Duke Energy Indiana, Inc. (Form: 10-K, Received: 03/13/2009 16:31:34)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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

For the fiscal year ended December 31, 2008 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 1-3543

DUKE ENERGY INDIANA, INC.

(Exact name of registrant as specified in its charter)


Indiana		35-0594457
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1000 East Main Street, Plainfield, Indiana		46168
(Address of principal executive offices)		(Zip Code)

704-594-6200

(Registrant’s telephone number, including area code)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x

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. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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


Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer x		Smaller reporting company ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x

The registrant meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format. Part II Items 4 and 6 and Part III Items 10, 11, 12 and 13 have been omitted in accordance with Instruction I(2)(a) and (c).

All of the registrant’s common stock is indirectly owned by Duke Energy Corporation (File No. 1-32853), which files reports and proxy material pursuant to the Securities Exchange Act of 1934, as amended.

TABLE OF CONTENTS

DUKE ENERGY INDIANA, INC.

FORM 10-K FOR THE YEAR ENDED

DECEMBER 31, 2008


Item		Page
PART I.

1.	BUSINESS	3

	GENERAL	3

	ENVIRONMENTAL MATTERS	5

1A.	RISK FACTORS	5

1B.	UNRESOLVED STAFF COMMENTS	9

2.	PROPERTIES	9

3.	LEGAL PROCEEDINGS	9

PART II.

5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	10

7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11

7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	14

8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	17

9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	60

9A.	CONTROLS AND PROCEDURES	60

PART III.

14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	61

PART IV.

15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULE S	62

	SIGNATURES	63

	EXHIBIT INDEX	E-1

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

•

State and federal legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements;

•

State and federal legislative and regulatory initiatives and rulings that affect cost and investment recovery or have an impact on rate structures;

•

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

•

Industrial, commercial and residential growth in Duke Energy Indiana, Inc.’s (Duke Energy Indiana) service territories;

•

Additional competition in electric markets and continued industry consolidation;

•

The influence of weather and other natural phenomena on Duke Energy Indiana’s operations, including the economic, operational and other effects of storms, hurricanes, droughts and tornados;

•

The timing and extent of changes in commodity prices and interest rates;

•

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

•

The performance of electric generation facilities;

•

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

•

Declines in the market prices of equity securities and resultant cash funding requirements of Duke Energy Indiana for Cinergy Corp.’s defined benefit pension plans;

•

The level of credit worthiness of counterparties to Duke Energy Indiana’s transactions;

•

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

•

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

•

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

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

PART I

Item 1. Business.

GENERAL

Overview. Duke Energy Indiana, Inc. (Duke Energy Indiana), an Indiana corporation organized in 1942, is a wholly-owned subsidiary of Cinergy Corp. (Cinergy). Cinergy is a wholly-owned subsidiary of Duke Energy Corporation (Duke Energy). In the second quarter of 2006, Duke Energy and Cinergy consummated a merger that combined the Duke Energy and Cinergy regulated franchises, as well as deregulated generation in the Midwestern United States.

Business Segments. At December 31, 2008, Duke Energy Indiana operated one business segment, Franchised Electric, which is considered a reportable segment under the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 131, “ Disclosures about Segments of an Enterprise and Related Information. ” Duke Energy Indiana’s chief operating decision maker regularly reviews financial information about this business segment in deciding how to allocate resources and evaluate performance. For additional information regarding this business segment, including financial information, see Note 2 to the Consolidated Financial Statements, “Business Segments.”

The following is a brief description of the nature of operations of the Franchised Electric business segment, as well as Other.

Franchised Electric. Franchised Electric consists of Duke Energy Indiana’s regulated generation, transmission and distribution operations. Franchised Electric plans, constructs, operates and maintains Duke Energy Indiana’s generation, transmission and distribution systems and delivers electric energy to consumers in central, north central and southern Indiana. This business is subject to cost of service rate making where rates to be charged to customers are based on prudently incurred costs over a test period plus a reasonable rate of return. These electric operations are subject to the rules and regulations of the Federal Energy Regulatory Commission (FERC) and the Indiana Utility Regulatory Commission (IURC). Substantially all of Franchised Electric’s operations are regulated and, accordingly, these operations are accounted for under the provisions of SFAS No. 71, “ Accounting for the Effects of Certain Types of Regulation. ”

Franchised Electric’s service area covers about 22,000 square miles with an estimated population of 2.4 million in north central, central, and southern Indiana. Duke Energy Indiana supplies electric service to approximately 775,000 residential, commercial and industrial customers over approximately 31,000 miles of distribution lines and an approximate 5,400-mile transmission system. See Item 2. “Properties” for further discussion of Franchised Electric’s generating facilities.

Other. The remainder of Duke Energy Indiana’s operations is presented as Other. Although it is not considered a business segment, Other primarily includes certain allocated governance costs.

General. Duke Energy Indiana is an Indiana corporation. Duke Energy Indiana’s principal executive offices are located at 1000 East Main Street, Plainfield, Indiana 46168. The telephone number is 704-594-6200. Duke Energy Indiana electronically files reports with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports. The public may read and copy any materials that Duke Energy Indiana files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov . Additionally, information about Duke Energy Indiana, including its reports filed with the SEC, is available through Duke Energy’s web site at http://www.duke-energy.com . Such reports are accessible at no charge through Duke Energy’s web site and are made available as soon as reasonably practicable after such material is filed with or furnished to the SEC.

PART I

GLOSSARY OF TERMS

The following terms or acronyms used in this Form 10-K are defined below:


Term or Acronym		Definition
AFUDC		Allowance for Funds Used During Construction
AOCI		Accumulated Other Comprehensive Income
APB		Accounting Principles Board
CAA		Clean Air Act
CAC		Citizens Action Coalition of Indiana, Inc.
CAIR		Clean Air Interstate Rule
CAMR		Clean Air Mercury Rule
CC		Combined Cycle
CT		Combustion Turbine
Cinergy		Cinergy Corp. (collectively with its subsidiaries)
CO ₂		Carbon dioxide
CPCN		Certificate of Public Convenience and Necessity
DOE		Department of Energy
DOJ		Department of Justice
Duke Energy		Duke Energy Corporation (collectively with its subsidiaries)
Duke Energy Indiana		Duke Energy Indiana, Inc.
EITF		Emerging Issues Task Force
EPA		Environmental Protection Agency
FASB		Financial Accounting Standards Board
FEED		Front End Engineering and Design Study
FERC		Federal Energy Regulatory Commission
FIN		Financial Accounting Standards Board Interpretation
FSP		Financial Accounting Standards Board Staff Position
FTC		United States Federal Trade Commission
GAAP		United States Generally Accepted Accounting Principles
IGCC		Integrated Gasification Combined Cycle
IRS		Internal Revenue Service
IURC		Indiana Utility Regulatory Commission
LIBOR		London Interbank Offered Rate
Midwest ISO		Midwest Independent Transmission System Operator
Moody’s		Moody’s Investor Services
MW		Megawatt
NERC		North American Electric Reliability Council
NO _x		Nitrogen oxide
OUCC		Indiana Office of Utility Consumer Counselor
SAB		Securities and Exchange Commission Staff Accounting Bulletin
SEC		Securities and Exchange Commission
SFAS		Statement of Financial Accounting Standards
SO ₂		Sulfur dioxide
WVPA		Wabash Valley Power Association Inc.

PART I

ENVIRONMENTAL MATTERS

Duke Energy Indiana is subject to federal, state and local laws and regulations with regard to air and water quality, hazardous and solid waste disposal and other environmental matters. Environmental laws and regulations affecting Duke Energy Indiana include, but are not limited to:

•

The Clean Air Act, as well as state laws and regulations impacting air emissions, including State Implementation Plans related to existing and new national ambient air quality standards for ozone and particulate matter. Owners and/or operators of air emission sources are responsible for obtaining permits and for annual compliance and reporting.

•

The Clean Water Act which requires permits for facilities that discharge wastewaters into the environment.

•

The Comprehensive Environmental Response, Compensation and Liability Act, which can require any individual or entity that currently owns or in the past may have owned or operated a disposal site, as well as transporters or generators of hazardous substances sent to a disposal site, to share in remediation costs.

•

The Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, which requires certain solid wastes, including hazardous wastes, to be managed pursuant to a comprehensive regulatory regime.

•

The National Environmental Policy Act, which requires federal agencies to consider potential environmental impacts in their decisions, including siting approvals.

(For more information on environmental matters involving Duke Energy Indiana, including possible liability and capital costs, see Notes 4 and 17 to the Consolidated Financial Statements, “Regulatory Matters,” and “Commitments and Contingencies,” respectively.)

Except to the extent discussed in Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” and Note 17 to the Consolidated Financial Statements, “Commitments and Contingencies,” compliance with current federal, state and local provisions regulating the discharge of materials into the environment, or otherwise protecting the environment, is incorporated into the routine cost structure of our various business segments and is not expected to have a material adverse effect on the competitive position, consolidated results of operations, cash flows or financial position of Duke Energy Indiana.

Item 1A. Risk Factors.

The risk factors discussed herein relate specifically to risks associated with Duke Energy Indiana.

Duke Energy Indiana’s franchised electric revenues, earnings and results are dependent on state legislation and regulation that affect electric generation, transmission, distribution and related activities, which may limit Duke Energy Indiana’s ability to recover costs.

Duke Energy Indiana’s franchised electric businesses are regulated on a cost-of-service/rate-of-return basis subject to the statutes and regulatory commission rules and procedures of Indiana and FERC. If Duke Energy Indiana’s earnings exceed the returns established by the state regulatory commission, Duke Energy Indiana’s retail electric rates may be subject to review by the commission and possible reduction, which may decrease Duke Energy Indiana’s future earnings. Additionally, if regulatory bodies do not allow recovery of costs incurred in providing service on a timely basis, Duke Energy Indiana’s future earnings could be negatively impacted.

Duke Energy Indiana’s business is subject to extensive regulation that will affect Duke Energy Indiana’s operations and costs.

Duke Energy Indiana is subject to regulation by FERC, by federal, state and local authorities under environmental laws and by the state public utility commission under laws regulating Duke Energy Indiana’s business. Regulation affects almost every aspect of Duke Energy Indiana’s businesses, including, among other things, Duke Energy Indiana’s ability to: take fundamental business management actions; determine the terms and rates of Duke Energy Indiana’s services; make acquisitions; issue equity or debt securities; engage in transactions between Duke Energy Indiana’s affiliates; and the ability to pay dividends to its ultimate parent, Duke Energy. Changes to these regulations are ongoing, and Duke Energy Indiana cannot predict the future course of changes in this regulatory environment or the ultimate effect that this changing regulatory environment will have on Duke Energy Indiana’s business. However, changes in regulation can cause delays in or affect business planning and transactions and can substantially increase Duke Energy Indiana’s costs.

PART I

Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs that could adversely affect Duke Energy Indiana’s consolidated results of operations, cash flows or financial position.

Increased competition resulting from deregulation or restructuring efforts, could have a significant adverse financial impact on Duke Energy Indiana and consequently on its consolidated results of operations, cash flows or financial position. Increased competition could also result in increased pressure to lower costs, including the cost of electricity. Duke Energy Indiana cannot predict the extent and timing of entry by additional competitors into the electric markets. Duke Energy Indiana cannot predict when it will be subject to changes in legislation or regulation, nor can it predict the impact of these changes on its consolidated results of operations, cash flows or financial position.

Duke Energy Indiana’s plans for future expansion and modernization of its generation fleet subject it to risk of failure to adequately execute and manage its significant construction plans, as well as the risk of recovering such costs in an untimely manner which could materially impact Duke Energy Indiana’s consolidated results of operations, cash flows or financial position.

The completion of Duke Energy Indiana’s anticipated capital investment projects in existing and new generation facilities is subject to many construction and development risks, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards. Moreover, Duke Energy Indiana’s ability to recover these costs in a timely manner could materially impact its consolidated results of operations, cash flows or financial position.

Duke Energy Indiana must meet credit quality standards and there is no assurance that Duke Energy Indiana will maintain investment grade credit ratings.

Duke Energy Indiana’s senior unsecured long-term debt is rated investment grade by various rating agencies. Duke Energy Indiana cannot be sure that its senior unsecured long-term debt will continue to be rated investment grade.

If the rating agencies were to rate Duke Energy Indiana below investment grade, its borrowing costs would increase, perhaps significantly. In addition, Duke Energy Indiana would likely be required to pay a higher interest rate in future financings, and its potential pool of investors and funding sources would likely decrease. Any downgrade or other event negatively affecting the credit ratings of Duke Energy Indiana could also increase Duke Energy’s or Cinergy’s need to provide liquidity in the form of capital contributions or loans to Duke Energy Indiana, thus reducing the liquidity and borrowing availability of the consolidated group.

Duke Energy Indiana relies on access to short-term intercompany borrowing and longer-term capital markets to finance its capital requirements and support its liquidity needs, and its access to those markets can be adversely affected by a number of conditions, many of which are beyond its control.

Duke Energy Indiana’s business is financed to a large degree through debt and the maturity and repayment profile of debt used to finance investments often does not correlate to cash flows from its assets. Accordingly, Duke Energy Indiana relies on access to short-term borrowings via Duke Energy’s money pool arrangement and financings from longer-term capital markets as a source of liquidity for capital requirements and to fund investments originally financed through debt instruments with disparate maturities not satisfied by the cash flow from Duke Energy Indiana’s operations. If Duke Energy Indiana is not able to access capital at competitive rates or Duke Energy Indiana cannot obtain short-term borrowings via the money pool arrangement, Duke Energy Indiana’s ability to finance its operations and implement its strategy could be adversely affected.

Market disruptions may increase Duke Energy Indiana’s cost of borrowing or adversely affect its ability to access one or more financial markets. Such disruptions could include: economic downturns; the bankruptcy of an unrelated energy company; general capital market conditions; market prices for electricity; terrorist attacks or threatened attacks on Duke Energy Indiana’s facilities or unrelated energy companies; or the overall health of the energy industry. Restrictions on Duke Energy Indiana’s ability to access financial markets may also affect Duke Energy Indiana’s ability to execute Duke Energy Indiana’s business plan as scheduled. An inability to access capital may limit Duke Energy Indiana’s ability to pursue capital expansion, improvements or acquisitions that it may otherwise rely on for future growth.

Duke Energy Indiana has borrowing capacity under Duke Energy’s revolving credit facility. These facilities include financial covenants which limit the amount of debt that can be outstanding as a percentage of the total capital for both Duke Energy and Duke Energy Indiana. Failure to maintain these covenants at either Duke Energy or Duke Energy Indiana could preclude Duke Energy Indiana from issuing letters of credit or borrowing under the revolving credit facility and could require Duke Energy Indiana to immediately pay down any outstanding drawn amounts under other revolving credit agreements.

PART I

Current levels of market volatility are unprecedented .

The capital and credit markets have been experiencing extreme volatility and disruption. In recent months, the volatility and disruption have reached unprecedented levels. In some cases, the markets have exerted downward pressure on stock prices and credit capacity for certain issuers. If current levels of market disruption and volatility continue or worsen, Duke Energy Indiana may be forced to meet its other liquidity needs by further drawing upon contractually committed lending agreements primarily provided by global banks, although there is no assurance that the commitments made by lenders under Duke Energy’s master credit facility will be available if needed due to the recent turmoil throughout the financial services industry. This could require Duke Energy Indiana to seek other funding sources. However, under such extreme market conditions, there can be no assurance other funding sources would be available or sufficient.

Duke Energy Indiana is exposed to credit risk of customers and counterparties with whom it does business.

Adverse economic conditions affecting, or financial difficulties of customers and counterparties with whom Duke Energy Indiana does business could impair the ability of these customers and counterparties to pay for Duke Energy Indiana’s services or fulfill their contractual obligations, including loss recovery payments under insurance contracts or cause them to delay such payments or obligations. Duke Energy Indiana depends on these customers and counterparties to remit payments on a timely basis. Any delay or default in payment could adversely affect Duke Energy Indiana’s consolidated results of operations, cash flows or financial position.

Poor investment performance of Cinergy’s pension plan holdings and other factors impacting pension plan costs could unfavorably impact Duke Energy Indiana’s liquidity and results of operations.

Duke Energy Indiana participates in employer benefit plans sponsored by its parent, Cinergy. Duke Energy Indiana is allocated costs and obligations related to these plans. Cinergy’s costs of providing non-contributory defined benefit pension plans are dependent upon a number of factors, such as the rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plans, future government regulation and required or voluntary contributions made to the plans. While Cinergy has complied with the minimum funding requirements as of December 31, 2008, Cinergy’s qualified pension plans had obligations which exceeded the value of plan assets by approximately $882 million. Without sustained growth in the pension investments over time to increase the value of Cinergy’s plan assets and depending upon the other factors impacting Cinergy’s costs as listed above, Duke Energy Indiana could be required to fund its parent’s plans with significant amounts of cash. Such cash funding obligations could have a material impact on Duke Energy Indiana’s consolidated results of operations, cash flows or financial position.

Duke Energy Indiana is subject to numerous environmental laws and regulations that require significant capital expenditures, can increase its cost of operations, and which may impact or limit its business plans, or expose it to environmental liabilities.

Duke Energy Indiana is subject to numerous environmental laws and regulations affecting many aspects of its present and future operations, including air emissions (such as reducing nitrogen oxide, sulfur dioxide and mercury emissions, or potential future control of greenhouse-gas emissions), water quality, wastewater discharges, solid waste and hazardous waste. These laws and regulations can result in increased capital, operating, and other costs. These laws and regulations generally require Duke Energy Indiana to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals. Compliance with environmental laws and regulations can require significant expenditures, including expenditures for clean up costs and damages arising out of contaminated properties, and failure to comply with environmental regulations may result in the imposition of fines, penalties and injunctive measures affecting operating assets. The steps Duke Energy Indiana takes to ensure that its facilities are in compliance could be prohibitively expensive. As a result, Duke Energy Indiana may be required to shut down or alter the operation of its facilities, which may cause it to incur losses. Further, Duke Energy Indiana’s regulatory rate structure and its contracts with customers may not necessarily allow it to recover capital costs it incurs to comply with new environmental regulations. Also, Duke Energy Indiana may not be able to obtain or maintain from time to time all required environmental regulatory approvals for its operating assets or development projects. If there is a delay in obtaining any required environmental regulatory approvals, if Duke Energy Indiana fails to obtain and comply with them or if environmental laws or regulations change and become more stringent, then the operation of its facilities or the development of new facilities could be prevented, delayed or become subject to additional costs. Although it is not expected that the costs of complying with current environmental regulations will have a material adverse effect on Duke Energy Indiana’s consolidated results of operations, cash flows or financial position, no assurance can be made that the costs of complying with environmental regulations in the future will not have such an effect.

PART I

There is growing consensus that some form of regulation will be forthcoming at the federal level with respect to greenhouse gas emissions (including carbon dioxide (CO ₂ )) and such regulation could result in the creation of substantial additional costs in the form of taxes or emission allowances.

In addition, Duke Energy Indiana is generally responsible for on-site liabilities, and in some cases off-site liabilities, associated with the environmental condition of Duke Energy Indiana’s power generation facilities which it has acquired or developed, regardless of when the liabilities arose and whether they are known or unknown. In connection with some acquisitions and sales of assets, Duke Energy Indiana may obtain, or be required to provide, indemnification against some environmental liabilities. If Duke Energy Indiana incurs a material liability, or the other party to a transaction fails to meet its indemnification obligations to Duke Energy Indiana, Duke Energy Indiana could suffer material losses.

Duke Energy Indiana is involved in numerous legal proceedings, the outcomes of which are uncertain, and resolution adverse to Duke Energy Indiana could negatively affect Duke Energy Indiana’s consolidated results of operations, cash flows or financial position.

Duke Energy Indiana is subject to numerous legal proceedings. Litigation is subject to many uncertainties and Duke Energy Indiana cannot predict the outcome of individual matters with assurance. It is reasonably possible that the final resolution of some of the matters in which Duke Energy Indiana is involved could require it to make additional expenditures, in excess of established reserves, over an extended period of time and in a range of amounts that could have a material effect on Duke Energy Indiana’s consolidated results of operations, cash flows or financial position. Similarly, it is reasonably possible that the terms of resolution could require Duke Energy Indiana to change its business practices and procedures, which could also have a material effect on Duke Energy Indiana’s consolidated results of operations, cash flows or financial position.

Duke Energy Indiana’s consolidated results of operations may be negatively affected by sustained downturns or sluggishness in the economy, which is beyond its control.

Sustained downturns or sluggishness in the economy generally affect the markets in which Duke Energy Indiana operates and negatively influence its operations. Declines in demand for electricity as a result of economic downturns in Duke Energy Indiana’s territories will reduce overall electricity sales and lessen its cash flows, especially as its industrial customers reduce production and, therefore, consumption of electricity. Although Duke Energy Indiana’s business is subject to regulated allowable rates of return and recovery of fuel costs under a fuel adjustment clause, overall declines in electricity sold as a result of economic downturn or recession could reduce revenues and cash flows, thus diminishing results of operations.

Duke Energy Indiana also sells electricity into the spot market or other competitive power markets on a contractual basis. With respect to such transactions, its revenues and results of operations are likely to depend, in large part, upon prevailing market prices in its regional markets and other competitive markets. These market prices may fluctuate substantially over relatively short periods of time and could reduce Duke Energy Indiana’s revenues and margins and thereby diminish its results of operations.

Factors that could impact sales volumes, generation of electricity and market prices at which Duke Energy Indiana is able to sell electricity are as follows:

•

weather conditions, including abnormally mild winter or summer weather that cause lower energy usage for heating or cooling purposes, respectively, and periods of low rainfall that decrease Duke Energy Indiana’s ability to operate its facilities in an economical manner;

•

supply of and demand for energy commodities;

•

general economic conditions, including downturns in the U.S. or other economies which impact energy consumption particularly in which sales to industrial or large commercial customers comprise a significant portion of total sales;

•

availability of competitively priced alternative energy sources, which are preferred by some customers over electricity produced from coal or gas plants, and of energy-efficient equipment which reduces energy demand;

•

ability to procure satisfactory levels of fuel supplies and inventory, such as coal and natural gas;

•

capacity and transmission service into, or out of, Duke Energy Indiana’s markets;

•

natural disasters, acts of terrorism, wars, embargoes and other catastrophic events to the extent they affect Duke Energy Indiana’s operations and markets, as well as the cost and availability of insurance covering such risks; and

•

federal and state energy and environmental regulation and legislation.

PART I

Duke Energy Indiana’s operating results may fluctuate on a seasonal and quarterly basis.

Electric power generation is generally a seasonal business. In most parts of the United States and in markets in which Duke Energy Indiana operates, demand for power peaks during the warmer summer months, with market prices also peaking at that time. In other areas, demand for power peaks during the winter. Further, extreme weather conditions such as heat waves or winter storms could cause these seasonal fluctuations to be more pronounced. As a result, in the future, the overall operating results of Duke Energy Indiana’s businesses may fluctuate substantially on a seasonal and quarterly basis and thus make period comparison less relevant.

New laws or regulations could have a negative impact on Duke Energy Indiana’s results of operations, cash flows or financial position.

Changes in laws and regulations affecting Duke Energy Indiana, including new accounting standards could change the way Duke Energy Indiana is required to record revenues, expenses, assets and liabilities. These types of regulations could have a negative impact on Duke Energy Indiana’s results of operations, cash flows or financial position or access to capital.

Potential terrorist activities or military or other actions could adversely affect Duke Energy Indiana’s business.

The continued threat of terrorism and the impact of retaliatory military and other action by the United States and its allies may lead to increased political, economic and financial market instability and volatility in prices for natural gas and oil which may materially adversely affect Duke Energy Indiana in ways it cannot predict at this time. In addition, future acts of terrorism and any possible reprisals as a consequence of action by the United States and its allies could be directed against companies operating in the United States. Infrastructure and generation facilities could be potential targets of terrorist activities. The potential for terrorism has subjected Duke Energy Indiana’s operations to increased risks and could have a material adverse effect on Duke Energy Indiana’s business. In particular, Duke Energy Indiana may experience increased capital and operating costs to implement increased security for its plants, such as additional physical plant security, additional security personnel or additional capability following a terrorist incident.

The insurance industry has also been disrupted by these events. As a result, the availability of insurance covering risks that Duke Energy Indiana and its competitors typically insure against may decrease. In addition, the insurance Duke Energy Indiana is able to obtain may have higher deductibles, higher premiums and more restrictive policy terms.

Additional risks and uncertainties not currently known to Duke Energy Indiana or that Duke Energy Indiana currently deems to be insignificant also may adversely affect Duke Energy Indiana’s consolidated results of operations, cash flows or financial condition.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

As of December 31, 2008, Duke Energy Indiana operated five coal-fired stations with a combined net capacity of 5,223 megawatts (MW), one hydroelectric station with a net capacity of 45 MW, six combustion turbine (CT) stations with a combined net capacity of 1,479 MW and one combined cycle (CC) station with a combined net capacity of 285 MW. The stations are located in Indiana and Ohio.

In addition, as of December 31, 2008, Duke Energy Indiana owned approximately 5,400 conductor miles of electric transmission lines, including 800 miles of 345 kilovolts, 700 miles of 230 kilovolts, 1,400 miles of 100 to 161 kilovolts, and 2,500 miles of 13 to 69 kilovolts. Duke Energy Indiana also owned approximately 31,000 conductor miles of electric distribution lines, including 23,000 miles of overhead lines and 8,000 miles of underground lines, as of December 31, 2008. As of December 31, 2008, the electric transmission and distribution systems had approximately 500 substations.

Substantially all of Duke Energy Indiana’s electric plant in service is mortgaged under the indenture related to Duke Energy Indiana’s various series of First and Refunding Mortgage Bonds.

Item 3. Legal Proceedings.

For information regarding legal proceedings, including regulatory and environmental matters, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters” and Note 17 to the Consolidated Financial Statements, “Commitments and Contingencies—Litigation” and “Commitments and Contingencies—Environmental.”

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Cinergy owns all of the common stock of Duke Energy Indiana. Duke Energy owns all of the common stock of Cinergy. Duke Energy Indiana anticipates making periodic dividends to provide funding support for Duke Energy’s dividend. During the year ended December 31, 2006, Duke Energy Indiana paid dividends to its parent, Cinergy, of $25 million.

PART II

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

INTRODUCTION

Management’s Discussion and Analysis should be read in conjunction with the accompanying Consolidated Financial Statements and Notes for the years ended December 31, 2008, 2007 and 2006.

BASIS OF PRESENTATION

The results of operations and variance discussion for Duke Energy Indiana is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.

RESULTS OF OPERATIONS

Results of Operations and Variances

Summary of Results (in millions)


	Years Ended December 31,
	2008		2007			Increase (Decrease)
Operating revenues	$	2,483	$	2,223		$	260
Operating expenses		2,025		1,772			253
Gains (losses) on sales of other assets and other, net		3		(1	)		4

Operating income		461		450			11
Other income and expenses, net		70		45			25
Interest expense		123		109			14

Income before income taxes		408		386			22
Income tax expense		150		154			(4	)

Net income	$	258	$	232		$	26

Net Income

The $26 million increase in Duke Energy Indiana’s Net income was due primarily to the following factors:

Operating Revenues. The increase was due primarily to:

•

A $194 million increase in fuel revenues due primarily to increased coal costs and sales to wholesale customers,

•

A $64 million increase in retail revenues primarily related to recovery riders for environmental compliance capital and operating costs, and

•

A $13 million increase due to completion in 2007 of temporary rate reductions associated with regulatory approval of the Cinergy Corp. (Cinergy) merger with Duke Energy Corporation (Duke Energy).

Partially offsetting these increases was:

•

A $37 million decrease in sales to retail customers due to milder weather and declining sales volumes primarily within the industrial sector.

Operating Expenses. The increase was due primarily to:

•

A $190 million increase in fuel costs due primarily to increased generation at coal plants and higher coal costs in 2008 as compared to 2007,

•

A $48 million increase in depreciation and amortization expense due primarily to additional capital spending, clean coal environmental compliance expenditures, and amortization related to demand side management costs, and

•

A $7 million increase in operation and maintenance due primarily to higher storm costs, partially offset by lower incentives in 2008 and a favorable adjustment to the liability recorded for certain post-retirement benefits.

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Gains (Losses) on Sales of Other Assets and Other, net. The increase was due to gains on two sales of structures and land in 2008.

Other Income and Expenses, net. The increase was due primarily to a favorable $25 million Indiana Utility Regulatory Commission (IURC) ruling related to allowance for funds used during construction (AFUDC).

Interest Expense. The increase was due primarily to financings through the Duke Energy money pool agreement and favorable income tax contingency adjustments in 2007.

Income Tax Expense. The decrease was primarily the result of a lower effective tax rate for the year ended December 31, 2008 (37%) compared to the same period in 2007 (40%), partially offset by higher pre-tax income. The decrease in the effective tax rate was due primarily to higher AFUDC equity in 2008.

Matters Impacting Future Results

Duke Energy Indiana continues to maintain low costs and deliver high-quality customer service in Indiana. Duke Energy Indiana expects 2009 sales to be comparable to 2008. Sales, especially in the industrial sector, were impacted by the economic downturn in 2008 and Duke Energy Indiana expects this trend to continue for some period into 2009, and perhaps beyond, until the economy begins to recover. Changes in weather, wholesale power market prices, service area economy, generation availability and changes to the regulatory environment would impact future financial results for Duke Energy Indiana.

Various regulatory activities will continue in 2009, including hearings on Duke Energy Indiana’s proposed cost recovery methodology related to energy efficiency programs. For additional information on Duke Energy Indiana’s current regulatory initiatives, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”

Other Matters

General. Duke Energy Indiana’s fixed charges coverage ratio, as calculated using SEC guidelines, was 3.8 times for 2008, 3.9 times for 2007 and 2.3 times for 2006.

As of December 31, 2008, Duke Energy Indiana had approximately $340 million of auction rate pollution control bonds outstanding. While these debt instruments are long-term in nature and cannot be put back to Duke Energy Indiana prior to maturity, the interest rates on these instruments are designed to reset periodically through an auction process. Beginning in February 2008, Duke Energy Indiana experienced failed auctions on these debt instruments. When failed auctions occur on a series of this debt, Duke Energy Indiana is required to pay the maximum auction rate as prescribed by the bond document. The maximum auction rate for the majority of the auction rate debt is 2.0 times one-month London Interbank Offered Rate. Payment of the failed-auction interest rates will continue until Duke Energy Indiana is able to either successfully remarket these instruments through the auction process or refund and refinance the existing debt through the issuance of an equivalent amount of tax exempt bonds. In January 2009, Duke Energy Indiana refunded $271 million of tax-exempt auction rate bonds through the issuance of $271 million of tax-exempt variable-rate demand bonds, which are supported by direct-pay letters of credit. While Duke Energy Indiana intends to refund and refinance its remaining tax-exempt auction rate bonds of approximately $70 million, the timing of such refinancing transactions is uncertain and subject to market conditions. However, even if Duke Energy Indiana is unable to successfully refund and refinance these debt instruments, the impact of paying higher interest rates on the outstanding auction rate debt is not expected to materially effect Duke Energy Indiana’s consolidated results of operations, cash flows or financial position. The weighted-average interest rate associated with Duke Energy Indiana’s auction rate pollution control bonds was 1.96% as of December 31, 2008 and 4.31% as of December 31, 2007.

Global Climate Change. A body of scientific evidence now accepted by a growing majority of the public and policymakers suggests that the Earth’s climate is changing, caused in part by greenhouse gases emitted into the atmosphere from human activities. Although there is still much to learn about the causes and long-term effects of climate change, many, including Duke Energy Indiana, advocate taking steps now to begin reducing emissions with the aim of stabilizing the atmospheric concentration of greenhouse gases at a level that avoids the potentially worst-case effects of climate change.

Greenhouse gas (GHG) emissions are produced from a wide variety of human activities. The U.S. EPA publishes an inventory of these emissions annually. Carbon dioxide (CO ₂ ), an essential trace gas, is a by product of fossil fuel combustion and currently accounts for about 85% of U.S. greenhouse gas emissions. Duke Energy Indiana currently accounts for about 0.6% of total U.S. CO ₂ emissions, and about 0.5% of total U.S. GHG emissions.

Duke Energy Indiana’s long-term strategies for how best to meet its customers’ growing demand for electricity are impacted by the issues surrounding global warming. These strategies include significant commitments to customer energy efficiency, renewable energy, advanced clean-coal generating plants, and retirement of older less efficient coal-fired power plants. Each of these actions will or has the potential to reduce Duke Energy Indiana’s CO ₂ emissions and therefore its exposure to the costs of future GHG regulation.

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Duke Energy Indiana’s cost of complying with any federal GHG emissions law that may be enacted will depend on the design details of the program. If potential future GHG legislation adopts a cap-and-trade approach, the design elements of such a program that will have the greatest influence on Duke Energy Indiana’s compliance costs include (1) the required levels and timing of the cap, which will drive emission allowance prices, (2) the emission sources covered under the cap, (3) the number of allowances that Duke Energy Indiana might be allocated at no cost on a year-to-year basis, (4) the type and effectiveness of any cost control mechanisms included in the program, (5) the role of emission offsets, which will also influence allowance prices, and (6) the availability and cost of technologies that Duke Energy Indiana can deploy to lower its emissions. While Duke Energy Indiana believes it is very likely that Congress will adopt mandatory GHG emission reduction legislation at some point, the timing and design details of any such legislation are highly uncertain.

While there were many bills introduced in both houses of Congress during the 110 ^th Congress that proposed mandatory limits on GHG emissions, S. 2191 - America’s Climate Security Act of 2007 (commonly referred to as the Lieberman-Warner bill after the sponsors Senators Joseph Lieberman of Connecticut and John Warner of Virginia) became the primary climate change related legislative vehicle. The bill was approved by the Senate Environment and Public Works Committee in December 2007, but failed to advance on the Senate floor in June 2008 when the bill fell considerably short of the 60 votes necessary to invoke cloture and cut off debate. No subsequent action was taken in the 110 ^th Congress related to mandatory federal GHG legislation.

Numerous bills mandating reductions in GHG emissions are expected to be introduced in both houses of Congress in 2009. The leadership in both the House and Senate has publicly stated it is their intent to proceed with climate legislation. President Obama, in his presidential campaign and after the election, indicated passage of climate change legislation is a priority. Still, as the Senate debate in 2008 revealed, there are wide-ranging views in Congress regarding what constitutes acceptable GHG legislation. The current condition of the U.S. economy could add a degree of uncertainty, and there are indications that, in the 111 ^th Congress multiple committees will be involved in crafting GHG legislation, which will make the process of developing GHG legislation potentially more challenging.

Duke Energy Indiana supports the enactment of federal GHG cap-and-trade legislation. Due to Duke Energy Indiana’s concern about patchwork policies focused on a single industrial sector or particular region of the country, Duke Energy Indiana believes this legislation should establish a program that applies to all parts of the economy, including power generation, industrial and commercial sources, and motor vehicles. To permit the economy to adjust rationally to the policy, legislation should establish a long-term program that first slows the growth of emissions, stops them and then transitions to a gradually declining emissions cap as new lower-and non-emitting technologies are developed and become available for wide-scale deployment. Legislation should also include adequate cost-containment measures to protect the U.S. economy from grave and unintended impacts of the policy.

Duke Energy Indiana is unable to estimate the potential cost of complying with currently unspecified and unknowable future GHG legislation or any indirect costs that might result. Compliance costs are sensitive to numerous policy design details, allowance prices, and technology availability and cost. During the Senate debate on the Lieberman-Warner legislation in 2007 and 2008, Duke Energy Indiana attempted to estimate its cost of complying with that legislation over a range of potential allowance prices. Duke Energy Indiana estimated its compliance costs under the Lieberman- Warner model to be between approximately $340 million to $1.0 billion in the first year of the program (2012), which represented the cost to purchase emission allowances needed for compliance over and above what might be allocated to Duke Energy Indiana at zero cost. Duke Energy Indiana would have continued to incur similar or greater annual compliance costs in subsequent years for continued allowance purchases until such time as new lower-and zero-emitting technologies could be deployed to reduce emissions. Duke Energy Indiana’s compliance costs at that time would then include the cost of purchasing and deploying new generation technologies. Duke Energy Indiana would only be able to reduce its allowance purchase costs after new technologies were actually deployed.

There is no way to know how similar or different the requirements of the Lieberman-Warner legislation might be to any future GHG legislation that Congress may eventually adopt, so it is uncertain whether these costs are at all representative of compliance costs that Duke Energy Indiana might incur as a result of any potential future GHG legislation. Under any future scenario involving mandatory GHG limitations, Duke Energy Indiana would plan to seek to recover its compliance costs through appropriate regulatory mechanisms in the jurisdictions in which it operates.

At the state level, the Midwestern Governors Association has an initiative under way called the Midwestern Greenhouse Gas Reduction Accord. One of the ongoing activities of the initiative is the design of a regional GHG cap-and-trade system, with the anticipated end product to be a Model Rule for implementing a GHG cap-and-trade system. Once complete, the Model Rule would go to participating states for their consideration and possible adoption. The state of Indiana is currently only an observer to the accord process. The outcome of this initiative is highly uncertain and Duke Energy Indiana is unable to determine at this time whether there might be direct or indirect cost impacts from any new regulations that might result from the initiative.

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While Duke Energy Indiana’s near-term compliance strategy associated with any potential future GHG legislation that incorporates a cap-and-trade mechanism will likely be focused on allowance purchases, it is expected that at some point in the future Duke Energy Indiana would begin reducing emissions by replacing existing coal-fired generation with new lower-and zero-emitting generation technologies, and/or installing new carbon capture and sequestration technology on existing coal-fired generating plants when the technologies become available and cost-effective. It is not possible at this time, however, to predict with certainty what new technologies might be developed, when they will be ready to be deployed, or what their costs will be. There is also uncertainty as to how or when certain non-technical issues, such as legal and liability questions, that could affect the cost and availability of new technologies might be resolved by regulators. Duke Energy Indiana currently is focused on integrated gasification combined cycle generation with carbon capture and sequestration and capture and storage retrofit technology for existing pulverized coal-fired generation as promising new technologies for generating electricity with lower or no CO ₂ emissions.

With regard to advanced clean-coal, Duke Energy Indiana is in the process of constructing a 630-megawatt integrated gasification combined cycle (IGCC) power plant in Indiana. One of the key features of the IGCC technology is that it has great potential to support the capture of its CO ₂ emissions, with subsequent underground storage of the captured CO ₂ . Indiana’s geology gives all indications of being conducive to permanent underground storage of CO ₂ . Although the IGCC plant, scheduled to be completed in 2012, is not currently being equipped with the technology to capture carbon emissions, space is being reserved for it to be added later. In January 2009, Duke Energy Indiana was given permission by the Indiana Utility Regulatory Commission to proceed with a CO ₂ capture front-end engineering and design study. Duke Energy Indiana has also submitted an application to the Department of Energy for up to a 50% sharing of the cost of installing and operating a pilot-scale CO ₂ capture and storage project at Duke Energy Indiana’s IGCC facility.

In addition to relying on new technologies to reduce its CO ₂ emissions, Duke Energy Indiana has filed for regulatory approval for a first-of-its-kind innovative approach in the utility industry to help meet growing customer demand with new and creative ways to increase energy efficiency, thereby reducing demand (Save-A-Watt) instead of relying almost exclusively on new power plants to generate electricity.

Each of these activities has the potential to reduce Duke Energy Indiana’s future CO ₂ emissions which will reduce Duke Energy Indiana’s exposure to future GHG regulation.

Duke Energy Indiana recognizes the potential for more frequent and severe extreme weather events as a result of climate change and the possibility that these weather events could have a material impact on its future results of operations should these events occur. However, the uncertain nature of potential changes in extreme weather events (such as increased frequency, duration, and severity) and the long period of time over which any changes might take place make estimating any potential future financial risk to Duke Energy Indiana’s operations that may be caused by the physical risks of climate change extremely challenging. Currently, Duke Energy Indiana plans and prepares for extreme weather events that it experiences from time to time, such as ice storms, tornados, severe thunderstorms, high winds and droughts. Duke Energy Indiana’s past experiences preparing for and responding to the impacts of these types of weather-related events would reasonably be expected to help management plan and prepare for future climate change-related severe weather events to reduce, but not eliminate, the operational, economic and financial impacts of such events.

For additional information on other issues related to Duke Energy Indiana, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters” and Note 17 to the Consolidated Financial Statements, “Commitments and Contingencies.”

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Risk Management Policies

Duke Energy Indiana is exposed to market risks associated with commodity prices, credit exposure and interest rates. Management has established comprehensive risk management policies to monitor and manage these market risks. The Treasurer of Duke Energy, the ultimate parent entity of Duke Energy Indiana, is responsible for the overall governance of managing credit risk and commodity price risk, including monitoring exposure limits for Duke Energy Indiana.

Commodity Price Risk

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lished policies and procedures to manage its risks associated with these market fluctuations using various commodity derivatives, such as forwards, swaps and options. See Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies” and Note 9 to the Consolidated Financial Statements, “Risk Management and Hedging Activities and Credit Risk,” for additional information.

Validation of a contract’s fair value is performed by an internal group separate from Duke Energy Indiana’s deal origination areas. Duke Energy Indiana’s derivative contract portfolio is predominantly valued using observable market inputs with little internally developed assumptions. However, for contracts valued beyond the observable market period, Duke Energy Indiana uses common industry practices to develop its valuation techniques and changes in its pricing methodologies or the underlying assumptions could result in significantly different fair values and income recognition.

Generation Portfolio Risks for 2009 . Duke Energy Indiana is primarily exposed to the impact of market fluctuations in the prices of electricity, fuel and emission allowances associated with its generation output not utilized to serve native load or committed load (bi-lateral and wholesale power sales), although the impact on the Consolidated Statements of Operations reported earnings is partially offset by mechanisms in the regulated jurisdictions that result in the sharing of net profits from these activities with retail customers. Duke Energy Indiana closely monitors the risks associated with these commodity price changes on its future generation operations and, where appropriate, uses various commodity instruments such as forward, swap and option contracts to mitigate the effect of such fluctuations on operations. The portfolio includes generation assets (power and capacity), fuel, and emission allowances. Modeled forecasts of future generation output, fuel requirements, and emission allowance requirements are based on forward power, fuel and emission allowance markets. The component pieces of the portfolio are bought and sold based on this model in order to manage the economic value of the portfolio, where such market transparency exists. Based on a sensitivity analysis performed as of December 31, 2008,, Duke Energy Indiana’s forecasted exposure to commodity price risk is not anticipated to have any material adverse effect on its consolidated results of operations in 2009. The sensitivity analysis performed as of December 31, 2007 related to forecasted exposure to commodity price risk during 2008 also indicated that commodity price risk would not have any material adverse effect on Duke Energy Indiana’s consolidated results of operations during 2008 and the impacts of changing commodity prices in its consolidated results of operations for 2008 was insignificant.

The commodity price sensitivity calculation above considers existing hedge positions and estimated production levels, but do not consider other potential effects that might result from such changes in commodity prices.

Credit Risk

Credit risk represents the loss that Duke Energy Indiana would incur if a counterparty fails to perform under its contractual obligations.

Retail. Credit risk associated with Duke Energy Indiana’s service to residential, commercial and industrial customers is generally limited to outstanding accounts receivable. Duke Energy Indiana mitigates this credit risk by requiring customers to provide a cash deposit or letter of credit until a satisfactory payment history is established, at which time the deposit is typically refunded. Charge-offs for the retail customers have historically been insignificant to the operations of Duke Energy Indiana and are typically recovered through the retail rates. However, in light of current overall economic conditions, management continues to monitor customer charge-offs and payment patterns to ensure the adequacy of bad debt reserves. Duke Energy Indiana sells certain of their accounts receivable and related collections through Cinergy Receivables Company, LLC a bankruptcy remote, special purpose entity. While no direct recourse to Duke Energy Indiana exists, it risks loss in the event collections are not sufficient to allow for full recovery of its retained interests. See Note 13 to the Consolidated Financial Statements, “Sales of Accounts Receivable.”

Wholesale Sales . To reduce credit exposure related to bi-lateral sales, Duke Energy Indiana seeks to enter into netting agreements with counterparties that permit it to offset receivables and payables with such counterparties. Duke Energy Indiana attempts to further reduce credit risk with certain counterparties by entering into agreements that enable it to obtain collateral or to terminate or reset the terms of transactions after specified time periods or upon the occurrence of credit-related events. Where exposed to credit risk, Duke Energy Indiana analyzes the counterparties’ financial condition prior to entering into an agreement, establishes credit limits and monitors the appropriateness of those limits on an ongoing basis. Duke Energy Indiana’s industry has historically operated under negotiated credit lines for physical delivery contracts. Duke Energy Indiana may use master collateral agreements to mitigate certain credit exposures. The collateral agreements provide for a counterparty to post cash or letters of credit to the exposed party for exposure in excess of an established threshold. The threshold amount represents an unsecured credit limit, determined in accordance with the corporate credit policy. Collateral agreements also provide that the inability to post collateral is sufficient cause to terminate contracts and liquidate all positions.

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Duke Energy Indiana also obtains cash or letters of credit from customers to provide credit support outside of collateral agreements, where appropriate, based on its financial analysis of the customer and the regulatory or contractual terms and conditions applicable to each transaction.

Based on Duke Energy Indiana’s policies for managing credit risk, its exposures and its credit and other reserves, Duke Energy Indiana does not currently anticipate a material adverse effect on its consolidated results of operations, cash flows or financial position as a result of non-performance by any counterparty.

Interest Rate Risk

Duke Energy Indiana is exposed to risk resulting from changes in interest rates as a result of its issuance of variable and fixed rate debt. Duke Energy Indiana manages its interest rate exposure by limiting its variable-rate exposures to a percentage of total capitalization and by monitoring the effects of market changes in interest rates. Duke Energy Indiana also enters interest rate swaps to manage and mitigate interest rate risk exposure. See Notes 1, 9, and 15 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” “Risk Management and Hedging Activities and Credit Risk,” and “Debt and Credit Facilities,” respectively.

Based on a sensitivity analysis as of December 31, 2008, it was estimated that if market interest rates average 1% higher (lower) in 2009 than in 2008, interest expense, net of offsetting impacts in interest income, would increase (decrease) by approximately $6 million. Comparatively, based on a sensitivity analysis as of December 31, 2007, had interest rates averaged 1% higher (lower) in 2008 than in 2007, it was estimated that interest expense, net of offsetting impacts in interest income, would have increased (decreased) by approximately $7 million. These sensitivities were estimated by considering the impact of the hypothetical interest rates on variable-rate instruments outstanding, including money pool balances, adjusted for cash and cash equivalents outstanding as of December 31, 2008 and 2007. There were no open interest rate hedge positions as of December 31, 2008. If interest rates changed significantly, management would likely take actions to manage its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in Duke Energy Indiana’s financial structure.

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Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Duke Energy Indiana, Inc.

Charlotte, North Carolina

We have audited the accompanying consolidated balance sheets of Duke Energy Indiana, Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, common stockholder’s equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Duke Energy Indiana, Inc. and subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Charlotte, North Carolina

March 13, 2009

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DUKE ENERGY INDIANA, INC.

Consolidated Statements of Operations

(In millions)


	Years Ended December 31,
	2008		2007			2006
Operating Revenues—Regulated Electric	$	2,483	$	2,223		$	2,107
Operating Expenses
Fuel used in electric generation and purchased power		1,006		816			908
Operation, maintenance and other		592		585			563
Depreciation and amortization		353		305			297
Property and other taxes		74		66			62
Total operating expenses		2,025		1,772			1,830
Gains (Losses) on Sales of Other Assets and Other, net		3		(1	)		(1	)
Operating Income		461		450			276
Other Income and Expenses, net		70		45			46
Interest Expense		123		109			122
Income Before Income Taxes		408		386			200
Income Tax Expense		150		154			79
Net Income	$	258	$	232		$	121

See Notes to Consolidated Financial Statements

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DUKE ENERGY INDIANA, INC.

Consolidated Balance Sheets

(In millions)


	December 31,
	2008		2007
ASSETS
Current Assets
Cash and cash equivalents	$	144	$	12
Receivables (net of allowance for doubtful accounts of $1 at December 31, 2008 and $1 at December 31, 2007)		364		222
Inventory		216		138
Assets held for sale		—		2
Other		125		43
Total current assets		849		417
Investments and Other Assets
Restricted funds held in trust		2		10
Intangibles, net		76		75
Assets held for sale		—		115
Other		106		116
Total investments and other assets		184		316
Property, Plant and Equipment
Cost		8,976		8,270
Less accumulated depreciation and amortization		2,903		2,735
Net property, plant and equipment		6,073		5,535
Regulatory Assets and Deferred Debits
Deferred debt expense		42		42
Regulatory assets related to income taxes		66		54
Other		604		468
Total regulatory assets and deferred debits		712		564
Total Assets	$	7,818	$	6,832

See Notes to Consolidated Financial Statements

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DUKE ENERGY INDIANA, INC.

Consolidated Balance Sheets—(Continued)

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


	December 31,
	2008		2007
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable	$	303	$	364
Notes payable		—		101
Taxes accrued		49		58
Interest accrued		42		34
Current maturities of long-term debt		227		47
Liabilities associated with assets held for sale		—		114
Other		114		71
Total current liabilities		735		789
Long-term Debt		2,641		2,099
Deferred Credits and Other Liabilities
Deferred income taxes		809		792
Investment tax credits		16		18
Accrued pension and other post-retirement benefit costs		410		256
Asset retirement obligations		24		13
Liabilities associated with assets held for sale		—		3
Other		589		519
Total deferred credits and other liabilities		1,848		1,601
Commitments and Contingencies
Common Stockholder's Equity
Common Stock, no par; $0.01 stated value, 60,000,000 shares authorized; 53,913,701 shares outstanding at December 31, 2008 and December 31, 2007		1		1
Additional paid-in capital		868		868
Retained earnings		1,714		1,456
Accumulated other comprehensive income		11		18
Total common stockholder's equity		2,594		2,343
Total Liabilities and Common Stockholder's Equity	$	7,818	$	6,832

See Notes to Consolidated Financial Statements

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DUKE ENERGY INDIANA, INC.

Consolidated Statements of Cash Flows

(In millions)


	Years Ended December 31,
	2008			2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	258		$	232		$	121
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		358			310			297
(Gains) losses on sales of other assets and other		(3	)		1			1
Deferred income taxes and investment tax credit amortization		(15	)		101			11
Accrued pension and other post-retirement benefit costs		32			42			46
Contribution to company-sponsored pension and other post-retirement benefit plans		—			(106	)		(24	)
(Increase) decrease in:
Receivables		(29	)		(71	)		121
Inventory		(78	)		—			(36	)
Other current assets		(65	)		26			53
Increase (decrease) in:
Accounts payable		(42	)		79			34
Taxes accrued		(9	)		(78	)		86
Other current liabilities		21			(16	)		(36	)
Regulatory asset/liability deferrals		6			(107	)		143
Other assets		(20	)		88			38
Other liabilities		12			(60	)		(45	)
Net cash provided by operating activities		426			441			810
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(774	)		(603	)		(535	)
Investment expenditures		—			—			(1	)
Purchases of available-for-sale securities		(20	)		(29	)		(36	)
Proceeds from sales and maturities of available-for-sale securities		14			26			33
Purchases of emission allowances		(46	)		(68	)		(79	)
Sales of emission allowances		27			22			58
Notes due from affiliate, net		(121	)		120			(120	)
Proceeds from the sales of other assets		4			114			—
Change in restricted funds held in trust		8			120			127
Other		(3	)		—			—
Net cash used in investing activities		(911	)		(298	)		(553	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt		623			7			331
Redemption of long-term debt		(49	)		(270	)		(329	)
Redemption of preferred stock of subsidiaries		—			—			(11	)
Notes payable to affiliate, net		49			101			(250	)
Dividends paid		—			—			(25	)
Capital contribution from parent		—			24			—
Other		(6	)		—			2
Net cash provided by (used in) financing activities		617			(138	)		(282	)
Net increase (decrease) in cash and cash equivalents		132			5			(25	)
Cash and cash equivalents at beginning of period		12			7			32
Cash and cash equivalents at end of period	$	144		$	12		$	7

Supplemental Disclosures
Cash paid for interest, net of amount capitalized	$	110		$	93		$	98
Cash paid (refunded) for income taxes	$	136		$	75		$	(8	)
Significant non-cash transactions:
Accrued capital expenditures	$	80		$	118		$	51
Reclassification of money pool borrowings to long-term debt	$	150		$	—		$	—

See Notes to Consolidated Financial Statements

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DUKE ENERGY INDIANA, INC.

Consolidated Statements of Common Stockholder's Equity

and Comprehensive Income

(In millions)


								Accumulated Other Comprehensive Income (Loss)
	Common Stock		Additional Paid-in Capital		Retained Earnings			Net Gains (losses) on Cash Flow Hedges			Minimum Pension Liability Adjustment			Other			Total
Balance at December 31, 2005	$	1	$	840	$	1,130		$	7		$	(37	)	$	3		$	1,944
Net income		—		—		121			—			—			—			121
Other comprehensive income
Cash flow hedges ^(a)		—		—		—			8			—			—			8
Unrealized gains on available-for-sale securities ^(b)		—		—		—			—			—			3			3
Minimum pension liability adjustment ^(c)		—		—		—			—			(11	)		—			(11	)

Total comprehensive income																		121
Dividends to Cinergy Corp.		—		—		(25	)		—			—			—			(25	)
Contribution from parent company for reallocation of taxes		—		4		—			—			—			—			4
SFAS No. 158 funded status provision ^(d)		—		—		—			—			48			—			48
Balance at December 31, 2006	$	1	$	844	$	1,226		$	15		$	—		$	6		$	2,092
Net income		—		—		232			—			—			—			232
Other comprehensive income
Cash flow hedges ^(a)		—		—		—			(3	)		—			—			(3	)

Total comprehensive income																		229
Capital contribution from parent		—		24		—			—			—			—			24
Adoption of SFAS No. 158—measurement date provision ^(e)		—		—		(2	)		—			—			—			(2	)
Balance at December 31, 2007	$	1	$	868	$	1,456		$	12		$	—		$	6		$	2,343
Net income		—		—		258			—			—			—			258
Other comprehensive income
Cash flow hedges ^(a)		—		—		—			(1	)		—			—			(1	)
Reclassification of unrealized gains on available-for-sale securities to regulatory asset ^(b)		—		—		—			—			—			(6	)		(6	)

Total comprehensive income																		251
Balance at December 31, 2008	$	1	$	868	$	1,714		$	11		$	—		$	—		$	2,594

(a)	Net of $1 tax benefit in 2008, $1 tax benefit in 2007 and $6 tax expense in 2006.

(b)	Net of $4 tax benefit in 2008 and $2 tax expense in 2006.

(c)	Net of $8 tax benefit in 2006.

(d)	Net of $33 tax expense in 2006.

(e)	Net of $2 tax benefit in 2007.

See Notes to Consolidated Financial Statements

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements

For the Years Ended December 31, 2008, 2007 and 2006

1. Summary of Significant Accounting Policies

Nature of Operations and Basis of Consolidation. Duke Energy Indiana, Inc. (Duke Energy Indiana), an Indiana corporation organized in 1942, is a wholly-owned subsidiary of Cinergy Corp. (Cinergy). Cinergy is a wholly-owned subsidiary of Duke Energy Corporation (Duke Energy). Duke Energy Indiana is a vertically integrated and regulated electric utility that provides service in north central, central, and southern Indiana. Its primary line of business is generation, transmission and distribution of electricity.

On April 3, 2006, Duke Energy Corporation (Old Duke Energy) and Cinergy merged into wholly-owned subsidiaries of Duke Energy Holding Corp. (Duke Energy HC), resulting in Duke Energy HC becoming the parent entity. In connection with the closing of the merger transactions, Duke Energy HC changed its name to Duke Energy Corporation (New Duke Energy or Duke Energy) and Old Duke Energy converted into a limited liability company named Duke Power Company LLC (subsequently renamed Duke Energy Carolinas, LLC). As a result of the merger transactions, each outstanding share of Cinergy common stock was converted into 1.56 shares of Duke Energy common stock, and each share of common stock of Old Duke Energy was converted into one share of Duke Energy common stock, which resulted in the issuance of approximately 313 million shares of Duke Energy common stock. Both Old Duke Energy and New Duke Energy are referred to as Duke Energy herein.

As a result of Duke Energy Indiana’s publicly held debt at the time of Duke Energy’s merger with Cinergy, push-down accounting was not required and, therefore, the assets and liabilities of Duke Energy Indiana have not been recorded at their fair values as of the merger date.

These Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of Duke Energy Indiana and its subsidiary, as well as Duke Energy Indiana’s proportionate share of certain generation and transmission facilities. Unless noted otherwise, references to Duke Energy Indiana herein relate to consolidated operations of Duke Energy Indiana.

Use of Estimates. To conform to generally accepted accounting principles (GAAP) in the United States (U.S.), management makes estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and Notes. Although these estimates are based on management’s best available information at the time, actual results could differ.

Cash and Cash Equivalents. All highly liquid investments with maturities of three months or less at the date of acquisition are considered cash equivalents.

Restricted Funds Held in Trust. At December 31, 2008 and 2007, Duke Energy Indiana had approximately $2 million and $10 million, respectively, of restricted cash related primarily to proceeds from debt issuances that are held in trust, primarily for the purpose of funding future environmental expenditures.

Inventory. Inventory consists of coal for use in electric generation and material and supplies, and is recorded primarily using the average cost method. Inventory is valued at historical cost consistent with ratemaking treatment. Materials and supplies are recorded as inventory when purchased and subsequently charged to expense or capitalized to plant when installed.

Components of Inventory


	December 31,
	2008		2007
	(in millions)
Fuel for use in electric production	$	145	$	80
Materials and supplies		71		58

Total Inventory	$	216	$	138

Cost-Based Regulation. Duke Energy Indiana accounts for its regulated operations under the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, “ Accounting for the Effects of Certain Types of Regulation ” (SFAS No. 71). The economic effects of regulation can result in a regulated company recording assets for costs that have been or are expected to be approved for recovery from customers in a future period or recording liabilities for amounts that are expected to be returned to customers in the rate-setting process in a period different from the period in which the amounts would be recorded by an unregulated enterprise. Accordingly, Duke Energy Indiana records assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP for

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DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

non-regulated entities. Regulatory assets and liabilities are amortized consistent with the treatment of the related cost in the ratemaking process. Management continually assesses whether regulatory assets are probable of future recovery by considering factors such as applicable regulatory changes, recent rate orders applicable to other regulated entities and the status of any pending or potential deregulation legislation. Additionally, management continually assesses whether any regulatory liabilities have been incurred. Based on this continual assessment, management believes the existing regulatory assets are probable of recovery and that no regulatory liabilities, other than those recorded, have been incurred. These regulatory assets and liabilities are primarily classified in the Consolidated Balance Sheets as Regulatory Assets and Deferred Debits, and Other within Deferred Credits and Other Liabilities. Duke Energy Indiana periodically evaluates the applicability of SFAS No. 71, and considers factors such as regulatory changes and the impact of competition. If cost-based regulation ends or competition increases, Duke Energy Indiana may have to reduce its asset balances to reflect a market basis less than cost and write off the associated regulatory assets and liabilities. For further information see Note 4.

In order to apply the accounting provisions of SFAS No. 71 and record regulatory assets and liabilities, the scope criteria in SFAS No. 71 must be met. Management makes significant judgments in determining whether the scope criteria of SFAS No. 71 are met for its operations, including determining whether revenue rates for services provided to customers are subject to approval by an independent, third-party regulator, whether the regulated rates are designed to recover specific costs of providing the regulated service, and a determination of whether, in view of the demand for the regulated services and the level of competition, it is reasonable to assume that rates set at levels that will recover the operations’ costs can be charged to and collected from customers. This final criterion requires consideration of anticipated changes in levels of demand or competition, direct and indirect, during the recovery period for any capitalized costs.

Energy Purchases and Fuel Costs. Duke Energy Indiana utilizes a cost tracking recovery mechanism (commonly referred to as a fuel adjustment clause) that recovers retail and a portion of its wholesale fuel costs from customers. Indiana law limits the amount of fuel costs that Duke Energy Indiana can recover to an amount that will not result in earning a return in excess of that allowed by the Indiana Utility Regulatory Commission (IURC). The fuel adjustment clause is calculated based on the estimated cost of fuel in the next three-month period, and is trued up after actual costs are known. Duke Energy Indiana records any under-recovery or over-recovery resulting from the differences between estimated and actual costs as a regulatory asset or regulatory liability until it is billed or refunded to its customers, at which point it is adjusted through fuel expense.

In addition to the fuel adjustment clause, Duke Energy Indiana utilizes a purchased power tracking mechanism approved by the IURC for the recovery of costs related to certain specified purchases of power necessary to meet native load peak demand requirements to the extent such costs are not recovered through the existing fuel adjustment clause.

Accounting for Risk Management and Hedging Activities and Financial Instruments. Duke Energy Indiana may use a number of different derivative and non-derivative instruments in connection with its commodity price and interest rate risk management activities, including swaps, futures, forwards and options. All derivative instruments not designated and qualifying for the normal purchases and normal sales exception under SFAS No. 133, “ Accounting for Derivative Instruments and Hedging Activities,” as amended (SFAS No. 133), are recorded on the Consolidated Balance Sheets at their fair value. Since Duke Energy Indiana receives regulatory treatment for derivatives related to its native load, the mark-to-market gains and losses associated with those derivative contracts are reflected as regulatory assets or regulatory liabilities on the Consolidated Balance Sheets. Cash inflows and outflows related to derivative instruments, except those that contain financing elements and those related to other investing activities, are presented as a component of operating cash flows in the accompanying Consolidated Statements of Cash Flows. Cash inflows and outflows related to derivative instruments containing financing elements are presented as a component of financing cash flows in the accompanying Consolidated Statements of Cash Flows while cash inflows and outflows from derivatives related to investing activities are presented as a component of investing cash flows in the accompanying Consolidated Statements of Cash Flows.

Normal Purchases and Normal Sales . As appropriate, Duke Energy Indiana applies the normal purchase and normal sales exception to certain contracts. If contracts cease to meet this exception, the fair value of the contracts is recognized on the Consolidated Balance Sheets.

Valuation. When available, quoted market prices or prices obtained through external sources are used to measure a contract’s fair value. For contracts with a delivery location or duration for which quoted market prices are not available, fair value is determined based on internally developed valuation techniques or models. For derivatives recognized under the MTM Model, valuation adjustments are also recognized in the Consolidated Statements of Operations.

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

Property, Plant and Equipment. Property, plant and equipment are stated at the lower of historical cost less accumulated depreciation or fair value, if impaired. Duke Energy Indiana capitalizes all construction-related direct labor and material costs, as well as indirect construction costs. Indirect costs include general engineering, taxes and the cost of funds used during construction (see “Post-in-service Carrying Costs and Allowance for Funds Used During Construction (AFUDC),” discussed below). The cost of renewals and betterments that extend the useful life of property, plant and equipment are also capitalized. The cost of repairs, replacements and major maintenance projects, which do not extend the useful life or increase the expected output of the asset, is expensed as incurred. Depreciation is generally computed over the asset’s estimated useful life using the composite straight-line method. The weighted-average depreciation rates were 3.8% for 2008, 3.9% for 2007, and 3.8% for 2006. Depreciation studies are conducted periodically to update the composite rates and are approved by the IURC.

When Duke Energy Indiana retires its regulated property, plant and equipment, it charges the original cost plus the cost of retirement, less salvage value, to accumulated depreciation. When it sells entire regulated operating units, the cost is removed from the property account and the related accumulated depreciation and amortization accounts are reduced. Any gain or loss is recorded in earnings, unless otherwise required by the applicable regulatory body.

See Note 14 for further information on the components and estimated useful lives of Duke Energy Indiana’s property, plant and equipment balance.

Asset Retirement Obligations. Duke Energy Indiana recognizes asset retirement obligations in accordance with SFAS No. 143, “ Accounting For Asset Retirement Obligations ” (SFAS No. 143), for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset and Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 47, “ Accounting for Conditional Asset Retirement Obligations ” (FIN 47), for conditional asset retirement obligations. The term conditional asset retirement obligation as used in SFAS No. 143 and FIN 47 refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus the timing and (or) method of settlement may be conditional on a future event. Both SFAS No. 143 and FIN 47 require that the present value of the projected liability for an asset retirement obligation be recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The present value of the liability is added to the carrying amount of the associated asset. This additional carrying amount is then depreciated over the estimated useful life of the asset. See Note 7 for further information regarding Duke Energy Indiana’s asset retirement obligations.

Long-Lived Asset Impairments, Assets Held For Sale and Discontinued Operations. Duke Energy Indiana evaluates whether long-lived assets have been impaired when circumstances indicate the carrying value of those assets may not be recoverable. For such long-lived assets, an impairment exists when its carrying value exceeds the sum of estimates of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, a probability-weighted approach is used for developing estimates of future undiscounted cash flows. If the carrying value of the long-lived asset is not recoverable based on these estimated future undiscounted cash flows, the impairment loss is measured as the excess of the asset’s carrying value over its fair value, such that the asset’s carrying value is adjusted to its estimated fair value.

Management assesses the fair value of long-lived assets using commonly accepted techniques, and may use more than one source. Sources to determine fair value include, but are not limited to, recent third party comparable sales, internally developed discounted cash flow analysis and analysis from outside advisors. Significant changes in market conditions resulting from events such as changes in commodity prices or the condition of an asset, or a change in management’s intent to utilize the asset may generally require management to re-assess the cash flows related to the long-lived assets.

Duke Energy Indiana uses the criteria in SFAS No. 144, “ Accounting for the Impairment or Disposal of Long-Lived Assets ” (SFAS No. 144), to determine when an asset is classified as “held for sale.” Upon classification as “held for sale,” the long-lived asset or asset group is measured at the lower of its carrying amount or fair value less cost to sell, depreciation is ceased and the asset or asset group is separately presented on the Consolidated Balance Sheets. When an asset or asset group meets the SFAS No. 144 criteria for classification as held for sale within the Consolidated Balance Sheets, Duke Energy Indiana does not retrospectively adjust prior period balance sheets to conform to current year presentation.

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

Duke Energy Indiana uses the criteria in SFAS No. 144 and Emerging Issues Task Force (EITF) 03-13, “ Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations ” (EITF 03-13), to determine whether components of Duke Energy Indiana that are being disposed of, are classified as held for sale or have been wound down are required to be reported as discontinued operations in the Consolidated Statements of Operations. To qualify as a discontinued operation under SFAS No. 144, the component being disposed of must have clearly distinguishable operations and cash flows. Additionally, pursuant to EITF 03-13, Duke Energy Indiana must not have significant continuing involvement in the operations after the disposal (i.e., Duke Energy Indiana must not have the ability to influence the operating or financial policies of the disposed component) and cash flows of the operations being disposed of must have been eliminated from Duke Energy Indiana’s ongoing operations (i.e., Duke Energy Indiana does not expect to generate significant direct cash flows from activities involving the disposed component after the disposal transaction is completed). Assuming both preceding conditions are met, the related results of operations for the current and prior periods, including any related impairments, would be reflected within discontinued operations, net of tax, in the Consolidated Statements of Operations. If an asset held for sale does not meet the requirements for discontinued operations classification, any impairments and gains or losses on sales are recorded as a component of continuing operations in the Consolidated Statements of Operations. Impairments for all other long-lived assets are recorded as Operating Expenses in the Consolidated Statements of Operations. See Note 3 for discussion of assets held for sale.

Unamortized Debt Premium, Discount and Expense. Premiums, discounts and expenses incurred with the issuance of outstanding long-term debt are amortized over the terms of the debt issues. Any call premiums or unamortized expenses associated with refinancing higher-cost debt obligations to finance regulated assets and operations are amortized consistent with regulatory treatment of those items, where appropriate. The amortization expense is recorded as a component of interest expense in the Consolidated Statements of Operations and is reflected as Depreciation and amortization within Net cash provided by operating activities on the Consolidated Statements of Cash Flows.

Loss Contingencies. Duke Energy Indiana is involved in certain legal and environmental matters that arise in the normal course of business. Loss contingencies are accounted for under SFAS No. 5, “ Accounting for Contingencies ” (SFAS No. 5). Under SFAS No. 5, contingent losses are recorded when it is determined that it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. When a range of the probable loss exists and no amount within the range is a better estimate than any other amount, Duke Energy Indiana records a loss contingency at the minimum amount in the range. Unless otherwise required by GAAP, legal fees are expensed as incurred. See Note 17 for further information.

Environmental Expenditures. Duke Energy Indiana expenses environmental expenditures related to conditions caused by past operations that do not generate current or future revenues. Environmental expenditures related to operations that generate current or future revenues are expensed or capitalized, as appropriate. Liabilities are recorded on an undiscounted basis when the necessity for environmental remediation becomes probable and the costs can be reasonably estimated, or when other potential environmental liabilities are reasonably estimable and probable.

Revenue Recognition and Unbilled Revenue. Revenues on sales of electricity are recognized when the service is provided. Unbilled revenues are estimated by applying an average revenue per kilowatt-hour for all customer classes to the number of estimated kilowatt-hours delivered but not billed. The amount of unbilled revenues can vary significantly from period to period as a result of factors, including seasonality, weather, customer usage patterns and customer mix. Receivables for unbilled revenues of approximately $95 million and $85 million at December 31, 2008 and 2007, respectively, are included in the sales of accounts receivable to Cinergy Receivables Company, LLC (Cinergy Receivables). See Note 13 for additional information.

Post-in-service Carrying Costs and AFUDC. Post-in-service carrying costs, recorded in accordance with SFAS No. 71, represent the estimated financing costs associated with regulatory or physical assets of Duke Energy Indiana which are not yet earning a return from customers through rates and which have been approved for deferral by the IURC. Post-in-service carrying costs include a debt and equity component, both of which are non-cash items, and are primarily incurred between the time the construction of regulated facilities is complete and when Duke Energy Indiana is permitted to recover these costs through inclusion in the rate base. The interest component of post-in-service carrying costs is recorded as regulatory assets in Other within Regulatory Assets and Deferred Debits on the Consolidated Balance Sheets with an offsetting credit to Interest Expense. The amount of post-in-service carrying costs included as a credit to interest expense was approximately $5 million, $5 million and $2 million for the years ended December 31, 2008, 2007 and 2006, respectively. The equity component of post-in-service costs is not recognized in the Consolidated Financial Statements until the costs are included in customer rates, at which time they are recognized as a component of Other Income and Expenses, net, over the applicable

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

recovery period. The amount credited to Other Income and Expenses, net for amortization of the equity component of these costs was approximately $4 million, $1 million and $1 million for the years ended December 31, 2008, 2007 and 2006, respectively.

In accordance with regulatory treatment, Duke Energy Indiana records AFUDC, which represents the estimated debt and equity costs of capital funds necessary to finance the construction of new regulated facilities. Both the debt and equity components of AFUDC are non-cash amounts within the Consolidated Statements of Operations. AFUDC is capitalized as a component of the cost of Property, Plant and Equipment, with an offsetting credit to Other Income and Expenses, net on the Consolidated Statements of Operations for the equity component and as an offset to Interest Expense on the Consolidated Statements of Operations for the debt component. After construction is completed, Duke Energy Indiana is permitted to recover these costs through inclusion in the rate base and the corresponding depreciation expense. The total amount of AFUDC included in the Consolidated Statements of Operations was $52 million in 2008, which consisted of an after-tax equity component of $42 million and a before-tax interest expense component of $10 million. The total amount of AFUDC included in the Consolidated Statements of Operations was $29 million in 2007, which consisted of an after-tax equity component of $17 million and a before-tax interest expense component of $12 million. The total amount of AFUDC included in the Consolidated Statements of Operations was $32 million in 2006, which consisted of an after-tax equity component of $16 million and a before-tax interest expense component of $16 million.

AFUDC equity is recorded in the Consolidated Statements of Operations on an after-tax basis and is a permanent difference item for income tax purposes (i.e., a permanent difference between financial statement and income tax reporting), thus reducing Duke Energy Indiana’s income tax expense and effective tax rate during the construction phase in which AFUDC equity is being recorded. The effective tax rate is subsequently increased in future periods when the completed property, plant and equipment is placed in service and depreciation of the AFUDC equity commences. See Note 6 for information related to the impacts of AFUDC equity on Duke Energy Indiana’s effective tax rate.

Accounting For Purchases and Sales of Emission Allowances. Emission allowances are issued by the Environmental Protection Agency (EPA) at zero cost and permit the holder of the allowance to emit certain gaseous by-products of fossil fuel combustion, including sulfur dioxide (SO ₂ ) and nitrogen oxide (NO _X ). Allowances may also be bought and sold via third party transactions or consumed as the emissions are generated. Allowances allocated to or acquired by Duke Energy Indiana are held primarily for consumption. Duke Energy Indiana records emission allowances as Intangibles, net on its Consolidated Balance Sheets and recognizes the allowances in earnings as they are consumed or sold. For regulated businesses that provide for direct recovery of emission allowances, any gain or loss on sales of recoverable emission allowances are included in the rate structure of the regulated entity and are deferred as a regulatory asset or liability. Future rates charged to retail customers are impacted by any gain or loss on sales of recoverable emission allowances and, therefore, as the recovery of the gain or loss is recognized in operating revenues, the regulatory asset or liability related to the emission allowance activity is recognized as a component of Fuel Used in Electric Generation and Purchased Power in the Consolidated Statements of Operations. For regulated businesses that do not provide for direct recovery of emission allowances through a cost tracking mechanism, gains and losses on sales of emission allowances are included in Gains (Losses) on Sales of Other Assets and Other, net in the Consolidated Statements of Operations, or are deferred, depending on level of regulatory certainty. Purchases and sales of emission allowances are presented gross as investing activities on the Consolidated Statements of Cash Flows.

Income Taxes. As a result of Duke Energy’s merger with Cinergy, Duke Energy Indiana entered into a tax sharing agreement with Duke Energy, where the separate return method is used to allocate tax expenses and benefits to the subsidiaries whose investments or results of operations provide these tax expenses or benefits. The accounting for income taxes essentially represents the income taxes that Duke Energy Indiana would incur if Duke Energy Indiana were a separate company filing its own federal tax return as a C-Corporation. The current tax sharing agreement Duke Energy Indiana has with Duke Energy is substantially the same as the tax sharing agreement between Duke Energy Indiana and Cinergy prior to the merger. Deferred income taxes have been provided for temporary differences between the GAAP and tax carrying amounts of assets and liabilities. These differences create taxable or tax-deductible amounts for future periods. Investment tax credits have been deferred and are being amortized over the estimated useful lives of the related properties.

Management evaluates and records uncertain tax positions in accordance with FIN 48, “ Accounting For Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 ” (FIN 48), which was adopted by Duke Energy Indiana on January 1, 2007. Duke Energy Indiana records tax benefits for uncertain positions taken or expected to be taken on tax returns, including the decision to exclude certain income or transactions from a return, when a more-likely-than-not threshold is met for a tax position and management believes that the position will be sustained upon examination by the taxing authorities. Management evaluates each position based solely on the technical

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

merits and facts and circumstances of the position, assuming the position will be examined by a taxing authority having full knowledge of all relevant information. In accordance with FIN 48, Duke Energy Indiana records the largest amount of the uncertain tax benefit that is greater than 50% likely of being realized upon settlement or effective settlement. Management considers a tax position effectively settled for the purpose of recognizing previously unrecognized tax benefits when the following conditions exist: (i) the taxing authority has completed its examination procedures, including all appeals and administrative reviews that the taxing authority is required and expected to perform for the tax positions, (ii) Duke Energy Indiana does not intend to appeal or litigate any aspect of the tax position included in the completed examination, and (iii) it is remote that the taxing authority would examine or reexamine any aspect of the tax position. See Note 6 for further information.

Duke Energy Indiana records, as it relates to taxes, interest expense as Interest Expense and interest income and penalties in Other Income and Expenses, net, in the Consolidated Statements of Operations.

Excise Taxes . Certain excise taxes levied by state or local governments are collected by Duke Energy Indiana from its customers. These taxes, which are required to be paid regardless of Duke Energy Indiana’s ability to collect from the customer, are accounted for on a gross basis. When Duke Energy Indiana acts as an agent, and the tax is not required to be remitted if it is not collected from the customer, the taxes are accounted for on a net basis. Duke Energy Indiana’s excise taxes accounted for on a gross basis and recorded as revenues in the accompanying Consolidated Statements of Operations were approximately $30 million, $26 million and $26 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Segment Reporting. SFAS No. 131, “ Disclosures about Segments of an Enterprise and Related Information ” (SFAS No. 131), establishes standards for a public company to report financial and descriptive information about its reportable operating segments in annual and interim financial reports. Operating segments are components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and evaluate performance. Two or more operating segments may be aggregated into a single reportable segment provided aggregation is consistent with the objective and basic principles of SFAS No. 131, if the segments have similar economic characteristics, and the segments are considered similar under criteria provided by SFAS No. 131. There is no aggregation within Duke Energy Indiana’s reportable business segment. SFAS No. 131 also establishes standards and related disclosures about the way the operating segments were determined, including products and services, geographic areas and major customers, differences between the measurements used in reporting segment information and those used in the general-purpose financial statements, and changes in the measurement of segment amounts from period to period. The description of Duke Energy Indiana’s reportable segment, consistent with how business results are reported internally to management and the disclosure of segment information in accordance with SFAS No. 131, is presented in Note 2.

Statements of Consolidated Cash Flows. Duke Energy Indiana has made certain classification elections within its Consolidated Statements of Cash Flows related to debt restricted for qualified capital and maintenance expenditures. Proceeds from debt issued with restrictions to fund future capital and maintenance expenditures are presented on a gross basis, with the debt proceeds classified as a financing cash inflow and the changes in the restricted funds held in trust presented as a component of investing activities.

New Accounting Standards. The following new accounting standards were adopted by Duke Energy Indiana during the year ended December 31, 2008 and the impact of such adoption, if applicable, has been presented in the accompanying Consolidated Financial Statements:

SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). Refer to Note 10 for a discussion of Duke Energy Indiana’s adoption of SFAS No. 157.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities- including an amendment of FASB Statement No. 115” (SFAS No. 159). Refer to Note 10 for a discussion of Duke Energy Indiana’s adoption of SFAS No. 159.

The following new accounting standards were adopted by Duke Energy Indiana during the year ended December 31, 2007 and the impact of such adoption, if applicable, has been presented in the accompanying Consolidated Financial Statements:

SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS No. 158) . In October 2006, the FASB issued SFAS No. 158, which changes the recognition and disclosure provisions and measurement date requirements for an employer’s accounting for defined benefit pension and other post-retirement plans. The recognition and disclosure provisions require an employer to (1) recognize the funded status of a benefit plan—measured as the difference between plan assets at fair value and the benefit obligation—in its statement of financial position, (2) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

during the period but are not recognized as components of net periodic benefit cost, and (3) disclose in the notes to financial statements certain additional information. SFAS No. 158 does not change the amounts recognized in the income statement as net periodic benefit cost. Duke Energy Indiana recognized the funded status of its defined benefit pension and other post-retirement plans and provided the required additional disclosures as of December 31, 2006. The adoption of SFAS No. 158 recognition and disclosure provisions resulted in an increase in total assets of approximately $276 million (consisting of an increase in regulatory assets) and an increase in total liabilities of approximately $276 million as of December 31, 2006. The adoption of SFAS No. 158 did not have a material impact on Duke Energy Indiana’s consolidated results of operations or cash flows.

Under the measurement date requirements of SFAS No. 158, an employer is required to measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position (with limited exceptions). Historically, Duke Energy Indiana has measured its plan assets and obligations up to three months prior to the fiscal year-end, as allowed under the authoritative accounting literature. Duke Energy Indiana adopted the change in measurement date effective January 1, 2007 by remeasuring plan assets and benefit obligations as of that date, pursuant to the transition requirements of SFAS No. 158. Net periodic benefit cost of approximately $2 million for the three-month period between September 30, 2006 and December 31, 2006 was recognized, net of tax, as a separate adjustment of retained earnings as of January 1, 2007. Additionally, in the first quarter of 2007, the changes in plan assets and plan obligations between the September 30, 2006 and December 31, 2006 measurement dates not related to net periodic benefit cost was required to be recognized, net of tax, as a separate adjustment of the opening balance of regulatory assets. This adjustment was not material. During the second quarter of 2007, Duke Energy Indiana completed these calculations. The finalization of these actuarial calculations resulted in an insignificant adjustment to regulatory assets.

FASB Interpretation (FIN) 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48). In July 2006, the FASB issued FIN 48, which provides guidance on accounting for income tax positions about which Duke Energy Indiana has concluded there is a level of uncertainty with respect to the recognition of a tax benefit in Duke Energy Indiana’s financial statements. FIN 48 prescribes the minimum recognition threshold a tax position is required to meet. Tax positions are defined very broadly and include not only tax deductions and credits but also decisions not to file in a particular jurisdiction, as well as the taxability of transactions. Duke Energy Indiana adopted FIN 48 effective January 1, 2007. See Note 6 for additional information.

FASB Staff Position (FSP) No. FIN 48-1, Definition of “Settlement” in FASB Interpretation No. 48 (FSP No. FIN 48-1 ). In May, 2007, the FASB staff issued FSP No. FIN 48-1 which clarifies the conditions under FIN 48 that should be met for a tax position to be considered effectively settled with the taxing authority. Duke Energy Indiana’s adoption of FIN 48 as of January 1, 2007 was consistent with the guidance in this FSP.

The following new accounting standard was adopted by Duke Energy Indiana during the year ended December 31, 2006 and the impact of such adoption, if applicable, has been presented in the accompanying Consolidated Financial Statements:

Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (SAB No. 108) . In September 2006 the Securities and Exchange Commission (SEC) issued SAB No. 108, which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. Traditionally, there have been two widely-recognized approaches for quantifying the effects of financial statement misstatements. The income statement approach focuses primarily on the impact of a misstatement on the income statement—including the reversing effect of prior year misstatements—but its use can lead to the accumulation of misstatements in the balance sheet. The balance sheet approach, on the other hand, focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach (a “dual approach”) and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material.

SAB No. 108 was effective for Duke Energy Indiana’s year ending December 31, 2006. SAB No. 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements as if the “dual approach” had always been used or (ii), under certain circumstances, recording the cumulative effect of initially applying the “dual approach” as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings. Duke Energy Indiana has historically used a dual approach for quantifying identified financial statement misstatements. Therefore, the

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adoption of SAB No. 108 did not have a material impact on Duke Energy Indiana’s consolidated results of operations, cash flows or financial position.

The following new accounting standards have been issued, but have not yet been adopted by Duke Energy Indiana as of December 31, 2008:

SFAS No. 141 (revised 2007), “Business Combinations” (SFAS No. 141(R)). In December 2007, the FASB issued SFAS No. 141(R), which replaces SFAS No. 141, “ Business Combinations .” SFAS No. 141(R) retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting be used for all business combinations and that an acquirer be identified for each business combination. This statement also establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling (minority) interests in an acquiree, and any goodwill acquired in a business combination or gain recognized from a bargain purchase. For Duke Energy Indiana, SFAS No. 141(R) must be applied prospectively to business combinations for which the acquisition date occurs on or after January 1, 2009. The impact to Duke Energy Indiana of applying SFAS No. 141(R) for periods subsequent to implementation will be dependent upon the nature of any transactions within the scope of SFAS No. 141(R).

SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment to FASB Statement No. 133” (SFAS No. 161). In March 2008, the FASB issued SFAS No. 161, which amends and expands the disclosure requirements for derivative instruments and hedging activities prescribed by SFAS No. 133, “ Accounting for Derivative Instruments and Hedging Activities .” SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. Duke Energy Indiana will adopt SFAS No. 161 as of January 1, 2009 and SFAS No. 161 encourages, but does not require, comparative disclosure for earlier periods at initial adoption. The adoption of SFAS No. 161 will not have any impact on Duke Energy Indiana’s consolidated results of operations, cash flows or financial position.

2. Business Segments

Duke Energy Indiana has one business unit, Franchised Electric, which is considered a reportable business segment under SFAS No. 131. Duke Energy Indiana’s chief operating decision maker regularly reviews financial information about the business unit in deciding how to allocate resources and evaluate performance. There is no aggregation within Duke Energy Indiana’s defined business segment.

Franchised Electric plans, constructs, operates and maintains Duke Energy Indiana’s generation, transmission and distribution systems and delivers electric energy to consumers. This electric operation is subject to the rules and regulations of the Federal Energy Regulatory Commission (FERC) and the IURC.

The remainder of Duke Energy Indiana’s operations is presented as Other. While it is not considered a business segment, Other primarily includes certain allocated governance costs.

Accounting policies for Duke Energy Indiana’s segment are the same as those described in Note 1. Management evaluates segment performance based on earnings before interest and taxes from continuing operations (EBIT). On a segment basis, EBIT represents all profits from continuing operations (both operating and non-operating and excluding corporate governance costs) before deducting interest and taxes. Cash, cash equivalents, and short-term investments are managed centrally by Cinergy and Duke Energy, so the interest and dividend income on those balances are excluded from the segment’s EBIT.

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Business Segment Data


	Unaffiliated Revenues		Segment EBIT/ Consolidated Income before Income Taxes			Depreciation and Amortization		Capital and Investment Expenditures		Segment Assets ^(a)
	(in millions)
Year Ended December 31, 2008
Franchised Electric	$	2,483	$	558		$	353	$	774	$	7,818
Total reportable segment		2,483		558			353		774		7,818
Other		—		(49	)		—		—		—
Interest expense		—		(123	)		—		—		—
Interest income and other		—		22			—		—		—
Total consolidated	$	2,483	$	408		$	353	$	774	$	7,818

Year Ended December 31, 2007
Franchised Electric	$	2,223	$	524		$	305	$	603	$	6,832
Total reportable segment		2,223		524			305		603		6,832
Other		—		(54	)		—		—		—
Interest expense		—		(109	)		—		—		—
Interest income and other		—		25			—		—		—
Total consolidated	$	2,223	$	386		$	305	$	603	$	6,832

Year Ended December 31, 2006
Franchised Electric	$	2,107	$	373		$	297	$	536	$	6,661
Total reportable segment		2,107		373			297		536		6,661
Other		—		(78	)		—		—		—
Interest expense		—		(122	)		—		—		—
Interest income and other		—		27			—		—		—
Total consolidated	$	2,107	$	200		$	297	$	536	$	6,661

(a)	Includes assets held for sale.

All of Duke Energy Indiana’s revenues are generated domestically and its long-lived assets are in the U.S.

3. Dispositions of Businesses and Sales of Other Assets

Dispositions. In December 2006, Duke Energy Indiana agreed to sell one unit of its Wabash River Power Station (Unit 1) to Wabash Valley Power Association Inc. (WVPA). The sale was approved by the IURC, the FERC, the Federal Trade Commission and the U.S. Department of Justice (DOJ) during 2007. On December 31, 2007, Duke Energy Indiana received proceeds of approximately $114 million, which was equivalent to the net book value of Unit 1 at the time of sale. The $114 million of proceeds is reflected in Proceeds from the sales of other assets within Net cash used in investing activities on the Consolidated Statements of Cash Flows. Since, pursuant to the terms of the purchase and sale agreement, the effective date of the sale was January 1, 2008, the assets of Unit 1 were reflected as Assets held for sale within Investments and Other Assets on the Consolidated Balance Sheets at December 31, 2007 and a corresponding liability equal to the cash received was included in Liabilities associated with assets held for sale within Current Liabilities on the Consolidated Balance Sheets at December 31, 2007. Since the sales price was equal to the net book value of Unit 1 at the transaction date, no gain or loss was recognized on the sale. The sale was completed on January 1, 2008.

Other Asset Sales. For the year ended December 31, 2008, the sale of other assets resulted in proceeds of approximately $5 million and net pre-tax gains of approximately $3 million recorded in Gains (Losses) on Sales of Other Assets and Other, net in the Consolidated Statements of Operations. For the years ended December 31, 2007 and 2006, Duke Energy Indiana had net pre-tax losses of approximately $1 million in each period, respectively, related to other asset sales recorded in Gains (Losses) on Sales of Other Assets and Other, net in the Consolidated Statements of Operations.

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4. Regulatory Matters

Regulatory Assets and Liabilities. Substantially all of Franchised Electric’s operations apply the provisions of SFAS No. 71, and therefore record assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP for non-regulated entities. For further information see Note 1.

Duke Energy Indiana’s Regulatory Assets and Liabilities:


	As of December 31,				Recovery/Refund Period Ends
	2008		2007		Recovery/Refund Period Ends
	(in millions)
Regulatory Assets ^(a)
Gasification services agreement buyout costs ^(b)(c)	$	175	$	194	2018
Accrued pension and post-retirement ^(b)(e)		308		166	⁽ⁿ	⁾
Post-in-service carrying costs and deferred operating expense ^(b)(f)		93		93	^(d	⁾
Net regulatory asset related to income taxes		66		54	^(d	⁾
Deferred Midwest ISO costs ^(g)		15		28	^(h	⁾
Unamortized costs of reacquiring debt ⁽ ⁱ ⁾		22		25	^(d	⁾
Deferred rider revenue ^(g)		21		18	^(j	⁾
Vacation accrual ^(k)		14		12	2009
Under-recovery of fuel costs ^(g)		10		8	^(l	⁾
Deferred merger costs ^(b)		—		5	2008
Forward contracts to purchase emission allowances ^(m)		33		—	⁽ⁿ	⁾
Other ^(b)		23		10	⁽ⁿ	⁾

Total Regulatory Assets	$	780	$	613

Regulatory Liabilities ^(a)
Removal costs ^(o)	$	492	$	464	^(p	⁾
Deferred emission allowance revenue ^(q)		15		5	⁽ⁿ	⁾
Over-recovery of fuel costs ^(q)		10		—	2009
Other ^(o)		13		3	⁽ⁿ	⁾

Total Regulatory Liabilities	$	530	$	472

(a)	All regulatory assets and liabilities are excluded from rate base unless otherwise noted.

(b)	Included in Other within Regulatory Assets and Deferred Debits on the Consolidated Balance Sheets.

(c)

Duke Energy Indiana reached an agreement with Dynegy, Inc. to purchase the remainder of its 25-year contract for coal gasification services. In accordance with an order from the IURC, Duke Energy Indiana began recovering this asset over an 18-year period that commenced upon the termination of the gas services agreement in 2000.

(d)	Recovery/refund is over the life of the associated asset or liability.

(e)	Balances primarily relate to the adoption and subsequent accounting of SFAS No. 158 (see Note 18).

(f)	Approximately $60 million and $63 million of the December 31, 2008 and 2007 balances, respectively, are included in rate base.

(g)	Included in Receivables on the Consolidated Balance Sheets.

(h)	Midwest Independent Transmission System Operator, Inc. (Midwest ISO) cost recovery mechanism.

(i)	Included in Deferred Debt Expense on the Consolidated Balance Sheets.

(j)	Recovered via Clean Coal Tracker.

(k)	Included in Other within Current Assets on the Consolidated Balance Sheets.

(l)	Fuel cost recovery mechanism.

(m)	Included in Other within Current Assets and Other within Regulatory Assets and Deferred Debits on the Consolidated Balance Sheet.

(n)	Recovery/refund period is currently unknown.

(o)	Included in Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheets.

(p)	Liability is extinguished over the lives of the associated assets.

(q)	Included in Accounts Payable on the Consolidated Balance Sheets.

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Regulatory Merger Approvals. On April 3, 2006, the merger between Duke Energy and Cinergy was consummated to create a newly-formed company, Duke Energy Holding Corp. (subsequently renamed Duke Energy Corporation). While the merger itself was not subject to approval by the IURC, the IURC approved certain affiliate agreements in connection with the merger subject to certain conditions. Key elements of these conditions include:

•

The IURC required that Duke Energy Indiana provide a rate reduction of $40 million to its customers over a one year period and $5 million over a five year period for low-income energy assistance and clean coal technology. In April 2006, Citizens Action Coalition of Indiana, Inc., an intervenor in the merger proceeding, filed a Verified Petition for Rehearing and Reconsideration claiming that Duke Energy Indiana should be ordered to provide an additional $5 million in rate reduction to customers to be consistent with the terms of the North Carolina Utilities Commission’s order approving the merger. In May 2006, the IURC denied the petition for rehearing and reconsideration. As of April 30, 2007, Duke Energy Indiana had completed its merger related reductions and filed a notice with the IURC to terminate the merger credit rider. Approximately $13 million and $27 million of the rate reduction was passed through to customers during the years ended December 31, 2007 and 2006, respectively.

•

The FERC approved the merger without conditions.

Restrictions on the ability of Duke Energy Indiana to Make Dividends, Advances and Loans to Duke Energy Corporation. As discussed above, on April 3, 2006, the merger between Duke Energy and Cinergy was consummated. As a condition of the merger approval the IURC imposed conditions (the Merger Conditions) on the ability of Duke Energy Indiana to transfer funds to Duke Energy through loans or advances, as well as restricted amounts available to pay dividends to Duke Energy. Pursuant to the Merger Conditions, Duke Energy Indiana shall limit cumulative distributions paid subsequent to the Duke Energy-Cinergy merger to (i) the amount of retained earnings on the day prior to the closing of the merger plus (ii) any future earnings recorded by Duke Energy Indiana subsequent to the merger. In addition, Duke Energy Indiana will not declare and pay dividends out of capital or unearned surplus without prior authorization of the IURC. At December 31, 2008, Duke Energy Indiana had restricted net assets of approximately $0.9 billion that may not be transferred to Duke Energy without appropriate approval based on the aforementioned Merger Conditions.

Franchised Electric

Rate Related Information. The IURC approves rates for retail electric sales within Indiana. The FERC approves rates for electric sales to wholesale customers served under cost-based rates.

Indiana AFUDC Ruling. Duke Energy Indiana recovers financing and other operating costs associated with certain environmental control property through a rate adjustment mechanism. In January 2008, the IURC approved the inclusion of an accounting adjustment for AFUDC affecting the value of the property. The Indiana Office of Utility Consumer Counselor (OUCC) filed a petition asking the IURC to rehear and reconsider its decision regarding approval of the amount of AFUDC included in the value of the property. The IURC issued an order in the second quarter of 2008 denying the OUCC’s request and upholding its original decision. The OUCC appealed the IURC’s Order on Reconsideration to the Indiana Court of Appeals. On November 14, 2008, the Indiana Court of Appeals affirmed the IURC order approving the accounting adjustment for AFUDC. Duke Energy Indiana recorded the favorable impacts of this IURC ruling as a component of Other Income and Expenses, net on the Consolidated Statements of Operations, which amounted to approximately $25 million during the year ended December 31, 2008.

Energy Efficiency. In October 2007, Duke Energy Indiana filed its petition with the IURC requesting approval of an alternative regulatory plan to increase its energy efficiency efforts in the state. Duke Energy Indiana seeks approval of a plan that will be available to all customer groups and will compensate Duke Energy Indiana for verified reductions in energy usage. Under the plan, customers would pay for energy efficiency programs through an energy efficiency rider that would be included in their power bill and adjusted annually through a proceeding before the IURC. The energy efficiency rider proposal is based on the avoided cost of generation not needed as a result of the success of Duke Energy Indiana’s energy efficiency programs. A number of parties have intervened in the proceeding. On May 29, 2008, Duke Energy Indiana and Vectren Energy Delivery of Indiana, Inc. (Vectren) filed a stipulation and settlement agreement in the proceeding. On August 1, 2008, Duke Energy Indiana reached a settlement agreement with the OUCC resolving all issues in the proceeding. The settlement agreement was filed with the IURC on August 15, 2008. On October 31, 2008, Duke Energy Indiana reached a settlement agreement with Nucor Corporation, Steel Dynamics, Inc. and the Kroger Company resolving all issues in the proceeding. The settlement agreement was filed with the IURC on November 3, 2008. On January 15, 2009, Duke Energy Indiana entered into a settlement that

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amended the October 31, 2008 settlement, adding two additional intervenors to the settlement – the Indiana Industrial Group and Wal-Mart Stores, Inc. Duke Energy Indiana has not reached a settlement with one intervenor in the proceeding, the Citizens Action Coalition of Indiana, Inc. An evidentiary hearing with the IURC was held on February 27 and March 2, 2009, and an order is expected by the end of the second quarter of 2009.

Capital Expansion Projects

Edwardsport Integrated Gasification Combined Cycle (IGCC) Plant. On September 7, 2006, Duke Energy Indiana and Southern Indiana Gas and Electric Company d/b/a Vectren Energy Delivery of Indiana (Vectren) filed a joint petition with the IURC seeking a Certificate of Public Convenience and Necessity (CPCN) for the construction of a 630 megawatt (MW) IGCC power plant at Duke Energy Indiana’s Edwardsport Generating Station in Knox County, Indiana. The petition describes the applicants’ need for additional baseload generating capacity and requests timely recovery of all construction and operating costs related to the proposed generating station, including financing costs, together with certain incentive ratemaking treatment. In April 2007, Duke Energy Indiana and Vectren filed a Front End Engineering and Design Study Report which included an updated estimated cost for the IGCC project of approximately $2 billion (including approximately $120 million of AFUDC). In June 2007, Vectren decided not to proceed with the CPCN petition, and in August 2007, Vectren formally withdrew its participation in the IGCC plant. In June 2007, a hearing was conducted on the CPCN petition based on Duke Energy Indiana owning 100% of the project. On November 20, 2007, the IURC issued an order granting Duke Energy Indiana a CPCN for the proposed IGCC project, approved the cost estimate of $1.985 billion and approved the timely recovery of costs related to the project. The IURC also approved Duke Energy Indiana’s proposal to initiate a proceeding in May 2008 concerning proposals for the study of partial carbon capture, sequestration and/or enhanced oil recovery for the Edwardsport IGCC Project. On January 25, 2008, Duke Energy Indiana received the final air permit from the Indiana Department of Environmental Management. The Citizens Action Coalition of Indiana, Inc., Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc., all intervenors in the CPCN proceeding, appealed the IURC Order to the Indiana Court of Appeals and also appealed the air permit. The Joint Brief of the Appellants in the appeal of the CPCN case was filed on May 30, 2008 and the Duke Energy Indiana Brief of Appellee was filed on July 23, 2008 in the appeal of the IURC CPCN Order. On October 16, 2008, the Indiana Court of Appeals affirmed the IURC’s grant of Duke Energy Indiana’s CPCN petition. On November 17, 2008, the same parties filed for a rehearing before the Indiana Court of Appeals, which was denied on December 17, 2008. The time for additional appeals has passed and this proceeding is now concluded.

On May 1, 2008, Duke Energy Indiana filed its first semi-annual IGCC Rider and ongoing review proceeding with the IURC as required under the CPCN Order issued by the IURC in November 2007, which approved the IGCC Project. In its filing, Duke Energy Indiana requested approval of a new cost estimate for the IGCC Project of $2.35 billion (including approximately $125 million of AFUDC) and for approval of plans to study carbon capture as required by the IURC’s November 2007 CPCN Order. An evidentiary hearing was conducted on August 25, 2008. On January 7, 2009, the IURC approved Duke Energy Indiana’s request, including the new cost estimate of $2.35 billion, and cost recovery associated with a study on carbon capture. Duke Energy Indiana was also required to file its plans for studying carbon storage related to the project within 60 days of the order. The OUCC filed a motion of clarification of this order concerning a ratemaking issue related to deferred taxes. The order was not otherwise appealed. The IURC is anticipated to rule on the motion for clarification of the ratemaking issue by the end of the first quarter of 2009. On November 3, 2008, Duke Energy Indiana filed its second semi-annual IGCC rider and ongoing review proceeding with the IURC and an evidentiary hearing with the IURC was held on March 9, 2009. An order is expected in the second quarter of 2009. Duke Energy Indiana filed a petition requesting approval of its plans for studying carbon storage, sequestration and or enhanced oil recovery at the Edwardsport facility on March 6, 2009. Under the CPCN order and statutory provisions, Duke Energy Indiana is entitled to recover the costs reasonably incurred in reliance on the CPCN Order. Duke Energy Indiana has begun construction on the Edwardsport IGCC plant and entered into a $200 million engineering, procurement and construction management agreement with Bechtel Power Corporation in December 2008 in connection with the construction of the plant.

Federal Advanced Clean Coal Tax Credits. Duke Energy Indiana has been awarded approximately $134 million of federal advanced clean coal tax credits associated with its construction of the Edwardsport IGCC plant. In March, 2008, two environmental groups, Appalachian Voices and the Canary Coalition, filed suit against the Federal government challenging the tax credits awarded to incentivize certain clean coal projects. Although Duke Energy Indiana was not a party to the case, the allegations center on the tax incentives provided for Duke Energy Indiana’s Edwardsport IGCC plant. The initial complaint alleged a failure to comply with the National Environmental Policy Act. The first amended complaint, filed in August, 2008, added an Endangered Species Act claim and also sought declaratory and injunctive relief against the U.S. Department of Energy and the U.S. Department of the Treasury. On November 10, 2008,

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the District Court dismissed the case, finding that plaintiffs lacked standing to pursue their claims. Duke Energy Indiana anticipates that plaintiffs will appeal this decision.

Other Matters

Power Hedging . Duke Energy Indiana recovers its actual fuel costs quarterly through a rate adjustment mechanism. In a recent fuel clause proceeding, certain industrial customers and the OUCC intervened and a subdocket was established to address an issue raised by the OUCC and the intervenors concerning the recovery of costs associated with certain power hedging activities. An evidentiary hearing in the power hedging proceeding was held in June 2007. A settlement agreement between the OUCC and Duke Energy Indiana was filed with the IURC in May 2008 and on June 25, 2008, the IURC issued a decision approving the settlement agreement, thereby resolving all disputed issues related to Duke Energy Indiana’s power hedging activities. Among other matters, the settlement agreement provided for a one-time credit of $1 million reflected in Duke Energy Indiana’s next fuel clause proceeding (FAC77). Under the settlement agreement and resulting order, the “subject to refund” provision contained in prior FAC orders related to power hedging costs has been removed. In addition, the settlement agreement and order provide for an ongoing hedging methodology, beginning August 1, 2008, continuing until permanent hedging protocols are developed and approved by the IURC.

SmartGrid and Distributed Renewable Generation Demonstration Project. On May 23, 2008, Duke Energy Indiana filed a petition with the IURC requesting approval for SmartGrid and Distributed Renewable Generation Demonstration Project investments and related costs along with a request to annually update distribution rates for such costs and include a lost revenue recovery mechanism. Hearings are anticipated to be held in April 2009.

Gibson Unit 4 Outage. In a 2008 fuel clause proceeding, the IURC granted a motion by the Industrial Group and Nucor Corporation to establish a subdocket to examine whether imprudence in Duke Energy Indiana’s maintenance practices led to a forced outage at Gibson Station Unit 4 during January-March 2008. The outage contributed to notably higher fuel and purchased power costs during the outage. A hearing on this subdocket proceeding was held in January 2009. The IURC authorized Duke Energy Indiana to collect through rates the costs for which it sought recovery in the proceeding subject to refund (similar to prior subdockets) pending the outcome of this new subdocket related to maintenance practices for Gibson Station Unit 4. An order is expected from the IURC in the second quarter of 2009.

Midwest Independent Transmission System Operator, Inc. (Midwest ISO) Resource Adequacy Filing. On December 28, 2007, the Midwest ISO filed its Electric Tariff Filing Regarding Resource Adequacy in compliance with the FERC’s request of Midwest ISO to file Phase II of its long-term Resource Adequacy plan by December 2007. The proposal includes establishment of a resource adequacy requirement in the form of planning reserve margin. On March 26, 2008, the FERC ruled on the Midwest ISO’s Resource Adequacy filing and ordered that the new Module E tariff be effective March 27, 2008. This action established a Midwest ISO-wide resource adequacy requirement for the first Planning Year, which begins June 2009. In the Order, the FERC, among other things, clarified that States have the authority to set their own Planning Reserve Margins, as long as they are not inconsistent with any reliability standard approved by the FERC.

Midwest ISO’s Establishment of an Ancillary Services Market. On February 25, 2008, the FERC conditionally accepted the Midwest ISO proposal to implement a day-ahead and real-time ancillary services market (ASM), including a scarcity pricing proposal. By approving the ASM proposal, the FERC essentially approved the transfer and consolidation of Balancing Authority responsibility in the Midwest ISO so that it will become the North American Electric Reliability Council-certified Balancing Authority for the entire Midwest ISO area. This will allow the Midwest ISO to determine operating reserve requirements and procure operating reserves from all qualified resources from an organized market, in place of the current system of local management and procurement of reserves by the 24 Balancing Authorities. The Midwest ISO launched the ASM on January 6, 2009. In January 2008, Duke Energy Indiana and three other Indiana utilities filed a joint petition with the IURC, requesting, among other things, authority to transfer additional balancing authority functions to the Midwest ISO and for recovery of costs incurred under the ASM. On August 13, 2008 the IURC issued an order authorizing the Joint Petitioners to transfer additional balancing authority functions to the Midwest ISO, to participate in the Ancillary Services Market and to defer ASM costs pending a final order in the case. On September 29, 2008, Duke Energy Indiana, Vectren and the OUCC filed a Joint Stipulation and Agreement with the IURC reflecting the settlement by the OUCC with each of these utilities on the cost recovery aspects of the proceeding. In December 2008, Duke Energy Indiana, Vectren, the OUCC, the industrial group and Nucor Corporation met to discuss the cost recovery aspects of the proceeding. On January 6, 2009, a modified Stipulation and Agreement and Modified Settlement terms were filed along with supporting testimony. A hearing was held on February 9, 2009 and an order is expected in the second quarter of 2009.

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Notes To Consolidated Financial Statements—(Continued)

5. Joint Ownership of Generating and Transmission Facilities

Duke Energy Indiana is a joint-owner of Gibson Station Unit No. 5 with WVPA and Indiana Municipal Power Agency (IMPA), as well as a joint-owner with WVPA and IMPA of certain Indiana transmission property and local facilities. These facilities constitute part of the integrated transmission and distribution systems, which are operated and maintained by Duke Energy Indiana.

Duke Energy Indiana’s share of jointly-owned plant or facilities included on the December 31, 2008 Consolidated Balance Sheet were as follows:


	Ownership Share		Property, Plant, and Equipment		Accumulated Depreciation		Construction Work in Progress
	(in millions)
Production:
Gibson Station (Unit 5)	50.1	%	$	322	$	153	$	1
Transmission and local facilities	Various			3,007		1,260		—

Duke Energy Indiana’s share of revenues and operating costs of the above jointly owned generating facilities are included within the corresponding line on the Consolidated Statements of Operations. Each participant in the jointly owned facilities must provide its own financing.

6. Income Taxes

Prior to the merger of Cinergy and Duke Energy on April 3, 2006, the taxable income of Duke Energy Indiana was reflected in Cinergy’s U.S. federal and state income tax returns. After the merger, the taxable income of Duke Energy Indiana is reflected in Duke Energy’s U.S. federal and state income tax returns. As a result of Duke Energy’s merger with Cinergy, Duke Energy Indiana entered into a tax sharing agreement with Duke Energy, where the separate return method is used to allocate tax expenses and benefits to the subsidiaries whose investments or results of operations provide these tax expenses or benefits. The accounting for income taxes essentially represents the income taxes that Duke Energy Indiana would incur if Duke Energy Indiana were a separate company filing its own tax return as a C-Corporation. The current tax sharing agreement Duke Energy Indiana has with Duke Energy is substantially the same as the tax sharing agreement between Duke Energy Indiana and Cinergy prior to the merger.

The following details the components of income tax expense:

Income Tax Expense


	For the Years Ended December 31,
	2008			2007			2006
	(in millions)
Current income taxes
Federal	$	126		$	41		$	51
State		39			12			17

Total current income taxes ^(a)		165			53			68

Deferred income taxes
Federal		(11	)		78			11
State		(1	)		26			3

Total deferred income taxes		(12	)		104			14

Investment tax credit amortization		(3	)		(3	)		(3	)

Total income tax expense included in Consolidated Statements of Operations	$	150		$	154		$	79

(a)	Included are FIN 48 benefits of approximately $18 million for 2008 and approximately $16 million for 2007.

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Reconciliation of Income Tax Expense at the US Federal Statutory Tax Rate to the Actual Tax Expense (Statutory Rate Reconciliation)


	For the Years Ended December 31,
	2008			2007			2006
	(in millions)
Income tax expense, computed at the statutory rate of 35%	$	143		$	135		$	70
State income tax, net of federal income tax effect		25			25			13
Depreciation and other PP&E related differences, including AFUDC equity		(14	)		(2	)		(3	)
Investment tax credit amortization		(3	)		(3	)		(3	)
Other items, net		(1	)		(1	)		2

Total income tax expense	$	150		$	154		$	79

Effective tax rate		36.8	%		39.9	%		39.5	%

Net Deferred Income Tax Liability Components


	December 31,
	2008			2007
	(in millions)
Deferred credits and other liabilities	$	46		$	77
Other		28			12

Total deferred income tax assets		74			89

Investments and other assets		(58	)		(52	)
Accelerated depreciation rates		(719	)		(690	)
Regulatory assets and deferred debits		(68	)		(122	)

Total deferred income tax liabilities		(845	)		(864	)

Total net deferred income tax liabilities	$	(771	)	$	(775	)

The above amounts have been classified in the Consolidated Balance Sheets as follows:

Net Deferred Income Tax Liabilities


	December 31,
	2008			2007
	(in millions)
Current deferred tax assets, included in other current assets	$	38		$	16
Current deferred tax liabilities, included in other current liabilities		—			1
Non-current deferred tax liabilities		(809	)		(792	)

Total net deferred income tax liabilities	$	(771	)	$	(775	)

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

Changes to Unrecognized Tax Benefits


	2008 Increase/(Decrease)			2007 Increase/(Decrease)
	(in millions)			(in millions)
Unrecognized Tax Benefits—January 1	$	30		$	47

Unrecognized Tax Benefits Changes
Gross increases—tax positions in prior periods		—			5
Gross decreases—tax positions in prior periods		(21	)		(19	)
Settlements		—			(3	)

Total Changes		(21	)		(17	)

Unrecognized Tax Benefits—December 31	$	9		$	30

At December 31, 2008 and 2007, no portion of the total unrecognized tax benefits would, if recognized, affect the effective tax rate. It is reasonably possible that Duke Energy Indiana will reflect an approximate $4 million reduction in unrecognized tax benefits in the next twelve months due to expected settlements.

During the years ended December 31, 2008 and 2007, Duke Energy Indiana recognized net interest income related to income taxes of approximately $4 million and $8 million, respectively. At December 31, 2008 and 2007, Duke Energy Indiana had approximately $4 million and $8 million, respectively, of interest payable which reflects all interest related to income taxes. No amount has been accrued for the payment of penalties in the Consolidated Balance Sheets at either December 31, 2008 or 2007.

Duke Energy Indiana has the following tax years open:


Jurisdiction		Tax Years
Federal		2000 and after
State		Closed through 2001, with the exception of any adjustments related to open federal years

7. Asset Retirement Obligations

Asset retirement obligations, which represent legal obligations associated with the retirement of certain tangible long-lived assets, are computed as the present value of the projected costs for the future retirement of specific assets and are recognized in the period in which the liability is incurred, if a reasonable estimate of fair value can be made. The present value of the liability is added to the carrying amount of the associated asset in the period the liability is incurred. This additional carrying amount is then depreciated over the life of the asset. Subsequent to the initial recognition, the liability is adjusted for any revisions to the estimated future cash flows associated with the asset retirement obligation (with corresponding adjustments to property, plant and equipment), which can occur due to a number of factors including, but not limited to, cost escalation, changes in technology applicable to the assets to be retired and changes in federal, state or local regulations, as well as for accretion of the liability due to the passage of time until the obligation is settled. Depreciation expense is adjusted prospectively for any increases or decreases to the carrying amount of the associated asset. There is no impact on the earnings of Duke Energy Indiana’s operations when an asset retirement obligation is recognized as the effects of the recognition and subsequent accounting are offset by the establishment of regulatory assets and liabilities as Duke Energy Indiana defers all impacts related to SFAS No. 143.

Asset retirement obligations at Duke Energy Indiana relate primarily to obligations associated with future asbestos abatement at certain generating stations.

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

The following table presents the changes to liability associated with asset retirement obligations during the years ended December 31, 2008 and 2007:


	Years Ended December 31,
	2008		2007
	(in millions)
Balance as of January 1,	$	13	$	12
Accretion expense		1		1
Liabilities incurred in the current year		10		—

Balance as of December 31,	$	24	$	13

Duke Energy Indiana accrues costs of removal for property that does not have an associated legal retirement obligation based on regulatory orders from the IURC. These costs of removal are recorded as a regulatory liability in accordance with regulatory treatment under SFAS No. 71. The total amount of removal costs included in Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheets was $492 million and $464 million as of December 31, 2008 and 2007, respectively.

8. Investments in Debt and Equity Securities

Pursuant to an order by the IURC, Duke Energy Indiana invests in debt and equity securities that are held in a grantor trust for investments related to post-retirement benefits other than pension obligations. Duke Energy Indiana applies SFAS No. 115 to these investments in debt and equity securities and classifies its investments as available-for-sale, which are carried at estimated fair value based on quoted market prices on the Consolidated Balance Sheets, with changes in the fair value deferred as a regulatory asset or liability. Investments in debt and equity securities are classified as either short-term investments or long-term investments based on management’s intent and ability to sell these securities. Since management does not intend to use these investments in current operations, these investments are classified as Other within Investments and Other Assets.

Duke Energy Indiana analyzes all securities classified as available-for-sale to determine whether a decline in fair value should be considered other-than-temporary. Criteria used to evaluate whether an impairment is other-than-temporary includes, but is not limited to, the length of time over which the market value has been lower than the cost basis of the investment, the percentage decline compared to the cost of the investment and management’s intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. Ordinarily, if a decline in fair value is determined to be other-than-temporary, the investment is written down to its fair value through a charge to earnings. However, pursuant to an order from the IURC, all unrealized losses associated with investments in the grantor trust are deferred as a regulatory asset, thus there would be no impact on the earnings of Duke Energy Indiana as a result of any other-than-temporary impairment write-downs.

As of December 31, 2008 and 2007, Duke Energy Indiana’s other long-term investments had a fair market value of $66 million and $86 million, respectively.

The cost of securities sold is determined using the specific identification method. During the years ended December 31, 2008, 2007 and 2006, Duke Energy Indiana purchased long-term investments of approximately $20 million, $29 million and $36 million, respectively, and received proceeds on sales of approximately $14 million, $26 million and $33 million, respectively.

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

The estimated fair values of other long-term investments classified as available-for-sale are as follows (in millions):


	As of December 31,
	2008							2007
	Gross Unrealized Holding Gains		Gross Unrealized Holding Losses (a)			Estimated Fair Value		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses (a)			Estimated Fair Value
Equity Securities	$	—	$	(13	)	$	35	$	10	$	(1	)	$	56
Municipal Bonds		1		(1	)		30		—		(1	)		29
Other		—		—			1		—		—			1
Total long-term investments	$	1	$	(14	)	$	66	$	10	$	(2	)	$	86

(a)

Unrealized holding losses are associated with investments held in the Grantor Trust. As discussed above, per a regulatory order from the IURC, Duke Energy Indiana defers all unrealized gains and losses associated with investments within this Grantor Trust. Accordingly, there are no earnings impacts associated with the change in market value of these investments.

Debt securities held at December 31, 2008 mature as follows: $3 million in less than one year, $16 million in one to five years, $2 million in six to ten years and $9 million thereafter.

The fair values and gross unrealized losses of available-for-sale equity and debt securities which are in an unrealized loss position for which other-than-temporary impairment losses have not been recorded, summarized by investment type and length of time that the securities have been in a continuous loss position, are presented in the table below as of December 31, 2008 and 2007.


	As of December 31, 2008
	Fair Value		Unrealized Loss Position >12 months			Unrealized Loss Position <12 months
	(in millions)
Equity securities	$	33	$	(2	)	$	(12	)

Total	$	33	$	(2	)	$	(12	)


	As of December 31, 2007
	Fair Value		Unrealized Loss Position >12 months		Unrealized Loss Position <12 months
	(in millions)
Equity securities	$	6	$	—	$	(1	)
Municipal Bonds		17		—		(1	)

Total	$	23	$	—	$	(2	)

9. Risk Management and Hedging Activities and Credit Risk

Duke Energy Indiana has limited exposure to market price changes of fuel and emission allowance costs incurred for its retail customers due to the use of cost tracking and recovery mechanisms in the state of Indiana. Duke Energy Indiana does have exposure to the impact of market fluctuations in the prices of electricity, fuel and emission allowances associated with its generation output not utilized to serve native load or committed load (bi-lateral and wholesale power sales). Duke Energy Indiana also has exposure to interest rate risk as a result of the issuance of variable and fixed rate debt. Duke Energy Indiana employs established policies and procedures to manage its risks associated with these market fluctuations using various commodity and financial derivative instruments, including swaps, futures, forwards and options. Duke Energy Indiana’s derivative portfolio carrying value as of December 31, 2008 and 2007 was a net liability of approximately $22 million and a net asset of $1 million, respectively. The December 31, 2008 balance primarily represents the fair value of forward contracts to purchase SO ₂ allowances, as discussed in Note 11. The amounts represent the combination of derivative balances presented as Other within Current Assets, Other within Investments and Other Assets, Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on Duke Energy Indiana’s Consolidated Balance Sheets.

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

Interest Rate (Fair Value or Cash Flow) Hedges. Changes in interest rates expose Duke Energy Indiana to risk as a result of its issuance of variable and fixed rate debt. Duke Energy Indiana manages its interest rate exposure by limiting its variable-rate exposure to a percentage of total capitalization and by monitoring the effects of market changes in interest rates. Duke Energy Indiana also enters into interest rate swaps to manage and mitigate interest rate risk exposure. As of both December 31, 2008 and 2007, Duke Energy Indiana did not have any open interest rate derivative instruments.

In June 2005, Duke Energy Indiana executed two forward starting swaps with a combined notional amount of $325 million. The forward starting swaps effectively fixed the benchmark interest rate of an anticipated issuance of fixed rate debt from June 2005 through June 2006, the expected date of issuance of the debt securities. Both forward starting swaps were designated as cash flow hedges under the provisions of SFAS No. 133. As the terms of these swap agreements mirrored the terms of the forecasted debt issuance, Duke Energy Indiana anticipated that they would be highly effective hedges. In June 2006, Duke Energy Indiana terminated these swaps at a value of approximately $26 million, when it issued $325 million 6.05% senior unsecured notes. The gain on the hedge was accumulated on the Consolidated Balance Sheet in AOCI and is being recognized as an offset to interest expense over the life of the related debt. At December 31, 2008, approximately $19 million remains in AOCI. As of December 31, 2008, approximately $3 million of the gain on the hedge is expected to be recognized in earnings during the next twelve months.

Normal Purchases and Normal Sales (NPNS) Exception. Duke Energy Indiana has applied the NPNS scope exception, as provided in SFAS No. 133 and interpreted by Derivatives Implementation Group Issue C15, “ Scope Exceptions: Normal Purchases and Normal Sales Exception for Option-Type Contracts and Forward Contracts in Electricity ,” and amended by SFAS No. 149, “ Amendment of Statement 133 on Derivative Instruments and Hedging Activities ,” to certain contracts involving the purchase and sale of electricity at fixed prices in future periods. These contracts, which relate primarily to the delivery of electricity over the next 13 years, are not recorded on the Consolidated Balance Sheets (see Note 1).

Credit Risk. Where exposed to credit risk, Duke Energy Indiana analyzes the counterparties’ financial condition prior to entering into an agreement, establishes credit limits and monitors the appropriateness of those limits on an ongoing basis.

Duke Energy Indiana’s industry has historically operated under negotiated credit lines for physical delivery contracts. Duke Energy Indiana may use master collateral agreements to mitigate certain credit exposures. The collateral agreements provide for a counterparty to post cash or letters of credit to the exposed party for exposure in excess of an established threshold. The threshold amount represents an unsecured credit limit, determined in accordance with the corporate credit policy. Collateral agreements also provide that the inability to post collateral is sufficient cause to terminate contracts and liquidate all positions.

10. Fair Value of Financial Assets and Liabilities

On January 1, 2008, Duke Energy Indiana adopted SFAS No. 157. Duke Energy Indiana’s adoption of SFAS No. 157 is currently limited to financial instruments and to non-financial derivatives as, in February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, which delayed the effective date of SFAS No. 157 until January 1, 2009 for non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. There was no cumulative effect adjustment to retained earnings for Duke Energy Indiana as a result of the adoption of SFAS No. 157.

SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP in the U.S. and expands disclosure requirements about fair value measurements. Under SFAS No. 157, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. The fair value definition under SFAS No. 157 focuses on an exit price, which is the price that would be received by Duke Energy Indiana to sell an asset or paid to transfer a liability versus an entry price, which would be the price paid to acquire an asset or received to assume a liability. Although SFAS No. 157 does not require additional fair value measurements, it applies to other accounting pronouncements that require or permit fair value measurements. In October 2008, the FASB issued FSP No. FAS 157-3, “ Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active ” (FSP FAS 157-3), which illustrated key considerations in determining the fair value of a financial asset when the market for that asset is not active. The application of FSP FAS 157-3 did not change the way Duke Energy Indiana determined fair value of its financial assets and liabilities.

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

Duke Energy Indiana determines fair value of financial assets and liabilities based on the following fair value hierarchy, as prescribed by SFAS No. 157, which prioritizes the inputs to valuation techniques used to measure fair value into three levels:

Level 1 inputs — unadjusted quoted prices in active markets for identical assets or liabilities that Duke Energy Indiana has the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information. Duke Energy Indiana does not adjust quoted market prices on Level 1 inputs for any blockage factor.

Level 2 inputs — inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates.

Level 3 inputs — unobservable inputs for the asset or liability.

In February 2007, the FASB issued SFAS No. 159, which permits entities to elect to measure many financial instruments and certain other items at fair value. For Duke Energy Indiana, SFAS No. 159 was effective as of January 1, 2008 and had no impact on amounts presented for periods prior to the effective date. Duke Energy Indiana does not currently have any financial assets or financial liabilities for which the provisions of SFAS No. 159 have been elected. However, in the future, Duke Energy Indiana may elect to measure certain financial instruments at fair value in accordance with this standard.

The following table provides the fair value measurement amounts for assets and liabilities recorded on Duke Energy Indiana’s Consolidated Balance Sheets at fair value at December 31, 2008:


	Total Fair Value Amounts at December 31, 2008			Level 1		Level 2			Level 3
	(in millions)
Description
Other long-term available-for-sale securities ^(a)	$	66		$	35	$	31		$	—
Derivative assets ^(b)		11			—		1			10

Total Assets	$	77		$	35	$	32		$	10

Derivative liabilities ^(c)	$	(33	)	$	—	$	(33	)	$	—

Net Assets	$	44		$	35	$	(1	)	$	10

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

(b)	Included in Other within Current Assets on the Consolidated Balance Sheets.

(c)	Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheets. This balance primarily represents the fair value of forward contracts to purchase SO ₂ allowances, as discussed in Note 11.

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

Rollforward of Level 3 measurements


	Derivatives
	(in millions)
Year Ended December 31, 2008
Balance at January 1, 2008	$	—
Net purchases, sales, issuances and settlements		(17	)
Total gains included on balance sheet as regulatory asset or liability or as current or non-current liability		27

Balance at December 31, 2008	$	10

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

Valuation methods of the primary fair value measurements disclosed above are as follows:

Investments in equity securities : 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 NASDAQ, NYSE, NYMEX and Chicago Board of Trade, as well as pink sheets, which is an electronic quotation system that displays quotes for broker-dealers for many over-the-counter securities. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. Duke Energy Indiana does not adjust prices to reflect for after-hours market activity. Duke Energy Indiana’s investments in equity securities are valued using Level 1 measurements.

Investments in debt securities : Most debt investments are valued based on a calculation using interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. Most debt valuations are Level 2 measures. If the market for a particular fixed income security is relatively inactive or illiquid, the measurement is a Level 3 measurement. U.S. Treasury debt is typically a Level 1 measurement.

Commodity derivatives : The pricing for commodity derivatives is primarily a calculated value which incorporates the forward price and is adjusted for liquidity (bid-ask spread), credit or non-performance risk (after reflecting credit enhancements such as collateral) and discounted to present value. The primary difference between a Level 2 and a Level 3 measurement has to do with the level of activity in forward markets for the commodity. If the market is relatively inactive, the measurement is deemed to be a Level 3 measurement.

Fair Value Disclosures Required Under SFAS No. 107, “ Disclosures About Fair Value of Financial Instruments ”. The fair value of financial instruments, excluding financial assets and liabilities included in the scope of SFAS No. 157 disclosed in the tables above, is summarized in the following table. Judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates determined as of December 31, 2008 and 2007, are not necessarily indicative of the amounts Duke Energy Indiana could have realized in current markets.

Financial Instruments


	As of December 31,
	2008				2007
	Book Value		Approximate Fair Value		Book Value		Approximate Fair Value
	(in millions)
Long-term debt, including current maturities	$	2,868	$	2,867	$	2,146	$	2,206

The fair value of cash and cash equivalents, accounts receivable, restricted funds held in trust, accounts payable and notes payable 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.

11. Intangibles

The carrying amount and accumulated amortization of intangible assets as of December 31, 2008 and 2007 are as follows:


	December 31, 2008			December 31, 2007
	(in millions)
Emission allowances	$	59		$	57
Gas, coal and power contracts		24			24

Total gross carrying amount	$	83		$	81

Accumulated amortization—gas, coal and power contracts		(7	)		(6	)

Total intangible assets, net	$	76		$	75

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

Emission allowances in the table above include emission allowances purchased by Duke Energy Indiana and certain zero cost emission allowances allocated to Duke Energy Indiana on an annual basis. The change in the gross carrying value of emission allowances during the years ended December 31, 2008 and 2007 are as follows:


	December 31, 2008			December 31, 2007
	(in millions)
Gross carrying value at beginning of period	$	57		$	77
Purchases of emission allowances		46			68
Sales and consumption of emission allowances ^(a)		(45	)		(94	)
Other changes		1			6

Gross carrying value at end of period	$	59		$	57

(a)	Carrying value of emission allowances are recognized via a charge to expense when consumed. Carrying value of emission allowances sold or consumed during the years ended December 31, 2008, 2007 and 2006 were $45 million, $94 million and $141 million, respectively.

On July 11, 2008, the U.S. Court of Appeals for the District of Columbia issued a decision vacating the CAIR. In December 2008, a federal appeals court reinstated the CAIR while the EPA develops a new clean air program (see Note 17 for additional information). However, as a result of the July 11, 2008 decision temporarily vacating the CAIR, there were sharp declines in market prices of SO ₂ and NO _x allowances in the third quarter of 2008 due to uncertainty associated with future federal requirements to reduce emissions. Accordingly, pursuant to SFAS No. 144, Duke Energy Indiana evaluated the carrying value of emission allowances held for impairment during the third quarter of 2008.

Duke Energy Indiana has emission allowances and certain commitments to purchase emission allowances that, based on management’s best estimate in the third quarter of 2008 due to the vacation of the CAIR, resulted in a quantity of emission allowances in excess of the amounts projected to be utilized for operations. The excess emission allowances include forward contracts to purchase SO ₂ allowances to cover forecasted shortfalls in emission allowances necessary for operations that were entered into prior to the July 11, 2008 CAIR decision. Prior to the vacating of the CAIR, these forward contracts, which primarily settle in 2009, qualified for the NPNS exception under SFAS No. 133, as amended. However, since certain of these forward contracts were no longer considered probable of use in the normal course of operations at the time the impairment analysis was performed due to the excess over forecasted needs, in the third quarter of 2008, Duke Energy Indiana determined that these contracts no longer qualified for the NPNS exception under SFAS No. 133. At the time this determination was made, the fair value of the contracts was a liability of approximately $34 million. Since Duke Energy Indiana anticipates regulatory recovery of the cost of these emission allowances in normal course, a corresponding regulatory asset was recorded on the Consolidated Balance Sheets. The fair value of these contracts at December 31, 2008 was approximately $32 million. These forward contracts will continue to be marked-to-market, with an offset to a regulatory asset or liability balance, until ultimate settlement.

As a result of the reinstatement of the CAIR, as discussed above, all emission allowances and certain commitments to purchase emission allowances held by Duke Energy Indiana as of December 31, 2008 are anticipated to be utilized for future emission allowance requirements under the CAIR, unless the EPA develops a new clean air program that changes the existing requirements under the CAIR.

Amortization expense for gas, coal and power contracts for Duke Energy Indiana was approximately $1 million and $2 million for the years ended December 31, 2008 and 2007, respectively, and insignificant for the year ended December 31, 2006.

The table below shows the expected amortization expense for the next five years for intangible assets as of December 31, 2008. The expected amortization expense includes estimates of emission allowance consumption and estimates of consumption of commodities such as gas and coal under existing contracts. The amortization amounts discussed below are estimates. Actual amounts may differ from these estimates due to such factors as changes in consumption patterns, sales or impairments of emission allowances, additional intangible asset acquisitions and other events.


	2009		2010		2011		2012		2013
	(in millions)
Expected amortization expense	$	58	$	4	$	1	$	1	$	1

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

12. Related Party Transactions

Duke Energy Indiana engages in related party transactions. These transactions are generally performed at cost and in accordance with the applicable state and federal commission regulations. Balances due to or due from related parties included in the Consolidated Balance Sheets as of December 31, 2008 and December 31, 2007 are as follows:


	December 31, 2008			December 31, 2007
	(in millions)
Current assets ^(a)(d)	$	30		$	5
Current liabilities ^(b)(d)	$	(153	)	$	(157	)
Net deferred tax liabilities ^(c)(d)	$	(602	)	$	(594	)

(a)

Of the balance at December 31, 2008, approximately $11 million is classified as Receivables and approximately $19 million is classified as Other within Current Assets on the Consolidated Balance Sheets. Of the balance at December 31, 2007, approximately $1 million is classified as Receivables and approximately $4 million is classified as Other within Current Assets on the Consolidated Balance Sheets.

(b)

Of the balance at December 31, 2008, approximately ($151) million is classified as Accounts payable and approximately ($2) million is classified as Taxes accrued on the Consolidated Balance Sheets. The balance at December 31, 2007 is classified as Accounts payable on the Consolidated Balance Sheets.

(c)

Of the balance at December 31, 2008, approximately ($630) million is classified as Deferred income taxes and approximately $28 million is classified as Other within Current Assets on the Consolidated Balance Sheets. Of the balance at December 31, 2007, approximately ($606) million is classified as Deferred income taxes and approximately $12 million is classified as Other within Current Assets on the Consolidated Balance Sheets.

(d)	Balances exclude assets or liabilities associated with accrued pension and other post-retirement benefits, Cinergy Receivables and money pool arrangements as discussed below.

Duke Energy Indiana is charged its proportionate share of corporate governance and other costs by a consolidated affiliate of Duke Energy. Corporate governance and other shared services costs are primarily related to human resources, legal and accounting fees, as well as other third party costs.

The expenses associated with corporate governance and other service costs for Duke Energy Indiana, which are recorded in Operation, maintenance and other within Operating Expenses on the Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006 were as follows:


	Year Ended December 31, 2008		Year Ended December 31, 2007		Year Ended December 31, 2006
	(in millions)
Corporate governance and other shared service expenses	$	326	$	279	$	309

Duke Energy Indiana incurs expenses related to certain insurance coverages through Bison Insurance Company Limited, Duke Energy’s wholly-owned captive insurance subsidiary. These expenses, which are recorded in Operation, Maintenance and Other within Operating Expenses on the Consolidated Statements of Operations, were approximately $9 million, $20 million and $10 million for the years ended December 31, 2008, 2007 and 2006, respectively. Additionally, Duke Energy Indiana records income associated with the rental of office space to a consolidated affiliate of Duke Energy, as well as its proportionate share of certain allocated expenses from affiliates of Duke Energy. Rental income and other allocated expenses, net, were approximately $7 million, $5 million and $7 million for the years ended December 31, 2008, 2007 and 2006, respectively.

See Note 18 for detail on expense amounts allocated from Cinergy to Duke Energy Indiana related to Duke Energy Indiana’s participation in Cinergy’s qualified and non-qualified defined benefit pension plans and post-retirement health care and insurance benefits. Additionally, Duke Energy Indiana has been allocated accrued pension and other post-retirement and post-employment benefit obligations from Cinergy of approximately $423 million and $266 million at December 31, 2008 and 2007, respectively. These amounts have been classified in the Consolidated Balance Sheets as follows:


	December 31, 2008		December 31, 2007
	(in millions)
Other current liabilities	$	5	$	3
Accrued pension and other post-retirement benefit costs	$	410	$	256
Other liabilities	$	8	$	7

Additionally, certain trade receivables have been sold by Duke Energy Indiana to Cinergy Receivables, an unconsolidated entity formed by Cinergy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

Cinergy Receivables for a portion of the purchase price. This subordinated note is classified by Duke Energy Indiana as Receivables in the Consolidated Balance Sheets and was approximately $117 million and $111 million as of December 31, 2008 and December 31, 2007, respectively. See Note 13 for further discussion of the sales of accounts receivable.

During the year ended December 31, 2007, Duke Energy Indiana received a $24 million capital contribution from its parent, Cinergy.

During the year ended December 31, 2006, Duke Energy Indiana paid dividends to its parent, Cinergy, of $25 million.

As discussed further in Note 15, Duke Energy Indiana participates in a money pool arrangement with Duke Energy and other Duke Energy subsidiaries. As of December 31, 2008, Duke Energy Indiana was in a net payable position of approximately $29 million, of which approximately $121 million is classified within Receivables and approximately $150 million is classified within Long-term Debt in the accompanying Consolidated Balance Sheets. As of December 31, 2007, Duke Energy Indiana was in a payable position of approximately $101 million classified within Notes Payable in the accompanying Consolidated Balance Sheets. Interest income associated with money pool activity, which is recorded in Other Income and Expenses, net on the Consolidated Statements of Operations, for the years ended December 31, 2008, 2007 and 2006 was approximately $2 million, $4 million and $1 million, respectively. The expenses associated with money pool activity, which are recorded in Interest Expense on the Consolidated Statements of Operations, for the years ended December 31, 2008, 2007 and 2006 were approximately $6 million, $2 million and $6 million, respectively.

13. Sales of Accounts Receivable

Accounts Receivable Securitization. Duke Energy Indiana sells, on a revolving basis, nearly all of its accounts receivable and related collections to Cinergy Receivables, a bankruptcy remote, special purpose entity that is a wholly-owned limited liability company of Cinergy. The securitization transaction was structured to meet the criteria for sale treatment under SFAS No. 140, “ Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-a replacement of FASB Statement No. 125 ” (SFAS No. 140), and, accordingly, Cinergy does not consolidate Cinergy Receivables and the transfers of receivables are accounted for as sales.

The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from Cinergy Receivables for a portion of the purchase price (typically approximates 25% of the total proceeds). The note, which amounts to approximately $117 million and $111 million at December 31, 2008 and 2007, respectively, is subordinate to senior loans that Cinergy Receivables obtains from commercial paper conduits controlled by unrelated financial institutions, which is the source of the funding for the subordinated note. This subordinated note is a retained interest (right to receive a specified portion of cash flows from the sold assets) under SFAS No. 140 and is classified within Receivables in the accompanying Consolidated Balance Sheets at December 31, 2008 and 2007.

The carrying value of the retained interest is determined by allocating the carrying value of the receivables between the assets sold and the interests retained based on relative fair value. The key assumptions in estimating fair value are the anticipated credit losses, the selection of discount rates and expected receivables turnover rate. Because (a) the receivables generally turn in less than two months, (b) credit losses are reasonably predictable due to Duke Energy Indiana’s broad customer base and lack of significant concentration, and (c) the purchased beneficial interest is subordinate to all retained interests and thus would absorb losses first, the allocated bases of the subordinated notes are not materially different than their face value. Interest accrues to Duke Energy Indiana on the retained interest using the accretable yield method, which generally approximates the stated rate on the note since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both the retained interest and purchased beneficial interest whenever it is determined that an other-than-temporary impairment has occurred (which is unlikely unless credit losses on the receivables far exceed the anticipated level).

The key assumptions used in estimating the fair value are as follows:


	Years Ended December 31,
	2008		2007		2006
Anticipated credit loss rate	0.5	%	0.5	%	0.5	%
Discount rate on expected cash flows	5.3	%	7.7	%	7.4	%
Receivables turnover rate	10.0	%	10.5	%	11.0	%

The hypothetical effect on the fair value of the retained interests assuming both a 10% and a 20% unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history.

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Cinergy Receivables assumes the risk of collection on the purchased receivables without recourse to Duke Energy Indiana in the event of a loss. While no direct recourse to Duke Energy Indiana exists, it does have a risk of loss in the event collections are not sufficient to allow for full recovery of its retained interests.

The following table shows the gross and net receivables sold, retained interests, sales, and cash flows during the periods ending:


	As of or for the Years Ended December 31,
	2008		2007		2006
	(in millions)
Receivables sold as of period end	$	225	$	200	$	204
Less: Retained interests		117		111		78

Net receivables sold as of period end	$	108	$	89	$	126

Sales during period
Receivables sold	$	2,401	$	2,120	$	2,026
Loss recognized on sale		22		26		25
Cash flows during period
Cash proceeds from receivables sold	$	2,389	$	2,061	$	2,011
Return received on retained interests		15		17		14

14. Property, Plant and Equipment


	Estimated Useful Life	December 31,
	Estimated Useful Life	2008			2007
	(Years)	(in millions)
Land	—	$	83		$	78
Plant—Regulated
Electric generation, distribution and transmission ^(a)	14 –100		7,943			7,193
Other buildings and improvements	40 – 60		101			95
Equipment	5 – 25		109			103
Construction in process	—		596			659
Other	5 – 26		144			142

Total property, plant and equipment			8,976			8,270
Total accumulated depreciation ^(b)			(2,903	)		(2,735	)

Total net property, plant and equipment		$	6,073		$	5,535

(a)	Includes capitalized leases: $49 million for 2008 and $48 million for 2007.

(b)	Includes accumulated amortization of capitalized leases: $7 million for 2008 and $6 million for 2007.

Capitalized interest, which includes the interest expense component of AFUDC, amounted to $10 million for 2008, $12 million for 2007, and $16 million for 2006.

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15. Debt and Credit Facilities

Summary of Debt and Related Terms


	Weighted- Average Rate		Year Due	December 31,
	Weighted- Average Rate		Year Due	2008			2007
				(in millions)
Unsecured debt	5.8	%	2009 – 2035	$	1,250		$	1,252
First and refunding mortgage bonds	7.0	%	2009 – 2038		751			293
Capital leases	5.1	%	2009 – 2016		27			33
Money pool	4.7	%			150			101
Other debt ^(a)	2.0	%	2012 – 2040		699			576
Unamortized debt discount and premium, net					(9	)		(8	)

Total debt					2,868			2,247
Current maturities of long-term debt					(227	)		(47	)
Short-term notes payable					—			(101	)

Total long-term debt				$	2,641		$	2,099

(a)

Includes $576 million of Duke Energy Indiana pollution control bonds as of both December 31, 2008 and 2007. As of December 31, 2008 and 2007, approximately $287 million and $237 million was secured by first and refunding mortgage bonds, respectively, and for both December 31, 2008 and 2007, approximately $105 million was secured by a letter of credit.

First and Refunding Mortgage Bonds. In August 2008, Duke Energy Indiana issued $500 million principal amount of first mortgage bonds, which carry a fixed interest rate of 6.35% and matures August 15, 2038. Proceeds from this issuance were used to fund capital expenditures and for general corporate purposes, including the repayment of short-term notes and to redeem first mortgage bonds maturing in September 2008.

Money Pool. Duke Energy Indiana receives support for its short-term borrowing needs through its participation with Duke Energy and other Duke Energy subsidiaries in a money pool arrangement. Under this arrangement, those companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. As of December 31, 2008, Duke Energy Indiana was in a net payable position of approximately $29 million, of which approximately $121 million is classified within Receivables and approximately $150 million is classified within Long-term Debt in the accompanying Consolidated Balance Sheets. As of December 31, 2007, Duke Energy Indiana was in a payable position of approximately $101 million classified within Notes Payable in the accompanying Consolidated Balance Sheets. The $121 million increase in the money pool receivable for the year ended December 31, 2008 is reflected as a cash outflow in Notes due from affiliate, net within Net cash used in investing activities on the Consolidated Statements of Cash Flows. The $49 million increase in short-term and long-term borrowings are reflected as cash inflows in Notes payable to affiliate, net within Net cash provided by (used in) financing activities on the Consolidated Statements of Cash Flows. The change in the money pool for the year ended December 31, 2007 is reflected as a $120 million cash inflow in Notes due from affiliate, net within Net cash used in investing activities on the Consolidated Statements of Cash Flows and a $101 million cash inflow in Notes payable to affiliate, net within Net cash provided by (used in) financing activities on the Consolidated Statements of Cash Flows. The change in the money pool for the year ended December 31, 2006 is reflected as a $120 million cash outflow in Notes due from affiliate, net within Net cash used in investing activities and a $250 million cash outflow in Notes payable to affiliate, net within Net cash provided by (used in) financing activities on the Consolidated Statements of Cash Flows.

Other Debt. At both December 31, 2008 and 2007, Duke Energy Indiana had approximately $340 million of auction rate pollution control bonds outstanding. While these debt instruments are long-term in nature and cannot be put back to Duke Energy Indiana prior to maturity, the interest rates on these instruments are designed to reset periodically through an auction process. Beginning in February 2008, Duke Energy Indiana experienced failed auctions on these debt instruments. When failed auctions occur on a series of this debt, Duke Energy Indiana is required to pay the maximum auction rate as prescribed by the bond document. The maximum auction rate for the majority of the auction rate debt is 2.0 times one-month LIBOR. Payment of the failed-auction interest rates will continue until Duke Energy Indiana is able to either successfully remarket these instruments through the auction process or refund and refinance the existing debt through the issuance of an equivalent amount of tax exempt bonds. In January 2009, Duke Energy Indiana refunded $271 million of tax-exempt auction rate bonds through the issuance of $271 million of tax-exempt variable-rate demand bonds, which are supported by

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direct-pay letters of credit. While Duke Energy Indiana intends to refund and refinance its remaining tax-exempt auction rate bonds of approximately $70 million, the timing of such refinancing transactions is uncertain and subject to market conditions. However, even if Duke Energy Indiana is unable to successfully refund and refinance these debt instruments, the impact of paying higher interest rates on the outstanding auction rate debt is not expected to materially affect Duke Energy Indiana’s consolidated results of operations, cash flows or financial position. The weighted-average interest rate, associated with Duke Energy Indiana’s auction rate pollution control bonds, was 1.96% as of December 31, 2008 and 4.31% as of December 31, 2007.

In January 2009, Duke Energy Indiana refunded $271 million of the above mentioned tax-exempt auction rate bonds through the issuance of $271 million of tax-exempt variable-rate demand bonds, which are supported by direct-pay letters of credit, of which $144 million had initial rates of 0.7% reset on a weekly basis with $44 million maturing May 2035, $23 million maturing March 2031 and $77 million maturing December 2039. The remaining $127 million had initial rates of 0.50% reset on a daily basis with $77 million maturing December 2039 and $50 million maturing October 2040.

Floating Rate Debt. Debt included approximately $799 million and $526 million of floating-rate debt as of December 31, 2008 and 2007, respectively. Floating-rate debt is primarily based on commercial paper rates or a spread relative to an index such as a London Interbank Offered Rate (LIBOR). As of December 31, 2008 and 2007, the weighted-average interest rate associated with floating-rate debt was approximately 2.4% and 4.2%, respectively.

Maturities, Call Options and Acceleration Clauses.

Annual Maturities as of December 31, 2008


	(in millions)
2009	$	227
2010		5
2011		12
2012		127
2013		404
Thereafter		2,093

Total long-term debt (including current maturities)	$	2,868

Duke Energy Indiana has the ability under certain debt facilities to call and repay the obligation prior to its scheduled maturity. Therefore, the actual timing of future cash repayments could be materially different than the above as a result of Duke Energy Indiana’s ability to repay these obligations prior to their scheduled maturity.

Available Credit Facilities and Restrictive Debt Covenants . In June 2007, Duke Energy closed on the syndication of an amended and restated credit facility, which replaced existing credit facilities with a 5-year, $2.65 billion master credit facility. In March 2008, Duke Energy entered into an amendment to its $2.65 billion master credit facility whereby the borrowing capacity was increased by $550 million to $3.2 billion. In October 2008, Duke Energy terminated the participation of one of the financial institutions supplying approximately $63 million of credit commitment under its master credit facility. The total credit facility capacity under the master credit facility subsequent to this termination is approximately $3.14 billion. Duke Energy has the unilateral ability under the master credit facility to increase or decrease the borrowing sub limits of each borrower, subject to maximum cap limitation, at any time. At December 31, 2008, Duke Energy Indiana had borrowing sub limits under Duke Energy’s master credit facility of $450 million. The amount available to Duke Energy Indiana under its sub limits to Duke Energy’s master credit facility has been reduced by drawdowns of cash, borrowings through the money pool arrangement, and the use of the master credit facility to backstop issuances of letters of credit and pollution control bonds, as discussed below.

In September 2008, Duke Energy and its wholly-owned subsidiaries, including Duke Energy Indiana, borrowed a total of approximately $1 billion under Duke Energy’s master credit facility, of which Duke Energy Indiana’s portion is approximately $123 million. The approximate $123 million borrowed by Duke Energy Indiana remained outstanding as of December 31, 2008. The loan, which is a revolving credit loan, bears interest at LIBOR plus a spread of 19 basis points and is due in September 2009; however, Duke Energy Indiana has the ability under the master credit facility to renew the loan up through the date the master credit facility matures, which is in June 2012. As Duke Energy Indiana has the intent and ability to refinance this obligation on a long-term basis, either through renewal of the

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terms of the loan through the master credit facility, which has non-cancelable terms in excess of one-year, or through issuance of long-term debt to replace the amounts drawn under the master credit facility, Duke Energy Indiana’s borrowing is reflected as Long-Term Debt on the Consolidated Balance Sheets at December 31, 2008. This borrowing reduces Duke Energy Indiana’s available credit capacity under Duke Energy’s Master Credit Facility, as discussed above.

As of December 31, 2008 and 2007, approximately $186 million of pollution control bonds, which are short-term obligations by nature, were classified as Long-term Debt on the Consolidated Balance Sheets due to Duke Energy Indiana’s intent and ability to utilize such borrowings as long-term financing. Duke Energy’s credit facilities with non-cancelable terms in excess of one year as of the balance sheet date gives Duke Energy Indiana the ability to refinance these short-term obligations on a long-term basis. Of the $186 million of pollution control bonds outstanding at December 31, 2008, approximately $136 million were backstopped by Duke Energy’s master credit facility, with the remaining balance backstopped by other specific credit facilities separate from the master credit facility.

In September 2008, Duke Energy Indiana and Duke Energy Kentucky, Inc., a wholly-owned subsidiary of Duke Energy, collectively entered into a $330 million letter of credit agreement with a syndicate of banks. Under this letter of credit agreement, Duke Energy Indiana may request the issuance of letters of credit up to approximately $279 million on its behalf to support various series of variable rate demand bonds issued or to be issued on behalf of Duke Energy Indiana. This credit facility, which is not part of Duke Energy’s master credit facility, may not be used for any purpose other than to support the variable rate demand bonds issued by Duke Energy Indiana and Duke Energy Kentucky, Inc.

Restrictive Debt Covenants. Duke Energy’s credit agreement contains various financial and other covenants, including, but not limited to, a covenant regarding the debt-to-total capitalization ratio at Duke Energy and Duke Energy Indiana to not exceed 65%. Duke Energy Indiana’s debt agreements also contain various financial and other covenants. Failure to meet these covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of December 31, 2008, Duke Energy and Duke Energy Indiana were in compliance with these covenants. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses.

Other Assets Pledged as Collateral. As of December 31, 2008, substantially all of Duke Energy Indiana’s electric plant in service is mortgaged under the mortgage bond indenture of Duke Energy Indiana.

16. Preferred Stock

In May 2006, Duke Energy Indiana redeemed all outstanding shares of its $3.7 million notional amount 3.5% Cumulative Preferred Stock, its $3.9 million notional amount 4.32% Cumulative Preferred Stock, and its $3.7 million notional amount 4.16% Cumulative Preferred Stock at par, plus accrued and unpaid dividends.

17. Commitments and Contingencies

General Insurance

Effective with the date of the merger between Duke Energy and Cinergy, Duke Energy Indiana carries, either directly or through Duke Energy’s captive insurance company, Bison Insurance Company Limited, insurance and reinsurance coverages consistent with companies engaged in similar commercial operations with similar type properties. Duke Energy Indiana’s insurance coverage includes (1) commercial general public liability insurance for liabilities arising to third parties for bodily injury and property damage resulting from Duke Energy Indiana’s operations; (2) workers’ compensation liability coverage to required statutory limits; (3) automobile liability insurance for all owned, non-owned and hired vehicles covering liabilities to third parties for bodily injury and property damage; (4) insurance policies in support of the indemnification provisions of Duke Energy Indiana’s by-laws; and (5) property insurance covering the replacement value of all real and personal property damage, excluding electric transmission and distribution lines, including damages arising from boiler and machinery breakdowns, earthquake, flood damage and extra expense. All coverages are subject to certain deductibles, terms and conditions common for companies with similar types of operations.

Duke Energy Indiana also maintains excess liability insurance coverage above the established primary limits for commercial general liability and automobile liability insurance. Limits, terms, conditions and deductibles are comparable to those carried by other companies with similar types of operations.

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The cost of Duke Energy Indiana’s general insurance coverages continued to fluctuate over the past year reflecting the changing conditions of the insurance markets.

Environmental

Duke Energy Indiana is subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on Duke Energy Indiana.

Remediation Activities. Duke Energy Indiana is responsible for environmental remediation at various contaminated sites. These include some properties that are part of ongoing Duke Energy Indiana operations, sites formerly owned or used by Duke Energy Indiana entities, and sites owned by third parties. Remediation typically involves management of contaminated soils and may involve groundwater remediation. Managed in conjunction with relevant federal, state and local agencies, activities vary with site conditions and locations, remedial requirements, complexity and sharing of responsibility. If remediation activities involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, Duke Energy Indiana could potentially be held responsible for contamination caused by other parties. In some instances, Duke Energy Indiana may share liability associated with contamination with other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. All of these sites generally are managed in the normal course of business or affiliate operations. Management, in the normal course of business, continually assesses the nature and extent of known or potential environmental-related contingencies and records liabilities when losses become probable and are reasonably estimable.

Clean Water Act 316(b). The U.S. EPA finalized its cooling water intake structures rule in July 2004. The rule established aquatic protection requirements for existing facilities that withdraw 50 million gallons or more of water per day from rivers, streams, lakes, reservoirs, estuaries, oceans, or other U.S. waters for cooling purposes. Three of five coal-fired generating facilities in which Duke Energy Indiana is either a whole or partial owner are affected sources under that rule. On January 25, 2007, the U.S. Court of Appeals for the Second Circuit issued its opinion in Riverkeeper, Inc. v. EPA , Nos. 04-6692-ag(L) et. al. (2d Cir. 2007) remanding most aspects of the EPA’s rule back to the agency. The court effectively disallowed those portions of the rule most favorable to industry, and the decision creates a great deal of uncertainty regarding future requirements and their timing. On April 14, 2008, the U.S. Supreme Court issued an order granting review of the case and briefs were filed on July 14, 2008. Oral argument occurred on December 2, 2008. A decision is expected in 2009. If the Supreme Court upholds the lower court decision, it is expected that costs will increase as a result of the court’s decision, however, Duke Energy Indiana is unable to estimate at this time its costs to comply.

Clean Air Interstate Rule (CAIR). The EPA finalized its CAIR in May 2005. The CAIR limits total annual and summertime NO _X emissions and annual SO ₂ emissions from electric generating facilities across the Eastern U.S. through a two-phased cap-and-trade program. Phase 1 begins in 2009 for NO _X and in 2010 for SO ₂ . Phase 2 begins in 2015 for both NO _X and SO ₂ . On March 25, 2008, the U.S. Court of Appeals for the District of Columbia (D.C. Circuit) heard oral argument in a case involving multiple challenges to the CAIR. On July 11, 2008, the D.C. Circuit issued its decision in North Carolina v. EPA No. 05-1244 vacating the CAIR. The EPA filed a petition for rehearing on September 24, 2008 with the D.C. Circuit asking the court to reconsider various parts of its ruling vacating the CAIR. In December 2008, the D.C. Circuit issued a decision remanding the CAIR to the EPA without vacatur. The EPA must now conduct a new rulemaking to modify the CAIR in accordance with the court’s July 11, 2008 opinion. This decision means that the CAIR as initially finalized in 2005 remains in effect until the new EPA rule takes effect. The court did not impose a deadline or schedule on the EPA. It is uncertain how long the current CAIR will remain in effect or how the new rulemaking will alter the CAIR.

Duke Energy Indiana plans to spend approximately $35 million between 2009 and 2013 to comply with Phase 1 of the CAIR. Duke Energy Indiana is currently unable to estimate the costs to comply with any new rule the EPA will issue in the future as a result of the D.C. District Court’s December 2008 decision discussed above. The IURC issued an order in 2006 granting Duke Energy Indiana approximately $1.07 billion in rate recovery to cover its estimated Phase 1 compliance costs of the CAIR and the Clean Air Mercury Rule (see below) in Indiana.

See Note 11 for a discussion of the impacts of the D.C. Circuit Court’s July 11, 2008 decision to vacate the CAIR on the carrying value of emission allowances.

Clean Air Mercury Rule (CAMR). The EPA finalized its CAMR in May 2005. The CAMR was to have limited total annual mercury emissions from coal-fired power plants across the U.S. through a two-phased cap-and-trade program beginning in 2010. On February 8,

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2008, the D.C. Circuit issued its opinion in New Jersey v. EPA , No. 05-1097 vacating the CAMR. Requests for rehearing were denied. The U.S. EPA and the Utility Air Regulatory Group have requested that the U.S. Supreme Court review the D.C. Circuit’s decision. The D.C. Circuit’s decision creates uncertainty regarding future mercury emission reduction requirements and their timing, but makes it fairly certain that there will be a delay in the implementation of federal mercury requirements for existing coal-fired power plants. On January 29, 2009, the EPA requested the U.S. Department of Justice withdraw its Petition for Writ of Certiorari filed on October 17, 2008. On February 23, 2009, the Supreme Court denied the Utility Air Regulatory Group’s petition. The EPA will now develop emission standards for utility units under section 112 of the Clean Air Act, thus abiding by the D.C. Circuit’s decision. At this point, Duke Energy Indiana is unable to estimate the costs to comply with any future mercury regulations that might result from the D.C. Circuit’s decision.

Coal Combustion Product (CCP) Management. Duke Energy Indiana currently estimates that it will spend approximately $155 million over the period 2008-2012 to install synthetic caps and liners at existing and new CCP landfills and to convert CCP handling systems from wet to dry systems.

Extended Environmental Activities and Accruals. Included in Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheets were total accruals related to extended environmental-related activities of approximately $15 million and $10 million as of December 31, 2008 and December 31, 2007, respectively. These accruals represent Duke Energy Indiana’s provisions for costs associated with remediation activities at some of its current and former sites, as well as other relevant environmental contingent liabilities. Management, in the normal course of business, continually assesses the nature and extent of known or potential environmental-related contingencies and records liabilities when losses become probable and are reasonably estimable.

Litigation

New Source Review (NSR). In 1999-2000, the U.S. DOJ, acting on behalf of the EPA and joined by various citizen groups and states, filed a number of complaints and notices of violation against multiple utilities across the country for alleged violations of the NSR provisions of the Clean Air Act (CAA). Generally, the government alleges that projects performed at various coal-fired units were major modifications, as defined in the CAA, and that the utilities violated the CAA when they undertook those projects without obtaining permits and installing the best available emission controls for SO ₂ , NO _X and particulate matter. The complaints seek injunctive relief to require installation of pollution control technology on various generating units that allegedly violated the CAA, and unspecified civil penalties in amounts of up to $32,500 per day for each violation. A number of Duke Energy Indiana’s plants have been subject to these allegations. Duke Energy Indiana asserts that there were no CAA violations because the applicable regulations do not require permitting in cases where the projects undertaken are “routine” or otherwise do not result in a net increase in emissions.

In November 1999, the U.S. brought a lawsuit in the U.S. Federal District Court for the Southern District of Indiana against Duke Energy Indiana alleging various violations of the CAA for various projects at Duke Energy Indiana’s Cayuga, Gallagher, Wabash River, and Gibson Stations. Three northeast states and two environmental groups have intervened in the case. A jury trial commenced on May 5, 2008 and jury verdict was returned on May 22, 2008. The jury found in favor of Cinergy, Duke Energy Ohio, a wholly-owned subsidiary of Duke Energy, and Duke Energy Indiana on all but three units at Wabash River.

On October 21, 2008, Plaintiffs filed a motion for a new liability trial claiming that defendants misled the Plaintiffs and the jury by, among other things, not disclosing a consulting agreement with a fact witness and by referring to that witness as “retired” during the liability trial when in fact he was working for Duke Energy under the referenced consulting agreement in connection with the trial. On December 18, 2008, the court granted Plaintiffs’ motion for a new liability trial on claims for which Duke Energy Indiana was not previously found liable. In a subsequent order rendered on January 12, 2009, the Court also ordered Duke Energy Indiana to pay Plaintiffs’ costs incurred in preparing and filing the motion for a new trial. A new liability trial is scheduled to begin on May 11, 2009. The remedy trial for violations already established at the Wabash River Station and W.C. Beckjord Station was held during the week beginning February 2, 2009. Based on previous rulings by the judge in this case, the Wabash River units are not subject to civil penalties; and therefore, the remedy trial in February addressed only the appropriate injunctive relief. Plaintiffs are seeking numerous types of injunctive relief including installation of monitoring equipment, ceasing operations and remediation of alleged excess emissions from the Wabash River units.

On April 3, 2008, the Sierra Club filed another lawsuit in the U.S. District Court for the Southern District of Indiana against Duke Energy Indiana and certain affiliated companies claiming NSR violations at the Edwardsport generating station in Knox County, Indiana. Sierra Club claims that Duke Energy Indiana violated the CAA when it undertook various unnamed maintenance projects at Edwardsport

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Notes To Consolidated Financial Statements—(Continued)

without obtaining permits and installing the best available emission controls. Sierra Club further states that it intends to file suit for additional alleged violations of the CAA and the Indiana State Implementation Plan. On June 30, 2008, defendants filed a motion to dismiss, or alternative to stay, this litigation on jurisdictional grounds. The District Court denied that motion and the case will proceed to discovery.

It is not possible to estimate the damages, if any, that Duke Energy Indiana might incur in connection with these matters. Ultimate resolution of these matters relating to NSR, even in settlement, could have a material adverse effect on Duke Energy Indiana’s consolidated results of operations, cash flows or financial position. However, Duke Energy Indiana will pursue appropriate regulatory treatment for any costs incurred in connection with such resolution.

Section 126 Petitions. In March 2004, the state of North Carolina filed a petition under Section 126 of the CAA in which it alleges that sources in 13 upwind states, including Indiana, significantly contribute to North Carolina’s non-attainment with certain ambient air quality standards. In August 2005, the EPA issued a proposed response to the petition. The EPA proposed to deny the ozone portion of the petition based upon a lack of contribution to air quality by the named states. The EPA also proposed to deny the particulate matter portion of the petition based upon the CAIR Federal Implementation Plan (FIP) that would address the air quality concerns from neighboring states. On April 28, 2006, the EPA denied North Carolina’s petition based upon the final CAIR FIP described above. North Carolina has filed a legal challenge to the EPA’s denial. Briefing in that case is under way. On March 5, 2009 the D.C. Circuit remanded the case to the EPA for reconsideration. The EPA has conceded that the D.C. Circuit’s July 18, 2008 decision in the CAIR litigation, North Carolina v. EPA No. 05-1244, discussed above, and a subsequent order issued by the D.C. Circuit on December 23, 2008, have eliminated the legal basis for the EPA’s denial of North Carolina’s Section 126 petition. At this time, Duke Energy Indiana cannot predict the outcome of this proceeding.

Carbon Dioxide (CO ₂ ) Litigation. In July 2004, the states of Connecticut, New York, California, Iowa, New Jersey, Rhode Island, Vermont, Wisconsin and the City of New York brought a lawsuit in the U.S. District Court for the Southern District of New York against Cinergy, American Electric Power Company, Inc., American Electric Power Service Corporation, The Southern Company, Tennessee Valley Authority, and Xcel Energy Inc. A similar lawsuit was filed in the U.S. District Court for the Southern District of New York against the same companies by Open Space Institute, Inc., Open Space Conservancy, Inc., and The Audubon Society of New Hampshire. These lawsuits allege that the defendants’ emissions of CO ₂ from the combustion of fossil fuels at electric generating facilities contribute to global warming and amount to a public nuisance. The complaints also allege that the defendants could generate the same amount of electricity while emitting significantly less CO ₂ . The plaintiffs are seeking an injunction requiring each defendant to cap its CO ₂ emissions and then reduce them by a specified percentage each year for at least a decade. In September 2005, the District Court granted the defendants’ motion to dismiss the lawsuit. The plaintiffs have appealed this ruling to the Second Circuit Court of Appeals. Oral arguments were held before the Second Circuit Court of Appeals on June 7, 2006. It is not possible to predict with certainty whether Duke Energy Indiana will incur any liability or to estimate the damages, if any, that Duke Energy Indiana might incur in connection with this matter.

Manufactured Gas Plant (MGP) Sites. Coal tar residues, related hydrocarbons, and various metals have been found in at least 23 sites that Duke Energy Indiana or its predecessors previously owned and sold in a series of transactions with Northern Indiana Public Service Company (NIPSCO) and Indiana Gas Company, Inc. (IGC). The 23 sites are in the process of being studied and will be remediated, if necessary. In 1998 NIPSCO, IGC, and Duke Energy Indiana entered into Site Participation and Cost Sharing Agreements to allocate liability and responsibilities among them. Thus far, Duke Energy Indiana has primary responsibility for investigating, monitoring, and, if necessary, remediating nine of these sites. In December 2003, Duke Energy Indiana entered into a voluntary remediation plan with the state of Indiana, providing a formal framework for the investigation and cleanup of the nine sites. The Indiana Department of Environmental Management oversees investigation and cleanup of all of these sites. In 2007, Duke Energy Indiana purchased four parcels of property adjacent to one of the MGP sites because of evidence of migration of groundwater contamination.

Duke Energy Indiana has accrued costs related to investigation, remediation, and groundwater monitoring for those sites where such costs are probable and can be reasonably estimated. Duke Energy Indiana will continue to investigate and remediate the sites as outlined in the voluntary remediation plan. As additional facts become known and investigation is completed, Duke Energy Indiana will assess whether the likelihood of incurring additional costs becomes probable. Until all investigation and remediation is complete, Duke Energy Indiana is unable to determine the overall impact on its consolidated results of operations, cash flows or financial position.

Dunavan Waste Superfund Site. In July and October 2005, Duke Energy Indiana received notices from the EPA that it has been identified as a de minimus potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act at the Dunavan Waste Oil Site in Oakwood, Vermilion County, Illinois. At this time, Duke Energy Indiana does not have any further information regarding the scope of potential liability associated with this matter.

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Hurricane Katrina Lawsuit. In April 2006, Cinergy was named in the third amended complaint of a purported class action lawsuit filed in the U.S. District Court for the Southern District of Mississippi. Plaintiffs claim that Cinergy, along with numerous other utilities, oil companies, coal companies and chemical companies, are liable for damages relating to losses suffered by victims of Hurricane Katrina. Plaintiffs claim that defendants’ greenhouse gas emissions contributed to the frequency and intensity of storms such as Hurricane Katrina. On August 30, 2007, the court dismissed the case. The plaintiffs have filed their appeal to the Fifth Circuit Court of Appeals and oral argument was heard on August 6, 2008. Due to the late recusal of one of the judges on the Fifth Circuit panel, the court held a new oral argument on November 3, 2008. It is not possible to predict with certainty whether Duke Energy Indiana will incur any liability or to estimate the damages, if any, that Duke Energy Indiana might incur in connection with this matter.

Asbestos-related Injuries and Damages Claims. Duke Energy Indiana has been named as a defendant or co-defendant in lawsuits related to asbestos at its electric generating stations. The impact on Duke Energy Indiana’s consolidated results of operations, cash flows or financial position of these cases to date has not been material. Based on estimates under varying assumptions concerning uncertainties, such as, among others: (i) the number of contractors potentially exposed to asbestos during construction or maintenance of Duke Energy Indiana’s generating plants; (ii) the possible incidence of various illnesses among exposed workers; and (iii) the potential settlement costs without federal or other legislation that addresses asbestos tort actions, Duke Energy Indiana estimates that the range of reasonably possible exposure in existing and future suits over the foreseeable future is not material. This estimated range of exposure may change as additional settlements occur and claims are made and more case law is established.

Other Litigation and Legal Proceedings. Duke Energy Indiana is involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve substantial amounts. Duke Energy Indiana believes that the final disposition of these proceedings will not have a material adverse effect on its consolidated results of operations, cash flows or financial position.

Duke Energy Indiana has exposure to certain legal matters that are described herein. As of December 31, 2008 and 2007, Duke Energy Indiana has recorded insignificant reserves for these proceedings and exposures. Duke Energy Indiana expenses legal costs related to the defense of loss contingencies as incurred.

Other Commitments and Contingencies

General. Duke Energy Indiana enters into various fixed-price, non-cancelable commitments to purchase or sell power (tolling arrangements or power purchase contracts) that may or may not be recognized on the Consolidated Balance Sheets. Some of these arrangements may be recognized at market value on the Consolidated Balance Sheets as undesignated hedge contracts or qualifying hedge positions.

Operating and Capital Lease Commitments

Duke Energy Indiana leases assets in several areas of its operations. Consolidated rental expense for operating leases was approximately $25 million in 2008, $35 million in 2007 and $24 million in 2006, which is included in Operation, Maintenance and Other on the Consolidated Statements of Operations. Capitalized lease obligations are classified as debt on the Consolidated Balance Sheets (see Note 15). Amortization of capital lease assets is included in Depreciation and Amortization on the Consolidated Statements of Operations. The following is a summary of future minimum lease payments under operating leases, which at inception had a noncancelable term of more than one year, and capital leases as of December 31, 2008:


	Operating Leases		Capital Leases
	(in millions)
2009	$	22	$	5
2010		20		4
2011		17		4
2012		16		4
2013		15		3
Thereafter		28		7

Total future minimum lease payments	$	118	$	27

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

18. Employee Benefit Obligations

Cinergy Retirement Plans . Duke Energy Indiana participates in qualified and non-qualified defined benefit pension plans as well as other post-retirement benefit plans sponsored by Cinergy. Cinergy allocates pension and other post-retirement obligations and costs related to these plans to Duke Energy Indiana.

Upon consummation of the merger with Duke Energy, Cinergy’s benefit plan obligations were remeasured. While push-down accounting did not apply to Duke Energy Indiana, GAAP requires the most recent measurement of plan obligations be used if remeasurement has occurred. Accordingly, Cinergy updated the assumptions used to determine their accrued benefit obligations and prospective net periodic benefit/post-retirement costs to be allocated to Duke Energy Indiana. As a result, the discount rate used to determine net periodic benefit cost to be allocated to Duke Energy Indiana by Cinergy changed from 5.50% to 6.00% in 2006.

Cinergy adopted the funded status recognition and disclosure provisions of SFAS No. 158 effective December 31, 2006. Cinergy adopted the change in measurement date transition requirements of SFAS No. 158 effective January 1, 2007 by remeasuring plan assets and benefit obligations as of that date. Previously, Cinergy used a September 30 measurement date for its defined benefit and other post-retirement plans. The adoption of SFAS No. 158 did not have a material impact on Duke Energy Indiana’s consolidated results of operations or cash flows. See Note 1 for additional information related to the adoption of SFAS No. 158.

Net periodic benefit cost disclosed in the tables below for the qualified, non-qualified and other post-retirement benefit plans represent the cost of the respective plan for the periods presented. However, portions of the net periodic benefit cost disclosed in the tables have been capitalized as a component of property, plant and equipment.

Qualified Pension Plans

Cinergy’s qualified defined benefit pension plans cover substantially all employees meeting certain minimum age and service requirements. The plans cover most employees using a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits that are based upon a percentage (which varies with age and years of service) of current eligible earnings and current interest credits. Certain legacy Cinergy employees are covered under plans that use a final average earnings formula. Under a final average earnings formula, a plan participant accumulates a retirement benefit equal to a percentage of their highest 3-year average earnings, plus a percentage of their highest 3-year average earnings in excess of covered compensation per year of participation (maximum of 35 years), plus a percentage of their highest 3-year average earnings times years of participation in excess of 35 years.

Funding for the qualified defined benefit pension plans is based on actuarially determined contributions, the maximum of which is generally the amount deductible for tax purposes and the minimum being that required by the Employee Retirement Income Security Act of 1974, as amended. The pension plans’ assets consist of investments in equity and debt securities.

Actuarial gains and losses are amortized over the average remaining service period of the active employees. The average remaining service period of the active employees covered by the retirement plan is 11 years. Cinergy determines the market-related value of plan assets using a calculated value that recognizes changes in fair value of the plan assets over five years.

Duke Energy Indiana’s qualified pension plan pre-tax net periodic pension benefit costs as allocated by Cinergy were as follows:


	For the Years Ended December 31,
	2008		2007		2006
	(in millions)
Qualified Pension Benefits	$	17	$	20	$	23

The fair value of Cinergy’s plan assets was approximately $1,110 million and $1,701 million as of December 31, 2008 and 2007, respectively. The projected benefit obligation for the plans was approximately $1,992 million and $1,941 million as of December 31, 2008 and 2007, respectively. The accumulated benefit obligation for the plans was approximately $1,729 million and $1,753 million as of December 31, 2008 and 2007, respectively. The accrued qualified pension liability allocated by Cinergy to Duke Energy Indiana, which represents Duke Energy Indiana’s proportionate share of the unfunded status of the Cinergy qualified pension plan, was approximately $244 million and $73 million as of December 31, 2008 and 2007, respectively, and is recognized in Accrued pension and other post-retirement benefit costs within the Consolidated Balance Sheets. Regulatory assets, as allocated by Cinergy to Duke Energy Indiana, were approximately $244 million and $90 million as of December 31, 2008 and 2007, respectively, and are recognized in Regulatory Assets and Deferred Debits within the Consolidated Balance Sheets.

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

Duke Energy’s policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefits to be paid to plan participants. Duke Energy did not make any contributions to its defined benefit retirement plans in 2008. Duke Energy made qualified pension benefit contributions of approximately $350 million and $124 million to the legacy Cinergy qualified pension benefit plans in 2007 and 2006, respectively, of which approximately $92 million and $24 million represents contributions made by Duke Energy Indiana for the years ended December 31, 2007 and 2006, respectively. In February 2009, Duke Energy Indiana made a cash contribution of approximately $100 million, which represented its proportionate share of an approximate $500 million total contribution to Cinergy’s and Duke Energy’s qualified pension plans.

Qualified Plans—Assumptions Used for Cinergy’s Pension Benefits Accounting


	2008	2007	2006
	(percentages)
Benefit Obligations
Discount rate	6.50	6.00	5.75
Salary increase	4.50	5.00	5.00
Net Periodic Benefit Cost
Discount rate ^(a)	6.00	5.75	5.50-6.00
Salary increase	5.00	5.00	5.00
Expected long-term rate of return on plan assets	8.50	8.50	8.50

(a)

Upon consummation of the merger with Duke Energy, all other pension obligations were remeasured. Cinergy updated the assumptions used to determine their pension obligations and prospective net periodic benefit cost to be allocated to Duke Energy Indiana. As a result, the discount rate used to determine net periodic benefit cost to be allocated to Duke Energy Indiana by Cinergy changed from 5.50% to 6.00% in 2006.

Non-Qualified Pension Plans

Cinergy also maintains, and Duke Energy Indiana participates in, non-qualified, non-contributory defined benefit retirement plans (plans that do not meet the criteria for certain tax benefits) that cover officers, certain other key employees, and non-employee directors. Actuarial gains and losses are amortized over the average remaining service period of the active employees. The average remaining service period of active employees covered by the non-qualified retirement plans is 11 years. There are no plan assets. The projected benefit obligation for the plans was approximately $113 million and $105 million as of December 31, 2008 and 2007, respectively. The accumulated benefit obligation for the plans was approximately $104 million and $102 million as of December 31, 2008 and 2007, respectively. The accrued non-qualified pension liability allocated by Cinergy to Duke Energy Indiana, which represents Duke Energy Indiana’s proportionate share of the unfunded status of the Cinergy non-qualified pension plan, was approximately $6 million as of both December 31, 2008 and 2007, of which approximately $5 million is recognized in Accrued pension and other post-retirement benefit costs within the Consolidated Balance Sheets at both December 31, 2008 and 2007 and approximately $1 million is recognized in Other within Current Liabilities on the Consolidated Balance Sheets at December 31, 2008 and 2007. Regulatory assets, as allocated by Cinergy to Duke Energy Indiana, were approximately $3 million as of both December 31, 2008 and 2007 and are recognized in Regulatory Assets and Deferred Debits within the Consolidated Balance Sheets. Net periodic pension cost, as allocated by Cinergy, was approximately $1 million for each of the years ended December 31, 2008, 2007 and 2006.

Non-Qualified Plans—Assumptions Used for Cinergy’s Pension Benefits Accounting


	2008	2007	2006
	(percentages)
Benefit Obligations
Discount rate	6.50	6.00	5.75
Salary increase	4.50	5.00	5.00
Net Periodic Benefit Cost
Discount rate ^(a)	6.00	5.75	5.50-6.00
Salary increase	5.00	5.00	5.00
Expected long-term rate of return on plan assets	8.50	8.50	8.50

(a)

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

Other Post-Retirement Benefit Plans

Duke Energy Indiana participates in other post-retirement benefit plans sponsored by Duke Energy. Prior to January 1, 2008, Cinergy was the sponsor of the other post-retirement benefit plans. Effective January 1, 2008, Duke Energy became the sponsor of these other post-retirement benefit plans. Duke Energy provides certain health care and life insurance benefits to retired employees and their eligible dependents on a contributory and non-contributory basis. These benefits are subject to minimum age and service requirements. The health care benefits include medical coverage, dental coverage, and prescription drug coverage and are subject to certain limitations, such as deductibles and co-payments. These benefit costs are accrued over an employee’s active service period to the date of full benefits eligibility. The net unrecognized transition obligation is amortized over approximately 20 years. Actuarial gains and losses are amortized over the average remaining service period of the active employees. The average remaining service period of the active employees covered by the plan is 12 years. During the fourth quarter of 2008, Duke Energy Indiana recorded pre-tax income of approximately $19 million related to the correction of errors in actuarial valuations prior to 2008 that would have reduced amounts recorded as other post-retirement benefit expense recorded during those historical periods.

Duke Energy Indiana’s other post-retirement plan pre-tax net periodic benefit costs as allocated by Duke Energy were as follows:


	For the Years Ended December 31,
	2008 ^(a)		2007		2006
	(in millions)
Other Post-Retirement Benefits	$	14	$	21	$	22

(a)	Includes the recognition of the approximate $19 million correction of errors discussed above.

The fair value of Duke Energy’s other post-retirement benefit plans assets was approximately $23 million and $32 million as of December 31, 2008 and 2007, respectively. The accumulated other post-retirement benefit obligation for the plans was approximately $330 million and $464 million as of December 31, 2008 and 2007, respectively. The accrued other post-retirement liability allocated by Duke Energy to Duke Energy Indiana, which represents Duke Energy Indiana’s proportionate share of the unfunded status of the Duke Energy other post-retirement benefit plans, was approximately $164 million and $178 million as of December 31, 2008 and 2007, respectively, of which approximately $161 million and $178 million is recognized in Accrued pension and other post-retirement benefit costs within the Consolidated Balance Sheets at December 31, 2008 and 2007, respectively, and approximately $3 million and an insignificant amount was recognized in Other within Current Liabilities at December 31, 2008 and 2007, respectively. Regulatory assets, as allocated by Duke Energy to Duke Energy Indiana, were approximately $60 million and $72 million as of December 31, 2008 and 2007, respectively, and are recognized in Regulatory Assets and Deferred Debits within the Consolidated Balance Sheets.

Duke Energy did not make any contributions to its other post-retirement plans in 2008. Duke Energy made contributions of approximately $32 million to the legacy Cinergy other post-retirement plans during 2007, of which approximately $14 million represents contributions made by Duke Energy Indiana. No amounts were contributed to the legacy Cinergy other post-retirement plans in 2006.

Assumptions Used in Duke Energy’s Other Post-retirement Benefits Accounting


	2008	2007	2006
	(percentages)
Benefit Obligations
Discount rate	6.50	6.00	5.75
Net Periodic Benefit Cost
Discount rate ^(a)	6.00	5.75	5.50-6.00
Expected long-term rate of return on plan assets	8.50	8.50	N/A

(a)

Upon consummation of the merger with Duke Energy, all other post-retirement obligations were remeasured. Cinergy updated the assumptions used to determine their other post-retirement obligations and prospective net periodic other post-retirement benefit cost to be allocated to Duke Energy Indiana. As a result, the discount rate used to determine net periodic other post-retirement benefit cost to be allocated to Duke Energy Indiana by Cinergy changed from 5.50% to 6.00% in 2006.

PART II

DUKE ENERGY INDIANA, INC.

Notes To Consolidated Financial Statements—(Continued)

Assumed Health Care Cost Trend Rates


	Medicare Trend Rate				Prescription Drug Trend Rate
	2008		2007		2008		2007
Health care cost trend rate assumed for next year	8.50	%	8.00	%	11.00	%	12.50	%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)	5.00	%	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2013		2013		2022		2022

19. Other Income and Expenses, net

The components of Other Income and Expenses, net on the Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006 are as follows:


	Years ended December 31,
	2008		2007		2006
	(in millions)
Income/(Expense)
Interest income	$	21	$	25	$	27
AFUDC equity and Post-in-service carrying costs ^(a)		46		18		17
Other		3		2		2

Total	$	70	$	45	$	46

(a)	See Note 4 for discussion of a favorable $25 million AFUDC ruling by the IURC during 2008.

20. Subsequent Events

For information on subsequent events related to regulatory matters, debt and credit facilities, commitments and contingencies, and employee benefit obligations, see Notes 4, 15, 17 and 18, respectively.

21. Quarterly Financial Data (Unaudited)


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
	(in millions)
2008
Operating revenues	$	617	$	576	$	682	$	608	$	2,483
Operating income		134		93		121		113		461
Net income		78		61		64		55		258
2007
Operating revenues	$	495	$	548	$	634	$	546	$	2,223
Operating income		124		88		132		106		450
Net income		69		47		71		45		232

During the first quarter of 2008, Duke Energy Indiana recorded the following unusual or infrequently occurring item: a favorable $7 million IURC ruling related to AFUDC (see Note 4).

During the second quarter of 2008, Duke Energy Indiana recorded the following unusual or infrequently occurring item: a favorable $18 million IURC ruling related to AFUDC (see Note 4).

There were no significant or unusual items during the third quarter of 2008.

During the fourth quarter of 2008, Duke Energy Indiana recorded the following unusual or infrequently occurring item: pre-tax income of approximately $19 million related to the correction of errors in actuarial valuations related to other post-retirement benefit plans (see Note 18).

During the first quarter of 2007, Duke Energy Indiana recorded the following unusual or infrequently occurring item: a temporary rate reduction of approximately a $12 million due to merger approval obtained from IURC related to the merger between Duke Energy and Cinergy.

There were no significant or unusual items during the second, third or fourth quarters of 2007.

PART II

DUKE ENERGY INDIANA, INC.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES


	Balance at Beginning of Period		Additions				Deductions ^(a)		Balance at End of Period
	Balance at Beginning of Period		Charged to Expense		Charged to Other Accounts		Deductions ^(a)		Balance at End of Period
	(In millions)
December 31, 2008:
Injuries and damages	$	4	$	—	$	—	$	—	$	4
Allowance for doubtful accounts		1		1		—		1		1
Other ^(b)		10		6		—		1		15

	$	15	$	7	$	—	$	2	$	20

December 31, 2007:
Injuries and damages	$	4	$	5	$	—	$	5	$	4
Allowance for doubtful accounts		1		—		—		—		1
Other ^(b)		35		1		—		26		10

	$	40	$	6	$	—	$	31	$	15

December 31, 2006:
Injuries and damages	$	6	$	1	$	—	$	3	$	4
Allowance for doubtful accounts		—		1		1		1		1
Other ^(c)		25		12		—		2		35

	$	31	$	14	$	1	$	6	$	40

(a)	Principally reserve reversals and cash payments. For 2007, this also includes the impacts from the adoption of FIN 48.

(b)	Principally environmental reserves included in Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheets.

(c)	Principally environmental, tax contingencies and other reserves, included in Taxes accrued and Interest accrued within Current Liabilities or Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheets.

The valuation and reserve amounts as of December 31, 2008 and 2007 do not include unrecognized tax benefits amounts or deferred tax asset valuation allowance amounts.

PART II

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. 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 Duke Energy Indiana in the reports it files or submits under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized, and reported, within the time periods specified by the Securities and Exchange Commission’s (SEC) rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by Duke Energy Indiana in the reports it files or submits 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, Duke Energy Indiana has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2008, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance.

Changes in Internal Control over Financial Reporting

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, Duke Energy Indiana has evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended December 31, 2008 and have concluded that no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

Management’s Annual Report On Internal Control Over Financial Reporting

Duke Energy Indiana’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Duke Energy Indiana’s internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

Duke Energy Indiana’s management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of Duke Energy Indiana’s internal control over financial reporting as of December 31, 2008 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2008.

This annual report does not include an attestation report of Deloitte & Touche LLP, Duke Energy Indiana’s registered independent public accounting firm, regarding internal control over financial reporting. Management’s report was not subject to attestation by Deloitte & Touche LLP pursuant to temporary rules of the SEC that permit Duke Energy Indiana to provide only management’s report in this annual report.

PART III

Item 14. Principal Accounting Fees and Services.

Deloitte & Touche LLP, and the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, “Deloitte”) provided professional services to Duke Energy Corporation (Duke Energy) and its consolidated subsidiaries for 2008 and 2007. The following table presents the fees that have been allocated to Duke Energy Indiana, Inc. (Duke Energy Indiana) and its subsidiaries as a part of corporate governance costs:


Type of Fees	FY 2008		FY 2007
	(In millions)
Audit Fees ^(a)	$	1.5	$	1.7
Audit-Related Fees ^(b)		0.2		0.2
Tax Fees ^(c)		0.1		0.2

Total Fees:	$	1.8	$	2.1

(a)

Audit Fees are fees billed or expected to be billed by Deloitte for professional services for the audit of Duke Energy and are allocated by Duke Energy to Duke Energy Indiana for the audit of the Duke Energy Indiana consolidated financial statements included in Duke Energy Indiana’s annual report on Form 10-K and review of financial statements included in Duke Energy Indiana’s quarterly reports on Form 10-Q, services that are normally provided by Deloitte in connection with statutory, regulatory or other filings or engagements or any other service performed by Deloitte to comply with generally accepted auditing standards.

(b)

Audit-Related Fees are fees billed by Deloitte to Duke Energy and are allocated by Duke Energy to Duke Energy Indiana for assurance and related services that are reasonably related to the performance of an audit or review of Duke Energy Indiana’s financial statements, including assistance with acquisitions and divestitures and internal control reviews.

(c)	Tax Fees are fees billed by Deloitte to Duke Energy and are allocated by Duke Energy to Duke Energy Indiana for tax return assistance and preparation, tax examination assistance, and professional services related to tax planning and tax strategy.

To safeguard the continued independence of the independent auditor, the Duke Energy Audit Committee adopted a policy that provides that the independent public accountants are only permitted to provide services to Duke Energy and its consolidated subsidiaries, including Duke Energy Indiana, that have been pre-approved by the Duke Energy Audit Committee. Pursuant to the policy, detailed audit services, audit-related services, tax services and certain other services have been specifically pre-approved up to certain fee limits. In the event that the cost of any of these services may exceed the pre-approved limits, the Duke Energy Audit Committee must pre-approve the service. All other services that are not prohibited pursuant to the SEC’s or other applicable regulatory bodies’ rules of regulations must be specifically pre-approved by the Duke Energy Audit Committee. All services performed in 2008 and 2007 by the independent public accountant were approved by the Duke Energy Audit Committee pursuant to its pre-approval policy.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) Consolidated Financial Statements, Supplemental Financial Data and Supplemental Schedule included in Part II of this annual report are as follows:

Consolidated Financial Statements

Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006

Consolidated Balance Sheets as of December 31, 2008 and 2007

Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006

Consolidated Statements of Common Stockholder’s Equity and Comprehensive Income for the Years ended December 31,

2008, 2007 and 2006

Notes to the Consolidated Financial Statements

Quarterly Financial Data (unaudited, included in Note 21 to the Consolidated Financial Statements)

Consolidated Financial Statement Schedule II—Valuation and Qualifying Accounts and Reserves for the Years Ended

December 31, 2008, 2007 and 2006

Report of Independent Registered Public Accounting Firm

All other schedules are omitted because they are not required, or because the required information is included in the

Consolidated Financial Statements or Notes.

(b) Exhibits—See Exhibit Index immediately following the signature page.

PART IV

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 13, 2009


DUKE ENERGY INDIANA, INC. (Registrant)

By:		/s/ J AMES E. R OGERS
		James E. Rogers Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

(i)

/s/ J AMES E. R OGERS

James E. Rogers

Chief Executive Officer (Principal Executive Officer)

(ii)

/s/ D AVID L. H AUSER

David L. Hauser

Group Executive and Chief Financial Officer (Principal Financial Officer)

(iii)

/s/ S TEVEN K. Y OUNG

Steven K. Young

Senior Vice President and Controller (Principal Accounting Officer)

(iv)

Directors

/s/ J ULIE

K. G RIFFITH

Julie K. Griffith

/s/ J IM

L. S TANLEY

Jim L. Stanley

/s/ J AMES

L. T URNER

James L. Turner

Date: March 13, 2009

PART IV

EXHIBIT INDEX

Exhibits filed herewith are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated.


Exhibit Number
3.1		Amended Articles of Consolidation of PSI, as amended April 20, 1995 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended June 30, 1995, File No. 1-3543).

3.1.1		Amendment to Article D of the Amended Articles of Consolidation of PSI, effective July 10, 1997 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1997, File No. 1-3543).

3.1.2		Amended Articles of Consolidation, effective October 1, 2006 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 2006, File No. 1-3543).

3.2		By-Laws of PSI, as amended on July 23, 2003 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended June 30, 2003, File No. 1-3543).

4.1		Original Indenture (First Mortgage Bonds) dated September 1, 1939, between PSI and The First National Bank of Chicago, as Trustee, and LaSalle National Bank, as Successor Trustee (filed as Exhibit A-Part 5 in File No. 70-258 Supplemental Indenture dated March 30, 1984).

4.1.1		Forty-second Supplemental Indenture between PSI and LaSalle National Bank dated August 1, 1988 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1988, File No. 1-3543).

4.1.2		Forty-fourth Supplemental Indenture between PSI and LaSalle National Bank dated March 15, 1990 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1990, File No. 1-3543).

4.1.3		Forty-fifth Supplemental Indenture between PSI and LaSalle National Bank dated March 15, 1990 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1990, File No. 1-3543).

4.1.4		Forty-sixth Supplemental Indenture between PSI and LaSalle National Bank dated June 1, 1990 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1991, File No. 1-3543).

4.1.5		Forty-seventh Supplemental Indenture between PSI and LaSalle National Bank dated July 15, 1991 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1991, File No. 1-3543).

4.1.6		Forty-eighth Supplemental Indenture between PSI and LaSalle National Bank dated July 15, 1992 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1992, File No. 1-3543).

4.1.7		Forty-ninth Supplemental Indenture between PSI and LaSalle National Bank dated February 15, 1993 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1992, File No. 1-3543).

4.1.8		Fiftieth Supplemental Indenture between PSI and LaSalle National Bank dated February 15, 1993 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1992, File No. 1-3543).

4.1.9		Fifty-first Supplemental Indenture between PSI and LaSalle National Bank dated February 1, 1994 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1993, File No. 1-3543).

4.1.10		Fifty-second Supplemental Indenture between PSI and LaSalle National Bank, as Trustee, dated as of April 30, 1999 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended March 31, 1999, File No. 1-3543).

4.1.11		Fifty-third Supplemental Indenture between PSI and LaSalle National Bank dated June 15, 2001 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended June 30, 2001, File No. 1-3543).

4.1.12		Fifty-fourth Supplemental Indenture dated as of September 1, 2002, between PSI and LaSalle Bank National Association, as Trustee (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 2002, File No. 1-3543).

E-1

PART IV


Exhibit Number
4.1.13		Fifty-fifth Supplemental Indenture between PSI and LaSalle National Bank dated February 15, 2003 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 2003, File No. 1-3543).

4.1.14		Fifty-Sixth Supplemental Indenture dated as of December 1, 2004, between PSI and LaSalle Bank National Association, as Trustee (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 2004, File No. 1-3543).

4.2		Indenture dated November 15, 1996, between PSI and The Fifth Third Bank, as Trustee (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1996, File No. 1-3543).

4.2.1		First Supplemental Indenture dated November 15, 1996, between PSI and The Fifth Third Bank, as Trustee (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1996, File No. 1-3543).

4.2.2		Third Supplemental Indenture dated as of March 15, 1998, between PSI and The Fifth Third Bank, as Trustee (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1997, File No. 1-3543).

4.2.3		Fourth Supplemental Indenture dated as of August 5, 1998, between PSI and The Fifth Third Bank, as Trustee (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended June 30, 1998, File No. 1-3543).

4.2.4		Fifth Supplemental Indenture dated as of December 15, 1998, between PSI and The Fifth Third Bank, as Trustee (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1998, File No. 1-3543).

4.2.5		Sixth Supplemental Indenture dated as of April 30, 1999, between PSI and The Fifth Third Bank, as Trustee (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended March 31, 1999, File No. 1-3543).

4.2.6		Seventh Supplemental Indenture dated as of October 20, 1999, between PSI and The Fifth Third Bank, as Trustee (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1999, File No. 1-3543).

4.2.7		Eighth Supplemental Indenture dated as of September 23, 2003, between PSI and The Fifth Third Bank, as Trustee (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 2003, File No. 1-3543).

4.2.8		Tenth Supplemental Indenture dated as of June 9, 2006, between PSI Energy, Inc. and The Bank of New York Trust Company, N.A. (successor trustee to Fifth Third Bank), as Trustee (filed with Form 8-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.), filed on June 15, 2006, File No. 1-3543).

4.3		Twenty-fifth Supplemental Indenture between PSI and The First National Bank of Chicago dated September 1, 1978 (filed with the registration statement of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.), File No. 2-62543).

4.3.1		Thirty-fifth Supplemental Indenture between PSI and The First National Bank of Chicago dated March 30, 1984 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1984, File No. 1-3543).

4.4		Indenture (Secured Medium-term Notes, Series A), dated July 15, 1991, between PSI and LaSalle National Bank, as Trustee (filed with Form 10-K/A No. 2 of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1992, filed on July 15, 1993, File No. 1-3543).

4.5		Indenture (Secured Medium-term Notes, Series B), dated July 15, 1992, between PSI and LaSalle National Bank, as Trustee (filed with Form 10-K/A No. 2 of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1992, filed on July 15, 1993, File No. 1-3543).

4.6		Loan Agreement between PSI and the City of Princeton, Indiana dated as of November 7, 1996 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

E-2

PART IV


Exhibit Number
4.7		Loan Agreement between PSI and the City of Princeton, Indiana dated as of February 1, 1997 (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1996, File No. 1-3543).

4.8		Unsecured Promissory Note dated October 14, 1998, between PSI and the Rural Utilities Service (filed with Form 10-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the year ended December 31, 1998, File No. 1-3543).

4.9		Loan Agreement between PSI and the Indiana Development Finance Authority dated as of July 15, 1998 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended June 30, 1998, File No. 1-3543).

4.10		Loan Agreement between PSI and the Indiana Development Finance Authority dated as of May 1, 2000 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended June 30, 2000, File No. 1-3543).

4.11		Loan Agreement between PSI and the Indiana Development Finance Authority dated as of September 1, 2002 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 2002 File No. 1-3543).

4.12		Loan Agreement between PSI and the Indiana Development Finance Authority dated as of September 1, 2002 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 2002, File No. 1-3543).

4.13		Loan Agreement between PSI and the Indiana Development Finance Authority dated as of February 15, 2003 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended March 31, 2003, File No. 1-3543).

4.14		6.302% Subordinated Note between PSI and Cinergy Corp., dated February 5, 2003 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended March 31, 2003, File No. 1-3543).

4.15		6.403% Subordinated Note between PSI and Cinergy Corp., dated February 5, 2003 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended March 31, 2003, File No. 1-3543).

4.16		Loan Agreement between PSI and the Indiana Development Finance Authority dated as of December 1, 2004, relating to Series 2004B (filed with Form 8-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.), filed on December 9, 2004, File No. 1-3543).

4.17		Loan Agreement between PSI and the Indiana Development Finance Authority dated as of December 1, 2004, relating to Series 2004C (filed with Form 8-K of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.), filed on December 9, 2004, File No. 1-3543).

10.1		Employment Agreement dated February 4, 2004, among Cinergy Corp., CG&E, and PSI, and James E. Rogers (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.2		Amended and Restated Employment Agreement dated October 11, 2002, among Cinergy Corp., Services, CG&E, and PSI, and William J. Grealis (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.2.1		Amended Employment Agreement effective December 17, 2003 to Employment Agreement dated October 11, 2002, among Cinergy Corp., Services, CG&E, and PSI, and William J. Grealis (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.3		Amended and Restated Employment Agreement dated October 1, 2002, among Cinergy Corp., Services, CG&E, and PSI, and Donald B. Ingle, Jr. (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.4		Amended and Restated Employment Agreement dated September 12, 2002, among Cinergy Corp., Services, CG&E, and PSI, and Michael J. Cyrus (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

E-3

PART IV


Exhibit Number
10.4.1		Amended Employment Agreement effective December 17, 2003 to Employment Agreement dated September 12, 2002, among Cinergy Corp., Services, CG&E, and PSI, and Michael J. Cyrus (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.4.2		Form of amendment to employment agreement, adopted and effective December 14, 2005, between Services and each of Michael J. Cyrus and James L. Turner (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.5		Amended and Restated Employment Agreement dated September 24, 2002, among Cinergy Corp., Services, CG&E, and PSI, and James L. Turner (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.5.1		Amended Employment Agreement effective December 17, 2003 to Employment Agreement dated September 24, 2002, among Cinergy Corp., Services, CG&E, and PSI, and James L. Turner (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.6		Employment Agreement dated November 15, 2002, among Cinergy Corp., CG&E, and PSI and Marc E. Manly (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.6.1		Amended Employment Agreement effective December 17, 2003 to Employment Agreement dated November 15, 2002, among Cinergy Corp., CG&E, and PSI, and Marc E. Manly (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.7		Deferred Compensation Agreement, effective as of January 1, 1992, between PSI and James E. Rogers (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.8		Split Dollar Life Insurance Agreement, effective as of January 1, 1992, between PSI and James E. Rogers (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.8.1		First Amendment to Split Dollar Life Insurance Agreement between PSI and James E. Rogers dated December 11, 1992 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.9		Asset Purchase Agreement by and among Cinergy Capital & Trading, Inc. (Capital & Trading), CinCap Madison, LLC and PSI dated as of February 5, 2003 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.10		Asset Purchase Agreement by and among Capital & Trading., CinCap VII, LLC and PSI dated as of February 5, 2003 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.11		Asset Purchase Agreement by and among PSI and CG&E and Allegheny Energy Supply Company, LLC, Allegheny Energy Supply Wheatland Generating Facility, LLC and Lake Acquisition Company, L.L.C., dated as of May 6, 2005 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.12		Underwriting Agreement in connection with PSI issuance and sale of $350,000,000 aggregate principal amount of its 6.12% Debentures due 2035 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.13		$2,000,000,000 Amended and Restated Credit Agreement among the registrant, such subsidiaries, the banks listed therein, Barclays Bank PLC, as Administrative Agent, and JPMorgan Chase Bank, N.A., as Syndication Agent (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

E-4

PART IV


Exhibit Number
10.13.1		$2,650,000,000 Amended and Restated Credit Agreement, dated as of June 28, 2007, among Duke Energy Corporation, Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, Inc. and Duke Energy Kentucky, Inc., as Borrowers, the banks listed therein, Wachovia Bank, National Association, as Administrative Agent, JPMorgan Chase Bank, National Association, Barclays Bank PLC, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents and The Bank of Tokyo-Mitsubishi, Ltd., New York Branch and Credit Suisse, as Co-Documentation Agents (filed in Form 8-K of Duke Energy Indiana, Inc., July 5, 2007, File No. 1-3543, as Exhibit 10.1).

10.13.2		Amendment No. 1 to the Amended and Restated Credit Agreement (filed in Form 8-K of Duke Energy Indiana, Inc., March 12, 2008, File No. 1-3543, as Exhibit 10.1).

10.14		Asset Purchase Agreement by and between Duke Energy Indiana, Inc., as Seller, and Wabash Valley Power Association, Inc., as Buyer, Dated as of December 1, 2006 (filed with Form 10-Q of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) for the quarter ended September 30, 1996, File No. 1-3543).

10.15		$330,000,000 Letter of Credit Agreement dated as of September 19, 2008, among Duke Energy Indiana, Inc., Duke Energy Kentucky, Inc., the banks listed therein, Bank of America, N.A., as Administrative Agent, Banco Bilbao Vizcaya Argentaria, S.A.-New York Branch, as Syndication Agent, and the Bank of Tokyo-Mitsubishi UFJ, Ltd., Intesa Sanpaolo S.p.A., New York Branch, Mizuho Corporate Bank (USA), and Wells Fargo Bank, National Association, as Co-Documentation Agents (filed with Form 10-Q of Duke Energy Indiana, Inc. for the quarter ended September 30, 2008, File No. 1-3543, as Exhibit 10.1).

*10.16		Engineering, Procurement and Construction Management Agreement dated December 15, 2008 between Duke Energy Indiana, Inc. and Bechtel Power Corporation (Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended).

*12		Computation of Ratio of Earnings to Fixed Charges.

*23.1		Consent of Independent Registered Public Accounting Firm.

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

*31.2		Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the Securities and Exchange Commission, to furnish copies of any or all of such instruments to it.

E-5

Exhibit 10.16

FOIA CONFIDENTIAL TREATMENT REQUESTED

PORTIONS OF THIS EXHIBIT MARKED BY *** HAVE BEEN OMITTED PURSUANT TO A

REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION

ENGINEERING, PROCUREMENT

AND

CONSTRUCTION MANAGEMENT AGREEMENT

by and between

DUKE ENERGY INDIANA, INC., as Owner

and

BECHTEL POWER CORPORATION, as Contractor

for the

CONSTRUCTION OF AN INTEGRATED GASIFICATION

COMBINED CYCLE COAL-FIRED ELECTRICAL

GENERATION FACILITY IN EDWARDSPORT, INDIANA

Dated December 15, 2008

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION. Contains confidential information proprietary to Duke Energy Indiana, Inc. and/or Bechtel Power Corporation that may only be used, reproduced, or disclosed outside of such companies pursuant to the terms of that certain confidentiality letter agreement, dated as of June 9, 2008, by and between Duke Energy Indiana, Inc. and Bechtel Power Corporation, as amended, restated or supplemented from time to time.

Table of Contents


			Page
1.	DEFINITIONS		2

2.	GENERAL PROVISIONS		13
	2.1	Intent of Contract Documents	13
	2.2	Independent Contractor	14
	2.3	Subcontracting	14
	2.4	Interpretation	14
	2.5	Inclusion; Conflicts	15
	2.6	Days	15

3.	CONTRACTOR RESPONSIBILITIES		15
	3.1	Performance of Services	15
	3.2	Appointment as Agent	16
	3.3	Scope of Procurement Services	16
	3.4	Scope of Construction Management Services	18
	3.5	Engineering Services	18
	3.6	Development of Project Plans	19
	3.7	Intentionally Omitted	19
	3.8	Facility Manuals; Training	19
	3.9	Periodic Reports and Meetings	19
	3.10	Compliance with Laws	20
	3.11	Owner Office Space	20
	3.12	Emergencies	20
	3.13	Signage	20
	3.14	Acknowledgement of Scope of Services	21
	3.15	Use of Existing Owner Property	21

4.	CONTRACTOR PERSONNEL		21
	4.1	Contractor’s Personnel	21
	4.2	Staffing Plan	22
	4.3	Supervision and Discipline	22
	4.4	Contractor’s Key Personnel	22
	4.5	Drug and Alcohol Testing	23
	4.6	Training of Employees	23
	4.7	Substitution	23
	4.8	Employer Responsibilities	23

5.	BORROWED EMPLOYEES		24
	5.1	Assignment of Borrowed Employees	24
	5.2	Qualifications	24
	5.3	Assigned Job Duties	25
	5.4	Responsibility for Work	25
	5.5	Employer Responsibilities	25
	5.6	Cooperation	26
	5.7	No Third Party Rights	27

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION


6.	PROJECT MANAGEMENT		27
	6.1	Owner’s Representative	27
	6.2	Project Management; Communication and Management Protocol	27
	6.3	Steering Committee	27
	6.4	GE Change Review Board	27
	6.5	Access; Contractor’s Office Space	27
	6.6	Estimate	28

7.	PROJECT SCHEDULE		28
	7.1	Schedule Compliance; Updates	28
	7.2	***	28

8.	COMPENSATION AND PAYMENT		28
	8.1	Contract Price	28
	8.2	***	28
	8.3	***	28
	8.4	Invoicing and Payments	29
	8.5	***	29
	8.6	Final Payment	29
	8.7	Certification by Contractor	30
	8.8	No Acceptance by Payment	30

9.	CHANGE ORDERS		30
	9.1	Change Requests	30
	9.2	Change Proposals	30
	9.3	Change Orders	31
	9.4	Contractor Proposed Changes	31
	9.5	***	32

10.	FORCE MAJEURE		32
	10.1	Event of Force Majeure	32
	10.2	Notice	32
	10.3	Suspension; Termination Due to Force Majeure	32

11.	MECHANICAL COMPLETION; SUBSTANTIAL COMPLETION; FINAL COMPLETION		32
	11.1	Mechanical Completion	32
	11.2	Substantial Completion	33
	11.3	Final Completion	34

12.	WARRANTY		34
	12.1	Warranty	34
	12.2	Defects	35
	12.3	Extension of Warranty Periods	35
	12.4	Intellectual Property Warranties	35
	12.5	Responsibility for Warranty Services	36
	12.6	Exclusive Warranties	36

13.	INDEMNIFICATION		36
	13.1	Contractor’s Indemnity	36

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION


	13.2	Owner’s Indemnity	37
	13.3	Intellectual Property Indemnity	38
	13.4	Indemnity Procedures for Third Party Claims	38
	13.5	Insurance	39

14.	INSURANCE		39
	14.1	***	39
	14.2	***	40
	14.3	***	40
	14.4	***	40
	14.5	Contractor Insurance	41
	14.6	General Requirements	43
	14.7	Contractor Responsibility	44

15.	PROJECT CREDIT SUPPORT		44
	15.1	***	44
	15.2	Cooperation with Owner Financing	44

16.	LIMITATION OF LIABILITY		45
	16.1	Liability Cap	45
	16.2	No Consequential Damages	45

17.	LIENS		45
	17.1	Liens	45
	17.2	Discharge or Bond	45

18.	INTELLECTUAL PROPERTY		46
	18.1	Delivery of Documentation	46
	18.2	Grant of Intellectual Property License	47
	18.3	Grant of Sulfur License	47
	18.4	Limitations	48
	18.5	Other Licenses	48
	18.6	Additional Warranties, Representations and Covenants	48

19.	DEFAULT; TERMINATION AND SUSPENSION		48
	19.1	Contractor Events of Default	48
	19.2	Owner Remedies	49
	19.3	Owner Event of Default	50
	19.4	Contractor Remedies	50
	19.5	Termination Rights	50
	19.6	Termination for Force Majeure	51
	19.7	Suspension	51

20.	Intentionally Omitted.		53

21.	RECORDS AND AUDIT; COOPERATION		53
	21.1	Intentionally Omitted	53
	21.2	Accounting Records	53
	21.3	Audit Rights	53
	21.4	Cooperation	54
	21.5	Sales Tax Records	54

iii

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION


22.	TAXES		55
	22.1	General	55
	22.2	Sales and Use Taxes	55
	22.3	Tax Indemnification	55
	22.4	Cooperation and Assistance	55
	22.5	Tax Protests and Appeals	55
	22.6	Survival	56

23.	DISPUTE RESOLUTION		56
	23.1	Disputes	56
	23.2	Meeting Regarding Dispute	56
	23.3	Initiation of Binding Arbitration and Selection of Arbitrators	56
	23.4	Arbitration Procedures	57
	23.5	Consolidation	57
	23.6	Enforcement	57
	23.7	Fees and Costs	58
	23.8	Interim Relief	58
	23.9	Award	58
	23.10	Confidentiality	58

24.	MISCELLANEOUS PROVISIONS		58
	24.1	Remedies	58
	24.2	Governing Laws	58
	24.3	Entire Agreement	58
	24.4	Successors and Assigns	58
	24.5	No Third Party Beneficiaries	59
	24.6	No Waiver	59
	24.7	Survival	59
	24.8	Severability	59
	24.9	Notices	59
	24.10	Vienna Convention	60
	24.11	Counterparts	60
	24.12	Confidentiality	61
	24.13	Business Practices	61
	24.14	Covenant of Good Faith and Fair Dealing	61

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION

EXHIBITS


Exhibit A		Scope Book

Exhibit B		Communication and Management Protocol

Exhibit C		Material Assignment Schedule

Exhibit D		Site Description

Exhibit E		List of Technical Data

Exhibit F		Staffing Plan and List of Contractor’s Key Management and Construction Personnel

Exhibit G		Baseline Contractor Schedule

Exhibit H		***

Exhibit I		***

Exhibit J		***

Exhibit K		***

Exhibit L		Confidentiality Agreement

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION

ENGINEERING, PROCUREMENT AND

CONSTRUCTION MANAGEMENT AGREEMENT

This ENGINEERING, PROCUREMENT AND CONSTRUCTION MANAGEMENT AGREEMENT (the “ Agreement ”) is entered into as of the 15th day of December, 2008 (the “ Effective Date ”), by and between DUKE ENERGY INDIANA, INC., an Indiana corporation having a place of business in Plainfield, Indiana (“ Owner ”), and BECHTEL POWER CORPORATION, a Nevada corporation with a place of business in Frederick, Maryland (“ Contractor ”). Owner and Contractor may be referred to individually as a “ Party ” and collectively as the “ Parties ”.

RECITALS

WHEREAS , Owner has announced its intent to procure, construct, install and commission a new, nominally rated 630 MW integrated gasification combined cycle coal-fired electrical generation facility (the “ Facility ”) to be located at the Edwardsport Site (as further described in Exhibit D attached hereto, the “ Site ”) in Knox County, Indiana (the “ Project ”);

WHEREAS , Contractor is engaged in the business of designing, engineering, constructing and commissioning power generating facilities;

WHEREAS , the Parties, together with the General Electric Company, acting through its GE Energy business (“ GE ”), have previously entered into (a) that certain Technical Services Agreement, dated as of February 13, 2006, and (b) that certain Technical Services Agreement, dated as of May 7, 2007 (collectively, as amended, the “ Initial TSAs ”), pursuant to which Contractor and GE provided Owner (i) a Front-End Engineering and Design Study (a “ FEED Study ”), which included a feasibility study for the construction of the Facility as well as a Facility design and a basis for determining the price for Contractor and GE to provide the engineering, design, procurement, construction and commissioning of the relevant portions of the Facility, and (ii) certain additional engineering services in support of the Project;

WHEREAS , following review of the FEED Study and the other work products delivered to Owner by Contractor and GE pursuant to the Initial TSAs, the Parties have mutually agreed to modify the scope of services to be provided by Contractor and GE with respect to the Facility and the price structure related thereto;

WHEREAS , as a result of such modification, Owner and GE have entered into an agreement pursuant to which GE will provide certain equipment and engineering services related to the Project;

WHEREAS , as an additional result of such modification, Owner and Contractor have entered into a non-binding Term Sheet, dated as of April 25, 2008 (the “ Term Sheet ”), which provides the basis for negotiations between Contractor and Owner with respect to an agreement whereby Contractor would perform certain engineering, procurement and construction management services in connection with the Project;

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION

WHEREAS , the Parties have entered into a Technical Services Agreement, dated as of June 9, 2008 (the “ Recent TSA ”), pursuant to which Contractor has commenced, on a limited notice to proceed basis, certain of the services described in the Term Sheet on the terms and conditions set forth in the Recent TSA; and

WHEREAS , the Parties now desire that Owner engage Contractor to perform engineering, procurement and construction management services in connection with the Project as set forth herein;

NOW, THEREFORE , in consideration of the recitals, the mutual promises herein and other good and valuable consideration, the receipt and sufficiency of which the Parties acknowledge, the Parties, intending to be legally bound, stipulate and agree as follows:

1.	DEFINITIONS

The following capitalized words and phrases used in this Agreement shall have the following meanings unless otherwise noted:

*** shall mean ***.

“ Affiliate ” shall mean, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with such first Person at such time.

“ Agreement ” shall have the meaning set forth in the first paragraph above and shall include all Exhibits, and all amendments hereto (including, to the extent applicable, Change Orders).

“ Air Permit ” shall mean, collectively, the documents issued by the Indiana Department of Environmental Management, Office of Air Quality, related to and permitting the Significant Source Modification to Part 70 of the existing Operating Permit No. T083-7243-00003 issued to Owner on January 25, 2008.

“ Assigned Job Duties ” shall have the meaning set forth in Section 5.1 .

“B&V” shall have the meaning set forth in Section 21.4(b) .

“ Baseline Contractor Schedule ” shall mean the critical schedule of key dates and milestones for Contractor’s Scope of Services, including the Milestones, as of the Effective Date, as prepared by Owner and Contractor and attached hereto as Exhibit G , as amended from time to time pursuant to Article 9.

“ Borrowed Employees ” shall have the meaning set forth in Section 5.1 .

“ Business Day ” shall mean every Day other than Saturday, Sunday or a legal holiday recognized by the State.

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION

“***” shall have the meaning set forth in Section 8.2 .

*** shall mean ***.

“ Certificate of Final Completion ” shall have the meaning set forth in Section 11.3(e) .

“ Certificate of Mechanical Completion ” shall have the meaning set forth in Section 11.1(e) .

“ Change ” shall have the meaning set forth in Section 9.1 .

“ Change in Law ” shall mean a change to a Law, or a change in the binding interpretation or application of a Law by the cognizant executive or judicial authorities having jurisdiction thereof, after the Effective Date that results in an increase in costs for Contractor to perform the Services, as affected to comply with such change, which increase in costs Contractor would not have incurred but for this Agreement; provided , however , that a “Change in Law” shall not include (a) any change to a Law that is enacted by any Government Authority prior to the Effective Date but, by its terms, does not come into effect until after the Effective Date or (b) any change to any Law, or a change in the binding interpretation or application of a Law by the cognizant executive or judicial authorities having jurisdiction thereof, that governs the manner in which Contractor performs its obligations under this Agreement.

“ Change Order ” shall have the meaning set forth in Section 9.3 .

“ CM ISBL Work ” shall mean that portion of the work, including re-work, in connection with the Project that is “inside the battery limit,” namely the gasification island, power block, flare system and cooling tower, and above the ground and above the finished foundations, including all such work to be performed or provided under the Owner Contracts, as such work is further described in Part I of the Scope Book.

“ Communication and Management Protocol ” shall mean the Communication and Management Protocol to be followed by Owner and Contractor attached hereto as Exhibit B .

“ Competitors of Contractor ” shall mean each of *** and their respective Affiliates (other than any such Affiliate that, before becoming such an Affiliate, was a Permitted User).

“ Confidentiality Agreement ” shall mean that certain confidentiality letter agreement, dated as of June 9, 2008, by and between Owner and Contractor attached hereto as Exhibit L .

“ Construction Management Services ” shall have the meaning set forth in Section 3.4(a) .

“ Construction Phase ” shall have the meaning set forth in Section 18.2 .

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“ Contract Price ” shall mean the sum of (a) the *** and (b) the ***, as such amounts may be adjusted by Change Orders in the manner set forth herein.

“ Contractor ” shall have the meaning set forth in the first paragraph above and shall include its successors and permitted assigns.

“ Contractor Default ” shall have the meaning set forth in Section 19.1 .

“ Contractor Indemnitees ” shall have the meaning set forth in Section 13.2 .

“ Contractor EP Schedule ” shall mean the critical schedule of key dates and milestones relating to the Engineering Services and the Procurement Services to be performed by Contractor hereunder (including the Milestones related thereto) as prepared by Contractor, and as modified or updated from time to time by Contractor in accordance with Section 6.2.2 of Part I of the Scope Book and Section 7.1 herein.

“ Contractor’s Houston Office ” shall mean the office of Contractor located at 3000 Post Oak Road, Houston, Texas 77056.

“ Contractor’s Project Manager ” shall mean the Person whom Contractor designates in Exhibit F to issue and receive communications on Contractor’s behalf under this Agreement.

“ Contractor’s Site Representative ” shall mean the Person whom Contractor designates in Exhibit F to represent Contractor at the Site.

“ Contractor’s Steering Committee Members ” shall mean the two (2) executives of Contractor designated by Contractor to represent Contractor on the Steering Committee.

“ Control ” shall mean (a) the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of a Person, whether through the ownership of voting securities, as a trustee or executor, by contract or credit arrangement, or otherwise, or (b) the ownership, directly or indirectly, of fifty percent (50%) or more of the equity interest in a Person.

“ CPCN ” shall mean the Certificate of Public Convenience and Necessity issued to Owner by the IURC authorizing Owner to begin construction of the Facility.

“ CPR Rules ” shall have the meaning set forth in Section 23.2 .

“ Day ” shall mean a calendar day, including Saturdays, Sundays, and holidays.

“ Defects ” shall have the meaning set forth in Section 12.2 .

“ Design Documentation ” shall have the meaning set forth in Section 3.5 , and in each case excluding any Technical Data.

“ Dispute ” shall have the meaning set forth in Section 23.1 .

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“ Dispute Resolution Meeting ” shall have the meaning set forth in Section 23.2 .

“ Documentation ” shall mean collectively (a) all drawings, specifications, reports, studies, plans, manuals, schedules, analyses, recommendations, estimates and other documents, and the data therein, in printed or electronic format, that are prepared in the performance of the Services and delivered, or required hereunder to be delivered, to Owner, including Design Documentation, and (b) all “Work Product” as defined in the Recent TSA.

“ Effective Date ” shall mean the date set forth in the first paragraph of this Agreement.

“ Engineering Services ” shall have the meaning set forth in Section 3.5 .

“ Environmental, Safety and Health Plan ” shall mean that certain Site Environmental, Safety and Health Plan, which, among other things, addresses unsafe and undesirable behavior for environmental matters (U.S. Environmental Protection Agency and any applicable State agency), health matters (industrial hygiene and employee health hazard prevention/mitigation) and safety matters (including work safety and fitness for duty), for the Project, Rev. 5, as amended, restated or supplemented from time to time.

“ Estimate ” shall mean ***.

“***” shall have the meaning set forth in Section 8.3(a).

“ Facility ” shall have the meaning set forth in the Recitals.

“ FEED Study ” shall have the meaning set forth in the Recitals.

***

“ Final Completion ” shall have the meaning set forth in Section 11.3 .

“ Final Completion Date ” shall mean the date on which Final Completion actually occurs, as determined in the manner set forth in Section 11.3(e) .

“ Final Payment Invoice ” shall have the meaning set forth in Section 8.6 .

“ Financial Institutions ” shall mean any party entering into a loan agreement, guarantee, note, indenture or security agreement with Owner or its Affiliates in relation to the Facility, including arrangements relating to interest rate or currency hedging and arrangements relating to the construction or permanent financing or refinancing of the Facility.

***

“ Force Majeure ” shall mean, with respect to a Party, (i) unanticipated causes beyond its reasonable control (actions of Affiliates and subcontractors of a Party will be deemed to be under the control of that Party); or (ii) acts of God (including fires, earthquakes, floods, hurricanes, tornadoes, earthquakes, lightning, pandemic, epidemics and other natural

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calamities), severe weather conditions, strikes or other labor disturbances except those involving only employees of Contractor (unless they are a part of a national or international strike or other national or international labor disturbance), war (declared or undeclared), or riots, in each case, which actually delays or prevents a Party’s performance hereunder. For the avoidance of doubt, local strikes and other local labor disturbances involving employees of Contractor that are not a part of a regional, national or international strike or other national or international labor disturbance shall not be deemed to be Force Majeure. Force Majeure shall not include inability to pay.

“ GE ” shall have the meaning set forth in the Recitals.

“GE Change Review Board ” shall mean GE’s “Project Manager” under the GE Equipment Contract and Owner’s Project General Manager.

“GE Equipment” shall mean the power generation, gasification island, power island and related equipment to be provided pursuant to the GE Equipment Contract.

“ GE Equipment Contract ” shall mean the Contract for the Sale of Power Generation, Gasification Island and Miscellaneous Power Island Equipment and Related Services, dated as of December 20, 2007, by and between Owner and GE.

“ Government Approvals ” means all permits, licenses, authorizations, consents, decrees, waivers, privileges and approvals from and filings with any Government Authority required for or material to the development, financing, ownership, construction, operation or maintenance of the Facility in accordance with this Agreement, including the CPCN and other work permits, environmental permits, licenses and construction permits.

“ Government Authority ” shall mean any federal, state, county, city, local, municipal, foreign or other government or quasi-governmental authority or any department, agency, subdivision, court or other tribunal of any of the foregoing.

“ Hazardous Materials ” shall mean substances defined as “hazardous substances” pursuant to Section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601(14)); those substances defined, identified or listed as “hazardous waste” pursuant to Section 1004(5) or Section 3001 of the Resource, Conservation and Recovery Act (42 U.S.C. Section 6901 or 6921); those substances designated as a “hazardous substance” pursuant to Section 311 (b)(2)(A) or as a “toxic pollutant” pursuant to Section 307(a)(1) of the Clean Water Act, as amended (33 U.S.C. Section 3121(b)(2)(A) or Section 1317(a)(1)); those substances defined as “hazardous materials” pursuant to Section 103 of the Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 et seq .); those substances regulated as a “chemical substance or mixture” or as an “imminently hazardous chemical substance or mixture” pursuant to Section 6 or 7 of the Toxic Substances Control Act, as amended (15 U.S.C. Sections 2605 or Section 2606); those substances defined as “contaminants” pursuant to Section 1401 of the Safe Drinking Water Act, as amended (42 U.S.C. Sections 300f), if present in excess of permissible levels; those substances regulated pursuant to the Oil Pollution Act of 1990 (33 U.S.C. Sections 2701 et seq .); those substances defined as a “pesticide” pursuant to Section 2(u) of the Federal

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Insecticide, Fungicide, and Rodenticide Act as amended by the Federal Environmental Pesticide Control Act of 1972 and by the Federal Pesticide Act of 1978 (7 U.S.C. Section 136(u)); those substances defined as a “source”, “special nuclear” or “by-product” material pursuant to Section 11 of the Atomic Energy Act of 1954, as amended (42 U.S.C. Section 2014); those substances defined as “residual radioactive material” in Section 101 of the Uranium Mill Tailings Radiation Control Act of 1978, as amended (42 U.S.C. Sections 7901); those substances defined as “toxic materials” or “harmful physical agents” pursuant to Section 6 of the Occupational Safety and Health Act, as amended (29 U.S.C. Section 651); those substances defined as “hazardous air pollutants” pursuant to Section 112(a)(6), or “regulated substance” pursuant to Section 112(r)(2)(B) of the Clean Air Act, as amended (42 U.S.C. Section 7412(a)(6) or Section 7412(r)(2)(B)); those substances listed as “extremely hazardous substances” pursuant to Section 302(a)(2) of the Emergency Planning & Community Right-to-Know Act of 1986 (42 U.S.C. Section 11002(a)(2)); and those other hazardous substances, hazardous wastes, toxic pollutants, hazardous materials, chemical substances or mixtures, imminently hazardous chemical substances or mixtures, contaminants, pesticides, source materials, by-product materials, residual radioactive materials, toxic materials, harmful physical agents, air pollutants, regulated substances, or extremely hazardous substances defined, listed or identified in any regulations promulgated pursuant to any environmental Law, and all other contaminants, toxins, pollutants, hazardous substances, substances, materials and contaminants, toxic and hazardous materials, the use, disposition, possession or control of which is regulated by one or more Laws.

“ HR Issues ” shall have the meaning set forth in Section 5.1 .

“ HR Policies ” shall have the meaning set forth in Section 5.1 .

“ Indemnified Party ” shall mean Owner Indemnitees or Contractor Indemnitees, as applicable.

“ Initial TSAs ” shall have the meaning set forth in the Recitals.

“ IURC ” shall have the meaning set forth in Section 21.4 .

“ Laws ” shall mean, at any date of determination, all statutes, laws, codes, ordinances, orders, judgments, decrees, injunctions, licenses, rules, permits, approvals, agreements, and regulations of any Government Authority, including all applicable codes, standards, rules and regulations of the State, in effect on such date, including all Government Approvals.

“ Lien ” shall mean any lien, mortgage, pledge, encumbrance, charge, security interest, defect in title, or other claim filed or asserted in connection with the Project by or through Contractor, a Subcontractor or any other third party under the control of Contractor (provided that neither the Managed Vendors nor GE shall be construed to be “under the control” of Contractor) or any Subcontractor against the Facility, the Site, the Owner Equipment, the GE Equipment or any other structure or equipment at the Site.

“ License Continuation Fee ” shall have the meaning set forth in Section 19.5(c)(ii) .

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“ Managed Vendors ” shall mean the suppliers of Owner Equipment or Owner Services pursuant to the Owner Contracts.

“ Material Assignment Schedule ” shall mean the Material Assignment Schedule attached hereto as Exhibit C , as amended or supplemented from time to time in accordance with Section 3.3(a) .

“ Mechanical Completion ” shall have the meaning set forth in Section 11.1 .

“ Mechanical Completion Date ” shall mean the date on which Mechanical Completion actually occurs, as determined in the manner set forth in Section 11.1(e) .

“ Milestone ” shall mean an activity or series of activities in the execution of the Services or the CM ISBL Work designated as a “Milestone” on the Baseline Contractor Schedule or the Contractor EP Schedule.

“ Mine Remediation Reports ” shall mean the “Mine Subsidence Evaluation, Edwardsport Power Plant, GAI Project Number: C040605” dated April 2005, and “Final Report, Edwardsport Mine Stabilization, Duke Energy, Edwardsport Generating Station, GAI Project Number: C060638.02” dated April 2008.

“*** Payment Invoice ” shall have the meaning set forth in Section 8.3(a) .

“ Monthly Progress Report ” shall mean the written report Contractor delivers to Owner each month describing the progress in the Services and the CM ISBL Work achieved during the prior month, as provided in Section 3.9(a) .

“ Non-Directed Change ” shall have the meaning set forth in Section 9.1 .

“ Notice of Final Completion ” shall have the meaning set forth in Section 11.3(d) .

“ Notice of Mechanical Completion ” shall have the meaning set forth in Section 11.1(c) .

“ NPDES Permit ” shall mean the documents issued by the Indiana Department of Environmental Management, Office of Water Quality, related to the modification of the existing Edwardsport Generating Station NPDES permit number IN0002780 for the purpose of characterizing and permitting discharge of the integrated gasification combined cycle process and stormwaters via the existing outfall, which documents shall be issued following Owner’s application for such modification (it being understood that Owner shall submit such application after the Effective Date at a time reasonably determined by Owner, in its sole discretion, based upon the critical path activities set forth in the then-current Project Schedule).

“ *** ” shall have the meaning set forth in Section 14.4(a) .

“ *** Administrator ” shall have the meaning set forth in Section 14.6(b) .

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“ *** Site ” shall have the meaning set forth in Section 14.4(c) .

“ Owner ” shall have the meaning set forth in the first paragraph above and shall include its successors and permitted assigns.

“ Owner Contracts ” shall mean the Owner Equipment Contracts and the Owner Service Contracts.

“ Owner Default ” shall have the meaning set forth in Section 19.3 .

“ Owner Equipment ” shall mean the equipment that Owner shall purchase as contemplated by the Material Assignment Schedule and with respect to which Contractor shall provide Procurement Services as generally described in Part I of the Scope Book and in the Material Assignment Schedule.

“ Owner Equipment Contracts ” shall mean the contracts, purchase orders, limited notices to proceed or other agreements between Owner and the suppliers of Owner Equipment.

“ Owner Indemnitees ” shall have the meaning set forth in Section 13.1 .

“ Owner Items ” shall mean the Owner Equipment and other materials, supplies, parts and equipment used or to be used by any Managed Vendor in connection with the CM ISBL Work.

“ Owner Service Contracts ” shall mean the contracts, purchase orders, limited notices to proceed or other agreements between Owner and the suppliers of Owner Services.

“ Owner Services ” shall mean the services that Owner shall procure and with respect to which Contractor shall provide Construction Management Services as described in Part I of the Scope Book and as indicated in the Material Assignment Schedule.

“ Owner Suppliers ” shall mean the vendors, suppliers, construction contractors and others providing Procurement Items to Owner in respect of the Facility.

“ Owner’s Plainfield Office ” shall mean the office of Owner located at 1000 East Main Street, Plainfield, Indiana 46168.

“ Owner’s Project General Manager ” shall mean the Person whom Owner designates in writing to issue and receive communications on Owner’s behalf under this Agreement.

“ Party ” shall have the meaning set forth in the first paragraph.

“ Permitted User ” shall mean any independent contractor engaged by Owner or any of its Affiliates that (a) is under a confidentiality obligation to Owner or such Affiliate and (b) agrees to use the Documentation only for the purposes for which such independent contractor

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was engaged by Owner or such Affiliate (which purposes may not be broader than the Permitted Purposes).

“ Permitted Purposes ” shall have the meaning set forth in Section 18.2 .

“ Person ” shall mean any individual, company, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, estate, unincorporated organization, Government Authority or other entity having legal capacity.

“ Prime Interest Rate ” shall mean, as of a particular date, the prime rate of interest as published on that date in The Wall Street Journal , and generally defined therein as “the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks.” If The Wall Street Journal is not published on a date for which the interest rate must be determined, the prime interest rate shall be the prime rate published in The Wall Street Journal on the nearest-preceding date on which The Wall Street Journal was published. If The Wall Street Journal discontinues publishing a prime rate, the prime interest rate shall be the prime rate announced publicly from time to time by Bank of America, N.A. or its successor.

“ Procurement Items ” shall have the meaning set forth in Section 3.3(a) .

“ Procurement Services ” shall have the meaning set forth in Section 3.3(a) .

“ Progress Meetings ” shall have the meaning set forth in Section 3.9(b) .

“ Project ” shall have the meaning set forth in the Recitals.

“ Project Job Rules and Regulations ” shall mean those certain Project Job Rules and Regulations Rev. dated July 22, 2008, as amended, restated or supplemented from time to time.

“ Project Schedule ” shall mean the critical schedule of key dates and milestones for the Project as prepared by Owner and as modified or updated from time to time by Owner.

“ Prudent Industry Practice ” shall mean those practices, methods, processes and standards of safety and performance, as the same may change from time to time, as are commonly used, or are generally accepted, in the engineering, procurement or construction management, in the case of Contractor, or construction, operation and maintenance, in the case of Owner, of electric power generation facilities with a complexity at a level similar to the Facility (irrespective of whether any such similar facility is intended to capture carbon dioxide), which in the exercise of reasonable judgment and in light of the facts known at the time the decision was made, after due and diligent inquiry, are considered good, safe and prudent practices, methods, processes and standards in accordance with generally accepted standards of professional care, skill, diligence, and competence applicable to the engineering, procurement and construction management, in the case of Contractor, or construction, operation and maintenance, in the case of Owner, practices in the United States for electric power generation facilities with a complexity at a level similar to the Facility (irrespective of whether any such similar facility is intended to capture carbon dioxide). “Prudent Industry

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Practice” does not necessarily mean a practice that would achieve an optimal solution or minimal solution, or any method or standard in all cases.

“ Punch List Items ” shall mean any minor defects identified by Owner or Contractor during installation and commissioning (and upon which the Parties shall mutually agree) that do not affect the safety, reliability, operability or the mechanical integrity of the Facility or the ability of Owner to operate the Facility in accordance with Prudent Industry Practices.

“ Quality Assurance Plan ” shall mean that certain Duke Energy Edwardsport IGCC Project Integrated Quality Plan, which comprises all those planned and systematic actions necessary or prudent to provide adequate confidence that a structure, system or component will perform satisfactorily in service and includes management and control of the design, engineering, and construction services for the Project, Rev. dated October 21, 2008, as amended, restated or supplemented from time to time.

“ *** ” shall have the meaning set forth in Exhibit J .

“ Recent TSA ” shall have the meaning set forth in the Recitals.

***

“ Sales and Use Taxes ” shall mean all present and future sales, use and similar Taxes imposed on the sale of any materials from Contractor to Owner, if any, or the performance of the Services by Contractor by the State or any other Government Authority.

“ Scope Book ” shall mean the Scope Book attached hereto as Exhibit A .

“ Scope of Services ” shall mean the scope of Services to be performed by Contractor as described in Part I of the Scope Book. Contractor’s Scope of Services shall not include any of the services, equipment, materials or other work required to be provided by Owner as described in Part I of the Scope Book.

***

“ Screening Measures ” shall have the meaning set forth in Section 5.1 .

“ SDS ” shall have the meaning set forth in Section 3.10 .

“ Services ” shall mean the engineering, procurement, construction management and related services and other obligations to be performed or complied with by Contractor hereunder, including those services and other obligations to be performed or complied with by Contractor as described in Part I of the Scope Book, the Material Assignment Schedule or the Communication and Management Protocol, and the repair and warranty work relating thereto, and shall include all of the foregoing items that were performed prior to the Effective Date pursuant to the Recent TSA; provided , however, that the Services shall not include any Shared Services.

“Shared Services” shall have the meaning set forth in Section 3.1(b) .

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“ Site ” shall have the meaning set forth in the Recitals as further described in Exhibit D and shall include any additional property that Owner purchases, leases or otherwise has an ownership interest in and that is used for the Project.

“ Site Control and Access Plan ” shall mean (a) the Time and Attendance Procedure, Document Number 25441-100-GPP-GCP-01012, Rev. 0 dated September 15, 2008, as amended, restated or supplemented from time to time and (b) any other Site Project Procedures, which, among other things, address the safe, efficient and proper prosecution of the Project at the Site, security at the Site, custody and control of equipment, materials and supplies at the Site and right of access and entrance to the Site by all Persons.

“ Site Project Procedures ” shall have the meaning set forth in Part I of the Scope Book.

“ Staffing Plan ” shall mean the summary project organization chart reflecting the overall organization and supervision of the Persons employed or managed by Contractor to provide the Services, attached hereto as Exhibit F .

“***” shall have the meaning set forth in Section 15.1 .

“ State ” shall mean the State of Indiana.

“ Steering Committee ” shall have the meaning set forth in Section 6.3 .

“ Subcontractor ” shall mean a Person, including any vendor, materialman or supplier, who has a contract (whether written or oral, a purchase order or otherwise) with Contractor or a contract with any Person hired by Contractor or with a Person of any lower tier (e.g., a second- or third-tier subcontractor) to perform any of the Services, at the Site or elsewhere.

“ Substantial Completion ” shall have the meaning set forth in Section 11.2 .

“ Substantial Completion Date ” shall mean the date on which Substantial Completion actually occurs.

“ Sulfur Intellectual Property Rights ” shall mean any and all existing and future patent rights, trademark rights, copyright rights, trade secret rights, know how rights and other rights owned by or licensed to Contractor relating to processes or apparatus for the conversion of hydrogen sulfide to sulfur in an environmentally acceptable manner, including Claus sulfur recovery, hydrogenating tail gas treating, and thermal oxidizing.

“Sulfur Jointly Developed Improvements” shall mean any and all improvements, modifications, variations, additions, deletions, or other changes of any kind or nature, which are useful for or in connection with Claus sulfur recovery, hydrogenation tail gas treating and thermal oxidizing, which are developed or acquired jointly by Owner and Contractor during the term of this Agreement and which are based in whole or in part on the Sulfur Intellectual Property Rights.

“ Sulfur License ” shall have the meaning set forth in Section 18.3 .

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“Sulfur Licensee Improvements” shall mean any and all improvements, modifications, variations, additions, deletions or other changes of any kind or nature which are useful for or in connection with Claus sulfur recovery, hydrogenation tail gas treating and thermal oxidizing, which are based in whole or in part on the Sulfur Intellectual Property Rights and which are developed by Owner during the term of this Agreement and which are not at the time known to Contractor, or known in the public domain.

“ Sulfur License Royalty ” shall have the meaning set forth in Section 18.3 .

***

“ Taxes ” shall mean all present and future license, documentation, recording and registration fees, all taxes (including income, gross receipts, unincorporated business income, payroll, sales, use, personal property (tangible and intangible), real estate, excise and stamp taxes), levies, imports, duties, assessments, fees, charges and withholdings of any nature whatsoever, and all penalties, fines, additions to tax, and interest imposed by any Government Authority. Taxes shall also include Sales and Use Taxes and all present and future customs, duties or levies or other import or export fees, including any charges imposed by North American Free Trade Association (NAFTA).

“ Technical Data ” shall mean the calculations identified in Exhibit E attached hereto.

“ Term Sheet ” shall have the meaning set forth in the Recitals.

“ Termination Charges ” shall have the meaning set forth in Section 19.5(c)(i) .

“ Third Party Claim ” shall mean any claim, demand or cause of action of every kind and character by any Person other than Owner, Contractor or their respective Affiliates.

“ Warranties ” shall have the meaning set forth in Section 12.1 .

“ Warranty Period ” shall mean the period commencing on the Substantial Completion Date and ending on the date that is the earlier of (a) *** and (b) ***, as such period may be extended from time to time as provided in Section 12.3 .

2.	GENERAL PROVISIONS

2.1 Intent of Contract Documents . It is the intent of the Parties that Contractor perform the Services and all of its other obligations under this Agreement for the Contract Price, which shall not be increased, except in accordance with Article 9 or as otherwise expressly set forth herein.

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2.2 Independent Contractor . Contractor shall perform and execute the provisions of this Agreement as an independent contractor to Owner and shall not in any respect be deemed or act, or hold itself out, as an agent of Owner for any purpose or reason whatsoever, except as contemplated in Sections 3.2 , 3.3 and 3.4 .

2.3 Subcontracting . Contractor shall not engage any Person, excluding Persons related to or affiliated with Contractor and functioning in the offices specifically identified in Exhibit I , to perform any portion of the Services without the prior written consent of Owner, which consent shall not be unreasonably withheld. In any event, Contractor shall ensure that it shall have the right to grant the intellectual property licenses to Owner, its Affiliates and Permitted Users herein irrespective of the performance by any Subcontractor of any Services. No contractual relationship shall exist between Owner and any Subcontractor with respect to the Services. Contractor shall be fully responsible for all acts, omissions, failures and faults of all Subcontractors as fully as if they were the acts, omissions, failures and faults of Contractor.

2.4 Interpretation .

(a) Headings . The titles and headings in this Agreement are inserted for convenience only and shall not be used for the purposes of construing or interpreting this Agreement.

(b) Plural/Singular . Words importing the singular also include the plural and vice versa.

(c) References . References to natural persons include Persons. References to “Articles” and “Sections” are references to Articles and Sections of this Agreement. References to “Exhibits” are references to the Exhibits attached to this Agreement, including all attachments to and documents and information incorporated therein, and all Exhibits are incorporated into this Agreement by reference.

(d) Gender . Words importing one gender include the other gender.

(e) Without Limitation . The words “include” and “including” are not words of limitation and shall be deemed to be followed by the words “without limitation.”

(f) Amendments . All references in this Agreement to contracts, agreements or other documents shall be deemed to mean those contracts, agreements or documents as the same may be modified, supplemented or amended from time to time.

(g) Industry Meanings . Words and abbreviations not otherwise defined in this Agreement which have well-known technical or design, engineering or construction industry meanings in the United States are used in this Agreement in accordance with those recognized meanings.

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(h) Agreement . Provisions including the word “agree”, “agreed” or “agreement” require the agreement to be recorded in writing.

(i) Approve . Provisions including the word “approve”, “approved” or “approval” require the approval to be recorded in writing.

(j) Written . Provisions including the word “written” or “in writing” mean hand-written, type-written, printed or electronically made and resulting in a permanent record.

(k) Drafting . Neither Contractor nor Owner shall assert or claim a presumption disfavoring the other by virtue of the fact that this Agreement was drafted primarily by legal counsel for the other, and this Agreement shall be construed as if drafted jointly by Owner and Contractor and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

2.5 Inclusion; Conflicts . This Agreement (excluding the Exhibits) and the Exhibits shall be considered complementary, and what is required by one shall be binding as if required by all. The Parties shall attempt to give effect to all provisions. The failure to list a requirement specifically in one document or section of a document, once that requirement is specifically listed in another document or section, shall not imply the inapplicability of that requirement, and Contractor shall provide as part of its obligations hereunder all items required to conform the Services to the requirements of this Agreement. Any provision addressing any issue with specificity shall not be construed to limit any provision addressing the same or similar issue in general. In the event of a conflict between this Agreement (excluding the Exhibits) and the Exhibits, this Agreement (excluding the Exhibits) shall control and the conflicting provisions shall be interpreted so as to accord with the provisions of this Agreement (excluding the Exhibits).

2.6 Days . If a payment obligation falls due on a Day other than a Business Day, the obligation shall be deemed to be due on the next Business Day.

3.	CONTRACTOR RESPONSIBILITIES

3.1 Performance of Services .

(a) Generally . Contractor shall diligently, duly and properly perform and complete the Services and its other obligations in accordance with this Agreement, applicable Laws and Prudent Industry Practices, and shall obtain and maintain all Government Approvals necessary or prudent for the proper execution and completion of the Services. Contractor shall perform and provide all services not specifically delineated in this Agreement to the extent customary and necessary to complete the Services in accordance with Prudent Industry Practices. Contractor shall perform and provide the Services in a manner that will not disrupt or interfere with Owner’s operation of its existing coal-fired electric generation plant adjacent to the Site.

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(b) Shared Services . The Parties acknowledge and agree that they have established a shared services team comprised of personnel from each Party as more particularly described in the Communication and Management Protocol, which team is intended to provide support for work on the entirety of the Project, including the Services to be provided by Contractor hereunder, as described in the Communication and Management Protocol, in order to reduce costs for the Project (the “ Shared Services ”). Owner shall be responsible for directing and supervising the Shared Services team and in the performance of the work allocated to the Shared Services team. The personnel of Contractor on the Shared Services team, without regard to the type of work to be performed by such personnel or the portion of the Project for which such work relates, shall at all times be Borrowed Employees as contemplated by Article 5 . The Parties acknowledge and agree that this Shared Services team shall be available to Owner for work relating to any portion of the entire Project, including work outside of the CM ISBL Work. In performing the services with respect to any type of work allocated to the Shared Services team as indicated in the Staffing Plan or Communication and Management Protocol, Contractor shall use only personnel from this Shared Services team. The Parties agree to provide good faith, prompt and courteous coordination and collaboration, and to assist the other Party, at its request, in such other activities, as may be reasonably required for the successful and timely completion of work to be performed by the Shared Services team.

3.2 Appointment as Agent . Subject to the defined limits of authority set forth in this Section, Owner hereby authorizes Contractor to, and Contractor hereby agrees to, act as Owner’s agent for the purpose of performing the Procurement Services and the Construction Management Services. Contractor shall have no authority to, and shall not, take any of the following actions in connection with the Procurement Services or the Construction Management Services (without Owner’s general or specific approval): (1) make awards, (2) approve invoices, (3) consent to any change order under any Owner Contract or the GE Equipment Contract; (4) agree to or permit any amendment, modification, or supplement of any Owner Contract or the GE Equipment Contract; (5) waive or prejudice any of Owner’s rights with respect to any Owner Contract or the GE Equipment Contract, as applicable, or the obligations of the Managed Vendors or GE, respectively, relating thereto; (6) initiate or conduct any litigation, arbitration or other similar proceedings on behalf of Owner; (7) take any action that would cause a default or breach by Owner of an Owner Contract or the GE Equipment Contract; or (8) agree to or consent to termination or suspension of work or activities under any Owner Contract or the GE Equipment Contract.

3.3 Scope of Procurement Services .

(a) Subject to Section 3.2 , Contractor shall perform procurement Services for services, equipment (including spare parts related thereto), materials and supplies (collectively, the “ Procurement Items ”), as such Services are further described in this Section and in Part I of the Scope Book (the “ Procurement Services ”). The Parties acknowledge and agree that the Material Assignment Schedule contains a preliminary schedule of Procurement Items required for the Project for which Contractor shall provide Procurement Services, that Contractor is

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not obligated hereunder to provide Procurement Services with respect to all services, equipment (including spare parts related thereto), materials and supplies required for the Project and that the amount or type of Procurement Items required for the Project for which Contractor shall provide Procurement Services may be changed by Owner from time to time. Accordingly, Owner may, from time to time, propose changes to the Material Assignment Schedule to change the amount or type of Procurement Items required for the Project for which Contractor shall perform Procurement Services, and the Parties shall proceed with respect to such proposed change in accordance with the terms and conditions set forth in Article 9 . Contractor shall perform the Procurement Services, as a Reimbursable Cost, with respect to any additions to the Material Assignment Schedule in accordance with the terms of this Agreement.

(b) Contractor shall, in connection with the provision of Procurement Services, provide the advice and recommendations to Owner as described in Part I of the Scope Book based on the actions that Contractor would take if Contractor were directly responsible to Owner as the prime contractor for the applicable Procurement Items. Each contract, purchase order or other agreement executed or entered into pursuant to this Section 3.3 shall be executed by Owner, and each such contract, purchase order or other agreement shall be an Owner Contract for all purposes hereunder. In connection with the Procurement Services to be provided hereunder, the Parties shall mutually develop a process to integrate Owner’s purchasing system with Contractor’s purchasing system in order to coordinate the management of materials purchased for the Facility and the payments made or due to Owner Suppliers. Nothing contained herein shall create any contractual relationship between Contractor, on the one hand, and GE or any Managed Vendor, on the other hand, and Contractor shall have no liability (including any payment liability) to GE or any Managed Vendor with respect to goods or services provided by any of them pursuant to the GE Equipment Contract or the Owner Contracts, as applicable.

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3.4 Scope of Construction Management Services .

(a) Subject to Section 3.2 , Contractor shall generally manage, supervise and coordinate all CM ISBL Work as contemplated herein and as further described in Part I of the Scope Book and the Communication and Management Protocol (the “ Construction Management Services ”). Contractor shall perform the Construction Management Services in a manner designed to achieve Mechanical Completion, Substantial Completion and Final Completion by their respective dates set forth in the Project Schedule. Contractor shall perform the Construction Management Services in a manner designed to achieve completion of the CM ISBL Work in compliance with the Scope Book, Design Documentation, Project Schedule and the other terms and conditions set forth herein. Contractor shall diligently perform the Construction Management Services in accordance with Prudent Industry Practices and the other terms and conditions of this Agreement. In performing the Construction Management Services hereunder, Contractor and Owner understand that Contractor is acting in a construction management role and does not assume the liabilities and obligations of a prime contractor with respect to the responsibilities assumed by the Managed Vendors or GE, unless the same or similar obligations are specifically set forth herein.

(b) Without limiting the generality of Section 3.4(a) , but subject to Section 3.2 , in performing the Construction Management Services, Contractor shall, for the benefit of Owner and with the same diligence and care and pursuant to the same standards as Contractor uses on any other electric generating power plant construction project in the United States with a similar level of complexity where Contractor is acting as the contractor for such project (but not less than the diligence, care and standards required by this Agreement), require each Managed Vendor to perform all elements of its work to be performed by such Person in compliance with the terms of the Owner Contract for such Managed Vendor and manage the Owner Contracts in a manner designed to achieve the Project Schedule. Owner shall provide Contractor with the relevant portions of each Owner Contract in order for Contractor to perform the Construction Management Services with respect thereto.

3.5 Engineering Services . Contractor shall diligently, duly and properly perform and complete engineering Services, including providing working drawings, designs and specifications (the “ Design Documentation ”) setting forth in detail the design of, and the requirements and procedures for the construction or testing for, that portion of the Project for which Contractor is responsible for the design, as more fully described in Part I of the Scope Book (collectively, the “ Engineering Services ”). Contractor hereby acknowledges that the Design Documentation shall form the basis for work performed by other contractors, subcontractors, Managed Vendors or Owner Suppliers in respect of the Facility and that any review or approval by Owner of any Design Documentation shall not relieve Contractor from any obligation or responsibility under this Agreement.

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3.6 Development of Project Plans .

(a) Site Control and Access Plan . Contractor shall comply with, implement and enforce the Site Control and Access Plan as set forth in the Scope Book. For the avoidance of doubt, Owner shall have the ultimate authority with respect to the contents of the Site Control and Access Plan and may update the Site Control and Access Plan from time to time.

(b) Environmental, Safety and Health Plan . Contractor shall comply with, implement and enforce the Environmental, Safety and Health Plan as set forth in the Scope Book. For the avoidance of doubt, Owner shall have the ultimate authority with respect to the contents of the Environmental, Safety and Health Plan and may update the Environmental, Safety and Health Plan from time to time.

(c) Quality Assurance Plan . Contractor shall comply with, implement and enforce the Quality Assurance Plan as set forth in the Scope Book. For the avoidance of doubt, Owner shall have the ultimate authority with respect to the contents of the Quality Assurance Plan and may update the Quality Assurance Plan from time to time.

3.7 Intentionally Omitted .

3.8 Facility Manuals; Training . In connection with the Construction Management Services, Contractor shall review and assist Owner in collecting the manuals prepared by Managed Vendors in the manner set forth in Part I of the Scope Book.

3.9 Periodic Reports and Meetings .

(a) Status Report . Within *** Days after the end of each calendar month, Contractor shall prepare and submit to Owner a written status report covering the previous calendar month, which report shall be prepared in a manner and format (hard copy and electronic) reasonably acceptable to Owner and shall include the information required to be included in such status report as described in Section 6.3 of Part I of the Scope Book (the “ Monthly Progress Report ”). In addition, Contractor shall prepare and deliver to Owner such engineering, procurement, material handling, cost, schedule, manpower, quality, safety, resource or other project reports relating to the Project as described in Section 6.6 of Part I of the Scope Book and at the frequency set forth therein.

(b) Progress Meetings . From the Effective Date until the Final Completion Date, Contractor shall attend and participate in regular meetings with Owner which shall occur monthly (or upon such other interval as the Parties agree in writing) for the purpose of discussing the status of the Services and the CM ISBL Work and anticipating and resolving any problems (“ Progress Meetings ”). The Progress Meetings may also include, at the request of Owner, Managed Vendors, GE, Owner Suppliers, the Financial Institutions, Subcontractors, consultants and other Persons. Contractor shall prepare and promptly deliver to Owner written

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minutes of each meeting; provided , that the publication or distribution of such minutes shall not constitute a permitted basis for providing notice, or otherwise asserting claims, under this Agreement by any Party. No implication whatsoever shall be drawn as a consequence of a failure by any Party to comment on or object to any minutes prepared or distributed by Contractor. Unless otherwise mutually agreed, Contractor’s Project Manager shall attend all Progress Meetings after Contractor mobilizes to the Site. *** In addition to the above monthly Progress Meetings and unless excused by Owner, Contractor and Owner shall hold regularly scheduled (but not less frequently than weekly during construction) status or scheduling meetings as requested by Owner.

3.10 Compliance with Laws . Contractor shall perform all Services in conformance with applicable Law. Notwithstanding anything to the contrary contained herein, Contractor shall not be required to take any action or perform any Services hereunder that would result in the violation of any applicable Laws, including U.S. anti-boycott Laws, and applicable Laws pertaining to export control and sanctions. If not otherwise exempted by Title 48 and to the extent applicable, Contractor shall adopt and utilize a subcontracting plan that complies with 48 C.F.R. 52-219-9 for Small Diverse Suppliers (“ SDS ”). Contractor shall: (i) use all commercially reasonable efforts to utilize SDS (and Large Diverse Suppliers); and (ii) provide Owner a quarterly status report in a format reasonably acceptable to Owner. Contractor shall enter such report on Owner’s website at www.duke-energy.com/suppliers/supplier-diversity.asp. Owner, its designated auditors and any applicable Government Authority shall have the right of access during normal business hours to inspect Contractor’s records related to the Project as they relate to SDS and compliance with this Section.

3.11 Owner Office Space . Contractor shall provide Owner with five offices and six cubicles in Contractor’s Houston Office and two cubicles in Contractor’s office located in Frederick, Maryland and such additional space as reasonably requested by Owner. *** To the extent any additional office space is requested by Owner and there are issues with respect to the scope of such request or availability of office space, the Parties will discuss the allocation of such office space and/or invoicing for such office space.

3.12 Emergencies . In the event of any emergency endangering life or property, Contractor shall take, or direct any Persons under Contractor’s control to take, all actions as may be reasonable and necessary to prevent, avoid or mitigate injury, damage or loss and shall immediately report each such emergency, and Contractor’s responses thereto, to Owner’s Project General Manager and shall provide Owner a written report of such emergency, and Contractor’s responses thereto, within twenty-four (24) hours after the occurrence of such emergency.

3.13 Signage . Neither Contractor nor its Subcontractors shall display, install, erect or maintain any advertising or other signage at the Site without Owner’s prior written approval, other than signs and notices required by applicable Laws, related safety or work rules, Site identification, or used to solicit employees for the performance of the Services.

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3.14 Acknowledgement of Scope of Services . Contractor and Owner hereby acknowledge that the Services are only a portion of the work required for the completion of the entire Project and that the successful and timely completion of the Project in accordance with the Project Schedule will require the good faith, prompt and courteous coordination and collaboration among many contractors, subcontractors and other Persons, including Contractor, Managed Vendors, GE, Owner Suppliers, Owner and Owner’s other contractors. Contractor agrees to provide such good faith, prompt and courteous coordination and collaboration on its own behalf and to assist Owner, upon request, in such other activities as may be required for the successful and timely completion of the Project, including assistance in obtaining any Governmental Approvals necessary for the operation, maintenance, use and ownership of the Facility. Owner shall use reasonable efforts to require Owner’s other contractors to coordinate, collaborate and cooperate with Contractor in a manner designed to achieve and maintain a schedule and sequence that will accommodate the interest of all parties so as not to unreasonably disrupt and interfere with their respective work.

3.15 Use of Existing Owner Property . Circumstances may arise where Contractor requests Owner to make available to Contractor certain of Owner’s equipment or facilities for the performance of Contractor’s Services the use of which is not provided for in this Agreement. Upon such request, Owner shall use commercially reasonable efforts to provide Contractor with the use of such equipment or facilities; provided, that the use of such equipment or facilities shall not unreasonably disrupt or interfere with the work of other contractors, subcontractors and other Persons, including Managed Vendors, GE, Owner Suppliers, Owner and Owner’s other contractors. Contractor shall be responsible for reasonably inspecting such equipment to assure itself of the safety of such equipment before use and shall return such equipment to Owner in the condition which it was received, except for reasonable wear and tear. Contractor shall inspect such equipment before Contractor’s use and upon its return to Owner. Upon return, Owner may also inspect such equipment to substantiate whether or not any part of the equipment used by Contractor has been damaged in any way as a result of its use by Contractor. If Owner is required to expend amounts (a) to repair any uninsured damage to its equipment or (b) to pay any deductible required to be paid for any insured damage, in each case, resulting from Contractor’s use of such equipment or facilities (ordinary wear and tear excepted), ***.

4.	CONTRACTOR PERSONNEL

4.1 Contractor’s Personnel . Contractor shall comply in all respects with all applicable labor, employment and immigration Laws that may impact Contractor’s Services under this Agreement, including the Immigration Reform and Control Act of 1986 and Form I-9 requirements. Without limiting the generality of the foregoing, Contractor shall perform all required employment eligibility and verification checks and maintain all required employment records for its employees that will be performing Services and Shared Services and for all Borrowed Employees provided by Contractor. Contractor acknowledges and agrees that it is responsible for conducting adequate screening of its employees and agents prior to assigning any such Person to perform any Service. By providing an employee or agent under this Agreement, Contractor warrants and represents that it has completed the Screening Measures (as defined in Section 5.1 below) with respect to such Person and that such Screening Measures did not reveal any information that adversely affects such Person’s

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suitability for assignment by Contractor to perform the Service. Owner, in its sole discretion, shall have the option of barring from the Site any person whom Owner determines is not fit or qualified to perform the Service, or who violates applicable requirements hereunder. In all circumstances, Contractor shall ensure that the substance and manner of any and all Screening Measures performed by Contractor pursuant to this Section conform fully to applicable Law. Contractor shall advise and instruct the Persons assigned to the Site by Contractor to comply with all applicable office and field rules, regulations and safety procedures. At all times, a person assigned by Contractor to perform Services shall remain an employee of Contractor.

4.2 Staffing Plan . Contractor shall implement and maintain the Staffing Plan in connection with the provision of the Services. Owner may incorporate changes to the Contractor staffing scope in the Staffing Plan with the consent of Contractor (such consent not to be unreasonably withheld). Owner shall have the right to make any other changes to such organization chart in its sole discretion. Contractor shall employ a sufficient number of qualified Persons, who shall be licensed if required by applicable Laws, so that Contractor may complete the Services and Contractor’s other obligations under this Agreement in an efficient, prompt, economical and professional manner in accordance with the Staffing Plan and the Project Schedule.

4.3 Supervision and Discipline . Contractor shall supervise, coordinate and direct the Services in accordance with Prudent Industry Practices. Contractor shall enforce discipline and good order among all Persons carrying out the Services and shall use commercially reasonable efforts to enforce discipline and good order among all Persons performing CM ISBL Work at the Site, in each case in accordance with the Project Job Rules and Regulations. Contractor shall at all times take all necessary precautions to prevent any unlawful, unsafe or disorderly conduct by or among Persons performing the Services. Contractor shall only permit the employment of Persons who are fit on each Day they perform the Services and who are qualified and skilled in the tasks assigned to them. Contractor shall retain responsibility for the performance, conduct and compliance of each of its employees and agents assigned to perform the Services at the Site. Owner shall have the right to bar from the Site any Person. Upon request of Owner in its discretion, Contractor shall immediately remove those Persons to whom Owner objects from the Site and shall not allow the further performance of the Services by those Persons (if any such Person is a “key personnel” as described in Section 4.4 , such discretion exercised by Owner must be reasonable). In addition, in the event that Contractor learns of any such misconduct, incompetence or negligence independent of Owner’s objection, Contractor shall remove such Persons from the Site, shall not allow any further performance of the Services by such Persons and shall promptly notify Owner of such misconduct, incompetence or negligence and the actions taken by Contractor as a result thereof.

4.4 Contractor’s Key Personnel . Exhibit F contains a list of the name and title of each of Contractor’s key personnel who shall be responsible for the performance of Contractor’s obligations under this Agreement. The key personnel set forth on Exhibit F includes a designation of Contractor’s Project Manager and Contractor’s Site Representative. Replacement of any of the key personnel listed in Exhibit F , other than due to death, termination in employment or a leave of absence permitted as required by applicable Law, shall be subject to the prior written approval of Owner, which approval Owner shall not

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unreasonably withhold, and any replacement must be qualified for the applicable position as mutually agreed between the Parties (such Owner acknowledgement of qualifications not to be unreasonably withheld). Contractor shall remove and replace any such key personnel at Owner’s reasonable discretion. Contractor’s Project Manager shall act as Contractor’s liaison with Owner and shall have the authority (a) to administer this Agreement on behalf of Contractor, (b) to perform the responsibilities of Contractor under this Agreement, and (c) to bind Contractor as to the day-to-day project management operations under the Agreement, in each case, subject to the terms and conditions set forth in the Communication and Management Protocol. Contractor’s Site Representative or other Contractor supervisory personnel shall be present at the Site at all times when the Services or CM ISBL Work are being performed at the Site.

4.5 Drug and Alcohol Testing . Neither Contractor nor its Subcontractors shall in any way use, possess, or be under the influence of illegal drugs or controlled substances or consume or be under the influence of alcoholic beverages during the performance of the Services. Any person (whether employed or retained by Contractor or any Subcontractor or otherwise) under the influence, or in possession of, alcohol, any illegal drug, or any controlled substance, will be removed from the Site in accordance with the Environmental, Safety and Health Plan and, subject to Owner’s fitness for duty program requirements, shall be prevented from performing any future Services at the Site or elsewhere related to the Project. Upon request, and to the extent permitted by applicable Law, Contractor will furnish Owner copies of the records of employee drug and alcohol test results required to be kept by applicable Law. Contractor will indemnify and hold harmless Owner from any and all liability for any claims made by a Contractor or Subcontractor employee resulting from removal from the Site by Contractor or by Owner in the event of an emergency or other exigent circumstances as provided in this Article.

4.6 Training of Employees . Contractor represents that all Contractor and Subcontractor personnel have received all necessary training required to perform the Services in accordance with applicable Laws.

4.7 Substitution . Subject to Section 4.4 , Contractor reserves the right to change any of its personnel performing Services. In such event, Contractor shall provide replacement personnel meeting the requisite qualifications of the position to be filled and who have substantially similar capabilities.

4.8 Employer Responsibilities . For so long as any Person is assigned by a Party to perform Services at the Site, the Party assigning the Person and such Person shall act as an independent contractor and not as an agent or employee of the other Party. Neither Party intends to create a co-employment relationship for the Persons working at the Site. Each Party shall comply, at its expense, with all applicable provisions of workers’ compensation Laws, unemployment compensation Laws, federal social securities Laws, the Fair Labor Standards Act and all other applicable federal, state and local Laws relating to terms and conditions of employment required to be fulfilled by employers with respect to any of its own employees.

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5.	BORROWED EMPLOYEES

5.1 Assignment of Borrowed Employees . Each of Contractor and Owner shall assign certain of its employees (the “ Borrowed Employees ”) to the other Party to perform certain job duties required for completion of the entire Project, including the job duties identified as Shared Services in the Staffing Plan and the Communication and Management Protocol and the job duties necessary to complete portions of the CM ISBL Work (collectively, the “ Assigned Job Duties ”). By assigning a Borrowed Employee, each Party represents that it has completed the Screening Measures (as defined below) with respect to such Borrowed Employee and that such Screening Measures did not reveal any information that adversely affects such Borrowed Employee’s suitability for employment by such Party. As used in this Section, the term “ Screening Measures ” means, with respect to either Party, such screening and eligibility measures as required by such Party’s generally applicable human resources policies and procedures (the “ HR Policies ”) and applicable Law. Each Party shall maintain all records with respect to each of its Borrowed Employees as required of an employer by applicable Law. At all times that a person is serving as a Borrowed Employee, such Borrowed Employee shall remain an employee of the Party supplying such Borrowed Employee subject to all of its HR Policies. Promptly after execution of this Agreement, each Party shall designate in writing a liaison to be responsible for addressing performance, conduct, and compliance issues (“ HR Issues ”) relating to the Borrowed Employees. Each Party may change its designated liaison from time to time upon ten (10) Days prior written notice to the other Party.

5.2 Qualifications . Each Party shall provide curriculum vitae for each person such Party proposes to be a Borrowed Employee, which curriculum vitae shall include a description of the role of such person in his or her recent projects. Each Party shall permit the other Party the opportunity to interview each such person. Each Party covenants that its Borrowed Employees shall have such credentials represented in writing by it to the other Party. Contractor shall reassign any such Borrowed Employee to a project other than the Project at Owner’s request exercised in its reasonable discretion. Contractor shall not cease providing Owner with the services of any of its Borrowed Employees without the prior written approval of Owner, provided that Contractor may cease providing Owner with the services of a Borrowed Employee without the prior approval of the Owner (a) if such Borrowed Employee dies, resigns, transfers in accordance with the HR Policies, goes on leave of absence in accordance with the HR Policies (in which case Contractor shall provide Owner notice of all relevant dates regarding such leave of absence), or is terminated for cause, as defined in the HR Policies, (b) if such Borrowed Employee is not expected (by Owner) to perform any services in connection with, or otherwise relating to, the start-up of the Facility (including any scheduling or planning), upon the Mechanical Completion Date or such later date upon which the Parties may mutually agree or (c) if such Borrowed Employee is expected (by Owner) to perform services in connection with, or otherwise relating to, the start-up of the Facility (including any scheduling or planning), upon the Final Completion Date. If Contractor ceases to provide a Borrowed Employee as permitted herein, Contractor shall promptly replace such Borrowed Employee with another Borrowed Employee meeting the requirements hereof. Owner may reassign any of its Borrowed Employees.

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5.3 Assigned Job Duties . Each Party shall determine the procedures to be followed by the Borrowed Employees assigned to such Party with respect to their Assigned Job Duties; provided, however, that such Party shall not direct such Borrowed Employees to perform any duties other than the Assigned Job Duties or to perform the Assigned Job Duties in a manner that would violate any of the other Party’s HR Policies known to such Party. Each Party represents to the other Party that nothing in its HR Policies prevent any of its Borrowed Employees from performing his or her Assigned Job Duties. The Borrowed Employees assigned to each Party shall be advised by such Party of, and the assigning Party shall instruct such Borrowed Employees to comply with, all applicable office and field rules, regulations and safety procedures. To the extent permitted by applicable Law, each Party assigning Borrowed Employees shall provide the other Party with such information pertaining to such Borrowed Employees in connection with rendering the Assigned Job Duties as the other Party may request and which is reasonably necessary to the other Party’s direction and oversight of such Borrowed Employees and the performance of the Assigned Job Duties. Each Party shall require each of its Borrowed Employees to obtain and maintain all licenses (including professional engineering licenses) and work permits, if any, required in connection with his or her performance of the Assigned Job Duties.

5.4 Responsibility for Work . Each Party shall be solely responsible for the effectiveness or technical, economic or environmental feasibility of any method, technique, or process implemented by such Party or third parties resulting from any Borrowed Employee furnished to it under this Section. Accordingly, neither Party assigning Borrowed Employees shall have any liability to the other Party for loss or damage arising out of or resulting from the performance by such Borrowed Employees of the Assigned Job Duties, including loss of or damage to property of the other Party, and the other Party hereby releases and agrees to indemnify, hold harmless and defend the Party assigning Borrowed Employees and each such Borrowed Employee from and against any and all claims, demands, losses, damages, costs, liabilities and expenses (including reasonable attorneys’ fees) for injuries to persons (including death) and for damage to property, including property of the other Party or others, arising out of the performance by such Borrowed Employee of his or her Assigned Job Duties, provided that such Borrowed Employee had the credentials represented in writing by the Party assigning Borrowed Employees to the other Party.

5.5 Employer Responsibilities . For so long as any person serves as a Borrowed Employee, the Party assigning such Borrowed Employee and such Borrowed Employee shall act as an independent contractor and not as an agent or employee of the other Party. Neither Party intends to create a co-employment relationship for the Borrowed Employees. Each Party shall comply, at its expense, with all applicable provisions of workers’ compensation Laws, unemployment compensation Laws, federal social security Law, the Fair Labor Standards Act, and all other applicable federal, state, and local Laws relating to terms and conditions of employment required to be fulfilled by employers with respect to any of its Borrowed Employee. Without limiting the generality of the foregoing and for so long as any person serves as a Borrowed Employee of a Party, such Party shall:

(a) pay such Borrowed Employee at such compensation levels (including any overtime pay, if applicable), and provide employee benefits, as it provided such

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person prior to becoming a Borrowed Employee, subject to periodic reviews and adjustments in the ordinary course of business;

(b) make wage payments to such Borrowed Employee through its payroll systems and on the same basis as such compensation is provided to any of its other employees;

(c) make all applicable payroll withholding deductions for such Borrowed Employee, including Federal and State income tax, social security, unemployment and disability insurance (if applicable), and promptly remit such withholding deductions and taxes due to all taxing authorities;

(d) provide each such Borrowed Employee, on the same basis as its other employees, with access to an electronic pay stub each pay day and a W-2 form at the end of each year during which such person is a Borrowed Employee;

(e) inform such Borrowed Employee of changes in benefits in the same manner such information is provided to its other employees and enable such Borrowed Employee to enroll in new benefit programs;

(f) have sole responsibility for administering all of its retirement plan(s), health and welfare plan(s) and all other non-statutory employee benefit plans and programs for which such Borrowed Employee is eligible to participate; and

(g) maintain workers’ compensation insurance and keep such insurance in full force and effect at all times with respect to such Borrowed Employee and in compliance with applicable Law.

For the avoidance of doubt, the Parties acknowledge and agree that no Borrowed Employee shall be considered an employee of the Party to whom such Borrowed Employee is assigned for any purposes, including HR Issues, discipline, termination, retirement benefits, workers’ compensation or employer’s liability insurance, all of which shall remain the responsibility of the Party assigning such Borrowed Employee. Each Party assigning a Borrowed Employee hereby releases and agrees to indemnify, hold harmless and defend the other Party from and against any and all claims, demands, losses, damages, costs, liabilities and expenses (including reasonable attorneys’ fees) arising out of the failure of the assigning Party to comply with its obligations in this Section 5.5 . Each Party shall maintain payroll and other wage, benefit and tax records related to its Borrowed Employees in accordance with generally accepted accounting practices and all applicable Laws. Upon written request of each Party and to the extent permitted by applicable Law, the other Party shall make available to the requesting Party its records relating to the other Party’s obligations in this Section 5.5 and its compliance with such obligations, and shall provide such certificates and copies of such receipts or vouchers, as the requesting Party may reasonably require to assure itself that the other Party has complied with its obligations in this Section 5.5 .

5.6 Cooperation . Each Party will reasonably cooperate with the other Party in the defense of any and all claims, including litigation and administrative claims, against such

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other Party brought by any Borrowed Employee, unless and then only to the extent that the Parties have an actual conflict of interest with respect to such matter. Such cooperation may include providing the other Party with access to claim information, facilities, witnesses and other information and documents as reasonably requested.

5.7 No Third Party Rights . No provision of this Agreement shall create any third party rights in any Borrowed Employee (including any beneficiary or dependent thereof).

6.	PROJECT MANAGEMENT

6.1 Owner’s Representative . Owner shall appoint Owner’s Project General Manager with whom Contractor may consult at all reasonable times, and whose instructions, requests and decisions shall be binding upon Owner as to all matters pertaining to this Agreement and the performance of the Parties under this Agreement; provided , that no amendment or modification of this Agreement shall be effected except by an Amendment, and no Change shall be effected except as provided in Article 9 .

6.2 Project Management; Communication and Management Protocol . The Parties hereby acknowledge and agree that Owner shall have the right and authority to direct all matters relating to the Project, subject, with respect to the CM ISBL Work, to the Communication and Management Protocol. Without limiting the generality of the foregoing, Contractor’s Project Manager shall report to Owner’s Project General Manager. The Parties shall interface, communicate, coordinate and collaborate with one another in the manner set forth in the Communication and Management Protocol in order to achieve the successful and timely completion of the Project.

6.3 Steering Committee . The Parties shall establish a steering committee (the “ Steering Committee ”) consisting of Contractor’s Steering Committee Members and two (2) executives designated by Owner. The purpose of the Steering Committee shall be to provide guidance with respect to the Project and to ensure efficient project management in accordance with the terms and conditions set forth herein. The members of the Steering Committee shall meet at least once each calendar quarter (and at such other times reasonably requested by Owner) at such times and locations as Owner shall reasonably request for the purpose of discussing the status of the Project and resolving any existing or potential problems or issues with respect to the Project. At the request of Owner, executives from GE may also participate in such Steering Committee.

6.4 GE Change Review Board . At the request of Owner, Contractor’s Project Manager shall participate in any meetings of the GE Change Review Board to discuss the impact to the Project of any changes in the “Process Design Package” supplied by GE or the scope of the GE Equipment Contract, including the means to ameliorate any such impact.

6.5 Access; Contractor’s Office Space . From the Effective Date until the Substantial Completion Date, Owner shall provide Contractor unrestricted right of access to such portion of the Site as Contractor may reasonably require to perform the Services at the Site and for Contractor’s office space and employee parking. Owner (and its representatives)

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shall at all times have access to the Site. Owner shall provide Contractor with office space at the Site as described in Part I of the Scope Book.

6.6 Estimate . Upon request of Owner, Contractor shall assist Owner in preparing a budget for the Project, in detail reasonably satisfactory to Owner, based upon the information contained in the Estimate. At the request of Owner from time to time, Contractor shall temporarily relocate one of its employees to Owner’s Plainfield Office with a hard copy and an accessible, electronic copy of the Estimate. Such relocated employee shall remain at Owner’s Plainfield Office for the length of time requested by Owner; provided, that such employee shall not be required to remain at Owner’s Plainfield Office beyond the Final Completion Date. Alternatively, at the request of Owner from time to time, Contractor shall send an employee to Owner’s Plainfield Office with a hard copy and an accessible, electronic copy of the Estimate. Owner shall bear all *** incurred by Contractor in relocating such employee or sending such employee to Owner’s Plainfield Office. Contractor shall make available to Owner at Contractor’s Houston Office and at the Site, during normal business hours upon Owner’s request from time to time, a hard copy and an accessible, electronic copy of the Estimate for Owner’s review and inspection.

7.	PROJECT SCHEDULE

7.1 Schedule Compliance; Updates . Contractor shall perform its obligations under this Agreement and shall direct the Managed Vendors to perform work in relation to the CM ISBL Work in a manner designed to comply with the Project Schedule. Contractor shall (a) provide the Contractor EP Schedule to Owner for uploading into the Project Schedule and the Contractor EP Schedule shall be updated from time to time and (b) cooperate with Owner and participate in developing and updating the Project Schedule, including, without limitation, assisting Owner in collecting the information obtained from Managed Vendors that Owner will use to update the Project Schedule, in each case, in the manner set forth in Section 6 of Part I of the Scope Book and in the Communication and Management Protocol. For the avoidance of doubt, this Section 7.1 shall not limit the Construction Management Services, including Contractor’s obligation to coordinate the activities of Managed Vendors.

7.2 ***

8.	COMPENSATION AND PAYMENT

8.1 Contract Price . In consideration of the performance by Contractor of the Services and its other obligations hereunder, Owner shall pay to Contractor the Contract Price in accordance with the terms and conditions set forth herein.

8.2 ***

8.3 ***

(a)

***

(i)

***

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(ii)

***

(iii)

***

(iv)

***

(b)

***

8.4 Invoicing and Payments .

(a) If any *** is deficient, Contractor shall be required to resubmit that *** in proper form; provided , however , that Owner shall pay any portion of it that is not deficient or subject to dispute. Owner shall review each *** and shall endeavor to make exceptions, if any, by providing Contractor with written notice by the earlier of (i) such date the *** is paid by Owner or (ii) *** Days after Owner receives the *** and such substantiating documentation and materials as Owner may have reasonably required. Notwithstanding anything in this Article to the contrary, the failure of Owner to raise an exception shall not preclude Owner from subsequently seeking, and Contractor from paying, a refund of any amounts to which Contractor was not entitled under this Agreement, and Owner may, by any payment pursuant to Section 8.4(b) below, make any correction or modification that should properly be made to any amount previously considered due.

(b) Owner shall pay Contractor, within *** Days of receipt of the *** and such substantiating documentation and materials as Owner may have reasonably required, in U.S. dollars, the undisputed amounts designated in such ***, plus any additions and less any deductions which may have become due under this Agreement, as reflected in the ***. Any amount of a *** that Owner disputes shall be resolved promptly in accordance with Article 23 ; provided , that, if the amount in dispute equals or exceeds ***, the Parties shall initiate the dispute resolution procedures set forth in Article 23 within *** Days following the determination of the existence of a dispute. Once the dispute is resolved, Owner or Contractor, as applicable, shall pay any amount owing promptly after the date of the final resolution. If for any reason Owner fails to pay Contractor for all sums due and owing (other than sums that are the subject of a good faith dispute or permitted to be withheld pursuant to this Section 8.4(b) ) within *** Days after receipt of a substantiated *** Payment Invoice which complies with the requirements of this Article, interest shall thereafter accrue on such sums due and owing at the *** until paid.

8.5 ***

(a)

***

(b)

***

8.6 Final Payment . Following achievement of Final Completion, Contractor shall submit to Owner an invoice for the final payment and other payments due under this

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Agreement (the “ Final Payment Invoice ”) which shall contain *** (d) a determination of all other remaining amounts due to it pursuant to this Agreement and (e) all supporting documentation reasonably requested by Owner. When submitting the Final Payment Invoice, Contractor shall submit a written discharge, in form and substance reasonably satisfactory to Owner, confirming that the total of the applicable Final Payment Invoice represents full and final settlement of all monies due to Contractor under this Agreement. The procedures set forth in Section 8.4 (including application of interest for late payments) shall be followed for payment of the applicable Final Payment Invoice, and Owner shall be entitled to offset against any *** or Final Payment Invoice any amounts owing by Contractor to Owner under this Agreement.

8.7 Certification by Contractor . In each *** and in the Final Payment Invoice, Contractor shall certify as follows:

“There are no known Liens that are outstanding at the date of this invoice and arose by or through Contractor, any Subcontractor or any Person claiming through Contractor or any Subcontractor for which Contractor has not provided a bond or other assurance of payment; all amounts that are due and payable to any third party (including Subcontractors) with respect to the Services as of the date of this invoice have been paid or are included in the amount requested in this invoice, and, except for those bills not paid but so included and amounts disputed between Owner and Contractor, there is no known basis for a Lien to be filed. Contractor hereby waives and releases, to the extent of the receipt of payment requested in this invoice, any right to any Lien with respect to payment for such portion of the Services included in this invoice.”

8.8 No Acceptance by Payment . Owner’s payment of any invoice, including a Final Payment Invoice, does not constitute approval or acceptance of any item or cost in that invoice nor shall be construed to relieve Contractor of any of its obligations under this Agreement.

9.	CHANGE ORDERS

9.1 Change Requests . Without invalidating this Agreement, Owner may require Contractor to perform hereunder services not included in the Services, remove services included in the Services or revise services included in the Services (each, a “ Change ”); provided, that, without the consent of Contractor (such consent not to be unreasonably withheld), Owner may not direct a Change that requires Contractor to perform services (a) *** (b) *** or (c) *** (each, a “ Non-Directed Change ”).

9.2 Change Proposals . If Owner desires to make a Change, it shall submit a written proposal to Contractor describing the Change requested. Contractor shall promptly review Owner’s proposal and submit to Owner a good faith estimate of the cost to develop a Change Order for such Change, such development costs to be determined on a *** basis. If the estimated costs to develop the Change Order are reasonably acceptable to Owner, Owner shall promptly provide notice thereof to Contractor in writing. Upon receipt of such notice,

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Contractor’s Project Manager shall promptly notify Owner in writing, as soon as practicable, either by giving reasons why Contractor, either directly or indirectly through a Subcontractor, could not effect such Change (if this is the case) or by submitting the proposed contents for a Change Order, which shall include in reasonable detail:

(a) the effect and impact, if any, that the Change would have, in Contractor’s reasonable judgment, on the Services, the ***, the Baseline Contractor Schedule, any warranties herein and the operation or maintenance of the Facility,

(b) Contractor’s proposal for any necessary modifications to Services, the ***, the Baseline Contractor Schedule or any warranties herein, and

(c) Contractor’s proposal for any necessary modifications to any other provisions of this Agreement, including the Scope Book and the Communication and Management Protocol.

Contractor shall provide Owner such supporting documentation for the foregoing as Owner may reasonably request. Owner shall, as soon as practicable after receipt of such submittal and supporting documentation, respond with any comments or questions. Contractor shall not delay any Services while awaiting a response. If Owner responds with comments or questions, Contractor shall endeavor to address such comments or answer such questions as soon as practicable. If Owner decides not to proceed with a Change (other than a Change requested by Contractor pursuant to Section 9.4 but not required to be made by this Agreement), it shall pay Contractor *** incurred in developing the estimates and other information regarding the potential Change.

9.3 Change Orders . If Owner wishes to proceed with the Change, Owner shall issue a written order to Contractor authorizing the Change and setting forth any revisions to this Agreement necessary to effect the Change (the “ Change Order ”). If Contractor refuses to accept such necessary revisions in the Change Order, Contractor shall provide Owner written notice thereof within *** Days of its receipt of the Change Order, describing in reasonable detail its objections to the Change Order. Owner shall be entitled, despite such notice from Contractor, to require Contractor to continue to perform its obligations hereunder as would be modified by the Change Order, provided that, if Owner requires Contractor to so perform and Contractor has provided Owner timely notice objecting to such Change Order, (a) the Parties shall resolve the Dispute over the necessary revisions in accordance with the dispute resolution procedures set forth in Article 23 and (b) if the Change requires additional Services, Owner shall continue to pay Contractor *** incurred in performing the Services ordered in the Change Order in accordance with Article 8 , subject to resolution of the Dispute pursuant to Article 23 . For the avoidance of doubt, Owner may issue a Change Order in order to effect a Change prior to completion of the process described in Section 9.2 and, if the Parties dispute whether any instructions by Owner constitute a Change or are permitted by the terms of this Agreement without the necessity of a Change, Contractor shall comply with such instructions, but shall be entitled to reserve its right to dispute that a Change has occurred.

9.4 Contractor Proposed Changes . Contractor shall have the right to request a Change (in which event it shall provide Owner the information required by Section 9.2 ) but

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shall have no right to require a Change that is not required by this Agreement without the prior written consent of Owner. If Contractor determines that a Change is required by this Agreement, Contractor shall give Owner written notice within *** Days thereof.

9.5 ***

10.	FORCE MAJEURE

10.1 Event of Force Majeure . The performance by Owner or Contractor under this Agreement shall be excused to the extent that such Party’s performance is actually delayed or prevented by reason of an event of Force Majeure. If a Party is or will be reasonably prevented from performing its obligations under this Agreement by an event of Force Majeure, such Party shall use all commercially reasonable efforts to remove the cause affecting such non-performance, to minimize any delay in or impact upon the performance of this Agreement or any damage to or other impact upon the Owner Equipment or the GE Equipment and contain costs and expenses arising from such Force Majeure event or its effects; provided, that Owner shall have the right to direct the efforts to be expended by Contractor in removing the cause affecting such non-performance and minimizing the impact thereof.

10.2 Notice . If a Party is or will be reasonably prevented from performing its obligations under this Agreement by an event of Force Majeure, then it shall notify the other Party of the obligations, the performance of which is or will be prevented, and the nature and cause of the event in writing upon the earlier of (a) *** Days after the notifying Party or its Project Manager becomes aware, through the exercise of reasonable diligence, of the event of Force Majeure and (b) *** Days after the event of Force Majeure. The Party affected by an event of Force Majeure shall provide the other Party with weekly updates (i) estimating its expected duration, the cost of any remedial action, and the probable impact on the performance of its obligations hereunder, (ii) of the actions taken to remove or overcome the event of Force Majeure and (iii) of the efforts taken to mitigate or limit damages to the other Party. The Party affected by an event of Force Majeure shall also provide written notice to the other Party when it ceases to be so affected.

10.3 Suspension; Termination Due to Force Majeure . If any event of Force Majeure claimed by Contractor or Owner delays Contractor’s performance of substantially all of the Services for an aggregate time period greater than *** consecutive Days, then either Party shall have the right to terminate this Agreement without liability upon *** Days prior written notice to the other Party.

11.	MECHANICAL COMPLETION; SUBSTANTIAL COMPLETION; FINAL COMPLETION

11.1 Mechanical Completion . “ Mechanical Completion ” shall mean that the following conditions have been satisfied:

(a) All materials, equipment and systems (other than any Punch List Items) related to the safe start-up and testing of the Facility (excluding any

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permanent improvements on the Site not to be performed, provided, construction managed or administered by Contractor as part of the Services) shall have been constructed and installed in accordance with the applicable Owner Contract and applicable Laws, and in a manner that does not void any warranties, and all such systems shall have been checked for alignment, lubrication, rotation and hydrostatic and pneumatic pressure integrity as required;

(b) The Owner Equipment and the GE Equipment (excluding the air separation unit), respectively, shall be ready to turn over to Owner for start-up pursuant to the applicable Owner Contract;

(c) Contractor shall have delivered to Owner all Documentation that Contractor is required to deliver to Owner pursuant to the Contractor EP Schedule and the Project Schedule, by the Mechanical Completion Date;

(d) Contractor shall have delivered to Owner the turnover packages (the required contents of which shall be determined by Owner) for each system as signed by Contractor and a certificate certifying that, to Contractor’s knowledge, all of the preceding conditions in this Section 11.1 have been satisfied (the “ Notice of Mechanical Completion ”); and

(e) Within five (5) Days of receipt of the Notice of Mechanical Completion by Owner, Owner shall inspect the Facility related to Contractor’s Scope of Services and, following such inspection, Owner shall either: (i) deliver to Contractor a written acceptance of Contractor’s Notice of Mechanical Completion (the “ Certificate of Mechanical Completion ”) or (ii) notify Contractor in writing that it disputes Contractor’s certification that the conditions for Mechanical Completion have been met, stating with specificity the reasons therefor. If Owner issues the Certificate of Mechanical Completion, the date of Owner’s issuance of the Certificate of Mechanical Completion shall be deemed the Mechanical Completion Date. If Owner notifies Contractor that it disputes satisfaction of the conditions for Mechanical Completion, then Contractor shall either promptly undertake such action or Services as is necessary to meet such conditions and issue another Notice of Mechanical Completion to Owner upon completion thereof or refer the matter to dispute resolution in accordance with Article 23 . In the event Contractor prevails in the Dispute, the fifth (5 ^th ) Day following the date of Owner’s receipt of the then applicable Notice of Mechanical Completion will be deemed the Mechanical Completion Date.

11.2 Substantial Completion . “ Substantial Completion ” shall mean that the following conditions have been satisfied:

(a) Mechanical Completion shall have been achieved; and

(b) “Substantial Completion” (as defined in the GE Equipment Contract) shall have occurred. Owner shall notify Contractor in writing within ten (10) Days

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of achievement of “Substantial Completion” under the terms of the GE Equipment Contract.

11.3 Final Completion . “ Final Completion ” shall mean that the following conditions have been satisfied:

(a) Substantial Completion shall have been achieved;

(b) Contractor shall have completed the performance of the Services according to all of the provisions of this Agreement, other than items that cannot be completed until after Final Completion (e.g., warranty work);

(c) Contractor shall have delivered to Owner the Documentation that Contractor is required to deliver to Owner pursuant hereto by the Final Completion Date;

(d) Contractor shall have delivered to Owner a certificate signed by Contractor certifying that the conditions set forth in the preceding clauses (b) and (c) in this Section 11.3 have been satisfied (the “ Notice of Final Completion ”); and

(e) Within five (5) Business Days of receipt of the Notice of Final Completion by Owner, Owner shall inspect the Facility related to Contractor’s Scope of Services and, following such inspection, Owner shall either: (i) deliver to Contractor a written acceptance of Contractor’s Notice of Final Completion (the “Certificate of Final Completion” ), or (ii) notify Contractor in writing that it disputes Contractor’s certification that the conditions for Final Completion have been met, stating with specificity the reasons therefor. If Owner issues the Certificate of Final Completion, the date of Owner’s receipt of the Notice of Final Completion will be deemed the Final Completion Date. If Owner notifies Contractor that it disputes satisfaction of the conditions for Final Completion, then Contractor shall either promptly undertake such action or Services as necessary to meet such conditions and issue another Notice of Final Completion to Owner upon completion thereof or refer the matter to dispute resolution in accordance with Article 23 . In the event Contractor prevails in the Dispute, the date of Owner’s receipt of the then applicable Notice of Final Completion shall be deemed the Final Completion Date.

12.

WARRANTY

12.1 Warranty . Contractor warrants as follows (collectively, the “ Warranties ”):

(a) all Services will be performed in a prompt, professional and workmanlike manner in accordance with Prudent Industry Practices, will conform to the requirements of this Agreement, will be free from defects and will reflect competent professional knowledge and judgment;

(b) the design Services will be free from errors and omissions; and

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(c) the Engineering Services (i) will be consistent with the data supplied to Contractor by Owner for integration of Owner’s scope of work for the Facility with the remainder of the Facility, (ii) will be consistent with the process design package documents delivered to Owner pursuant to the GE Equipment Contract, as such documents are described in Attachments R-01 through R-08 to Exhibit R of the GE Equipment Contract (as such documents are amended, restated, supplemented or revised in accordance with the GE Equipment Contract) and Attachments R-09 and R-10 to Exhibit R of the GE Equipment Contract (as such documents are amended, restated, supplemented or revised by Contractor and Owner, respectively), in each case provided to Contractor in accordance with the Communication and Management Protocol and applicable Site Project Procedures, (iii) will not cause the Facility to fail to meet the minimum performance guarantees as provided by Owner to Contractor from time to time, (iv) will not cause the Facility to fail to meet the requirements of the Air Permit or NPDES Permit for the Project or any applicable Laws, in each case, as applicable to the Scope of Services, (v) will be consistent with any design criteria provided by any Managed Vendor or Owner Supplier and (vi) will be consistent with the Scope Book and the Mine Remediation Reports.

12.2 Defects . If any deviation from, breach of, or failure of the Warranties (a “ Defect ”) is discovered by Owner or Contractor, Contractor shall commence, within a timely manner upon such Defect being discovered or upon notice of such Defect from Owner (which notice shall be delivered promptly but in any event no later than thirty (30) days from discovery), to correct, and diligently and continually prosecute measures which are reasonably calculated to correct, such Defect, including re-performance or re-provision of any affected portion of the Services, and shall demonstrate to Owner’s reasonable satisfaction that such Defect has been properly corrected. The Parties shall use commercially reasonable efforts to coordinate performance of warranty Services at a time responsive to and consistent with Owner’s interest in the efficient operation of its business. *** Contractor shall not be entitled to *** in correcting any Defect during the Warranty Period. Owner shall provide Contractor with reasonable support and access at the Site, facilities, data and information as may be necessary for Contractor to correct Defects; provided, that any such access shall be restricted, and subject to such conditions, as Owner may have instituted generally for its contractors. In no event shall Contractor’s warranty obligations include any obligation to perform or to be liable for the costs of any remedial construction rework, repair or replacement of components, parts, equipment or material.

12.3 Extension of Warranty Periods . If a Defect is discovered prior to or within the Warranty Period, then the Warranty Period shall be extended to the *** of the date such Defect was corrected if such *** is later than the last Day of the then existing Warranty Period, but only with respect to the Service that was the subject of such Defect. In no event, however, shall Contractor’s obligations under Section 12.1 , including any rewarranty, extend beyond the earlier to occur of (i) *** after Substantial Completion and (ii) *** after achievement of Mechanical Completion.

12.4 Intellectual Property Warranties . Contactor warrants that: (a) the Services, (b) Documentation (other than any Technical Data), (c) Owner’s or any Permitted User’s authorized implementation of processes described in the Documentation (other than any

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Technical Data), (d) Owner’s or any Permitted User’s authorized construction or operation of the Facility as described in the Documentation (other than any Technical Data), (e) Owner’s or any Permitted User’s practice or exercise of the Sulfur Intellectual Property Rights, and (f) Owner’s or any Permitted User’s authorized use of data contained in the Documentation (other than any Technical Data) shall not infringe or constitute a misappropriation of any right of any third party, including any copyrights, mask work rights, patent rights, trademark rights, trade secret rights or confidentiality rights of any third party. Contractor warrants that it has the right to grant the licenses purported to be granted by it herein. The foregoing warranties shall not apply with respect to Owner’s exercise of any intellectual property rights owned by GE (and not owned by Contractor) or any modification to the Documentation made by Owner or its Permitted Users, unless such modification was authorized in writing by Contractor. In the event Owner terminates the Agreement pursuant to Section 19.5(b) and Owner fails to pay the License Continuation Fee identified in Section 19.5(c)(ii) , then the warranty obligations contained in Sections 12.4(b) , (c) , (d) and (f) shall immediately cease and terminate.

12.5 Responsibility for Warranty Services . Contractor shall have primary liability with respect to the warranties specified in Sections 12.1 and 12.4 , whether or not any Defect or other matter is also covered by a warranty of a Subcontractor, and Owner need only look to Contractor to correct such Defect. In addition, Contractor’s warranties shall not be restricted in any manner by any warranty of a Subcontractor, and the refusal of a Subcontractor to provide or honor a warranty or to correct defective, deficient or nonconforming Services shall not excuse Contractor from its liability on its warranties to Owner. Contractor shall have no liability for fabrication errors or violations of an Owner Services Contract or an Owner Equipment Contract or other defect in items supplied or work performed by Owner Suppliers unless such items or work were prepared or performed in accordance with the Design Documentation provided by Contractor or otherwise at the direction of Contractor, in which case Contractor’s liability shall be limited to the re-performance of the applicable Services that are the cause of such error, violation or defect.

12.6 Exclusive Warranties . THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES, WHETHER STATUTORY, EXPRESS, OR IMPLIED (INCLUDING ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES ARISING FROM COURSE OF DEALING OR USAGE OF TRADE). Correction of Defects in the manner and within the period of time provided herein shall constitute complete fulfillment of all the liabilities of Contractor with respect to such Defect, whether the claims by Owner are based in contract, in tort (including negligence and strict liability), or otherwise.

13.	INDEMNIFICATION

13.1 Contractor’s Indemnity . Contractor shall indemnify and hold harmless Owner, its parents and Affiliates, and their respective partners, shareholders, members, agents, employees, officers, directors, and lenders and Financial Institutions (collectively, the “ Owner Indemnitees ”) from and against:

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(a) any and all Third Party Claims and all damages, liabilities, losses, costs and expenses associated therewith (including reasonable attorneys’ fees and other professionals’ fees) for any injury of or death to persons, damage to or destruction of third party property (other than the Facility), whether contractual, in tort, or as a matter of strict liability or liability imposed by Law, to the extent any of the foregoing arise out of the negligence or willful misconduct of Contractor;

(b) any fines or penalties arising out of any violation or alleged violation of Laws by Contractor; and

(c) any and all claims, demands or causes of action of every kind and character by any Person and all damages, liabilities, losses, costs and expenses associated therewith (including reasonable attorneys’ fees and other professionals’ fees) for improper management of Hazardous Materials brought onto or generated (other than normal operational by-products) on the Site by Contractor and, with respect to any Hazardous Materials brought onto the Site in containers, any release of such Hazardous Materials caused by Contractor.

In no event shall Contractor’s indemnification obligations hereunder extend to bodily injury or property damage claims brought by employees of Managed Vendors, or any of Owner’s other contractors, and their respective lower-tier subcontractors. Owner agrees that it shall use commercially reasonable efforts to cause all indemnity, release, additional insured and hold-harmless agreements contained in Owner Contracts whereby the Managed Vendors agree to indemnify, release or hold harmless Owner or name Owner as an additional insured to extend similar protection to Contractor. Contractor’s liability under Section 13.1(c) shall terminate *** after the expiration of the Warranty Period.

13.2 Owner’s Indemnity . Owner shall indemnify and hold harmless Contractor, its parents and Affiliates and their respective partners, shareholders, members, agents, employees, officers, directors, and lenders (collectively, the “ Contractor Indemnitees ”) from and against:

(b) any fines or penalties arising out of any violation or alleged violation of Laws by Owner; and

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(i) any pre-existing environmental conditions existing at the Site and any damages or claims resulting from Hazardous Materials brought onto or generated on the Site by any party other than Contractor, as well as any normal operational by-products; or

(ii) any mine remediation work or mine subsidence performed by or on behalf of Owner; provided , that Owner’s indemnity obligations under this Section shall not extend to any failure of Contractor to address or incorporate information specifically stated in the Mine Remediation Reports.

13.3 Intellectual Property Indemnity . Contractor shall defend, indemnify and hold harmless Owner Indemnitees from and against all liabilities, actions, damages, claims, demands requests, judgments, losses, costs, expenses, suits or actions, including reasonable attorneys’ fees and court costs for allegations that the Services, Documentation (other than any Technical Data), Owner’s or any Permitted User’s authorized implementation of processes described in the Documentation (other than any Technical Data), Owner’s or any Permitted User’s practice or exercise of the Sulfur Intellectual Property Rights, Owner’s or any Permitted User’s authorized construction or operation of the Facility as described in the Documentation (other than any Technical Data), or Owner’s or any Permitted User’s authorized use of data contained in the Documentation (other than any Technical Data) infringe any intellectual or proprietary right of any third party, including any copyrights, patent rights, trademark rights, trade secret rights or confidentiality rights of any third party. The foregoing obligations shall not apply with respect to infringements caused solely by Owner’s exercise of any intellectual property rights owned by GE (and not owned by Contractor) or any modification to the Documentation made by Owner or its Permitted Users, unless such modification was authorized in writing by Contractor. In the event Owner terminates the Agreement pursuant to Section 19.5(b) and Owner fails to pay the License Continuation Fee identified in Section 19.5(c)(ii) , then the indemnity obligations contained in this Section 13.3 shall (i) only apply to the actions or activities (including, without limitation, the use of any Documentation) of the Owner Indemnitees taken prior to the expiration of the license granted pursuant to Section 18.2 and (ii) survive for a period of *** from the date of such termination or expiration.

13.4 Indemnity Procedures for Third Party Claims .

(a) In the event of a Third Party Claim with respect to which an Indemnified Party has a claim for indemnification under this Article, then the Indemnified Party must notify the indemnifying Party thereof in writing of the existence of such Third Party Claim and must deliver copies of any documents served on the Indemnified Party with respect to such Third Party Claim; provided , however , that any failure to notify the indemnifying Party or deliver such copies will not relieve the indemnifying Party from any obligation hereunder unless (and then solely to the extent that) the indemnifying Party is materially prejudiced by such failure.

(b) The indemnifying Party shall have the obligation to conduct and control, through counsel of its own choosing, reasonably acceptable to the

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Indemnified Party, any Third Party Claim; provided , however , that (i) the Indemnified Party may, at its election, participate in the defense thereof at its sole cost and expense and (ii) if (A) the indemnifying Party shall fail to defend any Third Party Claim, (B) the Parties mutually agree in writing to allow the Indemnified Party to assume the defense of such Third Party Claim and forego any indemnity claimed under this Article, (C) in the reasonable opinion of legal counsel for the Indemnified Party, such Third Party Claim involves the potential imposition of criminal liability on the Indemnified Party, its directors, officers, employees or agents, (D) in the reasonable opinion of legal counsel for the Indemnified Party, the Third Party Claim involves, or is likely to involve, any claim by any Government Authority or (E) in the reasonable opinion of legal counsel for the Indemnified Party, an actual or potential conflict of interest exists where it is advisable for such Indemnified Party to be represented by separate counsel, then the Indemnified Party shall be entitled to control and assume responsibility for the defense of such Third Party Claim, at the cost and expense of the indemnifying Party. The indemnifying Party may, in any event, participate in such proceedings at its own cost and expense.

(c) The indemnifying Party, in the defense of any such litigation, other proceeding or other claim, shall have the right in its sole discretion to settle such Third Party Claim only if (i) such settlement involves only the payment of money and execution of appropriate releases of the Indemnified Party and its Affiliates, (ii) there is no finding or admission of any violation of Law, (iii) the Indemnified Party or its Affiliates will have no liability with respect to such compromise or settlement, and (iv) the Indemnified Party and its Affiliates will have no restriction on their respective exercise of rights granted herein. Otherwise, no such Third Party Claim shall be settled or agreed to without the prior written consent of the Indemnified Party. The Indemnified Party and the indemnifying Party shall fully cooperate in good faith in connection with such defense and shall cause their legal counsel, accountants and affiliates to do so, and shall make available to the other Party all relevant books, records, and information (in such Party’s control) during normal business hours, and shall furnish to each other such other assistance as the other Party may reasonably require in connection with such defense, including making employees of the Indemnified Party available to testify and assist others in testifying in any such proceedings.

13.5 Insurance . Notwithstanding anything in this Agreement to the contrary, the indemnification obligations in this Agreement are independent of, and shall not be limited by, any insurance required hereunder or otherwise available.

14.

INSURANCE

14.1 ***.

(a)

***

(b)

***

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(c)

***

(d)

***

(e)

***

(f)

***

14.2 ***

14.3 ***.

14.4 ***.

(a)

***

(i)

***

(A)

***

(B)

***

(C)

***

(A)

***

(B)

***

(C)

***

(D)

***

(E)

***

(F)

***

(G)

***

(H)

***

(I)

***

(J)

***

(ii)

***

(b)

***

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(c)

***

(d)

***

(e)

***

(f)

***

(g)

***

(i)

***

(ii)

***

14.5 Contractor Insurance .

(a) Contractor shall, and shall require and ensure that each of its Subcontractors performing Services on Site whether or not enrolled in the ***, purchase and maintain the insurance coverages listed below from a company or companies licensed to do business in the State that have (and shall maintain during the applicable policy period) a minimum A.M. Best rating of A-VII and are reasonably acceptable to Owner. Contractor’s insurance shall be effective as of the Effective Date and shall be maintained until Final Completion, except for Products Liability/Completed Operations coverage, which shall be maintained for ten (10) years beyond Final Completion. Deductible amounts shall be the sole responsibility of Contractor and the Subcontractors.

(i) Automobile, Bodily Injury and Property Damage Liability insurance covering all automobiles whether owned, non-owned, leased or hired, having *** combined single limit;

(ii) All Risk Contractor’s Equipment Insurance covering owned, used and leased tools, construction plant and equipment required to perform the Services (Contractor or Subcontractors may elect to self-insure such exposure if approved in writing by Owner, which approval shall not be unreasonably withheld);

(iii) Workers’ Compensation and Employer’s Liability Insurance having Indiana Statutory Limits with All States coverage including U.S. Longshoremen’s and Harbor Workers Act Coverage as appropriate and Employer’s Liability will be provided with the following limits:

(A) $*** Each Accident Bodily Injury by Disease;

(B) $*** Policy Limit Bodily Injury by Disease; and

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Such Workers’ Compensation insurance shall include a waiver of subrogation in favor of the Owner, Contractor and any Subcontractor that is enrolled in the ***.

(iv) Commercial General Liability Insurance covering Off-Site Activities Only (if enrolled in the ***, otherwise without the Off-Site Activities Only limitation) having limits of $*** per occurrence, $*** annual aggregate. Coverage shall be written on an ISO occurrence Form (CG 00 01 12/04) or equivalent and include the following:

(A) Premises-Operations;

(B) Products Liability/Completed Operations;

(D) Contractual Liability (Broad Form) Including Third Party Coverage;

(E) Explosion, Collapse and Underground; and

(F) Fellow Employee Exclusion Removed.

(v) Umbrella Liability covering Off-Site Activities Only *** having limits of $*** per occurrence and aggregate for Contractor and $*** per occurrence and aggregate for Subcontractors. Such umbrella liability policy shall follow the form of the required underlying coverages, be in excess of those underlying policies without gaps in limits and provide coverage as broad as the underlying.

(vi) If aircraft are used in performance of the Services, Contractor shall provide or cause the operators of aircraft to provide Aircraft Liability Insurance having a per occurrence limit of $***.

(b) Prior to beginning any Services at the Site, Contractor and each Subcontractor shall furnish to Owner’s designated *** industry standard ACORD or Owner-approved form certificates evidencing the above coverages. Certificates shall show that policies will not be canceled, renewed or materially modified unless at least thirty (30) days’ prior written notice via certified United States mail has been given to Owner. All coverages and certificates (except Workers Compensation) further shall show Owner and its successors and assigns as additional insureds for their imputed liability as a result of Contractor’s negligent operations hereunder, using ISO additional insured (CG 20 10 11 85) or equivalent of the combination of forms CG 2033 and CG 20 37 for completed operations. All insurance coverage shall include a waiver of subrogation rights by the insurer against Owner, Contractor and Subcontractors *** and as contractually required. Neither approval nor failure to disapprove insurance furnished by Contractor or any Subcontractor shall relieve

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Contractor from responsibility to provide, or cause to be provided, insurance as required by this Agreement.

14.6 General Requirements .

(a) Contractor acknowledges and agrees that Contractor’s costs for maintaining the insurance required under Section 14.5 are *** to the Agreement and will not be separately invoiced ***.

(b) ***

(c) Each Subcontractor *** coverage under this Article shall seek *** by giving written notice to ***, in writing, within two (2) Business Days after the award of any subcontract providing the following information:

1. Subcontract Number

2. Legal Name of Subcontractor

3. Address

4. Telephone, persons to contact

5. Estimated amount of subcontract

6. Estimated dates the subcontract work will commence and will be completed

7. Type(s) of work to be performed

It is the responsibility of Contractor to cause all of its Subcontractors to give such written notice ***. Subcontractors who are not *** shall not be covered by ***. Owner shall have no liability or responsibility for the absence of insurance coverage for Subcontractors who do not provide written notice as described in this Section.

(d) Promptly upon placement of ***, Contractor shall properly ***. All Subcontractors shall properly *** prior to commencing any services at the Site.

(e) All dividends or refunds payable under *** shall be the property of Owner and are hereby assigned to Owner.

(f) Contractor and each Subcontractor shall report all accidents and shall assist in every manner reasonable in the investigation of any accident. Upon request, Contractor and each Subcontractor shall cooperate with Owner and the insurance company designated by Owner in the handling of any claim by securing and giving evidence and obtaining the attendance of witnesses as required for any claim or suit.

(g) Contractor and each enrolled Subcontractor shall furnish *** with information required to issue any insurance policies to be provided under this Article. If requested by Owner, Contractor and each enrolled Subcontractor shall attend a meeting held to explain and discuss ***.

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(h) Contractor shall incorporate a copy of these insurance requirements in each subcontract and shall require each enrolled Subcontractor to whom these requirements apply to fully comply with these insurance requirements.

(i) Contractor shall not attempt to exercise any right to cancel *** policy without the express written consent of Owner.

(j) Nothing contained in this Article 14 will relieve Contractor or its Subcontractors of their respective obligations to exercise due care in the performance of their duties in connection with the Services and to complete the Services in strict compliance with the Agreement.

14.7 Contractor Responsibility . The provisions of this Article 14 do not modify or change any responsibility of Contractor or any of its Subcontractors as stated elsewhere in this Agreement. Owner assumes no responsibility for the solvency of any insurer to settle any claim. The insurance requirements herein are separate and apart from and in no way limit Contractor’s indemnity obligations as stated in Article 13 of this Agreement. Anything herein to the contrary notwithstanding, the liabilities of Contractor under this Agreement shall survive and not be terminated, reduced or otherwise limited by any expiration or termination of Contractor’s insurance coverages.

15.	PROJECT CREDIT SUPPORT

15.1 ***.

(a)

***

(b)

***

(c)

***

(d)

***

15.2 Cooperation with Owner Financing .

(a) Contractor shall promptly provide to Owner (i) all cooperation that Owner reasonably requests to make presentations to potential Financial Institutions and their consultants and representatives and to respond to any questions or requirements asked or imposed by any Financial Institutions, and (ii) all cooperation that Owner reasonably requests with respect to Financial Institutions and their consultants and representatives, including developing and providing information regarding the Facility (to the extent available to Contractor) and this Agreement. At the request of Owner, Contractor shall provide the Financial Institutions and their consultants and representatives with reasonable access to, and will permit them to review, the Documentation, subject to their execution of a confidentiality agreement substantially in the form of Attachment No. 2 to the Confidentiality Agreement. In addition, Contractor shall provide the Financial Institutions with the right to receive

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and render performance and to give reasonable time to cure defaults by Owner, on behalf of Owner, under this Agreement.

(b) Owner shall be entitled to grant a security interest or other lien in this Agreement to one or more Financial Institutions as security for financing for the Project. Contractor also shall enter into a consent to assignment with the Financial Institutions regarding this Agreement in a customary form. Owner will be entitled to assign, and Contractor shall ensure that the relevant instruments permit the assignment of, the benefit of any *** or other financial instrument at any time to the Financial Institutions to secure the obligations of Owner under the financing for the Project without the consent of Contractor or the issuer of such *** or other financial instrument being required.

16.	LIMITATION OF LIABILITY

16.1 Liability Cap . CONTRACTOR’S AGGREGATE LIABILITY UNDER THIS AGREEMENT WILL NOT EXCEED ***.

16.2 No Consequential Damages . NEITHER OWNER NOR CONTRACTOR WILL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL DAMAGES. THIS SECTION 16.2 SHALL NOT BE INTERPRETED TO LIMIT, AND THE PARTIES AGREE THAT THIS SECTION 16.2 DOES NOT LIMIT, CONTRACTOR’S RIGHT TO COMPENSATION FOR SERVICES UNDER THIS AGREEMENT. IN ADDITION, THE PARTIES AGREE THAT THIS SECTION 16.2 SHALL NOT BE CONSTRUED TO, AND IS NOT INTENDED TO, LIMIT OR RELIEVE EITHER PARTY OF ITS EXPRESS, LIMITED OBLIGATIONS UNDER ARTICLE 13. THE WAIVERS AND DISCLAIMERS OF LIABILITY, RELEASES FROM LIABILITY, LIMITATIONS AND APPORTIONMENTS OF LIABILITY AND EXCLUSIVE REMEDY PROVISIONS AND DEFENSE AND INDEMNITY OBLIGATIONS EXPRESSED THROUGHOUT THIS AGREEMENT SHALL APPLY EVEN IN THE EVENT OF THE FAULT, NEGLIGENCE, STRICT LIABILITY, BREACH OF CONTRACT OR OTHERWISE OF THE PARTY RELEASED OR WHOSE LIABILITY IS WAIVED, DISCLAIMED, LIMITED, APPORTIONED OR FIXED BY SUCH EXCLUSIVE REMEDY PROVISIONS, OR WHO IS DEFENDED OR INDEMNIFIED. TO THE EXTENT A PARTY IS DEFENDED OR INDEMNIFIED HEREUNDER WITH RESPECT TO ANY CLAIM, SUCH PARTY MAY NOT PURSUE A CLAIM AGAINST THE DEFENDING OR INDEMNIFYING PARTY’S AFFILIATES OR SUBCONTRACTORS OR THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS FOR THE SAME CLAIM.

17.

LIENS

17.1 Liens . Contractor shall keep the Facility, the Site, the Owner Equipment, the GE Equipment and any other structure or equipment at the Site free from all Liens and shall promptly notify Owner of any such Liens.

17.2 Discharge or Bond . Contractor shall take prompt steps to discharge or bond any Lien. If Contractor fails to so discharge or promptly bond any Lien, Owner shall have the

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right, upon notifying Contractor in writing and providing Contractor reasonable time to discharge or bond the Lien, to take any and all reasonable actions and steps to satisfy, defend, settle or otherwise remove the Lien at Contractor’s expense, including reasonable attorneys’ fees, costs and expenses. Owner shall have the right to deduct and offset any expenses so incurred from any payment due, or which may become due, to Contractor under this Agreement or to recover those expenses from Contractor. Contractor shall have the right to contest any Lien, provided it first must provide to the lienholder, a court or other third Person, as applicable, a bond or other assurances of payment necessary to remove the Lien in accordance with the Laws of the State.

18.	INTELLECTUAL PROPERTY

18.1 Delivery of Documentation . Contractor shall deliver to Owner complete and accurate copies (in physical and electronic format) of all Documentation required hereunder to be prepared or delivered, or otherwise agreed by the Parties to be delivered by Contractor, in accordance with the following:

(a) Documentation for which a specific delivery date or delivery schedule is set forth herein or in the Scope Book, including within the Contractor EP Schedule and Project Schedule, shall be delivered in accordance with such delivery date or delivery schedule;

(b) Documentation prepared in conjunction with the Services necessary for the performance of a specific task, procedure or test for which a specific delivery date or delivery schedule is not set forth herein, in the Scope Book or in the Contractor EP Schedule and Project Schedule shall be delivered to Owner a reasonable period of time (as determined by Owner) prior to the performance of such task, procedure or test necessary to support the needs of the Project;

(c) All final, “as-built” Documentation (in hard copy and electronic formats (non-native files)) as provided in Reference 3-10 of Part I of the Scope Book, including all drawings of buildings, structures, plants, operating equipment and ancillary plant equipment, shall be delivered no later than Final Completion; and

(d) Technical Data shall be delivered to Owner at Final Completion, and to be used in future modifications at Owner’s sole risk (and provided for such purpose “AS IS” without warranty by Contractor).

All such Documentation shall include any corrections, improvements, and enhancements to such Documentation that were incorporated during the construction of the Facility and shall be of an “as-built” status upon Final Completion. Contractor shall provide Owner during the Warranty Period any corrections to errors discovered by Contractor or Owner in the Documentation (other than any Technical Data) subsequent to Final Completion. Contractor shall promptly notify Owner of the discovery of any such errors. In the event that this Agreement is terminated: by Owner pursuant to Section 19.2(a) ; by Contractor or Owner pursuant to Section 19.6; or by Owner pursuant to Section 19.5(a) or 19.5(b) and, with respect to termination pursuant to Section 19.5(b) , Owner pays the License Continuation Fee as

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described in Section 19.5(c)(ii) , then Contractor shall deliver to Owner within ten (10) Days after such termination all then existing Documentation, including drafts thereof, in hard copy and electronic formats reasonably requested by Owner, provided that such Documentation and the intellectual property rights resulting from the Services or related to or described in the Documentation shall continue to be subject to the Confidentiality Agreement and this Article. The media on which Documentation is provided to Owner will be free of viruses and other harmful or malicious code or programming and will be capable of conveying the information contained therein correctly.

18.2 Grant of Intellectual Property License . Contractor hereby grants to Owner, its Affiliates and each Permitted User an irrevocable (subject to the last sentence of this Section 18.2), perpetual, royalty-free, fully paid up nonexclusive license to (a) reproduce, distribute, display, perform, create derivative works from and otherwise use the Documentation and (b) practice, make, exercise and otherwise use all intellectual property rights resulting from the Services or related to or described in the Documentation, in each case, solely for the purposes of Facility design, construction, maintenance, operation (for electricity generation, byproduct production or otherwise), training, modification, consultation, repair, reconstruction, licensing, simulation, commissioning, decommissioning and compliance with Laws and otherwise for Owner’s internal business purposes (collectively, the “ Permitted Purposes ”). To the extent that exercise of the foregoing license rights requires use or disclosure of Confidential Information as defined in the Confidentiality Agreement, such use or disclosure shall be subject to the terms and conditions set forth in the Confidentiality Agreement; provided, however, that restrictions in the Confidentiality Agreement on the use of Contractor’s Confidential Information by Competitors of Contractor prior to the Substantial Completion Date shall cease and terminate in the event that this Agreement is terminated by Owner pursuant to Section 19.2(a) . In the event that Owner terminates this Agreement pursuant to Section 19.5(b) and fails to pay the License Continuation Fee, if any, by the date such License Continuation Fee is due pursuant to Section 19.5(c)(ii) , then the foregoing license shall immediately cease and terminate.

18.3 Grant of Sulfur License . Contractor hereby grants to Owner, its Affiliates and each Permitted User an irrevocable (subject to the last sentence of this Section 18.3 ), perpetual, royalty-free (other than the Sulfur License Royalty), and nonexclusive license to practice and exercise the Sulfur Intellectual Property Rights for the removal of hydrogen sulfide and production of sulfur and otherwise for any of the Permitted Purposes (the “ Sulfur License ”). In consideration for the Sulfur License, Owner shall pay to Contractor a one-time royalty fee in an aggregate amount equal to $*** (the “ Sulfur License Royalty ”) in a manner determined by the Parties. To the extent that exercise or practice of the Sulfur License requires use or disclosure of Bechtel Sulfur Information as defined in the Confidentiality Agreement, such use or disclosure shall be subject to the terms and conditions set forth in the Confidentiality Agreement; provided, however, that restrictions in the Confidentiality Agreement on the use of Bechtel Sulfur Information by Competitors of Contractor prior to the Substantial Completion Date shall cease and terminate in the event that this Agreement is terminated by Owner pursuant to Section 19.2(a) . In the event that Owner terminates this Agreement and fails to pay the Sulfur License Royalty (to the extent not then paid) within *** following the date of such termination, then the Sulfur License shall cease and terminate.

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18.4 Limitations . Contractor reserves all intellectual property rights not set forth herein. Owner shall not remove any patent, copyright or trademark notice from the Documentation. Owner hereby grants to Contractor an irrevocable, non-exclusive, worldwide, royalty-free license under Sulfur Licensee Improvements and Sulfur Jointly Developed Improvements to use Sulfur Licensee Improvements and Sulfur Jointly Developed Improvements in the Claus sulfur recovery, hydrogenation tail gas treating and thermal oxidizing processes or for any other purpose, together with the right to grant licenses, without accounting therefor to Owner and with no restrictions on sublicensing of any Sulfur Licensee Improvement or any Sulfur Jointly Developed Improvement. Within a reasonable time after request by Contractor, Owner shall make qualified personnel available to discuss with Contractor whether any material Sulfur Licensee Improvements or Sulfur Jointly Developed Improvements have been created, and, if so, subsequent to such discussions, to document such Sulfur Licensee Improvements or Sulfur Jointly Developed Improvements. THE SULFUR LICENSEE IMPROVEMENTS AND SULFUR JOINTLY DEVELOPED IMPROVEMENTS ARE PROVIDED “AS IS” AND WITHOUT WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED, AND ALL IMPLIED WARRANTIES INCLUDING ANY WARRANTY OF MERCHANTABILITY RELATING TO SUCH IMPROVEMENTS ARE HEREBY EXPRESSLY DISCLAIMED BY OWNER. USE OF THE SULFUR LICENSEE IMPROVEMENTS AND SULFUR JOINTLY DEVELOPED IMPROVEMENTS BY CONTRACTOR AND ITS LICENSEES ARE AT CONTRACTOR’S SOLE RISK. CONTRACTOR SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS OWNER AND ITS AFFILIATES FOR AND AGAINST ALL CLAIMS RELATED TO ANY SUCH IMPROVEMENTS MADE AGAINST OWNER OR ITS AFFILIATES BY A PERSON TO WHICH CONTRACTOR OR ITS AFFILIATES HAVE PROVIDED OR LICENSED ANY SULFUR LICENSEE IMPROVEMENT AND SULFUR JOINTLY DEVELOPED IMPROVEMENT.

18.5 Other Licenses . To the extent that a license may be required under any patent, copyright, trade secret right or other proprietary right of Contractor or Subcontractor to perform a Permitted Purpose, Contractor hereby grants to Owner, its Affiliates and each Permitted User an irrevocable, perpetual, royalty-free, nonexclusive license to practice and exercise such other patent, copyright, trade secret right and proprietary right for any Permitted Purpose.

18.6 Additional Warranties, Representations and Covenants . Contractor represents, warrants and covenants that, except for the license rights granted herein and except with respect to any intellectual property owned exclusively by GE contained in such Documentation, Contractor owns all rights, title and interest in and to the Documentation and has the right to grant the license rights granted by Contractor herein.

19.	DEFAULT; TERMINATION AND SUSPENSION

19.1 Contractor Events of Default . Contractor shall be in default of its obligations pursuant to this Agreement upon the occurrence of any one or more of the following circumstances (each, a “ Contractor Default ”):

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(a) Nonpayment . Contractor fails to pay or cause to be paid any amount that is not subject to a good faith dispute and has become due and payable by it to Owner under this Agreement within *** after receipt of written notice that such amounts are past due;

(b) Insolvency . Contractor becomes insolvent, or fails generally to pay its debts as they become due, or admits in writing its inability to pay its debts as they become due, or makes a general assignment for the benefit of creditors; commences any case, proceeding or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of itself or its debts or assets, or adopts an arrangement with creditors, under any bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar Law of the United States or any state thereof for the relief of creditors or affecting the rights or remedies of creditors generally;

(c) Assignment . Contractor assigns or transfers, or attempts to assign or transfer, this Agreement or any right or interest herein, except as expressly permitted by this Agreement; and

(d) Breach . Contractor breaches any of its material obligations under this Agreement other than those obligations relating to the matters set forth in Section 19.1(a) through (c) and for which no other remedy is specified in this Agreement and, if such breach is capable of being cured, Contractor fails to cure such breach within *** after written notice of such breach, provided that such cure period shall be extended to *** after written notice of such breach if such breach is capable of being cured but not within ***, and Contractor immediately commences to cure such breach and diligently and continually prosecutes measures which are reasonably calculated to cure such breach within such *** period.

19.2 Owner Remedies . In the event of a Contractor Default, Owner shall have any or all of the following rights and remedies:

(a) Termination . Owner may terminate this Agreement immediately by delivery of a notice of termination to Contractor, in which event, as Owner’s sole and exclusive remedy in connection with termination for a Contractor Default, but without prejudice to remedies that Owner may have for breach of any obligations that survive termination, Owner may recover from Contractor (subject to Article 16 ) Owner’s actual and reasonable costs (at fully burdened rates for internal personnel costs) of replacing Contractor and mobilizing one or more other contractors in order to complete the Services, including (i) all actual and reasonable costs of preparing requests for proposals, reviewing proposals, selecting and negotiating with contractors and (ii) all actual and reasonable costs for the replacement contractors to mobilize, review and understand Project-related documents and meet with Project participants in order to get to substantially the same position as Contractor was at the point of termination; and

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(b) Other Remedies . Subject to Article 16 and Section 24.1 , if Owner does not terminate this Agreement pursuant to Section 19.2(a) as a result of such Contractor Default, Owner shall have any other remedy available at law or in equity.

19.3 Owner Event of Default . Owner shall be in default of its obligations pursuant to this Agreement upon the occurrence of any one or more of the following circumstances (each, an “ Owner Default ”):

(a) Insolvency . Owner becomes insolvent, or fails generally to pay its debts as they become due, or admits in writing its inability to pay its debts as they become due, or makes a general assignment for the benefit of creditors; commences any case, proceeding or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of itself or its debts or assets, or adopts an arrangement with creditors, under any bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar Law of the United States or any state thereof for the relief of creditors or affecting the rights or remedies of creditors generally;

(b) Nonpayment . Owner fails to pay or cause to be paid any amount that is not subject to a good faith dispute and has become due and payable by it to Contractor under this Agreement within *** after receipt of written notice that such amounts are past due; and

(c) Material Breach . Unless due to the breach by Contractor of its obligations hereunder, suspensions of all or substantially all of the Services for a period of *** consecutive Days or a cumulative total of *** Days, in the aggregate, in any *** period.

19.4 Contractor Remedies . In the event of an Owner Default, Contractor shall have any or all of the following rights and remedies:

(a) Termination . Contractor, without prejudice to remedies that Contractor may have for breach of any obligations that survive termination, may terminate this Agreement immediately by delivery of a notice of termination to Owner, and such termination shall be deemed as if done for convenience of Owner under Sections 19.5(b) and 19.7 ;

(b) Other Remedies . Subject to Article 16 and Section 24.1 , Contractor shall have any other remedy available at law or in equity.

19.5 Termination Rights .

(a) Termination for Project Cancellation . Upon prior written notice to Contractor, Owner will be entitled to terminate this Agreement at any time as a result of Project cancellation by Owner, in which event Owner shall pay the cancellation charges set forth in Section 19.5(c)(i) .

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(b) Termination for Convenience . Owner may terminate this Agreement at its convenience and in its entirety upon prior written notice to Contractor ( provided , that, for a period of *** after such written notice, representatives of each of Contractor and Owner (escalating to executives) shall discuss the issues prompting such notice and at any time prior to expiration of such 30-Day period, Owner, in its sole discretion, may withdraw such notice), in which event Owner shall pay the cancellation charges set forth in Section 19.5(c)(ii) below.

(i) If Owner terminates this Agreement under Section 19.5(a) , Owner shall pay the termination charges to Contractor, within thirty (30) Days after the date of such termination, as Contractor’s exclusive remedy, which termination charges shall consist of all amounts billed or currently billable by Contractor and due and owing under this Agreement for Services performed in accordance with this Agreement prior to such termination, ***, and all unavoidable and reasonably incurred demobilization costs, including cancellation charges paid to Subcontractors (collectively, the “ Termination Charges ”). The total amount payable by Owner as a Termination Charge shall be reduced by any rebates, credits or refunds obtained or, if the Termination Charge has been paid, Contractor shall refund to Owner the amount of such rebates, credits or refunds.

(ii) If Owner terminates this Agreement under Section 19.5(b) , Owner shall pay to Contractor, within thirty (30) Days after the date of such termination, as Contractor’s exclusive remedy, an amount equal to (A) the Termination Charges calculated as of the date of such termination in the manner set forth in Section 19.5(c)(i) , plus (B) if Owner desires to maintain the license granted pursuant to Section 18.2 following such termination, an amount (which shall not be less than zero) equal to $*** (the amount determined pursuant to this clause (B), the “ License Continuation Fee ”).

19.6 Termination for Force Majeure . Owner or Contractor may terminate this Agreement in its entirety, and without liability, due to Force Majeure in accordance with the terms of Article 10 , provided that such termination shall not relieve the terminating Party from its obligation to pay any then due and owing amounts hereunder.

19.7 Suspension .

(a) Owner may, in its sole discretion, order Contractor to suspend all or any portion of the Services for a period of time as Owner may request. Contractor shall comply with such order. The suspension shall commence on the Day specified in Owner’s written notice to Contractor.

(b) Contractor may suspend the Services without liability upon written notice to Owner after the occurrence of any of the following:

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(i) Nonpayment . Owner fails to pay or cause to be paid any amount that is not subject to a good faith dispute and has become due and payable by it to Contractor under this Agreement within *** after receipt of written notice that such amounts are past due;

(ii) Breach . Owner breaches any of its material obligations under this Agreement other than those obligations relating to the matters set forth in Section 19.7(b)(i) above and for which no other remedy is specified in the Agreement and, if such breach is capable of being cured, Owner fails to cure such breach within *** after written notice of such breach, provided that such cure period shall be extended to *** after written notice of such breach if such breach is capable of being cured but not within ***, and Owner immediately commences to cure such breach and diligently and continually prosecutes measures which are reasonably calculated to cure such breach within such *** period.

(c) During any suspension pursuant to Section 19.7(a) and Section 19.7(b)(ii) , Contractor shall, to the extent requested by Owner and as a ***, maintain its Project personnel designated to provide the Services hereunder for a period of six (6) months from the commencement date of such suspension. During any such suspension, Contractor shall, to the extent requested by Owner and at Owner’s direction, (i) mobilize and demobilize Contractor’s plant, forces and equipment, (ii) suspend all rental agreements, if any, and (iii) maintain and protect that portion of the work that has been suspended. Contractor shall be reimbursed on a *** for all *** reasonably incurred and directly related to the performance of such activities at Owner’s request and direction and such other *** in connection with such suspension. Within ten (10) Days (i) with respect to suspension under Section 19.7(a) , after Owner gives Contractor written notice to resume Services, or (ii) with respect to suspension under Section 19.7(b)(ii) , after Contractor acknowledges that Owner has remedied the breach, Contractor shall submit a plan for resumption of the suspended Services. Contractor and Owner shall discuss and agree upon such plan for resumption of the suspended Services, but in any event Contractor shall use all commercially reasonable efforts to fully resume the Services as soon as reasonably possible. In the event a suspension pursuant to Section 19.7(a) continues for more than ***, Contractor shall have the right to terminate the Agreement.

(d) During any suspension pursuant to Section 19.7(b)(i) , Contractor shall (i) mobilize and demobilize Contractor’s plant, forces and equipment, (ii) suspend all rental agreements, if any, and (iii) maintain and protect that portion of the work that has been suspended but only to the extent necessary to address any personnel safety issues. Contractor shall be reimbursed on a *** for all *** reasonably incurred and directly related to the performance of such activities, as well as all other *** reasonably incurred by Contractor in connection with such suspension. Contractor shall resume any suspended Services promptly following the reason for such suspension ceasing and shall use all commercially reasonable efforts to fully resume the Services as soon as reasonably possible.

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20.	Intentionally Omitted .

21.	RECORDS AND AUDIT; COOPERATION

21.1 Intentionally Omitted .

21.2 Accounting Records . Except to the extent applicable Law requires a longer retention, Contractor shall maintain and shall cause its Subcontractors to maintain complete accounting records relating to all Services performed or provided under this Agreement *** in accordance with generally accepted accounting principles in the United States, as set forth in pronouncements of the Financial Accounting Standards Board (and its predecessors) and the American Institute of Certified Public Accountants, for a period of three (3) years after the Final Completion Date (or, if Final Completion does not occur, for three (3) years after termination of this Agreement), except that records relating to Sales and Use Taxes for such items must be retained for four (4) years as specified in Section 21.5 . Contractor shall give Owner thirty (30) Days prior written notice before destroying or disposing of any such accounting records and a reasonable opportunity for Owner during such period to make copies of any such documentation.

21.3 Audit Rights .

(a) For verification of ***, Owner or its authorized representative shall have the right and complete access at reasonable times during normal business hours to examine, audit and copy Contractor’s records and books related to *** as is reasonably necessary for Owner to verify such costs. Neither Owner nor its authorized representative shall have the right to audit Contractor’s records and books concerning agreed rates, agreed lump sum amounts, agreed allowances or multipliers. If any audit reveals charges or costs charged to or paid by Owner as costs or fees which are not proper or exceed the rates or amounts permitted hereunder for any such matters, then Owner shall be entitled upon demand for a refund from Contractor of all such amounts, plus interest thereon from the date of payment by Owner until the date of refund by Contractor at a rate of the lesser of (i) *** or (ii) the maximum rate allowed by applicable Law.

(b) ***

(c) Any records made available by one Party to the other Party for audit that are proprietary or confidential in nature will be deemed to be Confidential Information of such Party without the need for any marking or other designation and shall be held by the receiving Party in confidence as provided in the Confidentiality Agreement, except as disclosure may be required in order to pursue an audit claim. Any such audit shall be at the expense of the Party conducting such audit; provided , however, that the Party being audited shall provide reasonable assistance necessary to enable the auditing Party to conduct such audit.

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21.4 Cooperation .

(a) Contractor acknowledges that Owner is a regulated entity that is subject to the jurisdiction of the Indiana Utility Regulatory Commission (the “ IURC ”) and other Government Authorities and, as such, must from time to time provide information about its operations, business and affairs to the IURC and such other Government Authorities. Accordingly, subject to the procedures set forth in Section 21.4(b) , Contractor shall promptly and in good faith cooperate with Owner in all requests for information by the IURC or any such Government Authority or by Owner for the IURC or any such Government Authority, including providing testimony and such assistance and information as Owner may reasonably request and that is available to or can be developed or produced by Contractor relating to Contractor, any Subcontractor, the Services, the CM ISBL Work, the Facility or the Project in order for Owner to comply with requests from Government Authorities having jurisdiction over it, including the IURC, irrespective of whether compliance with such request is mandated by applicable Laws.

(b) The IURC has retained the services of Black and Veatch Corporation as its advisor with respect to the Project (“ B&V ”). Notwithstanding anything contained herein to the contrary, in the event that Owner receives an order or other request for information by the IURC or any Government Authority that Owner believes could reasonably be expected to require the disclosure of Contractor Confidential Information, technical engineering deliverables created by Contractor, Contractor’s construction procedures, or Contractor’s proprietary estimating and pricing information, methods and procedures that, in each case, have not been specifically created for the Project, Owner shall promptly provide notice of such order or other request for information to Contractor. Following such notice, Owner and Contractor agree to meet promptly and in good faith to determine the process that Owner shall use in responding to such request, which may include the implementation of information access procedures necessary to control the access of B&V to such Contractor information, in order to limit and protect the disclosure of such Contractor Information to B&V while ensuring that Owner complies with such requests in all respects.

21.5 Sales Tax Records . Contractor shall provide to Owner all information and data Owner may from time to time reasonably request and otherwise fully cooperate with Owner in connection with the reporting of (a) any Sales Taxes payable with respect to the Services and (b) any assessment, refund claim or proceeding relating to Taxes payable with respect to the Services. Contractor shall require its Subcontractors to provide to Contractor all information and data Contractor may reasonably request for purposes of complying with the preceding sentence and otherwise fully cooperate with Owner. Contractor shall retain, and shall require Subcontractors to retain, copies of such documentation and all documentation relating to purchases relating to the Services or the payment of Sales Taxes, if any, for a period of not less than four (4) years from the Final Completion Date (or, if Final Completion does not occur, for four (4) years after termination of this Agreement). Contractor shall ensure that its contracts with all Subcontractors effectuate the provision of this Section. Contractor’s and Owner’s obligations under this Section shall survive the termination,

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cancellation or expiration of this Agreement for any reason and shall last so long as is necessary to resolve any and all matters regarding Taxes attributable to the Services; provided, that if Owner requires Contractor to take action under this Section at any time after two (2) years after completion of the particular item of Services, Owner shall reimburse Contractor for all actual and reasonable expenses Contractor incurs in taking those actions.

22.

TAXES

22.1 General . Contractor shall pay all Taxes on Contractor’s employees, purchases of goods, tools, equipment, supplies and other consumables which are not permanently incorporated into the Facility and which remain the property of the Contractor. Contractor shall also pay all Taxes attributable to Contractor’s and its Subcontractors’ employees, construction equipment, temporary buildings and other property used by Contractor and its Subcontractors in its performance of the Services under this Agreement which are not permanently incorporated into the Facility and which remain the property of the Contractor. Allowance for such Taxes is not included in ***, and Contractor shall pay those Taxes when assessed, without claim against Owner for reimbursement. Contractor shall impose a similar obligation on all Subcontractors and shall ensure that no Subcontractor shall have any claim against Owner for reimbursement of those Taxes.

22.2 Sales and Use Taxes . For Sales and Use Tax purposes of the State, the Parties agree that this Agreement is a separated contract. Owner shall pay directly when due and payable all Sales and Use Taxes. Owner shall provide to Contractor an Indiana Direct Pay Permit and ST-105 Certificate. If an audit by a Government Authority determines that any additional Sales and Use Taxes are due from Contractor, then Owner shall reimburse Contractor for such Sales and Use Taxes promptly upon receipt of an invoice for such Sales and Use Taxes.

22.3 Tax Indemnification . Contractor shall defend, indemnify and hold harmless Owner and its Affiliates from and against all claims by any Government Authority claiming Taxes based upon gross receipts or on the income of Contractor, its Subcontractors or their respective employees, agents or representatives derived from any payment for the Services made to or earned by such Persons under the Agreement. If required by Law or any Government Authority, Owner shall have the right to withhold amounts, at the withholding rate specified by Law, from payments due from Owner to Contractor hereunder, and any amount so withheld shall be credited against any payment otherwise owing by Owner to Contractor under the Agreement.

22.4 Cooperation and Assistance . Contractor shall promptly notify Owner upon receipt by Contractor of any proposed tax audits or tax assessments relating to the Services. Contractor shall assist and cooperate with Owner’s efforts to minimize potential tax liability by providing records and other necessary documentation to appropriate authorities in response to such proposed tax audits or tax assessments.

22.5 Tax Protests and Appeals . If it elects to do so, Owner shall be entitled to protest, defend or appeal in the name of Contractor or a Subcontractor, as the case may be, in any and all administrative and judicial proceedings: (a) the assessment of any Taxes or (b) the

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denial of any refund claim filed. Should Owner elect to protest or appeal any assessment or denial, Contractor shall reasonably cooperate and assist as necessary with such protest or appeal. The Parties agree that any such protest or appeal shall be controlled by Owner, including choice of counsel, with Owner bearing all costs, fees and expenses in furtherance of the protest or appeal. Any and all refunds of Taxes and interest resulting from any protest or appeal shall be solely for the account of Owner. Contractor shall impose a similar obligation in its agreements with Subcontractors.

22.6 Survival . Contractor’s and Owner’s obligations under this Article 22 shall survive the termination or expiration of the Agreement for any reason and shall last so long as necessary to resolve any and all matters regarding Taxes attributable to the Services.

23.	DISPUTE RESOLUTION

23.1 Disputes . The Parties hereby agree to submit any dispute or other controversy arising out of or relating to this Agreement, including, with respect to the arbitrability, negotiation, invalidity, termination, or breach thereof, (each a “ Dispute ”) to resolution in accordance with this Article 23 .

23.2 Meeting Regarding Dispute . In the event of a Dispute, the Parties shall first attempt in good faith to settle and resolve such Dispute in accordance with the provisions of this Section 23.2 . A Party asserting the existence of a Dispute shall notify the other Party of the Dispute in writing setting forth the nature of the Dispute in reasonable detail. Within *** Days after delivery of any such notice by one Party to the other Party regarding a Dispute, the Parties shall meet at a mutually agreed time and place to attempt, with diligence and good faith, to resolve and settle such Dispute (“ Dispute Resolution Meeting ”). In the event the Parties are unable to resolve the Dispute, either Party may request that the matter be referred to non-binding mediation. The Parties agree to such non-binding mediation in Indianapolis, Indiana at a mutually agreed upon time and place with a mutually agreed neutral mediator, following procedures agreed to by the Parties or set by the mediator. Should mutual resolution and settlement not be obtained within *** Days after the Dispute Resolution Meeting (or should no such meeting take place within such *** Day period), then either Party may, by notice to the other Party, submit the Dispute to non-administered binding arbitration in Indianapolis, Indiana, in accordance with the International Institute for Conflict Prevention and Resolution’s Rules for Non-Administered Arbitration (the “ CPR Rules ”) and the provisions of this Article 23 . Judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof in accordance with the remaining provisions of this Article 23 . Should the Parties agree to engage in mediation, such proceeding shall not affect the timing or process for arbitration.

23.3 Initiation of Binding Arbitration and Selection of Arbitrators . The Party desiring arbitration shall so notify the other Party, identifying in reasonable detail the Dispute to be arbitrated and the relief sought and file notice of arbitration in accordance with the CPR Rules. Arbitration hereunder shall be before *** selected in accordance with the CPR Rules and qualified in the field most relevant to the issues raised in the Dispute. In the event that any Party’s claim exceeds ***, exclusive of interest, the Dispute shall be heard and

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determined by a three-person panel of neutral arbitrators selected in accordance with the CPR Rules and qualified in the field most relevant to the issues raised in the Dispute.

23.4 Arbitration Procedures . The arbitrator(s) shall conduct a hearing no later than ninety (90) Days after submission of the matter to arbitration (or such other timeframe as mutually agreed by the Parties), and a decision shall be rendered by the arbitrator(s) within thirty (30) Days of the hearing. In connection with any Dispute, the Parties shall have such rights to discovery, including depositions, as the arbitrator(s) may permit, provided that, where the amount in controversy with respect to such Dispute is equal to or more than $***, the Parties shall have the rights to discovery set forth in Rules 26 through 36 of the Federal Rules of Civil Procedure (or, to the extent that the proceeding involves only the Parties, in accordance with such rules of discovery as mutually agreed by the Parties). Any dispute concerning discovery will be resolved by the arbitrator(s). Each Party will, upon the written request of the other Party, promptly provide the other with copies of documents on which the requesting Party may rely in support of a claim or defense or which are relevant to the issues raised in the Dispute. At the hearing, the Parties shall present such evidence and witnesses as they may choose, with or without counsel. Adherence to formal rules of evidence shall not be required but the arbitrator(s) shall consider any evidence and testimony that it determines to be relevant, in accordance with procedures that it determines to be appropriate. Any award entered in arbitration shall be made by a written opinion stating the reasons for the award made.

23.5 Consolidation . Owner, in its sole discretion, shall have the option at any time to (a) join Contractor to any arbitration or dispute that involves Owner and any Person providing services to Owner in connection with the Project or (b) consolidate any arbitration or Dispute arising hereunder with any existing arbitration, proceeding or other similar matter which involves Owner and any Person providing services to Owner in connection with the Project, and Contractor hereby consents to any such joinder or consolidation. If Owner and Contractor are involved in an arbitration or dispute in connection with the Project, and Contractor reasonably believes that a third party (including GE, a Managed Vendor or a Subcontractor) is substantially involved in a common question of fact or such third party’s presence is necessary if complete relief is to be afforded and/or inconsistent decisions are to be avoided, then, Contractor shall promptly provide notice thereof to Owner requesting that such third party be consolidated into such arbitration or dispute. If Owner, in its sole discretion, agrees to grant such request, the Parties will use their respective reasonable efforts to consolidate such third party into the applicable arbitration or dispute, making such accommodating adjustments as are fair and appropriate to accommodate additional parties; provided, however, that such third party has consented to such inclusion and agrees to be bound by the award of the arbitrators.

23.6 Enforcement. This submission and agreement to arbitrate shall be specifically enforceable. Arbitration may proceed in the absence of a Party if notice of the proceedings has been given to such Party in accordance herewith. The Parties agree to abide by all awards rendered in such proceedings. During the pendency of a Dispute, each Party shall continue to perform all of its respective obligations under this Agreement. If the Dispute concerns a Party’s cessation of performance under this Agreement, then that Party shall not be deemed in default under the terms of this Agreement with respect to the specific matter that is the subject

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of the Dispute if that Party ceased performance in what it considered in good faith to be compliant with the terms of this Agreement, during the pendency of the Dispute.

23.7 Fees and Costs . Each Party shall bear its own costs and expenses related to the arbitration and mediation. The arbitrator’s(s’) fees and mediators fees and other administrative costs of the arbitration and the mediation shall be borne equally by the Parties.

23.8 Interim Relief . Either Party may apply to the arbitrator(s) seeking injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Either Party may, without waiving any remedy under this Agreement, seek from any court having jurisdiction any interim or provisional relief that is necessary to protect the rights or property of that Party, pending the establishment of the arbitral tribunal.

23.9 Award . The arbitrator(s) will have no authority to award any damages precluded by Article 16 .

23.10 Confidentiality . Except as may be required by applicable Law, each Party shall treat the existence, content or results of any settlement discussion pursuant to this Article 23 or arbitration as confidential information of the other Party in accordance with the Confidentiality Agreement and shall use commercially reasonable efforts to cause any arbitrator(s) to keep such information confidential.

24.	MISCELLANEOUS PROVISIONS

24.1 Remedies . Subject to Section 12.6 , Article 16 , Section 19.2(a) , Exhibit J and any other provision of the Agreement pursuant to which an exclusive remedy is expressly provided, the rights and remedies available hereunder will be in addition to and not in limitation of any rights and remedies otherwise imposed or available at law or in equity.

24.2 Governing Laws . This Agreement shall be governed by and construed in accordance with the Laws of the State, without reference to its conflict of laws principles.

24.3 Entire Agreement . This Agreement and the Confidentiality Agreement represent the entire agreement between Owner and Contractor with respect to the subject matter hereof and thereof, and supersede all prior negotiations, binding documents, representations and agreements, whether written or oral, with respect to the subject matter hereof and thereof, including the Term Sheet, the Initial TSAs and the Recent TSA. This Agreement may be amended or modified only by a written instrument duly executed by each of the Parties.

24.4 Successors and Assigns. Neither this Agreement nor any right, interest or obligation hereunder may be assigned by Contractor without the prior written consent of Owner, and any attempt to do so shall be void, except that the whole of this Agreement may be assigned by Contractor upon prior written notice to Owner to a parent company or a wholly-owned Affiliate, provided that Contractor shall not be relieved of any of its obligations hereunder and provided that such assignee demonstrates to the reasonable satisfaction of Owner that it is capable of fulfilling all of the obligations of Contractor

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hereunder, including the grant of the licenses provided herein. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the Parties and their respective successors and assigns. Owner may assign this Agreement or any benefit, interest, right or cause of action arising under this Agreement to any Person, provided that, if such assignment occurs prior to payment of the Final Payment Invoice, then such assignment shall not relieve Owner of any of its obligations hereunder.

24.5 No Third Party Beneficiaries . Except as expressly set forth in this Agreement, the provisions of this Agreement are intended for the sole benefit of Owner and Contractor, and there are no third party beneficiaries. No reference herein to any other Person shall restrict in any way the ability of the Parties to amend or modify this Agreement from time to time in their sole and absolute discretion. Neither this Agreement nor anything contained herein shall be construed to create a contractual relationship of any kind between: (a) Contractor and any other contractor or any subcontractor of any such other contractor; (b) Contractor and any Managed Vendor; (c) Contractor and GE; or (d) any person or entities other than Owner and Contractor, except as expressly provided in this Agreement (Owner Indemnitees and Contractor Indemnitees are intended third party beneficiaries under Article 13 ).

24.6 No Waiver . No course of dealing or failure of Owner or Contractor to enforce strictly any term, right or condition of this Agreement shall be construed as a waiver of that term, right or condition. No express waiver of any term, right or condition of this Agreement shall operate as a waiver of any other term, right or condition.

24.7 Survival . Article 13 (Indemnification), Article 16 (Limitation of Liability), Article 18 (Intellectual Property), Article 22 (Taxes), Article 23 (Dispute Resolution), Article 24 (Miscellaneous Provisions) and all other Sections providing for indemnification or limitation of or protection against liability of either Party shall survive the termination, cancellation, or expiration of this Agreement.

24.8 Severability . If any provision of this Agreement or the application of this Agreement to any Person or circumstance shall to any extent be held invalid or unenforceable by a court of competent jurisdiction or arbitrators under Article 23 , then (i) the remainder of this Agreement and the application of that provision to Persons or circumstances other than those as to which it is specifically held invalid or unenforceable shall not be affected, and every remaining provision of this Agreement shall be valid and binding to the fullest extent permitted by Laws, and (ii) a suitable and equitable provision shall be substituted for such invalid or unenforceable provision in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision.

24.9 Notices . Any notices, demands or other communication to be sent or given hereunder by either Party shall in every case be in writing and shall be deemed properly served if (a) delivered personally to the recipient, (b) sent to the recipient by reputable express courier service (charges paid) or (c) mailed to the recipient by registered or certified mail, return receipt requested and postage paid. Date of service of such notice shall be (i) the date such notice is personally delivered, (ii) three (3) Business Days after the date of mailing if sent by certified or registered mail, or (iii) one (1) Business Day after the date of delivery to

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the overnight courier if sent by overnight courier. Such notices, demands and other communications shall be sent to the addresses indicated below or such other address or to the attention of such other person as the recipient has indicated by prior written notice to the sending party in accordance with this Section:


If to Owner:		Duke Energy Indiana, Inc.
		1000 East Main Street, WP631
		Plainfield, Indiana 46168
		Attn: ***
		Title: ***
		Facsimile No.: ***

with a copy to:		Duke Energy Corporation
		139 East Fourth Street, EA025
		Cincinnati, Ohio 45202
		Attn: ***
		Title: ***
		Facsimile No.: ***

If to Contractor:		Bechtel Power Corporation
		5275 Westview Drive
		Frederick, Maryland 21703
		Attn: ***
		Title: ***
		Facsimile No.: ***

with a copy to:		Bechtel Power Corporation
		5275 Westview Drive
		Frederick, Maryland 21703
		Attn: ***
		Title: ***
		Facsimile No.: ***

24.10 Vienna Convention . The Parties hereby expressly agree to exclude and disclaim the application of the provisions of the United Nations Convention on Contracts for the International Sale of Goods (also referred to as the Vienna Convention), and any successor convention or legislation, to this Agreement.

24.11 Counterparts . This Agreement may be executed by the Parties in multiple counterparts and shall be effective as of the date set forth above when each Party shall have executed and delivered a counterpart hereof, whether or not the same counterpart is executed and delivered by each Party. When so executed and delivered, each such counterpart shall be deemed an original and all such counterparts shall be deemed one and the same document. Transmission of images of signed signature pages by facsimile, e-mail or other electronic means shall have the same effect as the delivery of manually signed documents in person.

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24.12 Confidentiality . Use and disclosure of Confidential Information (as defined in the Confidentiality Agreement) in the performance of this Agreement shall be governed by the Confidentiality Agreement.

24.13 Business Practices . Contractor and its representatives have not made any payment, and Contractor will not, and Contractor will direct its employees, agents, and Subcontractors, and their employees or agents to not, make any payment to any government official (including any officer or employee of any Government Authority) to influence his, her, or its decision or to gain any other advantage for Owner or Contractor in connection with the Services to be performed hereunder. None of Contractor, its Subcontractors, nor any of their employees or agents shall take any action that violates the United States Foreign Corrupt Practices Act or any similar applicable Law. Contractor shall immediately notify Owner of any violation of this covenant. Owner and its representatives have not made any payment, and Owner will not, and Owner will direct its employees, agents, and their employees or agents to not, make any payment to any government official (including any officer or employee of any Government Authority) to influence his, her, or its decision or to gain any other advantage for Contractor or Owner in connection with the Services to be performed hereunder. Neither Owner nor any of its employees or agents shall take any action that violates the United States Foreign Corrupt Practices Act or any similar applicable Law. Owner shall immediately notify Contractor of any violation of this covenant.

24.14 Covenant of Good Faith and Fair Dealing . Without limiting any rights and obligations as specifically set forth herein, each of the Parties agrees that the obligation of good faith and fair dealing, as applied to contracts governed by the laws of the State of New York is imposed by this Agreement on such Party in its performance, execution and enforcement of this Agreement. This provision is not a choice of law provision but is definitional for purposes of the obligation of good faith.

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IN WITNESS WHEREOF , each of the Parties has caused this Agreement to be executed by its duly authorized representative as of the date first above written.


DUKE ENERGY INDIANA, INC.		BECHTEL POWER CORPORATION

By:	/s/ James L. Turner	By:	/s/ Jack Futcher
Name:	James L. Turner	Name:	Jack Futcher
Title:	Pres & COO, USFE&G	Title:	President

EXHIBIT A

***

EXHIBIT B

EDWARDSPORT

IGCC

Project

Communication and

Management Protocol

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Contains confidential information proprietary to Duke Energy and/or Bechtel which may only be used, reproduced, or disclosed outside of such companies pursuant to the terms of the confidentiality agreement between Duke Energy and Bechtel.

1. PROJECT MANAGEMENT PLAN

The description of the Scope of Services provided by Contractor is contained in the Project Scope Book attached as Exhibit A to the Agreement. The purpose of this Project Communication and Management Protocol (“ CM Protocol ”) is to further delineate the division of responsibilities identified in the organization chart attached as Exhibit F to the Agreement, generally describe the roles and responsibilities of the Shared Services team and establish an overall communications protocol.

When used in this CM Protocol, capitalized terms are intended to have the same meaning as defined in the Agreement.

1.1. Organization

The Owner will be the overall program manager for the Project and retain control of the Site. Contractor has clear boundaries for its scope of work and for the construction area Contractor is managing. The integrated Owner/Contractor organization chart can be found in Exhibit F to the Agreement which depicts both the home office and Site organizations.

1.1.1. Contractor Project Organization

Contractor will lead the team that is responsible for the coordination and execution of the CM ISBL Work. Owner personnel supporting these activities will function as Borrowed Employees. The ISBL Construction Manager will be an integral participant in the overall Site Management Team (defined below).

The Contractor’s Scope of Services is organized along Contractor’s traditional EPCM large project structure which will be integrated into Owner’s overall Project organization. In general, engineering and procurement activities will be performed in the Houston office for the gasification island and in the Frederick office for the power island. Construction will be performed on a construction management basis using qualified local, regional, and national contractors. Start up activities are to be performed by an Owner-led integrated field site organization. The key Contractor positions (and general description of authority and roles) are as follows:

PROJECT DIRECTOR (***)

•

Overall signature authority for all aspects of the Project (as it relates to CM ISBL Work)

•

Copied on correspondence as indicated in Section 1.2.1 of this CM Protocol and in accordance with a communications and distribution matrix currently being developed by the Parties

•

Signature authority for Agreement requirements (such as Change Orders) and all other issues relating to the Agreement

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PROJECT MANAGER (***)

•

Responsible for overall CM ISBL Work and day-to-day project execution with respect to the CM ISBL Work

•

Primary contact for all Agreement requirements

•

Signature authority for Agreement requirements (such as Change Orders)

•

Management of the Agreement

•

Overall signature authority for all aspects of the Project (as it relates to CM ISBL Work)

•

Copied on correspondence as indicated in Section 1.2.1 of this CM Protocol and in accordance with a communications and distribution matrix currently being developed by the Parties

•

Liaison for Borrowed Employees

PROJECT ENGINEERS (***)

•

Responsible to Project Manager for day-to-day project technical execution for respective areas

•

Primary contact for Engineering Services matters with Owner, Managed Vendors, and GE

•

Contact (with Project Manager) for technical requirements related to Agreement

•

Copied on all correspondence ( in accordance with a communications and distribution matrix currently being developed by the Parties) relating to technical matters with Owner, Managed Vendors and GE

PROJECT PROCUREMENT MANAGER (***)

•

Responsible to Project Manager for day-to-day project procurement activities

•

Primary contact for Procurement Services matters with Owner and Managed Vendors

•

Contact (with Project Manager) for Procurement Services requirements related to Agreement

•

Copied on all correspondence (in accordance with a communications and distribution matrix currently being developed by the Parties ) relating to procurement matters with Owner and Managed Vendors

PROJECT CONTRACTS MANAGER (***)

•

Responsible to Project Manager for day-to-day contracts activities

•

Primary contact for Owner Service Contracts matters with Owner and Managed Vendors

•

Contact (with Project Manager) for Owner Service Contracts requirements related to Agreement

•

Copied on all correspondence ( in accordance with a communications and distribution matrix currently being developed by the Parties) relating to Owner Service Contracts matters with Owner and Managed Vendors

ISBL CONSTRUCTION MANAGER (***)

•

Responsible to Project Manager for day-to-day CM ISBL Work at Site

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•

Primary interface with Owner and Owner’s Project Director-Project Execution, Managed Vendors and GE for CM ISBL Work at Site

•

Contact (with Project Manager) for CM ISBL Work requirements related to Agreement

•

Copied on all correspondence ( in accordance with a communications and distribution matrix currently being developed by the Parties) relating to CM ISBL Work with Owner, Managed Vendors and GE

1.1.2 Owner Project Organization

Owner’s Project General Manager will have responsibility for the overall Project. Owner’s Project Director – Project Execution will have overall authority to direct activities at the Site. Owner will lead the OSBL construction team, which is responsible for the coordination and execution of the OSBL Work (as defined in Part I Section 2.3 of the Scope Book). Contractor personnel supporting these functions will serve as Borrowed Employees. The OSBL Construction Manager will be an integral participant in the overall Site Management Team. Owner will commission and start-up the Facility. The key Owner positions (and general description of authority and roles) are as follows:

VICE PRESIDENT MAJOR PROJECTS (***):

•

Signature authority for Agreement requirements (such as Change Orders) and all other issues relating to the Agreement

•

Overall signature authority for all aspects of the Project

PROJECT GENERAL MANAGER (***):

•

Responsible for overall Project

•

Primary contact for the Agreement

•

Signature authority for Agreement requirements (such as Change Orders) and all other issues relating to the Agreement

•

Management of the Agreement

•

Overall signature authority for all aspects of the Project

•

Copied on correspondence as indicated in Section 1.2.1 of this CM Protocol and in accordance with a communications and distribution matrix currently being developed by the Parties

•

Liaison for Borrowed Employees

PROJECT DIRECTOR-ENGINEERING & TECHNICAL (***):

•

Signature authority for the following areas:

•

Engineering Services

•

Procurement Services for Owner Equipment until delivered to the Site

•

Engineering and specifications

•

Contract administration of Owner Equipment

•

All expediting, quality assurance and technical evaluation

•

Traffic and logistics of Owner Equipment

•

Invoice approval

•

Owner Services - Bechtel home office technical specifications

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PROJECT DIRECTOR-PROJECT EXECUTION (***)

•

Signature authority for the following areas:

•

CM ISBL Work

•

Owner Services

•

Procurement of all Owner Services

•

Contract administration of Owner Services

•

Invoice approval

•

Overall management of Site execution

•

Shared Services

•

Management of all Shared Services Teams

•

Management of all Site services

•

OSBL Work

•

Administrative issues relating to Borrowed Employees

MANAGING DIRECTOR – SOURCING & MATERIALS MANAGEMENT (***)

•

Approval of all bidders

•

Approval of bid documents prior to submittal to bidders

•

Approval of any changes to pro forma terms

•

Approval of any variations to the bid documents

•

Final award

1.1.3 Shared Services Team

The Shared Services team will be responsible for supporting both Construction Managers (ISBL and OSBL). Lead positions in the Shared Services team will be responsible for developing and implementing the appropriate strategy for their respective functional area across the Project as well as efficient utilization of resources within the functional area. Owner will also appoint personnel in a “shadow role” within the Shared Services team. Personnel in such “shadow role” will assist the Project in a program oversight role, auditing to insure that the work is completed in a manner consistent with the Agreement, this CM Protocol, and Owner policies, as applicable.

Owner will manage the Shared Services which consist of the following functions:

•

Quality Assurance

•

Project Support Services (Cost/Document Control/IT Support)

•

Commissioning and Start Up

•

Environmental Safety and Health

•

Contract Management

•

Site Materials Management

•

Project Schedule Management

Quality Assurance

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•

The Quality Assurance Team will perform and manage quality activities at the Site. The Quality Assurance Team will verify and monitor all contractors’ (including Managed Vendors’ and GE’s ) and their subcontractors’ adherence with the Quality Assurance Plan. Quality assurance audits supplemented with surveillances will be conducted by the Quality Assurance Team to verify the Project’s conformance to approved policies, procedures and instructions, including: review and status of contractor processes and procedures, independent verification of work being performed, and ensuring completed work is fully compliant with the design requirements; provided, however, that the day-to-day quality surveillances of the CM ISBL Work will be performed by Contractor. All inspections will be documented, and corrective work, if any, will be authorized by appropriate personnel. The key position within the Quality Assurance Team is:

Quality Program Coordinator :

•

Maintains and verifies implementation of the Quality Assurance Plan for the Project. Manages and coordinates the Quality Assurance Plan activities associated with one or more functions in engineering, environmental, procurement, construction, testing, and operations. Advises Site Management Team of Project quality assurance problems and progress.

The Quality Program Coordinator will designate at least one individual from the Quality Assurance Team to take day-to-day direction from the ISBL Construction Manager.

Project Support Services (Cost/Document Control/IT Support)

The Project Support Services Team will perform Site services for cost engineering, document control and IT support as follows:

Cost Engineering

Responsible for the overall cost control, cost analysis, performance, and estimating functions for the Site.

Document Control

Responsible for the overall management and control of design documents for the Site.

IT Support

Responsible for the overall information technology support for the Site, including equipment purchase and maintenance and system set-up.

The key position within the Project Support Services Team is:

Project Support Services Manager :

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•

Directs cost estimating, analysis, controls, maintenance, monitoring, and impact identification, and supports recovery plan development activities. Directs the preparation and presentation of Project estimates and cost forecasts. Supports Project organizational and administrative activities. Provides generally non-routine cost engineering/planning. Identifies, analyzes, and provides solutions to cost engineering problems. Directs IT support, IT equipment purchase and maintenance, and systems setup. Directs field document controls systems and processes. Advises Site Management Team of Project Support Services problems and progress.

The Project Support Services Manager will designate at least one individual from the Project Support Services Team to take day-to-day direction from the ISBL Construction Manager.

Commissioning and Start Up

•

The Commissioning and Startup Team will be responsible for developing and implementing a strategy for the overall commissioning and startup of the entire Facility.

•

Contractor will supply startup and operations personnel to the Commissioning and Startup Team as Borrowed Employees. The Contractor ISBL Systems Coordinator will mobilize to the Site to support commissioning, startup and operation activities of the CM ISBL Work.

The key position within the Commissioning and Start Up Team is:

Commissioning/Startup Manager

•

Implements the strategy for the overall commissioning and startup of the entire Facility and manages and supervises all commissioning/startup activities and personnel (including those activities and startup personnel of Managed Vendors and GE) on the Project. Plans and directs startup assignments on the Project. Technical responsibility for organizing, executing, and coordinating these assignments. Makes day-to-day decisions within assigned area or project and makes recommendations to department or Project management regarding policy and procedure. Responsible for review of Project designs and recommendation of changes to design so that Project is safe and operable. Advises Site Management Team of commissioning and start up problems and progress.

Environmental, Safety and Health (ES&H)

•

The Site ES&H Team is responsible for the implementation, management and enforcement of the Environmental, Safety and Health Plan for the Site; provided, however, that the day-to-day ES&H oversight of the CM ISBL Work will be performed by Contractor.

The key position in the ES&H Team is:

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION

ES&H Manager

•

Supervises the ES&H functions for the entire Project and interfaces with the Owner’s Senior Safety Professional on a periodic basis to assure common agreement on the various safety initiatives and hazard control methods. Advises Site Management Team of ES&H problems and progress.

The ES&H Manager will designate at least one individual from the ES&H Team to take day-to-day direction from the ISBL Construction Manager.

Contract Management

The Contract Management Team will administer contracts for the Site. Responsibilities include management of correspondence with contractors (including Managed Vendors), managing contractor change requests, evaluating proposed changes, preparing pre-mobilization checklists, and contract closeout.

The key position within the Contract Management Team is:

Contracts Manager

•

Responsible for administering contracts at the Site including implementation of the Owner Project Group work process procedures and automated contract management systems. Responsible for the training of personnel assigned to support contract administration. Advises Site Management Team of contracts problems and progress.

The Contracts Manager will designate at least one individual from the Contract Management Team to take day-to-day direction from the ISBL Construction Manager.

Site Materials Management

The Materials Management Team is responsible for materials management for the Site including furnishing current status of equipment and material at the Site and will act as liaison between Site and off Site procurement in coordination of these efforts. The Materials Management Team will be responsible for the receipt inspection; resolution of unsatisfactory, overage, shortage, and damage reports; Site materials management; Site traffic and logistics management; storage and maintenance; inventory control; and issuance of equipment and materials to contractors. The Materials Management Team will also be responsible for procurement of miscellaneous material not included on the Material Assignment Schedule.

The key position within the Materials Management Team is:

Director of Materials Management :

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION

•

Leads the Project and field materials management activities to ensure the overall organizational effectiveness among all functions responsible for the materials management process. Establishes policy and monitors and approves the development of automated and manual material management and inventory control systems. Plans, directs, coordinates, and monitors personnel actions for material management staff. Advises Site Management Team of material management problems and progress.

The Director of Materials Management will designate at least one individual from the Materials Management Team to take day-to-day direction from the ISBL Construction Manager.

Project Schedule Management

•

The Project Schedule Management Team is responsible for creating, managing, statusing, and issuing the Project Schedule and other general planning and scheduling activities at the Site.

•

As the construction contract packages are awarded, the Project Schedule Management Team will incorporate contractors’ approved level 3 schedules into the Project Schedule. The Project Schedule Management Team will, on a weekly basis, receive inputs from the Contractor (which consists of the Contractor EP Schedule) and other contractors for integration into the Project Schedule and will subsequently status the Project Schedule and report status and variances to Contractor and others as applicable. The Project Schedule Management Team will lead the development and coordination of any required recovery plan.

•

The key position within the Project Schedule Management Team is:

Project Schedule Manager :

•

Supervises the creating, managing, statusing, and issuing of the Project Schedule and other general planning and scheduling activities at the Site. Advises Site Management Team of Project scheduling problems and progress.

The Project Schedule Manager will designate at least one individual from the Project Schedule Management Team to take day-to-day direction from the ISBL Construction Manager.

1.1.4. Joint Owner/Contractor Teams

The Owner and Contractor will establish certain committees and teams to assist with Project management. The Steering Committee will be established and perform in accordance with the terms of the Agreement. The Parties will also establish a Site Management Team to perform the overall execution, functional, and administrative management of the day-to-day work activities at the Site. The Site Management Team is an integrated Owner/Contractor leadership team and will consist of the following functional managers:

•

Project Director-Project Execution

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION

•

CM ISBL Construction Manager

•

OSBL Construction Manager

•

Engineering Manager

•

Project Support Services Manager

•

Quality Program Coordinator

•

ES&H Manager

•

Commissioning/Start-Up Manager

•

Contracts Manager

•

Director of Materials Management

•

Project Schedule Manager

1.2. Communications Procedures

1.2.1. COMMUNICATIONS BETWEEN OWNER AND CONTRACTOR

Owner will have authority to direct all matters relating to the Project, subject to the communications protocol described below. Owner reserves the right to recommend or direct changes to the order and approach of the work by defined communications with the authorized Contractor representatives, as described below.

Subject to the final sentence of this paragraph, any “significant” communications must be delivered in writing by letter, transmitted via the designated Owner eRoom created solely for Contractor and Owner access (the “ Duke/Bechtel eRoom ”). Significant communications directed to Contractor will also be e-mailed to the Contractor’s Project Manager with copies to Contractor’s Project Director. Significant communications directed to Owner will also be e-mailed to Owner’s General Manager with copies to Owner’s Assistant General Counsel. Any formal notices that require service upon another Party (such as a notice of suspension, notice of breach, etc., in each case, a “ Formal Notice ”) shall be delivered in accordance with Section 24.9 of the Agreement.

Significant communications include the following:

•

Communications that reflect the position of Owner or Contractor

•

Original messages of policies or directives

•

Communications that direct changes to the order and approach of Contractor’s Services that have a significant actual or potential effect on the cost, design, quality, safety, schedule, work process and procedures, or performance

•

Communications relating to Changes or amendments to the Agreement

All “significant” communications issued by Owner will be issued by the authority of the Project General Manager or designee. All “significant” communications issued by Contractor will be issued by the authority of the Contractor Project Manager or designee. The Project General

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION

Manager and the Contractor Project Manager may designate individuals, in writing, with a signature authority.

All Project communications between Contractor and Owner (other than any Formal Notice or technical data as described below) and all commercial data will be placed through the Duke/Bechtel eRoom. Contractor is responsible for issuance of commercial and technical data into the designated Owner eRoom.

Technical data will be placed by Contractor in the designated eRoom created solely for Owner, Contractor and GE access (“ 3-way eRoom ”) which resides on the Owner’s server. This 3-Way eRoom is designed for the communication exchange between Owner/Contractor/General Electric for certain Contractor and Managed Vendor technical information.

1.2.2. COMMUNICATION TO MANAGED VENDORS

Contractor will be responsible for the day-to-day communication with Managed Vendors; provided, however that Owner reserves the right to communicate with all Managed Vendors at its discretion but will to the extent possible coordinate such communication with Contractor. The Contractor will copy the Owner on any of its correspondence with the Managed Vendors by issuing a copy to the Duke/Bechtel eRoom.

Contractor has established a Managed Vendor eRoom on Contractor’s server (“ Vendor eRoom ”) for exchanging technical data among the Managed Vendors for review and issuance. The Managed Vendors will issue all of their respective communications and related data to the Vendor eRoom. Contractor is responsible for issuing technical data received from the Managed Vendors to Owner into the 3-way eRoom. It is the intent of the Parties that Contractor will handle technical data received from GE in the same manner as technical data received from the Managed Vendors; ***.

1.2.3 SITE COMMUNICATION

In this integrated arrangement some Owner personnel will directly utilize Contractor applications within the Contractor network. Only Owner personnel authorized by Contractor (and identified as account holders for this purpose) utilizing Contractor managed devices will be allowed to connect directly to the Contractor network. Several Contractor applications will be made accessible via web based interfaces to authorized Owner personnel external to the Contractor network. Tools such as eRoom, CTI and BecTransfer will be enabled in this capacity.

RESTRICTED DUKE-BECHTEL CONFIDENTIAL INFORMATION

EXHIBIT C

***

EXHIBIT D

SITE DESCRIPTION

The Site shall mean that area of land located in Sections 1 and 12 of Township 04 North and Range 08 West in Vigo Township, Knox County, Indiana, and generally west of the West Fork of the White River, north of State Road 358, east of State Road 67, and south of the site of the existing Duke Energy Edwardsport Generating Station as shown on the attached drawing.

EXHIBIT E

LIST OF TECHNICAL DATA

Major foundation stress calculations (including electronic files)

Structural steel stress calculations (including electronic files)

Critical pipe stress calculations (including electronic files)

Electrical system calculations, e.g., short circuit, relay coordination, etc. (including electronic files)

EXHIBIT F

***

EXHIBIT G

***

EXHIBIT H

***

EXHIBIT I

***

EXHIBIT J

***

EXHIBIT K

***

EXHIBIT L

June 9, 2008

Bechtel Power Corporation

5275 Westview Drive

Frederick, MD 21703

Attn: Amos A. Avidan

Re:

Confidentiality Agreement

Dear Amos:

Duke Energy Indiana, Inc. (“Duke”, which term shall, for purposes of this Agreement, include its affiliates and subsidiaries) and Bechtel Power Corporation (“Bechtel”, which term shall, for purposes of this Agreement, include its affiliates and subsidiaries) (Duke and Bechtel each a “ Party ” and collectively, the “ Parties ”), together with the General Electric Company (“ GE ”), previously entered into that certain Amended and Restated Confidentiality Agreement dated as of July 26, 2007 (the “ Existing Confidentiality Agreement ”), relating to disclosure of confidential information in connection with their respective preliminary work on the Edwardsport integrated gasification combined cycle facility (the “ Project ”). Further, the Parties previously entered into a Technical Services Agreement effective as of February 13, 2006, as amended by Amendment No. 1 dated May 30, 2006, and another Technical Services Agreement effective as of May 7, 2007 with respect to such preliminary work relating to the Project. The Parties are entering into negotiations relative to a definitive agreement between the Parties with respect to the Project and desire to enter into a third Technical Services Agreement, dated as of the date hereof, for purposes of undertaking additional work for the development and construction of the Facility. As a result of such third Technical Services Agreement, the Parties now desire to enter into this confidentiality letter agreement (this “ Agreement ”), in order, among other things, (i) for Duke to use the Confidential Information (as defined below) of Bechtel for the purposes of design, construction, maintenance, operation, repair, modification, licensing, simulation, commissioning and decommissioning of the Project, training, consultation and compliance with laws in respect of the Project, and otherwise for Duke’s internal business purposes and (ii) for Bechtel to use the Confidential Information of Duke for the purposes of fulfilling its contractual obligations to Duke in respect of the Project (such purposes described in the foregoing clauses (i) and (ii) of this paragraph, collectively, the “ Purposes ”). Each Party furnishing its Confidential Information shall be hereinafter referred to, with respect to such information, as the “ Disclosing Party ,” and each Party receiving such information shall be hereinafter referred to, with respect to such information, as the “ Receiving Party ”.

All information regarding a Party’s properties, employees, finances, businesses, operations, assets, prospects, financial affairs and proprietary technology furnished or disclosed by a Disclosing Party or its Representatives (as defined below) to the other Party, whether furnished or disclosed before or after the date hereof and regardless of the manner in which it is furnished or disclosed, that is: (i) written or electronic and clearly marked ‘Confidential’, ‘Proprietary’, ‘Bechtel Sulfur Confidential’ or ‘Bechtel Sulfur Information’ ¹ , or (ii) if furnished or disclosed orally or visually, is identified by the Disclosing Party as being ‘Confidential’,

¹	Attachment No. 1 hereto contains a complete definition of “Bechtel Sulfur Information”.

‘Proprietary’, ‘Bechtel Sulfur Confidential’ or ‘Bechtel Sulfur Information’ at the time of such oral or visual disclosure and also identified as such in a writing or electronic message sent by the Disclosing Party and received by the Receiving Party within ten (10) days after such disclosure, such writing or electronic message setting forth (A) the date and approximate time of the oral or visual disclosure, (B) the names of the Representatives of each Party disclosing and receiving such oral or visual disclosure and (C) the information that was identified by the Disclosing Party at the time of oral or visual disclosure as being ‘Confidential’, ‘Proprietary’, ‘Bechtel Sulfur Confidential’ or ‘Bechtel Sulfur Information’ (such information described in the foregoing clauses (i) and (ii) of this paragraph, collectively, the “ Confidential Information” ). All such information disclosed by a Disclosing Party or its Representatives shall remain the Disclosing Party’s Confidential Information notwithstanding the inclusion of such information in summaries or other documents created by the other Party or its Representatives.

The term “Confidential Information” shall not include information that: (a) is or becomes available to the public other than as a result of a disclosure by the Receiving Party or any of its Representatives (as defined below) in breach of this Agreement or any previous agreement to which the Parties were previously bound , (b) was available to the Receiving Party on a non-confidential basis prior to its disclosure by the Disclosing Party or its Representatives from a person who was not known by the Receiving Party or any of its Representatives to be otherwise bound by a confidentiality agreement with the Disclosing Party or any of its Representatives, or otherwise under an obligation to the Disclosing Party or any of its Representatives not to transmit the information to the Receiving Party, (c) is developed independently by the Receiving Party or any of its Representatives without use or benefit of information disclosed by the Disclosing Party, or (d) becomes available to the Receiving Party on a non-confidential basis from a person other than the Disclosing Party or its Representatives who is not, to the best of the Receiving Party’s knowledge, otherwise bound by a confidentiality agreement with the Disclosing Party or any of its Representatives, or otherwise under an obligation to the Disclosing Party or any of its Representatives not to transmit the information to the Receiving Party. Specific information shall not be deemed to fall within one of the exceptions described in (a) through (d) above solely because it is contained in more general information that does fall within one of the aforementioned exceptions.

Subject to the immediately succeeding paragraph, unless otherwise agreed to in writing by a Disclosing Party, each Party agrees: (a) except as required by law, rule, applicable regulation, stock exchange rule or disclosure requirement of the Securities and Exchange Commission (collectively, “ Law ”), to keep all Confidential Information of the other Party confidential and not to disclose or reveal any such Confidential Information to any person other than to: (i) its directors, partners, officers and employees and those attorneys, accountants, financial advisors, consultants or other agents or advisors who are not officers or employees and who need to know such Confidential Information for such Party’s Purposes (such persons being collectively referred to herein as “ Representatives ”); (ii) in the case of Duke, Potential Participants (as defined below) who need to know such Confidential Information to evaluate participation in the Project and who have entered into a confidentiality agreement with Duke substantially in the form attached as Attachment No. 2 hereto; (iii) contractors and vendors of Duke who need to know Confidential Information of Bechtel for Duke’s Purposes and who have entered into a confidentiality agreement with Duke substantially in the form attached as Attachment No. 2 hereto; and (iv) contractors and vendors of Bechtel who need to know Confidential Information of Duke for Bechtel’s Purposes and who agree in writing to keep such

information confidential in accordance with the terms of this Agreement; and (b) not to use, and to take commercially reasonable efforts to cause its Representatives not to use, Confidential Information of the other Party for any purpose other than in connection with such Party’s Purposes. During the period prior to substantial completion of the construction of the Project, competitors of Bechtel identified in Schedule I attached hereto (each, a “ Bechtel Competitor ”) shall use any Confidential Information of Bechtel only for the purposes of providing technical or advisory services or off-site fabrication services in connection with the Project and shall have first entered into a confidentiality agreement with Duke substantially in the form attached as Attachment No. 3 hereto, and Duke shall permit disclosure only to those Bechtel Competitor employees in positions and in numbers appropriate to the scope of work contemplated (but in no event more than ten employees for any confidentiality agreement without the prior written consent of Bechtel, which consent shall not be unreasonably withheld). In no event shall Duke allow any Bechtel Competitor to access the Project data room containing Bechtel estimate data without the prior written consent of Bechtel. Each Party will be responsible for any breach of this paragraph by any of its Representatives. Each Party will be bound by the foregoing obligations of confidentiality hereunder for a period of five (5) years from the date hereof. With respect to Bechtel Sulfur Information, the Receiving Party’s obligation shall be evergreen, so long as such information shall not be available to the public, and have no termination.

In connection with the Project, Duke may deem it necessary or advisable to discuss the Project with one or more third parties with respect to such third parties’ potential participation with respect to the Project (each, a “ Potential Participant ”). In this regard, it may be necessary or advisable for Duke to disclose to a Potential Participant Bechtel’s Confidential Information. Bechtel hereby consents to any future discussions between Duke and any Potential Participants with respect to the Project and to the disclosure of Bechtel Confidential Information by Duke to any and all Potential Participants, so long as such Potential Participant has entered into a confidentiality agreement with Duke on the terms set forth in the preceding paragraph. Notwithstanding the foregoing, in the event that Duke does not pursue participation in the Project with a Potential Participant, but continues work on the Project with Bechtel, Duke agrees not to thereafter disclose, and will direct its Representatives not to thereafter disclose, to such Potential Participant any further Confidential Information of Bechtel, subject to the exceptions set forth in this Agreement.

The Parties acknowledge and agree that Bechtel and GE are parties to an agreement protecting the confidentiality of each of their respective Confidential Information. Accordingly, and notwithstanding anything to the contrary herein, (a) Duke and its Representatives shall be free to disclose Bechtel’s Confidential Information (unless marked “Restricted Duke-Bechtel Information” or something substantially similar that indicates that disclosure to GE is not permitted), including Bechtel Sulfur Information, to GE and its affiliates without first entering into any agreement therewith regarding protection of Bechtel’s Confidential Information and (b) Duke shall have no liability to Bechtel or to any third party for the failure or alleged failure of GE or any of its affiliates to protect the confidentiality of Bechtel’s Confidential Information.

In the event that a Receiving Party or any of its Representatives is legally compelled, pursuant to a subpoena, civil investigative demand, regulatory demand or other process or Law, to disclose any Confidential Information of the other Party, such Receiving Party agrees

that it will provide the Disclosing Party with prompt notice of such request or requirement (if legally permissible to do so) to enable the Disclosing Party, at the Disclosing Party’s sole expense, to seek an appropriate protective order or other remedy, to consult with the Receiving Party with respect to the Disclosing Party taking steps to resist or narrow the scope of such request or legal process, or to waive compliance, in whole or in part, with the terms of this Agreement. In any such event, the Receiving Party will use commercially reasonable efforts to ensure that all such Confidential Information of the other Party that is so disclosed will be accorded confidential treatment and shall furnish only that portion of such Confidential Information that the Receiving Party is advised by counsel is legally required. If, in the absence of a protective order, the Receiving Party or any of its Representatives is compelled to disclose Confidential Information of the other Party as a matter of Law, the Receiving Party shall disclose only that part of such Confidential Information as is required by Law to be disclosed (in which case, prior to such disclosure, the Receiving Party will, to the extent practicable and permissible, advise and consult with the Disclosing Party and its counsel as to such disclosure and the nature and wording of such disclosure), and, to the extent practical in the circumstances, the Receiving Party will use its reasonable efforts to obtain confidential treatment for any Confidential Information so disclosed.

In connection with the Project, Duke may deem it necessary or advisable to discuss certain matters relating to the Project with the Midwest Independent System Operator (MISO), the Indiana Utility Regulatory Commission (IURC), the Indiana Department of Environmental Management (IDEM), the Indiana Office of Utility Consumer Counselor (OUCC), the federal Environmental Protection Agency (EPA), or other similar entity whose involvement or approval is necessary or prudent for carrying out the Project or the work required by other agreements between the Parties. In this regard, it may be necessary or prudent for Duke to disclose to such persons the proposed terms thereof or Bechtel’s Confidential Information. In holding such discussions, Duke undertakes to convey to such persons the importance of maintaining confidentiality with respect to the matters that are discussed. Accordingly, Bechtel hereby consents to discussions between the foregoing persons, on the one hand, and Duke and its Representatives, on the other, regarding regulatory matters pertinent to the Project and Duke may disclose Confidential Information of Bechtel to MISO, IURC, IDEM, OUCC, EPA or other similar entity in such discussions.

Each Receiving Party acknowledges that Confidential Information is and at all times remains the sole and exclusive property of the Disclosing Party, and the Disclosing Party has the exclusive right, title and interest to its Confidential Information. No right or license, by implication or otherwise, is granted by the Disclosing Party as a result of disclosure of Confidential Information under this Agreement, but such right or license may arise as specified in any prior or future agreements between the Parties.

Each Receiving Party acknowledges that no Disclosing Party nor any of its Representatives, by its signature below, makes any express or implied representation or warranty as to the accuracy or completeness of its Confidential Information, and each Receiving Party agrees that none of such persons, by sole reason of this Agreement, shall have any liability to any Receiving Party or any of its Representatives relating to or arising from the use of any Confidential Information by the Receiving Party or its Representatives or for any errors therein or omissions therefrom. For the avoidance of doubt, the foregoing shall not negate or restrict any express or implied representation or warranty relating to the accuracy or completeness of a

Party’s Confidential Information arising as specified in any other agreements between the Parties.

This Agreement binds the Parties only with respect to the matters expressly set forth herein and nothing in this Agreement shall bind any of the Parties to other specific terms or conditions relating to the Project. Neither of the Parties is bound or committed to negotiate or consummate the Project by virtue of this Agreement unless and until a definitive agreement on such matters between the Parties has been executed and delivered on behalf of each such Party by its duly authorized officer.

Each Receiving Party is aware, and will advise its Representatives who are informed of the matters that are the subject of this Agreement, of the restrictions imposed by the United States securities laws on the purchase or sale of securities by any person who has received material, non-public information from the issuer of such securities and on the communication of such information to any other person when it is reasonably foreseeable that such other person is likely to purchase or sell such securities in reliance upon such information. Each Receiving Party hereby confirms that it, and its Representatives, will take any action necessary to prevent the use of any information about any Disclosing Party in a way which might violate any antitrust or other applicable Law.

Notwithstanding anything to the contrary herein, Duke shall have the right to permit visitors to tour the Edwardsport integrated gasification combined cycle facility without entering into any confidentiality agreement with such visitors prior to such tour.

It is understood that the covenants of this Agreement and the Confidential Information disclosed are special, unique and of extraordinary character. Each Disclosing Party may be irreparably harmed by a breach of this Agreement by a Receiving Party, and the use of the Confidential Information for the business purposes of any person other than the Disclosing Party may enable such person to compete unfairly with the Disclosing Party. Without prejudice to the rights and remedies otherwise available to each of the Parties, each Party shall be entitled to seek equitable relief by way of injunction or otherwise if another Party or any of its Representatives breaches or threatens to breach any of the provisions of this Agreement. It is further understood and agreed that no failure or delay by a Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder.

Each Party shall be responsible for the costs and expenses incurred by it and its Representatives in carrying out the purposes of this Agreement.

This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana applicable to contracts executed in and to be performed in that state.

This Agreement shall be binding on the Parties and their respective successors and permitted assigns. Any assignment of this Agreement, in whole or in part, by either Party without the prior written consent of the other Party hereto shall be null and void ab initio .

This Agreement is solely for the benefit of the Parties, and this Agreement shall not be deemed to confer upon or give to any third party any remedy, claim of liability or reimbursement, cause of action or other right.

If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, illegal or unenforceable, the remainder of the provisions of this Agreement shall remain in full force and effect. The Parties shall endeavor in good faith negotiations to replace any invalid, illegal or unenforceable provision with a valid, legal and enforceable provision, the effect of which comes as close as possible to that of the invalid, illegal or unenforceable provision.

No modification of this Agreement or waiver of the terms and conditions hereof shall be binding upon the Parties, unless approved in a writing signed by each of the Parties.

This Agreement contains the entire agreement among the parties concerning the subject matter hereof and supersedes any and all previous understandings or agreements, whether written or oral, pertaining to said subject matter, including the Existing Confidentiality Agreement, which is hereby terminated with respect to Duke and Bechtel without surviving obligations. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement.

Bechtel shall not, and shall not permit any of its Representatives to, issue any press or publicity release, concerning this Agreement, the Project or any other agreement between the Parties relating to the Project without the express prior written consent of Duke, which shall not be unreasonably withheld.

Please acknowledge your agreement to the foregoing by countersigning this Agreement in the space provided below and returning to the undersigned a fully executed original copy of this Agreement.

Sincerely,


DUKE ENERGY INDIANA, INC.

By:		/s/ W. Michael Womack
Name:		W. Michael Womack
Title:		Vice President

Accepted and Agreed as of the date first written above:


BECHTEL POWER CORPORATION

By:		/s/ Amos A. Avidan
Name:		Amos A. Avidan
Title:		IGCC/Gasification Operations Manager

Attachment No. 1 – Definition of “Bechtel Sulfur Information”

“Bechtel Sulfur Information” means Bechtel’s information relating to processes for the conversion of hydrogen sulfide to elemental sulfur in an environmentally acceptable manner, including but not limited to, Claus sulfur recovery, tail gas treating, and thermal oxidizing.

Attachment No. 2 – Form of Confidentiality Agreement (non-competitors)

Form Non-Disclosure and Secrecy Agreement

THIS NON-DISCLOSURE AND SECRECY AGREEMENT (this “ Agreement ”) is entered into as of the day of , 20 , between Duke Energy Indiana, Inc., an Indiana corporation having its principal place of business in Charlotte, North Carolina (“ Duke Energy ”), and , a [ corporation ] having its principal place of business in (the “ Company ”). Duke Energy and the Company shall sometimes be individually referred to herein as a “ Party ” and collectively as “ Parties .”

R E C I T A L S:

A. Duke Energy is developing an integrated gasification combined cycle facility in Edwardsport, Indiana (the “ Facility ”).

B. Duke Energy and the Company are engaged in, or intend to engage in, discussions pursuant to which [ (a) Duke Energy may engage the Company to construct, operate, maintain, modify, repair, test, train, commission, decommission, license or inspect the Facility, or (b) the Company may consider purchasing all or a portion of the Facility ] . [Tailor to purposes in connection with the Company.]

C. The Parties acknowledge that each Party may make available to the other Party, from time to time, in connection with the aforementioned purposes, certain Confidential Information (as defined below), including Confidential Information belonging to General Electric Company or its affiliates (collectively, “ GE ”) or Bechtel Power Corporation or its affiliates (collectively, “ Bechtel ”) that is disclosed by Duke Energy, GE or Bechtel, as applicable, to the Company.

NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Party, the Parties, intending to be legally bound, agree as follows:

1. Definitions . As used in this Agreement,

(a) “ Confidential Information ” means all nonpublic information disclosed by, or on behalf of, a Party (or, with respect to disclosures of GE or Bechtel nonpublic information to the Company, GE or Bechtel, as applicable) (the “ Disclosing Party ”) to the other Party (the “ Receiving Party ”) or its Representatives (as defined below), whether disclosed before or after the date hereof (including any information disclosed under any previous confidentiality agreements) and regardless of the manner or format of such disclosure, that: (a) is designated in writing as “confidential,” “proprietary,” “GE Gasification Information,” “Bechtel Sulfur Information,” or similar designation by the Disclosing Party at the time of written disclosure; (b) a reasonable person in the power generation industry would understand to be confidential or proprietary by virtue of its nature; or (c) is orally or visually disclosed and confirmed and designated by the Disclosing Party to be “confidential” or “proprietary” in writing within thirty

(30) days after such oral or visual disclosure. Once orally or visually disclosed information has been designated as “Confidential” or as a similar designation, all future disclosures of such information shall be protected, regardless of whether such future disclosures are marked or designated as “Confidential” or with a similar designation. “Confidential Information” shall not include any information that: (i) was publicly available prior to disclosure thereof to a Receiving Party or its Representatives by a Disclosing Party; (ii) becomes publicly available after disclosure thereof to a Receiving Party or its Representatives by a Disclosing Party other than as a result of a public disclosure by such Receiving Party or its Representatives; (iii) is at the time of its disclosure to a Receiving Party or its Representatives, or becomes thereafter, available to the Receiving Party or its Representatives on a non-confidential basis from a source other than the Disclosing Party and such source is not, to the best of the Receiving Party’s knowledge, subject to a confidentiality obligation to the Disclosing Party regarding such information; (iv) is independently developed by a Receiving Party or its Representatives without reference to the Disclosing Party’s Confidential Information; or (v) is approved for disclosure in writing by the Disclosing Party. Specific information shall not be excluded from the above obligations merely because it is embraced by more general information excluded under items (i), (ii) or (iii) above. A specific combination of features or items shall not be so excluded unless the specific combination itself falls within items (i), (ii) or (iii) above; and

(b) “ GE Gasification Information ” has the meaning set forth on Schedule A hereto, which is hereby incorporated by reference into this Agreement; and

(c) “ Bechtel Sulfur Information ” has the meaning set forth on Schedule B hereto, which is hereby incorporated by reference into this Agreement; and

(d) “Representative” means (i) any affiliate, director, officer, employee, agent, advisor or other representative of a Disclosing Party or Receiving Party, as the case may be, and (ii) any contractor or vendor who needs to know the Confidential Information to construct, operate, maintain, modify, repair, test, train, commission, decommission, license or inspect the Facility and who enters into a Non-Disclosure and Secrecy Agreement with the Receiving Party in substantially the form hereof with Duke Energy, as well as GE and Bechtel, as third party beneficiaries thereof.

2. Non-Disclosure . Subject to Section 4 below, the Receiving Party shall (a) take reasonable precautions to prevent unauthorized disclosure or use of Confidential Information disclosed to it by, or on behalf of, the Disclosing Party, such precautions taken being at least as great as the precautions taken by the Receiving Party to protect its own Confidential Information (but in no case less than reasonable care), and (b) not disclose Confidential Information disclosed to it or its Representatives by, or on behalf of, the Disclosing Party to any third party (other than Duke Energy’s Representatives) without the Disclosing Party’s prior written authorization. Notwithstanding the foregoing, the Receiving Party may disclose Confidential Information of the Disclosing Party to any Representative of the Receiving Party, provided that the Receiving Party agrees to be responsible for each such Representative’s compliance with the terms hereunder binding on the Receiving Party. Duke Energy and the Company agree that Bechtel and GE are third party beneficiaries of this Agreement.

3. Authorized Uses . The Receiving Party and its Representatives shall use any Confidential Information disclosed to them by, or on behalf of, the Disclosing Party only (a) to the extent required to construct, operate, maintain, modify, repair, test, train, commission, decommission, license or inspect the Facility or (b) in the consideration of purchasing all or a portion of the Facility.

4. Required Disclosure . Notwithstanding anything to the contrary in this Agreement, a Receiving Party or its Representatives may disclose Confidential Information disclosed to it by, or on behalf of, the Disclosing Party if required, according to a good faith belief by Receiving Party’s or its Representative’s legal counsel, by law, legal process or a government authority. If a Receiving Party or its Representative is legally compelled to disclose Confidential Information disclosed to it by, or on behalf of, the Disclosing Party, or if such disclosure is necessary in order to comply with laws or obtain or maintain governmental approvals, applications or exemptions, the Receiving Party or its Representative must provide (if legally permissible to do so) the Disclosing Party with as much advance written notice as practicable to afford the Disclosing Party the opportunity to seek a protective order or other remedy to prevent disclosure. If such protective order or other remedy is not obtained, the Receiving Party or its Representative, as applicable, shall furnish only that portion of the Confidential Information disclosed to it by, or on behalf of, the Disclosing Party that is required in the opinion of its legal counsel and shall cooperate with the Disclosing Party, at the Disclosing Party’s expense, to enable the Disclosing Party to obtain a protective order or other reliable assurance that confidential treatment will be accorded the same.

5. Grantbacks . In the event the Company should obtain a patent, trade secret, or other intellectual property right, including, without limitation, an improvement to or a modification of GE Gasification Information, or equipment or materials used therein, based on or resulting from access to or use of Confidential Information of GE furnished by Duke Energy or GE, the Company agrees to grant and hereby grants an irrevocable, royalty-free, non-exclusive license to GE under such patent and/or such other intellectual property right, together with the right to extend such license to licensees of GE, all without accounting to the Company therefor.

6. Return or Destruction of Confidential Information . If any Party decides that it does not wish to continue discussions with respect to the Facility, such Party will promptly notify the other Party of that decision by giving a written termination notice. In such case or at any time for any reason, upon the written request of the Disclosing Party, the Receiving Party will, and will cause its Representatives to, promptly, (i) deliver to the Disclosing Party all original Confidential Information (whether written or electronic) furnished to the Receiving Party or its Representatives by or on behalf of the Disclosing Party, and (ii) if specifically requested by the Disclosing Party, destroy any copies of such Confidential Information (including any extracts therefrom); provided, however, so long as the Company is not in breach of any term of this Agreement with respect to Confidential Information of GE or Bechtel, the Company shall not be required to return or destroy Confidential Information at the request of GE or Bechtel, as applicable, to the extent the Company requires such Confidential Information to perform its obligations with respect to the Facility. Upon written request of the Disclosing Party for any reason, the Receiving Party shall, and shall cause its Representatives to, cause one of its duly authorized officers to certify in writing to the Disclosing Party that the requirements of the

preceding sentence have been satisfied in full. Notwithstanding the termination of any discussions with respect to the Facility or the return or destruction of any Confidential Information, the Receiving Party will continue to be bound by terms of this Agreement as provided herein.

7. Miscellaneous .

(a) Neither this Agreement nor any right, remedy, obligation or liability arising hereunder shall be assigned by any Party (whether by operation of law or otherwise), and any such assignment shall be null and void, except with the prior written consent of the other Party. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.

(b) The Parties acknowledge and agree that no failure or delay by a Party in exercising any right or privilege hereunder shall operate as a waiver thereof. The provisions of this Agreement may be modified or waived only in writing signed by the Party from whom compliance is sought.

(c) The Company agrees that neither GE nor Bechtel (i) makes any warranty to the Company as to the accuracy or completeness of the Confidential Information of GE or Bechtel; or (ii) shall have any liability to the Company resulting from the use of any Confidential Information of GE or Bechtel.

(d) This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana, without regards to the principles of conflicts of laws thereof.

(e) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. A facsimile of any signature shall have the same force and effect as an original.

(f) Each Party acknowledges and agrees that money damages would not be a sufficient remedy for any breach of this Agreement by such Party and that the other Party shall be entitled to seek equitable relief, including seeking an injunction and specific performance, as a remedy for any such breach. Such remedies shall not be deemed to be the exclusive remedies for a breach of this Agreement, but shall be in addition to all other remedies available at law or equity.

(g) This Agreement constitutes the entire agreement between the Parties with respect to the subject matter herein and supersedes and cancels any prior agreements, representations, warranties, or communications, whether oral or written, between the Parties relating to the subject matter herein.

(h) A Receiving Party shall: (i) notify the Disclosing Party immediately upon discovery of any unauthorized disclosure or use of Confidential Information disclosed by, or on behalf of, the Disclosing Party; and (ii) cooperate, without charge, with reasonable efforts by the

Disclosing Party to regain possession of such Confidential Information, prevent further breaches of this Agreement or prevent further unauthorized uses or disclosures of such Confidential Information.

(i) As between the Disclosing Party and the Receiving Party, the Disclosing Party shall remain the owner of all rights in Confidential Information disclosed by, or on behalf of, the Disclosing Party. Except for the limited right to use such Confidential Information for the purposes set forth in Section 3 above, nothing in this Agreement grants any express, implied or other license or right in such Confidential Information to the Receiving Party.

(j) The foregoing confidentiality obligations shall commence on the date hereof and shall end five (5) years thereafter, except with respect to GE Gasification Information and Bechtel Sulfur Information, for which such confidentiality obligations shall be evergreen and shall have no expiration.

(k) If any provision of this Agreement or portion thereof is found to be invalid, illegal or unenforceable, then, notwithstanding such invalidity, illegality or unenforceability, the illegal or unenforceable provision or portion shall be deemed to be deleted from this Agreement and the remaining provisions shall continue in full force and effect. The Parties specifically acknowledge that the absence of a time limitation in this Agreement is reasonable and properly required for the protection of each Confidential Information disclosed by each Party hereunder. In the event that the absence of such limitation is deemed by a court of competent jurisdiction to cause this Agreement to be invalid or unenforceable, then the Parties specifically intend for such court to impose any such time limitation as such court shall deem reasonable.

IN WITNESS WHEREOF, each party hereto has executed this Agreement, or caused this Agreement to be executed on its behalf, all as of the day and year first above written.


Duke Energy Indiana, Inc.

By:
Name:
Title:

The Company:



By:
Name:
Title:

SCHEDULE A

“ GE Gasification Information ” shall mean Confidential Information provided, directly or indirectly, by Duke Energy to the Company that is proprietary solely to GE, marked as “GE Gasification Information” or similar term and that describes: (1) the manufacture of synthesis gas (hydrogen and carbon monoxide) in a secret and proprietary process; and (2) its integration with other elements for: (a) electric power generation; (b) high purity hydrogen production; and (c) carbon capture, as described below.

(1)	The manufacture of synthesis gas in this context refers to the following:

Processes for producing synthesis gas, also known as reducing gas, or fuel gas, via the partial oxidation of solid, liquid and/or gaseous hydrocarbonaceous feedstocks, or combinations thereof, with oxygen, such as in the form of high purity oxygen, enriched air, or air, for the handling, preparation, and introduction of the feeds into the synthesis gas generation process, including any temperature moderators, such as steam, water, nitrogen, or carbon dioxide, for heating, cooling or recovering waste energy from feed, internal, or product streams, for separating contaminants from the synthesis gas, or otherwise purifying or processing the synthesis gas for its end use, and for recovering and processing the contaminants and waste solids for recycle, for disposal, or to form useful byproducts. Quantities, pressures, temperatures, compositions, and certain physical and chemical properties of each of the associated streams are included in this definition. The configuration of control systems that monitor or govern the flow of these streams and the operation of the process, as well as the process design of the equipment and the mechanical design of the GE proprietary equipment used in and for these processes, are also included.

(2)	The integration of the gasification process with:

(a)

that for electric power generation in this context refers to the following:

(i)

Processes for heat exchange between the gasification section, the air separation unit (ASU), and the combined-cycle power island utilizing steam, syngas, and water. Quantities, compositions, pressures, and temperatures of each of these streams are included in this definition. Configuration of control systems that monitor or govern the flow of these streams, as well as the thermal design of the Heat Recovery Steam Generator and other heat exchange equipment are also included.

(ii)

Processes that utilize and integrate the flow of compressed air between the gasification, ASU, and power plant sections and processes that utilize flows of diluents to the syngas fed to the combustion turbine. This includes the exchange of air and fuel diluent streams between the gasification section, the ASU, and the combustion turbine including these streams’ quantities, temperatures, pressures, and compositions. The configuration of control systems that monitor or govern these streams are also included in this definition. Fuel diluent streams are those streams that

are used to enhance the power plant’s output and to reduce emissions of NOx from the combustion turbine. These diluent streams may include, but are not limited to, nitrogen, steam, water, and carbon dioxide.

(iii)

Control systems configuration and execution, including software that is involved in the feedback, feed-forward, and hybrid systems that govern the relationship of fuel flow, oxygen flow, diluent flow, and power plant output.

(b)

that for hydrogen production in this context refers to the following:

Processes that increase the yield of hydrogen in the synthesis gas by reacting steam or water with carbon monoxide in the synthesis gas to form additional hydrogen, for separating and concentrating the hydrogen to form one or more gaseous streams of higher hydrogen purity, such as high purity hydrogen, for modifying the pressure of the feed and product streams, for heating, cooling or recovering waste energy from feed, intermediate, or product streams, for recycling hydrogen and non-hydrogen containing gases to increase the net yield of hydrogen, and for otherwise purifying, or removing or recovering contaminants from hydrogen-enriched and other product gases, including the synthesis gas. Quantities, pressures, temperatures, and the compositions of each of the associated streams are included in this definition. Control systems that monitor or govern the flow of these streams and the operation of the process, as well as the mechanical design of the equipment used in and for these processes, are also included.

(c)

that for carbon capture in this context refers to shift conversion, purification, membrane separation, acid gas removal and/or compression including any means or methods for integrating said combination, and any modifications or improvements to any of the foregoing for the purpose of producing carbon dioxide.

For the avoidance of doubt, the physical byproducts of sulfur and slag are not included within the definitions of “GE Gasification Information” or “Confidential Information.”

SCHEDULE B

Attachment No. 3 – Form of Confidentiality Agreement (competitors)

FORM OF CONFIDENTIALITY AGREEMENT [COMPETITORS]

This CONFIDENTIALITY AGREEMENT (this “Agreement”) is made on 200 , (“Effective Date”) by and between Duke Energy Indiana, Inc., an Indiana corporation having its principal place of business in Charlotte, North Carolina (“Duke Energy”), and [ ] (“RECIPIENT”) with its principal place of business at [ ] (collectively the “Parties” and each individually, a “Party”). In consideration of disclosure of Confidential Information (as defined below) to RECIPIENT, RECIPIENT agrees as follows:

SECTION 1 Purpose

1.1

RECIPIENT has been engaged by Duke Energy to assist Duke Energy in [tasks relating to the construction, licensing, commissioning, operation, repairs, maintenance, modification or decommissioning of, or training with respect to,] the integrated gasification combined cycle coal-fired electrical generation facility [to be constructed] at the Edwardsport site in Knox County, Indiana (the “Facility”) and, in such capacity, RECIPIENT may come into possession of Confidential Information as hereinafter defined. [NARROW PURPOSE FOR ENGAGEMENT]

SECTION 2 Definitions and Rules of Interpretation

2.1

Capitalized terms used but not otherwise defined in this Agreement have the meanings set forth in this Section 2.1:

“ Affiliate ” means any Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with a Party. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or otherwise.

“ Confidential Information ” means any and all information received by or otherwise made available to RECIPIENT or any of its employees (whether before or after the Effective Date) which is marked as being confidential to Bechtel Power Corporation (“Bechtel”).

“ Person ” means, unless otherwise specified, a natural person, corporation, society, partnership, joint venture, unincorporated association or consortium or other entity, including a governmental authority.

2.2

Headings and captions in this Agreement have been inserted for ease of reference only and shall not be used in the construction or interpretation of this Agreement.

SECTION 3 Term of Agreement; Survival of Obligations

3.1

This Agreement shall be effective as of the Effective Date and the confidentiality obligations set out in Section 4 shall cease to be effective after the expiry of five (5) years from the Effective Date, except with respect to Bechtel Sulfur Information, for which such confidentiality obligations shall, as long as such information shall not be available to the public, be evergreen and shall have no expiration. “Bechtel Sulfur Information” means Bechtel’s information relating to processes for the conversion of hydrogen sulfide to elemental sulfur in an environmentally acceptable manner, including but not limited to, Claus sulfur recovery, tail gas treating, and thermal oxidizing.

SECTION 4 Undertakings of RECIPIENT

4.1

RECIPIENT shall keep all Confidential Information confidential and shall not disclose Confidential Information to any Person, including any Affiliate of RECIPIENT, except as permitted under Section 5.

4.2

RECIPIENT shall protect the Confidential Information against disclosure and shall exercise no lesser security measures and degree of care in relation to the Confidential Information than (a) a reasonable Person under similar circumstances would exercise in relation to its own confidential information, and (b) RECIPIENT uses to protect its own confidential information of a like nature.

4.3

No right, license or other interest is granted to RECIPIENT in relation to the Confidential Information except as expressly set forth in this Agreement, and RECIPIENT shall not use Confidential Information for any purpose except as contemplated by Section 1.1.

4.4

RECIPIENT shall ensure that each Person to whom Confidential Information is disclosed (other than pursuant to Section 5.2) complies with the terms of this Agreement and shall require that any such Person enters into an acknowledgement of the terms of this Agreement in the form attached to this Agreement (“Acknowledgement”) as a condition to disclosure of such Confidential Information. Without limiting the foregoing, and notwithstanding any confidentiality agreement entered into by any of RECIPIENT’s employees with RECIPIENT or Bechtel, RECIPIENT shall be and remain fully liable for the acts or omissions of its employees with respect to Confidential Information and any disclosure or use of Confidential Information in violation of the terms of this Agreement.

4.5

RECIPIENT shall keep all Confidential Information, as well as all information, documentation or other materials bearing or incorporating any Confidential Information, both physically and electronically separate from other documents of RECIPIENT in such a manner to limit the potential for disclosure (inadvertent or otherwise) to others who have not similarly executed an Acknowledgment. In no event shall RECIPIENT use any Confidential Information for any commercial or competitive purpose, except as contemplated by Section 1.1.

SECTION 5 Permitted Disclosures

5.1

RECIPIENT may disclose Confidential Information to its employees who have signed the Acknowledgement, but only to the extent such disclosure is required for the purpose contemplated by Section 1.1.

5.2

RECIPIENT may disclose Confidential Information to the extent such disclosure is required by any applicable law or regulation or court or other governmental authority of competent jurisdiction provided that any such disclosure shall be limited to the specific part of the Confidential Information required to be disclosed. Immediately upon RECIPIENT becoming aware that it is required, or may become required, to disclose Confidential Information for such reason, RECIPIENT shall (if legally permissible) give prompt written notice to Bechtel of such requirement or potential requirement and RECIPIENT shall assist, at Bechtel’s expense, in connection with Bechtel’s pursuit of legal remedies in order to limit the extent of Confidential Information required to be disclosed. RECIPIENT and Bechtel shall use commercially reasonable efforts to limit or prevent any further disclosure of Confidential Information required to be disclosed and to ensure that such Confidential Information is accorded confidential status and treatment by the court or other governmental authority in question.

5.3

RECIPIENT shall have no obligation of confidentiality with respect to Confidential Information that RECIPIENT can demonstrate: (a) was already in RECIPIENT’s possession at the time of its disclosure pursuant to this Agreement and which was not acquired, directly or indirectly, from Bechtel under obligation of confidentiality; (b) is or becomes a matter of public knowledge through no fault of RECIPIENT or any of its employees; (c) is lawfully received by RECIPIENT from a Person other than Bechtel in circumstances not involving a breach of any confidentiality obligation; or (d) is independently developed by RECIPIENT without benefit of disclosure pursuant to this Agreement.

SECTION 6 Other Undertakings of the Parties

6.1

At any time upon the written request of Bechtel or Duke Energy, RECIPIENT and its employees shall promptly deliver to Bechtel or Duke Energy (as applicable), or if directed by Bechtel or Duke Energy destroy by shredding or incineration, all Confidential Information received in written, electronic or other tangible form, including copies, reproductions, computer diskettes or written materials containing Confidential Information; provided, however, so long as the RECIPIENT is not in breach of any term of this Agreement with respect to Confidential Information, RECIPIENT shall not be required to return or destroy Confidential Information at the request of Bechtel to the extent RECIPIENT requires such Confidential Information to perform its obligations with respect to the Facility. To the extent that any other notes, analyses, compilations or studies in the possession of RECIPIENT or its employees contain Confidential Information, such notes, analyses, compilations or

studies shall be destroyed to that same extent and such destruction shall be confirmed by RECIPIENT in writing to Bechtel.

6.2

RECIPIENT shall immediately notify Duke Energy and Bechtel in the event that it becomes aware of any violation of the terms of this Agreement by it or its employees and shall assist Bechtel, at RECIPIENT’s own expense, in taking measures to protect the Confidential Information from further use or disclosure.

6.3

All Confidential Information shall at all times be subject to the export control laws and regulations of the United States Government. RECIPIENT agrees that no Confidential Information, or any product thereof, shall be exported or re-exported by RECIPIENT or its employees directly or indirectly from the USA, unless permitted by U.S. export control laws and regulations. The obligations of RECIPIENT under this Section 6.3 shall survive any termination, expiration or discharge of any other contract obligations.

SECTION 7 Non-Compliance with this Agreement

7.1

The Parties acknowledge and agree that money damages would be both incalculable and an inadequate remedy for any breach of this Agreement by RECIPIENT or RECIPIENT’s employees and that any such breach would cause each of Bechtel and Duke Energy irreparable harm. Accordingly, the Parties agree that in the event of any breach or threatened breach of this Agreement, each of Bechtel and Duke Energy, in addition to any other remedies it may have at law, shall be entitled, without the requirement of posting a bond or other security, to equitable and injunctive relief, including specific performance, against RECIPIENT and RECIPIENT’s employees.

SECTION 8 Miscellaneous

8.1

Except as otherwise expressly agreed in writing, neither Duke Energy nor Bechtel make any representations or warranties with regard to the substance, content, accuracy or completeness of Confidential Information disclosed. Except as otherwise expressly agreed in writing, neither Duke Energy, Bechtel nor any of their respective Affiliates shall have any liability to RECIPIENT or any of its employees arising out of or resulting from any disclosure of Confidential Information or any alleged reliance on or use of any Confidential Information, whether such liability arises or is alleged to arise in contract (including by way of indemnity), tort (including negligence), misrepresentation, by way of contribution, or otherwise.

8.2

The rights and remedies contained in this Agreement are cumulative and not exclusive of rights and remedies provided by applicable law. Any failure to exercise or delay in exercising any right or remedy provided by this Agreement or by applicable law shall not constitute a waiver of such right or remedy or a waiver of any other right or remedy provided by this Agreement or by applicable law. No single or partial exercise of a right or remedy provided by this Agreement or by applicable law shall prevent a further exercise of such right or remedy or the exercise of another right or remedy provided under this Agreement or applicable law.

8.3

All additions, amendments, waivers or modifications to this Agreement shall be made in writing and shall be signed by the Parties or, in the case of a waiver, the waiving Party.

8.4

This Agreement shall be governed by, and construed in accordance with, the laws of Indiana (without giving effect to the principles thereof relating to conflicts of law).

8.5

If any provision of this Agreement shall be determined by a governmental authority of competent jurisdiction to be invalid or unenforceable for any reason, the validity or enforceability of the remaining provisions of this Agreement, or any portions or applications thereof, shall not be affected by the invalidity or unenforceability of any other provision of this Agreement, and any invalid or unenforceable provision shall be deemed severed from the remainder of this Agreement. In such an event, the Parties shall use commercially reasonable efforts to negotiate an equitable adjustment to this Agreement with a view toward achieving the original purpose and intent of this Agreement.

8.6

Neither Party shall assign this Agreement, or its rights or obligations hereunder, in whole or in part to any other Person without the prior written consent of the other Party.

8.7

This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

8.8

This Agreement represents the entire agreement between the Parties with respect to the matters referred to herein and supersedes all prior written and oral understandings pertaining to the matters referred to herein.

8.9

This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be an original, but all of which shall constitute one and the same instrument.

8.10

Bechtel is an intended third party beneficiary of this Agreement, entitled to enforce its provisions against RECIPIENT.

[execution page follows]

IN WITNESS WHEREOF, the Parties have duly executed this Confidentiality Agreement as of the date first above written.


Duke Energy Indiana, Inc.				[ ]


Authorized Corporate				Authorized Corporate
Officer Signature				Officer Signature


Printed Officer’s Name				Printed Officer’s Name


Printed Officer’s Title				Printed Officer’s Title

FORM OF “ACKNOWLEDGEMENT”

ACKNOWLEDGEMENT OF

I, , in consideration for receiving “Confidential Information”, as such term is defined in the Confidentiality Agreement (the “Agreement”) dated , 2008, between Duke Energy Indiana, Inc. and ( “Employer”), hereby acknowledge that I have read the Agreement, that I understand the obligations contained therein, and that I agree to personally abide by the terms thereof.

I specifically agree that I will not disclose such Confidential Information to any other employee or agent of Employer or any affiliate of Employer, other than an employee of Employer who has similarly executed an Acknowledgement in the same form as this Acknowledgement.


By:
Name:
Title:
Date:

Schedule I – Bechtel Competitors

The following entities and their affiliates (excluding independent contractors engaged by Duke for a Duke Purpose prior to such independent contractors becoming an affiliate of any of the following entities) constitute “Bechtel Competitors”:

•

***

•

***

•

***

EXHIBIT 12

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines.


	Year Ended December 31,
	2008		2007		2006		2005		2004
	(dollars in millions)
Earnings as defined for fixed charges calculation
Add:
Pretax income	$	408	$	386	$	200	$	325	$	277
Fixed charges		140		130		145		126		103
Deduct:
Interest capitalized ^(a)		10		11		16		8		2

Total earnings (as defined for the Fixed Charges calculation)	$	538	$	505	$	329	$	443	$	378

Fixed charges:
Interest on debt, including capitalized portions	$	133	$	120	$	138	$	118	$	93
Estimate of interest within rental expense		7		10		7		8		10

Total fixed charges	$	140	$	130	$	145	$	126	$	103

Ratio of earnings to fixed charges		3.8		3.9		2.3		3.5		3.7

(a)	Excludes equity costs related to AFUDC that are included in Other Income and Expenses in the Consolidated Statements of Operations.

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-146483-02 on Form S-3 of our report dated March 13, 2009, relating to the financial statements and financial statement schedule of Duke Energy Indiana, Inc., appearing in this Annual Report on Form 10-K of Duke Energy Indiana, Inc. for the year ended December 31, 2008.

/s/ DELOITTE & TOUCHE LLP

Charlotte, North Carolina

March 13, 2009

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James E. Rogers, certify that:

1)	I have reviewed this annual report on Form 10-K of Duke Energy Indiana, Inc.;

2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2009

/s/ J AMES E. R OGERS

James E. Rogers

Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David L. Hauser, certify that:

1)	I have reviewed this annual report on Form 10-K of Duke Energy Indiana, Inc.;

2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5)	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2009

/s/ D AVID L. H AUSER

David L. Hauser

Group Executive and

Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-K for the period ending December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, Chief Executive Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana.

Date: March 13, 2009

/s/ J AMES E. R OGERS

James E. Rogers

Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-K for the period ending December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David L. Hauser, Group Executive and Chief Financial Officer of Duke Energy Indiana, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy Indiana.

Date: March 13, 2009

/s/ D AVID L. H AUSER

David L. Hauser

Group Executive and Chief Financial Officer