash flows for estimated closure costs based upon the probability weightings of the potential closure methods as evaluated on a site-by-site basis.
Asset retirement costs associated with the AROs for operating plants and retired plants are included in Net property, plant and equipment and Regulatory assets within Other Noncurrent Assets, respectively, on the Condensed Consolidated Balance Sheets.
Nuclear Decommissioning Trust Funds
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida each maintain NDTFs that are intended to pay for the decommissioning costs of their respective nuclear power plants. The following table presents the fair value of NDTF assets legally restricted for purposes of settling AROs associated with nuclear decommissioning. Duke Energy Florida is actively decommissioning Crystal River Unit 3 and was granted an exemption from the NRC, which allows for use of the NDTF for all aspects of nuclear decommissioning. The entire balance of Duke Energy Florida's NDTF may be applied toward license termination, spent fuel and site restoration costs incurred to decommission Crystal River Unit 3 and is excluded from the table below. See Note 12 for additional information related to the fair value of the Duke Energy Registrants' NDTFs.
(in millions)
June 30, 2019
 
December 31, 2018
Duke Energy
$
6,327

 
$
5,579

Duke Energy Carolinas
3,574

 
3,133

Duke Energy Progress
2,753

 
2,446



69



FINANCIAL STATEMENTS
GOODWILL


8. GOODWILL
Duke Energy
The following table presents the goodwill by reportable segment included on Duke Energy's Condensed Consolidated Balance Sheets at June 30, 2019, and December 31, 2018.
 
Electric Utilities

 
Gas Utilities

 
Commercial

 
 
(in millions)
and Infrastructure

 
and Infrastructure

 
Renewables

 
Total

Goodwill balance
$
17,379

 
$
1,924

 
$
122

 
$
19,425

Accumulated impairment charges
—

 
—

 
(122
)
 
(122
)
Goodwill, adjusted for accumulated impairment charges
$
17,379

 
$
1,924

 
$
—

 
$
19,303


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, 2019, and December 31, 2018.
Progress Energy
Progress Energy's Goodwill is included in the Electric Utilities and Infrastructure segment and there are no accumulated impairment charges.
Piedmont
Piedmont's Goodwill is included in the Gas Utilities and Infrastructure segment and there are no accumulated impairment charges.

70



FINANCIAL STATEMENTS
RELATED PARTY TRANSACTIONS


9. 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)
2019

 
2018

 
2019

 
2018

Duke Energy Carolinas
 
 
 
 
 
 
 
Corporate governance and shared service expenses(a)
$
197

 
$
213

 
$
409

 
$
433

Indemnification coverages(b)
5

 
5

 
10

 
11

JDA revenue(c)
17

 
19

 
40

 
53

JDA expense(c)
20

 
19

 
113

 
73

Intercompany natural gas purchases(d)
3

 
4

 
7

 
8

Progress Energy
 
 
 
 
 
 
 
Corporate governance and shared service expenses(a)
$
183

 
$
206

 
$
359

 
$
397

Indemnification coverages(b)
10

 
9

 
19

 
17

JDA revenue(c)
20

 
19

 
113

 
73

JDA expense(c)
17

 
19

 
40

 
53

Intercompany natural gas purchases(d)
19

 
19

 
38

 
38

Duke Energy Progress
 
 
 
 
 
 
 
Corporate governance and shared service expenses(a)
$
108

 
$
126

 
$
214

 
$
244

Indemnification coverages(b)
4

 
3

 
8

 
6

JDA revenue(c)
20

 
19

 
113

 
73

JDA expense(c)
17

 
19

 
40

 
53

Intercompany natural gas purchases(d)
19

 
19

 
38

 
38

Duke Energy Florida
 
 
 
 
 
 
 
Corporate governance and shared service expenses(a)
$
75

 
$
80

 
$
145

 
$
153

Indemnification coverages(b)
6

 
6

 
11

 
11

Duke Energy Ohio
 
 
 
 
 
 
 
Corporate governance and shared service expenses(a)
$
83

 
$
90

 
$
168

 
$
179

Indemnification coverages(b)
1

 
1

 
2

 
2

Duke Energy Indiana
 
 
 
 
 
 
 
Corporate governance and shared service expenses(a)
$
93

 
$
96

 
$
190

 
$
197

Indemnification coverages(b)
1

 
2

 
3

 
4

Piedmont
 
 
 
 
 
 
 
Corporate governance and shared service expenses(a)
$
37

 
$
40

 
$
69

 
$
76

Indemnification coverages(b)
—

 
—

 
1

 
1

Intercompany natural gas sales(d)
22

 
23

 
45

 
46

Natural gas storage and transportation costs(e)
6

 
6

 
11

 
12

(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 JDA, which allows the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power and expenses from the purchase of power pursuant to the JDA are recorded in Operating Revenues and Fuel used in electric generation and purchased power, respectively, on the 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 Operating revenues, and Duke Energy Carolinas and Duke Energy Progress record the related purchases as a component of Fuel used in electric generation and purchased power on their respective Condensed Consolidated Statements of Operations and Comprehensive Income.
(e)
Piedmont has related party transactions as a customer of its equity method investments in Pine Needle, Hardy Storage, and Cardinal natural gas storage and transportation facilities. These expenses are included in Cost of natural gas on Piedmont's Condensed Consolidated Statements of Operations and Comprehensive Income.

71



FINANCIAL STATEMENTS
RELATED PARTY TRANSACTIONS


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. These transactions of the Subsidiary Registrants are incurred in the ordinary course of business and are eliminated in consolidation.
As discussed in Note 13, certain trade receivables have been sold by Duke Energy Ohio and Duke Energy Indiana to CRC, an affiliate formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price.
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, 2019
 
 
 
 
 
 
 
Intercompany income tax receivable
$
—

$
25

$
—

$
—

$
15

$
—

$
26

Intercompany income tax payable
76

—

41

19

—

1

—

 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
Intercompany income tax receivable
$
52

$
47

$
29

$
—

$
—

$
8

$
—

Intercompany income tax payable
—

—

—

16

3

—

45


10. DERIVATIVES AND HEDGING
The Duke Energy Registrants use commodity and interest rate contracts to manage commodity price risk and interest rate risk. The primary use of commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Piedmont enters into natural gas supply contracts to provide diversification, reliability and natural gas cost benefits to its customers. Interest rate derivatives 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.
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, 2019, and 2018, 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 and forward-starting interest rate swaps not accounted for under regulatory accounting.
Undesignated Contracts
Undesignated contracts primarily include contracts not designated as a hedge because they are accounted for under regulatory accounting or 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 on the Duke Energy Registrant's Condensed Consolidated Statements of Operations and Comprehensive Income.

72



FINANCIAL STATEMENTS
DERIVATIVES AND HEDGING


The following table shows notional amounts of outstanding derivatives related to interest rate risk.
 
June 30, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

Cash flow hedges
$
959

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Undesignated contracts
1,427

 
600

 
800

 
250

 
550

 
27

Total notional amount(a)
$
2,386


$
600


$
800


$
250


$
550


$
27

 
December 31, 2018
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

Cash flow hedges
$
923

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Undesignated contracts
1,721

 
300

 
1,200

 
650

 
550

 
27

Total notional amount(a)
$
2,644

 
$
300

 
$
1,200

 
$
650

 
$
550

 
$
27


(a)
Duke Energy includes amounts related to consolidated VIEs of $659 million in cash flow hedges as of June 30, 2019, and $422 million in cash flow hedges and $194 million in undesignated contracts as of December 31, 2018.
COMMODITY PRICE RISK
The Duke Energy Registrants are exposed to the impact of changes in the prices of electricity purchased and sold in bulk power markets and coal and natural gas purchases, including Piedmont's natural gas supply contracts. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets and delivery locations. For the Subsidiary Registrants, bulk power electricity and coal and natural gas purchases flow through fuel adjustment clauses, formula-based contracts or other cost-sharing mechanisms. Differences between the costs included in rates and the incurred costs, including undesignated derivative contracts, are largely deferred as regulatory assets or regulatory liabilities. Piedmont policies allow for the use of financial instruments to hedge commodity price risks. The strategy and objective of these hedging programs are to use the financial instruments to reduce natural gas costs volatility for customers.
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, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Electricity (GWh)
33,135

 
—

 
—

 
—

 
—

 
3,514

 
29,621

 
—

Natural gas (millions of dekatherms)
740

 
133

 
173

 
173

 
—

 
—

 
4

 
430

 
December 31, 2018
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Electricity (GWh)
15,286

 
—

 
—

 
—

 
—

 
1,786

 
13,500

 
—

Natural gas (millions of dekatherms)
739

 
121

 
169

 
166

 
3

 
—

 
1

 
448


U.S. EQUITY SECURITIES RISK
In May 2019, Duke Energy Florida entered into a Decommissioning Services Agreement for the accelerated decommissioning of Crystal River Unit 3 with ADP CR3, LLC and ADP SF1, LLC. The accelerated decommissioning of Crystal River Unit 3 is subject to the approval of the NRC and the FPSC. Duke Energy Florida executed U.S. equity option collars within the NDTF in May 2019 to preserve the U.S. equity portfolio value in the Duke Energy Florida NDTF in the event the accelerated decommissioning is approved. These option collars were executed as a purchase of a put option and the sale of a call option on certain U.S. equity index funds. The put and call options create a collar to guarantee a minimum and maximum investment value for the Duke Energy Florida NDTF U.S. equity portfolio. The put and call options were entered into at zero-cost, with the price to purchase the puts offset entirely by the funds received to sell the calls. As of June 30, 2019, the aggregate notional amount of both the put and call options was 305,000 units in U.S. equity security index funds. The derivative balances associated with these equity options are immaterial as of June 30, 2019. The options are not designated as hedging instruments. Substantially all of Duke Energy Florida’s NDTF qualifies for regulatory accounting. With regulatory accounting, the mark-to-market gains or losses on the options are deferred as regulatory liabilities or regulatory assets, respectively.

73



FINANCIAL STATEMENTS
DERIVATIVES AND HEDGING


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, 2019
 
 
 
 
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
 
$
37

 
$
—

 
$
—

 
$
—

 
$
—

 
$
7

 
$
29

 
$
2

Total Derivative Assets – Commodity Contracts
 
$
37

 
$
—

 
$
—

 
$
—

 
$
—

 
$
7

 
$
29

 
$
2

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncurrent
 
1

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total Derivative Assets – Interest Rate Contracts
 
$
1

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Total Derivative Assets
 
$
38


$
—


$
—


$
—


$
—


$
7


$
29

 
$
2

Derivative Liabilities
 
June 30, 2019
 
 
 
 
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
 
$
64

 
$
31

 
$
24

 
$
24

 
$
—

 
$
—

 
$
2

 
$
7

Noncurrent
 
140

 
8

 
24

 
9

 
—

 
—

 
—

 
107

Total Derivative Liabilities – Commodity Contracts
 
$
204

 
$
39

 
$
48

 
$
33

 
$
—

 
$
—

 
$
2

 
$
114

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
4

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Noncurrent
 
32

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
86

 
54

 
31

 
2

 
29

 
1

 
—

 
—

Noncurrent
 
16

 
—

 
11

 
—

 
10

 
5

 
—

 
—

Total Derivative Liabilities – Interest Rate Contracts
 
$
138

 
$
54

 
$
42

 
$
2

 
$
39

 
$
6

 
$
—

 
$
—

Total Derivative Liabilities
 
$
342


$
93


$
90


$
35


$
39


$
6


$
2

 
$
114



74



FINANCIAL STATEMENTS
DERIVATIVES AND HEDGING


Derivative Assets
 
December 31, 2018
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
35

 
$
2

 
$
2

 
$
2

 
$
—

 
$
6

 
$
23

 
$
3

Noncurrent
 
4

 
1

 
2

 
2

 
—

 
—

 
—

 
—

Total Derivative Assets – Commodity Contracts
 
$
39

 
$
3

 
$
4

 
$
4

 
$
—

 
$
6

 
$
23

 
$
3

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
1

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Noncurrent
 
3

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
2

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Noncurrent
 
12

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total Derivative Assets – Interest Rate Contracts
 
$
18

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Total Derivative Assets
 
$
57

 
$
3

 
$
4

 
$
4

 
$
—

 
$
6

 
$
23

 
$
3

Derivative Liabilities
 
December 31, 2018
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
33

 
$
14

 
$
10

 
$
5

 
$
6

 
$
—

 
$
—

 
$
8

Noncurrent
 
158

 
10

 
15

 
6

 
—

 
—

 
—

 
133

Total Derivative Liabilities – Commodity Contracts
 
$
191

 
$
24

 
$
25

 
$
11

 
$
6

 
$
—

 
$
—

 
$
141

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
12

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Noncurrent
 
6

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
23

 
9

 
13

 
11

 
2

 
1

 
—

 
—

Noncurrent
 
10

 
—

 
6

 
5

 
1

 
4

 
—

 
—

Total Derivative Liabilities – Interest Rate Contracts
 
$
51

 
$
9

 
$
19

 
$
16

 
$
3

 
$
5

 
$
—

 
$
—

Total Derivative Liabilities
 
$
242

 
$
33

 
$
44

 
$
27

 
$
9

 
$
5

 
$
—

 
$
141


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.

75



FINANCIAL STATEMENTS
DERIVATIVES AND HEDGING


Derivative Assets
 
June 30, 2019
 
 
 
 
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
 
$
37

 
$
—

 
$
—

 
$
—

 
$
—

 
$
7

 
$
29

 
$
2

Gross amounts offset
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Net amounts presented in Current Assets: Other
 
$
37

 
$
—

 
$
—

 
$
—

 
$
—

 
$
7

 
$
29

 
$
2

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
1

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Gross amounts offset
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Net amounts presented in Other Noncurrent Assets: Other
 
$
1

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Derivative Liabilities
 
June 30, 2019
 
 
 
 
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
 
$
154

 
$
85

 
$
55

 
$
26

 
$
29

 
$
1

 
$
2

 
$
7

Gross amounts offset
 
(1
)
 
—

 
(1
)
 
(1
)
 
—

 
—

 
—

 
—

Net amounts presented in Current Liabilities: Other
 
$
153

 
$
85

 
$
54

 
$
25

 
$
29

 
$
1

 
$
2

 
$
7

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
188

 
$
8

 
$
35

 
$
9

 
$
10

 
$
5

 
$
—

 
$
107

Gross amounts offset
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Net amounts presented in Other Noncurrent Liabilities: Other
 
$
188

 
$
8

 
$
35

 
$
9

 
$
10

 
$
5

 
$
—

 
$
107

Derivative Assets
 
December 31, 2018
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Current
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
38

 
$
2

 
$
2

 
$
2

 
$
—

 
$
6

 
$
23

 
$
3

Gross amounts offset
 
(3
)
 
(2
)
 
(2
)
 
(2
)
 
—

 
—

 
—

 
—

Net amounts presented in Current Assets: Other
 
$
35

 
$
—

 
$
—

 
$
—

 
$
—

 
$
6

 
$
23

 
$
3

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
19

 
$
1

 
$
2

 
$
2

 
$
—

 
$
—

 
$
—

 
$
—

Gross amounts offset
 
(3
)
 
(1
)
 
(2
)
 
(2
)
 
—

 
—

 
—

 
—

Net amounts presented in Other Noncurrent Assets: Other
 
$
16

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—



76



FINANCIAL STATEMENTS
DERIVATIVES AND HEDGING


Derivative Liabilities
 
December 31, 2018
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Current
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
68

 
$
23

 
$
23

 
$
16

 
$
8

 
$
1

 
$
—

 
$
8

Gross amounts offset
 
(4
)
 
(2
)
 
(2
)
 
(2
)
 
—

 
—

 
—

 
—

Net amounts presented in Current Liabilities: Other
 
$
64

 
$
21

 
$
21

 
$
14

 
$
8

 
$
1

 
$
—

 
$
8

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
174

 
$
10

 
$
21

 
$
11

 
$
1

 
$
4

 
$
—

 
$
133

Gross amounts offset
 
(3
)
 
(1
)
 
(2
)
 
(2
)
 
—

 
—

 
—

 
—

Net amounts presented in Other Noncurrent Liabilities: Other
 
$
171

 
$
9

 
$
19

 
$
9

 
$
1

 
$
4

 
$
—

 
$
133


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.
 
June 30, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

Aggregate fair value of derivatives in a net liability position
$
67

 
$
34

 
$
33

 
$
33

Fair value of collateral already posted
—

 
—

 
—

 
—

Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered
67

 
34

 
33

 
33

 
December 31, 2018
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

Aggregate fair value of derivatives in a net liability position
$
44

 
$
19

 
$
25

 
$
25

Fair value of collateral already posted
—

 
—

 
—

 
—

Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered
44

 
19

 
25

 
25


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.
11. INVESTMENTS IN DEBT AND EQUITY SECURITIES
Duke Energy’s investments in debt and equity securities are primarily comprised of investments held in (i) the NDTF at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) the grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to OPEB plans and (iii) Bison. The Duke Energy Registrants classify investments in debt securities as AFS and investments in equity securities as FV-NI. 
For investments in debt securities classified as AFS, the unrealized gains and losses are included in other comprehensive income until realized, at which time, they are reported through net income. For investments in equity securities classified as FV-NI, both realized and unrealized gains and losses are reported through net income. Substantially all of Duke Energy’s investments in debt and equity securities qualify for regulatory accounting, and accordingly, all associated realized and unrealized gains and losses on these investments are deferred as a regulatory asset or liability.
Duke Energy classifies the majority of investments in debt and equity securities as long term, unless otherwise noted.
Investment Trusts
The investments within the 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 securities within the Investment Trusts are considered OTTIs and are recognized immediately and deferred to regulatory accounts where appropriate.

77



FINANCIAL STATEMENTS
INVESTMENTS IN DEBT AND EQUITY SECURITIES


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, 2019, and December 31, 2018.
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 debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
 
June 30, 2019
 
December 31, 2018
 
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
$
—

 
$
—

 
$
114

 
$
—

 
$
—

 
$
88

Equity securities
3,076

 
36

 
5,178

 
2,402

 
95

 
4,475

Corporate debt securities
30

 
1

 
571

 
4

 
13

 
566

Municipal bonds
10

 
—

 
318

 
1

 
4

 
353

U.S. government bonds
34

 
1

 
1,270

 
14

 
12

 
1,076

Other debt securities
3

 
1

 
152

 
—

 
2

 
148

Total NDTF Investments
$
3,153

 
$
39

 
$
7,603

 
$
2,421

 
$
126

 
$
6,706

Other Investments
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
—

 
$
49

 
$
—

 
$
—

 
$
22

Equity securities
49

 
—

 
112

 
36

 
1

 
99

Corporate debt securities
2

 
—

 
60

 
—

 
2

 
60

Municipal bonds
3

 
1

 
90

 
—

 
1

 
85

U.S. government bonds
2

 
—

 
51

 
1

 
—

 
45

Other debt securities
—

 
—

 
65

 
—

 
1

 
58

Total Other Investments
$
56

 
$
1

 
$
427

 
$
37

 
$
5

 
$
369

Total Investments
$
3,209

 
$
40

 
$
8,030

 
$
2,458

 
$
131

 
$
7,075


Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three and six months ended June 30, 2019, and 2018, were as follows.
 
Three Months Ended
 
Six Months Ended
(in millions)
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
FV-NI:
 
 
 
 
 
 
 
 Realized gains
$
66

 
$
47

 
$
101

 
$
66

 Realized losses
63

 
31

 
93

 
44

AFS:
 
 
 
 
 
 
 
 Realized gains
47

 
5

 
57

 
10

 Realized losses
36

 
12

 
47

 
25



78



FINANCIAL STATEMENTS
INVESTMENTS IN DEBT AND EQUITY SECURITIES


DUKE ENERGY CAROLINAS
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
 
June 30, 2019
 
December 31, 2018
 
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
$
—

 
$
—

 
$
41

 
$
—

 
$
—

 
$
29

Equity securities
1,671

 
9

 
2,883

 
1,309

 
54

 
2,484

Corporate debt securities
18

 
1

 
360

 
2

 
9

 
341

Municipal bonds
2

 
—

 
63

 
—

 
1

 
81

U.S. government bonds
17

 
1

 
556

 
5

 
8

 
475

Other debt securities
3

 
1

 
141

 
—

 
2

 
143

Total NDTF Investments
$
1,711

 
$
12


$
4,044

 
$
1,316

 
$
74

 
$
3,553


Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three and six months ended June 30, 2019, and 2018, were as follows.
 
Three Months Ended
 
Six Months Ended
(in millions)
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
FV-NI:
 
 
 
 
 
 
 
 Realized gains
$
44

 
$
26

 
$
67

 
$
36

 Realized losses
48

 
17

 
69

 
22

AFS:
 
 
 
 
 
 
 
 Realized gains
16

 
4

 
25

 
9

 Realized losses
11

 
8

 
21

 
18


PROGRESS ENERGY
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
 
June 30, 2019
 
December 31, 2018
 
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
$
—

 
$
—

 
$
73

 
$
—

 
$
—

 
$
59

Equity securities
1,405

 
27

 
2,295

 
1,093

 
41

 
1,991

Corporate debt securities
12

 
—

 
211

 
2

 
4

 
225

Municipal bonds
8

 
—

 
255

 
1

 
3

 
272

U.S. government bonds
17

 
—

 
714

 
9

 
4

 
601

Other debt securities
—

 
—

 
11

 
—

 
—

 
5

Total NDTF Investments
$
1,442

 
$
27

 
$
3,559

 
$
1,105

 
$
52

 
$
3,153

Other Investments
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
—

 
$
47

 
$
—

 
$
—

 
$
17

Municipal bonds
3

 
—

 
50

 
—

 
—

 
47

Total Other Investments
$
3

 
$
—

 
$
97

 
$
—

 
$
—

 
$
64

Total Investments
$
1,445

 
$
27

 
$
3,656

 
$
1,105

 
$
52

 
$
3,217



79



FINANCIAL STATEMENTS
INVESTMENTS IN DEBT AND EQUITY SECURITIES


Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three and six months ended June 30, 2019, and 2018, were as follows.
 
Three Months Ended
Six Months Ended
(in millions)
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
FV-NI:
 
 
 
 
 
 
 
 Realized gains
$
22

 
$
21

 
$
34

 
$
30

 Realized losses
15

 
14

 
24

 
22

AFS:
 
 
 
 
 
 
 
 Realized gains
30

 
1

 
31

 
1

 Realized losses
25

 
4

 
26

 
7

DUKE ENERGY PROGRESS
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
 
June 30, 2019
 
December 31, 2018
 
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
$
—

 
$
—

 
$
42

 
$
—

 
$
—

 
$
46

Equity securities
1,092

 
24

 
1,886

 
833

 
30

 
1,588

Corporate debt securities
12

 
—

 
211

 
2

 
3

 
171

Municipal bonds
8

 
—

 
255

 
1

 
3

 
271

U.S. government bonds
16

 
—

 
429

 
6

 
3

 
415

Other debt securities
—

 
—

 
11

 
—

 
—

 
3

Total NDTF Investments
$
1,128

 
$
24

 
$
2,834

 
$
842

 
$
39

 
$
2,494

Other Investments
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
—

 
$
2

 
$
—

 
$
—

 
$
6

Total Other Investments
$
—

 
$
—

 
$
2

 
$
—

 
$
—

 
$
6

Total Investments
$
1,128

 
$
24

 
$
2,836

 
$
842

 
$
39

 
$
2,500


Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three and six months ended June 30, 2019, and 2018, were as follows.
 
Three Months Ended
Six Months Ended
(in millions)
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
FV-NI:
 
 
 
 
 
 
 
Realized gains
$
7

 
$
17

 
$
17

 
$
25

Realized losses
7

 
12

 
15

 
20

AFS:
 
 
 
 
 
 
 
 Realized gains
1

 
1

 
2

 
1

 Realized losses
1

 
3

 
2

 
5



80



FINANCIAL STATEMENTS
INVESTMENTS IN DEBT AND EQUITY SECURITIES


DUKE ENERGY FLORIDA
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
 
June 30, 2019
 
December 31, 2018
 
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

 
$
—

 
$
—

 
$
13

Equity securities
313

 
3

 
409

 
260

 
11

 
403

Corporate debt securities
—

 
—

 
—

 
—

 
1

 
54

Municipal bonds
—

 
—

 
—

 
—

 
—

 
1

U.S. government bonds
1

 
—

 
285

 
3

 
1

 
186

Other debt securities
—

 
—

 
—

 
—

 
—

 
2

Total NDTF Investments(a)
$
314

 
$
3

 
$
725

 
$
263

 
$
13

 
$
659

Other Investments
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
—

 
$
2

 
$
—

 
$
—

 
$
1

Municipal bonds
3

 
—

 
50

 
—

 
—

 
47

Total Other Investments
$
3

 
$
—

 
$
52

 
$
—

 
$
—

 
$
48

Total Investments
$
317

 
$
3

 
$
777

 
$
263

 
$
13

 
$
707

(a)
During the six months ended June 30, 2019, Duke Energy Florida continued to receive reimbursements from the NDTF for costs related to ongoing decommissioning activity of Crystal River Unit 3.
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three and six months ended June 30, 2019, and 2018, were as follows.
 
Three Months Ended
Six Months Ended
(in millions)
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
FV-NI:
 
 
 
 
 
 
 
Realized gains
$
15

 
$
4

 
$
17

 
$
5

Realized losses
8

 
2

 
9

 
2

AFS:
 
 
 
 
 
 
 
 Realized gains
29

 
—

 
29

 
—

 Realized losses
24

 
1

 
24

 
2


DUKE ENERGY INDIANA
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are measured at FV-NI and debt investments are classified as AFS.
 
June 30, 2019
 
December 31, 2018
 
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
$
37

 
$
—

 
$
74

 
$
29

 
$
—

 
$
67

Corporate debt securities
—

 
—

 
7

 
—

 
—

 
8

Municipal bonds
—

 
1

 
34

 
—

 
1

 
33

U.S. government bonds
—

 
—

 
1

 
—

 
—

 
—

Total Investments
$
37

 
$
1

 
$
116

 
$
29

 
$
1

 
$
108


Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three and six months ended June 30, 2019, and 2018, were insignificant.

81



FINANCIAL STATEMENTS
INVESTMENTS IN DEBT AND EQUITY SECURITIES


DEBT SECURITY MATURITIES
The table below summarizes the maturity date for debt securities.
 
June 30, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Indiana

Due in one year or less
$
365

 
$
43

 
$
315

 
$
29

 
$
286

 
$
4

Due after one through five years
527

 
213

 
265

 
257

 
8

 
15

Due after five through 10 years
499

 
242

 
203

 
192

 
11

 
4

Due after 10 years
1,186

 
622

 
458

 
428

 
30

 
19

Total
$
2,577


$
1,120


$
1,241


$
906


$
335


$
42


12. 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 as defined by GAAP. Certain investments are not categorized within the fair value hierarchy. These investments are measured at fair value using the NAV per share practical expedient. The NAV is derived based on the investment cost, less any impairment, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer.
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 six months ended June 30, 2019, and 2018.
Valuation methods of the primary fair value measurements disclosed below are as follows.
Investments in equity securities
The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as the New York Stock Exchange 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 natural gas supply contracts, are primarily valued using internally developed discounted cash flow models that incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or non-performance risk (after reflecting credit enhancements such as collateral), and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for natural gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate the fair value of natural gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves.

82



FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS

Interest rate derivatives
Most over-the-counter interest rate contract derivatives are valued using financial models that utilize observable inputs for similar instruments and are classified as Level 2. Inputs include forward interest rate curves, notional amounts, interest rates and credit quality of the counterparties.
Other fair value considerations
See Note 11 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2018, 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 10. See Note 11 for additional information related to investments by major security type for the Duke Energy Registrants.
 
June 30, 2019
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Not Categorized

NDTF equity securities
$
5,178

$
5,119

$
—

$
—

$
59

NDTF debt securities
2,425

870

1,555

—

—

Other equity securities
112

112

—

—

—

Other debt securities
315

99

216

—

—

Derivative assets
38

3

—

35

—

Total assets
8,068

6,203

1,771

35

59

Derivative liabilities
(342
)
(12
)
(216
)
(114
)
—

Net assets (liabilities)
$
7,726

$
6,191

$
1,555

$
(79
)
$
59

 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Not Categorized

NDTF equity securities
$
4,475

$
4,410

$
—

$
—

$
65

NDTF debt securities
2,231

576

1,655

—

—

Other equity securities
99

99

—

—

—

Other debt securities
270

67

203

—

—

Derivative assets
57

4

25

28

—

Total assets
7,132

5,156

1,883

28

65

Derivative liabilities
(242
)
(11
)
(90
)
(141
)
—

Net assets (liabilities)
$
6,890

$
5,145

$
1,793

$
(113
)
$
65


The following tables provide reconciliations 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)
2019

 
2018

 
2019

 
2018

Balance at beginning of period
$
(115
)
 
$
(124
)
 
$
(113
)
 
$
(114
)
Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Purchases
38

 
56

 
38

 
56

Settlements
(11
)
 
(15
)
 
(23
)
 
(29
)
Total gains (losses) included on the Condensed Consolidated Balance Sheet
9

 
(14
)
 
19

 
(10
)
Balance at end of period
$
(79
)
 
$
(97
)
 
$
(79
)
 
$
(97
)


83



FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS

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, 2019
(in millions)
Total Fair Value

Level 1

Level 2

Not Categorized

NDTF equity securities
$
2,883

$
2,824

$
—

$
59

NDTF debt securities
1,161

250

911

—

Total assets
4,044

3,074

911

59

Derivative liabilities
(93
)
—

(93
)
—

Net assets
$
3,951

$
3,074

$
818

$
59

 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

Not Categorized

NDTF equity securities
$
2,484

$
2,419

$
—

$
65

NDTF debt securities
1,069

149

920

—

Derivative assets
3

—

3

—

Total assets
3,556

2,568

923

65

Derivative liabilities
(33
)
—

(33
)
—

Net assets
$
3,523

$
2,568

$
890

$
65


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, 2019
 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

 
Total Fair Value

Level 1

Level 2

NDTF equity securities
$
2,295

$
2,295

$
—

 
$
1,991

$
1,991

$
—

NDTF debt securities
1,264

620

644

 
1,162

427

735

Other debt securities
97

47

50

 
64

17

47

Derivative assets
—

—

—

 
4

—

4

Total assets
3,656

2,962

694

 
3,221

2,435

786

Derivative liabilities
(90
)
—

(90
)
 
(44
)
—

(44
)
Net assets
$
3,566

$
2,962

$
604

 
$
3,177

$
2,435

$
742


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, 2019
 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

 
Total Fair Value

Level 1

Level 2

NDTF equity securities
$
1,886

$
1,886

$
—

 
$
1,588

$
1,588

$
—

NDTF debt securities
948

304

644

 
906

294

612

Other debt securities
2

2

—

 
6

6

—

Derivative assets
—

—

—

 
4

—

4

Total assets
2,836

2,192

644

 
2,504

1,888

616

Derivative liabilities
(35
)
—

(35
)
 
(27
)
—

(27
)
Net assets
$
2,801

$
2,192

$
609

 
$
2,477

$
1,888

$
589



84



FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS

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, 2019
 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

 
Total Fair Value

Level 1

Level 2

NDTF equity securities
$
409

$
409

$
—

 
$
403

$
403

$
—

NDTF debt securities
316

316

—

 
256

133

123

Other debt securities
52

2

50

 
48

1

47

Total assets
777

727

50

 
707

537

170

Derivative liabilities
(39
)
—

(39
)
 
(9
)
—

(9
)
Net assets
$
738

$
727

$
11

 
$
698

$
537

$
161


DUKE ENERGY OHIO
The recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets were not material at June 30, 2019, and December 31, 2018.
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, 2019
 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

 
Total Fair Value

Level 1

Level 2

Level 3

Other equity securities
$
74

$
74

$
—

$
—

 
$
67

$
67

$
—

$
—

Other debt securities
42

—

42

—

 
41

—

41

—

Derivative assets
29

1

—

28

 
23

1

—

22

Total assets
$
145

$
75

$
42

$
28

 
$
131

$
68

$
41

$
22

Derivative liabilities
(2
)
(2
)
—

—

 
—

—

—

—

Net assets
$
143

$
73

$
42

$
28

 
$
131

$
68

$
41

$
22


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)
2019

 
2018

 
2019

 
2018

Balance at beginning of period
$
5

 
$
7

 
$
22

 
$
27

Purchases, sales, issuances and settlements:

 
 
 
 
 
 
Purchases
29

 
49

 
29

 
49

Settlements
(9
)
 
(14
)
 
(19
)
 
(28
)
Total gains (losses) included on the Condensed Consolidated Balance Sheet
3

 
2

 
(4
)
 
(4
)
Balance at end of period
$
28

 
$
44

 
$
28

 
$
44


85



FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS

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, 2019
 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 3

 
Total Fair Value

Level 1

Level 3

Derivative assets
$
2

$
2

$
—

 
$
3

3

—

Derivative liabilities
(114
)
—

(114
)
 
(141
)
—

(141
)
Net (liabilities) assets
$
(112
)
$
2

$
(114
)
 
$
(138
)
$
3

$
(141
)

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)
2019

 
2018

 
2019

 
2018

Balance at beginning of period
$
(121
)
 
$
(132
)
 
$
(141
)
 
$
(142
)
Total gains (losses) and settlements
7

 
(18
)
 
27

 
(8
)
Balance at end of period
$
(114
)
 
$
(150
)
 
$
(114
)
 
$
(150
)
QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS
The following tables include quantitative information about the Duke Energy Registrants' derivatives classified as Level 3.
 
June 30, 2019
 
Fair Value
 
 
 
 
 
Investment Type
(in millions)
Valuation Technique
Unobservable Input
Range
Duke Energy Ohio
 

 
 
 
 
 
FTRs
$
7

RTO auction pricing
FTR price – per MWh
$
0.36

-
$
3.13

Duke Energy Indiana
 

 
 
 
 
 
FTRs
28

RTO auction pricing
FTR price – per MWh
(0.59
)
-
7.61

Piedmont
 
 
 
 
 
 
Natural gas contracts
(114
)
Discounted cash flow
Forward natural gas curves – price per MMBtu
1.96

-
3.21

Duke Energy
 
 
 
 
 
 
Total Level 3 derivatives
$
(79
)
 
 
 
 
 
 
December 31, 2018
 
Fair Value
 
 
 
 
 
Investment Type
(in millions)
Valuation Technique
Unobservable Input
Range
Duke Energy Ohio
 

 
 
 
 
 
FTRs
$
6

RTO auction pricing
FTR price – per MWh
$
1.19

-
$
4.59

Duke Energy Indiana
 

 
 
 
 
 
FTRs
22

RTO auction pricing
FTR price – per MWh
(2.07
)
-
8.27

Piedmont
 
 
 
 
 
 
Natural gas contracts
(141
)
Discounted cash flow
Forward natural gas curves – price per MMBtu
1.87

-
2.95

Duke Energy
 
 
 
 
 
 
Total Level 3 derivatives
$
(113
)
 
 
 
 
 


86



FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS

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, 2019
 
December 31, 2018
(in millions)
Book Value

 
Fair Value

 
Book Value

 
Fair Value

Duke Energy(a)
$
57,040

 
$
60,667

 
$
54,529

 
$
54,534

Duke Energy Carolinas
10,964

 
12,300

 
10,939

 
11,471

Progress Energy
19,199

 
21,408

 
18,911

 
19,885

Duke Energy Progress
9,049

 
9,707

 
8,204

 
8,300

Duke Energy Florida
7,213

 
8,173

 
7,321

 
7,742

Duke Energy Ohio
2,509

 
2,779

 
2,165

 
2,239

Duke Energy Indiana
3,723

 
4,363

 
3,782

 
4,158

Piedmont
2,384

 
2,576

 
2,138

 
2,180


(a)
Book value of long-term debt includes $1.5 billion as of June 30, 2019, and $1.6 billion as of December 31, 2018, of unamortized debt discount and premium, net in purchase accounting adjustments related to the mergers with Progress Energy and Piedmont that are excluded from fair value of long-term debt.
At both June 30, 2019, and December 31, 2018, 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.
13. VARIABLE INTEREST ENTITIES
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, 2019, and the year ended December 31, 2018, or is expected to be provided in the future that was not previously contractually required.
Receivables Financing – DERF / DEPR / DEFR
DERF, DEPR and 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 are considered primary beneficiaries and 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 approximately 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 is considered the primary beneficiary and consolidates CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy Indiana consolidate CRC.

87



FINANCIAL STATEMENTS
VARIABLE INTEREST ENTITIES


Receivables Financing – Credit Facilities
The following table summarizes the amounts and expiration dates of the credit facilities and associated restricted receivables described above.
 
Duke Energy
 
 
 
Duke Energy

 
Duke Energy

 
Duke Energy

 
 
 
Carolinas

 
Progress

 
Florida

(in millions)
CRC

 
DERF

 
DEPR

 
DEFR

Expiration date
December 2020

 
December 2020

 
February 2021

 
April 2021

Credit facility amount
$
350

 
$
475

 
$
325

 
$
250

Amounts borrowed at June 30, 2019
328

 
475

 
325

 
250

Amounts borrowed at December 31, 2018
325

 
450

 
300

 
225

Restricted Receivables at June 30, 2019
484

 
671

 
518

 
472

Restricted Receivables at December 31, 2018
564

 
699

 
547

 
357


Nuclear Asset-Recovery Bonds – DEFPF
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 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.
The following table summarizes the impact of DEFPF on Duke Energy Florida's Condensed Consolidated Balance Sheets.
(in millions)
June 30, 2019

December 31, 2018

Receivables of VIEs
$
8

$
5

Regulatory Assets: Current
52

52

Current Assets: Other
31

39

Other Noncurrent Assets: Regulatory assets
1,019

1,041

Current Liabilities: Other
10

10

Current maturities of long-term debt
54

53

Long-Term Debt
1,082

1,111


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. Additionally, Duke Energy has VIEs associated with tax equity arrangements entered into with third-party investors in order to finance the cost of solar energy systems eligible for tax credits. The activities that most significantly impacted the economic performance of these renewable energy facilities were decisions associated with siting, negotiating PPAs and EPC agreements, and decisions associated with ongoing operations and maintenance-related activities. Duke Energy is considered the primary beneficiary and 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, 2019

December 31, 2018

Current Assets: Other
$
109

$
123

Property, plant and equipment, cost
4,419

4,007

Accumulated depreciation and amortization
(769
)
(698
)
Other Noncurrent Assets: Other
289

261

Current maturities of long-term debt
178

174

Long-Term Debt
1,610

1,587

Other Noncurrent Liabilities: Asset Retirement Obligations
108

106

Other Noncurrent Liabilities: Other
222

212



88



FINANCIAL STATEMENTS
VARIABLE INTEREST ENTITIES


NON-CONSOLIDATED VIEs
The following tables summarize the impact of non-consolidated VIEs on the Condensed Consolidated Balance Sheets.
 
June 30, 2019
 
Duke Energy
 
Duke

 
Duke

 
Pipeline

 
Commercial

 
Other

 
 
 
Energy

 
Energy

(in millions)
Investments

 
Renewables

 
VIEs 

 
Total

 
Ohio

 
Indiana

Receivables from affiliated companies
$
—

 
$
—

 
$
—

 
$
—

 
$
45

 
$
81

Investments in equity method unconsolidated affiliates
1,066

 
187

 
52

 
1,305

 
—

 
—

Total assets
$
1,066

 
$
187

 
$
52

 
$
1,305

 
$
45

 
$
81

Taxes accrued
(2
)
 
—

 
—

 
(2
)
 
—

 
—

Other current liabilities
—

 
—

 
4

 
4

 
—

 
—

Deferred income taxes
48

 
—

 
—

 
48

 
—

 
—

Other noncurrent liabilities
—

 
—

 
11

 
11

 
—

 
—

Total liabilities
$
46

 
$
—

 
$
15

 
$
61

 
$
—

 
$
—

Net assets
$
1,020

 
$
187

 
$
37

 
$
1,244

 
$
45

 
$
81


 
December 31, 2018
 
Duke Energy
 
Duke

 
Duke

 
Pipeline

 
Commercial

 
Other

 
 
 
Energy

 
Energy

(in millions)
Investments

 
Renewables

 
VIEs

 
Total

 
Ohio

 
Indiana

Receivables from affiliated companies
$
—

 
$
—

 
$
—

 
$
—

 
$
93

 
$
118

Investments in equity method unconsolidated affiliates
822

 
190

 
48

 
1,060

 
—

 
—

Total assets
$
822

 
$
190

 
$
48

 
$
1,060

 
$
93

 
$
118

Taxes accrued
(1
)
 
—

 
—

 
(1
)
 
—

 
—

Other current liabilities
—

 
—

 
4

 
4

 
—

 
—

Deferred income taxes
21

 
—

 
—

 
21

 
—

 
—

Other noncurrent liabilities
—

 
—

 
12

 
12

 
—

 
—

Total liabilities
$
20


$
—


$
16


$
36


$
—


$
—

Net assets
$
802

 
$
190

 
$
32

 
$
1,024

 
$
93

 
$
118


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, including Duke Energy's guarantee agreement to support its share of the ACP revolving credit facility. Duke Energy's maximum exposure to loss under the terms of the guarantee is $790 million, which represents 47 percent of the outstanding borrowings under the credit facility as of June 30, 2019. For more information on various guarantees, refer to Note 4.
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 Duke Energy's ownership interest and investment balances in these joint ventures.
 
 
 
VIE Investment Amount (in millions)
 
Ownership
 
June 30,
 
December 31,
Entity Name
Interest
 
2019
 
2018
ACP(a)
47
%
 
$
1,041

 
$
797

Constitution
24
%
 
25

 
25

Total
 
 
$
1,066

 
$
822


(a)
Duke Energy evaluated this investment for impairment as of June 30, 2019, and December 31, 2018, and determined that fair value approximated carrying value and therefore no impairment was necessary.

89



FINANCIAL STATEMENTS
VARIABLE INTEREST ENTITIES


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.
Pioneer
Duke Energy holds a 50 percent equity interest in Pioneer. Pioneer is considered a VIE due to having insufficient equity to finance its own activities without subordinated financial support. The activities that most significantly impact Pioneer's economic performance are decisions related to the development of new transmission facilities. The power to direct these activities is jointly and equally shared by Duke Energy and the other joint venture partner, American Electric Power; therefore, Duke Energy does not consolidate Pioneer.
OVEC
Duke Energy Ohio’s 9 percent ownership interest in OVEC is considered a non-consolidated VIE due to OVEC having insufficient equity to finance its activities without subordinated financial support. The activities that most significantly impact OVEC's economic performance include fuel strategy and supply activities and decisions associated with ongoing operations and maintenance-related activities. Duke Energy Ohio does not have the unilateral power to direct these activities, and therefore, does not consolidate OVEC.
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 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. On March 31, 2018, FES, a subsidiary of FirstEnergy and an ICPA counterparty with a power participation ratio of 4.85 percent, filed for Chapter 11 bankruptcy, which could increase costs allocated to the counterparties. On July 31, 2018, the bankruptcy court rejected the FES ICPA, which means OVEC is an unsecured creditor in the FES bankruptcy proceeding. Duke Energy Ohio cannot predict the impact of the bankruptcy filing on its OVEC interests. In addition, certain proposed environmental rulemaking could result in future increased OVEC 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.
The following table shows the gross and net receivables sold.
 
Duke Energy Ohio
 
Duke Energy Indiana
(in millions)
June 30, 2019

 
December 31, 2018

 
June 30, 2019

 
December 31, 2018

Receivables sold
$
210

 
$
269

 
$
314

 
$
336

Less: Retained interests
45

 
93

 
81

 
118

Net receivables sold
$
165

 
$
176

 
$
233

 
$
218


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)
2019

 
2018

 
2019

 
2018

 
2019

 
2018

 
2019

 
2018

Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receivables sold
$
429

 
$
461

 
$
1,004

 
$
1,028

 
$
676

 
$
692

 
$
1,410

 
$
1,386

Loss recognized on sale
3

 
3

 
7

 
6

 
4

 
4

 
9

 
7

Cash flows
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash proceeds from receivables sold
$
448

 
$
465

 
$
1,045

 
$
1,050

 
$
680

 
$
686

 
$
1,438

 
$
1,397

Collection fees received
1

 
1

 
1

 
1

 
1

 
1

 
1

 
1

Return received on retained interests
2

 
1

 
4

 
3

 
2

 
2

 
5

 
4


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.

90



FINANCIAL STATEMENTS
REVENUE


14. REVENUE
Duke Energy earns substantially all of its revenues through its reportable segments, Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables.
Electric Utilities and Infrastructure
Electric Utilities and Infrastructure earns the majority of its revenues through retail and wholesale electric service through the generation, transmission, distribution and sale of electricity. Duke Energy generally provides retail and wholesale electric service customers with their full electric load requirements or with supplemental load requirements when the customer has other sources of electricity.
The majority of wholesale revenues are full requirements contracts where the customers purchase the substantial majority of their energy needs and do not have a fixed quantity of contractually required energy or capacity. As such, related forecasted revenues are considered optional purchases. Supplemental requirements contracts that include contracted blocks of energy and capacity at contractually fixed prices have the following estimated remaining performance obligations:
 
Remaining Performance Obligations
(in millions)
2019

2020

2021

2022

2023

Thereafter

Total

Progress Energy
$
63

$
121

$
87

$
82

$
39

$
42

$
434

Duke Energy Progress
4

9

9

9

9

9

49

Duke Energy Florida
59

112

78

73

30

33

385

Duke Energy Indiana
5

10

5

—

—

—

20


Revenues for block sales are recognized monthly as energy is delivered and stand-ready service is provided, consistent with invoiced amounts and unbilled estimates.
Gas Utilities and Infrastructure
Gas Utilities and Infrastructure earns its revenues through retail and wholesale natural gas service through the transportation, distribution and sale of natural gas. Duke Energy generally provides retail and wholesale natural gas service customers with all natural gas load requirements. Additionally, while natural gas can be stored, substantially all natural gas provided by Duke Energy is consumed by customers simultaneously with receipt of delivery.
Fixed capacity payments under long-term contracts for the Gas Utilities and Infrastructure segment include minimum margin contracts and supply arrangements with municipalities and power generation facilities. Revenues for related sales are recognized monthly as natural gas is delivered and stand-ready service is provided, consistent with invoiced amounts and unbilled estimates. Estimated remaining performance obligations are as follows:
 
Remaining Performance Obligations
(in millions)
2019

2020

2021

2022

2023

Thereafter

Total

Piedmont
$
34

$
69

$
65

$
64

$
61

$
432

$
725


Commercial Renewables
Commercial Renewables earns the majority of its revenues through long-term PPAs and generally sells all of its wind and solar facility output, electricity and RECs to customers. The majority of these PPAs have historically been accounted for as leases. For PPAs that are not accounted for as leases, the delivery of electricity and the delivery of RECs are considered separate performance obligations.
Other
The remainder of Duke Energy’s operations is presented as Other, which does not include material revenues from contracts with customers.

91



FINANCIAL STATEMENTS
REVENUE


Disaggregated Revenues
Disaggregated revenues are presented as follows:
 
Three Months Ended June 30, 2019
 
 
Duke

 
Duke

Duke

Duke

Duke

 
(in millions)
Duke

Energy

Progress

Energy

Energy

Energy

Energy

 
By market or type of customer
Energy

Carolinas

Energy

Progress

Florida

Ohio

Indiana

Piedmont

Electric Utilities and Infrastructure
 
 
 
 
 
 
 
 
   Residential
$
2,304

$
679

$
1,243

$
496

$
747

$
159

$
225

$
—

   General
1,584

531

750

339

411

105

197

—

   Industrial
759

289

231

164

67

36

201

—

   Wholesale
527

109

351

309

42

9

59

—

   Other revenues
187

68

99

44

55

25

27

—

Total Electric Utilities and Infrastructure revenue from contracts with customers
$
5,361

$
1,676

$
2,674

$
1,352

$
1,322

$
334

$
709

$
—

 
 
 
 
 
 
 
 
 
Gas Utilities and Infrastructure
 
 
 
 
 
 
 
 
   Residential
$
146

$
—

$
—

$
—

$
—

$
64

$
—

$
82

   Commercial
85

—

—

—

—

26

—

59

   Industrial
29

—

—

—

—

3

—

24

   Power Generation
—

—

—

—

—

—

—

13

   Other revenues
22

—

—

—

—

2

—

19

Total Gas Utilities and Infrastructure revenue from contracts with customers
$
282

$
—

$
—

$
—

$
—

$
95

$
—

$
197

 
 
 
 
 
 
 
 
 
Commercial Renewables
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
46

$
—

$
—

$
—

$
—

$
—

$
—

$
—

 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
6

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Total revenue from contracts with customers
$
5,695

$
1,676

$
2,674

$
1,352

$
1,322

$
429

$
709

$
197

 
 
 
 
 
 
 
 
 
Other revenue sources(a)
$
178

$
37

$
70

$
35

$
31

$
4

$
5

$
12

Total revenues
$
5,873

$
1,713

$
2,744

$
1,387

$
1,353

$
433

$
714

$
209


92



FINANCIAL STATEMENTS
REVENUE


 
Three Months Ended June 30, 2018
 
 
Duke

 
Duke

Duke

Duke

Duke

 
(in millions)
Duke

Energy

Progress

Energy

Energy

Energy

Energy

 
By market or type of customer
Energy

Carolinas

Energy

Progress

Florida

Ohio

Indiana

Piedmont

Electric Utilities and Infrastructure
 
 
 
 
 
 
 
 
   Residential
$
2,185

$
659

$
1,099

$
452

$
648

$
181

$
245

$
—

   General
1,481

501

678

300

377

110

188

—

   Industrial
736

286

224

159

66

33

192

—

   Wholesale
515

115

322

287

34

2

77

—

   Other revenues
194

85

96

47

50

23

20

—

Total Electric Utilities and Infrastructure revenue from contracts with customers
$
5,111

$
1,646

$
2,419

$
1,245

$
1,175

$
349

$
722

$
—

 
 
 
 
 
 
 
 
 
Gas Utilities and Infrastructure
 
 
 
 
 
 
 
 
   Residential
$
153

$
—

$
—

$
—

$
—

$
66

$
—

$
87

   Commercial
87

—

—

—

—

28

—

59

   Industrial
31

—

—

—

—

3

—

28

   Power Generation
—

—

—

—

—

—

—

14

   Other revenues
23

—

—

—

—

6

—

17

Total Gas Utilities and Infrastructure revenue from contracts with customers
$
294

$
—

$
—

$
—

$
—

$
103

$
—

$
205

 
 
 
 
 
 
 
 
 
Commercial Renewables
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
47

$
—

$
—

$
—

$
—

$
—

$
—

$
—

 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
15

$
—

$
—

$
—

$
—

$
10

$
—

$
—

Total revenue from contracts with customers
$
5,467

$
1,646

$
2,419

$
1,245

$
1,175

$
462

$
722

$
205

 
 
 
 
 
 
 
 
 
Other revenue sources(a)
$
176

$
26

$
79

$
46

$
28

$
(3
)
$
16

$
10

Total revenues
$
5,643

$
1,672

$
2,498

$
1,291

$
1,203

$
459

$
738

$
215

(a)
Other revenue sources include revenues from leases, derivatives and alternative revenue programs that are not considered revenues from contracts with customers. Alternative revenue programs in certain jurisdictions include regulatory mechanisms that periodically adjust for over or under collection of related revenues.


93



FINANCIAL STATEMENTS
REVENUE


 
Six Months Ended June 30, 2019
 
 
Duke

 
Duke

Duke

Duke

Duke

 
(in millions)
Duke

Energy

Progress

Energy

Energy

Energy

Energy

 
By market or type of customer
Energy

Carolinas

Energy

Progress

Florida

Ohio

Indiana

Piedmont

Electric Utilities and Infrastructure
 
 
 
 
 
 
 
 
   Residential
$
4,674

$
1,439

$
2,357

$
1,032

$
1,325

$
348

$
531

$
—

   General
3,011

1,027

1,382

645

737

208

394

—

   Industrial
1,470

555

453

325

128

69

391

—

   Wholesale
1,068

228

704

624

80

23

113

—

   Other revenues
359

146

271

169

102

41

44

—

Total Electric Utilities and Infrastructure revenue from contracts with customers
$
10,582

$
3,395

$
5,167

$
2,795

$
2,372

$
689

$
1,473

$
—

 
 
 
 
 
 
 
 
 
Gas Utilities and Infrastructure
 
 
 
 
 
 
 
 
   Residential
$
560

$
—

$
—

$
—

$
—

$
176

$
—

$
384

   Commercial
291

—

—

—

—

75

—

216

   Industrial
77

—

—

—

—

10

—

66

   Power Generation
—

—

—

—

—

—

—

26

   Other revenues
85

—

—

—

—

10

—

75

Total Gas Utilities and Infrastructure revenue from contracts with customers
$
1,013

$
—

$
—

$
—

$
—

$
271

$
—

$
767

 
 
 
 
 
 
 
 
 
Commercial Renewables
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
88

$
—

$
—

$
—

$
—

$
—

$
—

$
—

 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
10

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Total Revenue from contracts with customers
$
11,693

$
3,395

$
5,167

$
2,795

$
2,372

$
960

$
1,473

$
767

 
 
 
 
 
 
 
 
 
Other revenue sources(a)
$
343

$
62

$
149

$
76

$
67

$
4

$
9

$
21

Total revenues
$
12,036

$
3,457

$
5,316

$
2,871

$
2,439

$
964

$
1,482

$
788


94



FINANCIAL STATEMENTS
REVENUE


 
Six Months Ended June 30, 2018
 
 
Duke

 
Duke

Duke

Duke

Duke

 
(in millions)
Duke

Energy

Progress

Energy

Energy

Energy

Energy

 
By market or type of customer
Energy

Carolinas

Energy

Progress

Florida

Ohio

Indiana

Piedmont

Electric Utilities and Infrastructure
 
 
 
 
 
 
 
 
   Residential
$
4,535

$
1,440

$
2,211

$
968

$
1,243

$
361

$
523

$
—

   General
2,856

973

1,309

599

710

206

366

—

   Industrial
1,400

541

432

304

128

63

365

—

   Wholesale
1,148

234

768

684

84

2

145

—

   Other revenues
333

152

225

132

93

37

37

—

Total Electric Utilities and Infrastructure revenue from contracts with customers
$
10,272

$
3,340

$
4,945

$
2,687

$
2,258

$
669

$
1,436

$
—

 
 
 
 
 
 
 
 
 
Gas Utilities and Infrastructure
 
 
 
 
 
 
 
 
   Residential
$
566

$
—

$
—

$
—

$
—

$
177

$
—

$
389

   Commercial
288

—

—

—

—

77

—

211

   Industrial
79

—

—

—

—

10

—

69

   Power Generation
—

—

—

—

—

—

—

27

   Other revenues
78

—

—

—

—

12

—

66

Total Gas Utilities and Infrastructure revenue from contracts with customers
$
1,011

$
—

$
—

$
—

$
—

$
276

$
—

$
762

 
 
 
 
 
 
 
 
 
Commercial Renewables
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
80

$
—

$
—

$
—

$
—

$
—

$
—

$
—

 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
31

$
—

$
—

$
—

$
—

$
24

$
—

$
—

Total Revenue from contracts with customers
$
11,394

$
3,340

$
4,945

$
2,687

$
2,258

$
969

$
1,436

$
762

 
 
 
 
 
 
 
 
 
Other revenue sources(a)
$
384

$
95

$
129

$
64

$
60

$
14

$
33

$
6

Total revenues
$
11,778

$
3,435

$
5,074

$
2,751

$
2,318

$
983

$
1,469

$
768

(a)
Other revenue sources include revenues from leases, derivatives and alternative revenue programs that are not considered revenues from contracts with customers. Alternative revenue programs in certain jurisdictions include regulatory mechanisms that periodically adjust for over or under collection of related revenues.
UNBILLED REVENUE
Unbilled revenues are recognized by applying customer billing rates to the estimated volumes of energy or 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 and meter reading schedules, and the impact of weather normalization or margin decoupling mechanisms.
Unbilled revenues are included within Receivables and Receivables of VIEs on the Condensed Consolidated Balance Sheets as shown in the following table.
(in millions)
June 30, 2019

 
December 31, 2018

Duke Energy
$
790

 
$
896

Duke Energy Carolinas
288

 
313

Progress Energy
270

 
244

Duke Energy Progress
148

 
148

Duke Energy Florida
122

 
96

Duke Energy Ohio
1

 
2

Duke Energy Indiana
14

 
23

Piedmont
4

 
73



95



FINANCIAL STATEMENTS
REVENUE


Additionally, Duke Energy Ohio and Duke Energy Indiana sell, on a revolving basis, nearly all of their retail accounts receivable, including receivables for unbilled revenues, to an affiliate, CRC, and account for the transfers of receivables as sales. Accordingly, the receivables sold are not reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 13 for further information. These receivables for unbilled revenues are shown in the table below.
(in millions)
June 30, 2019

 
December 31, 2018

Duke Energy Ohio
$
65

 
$
86

Duke Energy Indiana
116

 
128


15. STOCKHOLDERS' EQUITY
Basic 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, the weighted average number of common shares outstanding and common and preferred share dividends declared.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions, except per-share amounts)
2019

 
2018

 
2019

 
2018

Income from continuing operations attributable to Duke Energy common stockholders excluding impact of participating securities
$
819

 
$
504

 
$
1,718

 
$
1,123

 
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
728

 
703

 
728

 
702

Equity Forwards
—

 
1

 
—

 
—

Weighted average common shares outstanding – diluted
728

 
704

 
728

 
702

EPS from continuing operations attributable to Duke Energy common stockholders
 
 
 
 
 
 
 
Basic and Diluted
$
1.12

 
$
0.72

 
$
2.36

 
$
1.60

Potentially dilutive items excluded from the calculation(a)
2

 
2

 
2

 
2

Dividends declared per common share
$
0.928

 
$
0.89

 
$
1.855

 
$
1.78

Dividends declared on preferred stock per depositary share
$
0.307

 
$
—

 
$
0.307

 
$
—

(a)
Performance stock awards were not included in the dilutive securities calculation because the performance measures related to the awards had not been met.
Common Stock
On February 20, 2018, Duke Energy filed a prospectus supplement and executed an EDA under which it may sell up to $1 billion of its common stock through an ATM offering program, including an equity forward sales component. The EDA was entered into with the Agents. Under the terms of the EDA, Duke Energy may issue and sell, through any of the Agents, shares of common stock through September 23, 2019.
In June 2018, Duke Energy marketed two separate tranches, each for 1.3 million shares, of common stock through equity forward transactions under the ATM program. In December 2018, Duke Energy physically settled these equity forwards by delivering 2.6 million shares of common stock in exchange for net proceeds of approximately $195 million.
Separately, in March 2018, Duke Energy marketed an equity offering of 21.3 million shares of common stock through an Underwriting Agreement. In connection with the offering, Duke Energy entered into equity forward sale agreements. The equity forwards required Duke Energy to either physically settle the transactions by issuing 21.3 million shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreements, or net settle in whole or in part through the delivery or receipt of cash or shares. In June 2018, Duke Energy physically settled one-half of the equity forwards by delivering approximately 10.6 million shares of common stock in exchange for net cash proceeds of approximately $781 million. In December 2018, Duke Energy physically settled the remaining equity forward by delivering 10.6 million shares of common stock in exchange for net cash proceeds of approximately $766 million.
In 2018, Duke Energy also issued 2.2 million shares through its DRIP with an increase in additional paid-in capital of approximately $174 million. For the six months ended June 30, 2019, Duke Energy issued 0.9 million shares through its DRIP with an increase in additional paid-in capital of approximately $80 million.

96



FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY


In March and April 2019, Duke Energy marketed two separate tranches, each for 1.1 million shares, of common stock through equity forward transactions under the ATM program. The first tranche had an initial forward price of $89.83 per share and the second tranche had an initial forward price of $88.82 per share. In May and June 2019, a third tranche of 1.6 million shares of common stock was marketed and had an initial forward price of $86.23. The equity forwards require Duke Energy to either physically settle the transaction by issuing shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreements or net settle in whole or in part through the delivery or receipt of cash or shares. The settlement alternative is at Duke Energy's election. No amounts have or will be recorded in Duke Energy's Condensed Consolidated Financial Statements with respect to these ATM offerings until settlements of the equity forwards occur, which is expected by December 31, 2019. The initial forward sale price will be subject to adjustment based on a floating interest rate factor and other fixed amounts specified in the relevant forward sale agreements. Until settlement of the equity forwards, EPS dilution resulting from the agreements, if any, will be determined under the treasury stock method.
Preferred Stock
On March 29, 2019, Duke Energy completed the issuance of 40 million depositary shares, each representing 1/1,000th share of its Series A Cumulative Redeemable Perpetual Preferred Stock, at a price of $25 per depositary share. The transaction resulted in net proceeds of $973 million after issuance costs and the proceeds are being used for general corporate purposes and to reduce short-term debt. The preferred stock has a $25 liquidation preference per depositary share and earns dividends on a cumulative basis at a rate of 5.75 percent per annum. Dividends are payable quarterly in arrears on the 16th day of March, June, September and December, and began on June 16, 2019. Dividends issued on its preferred stock are subject to approval by the Duke Energy Board of Directors. However, the deferral of dividend payments on the preferred stock prohibits the declaration of common stock dividends. Dividends declared on preferred stock will be recorded on the income statement as a reduction of net income to arrive at net income attributable to Duke Energy common stockholders. Dividends accumulated on preferred stock will be a reduction to net income used in the calculation of basic and diluted EPS.
The Series A Preferred Stock ranks, with respect to dividends and distributions upon liquidation or dissolution:
•
senior to Common Stock and to each other class or series of capital stock established after the original issue date of the Series A Preferred Stock that is expressly made subordinated to the Series A Preferred Stock;
•
on a parity with any class or series of capital stock established after the original issue date of the Series A Preferred Stock that is not expressly made senior or subordinated to the Series A Preferred Stock;
•
junior to any class or series of capital stock established after the original issue date of the Series A Preferred Stock that is expressly made senior to the Series A Preferred Stock;
•
junior to all of existing and future indebtedness (including indebtedness outstanding under Duke Energy's credit facilities, unsecured senior notes, junior subordinated debentures and commercial paper) and other liabilities with respect to assets available to satisfy claims against Duke Energy; and
•
structurally subordinated to existing and future indebtedness and other liabilities of Duke Energy's subsidiaries and future preferred stock of subsidiaries.
The preferred stock has no maturity or mandatory redemption date, is not redeemable at the option of the holders and includes separate call options. The first call option allows Duke Energy to call the preferred stock at a redemption price of $25.50 per depositary share prior to June 15, 2024, in whole but not in part, at any time within 120 days after a ratings event where a rating agency amends, clarifies or changes the criteria it uses to assign equity credit for securities such as the preferred stock. The second call option allows Duke Energy to call the preferred stock, in whole or in part, at any time, on or after June 15, 2024, at a redemption price of $25 per depositary share. Duke Energy is also required to redeem all accumulated and unpaid dividends if either call option is exercised.
Holders of the preferred stock have no voting rights with respect to matters that generally require the approval of voting stockholders. The limited voting rights of holders of preferred stock include the right to vote as a single class on certain matters that may affect the preference or special rights of the preferred stock, except in the instance that Duke Energy elects to defer the payment of dividends for a total of six quarterly full dividend periods. If dividends are deferred for a cumulative total of six quarterly full dividend periods, whether or not for consecutive dividend periods, holders of the preferred stock have the right to elect two additional Board members to the Duke Energy Board of Directors.
16. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT RETIREMENT PLANS
Duke Energy and certain subsidiaries maintain, 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 uses a December 31 measurement date for its qualified non-contributory defined benefit retirement plan assets and obligations. However, because Duke Energy believes it is probable in 2019 that total lump-sum benefit payments will exceed the settlement threshold, which is defined as the sum of the service cost and interest cost on projected benefit obligation components of net periodic pension costs, Duke Energy remeasured the plan assets and plan obligations associated with one of its qualified pension plans as of June 30, 2019. The discount rate used for the remeasurement was 3.5 percent. The cash balance interest crediting rate was 4.0 percent. All other assumptions used for the remeasurement were consistent with the measurement as of December 31, 2018. As a result, Duke Energy recognized a remeasurement gain of $18 million, which is recorded in Other within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets as of June 30, 2019. The remeasurement gain, which represents an increase in funded status, reflects an increase of $275 million in the fair value of plan assets and an increase of $257 million in the projected benefit obligation.


97



FINANCIAL STATEMENTS
EMPLOYEE BENEFIT PLANS


As the result of settlement accounting, Duke Energy recognized a settlement charge of $69 million, primarily as a regulatory asset within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets as of June 30, 2019 (an immaterial amount was recorded in Other income and expenses, net within the Condensed Consolidated Statement of Operations). Settlement charges recognized by the Subsidiary Registrants were $43 million for Duke Energy Carolinas, $16 million for Duke Energy Progress, $3 million for Duke Energy Florida, $3 million for Duke Energy Indiana, $1 million for Duke Energy Ohio and $3 million for Piedmont. The settlement charge reflects the recognition of a pro-rata portion of previously unrecognized actuarial losses, equal to the percentage of reduction in the projected benefit obligation resulting from total lump-sum benefits payments as of June 30, 2019.
QUALIFIED PENSION PLANS
The following tables include the components of net periodic pension costs for qualified pension plans.
 
Three Months Ended June 30, 2019
 
 
 
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

 
$
6

 
$
1

 
$
2

 
$
2

Interest cost on projected benefit obligation
82

 
21

 
26

 
12

 
13

 
4

 
7

 
3

Expected return on plan assets
(143
)
 
(37
)
 
(45
)
 
(21
)
 
(22
)
 
(6
)
 
(10
)
 
(6
)
Amortization of actuarial loss
25

 
5

 
9

 
3

 
6

 
—

 
1

 
1

Amortization of prior service credit
(8
)
 
(2
)
 
—

 
(1
)
 
(1
)
 
—

 
(1
)
 
(2
)
Net periodic pension costs
$
(7
)
 
$
(1
)
 
$
—

 
$
(1
)
 
$
2

 
$
(1
)
 
$
(1
)
 
$
(2
)
 
Three Months Ended June 30, 2018
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Service cost
$
45

 
$
15

 
$
13

 
$
8

 
$
6

 
$
1

 
$
3

 
$
2

Interest cost on projected benefit obligation
75

 
18

 
22

 
10

 
12

 
4

 
6

 
3

Expected return on plan assets
(140
)
 
(37
)
 
(43
)
 
(21
)
 
(23
)
 
(7
)
 
(11
)
 
(6
)
Amortization of actuarial loss
33

 
7

 
11

 
5

 
6

 
1

 
2

 
3

Amortization of prior service credit
(8
)
 
(2
)
 
(1
)
 
(1
)
 
(1
)
 
—

 
—

 
(3
)
Net periodic pension costs
$
5

 
$
1

 
$
2

 
$
1

 
$
—

 
$
(1
)
 
$
—

 
$
(1
)

 
Six Months Ended June 30, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke
 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy
 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Service cost
$
74

 
$
24

 
$
21

 
$
12

 
$
10

 
$
2

 
$
4

 
$
3

Interest cost on projected benefit obligation
165

 
41

 
52

 
24

 
27

 
9

 
13

 
6

Expected return on plan assets
(286
)
 
(75
)
 
(89
)
 
(44
)
 
(44
)
 
(14
)
 
(21
)
 
(11
)
Amortization of actuarial loss
49

 
11

 
18

 
6

 
12

 
1

 
3

 
3

Amortization of prior service credit
(16
)
 
(4
)
 
(1
)
 
(1
)
 
(1
)
 
—

 
(1
)
 
(5
)
Net periodic pension costs
$
(14
)
 
$
(3
)
 
$
1

 
$
(3
)
 
$
4

 
$
(2
)
 
$
(2
)
 
$
(4
)
 
Six Months Ended June 30, 2018
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Service cost
$
90

 
$
30

 
$
26

 
$
15

 
$
11

 
$
2

 
$
5

 
$
4

Interest cost on projected benefit obligation
150

 
36

 
46

 
21

 
25

 
9

 
12

 
6

Expected return on plan assets
(280
)
 
(74
)
 
(88
)
 
(42
)
 
(46
)
 
(14
)
 
(21
)
 
(12
)
Amortization of actuarial loss
66

 
14

 
22

 
10

 
12

 
2

 
4

 
6

Amortization of prior service credit
(16
)
 
(4
)
 
(2
)
 
(1
)
 
(1
)
 
—

 
—

 
(6
)
Net periodic pension costs
$
10

 
$
2

 
$
4

 
$
3

 
$
1

 
$
(1
)
 
$
—

 
$
(2
)


98



FINANCIAL STATEMENTS
EMPLOYEE BENEFIT PLANS


NON-QUALIFIED PENSION PLANS
Net periodic pension costs for non-qualified pension plans were not material for the three and six months ended June 30, 2019, and 2018.
OTHER POST-RETIREMENT BENEFIT PLANS
Net periodic costs for OPEB plans were not material for the three and six months ended June 30, 2019, and 2018.
17. INCOME TAXES
EFFECTIVE TAX RATES
The ETRs 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,
 
2019

 
2018

 
2019

 
2018

Duke Energy
15.9
%
 
16.5
%
 
12.6
%
 
19.9
%
Duke Energy Carolinas
19.7
%
 
21.5
%
 
18.7
%
 
21.8
%
Progress Energy
16.7
%
 
17.3
%
 
17.0
%
 
15.4
%
Duke Energy Progress
16.3
%
 
20.1
%
 
17.1
%
 
16.8
%
Duke Energy Florida
19.6
%
 
18.0
%
 
19.5
%
 
17.4
%
Duke Energy Ohio
16.1
%
 
25.8
%
 
16.5
%
 
16.0
%
Duke Energy Indiana
24.2
%
 
25.8
%
 
24.2
%
 
25.8
%
Piedmont
22.2
%
 
27.3
%
 
21.8
%
 
23.9
%

The decrease in the ETR for Duke Energy for the six months ended June 30, 2019, is primarily due to a one-time valuation allowance charge in the prior year, an adjustment related to the income tax recognition for equity method investments recorded in the first quarter of 2019 and an increase in the amortization of excess deferred taxes. The equity method investment adjustment was immaterial and relates to prior years.
The decrease in the ETR for Duke Energy Carolinas for the three and six months ended June 30, 2019, is primarily due to an increase in the amortization of excess deferred taxes.
The increase in the ETR for Progress Energy for the six months ended June 30, 2019, is primarily due to a decrease in AFUDC equity in the current year.
The decrease in the ETR for Duke Energy Progress for the three months ended June 30, 2019, is primarily due to an increase in the amortization of excess deferred taxes.
The increase in the ETR for Duke Energy Florida for the three and six months ended June 30, 2019, is primarily due to a decrease in AFUDC equity in the current year.
The decrease in the ETR for Duke Energy Ohio for the three months ended June 30, 2019, is primarily due to an increase in the amortization of excess deferred taxes.
The decrease in the ETR for Duke Energy Indiana for the three and six months ended June 30, 2019, is primarily due to an increase in the amortization of excess deferred taxes.
The decrease in the ETR for Piedmont for the three months ended June 30, 2019, is primarily due to lower state tax rates. The decrease in the ETR for the six months ended June 30, 2019, is primarily due to an increase in the amortization of excess deferred taxes.
18. SUBSEQUENT EVENTS
For information on subsequent events related to the Commercial Renewables segment, regulatory matters, commitments and contingencies and debt, see Notes 2, 3, 4 and 6, respectively.

99

MD&A
DUKE ENERGY


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 and Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont. 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 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.
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, 2019, and with Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2018.
Executive Overview
Regulatory Activity
In 2019, Duke Energy advanced regulatory activity underway in multiple jurisdictions as follows:
•
New base rates were implemented in the Duke Energy Ohio Electric Base Rate Case on January 2, 2019.
•
On January 11, 2019, Duke Energy Progress filed a request with the PSCSC, which included a request for the continuation of prior deferrals requested for ice storms and hurricanes Florence, Michael and Matthew. The request was approved on January 30, 2019.
•
On January 30, 2019, Duke Energy Kentucky entered into a settlement agreement with the Attorney General of Kentucky related to the Natural Gas Base Rate Case. The settlement provides for an approximate $7 million increase in natural gas base revenue and approval of the proposed WNA mechanism. The KPSC issued its Order approving the settlement without material modification on March 27, 2019.
•
On April 1, 2019, Piedmont filed an application with the NCUC, its first general rate case in North Carolina in six years. Piedmont expects new rates arising from this proceeding to take effect by the end of 2019.
•
On May 21, 2019, Duke Energy Carolinas and Duke Energy Progress received orders from the PSCSC and revised customer rates became effective June 1, 2019. On May 31, 2019, Duke Energy Carolinas and Duke Energy Progress filed Petitions for Rehearing or Reconsideration regarding certain coal ash costs and return on equity, among other items, and await the orders on reconsideration detailing the commission's decision. Once the orders are received, Duke Energy Carolinas and Duke Energy Progress have 30 days to file a notice of appeal with the South Carolina Supreme Court.
•
On June 11, 2019, the FPSC approved the petition to recover incremental storm restoration costs for Hurricane Michael and to apply tax savings resulting from the Tax Act toward storm costs in lieu of implementing a storm surcharge. On June 13, 2019, the FPSC issued its order approving the settlement agreement for storm cost recovery related to hurricanes Irma and Nate. Storm costs are currently expected to be fully recovered by approximately year-end 2021.
•
On July 2, 2019, Duke Energy Indiana filed a general rate case with the IURC, its first general rate case in Indiana in 16 years. Hearings are expected to commence in late 2019 or early 2020, with rates to be effective in mid-2020.
See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters" for additional information.
Results of Operations
Non-GAAP Measures
Management’s Discussion and Analysis includes financial information prepared in accordance with GAAP in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings and adjusted EPS discussed below. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (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.
Management evaluates financial performance in part based on non-GAAP financial measures, including adjusted earnings and adjusted diluted EPS. Adjusted earnings and adjusted diluted EPS represent income from continuing operations attributable to Duke Energy common stockholders in dollar and per-share amounts, 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. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are GAAP Reported Earnings and GAAP Reported EPS, respectively.
Special items in the 2018 periods presented below include the following items:
•
Costs to Achieve Piedmont Merger represents charges that resulted from the Piedmont acquisition.

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DUKE ENERGY


•
Regulatory and Legislative Impacts represents charges related to rate case orders, settlements or other actions of regulators or legislative bodies.
•
Sale of Retired Plant represents the loss associated with selling Beckjord, a nonregulated generating facility in Ohio.
•
Impairment of Equity Method Investment represents an OTTI of an investment in Constitution.
•
Impacts of the Tax Act represents an AMT valuation allowance recognized related to the Tax Act.
Three Months Ended June 30, 2019, as compared to June 30, 2018
GAAP Reported EPS was $1.12 for the second quarter of 2019 compared to $0.71 for the second quarter of 2018. The increase in GAAP Reported EPS was primarily due to positive rate case impacts, lower operating expenses and the allocation of losses to noncontrolling tax equity members resulting from the North Rosamond solar farm commencing commercial operations, as well as prior year regulatory and legislative impacts.
The following table reconciles non-GAAP measures, including adjusted diluted EPS, to their most directly comparable GAAP measures.
 
Three Months Ended June 30,
 
2019
 
2018
(in millions, except per-share amounts)
Earnings
 
EPS
 
Earnings
 
EPS
GAAP Reported Earnings/GAAP Reported EPS
$
820

 
$
1.12

 
$
500

 
$
0.71

Adjustments:
 
 
 
 
 
 
 
Costs to Achieve Piedmont Merger(a)
—

 
—

 
15

 
0.02

Regulatory and Legislative Impacts(b)
—

 
—

 
136

 
0.19

Discontinued Operations
—

 
—

 
5

 
0.01

Adjusted Earnings/Adjusted Diluted EPS
$
820

 
$
1.12

 
$
656

 
$
0.93

(a)
Net of $5 million tax benefit.
(b)
Net of $43 million tax benefit.

Six Months Ended June 30, 2019, as compared to June 30, 2018
GAAP Reported EPS was $2.36 for the six months ended June 30, 2019, compared to $1.59 for the six months ended June 30, 2018. The increase in GAAP Reported EPS was primarily due to positive rate case impacts, the allocation of losses to noncontrolling tax equity members resulting from the North Rosamond solar farm commencing commercial operations, and an adjustment related to income tax recognition for equity method investments, as well as prior year regulatory and legislative impacts, impairments charges, an AMT valuation allowance and a loss on sale of a retired plant. This was partially offset by higher depreciation and share dilution from equity issuances.
The following table reconciles non-GAAP measures, including adjusted diluted EPS, to their most directly comparable GAAP measures.
 
Six Months Ended June 30,
 
2019
 
2018
(in millions, except per-share amounts)
Earnings
 
EPS
 
Earnings
 
EPS
GAAP Reported Earnings/GAAP Reported EPS
$
1,720

 
$
2.36

 
$
1,120

 
$
1.59

Adjustments:
 
 
 
 
 
 
 
Costs to Achieve Piedmont Merger(a)
—

 
—

 
28

 
0.04

Regulatory and Legislative Impacts(b)
—

 
—

 
202

 
0.29

Sale of Retired Plant(c)
—

 
—

 
82

 
0.12

Impairment of Equity Method Investment(d)
—

 
—

 
42

 
0.06

Impacts of the Tax Act (AMT valuation allowance)
—

 
—

 
76

 
0.11

Discontinued Operations
—

 
—

 
5

 
0.01

Adjusted Earnings/Adjusted Diluted EPS
$
1,720

 
$
2.36

 
$
1,555

 
$
2.22

(a)
Net of $9 million tax benefit.
(b)
Net of $63 million tax benefit.
(c)
Net of $25 million tax benefit.
(d)
Net of $13 million tax benefit.
SEGMENT RESULTS
The remaining information presented in this discussion of results of operations is on a GAAP basis. 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 in the Condensed Consolidated Financial Statements.
Duke Energy's segment structure includes 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. See Note 2 to the Condensed Consolidated Financial Statements, “Business Segments,” for additional information on Duke Energy’s segment structure.

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SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE


Electric Utilities and Infrastructure
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2019

 
2018

 
Variance

 
2019

 
2018

 
Variance

Operating Revenues
$
5,475

 
$
5,223

 
$
252

 
$
10,804

 
$
10,546

 
$
258

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power
1,662

 
1,582

 
80

 
3,292

 
3,267

 
25

Operation, maintenance and other
1,318

 
1,395

 
(77
)
 
2,600

 
2,720

 
(120
)
Depreciation and amortization
951

 
838

 
113

 
1,898

 
1,673

 
225

Property and other taxes
297

 
279

 
18

 
598

 
553

 
45

Impairment charges
4

 
172

 
(168
)
 
4

 
215

 
(211
)
Total operating expenses
4,232

 
4,266

 
(34
)
 
8,392

 
8,428

 
(36
)
Gains on Sales of Other Assets and Other, net
3

 
—

 
3

 
—

 
1

 
(1
)
Operating Income
1,246

 
957

 
289

 
2,412

 
2,119

 
293

Other Income and Expenses, net
89

 
91

 
(2
)
 
180

 
179

 
1

Interest Expense
330

 
316

 
14

 
668

 
633

 
35

Income Before Income Taxes
1,005

 
732

 
273

 
1,924

 
1,665

 
259

Income Tax Expense
196

 
157

 
39

 
365

 
340

 
25

Segment Income
$
809

 
$
575

 
$
234

 
$
1,559

 
$
1,325

 
$
234

 
 
 
 
 
 
 
 
 
 
 


Duke Energy Carolinas GWh sales
21,604

 
22,272

 
(668
)
 
43,432

 
44,899

 
(1,467
)
Duke Energy Progress GWh sales
16,222

 
15,896

 
326

 
32,570

 
33,122

 
(552
)
Duke Energy Florida GWh sales
11,151

 
10,304

 
847

 
19,472

 
19,423

 
49

Duke Energy Ohio GWh sales
5,660

 
6,147

 
(487
)
 
11,824

 
12,219

 
(395
)
Duke Energy Indiana GWh sales
7,437

 
8,301

 
(864
)
 
15,470

 
16,786

 
(1,316
)
Total Electric Utilities and Infrastructure GWh sales
62,074

 
62,920

 
(846
)
 
122,768

 
126,449

 
(3,681
)
Net proportional MW capacity in operation
 
 
 
 


 
49,725

 
49,297

 
428

Three Months Ended June 30, 2019, as compared to June 30, 2018
Electric Utilities and Infrastructure’s results were impacted by a positive contribution from the 2018 Duke Energy Carolinas North Carolina rate case, Duke Energy Florida's base rate adjustments due to the Citrus County CC being placed in service, favorable weather-normal retail sales volumes and lower operation, maintenance and other expense.
These drivers were offset by unfavorable weather in the current year, higher depreciation from a growing asset base, higher interest expense and higher income tax expense. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
•
a $155 million increase in retail pricing primarily due to the prior year Duke Energy Carolinas North Carolina rate case and Duke Energy Florida's base rate adjustments related to Citrus County CC being placed in service;
•
a $66 million increase in fuel related revenues; and
•
a $19 million increase in weather-normal retail sales volumes.
Operating Expenses. The variance was driven primarily by:
•
a $168 million decrease in impairment charges primarily due to the impacts associated with the prior year Duke Energy Carolinas North Carolina rate case; and
•
a $77 million decrease in operation, maintenance and other expense primarily due to lower payroll and benefit costs resulting from prior year workforce reductions.
Partially offset by:
•
a $113 million increase in depreciation and amortization expense primarily due to higher amortization of deferred coal ash costs, additional plant in service and new depreciation rates associated with the prior year Duke Energy Carolinas North Carolina rate case and Duke Energy Florida's Citrus County CC being placed in service;
•
an $80 million increase in fuel used in electric generation and purchased power primarily due to an increase in the North Carolina Renewable Energy and Energy Efficiency Portfolio Standard requirement from the prior year at Duke Energy Progress; and
•
an $18 million increase in property and other taxes primarily due to higher property taxes for additional plant in service at Duke Energy Florida.

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SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE


Interest Expense. The variance was driven primarily by higher debt outstanding in the current year and AFUDC debt return ending in the fourth quarter of 2018 on the Citrus County CC at Duke Energy Florida.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income partially offset by an increase in the amortization of excess deferred taxes. The ETRs for the three months ended June 30, 2019, and 2018, were 19.5 percent and 21.4 percent, respectively. The decrease in the ETR was primarily due to an increase in the amortization of excess deferred taxes partially offset by a decrease in AFUDC equity in the current year.
Six Months Ended June 30, 2019, as compared to June 30, 2018
Electric Utilities and Infrastructure’s results were impacted by a positive contribution from the 2018 Duke Energy Carolinas and Duke Energy Progress North Carolina rate cases, Duke Energy Florida's base rate adjustments due to the Citrus County CC being placed in service and lower operation, maintenance and other expense.
These drivers were offset by unfavorable weather in the current year, higher depreciation from a growing asset base, higher interest expense and higher income tax expense. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
•
a $330 million increase in retail pricing primarily due to the prior year Duke Energy Carolinas and Duke Energy Progress North Carolina rate cases and Duke Energy Florida's base rate adjustments related to Citrus County CC being placed in service; and
•
a $34 million increase in fuel related revenues.
Partially offset by:
•
a $76 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year; and
•
a $35 million decrease in rider revenues primarily due to excess deferred taxes and energy efficiency programs, partially offset by a decrement rider relating to nuclear decommissioning that ended in the prior year at Duke Energy Carolinas.
Operating Expenses. The variance was driven primarily by:
•
a $211 million decrease in impairment charges primarily due to the impacts associated with the prior year Duke Energy Carolinas and Duke Energy Progress North Carolina rate cases; and
•
a $120 million decrease in operation, maintenance and other expense primarily due to lower payroll and benefit costs resulting from prior year workforce reductions.
Partially offset by:
•
a $225 million increase in depreciation and amortization expense primarily due to higher amortization of deferred coal ash costs, additional plant in service and new depreciation rates associated with the prior year Duke Energy Carolinas and Duke Energy Progress North Carolina rate cases and Duke Energy Florida's Citrus County CC being placed in service;
•
a $45 million increase in property and other taxes primarily due to higher property taxes for additional plant in service at Duke Energy Florida and a favorable sales and use tax credit in the prior year at Duke Energy Progress; and
•
a $25 million increase in fuel used in electric generation and purchased power primarily due to an increase in the North Carolina Renewable Energy and Energy Efficiency Portfolio Standard requirement from the prior year at Duke Energy Progress.
Interest Expense. The variance was driven primarily by higher debt outstanding in the current year and AFUDC debt return ending in the fourth quarter of 2018 on the Citrus County CC at Duke Energy Florida.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income partially offset by an increase in the amortization of excess deferred taxes. The ETRs for the six months ended June 30, 2019, and 2018, were 19.0 percent and 20.4 percent, respectively. The decrease in the ETR was primarily due to an increase in the amortization of excess deferred taxes partially offset by a decrease in AFUDC equity in the current year.
Matters Impacting Future Electric Utilities and Infrastructure Results
On May 21, 2019, Duke Energy Carolinas and Duke Energy Progress received orders from the PSCSC granting the companies’ requests for retail rate increases but denying recovery of certain coal ash costs. On May 31, 2019, Duke Energy Carolinas and Duke Energy Progress filed Petitions for Rehearing or Reconsideration and await the order on reconsideration detailing the commission's decision. Once the orders are received, Duke Energy Carolinas and Duke Energy Progress have 30 days to file a notice of appeal with the South Carolina Supreme Court. Electric Utilities and Infrastructure's results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.

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SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE


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, were eligible for reassessment as low risk pursuant to legislation enacted on July 14, 2016. On November 14, 2018, NCDEQ issued final low-risk classifications for these impoundments, indicating that Duke Energy Carolinas and Duke Energy Progress have satisfied the permanent replacement water supply and certain dam improvement requirements set out in the Coal Ash Management Act. On April 1, 2019, NCDEQ issued a closure determination requiring Duke Energy Carolinas and Duke Energy Progress to excavate all remaining coal ash impoundments in North Carolina, even though they had been deemed low risk. On April 26, 2019, Duke Energy Carolinas and Duke Energy Progress filed a Petition for Contested Case Hearings in the Office of Administrative Hearings to challenge NCDEQ's April 1 Order. Duke Energy Carolinas and Duke Energy Progress intend to seek recovery of all costs through the ratemaking process consistent with previous proceedings. As the 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 Electric Utilities and Infrastructure's results of operations, financial position and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, "Commitments and Contingencies," 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. In addition, the orders issued in the Duke Energy Carolinas and Duke Energy Progress North Carolina rate cases supporting recovery of past coal ash remediation costs have been appealed by various parties. The outcome of these appeals, lawsuits and potential fines and penalties could have an adverse impact on Electric Utilities and Infrastructure's results of operations, financial position and cash flows. See Notes 3 and 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters" and “Commitments and Contingencies,” respectively, for additional information.
On June 22, 2018, Duke Energy Carolinas received an order from the NCUC, which denied the Grid Rider Stipulation and deferral treatment of grid improvement costs. Duke Energy Carolinas may petition for deferral of grid modernization costs outside of a general rate case proceeding if it can show financial hardship or a stipulation that includes greater consensus among intervening parties on costs being classified as grid modernization. While Duke Energy Progress did not request recovery of these costs in its most recent case with the NCUC, Duke Energy Progress may request recovery of certain grid modernization costs in future regulatory proceedings. Electric Utilities and Infrastructure's results of operations, financial position and cash flows could be adversely impacted if grid modernization costs are not ultimately approved for recovery and/or deferral treatment.
During the last half of 2018, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida’s service territories were impacted by several named storms. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages to the service territories of Duke Energy Carolinas and Duke Energy Progress. Duke Energy Florida’s service territory was also impacted by Hurricane Michael, a Category 5 hurricane and the most powerful storm to hit the Florida Panhandle in recorded history. A significant portion of the incremental operation and maintenance expenses related to these storms have been deferred. On December 21, 2018, Duke Energy Carolinas and Duke Energy Progress filed with the NCUC petitions for approval to defer the incremental storm costs incurred to a regulatory asset for recovery in the next base rate case. On June 11, 2019, the FPSC approved Duke Energy Florida's petition for recovery of incremental storm restoration costs related to Hurricane Michael. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact on Electric Utilities and Infrastructure's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
Duke Energy Indiana filed a general rate case with the IURC on July 2, 2019, its first general rate case in Indiana in 16 years. The outcome of this rate case could materially impact Electric Utilities and Infrastructure's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2018, for discussion of risks associated with the Tax Act.

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SEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTURE


Gas Utilities and Infrastructure
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2019

 
2018

 
Variance

 
2019

 
2018

 
Variance

Operating Revenues
$
306

 
$
318

 
$
(12
)
 
$
1,062

 
$
1,045

 
$
17

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of natural gas
76

 
89

 
(13
)
 
403

 
402

 
1

Operation, maintenance and other
107

 
103

 
4

 
217

 
211

 
6

Depreciation and amortization
63

 
60

 
3

 
128

 
121

 
7

Property and other taxes
27

 
26

 
1

 
60

 
57

 
3

Total operating expenses
273

 
278

 
(5
)
 
808

 
791

 
17

Operating Income
33

 
40

 
(7
)
 
254

 
254

 
—

Other Income and Expenses, net
37

 
22

 
15

 
77

 
(13
)
 
90

Interest Expense
27

 
26

 
1

 
57

 
53

 
4

Income Before Income Taxes
43

 
36

 
7

 
274

 
188

 
86

Income Tax Expense
3

 
8

 
(5
)
 
8

 
44

 
(36
)
Segment Income
$
40

 
$
28

 
$
12

 
$
266

 
$
144

 
$
122

 
 
 
 
 
 
 


 
 
 
 
Piedmont LDC throughput (dekatherms)
104,684,733

 
116,839,962

 
(12,155,229
)
 
256,350,657

 
271,741,341

 
(15,390,684
)
Duke Energy Midwest LDC throughput (Mcf)
13,742,907

 
15,615,050

 
(1,872,143
)
 
52,281,179

 
52,741,115

 
(459,936
)
Three Months Ended June 30, 2019, as compared to June 30, 2018
Gas Utilities and Infrastructure’s results were primarily impacted by higher equity earnings from ACP. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven by:
•
an $11 million decrease at Piedmont primarily due to lower residential sales volumes due to unfavorable weather in the current year and a reduction of rates in South Carolina; and
•
a $6 million decrease in the Midwest primarily due to lower natural gas costs passed through to customers and unfavorable weather in the current year.
Partially offset by:
•
a $4 million increase primarily due to North Carolina and Tennessee IMR increases.
Operating Expenses. The variance was driven by:
•
a $13 million decrease in cost of natural gas primarily due to lower volumes sold at Piedmont and lower natural gas prices in the Midwest.
Partially offset by:
•
a $4 million increase in operation, maintenance and other expense primarily due to higher employee benefit expenses and information technology outside services at Piedmont; and
•
a $3 million increase in depreciation and amortization expense primarily due to additional plant in service.
Other Income and Expenses, net. The variance was driven by higher equity earnings from ACP in the current year.
Income Tax Expense. The decrease in tax expense was primarily due to current year AFUDC equity, partially offset by an increase in pretax income. The ETRs for the three months ended June 30, 2019, and 2018, were 7.0 percent and 22.2 percent, respectively. The decrease in the ETR was primarily due to current year AFUDC equity.
Six Months Ended June 30, 2019, as compared to June 30, 2018
Gas Utilities and Infrastructure’s results were primarily impacted by the prior year OTTI recorded on the Constitution investment and a 2019 adjustment related to the income tax recognition for equity method investments. The equity method investment adjustment was immaterial and relates to prior years. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven by:
•
an $11 million increase primarily due to North Carolina and Tennessee IMR increases;
•
a $9 million increase primarily due to higher natural gas prices associated with off-system sales; and
•
an $8 million increase primarily due to NCUC approval related to tax reform accounting from fixed rate contracts.

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SEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTURE


Partially offset by:
•
a $6 million decrease primarily due to a reduction of rates in South Carolina;
•
a $4 million decrease due to lower natural gas costs passed through to customers in the Midwest, due to lower natural gas prices; and
•
a $2 million decrease due to unfavorable weather in the current year for the Midwest.
Operating Expenses. The variance was driven by:
•a $7 million increase in depreciation and amortization expense primarily due to additional plant in service;
•
a $6 million increase in operation, maintenance and other expense primarily due to information technology outside services and higher gas operations labor costs;
•
a $5 million increase in cost of natural gas at Piedmont primarily due to the impact of higher natural gas prices on off-system sales and unbilled revenue; and
•
a $3 million increase in property and other taxes primarily due to higher property tax expense related to additional plant in service.
Partially offset by:
•
a $4 million decrease in cost of natural gas sold in the Midwest primarily due to lower natural gas prices.
Other Income and Expenses, net. The increase was primarily due to the prior year OTTI recorded on the Constitution investment and higher earnings from ACP in the current year.
Interest Expense. The variance was driven by higher debt outstanding in the current year and higher interest expense due to customers as a result of tax reform deferrals, partially offset by favorable AFUDC debt interest.
Income Tax Expense. The decrease in tax expense was primarily due to an adjustment related to the income tax recognition for equity method investments and current year AFUDC equity, partially offset by an increase in pretax income. The equity method investment adjustment was immaterial and relates to prior years. The ETRs for the six months ended June 30, 2019, and 2018, were 2.9 percent and 23.4 percent, respectively. The decrease in the ETR was primarily due to an adjustment related to the income tax recognition for equity method investments that was recorded during the first quarter of 2019 and current year AFUDC equity. The equity method investment adjustment was immaterial and relates to prior years.
Matters Impacting Future Gas Utilities and Infrastructure Results
Gas Utilities and Infrastructure has a 47 percent ownership interest in ACP, which is building an approximately 600-mile interstate natural gas pipeline intended to transport diverse natural gas supplies into southeastern markets. Affected states (West Virginia, Virginia and North Carolina) have issued certain necessary permits; the project remains subject to other pending federal and state approvals, which will allow full construction activities to begin. In 2018, FERC issued a series of Notices to Proceed, which authorized the project to begin certain construction-related activities along the pipeline route. Project cost estimates are a range of $7.0 billion to $7.8 billion, excluding financing costs. ACP expects to achieve a late 2020 in-service date for key segments of the project, while it expects the remainder to extend into 2021. Project construction activities, schedule and final costs are subject to uncertainty due to abnormal weather, work delays (including delays due to judicial or regulatory action) and other conditions and risks that could result in potential higher project costs, a potential delay in the targeted in-service dates, permanent or temporary suspension of AFUDC and potential impairment charges. ACP and Duke Energy will continue to consider their options with respect to the foregoing in light of their existing contractual and legal obligations. See Notes 3 and 13 to the Condensed Consolidated Financial Statements, "Regulatory Matters" and "Variable Interest Entities," respectively, for additional information.
On November 13, 2013, the PUCO issued an order authorizing recovery of MGP costs at certain sites in Ohio with a deadline to complete the MGP environmental investigation and remediation work prior to December 31, 2016. This deadline was subsequently extended to December 31, 2019. Disallowance of costs incurred, failure to complete the work by the deadline or failure to obtain an extension from the PUCO could result in an adverse impact on Gas Utilities and Infrastructure’s results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.
Piedmont filed a general rate case with the NCUC on April 1, 2019, its first general rate case in North Carolina in six years. The outcome of this rate case could materially impact Gas Utilities and Infrastructure's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2018, for discussion of risks associated with the Tax Act.

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Commercial Renewables
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2019

 
2018

 
Variance

 
2019

 
2018

 
Variance

Operating Revenues
$
118

 
$
119

 
$
(1
)
 
$
224

 
$
220

 
$
4

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Operation, maintenance and other
64

 
69

 
(5
)
 
130

 
124

 
6

Depreciation and amortization
40

 
38

 
2

 
80

 
76

 
4

Property and other taxes
6

 
6

 
—

 
12

 
13

 
(1
)
Total operating expenses
110

 
113

 
(3
)
 
222

 
213

 
9

Operating Income
8

 
6

 
2

 
2

 
7

 
(5
)
Other Income and Expenses, net
(8
)
 
18

 
(26
)
 
(10
)
 
20

 
(30
)
Interest Expense
22

 
23

 
(1
)
 
43

 
45

 
(2
)
(Loss) Income Before Income Taxes
(22
)
 
1

 
(23
)
 
(51
)
 
(18
)
 
(33
)
Income Tax Benefit
(24
)
 
(36
)
 
12

 
(59
)
 
(75
)
 
16

Less: Loss Attributable to Noncontrolling Interests
(84
)
 
(1
)
 
(83
)
 
(91
)
 
(1
)
 
(90
)
Segment Income
$
86


$
38

 
$
48

 
$
99

 
$
58

 
$
41

 
 
 
 
 
 
 
 
 
 
 
 
Renewable plant production, GWh
2,314

 
2,471

 
(157
)
 
4,382

 
4,651

 
(269
)
Net proportional MW capacity in operation(a)
 
 
 
 


 
3,157

 
2,951

 
206

(a)
Certain projects are included in tax equity structures where investors have differing interests in the project's economic attributes. One hundred percent of the tax equity project's capacity is included in the table above.
Three Months Ended June 30, 2019, as compared to June 30, 2018
Commercial Renewables' results were favorably impacted by results from tax equity solar projects, partially offset by mark-to-market losses. The following is a detailed discussion of the variance drivers by line item.
Other Income and Expenses, net. The decrease was primarily due to mark-to-market losses in the solar portfolio in the current year compared to mark-to-market gains and income from the North Allegheny Wind, LLC and FES settlement agreement in the prior year.
Income Tax Benefit. The decrease in the tax benefit was primarily driven by taxes associated with Duke Energy's interest in a tax equity solar project recorded in the second quarter of 2019 and a reduction in production tax credits generated.
Loss Attributable to Noncontrolling Interests. The increase was primarily due to the new tax equity solar projects entered into during 2019.
Six Months Ended June 30, 2019, as compared to June 30, 2018
Commercial Renewables' results were favorably impacted by results from tax equity solar projects, partially offset by mark-to-market losses in the solar portfolio. The following is a detailed discussion of the variance drivers by line item.
Other Income and Expenses, net. The decrease was primarily due to mark-to-market losses in the solar portfolio in the current year compared to mark-to-market gains and income from the North Allegheny Wind, LLC and FES settlement agreement in the prior year.
Income Tax Benefit. The decrease in the tax benefit was primarily driven by taxes associated with Duke Energy's interest in a tax equity solar project recorded in the second quarter of 2019 and a reduction in production tax credits generated.
Loss Attributable to Noncontrolling Interests. The increase was primarily due to the new tax equity solar projects entered into during 2019.
Matters Impacting Future Commercial Renewables Results
During the three months ended June 30, 2019, Duke Energy evaluated recoverability of its renewable merchant plants principally in the Electric Reliability Council of Texas West market, due to declining market pricing and declining long-term forecasted energy and capacity prices, primarily driven by lower forecasted natural gas prices. These assets were not impaired; however, a continued decline in pricing would likely result in a future impairment. The carrying value of $160 million for one large wind project in West Texas approximates the aggregate estimated future cash flows from the asset. Impairment of these assets could result in adverse impacts to the future results of operations, financial position and cash flows of Commercial Renewables.
On April 24, 2019, Duke Energy executed an agreement to sell a minority interest in a portion of certain renewable assets. The portion of Duke Energy’s commercial renewables energy portfolio to be sold includes 49 percent of 37 operating wind, solar and battery storage assets and 33 percent of 11 operating solar assets across the U.S. Duke Energy Renewable Services, an operations and maintenance business for third-party customers, and REC Solar are not included in the potential transaction. The sale will result in pretax proceeds to Duke Energy of $415 million. Duke Energy will retain control of these assets, and, therefore, no gain or loss is expected to be recognized in the Condensed Consolidated Statements of Operations upon closing of the transaction. Duke Energy will also retain the majority of the remaining tax benefits from the projects. Duke Energy will continue to develop projects, grow its portfolio and manage its renewables assets. The sale is subject to customary closing conditions, including approvals from the FERC, the Public Utility Commission of Texas and the Committee on Foreign Investment in the U.S. The transaction is expected to close in the second half of 2019.

107

MD&A
SEGMENT RESULTS - COMMERCIAL RENEWABLES


See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2018, for discussion of risks associated with the Tax Act.
Other
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2019

 
2018

 
Variance

 
2019

 
2018

 
Variance

Operating Revenues
$
25

 
$
32

 
$
(7
)
 
$
46

 
$
67

 
$
(21
)
Operating Expenses
11

 
59

 
(48
)
 
39

 
113

 
(74
)
Gains (Losses) on Sales of Other Assets and Other, net
—

 
2

 
(2
)
 
—

 
(99
)
 
99

Operating Income (Loss)
14

 
(25
)
 
39

 
7

 
(145
)
 
152

Other Income and Expenses, net
30

 
27

 
3

 
74

 
41

 
33

Interest Expense
180

 
164

 
16

 
351

 
321

 
30

Loss Before Income Taxes
(136
)
 
(162
)
 
26

 
(270
)
 
(425
)
 
155

Income Tax Benefit
(33
)
 
(28
)
 
(5
)
 
(78
)
 
(27
)
 
(51
)
Less: Net Income Attributable to Noncontrolling Interests
—

 
2

 
(2
)
 
—

 
4

 
(4
)
Less: Preferred Dividends
12

 
—

 
12

 
12

 
—

 
12

Net Loss
$
(115
)

$
(136
)
 
$
21

 
$
(204
)
 
$
(402
)
 
$
198

Three Months Ended June 30, 2019, as compared to June 30, 2018
The variance was driven by the absence in the current year of costs related to the Piedmont acquisition and OVEC fuel expense, offset by higher interest expense. The following is a detailed discussion of the variance drivers by line item.
Operating Expenses. The decrease was primarily due to costs related to the Piedmont acquisition and OVEC fuel expense in the prior year.
Interest Expense. The variance was primarily due to higher short-term interest rates and higher outstanding debt in the current year.
Income Tax Benefit. The increase in the tax benefit was primarily driven by a prior year state rate change and tax levelization, partially offset by a decrease in pretax losses.
Preferred Dividends. The variance was driven by the declaration of the preferred stock dividend on preferred stock issued in 2019.
Six Months Ended June 30, 2019, as compared to June 30, 2018
The variance was driven by the prior year loss on sale of the retired Beckjord station and lower income taxes due to a 2018 adjustment to record a valuation allowance. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. Lower operating revenues were due to amounts in the prior year related to Duke Energy Ohio’s entitlement of capacity and energy from OVEC’s power plants. In the current year, the revenues and expenses for OVEC are reflected in the Electric Utilities and Infrastructure segment due to the 2018 PUCO Order that approved Duke Energy to recover or credit amounts through Rider PSR. These amounts are deemed immaterial. Therefore, the prior period amounts were not restated.
Operating Expenses. The decrease was primarily due to costs associated with the Piedmont acquisition and OVEC fuel expense in the prior year.
Gains (Losses) on Sales of Other Assets and Other, net. The variance was driven by the prior year loss on sale of the retired Beckjord station, including the transfer of coal ash basins and other real property and indemnification from all potential future claims related to the property, whether arising under environmental laws or otherwise.
Other Income and Expenses, net. The variance was primarily due to higher returns on investments that fund certain employee benefit obligations.
Interest Expense. The variance was primarily due to higher short-term interest rates and higher outstanding debt in the current year.
Income Tax Benefit. The increase in the tax benefit was primarily driven by a prior year valuation allowance against AMT credits partially offset by a decrease in pretax losses.
Preferred Dividends. The variance was driven by the declaration of the preferred stock dividend on preferred stock issued in 2019.

108

MD&A
DUKE ENERGY CAROLINAS


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, 2019, and 2018, and the Annual Report on Form 10-K for the year ended December 31, 2018.
Results of Operations
 
Six Months Ended June 30,
(in millions)
2019

 
2018

 
Variance

Operating Revenues
$
3,457

 
$
3,435

 
$
22

Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power
867

 
880

 
(13
)
Operation, maintenance and other
881

 
950

 
(69
)
Depreciation and amortization
663

 
561

 
102

Property and other taxes
155

 
147

 
8

Impairment charges
5

 
190

 
(185
)
Total operating expenses
2,571

 
2,728

 
(157
)
Losses on Sales of Other Assets and Other, net
—

 
(1
)
 
1

Operating Income
886

 
706

 
180

Other Income and Expenses, net
72

 
74

 
(2
)
Interest Expense
227

 
217

 
10

Income Before Income Taxes
731

 
563

 
168

Income Tax Expense
137

 
123

 
14

Net Income
$
594

 
$
440

 
$
154

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
2019

Residential sales
(4.7
)%
General service sales
(1.0
)%
Industrial sales
(1.6
)%
Wholesale power sales
(15.7
)%
Joint dispatch sales
13.0
 %
Total sales
(3.3
)%
Average number of customers
2.1
 %
Six Months Ended June 30, 2019, as compared to June 30, 2018
Operating Revenues. The variance was driven primarily by:
•
a $106 million increase in retail pricing due to the impacts of the prior year North Carolina rate case and the current year South Carolina rate case.
Partially offset by:
•
a $44 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year; and
•
a $35 million decrease in rider revenues primarily due to excess deferred taxes and energy efficiency programs, partially offset by a decrement rider relating to nuclear decommissioning that ended in the prior year.
Operating Expenses. The variance was driven primarily by:
•
a $185 million decrease in impairment charges primarily due to impacts of the prior year North Carolina rate order and charges related to coal ash costs in South Carolina; and
•
a $69 million decrease in operation, maintenance and other expense primarily due to decreased labor costs, partially offset by higher distribution maintenance costs and higher storm restoration costs.
Partially offset by:
•
a $102 million increase in depreciation and amortization expense primarily due to additional plant in service, new depreciation rates associated with the prior year North Carolina rate case and higher amortization of deferred coal ash costs associated with the prior year North Carolina rate case.
Interest Expense. The variance was primarily due to higher debt outstanding in the current year.

109

MD&A
DUKE ENERGY CAROLINAS


Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income partially offset by an increase in the amortization of excess deferred taxes. The ETRs for the six months ended June 30, 2019, and 2018, were 18.7 percent and 21.8 percent, respectively. The decrease in the ETR was primarily due to an increase in the amortization of excess deferred taxes.
Matters Impacting Future Results
On May 21, 2019, the PSCSC issued an order granting Duke Energy Carolinas request for a retail rate increase but denying recovery of certain coal ash costs. On May 31, 2019, Duke Energy Carolinas filed a Petition for Rehearing or Reconsideration and awaits the order on reconsideration detailing the commission's decision. Once the order is received, Duke Energy Carolinas has 30 days to file a notice of appeal with the South Carolina Supreme Court. Duke Energy Carolinas' results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," 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, were eligible for reassessment as low risk pursuant to legislation enacted on July 14, 2016. On November 14, 2018, NCDEQ issued final low-risk classifications for these impoundments, indicating that Duke Energy Carolinas had satisfied the permanent replacement water supply and certain dam improvement requirements set out in the Coal Ash Management Act. On April 1, 2019, NCDEQ issued a closure determination requiring Duke Energy Carolinas to excavate all remaining coal ash impoundments in North Carolina. On April 26, 2019, Duke Energy Carolinas filed a Petition for Contested Case Hearings in the Office of Administrative Hearings to challenge NCDEQ's April 1 Order. Duke Energy Carolinas intends to seek recovery of all costs through the ratemaking process consistent with previous proceedings. As the 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' results of operations, financial position and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, "Commitments and Contingencies," 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. In addition, the order issued in the Duke Energy Carolinas North Carolina rate case supporting recovery of past coal ash remediation costs has been appealed by various parties. The outcome of these appeals, lawsuits, fines and penalties could have an adverse impact on Duke Energy Carolinas’ results of operations, financial position and cash flows. See Notes 3 and 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters" and “Commitments and Contingencies,” respectively, for additional information.
On June 22, 2018, Duke Energy Carolinas received an order from the NCUC, which denied the Grid Rider Stipulation and deferral treatment of grid improvement costs. Duke Energy Carolinas may petition for deferral of grid modernization costs outside of a general rate case proceeding if it can show financial hardship or a stipulation that includes greater consensus among intervening parties on costs being classified as grid modernization. Duke Energy Carolinas' results of operations, financial position and cash flows could be adversely impacted if grid modernization costs are not ultimately approved for recovery and/or deferral treatment.
During the last half of 2018, Duke Energy Carolinas’ service territory was impacted by several named storms. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages in the service territory. A significant portion of the incremental operation and maintenance expenses related to these storms have been deferred. On December 21, 2018, Duke Energy Carolinas filed with the NCUC a petition for approval to defer the incremental storm costs incurred to a regulatory asset for recovery in the next base rate case. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact on Duke Energy Carolinas' results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2018, for discussion of risks associated with the Tax Act.

110

MD&A
PROGRESS ENERGY


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, 2019, and 2018, and the Annual Report on Form 10-K for the year ended December 31, 2018.
Results of Operations
 
Six Months Ended June 30,
(in millions)
2019

 
2018

 
Variance

Operating Revenues
$
5,316

 
$
5,074

 
$
242

Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power
1,913

 
1,871

 
42

Operation, maintenance and other
1,173

 
1,233

 
(60
)
Depreciation and amortization
881

 
764

 
117

Property and other taxes
280

 
254

 
26

Impairment charges
—

 
33

 
(33
)
Total operating expenses
4,247

 
4,155

 
92

(Losses) Gains on Sales of Other Assets and Other, net
(1
)
 
12

 
(13
)
Operating Income
1,068

 
931

 
137

Other Income and Expenses, net
65

 
77

 
(12
)
Interest Expense
438

 
412

 
26

Income Before Income Taxes
695

 
596

 
99

Income Tax Expense
118

 
92

 
26

Net Income
577

 
504

 
73

Less: Net Income Attributable to Noncontrolling Interests
—

 
4

 
(4
)
Net Income Attributable to Parent
$
577

 
$
500

 
$
77

Six Months Ended June 30, 2019, as compared to June 30, 2018
Operating Revenues. The variance was driven primarily by:
•
a $193 million increase in retail pricing primarily due to the impacts of the prior year Duke Energy Progress North Carolina rate case, Duke Energy Florida's base rate adjustments related to Citrus County CC being placed in service and annual increases from the 2017 Settlement Agreement;
•
a $54 million increase in fuel revenues primarily related to increased fuel cost recovery due to extreme weather in the prior year at Duke Energy Progress;
•
a $17 million increase in weather-normal retail sales volumes at Duke Energy Florida;
•
a $12 million increase in transmission revenues related to the Fixed Bill program at Duke Energy Florida; and
•
an $11 million increase in rider revenues primarily related to energy efficiency programs at Duke Energy Progress.
Partially offset by:
•
a $22 million decrease in fuel and capacity revenues primarily due to a decrease in fuel and capacity rates billed to retail customers at Duke Energy Florida;
•
a $14 million decrease in retail rider revenues at Duke Energy Progress primarily related to decreased revenue requirements in the current year; and
•
a $13 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year at Duke Energy Progress.
Operating Expenses. The variance was driven primarily by:
•
a $117 million increase in depreciation and amortization expense primarily due to higher amortization of deferred coal ash costs, new depreciation rates associated with the prior year Duke Energy Progress North Carolina rate case and Duke Energy Florida's base rate adjustments related to Citrus County CC being placed in service;
•
a $42 million increase in fuel used in electric generation and purchased power primarily due to an increase in the North Carolina Renewable Energy and Energy Efficiency Portfolio Standard requirement from prior year at Duke Energy Progress, partially offset by lower purchased power at Duke Energy Florida; and
•
a $26 million increase in property and other taxes primarily due to higher property taxes for additional plant in service at Duke Energy Florida and a favorable sales and use tax credit in the prior year at Duke Energy Progress.

111

MD&A
PROGRESS ENERGY


Partially offset by:
•
a $60 million decrease in operation, maintenance and other expense primarily due to prior year impacts associated with the Duke Energy Progress North Carolina rate case and lower employee benefit expenses at Duke Energy Progress; and
•
a $33 million decrease in impairment charges primarily due to prior year impacts associated with the Duke Energy Progress North Carolina rate case.
Other Income and Expenses, net. The variance was driven primarily by AFUDC equity return ending on the Citrus County CC in the fourth quarter of 2018 at Duke Energy Florida, partially offset by life insurance proceeds at Duke Energy Progress.
Interest Expense. The variance was driven primarily by AFUDC debt return ending in the fourth quarter of 2018 on the Citrus County CC at Duke Energy Florida.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income and a decrease in AFUDC equity in the current year. The ETRs for the six months ended June 30, 2019, and 2018, were 17.0 percent and 15.4 percent, respectively. The increase in the ETR was primarily due to a decrease in AFUDC equity in the current year.
Matters Impacting Future Results
On May 21, 2019, the PSCSC issued an order granting Duke Energy Progress' request for a retail rate increase but denying recovery of certain coal ash costs. On May 31, 2019, Duke Energy Progress filed a Petition for Rehearing or Reconsideration and awaits the order on reconsideration detailing the commission's decision. Once the order is received, Duke Energy Progress has 30 days to file a notice of appeal with the South Carolina Supreme Court. Progress Energy's results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," 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, were eligible for reassessment as low risk pursuant to legislation enacted on July 14, 2016. On November 14, 2018, NCDEQ issued final low-risk classifications for these impoundments, indicating that Duke Energy Progress had satisfied the permanent replacement water supply and certain dam improvement requirements set out in the Coal Ash Management Act. On April 1, 2019, NCDEQ issued a closure determination requiring Duke Energy Progress to excavate all remaining coal ash impoundments in North Carolina. On April 26, 2019, Duke Energy Progress filed a Petition for Contested Case Hearings in the Office of Administrative Hearings to challenge NCDEQ's April 1 Order. Duke Energy Progress intends to seek recovery of all costs through the ratemaking process consistent with previous proceedings. As the 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 results of operations, financial position and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, "Commitments and Contingencies," 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. As noted above, the order issued in the Duke Energy Progress North Carolina rate case supporting recovery of past coal ash remediation costs has been appealed by various parties. The outcome of these appeals, lawsuits, fines and penalties could have an adverse impact on Progress Energy’s results of operations, financial position and cash flows. See Notes 3 and 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters" and “Commitments and Contingencies,” respectively, for additional information.
Duke Energy Carolinas received an order from the NCUC, which denied the Grid Rider Stipulation and deferral treatment of grid improvement costs. The NCUC did allow Duke Energy Carolinas to petition for deferral of grid modernization costs outside of a general rate case proceeding if it can show financial hardship or a stipulation that includes greater consensus among intervening parties on costs being classified as grid modernization. While Duke Energy Progress did not request recovery of these costs in its most recent case with the NCUC, Duke Energy Progress may request recovery of certain grid modernization costs in future regulatory proceedings. If the NCUC were to rule similarly, Progress Energy's results of operations, financial position and cash flows could be adversely impacted if grid modernization costs are not ultimately approved for recovery and/or deferral treatment.
During the last half of 2018, Duke Energy Progress and Duke Energy Florida’s service territories were impacted by several named storms. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages to the service territory of Duke Energy Progress. Duke Energy Florida’s service territory was also impacted by Hurricane Michael, a Category 5 hurricane and the most powerful storm to hit the Florida Panhandle in recorded history. A significant portion of the incremental operation and maintenance expenses related to these storms have been deferred. On December 21, 2018, Duke Energy Progress filed with the NCUC a petition for approval to defer the incremental storm costs incurred to a regulatory asset for recovery in the next base rate case. On June 11, 2019, the FPSC approved Duke Energy Florida's petition for recovery of incremental storm restoration costs related to Hurricane Michael. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact on Progress Energy's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2018, for discussion of risks associated with the Tax Act.

112

MD&A
DUKE ENERGY PROGRESS


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, 2019, and 2018, and the Annual Report on Form 10-K for the year ended December 31, 2018.
Results of Operations
 
Six Months Ended June 30,
(in millions)
2019

 
2018

 
Variance

Operating Revenues
$
2,871

 
$
2,751

 
$
120

Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power
994

 
917

 
77

Operation, maintenance and other
692

 
756

 
(64
)
Depreciation and amortization
541

 
470

 
71

Property and other taxes
85

 
75

 
10

Impairment charges
—

 
33

 
(33
)
Total operating expenses
2,312

 
2,251

 
61

Gains on Sales of Other Assets and Other, net
—

 
2

 
(2
)
Operating Income
559

 
502

 
57

Other Income and Expenses, net
48

 
37

 
11

Interest Expense
158

 
159

 
(1
)
Income Before Income Taxes
449

 
380

 
69

Income Tax Expense
77

 
64

 
13

Net Income
$
372

 
$
316

 
$
56

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
2019

Residential sales
(7.6
)%
General service sales
(3.3
)%
Industrial sales
0.7
 %
Wholesale power sales
(5.0
)%
Joint dispatch sales
20.8
 %
Total sales
(1.7
)%
Average number of customers
1.3
 %
Six Months Ended June 30, 2019, as compared to June 30, 2018
Operating Revenues. The variance was driven primarily by:
•
a $68 million increase in retail pricing due to the impacts of the prior year North Carolina rate case and the current year South Carolina rate case;
•
a $54 million increase in fuel revenues primarily related to increased fuel cost recovery due to extreme weather in the prior year; and
•
an $11 million increase in rider revenues primarily related to energy efficiency programs.
Partially offset by:
•
a $13 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 $77 million increase in fuel used in electric generation and purchased power primarily due to a higher deferred fuel balance and an increase in the North Carolina Renewable Energy and Energy Efficiency Portfolio Standard requirement from prior year, partially offset by lower demand and changes in generation mix;
•
a $71 million increase in depreciation and amortization expense primarily due to higher amortization of deferred coal ash costs and new depreciation rates associated with the prior year North Carolina rate case, partially offset by the amortization credit for the North Carolina Renewable Energy and Energy Efficiency Portfolio Standard requirement increase from prior year; and
•
a $10 million increase in property and other taxes primarily due to a favorable sales and use tax credit in the prior year.
Partially offset by:
•
a $64 million decrease in operation, maintenance and other expense primarily due to prior year impacts associated with the North Carolina rate case and lower employee benefit and outage costs; and

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MD&A
DUKE ENERGY PROGRESS


•
a $33 million decrease in impairment charges due to prior year impacts associated with the North Carolina rate case.
Other Income and Expenses, net. The variance was driven primarily by life insurance proceeds.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income. The ETRs for the six months ended June 30, 2019, and 2018, were 17.1 percent and 16.8 percent, respectively.
Matters Impacting Future Results
On May 21, 2019, the PSCSC issued an order granting Duke Energy Progress' request for a retail rate increase but denying recovery of certain coal ash costs. On May 31, 2019, Duke Energy Progress filed a Petition for Rehearing or Reconsideration and awaits the order on reconsideration detailing the commission's decision. Once the order is received, Duke Energy Progress has 30 days to file a notice of appeal with the South Carolina Supreme Court. Duke Energy Progress' results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," 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, were eligible for reassessment as low risk pursuant to legislation enacted on July 14, 2016. On November 14, 2018, NCDEQ issued final low-risk classifications for these impoundments, indicating that Duke Energy Progress had satisfied the permanent replacement water supply and certain dam improvement requirements set out in the Coal Ash Management Act. On April 1, 2019, NCDEQ issued a closure determination requiring Duke Energy Progress to excavate all remaining coal ash impoundments in North Carolina. On April 26, 2019, Duke Energy Progress filed a Petition for Contested Case Hearings in the Office of Administrative Hearings to challenge NCDEQ's April 1 Order. Duke Energy Progress intends to seek recovery of all costs through the ratemaking process consistent with previous proceedings. As the 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' results of operations, financial position and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, "Commitments and Contingencies," 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. As noted above, the order issued in the Duke Energy Progress North Carolina rate case supporting recovery of past coal ash remediation costs has been appealed by various parties. The outcome of these appeals, lawsuits, fines and penalties could have an adverse impact on Duke Energy Progress’ results of operations, financial position and cash flows. See Notes 3 and 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters" and “Commitments and Contingencies,” respectively, for additional information.
Duke Energy Carolinas received an order from the NCUC, which denied the Grid Rider Stipulation and deferral treatment of grid improvement costs. The NCUC did allow Duke Energy Carolinas to petition for deferral of grid modernization costs outside of a general rate case proceeding if it can show financial hardship or a stipulation that includes greater consensus among intervening parties on costs being classified as grid modernization. While Duke Energy Progress did not request recovery of these costs in its most recent case with the NCUC, Duke Energy Progress may request recovery of certain grid modernization costs in future regulatory proceedings. If the NCUC were to rule similarly, Duke Energy Progress' results of operations, financial position and cash flows could be adversely impacted if grid modernization costs are not ultimately approved for recovery and/or deferral treatment.
During the last half of 2018, Duke Energy Progress' service territory was impacted by several named storms. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages in the service territory. A significant portion of the incremental operation and maintenance expenses related to these storms have been deferred. On December 21, 2018, Duke Energy Progress filed with the NCUC a petition for approval to defer the incremental storm costs incurred to a regulatory asset for recovery in the next base rate case. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact on Duke Energy Progress' results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2018, for discussion of risks associated with the Tax Act.

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MD&A
DUKE ENERGY FLORIDA


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, 2019, and 2018, and the Annual Report on Form 10-K for the year ended December 31, 2018.
Results of Operations
 
Six Months Ended June 30,
(in millions)
2019

 
2018

 
Variance

Operating Revenues
$
2,439

 
$
2,318

 
$
121

Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power
919

 
953

 
(34
)
Operation, maintenance and other
474

 
474

 
—

Depreciation and amortization
340

 
294

 
46

Property and other taxes
196

 
179

 
17

Total operating expenses
1,929

 
1,900

 
29

Losses on Sales of Other Assets and Other, net
(1
)
 
—

 
(1
)
Operating Income
509

 
418

 
91

Other Income and Expenses, net
25

 
47

 
(22
)
Interest Expense
165

 
137

 
28

Income Before Income Taxes
369

 
328

 
41

Income Tax Expense
72

 
57

 
15

Net Income
$
297

 
$
271

 
$
26

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
2019

Residential sales
2.1
 %
General service sales
1.2
 %
Industrial sales
(6.0
)%
Wholesale and other
5.9
 %
Total sales
0.3
 %
Average number of customers
1.5
 %
Six Months Ended June 30, 2019, as compared to June 30, 2018
Operating Revenues. The variance was driven primarily by:
•
a $125 million increase in retail pricing due to base rate adjustments related to Citrus County CC being placed in service and annual increases from the 2017 Settlement Agreement;
•
a $17 million increase in weather-normal retail sales volumes driven by residential growth; and
•
a $12 million increase in other revenues primarily due to increased transmission revenues related to the Fixed Bill program which began later in 2018 and non-regulated products and services revenues.
Partially offset by:
•
a $22 million decrease in fuel and capacity revenues primarily due to a decrease in fuel and capacity rates billed to retail customers; and
•
a $14 million decrease in retail rider revenues primarily related to decreased revenue requirements in the current year.
Operating Expenses. The variance was driven primarily by:
•
a $46 million increase in depreciation and amortization expense primarily due to base rate adjustments related to Citrus County CC being placed in service, other additional plant in service and increases resulting from the 2018 Crystal River Unit 3 nuclear decommissioning cost study; and
•
a $17 million increase in property and other taxes primarily due to higher property taxes from additional plant in service.
Partially offset by:
•
a $34 million decrease in fuel used in electric generation and purchased power primarily due to lower purchased power, partially offset by higher deferred fuel and capacity expenses.

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DUKE ENERGY FLORIDA


Other Income and Expenses, net. The variance was driven primarily by AFUDC equity return ending on the Citrus County CC in the fourth quarter of 2018.
Interest Expense. The variance was driven primarily by AFUDC debt return ending on the Citrus County CC in the fourth quarter of 2018 and higher debt outstanding in the current year.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income and a decrease in AFUDC equity in the current year. The ETRs for the six months ended June 30, 2019, and 2018, were 19.5 percent and 17.4 percent, respectively. The increase in the ETR was primarily due to a decrease in AFUDC equity in the current year.
Matters Impacting Future Results
On October 10, 2018, Hurricane Michael made landfall on Florida's Panhandle as a Category 5 hurricane, the most powerful storm to hit the Florida Panhandle in recorded history. The storm caused significant damage within the service territory of Duke Energy Florida, particularly from Panama City Beach to Mexico Beach. Duke Energy Florida has not completed the final accumulation of total estimated storm restoration costs incurred. On June 11, 2019, the FPSC approved Duke Energy Florida's petition for recovery of incremental storm restoration costs related to Hurricane Michael. An order from regulatory authorities disallowing the future recovery of storm restoration costs could have an adverse impact on Duke Energy Florida's financial position, results of operations and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2018, for discussion of risks associated with the Tax Act.
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, 2019, and 2018, and the Annual Report on Form 10-K for the year ended December 31, 2018.
Results of Operations
 
Six Months Ended June 30,
(in millions)
2019

 
2018

 
Variance

Operating Revenues
 
 
 
 
 
Regulated electric
$
691

 
$
682

 
$
9

Regulated natural gas
273

 
277

 
(4
)
Nonregulated electric and other
—

 
24

 
(24
)
Total operating revenues
964

 
983

 
(19
)
Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power – regulated
179

 
185

 
(6
)
Fuel used in electric generation and purchased power – nonregulated
—

 
29

 
(29
)
Cost of natural gas
64

 
69

 
(5
)
Operation, maintenance and other
255

 
261

 
(6
)
Depreciation and amortization
130

 
132

 
(2
)
Property and other taxes
158

 
145

 
13

Total operating expenses
786

 
821

 
(35
)
Losses on Sales of Other Assets and Other, net
—

 
(106
)
 
106

Operating Income
178

 
56

 
122

Other Income and Expenses, net
15

 
14

 
1

Interest Expense
54

 
45

 
9

Income Before Income Taxes
139

 
25

 
114

Income Tax Expense
23

 
4

 
19

Net Income
$
116

 
$
21

 
$
95

The following table shows the percent changes in GWh sales of electricity, dekatherms of natural gas delivered and average number of electric and natural gas 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.
 
Electric
Natural Gas
Increase (Decrease) over prior year
2019

2019

Residential sales
(7.2
)%
(1.4
)%
General service sales
(3.5
)%
0.1
 %
Industrial sales
(2.1
)%
(1.0
)%
Wholesale electric power sales
65.3
 %
n/a

Other natural gas sales
n/a

(1.1
)%
Total sales
(3.2
)%
(0.9
)%
Average number of customers
0.6
 %
0.8
 %

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MD&A
DUKE ENERGY OHIO


Six Months Ended June 30, 2019, as compared to June 30, 2018
Operating Revenues. The variance was driven primarily by:
•
a $25 million decrease in fuel related revenues primarily due to a decrease in sales volumes;
•
a $16 million decrease in rider revenues primarily related to the implementation of new base rates;
•
a $14 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year;
•
a $12 million decrease in FTR rider revenues; and
•
a $6 million decrease in OVEC revenues.
Partially offset by:
•
a $38 million increase in retail pricing primarily due to rate case impacts; and
•
a $12 million increase in point-to-point transmission revenues.
Operating Expenses. The variance was driven primarily by:
•
a $35 million decrease in fuel used in electric generation and purchased power expense due to the prior year outage at East Bend Station and the deferral of OVEC related purchased power costs.
Partially offset by:
•
a $13 million increase in property and other taxes primarily due to a higher tax base.
Other Income and Expenses, net. The variance was driven primarily by an increase in intercompany money pool interest income.
Losses on Sales of Other Assets and Other, net. The increase was driven by the loss on the prior year sale of Beckjord.
Interest Expense. The variance was driven primarily by higher debt outstanding in the current year.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income. The ETRs for the six months ended June 30, 2019, and 2018, were 16.5 percent and 16.0 percent, respectively.
Matters Impacting Future Results
On November 13, 2013, the PUCO issued an order authorizing recovery of MGP costs at certain sites in Ohio with a deadline to complete the MGP environmental investigation and remediation work prior to December 31, 2016. This deadline was subsequently extended to December 31, 2019. Disallowance of costs incurred, failure to complete the work by the deadline or failure to obtain an extension from the PUCO could result in an adverse impact on Duke Energy Ohio’s results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2018, for discussion of risks associated with the Tax Act.
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, 2019, and 2018, and the Annual Report on Form 10-K for the year ended December 31, 2018.
Results of Operations
 
Six Months Ended June 30,
(in millions)
2019

 
2018

 
Variance

Operating Revenues
$
1,482

 
$
1,469

 
$
13

Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power
486

 
458

 
28

Operation, maintenance and other
377

 
378

 
(1
)
Depreciation and amortization
263

 
256

 
7

Property and other taxes
39

 
40

 
(1
)
Total operating expenses
1,165

 
1,132

 
33

Operating Income
317

 
337

 
(20
)
Other Income and Expenses, net
27

 
13

 
14

Interest Expense
71

 
83

 
(12
)
Income Before Income Taxes
273

 
267

 
6

Income Tax Expense
66

 
69

 
(3
)
Net Income
$
207

 
$
198

 
$
9


117

MD&A
DUKE ENERGY INDIANA


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
2019

Residential sales
(6.3
)%
General service sales
(1.7
)%
Industrial sales
(1.6
)%
Wholesale power sales
(33.1
)%
Total sales
(7.8
)%
Average number of customers
1.3
 %
Six Months Ended June 30, 2019, as compared to June 30, 2018
Operating Revenues. The variance was driven primarily by:
•
a $25 million increase in fuel revenues primarily due to higher fuel rates billed to customers, partially offset by lower wholesale fuel revenues due to the expiration of a contract with a wholesale customer.
Partially offset by:
•
a $10 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year; and
•
a $1 million decrease in weather-normal retail sales volumes.
Operating Expenses. The variance was driven primarily by:
•
a $28 million increase in fuel used in electric generation and purchased power expense primarily due to higher amortization of deferred fuel costs and higher purchased power, partially offset by lower natural gas and coal costs; and
•
a $7 million increase in depreciation and amortization expense primarily due to the regulatory liability related to Edwardsport IGCC plant being fully amortized in the prior year.
Other Income and Expenses, net. The increase was primarily due to life insurance proceeds, a prior year deduction for customer refunds, legal fees and contributions related to the IGCC tax settlement and a prior year true up of executive deferred compensation.
Interest Expense. The variance was primarily due to recording a debt return on the cumulative balance of deferred coal ash spend based on probability of recovery. This adjustment was immaterial and primarily relates to prior years.
Income Tax Expense. The decrease in tax expense was primarily due to an increase in the amortization of excess deferred taxes, partially offset by an increase in pretax income. The ETRs for the six months ended June 30, 2019, and 2018, were 24.2 percent and 25.8 percent, respectively. The decrease in the ETR was primarily due to an increase in the amortization of excess deferred taxes.
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 results of operations, financial position and cash flows.
Duke Energy Indiana filed a general rate case with the IURC on July 2, 2019, its first general rate case in Indiana in 16 years. The outcome of this rate case could materially impact Duke Energy Indiana's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2018, for discussion of risks associated with the Tax Act.

118

MD&A
PIEDMONT


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, 2019, and 2018, and the Annual Report on Form 10-K for the year ended December 31, 2018.
Results of Operations
 
Six Months Ended June 30,
(in millions)
2019

 
2018

 
Variance

Operating Revenues
$
788

 
$
768

 
$
20

Operating Expenses
 
 
 
 
 
Cost of natural gas
338

 
333

 
5

Operation, maintenance and other
163

 
167

 
(4
)
Depreciation and amortization
84

 
78

 
6

Property and other taxes
25

 
24

 
1

Total operating expenses
610

 
602

 
8

Operating Income
178

 
166

 
12

Other Income and Expenses, net
12

 
9

 
3

Interest Expense
43

 
41

 
2

Income Before Income Taxes
147

 
134

 
13

Income Tax Expense
32

 
32

 
—

Net Income
$
115

 
$
102

 
$
13

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
2019

Residential deliveries
(8.3
)%
Commercial deliveries
(5.1
)%
Industrial deliveries
2.0
 %
Power generation deliveries
(7.9
)%
For resale
4.9
 %
Total throughput deliveries
(5.7
)%
Secondary market volumes
7.1
 %
Average number of customers
1.2
 %
Due to the margin decoupling mechanism in North Carolina and the WNA 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 mostly offsets the impact of weather on bills rendered, but do not ensure precise recovery of approved margin during periods when winter weather is significantly warmer or colder than normal.
Six Months Ended June 30, 2019, as compared to June 30, 2018
Operating Revenues. The variance was driven primarily by:
•
an $11 million increase primarily due to North Carolina and Tennessee IMR increases;
•
a $9 million increase primarily due to higher natural gas prices associated with increased off-system sales; and
•
an $8 million increase primarily due to NCUC approval related to tax reform accounting from fixed rate contracts.
Partially offset by:
•
a $6 million decrease primarily due to a reduction of rates in South Carolina.
Operating Expenses. The variance was driven primarily by:
•
a $6 million increase in depreciation and amortization expense primarily due to additional plant in service; and
•
a $5 million increase in cost of natural gas primarily due to the impact of higher natural gas prices on off-system sales and unbilled revenue.
Partially offset by:
•
a $4 million decrease in operations, maintenance and other expense primarily due to lower labor costs and a portion of rent expense being charged to shared services in current year.
Interest Expense. The variance was driven by higher debt outstanding in the current year and higher interest expense due to customers as a result of tax reform deferrals, partially offset by favorable AFUDC debt interest.

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MD&A
PIEDMONT


Matters Impacting Future Results
Piedmont filed a general rate case with the NCUC on April 1, 2019, its first general rate case in North Carolina in six years. The outcome of this rate case could materially impact Piedmont's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2018, for discussion of risks associated with the Tax Act.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Duke Energy relies primarily upon cash flows from operations, debt and equity 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, 2018, for a summary and detailed discussion of projected primary sources and uses of cash for 2019 to 2021.
Duke Energy issued $3.8 billion of debt, drew $650 million under the Duke Energy Progress Term Loan Facility and paid off in full the $350 million Piedmont term loan during the six months ended June 30, 2019. Refer to Note 6 to the Condensed Consolidated Financial Statements, "Debt and Credit Facilities," for information regarding Duke Energy's debt issuances, debt maturities and available credit facilities including the Master Credit Facility.
In March 2019, Duke Energy issued preferred stock for net proceeds of $973 million. In addition, for the six months ended June 30, 2019, Duke Energy raised approximately $80 million of common equity through its DRIP. Refer to Note 15 to the Condensed Consolidated Financial Statements, "Stockholders' Equity," for information regarding Duke Energy's equity issuances.
Credit Ratings
In May 2019, S&P revised the credit ratings outlook for Duke Energy Corporation and all other Duke Energy Registrants from stable to negative, principally due to concerns of weaker financial measures due to 2018 storms, uncertainty over coal ash remediation costs and recovery in the Carolinas, regulatory lag during a period of robust capital spending and delays related to the ACP pipeline. There have been no changes to the credit ratings of any of the Duke Energy Registrants during 2019 by any of the rating agencies. Moody's and Fitch continue to maintain a stable outlook on Duke Energy Corporation.
Cash Flow Information
The following table summarizes Duke Energy’s cash flows.
 
 
Six Months Ended
 
 
June 30,
(in millions)
 
2019

 
2018

Cash flows provided by (used in):
 
 
 
 
Operating activities
 
$
3,056

 
$
3,302

Investing activities
 
(5,788
)
 
(4,645
)
Financing activities
 
2,622

 
1,265

Net decrease in cash, cash equivalents and restricted cash
 
(110
)
 
(78
)
Cash, cash equivalents and restricted cash at beginning of period
 
591

 
505

Cash, cash equivalents and restricted cash at end of period
 
$
481

 
$
427

OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows.
 
 
Six Months Ended
 
 
June 30,
(in millions)
 
2019

 
2018

 
Variance

Net income
 
$
1,641

 
$
1,124

 
$
517

Non-cash adjustments to net income
 
2,921

 
3,082

 
(161
)
Contributions to qualified pension plans
 
—

 
(141
)
 
141

Payments for asset retirement obligations
 
(336
)
 
(245
)
 
(91
)
Payment for disposal of other assets
 
—

 
(105
)
 
105

Working capital
 
(1,170
)
 
(413
)
 
(757
)
Net cash provided by operating activities
 
$
3,056

 
$
3,302

 
$
(246
)

120

MD&A
LIQUIDITY AND CAPITAL RESOURCES


The variance was primarily due to:
•
a $757 million increase in cash outflows from working capital primarily due to fluctuations in coal stock inventory, fluctuations of payables balances due primarily to storm costs and timing and increases in federal tax receivables, partially offset by fluctuations in accounts receivable balances due to higher receivables at December 31, 2018; and
•
a $91 million increase in payments for asset retirement obligations.
Partially offset by:
•
a $356 million increase in net income after adjustment for non-cash items due primarily to increases in revenues as a result of rate increases in the current year, partially offset by decreases in current year non-cash adjustments;
•
a $141 million decrease in contributions to qualified pension plans; and
•
a $105 million payment for disposal of Beckjord in the prior year.
INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s investing cash flows.
 
 
Six Months Ended
 
 
June 30,
(in millions)
 
2019

 
2018

 
Variance

Capital, investment and acquisition expenditures
 
$
(5,627
)
 
$
(4,515
)
 
$
(1,112
)
Other investing items
 
(161
)
 
(130
)
 
(31
)
Net cash used in investing activities
 
$
(5,788
)
 
$
(4,645
)
 
$
(1,143
)
The variance relates primarily to an increase in capital expenditures due to higher overall investments in the Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables segments.
FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s financing cash flows.
 
 
Six Months Ended
 
 
June 30,
(in millions)
 
2019

 
2018

 
Variance

Issuances of long-term debt, net
 
$
2,467

 
$
537

 
$
1,930

Issuances of common stock
 
27

 
820

 
(793
)
Issuances of preferred stock
 
973

 
—

 
973

Notes payable and commercial paper
 
324

 
1,131

 
(807
)
Dividends paid
 
(1,312
)
 
(1,199
)
 
(113
)
Other financing items
 
143

 
(24
)
 
167

Net cash provided by financing activities
 
$
2,622

 
$
1,265

 
$
1,357

The variance was primarily due to:
•
a $973 million increase in proceeds from the issuance of preferred stock; and
•
a $1,930 million increase in proceeds from net issuances of long-term debt primarily due to the timing of issuances and redemptions of long-term debt.
Partially offset by:
•
an $807 million decrease in net proceeds from issuances of notes payable and commercial paper primarily due to the use of proceeds from the preferred stock issuance and increased long-term debt issuances to pay down outstanding commercial paper; and
•
a $793 million decrease in proceeds from the issuance of common stock due primarily to prior year issuances under equity forward agreements.
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, coal ash and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants. Refer to Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants.

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OTHER MATTERS


Coal Ash Management Act of 2014
On March 26, 2019, NCDEQ granted Duke Energy’s application in part, extending by four months until December 1, 2019, the Coal Ash Act’s closure deadline applicable to the Sutton plant impoundments.
On April 1, 2019, NCDEQ issued a closure determination requiring Duke Energy Carolinas and Duke Energy Progress to excavate all remaining coal ash impoundments at the Allen, Belews Creek, Rogers, Marshall, Mayo and Roxboro facilities in North Carolina. With respect to the final six sites, which NCDEQ has ruled as low risk, science and engineering support a variety of closure methods including capping in place and hybrid cap-in-place as appropriate solutions that protect public health and the environment. On April 26, 2019, Duke Energy Carolinas and Duke Energy Progress filed Petitions for Contested Case Hearings in the Office of Administrative Hearings to challenge NCDEQ’s April 1 Order. For more information, see Note 4, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements.
Duke Energy estimates the undiscounted, unadjusted cost to close the remaining impoundments by excavation, as outlined in the NCDEQ closure determination, will be approximately $4 billion to $5 billion more than the prior project cost estimate of $5.6 billion in the aggregate for the closure for all Duke Energy Carolinas and Duke Energy Progress impoundments. Excavation would likely extend beyond the required federal and state deadlines for impoundment closure. Duke Energy intends to seek recovery of all costs through the ratemaking process consistent with previous proceedings. AROs recorded on the Duke Energy Carolinas and Duke Energy Progress Condensed Consolidated Balance Sheets at June 30, 2019, and December 31, 2018, 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. For more information, see Note 7, "Asset Retirement Obligations," to the Condensed Consolidated Financial Statements.
Duke Energy has completed excavation of all coal ash at the Riverbend plant and coal ash regulated by the Coal Ash Act at the Dan River and Sutton plants.
North Carolina Competitive Procurement
Based on an independent evaluation process, Duke Energy will own or purchase a total of 551 MW of renewable energy from projects under the North Carolina’s CPRE program. The process used was approved by the NCUC to select projects that would deliver the lowest cost renewable energy for customers. Five Duke Energy projects, totaling about 190 MW, were selected during the competitive bidding process. Duke Energy has completed the contracting process for the winning projects; there will be a second tranche for CPRE that is scheduled to occur in the fourth quarter of 2019.
Off-Balance Sheet Arrangements
During the three and six months ended June 30, 2019, there were no material changes to Duke Energy’s off-balance sheet arrangements. See Note 13 to the Condensed Consolidated Financial Statements, "Variable Interest Entities," for a discussion of off-balance sheet arrangements regarding ACP. For additional 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, 2018.
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, 2019, 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, 2018.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three and six months ended June 30, 2019, 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 Exchange Act is 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 is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated 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, 2019, 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.

122

MD&A
OTHER MATTERS


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 and 15d-15 under the Exchange Act) that occurred during the fiscal quarter ended June 30, 2019, and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

123

OTHER INFORMATION
 



ITEM 1. LEGAL PROCEEDINGS
For information regarding material legal proceedings, including regulatory and environmental matters, see Note 3, "Regulatory Matters," and Note 4, "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, 2018.
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 for the year ended December 31, 2018, which could materially affect the Duke Energy Registrants’ financial condition or future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.

124

EXHIBITS
 


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
Ninth Supplemental Indenture, dated as of May 24, 2019 (incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on May 24, 2019, File No. 1-6196).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
X
4.2
Twenty-Second Supplemental Indenture, dated as of June 7, 2019 (incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on June 7, 2019, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*10.1
Engineering, Procurement and Construction Agreement between Duke Energy Business Services, LLC, as agent for and on behalf of Piedmont Natural Gas Company Inc. and Matrix Service, Inc., dated as of April 30, 2019. (Portions of the exhibit have been omitted for confidentiality.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
X
10.2
$1,000,000,000 Credit Agreement, dated as of May 15, 2019, among Duke Energy Corporation, the Lenders party thereto, 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 May 16, 2019, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*10.3
Decommissioning Services Agreement between Duke Energy Florida, LLC, and ADP CR3, LLC, and ADP SF1, LLC. (Portions of the exhibit have been omitted for confidentiality.)
 
 
 
 
 
 
 
 
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
 
 

125

EXHIBITS
 


*31.1.8
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
X
*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
 
 
 
 
 
 
 
 
 
 

126

EXHIBITS
 


*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
 
 
 
 
 
 
 
 
*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 (this does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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.

127

SIGNATURES
 


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 6, 2019
/s/ STEVEN K. YOUNG
 
 
Steven K. Young
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
Date:
August 6, 2019
/s/ DWIGHT L. JACOBS
 
 
Dwight L. Jacobs
Senior Vice President, Chief Accounting Officer,
Tax and Controller
(Principal Accounting Officer)

128

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