UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended December 31, 2014 or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to________
Commission
file number
 
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, and Telephone Number
 
IRS Employer
Identification No.
 
 
 
 
1-32853
 
DUKE ENERGY CORPORATION
(a Delaware Corporation)
550 South Tryon Street
Charlotte, NC 28202-1803
704-382-3853
 
20-2777218
Commission file number
 
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, and Telephone Number
 
Commission file number
 
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, and Telephone Number
1-4928
 
DUKE ENERGY CAROLINAS, LLC
(a North Carolina limited liability company)
526 South Church Street
Charlotte, North Carolina 28202-1803
704-382-3853
56-0205520
 
1-3274
 
DUKE ENERGY FLORIDA, INC.
(a Florida corporation)
299 First Avenue North
St. Petersburg, Florida 33701
704-382-3853
59-0247770
1-15929
 
PROGRESS ENERGY, INC.
(a North Carolina corporation)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
56-2155481
 
1-1232
 
DUKE ENERGY OHIO, INC.
(an Ohio corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
704-382-3853
31-0240030
1-3382
 
DUKE ENERGY PROGRESS, INC.
(a North Carolina corporation)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
56-0165465
 
1-3543
 
DUKE ENERGY INDIANA, INC.
(an Indiana corporation)
1000 East Main Street
Plainfield, Indiana 46168
704-382-3853
35-0594457
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Registrant
 
Title of each class
 
Name of each exchange on
which registered
Duke Energy Corporation (Duke Energy)
 
Common Stock, $0.001 par value
 
New York Stock Exchange, Inc.
Duke Energy
 
5.125% Junior Subordinated Debentures due January 15, 2073
 
New York Stock Exchange, Inc.
Duke Energy Carolinas, LLC (Duke Energy Carolinas)
 
All of the registrant's limited liability company member interests are directly owned by Duke Energy.
 
 
Progress Energy, Inc. (Progress Energy)
 
All of the registrant's common stock is directly owned by Duke Energy.
 
 
Duke Energy Progress, Inc. (Duke Energy Progress)
 
All of the registrant's common stock is indirectly owned by Duke Energy.
 
 
Duke Energy Florida, Inc. (Duke Energy Florida)
 
All of the registrant's common stock is indirectly owned by Duke Energy.
 
 
Duke Energy Ohio, Inc. (Duke Energy Ohio)
 
All of the registrant's common stock is indirectly owned by Duke Energy.
 
 
Duke Energy Indiana, Inc. (Duke Energy Indiana)
 
All of the registrant's common stock is indirectly owned by Duke Energy.
 
 


SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Duke Energy
Yes x
 
No ¨
 
Duke Energy Florida
Yes x
 
No ¨
Duke Energy Carolinas
Yes x
 
No ¨
 
Duke Energy Ohio
Yes ¨
 
No x
Progress Energy
Yes ¨
 
No x
 
Duke Energy Indiana
Yes ¨
 
No x
Duke Energy Progress
Yes x
 
No ¨
 
 
 
 
 
Indicate by check mark if the registrant is not required to file reports to pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ¨ No x (Response applicable to all registrants.)
Indicate by check mark whether the registrants (1) have 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 whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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.
Duke Energy
 
Yes x  
 
No ¨
 
Duke Energy Florida
 
Yes x  
 
No ¨
Duke Energy Carolinas
 
Yes x  
 
No ¨
 
Duke Energy Ohio
 
Yes x  
 
No ¨
Progress Energy
 
Yes x  
 
No ¨
 
Duke Energy Indiana
 
Yes x  
 
No ¨
Duke Energy Progress
 
Yes x  
 
No ¨
 
 
 
 
 
 
Indicate by check mark whether Duke Energy is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer x   Accelerated filer ¨   Non-accelerated filer ¨   Smaller reporting company ¨
Indicate by check mark whether Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana are large accelerated filers, accelerated filers, non-accelerated filers, or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filer x Smaller reporting company ¨
Indicate by check mark whether the registrants are a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Estimated aggregate market value of the common equity held by nonaffiliates of Duke Energy at June 30, 2014.
52,431,523,340

Number of shares of Common Stock, $0.001 par value, outstanding at February 24, 2015.
707,554,168

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Duke Energy definitive proxy statement for the 2014 Annual Meeting of the Shareholders or an amendment to this Annual Report are incorporated by reference into PART III, Items 10, 11, 12, 13, and 14 hereof.
This combined Form 10-K is filed separately by seven registrants: Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants.
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and are, therefore, filing this form with the reduced disclosure format specified in General Instructions I(2) of Form 10-K. 









TABLE OF CONTENTS
FORM 10-K FOR THE YEAR ENDED December 31, 2014
  Item 
 
Page
 
 
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
 
 
 
GLOSSARY OF TERMS
 
 
 
 
PART I.
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1A.
 
 
 
1B.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
PART II.
 
 
5.
 
 
 
6.
 
 
 
7.
 
 
 
7A.
 
 
 
8.
 
 
 
9.
 
 
 
9A.
 
 
 
PART III.
 
 
10.
 
 
 
11.
 
 
 
12.
 
 
 
13.
 
 
 
14.
 
 
 
PART IV.
 
 
15.
 
 





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,” “guidance,” “outlook,” and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:
State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements or climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices;
The extent and timing of the costs and liabilities relating to the Dan River ash basin release and compliance with current and any future regulatory changes related to the management of coal ash;
The ability to recover eligible costs, including those associated with future significant weather events, and earn an adequate return on investment through the regulatory process;
The costs of decommissioning nuclear facilities could prove to be more extensive than are currently identified and all costs may not be fully recoverable through the regulatory process;
The risk that the credit ratings of the company or its subsidiaries may be different from what the companies expect;
Costs and effects of legal and administrative proceedings, settlements, investigations and claims;
Industrial, commercial and residential growth or decline in service territories or customer bases resulting from customer usage patterns, including energy efficiency efforts and use of alternative energy sources, including self-generation and distributed generation technologies;
Additional competition in electric markets and continued industry consolidation;
Political and regulatory uncertainty in other countries in which Duke Energy conducts business;
The influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts and tornadoes;
The ability to successfully operate electric generating facilities and deliver electricity to customers;
The impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches, and other catastrophic events;
The inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks;
The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets;
The results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general economic conditions;
Declines in the market prices of equity and fixed income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans, and nuclear decommissioning trust funds;
Construction and development risks associated with the completion of Duke Energy Registrants’ capital investment projects in existing and new generation facilities, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards, as well as the ability to recover costs from customers in a timely manner or at all;
Changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants;
The ability to control operation and maintenance costs;
The level of creditworthiness of counterparties to transactions;
Employee workforce factors, including the potential inability to attract and retain key personnel;
The ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent);
The performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities;
The effect of accounting pronouncements issued periodically by accounting standard-setting bodies;
The impact of potential goodwill impairments;
The ability to reinvest prospective undistributed earnings of foreign subsidiaries or repatriate such earnings on a tax-efficient basis; and
The ability to successfully complete future merger, acquisition or divestiture plans.





In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made; the Duke Energy Registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise that occur after that date.





Glossary of Terms  
The following terms or acronyms used in this Form 10-K are defined below:
Term or Acronym
Definition
 
 
the 2010 Plan
Duke Energy’s 2010 Long-Term Incentive Plan
 
 
the 2012 Edwardsport settlement
Settlement agreement in 2012 among Duke Energy Indiana, the OUCC, the Duke Energy Indiana Industrial Group and Nucor Steel-Indiana
 
 
the 2012 Settlement
Settlement agreement in 2012 among Duke Energy Florida, the OPC and other customer advocates
 
 
the 2013 Settlement
Settlement agreement in 2013 among Duke Energy Florida, the OPC and other customer advocates
 
 
ACP
Atlantic Coast Pipeline
 
 
AFUDC
Allowance for Funds Used During Construction
 
 
Aguaytia
Aguaytia Integrated Energy Project
 
 
AHFS
Assets held for sale
 
 
ALJ
Administrative Law Judge
 
 
ANEEL
Brazilian electricity regulatory agency
 
 
AOCI
Accumulated Other Comprehensive Income
 
 
ASU
Accounting standard update
 
 
Board of Directors
Duke Energy Board of Directors
 
 
Bison
Bison Insurance Company Limited
 
 
Brunswick
Brunswick Nuclear Station
 
 
CAA
Clean Air Act
 
 
CAIR
Clean Air Interstate Rule
 
 
Calpine
Calpine Corporation
 
 
Catawba
Catawba Nuclear Station
 
 
Catawba Riverkeeper
Catawba Riverkeeper Foundation, Inc.
 
 
CCR
Coal Combustion Residuals
 
 
CCS
Carbon Capture and Storage
 
 
CECPCN
Certificate of Environmental Compatibility and Public Convenience and Necessity
 
 
CEO
Chief Executive Officer
 
 
Cinergy
Cinergy Corp. (collectively with its subsidiaries)
 
 
CO 2
Carbon Dioxide
 
 
Coal Ash Act
North Carolina Coal Ash Management Act of 2014
 
 
Coal Ash Commission
Coal Ash Management Commission
 
 
COL
Combined Construction and Operating License
 
 
the Company
Duke Energy Corporation and its' subsidiaries
 
 
Consolidated Complaint
Corrected Verified Consolidated Shareholder Derivative Complaint
 
 
CPP
Clean Power Plan
 
 
CRC
Cinergy Receivables Company, LLC
 
 
CRES
Competitive Retail Electric Supplier
 
 
Crescent
Crescent Resources LLC
 
 
Crystal River Unit 3
Crystal River Unit 3 Nuclear Station
 
 
CSAPR
Cross-State Air Pollution Rule
 
 
CWA
Clean Water Act
 
 
DB
Defined Benefit (Pension Plan)
 
 
D.C. Circuit Court
U.S. Court of Appeals for the District of Columbia
 
 





DEBS
Duke Energy Business Services, LLC
 
 
DECAM
Duke Energy Commercial Asset Management, Inc.
 
 
DECS
Duke Energy Corporate Services
 
 
DEFR
Duke Energy Florida Receivables Company, LLC
 
 
DEGS
Duke Energy Generation Services, Inc.
 
 
DEIGP
Duke Energy International Geracao Paranapenema S.A.
 
 
Deloitte
Deloitte & Touche LLP, and the member firms of Deloitte Touche Tohmatsu and their respective affiliates
 
 
DENR
Department of Environment and Natural Resources
 
 
DEPR
Duke Energy Progress Receivables Company, LLC
 
 
DERF
Duke Energy Receivables Finance Company, LLC
 
 
Disposal Group
Duke Energy Ohio’s nonregulated Midwest generation business and Duke Energy Retail Sales, LLC
 
 
DOE
U.S. Department of Energy
 
 
Dominion
Dominion Resources
 
 
DSM
Demand Side Management
 
 
Duke Energy
Duke Energy Corporation (collectively with its subsidiaries)
 
 
Duke Energy Audit Committee
Audit Committee of the Board of Directors
 
 
Duke Energy Carolinas
Duke Energy Carolinas, LLC
 
 
Duke Energy Defendants
Several current and former Duke Energy officers and directors named as defendants in the Consolidated Complaint
 
 
Duke Energy Florida
Duke Energy Florida, Inc.
 
 
Duke Energy Indiana
Duke Energy Indiana, Inc.
 
 
Duke Energy Kentucky
Duke Energy Kentucky, Inc.
 
 
Duke Energy Ohio
Duke Energy Ohio, Inc.
 
 
Duke Energy Progress
Duke Energy Progress, Inc.
 
 
Duke Energy Registrants
Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, and Duke Energy Indiana
 
 
Duke Energy Retail
Duke Energy Retail Sales, LLC
 
 
Duke Energy Vermillion
Duke Energy Vermillion II, LLC
 
 
DukeNet
DukeNet Communications Holdings, LLC
 
 
Dynegy
Dynegy Inc.
 
 
EE
Energy efficiency
 
 
EGU
Electric Generating Units
 
 
EIP
Progress Energy’s Equity Incentive Plan
 
 
Electric Settlement
Settlement agreement in 2013 among Duke Energy Ohio and all intervening parties
 
 
ELG
Effluent Limitation Guidelines
 
 
EMC
North Carolina Environmental Management Commission
 
 
EPA
U.S. Environmental Protection Agency
 
 
EPC
Engineering, Procurement and Construction agreement
 
 
EPS
Earnings Per Share
 
 
ESP
Electric Security Plan
 
 
ETR
Effective tax rate
 
 
Exchange Act
Exchange Act of 1934
 
 
FASB
Financial Accounting Standards Board
 
 
FERC
Federal Energy Regulatory Commission
 
 





Fitch
Fitch Ratings, Inc.
 
 
Florida Global Case
Litigation case filed in the Circuit Court for Broward County, Florida by U.S. Global, LLC
 
 
Florida Municipal Joint Owners
Seminole Electric Cooperative, Inc., City of Ocala, Orlando Utilities Commission, City of Gainesville, City of Leesburg, Kissimmee Utility Authority, Utilities Commission of the City of New Smyrna Beach, City of Alachua and City of Bushnell
 
 
Form S-3
registration statement
 
 
FPSC
Florida Public Service Commission
 
 
FRR
Fixed Resource Requirement
 
 
FTR
Financial transmission rights
 
 
GAAP
Generally Accepted Accounting Principles in the United States
 
 
Gas Settlement
Settlement agreement in 2013 among Duke Energy Ohio, PUCO Staff and intervening parties
 
 
GBRA
Generation Base Rate Adjustment recovery mechanism
 
 
GHG
Greenhouse Gas
 
 
Global
U.S. Global, LLC
 
 
GPC
Georgia Power Company
 
 
GWh
Gigawatt-hours
 
 
Harris
Shearon Harris Nuclear Station
 
 
HB 998
North Carolina House Bill 998
 
 
Hines
Hines Energy Complex
 
 
IAP
State Environmental Agency of Parana
 
 
IBAMA
Brazil Institute of Environment and Renewable Natural Resources
 
 
Ibener
Iberoamericana de Energia Ibener, S.A.
 
 
IBNR
Incurred but not yet reported
 
 
IC
Internal combustion
 
 
IGCC
Integrated Gasification Combined Cycle
 
 
Interim FERC Mitigation
Interim firm power sale agreements mitigation plans related to the Progress Energy merger
 
 
IRP
Integrated Resource Plans
 
 
IRS
Internal Revenue Service
 
 
ISFSI
Independent Spent Fuel Storage Installation
 
 
ISO
Independent System Operator
 
 
ITC
Investment Tax Credit
 
 
IURC
Indiana Utility Regulatory Commission
 
 
Investment Trusts
Grantor trusts of Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana
 
 
JDA
Joint Dispatch Agreement
 
 
Joint Intervenors
Intervenors in matters related to the Edwardsport IGCC Plan, including the Citizens Action Coalition of Indiana, Inc., Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc.
 
 
KPSC
Kentucky Public Service Commission
 
 
kV
Kilovolt
 
 
kWh
Kilowatt-hour
 
 
Lee Nuclear Station
William States Lee III Nuclear Station
 
 
Levy
Duke Energy Florida’s proposed nuclear plant in Levy County, Florida
 
 
Legacy Duke Energy Directors
Members of the pre-merger Duke Energy Board of Directors
 
 
LIBOR
London Interbank Offered Rate
 
 
Long-Term FERC Mitigation
The revised market power mitigation plan related to the Progress Energy merger
 
 
MATS
Mercury and Air Toxics Standards (previously referred to as the Utility MACT Rule)





 
 
Mcf
Thousand cubic feet
 
 
McGuire
McGuire Nuclear Station
 
 
MGP
Manufactured gas plant
 
 
MISO
Midcontinent Independent System Operator, Inc.
 
 
MMBtu
Million British Thermal Unit
 
 
Moody’s
Moody’s Investor Service, Inc.
 
 
MTBE
Methyl tertiary butyl ether
 
 
MTEP
MISO Transmission Expansion Planning
 
 
MW
Megawatt
 
 
MVP
Multi Value Projects
 
 
MWh
Megawatt-hour
 
 
NASDAQ
Nasdaq Composite
 
 
NCAG
North Carolina Attorney General
 
 
NCEMC
North Carolina Electric Membership Corporation
 
 
NCEMPA
North Carolina Eastern Municipal Power Agency
 
 
NCRC
Florida’s Nuclear Cost Recovery Clause
 
 
NCSC
North Carolina Supreme Court
 
 
NCUC
North Carolina Utilities Commission
 
 
NC WARN
N.C. Waste Awareness and Reduction Network
 
 
NDTF
Nuclear decommissioning trust funds
 
 
NEIL
Nuclear Electric Insurance Limited
 
 
NMC
National Methanol Company
 
 
NOL
Net operating loss
 
 
NO x
Nitrogen oxide
 
 
NPNS
Normal purchase/normal sale
 
 
NRC
U.S. Nuclear Regulatory Commission
 
 
NSR
New Source Review
 
 
NWPA
Nuclear Waste Policy Act of 1982
 
 
NYSE
New York Stock Exchange
 
 
Oconee
Oconee Nuclear Station
 
 
Ohio EPA
Ohio Environmental Protection Agency
 
 
OPC
Florida Office of Public Counsel
 
 
OPEB
Other Post-Retirement Benefit Obligations
 
 
ORS
South Carolina Office of Regulatory Staff
 
 
Osprey Plant acquisition
Duke Energy Florida's proposed acquisition of Calpine Corporation's 599 MW combined cycle natural gas plant in Auburndale, FL
 
 
OUCC
Office of Utility Consumer Counselor
 
 
OVEC
Ohio Valley Electric Corporation
 
 
the Parent
Duke Energy Corporation Holding Company
 
 
PESC
Progress Energy Service Company
 
 
PJM
PJM Interconnection, LLC
 
 
Plea Agreements
Plea Agreements entered into by Duke Energy Carolinas and Duke Energy Progress in connection with a criminal investigation related to the Dan River ash basin release and the management of coal ash basins in North Carolina
 
 
Progress Energy
Progress Energy, Inc.





 
 
PSA
Purchase sale agreement
 
 
PSCSC
Public Service Commission of South Carolina
 
 
Public Staff
North Carolina Utilities Commission Public Staff
 
 
PUCO
Public Utilities Commission of Ohio
 
 
PURPA
Public Utility Regulatory Act of 1978
 
 
QF
Qualifying Facility
 
 
QUIPS
Quarterly Income Preferred Securities
 
 
RCA
Revolving Credit Agreement
 
 
RCRA
Resource Conservation and Recovery Act
 
 
Relative TSR
TSR of Duke Energy stock relative to a pre-defined peer group
 
 
the Resolutions
Proposed resolutions promulgated by the Brazilian electricity regulatory agency
 
 
Robinson
Robinson Nuclear Station
 
 
RTO
Regional Transmission Organization
 
 
SAFSTOR
A method of decommissioning in which a nuclear facility is placed and maintained in a condition that allows the facility to be safely stored and subsequently decontaminated to levels that permit release for unrestricted use.

 
 
SCDHEC
South Carolina Department of Health and Environmental Control
 
 
SEC
Securities and Exchange Commission
 
 
SELC
Southern Environmental Law Center
 
 
Segment Income
Income from continuing operations net of income attributable to noncontrolling interests
 
 
SO 2
Sulfur dioxide
 
 
SOA
Society of actuaries
 
 
Spectra Energy
Spectra Energy Corp.
 
 
Spectra Capital
Spectra Energy Capital, LLC (formerly Duke Capital LLC)
 
 
S&P
Standard & Poor’s Rating Services
 
 
SSO
Standard Service Offer
 
 
State Utility Commissions
NCUC, PSCSC, FPSC, PUCO, IURC and KPSC (Collectively)
 
 
Subsidiary Registrants
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana
 
 
Supreme Court
U.S. Supreme Court
 
 
Sutton
L.V. Sutton combined cycle facility
 
 
Suwannee project
Proposed 320 MW combustion turbine plant at Duke Energy Florida's Suwannee generating facility
 
 
TSR
Total shareholder return
 
 
U.S.
United States
 
 
USDOJ
United States Department of Justice Environmental Crimes Section and the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina and the Western District of North Carolina, collectively
 
 
VDEQ
Virginia Department of Environmental Quality
 
 
VEBA I
Duke Energy Corporation Employee Benefits Trust
 
 
Vermillion
Vermillion Generating Station
 
 
VIE
Variable Interest Entity
 
 
VSP
Voluntary Severance Plan
 
 
WACC
Weighted Average Cost of Capital
 
 
WVPA
Wabash Valley Power Association, Inc.



PART I


ITEM 1. BUSINESS
 
DUKE ENERGY
 
General
Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy operates in the United States (U.S.) and Latin America primarily through its direct and indirect subsidiaries. Duke Energy's subsidiaries include its subsidiary registrants (collectively referred to as the Subsidiary Registrants); Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, Inc. (Duke Energy Progress); Duke Energy Florida, Inc. (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio); and Duke Energy Indiana, Inc. (Duke Energy Indiana). When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
On August 21, 2014, Duke Energy entered into an agreement to sell its nonregulated Midwest generation business (Disposal Group) to Dynegy Inc. (Dynegy) for approximately $2.8 billion in cash subject to adjustments at closing for changes in working capital and capital expenditures. The Disposal Group primarily includes Duke Energy Ohio's coal-fired and gas-fired generation assets located in the Midwest region of the United States and dispatched into the PJM wholesale market. These assets earn energy and capacity revenue at market price. The Disposal Group also includes a retail sales subsidiary of Duke Energy, Duke Energy Retail Sales, LLC (Duke Energy Retail), which is certified as a Competitive Retail Electric Supplier (CRES) provider in Ohio. Duke Energy Retail serves retail electric and gas customers in Ohio with energy and provides other energy services at competitive rates. Completion of the transaction is conditioned on approval by FERC. The transaction is expected to close by the end of the second quarter of 2015. For additional information on the Midwest generation business disposition see Note 2 to the Consolidated Financial Statements, "Acquisitions, Dispositions and Sales of Other Assets."
The Duke Energy Registrants electronically file 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, proxies and amendments to such reports.
The public may read and copy any materials the Duke Energy Registrants file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 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 the Duke Energy Registrants, including reports filed with the SEC, is available through Duke Energy’s website at http://www.duke-energy.com. Such reports are accessible at no charge and are made available as soon as reasonably practicable after such material is filed with or furnished to the SEC.
Business Segments
Duke Energy conducts its operations in three business segments; Regulated Utilities, International Energy and Commercial Power. The remainder of Duke Energy’s operations are presented as Other. Duke Energy’s chief operating decision maker regularly reviews financial information about each of these business segments in deciding how to allocate resources and evaluate performance. For additional information on each of these business segments, including financial and geographic information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
The following sections describe the business and operations of each of Duke Energy’s reportable business segments, as well as Other.
REGULATED UTILITIES
Regulated Utilities conducts operations primarily through Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana, and Duke Energy Ohio. These electric and gas operations are subject to the rules and regulations of the FERC, the North Carolina Utilities Commission (NCUC), the Public Service Commission of South Carolina (PSCSC), the Florida Public Service Commission (FPSC), the Indiana Utility Regulatory Commission (IURC), the Public Utilities Commission of Ohio (PUCO), and the Kentucky Public Service Commission (KPSC).
Regulated Utilities serves 7.3 million retail electric customers in six states in the Southeast and Midwest regions of the U.S. Its service area covers approximately 95,000 square miles with an estimated population of 23 million people. Regulated Utilities serves 500,000 retail natural gas customers in southwestern Ohio and northern Kentucky. Electricity is also sold wholesale to incorporated municipalities, electric cooperative utilities and other load-serving entities.
The following table represents the distribution of billed sales by customer class for the year ended December 31, 2014 .
 
Duke Energy Carolinas (a)

Duke Energy Progress (a)

 
Duke Energy Florida (b)

 
Duke Energy Ohio (c)

 
Duke Energy Indiana (d)

Residential
32
%
29
%
 
49
%
 
36
%
 
28
%
General service
32
%
24
%
 
39
%
 
39
%
 
25
%
Industrial
25
%
16
%
 
8
%
 
24
%
 
32
%
Total retail sales
89
%
69
%
 
96
%
 
99
%
 
85
%
Wholesale and other sales
11
%
31
%
 
4
%
 
1
%
 
15
%
Total sales
100
%
100
%
 
100
%
 
100
%
 
100
%
(a)
Primary general service sectors include health care, education, financial services, information technology and military buildings. Primary industrial sectors include textiles, chemicals, rubber and plastics, paper, food and beverage, and auto manufacturing.

9


PART I

(b)
Primary general service sectors include tourism, health care and government facilities and schools. Primary industrial sectors include phosphate rock mining and processing and citrus and other food processing.
(c)
Primary general service sectors include health care, education, real estate and rental leasing, financial and insurance services, water/wastewater services, and wholesale trade services. Primary industrial sectors include aerospace, primary metals, chemicals and food.
(d)
Primary general service sectors include retail, financial, healthcare and education services. Primary industrial sectors include primary and fabricated metals, transportation equipment, building materials, food and beverage, stone/clay/glass, and chemicals.
The number of residential, general service and industrial customers within the Regulated Utilities service territory is expected to increase over time. However, growth in the near term has been hampered by current economic conditions. Average usage per residential customer is expected to remain flat or decline for the foreseeable future. While total industrial and general service sales increased in 2014 when compared to 2013 , the growth rate was modest when compared to historical periods.
Seasonality and the Impact of Weather
Regulated Utilities’ costs and revenues are influenced by seasonal patterns. Peak sales of electricity occur during the summer and winter months, resulting in higher revenue and cash flows in these periods. By contrast, lower sales of electricity occur during the spring and fall, allowing for scheduled plant maintenance. Peak gas sales occur during the winter months. Residential and general service customers are most impacted by weather. Estimated weather impacts are based on actual current period weather compared to normal weather conditions. Normal weather conditions are defined as the long-term average of actual historical weather conditions.
The estimated impact of weather on earnings is based on the number of customers, temperature variances from a normal condition and customers’ historic usage levels and patterns. The methodology used to estimate the impact of weather does not and cannot consider all variables that may impact customer response to weather conditions such as humidity and relative temperature changes. The precision of this estimate may also be impacted by applying long-term weather trends to shorter-term periods.
Degree-day data are used to estimate energy required to maintain comfortable indoor temperatures based on each day’s average temperature. Heating-degree days measure the variation in weather based on the extent the average daily temperature falls below a base temperature. Cooling-degree days measure the variation in weather based on the extent the average daily temperature rises above the base temperature. Each degree of temperature below the base temperature counts as one heating-degree day and each degree of temperature above the base temperature counts as one cooling-degree day.
Competition
Retail
Regulated Utilities’ businesses operate as the sole supplier of electricity within their service territories, with the exception of Ohio, which has a competitive electricity supply market for generation service. Regulated Utilities owns and operates facilities necessary to transmit and distribute electricity and, except in Ohio, to generate electricity. Services are priced by state commission approved rates designed to include the costs of providing these services and a reasonable return on invested capital. This regulatory policy is intended to provide safe and reliable electricity at fair prices. Competition in the regulated electric distribution business is primarily from on-site generation of industrial customers and distributed generation, such as rooftop solar, at residential, general service and/or industrial customer sites.
Regulated Utilities is not aware of any proposed legislation in any jurisdiction that would give its retail customers the right to choose their electricity provider or otherwise restructure or deregulate the electric industry.
Although there is no pending legislation at this time, if the retail jurisdictions served by Regulated Utilities become subject to deregulation, the recovery of stranded costs could become a significant consideration. Stranded costs primarily include the generation assets of Regulated Utilities whose value in a competitive marketplace may be less than their current book value, as well as above-market purchased power commitments from qualifying facilities (QFs). The Public Utility Regulatory Policies Act of 1978 (PURPA) established a new class of generating facilities as QFs, typically small power production facilities that generate power within a utility company’s service territory for which the utility companies are legally obligated to purchase the energy at an avoided cost rate. Thus far, all states that have passed restructuring legislation have provided for the opportunity to recover a substantial portion of stranded costs.
Regulated Utilities’ largest stranded cost exposure is primarily related to Duke Energy Florida’s purchased power commitments with QFs, under which it has future minimum expected capacity payments through 2025 of $2.2 billion. Duke Energy Florida was obligated to enter into these contracts under provisions of PURPA. Duke Energy Florida continues to seek ways to address the impact of escalating payments under these contracts. However, the FPSC allows full recovery of the retail portion of the cost of power purchased from QFs. For additional information related to these purchased power commitments, see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.”
In Ohio, Regulated Utilities conducts competitive auctions for electricity supply. The cost of energy purchased through these auctions is recovered from retail customers. Regulated Utilities earns retail margin in Ohio on the transmission and distribution of electricity only and not on the cost of the underlying energy.
Wholesale
Regulated Utilities competes with other utilities and merchant generators for bulk power sales, sales to municipalities and cooperatives, and wholesale transactions. The principal factors in competing for these sales are price, availability of capacity and power, and reliability of service. Prices are influenced primarily by market conditions and fuel costs.
Increased competition in the wholesale electric utility industry and the availability of transmission access could affect Regulated Utilities’ load forecasts, plans for power supply and wholesale energy sales and related revenues. Wholesale energy sales will be impacted by the extent to which additional generation is available to sell to the wholesale market and the ability of Regulated Utilities to attract new customers and to retain existing customers.

10


PART I

Energy Capacity and Resources
Regulated Utilities owns approximately 50,000 megawatts (MW) of generation capacity. For additional information on Regulated Utilities’ generation facilities, see Item 2, “Properties.”
Energy and capacity are also supplied through contracts with other generators and purchased on the open market. Factors that could cause Regulated Utilities to purchase power for its customers include generating plant outages, extreme weather conditions, generation reliability, growth, and price. Regulated Utilities has interconnections and arrangements with its neighboring utilities to facilitate planning, emergency assistance, sale and purchase of capacity and energy, and reliability of power supply.
Regulated Utilities’ generation portfolio is a balanced mix of energy resources having different operating characteristics and fuel sources designed to provide energy at the lowest possible cost to meet its obligation to serve retail customers. All options, including owned generation resources and purchased power opportunities, are continually evaluated on a real-time basis to select and dispatch the lowest-cost resources available to meet system load requirements.
Recently Completed Generation Projects
The additional capacity from recently completed generation projects allowed Regulated Utilities to retire or plan to retire older, less efficient capacity. The following table summarizes the generation projects constructed and placed in service during the past three years.
 
 
Megawatts

 
Fuel
 
Commercial Operation
 
Cost
(in millions)

Duke Energy Carolinas
Cliffside Unit 6
844

 
Coal
 
2012
 
$
2,100

Duke Energy Carolinas
Dan River Combined Cycle
637

 
Natural Gas
 
2012
 
675

Duke Energy Progress
H.F. Lee Combined Cycle
916

 
Natural Gas
 
2012
 
725

Duke Energy Progress
L.V. Sutton Combined Cycle
622

 
Natural Gas
 
2013
 
575

Duke Energy Indiana
Edwardsport IGCC
595

 
Coal
 
2013
 
3,550

Total
 
3,614

 
 
 
 
 
$
7,625

Potential Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities earlier than their current estimated useful lives. These facilities do not have the requisite emission control equipment, primarily to meet United States Environmental Protection Agency (EPA) regulations recently approved or proposed. These facilities total approximately 1,704 MW at three sites. Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives, and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired. For additional information related to potential plant retirements see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
Sources of Electricity
Regulated Utilities relies principally on coal, natural gas and nuclear fuel for its generation of electricity. The following table lists sources of electricity and fuel costs for the three years ended December 31, 2014 .
 
Generation by Source (a)(e)
 
Cost of Delivered Fuel per Net
Kilowatt-hour Generated (Cents) (a)(e)
 
2014

 
2013

 
2012

 
2014

 
2013

 
2012

Coal (b)
36.5
%
 
35.7
%
 
39.1
%
 
3.54

 
3.67

 
3.55

Nuclear (b)
28.4
%
 
28.7
%
 
30.8
%
 
0.65

 
0.66

 
0.62

Gas and oil (b)
20.8
%
 
21.3
%
 
14.0
%
 
4.70

 
4.18

 
4.03

All fuels (cost-based on weighted average) (b)
85.7
%
 
85.7
%
 
83.9
%
 
2.86

 
2.79

 
2.55

Hydroelectric and solar (c)
0.9
%
 
1.5
%
 
0.8
%
 
 
 
 
 
 
Total generation
86.6
%
 
87.2
%
 
84.7
%
 
 
 
 
 
 
Purchased power and net interchange (d)
13.4
%
 
12.8
%
 
15.3
%
 
 
 
 
 
 
Total sources of energy
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
(a)
Statistics include Duke Energy Progress and Duke Energy Florida beginning July 2, 2012.
(b)
Statistics related to all fuels reflect Regulated Utilities' ownership interest in jointly owned generation facilities.
(c)
Generating figures are net of output required to replenish pumped storage facilities during off-peak periods. 
(d)
Purchased power includes renewable energy purchases. 
(e)
Includes the effect of the Joint Dispatch Agreement (JDA) and Mitigation sales. Mitigation sales are excluded from the Regulated Utilities segment. 

11


PART I

Coal
Regulated Utilities meets its coal demand through a portfolio of long-term purchase contracts and short-term spot market purchase agreements. Large amounts of coal are purchased under long-term contracts with mining operators who mine both underground and at the surface. Regulated Utilities uses spot-market purchases to meet coal requirements not met by long-term contracts. Expiration dates for its long-term contracts, which have various price adjustment provisions and market re-openers, range from 2015 to 2016 for Duke Energy Carolinas, 2015 to 2018 for Duke Energy Progress, 2015 to 2016 for Duke Energy Florida, and 2015 to 2025 for Duke Energy Indiana. Regulated Utilities expects to renew these contracts or enter into similar contracts with other suppliers as existing contracts expire, though prices will fluctuate over time as coal markets change. Coal purchased for the Carolinas is primarily produced from mines in Central Appalachia, Northern Appalachia and the Illinois Basin. Coal purchased for Florida is primarily produced from mines in Central Appalachia and the Illinois Basin. Coal purchased for Indiana is primarily produced in Indiana and Illinois. Regulated Utilities has an adequate supply of coal under contract to fuel its projected 2015 operations and a significant portion of supply to fuel its projected 2016 operations. Current coal inventory levels for Regulated Utilities are at adequate levels and are expected to remain at adequate levels for the remainder of 2015. Changing natural gas prices continue to influence the level of coal generation.
The current average sulfur content of coal purchased by Regulated Utilities is between 1.5 percent and 2 percent for Duke Energy Carolinas, between 1.5 percent and 2 percent for Duke Energy Progress, between 1 percent and 2.5 percent for Duke Energy Florida, and between 2 percent and 3 percent for Duke Energy Indiana. Regulated Utilities’ environmental controls, in combination with the use of sulfur dioxide (SO 2 ) emission allowances, enable Regulated Utilities to satisfy current SO 2 emission limitations for its existing facilities.
Nuclear
The industrial processes for producing nuclear generating fuel generally involve the mining and milling of uranium ore to produce uranium concentrates, and services to convert, enrich, and fabricate fuel assemblies.
Regulated Utilities has contracted for uranium materials and services to fuel its nuclear reactors. Uranium concentrates, conversion services and enrichment services are primarily met through a diversified portfolio of long-term supply contracts. The contracts are diversified by supplier, country of origin and pricing. Regulated Utilities staggers its contracting so that its portfolio of long-term contracts covers the majority of its fuel requirements in the near term and decreasing portions of its fuel requirements over time thereafter. Near-term requirements not met by long-term supply contracts have been and are expected to be fulfilled with spot market purchases. Due to the technical complexities of changing suppliers of fuel fabrication services, Regulated Utilities generally sources these services to a single domestic supplier on a plant-by-plant basis using multiyear contracts.
Regulated Utilities has entered into fuel contracts that cover 100 percent of its uranium concentrates, conversion services, and enrichment services requirements through at least 2015 and cover fabrication services requirements for these plants through at least 2018. For future requirements not already covered under long-term contracts, Regulated Utilities believes it will be able to renew contracts as they expire, or enter into similar contractual arrangements with other suppliers of nuclear fuel materials and services.
Gas and Oil
Natural gas and oil supply for Regulated Utilities’ generation fleet is purchased under term and spot contracts from various suppliers. Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana use derivative instruments to limit a portion of their exposure to price fluctuations for natural gas. Regulated Utilities has certain dual-fuel generating facilities that can operate with both natural gas and oil. The cost of Regulated Utilities’ natural gas and oil is either at a fixed price or determined by market prices as reported in certain industry publications. Regulated Utilities believes it has access to an adequate supply of gas and oil for the reasonably foreseeable future. Regulated Utilities’ natural gas transportation for its gas generation is purchased under long-term firm transportation contracts with interstate and intrastate pipelines. Regulated Utilities may also purchase additional shorter-term transportation for its load requirements during peak periods. The Regulated Utilities natural gas plants are served by several supply zones and multiple pipelines.
Purchased Power
Regulated Utilities purchased approximately 14.3 million megawatt-hours (MWh), 11.7 million MWh and 19.8 million MWh of its system energy requirements during 2014 , 2013 , and 2012 , respectively, under purchase obligations and leases and had 4,500 and 3,800 MW of firm purchased capacity under contract during 2014 and 2013 , respectively. These amounts include MWh for Duke Energy Progress and Duke Energy Florida for all periods presented. These agreements include amounts contracted with certain QFs. Regulated Utilities may need to acquire additional purchased power capacity in the future to accommodate a portion of its system load needs. Regulated Utilities believes it can obtain adequate purchased power to meet these needs. However, during periods of high demand, the price and availability of purchased power may be significantly affected.
Gas for Retail Distribution
Regulated Utilities is responsible for the purchase and the subsequent delivery of natural gas to retail customers in its Ohio and Kentucky service territories. Regulated Utilities’ natural gas procurement strategy is to buy firm natural gas supplies and firm interstate pipeline transportation capacity during the winter season and during the non-heating season through a combination of firm supply and transportation capacity along with spot supply and interruptible transportation capacity. This strategy allows Regulated Utilities to assure reliable natural gas supply for its non-curtailable customers during peak winter conditions and provides Regulated Utilities the flexibility to reduce its contract commitments if firm customers choose alternate gas. In 2014 , firm supply purchase commitment agreements provided approximately 97 percent of the natural gas supply.
Inventory
Generation of electricity is capital intensive. Regulated Utilities must maintain an adequate stock of fuel and materials and supplies in order to ensure continuous operation of generating facilities and reliable delivery to customers. As of December 31, 2014 , the inventory balance for Regulated Utilities was $3,348 million. For additional information on inventory see Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.”

12


PART I

North Carolina Ash Basin Management
On February 2, 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the river. Duke Energy Carolinas estimates 30,000 to 39,000 tons of ash and 24 million to 27 million gallons of basin water were released into the river during the incident. Duke Energy Carolinas incurred approximately $24 million of repairs and remediation expense related to this incident during the year ended December 31, 2014 . Duke Energy Carolinas will not seek recovery of these costs from customers. In July 2014, Duke Energy completed remediation work identified by the EPA and continues to cooperate with the EPA's civil enforcement process.
As a result of separate Memoranda of Plea Agreement (Plea Agreements) entered into by Duke Energy Carolinas and Duke Energy Progress in connection with a criminal investigation related to the Dan River ash basin release and the management of coal ash basins at the 14 plants in North Carolina with coal ash basins, Duke Energy Carolinas and Duke Energy Progress recognized expense for the year ended December 31, 2014 of $72 million and $30 million, respectively. The Plea Agreements are subject to the approval of the U.S. District Court for the Eastern District of North Carolina and, if approved, will end the grand jury investigation related to the Dan River ash basin release and the management of coal ash basins at the 14 plants in North Carolina with coal ash basins.
The Plea Agreements do not cover pending civil claims related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. Duke Energy Corporation will continue to defend against remaining civil actions associated with these matters. Other costs related to the Dan River release including state or federal civil enforcement proceedings, future regulatory directives, natural resources damages, pending litigation, future claims or litigation, and long-term environmental impact costs cannot be reasonably estimated at this time.
For additional information on the North Carolina Ash Basin Grand Jury Investigation and Plea Agreements, see Note 5 to the Consolidated Financial Statements, "Commitments and Contingencies."
Nuclear Matters
Regulated Utilities owns, wholly or partially, 12 nuclear reactors located at seven stations. Nuclear insurance includes: nuclear liability coverage; property, decontamination and premature decommissioning coverage; and replacement power expense coverage. Joint owners reimburse Regulated Utilities for certain expenses associated with nuclear insurance in accordance with joint owner agreements. The Price-Anderson Act requires plant owners to provide for public nuclear liability claims resulting from nuclear incidents to the maximum total financial protection liability, which currently is $13.6 billion. For additional information on nuclear insurance see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.”
Regulated Utilities has a significant future financial commitment to dispose of spent nuclear fuel and decommission and decontaminate each plant safely. The NCUC, PSCSC and FPSC require Regulated Utilities to update their cost estimates for decommissioning their nuclear plants every five years.
The following table summarizes the fair value of nuclear decommissioning trust fund (NDTF) balances and cost study results for Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida.
 
NDTF
 
 
 
 
(in millions)
December 31, 2014

 
December 31, 2013

 
Decommissioning Costs (a)(b)

 
Year of Cost Study
Duke Energy Carolinas
$
3,042

 
$
2,840

 
$
3,420

 
2013
Duke Energy Progress
1,701

 
1,539

 
3,062

 
2014
Duke Energy Florida
803

 
753

 
1,083

 
2013
(a)
Represents cost per the most recent site-specific nuclear decommissioning cost studies, including costs to decommission plant components not subject to radioactive contamination. Amounts are in dollars of the year of cost study.
(b)
Includes the Subsidiary Registrants' ownership interest in jointly owned reactors. Other joint owners are responsible for decommissioning costs related to their interest in the reactors.
The NCUC, PSCSC and FPSC have allowed Regulated Utilities’ to recover estimated decommissioning costs through retail rates over the expected remaining service periods of their nuclear stations. Regulated Utilities believes the decommissioning costs being recovered through rates, when coupled with the existing fund balance and expected fund earnings, will be sufficient to provide for the cost of future decommissioning. For additional information see Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations.”
The Nuclear Waste Policy Act of 1982 (as amended) (NWPA) provides the framework for development by the federal government of interim storage and permanent disposal facilities for high-level radioactive waste materials. The NWPA promotes increased usage of interim storage of spent nuclear fuel at existing nuclear plants. Regulated Utilities will continue to maximize the use of spent fuel storage capability within its own facilities for as long as feasible.
Under federal law, the U.S. Department of Energy (DOE) is responsible for the selection and construction of a facility for the permanent disposal of spent nuclear fuel and high-level radioactive waste. Delays have occurred in the DOE’s proposed permanent repository to be located at Yucca Mountain, Nevada.

13


PART I

Until the DOE begins to accept the spent nuclear fuel, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida will continue to safely manage their spent nuclear fuel. With certain modifications and additional approvals by the Nuclear Regulatory Commission (NRC), including the expansion of on-site dry cask storage facilities, spent nuclear fuel storage facilities will be sufficient to provide storage space for spent fuel through the expiration of the operating licenses, including any license renewals, for all sites except Shearon Harris Nuclear Station (Harris) and Crystal River Unit 3 Nuclear Station (Crystal River Unit 3). Under current regulatory guidelines, Harris has sufficient storage capacity in its spent fuel pools through the expiration of its renewed operating license. Crystal River Unit 3 was retired in 2013, with plans to place the facility in SAFSTOR prior to final decommissioning. An independent spent fuel storage installation will be installed to accommodate storage of all spent nuclear fuel until the DOE accepts the spent nuclear fuel.
The nuclear power industry faces uncertainties with respect to the cost and long-term availability of disposal sites for spent nuclear fuel and other radioactive waste, compliance with changing regulatory requirements, capital outlays for modifications and new plant construction, the technological and financial aspects of decommissioning plants at the end of their licensed lives, and requirements relating to nuclear insurance. Nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, repairs, uprates and certain other modifications.
Regulated Utilities is subject to the jurisdiction of the NRC for the design, construction and operation of its nuclear generating facilities. Nuclear operating licenses are potentially subject to extension. The following table includes the current expiration of nuclear operating licenses.
Unit
Year of Expiration
Duke Energy Carolinas
 
Catawba Unit 1
2043
Catawba Unit 2
2043
McGuire Unit 1
2041
McGuire Unit 2
2043
Oconee Unit 1
2033
Oconee Unit 2
2033
Oconee Unit 3
2034
Duke Energy Progress
 
Brunswick Unit 1
2036
Brunswick Unit 2
2034
Harris
2046
Robinson
2030
Duke Energy Florida
 
Crystal River Unit 3
(a)

(a)
Duke Energy Florida has requested the NRC to terminate the Crystal River Unit 3 operating license as Crystal River Unit 3 permanently ceased operation in February 2013. For additional information on decommissioning activity and transition to SAFSTOR, see Note 4 "Regulatory Matters."
The NRC issues orders with regard to security at nuclear plants in response to new or emerging threats. The most recent orders include additional restrictions on nuclear plant access, increased security measures at nuclear facilities and closer coordination with intelligence, military, law enforcement and emergency response functions at the federal, state and local levels. As the NRC, other governmental entities and the industry continue to consider security issues, it is possible that more extensive security plans could be required.
Regulation
State
The NCUC, PSCSC, FPSC, PUCO, IURC and KPSC (collectively, the state utility commissions) approve rates for retail electric and gas service within their respective states. The state utility commissions, to varying degrees, have authority over the construction and operation of Regulated Utilities’ generating facilities. Certificates of Public Convenience and Necessity issued by the state utility commissions, as applicable, authorize Regulated Utilities to construct and operate its electric facilities, and to sell electricity to retail and wholesale customers. Prior approval from the relevant state utility commission is required for Regulated Utilities to issue securities. The underlying concept of utility ratemaking is to set rates at a level that allows the utility to collect revenues equal to its cost of providing service plus earn a reasonable rate of return on its invested capital, including equity.
Each of the state utility commissions allow recovery of certain costs through various cost-recovery clauses to the extent the respective commission determines in periodic hearings that such costs, including any past over or under-recovered costs, are prudent. The clauses are in addition to approved base rates.
Fuel, fuel-related costs and certain purchased power costs are eligible for recovery by Regulated Utilities. Regulated Utilities uses coal, hydroelectric, natural gas, oil and nuclear fuel to generate electricity, thereby maintaining a diverse fuel mix that helps mitigate the impact of cost increases in any one fuel. Due to the associated regulatory treatment and the method allowed for recovery, changes in fuel costs from year to year have no material impact on operating results of Regulated Utilities, unless a commission finds a portion of such costs to have been imprudent. However, delays between the expenditure for fuel costs and recovery from customers can adversely impact the timing of cash flows of Regulated Utilities.

14


PART I

The following table summarizes base rate cases approved and effective in the past three years.
 
Annual Increase (in millions)

 
Return on Equity

 
Equity Component of Capital Structure

 
Effective Date
 
Other
Duke Energy Carolinas 2013 North Carolina Rate Case (a)
$
234

 
10.2
%
 
53
%
 
September 2013
 
(b)  
Duke Energy Carolinas 2013 South Carolina Rate Case (a)
118

 
10.2
%
 
53
%
 
September 2013
 
(c)  
Duke Energy Carolinas 2011 North Carolina Rate Case
309

 
10.5
%
 
53
%
 
February 2012
 
 
Duke Energy Carolinas 2011 South Carolina Rate Case
93

 
10.5
%
 
53
%
 
February 2012
 
 
Duke Energy Progress 2012 North Carolina Rate Case (a)
178

 
10.2
%
 
53
%
 
June 2013
 
(d)  
Duke Energy Ohio 2012 Electric Rate Case
49

 
9.84
%
 
53
%
 
May 2013
 
 
Duke Energy Ohio 2012 Natural Gas Rate Case

 
9.84
%
 
53
%
 
December 2013
 
(e)  
Duke Energy Florida 2013 FPSC Settlement

 
10.5
%
 
49
%
 
October 2013
 
(f)(h)  
Duke Energy Florida 2012 FPSC Settlement
150

 
10.5
%
 
49
%
 
January 2013
 
(g)(h)  
(a)
Rates increase over a two or three year period as approved by the NCUC and PSCSC. Annual increase amounts represent the total increase once effective.
(b)
Terms of this rate case include (i) recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, (ii) a $10 million shareholder contribution to agencies providing energy assistance to low-income customers, (iii) an annual reduction in the regulatory liability for costs of removal of $30 million for each of the first two years, and (iv) no additional base rate increases to be effective before September 2015.
(c)
Terms of this rate case include (i) recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, (ii) an approximate $4 million shareholder contribution to agencies providing energy assistance to low-income customers and for economic development, (iii) a reduction in the regulatory liability for costs of removal of $45 million for the first year, and (iv) no additional base rate increases to be effective before September 2015.
(d)
Terms of this rate case include (i) recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, (ii) a $20 million shareholder contribution to agencies providing energy assistance to low-income customers, and (iii) a reduction in the regulatory liability for costs of removal of $20 million for the first year.
(e)
Although the PUCO approved no increase in base rates, more than half of the revenue request was approved to be recovered in various riders, including recovery of costs related to former manufactured gas plants (MGP). Recovery of $56 million of MGP costs via a rider was approved in November 2013. The rider became effective in March 2014, was suspended in June 2014 and reinstated in January 2015. For additional information on MGP recovery see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
(f)
Terms of this settlement include (i) no additional base rate increases until 2019, (ii) partial recovery of Crystal River Unit 3 beginning in 2014, and (iii) full recovery of Crystal River Unit 3, not to exceed $1,466 million, plus the cost to build a dry cask storage facility, beginning no later than 2017.
(g)
Terms of this settlement include the removal of Crystal River Unit 3 assets from rate base. 
(h)
Capital structure includes deferred income tax, customer deposits and investment tax credits.
For more information on rate matters and other regulatory proceedings, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
Federal
The FERC approves Regulated Utilities’ cost-based rates for electric sales to certain wholesale customers, as well as sales of transmission service. Regulations of FERC and the state utility commissions govern access to regulated electric and gas customers and other data by nonregulated entities and services provided between regulated and nonregulated energy affiliates. These regulations affect the activities of nonregulated affiliates with Regulated Utilities.
Regional Transmission Organizations (RTO). PJM Interconnection, LLC (PJM) and Midcontinent Independent Transmission System Operator, Inc. (MISO) are the Independent System Operators (ISO) and FERC-approved RTOs for the regions in which Duke Energy Ohio and Duke Energy Indiana operate. PJM and MISO operate energy, capacity and other markets, and, through central dispatch, control the day-to-day operations of bulk power systems.
Duke Energy Ohio is a member of PJM and Duke Energy Indiana is a member of MISO. Transmission owners in these RTOs have turned over control of their transmission facilities, and their transmission systems are currently under the dispatch control of the RTOs. Transmission service is provided on a region-wide, open-access basis using the transmission facilities of the RTO members at rates based on the costs of transmission service.
Environmental. Regulated Utilities is subject to the jurisdiction of the EPA and state and local environmental agencies. For a discussion of environmental regulation, see “Environmental Matters” in this section.
See “Other Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion about potential Global Climate Change legislation and other EPA regulations under development and the potential impacts such legislation and regulation could have on Duke Energy’s operations.

15


PART I

INTERNATIONAL ENERGY
International Energy principally operates and manages power generation facilities and engages in sales and marketing of electric power, natural gas, and natural gas liquids outside the U.S. Its activities principally target power generation in Latin America. Additionally, International Energy owns a 25 percent interest in National Methanol Company (NMC), a large regional producer of methanol and methyl tertiary butyl ether (MTBE) located in Saudi Arabia. International Energy’s economic ownership interest will decrease to 17.5 percent upon successful startup of NMC's polyacetal production facility, which is expected to occur after June 2016. International Energy will retain 25 percent of the board representation and voting rights of NMC. The investment in NMC is accounted for under the equity method of accounting.
International Energy’s customers include retail distributors, electric utilities, independent power producers, marketers, and industrial and commercial companies. International Energy’s current strategy is focused on optimizing the value of its current Latin American portfolio and expanding the portfolio through investment in generation opportunities in Latin America.
During 2014, Duke Energy performed a strategic review of international Energy to evaluate a wide range of options and opportunities for growth of the business, including strategies for utilization of off-shore cash. Duke Energy determined it is in the shareholders' best interest, at the present time, to continue to own, operate and create value through portfolio optimization and efficiency of International Energy operations.
Duke Energy also declared a taxable dividend of historical foreign earnings in the form of notes payable that will result in the repatriation of approximately $2.7 billion in cash held and expected to be generated by International Energy over a period of up to eight years. Duke Energy’s intention is to indefinitely reinvest prospective undistributed foreign earnings generated by International Energy. For additional information see Note 22 to the Consolidated Financial Statements, “Income Taxes,” for additional information.
Competition and Regulation
International Energy’s sales and marketing of electric power and natural gas competes directly with other generators and marketers serving its market areas. Competitors are country and region-specific but include government-owned electric generating companies, local distribution companies with self-generation capability and other privately owned electric generating and marketing companies. The principal elements of competition are price and availability, terms of service, flexibility and reliability of service.
A high percentage of International Energy’s portfolio consists of baseload hydroelectric generation facilities, which compete with other forms of electric generation available to International Energy’s customers and end-users, including natural gas and fuel oils. Economic activity, conservation, legislation, governmental regulations, weather, including rainfall, additional generation capacities and other factors affect the supply and demand for electricity in the regions served by International Energy.
International Energy’s operations are subject to both country-specific and international laws and regulations. See “Environmental Matters” in this section.
COMMERCIAL POWER
Commercial Power builds, develops, and operates wind and solar renewable generation and energy transmission projects throughout the continental U.S. Long-term contracts are generally executed with load serving entities, which, in most instances, have obligations under state-mandated renewable energy portfolio standards or similar state or local renewable energy goals. Energy and renewable energy credits generated by wind and solar projects are generally sold at contractual prices. Commercial Power also builds, develops and operates high voltage power and natural gas transmission projects. These projects are designed to increase reliability, integrate renewables generation and relieve grid congestion.
Duke Energy, Dominion Resources (Dominion), Piedmont Natural Gas and AGL Resources announced the formation of a joint venture, Atlantic Coast Pipeline, LLC, to build and own the proposed Atlantic Coast Pipeline (ACP), a 550-mile interstate natural gas pipeline. The ACP is designed to meet the needs identified in requests for proposals by Duke Energy Carolinas, Duke Energy Progress and Piedmont Natural Gas. Dominion will build and operate the ACP and will own 45 percent. Duke Energy, will own 40 percent ownership of the pipeline through its Commercial Power segment. The remaining share will be owned by Piedmont Natural Gas and AGL Resources. Duke Energy Carolinas and Duke Energy Progress will be customers of the pipeline and enter into 20-year transportation contracts with ACP, subject to state regulatory approval. The project will require FERC approval, which the joint venture will seek to secure by summer 2016. The estimated in-service date of the pipeline is late 2018. For additional information on the ACP, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters."
Commercial Power has three wind projects totaling approximately 510 MW under various stages of construction in Starr County, Texas. A 200 MW project is expected to commence operation in the second quarter of 2015, a 110 MW project is expected to commence commercial operations by the end of 2015 and a third 200 MW project is expected to commence operation in the third quarter of 2016. All three projects have entered into long-term power purchase agreements with third parties.
For additional information on Commercial Power’s generation facilities, see Item 2, “Properties.”
Other Matters
Commercial Power is subject to regulation at the federal level, primarily from the FERC. Regulations of the FERC govern access to regulated electric customer and other data by nonregulated entities, services provided between regulated and nonregulated energy affiliates, and Commercial Power’s investments in transmission projects. These regulations affect the activities of Commercial Power.
For more information on rate matters, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters — Rate Related Information.”
Market Environment and Competition
The market price of commodities and services, along with the quality and reliability of services provided, drive competition in the wholesale energy business. Commercial Power’s main competitors include other nonregulated generators and wholesale power providers.

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Sources of Electricity
Commercial Power relies on wind and solar resources for its generation of electric energy.
OTHER
The remainder of Duke Energy’s operations is presented as Other. While it is not an operating segment, Other primarily includes unallocated corporate interest expense, certain unallocated corporate costs, Bison Insurance Company Limited (Bison), Duke Energy’s wholly owned, captive insurance subsidiary, contributions to the Duke Energy Foundation, and other investments in businesses the Company is in various stages of exiting or winding down. On December 31, 2013, Duke Energy sold its interest in DukeNet Communications Holdings, LLC (DukeNet) to Time Warner Cable, Inc. Following the repayment of existing DukeNet indebtedness at closing, transaction expenses and other purchase price adjustments, Duke Energy received cash proceeds of approximately $215 million.
Bison’s principal activities as a captive insurance entity include the indemnification of various business risks and losses, such as property, workers’ compensation and general liability of Duke Energy subsidiaries and affiliates.
Regulation
Certain entities within Other are subject to the jurisdiction of state and local agencies.
Geographic Regions
For a discussion of Duke Energy’s foreign operations see “Management’s Discussion and Analysis of Results of Operations” and Note 3 to the Consolidated Financial Statements, “Business Segments.”
Employees
On December 31, 2014 , Duke Energy had 28,344 employees. A total of 6,267 operating and maintenance employees were represented by unions.
Executive Officers
Melissa H. Anderson
 
50

 
Senior Vice President and Chief Human Resources Officer.  Ms. Anderson assumed her position in January 2015. Prior to joining Duke Energy, she served as Senior Vice President of Human Resources at Domtar Inc. since 2010.
Lynn J. Good
 
55

 
Vice Chairman, President and Chief Executive Officer.   Ms. Good assumed her current position in July 2013. Prior to that, she served as Executive Vice President and Chief Financial Officer since 2009.
Dhiaa M. Jamil
 
58

 
Executive Vice President and President, Regulated Generation.   Mr. Jamil assumed his current position in August 2014. He served as Executive Vice President and President of Duke Energy Nuclear from March 2013 and as Chief Nuclear Officer from February 2008 to August 2014. He also served as Chief Generation Officer for Duke Energy from July 2009 to June 2012.
Julia S. Janson
 
50

 
Executive Vice President, Chief Legal Officer and Corporate Secretary.   Ms. Janson assumed her current position in December 2012. Prior to that, she had held the position of President of Duke Energy Ohio and Duke Energy Kentucky since 2008.
Marc E. Manly
 
62

 
Executive Vice President and President, Commercial Portfolio.   Mr. Manly assumed his current position in August 2014. He served as Executive Vice President and President, Commercial Businesses from December 2012 until August 2014. He previously held the position of Chief Legal Officer from April 2006, upon the merger of Duke Energy and Cinergy, until December 2012.
A.R. Mullinax
 
60

 
Executive Vice President, Strategic Services. Mr. Mullinax assumed his current position in August 2014. Prior to that, he had held the position of Chief Information Officer since 2007.
Brian D. Savoy
 
39

 
Senior Vice President, Controller and Chief Accounting Officer.   Mr. Savoy assumed his current position in September 2013. Prior to that, he had held the position of Director, Forecasting and Analysis since 2009.
B. Keith Trent
 
55

 
Executive Vice President, Grid Solutions and President, Midwest and Florida Regions.   Mr. Trent assumed his current position in August 2014. He served as Executive Vice President and Chief Operating Officer, Regulated Utilities from December 2012 until August 2014. Prior to that, he held the position of Executive Vice President, Regulated Utilities upon the merger with Progress Energy in July 2012, and President, Commercial Businesses from July 2009 until July 2012.
Jennifer L. Weber
 
48

 
Executive Vice President, External Affairs and Strategic Policy.   Ms. Weber assumed her current position in August 2014. Prior to that, she had served as Executive Vice President Chief Human Resources Officer since January 2011. She previously held the position of Senior Vice President and Chief Human Resources Officer from November 2008 until January 2011.
Lloyd M. Yates
 
54

 
Executive Vice President, Market Solutions and President, Carolinas Region.   Mr. Yates assumed his current position in August 2014. He held the position of Executive Vice President, Regulated Utilities from December 2012 to August 2014, and prior to that, had served as Executive Vice President, Customer Operations since July 2012, upon the merger of Duke Energy and Progress Energy. Prior to the merger, Mr. Yates had served as Chief Executive Officer, Duke Energy Progress, Inc. since July 2007.
Steven K. Young
 
56

 
Executive Vice President and Chief Financial Officer.   Mr. Young assumed his current position in August 2013. Prior to that, he had served as Vice President, Chief Accounting Officer and Controller since April 2006.
Executive officers serve until their successors are duly elected or appointed.

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There are no family relationships between any of the executive officers, nor any arrangement or understanding between any executive officer and any other person involved in officer selection.
Environmental Matters
The Duke Energy Registrants are 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. Duke Energy is also subject to international laws and regulations with regard to air and water quality, hazardous and solid waste disposal and other environmental matters. Environmental laws and regulations affecting the Duke Energy Registrants include, but are not limited to:
The Clean Air Act (CAA), 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 (CWA) 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 (RCRA), 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.
See “Other Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion about potential Global Climate Change legislation and the potential impacts such legislation could have on the Duke Energy Registrants’ operations. Additionally, other recently passed and potential future environmental laws and regulations could have a significant impact on the Duke Energy Registrants’ results of operations, cash flows or financial position. However, if and when such laws and regulations become effective, the Duke Energy Registrants will seek appropriate regulatory recovery of costs to comply within its regulated operations.
For more information on environmental matters involving the Duke Energy Registrants, including possible liability and capital costs, see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies - Environmental.” Except to the extent discussed in Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” compliance with current international, 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 the Duke Energy Registrants.
DUKE ENERGY CAROLINAS
 
Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution, and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas’ service area covers approximately 24,000 square miles and supplies electric service to 2.5 million residential, commercial and industrial customers. For information about Duke Energy Carolinas’ generating plants, see Item 2, “Properties.” Duke Energy Carolinas is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Substantially all of Duke Energy Carolinas operations are regulated and qualify for regulatory accounting. Duke Energy Carolinas operates one reportable business segment, Regulated Utility. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
PROGRESS ENERGY
 
Progress Energy is a public utility holding company headquartered in Raleigh, North Carolina, primarily engaged in the regulated electric utility business and is subject to regulation by the FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. When discussing Progress Energy’s financial information, it necessarily includes the results of Duke Energy Progress and Duke Energy Florida.
Substantially all of Progress Energy’s operations are regulated and qualify for regulatory accounting. Progress Energy operates one reportable business segment, Regulated Utilities. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY PROGRESS
 
Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress’ service area covers approximately 32,000 square miles, and supplies electric service to approximately 1.5 million residential, commercial and industrial customers. For information about Duke Energy Progress’ generating plants, see Item 2, “Properties.” Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Substantially all of Duke Energy Progress’ operations are regulated and qualify for regulatory accounting. Duke Energy Progress operates one reportable business segment, Regulated Utility. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”

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DUKE ENERGY FLORIDA
 
Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution, and sale of electricity in portions of Florida. Duke Energy Florida’s service area covers approximately 13,000 square miles and supplies electric service to approximately 1.7 million residential, commercial and industrial customers. For information about Duke Energy Florida’s generating plants, see Item 2, “Properties.” Duke Energy Florida is subject to the regulatory provisions of the FPSC, NRC and FERC.
Substantially all of Duke Energy Florida’s operations are regulated and qualify for regulatory accounting. Duke Energy Florida operates one reportable business segment, Regulated Utility. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY OHIO
 
Duke Energy Ohio is a public utility that provides service in portions of Ohio and Kentucky. References herein to Duke Energy Ohio include Duke Energy Ohio and its subsidiaries. Duke Energy Ohio is subject to the regulatory provisions of the PUCO, KPSC and FERC.
Business Segments
Duke Energy Ohio operates two business segments: Regulated Utilities and Commercial Power. For additional information on each of these business segments, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
The following is a brief description of the nature of operations of each of Duke Energy Ohio’s reportable business segments.
REGULATED UTILITIES
Regulated Utilities transmits and distributes electricity in Ohio. Regulated Utilities also generates, transmits and distributes electricity in Kentucky. Regulated Utilities also transports and sells natural gas in Ohio and Kentucky. Duke Energy Ohio applies regulatory accounting to substantially all of the operations in its Regulated Utilities operating segment.
Duke Energy Ohio’s Regulated Utilities service area covers 3,000 square miles and supplies electric service to 840,000 residential, commercial and industrial customers and provides regulated transmission and distribution services for natural gas to 500,000 customers. See Item 2, “Properties” for further discussion of Duke Energy Ohio’s Regulated Utilities generating facilities.
See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for further discussion related to regulatory filings.
COMMERCIAL POWER
On August 21, 2014, Duke Energy entered into an agreement to sell Commercial Power's Midwest generation business to Dynegy. The transaction is conditioned on approval by FERC, and is expected to close by the end of the second quarter of 2015. The results of these operations have been reclassified to Discontinued Operations on the Consolidated Statements of Operations and Comprehensive Income. For additional information on the Midwest generation business disposition see Note 2 to the Consolidated Financial Statements, "Acquisitions, Dispositions and Sales of Other Assets."
For additional information on Duke Energy Ohio’s Commercial Power generating facilities, see Item 2, “Properties,”
DUKE ENERGY INDIANA
 
Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana’s service area covers 23,000 square miles and supplies electric service to 810,000 residential, commercial and industrial customers. See Item 2, “Properties” for further discussion of Duke Energy Indiana’s generating facilities, transmission and distribution. Duke Energy Indiana is subject to the regulatory provisions of the IURC and FERC.
Substantially all of Duke Energy Indiana’s operations are regulated and qualify for regulatory accounting. Duke Energy Indiana operates one reportable business segment, Regulated Utility. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
ITEM 1A. RISK FACTORS
 
In addition to other disclosures within this Form 10-K, including Management’s Discussion and Analysis - Matters Impacting Future Results for each registrant in Item 7, and other documents filed with the SEC from time to time, the following factors should be considered in evaluating Duke Energy and its subsidiaries. Such factors could affect actual results of operations and cause results to differ substantially from those currently expected or sought. Unless otherwise indicated, risk factors discussed below generally relate to risks associated with all of the Duke Energy Registrants. Risks identified at the Subsidiary Registrant level are generally applicable to Duke Energy.

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Regulatory, Legislative and Legal Risks
The Duke Energy Registrants’ regulated electric revenues, earnings and results are dependent on state legislation and regulation that affect electric generation, transmission, distribution and related activities, which may limit their ability to recover costs.
The Duke Energy Registrants’ regulated utility businesses are regulated on a cost-of-service/rate-of-return basis subject to statutes and regulatory commission rules and procedures of North Carolina, South Carolina, Florida, Ohio, Indiana and Kentucky. If the Duke Energy Registrants’ regulated utility earnings exceed the returns established by the state utility commissions, retail electric rates may be subject to review and possible reduction by the commissions, which may decrease the Duke Energy Registrants’ future earnings. Additionally, if regulatory bodies do not allow recovery of costs incurred in providing service on a timely basis, the Duke Energy Registrants’ future earnings could be negatively impacted.
If legislative and regulatory structures were to evolve in such a way that the Duke Energy Registrants’ exclusive rights to serve their regulated customers were eroded, their future earnings could be negatively impacted.
Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs that could adversely affect the Duke Energy Registrants’ financial position, results of operations or cash flows and their utility businesses.
Increased competition resulting from deregulation or restructuring legislation could have a significant adverse impact on the Duke Energy Registrants’ results of operations, financial position, or cash flows. Retail competition and the unbundling of regulated electric service could have a significant adverse financial impact on the Duke Energy Registrants due to an impairment of assets, a loss of retail customers, lower profit margins or increased costs of capital. The Duke Energy Registrants cannot predict the extent and timing of entry by additional competitors into the electric markets. The Duke Energy Registrants cannot predict if or when they will be subject to changes in legislation or regulation, nor can they predict the impact of these changes on their financial position, results of operations or cash flows.
The Duke Energy Registrants’ businesses are subject to extensive federal regulation that will affect their operations and costs.
The Duke Energy Registrants are subject to regulation by FERC, NRC, EPA and various other federal agencies as well as the North American Electric Reliability Corporation. Regulation affects almost every aspect of the Duke Energy Registrants’ businesses, including, among other things, their ability to: take fundamental business management actions; determine the terms and rates of transmission and distribution services; make acquisitions; issue equity or debt securities; engage in transactions with other subsidiaries and affiliates; and pay dividends upstream to the Duke Energy Registrants. Changes to federal regulations are continuous and ongoing. The Duke Energy Registrants cannot predict the future course of regulatory changes or the ultimate effect those changes will have on their businesses. However, changes in regulation can cause delays in or affect business planning and transactions and can substantially increase the Duke Energy Registrants’ costs.
The Dan River ash basin release could impact the reputation and financial condition of the Duke Energy Registrants.
There is uncertainty regarding the extent and timing of future additional costs and liabilities related to the Dan River ash basin release, including the amount and extent of any pending or future civil or criminal penalties, and resulting litigation. These uncertainties are likely to continue for an extended period and may further increase costs. Thus, the Dan River ash basin release could have an adverse impact on the reputation of the Duke Energy Registrants and their financial position, results of operations and cash flows.
The Duke Energy Registrants are subject to numerous environmental laws and regulations requiring significant capital expenditures that can increase the cost of operations, and which may impact or limit business plans, or cause exposure to environmental liabilities.
The Duke Energy Registrants are subject to numerous environmental laws and regulations affecting many aspects of their present and future operations, including coal combustion residuals (CCRs), air 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 the Duke Energy Registrants 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 cleanup costs and damages arising from contaminated properties. Failure to comply with environmental regulations may result in the imposition of fines, penalties and injunctive measures affecting operating assets. The steps the Duke Energy Registrants could be required to take to ensure their facilities are in compliance could be prohibitively expensive. As a result, the Duke Energy Registrants may be required to shut down or alter the operation of their facilities, which may cause the Duke Energy Registrants to incur losses. Further, the Duke Energy Registrants may not be successful in recovering capital and operating costs incurred to comply with new environmental regulations through existing regulatory rate structures and their contracts with customers. Also, the Duke Energy Registrants may not be able to obtain or maintain from time to time all required environmental regulatory approvals for their operating assets or development projects. Delays in obtaining any required environmental regulatory approvals, failure to obtain and comply with them or changes in environmental laws or regulations to more stringent compliance levels could result in additional costs of operation for existing facilities or development of new facilities being prevented, delayed or subject to additional costs. Although it is not expected that the costs to comply with current environmental regulations will have a material adverse effect on the Duke Energy Registrants’ financial position, results of operations or cash flows due to regulatory cost recovery, the Duke Energy Registrants are at risk that the costs of complying with environmental regulations in the future will have such an effect.
The EPA has recently enacted or proposed new federal regulations governing the management of cooling water intake structures, wastewater and carbon dioxide (CO 2 ) emissions. These regulations may require the Duke Energy Registrants to make additional capital expenditures and increase operating and maintenance costs.

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Duke Energy’s investments and projects located outside of the U.S. expose it to risks related to the laws, taxes, economic and political conditions, and policies of foreign governments. These risks may delay or reduce Duke Energy’s realization of value from its international projects.
Duke Energy currently owns and may acquire and/or dispose of material energy-related investments and projects outside the U.S. The economic, regulatory, market and political conditions in some of the countries where Duke Energy has interests may impact its ability to obtain financing on suitable terms. Other risks relate to its customers’ ability to honor their obligations with respect to projects and investments, delays in construction, limitations on its ability to enforce legal rights, and interruption of business, as well as risks of war, expropriation, nationalization, renegotiation, trade sanctions or nullification of existing contracts and changes in law, regulations, market rules or tax policy.
Operational Risks
The Duke Energy Registrants’ results of operations may be negatively affected by overall market, economic and other conditions that are beyond their control.
Sustained downturns or sluggishness in the economy generally affect the markets in which the Duke Energy Registrants operate and negatively influence electricity operations. Declines in demand for electricity as a result of economic downturns in the Duke Energy Registrants’ regulated electric service territories will reduce overall sales and lessen cash flows, especially as industrial customers reduce production and, therefore, consumption of electricity. Although the Duke Energy Registrants’ regulated electric business is subject to regulated allowable rates of return and recovery of certain costs, such as fuel, under periodic adjustment clauses, overall declines in electricity sold as a result of economic downturn or recession could reduce revenues and cash flows, thereby diminishing results of operations. Additionally, prolonged economic downturns that negatively impact the Duke Energy Registrants’ results of operations and cash flows could result in future material impairment charges to write-down the carrying value of certain assets, including goodwill, to their respective fair values.
The Duke Energy Registrants also sell electricity into the spot market or other competitive power markets on a contractual basis. With respect to such transactions, the Duke Energy Registrants are not guaranteed any rate of return on their capital investments through mandated rates, and revenues and results of operations are likely to depend, in large part, upon prevailing market prices. These market prices may fluctuate substantially over relatively short periods of time and could reduce the Duke Energy Registrants’ revenues and margins, thereby diminishing results of operations.
Factors that could impact sales volumes, generation of electricity and market prices at which the Duke Energy Registrants are 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 the ability to operate facilities in an economical manner;
supply of and demand for energy commodities;
transmission or transportation constraints or inefficiencies that impact nonregulated energy operations;
availability of competitively priced alternative energy sources, which are preferred by some customers over electricity produced from coal, nuclear or gas plants, and customer usage of energy efficient equipment that reduces energy demand;
natural gas, crude oil and refined products production levels and prices;
ability to procure satisfactory levels of inventory, such as coal, gas and uranium; and
capacity and transmission service into, or out of, the Duke Energy Registrants’ markets.
Natural disasters or operational accidents may adversely affect the Duke Energy Registrants’ operating results.
Natural disasters (such as electromagnetic events or the 2011 earthquake and tsunami in Japan) or other operational accidents within the company or industry (such as the San Bruno, California natural gas transmission pipeline failure) could have direct significant impacts on the Duke Energy Registrants as well as on key contractors and suppliers. Such events could indirectly impact the Duke Energy Registrants through changes to policies, laws and regulations whose compliance costs have a significant impact on the Duke Energy Registrants’ financial position, results of operations and cash flows.
Coal ash storage and management strategies to comply with CCR regulations could impact the reputation and financial condition of the Duke Energy Registrants.
As a result of electricity produced at coal-fired power plants Duke Energy Registrants manage large amounts of CCRs in dry storage in landfills or combined with water in ash basins. The potential exists for another coal ash pond failure or coal ash related incident, such as the one that occurred during the Dan River ash basin release, that could impact the environment or raise general public health concerns. Such an incident could have a material adverse impact to the reputation and financial condition of the Duke Energy Registrants.
Recent regulations for the disposal of CCRs from power plants by the EPA are expected to be effective in 2015. These regulations classify CCR as nonhazardous waste under the RCRA and apply to all new and existing landfills, new and existing surface impoundments, structural fills and CCR piles and establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. In addition to federal CCR regulations, CCR landfills and surface impoundments will continue to be independently regulated by most states and additional regulations by states may be imposed in the future. At this time, Duke Energy is evaluating the federal and state CCR regulations and developing cost estimates that will largely be dependent upon compliance alternatives selected to meet requirements of the regulations. These federal and state regulations may require additional capital expenditures, increased operating and maintenance costs, or closure of certain facilities which could affect the financial position, results of operations and cash flows of the Duke Energy Registrants. Although the Duke Energy Registrants intend to seek cost recovery for future expenditures through the normal ratemaking process with state utility

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commissions, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations, there is no guarantee that recovery of such costs will be granted.
The Duke Energy Registrants’ financial position, results of operations and cash flows may be negatively affected by a lack of growth or slower growth in the number of customers, or decline in customer demand or number of customers.
Growth in customer accounts and growth of customer usage each directly influence demand for electricity and the need for additional power generation and delivery facilities. Customer growth and customer usage are affected by a number of factors outside the control of the Duke Energy Registrants, such as mandated energy efficiency measures, demand-side management goals, distributed generation resources and economic and demographic conditions, such as population changes, job and income growth, housing starts, new business formation and the overall level of economic activity.
Certain regulatory and legislative bodies have introduced or are considering requirements and/or incentives to reduce energy consumption by certain dates. Additionally, technological advances driven by federal laws mandating new levels of energy efficiency in end-use electric devices or other improvements in or applications of technology could lead to declines in per capita energy consumption.
Advances in distributed generation technologies that produce power, including fuel cells, micro-turbines, wind turbines and solar cells, may reduce the cost of alternative methods of producing power to a level competitive with central power station electric production utilized by the Duke Energy Registrants.
Some or all of these factors, could result in a lack of growth or decline in customer demand for electricity or number of customers, and may cause the failure of the Duke Energy Registrants to fully realize anticipated benefits from significant capital investments and expenditures which could have a material adverse effect on their financial position, results of operations and cash flows.
Furthermore, the Duke Energy Registrants currently have energy efficiency riders in place to recover the cost of energy efficiency programs in North Carolina, South Carolina, Florida, Ohio and Kentucky. Should the Duke Energy Registrants be required to invest in conservation measures that result in reduced sales from effective conservation, regulatory lag in adjusting rates for the impact of these measures could have a negative financial impact.
The Duke Energy Registrants’ operating results may fluctuate on a seasonal and quarterly basis and can be negatively affected by changes in weather conditions and severe weather.
Electric power generation is generally a seasonal business. In most parts of the U.S., and other markets in which Duke Energy operates, demand for power peaks during the warmer summer months, with market prices typically 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 the Duke Energy Registrants’ businesses may fluctuate substantially on a seasonal and quarterly basis and thus make period-to-period comparison less relevant.
Sustained severe drought conditions could impact generation by hydroelectric plants, as well as fossil and nuclear plant operations, as these facilities use water for cooling purposes and for the operation of environmental compliance equipment. Furthermore, destruction caused by severe weather events, such as hurricanes, tornadoes, severe thunderstorms, snow and ice storms, can result in lost operating revenues due to outages; property damage, including downed transmission and distribution lines; and additional and unexpected expenses to mitigate storm damage. The cost of storm restoration efforts may not be fully recoverable through the regulatory process.
The Duke Energy Registrants’ sales may decrease if they are unable to gain adequate, reliable and affordable access to transmission assets.
The Duke Energy Registrants depend on transmission and distribution facilities owned and operated by utilities and other energy companies to deliver electricity sold to the wholesale market. FERC’s power transmission regulations, as well as those of Duke Energy’s international markets, require wholesale electric transmission services to be offered on an open-access, non-discriminatory basis. If transmission is disrupted, or if transmission capacity is inadequate, the Duke Energy Registrants’ ability to sell and deliver products may be hindered.
The different regional power markets have changing regulatory structures, which could affect growth and performance in these regions. In addition, the ISOs who oversee the transmission systems in regional power markets have imposed in the past, and may impose in the future, price limitations and other mechanisms to address volatility in the power markets. These types of price limitations and other mechanisms may adversely impact the profitability of the Duke Energy Registrants’ wholesale power marketing business.
Fluctuations in commodity prices or availability may adversely affect various aspects of the Duke Energy Registrants’ operations as well as their financial condition, results of operations and cash flows.
The Duke Energy Registrants are exposed to the effects of market fluctuations in the price of natural gas, coal, fuel oil, nuclear fuel, electricity and other energy-related commodities as a result of their ownership of energy-related assets. Fuel costs are recovered primarily through cost-recovery clauses, subject to the approval of state utility commissions.
Additionally, the Duke Energy Registrants are exposed to risk that counterparties will not be able to fulfill their obligations. Disruption in the delivery of fuel, including disruptions as a result of, among other things, transportation delays, weather, labor relations, force majeure events, or environmental regulations affecting any of these fuel suppliers, could limit the Duke Energy Registrants to operate their facilities. Should counterparties fail to perform, the Duke Energy Registrants might be forced to replace the underlying commitment at prevailing market prices possibly resulting in losses in addition to the amounts, if any, already paid to the counterparties.
Certain of the Duke Energy Registrants’ hedge agreements may result in the receipt of, or posting of, derivative collateral with counterparties, depending on the daily derivative position. Fluctuations in commodity prices that lead to the return of collateral received and/or the posting of collateral with counterparties negatively impact liquidity. Downgrades in the Duke Energy Registrants’ credit ratings could lead to additional collateral posting requirements. The Duke Energy Registrants continually monitor derivative positions in relation to market price activity.

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PART I

Potential terrorist activities or military or other actions could adversely affect the Duke Energy Registrants’ businesses.
The continued threat of terrorism and the impact of retaliatory military and other action by the U.S. and its allies may lead to increased political, economic and financial market instability and volatility in prices for natural gas and oil, which may have material adverse effects in ways the Duke Energy Registrants cannot predict at this time. In addition, future acts of terrorism and possible reprisals as a consequence of action by the U.S. and its allies could be directed against companies operating in the U.S. or their international affiliates. Information technology systems, transmission and distribution and generation facilities such as nuclear plants could be potential targets of terrorist activities or harmful activities by individuals or groups. The potential for terrorism has subjected the Duke Energy Registrants’ operations to increased risks and could have a material adverse effect on their businesses. In particular, the Duke Energy Registrants may experience increased capital and operating costs to implement increased security for their information technology systems, transmission and distribution and generation facilities, including nuclear power plants under the NRC’s design basis threat requirements. These increased costs could include additional physical plant security and security personnel or additional capability following a terrorist incident.
Cyberattacks and data security breaches could adversely affect the Duke Energy Registrants' businesses.
Information security risks have generally increased in recent years as a result of the proliferation of new technologies and the increased sophistication and frequency of cyberattacks and data security breaches. The utility industry requires the continued operation of sophisticated information technology systems and network infrastructure, which are part of an interconnected regional grid. Additionally, connectivity to the Internet continues to increase through smart grid and other initiatives. Because of the critical nature of the infrastructure, increased connectivity to the Internet and technology systems’ inherent vulnerability to disability or failures due to hacking, viruses, acts of war or terrorism or other types of data security breaches, the Duke Energy Registrants face a heightened risk of cyberattack. In the event of such an attack, the Duke Energy Registrants could (i) have business operations disrupted, property damaged, customer information stolen and other private information accessed (ii) experience substantial loss of revenues, repair and restoration costs, implementation costs for additional security measures to avert future cyberattacks and other financial loss, and (iii) be subject to increased regulation, litigation and reputational damage.
Failure to attract and retain an appropriately qualified workforce could unfavorably impact the Duke Energy Registrants’ results of operations.
Certain events, such as an aging workforce, mismatch of skill set or complement to future needs, or unavailability of contract resources may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge base and the lengthy time required for skill development. In this case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may rise. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to new employees, or future availability and cost of contract labor may adversely affect the ability to manage and operate the business, especially considering the workforce needs associated with nuclear generation facilities. If the Duke Energy Registrants are unable to successfully attract and retain an appropriately qualified workforce, their financial position or results of operations could be negatively affected.
Duke Energy’s investments and projects located outside of the U.S. expose it to risks related to fluctuations in currency rates. These risks, and Duke Energy’s activities to mitigate such risks, may adversely affect its cash flows and results of operations.
Duke Energy’s operations and investments outside the U.S. expose it to risks related to fluctuations in currency rates. As each local currency’s value changes relative to the U.S. dollar, the value in U.S. dollars of Duke Energy’s assets and liabilities in such locality and the cash flows generated in such locality, expressed in U.S. dollars, also change. Duke Energy’s primary foreign currency rate exposure is to the Brazilian Real.
Duke Energy selectively mitigates some risks associated with foreign currency fluctuations by, among other things, indexing contracts to the U.S. dollar and/or local inflation rates, hedging through debt denominated or issued in the foreign currency and hedging through foreign currency derivatives. These efforts, however, may not be effective and, in some cases, may expose Duke Energy to other risks that could negatively affect its cash flows and results of operations.
The costs of retiring Duke Energy Florida’s Crystal River Unit 3 could prove to be more extensive than is currently identified.
Costs to retire and decommission the plant could exceed estimates and, if not recoverable through the regulatory process, could adversely affect Duke Energy’s, Progress Energy’s and Duke Energy Florida’s financial condition, results of operations and cash flows.
Duke Energy Ohio’s and Duke Energy Indiana’s membership in an RTO presents risks that could have a material adverse effect on their results of operations, financial condition and cash flows.
The rules governing the various regional power markets may change, which could affect Duke Energy Ohio’s and Duke Energy Indiana’s costs and/or revenues. To the degree Duke Energy Ohio and Duke Energy Indiana incur significant additional fees and increased costs to participate in an RTO, their results of operations may be impacted. Duke Energy Ohio and Duke Energy Indiana may be allocated a portion of the cost of transmission facilities built by others due to changes in RTO transmission rate design. Duke Energy Ohio and Duke Energy Indiana may be required to expand their transmission system according to decisions made by an RTO rather than their own internal planning process. While RTO transmission rates were initially designed to be revenue neutral, various proposals and proceedings currently taking place by the FERC may cause transmission rates to change from time to time. In addition, RTOs have been developing rules associated with the allocation and methodology of assigning costs associated with improved transmission reliability, reduced transmission congestion and firm transmission rights that may have a financial impact on Duke Energy Ohio and Duke Energy Indiana.
As members of an RTO, Duke Energy Ohio and Duke Energy Indiana are subject to certain additional risks, including those associated with the allocation among RTO members, of losses caused by unreimbursed defaults of other participants in the RTO markets and those associated with complaint cases filed against an RTO that may seek refunds of revenues previously earned by RTO members.
Nuclear Generation Risks
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida may incur substantial costs and liabilities due to their ownership and operation of nuclear generating facilities.

23


PART I

Ownership interest in and operation of nuclear stations by Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida subject them to various risks. These risks include, among other things: the potential harmful effects on the environment and human health resulting from the operation of nuclear facilities and the storage, handling and disposal of radioactive materials; limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with nuclear operations; and uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives.
Ownership and operation of nuclear generation facilities requires compliance with licensing and safety-related requirements imposed by the NRC. In the event of non-compliance, the NRC may increase regulatory oversight, impose fines, and/or shut down a unit, depending upon its assessment of the severity of the situation. Revised security and safety requirements promulgated by the NRC, which could be prompted by, among other things, events within or outside of the control of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, such as a serious nuclear incident at a facility owned by a third party, could necessitate substantial capital and other expenditures, as well as assessments to cover third-party losses. In addition, if a serious nuclear incident were to occur, it could have a material adverse effect on the results of operations and financial condition and reputation of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida.
Liquidity, Capital Requirements and Common Stock Risks
The Duke Energy Registrants rely on access to short-term borrowings and longer-term capital markets to finance their capital requirements and support their liquidity needs. Access to those markets can be adversely affected by a number of conditions, many of which are beyond the Duke Energy Registrants’ control.
The Duke Energy Registrants’ businesses are financed to a large degree through debt. The maturity and repayment profile of debt used to finance investments often does not correlate to cash flows from their assets. Accordingly, as a source of liquidity for capital requirements not satisfied by the cash flow from their operations and to fund investments originally financed through debt instruments with disparate maturities, the Duke Energy Registrants rely on access to short-term money markets as well as longer-term capital markets. The Subsidiary Registrants also rely on access to short-term intercompany borrowings. If the Duke Energy Registrants are not able to access capital at competitive rates or at all, the ability to finance their operations and implement their strategy and business plan as scheduled could be adversely affected. An inability to access capital may limit the Duke Energy Registrants’ ability to pursue improvements or acquisitions that they may otherwise rely on for future growth.
Market disruptions may increase the cost of borrowing or adversely affect the ability to access one or more financial markets. Such disruptions could include: economic downturns, the bankruptcy of an unrelated energy company, capital market conditions generally, market prices for electricity and gas, actual or threatened terrorist attacks, or the overall health of the energy industry. The availability of credit under Duke Energy’s Master Credit Facility depends upon the ability of the banks providing commitments under the facility to provide funds when their obligations to do so arise. Systematic risk of the banking system and the financial markets could prevent a bank from meeting its obligations under the facility agreement.
Duke Energy maintains a revolving credit facility to provide backup for its commercial paper program and letters of credit to support variable rate demand tax-exempt bonds that may be put to the Duke Energy Registrant issuer at the option of the holder. The facility includes borrowing sublimits for the Duke Energy Registrants, each of whom is a party to the credit facility, and financial covenants that limit the amount of debt that can be outstanding as a percentage of the total capital for the specific entity. Failure to maintain these covenants at a particular entity could preclude Duke Energy from issuing commercial paper or the Duke Energy Registrants from issuing letters of credit or borrowing under the Master Credit Facility.
The Duke Energy Registrants must meet credit quality standards and there is no assurance they will maintain investment grade credit ratings. If the Duke Energy Registrants are unable to maintain investment grade credit ratings, they would be required under credit agreements to provide collateral in the form of letters of credit or cash, which may materially adversely affect their liquidity.
Each of the Duke Energy Registrants’ senior long-term debt issuances is currently rated investment grade by various rating agencies. The Duke Energy Registrants cannot ensure their senior long-term debt will be rated investment grade in the future.
If the rating agencies were to rate the Duke Energy Registrants below investment grade, borrowing costs would increase, perhaps significantly. In addition, the potential pool of investors and funding sources would likely decrease. Further, if the short-term debt rating were to fall, access to the commercial paper market could be significantly limited. A reduction in liquidity and borrowing availability could ultimately impact the ability to indefinitely reinvest prospective undistributed earnings generated by Duke Energy’s foreign subsidiaries, which could result in significant income taxes that would have a material effect on its results of operations.
A downgrade below investment grade could also require the posting of additional collateral in the form of letters of credit or cash under various credit, commodity and capacity agreements and trigger termination clauses in some interest rate derivative agreements, which would require cash payments. All of these events would likely reduce the Duke Energy Registrants’ liquidity and profitability and could have a material effect on their financial position, results of operations or cash flows.
Non-compliance with debt covenants or conditions could adversely affect the Duke Energy Registrants’ ability to execute future borrowings.
The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements.

24


PART I

Market performance and other changes may decrease the value of the NDTF investments of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, which then could require significant additional funding.
Ownership and operation of nuclear generation facilities also requires the maintenance of funded trusts that are intended to pay for the decommissioning costs of the respective nuclear power plants. The performance of the capital markets affects the values of the assets held in trust to satisfy these future obligations. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida have significant obligations in this area and hold significant assets in these trusts. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below projected rates of return. Although a number of factors impact funding requirements, a decline in the market value of the assets may increase the funding requirements of the obligations for decommissioning nuclear plants. If Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are unable to successfully manage their NDTF assets, their financial condition, results of operations and cash flows could be negatively affected.
Poor investment performance of the Duke Energy pension plan holdings and other factors impacting pension plan costs could unfavorably impact the Duke Energy Registrants’ liquidity and results of operations.
The 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. The Subsidiary Registrants are allocated their proportionate share of the cost and obligations related to these plans. Without sustained growth in the pension investments over time to increase the value of plan assets and, depending upon the other factors impacting costs as listed above, Duke Energy could be required to fund its plans with significant amounts of cash. Such cash funding obligations, and the Subsidiary Registrants’ proportionate share of such cash funding obligations, could have a material impact on the Duke Energy Registrants’ financial position, results of operations or cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None.

25


PART I

ITEM 2. PROPERTIES
 
REGULATED UTILITIES
The following table provides information related to Regulated Utilities' electric generation stations as of December 31, 2014 . The MW displayed in the table below are based on summer capacity.
Facility
Plant Type
Primary Fuel
Location
Total MW Capacity

Owned MW Capacity

Ownership Interest

Duke Energy Carolinas
 
 
 
 
 
 
Oconee
Nuclear
Uranium
SC
2,554

2,554

100

Catawba (a)
Nuclear
Uranium
SC
2,290

441

19.25

McGuire
Nuclear
Uranium
NC
2,278

2,278

100

Belews Creek
Fossil Steam
Coal
NC
2,220

2,220

100

Marshall
Fossil Steam
Coal
NC
2,078

2,078

100

J.E. Rogers 
Fossil Steam
Coal
NC
1,396

1,396

100

Bad Creek
Hydro
Water
SC
1,360

1,360

100

Lincoln
Combustion Turbine
Gas / Oil
NC
1,267

1,267

100

Allen
Fossil Steam
Coal
NC
1,127

1,127

100

Rockingham
Combustion Turbine
Gas / Oil
NC
825

825

100

Jocassee
Hydro
Water
SC
780

780

100

Dan River
Combined Cycle
Gas
NC
637

637

100

Buck
Combined Cycle
Gas
NC
631

631

100

Mill Creek
Combustion Turbine
Gas / Oil
SC
596

596

100

Cowans Ford
Hydro
Water
NC
325

325

100

W.S. Lee
Fossil Steam
Coal
SC
170

170

100

Keowee
Hydro
Water
SC
152

152

100

W.S. Lee
Combustion Turbine
Gas / Oil
SC
82

82

100

Distributed generation
Renewable
Solar
NC
4

4

100

Other small hydro (25 plants)
Hydro
Water
NC / SC
666

666

100

Total Duke Energy Carolinas
 
 
 
21,438

19,589

 
Duke Energy Progress
 
 
 
 
 
 
Roxboro (b) (c)
Fossil Steam
Coal
NC
2,433

2,343

96.30

Brunswick (c)
Nuclear
Uranium
NC
1,870

1,527

81.67

Smith
Combined Cycle
Gas / Oil
NC
1,088

1,088

100

Harris (c)
Nuclear
Uranium
NC
928

778

83.83

H.F. Lee
Combined Cycle
Gas / Oil
NC
916

916

100

Wayne County
Combustion Turbine
Gas / Oil
NC
863

863

100

Darlington
Combustion Turbine
Gas / Oil
SC
787

787

100

Smith
Combustion Turbine
Gas / Oil
NC
784

784

100

Robinson
Nuclear
Uranium
SC
741

741

100

Mayo (c)
Fossil Steam
Coal
NC
727

609

83.83

L.V. Sutton
Combined Cycle
Gas / Oil
NC
622

622

100

Asheville
Fossil Steam
Coal
NC
376

376

100

Asheville
Combustion Turbine
Gas / Oil
NC
324

324

100

Weatherspoon
Combustion Turbine
Gas / Oil
NC
128

128

100

Walters
Hydro
Water
NC
112

112

100

L.V. Sutton
Combustion Turbine
Gas / Oil
NC
61

61

100

Blewett
Combustion Turbine
Oil
NC
52

52

100

Other small hydro (3 plants)
Hydro
Water
NC
110

110

100

Total Duke Energy Progress
 
 
 
12,922

12,221

 
Duke Energy Florida
 
 
 
 
 
 
Crystal River
Fossil Steam
Coal
FL
2,291

2,291

100

Hines
Combined Cycle
Gas / Oil
FL
1,912

1,912

100

Bartow
Combined Cycle
Gas / Oil
FL
1,074

1,074

100

Anclote
Fossil Steam
Gas
FL
991

991

100

Intercession City (d)
Combustion Turbine
Gas / Oil
FL
986

986

(d)

DeBary
Combustion Turbine
Gas / Oil
FL
637

637

100

Tiger Bay
Combined Cycle
Gas / Oil
FL
205

205

100


26


PART I

Facility
Plant Type
Primary Fuel
Location
Total MW Capacity

Owned MW Capacity

Ownership Interest

Bartow
Combustion Turbine
Gas / Oil
FL
177

177

100

Bayboro
Combustion Turbine
Oil
FL
174

174

100

Suwannee River
Combustion Turbine
Gas
FL
155

155

100

Turner
Combustion Turbine
Oil
FL
131

131

100

Suwannee River
Fossil Steam
Gas / Oil
FL
128

128

100

Higgins
Combustion Turbine
Gas / Oil
FL
105

105

100

Avon Park
Combustion Turbine
Gas / Oil
FL
48

48

100

University of Florida Cogeneration
Combustion Turbine
Gas
FL
46

46

100

Rio Pinar
Combustion Turbine
Oil
FL
12

12

100

Total Duke Energy Florida
 
 
 
9,072

9,072

 
Duke Energy Ohio
 
 
 
 
 
 
East Bend
Fossil Steam
Coal
KY
600

600

100

Woodsdale
Combustion Turbine
Gas / Propane
OH
462

462

100

Miami Fort (Unit 6)
Fossil Steam
Coal
OH
163

163

100

Total Duke Energy Ohio
 
 
 
1,225

1,225

 
Duke Energy Indiana
 
 
 
 
 
 
Gibson (e)
Fossil Steam
Coal
IN
3,132

2,822

90.10

Cayuga (f)
Fossil Steam
Coal / Oil
IN
1,005

1,005

100

Wabash River (g)
Fossil Steam
Coal / Oil
IN
676

676

100

Edwardsport
Fossil Steam
Coal
IN
595

595

100

Madison
Combustion Turbine
Gas
OH
576

576

100

Vermillion (h)
Combustion Turbine
Gas
IN
568

355

62.50

Wheatland
Combustion Turbine
Gas
IN
460

460

100

Noblesville
Combined Cycle
Gas / Oil
IN
285

285

100

Gallagher
Fossil Steam
Coal
IN
280

280

100

Henry County
Combustion Turbine
Gas / Oil
IN
129

129

100

Cayuga
Combustion Turbine
Gas / Oil
IN
99

99

100

Connersville
Combustion Turbine
Oil
IN
86

86

100

Miami Wabash
Combustion Turbine
Oil
IN
80

80

100

Markland
Hydro
Water
IN
45

45

100

Total Duke Energy Indiana
 
 
 
8,016

7,493

 
Total Regulated Utilities
 
 
 
52,673

49,600

 
Totals By Plant Type
 
 
 
 
 
 
Nuclear
 
 
 
10,661

8,319

 
Fossil Steam
 
 
 
20,388

19,870

 
Combined Cycle
 
 
 
7,370

7,370

 
Combustion Turbine
 
 
 
10,700

10,487

 
Hydro
 
 
 
3,550

3,550

 
Renewable
 
 
 
4

4

 
Total Regulated Utilities
 
 
 
52,673

49,600

 
(a)
Jointly owned with North Carolina Municipal Power Agency Number 1, North Carolina Electric Membership Corporation and Piedmont Municipal Power Agency.
(b)
Duke Energy Progress owns and operates Roxboro Station Units 1-3 and owns 87.06 percent of, and operates, Unit 4.
(c)
Jointly owned with North Carolina Eastern Municipal Power Agency (NCEMPA). Duke Energy Progress executed an agreement in September 2014 to purchase NCEMPA's ownership interest in these facilities. For additional information see Note 2 to the Consolidated Financial Statements, "Acquisitions, Dispositions and Sales of Other Assets."
(d)
Duke Energy Florida owns and operates Intercession City Station Units 1-10 and 12-14. Unit 11 is jointly owned with Georgia Power Company (GPC). GPC has the exclusive right to the output of this unit during the months of June through September. Duke Energy Florida has the exclusive right to the output of this unit for the remainder of the year.
(e)
Duke Energy Indiana owns and operates Gibson Station Units 1-4 and owns 50.05 percent of, and operates, Unit 5. Unit 5 is jointly owned with Wabash Valley Power Association, Inc. and Indiana Municipal Power Agency.
(f)
Includes Cayuga Internal Combustion (IC).
(g)
Includes Wabash River IC.
(h)
Jointly owned with Wabash Valley Power Association.

27


PART I

The following table provides information related to Regulated Utilities' electric transmission and distribution properties as of December 31, 2014 .
 
Duke
Energy
Carolinas

Duke
Energy
Progress

Duke
Energy
Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Total
Regulated
Utilities

Electric Transmission Lines
 
 
 
 
 
 
Miles of 500 to 525 Kilovolt (kV)
600

300

200



1,100

Miles of 345 kV



1,000

700

1,700

Miles of 230 kV
2,600

3,400

1,700


700

8,400

Miles of 100 to 161 kV
6,800

2,600

1,000

700

1,400

12,500

Miles of 13 to 69 kV
3,100


2,300

800

2,500

8,700

Total conductor miles of electric transmission lines
13,100

6,300

5,200

2,500

5,300

32,400

Electric Distribution Lines
 
 
 
 
 
 
Miles of overhead lines
66,600

44,600

24,100

13,800

22,500

171,600

Miles of underground line
36,000

23,400

17,700

5,700

8,500

91,300

Total conductor miles of electric distribution lines
102,600

68,000

41,800

19,500

31,000

262,900

Number of electric transmission and distribution substations
1,500

500

500

300

500

3,300

Miles of gas mains



7,200


7,200

Miles of gas service lines



6,200


6,200

Substantially all of Regulated Utilities' electric plant in service is mortgaged under indentures relating to Duke Energy Carolinas’, Duke Energy Progress', Duke Energy Florida's, Duke Energy Ohio’s and Duke Energy Indiana’s various series of First Mortgage Bonds.
INTERNATIONAL ENERGY
The following table provides additional information related to International Energy’s electric generation stations as of December 31, 2014 . The MW displayed in the table below are based on summer capacity.
Facility
Primary Fuel
Location
Total MW Capacity

Owned MW Capacity

Ownership Interest

DEI Brazil (a)
Water
Brazil
2,274

2,089

92

Egenor
Water
Peru
357

357

100

Cerros Colorados
Water / Gas
Argentina
576

524

91

DEI Chile
Water / Diesel
Chile
362

362

100

DEI El Salvador
Oil / Diesel
El Salvador
324

293

90

DEI Guatemala
Oil / Diesel / Coal
Guatemala
361

361

100

Electroquil
Diesel
Ecuador
192

163

85

Aguaytia
Gas
Peru
192

192

100

Total International Energy
 
 
4,638

4,341

 
(a)
Includes Canoas I and II, which are jointly owned with Companhia Brasileira de Aluminio, as well as the wholly owned Palmeiras and Retiro small hydro plants.
International Energy also owns a 25 percent equity interest in NMC. In 2014, NMC produced approximately 921,000 metric tons of methanol and approximately 1.1 million metric tons of MTBE. Approximately 40 percent of methanol is normally used in the MTBE production.

28


PART I

COMMERCIAL POWER
The following table provides information related to Commercial Power’s electric generation facilities as of December 31, 2014 . The MW displayed in the table below are based on summer capacity.
Facility
Plant Type
Primary Fuel
Location
Total MW Capacity

Owned MW Capacity

Ownership Interest

Duke Energy Renewables
 
 
 
 
 
 
Los Vientos Windpower
Renewable
Wind
TX
402

402

100

Top of the World
Renewable
Wind
WY
200

200

100

Notrees
Renewable
Wind
TX
153

153

100

Campbell Hill
Renewable
Wind
WY
99

99

100

North Allegheny
Renewable
Wind
PA
70

70

100

Laurel Hill Wind Energy
Renewable
Wind
PA
69

69

100

Ocotillo
Renewable
Wind
TX
59

59

100

Kit Carson
Renewable
Wind
CO
51

51

100

Silver Sage
Renewable
Wind
WY
42

42

100

Happy Jack
Renewable
Wind
WY
29

29

100

Shirley
Renewable
Wind
WI
20

20

100

Highlander
Renewable
Solar
CA
21

21

100

Dogwood
Renewable
Solar
NC
20

20

100

Halifax Airport
Renewable
Solar
NC
20

20

100

Colonial Eagle - Pasquotank
Renewable
Solar
NC
20

20

100

Bagdad
Renewable
Solar
AZ
15

15

100

TX Solar
Renewable
Solar
TX
14

14

100

Washington White Post
Renewable
Solar
NC
12

12

100

Other small solar
Renewable
Solar
Various
54

54

100

Total Duke Energy Renewables
 
 
 
1,370

1,370

 
Duke Energy Ohio
 
 
 
 
 
 
Stuart (a)(b)
Fossil Steam
Coal
OH
2,308

900

39

Zimmer (a)
Fossil Steam
Coal
OH
1,300

605

46.5

Hanging Rock
Combined Cycle
Gas
OH
1,226

1,226

100

Miami Fort (Units 7 and 8) (a)
Fossil Steam
Coal
OH
1,020

652

64

Conesville (a)(b)
Fossil Steam
Coal
OH
780

312

40

Washington
Combined Cycle
Gas
OH
617

617

100

Fayette
Combined Cycle
Gas
PA
614

614

100

Killen (a)(b)
Fossil Steam
Coal
OH
600

198

33

Lee
Combustion Turbine
Gas
IL
568

568

100

Dick's Creek
Combustion Turbine
Gas
OH
136

136

100

Miami Fort
Combustion Turbine
Oil
OH
56

56

100

Total Duke Energy Ohio (c)
 
 
 
9,225

5,884

 
Totals By Facility Type
 
 
 
 
 
 
Renewable - Wind
 
 
 
1,194

1,194

 
Renewable - Solar
 
 
 
176

176

 
Fossil Steam
 
 
 
6,008

2,667

 
Combined Cycle
 
 
 
2,457

2,457

 
Combustion Turbine
 
 
 
760

760

 
Total Commercial Power
 
 
 
10,595

7,254

 
(a)
Jointly owned with American Electric Power Generation Resources and/or The Dayton Power & Light Company.
(b)
Facility operated by Duke Energy Ohio
(c)
Duke Energy Ohio facilities are included in the Disposal Group as of December 31, 2014.

In addition to the above facilities, Commercial Power owns an equity interest in the 585 MW capacity Sweetwater wind projects located in Texas, the 299 MW capacity DS Cornerstone wind projects located in Kansas and the 17 MW capacity INDU Solar Holding Joint Venture. Commercial Power's ownership share is 442 MW of capacity in these projects.
OTHER
Duke Energy owns approximately 5.2 million square feet and leases 2.9 million square feet of corporate, regional and district office space spread throughout its service territories and in Houston, Texas.

29


PART I

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 5 to the Consolidated Financial Statements, “Commitments and Contingencies - Litigation” and “Commitments and Contingencies - Environmental.”
Virginia Department of Environmental Quality Civil Enforcement
Duke Energy Carolinas and the Virginia Department of Environmental Quality are in negotiations regarding civil enforcement against Duke Energy Carolinas related to the February 2, 2014, coal ash release from Duke Energy Carolinas’ Dan River Steam Station. Monetary sanctions in excess of $100,000 appear likely.
Brazilian Transmission Fee Assessments
On July 16, 2008, Duke Energy International Geracao Paranapanema S.A. (DEIGP) filed a lawsuit in the Brazilian federal court challenging transmission fee assessments imposed under two new resolutions promulgated by the Brazilian electricity regulatory agency (ANEEL) (collectively, the Resolutions). The Resolutions purport to impose additional transmission fees on generation companies located in the State of Sao Paulo for utilization of the electric transmission system. The fees were retroactive to July 1, 2004, and effective through June 30, 2009. DEIGP's original assessment under these Resolutions amounts to approximately $56 million inclusive of interest through December 2014. Pending resolution of this dispute on the merits, DEIGP deposited the disputed portion, approximately $19 million, of the assessment into a court-monitored escrow, and paid the undisputed portion to the distribution companies. In a decision published on October 2, 2013, the trial court affirmed an additional fine imposed by ANEEL in the amount of $9 million for DEIGP’s failure to pay the disputed portion of the assessment. The $9 million was also deposited into a court-monitored escrow. In December 2014, the trial court ruled in favor of DEIGP on the merits of the original assessment. The merits of the original assessment and fine, as well as the contradiction between the trial court's ruling in favor of DEIGP on the original assessment but against DEIGP on its alleged failure to timely pay that assessment, will be addressed on appeal.
Brazilian Regulatory Citations
In September 2007, the State Environmental Agency of Parana (IAP) assessed seven fines against DEIGP, totaling $15 million for failure to comply with reforestation measures allegedly required by state regulations in Brazil. DEIGP has challenged the fines in administrative and judicial proceedings. Two of the seven fines have subsequently been dismissed or otherwise resolved in favor of DEIGP. A third fine was determined legitimate by the trial court, but is under appeal. The remaining fines are pending.
Additionally, DEIGP was assessed three fines by Brazil Institute of Environment and Renewable Natural Resources (IBAMA) for improper maintenance of existing reforested areas. One of these fines was determined legitimate by the trial court and is under appeal. The others are pending. The total current IBAMA assessment is approximately $500,000. DEIGP believes that it has properly maintained all reforested areas and has challenged the IBAMA assessments.
Gibson Notice of Violations
Pursuant to Notices of Violation dated June 23, 2011 and July 16, 2013, the EPA has asserted that, on several occasions between August 1, 2008 through March 31, 2013, Duke Energy Indiana’s Gibson steam station violated opacity limits contained in its Title V permit. Duke Energy Indiana entered into a settlement agreement with the EPA in the fourth quarter of 2014, which required payment of a civil penalty of $199,000.
ITEM 4. MINE SAFETY DISCLOSURES
 
This is not applicable for any of the Duke Energy Registrants.

30


PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Duke Energy's common stock is listed for trading on the New York Stock Exchange (NYSE) (ticker symbol DUK). As of February 24, 2015 , there were approximately 172,448 common stockholders of record.
Common Stock Data by Quarter
 
2014
 
2013
 
 
 
Stock Price Range (a)
 
 
 
Stock Price Range (a)
 
Dividends Declared Per Share

 
High

 
Low

 
Dividends Declared Per Share

 
High

 
Low

First Quarter
0.780

 
$
72.67

 
$
67.05

 
0.765

 
$
72.68

 
$
64.44

Second Quarter (b)
0.780

 
75.13

 
68.81

 
1.545

 
75.46

 
64.62

Third Quarter
0.795

 
75.21

 
69.48

 
 ―  

 
72.01

 
64.16

Fourth Quarter
0.795

 
87.29

 
74.33

 
0.780

 
73.53

 
66.05

(a)
Stock prices represent the intra-day high and low stock price.
(b)
Two dividends were declared in the second quarter of 2013. The first was $0.765 per share and the second was $0.78 per share. 
Duke Energy expects to continue its policy of paying regular cash dividends; however, there is no assurance as to the amount of future dividends as they depend on future earnings, capital requirements, and financial condition, and are subject to declaration by the Duke Energy Board of Directors.
Duke Energy’s operating subsidiaries have certain restrictions on their ability to transfer funds in the form of dividends or loans to Duke Energy. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters” for further information regarding these restrictions.
Securities Authorized for Issuance Under Equity Compensation Plans
 
Duke Energy will provide information that is responsive to this Item 5 in its definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” and possibly elsewhere therein. That information is incorporated in this Item 5 by reference.
Issuer Purchases of Equity Securities for Fourth Quarter of 2014
 
There were no repurchases of equity securities during the fourth quarter of 2014 .

31


PART II

Stock Performance Graph
 
The performance graph below illustrates a five year comparison of cumulative total returns of Duke Energy Corporation common stock, as compared with the S&P 500 Stock Index and the Philadelphia Utility Index for the five-year period 2009 through 2014 .
This performance graph assumes an initial investment of $100 invested on December 31, 2009, in Duke Energy common stock, in the S&P 500 Stock Index and in the Philadelphia Utility Index and that all dividends are reinvested.
NYSE CEO Certification
 
Duke Energy has filed the certification of its Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to this Annual Report on Form 10-K for the year ended December 31, 2014 .

32


PART II

ITEM 6. SELECTED FINANCIAL DATA
 
(in millions, except per share amounts)
2014 (c)

 
2013 (c)

 
2012 (c)

 
2011 (c)

 
2010 (c)

Statement of Operations (a)
 
 
 
 
 
 
 
 
 
Total operating revenues
$
23,925

 
$
22,756

 
$
17,912

 
$
12,412

 
$
12,220

Operating Income
5,258

 
4,854

 
2,911

 
2,475

 
2,444

Income From Continuing Operations
2,465

 
2,590

 
1,611

 
1,508

 
1,481

(Loss) Income From Discontinued Operations, net of tax
(576
)
 
86

 
171

 
206

 
(157
)
Net Income
1,889

 
2,676

 
1,782

 
1,714

 
1,324

Net Income Attributable to Duke Energy Corporation
1,883

 
2,665

 
1,768

 
1,706

 
1,320

Common Stock Data
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Duke Energy Corporation common shareholders (b)
 
 
 
 
 
 
 
 
 
Basic
$
3.46

 
$
3.64

 
$
2.77

 
$
3.34

 
$
3.34

Diluted
3.46

 
3.63

 
2.77

 
3.34

 
3.33

(Loss) Income from discontinued operations attributable to Duke Energy Corporation common shareholders
 
 
 
 
 
 
 
 
 
Basic
$
(0.80
)
 
$
0.13

 
$
0.30

 
$
0.49

 
$
(0.34
)
Diluted
(0.80
)
 
0.13

 
0.30

 
0.49

 
(0.33
)
Net Income attributable to Duke Energy Corporation common shareholders (b)
 
 
 
 
 
 
 
 
 
Basic
$
2.66

 
$
3.77

 
$
3.07

 
$
3.83

 
$
3.00

Diluted
2.66

 
3.76

 
3.07

 
3.83

 
3.00

Dividends declared per common share (b)
3.15

 
3.09

 
3.03

 
2.97

 
2.91

Balance Sheet
 
 
 
 
 
 
 
 
 
Total Assets
$
120,709

 
$
114,779

 
$
113,856

 
$
62,526

 
$
59,090

Long-term Debt including capital leases and redeemable preferred stock of subsidiaries, less current maturities
37,213

 
38,152

 
36,444

 
18,679

 
17,935

(a)
Significant transactions reflected in the results above include: (i) 2014 impairment of the Disposal Group (see Note 2 to the Consolidated Financial Statements, "Acquisitions, Dispositions and Sales of Other Assets"); (ii) 2014 incremental tax expense resulting from the decision to repatriate all cumulative historical undistributed foreign earnings (see Note 22 to the Consolidated Financial Statements, "Income Taxes"); (iii) 2014 increase in the litigation reserve related to the criminal investigation of the Dan River coal ash spill (see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies”); (iv) 2013 charges related to Crystal River Unit 3 and nuclear development costs (see Notes 4 and 25 to the Consolidated Financial Statements, "Regulatory Matters" and "Quarterly Financial Data", respectively); (v) the 2012 merger with Progress Energy (see Note 2 to the Consolidated Financial Statements, "Acquisitions, Dispositions and Sales of Other Assets"); (vi) 2012 and 2011 pretax impairment and other charges related to the Edwardsport Integrated Gasification Combined Cycle (IGCC) project of $628 million and $222 million, respectively; and (vii) 2010 pretax impairment of goodwill and other assets of $660 million. 
(b)
On July 2, 2012, immediately prior to the merger with Progress Energy, Duke Energy executed a one-for-three reverse stock split. All share and earnings per share amounts are presented as if the one-for-three reverse stock split had been effective at the beginning of the earliest period presented.
(c)
Operating results reflect reclassifications due to the impact of discontinued operations (see Note 2 to the Consolidated Financial Statements, "Acquisitions, Dispositions and Sales of Other Assets").


33


PART II

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management’s Discussion and Analysis includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.), as well as certain non-GAAP financial measures such as adjusted earnings, adjusted earnings per share and adjusted segment income, discussed below. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.
The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) and its subsidiaries Duke Energy Carolinas, LLC (Duke Energy Carolinas), Progress Energy, Inc. (Progress Energy), Duke Energy Progress, Inc. (Duke Energy Progress), Duke Energy Florida, Inc. (Duke Energy Florida), Duke Energy Ohio, Inc. (Duke Energy Ohio) and Duke Energy Indiana, Inc. (Duke Energy Indiana) (collectively referred to as the Subsidiary Registrants). However, none of the registrants makes any representation as to information related solely to Duke Energy or the Subsidiary Registrants of Duke Energy other than itself.
DUKE ENERGY
Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the U.S. primarily through its wholly owned subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, and Duke Energy Indiana, as well as in Latin America.
When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and Notes for the years ended December 31, 2014 , 2013 and 2012 .
Executive Overview
Merger with Progress Energy
On July 2, 2012, Duke Energy merged with Progress Energy, with Duke Energy continuing as the surviving corporation, and Progress Energy becoming a wholly owned subsidiary of Duke Energy. Duke Energy Progress and Duke Energy Florida, Progress Energy’s regulated utility subsidiaries, are now indirect wholly owned subsidiaries of Duke Energy. Duke Energy’s consolidated financial statements include Progress Energy, Duke Energy Progress and Duke Energy Florida activity beginning July 2, 2012.
Immediately preceding the merger, Duke Energy completed a one-for-three reverse stock split with respect to the issued and outstanding shares of Duke Energy common stock. All share and per share amounts presented herein reflect the impact of the one-for-three reverse stock split.
For additional information on the details of this transaction including regulatory conditions and accounting implications, see Note 2 to the Consolidated Financial Statements, “Acquisitions, Dispositions and Sales of Other Assets.”
Disposition of the Nonregulated Midwest Generation Business
On August 21, 2014, Duke Energy entered into a purchase sale agreement (PSA) to sell its nonregulated Midwest generation business and Duke Energy Retail Sales LLC (Disposal Group) to Dynegy Inc. (Dynegy) for approximately $2.8 billion in cash subject to adjustments at closing for changes in working capital and capital expenditures. The completion of the transaction, conditioned on approval by Federal Energy Regulatory Commissions (FERC), is expected by the end of the second quarter of 2015.
For additional information on the details of this transaction including regulatory conditions and accounting implications, see Note 2 to the Consolidated Financial Statements, “Acquisitions, Dispositions and Sales of Other Assets.”
2014 Financial Results
The following table summarizes adjusted earnings and net income attributable to Duke Energy.
 
Years Ended December 31,
 
2014
 
2013
 
2012
(in millions, except per share amounts)
Amount

 
Per diluted share

 
Amount

 
Per
diluted share

 
Amount

 
Per diluted share

Adjusted earnings (a)
$
3,218

 
$
4.55

 
$
3,080

 
$
4.36

 
$
2,489

 
$
4.33

Net income attributable to Duke Energy  
1,883

 
2.66

 
2,665

 
3.76

 
1,768

 
3.07

(a)
See Results of Operations below for Duke Energy’s definition of adjusted earnings and adjusted earnings per diluted share as well as a reconciliation of this non-GAAP financial measure to net income attributable to Duke Energy and net income attributable to Duke Energy per diluted share.

34


PART II

Adjusted earnings increased from 2013 to 2014 primarily due to the impact of the revised rates and favorable weather, partially offset by higher depreciation and amortization expense. Adjusted earnings increased from 2012 to 2013 primarily due to the inclusion of a full year of Progress Energy results in 2013, the impact of the revised rates, net of higher depreciation and amortization expense and lower allowance for funds used during construction (AFUDC).
See “Results of Operations” below for a detailed discussion of the consolidated results of operations, as well as a detailed discussion of financial results for each of Duke Energy’s reportable business segments, as well as Other.
2014 Areas of Focus and Accomplishments
In 2014, Duke Energy focused on achieving financial objectives, completing important strategic initiatives, including the agreement to sell the non-regulated Midwest Generation business and completion of a strategic review of the international business, advancing a platform of growth initiatives, operational excellence, and the strengthening of coal ash management practices and plans to accelerate basin closure strategies resulting from the Dan River coal ash spill.
Sale of the Midwest Generation Business. In 2014, Duke Energy entered into a PSA to sell the Disposal Group to Dynegy for approximately $2.8 billion. This decision supports Duke Energy’s strategy to focus investments on businesses with more predictable and less volatile earnings.
International Energy Operations. Duke Energy completed the strategic review of the international operations. As a result of the review, Duke Energy determined it is in the shareholders’ best interest, at the present time, to continue to own, operate and create value through portfolio optimization and efficiency in the International operations. In addition, Duke Energy declared a taxable dividend of historical foreign earnings in the form of notes payable that will result in the repatriation of approximately $2.7 billion of cash held and expected to be generated by International Energy over a period of up to eight years. The cash will help support the dividend and growth in the investment portfolio of the domestic businesses.
Growth Initiatives. In 2014, Duke Energy announced new growth initiatives representing a total investment of approximately $8 billion. These initiatives include:
Duke Energy Indiana proposed transmission and distribution infrastructure improvement totaling $1.9 billion.
Duke Energy Florida proposed approximately $1.8 billion investment in three new generation projects, a combined-cycle plant in Citrus County, an uprate plan at the Hines Energy Complex (Hines) facility and acquisition of the Osprey plant from Calpine Corporation (Calpine).
Duke Energy Progress proposed the acquisition of North Carolina Eastern Municipal Power Agency's (NCEMPA) ownership interest in some of Duke Energy Progress’s existing nuclear and coal generation and the acquisition of solar projects in eastern North Carolinas for a total amount of approximately $1.2 billion.
Duke Energy Carolinas proposed construction of a combined-cycle natural gas plant at the William States Lee generation facility at a cost of approximately $600 million.
Commercial Power proposed construction of the Atlantic Coast Pipeline for a total investment of approximately $2 billion
Operational Excellence of the Nuclear Fleet. Duke Energy’s nuclear fleet set a company record for total electricity production and demonstrated a combined capacity factor at approximately 93 percent, the 16th consecutive year above 90 percent on this plant reliability measure.
Deliver Merger Benefits. Duke Energy continues to focus on realizing benefits of the merger with Progress Energy. Duke Energy is on-track to achieve the $687 million of guaranteed savings for customers in the Carolinas over five years. After two and a half years, Duke Energy Carolinas and Duke Energy Progress have generated over 60 percent of the guaranteed fuel and joint dispatch savings. In total 85 percent of the guaranteed benefit has been locked-in or delivered to Duke Energy’s customers in the Carolinas.
Dan River Coal Ash Spill and Other Coal Ash Management . Duke Energy has improved coal ash practices and accelerated plans to close its ash basins. Comprehensive engineering reviews were completed at each of the ash basins, and a central internal organization was formed to manage all coal combustion products. Duke Energy also established an independent national Coal Ash Management Advisory Board to help guide company strategy. Excavation plans have been filed for four high priority sites identified in connection with North Carolina coal ash management enacted in 2014 - Dan River, Asheville, Riverbend, and L.V. Sutton combined cycle facility (Sutton). Excavation plans have also been filed for the W.S. Lee site in South Carolina, and work is progressing on closure plans for the other ten North Carolina sites.
On February 20, 2015 , Duke Energy Carolinas, Duke Energy Progress and Duke Energy Business Services LLC (DEBS), a wholly owned subsidiary of Duke Energy, each entered into a Memorandum of Plea Agreement (Plea Agreements) in connection with an investigation initiated by the USDOJ. The Plea Agreements are subject to the approval of the United States District Court for the Eastern District of North Carolina and, if approved, will end the grand jury investigation related to the Dan River ash basin release and the management of coal ash basins at 14 plants in North Carolina with coal ash basins.
Under the Plea Agreements, the USDOJ charged DEBS and Duke Energy Progress with four misdemeanor CWA violations related to violations at Duke Energy Progress’ H.F. Lee Steam Electric Plant, Cape Fear Steam Electric Plant and Asheville Steam Electric Generating Plant. The United States Department Of Justice charged Duke Energy Carolinas and DEBS with five misdemeanor Clean Water Act violations related to violations at Duke Energy Carolinas’ Dan River Steam Station and Riverbend Steam Station. DEBS, Duke Energy Carolinas and Duke Energy Progress also agreed (i) to a five-year probation period, (ii) to pay a total of approximately $68 million in fines and restitution and $34 million for community service and mitigation (the Payments), and (iii) to establish environmental compliance plans subject to the oversight of a court-appointed monitor paid for by the companies for the duration of the probation period (iii) for Duke Energy Carolinas and Duke Energy Progress each to maintain $250 million under their Master Credit Facility as security to meet their obligations under the Pleas Agreements, in addition to certain other conditions set out in the Plea Agreements. Payments under the Plea Agreements will be borne by shareholders and are not tax deductible. Duke Energy Corporation has agreed to issue a guarantee of all payments and performance due from the Companies, including but not limited to payments for fines, restitution, community service, mitigation and the funding of, and obligations under, the environmental compliance plans. As a result of the Plea Agreements, Duke Energy Carolinas and Duke Energy Progress recognized charges of $72 million and $30 million , respectively, in the fourth quarter of 2014. The amounts are recorded in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income.

35


PART II

Duke Energy Objectives - 2015 and Beyond
Duke Energy is committed to creating value and trust, while transforming our energy future. Primary objectives for 2015 are:
Growing and adapting the business and achieving financial objectives, including delivering on the 2015 adjusted diluted earnings per share (EPS) guidance range of $4.55 to $4.75, and advancing viable future growth opportunities for regulated and nonregulated businesses
Excelling in safety, operational performance and environmental stewardship
Developing and engaging employees, while strengthening leadership
Improving the lives of our customers and the vitality of our communities
Complete the Sale of the Nonregulated Midwest Generation Business. In January 2015, FERC requested additional information regarding the proposed sale of the nonregulated Midwest Generation business. The parties to the transaction responded to FERC on February 6, 2015, and the comment period expired on February 23, 2015. FERC approval is the final regulatory approval required to close the transaction, which is expected by the end of the second quarter of 2015.
Proceeds from the sale are expected to be deployed to recapitalize Duke Energy in a balanced manner, with a combination of an accelerated share repurchase and reductions in holding company debt. However, this plan could change depending on circumstances at the time of closing.
Growth Initiatives. Duke Energy will continue to pursue regulatory, state and federal approval of the growth projects. These projects will support long-term adjusted earnings growth of four to six percent and support Duke Energy’s ability to continue providing its customers affordable, reliable energy from an increasingly diverse generation portfolio.
In the Regulated Utilities business, Duke Energy does not anticipate any significant base rate cases through 2017. Growth is expected to be supported by retail and wholesale load growth and significant investments. Duke Energy expects to invest between $4 billion and $5 billion annually in Regulated business growth projects. Many of these projects will be recovered through riders such as transmission and distribution expenditures in Indiana and Ohio, as well as the Crystal River 3 rider in Florida and energy efficiency riders in the Carolinas. The regulated wholesale business is expected to grow in 2015.
The Commercial Power renewables business is a significant component of the Duke Energy growth strategy. Renewable projects enable Duke Energy to respond to customer interest in clean tech while increasing diversity in the generation portfolio. The portfolio of wind and solar is expected to continue growing as between $1 billion and $2 billion is deployed over the next three years .Additionally, investments in the Atlantic Coast pipeline adds approximately $1 billion of capital spending through 2017.
Continue the Coal Ash Management Strategy . In December 2014, U.S. Environmental Protection Agency (EPA) finalized the Resource Conservation and Recovery Act (RCRA) related to coal combustion residuals (CCR) associated with the generation of electricity from coal. The rules classify coal ash as non-hazardous waste and provide guidelines related to the disposal of coal ash. Duke Energy will continue the compliance strategy with the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) and complete an evaluation of the provisions for this rule. Duke Energy will update ash management plans to comply with all state and federal regulations and begin excavation or other compliance work once plans and permits are approved.
Results of Operations
In this section, Duke Energy provides analysis and discussion of earnings and factors affecting earnings on both a GAAP and non-GAAP basis.
Management evaluates financial performance in part based on the non-GAAP financial measures, adjusted earnings and adjusted diluted EPS. These items are measured as income from continuing operations net of income (loss) attributable to noncontrolling interests, adjusted for the dollar and per share impact of mark-to-market impacts of economic hedges in the Commercial Power segment and special items including the operating results of the Disposal Group classified as discontinued operations for GAAP purposes. Special items represent certain charges and credits, which management believes will not be recurring on a regular basis, although it is reasonably possible such charges and credits could recur. As result of the agreement in August 2014 to sell the Disposal Group to Dynegy, the operating results of the Disposal Group are classified as discontinued operations, including a portion of the mark-to-market adjustments associated with derivative contracts. Management believes that including the operating results of the Disposal Group classified as discontinued operations better reflects its financial performance and therefore has included these results in adjusted earnings and adjusted diluted EPS. Derivative contracts are used in Duke Energy’s hedging of a portion of the economic value of its generation assets in the Commercial Power segment. The mark-to-market impact of derivative contracts is recognized in GAAP earnings immediately and, if associated with the Disposal Group, classified as discontinued operations, as such derivative contracts do not qualify for hedge accounting or regulatory treatment. The economic value of generation assets is subject to fluctuations in fair value due to market price volatility of input and output commodities (e.g., coal, electricity, natural gas). Economic hedging involves both purchases and sales of those input and output commodities related to generation assets. Operations of the generation assets are accounted for under the accrual method. Management believes excluding impacts of mark-to-market changes of the derivative contracts from adjusted earnings until settlement better matches the financial impacts of the derivative contract with the portion of economic value of the underlying hedged asset. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them an additional relevant comparison of Duke Energy’s performance across periods. Management uses these non-GAAP financial measures for planning and forecasting and for reporting results to the Duke Energy Board of Directors (Board of Directors), employees, shareholders, analysts and investors concerning Duke Energy’s financial performance. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation and Diluted EPS Attributable to Duke Energy Corporation common shareholders, which include the dollar and per share impact of special items, mark-to-market impacts of economic hedges in the Commercial Power segment and discontinued operations.

36


PART II

Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income (loss) attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Consolidated Financial Statements. Management also uses adjusted segment income as a measure of historical and anticipated future segment performance. Adjusted segment income is a non-GAAP financial measure, as it is based upon segment income adjusted for the mark-to-market impacts of economic hedges in the Commercial Power segment and special items. Management believes the presentation of adjusted segment income as presented provides useful information to investors, as it provides them with an additional relevant comparison of a segment’s performance across periods. The most directly comparable GAAP measure for adjusted segment income is segment income, which represents segment income from continuing operations, including any special items and the mark-to-market impacts of economic hedges in the Commercial Power segment.
Duke Energy’s adjusted earnings, adjusted diluted EPS, and adjusted segment income may not be comparable to similarly titled measures of another company because other entities may not calculate the measures in the same manner.
See Note 3 to the Consolidated Financial Statements, “Business Segments,” for a discussion of Duke Energy’s segment structure.
Overview
The following table reconciles non-GAAP measures to the most directly comparable GAAP measure.
  
Year Ended December 31, 2014
(in millions, except per share amounts)
Regulated
Utilities

 
International
Energy

 
Commercial
Power

 
Total Reportable
Segments

 
Other

 
Eliminations/ Discontinued Operations

 
Duke Energy

 
Per
Diluted
Share

Adjusted segment income/Adjusted earnings
$
2,897

 
$
428

 
$
109

 
$
3,434

 
$
(216
)
 
$

 
$
3,218

 
$
4.55

International tax adjustment

 
(373
)
 

 
$
(373
)
 

 

 
(373
)
 
(0.53
)
Costs to achieve Progress Energy merger

 

 

 

 
(127
)
 

 
(127
)
 
(0.18
)
Midwest generation operations

 

 
(114
)
 
(114
)
 

 
114

 

 

Coal ash Plea Agreements reserve
(102
)
 

 

 
(102
)
 

 

 
(102
)
 
(0.14
)
Asset impairment

 

 
(59
)
 
(59
)
 

 

 
(59
)
 
(0.08
)
Asset sales

 

 

 

 
9

 

 
9

 
0.01

Economic hedges (mark-to-market)

 

 
(6
)
 
(6
)
 

 

 
(6
)
 
(0.01
)
Discontinued operations

 

 
15

 
15

 

 
(692
)
 
(677
)
 
(0.96
)
Segment income (loss)/Net Income Attributable to Duke Energy Corporation
$
2,795

 
$
55

 
$
(55
)
 
$
2,795

 
$
(334
)
 
$
(578
)
 
$
1,883

 
$
2.66

  
Year Ended December 31, 2013
(in millions, except per share amounts)
Regulated
Utilities

 
International
Energy

 
Commercial
Power

 
Total Reportable
Segments

 
Other

 
Eliminations/ Discontinued Operations

 
Duke Energy

 
Per
Diluted
Share

Adjusted segment income/Adjusted earnings
$
2,776

 
$
408

 
$
15

 
$
3,199

 
$
(119
)
 
$

 
$
3,080

 
$
4.36

Crystal River Unit 3 charges
(215
)
 

 

 
(215
)
 

 

 
(215
)
 
(0.31
)
Costs to achieve Progress Energy merger

 

 

 

 
(184
)
 

 
(184
)
 
(0.26
)
Midwest generation operations

 

 
(88
)
 
(88
)
 
14

 
74

 

 

Nuclear development charges
(57
)
 

 

 
(57
)
 

 

 
(57
)
 
(0.08
)
Litigation reserve

 

 

 

 
(14
)
 

 
(14
)
 
(0.02
)
Asset sales

 

 
(15
)
 
(15
)
 
65

 

 
50

 
0.07

Discontinued operations

 

 

 

 

 
5

 
5

 

Segment income (loss)/Net Income Attributable to Duke Energy Corporation
$
2,504

 
$
408

 
$
(88
)
 
$
2,824

 
$
(238
)
 
$
79

 
$
2,665


$
3.76

  
Year Ended December 31, 2012
(in millions, except per share amounts)
Regulated
Utilities

 
International
Energy

 
Commercial
Power

 
Total Reportable
Segments

 
Other

 
Eliminations/ Discontinued Operations

 
Duke Energy

 
Per
Diluted
Share

Adjusted segment income/Adjusted earnings
$
2,086

 
$
439

 
$
93

 
$
2,618

 
$
(129
)
 
$

 
$
2,489

 
$
4.33

Edwardsport impairment and other charges
(402
)
 

 

 
(402
)
 

 

 
(402
)
 
(0.70
)
Costs to achieve Progress Energy merger

 

 

 

 
(397
)
 

 
(397
)
 
(0.70
)
Midwest generation operations

 

 
(149
)
 
(149
)
 
9

 
140

 

 

Economic hedges (mark-to-market)

 

 
(3
)
 
(3
)
 

 

 
(3
)
 
(0.01
)
Democratic National Convention Host Committee support

 

 

 

 
(6
)
 

 
(6
)
 
(0.01
)
Employee severance and office consolidation
60

 

 

 
60

 

 

 
60

 
0.11

Discontinued operations

 

 

 

 

 
27

 
27

 
0.05

Segment income (loss)/Net Income Attributable to Duke Energy Corporation
$
1,744

 
$
439

 
$
(59
)
 
$
2,124

 
$
(523
)
 
$
167

 
$
1,768


$
3.07


37


PART II

The variance in adjusted earnings for the year ended December 31, 2014 , compared to 2013 , was primarily due to:
Increased retail pricing and riders primarily resulting from the implementation of revised rates in most jurisdictions;
Favorable weather in 2014 compared to 2013;
Higher PJM capacity revenues for the nonregulated Midwest generation business due to higher prices; and
Higher results of the renewables business due to higher production from the wind and solar portfolios, lower costs and additional renewables investments.
Partially offset by:
Higher depreciation and amortization expense primarily due to higher depreciable asset base and lower reductions to cost of removal reserves;
Higher operations and maintenance expense due to higher storm costs, the timing of fossil plant outages and the impact of nuclear outage cost levelization;
Lower post in-service debt returns due to projects added to customer rates; and
Higher property and other non-income taxes.
The variance in adjusted earnings for the year ended December 31, 2013 , compared to 2012 , was primarily due to:
The inclusion of Progress Energy results for the first six months of 2013;
Increased retail pricing and riders resulting primarily from the implementation of revised rates in all jurisdictions; and
Lower operating and maintenance expense resulting primarily from the adoption of nuclear outage cost levelization in the Carolinas, lower benefit costs and merger synergies.
Partially offsetting these increases was:
Higher depreciation and amortization expense;
Lower AFUDC;
Lower nonregulated Midwest gas generation results; and
Incremental shares issued to complete the Progress Energy merger (impacts per diluted share amounts only).

38


PART II

Segment Results
The remaining information presented in this discussion of results of operations is on a GAAP basis.
Regulated Utilities
  
Years Ended December 31,
(in millions)  
2014

 
2013

 
Variance 2014 vs. 2013

 
2012

 
Variance 2013 vs. 2012

Operating Revenues  
$
22,271

 
$
20,910

 
$
1,361

 
$
16,080

 
$
4,830

Operating Expenses  
17,026

 
16,126

 
900

 
12,943

 
3,183

Gains on Sales of Other Assets and Other, net  
4

 
7

 
(3
)
 
15

 
(8
)
Operating Income  
5,249

 
4,791

 
458

 
3,152

 
1,639

Other Income and Expense, net  
267

 
221

 
46

 
341

 
(120
)
Interest Expense  
1,093

 
986

 
107

 
806

 
180

Income Before Income Taxes  
4,423

 
4,026

 
397

 
2,687

 
1,339

Income Tax Expense  
1,628

 
1,522

 
106

 
941

 
581

Less: Income Attributable to Noncontrolling Interest  

 

 

 
2

 
(2
)
Segment Income  
$
2,795

 
$
2,504

 
$
291

 
$
1,744

 
$
760

 
 
 
 
 
 
 
 
 
 
Duke Energy Carolinas' GWh sales
87,645

 
85,790

 
1,855

 
81,362

 
4,428

Duke Energy Progress' GWh sales (a)
62,871

 
60,204

 
2,667

 
58,390

 
1,814

Duke Energy Florida GWh sales (b)
38,703

 
37,974

 
729

 
38,443

 
(469
)
Duke Energy Ohio GWh sales  
24,735

 
24,557

 
178

 
24,344

 
213

Duke Energy Indiana GWh sales  
33,433

 
33,715

 
(282
)
 
33,577

 
138

Total Regulated Utilities GWh sales  
247,387

 
242,240

 
5,147


236,116


6,124

Net proportional MW capacity in operation  
49,600

 
49,607

 
(7
)
 
49,654

 
(47
)
(a)
For Duke Energy Progress, 26,634 Gigawatt-hours (GWh) sales for the year ended December 31, 2012, occurred prior to the merger between Duke Energy and Progress Energy.
(b)
For Duke Energy Florida, 18,348 GWh sales for the year ended December 31, 2012, occurred prior to the merger between Duke Energy and Progress Energy.
Year Ended December 31, 2014 as Compared to 2013
Regulated Utilities’ results were positively impacted by higher retail pricing and rate riders, favorable weather, an increase in wholesale power margins, higher weather-normal sales volumes, and 2013 impairments and other charges. These impacts were partially offset by higher depreciation and amortization expense, higher operation and maintenance costs, higher interest expense, and higher income tax expense. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
A $614 million increase in fuel revenues driven primarily by increased demand from electric retail customers resulting from favorable weather conditions, and higher fuel rates for electric retail customers for all jurisdictions, except North Carolina. Fuel revenues represent sales to retail and wholesale customers;
A $556 million net increase in retail pricing primarily due to retail rate changes and updated rate riders;
A $216 million increase in electric sales (net of fuel revenue) to retail customers due to more favorable weather conditions. (i) For the year ended December 31, 2014 in the Carolinas, cooling degree days were 4 percent below normal as compared with 15 percent below normal during the same period in 2013, and heating degree days were 11 percent above normal as compared with 4 percent above normal during the same period in 2013. (ii) For the year ended December 31, 2014 in the Midwest, cooling degree days were 21 percent below normal as compared with 8 percent below normal during the same period in 2013, and heating degree days were 18 percent above normal as compared with 7 percent above normal during the same period in 2013. (iii) For the year ended December 31, 2014 in Florida, cooling degree days were 3 percent below normal as compared with 2 percent above normal during the same period in 2013, and heating degree days were 4 percent above normal as compared with 35 percent below normal during the same period in 2013;
A $63 million increase in wholesale power revenues, net of sharing, primarily due to additional volumes and capacity charges for customers served under long-term contracts; and
A $21 million increase in weather-normal sales volumes to retail customers (net of fuel revenue) reflecting increased demand.
Partially offset by:
A $139 million decrease in gross receipts tax revenue due to the NC Tax Simplification and Rate Reduction Act which terminated the collection of the North Carolina gross receipts tax effective July 1, 2014.

39


PART II

Operating Expenses. The variance was driven primarily by:
A $611 million increase in fuel expense (including purchased power and natural gas purchases for resale) primarily related to (i) higher volumes of coal, and oil used in electric generation due primarily to increased generation resulting from favorable weather conditions, (ii) higher natural gas prices, and (iii) the application of the Nuclear Electric Insurance Limited (NEIL) settlement proceeds in 2013 for Duke Energy Florida;
A $436 million increase in depreciation and amortization expense primarily due to increases in depreciation as a result of additional plant in service and amortization of regulatory assets, and higher 2013 reductions to cost of removal reserves in accordance with regulatory orders; and
A $292 million increase in operating and maintenance expense primarily due to a litigation reserve related to the criminal investigation of the Dan River coal ash spill (See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information), higher storm costs, repairs and remediation expenses associated with the Dan River coal ash discharge and other ash basin related assessment costs, and higher nuclear costs, including nuclear outage levelization costs, and higher environmental and operational costs that are recoverable in rates; partially offset by a 2013 Crystal River Unit 3 Nuclear Station (Crystal River Unit 3) related settlement matter, decreased benefits costs and 2013 donations for low-income customers and job training in accordance with 2013 North Carolina Utilities Commission (NCUC) and Public Service Commission of South Carolina (PSCSC) rate case orders.
Partially offset by:
A $346 million decrease due to the 2013 impairment and other charges primarily related to Crystal River Unit 3 and the proposed Levy Nuclear Station (Levy). See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information;
A $42 million decrease in property and other taxes primarily due to the termination of the collection of the North Carolina gross receipts tax as mentioned above; partially offset by a sales tax reserve as a result of an Indiana sales tax audit, and higher property taxes; and
A $22 million decrease due to the 2013 impairment resulting from the decision to suspend the application for two proposed nuclear units at Shearon Harris Nuclear Station (Harris).
Other Income and Expenses, net. The variance is primarily due to recognition of post in-service equity returns for projects that had been completed prior to being reflected in customer rates, partially offset by lower AFUDC – equity, primarily due to placing the Sutton plant into service in late 2013.
Interest Expense. The variance was primarily due to no longer recording post in-service debt returns on projects now reflected in customer rates and a reduction in debt return on the Crystal River 3 regulatory asset now recovered through fuel revenues.
Income Tax Expense. The variance was primarily due to higher pretax income and partially offset by a lower effective tax rate of 36.8 percent compared to 37.8 percent, respectively, for the years ended December 31, 2014 and 2013. The decrease in effective tax rate is primarily due to favorable audit settlements, a higher manufacturing deduction due to prior year limitations based on taxable income, and changes in income apportionment for state income tax, partially offset by the non-deductible litigation reserve related to the criminal investigation of the Dan River coal ash spill.
Year Ended December 31, 2013 as Compared to 2012
Regulated Utilities’ results were positively impacted by 2012 impairment and other charges related to the Edwardsport Integrated Gasification Combined Cycle (IGCC) plant, higher retail pricing and rate riders, the inclusion of Progress Energy results for the first six months of 2013, a net increase in wholesale power revenues, and higher weather-normal sales volumes. These impacts were partially offset by higher income tax expense, Crystal River Unit 3 charges, lower AFUDC – equity and higher depreciation and amortization expense. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
A $4,339 million increase due to the inclusion of Progress Energy for the first six months of 2013,
A $434 million net increase in retail pricing primarily due to revised rates approved in all jurisdictions;
A $76 million net increase in wholesale power revenues, net of sharing, primarily due to additional volumes and charges for capacity for customers served under long-term contracts; and
A $72 million increase in weather-normal sales volumes to retail customers (net of fuel revenue) reflecting increased demand.
Partially offset by:
A $132 million decrease in fuel revenues (including emission allowances) driven primarily by (i) the impact of lower Florida residential fuel rates, including amortization associated with the settlement agreement approved by the Florida Public Service Commission (FPSC) in 2012 (2012 Settlement), (ii) lower fuel rates for electric retail customers in the Carolinas, Florida and Ohio, and (iii) lower revenues for purchased power, partially offset by (iv) increased demand from electric retail customers. Fuel revenues represent sales to retail and wholesale customers.
Operating Expenses. The variance was driven primarily by:
A $3,393 million increase due to the inclusion of Progress Energy for the first six months of 2013,
A $346 million increase in impairment and other charges in 2013 primarily related to Crystal River Unit 3 and Levy, and

40


PART II

A $102 million increase in depreciation and amortization expense primarily due to a decrease in the reduction of the cost of removal component of amortization expense as allowed under the 2012 Settlement.
Partially offset by:
A $600 million decrease due to 2012 impairment and other charges related to the Edwardsport IGCC plant. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information, and
A $120 million decrease in fuel expense (including purchased power and natural gas purchases for resale) primarily related to (i) the application of the NEIL settlement proceeds in Florida, including amortization associated with the 2012 Settlement; (ii) lower purchased power costs in (a) the Carolinas, primarily due to additional generating capacity placed in service in late 2012 and market conditions, (b) Ohio, primarily due to reduced sales volumes, and (c) Indiana, reflective of market conditions; partially offset by (iii) higher volumes of natural gas used in electric generation due primarily to additional generating capacity placed in service; (iv) higher prices for natural gas and coal used in electric generation; and (v) higher volumes of coal used in electric generation primarily due to generation mix.
Other Income and Expenses, net. The decrease is primarily due to lower AFUDC equity, resulting from major projects that were placed into service in late 2012 and the implementation of new customer rates related to the IGCC rider, partially offset by the inclusion of Progress Energy for the first six months of 2013.
Interest Expense. The variance was primarily driven by the inclusion of Progress Energy for the first six months of 2013.
Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rates for the years ended December 31, 2013 and 2012 were 37.8 percent and 35 percent, respectively. The increase in the effective tax rate was primarily due to an increase in pretax income and a reduction in AFUDC equity.
Matters Impacting Future Regulated Utilities Results
On February 2, 2014, a break in a stormwater pipe beneath an ash basin at the retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the river. Duke Energy is a party to multiple lawsuits filed in regards to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits could have an adverse impact to Regulated Utilities’ financial position, results of operations and cash flows. See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact to the Regulated Utilities' financial position, results of operations and cash flows. See Notes 5 and 9 to the Consolidated Financial Statements, “Commitments and Contingencies” and "Asset Retirement Obligations," respectively, for additional information.
In 2015, the Indiana Utility Regulatory Commission (IURC) is examining intervenors' allegations that the Edwardsport IGCC was not properly placed in commercial operation in June 2013 and intervenors’ allegations regarding plant performance. In addition, the Indiana Court of Appeals remanded the IURC order in the ninth IGCC rider proceeding back to the IURC for further findings concerning approximately $61 million of financing charges Joint Intervenors claimed were caused by construction delay and a ratemaking issue concerning the in-service date determination for tax purposes. The outcome of these proceedings could have an adverse impact to Regulated Utilities' financial position, results of operations and cash flows. Duke Energy cannot predict on the outcome of these proceedings. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information.

41


PART II

International Energy
  
 
Years Ended December 31,
(in millions)  
 
2014

 
2013

 
Variance 2014 vs. 2013

 
2012

 
Variance 2013 vs. 2012

Operating Revenues  
 
$
1,417

 
$
1,546

 
$
(129
)
 
$
1,549

 
$
(3
)
Operating Expenses  
 
1,007

 
1,000

 
7

 
1,043

 
(43
)
Gains (Losses) on Sales of Other Assets and Other, net  
 
6

 
3

 
3

 

 
3

Operating Income  
 
416

 
549

 
(133
)
 
506

 
43

Other Income and Expense, net  
 
190

 
125

 
65

 
171

 
(46
)
Interest Expense  
 
93

 
86

 
7

 
76

 
10

Income Before Income Taxes  
 
513

 
588

 
(75
)
 
601

 
(13
)
Income Tax Expense  
 
449

 
166

 
283

 
149

 
17

Less: Income Attributable to Noncontrolling Interests  
 
9

 
14

 
(5
)
 
13

 
1

Segment Income  
 
$
55

 
$
408

 
$
(353
)
 
$
439

 
$
(31
)
 
 
 
 
 
 
 
 
 
 
 
Sales, GWh  
 
18,629

 
20,306

 
(1,677
)
 
20,132

 
174

Net proportional MW capacity in operation  
 
4,340

 
4,600

 
(260
)
 
4,584

 
16

Year Ended December 31, 2014 as Compared to 2013
International Energy’s results were negatively impacted by higher tax expense resulting from the decision to repatriate historical undistributed foreign earnings, unfavorable hydrology and exchange rates in Brazil and an unplanned outage in Chile, partially offset by higher equity earnings in National Methanol Company (NMC) and a 2013 net currency remeasurement loss in Latin America. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
A $44 million decrease in Peru as a result of lower sales volumes and unfavorable exchange rates;
A $35 million decrease in Brazil due to unfavorable exchange rates and lower sales volumes partially offset by higher average prices;
A $27 million decrease in Chile as a result of lower sales volumes due to an unplanned outage, and lower average prices; and
A $25 million decrease in Argentina due to unfavorable exchange rates and lower average prices.
Operating Expenses. The variance was driven primarily by:
A $75 million increase in Brazil due to higher purchased power as a result of unfavorable hydrology, partially offset by favorable exchange rates.
Partially offset by:
A $38 million decrease in Peru as a result of lower purchased power, transmission, and royalty costs; and
A $26 million decrease in Argentina due to favorable exchange rates and lower purchased power and fuel consumption.
Other Income and Expenses, net . The variance is primarily due to a 2013 net currency remeasurement loss in Latin America, higher interest income in Brazil, and higher equity earnings in NMC as a result of increased methyl tertiary butyl ether (MTBE) and methanol sales volumes, partially offset by lower average prices and higher butane costs.
Income Tax Expense. The variance was primarily due to approximately $373 million of incremental tax expense resulting from the decision to repatriate all cumulative historical undistributed foreign earnings at that time. The effective tax rate for the years ended December 31, 2014 and 2013 was 87.3 percent and 28.3 percent, respectively. The increase in the effective tax rate was also primarily due to the tax expense associated with the repatriation decision.
Year Ended December 31, 2013 as Compared to 2012
International Energy’s results were negatively impacted by an extended outage at NMC and unfavorable exchange rates in Latin America, partially offset by the acquisition of Iberoamericana de Energía Ibener, S.A. (Ibener) in 2012 and higher average prices and lower purchased power costs in Brazil. The following is a detailed discussion of the variance drivers by line item.

42


PART II

Operating Revenues. The variance was driven primarily by:
A $67 million decrease in Brazil due to weakening of the Real to the U.S. dollar,
A $53 million decrease in Central America due to lower average prices and volumes, and
An $18 million decrease in Argentina as a result of unfavorable exchange rates.
Partially offset by:
A $67 million increase in Brazil due to higher average prices, net of lower volumes, and
A $65 million increase in Chile as a result of asset acquisitions in 2012.
Operating Expenses. The variance was driven primarily by:
A $65 million decrease in Central America due to lower fuel costs, partially offset by higher purchased power and coal consumption, and
A $20 million decrease in Brazil due to weakening of the Real to the U.S. dollar and lower purchased power partially offset by higher variable costs.
Partially offset by:
A $36 million increase in Chile as a result of acquisitions in 2012.
Other Income and Expenses, net. The decrease was primarily driven by a net currency remeasurement loss in Latin America due to strengthening of the dollar, and lower equity earnings at NMC as a result of lower MTBE average prices and lower volumes due to extended maintenance, partially offset by lower butane costs.
Interest Expense. The variance was primarily due to the Chile acquisitions in 2012, partially offset by favorable exchange rates and lower inflation in Brazil.
Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rates for the years ended December 31, 2013 and 2012 were 28.3 percent and 24.8 percent, respectively. The increase in the effective tax rate is primarily due to a higher proportion of earnings in countries with higher tax rates.
Matters Impacting Future International Energy Results
International Energy's operations include conventional hydroelectric power generation facilities located in Brazil where water reservoirs are currently at abnormally low levels due to a lack of rainfall.  In addition, International Energy’s equity earnings from NMC reflect sales of methanol and MTBEs, which generates margins that are directionally correlated with crude oil prices. International Energy's earnings and future cash flows could be adversely impacted by either a sustained period of low reservoir levels, especially if the government of Brazil were to implement rationing or some other mandatory conservation program, or a significant decrease in crude oil prices.

43


PART II

Commercial Power
  
Years Ended December 31,
(in millions)  
2014

 
2013

 
Variance 2014 vs. 2013

 
2012

 
Variance 2013 vs. 2012

Operating Revenues  
$
255

 
$
260

 
$
(5
)
 
$
307

 
$
(47
)
Operating Expenses  
441

 
425

 
16

 
419

 
6

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

 
(23
)
 
23

 
2

 
(25
)
Operating Loss
(186
)
 
(188
)
 
2

 
(110
)
 
(78
)
Other Income and Expense, net  
18

 
13

 
5

 
33

 
(20
)
Interest Expense  
58

 
61

 
(3
)
 
63

 
(2
)
Loss Before Income Taxes  
(226
)
 
(236
)
 
10

 
(140
)
 
(96
)
Income Tax Benefit  
(171
)
 
(148
)
 
(23
)
 
(82
)
 
(66
)
Less: Income Attributable to Noncontrolling Interests  

 

 

 
1

 
(1
)
Segment Loss
$
(55
)
 
$
(88
)
 
$
33

 
$
(59
)
 
$
(29
)
 
 
 
 
 
 
 
 
 
 
Coal-fired plant production, GWh  
867

 
1,644

 
(777
)
 
2,096

 
(452
)
Renewable plant production, GWh  
5,462

 
5,111

 
351

 
3,452

 
1,659

Total Commercial Power production, GWh  
6,329

 
6,755

 
(426
)
 
5,548

 
1,207

Net proportional MW capacity in operation  
1,370

 
2,031

 
(661
)
 
2,222

 
(191
)
Year Ended December 31, 2014 as Compared to 2013
Commercial Power’s results were impacted by higher production tax credits generation, higher production and lower operating costs by the renewables business and a prior-year loss recognized on certain renewables projects, partially offset by an impairment recorded for an intangible asset. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
An $8 million decrease in electric revenues for the Beckjord station, which is not included in the Disposal Group, driven from lower production as units have been retired;
A $7 million decrease in net mark-to-market revenues on non-qualifying power hedge contracts.
Partially offset by:
A $16 million increase in electric revenues from higher production in the renewables portfolio.
Operating Expenses. The variance was driven primarily by:
A $94 million increase driven by an impairment taken related to Ohio Valley Electric Corporation (OVEC). See Note 11 to the Consolidated Financial Statements, “Goodwill and Intangible Assets” for additional information.
Partially offset by:
An $18 million decrease in depreciation driven by discontinued amortization of an intangible asset that was impaired and written off in 2014 and extensions on the projected useful lives of assets in the renewable portfolio;
A $17 million decrease in fuel expense for the Beckjord station driven by lower cost of coal from decreased production as units have been retired;
A $16 million decrease related to a 2013 legal settlement reserve related to previously disposed businesses;
A $10 million decrease in general and administrative costs;
A $9 million decrease in operations and maintenance expense for the renewables portfolio driven primarily by development cost reductions; and
A $6 million decrease in property tax expense driven by cost reductions in the renewables portfolio resulting from a property tax abatement that went into effect in the current year.
Losses on Sales of Other Assets and Other, net. The variance is attributable to a loss recognized on the sale of certain renewable development projects in 2013.
Other Income and Expense. The variance was primarily due to a net gain recognized for the sale of certain renewable development assets and increased equity earnings from higher production in the renewable wind portfolio.
Income Tax Benefit. The variance was primarily due to changes in state deferred taxes and higher production tax credits in 2014 for the Renewables portfolio. The effective tax rate for the years ended December 31, 2014 and 2013 was 75.5 percent and 62.8 percent, respectively.

44


PART II

Year Ended December 31, 2013 as Compared to 2012
Commercial Power’s results were negatively impacted by the sale of non-core business operations and lower income from the renewables portfolio and Beckjord generating station. These impacts are partially offset by higher income tax benefits. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
An $81 million decrease due primarily to the sale of non-core businesses in 2012; and
A $35 million decrease in electric revenues for the Beckjord station driven from lower production as units were prepared for retirement;
Partially offset by:
A $67 million increase due to higher volumes in the renewables portfolio.
Operating Expenses. The variance was driven primarily by:
A $34 million increase in operations and maintenance expense for the renewables portfolio driven primarily by commercial operation of certain assets and costs to run the renewables services company acquired in 2012;
A $25 million increase in depreciation driven by renewable portfolio assets put in service;
A $17 million increase related to Midcontinent Independent System Operator, Inc. (MISO) and PJM Transmission System Enhancement obligations; and
A $16 million increase related to a 2013 legal settlement reserve related to previously disposed businesses.
Partially offset by:
A $56 million decrease due primarily to the sale of non-core businesses in 2012;
A $17 million decrease in general and administrative costs; and
A $16 million decrease in fuel expense for the Beckjord station, which is not included in the Disposal Group, driven by lower cost of coal from decreased production as units were prepared for retirement;
(Losses) Gains on Sales of Other Assets and Other, net. The variance is attributable to a loss recognized on the sale of certain renewable development projects in 2013 and a gain on the 2012 contribution of certain renewable assets to a joint venture.
Other Income and Expense, net. The variance is primarily due to the sale of non-core businesses in 2012, lower equity earnings from the renewables portfolio, and lower interest income.
Income Tax Benefit. The variance was primarily due to an increase in pretax loss and a decrease in manufacturing deductions combined with higher production tax credits in 2013. The effective tax rates for the years ended December 31, 2013 and 2012 were 62.8 percent and 58.4 percent, respectively. The increase in the effective tax rate for the period was primarily due to higher production tax credits in 2013 for the Renewable portfolio.
Other
  
Years Ended December 31,
(in millions)  
2014

 
2013

 
Variance 2014 vs. 2013

 
2012

 
Variance 2013 vs. 2012

Operating Revenues  
$
105

 
$
175

 
$
(70
)
 
$
84

 
$
91

Operating Expenses  
322

 
457

 
(135
)
 
704

 
(247
)
Gains (Losses) on Sales of Other Assets and Other, net  
6

 
(3
)
 
9

 
(7
)
 
4

Operating Loss  
(211
)
 
(285
)
 
74

 
(627
)
 
342

Other Income and Expense, net  
45

 
131

 
(86
)
 
19

 
112

Interest Expense  
400

 
416

 
(16
)
 
299

 
117

Loss Before Income Taxes  
(566
)
 
(570
)
 
4

 
(907
)
 
337

Income Tax Benefit  
(237
)
 
(335
)
 
98

 
(386
)
 
51

Less: Income (Loss) Attributable to Noncontrolling Interests  
5

 
3

 
2

 
2

 
1

Net Expense  
$
(334
)
 
$
(238
)
 
$
(96
)
 
$
(523
)
 
$
285

Year Ended December 31, 2014 as Compared to 2013
Other’s results were negatively impacted by a decrease in income tax benefit. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The decrease was primarily due to mark-to-market activity of mitigation sales related to the Progress Energy merger.

45


PART II

Operating Expenses. The decrease was primarily due to lower charges related to the Progress Energy merger and prior year Crescent Resources LLC (Crescent) litigation reserve, partially offset by unfavorable loss experience at Bison.
Other Income and Expenses. The decrease was primarily due to a gain on the sale of Duke Energy’s 50 percent ownership in DukeNet Communications Holdings, LLC (DukeNet) in 2013, partially offset by a current year investment sale gain and higher investment income at Bison Insurance Company Limited (Bison).
Interest Expense. The variance was due primarily to lower interest on long-term debt resulting from debt maturities and new debt issued at lower rates.
Income Tax Benefit. The variance was primarily due to a state tax benefit recognized in 2013. The effective tax rate for the years ended December 31, 2014 and 2013 was 41.9 percent and 58.6 percent, respectively.
Year Ended December 31, 2013 as Compared to 2012
Other’s results were positively impacted by lower charges related to the Progress Energy merger, the sale of DukeNet, and increased current year activity from mitigation sales related to the Progress Energy merger. These impacts were partially offset by increased interest expense, lower income tax benefit and the Crescent litigation reserve in 2013. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by increased activity from mitigation sales related to the Progress Energy merger and higher premiums earned at Bison as a result of the addition of Progress Energy.
Operating Expenses. The variance was driven primarily by lower charges related to the Progress Energy merger, and prior year donations, partially offset by the Crescent litigation reserve in 2013 and unfavorable loss experience at Bison as a result of the addition of Progress Energy.
Other Income and Expense , net. The variance was driven primarily by a gain on the sale of Duke Energy’s 50 percent ownership in DukeNet in 2013.
Interest Expense. The variance was due primarily to the inclusion of Progress Energy for the first six months of 2013 and additional debt issuances.
Income Tax Benefit. The variance was primarily due to a decrease in pretax loss. The effective tax rates for the years ended December 31, 2013 and 2012 were 58.6 percent and 42.5 percent, respectively.
Matters Impacting Future Other Results
Duke Energy previously held an effective 50 percent interest in Crescent Resources, LLC (Crescent). Crescent was a real estate joint venture formed by Duke Energy in 2006 that filed for Chapter 11 bankruptcy protection in June 2009. On June 9, 2010, Crescent restructured and emerged from bankruptcy and Duke Energy forfeited its entire 50 percent ownership interest to Crescent debt holders. This forfeiture caused Duke Energy to recognize a loss, for tax purposes, on its interest in the second quarter of 2010. Although Crescent has reorganized and emerged from bankruptcy with creditors owning all Crescent interest, there remains uncertainty as to the tax treatment associated with the restructuring. Based on this uncertainty, it is possible that Duke Energy could incur a future tax liability related to the tax losses associated with its partnership interest in Crescent and the resolution of issues associated with Crescent’s emergence from bankruptcy.
In 2013, a FERC Administrative Law Judge issued an initial decision holding that Duke Energy is responsible for costs associated with Multi Value Projects (MVP), a type of Transmission Expansion Planning (MTEP) cost, approved by MISO prior to the date of Duke Energy’s withdrawal. The initial decision will be reviewed by FERC. If FERC upholds the initial decision, Duke Energy intends to file an appeal in federal court. If Duke Energy is deemed responsible for these costs, and if a portion of these costs are not eligible for recovery, there may be an adverse impact to its financial position, results of operations and cash flows. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
Discontinued Operations decreased $662 million for the year ended December 31, 2014, compared to the same period in the prior year, primarily due to a $929 million pretax write-down of the carrying amount of the assets to the estimated fair value of the Disposal Group, based on the transaction price included in the PSA, less estimated costs to sell and a $134 million pretax mark-to-market loss on economic hedges for the Disposal Group. Included in the variance is the $117 million impact of ceasing depreciation on the assets of the Disposal Group beginning in the second quarter of 2014.
Discontinued Operations decreased $85 million for the year ended December 31, 2013 compared to the same period in the prior year, primarily due to a reduction in PJM capacity revenues related to lower average cleared capacity auction pricing for the Disposal Group.

46


PART II

DUKE ENERGY CAROLINAS
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, 2014 , 2013 and 2012 .
Basis of Presentation
The results of operations and variance discussion for Duke Energy Carolinas is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
Results of Operations
  
Years Ended December 31,
(in millions)  
2014

 
2013

 
Variance

Operating Revenues  
$
7,351

 
$
6,954

 
$
397

Operating Expenses  
5,456

 
5,145

 
311

Operating Income  
1,895

 
1,809

 
86

Other Income and Expense, net  
172

 
120

 
52

Interest Expense  
407

 
359

 
48

Income Before Income Taxes  
1,660

 
1,570

 
90

Income Tax Expense  
588

 
594

 
(6
)
Net Income  
$
1,072

 
$
976

 
$
96

The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Carolinas. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized.
Increase (decrease) over prior year  
2014
 
2013
Residential sales  
4.0
 %
 
2.3
%
General service sales  
2.4
 %
 
1.0
%
Industrial sales  
2.4
 %
 
0.4
%
Wholesale and other  
(4.7
)%
 
62.1
%
Total sales  
2.2
 %
 
5.4
%
Average number of customers  
1.0
 %
 
0.7
%
Year Ended December 31, 2014 as Compared to 2013
Operating Revenues. The variance was driven primarily by:
A $180 million increase in retail pricing and updated rate riders, which primarily reflects the impact of the 2013 North Carolina and South Carolina retail rate cases;
A $151 million increase in fuel revenues driven primarily by increased demand from retail customers, mainly due to favorable weather conditions. Fuel revenues represent sales to retail and wholesale customers;
A $99 million increase in electric sales (net of fuel revenues) to retail customers due to favorable weather conditions. Heating degree days in 2014 were 11 percent above normal compared to 5 percent above normal during the same period in 2013 and cooling degree days were 6 percent below normal as compared to 17 percent below normal in 2013;
A $19 million increase in wholesale power revenues, net of sharing, primarily due to new customers; and
An $18 million increase in weather-normal sales volumes to retail customers reflecting increased demand.
Partially offset by:
A $79 million decrease in gross receipts tax revenue due to the NC Tax Simplification and Rate Reduction Act which terminated the collection of the North Carolina gross receipts tax effective July 1, 2014.
Operating Expenses. The variance was driven primarily by:
A $151 million increase in fuel expense (including purchased power) primarily due to increased retail demand resulting from favorable weather conditions;
A $127 million increase in operating and maintenance expenses primarily due to a litigation reserve related to the criminal investigation of the Dan River coal ash spill (See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information), repairs and remediation expenses associated with the Dan River coal ash discharge and other ash basin related assessment costs, higher non-outage costs at generation plants, higher storm costs, higher distribution costs, higher nuclear outage expense including the impacts of nuclear levelization, and higher energy efficiency program costs, partially offset by decreased corporate costs and lower costs associated with the Progress Energy merger; and

47


PART II

An $88 million increase in depreciation and amortization primarily due to higher depreciation as a result of additional plant in service and amortization of certain regulatory assets, partially offset by lower depreciation expense due to reductions for costs of removal in accordance with the 2013 North Carolina and South Carolina rate case orders.
Partially offset by:
A $58 million decrease in property and other tax expenses primarily due to lower revenue related taxes driven by the elimination of North Carolina gross receipts tax effective July 1, 2014, partially offset by higher property tax expense.
Other Income and Expenses, net. The variance was primarily due to the recognition of post in-service equity returns for projects that had been completed prior to being reflected in customer rates.
Interest Expense. The variance was primarily due to no longer recording post in-service debt returns on projects now reflected in customer rates, partially offset by lower interest on bonds.
Income Tax Expense. The effective tax rate for the years ended December 31, 2014 and 2013 was 35.4 percent and 37.8 percent, respectively. The decrease in the effective tax rate is primarily due to favorable audit settlements, changes in apportionment related to state income tax and the tax benefit related to the manufacturing deduction in 2014 as the prior year deduction was limited by taxable income, partially offset by the non-deductible litigation reserve related to the criminal investigation of the Dan River coal ash spill.
Matters Impacting Future Results
On February 2, 2014, a break in a stormwater pipe beneath an ash basin at the retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the river. Duke Energy is a party to multiple lawsuits filed in regards to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits could have an adverse impact to Duke Energy Carolinas’ financial position, results of operations and cash flows. See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact to Duke Energy Carolinas' financial position, results of operations and cash flows. See Notes 5 and 9 to the Consolidated Financial Statements, “Commitments and Contingencies” and "Asset Retirement Obligations," respectively, for additional information.
PROGRESS ENERGY
  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, 2014 , 2013 and 2012 .
Basis of Presentation
The results of operations and variance discussion for Progress Energy is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
Results of Operations
  
Years Ended December 31,
(in millions)  
2014

 
2013

 
Variance

Operating Revenues  
$
10,166

 
$
9,533

 
$
633

Operating Expenses  
8,159

 
7,918

 
241

Gains (Losses) on Sales of Other Assets and Other, net  
11

 
3

 
8

Operating Income  
2,018

 
1,618

 
400

Other Income and Expense, net  
77

 
94

 
(17
)
Interest Expense  
675

 
680

 
(5
)
Income Before Income Taxes  
1,420

 
1,032

 
388

Income Tax Expense  
540

 
373

 
167

Income from Continuing Operations  
880

 
659

 
221

Discontinued Operations, net of tax  
(6
)
 
16

 
(22
)
Net Income  
874

 
675

 
199

Less: Net Income Attributable to Noncontrolling Interests  
5

 
3

 
2

Net Income Attributable to Parent  
$
869

 
$
672

 
$
197

Year Ended December 31, 2014 as Compared to 2013
Operating Revenues. The variance was driven primarily by:

48


PART II

A $341 million increase in fuel revenues (including emission allowances) driven primarily by increased demand from wholesale and retail customers, partially resulting from favorable weather conditions, and higher fuel rates for wholesale customers reflective of higher fuel costs for Duke Energy Progress; and to a higher fuel rate in the current year related to lower NEIL insurance reimbursements and accelerated Crystal River Unit 3 regulatory asset cost recovery in 2014 as allowed by the 2013 Settlement for Duke Energy Florida. Fuel revenues represent sales to retail and wholesale customers;
A $149 million increase in retail pricing, which primarily reflects the impact of the 2013 North Carolina retail rate case in North Carolina and the 2014 base rate increase in Florida; and
A $114 million increase (net of fuel revenue) in GWh sales to retail customers due to favorable weather conditions. For Duke Energy Progress, heating degree days in 2014 were 11 percent above normal compared to 2 percent above normal in 2013 and cooling degree days were 2 percent below normal compared to 13 percent below normal in 2013. For Duke Energy Florida, heating degree days in 2014 were 51 percent higher and cooling degree days were 4 percent lower compared to the same period in 2013
Operating Expenses. The variance was driven primarily by:
A $344 million increase in fuel expenses (including purchased power). For Duke Energy Florida the increase is due to the application of the NEIL settlement proceeds in 2013 and higher sales volumes driven by increased demand and higher fuel prices in the current year. For Duke Energy Progress the increase is primarily due to increased sales volumes;
A $245 million increase in depreciation and amortization. For Duke Energy Florida the increase is primarily due to a reduction of the cost of removal component of amortization expense in 2013 as allowed under the 2012 Settlement, increased environmental cost recovery clause amortization related to prior year under-recovery and nuclear cost recovery clause amortization due to an increase in recoverable nuclear assets in the current year. For Duke Energy Progress the increase is primarily due to higher depreciation as a result of additional plant in service and amortization of certain regulatory assets and a prior year reversal of a portion of cost of removal reserves in accordance with the 2013 NCUC rate case order; and
An $88 million increase in operations, maintenance and other expense primarily due to a litigation reserve related to the criminal investigation of the management of North Carolina coal ash basins (See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information).
Partially offset by:
A $346 million decrease due to 2013 impairment and other charges at Duke Energy Florida primarily related to Crystal River Unit 3 and Levy; and
A $49 million decrease at Duke Energy Progress due to a current year $18 million reduction to a 2012 impairment charge related to the disallowance of transmission project costs, which are a portion of the Long-Term FERC Mitigation and a $22 million prior-year impairment charge resulting from the decision to suspend the application for two proposed nuclear units at the Harris nuclear station.
Other Income and Expense, net. The variance was primarily due to lower AFUDC – equity as a result of assets placed into service, partially offset by post in-service equity returns for projects that had been completed prior to being reflected in customer rates.
Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the 12 months ended December 31, 2014 and 2013 was 38.0 percent and 36.2 percent, respectively. The increase in the effective tax rate is primarily due to a decrease in AFUDC – equity and the non-deductible litigation reserve related to the criminal investigation of the management of North Carolina coal ash basins.
Matters Impacting Future Results
On February 2, 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas' retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the river. Duke Energy is a party to multiple lawsuits filed in regards to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits could have an adverse impact to Progress Energy's financial position, results of operations and cash flows. See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information. 
An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact to Progress Energy's financial position, results of operations and cash flows. See Notes 5 and 9 to the Consolidated Financial Statements, “Commitments and Contingencies” and "Asset Retirement Obligations," respectively, for additional information.

49


PART II

DUKE ENERGY PROGRESS
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, 2014 , 2013 and 2012 .
Basis of Presentation
The results of operations and variance discussion for Duke Energy Progress is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
Results of Operations
  
Years Ended December 31,
(in millions)  
2014

 
2013

 
Variance

Operating Revenues  
$
5,176

 
$
4,992

 
$
184

Operating Expenses  
4,244

 
4,061

 
183

Gains on Sales of Other Asset and Other, net  
3

 
1

 
2

Operating Income  
935

 
932

 
3

Other Income and Expense, net  
51

 
57

 
(6
)
Interest Expense  
234

 
201

 
33

Income Before Income Taxes  
752

 
788

 
(36
)
Income Tax Expense  
285

 
288

 
(3
)
Net Income  
$
467

 
$
500

 
$
(33
)
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Progress. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized.
Increase (decrease) over prior year  
2014

 
2013

Residential sales  
5.1
 %
 
4.0
%
General service sales  
2.1
 %
 
%
Industrial sales  
(2.9
)%
 
1.1
%
Wholesale and other  
10.1
 %
 
7.6
%
Total sales  
4.4
 %
 
3.1
%
Average number of customers  
1.1
 %
 
0.9
%
Year Ended December 31, 2014 as Compared to 2013
Operating Revenues. The variance was driven primarily by:
A $104 million increase in fuel revenues (including emission allowances) driven primarily by increased demand from wholesale and retail customers, partially resulting from favorable weather conditions, and higher fuel rates for wholesale customers reflective of higher fuel costs. Fuel revenues represent sales to retail and wholesale customers;
An $82 million increase (net of fuel revenue) in electric sales to retail customers due to favorable weather conditions. Heating degree days in 2014 were 11 percent above normal compared to 2 percent above normal in 2013 and cooling degree days were 2 percent below normal compared to 13 percent below normal in 2013; and
An $80 million increase in retail pricing, which primarily reflects the impact of the 2013 North Carolina retail rate case.
Partially offset by:
A $60 million decrease in gross receipts tax revenue due to the NC Tax Simplification and Rate Reduction Act which terminated the collection of the North Carolina gross receipts tax effective July 1, 2014; and
A $19 million decrease in weather-normal sales volumes to retail customers reflecting decreased demand.
Operating Expenses. The variance was driven primarily by:
A $111 million increase in fuel expenses (including purchased power) primarily due to increased sales volumes;
A $113 million increase in operations and maintenance expenses primarily due to a litigation reserve related to the criminal investigation of the management of North Carolina coal ash basins (See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information), the impacts of amortization on nuclear levelization outage deferrals and higher storm costs, partially offset by prior year donations for low-income customers and job training in accordance with the 2013 NCUC rate case order and lower costs to achieve the merger with Duke Energy including severance and employee relocation expenses; and

50


PART II

A $48 million increase in depreciation and amortization expenses primarily due to higher depreciation as a result of additional plant in service and amortization of certain regulatory assets and a prior year reversal of a portion of cost of removal reserves in accordance with the 2013 NCUC rate case order.
Partially offset by:
A $49 million decrease in property and other tax expenses primarily due to lower revenue related taxes driven by the elimination of North Carolina gross receipts tax effective July 1, 2014, partially offset by higher property tax expense; and
A $40 million decrease due to a current year $18 million reduction to a 2012 impairment charge related to the disallowance of transmission project costs, which are a portion of the Long-Term FERC Mitigation and a $22 million prior-year impairment charge resulting from the decision to suspend the application for two proposed nuclear units at the Harris nuclear station.
Interest Expense. The variance was primarily due to a new debt issuance, no longer recording post in-service debt returns on projects now reflected in customer rates and lower AFUDC – debt due to projects placed in service.
Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rate for the years ended December 31, 2014 and 2013 was 37.9 percent and 36.5 percent, respectively. The increase in the effective tax rate is primarily due to the non-deductible litigation reserve related to the criminal investigation of the management of North Carolina coal ash basins.
Matters Impacting Future Results
On February 2, 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas' retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the river. Duke Energy is a party to multiple lawsuits filed in regards to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits could have an adverse impact to Duke Energy Progress’ financial position, results of operations and cash flows. See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact to Duke Energy Progress' financial position, results of operations and cash flows. See Notes 5 and 9 to the Consolidated Financial Statements, “Commitments and Contingencies” and "Asset Retirement Obligations," respectively, for additional information.
DUKE ENERGY FLORIDA
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, 2014 , 2013 and 2012 .
Basis of Presentation
The results of operations and variance discussion for Duke Energy Florida is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
Results of Operations
  
Years Ended December 31,
(in millions)  
2014

 
2013

 
Variance

Operating Revenues  
$
4,975

 
$
4,527

 
$
448

Operating Expenses  
3,898

 
3,840

 
58

Gains on Sales of Other Asset and Other, net  
1

 
1

 

Operating Income  
1,078

 
688

 
390

Other Income and Expense, net  
20

 
30

 
(10
)
Interest Expense  
201

 
180

 
21

Income Before Income Taxes  
897

 
538

 
359

Income Tax Expense  
349

 
213

 
136

Net Income  
$
548

 
$
325

 
$
223

The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Florida. The below percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized.
Increase (decrease) over prior year  
2014

 
2013

Residential sales  
2.7
 %
 
1.4
 %
General service sales  
0.5
 %
 
(0.5
)%
Industrial sales  
1.9
 %
 
1.5
 %
Wholesale and other  
(5.9
)%
 
(13.8
)%
Total sales  
1.9
 %
 
(1.2
)%
Average number of customers  
1.5
 %
 
1.1
 %

51


PART II

Year Ended December 31, 2014 as Compared to 2013
Operating Revenues. The variance was driven primarily by:
A $237 million increase in fuel and capacity revenues primarily due to a higher fuel rate in the current year related to lower NEIL insurance reimbursements and accelerated Crystal River Unit 3 regulatory asset cost recovery in 2014 as allowed by the 2013 Settlement. Fuel revenues represent sales to retail and wholesale customers;
A $69 million net increase in base revenues due primarily to the 2014 base rate increase;
A $63 million increase in nuclear cost recovery clause and energy conservation cost recovery clause revenues due to higher recovery rates in the current year;
A $32 million increase in electric sales (net of fuel revenue) to retail customers due to favorable weather conditions. Heating degree days in 2014 were 51 percent higher and cooling degree days were 4 percent lower compared to the same period in 2013; and
A $29 million increase in wholesale power revenues primarily driven by increased capacity rates partially offset by the impact of contracts that expired in 2013.
Operating Expenses. The variance was driven primarily by:
A $231 million increase in fuel used in electric generation and purchased power due to the application of the NEIL settlement proceeds in 2013 and higher sales volumes driven by increased demand and higher fuel prices in the current year;
A $215 million increase in depreciation and amortization primarily due to a reduction of the cost of removal component of amortization expense in 2013 as allowed under the 2012 Settlement, increased environmental cost recovery clause amortization related to prior year under-recovery and nuclear cost recovery clause amortization due to an increase in recoverable nuclear assets in the current year; and
A $16 million increase in property and other taxes primarily driven by higher revenue-related taxes in 2014 due to the higher revenues.
Partially offset by:
A $346 million decrease due to 2013 impairment and other charges primarily related to Crystal River Unit 3 and Levy; and
A $48 million decrease in operations and maintenance costs primarily due to prior year Crystal River Unit 3 related settlement matters and lower costs associated with Progress Energy’s merger with Duke Energy. These costs were partially offset by increased expenses that are recoverable under the energy conservation and environmental cost recovery clauses.
Other Income and Expense, net. The variance is driven by lower AFUDC return on the Levy projects in the current year.
Interest Expense. The increase is due to a lower debt return in 2014 driven by the Crystal River Unit 3 regulatory asset impairment in 2013 and accelerated Crystal River Unit 3 regulatory asset cost recovery in 2014 as allowed by the 2013 Settlement.
Income Tax Expense. The variance was primarily due to an increase in pretax income. The effective tax rate for the years ended December 31, 2014 and 2013 was 38.9 percent and 39.6 percent, respectively.

52


PART II

DUKE ENERGY OHIO
  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, 2014 , 2013 and 2012 .
Basis of Presentation
The results of operations and variance discussion for Duke Energy Ohio is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
Results of Operations
  
Years Ended December 31,
(in millions)  
2014

2013

Variance

Operating Revenues  
$
1,913

$
1,805

$
108

Operating Expenses  
1,727

1,627

100

Gains on Sales of Other Assets and Other, net  
1

4

(3
)
Operating Income  
187

182

5

Other Income and Expense, net  
10

2

8

Interest Expense  
86

74

12

Income from Continuing Operations Before Income Taxes  
111

110

1

Income Tax Expense from Continuing Operations
43

43


Income from Continuing Operations
68

67

1

(Loss) Income from Discontinued Operations, net of tax
(563
)
35

(598
)
Net (Loss) Income  
$
(495
)
$
102

$
(597
)
The following table shows the percent changes in Regulated Utilities' GWh sales and average number of customers for Duke Energy Ohio. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized.
Increase (decrease) over prior year  
2014

 
2013

Residential sales  
1.3
 %
 
1.5
%
General service sales  
0.8
 %
 
0.8
%
Industrial sales  
3.3
 %
 
0.2
%
Wholesale power sales  
(24.9
)%
 
20.9
%
Total sales  
0.7
 %
 
0.9
%
Average number of customers  
0.6
 %
 
0.4
%
Year Ended December 31, 2014 as Compared to 2013
Operating Revenues. The variance was driven primarily by:
A $56 million increase in regulated fuel revenues primarily driven by higher fuel costs and increased sales volumes;
A $51 million increase in retail pricing and rate riders primarily due to 2013 rate increases; and
A $9 million increase in volumes to retail customers.
Partially offset by:
An $8 million decrease in electric revenues for the Beckjord station driven from lower production as units have been retired; and
A $7 million decrease in net mark-to-market revenue on non-qualifying power hedge contracts.
Operating Expenses. The variance was driven primarily by:
A $94 million impairment taken related to OVEC. See Note 11 to the Consolidated Financial Statements, “Goodwill and Intangible Assets” for additional information; and
A $64 million increase in regulated fuel expense driven primarily by higher fuel costs and increased volumes.
Partially offset by:
A $30 million decrease in operating and maintenance expenses primarily due to lower corporate governance costs;
A $16 million decrease in nonregulated fuel expense for the Beckjord station driven by lower cost of coal from decreased production as units have been retired; and
An $8 million decrease in property and other taxes driven primarily by an Ohio gas excise tax settlement in 2014.

53


PART II

Interest Expense. The increase was primarily due to higher regulated average debt balances in 2014 compared to 2013 and higher intercompany interest expense related to the funds loaned from Cinergy to Duke Energy Commercial Asset Management, Inc. (DECAM).
Income Tax Expense. The effective tax rate for the years ended December 31, 2014 and 2013 was 38.9 percent and 39.1 percent, respectively.
Discontinued Operations, Net of Tax. The variance was primarily due to the impairment recognized for the nonregulated Midwest generation business.
Matters Impacting Future Results
On February 17, 2014, Duke Energy Ohio announced it had initiated a process to exit its nonregulated Midwest generation business. Duke Energy Ohio expects to dispose of the nonregulated Midwest generation business in the second quarter of 2015. Duke Energy Ohio recognized a pretax impairment charge of $886 million for the year ended December 31, 2014, which represents the excess of the carrying value over the estimated fair value of the business based on the transaction price included in the PSA, less estimated costs to sell. The transaction is expected to close by the end of the second quarter of 2015 and the impairment will be updated, if necessary, based on the final sales price, after any adjustments at closing for working capital and capital expenditures.
In 2013, a FERC Administrative Law Judge issued an initial decision that Duke Energy Ohio is responsible for costs associated with certain MVP costs, a type of MTEP cost, approved by MISO prior to the date of Duke Energy Ohio’s withdrawal. The initial decision will be reviewed by FERC. If FERC upholds the initial decision, Duke Energy Ohio intends to file an appeal in federal court. If Duke Energy Ohio is deemed responsible for these costs, and if a portion of these costs are not eligible for recovery, there may be an adverse impact to its financial position, results of operations and cash flows. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information.
DUKE ENERGY INDIANA
  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, 2014 , 2013 and 2012 .
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
  
Years Ended December 31,
(in millions)  
2014

2013

Variance

Operating Revenues  
$
3,175

$
2,926

$
249

Operating Expenses  
2,470

2,193

277

Operating Income (Loss)  
705

733

(28
)
Other Income and Expense, net  
22

18

4

Interest Expense  
171

170

1

Income (Loss) Before Income Taxes  
556

581

(25
)
Income Tax Expense (Benefit)  
197

223

(26
)
Net Income (Loss)  
$
359

$
358

$
1

The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Indiana. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather normalized.
Increase (decrease) over prior year  
2014

 
2013

Residential sales  
2.1
 %
 
3.2
 %
General service sales  
 %
 
0.5
 %
Industrial sales  
2.5
 %
 
(0.3
)%
Wholesale power sales  
(8.8
)%
 
(1.4
)%
Total sales  
(0.8
)%
 
0.4
 %
Average number of customers  
0.6
 %
 
0.7
 %
Year Ended December 31, 2014 as Compared to 2013
Operating Revenues. The variance was driven primarily by:
A $138 million increase in fuel revenues (including emission allowances) due to an increase in fuel rates as a result of higher fuel and purchased power costs;
An $86 million net increase in rate riders primarily due to updates to the IGCC rider; and
A $17 million increase in wholesale power revenues primarily due to higher customer rates.

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PART II

Operating Expenses. The variance was driven primarily by:
A $128 million increase in fuel costs primarily driven by higher fuel and purchased power costs;
A $71 million increase in depreciation and amortization primarily as a result of the Edwardsport IGCC plant being placed into service in the second quarter of 2013;
A $57 million increase in property and other taxes, primarily as a result of amounts recorded related to an Indiana sales tax audit; and
A $21 million increase in operation and maintenance primarily due to higher operation and maintenance costs, higher outage costs at generation plants, partially offset by decreased corporate costs.
Income Tax Expense. The effective tax rate for the years ended December 31, 2014 and 2013 was 35.5 percent and 38.4 percent, respectively. The decrease in the effective tax rate was primarily due to a reduction in the Indiana statutory corporate state income tax rate, a more favorable state tax credit, and a prior period adjustment.
Matters Impacting Future Results
Duke Energy Indiana is evaluating converting Wabash River Unit 6 to a natural gas-fired unit or retiring the unit earlier than its current estimated useful life. If Duke Energy Indiana elects early retirement of the unit, recovery of remaining book values and associated carrying costs totaling approximately $40 million could be subject to future regulatory approvals and therefore cannot be assured.
In 2015, the IURC is examining intervenors' allegations that the Edwardsport IGCC was not properly placed in commercial operation in June 2013 and intervenors’ allegations regarding plant performance. In addition, the Indiana Court of Appeals remanded the IURC order in the ninth IGCC rider proceeding back to the IURC for further findings concerning approximately $61 million of financing charges Joint Intervenors claimed were caused by construction delay and a ratemaking issue concerning the in-service date determination for tax purposes. The outcome of these proceedings could have an adverse impact to Duke Energy Indiana’s financial position, results of operations and cash flows. Duke Energy cannot predict on the outcome of these proceedings. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of financial statements requires the application of accounting policies, judgments, assumptions and estimates that can significantly affect the reported results of operations and the amounts of assets and liabilities reported in the financial statements. Judgments made include the likelihood of success of particular projects, possible legal and regulatory challenges, earnings assumptions on pension and other benefit fund investments and anticipated recovery of costs. 
Management discusses these policies, estimates and assumptions with senior members of management on a regular basis and provides periodic updates on management decisions to the Audit Committee of the Board of Directors. Management believes the areas described below require significant judgment in the application of accounting policy or in making estimates and assumptions that are inherently uncertain and that may change in subsequent periods.
Regulatory Accounting
A substantial majority of Regulated Utilities, Duke Energy’s regulated operations, meet the criteria for application of regulatory accounting treatment. As a result, Duke Energy records assets and liabilities that would not be recorded for nonregulated entities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities generally represent obligations to make refunds or reduce rates to customers for previous collections or for costs that have yet to be incurred.
Management continually assesses whether recorded regulatory assets are probable of future recovery by considering factors such as applicable regulatory environment changes, historical regulatory treatment for similar costs in Duke Energy’s jurisdictions, litigation of rate orders, recent rate orders to other regulated entities, and the status of any pending or potential deregulation legislation. If future recovery of costs ceases to be probable, asset write-offs would be recognized in operating income. Additionally, regulatory agencies can provide flexibility in the manner and timing of the depreciation of property, plant and equipment, recognition of nuclear decommissioning costs and amortization of regulatory assets or may disallow recovery of all or a portion of certain assets. For further information on regulatory assets and liabilities, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
As required by regulated operations accounting, significant judgment can be required to determine if an otherwise recognizable cost is considered to be an entity specific cost recoverable in future rates and therefore a regulatory asset. Significant judgment can also be required to determine if revenues previously recognized are for entity specific costs that are no longer expected to be incurred and are therefore a regulatory liability.
Regulatory accounting rules also require recognition of a loss if it becomes probable that part of the cost of a plant under construction (or a recently completed plant or an abandoned plant) will be disallowed for ratemaking purposes and a reasonable estimate of the amount of the disallowance can be made. For example, if a cost cap is set for a plant still under construction, the amount of the disallowance is a result of a judgment as to the ultimate cost of the plant. Other disallowances can require judgments on allowed future rate recovery. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for a discussion of disallowances recorded related to the Edwardsport IGCC plant and the retired Crystal River Unit 3 Nuclear Station.
When it becomes probable that regulated generation, transmission or distribution assets will be abandoned, the cost of the asset is removed from plant in service. The value that may be retained as an asset on the balance sheet for the abandoned property is dependent upon amounts that may be recovered through regulated rates, including any return. As such, an impairment charge could be offset by the establishment of a regulatory asset if rate recovery is probable. The impairment for a disallowance of costs for regulated plants under construction, recently completed or abandoned is based on discounted cash flows.

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PART II

As discussed in Note 2 to the Consolidated Financial Statements, “ Acquisitions, Dispositions and Sales of Other Assets ,” Duke Energy Carolinas and Duke Energy Progress recorded disallowance charges in 2012 in order to gain FERC approval of the merger between Duke Energy and Progress Energy. In addition to the disallowances, Duke Energy Carolinas and Duke Energy Progress guaranteed total fuel savings to customers in North Carolina and South Carolina of $687 million over the five years in order to gain NCUC and PSCSC approval of the merger between Duke Energy and Progress Energy. Based on current estimates of future fuel costs, Duke Energy anticipates that it will meet the guaranteed fuel savings. However, if actual fuel costs are higher than expected, Duke Energy could record a charge for the unmet guaranteed savings.
Goodwill Impairment Assessments
Duke Energy allocates goodwill to reporting units, which are determined to be an operating segment or one level below based on how the segment is managed. Duke Energy is required to test goodwill for impairment at the reporting unit level at least annually and more frequently if it is more likely than not that the fair value of a reporting unit is less than its carrying value. Duke Energy performs its annual impairment test as of August 31.
Application of the goodwill impairment test requires management judgment, including determining the fair value of the reporting unit, which management estimates using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries. Significant assumptions used in these fair value analyses include discount and growth rates, future rates of return expected to result from ongoing rate regulation, utility sector market performance and transactions, projected operating and capital cash flows for Duke Energy’s business and the fair value of debt.
Estimated future cash flows under the income approach are based to a large extent on Duke Energy’s internal business plan, and adjusted as appropriate for Duke Energy’s views of market participant assumptions. Duke Energy’s internal business plan reflects management’s assumptions related to customer usage and attrition based on internal data and economic data obtained from third-party sources, projected commodity pricing data and potential changes in environmental regulations. The business plan assumes the occurrence of certain events in the future, such as the outcome of future rate filings, future approved rates of returns on equity, anticipated earnings/returns related to significant future capital investments, continued recovery of cost of service, the renewal of certain contracts and the future of renewable tax credits. Management also makes assumptions regarding operation, maintenance and general and administrative costs based on the expected outcome of the aforementioned events. In estimating cash flows, Duke Energy incorporates expected growth rates, regulatory and economic stability, the ability to renew contracts and other factors, into its revenue and expense forecasts.
One of the most significant assumptions that Duke Energy utilizes in determining the fair value of its reporting units under the income approach is the discount rate applied to the estimated future cash flows. Management determines the appropriate discount rate for each of its reporting units based on the weighted average cost of capital (WACC) for each individual reporting unit. The WACC takes into account both the after-tax cost of debt and cost of equity. A major component of the cost of equity is the current risk-free rate on 20-year U.S. Treasury bonds. In the 2014 impairment tests, Duke Energy considered implied WACCs for certain peer companies in determining the appropriate WACC rates to use in its analysis. As each reporting unit has a different risk profile based on the nature of its operations, including factors such as regulation, the WACC for each reporting unit may differ. Accordingly, the WACCs were adjusted, as appropriate, to account for company specific risk premiums. The discount rates used for calculating the fair values as of August 31, 2014 , for each of Duke Energy’s domestic reporting units ranged from 5.3 percent to 6.9 percent.
For Duke Energy’s international operations, a country-specific risk adder based on the average risk premium for each separate country in which International Energy operates was added to the base discount rate to reflect the differing risk profiles. This resulted in a discount rate for the August 31, 2014 goodwill impairment test for the international operations of 10.5 percent.
The underlying assumptions and estimates are made as of a point in time. Subsequent changes, particularly changes in the discount rates, authorized regulated rates of return or growth rates inherent in management’s estimates of future cash flows, could result in future impairment charges.
The majority of Duke Energy’s business is in environments that are either fully or partially rate-regulated. In such environments, revenue requirements are adjusted periodically by regulators based on factors including levels of costs, sales volumes and costs of capital. Accordingly, Duke Energy’s regulated utilities operate to some degree with a buffer from the direct effects, positive or negative, of significant swings in market or economic conditions. However, changes in discount rates may have a significant impact on the fair value of equity.
As of August 31, 2014 , all of the reporting units’ estimated fair value of equity exceeded the carrying value of equity by more than 10 percent.
Long-Lived Asset Impairment Assessments, Excluding Regulated Operations
Property, plant and equipment, excluding plant held for sale, is stated at the lower of carrying value (historical cost less accumulated depreciation and previously recorded impairments) or fair value, if impaired. Duke Energy evaluates property, plant and equipment for impairment when events or changes in circumstances (such as a significant change in cash flow projections, the determination that it is more likely than not an asset or asset group will be sold) indicate the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared with their carrying value.
Performing an impairment evaluation involves a significant degree of estimation and judgment in areas such as identifying circumstances that indicate an impairment may exist, identifying and grouping affected assets, and developing the undiscounted future cash flows associated with the asset. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the asset and recording a loss if the carrying value is greater than the fair value. Additionally, determining fair value of the asset requires probability weighting future cash flows to reflect expectations about possible variations in their amounts or timing and the selection of an appropriate discount rate. Although cash flow estimates are based on relevant information available at the time the estimates are made, estimates of future cash flows are, by nature, highly uncertain and may vary significantly from actual results. For assets identified as held for sale, the carrying value is compared to the estimated fair value less cost to sell to determine if an impairment loss is required. Until the assets are disposed of, their estimated fair value is re-evaluated when circumstances or events change.
When determining whether an asset or asset group has been impaired, management groups assets at the lowest level that has discrete cash flows.

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PART II

For further information related to the impairment recorded in conjunction with planned sale of Duke Energy's Disposal Group to Dynegy, see Note 2 to the Consolidated Financial Statements, "Acquisition, Disposals and Sales of Other Assets,"
Accounting for Loss Contingencies
Preparation of financial statements and related disclosures require judgments regarding the future outcome of contingent events. Duke Energy is involved in certain legal and environmental matters arising in the normal course of business. Estimating probable losses requires analysis of multiple forecasts and scenarios that often depend on judgments about potential actions by third parties, such as federal, state and local courts and other regulators. Contingent liabilities are often resolved over long periods of time. Amounts recorded in the consolidated financial statements may differ from the actual outcome once the contingency is resolved, which could have a material impact on future results of operations, financial position and cash flows of Duke Energy.
For further information, see Notes 4 and 5 to the Consolidated Financial Statements, "Regulatory Matters" and “Commitments and Contingencies.”
Revenue Recognition
Revenues on sales of electricity and gas are recognized when either the service is provided or the product is delivered. Operating revenues include unbilled electric and gas revenues earned when service has been delivered but not billed by the end of the accounting period. Unbilled retail revenues are estimated by applying an average revenue per kilowatt-hour (kWh) or per thousand cubic feet (Mcf) for all customer classes to the number of estimated kWh or Mcf delivered but not billed. Unbilled wholesale energy revenues are calculated by applying the contractual rate per megawatt-hour (MWh) to the number of estimated MWh delivered but not yet billed. Unbilled wholesale demand revenues are calculated by applying the contractual rate per megawatt (MW) to the MW volume delivered but not yet billed. The amount of unbilled revenues can vary significantly from period to period as a result of numerous factors, including seasonality, weather, customer usage patterns, customer mix and the average price in effect for customer classes.
Pension and Other Post-Retirement Benefits
The calculation of pension expense, other post-retirement benefit expense and net pension and other post-retirement assets or liabilities require the use of assumptions and election of permissible accounting alternatives. Changes in assumptions can result in different expense and reported asset or liability amounts, and future actual experience can differ from the assumptions. Duke Energy believes the most critical assumptions for pension and other post-retirement benefits are the expected long-term rate of return on plan assets and the assumed discount rate. Additionally, the health care cost trend rate assumption is critical to Duke Energy’s estimate of other post-retirement benefits.
Duke Energy has historically utilized the Society of Actuaries’ (SOA) published mortality data in developing a best estimate of mortality as part of the calculation of the pension obligation (qualified and non-qualified) and other post-retirement benefit obligation. On October 27, 2014, the SOA published updated mortality tables for U.S. plans (RP-2014) and an updated improvement scale, which both reflect improved longevity. Based on an evaluation of the mortality experience of Duke Energy's pension plan participants, the updated SOA study of mortality tables and recent additional studies of mortality improvement, Duke Energy adopted an adjusted version of the SOA's new RP-2014 mortality tables with an updated generational improvement scale (BB-2D) previously published by the SOA for purposes of measuring its U.S. pension (qualified and non-qualified) and other post-retirement benefit obligations as of December 31, 2014. The change to the mortality assumption increased Duke Energy's pension obligation (qualified and non-qualified) and other post-retirement benefit obligation by $201 million and $7 million, respectively, as of December 31, 2014.
Duke Energy elects to amortize net actuarial gains or losses in excess of the corridor of 10 percent of the greater of the market-related value of plan assets or plan projected benefit obligation, into net pension or other post-retirement benefit expense over the average remaining service period of active covered employees. Prior service cost or credit, which represents the effect on plan liabilities due to plan amendments, is amortized over the average remaining service period of active covered employees.
Duke Energy maintains non-contributory defined benefit retirement plans. The plans cover most U.S. employees using a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits based upon a percentage of current eligible earnings based on age and years of service and current interest credits. Certain employees are covered under plans that use a final average earnings formula.
Duke Energy provides some health care and life insurance benefits for retired employees on a contributory and non-contributory basis. Certain employees are eligible for these benefits if they have met age and service requirements at retirement, as defined in the plans.
As of December 31, 2014 , Duke Energy assumes pension and other post-retirement plan assets will generate a long-term rate of return of 6.50 percent. The expected long-term rate of return was developed using a weighted average calculation of expected returns based primarily on future expected returns across asset classes considering the use of active asset managers, where applicable. Equity securities are held for their higher expected returns. Debt securities are primarily held to hedge the pension liability. Hedge funds, real estate and other global securities are held for diversification. Investments within asset classes are to be diversified to achieve broad market participation and reduce the impact of individual managers on investments. In 2013, Duke Energy adopted a de-risking investment strategy for its pension assets. As the funded status of the plans increase, over time the targeted allocation to return seeking assets will be reduced and the targeted allocation to fixed-income assets will be increased to better manage Duke Energy's pension liability and reduced funded status volatility. Based on the current funded status of the plans, the asset allocation for the Duke Energy pension plans has been adjusted to 65 percent fixed-income assets and 35 percent return-seeking assets and the asset allocation for the Progress Energy pension plans has been adjusted to 60 percent fixed-income assets and 40 percent return-seeking assets. Duke Energy regularly reviews its actual asset allocation and periodically rebalances its investments to the targeted allocations when considered appropriate.
The assets for Duke Energy’s pension and other post-retirement plans are maintained in a master trust. Duke Energy also invests other post-retirement assets in the Duke Energy Corporation Employee Benefits Trust (VEBA I). The investment objective of VEBA I is to achieve sufficient returns, subject to a prudent level of portfolio risk, for the purpose of promoting the security of plan benefits for participants. VEBA I is passively managed.

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PART II

Duke Energy discounted its future U.S. pension and other post-retirement obligations using a rate of 4.1 percent as of December 31, 2014 . Discount rates used to measure benefit plan obligations for financial reporting purposes reflect rates at which pension benefits could be effectively settled. As of December 31, 2014 , Duke Energy determined its discount rate for U.S. pension and other post-retirement obligations using a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to match the timing of projected benefit payments. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected.
Future changes in plan asset returns, assumed discount rates and various other factors related to the participants in Duke Energy’s pension and post-retirement plans will impact future pension expense and liabilities. Duke Energy cannot predict with certainty what these factors will be in the future. The following table presents the approximate effect on Duke Energy’s 2014 pretax pension expense, pretax other post-retirement expense, pension obligation and other post-retirement benefit obligation if a 0.25 percent change in rates were to occur.
  
Qualified and Non-Qualified Pension Plans
 
Other Post-Retirement Plans
(in millions)
0.25
%
 
(0.25
)%
 
0.25
%
 
(0.25
)%
Effect on 2014 pretax pension and other post-retirement expense
  
 
  
 
  
 
  
Expected long-term rate of return
$
(19
)
 
$
19

 
$
(1
)
 
$
1

Discount rate
(17
)
 
16

 
(2
)
 
2

Effect on pension and other post-retirement benefit obligation at December 31, 2014
  

 
  

 
  

 
  

Discount rate
(198
)
 
203

 
(20
)
 
21

Duke Energy’s U.S. other post-retirement plan uses a health care trend rate covering both pre- and post-age 65 retired plan participants, which is comprised of a medical care trend rate, which reflects the near- and long-term expectation of increases in medical costs, and a prescription drug trend rate, which reflects the near and long-term expectation of increases in prescription drug costs. As of December 31, 2014 , the health care trend rate was 6.75 percent, trending down to 4.75 percent by 2023. The following table presents the approximate effect on Duke Energy’s 2014 pretax other post-retirement expense and other post-retirement benefit obligation if a 1 percentage point change in the health care trend rate were to occur.
  
Other Post-Retirement Plans
(in millions)
1
%
 
(1
)%
Effect on 2014 other post-retirement expense
$
7

 
$
(6
)
Effect on other post-retirement benefit obligation at December 31, 2014
36

 
(31
)
For further information, see Note 21 to the Consolidated Financial Statements, “ Employee Benefit Plans .”
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Duke Energy relies primarily upon cash flows from operations, debt issuances and its existing cash and cash equivalents to fund its domestic liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders. Duke Energy’s projected primary sources and uses for the next three fiscal years are included in the table below.
(in millions)  
2015

 
2016

 
2017

Uses:   
  

 
  

 
  

Capital expenditures  
$7,025-7,425

 
$8,600-9,375

 
$7,050-7,825

Debt maturities and reduction in short-term debt (a)
3,300

 
1,850

 
2,150

Dividend payments  
2,250

 
2,300

 
2,350

Share repurchases
1,400

 

 

Sources:   
  

 
  

 
 
Cash flows from operations (b) 
$
7,115

 
$
7,525

 
$
8,100

Debt issuances  
3,100

 
6,000

 
4,000

Proceeds from the sale of the Disposal Group
2,800

 

 

(a)
Excludes capital leases and securitized receivables maturities in 2016 and 2017 expected to be renewed. Amounts represent Duke Energy's financing plan, which accelerates certain contractual maturities.
(b)
Cash flows from operations includes expenditures related to ash basin closures.
Duke Energy expects the sale of the Disposal group to Dynegy to be completed by the end of the second quarter of 2015. The sale price is $2.8 billion in cash subject to adjustments at closing for changes in working capital and capital expenditures. Upon closing of the transaction, Duke Energy intends to execute a balanced recapitalization strategy with the proceeds. The recapitalization is expected to include a combination of an accelerated share repurchase and debt reduction through avoidance of holding company debt issuances in 2015. The ultimate use of proceeds will depend on facts and circumstances at the time of the closing. For further information on the Midwest Generation Exit, refer to Note 2 to the Consolidated Financial Statements, “Acquisitions, Dispositions and Sales of Other Assets."

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PART II

In December 2014, Duke Energy declared a taxable dividend of historical foreign earnings in the form of notes payable that will result in the repatriation of approximately $2.7 billion of cash held and expected to be generated by International Energy over a period of up to eight years. Between $1.2 billion and $1.4 billion will be remitted in 2015, with the remaining amount remitted by 2022. The proceeds of the dividend will principally be used to support Duke Energy's dividend and growth in the domestic business.
The Subsidiary Registrants generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Subsidiary Registrants, excluding Progress Energy, support their short-term borrowing needs through participation with Duke Energy and certain of its other subsidiaries in a money pool arrangement. The companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for additional discussion of the money pool arrangement.
Duke Energy and the Subsidiary Registrants, excluding Progress Energy, may also use short-term debt, including commercial paper and the money pool, as a bridge to long-term debt financings. The levels of borrowing may vary significantly over the course of the year due to the timing of long-term debt financings and the impact of fluctuations in cash flows from operations. From time to time, Duke Energy’s current liabilities exceed current assets resulting from the use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate due to the seasonality of its business.
Credit Facilities and Registration Statements
Master Credit Facility Summary
At December 31, 2014, Duke Energy had a Master Credit Facility with a capacity of $6 billion. In January 2015, Duke Energy amended the Master Credit Facility to increase its capacity to $7.5 billion through January 2020. The Duke Energy Registrants, excluding Progress Energy, each have borrowing capacity under the Master Credit Facility up to specified sublimits for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop the issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. The table below includes the current borrowing sublimits and available capacity under the Master Credit Facility.
  
December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy (Parent)

 
Duke Energy Carolinas

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke
Energy
Ohio

 
Duke Energy Indiana

Facility size (a)
$
6,000

 
$
2,250

 
$
1,000

 
$
750

 
$
650

 
$
650

 
$
700

Reduction to backstop issuances  
  
 
  
 
  
 
  
 
  
 
  
 
  
Commercial paper (b)
(2,021
)
 
(1,479
)
 
(300
)
 

 
(29
)
 
(38
)
 
(175
)
Outstanding letters of credit  
(70
)
 
(62
)
 
(4
)
 
(2
)
 
(1
)
 

 
(1
)
Tax-exempt bonds  
(116
)
 

 
(35
)
 

 

 

 
(81
)
Available capacity  
$
3,793

 
$
709

 
$
661

 
$
748

 
$
620

 
$
612

 
$
443

(a)
Represents the sublimit of each borrower at December 31, 2014 . The Duke Energy Ohio sublimit includes $100 million for Duke Energy Kentucky.
(b)
Duke Energy issued $475 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana. The balances are included within Long-Term Debt Payable to Affiliated Companies in the Consolidated Balance Sheets.
On February 20, 2015 , Duke Energy Carolinas, Duke Energy Progress and Duke Energy Business Services LLC (DEBS), a wholly owned subsidiary of Duke Energy, each entered into a Memorandum of Plea Agreement (Plea Agreements) in connection with the investigation initiated by the United States Department of Justice Environmental Crimes Section and the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina and the Western District of North Carolina (collectively, the USDOJ). Under the terms of the Plea Agreements, Duke Energy Carolinas and Duke Energy Progress are required to each maintain $250 million of available capacity under the Master Credit Facility as security to meet their obligations under the Plea Agreements, in addition to certain other conditions set out in the Plea Agreements. The Plea Agreements are subject to court approval. See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
PremierNotes
Duke Energy has an effective registration statement (Form S-3) with the Securities and Exchange Commission (SEC) to sell up to $3 billion of variable denomination floating rate demand notes, called PremierNotes. The Form S-3 states that no more than $1.5 billion of the notes will be outstanding at any particular time. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, are non-transferable and may be redeemed in whole or in part by Duke Energy or at the investor’s option at any time. The balance as of December 31, 2014 and December 31, 2013 , was $968 million and $836 million, respectively. The notes are short-term debt obligations and are reflected as Notes payable and commercial paper on Duke Energy’s Consolidated Balance Sheets.
Shelf Registration
In September 2013, Duke Energy filed a Form S-3 with the SEC. Under this Form S-3, which is uncapped, the Duke Energy Registrants, excluding Progress Energy may issue debt and other securities in the future at amounts, prices and with terms to be determined at the time of future offerings. The registration statement also allows for the issuance of common stock by Duke Energy.

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PART II

CAPITAL EXPENDITURES
Duke Energy continues to focus on reducing risk and positioning its business for future success and will invest principally in its strongest business sectors. Based on this goal, the majority of Duke Energy’s total projected capital expenditures are allocated to the Regulated Utilities segment. Duke Energy’s projected capital and investment expenditures for the next three fiscal years are included in the table below.
(in millions)  
2015

2016

2017

New generation  
$
825

$
2,200

$
850

Environmental  
275

300

450

Nuclear fuel  
450

475

425

Major nuclear  
300

175

150

Customer additions  
500

525

550

Grid modernization and other transmission and distribution projects  
1,050

1,375

1,525

Maintenance  
2,550

2,775

2,300

Total Regulated Utilities
5,950

7,825

6,250

Commercial Power, International Energy and Other  
1,075

775

800

Total committed expenditures  
7,025

8,600

7,050

Discretionary expenditures  
400

775

775

Total projected capital and investment expenditures  
$
7,425

$
9,375

$
7,825

DEBT MATURITIES
The following table shows the significant components of Current maturities of long-term debt on the Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings.
(in millions)
Maturity Date
 
Interest Rate

 
December 31, 2014

Unsecured Debt
 
 
 
 
 
Duke Energy (Parent)
April 2015
 
3.350
%
 
$
450

First Mortgage Bonds
 
 
 
 
 
Duke Energy Ohio
March 2015
 
0.375
%
 
150

Duke Energy Progress
April 2015
 
5.150
%
 
300

Duke Energy Carolinas
October 2015
 
5.300
%
 
500

Duke Energy Florida
November 2015
 
0.650
%
 
250

Duke Energy Florida
December 2015
 
5.100
%
 
300

Duke Energy Progress
December 2015
 
5.250
%
 
400

Tax-exempt Bonds
 
 
 
 
 
Duke Energy Progress
January 2015
 
0.108
%
 
243

Other
 
 
 
 
214

Current maturities of long-term debt
 
 
 
 
$
2,807

DIVIDEND PAYMENTS
In 2014, Duke Energy paid quarterly cash dividends for the 88th consecutive year and expects to continue its policy of paying regular cash dividends in the future. There is no assurance as to the amount of future dividends because they depend on future earnings, capital requirements, financial condition and are subject to the discretion of the Board of Directors.
The Board of Directors continues to target a payout ratio of 65 percent to 70 percent, based upon adjusted diluted EPS. Over the past several years, Duke Energy’s dividend has grown at approximately 2 percent annually, slower than overall adjusted earnings growth. Duke Energy has now achieved the targeted payout range and believes it has the flexibility to grow the dividend at a pace more consistent with adjusted earnings growth.

60


PART II

Dividend and Other Funding Restrictions of Duke Energy Subsidiaries
As discussed in Note 4 to the Consolidated Financial Statements “Regulatory Matters,” Duke Energy’s wholly owned public utility operating companies have restrictions on the amount of funds that can be transferred to Duke Energy via dividend, advance or loan as a result of conditions imposed by various regulators in conjunction with merger transactions. Duke Energy Progress and Duke Energy Florida also have restrictions imposed by their first mortgage bond indentures and Articles of Incorporation which, in certain circumstances, limit their ability to make cash dividends or distributions on common stock. Additionally, certain other Duke Energy subsidiaries have other restrictions, such as minimum working capital and tangible net worth requirements pursuant to debt and other agreements that limit the amount of funds that can be transferred to Duke Energy. At December 31, 2014 , the amount of restricted net assets of wholly owned subsidiaries of Duke Energy that may not be distributed to Duke Energy in the form of a loan or dividend is less than 25 percent of Duke Energy’s net assets. Duke Energy does not have any legal or other restrictions on paying common stock dividends to shareholders out of its consolidated equity accounts. Although these restrictions cap the amount of funding the various operating subsidiaries can provide to Duke Energy, management does not believe these restrictions will have a significant impact on Duke Energy’s ability to access cash to meet its payment of dividends on common stock and other future funding obligations.
CASH FLOWS FROM OPERATING ACTIVITIES
The relatively stable operating cash flows of Regulated Utilities compose a substantial portion of Duke Energy’s cash flows from operations. Regulated Utilities’ cash flows from operations are primarily driven by sales of electricity and natural gas and costs of operations. Weather conditions, working capital and commodity price fluctuations, and unanticipated expenses, including unplanned plant outages and storms can affect the timing and level of cash flows from operations.
Duke Energy believes it has sufficient liquidity resources through the commercial paper markets, and ultimately, the Master Credit Facility, to support these operations. Cash flows from operations are subject to a number of other factors, including, but not limited to, regulatory constraints, economic trends and market volatility (see Item 1A, “Risk Factors,” for additional information).
At December 31, 2014 , Duke Energy had cash and cash equivalents and short-term investments of $2.0 billion, of which approximately $1.7 billion is held by entities domiciled in foreign jurisdictions. During 2014, Duke Energy declared a taxable dividend of historical foreign earnings in the form of notes payable that will result in the repatriation of approximately $2.7 billion of cash held and expected to be generated by International Energy over a period of up to eight years. As a result of the decision to repatriate all cumulative historic undistributed foreign earnings, during the fourth quarter of 2014, Duke Energy recorded U. S. income tax expense of approximately $373 million. Duke Energy’s intention is to indefinitely reinvest prospective undistributed earnings generated by Duke Energy's foreign subsidiaries. See Note 22 to the Consolidated Financial Statements, “Income Taxes,” for additional information.
DEBT ISSUANCES
Depending on availability based on the issuing entity, the credit rating of the issuing entity, and market conditions, the Subsidiary Registrants prefer to issue first mortgage bonds and secured debt, followed by unsecured debt. This preference is the result of generally higher credit ratings for first mortgage bonds and secured debt, which typically result in lower interest costs. Duke Energy Corporation primarily issues unsecured debt.
Duke Energy’s capitalization is balanced between debt and equity as shown in the table below. The 2015 projected capitalization percentages exclude purchase accounting adjustments of approximately $2.9 billion related to the merger with Progress Energy, while the 2014 and 2013 percentages include all debt-related purchase accounting amounts.
  
Projected 2015

 
Actual 2014

 
Actual 2013

Equity  
50
%
 
49
%
 
50
%
Debt  
50
%
 
51
%
 
50
%
Duke Energy’s fixed charges coverage ratio, calculated using SEC guidelines, was 3.2 times for 2014 , 3.0 times for 2013 , and 2.4 times for 2012 .
Restrictive Debt Covenants
Duke Energy’s debt and credit agreements contain various financial and other covenants. The Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65 percent for each borrower. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements or sublimits thereto. As of December 31, 2014 , Duke Energy was in compliance with all covenants related to its significant debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or to 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.

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PART II

Credit Ratings
The Duke Energy Registrants each hold credit ratings by Fitch Ratings, Inc. (Fitch), Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Rating Services (S&P). The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2015.
  
Fitch
 
Moody's
  
S&P
Duke Energy Corporation  
Stable
 
Stable
  
Positive
Issuer Credit Rating
BBB+
 
A3
  
BBB+
Senior Unsecured Debt
BBB+
 
A3
  
BBB
Commercial Paper
F-2
 
P-2
 
A-2
Duke Energy Carolinas  
Positive
 
Stable
  
Positive
Senior Secured Debt
A+
 
Aa2
  
A
Senior Unsecured Debt
A
 
A1
  
BBB+
Progress Energy  
Stable
 
Stable
  
Positive
Senior Unsecured Debt
BBB
 
Baa1
  
BBB
Duke Energy Progress  
Stable
 
Stable
  
Positive
Senior Secured Debt
A+
 
Aa2
  
A
Senior Unsecured Debt
A
 
A1
  
BBB+
Duke Energy Florida  
Stable
 
Stable
  
Positive
Senior Secured Debt
A
 
A1
  
A
Senior Unsecured Debt
A-
 
A3
  
BBB+
Duke Energy Ohio  
Stable
 
Stable
  
Positive
Senior Secured Debt
A
 
A2
  
A
Senior Unsecured Debt
A-
 
Baa1
  
BBB+
Duke Energy Indiana  
Stable
 
Stable
  
Positive
Senior Secured Debt
A
 
Aa3
  
A
Senior Unsecured Debt
A-
 
A2
  
BBB+
Credit ratings are intended to provide credit lenders a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the rating agencies’ assessments of their ability to meet their debt principal and interest obligations when they come due. If, as a result of market conditions or other factors, the Duke Energy Registrants are unable to maintain current balance sheet strength, or if earnings and cash flow outlook materially deteriorates, credit ratings could be negatively impacted.
Cash Flow Information
The following table summarizes Duke Energy’s cash flows for the three most recently completed fiscal years.
  
Years Ended December 31,
(in millions)  
2014


2013


2012

Cash flows provided by (used in):  
 
 
 
 
 
Operating activities  
$
6,586

 
$
6,382

 
$
5,244

Investing activities  
(5,373
)
 
(4,978
)
 
(6,197
)
Financing activities  
(678
)
 
(1,327
)
 
267

Net increase (decrease) in cash and cash equivalents  
535


77


(686
)
Cash and cash equivalents at beginning of period  
1,501

 
1,424

 
2,110

Cash and cash equivalents at end of period  
$
2,036


$
1,501


$
1,424

OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows for the three most recently completed fiscal year.
  
Years Ended December 31,
(in millions)  
2014


2013


2012

Net income  
$
1,889

 
$
2,676

 
$
1,782

Non-cash adjustments to net income  
5,366

 
4,876

 
3,769

Contributions to qualified pension plans  

 
(250
)
 
(304
)
Working capital  
(669
)
 
(920
)
 
(3
)
Net cash provided by operating activities  
$
6,586


$
6,382


$
5,244

For the year ended December 31, 2014 compared to 2013 , the variance was driven primarily by:

62


PART II

*
A $204 million increase due to prior year contributions to qualified pension plans, favorable retail pricing and rate riders and favorable weather, partially offset by current year under collection of fuel and purchased power costs and timing of cash payments for operations and maintenance expenses.
For the year ended December 31, 2013 compared to 2012 , the variance was driven primarily by:
*
A $2,001 million increase in net income after non-cash adjustments, mainly due to the inclusion of Progress Energy's results for first six months of 2013 and the impact of revised rates and lower operation and maintenance expenses, partially offset by;
*
A $917 million decrease in operating cash flows from increased investments in traditional working capital, mainly due to the timing of receivables and accruals, lower incentive accruals, net of current year payments and reserve reductions and the prior year overallocation of the Carolinas' fuels costs. These decreases were partially offset by the NEIL proceeds.
INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s investing cash flows for the three most recently completed fiscal years.
  
Years Ended December 31,
(in millions)  
2014


2013


2012

Capital, investment and acquisition expenditures  
$
(5,528
)
 
$
(5,607
)
 
$
(5,958
)
Available for sale securities, net  
23

 
173

 
(182
)
Proceeds from sales of equity investments and other assets, and sales of and collections on notes receivable  
179

 
277

 
212

Other investing items  
(47
)
 
179

 
(269
)
Net cash used in investing activities  
$
(5,373
)

$
(4,978
)

$
(6,197
)
The primary use of cash related to investing activities is capital, investment and acquisition expenditures, detailed by reportable business segment in the following table.
  
Years Ended December 31,
(in millions)  
2014


2013


2012

Regulated Utilities  
$
4,744

 
$
5,049

 
$
4,220

Commercial Power  
67

 
268

 
1,038

International Energy  
555

 
67

 
551

Other  
162

 
223

 
149

Total capital, investment and acquisition expenditures  
$
5,528


$
5,607


$
5,958

For the year ended December 31, 2014 compared to 2013 , the variance was driven primarily by:
*
A $192 million return of collateral related to the Chilean hydro acquisition in 2013 and
*
A $150 million decrease in net proceeds from sales and maturities of available for sale securities, net of purchases.
For the year ended December 31, 2013 compared to 2012 , the variance was driven primarily by:
*
A $581 million variance in restricted cash due to posting collateral on a secured debt issuance related to the Chilean hydro acquisition in 2012 and the return of a portion of this collateral in 2013,
*
A $355 million increase in proceeds from the sales of available-for-sale securities, net of purchases due to the investment of excess cash held in foreign jurisdictions and
*
A $351 million decrease in capital, investment and acquisition expenditures primarily due to lower spending on Duke Energy's renewable energy projects and ongoing infrastructure modernization program as these projects were completed, net of expenditures on Progress Energy's maintenance projects.
FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s financing cash flows for the three most recently completed fiscal years.
  
Years Ended December 31,
(in millions)  
2014

 
2013

 
2012

Issuance of common stock related to employee benefit plans  
$
25

 
$
9

 
$
23

Issuance of long-term debt, net  
(123
)
 
840

 
1,672

Notes payable and commercial paper  
1,688

 
93

 
278

Dividends paid  
(2,234
)
 
(2,188
)
 
(1,752
)
Other financing items  
(34
)
 
(81
)
 
46

Net cash (used in) provided by financing activities  
$
(678
)

$
(1,327
)

$
267


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PART II

For the year ended December 31, 2014 compared to 2013 , the variance was driven primarily by:
*
A $1,595 million increase in proceeds from net issuances of notes payable and commercial paper, primarily due to funding a larger proportion of total financing needs with short-term debt in anticipation of the receipt in 2015 of proceeds from the sale of the Midwest Generation business, the proceeds from which will partially be used for debt reduction, partially offset by;
*
A $963 million decrease in net issuances of long-term debt, primarily due to funding a larger proportion of total financing needs with short-term debt in 2014 than in 2013.
For the year ended December 31, 2013 compared to 2012 , the variance was driven primarily by:
*
An $832 million decrease in net issuances of long-term debt, primarily due to the timing of issuances and redemptions between years, resulting from the completion of major construction projects,
*
A $436 million increase in quarterly dividends primarily due to an increase in common shares outstanding, resulting from the merger with Progress Energy and an increase in dividends per share from $0.765 to $0.78 in the third quarter of 2013. The total annual dividend per share was $3.09 in 2013 compared to $3.03 in 2012 and
*
A $185 million decrease in proceeds from net issuances of notes payable and commercial paper, primarily due to changes in short-term working capital needs.
Summary of Significant Debt Issuances
The following table summarizes significant debt issuances (in millions).
 
 
 
 
 
Year Ended December 31, 2014
Issuance Date
Maturity Date
 
Interest Rate

 
Duke Energy (Parent)

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy

Unsecured Debt
 
 
 
 
 
 
 
 
 
 
 
April 2014 (a)
April 2024
 
3.750
%
 
$
600

 
$

 
$

 
$
600

April 2014 (a)(b)
April 2017
 
0.613
%
 
400

 

 

 
400

June 2014 (c)
May 2019
 
11.970
%
 

 

 

 
108

June 2014 (c)
May 2021
 
13.680
%
 

 

 

 
110

Secured Debt
 
 
 
 
 
 
 
 
 
 


March 2014 (d)
March 2017
 
0.863
%
 

 

 
225

 
225

July 2014 (e)
July 2036
 
5.340
%
 

 

 

 
129

First Mortgage Bonds
 
 
 
 
 
 
 
 
 
 


March 2014 (f)
March 2044
 
4.375
%
 

 
400

 

 
400

March 2014 (f)(g)
March 2017
 
0.435
%
 

 
250

 

 
250

November 2014 (h)
December 2044
 
4.150
%
 

 
500

 

 
500

November 2014 (g)(h)
November 2017
 
0.432
%
 

 
200

 

 
200

Total issuances
 
 
 
 
$
1,000


$
1,350


$
225


$
2,922

(a)
Proceeds were used to redeem $402 million of tax-exempt bonds at Duke Energy Ohio, the repayment of outstanding commercial paper and for general corporate purposes. See Note 13 to the Consolidated Financial Statements, " Related Party Transactions " for additional information related to the redemption of Duke Energy Ohio's tax-exempt bonds.
(b)
The debt is floating rate based on three-month London Interbank Offered Rate (LIBOR) plus a fixed credit spread of 38 basis points.
(c)
Proceeds were used to repay $196 million of debt for International Energy and for general corporate purposes.
(d)
Relates to the securitization of accounts receivable at a subsidiary of Duke Energy Florida. Proceeds were used to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes. See Note 17 to the Consolidated Financial Statements, " Variable Interest Entities " for further details.
(e)
Proceeds were used to fund a portion of Duke Energy's prior investment in the existing Wind Star renewables portfolio.
(f)
Proceeds were used to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes.
(g)
The debt is floating rate based on three-month LIBOR plus a fixed credit spread of 20 basis points.
(h)
Proceeds will be used to repay to redeem $450 million of tax-exempt bonds, repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes.

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PART II

  
  
 
  
 
Year Ended December 31, 2013
Issuance Date  
Maturity Date
 
Interest Rate

 
Duke Energy (Parent)

 
Duke Energy Progress

 
Duke Energy Ohio

 
Duke Energy Indiana

 
Duke Energy

Unsecured Debt
 
 
  
 
  
 
  
 
  
 
  
 
  
January 2013 (a)
January 2073
 
5.125
%
 
$
500

 
$

 
$

 
$

 
$
500

June 2013 (b)
June 2018
 
2.100
%
 
500

 

 

 

 
500

August 2013 (c)(d)
August 2023
 
11.000
%
 
―   

 

 

 

 
220

October 2013 (e)
October 2023
 
3.950
%
 
400

 

 

 

 
400

Secured Debt
 
 
  
 
 
 
  
 
  
 
  
 
  
February 2013 (f)(g)
December 2030
 
2.043
%
 

 

 

 

 
203

February 2013 (f)
June 2037
 
4.740
%
 

 

 

 

 
220

April 2013 (h)
April 2026
 
5.456
%
 

 

 

 

 
230

December 2013 (i)
December 2016
 
0.852
%
 

 
300

 

 

 
300

First Mortgage Bonds
 
 
  
 
  
 
  
 
 
 
  
 


March 2013 (j)
March 2043
 
4.100
%
 

 
500

 

 

 
500

July 2013 (k)
July 2043
 
4.900
%
 

 

 

 
350

 
350

July 2013 (k)(l)
July 2016
 
0.619
%
 

 

 

 
150

 
150

September 2013 (m)
September 2023
 
3.800
%
 

 

 
300

 

 
300

September 2013 (m)(n)
March 2015
 
0.400
%
 

 

 
150

 

 
150

Total issuances
 
 
  
 
$
1,400


$
800


$
450


$
500


$
4,023

(a)
Callable after January 2018 at par. Proceeds were used to redeem the $300 million 7.10 percent Cumulative Quarterly Income Preferred Securities (QUIPS) and to repay a portion of outstanding commercial paper and for general corporate purposes.
(b)
Proceeds were used to repay $250 million of current maturities and for general corporate purposes, including the repayment of outstanding commercial paper.
(c)
Proceeds were used to repay $200 million of current maturities. The maturity date included above applies to half of the instrument. The remaining half matures in August 2018.
(d)
The debt is floating rate based on a consumer price index and an overnight funds rate in Brazil. The debt is denominated in Brazilian Real.
(e)
Proceeds were used to repay commercial paper as well as for general corporate purposes.
(f)
Represents the conversion of construction loans related to a renewable energy project issued in December 2012 to term loans. No cash proceeds were received in conjunction with the conversion. The term loans have varying maturity dates. The maturity date presented represents the latest date for all components of the respective loans.
(g)
The debt is floating rate. Duke Energy has entered into a pay fixed-receive floating interest rate swap for 95 percent of the loans.
(h)
Represents the conversion of a $190 million bridge loan issued in conjunction with the acquisition of Ibener in December 2012. Duke Energy received incremental proceeds of $40 million upon conversion of the bridge loan. The debt is floating rate and is denominated in U.S. dollars. Duke Energy has entered into a pay fixed-receive floating interest rate swap for 75 percent of the loan.
(i)
Relates to the securitization of accounts receivable at a subsidiary of Duke Energy Progress; the proceeds were used to repay short-term debt. See Note 17 to the Consolidated Financial Statements, " Variable Interest Entities " for further details.
(j)
Proceeds were used to repay notes payable to affiliated companies as well as for general corporate purposes.
(k)
Proceeds were used to repay $400 million of current maturities.
(l)
The debt is floating rate based on 3-month LIBOR and a fixed credit spread of 35 basis points.
(m)
Proceeds were used for general corporate purposes including the repayment of short-term notes payable, a portion of which was incurred to fund the retirement of $250 million of first mortgage bonds that matured in the first half of 2013.
(n)
The debt is floating rate based on 3-month LIBOR plus a fixed credit spread of 14 basis points.
Off-Balance Sheet Arrangements
Duke Energy and certain of its subsidiaries enter into guarantee arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include performance guarantees, stand-by letters of credit, debt guarantees, surety bonds and indemnifications.
Most of the guarantee arrangements entered into by Duke Energy enhance the credit standing of certain subsidiaries, non-consolidated entities or less than wholly owned entities, enabling them to conduct business. As such, these guarantee arrangements involve elements of performance and credit risk, which are not always included on the Consolidated Balance Sheets. The possibility of Duke Energy, either on its own or on behalf of Spectra Energy Capital, LLC (Spectra Capital) through indemnification agreements entered into as part of the January 2, 2007 spin-off of Spectra Energy Corp (Spectra Energy), having to honor its contingencies is largely dependent upon the future operations of the subsidiaries, investees and other third parties, or the occurrence of certain future events.
Duke Energy performs ongoing assessments of their respective guarantee obligations to determine whether any liabilities have been incurred as a result of potential increased non-performance risk by third parties for which Duke Energy has issued guarantees.
See Note 7 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further details of the guarantee arrangements.
Issuance of these guarantee arrangements is not required for the majority of Duke Energy’s operations. Thus, if Duke Energy discontinued issuing these guarantees, there would not be a material impact to the consolidated results of operations, cash flows or financial position.

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PART II

Other than the guarantee arrangements discussed above and normal operating lease arrangements, Duke Energy does not have any material off-balance sheet financing entities or structures. For additional information on these commitments, see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.”
Contractual Obligations
Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. The following table summarizes Duke Energy’s contractual cash obligations as of December 31, 2014 .
  
Payments Due By Period
(in millions)  
Total

 
Less than 1 year (2015)

 
2-3 years (2016 & 2017)

 
4-5 years (2018 & 2019)

 
More than 5 years (2020 & beyond)

Long-Term debt (a)
$
36,617

 
$
2,691

 
$
5,204

 
$
5,761

 
$
22,961

Interest payments on long-term debt (b)
24,064

 
1,603

 
2,926

 
2,614

 
16,921

Capital leases (c)
2,733

 
178

 
378

 
406

 
1,771

Operating leases (c)
1,818

 
205

 
370

 
305

 
938

Purchase obligations: (d)
  

 
  

 
  

 
  

 
  

Fuel and purchased power (e)
21,128

 
4,778

 
5,838

 
3,171

 
7,341

Other purchase obligations (f)
7,418

 
4,074

 
1,269

 
519

 
1,556

Nuclear decommissioning trust annual funding (g)
345

 
33

 
67

 
29

 
216

Total contractual cash obligations (h)(i)
$
94,123

 
$
13,562

 
$
16,052

 
$
12,805

 
$
51,704

(a)
See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities.”
(b)
Interest payments on variable rate debt instruments were calculated using December 31, 2014 interest rates and holding them constant for the life of the instruments.
(c)
See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.” Amounts in the table above include the interest component of capital leases based on the interest rates stated in the lease agreements and exclude certain related executory costs.
(d)
Current liabilities, except for current maturities of long-term debt, and purchase obligations reflected in the Consolidated Balance Sheets, have been excluded from the above table.
(e)
Includes firm capacity payments that provide Duke Energy with uninterrupted firm access to electricity transmission capacity and natural gas transportation contracts, as well as undesignated contracts and contracts that qualify as normal purchase/normal sale (NPNS). For contracts where the price paid is based on an index, the amount is based on market prices at December 31, 2014 , or the best projections of the index. For certain of these amounts, Duke Energy may settle on a net cash basis since Duke Energy has entered into payment netting arrangements with counterparties that permit Duke Energy to offset receivables and payables with such counterparties.
(f)
Includes contracts for software, telephone, data and consulting or advisory services. Amount also includes contractual obligations for engineering, procurement and construction costs for new generation plants and nuclear plant refurbishments, environmental projects on fossil facilities, major maintenance of certain nonregulated plants, maintenance and day to day contract work at certain wind facilities and commitments to buy wind and combustion turbines. Amount excludes certain open purchase orders for services that are provided on demand, for which the timing of the purchase cannot be determined.
(g)
Related to future annual funding obligations to nuclear decommissioning trust fund (NDTF) through nuclear power stations' re-licensing dates. Amounts through 2017 include North Carolina jurisdictional amounts that Duke Energy Progress retained internally and is transitioning to its external decommissioning funds per a 2008 NCUC order. The transition of the original $131 million must be complete by December 31, 2017, and at least 10 percent must be transitioned each year. See Note 9 to the Consolidated Financial Statements, "Asset Retirement Obligations."
(h)
Uncertain tax positions of $213 million are not reflected in this table as Duke Energy cannot predict when open income tax years will close with completed examinations. See Note 22 to the Consolidated Financial Statements, "Income Taxes."
(i)
The table above excludes reserves for litigation, environmental remediation, asbestos-related injuries and damages claims and self-insurance claims (see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies”) because Duke Energy is uncertain as to the timing and amount of cash payments that will be required. Additionally, the table above excludes annual insurance premiums that are necessary to operate the business, including nuclear insurance (see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies”), funding of pension and other post-retirement benefit plans (see Note 21 to the Consolidated Financial Statements, "Employee Benefit Plans"), asset retirement obligations, including ash management expenditures (see Note 9 to the Consolidated Financial Statements, "Asset Retirement Obligations") and regulatory liabilities (see Note 4 to the Consolidated Financial Statements, “Regulatory Matters”) because the amount and timing of the cash payments are uncertain. Also excluded are Deferred Income Taxes and Investment Tax Credits recorded on the Consolidated Balance Sheets since cash payments for income taxes are determined based primarily on taxable income for each discrete fiscal year.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Management Policies
Duke Energy is exposed to market risks associated with commodity prices, interest rates, equity prices and foreign currency exchange rates. Duke Energy has established comprehensive risk management policies to monitor and manage these market risks. Duke Energy’s Chief Executive Officer and Chief Financial Officer are responsible for the overall approval of market risk management policies and the delegation of approval and authorization levels. The Finance and Risk Management Committee of the Board of Directors receives periodic updates from the Chief Risk Officer and other members of management on market risk positions, corporate exposures, and overall risk management activities. The Chief Risk Officer is responsible for the overall governance of managing commodity price risk, including monitoring exposure limits.

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PART II

The following disclosures about market risk contain forward-looking statements that involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Please review Item 1A, “Risk Factors,” and “Cautionary Statement Regarding Forward-Looking Information” for a discussion of the factors that may impact any such forward-looking statements made herein.
Commodity Price Risk
Duke Energy is exposed to the impact of market fluctuations in the prices of electricity, coal, natural gas and other energy-related products marketed and purchased as a result of its ownership of energy related assets. Duke Energy’s exposure to these fluctuations is limited by the cost-based regulation of its operations in its Regulated Utilities segment as these operations are typically allowed to recover substantially all of these costs through various cost-recovery clauses, including fuel clauses. While there may be a delay in timing between when these costs are incurred and when these costs are recovered through rates, changes from year to year generally do not have a material impact on operating results of these regulated operations.
Price risk represents the potential risk of loss from adverse changes in the market price of electricity or other energy commodities. Duke Energy’s exposure to commodity price risk is influenced by a number of factors, including contract size, length, market liquidity, location and unique or specific contract terms. Duke Energy employs established policies and procedures to manage risks associated with these market fluctuations, which may include using various commodity derivatives, such as swaps, futures, forwards and options. For additional information, see Note 14 to the Consolidated Financial Statements, “Derivatives and Hedging.”
Validation of a contract’s fair value is performed by an internal group separate from Duke Energy’s deal origination function. While Duke Energy uses common industry practices to develop its valuation techniques, changes in its pricing methodologies or the underlying assumptions could result in significantly different fair values and income recognition.
Hedging Strategies
Duke Energy closely monitors risks associated with commodity price changes on its future operations and, where appropriate, uses various commodity instruments such as electricity, coal and natural gas forward contracts to mitigate the effect of such fluctuations on operations. These instruments are also used to optimize the value of the nonregulated generation portfolio. Duke Energy’s primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to the prices of power and fuel.
The majority of instruments used to manage Duke Energy’s commodity price exposure are either not designated as hedges or do not qualify for hedge accounting. These instruments are referred to as undesignated contracts. Mark-to-market changes for undesignated contracts entered into by regulated businesses are reflected as regulatory assets or liabilities on the Consolidated Balance Sheets. Undesignated contracts entered into by unregulated businesses are marked-to-market each period, with changes in the fair value of the derivative instruments reflected in earnings.
Duke Energy may also enter into other contracts that qualify for the NPNS exception. When a contract meets the criteria to qualify as an NPNS, Duke Energy applies such exception. Income recognition and realization related to NPNS contracts generally coincide with the physical delivery of the commodity. For contracts qualifying for the NPNS exception, no recognition of the contract’s fair value in the Consolidated Financial Statements is required until settlement of the contract as long as the transaction remains probable of occurring.
Generation Portfolio Risks 
Duke Energy is primarily exposed to market price fluctuations of wholesale power, natural gas, and coal prices in the Regulated Utilities segment. The Duke Energy Registrants optimize the value of their wholesale and nonregulated generation portfolios. The portfolios include generation assets, fuel, and emission allowances. Modeled forecasts of future generation output and fuel requirements are based on forward power and fuel markets. The component pieces of the portfolio are bought and sold based on models and forecasts of generation in order to manage the economic value of the portfolio in accordance with the strategies of the business units.
For the Regulated Utilities segment, the generation portfolio not utilized to serve retail operations or committed load is subject to commodity price fluctuations. However, the impact on the Consolidated Statements of Operations is partially offset by mechanisms in these regulated jurisdictions that result in the sharing of net profits from these activities with retail customers.
International Energy and Commercial Power generally hedge their expected generation using long-term bilateral power sales contracts when favorable market conditions exist and are subject to wholesale commodity price risks for electricity not sold under such contracts. International Energy dispatches electricity not sold under long-term bilateral contracts into unregulated markets and receives wholesale energy margins and capacity revenues from national system operators. Derivative contracts executed to manage generation portfolio risks for delivery periods beyond 2015 are also exposed to changes in fair value due to market price fluctuations of wholesale power, fuel oil and coal.
See “Sensitivity Analysis for Generation Portfolio and Derivative Price Risks” below, for more information regarding the effect of changes in commodity prices on Duke Energy’s net income.

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SENSITIVITY ANALYSIS FOR GENERATION PORTFOLIO AND DERIVATIVE PRICE RISKS
The table below summarizes the estimated effect of commodity price changes on Duke Energy’s pretax net income, based on a sensitivity analysis performed for the nonregulated generation portfolio. Forecasted exposure to commodity price risk for the Regulated Utilities segment is not anticipated to have a material adverse effect on Duke Energy’s results of operations in 2015. The following commodity price sensitivity calculations consider existing hedge positions and estimated production levels, as indicated in the table below, but do not consider other potential effects that might result from such changes in commodity prices.
Summary of Sensitivity Analysis for Generation Portfolio and Derivative Price Risks (in millions)
  
Generation Portfolio
Risks for 2015 As of December 31, (a)
 
Sensitivities for Derivatives Beyond 2015 As of December 31, (b)
Potential effect on pretax net income assuming a 10 percent price change in
2014

 
2013

 
2014

 
2013

Forward wholesale power prices (based on price per MWh)
$
4

 
$
1

 
$

 
$

(a)    Amounts related to forward wholesale prices represent the potential impact of commodity price changes on forecasted
economic generation which has not been contracted or hedged. Amounts related to forward coal prices and forward gas prices represent the potential impact of commodity price changes on fuel needed to achieve such economic generation. Amounts exclude the impact of mark-to-market changes on undesignated contracts relating to periods in excess of one year from the respective date.
(b)
Amounts represent sensitivities related to derivative contracts executed to manage generation portfolio risks for periods beyond 2014 . Amounts exclude the potential impact of commodity price changes on forecasted economic generation and fuel needed to achieve such forecasted generation.  
Interest Rate Risk
Duke Energy is exposed to risk resulting from changes in interest rates as a result of its issuance of variable and fixed-rate debt and commercial paper. Duke Energy manages interest rate exposure by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. Duke Energy also enters into financial derivative instruments, which may include instruments such as, but not limited to, interest rate swaps, swaptions and U.S. Treasury lock agreements to manage and mitigate interest rate risk exposure. See Notes 1 , 6 , 14 , and 16 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” “Debt and Credit Facilities,” “Derivatives and Hedging,” and “Fair Value Measurements.”
At December 31, 2014 , Duke Energy had $250 million notional amount of fixed-to-floating swaps outstanding and no pre-issuance hedges outstanding. In the first quarter of 2015, Duke Energy entered into an additional $250 million notional amount of fixed-to-floating swaps. Duke Energy had $6.9 billion of unhedged long- and short-term floating interest rate exposure at December 31, 2014 . The impact of a 100 basis point change in interest rates on pretax income is approximately $72 million at December 31, 2014 .
This amount was estimated by considering the impact of the hypothetical interest rates on variable-rate securities outstanding, adjusted for interest rate hedges as of December 31, 2014 .
Credit Risk
Credit risk represents the loss that the Duke Energy Registrants would incur if a counterparty fails to perform under its contractual obligations. To reduce credit exposure, the Duke Energy Registrants seek to enter into netting agreements with counterparties that permit them to offset receivables and payables with such counterparties. The Duke Energy Registrants attempt to further reduce credit risk with certain counterparties by entering into agreements that enable obtaining collateral or terminating or resetting the terms of transactions after specified time periods or upon the occurrence of credit-related events. The Duke Energy Registrants may, at times, use credit derivatives or other structures and techniques to provide for third-party credit enhancement of their counterparties’ obligations. The Duke Energy Registrants also obtain cash or letters of credit from customers to provide credit support outside of collateral agreements, where appropriate, based on a financial analysis of the customer and the regulatory or contractual terms and conditions applicable to each transaction. See Note 14 to the Consolidated Financial Statements, “Derivatives and Hedging,” for additional information regarding credit risk related to derivative instruments.
The Duke Energy Registrants’ industry has historically operated under negotiated credit lines for physical delivery contracts. The Duke Energy Registrants frequently 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 a negotiated unsecured credit limit for each party to the agreement, determined in accordance with the Duke Energy Registrants’ internal corporate credit practices and standards. Collateral agreements generally also provide that the inability to post collateral is sufficient cause to terminate contracts and liquidate all positions.
The Duke Energy Registrants’ principal customers for its electric and gas businesses are commodity clearinghouses, regional transmission organizations, industrial, commercial and residential end-users, marketers, distribution companies, municipalities, electric cooperatives and utilities located throughout the U.S. and Latin America. The Duke Energy Registrants have concentrations of receivables from such entities throughout these regions. These concentrations of customers may affect the Duke Energy Registrants’ overall credit risk in that risk factors can negatively impact the credit quality of the entire sector. Where exposed to credit risk, the Duke Energy Registrants analyze the counterparties’ financial condition prior to entering into an agreement, establish credit limits and monitor the appropriateness of those limits on an ongoing basis.

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Duke Energy Carolinas has a third-party insurance policy to cover certain losses related to its asbestos-related injuries and damages above an aggregate self-insured retention of $476 million. Duke Energy Carolinas’ cumulative payments began to exceed the self-insurance retention on its insurance policy during the second quarter of 2008. Future payments up to the policy limit will be reimbursed by the third-party insurance carrier. The insurance policy limit for potential future insurance recoveries for indemnification and medical cost claim payments is $864 million in excess of the self-insured retention. Insurance recoveries of $616 million and $649 million related to this policy are classified in the Consolidated Balance Sheets in Other within Investments and Other Assets and Receivables as of December 31, 2014 and 2013 , respectively. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Management believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating.
The Duke Energy Registrants also have credit risk exposure through issuance of performance guarantees, letters of credit and surety bonds on behalf of less than wholly owned entities and third parties. Where the Duke Energy Registrants have issued these guarantees, it is possible that they could be required to perform under these guarantee obligations in the event the obligor under the guarantee fails to perform. Where the Duke Energy Registrants have issued guarantees related to assets or operations that have been disposed of via sale, they attempt to secure indemnification from the buyer against all future performance obligations under the guarantees. See Note 7 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further information on guarantees issued by the Duke Energy Registrants.
The Duke Energy Registrants are also subject to credit risk of their vendors and suppliers in the form of performance risk on contracts including, but not limited to, outsourcing arrangements, major construction projects and commodity purchases. The Duke Energy Registrants’ credit exposure to such vendors and suppliers may take the form of increased costs or project delays in the event of non-performance.
Credit risk associated with the Duke Energy Registrants’ service to residential, commercial and industrial customers is generally limited to outstanding accounts receivable. The Duke Energy Registrants mitigate this credit risk by requiring customers to provide a cash deposit or letter of credit until a satisfactory payment history is established, subject to the rules and regulations in effect in each retail jurisdiction, at which time the deposit is typically refunded. Charge-offs for retail customers have historically been insignificant to the operations of the Duke Energy Registrants and are typically recovered through the retail rates. Management continually monitors customer charge-offs and payment patterns to ensure the adequacy of bad debt reserves. Duke Energy Ohio and Duke Energy Indiana sell certain of their accounts receivable and related collections through CRC, a Duke Energy consolidated variable interest entity. Losses on collection are first absorbed by the equity of CRC and next by the subordinated retained interests held by Duke Energy Ohio, Duke Energy Kentucky and Duke Energy Indiana. See Note 17 to the Consolidated Financial Statements, “Variable Interest Entities.”
Based on the Duke Energy Registrants’ policies for managing credit risk, their exposures and their credit and other reserves, the Duke Energy Registrants do not currently anticipate a materially adverse effect on their consolidated financial position or results of operations as a result of non-performance by any counterparty.
Marketable Securities Price Risk
As described further in Note 15 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities,” Duke Energy invests in debt and equity securities as part of various investment portfolios to fund certain obligations. The vast majority of investments in equity securities are within the NDTF and assets of the various pension and other post-retirement benefit plans.
Pension Plan Assets
Duke Energy maintains investments to help fund the costs of providing non-contributory defined benefit retirement and other post-retirement benefit plans. These investments are exposed to price fluctuations in equity markets and changes in interest rates. The equity securities held in these pension plans are diversified to achieve broad market participation and reduce the impact of any single investment, sector or geographic region. Duke Energy has established asset allocation targets for its pension plan holdings, which take into consideration the investment objectives and the risk profile with respect to the trust in which the assets are held.
A significant decline in the value of plan asset holdings could require Duke Energy to increase funding of its pension plans in future periods, which could adversely affect cash flows in those periods. Additionally, a decline in the fair value of plan assets, absent additional cash contributions to the plan, could increase the amount of pension cost required to be recorded in future periods, which could adversely affect Duke Energy’s results of operations in those periods.
Nuclear Decommissioning Trust Funds
As required by the Nuclear Regulatory Commission (NRC), NCUC, PSCSC and FPSC, subsidiaries of Duke Energy maintain trust funds to fund the costs of nuclear decommissioning. As of December 31, 2014 , these funds were invested primarily in domestic and international equity securities, debt securities, cash and cash equivalents and short-term investments. Per the NRC, Internal Revenue Code, NCUC, PSCSC and FPSC requirements, these funds may be used only for activities related to nuclear decommissioning. The investments in equity securities are exposed to price fluctuations in equity markets. Duke Energy actively monitors its portfolios by benchmarking the performance of its investments against certain indices and by maintaining, and periodically reviewing, target allocation percentages for various asset classes. Accounting for nuclear decommissioning recognizes that costs are recovered through retail rates; therefore, fluctuations in equity prices do not affect their Consolidated Statements of Operations as changes in the fair value of these investments are deferred as regulatory assets or regulatory liabilities pursuant to an Order by the NCUC, PSCSC and FPSC. Earnings or losses of the fund will ultimately impact the amount of costs recovered through retail rates. See Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations” for additional information regarding nuclear decommissioning costs. See Note 15 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities” for additional information regarding NDTF assets.

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Foreign Currency Risk
Duke Energy is exposed to foreign currency risk from investments in international businesses owned and operated in foreign countries and from certain commodity-related transactions within domestic operations that are denominated in foreign currencies. To mitigate risks associated with foreign currency fluctuations, contracts may be denominated in or indexed to the U.S. dollar and/or local inflation rates, or investments may be naturally hedged through debt denominated or issued in the foreign currency. Duke Energy may also use foreign currency derivatives, where possible, to manage its risk related to foreign currency fluctuations. To monitor its currency exchange rate risks, Duke Energy uses sensitivity analysis, which measures the impact of devaluation of the foreign currencies to which it has exposure.
Duke Energy’s primary foreign currency rate exposure is to the Brazilian Real. The table below summarizes the potential effect of foreign currency devaluations on Duke Energy’s Consolidated Statement of Operations and Consolidated Balance Sheets, based on a sensitivity analysis performed as of December 31, 2014 and December 31, 2013 .
Summary of Sensitivity Analysis for Foreign Currency Risks
  
Assuming 10 percent devaluation in the currency exchange rates in all exposure currencies
  
As of December 31,
(in millions)  
2014

 
2013

Income Statement impact (a)
$
(20
)
 
$
(20
)
Balance Sheet impact (b)
(98
)
 
(140
)
(a)    Amounts represent the potential annual net pretax loss on the translation of local currency earnings to the U.S. dollar in
2014 and 2013 , respectively.
(b)
Amounts represent the potential impact to the currency translation through Accumulated Other Comprehensive Income (AOCI) on the Consolidated Balance Sheets.
OTHER MATTERS
Ratios of Earnings to Fixed Charges
The Duke Energy Registrants’ ratios of earnings to fixed charges, as calculated using SEC guidelines, are included in the table below.
 
Years Ended December 31,
 
2014

 
2013

 
2012

Duke Energy (a)
3.2

 
3.0

 
2.4

Duke Energy Carolinas
4.6

 
4.4

 
3.8

Progress Energy
2.7

 
2.2

 
1.6

Duke Energy Progress
3.5

 
3.7

 
2.3

Duke Energy Florida
4.1

 
2.9

 
2.3

Duke Energy Ohio
2.1

 
2.2

 
1.7

Duke Energy Indiana
4.1

 
4.1

 
0.3

(a)
Includes the results of Progress Energy beginning on July 2, 2012.
Midwest Generation Exit
Merchant power plants have, in the recent past, delivered volatile returns in the competitive energy markets in the Midwest. In Ohio, the Public Utilities Commission of Ohio (PUCO) had granted revenue support from regulated retail markets to help stabilize returns during the transition to competitive markets. However, in early 2014, a request for continued revenue support was denied by the PUCO. This decision made it clear the energy markets in Ohio were to be fully unregulated. Although the undiscounted cash flows recover the carrying value of the Midwest Generation assets, the recovery period is over a long period of time, with risks inherent in operating these assets in competitive energy markets and in an ever changing landscape of environmental regulations related to fossil fuel based generation sources. Management concluded in early 2014 that the projected risk and earnings profile of these assets was no longer consistent with Duke Energy’s strategy and initiated a plan to sell these assets and realize the fair value over a shorter period while reducing the risk and volatility associated with these assets.
On August 21, 2014, Duke Energy Commercial Enterprises, Inc., an indirect wholly owned subsidiary of Duke Energy Corporation, and Duke Energy SAM, LLC, a wholly owned subsidiary of Duke Energy Ohio, entered into a PSA with a subsidiary of Dynegy whereby Dynegy will acquire Duke Energy’s Disposal Group for approximately $2.8 billion in cash subject to adjustments at closing for changes in working capital and capital expenditures. The completion of the transaction is conditioned on approval by FERC and the release of certain credit support obligations. The transaction is expected to close by the end of the second quarter of 2015. For additional information on the Midwest generation business disposition see Note 2 to the Consolidated Financial Statements, "Acquisitions, Dispositions and Sales of Other Assets."

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North Carolina Ash Basins
On February 2, 2014, a break in a stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the river. Duke Energy Carolinas estimates 30,000 to 39,000 tons of ash and 24 million to 27 million gallons of basin water were released into the river during the incident. For additional information see Note 5 to the Condensed Consolidated Financial Statements, "Commitments and Contingencies."
Environmental Regulations
Duke Energy is subject to international, federal, state, and local regulations regarding air and water quality, hazardous and solid waste disposal, and other environmental matters. The Subsidiary Registrants are subject to federal, state, and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants.
The following sections outline various proposed and recently enacted regulations that may impact the Duke Energy Registrants. The Duke Energy Registrants also expect to incur increased fuel, purchased power, operation and maintenance, and other costs for replacement generation for potential coal-fired power plant retirements as a result of these proposed and final regulations. The actual compliance costs may be materially different from these estimates based on the timing and requirements of the final EPA regulations. Refer to Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants.
Coal Ash Management Act of 2014
On September 20, 2014, the Coal Ash Act became law. The Coal Ash Act (i) establishes a Coal Ash Management Commission (Coal Ash Commission) to oversee handling of coal ash within the state; (ii) prohibits construction of new and expansion of existing ash impoundments and use of existing impoundments at retired facilities, effective October 1, 2014; (iii) requires closure of ash impoundments at Duke Energy Progress' Asheville and Sutton stations and Duke Energy Carolinas' Riverbend and Dan River stations no later than August 1, 2019; (iv) requires dry disposal of fly ash at active plants not retired by December 31, 2018; (v) requires dry disposal of bottom ash at active plants by December 31, 2019, or retirement of active plants; (vi) requires all remaining ash impoundments in North Carolina to be categorized as high-risk, intermediate-risk, or low-risk no later than December 31, 2015 by The North Carolina Department of Environment and Natural Resources (DENR) with the method of closure and timing to be based upon the assigned risk, with closure no later than December 31, 2029; (vii) establishes requirements to deal with groundwater and surface water impacts from impoundments and (viii) enhances the level of regulation for structural fills utilizing coal ash. The Coal Ash Act includes a variance procedure for compliance deadlines and modification of requirements regarding structural fills and compliance boundaries. Provisions of the Coal Ash Act prohibit cost recovery for unlawful discharge of ash basin waters occurring after January 1, 2014. The Coal Ash Act included a moratorium for any NCUC ordered rate changes to effectuate the legislation, which ended January 15, 2015. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of CCR surface impoundments (ash basins or impoundments) to the normal ratemaking processes before utility regulatory commissions. In November 2014, Duke Energy submitted to DENR site specific coal ash excavation plans for the four high priority stations required to be closed no later than August 1, 2019. These plans and all associated permits must be approved by DENR before any excavation work can begin.
In September 2014, Duke Energy Carolinas executed a consent agreement with the South Carolina Department of Health and Environmental Control (SCDHEC) requiring the excavation of an inactive ash basin and ash fill area at the W.S. Lee Steam Station. As part of this agreement, in December 2014, Duke Energy Carolinas filed an ash removal plan and schedule with SCDHEC.
For further information, refer to Note 5 of the Condensed Consolidated Financial Statements, “Commitments and Contingencies.”
Mercury and Air Toxics Standards
The final Mercury and Air Toxics Standards (MATS) rule, previously referred to as the Utility MACT Rule, was issued on February 16, 2012. The final rule establishes emission limits for hazardous air pollutants from new and existing coal-fired and oil-fired steam electric generating units. The rule requires sources to comply with emission limits by April 16, 2015. Under the Clean Air Act (CAA), permitting authorities have the discretion to grant up to a one-year compliance extension, on a case-by-case basis, to sources that are unable to complete the installation of emission controls before the compliance deadline. The Duke Energy Registrants have requested and received a number of compliance extensions. Strategies to achieve compliance with the final rule will include installation of new air emission control equipment, development of monitoring processes, fuel switching, and acceleration of retirement for some coal-fired electric-generation units. For additional information, refer to Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," regarding potential plant retirements.
In April 2014, several petitions for review of the final rule were denied by the U.S. Court of Appeals for the District of Columbia (D.C. Circuit Court). On November 25, 2014, the Supreme Court granted a petition for review based on the issue of whether the EPA unreasonably refused to consider costs in determining whether it is appropriate to regulate hazardous air pollutants from coal-fired and oil-fired steam electric generating units. Oral arguments are scheduled for March 25, 2015. The Duke Energy Registrants cannot predict the outcome of the Supreme Court review of the D.C. Circuit Court decision and are planning for the rule to be implemented as promulgated given the imminent compliance deadline.
Clean Water Act 316(b)
The EPA published the final 316(b) cooling water intake structure rule on August 15, 2014, with an effective date of October 14, 2014. The rule applies to 27 of the electric generating facilities the Duke Energy Registrants own and operate depending on unit retirement dates, excluding stations included in the Disposal Group. The rule allows several options for demonstrating compliance and provides flexibility to the state environmental permitting agencies to make determinations on controls, if any, that will be required for cooling water intake structures. Any required intake structure modifications and/or retrofits are expected to be installed in the 2019 to 2022 timeframe. Petitions challenging the rule have been filed by several groups. It is unknown at this time when the courts will rule on the petitions.

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Steam Electric Effluent Limitation Guidelines
On June 7, 2013, the EPA proposed Steam Electric Effluent Limitations Guidelines. The EPA is under a revised court order to finalize the rule by September 30, 2015. The EPA has proposed eight options for the rule, which vary in stringency and cost. The proposed regulation applies to seven waste streams, including wastewater from air pollution control equipment and ash transport water. Most, if not all, of the steam electric generating facilities the Duke Energy Registrants own are likely affected sources. Requirements to comply with the final rule may begin as early as late 2018 for some facilities.
Estimated Cost and Impacts of Rulemakings
The ultimate compliance requirements for currently proposed environmental regulations will not be known until all the rules have been finalized. The Duke Energy Registrants also expect to incur increased fuel, purchased power, operation and maintenance, and other expenses, in addition to costs for replacement generation for potential coal-fired power plant retirements as a result of these regulations. The actual compliance costs incurred may be materially different from these estimates based on the timing and requirements of the final regulations. The Duke Energy Registrants intend to seek rate recovery of appropriate amounts incurred associated with regulated operations in complying with these regulations. Refer to Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants.
The following table provides estimated costs, excluding AFUDC, of new control equipment that may need to be installed on existing power plants, including conversion of plants to dry disposal of bottom ash and fly ash, to comply with the above regulations over the five years ended December 31, 2019. The table excludes amounts related to the Disposal Group and ash basin closure costs recorded as asset retirement obligations, for additional information refer to Note 9 of the Condensed Consolidated Financial Statements, "Asset Retirement Obligations." The table also does not include estimated ash basin closure costs to comply with the recently issued EPA regulations for the disposal of CCR from power plants.
(in millions)
 
 
 
Estimated 5 Year Cost

Duke Energy
 
 
 
$
1,850

Duke Energy Carolinas
 
 
 
675

Progress Energy
 
 
 
525

Duke Energy Progress
 
 
 
475

Duke Energy Florida
 
 
 
50

Duke Energy Ohio
 
 
 
75

Duke Energy Indiana
 
 
 
575

Coal Combustion Residuals
On December 19, 2014, the EPA signed the first federal regulation for the disposal of CCR from power plants. The federal regulation classifies CCR as nonhazardous waste under the Resource Conservation and Recovery Act. The regulation applies to all new and existing landfills, new and existing surface impoundments, structural fills and CCR piles. The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. Duke Energy records an asset retirement obligation when it has a legal obligation to incur retirement costs associated with the retirement of a long-lived asset and the obligation can be reasonably estimated. Once the rule is effective in 2015, additional asset retirement obligation amounts will be recorded at all Duke registrants. Cost recovery for future expenditures will be pursued through the normal ratemaking process with state utility commissions, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. At this time, Duke Energy is evaluating the CCR regulation and developing cost estimates that will largely be dependent upon compliance alternatives selected to meet requirements of the regulations. For more information, see Note 5 to the Condensed Consolidated Financial Statements, "Commitments and Contingencies."
Cross-State Air Pollution Rule
On August 8, 2011, the final Cross-State Air Pollution Rule (CSAPR) was published in the Federal Register. The CSAPR established state-level annual sulfur dioxide (SO 2) budgets and annual and seasonal nitrogen oxide (NO x ) budgets that were to take effect on January 1, 2012.
On August 21, 2012, the D.C. Circuit Court vacated the CSAPR. The court also directed the EPA to continue administering the Clean Air Interstate Rule (CAIR), which required additional reductions in SO 2 and NO x emissions beginning in 2015. On April 29, 2014, the U.S. Supreme Court (Supreme Court) reversed the D.C. Circuit Court’s decision, finding that with CSAPR the EPA reasonably interpreted the good neighbor provision of the CAA. The case was remanded to the D.C. Circuit Court for further proceedings consistent with the Supreme Court’s opinion. On October 23, 2014, the D.C. Circuit Court lifted the CSAPR stay, which allowed Phase 1 of the rule to take effect on January 1, 2015, terminating the CAIR. Where the CSAPR requirements are constraining, actions to meet the requirements could include purchasing emission allowances, power purchases, curtailing generation and utilizing low sulfur fuel. The CSAPR will not result in Duke Energy Registrants adding new emission controls.
Additional challenges to the CSAPR filed in 2012, not addressed by the D.C. Circuit Court decision to vacate the CSAPR, are still ongoing. Oral arguments were held February 25, 2015. The Duke Energy Registrants cannot predict the outcome of these proceedings or how the requirements of the CSAPR may be impacted going forward.
Carbon Dioxide New Source Performance Standards
On January 8, 2014, the EPA proposed a rule to establish carbon dioxide (CO 2 ) emissions standards for new pulverized coal, IGCC, natural gas combined cycle, and simple cycle electric generating units commencing construction on or after that date. Based on the proposal, future coal and IGCC units will be required to employ carbon capture and storage technology to meet the proposed standard.

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In January 2015, the EPA announced that it would finalize the rule for new power plants in the summer of 2015. The Duke Energy Registrants do not expect a material impact on their future results of operations or cash flows based on the EPA’s proposal. The final rule, however, could be significantly different from the proposal.
CO 2 Existing Source Performance Standards and Standards for Reconstructed and Modified Units
On June 18, 2014, the EPA’s proposed Clean Power Plan (CPP) for regulating CO 2 emissions from existing fossil fuel-fired electric generating units (EGUs) was published in the Federal Register. On the same date the EPA proposed carbon pollution standards for reconstructed and modified EGUs. The comment period ended October 16, 2014 for the reconstructed and modified proposal and December 1, 2014 for the CPP. Duke Energy submitted comments on both proposals. In January 2015 the EPA announced that it would finalize both proposals in the summer of 2015.
Once the CPP is finalized, states will be required to develop plans to implement its requirements. The CPP will not directly impose any regulatory requirements on Duke Energy Registrants. State implementation plans will include the regulatory requirements that will apply to Duke Energy Registrants. Based on the EPA’s June 18, 2014 proposal, states will have from one to three years after the CPP is finalized to submit a plan for EPA’s review. In January 2015 the EPA announced that it would also propose a federal implementation plan for public comment in the summer of 2015. A federal plan would be EPA’s plan for meeting the requirements of the CPP and could take the place of a state plan if a state either fails to submit a plan or submits a plan that is not approved by the EPA.
The EPA has proposed to phase CO 2 emission reductions in over the period 2020 to 2030. The final requirements of the CPP, however, including the implementation schedule are uncertain and could be significantly different from the proposal. In addition, it will be several years before the requirements of the subsequent state plans are known. Also unknown at this time are the requirements of any federal plan that might be imposed on states in which the Duke Energy Registrants operate should a state fail to submit a plan or have their plan disapproved by the EPA. The Duke Energy Registrants are therefore unable to predict the outcome of this rulemaking, or how it might impact them, but the impact could be significant.
Global Climate Change
The Duke Energy Registrants’ greenhouse gas (GHG) emissions consist primarily of CO 2 with most coming from their fleet of coal-fired power plants in the U.S. In 2014, the Duke Energy Registrants’ U.S. power plants emitted approximately 135 million tons of CO 2 . CO 2 emissions from Duke Energy’s international operations were approximately 2 million tons. The Duke Energy Registrants’ future CO 2 emissions will be influenced by variables including new regulations, economic conditions that affect electricity demand, and the Duke Energy Registrants’ decisions regarding generation technologies deployed to meet customer electricity needs.
The Duke Energy Registrants are taking actions that will result in reduced GHG emissions over time. These actions will lower the Duke Energy Registrants’ exposure to any future mandatory GHG emission reduction requirements or carbon tax, whether a result of federal legislation or EPA regulation. Under any future scenario involving mandatory GHG limitations, the Duke Energy Registrants would plan to seek recovery of compliance costs associated with their regulated operations through appropriate regulatory mechanisms.
The Duke Energy Registrants recognize certain groups associate severe weather events with climate change, and forecast the possibility these weather events could have a material impact on future results of operations should they occur more frequently and with greater severity. However, the uncertain nature of potential changes of extreme weather events (such as increased frequency, duration, and severity), the long period of time over which any potential changes might take place, and the inability to predict these with any degree of accuracy, make estimating any potential future financial risk to the Duke Energy Registrants’ impossible. Currently, the Duke Energy Registrants plan and prepare for extreme weather events they experience from time to time, such as ice storms, tornadoes, hurricanes, severe thunderstorms, high winds and droughts.
The Duke Energy Registrants routinely take steps to reduce the potential impact of severe weather events on their electric distribution systems. The Duke Energy Registrants’ electric generating facilities are designed to withstand extreme weather events without significant damage. The Duke Energy Registrants maintain an inventory of coal and oil on site to mitigate the effects of any potential short-term disruption in fuel supply so they can continue to provide customers with an uninterrupted supply of electricity. The Duke Energy Registrants have a program in place to effectively manage the impact of future droughts on their operations.
Nuclear Matters
Following the events at the Fukushima Daiichi nuclear power station in Japan, Duke Energy conducted thorough inspections at each of its seven nuclear sites during 2011. The initial inspections did not identify any significant vulnerabilities, however, Duke Energy is reviewing designs to evaluate safety margins to external events. Emergency-response capabilities, written procedures and engineering specifications were reviewed to verify each site’s ability to respond in the unlikely event of station blackout. Duke Energy is working within the nuclear industry to improve safety standards and margin using the three layers of safety approach used in the U.S.: protection, mitigation and emergency response. Emergency equipment is currently being added at each station to perform key safety functions in the event that backup power sources are lost permanently. These improvements are in addition to the numerous layers of safety measures and systems previously in place.
In March 2011, the NRC formed a task force to conduct a comprehensive review of processes and regulations to determine whether the agency should make additional improvements to the nuclear regulatory system. On July 13, 2011, the task force proposed a set of improvements designed to ensure protection, enhance accident mitigation, strengthen emergency preparedness and improve efficiency of NRC programs. The recommendations were further prioritized into three tiers based on the safety enhancement level. On March 12, 2012, the NRC issued three regulatory orders requiring safety enhancements related to mitigation strategies to respond to extreme natural events resulting in the loss of power at a plant, ensuring reliable hardened containment vents and enhancing spent fuel pool instrumentation.
On August 30, 2012, the NRC issued implementation guidance to enable power plants to achieve compliance with the orders issued in March 2012. Plants were required to submit implementation plans to the NRC by February 28, 2013, and complete implementation of the safety enhancements within two refueling outages or by December 31, 2016, whichever comes first. Each plant is also required to reassess their seismic and flooding hazards using present-day methods and information, conduct inspections to ensure protection against hazards in the current design basis, and re-evaluate emergency communications systems and staffing levels.

73


PART II

Duke Energy is committed to compliance with all safety enhancements ordered by the NRC in connection with the March 12, 2012, regulatory orders noted above, the cost of which could be material. Until such time as the NRC-mandated reassessment of flooding and seismic hazards is complete the exact scope and cost of compliance modifications to Duke Energy’s sites will not be known. With the NRC’s continuing review of the remaining recommendations, Duke Energy cannot predict to what extent the NRC will impose additional licensing and safety-related requirements, or the costs of complying with such requirements. Upon receipt of additional guidance from the NRC and a collaborative industry review, Duke Energy will be able to determine an implementation plan and associated costs. See Item 1A, “Risk Factors,” for further discussion of applicable risk factors.
New Accounting Standards
See Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies” for a discussion of the impact of new accounting standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
See “Management’s Discussion and Analysis of Results of Operations and Financial Condition - Quantitative and Qualitative Disclosures About Market Risk.”

74


PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Duke Energy Corporation (Duke Energy)
 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows 
Consolidated Statements of Changes in Equity
 
 
Duke Energy Carolinas, LLC (Duke Energy Carolinas)
 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Member’s Equity
 
 
Progress Energy, Inc. (Progress Energy)
 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Common Stockholder’s Equity
 
 
Duke Energy Progress, Inc. (Duke Energy Progress)
 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income  
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Common Stockholder’s Equity
 
 
Duke Energy Florida, Inc. (Duke Energy Florida)
 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Common Stockholder’s Equity
 
 
Duke Energy Ohio, Inc. (Duke Energy Ohio)
 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Common Stockholder’s Equity
 
 
Duke Energy Indiana, Inc. (Duke Energy Indiana)
 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Common Stockholder’s Equity
 
 
Combined Notes to Consolidated Financial Statements
 
Note 1 – Summary of Significant Accounting Policies
Note 2 – Acquisitions, Dispositions and Sales of Other Assets

75


PART II

Note 3 – Business Segments
Note 4 – Regulatory Matters
Note 5 – Commitments and Contingencies
Note 6 – Debt and Credit Facilities
Note 7 – Guarantees and Indemnifications
Note 8 – Joint Ownership of Generating and Transmission Facilities
Note 9 – Asset Retirement Obligations
Note 10 – Property, Plant and Equipment
Note 11 – Goodwill and Intangible Assets
Note 12 – Investments in Unconsolidated Affiliates
Note 13 – Related Party Transactions
Note 14 – Derivatives and Hedging
Note 15 – Investments in Debt and Equity Securities
Note 16 – Fair Value Measurements
Note 17 – Variable Interest Entities
Note 18 – Common Stock
Note 19 – Severance
Note 20 – Stock-Based Compensation
Note 21 – Employee Benefit Plans
Note 22 – Income Taxes
Note 23 – Other Income and Expenses, Net
Note 24 – Subsequent Events
Note 25 – Quarterly Financial Data (Unaudited)

76


PART II

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Duke Energy Corporation
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Duke Energy Corporation and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2014. We also have audited the Company's internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission . The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report On Internal Control Over Financial Reporting . Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting 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 and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Corporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission .
/s/ Deloitte & Touche LLP 

Charlotte, North Carolina
February 27, 2015


77


PART II

DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
  
Years Ended December 31,
(in millions, except per share amounts)
2014

 
2013

 
2012

Operating Revenues
  
 
  
 
  
Regulated electric
$
21,550

 
$
20,329

 
$
15,515

Nonregulated electric, natural gas, and other
1,802

 
1,916

 
1,928

Regulated natural gas
573

 
511

 
469

Total operating revenues
23,925

 
22,756

 
17,912

Operating Expenses
  
 
  
 
  
Fuel used in electric generation and purchased power - regulated
7,686

 
7,108

 
5,582

Fuel used in electric generation and purchased power - nonregulated
533

 
540

 
651

Cost of natural gas and other
248

 
224

 
215

Operation, maintenance and other
5,856

 
5,673

 
4,787

Depreciation and amortization
3,066

 
2,668

 
2,145

Property and other taxes
1,213

 
1,274

 
965

Impairment charges
81

 
399

 
666

Total operating expenses
18,683

 
17,886

 
15,011

Gains (Losses) on Sales of Other Assets and Other, net
16

 
(16
)
 
10

Operating Income
5,258

 
4,854

 
2,911

Other Income and Expenses
  
 
  
 
  
Equity in earnings of unconsolidated affiliates
130

 
122

 
148

Gains on sales of unconsolidated affiliates
17

 
100

 
22

Other income and expenses, net
351

 
262

 
397

Total other income and expenses
498

 
484

 
567

Interest Expense
1,622

 
1,543

 
1,244

Income From Continuing Operations Before Income Taxes
4,134

 
3,795

 
2,234

Income Tax Expense from Continuing Operations
1,669

 
1,205

 
623

Income From Continuing Operations
2,465

 
2,590

 
1,611

(Loss) Income From Discontinued Operations, net of tax
(576
)
 
86

 
171

Net Income
1,889

 
2,676

 
1,782

Less: Net Income Attributable to Noncontrolling Interests
6

 
11

 
14

Net Income Attributable to Duke Energy Corporation
$
1,883

 
$
2,665

 
$
1,768

 
 
 
 
 
 
Earnings Per Share - Basic and Diluted
  
 
  
 
  
Income from continuing operations attributable to Duke Energy Corporation common shareholders
  
 
  
 
  
Basic
$
3.46

 
$
3.64

 
$
2.77

Diluted
$
3.46

 
$
3.63

 
$
2.77

(Loss) Income from discontinued operations attributable to Duke Energy Corporation common shareholders
  
 
  
 
  
Basic
$
(0.80
)
 
$
0.13

 
$
0.30

Diluted
$
(0.80
)
 
$
0.13

 
$
0.30

Net Income attributable to Duke Energy Corporation common shareholders
  
 
  
 
  
Basic
$
2.66

 
$
3.77

 
$
3.07

Diluted
$
2.66

 
$
3.76

 
$
3.07

Weighted-average shares outstanding
  
 
  
 
  
Basic
707

 
706

 
574

Diluted
707

 
706

 
575

See Notes to Consolidated Financial Statements

78


PART II

DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
  
Years Ended December 31,
(in millions)   
2014

 
2013

 
2012

Net Income  
$
1,889

 
$
2,676

 
$
1,782

Other Comprehensive Loss, net of tax  
  
 
  
 
  
Foreign currency translation adjustments  
(124
)
 
(197
)
 
(75
)
Pension and OPEB adjustments (a)
4

 
38

 
19

Net unrealized (losses) gains on cash flow hedges (b)
(26
)
 
59

 
(28
)
Reclassification into earnings from cash flow hedges  
7

 
1

 
(1
)
Unrealized gains (losses) on investments in available-for-sale securities  
3

 
(4
)
 
14

Reclassification into earnings from available-for-sale securities  

 
4

 
(5
)
Other Comprehensive Loss, net of tax   
(136
)
 
(99
)
 
(76
)
Comprehensive Income   
1,753

 
2,577

 
1,706

Less: Comprehensive Income Attributable to Noncontrolling Interests   
14

 
5

 
10

Comprehensive Income Attributable to Duke Energy Corporation   
$
1,739

 
$
2,572

 
$
1,696

(a)
Net of insignificant tax expense in 2014, $17 million tax expense in 2013 and $9 million tax expense in 2012. See Note 21 for additional information.
(b)
Net of $13 million tax benefit in 2014, $20 million tax expense in 2013 and $6 million tax expense in 2012.

See Notes to Consolidated Financial Statements

79


PART II

DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
  
December 31,
(in millions)
2014

 
2013

ASSETS
  
 
  
Current Assets
  
 
  
Cash and cash equivalents
$
2,036

 
$
1,501

Short-term investments

 
44

Receivables (net of allowance for doubtful accounts of $17 at December 31, 2014 and $30 at December 31, 2013)
791

 
1,286

Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $51 at December 31, 2014 and $43 at December 31, 2013)
1,973

 
1,719

Inventory
3,459


3,250

Assets held for sale
364

 

Regulatory assets
1,115

 
895

Other
1,837

 
1,821

Total current assets
11,575

 
10,516

Investments and Other Assets
  
 
  
Investments in equity method unconsolidated affiliates
358

 
390

Nuclear decommissioning trust funds
5,546

 
5,132

Goodwill
16,321

 
16,340

Assets held for sale
2,642

 
107

Other
3,008

 
3,432

Total investments and other assets
27,875

 
25,401

Property, Plant and Equipment
  
 
  
Cost
104,861

 
103,115

Accumulated depreciation and amortization
(34,824
)
 
(33,625
)
Generation facilities to be retired, net
9

 

Net property, plant and equipment
70,046

 
69,490

Regulatory Assets and Deferred Debits
  
 
  
Regulatory assets
11,042

 
9,191

Other
171

 
181

Total regulatory assets and deferred debits
11,213

 
9,372

Total Assets
$
120,709

 
$
114,779

LIABILITIES AND EQUITY
  
 
  
Current Liabilities
  
 
  
Accounts payable
$
2,271

 
$
2,391

Notes payable and commercial paper
2,514

 
839

Taxes accrued
569

 
551

Interest accrued
418

 
440

Current maturities of long-term debt
2,807

 
2,104

Liabilities associated with assets held for sale
262

 
7

Regulatory liabilities
204

 
316

Other
2,188

 
1,996

Total current liabilities
11,233

 
8,644

Long-Term Debt
37,213

 
38,152

Deferred Credits and Other Liabilities
  
 
  
Deferred income taxes
13,423

 
12,097

Investment tax credits
427

 
442

Accrued pension and other post-retirement benefit costs
1,145

 
1,322

Liabilities associated with assets held for sale
35

 
66

Asset retirement obligations
8,466

 
4,950

Regulatory liabilities
6,193

 
5,949

Other
1,675

 
1,749

Total deferred credits and other liabilities
31,364

 
26,575

Commitments and Contingencies


 


Equity
  
 
  
Common stock, $0.001 par value, 2 billion shares authorized; 707 million and 706 million shares outstanding at December 31, 2014 and 2013, respectively
1

 
1

Additional paid-in capital
39,405

 
39,365

Retained earnings
2,012

 
2,363

Accumulated other comprehensive loss
(543
)
 
(399
)
Total Duke Energy Corporation shareholders' equity
40,875

 
41,330

Noncontrolling interests
24

 
78

Total equity
40,899

 
41,408

Total Liabilities and Equity
$
120,709

 
$
114,779

See Notes to Consolidated Financial Statements

80


PART II

DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

CASH FLOWS FROM OPERATING ACTIVITIES
  
 
  
 
  
Net income
$
1,889

 
$
2,676

 
$
1,782

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation, amortization and accretion (including amortization of nuclear fuel)
3,507

 
3,229

 
2,652

Equity component of AFUDC
(135
)
 
(157
)
 
(300
)
Severance expense

 

 
92

FERC mitigation costs
(15
)
 

 
117

Community support and charitable contributions expense

 
34

 
92

Gains on sales of other assets
(33
)
 
(79
)
 
(44
)
Impairment charges
915

 
400

 
586

Deferred income taxes
1,149

 
1,264

 
584

Equity in earnings of unconsolidated affiliates
(130
)
 
(122
)
 
(148
)
Voluntary opportunity cost deferral

 

 
(101
)
Accrued pension and other post-retirement benefit costs
108

 
307

 
239

Contributions to qualified pension plans

 
(250
)
 
(304
)
(Increase) decrease in
 
 
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
44

 
1

 
60

Receivables
58

 
(281
)
 
39

Inventory
(269
)
 
(31
)
 
(258
)
Other current assets
(414
)
 
(35
)
 
140

Increase (decrease) in
 
 
 
 
 
Accounts payable
(30
)
 
73

 
131

Taxes accrued
(14
)
 
77

 
(142
)
Other current liabilities
(201
)
 
24

 
295

Other assets
16

 
(384
)
 
(129
)
Other liabilities
141

 
(364
)
 
(139
)
Net cash provided by operating activities
6,586


6,382


5,244

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
Capital expenditures
(5,384
)
 
(5,526
)
 
(5,501
)
Investment expenditures
(90
)
 
(81
)
 
(6
)
Acquisitions
(54
)
 

 
(451
)
Cash acquired from the merger with Progress Energy

 

 
71

Purchases of available-for-sale securities
(4,110
)
 
(6,142
)
 
(4,719
)
Proceeds from sales and maturities of available-for-sale securities
4,133

 
6,315

 
4,537

Net proceeds from the sales of equity investments and other assets, and sales of and collections on notes receivable
179

 
277

 
212

Change in restricted cash
9

 
167

 
(414
)
Other
(56
)
 
12

 
74

Net cash used in investing activities
(5,373
)

(4,978
)

(6,197
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
Proceeds from the:
 
 
 
 
 
Issuance of long-term debt
2,914

 
3,601

 
4,170

Issuance of common stock related to employee benefit plans
25

 
9

 
23

Payments for the:
 
 
 
 
 
Redemption of long-term debt
(3,037
)
 
(2,761
)
 
(2,498
)
Redemption of preferred stock of a subsidiary

 
(96
)
 

Proceeds from the issuance of short-term debt with original maturities greater than 90 days
1,066

 

 

Payments for the redemption of short-term debt with original maturities greater than 90 days
(564
)
 

 

Notes payable and commercial paper
1,186

 
93

 
278

Distributions to noncontrolling interests
(65
)
 
(15
)
 
(25
)
Contributions from noncontrolling interests

 
9

 
76

Dividends paid
(2,234
)
 
(2,188
)
 
(1,752
)
Other
31

 
21

 
(5
)
Net cash (used in) provided by financing activities
(678
)

(1,327
)

267

Net increase (decrease) in cash and cash equivalents
535


77


(686
)
Cash and cash equivalents at beginning of period
1,501

 
1,424

 
2,110

Cash and cash equivalents at end of period
$
2,036


$
1,501


$
1,424

Supplemental Disclosures:
  
 
  
 
  
Cash paid for interest, net of amount capitalized
$
1,659

 
$
1,665

 
$
1,032

Cash paid for (received from) income taxes
158

 
(202
)
 
72

Merger with Progress Energy
 
 
 
 
 
Fair value of assets acquired

 

 
48,944

Fair value of liabilities assumed

 

 
30,873

Issuance of common stock

 

 
18,071

Significant non-cash transactions:
 
 
 
 
 
Accrued capital expenditures
664

 
594

 
684

See Notes to Consolidated Financial Statements

81


PART II

DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
  
  
 
  

 
  

 
  

 
Duke Energy Corporation Shareholders
Accumulated Other Comprehensive Loss
 
  

 
  

 
  
(in millions)  
Common Stock Shares

 
Common Stock

 
Additional Paid-in Capital

 
Retained Earnings

 
Foreign Currency Adjustments

 
Net Losses on Cash Flow Hedges

 
Unrealized (Losses) Gains on Available-for-Sale Securities

 
Pension and OPEB Related Adjustments

 
Common Stockholders' Equity

 
Noncontrolling Interests

 
Total Equity

Balance at December 31, 2011
445

 
1

 
21,132

 
1,873

 
(45
)
 
(71
)
 
(9
)
 
(109
)
 
22,772

 
93

 
22,865

Net income (a)    

 

 

 
1,768

 

 

 

 

 
1,768

 
12

 
1,780

Other comprehensive (loss) income  

 

 

 

 
(71
)
 
(29
)
 
9

 
19

 
(72
)
 
(4
)
 
(76
)
Common stock issued in connection with the
  Progress Energy Merger  
258

 

 
18,071

 

 

 

 

 

 
18,071

 

 
18,071

Common stock issuances, including dividend
  reinvestment and employee benefits  
1

 

 
76

 

 

 

 

 

 
76

 

 
76

Common stock dividends  

 

 

 
(1,752
)
 

 

 

 

 
(1,752
)
 

 
(1,752
)
Contribution from noncontrolling interest in
  DS Cornerstone, LLC

 

 

 

 

 

 

 

 

 
76

 
76

Deconsolidation of DS Cornerstone, LLC

 

 

 

 

 

 

 

 

 
(82
)
 
(82
)
Changes in noncontrolling interest in
 subsidiaries (b)

 

 

 

 

 

 

 

 

 
(17
)
 
(17
)
Balance at December 31, 2012
704

 
1

 
39,279

 
1,889

 
(116
)
 
(100
)
 

 
(90
)
 
40,863

 
78

 
40,941

Net income

 

 

 
2,665

 

 

 

 

 
2,665

 
11

 
2,676

Other comprehensive (loss) income  

 

 

 

 
(191
)
 
60

 

 
38

 
(93
)
 
(6
)
 
(99
)
Common stock issuances, including dividend
  reinvestment and employee benefits  
2

 

 
86

 

 

 

 

 

 
86

 

 
86

Common stock dividends  

 

 

 
(2,188
)
 

 

 

 

 
(2,188
)
 

 
(2,188
)
Premium on the redemption of preferred stock of subsidiaries  

 

 

 
(3
)
 

 

 

 

 
(3
)
 

 
(3
)
Contribution from noncontrolling interest  

 

 

 

 

 

 

 

 

 
9

 
9

Changes in noncontrolling interest in subsidiaries (b)

 

 

 

 

 

 

 

 

 
(14
)
 
(14
)
Balance at December 31, 2013
706

 
1

 
39,365

 
2,363

 
(307
)
 
(40
)
 

 
(52
)
 
41,330

 
78

 
41,408

Net income  

 

 

 
1,883

 

 

 

 

 
1,883

 
6

 
1,889

Other comprehensive (loss) income  

 

 

 

 
(132
)
 
(19
)
 
3

 
4

 
(144
)
 
8

 
(136
)
Common stock issuances, including dividend
  reinvestment and employee benefits  
1

 

 
40

 

 

 

 

 

 
40

 

 
40

Common stock dividends  

 

 

 
(2,234
)
 

 

 

 

 
(2,234
)
 

 
(2,234
)
Changes in noncontrolling interest in subsidiaries (b)  

 

 

 

 

 

 

 

 

 
(65
)
 
(65
)
Other

 

 

 

 

 

 

 

 

 
(3
)
 
(3
)
Balance at December 31, 2014
707

 
1

 
39,405

 
2,012

 
(439
)
 
(59
)
 
3

 
(48
)
 
40,875

 
24

 
40,899

(a)
For the year ended December 31, 2012, consolidated net income of $1,782 million includes $2 million attributable to preferred shareholders of subsidiaries. Income attributable to preferred shareholders of subsidiaries is not a component of total equity and is excluded from the table above.
(b)
This decrease primarily relates to cash distributions to noncontrolling interests.
See Notes to Consolidated Financial Statements

82


PART II

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Duke Energy Carolinas, LLC
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Duke Energy Carolinas, LLC and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, changes in member’s equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Carolinas, LLC and subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
 
Charlotte, North Carolina
February 27, 2015


83


PART II

DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Operating Revenues
$
7,351

 
$
6,954

 
$
6,665

Operating Expenses
  
 
  
 
  
Fuel used in electric generation and purchased power
2,133

 
1,982

 
1,864

Operation, maintenance and other
1,995

 
1,868

 
1,979

Depreciation and amortization
1,009

 
921

 
921

Property and other taxes
316

 
374

 
365

Impairment charges
3

 

 
31

Total operating expenses
5,456

 
5,145

 
5,160

Gains on Sales of Other Assets and Other, net

 

 
12

Operating Income
1,895

 
1,809

 
1,517

Other Income and Expenses, net
172

 
120

 
185

Interest Expense
407

 
359

 
384

Income Before Income Taxes
1,660

 
1,570

 
1,318

Income Tax Expense
588

 
594

 
453

Net Income
$
1,072

 
$
976

 
$
865

Other Comprehensive Income, net of tax
  
 
  
 
  
Reclassification into earnings from cash flow hedges
2

 
1

 
2

Unrealized gain on investments in available-for-sale securities

 

 
1

Comprehensive Income
$
1,074

 
$
977

 
$
868

See Notes to Consolidated Financial Statements

84


PART II

DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS
  
 
December 31,
(in millions)
 
2014

 
2013

ASSETS
 
  
 
  
Current Assets
 
  
 
  
Cash and cash equivalents
 
$
13

 
$
23

Receivables (net of allowance for doubtful accounts of $3 at December 31, 2014 and December 31, 2013)
 
129

 
186

Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $6 at December 31, 2014 and December 31, 2013)
 
647

 
673

Receivables from affiliated companies
 
75

 
75

Notes receivable from affiliated companies
 
150

 
222

Inventory
 
1,124


1,065

Regulatory assets
 
399

 
295

Other
 
77

 
309

Total current assets
 
2,614

 
2,848

Investments and Other Assets
 
  
 
  
Nuclear decommissioning trust funds
 
3,042

 
2,840

Other
 
959

 
1,000

Total investments and other assets
 
4,001

 
3,840

Property, Plant and Equipment
 
  
 
  
Cost
 
37,372

 
34,906

Accumulated depreciation and amortization
 
(12,700
)
 
(11,894
)
Net property, plant and equipment
 
24,672

 
23,012

Regulatory Assets and Deferred Debits
 
  
 
  
Regulatory assets
 
2,465

 
1,527

Other
 
42

 
46

Total regulatory assets and deferred debits
 
2,507

 
1,573

Total Assets
 
$
33,794

 
$
31,273

LIABILITIES AND MEMBER'S EQUITY
 
  
 
  
Current Liabilities
 
  
 
  
Accounts payable
 
$
709

 
$
701

Accounts payable to affiliated companies
 
154

 
161

Taxes accrued
 
146

 
147

Interest accrued
 
95

 
97

Current maturities of long-term debt
 
507

 
47

Regulatory liabilities
 
34

 
65

Other
 
434

 
393

Total current liabilities
 
2,079

 
1,611

Long-Term Debt
 
7,584

 
8,089

Long-Term Debt Payable to Affiliated Companies
 
300

 
300

Deferred Credits and Other Liabilities
 
  
 
  
Deferred income taxes
 
5,812

 
5,706

Investment tax credits
 
204

 
210

Accrued pension and other post-retirement benefit costs
 
111

 
161

Asset retirement obligations
 
3,428

 
1,594

Regulatory liabilities
 
2,710

 
2,576

Other
 
642

 
676

Total deferred credits and other liabilities
 
12,907

 
10,923

Commitments and Contingencies
 

 

Member's Equity
 
  
 
  
Member's Equity
 
10,937

 
10,365

Accumulated other comprehensive loss
 
(13
)
 
(15
)
Total member's equity
 
10,924

 
10,350

Total Liabilities and Member's Equity
 
$
33,794

 
$
31,273

See Notes to Consolidated Financial Statements

85


PART II

DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

CASH FLOWS FROM OPERATING ACTIVITIES
  
 
  
 
  
Net income
$
1,072

 
$
976

 
$
865

Adjustments to reconcile net income to net cash provided by operating activities:
  
 
  
 
  
Depreciation and amortization (including amortization of nuclear fuel)
1,273

 
1,167

 
1,143

Equity component of AFUDC
(91
)
 
(91
)
 
(154
)
FERC mitigation costs
3

 

 
46

Community support and charitable contributions expense

 
14

 
56

Gains on sales of other assets and other, net

 

 
(12
)
Deferred income taxes
376

 
534

 
479

Voluntary opportunity cost deferral

 

 
(101
)
Accrued pension and other post-retirement benefit costs
22

 
38

 
41

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

 
(9
)
 

Receivables
48

 
(12
)
 
22

Receivables from affiliated companies

 
(72
)
 
(1
)
Inventory
(60
)
 
(9
)
 
(128
)
Other current assets
(236
)
 
(1
)
 
46

Increase (decrease) in
  
 
  
 
  
Accounts payable
10

 
58

 
(51
)
Accounts payable to affiliated companies
(7
)
 
33

 
(28
)
Taxes accrued
(15
)
 
4

 
(12
)
Other current liabilities
(10
)
 
(40
)
 
165

Other assets
17

 
(102
)
 
(117
)
Other liabilities
(22
)
 
(77
)
 
(126
)
Net cash provided by operating activities
2,380

 
2,411

 
2,133

CASH FLOWS FROM INVESTING ACTIVITIES
  
 
  
 
  
Capital expenditures
(1,879
)
 
(1,695
)
 
(1,908
)
Purchases of available-for-sale securities
(2,064
)
 
(2,405
)
 
(2,481
)
Proceeds from sales and maturities of available-for-sale securities
2,044

 
2,363

 
2,445

Notes receivable from affiliated companies
72

 
160

 
541

Other
(18
)
 
(24
)
 
(12
)
Net cash used in investing activities
(1,845
)
 
(1,601
)
 
(1,415
)
CASH FLOWS FROM FINANCING ACTIVITIES
  
 
  
 
  
Proceeds from the issuance of long-term debt

 
100

 
645

Payments for the redemption of long-term debt
(45
)
 
(405
)
 
(1,177
)
Distributions to parent
(500
)
 
(499
)
 
(450
)
Other

 
(2
)
 
(6
)
Net cash used in financing activities
(545
)
 
(806
)
 
(988
)
Net (decrease) increase in cash and cash equivalents
(10
)
 
4

 
(270
)
Cash and cash equivalents at beginning of period
23

 
19

 
289

Cash and cash equivalents at end of period
$
13

 
$
23

 
$
19

Supplemental Disclosures:
  
 
  
 
  
Cash paid for interest, net of amount capitalized
$
388

 
$
336

 
$
385

Cash paid for (received from) income taxes
305

 
(7
)
 
(38
)
Significant non-cash transactions:
  
 
  
 
  
Accrued capital expenditures
194

 
199

 
194

See Notes to Consolidated Financial Statements

86


PART II

DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S EQUITY
  
  
 
Accumulated Other
Comprehensive Loss
 
  
(in millions)  
Member's
Equity

 
Net Losses on Cash Flow Hedges

 
Unrealized Losses on Available-for-Sale Securities

 
Total Equity

Balance at December 31, 2011
$
9,473

 
$
(17
)
 
$
(2
)
 
$
9,454

Net income   
865

 

 

 
865

Other comprehensive income  
  
 
2

 
1

 
3

Distributions to parent  
(450
)
 

 

 
(450
)
Balance at December 31, 2012
$
9,888

 
$
(15
)
 
$
(1
)
 
$
9,872

Net income  
976

 

 

 
976

Other comprehensive income  
  
 
1

 

 
1

Distributions to parent  
(499
)
 

 

 
(499
)
Balance at December 31, 2013
$
10,365

 
$
(14
)
 
$
(1
)
 
$
10,350

Net income  
1,072

 

 

 
1,072

Other comprehensive income  
  
 
2

 

 
2

Distributions to parent  
(500
)
 

 

 
(500
)
Balance at December 31, 2014
$
10,937

 
$
(12
)
 
$
(1
)
 
$
10,924

See Notes to Consolidated Financial Statements

87


PART II

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Progress Energy, Inc.
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Progress Energy, Inc. and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, changes in common stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Progress Energy, Inc. and subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
 
Charlotte, North Carolina
February 27, 2015

88


PART II

PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  
Years Ended December 31,
(in millions)   
2014

 
2013

 
2012

Operating Revenues  
$
10,166

 
$
9,533

 
$
9,405

Operating Expenses  
  
 
  
 
  
Fuel used in electric generation and purchased power  
4,195

 
3,851

 
4,304

Operation, maintenance and other  
2,335

 
2,247

 
2,445

Depreciation and amortization  
1,128

 
883

 
747

Property and other taxes  
517

 
557

 
570

Impairment charges  
(16
)
 
380

 
200

Total operating expenses
8,159


7,918


8,266

Gains (Losses) on Sales of Other Assets and Other, net  
11

 
3

 
(2
)
Operating Income  
2,018


1,618


1,137

Other Income and Expenses, net  
77

 
94

 
130

Interest Expense  
675

 
680

 
740

Income From Continuing Operations Before Income Taxes  
1,420


1,032


527

Income Tax Expense From Continuing Operations  
540

 
373

 
172

Income From Continuing Operations  
880


659


355

(Loss) Income From Discontinued Operations, net of tax  
(6
)
 
16

 
52

Net Income  
874


675


407

Less: Net Income Attributable to Noncontrolling Interests  
5

 
3

 
7

Net Income Attributable to Parent  
$
869


$
672


$
400

 
 
 
 
 
 
Net Income   
$
874


$
675


$
407

Other Comprehensive Income, net of tax   
  
 
  
 
  
Pension and OPEB adjustments
9

 
9

 
(2
)
Net unrealized loss on cash flow hedges

 

 
(5
)
Reclassification into earnings from cash flow hedges
8

 
(1
)
 
8

Reclassification of cash flow hedges to regulatory assets (a)

 

 
97

Unrealized gains on investments in available-for-sale securities
1

 

 

Other Comprehensive Income, net of tax   
18


8


98

Comprehensive Income   
892


683


505

Less: Comprehensive Income Attributable to Noncontrolling Interests
5

 
3

 
7

Comprehensive Income Attributable to Parent
$
887


$
680


$
498

(a)
Net of $62 million tax expense in 2012.  
See Notes to Consolidated Financial Statements

89


PART II

PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
  
December 31,
(in millions)
2014

 
2013

ASSETS
  
 
  
Current Assets
  
 
  
Cash and cash equivalents
$
42

 
$
58

Receivables (net of allowance for doubtful accounts of $8 at December 31, 2014 and $14 at December 31, 2013)
129

 
528

Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $8 at December 31, 2014)
741

 
417

Receivables from affiliated companies
59

 
4

Notes receivable from affiliated companies
220

 
75

Inventory
1,590


1,424

Regulatory assets
491

 
353

Other
1,285

 
726

Total current assets
4,557

 
3,585

Investments and Other Assets
  
 
  
Nuclear decommissioning trust funds
2,503

 
2,292

Goodwill
3,655

 
3,655

Other
670

 
804

Total investments and other assets
6,828

 
6,751

Property, Plant and Equipment
  
 
  
Cost
38,650

 
36,480

Accumulated depreciation and amortization
(13,506
)
 
(13,098
)
Net property, plant and equipment
25,144

 
23,382

Regulatory Assets and Deferred Debits
  
 
  
Regulatory assets
5,408

 
4,155

Other
91

 
96

Total regulatory assets and deferred debits
5,499

 
4,251

Total Assets
$
42,028

 
$
37,969

LIABILITIES AND EQUITY
  
 
  
Current Liabilities
  
 
  
Accounts payable
$
847

 
$
836

Accounts payable to affiliated companies
203

 
123

Notes payable to affiliated companies
835

 
1,213

Taxes accrued
114

 
105

Interest accrued
184

 
181

Current maturities of long-term debt
1,507

 
485

Regulatory liabilities
106

 
207

Other
1,021

 
896

Total current liabilities
4,817

 
4,046

Long-Term Debt
13,247

 
13,630

Deferred Credits and Other Liabilities
  
 
  
Deferred income taxes
4,759

 
3,283

Accrued pension and other post-retirement benefit costs
533

 
765

Asset retirement obligations
4,711

 
2,562

Regulatory liabilities
2,379

 
2,292

Other
406

 
527

Total deferred credits and other liabilities
12,788

 
9,429

Commitments and Contingencies

 

Common Stockholder's Equity
  
 
  
Common stock, $0.01 par value, 100 shares authorized and outstanding at December 31, 2014 and 2013

 

Additional paid-in capital
7,467

 
7,467

Retained earnings
3,782

 
3,452

Accumulated other comprehensive loss
(41
)
 
(59
)
Total common stockholder's equity
11,208

 
10,860

Noncontrolling interests
(32
)
 
4

Total equity
11,176

 
10,864

Total Liabilities and Equity
$
42,028


$
37,969

See Notes to Consolidated Financial Statements

90


PART II

PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

CASH FLOWS FROM OPERATING ACTIVITIES
  
 
  
 
  
Net income
$
874

 
$
675

 
$
407

Adjustments to reconcile net income to net cash provided by operating activities:
  
 
  
 
  
Depreciation, amortization and accretion (including amortization of nuclear fuel)
1,313

 
1,041

 
897

Equity component of AFUDC
(26
)
 
(50
)
 
(106
)
Severance expense

 

 
38

FERC mitigation costs
(18
)
 

 
71

Community support and charitable contributions expense

 
20

 
36

(Gains) losses on sales of other assets
(6
)
 
2

 
(16
)
Impairment charges
2

 
380

 
146

Deferred income taxes
1,014

 
616

 
263

Amount to be refunded to customers

 

 
100

Accrued pension and other post-retirement benefit costs
27

 
172

 
179

Contributions to qualified pension plans

 
(250
)
 
(346
)
(Increase) decrease in
  
 
  
 
  
Net realized and unrealized mark-to-market and hedging transactions
12

 
55

 
7

Receivables
(31
)
 
(148
)
 
49

Receivables from affiliated companies
(56
)
 
11

 
(15
)
Inventory
(101
)
 
17

 
(71
)
Other current assets
(934
)
 
(156
)
 
2

Increase (decrease) in
  
 
  
 
  
Accounts payable
6

 
(81
)
 
175

Accounts payable to affiliated companies
80

 
93

 
30

Taxes accrued
(20
)
 
22

 
25

Other current liabilities
(144
)
 
61

 
81

Other assets
(14
)
 
(243
)
 
(25
)
Other liabilities
(12
)
 
(115
)
 
(87
)
Net cash provided by operating activities
1,966


2,122


1,840

CASH FLOWS FROM INVESTING ACTIVITIES
  
 
  
 
  
Capital expenditures
(1,940
)
 
(2,490
)
 
(2,366
)
Purchases of available-for-sale securities
(1,689
)
 
(2,558
)
 
(1,374
)
Proceeds from sales and maturities of available-for-sale securities
1,652

 
2,513

 
1,325

Change in restricted cash

 

 
24

Notes receivable from affiliated companies
(145
)
 
(75
)
 

Other
(44
)
 
13

 
109

Net cash used in investing activities
(2,166
)
 
(2,597
)
 
(2,282
)
CASH FLOWS FROM FINANCING ACTIVITIES
  
 
  
 
  
Proceeds from the:
  
 
  
 
  
Issuance of long-term debt
1,572

 
845

 
2,074

Issuance of common stock related to employee benefit plans

 

 
6

Payments for the:
  
 
  
 
  
Redemption of long-term debt
(931
)
 
(1,196
)
 
(962
)
Redemption of preferred stock of subsidiaries

 
(96
)
 

Proceeds from the issuance of short-term debt with original maturities greater than 90 days

 

 
65

Payments for the redemption of short-term debt with original maturities greater than 90 days

 

 
(65
)
Notes payable and commercial paper

 

 
(671
)
Notes payable to affiliated companies
(378
)
 
758

 
455

Distributions to noncontrolling interests
(37
)
 
(3
)
 
(7
)
Dividends paid

 

 
(445
)
Other
(42
)
 
(6
)
 
(7
)
Net cash provided by financing activities
184


302


443

Net (decrease) increase in cash and cash equivalents
(16
)

(173
)

1

Cash and Cash Equivalents at Beginning of Period
58

 
231

 
230

Cash and Cash Equivalents at End of Period
42

 
58

 
231

Supplemental Disclosures:
  
 
  
 
  
Cash paid for interest, net of amount capitalized
664

 
678

 
784

Cash paid for (received from) income taxes
141

 
(167
)
 
(4
)
Significant non-cash transactions:
  
 
  
 
  
Accrued capital expenditures
294

 
255

 
375

Asset retirement obligation additions for spent nuclear fuel disposal related to the Progress Energy merger

 

 
837

Capital expenditures financed through capital leases

 

 
140

See Notes to Consolidated Financial Statements

91


PART II

PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY
  
  

 
  

 
  

 
Accumulated Other
Comprehensive Income Loss
 
  

 
  

 
  

(in millions)  
Common Stock

 
Additional Paid-in Capital

 
Retained Earnings

 
Net Losses on Cash Flow Hedges

 
Net Gains on Available for Sale Securities

 
Pension and OPEB Related Adjustments

 
Common Stockholders' Equity

 
Noncontrolling Interests

 
Total Equity

Balance at December 31, 2011
$
7,418

 
$
16

 
$
2,752

 
$
(142
)
 
$

 
$
(23
)
 
$
10,021

 
$
4

 
$
10,025

Net income (a)

 

 
400

 

 

 

 
400

 
3

 
403

Other comprehensive income (loss)

 

 

 
100

 

 
(2
)
 
98

 

 
98

Common stock issuances, including dividend
  reinvestment and employee benefits  
18

 
13

 

 

 

 

 
31

 

 
31

Common stock dividends  

 

 
(369
)
 

 

 

 
(369
)
 

 
(369
)
Distributions to noncontrolling interests

 

 

 

 

 

 

 
(2
)
 
(2
)
Recapitalization for merger with Duke Energy  
(7,436
)
 
7,436

 

 

 

 

 

 

 

Other  

 

 

 

 

 

 

 
(1
)
 
(1
)
Balance at December 31, 2012
$


$
7,465


$
2,783


$
(42
)

$


$
(25
)

$
10,181


$
4


$
10,185

Net income

 

 
672

 

 

 

 
672

 
3

 
675

Other comprehensive (loss) income

 

 

 
(1
)
 

 
9

 
8

 

 
8

Premium on the redemption of preferred stock of subsidiaries  

 

 
(3
)
 

 

 

 
(3
)
 

 
(3
)
Distributions to noncontrolling interests

 

 

 

 

 

 

 
(3
)
 
(3
)
Other  

 
2

 

 

 

 

 
2

 

 
2

Balance at December 31, 2013
$


$
7,467


$
3,452


$
(43
)

$


$
(16
)

$
10,860


$
4


$
10,864

Net income  

 

 
869

 

 

 

 
869

 
5

 
874

Other comprehensive income  

 

 

 
8

 
1

 
9

 
18

 

 
18

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(37
)
 
(37
)
Transfer of service company net assets to Duke Energy

 

 
(539
)
 

 

 

 
(539
)
 

 
(539
)
Other  

 

 

 

 

 

 

 
(4
)
 
(4
)
Balance at December 31, 2014
$


$
7,467


$
3,782


$
(35
)

$
1


$
(7
)

$
11,208


$
(32
)

$
11,176

(a)
For the year ended December 31, 2012, consolidated net income of $407 million included $4 million attributable to preferred shareholders of subsidiaries. Income attributable to preferred shareholders of subsidiaries is not a component of total equity and is excluded from the table above.
See Notes to Consolidated Financial Statements

92


PART II

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Duke Energy Progress, Inc.
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Duke Energy Progress, Inc. and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, changes in common stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Progress, Inc. and subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
 
Charlotte, North Carolina
February 27, 2015

93


PART II

DUKE ENERGY PROGRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  
Years Ended December 31,
(in millions)   
2014

 
2013

 
2012

Operating Revenues  
$
5,176

 
$
4,992

 
$
4,706

Operating Expenses  
  
 
  
 
  
Fuel used in electric generation and purchased power  
2,036

 
1,925

 
1,895

Operation, maintenance and other  
1,470

 
1,357

 
1,494

Depreciation and amortization  
582

 
534

 
535

Property and other taxes  
174

 
223

 
219

Impairment charges  
(18
)
 
22

 
54

Total operating expenses
4,244

 
4,061

 
4,197

Gains on Sales of Other Assets and Other, net  
3

 
1

 
1

Operating Income  
935

 
932

 
510

Other Income and Expenses, net  
51

 
57

 
79

Interest Expense  
234

 
201

 
207

Income Before Income Taxes  
752

 
788

 
382

Income Tax Expense  
285

 
288

 
110

Net Income   
467

 
500

 
272

Less: Preferred Stock Dividend Requirement  

 

 
3

Net Income Available to Parent  
$
467

 
$
500

 
$
269

 
 
 
 
 
 
Net Income  
$
467

 
$
500

 
$
272

Other Comprehensive (Loss) Income, net of tax  
  

 
  

 
  

Net unrealized loss on cash flow hedges

 

 
(4
)
Reclassification into earnings from cash flow hedges  

 

 
4

Reclassification of cash flow hedges to regulatory assets (a)

 

 
71

Other Comprehensive Income, net of tax  

 

 
71

Comprehensive Income  
$
467

 
$
500

 
$
343

(a)
Net of $46 million tax expense in 2012.  

See Notes to Consolidated Financial Statements


94


PART II

DUKE ENERGY PROGRESS, INC.
CONSOLIDATED BALANCE SHEETS
  
December 31,
(in millions)
2014

 
2013

ASSETS
  
 
  
Current Assets
  
 
  
Cash and cash equivalents
$
9

 
$
21

Receivables (net of allowance for doubtful accounts of $7 at December 31, 2014 and $10 at December 31, 2013)
43

 
145

Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $5 at December 31, 2014)

436

 
417

Receivables from affiliated companies
10

 
2

Notes receivable from affiliated companies
237

 

Inventory
966


853

Regulatory assets
287

 
127

Other
384

 
296

Total current assets
2,372

 
1,861

Investments and Other Assets
  
 
  
Nuclear decommissioning trust funds
1,701

 
1,539

Other
412

 
443

Total investments and other assets
2,113

 
1,982

Property, Plant and Equipment
  
 
  
Cost
24,207

 
22,273

Accumulated depreciation and amortization
(9,021
)
 
(8,623
)
Net property, plant and equipment
15,186

 
13,650

Regulatory Assets and Deferred Debits
  
 
  
Regulatory assets
2,675

 
1,384

Other
34

 
32

Total regulatory assets and deferred debits
2,709

 
1,416

Total Assets
$
22,380

 
$
18,909

LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
  
 
  
Current Liabilities
  
 
  
Accounts payable
$
481

 
$
420

Accounts payable to affiliated companies
120

 
103

Notes payable to affiliated companies

 
462

Taxes accrued
47

 
37

Interest accrued
81

 
70

Current maturities of long-term debt
945

 
174

Regulatory liabilities
71

 
63

Other
409

 
392

Total current liabilities
2,154

 
1,721

Long-Term Debt
5,256

 
5,061

Deferred Credits and Other Liabilities
  
 
  
Deferred income taxes
2,908

 
2,557

Accrued pension and other post-retirement benefit costs
290

 
321

Asset retirement obligations
3,905

 
1,729

Regulatory liabilities
1,832

 
1,673

Other
168

 
222

Total deferred credits and other liabilities
9,103

 
6,502

Commitments and Contingencies
 
 
 
Common Stockholder's Equity
  
 
  
Common stock, no par value, 200 million shares authorized; 160 million shares outstanding at December 31, 2014 and 2013
2,159

 
2,159

Retained earnings
3,708

 
3,466

Total common stockholder's equity
5,867

 
5,625

Total Liabilities and Common Stockholder's Equity
$
22,380

 
$
18,909

See Notes to Consolidated Financial Statements

95


PART II

DUKE ENERGY PROGRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
Years Ended December 31,
(in millions)
2014
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES
  
 
  
 
  
Net income
467

 
500

 
272

Adjustments to reconcile net income to net cash provided by operating activities:
  
 
  
 
  
Depreciation, amortization and accretion (including amortization of nuclear fuel)
761

 
685

 
676

Equity component of AFUDC
(25
)
 
(42
)
 
(69
)
Severance expense

 

 
18

FERC mitigation costs
(18
)
 

 
71

Community support and charitable contributions expense

 
20

 
36

Gains on sales of other assets and other, net
(3
)
 
(1
)
 
(1
)
Impairment charges

 
22

 

Deferred income taxes
455

 
368

 
164

Accrued pension and other post-retirement benefit costs
(7
)
 
72

 
70

Contributions to qualified pension plans

 
(63
)
 
(141
)
(Increase) decrease in
  
 
  
 
  
Net realized and unrealized mark-to-market and hedging transactions
13

 
(9
)
 
(25
)
Receivables
78

 
(88
)
 
2

Receivables from affiliated companies
(8
)
 
3

 
(4
)
Inventory
(65
)
 
(26
)
 
(58
)
Other current assets
(416
)
 
(39
)
 
(24
)
Increase (decrease) in
  
 
  
 
  
Accounts payable
27

 
(18
)
 
149

Accounts payable to affiliated companies
17

 
27

 
47

Taxes accrued
10

 
15

 
(5
)
Other current liabilities
(68
)
 
(86
)
 
23

Other assets
48

 
(74
)
 
(28
)
Other liabilities
(21
)
 
(78
)
 
(6
)
Net cash provided by operating activities
1,245

 
1,188

 
1,167

CASH FLOWS FROM INVESTING ACTIVITIES
  
 
  
 
  
Capital expenditures
(1,241
)
 
(1,567
)
 
(1,525
)
Purchases of available-for-sale securities
(499
)
 
(901
)
 
(582
)
Proceeds from sales and maturities of available-for-sale securities
458

 
856

 
532

Notes receivable from affiliated companies
(237
)
 

 

Other
(12
)
 
4

 
91

Net cash used in investing activities
(1,531
)
 
(1,608
)
 
(1,484
)
CASH FLOWS FROM FINANCING ACTIVITIES
  
 
  
 
  
Proceeds from the issuance of long-term debt
1,347

 
845

 
988

Payments for the:
  
 
  
 
  
Redemption of long-term debt
(379
)
 
(451
)
 
(502
)
Redemption of preferred stock

 
(62
)
 

Notes payable and commercial paper

 

 
(188
)
Notes payable to affiliated companies
(462
)
 
98

 
333

Dividends to parent
(225
)
 

 
(310
)
Dividends paid on preferred stock

 

 
(3
)
Other
(7
)
 
(7
)
 
(3
)
Net cash provided by financing activities
274

 
423

 
315

Net (decrease) increase in cash and cash equivalents
(12
)
 
3

 
(2
)
Cash and Cash Equivalents at Beginning of Period
21

 
18

 
20

Cash and Cash Equivalents at End of Period
$
9

 
$
21

 
$
18

Supplemental Disclosures:
  
 
  
 
  
Cash paid for interest, net of amount capitalized
$
220

 
$
217

 
$
249

Cash paid for (received from) income taxes
81

 
(94
)
 
19

Significant non-cash transactions:
  
 
  
 
  
Accrued capital expenditures
194

 
166

 
232

Asset retirement obligation additions for spent nuclear fuel disposal related to the Progress Energy merger

 

 
698

Capital expenditures financed through capital leases

 

 
140

See Notes to Consolidated Financial Statements

96


PART II

DUKE ENERGY PROGRESS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
  
  

 
  

 
Accumulated Other Comprehensive Loss
 
  

(in millions)  
Common
Stock

 
Retained
Earnings

 
Net Loss on Cash Flow Hedges

 
Total Equity

Balance at December 31, 2011
$
2,148

 
$
3,011

 
$
(71
)
 
$
5,088

Net income    

 
272

 

 
272

Other comprehensive income  

 

 
71

 
71

Stock-based compensation expense  
11

 

 

 
11

Dividends to parent  

 
(310
)
 

 
(310
)
Preferred stock dividends at stated rate  

 
(3
)
 

 
(3
)
Tax dividend  

 
(2
)
 

 
(2
)
Balance at December 31, 2012
$
2,159

 
$
2,968

 
$

 
$
5,127

Net income  

 
500

 

 
500

Premium on the redemption of preferred stock  

 
(2
)
 

 
(2
)
Balance at December 31, 2013
$
2,159

 
$
3,466

 
$

 
$
5,625

Net income  

 
467

 

 
467

Dividends to parent

 
(225
)
 

 
(225
)
Balance at December 31, 2014
$
2,159

 
$
3,708

 
$

 
$
5,867

See Notes to Consolidated Financial Statements

97


PART II

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Duke Energy Florida, Inc.
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Duke Energy Florida, Inc. and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, changes in common stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Florida, Inc. and subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
 
Charlotte, North Carolina
February 27, 2015

98


PART II

DUKE ENERGY FLORIDA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  
Years Ended December 31,
(in millions)   
2014

 
2013

 
2012

Operating Revenues  
$
4,975

 
$
4,527

 
$
4,689

Operating Expenses  
  
 
  
 
  
Fuel used in electric generation and purchased power  
2,158

 
1,927

 
2,409

Operation, maintenance and other  
850

 
898

 
969

Depreciation and amortization  
545

 
330

 
192

Property and other taxes  
343

 
327

 
346

Impairment charges  
2

 
358

 
146

Total operating expenses
3,898

 
3,840

 
4,062

Gains on Sales of Other Assets and Other, net  
1

 
1

 
2

Operating Income  
1,078

 
688

 
629

Other Income and Expenses, net  
20

 
30

 
39

Interest Expense  
201

 
180

 
255

Income Before Income Taxes  
897

 
538

 
413

Income Tax Expense  
349

 
213

 
147

Net Income   
548

 
325

 
266

Less: Preferred Stock Dividend Requirement  

 

 
2

Net Income Available to Parent  
$
548

 
$
325

 
$
264

 
 
 
 
 
 
Net Income  
$
548

 
$
325

 
$
266

Other Comprehensive Income (Loss), net of tax  
  
 
  
 
  
Net unrealized loss on cash flow hedges

 
(1
)
 

Reclassification into earnings from cash flow hedges  
1

 

 
1

Reclassification of cash flow hedges to regulatory assets (a)

 

 
26

Other Comprehensive Income (Loss), net of tax  
1

 
(1
)
 
27

Comprehensive Income  
$
549

 
$
324

 
$
293

(a)
Net of $16 million tax expense in 2012.
See Notes to Consolidated Financial Statements

99


PART II

DUKE ENERGY FLORIDA, INC.
CONSOLIDATED BALANCE SHEETS
  
December 31,
(in millions)   
2014

 
2013

ASSETS  
  
 
  
Current Assets  
  
 
  
Cash and cash equivalents  
$
8

 
$
16

Receivables (net of allowance for doubtful accounts of $2 at December 31, 2014 and $4 at December 31, 2013)  
84

 
375

Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $3 at December 31, 2014)
305

 

Receivables from affiliated companies  
40

 
3

Inventory  
623


571

Regulatory assets  
203

 
221

Other  
521

 
182

Total current assets  
1,784

 
1,368

Investments and Other Assets  
  
 
  
Nuclear decommissioning trust funds  
803

 
753

Other  
204

 
252

Total investments and other assets  
1,007

 
1,005

Property, Plant and Equipment  
  
 
  
Cost  
14,433

 
13,863

Accumulated depreciation and amortization  
(4,478
)
 
(4,252
)
Net property, plant and equipment  
9,955

 
9,611

Regulatory Assets and Deferred Debits  
  
 
  
Regulatory assets  
2,733

 
2,729

Other  
39

 
44

Total regulatory assets and deferred debits  
2,772

 
2,773

Total Assets  
$
15,518

 
$
14,757

LIABILITIES AND COMMON STOCKHOLDER'S EQUITY  
  
 
  
Current Liabilities  
  
 
  
Accounts payable  
$
365

 
$
333

Accounts payable to affiliated companies  
70

 
38

Notes payable to affiliated companies  
84

 
181

Taxes accrued  
65

 
66

Interest accrued  
47

 
46

Current maturities of long-term debt  
562

 
11

Regulatory liabilities  
35

 
144

Other  
586

 
445

Total current liabilities  
1,814

 
1,264

Long-Term Debt  
4,298

 
4,875

Deferred Credits and Other Liabilities  
  
 
  
Deferred income taxes  
2,452

 
1,829

Accrued pension and other post-retirement benefit costs  
221

 
286

Asset retirement obligations  
806

 
833

Regulatory liabilities  
547

 
618

Other  
158

 
255

Total deferred credits and other liabilities  
4,184

 
3,821

Commitments and Contingencies  

 

Common Stockholder's Equity  
  
 
  
Common Stock, no par; 60 million shares authorized; 100 shares outstanding at December 31, 2014 and 2013  
1,762

 
1,762

Retained earnings  
3,460

 
3,036

Accumulated other comprehensive loss  

 
(1
)
Total common stockholder's equity  
5,222

 
4,797

Total Liabilities and Common Stockholder's Equity  
$
15,518

 
$
14,757

See Notes to Consolidated Financial Statements

100


PART II

DUKE ENERGY FLORIDA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

CASH FLOWS FROM OPERATING ACTIVITIES
  
 
  
 
  
Net income
$
548

 
$
325

 
$
266

Adjustments to reconcile net income to net cash provided by operating activities:
  
 
  
 
  
Depreciation, amortization and accretion
550

 
335

 
197

Equity component of AFUDC

 
(8
)
 
(37
)
Severance expense

 

 
6

Gains on sales of other assets and other, net
(1
)
 
(1
)
 
(2
)
Impairment charges
2

 
358

 
146

Deferred income taxes
400

 
368

 
142

Amount to be refunded to customers

 

 
100

Accrued pension and other post-retirement benefit costs
29

 
79

 
71

Contributions to qualified pension plans

 
(133
)
 
(128
)
(Increase) decrease in
  
 
  
 
  
Net realized and unrealized mark-to-market and hedging transactions
(9
)
 
55

 
73

Receivables
(33
)
 
(44
)
 
37

Receivables from affiliated companies
(37
)
 
17

 
(13
)
Inventory
(36
)
 
42

 
(13
)
Other current assets
(269
)
 
(109
)
 
22

Increase (decrease) in
  
 
  
 
  
Accounts payable
18

 
(22
)
 
21

Accounts payable to affiliated companies
32

 
(6
)
 
30

Taxes accrued
(31
)
 
18

 
15

Other current liabilities
(80
)
 
159

 
51

Other assets
(59
)
 
(154
)
 
8

Other liabilities
(58
)
 
(74
)
 
(94
)
Net cash provided by operating activities
966

 
1,205

 
898

CASH FLOWS FROM INVESTING ACTIVITIES
  
 
  
 
  
Capital expenditures
(699
)
 
(915
)
 
(809
)
Purchases of available-for-sale securities
(1,189
)
 
(1,656
)
 
(791
)
Proceeds from sales and maturities of available-for-sale securities
1,195

 
1,658

 
791

Notes receivable from affiliated companies

 
207

 
(207
)
Other
(31
)
 

 
16

Net cash used in investing activities
(724
)
 
(706
)
 
(1,000
)
CASH FLOWS FROM FINANCING ACTIVITIES
  
 
  
 
  
Proceeds from the issuance of long-term debt
225

 

 
642

Payments for the:
  
 
  
 
  
Redemption of long-term debt
(252
)
 
(435
)
 
(10
)
Redemption of preferred stock

 
(34
)
 

Proceeds from issuance of short-term debt with original maturities greater than 90 days

 

 
65

Payments for the redemption of short-term debt with original maturities greater than 90 days

 

 
(65
)
Notes payable and commercial paper

 

 
(233
)
Notes payable to affiliated companies
(97
)
 
181

 
(8
)
Dividends to parent
(124
)
 
(325
)
 
(170
)
Dividends paid on preferred stock

 

 
(2
)
Other
(2
)
 
(1
)
 
(2
)
Net cash (used in) provided by financing activities
(250
)
 
(614
)
 
217

Net (decrease) increase in cash and cash equivalents
(8
)
 
(115
)
 
115

Cash and Cash Equivalents at Beginning of Period
16

 
131

 
16

Cash and Cash Equivalents at End of Period
$
8

 
$
16

 
$
131

Supplemental Disclosures:
  
 
  
 
  
Cash paid for interest, net of amount capitalized
$
203

 
$
201

 
$
266

Cash paid for (received from) income taxes
59

 
(84
)
 
24

Significant non-cash transactions:
  
 
  
 
  
Accrued capital expenditures
100

 
88

 
139

Asset retirement obligation additions for spent nuclear fuel disposal related to the Progress Energy merger

 

 
139

See Notes to Consolidated Financial Statements

101


PART II

DUKE ENERGY FLORIDA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY
  
  

 
  

 
Accumulated Other Comprehensive Loss

 
  

(in millions)  
Common
Stock

 
Retained
Earnings

 
Net Losses on Cash Flow Hedges

 
Total Equity

Balance at December 31, 2011
$
1,757

 
$
2,945

 
$
(27
)
 
$
4,675

Net income    

 
266

 

 
266

Other comprehensive income

 

 
27

 
27

Stock-based compensation expense  
5

 

 

 
5

Dividend to parent  

 
(170
)
 

 
(170
)
Preferred stock dividends at stated rate  

 
(2
)
 

 
(2
)
Tax dividend  

 
(2
)
 

 
(2
)
Balance at December 31, 2012
$
1,762

 
$
3,037

 
$

 
$
4,799

Net income    

 
325

 

 
325

Other comprehensive loss

 

 
(1
)
 
(1
)
Dividend to parent  

 
(325
)
 

 
(325
)
Premium on the redemption of preferred stock  

 
(1
)
 

 
(1
)
Balance at December 31, 2013
$
1,762

 
$
3,036

 
$
(1
)
 
$
4,797

Net income  

 
548

 

 
548

Other comprehensive income

 

 
1

 
1

Dividend to parent  

 
(124
)
 

 
(124
)
Balance at December 31, 2014
$
1,762

 
$
3,460

 
$

 
$
5,222

See Notes to Consolidated Financial Statements


102


PART II

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Duke Energy Ohio, Inc.
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Duke Energy Ohio, Inc. and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, changes in common stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Ohio, Inc. and subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
 
Charlotte, North Carolina
February 27, 2015

103


PART II

DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  
Years Ended December 31,
(in millions)   
2014

 
2013

 
2012

Operating Revenues  
  
 
  
 
  
Regulated electric  
$
1,316

 
$
1,258

 
$
1,281

Nonregulated electric and other  
19

 
34

 
68

Regulated natural gas  
578

 
513

 
471

Total operating revenues  
1,913

 
1,805

 
1,820

Operating Expenses   
  
 
  
 
  
Fuel used in electric generation and purchased power - regulated  
459

 
428

 
475

Fuel used in electric generation and purchased power - nonregulated  
25

 
41

 
57

Cost of natural gas   
185

 
152

 
142

Operation, maintenance and other  
516

 
546

 
586

Depreciation and amortization  
214

 
213

 
195

Property and other taxes  
234

 
242

 
205

Impairment charges  
94

 
5

 
2

Total operating expenses  
1,727

 
1,627

 
1,662

Gains on Sales of Other Assets and Other, net  
1

 
4

 
1

Operating Income  
187

 
182

 
159

Other Income and Expenses, net  
10

 
2

 
8

Interest Expense  
86

 
74

 
89

Income From Continuing Operations Before Income Taxes
111

 
110

 
78

Income Tax Expense From Continuing Operations
43

 
43

 
33

Income From Continuing Operations
68

 
67

 
45

(Loss) Income From Discontinued Operations, net of tax
(563
)
 
35

 
130

Net (Loss) Income
$
(495
)
 
$
102

 
$
175

Other Comprehensive Income, net of tax  
 
 
 
 
 
Pension and OPEB adjustments

 
1

 
27

Comprehensive (Loss) Income  
$
(495
)
 
$
103

 
$
202

See Notes to Consolidated Financial Statements

104


PART II

DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS
  
December 31,
(in millions)
2014

 
2013

ASSETS
  
 
  
Current Assets
  
 
  
Cash and cash equivalents
$
20

 
$
36

Receivables (net of allowance for doubtful accounts of $2 at December 31, 2014 and December 31, 2013)
93

 
121

Receivables from affiliated companies
107

 
121

Notes receivable from affiliated companies
145

 
57

Inventory
97


229

Assets held for sale
316

 

Regulatory assets
49

 
57

Other
167

 
270

Total current assets
994

 
891

Investments and Other Assets
  
 
  
Goodwill
920

 
920

Assets held for sale
2,605

 

Other
23

 
232

Total investments and other assets
3,548

 
1,152

Property, Plant and Equipment
  
 
  
Cost
7,141

 
11,143

Accumulated depreciation and amortization
(2,213
)
 
(2,908
)
Generation facilities to be retired, net
9

 

Net property, plant and equipment
4,937

 
8,235

Regulatory Assets and Deferred Debits
  
 
  
Regulatory assets
512

 
471

Other
8

 
14

Total regulatory assets and deferred debits
520

 
485

Total Assets
$
9,999

 
$
10,763

LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
  
 
  
Current Liabilities
  
 
  
Accounts payable
$
209

 
$
319

Accounts payable to affiliated companies
74

 
77

Notes payable to affiliated companies
491

 
43

Taxes accrued
163

 
167

Interest accrued
19

 
17

Current maturities of long-term debt
157

 
47

Liabilities associated with assets held for sale
246

 

Regulatory liabilities
10

 
27

Other
66

 
110

Total current liabilities
1,435

 
807

Long-Term Debt
1,584

 
2,141

Long-Term Debt Payable to Affiliated Companies
25

 

Deferred Credits and Other Liabilities
  
 
  
Deferred income taxes
1,765

 
2,012

Accrued pension and other post-retirement benefit costs
48

 
58

Liabilities associated with assets held for sale
34

 

Asset retirement obligations
27

 
28

Regulatory liabilities
241

 
262

Other
166

 
186

Total deferred credits and other liabilities
2,281

 
2,546

Commitments and Contingencies
 
 
 
Common Stockholder's Equity
  
 
  
Common stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at December 31, 2014 and 2013
762

 
762

Additional paid-in capital
4,782

 
4,882

Accumulated deficit
(870
)
 
(375
)
Total common stockholder's equity
4,674

 
5,269

Total Liabilities and Common Stockholder's Equity
$
9,999

 
$
10,763

See Notes to Consolidated Financial Statements


105


PART II

DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

CASH FLOWS FROM OPERATING ACTIVITIES
  
 
  
 
  
Net (loss) income
$
(495
)
 
$
102

 
$
175

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
  
 
  
 
  
Depreciation and amortization
258

 
357

 
342

Equity component of AFUDC
(4
)
 
(1
)
 
(6
)
Gains on sales of other assets and other, net
(1
)
 
(5
)
 
(7
)
Impairment charges
941

 
5

 
2

Deferred income taxes
(219
)
 
98

 
61

Accrued pension and other post-retirement benefit costs
8

 
17

 
11

(Increase) decrease in
  
 
  
 
  
Net realized and unrealized mark-to-market and hedging transactions
27

 
17

 
(5
)
Receivables
(56
)
 
(15
)
 
29

Receivables from affiliated companies
14

 
(39
)
 
61

Inventory
8

 
(3
)
 
15

Other current assets
(5
)
 
(1
)
 
(62
)
Increase (decrease) in
  
 
  
 
  
Accounts payable
27

 
13

 
5

Accounts payable to affiliated companies
(3
)
 
15

 
(22
)
Taxes accrued
(9
)
 
1

 
(24
)
Other current liabilities
27

 
14

 
(21
)
Other assets
(4
)
 
(6
)
 
6

Other liabilities
(33
)
 
(73
)
 
(116
)
Net cash provided by operating activities
481

 
496

 
444

CASH FLOWS FROM INVESTING ACTIVITIES
  
 
  
 
  
Capital expenditures
(322
)
 
(434
)
 
(514
)
Net proceeds from the sales of other assets

 
11

 
82

Notes receivable from affiliated companies
(88
)
 
(56
)
 
400

Other
(12
)
 
1

 
6

Net cash used in investing activities
(422
)
 
(478
)
 
(26
)
CASH FLOWS FROM FINANCING ACTIVITIES
  
 
  
 
  
Proceeds from the issuance of long-term debt

 
450

 

Payments for the redemption of long-term debt
(449
)
 
(258
)
 
(556
)
Notes payable to affiliated companies
473

 
(202
)
 
245

Dividends to parent
(100
)
 

 
(175
)
Other
1

 
(3
)
 

Net cash used in financing activities
(75
)
 
(13
)
 
(486
)
Net (decrease) increase in cash and cash equivalents
(16
)
 
5

 
(68
)
Cash and cash equivalents at beginning of period
36

 
31

 
99

Cash and cash equivalents at end of period
20

 
36

 
31

Supplemental Disclosures:
  
 
  
 
  
Cash paid for interest, net of amount capitalized
$
76

 
$
71

 
$
93

Cash (received from) paid for income taxes
(5
)
 
9

 
18

Significant non-cash transactions:
  
 
  
 
  
Accrued capital expenditures
24

 
27

 
31

Transfer of Vermillion Generating Station to Duke Energy Indiana

 

 
28

See Notes to Consolidated Financial Statements

106


PART II

DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY
  
  
 
  
 
  
 
Accumulated Other
Comprehensive Loss

 
  
(in millions)  
Common
Stock

 
Additional
Paid-in
Capital

 
Accumulated Deficit

 
Pension and
OPEB Related
Adjustments

 
Total Equity

Balance at December 31, 2011
$
762

 
$
5,085

 
$
(652
)
 
$
(28
)
 
$
5,167

Net income  
― 

 
― 

 
175

 

 
175

Other comprehensive income  

 

 

 
27

 
27

Transfer of Vermillion Generating Station to Duke Energy Indiana  
― 

 
(28
)
 
― 

 
― 

 
(28
)
Dividends to parent  

 
(175
)
 

 

 
(175
)
Balance at December 31, 2012
$
762

 
$
4,882

 
$
(477
)
 
$
(1
)
 
$
5,166

Net income  
― 

 
― 

 
102

 
― 

 
102

Other comprehensive income  

 

 
― 

 
1

 
1

Balance at December 31, 2013
$
762

 
$
4,882

 
$
(375
)
 
$

 
$
5,269

Net loss 
― 

 
― 

 
(495
)
 
― 

 
(495
)
Dividends to parent

 
(100
)
 

 

 
(100
)
Balance at December 31, 2014
$
762

 
$
4,782

 
$
(870
)
 

 
$
4,674

See Notes to Consolidated Financial Statements

107


PART II

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 subsidiary (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, changes in common stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke Energy Indiana, Inc. and subsidiary at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
 
Charlotte, North Carolina
February 27, 2015


108


PART II

DUKE ENERGY INDIANA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Operating Revenues
$
3,175

 
$
2,926

 
$
2,717

Operating Expenses
  
 
  
 
  
Fuel used in electric generation and purchased power
1,259

 
1,131

 
1,088

Operation, maintenance and other
670

 
649

 
655

Depreciation and amortization
413

 
342

 
389

Property and other taxes
128

 
71

 
81

Impairment charges

 

 
579

Total operating expenses
2,470

 
2,193

 
2,792

Operating Income (Loss)
705

 
733

 
(75
)
Other Income and Expenses, net
22

 
18

 
90

Interest Expense
171

 
170

 
138

Income (Loss) Before Income Taxes
556


581


(123
)
Income Tax Expense (Benefit)
197

 
223

 
(73
)
Net Income (Loss)
359


358


(50
)
Other Comprehensive Loss, net of tax
  
 
  
 
  
Reclassification into earnings from cash flow hedges

 
(2
)
 
(2
)
Comprehensive Income (Loss)
$
359


$
356


$
(52
)
See Notes to Consolidated Financial Statements

109


PART II

DUKE ENERGY INDIANA, INC.
CONSOLIDATED BALANCE SHEETS
  
December 31,
(in millions)
2014

 
2013

ASSETS
  
 
  
Current Assets
  
 
  
Cash and cash equivalents
$
6

 
$
15

Receivables (net of allowance for doubtful accounts of $1 at December 31, 2014 and December 31, 2013)
87

 
22

Receivables from affiliated companies
115

 
151

Notes receivable from affiliated companies

 
96

Inventory
537


434

Regulatory assets
93

 
118

Other
326

 
125

Total current assets
1,164

 
961

Investments and Other Assets
  
 
  
Other
251

 
269

Total investments and other assets
251

 
269

Property, Plant and Equipment
  
 
  
Cost
13,034

 
12,489

Accumulated depreciation and amortization
(4,219
)
 
(3,913
)
Net property, plant and equipment
8,815

 
8,576

Regulatory Assets and Deferred Debits
  
 
  
Regulatory assets
685

 
717

Other
24

 
25

Total regulatory assets and deferred debits
709

 
742

Total Assets
$
10,939

 
$
10,548

LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
  
 
  
Current Liabilities
  
 
  
Accounts payable
$
179

 
$
206

Accounts payable to affiliated companies
58

 
56

Notes payable to affiliated companies
71

 

Taxes accrued
54

 
57

Interest accrued
56

 
56

Current maturities of long-term debt
5

 
5

Regulatory liabilities
54

 
16

Other
98

 
88

Total current liabilities
575

 
484

Long-Term Debt
3,636

 
3,641

Long-Term Debt Payable to Affiliated Companies
150

 
150

Deferred Credits and Other Liabilities
  
 
  
Deferred income taxes
1,591

 
1,171

Investment tax credits
139

 
140

Accrued pension and other post-retirement benefit costs
82

 
163

Asset retirement obligations
32

 
30

Regulatory liabilities
796

 
782

Other
90

 
48

Total deferred credits and other liabilities
2,730

 
2,334

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, 2014 and 2013
1

 
1

Additional paid-in capital
1,384

 
1,384

Retained earnings
2,460

 
2,551

Accumulated other comprehensive income
3

 
3

Total common stockholder's equity
3,848

 
3,939

Total Liabilities and Common Stockholder's Equity
$
10,939

 
$
10,548

See Notes to Consolidated Financial Statements

110


PART II

DUKE ENERGY INDIANA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

CASH FLOWS FROM OPERATING ACTIVITIES
  
 
  
 
  
Net income (loss)
$
359

 
$
358

 
$
(50
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
  
 
  
 
  
Depreciation and amortization
416

 
346

 
393

Equity component of AFUDC
(14
)
 
(15
)
 
(84
)
Impairment charges

 

 
579

Deferred income taxes
308

 
304

 
(74
)
Accrued pension and other post-retirement benefit costs
16

 
25

 
15

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

 
(30
)
 

Receivables
(35
)
 
3

 
6

Receivables from affiliated companies
36

 
(47
)
 
52

Inventory
(103
)
 
(53
)
 
(50
)
Other current assets
(8
)
 
(40
)
 
(25
)
Increase (decrease) in
  
 
  
 
  
Accounts payable
(41
)
 
32

 
18

Accounts payable to affiliated companies
2

 
(4
)
 
(12
)
Taxes accrued
(32
)
 
(30
)
 
(27
)
Other current liabilities
5

 
(5
)
 
6

Other assets
(21
)
 
(16
)
 
6

Other liabilities
17

 
(84
)
 
(37
)
Net cash provided by operating activities
905

 
744

 
716

CASH FLOWS FROM INVESTING ACTIVITIES
  
 
  
 
  
Capital expenditures
(625
)
 
(545
)
 
(718
)
Purchases of available-for-sale securities
(20
)
 
(11
)
 
(17
)
Proceeds from sales and maturities of available-for-sale securities
16

 
7

 
18

Notes receivable from affiliated companies
96

 
(96
)
 

Other
4

 
(3
)
 
(1
)
Net cash used in investing activities
(529
)
 
(648
)
 
(718
)
CASH FLOWS FROM FINANCING ACTIVITIES
  
 
  
 
  
Proceeds from the issuance of long-term debt

 
498

 
250

Payments for the redemption of long-term debt
(5
)
 
(405
)
 
(7
)
Notes payable to affiliated companies
71

 
(81
)
 
(219
)
Dividend to parent
(450
)
 
(125
)
 

Other
(1
)
 
(4
)
 
(2
)
Net cash (used in) provided by financing activities
(385
)
 
(117
)
 
22

Net (decrease) increase in cash and cash equivalents
(9
)
 
(21
)
 
20

Cash and cash equivalents at beginning of period
15

 
36

 
16

Cash and cash equivalents at end of period
$
6

 
$
15

 
$
36

Supplemental Disclosures:
  
 
  
 
  
Cash paid for interest, net of amount capitalized
$
169

 
$
194

 
$
130

Cash (received from) paid for income taxes
(61
)
 
46

 
57

Significant non-cash transactions:
  
 
  
 
  
Accrued capital expenditures
87

 
73

 
67

Transfer of Vermillion Generating Station from Duke Energy Ohio

 

 
26

See Notes to Consolidated Financial Statements

111


PART II

DUKE ENERGY INDIANA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY
  
  
 
  
 
  
 
Accumulated Other
Comprehensive Income

 
  
(in millions)  
Common
Stock

 
Additional
Paid-in
Capital

 
Retained
Earnings

 
Net Gains
on Cash
Flow Hedges

 
Total Equity

Balance at December 31, 2011
$
1

 
$
1,358

 
$
2,368

 
$
7

 
$
3,734

Net loss

 

 
(50
)
 

 
(50
)
Other comprehensive loss  

 

 

 
(2
)
 
(2
)
Transfer of Vermillion Generating Station from Duke Energy Ohio  

 
26

 

 

 
26

Balance at December 31, 2012
$
1


$
1,384


$
2,318


$
5


$
3,708

Net income

 

 
358

 

 
358

Other comprehensive loss  

 

 

 
(2
)
 
(2
)
Dividend to parent  

 

 
(125
)
 

 
(125
)
Balance at December 31, 2013
$
1


$
1,384


$
2,551


$
3


$
3,939

Net income  

 

 
359

 

 
359

Dividend to parent  

 

 
(450
)
 

 
(450
)
Balance at December 31, 2014
$
1


$
1,384


$
2,460


$
3


$
3,848

See Notes to Consolidated Financial Statements  

112


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012

Index to Combined Notes To Consolidated Financial Statements
The notes to the consolidated financial statements are a combined presentation. The following list indicates the registrants to which the notes apply.
  
Applicable Notes
Registrant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Duke Energy Corporation
  
Duke Energy Carolinas, LLC
  
  
  
Progress Energy, Inc.
  
  
Duke Energy Progress, Inc.
  
  
  
Duke Energy Florida, Inc.
  
  
Duke Energy Ohio, Inc.
  
  
  
  
Duke Energy Indiana, Inc.
  
  
  
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Consolidation
Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy operates in the United States (U.S.) and Latin America primarily through its direct and indirect subsidiaries. Duke Energy’s subsidiaries include its subsidiary registrants, Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, Inc. (Duke Energy Progress); Duke Energy Florida, Inc. (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio) and Duke Energy Indiana, Inc. (Duke Energy Indiana). When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its six separate subsidiary registrants (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants (Duke Energy Registrants).
On July 2, 2012, Duke Energy merged with Progress Energy, with Duke Energy continuing as the surviving corporation. Progress Energy became a subsidiary of Duke Energy and Progress Energy’s regulated utility subsidiaries, Duke Energy Progress (formerly Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc.) and Duke Energy Florida (formerly Florida Power Corporation d/b/a Progress Energy Florida, Inc.), became indirect subsidiaries of Duke Energy. Duke Energy’s consolidated financial statements include Progress Energy, Duke Energy Progress and Duke Energy Florida activity beginning July 2, 2012. The impacts of acquisition accounting from Progress Energy’s merger with Duke Energy were recorded by Duke Energy and were not reflected on the financial statements of Progress Energy, Duke Energy Progress and Duke Energy Florida. See Note 2 for additional information regarding the merger. On July 2, 2012, just prior to the close of the merger, Duke Energy executed a one-for-three reverse stock split with respect to the issued and outstanding shares of Duke Energy common stock. All per-share amounts included in this Form 10-K are presented as if the stock split had been effective from the beginning of the earliest period presented.
On August 21, 2014, Duke Energy Commercial Enterprises, Inc., an indirect wholly owned subsidiary of Duke Energy Corporation, and Duke Energy SAM, LLC, a wholly owned subsidiary of Duke Energy Ohio, entered into a purchase and sale agreement (PSA) with a subsidiary of Dynegy Inc. (Dynegy) whereby Dynegy will acquire Duke Energy Ohio’s nonregulated Midwest generation business and Duke Energy Retail Sales LLC (Disposal Group). The results of operations of the nonregulated Midwest generation business have been classified as Discontinued Operations on the Consolidated Statements of Operations for the current and prior periods presented. Duke Energy has elected to present cash flows of discontinued operations combined with cash flows of continuing operations. Unless otherwise noted, the notes to these consolidated financial statements exclude amounts related to discontinued operations for all periods presented, assets held for sale and liabilities associated with assets held for sale as of December 31, 2014. See Note 2 for additional information.
The information in these combined notes relate to each of the Duke Energy Registrants as noted in the Index to the Combined Notes to Consolidated Financial Statements. However, none of the registrants makes any representations as to information related solely to Duke Energy or the subsidiaries of Duke Energy other than itself.
These Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries where the respective Duke Energy Registrants have control. These Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities.
Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC), Public Service Commission of South Carolina (PSCSC), U.S. Nuclear Regulatory Commission (NRC) and FERC. Substantially all of Duke Energy Carolinas’ operations qualify for regulatory accounting.
Progress Energy is a public utility holding company headquartered in Raleigh, North Carolina, subject to regulation by the FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Substantially all of Progress Energy’s operations qualify for regulatory accounting.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC. Substantially all of Duke Energy Progress’ operations qualify for regulatory accounting.
Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Florida. Duke Energy Florida is subject to the regulatory provisions of the Florida Public Service Commission (FPSC), NRC and FERC. Substantially all of Duke Energy Florida’s operations qualify for regulatory accounting.
Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in Ohio and Kentucky, in the generation business in Kentucky, and the transportation and sale of natural gas in portions of Ohio and Kentucky. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky). Duke Energy Ohio conducts competitive auctions for retail electricity supply in Ohio whereby the energy price is recovered from retail customers. References herein to Duke Energy Ohio include Duke Energy Ohio and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subject to the regulatory provisions of the Public Utilities Commission of Ohio (PUCO), Kentucky Public Service Commission (KPSC) and FERC. Duke Energy Ohio applies regulatory accounting to a portion of its operations. Duke Energy has agreed to sell Duke Energy Ohio's nonregulated Midwest generation business, which sells power into wholesale energy markets, to Dynegy. See Note 2 for additional information.
Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and FERC. Substantially all of Duke Energy Indiana’s operations qualify for regulatory accounting.  
Certain prior year amounts have been reclassified to conform to the current year presentation.
Other Current and Non-Current Assets and Liabilities
Other within Current Assets includes the current portion of deferred tax assets, which are disclosed in Note 22 . Additionally, the following are included in Other within Current Assets or Current Liabilities in the Consolidated Balance Sheets of the Duke Energy Registrants at December 31, 2014 and 2013 . The amounts presented exceeded 5 percent of current assets or 5 percent of current liabilities unless otherwise noted.
 
 
 
December 31,
(in millions)
Location
 
2014

 
2013

Duke Energy
 
 
 
 
 
Accrued compensation
Current Liabilities
 
$
638

 
$
621

Duke Energy Carolinas
 
 
 
 
 
Accrued compensation  
Current Liabilities
 
$
216

 
$
198

Collateral liabilities  
Current Liabilities
 
128

 
120

Progress Energy  
  
 
  

 
  

Income taxes receivable (b)
Current Assets
 
$
718

 
$
119

Customer deposits  
Current Liabilities
 
360

 
349

Accrued compensation (a)
Current Liabilities
 
174

 
214

Derivative liabilities (b)
Current Liabilities
 
271

 

Duke Energy Progress  
  
 
  

 
  

Income taxes receivable (b)
Current Assets
 
$
272

 
$
15

Customer deposits  
Current Liabilities
 
135

 
129

Accrued compensation  
Current Liabilities
 
116

 
121

Derivative liabilities (b)
Current Liabilities
 
108

 
38

Duke Energy Florida  
  
 
  

 
  

Income taxes receivable (b)
Current Assets
 
$
177

 
$
65

Customer deposits  
Current Liabilities
 
225

 
220

Accrued compensation (a)
Current Liabilities
 
57

 
65

Derivative liabilities (b)
Current Liabilities
 
163

 

Duke Energy Ohio  
  
 
  

 
  

Collateral assets (a)
Current Assets
 
$
13

 
$
122

Duke Energy Indiana  
  
 
  

 
  

Income taxes receivable  
Current Assets
 
$
98

 
$
56

Accrued compensation (a)
Current Liabilities
 
25

 
25

Collateral liabilities
Current Liabilities
 
43

 
40


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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

(a) Does not exceed 5 percent of total current assets or liabilities, as appropriate, on the Consolidated Balance Sheets at December 31, 2014 .
(b) Does not exceed 5 percent of total current assets or liabilities, as appropriate, on the Consolidated Balance Sheets at December 31, 2013 .
Preferred Stock
In March 2013, Duke Energy Progress and Duke Energy Florida redeemed all series of their outstanding preferred stock at prices ranging from $101.00 to $110.00 per share for Duke Energy Progress and $101.00 to $104.25 per share for Duke Energy Florida plus accrued dividends for all series. Duke Energy Progress and Duke Energy Florida redeemed the shares for $62 million and $34 million , respectively.
Discontinued Operations
For the year ended December 31, 2014 , Duke Energy’s Loss from Discontinued Operations, net of tax was primarily related to a write-down of the carrying amount of the assets to the estimated fair value of the Disposal Group, based on the transaction price included in the PSA, and the operations of the Disposal Group. For the years ended December 31, 2013 and 2012, Duke Energy’s Income From Discontinued Operations, net of tax was primarily related to the operations of the Disposal Group. See Note 2 for additional information.
For the years ended December 31, 2014 , 2013 and 2012. Progress Energy’s (Loss) Income From Discontinued Operations, net of tax was primarily due to tax impacts related to prior sales of diversified businesses.
Amounts Attributable to Controlling Interests
The following table presents Net Income Attributable to Duke Energy Corporation for continuing operations and discontinued operations.
 
Years ended December 31,
 
2014
 
2013
 
2012
(in millions)
Duke Energy

Progress Energy

 
Duke Energy

Progress Energy

 
Duke Energy

Progress Energy

Income from Continuing Operations
$
2,465

$
880

 
$
2,590

$
659

 
1,611

355

Income of Continuing Operations Attributable to Noncontrolling Interests
14

5


16

3


18

7

Income from Continuing Operations Attributable to Duke Energy Corporation
$
2,451

$
875

 
$
2,574

$
656


$
1,593

$
348

(Loss) Income From Discontinued Operations, net of tax
$
(576
)
$
(6
)
 
$
86

$
16

 
171

52

Loss of Discontinued Operations attributable to Noncontrolling Interests, net of tax
(8
)

 
(5
)

 
(4
)

(Loss) Income From Discontinued Operations Attributable to Duke Energy Corporation, net of tax
$
(568
)
$
(6
)
 
$
91

$
16


$
175

$
52

Net Income
$
1,889

$
874

 
$
2,676

$
675


$
1,782

$
407

Net Income Attributable to Noncontrolling Interest
6

5

 
11

3

 
14

7

Net Income Attributable to Duke Energy Corporation
$
1,883

$
869

 
$
2,665

$
672


$
1,768

$
400

Significant Accounting Policies
Use of Estimates
In preparing financial statements that conform to generally accepted accounting principles (GAAP) in the U.S., the Duke Energy Registrants must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Regulatory Accounting
The majority of the Duke Energy Registrants’ operations are subject to price regulation for the sale of electricity and gas by state utility commissions or FERC. When prices are set on the basis of specific costs of the regulated operations and an effective franchise is in place such that sufficient gas or electric services can be sold to recover those costs, the Duke Energy Registrants apply regulatory accounting. Regulatory accounting changes the timing of the recognition of costs or revenues relative to a company that does not apply regulatory accounting. As a result, Regulatory assets and Regulatory liabilities are recognized on the Consolidated Balance Sheets. Regulatory assets and liabilities are amortized consistent with the treatment of the related cost in the ratemaking process. See Note 4 for further information.
Regulated Fuel Costs and Purchased Power
The Duke Energy Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses. These clauses allow for the recovery of fuel and fuel-related costs and portions of purchased power costs through surcharges on customer rates. The difference between the costs incurred and the surcharge revenues is recorded as an adjustment to Fuel Operating Revenues – Regulated electric on the Consolidated Statements of Operations with an off-setting impact on regulatory assets or liabilities.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less at the date of acquisition are considered cash equivalents. At December 31, 2014 , $1,680 million of Duke Energy’s total cash and cash equivalents is held by entities domiciled in foreign jurisdictions. During the fourth quarter of 2014, Duke Energy declared a taxable dividend of historical foreign earnings in the form of notes payable that will result in the repatriation of approximately $2.7 billion in cash held and expected to be generated by International Energy over a period of up to 8 years . See Note 22 to the Consolidated Financial Statements, “Income Taxes,” for additional information.
Restricted Cash
The Duke Energy Registrants have restricted cash related primarily to collateral assets, escrow deposits and variable interest entities (VIEs). Restricted cash balances are reflected in Other within Current Assets and in Other within Investments and Other Assets on the Consolidated Balance Sheets. At December 31, 2014 and 2013 , Duke Energy had restricted cash totaling $298 million and $307 million , respectively.
Inventory
Inventory is used for operations and is recorded primarily using the average cost method. Inventory related to regulated operations is valued at historical cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Materials and supplies are recorded as inventory when purchased and subsequently charged to expense or capitalized to property, plant and equipment when installed. Reserves are established for excess and obsolete inventory. The components of inventory are presented in the tables below.
  
December 31, 2014
(in millions)  
Duke
Energy

 
Duke
Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke
 Energy 
 Ohio 

 
Duke
 Energy 
 Indiana 

Materials and supplies  
$
2,102

 
$
719

 
$
981

 
$
676

 
$
305

 
$
67

 
$
258

Coal held for electric generation  
997

 
362

 
329

 
150

 
178

 
21

 
275

Oil, gas and other fuel held for electric generation  
360

 
43

 
280

 
140

 
140

 
9

 
4

Total inventory  
$
3,459

 
$
1,124

 
$
1,590

 
$
966

 
$
623

 
$
97

 
$
537

  
December 31, 2013
(in millions)  
Duke
Energy

 
Duke
Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke
 Energy 
 Ohio 

 
Duke
 Energy 
 Indiana 

Materials and supplies  
$
1,901

 
$
654

 
$
854

 
$
567

 
$
287

 
$
117

 
$
193

Coal held for electric generation  
1,018

 
374

 
334

 
187

 
147

 
65

 
238

Oil, gas and other fuel held for electric generation  
331

 
37

 
236

 
99

 
137

 
47

 
3

Total inventory  
$
3,250

 
$
1,065

 
$
1,424

 
$
853

 
$
571

 
$
229

 
$
434

Investments in Debt and Equity Securities
The Duke Energy Registrants classify investments into two categories — trading and available-for-sale. Both categories are recorded at fair value on the Consolidated Balance Sheets. Realized and unrealized gains and losses on trading securities are included in earnings. For certain investments of regulated operations such as the Nuclear Decommissioning Trust Fund (NDTF), realized and unrealized gains and losses (including any other-than-temporary impairments) on available-for-sale securities are recorded as a regulatory asset or liability. Otherwise, unrealized gains and losses are included in Accumulated Other Comprehensive Income (AOCI), unless other-than-temporarily impaired. Other-than-temporary impairments for equity securities and the credit loss portion of debt securities of nonregulated operations are included in earnings. Investments in debt and equity securities are classified as either current or noncurrent based on management’s intent and ability to sell these securities, taking into consideration current market liquidity. See Note 15 for further information.
Goodwill and Intangible Assets
Goodwill
Duke Energy, Progress Energy and Duke Energy Ohio perform annual goodwill impairment tests as of August 31 each year at the reporting unit level, which is determined to be an operating segment or one level below. Duke Energy, Progress Energy and Duke Energy Ohio update these tests between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value.
In 2012, Progress Energy changed its goodwill impairment testing date from October 31 to August 31 to better align its annual goodwill impairment testing procedure with those of Duke Energy. The change had no impact on goodwill. Neither the change in the goodwill impairment testing date nor the merger resulted in any changes to the Progress Energy reporting units.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Intangible Assets
Intangible assets are included in Other in Investments and Other Assets on the Consolidated Balance Sheets. Generally, intangible assets are amortized using an amortization method that reflects the pattern in which the economic benefits of the intangible asset are consumed, or on a straight-line basis if that pattern is not readily determinable. Amortization of intangibles is reflected in Depreciation and amortization in the Consolidated Statements of Operations. Intangible assets are subject to impairment testing and if impaired, the carrying value is accordingly reduced.
Emission allowances permit the holder of the allowance to emit certain gaseous byproducts of fossil fuel combustion, including sulfur dioxide (SO 2 ) and nitrogen oxide (NO X ). Allowances are issued by the U.S. Environmental Protection Agency (EPA) at zero cost and may also be bought and sold via third-party transactions. Allowances allocated to or acquired by the Duke Energy Registrants are held primarily for consumption. Carrying amounts for emission allowances are based on the cost to acquire the allowances or, in the case of a business combination, on the fair value assigned in the allocation of the purchase price of the acquired business.
Renewable energy certificates are used to measure compliance with renewable energy standards and are held primarily for consumption. See Note 11 for further information.
Long-Lived Asset Impairments
The Duke Energy Registrants evaluate long-lived assets, excluding goodwill, for impairment when circumstances indicate the carrying value of those assets may not be recoverable. An impairment exists when a long-lived asset’s carrying value exceeds the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. The estimated cash flows may be based on alternative expected outcomes that are probability weighted. If the carrying value of the long-lived asset is not recoverable based on these estimated future undiscounted cash flows, the carrying value of the asset is written-down to its then-current estimated fair value and an impairment charge is recognized.
The Duke Energy Registrants assess fair value of long-lived assets using various methods, including recent comparable third-party sales, internally developed discounted cash flow analysis and analysis from outside advisors. Significant changes in commodity prices, the condition of an asset or management’s interest in selling the asset are generally viewed as triggering events to re-assess cash flows. See Note 11 for further information.
Property, Plant and Equipment
Property, plant and equipment are stated at the lower of depreciated historical cost net of any disallowances or fair value, if impaired. The Duke Energy Registrants capitalize all construction-related direct labor and material costs, as well as indirect construction costs such as general engineering, taxes and financing costs. See “Allowance for Funds Used During Construction (AFUDC) and Interest Capitalized” for information on capitalized financing costs. Costs of renewals and betterments that extend the useful life of property, plant and equipment are also capitalized. The cost of repairs, replacements and major maintenance projects, which do not extend the useful life or increase the expected output of the asset, are expensed as incurred. Depreciation is generally computed over the estimated useful life of the asset using the composite straight-line method. Depreciation studies are conducted periodically to update composite rates and are approved by state utility commissions and/or the FERC when required. The composite weighted-average depreciation rates, excluding nuclear fuel, are included in the table that follows.
  
Years Ended December 31,
  
2014

 
2013

 
2012

Duke Energy  
2.8
%
 
2.8
%
 
2.9
%
Duke Energy Carolinas  
2.7
%
 
2.8
%
 
2.8
%
Progress Energy  
2.5
%
 
2.5
%
 
2.6
%
Duke Energy Progress  
2.5
%
 
2.5
%
 
2.7
%
Duke Energy Florida  
2.7
%
 
2.4
%
 
2.5
%
Duke Energy Ohio  
2.3
%
 
3.3
%
 
3.2
%
Duke Energy Indiana  
3.0
%
 
2.8
%
 
3.3
%
In general, when the Duke Energy Registrants retire regulated property, plant and equipment, original cost plus the cost of retirement, less salvage value, is charged to accumulated depreciation. However, when it becomes probable a regulated asset will be retired substantially in advance of its original expected useful life or is abandoned, the cost of the asset and the corresponding accumulated depreciation is recognized as a separate asset. If the asset is still in operation, the net amount is classified as Generation facilities to be retired, net on the Consolidated Balance Sheets. If the asset is no longer operating, the net amount is classified in Regulatory Assets on the Consolidated Balance Sheets. The carrying value of the asset is based on historical cost if the Duke Energy Registrants are allowed to recover the remaining net book value and a return equal to at least the incremental borrowing rate. If not, an impairment is recognized to the extent the net book value of the asset exceeds the present value of future revenues discounted at the incremental borrowing rate.
When the Duke Energy Registrants sell entire regulated operating units, or retire or sell nonregulated properties, the original cost and accumulated depreciation and amortization balances are removed from Property, Plant and Equipment on the Consolidated Balance Sheets. Any gain or loss is recorded in earnings, unless otherwise required by the applicable regulatory body.
See Note 10 for further information.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the Consolidated Balance Sheets, except for Duke Energy Florida. Duke Energy Florida has reclassified all Crystal River Unit 3 Nuclear Station (Crystal River Unit 3) investments, including nuclear fuel, to a regulatory asset. Refer to Note 4, “Regulatory Matters,” for additional information on Crystal River Unit 3.
Nuclear fuel in the front-end fuel processing phase is considered work in progress and not amortized until placed in service. Amortization of nuclear fuel is included within Fuel used in electric generation and purchased power - regulated in the Consolidated Statements of Operations. Amortization is recorded using the units-of-production method.
Allowance for Funds Used During Construction and Interest Capitalized
For regulated operations, the debt and equity costs of financing the construction of property, plant and equipment are reflected as AFUDC and capitalized as a component of the cost of property, plant and equipment. AFUDC equity is reported on the Consolidated Statements of Operations as non-cash income in Other income and expenses, net. AFUDC debt is reported as a non-cash offset to Interest Expense. After construction is completed, the Duke Energy Registrants are permitted to recover these costs through their inclusion in rate base and the corresponding subsequent depreciation or amortization of those regulated assets.
AFUDC equity, a permanent difference for income taxes, reduces the effective tax rate when capitalized and increases the effective tax rate when depreciated or amortized. See Note 22 for additional information.
For nonregulated operations, interest is capitalized during the construction phase with an offsetting non-cash credit to Interest Expense on the Consolidated Statements of Operations.
Asset Retirement Obligations
Asset retirement obligations are recognized for legal obligations associated with the retirement of property, plant and equipment. Substantially all asset retirement obligations are related to regulated operations. When recording an asset retirement obligation, the present value of the projected liability is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The liability is accreted over time. For operating plants, the present value of the liability is added to the cost of the associated asset and depreciated over the remaining life of the asset. For retired plants, the present value of the liability is recorded as a regulatory asset and expensed over the recovery period in rates.
The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding timing of future cash flows, selection of discount rates and cost escalation rates, among other factors. These estimates are subject to change. Depreciation expense is adjusted prospectively for any changes to the carrying amount of the associated asset. The Duke Energy Registrants receive amounts to fund the cost of the asset retirement obligation for regulated operations through a combination of regulated revenues and NDTF. As a result, the net of amounts recovered in regulated revenues, earnings on the NDTF, accretion expense and depreciation of the associated asset is deferred as a regulatory asset or liability.
Obligations for nuclear decommissioning are based on site-specific cost studies. Duke Energy Carolinas and Duke Energy Progress assume prompt dismantlement of the nuclear facilities after operations are ceased. Duke Energy Florida assumes Crystal River Unit 3 will be placed into a safe storage configuration until eventual dismantlement begins in approximately 60 years . Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida also assume that spent fuel will be stored on site until such time that it can be transferred to a U.S. Department of Energy (DOE) facility.
Obligations for closure of ash basins are based upon discounted cash flows of estimated costs based upon probability weightings of the potential closure methods as evaluated on a site by site basis. Duke Energy Registrants with ash basins in North Carolina and certain basins in South Carolina and Indiana have a legal obligation that results in recognition of an asset retirement obligation at December 31, 2014. See Notes 5 and 9 for further information.
Revenue Recognition and Unbilled Revenue
Revenues on sales of electricity and gas are recognized when service is provided or the product is delivered. Unbilled revenues are recognized by applying customer billing rates to the estimated volumes of energy delivered but not yet billed. Unbilled revenues can vary significantly from period to period as a result of seasonality, weather, customer usage patterns, customer mix, average price in effect for customer classes and meter reading schedules.

118


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Unbilled revenues are included within Receivables and Restricted receivables of variable interest entities on the Consolidated Balance Sheets as shown in the following table. This table excludes amounts included in assets held for sale (AHFS).
  
December 31,
(in millions)  
2014

 
2013

Duke Energy  
$
827

 
$
937

Duke Energy Carolinas  
295

 
323

Progress Energy  
217

 
189

Duke Energy Progress  
135

 
120

Duke Energy Florida  
82

 
69

Duke Energy Ohio  

 
55

Duke Energy Indiana  
27

 
5

Additionally, Duke Energy Ohio and Duke Energy Indiana sell, on a revolving basis, nearly all of their retail accounts receivable, including receivables for unbilled revenues, to an affiliate, Cinergy Receivables Company, LLC (CRC) and account for the transfers of receivables as sales. Accordingly, the receivables sold are not reflected on the Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 17 for further information. These receivables for unbilled revenues are shown in the table below.
  
December 31,
(in millions)
2014

 
2013

Duke Energy Ohio
79

 
89

Duke Energy Indiana
112

 
144

Allowance for Doubtful Accounts
Allowances for doubtful accounts are presented in the following table.
  
December 31,
(in millions)  
2014

 
2013

 
2012

Allowance for Doubtful Accounts  
  
 
  
 
  
Duke Energy  
$
17

 
30

 
34

Duke Energy Carolinas  
3

 
3

 
3

Progress Energy  
8

 
14

 
16

Duke Energy Progress  
7

 
10

 
9

Duke Energy Florida  
2

 
4

 
7

Duke Energy Ohio  
2

 
2

 
2

Duke Energy Indiana  
1

 
1

 
1

Allowance for Doubtful Accounts - VIEs  
  
 
  
 
  
Duke Energy  
$
51

 
43

 
44

Duke Energy Carolinas  
6

 
6

 
6

Progress Energy  
8

 

 

Duke Energy Progress  
5

 

 

Duke Energy Florida  
3

 

 

Derivatives and Hedging
Derivative and non-derivative instruments may be used in connection with commodity price, interest rate and foreign currency risk management activities, including swaps, futures, forwards and options. All derivative instruments except those that qualify for the normal purchase/normal sale (NPNS) exception are recorded on the Consolidated Balance Sheets at their fair value. Qualifying derivative instruments may be designated as either cash flow hedges or fair value hedges. Other derivative instruments (undesignated contracts) either have not been designated or do not qualify as hedges. The effective portion of the change in the fair value of cash flow hedges is recorded in AOCI. The effective portion of the change in the fair value of a fair value hedge is offset in net income by changes in the hedged item. For activity subject to regulatory accounting, gains and losses on derivative contracts are reflected as regulatory assets or liabilities and not as other comprehensive income or current period income. As a result, changes in fair value of these derivatives have no immediate earnings impact.
Formal documentation, including transaction type and risk management strategy, is maintained for all contracts accounted for as a hedge. At inception and at least every three months thereafter, the hedge contract is assessed to see if it is highly effective in offsetting changes in cash flows or fair values of hedged items.
See Note 14 for further information.

119


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Captive Insurance Reserves
Duke Energy has captive insurance subsidiaries that provide coverage, on an indemnity basis, to the Subsidiary Registrants as well as certain third parties, on a limited basis, for various business risks and losses, such as property, workers’ compensation and general liability. Liabilities include provisions for estimated losses incurred but not yet reported (IBNR), as well as estimated provisions for known claims. IBNR reserve estimates are primarily based upon historical loss experience, industry data and other actuarial assumptions. Reserve estimates are adjusted in future periods as actual losses differ from experience.
Duke Energy, through its captive insurance entities, also has reinsurance coverage with third parties for certain losses above a per occurrence and/or aggregate retention. Receivables for reinsurance coverage are recognized when realization is deemed probable.
Unamortized Debt Premium, Discount and Expense
Premiums, discounts and expenses incurred with the issuance of outstanding long-term debt are amortized over the term of the debt issue. Call premiums and unamortized expenses associated with refinancing higher-cost debt obligations in the regulated operations are amortized. Amortization expense is recorded as Interest Expense in the Consolidated Statements of Operations and is reflected as Depreciation, amortization and accretion within Net cash provided by operating activities on the Consolidated Statements of Cash Flows.
Loss Contingencies and Environmental Liabilities
Contingent losses are recorded when it is probable a loss has occurred and can be reasonably estimated. When a range of the probable loss exists and no amount within the range is a better estimate than any other amount, the minimum amount in the range is recorded. Unless otherwise required by GAAP, legal fees are expensed as incurred.
Environmental liabilities are recorded on an undiscounted basis when environmental remediation or other liabilities becomes probable and can be reasonably estimated. Environmental expenditures related to past operations that do not generate current or future revenues are expensed. Environmental expenditures related to operations that generate current or future revenues are expensed or capitalized, as appropriate. Certain environmental expenditures receive regulatory accounting treatment and are recorded as regulatory assets.
See Notes 4 and 5 for further information.
Pension and Other Post-Retirement Benefit Plans
Duke Energy maintains qualified, non-qualified and other post-retirement benefit plans. Eligible employees of the Subsidiary Registrants participate in the respective qualified, non-qualified and other post-retirement benefit plans and the Subsidiary Registrants are allocated their proportionate share of benefit costs. See Note 21 for further information, including significant accounting policies associated with these plans.
Severance and Special Termination Benefits
Duke Energy has an ongoing severance plan under which, in general, the longer a terminated employee worked prior to termination the greater the amount of severance benefits. A liability for involuntary severance is recorded once an involuntary severance plan is committed to by management, or sooner, if involuntary severances are probable and can be reasonably estimated. For involuntary severance benefits incremental to its ongoing severance plan benefits, the fair value of the obligation is expensed at the communication date if there are no future service requirements, or over the required future service period. From time to time, Duke Energy offers special termination benefits under voluntary severance programs. Special termination benefits are recorded immediately upon employee acceptance absent a significant retention period. Otherwise, the cost is recorded over the remaining service period. Employee acceptance of voluntary severance benefits is determined by management based on the facts and circumstances of the benefits being offered. See Note 19 for further information.
Guarantees
Liabilities are recognized at the time of issuance or material modification of a guarantee for the estimated fair value of the obligation it assumes. Fair value is estimated using a probability-weighted approach. The obligation is reduced over the term of the guarantee or related contract in a systematic and rational method as risk is reduced. Any additional contingent loss for guarantee contracts subsequent to the initial recognition of a liability is accounted for and recognized at the time a loss is probable and can be reasonably estimated. See Note 7 for further information.
Stock-Based Compensation
Stock-based compensation represents costs related to stock-based awards granted to employees and Duke Energy Board of Directors (Board of Directors) members. Duke Energy recognizes stock-based compensation based upon the estimated fair value of awards, net of estimated forfeitures at the date of issuance. The recognition period for these costs begin at either the applicable service inception date or grant date and continues throughout the requisite service period, or for certain share-based awards until the employee becomes retirement eligible, if earlier. Compensation cost is recognized as expense or capitalized as a component of property, plant and equipment. See Note 20 for further information.
Income Taxes
Duke Energy and its subsidiaries file a consolidated federal income tax return and other state and foreign jurisdictional returns. The Subsidiary Registrants entered into a tax-sharing agreement with Duke Energy. Income taxes recorded represent amounts the Subsidiary Registrants would incur as separate C-Corporations. Deferred income taxes have been provided for temporary differences between GAAP and tax bases of assets and liabilities because the differences create taxable or tax-deductible amounts for future periods. Deferred taxes are not provided on translation gains and losses when earnings of a foreign operation are expected to be indefinitely reinvested. Investment tax credits (ITC) associated with regulated operations are deferred and amortized as a reduction of income tax expense over the estimated useful lives of the related properties.

120


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Positions taken or expected to be taken on tax returns, including the decision to exclude certain income or transactions from a return, are recognized in the financial statements when it is more likely than not the tax position can be sustained based solely on the technical merits of the position. The largest amount of tax benefit that is greater than 50 percent likely of being effectively settled is recorded. Management considers a tax position effectively settled when: (i) the taxing authority has completed its examination procedures, including all appeals and administrative reviews; (ii) the Duke Energy Registrants do not intend to appeal or litigate the tax position included in the completed examination; and (iii) it is remote the taxing authority would examine or re-examine the tax position. The amount of a tax return position that is not recognized in the financial statements is disclosed as an unrecognized tax benefit. If these unrecognized tax benefits are later recognized, then there will be a decrease in income taxes payable, an income tax refund or a swap between deferred and current taxes payable. If the portion of tax benefits that has been recognized changes and those tax benefits are subsequently unrecognized, then the previously recognized tax benefits may impact the financial statements through increasing income taxes payable, reducing income tax refunds receivable changing deferred taxes. Changes in assumptions on tax benefits may also impact interest expense or interest income and may result in the recognition of tax penalties.
Tax-related interest and penalties are recorded in Interest Expense and Other Income and Expenses, net, in the Consolidated Statements of Operations.
See Note 22 for further information.
Accounting for Renewable Energy Tax Credits and Cash Grants
When Duke Energy receives ITC or cash grants on wind or solar facilities, it reduces the basis of the property recorded on the Consolidated Balance Sheets by the amount of the ITC or cash grant and, therefore, the ITC or grant benefit is recognized through reduced depreciation expense. Additionally, certain tax credits and government grants received provide for initial tax depreciable base in excess of the book carrying value equal to one half of the ITC or government grant. Deferred tax benefits are recorded as a reduction to income tax expense in the period that the basis difference is created.
Excise Taxes
Certain excise taxes levied by state or local governments are required to be paid even if not collected from the customer. These taxes are recognized on a gross basis. Otherwise, the taxes are accounted for net. Excise taxes accounted for on a gross basis as both operating revenues and property and other taxes in the Consolidated Statements of Operations were as follows.
  
Years Ended December 31,
(in millions)  
2014

 
2013

 
2012

Duke Energy  
$
498

 
$
602

 
$
466

Duke Energy Carolinas  
94

 
164

 
161

Progress Energy  
263

 
304

 
317

Duke Energy Progress  
56

 
115

 
113

Duke Energy Florida  
207

 
189

 
205

Duke Energy Ohio  
103

 
105

 
102

Duke Energy Indiana  
38

 
29

 
33

During the third quarter of 2014, the North Carolina gross receipts tax was terminated due to the North Carolina Tax Simplification and Rate Reduction Act. The North Carolina gross receipts tax is no longer imposed effective July 1, 2014.

On July 23, 2013, North Carolina House Bill 998 (HB 998) was signed into law. HB 998 repealed the utility franchise tax effective July 1, 2014. The utility franchise tax was 3.22 percent gross receipts tax on sales of electricity. The result of this change in law will be an annual reduction in excise taxes of approximately $160 million for Duke Energy Carolinas and approximately $110 million for Duke Energy Progress. HB 998 also increases sales tax on electricity from 3 percent to 7 percent effective July 1, 2014. HB 998 requires the NCUC to adjust retail electric rates for the elimination of the utility franchise tax, changes due to the increase in sales tax on electricity, and the resulting change in liability of utility companies under the general franchise tax.
Foreign Currency Translation
The local currencies of most of Duke Energy’s foreign operations have been determined to be their functional currencies. However, certain foreign operations’ functional currency has been determined to be the U.S. dollar, based on an assessment of the economic circumstances of the foreign operation Assets and liabilities of foreign operations whose functional currency is not the U.S. dollar are translated into U.S. dollars at the exchange rates in effect at period end. Translation adjustments resulting from changes in exchange rates are included in AOCI. Revenue and expense accounts are translated at average exchange rates during the year. Remeasurement gains and losses arising from balances and transactions denominated in currencies other than the local currency are included in the results of operations when they occur.
Dividend Restrictions and Unappropriated Retained Earnings
Duke Energy does not have any legal, regulatory or other restrictions on paying common stock dividends to shareholders. However, as further described in Note 4 , due to conditions established by regulators in conjunction with merger transaction approvals, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana have restrictions on paying dividends or otherwise advancing funds to Duke Energy. At December 31, 2014 and 2013 , an insignificant amount of Duke Energy’s consolidated Retained earnings balance represents undistributed earnings of equity method investments.

121


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

New Accounting Standards
The new accounting standards that were adopted for 2014 , 2013 and 2012 had no significant impact on the presentation or results of operations, cash flows or financial position of the Duke Energy Registrants. Disclosures have been enhanced to provide a discussion and tables on derivative contracts subject to enforceable master netting agreements and a table of quantitative disclosures about unobservable inputs. See Notes 14 and 16 for further information.
The following new Accounting Standards Updates (ASUs) have been issued, but have not yet been adopted by the Duke Energy Registrants, as of December 31, 2014 .
ASC 205 — Reporting Discontinued Operations . In April 2014, the Financial Accounting Standards Board (FASB) issued revised accounting guidance for reporting discontinued operations. A discontinued operation would be either (i) a component of an entity or a group of components of an entity that represents a separate major line of business or major geographical area of operations that either has been disposed of or is part of a single coordinated plan to be classified as held for sale or (ii) a business that, on acquisition, meets the criteria to be classified as held for sale.
For the Duke Energy Registrants, this guidance is effective on a prospective basis for interim and annual periods beginning January 1, 2015. This guidance will also result in increased disclosures for discontinued operations or disposals of individually significant components that are not classified as discontinued operations. In general, this guidance is likely to result in fewer disposals of assets qualifying as discontinued operations.
ASC 606 — Revenue from Contracts with Customers . In May 2014, the FASB issued revised accounting guidance for revenue recognition from contracts with customers. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update also require disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
For the Duke Energy Registrants, this guidance is effective for interim and annual periods beginning January 1, 2017. Duke Energy is currently evaluating the requirements. The ultimate impact of the new standard has not yet been determined.
2. ACQUISITIONS, DISPOSITIONS AND SALES OF OTHER ASSETS
ACQUISITIONS
The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date, and include earnings from acquisitions in consolidated earnings after the purchase date.
Purchase of NCEMPA's Generation
On September 5, 2014, Duke Energy Progress executed an agreement to purchase North Carolina Eastern Municipal Power Agency’s (NCEMPA) ownership interests in certain generating assets jointly owned with and operated by Duke Energy Progress. The agreement provides for the acquisition of a total of approximately 700 megawatts (MW) at Brunswick Nuclear Station (Brunswick), Shearon Harris Nuclear Station (Harris), Mayo Steam Station and Roxboro Steam Station. The purchase price for the ownership interest and fuel and spare parts inventory is approximately $1.2 billion . Under the agreement, Duke Energy Progress and NCEMPA will enter into a 30-year wholesale power supply agreement to continue meeting the needs of NCEMPA’s customers. Closing of the transaction is subject to certain conditions, including state and federal regulatory approvals and legislative action required prior to completing the transaction. On December 9, 2014, the FERC approved Duke Energy Progress' request to purchase NCEMPA's interests in the generation assets, approved Duke Energy Progress' 30-year wholesale power supply agreement with NCEMPA, and approved Duke Energy Progress' inclusion of the acquisition adjustment resulting from the asset purchase in wholesale power formula rates. The transaction is expected to close by the end of 2015 or early 2016.
Merger with Progress Energy
On July 2, 2012, Duke Energy completed its merger with Progress Energy, a North Carolina corporation engaged in the regulated utility business of generation, transmission and distribution and sale of electricity in portions of North Carolina, South Carolina and Florida. As a result of the merger, Progress Energy became a wholly owned subsidiary of Duke Energy. 
The merger between Duke Energy and Progress Energy provides increased scale and diversity with potentially enhanced access to capital over the long term and a greater ability to undertake the significant construction programs necessary to respond to increasing environmental regulation, plant retirements and customer demand growth. Duke Energy’s business risk profile is expected to improve over time due to the increased proportion of the business that is regulated. Additionally, cost savings, efficiencies and other benefits are expected from the combined operations.

122


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Purchase Price  
Total consideration transferred was based on the closing price of Duke Energy common shares on July 2, 2012, and was calculated as shown in the following table.
(dollars in millions, except per share amounts; shares in thousands)
 
Progress Energy common shares outstanding at July 2, 2012
296,116

Exchange ratio
0.87083

Duke Energy common shares issued for Progress Energy common shares outstanding
257,867

Closing price of Duke Energy common shares on July 2, 2012
$
69.84

Purchase price for common stock
$
18,009

Fair value of outstanding earned stock compensation awards
62

Total purchase price
$
18,071

Progress Energy’s stock-based compensation awards, including performance shares and restricted stock, were replaced with Duke Energy awards upon consummation of the merger. In accordance with accounting guidance for business combinations, a portion of the fair value of these awards is included in the purchase price as it represents consideration transferred in the merger.
Purchase Price Allocation
Fair value of assets acquired and liabilities assumed was determined based on significant estimates and assumptions, including Level 3 inputs, which are judgmental in nature. Estimates and assumptions include the projected timing and amount of future cash flows, discount rates reflecting risk inherent in future cash flows, and future market prices.
Additionally, the February 5, 2013 announcement of the decision to retire Crystal River Unit 3 reflected additional information related to facts and circumstances existing as of the acquisition date. See Note 4 for additional information related to Crystal River Unit 3. As such, Duke Energy presents assets acquired and liabilities assumed as if the retirement of Crystal River Unit 3 occurred on the acquisition date.
The majority of Progress Energy’s operations are subject to the rate-setting authority of the FERC, NCUC, PSCSC, and FPSC and are accounted for pursuant to U.S. GAAP, including the accounting guidance for regulated operations. Rate-setting and cost recovery provisions currently in place for Progress Energy’s regulated operations provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base. Except for long-term debt, asset retirement obligations, capital leases, pension and other post-retirement benefit obligations (OPEB), and the wholesale portion of Crystal River Unit 3, fair values of tangible and intangible assets and liabilities subject to these rate-setting provisions approximate their carrying values. Accordingly, assets acquired and liabilities assumed and pro forma financial information do not reflect any net adjustments related to these amounts. The difference between fair value and pre-merger carrying amounts for long-term debt, asset retirement obligations, capital leases and pension and OPEB plans for regulated operations were recorded as Regulatory assets.
The excess of purchase price over estimated fair values of assets acquired and liabilities assumed was recognized as goodwill at the acquisition date. The goodwill reflects the value paid primarily for long-term potential for enhanced access to capital as a result of increased scale and diversity, opportunities for synergies, and an improved risk profile. Goodwill resulting from the merger was allocated entirely to the Regulated Utilities segment. None of the goodwill recognized is deductible for income tax purposes, and as such, no deferred taxes have been recorded related to goodwill.
The completed purchase price allocation is presented in the following table.
(in millions)
 
Current assets
$
3,204

Property, plant and equipment
23,141

Goodwill
12,469

Other long-term assets
9,990

Total assets
48,804

Current liabilities, including current maturities of long-term debt
3,593

Long-term liabilities, preferred stock and noncontrolling interests
10,394

Long-term debt
16,746

Total liabilities and preferred stock
30,733

Total purchase price
$
18,071

The purchase price allocation in the table above reflects refinements made to preliminary fair values of assets acquired and liabilities assumed as of December 31, 2012. These refinements include adjustments associated with the retirement of Crystal River Unit 3. The changes resulted in an increase to Goodwill of $2 million , an increase to the fair value of Current liabilities, including current maturities of long-term debt of $12 million , a decrease to Property, plant and equipment of $138 million , a decrease to Other long-term assets of $4 million and a decrease to Long-term liabilities, preferred stock and noncontrolling interests of $152 million . These refinements had no impact on the amortization of purchase accounting adjustments recorded to earnings during the year ended December 31, 2013, or for the six months ended December 31, 2012.

123


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Pro Forma Financial Information
The following unaudited pro forma financial information reflects the consolidated results of operations of Duke Energy and the amortization of purchase price adjustments assuming the merger had taken place on January 1, 2012. The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or future consolidated results of operations of Duke Energy.
Non-recurring merger consummation, integration and other costs incurred by Duke Energy and Progress Energy during the period have been excluded from pro forma earnings presented below. After-tax non-recurring merger consummation, integration and other costs incurred by both Duke Energy and Progress Energy were $413 million for the year ended 2012. The pro forma financial information also excludes potential future cost savings or non-recurring charges related to the merger.
  
Year Ended December 31,
(in millions, except per share amounts)
2012

Revenues
$
23,976

Net Income Attributable to Duke Energy Corporation
2,417

Basic and Diluted Earnings Per Share
3.43

Accounting Charges Related to the Merger Consummation
The following pretax consummation charges were recognized upon closing of the merger and are included in the Duke Energy Registrants’ Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2012.
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

FERC Mitigation  
$
117

 
$
46

 
$
71

 
$
71

 
$

 
$

 
$

Severance costs  
196

 
63

 
82

 
55

 
27

 
21

 
18

Community support, charitable
contributions and other  
169

 
79

 
74

 
63

 
11

 
7

 
6

Total  
$
482

 
$
188

 
$
227

 
$
189

 
$
38

 
$
28

 
$
24

FERC Mitigation charges reflect the portion of transmission project costs probable of disallowance, impairment of the carrying value of the generation assets serving Interim FERC Mitigation, and mark-to-market losses recognized on power sale agreements upon closing of the merger. Charges related to transmission projects and impairment of the carrying value of generation assets were recorded within Impairment charges in the Consolidated Statements of Operations. Mark-to-market losses on interim power sale agreements was recorded in Regulated electric operating revenues in the Consolidated Statements of Operations. Subsequent changes in fair value of interim power sale agreements over the life of the contracts and realized gains or losses on interim contract sales are also recorded within Regulated electric operating revenues. The ability to successfully defend future recovery of a portion of transmission projects in rates and any future changes to estimated transmission project costs could impact the amount not expected to be recovered.
In conjunction with the merger, in November 2011, Duke Energy and Progress Energy each offered a voluntary severance plan (VSP) to certain eligible employees. VSP and other severance costs incurred were recorded primarily within Operation, maintenance and other in the Consolidated Statements of Operations. See Note 19 for further information related to employee severance expenses.
Community support, charitable contributions and other reflect (i) the unconditional obligation to provide funding at a level comparable to historic practices over the next four years, and (ii) financial and legal advisory costs incurred upon the closing of the merger, retention and relocation costs paid to certain employees. These charges were recorded within Operation, maintenance and other in the Consolidated Statements of Operations.
Impact of Merger
The impact of Progress Energy on Duke Energy’s revenues and net income attributable to Duke Energy in the Consolidated Statements of Operations for the year ended December 31, 2012 was an increase of $4,943 million and $368 million , respectively.
Chilean Operations
In December 2012, Duke Energy acquired Iberoamericana de Energía Ibener, S.A. (Ibener) of Santiago, Chile, for cash consideration of $415 million . This acquisition included the 140 MW Duqueco hydroelectric generation complex consisting of two run-of-the-river plants located in southern Chile. Purchase price allocation consisted primarily of $383 million of property, plant and equipment, $30 million of intangible assets, $57 million of deferred income tax liabilities, $54 million of goodwill and $8 million of working capital.

124


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DISPOSITIONS
Midwest Generation Exit
On August 21, 2014, Duke Energy Commercial Enterprises, Inc., an indirect wholly owned subsidiary of Duke Energy Corporation, and Duke Energy SAM, LLC, a wholly owned subsidiary of Duke Energy Ohio, entered into a PSA with a subsidiary of Dynegy whereby Dynegy will acquire Duke Energy’s Disposal Group for approximately $2.8 billion in cash subject to adjustments at closing for changes in working capital and capital expenditures. The completion of the transaction is conditioned on approval by FERC. On January 16, 2015, FERC issued a letter requesting additional information in connection with the transaction application. The request was for further economic analysis relating to the combined market power impacts of the proposed transaction and Dynegy's simultaneous acquisition of other assets in the PJM Interconnection, LLC (PJM) market, and information relating to rate protections for Dynegy's customers. On February 6, 2015, Duke Energy and Dynegy made two filings with FERC. The first filing provided additional information requested by FERC. The second filing provided information related to Dynegy's settlement agreement with the Independent Market Monitor for PJM, which no longer opposes the proposed transaction. The transaction is expected to close by the end of the second quarter of 2015.
The Disposal Group is included in the Commercial Power segment. The following table presents information related to the Duke Energy Ohio generation plants included in the Disposal Group.
Facility
Plant Type
 
Primary Fuel
 
Location
 
Total MW Capacity (c)

 
Owned MW Capacity (c)

 
Ownership Interest

Stuart (a)(b)
Fossil Steam
 
Coal
 
OH
 
2,308

 
900

 
39
%
Zimmer (a)
Fossil Steam
 
Coal
 
OH
 
1,300

 
605

 
46.5
%
Hanging Rock
Combined Cycle
 
Gas
 
OH
 
1,226

 
1,226

 
100
%
Miami Fort (Units 7 and 8) (a)
Fossil Steam
 
Coal
 
OH
 
1,020

 
652

 
64
%
Conesville (a)(b)
Fossil Steam
 
Coal
 
OH
 
780

 
312

 
40
%
Washington
Combined Cycle
 
Gas
 
OH
 
617

 
617

 
100
%
Fayette
Combined Cycle
 
Gas
 
PA
 
614

 
614

 
100
%
Killen (a)(b)
Fossil Steam
 
Coal
 
OH
 
600

 
198

 
33
%
Lee
Combustion Turbine
 
Gas
 
IL
 
568

 
568

 
100
%
Dick's Creek
Combustion Turbine
 
Gas
 
OH
 
136

 
136

 
100
%
Miami Fort
Combustion Turbine
 
Oil
 
OH
 
56

 
56

 
100
%
Total Midwest Generation
 
 
 
 
 
 
9,225

 
5,884

 
 
(a)
Jointly owned with American Electric Power Generation Resources and/or The Dayton Power & Light Company.
(b)
Station is not operated by Duke Energy Ohio.
(c)
Total MW capacity is based on summer capacity.
The Disposal Group also includes a retail sales business owned by Duke Energy. In the second quarter of 2014, Duke Energy Ohio removed Ohio Valley Electric Corporation's (OVEC) purchase power agreement from the Disposal Group as it no longer intended to sell it with the Disposal Group. Duke Energy Ohio has requested cost-based recovery of its contractual entitlement in OVEC in its 2014 Electric Security Plan (ESP) application filed on May 29, 2014. See Note 4 for information related to the 2014 ESP.
The assets and associated liabilities of the Disposal Group are classified as held for sale in Duke Energy's and Duke Energy Ohio's Consolidated Balance Sheets at December 31, 2014.
The results of operations of the Disposal Group are classified as discontinued operations for current and prior periods in the accompanying Consolidated Statements of Operations and Comprehensive Income. Certain immaterial costs that that may be eliminated as a result of the sale have remained in continuing operations. The following table presents the results of discontinued operations.
Duke Energy
 
Years Ended December 31,
(in millions)
2014


2013


2012

Operating Revenues
$
1,748

 
$
1,885

 
$
1,771

Estimated loss on disposition
(929
)
 

 

 
 
 
 
 
 
(Loss) Income before income taxes
$
(818
)
 
$
141

 
$
227

Income tax (benefit) expense
(294
)
 
56

 
82

(Loss) Income from discontinued operations of the Disposal Group
(524
)
 
85

 
145

Other, net of tax (a)
(52
)
 
1

 
26

(Loss) Income from Discontinued Operations, net of tax
$
(576
)
 
$
86

 
$
171


125


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

(a)
Other discontinued operations relate to prior sales of businesses and includes indemnifications provided for certain legal, tax and environmental matters, and foreign currency translation adjustments.
Duke Energy Ohio
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Operating Revenues
$
1,299

 
$
1,503

 
$
1,435

Estimated loss on disposition
(959
)
 

 

 
 
 
 
 
 
(Loss) Income before income taxes
$
(863
)
 
$
67

 
$
195

Income tax (benefit) expense
(300
)
 
32

 
65

(Loss) Income from Discontinued Operations, net of tax
$
(563
)
 
$
35

 
$
130

The Duke Energy and Duke Energy Ohio held for sale assets include net pretax impairments of approximately $929 million and $959 million, respectively, for the year ended December 31, 2014. The impairment was recorded to write-down the carrying amount of the assets to the estimated fair value of the business, based on the expected selling price to Dynegy less cost to sell. These losses were included in (Loss) Income from Discontinued Operations, net of tax in the Consolidated Statements of Operations and Comprehensive Income. The impairment will be updated, if necessary, based on the final sales price, after any adjustments at closing for working capital and capital expenditures.
Commercial Power has a revolving credit agreement (RCA) to support the operations of the nonregulated Midwest generation business. Interest expense associated with the RCA has been allocated to discontinued operations. No other interest expense related to corporate level debt has been allocated to discontinued operations.
The following table presents the Disposal Group's carrying values in the Consolidated Balance Sheets' major classes of Assets held for sale.
 
December 31, 2014
(in millions)
Duke Energy

 
Duke Energy Ohio

Current assets
$
364

 
$
316

Investments and other assets
52

 
46

Property, plant and equipment
2,590

 
2,559

Total assets held for sale
$
3,006

 
$
2,921

Current liabilities
$
262

 
$
246

Deferred credits and other liabilities
35

 
34

Total liabilities associated with assets held for sale
$
297

 
$
280

Duke Energy Ohio may continue to have transactions with the Disposal Group after the divestiture is complete depending on when the transaction closes. Duke Energy Ohio has a power purchase agreement with the Disposal Group, which extends through May 2015, for a portion of its standard service offer (SSO) supply requirement. In addition, for a period of up to 12 months, Duke Energy may provide transition services to Dynegy. Duke Energy will be reimbursed for transition services provided. The continuing cash flows are not expected to be material and are not considered direct cash flows. These arrangements do not allow Duke Energy or Duke Energy Ohio to significantly influence the operations of the Disposal Group once the sale is complete.
See Notes 4 and 5 for a discussion of contingencies related to the Disposal Group that will be retained by Duke Energy Ohio subsequent to the sale.
Vermillion Generating Station
On January 12, 2012, after receiving approvals from the FERC and IURC on August 12, 2011 and December 28, 2011, respectively, Duke Energy Vermillion II, LLC (Duke Energy Vermillion), an indirect wholly owned subsidiary of Duke Energy Ohio, completed the sale of its ownership interest in Vermillion Generating Station (Vermillion) to Duke Energy Indiana and Wabash Valley Power Association, Inc. (WVPA). Upon closing of the sale, Duke Energy Indiana held a 62.5 percent interest in Vermillion. Duke Energy Ohio received net proceeds of $82 million , of which $68 million was paid by Duke Energy Indiana. Following the transaction, Duke Energy Indiana retired Gallagher Units 1 and 3 effective February 1, 2012.
As Duke Energy Indiana is an affiliate of Duke Energy Vermillion, the transaction was accounted for as a transfer between entities under common control with no gain or loss recorded and did not have a significant impact to Duke Energy Ohio’s or Duke Energy Indiana’s results of operations. Proceeds received from Duke Energy Indiana are included in Net proceeds from the sales of other assets on Duke Energy Ohio’s Consolidated Statements of Cash Flows. Cash paid to Duke Energy Ohio is included in Capital expenditures on Duke Energy Indiana’s Consolidated Statements of Cash Flows. Duke Energy Ohio and Duke Energy Indiana recognized non-cash equity transfers of $28 million and $26 million , respectively, in their Consolidated Statements of Common Stockholder’s Equity on the transaction representing the difference between cash exchanged and the net book value of Vermillion. These amounts are not reflected in Duke Energy’s Consolidated Statements of Cash Flows or Consolidated Statements of Equity as the transaction is eliminated in consolidation.

126


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Proceeds from WVPA are included in Net proceeds from the sales of other assets on Duke Energy Ohio’s Consolidated Statements of Cash Flows and Net proceeds from the sales of equity investments and other assets, and sales of and collections on notes receivable on Duke Energy’s Consolidated Statements of Cash Flows. The sale of the proportionate share of Vermillion to WVPA did not result in a significant gain or loss upon close of the transaction.
Sales Of Other Assets
During 2012, Duke Energy received proceeds of $187 million from the sale of non-core business assets within the Commercial Power segment for which no material gain or loss was recognized.
3. BUSINESS SEGMENTS
Duke Energy evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Consolidated Financial Statements. Certain governance costs are allocated to each segment. In addition, direct interest expense and income taxes are included in segment income.
Operating segments are determined based on information used by the chief operating decision maker in deciding how to allocate resources and evaluate the performance.
Products and services are sold between affiliate companies and reportable segments of Duke Energy at cost. Segment assets as presented in the tables that follow exclude all intercompany assets.
Duke Energy
Duke Energy has the following reportable operating segments: Regulated Utilities, International Energy and Commercial Power.
Regulated Utilities conducts operations primarily through Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana, and the regulated transmission and distribution operations of Duke Energy Ohio. These electric and natural gas operations are subject to the rules and regulations of the FERC, NCUC, PSCSC, FPSC, PUCO, IURC and KPSC. Substantially all of Regulated Utilities’ operations are regulated and, accordingly, these operations qualify for regulatory accounting treatment.
International Energy principally operates and manages power generation facilities and engages in sales and marketing of electric power, natural gas and natural gas liquids outside the U.S. Its activities principally target power generation in Latin America. Additionally, International Energy owns a 25 percent interest in National Methanol Company (NMC), a large regional producer of methyl tertiary butyl ether (MTBE) located in Saudi Arabia. The investment in NMC is accounted for under the equity method of accounting.
Commercial Power builds, develops and operates renewable generation and energy transmission projects throughout the continental U.S. As discussed in Note 2 , Duke Energy entered into an agreement to sell Commercial Power's nonregulated Midwest generation business to Dynegy in a transaction that is expected to close during the second quarter of 2015. As a result of this divestiture, the results of operations of the nonregulated Midwest generation business have been reclassified to Discontinued Operations on the Consolidated Statements of Operations. Certain costs such as interest and general and administrative expenses previously allocated to the Disposal Group were not reclassified to discontinued operations. 

127


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The remainder of Duke Energy’s operations is presented as Other. While it is not an operating segment, Other primarily includes unallocated corporate interest expense, certain unallocated corporate costs, Bison Insurance Company Limited (Bison), Duke Energy’s wholly owned, captive insurance subsidiary, and contributions to the Duke Energy Foundation. On December 31, 2013, Duke Energy sold its interest in DukeNet Communications Holdings, LLC (DukeNet) to Time Warner Cable, Inc.
 
Year Ended December 31, 2014
(in millions)
Regulated Utilities

 
International Energy

 
Commercial Power

 
Total Reportable Segments

 
Other

 
Eliminations

 
Total

Unaffiliated Revenues
$
22,228

 
$
1,417

 
$
255

 
$
23,900

 
$
25

 
$

 
$
23,925

Intersegment Revenues
43

 

 

 
43

 
80

 
(123
)
 

Total Revenues
$
22,271

 
$
1,417

 
$
255

 
$
23,943

 
$
105

 
$
(123
)
 
$
23,925

Interest Expense
$
1,093

 
$
93

 
$
58

 
$
1,244

 
$
400

 
$
(22
)
 
$
1,622

Depreciation and amortization
2,759

 
97

 
92

 
2,948

 
118

 

 
3,066

Equity in earnings of unconsolidated affiliates
(3
)
 
120

 
10

 
127

 
3

 

 
130

Income tax expense (benefit) (a)
1,628

 
449

 
(171
)
 
1,906

 
(237
)
 

 
1,669

Segment income (b)(c)(d)
2,795

 
55

 
(55
)
 
2,795

 
(334
)
 
(10
)
 
2,451

Add back noncontrolling interest component
  

 
  

 
  

 
  

 
  

 
  

 
14

Loss from discontinued operations, net of tax
  

 
  

 
  

 
  

 
  

 
  

 
(576
)
Net income
  

 
  

 
  

 
  

 
  

 
  

 
$
1,889

Capital investments expenditures and acquisitions
$
4,744

 
$
67

 
$
555

 
$
5,366

 
$
162

 
$

 
$
5,528

Segment Assets
106,657

 
5,132

 
6,278

 
118,067

 
2,453

 
189

 
120,709

(a)
International Energy includes a tax adjustment of $373 million related to deferred tax impact resulting from the decision to repatriate all cumulative historical undistributed foreign earnings. See Note 22 for additional information.
(b)
Commercial Power recorded a pretax impairment charge of $94 million related to OVEC. See Note 11 for additional information.
(c)
Other includes costs to achieve the Progress Energy merger. See Notes 2 and 25 for additional information about the merger and related costs.
(d)
Regulated Utilities includes an increase in the litigation reserve related to the criminal investigation of the Dan River coal ash spill. See Note 5 for additional information.
 
Year Ended December 31, 2013
(in millions)
Regulated Utilities

 
International Energy

 
Commercial Power

 
Total Reportable Segments

 
Other

 
Eliminations

 
Total

Unaffiliated Revenues (a)(b)(c)
$
20,871

 
$
1,546

 
$
254

 
$
22,671

 
$
85

 
$

 
$
22,756

Intersegment Revenues
39

 

 
6

 
45

 
90

 
(135
)
 

Total Revenues
$
20,910

 
$
1,546

 
$
260

 
$
22,716

 
$
175

 
$
(135
)
 
$
22,756

Interest Expense
$
986

 
$
86

 
$
61

 
$
1,133

 
$
416

 
$
(6
)
 
$
1,543

Depreciation and amortization
2,323

 
100

 
110

 
2,533

 
135

 

 
2,668

Equity in earnings of unconsolidated affiliates
(1
)
 
110

 
7

 
116

 
6

 

 
122

Income tax expense (benefit)
1,522

 
166

 
(148
)
 
1,540

 
(335
)
 

 
1,205

Segment income (a)(b)(c)(d)(e)(f)(g)
2,504

 
408

 
(88
)
 
2,824

 
(238
)
 
(12
)
 
2,574

Add back noncontrolling interest component
  

 
  

 
  

 
  

 
  

 
  

 
16

Income from discontinued operations, net of tax
  

 
  

 
  

 
  

 
  

 
  

 
86

Net income
  

 
  

 
  

 
  

 
  

 
  

 
$
2,676

Capital investments expenditures and acquisitions
$
5,049

 
$
67

 
$
268

 
$
5,384

 
$
223

 
$

 
$
5,607

Segment Assets
99,884

  
4,998

 
6,955

 
111,837

 
2,754

 
188

 
114,779


128


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

(a)
In May 2013, the PUCO approved a Duke Energy Ohio settlement agreement that provides for a net annual increase in electric distribution revenues beginning in May 2013. This rate increase impacts Regulated Utilities. See Note 4 for additional information.
(b)
In June 2013, NCUC approved a Duke Energy Progress settlement agreement that included an increase in rates in the first year beginning in June 2013. This rate increase impacts Regulated Utilities. See Note 4 for additional information.
(c)
In September 2013, Duke Energy Carolinas implemented revised customer rates approved by the NCUC and the PSCSC. These rate increases impact Regulated Utilities. See Note 4 for additional information.
(d)
Regulated Utilities recorded an impairment charge related to Duke Energy Florida's Crystal River Unit 3. See Note 4 for additional information.
(e)
Regulated Utilities recorded an impairment charge related to the letter Duke Energy Progress filed with the NRC requesting the NRC to suspend its review activities associated with the combined construction and operating license (COL) at the Harris site. Regulated Utilities also recorded an impairment charge related to the write-off of the wholesale portion of the Levy investments at Duke Energy Florida in accordance with the 2013 Settlement. See Note 4 for additional information.
(f)
Other includes costs to achieve the Progress Energy merger. See Notes 2 and 25 for additional information about the merger and related costs.
(g)
Other includes gain from the sale of Duke Energy's ownership interest in DukeNet. See Note 12 for additional information on the sale of DukeNet.
 
Year Ended December 31, 2012
(in millions)
Regulated Utilities

 
International Energy

 
Commercial Power

 
Reportable Segments

 
Other

 
Eliminations

 
Total

Unaffiliated Revenues
$
16,042

 
$
1,549

 
$
299

 
$
17,890

 
$
22

 
$

 
$
17,912

Intersegment Revenues
38

  

 
8

 
46

 
62

 
(108
)
 

Total Revenues
$
16,080

 
$
1,549

 
$
307

 
$
17,936

 
$
84

 
$
(108
)
 
$
17,912

Interest Expense
$
806

 
$
77

 
$
63

 
$
946

 
$
298

 
$

 
$
1,244

Depreciation and amortization
1,827

 
99

 
85

 
2,011

 
134

 

 
2,145

Equity in earnings of unconsolidated affiliates
(5
)
 
134

 
14

 
143

 
5

 

 
148

Income tax expense (benefit)
942

 
149

 
(82
)
 
1,009

 
(386
)
 

 
623

Segment income (a)(b)
1,744

 
439

 
(59
)
 
2,124

 
(523
)
 
(8
)
 
1,593

Add back noncontrolling interest component
  

 
  

 
  

 
  

 
  

 
  

 
18

Income from discontinued operations, net of tax
  

 
  

 
  

 
  

 
  

 
  

 
171

Net income
  

 
  

 
  

 
  

 
  

 
  

 
$
1,782

Capital investments expenditures and acquisitions
$
4,220

 
$
551

 
$
1,038

 
$
5,809

 
$
149

 
$

 
$
5,958

Segment Assets
98,162

  
5,406

 
6,992

 
110,560

 
3,126

 
170

 
113,856

(a)
Regulated Utilities recorded charges related to Duke Energy Indiana's Integrated Gasification Combined Cycle
(IGCC) project. See Note 4 for additional information about these charges. Regulated Utilities also recorded the reversal of expenses of $60 million , net of tax, related to a prior year Voluntary Opportunity Plan in accordance with Duke Energy Carolinas' 2011 rate case. See Note 19 for additional information about these expenses.
(b)
Other includes costs to achieve the Progress Energy merger. See Notes 2 and 25 for additional information about the merger and related costs.

Geographical Information
(in millions)
U.S.

 
Latin America (a)

 
Consolidated

2014
  
 
  
 
  
Consolidated revenues
$
22,508

 
$
1,417

 
$
23,925

Consolidated long-lived assets
80,709

 
2,458

 
83,167

2013
  
 
  
 
  
Consolidated revenues
$
21,211

 
$
1,545

 
$
22,756

Consolidated long-lived assets
78,581

 
2,781

 
81,362

2012
  
 
  
 
  
Consolidated revenues
$
16,366

 
$
1,546

 
$
17,912

Consolidated long-lived assets
79,144

 
2,467

 
81,611


129


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

(a)
Change in amounts of long-lived assets in Latin America includes foreign currency translation adjustments on property, plant and equipment and other long-lived asset balances.
Products and Services
(in millions)
Retail Electric

 
Wholesale Electric

 
Retail Natural Gas

 
Wholesale Natural Gas

 
Other

 
Total Revenues

2014
 
 
 
 
 
 
 
 
 
 

Regulated Utilities
$
19,007

 
$
1,879

 
$
571

 
$

 
$
814

 
$
22,271

International Energy

 
1,326

 

 
91

 

 
1,417

Commercial Power

 
255

 

 

 

 
255

Total Reportable Segments
$
19,007

 
$
3,460

 
$
571


$
91

 
$
814

 
$
23,943

2013
 
 
 
 
 
 
 
 
 
 

Regulated Utilities
$
17,837

 
$
1,720

 
$
506

 
$

 
$
847

 
$
20,910

International Energy

 
1,447

 

 
99

 

 
1,546

Commercial Power

 
260

 

 

 

 
260

Total Reportable Segments
$
17,837

 
$
3,427

 
$
506


$
99

 
$
847

 
$
22,716

2012
 
 
 
 
 
 
 
 
 
 

Regulated Utilities
$
13,773

 
$
1,120

 
$
470

 
$

 
$
717

 
$
16,080

International Energy

 
1,444

 

 
105

 

 
1,549

Commercial Power

 
307

 

 

 

 
307

Total Reportable Segments
$
13,773

 
$
2,871

 
$
470


$
105


$
717

 
$
17,936

Duke Energy Ohio
Duke Energy Ohio has two reportable operating segments, Regulated Utilities and Commercial Power.
Regulated Utilities transmits and distributes electricity in portions of Ohio and generates, distributes and sells electricity in portions of Kentucky. Regulated Utilities also transports and sells natural gas in portions of Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Ohio and its wholly owned subsidiary, Duke Energy Kentucky.
As discussed in Note 2 , Duke Energy entered into an agreement to sell Commercial Power's nonregulated Midwest generation business to Dynegy in a transaction that is expected to close in the second quarter of 2015. As a result of this divestiture, the results of operations of the nonregulated Midwest generation business have been reclassified to Discontinued Operations on the Consolidated Statements of Operations and Comprehensive Income. Amounts remaining in Commercial Power relate to assets not included in the Disposal Group. Certain costs such as interest and general and administrative expenses previously allocated to the Disposal Group were not reclassified to discontinued operations.
The remainder of Duke Energy Ohio’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes certain governance costs allocated by its parent, Duke Energy. See Note 13 for additional information. All of Duke Energy Ohio’s revenues are generated domestically and its long-lived assets are all in the U.S.
  
Year Ended December 31, 2014
(in millions)   
Regulated Utilities

 
Commercial Power

 
Total Reportable Segments

 
Other

 
Eliminations

 
Total

Unaffiliated revenues
$
1,894

 
$
19

 
$
1,913

 
$

 
$

 
$
1,913

Intersegment revenues  
1

 

 
1

 

 
(1
)
 

Total revenues
$
1,895

 
$
19

 
$
1,914

 
$

 
$
(1
)
 
$
1,913

Interest expense  
$
81

 
$
5

 
$
86

 
$

 
$

 
$
86

Depreciation and amortization  
211

 
2

 
213

 
1

 

 
214

Income tax expense (benefit)  
117

 
(67
)
 
50

 
(7
)
 

 
43

Segment income (loss) (a)
202

 
(121
)
 
81

 
(13
)
 

 
68

Income from discontinued operations, net of tax
 
 
 
 
 
 
 
 
 
 
(563
)
Net loss


 


 


 


 
 
 
$
(495
)
Capital expenditures  
$
300

 
$
22

 
$
322

 
$

 
$

 
$
322

Segment assets  
6,908

 
3,187

 
10,095

 
134

 
(230
)
 
9,999

(a)
Commercial Power recorded a pretax impairment charge of $94 million related to OVEC. See Note 11 for additional information.

130


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

 
Year Ended December 31, 2013
(in millions)  
Regulated Utilities

 
Commercial Power

 
Total Reportable Segments

 
Other

 
Eliminations

 
Total

Unaffiliated revenues
$
1,765

 
$
40

 
$
1,805

 
$

 
$

 
$
1,805

Total revenues
$
1,765

 
$
40

 
$
1,805

 
$

 
$

 
$
1,805

Interest expense  
$
74

 
$

 
$
74

 
$

 
$

 
$
74

Depreciation and amortization  
200

 
13

 
213

 

 

 
213

Income tax expense (benefit)  
91

 
(36
)
 
55

 
(12
)
 

 
43

Segment income (loss)
151

 
(65
)
 
86

 
(19
)
 

 
67

Income from discontinued operations, net of tax
 
 
 
 
 
 
 
 
 
 
35

Net income


 


 


 


 
 
 
$
102

Capital expenditures  
$
375

 
$
58

 
$
433

 
$

 
$

 
$
433

Segment assets  
6,649

 
4,170

 
10,819

 
99

 
(155
)
 
10,763

 
Year Ended December 31, 2012
(in millions)  
Regulated Utilities

 
Commercial Power

 
Total Reportable Segments

 
Other

 
Eliminations

 
Total

Unaffiliated revenues
$
1,745

 
$
75

 
$
1,820

 
$

 
$

 
$
1,820

Intersegment revenues  
1

 
1

 
2

 

 
(2
)
 

Total revenues
$
1,746

 
$
76

 
$
1,822

 
$

 
$
(2
)
 
$
1,820

Interest expense  
$
61

 
$
28

 
$
89

 
$

 
$

 
$
89

Depreciation and amortization  
179

 
16

 
195

 

 

 
195

Income tax expense (benefit)  
91

 
(40
)
 
51

 
(18
)
 

 
33

Segment income (loss)
159

 
(80
)
 
79

 
(34
)
 

 
45

Income from discontinued operations, net of tax
 
 
 
 
 
 
 
 
 
 
130

Net income


 


 


 


 
 
 
$
175

Capital expenditures  
$
427

 
$
87

 
$
514

 
$

 
$

 
$
514

Segment assets  
6,434

 
4,175

 
10,609

 
117

 
(166
)
 
10,560

DUKE ENERGY CAROLINAS, PROGRESS ENERGY, DUKE ENERGY PROGRESS, DUKE ENERGY FLORIDA AND DUKE ENERGY INDIANA
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana each have one reportable operating segment, Regulated Utility, which generates, transmits, distributes and sells electricity. The remainder of each company’s operations is classified as Other. While not considered a reportable segment for any of these companies, Other consists of certain unallocated corporate costs. Other for Progress Energy also includes interest expense on corporate debt instruments of $241 million , $300 million and $304 million for the years ended December 31, 2014 , 2013 and 2012 . The following table summarizes the net loss for Other for each of these entities.
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Duke Energy Carolinas
$
(79
)
 
$
(97
)
 
$
(169
)
Progress Energy
(190
)
 
(241
)
 
(379
)
Duke Energy Progress
(31
)
 
(46
)
 
(139
)
Duke Energy Florida
(19
)
 
(24
)
 
(58
)
Duke Energy Indiana
(11
)
 
(16
)
 
(27
)
Duke Energy Progress earned approximately 11 percent of its consolidated operating revenues from North Carolina Electric Membership Corporation (NCEMC) in 2014. These revenues relate to wholesale contracts and transmission revenues. The respective Regulated Utility and Regulated Utilities operating segments own substantially all of Duke Energy Carolinas’, Progress Energy’s, Duke Energy Progress’, Duke Energy Florida’s and Duke Energy Indiana’s assets at December 31, 2014 , 2013 and 2012 .

131


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

4. REGULATORY MATTERS
Regulatory Assets and Liabilities
The Duke Energy Registrants record regulatory assets and liabilities that result from the ratemaking process. See Note 1 for further information.
The following tables present the regulatory assets and liabilities recorded on the Consolidated Balance Sheets.
 
December 31, 2014
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Regulatory Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset retirement obligations
$
3,017

 
$
907

 
$
1,882

 
$
1,584

 
$
298

 
$

 
$

Accrued pension and OPEB
2,015

 
412

 
812

 
354

 
458

 
132

 
217

Retired generation facilities
1,659

 
58

 
1,545

 
152

 
1,393

 

 
56

Debt fair value adjustment
1,305

 

 

 

 

 

 

Net regulatory asset related to income taxes
1,144

 
614

 
354

 
141

 
213

 
64

 
111

Hedge costs and other deferrals
628

 
103

 
490

 
217

 
273

 
7

 
28

Demand side management (DSM)/Energy efficiency (EE)
330

 
106

 
203

 
193

 
10

 
21

 

Grid Modernization
76

 

 

 

 

 
76

 

Vacation accrual
213

 
86

 
46

 
46

 

 
6

 
12

Deferred fuel 
246

 
50

 
182

 
138

 
44

 
9

 
5

Nuclear deferral
296

 
141

 
155

 
43

 
112

 

 

Post-in-service carrying costs and deferred operating expenses
494

 
124

 
121

 
28

 
93

 
21

 
228

Gasification services agreement buyout
55

 

 

 

 

 

 
55

Transmission expansion obligation
70

 

 

 

 

 
74

 

Manufactured gas plant (MGP)
115

 

 

 

 

 
115

 

Other
494

 
263

 
109

 
66

 
42

 
36

 
66

Total regulatory assets
12,157

 
2,864

 
5,899

 
2,962

 
2,936

 
561

 
778

Less: current portion
1,115

 
399

 
491

 
287

 
203

 
49

 
93

Total non-current regulatory assets
$
11,042

 
$
2,465

 
$
5,408

 
$
2,675

 
$
2,733

 
$
512

 
$
685

 
December 31, 2014
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Regulatory Liabilities   
  
 
  
 
  
 
  
 
  
 
  
 
  
Costs of removal   
$
5,221

 
$
2,420

 
$
1,975

 
$
1,692

 
$
283

 
$
222

 
$
613

Amounts to be refunded to customers  
166

 

 
70

 

 
70

 

 
96

Storm reserve  
150

 
25

 
125

 

 
125

 

 

Accrued pension and OPEB  
379

 
76

 
121

 
61

 
60

 
19

 
91

Deferred fuel  
37

 
6

 
23

 
23

 

 

 
8

Other  
444

 
217

 
171

 
127

 
44

 
10

 
42

Total regulatory liabilities  
6,397

 
2,744

 
2,485

 
1,903

 
582

 
251

 
850

Less: current portion  
204

 
34

 
106

 
71

 
35

 
10

 
54

Total non-current regulatory liabilities  
$
6,193

 
$
2,710

 
$
2,379

 
$
1,832

 
$
547

 
$
241

 
$
796


132


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Regulatory Assets   
  
 
  
 
  
 
  
 
  
 
  
 
  
Asset retirement obligations  
$
1,608

 
$
123

 
786

 
$
389

 
$
397

 
$

 
$

Accrued pension and OPEB  
1,723

 
347

 
750

 
269

 
438

 
120

 
219

Retired generation facilities  
1,748

 
68

 
1,619

 
241

 
1,378

 

 
61

Debt fair value adjustment  
1,338

 

 

 

 

 

 

Net regulatory asset related to income taxes  
1,115

 
555

 
331

 
113

 
218

 
72

 
157

Hedge costs and other deferrals  
450

 
98

 
318

 
165

 
153

 
5

 
29

DSM/EE  
306

 
140

 
152

 
140

 
12

 
14

 

Grid Modernization
65

 

 

 

 

 
65

 

Vacation accrual  
210

 
82

 
55

 
50

 

 
7

 
13

Deferred fuel  
94

 

 
37

 
6

 
31

 
14

 
43

Nuclear deferral  
262

 
40

 
222

 
77

 
145

 

 

Post-in-service carrying costs and deferred operating expenses  
459

 
150

 
137

 
19

 
118

 
21

 
151

Gasification services agreement buyout   
75

 

 

 

 

 

 
75

Transmission expansion obligation  
70

 

 

 

 

 
74

 

MGP   
90

 

 

 

 

 
90

 

Other  
473

 
219

 
101

 
42

 
60

 
46

 
87

Total regulatory assets  
10,086

 
1,822

 
4,508

 
1,511

 
2,950

 
528

 
835

Less: current portion  
895

 
295

 
353

 
127

 
221

 
57

 
118

Total non-current regulatory assets  
$
9,191

 
$
1,527

 
$
4,155

 
$
1,384

 
$
2,729

 
$
471

 
$
717

  
December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Regulatory Liabilities   
  
 
  
 
  
 
  
 
  
 
  
 
  
Costs of removal  
$
5,308

 
$
2,423

 
$
2,008

 
$
1,637

 
$
371

 
$
241

 
$
645

Amounts to be refunded to customers  
151

 

 
120

 

 
120

 

 
31

Storm reserve  
145

 
20

 
125

 

 
125

 

 

Accrued pension and OPEB  
138

 

 

 

 

 
21

 
77

Deferred fuel   
177

 
45

 
132

 

 
132

 

 

Other  
346

 
153

 
114

 
99

 
14

 
27

 
45

Total regulatory liabilities  
6,265

 
2,641

 
2,499

 
1,736

 
762

 
289

 
798

Less: current portion  
316

 
65

 
207

 
63

 
144

 
27

 
16

Total non-current regulatory liabilities  
$
5,949

 
$
2,576

 
$
2,292

 
$
1,673

 
$
618

 
$
262

 
$
782

Descriptions of regulatory assets and liabilities, summarized in the tables above, as well as their recovery and amortization periods follow. Items are excluded from rate base unless otherwise noted.
Asset retirement obligations. Represents legal obligations associated with the future retirement of property, plant and equipment. Asset retirement obligations relate primarily to decommissioning nuclear power facilities and closure of ash basins in North Carolina and South Carolina. No return is currently earned on these balances. The recovery period for costs related to nuclear facilities runs through the decommissioning period of each nuclear unit, the latest of which is currently estimated to be 2097. The recovery period for costs related to ash basin closures has not yet been determined. See Notes 1 and 9 for additional information.
Accrued pension and OPEB. Accrued pension and OPEB represent regulatory assets and liabilities related to each of the Duke Energy Registrants’ respective shares of unrecognized actuarial gains and losses, unrecognized prior service cost, and unrecognized transition obligation attributable to Duke Energy’s pension plans and OPEB plans. The regulatory asset or liability is amortized with the recognition of actuarial gains and losses, prior service cost, and transition obligations to net periodic benefit costs for pension and OPEB plans. See Note 21 for additional detail.

133


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Retired generation facilities. Duke Energy Florida earns a reduced return on a substantial portion of the amount of regulatory asset associated with the retirement of Crystal River Unit 3 not included in rate base and a full return on a portion of the retired plant currently recovered in the nuclear cost recovery clause (NCRC). Once included in base rates the amount will be amortized over 20 years . Duke Energy Carolinas earns a return on the outstanding retail balance with recovery periods ranging from 5 to 10 years . Duke Energy Progress earns a return on the outstanding balance with recovery over a period of 10 years for retail purposes and over the longer of 10 years or the previously estimated planned retirement date for wholesale purposes. Duke Energy Indiana earns a return on the outstanding balances and the costs are included in rate base.
Debt fair value adjustment. Purchase accounting adjustment to restate the carrying value of Progress Energy debt to fair value. Amount is amortized over the life of the related debt.
Net regulatory asset related to income taxes. Regulatory assets principally associated with the depreciation and recovery of AFUDC equity. Amounts have no impact on rate base as regulatory assets are offset by deferred tax liabilities. The recovery period is over the life of the associated assets.
Hedge costs and other deferrals. Amounts relate to unrealized gains and losses on derivatives recorded as a regulatory asset or liability, respectively, until the contracts are settled. The recovery period varies for these costs, and currently extends to 2027.
DSM/EE. The recovery period varies for these costs, with some currently unknown. Duke Energy Carolinas, Duke Energy Progress, and Duke Energy Florida are required to pay interest on the outstanding liability balance. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida collect a return on DSM/EE investments.
Grid Modernization. Represents deferred depreciation and operating expenses as well as carrying costs on the portion of capital expenditures placed in service but not yet reflected in retail rates as plant in service. Recovery period is generally one year for depreciation and operating expenses. Recovery for post-in-service carrying costs are over the life of the assets.
Vacation accrual. Generally recovered within one year.
Deferred fuel. Deferred fuel costs represent certain energy costs that are recoverable or refundable as approved by the applicable regulatory body. Duke Energy Florida amount includes capacity costs. Duke Energy Florida and Duke Energy Ohio earn a return on under-recovered costs. Duke Energy Florida and Duke Energy Ohio pay interest on over-recovered costs. Duke Energy Carolinas and Duke Energy Progress pay interest on over-recovered costs in North Carolina. Recovery period is generally over one year. Duke Energy Indiana recovery period is quarterly.
Nuclear deferral. Includes (i) amounts related to levelizing nuclear plant outage costs at Duke Energy Carolinas in North Carolina and South Carolina, and Duke Energy Progress in North Carolina, which allows for the recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, resulting in the deferral of operations and maintenance costs associated with refueling and (ii) certain deferred preconstruction and carrying costs at Duke Energy Florida as approved by the FPSC primarily associated with Levy, currently expected to be recovered in revenues by the end of 2017.
Post-in-service carrying costs and deferred operating expenses. Represents deferred depreciation and operating expenses as well as carrying costs on the portion of capital expenditures placed in service but not yet reflected in retail rates as plant in service. Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana earn a return on the outstanding balance. Duke Energy Florida earns a return at a reduced rate. For Duke Energy Ohio and Duke Energy Indiana, some amounts are included in rate base. Recovery is over various lives, and the latest recovery period is 2081.
Gasification services agreement buyout. The IURC authorized Duke Energy Indiana to recover costs incurred to buyout a gasification services agreement, including carrying costs through 2018.
Transmission expansion obligation. Represents transmission expansion obligations related to Duke Energy Ohio’s withdrawal from Midcontinent Independent System Operator, Inc. (MISO).
MGP. Represents remediation costs for former MGP sites. In November 2013, the PUCO approved recovery of these costs through 2018. Duke Energy Ohio does not earn a return on these costs. See Note 5 for additional information.
Costs of removal. Represents funds received from customers to cover the future removal of property, plant and equipment from retired or abandoned sites as property is retired. Also includes certain deferred gains on NDTF investments.
Amounts to be refunded to customers. Represents required rate reductions to retail customers by the applicable regulatory body. The refund period is through 2016 for Duke Energy Florida and through 2017 for Duke Energy Indiana.
Storm reserve. Duke Energy Carolinas and Duke Energy Florida are allowed to petition the PSCSC and FPSC, respectively, to seek recovery of named storms. Funds are used to offset future incurred costs.
Restrictions on the Ability of Certain Subsidiaries to Make Dividends, Advances and Loans to Duke Energy
As a condition to the approval of merger transactions, the NCUC, PSCSC, PUCO, KPSC and IURC imposed conditions on the ability of Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio, Duke Energy Kentucky and 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. Certain subsidiaries may transfer funds to Duke Energy Corporation Holding Company (the parent) by obtaining approval of the respective state regulatory commissions. These conditions imposed restrictions on the ability of the public utility subsidiaries to pay cash dividends as discussed below.

134


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Duke Energy Progress and Duke Energy Florida also have restrictions imposed by their first mortgage bond indentures and Articles of Incorporation which, in certain circumstances, limit their ability to make cash dividends or distributions on common stock. Amounts restricted as a result of these provisions were not material at December 31, 2014 .
Additionally, certain other subsidiaries of Duke Energy have restrictions on their ability to dividend, loan or advance funds to Duke Energy due to specific legal or regulatory restrictions, including, but not limited to, minimum working capital and tangible net worth requirements.
Duke Energy Carolinas
Duke Energy Carolinas must limit cumulative distributions subsequent to mergers to (i) the amount of retained earnings on the day prior to the closing of the mergers, plus (ii) any future earnings recorded.
Duke Energy Progress
Duke Energy Progress must limit cumulative distributions subsequent to the merger between Duke Energy and Progress Energy to (i) the amount of retained earnings on the day prior to the closing of the merger, plus (ii) any future earnings recorded.
Duke Energy Ohio
Duke Energy Ohio will not declare and pay dividends out of capital or unearned surplus without the prior authorization of the PUCO. Duke Energy Ohio received FERC and PUCO approval to pay dividends from its equity accounts that are reflective of the amount that it would have in its retained earnings account had push-down accounting for the Cinergy Corp. (Cinergy) merger not been applied to Duke Energy Ohio’s balance sheet. The conditions include a commitment from Duke Energy Ohio that equity, adjusted to remove the impacts of push-down accounting, will not fall below 30 percent of total capital.
Duke Energy Kentucky is required to pay dividends solely out of retained earnings and to maintain a minimum of 35 percent equity in its capital structure. 
Duke Energy Indiana
Duke Energy Indiana must limit cumulative distributions subsequent to the merger between Duke Energy and Cinergy to (i) the amount of retained earnings on the day prior to the closing of the merger, plus (ii) any future earnings recorded. In addition, Duke Energy Indiana will not declare and pay dividends out of capital or unearned surplus without prior authorization of the IURC.
The restrictions discussed above were less than 25 percent of Duke Energy's net assets at December 31, 2014 .
Rate Related Information
The NCUC, PSCSC, FPSC, IURC, PUCO and KPSC approve rates for retail electric and natural gas services within their states. The FERC approves rates for electric sales to wholesale customers served under cost-based rates (excluding Ohio and Indiana), as well as sales of transmission service.
Duke Energy Carolinas
2013 North Carolina Rate Case
On September 24, 2013, the NCUC approved a settlement agreement related to Duke Energy Carolinas’ request for a rate increase with minor modifications. The NCUC Public Staff (Public Staff) was a party to the settlement. The settling parties agreed to a three-year step-in rate increase, with the first two years providing for $204 million , or a 4.5 percent average increase in rates, and the third year providing for rates to be increased by an additional $30 million , or 0.6 percent . The agreement is based upon a return on equity of 10.2 percent and an equity component of the capital structure of 53 percent . The settlement agreement (i) allows for the recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, (ii) a $10 million shareholder contribution to agencies that provide energy assistance to low-income customers, and (iii) an annual reduction in the regulatory liability for costs of removal of $30 million for each of the first two years. Duke Energy Carolinas has agreed not to request additional base rate increases to be effective before September 2015. New rates went into effect on September 25, 2013 .
On October 23, 2013, the North Carolina Attorney General (NCAG) appealed the rate of return and capital structure approved in the agreement. The NC Waste Awareness and Reduction Network (NC WARN) appealed various matters in the settlement on October 24, 2013. The North Carolina Supreme Court (NCSC) denied a motion to consolidate these appeals with other North Carolina rate case appeals involving Duke Energy Carolinas and Duke Energy Progress on March 13, 2014. Briefing concluded in this matter and oral argument occurred on September 8, 2014. On January 23, 2015, the NCSC affirmed the NCUC's September 24, 2013 order.

135


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

2013 South Carolina Rate Case
On September 11, 2013, the PSCSC approved a settlement agreement related to Duke Energy Carolinas’ request for a rate increase. Parties to the settlement agreement were the Office of Regulatory Staff, Wal-Mart Stores East, LP and Sam’s East, Incorporated, the South Carolina Energy Users Committee, Public Works of the City of Spartanburg, South Carolina and the South Carolina Small Business Chamber of Commerce. The parties agreed to a two-year step-in rate increase, with the first year providing for approximately $80 million , or a 5.5 percent average increase in rates, and the second year providing for rates to be increased by an additional $38 million , or 2.6 percent . The settlement agreement is based upon a return on equity of 10.2 percent and a 53 percent equity component of the capital structure. The settlement agreement (i) allows for the recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, (ii) approximately $4 million of contributions to agencies that provide energy assistance to low-income customers and for economic development, and (iii) a reduction in the regulatory liability for costs of removal of $45 million for the first year. Duke Energy Carolinas has agreed not to request additional base rate increases to be effective before September 2015. New rates went into effect on September 18, 2013 .
2011 North Carolina Rate Case
On January 27, 2012, the NCUC approved a settlement agreement related to Duke Energy Carolinas’ request for a rate increase. On October 23, 2013, the NCUC issued a second order in the case reaffirming the rate of return approved in the settlement agreement, in response to an appeal by the NCAG. On November 21, 2013, the NCAG appealed the NCUC's October 2013 order. On December 19, 2014, the NCSC affirmed the NCUC's October 2013 order concluding the appeal.
William States Lee Combined Cycle Facility
On April 9, 2014, the PSCSC granted Duke Energy Carolinas and NCEMC a Certificate of Environmental Compatibility and Public Convenience and Necessity (CECPCN) for the construction and operation of a 750 MW combined cycle natural gas-fired generating plant at its existing William States Lee Generating Station in Anderson, South Carolina. On May 16, 2014, Duke Energy Carolinas announced its intention to begin construction in summer 2015 and estimated a cost to build of $600 million for its share of the facility, including AFUDC. The project is expected to be commercially available in late 2017. NCEMC will own approximately 13 percent of the project. On July 3, 2014, the South Carolina Coastal Conservation League and Southern Alliance for Clean Energy jointly filed a Notice of Appeal with the Court of Appeals of South Carolina seeking the court's review of the PSCSC's decision. Duke Energy Carolinas' initial brief in support of the PSCSC's order granting the CECPCN was filed on January 12, 2015. Duke Energy Carolinas cannot predict the outcome of this matter.
William States Lee III Nuclear Station
In December 2007, Duke Energy Carolinas applied to the NRC for a COL for two Westinghouse AP1000 (advanced passive) reactors for the proposed William States Lee III Nuclear Station (Lee Nuclear Station) at a site in Cherokee County, South Carolina. Submitting the COL application did not commit Duke Energy Carolinas to build nuclear units. Through several separate orders, the NCUC and PSCSC concurred with the prudency of Duke Energy Carolinas incurring certain project development and pre-construction costs, although recovery of costs is not guaranteed. Duke Energy Carolinas has incurred approximately $427 million , including AFUDC through December 31, 2014 . This amount is included in Net property, plant and equipment on Duke Energy Carolinas’ Consolidated Balance Sheets.
Design changes have been identified in the Westinghouse AP1000 certified design that must be addressed before NRC can complete its review of the Lee Nuclear Station COL application. These design changes set the schedule for completion of the NRC COL application review and issuance of the Lee COL. Receipt of the Lee Nuclear Station COL is currently expected by mid-2016.
Duke Energy Progress
2012 North Carolina Rate Case
On May 30, 2013, the NCUC approved a settlement agreement related to Duke Energy Progress’ request for a rate increase. The Public Staff was a party to the settlement agreement. The settling parties agreed to a two-year step-in rate increase, with the first year providing for a $147 million , or a 4.5 percent average increase in rates, and the second year providing for rates to be increased by an additional $31 million , or a 1.0 percent average increase in rates. The agreement is based upon a return on equity of 10.2 percent and an equity component of the capital structure of 53 percent . The settlement agreement (i) allows for the recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, (ii) a $20 million shareholder contribution to agencies that provide energy assistance to low-income customers, and (iii) a reduction in the regulatory liability for costs of removal of $20 million for the first year. The initial rate increase went into effect on June 1, 2013 and the step-in rate increase went into effect in June 2013.
On July 1, 2013, the NCAG appealed the NCUC’s approval of the rate of return and capital structure included in the agreement. NC WARN also appealed various matters in the settlement. On August 20, 2014, the NCSC affirmed the NCUC's order approving Duke Energy Progress' rate of return and capital structure concluding the appeal.
L.V. Sutton Combined Cycle Facility
Duke Energy Progress completed construction of a 625 MW combined cycle natural gas-fired generating facility at its existing L.V. Sutton Steam Station (Sutton) in New Hanover County, North Carolina. Sutton began commercial operations in the fourth quarter of 2013.

136


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Shearon Harris Nuclear Station Expansion
In 2006, Duke Energy Progress selected a site at Harris to evaluate for possible future nuclear expansion. On February 19, 2008, Duke Energy Progress filed its COL application with the NRC for two Westinghouse AP1000 reactors at Harris, which the NRC docketed for review. On May 2, 2013, Duke Energy Progress filed a letter with the NRC requesting the NRC to suspend its review activities associated with the COL at the Harris site. As a result of the decision to suspend the COL applications, during the second quarter of 2013, Duke Energy Progress recorded a pretax impairment charge of $22 million which represented costs associated with the COL, which were not probable of recovery. As of December 31, 2014 , approximately $48 million is recorded in Regulatory assets on Duke Energy Progress’ Consolidated Balance Sheets.
Wholesale Depreciation Rates
On April 19, 2013, Duke Energy Progress filed an application with FERC for acceptance of changes to generation depreciation rates and in August 2013 filed for acceptance of additional changes. These changes affect the rates of Duke Energy Progress' wholesale power customers that purchase or will purchase power under formula rates. Certain Duke Energy Progress wholesale customers filed interventions and protests. FERC accepted the depreciation rate changes, subject to refund, and set the matter for settlement and hearing in a consolidated proceeding. FERC further initiated an action with respect to the justness and reasonableness of the proposed rate changes. Settlement was reached in October 2014 for changes to the depreciation rates and conforming changes to the wholesale formula rates. FERC approved the settlement in December 2014. The agreement will have no material or adverse impact to the rates originally proposed by Duke Energy Progress, and Duke Energy Progress will receive cost recovery for early retired plants previously included in the depreciation rates.
Duke Energy Florida
FERC Transmission Return on Equity Complaint
On February 12, 2012, Seminole Electric Cooperative, Inc. and Florida Municipal Power Agency filed with FERC a complaint against Duke Energy Florida alleging that the current rate of return on equity in Duke Energy Florida's transmission formula rates of 10.8 percent is unjust and unreasonable and should be reduced to 9.02 percent . The complainants further alleged that return on equity adjustments should take effect retroactive to January 1, 2010 under the governing transmission formula rate protocols. On May 13, 2013, the complainants filed a second complaint alleging that the return on equity should be reduced to 8.63 percent or 8.84 percent . On June 19, 2014, FERC issued orders consolidating the two complaints, setting them for settlement and hearing procedures, setting refund effective dates of February 29, 2012 for the first complaint and May 13, 2013 for the second complaint, and setting for settlement and hearing the issue of whether return on equity adjustments should take effect prior to the refund effective date of the first complaint. On August 12, 2014, the complainants filed a third complaint alleging that the return on equity should be 8.69 percent . On December 5, 2014, FERC issued an order consolidating the third complaint with the first two complaints for the purposes of settlement, hearing, and decision, and establishing a refund effective date of August 12, 2014 for the third complaint. The parties are engaged in settlement discussions. Duke Energy Florida cannot predict the outcome of this matter.
FPSC Settlement Agreements
On February 22, 2012, the FPSC approved a settlement agreement (the 2012 Settlement) among Duke Energy Florida, the Florida Office of Public Counsel (OPC) and other customer advocates. The 2012 Settlement was to continue through the last billing cycle of December 2016. On October 17, 2013, the FPSC approved a settlement agreement (the 2013 Settlement) between Duke Energy Florida, OPC, and other customer advocates. The 2013 Settlement replaces and supplants the 2012 Settlement and substantially resolves issues related to (i) Crystal River Unit 3, (ii) Levy, (iii) Crystal River 1 and 2 coal units, and (iv) future generation needs in Florida. Refer to the remaining sections below for further discussion of these settlement agreements.
Crystal River Unit 3
On February 5, 2013, Duke Energy Florida announced the retirement of Crystal River Unit 3. On February 20, 2013, Duke Energy Florida filed with the NRC a certification of permanent cessation of power operations and permanent removal of fuel from the reactor vessel. In December 2013, and March 2014, Duke Energy Florida filed an updated site-specific decommissioning plan with the NRC and FPSC, respectively. The plan, which was approved by the FPSC in November 2014, included a decommissioning cost estimate of $1,180 million , including amounts applicable to joint owners, under the SAFSTOR option. Duke Energy Florida’s decommissioning study assumes Crystal River Unit 3 will be in SAFSTOR configuration, requiring limited staffing to monitor plant conditions, until the eventual dismantling and decontamination activities to be completed by 2073. This decommissioning approach is currently utilized at a number of retired domestic nuclear power plants and is one of three accepted approaches to decommissioning approved by the NRC.
Duke Energy Florida has reclassified all Crystal River Unit 3 investments, including property, plant and equipment, nuclear fuel, inventory, and other assets, to a regulatory asset. Duke Energy agreed to forgo recovery of $295 million of regulatory assets and an impairment charge was recorded in the second quarter of 2013 for this matter. Duke Energy Florida is allowed to accelerate cash recovery of approximately $130 million of the Crystal River Unit 3 regulatory asset from retail customers from 2014 through 2016 through its fuel clause. Duke Energy Florida will begin recovery of the remaining Crystal River Unit 3 regulatory asset, up to a cap of $1,466 million from retail customers upon the earlier of (i) full recovery of the uncollected Levy investment or (ii) the first billing period of January 2017. Recovery will continue 240 months from inception of collection of the regulatory asset in base rates. The Crystal River Unit 3 base rate component will be adjusted at least every four years.
Included in this recovery, but not subject to the cap, are costs of building an independent spent fuel storage installation (ISFSI). The return rate will be based on the currently approved AFUDC rate with a return on equity of 7.35 percent , or 70 percent of the currently approved 10.5 percent . The return rate is subject to change if the return on equity changes in the future. In December 2014, the FPSC approved Duke Energy Florida's decision to construct the ISFSI and approved Duke Energy Florida's request to defer amortization of the ISFSI pending resolution of its litigation against the federal government as a result of the Department of Energy's breach of its obligation to accept spent nuclear fuel. The regulatory asset associated with the original power uprate project to increase generating capacity will continue to be recovered through the Nuclear Cost Recovery Clause over an estimated seven-year period that began in 2013.

137


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Through December 31, 2014 , Duke Energy Florida deferred $1,377 million for rate recovery related to Crystal River Unit 3, which is subject to the rate recovery cap in the 2013 Settlement. In addition, Duke Energy Florida deferred $260 million for recovery associated with building an ISFSI and the original uprate project, which is not subject to the rate recovery cap discussed above. Duke Energy Florida does not expect the Crystal River Unit 3 costs to exceed the cap.
Customer Rate Matters
Pursuant to the 2013 Settlement, Duke Energy Florida will maintain base rates at the current level through the last billing period of 2018, subject to the return on equity range of 9.5 percent to 11.5 percent , with exceptions for base rate increases for the recovery of the Crystal River Unit 3 regulatory asset beginning no later than 2017 and base rate increases for new generation through 2018, per the provisions of the 2013 Settlement. Duke Energy Florida is not required to file a depreciation study, fossil dismantlement study or nuclear decommissioning study until the earlier of the next rate case filing or March 31, 2019. The 2012 Settlement provided for a $150 million increase in base revenue effective with the first billing cycle of January 2013. Costs associated with Crystal River Unit 3 investments were removed from retail rate base effective with the first billing cycle of January 2013. Duke Energy Florida is accruing, for future rate-setting purposes, a carrying charge on the Crystal River Unit 3 investment until the Crystal River Unit 3 regulatory asset is recovered in base rates. If Duke Energy Florida’s retail base rate earnings fall below the return on equity range, as reported on a FPSC-adjusted or pro forma basis on a monthly earnings surveillance report, it may petition the FPSC to amend its base rates during the term of the 2013 Settlement.
Duke Energy Florida agreed to refund $388 million to retail customers through its fuel clause, as required by the 2012 Settlement. At December 31, 2014, $120 million remains to be refunded, of which $50 million credit is recorded in Regulatory assets within Current Assets as an offset to deferred fuel and $70 million is recorded in Regulatory liabilities in Deferred Credits and Other Liabilities on the Consolidated Balance Sheets.
Levy
On July 28, 2008, Duke Energy Florida applied to the NRC for a COL for two Westinghouse AP1000 reactors at Levy. In 2008, the FPSC granted Duke Energy Florida’s petition for an affirmative Determination of Need and related orders requesting cost recovery under Florida’s nuclear cost-recovery rule, together with the associated facilities, including transmission lines and substation facilities. Design changes have been identified in the Westinghouse AP1000 certified design that must be addressed before the NRC can complete its review of the Levy COL application. These design changes set the schedule for completion of the NRC COL application review and issuance of the Levy COL. Based on the current review schedule , the Levy COL is currently expected by mid-2016.
On January 28, 2014, Duke Energy Florida terminated the Levy engineering, procurement and construction agreement (EPC). Duke Energy Florida may be required to pay for work performed under the EPC and to bring existing work to an orderly conclusion, including but not limited to costs to demobilize and cancel certain equipment and material orders placed. As of December 31, 2014, Duke Energy Florida has recorded an exit obligation of $25 million for the termination of the EPC. This liability was recorded within Other in Deferred Credits and Other Liabilities with an offset primarily to Regulatory assets on the Consolidated Balance Sheets. Duke Energy Florida is allowed to recover reasonable and prudent EPC cancellation costs from its retail customers.
The 2012 Settlement provided that Duke Energy Florida include the allocated wholesale cost of Levy as a retail regulatory asset and include this asset as a component of rate base and amortization expense for regulatory reporting. In accordance with the 2013 Settlement, Duke Energy Florida ceased amortization of the wholesale allocation of Levy investments against retail rates. In the second quarter of 2013, Duke Energy Florida recorded a pretax charge of $65 million to write off the wholesale portion of Levy investments. This amount is included in Impairment charges on Duke Energy Florida's Statements of Operations and Comprehensive Income.
On October 27, 2014, the FPSC approved Duke Energy Florida rates for 2015 for Levy as filed and consistent with those established in the 2013 Revised and Restated Settlement Agreement. Recovery of the remaining retail portion of the project costs may occur over five years from 2013 through 2017. Duke Energy Florida has an ongoing responsibility to demonstrate prudency related to the wind down of the Levy investment and the potential for salvage of Levy assets. As of December 31, 2014 , Duke Energy Florida has a net uncollected investment in Levy of approximately $180 million , including AFUDC. Of this amount, $91 million related to land and the COL is included in Net, property, plant and equipment and will be recovered through base rates and $89 million is included in Regulatory assets within Current Assets on the Consolidated Balance Sheets and will be recovered through the NCRC.
Crystal River 1 and 2 Coal Units
Duke Energy Florida has evaluated Crystal River 1 and 2 coal units for retirement in order to comply with certain environmental regulations. Based on this evaluation, those units will likely be retired by 2018. Once those units are retired Duke Energy Florida will continue recovery of existing annual depreciation expense through the end of 2020. Beginning in 2021, Duke Energy Florida will be allowed to recover any remaining net book value of the assets from retail customers through the Capacity Cost Recovery Clause. In April 2014, the FPSC approved Duke Energy Florida's petition to allow for the recovery of prudently incurred costs to comply with the Mercury and Air Toxics Standard through the Environmental Cost Recovery Clause.
New Generation
The 2013 Settlement establishes a recovery mechanism for additional generation needs. This recovery mechanism, the Generation Base Rate Adjustment, allows recovery of prudent costs of these items through an increase in base rates, upon the in-service date of such assets, without a general rate case at a 10.5 percent return on equity.

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

On May 27, 2014, Duke Energy Florida petitioned the FPSC for a Determination of Need to (i) construct a 1,640 MW combined cycle natural gas plant in Citrus County, Florida to be in service in 2018 with an estimated cost of $1.5 billion , (ii) construct a 320 MW combustion turbine plant at its existing Suwannee generating facility (Suwannee project) with an estimated cost of $197 million , and (iii) add inlet chilling to its existing Hines Energy Complex (Hines) combined cycle units which will increase the output of those units by 220 MW at an estimated cost of $160 million . These cost estimates include AFUDC. On August 26, 2014, Duke Energy Florida requested the FPSC withdraw consideration for the Suwannee project so that Duke Energy Florida could pursue further negotiations on an alternative power plant acquisition. On October 2, 2014, the FPSC approved the requests for the Citrus County plant and the uprate project at the Hines facility. Additional environmental and governmental approvals will be sought for the Citrus County project. The Hines uprate project is expected to be completed no later than 2017.
In December 2014, Duke Energy Florida and Osprey Energy Center, LLC, a wholly owned subsidiary of Calpine Corporation (Calpine) entered into an Asset Purchase and Sale Agreement for the purchase of a 599 MW combined cycle natural gas plant in Auburndale, Florida (Osprey Plant acquisition) for approximately $166 million . Closing is subject to the approval of FERC, FPSC and the expiration of the Hart Scott Rodino waiting period and is expected to occur by the first quarter of 2017 upon the expiration of an existing Power Purchase Agreement between Calpine and Duke Energy Florida. On January 30, 2015, Duke Energy Florida filed a petition with the FPSC requesting a determination that the Osprey Plant acquisition or, alternatively, the Suwannee project is the most cost effective generation alternative to meet Duke Energy Florida's remaining need prior to 2018.
Cost of Removal Reserve
The 2012 Settlement and the 2013 Settlement provide Duke Energy Florida the discretion to reduce cost of removal amortization expense for a certain portion of the cost of removal reserve until the earlier of its applicable cost of removal reserve reaches zero or the expiration of the 2013 Settlement. Duke Energy Florida may not reduce amortization expense if the reduction would cause it to exceed the appropriate high point of the return on equity range. Duke Energy Florida recognized a reduction in amortization expense of $114 million , and $178 million for the years ended December 31, 2013 , and 2012 respectively. Duke Energy Florida had no cost of removal reserves eligible for amortization to income remaining at December 31, 2013.
Duke Energy Ohio
W.C. Beckjord Fuel Release
On August 18, 2014, approximately 9,000 gallons of fuel oil were inadvertently discharged into the Ohio River during a fuel oil transfer at the W.C. Beckjord generating plant. The Ohio Environmental Protection Agency (Ohio EPA) issued a Notice of Violation related to the discharge. Duke Energy Ohio is cooperating with the Ohio EPA, the EPA and the U.S. Attorney for the Southern District of Ohio, responding to a Request for Information from the EPA. No Notice of Violation has been issued by the EPA and no civil or criminal penalty amount has been established. Total repair and remediation costs related to the release are not expected to be material. Other costs related to the release, including state or federal civil enforcement proceedings, cannot be reasonably estimated at this time.
2014 Electric Security Plan (ESP)
On May 29, 2014, Duke Energy Ohio filed an application for approval of an SSO in the form of an ESP, effective June 1, 2015. The proposed ESP includes a competitive procurement process for SSO load, a distribution capital investment rider, a tracking mechanism for incremental distribution costs caused by major storms, and a cost-based recovery of Duke Energy Ohio’s contractual entitlement in OVEC. The proposed plan also seeks rate design modifications and continuance, revision, or termination of existing riders. An evidentiary hearing in this case concluded in November 2014 and final briefs were submitted in December 2014. Duke Energy Ohio cannot predict the outcome of this matter.
Capacity Rider Filing
On August 29, 2012, Duke Energy Ohio applied to the PUCO for the establishment of a charge for capacity provided pursuant to its obligations as a Fixed Resource Requirement entity. The charge, which was consistent with Ohio’s state compensation mechanism, was estimated to be approximately $729 million , and reflected Duke Energy Ohio’s embedded cost of capacity. On February 13, 2014, the PUCO denied Duke Energy Ohio’s request.
2012 Electric Rate Case
On May 1, 2013 , the PUCO approved a settlement agreement between Duke Energy Ohio and all intervening parties (the Electric Settlement) related to Duke Energy Ohio’s electric distribution rate case. The Electric Settlement provides for a net increase in electric distribution revenues of $49 million , or an average increase of 2.9 percent , based upon a return on equity of 9.84 percent . Revised rates were effective in May 2013.
2012 Natural Gas Rate Case
On November 13, 2013, the PUCO issued an order approving a settlement among Duke Energy Ohio, the PUCO Staff and intervening parties (the Gas Settlement). The Gas Settlement provided for (i) no increase in base rates for natural gas distribution service and (ii) a return on equity of 9.84 percent . The Gas Settlement provided for a subsequent hearing on Duke Energy Ohio’s request for rider recovery of environmental remediation costs associated with its former MGP sites. After the conclusion of the evidentiary hearing and briefs, the PUCO authorized Duke Energy Ohio to recover $56 million , excluding carrying costs, of environmental remediation costs. The MGP rider became effective in April 2014 for a five-year period. On March 31, 2014, Duke Energy Ohio filed an application with the PUCO to adjust the MGP rider for investigation and remediation costs incurred in 2013. As of December 31, 2014, Duke Energy Ohio has a balance of $115 million in Regulatory assets in the Consolidated Balance Sheets related to MGP sites which includes the $56 million authorized for recovery in the rate case.

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

On May 14, 2014, the Ohio Supreme Court granted certain consumer groups' motion to stay the MGP rider pending their appeals of the PUCO approval of the Gas Settlement and Duke Energy Ohio suspended billing of the MGP rider in June 2014. Amounts collected under the rider prior to suspension were immaterial. The appellants, the PUCO and Duke Energy Ohio all filed briefs addressing the merits of this matter with the Ohio Supreme Court. On July 29, 2014, the Ohio Supreme Court denied Duke Energy Ohio's motion to lift the stay, but required appellants to post a bond. The Ohio Supreme Court also requested briefs on the appropriate amount of the bond. On November 5, 2014, the Ohio Supreme Court ordered the Appellants to post a bond of approximately $2.5 million to continue the stay of the rider. The bond was to be posted within ten days or the stay would be lifted. The Appellants failed to post the required bond and on November 18, 2014, Duke Energy Ohio requested the PUCO to reinstate the MGP rider. The PUCO approved reinstatement of the rider on January 15, 2015 and Duke Energy Ohio began billings of the MGP rider. Duke Energy Ohio cannot predict the outcome of the appeals in this matter.
Regional Transmission Organization (RTO) Realignment
Duke Energy Ohio, including Duke Energy Kentucky, transferred control of its transmission assets from MISO to PJM, effective December 31, 2011.
On December 22, 2010, the KPSC approved Duke Energy Kentucky’s request to effect the RTO realignment, subject to a commitment not to seek double-recovery in a future rate case of the transmission expansion fees that may be charged by MISO and PJM in the same period or overlapping periods.
On May 25, 2011, the PUCO approved a settlement between Duke Energy Ohio, Ohio Energy Group, the Office of the Ohio Consumers’ Counsel and the PUCO Staff related to Duke Energy Ohio’s recovery of certain costs of the RTO realignment via a non-bypassable rider. Duke Energy Ohio is allowed to recover all MISO Transmission Expansion Planning (MTEP) costs, including but not limited to Multi Value Project (MVP) costs, directly or indirectly charged to Ohio customers. Duke Energy Ohio also agreed to vigorously defend against any charges for MVP projects from MISO.
Upon its exit from MISO on December 31, 2011, Duke Energy Ohio recorded a liability for its exit obligation and share of MTEP costs, excluding MVP. This liability was recorded within Other in Current liabilities and Other in Deferred credits and other liabilities on Duke Energy Ohio’s Consolidated Balance Sheets.
The following table provides a reconciliation of the beginning and ending balance of Duke Energy Ohio’s recorded obligations related to its withdrawal from MISO. As of December 31, 2014 , $74 million is recorded as a Regulatory asset on Duke Energy Ohio's Consolidated Balance Sheets.
(in millions)
December 31, 2013

 
Provision / Adjustments

 
Cash Reductions

 
December 31, 2014

Duke Energy Ohio
$
95

 
$
3

 
$
(4
)
 
$
94

MVP. MISO approved 17 MVP proposals prior to Duke Energy Ohio’s exit from MISO on December 31, 2011. Construction of these projects is expected to continue through 2020. Costs of these projects, including operating and maintenance costs, property and income taxes, depreciation and an allowed return, are allocated and billed to MISO transmission owners.
On December 29, 2011, MISO filed a tariff with the FERC providing for the allocation of MVP costs to a withdrawing owner based on monthly energy usage. The FERC set for hearing (i) whether MISO’s proposed cost allocation methodology to transmission owners who withdrew from MISO prior to January 1, 2012, is consistent with the tariff at the time of their withdrawal from MISO, and, (ii) if not, what the amount of and methodology for calculating any MVP cost responsibility should be. On July 16, 2013, a FERC Administrative Law Judge (ALJ) issued an initial decision. Under this initial decision, Duke Energy Ohio would be liable for MVP costs. Duke Energy Ohio filed exceptions to the initial decision, requesting the FERC overturn the ALJ’s decision. After reviewing the initial decision, along with all exceptions and responses filed by the parties, the FERC will issue a final decision. Duke Energy Ohio fully intends to appeal to the federal court of appeals if the FERC affirms the ALJ’s decision. Duke Energy Ohio cannot predict the outcome of these proceedings.
In 2012, MISO estimated Duke Energy Ohio’s MVP obligation over the period from 2012 to 2071 at $2.7 billion , on an undiscounted basis. The estimated obligation is subject to great uncertainty including the ultimate cost of the projects, the annual costs of operations and maintenance, taxes and return over the project lives, the number of years in service for the projects and the allocation to Duke Energy Ohio.
Any liability related to the MISO MVP matter attributable to the Disposal Group will not be transferred to Dynegy upon closing of the disposal of the Midwest generation business.

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

FERC Transmission Return on Equity and MTEP Cost Settlement
On October 14, 2011, Duke Energy Ohio and Duke Energy Kentucky submitted with FERC proposed modifications to the PJM Interconnection Open Access Transmission Tariff pertaining to recovery of the transmission revenue requirement as PJM transmission owners. The filing was made in connection with the Duke Energy Ohio's and Duke Energy Kentucky's move from MISO to PJM effective January 1, 2012. On April 24, 2012, FERC issued an order accepting the proposed filing effective January 1, 2012, except that the order denied a request to recover certain costs associated with the move from MISO to PJM without prejudice to the right to submit another filing seeking such recovery and including certain additional evidence, and set the rate of return on equity of 12.38 percent for settlement and hearing. A February 2013 settlement agreement filed with the FERC was rejected in September 2013. On October 30, 2014, the companies and six PJM transmission customers with load in the Duke Energy Ohio and Duke Energy Kentucky zone filed with FERC for approval of another settlement agreement. The principal terms of the settlement agreement are that, effective upon the date of FERC approval, (i) the return on equity will be reduced from 12.38 percent to 11.38 percent and (ii) Duke Energy Ohio and Duke Energy Kentucky will recover 30 percent of costs arising from their obligation to pay any portion of the costs of projects included in any MTEP that was approved prior to the date of the Duke Energy Ohio's and Duke Energy Kentucky's integration into PJM. The settlement is pending FERC approval. Duke Energy Ohio and Duke Energy Kentucky cannot predict the outcome of this matter
Duke Energy Indiana
Edwardsport IGCC Plant
On November 20, 2007, the IURC granted Duke Energy Indiana a Certificate of Public Convenience and Necessity for the construction of a 618 MW IGCC power plant at Duke Energy Indiana’s existing Edwardsport Generating Station in Knox County, Indiana with a cost estimate of $1.985 billion assuming timely recovery of financing costs related to the project. The Citizens Action Coalition of Indiana, Inc., Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc. (collectively, the Joint Intervenors) were intervenors in several matters related to the Edwardsport IGCC Plant.
On December 27, 2012, the IURC approved a settlement agreement (the 2012 Edwardsport settlement) related to the cost increase for the construction of the project, including subdockets before the IURC related to the project. The Office of Utility Consumer Counselor (OUCC), the Duke Energy Indiana Industrial Group and Nucor Steel-Indiana were parties to the settlement. The settlement agreement, as approved, capped costs to be reflected in customer rates at $2.595 billion , including estimated AFUDC through June 30, 2012. Duke Energy Indiana is allowed to recover AFUDC after June 30, 2012, until customer rates are revised, with such recovery decreasing to 85 percent on AFUDC accrued after November 30, 2012.
Over the course of construction of the project to date, Duke Energy Indiana has recorded pretax charges of approximately $897 million related to the project and the settlement agreement discussed above. Of this amount, pretax impairment and other charges of $631 million were recorded during the year ended December 31, 2012. These charges were recorded in Impairment charges and Operations, maintenance and other on Duke Energy Indiana's Consolidated Statements of Operations and Comprehensive Income.
The project was placed in commercial operation in June 2013. Costs for the Edwardsport IGCC plant are recovered from retail electric customers through a tracking mechanism, the IGCC rider. Updates to the IGCC rider are filed semi-annually. An order on the eleventh semi-annual IGCC rider is currently pending. The twelfth and thirteenth semi-annual IGGC riders were combined into one proceeding. In this proceeding, the OUCC, Duke Energy Indiana Industrial Group and Joint Intervenors alleged the Edwardsport IGCC plant was not properly placed in commercial operation in June 2013 and therefore operating and maintenance costs for the time period June 2013 through March 2014 should not be recoverable. The Duke Energy Indiana Industrial Group and Joint Intervenors also argued that the plant's performance was unsatisfactory during the first ten months of operations and recommended cost recovery disallowances. Evidentiary hearings concluded in February 2015 and an order is expected in the second half of 2015.
On March 18, 2014, the Indiana Court of Appeals denied an appeal filed by the Joint Intervenors and affirmed the IURC order approving the 2012 Edwardsport settlement and other related regulatory orders. On June 5, 2014, the Indiana Court of Appeals affirmed the decision on rehearing. The Joint Intervenors requested to seek transfer to the Indiana Supreme Court. On November 7, 2014, the Indiana Supreme Court denied the Joint Intervenors' request to transfer the appeal of these proceedings. The ninth and tenth semi-annual IGCC rider orders have also been appealed. On August 21, 2014, the Indiana Court of Appeals affirmed the IURC order in the tenth IGCC rider proceeding, and on October 29, 2014, denied Joint Intervenors' request for rehearing. The Joint Intervenors have requested a transfer of the matter to the Indiana Supreme Court. On September 8, 2014, the Indiana Court of Appeals remanded the IURC order in the ninth IGCC rider proceeding back to the IURC for further findings concerning approximately $61 million of financing charges Joint Intervenors claimed were caused by construction delay and a ratemaking issue concerning the in-service date determination for tax purposes. On February 25, 2015, the IURC issued an order on remand that upheld its prior order and added additional findings on the two issues as requested by the Indiana Court of Appeals. First, the IURC concluded the schedule delays in the construction of the IGCC plant were not the result of imprudence or unreasonable actions by Duke Energy Indiana and therefore recovery of the financing costs were appropriate. On the second issue, the IURC determined the federal tax in-service determination was to be made by the Internal Revenue Service, not the IURC, and the IURC appropriately reviewed and accepted the impact of such decision on customer rates in this and prior proceedings.
On April 2, 2014, the IURC established a subdocket to Duke Energy Indiana’s current fuel adjustment clause proceeding. In this fuel adjustment subdocket, the IURC intends to review underlying causes for net negative generation amounts at the Edwardsport IGCC plant during the period September through November 2013. Duke Energy Indiana contends the net negative generation is related to the consumption of fuel and auxiliary power when the plant was in start-up or off line. In addition to the OUCC, the Duke Energy Indiana Industrial Group, Nucor Steel-Indiana, Steel Dynamics, Inc., and the Joint Intervenors are parties to the subdocket. The IURC has deferred the fuel adjustment subdocket until resolution of the twelfth and thirteenth semi-annual IGCC rider proceedings. In addition, although the IURC approved fuel adjustment clause recovery for the period December 2013 through March 2014, it determined such fuel costs reasonably related to the operational performance of the Edwardsport IGCC plant shall be subject to refund pending the outcome of the twelfth and thirteenth semi-annual IGCC riders.
Duke Energy Indiana cannot predict the outcome of the fuel adjustment clause proceedings or pending and future IGCC Rider proceedings.

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DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

FERC Transmission Return on Equity Complaint
On November 12, 2013, customer groups filed with FERC a complaint against MISO and its transmission-owning members, including Duke Energy Indiana, alleging, among other things, that the current base rate of return on equity earned by MISO transmission owners of 12.38 percent is unjust and unreasonable and should be reduced to 9.15 percent . On October 16, 2014, FERC issued an order setting the return on equity issue for settlement and hearing and establishing a refund effective date of November 12, 2013. On November 6, 2014, the MISO transmission owners submitted revisions to the MISO tariff to implement a 0.50 percent adder to the base return on equity based on participation in a RTO. On January 5, 2015, FERC issued an order accepting the adder subject to it being applied to a base return on equity that is shown to be just and reasonable in the pending base return on equity complaint. On January 5, 2015, settlement procedures in the base return on equity proceeding were terminated and a hearing was scheduled for August 17, 2015. On February 12, 2015, certain MISO transmission customers filed with FERC a complaint alleging that the base return on equity should be 8.67 percent and requesting consolidation with the pending base return on equity complaint. Duke Energy Indiana cannot predict the outcome of this matter.
Grid Infrastructure Improvement Plan
On August 29, 2014, Duke Energy Indiana filed a seven-year grid infrastructure improvement plan with the IURC with an estimated cost of $1.9 billion , focusing on the reliability, integrity and modernization of the transmission and distribution system. If approved, 80 percent of the costs will be recovered through a rate rider. The remaining 20 percent are subject to recovery through future rate case proceedings. Hearings were held in January 2015 and Duke Energy Indiana expects a decision in the second quarter of 2015.
Other Regulatory Matters
Atlantic Coast Pipeline
On September 2, 2014, Duke Energy, Dominion Resources (Dominion), Piedmont Natural Gas and AGL Resources announced the formation of a joint venture, Atlantic Coast Pipeline, LLC, to build and own the proposed Atlantic Coast Pipeline (ACP), a 550-mile interstate natural gas pipeline. The ACP is designed to meet the needs identified in requests for proposals by Duke Energy Carolinas, Duke Energy Progress and Piedmont Natural Gas. Dominion will build and operate the ACP and will own 45 percent . Duke Energy will own 40 percent of the pipeline through its Commercial Power segment. The remaining share will be owned by Piedmont Natural Gas and AGL Resources. Duke Energy Carolinas and Duke Energy Progress will be customers of the pipeline and enter into 20-year transportation capacity contracts with ACP, subject to state regulatory approval. In October 2014, the NCUC and PSCSC approved the Duke Energy Carolinas and Duke Energy Progress requests to enter into certain affiliate agreements, pay compensation to ACP and to grant a waiver of certain Code of Conduct provisions relating to contractual and jurisdictional matters. The project will require FERC approval, which the joint venture will seek to secure by summer 2016. The estimated in-service date of the pipeline is late 2018.
East Bend Station
On December 30, 2014, Duke Energy Ohio acquired The Dayton Power and Light Company’s 31 percent interest in East Bend Station for approximately $12.4 million . The purchase price has been reflected in the accompanying financial statements with the net purchase amount as an increase to property, plant and equipment in accordance with FERC guidelines. Duke Energy Ohio expects FERC approval to present the property, plant and equipment and accumulated depreciation at The Dayton Power and Light Company's historical cost.
NC WARN FERC Complaint
On December 16, 2014, NC WARN filed a complaint with the FERC against Duke Energy Carolinas and Duke Energy Progress that alleged Duke Energy Carolinas and Duke Energy Progress manipulated the electricity market by constructing costly and unneeded generation facilities leading to unjust and unreasonable rates; Duke Energy Carolinas and Duke Energy Progress failed to comply with Order 1000 by not effectively connecting their transmission systems with neighboring utilities which also have excess capacity; the plans of Duke Energy Carolinas and Duke Energy Progress for unrealistic future growth leads to unnecessary and expensive generating plants; FERC should investigate the practices of Duke Energy Carolinas and Duke Energy Progress and the potential benefits of having them enter into a regional transmission organization; and FERC should force Duke Energy Carolinas and Duke Energy Progress to purchase power from other utilities rather than construct wasteful and redundant power plants. A copy of the complaint was filed with the PSCSC on January 6, 2015. Duke Energy Carolinas and Duke Energy Progress have filed a responses requesting dismissal of the complaint with the FERC and the PSCSC. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of these proceedings.
Merger Appeals
On January 9, 2013, the City of Orangeburg and NC WARN appealed the NCUC’s approval of the merger between Duke Energy and Progress Energy. On April 29, 2013, the NCUC granted Duke Energy’s motion to dismiss certain exceptions contained in NC WARN’s appeal.
On March 4, 2014, the Court of Appeals issued an opinion affirming the NCUC’s approval of the merger. On April 8, 2014, NC WARN filed a petition for discretionary review by the North Carolina Supreme Court. On April 21, 2014, Duke Energy and the Public Staff jointly filed their response opposing NC WARN’s petition. The City of Orangeburg did not file a petition for discretionary review. On December 19, 2014, the North Carolina Supreme Court denied NC WARN's petition, concluding the appeal.

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Progress Energy Merger FERC Mitigation
In June 2012, the FERC approved the merger with Progress Energy, including Duke Energy and Progress Energy’s revised market power mitigation plan, the Joint Dispatch Agreement (JDA) and the joint Open Access Transmission Tariff. Several intervenors filed requests for rehearing challenging various aspects of the FERC approval. On October 29, 2014, FERC denied all of the requests for rehearing.
The revised market power mitigation plan provided for the acceleration of one transmission project and the completion of seven other transmission projects (Long-Term FERC Mitigation) and interim firm power sale agreements during the completion of the transmission projects (Interim FERC Mitigation). The Long-Term FERC Mitigation was expected to increase power imported into the Duke Energy Carolinas and Duke Energy Progress service areas and enhance competitive power supply options in the service areas. All of these projects were completed in or before 2014. On May 30, 2014, the Independent Monitor filed with FERC a final report stating that the Long-Term FERC Mitigation is complete. Therefore, Duke Energy Carolinas' and Duke Energy Progress' obligations associated with the Interim FERC Mitigation have terminated. In the second quarter of 2014, Duke Energy Progress recorded an $18 million partial reversal of an impairment recorded in the third quarter of 2012. This reversal adjusts the initial disallowance from the Long-Term FERC mitigation and reflects updated information on the construction costs and in-service dates of the transmission projects.
Following the closing of the merger, outside counsel reviewed Duke Energy’s mitigation plan and discovered a technical error in the calculations. On December 6, 2013, Duke Energy submitted a filing to the FERC disclosing the error and arguing that no additional mitigation is necessary. The City of New Bern filed a protest and requested that FERC order additional mitigation. On October 29, 2014, FERC ordered that the amount of the stub mitigation be increased from 25 MW to 129 MW. The stub mitigation is Duke Energy’s commitment to set aside for third parties a certain quantity of firm transmission capacity from Duke Energy Carolinas to Duke Energy Progress during summer off-peak hours. FERC also ordered that Duke Energy operate certain phase shifters to create additional import capability and that such operation be monitored by an independent monitor. Duke Energy does not expect the costs to comply with this order to be material. FERC also referred Duke Energy’s failure to expressly designate the phase shifter reactivation as a mitigation project in Duke Energy’s original mitigation plan filing in March 2012 to the FERC Office of Enforcement for further inquiry. Duke Energy cannot predict the outcome of this additional inquiry.
Planned and Potential Coal Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in Florida, Ohio and Indiana earlier than their current estimated useful lives. These facilities do not have the requisite emission control equipment, primarily to meet EPA regulations recently approved or proposed.
The table below contains the net carrying value of generating facilities planned for early retirement or being evaluated for potential retirement included in Net property, plant and equipment on the Consolidated Balance Sheets, excluding the Duke Energy Carolinas 170 MW Lee Unit 3 which is being converted to gas in 2015.
  
December 31, 2014
  
Duke Energy

 
Progress Energy (b)

 
Duke Energy Florida (b)

 
Duke Energy Ohio (c)

 
Duke Energy   Indiana (d)

Capacity (in MW)  
1,704

 
873

 
873

 
163

 
668

Remaining net book value (in millions) (a)
$
239

 
$
114

 
$
114

 
$
9

 
$
116

(a)
Included in Net property, plant and equipment as of December 31, 2014 , on the Consolidated Balance Sheets.
(b)
Includes Crystal River Units 1 and 2. 
(c)
Includes Miami Fort Unit 6 which is expected to be retired by June 1, 2015. 
(d)
Includes Wabash River Units 2 through 6. Wabash River Unit 6 is being evaluated for potential conversion to gas. Duke Energy Indiana committed to retire or convert these units by June 2018 in conjunction with a settlement agreement associated with the Edwardsport air permit.
Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives, and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired. However, such recovery, including recovery of carrying costs on remaining book values, could be subject to future regulatory approvals and therefore cannot be assured.
5. COMMITMENTS AND CONTINGENCIES
General Insurance
The Duke Energy Registrants have insurance and reinsurance coverage either directly or through indemnification from Duke Energy’s captive insurance company, Bison, and its affiliates, consistent with companies engaged in similar commercial operations with similar type properties. The Duke Energy Registrants’ coverage includes (i) commercial general liability coverage for liabilities arising to third parties for bodily injury and property damage; (ii) workers’ compensation; (iii) automobile liability coverage; and (iv) property coverage for all real and personal property damage. Real and personal property damage coverage excludes electric transmission and distribution lines, but includes damages arising from boiler and machinery breakdowns, earthquakes, flood damage and extra expense, but not outage or replacement power coverage. All coverage is subject to certain deductibles or retentions, sublimits, exclusions, terms and conditions common for companies with similar types of operations.

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DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The Duke Energy Registrants self-insure their electric transmission and distribution lines against loss due to storm damage and other natural disasters. As discussed further in Note 4 , Duke Energy Florida maintains a storm damage reserve and has a regulatory mechanism to recover the cost of named storms on an expedited basis.
The cost of the Duke Energy Registrants’ coverage can fluctuate year to year reflecting claims history and conditions of the insurance and reinsurance markets.
In the event of a loss, terms and amounts of insurance and reinsurance available might not be adequate to cover claims and other expenses incurred. Uninsured losses and other expenses, to the extent not recovered by other sources, could have a material effect on the Duke Energy Registrants’ results of operations, cash flows or financial position. Each company is responsible to the extent losses may be excluded or exceed limits of the coverage available.
Nuclear Insurance
Duke Energy Carolinas owns and operates the McGuire Nuclear Station (McGuire) and the Oconee Nuclear Station (Oconee) and operates and has a partial ownership interest in the Catawba Nuclear Station (Catawba). McGuire and Catawba each have two reactors. Oconee has three reactors. The other joint owners of Catawba reimburse Duke Energy Carolinas for certain expenses associated with nuclear insurance per the Catawba joint owner agreements.
Duke Energy Progress owns and operates the Robinson Nuclear Station (Robinson) and operates and has a partial ownership interest in the Brunswick and Harris stations. Robinson and Harris each have one reactor. Brunswick has two reactors. The other joint owners of Brunswick and Harris reimburse Duke Energy Progress for certain expenses associated with nuclear insurance per the Brunswick and Harris joint owner agreements.
Duke Energy Florida manages and has a partial ownership interest in Crystal River Unit 3, which has been retired. The other joint owners of Crystal River Unit 3 reimburse Duke Energy Florida for certain expenses associated with nuclear insurance per the Crystal River Unit 3 joint owner agreement.
In the event of a loss, terms and amounts of insurance available might not be adequate to cover property damage and other expenses incurred. Uninsured losses and other expenses, to the extent not recovered by other sources, could have a material effect on Duke Energy Carolinas’, Duke Energy Progress’ and Duke Energy Florida’s results of operations, cash flows or financial position. Each company is responsible to the extent losses may be excluded or exceed limits of the coverage available.
Nuclear Liability Coverage
The Price-Anderson Act requires owners of nuclear reactors to provide for public nuclear liability protection per nuclear incident up to a maximum total financial protection liability. The maximum total financial protection liability, which is currently $13.6 billion , is subject to change every five years for inflation and the number of licensed reactors. Total nuclear liability coverage consists of a combination of private primary nuclear liability insurance coverage and a mandatory industry risk-sharing program to provide for excess nuclear liability coverage above the maximum reasonably available private primary coverage. The United States Congress could impose revenue-raising measures on the nuclear industry to pay claims.
Primary Liability Insurance
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida have purchased the maximum reasonably available private primary nuclear liability insurance as required by law, which currently is $375 million per station.
Excess Liability Program  
This program provides $13.2 billion of coverage per incident through the Price-Anderson Act’s mandatory industry-wide excess secondary financial protection program of risk pooling. This amount is the product of potential cumulative retrospective premium assessments of $127 million times the current 104 licensed commercial nuclear reactors in U.S. Under this program, licensees could be assessed retrospective premiums to compensate for public nuclear liability damages in the event of a nuclear incident at any licensed facility in the U.S. Retrospective premiums may be assessed at a rate not to exceed $19 million per year per licensed reactor for each incident. The assessment may be subject to state premium taxes.
Nuclear Property and Accidental Outage Coverage
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are members of Nuclear Electric Insurance Limited (NEIL), an industry mutual insurance company, which provides "all risk" property damage, decontamination, and premature decommissioning insurance for each station for losses resulting from damage to its nuclear plants, either due to accidents or acts of terrorism. Additionally, NEIL provides some replacement power cost insurance for each station for losses in the event of a major accidental outage at an insured nuclear station. NEIL requires its members to maintain an investment grade credit rating or to ensure collectability of their annual retrospective premium obligation by providing a financial guarantee, letter of credit, deposit premium or other means of assurance. The companies are required each year to report to the NRC the current levels and sources of insurance that demonstrate it possesses sufficient financial resources to stabilize and decontaminate its reactors and reactor station sites in the event of an accident.
Pursuant to regulations of the NRC, each company’s property damage insurance policies provide that all proceeds from such insurance be applied, first, to place the plant in a safe and stable condition after a qualifying accident, and second, to decontaminate the plant before any proceeds can be used for decommissioning, plant repair or restoration.

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DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Losses resulting from acts of terrorism are covered as common occurrences, such that if terrorist acts occur against one or more commercial nuclear power plants insured by NEIL within a 12-month period, they would be treated as one event and the owners of the plants where the act occurred would share one full limit of liability. The full limit of liability is currently $3.2 billion . NEIL sublimits the total aggregate for all of their policies for non-nuclear terrorist events to approximately $1.83 billion .
Each nuclear facility has accident property damage, decontamination and premature decommissioning liability insurance from NEIL with limits of $1.5 billion , except for Crystal River Unit 3. Crystal River Unit 3’s limit is $1.1 billion and is on an actual cash value basis. NEIL coverage for Crystal River 3 does not include property damage to or resulting from the containment structure except coverage does apply to decontamination and debris removal, if required following an accident, to ensure public health and safety or if property damage results from a terrorism event. All nuclear facilities except for Catawba and Crystal River Unit 3 also share an additional $1.25 billion nuclear accident insurance limit above their dedicated underlying limit. This shared additional excess limit is not subject to reinstatement in the event of a loss. Catawba has a dedicated $1.25 billion of additional nuclear accident insurance limit above its dedicated underlying limit. Catawba and Oconee also have an additional $750 million of non-nuclear accident property damage limit.
NEIL’s Accidental Outage policy provides some replacement power cost insurance for losses in the event of a major accident property damage outage of a nuclear unit. Coverage is provided on a weekly limit basis after a significant waiting period deductible and at 100 percent of the available weekly limits for 52 weeks and 80 percent of the available weekly limits for the next 110 weeks. Coverage is provided until policy aggregate limits are met where the accidental outage policy limit is $490 million for McGuire and Catawba, $381 million for Oconee, $419 million for Brunswick, $384 million for Harris and $329 million for Robinson. NEIL sublimits the accidental outage recovery to the first 104 weeks of coverage not to exceed $328 million from non-nuclear accidental property damage. Coverage amounts decrease in the event more than one unit at a station is out of service due to a common accident.
Potential Retroactive Premium Assessments
In the event of NEIL losses, NEIL’s board of directors may assess member companies retroactive premiums of amounts up to 10 times their annual premiums for up to 6 years after a loss. NEIL has never exercised this assessment. The maximum aggregate annual retrospective premium obligations for Duke Energy Carolinas are $73 million for primary property insurance and $32 million for accidental outage insurance. The maximum aggregate annual retrospective premium obligations Duke Energy Progress are $60 million for primary property insurance and $16 million for accidental outage insurance. Duke Energy Carolinas maintains excess property insurance for Catawba with a maximum assessment of $7 million , and shares with Duke Energy Progress blanket excess property limits across other sites with a combined potential maximum assessment of $17 million . The current potential maximum assessments for Duke Energy Florida are $8 million for primary property insurance. The maximum assessment amounts include 100 percent of Duke Energy Carolinas’, Duke Energy Progress’, and Duke Energy Florida’s potential obligations to NEIL for their share of jointly owned reactors.
ENVIRONMENTAL
Duke Energy is subject to international, federal, state, and local regulations regarding air and water quality, hazardous and solid waste disposal, and other environmental matters. The Subsidiary Registrants are subject to federal, state, and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants.
The following environmental matters impact all of the Duke Energy Registrants.
Remediation Activities  
The Duke Energy Registrants are responsible for environmental remediation at various contaminated sites. These include some properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. These sites are in various stages of investigation, remediation and monitoring. Managed in conjunction with relevant federal, state and local agencies, activities vary with site conditions and locations, remediation requirements, complexity and sharing of responsibility. If remediation activities involve joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for contamination caused by other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Liabilities are recorded when losses become probable and are reasonably estimable. The total costs that may be incurred cannot be estimated because the extent of environmental impact, allocation among potentially responsible parties, remediation alternatives, and/or regulatory decisions have not yet been determined. Additional costs associated with remediation activities are likely to be incurred in the future and could be significant. Costs are typically expensed as Operation, maintenance and other in the Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable.

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DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following table contains information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheets.
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Balance at December 31, 2011
61

 
12

 
23

 
11

 
12

 
28

 
9

Provisions / adjustments
39

 
1

 
19

 
5

 
14

 
5

 
3

Cash reductions
(25
)
 
(1
)
 
(9
)
 
(2
)
 
(7
)
 
(18
)
 
(4
)
Balance at December 31, 2012
75

 
12

 
33

 
14

 
19

 
15

 
8

Provisions / adjustments
26

 

 
4

 
(1
)
 
5

 
20

 
1

Cash reductions
(22
)
 
(1
)
 
(10
)
 
(5
)
 
(5
)
 
(8
)
 
(2
)
Balance at December 31, 2013
79

 
11

 
27

 
8

 
19

 
27

 
7

Provisions / adjustments
32

 
(1
)
 
1

 
4

 
(3
)
 
28

 
4

Cash reductions
(14
)
 

 
(11
)
 
(7
)
 
(4
)
 
(1
)
 
(1
)
Balance at December 31, 2014
97

 
10

 
17

 
5

 
12

 
54

 
10

Additional losses in excess of recorded reserves that could be incurred for the stages of investigation, remediation and monitoring for environmental sites that have been evaluated at this time are presented in the table below.
(in millions)
 
Duke Energy
$
89

Duke Energy Carolinas
25

Progress Energy
15

Duke Energy Progress
1

Duke Energy Florida
14

Duke Energy Ohio
42

Duke Energy Indiana
7

North Carolina and South Carolina Ash Basins
On February 2, 2014, a break in a 48-inch stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River steam station caused a release of ash basin water and ash into the Dan River. On February 8, 2014, a permanent plug was installed in the 48-inch stormwater pipe, stopping the release of materials into the river. Duke Energy Carolinas estimates 30,000 to 39,000 tons of ash and 24 million to 27 million gallons of basin water were released into the river during the incident. Duke Energy Carolinas incurred approximately $24 million of repairs and remediation expense related to this incident during the year ended December 31, 2014 . These amounts are recorded in Operations, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income. Duke Energy Carolinas will not seek recovery of these costs from customers. In July, Duke Energy completed remediation work identified by the EPA and continues to cooperate with the EPA's civil enforcement process. See the "Litigation" section below for additional information on litigation, investigations, and enforcement actions related to ash basins. Other costs related to the Dan River release, including pending or future state or federal civil enforcement proceedings, future regulatory directives, natural resources damages, additional pending litigation, future claims or litigation, and long-term environmental impact costs cannot be reasonably estimated at this time.
On September 20, 2014, the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) became law. The Coal Ash Act (i) establishes a Coal Ash Management Commission to oversee handling of coal ash within the state; (ii) prohibits construction of new and expansion of existing ash impoundments and use of existing impoundments at retired facilities, effective October 1, 2014; (iii) requires closure of ash impoundments at Duke Energy Progress' Asheville and Sutton stations and Duke Energy Carolinas' Riverbend and Dan River stations no later than August 1, 2019; (iv) requires dry disposal of fly ash at active plants not retired by December 31, 2018; (v) requires dry disposal of bottom ash at active plants by December 31, 2019, or retirement of active plants; (vi) requires all remaining ash impoundments in North Carolina to be categorized as high-risk, intermediate-risk, or low-risk no later than December 31, 2015 by the North Carolina Department of Environment and Natural Resources (DENR) with the method of closure and timing to be based upon the assigned risk, with closure no later than December 31, 2029; (vii) establishes requirements to deal with groundwater and surface water impacts from impoundments and (viii) enhances the level of regulation for structural fills utilizing coal ash. The Coal Ash Act includes a variance procedure for compliance deadlines and modification of requirements regarding structural fills and compliance boundaries. Provisions of the Coal Ash Act prohibit cost recovery for unlawful discharge of ash basin waters occurring after January 1, 2014. The Coal Ash Act included a moratorium for any NCUC ordered rate changes to effectuate the legislation, which ended January 15, 2015. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of coal combustion residuals surface impoundments (ash basins or impoundments) to the normal ratemaking processes before utility regulatory commissions. In November 2014, Duke Energy submitted to DENR site specific coal ash excavation plans for the four high priority stations required to be closed no later than August 1, 2019. These plans and all associated permits must be approved by DENR before any excavation work can begin.
In September 2014, Duke Energy Carolinas executed a consent agreement with the South Carolina Department of Health and Environmental Control (SCDHEC) requiring the excavation of an inactive ash basin and ash fill area at the W.S. Lee Steam Station. As part of this agreement, in December 2014, Duke Energy Carolinas filed an ash removal plan and schedule with SCDHEC.

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DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Duke Energy Carolinas and Duke Energy Progress recorded asset retirement obligations at December 31, 2014 based upon the legal obligation for closure of coal ash basins and the disposal of related ash as a result of the Coal Ash Act and the agreement with SCDHEC. Refer to Note 9 for further discussion of the asset retirement obligations recorded at December 31, 2014 .
Coal Combustion Residuals
On December 19, 2014, the EPA signed the first federal regulation for the disposal of coal combustion residuals (CCR) from power plants. The federal regulation classifies CCR as nonhazardous waste under the Resource Conservation and Recovery Act and applies to all new and existing landfills, new and existing surface impoundments, structural fills and CCR piles. The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. Duke Energy records an asset retirement obligation when it has a legal obligation to incur retirement costs associated with the retirement of a long-lived asset and the obligation can be reasonably estimated. Once the rule is effective in 2015, additional asset retirement obligation amounts will be recorded at the Duke registrants. Cost recovery for future expenditures will be pursued through the normal ratemaking process with state utility commissions, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. At this time, Duke Energy is evaluating the CCR regulation and developing cost estimates that will largely be dependent upon compliance alternatives selected to meet requirements of the regulations. For further discussion of asset retirement obligations see Note 9 .
Litigation
Duke Energy
Ash Basin Shareholder Derivative Litigation
Five shareholder derivative lawsuits have been filed in Delaware Chancery Court relating to the release at Dan River and to the management of Duke Energy’s ash basins. On October 31, 2014, the five lawsuits were consolidated in a single proceeding titled "In Re Duke Energy Corporation Coal Ash Derivative Litigation." On December 2, 2014, plaintiffs filed a Corrected Verified Consolidated Shareholder Derivative Complaint (Consolidated Complaint).
The Consolidated Complaint names as defendants several current and former Duke Energy officers and directors (collectively, the “Duke Energy Defendants”). Duke Energy is named as a nominal defendant.
The Consolidated Complaint alleges the Duke Energy Defendants breached their fiduciary duties to the company by failing to adequately oversee Duke Energy’s ash basins and that these breaches of fiduciary duty may have contributed to the incident at Dan River and continued thereafter. The lawsuit also asserts claims against the Duke Energy Defendants for corporate waste (relating to the money Duke Energy has spent and will spend as a result of the fines, penalties, and coal ash removal) and unjust enrichment (relating to the compensation and director remuneration that was received despite these alleged breaches of fiduciary duty). The lawsuit seeks both injunctive relief against Duke Energy and restitution from the Duke Energy Defendants. On January 21, 2015, the Duke Energy Defendants filed a Motion to Stay and an alternative Motion to Dismiss.
On May 28, 2014, Duke Energy received a shareholder litigation demand letter sent on behalf of shareholder Mitchell Pinsly. The letter alleges that the members of the Board of Directors and certain officers breached their fiduciary duties by allowing the company to illegally dispose of and store coal ash pollutants. The letter demands that the Board of Directors take action to recover damages associated with those breaches of fiduciary duty; otherwise, the attorney will file a shareholder derivative action. By letter dated July 3, 2014, counsel for the shareholder was informed that the Board of Directors appointed a Demand Review Committee to evaluate the allegations in the Demand Letter.
It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with these matters.
Progress Energy Merger Shareholder Litigation
Duke Energy, the eleven members of the Board of Directors who were also members of the pre-merger Board of Directors (Legacy Duke Energy Directors) and certain Duke Energy officers are defendants in a purported securities class action lawsuit (Nieman v. Duke Energy Corporation, et al) . This lawsuit consolidates three lawsuits originally filed in July 2012, and is pending in the United States District Court for the Western District of North Carolina. The plaintiffs allege federal Securities Act and Exchange Act claims based on allegations of materially false and misleading representations and omissions in the Registration Statement filed on July 7, 2011, and purportedly incorporated into other documents, all in connection with the post-merger change in Chief Executive Officer (CEO). On August 15, 2014, the parties reached an agreement in principle to settle the litigation for an amount which, net of the expected proceeds of insurance policies, is not anticipated to have a material effect on the results of operations, cash flows or financial position of Duke Energy. On December 2, 2014, the parties executed a Memorandum of Understanding relating to the settlement which will be submitted to the court for approval.
On May 31, 2013, the Delaware Chancery Court consolidated four shareholder derivative lawsuits filed in 2012. The Court also appointed a lead plaintiff and counsel for plaintiffs and designated the case as In Re Duke Energy Corporation Derivative Litigation . The lawsuit names as defendants the Legacy Duke Energy Directors. Duke Energy is named as a nominal defendant. The case alleges claims for breach of fiduciary duties of loyalty and care in connection with the post-merger change in CEO. The case is stayed pending resolution of the Nieman v. Duke Energy Corporation, et al. case in North Carolina.

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DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Two shareholder Derivative Complaints, filed in 2012 in federal district court in Delaware, were consolidated as Tansey v. Rogers, et al. The case alleges claims for breach of fiduciary duty and waste of corporate assets, as well as claims under Section 14(a) and 20(a) of the Exchange Act. Duke Energy is named as a nominal defendant. Pursuant to an Order entered on September 2, 2014, the court administratively closed this consolidated derivative action. The parties filed a status report with the court on December 1, 2014, and will continue to do so every six months thereafter until the Nieman v. Duke Energy Corporation, et al. case in North Carolina has been resolved.
On August 3, 2012, Duke Energy was served with a shareholder Derivative Complaint, which was transferred to the North Carolina Business Court ( Krieger v. Johnson, et al.). The lawsuit names as defendants William D. Johnson and the Legacy Duke Energy Directors. Duke Energy is named as a nominal defendant. The lawsuit alleges claims for breach of fiduciary duty in granting excessive compensation to Mr. Johnson. On April 30, 2014, the North Carolina Business Court granted the Legacy Duke Energy Directors’ motion to dismiss the lawsuit.
It is not possible to estimate the maximum exposure of loss that may occur in connection with these lawsuits.
Price Reporting Cases
A total of five lawsuits were filed against Duke Energy affiliates and other energy companies and remain pending in a consolidated, single federal court proceeding in Nevada. Each of these lawsuits contain similar claims that defendants allegedly manipulated natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs seek damages in unspecified amounts.
On July 18, 2011, the judge granted a defendant’s motion for summary judgment in two of the remaining five cases to which Duke Energy affiliates are a party. The U.S. Court of Appeals for the Ninth Circuit subsequently reversed the lower court’s decision. On July 1, 2014, the U.S. Supreme Court granted the defendants', including Duke Energy, petition for certiorari. Oral argument was held on January 12, 2015.
It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with the remaining matters. However, based on Duke Energy’s past experiences with similar cases of this nature, it does not believe its exposure under these remaining matters is material.
Brazil Expansion Lawsuit
On August 9, 2011, the State of São Paulo sued Duke Energy International Geracao Paranapenema S.A. (DEIGP) in Brazilian state court. The lawsuit claims DEIGP is under a continuing obligation to expand installed generation capacity in the State of São Paulo by 15 percent pursuant to a stock purchase agreement under which DEIGP purchased generation assets from the state. On August 10, 2011, a judge granted an ex parte injunction ordering DEIGP to present a detailed expansion plan in satisfaction of the 15 percent obligation. DEIGP has previously taken a position the expansion obligation is no longer viable given changes that have occurred in the electric energy sector since privatization. DEIGP submitted its proposed expansion plan on November 11, 2011, but reserved objections regarding enforceability. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with this matter.
Duke Energy Carolinas and Duke Energy Progress
DENR State Enforcement Actions
In the first quarter of 2013, environmental organizations sent notices of intent to sue Duke Energy Carolinas and Duke Energy Progress related to alleged groundwater violations and Clean Water Act (CWA) violations from coal ash basins at two of their coal-fired power plants in North Carolina. DENR filed enforcement actions against Duke Energy Carolinas and Duke Energy Progress alleging violations of water discharge permits and North Carolina groundwater standards. The case against Duke Energy Carolinas was filed in Mecklenburg County Superior Court. The case against Duke Energy Progress was filed in Wake County Superior Court. The cases are being heard before a single judge.
On October 4, 2013, Duke Energy Carolinas, Duke Energy Progress and DENR negotiated a proposed consent order covering these two plants. The consent order would have assessed civil penalties and imposed a compliance schedule requiring Duke Energy Carolinas and Duke Energy Progress to undertake monitoring and data collection activities toward making appropriate corrective action to address any substantiated violations. In light of the coal ash release that occurred at Dan River on February 2, 2014, on March 21, 2014, DENR withdrew its support of the consent orders and requested that the court proceed with the litigation.
On August 16, 2013, DENR filed an enforcement action against Duke Energy Carolinas and Duke Energy Progress related to their remaining plants in North Carolina, alleging violations of the CWA and violations of the North Carolina groundwater standards. The case against Duke Energy Carolinas was filed in Mecklenburg County Superior Court. The case against Duke Energy Progress was filed in Wake County Superior Court. Both of these cases have been assigned to the judge handling the enforcement actions discussed above. Southern Environmental Law Center (SELC), on behalf of several environmental groups, has been permitted to intervene in these cases.
It is not possible to predict any liability or estimate any damages Duke Energy Carolinas or Duke Energy Progress might incur in connection with these matters.
North Carolina Declaratory Judgment Action
On October 10, 2012, the SELC, on behalf of the same environmental groups that were permitted to challenge the consent decrees discussed above, filed a petition with the North Carolina Environmental Management Commission (EMC) asking for a declaratory ruling seeking to clarify the application of the state’s groundwater protection rules to coal ash basins. The petition sought to change the interpretation of regulations that permitted DENR to assess the extent, cause and significance of any groundwater contamination before ordering action to eliminate the source of contamination, among other issues. Duke Energy Carolinas and Duke Energy Progress were both permitted to intervene in the matter. On December 3, 2012, the EMC affirmed this interpretation of the regulations.

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DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

On March 6, 2014, the North Carolina State Court judge overturned the ruling of the EMC holding that in the case of groundwater contamination, DENR was required to issue an order to immediately eliminate the source of the contamination before an assessment of the nature, significance and extent of the contamination or the continuing damage to the groundwater was conducted. Duke Energy Carolinas, Duke Energy Progress, and the EMC appealed the ruling in April 2014. On May 16, 2014, the North Carolina Court of Appeals denied a petition to stay the case during the appeal. On October 10, 2014, the parties were notified the case has been transferred to the NCSC. Oral argument has been scheduled for March 16, 2015.
Federal Citizens Suits
There are currently five cases filed in various North Carolina federal courts contending that the DENR state enforcement actions discussed above do not adequately address the issues raised in the notices of intent to sue related to the Riverbend, Sutton, Cape Fear, H.F. Lee and Buck plants.
On June 11, 2013, Catawba Riverkeeper Foundation, Inc. (Catawba Riverkeeper) filed a separate action in the United States Court for the Western District of North Carolina. The lawsuit contends the state enforcement action discussed above does not adequately address issues raised in Catawba Riverkeeper’s notice of intent to sue relating to the Riverbend plant. On April 11, 2014, the Court denied Catawba Riverkeeper’s objections to the Magistrate Judge’s recommendation that plaintiff’s case be dismissed as well as Duke Energy Carolinas’ motion to dismiss. The Court allowed limited discovery, after which Duke Energy Carolinas may file any renewed motions to dismiss.
On September 12, 2013, Cape Fear River Watch, Inc., Sierra Club, and Waterkeeper Alliance filed a citizen suit in the Federal District Court for the Eastern District of North Carolina. The lawsuit alleges unpermitted discharges to surface water and groundwater violations at the Sutton plant. On June 9, 2014, the court granted Duke Energy Progress' request to dismiss the groundwater claims but rejected its request to dismiss the surface water claims. In response to a motion filed by the SELC, on August 1, 2014, the court modified the original June 9 th order to dismiss only the plaintiff's federal law claim based on hydrologic connections at Sutton Lake. The claims related to the alleged state court violations of the permits are back in the case.
On September 3, 2014, three cases were filed by various environmental groups: (i) a citizen suit in the United States Court for the Middle District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the Cape Fear plant; (ii) a citizen suit in the United States Court for the Eastern District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the H.F. Lee plant; and (iii) a citizen suit in the United States Court for the Middle District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the Buck plant. On January 5, 2015, Duke Energy Carolinas filed a Motion to Dismiss and a Motion to Stay the proceeding relating to the Buck plant.
It is not possible to predict whether Duke Energy Carolinas or Duke Energy Progress will incur any liability or to estimate the damages, if any, they might incur in connection with these matters.
North Carolina Ash Basin Grand Jury Investigation
As a result of the Dan River ash basin water release discussed above, DENR issued a Notice of Violation and Recommendation of Assessment of Civil Penalties with respect to this matter on February 28, 2014, which the company responded to on March 13, 2014. Duke Energy and certain Duke Energy employees received subpoenas issued by the United States Attorney for the Eastern District of North Carolina in connection with a criminal investigation related to the release and all 14 of the North Carolina facilities with ash basins and the nature of Duke Energy's contacts with DENR with respect to those facilities. This is a multidistrict investigation that also involves state law enforcement authorities.
On February 20, 2015 , Duke Energy Carolinas, Duke Energy Progress and Duke Energy Business Services LLC (DEBS), a wholly owned subsidiary of Duke Energy, each entered into a Memorandum of Plea Agreement (Plea Agreements) in connection with the investigation initiated by the United States Department of Justice Environmental Crimes Section and the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina and the Western District of North Carolina (collectively, USDOJ). The Plea Agreements are subject to the approval of the United States District Court for the Eastern District of North Carolina and, if approved, will end the grand jury investigation related to the Dan River ash basin release and the management of coal ash basins at 14 plants in North Carolina with coal ash basins, as discussed above.
Under the Plea Agreements, the USDOJ charged DEBS and Duke Energy Progress with four misdemeanor CWA violations related to violations at Duke Energy Progress’ H.F. Lee Steam Electric Plant, Cape Fear Steam Electric Plant and Asheville Steam Electric Generating Plant. The USDOJ charged Duke Energy Carolinas and DEBS with five misdemeanor CWA violations related to violations at Duke Energy Carolinas’ Dan River Steam Station and Riverbend Steam Station. DEBS, Duke Energy Carolinas and Duke Energy Progress also agreed (i) to a five-year probation period, (ii) to pay a total of approximately $68 million in fines and restitution and $34 million for community service and mitigation (the Payments), and (iii) to establish environmental compliance plans subject to the oversight of a court-appointed monitor paid for by the companies for the duration of the probation period (iii) for Duke Energy Carolinas and Duke Energy Progress each to maintain $250 million under their Master Credit Facility as security to meet their obligations under the Pleas Agreements, in addition to certain other conditions set out in the Plea Agreements. Payments under the Plea Agreements will be borne by shareholders and are not tax deductible. Duke Energy Corporation has agreed to issue a guarantee of all payments and performance due from the Companies, including but not limited to payments for fines, restitution, community service, mitigation and the funding of, and obligations under, the environmental compliance plans. As a result of the Plea Agreements, Duke Energy Carolinas and Duke Energy Progress recognized charges of $72 million and $30 million , respectively, in the fourth quarter of 2014. The amounts are recorded in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income.
The Plea Agreements do not cover pending civil claims related to the Dan River coal ash release and operations at other North Carolina coal plants. Duke Energy Corporation will continue to cooperate with government agencies and defend against remaining civil litigation associated with these matters.

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DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Duke Energy Carolinas
New Source Review
In 1999-2000, the U.S. Department of Justice on behalf of the EPA filed a number of complaints and notices of violation against multiple utilities, including Duke Energy Carolinas, for alleged violations of the New Source Review (NSR) provisions of the Clean Air Act (CAA). The government alleges the utilities violated the CAA when undertaking certain maintenance and repair projects at certain coal plants without (i) obtaining NSR permits and (ii) installing the best available emission controls for sulfur dioxide, nitrogen oxide and particulate matter. The complaints seek the installation of pollution control technology on generating units that allegedly violated the CAA, and unspecified civil penalties in amounts of up to $37,500 per day for each violation. Duke Energy Carolinas asserts there were no CAA violations because the applicable regulations do not require NSR permitting in cases where the projects undertaken are “routine” or otherwise do not result in a net increase in emissions.
In 2000, the government sued Duke Energy Carolinas in the U.S. District Court in Greensboro, North Carolina, claiming NSR violations for 29 projects performed at 25 of Duke Energy Carolinas’ coal-fired units. Duke Energy Carolinas asserts the projects were routine and not projected to increase emissions. The parties subsequently filed a stipulation agreeing to dismiss with prejudice all but 13 claims at 13 generating units, 11 of which have since been retired. The parties filed opposing motions for summary judgment on the remaining claims. The Court substantially denied both motions for summary judgment. A Duke Energy request for leave to file another motion for summary judgment on alternative grounds, including expiration of the applicable statute of limitations, was denied. On October 24, 2014, Duke Energy Carolinas filed a motion to certify an appeal of the statute of limitations issue to the U.S. Court of Appeals for the Fourth Circuit. That motion is pending. Trial date has been set for October 2015. It is not possible to predict whether Duke Energy Carolinas will incur any liability or to estimate the damages, if any, it might incur in connection with this matter. Ultimate resolution of these matters could have a material effect on the results of operations, cash flows or financial position of Duke Energy Carolinas. However, the appropriate regulatory recovery will be pursued for costs incurred in connection with such resolution.
Asbestos-related Injuries and Damages Claims
Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement related to asbestos exposure. These claims relate to damages for bodily injuries alleged to have arisen from exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of December 31, 2014 , there were 54 asserted claims for non-malignant cases with the cumulative relief sought of up to $11 million , and 28 asserted claims for malignant cases with the cumulative relief sought of up to $7 million . Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed.
Duke Energy Carolinas has recognized asbestos-related reserves of $575 million at December 31, 2014 and $616 million at December 31, 2013 . These reserves are classified in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities on the Consolidated Balance Sheets. These reserves are based upon the minimum amount of the range of loss for current and future asbestos claims through 2033, are recorded on an undiscounted basis and incorporate anticipated inflation. In light of the uncertainties inherent in a longer-term forecast, management does not believe they can reasonably estimate the indemnity and medical costs that might be incurred after 2033 related to such potential claims. It is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves.
Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention of $476 million . Duke Energy Carolinas’ cumulative payments began to exceed the self-insurance retention in 2008. Future payments up to the policy limit will be reimbursed by the third-party insurance carrier. The insurance policy limit for potential future insurance recoveries for indemnification and medical cost claim payments is $864 million in excess of the self-insured retention. Receivables for insurance recoveries were $616 million at December 31, 2014 and $649 million at December 31, 2013 . These amounts are classified in Other within Investments and Other Assets and Receivables on the Consolidated Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating.
Progress Energy
Synthetic Fuels Matters
Progress Energy and a number of its subsidiaries and affiliates are defendants in lawsuits arising out of a 1999 Asset Purchase Agreement. Parties to the Asset Purchase Agreement include U.S. Global, LLC (Global) and affiliates of Progress Energy.
In a case filed in the Circuit Court for Broward County, Florida, in March 2003 (the Florida Global Case), Global requested an unspecified amount of compensatory damages, as well as declaratory relief. In November 2009, the court ruled in favor of Global. In December 2009, Progress Energy made a $154 million payment which represented payment of the total judgment, including prejudgment interest, and a required premium equivalent to two years of interest, to the Broward County Clerk of Court bond account. Progress Energy continued to accrue interest related to this judgment.
On October 3, 2012, the Florida Fourth District Court of Appeals reversed the lower court ruling. The court held that Global was entitled to approximately $90 million of the amount paid into the registry of the court. Progress Energy was entitled to a refund of the remainder of the funds. Progress Energy received cash and recorded a $63 million pretax gain for the refund in December 2012. The gain was recorded in Income from Discontinued Operations, net of tax in the Consolidated Statements of Operations and Comprehensive Income.
On May 9, 2013, Global filed a Seventh Amended Complaint asserting a single count for breach of the Asset Purchase Agreement and seeking specific performance. The parties reached a settlement in this matter in May 2014, and the case has been dismissed. The amount of the settlement did not have a material effect on the results of operations, cash flows or financial position of Progress Energy. As a result of the settlement of the Florida Global Case, a second suit filed in the Superior Court for Wake County, North Carolina, Progress Synfuel Holdings, Inc. et al. v. U.S. Global, LLC , has been dismissed.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Duke Energy Progress and Duke Energy Florida
Spent Nuclear Fuel Matters
On December 12, 2011, Duke Energy Progress and Duke Energy Florida sued the United States in the U.S. Court of Federal Claims. The lawsuit claimed the Department of Energy breached a contract in failing to accept spent nuclear fuel under the Nuclear Waste Policy Act of 1982 and asserted damages for the cost of on-site storage. Duke Energy Progress and Duke Energy Florida asserted damages for the period January 1, 2006 through December 31, 2010. Claims for all periods prior to 2006 have been resolved. On March 24, 2014, the U.S. Court of Federal Claims issued a judgment in favor of Duke Energy Progress and Duke Energy Florida on this matter, awarding amounts of $83 million and $21 million , respectively. The majority of the awards were recorded as a reduction to capital costs associated with construction of on-site storage facilities. Duke Energy Progress and Duke Energy Florida received payment of the award in September 2014. On October 16, 2014, Duke Energy Progress and Duke Energy Florida filed a new action for costs incurred from 2011 through 2013.
Duke Energy Florida
Westinghouse Contract Litigation
On March 28, 2014 Duke Energy Florida filed a lawsuit against Westinghouse in the U.S. District Court for the Western District of North Carolina. The lawsuit seeks recovery of $54 million in milestone payments in excess of work performed under the terminated EPC for Levy as well as a determination by the court of the amounts due to Westinghouse as a result of the termination of the EPC.
On March 31, 2014, Westinghouse filed a lawsuit against Duke Energy Florida in U.S. District Court for the Western District of Pennsylvania. The Pennsylvania lawsuit alleged damages under the EPC in excess of $510 million for engineering and design work, costs to end supplier contracts and an alleged termination fee.
On June 9, 2014, the judge in the North Carolina case ruled that the litigation will proceed in the Western District of North Carolina. In November 2014, Westinghouse filed a Motion for Partial Judgment on the pleadings which was denied by the Magistrate Judge on February 20, 2015, subject to court approval. Trial is set for February 2016. It is not possible to predict the outcome of the litigation and whether Duke Energy Florida will incur any liability for terminating the EPC or to estimate the damages, if any, it might incur in connection with these matters. Ultimate resolution of these matters could have a material effect on the results of operations, financial position or cash flows of Duke Energy Florida. However, appropriate regulatory recovery will be pursued for the retail portion of any costs incurred in connection with such resolution.
Duke Energy Ohio
Antitrust Lawsuit
In January 2008, four plaintiffs, including individual, industrial and nonprofit customers, filed a lawsuit against Duke Energy Ohio in federal court in the Southern District of Ohio. Plaintiffs alleged Duke Energy Ohio conspired to provide inequitable and unfair price advantages for certain large business consumers by entering into non-public option agreements in exchange for their withdrawal of challenges to Duke Energy Ohio’s Rate Stabilization Plan implemented in early 2005. In March 2014, a federal judge certified this matter as a class action. The parties have agreed to mediation on March 31, 2015. Trial has been set to begin on July 27, 2015. It is not possible to predict whether Duke Energy Ohio will incur any liability or to estimate the damages, if any, that may be incurred in connection with this matter. Ultimate resolution of this matter could have a material effect on the results of operations, cash flows or financial position of Duke Energy Ohio.
Any liability related to the lawsuit attributable to the Disposal Group will not be transferred to Dynegy upon closing of the disposal of the Midwest generation business.
Asbestos-related Injuries and Damages Claims
Duke Energy Ohio has been named as a defendant or co-defendant in lawsuits related to asbestos exposure at its electric generating stations. The impact on Duke Energy Ohio’s 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 Ohio generating plants, (ii) the possible incidence of various illnesses among exposed workers, and (iii) the potential settlement costs without federal or other legislation that addresses asbestos tort actions, Duke Energy Ohio estimates that the range of reasonably possible exposure in existing and future suits over the foreseeable future is not material. This assessment may change as additional settlements occur, claims are made, and more case law is established.

151


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Duke Energy Indiana
Edwardsport IGCC
On December 11, 2012, Duke Energy Indiana filed an arbitration action against General Electric Company and Bechtel Corporation in connection with their work at the Edwardsport IGCC facility. Duke Energy Indiana is seeking damages equaling some or all of the additional costs incurred in the construction of the project not recovered at the IURC. The arbitration hearing concluded December 15, 2014. The parties will submit post hearing briefs. Duke Energy Indiana cannot predict the outcome of this matter.
Other Litigation and Legal Proceedings
The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve significant amounts. The Duke Energy Registrants believe the final disposition of these proceedings will not have a material effect on their results of operations, cash flows or financial position.
The table below presents recorded reserves based on management’s best estimate of probable loss for legal matters discussed above, excluding asbestos related reserves. Reserves are classified on the Consolidated Balance Sheets in Other within Deferred Credits and Other Liabilities and Accounts payable and Other within Current Liabilities. The reasonably possible range of loss for all non-asbestos related matters in excess of recorded reserves is not material.
  
December 31,
(in millions)   
2014

 
2013

Reserves for Legal Matters
  
 
  
Duke Energy
$
323

 
$
204

Duke Energy Carolinas
72

 

Progress Energy  
93

 
78

Duke Energy Progress  
37

 
10

Duke Energy Florida
36

 
43

OTHER COMMITMENTS AND CONTINGENCIES
General
As part of their normal business, the Duke Energy Registrants are party to various financial guarantees, performance guarantees, and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees, and other third parties. These guarantees involve elements of performance and credit risk, which are not fully recognized on the Consolidated Balance Sheets and have unlimited maximum potential payments. However, the Duke Energy Registrants do not believe these guarantees will have a material effect on their results of operations, cash flows or financial position.
Purchase Obligations
Purchased Power
Duke Energy Progress and Duke Energy Florida have ongoing purchased power contracts, including renewable energy contracts, with other utilities, wholesale marketers, co-generators, and qualified facilities. These purchased power contracts generally provide for capacity and energy payments. In addition, Duke Energy Progress and Duke Energy Florida have various contracts to secure transmission rights.
The following table presents executory purchased power contracts, excluding contracts classified as leases. All contracts represent 100 percent of net plant output.
  
  
 
Minimum Purchase Amount at December 31, 2014
(in millions)  
Contract Expiration
 
2015

 
2016

 
2017

 
2018

 
2019

 
Thereafter

 
Total

Duke Energy Progress
2019-2022
 
$
59

 
60

 
$
61

 
$
62

 
$
63

 
$
93

 
$
398

Duke Energy Florida
2023-2043
 
244

 
273

 
291

 
306

 
322

 
1,907

 
3,343

Operating and Capital Lease Commitments
The Duke Energy Registrants lease office buildings, railcars, vehicles, computer equipment and other property and equipment with various terms and expiration dates. Additionally, Duke Energy Progress has a capital lease related to firm gas pipeline transportation capacity. Duke Energy Progress and Duke Energy Florida have entered into certain purchased power agreements, which are classified as leases. Consolidated capitalized lease obligations are classified as Long-Term Debt or Other within Current Liabilities on the Consolidated Balance Sheets. Amortization of assets recorded under capital leases is included in Depreciation and amortization and Fuel used in electric generation – regulated on the Consolidated Statements of Operations.

152


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following table presents rental expense for operating leases. These amounts are included in Operation, maintenance and other on the Consolidated Statements of Operations.
  
Years Ended December 31,
(in millions)  
2014

 
2013

 
2012

Duke Energy  
$
355

 
$
321

 
$
232

Duke Energy Carolinas  
41

 
39

 
38

Progress Energy  
257

 
225

 
232

Duke Energy Progress  
161

 
153

 
164

Duke Energy Florida  
96

 
72

 
68

Duke Energy Ohio  
17

 
14

 
14

Duke Energy Indiana  
21

 
22

 
20

The following table presents future minimum lease payments under operating leases, which at inception had a non-cancelable term of more than one year.
  
December 31, 2014
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

2015
$
205

 
$
33

 
$
129

 
$
65

 
$
64

 
$
12

 
$
17

2016
198

 
29

 
130

 
66

 
64

 
11

 
15

2017
172

 
26

 
111

 
65

 
46

 
9

 
13

2018
157

 
20

 
109

 
64

 
45

 
7

 
10

2019
148

 
17

 
103

 
58

 
45

 
6

 
9

Thereafter
938

 
64

 
709

 
421

 
288

 
18

 
9

Total
$
1,818

 
$
189

 
$
1,291

 
$
739

 
$
552

 
$
63

 
$
73

The following table presents future minimum lease payments under capital leases.
  
December 31, 2014
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

2015
$
178

 
$
6

 
$
46

 
$
21

 
$
26

 
$
7

 
$
4

2016
188

 
6

 
47

 
21

 
26

 
7

 
4

2017
190

 
7

 
47

 
21

 
26

 
3

 
2

2018
198

 
7

 
48

 
22

 
26

 
4

 
2

2019
208

 
8

 
51

 
25

 
26

 
2

 
2

Thereafter
1,771

 
60

 
678

 
398

 
280

 

 
42

Minimum annual payments
2,733

 
94

 
917

 
508

 
410

 
23

 
56

Less: amount representing interest
(1,305
)
 
(67
)
 
(603
)
 
(361
)
 
(242
)
 
(3
)
 
(39
)
Total
$
1,428

 
$
27

 
$
314

 
$
147

 
$
168

 
$
20

 
$
17


153


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

6. DEBT AND CREDIT FACILITIES
Summary of Debt and Related Terms
The following tables summarize outstanding debt.
  
December 31, 2014
(in millions)  
Weighted Average Interest Rate  

 
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Unsecured debt, maturing 2015 - 2073  
4.92
%
 
$
12,937

$
1,155

$
3,850

$

$
150

$
773

$
742

Secured debt, maturing 2016 - 2037  
2.50
%
 
2,806

400

525

300

225



First mortgage bonds, maturing 2015 - 2044 (a)
4.76
%
 
19,180

6,161

9,800

5,475

4,325

900

2,319

Capital leases, maturing 2015 - 2051 (b)
5.30
%
 
1,428

27

314

146

168

20

16

Tax-exempt bonds, maturing 2015 - 2041 (c)
2.13
%
 
1,296

355

291

291


77

573

Notes payable and commercial paper (d)
0.70
%
 
2,989







Money pool/intercompany borrowings  
  
 

300

835


84

516

221

Fair value hedge carrying value adjustment  
  
 
8

8






Unamortized debt discount and premium, net (e)
  
 
1,890

(15
)
(26
)
(11
)
(8
)
(29
)
(9
)
Total debt  
4.29
%
 
$
42,534

$
8,391

$
15,589

$
6,201

$
4,944

$
2,257

$
3,862

Short-term notes payable and commercial paper  
  
 
(2,514
)






Short-term money pool borrowings  
 
 


(835
)

(84
)
(491
)
(71
)
Current maturities of long-term debt (f)
  
 
(2,807
)
(507
)
(1,507
)
(945
)
(562
)
(157
)
(5
)
Total long-term debt (f)
4.58
%
 
$
37,213

$
7,884

$
13,247

$
5,256

$
4,298

$
1,609

$
3,786

(a)    Substantially all electric utility property is mortgaged under mortgage bond indentures.
(b)
Duke Energy includes $129 million and $787 million of capital lease purchase accounting adjustments related to Duke Energy Progress and Duke Energy Florida, respectively, related to power purchase agreements that are not accounted for as capital leases in their respective financial statements because of grandfathering provisions in GAAP.
(c)
Substantially all tax-exempt bonds are secured by first mortgage bonds or letters of credit.
(d)
Includes $475 million that was classified as Long-Term Debt on the Consolidated Balance Sheets due to the existence of long-term credit facilities that back-stop these commercial paper balances, along with Duke Energy’s ability and intent to refinance these balances on a long-term basis. The weighted-average days to maturity was 27 days.
(e)
Duke Energy includes $1,975 million in purchase accounting adjustments related to the merger with Progress Energy. See Note 2 for additional information.
(f)
Refer to Note 17 for additional information on amounts from consolidated VIE’s.

154


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
December 31, 2013
(in millions)  
Weighted Average Interest Rate  

 
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Unsecured debt, maturing 2014 - 2073  
5.18
%
 
$
13,550

$
1,157

$
4,150

$

$
150

$
805

$
744

Secured debt, maturing 2014 - 2037  
2.69
%
 
2,559

400

305

305




First mortgage bonds, maturing 2015 - 2043 (a)
4.90
%
 
17,831

6,161

8,450

4,125

4,325

900

2,319

Capital leases, maturing 2014 - 2051 (b)
5.23
%
 
1,516

30

327

148

179

27

20

Other debt, maturing 2027  
4.77
%
 
8





8


Tax-exempt bonds, maturing 2014 - 2041 (c)
1.28
%
 
2,356

395

910

669

241

479

573

Notes payable and commercial paper (d)
1.02
%
 
1,289







Money pool/intercompany borrowings  
  
 

300

1,213

462

181

43

150

Fair value hedge carrying value adjustment  
  
 
9

9






Unamortized debt discount and premium, net (e)
  
 
1,977

(16
)
(27
)
(12
)
(9
)
(31
)
(10
)
Total debt  
4.52
%
 
$
41,095

$
8,436

$
15,328

$
5,697

$
5,067

$
2,231

$
3,796

Short-term notes payable and commercial paper  
  
 
(839
)






Short-term money pool borrowings  
 
 


(1,213
)
(462
)
(181
)
(43
)

Current maturities of long-term debt (f)
  
 
(2,104
)
(47
)
(485
)
(174
)
(11
)
(47
)
(5
)
Total long-term debt (f)
4.59
%
 
$
38,152

$
8,389

$
13,630

$
5,061

$
4,875

$
2,141

$
3,791

(a)    Substantially all electric utility property is mortgaged under mortgage bond indentures.
(b)
Duke Energy includes $144 million and $838 million of capital lease purchase accounting adjustments related to Duke Energy Progress and Duke Energy Florida, respectively, related to power purchase agreements that are not accounted for as capital leases in their respective financial statements because of grandfathering provisions in GAAP.
(c)
Substantially all tax-exempt bonds are secured by first mortgage bonds or letters of credit.
(d)
Includes $450 million that was classified as Long-Term Debt on the Consolidated Balance Sheets due to the existence of long-term credit facilities that back-stop these commercial paper balances, along with Duke Energy’s ability and intent to refinance these balances on a long-term basis. The weighted-average days to maturity was 49 days.
(e)
Duke Energy includes $2,067 million in purchase accounting adjustments related to the merger with Progress Energy. See Note 2 for additional information.
(f)
Refer to Note 17 for additional information on amounts from consolidated VIE’s.

Current Maturities of Long-Term Debt
The following table shows the significant components of Current maturities of Long-Term Debt on the Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings.
(in millions)
Maturity Date
 
Interest Rate

 
December 31, 2014

Unsecured Debt
 
 
 
 
 
Duke Energy (Parent)
April 2015
 
3.350
%
 
$
450

First Mortgage Bonds
 
 
 
 
 
Duke Energy Ohio
March 2015
 
0.375
%
 
150

Duke Energy Progress
April 2015
 
5.150
%
 
300

Duke Energy Carolinas
October 2015
 
5.300
%
 
500

Duke Energy Florida
November 2015
 
0.650
%
 
250

Duke Energy Florida
December 2015
 
5.100
%
 
300

Duke Energy Progress
December 2015
 
5.250
%
 
400

Tax-exempt Bonds
 
 
 
 
 
Duke Energy Progress
January 2015
 
0.108
%
 
243

Other
 
 
 
 
214

Current maturities of long-term debt
 
 
 
 
$
2,807


155


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Maturities and Call Options
The following table shows the annual maturities of long-term debt for the next five years and thereafter. Amounts presented exclude short-term notes payable and commercial paper and money pool borrowings for the Subsidiary Registrants.
  
December 31, 2014
(in millions)
Duke Energy (a)

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

2015
$
2,793

 
$
507

 
$
1,507

 
$
945

 
$
562

 
$
157

 
$
5

2016
2,980

 
756

 
614

 
302

 
12

 
57

 
480

2017
2,452

 
116

 
940

 
453

 
487

 
3

 
3

2018
3,207

 
1,505

 
515

 
3

 
512

 
28

 
153

2019
2,810

 
5

 
1,418

 
606

 
12

 
552

 
62

Thereafter
23,803

 
5,502

 
9,760

 
3,892

 
3,275

 
969

 
3,088

Total long-term debt, including current maturities
$
38,045


$
8,391


$
14,754


$
6,201


$
4,860


$
1,766


$
3,791

(a)
Excludes $1,975 million in purchase accounting adjustments related to the merger with Progress Energy. See Note 2 for additional information.
The Duke Energy Registrants have 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 as presented above.
Short-Term Obligations Classified as Long-Term Debt
Tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder and certain commercial paper issuances and money pool borrowings are classified as Long-Term Debt on the Consolidated Balance Sheets. These tax-exempt bonds, commercial paper issuances and money pool borrowings, which are short-term obligations by nature, are classified as long term due to Duke Energy’s intent and ability to utilize such borrowings as long-term financing. As Duke Energy’s Master Credit Facility and other bilateral letter of credit agreements have non-cancelable terms in excess of one year as of the balance sheet date, Duke Energy has the ability to refinance these short-term obligations on a long-term basis. The following tables show short-term obligations classified as long-term debt.
  
December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Duke Energy Ohio

 
Duke Energy Indiana

Tax-exempt bonds  
$
347

 
$
35

 
$
27

 
$
285

Commercial paper  
475

 
300

 
25

 
150

Secured debt (a)
200

 

 

 

Total  
$
1,022


$
335


$
52


$
435

  
December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Duke Energy Ohio

 
Duke Energy Indiana

Tax exempt bonds  
$
471

 
$
75

 
$
111

 
$
285

Commercial paper  
450

 
300

 

 
150

Secured debt (a)
200

 

 

 

Total  
$
1,121


$
375


$
111


$
435

(a)
Instrument has a term of less than one year with the right to extend the maturity date for additional one-year periods with a final maturity date no later than December 2026.
Summary of Significant Debt Issuances
The following tables summarize significant debt issuances (in millions).

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

 
 
 
 
 
Year Ended December 31, 2014
Issuance Date
Maturity Date
 
Interest Rate

 
Duke Energy (Parent)

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy

Unsecured Debt
 
 
 
 
 
 
 
 
 
 
 
April 2014 (a)
April 2024
 
3.750
%
 
600

 

 

 
600

April 2014 (a)(b)
April 2017
 
0.613
%
 
400

 

 

 
400

June 2014 (c)
May 2019
 
11.970
%
 

 

 

 
108

June 2014 (c)
May 2021
 
13.680
%
 

 

 

 
110

Secured Debt
 
 
 
 
 
 
 
 
 
 


March 2014 (d)
March 2017
 
0.863
%
 

 

 
225

 
225

July 2014 (e)
July 2036
 
5.340
%
 

 

 

 
129

First Mortgage Bonds
 
 
 
 
 
 
 
 
 
 


March 2014 (f)
March 2044
 
4.375
%
 

 
400

 

 
400

March 2014 (f)(g)
March 2017
 
0.435
%
 

 
250

 

 
250

November 2014 (h)
December 2044
 
4.150
%
 

 
500

 

 
500

November 2014 (g)(h)
November 2017
 
0.432
%
 

 
200

 

 
200

Total issuances
 
 
 
 
$
1,000


$
1,350


$
225


$
2,922

(a)
Proceeds were used to redeem $402 million of tax-exempt bonds at Duke Energy Ohio, the repayment of outstanding commercial paper and for general corporate purposes. See Note 13 for additional information related to the redemption of Duke Energy Ohio's tax-exempt bonds.
(b)
The debt is floating rate based on three-month London Interbank Offered Rate (LIBOR) plus a fixed credit spread of 38 basis points.
(c)
Proceeds were used to repay $196 million of debt for International Energy and for general corporate purposes.
(d)
Relates to the securitization of accounts receivable at a subsidiary of Duke Energy Florida. Proceeds were used to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes. See Note 17 for further details.
(e)
Proceeds were used to fund a portion of Duke Energy's prior investment in the existing Wind Star renewables portfolio.
(f)
Proceeds were used to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes.
(g)
The debt is floating rate based on three-month LIBOR plus a fixed credit spread of 20 basis points.
(h)
Proceeds will be used to redeem $450 million of tax-exempt bonds, repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes.
  
  
 
  
 
Year Ended December 31, 2013
Issuance Date  
Maturity Date
 
Interest Rate

 
Duke Energy (Parent)

 
Duke Energy Progress

 
Duke Energy Ohio

 
Duke Energy Indiana

 
Duke Energy

Unsecured Debt
 
 
  
 
  
 
  
 
  
 
  
 
  
January 2013 (a)
January 2073
 
5.125
%
 
$
500

 
$

 
$

 
$

 
$
500

June 2013 (b)
June 2018
 
2.100
%
 
500

 

 

 

 
500

August 2013 (c)(d)
August 2023
 
11.000
%
 
―   

 

 

 

 
220

October 2013 (e)
October 2023
 
3.950
%
 
400

 

 

 

 
400

Secured Debt
 
 
  
 
 
 
  
 
  
 
  
 
  
February 2013 (f)(g)
December 2030
 
2.043
%
 

 

 

 

 
203

February 2013 (f)
June 2037
 
4.740
%
 

 

 

 

 
220

April 2013 (h)
April 2026
 
5.456
%
 

 

 

 

 
230

December 2013 (i)
December 2016
 
0.852
%
 

 
300

 

 

 
300

First Mortgage Bonds
 
 
  
 
  
 
  
 
 
 
  
 


March 2013 (j)
March 2043
 
4.100
%
 

 
500

 

 

 
500

July 2013 (k)
July 2043
 
4.900
%
 

 

 

 
350

 
350

July 2013 (k)(l)
July 2016
 
0.619
%
 

 

 

 
150

 
150

September 2013 (m)
September 2023
 
3.800
%
 

 

 
300

 

 
300

September 2013 (m)(n)
March 2015
 
0.400
%
 

 

 
150

 

 
150

Total issuances
 
 
  
 
$
1,400

 
$
800

 
$
450

 
$
500

 
$
4,023

(a)
Callable after January 2018 at par. Proceeds were used to redeem the $300 million 7.10% Cumulative Quarterly Income Preferred Securities (QUIPS) and to repay a portion of outstanding commercial paper and for general corporate purposes.

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

(b)
Proceeds were used to repay $250 million of current maturities and for general corporate purposes, including the repayment of outstanding commercial paper.
(c)
Proceeds were used to repay $200 million of current maturities. The maturity date included above applies to half of the instrument. The remaining half matures in August 2018 .
(d)
The debt is floating rate based on a consumer price index and an overnight funds rate in Brazil. The debt is denominated in Brazilian Real.
(e)
Proceeds were used to repay commercial paper as well as for general corporate purposes.
(f)
Represents the conversion of construction loans related to two renewable energy projects issued in December 2012 to term loans. No cash proceeds were received in conjunction with the conversion. The term loans have varying maturity dates. The maturity date presented represents the latest date for all components of the respective loans.
(g)
The debt is floating rate. Duke Energy has entered into a pay fixed-receive floating interest rate swap for 95 percent of the loans.
(h)
Represents the conversion of a $190 million bridge loan issued in conjunction with the acquisition of Ibener in December 2012. Duke Energy received incremental proceeds of $40 million upon conversion of the bridge loan. The debt is floating rate and is denominated in U.S. dollars. Duke Energy has entered into a pay fixed-receive floating interest rate swap for 75 percent of the loan.
(i)
Relates to the securitization of accounts receivable at a subsidiary of Duke Energy Progress; the proceeds were used to repay short-term debt. See Note 17 for further details.
(j)
Proceeds were used to repay notes payable to affiliated companies as well as for general corporate purposes.
(k)
Proceeds were used to repay $400 million of current maturities.
(l)
The debt is floating rate based on three-month LIBOR and a fixed credit spread of 35 basis points.
(m)
Proceeds were used for general corporate purposes including the repayment of short-term notes payable, a portion of which was incurred to fund the retirement of $250 million of first mortgage bonds that matured in the first half of 2013.
(n)
The debt is floating rate based on three-month LIBOR plus a fixed credit spread of 14 basis points.
Available Credit Facilities
At December 31, 2014 , Duke Energy had a Master Credit Facility with a capacity of $6 billion through December 2018 . In January 2015 , Duke Energy amended the Master Credit Facility to increase its capacity to $7.5 billion through January 2020 . The Duke Energy Registrants, excluding Progress Energy, each have borrowing capacity under the Master Credit Facility up to specified sublimits for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop the issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder. The table below includes the current borrowing sublimits and available capacity under the Master Credit Facility.
  
December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy (Parent)

 
Duke Energy Carolinas

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Facility size (a)
$
6,000

 
$
2,250

 
$
1,000

 
$
750

 
$
650

 
$
650

 
$
700

Reduction to backstop issuances  
  
 
  
 
  
 
  
 
  
 
  
 
  
Commercial paper (b)
(2,021
)
 
(1,479
)
 
(300
)
 

 
(29
)
 
(38
)
 
(175
)
Outstanding letters of credit  
(70
)
 
(62
)
 
(4
)
 
(2
)
 
(1
)
 

 
(1
)
Tax-exempt bonds  
(116
)
 

 
(35
)
 

 

 

 
(81
)
Available capacity  
$
3,793


$
709


$
661


$
748


$
620


$
612


$
443

(a)
Represents the sublimit of each borrower.
(b)
Duke Energy issued $475 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana. The balances are classified as Long-Term Debt Payable to Affiliated Companies in the Consolidated Balance Sheets.
On February 20, 2015, Duke Energy Carolinas, Duke Energy Progress and DEBS, a wholly owned subsidiary of Duke Energy, each entered into the Plea Agreements in connection with the investigation initiated by the USDOJ. Under the terms of the Plea Agreements, Duke Energy Carolinas and Duke Energy Progress are required to each maintain $250 million of available capacity under the Master Credit Facility as security to meet their obligations under the Plea Agreements, in addition to certain other conditions set out in the Plea Agreements. The Plea Agreements are subject to court approval. See Note 5 for further details.
Other Debt Matters
In September 2013, Duke Energy filed a registration statement (Form S-3) with the Securities and Exchange Commission (SEC). Under this Form S-3, which is uncapped, the Duke Energy Registrants, excluding Progress Energy, may issue debt and other securities in the future at amounts, prices and with terms to be determined at the time of future offerings. The registration statement also allows for the issuance of common stock by Duke Energy.
Duke Energy has an effective Form S-3 with the SEC to sell up to $3 billion of variable denomination floating-rate demand notes, called PremierNotes. The Form S-3 states that no more than $1.5 billion of the notes will be outstanding at any particular time. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, are non-transferable and may be redeemed in whole or in part by Duke Energy or at the investor’s option at any time. The balance as of December 31, 2014 and 2013 was $968 million and $836 million , respectively. The notes are short-term debt obligations of Duke Energy and are reflected as Notes payable and commercial paper on Duke Energy’s Consolidated Balance Sheets.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

At December 31, 2014 and 2013 , $767 million and $811 million , respectively, of debt issued by Duke Energy Carolinas was guaranteed by Duke Energy.
Money Pool  
The Subsidiary Registrants, excluding Progress Energy receive support for their short-term borrowing needs through participation with Duke Energy and certain of its subsidiaries in a money pool arrangement. Under this arrangement, those companies with short-term funds may provide short-term loans to affiliates participating in this arrangement. The money pool is structured such that the Subsidiary Registrants, excluding Progress Energy, separately manage their cash needs and working capital requirements. Accordingly, there is no net settlement of receivables and payables between money pool participants. Duke Energy (Parent), may loan funds to its participating subsidiaries, but may not borrow funds through the money pool. Accordingly, as the money pool activity is between Duke Energy and its wholly owned subsidiaries, all money pool balances are eliminated within Duke Energy’s Consolidated Balance Sheets.
Money pool receivable balances are reflected within Notes receivable from affiliated companies on the Subsidiary Registrants’ Consolidated Balance Sheets. Money pool payable balances are reflected within either Notes payable to affiliated companies or Long-Term Debt Payable to Affiliated Companies on the Subsidiary Registrants’ Consolidated Balance Sheets.
Restrictive Debt Covenants
The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. The Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio not exceed 65 percent for each borrower. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of December 31, 2014 , each of the Duke Energy Registrants were in compliance with all covenants related to their significant debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the significant debt or credit agreements contain material adverse change clauses.
Other Loans
During 2014 and 2013, Duke Energy and Duke Energy Progress had loans outstanding against the cash surrender value of life insurance policies it owns on the lives of its executives. The amounts outstanding were $603 million , including $44 million at Duke Energy Progress and $571 million , including $48 million at Duke Energy Progress as of December 31, 2014 and 2013 , respectively. The amounts outstanding were carried as a reduction of the related cash surrender value that is included in Other within Investments and Other Assets on the Consolidated Balance Sheets.
7. GUARANTEES AND INDEMNIFICATIONS
Duke Energy and Progress Energy have various financial and performance guarantees and indemnifications, which are issued in the normal course of business. As discussed below, these contracts include performance guarantees, stand-by letters of credit, debt guarantees, surety bonds and indemnifications. Duke Energy and Progress Energy enter into these arrangements to facilitate commercial transactions with third parties by enhancing the value of the transaction to the third party. At December 31, 2014 , Duke Energy and Progress Energy do not believe conditions are likely for significant performance under these guarantees. To the extent liabilities are incurred as a result of the activities covered by the guarantees, such liabilities are included on the accompanying Consolidated Balance Sheets.
On January 2, 2007, Duke Energy completed the spin-off of its natural gas businesses to shareholders. Guarantees issued by Duke Energy or its affiliates, or assigned to Duke Energy prior to the spin-off, remained with Duke Energy subsequent to the spin-off. Guarantees issued by Spectra Energy Capital, LLC, formerly known as Duke Capital LLC, (Spectra Capital) or its affiliates prior to the spin-off remained with Spectra Capital subsequent to the spin-off, except for guarantees that were later assigned to Duke Energy. Duke Energy has indemnified Spectra Capital against any losses incurred under certain of the guarantee obligations that remain with Spectra Capital. At December 31, 2014 , the maximum potential amount of future payments associated with these guarantees was $205 million , the majority of which expires by 2028.
Duke Energy has issued performance guarantees to customers and other third parties that guarantee the payment and performance of other parties, including certain non-wholly owned entities, as well as guarantees of debt of certain non-consolidated entities and less than wholly owned consolidated entities. If such entities were to default on payments or performance, Duke Energy would be required under the guarantees to make payments on the obligations of the less than wholly owned entity. The maximum potential amount of future payments required under these guarantees as of December 31, 2014 , was $267 million . Of this amount, $15 million relates to guarantees issued on behalf of less than wholly owned consolidated entities, with the remainder related to guarantees issued on behalf of third parties and unconsolidated affiliates of Duke Energy. Of the guarantees noted above, $120 million of the guarantees expire between 2015 and 2033, with the remaining performance guarantees having no contractual expiration.
Duke Energy has guaranteed certain issuers of surety bonds, obligating itself to make payment upon the failure of a wholly owned and former non-wholly owned entity to honor its obligations to a third party. Under these arrangements, Duke Energy has payment obligations that are triggered by a draw by the third party or customer due to the failure of the wholly owned or former non-wholly owned entity to perform according to the terms of its underlying contract. At December 31, 2014 , Duke Energy had guaranteed $44 million of outstanding surety bonds, most of which have no set expiration.
Duke Energy uses bank-issued stand-by letters of credit to secure the performance of wholly owned and non-wholly owned entities to a third party or customer. Under these arrangements, Duke Energy has payment obligations to the issuing bank which are triggered by a draw by the third party or customer due to the failure of the wholly owned or non-wholly owned entity to perform according to the terms of its underlying contract. At December 31, 2014 , Duke Energy had issued a total of $452 million in letters of credit, which expire between 2015 and 2020. The unused amount under these letters of credit was $46 million .

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Duke Energy and Progress Energy have issued indemnifications for certain asset performance, legal, tax and environmental matters to third parties, including indemnifications made in connection with sales of businesses. At December 31, 2014 , the estimated maximum exposure for these indemnifications was $107 million , the majority of which expires in 2017. Of this amount, $7 million has no contractual expiration. For certain matters for which Progress Energy receives timely notice, indemnity obligations may extend beyond the notice period. Certain indemnifications related to discontinued operations have no limitations as to time or maximum potential future payments.
The following table includes the liabilities recognized for the guarantees discussed above. These amounts are primarily recorded in Other within Deferred Credits and other Liabilities on the Consolidated Balance Sheets. As current estimates change, additional losses related to guarantees and indemnifications to third parties, which could be material, may be recorded by the Duke Energy Registrants in the future.
  
December 31,
  
2014
 
2013
Duke Energy
$
28

 
$
24

Progress Energy
13

 
9

Duke Energy Florida
7

 
3

8. JOINT OWNERSHIP OF GENERATING AND TRANSMISSION FACILITIES
The Duke Energy Registrants hold ownership interests in certain jointly owned generating and transmission facilities. The Duke Energy Registrants are entitled to shares of the generating capacity and output of each unit equal to their respective ownership interests, except as outlined below. The Duke Energy Registrants pay their ownership share of additional construction costs, fuel inventory purchases and operating expenses, except in certain instances where agreements have been executed to limit certain joint owners’ maximum exposure to the additional costs. The Duke Energy Registrants share of revenues and operating costs of the jointly owned generating facilities is included within the corresponding line in the Consolidated Statements of Operations. Each participant in the jointly owned facilities must provide its own financing, except in certain instances where agreements have been executed to limit certain joint owners’ maximum exposure to the additional costs. 
The following table presents the share of jointly owned plant or facilities included on the Consolidated Balance Sheets. All facilities are operated by the Duke Energy Registrants unless otherwise noted.
 
December 31, 2014
 
Ownership Share

 
Property, Plant and Equipment

 
Accumulated Depreciation

 
Construction Work in Progress

Duke Energy Carolinas
 

 
 
 
 
 
 
Catawba Nuclear Station (Units 1 and 2) (a)(b)
19.25
%
 
$
886

 
$
534

 
$
29

Duke Energy Progress
 

 
 

 
 

 
 

Mayo Station (a)(c)
83.83
%
 
1,111

 
360

 
10

Shearon Harris Nuclear Station (a)(c)
83.83
%
 
3,872

 
2,242

 
208

Brunswick Nuclear Station (a)(c)
81.67
%
 
2,673

 
1,372

 
290

Roxboro Station (Unit 4) (a)(c)
87.06
%
 
954

 
514

 
24

Duke Energy Florida
 
 
 

 
 

 
 

Crystal River Nuclear Station (Unit 3) (a)(d)
91.78
%
 

 

 

Intercession City Station (Unit P11) (a)
(e)

 
24

 
14

 

Duke Energy Ohio
 
 
 

 
 

 
 

Miami Fort Station (Units 7 and 8) (f)(g)
64.0
%
 

 

 

J.M. Stuart Station (f)(h)(i)
39.0
%
 

 

 

Conesville Station (Unit 4) (f)(h)(i)
40.0
%
 

 

 

W.M. Zimmer Station (f)(h)
46.5
%
 

 

 

Killen Station (f)(g)(i)
33.0
%
 

 

 

Transmission facilities (a)(h)
Various

 
96

 
51

 
1

Duke Energy Indiana
 

 
 

 
 

 
 

Gibson Station (Unit 5) (a)(j)
50.05
%
 
315

 
170

 
6

Vermillion (a)(k)
62.5
%
 
154

 
105

 

Transmission and local facilities (a)(j)
Various

 
3,918

 
1,633

 

International Energy
 

 
 

 
 

 
 

Brazil - Canoas I and II (l)
47.2
%
 
235

 
78

 

(a)
Included in Regulated Utilities segment.
(b)
Jointly owned with North Carolina Municipal Power Agency Number 1, NCEMC and Piedmont Municipal Power Agency.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

(c)
Jointly owned with NCEMPA. Duke Energy Progress executed an agreement in September 2014 to purchase NCEMPA's ownership interest in these facilities. See Note 2 for further discussion.
(d)
All costs associated with Crystal River Unit 3 are included within Regulatory assets on the Consolidated Balance Sheets of Duke Energy, Progress Energy and Duke Energy Florida. See Note 4 for additional information. Co-owned with Seminole Electric Cooperative, Inc., City of Ocala, Orlando Utilities Commission, City of Gainesville, City of Leesburg, Kissimmee Utility Authority, Utilities Commission of the City of New Smyrna Beach, City of Alachua and City of Bushnell (Florida Municipal Joint Owners). Duke Energy Florida is in the process of obtaining the remaining ownership interest from the Florida Municipal Joint Owners.
(e)
Jointly owned with Georgia Power Company (GPC). GPC has exclusive rights to the output of the unit during the months of June through September and pays all fuel and water costs during this period. Duke Energy Florida pays all fuel and water costs during the remaining months. Other costs are allocated 66.67 percent to Duke Energy Florida and the remainder to GPC.
(f)
All costs associated with these plants are included in Assets held for sale on the Consolidated Balance Sheets of Duke Energy and Duke Energy Ohio as part of the Disposal Group. See Note 2 for further discussion.
(g)
Jointly owned with The Dayton Power and Light Company.
(h)
Jointly owned with America Electric Power Generation Resources and The Dayton Power and Light Company. 
(i)
Station is not operated by Duke Energy Ohio.
(j)
Jointly owned with WVPA and Indiana Municipal Power Agency.
(k)
Jointly owned with WVPA.
(l)
Included in International Energy segment. Jointly owned with Companhia Brasileira de Aluminio.
9. ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations recognized by Duke Energy Carolinas, Progress Energy and Duke Energy Progress relate primarily to decommissioning nuclear power facilities, closure of ash basins in North Carolina and South Carolina, asbestos removal and closure of landfills at fossil generation facilities. Asset retirement obligations recognized at Duke Energy Florida relate primarily to decommissioning nuclear power facilities, asbestos removal and closure of landfills at fossil generation facilities. Asset retirement obligations at Duke Energy Ohio relate primarily to the retirement of natural gas mains, asbestos removal and closure of landfills at fossil generation facilities. Asset retirement obligations at Duke Energy Indiana relate primarily to obligations associated with asbestos removal and closure of landfills at fossil generation facilities. Duke Energy also has asset retirement obligations related to the removal of renewable energy generation assets in addition to the above items. Certain of the Duke Energy Registrants’ assets have an indeterminate life, such as transmission and distribution facilities, and thus the fair value of the retirement obligation is not reasonably estimable. A liability for these asset retirement obligations will be recorded when a fair value is determinable.
The following table presents changes in the liability associated with asset retirement obligations.
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Balance at December 31, 2012 (a)
$
5,176

 
$
1,959

 
$
2,420

 
$
1,656

 
$
764

 
$
28

 
$
37

Acquisitions
4

 

 

 

 

 

 

Accretion expense (b)
239

 
122

 
113

 
80

 
33

 
2

 

Liabilities settled  
(12
)
 

 
(12
)
 

 
(12
)
 

 

Revisions in estimates of cash flows (c)
(449
)
 
(487
)
 
49

 
1

 
48

 
(2
)
 
(7
)
Balance at December 31, 2013 (a)
4,958

 
1,594

 
2,570

 
1,737

 
833

 
28

 
30

Acquisitions  
4

 

 

 

 

 

 

Accretion expense (b)
246

 
113

 
135

 
97

 
38

 
2

 
2

Liabilities settled (d)  
(68
)
 

 
(68
)
 

 
(68
)
 

 

Liabilities incurred in the current year (e)
3,500

 
1,717

 
1,783

 
1,783

 

 

 

Revisions in estimates of cash flows (c)
(174
)
 
4

 
291

 
288

 
3

 
(3
)
 

Balance at December 31, 2014
$
8,466


$
3,428


$
4,711


$
3,905


$
806


$
27


$
32

(a)
Balances at December 31, 2013 and 2012, include $8 million and $7 million , respectively, reported in Other current liabilities on the Consolidated Balance Sheets at Duke Energy, Progress Energy and Duke Energy Progress.
(b)
Substantially all accretion expense for the years ended December 31, 2014 and 2013 relates to Duke Energy’s regulated electric operations and has been deferred in accordance with regulatory accounting treatment.
(c)
For 2014, amounts for Duke Energy, Progress Energy and Duke Energy Progress primarily relate to Duke Energy Progress' site-specific nuclear decommissioning cost studies. Amounts at Duke Energy also include impacts from Duke Energy Progress' site-specific nuclear decommissioning cost studies on purchase accounting amounts. For 2013, amounts for Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Florida primarily relate to the site-specific nuclear decommissioning cost studies.
(d)
Amounts relate to liability settlements for Crystal River Unit 3.
(e)
Amounts primarily relate to asset retirement obligations recorded as a result of the Coal Ash Act and an agreement with the SCDHEC related to the W.S. Lee Steam Station.
The Duke Energy Registrants’ regulated operations accrue costs of removal for property that does not have an associated legal retirement obligation based on regulatory orders from state commissions. These costs of removal are recorded as a regulatory liability in accordance with regulatory accounting treatment. The Duke Energy Registrants do not accrue the estimated cost of removal for any nonregulated assets. See Note 4 for the estimated cost of removal for assets without an associated legal retirement obligation, which are included in Regulatory liabilities on the Consolidated Balance Sheets.

161


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Ash Basins
As of December 31, 2014, as a result of the Coal Ash Act and the agreement with SCDHEC discussed in Note 5 , Duke Energy Carolinas and Duke Energy Progress have asset retirement obligations in the amount of $1,735 million and $1,792 million , respectively, related to closure of ash basins in North Carolina and South Carolina.
The asset retirement obligation amount is based upon estimated ash basin closure costs for each of Duke Energy's 32 ash basins located at 14 plants in North Carolina and an ash basin and ash fill area at a plant in South Carolina. The amount recorded represents the discounted cash flows for estimated ash basin closure costs based upon probability weightings of the potential closure methods as evaluated on a site by site basis. Actual costs to be incurred will be dependent upon factors that vary from site to site. The most significant factors are the method and timeframe of closure at the individual sites. Closure methods considered include removing the water from the basins and capping the ash with a synthetic barrier, excavating and relocating the ash to a lined structural fill or lined landfill, or recycling the ash for concrete or some other beneficial use. The ultimate method and timetable for closure will be in compliance with future standards set by the Coal Ash Management Commission established by the Coal Ash Act. The asset retirement obligation amounts will be adjusted as additional information is gained from the Coal Ash Management Commission on acceptable compliance approaches which may change management assumptions.
Asset retirement costs associated with the asset retirement obligations for operating plants and retired plants are included in Net property, plant and equipment, and Regulatory assets, respectively, on the Consolidated Balance Sheets. Of the asset retirement obligations recorded, $896 million and $603 million were recorded in Net property, plant and equipment for Duke Energy Carolinas and Duke Energy Progress, respectively, and $839 million and $1,152 million were recorded in Regulatory assets for Duke Energy Carolinas and Duke Energy Progress, respectively. The asset retirement costs recorded for Duke Energy Progress are net of $37 million of Regulatory liabilities related to cost of removal. Cost recovery for these expenditures is believed to be probable and will be pursued through the normal ratemaking process with the NCUC, PSCSC and FERC.
In December 2014, the EPA signed the first regulation for the disposal of CCR. The federal regulation classifies CCR as nonhazardous waste. The regulation applies to all new and existing landfills, new and existing surface impoundments, structural fills and CCR piles. The law establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. Once the rule is effective in 2015, additional ARO amounts will be recorded at the Duke Energy Registrants. For more information, see Note 5 .
Nuclear Decommissioning Costs
Use of the NDTF investments are restricted to nuclear decommissioning activities. The NDTF investments are managed and invested in accordance with applicable requirements of various regulatory bodies, including the NRC, FERC, NCUC, PSCSC, FPSC and the Internal Revenue Service (IRS). The fair value of assets legally restricted for purposes of settling asset retirement obligations associated with nuclear decommissioning are $5,182 million and $2,678 million for Duke Energy and Duke Energy Carolinas at December 31, 2014 , respectively, and $4,769 million and $2,477 million for Duke Energy and Duke Energy Carolinas at December 31, 2013 , respectively. The NDTF balances for Progress Energy, Duke Energy Progress and Duke Energy Florida represent the fair value of assets legally restricted for purposes of settling asset retirement obligations associated with nuclear decommissioning. The NCUC, PSCSC and FPSC require updated cost estimates for decommissioning nuclear plants every five years.
The following table summarizes information about nuclear decommissioning cost studies.
(in millions)  
Annual Funding Requirement

 
Decommissioning Costs (a)(b)(c)

 
Year of Cost Study
Duke Energy Carolinas (d)  
$
21

 
$
3,420

 
2013
Duke Energy Progress (e)
14

 
3,062

 
2014
Duke Energy Florida  

 
1,083

 
2013
(a)
Represents cost per the most recent site-specific nuclear decommissioning cost studies, including costs to decommission plant components not subject to radioactive contamination.
(b)
Includes the Subsidiary Registrants' ownership interest in jointly owned reactors. Other joint owners are responsible for decommissioning costs related to their interest in the reactors.
(c)
Amounts are in dollars of year of cost study.
(d)
In the fourth quarter of 2014, Duke Energy Carolinas requested from the NCUC a reduction in the annual funding requirement to zero. Duke Energy Carolinas received approval from the NCUC in January 2015.
(e)
Duke Energy Progress' site-specific cost nuclear decommissioning cost studies are expected to be filed with the NCUC and PSCSC by the second quarter of 2015. Duke Energy Progress will also complete a new funding study, which will be completed and filed with the NCUC and PSCSC in 2015.

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Nuclear Operating Licenses
Operating licenses for nuclear units are potentially subject to extension. The following table includes the current expiration of nuclear operating licenses.
Unit  
Year of Expiration
Duke Energy Carolinas  
  
Catawba Unit 1  
2043
Catawba Unit 2  
2043
McGuire Unit 1  
2041
McGuire Unit 2  
2043
Oconee Unit 1  
2033
Oconee Unit 2  
2033
Oconee Unit 3  
2034
Duke Energy Progress  
  
Brunswick Unit 1  
2036
Brunswick Unit 2  
2034
Harris  
2046
Robinson  
2030
Duke Energy Florida  
  
Crystal River Unit 3
(a)
(a)
Duke Energy Florida has requested the NRC terminate the operating license as Crystal River Unit 3 permanently ceased operation in February 2013. Refer to Note 4 for further information on decommissioning activity and transition to SAFSTOR.

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

10. PROPERTY, PLANT AND EQUIPMENT
The following tables summarize the property, plant and equipment.
 
December 31, 2014
(in millions)
Estimated Useful Life (Years)
 
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Land  
 
 
$
1,459

 
$
403

 
$
704

 
$
380

 
$
324

 
$
114

 
$
108

Plant - Regulated  
 
 
  

 
  

 
  

 
  

 
  

 
  

 
  

Electric generation, distribution and transmission  
2 - 138
 
82,206

 
31,751

 
33,672

 
20,616

 
13,056

 
3,956

 
11,911

Natural gas transmission and distribution  
12 - 67
 
2,230

 

 

 

 

 
2,230

 

Other buildings and improvements  
9 - 100
 
1,445

 
465

 
607

 
286

 
318

 
200

 
173

Plant - Nonregulated  
  
 
  

 
  

 
  

 
  

 
  

 
  

 
  

Electric generation, distribution and transmission  
1- 30
 
2,380

 

 

 

 

 

 

Other buildings and improvements  
5 - 50
 
2,498

 

 

 

 

 

 

Nuclear fuel  
  
 
2,865

 
1,676

 
1,190

 
1,190

 

 

 

Equipment  
3 - 34
 
1,762

 
341

 
506

 
388

 
118

 
330

 
166

Construction in process  
  
 
4,519

 
2,081

 
1,215

 
908

 
307

 
97

 
481

Other  
5 - 80
 
3,497

 
655

 
756

 
439

 
310

 
214

 
195

Total property, plant and equipment (a)(d)
 
 
104,861

 
37,372

 
38,650

 
24,207

 
14,433

 
7,141

 
13,034

Total accumulated depreciation - regulated (b)(c)(d)
 
 
(32,628
)
 
(12,700
)
 
(13,506
)
 
(9,021
)
 
(4,478
)
 
(2,213
)
 
(4,219
)
Total accumulated depreciation - nonregulated (c)(d)
 
 
(2,196
)
 

 

 

 

 

 

Generation facilities to be retired, net
 
 
9

 

 

 

 

 
9

 

Total net property, plant and equipment  
 
 
$
70,046


$
24,672


$
25,144


$
15,186


$
9,955


$
4,937

 
$
8,815

(a)
Includes capitalized leases of $1,548 million , $40 million , $315 million , $146 million , $169 million , $98 million , and $30 million at Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, and Duke Energy Indiana, respectively, primarily in regulated plant. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of $72 million , $5 million and $67 million , respectively, of accumulated amortization of capitalized leases.
(b)
Includes $1,408 million , $847 million , $561 million and $561 million of accumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
(c)
Includes accumulated amortization of capitalized leases of $52 million , $8 million , $25 million and $6 million at Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana, respectively.
(d)
Includes gross property, plant and equipment cost of consolidated VIEs of $1,873 million and accumulated depreciation of consolidated VIEs of $257 million at Duke Energy.

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

 
December 31, 2013
(in millions)
Estimated Useful Life (Years)
 
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Land  
 
 
$
1,481

 
$
397

 
$
705

 
$
383

 
$
321

 
$
137

 
$
105

Plant - Regulated  
 
 
  

 
  

 
  

 
  

 
  

 
  

 
  

Electric generation, distribution and transmission  
2 - 125
 
78,272

 
30,018

 
31,792

 
19,190

 
12,601

 
3,925

 
11,594

Natural gas transmission and distribution  
12 - 67
 
2,138

 

 

 

 

 
2,138

 

Other buildings and improvements  
2 - 100
 
1,397

 
447

 
610

 
282

 
315

 
190

 
159

Plant - Nonregulated  
  
 
  

 
  

 
  

 
  

 
  

 
  

 
  

Electric generation, distribution and transmission  
2 - 100
 
6,267

 

 

 

 

 
4,017

 

Other buildings and improvements  
9 -100
 
2,512

 

 

 

 

 
5

 

Nuclear fuel  
  
 
2,458

 
1,446

 
1,012

 
1,012

 

 

 

Equipment  
1 - 33
 
1,557

 
287

 
621

 
357

 
94

 
317

 
146

Construction in process  
  
 
3,595

 
1,741

 
873

 
631

 
238

 
166

 
307

Other  
5 - 33
 
3,438

 
570

 
867

 
418

 
294

 
248

 
178

Total property, plant and equipment (a)(d)
 
 
103,115

 
34,906

 
36,480

 
22,273

 
13,863

 
11,143

 
12,489

Total accumulated depreciation - regulated (b)(c)(d)
 
 
(31,659
)
 
(11,894
)
 
(13,098
)
 
(8,623
)
 
(4,252
)
 
(2,160
)
 
(3,913
)
Total accumulated depreciation - nonregulated (c)(d)
 
 
(1,966
)
 

 

 

 

 
(748
)
 

Total net property, plant and equipment  
 
 
$
69,490

 
$
23,012

 
$
23,382

 
$
13,650

 
$
9,611

 
$
8,235

 
$
8,576

(a)
Includes capitalized leases of $1,606 million , $53 million , $328 million , $148 million , $180 million , $96 million , and $30 million at Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, and Duke Energy Indiana, respectively, primarily in regulated plant. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of $60 million , an insignificant amount and $57 million , respectively, of accumulated amortization of capitalized leases.
(b)
Includes $1,118 million , $681 million , $438 million and $438 million of accumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
(c)
Includes accumulated amortization of capitalized leases of $40 million , $4 million , $21 million and $5 million at Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana, respectively.
(d)
Includes gross property, plant and equipment cost of consolidated VIEs of $1,678 million and accumulated depreciation of consolidated VIEs of $175 million at Duke Energy.
The following table presents capitalized interest, which includes the debt component of AFUDC.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Duke Energy
$
75

 
$
89

 
$
176

Duke Energy Carolinas
38

 
41

 
72

Progress Energy
11

 
19

 
41

Duke Energy Progress
10

 
16

 
23

Duke Energy Florida
1

 
3

 
18

Duke Energy Ohio
10

 
11

 
13

Duke Energy Indiana
6

 
9

 
39


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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

11. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following tables present goodwill by reportable operating segment for Duke Energy and Duke Energy Ohio. 
Duke Energy
(in millions)  
Regulated Utilities

 
International Energy

 
Commercial Power

 
Total

Balance at December 31, 2013
  
 
  
 
  
 
  
Goodwill  
$
15,950

 
$
326

 
$
935

 
$
17,211

Accumulated impairment charges  

 

 
(871
)
 
(871
)
Balance at December 31, 2013, net of accumulated impairment charges  
15,950

 
326

 
64

 
16,340

Foreign exchange and other changes  

 
(19
)
 

 
(19
)
Balance at December 31, 2014
  
 
  
 
  
 
  
Goodwill  
15,950

 
307

 
935

 
17,192

Accumulated impairment charges  

 

 
(871
)
 
(871
)
Balance at December 31, 2014, net of accumulated impairment charges  
$
15,950

 
$
307

 
$
64

 
$
16,321

Duke Energy Ohio
(in millions)   
Regulated Utilities

 
Commercial Power

 
Total

Balance at December 31, 2013
  
 
  
 
  
Goodwill  
$
1,136

 
$
1,188

 
$
2,324

Accumulated impairment charges  
(216
)
 
(1,188
)
 
(1,404
)
Balance at December 31, 2013, net of accumulated impairment charges  
920

 

 
920

Balance at December 31, 2014
  
 
  
 
  
Goodwill  
1,136

 
1,188

 
2,324

Accumulated impairment charges  
(216
)
 
(1,188
)
 
(1,404
)
Balance at December 31, 2014, net of accumulated impairment charges   
$
920

 
$

 
$
920

Progress Energy
Progress Energy's Goodwill is included in the Regulated Utilities operating segment and there are no accumulated impairment charges.
Impairment Testing
Duke Energy, Duke Energy Ohio and Progress Energy are required to perform an annual goodwill impairment test as of the same date each year and, accordingly, performs its annual impairment testing of goodwill as of August 31. Duke Energy, Duke Energy Ohio and Progress Energy update their test between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. As the fair value of Duke Energy, Duke Energy Ohio and Progress Energy’s reporting units exceeded their respective carrying values at the date of the annual impairment analysis, no impairment charges were recorded in 2014 .

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Intangible Assets
The following tables show the carrying amount and accumulated amortization of intangible assets within Other on the Consolidated Balance Sheets of the Duke Energy Registrants at December 31, 2014 and 2013 .
  
December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio (a)

 
Duke Energy Indiana

Emission allowances  
$
23

 
$
1

 
$
7

 
$
3

 
$
4

 
$

 
$
16

Renewable energy certificates  
97

 
25

 
69

 
69

 

 
3

 

Gas, coal and power contracts  
24

 

 

 

 

 

 
24

Wind development rights  
97

 

 

 

 

 

 

Other     
76

 

 

 

 

 

 

Total gross carrying amounts  
317

 
26

 
76

 
72

 
4

 
3

 
40

Accumulated amortization - gas, coal and power contracts  
(15
)
 

 

 

 

 

 
(15
)
Accumulated amortization - wind development rights  
(14
)
 

 

 

 

 

 

Accumulated amortization - other  
(25
)
 

 

 

 

 

 

Total accumulated amortization  
(54
)
 

 

 

 

 

 
(15
)
Total intangible assets, net  
$
263


$
26


$
76


$
72


$
4


$
3


$
25

(a)
During 2014, Duke Energy Ohio reduced the carrying amount of OVEC to zero. A charge of $94 million is recorded in Impairment Charges on Duke Energy Ohio's Consolidated Statement of Operations. In addition, Duke Energy Ohio has emission allowances and renewable energy certificates that have been reclassified to Assets Held For Sale pending the sale of the Disposal Group. See Note 17 for further information.
  
December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Emission allowances  
$
63

 
$
1

 
$
21

 
$
3

 
$
18

 
$
20

 
$
21

Renewable energy certificates  
82

 
16

 
64

 
64

 

 
2

 

Gas, coal and power contracts  
180

 

 

 

 

 
156

 
24

Wind development rights  
86

 

 

 

 

 

 

Other     
76

 

 

 

 

 

 

Total gross carrying amounts  
487

 
17

 
85

 
67

 
18

 
178

 
45

Accumulated amortization - gas, coal and power contracts  
(73
)
 

 

 

 

 
(60
)
 
(13
)
Accumulated amortization - wind development rights  
(12
)
 

 

 

 

 

 

Accumulated amortization - other  
(24
)
 

 

 

 

 

 

Total accumulated amortization  
(109
)
 

 

 

 

 
(60
)
 
(13
)
Total intangible assets, net  
$
378


$
17


$
85


$
67


$
18


$
118


$
32


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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Amortization Expense
The following table presents amortization expense for gas, coal and power contracts, wind development rights and other intangible assets.
  
December 31,
(in millions)
2014

 
2013

 
2012

Duke Energy
$
6

 
$
13

 
$
14

Duke Energy Ohio
2

 
8

 
12

Duke Energy Indiana
1

 
1

 
1

The table below shows the expected amortization expense for the next five years for intangible assets as of December 31, 2014 . The expected amortization expense includes estimates of emission allowances consumption and estimates of consumption of commodities such as gas and coal under existing contracts, as well as estimated amortization related to the wind development projects. The amortization amounts discussed below are estimates and actual amounts may differ from these estimates due to such factors as changes in consumption patterns, sales or impairments of emission allowances or other intangible assets, delays in the in-service dates of wind assets, additional intangible acquisitions and other events.
(in millions)
2015

 
2016

 
2017

 
2018

 
2019

Duke Energy
$
11

 
$
8

 
$
7

 
$
7

 
$
7

Duke Energy Ohio
2

 
1

 
1

 
1

 
1

Duke Energy Indiana
5

 
3

 
2

 
2

 
2

12. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
EQUITY METHOD INVESTMENTS
Investments in domestic and international affiliates that are not controlled by Duke Energy, but over which it has significant influence, are accounted for using the equity method. As of December 31, 2014 and 2013 , the carrying amount of investments in affiliates with carrying amounts greater than zero approximated the amount of underlying equity in net assets.
The following table presents Duke Energy’s investments in unconsolidated affiliates accounted for under the equity method, as well as the respective equity in earnings, by segment.
  
Years Ended December 31,
  
2014
 
2013
 
2012
(in millions)
Investments

 
Equity in earnings

 
Investments

 
Equity in earnings

 
Equity in earnings

Regulated Utilities
$
3

 
$
(3
)
 
$
4

 
$
(1
)
 
$
(5
)
International Energy
69

 
120

 
82

 
110

 
134

Commercial Power
258

 
10

 
252

 
7

 
14

Other
28

 
3

 
52

 
6

 
5

Total
$
358

 
$
130

 
$
390

 
$
122

 
$
148

During the years ended December 31, 2014 , 2013 and 2012 , Duke Energy received distributions from equity investments of $154 million , $144 million and $183 million , respectively, which are included in Other assets within Cash Flows from Operating Activities on the Consolidated Statements of Cash Flows.
Significant investments in affiliates accounted for under the equity method are discussed below.
International Energy
Duke Energy owns a 25 percent indirect interest in NMC, which owns and operates a methanol and MTBE business in Jubail, Saudi Arabia.
Commercial Power
Investments accounted for under the equity method primarily consist of Duke Energy’s approximate 50 percent ownership interest in the five Catamount Sweetwater, LLC wind farm projects (Phase I-V), INDU Solar Holdings, LLC and DS Cornerstone, LLC. All of these entities own solar or wind power projects in the United States. Duke Energy also owns a 50 percent interest in Duke American Transmission Co., LLC, which builds, owns and operates electric transmission facilities in North America.
Other
On December 31, 2013, Duke Energy completed the sale of its 50 percent ownership interest in DukeNet, which owned and operated telecommunications businesses, to Time Warner Cable, Inc. After retiring existing DukeNet debt and payment of transaction expenses, Duke Energy received $215 million in cash proceeds and recorded a $105 million pretax gain in the fourth quarter of 2013.

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

13. RELATED PARTY TRANSACTIONS
The Subsidiary Registrants engage in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Refer to the Consolidated Balance Sheets of the Subsidiary Registrants for balances due to or due from related parties. Material amounts related to transactions with related parties included in the Consolidated Statements of Operations and Comprehensive Income are presented in the following table.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Duke Energy Carolinas
 
 
 
 
 
Corporate governance and shared service expenses (a)
$
851

 
$
927

 
$
1,112

Indemnification coverages (b)
21

 
22

 
21

JDA revenue (c)
133

 
121

 
18

JDA expense (c)
198

 
116

 
91

Progress Energy  
 
 
 
 
 
Corporate governance and shared services provided by Duke Energy (a)
$
732

 
$
290

 
$
63

Corporate governance and shared services provided to Duke Energy (d)

 
96

 
47

Indemnification coverages (b)
33

 
34

 
17

JDA revenue (c)
198

 
116

 
91

JDA expense (c)
133

 
121

 
18

Duke Energy Progress
 
 
 
 
 
Corporate governance and shared service expenses (a)
$
386

 
$
266

 
$
254

Indemnification coverages (b)
17

 
20

 
8

JDA revenue (c)
198

 
116

 
91

JDA expense (c)
133

 
121

 
18

Duke Energy Florida
 
 
 
 
 
Corporate governance and shared service expenses (a)
$
346

 
$
182

 
$
186

Indemnification coverages (b)
16

 
14

 
8

Duke Energy Ohio
 
 
 
 
 
Corporate governance and shared service expenses (a)
$
316

 
$
347

 
$
358

Indemnification coverages (b)
13

 
15

 
15

Duke Energy Indiana
 
 
 
 
 
Corporate governance and shared service expenses (a)
$
384

 
$
422

 
$
419

Indemnification coverages (b)
11

 
14

 
8

(a)
The Subsidiary Registrants are charged their proportionate share of corporate governance and other shared services costs, primarily related to human resources, employee benefits, legal and accounting fees, as well as other third-party costs. These amounts are recorded in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income.
(b)
The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income.
(c)
Duke Energy Carolinas and Duke Energy Progress participate in a JDA which allows the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power under the JDA are recorded in Operating Revenues on the Consolidated Statements of Operations and Comprehensive Income. Expenses from the purchase of power under the JDA are recorded in Fuel used in electric generation and purchased power on the Consolidated Statements of Operations and Comprehensive Income.
(d)
In 2013 and 2012, Progress Energy Service Company (PESC), a consolidated subsidiary of Progress Energy, charged a proportionate share of corporate governance and other costs to consolidated affiliates of Duke Energy. Corporate governance and other shared costs were primarily related to human resources, employee benefits, legal and accounting fees, as well as other third-party costs. These charges were recorded as an offset to Operation, maintenance and other in the Consolidated Statements of Operations and Comprehensive Income. Effective January 1, 2014, PESC was contributed to Duke Energy Corporate Services (DECS), a consolidated subsidiary of Duke Energy, and these costs were no longer charged out of Progress Energy. Progress Energy recorded a non-cash after-tax equity transfer related to the contribution of PESC to DECS in its Consolidated Statements of Changes in Common Stockholder's Equity.
In addition to the amounts presented above, the Subsidiary Registrants record the impact on net income of other affiliate transactions, including rental of office space, participation in a money pool arrangement, other operational transactions and their proportionate share of certain charged expenses. See Note 6 for more information regarding money pool. The net impact of these transactions was not material for the years ended December 31, 2014 , 2013 and 2012 for the Subsidiary Registrants.

169


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

As discussed in Note 17 , certain trade receivables have been sold by Duke Energy Ohio and Duke Energy Indiana to CRC, an affiliate formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price.
In January 2012, Duke Energy Ohio recorded a non-cash equity transfer of $28 million related to the sale of Vermillion to Duke Energy Indiana. Duke Energy Indiana recorded a non-cash after-tax equity transfer of $26 million for the purchase of Vermillion from Duke Energy Ohio. See Note 2 for further discussion.
Duke Energy Commercial Asset Management (DECAM) is a nonregulated, indirect subsidiary of Duke Energy Ohio that owns generating plants included in the Disposal Group discussed in Note 2 . DECAM's business activities include the execution of commodity transactions, third-party vendor and supply contracts, and service contracts for certain of Duke Energy’s nonregulated entities. The commodity contracts DECAM enters are accounted for as undesignated contracts or NPNS. Consequently, mark-to-market impacts of intercompany contracts with, and sales of power to, nonregulated entities are included in (Loss) Income from discontinued operations in Duke Energy Ohio’s Consolidated Statements of Operations and Comprehensive Income. These amounts totaled net expense of $24 million and $6 million and net revenue of $24 million , for the years ended December 31, 2014 , 2013 and 2012 , respectively.
Because it is not a rated entity, DECAM receives credit support from Duke Energy or its nonregulated subsidiaries, not from the regulated utility operations of Duke Energy Ohio. DECAM meets its funding needs through an intercompany loan agreement from a subsidiary of Duke Energy. DECAM also has the ability to loan money to the subsidiary of Duke Energy. DECAM had an outstanding intercompany loan payable of $459 million and $43 million for the years ended December 31, 2014 and 2013 , respectively, These amounts are recorded in Notes payable to affiliated companies on Duke Energy Ohio’s Consolidated Balance Sheets.
As discussed in Note 6 , in April 2014, Duke Energy issued $1 billion of senior unsecured notes. Proceeds from the issuances of approximately $400 million were loaned to DECAM, and such funds were ultimately used to redeem $402 million of tax-exempt bonds at Duke Energy Ohio. This transaction substantially completed the restructuring of Duke Energy Ohio’s capital structure to reflect appropriate debt and equity ratios for its regulated operations. The restructuring was completed in the second quarter of 2014, and resulted in the transfer of all of Duke Energy Ohio’s nonregulated generation assets, excluding Beckjord, out of its regulated public utility subsidiary and into DECAM.
14. DERIVATIVES AND HEDGING
The Duke Energy Registrants use commodity and interest rate contracts to manage commodity price and interest rate risks. The primary use of energy commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Interest rate swaps are used to manage interest rate risk associated with borrowings.
All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting agreement is offset against the collateralized derivatives on the balance sheet.
Changes in the fair value of derivative agreements that either do not qualify for or have not been designated as hedges are reflected in current earnings or as regulatory assets or liabilities.
COMMODITY PRICE RISK
The Duke Energy Registrants are exposed to the impact of changes in the future prices of electricity, coal and natural gas. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets, and delivery locations.
Fair Value and Cash Flow Hedges
At December 31, 2014 , there were no open commodity derivative instruments designated as hedges.
Undesignated Contracts
Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. These contracts expire as late as 2018 .
Duke Energy Carolinas’ undesignated contracts are primarily associated with forward sales and purchases of electricity. Duke Energy Progress’ and Duke Energy Florida’s undesignated contracts are primarily associated with forward purchases of natural gas. Duke Energy Ohio’s undesignated contracts are primarily associated with forward sales and purchases of electricity, coal, and natural gas. Duke Energy Indiana’s undesignated contracts are primarily associated with forward purchases and sales of electricity and financial transmission rights.

170


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Volumes
The tables below show information relating to volumes of outstanding commodity derivatives. Amounts disclosed represent the notional volumes of commodity contracts excluding NPNS. Amounts disclosed represent the absolute value of notional amounts. The Duke Energy Registrants have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown.
 
December 31, 2014
 
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Electricity (gigawatt-hours) (a)
25,370

 

 

 

 

 
19,141

 

Natural gas (millions of decatherms)
676

 
35

 
328

 
116

 
212

 
313

 

 
December 31, 2013
 
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Electricity (gigawatt-hours) (a)
71,466

 
1,205

 
925

 
925

 

 
69,362

 
203

Natural gas (millions of decatherms)
636

 

 
363

 
141

 
222

 
274

 

(a)
Amounts at Duke Energy Ohio include intercompany positions that eliminate at Duke Energy.
INTEREST RATE RISK
The Duke Energy Registrants are exposed to changes in interest rates as a result of their issuance or anticipated issuance of variable-rate and fixed-rate debt and commercial paper. Interest rate risk is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into interest rate swaps, U.S. Treasury lock agreements, and other financial contracts. In anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of current market interest rates. These instruments are later terminated prior to or upon the issuance of the corresponding debt. Pretax gains or losses recognized from inception to termination of the hedges are amortized as a component of interest expense over the life of the debt.
Duke Energy has a combination foreign exchange, pay fixed-receive floating interest rate swap to fix the U.S. dollar equivalent payments on a floating-rate Chilean debt issue.
The following tables show notional amounts for derivatives related to interest rate risk.
 
December 31, 2014
 
December 31, 2013
(in millions)
Duke
Energy

 
Duke
Energy Florida

 
Duke
Energy
Ohio

 
Duke
Energy

 
Duke
Energy
Ohio

Cash flow hedges (a)
$
750

 
$

 
$

 
$
798

 
$

Undesignated contracts
277

 
250

 
27

 
34

 
27

Total notional amount
$
1,027

 
250

 
$
27

 
$
832

 
$
27

(a)
Duke Energy includes amounts related to consolidated VIEs of $541 million at December 31, 2014 and $584 million at December 31, 2013 .


171


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DUKE ENERGY
The following table shows the fair value of derivatives and the line items in the Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown.
 
December 31,
 
2014
 
2013
(in millions)
Asset

 
Liability

 
Asset

 
Liability

Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
Current liabilities: other
$

 
$

 
$

 
$
1

Interest rate contracts
 
 
 
 
 
 
 
Investments and other assets: other
10

 

 
27

 

Current liabilities: other

 
13

 

 
18

Deferred credits and other liabilities: other

 
29

 

 
4

Total Derivatives Designated as Hedging Instruments
$
10

 
$
42

 
$
27

 
$
23

Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
Current assets: other
$
18

 
$

 
$
201

 
$
158

Current assets: assets held for sale
15

 

 

 

Investments and other assets: other
3

 

 
215

 
131

Investments and other assets: assets held for sale
15

 

 

 

Current liabilities: other
1

 
307

 
13

 
153

Current liabilities: assets held for sale
174

 
253

 

 

Deferred credits and other liabilities: other
2

 
91

 
5

 
166

Deferred credits and other liabilities: assets held for sale
111

 
208

 

 

Interest rate contracts
 
 
 
 
 
 
 
Current assets: other
2

 

 

 

Current liabilities: other

 
1

 

 
1

Deferred credits and other liabilities: other

 
7

 

 
4

Total Derivatives Not Designated as Hedging Instruments
341

 
867

 
434

 
613

Total Derivatives
$
351


$
909

 
$
461

 
$
636

The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.
 
Derivative Assets
 
December 31, 2014
 
December 31, 2013
(in millions)
Current (a)

 
Non-Current (b)

 
Current (e)

 
Non-Current (f)

Gross amounts recognized
$
210

 
$
136

 
$
214

 
$
233

Gross amounts offset
(153
)
 
(88
)
 
(179
)
 
(138
)
Net amount subject to master netting
57

 
48

 
35

 
95

Amounts not subject to master netting

 
5

 

 
14

Net amounts recognized on the Consolidated Balance Sheet
$
57

 
$
53

 
$
35

 
$
109


172


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

 
Derivative Liabilities
 
December 31, 2014
 
December 31, 2013
(in millions)
Current (c)

 
Non-Current (d)

 
Current (g)

 
Non-Current (h)

Gross amounts recognized
$
573

 
$
319

 
$
322

 
$
299

Gross amounts offset
(213
)
 
(173
)
 
(192
)
 
(155
)
Net amounts subject to master netting
360

 
146

 
130

 
144

Amounts not subject to master netting
1

 
16

 
4

 
11

Net amounts recognized on the Consolidated Balance Sheet
$
361

 
$
162

 
$
134

 
$
155

(a)    Included in Other and Assets Held for Sale within Current Assets on the Consolidated Balance Sheet.
(b)
Included in Other and Assets held for Sale within Investments and Other Assets on the Consolidated Balance Sheet.
(c)
Included in Other and Liabilities Associated with Assets Held for Sale within Current Liabilities on the Consolidated Balance Sheet.
(d)
Included in Other and Liabilities Associated with Assets Held for Sale within Deferred Credits and Other Liabilities on the Consolidated Balance Sheet.
(e)
Included in Other within Current Assets on the Consolidated Balance Sheet.
(f)
Included in Other within Investments and Other Assets on the Consolidated Balance Sheet.
(g)
Included in Other within Current Liabilities on the Consolidated Balance Sheet.
(h)
Included in Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheet.
The following table shows the gains and losses recognized on cash flow hedges and the line items on the Consolidated Statements of Operations where such gains and losses are included when reclassified from AOCI. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Pretax Gains (Losses) Recorded in AOCI
 
 
 
 
 
Interest rate contracts
$
(39
)
 
$
79

 
$
(23
)
Commodity contracts

 
1

 
1

Total Pretax Gains (Losses) Recorded in AOCI
$
(39
)
 
$
80

 
$
(22
)
Location of Pretax Gains and (Losses) Reclassified from AOCI into Earnings
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
Interest expense
(7
)
 
(2
)
 
2

There was no hedge ineffectiveness during the years ended December 31, 2014 , 2013 and 2012 , and no gains or losses were excluded from the assessment of hedge effectiveness during the same periods.
A $10 million pretax gain is expected to be recognized in earnings during the next 12 months as interest expense.

173


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Consolidated Statements of Operations or the Consolidated Balance Sheets where the pretax gains and losses were reported. Amounts included in Regulatory Assets or Liabilities for commodity contracts are reclassified to earnings to match recovery through the fuel clause. Amounts included in Regulatory Assets or Liabilities for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Location of Pretax Gains and (Losses) Recognized in Earnings
 
 
 
 
 
Commodity contracts
 
 
 
 
 
Revenue: Regulated electric
$

 
$
11

 
$
(23
)
Other income and expenses

 

 
(2
)
Fuel used in electric generation and purchased power-regulated
(44
)
 
(200
)
 
(194
)
Income (Loss) From Discontinued Operations
(729
)
 
(57
)
 
40

Interest rate contracts
 
 
 
 
 
Interest expense
(6
)
 
(18
)
 
(8
)
Total Pretax (Losses) Gains Recognized in Earnings
$
(779
)
 
$
(264
)
 
$
(187
)
Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities
 
 
 
 
 
Commodity contracts
 
 
 
 
 
Regulatory assets
$
(268
)
 
$
10

 
$
(2
)
Regulatory liabilities
14

 
15

 
36

Interest rate contracts
 
 
 
 
 
Regulatory assets

 
55

 
10

Regulatory liabilities
2

 

 

Total Pretax Gains (Losses) Recognized as Regulatory Assets or Liabilities
$
(252
)
 
$
80

 
$
44

DUKE ENERGY CAROLINAS
The following table shows the fair value of derivatives and the line items in the Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown.
 
December 31,
 
2014
 
2013
(in millions)
Asset

 
Liability

 
Asset

 
Liability

Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
Current liabilities: other
$

 
$
14

 
$

 
$
1

Deferred credits and other liabilities: other

 
5

 

 
1

Total Derivatives Not Designated as Hedging Instruments

 
19

 

 
2

Total Derivatives
$

 
$
19

 
$

 
$
2

The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.
 
Derivative Assets
 
December 31, 2014
 
December 31, 2013
(in millions)
Current (a)

 
Non-Current (b)

 
Current (a)

 
Non-Current (b)

Gross amounts recognized
$

 
$

 
$

 
$

Gross amounts offset

 

 

 

Net amount subject to master netting

 

 

 

Amounts not subject to master netting

 

 

 

Net amounts recognized on the Consolidated Balance Sheet
$

 
$

 
$

 
$


174


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

 
Derivative Liabilities
 
December 31, 2014
 
December 31, 2013
(in millions)
Current (c)

 
Non-Current (d)

 
Current (c)

 
Non-Current (d)

Gross amounts recognized
$
14

 
$
5

 
$

 
$

Gross amounts offset

 

 

 

Net amount subject to master netting
14

 
5

 

 

Amounts not subject to master netting

 

 
1

 
1

Net amounts recognized on the Consolidated Balance Sheet
$
14

 
$
5

 
$
1

 
$
1

(a)
Included in Other within Current Assets on the Consolidated Balance Sheet.
(b)
Included in Other within Investments and Other Assets on the Consolidated Balance Sheet.
(c)
Included in Other within Current Liabilities on the Consolidated Balance Sheet.
(d)
Included in Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheet.
The following table shows the gains and losses during the year recognized on cash flow hedges and the line items on the Consolidated Statements of Operations and Comprehensive Income where such gains and losses are included when reclassified from AOCI. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Location of Pretax Gains and (Losses) Reclassified from AOCI into Earnings
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
Interest expense
$
(3
)
 
$
(3
)
 
$
(3
)
A $3 million pretax gain is expected to be recognized in earnings during the next 12 months as interest expense.
The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Consolidated Statements of Operations and Comprehensive Income or the Consolidated Balance Sheets where the pretax gains and losses were reported. Amounts not included in Regulatory Assets or Liabilities for commodity contracts are reclassified to earnings to match recovery through the fuel clause. Amounts included in Regulatory Assets or Liabilities for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Location of Pretax Gains and (Losses) Recognized in Earnings
 
 
 
 
 
Commodity contracts
 
 
 
 
 
Revenue: Regulated electric
$

 
$
(12
)
 
$
(12
)
Total Pretax (Losses) Gains Recognized in Earnings

 
(12
)
 
(12
)
Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities
 
 
 
 
 
Commodity contracts
 
 
 
 
 
Regulatory assets
$
(19
)
 
$

 
$


175


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

PROGRESS ENERGY
The following table shows the fair value of derivatives and the line items in the Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown.
 
December 31,
 
2014
 
2013
(in millions)
Asset

 
Liability

 
Asset

 
Liability

Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
Current liabilities: other
$

 
$
1

 
$

 
$
1

Deferred credits and other liabilities: other

 

 

 
4

Total Derivatives Designated as Hedging Instruments
$

 
$
1

 
$

 
$
5

Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
Current assets: other
$

 
$

 
$
3

 
$
2

Investments and other assets: other

 

 
2

 
1

Current liabilities: other

 
288

 
11

 
105

Deferred credits and other liabilities: other

 
80

 
4

 
91

Interest rate contracts
 
 
 
 
 
 
 
Current assets: other
2

 

 

 

Deferred credits and other liabilities: other

 
2

 

 

Total Derivatives Not Designated as Hedging Instruments
2

 
370

 
20

 
199

Total Derivatives
$
2

 
$
371

 
$
20

 
$
204

The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.
 
Derivative Assets
 
December 31, 2014
 
December 31, 2013
(in millions)
Current (a)

 
Non-Current (b)

 
Current (a)

 
Non-Current (b)

Gross amounts recognized
$
2

 
$

 
$
15

 
$
5

Gross amounts offset
(2
)
 

 
(13
)
 
(4
)
Net amounts recognized on the Consolidated Balance Sheet
$

 
$

 
$
2

 
$
1

 
Derivative Liabilities
 
December 31, 2014
 
December 31, 2013
(in millions)
Current (c)

 
Non-Current (d)

 
Current (c)

 
Non-Current (d)

Gross amounts recognized
$
289

 
$
82

 
$
107

 
$
93

Gross amounts offset
(17
)
 
(8
)
 
(17
)
 
(10
)
Net amounts subject to master netting
272

 
74

 
90

 
83

Amounts not subject to master netting

 

 

 
4

Net amounts recognized on the Consolidated Balance Sheet
$
272

 
$
74

 
$
90

 
$
87

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

176


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following table shows the gains and losses during the year recognized on cash flow hedges and the line items on the Consolidated Statements of Operations and Comprehensive Income or Consolidated Balance Sheet where such gains and losses are included when reclassified from AOCI. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Pretax Gains (Losses) Recorded in AOCI
 
 
 
 
 
Commodity contracts
$

 
$
1

 
$
1

Interest rate contracts

 

 
(11
)
Total Pretax Gains (Losses) Recorded in AOCI
$

 
$
1

 
$
(10
)
Location of Pretax Gains and (Losses) Reclassified from AOCI into Earnings
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
Interest expense
(13
)
 

 
(14
)
Location of Pretax Gains and (Losses) Reclassified from AOCI to Regulatory Assets or Liabilities (a)
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
Regulatory assets

 
$

 
(159
)
(a)    Effective with the merger, Duke Energy Progress and Duke Energy Florida no longer designates interest rate derivatives for
regulated operations as cash flow hedges. As a result, the pretax losses on derivatives as of the date of the merger were reclassified from AOCI to regulatory assets.
There was no hedge ineffectiveness during the years ended December 31, 2014 , 2013 and 2012 , and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods.
A $13 million pretax loss is expected to be recognized in earnings during the next 12 months as interest expense.
The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Consolidated Statements of Operations and Comprehensive Income or the Consolidated Balance Sheets where the pretax gains and losses were reported. Amounts included in Regulatory Assets or Liabilities for commodity contracts are reclassified to earnings to match recovery through the fuel clause. Amounts included in Regulatory Assets or Liabilities for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Location of Pretax Gains and (Losses) Recognized in Earnings
 
 
 
 
 
Commodity contracts
 
 
 
 
 
Operating revenues
$

 
$
11

 
$
(11
)
Fuel used in electric generation and purchased power
(44
)
 
(200
)
 
(454
)
Other income and expenses, net

 

 
7

Interest rate contracts
 
 
 
 
 
Interest expense
(4
)
 
(17
)
 
(8
)
Total Pretax (Losses) Gains Recognized in Earnings
$
(48
)
 
$
(206
)
 
$
(466
)
Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities
 
 
 
 
 
Commodity contracts
 
 
 
 
 
Regulatory assets
$
(233
)
 
$
10

 
$
(171
)
Regulatory liabilities
2

 

 

Interest rate contracts
 
 
 
 
 
Regulatory assets
2

 
18

 
6

Total Pretax Gains (Losses) Recognized as Regulatory Assets or Liabilities
$
(229
)
 
$
28

 
$
(165
)

177


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DUKE ENERGY PROGRESS
The following table shows the fair value of derivatives and the line items in the Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown. Substantially all derivatives not designated as hedging instruments receive regulatory accounting treatment.
 
December 31,
 
2014
 
2013
(in millions)
Asset

 
Liability

 
Asset

 
Liability

Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
Current liabilities: other
$

 
$
1

 
$

 
$
1

Total Derivatives Designated as Hedging Instruments

 
1

 

 
1

Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
Investments and other assets: other
$

 
$

 
$
2

 
$
1

Current liabilities: other

 
108

 
2

 
40

Deferred credits and other liabilities: other

 
23

 
2

 
29

Total Derivatives Not Designated as Hedging Instruments

 
131

 
6

 
70

Total Derivatives
$

 
$
132

 
$
6

 
$
71

The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.
 
Derivative Assets
 
December 31, 2014
 
December 31, 2013
(in millions)
Current (a)

 
Non-Current (b)

 
Current (a)

 
Non-Current (b)

Gross amounts recognized
$

 
$

 
$
3

 
$
3

Gross amounts offset

 

 
(3
)
 
(3
)
Net amounts recognized on the Consolidated Balance Sheet
$

 
$

 
$

 
$

 
Derivative Liabilities
 
December 31, 2014
 
December 31, 2013
(in millions)
Current (c)

 
Non-Current (d)

 
Current (c)

 
Non-Current (d)

Gross amounts recognized
$
109

 
$
23

 
$
41

 
$
30

Gross amounts offset

 

 
(3
)
 
(3
)
Net amounts recognized on the Consolidated Balance Sheet
$
109

 
$
23

 
$
38

 
$
27

(a)    Included in Other within Current Assets on the Consolidated Balance Sheet.
(b)
Included in Other within Investments and Other Assets on the Consolidated Balance Sheet.
(c)
Included in Other within Current Liabilities on the Consolidated Balance Sheet.
(d)
Included in Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheet.
The following table shows the gains and losses during the year recognized on cash flow hedges and the line items on the Consolidated Statements of Operations and Comprehensive Income or Consolidated Balance Sheets in which such gains and losses are included when reclassified from AOCI. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.

178


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Pretax Gains (Losses) Recorded in AOCI
 
 
 
 
 
Interest rate contracts
$

 
$

 
$
(7
)
Location of Pretax Gains and (Losses) Reclassified from AOCI into Earnings
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
Interest expense

 

 
(5
)
Location of Pretax Gains and (Losses) Reclassified from AOCI to Regulatory Assets or Liabilities (a)
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
Regulatory assets

 
$

 
(117
)
(a)
Effective with the merger, Duke Energy Progress no longer designates interest rate derivatives for regulated operations as cash flow hedges. As a result, the pretax losses on derivatives as of the date of the merger were reclassified from AOCI to Regulatory assets.
There was no hedge ineffectiveness during the years ended December 31, 2014 , 2013 and 2012 , and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods.
The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Consolidated Statements of Operations and Comprehensive Income or the Consolidated Balance Sheets where the pretax gains and losses were reported. Amounts included in Regulatory Assets or Liabilities for commodity contracts are reclassified to earnings to match recovery through the fuel clause. Amounts included in Regulatory Assets or Liabilities for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Location of Pretax Gains and (Losses) Recognized in Earnings
 
 
 
 
 
Commodity contracts
 
 
 
 
 
Operating revenues
$

 
$
11

 
$
(11
)
Fuel used in electric generation and purchased power
(15
)
 
(71
)
 
(115
)
Interest rate contracts
 
 
 
 
 
Interest expense

 
(13
)
 
(6
)
Total Pretax (Losses) Gains Recognized in Earnings
$
(15
)
 
$
(73
)
 
$
(132
)
Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities
 
 
 
 
 
Commodity contracts
 
 
 
 
 
Regulatory assets
$
(82
)
 
$
(6
)
 
$
(55
)
Interest rate contracts
 
 
 
 
 
Regulatory assets

 
13

 
6

Total Pretax Gains (Losses) Recognized as Regulatory Assets or Liabilities
$
(82
)
 
$
7

 
$
(49
)

179


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DUKE ENERGY FLORIDA
The following table shows the fair value of derivatives and the line items in the Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown.
 
December 31,
 
2014
 
2013
(in millions)
Asset

 
Liability

 
Asset

 
Liability

Derivatives Not Designated as Hedging Instruments
  
 
  
 
  
 
  
Commodity contracts
  
 
  
 
  
 
  
Current assets: other
$

 
$

 
$
3

 
$
2

Current liabilities: other

 
180

 
9

 
64

Deferred credits and other liabilities: other

 
57

 
2

 
63

Interest rate contracts
 
 
 
 
 
 
 
Current assets: other
2

 

 

 

Deferred credits and other liabilities: other

 
2

 

 

Total Derivatives Not Designated as Hedging Instruments
2

 
239

 
14

 
129

Total Derivatives
$
2

 
$
239

 
$
14

 
$
129

The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.
  
Derivative Assets
  
December 31, 2014
 
December 31, 2013
(in millions)
Current (a)

 
Non-Current (b)

 
Current (a)

 
Non-Current (b)

Gross amounts recognized
$
2

 
$

 
$
12

 
$
2

Gross amounts offset
(2
)
 

 
(10
)
 
(2
)
Net amounts recognized on the Consolidated Balance Sheet
$

 
$

 
$
2

 
$

  
Derivative Liabilities
  
December 31, 2014
 
December 31, 2013
(in millions)
Current (c)

 
Non-Current (d)

 
Current (c)

 
Non-Current (d)

Gross amounts recognized
$
180

 
$
59

 
$
66

 
$
63

Gross amounts offset
(17
)
 
(8
)
 
(15
)
 
(7
)
Net amounts recognized on the Consolidated Balance Sheet
$
163

 
$
51

 
$
51

 
$
56

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

180


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following table shows the gains and losses during the year recognized on cash flow hedges and the line items on the Consolidated Statements of Operations and Comprehensive Income or Consolidated Balance Sheets in which such gains and losses are included when reclassified from AOCI. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Pretax Gains (Losses) Recorded in AOCI
  
 
  
 
  
Commodity contracts
$

 
$
1

 
$
1

Interest rate contracts

 

 
(2
)
Total Pretax Gains (Losses) Recorded in AOCI
$

 
$
1

 
$
(1
)
Location of Pretax Gains and (Losses) Reclassified from AOCI into Earnings
  
 
  
 
  
Interest rate contracts
 
 
 
 
 
Interest expense
(2
)
 

 
(2
)
Location of Pretax Gains and (Losses) Reclassified from AOCI to Regulatory Assets (a)
  
 
  
 
  
Interest rate contracts
  
 
  
 
  
Regulatory assets

 
$

 
(42
)
(a)
Effective with the merger, Duke Energy Florida no longer designates interest rate derivatives for regulated operations as cash flow hedges. As a result, the pretax losses on derivatives as of the date of the merger were reclassified from AOCI to Regulatory assets.
The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Consolidated Statements of Operations and Comprehensive Income or the Consolidated Balance Sheets where the pretax gains and losses were reported. Amounts included in Regulatory Assets or Liabilities for commodity contracts are reclassified to earnings to match recovery through the fuel clause. Amounts included in Regulatory Assets or Liabilities for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Location of Pretax Gains and (Losses) Recognized in Earnings
  
 
  
 
  
Commodity contracts
  
 
  
 
  
Fuel used in electric generation and purchased power
$
(29
)
 
$
(129
)
 
$
(339
)
Interest rate contracts
  
 
  
 
  
Interest expense
(4
)
 
(5
)
 
(2
)
Total Pretax (Losses) Gains Recognized in Earnings
$
(33
)
 
$
(134
)
 
$
(341
)
Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities
  
 
  
 
  
Commodity contracts
  
 
  
 
  
Regulatory assets
$
(151
)
 
$
16

 
$
(116
)
Interest rate contracts
 
 
 
 
 
Regulatory assets
2

 
5

 

Regulatory liabilities
2

 

 

Total Pretax Gains (Losses) Recognized as Regulatory Assets or Liabilities
$
(147
)
 
$
21

 
$
(116
)

181


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DUKE ENERGY OHIO
The following table shows the fair value of derivatives and the line items in the Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown.
  
December 31,
  
2014
 
2013
(in millions)
Asset

 
Liability

 
Asset

 
Liability

Derivatives Not Designated as Hedging Instruments
  
 
  
 
  
 
  
Commodity contracts
  
 
  
 
  
 
  
Current assets: other
$
1

 
$

 
$
186

 
$
163

Current assets: assets held for sale
28

 
4

 

 

Investments and other assets: other

 

 
202

 
130

Investments and other assets: assets held for sale
26

 
4

 

 

Current liabilities: other

 

 
1

 
36

Current liabilities: assets held for sale
175

 
252

 

 

Deferred credits and other liabilities: other

 

 
2

 
56

Deferred credits and other liabilities: assets held for sale
111

 
207

 

 

Interest rate contracts
 
 
 
 
 
 
 
Current liabilities: other

 
1

 

 
1

Deferred credits and other liabilities: other

 
5

 

 
4

Total Derivatives Not Designated as Hedging Instruments
341

 
473

 
391

 
390

Total Derivatives
$
341

 
$
473

 
$
391

 
$
390

The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.
  
Derivative Assets
  
December 31, 2014
 
December 31, 2013
(in millions)
Current (a)

 
Non-Current (b)

 
Current (e)

 
Non-Current (f)

Gross amounts recognized
$
204

 
$
137

 
$
186

 
$
205

Gross amounts offset
(179
)
 
(114
)
 
(165
)
 
(132
)
Net amounts recognized on the Consolidated Balance Sheet
$
25

 
$
23

 
$
21

 
$
73

  
Derivative Liabilities
  
December 31, 2014
 
December 31, 2013
(in millions)
Current (c)

 
Non-Current (d)

 
Current (g)

 
Non-Current (h)

Gross amounts recognized
$
257

 
$
216

 
$
199

 
$
186

Gross amounts offset
(222
)
 
(193
)
 
(173
)
 
(143
)
Net amounts subject to master netting
35

 
23

 
26

 
43

Amounts not subject to master netting

 

 
1

 
4

Net amounts recognized on the Consolidated Balance Sheet
$
35

 
$
23

 
$
27

 
$
47

(a)    Included in Other and Assets Held for Sale within Current Assets on the Consolidated Balance Sheet.
(b)
Included in Other and Assets held for Sale within Investments and Other Assets on the Consolidated Balance Sheet.
(c)
Included in Other and Liabilities Associated with Assets Held for Sale within Current Liabilities on the Consolidated Balance Sheet.
(d)
Included in Other and Liabilities Associated with Assets Held for Sale within Deferred Credits and Other Liabilities on the Consolidated Balance Sheet.
(e)
Included in Other within Current Assets on the Consolidated Balance Sheet.
(f)
Included in Other within Investments and Other Assets on the Consolidated Balance Sheet.
(g)
Included in Other within Current Liabilities on the Consolidated Balance Sheet.
(h)
Included in Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheet.

182


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Consolidated Statements of Operations and Comprehensive Income or the Consolidated Balance Sheets where the pretax gains and losses were reported. Amounts included in Regulatory Assets or Liabilities for commodity contracts are reclassified to earnings to match recovery through the fuel clause. Amounts included in Regulatory Assets or Liabilities for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Location of Pretax Gains and (Losses) Recognized in Earnings
  
 
  
 
  
Commodity contracts
  
 
  
 
  
Income (Loss) from discontinued operations
(758
)
 
(56
)
 
78

Interest rate contracts
 
 
 
 
 
Interest expense
(1
)
 
(1
)
 
(1
)
Total Pretax (Losses) Gains Recognized in Earnings
$
(759
)
 
$
(57
)
 
$
77

Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities
  
 
  
 
  
Commodity contracts
  
 
  
 
  
Regulatory assets
$
1

 
$

 
$
2

Regulatory liabilities
5

 

 
(1
)
Interest rate contracts
 
 
 
 
 
Regulatory assets
(2
)
 
4

 

Total Pretax Gains (Losses) Recognized as Regulatory Assets or Liabilities
$
4

 
$
4

 
$
1

DUKE ENERGY INDIANA
The following table shows the fair value of derivatives and the line items in the Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown.
  
December 31,
  
2014
 
2013
(in millions)
Asset

 
Liability

 
Asset

 
Liability

Derivatives Not Designated as Hedging Instruments
  
 
  
 
  
 
  
Commodity contracts
  
 
  
 
  
 
  
Current Assets: Other
$
14

 
$

 
$
12

 
$

Total Derivatives Not Designated as Hedging Instruments
14

 

 
12

 

Total Derivatives
$
14

 
$

 
$
12

 
$

The tables below show the balance sheet location of derivative contracts subject to enforceable master netting agreements and include collateral posted to offset the net position. This disclosure is intended to enable users to evaluate the effect of netting arrangements on financial position. The amounts shown were calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.
  
Derivative Assets
  
December 31, 2014
 
December 31, 2013
(in millions)
Current (a)

 
Non-Current (b)

 
Current (a)

 
Non-Current (b)

Gross amounts recognized
$
14

 
$

 
$
12

 
$

Gross amounts offset

 

 
(1
)
 

Net amounts recognized on the Consolidated Balance Sheet
$
14

 
$

 
$
11

 
$


183


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
Derivative Liabilities
  
December 31, 2014
 
December 31, 2013
(in millions)
Current (c)

 
Non-Current (d)

 
Current (c)

 
Non-Current (d)

Gross amounts recognized
$

 
$

 
$

 
$

Gross amounts offset

 

 

 

Net amount subject to master netting

 

 

 

Amounts not subject to master netting

 

 

 

Net amounts recognized on the Consolidated Balance Sheet
$

 
$

 
$

 
$

(a)
Included in Other within Current Assets on the Consolidated Balance Sheet.
(b)
Included in Other within Investments and Other Assets on the Consolidated Balance Sheet.
(c)
Included in Other within Current Liabilities on the Consolidated Balance Sheet.
(d)
Included in Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheet.
The following table shows the gains and losses during the year recognized on cash flow hedges and the line items on the Consolidated Statements of Operations and Comprehensive Income where such gains and losses are included when reclassified from AOCI. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Location of Pretax Gains and (Losses) Reclassified from AOCI into Earnings
  
 
  
 
  
Interest rate contracts
 
 
 
 
 
Interest expense
$

 
$
3

 
$
3

The following table shows the gains and losses during the year recognized on undesignated derivatives and the line items on the Consolidated Balance Sheets where the pretax gains and losses were reported. Amounts included in Regulatory Assets or Liabilities for commodity contracts are reclassified to earnings to match recovery through the fuel clause. Amounts included in Regulatory Assets or Liabilities for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Location of Pretax Gains and (Losses) Recognized in Earnings
  
 
  
 
  
Commodity contracts
  
 
  
 
  
Revenue: Regulated electric
$

 
$
1

 
$

Location of Pretax Gains and (Losses) Recognized as Regulatory Assets or Liabilities
  
 
  
 
  
Commodity contracts
  
 
  
 
  
Regulatory assets
$
(16
)
 
$

 
$
2

Regulatory liabilities
9

 
16

 
35

Interest rate contracts
 
 
 
 
 
Regulatory assets

 
34

 
4

Regulatory liabilities

 

 

Total Pretax Gains (Losses) Recognized as Regulatory Assets or Liabilities
$
(7
)
 
$
50

 
$
41

CREDIT RISK
Certain derivative contracts contain contingent credit features. These features may include (i) material adverse change clauses or payment acceleration clauses that could result in immediate payments or (ii) the posting of letters of credit or termination of the derivative contract before maturity if specific events occur, such as a credit rating downgrade below investment grade.

184


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following tables show information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions.
  
December 31, 2014
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

Aggregate fair value amounts of derivative instruments in a net liability position
$
845

 
$
19

 
$
370

 
$
131

 
$
239

 
$
456

Fair value of collateral already posted
209

 

 
23

 

 
23

 
186

Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered
407

 
19

 
347

 
131

 
216

 
41

  
December 31, 2013
(in millions)
Duke Energy

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

Aggregate fair value amounts of derivative instruments in a net liability position
$
525

 
$
168

 
$
60

 
$
108

 
$
355

Fair value of collateral already posted
135

 
10

 

 
10

 
125

Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered
205

 
158

 
60

 
98

 
47

The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative must be executed with the same counterparty under the same master netting agreement. Amounts disclosed below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements.
  
December 31,
  
2014
 
2013
(in millions)
Receivables

 
Payables

 
Receivables

 
Payables

Duke Energy
  
 
  
 
  
 
  
Amounts offset against net derivative positions
$
145

 
$

 
$
30

 
$

Amounts not offset against net derivative positions
64

 

 
122

 

Progress Energy
 
 
 
 
 
 
 
Amounts offset against net derivative positions
23

 

 
10

 

Duke Energy Florida
 
 
 
 
 
 
 
Amounts offset against net derivative positions
23

 

 
10

 

Duke Energy Ohio
 
 
 
 
 
 
 
Amounts offset against net derivative positions
122

 

 
19

 

Amounts not offset against net derivative positions
64

 

 
115

 

Duke Energy Indiana
 
 
 
 
 
 
 
Amounts offset against net derivative positions

 

 

 
1

Amounts not offset against net derivative positions

 

 
1

 

15. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Duke Energy Registrants classify their investments in debt and equity securities as either trading or available-for-sale.
TRADING SECURITIES
Investments in debt and equity securities held in grantor trusts associated with certain deferred compensation plans and certain other investments are classified as trading securities. The fair value of these investments was $7 million as of December 31, 2014 and $18 million as of December 31, 2013 .
AVAILABLE-FOR-SALE SECURITIES
All other investments in debt and equity securities are classified as available-for-sale securities.
Duke Energy’s available-for-sale securities are primarily comprised of investments held in (i) the NDTF at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to OPEB plans, (iii) Duke Energy’s captive insurance investment portfolio, and (iv) Duke Energy’s foreign operations investment portfolio.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Duke Energy holds corporate debt securities that were purchased using excess cash from its foreign operations. These investments are either classified as Cash and cash equivalents or Short-term investments on the Consolidated Balance Sheets based on maturity date and are available for current operations of Duke Energy’s foreign business. The fair value of these investments classified as Short-term investments was $44 million as of December 31, 2013 .
Duke Energy classifies all other investments in debt and equity securities as long-term, unless otherwise noted.
Investment Trusts
The investments within the NDTF at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida and the Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana grantor trusts (Investment Trusts) are managed by independent investment managers with discretion to buy, sell, and invest pursuant to the objectives set forth by the trust agreements. The Duke Energy Registrants have limited oversight of the day-to-day management of these investments. As a result, the ability to hold investments in unrealized loss positions is outside the control of the Duke Energy Registrants. Accordingly, all unrealized losses associated with debt and equity securities within the Investment Trusts are considered other-than-temporary impairments and are recognized immediately. Pursuant to regulatory accounting, realized and unrealized gains and losses associated with investments within the Investment Trusts are deferred as a regulatory asset or liability. As a result, there is no immediate impact on earnings of the Duke Energy Registrants.
Other Available-for-Sale Securities
Unrealized gains and losses on all other available-for-sale securities are included in other comprehensive income until realized, unless it is determined the carrying value of an investment is other-than-temporarily impaired. If an other-than-temporary impairment exists, the unrealized loss is included in earnings based on the criteria discussed below.
The Duke Energy Registrants analyze all investment holdings each reporting period to determine whether a decline in fair value should be considered other-than-temporary. Criteria used to evaluate whether an impairment associated with equity securities is other-than-temporary includes, but is not limited to, (i) the length of time over which the market value has been lower than the cost basis of the investment, (ii) the percentage decline compared to the cost of the investment, and (iii) management’s intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value. If a decline in fair value is determined to be other-than-temporary, the investment is written down to its fair value through a charge to earnings.
If the entity does not have an intent to sell a debt security and it is not more likely than not management will be required to sell the debt security before the recovery of its cost basis, the impairment write-down to fair value would be recorded as a component of other comprehensive income, except for when it is determined a credit loss exists. In determining whether a credit loss exists, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than the amortized cost basis, (ii) changes in the financial condition of the issuer of the security, or in the case of an asset backed security, the financial condition of the underlying loan obligors, (iii) consideration of underlying collateral and guarantees of amounts by government entities, (iv) ability of the issuer of the security to make scheduled interest or principal payments, and (v) any changes to the rating of the security by rating agencies. If a credit loss exists, the amount of impairment write-down to fair value is split between credit loss and other factors. The amount related to credit loss is recognized in earnings. The amount related to other factors is recognized in other comprehensive income. There were no credit losses as of December 31, 2014 and 2013 . There were no other-than-temporary impairments for debt or equity securities as of December 31, 2014 and 2013 .

186


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DUKE ENERGY
The following table presents the estimated fair value of investments in available-for-sale securities.
 
December 31, 2014
 
December 31, 2013
(in millions)  
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

NDTF  
  
 
  
 
  
 
  
 
  

 
  
Cash and cash equivalents  
$

 
$

 
$
136

 
$

 
$

 
$
110

Equity securities  
1,926

 
29

 
3,650

 
1,813

 
10

 
3,579

Corporate debt securities  
14

 
2

 
454

 
8

 
6

 
400

Municipal bonds  
5

 

 
184

 
2

 
6

 
160

U.S. government bonds  
19

 
2

 
978

 
7

 
12

 
730

Other debt securities  
1

 
2

 
147

 
22

 
2

 
154

Total NDTF  
1,965

 
35

 
5,549

 
1,852

 
36

 
5,133

Other Investments  
  

 
  

 
  

 
  

 
  

 
  

Cash and cash equivalents  

 

 
15

 

 

 
21

Equity securities  
34

 

 
96

 
29

 

 
91

Corporate debt securities  
1

 
1

 
58

 
1

 
1

 
99

Municipal bonds  
3

 
1

 
76

 
2

 
2

 
79

U.S. government bonds  

 

 
27

 

 

 
17

Other debt securities  
1

 
1

 
80

 

 
8

 
111

Total Other Investments (a)
39

 
3

 
352

 
32

 
11

 
418

Total Investments  
$
2,004

 
$
38

 
$
5,901

 
$
1,884

 
$
47

 
$
5,551

(a)
These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets.
The table below summarizes the maturity date for debt securities.
(in millions)
December 31, 2014

Due in one year or less
178

Due after one through five years
571

Due after five through 10 years
464

Due after 10 years
791

Total
2,004

Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Realized gains
$
271

 
$
209

 
$
117

Realized losses
105

 
65

 
19



187


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DUKE ENERGY CAROLINAS
The following table presents the estimated fair value of investments in available-for-sale securities.
  
December 31, 2014
  
December 31, 2013
(in millions)
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

NDTF  
  
 
  
 
  
 
  
 
  
 
  

Cash and cash equivalents  
$

 
$

 
$
51

 
$

 
$

 
$
42

Equity securities  
1,102

 
17

 
2,162

 
974

 
6

 
1,964

Corporate debt securities  
8

 
2

 
316

 
5

 
5

 
274

Municipal bonds  
1

 

 
62

 

 
2

 
54

U.S. government bonds  
7

 
1

 
308

 
3

 
7

 
354

Other debt securities  
1

 
2

 
133

 
22

 
2

 
146

Total NDTF   
1,119

 
22

 
3,032

 
1,004

 
22

 
2,834

Other Investments  
  

 
  

 
  

 
  

 
  

 
  

Other debt securities  

 
1

 
3

 

 
1

 
3

Total Other Investments (a)

 
1

 
3

 

 
1

 
3

Total Investments  
$
1,119

 
$
23

 
$
3,035

 
$
1,004

 
$
23

 
$
2,837

(a)
These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets.
The table below summarizes the maturity date for debt securities.
(in millions)
December 31, 2014

Due in one year or less
$
1

Due after one through five years
155

Due after five through 10 years
257

Due after 10 years
409

Total
$
822

Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Realized gains
$
109

 
$
115

 
$
89

Realized losses
93

 
12

 
6


188


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

PROGRESS ENERGY
The following table presents the estimated fair value of investments in available-for-sale securities.
 
December 31, 2014
 
December 31, 2013
(in millions)  
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

NDTF  
  
 
  
 
  
 
  
 
  
 
  
Cash and cash equivalents  
$

 
$

 
$
85

 
$

 
$

 
$
68

Equity securities  
824

 
12

 
1,488

 
839

 
4

 
1,615

Corporate debt securities  
6

 

 
138

 
3

 
1

 
126

Municipal bonds  
4

 

 
122

 
2

 
4

 
106

U.S. government bonds  
12

 
1

 
670

 
4

 
5

 
376

Other debt securities  

 

 
14

 

 

 
8

Total NDTF  
846

 
13

 
2,517

 
848

 
14

 
2,299

Other Investments  
  

 
  

 
  

 
  

 
  

 
  

Cash and cash equivalents  

 

 
15

 

 

 
20

Municipal bonds  
3

 

 
43

 
1

 

 
39

Total Other Investments (a)
3

 

 
58

 
1

 

 
59

Total Investments  
$
849

 
$
13

 
$
2,575

 
$
849

 
$
14

 
$
2,358

(a)
These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets.
The table below summarizes the maturity date for debt securities.
(in millions)
December 31, 2014

Due in one year or less
$
161

Due after one through five years
350

Due after five through 10 years
157

Due after 10 years
319

Total
$
987

Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows.
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Realized gains
$
157

 
$
90

 
$
34

Realized losses
11

 
46

 
18


189


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DUKE ENERGY PROGRESS
The following table presents the estimated fair value of investments in available-for-sale securities.
  
December 31, 2014
 
December 31, 2013
(in millions)  
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

NDTF  
  
 
  
 
  
 
  
 
  
 
  
Cash and cash equivalents  
$

 
$

 
$
50

 
$

 
$

 
$
48

Equity securities  
612

 
10

 
1,171

 
535

 
3

 
1,069

Corporate debt securities  
5

 

 
97

 
3

 
1

 
80

Municipal bonds  
4

 

 
120

 
2

 
4

 
104

U.S. government bonds  
9

 
1

 
265

 
4

 
3

 
232

Other debt securities  

 

 
8

 

 

 
5

Total NDTF  
630

 
11

 
1,711

 
544

 
11

 
1,538

Other Investments  
  

 
  

 
  

 
  

 
  

 
  

Cash and cash equivalents  

 

 

 

 

 
2

Total Other Investments (a)

 

 

 

 

 
2

Total Investments  
$
630

 
$
11

 
$
1,711

 
$
544

 
$
11

 
$
1,540

(a)
These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets.
The table below summarizes the maturity date for debt securities.
(in millions)
December 31, 2014

Due in one year or less
$
14

Due after one through five years
140

Due after five through 10 years
109

Due after 10 years
227

Total
$
490

Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows.
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Realized gains
$
19

 
$
58

 
$
21

Realized losses
5

 
26

 
8


190


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DUKE ENERGY FLORIDA
The following table presents the estimated fair value of investments in available-for-sale securities.
  
December 31, 2014
 
December 31, 2013
(in millions)  
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

NDTF  
  
 
  
 
  
 
  
 
  
 
  
Cash and cash equivalents  
$

 
$

 
$
35

 
$

 
$

 
$
20

Equity securities  
212

 
2

 
317

 
304

 
1

 
546

Corporate debt securities  
1

 

 
41

 

 

 
46

Municipal bonds  

 

 
2

 

 

 
2

U.S. government bonds  
3

 

 
405

 

 
2

 
144

Other debt securities  

 

 
6

 

 

 
3

Total NDTF  
216

 
2

 
806

 
304

 
3

 
761

Other Investments  
  

 
  

 
  

 
  

 
  

 
  

Cash and cash equivalents  

 

 
1

 

 

 
3

Municipal bonds  
3

 

 
43

 
1

 

 
39

Total Other Investments (a)
3

 

 
44

 
1

 

 
42

Total Investments  
$
219

 
$
2

 
$
850

 
$
305

 
$
3

 
$
803

(a)
These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets.
The table below summarizes the maturity date for debt securities.
(in millions)
December 31, 2014

Due in one year or less
$
147

Due after one through five years
210

Due after five through 10 years
48

Due after 10 years
92

Total
$
497

Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows.
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Realized gains
$
138

 
$
32

 
$
13

Realized losses
5

 
20

 
9

DUKE ENERGY INDIANA
The following table presents the estimated fair value of investments in available-for-sale securities.
  
December 31, 2014
 
December 31, 2013
(in millions)  
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses

 
Estimated Fair Value

Other Investments  
  
 
  
 
  
 
  
 
  
 
  
Cash and cash equivalents  
$

 
$

 
$

 
$

 
$

 
$
1

Equity securities  
28

 

 
71

 
24

 

 
65

Municipal bonds  

 
1

 
30

 

 
1

 
28

Total Other Investments (a)
28

 
1

 
101

 
24

 
1

 
94

Total Investments  
$
28

 
$
1

 
$
101

 
$
24

 
$
1

 
$
94

(a)
These amounts are recorded in Other within Investments and Other Assets on the Consolidated Balance Sheets.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The table below summarizes the maturity date for debt securities.
(in millions)
December 31, 2014

Due in one year or less
$
1

Due after one through five years
17

Due after five through 10 years
8

Due after 10 years
4

Total
$
30

Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were insignificant for the years ended December 31, 2014 , 2013 and 2012 .
16. FAIR VALUE MEASUREMENTS
Fair value is the exchange price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value definition focuses on an exit price versus the acquisition cost. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data, or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient.
Fair value measurements are classified in three levels based on the fair value hierarchy:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. An active market is one in which transactions for an asset or liability occur with sufficient frequency and volume to provide ongoing pricing information.
Level 2 – A fair value measurement utilizing inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly, for an asset or liability. Inputs include (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities and credit spreads. A Level 2 measurement cannot have more than an insignificant portion of its valuation based on unobservable inputs. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less than active markets.
Level 3 – Any fair value measurement which includes unobservable inputs for more than an insignificant portion of the valuation. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 measurements may include longer-term instruments that extend into periods in which observable inputs are not available.
The fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value.
Transfers between levels represent assets or liabilities that were previously (i) categorized at a higher level for which the inputs to the estimate became less observable or (ii) classified at a lower level for which the inputs became more observable during the period. The Duke Energy Registrant’s policy is to recognize transfers between levels of the fair value hierarchy at the end of the period. There were no transfers between Levels 1 and 2 during the years ended December 31, 2014 , 2013 and 2012 . Transfers out of Level 3 during the year ended December 31, 2014 are the result of forward commodity prices becoming observable due to the passage of time.
Valuation methods of the primary fair value measurements disclosed below are as follows.
Investments in equity securities
The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as NASDAQ and New York Stock Exchange (NYSE). Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements. Investments in equity securities that are Level 2 or 3 are typically ownership interests in commingled investment funds.
Investments in debt securities
Most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed income security is relatively inactive or illiquid, the measurement is Level 3.
Commodity derivatives

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Commodity derivatives with clearinghouses are classified as Level 1. Other commodity derivatives are primarily fair valued using internally developed discounted cash flow models which incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or non-performance risk (after reflecting credit enhancements such as collateral), and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate fair value of gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves.
Interest rate derivatives
Most over-the-counter interest rate contract derivatives are valued using financial models which utilize observable inputs for similar instruments and are classified as Level 2. Inputs include forward interest rate curves, notional amounts, interest rates and credit quality of the counterparties.
Goodwill and Long-Lived Assets and Assets Held for Sale
See Note 11 for a discussion of the valuation of goodwill and long-lived assets and Note 2 related to the assets and related liabilities of the Disposal Group classified as held for sale.
DUKE ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral which is disclosed in Note 14 . See Note 15 for additional information related to investments by major security type.
  
December 31, 2014
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
3,650

 
$
3,493

 
$
6

 
$
151

Nuclear decommissioning trust fund debt securities
1,899

 
648

 
1,251

 

Other trading and available-for-sale equity securities
96

 
96

 

 

Other trading and available-for-sale debt securities
263

 
41

 
217

 
5

Derivative assets
110

 
49

 
24

 
37

Total assets
6,018

 
4,327

 
1,498

 
193

Derivative liabilities
(668
)
 
(162
)
 
(468
)
 
(38
)
Net assets
$
5,350

 
$
4,165

 
$
1,030

 
$
155

  
December 31, 2013
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
3,579

 
$
3,495

 
$
57

 
$
27

Nuclear decommissioning trust fund debt securities
1,553

 
402

 
1,100

 
51

Other trading and available-for-sale equity securities
102

 
91

 
11

 

Other trading and available-for-sale debt securities
333

 
36

 
277

 
20

Derivative assets
145

 
33

 
70

 
42

Total assets
5,712

 
4,057

 
1,515

 
140

Derivative liabilities
(321
)
 
11

 
(303
)
 
(29
)
Net assets
$
5,391

 
$
4,068

 
$
1,212

 
$
111


193


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Amounts included in earnings for derivatives are primarily included in Operating Revenues.
  
December 31, 2014
(in millions)  
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
98

 
$
13

 
$
111

Total pretax realized or unrealized gains (losses) included in earnings

 
(7
)
 
(7
)
Purchases, sales, issuances and settlements:
 
 
 
 


Purchases
34

 
50

 
84

Sales
(58
)
 

 
(58
)
Settlements

 
(54
)
 
(54
)
Transfers into Level 3
68

 
6

 
74

Total gains included on the Consolidated Balance Sheet as regulatory assets or liabilities
14

 
(9
)
 
5

Balance at end of period
$
156

 
$
(1
)
 
$
155

Pretax amounts included in the Consolidated Statements of Comprehensive Income related to Level 3 measurements outstanding
$

 
$
(14
)
 
$
(14
)
  
December 31, 2013
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
98

 
$
(85
)
 
$
13

Total pretax realized or unrealized gains (losses) included in earnings

 
(42
)
 
(42
)
Purchases, sales, issuances and settlements:
 
 
 
 


Purchases
9

 
21

 
30

Sales
(6
)
 

 
(6
)
Issuances

 
11

 
11

Settlements
(9
)
 
25

 
16

Transfers into Level 3

 
86

 
86

Total gains included on the Consolidated Balance Sheet as regulatory assets or liabilities
6

 
(3
)
 
3

Balance at end of period
$
98

 
$
13

 
$
111

  
December 31, 2012
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
124

 
$
(39
)
 
$
85

Amounts acquired in Progress Energy Merger

 
(30
)
 
(30
)
Total pretax realized or unrealized gains (losses) included in earnings

 
8

 
8

Total pretax gains included in other comprehensive income
13

 

 
13

Purchases, sales, issuances and settlements:
 
 
 
 


Purchases
14

 
22

 
36

Sales
(2
)
 

 
(2
)
Issuances

 
(15
)
 
(15
)
Settlements
(55
)
 
(32
)
 
(87
)
Total gains included on the Consolidated Balance Sheet as regulatory assets or liabilities
4

 
1

 
5

Balance at end of period
$
98

 
$
(85
)
 
$
13


194


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DUKE ENERGY CAROLINAS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 14 . See Note 15 for additional information related to investments by major security type.
  
December 31, 2014
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
2,162

 
$
2,005

 
$
6

 
$
151

Nuclear decommissioning trust fund debt securities
870

 
138

 
732

 

Other trading and available-for-sale debt securities
3

 

 

 
3

Total assets
3,035

 
2,143


738


154

Derivative liabilities
(19
)
 

 
(19
)
 

Net assets
$
3,016

 
$
2,143


$
719


$
154

  
December 31, 2013
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
1,964

 
$
1,879

 
$
58

 
$
27

Nuclear decommissioning trust fund debt securities
870

 
168

 
651

 
51

Other trading and available-for-sale debt securities
3

 

 

 
3

Total assets
2,837

 
2,047


709


81

Derivative liabilities
(2
)
 

 

 
(2
)
Net assets
$
2,835

 
$
2,047


$
709


$
79

The following tables provide a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
  
December 31, 2014
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
81

 
$
(2
)
 
$
79

Purchases, sales, issuances and settlements:
 
 
 
 


Purchases
34

 

 
34

Sales
(43
)
 

 
(43
)
Settlements

 
2

 
2

Transfers into Level 3
68

 

 
68

Total gains included on the Consolidated Balance Sheet as regulatory assets or liabilities
14

 

 
14

Balance at end of period
$
154


$


$
154

  
December 31, 2013
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
72

 
$
(12
)
 
$
60

Purchases, sales, issuances and settlements:
 
 
 
 


Purchases
9

 

 
9

Issuances
(6
)
 

 
(6
)
Settlements

 
10

 
10

Total gains included on the Consolidated Balance Sheet as regulatory assets or liabilities
6

 

 
6

Balance at end of period
$
81

 
$
(2
)
 
$
79


195


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
December 31, 2012
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
65

 
$

 
$
65

Total pretax gains included in other comprehensive income
2

 

 
2

Purchases, sales, issuances and settlements:
 
 
 
 


Purchases
14

 

 
14

Sales

 
(14
)
 
(14
)
Issuances
(2
)
 

 
(2
)
Settlements
(11
)
 
2

 
(9
)
Total gains included on the Consolidated Balance Sheet as regulatory assets or liabilities
4

 

 
4

Balance at end of period
$
72


$
(12
)

$
60

PROGRESS ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis end on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 14 . See Note 15  for additional information related to investments by major security type.
  
December 31, 2014
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
1,488

 
$
1,488

 
$

 
$

Nuclear decommissioning trust fund debt securities
1,029

 
510

 
519

 

Other trading and available-for-sale debt securities
58

 
15

 
43

 

Derivative assets
4

 

 
4

 

Total assets
2,579


2,013


566



Derivative liabilities
(373
)
 

 
(373
)
 

Net assets
$
2,206


$
2,013


$
193


$

  
December 31, 2013
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
1,615

 
$
1,615

 
$

 
$

Nuclear decommissioning trust fund debt securities
677

 
233

 
444

 

Other trading and available-for-sale debt securities
58

 
19

 
39

 

Derivative assets
3

 

 
3

 

Total assets
2,353


1,867


486



Derivative liabilities
(187
)
 

 
(187
)
 

Net assets
$
2,166


$
1,867


$
299


$


196


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
  
Derivatives (net)
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Balance at beginning of period
$

 
$
(38
)
 
$
(24
)
Total pretax realized or unrealized gains included in earnings

 

 
1

Purchases, sales, issuances and settlements:
 
 
 
 
 
Issuances

 
10

 
(16
)
Settlements

 

 
4

Transfers into Level 3

 
34

 

Total losses included on the Consolidated Balance Sheet as regulatory assets or liabilities

 
(6
)
 
(3
)
Balance at end of period
$


$


$
(38
)
DUKE ENERGY PROGRESS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral which is disclosed in Note 14 . See Note 15  for additional information related to investments by major security type.
  
December 31, 2014
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
1,171

 
$
1,171

 
$

 
$

Nuclear decommissioning trust fund debt securities and other
540

 
151

 
389

 

Total assets
1,711


1,322


389



Derivative liabilities
(132
)
 

 
(132
)
 

Net assets
$
1,579


$
1,322


$
257


$

  
December 31, 2013
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
1,069

 
$
1,069

 
$

 
$

Nuclear decommissioning trust fund debt securities and other
470

 
137

 
333

 

Other trading and available-for-sale debt securities and other
3

 
3

 

 

Derivative assets
1

 

 
1

 

Total assets
1,543


1,209


334



Derivative liabilities
(66
)
 

 
(66
)
 

Net assets
$
1,477


$
1,209


$
268


$

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
  
Derivatives (net)
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Balance at beginning of period
$

 
$
(38
)
 
$
(24
)
Total pretax realized or unrealized gains included in earnings

 

 
1

Purchases, sales, issuances and settlements:
 
 
 
 
 
Issuances

 
10

 
(16
)
Settlements

 

 
4

Transfers into Level 3

 
34

 

Total losses included on the Consolidated Balance Sheet as regulatory assets or liabilities

 
(6
)
 
(3
)
Balance at end of period
$

 
$

 
$
(38
)

197


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DUKE ENERGY FLORIDA
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral which is disclosed in Note 14 . See Note 15  for additional information related to investments by major security type.
  
December 31, 2014
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
317

 
$
317

 
$

 
$

Nuclear decommissioning trust fund debt securities and other
489

 
359

 
130

 

Other trading and available-for-sale debt securities and other
44

 

 
44

 

Derivative assets
4

 

 
4

 

Total assets
854


676


178



Derivative liabilities
(241
)
 

 
(241
)
 

Net assets (liabilities)
$
613


$
676


$
(63
)

$

  
December 31, 2013
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
546

 
$
546

 
$

 
$

Nuclear decommissioning trust fund debt securities and other
214

 
96

 
118

 

Other trading and available-for-sale debt securities and other
40

 
2

 
38

 

Derivative assets
1

 

 
1

 

Total assets
801


644


157



Derivative liabilities
(116
)
 

 
(116
)
 

Net assets
$
685


$
644


$
41


$

DUKE ENERGY OHIO
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which are disclosed in Note 14 .
  
December 31, 2014
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Derivative assets
$
49

 
$
20

 
$
9

 
$
20

Derivative liabilities
(181
)
 
(117
)
 
(26
)
 
(38
)
Net assets (liabilities)
$
(132
)

$
(97
)

$
(17
)

$
(18
)
  
December 31, 2013
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Derivative assets
$
96

 
$
50

 
$
21

 
$
25

Derivative liabilities
(95
)
 
(1
)
 
(65
)
 
(29
)
Net assets (liabilities)
$
1


$
49


$
(44
)

$
(4
)

198


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
  
Derivatives (net)
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Balance at beginning of period
$
(4
)
 
$
(6
)
 
$
(3
)
Total pretax realized or unrealized gains included in earnings
(9
)
 
(42
)
 
(3
)
Purchases, sales, issuances and settlements:
 
 
 
 
 
Purchases
1

 
1

 

Settlements
(13
)
 

 
1

Transfers into Level 3
6

 
43

 

Total losses included on the Consolidated Balance Sheet as regulatory assets or liabilities
1

 

 
(1
)
Balance at end of period
$
(18
)
 
$
(4
)
 
$
(6
)
DUKE ENERGY INDIANA
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 14 . See Note 15  for additional information related to investments by major security type.
  
December 31, 2014
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Available-for-sale equity securities
$
71

 
$
71

 
$

 
$

Available-for-sale debt securities
30

 

 
30

 

Derivative assets
14

 

 

 
14

Net assets (liabilities)
$
115


$
71


$
30


$
14

  
December 31, 2013
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Available-for-sale equity securities
$
65

 
$
65

 
$

 
$

Available-for-sale debt securities
29

 

 
29

 

Derivative assets
12

 

 

 
12

Net assets (liabilities)
$
106


$
65


$
29


$
12

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
  
Derivatives (net)
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Balance at beginning of period
$
12

 
$
10

 
$
4

Total pretax realized or unrealized gains included in earnings
3

 
8

 
36

Purchases, sales, issuances and settlements:
 
 
 
 
 
Purchases
49

 
20

 

Issuances

 

 
22

Settlements
(41
)
 
(30
)
 
(52
)
Total losses included on the Consolidated Balance Sheet as regulatory assets or liabilities
(9
)
 
4

 

Balance at end of period
$
14

 
$
12

 
$
10


199


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS
The following table includes quantitative information about the Duke Energy Registrants' derivatives classified as Level 3.
 
December 31, 2014
Investment Type
Fair Value
(in millions)
Valuation Technique
Unobservable Input
Range
 
 
Duke Energy
  
  
  
  
  
  
Natural gas contracts
$
(5
)
Discounted cash flow
Forward natural gas curves - price per Million British Thermal Unit (MMBtu)
$
2.12

-
4.35
Financial transmission rights (FTRs)
14

RTO auction pricing
FTR price - per Megawatt-Hour (MWh)
(1.92
)
-
9.86
Electricity contracts
(1
)
Discounted cash flow
Forward electricity curves - price per MWh
25.16

-
51.75
Commodity capacity option contracts
2

Discounted cash flow
Forward capacity option curves  - price per MW day
21.00

-
109.00
Reserves
(11
)
  
Bid-ask spreads, implied volatility, probability of default
 
 
 
Total Level 3 derivatives
$
(1
)
  
  
 
 
 
Duke Energy Ohio
  

 
 
 
 
 
Electricity contracts
$
(6
)
Discounted cash flow
Forward electricity curves - price per MWh
$
25.25

-
51.75
Natural gas contracts
(5
)
Discounted cash flow
Forward natural gas curves - price per MMBtu
2.12

-
4.35
Reserves
(7
)
 
Bid-ask spreads, implied volatility, probability of default
 
 
 
Total Level 3 derivatives
$
(18
)
 
 
 
 
 
Duke Energy Indiana
  

 
 
 
 
 
FTRs
$
14

RTO auction pricing
FTR price - per MWh
$
(1.92
)
-
9.86
  
December 31, 2013
Investment Type
Fair Value
(in millions)
Valuation Technique
Unobservable Input
Range
 
 
Duke Energy
  
  
  
  
  
  
Natural gas contracts
$
(2
)
Discounted cash flow
Forward natural gas curves - price per MMBtu
$
3.07

-
5.37
FERC mitigation power sale agreements
(2
)
Discounted cash flow
Forward electricity curves - price per MWh
25.79

-
52.38
FTRs
12

RTO auction pricing
FTR price - per MWh
(0.30
)
-
13.80
Electricity contracts
23

Discounted cash flow
Forward electricity curves - price per MWh
20.77

-
58.90
Commodity capacity option contracts
4

Discounted cash flow
Forward capacity option curves  - price per MW day
30.40

-
165.10
Reserves
(22
)
  
Bid-ask spreads, implied volatility, probability of default
  

  
  
Total Level 3 derivatives
$
13

  
  
  

  
  
Duke Energy Carolinas
  

  
  
  

  
  
FERC mitigation power sale agreements
$
(2
)
Discounted cash flow
Forward electricity curves - price per MWh
$
25.79

-
52.38
Duke Energy Ohio
  

  
  
 
  
 
Electricity contracts
$
18

Discounted cash flow
Forward electricity curves - price per MWh
$
20.77

-
58.90
Natural gas contracts
(2
)
Discounted cash flow
Forward natural gas curves - price per MMBtu
3.07

-
5.37
Reserves
(20
)
  
Bid-ask spreads, implied volatility, probability of default
 
  
 
Total Level 3 derivatives
$
(4
)
  
  
 
  
 
Duke Energy Indiana
  

  
  
 
  
 
FTRs
$
12

RTO auction pricing
FTR price - per MWh
$
(0.30
)
-
13.80

200


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

OTHER FAIR VALUE DISCLOSURES
The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements.
  
December 31, 2014
 
December 31, 2013
(in millions)
Book Value

 
Fair Value

 
Book Value

 
Fair Value

Duke Energy
$
40,020

 
$
44,566

 
$
40,256

 
$
42,592

Duke Energy Carolinas
8,391

 
9,626

 
8,436

 
9,123

Progress Energy
14,754

 
16,951

 
14,115

 
15,234

Duke Energy Progress
6,201

 
6,696

 
5,235

 
5,323

Duke Energy Florida
4,860

 
5,767

 
4,886

 
5,408

Duke Energy Ohio
1,766

 
1,970

 
2,188

 
2,237

Duke Energy Indiana
3,791

 
4,456

 
3,796

 
4,171

At both December 31, 2014 and December 31, 2013 , fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper, and non-recourse notes payable of variable interest entities are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates.
17. VARIABLE INTEREST ENTITIES
A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity, and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. A qualitative analysis of control determines the party that consolidates a VIE. This assessment is based on (i) what party has the power to direct the most significant activities of the VIE that impact its economic performance, and (ii) what party has rights to receive benefits or is obligated to absorb losses that are significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment.
No financial support was provided to any of the consolidated VIEs during the years ended December 31, 2014 , 2013 and 2012, or is expected to be provided in the future, that was not previously contractually required.

201


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

CONSOLIDATED VIEs
The following tables summarize the impact of VIEs consolidated by Duke Energy and the Subsidiary Registrants on the Consolidated Balance Sheets.
  
December 31, 2014
 
Duke Energy
 
Duke Energy Carolinas

 
Duke Energy Progress

 
Duke Energy Florida

 
 
 
 
 
 
 
 
(in millions)  
DERF

 
DEPR (c)

 
DEFR (c)

 
CRC

 
Renewables

 
Other

 
Total

ASSETS  
  

 
  

 
  

 
  

 
  

 
  

 
  

Current Assets  
  

 
  

 
  

 
  

 
  

 
  

 
  

Restricted receivables of variable interest entities (net of allowance for doubtful accounts)
$
647

 
$
436

 
$
305

 
$
547

 
$
20

 
$
18

 
$
1,973

Other   

 

 

 

 
68

 
6

 
74

Investments and Other Assets  
  

 
  

 
  

 
  

 
  

 
  

 
  

Other  

 

 

 

 
25

 
25

 
50

Property, Plant and Equipment  
  

 
  

 
  

 
  

 
  

 
  

 
  

Property, plant and equipment, cost (a)

 

 

 

 
1,855

 
18

 
1,873

Accumulated depreciation and amortization  

 

 

 

 
(250
)
 
(5
)
 
(255
)
Regulatory Assets and Deferred Debits  
  

 
  

 
  

 
  

 
  

 
  

 
  

Other  

 

 

 

 
34

 
2

 
36

Total assets  
$
647

 
$
436

 
$
305

 
$
547

 
$
1,752

 
$
64

 
$
3,751

LIABILITIES AND EQUITY  
  

 
  

 
  

 
  

 
  

 
  

 
  

Current Liabilities  
  

 
  

 
  

 
  

 
  

 
  

 
  

Accounts payable  

 

 

 

 
3

 

 
3

Taxes accrued  

 

 

 

 
6

 

 
6

Current maturities of long-term debt  

 

 

 

 
68

 
16

 
84

Other   

 

 

 

 
16

 
5

 
21

Long-Term Debt (b)
400

 
300

 
225

 
325

 
967

 
17

 
2,234

Deferred Credits and Other Liabilities  
  

 
  

 
  

 
  

 
  

 
 
 
  

Deferred income taxes

 

 

 

 
283

 

 
283

Asset retirement obligations

 

 

 

 
29

 

 
29

Other   

 

 

 

 
34

 
4

 
38

Total liabilities   
$
400

 
$
300

 
$
225

 
$
325

 
$
1,406

 
$
42

 
$
2,698

Net assets of consolidated variable interest entities  
$
247

 
$
136

 
$
80

 
$
222

 
$
346

 
$
22

 
$
1,053

(a)
Restricted as collateral for non-recourse debt of VIEs.
(b)
Non-recourse to the general assets of the applicable registrant.
(c)
The amount for Progress Energy is equal to the amount for Duke Energy Progress Receivables Company, LLC (DEPR) and Duke Energy Florida Receivables Company, LLC (DEFR).

202


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
December 31, 2013
 
Duke Energy
 
Duke Energy Carolinas

 
Duke Energy Progress

 
 
 
 
 
 
 
 
(in millions)  
DERF

 
DEPR (c)

 
CRC

 
Renewables

 
Other

 
Total

ASSETS  
  

 
  

 
  

 
  

 
  

 
  

Current Assets  
  

 
  

 
  

 
  

 
  

 
  

Restricted receivables of variable interest entities (net of allowance for doubtful accounts) 
$
673

 
$
416

 
$
595

 
$
18

 
$
17

 
$
1,719

Other  

 

 

 
89

 
12

 
101

Investments and Other Assets  
  

 
  

 
  

 
  

 
  

 
  

Other  

 

 

 
29

 
51

 
80

Property, Plant and Equipment  
  

 
  

 
  

 
  

 
  

 
  

Property, plant and equipment, cost (a)

 

 

 
1,662

 
18

 
1,680

Accumulated depreciation and amortization  

 

 

 
(170
)
 
(5
)
 
(175
)
Regulatory Assets and Deferred Debits  
  

 
  

 
  

 
  

 
  

 
  

Other   
1

 
1

 

 
34

 

 
36

Total assets   
$
674

 
$
417

 
$
595

 
$
1,662

 
$
93

 
$
3,441

LIABILITIES AND EQUITY  
  

 
  

 
  

 
  

 
  

 
  

Current Liabilities  
  

 
  

 
  

 
  

 
  

 
  

Accounts payable   

 

 

 
2

 

 
2

Taxes accrued   

 

 

 
10

 

 
10

Current maturities of long-term debt  

 

 

 
66

 
14

 
80

Other   

 

 

 
17

 
10

 
27

Long-Term Debt (b)
400

 
300

 
325

 
907

 
34

 
1,966

Deferred Credits and Other Liabilities  
  

 
  

 
  

 
  

 

 
  

Deferred income taxes   

 

 

 
290

 

 
290

Asset retirement obligations   

 

 

 
26

 

 
26

Other  
1

 

 

 
17

 
13

 
31

Total liabilities   
$
401

 
$
300

 
$
325

 
$
1,335

 
$
71

 
$
2,432

Net assets of consolidated variable interest entities  
$
273

 
$
117

 
$
270

 
$
327

 
$
22

 
$
1,009

(a)
Restricted as collateral for non-recourse debt of VIEs.
(b)
Non-recourse to the general assets of the applicable registrant.
(c)
The amount Progress Energy is equal to the amount for DEPR.

The obligations of these VIEs are non-recourse to Duke Energy, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida. These entities have no requirement to provide liquidity to, purchase assets of, or guarantee performance of these VIEs unless noted in the following paragraphs.
DERF / DEPR / DEFR
Duke Energy Receivables Finance Company, LLC (DERF), DEPR, and DEFR are bankruptcy remote, special purpose subsidiaries of Duke Energy Carolinas, Duke Energy Progress, and Duke Energy Florida, respectively. On a daily basis, DERF, DEPR, and DEFR buy certain accounts receivable arising from the sale of electricity and/or related services from their parent companies. DERF, DEPR, and DEFR are wholly owned limited liability companies with separate legal existence from their parents, and their assets are not generally available to creditors of their parent companies. DERF, DEPR, and DEFR borrow amounts under credit facilities to buy the receivables. Borrowing availability is limited to the amount of qualified receivables sold, which is generally expected to be in excess of the credit facilities. The credit facilities are reflected on the Consolidated Balance Sheets as Long-Term Debt. The secured credit facilities were not structured to meet the criteria for sale accounting treatment under the accounting guidance for transfers and servicing of financial assets.
The most significant activity that impacts the economic performance of DERF, DEPR, and DEFR are the decisions made to manage delinquent receivables. Duke Energy Carolinas, Duke Energy Progress, and Duke Energy Florida consolidate DERF, DEPR, and DEFR, respectively, as they make those decisions.

203


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following table outlines amounts and expiration dates of the credit facilities.
 
DERF

DEPR

DEFR

Credit facility amount (in millions)
$
400

$
300

$
225

Expiration date
October 2016

December 2016

March 2017

CRC
On a revolving basis, CRC buys certain accounts receivable arising from the sale of electricity and/or related services from Duke Energy Ohio and Duke Energy Indiana. Receivables sold are securitized by CRC through a credit facility managed by two unrelated third parties. The proceeds Duke Energy Ohio and Duke Energy Indiana receive from the sale of receivables to CRC are typically 75 percent cash and 25 percent in the form of a subordinated note from CRC. The subordinated note is a retained interest in the receivables sold. Cash collections from the receivables are the sole source of funds to satisfy the related debt obligation. Depending on experience with collections, additional equity infusions to CRC may be required by Duke Energy to maintain a minimum equity balance of $3 million . There were no infusions to CRC during the years ended December 31, 2014 and 2013 . Borrowing availability is limited to the amount of qualified receivables sold, which is generally expected to be in excess of the credit facility. The credit facility expires in November 2016 and is reflected on the Consolidated Balance Sheets as Long-Term Debt.
CRC is considered a VIE because (i) equity capitalization is insufficient to support its operations, (ii) power to direct the most significant activities that impact economic performance of the entity are not performed by the equity holder, Cinergy, and (iii) deficiencies in net worth of CRC are not funded by Cinergy, but by Duke Energy. The most significant activity of CRC relates to the decisions made with respect to the management of delinquent receivables. Duke Energy consolidates CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy Indiana consolidate CRC.
Renewables
Certain of Duke Energy’s renewable energy facilities are VIEs due to long-term fixed price power purchase agreements. These fixed price agreements effectively transfer commodity price risk to the buyer of the power. Certain other of Duke Energy’s renewable energy facilities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves in support of debt financings. For certain VIEs, assets are restricted and cannot be pledged as collateral or sold to third parties without prior approval of debt holders. The most significant activities that impact the economic performance of these renewable energy facilities were decisions associated with siting, negotiating purchase power agreements, engineering, procurement and construction, and decisions associated with ongoing operations and maintenance-related activities. Duke Energy consolidates the entities as it makes all of these decisions.
NON-CONSOLIDATED VIEs
The tables below show VIEs not consolidated and how these entities impact the Consolidated Balance Sheets.
  
December 31, 2014
  
Duke Energy
 
  
 
  
(in millions)
Renewables

 
Other

 
Total

 
Duke Energy
Ohio

 
Duke Energy
Indiana

Receivables
$

 
$

 
$

 
$
91

 
$
113

Investments in equity method unconsolidated affiliates
150

 
38

 
188

 

 

Investments and other assets

 
4

 
4

 

 

Total assets (a)
$
150

 
$
42

 
$
192

 
$
91

 
$
113

Other current liabilities

 
3

 
3

 

 

Deferred credits and other liabilities

 
14

 
14

 

 

Total liabilities
$

 
$
17

 
$
17

 
$

 
$

Net assets (liabilities)
$
150

 
$
25

 
$
175

 
$
91

 
$
113

(a)
Duke Energy Ohio recorded a pretax impairment charge of $94 million related to OVEC.

204


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
December 31, 2013
  
Duke Energy
 
 
 
  

(in millions)
Renewables

 
Other

 
Total

 
Duke Energy Ohio

 
Duke Energy Indiana

Receivables
$

 
$

 
$

 
$
114

 
$
143

Investments in equity method unconsolidated affiliates
153

 
60

 
213

 

 

Intangibles

 
96

 
96

 
96

 

Investments and other assets

 
4

 
4

 

 

Total assets
$
153

 
$
160

 
$
313

 
$
210

 
$
143

Other current liabilities

 
3

 
3

 

 

Deferred credits and other liabilities

 
15

 
15

 

 

Total liabilities
$

 
$
18

 
$
18

 
$

 
$

Net assets
$
153

 
$
142

 
$
295

 
$
210

 
$
143

The Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above except for the power purchase agreement with OVEC, which is discussed below, and various guarantees, some of which are reflected in the table above as Deferred credits and other liabilities. For more information on various guarantees, refer to Note 7 , "Guarantees and Indemnifications."
Renewables
Duke Energy has investments in various renewable energy project entities. Some of these entities are VIEs due to long-term fixed price power purchase agreements. These fixed price agreements effectively transfer commodity price risk to the buyer of the power. Duke Energy does not consolidate these VIEs because power to direct and control key activities is shared jointly by Duke Energy and other owners.
Other
At December 31, 2013, the most significant of the Other non-consolidated VIEs was Duke Energy Ohio’s 9 percent ownership interest in OVEC. Through its ownership interest in OVEC, Duke Energy Ohio has a contractual arrangement to buy power from OVEC’s power plants through June 2040. The initial carrying value of this contract was recorded as an intangible asset when Duke Energy acquired Cinergy in April 2006. Proceeds from the sale of power by OVEC to its power purchase agreement counterparties are designed to be sufficient to meet its operating expenses, fixed costs, debt amortization and interest expense, as well as earn a return on equity. Accordingly, the value of this contract is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business, including costs associated with its 2,256 MW of coal-fired generation capacity. Proposed environmental rulemaking could increase the costs of OVEC, which would be passed through to Duke Energy Ohio. In 2014, Duke Energy recorded a $94 million impairment related to OVEC.
CRC
See discussion under Consolidated VIEs for additional information related to CRC.
Amounts included in Receivables in the above table for Duke Energy Ohio and Duke Energy Indiana reflect their retained interest in receivables sold to CRC. These subordinated notes held by Duke Energy Ohio and Duke Energy Indiana are stated at fair value. Carrying values of retained interests are determined by allocating carrying value of the receivables between assets sold and interests retained based on relative fair value. The allocated bases of the subordinated notes are not materially different than their face value because (i) the receivables generally turnover in less than two months, (ii) credit losses are reasonably predictable due to the broad customer base and lack of significant concentration, and (iii) the equity in CRC is subordinate to all retained interests and thus would absorb losses first. The hypothetical effect on fair value of the retained interests assuming both a 10 percent and a 20 percent unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio and Duke Energy Indiana on the retained interests using the acceptable yield method. This method generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both retained interests and purchased beneficial interest whenever it is determined that an other-than-temporary impairment has occurred.

205


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Key assumptions used in estimating fair value are detailed in the following table.
  
Duke Energy Ohio
 
Duke Energy Indiana
  
2014

 
2013

 
2014

 
2013

Anticipated credit loss ratio
0.6
%
 
0.6
%
 
0.3
%
 
0.3
%
Discount rate
1.2
%
 
1.2
%
 
1.2
%
 
1.2
%
Receivable turnover rate
12.8
%
 
12.8
%
 
10.5
%
 
10.3
%
The following table shows the gross and net receivables sold.
  
Duke Energy Ohio
 
Duke Energy Indiana
(in millions)
2014

 
2013

 
2014

 
2013

Receivables sold
$
273

 
$
290

 
$
310

 
$
340

Less: Retained interests
91

 
114

 
113

 
143

Net receivables sold
$
182

 
$
176

 
$
197

 
$
197

The following table shows sales and cash flows related to receivables sold.
  
Duke Energy Ohio
 
Duke Energy Indiana
  
Years Ended December 31,
 
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

 
2014

 
2013

 
2012

Sales
  
 
  
 
  
 
  
 
  
 
  
Receivables sold
$
2,246

 
$
2,251

 
$
2,154

 
$
2,913

 
$
2,985

 
$
2,773

Loss recognized on sale
11

 
12

 
13

 
11

 
11

 
12

Cash Flows
  
 
  
 
 
 
  
 
  
 
  
Cash proceeds from receivables sold
2,261

 
2,220

 
2,172

 
2,932

 
2,944

 
2,784

Collection fees received
1

 
1

 
1

 
1

 
1

 
1

Return received on retained interests
4

 
5

 
5

 
6

 
6

 
7

Cash flows from the sales of receivables are reflected within Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Consolidated Statements of Cash Flows.
Collection fees received in connection with servicing transferred accounts receivable are included in Operation, maintenance and other on Duke Energy Ohio’s and Duke Energy Indiana’s Consolidated Statements of Operations and Comprehensive Income. The loss recognized on sales of receivables is calculated monthly by multiplying receivables sold during the month by the required discount. The required discount is derived monthly utilizing a three-year weighted average formula that considers charge-off history, late charge history and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is the prior month-end LIBOR plus a fixed rate of 1.00 percent .
18. COMMON STOCK
Basic Earnings Per Share (EPS) is computed by dividing net income attributable to Duke Energy common shareholders, adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common shareholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, phantom shares and stock-based performance unit awards were exercised or settled. Duke Energy’s participating securities are restricted stock units that are entitled to dividends declared on Duke Energy common shares during the restricted stock units’ vesting period.

206


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

On July 2, 2012, just prior to the close of the merger with Progress Energy, Duke Energy executed a one-for-three reverse stock split. All earnings per share amounts included in this 10-K are presented as if the one-for-three reverse stock split had been effective January 1, 2012. The following table presents Duke Energy’s basic and diluted EPS calculations and reconciles the weighted-average number of common shares outstanding to the diluted weighted-average number of common shares outstanding.
 
Years Ended December 31,
(in millions, except per share amounts)
2014

 
2013

 
2012

Income from continuing operations attributable to Duke Energy common shareholders excluding impact of participating securities
2,446

 
2,565

 
1,588

Weighted-average shares outstanding - basic
707

 
706

 
574

Stock options, performance and restricted shares

 

 
1

Weighted-average shares outstanding - diluted
707

 
706

 
575

Earnings per share from continuing operations attributable to Duke Energy common shareholders
 
 
 
 
 
Basic
$
3.46

 
3.64

 
2.77

Diluted
$
3.46

 
3.63

 
2.77

Potentially dilutive items excluded from the calculation (a)
2

 
2

 
1

Dividends declared per common share
$
3.15

 
3.09

 
3.03

(a)
Stock options and performance and unvested stock awards were not included in the dilutive securities calculation because either the option exercise prices were greater than the average market price of the common shares during those periods, or performance measures related to the awards had not yet been met.
19. SEVERANCE
In conjunction with the merger with Progress Energy, in November 2011 Duke Energy and Progress Energy offered a voluntary severance plan to certain eligible employees. Approximately 1,100 employees from Duke Energy and Progress Energy requested severance during the voluntary window, which closed on November 30, 2011. As this was a voluntary severance plan, all severance benefits offered under this plan are considered special termination benefits under U.S. GAAP. Special termination benefits are measured upon employee acceptance and recorded immediately absent any significant retention period. If a significant retention period exists, the cost of the special termination benefits are recorded ratably over the retention period. Most plan participants have separated from the company as of December 31, 2014. The amount of severance expense associated with this voluntary plan, and other severance expense for involuntary terminations related to the merger, was not material for the year ended December 31, 2014.
Amounts included in the table below represent direct and allocated severance and related expense recorded by the Duke Energy Registrants, and are in Operation, maintenance and other within Operating Expenses on the Consolidated Statements of Operations.
  
Year Ended December 31,
(in millions)   
2013

 
2012

Duke Energy (a)
$
34

 
$
201

Duke Energy Carolinas  
8

 
63

Progress Energy   
19

 
82

Duke Energy Progress  
14

 
55

Duke Energy Florida  
5

 
27

Duke Energy Ohio  
2

 
21

Duke Energy Indiana  
2

 
18

(a)
Includes $5 million and $14 million of accelerated stock award expense and $2 million and $19 million of COBRA and health care reimbursement expenses for 2013 and 2012 , respectively.
In conjunction with the retirement of Crystal River Unit 3, severance benefits have been made available to certain eligible impacted unionized and non-unionized employees, to the extent that those employees do not find job opportunities at other locations. Approximately 600 employees worked at Crystal River Unit 3. For the year ended December 31, 2013 , Duke Energy Florida deferred $26 million of severance costs as a regulatory asset. Duke Energy Florida did not defer severance costs as a regulatory asset for the year ended December 31, 2014. Severance costs expected to be accrued over the remaining retention period for employees identified to have a significant retention period is not material. However, these employees maintain the ability to accept job opportunities at other Duke Energy locations, which would result in severance not being paid. If a significant amount of these individuals redeploy within Duke Energy, the final severance benefits paid under the plan may be less than what has been accrued to date. Refer to Note 4 for further discussion regarding Crystal River Unit 3.
During 2014, in conjunction with the disposition of the nonregulated Midwest Generation business, severance benefits have been made available to certain eligible non-unionized employees, to the extent those employees do not find other job opportunities. Approximately 50 employees are expected to receive benefits. Duke Energy Ohio recorded severance expense of $6 million and included in (Loss) Income from Discontinued Operations, net of tax in the Duke Energy Statements of Operations and Comprehensive Income for the year ended December 31, 2014 . For further information related to the Midwest Generation Exit, see Note 2, "Acquisitions, Dispositions and Sales of Other Assets."

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Amounts included in the table below represent the severance liability for past and ongoing severance plans. Amounts for Subsidiary Registrants do not include allocated expense or associated cash payments. Amounts for Duke Energy Indiana are not material.
(in millions)
Balance at December 31, 2013

 
Provision / Adjustments

 
Cash Reductions

 
Balance at December 31, 2014

Duke Energy
$
64

 
$
5

 
$
(41
)
 
28

Duke Energy Carolinas
5

 
2

 
(5
)
 
2

Progress Energy
44

 
(10
)
 
(16
)
 
18

Duke Energy Progress
11

 

 
(10
)
 
1

Duke Energy Florida
24

 
(1
)
 
(6
)
 
17

Duke Energy Ohio
2

 
5

 
(1
)
 
6

As part of Duke Energy Carolinas’ 2011 rate case, the NCUC approved the recovery of $101 million of previously recorded expenses related to a prior year Voluntary Opportunity Plan. This amount was recorded as a reduction to Operation, maintenance, and other within Operating Expenses on the Consolidated Statements of Operations and recognized as a Regulatory asset on the Consolidated Balance Sheets in 2012.
20. STOCK-BASED COMPENSATION
Duke Energy’s 2010 Long-Term Incentive Plan (the 2010 Plan) reserved 25 million shares of common stock for awards to employees and outside directors. Duke Energy has historically issued new shares upon exercising or vesting of share-based awards. However, Duke Energy may use a combination of new share issuances and open market repurchases for share-based awards that are exercised or become vested in the future. Duke Energy has not determined with certainty the amount of such new share issuances or open market repurchases.
The 2010 Plan allows for a maximum of 6.25 million shares of common stock to be issued under various stock-based awards other than options and stock appreciation rights.
In connection with the acquisition of Progress Energy in July 2012, Duke Energy assumed Progress Energy’s 2007 Equity Incentive Plan (EIP). Stock-based awards granted under the Progress Energy EIP and held by Progress Energy employees were generally converted into outstanding Duke Energy stock-based compensation awards. The estimated fair value of these awards allocated to the purchase price was $62 million . Refer to Note 2 for further information regarding the merger transaction.
The following table summarizes the total expense recognized by each of the Duke Energy Registrants, net of tax, for stock-based compensation.
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Duke Energy
$
38

 
$
52

 
$
48

Duke Energy Carolinas
12

 
13

 
12

Progress Energy
14

 
23

 
25

Duke Energy Progress
9

 
14

 
16

Duke Energy Florida
5

 
9

 
9

Duke Energy Ohio
5

 
4

 
4

Duke Energy Indiana
3

 
4

 
4

 
Pretax stock-based compensation costs, the tax benefit associated with stock-based compensation expense, and stock-based compensation costs capitalized are included in the following table.
  
Years Ended December 31,
(in millions)
2014

 
2013

 
2012

Restricted stock unit awards
$
39

 
$
49

 
$
43

Performance awards
22

 
34

 
33

Stock options

 
2

 
2

Pretax stock-based compensation cost
$
61

 
$
85

 
$
78

Tax benefit associated with stock-based compensation expense
$
23

 
$
33

 
$
30

Stock-based compensation costs capitalized
4

 
3

 
2


208


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

STOCK OPTIONS
The following table summarizes information about stock options outstanding.
  
Options
(in thousands)

 
Weighted-Average Exercise Price (per share)

 
Weighted-Average Remaining Life
 
Aggregate Intrinsic Value
(in millions)

Outstanding at December 31, 2013
793

 
$
61

 
  
 
  
Exercised  
(420
)
 
59

 
  
 
  
Outstanding at December 31, 2014
373

 
64

 
6 years, 10 months
 
$
7

Exercisable at December 31, 2014
53

 
46

 
1 year
 
2

Options expected to vest  
320

 
67

 
7 years, 10 months
 
5

The exercise price of each option granted cannot be less than the market price of Duke Energy’s common stock on the date of grant and the maximum option term is 10 years . The vesting periods range from immediate to three years. Options granted in 2013 and 2012 were expensed immediately; therefore, there is no future compensation cost associated with these options.
The following table summarizes additional information related to stock options exercised and granted.
  
Years Ended December 31,
 
2014

 
2013

 
2012

Intrinsic value of options exercised (in millions)
$
6

 
$
26

 
$
17

Tax benefit related to options exercised (in millions)
2

 
10

 
7

Cash received from options exercised (in millions)
25

 
9

 
21

Stock options granted (in thousands)

 
310

 
340

RESTRICTED STOCK UNIT AWARDS
Restricted stock unit awards issued and outstanding generally vest over periods from immediate to 3 years . Fair value amounts are based on the market price of Duke Energy's common stock at the grant date. The following table includes information related to restricted stock unit awards.
  
Years Ended December 31,
  
2014

 
2013

 
2012

Shares awarded (in thousands)  
557

 
612

 
443

Fair value (in millions)
$
40

 
$
42

 
$
28

The following table summarizes information about restricted stock unit awards outstanding.
  
Shares
(in thousands)

 
Weighted-Average
Grant Date Fair Value
(Per Share)

Outstanding at December 31, 2013
1,400

 
$
66

Granted
557

 
71

Vested
(832
)
 
62

Forfeited
(45
)
 
68

Outstanding at December 31, 2014
1,080

 
69

Restricted stock unit awards expected to vest
1,057

 
69

The total grant date fair value of shares vested during the years ended December 31, 2014 , 2013 and 2012 was $52 million , $50 million and $34 million , respectively. At December 31, 2014 , Duke Energy had $18 million of unrecognized compensation cost, which is expected to be recognized over a weighted-average period of one year, ten months .
PERFORMANCE AWARDS
Stock-based awards issued and outstanding generally vest over three years if performance targets are met.
Certain performance awards granted in 2014, 2013 and 2012 contain market conditions based on the total shareholder return (TSR) of Duke Energy stock relative to a predefined peer group (relative TSR). These awards are valued using a path-dependent model that incorporates expected relative TSR into the fair value determination of Duke Energy’s performance-based share awards. The model uses three-year historical volatilities and correlations for all companies in the predefined peer group, including Duke Energy, to simulate Duke Energy’s relative TSR as of the end of the performance period. For each simulation, Duke Energy’s relative TSR associated with the simulated stock price at the end of the performance period plus expected dividends within the period results in a value per share for the award portfolio. The average of these simulations is the expected portfolio value per share. Actual life to date results of Duke Energy’s relative TSR for each grant is incorporated within the model.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Other performance awards not containing market conditions were awarded in 2012. The performance goal for these awards is Duke Energy’s return on equity over a three-year period. Awards are measured at grant date price.
The following table includes information related to performance awards.
  
Years Ended December 31,
  
2014

 
2013

 
2012

Shares awarded (in thousands)
542

 
633

 
352

Fair value (in millions)
$
19

 
$
28

 
$
19

The following table summarizes information about stock-based performance awards outstanding at the maximum level.
  
Shares
(in thousands)

 
Weighted-Average
Grant Date Fair Value
(per share)

Outstanding at December 31, 2013
1,822

 
$
46

Granted
542

 
34

Vested
(524
)
 
52

Forfeited
(213
)
 
37

Outstanding at December 31, 2014
1,627

 
42

Stock-based performance awards expected to vest
1,418

 
42

The total grant date fair value of shares vested during the years ended December 31, 2014 , 2013 and 2012 was $27 million , $42 million and $56 million , respectively. At December 31, 2014 , Duke Energy had $21 million of unrecognized compensation cost, which is expected to be recognized over a weighted-average period of one year, nine months .
The grant date fair value of performance awards granted in 2014 was determined based on a risk-fee interest rate of 0.7 percent , which reflects the yield on three-year Treasury bonds as of the grant date, and an expected volatility of 13.5 percent based on Duke Energy's historical volatility over three years using daily stock prices.
21. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT RETIREMENT PLANS
Duke Energy maintains, and the Subsidiary Registrants participate in, qualified, non-contributory defined benefit retirement plans. The plans cover most U.S. employees using a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits based upon a percentage of current eligible earnings based on age and/or years of service and interest credits. Certain employees are covered under plans that use a final average earnings formula. Under these average earnings formulas, a plan participant accumulates a retirement benefit equal to the sum of percentages of their (i) highest three-year or four-year average earnings, (ii) highest three-year or four-year average earnings in excess of covered compensation per year of participation (maximum of 35 years ), and/or (iii) highest three or four-year average earnings times years of participation in excess of 35 years . Duke Energy also maintains, and the Subsidiary Registrants participate in, non-qualified, non-contributory defined benefit retirement plans which cover certain executives. As of January 1, 2014, the qualified and non-qualified non-contributory defined benefit plans are closed to new and rehired non-union and certain unionized employees.
Duke Energy uses a December 31 measurement date for its defined benefit retirement plan assets and obligations.
Net periodic benefit costs disclosed in the tables below represent the cost of the respective benefit plan for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment. Amounts presented in the tables below for the Subsidiary Registrants represent the amounts of pension and other post-retirement benefit cost allocated by Duke Energy for employees of the Subsidiary Registrants. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and post-retirement benefit cost for employees of Duke Energy’s shared services affiliate that provide support to the Subsidiary Registrants. These allocated amounts are included in the governance and shared service costs discussed in Note 13 .

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Duke Energy’s policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefit payments to be paid to plan participants. The following table includes information related to the Duke Energy Registrants’ contributions to its U.S. qualified defined benefit pension plans.
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Anticipated Contributions:   
  

 
  

 
  

 
  

 
  

 
  

 
  

2015
$
302

 
$
91

 
$
83

 
$
42

 
$
40

 
$
8

 
$
19

Contributions Made:   
  

 
  

 
  

 
  

 
  

 
  

 
  

2014
$

 
$

 
$

 
$

 
$

 
$

 
$

2013
250

 

 
250

 
63

 
133

 

 

2012
304

 

 
346

 
141

 
128

 

 

QUALIFIED PENSION PLANS
Components of Net Periodic Pension Costs
  
Year Ended December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost  
$
135

 
$
41

 
$
40

 
$
21

 
$
20

 
$
4

 
$
9

Interest cost on projected benefit obligation  
344

 
85

 
112

 
54

 
57

 
20

 
29

Expected return on plan assets  
(511
)
 
(132
)
 
(173
)
 
(85
)
 
(85
)
 
(27
)
 
(41
)
Amortization of actuarial loss  
150

 
36

 
68

 
32

 
32

 
4

 
13

Amortization of prior service credit   
(15
)
 
(8
)
 
(3
)
 
(2
)
 
(1
)
 

 

Other  
8

 
2

 
3

 
1

 
1

 

 
1

Net periodic pension costs
$
111

 
$
24

 
$
47

 
$
21

 
$
24

 
$
1

 
$
11

  
Year Ended December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost  
$
167

 
$
49

 
$
60

 
$
22

 
$
30

 
$
6

 
$
11

Interest cost on projected benefit obligation  
320

 
80

 
116

 
50

 
53

 
21

 
28

Expected return on plan assets  
(549
)
 
(148
)
 
(199
)
 
(94
)
 
(87
)
 
(31
)
 
(46
)
Amortization of actuarial loss  
244

 
60

 
101

 
46

 
49

 
13

 
24

Amortization of prior service (credit) cost   
(11
)
 
(6
)
 
(4
)
 
(1
)
 
(2
)
 

 
1

Other  
7

 
2

 
2

 
1

 
1

 

 
1

Net periodic pension costs
$
178

 
$
37

 
$
76

 
$
24

 
$
44

 
$
9

 
$
19

  
Year Ended December 31, 2012
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost  
$
122

 
$
35

 
$
63

 
$
25

 
$
30

 
$
6

 
$
9

Interest cost on projected benefit obligation  
307

 
90

 
127

 
58

 
56

 
31

 
30

Expected return on plan assets  
(472
)
 
(146
)
 
(188
)
 
(96
)
 
(81
)
 
(45
)
 
(46
)
Amortization of actuarial loss  
144

 
45

 
93

 
37

 
48

 
10

 
15

Amortization of prior service cost (credit)  
10

 
1

 
9

 
8

 
(1
)
 
1

 
1

Other  
6

 
2

 
2

 
1

 
1

 

 

Net periodic pension costs
$
117

 
$
27

 
$
106

 
$
33

 
$
53

 
$
3

 
$
9


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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets
  
Year Ended December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Regulatory assets, net increase (decrease)
$
112

 
$
30

 
$
(73
)
 
$
(17
)
 
$
11

 
$
17

 
$
4

Accumulated other comprehensive (income) loss  
  

 
  

 
  

 
  

 
  

 
  

 
  

Deferred income tax expense
$
(10
)
 

 
(2
)
 

 

 

 

Actuarial losses arising during the year  
29

 

 

 

 

 

 

Prior year service credit arising during the year  

 

 

 

 

 

 

Amortization of prior year actuarial losses  
(9
)
 

 

 

 

 

 

Reclassification of actuarial losses to regulatory assets  
(1
)
 

 

 

 

 

 

Net amount recognized in accumulated other comprehensive income  
$
9

 
$

 
$
(2
)
 
$

 
$

 
$

 
$

  
Year Ended December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Regulatory assets, net decrease
$
(788
)
 
$
(205
)
 
$
(253
)
 
$
(109
)
 
$
(146
)
 
$
(96
)
 
$
(99
)
Accumulated other comprehensive (income) loss  
  

 
  

 
  

 
  

 
  

 
  

 
  

Deferred income tax benefit   
$
18

 
$

 
$

 
$

 
$

 
$

 
$

Actuarial gains arising during the year  
(33
)
 

 
(2
)
 

 

 

 

Prior year service credit arising during the year  
(1
)
 

 

 

 

 

 

Amortization of prior year actuarial losses  
(15
)
 

 
(3
)
 

 

 

 

Reclassification of actuarial losses to regulatory assets  
3

 

 

 

 

 

 

Net amount recognized in accumulated other comprehensive income  
$
(28
)
 
$

 
$
(5
)
 
$

 
$

 
$

 
$

Reconciliation of Funded Status to Net Amount Recognized
  
Year Ended December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Change in Projected Benefit Obligation   
  

 
  
 
  
 
  
 
  
 
  
 
  
Obligation at prior measurement date  
$
7,510

 
$
1,875

 
$
2,739

 
$
1,172

 
$
1,233

 
$
442

 
$
632

Service cost  
135

 
41

 
40

 
21

 
20

 
4

 
9

Interest cost  
344

 
85

 
112

 
54

 
57

 
20

 
29

Actuarial loss (a)
618

 
132

 
211

 
98

 
105

 
41

 
41

Transfers  

 
37

 
(375
)
 
(61
)
 
(9
)
 
(6
)
 

Plan amendments  
(4
)
 
(1
)
 

 

 

 
(1
)
 

Benefits paid  
(496
)
 
(116
)
 
(170
)
 
(97
)
 
(71
)
 
(31
)
 
(38
)
Obligation at measurement date  
$
8,107

 
$
2,053

 
$
2,557

 
$
1,187

 
$
1,335

 
$
469

 
$
673

Accumulated Benefit Obligation at measurement date   
$
7,966

 
$
2,052

 
$
2,519

 
$
1,187

 
$
1,297

 
$
459

 
$
645

Change in Fair Value of Plan Assets   
  

 
  

 
  

 
  

 
  

 
  

 
  

Plan assets at prior measurement date  
$
8,142

 
$
2,162

 
$
2,944

 
$
1,330

 
$
1,299

 
$
448

 
$
654

Actual return on plan assets  
852

 
217

 
300

 
149

 
144

 
45

 
65

Benefits paid  
(496
)
 
(116
)
 
(170
)
 
(97
)
 
(71
)
 
(31
)
 
(38
)
Transfers  

 
37

 
(352
)
 
(61
)
 
(9
)
 
(6
)
 

Plan assets at measurement date  
$
8,498

 
$
2,300

 
$
2,722

 
$
1,321

 
$
1,363

 
$
456

 
$
681

Funded status of plan  
$
391

 
$
247

 
$
165

 
$
134

 
$
28

 
$
(13
)
 
$
8


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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

(a)
Includes an increase in benefit obligation of $180 million as a result of changes in Duke Energy's mortality assumptions.
  
Year Ended December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Change in Projected Benefit Obligation   
  
 
  
 
  
 
  
 
  
 
  
 
  
Obligation at prior measurement date  
8,030

 
2,028

 
2,868

 
1,264

 
1,309

 
527

 
684

Service cost  
167

 
49

 
60

 
22

 
30

 
6

 
11

Interest cost  
320

 
80

 
116

 
50

 
53

 
21

 
28

Actuarial gains
(399
)
 
(73
)
 
(118
)
 
(26
)
 
(75
)
 
(71
)
 
(56
)
Transfers  

 
(26
)
 
(7
)
 
(45
)
 
(17
)
 
(2
)
 
(2
)
Plan amendments  
(41
)
 
(13
)
 
(19
)
 
(8
)
 
(7
)
 

 

Benefits paid  
(567
)
 
(170
)
 
(161
)
 
(85
)
 
(60
)
 
(39
)
 
(33
)
Obligation at measurement date  
7,510

 
1,875

 
2,739

 
1,172

 
1,233

 
442

 
632

Accumulated Benefit Obligation at measurement date   
7,361

 
1,875

 
2,698

 
1,172

 
1,192

 
429

 
608

Change in Fair Value of Plan Assets   
  

 
  

 
  

 
  

 
  

 
  

 
  

Plan assets at prior measurement date  
7,754

 
2,151

 
2,647

 
1,289

 
1,150

 
446

 
627

Actual return on plan assets  
705

 
207

 
215

 
108

 
93

 
43

 
62

Benefits paid  
(567
)
 
(170
)
 
(161
)
 
(85
)
 
(60
)
 
(39
)
 
(33
)
Transfers  

 
(26
)
 
(7
)
 
(45
)
 
(17
)
 
(2
)
 
(2
)
Employer contributions  
250

 

 
250

 
63

 
133

 

 

Plan assets at measurement date  
$
8,142

 
$
2,162

 
$
2,944

 
$
1,330

 
$
1,299

 
$
448

 
$
654

Funded status of plan  
$
632

 
$
287

 
$
205

 
$
158

 
$
66

 
$
6

 
$
22

Amounts Recognized in the Consolidated Balance Sheets
  
December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Prefunded pension (a)
$
441

 
$
247

 
$
165

 
$
134

 
$
28

 
$

 
$
8

Non-current pension liability (b)
$
50

 
$

 
$

 
$

 
$

 
$
13

 
$

Net asset recognized  
$
391

 
$
247

 
$
165

 
$
134

 
$
28

 
$
(13
)
 
$
8

Regulatory assets  
$
1,711

 
$
407

 
$
753

 
$
346

 
$
406

 
$
65

 
$
151

Accumulated other comprehensive (income) loss  
  

 
  

 
  

 
  

 
  

 
  

 
  

Deferred income tax asset  
$
(51
)
 
$

 
$
(11
)
 
$

 
$

 
$

 
$

Prior service credit  
(5
)
 

 

 

 

 

 

Net actuarial loss  
140

 

 
21

 

 

 

 

Net amounts recognized in accumulated other comprehensive loss (c)
$
84

 
$

 
$
10

 
$

 
$

 
$

 
$

Amounts to be recognized in net periodic pension expense in the next year  
  

 
  

 
  

 
  

 
  

 
  

 
  

Unrecognized net actuarial loss  
$
166

 
$
39

 
$
65

 
$
34

 
$
31

 
$
6

 
$
14

Unrecognized prior service credit  
(15
)
 
(8
)
 
(3
)
 
(2
)
 
(1
)
 

 


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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Prefunded pension (a)
$
632

 
$
287

 
$
230

 
$
158

 
$
66

 
$
2

 
$
75

Non-current pension liability (b)
$

 
$

 
$
25

 
$

 
$

 
$
(4
)
 
$
53

Net asset recognized  
$
632

 
$
287

 
$
205

 
$
158

 
$
66

 
$
6

 
$
22

Regulatory assets  
$
1,599

 
$
377

 
$
826

 
$
363

 
$
395

 
$
48

 
$
147

Accumulated other comprehensive (income) loss  
  

 
  

 
  

 
  

 
  

 
  

 
  

Deferred income tax asset  
$
(41
)
 
$

 
$
(9
)
 
$

 
$

 
$

 
$

Prior service credit  
(5
)
 

 

 

 

 

 

Net actuarial loss  
121

 

 
21

 

 

 

 

Net amounts recognized in accumulated other comprehensive loss (c)
$
75

 
$

 
$
12

 
$

 
$

 
$

 
$

(a)
Included in Other within Investments and Other Assets on the Consolidated Balance Sheets.
(b)
Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets.
(c)
Excludes accumulated other comprehensive income of $22 million and $16 million as of 2014 and 2013 , respectively, net of tax, associated with a Brazilian retirement plan.
Information for Plans with Accumulated Benefit Obligation in Excess of Plan Assets
  
December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Ohio

Projected benefit obligation  
$
702

 
$
315

Accumulated benefit obligation  
672

 
306

Fair value of plan assets  
652

 
302

As of December 31, 2013, none of the qualified pension plans had an accumulated benefit obligation in excess of plan assets.
Assumptions Used for Pension Benefits Accounting
The discount rate used to determine the current year pension obligation and following year’s pension expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected.
The average remaining service period of active covered employees is nine years for Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana.
The following tables present the assumptions or range of assumptions used for pension benefit accounting.
  
 
December 31,
  
 
2014
 
2013
 
2012 (a)
Benefit Obligations
 
 
 
  
 
 
 
  
 
 
 
  
Discount rate  
 
 
 
4.10%
 
 
 
4.70%
 
 
 
4.10%
Salary increase  
 
4.00
%
-
4.40%
 
4.00
%
-
4.40%
 
4.00
%
-
4.30%
Net Periodic Benefit Cost
 
 
 
  
 
 
 
  
 
 
 
  
Discount rate  
 
 
 
4.70%
 
 
 
4.10%
 
4.60
%
-
5.10%
Salary increase  
 
4.00
%
-
4.40%
 
4.00
%
-
4.30%
 
4.00
%
-
4.40%
Expected long-term rate of return on plan assets  
 
 
 
6.75%
 
 
 
7.75%
 
8.00
%
-
8.25%
(a)
For Progress Energy plans, the assumptions used in 2012 to determine net periodic pension costs reflect remeasurement as of July 1, 2012, due to the merger between Duke Energy and Progress Energy.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Expected Benefit Payments
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Years ending December 31,  
  
  
  
  
  
  
  
2015
$
584

$
175

$
150

$
80

$
67

$
34

$
45

2016
604

184

158

85

70

35

46

2017
616

195

161

86

73

34

45

2018
625

200

165

87

76

34

46

2019
626

194

168

88

78

34

46

2020 - 2024  
3,107

924

868

437

420

168

229

NON-QUALIFIED PENSION PLANS
Components of Net Periodic Pension Costs
  
Year Ended December 31, 2014
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Service cost  
$
3

$

$
1

$
1

$

$

$

Interest cost on projected benefit obligation  
14

1

5

1

2



Amortization of actuarial loss  
3


2





Amortization of prior service credit  
(1
)

(1
)




Net periodic pension costs  
$
19

$
1

$
7

$
2

$
2

$

$

  
Year Ended December 31, 2013
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Service cost  
$
3

$

$
1

$
1

$

$

$

Interest cost on projected benefit obligation  
13

1

7

1

1



Amortization of actuarial loss  
5


3

1

1



Amortization of prior service credit  
(1
)

(1
)




Net periodic pension costs  
$
20

$
1

$
10

$
3

$
2

$

$

  
Year Ended December 31, 2012
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Service cost  
$
2

$

$
2

$
1

$

$

$

Interest cost on projected benefit obligation  
12

1

8

1

2



Amortization of actuarial loss  
4


5

1




Amortization of prior service cost (credit)  
1


(1
)




Net periodic pension costs  
$
19

$
1

$
14

$
3

$
2

$

$


215


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets and Liabilities
  
Year Ended December 31, 2014
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Regulatory assets, net increase   
$
44

$
1

$
14

$
4

$
19

$
1

$
2

Regulatory liabilities, net decrease  
$
(7
)
$

$

$

$

$

$

Accumulated other comprehensive (income) loss  
  

  

  

  

  

  

  

Deferred income tax benefit   
$
4

$

$
5

$

$

$

$

Actuarial gains arising during the year  
(9
)

(11
)




Net amount recognized in accumulated other comprehensive loss (income)   
$
(5
)
$

$
(6
)
$

$

$

$

  
Year Ended December 31, 2013
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Regulatory assets, net (decrease) increase   
$
(14
)
$
1

$
(16
)
$
(4
)
$
(3
)
$

$
(2
)
Regulatory liabilities, net increase  
$
5

$

$

$

$

$

$

Accumulated other comprehensive (income) loss  
  

  

  

  

  

  

  

Deferred income tax benefit   
$

$

$
1

$

$

$

$

Actuarial losses (gains) arising during the year  
2


(5
)




Prior year service credit arising during the year  
(1
)






Net amount recognized in accumulated other comprehensive loss (income)   
$
1

$

$
(4
)
$

$

$

$

Reconciliation of Funded Status to Net Amount Recognized
  
Year Ended December 31, 2014
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Change in Projected Benefit Obligation   
  

  

  

  

  

  

  

Obligation at prior measurement date  
$
304

$
15

$
140

$
34

$
39

$
3

$
5

Service cost  
3


1

1




Interest cost  
14

1

5

1

2



Actuarial losses (a)   
43

2

11

2

20

1

1

Settlements  







Plan amendments  







Transfers  


(32
)

4



Benefits paid  
(27
)
(2
)
(9
)
(3
)
(4
)

(1
)
Obligation at measurement date  
$
337

$
16

$
116

$
35

$
61

$
4

$
5

Accumulated Benefit Obligation at measurement date   
$
333

$
15

$
116

$
35

$
61

$
4

$
5

Change in Fair Value of Plan Assets   
  

  

  

  

  

  

  

Plan assets at prior measurement date  







Benefits paid  
(27
)
(2
)
(9
)
(3
)
(4
)

(1
)
Employer contributions  
27

2

9

3

4


1

Plan assets at measurement date  
$

$

$

$

$

$

$

(a)
Includes an increase in benefit obligation of $21 million as a result of changes in Duke Energy's mortality assumptions.

216


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
Year Ended December 31, 2013
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Change in Projected Benefit Obligation   
  
  

  

  

  

  

  

Obligation at prior measurement date  
$
335

$
16

$
176

$
38

$
45

$
4

$
5

Service cost  
3


1

1




Interest cost  
13

1

7

1

1



Actuarial (gains) losses  
(15
)
1

(11
)
(3
)
(3
)
(1
)

Settlements  
(5
)






Plan amendments  
(1
)






Transfers  


(21
)




Benefits paid  
(26
)
(3
)
(12
)
(3
)
(4
)


Obligation at measurement date  
$
304

$
15

$
140

$
34

$
39

$
3

$
5

Accumulated Benefit Obligation at measurement date  
$
302

$
15

$
140

$
34

$
39

$
3

$
5

Change in Fair Value of Plan Assets  
  

  

  

  

  

  

  

Plan assets at prior measurement date  







Benefits paid  
(26
)
(3
)
(12
)
(3
)
(4
)


Employer contributions  
26

3

12

3

4



Plan assets at measurement date  
$

$

$

$

$

$

$

Amounts Recognized in the Consolidated Balance Sheets
  
December 31, 2014
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Current pension liability (a)
$
27

$
2

$
8

$
3

$
4

$

$

Non-current pension liability (b)
310

14

108

32

57

4

5

Total accrued pension liability  
$
337

$
16

$
116

$
35

$
61

$
4

$
5

Regulatory assets  
$
89

$
5

$
32

$
7

$
25

$
1

$
2

Regulatory liabilities  
$

$

$

$

$

$

$

Accumulated other comprehensive (income) loss  
  

  

  

  

  

  

  

Deferred income tax asset  
4


$
2





Prior service credit  
(1
)






Net actuarial gain  
(8
)

(4
)




Net amounts recognized in accumulated other comprehensive income
$
(5
)
$

$
(2
)
$

$

$

$

Amounts to be recognized in net periodic pension expense in the next year  
  

  

  

  

  

  

  

Unrecognized net actuarial loss  
$
6


$
2

$
1

2



Unrecognized prior service credit  
(1
)







217


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
December 31, 2013
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Current pension liability (a)
$
30

$
2

$
11

$
2

$
3

$

$

Non-current pension liability (b)
274

13

129

32

36

3

5

Total accrued pension liability  
$
304

$
15

$
140

$
34

$
39

$
3

$
5

Regulatory assets  
$
45

$
4

$
18

$
3

$
6

$

$

Regulatory liabilities  
$
7

$

$

$

$

$

$

Accumulated other comprehensive (income) loss  
  

  

  

  

  

  

  

Deferred income tax asset  
$

$

$
(3
)
$

$

$

$

Prior service credit  
(1
)






Net actuarial loss  
1


7





Net amounts recognized in accumulated other comprehensive loss  
$

$

$
4

$

$

$

$

(a)
Included in Other within Current Liabilities on the Consolidated Balance Sheets.
(b)
Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets.
Information for Plans with Accumulated Benefit Obligation in Excess of Plan Assets
  
December 31, 2014
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Projected benefit obligation  
$
337

$
16

$
116

$
35

$
61

$
4

$
5

Accumulated benefit obligation  
333

15

116

35

61

4

5

  
December 31, 2013
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Projected benefit obligation  
$
304

$
15

$
140

$
34

$
39

$
3

$
5

Accumulated benefit obligation  
302

15

140

34

39

3

5

Assumptions Used for Pension Benefits Accounting
The discount rate used to determine the current year pension obligation and following year’s pension expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected.
The average remaining service period of active covered employees is 13 years for Duke Energy and Progress Energy, nine years for Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana, 12 years for Duke Energy Progress and 17 years for Duke Energy Florida.
The following tables present the assumptions used for pension benefit accounting.
  
 
December 31,
  
 
2014

 
2013

 
2012 (a)
Benefit Obligations   
 
  

 
  

 
 
 
  
Discount rate  
 
4.10
%
 
4.70
%
 
 
 
4.10%
Salary increase   
 
4.40
%
 
4.40
%
 
 
 
4.30%
Net Periodic Benefit Cost   
 
  

 
  

 
 
 
  
Discount rate  
 
4.70
%
 
4.10
%
 
4.60
%
-
5.10%
Salary increase  
 
4.40
%
 
4.30
%
 
 
 
4.40%
(a)
For Progress Energy plans, the assumptions used in 2012 to determine net periodic pension costs reflect remeasurement as of July 1, 2012, due to the merger between Duke Energy and Progress Energy.

218


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Expected Benefit Payments
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Years ending December 31,  
  
  
  
  
  
  
  
2015
$
28

$
2

$
8

$
3

$
4

$

$

2016
27

2

8

3

4



2017
27

2

8

3

4



2018
24

2

8

3

4



2019
24

2

8

3

4



2020 - 2024  
116

6

38

13

19

2

2

Other Post-Retirement Benefit Plans
Duke Energy provides, and the Subsidiary Registrants participate in, some health care and life insurance benefits for retired employees on a contributory and non-contributory basis. Employees are eligible for these benefits if they have met age and service requirements at retirement, as defined in the plans. The health care benefits include medical, dental, and prescription drug coverage and are subject to certain limitations, such as deductibles and co-payments.
Duke Energy did not make any pre-funding contributions to its other post-retirement benefit plans during the years ended December 31, 2014 , 2013 or 2012 .
Components of Net Periodic Other Post-Retirement Benefit Costs
  
Year Ended December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost  
$
10

 
$
2

 
$
4

 
$
1

 
$
3

 
$

 
$
1

Interest cost on accumulated post-retirement benefit obligation  
49

 
12

 
22

 
11

 
12

 
2

 
5

Expected return on plan assets  
(13
)
 
(9
)
 

 

 

 

 
(1
)
Amortization of actuarial loss (gain)  
39

 
3

 
42

 
31

 
10

 
(2
)
 

Amortization of prior service credit  
(125
)
 
(11
)
 
(95
)
 
(73
)
 
(21
)
 

 

Net periodic post-retirement benefit costs
$
(40
)
 
$
(3
)
 
$
(27
)
 
$
(30
)
 
$
4

 
$

 
$
5

  
Year Ended December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost  
$
24

 
$
2

 
$
18

 
$
9

 
$
7

 
$
1

 
$
1

Interest cost on accumulated post-retirement benefit obligation  
68

 
13

 
41

 
22

 
16

 
2

 
5

Expected return on plan assets  
(14
)
 
(11
)
 

 

 

 
(1
)
 
(1
)
Amortization of actuarial loss (gain)  
52

 
3

 
57

 
34

 
16

 
(1
)
 
1

Amortization of prior service credit  
(41
)
 
(7
)
 
(30
)
 
(20
)
 
(6
)
 
(1
)
 

Net periodic post-retirement benefit costs
$
89

 
$

 
$
86

 
$
45

 
$
33

 
$

 
$
6


219


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
Year Ended December 31, 2012
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost  
$
16

 
$
2

 
$
17

 
$
8

 
$
7

 
$
1

 
$
1

Interest cost on accumulated post-retirement benefit obligation  
56

 
15

 
43

 
23

 
18

 
3

 
6

Expected return on plan assets  
(17
)
 
(10
)
 
(2
)
 

 
(2
)
 
(1
)
 
(1
)
Amortization of actuarial loss (gain)  
14

 
3

 
35

 
20

 
12

 
(2
)
 

Amortization of prior service credit  
(8
)
 
(5
)
 

 

 

 
(1
)
 

Amortization of net transition liability  
10

 
7

 
4

 

 
3

 

 

Special termination benefit cost  
9

 
1

 
5

 
2

 
1

 

 

Net periodic post-retirement benefit costs
$
80

 
$
13

 
$
102

 
$
53

 
$
39

 
$

 
$
6

Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets and Liabilities
  
Year Ended December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Regulatory assets, net increase (decrease)
$
162

 
$
34

 
$
129

 
$
97

 
$
(4
)
 
$

 
$
(7
)
Regulatory liabilities, net increase (decrease)  
$
249

 
$
76

 
$
122

 
$
61

 
$
61

 
$
(2
)
 
$
14

Accumulated other comprehensive (income) loss  
  

 
  

 
 
 
  

 
  

 
  

 
  

Deferred income tax benefit   
$
1

 
$

 
$
1

 
$

 
$

 
$

 
$

Actuarial losses (gains) arising during the year  
1

 

 
(2
)
 

 

 

 

Prior year service credit arising during the year  
(6
)
 

 

 

 

 

 

Amortization of prior year prior service credit  
2

 

 

 

 

 

 

Net amount recognized in accumulated other comprehensive income  
$
(2
)
 
$

 
$
(1
)
 
$

 
$

 
$

 
$

  
Year Ended December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Regulatory assets, net (decrease) increase   
$
(683
)
 
$
(51
)
 
$
(634
)
 
$
(388
)
 
$
(166
)
 
$

 
$
(6
)
Regulatory liabilities, net increase (decrease)  
$
30

 
$

 
$

 
$

 
$

 
$
3

 
$
9

Accumulated other comprehensive (income) loss  
  

 
  

 
 
 
  

 
  

 
  

 
  

Deferred income tax benefit   
$
2

 
$

 
$

 
$

 
$

 
$

 
$

Actuarial gains arising during the year  
(4
)
 

 

 

 

 

 

Prior year service credit arising during the year  
(3
)
 

 

 

 

 

 

Amortization of prior year actuarial loss  
1

 

 

 

 

 

 

Net amount recognized in accumulated other comprehensive income  
$
(4
)
 
$

 
$

 
$

 
$

 
$

 
$


220


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Reconciliation of Funded Status to Accrued Other Post-Retirement Benefit Costs
  
Year Ended December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Change in Projected Benefit Obligation   
  

 
  
 
  
 
  
 
  
 
  
 
  
Accumulated post-retirement benefit obligation at prior measurement date  
$
1,106

 
$
265

 
$
533

 
$
233

 
$
253

 
$
42

 
$
118

Service cost  
10

 
2

 
4

 
1

 
3

 

 
1

Interest cost  
49

 
12

 
22

 
11

 
12

 
2

 
5

Plan participants' contributions  
25

 
10

 
8

 
4

 
4

 

 
2

Actuarial gains (a)
(87
)
 
(35
)
 
(19
)
 
(21
)
 

 

 
(20
)
Transfers  

 
1

 
(48
)
 
(2
)
 

 
(1
)
 

Plan amendments  
(85
)
 
(4
)
 
(77
)
 

 
(78
)
 
(1
)
 

Benefits paid  
(103
)
 
(31
)
 
(44
)
 
(19
)
 
(24
)
 
(3
)
 
(10
)
Accrued retiree drug subsidy  
1

 

 

 

 

 

 

Accumulated post-retirement benefit obligation at measurement date  
$
916

 
$
220

 
$
379

 
$
207

 
$
170

 
$
39

 
$
96

Change in Fair Value of Plan Assets   
  

 
  

 
  

 
  

 
  

 
  

 
  

Plan assets at prior measurement date  
$
214

 
$
143

 

 

 

 
$
8

 
$
18

Actual return on plan assets  
18

 
12

 

 

 

 

 
2

Benefits paid  
(103
)
 
(31
)
 
(44
)
 
(19
)
 
(24
)
 
(3
)
 
(10
)
Transfers

 
(1
)
 

 

 

 

 

Employer contributions  
73

 
12

 
36

 
14

 
20

 
3

 
11

Plan participants' contributions  
25

 
10

 
8

 
4

 
4

 

 
2

Plan assets at measurement date  
$
227

 
$
145

 
$

 
$
(1
)
 
$

 
$
8

 
$
23

(a)
Includes an increase in benefit obligation of $7 million as a result of changes in Duke Energy's mortality assumptions.
  
Year Ended December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Change in Projected Benefit Obligation   
  
 
  
 
  
 
  
 
  
 
  
 
  
Accumulated post-retirement benefit obligation at prior measurement date  
$
1,794

 
$
316

 
$
1,128

 
$
612

 
$
413

 
$
48

 
$
136

Service cost  
24

 
2

 
18

 
9

 
7

 
1

 
1

Interest cost  
68

 
13

 
41

 
22

 
16

 
2

 
5

Plan participants' contributions  
47

 
15

 
14

 
6

 
7

 
3

 
3

Actuarial gains  
(227
)
 
(32
)
 
(156
)
 
(73
)
 
(70
)
 
(6
)
 
(12
)
Transfers  

 

 
(1
)
 
(8
)
 

 

 

Plan amendments  
(476
)
 
(16
)
 
(455
)
 
(311
)
 
(91
)
 

 
(3
)
Benefits paid  
(132
)
 
(36
)
 
(60
)
 
(26
)
 
(31
)
 
(6
)
 
(14
)
Accrued retiree drug subsidy  
8

 
3

 
4

 
2

 
2

 

 
2

Accumulated post-retirement benefit obligation at measurement date  
$
1,106

 
$
265

 
$
533

 
$
233

 
$
253

 
$
42

 
$
118

Change in Fair Value of Plan Assets   
  

 
  

 
  

 
  

 
  

 
  

 
  

Plan assets at prior measurement date  
$
198

 
$
134

 
$

 
$

 
$

 
$
7

 
$
17

Actual return on plan assets  
18

 
13

 

 

 

 
2

 
2

Benefits paid  
(132
)
 
(36
)
 
(60
)
 
(26
)
 
(31
)
 
(6
)
 
(14
)
Transfers

 
(1
)
 

 

 

 

 

Employer contributions  
83

 
18

 
46

 
20

 
24

 
2

 
10

Plan participants' contributions  
47

 
15

 
14

 
6

 
7

 
3

 
3

Plan assets at measurement date  
$
214

 
$
143

 
$

 
$

 
$

 
$
8

 
$
18


221


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Amounts Recognized in the Consolidated Balance Sheets
  
December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Current post-retirement liability (a)
$
35

 
$

 
$
29

 
$
16

 
$
14

 
$
2

 
$

Non-current post-retirement liability (b)
654

 
75

 
350

 
192

 
156

 
29

 
73

Total accrued post-retirement liability  
$
689

 
$
75

 
$
379

 
$
208

 
$
170

 
$
31

 
$
73

Regulatory assets  
$

 
$

 
$

 
$

 
$

 
$

 
$
64

Regulatory liabilities  
$
380

 
$
76

 
$
122

 
$
61

 
$
61

 
$
19

 
$
91

Accumulated other comprehensive (income) loss  
  

 
  

 
  

 
  

 
  

 
  

 
  

Deferred income tax liability  
$
5

 
$

 
$
1

 
$

 
$

 
$

 
$

Prior service credit  
(9
)
 

 

 

 

 

 

Net actuarial gain  
(5
)
 

 
(2
)
 

 

 

 

Net amounts recognized in accumulated other comprehensive income  
$
(9
)
 
$

 
$
(1
)
 
$

 
$

 
$

 
$

Amounts to be recognized in net periodic pension expense in the next year  
  

 
  

 
  

 
  

 
  

 
  

 
  

Unrecognized net actuarial loss (gain)  
$
16

 
$
(1
)
 
$
28

 
$
18

 
$
10

 
$
(2
)
 
$

Unrecognized prior service credit
(140
)
 
(14
)
 
(103
)
 
(68
)
 
(35
)
 

 

  
December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Current post-retirement liability (a)
$
39

 
$

 
$
36

 
$
17

 
$
16

 
$
2

 
$

Non-current post-retirement liability (b)
853

 
122

 
497

 
216

 
237

 
32

 
100

Total accrued post-retirement liability  
$
892

 
$
122

 
$
533

 
$
233

 
$
253

 
$
34

 
$
100

Regulatory assets  
$
(162
)
 
$
(34
)
 
$
(129
)
 
$
(97
)
 
$
4

 
$

 
$
71

Regulatory liabilities  
$
131

 
$

 
$

 
$

 
$

 
$
21

 
$
77

Accumulated other comprehensive (income) loss  
  

 
  

 
  

 
  

 
  

 
  

 
  

Deferred income tax liability  
$
4

 
$

 
$

 
$

 
$

 
$

 
$

Prior service credit  
(5
)
 

 

 

 

 

 

Net actuarial gain  
(6
)
 

 

 

 

 

 

Net amounts recognized in accumulated other comprehensive income  
$
(7
)
 
$

 
$

 
$

 
$

 
$

 
$

(a)
Included in Other within Current Liabilities on the Consolidated Balance Sheets. 
(b)
Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets.
Assumptions Used for Other Post-Retirement Benefits Accounting
The discount rate used to determine the current year other post-retirement benefits obligation and following year’s other post-retirement benefits expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected.

222


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following tables present the assumptions used for other post-retirement benefits accounting.
  
 
December 31,
  
 
2014

 
2013

 
2012 (a)
Benefit Obligations   
 
  

 
  

 
 
 
  
Discount rate  
 
4.10
%
 
4.70
%
 
 
 
4.10
%
Net Periodic Benefit Cost   
 
  

 
  

 
 
 
  
Discount rate  
 
4.70
%
 
4.10
%
 
4.60
%
-
5.10
%
Expected long-term rate of return on plan assets  
 
6.75
%
 
7.75
%
 
5.00
%
-
8.00
%
Assumed tax rate  
 
35
%
 
35
%
 
 
 
35
%
(a)
For Progress Energy plans, the assumptions used in 2012 to determine net periodic post-retirement benefit costs reflect remeasurement as of July 1, 2012, due to the merger between Duke Energy and Progress Energy.
Assumed Health Care Cost Trend Rate
  
December 31,
  
2014

 
2013

Health care cost trend rate assumed for next year  
6.75
%
 
8.50
%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)  
4.75
%
 
5.00
%
Year that rate reaches ultimate trend  
2023

 
2021

Sensitivity to Changes in Assumed Health Care Cost Trend Rates
  
Year Ended December 31, 2014
(in millions)  
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

1-Percentage Point Increase   
  
  
  
  
  

  
  
Effect on total service and interest costs  
$
2

$
1

$
1

$

$
1

$

$

Effect on post-retirement benefit obligation  
36

9

15

8

7

2

4

1-Percentage Point Decrease
  

  

  

  

  

  

  

Effect on total service and interest costs  
(2
)
(1
)
(1
)

(1
)


Effect on post-retirement benefit obligation  
(31
)
(8
)
(13
)
(7
)
(6
)
(1
)
(3
)
Expected Benefit Payments
(in millions)
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Years ending December 31,
  
  
  
  
  
  

  
2015
$
77

$
17

$
30

$
16

$
14

$
4

$
10

2016
77

18

30

16

14

4

10

2017
76

18

29

15

14

3

9

2018
74

19

29

15

14

3

9

2019
73

19

29

15

13

3

8

2020 - 2024
332

84

132

70

61

15

35

PLAN ASSETS
Description and Allocations
Duke Energy Master Retirement Trust
Assets for both the qualified pension and other post-retirement benefits are maintained in the Duke Energy Master Retirement Trust. Approximately 98 percent of the Duke Energy Master Retirement Trust assets were allocated to qualified pension plans and approximately 2 percent were allocated to other post-retirement plans, as of December 31, 2014 and 2013 . The investment objective of the Duke Energy Master Retirement Trust is to achieve reasonable returns, subject to a prudent level of portfolio risk, for the purpose of enhancing the security of benefits for plan participants.

223


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The asset allocation targets were set after considering the investment objective and the risk profile. Equity securities are held for their higher expected return. Debt securities are primarily held to hedge qualified pension plan liability. Hedge funds, real estate and other global securities are held for diversification. Investments within asset classes are to be diversified to achieve broad market participation and reduce the impact of individual managers or investments.
In 2013, Duke Energy adopted a de-risking investment strategy for the Duke Energy Master Retirement Trust. As the funded status of the qualified pension plans increases, the targeted allocation to return seeking assets will be reduced and the targeted allocation to fixed-income assets will be increased to better manage Duke Energy’s qualified pension liability and reduced funded status volatility. Duke Energy regularly reviews its actual asset allocation and periodically rebalances its investments to the targeted allocation when considered appropriate.
The Duke Energy Retirement Master Trust is authorized to engage in the lending of certain plan assets. Securities lending is an investment management enhancement that utilizes certain existing securities of the Duke Energy Retirement Master Trust to earn additional income. Securities lending involves the loaning of securities to approved parties. In return for the loaned securities, the Duke Energy Retirement Master Trust receives collateral in the form of cash as a safeguard against possible default of any borrower on the return of the loan under terms that permit the Duke Energy Retirement Master Trust to sell the securities. The Master Trust mitigates credit risk associated with securities lending arrangements by monitoring the fair value of the securities loaned, with additional collateral obtained or refunded as necessary. The fair value of securities on loan was approximately $383 million and $43 million at December 31, 2014 and 2013, respectively. Cash obtained as collateral exceeded the fair value of the securities loaned at December 31, 2014 and 2013, respectively. Securities lending income earned by the Master Trust was immaterial for the years ended December 31, 2014, 2013 and 2012, respectively.
Qualified pension and other post-retirement benefits for the Subsidiary Registrants are derived from the Duke Energy Master Retirement Trust, as such, each are allocated their proportionate share of the assets discussed below.
The following table includes the target asset allocations by asset class at December 31, 2014 and the actual asset allocations for the Duke Energy Master Retirement Trust.
  
  
 
Actual Allocation at December 31,
  
Target Allocation

 
2014

 
2013

U.S. equity securities  
10
%
 
10
%
 
10
%
Non-U.S. equity securities  
8
%
 
8
%
 
8
%
Global equity securities  
10
%
 
10
%
 
10
%
Global private equity securities  
3
%
 
3
%
 
3
%
Debt securities  
63
%
 
63
%
 
63
%
Hedge funds  
2
%
 
3
%
 
3
%
Real estate and cash  
2
%
 
1
%
 
1
%
Other global securities  
2
%
 
2
%
 
2
%
Total  
100
%
 
100
%
 
100
%
VEBA I
Duke Energy also invests other post-retirement assets in the Duke Energy Corporation Employee Benefits Trust (VEBA I). The investment objective of VEBA I is to achieve sufficient returns, subject to a prudent level of portfolio risk, for the purpose of promoting the security of plan benefits for participants. VEBA I is passively managed. 
The following table presents target and actual asset allocations for VEBA I at December 31, 2014 .
  
  
 
Actual Allocation at December 31,
  
Target Allocation

 
2014

 
2013

U.S. equity securities  
30
%
 
29
%
 
29
%
Debt securities  
45
%
 
28
%
 
29
%
Cash  
25
%
 
43
%
 
42
%
Total  
100
%
 
100
%
 
100
%
Fair Value Measurements
Duke Energy classifies recurring and non-recurring fair value measurements based on the fair value hierarchy as discussed in Note 16 .
Valuation methods of the primary fair value measurements disclosed above are as follows:

224


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Investments in equity securities
Investments in equity securities, other than those accounted for as equity and cost method investments, are typically valued at the closing price in the principal active market as of the last business day of the reporting period. Principal active markets for equity prices include published exchanges such as NASDAQ and NYSE. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. Prices have not been adjusted to reflect after-hours market activity. The majority of investments in equity securities are valued using Level 1 measurements. When (i) the Duke Energy Registrants lack the ability to redeem investments valued on a net asset value per share basis in the near future or (ii) net asset value per share is not available at the measurement date, the fair value measurement of the investment is categorized as Level 3.
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 measurements. If the market for a particular fixed income security is relatively inactive or illiquid, the measurement is Level 3. U.S. Treasury debt is typically Level 2.
Investments in short-term investment funds
Investments in short-term investment funds are valued at the net asset value of units held at year end. Investments in short-term investment funds with published prices are valued as Level 1. Investments in short-term investment funds with unpublished prices are valued as Level 2.
Investments in real estate limited partnerships
Investments in real estate limited partnerships are valued by the trustee at each valuation date (monthly). As part of the trustee’s valuation process, properties are externally appraised generally on an annual basis, conducted by reputable, independent appraisal firms, and signed by appraisers that are members of the Appraisal Institute, with the professional designation MAI. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three valuation techniques that can be used to value investments in real estate assets: the market, income or cost approach. The appropriateness of each valuation technique depends on the type of asset or business being valued. In addition, the trustee may cause additional appraisals to be performed as warranted by specific asset or market conditions. Property valuations and the salient valuation-sensitive assumptions of each direct investment property are reviewed by the trustee quarterly and values are adjusted if there has been a significant change in circumstances related to the investment property since the last valuation. Value adjustments for interim capital expenditures are only recognized to the extent that the valuation process acknowledges a corresponding increase in fair value. An independent firm is hired to review and approve quarterly direct real estate valuations. Key inputs and assumptions used to determine fair value includes among others, rental revenue and expense amounts and related revenue and expense growth rates, terminal capitalization rates and discount rates. Development investments are valued using cost incurred to date as a primary input until substantive progress is achieved in terms of mitigating construction and leasing risk at which point a discounted cash flow approach is more heavily weighted. Key inputs and assumptions in addition to those noted above used to determine the fair value of development investments include construction costs, and the status of construction completion and leasing. Investments in real estate limited partnerships are valued as Level 3.

Duke Energy Master Retirement Trust
The following tables provide the fair value measurement amounts for the Duke Energy Master Retirement Trust qualified pension and other post-retirement assets.
  
December 31, 2014
(in millions)  
Total Fair Value  

 
Level 1

 
Level 2

 
Level 3

Equity securities  
$
2,346

 
$
1,625

 
$
721

 
$

Corporate debt securities  
4,349

 

 
4,348

 
1

Short-term investment funds  
333

 
171

 
162

 

Partnership interests  
298

 

 

 
298

Hedge funds  
146

 

 
146

 

Real estate limited partnerships  
104

 

 

 
104

U.S. government securities  
917

 

 
916

 
1

Guaranteed investment contracts  
32

 

 

 
32

Governments bonds - foreign  
44

 

 
44

 

Cash  
30

 
30

 

 

Government and commercial mortgage backed securities  
9

 

 
9

 

Net pending transactions and other investments  
10

 
(10
)
 
20

 

Total assets (a)
$
8,618

 
$
1,816

 
$
6,366

 
$
436

(a)
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana were allocated approximately 28 percent , 31 percent , 15 percent , 16 percent , 5 percent and 8 percent , respectively, of the Duke Energy Master Retirement Trust assets at December 31, 2014 . Accordingly, all Level 1, 2 and 3 amounts included in the table above are allocable to the Subsidiary Registrants using these percentages.

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PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
December 31, 2013
(in millions)  
Total Fair Value  

 
Level 1

 
Level 2

 
Level 3

Equity securities  
$
2,877

 
$
1,801

 
$
1,022

 
$
54

Corporate debt securities  
2,604

 

 
2,601

 
3

Short-term investment funds  
1,158

 
254

 
904

 

Partnership interests  
307

 

 

 
307

Hedge funds  
164

 

 
111

 
53

Real estate limited partnerships  
95

 

 

 
95

U.S. government securities  
927

 

 
927

 

Guarantees investment contracts  
33

 

 

 
33

Governments bonds - foreign  
19

 

 
18

 
1

Cash  
58

 
58

 

 

Asset backed securities  
7

 

 
7

 

Net pending transactions and other investments  
12

 
7

 
5

 

Total assets (a)
$
8,261

 
$
2,120

 
$
5,595

 
$
546

(a)
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana were allocated approximately 28 percent , 35 percent , 16 percent , 16 percent , 5 percent and 8 percent , respectively, of the Duke Energy Master Retirement Trust assets at December 31, 2013 . Accordingly, all Level 1, 2 and 3 amounts included in the table above are allocable to the Subsidiary Registrants using these percentages.
The following table provides a reconciliation of beginning and ending balances of assets of master trusts measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3).
(in millions)  
2014

 
2013

Balance at January 1  
$
546

 
$
352

Combination of trust assets (a)

 
288

Purchases, sales, issuances and settlements  
  

 
  

Purchases  
17

 
25

Sales  
(164
)
 
(152
)
Total gains (losses) and other, net  
37

 
33

Balance at December 31  
$
436

 
$
546

(a)
As of January 1, 2013, assets previously held in the Progress Energy Master Retirement Trust were transferred into the Duke Energy Master Retirement Trust.
VEBA I
The following tables provide the fair value measurement amounts for VEBA I other post-retirement assets.
  
December 31, 2014
(in millions)  
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Cash and cash equivalents  
$
21

 

 
$
21

 

Equity securities  
14

 

 
14

 

Debt securities  
13

 

 
13

 

Total assets  
$
48

 

 
$
48

 

  
December 31, 2013
(in millions)  
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Cash and cash equivalents  
$
21

 

 
$
21

 

Equity securities  
15

 

 
15

 

Debt securities  
15

 

 
15

 

Total assets  
$
51

 

 
$
51

 

 

226


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

EMPLOYEE SAVINGS PLANS
Duke Energy sponsors, and the Subsidiary Registrants participate in, employee savings plans that cover substantially all U.S. employees. Most employees participate in a matching contribution formula where Duke Energy provides a matching contribution generally equal to 100 percent of employee before-tax and Roth 401(k) contributions, and, as applicable, after-tax contributions, of up to 6 percent of eligible pay per pay period. Dividends on Duke Energy shares held by the savings plans are charged to retained earnings when declared and shares held in the plans are considered outstanding in the calculation of basic and diluted earnings per share.
As of January 1, 2014, for new and rehired non-union and certain unionized employees who are not eligible to participate in Duke Energy’s defined benefit plans, an additional employer contribution of 4 percent of eligible pay per pay period, which is subject to a three-year vesting schedule, is provided to the employee’s savings plan account.
The following table includes pretax employer matching contributions made by Duke Energy and expensed by the Subsidiary Registrants.
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Years ended December 31,  
  
 
  
 
  
 
  
 
  
 
  
 
  
2014 (a)
$
143

 
$
47

 
$
43

 
$
30

 
$
14

 
$
3

 
$
7

2013
134

 
45

 
45

 
25

 
14

 
3

 
7

2012
107

 
37

 
45

 
24

 
15

 
4

 
6

(a)
For 2014, amounts include the additional employer contribution of 4 percent of eligible pay per pay period for employees not eligible to participate in a defined benefit plan.
22. INCOME TAXES
Income Tax Expense
Components of Income Tax Expense
  
Year Ended December 31, 2014
(in millions)   
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy
Progress

Duke
Energy
Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Current income taxes  
  
  
  
  
  
  
  
Federal  
$

$
161

$
(466
)
$
(184
)
$
(53
)
$
(73
)
$
(112
)
State  
56

51

(8
)
14

1

3

1

Foreign  
144







Total current income taxes  
200

212

(474
)
(170
)
(52
)
(70
)
(111
)
Deferred income taxes  
  
  
  
  
  
  
  
Federal  
1,517

407

938

436

350

113

294

State  
35

(25
)
84

25

52

1

15

Foreign  
(67
)






Total deferred income taxes (a)(b)
1,485

382

1,022

461

402

114

309

Investment tax credit amortization  
(16
)
(6
)
(8
)
(6
)
(1
)
(1
)
(1
)
Income tax expense from continuing operations  
1,669

588

540

285

349

43

197

Tax benefit from discontinued operations  
(295
)

(4
)


(300
)

Total income tax expense included in Consolidated Statements of Operations  
$
1,374

$
588

$
536

$
285

$
349

$
(257
)
$
197

(a)
There were no benefits of net operating loss (NOL) carryforwards.
(b)
Includes utilization of NOL and tax credit carryforwards of $1,544 million at Duke Energy, $345 million at Duke Energy Carolinas, $530 million at Progress Energy, $291 million at Duke Energy Progress, $64 million at Duke Energy Florida, $56 million at Duke Energy Ohio and $141 million at Duke Energy Indiana.

227


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
Year Ended December 31, 2013
(in millions)   
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy
Progress

Duke
Energy
Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Current income taxes  
  
  
  
  
  
  
  
Federal  
$
(141
)
$
49

$
(221
)
$
(70
)
$
(143
)
$
(24
)
$
(88
)
State  
(40
)
11

(37
)
(10
)
(13
)
(4
)
7

Foreign  
151







Total current income taxes  
(30
)
60

(258
)
(80
)
(156
)
(28
)
(81
)
Deferred income taxes  
  
  
  
  
  
  
  
Federal  
1,092

464

555

316

326

65

276

State  
144

75

84

59

44

6

29

Foreign  
14







Total deferred income taxes (a)
1,250

539

639

375

370

71

305

Investment tax credit amortization  
(15
)
(5
)
(8
)
(7
)
(1
)

(1
)
Income tax expense from continuing operations  
1,205

594

373

288

213

43

223

Tax expense from discontinued operations  
29


(26
)


32


Total income tax expense included in Consolidated Statements of Operations  
$
1,234

$
594

$
347

$
288

$
213

$
75

$
223

(a)
Includes benefits of NOL carryforwards of $808 million at Duke Energy, $458 million at Progress Energy, $64 million at Duke Energy Progress, $301 million at Duke Energy Florida and $179 million at Duke Energy Indiana.
  
Year Ended December 31, 2012
(in millions)   
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy
Progress

Duke
Energy
Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Current income taxes  
  
  
  
  
  
  
  
Federal  
$
(108
)
$
(1
)
$
(88
)
$
(48
)
$
6

$
(8
)
$
(27
)
State  
29

(25
)
2

(6
)

5

27

Foreign  
133







Total current income taxes  
54

(26
)
(86
)
(54
)
6

(3
)

Deferred income taxes  
  
  
  
  
  
  
  
Federal  
491

408

226

162

121

40

(47
)
State  
71

77

40

9

21

(2
)
(25
)
Foreign  
20







Total deferred income taxes (a)
582

485

266

171

142

38

(72
)
Investment tax credit amortization  
(13
)
(6
)
(8
)
(7
)
(1
)
(2
)
(1
)
Income tax expense (benefit) from continuing operations  
623

453

172

110

147

33

(73
)
Tax benefit from discontinued operations  
107


29



65


Total income tax expense (benefit) included in Consolidated Statements of Operations  
$
730

$
453

$
201

$
110

$
147

$
98

$
(73
)
(a)
Includes benefits of NOL carryforwards of $1,062 million at Duke Energy, $245 million at Duke Energy Carolinas, $357 million at Progress Energy, $257 million at Duke Energy Progress, $25 million at Duke Energy Florida, $34 million at Duke Energy Ohio and $205 million at Duke Energy Indiana.
Duke Energy Income from Continuing Operations before Income Taxes
  
Years Ended December 31,
(in millions)
2014
 
2013
 
2012
Domestic
$
3,600

 
$
3,183

 
$
1,600

Foreign
534

 
612

 
634

Income from continuing operations before income taxes
$
4,134

 
$
3,795

 
$
2,234


228


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Statutory Rate Reconciliation
The following tables present a reconciliation of income tax expense at the U.S. federal statutory tax rate to the actual tax expense from continuing operations.
  
Year Ended December 31, 2014
(in millions)
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy
Progress

Duke
Energy
Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Income tax expense, computed at the statutory rate of 35 percent
$
1,447

$
581

$
497

$
263

$
314

$
39

$
195

State income tax, net of federal income tax effect
59

17

49

25

34

3

10

Tax differential on foreign earnings (a)
(110
)






AFUDC equity income
(47
)
(32
)
(9
)
(9
)

(1
)
(5
)
Renewable energy production tax credits
(67
)






International tax dividend
373







Other items, net
14

22

3

6

1

2

(3
)
Income tax expense from continuing operations
$
1,669

$
588

$
540

$
285

$
349

$
43

$
197

Effective tax rate
40.4
%
35.4
%
38.0
%
37.9
%
38.9
%
38.9
%
35.5
%
(a)
Includes a $57 million benefit as a result of the merger of two Chilean subsidiaries and a change in income tax rates in various countries primarily relating to Peru.
During the fourth quarter of 2014, Duke Energy declared a taxable dividend of foreign earnings in the form of notes payable that will result in the repatriation of approximately $2.7 billion of cash held and expected to be generated by International Energy over a period of up to 8 years . As a result of the decision to repatriate all cumulative historical undistributed foreign earnings, during the fourth quarter of 2014, Duke Energy recorded U.S. income tax expense of approximately $373 million . Duke Energy’s intention is to indefinitely reinvest prospective undistributed earnings generated by Duke Energy's foreign subsidiaries, and accordingly U.S. deferred taxes will not be provided for those earnings.
  
Year Ended December 31, 2013
(in millions)
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy
Progress

Duke
Energy
Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Income tax expense, computed at the statutory rate of 35 percent
$
1,328

$
549

$
361

$
276

$
188

$
39

$
203

State income tax, net of federal income tax effect
66

56

31

31

20

2

23

Tax differential on foreign earnings
(49
)






AFUDC equity income
(55
)
(32
)
(18
)
(15
)
(3
)

(5
)
Renewable energy production tax credits
(62
)






Other items, net
(23
)
21

(1
)
(4
)
8

2

2

Income tax expense (benefit) from continuing operations
$
1,205

$
594

$
373

$
288

$
213

$
43

$
223

Effective tax rate
31.8
%
37.8
%
36.2
%
36.5
%
39.6
%
39.1
%
38.4
%
  
Year Ended December 31, 2012
(in millions)
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy
Progress

Duke
Energy
Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Income tax expense, computed at the statutory rate of 35 percent
$
782

$
461

$
185

$
134

$
145

$
27

$
(43
)
State income tax, net of federal income tax effect
65

34

33

1

14

2

1

Tax differential on foreign earnings
(69
)






AFUDC equity income
(101
)
(54
)
(37
)
(24
)
(13
)
(2
)
(26
)
Renewable energy production tax credits
(25
)






Other items, net
(29
)
12

(9
)
(1
)
1

6

(5
)
Income tax expense from continuing operations
$
623

$
453

$
172

$
110

$
147

$
33

$
(73
)
Effective tax rate
27.9
%
34.3
%
32.7
%
28.7
%
35.7
%
42.9
%
59.5
%

229


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

Valuation allowances have been established for certain foreign and state NOL carryforwards and state income tax credits that reduce deferred tax assets to an amount that will be realized on a more-likely-than-not basis. The net change in the total valuation allowance is included in Tax differential on foreign earnings and State income tax, net of federal income tax effect in the above tables.
DEFERRED TAXES
Net Deferred Income Tax Liability Components
  
December 31, 2014
(in millions)  
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy
Progress

Duke
Energy
Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Deferred credits and other liabilities  
$
188

$
53

$
108

$
28

$
78

$
(8
)
$
12

Capital lease obligations  
63

10





2

Pension, postretirement and other employee benefits  
546

4

188

96

93

17

43

Progress Energy merger purchase accounting adjustments (a)
1,124







Tax credits and NOL carryforwards  
3,540

157

980

91

252

38

260

Investments and other assets





14


Other  

12


55


35

11

Valuation allowance  
(184
)

(13
)
(1
)



Total deferred income tax assets  
5,277

236

1,263

269

423

96

328

Investments and other assets  
(1,625
)
(1,051
)
(427
)
(232
)
(245
)

(4
)
Accelerated depreciation rates  
(11,715
)
(4,046
)
(3,284
)
(2,030
)
(1,252
)
(1,660
)
(1,603
)
Regulatory assets and deferred debits  
(3,694
)
(953
)
(1,602
)
(809
)
(792
)
(141
)
(106
)
Other
(44
)

(151
)

(246
)


Total deferred income tax liabilities  
(17,078
)
(6,050
)
(5,464
)
(3,071
)
(2,535
)
(1,801
)
(1,713
)
Net deferred income tax liabilities  
$
(11,801
)
$
(5,814
)
$
(4,201
)
$
(2,802
)
$
(2,112
)
$
(1,705
)
$
(1,385
)
(a)
Primarily related to capital lease obligations and debt fair value adjustments.
On July 23, 2013, HB 998 was signed into law. HB 998 reduces the North Carolina corporate income tax rate from a statutory 6.9 percent to 6.0 percent in January 2014 with a further reduction to 5.0 percent in January 2015. Duke Energy recorded a net reduction of approximately $145 million to its North Carolina deferred tax liability in the third quarter of 2013. The significant majority of this deferred tax liability reduction was offset by recording a regulatory liability pending NCUC determination of the disposition of the amounts related to Duke Energy Carolinas and Duke Energy Progress. The impact of HB 998 did not have a significant impact on the financial position, results of operation, or cash flows of Duke Energy, Duke Energy Carolinas, Progress Energy or Duke Energy Progress.
The following table presents the expiration of tax credits and NOL carryforwards.
  
December 31, 2014
(in millions)   
Amount

 
Expiration Year
Investment tax credits  
$
581

 
2029
 
 
2034
Alternative minimum tax credits  
1,093

 
Indefinite
Federal NOL carryforwards  
749

 
2030
 
 
2033
State NOL carryforwards and credits (a)
162

 
2015
 
 
2034
Foreign NOL carryforwards (b)
117

 
2015
 
 
2033
Foreign Tax Credits
838

 
2024
 
 
 
 
Total tax credits and NOL carryforwards  
$
3,540

 
  
 
  
 
  
(a)
A valuation allowance of $79 million has been recorded on the state Net Operating Loss carryforwards, as presented in the Net Deferred Income Tax Liability Components table.
(b)
A valuation allowance of $105 million has been recorded on the foreign Net Operating Loss carryforwards, as presented in the Net Deferred Income Tax Liability Components table.

230


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

  
December 31, 2013
(in millions)  
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy
Progress

Duke
Energy
Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Deferred credits and other liabilities  
$
245

$
56

$
136

$
9

$
96

$
(13
)
$
9

Capital lease obligations  
59

11





(2
)
Pension, postretirement and other employee benefits  
649

18

341

119

145

23

54

Progress Energy merger purchase accounting adjustments (a)
1,184







Tax credits and NOL carryforwards  
4,307

488

1,965

396

365

165

521

Other  
265

15

116

39

43

20

14

Valuation allowance  
(192
)

(40
)
(1
)



Total deferred income tax assets  
6,517

588

2,518

562

649

195

596

Investments and other assets  
(1,396
)
(999
)
(209
)
(160
)
(49
)
(17
)
(7
)
Accelerated depreciation rates  
(12,615
)
(4,400
)
(3,663
)
(2,528
)
(1,160
)
(1,937
)
(1,591
)
Regulatory assets and deferred debits  
(3,185
)
(609
)
(1,389
)
(202
)
(1,159
)
(168
)
(117
)
Total deferred income tax liabilities  
(17,196
)
(6,008
)
(5,261
)
(2,890
)
(2,368
)
(2,122
)
(1,715
)
Net deferred income tax liabilities  
$
(10,679
)
$
(5,420
)
$
(2,743
)
$
(2,328
)
$
(1,719
)
$
(1,927
)
$
(1,119
)
(a)
Primarily related to capital lease obligations and debt fair value adjustments.
Classification of Deferred Tax Assets (Liabilities) in the Consolidated Balance Sheets
  
December 31, 2014
(in millions)
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy Progress

Duke
Energy Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Current Assets: Other
$
1,593

$
3

$
558

$
106

$
340

$
60

$
206

Investments and Other Assets: Other
29







Current Liabilities: Other

(5
)





Deferred Credits and Other Liabilities: Other
(13,423
)
(5,812
)
(4,759
)
(2,908
)
(2,452
)
(1,765
)
(1,591
)
Net deferred income tax liabilities
$
(11,801
)
$
(5,814
)
$
(4,201
)
$
(2,802
)
$
(2,112
)
$
(1,705
)
$
(1,385
)
  
December 31, 2013
(in millions)
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy Progress

Duke
Energy Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Current Assets: Other
$
1,373

$
286

$
540

$
229

$
110

$
85

$
52

Investments and Other Assets: Other
45







Deferred Credits and Other Liabilities: Other
(12,097
)
(5,706
)
(3,283
)
(2,557
)
(1,829
)
(2,012
)
(1,171
)
Net deferred income tax liabilities
$
(10,679
)
$
(5,420
)
$
(2,743
)
$
(2,328
)
$
(1,719
)
$
(1,927
)
$
(1,119
)

231


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

UNRECOGNIZED TAX BENEFITS
The following tables present changes to unrecognized tax benefits.
  
Year Ended December 31, 2014
(in millions)
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy
Progress

Duke
Energy
Florida

Duke
Energy
Indiana

Unrecognized tax benefits — January 1
$
230

$
171

$
32

$
22

$
8

$
1

Unrecognized tax benefits increases (decreases)
 
 
 
 
 
 
Gross increases — tax positions in prior periods


1

1



Gross decreases — tax positions in prior periods
(2
)





Decreases due to settlements
(15
)
(11
)
(1
)



Total changes
(17
)
(11
)

1



Unrecognized tax benefits — December 31
$
213

$
160

$
32

$
23

$
8

$
1

  
Year Ended December 31, 2013
(in millions)
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy Progress

Duke
Energy Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Unrecognized tax benefits — January 1
$
540

$
271

$
131

$
67

$
44

$
36

$
32

Unrecognized tax benefits (decreases) increases
 
 
 
 
 
 
 
Gross decreases — tax positions in prior periods
(231
)
(100
)
(86
)
(45
)
(37
)
(36
)
(31
)
Decreases due to settlements
(66
)






Reduction due to lapse of statute of limitations
(13
)

(13
)

1



Total changes
(310
)
(100
)
(99
)
(45
)
(36
)
(36
)
(31
)
Unrecognized tax benefits — December 31
$
230

$
171

$
32

$
22

$
8

$

$
1

  
Year Ended December 31, 2012
(in millions)
Duke Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy Progress

Duke
Energy Florida

Duke
Energy
Ohio

Duke
Energy
Indiana

Unrecognized tax benefits — January 1
$
385

$
260

$
173

$
73

$
80

$
32

$
24

Acquisitions
128







Unrecognized tax benefits increases (decreases)
 
 
 
 
 
 
 
Gross increases — tax positions in prior periods
29

12

23

10

12

2

6

Gross decreases — tax positions in prior periods
(4
)

(72
)
(19
)
(52
)


Gross increases — current period tax positions
28

15

8

4

4

4

4

Gross decreases — current period tax positions
(9
)
(5
)
(1
)
(1
)

(2
)
(2
)
Decreases due to settlements
(13
)
(11
)





Reduction due to lapse of statute of limitations
(4
)






Total changes
155

11

(42
)
(6
)
(36
)
4

8

Unrecognized tax benefits — December 31
$
540

$
271

$
131

$
67

$
44

$
36

$
32


232


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following table includes additional information regarding the Duke Energy Registrants' unrecognized tax benefits. It is reasonably possible that Duke Energy and Progress Energy will reflect an approximate $28 million reduction, Duke Energy Progress will reflect an approximate $17 million reduction, and Duke Energy Florida will reflect an approximate $7 million reduction in unrecognized tax benefits within the next 12 months due to the expected lapse of the statute of limitations. All other Duke Energy Registrants do not anticipate a material increase or decrease in unrecognized tax benefits within the next 12 months .
  
December 31, 2014
(in millions)  
Duke
Energy

Duke
Energy
Carolinas

Progress Energy

Duke
Energy Progress

Duke
 Energy Florida

Duke
Energy
Indiana

Amount that if recognized, would affect the
  effective tax rate or regulatory liability (a)
$
121

$
112

$
3

$
2

$
2

$
2

Amount that if recognized, would be recorded as a component
  of discontinued operations  
8






(a)
Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana are unable to estimate the specific amounts that would affect the effective tax rate versus the regulatory liability.
OTHER TAX MATTERS
The following tables include interest recognized in the Consolidated Statements of Operations and the Consolidated Balance Sheets.
  
Year Ended December 31, 2014
(in millions)
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Net interest income recognized related to income taxes
$
6

$

$
3

$

$
1

$
4

$
4

Net interest expense recognized related to income taxes

1


1




Interest receivable related to income taxes






2

Interest payable related to income taxes
13

13

5

3

5



  
Year Ended December 31, 2013
(in millions)
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Net interest income recognized related to income taxes
$
2

$
2

6

7


4

$
1

Interest payable related to income taxes
27

8

10

2

7



  
Year Ended December 31, 2012
(in millions)
Duke Energy

Duke Energy Carolinas

Progress Energy

Duke Energy Progress

Duke Energy Florida

Duke Energy Ohio

Duke Energy Indiana

Net interest income recognized related to income taxes
$
10

$
9

$

$

$


2

Net interest expense recognized related to income taxes


2


2



Interest receivable related to income taxes

7






Interest payable related to income taxes
7


17

8

9

3

1

 
Duke Energy and its subsidiaries are no longer subject to U.S. federal examination for years before 2008. The years 2008 through 2011 are in Appeals. The IRS is currently auditing the federal income tax returns for years 2012 and 2013. With few exceptions, Duke Energy and its subsidiaries are no longer subject to state, local or non-U.S. income tax examinations by tax authorities for years before 2004.

233


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

23. OTHER INCOME AND EXPENSES, NET
The components of Other income and expenses, net on the Consolidated Statements of Operations are as follows.
  
Year Ended December 31, 2014
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Interest income  
$
57

 
$
4

 
$
3

 
$

 
$
2

 
$
8

 
$
6

Foreign exchange gains  
3

 

 

 

 

 

 

AFUDC equity  
135

 
91

 
26

 
25

 

 
4

 
14

Deferred returns  
89

 
71

 
17

 
17

 

 

 

Other income (expense)  
67

 
6

 
31

 
9

 
18

 
(2
)
 
2

Other income and expense, net  
$
351

 
$
172

 
$
77

 
$
51

 
$
20

 
$
10

 
$
22

  
Year Ended December 31, 2013
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Interest income  
$
26

 
$
1

 
$
7

 
$
1

 
$
3

 
$
5

 
$
6

Foreign exchange losses   
(18
)
 

 

 

 

 

 

AFUDC equity  
157

 
91

 
50

 
42

 
8

 
1

 
15

Deferred returns  
39

 
32

 
7

 
7

 

 

 

Other income (expense)  
58

 
(4
)
 
30

 
7

 
19

 
(4
)
 
(3
)
Other income and expense, net  
$
262

 
$
120

 
$
94

 
$
57

 
$
30

 
$
2

 
$
18

  
Year Ended December 31, 2012
(in millions)  
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Interest income  
$
50

 
$
11

 
$
2

 
$
1

 
$
1

 
$

 
$
7

Foreign exchange gains
4

 

 

 

 

 

 

AFUDC equity  
300

 
154

 
106

 
69

 
37

 
6

 
84

Deferred returns  
24

 
24

 

 

 

 

 

Other income (expense)  
19

 
(4
)
 
22

 
9

 
1

 
2

 
(1
)
Other income and expense, net  
$
397

 
$
185

 
$
130

 
$
79

 
$
39

 
$
8

 
$
90


24. SUBSEQUENT EVENTS
For information on subsequent events related to acquisitions, dispositions and sales of other assets, regulatory matters, commitments and contingencies, and debt and credit facilities, see Notes 2 , 4 , 5 and 6 .

234


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

25. QUARTERLY FINANCIAL DATA (UNAUDITED)
DUKE ENERGY
Quarterly EPS amounts are meant to be stand-alone calculations and are not always additive to the full-year amount due to rounding and the weighting of share issuances.
(in millions, except per share data)  
First
Quarter (a)

 
Second
Quarter (a)

 
Third
Quarter (a)

 
Fourth
Quarter (a)

 
Total

2014
  
 
  
 
  
 
  
 
  
Operating revenues  
$
6,263

 
$
5,708

 
$
6,395

 
$
5,559

 
$
23,925

Operating income  
1,362

 
1,289

 
1,619

 
988

 
5,258

Income from continuing operations  
750

 
725

 
891

 
99

 
2,465

(Loss) income from discontinued operations, net of tax
(843
)
 
(112
)
 
378

 
1

 
(576
)
Net loss (income)
(93
)
 
613

 
1,269

 
100

 
1,889

Net loss (income) attributable to Duke Energy Corporation  
(97
)
 
609

 
1,274

 
97

 
1,883

Earnings per share:  
  
 
  
 
  
 
  
 
  
Income from continuing operations attributable to Duke Energy Corporation common shareholders  
  
 
  
 
  
 
  
 
  
Basic  
$
1.05

 
$
1.02

 
$
1.25

 
$
0.14

 
$
3.46

Diluted  
$
1.05

 
$
1.02

 
$
1.25

 
$
0.14

 
$
3.46

(Loss) income from discontinued operations attributable to Duke Energy Corporation common shareholders
 
 
 
 
 
 
 
 
 
Basic
$
(1.19
)
 
$
(0.16
)
 
$
0.55

 
$

 
$
(0.80
)
Diluted
$
(1.19
)
 
$
(0.16
)
 
$
0.55

 
$

 
$
(0.80
)
Net (loss) income attributable to Duke Energy Corporation common shareholders  
  
 
  
 
  
 
  
 
  
Basic  
$
(0.14
)
 
$
0.86

 
$
1.80

 
$
0.14

 
$
2.66

Diluted  
$
(0.14
)
 
$
0.86

 
$
1.80

 
$
0.14

 
$
2.66

2013
  
 
  
 
  
 
  
 
  
Operating revenues  
$
5,536

 
$
5,393

 
$
6,217

 
$
5,610

 
$
22,756

Operating income  
1,259

 
742

 
1,660

 
1,193

 
4,854

Income from continuing operations  
663

 
292

 
946

 
689

 
2,590

(Loss) income from discontinued operations, net of tax
(29
)
 
50

 
62

 
3

 
86

Net income  
634

 
342

 
1,008

 
692

 
2,676

Net income attributable to Duke Energy Corporation  
634

 
339

 
1,004

 
688

 
2,665

Earnings per share:  
  
 
  
 
  
 
  
 
  
Income from continuing operations attributable to Duke Energy Corporation common shareholders  
  
 
  
 
  
 
  
 
  
Basic  
$
0.93

 
$
0.40

 
$
1.33

 
$
0.96

 
$
3.64

Diluted  
$
0.93

 
$
0.40

 
$
1.33

 
$
0.96

 
$
3.63

(Loss) income from discontinued operations attributable to Duke Energy Corporation common shareholders
 
 
 
 
 
 
 
 
 
Basic
$
(0.04
)
 
$
0.08

 
$
0.09

 
$
0.01

 
$
0.13

Diluted
$
(0.04
)
 
$
0.08

 
$
0.09

 
$
0.01

 
$
0.13

Net income attributable to Duke Energy Corporation common shareholders  
  
 
  
 
  
 
  
 
  
Basic  
$
0.89

 
$
0.48

 
$
1.42

 
$
0.97

 
$
3.77

Diluted  
$
0.89

 
$
0.48

 
$
1.42

 
$
0.97

 
$
3.76

(a)
Operating results reflect reclassifications due to the impact of discontinued operations (see Note 2 for further information).


235


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax unless otherwise noted.
(in millions)   
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014 
  
 
  
 
  
 
  
 
  
Costs to achieve Progress Energy merger (see Note 2)  
$
(55
)
 
$
(61
)
 
$
(56
)
 
$
(33
)
 
$
(205
)
Midwest Generation Impairment (see Note 2)  
(1,287
)
 

 
477

 
(39
)
 
(849
)
Coal ash Plea Agreements Reserve (see Note 5)

 

 

 
(102
)
 
(102
)
International Tax Adjustment (see Note 22)

 

 

 
(373
)
 
(373
)
Asset Impairment (see Note 11)
(94
)
 

 

 

 
(94
)
Total  
$
(1,436
)
 
$
(61
)
 
$
421

 
$
(547
)
 
$
(1,623
)
2013 (a)
  
 
  
 
  
 
  
 
  

Costs to achieve Progress Energy merger (see Note 2)  
$
(55
)
 
$
(82
)
 
$
(88
)
 
$
(72
)
 
$
(297
)
Crystal River Unit 3 charges (see Note 4)

 
(295
)
 

 
(57
)
 
(352
)
Harris and Levy nuclear development charges (see Note 4)

 
(87
)
 

 

 
(87
)
Gain on sale of DukeNet (see Note 12)

 

 

 
105

 
105

Total  
$
(55
)
 
$
(464
)
 
$
(88
)
 
$
(24
)
 
$
(631
)
(a)
Revised retail rates became effective in January for Duke Energy Florida, May for Duke Energy Ohio, June for Duke Energy Progress and September for Duke Energy Carolinas (see Note 4 for further information).
DUKE ENERGY CAROLINAS
(in millions)
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014
  
 
  
 
  
 
  
 
  
Operating revenues
$
2,000

 
$
1,755

 
$
1,938

 
$
1,658

 
$
7,351

Operating income
509

 
438

 
630

 
318

 
1,895

Net income
286

 
270

 
377

 
139

 
1,072

2013
  
 
  
 
  
 
  
 
  
Operating revenues
$
1,729

 
$
1,591

 
$
1,919

 
$
1,715

 
$
6,954

Operating income
434

 
351

 
604

 
420

 
1,809

Net income
244

 
181

 
342

 
209

 
976

The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax unless otherwise noted.
(in millions)   
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014
  
 
  
 
  
 
  
 
  
Costs to achieve Progress Energy merger (see Note 2)  
$
(29
)
 
$
(38
)
 
$
(25
)
 
$
(17
)
 
$
(109
)
Coal ash Plea Agreements Reserve (see Note 5)

 

 

 
(72
)
 
(72
)
Total
(29
)
 
(38
)
 
(25
)
 
(89
)
 
(181
)
2013 ( a)
  
 
  
 
  
 
  
 
  
Costs to achieve Progress Energy merger (see Note 2)  
$
(22
)
 
$
(35
)
 
$
(34
)
 
$
(29
)
 
$
(120
)
(a)
Revised retail rates became effective in September in both North Carolina and South Carolina (see Note 4 for further information).

236


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

PROGRESS ENERGY
(in millions)  
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014
  
 
  
 
  
 
  
 
  
Operating revenues  
$
2,541

 
$
2,421

 
$
2,863

 
$
2,341

 
$
10,166

Operating income  
477

 
488

 
665

 
388

 
2,018

Income from continuing operations  
204

 
207

 
330

 
139

 
880

Net income
203

 
202

 
330

 
139

 
874

Net income attributable to Parent  
202

 
202

 
329

 
136

 
869

2013
  
 
  
 
  
 
  
 
  
Operating revenues  
$
2,186

 
$
2,281

 
$
2,766

 
$
2,300

 
$
9,533

Operating income  
430

 
114

 
671

 
403

 
1,618

Income (loss) from continuing operations  
154

 
(13
)
 
328

 
190

 
659

Net income (loss)
154

 
(17
)
 
342

 
196

 
675

Net income (loss) attributable to Parent  
153

 
(17
)
 
341

 
195

 
672

The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax unless otherwise noted.
(in millions)   
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014
  
 
  
 
  
 
  
 
  
Costs to achieve the merger with Duke Energy (see Note 2)  
$
(19
)
 
$
(12
)
 
$
(21
)
 
$
(13
)
 
$
(65
)
Coal ash Plea Agreements Reserve (see Note 5)

 

 

 
(30
)
 
(30
)
Total
(19
)
 
(12
)
 
(21
)
 
(43
)
 
(95
)
2013 ( a)
  
 
  
 
  
 
  
 
  

Costs to achieve the merger with Duke Energy (see Note 2)  
$
(19
)
 
$
(33
)
 
$
(42
)
 
$
(28
)
 
$
(122
)
Crystal River Unit 3 charges (see Note 4)

 
(295
)
 

 
(57
)
 
(352
)
Harris and Levy nuclear development charges (see Note 4)

 
(87
)
 

 

 
(87
)
Total  
$
(19
)
 
$
(415
)
 
$
(42
)
 
$
(85
)
 
$
(561
)
(a)
Revised retail rates became effective in January in Florida and June in North Carolina (see Note 4 for further information).
DUKE ENERGY PROGRESS
(in millions)
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014
  
 
  
 
  
 
  
 
  
Operating revenues
$
1,422

 
$
1,191

 
$
1,367

 
$
1,196

 
$
5,176

Operating income
258

 
212

 
285

 
180

 
935

Net income
133

 
101

 
157

 
76

 
467

2013
  
 
  
 
  
 
  
 
  
Operating revenues
$
1,216

 
$
1,135

 
$
1,430

 
$
1,211

 
$
4,992

Operating income
212

 
166

 
303

 
251

 
932

Net income
110

 
77

 
175

 
138

 
500

The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax unless otherwise noted.
(in millions)   
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014
  
 
  
 
  
 
  
 
  
Costs to achieve the merger with Duke Energy (see Note 2)  
$
(14
)
 
$
(3
)
 
$
(15
)
 
$
(10
)
 
$
(42
)
Coal ash Plea Agreements Reserve (see Note 5)

 

 

 
(30
)
 
(30
)
Total
(14
)

(3
)

(15
)

(40
)

(72
)
2013 (a)
  
 
  
 
  
 
  
 
  
Costs to achieve the merger with Duke Energy (see Note 2)  
$
(11
)
 
$
(22
)
 
$
(32
)
 
$
(19
)
 
$
(84
)
Harris nuclear development charges (see Note 4)
$

 
$
(22
)
 
$

 
$

 
$
(22
)
Total
$
(11
)
 
$
(44
)
 
$
(32
)
 
$
(19
)
 
$
(106
)

237


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

(a)
Revised retail rates became effective in June in North Carolina (see Note 4 for further information).
DUKE ENERGY FLORIDA
(in millions)
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014
  
 
  
 
  
 
  
 
  
Operating revenues
$
1,116

 
$
1,225

 
$
1,491

 
$
1,143

 
$
4,975

Operating income
219

 
276

 
378

 
205

 
1,078

Net income
108

 
142

 
205

 
93

 
548

2013
  
 
  
 
  
 
  
 
  
Operating revenues
$
968

 
$
1,142

 
$
1,332

 
$
1,085

 
$
4,527

Operating income (loss)
221

 
(53
)
 
369

 
151

 
688

Net income (loss)
110

 
(57
)
 
197

 
75

 
325

The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax unless otherwise noted.
(in millions)   
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014
  
 
  
 
  
 
  
 
  
Costs to achieve the merger with Duke Energy (see Note 2)  
$
(5
)
 
$
(9
)
 
$
(6
)
 
$
(3
)
 
$
(23
)
2013 (a)
  
 
  
 
  
 
  
 
  
Costs to achieve the merger with Duke Energy (see Note 2)  
$
(8
)
 
$
(11
)
 
$
(10
)
 
$
(9
)
 
$
(38
)
Crystal River Unit 3 charges (see Note 4)

 
(295
)
 

 
(57
)
 
(352
)
Levy nuclear development charges (see Note 4)

 
(65
)
 

 

 
(65
)
Total  
$
(8
)
 
$
(371
)
 
$
(10
)
 
$
(66
)
 
$
(455
)
(a)
Revised retail rates became effective in January (see Note 4 for further information).
DUKE ENERGY OHIO
(in millions)
First
Quarter (a)

 
Second
Quarter (a)

 
Third
Quarter (a)

 
Fourth
Quarter (a)

 
Total

2014
  
 
  
 
  
 
  
 
  
Operating revenues
$
575

 
$
412

 
$
446

 
$
480

 
$
1,913

Operating (loss) income
(7
)
 
62

 
58

 
74

 
187

(Loss) income from discontinued operations, net of tax
(875
)
 
(135
)
 
413

 
34

 
(563
)
Net (loss) income
(890
)
 
(108
)
 
439

 
64

 
(495
)
2013
  
 
  
 
  
 
  
 
  
Operating revenues
$
503

 
$
408

 
$
438

 
$
456

 
$
1,805

Operating income
56

 
27

 
50

 
49

 
182

(Loss) income from discontinued operations, net of tax
(47
)
 
51

 
35

 
(4
)
 
35

Net (loss) income
(21
)
 
58

 
59

 
6

 
102

(a)
Operating results reflect reclassifications due to the impact of discontinued operations (see Note 2 for further information).

The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax unless otherwise noted.
(in millions)   
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014
  
 
  
 
  
 
  
 
  
Costs to achieve Progress Energy merger (see Note 2)  
$
(2
)
 
$
(4
)
 
$
(3
)
 
$
(2
)
 
$
(11
)
Midwest Generation Impairment (see Note 2)
(1,318
)
 

 
477

 
(39
)
 
(880
)
Asset Impairment (see Note 11)
(94
)
 

 

 

 
(94
)
Total
$
(1,414
)
 
$
(4
)
 
$
474

 
$
(41
)
 
$
(985
)
2013 (a)
  
 
  
 
  
 
  
 
  
Costs to achieve Progress Energy merger (see Note 2)  
$
(4
)
 
$
(4
)
 
$
(4
)
 
$
(4
)
 
$
(16
)
(a)
Revised retail rates became effective in May (see Note 4 for further information).

238


PART II
DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - PROGRESS ENERGY, INC. –
DUKE ENERGY PROGRESS, INC. – DUKE ENERGY FLORIDA, INC. - DUKE ENERGY OHIO, INC. - DUKE ENERGY INDIANA, INC.
Combined Notes To Consolidated Financial Statements – (Continued)

DUKE ENERGY INDIANA
(in millions)
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014
  
 
  
 
  
 
  
 
  
Operating revenues
$
845

 
$
748

 
$
790

 
$
792

 
$
3,175

Operating income
215

 
178

 
182

 
130

 
705

Net income
113

 
87

 
101

 
58

 
359

2013
  
 
  
 
  
 
  
 
  
Operating revenues
$
724

 
$
700

 
$
755

 
$
747

 
$
2,926

Operating income
181

 
168

 
203

 
181

 
733

Net income
90

 
82

 
104

 
82

 
358

The following table includes unusual or infrequently occurring items in each quarter during the two most recently completed fiscal years. All amounts discussed below are pretax unless otherwise noted.
(in millions)   
First
Quarter

 
Second
Quarter

 
Third
Quarter

 
Fourth
Quarter

 
Total

2014
  
 
  
 
  
 
  
 
  
Costs to achieve Progress Energy merger (see Note 2)  
$
(2
)
 
$
(5
)
 
$
(3
)
 
$
(2
)
 
$
(12
)
2013
  
 
  
 
  
 
  
 
  
Costs to achieve Progress Energy merger (see Note 2)  
$
(4
)
 
$
(5
)
 
$
(5
)
 
$
(5
)
 
$
(19
)

239


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 the Duke Energy Registrants in the reports they file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported, within the time periods specified by the SEC rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated the effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2014 , 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, the Duke Energy Registrants have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended December 31, 2014 and have concluded 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
The Duke Energy Registrants’ 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). The Duke Energy Registrants’ 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 in the United States. Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of the internal control over financial reporting 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.
The Duke Energy Registrants’ management, including their Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of their internal control over financial reporting as of December 31, 2014 based on the framework in the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management concluded that its internal controls over financial reporting were effective as of December 31, 2014 .
Deloitte & Touche LLP, Duke Energy’s independent registered public accounting firm, has issued an attestation report on the effectiveness of Duke Energy’s internal control over financial reporting.

240


PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Duke Energy will provide information that is responsive to this Item 10 in its definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated in this Item 10 by reference.
ITEM 11. EXECUTIVE COMPENSATION
 
Duke Energy will provide information that is responsive to this Item 11 in its definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated in this Item 11 by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
Duke Energy will provide information that is responsive to this Item 12 in its definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated in this Item 12 by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Duke Energy will provide information that is responsive to this Item 13 in its definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated in this Item 13 by reference.
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 the Duke Energy Registrants. The following tables present the Deloitte fees for services rendered to the Duke Energy Registrants during 2014 and 2013 .
  
Year Ended December 31, 2014
(in millions)   
Duke Energy   

 
Duke Energy Carolinas

 
Progress Energy   

 
Duke Energy Progress   

 
Duke Energy Florida   

 
Duke Energy Ohio

 
Duke Energy Indiana

Types of Fees   
  
 
  
 
  
 
  
 
  
 
  
 
  
Audit Fees (a)
$
12.0

 
$
4.2

 
$
4.6

 
$
2.6

 
$
2.0

 
$
1.2

 
$
1.2

Audit-Related Fees (b)
4.2

 
0.1

 
0.1

 
0.1

 

 
2.6

 

Tax Fees (c)
0.7

 
0.3

 
0.3

 
0.2

 
0.1

 
0.1

 
0.1

Total Fees  
$
16.9

 
$
4.6

 
$
5.0

 
$
2.9

 
$
2.1

 
$
3.9

 
$
1.3

  
Year Ended December 31, 2013
(in millions)   
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Types of Fees   
  
 
  
 
  
 
  
 
  
 
  
 
  
Audit Fees (a)
$
11.5

 
$
4.1

 
$
4.3

 
$
2.5

 
$
1.8

 
$
1.3

 
$
1.2

Audit-Related Fees (b)
2.3

 
0.4

 
0.2

 
0.1

 
0.1

 

 

Tax Fees (c)
0.5

 
0.2

 
0.2

 
0.1

 
0.1

 
0.1

 
0.1

Total Fees  
$
14.3

 
$
4.7

 
$
4.7

 
$
2.7

 
$
2.0

 
$
1.4

 
$
1.3

(a)
Audit Fees are fees billed or expected to be billed for professional services for the audit of the Duke Energy Registrants’ financial statements included in the annual report on Form 10-K and the review of financial statements included in quarterly reports on
Form 10-Q, for services that are normally provided by Deloitte in connection with statutory, regulatory or other filings or engagements or for any other service performed by Deloitte to comply with generally accepted auditing standards.
(b)
Audit-Related Fees are fees for assurance and related services that are reasonably related to the performance of an audit or review of financial statements, including assistance with acquisitions and divestitures and internal control reviews.
(c)
Tax Fees are fees for tax return assistance and preparation, tax examination assistance, and professional services related to tax planning and tax strategy.

241


PART III

To safeguard the continued independence of the independent auditor, the Audit Committee of the Board of Directors (Duke Energy Audit Committee) adopted a policy that provides the independent public auditor is only permitted to provide services to Duke Energy and its consolidated subsidiaries, including the Subsidiary Registrants 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 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 Securities and Exchange Commission’s or other applicable regulatory bodies’ rules of regulations must be specifically pre-approved by the Duke Energy Audit Committee. All services performed in in 2014 and 2013 by the independent public accountant were approved by the Duke Energy Audit Committee pursuant to their pre-approval policies.

242


PART IV


ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(a)
Consolidated Financial Statements, Supplemental Financial Data and Supplemental Schedules included in Part II of this annual report are as follows:
Duke Energy Corporation
Consolidated Financial Statements
Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2014, 2013 and 2012
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
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.
Duke Energy Carolinas, LLC
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Member’s Equity for the Years Ended December 31, 2014, 2013 and 2012
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
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.
Progress Energy, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Common Stockholder’s Equity for the Years Ended December 31, 2014, 2013 and 2012
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
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.
Duke Energy Progress, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Common Stockholder’s Equity for the Years Ended December 31, 2014, 2013 and 2012
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
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.
Duke Energy Florida, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Common Stockholder’s Equity for the Years Ended December 31, 2014, 2013 and 2012
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
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.

243


PART IV

Duke Energy Ohio, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Common Stockholder’s Equity for the Years Ended December 31, 2014, 2013 and 2012
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
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.
Duke Energy Indiana, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Common Stockholder’s Equity for the Years Ended December 31, 2014, 2013 and 2012
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
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.


244


PART IV

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2015
 
DUKE ENERGY CORPORATION
(Registrant)
 
 
By:
/s/ LYNN J. GOOD  
 
 
 
Lynn J. Good
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/ LYNN J. GOOD
 
 
 
 
 
Lynn J. Good
 
 
Vice Chairman, President and Chief Executive Officer (Principal Executive Officer and Director)
 
 
 
(ii)
/s/ STEVEN K. YOUNG
 
 
 
 
 
Steven K. Young
 
 
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
(iii)
/s/ BRIAN D. SAVOY
 
 
 
 
 
Brian D. Savoy
 
 
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
 
 
 
 
(iv)
Directors:
 
 
 
 
 
 
 
G. Alex Bernhardt, Sr.*
James B. Hyler, Jr.*
 
 
 
 
 
 
Michael G. Browning*
William E. Kennard *
 
 
 
 
 
 
Harris E. DeLoach, Jr.*
E. Marie McKee*
 
 
 
 
 
 
Daniel R. DiMicco*
Richard A. Meserve*
 
 
 
 
 
 
John H. Forsgren*
E. James Reinsch*
 
 
Ann Maynard Gray*
James T. Rhodes*
 
 
 
 
 
 
James H. Hance, Jr.*
Carlos A. Saladrigas*

 
 
 
 
 
 
John T. Herron*
 
 
Steven K. Young, by signing his name hereto, does hereby sign this document on behalf of the registrant and on behalf of each of the above-named persons previously indicated by asterisk (*) pursuant to a power of attorney duly executed by the registrant and such persons, filed with the Securities and Exchange Commission as an exhibit hereto.
 
 
 
 
By:
/s/ STEVEN K. YOUNG
 
Attorney-In-Fact
 
 
 
 
 
 
 Date: February 27, 2015

245


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: February 27, 2015
 
DUKE ENERGY CAROLINAS, LLC
(Registrant)
 
 
By:
/s/ LYNN J. GOOD  
 
 
 
Lynn J. Good
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/ LYNN J. GOOD
 
 
Lynn J. Good
 
 
Chief Executive Officer (Principal Executive Officer)
 
 
 
(ii)
/s/ STEVEN K.YOUNG 
 
 
Steven K. Young
 
 
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
(iii)
/s/ BRIAN D. SAVOY 
 
 
Brian D. Savoy
 
 
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
 
 
 
(iv)
Directors:
 
 
 
 
 
/s/ LYNN J. GOOD 
 
 
Lynn J. Good
 
 
 
 
 
/s/ B. KEITH TRENT 
 
 
B. Keith Trent
 
 
 
 
 
/s/ LLOYD M. YATES 
 
 
Lloyd M. Yates
 
Date: February 27, 2015

246


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: February 27, 2015
 
PROGRESS ENERGY, INC.
(Registrant)
 
 
By:
/s/ LYNN J. GOOD  
 
 
 
Lynn J. Good
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/ LYNN J. GOOD 
 
 
Lynn J. Good
 
 
Chief Executive Officer (Principal Executive Officer)
 
 
 
(ii)
/s/ STEVEN K. YOUNG
 
 
Steven K. Young
 
 
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
(iii)
/s/ BRIAN D. SAVOY
 
 
Brian D. Savoy
 
 
Chief Accounting Officer and Controller (Principal Accounting Officer)
 
 
 
(iv)
Directors:
 
 
 
 
 
/s/ LYNN J. GOOD
 
 
Lynn J. Good
 
 
 
 
 
/s/ JULIA S. JANSON
 
 
Julia S. Janson
 
 
 
 
 
 
 
Date: February 27, 2015


247


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: February 27, 2015
 
DUKE ENERGY PROGRESS, INC.
(Registrant)
 
 
By:
/s/ LYNN J. GOOD  
 
 
 
Lynn J. Good
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/ LYNN J. GOOD
 
 
Lynn J. Good
 
 
Chief Executive Officer (Principal Executive Officer)
 
 
 
(ii)
/s/ STEVEN K. YOUNG
 
 
Steven K. Young
 
 
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
(iii)
/s/ BRIAN D. SAVOY
 
 
Brian D. Savoy
 
 
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
 
 
 
(iv)
Directors:
 
 
 
 
 
 
 
 
/s/ LYNN J. GOOD
 
 
Lynn J. Good
 
 
 
 
 
/s/ DHIAA M. JAMIL
 
 
Dhiaa M. Jamil
 
 
 
 
 
/s/ JULIA S. JANSON
 
 
Julia S. Janson
 
 
 
 
 
/s/ B. KEITH TRENT
 
 
B. Keith Trent
 
 
 
 
 
/s/ LLOYD M. YATES
 
 
Lloyd M. Yates
 
 
 
 
Date: February 27, 2015

248


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: February 27, 2015
 
DUKE ENERGY FLORIDA, INC.
(Registrant)
 
 
By:
/s/ LYNN J. GOOD  
 
 
 
Lynn J. Good
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/ LYNN J. GOOD
 
 
Lynn J. Good
 
 
Chief Executive Officer (Principal Executive Officer)
 
 
 
(ii)
/s/ STEVEN K. YOUNG 
 
 
Steven K. Young
 
 
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
(iii)
/s/ BRIAN D. SAVOY 
 
 
Brian D. Savoy
 
 
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
 
 
 
(iv)
Directors:
 
 
 
 
 
/s/ LYNN J. GOOD
 
 
Lynn J. Good
 
 
 
 
 
/s/ DHIAA M. JAMIL
 
 
Dhiaa M. Jamil
 
 
 
 
 
/s/ JULIA S. JANSON
 
 
Julia S. Janson
 
 
 
 
 
/s/ B. KEITH TRENT
 
 
B. Keith Trent
 
 
 
 
 
/s/ LLOYD M. YATES
 
 
Lloyd M. Yates
 
Date: February 27, 2015

249


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: February 27, 2015
 
DUKE ENERGY OHIO, INC.
(Registrant)
 
 
By:
/s/ LYNN J. GOOD  
 
 
 
Lynn J. Good
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/ LYNN J. GOOD
 
 
Lynn J. Good
 
 
Chief Executive Officer (Principal Executive Officer)
 
 
 
(ii)
/s/ STEVEN K. YOUNG 
 
 
Steven K. Young
 
 
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
(iii)
/s/ BRIAN D. SAVOY
 
 
Brian D. Savoy
 
 
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
 
 
 
(iv)
Directors:
 
 
 
 
 
/s/ LYNN J. GOOD
 
 
Lynn J. Good
 
 
 
 
 
/s/ B. KEITH TRENT
 
 
B. Keith Trent
 
 
 
 
 
/s/ LLOYD M. YATES
 
 
Lloyd M. Yates
 
Date: February 27, 2015

250


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: February 27, 2015
 
DUKE ENERGY INDIANA, INC.
(Registrant)
 
 
By:
/s/ LYNN J. GOOD  
 
 
 
Lynn J. Good
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/ LYNN J. GOOD
 
 
Lynn J. Good
 
 
Chief Executive Officer (Principal Executive Officer)
 
 
 
(ii)
/s/ STEVEN K. YOUNG
 
 
Steven K. Young
 
 
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
(iii)
/s/ BRIAN. D. SAVOY
 
 
Brian D. Savoy
 
 
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
 
 
 
(iv)
Directors:
 
 
 
 
 
/s/ DOUGLAS F ESAMANN
 
 
Douglas F. Esamann
 
 
 
 
 
/s/ KELLEY A. KARN
 
 
Kelley A. Karn
 
 
 
 
 
/s/ LLOYD M. YATES
 
 
Lloyd M. Yates
 
Date: February 27, 2015

251


PART IV

EXHIBIT INDEX

Exhibits filed herewithin are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**). The Company agrees to furnish upon request to the Commission a copy of any omitted schedules or exhibits upon request on all items designated by a triple asterisk (***). A management contract or compensation plan or arrangement under legacy Progress Energy that is required to be filed as an exhibit to this report pursuant to Item 15 (b) of Form 10-K is designated by a plus (+).
Exhibit 
Number
 
Duke Energy
 
Duke Energy
Carolinas
 
Progress Energy
 
Duke Energy Progress
 
Duke Energy Florida
 
Duke Energy Ohio
 
Duke Energy
Indiana
2.1
Agreement and Plan of Merger between Duke Energy Corporation, Diamond Acquisition Corporation and Progress Energy, Inc., dated as of January 8, 2011, (incorporated by reference to Exhibit 2.1 to Duke Energy Corporation's Current Report on Form 8-K filed on January 11, 2011, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
3.1
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Duke Energy Corporation's Current Report on Form 8-K filed on May 20, 2014, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
3.2
Articles of Organization including Articles of Conversion (incorporated by reference to Exhibit 3.1 to Duke Energy Carolinas, LLC's Current Report on Form 8-K filed on April 7, 2006, File No. 1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
3.2.1
Amended Articles of Organization, effective October 1, 2006, (incorporated by reference to Exhibit 3.1 to Duke Energy Carolinas, LLC's Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November 13, 2006, File No. 1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
3.3
Amended Articles of Consolidation of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company), effective October 23, 1996, (incorporated by reference to Exhibit 3(a) to registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 filed on November 13, 1996, File No. 1-01232).
 
 
 
 
 
 
 
 
 
 
X
 
 
3.3.1
Amended Articles of Consolidation, effective October 1, 2006, (incorporated by reference to Exhibit 3.1 to Duke Energy Ohio, Inc.'s (formerly The Cincinnati Gas & Electric Company) Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November 17, 2006, File No. 1-01232).
 
 
 
 
 
 
 
 
 
 
X
 
 
3.4
Amended Articles of Consolidation of Duke Energy Indiana, Inc. (formerly PSI Energy Inc.), effective April 20, 1995, (incorporated by reference to Exhibit 3(a) to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 filed on August 11, 1995, File No. 1-03543).
 
 
 
 
 
 
 
 
 
 
 
 
X
3.4.1
Amendment to Article D of the Amended Articles of Consolidation of Duke Energy Indiana, Inc. (formerly PSI Energy Inc.), effective July 10, 1997, (incorporated by reference to Exhibit 3(f) to registrant's Annual Report on Form 10-K for the year ended December 31, 1997 filed on March 27, 1998, File No. 1-03543).
 
 
 
 
 
 
 
 
 
 
 
 
X
3.4.2
Amended Articles of Consolidation, effective October 1, 2006, (incorporated by reference to Exhibit 3.1 to Duke Energy Indiana, Inc.'s (formerly PSI Energy, Inc.) Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November 17, 2006, File No. 1-03543).
 
 
 
 
 
 
 
 
 
 
 
 
X
3.5
Amended and Restated By-Laws of Duke Energy Corporation (incorporated by reference to Exhibit 3.1 to registrant's Current Report on Form 8-K filed on November 3, 2014, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
3.6
Limited Liability Company Operating Agreement of Duke Energy Carolinas, LLC (incorporated by reference to Exhibit 3.2 to registrant's Current Report on Form 8-K filed on April 7, 2006, File No. 1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
3.7
Regulations of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company), effective July 23, 2003, (incorporated by reference to Exhibit 3.2 to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 filed on August 13, 2003, File No. 1-01232).
 
 
 
 
 
 
 
 
 
 
X
 
 
3.8
By-Laws of Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.), effective July 23, 2003, (incorporated by reference to Exhibit 3.1 to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 filed on August 13, 2003, File No. 1-03543).
 
 
 
 
 
 
 
 
 
 
 
 
X
3.9
Restated Charter of Duke Energy Progress (formerly Carolina Power & Light Company), effective May 10, 1996, (incorporated by reference to Exhibit 3(i) to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 filed on August 13, 1997, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
3.10
Amended and Restated Articles of Incorporation of Progress Energy, Inc. (formerly CP&L Energy, Inc.), effective June 15, 2000, (incorporated by reference to Exhibit 3(a)(1) to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 filed on August 14, 2000, File No. 1-03382).
 
 
 
 
X
 
 
 
 
 
 
 
 
3.10.1
Articles of Amendment to the Amended and Restated Articles of Incorporation of Progress Energy, Inc. (formerly CP&L Energy, Inc.), effective December 4, 2000, (incorporated by reference to Exhibit 3(b)(1) to registrant's Annual Report on Form 10-K for the year ended December 31, 2001 filed on March 28, 2002, File No. 1-03382).
 
 
 
 
X
 
 
 
 
 
 
 
 
3.10.2
Articles of Amendment to the Amended and Restated Articles of Incorporation of Progress Energy, Inc. (formerly CP&L Energy, Inc.), effective May 10, 2006, (incorporated by reference to Exhibit 3(a) to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed on August 9, 2006, File No. 1-15929).
 
 
 
 
X
 
 
 
 
 
 
 
 
3.11
Amended Articles of Incorporation of Duke Energy Florida, Inc. (formerly Florida Power Corporation) (incorporated by reference to Exhibit 3(a) to registrant's Annual Report on Form 10-K for the year ended December 31, 1991 filed on March 30, 1992, File No. 1-03274).
 
 
 
 
 
 
 
 
X
 
 
 
 
3.12
By-Laws of Progress Energy, Inc. (formerly CP&L Energy, Inc.), effective May 10, 2006, (incorporated by reference to Exhibit 3(b) to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed on August 9, 2006, File No. 1-15929).
 
 
 
 
X
 
 
 
 
 
 
 
 
3.13
By-Laws of Duke Energy Progress, Inc. (formerly Carolina Power & Light Company), effective May 13, 2009, (incorporated by reference to Exhibit 3(b) to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed on August 7, 2009, File No. 1-15929).
 
 
 
 
 
 
X
 
 
 
 
 
 
3.14
By-Laws of Duke Energy Florida, Inc. (formerly Florida Power Corporation), effective September 20, 2010, (incorporated by reference to Exhibit 3.1 to registrant's Current Report on Form 8-K filed on September 20, 2010, File No. 1-3274).
 
 
 
 
 
 
 
 
X
 
 
 
 
4.1
Indenture between Duke Energy Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, dated as of June 3, 2008, (incorporated by reference to Exhibit 4.1 to registrant's Current Report on Form 8-K filed on June 16, 2008, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.1.1
First Supplemental Indenture, dated as of June 16, 2008, (incorporated by reference to Exhibit 4.2 to Duke Energy Corporation's Current Report on Form 8-K filed on June 16, 2008, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.1.2
Second Supplemental Indenture, dated as of January 26, 2009, (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation's Current Report on Form 8-K filed on January 26, 2009, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.1.3
Third Supplemental Indenture, dated as of August 28, 2009, (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation's Current Report on Form 8-K filed on August 28, 2009, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.1.4
Fourth Supplemental Indenture, dated as of March 25, 2010, (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation's Current Report on Form 8-K filed on March 25, 2010, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.1.5
Fifth Supplemental Indenture, dated as of August 25, 2011, (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation's Current Report on Form 8-K filed on August 25, 2011, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.1.6
Sixth Supplemental Indenture, dated as of November 17, 2011, (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation's Current Report on Form 8-K filed on November 17, 2011, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.1.7
Seventh Supplemental Indenture, dated as of August 16 , 2012, (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation's Current Report on Form 8-K filed on August 16, 2012, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.1.8
Eighth Supplemental Indenture, dated as of January 14, 2013, (incorporated by reference to Exhibit 2 to Duke Energy Corporation's Form 8-A filed on January 14, 2013, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.1.9
Ninth Supplemental Indenture, dated as of June 13, 2013, (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation's Current Report on Form 8-K filed on June 13, 2013, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.1.10
Tenth Supplemental Indenture, dated as of October 11, 2013, (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation's Current Report on Form 8-K filed on October 11, 2013, File No.1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.1.11
Eleventh Supplemental Indenture, dated as of April 4, 2014, (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation's Current Report on Form 8-K filed on April 4, 2014, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
4.2
Senior Indenture between Duke Energy Carolinas, LLC and The Bank of New York Mellon Trust Company, N.A., as successor trustee to JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), dated as of September 1, 1998, (incorporated by reference to Exhibit 4-D-1 to registrant's Post-Effective Amendment No. 2 to Registration Statement on Form S-3 filed on April 7, 1999, File No. 333-14209).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.2.1
Fifteenth Supplemental Indenture, dated as of April 3, 2006, (incorporated by reference to Exhibit 4.4.1 to registrant's Registration Statement on Form S-3 filed on October 3, 2007, File No. 333-146483-03).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.2.2
Sixteenth Supplemental Indenture, dated as of June 5, 2007, (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on June 6, 2007, File No. 1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3
First and Refunding Mortgage from Duke Energy Carolinas, LLC to The Bank of New York Mellon Trust Company, N.A., successor trustee to Guaranty Trust Company of New York, dated as of December 1, 1927, (incorporated by reference to Exhibit 7(a) to registrant's Form S-1, effective October 15, 1947, File No. 2-7224).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.1
Instrument of Resignation, Appointment and Acceptance among Duke Energy Carolinas, LLC, JPMorgan Chase Bank, N.A., as Trustee, and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as of September 24, 2007, (incorporated by reference to Exhibit 4.6.1 to registrant's Registration Statement on Form S-3 filed on October 3, 2007, File No. 333-146483).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.2
Ninth Supplemental Indenture, dated as of February 1, 1949, (incorporated by reference to Exhibit 7 (j) to registrant's Form S-1 filed on February 3, 1949, File No. 2-7808).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.3
Twentieth Supplemental Indenture, dated as of June 15, 1964, (incorporated by reference to Exhibit 4-B-20 to registrant's Form S-1 filed on August 23, 1966, File No. 2-25367).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.4
Twenty-third Supplemental Indenture, dated as of February 1, 1968, (incorporated by reference to Exhibit 2-B-26 to registrant's Form S-9 filed on January 21, 1969, File No. 2-31304).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.5
Sixtieth Supplemental Indenture, dated as of March 1, 1990, (incorporated by reference to Exhibit 4-B-61 to registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No.1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.6
Sixty-third Supplemental Indenture, dated as of July 1, 1991, (incorporated by reference to Exhibit 4-B-64 to registrant's Registration Statement on Form S-3 filed on February 13, 1992, File No. 33-45501).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.7
Eighty-fourth Supplemental Indenture, dated as of March 20, 2006, (incorporated by reference to Exhibit 4.6.9 to registrant's Registration Statement on Form S-3 filed on October 3, 2007, File No. 333-146483-03).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.8
Eighty-fifth Supplemental Indenture, dated as of January 10, 2008, (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on January 11, 2008, File No.1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.9
Eighty-seventh Supplemental Indenture, dated as of April 14, 2008, (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on April 15, 2008, File No.1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.10
Eighty-eighth Supplemental Indenture, dated as of November 17, 2008, (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on November 20, 2008, File No.1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.11
Ninetieth Supplemental Indenture, dated as of November 19, 2009, (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on November 19, 2009, File No.1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.12
Ninety-first Supplemental Indenture, dated as of June 7, 2010, (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on June 7, 2010, File No.1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.13
Ninety-third Supplemental Indenture, dated as of May 19, 2011, (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on May 19, 2011, File No.1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.14
Ninety-fourth Supplemental Indenture, dated as of December 8, 2011, (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on December 8, 2011, File No.1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.3.15
Ninety-fifth Supplemental Indenture, dated as of September 21, 2012, (incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form 8-K filed on September 21, 2012, File No.1-04928).
 
 
X
 
 
 
 
 
 
 
 
 
 
4.4
Mortgage and Deed of Trust between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and The Bank of New York Mellon (formerly Irving Trust Company) and Frederick G. Herbst (Tina D. Gonzalez, successor), as Trustees, dated as of May 1, 1940.
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.1
First through Fifth Supplemental Indentures thereto (Exhibit 2(b), File No. 2-64189); the Sixth through Sixty-sixth Supplemental Indentures (Exhibit 2(b)-5, File No. 2-16210; Exhibit 2(b)-6, File No. 2-16210; Exhibit 4(b)-8, File No. 2-19118; Exhibit 4(b)-2, File No. 2-22439; Exhibit 4(b)-2, File No. 2-24624; Exhibit 2(c), File No. 2-27297; Exhibit 2(c), File No. 2-30172; Exhibit 2(c), File No. 2-35694; Exhibit 2(c), File No. 2-37505; Exhibit 2(c), File No. 2-39002; Exhibit 2(c), File No. 2-41738; Exhibit 2(c), File No. 2-43439; Exhibit 2(c), File No. 2-47751; Exhibit 2(c), File No. 2-49347; Exhibit 2(c), File No. 2-53113; Exhibit 2(d), File No. 2-53113; Exhibit 2(c), File No. 2-59511; Exhibit 2(c), File No. 2-61611; Exhibit 2(d), File No. 2-64189; Exhibit 2(c), File No. 2-65514; Exhibits 2(c) and 2(d), File No. 2-66851; Exhibits 4(b)-1, 4(b)-2, and 4(b)-3, File No. 2-81299; Exhibits 4(c)-1 through 4(c)-8, File No. 2-95505; Exhibits 4(b) through 4(h), File No. 33-25560; Exhibits 4(b) and 4(c), File No. 33-33431; Exhibits 4(b) and 4(c), File No. 33-38298; Exhibits 4(h) and 4(i), File No. 33-42869; Exhibits 4(e)-(g), File No. 33-48607; Exhibits 4(e) and 4(f), File No. 33-55060; Exhibits 4(e) and 4(f), File No. 33-60014; Exhibits 4(a) and 4(b) to Post-Effective Amendment No. 1, File No. 33-38349; Exhibit 4(e), File No. 33-50597; Exhibit 4(e) and 4(f) to Registration Statement on Form S-3, File No. 33-57835, filed on February 24, 1995; Exhibit to the Current Report on Form 8-K filed on August 28, 1997, File No. 1-03382; Exhibit 4(b) to Registration Statement on Form S-3, File No. 333-69237, filed on December 18, 1998; and Exhibit 4(c) to the Current Report on Form 8-K filed on March 19, 1999, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.2
Seventy-second Supplemental Indenture, dated as of September 1, 2003, (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.'s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on September 12, 2003, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.3
Seventy-third Supplemental Indenture, dated as of March 1, 2005, (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.'s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on March 22, 2005, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.4
Seventy-fourth Supplemental Indenture, dated as of November 1, 2005, (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.'s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on November 30, 2005, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.5
Seventy-fifth Supplemental Indenture, dated as of March 1, 2008, (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.'s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on March 13, 2008, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.6
Seventy-sixth Supplemental Indenture, dated as of January 1, 2009, (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.'s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on January 15, 2009, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.7
Seventy-seventh Supplemental Indenture, dated as of June 18, 2009, (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.'s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on June 23, 2009, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.8
Seventy-eighth Supplemental Indenture, dated as of September 1, 2011, (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.'s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on September 15, 2011, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.9
Seventy-ninth Supplemental Indenture, dated as of May 1, 2012, (incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.'s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on May 18, 2012, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.10
Eightieth Supplemental Indenture, dated as of March 1, 2013, (incorporated by reference to Exhibit 4.1 to Duke Energy Progress, Inc.'s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on Form 8-K filed on March 12, 2013, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.11
Eighty Second Supplemental Indenture, dated as of March 1, 2014, between the Company and The Bank of New York Mellon (formerly Irving Trust Company) and Tina D. Gonzalez (successor to Frederick G. Herbst) and forms of global notes (incorporated by reference to Exhibit 4.1 to Duke Energy Progress, Inc.'s Current Report on Form 8-K filed on March 6, 2014, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.4.12
Eighty Third Supplemental Indenture, dated as of November 1, 2014, between the Company and The Bank of New York Mellon (formerly Irving Trust Company) and Tina D. Gonzalez (successor to Frederick G. Herbst) and forms of global notes (incorporated by reference to Exhibit 4.1 to Duke Energy Progress, Inc.'s Current Report on Form 8-K filed on November 20, 2014, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.5
Indenture (for Debt Securities) between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and The Bank of New York Mellon (successor in interest to The Chase Manhattan Bank), as Trustee (incorporated by reference to Exhibit 4(a) to registrant's Current Report on Form 8-K filed on November 5, 1999, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.6
Indenture (for [Subordinated] Debt Securities)(open ended) (incorporated by reference to Exhibit 4(a)(2) to Duke Energy Progress, Inc.'s (formerly Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Registration Statement on Form S-3 filed on November 18, 2008, File No. 333-155418).
 
 
 
 
 
 
X
 
 
 
 
 
 
4.7
Indenture (for First Mortgage Bonds) between Duke Energy Florida, Inc. (formerly Florida Power Corporation) and The Bank of New York Mellon (as successor to Guaranty Trust Company of New York and The Florida National Bank of Jacksonville), as Trustee, dated as of January 1, 1944, (incorporated by reference to Exhibit B-18 to registrant's Form A-2, File No. 2-05293).
 
 
 
 
 
 
 
 
X
 
 
 
 
4.7.1
Seventh Supplemental Indenture (incorporated by reference to Exhibit 4(b) to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 27, 1991, File No. 33-16788).
 
 
 
 
 
 
 
 
X
 
 
 
 
4.7.2
Eighth Supplemental Indenture (incorporated by reference to Exhibit 4(c) to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 27, 1991, File No. 33-16788).
 
 
 
 
 
 
 
 
X
 
 
 
 
4.7.3
Sixteenth Supplemental Indenture (incorporated by reference to Exhibit 4(d) to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 27, 1991, File No. 33-16788).
 
 
 
 
 
 
 
 
X
 
 
 
 
4.7.4
Twenty-ninth Supplemental Indenture (incorporated by reference to Exhibit 4(c) to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on September 17, 1982, File No. 2-79832).
 
 
 
 
 
 
 
 
X
 
 
 
 
4.7.5
Thirty-eighth Supplemental Indenture, dated as of July 25, 1994, (incorporated by reference to exhibit 4(f) to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation) Registration Statement on Form S-3 filed on August 29, 1994, File No. 33-55273).
 
 
 
 
 
 
 
 
X
 
 
 
 
4.7.6
Forty-first Supplemental Indenture, dated as of February 1, 2003, (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.'s (formerly Duke Energy Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on February 21, 2003, File No. 1-03274).
 
 
 
 
 
 
 
 
X
 
 
 
 
4.7.7
Forty-second Supplemental Indenture, dated as of April 1, 2003, (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 filed on August 11, 2003, File No. 1-03274).
 
  
  
  
  
  
  
  
X
  
  
  
  
4.7.8
Forty-third Supplemental Indenture, dated as of November 1, 2003, (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on November 21, 2003, File No. 1-03274).
  
  
  
  
  
  
  
  
X
  
  
  
  
4.7.9
Forty-fourth Supplemental Indenture, dated as of August 1, 2004, (incorporated by reference to Exhibit 4(m) to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 16, 2005, File No. 1-03274).
  
  
  
  
  
  
  
  
X
  
  
  
  
4.7.10
Forty-sixth Supplemental Indenture, dated as of September 1, 2007, (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on September 19, 2007, File No. 1-03274).
  
  
  
  
  
  
  
  
X
  
  
  
  
4.7.11
Forty-seventh Supplemental Indenture, dated as of December 1, 2007, (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on December 13, 2007, File No. 1-03274).
  
  
  
  
  
  
  
  
X
  
  
  
  
4.7.12
Forty-eighth Supplemental Indenture, dated as of June 1, 2008, (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on June 18, 2008, File No. 1-03274).
  
  
  
  
  
  
  
  
X
  
  
  
  
4.7.13
Forty-ninth Supplemental Indenture, dated as of March 1, 2010, (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on March 25, 2010, File No. 1-03274).
  
  
  
  
  
  
  
  
X
  
  
  
  
4.7.14
Fiftieth Supplemental Indenture, dated as of August 11, 2011, (incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on August 18, 2011, File No. 1-03274).
  
  
  
  
  
  
  
  
X
  
  
  
  
4.7.15
Fifty-first Supplemental Indenture, dated as of November 1, 2012, (incorporated by reference to Exhibit 4.1 to Duke Energy Florida, Inc.'s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K filed on November 20, 2012, File No. 1-03274).
  
  
  
  
  
  
  
  
X
  
  
  
  
4.8
Indenture (for Debt Securities) between Duke Energy Florida, Inc. (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) and The Bank of New York Mellon Trust Company, National Association (successor in interest to J.P. Morgan Trust Company, National Association), as Trustee, dated as of December 7, 2005, (incorporated by reference to Exhibit 4(a) to registrant's Current Report on Form 8-K filed on December 13, 2005, File No. 1-03274).
  
  
  
  
  
  
  
  
X
  
  
  
  
4.9
Indenture (for [Subordinated] Debt Securities)(open ended) (incorporated by reference to Exhibit 4(a)(2) Duke Energy Florida, Inc.'s (formerly Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Registration Statement on Form S-3 filed on November 18, 2008, File No. 333-155418).
  
  
  
  
  
  
  
  
X
  
  
  
  
4.10
Original Indenture (Unsecured Debt Securities) between Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as of May 15, 1995, (incorporated by reference to Exhibit 3 to registrant's Form 8-A filed on July 27, 1995, File No. 1-01232).
  
  
  
  
  
  
  
  
  
  
X
  
  
4.10.1
First Supplemental Indenture, dated as of June 1, 1995, (incorporated by reference to Exhibit 4 B to Duke Energy Ohio, Inc.'s (formerly The Cincinnati Gas & Electric Company) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 filed on August 11, 1995, File No. 1-01232).
  
  
  
  
  
  
  
  
  
  
X
  
  
4.10.2
Seventh Supplemental Indenture, dated as of June 15, 2003, (incorporated by reference to Exhibit 4.1 to Duke Energy Ohio, Inc.'s (formerly The Cincinnati Gas & Electric Company) Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 filed on August 13, 2003, File No. 1-01232).
  
  
  
  
  
  
  
  
  
  
X
  
  
4.11
Original Indenture (First Mortgage Bonds) between Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as of August 1, 1936, (incorporated by reference to an exhibit to registrant's Registration Statement No. 2-2374).
  
  
  
  
  
  
  
  
  
  
X
  
  
4.11.1
Fortieth Supplemental Indenture, dated as of March 23, 2009, (incorporated by reference to Exhibit 4.1 to Duke Energy Ohio, Inc.’s (formerly The Cincinnati Gas & Electric Company) Current Report on Form 8-K filed on March 24, 2009, File No. 1-01232).
  
  
  
  
  
  
  
  
  
  
X
  
  
4.11.2
Forty-second Supplemental Indenture, dated as of September 6, 2013, (incorporated by reference to Exhibit 4.1 to Duke Energy Ohio, Inc.’s (formerly The Cincinnati Gas & Electric Company) Current Report on Form 8-K filed on September 6, 2013, File No. 1-01232).
  
  
  
  
  
  
  
  
  
  
X
  
  
4.12
Indenture between Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as of November 15, 1996, (incorporated by reference to Exhibit 4(v) to registrant's Annual Report on Form 10-K for the year ended December 31, 1996 filed on March 27, 1997, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.12.1
Third Supplemental Indenture, dated as of March 15, 1998, (incorporated by reference to Exhibit 4 to Duke Energy Indiana, Inc.'s (formerly PSI Energy, Inc.) Annual Report on Form 10-K for the year ended December 31, 1997 filed on March 27, 1998, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.12.2
Eighth Supplemental Indenture, dated as of September 23, 2003, (incorporated by reference to Exhibit 4.2 to Duke Energy Indiana, Inc.'s (formerly PSI Energy, Inc.) Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 filed on November 13, 2003,  File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.12.3
Ninth Supplemental Indenture, dated as of October 21, 2005, (incorporated by reference to Exhibit 4.7.3 to Duke Energy Indiana, Inc.'s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 29, 2010, File No. 333-169633).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.12.4
Tenth Supplemental Indenture, dated as of June 9, 2006, (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Current Report on Form 8-K filed on June 15, 2006, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13
Original Indenture (First Mortgage Bonds) between Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) and Deutsche Bank National Trust Company, as Successor Trustee, dated as of September 1, 1939, (filed as an exhibit in File No. 70-258).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.1
Tenth Supplemental Indenture, dated as of July 1, 1952, (filed as an exhibit in File No. 2-9687).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.2
Twenty-third Supplemental Indenture, dated as of January 1, 1977, (filed as an exhibit in File No. 2-57828).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.3
Twenty-fifth Supplemental Indenture, dated as of September 1, 1978, (filed as an exhibit in File No. 2-62543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.4
Twenty-sixth Supplemental Indenture, dated as of September 1, 1978, (filed as an exhibit in File No. 2-62543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.5
Thirtieth Supplemental Indenture, dated as of August 1, 1980, (filed as an exhibit in File No. 2-68562).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.6
Thirty-fifth Supplemental Indenture, dated as of March 30, 1984, (filed as an exhibit to registrant's Annual Report on Form 10-K for the year ended December 31, 1984, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.7
Forty-sixth Supplemental Indenture, dated as of June 1, 1990, (filed as an exhibit to registrant's Annual Report on Form 10-K for the year ended December 31, 1991, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.8
Forty-seventh Supplemental Indenture, dated as of July 15, 1991, (filed as an exhibit to registrant's Annual Report on Form 10-K for the year ended December 31, 1991, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.9
Forty-eighth Supplemental Indenture, dated as of July 15, 1992, (filed as an exhibit to registrant's Annual Report on Form 10-K for the year ended December 31, 1992, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.10
Fifty-second Supplemental Indenture, dated as of April 30, 1999, (incorporated by reference to Exhibit 4 to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 filed on May 13, 1999, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.11
Fifty-seventh Supplemental Indenture, dated as of August 21, 2008, (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Current Report Form 8-K filed on August 21, 2008, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.12
Fifty-eighth Supplemental Indenture, dated as of December 19, 2008, (incorporated by reference to Exhibit 4.8.12 to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 29, 2010, File No. 333-169633-02).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.13
Fifty-ninth Supplemental Indenture, dated as of March 23, 2009, (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Current Report on Form 8-K filed on March 24, 2009, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.14
Sixtieth Supplemental Indenture, dated as of June 1, 2009, (incorporated by reference to Exhibit 4.8.14 to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 29, 2010, File No. 333-169633-02).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.15
Sixty-first Supplemental Indenture, dated as of October 1, 2009, (incorporated by reference to Exhibit 4.8.15 to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 29, 2010, File No. 333-169633-02).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.16
Sixty-second Supplemental Indenture, dated as of July 9, 2010, (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Current Report on Form 8-K filed on July 9, 2010, File No. 1-03543). 
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.17
Sixty-third Supplemental Indenture, dated as of September 23, 2010, (incorporated by reference to Exhibit 4.8.17 to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 29, 2010, File No. 333-169633-02).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.18
Sixty-fourth Supplemental Indenture, dated as of December 1, 2011, (incorporated by reference to Exhibit 4(d)(2)(xviii) to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on September 30, 2013, File No.333-191462-03).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.19
Sixty-fifth Supplemental Indenture, dated as of March 15, 2012, (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Current Report on Form 8-K filed on March 15, 2012, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.13.20
Sixty-sixth Supplemental Indenture, dated as of July 11, 2013, (incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, Inc.’s (formerly PSI Energy, Inc.) Current Report on Form 8-K filed on July 11, 2013, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.14
Repayment Agreement between Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) and The Dayton Power and Light Company, dated as of December 23, 1992, (filed with registrant's Annual Report on Form 10-K for the year ended December 31, 1992, File No. 1-01232).
  
  
  
  
  
  
  
  
  
  
X
  
  
4.15
Unsecured Promissory Note between Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) and the Rural Utilities Service, dated as of October 14, 1998, (incorporated by reference to Exhibit 4 to registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 8, 1999, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.16
6.302% Subordinated Note between Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) and Cinergy Corp., dated as of February 5, 2003, (incorporated by reference to Exhibit 4 (yyy) to registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 filed on May 12,2003, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.17
6.403% Subordinated Note between Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) and Cinergy Corp., dated as of February 5, 2003, (incorporated by reference to Exhibit 4 (zzz) to registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 filed on May 12, 2003, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
4.18
Form of Duke Energy InterNote (Fixed Rate), dated as of November 13, 2012, (incorporated by reference to Exhibit 4.1 to Duke Energy Corporation's Current Report on Form 8-K filed on November 14, 2012, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
4.19
Form of Duke Energy InterNote (Floating Rate), dated as of November 13, 2012, (incorporated by reference to Exhibit 4.2 to Duke Energy Corporation's Current Report on Form 8-K filed on November 14, 2012, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
4.20
Contingent Value Obligation Agreement between Progress Energy, Inc. (formerly CP&L Energy, Inc.) and The Chase Manhattan Bank, as Trustee, dated as of November 30, 2000, (incorporated by reference to Exhibit 4.1 to registrant's Current Report on Form 8-K filed on December 1, 2000, File No. 1-03382).
  
  
  
  
X
  
  
  
  
  
  
  
  
4.21
Forty-second Supplemental Indenture between Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) and The Bank of New York Mellon Trust Company, N.A., as Trustee, dated as of September 6, 2013, (incorporated by reference to Exhibit 4.1 to registrant's Current Report on Form 8-K filed on September 6, 2013, File No. 1-01232).
  
  
  
  
  
  
  
  
  
  
X
  
  
4.22
Sixty-sixth Supplemental Indenture between Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) and Deutsche Bank National Trust Company, as Trustee, dated as of July 11, 2013, (incorporated by reference to Exhibit 4.1 to registrant's Current Report on Form 8-K filed on July 11, 2013, File No. 1-03543).
 
  
  
  
  
  
  
  
  
  
  
  
  
X
10.1
Purchase and Sale Agreement between Duke Energy Americas, LLC and LSP Bay II Harbor Holding, LLC, dated as of January 8, 2006, (incorporated by reference to Exhibit 10.2 to registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 filed on May 10, 2006, File No. 1-32853).
X
  
X
  
  
  
  
  
  
  
  
  
  
10.1.1
Amendment to Purchase and Sale Agreement between Duke Energy Americas, LLC, LS Power Generation, LLC (formerly LSP Bay II Harbor Holding, LLC), LSP Gen Finance Co, LLC, LSP South Bay Holdings, LLC, LSP Oakland Holdings, LLC, and LSP Morro Bay Holdings, LLC, dated as of May 4, 2006, (incorporated by reference to Exhibit 10.2.1 to registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 filed on May 10, 2006, File No.1-32853).
X
  
X
  
  
  
  
  
  
  
  
  
  
10.2**
Directors’ Charitable Giving Program (incorporated by reference to Exhibit 10-P to Duke Energy Carolinas, LLC's Annual Report on Form 10-K for the year ended December 31, 1992, File No. 1-04928).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.2.1**
Amendment to Directors’ Charitable Giving Program, dated as of  June 18, 1997, (incorporated by reference to Exhibit 1-1.1 to Duke Energy Carolinas, LLC's Annual Report on Form 10-K for the year ended December 31, 2003 filed on March 15, 2004, File No. 1-04928).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.2.2**
Amendment to Directors’ Charitable Giving Program, dated as of July 28, 1997, (incorporated by reference to Exhibit 10-1.2 to Duke Energy Carolinas, LLC's Annual Report on Form 10-K for the year ended December 31, 2003 filed on March 15, 2004, File No. 1-04928).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.2.3**
Amendment to Directors’ Charitable Giving Program, dated as of February 18, 1998, (incorporated by reference to Exhibit 10-1.3 to Duke Energy Carolinas, LLC's Annual Report on Form 10-K for the year ended December 31, 2003 filed on March 15, 2004, File No. 1-04928).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.3
Agreements with Piedmont Electric Membership Corporation, Rutherford Electric Membership Corporation and Blue Ridge Electric Membership Corporation to provide wholesale electricity and related power scheduling services from September 1, 2006 through December 31, 2021 (incorporated by reference to Exhibit 10.15 to Duke Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed on August 9, 2006, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.4
Asset Purchase Agreement between Saluda River Electric Cooperative, Inc., as Seller, and Duke Energy Carolinas, LLC, as Purchaser, dated as of December 20, 2006, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on December 27, 2006, File No. 1-04928).
  
  
X
  
  
  
  
  
  
  
  
  
  
10.5
Settlement between Duke Energy Corporation, Duke Energy Carolinas, LLC and the U.S. Department of Justice resolving Duke Energy's used nuclear fuel litigation against the U.S. Department of Energy, dated as of March 6, 2007, (incorporated by reference to Item 8.01 to registrant's Current Report on Form 8-K filed on March 12, 2007, File No. 1-04928).
  
  
X
  
  
  
  
  
  
  
  
  
  
10.6
Engineering, Procurement and Construction Agreement between Duke Energy Carolinas, LLC and Stone & Webster National Engineering P.C., dated as of July 11, 2007, (incorporated by reference to Exhibit 10.1 to registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed on November 12, 2007, File No. 1-04928). (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.)
  
  
X
  
  
  
  
  
  
  
  
  
  
10.7
Amended and Restated Engineering, Procurement and Construction Agreement between Duke Energy Carolinas, LLC and Stone & Webster National Engineering P.C., dated as of February 20, 2008, (incorporated by reference to Exhibit 10.1 to registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed on May 14, 2008, File No. 1-04928). (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).
  
  
X
  
  
  
  
  
  
  
  
  
  
10.8
Asset Purchase Agreement between Cinergy Capital & Trading, Inc. (Capital & Trading), CinCap Madison, LLC and Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.), dated as of February 5, 2003, (incorporated by reference to Exhibit 10(tt) to registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 filed on May 12, 2003, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
10.9
Amended and Restated Engineering and Construction Agreement between Duke Energy Carolinas, LLC and Shaw North Carolina, Inc., dated as of December 21, 2009, (incorporated by reference to Item 1.01 to registrant's Current Report on Form 8-K filed on December 28, 2009, File No. 1-04928).
  
  
X
  
  
  
  
  
  
  
  
  
  
10.10
Asset Purchase Agreement between Capital & Trading., CinCap VII, LLC and Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.), dated as of February 5, 2003, (incorporated by reference to Exhibit 10(uu) to registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 filed on May 12, 2003, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
10.11
Asset Purchase Agreement between Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) and Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) 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, (incorporated by reference to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 filed on August 4, 2005, File No. 1-01232).
  
  
  
  
  
  
  
  
  
  
X
  
  
10.12
Asset Purchase Agreement between Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) 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, (incorporated by reference to Exhibit 10(kkkk) to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 filed on August 4, 2005, File No. 1-03543).
 
 
 
  
  
  
  
  
  
  
  
  
X
10.13
Keepwell Agreement between Duke Capital LLC and Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company), dated as of April 10, 2006, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on April 14, 2006, File No. 1-01232).
  
  
  
  
  
  
  
  
  
  
X
  
  
10.14
Agreements between Piedmont Electric Membership Corporation, Rutherford Electric Membership Corporation and Blue Ridge Electric Membership Corporation to provide wholesale electricity and related power scheduling services from September 1, 2006 through December 31, 2021 (incorporated by reference to Exhibit 10.15 to Duke Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed on August 9, 2006, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.15
Asset Purchase Agreement between Duke Energy Indiana, Inc., (formerly PSI Energy, Inc.), as Seller, and Wabash Valley Power Association, Inc., as Buyer, dated as of December 1, 2006, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on December 7, 2006, File No. 1-03543).
  
  
  
  
  
  
  
  
  
  
  
  
X
10.16
Purchase and Sale Agreement between Cinergy Capital & Trading, Inc., as Seller, and Fortis Bank, S.A./N.V., as Buyer, dated as of June 26, 2006, (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation's Current Report on Form 8-K filed on June 30, 2006, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.17
Engineering, Procurement and Construction Management Agreement between Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) and Bechtel Power Corporation, dated as of December 15, 2008, (incorporated by reference to Exhibit 10.16 to registrant's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 13, 2009, File No. 1-03543). (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).
  
  
  
  
  
  
  
  
  
  
  
  
X
10.18
Formation and Sale Agreement between Duke Ventures, LLC, Crescent Resources, LLC, Morgan Stanley Real Estate Fund V U.S. L.P., Morgan Stanley Real Estate Fund V Special U.S., L.P., Morgan Stanley Real Estate Investors V U.S., L.P., MSP Real Estate Fund V, L.P., and Morgan Stanley Strategic Investments, Inc., dated as of September 7, 2006, (incorporated by reference to Exhibit 10.3 to Duke Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November 9, 2006, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.19
Engineering, Procurement and Construction Agreement between Duke Energy Carolinas, LLC and Stone & Webster National Engineering P.C., dated as of July 11, 2007, (incorporated by reference to Exhibit 10.2 to Duke Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed on November 9, 2007, File No. 1-32853). (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).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.20
Amended and Restated Engineering, Procurement and Construction Agreement between Duke Energy Carolinas, LLC and Stone & Webster National Engineering P.C., dated as of February 20, 2008, (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed on May 9, 2008, File No. 1-32853). (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).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.21
Agreement and Plan of Merger between DEGS Wind I, LLC, DEGS Wind Vermont, Inc., Catamount Energy Corporation, dated as of June 25, 2008, (incorporated by reference to Exhibit 10.2 to Duke Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 filed on August 11, 2008, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.22
Amended and Restated Engineering and Construction Agreement between Duke Energy Carolinas, LLC and Shaw North Carolina, Inc., dated as of December 21, 2009, (incorporated by reference to Exhibit 10.41 to Duke Energy Corporation's Annual Report on Form 10-K for the year ended December 31, 2009 filed on February 26, 2010, File No.1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.23
Operating Agreement of Pioneer Transmission, LLC (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 filed on November 7, 2008, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.24**
Amended and Restated Duke Energy Corporation Directors' Saving Plan, dated as of January 1, 2014, (incorporated by reference to Exhibit 10.32 to Duke Energy Corporation's Annual Report on Form 10-K for the year ended December 31, 2013 filed on February 28, 2014, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.25
Engineering, Procurement and Construction Management Agreement between Duke Energy Indiana, Inc. (formerly PSI Energy, Inc.) and Bechtel Power Corporation, dated as of December 15, 2008, (incorporated by reference to Item 1.01 to registrant's Current Report on Form 8-K filed on December 19, 2008, File Nos. 1-32853 and 1-03543). (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).
X
  
  
  
  
  
  
  
  
  
  
  
X
10.26
Amended and Restated Engineering and Construction Agreement between Duke Energy Carolinas, LLC and Shaw North Carolina, Inc., dated as of March 8, 2010, (incorporated by reference to Exhibit 10.1 to registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 filed on May 7, 2010, File Nos. 1-32853 and 1-04928).
X
  
X
  
  
  
  
  
  
  
  
  
  
10.27**
Form of Performance Award Agreement of Duke Energy Corporation (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on February 22, 2011, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.28**
Form of Phantom Stock Award of Duke Energy Corporation (incorporated by reference to Exhibit 10.2 to registrant's Current Report on Form 8-K filed on February 22, 2011, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.29**
Duke Energy Corporation Executive Severance Plan (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on January 10, 2011, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.30
$6,000,000,000 Five-Year Credit Agreement between Duke Energy Corporation, Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, Inc., Duke Energy Kentucky, Inc., Carolina Power and Light Company d/b/a Duke Energy Progress, Inc. and Florida Power Corporation, d/b/a Duke Energy Florida, Inc., as Borrowers, the lenders listed therein, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A. and The Royal Bank of Scotland plc, as Co-Syndication Agents and Bank of China, New York Branch, Barclays Bank PLC, Citibank, N.A., Credit Suisse AG, Cayman Islands Branch, Industrial and Commercial Bank of China Limited, New York Branch, JPMorgan Chase Bank, N.A. and UBS Securities LLC, as Co-Documentation Agents, dated as of November 18, 2011, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on November 25, 2011, File Nos. 1-32853, 1-04928, 1-01232 and 1-03543).
X
  
X
  
  
  
  
  
  
  
X
  
X
10.31**
Form of Performance Award Agreement of Duke Energy Corporation under the Duke Energy Corporation 2010 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on February 22, 2011, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.32**
Form of Phantom Stock Award Agreement of Duke Energy Corporation under the Duke Energy Corporation 2010 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to registrant's Current Report on Form 8-K filed on February 22, 2011, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.33**
Duke Energy Corporation 2010 Long-term Incentive Plan (incorporated by reference to Appendix A to registrant's Form DEF 14A filed on March 22, 2010, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.33.1**
Amendment to Duke Energy Corporation 2010 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 filed on August 8, 2012, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.34
Settlement Agreement between Duke Energy Corporation, the North Carolina Utilities Commission Staff and the North Carolina Public Staff, dated as of November 28, 2012, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on November 29, 2012, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.35
Settlement Agreement between Duke Energy Corporation and the North Carolina Attorney General, dated as of December 3, 2012, (incorporated by reference Item 7.01 to registrant's Current Report on Form 8-K filed on December 3, 2012, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.36**
Retention Award Agreement between Duke Energy Corporation and Lloyd Yates, dated as of July 9, 2012, (incorporated by reference to Exhibit 10.56 to registrant's Annual Report on Form 10-K for the year ended December 31, 2012 filed on March 1, 2013, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.37**
Form of Change-in-Control Agreement (incorporated by reference to Exhibit 10.58 to Duke Energy Corporation's Annual Report on Form 10-K for the year ended December 31, 2012 filed on March 1, 2013, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.38**
Form of Performance Share Award (incorporated by reference to Exhibit 10.64 to Duke Energy Corporation's Annual Report on Form 10-K for the year ended December 31, 2012 filed on March 1, 2013, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.39**
Amended and Restated Duke Energy Corporation Executive Cash Balance Plan, dated as of January 1, 2014, (incorporated by reference to Exhibit 10.52 to Duke Energy Corporation's Annual Report on Form 10-K for the year ended December 31, 2013 filed on February 28, 2014, File No. 1-32852).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.40
Purchase, Construction and Ownership Agreement, dated as of July 30, 1981, between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina Municipal Power Agency Number 3 and Exhibits, together with resolution, dated as of December 16, 1981, changing name to North Carolina Eastern Municipal Power Agency, amending letter, dated as of February 18, 1982, and amendment, dated as of February 24, 1982, (incorporated by reference to Exhibit 10(a) to registrant's File No. 33-25560).
  
  
  
  
  
  
X
  
  
  
  
  
  
10.41
Operating and Fuel Agreement, dated as of July 30, 1981, between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina Municipal Power Agency Number 3 and Exhibits, together with resolution, dated as of December 16, 1981, changing name to North Carolina Eastern Municipal Power Agency, amending letters, dated as of August 21, 1981 and December 15, 1981, and amendment, dated as of February 24, 1982, (incorporated by reference to Exhibit 10(b) to registrant's File No. 33-25560).
  
  
  
  
  
  
X
  
  
  
  
  
  
10.42
Power Coordination Agreement, dated as of July 30, 1981, between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina Municipal Power Agency Number 3 and Exhibits, together with resolution, dated as of December 16, 1981, changing name to North Carolina Eastern Municipal Power Agency and amending letter, dated as of January 29, 1982, (incorporated by reference to Exhibit 10(c) to registrant's File No. 33-25560).
  
  
  
  
  
  
X
  
  
  
  
  
  
10.43
Amendment, dated as of December 16, 1982, to Purchase, Construction and Ownership Agreement, dated as of July 30, 1981, between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina Eastern Municipal Power Agency (incorporated by reference to Exhibit 10(d) to registrant's File No. 33-25560).
  
  
  
  
  
  
X
  
  
  
  
  
  
10.44+
Amended and Restated Broad-Based Performance Share Sub-Plan, Exhibit B to the 2002 Progress Energy, Inc. Equity Incentive Plan, effective January 1, 2007, (incorporated by reference to Exhibit 10c(6) to registrant's Annual Report on Form 10-K for the year ended December 31, 2006 filed on March 1, 2007, File Nos. 1-15929, 1-03382 and 1-03274).
  
  
  
  
X
  
X
  
X
  
  
  
  
10.45+
Amended and Restated Executive and Key Manager Performance Share Sub-Plan, Exhibit A to the 2002 Progress Energy, Inc. Equity Incentive Plan, effective January 1, 2007, (incorporated by reference to Exhibit 10(c)(7) to registrant's Annual Report on Form 10-K for the year ended December 31, 2006 filed on March 1, 2007, File Nos. 1-15929, 1-03382 and 1-03274).
  
  
  
  
X
  
X
  
X
  
  
  
  
10.46+
Progress Energy, Inc. 2007 Equity Incentive Plan (incorporated by reference to Exhibit C to registrant's Form DEF 14A filed on March 30, 2007, File No. 1-15929).
  
  
  
  
X
  
  
  
  
  
  
  
  
10.47+
Executive and Key Manager 2007 Performance Share Sub-Plan, Exhibit A to the 2007 Equity Incentive Plan, effective January 1, 2007, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on July 16, 2007, File Nos. 1- 15929, 1-03382 and 1-03274).
  
  
  
  
X
  
X
  
X
  
  
  
  
10.48+
Form of Executive and Key Manager 2008 Performance Share Sub-Plan (incorporated by reference to Exhibit 10(a) to registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed on May 12, 2008, File No. 1-15929, 1-03382 and 1-03274).
  
  
  
  
X
  
X
  
X
  
  
  
  
10.49+
Form of Letter Agreement executed by certain officers of Progress Energy, Inc., waiving certain rights under Progress Energy, Inc.’s Management Change-in-Control Plan and their employment agreements, dated as of January 8, 2011, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on January 8, 2011, File No. 1-15929).
  
  
  
  
X
  
  
  
  
  
  
  
  
10.50+
Executive and Key Manager 2009 Performance Share Sub-Plan, Exhibit A to 2007 Equity Incentive Plan, Amended and Restated, effective July 12, 2011, (incorporated by reference to Exhibit 10(b) to registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 filed on November 8, 2011, File Nos. 1-15929, 1-03382 and 1-03274.
  
  
  
  
X
  
X
  
X
  
  
  
  
10.51+
Progress Energy, Inc. Management Change-in-Control Plan, Amended and Restated, effective July 13, 2011, (incorporated by reference to Exhibit 10(d) to registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 filed on November 8, 2011, File Nos. 1-15929, 1-03382 and 1-03274).
  
  
  
  
X
  
X
  
X
  
  
  
  
10.52+
Form of Progress Energy, Inc. Restricted Stock Unit Award Agreement (Graded Vesting), effective September 15, 2011.
  
  
  
  
X
  
X
  
X
  
  
  
  
10.53+
Form of Progress Energy, Inc. Restricted Stock Unit Award Agreement (Cliff Vesting), effective September 15, 2011.
  
  
  
  
X
  
X
  
X
  
  
  
  
10.54
Precedent and Related Agreements between Duke Energy Florida, Inc. (formerly Florida Power Corporation d/b/a Progress Energy Florida, Inc. (“PEF”)), Southern Natural Gas Company, Florida Gas Transmission Company (“FGT”), and BG LNG Services, LLC (“BG”), including:
a) Precedent Agreement between Southern Natural Gas Company and PEF, dated as of December 2, 2004;
b) Gas Sale and Purchase Contract between BG and PEF, dated as of December 1, 2004;
c) Interim Firm Transportation Service Agreement by and between FGT and PEF, dated as of December 2, 2004;
d) Letter Agreement between FGT and PEF, dated as of December 2, 2004 and Firm Transportation Service Agreement between FGT and PEF to be entered into upon satisfaction of certain conditions precedent;
e) Discount Agreement between FGT and PEF, dated as of December 2, 2004;
f) Amendment to Gas Sale and Purchase Contract between BG and PEF, dated as of January 28, 2005; and
g) Letter Agreement between FGT and PEF, dated as of January 31, 2005, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K/A filed on March 15, 2005, File Nos. 1-15929 and 1-03274). (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).
 
  
  
  
  
X
  
  
  
X
  
  
  
  
10.55
Engineering, Procurement and Construction Agreement between Duke Energy Florida, Inc. (formerly Florida Power Corporation d/b/a/ Progress Energy Florida, Inc.), as owner, and a consortium consisting of Westinghouse Electric Company LLC and Stone & Webster, Inc., as contractor, for a two-unit AP1000 Nuclear Power Plant, dated as of December 31, 2008, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on March 2, 2009, File Nos. 1-15929 and 1-03274). (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).
  
  
  
  
X
  
  
  
X
  
  
  
  
10.56
Amendment No. 1 and Consent between Duke Energy Corporation, Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, Inc., Duke Energy Kentucky, Inc., Duke Energy Progress, Inc., Duke Energy Florida, Inc., and Wells Fargo Bank, National Association, dated as of December 18, 2013, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on December 23, 2013, File Nos. 1-32853, 1-04928, 1-03382, 1-03274, 1-01232 and 1-03543).
X
  
X
  
  
  
X
  
X
  
X
  
X
10.57**
Employment Agreement between Duke Energy Corporation and Lynn J. Good, dated as of June 17, 2013, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on June 18, 2013, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.58**
Duke Energy Corporation Executive Short-Term Incentive Plan, effective February 25, 2013, (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8- filed on May 7, 2013, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.59**
Duke Energy Corporation 2013 Director Compensation Program Summary (incorporated by reference to Exhibit 10.81 To Duke Energy Corporation's Annual Report on Form 10-K for the year ended December 31, 2013 filed on February 28, 2014, File No. 1-32853).
X
  
  
  
  
  
  
  
  
  
  
  
  
10.60**
Amended and Restated Duke Energy Corporation Executive Savings Plan, dated as of January 1, 2014, (incorporated by reference to Exhibit 10.82 to Duke Energy Corporation's Annual Report on Form 10-K for the year ended December 31, 2013 filed on February 28, 2014, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
*10.61
Agreement between Duke Energy SAM, LLC, Duke Energy Ohio, Inc., Duke Energy Commercial Enterprise, Inc. and Dynegy Resource I, LLC, dated as of August 21, 2014.
X
 
 
 
 
 
 
 
 
 
X
 
 
*10.62
Asset Purchase Agreement between Duke Energy Progress, Inc. and North Carolina Eastern Municipal Power Agency, dated as of September 5, 2014.
X
 
 
 
 
 
X
 
 
 
 
 
 
10.63
Change in Control Agreement between Duke Energy Corporation and Lloyd M. Yates, dated as of April 30, 2014, (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation's Current Report on Form 8-K filed on May 6, 2014, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
*12.1
Computation of Ratio of Earnings to Fixed Charges - DUKE ENERGY CORPORATION
X
  
  
  
  
  
  
  
  
  
  
  
  
*12.2
Computation of Ratio of Earnings to Fixed Charges - DUKE ENERGY CAROLINAS, LLC
  
  
X
  
  
  
  
  
  
  
  
  
  
*12.3
Computation of Ratio of Earnings to Fixed Charges - PROGRESS ENERGY, INC
  
  
  
  
X
  
  
  
  
  
  
  
  
*12.4
Computation of Ratio of Earnings to Fixed Charges - DUKE ENERGY PROGRESS, INC
  
  
  
  
  
  
X
  
  
  
  
  
  
*12.5
Computation of Ratio of Earnings to Fixed Charges - DUKE ENERGY FLORIDA, INC
  
  
  
  
  
  
  
  
X
  
  
  
  
*12.6
Computation of Ratio of Earnings to Fixed Charges - DUKE ENERGY OHIO, INC.
  
  
  
  
  
  
  
  
  
  
X
  
  
*12.7
Computation of Ratio of Earnings to Fixed Charges - DUKE ENERGY INDIANA, INC.
  
  
  
  
  
  
  
  
  
  
  
  
X
*21
List of Subsidiaries
X
  
  
  
  
  
  
  
  
  
  
  
  
*23.1.1
Consent of Independent Registered Public Accounting Firm.
X
  
  
  
  
  
  
  
  
  
  
  
  
*23.1.2
Consent of Independent Registered Public Accounting Firm.
  
  
X
  
  
  
  
  
  
  
  
  
  
*23.1.3
Consent of Independent Registered Public Accounting Firm.
  
  
  
  
X
  
  
  
  
  
  
  
  
*23.1.4
Consent of Independent Registered Public Accounting Firm.
  
  
  
  
  
  
X
  
  
  
  
  
  
*23.1.5
Consent of Independent Registered Public Accounting Firm.
  
  
  
  
  
  
  
  
X
  
  
  
  
*23.1.6
Consent of Independent Registered Public Accounting Firm.
  
  
  
  
  
  
  
  
  
  
X
  
  
*23.1.7
Consent of Independent Registered Public Accounting Firm.
  
  
  
  
  
  
  
  
  
  
  
  
X
*24.1
Power of attorney authorizing Lynn J. Good and others to sign the annual report on behalf of the registrant and certain of its directors and officers.
X
  
  
  
  
  
  
  
  
  
  
  
  
*24.2
Certified copy of resolution of the Board of Directors of the registrant authorizing power of attorney.
X
  
  
  
  
  
  
  
  
  
  
  
  
*31.1.1
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
  
  
  
  
  
  
  
  
  
  
  
  
*31.1.2
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
X
  
  
  
  
  
  
  
  
  
  
*31.1.3
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
X
  
  
  
  
  
  
  
  
*31.1.4
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
X
  
  
  
  
  
  
*31.1.5
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
X
  
  
  
  
*31.1.6
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
  
  
X
  
  
*31.1.7
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
  
  
  
  
X
*31.2.1
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
  
  
  
  
  
  
  
  
  
  
  
  
*31.2.2
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
X
  
  
  
  
  
  
  
  
  
  
*31.2.3
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
X
  
  
  
  
  
  
  
  
*31.2.4
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
X
  
  
  
  
  
  
*31.2.5
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
X
  
  
  
  
*31.2.6
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
  
  
X
  
  
*31.2.7
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
  
  
  
  
X
*32.1.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
  
  
  
  
  
  
  
  
  
  
  
  
*32.1.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
X
  
  
  
  
  
  
  
  
  
  
*32.1.3
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
X
  
  
  
  
  
  
  
  
*32.1.4
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
X
  
  
  
  
  
  
*32.1.5
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
X
  
  
  
  
*32.1.6
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
  
  
X
  
  
*32.1.7
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
  
  
  
  
X
*32.2.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
  
  
  
  
  
  
  
  
  
  
  
  
*32.2.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
X
  
  
  
  
  
  
  
  
  
  
*32.2.3
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
X
  
  
  
  
  
  
  
  
*32.2.4
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
X
  
  
  
  
  
  
*32.2.5
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
X
  
  
  
  
*32.2.6
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
  
  
X
  
  
*32.2.7
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
  
  
  
  
  
  
  
  
  
  
  
X
*101.INS
XBRL Instance Document
X
  
X
  
X
  
X
  
X
  
X
  
X
*101.SCH
XBRL Taxonomy Extension Schema Document
X
  
X
  
X
  
X
  
X
  
X
  
X
*101.CAL
XBRL Taxonomy Calculation Linkbase Document
X
  
X
  
X
  
X
  
X
  
X
  
X
*101.LAB
XBRL Taxonomy Label Linkbase Document
X
  
X
  
X
  
X
  
X
  
X
  
X
*101.PRE
XBRL Taxonomy Presentation Linkbase Document
X
  
X
  
X
  
X
  
X
  
X
  
X
*101.DEF
XBRL Taxonomy Definition Linkbase Document
X
  
X
  
X
  
X
  
X
  
X
  
X
The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the SEC, to furnish copies of any or all of such instruments to it.

E-1


EXECUTION COPY






PURCHASE AND SALE AGREEMENT
by and among
DUKE ENERGY SAM, LLC
and
DUKE ENERGY COMMERCIAL ENTERPRISES, INC.,
as Sellers,
and
DYNEGY RESOURCE I, LLC,
as Buyer
dated as of August 21, 2014

TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND CONSTRUCTION
    2
1.1. Definitions     2
1.2. Rules of Construction     18
ARTICLE II
PURCHASE AND SALE AND CLOSING
    19
2.1. Purchase and Sale     19
2.2. Purchase Price     19
2.3. Closing     20
2.4. Closing Deliveries by Sellers to Buyer     20
2.5. Closing Deliveries by Buyer to Sellers     20
2.6. Post-Closing Adjustment     21
2.7. Allocation of Purchase Price     22
ARTICLE III
REPRESENTATIONS AND WARRANTIES REGARDING SELLERS
    22
3.1. Organization     22
3.2. Authority     23
3.3. No Conflicts; Consents and Approvals     23
3.4. Capitalization     24
3.5. Legal Proceedings     24
3.6. Brokers     24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES REGARDING THE ACQUIRED COMPANIES, THE COAL PARTICIPANT PROJECTS AND THE COAL PARTICIPANT PROJECT ASSETS
    24
4.1. Organization     24
4.2. No Conflicts; Consents and Approvals     25
4.3. Capitalization     25
4.4. Business     26
4.5. Legal Proceedings     26
4.6. Compliance with Laws and Orders     26
4.7. Financial Statements; Liabilities     26
4.8. Absence of Certain Changes     27
4.9. Taxes     27
4.10. Regulatory Matters     28
4.11. Contracts     28
4.12. Real Property     30
4.13. Permits     31
4.14. Environmental Matters     32
4.15. Insurance     33
4.16. Intellectual Property     33
4.17. Brokers     33
4.18. Employees and Labor Matters     34
4.19. Employee Benefits .     35
4.20. No Other Representations or Warranties     36
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
    36
5.1. Organization     36
5.2. Authority     36
5.3. No Conflicts     37
5.4. Legal Proceedings     37
5.5. Compliance with Laws and Orders     37
5.6. Brokers     37
5.7. Securities Law Matters     37
5.8. Experience; Investigation     38
5.9. Disclaimer Regarding Projections     38
5.10. Financial Resources     38
ARTICLE VI
COVENANTS
    39
6.1. Regulatory and Other Approvals     39
6.2. Access of Buyer and Sellers     41
6.3. Interim Operations and Certain Restrictions     42
6.4. Use of Certain Names     45
6.5. Support Obligations     47
6.6. Excluded Items; Post-Closing Payments on Purchased Assets     51
6.7. Employee and Benefit Matters     52
6.8. Affiliate Contracts; Affiliate Dedicated Contracts; Affiliate Shared Services Contracts     57
6.9. Indebtedness; Distributions     58
6.10. Insurance     59
6.11. Casualty     59
6.12. Condemnation     59
6.13. Transition Plan; Transition Services Arrangements; Replacement of Representatives     60
6.14. Tax Matters     61
6.15. Further Assurances     65
6.16. Competing Transactions     65
6.17. Public Announcements     65
6.18. Confidentiality     66
6.19. Updates; Supplements to Schedules     66
6.20. Separation of Generation and Transmission Assets and Operations     67
6.21. Related Agreements     67
6.22. Real Property Matters     68
6.23. Financing Cooperation     68
ARTICLE VII
BUYER’S CONDITIONS TO CLOSING
    70
7.1. Representations and Warranties     70
7.2. Performance     70
7.3. Officer’s Certificate     70
7.4. Orders and Laws     70
7.5. Consents and Approvals     70
7.6. Resignation of Members, Managers, Officers and Directors     70
7.7. Closing Deliveries     71
7.8. Title Matters     71
7.9. Material Adverse Effect     71
7.10. Certain Information     71
7.11. Frustration of Closing Conditions     71
ARTICLE VIII
SELLERS’ CONDITIONS TO CLOSING
    71
8.1. Representations and Warranties     71
8.2. Performance     72
8.3. Release of Support Obligations     72
8.4. Officer’s Certificate     72
8.5. Orders and Laws     72
8.6. Consents and Approvals     72
8.7. Closing Deliveries     72
8.8. Frustration of Closing Conditions     72
ARTICLE IX
TERMINATION
    72
9.1. Termination     72
9.2. Effect of Termination     73
ARTICLE X
INDEMNIFICATION, LIMITATIONS OF LIABILITY AND WAIVERS
    74
10.1. Indemnification     74
10.2. Limitations of Liability     75
10.3. Release     77
10.4. Waiver of Other Representations     77
10.5. Waiver of Remedies     78
10.6. Procedure with Respect to Third-Party Claims     79
10.7. Procedures with Respect to Retained Seller Actions     80
10.8. Access to Information     81
ARTICLE XI
MISCELLANEOUS
    81
11.1. Notices     81
11.2. Entire Agreement     82
11.3. Expenses     83
11.4. Disclosure     83
11.5. Waiver     83
11.6. Amendment     83
11.7. No Third Party Beneficiary     83
11.8. Assignment; Binding Effect     84
11.9. Specific Performance     84
11.10. Headings     84
11.11. Invalid Provisions     84
11.12. Counterparts; Facsimile     84
11.13. Governing Law; Venue; Jurisdiction     84
11.14. Waiver of Jury Trial     85
11.15. Finance-Related Arrangements     85

APPENDICES
Appendix I    Project Related Defined Terms
EXHIBITS
Exhibit A    Form of Contribution Agreement Amendment
Exhibit B    Form of Buyer Guarantee
Exhibit C    Form of Sellers Guarantee
Exhibit D    Form of Access Agreement
Exhibit E    Form of Assignment and Assumption Agreement
Exhibit F    Form of Company Assignment Agreement
Exhibit G    Form of Transition License Agreement
Exhibit H    Employee Pension Matters
Exhibit I     Form of Transition Services Agreement

SCHEDULES
1.1–AC Affiliate Contracts
1.1–AD Affiliate Dedicated Contracts
1.1–AS Affiliate Shared Services Contracts
1.1–AN Available Non-Unionized Employees
1.1–K Knowledge
1.1–NWC Net Working Capital
1.1–PL Permitted Liens
1.1–PL(c) Permitted Liens Released on or prior to Closing
1.1–SE Corporate Support Employees
1.1–UE Unionized Employees
2.2(c) Projected Capital Expenditures
3.3(b) Sellers Approvals
3.4 Capitalization
4.2(b) Acquired Company Consents
4.4 Operation of the Business
4.5 Legal Proceedings
4.7(a) Financial Statements
4.7(b) Liabilities
4.8 Certain Changes
4.9 Taxes
4.10 Regulatory Matters
4.11 Material Contracts
4.11(d) Material Contract Compliance
4.12(a) Natural Gas Project Real Property
4.12(b) Coal Operator Project Real Property
4.12(c) Coal Participant Project Real Property
4.12(d) Retail Real Property
4.12(e) Leased Real Property
4.13 Permits
4.14(a) Environmental Matters
4.14(b) Emission Allowances
4.15 Insurance
4.18(b) Employee and Labor Matters
4.18(b)(i) Collective Bargaining Agreements
4.19(a) Sellers Benefit Plans
4.19(b)(ii) Qualified Plans
5.3(b) Buyer Approvals
5.10 Debt Commitment Letters
6.3(a) Conduct of Business
6.3(a)(xviii) Transfer of Business Employees
6.4(a) Sellers Marks
6.4(e) Specified Marks
6.5(a) Support Obligations
6.6 Excluded Items
6.7(c)(iv)(B) Non-Active Available Non-Unionized Employees
6.8(a) Continued Affiliate Contracts
6.13(a) Transition Plan Matters
6.13(b) Certain Material Software
6.14(j) Tax-Exempt Bond Matters
6.20 GT Separation
6.21 Related Agreements
6.22 Title Company Affidavit

PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement dated as of August 21, 2014 (this “ Agreement ”) is made and entered into by and among Duke Energy SAM, LLC, a Delaware limited liability company (“ Generation Seller ”), and Duke Energy Commercial Enterprises, Inc., an Indiana corporation (“ Retail Seller ” and, together with Generation Seller, collectively, “ Sellers ,” and each, individually, a “ Seller ”), and Dynegy Resource I, LLC, a Delaware limited liability company (“ Buyer ” and, together with Sellers, collectively, the “ Parties ,” and each, individually, a “ Party ”).
RECITALS
WHEREAS , Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers, one hundred percent (100%) of the membership interests in the direct or indirect owners of (i) five (5) natural gas-fired power plants located in the State of Ohio, the Commonwealth of Pennsylvania and the State of Illinois, (ii) one (1) oil-fired electric generating plant located in the State of Ohio, (iii) partial interests in five (5) coal-fired power plants located in the State of Ohio and (iv) a retail energy business, all on the terms and subject to the conditions set forth herein;
WHEREAS , effective as of the Closing (as defined below), the Coal Project Companies (as defined below) and DEO (as defined below) will enter into amendments to their corresponding Contribution Agreements, each in the form attached hereto as Exhibit A (each, a “ Contribution Agreement Amendment ”);
WHEREAS , as a material inducement to Sellers to enter into this Agreement, concurrently with the execution of this Agreement, Dynegy Inc., a Delaware corporation (“ Buyer Guarantor ”) and an Affiliate of Buyer, has issued and delivered a guarantee (the “ Buyer Guarantee ”) in the form attached hereto as Exhibit B in favor of Sellers with respect to the obligations of Buyer arising under, or in connection with, this Agreement and the Transition Services Agreement (as defined below); and
WHEREAS , as a material inducement to Buyer to enter into this Agreement, concurrently with the execution of this Agreement, Duke Energy Corporation, a Delaware corporation (“ Parent ”) and an Affiliate of Sellers, has issued and delivered a guarantee (the “ Sellers Guarantee ”) in the form attached hereto as Exhibit C in favor of Buyer with respect to the obligations of Sellers arising under, or in connection with, this Agreement and the Transition Services Agreement.
STATEMENT OF AGREEMENT
Now, therefore, in consideration of the premises and the mutual representations, warranties, covenants and agreements in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1.      Definitions . As used in this Agreement, the following capitalized terms have the meanings set forth below:
1933 Act ” means the Securities Act of 1933, and the rules and regulations promulgated thereunder.
Access Agreements ” means the access agreements, substantially in the form attached hereto as Exhibit D , to be entered into as of the Closing by and between a Seller or its Non-Company Affiliate, on the one hand, and each Coal Operator Project Company or DE Dicks Creek, on the other hand, relating to the GT Separation work.
Acquired Companies ” means, collectively, DECAM, the HoldCos, the Project Companies and the Retail Company and each, individually, an “ Acquired Company .”
Acquired Company Consents ” has the meaning given to it in Section 4.2(b) .
Affiliate ” means any Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Person specified. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether through ownership of voting securities or ownership interests, by contract or otherwise, and specifically with respect to a corporation, partnership or limited liability company, means direct or indirect ownership of more than fifty percent (50%) of the voting securities in such corporation or of the voting interest in a partnership or limited liability company. For the avoidance of doubt, the Coal Project Co-Owners shall not be deemed Affiliates of Sellers or the Acquired Companies for purposes of this Agreement.
Affiliate Contracts ” means, collectively, those Contracts between any of the Acquired Companies, on the one hand, and a Seller or Non-Company Affiliate, on the other hand, each of which is listed on Schedule 1.1-AC .
Affiliate Dedicated Contracts ” means, collectively, those Contracts between a Seller or Non-Company Affiliate, on the one hand, and a Counterparty, on the other hand, relating to the purchase, sale or disposition of any products, by-products or services exclusively or primarily for the benefit of any of the Acquired Companies or the Projects, listed on Schedule 1.1-AD .
Affiliate Shared Services Contracts ” means, collectively, those Contracts between a Seller or Non-Company Affiliate, on the one hand, and a Counterparty, on the other hand, for the provision of services in part for the benefit of the Acquired Companies or the Operator Projects, listed on Schedule 1.1-AS .
Agreement ” has the meaning given to it in the Preamble.
Ancillary Agreements ” means the Buyer Guarantee, the Sellers Guarantee, the Contribution Agreement Amendments, the Company Assignment Agreements, the Assignment and Assumption Agreements, the Access Agreements, the Transition License Agreement and the Transition Services Agreement.
Applicable Risk Limits ” means, collectively, (i) the Midwest Commercial Generation – Duke Energy Retail Sales Risk Limits (applicable to retail electricity supply), (ii) the Midwest Commercial Generation – Duke Energy Retail Sales Gas Risk Limits (applicable to retail gas supply), (iii) the Midwest Commercial Generation Risk Limits (applicable to commodities), (iv) the Midwest Commercial Generation Risk Limits (applicable to auctions) and (v) the Midwest Commercial Generation (MCG) and Duke Energy Renewables (DER) Risk Management Control Manual, dated May 2014 (solely to the extent applicable to the Business of the Acquired Companies).
Ash Disposal Agreement ” means a Coal Ash Disposal Agreement, substantially in the form attached as Annex I to Schedule 6.21 , to be entered into by and between DE Zimmer and DEO, in accordance with Section 6.21 .
Assets ” of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person.
Assigned Contracts ” means, collectively, each Affiliate Dedicated Contract, other than any Affiliate Dedicated Contract that has been terminated as of the Closing in accordance with Section 6.8(b) , the Counterparty to which has consented to, or with respect to which no consent is required for, the assignment thereof by the Assignor to the Assignee as contemplated by the Assignment and Assumption Agreements.
Assignee ” has the meaning given to it in the definition of “Assignment and Assumption Agreement.”
Assignment and Assumption Agreement ” means each assignment and assumption agreement, substantially in the form attached hereto as Exhibit E , effecting the assignment to Buyer or one of the Project Companies (as applicable, the “ Assignee ”) of each Assigned Contract by a Seller or the Non-Company Affiliate that is party thereto (the “ Assignor ”) subject to the proviso in Section 6.8(b)(ii) , and the assumption by the Assignee of all obligations of the Assignor under each Assigned Contract relating to the periods from and after the Closing Date.
Assignor ” has the meaning given to it in the definition of “Assignment and Assumption Agreement.”
Audited Financial Statements ” has the meaning given to it in Section 4.7(a) .
Available Non-Unionized Employees ” means (i) certain employees of Sellers or their Affiliates who have provided services relating to the Projects and/or any Acquired Company, and as of the date of this Agreement, a list of such persons is set forth on Schedule 1.1-AN , and (ii) the Corporate Support Employees.
Base Purchase Price ” has the meaning given to it in Section 2.2(a) .
Business ” as to (a) any Project Company, means the ownership and operation, as applicable, of the respective Project, including the generation and sale of capacity, energy and ancillary services by such Project Company at or from the Project, the receipt by such Project Company of natural gas, oil or coal, as applicable, or other fuels and commodities, and the conduct of other activities by such Project Company related or incidental to the foregoing, (b) the Retail Company, means the Retail Company’s competitive electric and natural gas business and the businesses incidental and related thereto, (c) DECAM, means DECAM’s non-regulated electric wholesale and auction business, its coal brokering business formerly conducted under the name Duke Energy Industrial Sales, its business supporting the operations of the Project Companies and the Retail Company, and the ownership and operation of its other business as it is currently owned and operated and (d) any other Acquired Company, means the ownership and operation of such Acquired Company’s business as it is currently owned and operated; provided that the term “Business” shall not include any business relating to any of the Excluded Items.
Business Day ” means a day other than Saturday, Sunday or any day on which banks located in the State of New York are authorized or obligated to close.
Business Employees ” means, collectively, the Available Non-Unionized Employees and Unionized Employees and each, individually, a “ Business Employee .”
Buyer ” has the meaning given to it in the Preamble.
Buyer Approvals ” has the meaning given to it in Section 5.3(b) .
Buyer Fundamental Representations ” has the meaning given to it in Section 8.1 .
Buyer Guarantee ” has the meaning given to it in the Recitals.
Buyer Guarantor ” has the meaning given to it in the Recitals.
Buyer Indemnified Parties ” has the meaning given to it in Section 10.1(a) .
Buyer Pension Plan ” has the meaning given to it in Section 6.7(g) .
Buyer Savings Plan ” has the meaning given to it in Section 6.7(h) .
Buyer Union Savings Plan ” has the meaning given to it in Section 6.7(h) .
CapEx Difference ” has the meaning given to it in Section 2.2(c) .
CapEx Difference Estimate ” has the meaning given to it in Section 2.5(a)(iii) .
Capital Stock ” means capital stock, partnership or membership interests or units (whether general or limited), and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distribution of Assets of, the issuing entity.
Charter Documents ” means, with respect to any Person, the articles of incorporation or organization, certificates of formation and by-laws, the limited partnership agreement, the partnership agreement or the limited liability company agreement, or such other organizational documents of such Person, including those that are required to be registered or kept in the place of incorporation, organization or formation of such Person and which establish the legal personality of such Person.
Claim ” means any demand, claim, complaint, action, litigation, investigation, proceeding (whether at law or in equity) or arbitration.
Claiming Party ” has the meaning given to it in Section 10.6(a) .
Closing ” means the closing of the transactions contemplated by this Agreement, as provided for in Section 2.3 .
Closing Date ” means the date on which the Closing occurs.
Co-Owner Agreements ” means the agreements among the owners of each Coal Project related to the ownership and operation of the applicable Coal Project, as they may be amended from time to time after the date hereof in accordance with the terms of this Agreement.
Coal Operator Project Assets ” means the Assets of a Coal Operator Project utilized and necessary for the material operations of the applicable Coal Operator Project.
Coal Operator Project Companies ” means, collectively, DE Miami Fort and DE Zimmer (each, as defined in Appendix I ) and each, individually, a “ Coal Operator Project Company .”
Coal Operator Project Contracts ” means, collectively, Contracts entered into by a Coal Operator Project Company in its capacity as the operator of a Coal Operator Project, on behalf of itself as an owner of the Coal Operator Project and the applicable Coal Project Co-Owners.
Coal Operator Projects ” means, collectively, the Miami Fort Project and the Zimmer Project (each, as defined in Appendix I ) and each, individually, a “ Coal Operator Project .”
Coal Participant Project Assets ” means the Assets of a Coal Participant Project utilized and necessary for the material operations of the applicable Coal Participant Project.
Coal Participant Project Companies ” means, collectively, DE Stuart, DE Conesville and DE Killen (each, as defined in Appendix I ) and each, individually, a “ Coal Participant Project Company .”
Coal Participant Project Contracts ” means, collectively, Contracts entered into by a Coal Participant Project Operator on behalf of the owners of a Coal Participant Project.
Coal Participant Project Operators ” means, collectively, the Persons (other than the Coal Participant Project Companies) operating the applicable Coal Participant Projects and each, individually, a “ Coal Participant Project Operator .”
Coal Participant Projects ” means, collectively, the Stuart Project, the Conesville Project and the Killen Project (each, as defined in Appendix I ) and each, individually, a “ Coal Participant Project .”
Coal Project Assets ” means, collectively, the Coal Operator Project Assets and the Coal Participant Project Assets.
Coal Project Co-Owners ” means the owners of the Coal Projects that are not any of the Acquired Companies.
Coal Project Companies ” means, collectively, the Coal Operator Project Companies and the Coal Participant Project Companies and each, individually, a “ Coal Project Company .”
Coal Projects ” means, collectively, the Coal Operator Projects and the Coal Participant Projects and each, individually, a “ Coal Project .”
COBRA ” has the meaning given to it in Section 6.7(f) .
Code ” means the Internal Revenue Code of 1986.
Collective Bargaining Agreement ” means each collective bargaining agreement with any labor union representing employees of Sellers or their Affiliates providing services to any of the Acquired Companies and/or the Projects, as set forth on Schedule 4.18(b)(i) .
Commercial Hedge ” means any forward, futures, swap, collar, put, call, floor, cap, option or other Contracts that are intended to benefit from or reduce or eliminate the risk of fluctuations in the price of commodities, including electric power, in any form, including energy, capacity or any ancillary services, gas, coal, oil or other commodities, currencies, interest rates and indices, and any financial transmission rights and auction revenue rights; provided that the term “Commercial Hedge” shall not include any Contracts of the type described in clauses (A) – (D) of Section 4.11(a)(i) (regardless of the aggregate consideration or payment obligations) or any other Contract for the sale, purchase, exchange, transportation or transmission of a commodity pursuant to which delivery of a physical commodity is anticipated.
Commitment Letter ” has the meaning given to it in Section 5.10 .
Company Assignment Agreement ” means each assignment agreement, substantially in the form attached hereto as Exhibit F , evidencing the assignment and transfer to Buyer of the Company Interests owned by the applicable Seller.
Company Interests ” means one hundred percent (100%) of the outstanding membership interests in each of DECAM and the Retail Company.
Condemnation Value ” has the meaning given to it in Section 6.12 .
Confidentiality Agreement ” means that certain Confidentiality Agreement between Buyer and Parent, dated April 16, 2014.
Continued Affiliate Contracts ” has the meaning given to it in Section 6.8(a) .
Continuing Non-Unionized Employee ” has the meaning given to it in Section 6.7(c)(iv) .
Continuing Support Obligation ” has the meaning given to it in Section 6.5(d) .
Contract ” means any written contract, lease, license, evidence of Indebtedness, mortgage, indenture, purchase order, binding bid, letter of credit, security agreement or other written and legally binding arrangement.
Contribution Agreement Amendment ” has the meaning given to it in the Recitals.
Contribution Agreements ” means those certain contribution agreements between each of the Project Companies and DEO, pursuant to which DEO’s assets, rights and obligations relating to the corresponding Project were transferred to the applicable Project Company.
Controlled Group Liability ” means any and all liabilities (i) under Title IV of ERISA, (ii) under Section 302, 303 or 4068(a) of ERISA, (iii) under Section 412, 430 or 4971 of the Code or (iv) for violation of the continuation coverage requirements of Sections 601 et seq. of ERISA and Section 4980B of the Code, in the case of each of the foregoing clauses (i) through (iv), with respect to any Acquired Company or any ERISA Affiliate of any Acquired Company or subsidiary thereof.
Corporate Support Employees ” means certain employees of Sellers or their Affiliates providing support services to the Projects and/or the Acquired Companies, and as of the date of this Agreement, a list of such persons is set forth on Schedule 1.1-SE .
Counterparty ” has the meaning given to it in Section 6.8(b)(i) .
Credit Rating ” means, with respect to any Person, each rating given to such Person’s long-term unsecured debt obligations (not supported by third party credit enhancements) by S&P or Moody’s, as applicable, and any successors thereto, or if such rating is not available, such Person’s corporate or issuer rating.
DECAM ” means Duke Energy Commercial Asset Management, LLC, an Ohio limited liability company.
Deductible Amount ” has the meaning given to it in Section 10.2(c) .
DEO ” means Duke Energy Ohio, Inc., an Ohio corporation.
Determination Period ” has the meaning given to it in Section 2.6(a) .
DOJ ” means the United States Department of Justice, Antitrust Division.
Environmental Claim ” means any Claim or Loss arising out of or related to any violation of Environmental Law or the Release or threatened Release of any Hazardous Material.
Environmental Law ” means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq .; the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq .; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq .; the Clean Air Act, 42 U.S.C. § 7401 et seq .; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq .; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq .; the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; the Hazardous Materials Transportation Act of 1975, 49 U.S.C. § 5101 et seq .; and all similar Laws (including implementing regulations) of any Governmental Authority having jurisdiction over the assets in question addressing pollution or protection of the environment.
Equity Securities ” means (i) Capital Stock, (ii) subscriptions, calls, warrants, options or commitments of any kind or character relating to, or entitling any Person or entity to acquire, any Capital Stock and (iii) securities convertible into or exercisable or exchangeable for shares of Capital Stock.
ERISA ” means the Employee Retirement Income Security Act of 1974.
ERISA Affiliate ” means any entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 400l(b)(l) of ERISA that includes a Seller, or that is a member of the same “controlled group” as a Seller pursuant to Section 4001(a)(14) of ERISA; provided , however , that the Acquired Companies shall not be considered to be ERISA Affiliates from and after the Closing Date.
Exchange Act ” has the meaning given to it in Section 6.18 .
Excluded Items ” has the meaning given to it in Section 6.6(a) .
Excluded Liabilities ” means all Claims, Losses and obligations of each Acquired Company, each Seller and any of their respective Affiliates arising out of: (i) all Excluded Items, including any Non-Transferred Excluded Items and any actions taken by or on behalf of any Seller, any Acquired Company or any of their respective Affiliates in connection therewith, (ii) subject to clause (iii) below, all Terminated Agreements, (iii) any Sellers Benefit Plan, including any obligations resulting from the transactions contemplated hereby, except to the extent specifically assumed or indemnified by Buyer pursuant to Section 6.7, (iv) the Assigned Contracts, to the extent relating to the periods prior to the Closing Date and not included in the calculation of Net Working Capital and (v) fees payable to any broker, finder, financial advisor or agent by or on behalf of any Seller or any of its respective Affiliates with respect to the transactions contemplated by this Agreement.
EWG ” means an “exempt wholesale generator” within the meaning of PUHCA.
FERC ” means the Federal Energy Regulatory Commission.
Final Determination ” means a determination as defined in Section 1313(a) of the Code or any similar state, local, or non-U.S. Tax Laws, to the extent such a Final Determination has been applied directly to a matter involving any of the Acquired Companies.
Financing ” has the meaning given to it in Section 6.23(a)(i) .
Financing Source ” means each actual or prospective agent, arranger, lender, investor, underwriter, initial purchaser and placement agent providing, or acting in connection with, any Financing or any Affiliates of any such Person and any other potential financing source, and each of their respective controlling persons, agents and Representatives, and any of their respective successors and assigns.
Financial Statements ” has the meaning given to it in Section 4.7(a) .
FPA ” means the Federal Power Act of 1935.
FTC ” means the Federal Trade Commission.
FUCO ” means a “foreign utility company” within the meaning of PUHCA.
GAAP ” means generally accepted accounting principles in the United States of America, applied on a consistent basis.
Generation Seller ” has the meaning given to it in the Preamble.
Good Industry Practice ” means any of the practices, methods, standards, procedures and acts engaged in or approved by a significant portion of the industry related to the applicable Acquired Company or its predecessor Affiliate during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision is made, could have been expected to accomplish the desired result in a manner consistent with good business practices, Law, reliability and safety. “Good Industry Practice” is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather is intended to include practices, methods or acts generally accepted in the region.
Governmental Authority ” means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States or any state, county, city or other political subdivision or similar governing entity, and including any governmental, quasi-governmental or non-governmental body administering, regulating or having general oversight over gas or power markets.
GT Separation ” has the meaning given to it in Section 6.20 .
Hazardous Material ” means and includes each substance designated as a hazardous waste, hazardous substance, hazardous material, pollutant, contaminant or toxic substance under any Environmental Law and any petroleum, petroleum products, coal combustion by-products, asbestos, polychlorinated biphenyls and similar substances and materials that have been released into the environment in concentrations or locations for which remedial action is required under any applicable Environmental Law.
Hedging Activities ” has the meaning given to it in Section 6.3(c) .
HoldCos ” means the intermediate holding companies DECAM HoldCo, DECAM Gas and DECAM Coal, collectively (each, as defined in Appendix I ).
HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Indebtedness ” means any of the following: (a) any indebtedness for borrowed money; (b) any obligations evidenced by bonds, debentures, notes or other similar instruments; (c) any obligations to pay the deferred purchase price of property or services, except trade accounts payable and other current liabilities arising in the ordinary course of business consistent with past practices; (d) any obligations as lessee under capitalized leases; (e) any indebtedness created or arising under any conditional sale or other title retention agreement with respect to acquired property; (f) any obligations, contingent or otherwise, under acceptance, letters of credit or similar facilities; and (g) any guaranty of any of the foregoing; provided that Indebtedness shall not include any claim for subrogation by any Seller or any of its respective Affiliates against an Acquired Company with respect to any credit support provided on behalf of such Seller or such Affiliate of such Seller for the benefit of such Acquired Company.
Indemnified Parties ” has the meaning given to it in Section 10.1(b) .
Intellectual Property ” means the following intellectual property rights, both statutory and common Law rights, if applicable: (a) copyrights, registrations and applications for registration thereof, (b) trademarks, service marks, trade names, slogans, domain names, logos, trade dress, and registrations and applications for registrations thereof, (c) patents, as well as any reissued and reexamined patents and extensions corresponding to the patents, and any patent applications, as well as any related continuation, continuation in part and divisional applications and patents issuing therefrom and (d) trade secrets and confidential information, including ideas, designs, concepts, compilations of information, methods, techniques, procedures, processes and other know-how, that gives a competitive advantage.
Interconnection Agreements ” means Interconnection Agreements between and among (i) the owners of each Coal Project, the transmission owners interconnecting with such Coal Projects and PJM and (ii) DE Dicks Creek, the transmission owner interconnecting with the Dicks Creek Project and PJM, in each case, to be entered into in accordance with Section 6.21 , and in form and substance reasonably satisfactory to Buyer.
Interest Rate ” means five percent (5%) per annum.
Interim Financial Statements ” has the meaning given to it in Section 4.7(a) .
Interim Period ” means the period from the date of this Agreement until the earlier of (i) the Closing and (ii) the termination of this Agreement in accordance with its terms.
Investment Grade ” means a Credit Rating of at least “BBB-” from S&P and at least “Baa3” from Moody’s.
IRS ” means the United States Internal Revenue Service.
Knowledge ” when used in a particular representation in this Agreement with respect to any Seller or Sellers, means the actual knowledge (as opposed to any constructive or imputed knowledge) of the individuals listed on Schedule 1.1-K .
Laws ” means all laws, statutes, rules, regulations, ordinances, orders, decrees, court decisions, and other pronouncements having the effect of law of any Governmental Authority.
Leased Operator Project Real Property ” means the real property leased or subleased by any of the Operator Project Companies, as tenant, together with, to the extent leased by any of the Operator Project Companies, all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of any of the Operator Projects attached or appurtenant thereto.
Leased Participant Project Real Property ” means the real property leased or subleased by any of the Coal Participant Project Companies, as tenant, together with, to the extent leased by any of the Coal Participant Project Companies, all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of any of the Coal Participant Projects attached or appurtenant thereto.
Leased Real Property ” means the Leased Participant Project Real Property, the Leased Operator Project Real Property and the Leased Retail Real Property, collectively.
Leased Retail Real Property ” means the real property leased or subleased by the Retail Company, as tenant, together with, to the extent leased by the Retail Company, all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of the Retail Company attached or appurtenant thereto.
Letter of Credit ” means an irrevocable, standby letter of credit issued by a U.S. commercial bank or the U.S. branch of a foreign bank with ratings of at least “A-” by S&P and at least “A3” by Moody’s, and having total assets of at least $10,000,000,000 (the “ Minimum Issuer Requirements ”) which shall (a) include customary terms and conditions (including terms and conditions substantially similar to or more favorable than those in the Support Obligation which is being replaced or backstopped by such letter of credit), (b) contain customary rights permitting the beneficiary of such letter of credit to draw upon such letter of credit upon any event or omission that would have allowed the Support Obligation being replaced by such letter of credit to be drawn or called upon, including upon certification of any breach of the underlying Contract if applicable, and (c) contain the right for the beneficiary thereof to draw on such letter of credit if such letter of credit has not been renewed or replaced at least thirty (30) days prior to the expiration thereof (or such lesser period as may be specified in the underlying Contract to which such letter of credit relates) or if it is not timely replaced in accordance with the requirements of Section 6.5(d)(iv)(A) .
LIBOR ” means the three (3) month London Interbank Offered Rate, as quoted in The Wall Street Journal (or any successor to or, if such service is not available from The Wall Street Journal , substitute for such service providing rate quotations comparable to those currently provided by The Wall Street Journal ).
License Period ” has the meaning given to it in Section 6.4(b) .
Licensed Mark ” has the meaning given to it in Section 6.4(b) .
Lien ” means any mortgage, pledge, deed of trust, assessment, security interest, charge, lien, option, warranty, purchase right, lease or other similar property interest or encumbrance.
Loss ” means any and all judgments, losses, liabilities, amounts paid in settlement, damages, fines, penalties, deficiencies, costs, charges, Taxes, obligations, demands, fees, losses and expenses (including interest, court costs, reasonable fees of attorneys, accountants and other experts or other reasonable expenses of investigation, litigation or other proceedings or of any Claim, dispute, default or assessment), whether involving Claims solely between the Parties, third party Claims or otherwise. For all purposes in this Agreement, the term “ Losses ” does not include any Non-Reimbursable Damages.
LTSA ” means each Long Term Service Agreement between General Electric International, Inc. and a Project Company.
Material Adverse Effect ” means a material adverse effect on (i) the Assets, properties, businesses, financial condition or results of operations of the Acquired Companies, taken as a whole, or (ii) the ability of Sellers to consummate the transactions contemplated by this Agreement; provided , howeve r , that the following shall not be considered when determining whether a Material Adverse Effect has occurred: any change or effect resulting from (a) any change in economic conditions generally or in the industry in which an Acquired Company operates, (b) any change in general regulatory or political conditions, including any acts of war or terrorist activities, (c) any continuation of an adverse trend or condition, (d) effects of weather, meteorological events or other natural disasters or natural occurrences beyond the control of the Acquired Companies, (e) any change in any Laws (including Environmental Laws) or regulatory policy, including any rate or tariff, (f) changes or adverse conditions in the securities markets, (g) the failure of any Seller or any Non-Company Affiliate to effect the assignment of any Contract to Buyer, any Acquired Company or any Affiliate of Buyer, (h) any changes in the costs of commodities or supplies, including fuel, or changes in the price of electricity, (i) any new generating facilities and their effect on pricing or transmission, (j) any change in the financial condition or results of operation of an Acquired Company caused by the pending sale of such Acquired Company to Buyer, including changes due to the Credit Rating of Buyer, (k) any actions to be taken pursuant to or in accordance with this Agreement, (l) the announcement or pendency of the transactions contemplated hereby or the public disclosure of the identity of Buyer as purchaser of the Acquired Companies and (m) any change or effect that is cured in full (including by means of any cash payment or payments) by the date that is the earlier of the Closing Date or the date that is thirty (30) days after the date of such change or effect; provided that the items set forth in clauses (a), (b), (d), (e), (f), (h) and (j) above, shall be taken into account in determining whether a “Material Adverse Effect” has occurred or would reasonably be expected to occur to the extent such items have a disproportionate effect on the affected Acquired Companies relative to other participants in the industry and markets in which the affected Acquired Companies conduct their respective Business.
Material Contracts ” has the meaning given to it in Section 4.11(a) .
Minimum Issuer Requirements ” has the meaning given to it in the definition of “Letter of Credit.”
Moody’s ” means Moody’s Investors Services, Inc.
Natural Gas Project Companies ” means, collectively, DE Hanging Rock, DE Washington, DE Fayette, DE Lee and DE Dicks Creek (each, as defined in Appendix I ) and each, individually, a “ Natural Gas Project Company .”
Natural Gas Projects ” means, collectively, the Hanging Rock Project, the Washington Project, the Fayette Project, the Lee Project and the Dicks Creek Project (each, as defined in Appendix I ) and each, individually, a “ Natural Gas Project .”
Net Working Capital ” means (without duplication) the amount (expressed as a positive or negative number) equal to (a) the total current assets of the Acquired Companies, including non-current mark to market assets, on a combined basis, minus (b) the total current liabilities of the Acquired Companies, including non-current mark to market liabilities, on a combined basis, in each case (i) excluding (A) any Excluded Items, (B) Taxes, including both current and deferred Tax assets and both current and deferred Tax liabilities and (C) the mark to market value of all contracts which are not cash collateralized, (ii) measured as of the time immediately prior to the consummation of, and without giving effect to, the transactions contemplated hereby and (iii) determined in accordance with the methodology used in the preparation of Schedule 1.1-NWC , and otherwise in accordance with GAAP; provided that to the extent that there is any conflict between the provisions of this definition, the application of GAAP and Schedule 1.1-NWC , the terms of Schedule 1.1-NWC shall control.
Net Working Capital Difference ” has the meaning given to it in Section 2.2(b) .
Non-Company Affiliate ” means any Affiliate of any Seller, except for the Acquired Companies.
Non-Reimbursable Damages ” has the meaning given to it in Section 10.5(b) .
Non-Transferred Excluded Item ” has the meaning given to it in Section 6.6(a) .
NWC Difference Estimate ” has the meaning given to it in Section 2.5(a)(ii) .
O&M Agreement ” means an Operation and Maintenance Agreement, substantially in the form attached hereto as Annex II to Schedule 6.21 , to be entered into by and between Duke Energy Kentucky, Inc. and DE Miami Fort in accordance with Section 6.21 .
Offer Period ” has the meaning given to it in Section 6.3(a)(xviii) .
Operator Project Companies ” means, collectively, the Natural Gas Project Companies and the Coal Operator Project Companies and each, individually, an “ Operator Project Company .”
Operator Projects ” means, collectively, the Natural Gas Projects and the Coal Operator Projects and each, individually, an “ Operator Project .”
Outside Date ” has the meaning given to it in Section 9.1(c) .
Owned Operator Project Real Property ” means (a) real property in which any of the Natural Gas Project Companies has fee title (or equivalent) interest in a Natural Gas Project, together with all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of any of the Natural Gas Projects attached or appurtenant thereto, and (b) real property in which any of the Coal Operator Project Companies has its proportionate share in the undivided interest in fee title (or equivalent) interest in a Coal Operator Project, together with all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of any of the Coal Operator Projects attached or appurtenant thereto.
Owned Participant Project Real Property ” means real property in which any of the Coal Participant Project Companies has its proportionate share in the undivided interest in fee title (or equivalent) interest in a Coal Participant Project, together with all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of any of the Coal Participant Projects attached or appurtenant thereto.
Owned Real Property ” means the Owned Participant Project Real Property, the Owned Operator Project Real Property and the Owned Retail Real Property, collectively.
Owned Retail Real Property ” means real property in which the Retail Company has fee title (or equivalent) interest, together with all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of the Retail Company attached or appurtenant thereto.
Parent ” has the meaning given to it in the Recitals.
Parties ” has the meaning given to it in the Preamble.
Pension Plan Participants ” has the meaning given to it in Section 6.7(g) .
Pension Spin-Off Date ” has the meaning given to it in Section 6.7(g) .
Permits ” means all licenses, permits, certificates of authority, authorizations, approvals, registrations, franchises and similar consents and orders issued or granted by a Governmental Authority.
Permitted Lien ” means (a) any Lien for Taxes not yet due or delinquent or being contested in good faith by appropriate proceedings, (b) any Lien arising in the ordinary course of business consistent with past practices by operation of Law with respect to a liability that is not yet due or delinquent or which is being contested in good faith by a Seller or an Acquired Company, (c) all matters that are disclosed (whether or not subsequently deleted or endorsed over) on any survey, in the title policies insuring an Owned Real Property or Leased Real Property or any commitments therefor, or in any title reports, including any drafts of the foregoing, in each case that have been made available to Buyer ( provided , however , that all Liens listed on Schedule 1.1-PL(c) shall be released on or prior to Closing, and the Liens listed on Schedule 1.1-PL under the heading “DP&L Mortgages” that were granted by Dayton Power & Light Company and erroneously listed as encumbrances on the title commitments shall be deemed not to be Permitted Liens), (d) (x) imperfections or irregularities of title and other Liens that would not, in the aggregate, reasonably be expected to materially detract from the value or the current use of the affected property or (y) zoning, planning and other similar regulatory limitations and restrictions, and all rights of any Governmental Authority to regulate an Owned Real Property or Leased Real Property, (e) the terms and conditions of the Contracts listed on Schedule 4.11 , (f) any Lien that is released on or prior to the Closing, (g) Liens disclosed on the Financial Statements, (h) any Lien resulting from the Co-Owner Agreements and (i) except as provided in clause (c) hereof, the matters identified on Schedule 1.1-PL .
Person ” means any natural person, corporation, general partnership, limited partnership, limited liability company, proprietorship, other business organization, trust, union, association or Governmental Authority.
PJM ” means PJM Interconnection, L.L.C.
Pre-Closing Taxable Period ” has the meaning given to it in Section 6.14(b) .
Preamble ” means the preamble of this Agreement.
Projects ” means the Operator Projects and the Coal Participant Projects, collectively, and each, individually, a “ Project .”
Project Companies ” means, collectively, the Operator Project Companies and the Coal Participant Project Companies and each, individually, a “ Project Company .”
PUHCA has the meaning given to it in Section 4.10 .
Purchase Price ” has the meaning given to it in Section 2.2 .
Purchase Price Allocation Schedule ” has the meaning given to it in Section 2.7(a) .
Purchased Assets ” means all of the Assets of the Acquired Companies, excluding the Excluded Items and the Excluded Liabilities; provided that, with respect to the Coal Project Companies, the Purchased Assets shall only include each Coal Project Company’s proportionate share in the undivided interest in the applicable Coal Project Assets.
QF ” means a “qualifying facility” within the meaning of the Public Utility Regulatory Policies Act of 1978.
Qualified Plans ” has the meaning given to it in Section 4.19(b)(ii) .
Recitals ” means the recitals of this Agreement.
Related Agreements ” means the Ash Disposal Agreement, the Interconnection Agreements and the O&M Agreement.
Release ” means any release, spill, emission, migration, leaking, pumping, injection, deposit, disposal or discharge of any Hazardous Materials into the environment, to the extent prohibited under applicable Environmental Laws.
Representatives ” means, as to any Person, its officers, directors, managers, partners, members, employees, counsel, accountants, financial advisers and consultants.
Required Approvals ” means the Sellers Approvals, Buyer Approvals and Acquired Company Consents, to the extent relating to filings, waivers, approvals, consents, authorizations and notices required to be made with, obtained from or provided to a Governmental Authority prior to the Closing.
Responding Party ” has the meaning given to it in Section 10.6(a) .
Restoration Cost ” has the meaning given to it in Section 6.11 .
Retail Company ” means Duke Energy Retail Sales, LLC, a Delaware limited liability company.
Retail Seller ” has the meaning given to it in the Preamble.
Retained Seller Action ” has the meaning given to it in Section 10.07(a) .
S&P ” means Standard and Poor’s Financial Services LLC.
Schedule Supplement ” has the meaning given to it in Section 6.19 .
Schedules ” means the disclosure schedules prepared by Sellers and attached to this Agreement.
SEC ” means the Securities and Exchange Commission.
Sellers ” has the meaning given to it in the Preamble.
Sellers Approvals ” has the meaning given to it in Section 3.3(b) .
Sellers Benefit Plans ” has the meaning given to it in Section 4.19(a) .
Sellers Fundamental Representations ” has the meaning given to it in Section 7.1 .
Sellers Guarantee ” has the meaning given to it in the Recitals.
Sellers Indemnified Parties ” has the meaning given to it in Section 10.1(b) .
Sellers Marks ” has the meaning given to it in Section 6.4(a) .
Sellers Pension Plans ” means the Duke Energy Retirement Cash Balance Plan and the Cinergy Corp. Union Employees’ Retirement Income Plan.
Sellers Savings Plan ” means the Duke Energy Retirement Savings Plan.
Sellers Determination ” has the meaning given to it in Section 2.6(a) .
Specified Marks ” has the meaning given to it in Section 6.4(e) .
Straddle Taxable Period ” has the meaning given to it in Section 6.14(b) .
Support Obligations ” has the meaning given to it in Section 6.5(a) .
Target Net Working Capital ” means an amount equal to $195,000,000.
Tax ” or “ Taxes ” means (i) any federal, state, local or foreign income, franchise, gross receipts, ad valorem, sales and use, employment, social security, disability, occupation, property, severance, value added, transfer, capital stock, excise, withholding, premium, occupation or other taxes, levies or other like assessments, customs, duties, imposts, charges, surcharges or fees imposed by or on behalf of any Taxing Authority, including any interest, penalty or addition thereto and (ii) any liability for amounts described in clause (i) as a result of transferee liability, by Contract or otherwise.
Taxing Authority ” means, with respect to any Tax, the Governmental Authority or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision.
Tax Matter ” has the meaning given to it in Section 6.14(e) .
Terminated Agreement ” means any (i) Affiliate Contract that will be or has been terminated as of the Closing pursuant to Section 6.8(a) and (ii) Affiliate Dedicated Contract that will be or has been terminated as of the Closing pursuant to Section 6.8(b) .
Title Company Affidavit ” has the meaning given to it in Section 6.22 .
Transfer Taxes ” means all transfer, sales, use, goods and services, value added, documentary, stamp duty, gross receipts, excise, transfer and conveyance Taxes and other similar Taxes, duties, fees or charges (excluding any “bulk sales” Taxes relating to any Tax liability of Sellers for the Pre-Closing Taxable Period for which Buyer may become secondarily or jointly liable as a successor or transferee of any Seller).
Transition License ” has the meaning given to it in Section 6.4(b) .
Transition License Agreement ” means the transition license agreement, substantially in the form of Exhibit G attached hereto, to be entered into by and between Parent and Retail Company at the Closing.
Transition Plan ” has the meaning given to it in Section 6.13(a) .
Transition Services Agreement ” has the meaning given to it in Section 6.13(c) .
Transitioning Software ” has the meaning given to it in Section 6.13(b) .
Unionized Employees ” means employees of Sellers or their Affiliates providing services effective as of the Closing Date to the Projects and/or any Acquired Company who are covered by a Collective Bargaining Agreement, and as of the date of this Agreement, a list of such persons is set forth on Schedule 1.1-UE .
WARN Act ” means the Worker Adjustment and Retraining Notification Act of 1989.
1.2.      Rules of Construction .
(a)      All article, section, subsection, schedules, exhibit and appendix references used in this Agreement are to articles, sections, subsections, schedules, exhibits and appendices to this Agreement unless otherwise specified. The exhibits, appendices and schedules attached to this Agreement constitute a part of this Agreement and are incorporated herein for all purposes.
(b)      Any reference to information “made available” to Buyer by Sellers or the Acquired Companies means that such information has been provided to Buyer, its counsel or other Representatives either through access to an online data room maintained by Sellers in connection with the transactions contemplated by this Agreement or through direct correspondence with the Person requesting such information.
(c)      If a term is defined as one part of speech (such as a noun), it shall have a corresponding meaning when used as another part of speech (such as a verb), and a term that is defined in the singular shall have a corresponding meaning in the plural and vice versa. Unless the context of this Agreement clearly requires otherwise, words importing the masculine gender shall include the feminine and neutral genders and vice versa. The words “includes” or “including” shall mean “including without limitation,” the words “hereof,” “hereby,” “herein,” “hereunder” and similar terms in this Agreement shall refer to this Agreement as a whole and not any particular section or article in which such words appear and any reference to a Law shall include any amendment thereof or any successor thereto and any rules and regulations promulgated thereunder. Currency amounts referenced herein are in U.S. dollars.
(d)      Time is of the essence in this Agreement. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. Whenever any action must be taken hereunder on or by a day that is not a Business Day, then such action may be validly taken on or by the next day that is a Business Day.
(e)      All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP.
(f)      With respect to the Coal Project Companies, the phrase “consistent with past practices” shall be deemed to include the past practices of their predecessor Affiliates.
(g)      Each Party acknowledges that it and its attorneys have been given an equal opportunity to negotiate the terms and conditions of this Agreement and that any rule of construction to the effect that ambiguities are to be resolved against the drafting Party or any similar rule operating against the drafter of an agreement shall not be applicable to the construction or interpretation of this Agreement.
ARTICLE II     
PURCHASE AND SALE AND CLOSING
2.1.      Purchase and Sale . On the terms and subject to the conditions set forth in this Agreement, at the Closing:
(h)      Buyer shall purchase from Generation Seller, and Generation Seller shall sell and convey to Buyer, one hundred percent (100%) of the outstanding membership interests in DECAM, free and clear of all Liens; and
(i)      Buyer shall purchase from Retail Seller, and Retail Seller shall sell and convey to Buyer, one hundred percent (100%) of the outstanding membership interests in the Retail Company, free and clear of all Liens.
2.2.      Purchase Price . The purchase price (the “ Purchase Price ”) for the purchase and sale described in Section 2.1 is equal to the sum of:
(a)      $2,800,000,000 (the “ Base Purchase Price ”);
(b)      plus, an amount equal to (i) the Net Working Capital as of the Closing, minus (ii) the Target Net Working Capital, the result of which may be a positive or negative number (the “ Net Working Capital Difference ”); and
(c)      plus, an amount equal to (i) the total amount of all capital expenditures incurred, in the aggregate, by or on behalf of the Acquired Companies during the Interim Period, so long as such capital expenditures are incurred in accordance with Section 6.3(b) , minus (ii) the total amount of budgeted capital expenditures for the Acquired Companies for the Interim Period set forth on Schedule 2.2(c) , as updated in accordance with the terms of this Section 2.2 during the Interim Period, the result of which may be a positive or negative number (the “ CapEx Difference ”).
For purposes of Section 2.2(c) above, (i) “capital expenditures incurred” shall be determined by additions to property, plant and equipment recognized by the Acquired Companies during the specified period consistent with the basis on which, and using the same accounting policies, practices and principles (as may be adjusted, if necessary, to accommodate a mid-accounting period Closing Date) with which the Acquired Companies or their predecessor Affiliates have prepared their historical financial statements, including additions classified as construction work in progress and other additions to property accounts; and (ii) “budgeted capital expenditures” shall be those projected capital expenditures set forth on Schedule 2.2(c) as of the end of the month immediately preceding the month in which the Closing takes place, as such Schedule 2.2(c) is updated in or about mid-October 2014 as part of the Acquired Companies’ annual budgeting process, and all references to Schedule 2.2(c) contained in this Agreement shall be deemed to refer to Schedule 2.2(c) as so updated.
2.3.      Closing . The Closing shall take place at the offices of Bracewell & Giuliani LLP, 1251 Avenue of the Americas, 49th Floor, New York, New York 10020 at 10:00 A.M. local time, on the third (3 rd ) Business Day after the conditions to the Closing set forth in Articles VII and VIII (other than actions to be taken or items to be delivered at the Closing) have been satisfied or waived, or on such other date and at such other time and place as Buyer and Sellers mutually agree in writing. The Closing shall be deemed to have occurred for all purposes as of 12:01 A.M. on the Closing Date. All actions listed in Section 2.4 or 2.5 that occur on the Closing Date shall be deemed to occur simultaneously at the Closing.
2.4.      Closing Deliveries by Sellers to Buyer . At the Closing, Sellers shall deliver, or shall cause to be delivered, to Buyer the following:
(a)      an executed counterpart by the applicable Seller, Acquired Company and/or Non-Company Affiliate of each Ancillary Agreement;
(b)      a certification of non-foreign status in the form prescribed by Treasury Regulation Section 1.1445-2(c) with respect to each Seller (or the owner of each Seller that is treated as a disregarded entity for federal income Tax purposes);
(c)      updated versions of Schedules 1.1-AN and 1.1-UE , reflecting employee levels as of a date not more than five (5) Business Days prior to Closing;
(d)      the books and records of the Acquired Companies or otherwise primarily relating to the Business to the extent not located at any of the Project sites; and
(e)      such other documents and instruments required to be delivered by Sellers at Closing pursuant to the terms of this Agreement.
2.5.      Closing Deliveries by Buyer to Sellers . At the Closing, Buyer shall deliver to Sellers the following:
(a)      a wire transfer of immediately available funds (to such account as Sellers shall have notified Buyer of at least three (3) Business Days prior to the Closing Date) in an amount equal to the sum of (i) the Base Purchase Price , plus (ii) Sellers’ good faith estimate of the Net Working Capital Difference as of the Closing (the “ NWC Difference Estimate ”), plus (iii) Sellers’ good faith estimate of the CapEx Difference as of the Closing (the “ CapEx Difference Estimate ”), showing in the case of clauses (ii) and (iii) the calculation thereof in reasonable detail and delivered in writing to Buyer at least three (3) Business Days prior to the Closing Date;
(b)      an executed counterpart of each Ancillary Agreement, other than the Buyer Guarantee;
(c)      any guaranties, cash and/or Letters of Credit required to be delivered to Sellers at the Closing pursuant to Section 6.5(d)(iv) ; and
(d)      such other documents and instruments required to be delivered by Buyer at Closing pursuant to the terms of this Agreement.
2.6.      Post-Closing Adjustment .
(a)      After the Closing Date, Sellers and Buyer shall cooperate and provide each other access to their or their Affiliates’ respective books, records and employees to the extent related to the ownership or operation of the Acquired Companies, and Buyer shall use its commercially reasonable efforts to provide Sellers access to the books, records and employees related to each Coal Participant Project, all as reasonably requested in connection with the matters addressed in this Section 2.6 . Within ninety (90) days after the Closing Date (the “ Determination Period ”), Sellers shall determine the Net Working Capital Difference and the CapEx Difference as of the Closing and shall provide Buyer with written notice of such determination, along with reasonable supporting information and calculations (the “ Sellers Determination ”); provided that in the event Buyer has not provided Sellers with access to any information required to calculate the Sellers Determination prior to the expiration of the Determination Period pursuant to this Section 2.6(a) , the end of the Determination Period shall be tolled until Buyer is able to obtain and provide Sellers with such required information.
(b)      If Buyer objects to Sellers Determination, then it shall provide Sellers written notice thereof within thirty (30) days after receiving Sellers Determination. If the Parties are unable to agree on the Net Working Capital Difference or the CapEx Difference, as applicable, as of the Closing, within thirty (30) days of Sellers’ receipt of such objection (as such time period may be extended by mutual agreement of the Parties), the Parties shall refer such dispute to a nationally-recognized public accounting firm that is independent with respect to each of the Parties (within the meaning of Rule 2-01 under Securities and Exchange Commission Regulation S-X) or, if that firm declines to act as provided in this Section 2.6(b) , another firm of independent public accountants mutually acceptable to Buyer and Sellers, which firm shall make a final and binding determination as to all matters in dispute (and only such matters) on a timely basis and promptly shall notify the Parties in writing of its resolution. Such firm shall not have the power to modify or amend any term or provision of this Agreement. Sellers, on the one hand, and Buyer, on the other hand, shall each bear and pay one-half (1/2) of the fees and other costs charged by such accounting firm. If Buyer does not object to Sellers Determination within the time period and in the manner set forth in the first sentence of this Section 2.6(b)  or if Buyer accepts Sellers Determination, the Net Working Capital Difference and the CapEx Difference, as applicable, as set forth in Sellers Determination shall become final and binding upon the Parties for all purposes hereunder.
(c)      If the sum of the Net Working Capital Difference and the CapEx Difference as of the Closing (as agreed between the Parties or as determined by the above-referenced accounting firm or otherwise) is greater than or less than the sum of the NWC Difference Estimate and the CapEx Difference Estimate, then Buyer shall pay Sellers, or Sellers shall pay Buyer, respectively, within ten (10) Business Days after such amounts are agreed or determined, by wire transfer of immediately available funds to an account designated by the payee, the difference between such amounts plus interest thereon at the Interest Rate from the Closing Date through and including the date of such payment.
2.7.      Allocation of Purchase Price .
(a)      Within thirty (30) Business Days after the determination of the Net Working Capital Difference and the CapEx Difference as of the Closing, Buyer shall provide to Sellers Buyer’s proposal for an allocation of the Purchase Price among the Acquired Companies and the Purchased Assets, grouped by the asset classes referred to in Treasury Regulation Section 1.1060-1(c) (the “ Purchase Price Allocation Schedule ”). Within thirty (30) Business Days after their receipt of Buyer’s proposed Purchase Price Allocation Schedule, Sellers shall propose to Buyer any changes thereto or otherwise shall be deemed to have agreed thereto. In the event that Sellers propose changes to Buyer’s proposed Purchase Price Allocation Schedule within the thirty (30) Business Day period described above, Sellers and Buyer shall cooperate in good faith to mutually agree upon a Purchase Price Allocation Schedule as soon as practicable. If Sellers and Buyer are unable to reach a resolution within a period of twenty (20) Business Days following receipt of Sellers’ changes, then only the remaining disputed items shall be submitted for resolution by a nationally-recognized public accounting firm that is independent with respect to each of the Parties (within the meaning of Rule 2-01 under Securities and Exchange Commission Regulation S-X) or, if that firm declines to act as provided in this Section 2.7(a) , another firm of independent public accountants mutually acceptable to Buyer and Sellers, which firm shall make a final determination as to the disputed items within thirty (30) Business Days after such submission, and such determination, together with the undisputed items, shall be final, binding and conclusive on Sellers and Buyer. The fees and disbursements of such accounting firm shall be shared equally between Sellers, on the one hand, and Buyer, on the other hand.
(b)      Sellers and Buyer each shall prepare an IRS Form 8594, “Asset Acquisition Statement Under Section 1060,” consistent with the Purchase Price Allocation Schedule mutually agreed upon pursuant to Section 2.7(a) , which the Parties shall use to report the transactions contemplated by this Agreement to the applicable Taxing Authorities. Each Seller and Buyer shall provide the other promptly with any other information required to complete Form 8594. The Purchase Price Allocation Schedule shall be revised to take into account subsequent adjustments to the Purchase Price, including any indemnification payments (which shall be treated for Tax purposes as adjustments to the Purchase Price), in accordance with the provisions of Section 1060 of the Code and the Treasury Regulations thereunder. For all Tax purposes, the Parties agree that the transactions contemplated by this Agreement shall be reported in a manner consistent with the terms of this Agreement, including the Purchase Price Allocation Schedule, and none of the Parties shall take any position inconsistent therewith on any Tax return, refund claim, litigation or otherwise, unless required to do so by Law or a “determination” within the meaning of Section 1313(a)(1) of the Code.
ARTICLE III     
REPRESENTATIONS AND WARRANTIES REGARDING SELLERS
Each Seller, jointly and severally, hereby represents and warrants to Buyer, subject to Section 10.2(f) , that except as disclosed in the Schedules:
3.1.      Organization . Such Seller is a limited liability company or a corporation, as applicable, duly formed, validly existing and in good standing under the Laws of its jurisdiction of formation or incorporation, as applicable. Such Seller is duly qualified or licensed to do business in each other jurisdiction where the actions to be performed by it hereunder makes such qualification or licensing necessary, except in those jurisdictions where the failure to be so qualified or licensed would not reasonably be expected to result in a material adverse effect on such Seller’s ability to perform its obligations hereunder.
3.2.      Authority . Such Seller has the requisite corporate or limited liability company, as applicable, power and authority to execute and deliver this Agreement and the Ancillary Agreements to which such Seller as of the Closing shall be a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by such Seller of this Agreement and the Ancillary Agreements to which such Seller as of the Closing shall be a party when executed and delivered by such Seller, and the performance by such Seller of its obligations hereunder and thereunder, have been or as of the Closing shall be duly and validly authorized by all necessary corporate or limited liability company, as applicable, action. This Agreement has been duly and validly executed and delivered by such Seller and, assuming the due and valid authorization, execution and delivery by Buyer, constitutes, and the Ancillary Agreements to which such Seller as of the Closing shall be a party when executed and delivered by such Seller shall constitute, the legal, valid and binding obligation of such Seller enforceable against such Seller in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, arrangement, moratorium or other similar Laws relating to or affecting the rights of creditors generally, or by general equitable principles.
3.3.      No Conflicts; Consents and Approvals .
(f)      Assuming compliance with the items described in clauses (i) through (iv) of Section 3.3(b) , the execution and delivery by such Seller of this Agreement do not and of the Ancillary Agreements to which such Seller as of the Closing shall be a party shall not, the performance by such Seller of its obligations hereunder and thereunder do not and shall not and the consummation of the transactions contemplated hereby and thereby and the taking of any action contemplated to be taken by such Seller under this Agreement and the Ancillary Agreements to which such Seller as of the Closing shall be a party shall not (i) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Charter Documents of such Seller, (ii) require consent under, result in a material violation or material breach of or default (or give rise to any material right of termination, cancellation or acceleration or result in the creation of any Lien) (with or without the giving of notice, lapse of time, or both) under any material Contract to which such Seller is a party or by which its Assets are bound or (iii) result in a material violation or material breach of any Law applicable to such Seller or any of its material Assets, except in the case of clause (ii) or (iii), for breaches, violations, conflicts or defaults (or rights of termination, cancellation or acceleration or creation of Liens), which would not, in the aggregate, reasonably be expected to result in a material adverse effect on such Seller’s ability to perform its obligations hereunder.
(g)      Except for (i) such filings, notices and consents under Permits and otherwise that such Seller is required to maintain in the ordinary course of business consistent with past practices, (ii) all required filings, waivers, approvals, consents, authorizations and notices set forth on Schedule 3.3(b) (collectively, the “ Sellers Approvals ”) and the Acquired Company Consents, (iii) such filings, notices and consents which become applicable to such Seller as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged or (iv) such filings, notices, and consents that if not made or received are not reasonably likely to be material to such Seller or prevent or materially delay the performance by such Seller of its obligations under, or the consummation of the transactions contemplated by, this Agreement or the Ancillary Agreements to which such Seller as of the Closing shall be a party, in connection with the execution, delivery and/or performance of this Agreement or the Ancillary Agreements to which such Seller as of the Closing shall be a party by such Seller and/or the consummation of the transactions contemplated hereby and thereby, such Seller shall not be required to make any filing with or give any notice to, or to obtain any consent from, any Governmental Authority or any other Person.
3.4.      Capitalization . Schedule 3.4 accurately sets forth the ownership structure of each of the Acquired Companies. Such Seller and each Acquired Company owns, holds of record and is the beneficial owner of the Equity Securities shown as being owned by it on Schedule 3.4 free and clear of all Liens, restrictions on transfer or other encumbrances other than those (a) set forth on Schedule 3.4 or arising pursuant to this Agreement, the limited liability company agreements of the Acquired Companies or applicable securities Laws or (b) for Taxes not yet due or delinquent and, without limiting the generality of the foregoing, none of such Equity Securities are subject to any voting trust, shareholder agreement or voting agreement or other agreement, right, instrument or understanding with respect to any purchase, sale, issuance, transfer, repurchase, redemption or voting of such Equity Securities, other than the limited liability company agreements of the Acquired Companies and as set forth on Schedule 3.4 . Except as set forth on Schedule 3.4 , there are no outstanding Equity Securities of any Acquired Company.
3.5.      Legal Proceedings . As of the date of this Agreement, there is no Claim pending or, to Sellers’ Knowledge, threatened in writing against such Seller, which seeks a writ, judgment, order, injunction or decree restraining, enjoining or otherwise prohibiting or making illegal any of the transactions contemplated by this Agreement.
3.6.      Brokers . No Seller has any liability or obligation to pay fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Buyer could become liable or obligated.
ARTICLE IV     
REPRESENTATIONS AND WARRANTIES REGARDING THE ACQUIRED COMPANIES, THE COAL PARTICIPANT PROJECTS AND THE COAL PARTICIPANT PROJECT ASSETS
Each Seller, jointly and severally, hereby represents and warrants to Buyer, subject to Section 10.2(f) , that except as disclosed in the Schedules:
4.1.      Organization . Each Acquired Company is a limited liability company duly formed, validly existing and in good standing under the Laws of its jurisdiction of formation, and has all requisite limited liability company power and authority to conduct its Business as it is now being conducted and to own, lease and operate its Assets, subject to the rights and obligations of each Coal Project Company under the Co-Owner Agreements applicable to the ownership and operation of the applicable Coal Project. Each Acquired Company is duly qualified or licensed to do business in each jurisdiction in which the ownership or operation of its Assets make such qualification or licensing necessary, except in those jurisdictions where the failure to be so duly qualified or licensed would not reasonably be expected to result in a Material Adverse Effect.
4.2.      No Conflicts; Consents and Approvals .
(h)      Assuming compliance with the items described in clauses (i) through (iv) of Section 4.2(b) , the execution and delivery by such Seller of this Agreement do not and of the Ancillary Agreements to which such Seller as of the Closing shall be a party shall not, the performance by such Seller of its obligations hereunder and thereunder do not and shall not and the consummation of the transactions contemplated hereby and thereby and the taking of any action contemplated to be taken by such Seller and each Acquired Company hereunder and under the Ancillary Agreements to which such Seller or Acquired Company as of the Closing shall be a party shall not (i) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Charter Documents of any Acquired Company, (ii) result in a violation or a breach of or default (or give rise to any right of termination, cancellation or acceleration) (with or without the giving of notice, lapse of time, or both) under any Material Contract, (iii) result in the imposition or creation of any Lien, other than Permitted Liens, on any Purchased Assets, or (iv) result in a violation or breach of any Law applicable to such Acquired Company or any of its respective Purchased Assets, except in the case of clause (ii), (iii) or (iv), for breaches, violations, conflicts, Liens or defaults (or rights of termination, cancellation or acceleration), which would not, in the aggregate, reasonably be expected to result in a Material Adverse Effect.
(i)      Except for (i) such filings, notices and consents under Permits and otherwise that any Acquired Company is required to maintain in the ordinary course of business consistent with past practice, (ii) all required filings, waivers, approvals, consents, authorizations and notices set forth on Schedule 4.2(b) (collectively, the “ Acquired Company Consents ”) and the Sellers Approvals, (iii) such filings, notices and consents which become applicable to any Seller, any Acquired Company or as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged or (iv) such filings, notices and consents that if not made or received are not reasonably likely to be material to the Acquired Companies or prevent or materially delay the performance by Sellers of their obligations under, or the consummation of the transactions contemplated by, this Agreement or the Ancillary Agreements to which such Seller as of the Closing shall be a party, in connection with the execution, delivery and/or performance of this Agreement or the Ancillary Agreements to which such Seller as of the Closing will be a party by such Seller and/or the consummation of the transactions contemplated hereby and thereby, no Acquired Company shall be required to make any filing with or give any notice to, or to obtain any consent from, any Governmental Authority or any other Person.
4.3.      Capitalization . The Company Interests constitute one hundred percent (100%) of the total issued and outstanding Capital Stock of each of DECAM and the Retail Company. No Acquired Company is a party to any Contract, and no Acquired Company has granted to any Person any option or any right or privilege capable of becoming an agreement or option, for the purchase, subscription, allotment or issue of any unissued interests, units or other securities (including convertible securities, warrants or convertible obligations of any nature) of such Acquired Company, other than those arising pursuant to the Material Contracts (including the limited liability company agreements of the Acquired Companies). No Acquired Company has subsidiaries or owns Equity Securities in any Person except as disclosed on Schedule 3.4 .
4.4.      Business . Other than the Excluded Items, the Business of DECAM, each Project Company and the Retail Company is the only business operation carried on by DECAM, each such Project Company and the Retail Company, respectively. Except as disclosed in Schedule 4.4 , the Purchased Assets owned, leased, licensed or contracted by each Project Company and the Retail Company constitute all of the tangible Assets that are required to operate its respective Business as currently operated, except (a) for the Excluded Items, (b) as provided under the Transition Services Agreement and (c) as would not, in the aggregate, reasonably be expected to result in a Material Adverse Effect. The HoldCos and the Coal Participant Project Companies engage in and own no business other than such business as is related or incidental to holding and owning (i) the Capital Stock of their respective subsidiaries and (ii) the undivided ownership interest percentages in their respective Projects, respectively.
4.5.      Legal Proceedings . As of the date hereof, except as set forth on Schedule 4.5 , there is no Claim pending or, to Sellers’ Knowledge, threatened in writing against any Acquired Company that (a) affects such Acquired Company or the Purchased Assets and would, in the aggregate, reasonably be expected to result in a Material Adverse Effect or (b) seeks a writ, judgment, order, injunction or decree restraining, enjoining or otherwise prohibiting or making illegal any of the transactions contemplated by this Agreement or such Seller from consummating the transactions contemplated hereby.
4.6.      Compliance with Laws and Orders . Each Acquired Company is in compliance with all Laws and orders applicable to it and its operations, properties or Purchased Assets, except where any such non-compliance would not, in the aggregate, reasonably be expected to result in a Material Adverse Effect; provided , however , that this Section 4.6 does not address Environmental Laws, which are exclusively addressed by Sections 3.3 , 4.2 , 4.13 and 4.14 .
4.7.      Financial Statements; Liabilities .
(a)      Schedule 4.7(a)(i) contains true and complete copies of (i) the audited statement of operations and statement of cash flows of the Acquired Companies on a combined basis as of and for the years ended December 31, 2011, 2012 and 2013 and balance sheet of the Acquired Companies on a combined basis as of December 31, 2012 and 2013 (collectively, and with any notes thereto, the “ Audited Financial Statements ”) and (ii) the unaudited balance sheet, statement of operations and statement of cash flows of the Acquired Companies on a combined basis as of and for the three (3) months ended March 31, 2014 (collectively, and with any notes thereto, the “ Interim Financial Statements ” and together with the Audited Financial Statements and, as of the Closing Date, any financial statements delivered pursuant to Section 6.23 , the “ Financial Statements ”). Except as set forth in Schedule 4.7(a)(ii) , the Financial Statements have been prepared in accordance with GAAP, consistently applied (except as may be noted therein), from the books and records of the Acquired Companies and present fairly, in all material respects, the financial position, results of operations and cash flows of the Acquired Companies on a combined basis as of the respective dates thereof or the periods then ended, except that the Interim Financial Statements do not include notes that would be required by GAAP or normal year-end adjustments.
(b)      Except as set forth on Schedule 4.7(b) , no Acquired Company has any liability or obligation (whether accrued, absolute, contingent or otherwise) that would be required by GAAP to be reflected or reserved against on a combined balance sheet of the Acquired Companies (or disclosed in the notes thereto) other than (i) liabilities reflected or reserved against on the unaudited balance sheet of the Acquired Companies on a combined basis as of March 31, 2014, (ii) liabilities or obligations that have been incurred in the ordinary course of business consistent with past practices since March 31, 2014, (iii) liabilities or obligations incurred in accordance with the terms of this Agreement or any Material Contract or (iv) liabilities that, in the aggregate, would not reasonably be expected to be material to the Acquired Companies, taken as a whole.
4.8.      Absence of Certain Changes . Except as set forth on Schedule 4.8 , from March 31, 2014, (a) except as contemplated by this Agreement, each Acquired Company or its predecessor Affiliate has operated its respective Business in the ordinary course of business consistent with past practices and (b) there has not been any (i) Material Adverse Effect, (ii) event or condition related to the Acquired Companies (other than the Coal Participant Project Companies) that would reasonably be expected to result in a Material Adverse Effect or (iii) to Sellers’ Knowledge, event or condition related to the Coal Participant Project Companies that would reasonably be expected to result in a Material Adverse Effect on the Coal Participant Projects, taken as a whole.
4.9.      Taxes . Except as set forth on Schedule 4.9 , (a) all material Tax returns that are required to be filed by each Acquired Company have been duly and timely filed, (b) all material Taxes of each Acquired Company that are due have been timely paid except for amounts contested in good faith, (c) all material withholding Tax requirements imposed on each Acquired Company have been satisfied, except for amounts that are being contested in good faith, (d) no Acquired Company has in force any waiver of any statute of limitations in respect of material Taxes or any extension of time with respect to a material Tax assessment or deficiency, (e) there are no pending or active audits or legal proceedings involving material Tax matters of any Acquired Company, (f) each Acquired Company is classified as a disregarded entity for U.S. federal income Tax purposes and, other than DECAM, the Retail Company and DE Fayette, has been since formation, (g) all material deficiencies asserted or material assessments made as a result of any examination of Tax returns of the Acquired Companies have been paid in full or are being contested in good faith, (h) there are no material Liens for Taxes (other than Permitted Liens) on any of the Purchased Assets, and (i) none of the Acquired Companies has any liability for the Taxes of any Person under Treasury Regulation Section 1.1502-6 (or any similar provision of any state, local or foreign Law) as a transferee or successor, by contract or otherwise. Section 4.19 and this Section 4.9 contain the exclusive representations and warranties of Sellers with respect to Tax matters. No other provision of this Agreement shall be construed as constituting a representation or warranty regarding such matters.
4.10.      Regulatory Matters . Schedule 4.10 contains a true and complete list of (i) all electric generating facilities owned, in whole or in part, directly or indirectly, by any of the Acquired Companies, including the name of the Acquired Company with an ownership interest in each such electric generating facility and (ii) all Coal Participant Projects owned, in part, directly or indirectly, by any Coal Participant Project Operator or its Affiliate, including the name of such Coal Participant Project Operator or its Affiliate with an ownership interest in each such Coal Participant Project. Neither the Retail Company nor DECAM directly owns electric generation or electric transmission facilities. The Acquired Companies are not subject to regulation as a “holding company” under the Public Utility Holding Company Act of 2005 (“ PUHCA ”) and related FERC regulations (other than as a “holding company” solely with respect to one or more EWGs, FUCOs, and/or QFs). Each Project Company is an exempt wholesale generator under PUHCA. Each of the Project Companies, DECAM and the Retail Company has been granted, and retains, authorization from FERC pursuant to Section 205 of the FPA to make sales of electric energy, capacity and certain ancillary services (other than reactive power) at market-based rates and has been granted the blanket waivers and authorizations customarily granted by FERC as part of market-based rate authority, including authorizations under Section 204 of the FPA. A currently effective FERC rate schedule allows each Project Company to sell reactive power to PJM.
4.11.      Contracts .
(a)      Excluding (w) the Coal Participant Project Contracts, (x) any Contract for which no Acquired Company and no Purchased Assets shall be bound or have liability after the Closing, including the Terminated Agreements, (y) the Affiliate Shared Services Contracts and (z) the Excluded Items, Schedule 4.11 sets forth a list as of the date of this Agreement of the following Contracts to which an Acquired Company is a party or by which the Purchased Assets (other than the Coal Participant Project Assets) may be bound (the Contracts listed on Schedule 4.11 that meet the descriptions in this Section 4.11 , being collectively, the “ Material Contracts ”):
(i)      the following Contracts (excluding, for the avoidance of doubt, Commercial Hedges), involving aggregate consideration or aggregate payment obligations over the remaining term of any such Contract in excess of $5,000,000 individually or $10,000,000 in the aggregate for a series of related Contracts:
(A)      Contracts for the future purchase, exchange or sale of gas, coal, oil or other fuel;
(B)      Contracts for the future purchase, exchange or sale of electric power in any form, including energy, capacity or any ancillary services;
(C)      Contracts for the future transportation of gas, coal, oil or other fuel; and
(D)      Contracts for the future transmission of electric power;
(ii)      electric or natural gas interconnection Contracts;
(iii)      other than Contracts of the nature addressed by Section 4.11(a)(i) - (ii) , Contracts (A) for the sale of any Asset or provision of any services or (B) that grant a right or option to purchase any Asset or receive any services, other than, in each case, Contracts relating to Assets or services involving consideration over the remaining term of any such Contract of less than $2,500,000 individually or $5,000,000 in the aggregate for a series of related Contracts;
(iv)      other than Contracts of the nature addressed by Section 4.11(a)(i) - (ii) , Contracts for the future purchase of any Assets or receipt of any services involving aggregate payment obligations over the remaining term of any such Contract in excess of $5,000,000 individually or $10,000,000 in the aggregate for a series of related Contracts;
(v)      Contracts under which it has created, incurred, assumed or guaranteed any outstanding Indebtedness, or under which it has imposed a security interest on any of its material Assets, which security interest secures outstanding Indebtedness;
(vi)      outstanding guaranty or surety agreements or similar agreements by an Acquired Company involving potential payment obligations in excess of $1,000,000 individually;
(vii)      any Affiliate Contract;
(viii)      any Collective Bargaining Agreements;
(ix)      any outstanding Commercial Hedge having a notional value or involving aggregate consideration or aggregate payment obligations over the remaining term of such Contract in excess of $10,000,000 individually;
(x)      Contracts relating to any interest rate or currency hedges or emissions allowances;
(xi)      long term service agreement Contracts relating to any Operator Project Company involving payment obligations in excess of $2,000,000 per year individually;
(xii)      Contracts that purport to limit an Acquired Company’s freedom to compete in any line of business or in any geographic area;
(xiii)      partnership, joint venture, co-owner or limited liability company agreements;
(xiv)      Contracts relating to any Equity Securities or other securities of an Acquired Company or rights in connection therewith; and
(xv)      any Affiliate Dedicated Contract that otherwise meets the description of the Contracts set forth in Sections 4.11(a)(i)-(xiv) ;
provided , that with respect to the Coal Operator Project Contracts, the dollar thresholds contained in this Section 4.11(a) shall be measured against the applicable Coal Operator Project Company’s proportionate interest in any such Contract.
(b)      Sellers have made available to Buyer copies of all Material Contracts, as amended or, where products or services are being provided on the basis of a purchase order, copies of all purchase orders that constitute Material Contracts.
(c)      Each of the Material Contracts is in full force and effect in all material respects and constitutes a legal, valid and binding obligation of the Acquired Company party thereto (and, as to the Affiliate Contracts and the Affiliate Dedicated Contracts, any Non-Company Affiliate that is a party thereto) and, to Sellers’ Knowledge, of the other parties thereto, except in each case where the failure to be in full force and effect or constitute a binding obligation would not reasonably be expected to result in a Material Adverse Effect.
(d)      Except as disclosed on Schedule 4.11(d) , (i) no Acquired Company is in breach or default in any material respect under any Material Contract, (ii) none of the Non-Company Affiliates that is a party to an Affiliate Contract or an Affiliate Dedicated Contract that is a Material Contract is in breach or default in any material respect under such Affiliate Contract or Affiliate Dedicated Contract, and (iii) to Sellers’ Knowledge, no other party to any of the Material Contracts is in breach or default in any material respect thereunder.
4.12.      Real Property .
(a)      Each Natural Gas Project Company (i) owns or leases all Owned Operator Project Real Property and Leased Operator Project Real Property described in Schedule 4.12(a) as being owned or leased by such Natural Gas Project Company, (ii) has good and valid fee simple title to each Owned Operator Project Real Property that is material to the operation of the applicable Natural Gas Project, and (iii) has a good and valid leasehold interest in, and enjoys peaceful and undisturbed possession of, each Leased Operator Project Real Property that is material to the operation of the applicable Natural Gas Project, in each case, free and clear of all Liens (except for Permitted Liens), except pursuant to this Agreement and the Contracts listed and as otherwise noted on Schedule 4.12(a) .
(b)      Each Coal Operator Project Company (i) owns or leases its proportionate share in the undivided interest in all Owned Operator Project Real Property and Leased Operator Project Real Property described in Schedule 4.12(b) as being partially owned or leased by such Coal Operator Project Company, (ii) has good and valid fee simple title to each Owned Operator Project Real Property that is material to the operation of the applicable Coal Operator Project, and (iii) has a good and valid leasehold interest in, and enjoys peaceful and undisturbed possession of, each Leased Operator Project Real Property that is material to the operation of the applicable Coal Operator Project, in each case, free and clear of all Liens (except for Permitted Liens), except pursuant to this Agreement and the Contracts listed and as otherwise noted on Schedule 4.12(b) .
(c)      Each Coal Participant Project Company (i) owns or leases its proportionate share in the undivided interest in all Owned Participant Project Real Property and Leased Participant Project Real Property described in Schedule 4.12(c) as being partially owned or leased by such Coal Participant Project Company, (ii) has good and valid fee simple title to each Owned Participant Project Real Property that, to Sellers’ Knowledge, is material to the operation of the applicable Participant Project, and (iii) has a good and valid leasehold interest in, and enjoys peaceful and undisturbed possession of, each Leased Participant Project Real Property that, to Sellers’ Knowledge, is material to the operation of the applicable Coal Participant Project, in each case, free and clear of all Liens (except for Permitted Liens), except pursuant to this Agreement and the Contracts listed and as otherwise noted on Schedule 4.12(c) .
(d)      The Retail Company (i) owns or leases all Owned Retail Real Property and Leased Retail Real Property described in Schedule 4.12(d) as being owned or leased by the Retail Company, (ii) has good and valid fee simple title to each Owned Retail Real Property that is material to the operation of the Retail Company, and (iii) has a good and valid leasehold interest in, and enjoys peaceful and undisturbed possession of, each Leased Retail Real Property that is material to the operation of the Retail Company, in each case, free and clear of all Liens (except for Permitted Liens), except pursuant to this Agreement and the Contracts listed and as otherwise noted on Schedule 4.12(d) .
(e)      Except as described in Schedule 4.12(e) , (i) Sellers have delivered to Buyer true and complete copies of the leases in effect at the date hereof relating to the Leased Operator Project Real Property and the Leased Retail Real Property, (ii) none of the Operator Project Companies or the Retail Company has received any written notice of, or is in, any material default, violation or breach under any lease relating to the Leased Operator Project Real Property or the Leased Retail Real Property, (iii) none of the Coal Participant Project Companies or, to Sellers’ Knowledge, any Coal Participant Project Operator has received any written notice of, or is in, any material default, violation or breach under any lease relating to the Leased Participant Project Real Property, and (iv) there has not been any sublease or assignment entered into by any of the Retail Company, the Project Companies or, to Sellers’ Knowledge, any Coal Participant Project Operator with respect to any of the leases relating to the Leased Real Property.
(f)      Neither DECAM nor the HoldCos own or lease any real property.
4.13.      Permits .
(a)      Schedule 4.13 sets forth all material Permits held by (i) any of the Operator Project Companies or their predecessor Affiliates that are required for the ownership and operation of the Operator Projects in the manner in which they are currently owned and operated, except any such Permits relating exclusively to the construction (and not operation) of an Operator Project, (ii) any Coal Participant Project Company or its predecessor Affiliate and, to Sellers’ Knowledge, any Coal Participant Project Operator or its predecessor company that are required for the ownership and operation of the Coal Participant Projects in the manner in which they are currently owned and operated, except any such Permits relating exclusively to the construction (and not operation) of a Coal Participant Project, (iii) the Retail Company that are required for the ownership and operation of its Business in the manner in which it is currently owned and operated and (iv) any other Acquired Company that are required for the ownership and operation of their respective Businesses in the manner in which they are currently respectively owned and operated, in each case, except any such Permits, the absence of which would not, in the aggregate, reasonably be expected to result in a Material Adverse Effect. All such Permits (other than those described in clause (ii) of this Section 4.13(a) ) and, to Sellers’ Knowledge, the Permits described in clause (ii) of this Section 4.13(a) are in full force and effect.
(b)      Each Operator Project Company and the Retail Company are in compliance with all Permits set forth on Schedule 4.13 as being held by such Person or its predecessor Affiliate, except where any such non-compliance would not, in the aggregate, reasonably be expected to result in a Material Adverse Effect, and, except as set forth on Schedule 4.13 , neither any Operator Project Company nor the Retail Company has received any written notification from any Governmental Authority alleging that it is in material violation of any such Permits.
(c)      Each Coal Participant Project Company and, to Sellers’ Knowledge, each Coal Participant Project Operator are in compliance with all Permits set forth on Schedule 4.13 as being held by such Person or its predecessor, except where any such non-compliance would not, in the aggregate, reasonably be expected to result in a Material Adverse Effect, and, except as set forth on Schedule 4.13 , neither any Coal Participant Project Company nor, to Sellers’ Knowledge, any Coal Participant Project Operator has received any written notification from any Governmental Authority alleging that it is in material violation of any such Permits.
4.14.      Environmental Matters .
(a)      Except as set forth on Schedule 4.14(a) , since three (3) years prior to the date of this Agreement:
(i)      except where any non-compliance would not, in the aggregate, reasonably be expected to result in a Material Adverse Effect, (x) the Operator Project Companies and their predecessor Affiliates have operated the Operator Projects in compliance with all applicable Environmental Laws, and (y) to Sellers’ Knowledge, the Coal Participant Projects have been operated by the Coal Participant Project Operators in compliance with all applicable Environmental Laws;
(ii)      (x) no Acquired Company or its predecessor Affiliate has been served with written notice of any material Environmental Claims that are currently outstanding, (y) no Environmental Claims are pending or, to Sellers’ Knowledge, threatened in writing against any Acquired Company or its predecessor Affiliate by any Governmental Authority under any Environmental Laws and (z) to Sellers’ Knowledge, no Environmental Claims are pending or threatened in writing relating to any Coal Participant Project by any Governmental Authority under any Environmental Laws, except, with respect to any such notices received or Claims arising after the date hereof but on or prior to the Closing Date or as would not reasonably be expected to result in a Material Adverse Effect;
(iii)      to Sellers’ Knowledge, there is no site to which Hazardous Materials associated with any Acquired Company or any Coal Participant Project have been transported which is the subject of any environmental action or that would be reasonably expected to result in a material Environmental Claim, except with respect to any such actions or Claims arising after the date hereof but on or prior to the Closing Date or as would not reasonably be expected to result in a Material Adverse Effect; and
(iv)      to Sellers’ Knowledge, there has been no Release of any Hazardous Material that would result in a material Environmental Claim at or from (x) an Operator Project in connection with such Project’s operations by the Acquired Companies or their predecessor Affiliates or (y) a Coal Participant Project in connection with such Project’s operations by the Coal Participant Project Operators and their Affiliates.
(b)      Schedule 4.14(b) sets forth as of the date of this Agreement all emissions allowances held or owned by each of the Project Companies or, to Sellers’ Knowledge, relating to a Coal Participant Project.
(c)      Sections 4.13 , 3.3 , 4.2 and 4.14 hereof contain the exclusive representations and warranties of Sellers respecting Environmental Law, Environmental Claims and Permits governed by Environmental Law. No other provision of this Agreement shall be construed as constituting a representation or warranty regarding such matters.
4.15.      Insurance . Sellers or Non-Company Affiliates provide self-insurance arrangements to the Operator Project Companies relating to the Business on such terms and against such risks and losses as in accordance with Good Industry Practices. Schedule 4.15 sets forth a claims history with respect to each Operator Project Company for the period of ten (10) years preceding the date of this Agreement under such self-insurance arrangements containing a list of all currently pending Claims for such Operator Project Company. All such self-insurance insurance arrangements are in full force and effect, and each Operator Project Company is in material compliance with the terms and conditions thereof.
4.16.      Intellectual Property .
(a)      Each Acquired Company that is not a Coal Project Company owns, or has the licenses or rights to use for its respective Business, all material Intellectual Property (other than the Excluded Items) currently used in its respective Business. Each Coal Operator Project Company owns, or has the licenses or rights to use for the operation of the applicable Coal Operator Project, its respective proportionate share in the undivided interest in all material Intellectual Property (other than the Excluded Items) currently used in the operation of such Coal Operator Project. To Sellers’ Knowledge, each Coal Participant Project Operator has the right to use for the operation of the applicable Coal Participant Project all material Intellectual Property (other than the Excluded Items) currently used in the operation of such Coal Participant Project.
(b)      To Sellers’ Knowledge, no Acquired Company or any Coal Participant Project Operator has received from any third party a Claim in writing that such Acquired Company or such Coal Participant Project Operator is infringing in any material respect the Intellectual Property of such third party.
4.17.      Brokers . No Acquired Company has any liability or obligation to pay fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement.
4.18.      Employees and Labor Matters .
(a)      No Acquired Company has or has ever had any employees.
(b)      Except as set forth on Schedule 4.18(b) :
(i)      the Unionized Employees are in bargaining units covered by the Collective Bargaining Agreements set forth on Schedule 4.18(b)(i) ;
(ii)      no Available Non-Unionized Employees are represented by a union or other collective bargaining entity;
(iii)      there is no labor strike, dispute (other than routine non-material grievances), slowdown, stoppage or lockout actually pending or, to Sellers’ Knowledge, threatened in writing against any Acquired Company or its predecessor Affiliate, except as would not, in the aggregate, reasonably be expected to result in Material Adverse Effect;
(iv)      none of Sellers, their Affiliates or any Acquired Company is a party to or bound by any collective bargaining agreement or other Contract with any labor organization, works council or employer organization applicable to Available Non-Unionized Employees;
(v)      no labor union has been certified by a relevant labor relations authority as bargaining agent for any of the Available Non-Unionized Employees and, except for the Unionized Employees, no union organizing or decertification activities are underway or, to Sellers’ Knowledge, threatened in writing with respect to any Available Non-Unionized Employees;
(vi)      none of Sellers, their Affiliates or any Acquired Company has experienced any material work stoppage with respect to the conduct of the Business of the Project Companies (other than with respect to the operation of the Coal Participant Projects) or the Retail Company or, to Sellers’ Knowledge, the operation of the Coal Participant Projects during the last two (2) years;
(vii)      there is no unfair labor practice Claim pending or, to Sellers’ Knowledge, threatened in writing before a relevant labor relations authority against any of Sellers or their respective Affiliates with respect to the conduct of the Business of the Project Companies (other than with respect to the operation of the Coal Participant Projects) or the Retail Company or, to Sellers’ Knowledge, the operation of the Coal Participant Projects, except as would not, in the aggregate, reasonably be expected to have a Material Adverse Effect;
(viii)      there are no grievances pending or, to Sellers’ Knowledge, there is no conduct that could reasonably be expected to lead to a grievance under any Collective Bargaining Agreement applicable to the Unionized Employees, except as would not, in the aggregate, reasonably be expected to have a Material Adverse Effect;
(ix)      during the last two (2) years, no Seller or its Affiliate has effectuated any plant closing or mass layoff of employees that could implicate any applicable Law requiring notice of plant closings or layoffs, including the WARN Act, with respect to the conduct of the Business of the Project Companies (other than with respect to the operation of the Coal Participant Projects) or the Retail Company or, to Sellers’ Knowledge, the operation of the Coal Participant Projects;
(x)      any notice of the transactions contemplated by this Agreement that was required by a Seller, an Affiliate of any Seller or an Acquired Company pursuant to any applicable Law or Collective Bargaining Agreement has been given;
(xi)      Sellers and their respective Affiliates employing the Business Employees are in compliance in all material respects with all applicable Laws relating to employment of the Business Employees, including all such applicable Laws relating to wages, hours, collective bargaining, terms and conditions of employment, termination of employment, employment discrimination, immigration, disability, civil rights and pay equity, except as would not, in the aggregate, reasonably be expected to have a Material Adverse Effect;
(xii)      there is no arbitration proceeding pending or, to Sellers’ Knowledge, threatened in writing, arising out of or under any Collective Bargaining Agreement applicable to the Unionized Employees, except as would not, in the aggregate, reasonably be expected to have a Material Adverse Effect; and
(xiii)      to Sellers’ Knowledge, there are no pending written requests for any material changes to any Collective Bargaining Agreement applicable to the Unionized Employees.
4.19.      Employee Benefits .
(a)      Schedule 4.19(a) contains a true and complete list of each “employee benefit plan,” as defined in Section 3(3) of ERISA, and all other retirement, pension, deferred compensation, bonus, incentive, severance, executive life insurance, vacation, stock purchase, stock option, phantom stock, equity, employment, profit sharing, retention, stay bonus, change of control and other benefit plans, programs, agreements or arrangements maintained, sponsored or contributed to by any Seller or any ERISA Affiliate, for the benefit of any Business Employee (collectively, the “ Sellers Benefit Plans ”). Sellers have heretofore made available to Buyer a copy of each written Sellers Benefit Plan and any amendments thereto. No Sellers Benefit Plan is sponsored or maintained by any one of the Acquired Companies.
(b)      (i) No Purchased Asset is subject to any Lien under Section 303(k) of ERISA or Section 430(j) of the Code or arising out of any Claim filed under ERISA Section 4301(b).
(i)      Schedule 4.19(b)(ii) identifies each Sellers Benefit Plan that is intended to be a “qualified plan” within the meaning of Section 401(a) of the Code (“ Qualified Plans ”). The IRS has issued a timely and favorable determination, opinion or advisory letter with respect to each Qualified Plan and the related trust that has not been revoked and, to Sellers’ Knowledge, no circumstances exist and no events have occurred that could adversely affect the qualified status of any Qualified Plan or the related trust.
(c)      From and after the Closing Date and except as set forth in Exhibit H , no circumstances could reasonably be expected to exist which will result in any Controlled Group Liability of any of the Acquired Companies with respect to any “employee benefit plan” (as defined in Section 3(3) of ERISA) sponsored or maintained by Sellers or any of their ERISA Affiliates.
(d)      This Section 4.19 contains the exclusive representations and warranties of Sellers with respect to employee benefits matters. No other provision of this Agreement shall be construed as constituting a representation or warranty regarding such matters.
4.20.      No Other Representations or Warranties . Except for the representations and warranties contained in this Agreement, none of Sellers or the Acquired Companies, any of their Representatives or any other Person makes or shall be deemed to make any representation or warranty to Buyer, express or implied, at law or in equity, on behalf of Sellers or the Acquired Companies, or any Affiliate of Sellers or the Acquired Companies, and Sellers and the Acquired Companies, and each of their respective Affiliates, by this Agreement disclaim any such representation or warranty, whether by Sellers, the Acquired Companies or any of their Representatives or any other Person, notwithstanding the delivery or disclosure to Buyer, or any of its Representatives or any other Person of any documentation or other information by Sellers, the Acquired Companies or any of their Representatives or any other Person with respect to any one or more of the foregoing.
ARTICLE V     
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to each Seller that:
5.1.      Organization . Buyer is a limited liability company duly formed, validly existing and in good standing under the Laws of Delaware. Buyer is duly qualified or licensed to do business in each other jurisdiction where the actions to be performed by it hereunder makes such qualification or licensing necessary, except in those jurisdictions where the failure to be so qualified or licensed would not reasonably be expected to result in a material adverse effect on its ability to perform its obligations hereunder.
5.2.      Authority . Buyer has all requisite limited liability company power and authority to execute and deliver this Agreement and the Ancillary Agreements, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Buyer of this Agreement and the Ancillary Agreements, and the performance by Buyer of its obligations hereunder and thereunder, have been or as of the Closing Date shall be duly and validly authorized by all necessary limited liability company action on behalf of Buyer. This Agreement has been duly and validly executed and delivered by Buyer and, assuming the due and valid authorization, execution and delivery by Sellers, constitutes, and the Ancillary Agreements when executed and delivered by Buyer shall constitute, the legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, arrangement, moratorium or other similar Laws relating to or affecting the rights of creditors generally or by general equitable principles.
5.3.      No Conflicts .
(d)      Assuming all Buyer Approvals have been made, obtained or given, the execution and delivery by Buyer of this Agreement do not and of the Ancillary Agreements shall not, and the performance by Buyer of its obligations hereunder and thereunder do not and shall not and the consummation of the transactions contemplated hereby and thereby and the taking of any action contemplated to be taken by Buyer under this Agreement and the Ancillary Agreements shall not (i) conflict with or result in a violation or breach of any of the terms, conditions or provisions of its Charter Documents, (ii) require consent under, result in violation or a breach of or default (or give rise to any right of termination, cancellation or acceleration) under (with or without the giving of notice, lapse of time, or both) any material Contract to which Buyer is a party or (iii) result in violation or a breach of any Law applicable to Buyer, except, in the case of clause (ii) or (iii), which would not, in the aggregate, reasonably be expected to result in a material adverse effect on Buyer’s ability to perform its obligations hereunder.
(e)      Except for the filings, waivers, approvals, consents, authorizations and notices set forth in Schedule 5.3(b) (collectively, the “ Buyer Approvals ”), in connection with the execution, delivery and/or performance of this Agreement or the Ancillary Agreements by Buyer and/or the consummation of the transactions contemplated hereby and thereby, Buyer shall not be required to make any filing with or give any notice to, or to obtain any consent from, any Governmental Authority or any other Person.
5.4.      Legal Proceedings . As of the date hereof, there is no Claim pending or, to Buyer’s knowledge, threatened in writing against Buyer which seeks a writ, judgment, order or decree restraining, enjoining or otherwise prohibiting or making illegal any of the transactions contemplated by this Agreement.
5.5.      Compliance with Laws and Orders . Buyer is not in violation of or in default under any Law or order applicable to Buyer or its Assets the effect of which, in the aggregate, would reasonably be expected to hinder, prevent or delay Buyer from performing its obligations hereunder.
5.6.      Brokers . Buyer does not have any liability or obligation to pay fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which any Seller could become liable or obligated.
5.7.      Securities Law Matters .
(a)      Buyer acknowledges that (i) the Capital Stock representing the Company Interests has not been registered under the 1933 Act or registered or qualified for sale under any state securities or “blue sky” or non-U.S. securities Laws, (ii) there is no public market for the Capital Stock representing the Company Interests and it is not anticipated that there shall be and (iii) the Capital Stock representing the Company Interests must be held indefinitely and Buyer must continue to bear the economic risk of the investment in the Capital Stock representing the Company Interests unless such Capital Stock or the sale thereof, as applicable, is subsequently registered under the 1933 Act and any applicable state or non-U.S. securities Laws or an exemption from such registration is available.
(b)      Buyer is acquiring the Capital Stock representing the Company Interests solely for its own account for investment and not with a present view to or for sale in connection with any distribution (within the meaning of the 1933 Act) thereof.
(c)      Buyer is an “accredited investor” as such term is defined in Rule 501(a) promulgated under the 1933 Act.
5.8.      Experience; Investigation .
(a)      Buyer is knowledgeable, sophisticated and experienced in financial and business matters such that it is capable of evaluating the merits and risks of its investment in the Acquired Companies and the Projects. Buyer has knowledge and experience in transactions of the type engaged in by each Acquired Company in the conduct of its respective Business and the respective Project, and in the electric power, natural gas and coal industry generally and in the acquisition and management of businesses.
(b)      Buyer has been afforded (i) access to the books, records, facilities and personnel of Sellers and the Acquired Companies for purposes of conducting a due diligence investigation of the Acquired Companies and the Projects, subject to Section 6.2 and (ii) the opportunity to ask questions of, and has received answers satisfactory to it from, Sellers’ and the Acquired Companies’ management. Buyer has relied on its own independent investigation of, and judgment with respect to, the Acquired Companies and the Projects and the advice of its own legal, Tax, economic, and other advisors, and, except for the express representations and warranties set forth in this Agreement, Buyer has not relied on any documents, presentations, information, comments, statements or representations furnished by any Seller or any Acquired Company, their respective Affiliates or any of their respective Representatives in determining to enter into this Agreement.
5.9.      Disclaimer Regarding Projections . In connection with Buyer’s investigation of the Acquired Companies and the Projects, Buyer has received from Sellers, the Acquired Companies and their respective Affiliates and Representatives certain projections and other forecasts, including projected financial statements, cash flow items and other data of Sellers and the Acquired Companies and certain business plan information of Sellers and the Acquired Companies. Buyer acknowledges that (a) there are uncertainties inherent in attempting to make such projections and other forecasts and plans, (b) Buyer is familiar with such uncertainties and (c) Buyer is taking full responsibility for making its own evaluation of the adequacy and accuracy of all projections and other forecasts and plans so furnished to it and is not relying on any projection or forecast disclosed or made available to Buyer by any Seller, any Acquired Company or any of their respective Affiliates or Representatives.
5.10.      Financial Resources . Buyer has, as of the date hereof, and shall have at the Closing, sufficient funds (through cash on hand, available borrowings under an existing credit facility or other financing arrangements) available to pay in accordance with the terms of this Agreement, the Purchase Price and all related fees and expenses and otherwise to effect all other transactions contemplated by this Agreement. Prior to the date hereof, Buyer has provided to Sellers true and correct copies of Buyer’s debt commitment letter set forth on Schedule 5.10 (the “ Commitment Letter ”); provided that Buyer may amend, modify, supplement or replace such Commitment Letter to the extent that such actions could not reasonably be expected to, taken as a whole, materially delay or adversely affect the Closing or the transactions contemplated by this Agreement (including by (a) adding any conditions to, or modifying any term that results in the conditions being substantively more onerous than, when taken as a whole, the conditions to the Closing and/or funding set forth in such Commitment Letter, (b) decreasing the amount of net proceeds available to be paid to Sellers from the proceeds of loans relating to such Commitment Letter (unless such decrease is offset by other incremental funds available to Buyer on substantially similar or more favorable terms with respect to Closing conditions) or (c) other actions that, when taken as a whole, could reasonably be expected to adversely affect or materially delay the Closing). Notwithstanding anything contained in this Agreement to the contrary, Buyer expressly acknowledges that its obligations hereunder are not conditioned in any manner upon Buyer or any of its Affiliates obtaining any financing.
ARTICLE VI     
COVENANTS
The Parties hereby covenant and agree as follows, subject to Section 10.2(f) :
6.1.      Regulatory and Other Approvals . During the Interim Period:
(e)      The Parties shall, in order to consummate the transactions contemplated hereby, (i) take all steps reasonably necessary, and proceed diligently and in good faith and use all commercially reasonable efforts, as promptly as practicable, to obtain the Sellers Approvals, Acquired Company Consents and Buyer Approvals in form and substance reasonably satisfactory to Sellers and Buyer, and to make all required filings with, and to give all required notices to, Governmental Authorities; provided that HSR Act filings and attachments need not be exchanged or preapproved by the other Party; provided , further , that any exchange of information between each Seller and Buyer in connection with any filings shall be done in a manner that complies with applicable antitrust Laws, and (ii) provide such other information and communications to such Governmental Authorities or other Persons as such Governmental Authorities or other Persons may reasonably request in connection therewith.
(f)      The Parties shall provide prompt notification to each other when any such approval referred to in Section 6.1(a)  is obtained, taken, made, given or denied, as applicable, and shall advise each other of any material communications with any Governmental Authority or other Person regarding any of the transactions contemplated by this Agreement.
(g)      In furtherance of the foregoing covenants:
(i)      As soon as is practical following the execution of this Agreement, (A) Buyer shall prepare, in consultation with Seller, all necessary filings required to be made with FERC under Section 203 of the FPA in connection with the transactions contemplated by this Agreement, which shall be submitted to FERC jointly by the Parties and (B) each Party shall prepare all other necessary filings in connection with the transactions contemplated by this Agreement that may be required under the HSR Act or any other federal, state or local Laws to be submitted by such party, and all such filings shall be submitted as soon as practicable, but in no event later than twenty-one (21) days (subject to extension by mutual agreement of the Parties) after the execution hereof for filings with FERC and under the HSR Act. The Parties shall request expedited treatment of any such filings, shall promptly furnish each other with copies of any notices, correspondence or other written communication from or to the relevant Governmental Authority, shall promptly make any appropriate or necessary subsequent or supplemental filings, shall cooperate in the preparation of such filings as is reasonably necessary and appropriate and shall permit each other Party to review in advance any proposed written communication between it and any Governmental Authority. If a Party or any of its Affiliates intends to participate in any substantive meeting or discussion with any Governmental Authority with respect to the transactions contemplated by this Agreement or any filings, investigations or inquiries made in connection with the transactions contemplated by this Agreement, it will give the other Party reasonable prior notice of and, to the extent permitted by such Governmental Authority an opportunity to participate in, such meeting or discussion.
(ii)      Buyer shall not, and shall cause its Affiliates not to, take any action that could reasonably be expected to adversely affect the approval of any Governmental Authority of any of the aforementioned filings or the timely receipt thereof. Without limiting the generality of Buyer’s undertakings pursuant to this Section 6.1 , Buyer shall use its commercially reasonable efforts to avoid or eliminate any impediment under any antitrust, competition or trade regulation Law, or any regulatory and operational authorizations and arrangements necessary to own or operate the Acquired Companies and the Projects, that may be asserted by any Governmental Authority (including the DOJ, the FTC or FERC) or any third Person so as to (x) enable the Parties hereto to close the transactions contemplated by this Agreement as promptly as possible and (y) avoid any Claim by any Governmental Authority, which would otherwise have the effect of preventing or delaying the Closing beyond the Outside Date. In furtherance of the foregoing, Buyer’s efforts shall include (A) defending through litigation on the merits, including appeals, any Claim asserted in any court or other proceeding by any Person; (B) proposing, negotiating, committing to and effecting, by consent decree, hold separate order or otherwise, the sale, divestiture or disposition of such Assets or businesses of Buyer, its Affiliates or the Acquired Companies, including entering into customary ancillary agreements on commercially reasonable terms relating to any such sale, divestiture or disposition of such Assets or businesses; (C) agreeing to any limitation on the conduct of Buyer, its Affiliates and the Acquired Companies; or (D) agreeing to take any other action as may be required by a Governmental Authority in order to (1) obtain all necessary consents, approvals and authorizations as soon as reasonably possible, and in any event before the Outside Date, (2) avoid the entry of, or to have vacated, lifted, dissolved, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect as part of any Claim and that prohibits, prevents or restricts consummation of the transactions contemplated by this Agreement or (3) effect the expiration or termination of any waiting period, which would otherwise have the effect of preventing or delaying the Closing beyond the Outside Date.
6.2.      Access of Buyer and Sellers .
(f)      During the Interim Period, Sellers shall provide Buyer, its Representatives and its Financing Sources, at Buyer’s sole cost and expense, with reasonable access, upon reasonable prior notice and during normal business hours, to (1) the Acquired Companies’ (other than any Coal Participant Project Company’s), officers, employees, properties, facilities, books, records, Contracts and other Purchased Assets as Buyer may reasonably request, including for the purpose of observing the operation of the Projects or the Retail Company, but only to the extent that such access does not unreasonably interfere with the Business of any Seller or any Acquired Company and that such access is reasonably related to Buyer’s obligations and rights hereunder and subject to compliance with applicable Laws, and (2) the books, records, Contracts and other Purchased Assets relating to the Coal Participant Projects as Buyer may reasonably request, but only to the extent that the Coal Participant Project Companies have possession of such books, records, Contracts or other Purchased Assets and have the right to provide such access pursuant to the terms of the applicable Co-Owner Agreements and that such access is reasonably related to Buyer’s obligations and rights hereunder and subject to compliance with applicable Laws; provided , however , that each Seller shall have the right to (i) have a Representative of such Seller present for any communication with employees or officers of such Seller or its respective Affiliates and (ii) impose reasonable restrictions and requirements for liability and safety purposes; provided , further , that Buyer shall not be entitled to collect any air, soil, surface water or ground water samples nor to perform any invasive or destructive sampling on any Owned Real Property and/or Leased Real Property. Any such right of access and right to survey and conduct physical inspections described in this Section 6.2(a) shall be subject to the rights, if any, of any Coal Project Co-Owner, any Coal Participant Project Operator or any lessor of any Leased Real Property to approve such access and/or such surveying and conducting of physical inspections and the compliance with the Co-Owner Agreements applicable to the ownership and operation of such Project. Buyer shall provide the applicable Seller with not less than five (5) Business Days prior written notice of the date and time on which Buyer desires that any such entry upon such Owned Real Property and/or Leased Real Property shall occur. Promptly upon completion of any such entry, Buyer shall promptly repair any damage to the pre-entry condition of any such Owned Real Property and/or Leased Real Property caused by Buyer’s entry and be responsible for any injury caused by such entry. Any information provided to Buyer or its Representatives in accordance with this Section 6.2(a) or otherwise pursuant to this Agreement shall be held by Buyer and its Representatives in accordance with, shall be considered “Confidential Information” under, and shall be subject to the terms of, the Confidentiality Agreement.
(g)      Buyer shall indemnify and hold harmless each Seller, its respective Affiliates and their respective Representatives for any and all liabilities, losses, costs or expenses incurred by such Seller, its Affiliates or their respective Representatives arising out of the access rights under this Section 6.2 , including any Claims by any of Buyer’s Representatives for any injuries or property damage while present on the Owned Real Property and/or the Leased Real Property.
(h)      Notwithstanding anything to the contrary in this Section 6.2 , (i) neither Sellers nor the Acquired Companies shall be obligated to disclose to Buyer any information that could reasonably be expected to (A) violate any applicable Law, (B) result in the loss of attorney-client privilege with respect to such information, (C) result in a breach of an agreement to which any Seller or any Acquired Company or any of their respective Affiliates is a party or (D) result in the disclosure of any trade secret or confidential information of third parties.
(i)      From and after the Closing, Buyer shall, upon reasonable prior notice from a Seller, provide such Seller and its respective Affiliates and their respective Representatives access to or copies of books and records (including all material returns, statements, forms, declarations, estimates, schedules, notices, notifications, elections or other documents with respect to Taxes) of the Acquired Companies and Continuing Non-Unionized Employees or Unionized Employees to the extent relating to events that occurred prior to the Closing and to the extent needed for a legitimate business purpose.
6.3.      Interim Operations and Certain Restrictions .
(c)      Except as required or expressly permitted hereby, including pursuant to the other Sections of this Article VI and the provisions of this Section 6.3 , during the Interim Period, Sellers shall (x) cause the Acquired Companies that are not Coal Participant Project Companies (subject to the limitations set forth in the Co-Owner Agreements, in the case of the Coal Operator Project Companies) to operate in the ordinary course of business consistent with past practices, (y) cause the Coal Participant Project Companies to exercise and enforce their rights under the Co-Owner Agreements in the ordinary course of business consistent with past practices of such Coal Participant Project Companies and (z) use commercially reasonable efforts to preserve, maintain and protect in all material respects consistent with past practices the Purchased Assets, rights, Owned Real Property, Leased Real Property and goodwill of the Acquired Companies (including by maintaining in all material respects the Project Companies’ (other than any Coal Participant Project Company’s) and the Retail Company’s relationships with customers, suppliers and Governmental Authorities). Without limiting the foregoing, except as otherwise required or expressly permitted hereby, including pursuant to Section 6.20 , or required by the terms of any Permit identified on Schedule 4.13 or any Material Contract, as set forth in Schedule 6.3(a) or as consented to by Buyer, which consent shall not be unreasonably withheld, conditioned or delayed (except that this Section 6.3 shall not apply to Excluded Items or any Terminated Agreements), during the Interim Period, subject to Section 10.2(f) , the Acquired Companies shall not, and Sellers shall cause the Acquired Companies not to (subject to the limitations set forth in the Co-Owner Agreements, in the case of the Coal Project Companies):
(i)      create, permit or allow to exist any Lien (other than a Permitted Lien) against any of the Purchased Assets;
(ii)      grant any waiver of any material term under, or give any material consent with respect to, any Material Contract, except in the ordinary course of business consistent with past practices;
(iii)      sell, transfer, remove, assign, convey, distribute, lease, or otherwise dispose of Purchased Assets (other than sales of electric power, natural gas and related products by the Acquired Companies in the ordinary course of business consistent with past practices) having a value in excess of $5,000,000 in the aggregate, including (A) any emissions allowances, emission reduction credits, capital spares or inventory and (B) any transfer of capital spares, other than transfers of such capital spares to another Project Company, to the extent the failure to maintain such capital spares would reasonably be expected to materially and adversely affect a Project;
(iv)      other than accounts payable incurred in the ordinary course of business consistent with past practices, or otherwise incurred pursuant to the Material Contracts, the Terminated Agreements or Excluded Items, incur, create, assume or otherwise become liable for any Indebtedness;
(v)      except as may be required to meet the requirements of applicable Law or GAAP, change any accounting method or practice in a manner that is inconsistent with past practices in a way that would materially and adversely affect the Business of a Project Company or the Retail Company;
(vi)      fail to maintain its corporate, limited liability company or other business entity existence, merge or consolidate with any other Person or acquire all or substantially all of the Assets of any other Person;
(vii)      issue, reserve for issuance, pledge or otherwise encumber, sell or redeem or enter into any Contract with respect to any limited liability company interests or Equity Securities of any Acquired Company;
(viii)      liquidate, dissolve, recapitalize or otherwise wind up its business or operations;
(ix)      purchase any securities of any Person, except for short-term investments made in the ordinary course of business consistent with past practices;
(x)      enter into, terminate or amend any Material Contract (or any Contract that would have been a Material Contract if entered into prior to the date hereof) other than (A) any Material Contract (or Contract that would have been a Material Contract if entered into prior to the date hereof) entered into in the ordinary course of business consistent with past practices which: (1) shall be fully performed prior to the Closing or (2) is entered into to replace a Material Contract, in whole or in part, on substantially similar terms as such Material Contract and is at current market prices; (B) any Commercial Hedge described in Section 4.11(a)(ix) entered into in compliance with the Applicable Risk Limits; (C) any Material Contract entered into in connection with a capital expenditure permitted under Section 6.3(b) , and the amounts payable thereunder shall be capital expenditures permitted under such Section 6.3(b) ; or (D) any Collective Bargaining Agreement;
(xi)      other than any Indebtedness incurred pursuant to any Affiliate Contracts that shall be terminated on or prior to Closing, cancel any Indebtedness or waive any Claims or rights having a value in excess of $5,000,000;
(xii)      make any new, or change any existing, material election with respect to Taxes or settle or compromise any material disputed Tax liability of the Acquired Companies outside of the ordinary course of business, in each case, to the extent such action could reasonably be expected to result in a material increase in Tax liabilities of Buyer or any of its Affiliates after the Closing;
(xiii)      amend or modify its Charter Documents;
(xiv)      purchase any individual item of equipment or other Asset involving total consideration in excess of $5,000,000;
(xv)      settle any dispute or Claim or compromise or settle any material liability which results in a material non-current liability becoming due from an Acquired Company after the Closing or restrictions or limitations that materially and adversely affect an Acquired Company’s ability to conduct Business after the Closing;
(xvi)      fail to discharge any material liability or make any material payment as it comes due except in connection with a good faith dispute;
(xvii)      make any capital expenditures except as permitted under Section 6.3(b) ;
(xviii)      other than as required by the terms of a Sellers Benefit Plan or Collective Bargaining Agreement or pursuant to actions taken in the ordinary course of business consistent with past practices that are generally applicable to employees of Parent and its subsidiaries, (A) enter into or amend any employment, severance or special pay agreement with any directors, executive officers or senior management of the Acquired Companies, (B) materially increase the annual base salary of any Business Employee or (C) except (x) for any Corporate Support Employees and (y) as set forth on Schedule 6.3(a)(xviii) , (1) prior to the date on which Buyer or its Affiliate makes written offers of employment in accordance with Section 6.7(c)(i) (or the end of the sixty (60) day period referenced therein, if earlier (such period, the “ Offer Period ”)), transfer to any Non-Company Affiliates any Business Employee or (2) following the Offer Period, transfer to any Non-Company Affiliate any Business Employee to whom an offer of employment has been made by Buyer or its Affiliate in accordance with Section 6.7(c)(i) (with respect to any Available Non-Unionized Employees) or Section 6.7(d)(i) (with respect to any Unionized Employees); or
(xix)      agree or commit to do any of the foregoing;
provided that, with respect to the Coal Operator Project Companies, the dollar thresholds contained in this Section 6.3(a) and Section 6.3(b) below shall be measured against the applicable Coal Operator Project Company’s proportionate interest in the applicable Contract or matter, as the case may be.
(d)      Notwithstanding anything herein to the contrary, (i) the Acquired Companies (other than the Coal Participant Project Companies) may incur capital expenditures consistent with Good Industry Practices: (A) in accordance with the budgeted amounts set forth on Schedule 2.2(c) , in the aggregate, plus an amount that is equal to fifteen percent (15%) above such amounts; (B) in the ordinary course of business consistent with past practices which are in an amount less than $1,000,000 for any individual item or a series of related items; and (C) which are not included on Schedule 2.2(c) , and which: (x) have been the subject of a written request to Buyer by Sellers to which Sellers have not received the written approval or rejection of Buyer within ten (10) Business Days after delivery by Sellers of such a written request (at which time the requested capital expenditures shall be deemed approved in writing), (y) may be reasonably required in accordance with Good Industry Practices upon the occurrence of any emergency or other similar contingency or (z) are required by applicable Law; provided that, in the case of clauses (C)(y) and (C)(z), Sellers shall, upon the occurrence of any such circumstances or requirement, promptly inform Buyer of such occurrence; (ii) the Coal Participant Project Companies may incur and pay for capital expenditures consistent with their proportionate share of the capital expenditures incurred with respect to the Coal Participant Projects and (iii) any Acquired Company may incur any capital expenditures that have been consented to by Buyer.
(e)      For the avoidance of doubt, the Parties acknowledge that entering into any Commercial Hedges or any other hedging activities, including hedging programs contemplating physical delivery and the use of derivative financial instruments such as forward contracts, futures contracts, options contracts and financial swap contracts (collectively, “ Hedging Activities ”), by the Acquired Companies in accordance with the Applicable Risk Limits and/or for reducing Sellers’ financial obligations with respect to Continuing Support Obligations to the extent permitted by Section 6.5 , in each case, subject to the following limitations, shall be considered activities “in the ordinary course of business”: the Hedging Activities shall not include taking a new position in any options, any non-linear products or with a term extending beyond December 31, 2016. Notwithstanding anything else contained in this Section 6.3 , Sellers may permit each Acquired Company that is not a Coal Participant Project Company (subject to the limitations set forth in the Co-Owner Agreements, in the case of the Coal Operator Project Companies) to take commercially reasonable actions with respect to emergency situations so long as Sellers shall, upon receipt of notice of any such actions, promptly inform Buyer of any such actions taken outside the ordinary course of business consistent with past practices.
(f)      DECAM shall be permitted to participate in any auctions ( provided that with respect to the PJM annual base residual auctions, DECAM shall be required to participate in such auctions), and enter into Contracts in connection therewith in the ordinary course of business consistent with past practices, including compliance with the Applicable Risk Limits, after providing prior notice of such participation to Buyer, unless Buyer shall provide written notice to Sellers within ten (10) Business Days of receipt of Sellers’ notice, stating that Buyer is requesting that DECAM not participate in such auction and making reference to this Section 6.3(d) of the Agreement. Notwithstanding the foregoing, the Acquired Companies shall not participate in any “slice of system” load auctions during the Interim Period.
(g)      Notwithstanding clauses (x) and (z) of Section 6.3(a) , Sellers shall have no obligation to cause the Acquired Companies to: (i) enter into any Contract which would require the consent of Buyer and to which Buyer has not provided its consent, or (ii) subject to Section 6.3(d) , undertake any Hedging Activities with respect to any period after the Closing.
6.4.      Use of Certain Names .
(a)      Except as otherwise expressly provided in Section 6.4(b) , within forty-five (45) days following the Closing, Buyer shall cause each Acquired Company (and use commercially reasonable efforts to cause each Coal Project Co-Owner and each Coal Participant Project Operator) to cease using the words “DECAM,” “DECE,” “DEO,” “Duke,” “DE,” “Duke Energy,” “Duke Energy Retail Sales,” “Duke Energy Retail,” “DER,” “DERS,” “Duke Energy Commercial Enterprises” and any word or expression similar thereto or constituting an abbreviation or extension thereof, and all trademarks, trade names, logos and symbols relating to Sellers or Non-Company Affiliates, including those set forth on Schedule 6.4(a) (collectively, the “ Sellers Marks ”), including eliminating the Sellers Marks from the Owned Real Property, the Leased Real Property, the Purchased Assets and the other Coal Project Assets and disposing of any unused stationery and literature of the Acquired Companies, the Coal Project Co-Owners and the Coal Participant Project Operators bearing the Sellers Marks. Except to the extent expressly permitted by this Section 6.4(a) and Section 6.4(b) , from and after the Closing, Buyer shall not, and shall cause each Acquired Company and their Affiliates not to (and use its commercially reasonable efforts to cause each Coal Project Co-Owner and each Coal Participant Project Operator not to), use the Sellers Marks or any patents or other Intellectual Property rights belonging to any Seller or its respective Non-Company Affiliates that have not been expressly conveyed to Buyer or an Acquired Company, and Buyer acknowledges that it, its Affiliates, the Acquired Companies, the Projects, the Coal Project Co-Owners and the Coal Participant Project Operators have no rights whatsoever to use such Sellers Marks, patents or other Intellectual Property. Without limiting the foregoing:
(i)      within seven (7) Business Days after the Closing Date, Buyer shall cause each Acquired Company whose name contains any of the Sellers Marks to change its name to a name that does not contain any of the Sellers Marks and to amend all of the organizational documents of such Acquired Company to eliminate such Sellers Marks from the name of such Acquired Company; and
(ii)      within sixty (60) days after the Closing Date, Buyer shall provide evidence to Sellers, in a format that is reasonably acceptable to Sellers, that Buyer has made all filings required by the Governmental Authorities pursuant to clause (a) above and has provided notice to all applicable Governmental Authorities and all counterparties to the Material Contracts regarding the sale of the Acquired Companies and the Purchased Assets to Buyer and the new addresses for notice purposes.
(b)      Subject to the terms of this Agreement, effective upon the Closing, Parent shall grant to the Retail Company a limited, personal, non-exclusive, non-assignable, non-sublicenseable, royalty-free license to use the “Duke Energy” trademark, together with the goodwill symbolized by such trademark (the “ Licensed Mark ”), as part of the names “Duke Energy Retail Sales” or “Duke Energy Retail” for a period of ninety (90) days following the Closing Date, subject to extension in accordance with the Transition License Agreement (the “ License Period ”), solely in the conduct of the Business of the Retail Company in the ordinary course of business substantially as conducted by the Retail Company immediately prior to the Closing Date pursuant to and as further set forth in the Transition License Agreement (the “ Transition License ”). The Transition License shall automatically and immediately terminate upon the expiration of the License Period, and if Buyer or the Retail Company or any of their Affiliates breaches any of the terms or conditions set forth in this Section 6.4(b) or the Transition License Agreement in any material respect, Parent shall have the right to terminate the Transition License upon ten (10) Business Days’ notice to Buyer. Buyer shall not, and shall cause the Retail Company not to, use any other logos, trademarks, service marks, designations, trade names or corporate names in combination or in connection with the Licensed Mark during the License Period, except as may be approved in writing by Parent in its sole discretion.
(c)      During the License Period, Buyer shall, and shall cause the Retail Company to, make clear in all correspondence, communications or other dissemination of information that include the Licensed Mark made by Buyer, the Acquired Companies or any of their respective Affiliates that the Business and the Acquired Companies are no longer affiliated with any of Sellers or the Non-Company Affiliates, in a form and manner approved in writing by Retail Seller.
(d)      In connection with any use of the Sellers Marks by Buyer or the Acquired Companies to the extent expressly permitted pursuant to this Section 6.4 , Buyer shall and shall cause each Acquired Company (and use commercially reasonable efforts to cause each Coal Project Co-Owner and each Coal Participant Project Operator) to comply with, in all respects, all of Sellers’ and their Non-Company Affiliates’ quality control requirements, policies and guidelines in effect at such time and as may be provided to Buyer or any Acquired Company by Sellers from time to time during the use of the Sellers Marks in accordance with this Section 6.4 .
(e)      Notwithstanding anything to the contrary contained in this Agreement, including this Section 6.4 , as promptly as reasonably practicable following the Closing, but in any event within three (3) Business Days after the Closing, Buyer shall, and shall cause the Acquired Companies to, cease using any name that includes any of the names, logos, trademarks, trade names, patents or other Intellectual Property set forth on Schedule 6.4(e) (the “ Specified Marks ”) or any similar words that would raise a reasonable likelihood of confusion with the Specified Marks, and Buyer acknowledges that from and after the Closing it, its Affiliates, the Acquired Companies, the Projects, the Coal Project Co-Owners and the Coal Participant Project Operators have no rights whatsoever to use the Specified Marks.
6.5.      Support Obligations .
(c)      Buyer recognizes that certain of the Non-Company Affiliates have provided credit support on behalf of certain of the Acquired Companies with respect to the operation of their respective Businesses, to the Coal Participant Project Operators with respect to the Coal Participant Projects and otherwise pursuant to certain credit support obligations, including guarantees, letters of credit, escrow arrangements, surety and performance bonds and security agreements and arrangements (other than collateral included in Net Working Capital), all of which that are outstanding as of the date hereof are set forth on Schedule 6.5(a) (the “ Support Obligations ”).
(d)      Prior to the Closing, Buyer shall use commercially reasonable efforts to effect the full and unconditional release, effective as of the Closing Date, of the Non-Company Affiliates from all Support Obligations ( provided that with respect to any Support Obligations posted or maintained in connection with an Affiliate Dedicated Contract, the terms of this Section 6.5 shall apply only to such Support Obligations posted or maintained in connection with those Affiliate Dedicated Contracts that become Assigned Contracts), including by:
(i)      providing a Buyer guaranty to replace each existing guaranty that is a Support Obligation containing terms equal to or more favorable to the beneficiary thereof than the terms of such existing guaranty (other than with respect to the credit rating of the guarantor); provided that if the beneficiary of any existing guaranty does not accept such a replacement guaranty (effective as of the Closing) by the date that is forty-five (45) days after the date hereof (A) and the terms of such existing guaranty or of any Contract or Law requiring such existing guaranty to be maintained permit the replacement of such existing guaranty with another form of credit support, Buyer shall offer the beneficiary of such existing guaranty such other form of credit support in order to obtain the release of such existing guaranty or (B) if the terms of such existing guaranty or of any such Contract or Law requiring such existing guaranty to be maintained do not so permit the replacement of such existing guaranty, Buyer shall offer to replace such existing guaranty with a Letter of Credit or cash in an amount up to the amount of such existing guaranty in substitution therefor;
(ii)      furnishing a Letter of Credit to replace each existing letter of credit that is a Support Obligation containing terms and conditions that are substantially identical to the terms and conditions of such existing letter of credit;
(iii)      instituting an escrow arrangement to replace each existing escrow arrangement that is a Support Obligation with terms equal to or more favorable to the counterparty thereunder than the terms of such existing escrow arrangement;
(iv)      posting a surety or performance bond to replace each existing surety or performance bond that is a Support Obligation issued by a Person having a net worth and Credit Rating at least equal to those of the issuer of such existing surety or performance bond, and containing terms and conditions that are substantially identical to the terms and conditions of such existing surety or performance bond; and
(v)      replacing any other security agreement or arrangement on substantially identical terms and conditions to the existing security agreement or arrangement that is a Support Obligation.
(e)      Buyer shall use commercially reasonable efforts to cause the beneficiary or beneficiaries of the Support Obligations to (i) remit any cash to Sellers or their respective Non-Company Affiliates, as applicable, held under any escrow arrangement that is a Support Obligation promptly following the replacement of such escrow arrangement pursuant to Section 6.5(b)(iii) (unless such cash has been reflected in Net Working Capital as being transferred with the Acquired Companies at Closing) and (ii) terminate and redeliver to Sellers or their respective Affiliates each original copy of each original guaranty, letter of credit or other instrument constituting or evidencing such Support Obligations; provided that for purposes of clarity, Buyer’s obligations to provide replacement credit support are limited exclusively to those items listed on Schedule 6.5(a) , as amended or supplemented pursuant to Section 6.5(g) .
(f)      If Buyer is not successful, following the use of commercially reasonable efforts, in obtaining the complete and unconditional release of the Non-Company Affiliates from any Support Obligations effective as of the Closing (each such Support Obligation, until such time as such Support Obligation is released in accordance with Section 6.5(d)(i) , a “ Continuing Support Obligation ”), then:
(i)      from and after the Closing, Buyer shall continue to use commercially reasonable efforts to obtain promptly the full and unconditional release of the Non-Company Affiliates from each Continuing Support Obligation;
(ii)      Buyer shall indemnify each Seller and each Non-Company Affiliate for any Losses incurred by each Seller and each Non-Company Affiliate in connection with each Continuing Support Obligation;
(iii)      Buyer shall not, shall cause each Acquired Company not to and shall use its commercially reasonable efforts to cause each Coal Participant Project Operator not to, effect any amendments or modifications or any other changes to the Contracts or obligations to which any of the Continuing Support Obligations relate, or to otherwise take any action, in each case that increases, extends or accelerates the liability of the Non-Company Affiliates under any Continuing Support Obligation, without Sellers’ prior written consent; and
(iv)      Buyer shall deliver to Sellers at the Closing and maintain at all times until the full and unconditional release of each Continuing Support Obligation in accordance with Section 6.5(d)(i) either:
(A)      a Letter of Credit in an amount equal to maximum amount as set forth under “Subject Amount” on Schedule 6.5(a) for all Continuing Support Obligations in the aggregate (and the full amount of such Letter of Credit shall be available for drawing with respect to any one or more of the Continuing Support Obligations), which amount shall be reduced from time to time by the amount of any Continuing Support Obligations from which Sellers are subsequently released; provided that, if at any time the issuer of the Letter of Credit fails to meet the Minimum Issuer Requirements, then within five (5) Business Days of the earlier of (1) Sellers’ request and (2) Buyer’s knowledge of such failure, Buyer shall replace the Letter of Credit with a Letter of Credit from an issuer that meets the Minimum Issuer Requirements; provided , further , that, if Buyer elects to fulfill its obligations under this Section 6.5(d)(iv) through the provision of a Letter of Credit pursuant to this clause (A), then on the last Business Day of each three (3) month period following the Closing Date until such time as no Continuing Support Obligations remain outstanding, Buyer shall pay Sellers or their designee a fee in respect of each Continuing Support Obligation, with such fee determined in accordance with Section 6.5(d)(iv)(C) below; or
(B)      an unlimited guaranty of Buyer’s obligations hereunder with respect to the Continuing Support Obligations from a Person with a Credit Rating of Investment Grade, which guarantee shall be in form and substance satisfactory to each Seller in its sole discretion; provided that, if Buyer’s guarantor fails to maintain a Credit Rating of Investment Grade at any time, then Buyer shall provide a Letter of Credit pursuant to Section 6.5(d)(iv)(A) within five (5) Business Days of the earlier of (1) Sellers’ request and (2) Buyer’s knowledge of such failure; provided , further , that, if Buyer elects to fulfill its obligations under this Section 6.5(d)(iv) through the provision of a guaranty pursuant to this clause (B), then on the last Business Day of each three (3) month period following the Closing Date until such time as no Continuing Support Obligations remain outstanding, Buyer shall pay Sellers or their designee a fee in respect of each Continuing Support Obligation, with such fee determined in accordance with Section 6.5(d)(iv)(C) below.
(C)      The fee payable by Buyer pursuant to clauses (A) and (B) of Sections 6.5(d)(iv) shall be determined as follows: On the last Business Day of the first three (3) month period following the Closing Date, the fee shall be calculated at a rate of one and one-quarter percent (1.25%) (on a per annum basis) on the amount under the heading “Subject Amount” on Schedule 6.5(a) with respect to each Continuing Support Obligation remaining outstanding as of such date, and the rate of such fee shall increase by an additional one-half percent (0.5%) (on a per annum basis) on the last Business Day of each subsequent three (3) month period after such initial three (3) month period after the Closing Date with respect to any such Continuing Support Obligation that remains outstanding, up to a maximum rate of three and one-quarter percent (3.25%) (on a per annum basis); provided that, if any Continuing Support Obligations continue to remain outstanding, then on each twelve (12) month anniversary of the Closing Date, the maximum rate for calculating such fee shall increase over the maximum rate applicable to the immediately preceding twelve (12) month period by the increase in LIBOR over such twelve (12) month period, if any (but for the avoidance of doubt, any decrease in LIBOR shall not affect such maximum rate); provided further , that if the rate for calculating any fee payable under this Section 6.5(d) would exceed the highest rate permitted under applicable Law, then, ipso facto , the rate shall be automatically reduced to the maximum lawful rate.
(g)      Notwithstanding anything in this Agreement to the contrary, each Seller and each Non-Company Affiliate may not terminate any Continuing Support Obligations at any time after the Closing Date until such Continuing Support Obligations terminate or expire by their terms or by consent of the applicable beneficiary or are replaced pursuant to this Section 6.5 .
(h)      During the Interim Period, Buyer shall have the right to contact and have discussions with each beneficiary of a Support Obligation in order to satisfy its obligations under this Section 6.5 ; provided , however , that Buyer shall give Sellers prior notice before making any such contact.
(i)      Any and all new or replacement credit support obligations or any modification or increase in the existing credit support obligations entered into or executed by any Seller or Non-Company Affiliate with respect to any Acquired Company and/or under the Co-Owner Agreements with respect to the Projects during the Interim Period shall constitute Support Obligations hereunder, and all of Buyer’s obligations under this Section 6.5 shall apply with respect thereto; provided that Sellers shall consult with Buyer prior to any Seller or Non-Company Affiliate entering into or executing any new credit support obligation if as a result of such new credit support obligation, the aggregate outstanding amount of Support Obligations as of the Closing would be increased by more than $50,000,000 as compared to the outstanding amount of Support Obligations as of the date hereof. Sellers shall have the continuing obligation until the Closing to supplement or amend promptly Schedule 6.5(a) with respect to any additional Support Obligations entered into during the Interim Period, which, if existing at the date of this Agreement, would have been required to be set forth Schedule 6.5(a) , and to provide such supplements or amendments to Buyer on a regular basis.
6.6.      Excluded Items; Post-Closing Payments on Purchased Assets .
(d)      Notwithstanding anything in this Agreement to the contrary, Buyer and Sellers agree that the Purchased Assets shall exclude those items listed on Schedule 6.6 (collectively, the “ Excluded Items ”), Sellers or their Non-Company Affiliates shall retain all benefits and liabilities with respect to the Excluded Items and Sellers shall, prior to the Closing Date, use commercially reasonable efforts to cause the Acquired Companies to distribute, transfer or assign each Excluded Item to a Seller or a Non-Company Affiliate or to terminate such Excluded Item with no post-Closing liability on an Acquired Company. Buyer acknowledges that the inability of Sellers to have any Excluded Item distributed, transferred or assigned from any Acquired Company or terminated for any reason shall not delay the Closing and any Excluded Item that Sellers are unable to so distribute, transfer, assign or terminate by the Closing shall be referred to as a “ Non-Transferred Excluded Item .” After the Closing Date with respect to each Non-Transferred Excluded Item, Buyer shall permit Sellers to exclusively direct and manage each Acquired Company’s participation in all negotiations, Claims or other proceedings involving such Non-Transferred Excluded Item, whether existing on the Closing Date or arising thereafter. Buyer shall also permit Sellers to settle or compromise on behalf of any Acquired Company any Non-Transferred Excluded Item in Sellers’ sole discretion (except that Buyer’s consent shall be required if such settlement or compromise would adversely affect Buyer in any material respect), and shall promptly pay Sellers any proceeds or recoveries received in connection with any Non-Transferred Excluded Item. Buyer shall, at Sellers’ expense: (a) cause any Person under its control with knowledge of relevant facts pertaining to any Non-Transferred Excluded Item to provide assistance to Sellers as reasonably requested by any Seller; and (b) provide any relevant books, records or other information of any Acquired Company to Sellers and access to each Operator Project site (and use commercially reasonable efforts to provide access to each Coal Participant Project site), as reasonably requested by any Seller, in connection with any Non-Transferred Excluded Item; provided that in no event shall Buyer or any Acquired Company be obligated to take or to cause any Person to take or permit Sellers to take any action pursuant to this Section 6.6(a) that would (A) violate any applicable Law or (B) unreasonably interfere with the business of Buyer or any of the Acquired Companies. Sellers shall remain at all times responsible for all credit support obligations with respect to all Excluded Items.
(e)      If the consent or approval of any third party is required in connection with the transactions contemplated hereby, including the assignment or transfer of any Purchased Asset that is a Contract or Permit to Buyer, but is not obtained prior to the Closing, Sellers shall continue to use their commercially reasonable efforts to obtain such consent after the Closing, and Sellers shall cooperate with Buyer in any lawful and economically feasible arrangement (including subleasing, sublicensing or subcontracting) to provide that Buyer shall receive the interest of Sellers in any such Purchased Asset, Contract or Permit; provided that Buyer shall undertake to pay or satisfy any corresponding liabilities for which Buyer would have been responsible if such consent or approval had been obtained. Sellers shall hold in trust for and pay to Buyer, promptly upon receipt thereof, all income, proceeds, recoveries and other monies received by Sellers or any of their Affiliates in connection with its use of any Purchased Asset, Contract or Permit in connection with the arrangements under this Section 6.6(b) . Nothing in this Section 6.6(b) shall be deemed a waiver by Buyer of its right to receive an effective assignment of all of the Purchased Assets, Contracts and Permits at the Closing nor shall any Purchased Assets, Contracts or Permits covered by this Section 6.6(b) be deemed to constitute Excluded Items.
6.7.      Employee and Benefit Matters .
(c)      Sellers Benefit Plans . Effective as of the Closing Date, the Continuing Non-Unionized Employees and Unionized Employees (who accept offers pursuant to Section 6.7(d)(i) ) shall cease to accrue further benefits and shall cease to be active participants under the Sellers Benefit Plans. Buyer shall not assume any of the Sellers Benefit Plans. From and after the Closing Date, Sellers and their ERISA Affiliates shall retain and shall be solely responsible for all obligations and liabilities under the Sellers Benefit Plans, and neither Buyer nor its Affiliates (including the Acquired Companies) shall have any obligation, liability or responsibility from and after the Closing Date to or under the Sellers Benefit Plans, whether such obligation, liability or responsibility arose before, on or after the Closing Date.
(d)      Pre-Closing Date Claims under Sellers Benefit Plans . To the extent that a Business Employee was a participant in a Sellers Benefit Plan, the Sellers Benefit Plans shall be responsible for providing welfare benefits (including medical, hospital, dental, accidental death and dismemberment, life, disability and other similar benefits) to any participating Business Employees for all Claims incurred prior to the Closing Date under and subject to the generally applicable terms and conditions of such plans. For purposes of this Section 6.7(b) , a Claim is incurred with respect to (i) accidental death and dismemberment, disability, life and other similar benefits when the event giving rise to such Claim occurred and (ii) medical, hospital, dental and other similar benefits when the services with respect to such Claim are rendered. Sellers shall pay out all accrued and unused vacation balances of the Continuing Non-Unionized Employees within thirty (30) days of the Closing Date in accordance with Sellers’ applicable policies in effect at that time. Sellers shall provide the Unionized Employees with such vacation benefits as are mandated by the applicable Collective Bargaining Agreement through the Closing Date.
(e)      Available Non-Unionized Employees Offers and Post-Closing Employment and Benefits . Buyer shall, or shall cause the Acquired Companies or another Affiliate to:
(i)      as promptly as reasonably practicable, but in any event within sixty (60) days after the execution of this Agreement, (A) make written offers of employment to each of the Available Non-Unionized Employees that Buyer desires to employ after the Closing, including those described in Section 6.7(c)(iv)(B) , with such offers providing such Available Non-Unionized Employees fifteen (15) days to either accept or reject such offers and (B) provide Sellers with a list of the Available Non-Unionized Employees to whom it has made offers of employment;
(ii)      within seventy-five (75) days after the execution of this Agreement, Buyer shall notify Sellers as to each Available Non-Unionized Employee who has accepted employment with Buyer or any of its Affiliates by such date, which acceptance shall be conditioned upon the occurrence of the Closing and effective as of the Closing Date and may be conditioned on other customary and lawful conditions of employment, including authorization to work in the U.S., and each Available Non-Unionized Employee who has rejected Buyer’s offer of employment;
(iii)      indemnify and hold harmless Sellers and their Affiliates with respect to all Claims and liabilities relating to or arising out of Buyer’s employee selection and employment offer process described in this Section 6.7(c) (including any Claim of discrimination or other illegality in such selection and offer process but excluding any Claim for severance under the Sellers Benefit Plans);
(iv)      provide to each Available Non-Unionized Employee who is actively at work as of the Closing Date or is on a previously scheduled and approved (by a Seller or its Affiliates) short-term disability, workers’ compensation or other approved leave of absence and accepts an offer of employment from Buyer or an Affiliate of Buyer (the “ Continuing Non-Unionized Employees ”), during the twelve (12) month period immediately following the Closing Date, (A) base salary/wage rate and bonus and incentive opportunities and other employee benefits that are substantially comparable in the aggregate as the compensation and benefits provided to the Available Non-Unionized Employee immediately prior to Closing, and as promptly as practicable, and in any event no later than fifteen (15) days after the date of this Agreement and prior to making offers pursuant to Section 6.7(c)(i) , Buyer shall furnish information to Sellers describing the compensation and employee benefits that Buyer intends to provide to the Continuing Non-Unionized Employees during the twelve (12) month period immediately following the Closing Date, to which Sellers shall promptly, and in no event later than twenty-five (25) days following the date of this Agreement, notify Buyer whether it agrees that the proposed compensation and employee benefits satisfy the covenant in this Section 6.7(c)(iv)(A) ; (B) reemployment or hiring, as applicable, to the Available Non-Unionized Employees listed on Schedule 6.7(c)(iv)(B) who are not actively at work as of the Closing Date due to short-term disability, workers’ compensation or other approved leave of absence, such reemployment or hiring to be effective as of the date, if any, each such Available Non-Unionized Employee has been cleared for and returns to active employment and to be in a position comparable to that which such Available Non-Unionized Employee has prior to the commencement of his or her absence from active employment; provided that nothing in the foregoing shall affect the right of each Seller and its Affiliates to terminate the employment of an Available Non-Unionized Employee for any lawful reason at any time, (C) cash severance benefits for each Continuing Non-Unionized Employee who is terminated without cause, as reasonably determined by Buyer, during the twelve (12) month period immediately following the Closing Date no less favorable than the greater of the cash severance benefits provided under Buyer’s applicable severance plan or the Duke Energy Involuntary Severance Plan and (D) unless otherwise agreed to by an Available Non-Unionized Employee in writing, employment at a location that is located at, or within a fifty (50) mile radius from, the Available Non-Unionized Employee’s location of employment immediately preceding the Closing;
(v)      cause each Continuing Non-Unionized Employee and his or her eligible dependents (including all such employee’s dependents covered immediately prior to the Closing Date by a group health plan maintained by Sellers or their respective Affiliates) to be covered under a group health plan maintained by Buyer or its Affiliate that (A) provides major medical and dental benefits coverage to the Continuing Non-Unionized Employee and such eligible dependents effective immediately upon the Closing Date and (B) with respect to medical plans, credits such Continuing Non-Unionized Employee, for the year during which such coverage under any such medical plan begins, with any deductibles and co-payments incurred under a medical plan maintained by Sellers or their respective Affiliates where such deductibles and co-payments were incurred during such year, prior to the Closing and have been processed and paid by the earlier of the end of (i) the calendar year in which the Closing occurs or (ii) the third (3 rd ) month following Closing; provided , however , that for purposes of applying this clause (B), the Continuing Non-Unionized Employee shall be responsible for providing the necessary information to Buyer based upon benefit forms received by the Continuing Non-Unionized Employee from the medical plan maintained by Sellers or their respective Affiliates;
(vi)      provide full service credit for all purposes (other than to the extent that such credit would result in duplication of benefits with respect to the same period of service, which includes the duplication of service credit for benefit accrual purposes under any pension plan) under all vacation, incentive, compensation and employee benefit plans, policies and arrangements made available to Continuing Non-Unionized Employees by Buyer, the Acquired Companies or any of their Affiliates on or after the Closing Date to the same extent such Continuing Non-Unionized Employee’s service was recognized under the corresponding type of benefit plans in which such Continuing Non-Unionized Employee participated immediately prior to the Closing Date; and
(vii)      from and after the Closing Date, recognize and give each Continuing Non-Unionized Employee credit for his or her accumulated balance as of the Closing Date under the sick and dependent care pay programs maintained by Sellers and their respective Affiliates.
(f)      Unionized Employees Offers and Post-Closing Employment and Benefits . Buyer shall, or shall cause the Acquired Companies or another Affiliate to:
(i)      make offers of employment to all Unionized Employees effective upon the Closing based on the terms of the applicable Collective Bargaining Agreements and applicable Laws;
(ii)      as a condition of the transactions contemplated by this Agreement, (A) recognize each labor union as collective bargaining representative and assume each Collective Bargaining Agreement applicable to the Unionized Employees immediately effective upon the Closing Date, (B) abide by and agree to honor the terms and conditions of such Collective Bargaining Agreements including all liabilities and obligations arising under or in any way related to such Collective Bargaining Agreements, including seniority status, and (C) indemnify and hold harmless Sellers and their Affiliates with respect to any Claims and liabilities attributable to such Collective Bargaining Agreements following the Closing Date, including all liabilities and obligations arising under or in any way related to such Collective Bargaining Agreements; and
(iii)      upon or after the Closing Date, provide Unionized Employees such benefits ( e.g. , defined benefit pension, 401(k), welfare, vacation, etc.) as may be required under the assumed Collective Bargaining Agreements.
(g)      Post Closing Date Employment Claims . Except as expressly provided in this Agreement, Buyer shall indemnify, defend and hold Sellers and their Affiliates (other than the Acquired Companies) harmless from and against any and all liability of any kind or nature involving or related to the employment of the Continuing Non-Unionized Employees and Unionized Employees (who become employees of Buyer or its Affiliate) by Buyer or Acquired Companies after the Closing Date, including any liability related to any employee benefit plan sponsored or maintained by Buyer, the Acquired Companies or their ERISA Affiliates after the Closing. Except as expressly provided in this Agreement, Sellers shall indemnify, defend and hold Buyer and its Affiliates harmless from and against any and all liability of any kind or nature involving or related to the employment, or termination from employment, of the Continuing Non-Unionized Employees and Unionized Employees (who become employees of Buyer or its Affiliates) by Sellers or their respective Affiliates on or before the Closing Date (or, if later, on or before the date on which any such Continuing Non-Unionized Employee becomes an employee of Buyer or its Affiliate) and with respect to any of Sellers’ employees who do not become employees of Buyer or its Affiliates.
(h)      Buyer Welfare Plans . Buyer shall cause the waiver of all limitations as to pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Continuing Non-Unionized Employees and, to the extent agreed upon with respect to post-Closing benefits negotiated and accepted by Buyer and the applicable union, the Unionized Employees under any such plans. Buyer shall provide, or shall cause the Acquired Companies to provide, continuation health care coverage to Business Employees and their qualified beneficiaries who incur a qualifying event, in accordance with the continuation health care coverage requirements of Section 4980B of the Code and Title I, Subtitle B, Part 6 of ERISA (“ COBRA ”) or any similar provisions of state Law, on or after the Closing Date. Buyer shall provide any required notice under COBRA or any similar provisions of state Law to Business Employees in respect of any qualifying event that occurs as a result of the transactions contemplated by this Agreement.
(i)      Defined Benefit Pension Plan . As promptly as reasonably practicable following the Closing Date (the “ Pension Spin-Off Date ”), (i) Sellers shall cause the Sellers Pension Plans to spin-off into a separate defined benefit pension plan (the “ Buyer Pension Plan ”) the benefit obligations for the Continuing Non-Unionized Employees and Unionized Employees (who become employed by Buyer and its Affiliates) who are participants in or entitled to present or future benefits (whether or not vested) under the Sellers Pension Plans (“ Pension Plan Participants ”), (ii) Sellers shall cause for the benefit of the Buyer Pension Plan the spin-off of an amount of assets determined pursuant to the methodology and assumptions set forth in Exhibit H attached hereto, and (iii) the Buyer Pension Plan shall assume, fully perform, pay and discharge all of the liabilities as of the Pension Spin-Off Date for the benefits (whether vested or not vested) of all Pension Plan Participants under the Sellers Pension Plans, and the Sellers Pension Plans shall have no liability for such benefits, all on the terms and subject to the conditions set forth in Exhibit H attached hereto. In furtherance of the foregoing, Sellers or their applicable Non-Company Affiliate and Buyer or its Affiliate shall enter into an agreement, substantially in the form of Exhibit H , effective as of the Pension Spin-Off Date.
(j)      Savings Plans . Effective as of the Closing Date, Buyer, the Acquired Companies or their ERISA Affiliates shall establish or maintain a defined contribution pension plan (or plans) and trust (or trusts) intended to qualify under Sections 401(a) and 501(a) of the Code in which all Continuing Non-Unionized Employees shall be eligible to participate (“ Buyer Savings Plan ”) and in which all Unionized Employees shall be eligible to participate (“ Buyer Union Savings Plan ”) as of the later of the Closing Date or the effective date of such Buyer plans. Buyer shall cause the Buyer Savings Plan and the Buyer Union Savings Plan to accept the direct rollover of electing Continuing Non-Unionized Employees and Unionized Employees benefits in cash and, if applicable, promissory notes from the Sellers Savings Plan.
(k)      WARN Act. From the date of this Agreement until the Closing Date, Sellers shall not and shall cause their Affiliates and the Acquired Companies not to terminate the employment of any Business Employees such that a “plant closing” or “mass layoff” (as those terms are defined in the WARN Act or any similar state Law) occurs prior to the Closing without complying with the WARN Act. Buyer agrees to provide any notice required under the WARN Act or any similar state Law with respect to any “plant closing” or “mass layoff” affecting Business Employees that may occur on or after the Closing Date or arise, in whole or in part, as a result of the transactions contemplated by this Agreement. In addition, neither Buyer nor the Acquired Companies shall effectuate a “plant closing” or “mass layoff” or any other similar triggering event under the WARN Act or any other applicable Law affecting any Business Employee, except in compliance with the WARN Act or other applicable Law. Buyer shall indemnify, defend and hold Sellers harmless from and against any liability, damages, fines or costs (including reasonable attorneys’ fees) under the WARN Act or any similar state Law for any “plant closing” or “mass layoff” occurring on or after the Closing Date or arising, in whole or in part, from the actions (or inactions) of Buyer or the Acquired Companies on or after the Closing Date or as a result of the transactions contemplated by this Agreement.
(l)      No Third Party Beneficiary Rights . Nothing herein, expressed or implied, shall confer upon any Business Employees (or any of their beneficiaries or alternate payees) any rights or remedies (including any right to employment or continued employment, or any right to compensation or benefits for any period) of any nature or kind whatsoever, under or by reason of this Agreement or otherwise. In addition, the provisions of this Section 6.7 are for the sole benefit of the Parties and are not for the benefit of any third party.
(m)      Non-Solicitation of Business Employees . In the event that this Agreement is terminated prior to the Closing pursuant to Section 9.1 , until the date that is two (2) years from and after the date of such termination of this Agreement, (i) Buyer shall not employ, and shall cause its Affiliates not to employ, any Business Employees without Sellers’ prior written consent and (ii) Buyer shall not, and shall cause its Affiliates not to, directly or indirectly, in any manner whatsoever, solicit for hire or employment any officer or employee of any Seller or any of their respective Affiliates to whom Buyer or its Representatives had been directly or indirectly introduced or otherwise had first contact with as a result of its consideration of the transactions contemplated hereby; provided , however , that this clause (ii) shall not apply to any solicitation (or any hiring as a result of any solicitation) (x) that consists of a general advertisement or solicitation by Buyer through the use of media advertisements, the Internet, or professional search firms that is not targeted at employees of Sellers or its Affiliates or (y) of any person who is no longer employed by Sellers or its Affiliates.  
(n)      Employment by Third Party or Buyer’s Affiliates . Notwithstanding anything to the contrary in this Section 6.7 , Buyer shall have the right to use a third party operator or an Affiliate of Buyer to hire Business Employees and to perform certain actions on behalf of Buyer under this Section 6.7 ; provided that in no event shall such use of or performance by a third party operator or an Affiliate of Buyer release Buyer from any of its obligations under this Section 6.7 .
(o)      Code Section 409A . The Continuing Non-Unionized Employees shall be treated, for purposes of Section 409A of the Code, as having a separation from service with Sellers and their Affiliates as of the Closing Date, unless Sellers make a determination pursuant to Treasury Regulation 1.409A-1(h)(4) for such Continuing Non-Unionized Employees to be treated as not separating from service with Sellers and their Affiliates, for purposes of Section 409A of the Code, until they terminate employment with Buyer and its Affiliates, in which case Buyer hereby agrees that it shall (i) acknowledge and agree in writing prior to the Closing Date to any such determination by Sellers, and (ii) make reasonable best efforts to notify Sellers within five (5) Business Days after any such Continuing Non-Unionized Employee terminates employment with Buyer and its Affiliates.
6.8.      Affiliate Contracts; Affiliate Dedicated Contracts; Affiliate Shared Services Contracts .
(a)      Affiliate Contracts . Notwithstanding anything in this Agreement to the contrary, prior to the Closing, Sellers shall (i) terminate or cause to be terminated, effective upon or before the Closing, all Affiliate Contracts other than the Affiliate Contracts set forth on Schedule 6.8(a) (the “ Continued Affiliate Contracts ”) and (ii) cause all Claims, accounts or obligations (contingent or otherwise) between any Acquired Company, on the one hand, and any Seller or any Non-Company Affiliate, on the other hand, to be settled, released or otherwise eliminated, in such a manner as Sellers shall determine, effective immediately prior to the Closing. For the avoidance of doubt, Claims, accounts or obligations solely between and among any of the Acquired Companies shall not be affected by this provision.
(b)      Affiliate Dedicated Contracts .
(i)      From and after the date hereof, Buyer and Sellers shall use their commercially reasonable efforts to obtain the written consent from each party (other than Sellers and their respective Affiliates) (each, a “ Counterparty ”) to each Affiliate Dedicated Contract to the assignment and assumption of such Affiliate Dedicated Contract by each Assignor to each Assignee identified on Schedule 1.1-AD and the related release of the Assignor thereunder, as contemplated by the Assignment and Assumption Agreements to occur at the Closing; provided that any obligation to seek such consent by Buyer and Sellers shall terminate as of the Closing. Without limiting the foregoing, Buyer’s efforts shall include offering to replace any credit support posted or maintained by a Seller or a Non-Company Affiliate in favor of any Counterparty to any Affiliate Dedicated Contract in accordance with the requirements of Section 6.5 , and in the case of Affiliate Dedicated Contracts with respect to which none of Sellers or the Non-Company Affiliates has posted or maintains any credit support, Buyer shall comply with all commercially reasonable requests from any Counterparty under such Affiliate Dedicated Contracts to post or maintain credit support as security for the performance of the obligations of the Assignee thereof.
(ii)      At the Closing, Buyer shall assume (or cause one of the Acquired Companies, as set forth in Schedule 1.1-AD , to assume) from each of the Non-Company Affiliates who are party to an Assigned Contract, and Sellers shall cause such Non-Company Affiliates to assign to Buyer (or such Acquired Company), all of the rights and obligations of such Non-Company Affiliates, as applicable, relating to periods from and after the Closing under the Assigned Contracts; provided , however , that, to the extent that any Assigned Contracts relate to natural gas transportation on a pipeline regulated by FERC, Sellers’ obligations under this Section 6.8(b) are conditioned upon the Non-Company Affiliate successfully releasing its capacity permanently to Buyer (or such Acquired Company) and being relieved of all payment obligations under each such Assigned Contract pursuant to the terms of the applicable FERC Gas Tariff. Each of Sellers and Buyer shall use commercially reasonable efforts to achieve any such permanent releases of capacity.
(c)      Affiliate Shared Services Contracts . From and after the Closing, Sellers shall, and shall cause the Non-Company Affiliates party to the Affiliate Shared Services Contracts to, provide to Buyer and the Acquired Companies the services contemplated under the Affiliate Shared Services Contracts that relate to the Projects pursuant to the terms and subject to the conditions of, and to the extent required by, the Transition Services Agreement.
6.9.      Indebtedness; Distributions . Notwithstanding anything in this Agreement to the contrary:
(e)      Prior to or at the Closing (including by direction of payment of a portion of the purchase price to a Non-Company Affiliate), Sellers shall cause any and all Indebtedness of the Acquired Companies to be paid or otherwise satisfied in full (including through the assumption of any such Indebtedness by a Non-Company Affiliate) and any and all Liens securing any such Indebtedness to be released such that Buyer shall take title to the Company Interests free of any such Indebtedness or any such Liens.
(f)      Sellers shall have the right to cause the Acquired Companies to pay cash dividends, make cash distributions and assign accounts receivable to a Seller or its respective Non-Company Affiliates at any time prior to the Closing. After the Closing, Buyer shall promptly remit to Sellers any amounts received by Buyer or the Acquired Companies as payment on accounts receivable of any Acquired Company that such Acquired Company assigned to a Seller or a Non-Company Affiliate and that was not reflected in the Net Working Capital of the Acquired Companies as of the Closing Date.
6.10.      Insurance . Sellers shall maintain or cause to be maintained in full force and effect the self-insurance arrangements maintained by Sellers or Non-Company Affiliates for the benefit of the Acquired Companies with respect to the Business until the Closing. All such self-insurance arrangements shall be terminated as of the Closing and no further liability shall be covered under any of such self-insurance arrangements. Buyer shall be solely responsible for providing insurance to the Acquired Companies for any event or occurrence after the Closing.
6.11.      Casualty . If any of the Purchased Assets is damaged or destroyed by casualty loss after the date hereof and prior to the Closing, and (x) the cost of restoring such damaged or destroyed Purchased Assets to a condition reasonably comparable to their prior condition and (y) the amount of any lost profits, in each case, to the extent such costs and lost profits are reasonably expected to accrue after the Closing as a result of such damage or destruction to such Purchased Assets (net of and after giving effect to any insurance proceeds available to the Acquired Companies for such restoration and lost profits and any Tax benefits related thereto) (such costs and lost profits with respect to any Purchased Assets, the “ Restoration Cost ”) is greater than $15,000,000 but does not exceed $250,000,000, Sellers may elect to reduce the amount of the Purchase Price by the estimated Restoration Cost (as estimated by a qualified firm reasonably acceptable to Buyer and Sellers), by notice to Buyer, and such casualty loss shall not affect the Closing. If Sellers do not make such an election within forty-five (45) days after the date of such casualty loss, Buyer may elect to terminate this Agreement within ten (10) Business Days after the end of such forty-five (45) day period by written notice to Sellers. If the Restoration Cost is in excess of $250,000,000, Sellers may, by notice to Buyer within forty-five (45) days after the date of such casualty loss, elect to (a) reduce the Purchase Price by the estimated Restoration Cost (as estimated by a qualified firm reasonably acceptable to Buyer and Sellers) or (b) terminate this Agreement, in each case by providing written notice to Buyer; provided , however , that if Sellers do not elect to terminate this Agreement as provided in this sentence, then Buyer may, by written notice to Sellers, terminate this Agreement within ten (10) Business Days of receipt by Buyer of Sellers’ notice regarding its election. If the Restoration Cost is $15,000,000 or less, (i) neither Buyer nor Sellers shall have the right or option to terminate this Agreement and (ii) there shall be no reduction in the amount of the Purchase Price. In the event that Sellers elect to reduce the Purchase Price in accordance with this Section 6.11 , Sellers shall, and shall cause their Non-Company Affiliates to, use commercially reasonable efforts to collect amounts due (if any) under available insurance policies or programs in respect of any such casualty loss and shall cause any such insurance proceeds to be contributed or assigned to the applicable Acquired Company that has suffered such casualty loss without any adjustment to Net Working Capital.
6.12.      Condemnation . If any of the Purchased Assets is taken by condemnation after the date hereof and prior to the Closing and such Purchased Assets have the sum of (x) a condemnation value and (y) to the extent not included in preceding clause (x), the amount of any lost profits reasonably expected to accrue after the Closing as a result of such condemnation of such Purchased Assets (net of and after giving effect to any condemnation award any Tax benefits related thereto) (such sum with respect to any Purchased Assets, the “ Condemnation Value ”) greater than $15,000,000 but do not have a Condemnation Value (as determined by a qualified firm reasonably acceptable to Buyer and Sellers) in excess of $250,000,000, Sellers may elect to reduce the Purchase Price by such Condemnation Value (less the amount of any condemnation award and Tax benefits related thereto) by notice to Buyer, and such condemnation shall not affect the Closing. If Sellers do not make such an election within forty-five (45) days after the date of such condemnation, Buyer may elect to terminate this Agreement within ten (10) Business Days after such forty-five (45) day period by written notice to Sellers. If the Condemnation Value is in excess of $250,000,000, Sellers may, by notice to Buyer within forty-five (45) days after the award of condemnation proceeds, elect to (a) reduce the Purchase Price by such Condemnation Value (after giving effect to any condemnation award available and Tax benefits related thereto) or (b) terminate this Agreement, in each case by providing written notice to Buyer; provided , however , that if Sellers do not elect to terminate this Agreement as provided in this sentence, then Buyer may, by written notice to Sellers, terminate this Agreement within ten (10) Business Days of receipt by Buyer of Sellers’ notice regarding its election. If the Condemnation Value is $15,000,000 or less, (A) neither Buyer nor Sellers shall have the right or option to terminate this Agreement and (B) there shall be no reduction in the amount of the Purchase Price. In the event that Sellers elect to reduce the Purchase Price in accordance with this Section 6.12 , Sellers shall, and shall cause their Non-Company Affiliates to, use commercially reasonable efforts to collect amounts due (if any) under any applicable condemnation award in respect of any such condemnation and shall cause any such condemnation award to be contributed or assigned to the applicable Acquired Company that has suffered such condemnation without any adjustment to Net Working Capital.
6.13.      Transition Plan; Transition Services Arrangements; Replacement of Representatives .
(a)      During the Interim Period, in furtherance of the transactions contemplated by this Agreement, the Parties shall, and shall cause their Affiliates to, cooperate in good faith and use their commercially reasonable efforts to develop and begin to implement a mutually acceptable transition plan for the migration and integration of the Acquired Companies out of the business of Sellers and the Non-Company Affiliates and into the business of Buyer, subject to compliance with applicable Laws (the “ Transition Plan ”). The Transition Plan shall address the matters set forth on Schedule 6.13(a) as well as any other matters agreed to by the Parties. Such cooperation shall include each Party (with Sellers being considered one Party for purposes of this Section 6.13 ) taking the following actions: (i) promptly after execution of this Agreement, appointing a transition manager whose primary responsibility would be to plan and execute the transition and manage such Party’s transition team; (ii) promptly after execution of this Agreement, reviewing the technology, business operations and administration capabilities to be transitioned or migrated, taking into account any issues of separation arising from the Transition Plan; (iii) reviewing the services provided to the Acquired Companies under the Affiliate Shared Services Contracts and the extent to which such services can be provided on a transitional basis; (iv) establishing transition teams; (v) setting regular meetings of the teams during the Interim Period; (vi) making available appropriate knowledgeable business, operations, administration and technology personnel and any other personnel reasonably needed for such transition and migration planning, execution and knowledge transfer; (vii) coordinating as to transitional matters with respect to Governmental Authorities, including the North American Electric Reliability Corporation; and (viii) developing detailed project plans and budgets for migration and transition; provided that all such activities shall be in compliance with applicable Law.
(b)      In furtherance of the Transition Plan, during the Interim Period, Sellers shall, and shall cause their Affiliates to, work together with Buyer in good faith and the Parties shall use their commercially reasonable efforts to prepare for the transition and migration of the software set forth on Schedule 6.13(b) identified by Buyer to Sellers as software Buyer intends to use in connection with the operation of the Business after the Closing (the “ Transitioning Software ”). In connection therewith, Sellers shall, and shall cause their Affiliates to, facilitate discussions with third party licensors of Transitioning Software with the intent of making the Transitioning Software available to the Acquired Companies and Buyer for the operation of the Business as currently conducted, effective immediately following the Closing, subject to Buyer’s negotiation and agreement with third party licensors as to the terms and conditions of any license required with respect thereto and the payment of any fee that may be required. If the Transitioning Software is not available for use by the Acquired Companies and Buyer as of the Closing Date, then Sellers or their Non-Company Affiliates shall continue the efforts described in this Section 6.13(b) under the terms of the Transition Services Agreement, as and to the extent permissible under the terms of the Transitioning Software licenses.
(c)      During the Interim Period, the Parties, through their respective transition teams, shall cooperate in good faith and use their commercially reasonable efforts to finalize and refine (through addition, deletion or modification prior to the Closing) the schedules to the Transition Services Agreement consistent with any requirements identified in the Transition Plan. At the Closing, the Parties shall enter into a Transition Services Agreement, substantially in the form attached hereto as Exhibit I (the “ Transition Services Agreement ”).
(d)      Within ten (10) Business Days following the Closing (subject to extension by mutual agreement of the Parties), Buyer shall designate and appoint a replacement to any representative or agent of each Acquired Company who has been appointed to a position pursuant to a requirement of any Governmental Authority or Permit, unless such representative or agent is a Continuing Non-Unionized Employee or a Unionized Employee, or, if required by any Government Authority or Permit in connection with the transactions contemplated by this Agreement, reconfirm any such currently designated or appointed representative or agent.
6.14.      Tax Matters .
(c)      Notwithstanding anything in this Agreement to the contrary or any requirement at Law, Buyer shall bear any Transfer Taxes imposed as a result of the transactions contemplated by this Agreement. Buyer shall timely file its Transfer Tax returns as required by Law and shall notify Sellers when such filings have been made. If either Seller is required by Law to file any Transfer Tax return, such Seller shall furnish such Transfer Tax return to Buyer for Buyer’s review fifteen (15) Business Days before the due date, and Buyer shall remit the amount shown as due on such Tax return ten (10) Business Days before the due date of such Tax return to the applicable Seller.
(d)      With respect to any Tax return covering a taxable period ending before the Closing Date (a “ Pre-Closing Taxable Period ”) that is required to be filed on or after the Closing Date with respect to an Acquired Company, (i) Sellers shall cause such Tax return to be prepared and shall deliver such Tax return as so prepared to Buyer not later than fifteen (15) days (three (3) days with respect to any property Tax return) prior to the due date (including extensions) for filing such Tax return for Buyer’s review and comments, (ii) with respect to any issue that could materially and adversely affect Buyer or the applicable Acquired Company in a taxable period (or portion thereof) beginning on or after the Closing Date, Sellers shall cooperate and consult with Buyer to finalize such Tax return, and if such issue is not resolved prior to the filing due date, such Tax return shall be filed in form and substance provided to Buyer, with any modifications agreed to by Sellers and Buyer, and the Parties thereafter shall amend such Tax return as and to the extent necessary to reflect the final resolution of such issue, and (iii) subject to Sellers’ payment to Buyer of such Tax in compliance with Section 6.14(c) , Buyer shall cause such Tax return to be executed and duly and timely filed with the appropriate Taxing Authority and shall pay all Taxes shown as due and payable on such Tax return. With respect to any Tax return covering a taxable period beginning before the Closing Date and ending on or after the Closing Date (a “ Straddle Taxable Period ”) that is required to be filed on or after the Closing Date, (A) Buyer shall cause such Tax return to be prepared (in a manner consistent with practices followed in prior taxable periods except as required by a change in Law or fact) and shall deliver a draft of such Tax return to Sellers for Sellers’ review and approval at least fifteen (15) days prior to the due date (including extensions) for filing such Tax return, (B) Sellers and Buyer shall cooperate and consult with each other in order to finalize such Tax return, and if any issue remains unresolved prior to the filing due date, such Tax return shall be filed in form and substance provided to Sellers, with any modifications agreed to by Sellers and Buyer, and the Parties thereafter shall amend such Tax return as and to the extent necessary to reflect the final resolution of such issue, and (C) subject to Sellers’ payment to Buyer of any portion of such Tax in compliance with Section 6.14(c) , Buyer shall cause such Tax return to be executed and duly and timely filed with the appropriate Taxing Authority and shall pay all Taxes shown as due and payable on such Tax return.
(e)      Subject to Section 10.1(b) , except to the extent included in the calculation of Net Working Capital, Sellers shall be responsible for and indemnify the Buyer Indemnified Parties against, and, subject to Section 6.14(g) below, Sellers shall be entitled to all refunds or credits of any Tax with respect to any Acquired Company that is attributable to a Pre-Closing Taxable Period or to that portion of a Straddle Taxable Period that ends prior to the Closing Date. With respect to a Straddle Taxable Period, Sellers and Buyer shall determine the Tax attributable to the portion of the Straddle Taxable Period that ends at the end of the day immediately prior to the Closing Date by an interim closing of the books of the applicable Acquired Company as of the end of the day prior to the Closing Date, except for ad valorem or property Taxes and franchise Taxes based solely on capital which shall be prorated on a daily basis up to the Closing Date. For this purpose, any franchise Tax paid or payable with respect to an Acquired Company shall be allocated to the taxable period for which payment of the Tax provides the right to engage in business, regardless of the taxable period during which the income, operations, assets or capital comprising the base of such Tax is measured. In determining whether a property Tax is attributable to a Pre-Closing Taxable Period or a Straddle Taxable Period, any property Tax that is based on the assessed value of any assets, property or other rights as of any lien date or other specified valuation date shall be deemed a property Tax attributable to the taxable period (whether a fiscal year or other Tax year) specified on the relevant property Tax bill that is issued with respect to that lien date or other valuation date. Notwithstanding the foregoing, with respect to any Coal Project Asset, the calculation of the amount of Tax of such Coal Project Asset for which Sellers are responsible or entitled to refunds or credits under this Section 6.14(c) shall be made by reference to the applicable Seller’s undivided interest in such Assets.
(f)      Subject to Section 10.1(a) , Buyer shall be responsible for and indemnify Sellers against, and Buyer shall be entitled to all refunds and credits of, all Taxes of the Acquired Companies that are attributable to a taxable period (or portion thereof) beginning on or after the Closing Date.
(g)      With respect to any Tax for which Sellers are responsible, Sellers shall have the right, at their sole cost and expense, to initiate any claim for refund and to control (in the case of a Pre-Closing Taxable Period) or participate in (in the case of a Straddle Taxable Period) the prosecution, settlement or compromise of any proceeding involving such Tax, including the determination of the value of property for purposes of real and personal property ad valorem Taxes (a “ Tax Matter ”); provided , however , that neither Party shall enter into any settlement of or otherwise compromise any material Tax Matter that would be reasonably likely to adversely affect the Tax liability of the other Party in any material respect without the other Party’s prior written consent, not to be unreasonably delayed, conditioned or withheld. Buyer shall and shall cause the relevant Acquired Company to, and shall use its commercially reasonable efforts to cause the Coal Participant Project Operators to, take such action in connection with any such proceeding as Sellers shall reasonably request from time to time to implement the preceding sentence, including the selection of counsel and experts and the execution of powers of attorney. Buyer shall and shall cause the relevant Acquired Company to, and shall use its commercially reasonable efforts to cause the Coal Participant Project Operators to, give written notice to Sellers of its receipt of any notice of any audit, examination, claim or assessment for any Tax for which any Seller is responsible within twenty (20) days after its receipt of such notice; failure to give any such written notice within such twenty (20) day period shall limit Sellers’ indemnification obligation pursuant to this Agreement to the extent any Sellers are actually prejudiced by such failure. Notwithstanding anything to the contrary in Section 10.6 , this Section 6.14(e) and not Section 10.6 will apply to third-party Claims with respect to Taxes.
(h)      Sellers shall grant to Buyer (or its designees) access at all reasonable times to all of the information, books and records (excluding workpapers and correspondence with Taxing Authorities) relating solely to the Acquired Companies within the possession of Sellers, and shall afford Buyer (or its designees) the right (at Buyer’s expense) to take extracts therefrom and to make copies thereof, to the extent reasonably necessary to permit Buyer (or its designees) to prepare Tax returns, respond to Tax audits and investigations, prosecute Tax protests, appeals and refund claims and to conduct negotiations with Taxing Authorities. Buyer shall and shall cause the Acquired Companies to, and shall use its commercially reasonable efforts to cause the Coal Participant Project Operators to, grant to Sellers (or their respective designees) access at all reasonable times to all of the information, books and records (including workpapers and correspondence with Taxing Authorities) relating to the Acquired Companies for Pre-Closing Taxable Periods or Straddle Taxable Periods within the possession of Buyer, the Acquired Companies, the Coal Participant Project Operators and the employees of Buyer and the Acquired Companies, and shall afford and cause the Acquired Companies to, and shall use its commercially reasonable efforts to cause the Coal Participant Project Operators to, afford Sellers (or their respective designees) the right (at Sellers’ expense) to take extracts therefrom and to make copies thereof, in each case to the extent reasonably necessary to permit Sellers (or their respective designees) to prepare Tax returns, respond to Tax audits and investigations, prosecute Tax protests, appeals and refund claims and to conduct negotiations with Taxing Authorities. After the Closing Date, Sellers and Buyer shall, and Buyer shall cause the Acquired Companies to, and Buyer shall use its commercially reasonable efforts to cause the Coal Participant Project Operators to, preserve all information, records or documents in their respective possessions relating to liabilities for Taxes of the Acquired Companies for Pre-Closing Taxable Periods or Straddle Taxable Periods until six (6) months after the expiration of any applicable statute of limitations (including extensions thereof) with respect to the assessment of such Taxes; provided that no Party shall dispose of any of the foregoing items without first offering such items to the other Parties.
(i)      If after the Closing, Buyer or an Acquired Company receives a refund or utilizes a credit of any Tax of such Acquired Company attributable to a Pre-Closing Taxable Period or that portion of a Straddle Taxable Period ending at the end of the date immediately prior to the Closing Date, Buyer shall pay to Sellers within ten (10) Business Days after such receipt or utilization an amount equal to such refund received or credit utilized, together with any interest received or credited thereon, net of reasonable third-party fees or expenses incurred by Buyer or the Acquired Companies in obtaining such refund or credit payable to Sellers attributable to a Pre-Closing Taxable Period or that portion of a Straddle Taxable Period ending at the end of the date immediately prior to the Closing Date. Buyer shall, and shall cause the Acquired Companies to, use commercially reasonable efforts to obtain a refund or credit of any Tax of any Acquired Company attributable to a Pre-Closing Taxable Period or that portion of a Straddle Taxable Period ending at the end of the day immediately prior to the Closing Date or to mitigate, reduce or eliminate any such Tax that could be imposed for a Pre-Closing Taxable Period or that portion of a Straddle Taxable Period ending at the end of the day immediately prior to the Closing Date (including with respect to the transactions contemplated hereby).
(j)      In the event that a Seller initiates a claim for refund from a Taxing Authority with regard to any Tax of an Acquired Company attributable to a Pre-Closing Taxable Period or that portion of a Straddle Taxable Period ending at the end of the day immediately prior to the Closing Date, whether the initiation of such claim begins prior to or after the Closing, Sellers shall have all rights to and interest in such refund. Buyer shall, upon request, provide Sellers a limited power of attorney allowing Sellers to pursue such claim for refund with and collect such refund from such Taxing Authority. Notwithstanding the foregoing, Sellers shall not settle any such claim in a manner that could materially and adversely affect Buyer or the applicable Acquired Company in a taxable period (or portion thereof) beginning on or after the Closing Date without Buyer’s prior written consent, not to be unreasonably withheld, conditioned or delayed.
(k)      In the event that a Seller initiates a claim for refund from a third party who improperly withheld sales and use Tax, or withheld excessive sales and use Tax, with regard to an Acquired Company attributable to a Pre-Closing Taxable Period or that portion of a Straddle Taxable Period ending at the end of the day immediately prior to the Closing Date, whether the initiation of such claim begins prior to or after the Closing, Sellers shall have all rights to and interest in such refund. Buyer shall, upon request, provide Sellers a limited power of attorney allowing Sellers to pursue such claim for refund with and collect such refund from such third party. Notwithstanding the foregoing, Sellers shall not settle any such claim in a manner that could materially and adversely affect Buyer or the applicable Acquired Company in a taxable period (or portion thereof) beginning after the Closing Date without Buyer’s prior written consent, not to be unreasonably withheld, conditioned or delayed.
(l)      From and after the Closing Date, Buyer shall, and shall cause the Acquired Companies to, comply with the covenants relating to tax-exempt pollution control bonds set forth on Schedule 6.14(j) .
6.15.      Further Assurances . Subject to the terms and conditions of this Agreement, at any time or from time to time after the Closing, at any Party’s request and without further consideration, the other Parties shall execute and deliver to such Party such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions as such Party may reasonably request in order to consummate the transactions contemplated by this Agreement.
6.16.      Competing Transactions . Buyer shall not, and shall not permit any of its Affiliates to (a) acquire or agree to acquire any electric generation Assets or business, or (b) acquire or agree to acquire, whether by merger, consolidation, by purchasing any portion of the Assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof owning, operating or otherwise controlling any electric generation Assets or business, if the entering into of a definitive agreement relating thereto or the consummation of such acquisition, merger or consolidation could reasonably be expected to (i) delay beyond the Outside Date (x) the expiration of any applicable waiting period or (y) the obtaining, or materially increasing the risk of not obtaining, any authorizations, consents, orders, declarations or approvals of any Governmental Authority necessary to consummate the transactions contemplated by this Agreement, (ii) materially increase the risk of any Governmental Authority entering an order prohibiting such transactions, or (iii) delay beyond the Outside Date or otherwise materially impede the consummation of the transactions contemplated by this Agreement.
6.17.      Public Announcements . During the Interim Period, except as required by Law or by the rules of, or an applicable listing agreement with, a national securities exchange, each of Sellers and Buyer shall consult with the other and obtain the consent of the other (which consent shall not be unreasonably withheld, conditioned or delayed) before issuing any press releases or any public statements with respect to this Agreement and the transactions contemplated by this Agreement; provided , however , that, subject to the Confidentiality Agreement, each Party and its Affiliates may make internal announcements regarding this Agreement and the transactions contemplated hereby to its respective directors and officers and employees without the consent of the other Parties. Notwithstanding the foregoing, nothing in this Agreement or the Confidentiality Agreement shall prohibit any Party from communicating with any Governmental Authorities or third parties (including representatives of labor unions) to the extent reasonably necessary for the purpose of (a) seeking any consents or approvals of, making any filings with or providing any notifications to, any such Governmental Authority or third party nor shall any Party be liable for any public disclosure made by any such Governmental Authority or third party with respect thereto, (b) responding to customer and counterparty questions and concerns regarding this Agreement, the transactions contemplated hereby and the transition of the Businesses of the Acquired Companies and/or (c) in connection with any Financing.
6.18.      Confidentiality . The provisions of the Confidentiality Agreement are incorporated into this Agreement by reference and shall remain binding and in full force and effect on and after the date hereof until the earlier of the expiration of its term or the Closing; provided , however , that Buyer’s confidentiality obligations with respect to Confidential Information (as defined in the Confidentiality Agreement) shall terminate only in respect of that portion of the Confidential Information exclusively relating to the Acquired Companies or the Business, and the confidentiality obligations not relating exclusively to the Acquired Companies or the Business shall continue in full force and effect for a period of two (2) years following the Closing Date. If, for any reason, the transactions contemplated by this Agreement are not consummated, the Confidentiality Agreement shall continue in full force and effect for a period of two (2) years following the termination of this Agreement. Notwithstanding the above or the Confidentiality Agreement, nothing in this Agreement or the Confidentiality Agreement shall prevent Buyer or any of its subsidiaries from disclosing any information, including “Confidential Information” and the information provided pursuant to Section 6.23 , (i) to any Financing Source in connection with any Financing, (ii) in an offering circular, prospectus, bank book, comfort letters or private placement memorandum in connection with any Financing, (iii) for the purposes of establishing a “due diligence” defense in connection with any Financing, (iv) to the extent reasonably necessary to perform any diligence with respect to, or confirm the accuracy of the information provided pursuant to Section 6.23 , (v) with Sellers’ consent, as applicable, or (vi) in connection with Buyer Guarantor’s reporting obligations under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) or the 1933 Act and its obligations under the 1933 Act, including its obligation to maintain the effectiveness of its shelf registration statement on Form S-3ASR; provided that (x) with respect to any disclosure of such information to a Commitment Party (as defined in the Commitment Letter), to the extent applicable to such Commitment Party, such recipient shall be subject to confidentiality obligations consistent with those set forth in the second paragraph of Section 9 of the Commitment Letter (as in effect on the date hereof); and (y) with respect to any disclosure of information that constitutes “Confidential Information” under the terms of the Confidential Agreement or as otherwise has been identified in writing by Sellers to Buyer as being confidential to any recipient that is not subject to confidentiality obligations substantially similar to those under the Confidentiality Agreement, this Agreement or those set forth in the immediately preceding clause, Buyer shall use commercially reasonable efforts to consult with Sellers with respect to the confidentiality of any such information and the preparation of any disclosure including such information.
6.19.      Updates; Supplements to Schedules . From time to time prior to the Closing, Sellers shall be entitled to supplement, amend or modify the Schedules to Article III , Article IV or Schedule 6.5(a) to reflect (a) the entering into, amendment of or termination of Material Contracts as permitted by Section 6.3(a)(x) , (b) changes to Support Obligations as contemplated by Section 6.5(g) and (c) factors, circumstances or events first arising or, in the case of representations given to Sellers’ Knowledge, becoming known to Sellers during the Interim Period (each, a “ Schedule Supplement ”) by providing Buyer with written notice specifying the schedule or schedules to be updated thereby. Each such Schedule Supplement shall be deemed to supplement, amend and modify the Schedules for all purposes of this Agreement; provided that a Schedule Supplement pursuant to clause (c) above shall not affect Buyer’s right with respect to indemnification hereunder, except as otherwise set forth in this Section 6.19 . If any Schedule Supplement pursuant to clause (c) above discloses any matter or circumstance that has or would reasonably be expected to have, either individually or in the aggregate with all prior Schedule Supplements pursuant to clause (c) above, a Material Adverse Effect or result in the failure of any of the conditions to Closing set forth in Article VII , Buyer may terminate this Agreement pursuant to Section 9.1(e) upon written notice of termination delivered to Sellers not later than ten (10) Business Days following Buyer’s receipt of the applicable Schedule Supplement. If Buyer has the right to terminate this Agreement pursuant to Section 9.1(e) but does not elect to terminate this Agreement within ten (10) Business Days of its receipt of such Schedule Supplement and the Closing occurs, then Buyer shall be deemed to have irrevocably waived any right to terminate this Agreement pursuant to Section 9.1(e) with respect to such Schedule Supplement and, further, shall have irrevocably waived its right to indemnification under Section 10.2(a) with respect to such matter or circumstance, and such Schedule Supplement shall be deemed to amend the Schedules, to qualify the relevant representations and warranties contained herein with respect to such Schedule Supplement and to cure any breach of a representation or warranty that otherwise might have existed hereunder.
6.20.      Separation of Generation and Transmission Assets and Operations . Buyer acknowledges that DEO, Sellers and the other Non-Company Affiliates of Sellers have undertaken a project involving the physical separation of the transmission Assets (none of which constitute Purchased Assets) located at the sites of the Coal Operator Projects and the Dicks Creek Project from the generation Assets located at those sites, as described on Schedule 6.20 (the “ GT Separation ”). From and after the date hereof, DEO, Sellers and the other Non-Company Affiliates of Sellers shall be entitled to continue the GT Separation work until its completion, solely at the expense of DEO, Sellers and/or the other Non-Company Affiliates. From and after the Closing and until the GT Separation work is complete, Buyer shall, and shall cause the Acquired Companies to, (i) work diligently with DEO, Sellers and the other Non-Company Affiliates of Sellers in scheduling the GT Separation work during scheduled outages at the sites of the Coal Operator Projects and the Dicks Creek Project; provided that Buyer agrees that all such GT Separation work shall be scheduled to permit its completion no later than December 31, 2018, (ii) provide access to the sites and Assets at the Coal Operator Projects and the Dicks Creek Project as reasonably requested by DEO, Sellers and/or their Non-Company Affiliates in accordance with the Access Agreements and (iii) cooperate with DEO, Sellers and their Non-Company Affiliates in the performance and completion of the GT Separation work; provided that no such GT Separation work shall unreasonably interfere with the business of Buyer or any of the Acquired Companies.
6.21.      Related Agreements . Notwithstanding anything to the contrary contained in Section 6.3 , Sellers shall be permitted to cause the applicable Acquired Companies to enter into the Related Agreements with Non-Company Affiliates during the Interim Period. In the event that any Related Agreement has not been entered into prior to the Closing, the Parties shall, and shall cause their relevant Affiliates to, execute and deliver any such Related Agreement, substantially in the form attached as an Annex to Schedule 6.21 , if applicable, at the time of the Closing, or, if any approvals or consents required to implement such Related Agreement have not been obtained as of the time of the Closing, following the Closing promptly upon obtaining such approvals and consents. In the event that the O&M Agreement is not entered into as of the Closing, Buyer shall, and shall cause DE Miami Fort to, apply the terms and conditions of the existing operation agreement for the generating plant known as Unit 6 located at the site of the Miami Fort Project in a manner consistent with the past practices of DE Miami Fort and its predecessor Affiliates. In addition, Sellers shall (a) use their commercially reasonable efforts to enter into the Interconnection Agreements as promptly as practicable, recognizing that the timing of the entry into such agreements is dependent in part on the actions of third parties and (b) comply with the arrangements set forth on Schedule 6.21 .
6.22.      Real Property Matters . Sellers shall and shall cause the Acquired Companies to reasonably cooperate with Buyer by providing reasonably requested documentation in the possession, or under the control of, the Acquired Companies, prior to and at the Closing, in connection with Buyer obtaining ALTA Owner’s Policies of Title Insurance with the deletion of the requirements described in Schedule B-I of the title commitments, the deletion of the “gap” exception and the other standard exceptions and the attachment of any and all available, reasonable and customary endorsements required by Buyer and any Financing Source (obtained at Buyer’s sole cost and expense) covering all of the Real Property effective as of the Closing Date, including executing customary affidavits required by Buyer’s title insurance company, including the affidavit substantially in the form of Schedule 6.22 (“ Title Company Affidavit ”); provided , however , that Sellers shall not be required to provide any indemnities or guaranties in favor of the title insurance company, Buyer or any other party in connection with this Section 6.22 other than (i) a reasonable and customary “Non-Imputation Affidavit” and (ii) the indemnity contained in the Title Company Affidavit. Notwithstanding anything herein to the contrary, Buyer shall be responsible for all costs related to any title policies, “marked-up” title commitments and endorsements.
6.23.      Financing Cooperation .
(a)      Sellers (including their respective subsidiaries and the Acquired Companies) shall during the Interim Period:
(i)      provide cooperation reasonably requested by Buyer (x) in connection with one or more financing transactions, all or a portion of the proceeds of which will be used to fund the Purchase Price or related fees and expenses, or any offerings that are registered under Buyer’s existing shelf registration statement on Form S-3 (each, a “ Financing ”) and (y) in order for Buyer to comply with its reporting obligations under the Exchange Act and its obligation to maintain the availability of its existing shelf registration statement on Form S-3, which cooperation shall include using commercially reasonable efforts to: (A) cooperate with the marketing efforts for each Financing, including causing the appropriate senior management and employees of the Acquired Companies, on a customary basis and upon reasonable advance notice, to participate in a reasonable number of customary meetings, presentations, road shows, due diligence sessions and rating agency sessions, including direct contact (coordinated through Sellers’ Representatives) with senior management of the Acquired Companies (and other employees with appropriate seniority and expertise in the Business) and advisors; (B) assist with the preparation of customary financing and marketing materials to be used in connection with any Financing (including providing customary authorization letters and access to due diligence materials), and identifying any portion of the information set forth in such materials that would constitute material non-public information; (C) furnish all financial statements, financial data, audit reports and other financial information and other information regarding the Acquired Companies of the type and form, and within the times, required by Regulation S-K and Regulation S-X under the 1933 Act for offerings on a registration statement on Form S-3 by an accelerated filer, including all information required to be incorporated by reference therein, and of the type and form customarily included in documents to be used for the syndication of credit facilities; (D) cooperate, to the extent the satisfaction of such condition requires the cooperation of, or is within the control of, Sellers or the Acquired Companies, in satisfying the conditions precedent set forth in any definitive document relating to any Financing, but only to the extent that such conditions are set forth on Exhibit D of the Commitment Letter (as in effect on the date hereof); (E) cause the independent accountants of Sellers or the Acquired Companies, as applicable, to provide reasonable assistance and cooperation, including providing consents and customary comfort letters; and (F) furnish all documentation and other information required by a Governmental Authority under applicable “know your customer” and anti-money laundering rules and regulations, including the U.S.A. Patriot Act of 2001; and
(ii)      use commercially reasonable efforts to deliver to Buyer, by the earlier of (x) thirty-five (35) days after the date of execution of this Agreement (or sooner, if available) and (y) Closing, (A) audited financial statements, including combined balance sheets, statements of operations, statements of cash flows, statements of stockholders equity of the Acquired Companies as of and for the years ended December 31, 2011, 2012 and 2013, as required by, and in compliance with GAAP and Regulation S-X, and (B) unaudited financial statements, including combined balance sheets, statements of operations and statements of cash flows of the Acquired Companies as of and for the three and six month periods ended June 30, 2013 and 2014 (which shall have been reviewed by the independent accountants for the Acquired Companies, as provided in the procedures specified by the Public Company Accounting Oversight Board in AU 722), as required by, and in compliance with GAAP and Regulation S-X.
(b)      Buyer acknowledges and agrees that (i) the obtaining of the Financing is not a condition to the Closing and (ii) none of Buyer’s respective obligations under this Agreement are conditioned in any manner upon Buyer or any of its Affiliates obtaining any financing in respect of the transactions contemplated hereby.
(c)      Notwithstanding anything contained herein or otherwise, nothing contained in this Section 6.23 shall require any such cooperation to the extent it would unreasonably disrupt the conduct of Sellers and the Non-Company Affiliates’ respective businesses. Buyer shall indemnify and hold harmless each of Sellers and the Non-Company Affiliates and their respective Representatives from and against any and all Losses suffered or incurred by them in connection with the arrangement of the Financing and the performance of their respective obligations under this Section 6.23 , including efforts to identify material non-public information, in each case other than (i) with respect to any information provided by or on behalf of Sellers or any of the Non-Company Affiliates pursuant to this Section 6.23 or (ii) to the extent any of such Losses arise from the bad faith, gross negligence or willful misconduct of, or material breach of this Agreement by Sellers or any of the Non-Company Affiliates and their respective Representatives. Buyer shall, promptly upon request of Sellers, reimburse Sellers and the Non-Company Affiliates for all reasonable and documented out-of-pocket costs and expenses incurred by Sellers and the Non-Company Affiliates (including those of their respective Representatives) in connection with the cooperation required by this Section 6.23 . In addition, none of the Acquired Companies shall be required to undertake any liability or obligation under any agreement or document related to the Financing, unless and until the Closing occurs or incur any liability in connection with the Financing prior to the Closing, other than as expressly contemplated by this Agreement.
ARTICLE VII     
BUYER’S CONDITIONS TO CLOSING
The obligation of Buyer to consummate the Closing is subject to the fulfillment of each of the following conditions (except to the extent waived in writing by Buyer in its sole discretion):
7.1.      Representations and Warranties . (a) The representations and warranties made by Sellers in Articles III and IV (other than the Sellers Fundamental Representations and under Section 4.8(b) ) shall be true and accurate on and as of the Closing Date as though made on and as of the Closing Date or, in the case of representations and warranties that speak as to a specific date, such representations and warranties shall be true and accurate as of such specific date, in each case, without giving effect to any “materiality,” “Material Adverse Effect” or similar qualifiers set forth in such representations and warranties, except for any inaccuracies that, individually or in the aggregate, have not had and could not reasonably be expected to have a Material Adverse Effect, and (b) the representations and warranties of Sellers set forth in Sections 3.2 , 3.4 , 3.6 , 4.3 and 4.17 (collectively, the “ Sellers Fundamental Representations ”) and Section 4.8(b) shall be true and accurate (except for de minimis inaccuracies) as of the Closing Date as though made on and as of the Closing Date.
7.2.      Performance . Sellers shall have performed and complied, in all material respects, with the agreements, covenants and obligations required by this Agreement to be performed or complied with by Sellers at or before the Closing.
7.3.      Officer’s Certificate . Each Seller shall have delivered to Buyer at the Closing a certificate of an officer of such Seller, dated as of the Closing Date, as to the matters set forth in Sections 7.1 and 7.2 .
7.4.      Orders and Laws . There shall not be any litigation or proceedings (filed by a Person other than Buyer or its Affiliates) or Law or order restraining, enjoining or otherwise prohibiting or making illegal or threatening in writing to restrain, enjoin or otherwise prohibit or make illegal the consummation of the transactions contemplated by this Agreement.
7.5.      Consents and Approvals . The Required Approvals shall have been duly obtained, made or given and shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental Authority shall have occurred; provided , however , that the absence of any appeals and the expiration of any appeal period with respect to any of the foregoing shall not constitute a condition to the Closing hereunder.
7.6.      Resignation of Members, Managers, Officers and Directors . Sellers shall have caused the resignation or removal of all members, managers, officers and directors, as applicable, nominated or appointed by Sellers or their respective Affiliates to any board or operating, management or other committee established under the Acquired Companies’ Charter Documents, and shall have delivered to Buyer at the Closing evidence of such resignations or removals.
7.7.      Closing Deliveries . Sellers shall have executed and delivered or caused to be executed and delivered to Buyer all the items set forth in Section 2.4 .
7.8.      Title Matters . Buyer shall have received title insurance policies or “marked up” title commitments from Sellers’ title insurance company or other nationally recognized title insurance company, insuring the applicable Project Company’s interest in the Real Property owned or leased by such company, and in each material easement in favor of the applicable Project Company necessary for the operation of such Project, effective as of the Closing Date, and such title policies or “marked-up” title commitments shall not be subject to any exceptions related to Liens other than Permitted Liens, unless otherwise waived by Buyer in its sole discretion.
7.9.      Material Adverse Effect . Since the date of this Agreement, no Material Adverse Effect shall have occurred and be continuing.
7.10.      Certain Information . Not less than fifteen (15) consecutive Business Days prior to the Closing, Sellers shall have (or shall have caused the Acquired Companies to have) delivered the information set forth in Section 6.23 with respect to the Acquired Companies reasonably necessary or required pursuant to the terms of any Financing to prepare the confidential information memorandum, prospectus, offering documents, private placement memoranda and similar documents for such Financing; provided that (x) if such fifteen (15) consecutive Business Day period has not ended prior to August 16, 2014, then it will be deemed not to have commenced and will not commence until September 2, 2014, (y) November 28, 2014 shall be disregarded and shall not count as any such fifteen (15) consecutive Business Days contemplated hereby and (z) if such period has not ended prior to December 19, 2014, then it will not commence until January 5, 2015.
7.11.      Frustration of Closing Conditions . Buyer may not rely on the failure of any condition set forth in this Article VII to be satisfied if such failure was caused by Buyer’s failure to act in good faith or to use its commercially reasonable efforts to cause the Closing to occur.
ARTICLE VIII     
SELLERS’ CONDITIONS TO CLOSING
The obligation of Sellers to consummate the Closing is subject to the fulfillment of each of the following conditions (except to the extent waived in writing by Sellers in their sole discretion):
8.1.      Representations and Warranties . (a) The representations and warranties made by Buyer in Article V (other than the Buyer Fundamental Representations) shall be true and accurate on and as of the Closing Date as though made on and as of the Closing Date, in each case without giving effect to any “materiality,” “material adverse effect” or similar qualifiers set forth in such representations and warranties, except for any inaccuracies that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Buyer’s ability to perform its obligations hereunder, and (b) the representations and warranties of Buyer set forth in Sections 5.2 and 5.6 (collectively, the “ Buyer Fundamental Representations ”) shall be true and accurate (except for de minimis inaccuracies) as of the Closing Date as though made on and as of the Closing Date.
8.2.      Performance . Buyer shall have performed and complied, in all material respects, with the agreements, covenants and obligations required by this Agreement to be so performed or complied with by Buyer at or before the Closing.
8.3.      Release of Support Obligations . Sellers and their applicable Affiliates (other than the Acquired Companies) shall have been released from (a) all of the Support Obligations provided by Sellers or their Non-Company Affiliates under the Co-Owner Agreements and the LTSAs and (b) the Support Obligations in accordance with Section 6.5(b) such that the aggregate amount outstanding under all forms of Support Obligations that have not been released shall not exceed $75,000,000.
8.4.      Officer’s Certificate . Buyer shall have delivered to Sellers at the Closing a certificate of an officer of Buyer, dated as of the Closing Date, as to the matters set forth in Sections 8.1 and 8.2 .
8.5.      Orders and Laws . There shall not be any litigation or proceedings (filed by a Person other than a Seller or its Affiliates) or Law or order restraining, enjoining or otherwise prohibiting or making illegal or threatening in writing to restrain, enjoin or otherwise prohibit or make illegal the consummation of the transactions contemplated by this Agreement.
8.6.      Consents and Approvals . The Required Approvals shall have been duly obtained, made or given and shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental Authority shall have occurred; provided , however , that the absence of any appeals and the expiration of any appeal period with respect to any of the foregoing shall not constitute a condition to the Closing hereunder.
8.7.      Closing Deliveries . Buyer shall have executed and delivered or caused to be executed and delivered to Buyer all the items set forth in Section 2.5 .
8.8.      Frustration of Closing Conditions . No Seller may rely on the failure of any condition set forth in this Article VIII to be satisfied if such failure was caused by such Seller’s failure to act in good faith or to use its commercially reasonable efforts to cause the Closing to occur.
ARTICLE IX     
TERMINATION
9.1.      Termination . This Agreement may be terminated, and the transactions contemplated hereby may be abandoned, as follows:
(f)      at any time before the Closing, by any Seller or Buyer, by written notice to the other Parties, in the event that any Law or final order restrains, enjoins or otherwise prohibits or makes illegal the transactions contemplated pursuant to this Agreement;
(g)      at any time before the Closing, by any Seller or Buyer, by notice to the Party that has materially breached its obligations hereunder and such breach (other than a breach of Buyer’s obligation to pay the Purchase Price in accordance with the terms of Article II ) has not been cured within thirty (30) days following written notification thereof; provided , however , that if, at the end of such thirty (30) day period, the breaching Party is endeavoring in good faith, and proceeding diligently, to cure such breach, the breaching Party shall have an additional thirty (30) days in which to effect such cure;
(h)      at any time before the Closing, by Buyer or any Seller, by notice to the other Parties, on or after the date that is nine (9) months after the date hereof (which date may be extended by any Party, by notice to the other Parties, for one additional three (3) month period if (i) applicable Governmental Authority approvals have not been obtained by the date that is nine (9) months after the date hereof and (ii) the lack of such Governmental Authority approvals is the sole reason that Buyer’s and/or Sellers’, as applicable, unwaived conditions to consummate the Closing are unfulfilled as of the date that is nine (9) months after the date hereof) (such date, the “ Outside Date ”); provided , however , that the right to terminate this Agreement under this Section 9.1(c) shall not be available to any Party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date;
(i)      by Buyer or any Sellers pursuant to Section 6.11 or 6.12 , by notice to the other Parties in accordance with such Sections;
(j)      by Buyer pursuant to Section 6.19 , by written notice to Sellers in accordance with such Section; or
(k)      by mutual written consent of Buyer and Sellers.
9.2.      Effect of Termination . In the event that this Agreement is validly terminated as provided herein, then each of the Parties shall be relieved of its duties and obligations arising under this Agreement as of the date of such termination, and such termination shall be without liability to the Parties or the Acquired Companies, except that (a) the covenants and agreements of the Parties set forth in Sections 6.2(b) (Indemnification for Access), 6.17 (Public Announcements), 6.18 (Confidentiality), 9.2 (Effect of Termination) and Article XI hereof shall survive any such termination and shall be enforceable hereunder, (b) except in the event of a termination under Section 9.1(f) , nothing in this Section 9.2 shall be deemed to release any Party for any breaches of the representations, warranties or covenants contained in this Agreement prior to the time of such termination resulting from the intentional misconduct of such Party, and (c) nothing in this Section 9.2 shall be deemed to release any Party from any liability for fraud. The damages recoverable by the non-breaching Party shall include all attorneys’ fees reasonably incurred by such Party in connection with the transactions contemplated hereby.
ARTICLE X     
INDEMNIFICATION, LIMITATIONS OF LIABILITY AND WAIVERS
10.1.      Indemnification .
(j)      Subject to Section 10.2 , from and after the Closing, Sellers shall indemnify, reimburse, defend and hold harmless Buyer, each of the Acquired Companies and their respective partners, members, officers, employees, Affiliates and Representatives (collectively, the “ Buyer Indemnified Parties ”) from and against all Losses incurred or suffered by any Buyer Indemnified Party resulting from:
(i)      any breach or inaccuracy as of the Closing Date (as though made on and as of the Closing Date except to the extent otherwise provided in this Agreement) of any representation or warranty of Sellers contained in this Agreement or any certificate delivered pursuant to Section 7.3 ;
(ii)      any breach of any covenant or agreement of Sellers contained in this Agreement;
(iii)      the Excluded Liabilities; any Excluded Item; and the GT Separation; and
(iv)      any “bulk sales” Taxes relating to any Tax liability of Sellers for the Pre-Closing Taxable Period imposed on Buyer as a successor or transferee of any Seller.
(k)      Subject to Section 10.2 , from and after the Closing, Buyer shall indemnify, reimburse, defend and hold each Seller and its respective partners, members, officers, employees, Affiliates and Representatives (collectively, the “ Sellers Indemnified Parties ” and, together with Buyer Indemnified Parties, the “ Indemnified Parties ”) harmless from and against all Losses incurred or suffered by any Sellers Indemnified Party resulting from:
(i)      any breach or inaccuracy as of the Closing Date (as though made on and as of the Closing Date except to the extent otherwise provided in this Agreement) of any representation or warranty of Buyer contained in this Agreement or any certificate delivered pursuant to Section 8.4 ;
(ii)      any breach of any covenant or agreement of Buyer contained in this Agreement;
(iii)      the Assigned Contracts, to the extent such Losses relate to periods on or after Closing;
(iv)      the Continued Affiliate Contracts, to the extent such Losses relate to periods on or after Closing;
(v)      any liabilities assumed by a Project Company pursuant to a Contribution Agreement (as amended, if applicable), to the extent that any Seller Indemnified Party has suffered any unreimbursed Losses; and
(vi)      the Purchased Assets, to the extent such Losses relate to periods on or after Closing, subject to Buyer’s rights pursuant to Section 10.1(a) .
10.2.      Limitations of Liability . Notwithstanding anything in this Agreement to the contrary:
(f)      the representations, warranties, covenants, agreements and obligations in this Agreement shall survive the Closing; provided , however , that no Indemnified Party may make or bring a Claim for Loss with respect to (i) any representations or warranties contained in Articles III , IV or V (other than the Sellers Fundamental Representations, the representations and warranties set forth in Section 4.9 (Taxes) or the Buyer Fundamental Representations) or any covenants, agreements or obligations in Sections 6.2(b) (Indemnification for Access), 6.3 (Certain Restrictions) or 6.9 (Indebtedness; Distributions), after the one (1) year anniversary of the Closing Date, (ii) the Sellers Fundamental Representations or the Buyer Fundamental Representations, after the three (3) year anniversary of the Closing Date, (iii) the representations and warranties set forth in Section 4.9 (Taxes) and the covenants in Section 6.14 (Tax Matters) after the expiration of thirty (30) days following the expiration of the applicable statute of limitations (including extensions thereof consented to in writing by Sellers); and (iv) any other covenants, agreements or obligations of any Party that by their terms are to be performed prior to the Closing, after the one (1) year anniversary of the Closing Date;
(g)      any breach of a representation or warranty in this Agreement (other than a breach of a representation or warranty contained in Section 4.9 (Taxes) in connection with any single item or group of related items that results in Losses of less than $500,000 shall be deemed, for all purposes of this Article X , not to be a breach of such representation or warranty;
(h)      Sellers shall have no liability for breaches of representations and warranties in this Agreement pursuant to Section 10.1(a)(i) (other than a breach of a representation or warranty contained in Section 4.9 (Taxes)) until the aggregate amount of all Losses incurred by Buyer equals or exceeds one and one-half percent (1.5%) of the Base Purchase Price (the “ Deductible Amount ”), in which event Sellers shall be liable for Losses only to the extent they are in excess of the Deductible Amount (except as set forth below);
(i)      in no event shall Sellers’ aggregate liability (i) arising out of or relating to this Agreement, whether relating to breach of representation and warranty, covenant, agreement or obligation in this Agreement and whether based on contract, tort, strict liability, other Laws or otherwise (except as set forth in Section 10.2(j) below), exceed ten percent (10%) of the Base Purchase Price, except as set forth in clause (ii) below; and (ii) arising out of or relating to any breach of a Sellers Fundamental Representation, a breach of a representation or warranty contained in Section 4.9 (Taxes), a breach of Section 6.14 (Tax Matters) or for fraud (together with the aggregate liability pursuant to clause (i) above) exceed one hundred percent (100%) of the Base Purchase Price;
(j)      no Seller shall have any liability for any breach of a representation, warranty, covenant, agreement or obligation in this Agreement by any Seller (i) of which Buyer had knowledge prior to the date hereof or (ii) (x) of which Buyer did not have knowledge prior to the date hereof but of which Buyer had knowledge prior to the Closing Date and (y) where due to such breach Buyer’s conditions to the Closing in Article VII were not met (and for purposes of this Section 10.2(e) , the documents disclosed to Buyer or its Representatives in the course of its due diligence, and their contents, are deemed to be known to Buyer); provided that this provision shall not apply to any breaches due to the intentional misconduct of a Seller;
(k)      notwithstanding anything to the contrary herein, the Parties agree that (i) each representation or warranty of each Seller made herein shall be limited solely to Sellers’ Knowledge as such representation or warranty relates to any of the Coal Participant Projects, Coal Participant Project Assets or Coal Participant Project Operators, (ii) each representation or warranty of each Seller made herein as such representation or warranty relates to any of the Coal Projects or the Coal Project Assets shall be limited to matters solely relating to the proportionate share in the undivided interest in the Coal Project Assets any Coal Project Company respectively owns, operates or utilizes, (iii) the requirement of any covenant, obligation or agreement of each Seller herein (other than those set forth in Article II ) relating to any of the Coal Participant Projects, Coal Participant Project Assets or Coal Participant Project Operators shall be limited solely to (x) a requirement to use commercially reasonable efforts to perform such covenant, obligation or agreement and (y) in the case of a Coal Project or Coal Project Assets, matters solely relating to the proportionate share in the undivided interest in the Coal Project Assets any Coal Project Company respectively owns, operates or utilizes, and (iv) the requirements of Section 6.3(a) shall not be applicable to any action or failure to take action by any Coal Participant Project Operator on behalf of or for the benefit of any Coal Participant Project Company or any Coal Participant Project
(l)      the Parties shall have a duty to mitigate any Loss in connection with this Agreement;
(m)      no Seller shall have any liability for any Losses that represent the cost of repairs, replacements or improvements which enhance the value of the repaired, replaced or improved Asset above its value on the Closing Date or which represent the cost of repair or replacement exceeding the lowest reasonable cost of repair or replacement;
(n)      notwithstanding anything herein to the contrary, the limitations, covenants, agreements and obligations set forth in this Section 10.2 shall not apply to any Seller’s indemnification obligations pursuant to Section 10.1(a)(iii)-(iv) ;
(o)      the Losses suffered by any Indemnified Party shall be calculated after giving effect to any amounts covered by third parties, including insurance proceeds, in each case net of costs and expenses of such recoveries and net of any associated Tax benefits to the applicable Party or any Acquired Company (it being understood and agreed that the Indemnified Parties shall use their commercially reasonable efforts to seek insurance recoveries in respect of Losses to be indemnified hereunder). In the event any insurance proceeds or other recoveries from third parties are actually realized (in each case calculated net of costs and expenses of such recoveries) by an Indemnified Party subsequent to the receipt by such Indemnified Party of an indemnification payment hereunder in respect of the Claims to which such insurance proceedings or third party recoveries relate, appropriate refunds shall be made promptly to the indemnifying party regarding the amount of such indemnification payment;
(p)      (i) with respect to determining whether a breach or inaccuracy of a representation or warranty exists for purposes of Section 10.01(a)(i) , other than with respect to Section 4.8(b) , any qualifier in any such representation or warranty as to “Material Adverse Effect” shall be deemed to mean “material to the Acquired Companies, taken as a whole,” and (ii) solely with respect to the calculation of Losses with respect to such breach or inaccuracy, any qualifier as to “material”, “materiality”, “Material Adverse Effect” or similar materiality qualification in any such representation or warranty shall be disregarded.
(q)      for the avoidance of doubt, Sellers shall have no liability under Section 10.1(a) for any Losses to the extent such Losses were specifically included as a current liability in the calculation of Net Working Capital as finally determined pursuant to Section 2.6 .
10.3.      Release . Except for the remedies of Buyer with respect to any breach of the representations, warranties, covenants, and agreements of Sellers under this Agreement, the certificates to be delivered by Sellers pursuant to Section 7.3 or the Company Assignment Agreement or the Assignment and Assumption Agreement for and in consideration of the transfer of the Company Interests and the Assigned Contracts, respectively, effective as of the Closing, Buyer shall and shall cause its Affiliates (including the Acquired Companies) to absolutely and unconditionally release, acquit and forever discharge Sellers, their respective Affiliates and their respective present and former Representatives and each of their respective heirs, executors, administrators, successors and assigns, from any and all Losses and Non-Reimbursable Damages and any other obligations, liabilities and Claims whatsoever, whether known or unknown, both in law and in equity, in each case to the extent arising out of or resulting from the ownership and/or operation of the Acquired Companies, or their respective Assets, businesses, operations, conduct, services, products and/or any plant employees whether related to any period of time before or after the Closing Date including as to liabilities under any Environmental Law; provided , however , that in the event Buyer, the Acquired Companies or any of Buyer’s other Affiliates are sued by Sellers or their Affiliates for any matter subject to this release, Buyer, the Acquired Companies or Buyer’s other Affiliates, as applicable, shall have the right to raise any defenses or counterclaims in connection with such lawsuits; provided , further , that this release shall not apply in the event of fraud or intentional misconduct of any such Person. For the avoidance of doubt, the releases contemplated by this Section 10.3 shall, if the Closing shall occur, be deemed to be issued as of the Closing.
10.4.      Waiver of Other Representations .
(d)      NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO, AND THE PARTIES HERETO HEREBY AGREE, THAT NONE OF SELLERS OR ANY OF THEIR RESPECTIVE AFFILIATES OR REPRESENTATIVES HAS MADE OR IS MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, WRITTEN OR ORAL, INCLUDING ANY IMPLIED REPRESENTATION OR WARRANTY AS TO THE CONDITION, MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, WITH RESPECT TO THE COMPANY INTERESTS, THE ACQUIRED COMPANIES, PROJECTS OR ANY OF THE PURCHASED ASSETS, THE COAL PROJECT ASSETS OR ANY PART THEREOF, INCLUDING IN ANY DOCUMENTATION OR OTHER INFORMATION PROVIDED OR MADE AVAILABLE BY ANY SELLER, THE ACQUIRED COMPANIES OR ANY OF THEIR RESPECTIVE AFFILIATES OR REPRESENTATIVES IN THE ONLINE DATA ROOM OR OTHERWISE, EXCEPT, IN EACH CASE, FOR THOSE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLES III AND IV . IN PARTICULAR, AND WITHOUT IN ANY WAY LIMITING THE FOREGOING, (I) EACH SELLER MAKES NO REPRESENTATION OR WARRANTY REGARDING ANY ENVIRONMENTAL MATTERS EXCEPT AS EXPRESSLY SET FORTH IN SECTIONS 4.13 AND 4.14 AND (II) EACH SELLER MAKES NO REPRESENTATION OR WARRANTY TO BUYER WITH RESPECT TO ANY FINANCIAL PROJECTIONS OR FORECASTS RELATING TO THE ACQUIRED COMPANIES, THE PURCHASED ASSETS OR THE COAL PROJECT ASSETS.
(e)      EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THE REPRESENTATIONS AND WARRANTIES IN ARTICLES III AND IV , SELLERS’ INTERESTS IN THE ACQUIRED COMPANIES ARE BEING TRANSFERRED THROUGH THE SALE OF THE COMPANY INTERESTS “AS IS, WHERE IS, WITH ALL FAULTS,” AND SELLERS EXPRESSLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO THE CONDITION, VALUE OR QUALITY OF THE ACQUIRED COMPANIES AND THEIR RESPECTIVE ASSETS OR THE RESPECTIVE PROSPECTS (FINANCIAL OR OTHERWISE), RISKS AND OTHER INCIDENTS OF THE ACQUIRED COMPANIES AND THEIR RESPECTIVE ASSETS.
10.5.      Waiver of Remedies .
(g)      The Parties hereby agree that, except with respect to Claims for fraud (but not constructive fraud), no Party shall have any liability, and no Party or Indemnified Party shall make any Claim, for any Loss or other matter, under, relating to or arising out of this Agreement or any other document, instrument or certificate delivered pursuant hereto, whether based on contract, tort, strict liability, other Laws or otherwise, except as provided in this Article X and Section 6.14(c) , and, should the Closing occur, the foregoing indemnification provisions of this Article X and Section 6.14(c) shall be the sole and exclusive remedy of the Parties with respect to the transactions contemplated by this Agreement other than Claims for injunctive relief, specific performance or other equitable remedies; the Parties expressly intend that this Article X and Section 6.14(c) shall apply to direct Claims between the Parties for breach of this Agreement (whether or not involving a third party).
(h)      NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, NO PARTY HERETO SHALL BE LIABLE FOR SPECIAL, PUNITIVE, EXEMPLARY, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES OR LOST PROFITS, WHETHER BASED ON CONTRACT, TORT, STRICT LIABILITY, OTHER LAW OR OTHERWISE AND WHETHER OR NOT ARISING FROM ANOTHER PARTY’S SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT (“ Non-Reimbursable Damages ”); PROVIDED THAT ANY AMOUNTS PAYABLE TO THIRD PARTIES PURSUANT TO A THIRD-PARTY CLAIM SHALL NOT BE DEEMED NON-REIMBURSABLE DAMAGES.
(i)      Notwithstanding anything in this Agreement to the contrary, no Representative or Affiliate of any Seller shall have any liability to Buyer or any other Person as a result of the breach of any representation, warranty, covenant, agreement or obligation of any Seller in this Agreement and no Representative or Affiliate of Buyer shall have any liability to any Seller or any other Person as a result of the breach of any representation, warranty, covenant, agreement or obligation of Buyer in this Agreement.
10.6.      Procedure with Respect to Third-Party Claims .
(g)      If any Party (or as to Buyer after the Closing, any Acquired Company) becomes subject to a pending Claim or Claim threatened in writing by a third party and such Party (the “ Claiming Party ”) believes it has a Claim against another Party (the “ Responding Party ”) under this Article X as a result, then the Claiming Party shall notify the Responding Party in writing of the basis for such Claim setting forth the nature of the Claim in reasonable detail. The failure of the Claiming Party to so notify the Responding Party shall not relieve the Responding Party of liability hereunder except to the extent that the defense of such Claim is prejudiced by the failure to give such notice.
(h)      If any proceeding is brought by a third party against a Claiming Party and the Claiming Party gives notice to the Responding Party pursuant to this Section 10.6 , the Responding Party shall be entitled to participate in such proceeding and, to the extent that it wishes, to assume the defense of such proceeding, if (i) the Responding Party provides written notice to the Claiming Party that the Responding Party intends to undertake such defense, (ii) the Responding Party conducts the defense of the third-party Claim actively and diligently with counsel reasonably satisfactory to the Claiming Party and (iii) if the Responding Party is a party to the proceeding, the Responding Party or the Claiming Party has not determined in good faith that joint representation would be inappropriate because of a conflict in interest. The Claiming Party shall, in its sole discretion, have the right to employ separate counsel (who may be selected by the Claiming Party in its sole discretion) in any such action and to participate in the defense thereof, and the fees and expenses of such counsel shall be paid by such Claiming Party. The Claiming Party shall fully cooperate with the Responding Party and its counsel in the defense or compromise of such Claim. If the Responding Party assumes the defense of a proceeding, no compromise or settlement of such Claims may be effected by the Responding Party without the Claiming Party’s consent unless (A) there is no finding or admission of any violation of Law or any violation of the rights of any Person and no effect on any other Claims that may be made against the Claiming Party and (B) the sole relief provided is monetary damages that are paid in full by the Responding Party.
(i)      If (i) notice is given to the Responding Party of the commencement of any third-party legal proceeding and the Responding Party does not, within thirty (30) days after the Claiming Party’s notice is given, give notice to the Claiming Party of its election to assume the defense of such legal proceeding, (ii) any of the conditions set forth in clauses (i) through (iii) of Section 10.6(b) above become unsatisfied or (iii) a Claiming Party determines in good faith that there is a reasonable probability that a legal proceeding may adversely affect it other than as a result of monetary damages for which it would be entitled to indemnification from the Responding Party under this Agreement, then the Claiming Party shall (upon notice to the Responding Party) have the right to undertake the defense, compromise or settlement of such Claim; provided , however , that the Responding Party shall reimburse the Claiming Party for the costs of defending against such third-party Claim (including reasonable attorneys’ fees and expenses) and shall remain otherwise responsible for any liability with respect to amounts arising from or related to such third-party Claim, in both cases to the extent it is ultimately determined that such Responding Party is liable with respect to such third-party Claim for a breach under this Agreement and the Claiming Party may not settle such Claim without the consent of the Responding Party not to be unreasonably withheld. The Responding Party may elect to participate in such legal proceedings, negotiations or defense at any time at its own expense.
10.7.      Procedures with Respect to Retained Seller Actions.
(d)      Sellers hereby assume, and shall have the sole and exclusive authority and control over, the defense, investigation, commencement, prosecution, litigation, management, conduct, appeal and other rights in connection with all matters whatsoever (including, as applicable, litigation strategy and choice of legal counsel and other professionals) in connection with any Claims resulting from the matters set forth as items 2 and 6 on Schedule 4.5 (each, a “ Retained Seller Action ”). In furtherance of the foregoing:
(v)      each of Buyer, the Acquired Companies and their respective Affiliates shall use their commercially reasonable efforts to cooperate as reasonably requested by Sellers or any Non-Company Affiliates and make readily available to and afford to Sellers, the Non-Company Affiliates and their respective Representatives reasonable access to their Representatives, properties and books and records, subject to appropriate and reasonable confidentiality agreements ( provided that the terms of any such agreement do not restrict actions to be taken in connection with the defense of any Retained Seller Action), to the extent reasonably related to such Retained Seller Action. Without limiting the generality of the foregoing, each of Buyer, the Acquired Companies and their respective Affiliates shall use their commercially reasonable efforts to make available their Representatives for fact finding, consultation and interviews, and as witnesses to the extent that any such Person may reasonably be required in connection with any Retained Seller Action. Access to such Persons shall be granted for reasonable periods of time during normal business hours or as otherwise mutually agreed. The provision of access and other services pursuant to this Section 10.7(a)(i) shall be at no additional cost or expense of Sellers, other than for reasonable out-of-pocket expense;
(vi)      Sellers may, without consent of Buyer, any Acquired Company or their respective Affiliates, compromise or settle any Retained Seller Action or consent to entry of judgment with respect thereto that requires solely money damages paid by Sellers. Any other disposition by Sellers of any Retained Seller Action shall be subject to the consent of Buyer, which consent shall not be unreasonably withheld or delayed; and
(vii)      notwithstanding anything to the contrary contained in this Agreement, Sellers shall not be required to pay or otherwise indemnify any Buyer Indemnified Party against any attorneys’ fees incurred by Buyer in connection with any Retained Seller Action unless Buyer reasonably shall have concluded (upon advice of its legal counsel) that, with respect to any Retained Seller Action, Buyer and Sellers may have different, conflicting or adverse legal positions or interests.
(e)      Buyer shall, and shall cause the Acquired Companies to, cooperate with Sellers and the Non-Company Affiliates in having any Seller or a Non-Company Affiliate substituted as the named party, the costs of obtaining such substitution to be borne by Sellers or such Non-Company Affiliates. Absent a substitution, Buyer shall, and shall cause the Acquired Companies to, cooperate and assist as is reasonably needed (to the extent requested) in satisfying any procedural requirements in connection with any Retained Seller Action, which is being defended by any Seller or a Non-Company Affiliate, including by filing papers on such Seller’s or Non-Company Affiliate’s behalf. Sellers shall use commercially reasonable efforts to effect such substitution.
(f)      None of the Buyer, the Acquired Companies or their respective Affiliates shall intentionally take any action or omit to take any action for the purpose of interfering with or adversely affecting the rights and powers of any Seller or Non-Company Affiliate pursuant to this Section 10.7 .
10.8.      Access to Information . After the Closing Date, Sellers and Buyer shall grant each other (or their respective designees), and Buyer shall cause the Acquired Companies to grant to Sellers (or their respective designees), access at all reasonable times to all of the information, books and records relating to the Acquired Companies in their respective possession, and shall afford each such Party the right (at such Party’s expense) to take extracts therefrom and to make copies thereof, to the extent reasonably necessary to implement the provisions of, or to investigate or defend any Claims between the Parties arising under, this Agreement.
ARTICLE XI     
MISCELLANEOUS
11.1.      Notices .
(r)      Unless this Agreement specifically requires otherwise, any notice, demand or request provided for in this Agreement, or served, given or made in connection with it, shall be in writing and shall be deemed properly served, given or made if delivered in person or sent by facsimile or sent by registered or certified mail, postage prepaid, or by a nationally recognized overnight courier service that provides a receipt of delivery, in each case, to the Parties at the addresses specified below:
If to Buyer, to:  
Dynegy Inc.
601 Travis Street
Houston, TX 77002
Facsimile No.: (713) 507-6808
Attn: Catherine Callaway, Esq., Executive Vice President and General Counsel
with a copy (which shall not constitute notice) to:
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Facsimile No.: (212) 354-8113
Attn: Michael S. Shenberg, Esq.
 
If to Generation Seller, to:
Duke Energy SAM, LLC
c/o Duke Energy Corporation
550 South Tryon Street, DEC-45A
Facsimile No.: (980) 373-9962
Attn: Greer Mendelow, Deputy General Counsel
 
If to Retail Seller, to:

Duke Energy Commercial Enterprises, Inc.
c/o Duke Energy Corporation
550 South Tryon Street, DEC-45A
Facsimile No.: (980) 373-9962
Attn: Greer Mendelow, Deputy General Counsel

with a copy (which shall not constitute notice) to:
 
Bracewell & Giuliani LLP
1251 Avenue of the Americas, 49 th  Floor
New York, NY 10020
Facsimile No.: (212) 508-6101
Attn: John G. Klauberg, Esq.
         Frederick J. Lark, Esq.

(b) Notice given by personal delivery, mail or overnight courier pursuant to this Section 11.1 shall be effective upon physical receipt. Notice given by facsimile pursuant to this Section 11.1 shall be effective as of the date of confirmed delivery if delivered before 5:00 P.M. Eastern Time on any Business Day or the next succeeding Business Day if confirmed delivery is after 5:00 P.M. Eastern Time on any Business Day or during any non-Business Day.
11.2.      Entire Agreement . Except for the Confidentiality Agreement, this Agreement, the Ancillary Agreements and the Related Agreements supersede all prior discussions and agreements between the Parties, both written and oral, with respect to the subject matter hereof and contain the sole and entire agreement between the Parties with respect to the subject matter hereof.
11.3.      Expenses . Except as otherwise expressly provided in this Agreement, whether or not the transactions contemplated hereby are consummated, each Party shall pay its own costs and expenses incurred in anticipation of, relating to and in connection with the negotiation and execution of this Agreement and the transactions contemplated hereby.
11.4.      Disclosure . Each Seller may, at its option, include in the Schedules items that are not material in order to avoid any misunderstanding, and any such inclusion, or any references to dollar amounts, shall not be deemed to be an acknowledgment or representation that such items are material, to establish any standard of materiality or to define further the meaning of such terms for purposes of this Agreement. Information disclosed in any Schedule shall constitute a disclosure for purposes of all other Schedules notwithstanding the lack of specific cross-reference thereto, to the extent the applicability of such disclosure to such other Schedule is reasonably apparent on its face.
11.5.      Waiver . Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, shall be cumulative and not alternative. Notwithstanding the foregoing, no waiver with respect to the provisions of which any Financing Source of Buyer is expressly made a third party beneficiary pursuant to Section 11.7 (and the related definitions and other provisions of this Agreement to the extent a waiver would serve to modify the substance or provisions of such sections) shall be permitted in a manner adverse to any Financing Source of Buyer without the prior written consent of the arrangers and lenders providing such Financing.
11.6.      Amendment . This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each Party. Notwithstanding the foregoing, no amendments or modifications with respect to the provisions of which any Financing Source of Buyer is expressly made a third party beneficiary pursuant to Section 11.7 (and the related definitions and other provisions of this Agreement to the extent a modification would serve to modify the substance or provisions of such sections) shall be permitted in a manner adverse to any Financing Source of Buyer without the prior written consent of the arrangers and lenders providing such Financing.
11.7.      No Third Party Beneficiary . Except for (x) the provisions of Section 6.2(b) (Indemnification for Access), Section 6.5(d)(ii) (Indemnification for Contributing Support Obligations), Section 6.14(d)(Tax Indemnity), Schedule 6.14(j) (Tax-Exempt Bond Matters), Sections 10.1(a)  (Indemnification by Sellers) and (b)  (Indemnification by Buyer) and Section 10.3 (Release) (which in the case of clause (x) are intended for the benefit of the Persons identified therein) and (y) Section 11.5 (Waiver), Section 11.6 (Amendment), this Section 11.7 (No Third Party Beneficiary), Section 11.13 (Governing Law; Venue; Jurisdiction), Section 11.14 (Waiver of Jury Trial), and Section 11.15 (Finance-Related Arrangements) (which in the case of clause (y) are expressly intended to benefit the Financing Sources), the terms and provisions of this Agreement are intended solely for the benefit of the Parties and their respective successors or permitted assigns, and it is not the intention of the Parties to confer third-party beneficiary rights upon any other Person, including any Continuing Non-Unionized Employee or Unionized Employee, any beneficiary or dependents thereof, or any collective bargaining representative thereof.
11.8.      Assignment; Binding Effect . Buyer may assign its rights and obligations hereunder to any Affiliate or Affiliates of Buyer, or to Buyer’s lenders for collateral security purposes, but such assignment shall not release Buyer from its obligations hereunder. Except as provided in the preceding sentence, neither this Agreement nor any right, interest or obligation hereunder may be assigned by any Party without the prior written consent of the other Parties and any attempt to do so shall be void, except for assignments and transfers by operation of Law. Subject to this Section 11.8 , this Agreement is binding upon, inures to the benefit of and is enforceable by the Parties and their respective successors and permitted assigns.
11.9.      Specific Performance . Each Party acknowledges and agrees that a breach of this Agreement would cause irreparable damage to the other Parties and that the non-breaching Parties shall not have an adequate remedy at law. Therefore, it is agreed that in the event of such a breach, the non-breaching Party shall be entitled to injunctive relief, specific performance or other equitable remedies to enforce the terms and provisions of this Agreement in any state or federal court sitting in the Borough of Manhattan, the City of New York, New York, in addition to any other remedies it may have at law or in equity. Such remedies shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which any Party may have under this Agreement or otherwise.
11.10.      Headings . The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.
11.11.      Invalid Provisions . If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any Party under this Agreement shall not be materially and adversely affected thereby, such provision shall be fully severable, this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.
11.12.      Counterparts; Facsimile . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Any facsimile copies hereof or signature hereon shall, for all purposes, be deemed originals.
11.13.      Governing Law; Venue; Jurisdiction .
(a)      This Agreement shall be governed by and construed in accordance with the Laws of the State of New York, without giving effect to any conflict or choice of law provision that would require or permit the application of the Laws of any other jurisdiction.
(b)      Except as otherwise provided in Sections 2.6 and 2.7 , each Party to this Agreement irrevocably submits to the exclusive jurisdiction of any state or federal court within the Borough of Manhattan, the City of New York, New York with respect to any proceeding arising out of or relating to this Agreement, including any proceeding arising out of or relating to any Financing or the performance thereof, and hereby irrevocably agrees that all Claims in respect of any such proceeding shall be heard and determined in such state or federal court. Each Party to this Agreement hereby irrevocably waives, to the fullest extent that it may effectively do so, the defense of an inconvenient forum to the maintenance of such proceeding, including with respect to any proceeding arising out of or relating to any Financing or the performance thereof, and agrees that it will not bring, and will not permit any of its Affiliates to bring, any proceeding relating to this Agreement, including any dispute arising out of or relating to any Financing or the performance thereof by the Acquired Companies or their officers, employees, advisors and other Representatives, in any court other than a state or federal court sitting in the Borough of Manhattan in the City of New York. The Parties further agree, to the extent permitted by Law, that final and unappealable judgment against any of them in any proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified copy of which shall be conclusive evidence of the fact and amount of such judgment.
11.14.      Waiver of Jury Trial . EACH PARTY TO THIS AGREEMENT WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THEM AGAINST THE OTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE ANCILLARY AGREEMENTS, THE RELATED AGREEMENTS OR ANY OTHER AGREEMENTS OR CERTIFICATES EXECUTED IN CONNECTION HEREWITH OR THEREWITH OR THE ADMINISTRATION THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN (INCLUDING ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING IN ANY WAY TO THE FINANCING OR THE PERFORMANCE THEREOF). NO PARTY TO THIS AGREEMENT SHALL SEEK A JURY TRIAL IN ANY PROCEEDING OR ANY OTHER LITIGATION PROCEDURE BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY ANCILLARY AGREEMENT, ANY RELATED AGREEMENT OR ANY RELATED INSTRUMENTS OR AGREEMENTS OR THE RELATIONSHIP BETWEEN THE PARTIES (INCLUDING ANY FINANCING OR THE PERFORMANCE THEREOF). NO PARTY SHALL SEEK TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EACH PARTY TO THIS AGREEMENT CERTIFIES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, ANY ANCILLARY AGREEMENT, ANY RELATED AGREEMENT OR ANY RELATED INSTRUMENT OR AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS SET FORTH ABOVE IN THIS SECTION 11.14 . NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS SECTION 11.14 SHALL NOT BE FULLY ENFORCED IN ALL INSTANCES.
11.15.      Finance-Related Arrangements . Notwithstanding anything to the contrary contained herein, each Seller agrees on behalf of itself and its Affiliates that none of the Financing Sources shall have any liability or obligation to such Seller or any of its respective Affiliates relating to this Agreement, any related documentation or any of the transactions contemplated herein or therein (including any Financing). This Section 11.15 is intended to benefit and may be enforced by any Financing Source and shall be binding on all successors and assigns of each Seller.

[ Signature Page Follows ]
IN WITNESS WHEREOF , this Agreement has been duly executed and delivered by the duly authorized officer of each Party as of the date first above written.
SELLERS:
 
DUKE ENERGY SAM, LLC

By:
 
Name:
 
Title:
 

DUKE ENERGY COMMERCIAL ENTERPRISES, INC.

By:
 
Name:
 
Title:





BUYER:
 
DYNEGY RESOURCE I, LLC
By:
 
Name:
 
Title:
 

APPENDIX I

Project Related Defined Terms

Conesville Project ” means the approximately 780 megawatt coal-fired electric generating plant located on a site in Conesville, Ohio, known as Unit 4, together with all auxiliary equipment, ancillary and associated facilities and equipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased) used for the receipt of fuel and water and the delivery of the electrical and potential steam output of said generating plant, and all other improvements related to the ownership, operation and maintenance of said generating plant and associated equipment.
DE Conesville ” means Duke Energy Conesville, LLC, a Delaware limited liability company.
DE Dicks Creek ” means Duke Energy Dicks Creek, LLC, a Delaware limited liability company.
DE Fayette ” means Duke Energy Fayette II, LLC, a Delaware limited liability company.
DE Hanging Rock ” means Duke Energy Hanging Rock II, LLC, a Delaware limited liability company.
DE Killen ” means Duke Energy Killen, LLC, a Delaware limited liability company.
DE Lee ” means Duke Energy Lee II, LLC, a Delaware limited liability company.
DE Miami Fort ” means Duke Energy Miami Fort, LLC, a Delaware limited liability company.
DE Stuart ” means Duke Energy Stuart, LLC, a Delaware limited liability company.
DE Washington ” means Duke Energy Washington II, LLC, a Delaware limited liability company.
DE Zimmer ” means Duke Energy Zimmer, LLC, a Delaware limited liability company.
DECAM Coal ” means DECAM Coal Gen FinCo, LLC, a Delaware limited liability company that is a direct wholly-owned subsidiary of DECAM HoldCo.
DECAM Gas ” means DECAM Gas Gen FinCo, LLC, a Delaware limited liability company that is a direct wholly-owned subsidiary of DECAM HoldCo.
DECAM HoldCo ” means DECAM Generation HoldCo, LLC, a Delaware limited liability company that is a wholly-owned subsidiary of DECAM.
Dicks Creek Project ” means the approximately 136 megawatt natural gas-fired electric generating plant located on a site in Middletown, Ohio, together with all auxiliary equipment, ancillary and associated facilities and equipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased) used for the receipt of fuel and water and the delivery of the electrical and potential steam output of said generating plant, and all other improvements related to the ownership, operation and maintenance of said generating plant and associated equipment.
Fayette Project ” means the approximately 640 megawatt natural gas-fired combined cycle electric generating plant located on a site in Masontown, Pennsylvania, together with all auxiliary equipment, ancillary and associated facilities and equipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased) used for the receipt of fuel and water and the delivery of the electrical and potential steam output of said generating plant, and all other improvements related to the ownership, operation and maintenance of said generating plant and associated equipment.
Hanging Rock Project ” means the approximately 1,274 megawatt natural gas-fired combined cycle electric generating plant located on a site in Ironton, Ohio, together with all auxiliary equipment, ancillary and associated facilities and equipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased) used for the receipt of fuel and water and the delivery of the electrical and potential steam output of said generating plant, and all other improvements related to the ownership, operation and maintenance of said generating plant and associated equipment.
Killen Project ” means the approximately 618 megawatt coal-fired electric generating plant located on a site in Wrightsville, Ohio, together with all auxiliary equipment, ancillary and associated facilities and equipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased) used for the receipt of fuel and water and the delivery of the electrical and potential steam output of said generating plant, and all other improvements related to the ownership, operation and maintenance of said generating plant and associated equipment.
Lee Project ” means the approximately 640 megawatt natural gas-fired electric generating plant located on a site in Dixon, Illinois, together with all auxiliary equipment, ancillary and associated facilities and equipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased) used for the receipt of fuel and water and the delivery of the electrical and potential steam output of said generating plant, and all other improvements related to the ownership, operation and maintenance of said generating plant and associated equipment.
Miami Fort Project ” means the approximately 1,020 megawatt coal-fired electric generating plant, together with the approximately 68 megawatt oil-fired electric generating plant, both located on a site in North Bend, Ohio, together with all auxiliary equipment, ancillary and associated facilities and equipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased) used for the receipt of fuel and water and the delivery of the electrical and potential steam output of said generating plants, and all other improvements related to the ownership, operation and maintenance of said generating plants and associated equipment, excluding for all purposes the generating plant known as Unit 6 and the real and personal property associated therewith owned by Duke Energy Kentucky, Inc.
Stuart Project ” means the approximately 2,318 megawatt coal-fired electric generating plant located on a site in Aberdeen, Ohio, together with all auxiliary equipment, ancillary and associated facilities and equipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased) used for the receipt of fuel and water and the delivery of the electrical and potential steam output of said generating plant, and all other improvements related to the ownership, operation and maintenance of said generating plant and associated equipment.
Washington Project ” means the approximately 637 megawatt natural gas-fired combined cycle electric generating plant located on a site in Beverly, Ohio, together with all auxiliary equipment, ancillary and associated facilities and equipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased) used for the receipt of fuel and water and the delivery of the electrical and potential steam output of said generating plant, and all other improvements related to the ownership, operation and maintenance of said generating plant and associated equipment.
Zimmer Project ” means the approximately 1,338 megawatt coal-fired electric generating plant located on a site in Moscow, Ohio, together with all auxiliary equipment, ancillary and associated facilities and equipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased) used for the receipt of fuel and water and the delivery of the electrical and potential steam output of said generating plant, and all other improvements related to the ownership, operation and maintenance of said generating plant and associated equipment.


EXHIBIT A

Form of Contribution Agreement Amendment
EXHIBIT B

Form of Buyer Guarantee
EXHIBIT C

Form of Sellers Guarantee
EXHIBIT D

Form of Access Agreement
EXHIBIT E

Form of Assignment and Assumption Agreement
EXHIBIT F

Form of Company Assignment Agreement
EXHIBIT G

Form of Transition License Agreement

EXHIBIT H

Employee Pension Matters

EXHIBIT I

Form of Transition Services Agreement


#4665499.10
CONFIDENTIAL        EXECUTION COPY



_____________________________________________________________________________________

ASSET PURCHASE AGREEMENT
by and between
DUKE ENERGY PROGRESS, INC.
and
NORTH CAROLINA EASTERN MUNICIPAL POWER AGENCY

Dated as of September 5, 2014

_____________________________________________________________________________________


TABLE OF CONTENTS
Page
Article I DEFINITIONS; USAGE 1
Definitions .
1
Rules as to Usage .
10
Schedules and Exhibits .
11
Article II SALE AND PURCHASE; PRICE; CLOSING 11
Sale and Purchase; Definition of Purchased Assets; Assumed Liability .
11
Purchase Price .
12
Allocation of Purchase Price for Tax Purposes .
13
The Closing .
13
Further Assurances .
15
Withholding .
16
Article III REPRESENTATIONS AND WARRANTIES 16
Representations and Warranties of Seller .
16
Representations and Warranties of Purchaser .
20
Article IV COVENANTS 21
Efforts to Close. .
21
Preservation of Purchased Assets .
23
Notification .
23
Tax Matters .
24
Access to Information .
25
Spare Parts Inventory .
25
PE Pension Plan .
25
Article V CONDITIONS TO CLOSING 26
Purchaser’s Conditions Precedent .
26
Seller’s Conditions Precedent .
28
Article VI TERMINATION 30
Termination Prior to Closing .
30
Effect of Termination or Breach Prior to Closing .
30
Article VII SURVIVAL; INDEMNIFICATION 30
Survival .
30
Seller Indemnification .
31
Purchaser Indemnification .
31
Article VIII MISCELLANEOUS 31
Dispute Resolution .
31
Governing Law; Submission to Jurisdiction .
31
Specific Performance .
32
Notices .
32
Entire Agreement .
33
Expenses .
33
Public Announcements .
33
Confidentiality .
33
Waivers .
34
Amendment .
34
No Construction Against Drafting Party.
34
No Third-Party Beneficiary .
35
Headings .
35
Invalid Provisions .
35
No Assignment; Binding Effect. .
35
Counterparts .
35

Exhibit A – Knowledge
Exhibit B – Real Property Legal Description
Exhibit C – Plants Agreements Termination Agreement
Exhibit D – Bill of Sale
Exhibit E – Form of Deeds




ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the “ Agreement ”) is made and entered into effective as of September __, 2014 (the “ Effective Date ”), by and between NORTH CAROLINA EASTERN MUNICIPAL POWER AGENCY , a joint agency and public body and body corporate and politic organized and existing under North Carolina law (“ Seller ”), and DUKE ENERGY PROGRESS, INC. , a North Carolina corporation (“ Purchaser ”). Seller and Purchaser are also each referred to herein individually as a “ Party ” and collectively as the “ Parties .”
RECITALS
WHEREAS, Purchaser and Seller each has an undivided ownership interest in the nuclear-fueled generation facilities known as the Shearon Harris Nuclear Plant, located in Wake County, North Carolina (the “ Harris Plant ”), and Brunswick Unit 1 (the “ Brunswick 1 Plant ”) and Brunswick Unit 2 (the “ Brunswick 2 Plant ”), each located in Brunswick County, North Carolina, and the coal-fueled generation facilities known as the Mayo Plant (the “ Mayo Plant ”) and Roxboro Unit 4 (the “ Roxboro 4 Plant ”), each of which is located in Person County, North Carolina (the Harris Plant, the Brunswick 1 Plant, the Brunswick 2 Plant, the Mayo Plant and the Roxboro 4 Plant, collectively, the “ Plants ”);
WHEREAS, Seller currently owns the following undivided ownership interests in the Plants: 16.17% in the Harris Unit No. 1 and 12.94% in the cancelled Harris Units No. 2, 3 and 4 (collectively, the “ Harris Interest ”), 18.33% in the Brunswick 1 Plant (the “ Brunswick 1 Interest ”), 18.33% in the Brunswick 2 Plant (the “ Brunswick 2 Interest ”), 16.17% in the Mayo Unit No. 1 and 12.94% in the cancelled Mayo Unit No. 2 (collectively, the “ Mayo Interest ”), and 12.94% in the Roxboro 4 Plant and 3.77% in the common facilities that support the Roxboro 4 Plant and the three (3) other coal-fired generation facilities located at the site of the Roxboro 4 Plant (collectively, the “ Roxboro 4 Interest ”, and together with the Harris Interest, the Brunswick 1 Interest, the Brunswick 2 Interest and the Mayo Interest, the “ Seller’s Interests ”); and
WHEREAS, Seller has agreed to sell to Purchaser, and Purchaser has agreed to purchase from Seller, the Seller’s Interests and certain related assets and accounts in accordance with, and subject to the terms and conditions of, this Agreement.
NOW, THEREFORE, in consideration of the Recitals set forth above, the respective covenants and agreements of the Parties herein set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Parties, the Parties, intending to be legally bound, do hereby agree as follows:
AGREEMENT
Article I     

DEFINITIONS; USAGE
Section 1.1.      Definitions . Unless the context shall otherwise require, capitalized terms used in this Agreement shall have the meanings assigned to them in this Section 1.1 .
Additional Decommissioning Funds ” means all funds, other than those held in the Nuclear Decommissioning Trust Funds, reserved or held by Seller, and not reported to the NRC in any DFA Report, for the purpose of funding or defraying the decommissioning costs, expenses or liabilities associated with spent fuel management and site restoration for the Harris Plant, the Brunswick 1 Plant or the Brunswick 2 Plant.
Affiliate ” of any Person means any other Person directly or indirectly Controlling, directly or indirectly Controlled by or under direct or indirect common Control with such Person.
Agreement ” has the meaning given to it in the preamble hereof.
Assigned Contracts ” means the (i) License Agreement dated as of June 24, 1987, by and among North Carolina Eastern Municipal Power Agency, Cogentrix Carolina Leasing Corporation and Carolina Power & Light Company (N/K/A Duke Energy Progress, Inc.), recorded Book 698, page 365, Brunswick County Registry; and (ii) Lease dated September 3, 1996, by and among Carolina Power & Light Company (N/K/A Duke Energy Progress, Inc.), North Carolina Eastern Municipal Power Agency, as Landlords, and Brunswick County, as Tenant, recorded Book 1144, page 1175, Brunswick County Registry.
Assumed Liabilities ” has the meaning given to it in Section 2.1.3.
Bill of Sale ” has the meaning given to it in Section 2.4.1(b)(ii).
Bond Fund Trustee ” means The Bank of New York Trust Company, N.A., in its capacity as Bond Fund Trustee under the Bond Resolution.
Bond Legislation ” means legislation passed by the North Carolina General Assembly and enacted into law permitting Seller to issue bonds to refinance existing Indebtedness of Seller outstanding under the Bond Resolution and attributable to Seller’s Interest that cannot be repaid (or its payment provided for) with that portion of the Purchase Price described in Section 2.2.1(a) of this Agreement or other funds available to Seller.
Bond Resolution ” means Resolution R-2-82, adopted by the Board of Commissioners of Seller on April 1, 1982, as amended and supplemented.
Brunswick 1 Interest ” has the meaning given to it in the Recitals to this Agreement.
Brunswick 1 Plant ” has the meaning given to it in the Recitals to this Agreement.
Brunswick 2 Interest ” has the meaning given to it in the Recitals to this Agreement.
Brunswick 2 Plant ” has the meaning given to it in the Recitals to this Agreement.
Business Day ” means any day except Saturday, Sunday or any weekday that banks in Charlotte, North Carolina or New York, New York are closed.
Catch-Up Pension Contribution ” has the meaning given to it in Section 4.7(b) .
Closing ” has the meaning given to it in Section 2.4.
Closing Date ” means the date on which the Closing occurs.
Code ” means the Internal Revenue Code of 1986 and the regulations thereunder.
Control ” of any Person means the possession, directly or indirectly, of the power either to (a) vote more than fifty percent (50%) of the securities or interests having ordinary voting power for the election of directors (or other comparable controlling body) of such Person or (b) direct or cause the direction of management or policies of such Person, whether through the ownership of voting securities or interests, by contract or otherwise.
Debt Service Support Contract ” shall have the meaning given to it in Section 5.1.14.
Decommissioning Trust Liabilities ” means any and all Liabilities arising out of or related to Seller’s possession, management, operation, or use of the Nuclear Decommissioning Trusts or any of the funds, proceeds, or rights associated therewith or contained therein; provided, however, that, subject to compliance with the requirements set forth in Section 3.1.14, if, based on any DFA Report filed prior to Closing, the NRC determines before or after Closing that Seller fails to demonstrate financial assurance for its share of radiological decommissioning costs in accordance with NRC regulations, such failure shall not be deemed to be a Decommissioning Trust Liability.
Deeds ” has the meaning given to it in Section 2.4.1(b)(iii).
DFA Report ” means any decommissioning financial assurance report filed by Seller, or on behalf of Seller, with the NRC pursuant to 10 CFR 50.75(f)(1) for the Harris Plant, the Brunswick 1 Plant or the Brunswick 2 Plant.
Disbursement Instructions ” means the instructions delivered to Purchaser by Seller and the Bond Fund Trustee regarding that portion of the Purchase Price described in Section 2.2.1(a) of this Agreement to be deposited into the Escrow Deposit and/or Refunding Trust Fund by Purchaser at Closing.
Disclosure Update ” has the meaning given to it in Section 4.3 .
Effective Date ” has the meaning given to it in the preamble to this Agreement.
ElectriCities ” means ElectriCities of North Carolina, Inc., a joint municipal assistance agency and public body and body corporate and politic organized and existing under North Carolina law.
Escrow Deposit and/or Refunding Trust Fund ” means the escrow or refunding trust fund or funds into which that portion of the Purchase Price described in Section 2.2.1(a) of this Agreement is to be deposited pursuant to an agreement between the Seller and the Bond Fund Trustee (such agreement, the “ Escrow Deposit and/or Refunding Trust Fund Agreement ”).
Excluded Assets ” has the meaning given to it in Section 2.1.2 .
Excluded Liabilities ” has the meaning given to it in Section 2.1.4 .
Existing Participant Power Sales Agreements ” means, collectively, the existing Initial Project Power Sales Agreements between Seller and each Participant and the existing Supplemental Power Sales Agreements between Seller and each Participant.
Existing Participant Power Sales Agreement Termination Agreements ” has the meaning given to it in Section 2.4.1(b)(xiii) .
Federal Power Act ” means the Federal Power Act of 1935 and the regulations thereunder.
FERC ” means the Federal Energy Regulatory Commission.
FERC 203 Approval ” means the order issued by FERC under Section 203 of the Federal Power Act that approves the purchase of the Purchased Assets as contemplated by this Agreement.
FERC 205 Approvals” means the order or orders issued by FERC under Section 205 of the Federal Power Act that accept or approve (i) all amendments to the rates in the Wholesale Power Sales Agreements, as proposed by Purchaser in the exercise of its sole discretion, to include recovery of the Purchase Price (including any acquisition adjustment above net book value of the Purchased Assets reflected therein) in such rates over a time period acceptable to Purchaser, as determined in Purchaser’s sole discretion, as well as recovery of a return, at a level acceptable to Purchaser, as determined in Purchaser’s sole discretion, on the unamortized balance of the Purchase Price, and (ii) the Full Requirements Power Purchase Agreement without any amendment or modification that is unacceptable to the Parties.
FERC Accounting Approval ” means the order or orders issued by FERC under the Federal Power Act that approve, without any condition, amendment or modification that is unacceptable to Purchaser, as determined in Purchaser’s sole discretion, all accounting practices or treatments proposed by Purchaser in connection with Purchaser’s proposal to recover under the Wholesale Power Sales Agreements and the Full Requirements Power Purchase Agreement the Purchase Price (including any acquisition adjustment above net book value of the Purchased Assets reflected therein) in such rates over a time period acceptable to Purchaser, as determined in Purchaser’s sole discretion as well as recovery of a return, at a level acceptable to Purchaser, as determined in Purchaser’s sole discretion, on the unamortized balance of the Purchase Price.
Fuel Inventory ” has the meaning given to it in Section 2.1.1(d) .
Full Requirements Power Purchase Agreement ” means the Full Requirements Power Purchase Agreement by and between Seller and Purchaser dated as of even date herewith.
Full Requirements Power Sales Agreement ” shall have the meaning given to it in Section 5.1.13 .
Governmental Authority ” means any federal, state or local governmental entity, authority or agency, court, tribunal, regulatory commission or other body, whether legislative, judicial or executive (or a combination or permutation thereof).
Harris Interest ” has the meaning given to it in the Recitals to this Agreement.
Harris Plant ” has the meaning given to it in the Recitals to this Agreement.
Indebtedness ” means, with respect to any Person at any date, without duplication: (i) all obligations of such Person for borrowed money or in respect of loans or advances, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments or debt securities, (iii) all obligations arising from cash/book overdrafts, (iv) all indebtedness for the deferred purchase price of property or services with respect to which a Person is liable as obligor (other than trade payables incurred in the ordinary course of business), (v) all obligations in respect of capital leases, and (vi) all accrued interest prepayment premiums or penalties related to any of the foregoing.
Independent Accounting Firm ” means Grant Thornton LLP.
Knowledge ” or any similar phrase in this Agreement means (i) in the case of Seller, the actual knowledge of those officers and employees of Seller or ElectriCities listed in Exhibit A, or any other information which those officers and employees of Seller or ElectriCities listed in Exhibit A would reasonably be expected to be aware of in the prudent discharge of their duties (whether in their capacity as an officer or employee of Seller or ElectriCities) in the ordinary course of business but which may not be actually known to such Persons, and (ii) in the case of Purchaser, the actual knowledge of those officers and employees of Purchaser listed in Exhibit A, or any other information which those officers and employees of Purchaser listed in Exhibit A would reasonably be expected to be aware of in the prudent discharge of their duties in the ordinary course of business but which may not be actually known to such Persons. In all events, a Party shall be deemed to have Knowledge of a matter of which such Party has received written notice.
Law ” means any statute, law, treaty, rule, code, common law, ordinance, regulation, permit, certificate or order of any Governmental Authority, or any judgment, decision, decree, injunction, writ, order or like action of any court, arbitrator or other Governmental Authority.
Liability ” means any Indebtedness, obligation and other liability of a Person (whether absolute, accrued, contingent, fixed, known or unknown or otherwise, and whether due or to become due).
Lien ” means any pledge, deed of trust, mortgage, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security grant or agreement of any kind or nature whatsoever, including without limitation any conditional sale or other title retention agreement, any financing lease having substantially the same effect as any of the foregoing, or the filing of any financing statement or similar instrument under the Uniform Commercial Code as in effect in any relevant jurisdiction or comparable law of any jurisdiction, domestic or foreign, and any other lease, and any easement, restriction, condition, covenant, right-of-way or other encumbrance or title exception.
Losses ” has the meaning given to it in Section 7.2 .
Material Adverse Effect ” means a material adverse effect on (a) any of the Plants or any of the other Purchased Assets, (b) the ability of Seller or Purchaser to perform its obligations under this Agreement or any of the other Transaction Agreements, or (c) the validity or enforceability of this Agreement or any of the other Transaction Agreements, or the rights or remedies of Seller or Purchaser hereunder or thereunder.
Mayo Interest ” has the meaning given to it in the Recitals to this Agreement.
Mayo Plant ” has the meaning given to it in the Recitals to this Agreement.
Municipalities’ Consent ” means the unanimous consent of the Participants to, and approval of, (i) the consummation of the transactions contemplated by this Agreement (as the same may be amended by the Parties), including the sale of Seller’s Interests to Purchaser on the terms hereof, (ii) the Full Requirements Power Purchase Agreement (as the same may be amended by the Parties) and (iii) such other documents or agreements as may be necessary to effect or implement either of the foregoing, in form and substance reasonably satisfactory to Purchaser and Seller.
Municipalities’ Consent Outside Date ” has the meaning given to it in Section 6.1(d) .
NCUC ” means the North Carolina Utilities Commission.
NCUC Approval ” means the order or orders issued by the NCUC that approve an amendment, transfer or issuance, as appropriate, of a Certificate of Public Convenience and Necessity for the Plants to reflect Seller’s transfer of the Purchased Assets to Purchaser.
NCUC Rate Approvals ” means approval by the NCUC of a retail power rate structure (including the rate structure that would result from implementation of the North Carolina Legislation) that makes, as determined in Purchaser’s sole discretion, the transactions contemplated by this Agreement economically viable for Purchaser and Purchaser’s stakeholders.
North Carolina Legislation ” means legislation passed by the North Carolina General Assembly and enacted into law that makes, as determined in Purchaser’s sole discretion, the transactions contemplated by this Agreement economically viable for Purchaser and Purchaser’s stakeholders.
NRC ” means the Nuclear Regulatory Commission.
NRC Approvals ” means the orders issued by the NRC that (i) approve the transfer of Seller's ownership licenses, Renewed License DPR-71 for Brunswick Steam Electric Plant, Unit 1, Renewed License DPR-62 for Brunswick Steam Electric Plant, Unit 2, and Renewed License NPF-63 for Shearon Harris Nuclear Power Plant, Unit 1, to Purchaser and (ii) authorize the distribution of the Nuclear Decommissioning Trust Funds to or for the benefit of Purchaser in accordance with the terms of the Nuclear Decommissioning Trust.
Nuclear Decommissioning Trust ” means the Decommissioning Trust Agreement, dated as of June 28, 1990 and effective as of June 29, 1990, between North Carolina Eastern Municipal Power Agency and U.S. Bank National Association (as successor to Wachovia Bank & Trust Company, N.A.), as Trustee, that has been established and is maintained by Seller pursuant to regulations promulgated by the NRC in order to fund Seller’s share of the radiological decommissioning costs for the Harris Plant, the Brunswick 1 Plant and the Brunswick 2 Plant.
Nuclear Decommissioning Trust Funds ” means the following separate trust funds established by the Trustee under the Nuclear Decommissioning Trust:
(a)      the Harris Unit No. 1 Decommissioning Trust Fund;
(b)      the Brunswick Unit No. 1 Decommissioning Trust Fund; and
(c)      the Brunswick Unit No. 2 Decommissioning Trust Fund.
OFA ” means the Operating and Fuel Agreement, dated as of July 30, 1981, between Carolina Power & Light Company (N/K/A Duke Energy Progress, Inc.) and North Carolina Municipal Power Agency Number 3 (N/K/A North Carolina Eastern Municipal Power Agency), as amended.
Outside Date ” has the meaning given to it in Section 6.1(e) .
Participant ” means each of the cities, towns or other municipal Governmental Authorities that have executed and are parties to an Initial Project Power Sales Agreement with Seller as of the Effective Date.
Party ” or “ Parties ” has the meaning given to it in the preamble to this Agreement.
PE Pension Plan ” has the meaning given to it in Section 4.7 .
Permits ” means permits, licenses, approvals, certificates and other authorizations of any Governmental Authority.
Permitted Liens ” means (i) those exceptions to title listed in Schedule 1.1 as of the date hereof, (ii) liens for Taxes or other governmental charges or assessments not yet due and delinquent or the validity of which is being contested in good faith by appropriate proceedings, (iii) mechanics’, carriers’, workers’, repairers’ and other similar liens and rights arising or incurred in the ordinary course of business for amounts not yet due and payable or the validity of which is being contested in good faith by appropriate proceedings, and (iv) zoning, entitlement, conservation restrictions and other land use and environmental regulations by any Governmental Authority.
Person ” means any individual, corporation, partnership, joint venture, association, joint stock company, trust, limited liability company, unincorporated organization, Governmental Authority or any other form of legal entity.
Plants ” has the meaning given to it in the Recitals to this Agreement.
Plants Agreements ” means the (i) OFA, (ii) the Power Coordination Agreement, dated as of July 30, 1981, between Carolina Power & Light Company (N/K/A Duke Energy Progress, Inc.) and North Carolina Municipal Power Agency Number 3 (N/K/A North Carolina Eastern Municipal Power Agency), as amended, the (iii) the Power Coordination Agreement – 1988B For the Diesel New Resource Generating Project at Edenton, North Carolina, dated as of March 29, 1988, between Carolina Power & Light Company (N/K/A Duke Energy Progress, Inc.) and North Carolina Eastern Municipal Power Agency, (iv) the Power Coordination Agreement – 1988C For the Diesel New Resource Generating Project at Elizabeth City, North Carolina, dated as of March 29, 1988, between Carolina Power & Light Company (N/K/A Duke Energy Progress, Inc.) and North Carolina Eastern Municipal Power Agency, (v) the Agreement Applicable to Supplemental Load Beginning January 1, 2010, dated as of February 25, 2005, between Carolina Power & Light Company (N/K/A Duke Energy Progress, Inc.) and North Carolina Eastern Municipal Power Agency, as amended, (vi) the Power Supply Agreement Applicable to Supplemental Load Beginning January 1, 2018 Through December 31, 2031, dated as of October 31, 2011, between Carolina Power & Light Company dba Progress Energy Carolinas, Inc. (N/K/A Duke Energy Progress, Inc.) and North Carolina Eastern Municipal Power Agency, as amended, (vii) the Purchase, Construction, and Ownership Agreement, dated as of July 30, 1981, between Carolina Power & Light Company (N/K/A Duke Energy Progress, Inc.) and North Carolina Municipal Power Agency Number 3 (N/K/A the North Carolina Eastern Municipal Power Agency), as amended, (viii) the Cancellation Agreement between Carolina Power & Light Company and North Carolina Eastern Municipal Power Agency, dated as of April 21, 1982, related to the cancellation of Harris Units No. 3 and 4, (ix) the Cancellation Agreement between Carolina Power & Light Company and North Carolina Eastern Municipal Power Agency, dated as of December 23, 1985, related to the cancellation of Harris Unit No. 2, (x) the Cancellation Agreement between Carolina Power & Light Company and North Carolina Eastern Municipal Power Agency Regarding Cancellation of Mayo Unit No. 2, dated as of February 24, 1988, (xi) any other agreement between or among Seller or any of its Affiliates and Purchaser or any of its Affiliates entered into prior to the Effective Date and related to the ownership or operation of the Plants, interconnection, or the production, purchase, or sale of power, and (xii) with respect to each of (i) through (xi), including side letters or other agreements between or among Seller or its Affiliates and Purchaser or its Affiliates deriving from the transactions contemplated thereby.
Plants Agreements Termination Agreement ” has the meaning given to it in Section 2.4.1(a)(1).
Plants Liabilities ” means all Liabilities (other than any Indebtedness incurred by Seller), costs, fees and expenses (including operating expenses) arising out of or related to the operation, ownership or use of the Plants prior to the Closing, regardless of when such Liabilities are actually suffered or incurred.
Plants Permits ” has the meaning given to it in Section 3.1.12 .
Pre-Execution Update ” has the meaning given to it in Section 4.3 .
Property Taxes ” has the meaning given to it in Section 2.2.2.
PSCSC ” means the Public Service Commission of South Carolina.
PSCSC Rate Approvals ” means approval by the PSCSC of a retail power rate structure (including the rate structure that would result from implementation of the South Carolina Legislation) that makes, as determined in Purchaser’s sole discretion, the transactions contemplated by this Agreement economically viable for Purchaser and Purchaser’s stakeholders.
Purchase Price ” has the meaning given to it in Section 2.2.1.
Purchased Assets ” has the meaning given to it in Section 2.1.1.
Purchaser ” has the meaning given to it in the preamble to this Agreement.
Purchaser’s Disclosure Schedule ” means the schedule delivered to Seller by Purchaser herewith and dated as of the Effective Date, containing all lists, descriptions, exceptions and other information and materials as are required to be included therein by Purchaser pursuant to this Agreement, attached hereto as Schedule 3.2 .
Purchaser Indemnified Person ” has the meaning given to it in Section 7.2 .
Purchaser Plants Liabilities ” means all Plants Liabilities other than the Seller Plants Liabilities.
Purchaser Required Consents ” has the meaning given to it in Section 3.2.5 .
Real Property ” means the real property upon which the Plants are located as described in Exhibit B attached hereto, and the real property upon which the support facilities of the Plants are located as described in Exhibit B attached hereto, in each case together with all buildings, structures and other improvements constructed thereon; rights, title and interests of Seller in and to all other easements, benefits, privileges and other rights appurtenant to such real property or in any way appertaining thereto, and all strips and gores and any land lying in the bed of any street or road open or closed adjoining such real property.
Related Person ” means with respect to any Person, such Person’s Affiliates, and the employees, officers, directors, agents, representatives, licensees and invitees of such Person and its Affiliates.
Required Consents ” means, collectively, the Purchaser Required Consents and the Seller Required Consents.
Roxboro 4 Interest ” has the meaning given to it in the Recitals to this Agreement.
Roxboro 4 Plant ” has the meaning given to it in the Recitals to this Agreement.
Seller ” has the meaning given to it in the preamble to this Agreement.
Seller Indemnified Person ” has the meaning given to it in Section 7.3 .
Seller Plants Liabilities ” means the amount of (i) all Taxes attributable to Seller’s pre-Closing ownership interest in the Plants and (ii) the Seller’s obligations to compensate Purchaser for (A) services rendered or products delivered in connection with the Plants Agreements for all periods prior to Closing, (B) any Service Costs attributable to pre-Closing time periods and (C) any Catch-Up Pension Contribution.
Seller Required Consents ” has the meaning given to it in Section 3.1.5 .
Seller’s Disclosure Schedule ” means the schedule delivered to Purchaser by Seller herewith and dated as of the Effective Date, containing all lists, descriptions, exceptions and other information and materials as are required to be included therein by Seller pursuant to this Agreement and attached hereto as Schedule 3.1 .
Seller’s Interests ” has the meaning given to it in the Recitals to this Agreement.
Service Costs ” means the cost associated with the present value of benefits attributed to a PE Pension Plan participant’s service in the current year plus administrative expenses of the PE Pension Plan.
Solvent ”, when used with respect to any Person, means that, as of any date of determination, (a) such Person will not have, as of such date, an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged following such date, and (b) such Person will be able to pay its Liabilities as they mature.
South Carolina Legislation ” means legislation passed by the South Carolina General Assembly and enacted into law that makes, as determined in Purchaser’s sole discretion, the transactions contemplated by this Agreement economically viable for Purchaser and Purchaser’s stakeholders.
Spare Parts Inventory ” has the meaning given to it in Section 2.1.1(e) .
Tax ” or “ Taxes ” means any and all taxes, including any interest, penalties, or other additions to tax that may become payable in respect thereof, imposed by any federal, state, local, or foreign government or any agency or political subdivision of any such government, which taxes shall include all income taxes, profits taxes, taxes on gains, alternative minimum taxes, estimated taxes, payroll and employee withholding taxes, unemployment insurance taxes, social security taxes, welfare taxes, disability taxes, severance taxes, license charges, taxes on stock, sales and use taxes, ad valorem taxes, value-added taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real or personal property taxes, stamp taxes, environmental taxes, transfer taxes, workers’ compensation taxes, and other taxes, fees, duties, levies, customs, tariffs, imposts, assessments, obligations and charges of the same or of a similar nature to any of the foregoing or any amounts due in lieu thereof.
Tax Returns ” means any return, report, information return, claim for refund or other document (including any related or supporting information) supplied to or required to be supplied to any Taxing Authority with respect to Taxes, including any attachments, amendments and supplements thereto.
Taxing Authority ” means, with respect to any Tax, the Governmental Authority that imposes such Tax, and the Governmental Authority (if any) charged with the collection of such Tax.
Transaction Agreements ” means the following agreements:
(a)    this Agreement;
(b)    the Bill of Sale;
(c)    the Deeds;
(d)    the Plants Agreements Termination Agreement; and
(e)    the Full Requirements Power Purchase Agreement.
Transfer Taxes ” has the meaning given to it in Section 4.4(a).
Update Period ” has the meaning given to it in Section 4.3 .
Wholesale Power Sales Agreements ” means the following wholesale power sales agreements (as the same may be amended, consolidated, supplemented, novated or replaced by the parties thereto from time to time) of Purchaser as of the Closing Date which utilize a formula rate: Power Supply and Coordination Agreement dated June 10, 2009 with Public Works Commission of the City of Fayetteville, North Carolina; Full Requirements Power Purchase Agreement dated June 28, 2012 with French Broad Electric Membership Cooperative; Second Amended and Restated Power Supply and Coordination Agreement dated February 7, 2014, with North Carolina Electric Membership Corporation; Full Requirements Power Purchase Agreement, dated October 28, 2013, with The City of Camden, South Carolina; and Second Amended and Restated Partial Requirements Service Agreement dated December 16, 2013 with Piedmont Electric Membership Corporation.
2015 Expenditure Cap ” means $78,000,000.
2016 Expenditure Cap ” means $55,000,000.
Section 1.2.      Rules as to Usage . Except as otherwise expressly provided herein, the following rules shall apply to the usage of terms in this Agreement:
(a)      The terms defined above have the meanings set forth above for all purposes, and such meanings are equally applicable to both the singular and plural forms of the terms defined.
(b)      “Include,” “includes” and “including” shall be deemed to be followed by “without limitation” whether or not they are in fact followed by such words or words of like import.
(c)      “Writing,” “written” and comparable terms refer to printing, typing, and other means of reproducing in a visible form.
(d)      References to any document are references to that document as amended, consolidated, supplemented, novated or replaced by the parties thereto from time to time.
(e)      Any Law defined or referred to above means such Law as from time to time amended, modified or supplemented, including by succession of comparable successor Law.
(f)      References to a Person are also to its successors and assigns.
(g)      Any term defined above by reference to any agreement, instrument or Law has such meaning whether or not such agreement, instrument or Law is in effect.
(h)      “Hereof,” “herein,” “hereunder” and comparable terms refer, unless otherwise expressly indicated, to the entire agreement or instrument in which such terms are used and not to any particular article, section or other subdivision thereof or attachment thereto. References in an instrument to “Article,” “Section,” or another subdivision or to an attachment are, unless the context otherwise requires, to the relevant article, section, subsection or subdivision of or an attachment to such agreement or instrument. If such reference in this Agreement to “Article,” “Section,” or other subdivision does not specify an agreement or document, such reference refers to an article, section or other subdivision of this Agreement. All references to exhibits or schedules in any agreement or instrument that is governed by this Agreement are to exhibits or schedules attached to such instrument or agreement.
(i)      Pronouns, whenever used in any agreement or instrument that is governed by this Agreement and of whatever gender, shall include natural Persons, corporations, limited liability companies, partnerships and associations of every kind and character.
(j)      References to any gender include, unless the context otherwise requires, references to all genders.
(k)      “Shall” and “will” have equal force and effect.
Section 1.3.      Schedules and Exhibits . This Agreement consists of the Articles contained herein and the Schedules and Exhibits attached hereto, all of which constitute one and the same agreement with equal force and effect.
Article II     

SALE AND PURCHASE; PRICE; CLOSING
Section 2.1.      Sale and Purchase; Definition of Purchased Assets; Assumed Liability .
2.1.1.      Closing . Seller shall sell, transfer, convey, assign and deliver to Purchaser, free and clear of all Liens (other than Permitted Liens), and Purchaser shall purchase and pay for, all of Seller’s right, title and interest in and to all assets and properties of Seller relating to its ownership interest in the Plants, including without limitation, Seller’s right, title and interest in and to the following assets (collectively, the “ Purchased Assets ”):
(l)      Seller’s Interests;
(m)      All Real Property (to the extent not included in Seller’s Interests);
(n)      the Nuclear Decommissioning Trust Funds and $26,000,000 of Additional Decommissioning Funds, and all proceeds and rights therein;
(o)      Nuclear fuel inventory purchased for the Harris Plant, the Brunswick 1 Plant and the Brunswick 2 Plant and residing in Seller’s nuclear fuel fleet inventory accounts and all accounts related to such nuclear fuel inventory ( the “ Fuel Inventory ”);
(p)      Spare parts inventory of the Plants and any related support facilities, including equipment, tools, goods and supplies (the “ Spare Parts Inventory ”); and
(q)      The Plants Permits.
2.1.2.      Excluded Assets . The Purchased Assets shall not include Seller’s interest in the following agreements, assets and properties (the “ Excluded Assets ”), and Purchaser shall have no Liability with respect thereto:
(a)      Except as set forth in Section 2.1.1(c) , cash, cash equivalents, bank deposits, and accounts and notes receivable, trade or otherwise;
(b)      Rights of Seller arising under this Agreement, the Transaction Agreements or any other instrument or document executed and delivered pursuant to this Agreement;
(c)      All assets, properties and contractual rights of Seller other than the Purchased Assets; and
(d)      Any damages, costs or settlement amounts that are attributable to the Harris Interest, the Brunswick 1 Interest or the Brunswick 2 Interest and that are collected by Purchaser pursuant to or as a result of (i) Carolina Power & Light Co., et. al. v United States , No. 11-869C in the United States Court of Federal Claims, and (ii) any similar action or proceeding initiated by DEP in the future against the United States related to damages associated with spent fuel storage costs incurred during the period beginning January 1, 2011 and ending on the Closing Date, provided that any such damages, costs or settlement amounts shall be reduced by Seller’s properly allocable ownership portion (calculated based on the applicable Seller’s Interests) of the litigation costs (including reasonable attorney fees) incurred by Purchaser or its Affiliates in or pursuant to such actions or proceedings, to the extent the same have not already been reimbursed by Seller (under the Plants Agreements or otherwise).
2.1.3.      Assumed Liabilities . On the terms and subject to the conditions set forth in this Agreement, effective as of the Closing, Purchaser shall assume and satisfy or perform only the following Liabilities of Seller:
(a)      those Liabilities of Seller, other than the Decommissioning Trust Liabilities, directly related to the decommissioning of the Harris Plant, the Brunswick 1 Plant and the Brunswick 2 Plant; and
(b)      all Purchaser Plants Liabilities, other than the Decommissioning Trust Liabilities (clause (a) and (b) collectively, the “ Assumed Liabilities ”).
2.1.4.      Excluded Liabilities . Except for the Assumed Liabilities, Purchaser shall have no liability or obligation whatsoever for, and Seller shall retain and continue to be responsible for, all of Seller’s duties, obligations and Liabilities, including the Decommissioning Trust Liabilities and the Seller Plants Liabilities, whether incurred or arising before or after Closing, (all of such retained duties, obligations and Liabilities being referred to herein as the “ Excluded Liabilities ”).
Section 2.2.      Purchase Price .
2.2.1.      Amount . In consideration of the sale, assignment, conveyance, transfer and delivery to Purchaser as of the Closing of Seller’s right, title and interest in and to the Purchased Assets, Purchaser shall pay to or on behalf of Seller an amount equal to the sum of (a) $1,200,000,000, plus (b) the lesser of (i) an amount equal to all payments made by Seller pursuant to Section 2.3 of the OFA on account of capital expenditures made with respect to the Seller’s Interests in the Plants from January 1, 2015 through December 31, 2015, as such amount is determined by Purchaser at least thirty (30) Business Days prior to Closing based on the books and records of the Plants maintained by Purchaser, or (ii) the 2015 Expenditure Cap, plus (c) the lesser of (i) an amount equal to all payments made by Seller pursuant to Section 2.3 of the OFA on account of capital expenditures made with respect to the Seller’s Interests in the Plants from January 1, 2016 through the Closing Date, as such amount is determined by Purchaser at least thirty (30) Business Days prior to Closing based on the books and records of the Plants maintained by Purchaser, or (ii) the 2016 Expenditure Cap (the total of (a), (b) and (c), the “ Purchase Price ”).
2.2.2.      Prorations . Real, personal, Public Service Company ad valorem Taxes and payments in lieu of ad valorem Taxes with respect to the Purchased Assets (“ Property Taxes ”) will be prorated on a calendar year basis through the Closing Date. Any special assessments or roll-back Taxes on or against the Purchased Assets shall be paid by Seller on or prior to the Closing Date. If the actual amount of Property Taxes is not known on the Closing Date, such Taxes shall be prorated on the basis of the amount of such Taxes payable for the prior year, and shall be adjusted between the Parties when the actual amount of such Taxes payable in the year of Closing is known to Purchaser and Seller. Within 30 days after the Property Tax liability is known for the calendar year in which the Closing occurs, Purchaser and Seller shall make such payments or credits between themselves as are necessary so that each Party bears only its pro rata portion of the actual Property Tax liability for the calendar year in which the Closing occurs. All prorations shall be made as adjustments to the Purchase Price, provided that to the extent any charge or receipt to be prorated at Closing is not known as of the Closing Date, the Parties shall make the applicable proration and adjusting payments as soon as possible after Closing.
2.2.3.      Method of Payment of Purchase Price . At Closing, Purchaser shall deliver the Purchase Price, as adjusted for the prorations and other adjustments hereunder, in United States dollars, by wire transfer of immediately available federal funds in accordance with the Disbursement Instructions provided by the Bond Fund Trustee.
Section 2.3.      Allocation of Purchase Price for Tax Purposes . The Purchase Price shall be allocated among the Purchased Assets as of the Closing in accordance with a schedule to be prepared by Purchaser, using the allocation method provided by Section 1060 of the Code and the regulations thereunder. The consent of Seller under this Section shall not be a condition to the Closing. The Parties shall cooperate to comply with all substantive and procedural requirements of Section 1060 of the Code and the regulations thereunder, and except for any adjustment to the Purchase Price, the allocation shall be adjusted only if and to the extent necessary to comply with such requirements. Purchaser and Seller agree that they will not take nor will they permit any Affiliate to take, for income Tax purposes, any position inconsistent with such allocation; provided, however , that (i) Purchaser’s cost may differ from the total amount allocated hereunder to reflect the inclusion in the total cost of items (for example, capitalized acquisition expenses) not included in the total amount so allocated, and (ii) the amount realized by Seller may differ from the amount allocated to reflect transaction costs that reduce the amount realized for federal income Tax purposes. Transfer Taxes on the Deeds shall be calculated based on such allocation.
Section 2.4.      The Closing . The closing of the transactions contemplated herein (the “ Closing ”) will take place at Purchaser’s offices in Charlotte, North Carolina (or such other location agreed to by the Parties), at 10:00 a.m. local time on the date as soon as practicable (but in no event longer than 10 Business Days) after all conditions to the Closing set forth in Section 5.1 and Section 5.2 have been satisfied or waived. The Closing shall be deemed effective as of 12:01 A.M. Charlotte, North Carolina time on the Closing Date.
2.4.1.      Closing .
(a)      At the Closing, Purchaser shall (i) pay the Purchase Price in accordance with Section 2.2 and (ii) execute (as applicable) and deliver the following items to Seller:
(i)      a termination agreement in substantially the form and substance of Exhibit C attached hereto (the “ Plants Agreements Termination Agreement ”), pursuant to which the Parties shall terminate the Plants Agreements effective as of the Closing;
(ii)      the Required Consents obtained as of Closing to the extent Purchaser is the recipient or grantee thereof;
(iii)      a certificate of good standing (or equivalent certification) with respect to Purchaser issued within thirty (30) days prior to the Closing Date by the Secretary of State of the State of North Carolina;
(iv)      copies, certified by the Secretary or Assistant Secretary of Purchaser, of resolutions of Purchaser’s Board of Directors authorizing the execution and delivery of this Agreement and all of the other agreements and instruments, in each case, to be executed and delivered by Purchaser in connection herewith;
(v)      a certificate of the Secretary or Assistant Secretary of Purchaser identifying the name and title and bearing the signatures of the officers of Purchaser authorized to execute and deliver this Agreement and the other agreements and instruments contemplated hereby ; and
(vi)      a certificate addressed to Seller dated as of the Closing Date executed by a duly authorized officer of Purchaser to the effect that the conditions set forth in Section 5.2.1 and Section 5.2.2 have been satisfied by Purchaser.
(b)      At the Closing, Seller shall execute (as applicable) and deliver or cause to be delivered the following items to Purchaser:
(i)      documentation, in form and substance satisfactory to Purchaser, required to vest full, complete and valid title in Purchaser in and to all right, title and interest of Seller in the Nuclear Decommissioning Trust Funds, and all proceeds and rights contained therein;
(ii)      a bill of sale in substantially the form of Exhibit D attached hereto (the “ Bill of Sale ”);
(iii)      special warranty deeds in substantially the form of Exhibit E attached hereto (the “ Deeds ”) and any other documents necessary to convey all of Seller’s right, title and interest in and to Seller’s Interests;
(iv)      the Plants Agreements Termination Agreement;
(v)      the Required Consents obtained as of Closing to the extent Seller is the recipient or grantee thereof;
(vi)      the Disbursement Instructions;
(vii)      payoff or release letters (or such other instruments satisfactory to Purchaser) providing for the release of any Liens (other than Permitted Liens) on the Purchased Assets;
(viii)      a certificate, duly completed and executed by Seller, certifying that Seller is not a foreign Person. Such certificate shall be substantially in the form of the sample set forth in Treasury Regulation Section 1.1445-2(b)(2)(iv)(B);
(ix)      a certificate of existence with respect to Seller, issued within thirty (30) days prior to the Closing Date, issued by the Secretary of State of the State of North Carolina;
(x)      copies, certified by the Secretary or Assistant Secretary of Seller, of resolutions of Seller’s Board of Directors authorizing the execution and delivery of this Agreement and all of the other agreements and instruments, in each case, to be executed and delivered by Seller in connection herewith;
(xi)      a certificate of the Secretary or Assistant Secretary of Seller identifying the name and title and bearing the signatures of the officers of Seller authorized to execute and deliver this Agreement and the other agreements and instruments contemplated hereby;
(xii)      a certificate addressed to Purchaser dated the Closing Date executed by a duly authorized officer of Seller to the effect that the conditions set forth in Section 5.1.1 and Section 5.1.2 have been satisfied by Seller;
(xiii)      copies of the termination agreements, in form and substance satisfactory to Purchaser and fully executed by Seller and each Participant (collectively, the “ Existing Participant Power Sales Agreement Termination Agreements ”), pursuant to which each Existing Participant Power Sales Agreement shall be terminated effective as of the Closing;
(xiv)      a completed Internal Revenue Service Form W-9 (Request for Taxpayer Identification Number and Certification) for Seller;
(xv)      $26,000,000 in immediately available funds (representing the Additional Decommissioning Funds being purchased from Seller by Purchaser) by wire transfer to an account designated by Purchaser prior to Closing; and
(xvi)      if requested by Purchaser, an assignment agreement, in form and substance reasonably satisfactory to Purchaser and Seller, assigning Seller’s right, title and interest in the Assigned Contracts to Purchaser.
Section 2.5.      Further Assurances . Subject to the terms and conditions of this Agreement, at any time or from time to time after the Closing, at either Party’s request and without further consideration, the other Party shall execute and deliver to such Party such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions as such Party may reasonably deem necessary or desirable in order more effectively (i) to transfer, convey and assign to Purchaser, and to confirm Purchaser’s title to, the Purchased Assets, (ii) to the full extent permitted by Law, to put Purchaser in actual possession of the Purchased Assets, and (iii) otherwise to consummate the transactions contemplated by this Agreement
Section 2.6.      Withholding . Purchaser shall be entitled to deduct and withhold from any amount otherwise payable to Seller pursuant to this Agreement such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of applicable Law. If any amount is so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to Seller.
Article III     

REPRESENTATIONS AND WARRANTIES
Section 3.1.      Representations and Warranties of Seller . Except as specifically set forth in Seller’s Disclosure Schedule attached hereto as Schedule 3.1, Seller hereby represents and warrants to Purchaser that all of the statements contained in this Section 3.1 are true and correct as of the Effective Date. Each exception and other response to this Agreement set forth in Seller’s Disclosure Schedule is identified by reference to, or has been grouped under a heading referring to, a specific individual section of this Agreement, and, except as otherwise specifically stated with respect to such exception, relates only to such section.
3.1.4.      Existence . Seller is a joint agency and public body and body corporate and politic organized, validly existing under the Laws of the State of North Carolina, Seller has all requisite corporate power and authority to own, lease and operate its properties and to carry out its business as it is now being conducted, and is duly qualified in each jurisdiction in which the nature of its business or the ownership or leasing of its assets and properties makes such qualification necessary.
3.1.5.      Authority . Seller has full corporate power and authority to execute and deliver this Agreement and the Transaction Agreements to which it is or will be a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. Seller’s Board of Directors has the power and authority to bind Seller with respect to the execution and delivery of this Agreement (including any amendments hereto) and the Transaction Agreements (including any amendments thereto) to which Seller is or will be a party, and the performance by Seller of its obligations hereunder and thereunder, and Seller’s Board of Directors has approved the execution and delivery by Seller of this Agreement and the Transaction Agreements to which it is or will be a party, and the performance by Seller of its obligations hereunder and thereunder. Accordingly, the execution and delivery by Seller of this Agreement and the Transaction Agreements to which it is or will be a party, and the performance by Seller of its obligations hereunder and thereunder, have been duly and validly authorized by all required corporate action by Seller, and no other action on the part of Seller, its directors, commissioners, or Participants is necessary. Resolution No. R-8-95 adopted by the Board of Commissioners of Seller, effective as of July 11, 1995, was duly adopted by the Board of Commissioners and such resolution remains effective. Resolution No. R-8-95 has been amended by Resolution Nos. EAR-3-96, EAR-2-01, EAR-5-04 and EAR-1-09, adopted on August 9. 1996, May 2, 2001, December 15, 2004 and January 28, 2009, respectively, and a true and accurate copy of Resolution No. R-8-95, and each of the amendments, is attached to Section 3.1.2 of Seller’s Disclosure Schedule. A complete and accurate list of all Participants is set forth in Section 3.1.2 of Seller’s Disclosure Schedule.
3.1.6.      Binding Agreement . This Agreement and the Transaction Agreements to which Seller is or will be a party have been, or will be when delivered, duly executed and delivered by such Seller and, assuming due and valid authorization, execution and delivery thereof by Purchaser, this Agreement and the Transaction Agreements to which Seller is or will be a party are, or will be when delivered, valid and binding obligations of Seller enforceable against Seller in accordance with their terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws of general application affecting enforcement of creditors’ rights generally and (ii) to the extent that the availability of the remedy of specific performance or injunctive or other forms of equitable relief may be subject to equitable defenses or would be subject to the discretion of the court before which any proceeding therefor may be brought.
3.1.7.      No Conflicts . The execution and delivery by Seller of this Agreement does not, and the execution and delivery by Seller of the Transaction Agreements to which it is or will be a party, the performance by Seller of its obligations under this Agreement and such Transaction Agreements, and the consummation of the transactions contemplated hereby and thereby shall not:
(a)      conflict with or result in a violation or breach of any of the terms, conditions or provisions of Seller’s (i) bylaws or other applicable documents relating to the operation, governance or management of Seller, or (ii) articles of incorporation or other applicable organizational or charter documents relating to the creation of Seller;
(b)      assuming all of the Seller Required Consents have been obtained, result in a default, penalty, or any adjustment in required payments (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, deed of trust, indenture, license, agreement, lease or other instrument or obligation to which Seller is party or by which Seller or any of the Purchased Assets may be bound, except for such defaults, penalties or adjustments (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained in writing (true and correct copies of which waivers or consents have been furnished to Purchaser); or
(c)      assuming all of the Seller Required Consents have been obtained, conflict with or result in a violation or breach of any term or provision of any Law applicable to Seller or the Purchased Assets.
3.1.8.      Approvals and Filings . Except as set forth in Section 3.1.5 of Seller’s Disclosure Schedule (all items set forth on Section 3.1.5 , the “ Seller Required Consents ”), no consent, approval or action of, filing with or notice to any Governmental Authority or other Person by Seller is required in connection with the execution, delivery and performance by Seller of this Agreement or any of the Transaction Agreements to which it is or will be a party or the consummation of the transactions contemplated hereby or thereby.
3.1.9.      Legal Proceedings . There are no claims, actions, proceedings or investigations pending with respect to which Seller has received notice, has been served or entered an appearance or, to Seller’s Knowledge, threatened against Seller before any Governmental Authority that could reasonably be expected (i) to result in the issuance of an order restraining, enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated by this Agreement or any of the Transaction Agreements, (ii) to adversely affect the ownership, operation or maintenance of any of the Purchased Assets, (iii) result in a Lien on any of the Purchased Assets or (iv) individually or in the aggregate, to have a Material Adverse Effect. There are no outstanding judgments, rules, orders, writs, injunctions or decrees of any Governmental Authority relating specifically to Seller or the Purchased Assets.
3.1.10.      Compliance with Laws . Seller is not in violation of or in default in any material respect under any Law applicable to Seller or, to Seller’s Knowledge, the Purchased Assets. Except as set forth in Section 3.1.7 of Seller’s Disclosure Schedule, Seller has not received notification alleging that it is in violation of any Law applicable to Seller or the Purchased Assets.
3.1.11.      Title; Solvency . Except as set forth in Section 3.1.8 of Seller’s Disclosure Schedule, Seller has good and valid title to all of its properties and assets constituting the Purchased Assets other than Seller’s Interests and the Real Property (it being understood that the representations and warranties applicable to Seller’s Interests and the Real Property are set forth in Section 3.1.9 ), free and clear of all Liens except Permitted Liens. Seller is, and from the Effective Date until immediately following the Closing will be, Solvent.
3.1.12.      Real Property . Except as set forth in Section 3.1.9 of Seller’s Disclosure Schedule, Seller has good, valid and marketable fee simple title to Seller’s Interests and the Real Property, free and clear of all Liens other than Permitted Liens. Seller has not received notice of any action, litigation, condemnation or other proceeding of any kind with respect to or concerning Seller’s Interests or the Real Property, and none of the foregoing are pending, or to Seller’s Knowledge, threatened. Seller has not received any notice, and Seller does not have any Knowledge, that the Real Property (or any portion of it) is in violation of any applicable zoning, flood, building or other code, or any other legal requirement or private restriction. Other than Permitted Liens, there are no commitments to or agreements with any Governmental Authority affecting the use or ownership of Seller’s Interests or the Real Property.
3.1.13.      Indebtedness . Except as set forth in Section 3.1.10 of Seller’s Disclosure Schedule (which shall set forth the Indebtedness of Seller by series and amount thereof), Seller does not have any Indebtedness related to the Purchased Assets or for which the Purchased Assets have been pledged as collateral or pursuant to which the Purchased Assets are otherwise encumbered or subject to restriction on transfer.
3.1.14.      Contracts and Agreements . Except for the Plants Agreements and any agreements listed in Section 3.1.11 of Seller’s Disclosure Schedule, there are no agreements, indentures, security agreements, deeds of trust and other contracts relating to the development, design, construction, ownership, operation or maintenance of the Purchased Assets, to which Seller is a party. Section 3.1.11 of Seller’s Disclosure Schedule sets forth all agreements to which Seller is a party and to which Purchaser is not a party that are related to the sale or purchase of power. The Plants Agreements constitute lawful, valid and legally binding obligations of Seller, and are enforceable against Seller in accordance with their terms. Each Plants Agreement is in full force and effect and constitutes the entire agreement by and between the parties thereto, no party to any Plants Agreement has repudiated any provision thereof, and no fact, event or circumstance has occurred that constitutes, or could reasonably be expected to constitute, a default under any Plants Agreement.
3.1.15.      Permits . Section 3.1.12 of Seller’s Disclosure Schedule sets forth all Permits acquired or held by or in the name of Seller in connection with the ownership, operation, maintenance or use of the Purchased Assets (the “ Plants Permits ”). Seller is in compliance with each Plants Permit and Seller has not received notice of violation or noncompliance of any Plants Permit from any Governmental Authority or any other Person. Seller has not received any notice alleging that any such Plants Permit (i) is not in full force and effect, or (ii) is subject to any legal proceeding or to any unsatisfied condition that (A) is not reasonably expected to be satisfied or (B) if not satisfied could reasonably be expected to allow material modification or revocation thereof.
3.1.16.      Taxes .
(a)      Seller has filed or will file when due all Tax Returns that are required to be filed on or before the Closing Date with respect to the Purchased Assets and has paid or will pay in full all Taxes required to be paid with respect to the Purchased Assets; and (ii) such Tax Returns were prepared or will be prepared in the manner required by applicable Laws. Seller has not received any notice that any Taxes relating to any period prior to the Closing Date are owing that have not been paid on or before the Closing Date.
(b)      Seller has not extended or waived the application of any statute of limitations of any jurisdiction regarding the assessment or collection of any Tax of Seller with respect to the Purchased Assets.
(c)      None of the Purchased Assets are subject to any Liens for Taxes, other than Permitted Liens.
(d)      There are no audits, claims, assessments, levies, administrative or judicial proceedings pending, or to Seller’s Knowledge, threatened, proposed or contemplated with respect to the Purchased Assets by any Taxing Authority.
3.1.17.      Nuclear Decommissioning Funds . Seller funds the Nuclear Decommissioning Trust Funds and Additional Decommissioning Funds by making annual deposits to the same, which deposits are funded from Seller’s revenues derived from the sale of power and energy to its Participants. Section 3.1.14 of Seller’s Disclosure Schedule sets forth the value of each Nuclear Decommissioning Trust Fund as of December 31, 2013. As of Closing, Seller shall have deposited into the Nuclear Decommissioning Trust Funds, in accordance with and pursuant to the requirements, terms and conditions set forth in the Nuclear Decommissioning Trust and applicable Law and consistent with current and past practices, all amounts scheduled to be deposited therein from January 1, 2013 through the Closing Date as set forth in the DFA Report dated March 28, 2013 that was filed by Purchaser, on behalf of Seller, with the NRC for the calendar year ending December 31, 2012 (ADAMS Accession Number ML 13091A025). As of Closing, Seller shall have on deposit in the Additional Decommissioning Funds account $26,000,000 of Additional Decommissioning Funds. The Nuclear Decommissioning Trust Funds and the Additional Decommissioning Funds are the sole and exclusive trusts, funds or accounts in which Seller maintains any deposits or reserves for nuclear decommissioning costs, liabilities or expenses. Until Closing, Seller shall manage and invest the Nuclear Decommissioning Trust Funds in accordance with and pursuant to the requirements, terms and conditions set forth in the Nuclear Decommissioning Trust and applicable Law and consistent with current and past practices.
3.1.18.      Brokers . All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Seller directly with Purchaser without the intervention of any Person on behalf of Seller in such manner as to give rise to any valid claim by any Person against Purchaser for a finder’s fee, brokerage commission or similar payment.
3.1.19.      Third Party Rights . There are no contracts or agreements (written or oral) with, or options, commitments or rights in favor of, any Person to directly or indirectly acquire any of the Purchased Assets.
3.1.20.      Payments . Seller has not, directly or indirectly, paid or delivered or agreed to pay or deliver any fee, commission or other sum of money or item of property, however characterized, to any Person that is in any manner related to Purchased Assets in violation of any Law. Neither Seller, nor any officer, director or employee of Seller, has received or, as a result of the consummation of the transactions contemplated hereby, will receive, any rebate, kickback or other improper or illegal payment from any Person.
3.1.21.      No Misstatements or Omissions . No representation or warranty made by Seller in this Agreement, and no statement contained in any certificate or schedule furnished or to be furnished by Seller pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading.
Section 3.2.      Representations and Warranties of Purchaser . Except as specifically set forth in Purchaser’s Disclosure Schedule attached hereto as Schedule 3.2, Purchaser hereby represents and warrants to Seller that all of the statements contained in this Section 3.2 are true and correct as of the Effective Date. Each exception and other response to this Agreement set forth in Purchaser’s Disclosure Schedule is identified by reference to, or has been grouped under a heading referring to, a specific individual section of this Agreement, and, except as otherwise specifically stated with respect to such exception, relates only to such section.
3.2.1.      Existence . Purchaser is a corporation, duly incorporated, validly existing and in good standing under the Laws of the State of North Carolina. Purchaser has all requisite corporate power and authority to own, lease and operate its properties and to carry out its business as it is now being conducted.
3.2.2.      Authority . Purchaser has full power and authority to execute and deliver this Agreement and the Transaction Agreements to which it is or will be a party, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Purchaser of this Agreement and the Transaction Agreements to which it is or will be a party, and the performance by Purchaser of its obligations hereunder and thereunder, have been duly and validly authorized by all required action by Purchaser, and no other action on the part of Purchaser is necessary.
3.2.3.      Binding Agreement . This Agreement and the Transaction Agreements to which Purchaser is or will be a party have been, or will be when delivered, duly executed and delivered by Purchaser and, assuming due and valid authorization, execution and delivery thereof by Seller, this Agreement and the Transaction Agreements to which Purchaser is or will be a party are, or will be when delivered, valid and binding obligations of Purchaser, enforceable against Purchaser in accordance with their terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws of general application affecting enforcement of creditors’ rights generally and (ii) the availability of the remedy of specific performance or injunctive or other forms of equitable relief may be subject to equitable defenses and would be subject to the discretion of the court before which any proceeding therefor may be brought.
3.2.4.      No Conflicts . The execution and delivery by Purchaser of this Agreement do not, and the execution and delivery by Purchaser of the Transaction Agreements to which it is or will be a party, the performance by Purchaser of its obligations under this Agreement and such Transaction Agreements and the consummation of the transactions contemplated hereby and thereby shall not:
(a)      conflict with or result in a violation or breach of any of the terms, conditions or provisions of Purchaser’s articles of incorporation or bylaws;
(b)      result in a default, penalty, or any adjustment in required payments (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, deed of trust, indenture, license, agreement, lease or other instrument or obligation to which Purchaser is a party or by which Purchaser or any of its assets and properties may be bound, except for such defaults, penalties or adjustments (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or that would not materially and adversely impact Purchaser’s ability to perform its obligations under this Agreement or the Transaction Agreements to which it is or will be a party; or
(c)      assuming the Purchaser Required Consents have been obtained, conflict with or result in a violation or breach of any term or provision of any Law applicable to Purchaser or any of its assets and properties, except with respect to any violations or breaches that would not materially and adversely impact Purchaser’s ability to perform its obligations under this Agreement or the Transaction Agreements to which it is or will be a party.
3.2.5.      Approvals and Filings . Except as set forth in Section 3.2.5 of Purchaser’s Disclosure Schedule (all items set forth on Section 3.2.5 , the “ Purchaser Required Consents ”), no consent, approval or action of, filing with or notice to any Governmental Authority or other Person by Purchaser is required in connection with the execution, delivery and performance by Purchaser of this Agreement or any of the Transaction Agreements to which it is or will be a party or the consummation by Purchaser of the transactions contemplated hereby or thereby.
3.2.6.      Legal Proceedings . There are no claims, actions, proceedings or investigations pending or, to Purchaser’s Knowledge, threatened against Purchaser before any Governmental Authority that would reasonably be expected to result in the issuance of an order restraining, enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated by this Agreement or any of the Transaction Agreements.
3.2.7.      Brokers . All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Purchaser directly with Seller without the intervention of any Person on behalf of Purchaser in such manner as to give rise to any valid claim by any Person against Seller for a finder’s fee, brokerage commission or similar payment
3.2.8.      No Misstatements or Omissions . No representation or warranty made by Purchaser in this Agreement, and no statement contained in any certificate or schedule furnished or to be furnished by Purchaser pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading.

Article IV     

COVENANTS
Section 4.1.      Efforts to Close . After the Effective Date and prior to Closing:
4.1.9.      Required Consents; Other Covenants .
(a)      Each Party shall provide reasonable cooperation to the other Parties in obtaining consents, approvals or actions of, making all filings with and giving all notices to Governmental Authorities or other Persons required of the other Party in connection with obtaining any Required Consents with respect to the transactions contemplated hereby and by the Transaction Agreements, including the following:
(i)      As soon as practicable following the completion of the preparation of the applicable filing materials and supporting documentation to the satisfaction of Purchaser, as determined in Purchaser’s sole discretion, Purchaser shall file with the FERC all documents reasonably required to obtain the FERC 203 Approval, the FERC 205 Approvals and the FERC Accounting Approval. Seller shall take all actions reasonably requested by Purchaser to support such filings and any related proceedings, including filing any supporting memoranda or other documents with the FERC related to such filings and any related proceedings; and
(ii)      As soon as practicable following the Effective Date, Purchaser shall file with the NRC all documents reasonably required to obtain the NRC Approvals.
(b)      The Parties shall furnish to each other’s counsel such necessary information and assistance as the other Party may request in connection with its preparation of any such filing or submission that is necessary to obtain the foregoing consents, approvals or actions. The Parties shall consult with each other as to the appropriate time of making such filings and submissions and shall make such filings and submissions at the agreed upon time. The Parties shall keep each other apprised of the status of any communications with and any inquiries or requests for additional or supplemental information from applicable Governmental Authorities and shall provide any such additional or supplemental information that may be reasonably requested in connection with any such filings or submissions.
4.1.10.      Fulfillment of Conditions .
(a)      Each Party shall use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under Law to consummate and make effective the purchase, sale, assignment, conveyance, transfer and delivery of the Purchased Assets and the assumption of the Assumed Liabilities pursuant to this Agreement. Such actions shall include each Party using its commercially reasonable efforts to ensure satisfaction of the conditions precedent to its obligations hereunder, including, (i) with respect to Purchaser, initiating commercially reasonable efforts to (A) secure passage of the North Carolina Legislation at such time following the Effective Date deemed appropriate by Purchaser (as determined in Purchaser’s sole discretion) and (B) procure the NCUC Rate Approvals as soon as practicable following the date the North Carolina Legislation is enacted into Law, (ii) with respect to Seller, initiating commercially reasonable efforts to (A) secure passage of the Bond Legislation concurrently with (and in no event before) Purchaser’s efforts to secure passage of the North Carolina Legislation and (B) procure the Municipalities’ Consent as soon as practicable following the date the Bond Legislation is enacted into Law, and (iii) with respect to Purchaser and Seller, jointly filing with the NCUC all documents reasonably required to obtain the NCUC Approval at such time following the Effective Date deemed appropriate by Purchaser (as determined in Purchaser’s sole discretion). The Parties shall consult on and coordinate all principal activities, procurement efforts, meetings, submissions and filings undertaken or made, as applicable, by Purchaser and Seller to the North Carolina General Assembly in connection with the North Carolina Legislation and the Bond Legislation and the NCUC in connection with the NCUC Approval. In no event shall (x) Purchaser, with respect to the North Carolina Legislation, include in the draft of such legislation introduced on behalf of Purchaser for approval by the North Carolina General Assembly any subject matter other than that which is necessary, as determined in Purchaser’s sole discretion, to (i) make the transactions contemplated by this Agreement economically viable for Purchaser and Purchaser’s stakeholders or (ii) otherwise facilitate the consummation of the transactions contemplated by this Agreement, or (y) Seller, with respect to the Bond Legislation, include in the draft of such legislation introduced on behalf of Seller for approval by the North Carolina General Assembly any subject matter other than that which is necessary, as determined in Seller’s sole discretion, to (i) permit Seller to issue bonds to refinance existing Indebtedness of Seller outstanding under the Bond Resolution and attributable to the Seller’s Interest that cannot be repaid (or its payment provided for) with that portion of the Purchase Price described in Section 2.2.1(a) of this Agreement or other funds available to Seller or (ii) otherwise facilitate the consummation of the transactions contemplated by this Agreement. Neither Purchaser nor Seller shall be deemed to have violated their respective covenants set forth in the immediately preceding sentence in the event that, during the legislative process, any other Person (other than on behalf of Purchaser or Seller) introduces additional subject matter or material beyond that described in the immediately preceding sentence to the North Carolina Legislation or the Bond Legislation, as applicable.
(b)      Each Party shall give notice to the other promptly after becoming aware of (i) the occurrence or non-occurrence of any event whose occurrence or nonoccurrence would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at any time from the Effective Date hereof to the Closing Date and (ii) any failure of a Party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder.
Section 4.2.      Preservation of Purchased Assets .
(c)      After the Effective Date and prior to Closing, (i) Seller shall preserve and maintain those of the Purchased Assets described in Sections 2.1.1(c) and (f) ; and (ii) Seller shall fulfill its obligations under the Plants Agreements in the usual and ordinary course of business.
(d)      After the Effective Date and prior to Closing Seller shall, and shall cause its Related Persons (including ElectriCities and any of ElectriCities’ Related Persons) to, (i) continue to operate its business and affairs in the ordinary course of business, consistent with past practices, including maintaining the Nuclear Decommissioning Trusts as required by the applicable trust documentation in effect as of the Effective Date and otherwise consistent with all Laws and (ii) contribute all necessary funds to the Additional Decommissioning Funds, and take all other actions necessary in connection therewith, to cause there to be $26,000,000 of Additional Decommissioning Funds as of Closing.
(e)      Except to the extent expressly contemplated by this Agreement, without the prior written consent of Purchaser (which Purchaser may withhold in its sole discretion), after the Effective Date and prior to Closing, Seller shall not, and shall cause its Related Persons (including ElectriCities and any of ElectriCities’ Related Persons) not to: (i) distribute, disburse, dispose of, sell, lease, transfer, pledge, assign or encumber, or incur or permit to exist any Lien (other than a Permitted Lien) on, any of the Purchased Assets, including (A) any disbursements of funds from the Nuclear Decommissioning Trusts or (B) any disbursement of Additional Decommissioning Funds that would result in there being less than $26,000,000 of Additional Decommissioning Funds as of Closing; (ii) amend its certificate of incorporation, bylaws or any other documents or instruments relating to the operation, governance, management or creation of Seller; (iii) take any action that alters the regulatory status of Seller or the Purchased Assets; (iv) take any action that could result in a loss, in whole or in part, of the authority of Seller’s Board of Directors, or fail to take any action that could prevent any such loss of authority, to (A) legally bind Seller and (B) take all actions necessary or desirable on behalf of Seller to consummate the transactions contemplated by this Agreement; (v) take any action that adversely affects the Purchased Assets or impairs the ability of the Parties to consummate the transactions contemplated by this Agreement, or fail to take any action that could prevent the same; (vi) enter into any agreement or commitment to do or engage in any of the foregoing; or (vii) enter into any discussions or negotiations with any Person (other than Purchaser and its Related Persons) or provide any information to any Person (other than Purchaser and its Related Persons) in furtherance of any of the foregoing.
Section 4.3.      Notification . Seller shall update, amend, modify or add additional sections to Seller’s Disclosure Schedule, as applicable (each, a “ Disclosure Update ”) between the Effective Date and the Closing Date (the “ Update Period ”) to reflect any (a) matter, fact, circumstance or event first arising after the Effective Date that, if had it existed on the Effective Date, would have been required to be set forth in Seller’s Disclosure Schedule as of the Effective Date, or (b) any matter, fact, circumstance or event becoming known to Seller during the Update Period that arose prior to the Effective Date that was required to be set forth in Seller’s Disclosure Schedule as of the Effective Date but was omitted (each item identified pursuant to this clause (b), a “ Pre-Execution Update ”). Such Disclosure Update shall be in the form of an amendment or supplement to Seller’s Disclosure Schedule specifying the section or sections of Seller’s Disclosure Schedule to be updated thereby.  If any Disclosure Update, standing on its own or taken together with any prior Disclosure Updates, discloses any matter, fact, circumstance or event that constitutes a material breach or inaccuracy of any representation or warranty of Seller, then Purchaser may terminate this Agreement if (x) Purchaser delivers written notice of termination to Seller not later than thirty (30) days following Purchaser’s receipt of the Disclosure Update, and (y) Seller fails to cure such material breach or inaccuracy within thirty (30) following Seller’s receipt of such termination notice from Purchaser, with the effective date of termination being the expiration of such thirty (30) day cure period.  If Purchaser does not, in the case of any such Disclosure Update that give Purchaser the right to terminate the Agreement as set forth in the immediately preceding sentence, deliver any such written notice of termination to Seller within such thirty (30) day period, Purchaser shall be deemed to have forever waived its right to terminate this Agreement pursuant to Section 6.1(b) solely with respect to such Disclosure Update. If the Closing occurs, then with respect to any Pre-Execution Update, the representations and warranties of Seller contained in Article III shall not be deemed to have been qualified by such Pre-Execution Update, and the information contained in such Pre-Execution Update shall not be deemed to have cured any breach of any such representation or warranty contained in Article III, and Purchaser shall have the right to seek indemnification from Seller for any Losses arising out of or resulting from such breach in accordance with Article VII.
Section 4.4.      Tax Matters .
(d)      Notwithstanding any other provision of this Agreement, all applicable sales, transfer, use, stamp, conveyance, value added, excise, and other similar Taxes, if any, and other similar costs of Closing, that may be imposed upon, or payable, collectible or incurred in connection with the transfer of the Purchased Assets to Purchaser or otherwise as a result of the transfer of the Purchased Assets (“ Transfer Taxes ”) shall be borne solely by Seller; provided, however, that all recording or filing fees payable in connection with the recording or filing of the transfer of record of the Purchased Assets to Purchaser in the appropriate public registries shall be paid by Purchaser. Seller, at its own expense, will file, to the extent required by applicable Law, all necessary Tax Returns and other documentation with respect to all such Transfer Taxes, and if required by applicable Law, Purchaser will join in the execution of any such Tax Returns or other documentation.
(e)      With respect to Taxes to be prorated in accordance with Section 2.2.2 , Purchaser shall prepare and timely file all Tax Returns required to be filed after the Closing with respect to the Purchased Assets, if any, and shall duly and timely pay all such Taxes shown to be due on such Tax Returns. Purchaser’s preparation of any such Tax Returns that are material shall be subject to Seller’s approval, which shall not be unreasonably withheld, conditioned or delayed. Purchaser shall make such Tax Returns available for Seller’s review and approval not later than 15 Business Days prior to the due date for filing such Tax Return and shall make such changes as are reasonably requested by Seller. Within 10 Business Days after Purchaser’s payment of such Taxes, Seller shall pay to Purchaser, or Purchaser shall pay to Seller, as appropriate, the difference between (i) Seller’s proportionate share of the amount shown as due on such Tax Return determined in accordance with Section 2.2.2 and (ii) the amount paid by Seller at the Closing Date pursuant to Section 2.2.2 .
(f)      Seller and Purchaser shall provide the other with such assistance as may reasonably be requested in connection with the preparation of any Tax Return, any audit or other examination by any Taxing Authority, or any judicial or administrative proceedings relating to Liability for Taxes, and each will retain and provide the requesting Party with any records or information that may be relevant to such return, audit, or examination, proceedings or determination. Any information obtained pursuant to this Section 4.4 or pursuant to any other Section hereof providing for the sharing of information or review of any Tax Return or other schedule relating to Taxes shall be kept confidential by the Parties.
(g)      Purchaser shall remit to Seller any refund or credit of Taxes, if and when actually received by Purchaser, to the extent such Taxes are attributable to any taxable period, or portion thereof, ending on or before the Closing Date and were paid by Seller to the applicable Taxing Authority or to Purchaser pursuant to this Agreement.
(h)      Any payment by Purchaser or Seller to the other pursuant to this Section 4.4 shall be treated for all purposes by both Parties as an adjustment to the Purchase Price, to the maximum extent permitted by Law.
(i)      In the event that a dispute arises between Seller and Purchaser regarding Taxes or any amount due under this Section 4.4 , the Parties shall attempt in good faith to resolve such dispute and any agreed upon amount shall be paid to the appropriate Party. If such dispute is not resolved within 30 days, the Parties shall submit the dispute to the Independent Accounting Firm for resolution within 30 days thereafter, which resolution shall be final, conclusive and binding on the Parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of the Independent Accounting Firm in resolving the dispute shall be borne by Purchaser, on the one hand, and Seller, on the other hand, in inverse proportion as they may prevail on matters resolved by the Independent Accounting Firm, which proportionate allocations shall also be determined by the Independent Accounting Firm at the time its determination on the merits of the matters submitted is rendered. Any payment required to be made as a result of the resolution of the dispute by the Independent Accounting Firm shall be made within 10 days after such resolution as required for the applicable Tax.
Section 4.5.      Access to Information . From the Effective Date until the Closing, Seller shall afford to Purchaser and its Related Persons, reasonable access to all their respective books, contracts, commitments, personnel, records, properties, offices and other facilities related to the Purchased Assets and, during such period, Seller shall furnish promptly to Purchaser all available information concerning the Purchased Assets as Purchaser may reasonably request; provided , however , that any such investigation shall be conducted during normal business hours upon reasonable advance notice to Seller, under the supervision of Seller’s personnel (to the extent such investigation is conducted on the premises of Seller) and in such a manner as not to materially interfere with the normal operations of Seller; provided , further , that Seller may withhold (a) any document or information if not doing so would result in a loss of the ability to successfully assert the attorney-client privilege, provided that in each case Seller shall use commercially reasonable efforts to disclose the pertinent information contained therein in a manner so that such privilege is maintained or (b) such portions of documents or information relating to matters that are highly sensitive if the exchange of such documents (or portions thereof) or information, as determined by Seller’s outside counsel, would reasonably be expected to result in violation of antitrust Laws, provided that Seller has used reasonable efforts to maximize the delivery of such information.
Section 4.6.      Spare Parts Inventory . From the Effective Date until the Closing, Purchaser shall maintain inventory levels of spare parts of the Plants and any related support facilities, including equipment, tools, goods and supplies, in the ordinary course of business, and shall not engage in any adverse distinction or undue discrimination against the Plants, including, but not limited to, the build-up of Spare Parts Inventory to levels that are not consistent with practices at other generating facilities owned and operated by Purchaser.
Section 4.7.      PE Pension Plan . Purchaser maintains the Progress Energy Pension Plan (the “ PE Pension Plan ”), which provides retirement benefits to certain current and former employees of the Plants. Seller is obligated under the OFA to pay its properly allocable ownership portion of certain costs associated with operating, administering and funding the PE Pension Plan, including, but not limited to, Service Costs and benefit funding expenses.
(a)      From the Effective Date through the Closing Date, Seller shall, in accordance with the OFA, pay Purchaser the lesser of (i) its properly allocable ownership portion of the Service Costs, or (ii) Seller’s properly allocable ownership portion of the actual contributions made to the PE Pension Plan by Purchaser.
(b)      In the event that on the last day of the plan year immediately preceding the Closing Date the PE Pension Plan’s funding status, as determined by the actuarial report performed for the PE Pension Plan for that plan year by the PE Pension Plan’s independent actuarial consultants, in a manner consistent with past practices, was below 100%, the Seller shall, within thirty (30) days prior to the Closing Date, pay Purchaser an amount equal to Seller’s properly allocable ownership portion of the aggregate contribution required to return the PE Pension Plan to 100% funded status as of the last day of the plan year preceding the Closing Date (such amount, the “ Catch-Up Pension Contribution ”). Notwithstanding the foregoing, in the event that the actuarial report for the plan year immediately preceding the Closing Date is incomplete as of the Closing Date, Seller shall pay Purchaser Seller’s Catch-Up Pension Contribution within thirty (30) days following receipt of written notice from Purchaser of the actuarial report’s finding with respect to the applicable year end funding level and an assessment of Seller’s properly allocable ownership portion of contributions required to return the PE Pension Plan to 100% funded status.
(c)      In the event that this Agreement is terminated in accordance with Section 6.1 , Seller shall, within thirty (30) days of the termination, pay Purchaser an amount equal to (x) Seller’s properly allocable ownership portion of all PE Pension Plan expenses pursuant to the OFA minus (y) amounts actually paid in accordance with Section 4.7(a) above.
Article V     

CONDITIONS TO CLOSING
Section 5.1.      Purchaser’s Conditions Precedent . The obligations of Purchaser hereunder to execute or deliver the items it is required to deliver pursuant to Section 2.4.1(a) are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by Purchaser in its sole discretion):
5.1.2.      Representations and Warranties . Each of the representations and warranties made by Seller in this Agreement that are qualified as to materiality or Material Adverse Effect shall be true and correct on and as of the Closing Date as though made on and as of the Closing Date. Each of the representations and warranties made by Seller in this Agreement that are not qualified as to materiality or Material Adverse Effect shall be true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date.
5.1.3.      Performance . Seller shall have performed and complied with the agreements, covenants and obligations required by this Agreement to be so performed or complied with by Seller at or before the Closing Date.
5.1.4.      Law . There shall not be in effect at the Closing Date any preliminary or permanent injunction or other order or decree by any federal or state court which prevents the consummation of the transactions contemplated by this Agreement or any Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated by this Agreement.
5.1.5.      NCUC Approval . The NCUC Approval shall have been duly obtained and be in full force and effect, shall not have been reversed, stayed, enjoined, set aside, annulled or suspended, and shall not have imposed or required any condition or modification unacceptable to Purchaser.
5.1.6.      FERC 203 Approval . The FERC 203 Approval shall have been duly obtained and be in full force and effect, shall not have been reversed, stayed, enjoined, set aside, annulled or suspended, and shall not have imposed or required any condition or modification unacceptable to Purchaser.
5.1.7.      FERC 205 Approvals . The FERC 205 Approvals shall have been duly obtained and be in full force and effect, shall not have been reversed, stayed, enjoined, set aside, annulled or suspended, and shall not have imposed or required any condition or modification unacceptable to Purchaser.
5.1.8.      FERC Accounting Approval . The FERC Accounting Approval shall have been duly obtained and be in full force and effect, shall not have been reversed, stayed, enjoined, set aside, annulled or suspended, and shall not have imposed or required any condition or modification unacceptable to Purchaser.
5.1.9.      NRC Approvals . The NRC Approvals shall have been duly obtained and be in full force and effect, shall not have been reversed, stayed, enjoined, set aside, annulled or suspended, and shall not have imposed or required any condition or modification unacceptable to Purchaser.
5.1.10.      Required Consents . Purchaser shall have received evidence reasonably satisfactory to Purchaser that, in addition to the NCUC Approvals, the FERC 203 Approval, the FERC 205 Approvals, the FERC Accounting Approval and the NRC Approvals, all other Required Consents have been duly obtained and are in full force and effect, shall not have been reversed, stayed, enjoined, set aside, annulled or suspended, and shall not have imposed or required any condition or modification unacceptable to Purchaser.
5.1.11.      Plant Permits . Purchaser shall have received evidence reasonably satisfactory to Purchaser that all Plant Permits have, or promptly following Closing will be, transferred to Purchaser without any condition or modification thereof unacceptable to Purchaser.
5.1.12.      Municipalities’ Consent . The Municipalities’ Consent shall have been duly obtained and be in full force and effect, shall not have been reversed, stayed, enjoined, set aside, annulled or suspended, and shall not have imposed or required any condition or modification unacceptable to Purchaser.
5.1.13.      State Rate Approvals . The North Carolina Legislation, the NCUC Rate Approvals, the South Carolina Legislation and the PSCSC Rate Approvals shall each have been procured and remain in full force and effect and shall not have been reversed, stayed, enjoined, set aside, annulled or suspended, and shall not have imposed or required any condition or modification unacceptable to Purchaser.
5.1.14.      Full Requirements Power Sales Agreements . Each Participant shall have entered into a Full Requirements Power Sales Agreement (each, a “ Full Requirements Power Sales Agreement ”), incorporating the terms and conditions stipulated or required in the Full Requirements Power Purchase Agreement and otherwise in form and substance reasonable satisfactory to Purchaser, pursuant to which Seller agrees to sell to each such Participant and each such Participant agrees to purchase from Seller, such Participant’s full requirements bulk power supply, and no such Full Requirements Power Sales Agreement shall have been modified, amended or changed in a manner unacceptable to Purchaser.
5.1.15.      Debt Service Support Contracts . Each Participant shall have entered into a Debt Service Support Contract (each, a “ Debt Service Support Contract ”), pursuant to which Seller agrees to issue bonds to refinance Seller’s existing Indebtedness outstanding under the Bond Resolution and attributable to the Seller’s Interest and each Participant agrees to fix, charge and collect rates, fees and charges for service to the customers of its electric system at least sufficient to provide revenues adequate to meet its obligations under the Debt Service Support Contract and the Full Requirements Power Sales Agreement.
5.1.16.      Full Requirements Power Purchase Agreement . The Full Requirements Power Purchase Agreement shall have been executed by each of Purchaser and Seller, and the term of the Full Requirements Power Purchase Agreement shall not have expired or otherwise been validly terminated thereunder (nor shall notice of any such termination have been issued by either Purchaser or Seller in accordance with the terms thereof).
5.1.17.      Deliveries . Seller shall have executed and delivered to Purchaser the items set forth in Section 2.4.1(b).
5.1.18.      Condition of Plants . There shall not have been or occurred, since the Effective Date, any material damage, destruction or loss (whether or not covered by insurance) with respect to any of the Plants, including all real and personal property constituting all or a part of the same.
5.1.19.      Seller’s Indebtedness . Contingent only upon the disbursement of that portion of the Purchase Price described in Section 2.2.1(a) to the Escrow Deposit and/or Refunding Trust Fund pursuant to the Disbursement Instructions, all of Seller’s Indebtedness outstanding under the Bond Resolution and attributable to the Seller’s Interest shall have been fully defeased and is no longer outstanding under the Bond Resolution.
5.1.20.      Material Adverse Effect . There shall not have been or occurred, since the Effective Date, any event, occurrence or circumstance that would reasonably be expected to result in or give rise to a Material Adverse Effect.
Section 5.2.      Seller’s Conditions Precedent . The obligations of Seller hereunder to execute or deliver the items it is required to deliver pursuant to Section 2.4.1(b) are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by Seller in its sole discretion):
5.2.1.      Representations and Warranties . Each of the representations and warranties made by Purchaser in this Agreement that are qualified by materiality or Material Adverse Effect shall be true and correct on and as of the Closing Date as though made on and as of the Closing Date. Each of the representations and warranties made by Purchaser in this Agreement that are not qualified by materiality or Material Adverse Effect shall be true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date.
5.2.2.      Performance . Purchaser shall have performed and complied with the agreements, covenants and obligations required by this Agreement to be so performed or complied with by Purchaser at or before the Closing Date.
5.2.3.      Law . There shall not be in effect at the Closing Date any preliminary or permanent injunction or other order or decree by any federal or state court which prevents the consummation of the transactions contemplated by this Agreement or any Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated by this Agreement.
5.2.4.      NRC Approvals . The NRC Approvals shall have been duly obtained and be in full force and effect and shall not have been reversed, stayed, enjoined, set aside, annulled or suspended.
5.2.5.      Bond Legislation . The Bond Legislation shall have been enacted into Law and remain in full force and effect without amendment or modification unacceptable to Seller.
5.2.6.      Municipalities’ Consent . The Municipalities’ Consent shall have been duly obtained and be in full force and effect, shall not have been reversed, stayed, enjoined, set aside, annulled or suspended.
5.2.7.      Full Requirements Power Sales Agreements . Each Participant shall have entered into a new Full Requirements Power Sales Agreement, incorporating the terms and conditions stipulated or required in the Full Requirements Power Purchase Agreement and otherwise in form and substance reasonable satisfactory to Seller, pursuant to which Seller agrees to sell to each such Participant and each such Participant agrees to purchase from Seller, such Participant’s all-requirements bulk power supply, and no such Full Requirements Power Sales Agreement shall have been modified, amended or changed in a manner unacceptable to Seller.
5.2.8.      Debt Service Support Contract . Each Participant shall have entered into a Debt Service Support Contract pursuant to which Seller agrees to issue bonds to refinance Seller’s existing Indebtedness outstanding under the Bond Resolution and attributable to the Seller’s Interest and each Participant agrees to fix, charge and collect rates, fees and charges for service to the customers of its electric system at least sufficient to provide revenues adequate to meet its obligations under the Debt Service Support Contract and the Full Requirements Power Sales Agreement.
5.2.9.      Full Requirements Power Purchase Agreement . The Full Requirements Power Purchase Agreement shall have been executed by each of Purchaser and Seller, and the term of the Full Requirements Power Purchase Agreement shall not have expired or otherwise been validly terminated thereunder (nor shall notice of any such termination have been issued by either Purchaser or Seller in accordance with the terms thereof).
5.2.10.      Deliveries . Purchaser shall have executed and delivered to Seller the items set forth in Section 2.4.1(a) .
5.2.11.      Seller’s Indebtedness . Contingent only upon the disbursement of that portion of the Purchase Price described in Section 2.2.1(a) to the Escrow Deposit and/or Refunding Trust Fund pursuant to the Disbursement Instructions, all of Seller’s Indebtedness outstanding under the Bond Resolution and attributable to the Seller’s Interest shall have been fully defeased and is no longer outstanding under the Bond Resolution
5.2.12.      Material Adverse Effect . There shall not have been or occurred, since the Effective Date, any event, occurrence or circumstance that would reasonably be expected to result in or give rise to a material adverse effect with respect to Purchaser’s ability (a) to consummate the transactions contemplated by this Agreement or (b) perform its obligations under the Full Requirements Power Purchase Agreement in all material respects.
Article VI     

TERMINATION
Section 6.1.      Termination Prior to Closing . This Agreement may be terminated, and the transactions contemplated hereby may be abandoned:
(a)      at any time before the Closing, by Seller or Purchaser upon notice to the other, in the event that any Law becomes effective restraining, enjoining, or otherwise prohibiting or making illegal the consummation of the transactions contemplated by this Agreement;
(b)      at any time before the Closing, by Seller or Purchaser upon notice to the other, in the event (i) of a breach hereof by the non-terminating Party (or Parties, as applicable) that would reasonably be expected to give rise to a Material Adverse Effect, if the non-terminating Party (or Parties, as applicable) fails to cure such breach within 30 days following notification thereof by the terminating Party (or Parties, as applicable); or (ii) any condition to such Party’s (or Parties’, as applicable) obligations under this Agreement (other than the payment of money hereunder) becomes impossible or impracticable to satisfy with the use of commercially reasonable efforts, so long as such impossibility or impracticability is not caused by a breach hereof by such Party (or Parties, as applicable);
(c)      at any time before the Closing, by Purchaser in accordance with Section 4.3 ;
(d)      by Purchaser upon written notice to Seller at any time following the date that falls 3 months after the date that the Bond Legislation is enacted into Law (the “ Municipalities’ Consent Outside Date ”), if the Municipalities’ Consent is not obtained on or prior to the Municipalities’ Consent Outside Date; or
(e)      at any time following December 31, 2016 (the “ Outside Date ”), by Seller or Purchaser upon notice to the other if the Closing shall not have occurred on or before such date and such failure to consummate is not caused by a breach of this Agreement by the terminating Party, provided, however, that the Outside Date may be extended by mutual written agreement of the Parties.
Section 6.2.      Effect of Termination or Breach Prior to Closing . If this Agreement is validly terminated pursuant to Section 6.1, this Agreement shall terminate and the transactions contemplated hereby shall be abandoned without further action by the Parties hereto. If the Agreement is validly terminated as provided herein, (a) there shall be no liability or obligation on the part of Seller or Purchaser, except that the provisions of ARTICLE VII and this Section 6.2 shall continue to apply following any such termination, and (b) all filings, applications and other submissions made pursuant to this Agreement, to the extent practicable, shall be withdrawn from the Governmental Authority or other Person to which they were made. Notwithstanding any other provision in this Agreement to the contrary, if this Agreement is validly terminated by Purchaser or Seller pursuant to Section 6.1(b)(i) or by Purchaser pursuant to Section 6.1(c) , then the terminating Party may exercise such remedies as may be available at law or in equity with respect to the breach precipitating such termination.
Article VII     

SURVIVAL; INDEMNIFICATION
Section 7.1.      Survival . The representations and warranties of Seller and Purchaser contained in this Agreement shall survive the Closing and shall expire on the date that is three (3) years after the Closing Date. Notwithstanding the preceding sentence, the representations and warranties contained in Sections 3.1.1, 3.1.2, 3.1.3, 3.1.8, 3.1.9, 3.1.12, 3.1.13, 3.1.14, 3.2.1, 3.2.2 , and 3.23 and the representations and warranties set forth in the Deeds shall survive indefinitely after the Closing. The covenants and agreements of the Parties contained in ARTICLES II, IV, VII and VIII of this Agreement shall survive the Closing for (i) the time period(s) set forth in the respective Sections contained in such Articles, or (ii) if no time period is so specified, until 90 days after the expiration of the applicable statute of limitations.
Section 7.2.      Seller Indemnification . Seller shall indemnify, reimburse and hold harmless Purchaser and each of its Affiliates and its and their respective directors, officers, employees, successors and assigns (each, including Purchaser, a “ Purchaser Indemnified Person ”) from and against any and all Liabilities, claims, demands, assessments, judgments, orders, decrees, actions, cause of actions, litigations, suits, investigations or other proceedings or damages, costs (including operating costs) or expenses (including reasonable attorney fees and operating expenses) (collectively, “ Losses ”) that any such Purchaser Indemnified Person incurs, suffers or becomes liable for from and after the Closing as a result of (a) the inaccuracy or breach of any representation or warranty of Seller contained in this Agreement, (b) the breach of any covenant or agreement of Seller contained in this Agreement, or (c) any Excluded Liability.
Section 7.3.      Purchaser Indemnification . Purchaser agrees that it shall indemnify, reimburse and hold harmless Seller and each of its Affiliates and their respective directors, commissioners, officers, employees, agents, successors and assigns (each, including Seller, a “ Seller Indemnified Person ”) from and against any and all Losses that any such Seller Indemnified Person incurs, suffers or becomes liable for from and after the Closing as a result of (a) the inaccuracy or breach of any representation or warranty of Purchaser contained in this Agreement, (b) the breach of any covenant or agreement of the Purchaser contained in this Agreement, or (c) any Assumed Liability, except to the extent Losses resulting from any Assumed Liability are related to the inaccuracy or breach of any representation or warranty of Seller contained in this Agreement.

Article VIII     

MISCELLANEOUS
Section 8.1.      Dispute Resolution . Any dispute or claim arising under this Agreement that is not resolved in the ordinary course of business shall be referred to a panel consisting of a senior executive of Purchaser (President or a Vice President) and Seller (Chief Executive Officer or member of Executive Management), with authority to decide or resolve the matter in dispute, for review and resolution. Such senior executives shall meet and in good faith attempt to resolve the dispute within 30 days. If the Parties are unable to resolve a dispute pursuant to this Section 8.1, either Party may enforce its rights under this Agreement at law or in equity subject to the provisions of this Agreement, including Section 8.2 .
Section 8.2.      Governing Law; Submission to Jurisdiction . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO A CONTRACT EXECUTED AND PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF. Each Party hereto irrevocably submits to the exclusive jurisdiction of the General Court of Justice, Superior Court Division, Wake County, North Carolina and, if applicable, the United States District Court, Eastern District of North Carolina, Raleigh Division, for the purposes of any action arising out of or based upon this Agreement or relating to the subject matter hereof. Each Party hereto further agrees that service of any process, summons, notice or document by U.S. registered mail to such Party’s respective address set forth in Section 8.4 shall be effective service of process for any action, suit or proceeding with respect to any matters to which it has submitted to jurisdiction in this Section 8.2 . Each Party hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding in the federal or states courts set forth in this Section 8.2 , and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.
Section 8.3.      Specific Performance . EACH PARTY AGREES THAT DAMAGE REMEDIES SET FORTH IN THIS AGREEMENT MAY BE DIFFICULT OR IMPOSSIBLE TO CALCULATE OR OTHERWISE INADEQUATE TO PROTECT ITS INTERESTS AND THAT IRREPARABLE DAMAGE MAY OCCUR IN THE EVENT THAT PROVISIONS OF THIS AGREEMENT ARE NOT PERFORMED BY THE PARTIES IN ACCORDANCE WITH THE SPECIFIC TERMS OF THIS AGREEMENT. ANY PARTY MAY SEEK TO REQUIRE THE PERFORMANCE OF ANY OTHER PARTY’S OBLIGATIONS UNDER THIS AGREEMENT THROUGH AN ORDER OF SPECIFIC PERFORMANCE RENDERED BY A COURT OF COMPETENT JURISDICTION AS PROVIDED IN SECTION 8.2.
Section 8.4.      Notices .
8.4.1.      All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given upon receipt by the applicable Party at the following addresses (or at such other address for a party as shall be specified by like notice):
If to Purchaser, to:
Duke Energy Progress, Inc.
411 Fayetteville Street
Raleigh, NC 27601
Email: harold.james@duke-energy.com
Attn: Harold James, Jr. – Vice President Wholesale Power
with copies to:

Duke Energy Progress, Inc.
550 South Tryon Street, 45 th Floor
Charlotte, NC 28202
Attn: Greer Mendelow
Email: Greer.Mendelow@duke-energy.com
Facsimile: (980) 373-9962
Moore & Van Allen PLLC
Bank of America Corporate Center
100 N. Tryon Street
Suite 4700
Charlotte, North Carolina 28202-4003
Attn:    Stephen D. Hope and Rob Rust
Email: stevehope@mvalaw.com ; robrust@mvalaw.com
Facsimile: (704) 378-2036 and (704) 339-5864
If to Seller, to:


North Carolina Eastern Municipal Power Agency
1427 Meadow Wood Boulevard
Raleigh, North Carolina 27604
Attn: Roy Jones – Chief Operating Officer
Email: rjones@electricities.org
with a copies to:

North Carolina Eastern Municipal Power Agency
1427 Meadow Wood Boulevard
Raleigh, North Carolina 27604
Attn: David Barnes – Chief Legal and Ethics Officer
Email: dbarnes@electricities.org

Poyner Spruill LLP
130 South Franklin Street
Rocky Mount, North Carolina 27804
Attn: Michael S. Colo
Email: mscolo@poynerspruill.com

Section 8.5.      Entire Agreement . This Agreement and the Transaction Agreements supersede all prior discussions and agreements between the Parties with respect to the subject matter hereof and thereof, including, in each case, all schedules and exhibits thereto, and contain the sole and entire agreement between the Parties hereto with respect to the subject matter hereof and thereof.
Section 8.6.      Expenses . Except as otherwise expressly provided in this Agreement, whether or not the transactions contemplated hereby are consummated, each Party will pay its own costs and expenses incurred in connection with the negotiation, execution and performance under this Agreement and the Transaction Agreements and the transactions contemplated hereby and thereby.
Section 8.7.      Public Announcements . Any public announcement or similar publicity with respect to this Agreement or the transactions contemplated hereby will be issued, if at all, at such time and in such manner as mutually agreed to by Seller and Purchaser. Notwithstanding the foregoing, no Party shall be prohibited from making, issuing or releasing any announcements, statements or acknowledgments that such party customarily issues in connection with acquisition or sale transactions or is required to make, issue or release by applicable Law or by any listing agreement with or listing rules of a securities exchange or trading market inter-dealer quotation system; provided however that, in the case of any press release or other similar written statement, the other Party has been afforded at least 3 Business Days to review and comment on such written material.
Section 8.8.      Confidentiality . Each Party hereto will hold, and will use commercially reasonable efforts to cause its Related Persons to hold, in strict confidence from any Person (other than any such Related Persons), this Agreement, the Transaction Agreements and all documents and information concerning the other Party or any of its Related Persons furnished to it by the other Party or such other Party’s Related Persons in connection with this Agreement or the transactions contemplated hereby, unless (a) compelled to disclose by judicial or administrative process (including in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated hereby of Governmental Authorities), or by other requirements of Law, including without limitation, the North Carolina Public Records law, or by any listing agreement with or listing rules of a securities exchange or trading market inter-dealer quotation system or necessary or desirable to disclose in order to obtain the Required Consents, or (b) disclosed in an action or proceeding brought by a Party hereto in pursuit of its rights or in the exercise of its remedies hereunder, except to the extent that such documents or information can be shown to have been (x) previously known by the Party receiving such documents or information, (y) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of such receiving Party or (z) later acquired by the receiving Party from another source if the receiving Party is not aware that such source is under an obligation to another Party hereto to keep such documents and information confidential. In the event the transactions contemplated hereby are not consummated, upon the request of the other Party, each Party hereto will, and will use commercially reasonable efforts to cause its Related Persons to, promptly (and in no event later than five (5) Business Days after such request) destroy or cause to be destroyed all copies of confidential documents and information furnished by the other Party in connection with this Agreement or the transactions contemplated hereby and destroy or cause to be destroyed all notes, memoranda, summaries, analyses, compilations and other writings related thereto or based thereon prepared by the Party furnished such documents and information or its Related Persons; provided, however, that (i) outside legal counsel for each Party may retain one copy of confidential documents and information furnished by the other Party, (ii) each Party and its Related Persons may retain any materials that are required to be maintained pursuant to Law or such Party or Related Person’s compliance or regulatory policies or procedures, including any documents presented to a board of directors or transaction review committee and (iii) each Party and its Related Persons may retain any system back-up media such as copies of any electronic records or files created pursuant to automatic archiving or back-up procedures, provided that all confidential documents and information retained pursuant to (i), (ii) or (iii) shall continue to be held in strict confidence in accordance with the confidentiality provisions herein. The obligations contained in this Section 8.8 shall survive until the first to occur of Closing or, if this Agreement is terminated pursuant to ARTICLE VI, one year following the termination of this Agreement.
Section 8.9.      Waivers .
8.9.1.      Grant of Waivers . Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative.
8.9.2.      Exercise of Remedies . No failure or delay of any Party, in any one or more instances, (1) in exercising any power, right or remedy (other than failure or unreasonable delay in giving notice of default) under this Agreement or (ii) in insisting upon the strict performance by the other Party of such other Party’s covenants, obligations or agreements under this Agreement, shall operate as a waiver, discharge or invalidation thereof, nor shall any single or partial exercise of any such right, power or remedy or insistence on strict performance, or any abandonment or discontinuance of steps to enforce such a right, power or remedy or to enforce strict performance, preclude any other or future exercise thereof or insistence thereupon or the exercise of any other right, power or remedy. The covenants, obligations, and agreements of a defaulting Party and the rights and remedies of the other Party upon a default shall continue and remain in full force and effect with respect to any subsequent breach, act or omission.
Section 8.10.      Amendment . This Agreement and any of the Transaction Agreements may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each Party hereto.
Section 8.11.      No Construction Against Drafting Party . The language used in this Agreement is the product of each Party’s efforts, and each Party hereby irrevocably waives the benefits of any rule of contract construction that disfavors the drafter of a contract or the drafter of specific words in a contract.
Section 8.12.      No Third-Party Beneficiary . The terms and provisions of this Agreement are intended solely for the benefit of each Party hereto and their respective successors or permitted assigns, and it is not the intention of the Parties to confer third-party beneficiary rights upon any other Person.
Section 8.13.      Headings . The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.
Section 8.14.      Invalid Provisions . If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any Party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom and (d) Purchaser and Seller shall negotiate an equitable adjustment in the provisions of the Agreement with a view toward effecting the purposes of the Agreement, and the validity and enforceability of the remaining provisions, or portions or applications thereof, shall not be affected thereby.
Section 8.15.      No Assignment; Binding Effect . Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any Party hereto without the prior written consent of the other Party hereto and any attempt to do so will be void, except for assignments and transfers by Purchaser to an Affiliate (provided any such assignment or transfer will not relieve Purchaser of its obligations hereunder) or by Purchaser (but not Seller) by operation of Law. This Agreement is binding upon, inures to the benefit of and is enforceable by the Parties and their respective successors and assigns.
Section 8.16.      Counterparts . This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Each Party expressly acknowledges the effectiveness of .pdf, facsimile or other electronic signatures as originals.
[Signature Page Follows.]

IN WITNESS WHEREOF , the Parties have caused this Agreement to be signed by their respective duly authorized officers as of the Effective Date.
PURCHASER:    DUKE ENERGY PROGRESS, INC.

    
By:                         
Name:
Title:

    
SELLER:
NORTH CAROLINA EASTERN MUNICIPAL POWER AGENCY

    
By:                         
Name:
Title:

    
                    


EXHIBIT A

Knowledge


Seller :

1.
T. Graham Edwards, Chief Executive Officer of ElectriCities
2.
Roy Jones, Chief Operating Officer of ElectriCities
3.
Tim Tunis, Chief Financial Officer of ElectriCities
4.
David Barnes, Chief Legal & Ethics Officer of ElectriCities
5.
Richard N. Hicks, Chair of the Board of Directors of Seller
6.
D. Ronald Hovis, Vice Chair of the Board of Directors of Seller
7.
Grant W. Goings, Secretary of the Board of Directors of Seller

For purposes of determining the accuracy of Section 5.1.1 of the Agreement, the foregoing list shall also include anyone succeeding to any of the foregoing positions between the Effective Date and Closing.


Purchaser :

1.      Kent Fonvielle, Director – Joint Owner & Point of Delivery of Duke Energy Corp.
2.      Harold James, Vice President – Wholesale Power Sales of Duke Energy Corp.
3. Greer Mendelow, Deputy General Counsel of Duke Energy Corp.

For purposes of determining the accuracy of Section 5.2.1 of the Agreement, the foregoing list shall also include anyone succeeding to any of the foregoing positions between the Effective Date and Closing.

EXHIBIT B

Real Property Legal Description

See Attached

EXHIBIT C

Plants Agreements Termination Agreement

PLANTS AGREEMENTS TERMINATION AGREEMENT
THIS PLANTS AGREEMENTS TERMINATION AGREEMENT (this “ Agreement ”) is made and entered into effective as __________, 201__ (the “ Effective Date ”), by and between NORTH CAROLINA EASTERN MUNICIPAL POWER AGENCY , a joint agency and public body and body corporate and politic organized and existing under North Carolina law (“ Seller ”), and DUKE ENERGY PROGRESS, INC. , a North Carolina corporation (“ Purchaser ”). Seller and Purchaser are also each referred to herein individually as a “ Party ” and collectively as the “ Parties .” All capitalized terms used but not defined herein shall have the meanings set forth in the APA (as defined below).
WHEREAS , pursuant to the terms of that certain Asset Purchase Agreement dated as of _____________, 2014 (as amended, modified and supplemented, the “ APA ”), by and between Seller and Buyer, Seller and Buyer agreed to terminate the Plants Agreements effective as of the Closing; and
WHEREAS , Seller and Buyer desire to enter into this Agreement to effect the termination of the Plants Agreements as of the Closing and to address certain other matters in connection therewith;
NOW, THEREFORE , in consideration of the mutual covenants contained herein, and intending to be legally bound, the Parties hereby agree as follows:
1. Termination of Plants Agreements . Effective as of, and conditional upon the occurrence of, the Closing, the Plants Agreements shall terminate and notwithstanding anything therein to the contrary, be of no further force or effect, and neither Party shall have any rights, obligations or liabilities thereunder or with respect thereto.
2.     Miscellaneous .
(a)     Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina applicable to a contract executed and performed in such state, without giving effect to the conflicts of laws principles thereof. Each Party hereto irrevocably submits to the exclusive jurisdiction of the General Court of Justice, Superior Court Division, Wake County, North Carolina, and, if applicable, the United States District Court, Eastern District of North Carolina, Raleigh Division, for the purposes of any action arising out of or based upon this Agreement or relating to the subject matter hereof. Each Party further expressly waives any objection based on forum non - conveniens or any objection to venue of any such action.
(b)     Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns; provided, however, this Agreement shall not be assignable by either Party without the written consent of the other Party, except for assignments by Purchaser to an Affiliate (provided any such assignment will not relieve Purchaser of its obligations hereunder) or by Purchaser (but not by Seller) by operation of Law.
(c)     Severability . Should any term, covenant, condition or provision of this Agreement be held to be invalid or unenforceable, the balance of this Agreement shall remain in full force and effect and shall stand as if the unenforceable provision did not exist.
(d)     Waiver . No failure or delay by either Party in exercising any rights under this Agreement shall operate as a waiver of such rights, and no waiver of any breach shall constitute a waiver of any prior, concurrent or subsequent breach.
(e)     Entire Agreement . This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all other agreements, oral or written, between Seller and Buyer prior to the date of this Agreement regarding the subject matter hereof.
(f)     Counterparts . This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Each Party expressly acknowledges the effectiveness of .pdf, facsimile or other electronic signatures as originals.
[Signatures on Following Page]

IN WITNESS WHEREOF , the Parties have caused this Agreement to be signed by their respective duly authorized officers as of the Effective Date.
PURCHASER:    DUKE ENERGY PROGRESS, INC.
    
By:                         
Name:
Title:
    
SELLER:
NORTH CAROLINA EASTERN MUNICIPAL POWER AGENCY
    
By:                         
Name:
Title:


EXHIBIT D

Bill of Sale

This BILL OF SALE (this “ Bill of Sale ”) is made effective as of the _____ day of ____________, 201__, by NORTH CAROLINA EASTERN MUNICIPAL POWER AGENCY , a joint agency and public body and body corporate and politic organized and existing under North Carolina law (“ Seller ”), to DUKE ENERGY PROGRESS, INC. , a North Carolina corporation (“ Purchaser ”).
WHEREAS, Seller and Purchaser have entered into an Asset Purchase Agreement dated as of ________________, 2014 (as amended, modified and supplemented, the “ Asset Purchase Agreement ”) providing for, subject to the terms and conditions set forth therein, the sale, transfer, conveyance, assignment and delivery by Seller to Purchaser of, among other Purchased Assets, Fuel Inventory and Spare Parts Inventory, free and clear of all Liens (other than Permitted Liens). All capitalized terms used but not defined herein shall have the meanings set forth in the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller hereby sells, transfers, conveys, assigns and delivers to Purchaser all of Seller’s right, title and interest in and to the Fuel Inventory and Spare Parts Inventory free and clear of all Liens (other than Permitted Liens).
This Bill of Sale is being executed and delivered pursuant and subject to the Asset Purchase Agreement. Nothing in this Bill of Sale shall, or shall be deemed to, defeat, limit, alter, impair, enhance or enlarge any right, obligation, claim or remedy created by the Asset Purchase Agreement. In the event of any conflict between this Bill of Sale and the Asset Purchase Agreement, the Asset Purchase Agreement shall control.
This Bill of Sale shall be binding upon Seller and its successors and assigns and shall inure to the benefit of Purchaser and its successors and assigns.
Subject to the terms and conditions of the Asset Purchase Agreement, at any time or from time to time after the Closing, at Purchaser’s request and without further consideration, Seller shall execute and deliver to Purchaser such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions as Purchaser may reasonably deem necessary or desirable in order more effectively (i) to transfer, convey and assign to Purchaser, and to confirm Purchaser’s title to, the Fuel Inventory and Spare Parts Inventory, (ii) to the full extent permitted by Law, to put Purchaser in actual possession of the Fuel Inventory and Spare Parts Inventory, and (iii) otherwise to consummate the transactions contemplated by the Asset Purchase Agreement and this Bill of Sale.
This Bill of Sale shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina without giving effect to the principles of conflicts of law thereof.
This Bill of Sale may be executed by .pdf or other electronic signature, which shall be deemed an original.
[ Signatures on Following Page ]

IN WITNESS WHEREOF, the undersigned has caused this Bill of Sale to be executed and delivered as of this _____ day of ______________ 201__.
NORTH CAROLINA EASTERN MUNICIPAL POWER AGENCY
By:     
Name:
Title:


EXHIBIT E

Form of Deeds



EXHIBIT 12.1


COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DUKE ENERGY CORPORATION
The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines.
 
Years Ended December 31,
(in millions)
2014
 
2013 (d)
 
  2012 (a) (d)
 
2011 (d)
 
2010 (d)
Earnings as defined for fixed charges calculation
 
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
 
 
Pretax income from continuing operations (b)
 
$
3,998

 
$
3,657

 
$
2,068


$
1,975


$
2,062

Fixed charges
 
1,871

 
1,886

 
1,510

 
1,057

 
1,045

Distributed income of equity investees
 
136

 
109

 
151

 
149

 
111

Deduct:
 
 
 
 
 
 
 
 
 
 
Preferred dividend requirements of subsidiaries
 

 

 
3

 

 

Interest capitalized
 
7

 
8

 
30

 
46

 
54

Total earnings
 
$
5,998

 
$
5,644

 
$
3,696

 
$
3,135

 
$
3,164

 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
Interest on debt, including capitalized portions
 
$
1,733

 
$
1,760

 
$
1,420

 
$
1,026

 
$
1,008

Estimate of interest within rental expense
 
138

 
126

 
87

 
31

 
37

Preferred dividend requirements
 

 

 
3

 

 

Total fixed charges
 
$
1,871

 
$
1,886

 
$
1,510

 
$
1,057

 
$
1,045

Ratio of earnings to fixed charges
 
3.2

 
3.0

 
2.4

 
3.0

 
3.0

Ratio of earnings to fixed charges and preferred dividends combined (c)
 
3.2


3.0


2.4


3.0


3.0

(a)    Includes the results of Progress Energy, Inc. beginning on July 2, 2012.
(b)    Excludes amounts attributable to noncontrolling interests and income or loss from equity investees.
(c)    For the period presented, Duke Energy Corporation had no preferred stock outstanding.
(d)    Operating results have been revised to reflect the impact of discontinued operations.


EXHIBIT 12.2
        

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DUKE ENERGY CAROLINAS
The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines.
 
Years Ended December 31,
(in millions)
2014
 
2013
 
2012
 
2011
 
2010
Earnings as defined for fixed charges calculation
 
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
 
 
Pretax income from continuing operations
 
$
1,661

 
$
1,571

 
$
1,322

 
$
1,306

 
$
1,295

Fixed charges
 
457

 
461

 
467

 
450

 
464

Deduct:
 
 
 
 
 
 
 
 
 
 
Interest capitalized
 

 

 

 

 

Total earnings
 
$
2,118

 
$
2,032

 
$
1,789

 
$
1,756

 
$
1,759

 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
Interest on debt, including capitalized portions
 
$
445

 
$
452

 
$
455

 
$
437

 
$
446

Estimate of interest within rental expense
 
12

 
9

 
12

 
13

 
18

Total fixed charges
 
$
457

 
$
461

 
$
467

 
$
450

 
$
464

Ratio of earnings to fixed charges
 
4.6

 
4.4

 
3.8

 
3.9

 
3.8




EXHIBIT 12.3


COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - PROGRESS ENERGY
The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines.
 
Years Ended December 31,
(in millions)
2014
 
2013
 
2012
 
2011
 
2010
Earnings as defined for fixed charges calculation
 
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
 
 
Pretax income from continuing operations (a)
 
$
1,418

 
$
1,029

 
$
527

 
$
910

 
$
1,406

Fixed charges
 
841

 
872

 
884

 
827

 
846

Deduct:
 
 
 
 
 
 
 
 
 
 
Pretax income attributable to noncontrolling interests of subsidiaries that have not incurred fixed charges
 

 

 
2

 
3

 
3

Preference security dividend requirements of consolidated subsidiaries
 

 

 
6

 
6

 
7

Total earnings
 
$
2,259


$
1,901


$
1,403


$
1,728


$
2,242

 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
Interest on debt, including capitalized portions
 
$
732

 
$
772

 
$
782

 
$
769

 
$
788

Estimate of interest within rental expense
 
109

 
100

 
96

 
52

 
51

Preference security dividend requirements of consolidated subsidiaries
 

 

 
6

 
6

 
7

Total fixed charges
 
$
841

 
$
872

 
$
884

 
$
827

 
$
846

Ratio of earnings to fixed charges
 
2.7


2.2


1.6


2.1


2.7

Ratio of earnings to fixed charges and preferred dividends combined (b)
 
2.7

 
2.2

 
1.6

 
2.1

 
2.7

(a)
Excludes amounts attributable to noncontrolling interests and income or loss from equity investees.
(b)    For all periods presented, Progress Energy, Inc. had no preferred stock outstanding.



EXHIBIT 12.4


COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DUKE ENERGY PROGRESS
The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines.
 
Years Ended December 31,
(in millions)
2014
 
2013
 
2012
 
2011
 
2010
Earnings as defined for fixed charges calculation
 
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
 
 
Pretax income from continuing operations
 
$
753

 
$
789

 
$
382

 
$
772

 
$
952

Fixed charges
 
305

 
289

 
291

 
235

 
227

Deduct:
 
 
 
 
 
 
 
 
 
 
Pretax loss attributable to noncontrolling interests of subsidiaries that have not incurred fixed charges

 

 

 

 

 
(1
)
Total earnings
 
$
1,058

 
$
1,078

 
$
673

 
$
1,007

 
$
1,180

 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
Interest on debt, including capitalized portions
 
$
238

 
$
224

 
$
230

 
$
205

 
$
205

Estimate of interest within rental expense
 
67

 
65

 
61

 
30

 
22

Total fixed charges
 
$
305

 
$
289

 
$
291

 
$
235

 
$
227

Preferred dividends, as defined
 

 

 
4

 
4

 
5

Total fixed charges and preferred dividends combined
 
$
305

 
$
289

 
$
295

 
$
239

 
$
232

Ratio of earnings to fixed charges
 
3.5

 
3.7

 
2.3

 
4.3

 
5.2

Ratio of earnings to fixed charges and preferred dividends combined
 
3.5

 
3.7

 
2.3

 
4.2

 
5.1




EXHIBIT 12.5


COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DUKE ENERGY FLORIDA
The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines.
 
Years Ended December 31,
(in millions)
2014
 
2013
 
2012
 
2011
 
2010
Earnings as defined for fixed charges calculation
 
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
 
 
Pretax income from continuing operations
 
$
898

 
$
538

 
$
413

 
$
494

 
$
729

Fixed charges
 
294

 
285

 
309

 
275

 
300

Total earnings
 
$
1,192

 
$
823

 
$
722

 
$
769

 
$
1,029

 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
Interest on debt, including capitalized portions
 
$
252

 
$
249

 
$
274

 
$
253

 
$
271

Estimate of interest within rental expense
 
42

 
36

 
35

 
22

 
29

Total fixed charges
 
$
294

 
$
285

 
$
309

 
$
275

 
$
300

Preferred dividends, as defined
 

 

 
2

 
2

 
2

Total fixed charges and preferred dividends combined
 
$
294

 
$
285

 
$
311

 
$
277

 
$
302

Ratio of earnings to fixed charges
 
4.1

 
2.9

 
2.3

 
2.8

 
3.4

Ratio of earnings to fixed charges and preferred dividends combined
 
4.1

 
2.9

 
2.3

 
2.8

 
3.4




EXHIBIT 12.6


COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DUKE ENERGY OHIO
The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines.
 
Years Ended December 31,
 
(in millions)
2014
 
2013 (b)
 
2012 (b)
 
2011 (b)
 
2010 (b)
 
Earnings as defined for fixed charges calculation
 
 
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
 
 
 
Pretax income (loss) from continuing operations
 
$
111

 
$
111

 
$
79

 
$
44

 
$
(280
)
 
Fixed charges
 
100

 
94

 
108

 
119

 
122

 
Deduct:
 
 
 
 
 
 
 
 
 
 
 
Interest capitalized
 

 
1

 
2

 
2

 
2

 
Total earnings
 
$
211

 
$
204

 
$
185

 
$
161

 
$
(160
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
 
Interest on debt, including capitalized portions
 
$
95

 
$
90

 
$
104

 
$
114

 
$
117

 
Estimate of interest within rental expense
 
5

 
4

 
4

 
5

 
5

 
Total fixed charges
 
$
100

 
$
94

 
$
108

 
$
119

 
$
122

 
Ratio of earnings to fixed charges
 
2.1


2.2


1.7


1.4



(a)  

(a)     Earnings insufficient to cover fixed charges by approximately $276 million for the year ended December 31, 2010, primarily due to non-cash goodwill impairment charges.
(b)    Operating results have been revised to reflect the impact of discontinued operations.


EXHIBIT 12.7


COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DUKE ENERGY INDIANA
The ratio of earnings to fixed charges is calculated using the Securities and Exchange Commission guidelines.
 
Years Ended December 31,
(in millions)
2014
 
2013
 
2012
 
2011
 
2010
Earnings as defined for fixed charges calculation
 
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
 
 
Pretax income from continuing operations
 
$
556

 
$
581

 
$
(123
)
 
$
242

 
$
441

Fixed charges
 
182

 
185

 
184

 
178

 
161

Total earnings
 
$
738

 
$
766

 
$
61

 
$
420

 
$
602

 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
Interest on debt, including capitalized portions
 
$
176

 
$
179

 
$
178

 
$
171

 
$
154

Estimate of interest within rental expense
 
6

 
6

 
6

 
7

 
7

Total fixed charges
 
$
182

 
$
185

 
$
184

 
$
178

 
$
161

Ratio of earnings to fixed charges
 
4.1

 
4.1

 
0.3

(a)  
2.4

 
3.7

(a)
Earnings insufficient to cover fixed charges by approximately $123 million during the year ended December 31, 2012 due primarily to a non-cash impairment charge.





EXHIBIT 21

LIST OF SUBSIDIARIES

The following is a list of certain subsidiaries (greater than 50% owned) of the registrant and their respective states or countries of incorporation:
Advance SC LLC (South Carolina)
Aguaytia Energy del Peru S.R.L. Ltda. (Peru)
Aguaytia Energy, LLC (Delaware)
Baker House Apartments LLC (North Carolina)
Berkley East Solar LLC (Delaware)
Bethel Price Solar, LLC (Delaware)
Bison Insurance Company Limited (South Carolina)
Black Mountain Solar, LLC (Arizona)
Caldwell Power Company (North Carolina)
Capitan Corporation (Tennessee)
Carofund, Inc. (North Carolina)
CaroHome, LLC (North Carolina)
Catamount Celtic Energy Limited (Scotland)
Catamount Energy Corporation (Vermont)
Catamount Energy SC 1 (Scotland)
Catamount Energy SC 2 (Scotland)
Catamount Energy SC 3 (Scotland)
Catamount Rumford Corporation (Vermont)
Catamount Sweetwater 1 LLC (Vermont)
Catamount Sweetwater 2 LLC (Vermont)
Catamount Sweetwater 3 LLC (Vermont)
Catamount Sweetwater 4-5 LLC (Vermont)
Catamount Sweetwater 6 LLC (Vermont)
Catamount Sweetwater Corporation (Vermont)
Catamount Sweetwater Holdings LLC (Vermont)
Catawba Mfg. & Electric Power Co. (North Carolina)
CEC UK1 Holding Corp. (Vermont)
CEC UK2 Holding Corp. (Vermont)
CEC Wind Development LLC (Vermont)
Century Group Real Estate Holdings, LLC (South Carolina)
CGP Global Greece Holdings, SA (Greece)
Cimarron Windpower II, LLC (Delaware)
Cinergy Climate Change Investments, LLC (Delaware)
Cinergy Corp. (Delaware)
Cinergy Global (Cayman) Holdings, Inc. (Cayman Islands)
Cinergy Global Holdings, Inc. (Delaware)
Cinergy Global Power Africa (Proprietary) Limited (South Africa)
Cinergy Global Power, Inc. (Delaware)
Cinergy Global Resources, Inc. (Delaware)
Cinergy Global Tsavo Power (Cayman Islands)
Cinergy Investments, Inc. (Delaware)
Cinergy Power Generation Services, LLC (Delaware)
Cinergy Receivables Company LLC (Delaware)





Cinergy Solutions - Utility, Inc. (Delaware)
Cinergy Solutions Partners, LLC (Delaware)
Cinergy Technology, Inc. (Indiana)
Cinergy Wholesale Energy, Inc. (Ohio)
Cinergy-Centrus Communications,Inc. (Delaware)
Cinergy-Centrus, Inc. (Delaware)
Claiborne Energy Services, Inc. (Louisiana)
Clear Skies Solar Holdings, LLC (Delaware)
Clear Skies Solar, LLC (Delaware)
Colonial Eagle Solar, LLC (Delaware)
Comercializadora Duke Energy de Centro America, Limitada (Guatemala)
Creswell Alligood Solar, LLC (Delaware)
CS Murphy Point, LLC (North Carolina)
CSCC Holdings Limited Partnership (British Columbia, Canada)
CST General, LLC (Texas)
CST Green Power, L.P. (Delaware)
CST Limited, LLC (Delaware)
D/FD Holdings, LLC (Delaware)
D/FD International Services Brasil Ltda. (Brazil)
D/FD Operating Services LLC (Delaware)
DE Nuclear Engineering, Inc. (North Carolina)
DEB - Pequenas Centrais Hidrelétricas Ltda. (Brazil)
DECAM Generation Holdco, LLC (Delaware)
DECAM Coal Gen FinCo, LLC (Delaware)
DECAM Gas Gen FinCo, LLC (Delaware)
DEGS Biomass, LLC (Delaware)
DEGS O&M, LLC (Delaware)
DEGS of Delta Township, LLC (Delaware)
DEGS of Lansing, LLC (Delaware)
DEGS of Narrows, LLC (Delaware)
DEGS of Shreveport, LLC (Delaware)
DEGS of South Charleston, LLC (Delaware)
DEGS of Tuscola, Inc. (Delaware)
DEGS Wind Supply II, LLC (Delaware)
DEGS Wind Supply, LLC (Delaware)
DETMI Management, Inc. (Colorado)
Dixilyn-Field (Nigeria) Limited (Nigeria)
Dixilyn-Field Drilling Company (Delaware)
Dogwood Solar, LLC (Delaware)
DTMSI Management Ltd. (British Columbia, Canada)
Duke Communications Holdings, Inc. (Delaware)
Duke Energy ACP, LLC (Delaware)
Duke Energy Americas, LLC (Delaware)
Duke Energy Beckjord Storage LLC (Delaware)
Duke Energy Beckjord, LLC (Delaware)
Duke Energy Business Services LLC (Delaware)





Duke Energy Carolinas Plant Operations, LLC (Delaware)
Duke Energy Carolinas, LLC (North Carolina)
Duke Energy Cerros Colorados, S.A.(Argentina)
Duke Energy China Corp (Delaware)
Duke Energy Commercial Asset Management, LLC (Ohio)
Duke Energy Commercial Enterprises, Inc.(Indiana)
Duke Energy Conesville, LLC (Delaware)
Duke Energy Corporate Services, Inc. (Delaware)
Duke Energy Dicks Creek, LLC (Delaware)
Duke Energy Egenor S. en C. por A. (Peru)
Duke Energy Electroquil Partners (Delaware)
Duke Energy Fayette II, LLC (Delaware)
Duke Energy Florida Receivables LLC (Delaware)
Duke Energy Florida, Inc. (Florida)
Duke Energy Generating S.A. (Argentina)
Duke Energy Generation Services, Inc. (Delaware)
Duke Energy Global Investments, LLC (Delaware)
Duke Energy Group Holdings, LLC (Delaware)
Duke Energy Group, LLC (Delaware)
Duke Energy Guatemala Ltd. (Bermuda)
Duke Energy Guatemala Transco Limitada (Guatemala)
Duke Energy Guatemala y Compania Sociedad en Comandita por Acciones (Guatemala)
Duke Energy Hanging Rock II, LLC(Delaware)
Duke Energy Indiana, Inc. (Indiana)
Duke Energy Industrial Sales, LLC (Delaware)
Duke Energy International (Europe) Holdings ApS (Denmark)
Duke Energy International (Europe) Limited (United Kingdom)
Duke Energy International Argentina Marketing/Trading (Bermuda) Ltd. (Bermuda)
Duke Energy International Asia Pacific Ltd. (Bermuda)
Duke Energy International Brasil Commercial, Ltda. (Brazil)
Duke Energy International Brasil Holdings, LLC (Delaware)
Duke Energy International Brazil Holdings Ltd. (Bermuda)
Duke Energy International Chile Holding I B.V. (Netherlands)
Duke Energy International Chile Holding II B.V. (Netherlands)
Duke Energy International Chile Holding II BV Sociedad en Comandita por Acciones (Chile)
Duke Energy International Comercializadora de El Salvador,S.A. de C.V. (El Salvador)
Duke Energy International del Ecuador Cia. Ltda.(Ecuador)
Duke Energy International Duqueco, SpA (Chile)
Duke Energy International El Salvador Investments No. 1 Ltd (Bermuda)
Duke Energy International El Salvador Investments No. 1 y Cia. S. en C. de C.V. (El Salvador)
Duke Energy International El Salvador, S en C de CV (El Salvador)
Duke Energy International Electroquil Holdings, LLC (Delaware)
Duke Energy International Espana Holdings, S.L.U. (Spain)
Duke Energy International Espana Investments, Sociedad Limitada (Spain)
Duke Energy International Group Cooperatie U.A. (Netherlands)
Duke Energy International Group, Ltd. (Bermuda)





Duke Energy International Guatemala Holdings No. 2, Ltd. (Bermuda)
Duke Energy International Holding, Ltd. (Bermuda)
Duke Energy International Holdings B.V. (Netherlands)
Duke Energy International Investments No. 2 Ltd. (Bermuda)
Duke Energy International Latin America, Ltd. (Bermuda)
Duke Energy International Mexico Holding Company I, S. de R.L. de C.V. (Mexico)
Duke Energy International Nehuen Generacion SpA (Chile)
Duke Energy International Netherlands Financial Services B.V. (Netherlands)
Duke Energy International Peru Investments No. 1, Ltd.(Bermuda)
Duke Energy International PJP Holdings, Ltd. (Bermuda)
Duke Energy International Southern Cone SRL (Argentina)
Duke Energy International Uruguay Holdings, LLC (Delaware)
Duke Energy International Uruguay Investments, S.R.L. (Uruguay)
Duke Energy International, Brasil Ltda. (Brazil)
Duke Energy International, Geracao Paranapanema S.A. (Brazil)
Duke Energy International, LLC (Delaware)
Duke Energy Kentucky, Inc. (Kentucky)
Duke Energy Killen, LLC (Delaware)
Duke Energy Lee II, LLC (Delaware)
Duke Energy Luxembourg I, S.a r.l. (Luxembourg)
Duke Energy Luxembourg II, S.a r.l. (Luxembourg)
Duke Energy Luxembourg III, S.a r.l. (Luxembourg)
Duke Energy Luxembourg IV, S.a r.l. (Luxembourg)
Duke Energy Marketing America, LLC (Delaware)
Duke Energy Marketing Corp. (Nevada)
Duke Energy Merchants, LLC (Delaware)
Duke Energy Miami Fort, LLC (Delaware)
Duke Energy North America, LLC (Delaware)
Duke Energy Ohio, Inc. (Ohio)
Duke Energy One, Inc. (Delaware)
Duke Energy Peru Holdings S.R.L. (Peru)
Duke Energy Pipeline Holding Company, LLC (Delaware)
Duke Energy Progress Receivables LLC (Delaware)
Duke Energy Progress, Inc. (North Carolina)
Duke Energy Receivables Finance Company, LLC (Delaware)
Duke Energy Registration Services, Inc. (Delaware)
Duke Energy Renewable Services, LLC (Delaware)
Duke Energy Renewables Commercial, LLC (Delaware)
Duke Energy Renewables NC Solar, LLC (Delaware)
Duke Energy Renewables Solar, LLC (Delaware)
Duke Energy Renewables Wind, LLC (Delaware)
Duke Energy Renewables, Inc. (Delaware)
Duke Energy Retail Sales, LLC (Delaware)
Duke Energy Royal, LLC (Delaware)
Duke Energy SAM, LLC (Delaware)
Duke Energy Services Canada ULC (British Columbia, Canada)





Duke Energy Services, Inc. (Delaware)
Duke Energy Stuart, LLC (Delaware)
Duke Energy Trading and Marketing, L.L.C. (Delaware)
Duke Energy Transmission Holding Company, LLC (Delaware)
Duke Energy Vermillion II, LLC (Delaware)
Duke Energy Washington II, LLC (Delaware)
Duke Energy Zimmer, LLC (Delaware)
Duke Investments, LLC (Delaware)
Duke Project Services, Inc. (North Carolina)
Duke Supply Network, LLC (Delaware)
Duke Technologies, Inc. (Delaware)
Duke Trading Do Brasil Ltda. (Brazil)
Duke Ventures II, LLC (Delaware)
Duke Ventures Real Estate, LLC (Delaware)
Duke Ventures, LLC (Nevada)
Duke/Fluor Daniel (North Carolina)
Duke/Fluor Daniel Caribbean, S.E. (Puerto Rico)
Duke/Fluor Daniel International (Nevada)
Duke/Fluor Daniel International Services (Nevada)
Duke/Fluor Daniel International Services (Trinidad) Ltd. (Trinidad and Tobago)
Duke-Cadence, Inc. (Indiana)
DukeNet VentureCo, Inc. (Delaware)
Duke-Reliant Resources, Inc. (Delaware)
Eastman Whipstock do Brasil Ltda. (Brazil)
Eastman Whipstock, S.A. (Argentina)
Eastover Land Company (Kentucky)
Eastover Mining Company (Kentucky)
Electroquil, S.A. (Ecuador)
Energy Pipelines International Company (Delaware)
Equinox Vermont Corporation (Vermont)
Etenorte S.R.L. (Peru)
Eteselva S. R. L. (Peru)
Everetts Wildcat Solar, LLC (Delaware)
Florida Progress Corporation (Florida)
Florida Progress Funding Corporation (Delaware)
Gas Integral S.R.L. (Peru)
Gato Montes Solar, LLC (Delaware)
Green Frontier Windpower Holdings, LLC (Delaware)
Green Frontier Windpower, LLC (Delaware)
Greenville Gas and Electric Light and Power Company (South Carolina)
Grove Arcade Restoration LLC (North Carolina)
Happy Jack Windpower, LLC (Delaware)
HGA Development, LLC (North Carolina)
Highlander Solar 1, LLC (Delaware)
Highlander Solar 2, LLC (Delaware)
Historic Property Management, LLC (North Carolina)





HXOap Solar One, LLC (North Carolina)
IGC Aguaytia Partners, LLC (Cayman Islands)
Inver Energy Holdings I (Cayman Islands)
Inver Energy Holdings II (Cayman Islands)
Ironwood-Cimarron Windpower Holdings, LLC (Delaware)
Kentucky May Coal Company, LLC (Virginia)
Kit Carson Windpower II Holdings, LLC (Delaware)
Kit Carson Windpower II, LLC (Delaware)
Kit Carson Windpower, LLC (Delaware)
KO Transmission Company (Kentucky)
Laurel Hill Wind Energy, LLC (Pennsylvania)
Los Vientos Windpower IA Holdings, LLC (Delaware)
Los Vientos Windpower IB Holdings, LLC (Delaware)
Los Vientos Windpower IA, LLC (Delaware)
Los Vientos Windpower IB, LLC (Delaware)
Los Vientos Windpower III Holdings, LLC (Delaware)
Los Vientos Windpower III, LLC (Delaware)
Los Vientos Windpower IV Holdings, LLC (Delaware)
Los Vientos Windpower IV, LLC (Delaware)
Los Vientos Windpower V Holdings, LLC (Delaware)
Los Vientos Windpower V, LLC (Delaware)
Martins Creek Solar NC, LLC (North Carolina)
MCP, LLC (South Carolina)
Miami Power Corporation (Indiana)
Murphy Farm Power, LLC (North Carolina)
North Allegheny Wind, LLC (Delaware)
North Carolina Renewable Properties, LLC (North Carolina)
NorthSouth Insurance Company Limited (South Carolina)
Notrees Windpower, LP (Delaware)
Ocotillo Windpower, LP (Delaware)
P.I.D.C. Aguaytia, L.L.C. (Delaware)
Pacific Power Holdings No. 1, B.V. (Netherlands)
PanEnergy Corp. (Delaware)
Peak Tower, LLC (Delaware)
Peru Energy Holdings, LLC (Delaware)
PIH Inc. (Florida)
PIH Tax Credit Fund III, Inc. (Florida)
PIH Tax Credit Fund IV, Inc. (Florida)
PIH Tax Credit Fund V, Inc. (Florida)
Powerhouse Square, LLC (North Carolina)
PRAIRIE, LLC (North Carolina)
Progress Capital Holdings, Inc. (Florida)
Progress Energy, Inc. (North Carolina)
Progress Energy Service Company, LLC (North Carolina)
Progress Fuels Corporation (Florida)
Progress Synfuel Holdings, Inc.





Progress Telecommunications Corporation (Florida)
Proyecto de Autoabastecimineto La Silla, S. de R.L. de C.V. (Mexico)
PT Holding Company, LLC (Delaware)
PT Attachment Solutions, LLC (Delaware)
Pumpjack Solar I, LLC (Delaware)
RE AZ Holdings LLC (Delaware)
RE Ajo 1 LLC (Delaware)
RE Bagdad Solar 1 (Delaware)
RE SFCity1 GP, LLC (Delaware)
RE SFCity1 Holdco, LLC (Delaware)
RE SFCity1, LP (Delaware)
RP Orlando, LLC (Delaware)
Sandy River Timber, LLC (South Carolina)
Seahorse do Brasil Servicos Maritimos Ltda. (Brazil)
Shirley Wind, LLC (Wisconsin)
Silver Sage Windpower, LLC (Delaware)
Solar Star North Carolina I, LLC (Delaware)
Solar Star North Carolina II, LLC (Delaware)
South Construction Company, Inc. (Indiana)
Southern Power Company (North Carolina)
Strategic Resource Solutions Corp., A North Carolina Enterprise Corporation (North Carolina)
SUEZ-DEGS of Orlando LLC (Delaware)
Sweetwater Development LLC (Texas)
Sweetwater Wind 6 LLC (Delaware)
Sweetwater Wind Power L.L.C. (Texas)
Taylorsville Solar, LLC (Delaware)
TBP Properties, LLC (South Carolina)
TE Notrees, LLC (Delaware)
TE Ocotillo, LLC (Delaware)
TEC Aguaytia, Ltd. (Bermuda)
Termoselva S. R. L. (Peru)
Texas Eastern Arabian Ltd. (Bermuda)
TX Solar I LLC (Delaware)
Three Buttes Windpower, LLC (Delaware)
Top of the World Wind Energy LLC (Delaware)
Top of the World Wind Energy Holdings LLC (Delaware)
TRES Timber, LLC (South Carolina)
Tri-State Improvement Company (Ohio)
Washington Airport Solar, LLC (Delaware)
Washington Millfield Solar, LLC (Delaware)
Washington White Post Solar, LLC (Delaware)
Wateree Power Company (South Carolina)
West Texas Angelos Holdings LLC (Delaware)
Western Carolina Power Company (North Carolina)
Wildwood Solar I, LLC (Delaware)
Wilrik Hotel Apartments LLC (North Carolina)





Wind Star Holdings, LLC (Delaware)
Wind Star Renewables, LLC (Delaware)
Windsor Cooper Hill Solar, LLC (Delaware)
WNC Institutional Tax Credit Fund LP (California)





EXHIBIT 23.1.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in Registration Statement Nos. 333-192685, 333-191494, and 333-191462 on Form S-3, Registration Statement No. 333-172899 (including Post-effective Amendment No. 1 thereto on Form S-8) on Form S-4, and Registration Statement Nos. 333-168502, 333-168500, 333-134080, 333-141023 (including Post-effective Amendment No. 1 thereto), and 333-132933 (including Post-effective Amendment Nos. 1 and 2 thereto) on Form S-8 of our report dated February 27, 2015, relating to the consolidated financial statements of Duke Energy Corporation and subsidiaries, and the effectiveness of Duke Energy Corporation’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Duke Energy Corporation for the year ended December 31, 2014.
/s/ DELOITTE & TOUCHE LLP

Charlotte, North Carolina
February 27, 2015






Exhibit 23.1.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in Registration Statement No. 333-191462-05 on Form S-3 of our report dated February 27, 2015, relating to the consolidated financial statements of Duke Energy Carolinas, LLC and subsidiaries appearing in this Annual Report on Form 10-K of Duke Energy Carolinas, LLC for the year ended December 31, 2014.
/s/ DELOITTE & TOUCHE LLP

Charlotte, North Carolina
February 27, 2015






Exhibit 23.1.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in Registration Statement No. 333-179835 on Form S-3 of our report dated February 27, 2015, relating to the consolidated financial statements of Progress Energy, Inc. and subsidiaries appearing in this Annual Report on Form 10-K of Progress Energy, Inc. for the year ended December 31, 2014.
/s/ DELOITTE & TOUCHE LLP

Charlotte, North Carolina
February 27, 2015






Exhibit 23.1.4
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in Registration Statement Nos. 333-191462-01 and 333-179835-02 on Form S-3 of our report dated February 27, 2015, relating to the consolidated financial statements of Duke Energy Progress, Inc. and subsidiaries appearing in this Annual Report on Form 10-K of Duke Energy Progress, Inc. for the year ended December 31, 2014.
/s/ DELOITTE & TOUCHE LLP

Charlotte, North Carolina
February 27, 2015






Exhibit 23.1.5
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in Registration Statement Nos. 333-191462-04 and 333-179835-01 on Form S-3 of our report dated February 27, 2015, relating to the consolidated financial statements of Duke Energy Florida, Inc. and subsidiaries appearing in this Annual Report on Form 10-K of Duke Energy Florida, Inc. for the year ended December 31, 2014.
/s/ DELOITTE & TOUCHE LLP

Charlotte, North Carolina
February 27, 2015






Exhibit 23.1.6
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in Registration Statement No. 333-191462-02 on Form S-3 of our report dated February 27, 2015, relating to the consolidated financial statements of Duke Energy Ohio, Inc. and subsidiaries appearing in this Annual Report on Form 10-K of Duke Energy Ohio, Inc. for the year ended December 31, 2014.
/s/ DELOITTE & TOUCHE LLP

Charlotte, North Carolina
February 27, 2015






Exhibit 23.1.7
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in Registration Statement No. 333-191462-03 on Form S-3 of our report dated February 27, 2015, relating to the consolidated financial statements of Duke Energy Indiana, Inc. and subsidiary appearing in this Annual Report on Form 10-K of Duke Energy Indiana, Inc. for the year ended December 31, 2014.
/s/ DELOITTE & TOUCHE LLP

Charlotte, North Carolina
February 27, 2015






EXHIBIT 24.1
DUKE ENERGY CORPORATION
Power of Attorney
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2014
(Annual Report)

The undersigned Duke Energy Corporation, a Delaware corporation and certain of its officers and/or directors, do each hereby constitute and appoint Steven K. Young, David S. Maltz and Brian D. Savoy, and each of them, to act as attorneys-in-fact for and in the respective names, places and stead of the undersigned, to execute, seal, sign and file with the Securities and Exchange Commission the Annual Report of said Duke Energy Corporation on Form 10-K for the year ended December 31, 2014, of said Duke Energy Corporation and any and all amendments thereto, hereby granting to said attorneys-in-fact, and each of them, full power and authority to do and perform all and every act and thing whatsoever requisite, necessary or proper to be done in and about the premises, as fully to all intents and purposes as the undersigned, or any of them, might or could do if personally present, hereby ratifying and approving the acts of said attorneys-in-fact.
Executed as of the 27th day of February, 2015.

DUKE ENERGY CORPORATION
By:
/s/ LYNN J. GOOD
 
Vice Chairman, President and
Chief Executive Officer

(Corporate Seal)
ATTEST:
/s/ AMELIA D. HUNTER
 
Amelia D. Hunter
Assistant Corporate Secretary
 
/s/ LYNN J. GOOD
Vice Chairman, President and
Chief Executive Officer
(Principal Executive Officer and Director)
Lynn J. Good
/s/ STEVEN K. YOUNG
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Steven K. Young
/s/ BRIAN D. SAVOY
Senior Vice President, Chief Accounting Officer and Controller
(Principal Accounting Officer)
Brian D. Savoy
 /s/ G. ALEX BERNHARDT,SR.
(Director)
G. Alex Bernhardt, Sr.
 
 /s/ MICHAEL G. BROWNING
(Director)
Michael G. Browning
 
/s/ HARRIS E. DELOACH, JR.
(Director)
Harris E. DeLoach, Jr.
 





/s/ DANIEL R. DIMICCO
(Director)
Daniel R. DiMicco
 
/s/ JOHH H. FORSGREN
(Director)
John H. Forsgren
 
 /s/ ANN MAYNARD GRAY
(Director and Chairman)
Ann M. Gray
 
 /s/ JAMES H. HANCE, JR.
(Director)
James H. Hance, Jr.
 
 /s/ JOHN T. HERRON
(Director)
John T. Herron
 
 /s/ JAMES B. HYLER, JR.
(Director)
James B. Hyler, Jr.
 
 /s/ WILLIAM E. KENNARD
(Director)
William E. Kennard
 
 /s/ E. MARIE MCKEE
(Director)
E. Marie McKee
 
/s/ E. JAMES REINSCH
(Director)
E. James Reinsch
 
/s/ JAMES T. RHODES
(Director)
James T. Rhodes
 
 /s/ CARLOS A. SALADRIGAS
(Director)
Carlos A. Saladrigas
 






EXHIBIT 24.2
DUKE ENERGY CORPORATION
CERTIFIED RESOLUTIONS
Form 10-K Annual Report Resolutions

FURTHER RESOLVED, That each officer and director who may be required to execute such 2014 Form 10-K or any amendments thereto (whether on behalf of the Corporation or as an officer or director thereof or by attesting the seal of the Corporation or otherwise) be and hereby is authorized to execute a Power of Attorney appointing Lynn J. Good, David S. Maltz and Steven K. Young, and each of them, as true and lawful attorneys and agents to execute in his or her name, place and stead (in any such capacity) such 2014 Form 10-K, as may be deemed necessary and proper by such officers, and any and all amendments thereto and all instruments necessary or advisable in connection therewith, to attest the seal of the Corporation thereon and to file the same with the Securities and Exchange Commission, each of said attorneys and agents to have power to act with or without the others and to have full power and authority to do and perform in the name and on behalf of each of such officers and directors, or both, as the case may be, every act whatsoever necessary or advisable to be done in the premises as fully and to all intents and purposes as any such officer or director might or could do in person.
* * * * * * *
I, JULIA S. JANSON, Executive Vice President, Chief Legal Officer and Corporate Secretary of Duke Energy Corporation, do hereby certify that the foregoing is a full, true and complete extract from the Minutes of the meeting of the Audit Committee of the Board of Directors of said Corporation with full authority delegated to it by the Board of Directors held on February 26, 2015 at which meeting a quorum was present.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Corporate Seal of said Duke Energy Corporation, this the 27th day of February, 2015.
/s/ JULIA S. JANSON
Julia S. Janson, Executive Vice President, Chief Legal Officer
and Corporate Secretary






EXHIBIT 31.1.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lynn J. Good, certify that:
1)        I have reviewed this annual report on Form 10-K of Duke Energy Corporation;
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;
4)        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 Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    LYNN J. GOOD
Lynn J. Good
Vice Chairman, President and
Chief Executive Officer




EXHIBIT 31.1.2
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lynn J. Good, certify that:
1)        I have reviewed this annual report on Form 10-K of Duke Energy Carolinas, LLC;
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;
4)        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 Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
 
/s/    LYNN J. GOOD
Lynn J. Good
Chief Executive Officer




EXHIBIT 31.1.3
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lynn J. Good, certify that:
1)        I have reviewed this annual report on Form 10-K of Progress Energy, 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;
4)        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 Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    LYNN J. GOOD
Lynn J. Good
Chief Executive Officer




EXHIBIT 31.1.4
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lynn J. Good, certify that:
1)        I have reviewed this annual report on Form 10-K of Duke Energy Progress, 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;
4)        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 Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    LYNN J. GOOD
Lynn J. Good
Chief Executive Officer




EXHIBIT 31.1.5
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lynn J. Good, certify that:
1)        I have reviewed this annual report on Form 10-K of Duke Energy Florida, 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;
4)        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 Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    LYNN J. GOOD
Lynn J. Good
Chief Executive Officer




EXHIBIT 31.1.6
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lynn J. Good, certify that:
1)        I have reviewed this annual report on Form 10-K of Duke Energy Ohio, 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;
4)        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 Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    LYNN J. GOOD
Lynn J. Good
Chief Executive Officer




EXHIBIT 31.1.7
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lynn J. Good, 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;
4)        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 Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    LYNN J. GOOD
Lynn J. Good
Chief Executive Officer




EXHIBIT 31.2.1
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven K. Young, certify that:
1)        I have reviewed this annual report on Form 10-K of Duke Energy Corporation;
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;
4)        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 Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer




EXHIBIT 31.2.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven K. Young, certify that:
1)        I have reviewed this annual report on Form 10-K of Duke Energy Carolinas, LLC;
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;
4)        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 Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    STEVEN K. YOUNG
Steven K. Young
 Executive Vice President and Chief Financial Officer




EXHIBIT 31.2.3
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven K. Young, certify that:
1)        I have reviewed this annual report on Form 10-K of Progress Energy, 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;
4)        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 Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    STEVEN K. YOUNG
Steven K. Young
 Executive Vice President and Chief Financial Officer




EXHIBIT 31.2.4
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven K. Young, certify that:
1)        I have reviewed this annual report on Form 10-K of Duke Energy Progress, 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;
4)        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 Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer




EXHIBIT 31.2.5
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven K. Young, certify that:
1)        I have reviewed this annual report on Form 10-K of Duke Energy Florida, 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;
4)        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 Acts Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer




EXHIBIT 31.2.6
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven K. Young, certify that:
1)        I have reviewed this annual report on Form 10-K of Duke Energy Ohio, 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;
4)        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 Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer




EXHIBIT 31.2.7
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven K. Young, 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;
4)        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 Acts Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)       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;
b)       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;
c)       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
d)       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):
a)       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
b)       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: February 27, 2015
/s/    STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer




EXHIBIT 32.1.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Corporation (“Duke Energy”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Vice Chairman, President and Chief Executive Officer of Duke Energy, 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.
/s/    LYNN J. GOOD        
Lynn J. Good
Vice Chairman, President and Chief Executive Officer
February 27, 2015




EXHIBIT 32.1.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Carolinas, 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 Carolinas.
/s/    LYNN J. GOOD        
Lynn J. Good
Vice Chairman, President and Chief Executive Officer
February 27, 2015





EXHIBIT 32.1.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Progress Energy, 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 Progress Energy.
/s/    LYNN J. GOOD
Lynn J. Good
Vice Chairman, President and Chief Executive Officer
February 27, 2015





EXHIBIT 32.1.4
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Progress, Inc.(“Duke Energy Progress) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Progress, 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 Progress.
/s/    LYNN J. GOOD
Lynn J. Good
Vice Chairman, President and Chief Executive Officer
February 27, 2015




EXHIBIT 32.1.5
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Florida, Inc. (“Duke Energy Florida) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Florida, 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 Florida.
/s/    LYNN J. GOOD
Lynn J. Good
Vice Chairman, President and Chief Executive Officer
February 27, 2015




EXHIBIT 32.1.6
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, Chief Executive Officer of Duke Energy Ohio, 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 Ohio.
/s/    LYNN J. GOOD        
Lynn J. Good
Vice Chairman, President and Chief Executive Officer
February 27, 2015




EXHIBIT 32.1.7
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn J. Good, 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.
/s/    LYNN J. GOOD
Lynn J. Good
Vice Chairman, President and Chief Executive Officer
February 27, 2015




EXHIBIT 32.2.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Corporation (“Duke Energy”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy, 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.
/s/    STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer
February 27, 2015




EXHIBIT 32.2.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Carolinas, 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 Carolinas.
/s/    STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer
February 27, 2015




EXHIBIT 32.2.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Progress Energy, 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 Progress Energy.
/s/    STEVEN K. YOUNG        
Steven K. Young
Executive Vice President and Chief Financial Officer
February 27, 2015




EXHIBIT 32.2.4
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Progress, Inc. (“Duke Energy Progress”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Progress, 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 Progress.
/s/    STEVEN K. YOUNG        
Steven K. Young
Executive Vice President and Chief Financial Officer
February 27, 2015




EXHIBIT 32.2.5
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Florida, Inc. (“Duke Energy Florida”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Florida, 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 Florida.
/s/    STEVEN K. YOUNG        
Steven K. Young
Executive Vice President and Chief Financial Officer
February 27, 2015




EXHIBIT 32.2.6
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President and Chief Financial Officer of Duke Energy Ohio, 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 Ohio
/s/    STEVEN K. YOUNG        
Steven K. Young
Executive Vice President and Chief Financial Officer
February 27, 2015




EXHIBIT 32.2.7
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven K. Young, Executive Vice President 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
/s/    STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer
February 27, 2015