UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to
________________________
Commission file number
Registrant, State of Incorporation or Organization,
Address of Principal Executive Offices, and Telephone Number
IRS Employer Identification No.
 
 
1-32853
DUKE ENERGY CORPORATION
(a Delaware corporation)
550 South Tryon Street
Charlotte, North Carolina 28202-1803
704-382-3853
20-2777218
Commission file number
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number
 
Commission file number
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number
1-4928
DUKE ENERGY CAROLINAS, LLC
(a North Carolina limited liability company)
526 South Church Street
Charlotte, North Carolina 28202-1803
704-382-3853
56-0205520
 
1-3274
DUKE ENERGY FLORIDA, LLC
(formerly DUKE ENERGY FLORIDA, INC.)
(a Florida limited liability company)
299 First Avenue North
St. Petersburg, Florida 33701
704-382-3853
59-0247770
1-15929
PROGRESS ENERGY, INC.
(a North Carolina corporation)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
56-2155481
 
1-1232
DUKE ENERGY OHIO, INC.
(an Ohio corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
704-382-3853
31-0240030
1-3382
DUKE ENERGY PROGRESS, LLC
(formerly DUKE ENERGY PROGRESS, INC.)
(a North Carolina limited liability company)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
56-0165465
 
1-3543
DUKE ENERGY INDIANA, INC.
(an Indiana corporation)
1000 East Main Street
Plainfield, Indiana 46168
704-382-3853
35-0594457
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Duke Energy Corporation (Duke Energy)
Yes   x
No ¨
 
Duke Energy Florida, LLC (Duke Energy Florida)
Yes   x
No ¨
Duke Energy Carolinas, LLC (Duke Energy Carolinas)
Yes   x
No ¨
 
Duke Energy Ohio, Inc. (Duke Energy Ohio)
Yes   x
No ¨
Progress Energy, Inc. (Progress Energy)
Yes   x
No ¨
 
Duke Energy Indiana, Inc. (Duke Energy Indiana)
Yes   x
No ¨
Duke Energy Progress, LLC (Duke Energy Progress)
Yes   x
No ¨
 
 
 
 




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Duke Energy
Yes  
No ¨
 
Duke Energy Florida
Yes  
No ¨
Duke Energy Carolinas
Yes  
No ¨
 
Duke Energy Ohio
Yes  
No ¨
Progress Energy
Yes  
No ¨
 
Duke Energy Indiana
Yes  
No ¨
Duke Energy Progress
Yes  
No ¨
 
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Duke Energy
Large accelerated filer  
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Duke Energy Carolinas
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer  
Smaller reporting company ¨
Progress Energy
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer  
Smaller reporting company ¨
Duke Energy Progress
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer  
Smaller reporting company ¨
Duke Energy Florida
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer  
Smaller reporting company ¨
Duke Energy Ohio
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer  
Smaller reporting company ¨
Duke Energy Indiana
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer  
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Duke Energy
Yes ¨
No  
 
Duke Energy Florida
Yes ¨
No  
Duke Energy Carolinas
Yes ¨
No  
 
Duke Energy Ohio
Yes ¨
No  
Progress Energy
Yes ¨
No  
 
Duke Energy Indiana
Yes ¨
No  
Duke Energy Progress
Yes ¨
No  
 
 
 
 
Number of shares of Common stock outstanding at August 4, 2015 :
Registrant
Description
Shares
Duke Energy
Common stock, $0.001 par value
688,330,456
Duke Energy Carolinas
All of the registrant's limited liability company member interests are directly owned by Duke Energy.
Progress Energy
All of the registrant's common stock is directly owned by Duke Energy.
Duke Energy Progress
All of the registrant's limited liability company member interests are indirectly owned by Duke Energy.
Duke Energy Florida
All of the registrant's limited liability company member interests are indirectly owned by Duke Energy.
Duke Energy Ohio
All of the registrant's common stock is indirectly owned by Duke Energy.
Duke Energy Indiana
All of the registrant's common stock is indirectly owned by Duke Energy.
This combined Form 10-Q is filed separately by 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 H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.




TABLE OF CONTENTS
 
 
 
 
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 





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 regulations 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 Crystal River Unit 3 could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process;
Credit ratings of the Duke Energy Registrants may be different from what is expected;
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.



PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS

DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions, except per-share amounts)
2015

 
2014

 
2015

 
2014

Operating Revenues
 
 
 
 
 
 
 
Regulated electric
$
5,090

 
$
5,138

 
$
10,547

 
$
10,688

Nonregulated electric and other
403

 
463

 
780

 
954

Regulated natural gas
96

 
107

 
327

 
329

Total operating revenues
5,589

 
5,708

 
11,654

 
11,971

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power – regulated
1,721

 
1,808

 
3,662

 
3,808

Fuel used in electric generation and purchased power – nonregulated
118

 
126

 
222

 
262

Cost of natural gas and other
26

 
38

 
137

 
154

Operation, maintenance and other
1,422

 
1,396

 
2,848

 
2,845

Depreciation and amortization
790

 
762

 
1,567

 
1,517

Property and other taxes
279

 
311

 
543

 
661

Impairment charges

 
(16
)
 

 
80

Total operating expenses
4,356

 
4,425

 
8,979

 
9,327

Gains on Sales of Other Assets and Other, net
13

 
6

 
27

 
7

Operating Income
1,246

 
1,289

 
2,702

 
2,651

Other Income and Expenses
 
 
 
 
 
 
 
Equity in earnings of unconsolidated affiliates
23

 
33

 
36

 
69

Other income and expenses, net
72

 
89

 
146

 
184

Total other income and expenses
95

 
122

 
182

 
253

Interest Expense
403

 
403

 
806

 
807

Income From Continuing Operations Before Income Taxes
938

 
1,008

 
2,078

 
2,097

Income Tax Expense from Continuing Operations
334

 
282

 
698

 
621

Income From Continuing Operations
604

 
726

 
1,380

 
1,476

(Loss) Income From Discontinued Operations, net of tax
(57
)
 
(113
)
 
34

 
(956
)
Net Income
547

 
613

 
1,414

 
520

Less: Net Income Attributable to Noncontrolling Interests
4

 
4

 
7

 
8

Net Income Attributable to Duke Energy Corporation
$
543

 
$
609

 
$
1,407

 
$
512

 
 
 
 
 
 
 
 
Earnings Per Share – Basic and Diluted
 
 
 
 
 
 
 
Income from continuing operations attributable to Duke Energy Corporation common shareholders
 
 
 
 
 
 
 
Basic
$
0.87

 
$
1.02

 
$
1.96

 
$
2.07

Diluted
$
0.87

 
$
1.02

 
$
1.96

 
$
2.07

(Loss) Income from discontinued operations attributable to Duke Energy Corporation common shareholders
 
 
 
 
 
 
 
Basic
$
(0.09
)
 
$
(0.16
)
 
$
0.05

 
$
(1.35
)
Diluted
$
(0.09
)
 
$
(0.16
)
 
$
0.05

 
$
(1.35
)
Net income attributable to Duke Energy Corporation common shareholders
 
 
 
 
 
 
 
Basic
$
0.78

 
$
0.86

 
$
2.01

 
$
0.72

Diluted
$
0.78

 
$
0.86

 
$
2.01

 
$
0.72

Weighted-average shares outstanding
 
 
 
 
 
 
 
Basic
692

 
707

 
700

 
707

Diluted
692

 
707

 
700

 
707


See Notes to Condensed Consolidated Financial Statements
6


PART I

DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Net Income
$
547

 
$
613

 
$
1,414

 
$
520

Other Comprehensive Income (Loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
9

 
28

 
(116
)
 
52

Pension and OPEB adjustments
7

 
1

 
2

 

Net unrealized gains on cash flow hedges
9

 

 
2

 

Reclassification into earnings from cash flow hedges
1

 
(9
)
 
5

 
(9
)
Unrealized (losses) gains on available-for-sale securities
(3
)
 
2

 
(3
)
 
2

Other Comprehensive Income (Loss), net of tax
23

 
22

 
(110
)
 
45

Comprehensive Income
570

 
635

 
1,304

 
565

Less: Comprehensive Income Attributable to Noncontrolling Interests
3

 
4

 
2

 
9

Comprehensive Income Attributable to Duke Energy Corporation
$
567

 
$
631

 
$
1,302

 
$
556



See Notes to Condensed Consolidated Financial Statements
7


PART I

DUKE ENERGY CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2015
 
December 31, 2014
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
960

 
$
2,036

Receivables (net of allowance for doubtful accounts of $17 at June 30, 2015 and December 31, 2014)
650

 
791

Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $55 at June 30, 2015 and $51 at December 31, 2014)
2,046

 
1,973

Inventory
3,469

 
3,459

Assets held for sale

 
364

Regulatory assets
975

 
1,115

Other
1,498

 
1,837

Total current assets
9,598

 
11,575

Investments and Other Assets
 
 
 
Investments in equity method unconsolidated affiliates
375

 
358

Nuclear decommissioning trust funds
5,529

 
5,546

Goodwill
16,328

 
16,321

Assets held for sale

 
2,642

Other
3,239

 
3,008

Total investments and other assets
25,471

 
27,875

Property, Plant and Equipment
 
 
 
Cost
107,125

 
104,861

Accumulated depreciation and amortization
(35,826
)
 
(34,824
)
Generation facilities to be retired, net
460

 
9

Net property, plant and equipment
71,759

 
70,046

Regulatory Assets and Deferred Debits
 
 
 
Regulatory assets
11,564

 
11,042

Other
183

 
171

Total regulatory assets and deferred debits
11,747

 
11,213

Total Assets
$
118,575

 
$
120,709

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
1,920

 
$
2,271

Notes payable and commercial paper
2,162

 
2,514

Taxes accrued
550

 
569

Interest accrued
419

 
418

Current maturities of long-term debt
2,374

 
2,807

Liabilities associated with assets held for sale

 
262

Regulatory liabilities
245

 
204

Other
1,976

 
2,188

Total current liabilities
9,646

 
11,233

Long-Term Debt
36,795

 
37,213

Deferred Credits and Other Liabilities
 
 
 
Deferred income taxes
13,664

 
13,423

Investment tax credits
420

 
427

Accrued pension and other post-retirement benefit costs
1,152

 
1,145

Liabilities associated with assets held for sale

 
35

Asset retirement obligations
9,490

 
8,466

Regulatory liabilities
6,203

 
6,193

Other
1,588

 
1,675

Total deferred credits and other liabilities
32,517

 
31,364

Commitments and Contingencies


 


Equity
 
 
 
Common stock, $0.001 par value, 2 billion shares authorized; 688 million and 707 million shares outstanding at June 30, 2015 and December 31, 2014, respectively
1

 
1

Additional paid-in capital
37,933

 
39,405

Retained earnings
2,294

 
2,012

Accumulated other comprehensive loss
(648
)
 
(543
)
Total Duke Energy Corporation stockholders' equity
39,580

 
40,875

Noncontrolling interests
37

 
24

Total equity
39,617

 
40,899

Total Liabilities and Equity
$
118,575

 
$
120,709


See Notes to Condensed Consolidated Financial Statements
8


PART I

DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
(in millions)
2015

 
2014

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
1,414

 
$
520

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion (including amortization of nuclear fuel)
1,784

 
1,748

Equity component of AFUDC
(82
)
 
(61
)
Gains on sales of other assets
(29
)
 
(2
)
Impairment charges
37

 
1,388

Deferred income taxes
699

 
(46
)
Equity in earnings of unconsolidated affiliates
(36
)
 
(69
)
Accrued pension and other post-retirement benefit costs
36

 
54

Contributions to qualified pension plans
(132
)
 

Payments for asset retirement obligations
(125
)
 

(Increase) decrease in
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
(29
)
 
116

Receivables
105

 
(118
)
Inventory
2

 
122

Other current assets
(161
)
 
(451
)
Increase (decrease) in
 
 
 
Accounts payable
(288
)
 
(218
)
Taxes accrued
(29
)
 
(84
)
Other current liabilities
(145
)
 
(308
)
Other assets
(63
)
 
(45
)
Other liabilities
(79
)
 
73

Net cash provided by operating activities
2,879

 
2,619

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(3,062
)
 
(2,400
)
Investment expenditures
(98
)
 
(38
)
Acquisitions
(29
)
 
(16
)
Purchases of available-for-sale securities
(2,187
)
 
(1,773
)
Proceeds from sales and maturities of available-for-sale securities
2,200

 
1,793

Net proceeds from the sales of equity investments and other assets
2,832

 
119

Change in restricted cash
(3
)
 
(6
)
Other
53

 
(46
)
Net cash used in investing activities
(294
)
 
(2,367
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the:
 
 
 
Issuance of long-term debt
574

 
2,088

Issuance of common stock related to employee benefit plans
16

 
23

Payments for the redemption of long-term debt
(1,246
)
 
(1,757
)
Proceeds from the issuance of short-term debt with original maturities greater than 90 days
287

 

Payments for the redemption of short-term debt with original maturities greater than 90 days
(664
)
 

Notes payable and commercial paper
12

 
1,024

Distributions to noncontrolling interests
(7
)
 
(9
)
Dividends paid
(1,115
)
 
(1,107
)
Repurchase of common shares
(1,500
)
 

Other
(18
)
 
(7
)
Net cash (used in) provided by financing activities
(3,661
)
 
255

Net (decrease) increase in cash and cash equivalents
(1,076
)
 
507

Cash and cash equivalents at beginning of period
2,036

 
1,501

Cash and cash equivalents at end of period
$
960

 
$
2,008

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
547

 
$
348


See Notes to Condensed Consolidated Financial Statements
9


PART I

DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive Loss
 
 
 
 
 
 
(in millions)
Common
Stock
Shares

 
Common
Stock

 
Additional
Paid-in
Capital

 
Retained
Earnings

 
Foreign Currency Translation Adjustments

 
Net Losses on Cash Flow Hedges

 
Net Gains on Available-for-Sale Securities

 
Pension and OPEB Adjustments

 
Common
Stockholders'
Equity

 
Noncontrolling
Interests

 
Total
Equity

Balance at December 31, 2013
706

 
$
1

 
$
39,365

 
$
2,363

 
$
(307
)
 
$
(40
)
 
$

 
$
(52
)
 
$
41,330

 
$
78

 
$
41,408

Net income

 

 

 
512

 

 

 

 

 
512

 
8

 
520

Other comprehensive income (loss)

 

 

 

 
51

 
(9
)
 
2

 

 
44

 
1

 
45

Common stock issuances, including dividend reinvestment and employee benefits
1

 

 
24

 

 

 

 

 

 
24

 

 
24

Common stock dividends

 

 

 
(1,107
)
 

 

 

 

 
(1,107
)
 

 
(1,107
)
Distributions to noncontrolling interest in subsidiaries

 

 

 

 

 

 

 

 

 
(9
)
 
(9
)
Balance at June 30, 2014
707

 
$
1

 
$
39,389

 
$
1,768

 
$
(256
)
 
$
(49
)
 
$
2

 
$
(52
)
 
$
40,803

 
$
78

 
$
40,881

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
707

 
$
1

 
$
39,405

 
$
2,012

 
$
(439
)
 
$
(59
)
 
$
3

 
$
(48
)
 
$
40,875

 
$
24

 
$
40,899

Net income

 

 

 
1,407

 

 

 

 

 
1,407

 
7

 
1,414

Other comprehensive (loss) income

 

 

 

 
(111
)
 
7

 
(3
)
 
2

 
(105
)
 
(5
)
 
(110
)
Common stock issuances, including dividend reinvestment and employee benefits
1

 

 
28

 

 

 

 

 

 
28

 

 
28

Stock repurchase
(20
)
 

 
(1,500
)
 

 

 

 

 

 
(1,500
)
 

 
(1,500
)
Common stock dividends

 

 

 
(1,115
)
 

 

 

 

 
(1,115
)
 

 
(1,115
)
Distributions to noncontrolling interest in subsidiaries

 

 

 

 

 

 

 

 

 
(7
)
 
(7
)
Other (a)

 

 

 
(10
)
 

 

 

 

 
(10
)
 
18

 
8

Balance at June 30, 2015
688


$
1


$
37,933


$
2,294


$
(550
)

$
(52
)

$


$
(46
)

$
39,580


$
37


$
39,617

(a)
The $18 million change in Noncontrolling Interests is primarily related to an acquisition of majority interest in a solar company for an insignificant amount of cash consideration.

See Notes to Condensed Consolidated Financial Statements
10


PART I


DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Operating Revenues
$
1,707

 
$
1,755

 
$
3,608

 
$
3,755

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power
427

 
503

 
1,005

 
1,161

Operation, maintenance and other
469

 
463

 
958

 
950

Depreciation and amortization
261

 
248

 
510

 
490

Property and other taxes
67

 
100

 
137

 
204

Impairment charges

 
3

 

 
3

Total operating expenses
1,224

 
1,317

 
2,610

 
2,808

Operating Income
483

 
438

 
998

 
947

Other Income and Expenses, net
41

 
44

 
83

 
93

Interest Expense
106

 
102

 
208

 
203

Income Before Income Taxes
418

 
380

 
873

 
837

Income Tax Expense
153

 
110

 
316

 
281

Net Income
$
265

 
$
270

 
$
557

 
$
556

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

 
1

 

 
2

Comprehensive Income
$
265

 
$
271

 
$
557

 
$
558



See Notes to Condensed Consolidated Financial Statements
11


PART I

DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2015

 
December 31, 2014

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
28

 
$
13

Receivables (net of allowance for doubtful accounts of $3 at June 30, 2015 and
December 31, 2014)
76

 
129

Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $6 at June 30, 2015 and December 31, 2014)
692

 
647

Receivables from affiliated companies
106

 
75

Notes receivable from affiliated companies
700

 
150

Inventory
1,154

 
1,124

Regulatory assets
343

 
399

Other
54

 
77

Total current assets
3,153

 
2,614

Investments and Other Assets
 
 
 
Nuclear decommissioning trust funds
3,094

 
3,042

Other
1,041

 
959

Total investments and other assets
4,135

 
4,001

Property, Plant and Equipment
 
 
 
Cost
38,085

 
37,372

Accumulated depreciation and amortization
(13,120
)
 
(12,700
)
Net property, plant and equipment
24,965

 
24,672

Regulatory Assets and Deferred Debits
 
 
 
Regulatory assets
2,631

 
2,465

Other
44

 
42

Total regulatory assets and deferred debits
2,675

 
2,507

Total Assets
$
34,928

 
$
33,794

LIABILITIES AND MEMBER'S EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
494

 
$
709

Accounts payable to affiliated companies
141

 
154

Taxes accrued
225

 
146

Interest accrued
104

 
95

Current maturities of long-term debt
506

 
507

Regulatory liabilities
31

 
34

Other
379

 
434

Total current liabilities
1,880


2,079

Long-Term Debt
8,079

 
7,584

Long-Term Debt Payable to Affiliated Companies
300

 
300

Deferred Credits and Other Liabilities
 
 
 
Deferred income taxes
6,019

 
5,812

Investment tax credits
201

 
204

Accrued pension and other post-retirement benefit costs
109

 
111

Asset retirement obligations
3,604

 
3,428

Regulatory liabilities
2,738

 
2,710

Other
617

 
642

Total deferred credits and other liabilities
13,288

 
12,907

Commitments and Contingencies


 


Member's Equity
 
 
 
Member's equity
11,394

 
10,937

Accumulated other comprehensive loss
(13
)
 
(13
)
Total member's equity
11,381

 
10,924

Total Liabilities and Member's Equity
$
34,928

 
$
33,794


See Notes to Condensed Consolidated Financial Statements
12


PART I

DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
(in millions)
2015

 
2014

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
557

 
$
556

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization (including amortization of nuclear fuel)
670

 
621

Equity component of AFUDC
(48
)
 
(44
)
Impairment charges

 
3

Deferred income taxes
184

 
132

Accrued pension and other post-retirement benefit costs
7

 
11

Contributions to qualified pension plans
(42
)
 

Payments for asset retirement obligations
(60
)
 

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

 
3

Receivables
45

 
(39
)
Receivables from affiliated companies
(31
)
 
(12
)
Inventory
(31
)
 
157

Other current assets
34

 
(150
)
Increase (decrease) in
 
 
 
Accounts payable
(200
)
 
(107
)
Accounts payable to affiliated companies
(13
)
 
(5
)
Taxes accrued
73

 
95

Other current liabilities
(33
)
 
(57
)
Other assets
58

 
6

Other liabilities
(49
)
 
15

Net cash provided by operating activities
1,121

 
1,185

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(954
)
 
(851
)
Purchases of available-for-sale securities
(1,410
)
 
(1,098
)
Proceeds from sales and maturities of available-for-sale securities
1,410

 
1,087

Notes receivable from affiliated companies
(550
)
 
(58
)
Other
8

 
(14
)
Net cash used in investing activities
(1,496
)
 
(934
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt
496

 

Distributions to parent
(100
)
 
(251
)
Other
(6
)
 

Net cash provided by (used in) financing activities
390

 
(251
)
Net increase in cash and cash equivalents
15

 

Cash and cash equivalents at beginning of period
13

 
23

Cash and cash equivalents at end of period
$
28

 
$
23

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
160

 
$
113


See Notes to Condensed Consolidated Financial Statements
13


PART I

DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Changes in Member's Equity
(Unaudited)
 
 
 
Accumulated Other Comprehensive Loss
 
 
(in millions)
Member's
Equity

 
Net Losses on Cash Flow Hedges

 
Net Losses on Available-for-Sale Securities

 
Total

Balance at December 31, 2013
$
10,365

 
$
(14
)
 
$
(1
)
 
$
10,350

Net income
556

 

 

 
556

Other comprehensive income

 
2

 

 
2

Distributions to parent
(251
)
 

 

 
(251
)
Balance at June 30, 2014
$
10,670

 
$
(12
)
 
$
(1
)
 
$
10,657

 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
10,937

 
$
(12
)
 
$
(1
)
 
$
10,924

Net income
557

 

 

 
557

Distributions to parent
(100
)
 

 

 
(100
)
Balance at June 30, 2015
$
11,394

 
$
(12
)
 
$
(1
)
 
$
11,381



See Notes to Condensed Consolidated Financial Statements
14


PART I


PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Operating Revenues
$
2,476

 
$
2,421

 
$
5,012

 
$
4,962

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power
1,003

 
977

 
2,035

 
2,020

Operation, maintenance and other
568

 
555

 
1,133

 
1,150

Depreciation and amortization
283

 
281

 
570

 
557

Property and other taxes
124

 
137

 
235

 
288

Impairment charges

 
(17
)
 

 
(17
)
Total operating expenses
1,978

 
1,933

 
3,973

 
3,998

Gains on Sales of Other Assets and Other, net
6

 

 
14

 
1

Operating Income
504

 
488

 
1,053

 
965

Other Income and Expenses, net
19

 
13

 
46

 
28

Interest Expense
166

 
167

 
334

 
336

Income From Continuing Operations Before Taxes
357

 
334

 
765

 
657

Income Tax Expense From Continuing Operations
140

 
127

 
284

 
246

Income From Continuing Operations
217

 
207

 
481

 
411

Loss From Discontinued Operations, net of tax

 
(5
)
 
(1
)
 
(6
)
Net Income
217

 
202

 
480

 
405

Less: Net Income Attributable to Noncontrolling Interest
2

 

 
5

 
1

Net Income Attributable to Parent
$
215

 
$
202

 
$
475

 
$
404

 
 
 
 
 
 
 
 
Net Income
$
217

 
$
202

 
$
480

 
$
405

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

 

 
2

 
1

Reclassification into earnings from cash flow hedges
1

 
4

 
(1
)
 
4

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

 
(1
)
 

Other Comprehensive Income, net of tax
1


4




5

Comprehensive Income
218

 
206

 
480

 
410

Less: Comprehensive Income Attributable to Noncontrolling Interests
2

 

 
5

 
1

Comprehensive Income Attributable to Parent
$
216


$
206


$
475


$
409



See Notes to Condensed Consolidated Financial Statements
15


PART I

PROGRESS ENERGY, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2015

 
December 31, 2014

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
45

 
$
42

Receivables (net of allowance for doubtful accounts of $5 at June 30, 2015 and $8 at December 31, 2014)
136

 
129

Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $8 at June 30, 2015 and December 31, 2014)
854

 
741

Receivables from affiliated companies
114

 
59

Notes receivable from affiliated companies

 
220

Inventory
1,529

 
1,590

Regulatory assets
435

 
491

Other
709

 
1,285

Total current assets
3,822

 
4,557

Investments and Other Assets
 
 
 
Nuclear decommissioning trust funds
2,435

 
2,503

Goodwill
3,655

 
3,655

Other
803

 
670

Total investments and other assets
6,893

 
6,828

Property, Plant and Equipment
 
 
 
Cost
38,958

 
38,650

Accumulated depreciation and amortization
(13,614
)
 
(13,506
)
Generation facilities to be retired, net
460

 

Net property, plant and equipment
25,804

 
25,144

Regulatory Assets and Deferred Debits
 
 
 
Regulatory assets
5,813

 
5,408

Other
87

 
91

Total regulatory assets and deferred debits
5,900

 
5,499

Total Assets
$
42,419

 
$
42,028

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
689

 
$
847

Accounts payable to affiliated companies
271

 
203

Notes payable to affiliated companies
945

 
835

Taxes accrued
209

 
114

Interest accrued
179

 
184

Current maturities of long-term debt
1,264

 
1,507

Regulatory liabilities
122

 
106

Other
918

 
1,021

Total current liabilities
4,597

 
4,817

Long-Term Debt
12,942

 
13,247

Deferred Credits and Other Liabilities
 
 
 
Deferred income taxes
4,907

 
4,759

Accrued pension and other post-retirement benefit costs
553

 
533

Asset retirement obligations
4,995

 
4,711

Regulatory liabilities
2,387

 
2,379

Other
384

 
406

Total deferred credits and other liabilities
13,226

 
12,788

Commitments and Contingencies

 

Common Stockholder's Equity
 
 
 
Common stock, $0.01 par value, 100 shares authorized and outstanding at June 30, 2015 and December 31, 2014

 

Additional paid-in capital
7,467

 
7,467

Retained earnings
4,255

 
3,782

Accumulated other comprehensive loss
(41
)
 
(41
)
Total common stockholder's equity
11,681

 
11,208

Noncontrolling interests
(27
)
 
(32
)
Total equity
11,654

 
11,176

Total Liabilities and Common Stockholder's Equity
$
42,419

 
$
42,028


See Notes to Condensed Consolidated Financial Statements
16


PART I

PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
(in millions)
2015

 
2014

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
480

 
$
405

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion (including amortization of nuclear fuel)
648

 
642

Equity component of AFUDC
(26
)
 
(9
)
(Gains) losses on sales of other assets
(14
)
 
3

Impairment charges

 
(17
)
Deferred income taxes
358

 
261

Accrued pension and other post-retirement benefit costs
(3
)
 
14

Contributions to qualified pension plans
(42
)
 

Payments for asset retirement obligations
(61
)
 

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

 
14

Receivables
(103
)
 
(166
)
Receivables from affiliated companies
(55
)
 
(15
)
Inventory
62

 
(18
)
Other current assets
215

 
(199
)
Increase (decrease) in
 
 
 
Accounts payable
(182
)
 
(41
)
Accounts payable to affiliated companies
68

 
111

Taxes accrued
94

 
49

Other current liabilities
(9
)
 
(157
)
Other assets
(70
)
 
(71
)
Other liabilities
(32
)
 
(27
)
Net cash provided by operating activities
1,333

 
779

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(1,170
)
 
(888
)
Purchases of available-for-sale securities
(562
)
 
(453
)
Proceeds from sales and maturities of available-for-sale securities
624

 
442

Notes receivable from affiliated companies
220

 
10

Other
4

 
(41
)
Net cash used in investing activities
(884
)
 
(930
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt

 
875

Payments for the redemption of long-term debt
(549
)
 
(473
)
Notes payable to affiliated companies
110

 
(229
)
Distributions to noncontrolling interests
(4
)
 
(2
)
Other
(3
)
 
(40
)
Net cash (used in) provided by financing activities
(446
)
 
131

Net increase (decrease) in cash and cash equivalents
3

 
(20
)
Cash and cash equivalents at beginning of period
42

 
58

Cash and cash equivalents at end of period
$
45

 
$
38

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
271

 
$
156


See Notes to Condensed Consolidated Financial Statements
17


PART I

PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Changes in Common Stockholder's Equity
(Unaudited)
 
 
 
 
 
 
 
Accumulated Other Comprehensive 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 Adjustments

 
Common Stockholder's Equity

 
Noncontrolling
Interests

 
Total
Equity

Balance at December 31, 2013
$

 
$
7,467

 
$
3,452

 
$
(43
)
 
$

 
$
(16
)
 
$
10,860

 
$
4

 
$
10,864

Net income

 

 
404

 

 

 

 
404

 
1

 
405

Other comprehensive income

 

 

 
4

 

 
1

 
5

 

 
5

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(2
)
 
(2
)
Transfer of service company net assets to Duke Energy

 

 
(539
)
 

 

 

 
(539
)
 

 
(539
)
Balance at June 30, 2014
$


$
7,467


$
3,317


$
(39
)

$


$
(15
)

$
10,730


$
3


$
10,733

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$

 
$
7,467

 
$
3,782

 
$
(35
)
 
$
1

 
$
(7
)
 
$
11,208

 
$
(32
)
 
$
11,176

Net income

 

 
475

 

 


 

 
475

 
5

 
480

Other comprehensive (loss) income

 

 

 
(1
)
 
(1
)
 
2

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(4
)
 
(4
)
Other

 

 
(2
)
 

 

 

 
(2
)
 
4

 
2

Balance at June 30, 2015
$


$
7,467


$
4,255


$
(36
)

$


$
(5
)

$
11,681


$
(27
)

$
11,654



See Notes to Condensed Consolidated Financial Statements
18


PART I


DUKE ENERGY PROGRESS, INC. (subsequently DUKE ENERGY PROGRESS, LLC)
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015
 
2014
 
2015

 
2014

Operating Revenues
$
1,193

 
$
1,191

 
$
2,642

 
$
2,613

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power
449

 
454

 
1,024

 
1,027

Operation, maintenance and other
362

 
347

 
737

 
728

Depreciation and amortization
163

 
142

 
315

 
286

Property and other taxes
35

 
54

 
67

 
121

Impairment charges

 
(18
)
 

 
(18
)
Total operating expenses
1,009

 
979

 
2,143

 
2,144

Gains on Sales of Other Assets and Other, net

 

 
1

 
1

Operating Income
184

 
212

 
500

 
470

Other Income and Expenses, net
15

 
7

 
35

 
16

Interest Expense
56

 
58

 
116

 
115

Income Before Income Taxes
143

 
161

 
419

 
371

Income Tax Expense
58

 
60

 
151

 
137

Net Income and Comprehensive Income
$
85

 
$
101

 
$
268

 
$
234



See Notes to Condensed Consolidated Financial Statements
19


PART I

DUKE ENERGY PROGRESS, INC. (subsequently DUKE ENERGY PROGRESS, LLC)
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2015

 
December 31, 2014

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
13

 
$
9

Receivables (net of allowance for doubtful accounts of $3 at June 30, 2015 and $7 at December 31, 2014)
49

 
43

Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $4 at June 30, 2015 and $5 at December 31, 2014)
469

 
436

Receivables from affiliated companies
4

 
10

Notes receivable from affiliated companies

 
237

Inventory
914

 
966

Regulatory assets
316

 
287

Other
49

 
384

Total current assets
1,814

 
2,372

Investments and Other Assets
 
 
 
Nuclear decommissioning trust funds
1,734

 
1,701

Other
464

 
412

Total investments and other assets
2,198

 
2,113

Property, Plant and Equipment
 
 
 
Cost
24,093

 
24,207

Accumulated depreciation and amortization
(8,982
)
 
(9,021
)
Generation facilities to be retired, net
460

 

Net property, plant and equipment
15,571

 
15,186

Regulatory Assets and Deferred Debits
 
 
 
Regulatory assets
3,119

 
2,675

Other
33

 
34

Total regulatory assets and deferred debits
3,152

 
2,709

Total Assets
$
22,735

 
$
22,380

LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
342

 
$
481

Accounts payable to affiliated companies
182

 
120

Notes payable to affiliated companies
192

 

Taxes accrued
113

 
47

Interest accrued
78

 
81

Current maturities of long-term debt
402

 
945

Regulatory liabilities
74

 
71

Other
349

 
409

Total current liabilities
1,732

 
2,154

Long-Term Debt
5,255

 
5,256

Deferred Credits and Other Liabilities
 
 
 
Deferred income taxes
3,012

 
2,908

Accrued pension and other post-retirement benefit costs
281

 
290

Asset retirement obligations
4,262

 
3,905

Regulatory liabilities
1,891

 
1,832

Other
167

 
168

Total deferred credits and other liabilities
9,613

 
9,103

Commitments and Contingencies



Common Stockholder's Equity
 
 
 
Common stock, no par value, 200 million shares authorized; 160 million shares outstanding at June 30, 2015 and December 31, 2014
2,159

 
2,159

Retained earnings
3,976

 
3,708

Total common stockholder's equity
6,135

 
5,867

Total Liabilities and Common Stockholder's Equity
$
22,735

 
$
22,380


See Notes to Condensed Consolidated Financial Statements
20


PART I

DUKE ENERGY PROGRESS, INC. (subsequently DUKE ENERGY PROGRESS, LLC)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
(in millions)
2015

 
2014

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
268

 
$
234

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion (including amortization of nuclear fuel)
389

 
368

Equity component of AFUDC
(23
)
 
(9
)
Gains on sales of other assets and other, net
(1
)
 
(1
)
Impairment charges

 
(18
)
Deferred income taxes
177

 
156

Accrued pension and other post-retirement benefit costs
(7
)
 
(4
)
Contributions to qualified pension plans
(21
)
 

Payments for asset retirement obligations
(32
)
 

(Increase) decrease in
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
(3
)
 
7

Receivables
(64
)
 
(8
)
Receivables from affiliated companies
6

 
(4
)
Inventory
53

 
(22
)
Other current assets
156

 
(151
)
Increase (decrease) in
 
 
 
Accounts payable
(128
)
 
(61
)
Accounts payable to affiliated companies
62

 
59

Taxes accrued
66

 
11

Other current liabilities
(15
)
 
(52
)
Other assets
(31
)
 
(13
)
Other liabilities
(21
)
 
(7
)
Net cash provided by operating activities
831

 
485

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(699
)
 
(540
)
Purchases of available-for-sale securities
(319
)
 
(269
)
Proceeds from sales and maturities of available-for-sale securities
301

 
253

Notes receivable from affiliated companies
237

 

Other
6

 
(34
)
Net cash used in investing activities
(474
)
 
(590
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt

 
650

Payments for the redemption of long-term debt
(544
)
 
(168
)
Notes payable to affiliated companies
192

 
(261
)
Dividends to parent

 
(125
)
Other
(1
)
 
(5
)
Net cash (used in) provided by financing activities
(353
)
 
91

Net increase (decrease) in cash and cash equivalents
4

 
(14
)
Cash and cash equivalents at beginning of period
9

 
21

Cash and cash equivalents at end of period
$
13

 
$
7

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
135

 
$
113


See Notes to Condensed Consolidated Financial Statements
21


PART I

DUKE ENERGY PROGRESS, INC. (subsequently DUKE ENERGY PROGRESS, LLC)
Condensed Consolidated Statements of Changes in Common Stockholder's Equity
(Unaudited)
(in millions)
Common
Stock

 
Retained
Earnings

 
Total
Equity

Balance at December 31, 2013
$
2,159

 
$
3,466

 
$
5,625

Net income

 
234

 
234

Dividends to parent

 
(125
)
 
(125
)
Balance at June 30, 2014
$
2,159

 
$
3,575

 
$
5,734

 
 
 
 
 
 
Balance at December 31, 2014
$
2,159

 
$
3,708

 
$
5,867

Net income

 
268

 
268

Balance at June 30, 2015
$
2,159

 
$
3,976

 
$
6,135



See Notes to Condensed Consolidated Financial Statements
22


PART I


DUKE ENERGY FLORIDA, INC. (subsequently DUKE ENERGY FLORIDA, LLC)
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Operating Revenues
$
1,281

 
$
1,225

 
$
2,367

 
$
2,341

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power
554

 
523

 
1,011

 
993

Operation, maintenance and other
202

 
204

 
390

 
414

Depreciation and amortization
122

 
139

 
256

 
271

Property and other taxes
88

 
83

 
168

 
167

Impairment charges

 

 

 
1

Total operating expenses
966

 
949

 
1,825

 
1,846

Operating Income
315

 
276

 
542

 
495

Other Income and Expenses, net
4

 
6

 
10

 
11

Interest Expense
50

 
50

 
99

 
99

Income Before Income Taxes
269

 
232

 
453

 
407

Income Tax Expense
104

 
90

 
175

 
157

Net Income
$
165

 
$
142

 
$
278

 
$
250

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

 

 

 
1

Comprehensive Income
$
165

 
$
142

 
$
278


$
251



See Notes to Condensed Consolidated Financial Statements
23


PART I

DUKE ENERGY FLORIDA, INC. (subsequently DUKE ENERGY FLORIDA, LLC)
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2015

 
December 31, 2014

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
13

 
$
8

Receivables (net of allowance for doubtful accounts of $2 at June 30, 2015 and
December 31, 2014)
85

 
84

Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $3 at June 30, 2015 and December 31, 2014)
385

 
305

Receivables from affiliated companies
93

 
40

Inventory
615

 
623

Regulatory assets
119

 
203

Other
282

 
521

Total current assets
1,592

 
1,784

Investments and Other Assets
 
 
 
Nuclear decommissioning trust funds
701

 
803

Other
283

 
204

Total investments and other assets
984

 
1,007

Property, Plant and Equipment
 
 
 
Cost
14,854

 
14,433

Accumulated depreciation and amortization
(4,625
)
 
(4,478
)
Net property, plant and equipment
10,229

 
9,955

Regulatory Assets and Deferred Debits
 
 
 
Regulatory assets
2,694

 
2,733

Other
37

 
39

Total regulatory assets and deferred debits
2,731

 
2,772

Total Assets
$
15,536

 
$
15,518

LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
346

 
$
365

Accounts payable to affiliated companies
73

 
70

Notes payable to affiliated companies
221

 
84

Taxes accrued
130

 
65

Interest accrued
45

 
47

Current maturities of long-term debt
562

 
562

Regulatory liabilities
48

 
35

Other
543

 
586

Total current liabilities
1,968

 
1,814

Long-Term Debt
4,293

 
4,298

Deferred Credits and Other Liabilities
 
 
 
Deferred income taxes
2,500

 
2,452

Accrued pension and other post-retirement benefit costs
252

 
221

Asset retirement obligations
733

 
806

Regulatory liabilities
494

 
547

Other
146

 
158

Total deferred credits and other liabilities
4,125

 
4,184

Commitments and Contingencies

 

Common Stockholder's Equity
 
 
 
Common stock, no par; 60 million shares authorized; 100 shares outstanding at June 30, 2015 and December 31, 2014
1,762

 
1,762

Retained earnings
3,388

 
3,460

Total common stockholder's equity
5,150

 
5,222

Total Liabilities and Common Stockholder's Equity
$
15,536

 
$
15,518


See Notes to Condensed Consolidated Financial Statements
24


PART I

DUKE ENERGY FLORIDA, INC. (subsequently DUKE ENERGY FLORIDA, LLC)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
(in millions)
2015

 
2014

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
278

 
$
250

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
258

 
273

Equity component of AFUDC
(2
)
 

Impairment charges

 
1

Deferred income taxes
237

 
84

Accrued pension and other post-retirement benefit costs
3

 
15

Contributions to qualified pension plans
(21
)
 

Payments for asset retirement obligations
(28
)
 

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

 
3

Receivables
(40
)
 
(82
)
Receivables from affiliated companies
(53
)
 
(4
)
Inventory
10

 
4

Other current assets
10

 
(49
)
Increase (decrease) in
 
 
 
Accounts payable
(53
)
 
58

Accounts payable to affiliated companies
3

 
29

Taxes accrued
65

 
108

Other current liabilities
5

 
(94
)
Other assets
(44
)
 
(58
)
Other liabilities
(19
)
 
(29
)
Net cash provided by operating activities
614

 
509

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(471
)
 
(348
)
Purchases of available-for-sale securities
(243
)
 
(183
)
Proceeds from sales and maturities of available-for-sale securities
323

 
188

Notes receivable from affiliated companies

 
(76
)
Other
1

 
(8
)
Net cash used in investing activities
(390
)
 
(427
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt

 
225

Payments for the redemption of long-term debt
(5
)
 
(4
)
Notes payable to affiliated companies
137

 
(181
)
Dividends to parent
(350
)
 
(124
)
Other
(1
)
 
(1
)
Net cash used in financing activities
(219
)
 
(85
)
Net increase (decrease) in cash and cash equivalents
5

 
(3
)
Cash and cash equivalents at beginning of period
8

 
16

Cash and cash equivalents at end of period
$
13

 
$
13

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
136

 
$
44


See Notes to Condensed Consolidated Financial Statements
25


PART I

DUKE ENERGY FLORIDA, INC. (subsequently DUKE ENERGY FLORIDA, LLC)
Condensed Consolidated Statements of Changes in Common Stockholder's Equity
(Unaudited)
 
 
 
 
 
Accumulated Other
Comprehensive Loss
 
 
(in millions)
Common
Stock

 
Retained
Earnings

 
Net Loss on Cash Flow Hedges

 
Total

Balance at December 31, 2013
$
1,762

 
$
3,036

 
$
(1
)
 
$
4,797

Net income

 
250

 

 
250

Other comprehensive income

 

 
1

 
1

Dividends to parent

 
(124
)
 

 
(124
)
Balance at June 30, 2014
$
1,762

 
$
3,162

 
$

 
$
4,924

 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
1,762

 
$
3,460

 
$

 
$
5,222

Net income

 
278

 

 
278

Dividends to parent

 
(350
)
 

 
(350
)
Balance at June 30, 2015
$
1,762

 
$
3,388

 
$

 
$
5,150


See Notes to Condensed Consolidated Financial Statements
26


PART I


DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Operating Revenues
 
 
 
 
 
 
 
Regulated electric
$
299

 
$
307

 
$
638

 
$
646

Nonregulated electric and other
9

 
(2
)
 
23

 
11

Regulated natural gas
97

 
107

 
330

 
330

Total operating revenues
405

 
412

 
991

 
987

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power – regulated
107

 
107

 
222

 
231

Fuel used in electric generation and purchased power – nonregulated
12

 
6

 
26

 
19

Cost of natural gas
12

 
22

 
109

 
121

Operation, maintenance and other
118

 
117

 
246

 
244

Depreciation and amortization
58

 
56

 
115

 
113

Property and other taxes
57

 
44

 
127

 
112

Impairment charges

 

 

 
94

Total operating expenses
364

 
352

 
845

 
934

Gains on Sales of Other Assets and Other, net
2

 

 
8

 

Operating Income
43

 
60

 
154

 
53

Other Income and Expenses, net
(5
)
 
3

 
(2
)
 
6

Interest Expense
18

 
20

 
38

 
40

Income From Continuing Operations Before Income Taxes
20

 
43

 
114

 
19

Income Tax Expense From Continuing Operations
7

 
15

 
42

 
6

Income From Continuing Operations
13

 
28

 
72

 
13

(Loss) Income From Discontinued Operations, net of tax
(65
)
 
(135
)
 
25

 
(1,010
)
Net (Loss) Income and Comprehensive (Loss) Income
$
(52
)
 
$
(107
)
 
$
97

 
$
(997
)


See Notes to Condensed Consolidated Financial Statements
27


PART I

DUKE ENERGY OHIO, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2015

 
December 31, 2014

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
22

 
$
20

Receivables (net of allowance for doubtful accounts of $2 at June 30, 2015 and December 31, 2014)
84

 
93

Receivables from affiliated companies
61

 
107

Notes receivable from affiliated companies
15

 
145

Inventory
102

 
97

Assets held for sale

 
316

Regulatory assets
29

 
49

Other
142

 
167

Total current assets
455

 
994

Investments and Other Assets
 
 
 
Goodwill
920

 
920

Assets held for sale

 
2,605

Other
16

 
23

Total investments and other assets
936

 
3,548

Property, Plant and Equipment
 
 
 
Cost
7,613

 
7,141

Accumulated depreciation and amortization
(2,496
)
 
(2,213
)
Generation facilities to be retired, net

 
9

Net property, plant and equipment
5,117

 
4,937

Regulatory Assets and Deferred Debits
 
 
 
Regulatory assets
506

 
512

Other
8

 
8

Total regulatory assets and deferred debits
514

 
520

Total Assets
$
7,022

 
$
9,999

LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
193

 
$
209

Accounts payable to affiliated companies
93

 
74

Notes payable to affiliated companies
5

 
491

Taxes accrued
117

 
163

Interest accrued
18

 
19

Current maturities of long-term debt
56

 
157

Liabilities associated with assets held for sale

 
246

Regulatory liabilities
34

 
10

Other
154

 
66

Total current liabilities
670

 
1,435

Long-Term Debt
1,524

 
1,584

Long-Term Debt Payable to Affiliated Companies
25

 
25

Deferred Credits and Other Liabilities
 
 
 
Deferred income taxes
1,330

 
1,765

Accrued pension and other post-retirement benefit costs
56

 
48

Liabilities associated with assets held for sale

 
34

Asset retirement obligations
143

 
27

Regulatory liabilities
247

 
241

Other
168

 
166

Total deferred credits and other liabilities
1,944

 
2,281

Commitments and Contingencies

 

Common Stockholder's Equity
 
 
 
Common stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at June 30, 2015 and December 31, 2014
762

 
762

Additional paid-in capital
2,870

 
4,782

Accumulated deficit
(773
)
 
(870
)
Total common stockholder's equity
2,859

 
4,674

Total Liabilities and Common Stockholder's Equity
$
7,022

 
$
9,999


See Notes to Condensed Consolidated Financial Statements
28


PART I

DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
(in millions)
2015

 
2014

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income (loss)
$
97

 
$
(997
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
117

 
154

Equity component of AFUDC
(2
)
 
(2
)
Gains on sales of other assets and other, net
(8
)
 

Impairment charges
40

 
1,438

Deferred income taxes
62

 
(513
)
Accrued pension and other post-retirement benefit costs
4

 
4

Contributions to qualified pension plans
(1
)
 

Payments for asset retirement obligations
(1
)
 

(Increase) decrease in
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
(12
)
 
139

Receivables
6

 
(98
)
Receivables from affiliated companies
46

 
48

Inventory
3

 
(4
)
Other current assets
32

 
(30
)
Increase (decrease) in
 
 
 
Accounts payable
(12
)
 
(6
)
Accounts payable to affiliated companies
19

 
(3
)
Taxes accrued
(68
)
 
(74
)
Other current liabilities
99

 
(9
)
Other assets
19

 
(36
)
Other liabilities
(52
)
 
(8
)
Net cash provided by operating activities
388

 
3

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(166
)
 
(167
)
Notes receivable from affiliated companies
130

 
(127
)
Other
(4
)
 

Net cash used in investing activities
(40
)
 
(294
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Payments for the redemption of long-term debt
(152
)
 
(405
)
Notes payable to affiliated companies
(193
)
 
785

Dividends to parent

 
(100
)
Other
(1
)
 

Net cash (used in) provided by financing activities
(346
)
 
280

Net increase (decrease) in cash and cash equivalents
2

 
(11
)
Cash and cash equivalents at beginning of period
20

 
36

Cash and cash equivalents at end of period
$
22

 
$
25

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
19

 
$
19

Distribution of membership interest of Duke Energy SAM, LLC to parent
$
1,912

 
$


See Notes to Condensed Consolidated Financial Statements
29


PART I

DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Changes in Common Stockholder's Equity
(Unaudited)
(in millions)
Common
Stock

 
Additional
Paid-in
Capital

 
Accumulated Deficit

 
Total

Balance at December 31, 2013
$
762

 
$
4,882

 
$
(375
)
 
$
5,269

Net loss

 

 
(997
)
 
(997
)
Dividends to parent

 
(100
)
 

 
(100
)
Balance at June 30, 2014
$
762

 
$
4,782

 
$
(1,372
)
 
$
4,172

 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
762

 
$
4,782

 
$
(870
)
 
$
4,674

Net income

 

 
97

 
97

Distribution of membership interest of Duke Energy SAM, LLC to parent

 
(1,912
)
 

 
(1,912
)
Balance at June 30, 2015
$
762


$
2,870


$
(773
)

$
2,859



See Notes to Condensed Consolidated Financial Statements
30


PART I


DUKE ENERGY INDIANA, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Operating Revenues
$
686

 
$
748

 
$
1,474

 
$
1,593

Operating Expenses
 
 
 
 
 
 
 
Fuel used in electric generation and purchased power
235

 
287

 
529

 
626

Operation, maintenance and other
180

 
159

 
361

 
325

Depreciation and amortization
107

 
103

 
211

 
205

Property and other taxes
19

 
21

 
18

 
44

Total operating expenses
541

 
570

 
1,119

 
1,200

Gain on Sale of Other Assets and Other, net
1




1

 

Operating Income
146

 
178

 
356

 
393

Other Income and Expenses, net
4

 
4

 
9

 
11

Interest Expense
43

 
44

 
88

 
87

Income Before Income Taxes
107

 
138

 
277

 
317

Income Tax Expense
39

 
51

 
101

 
117

Net Income
$
68

 
$
87

 
$
176

 
$
200

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

 

 
(1
)
 

Comprehensive Income
$
68

 
$
87

 
$
175

 
$
200



See Notes to Condensed Consolidated Financial Statements
31


PART I

DUKE ENERGY INDIANA, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
June 30, 2015

 
December 31, 2014

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
12

 
$
6

Receivables (net of allowance for doubtful accounts of $1 at June 30, 2015 and December 31, 2014)
86

 
87

Receivables from affiliated companies
109

 
115

Notes receivable from affiliated companies
25

 

Inventory
579

 
537

Regulatory assets
91

 
93

Other
124

 
326

Total current assets
1,026

 
1,164

Investments and Other Assets
 
 
 
Other
250

 
251

Total investments and other assets
250

 
251

Property, Plant and Equipment
 
 
 
Cost
13,667

 
13,034

Accumulated depreciation and amortization
(4,344
)
 
(4,219
)
Net property, plant and equipment
9,323

 
8,815

Regulatory Assets and Deferred Debits
 
 
 
Regulatory assets
707

 
685

Other
23

 
24

Total regulatory assets and deferred debits
730

 
709

Total Assets
$
11,329

 
$
10,939

LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
165

 
$
179

Accounts payable to affiliated companies
60

 
58

Notes payable to affiliated companies

 
71

Taxes accrued
33

 
54

Interest accrued
58

 
56

Current maturities of long-term debt
330

 
5

Regulatory liabilities
57

 
54

Other
90

 
98

Total current liabilities
793

 
575

Long-Term Debt
3,311

 
3,636

Long-Term Debt Payable to Affiliated Companies
150

 
150

Deferred Credits and Other Liabilities
 
 
 
Deferred income taxes
1,696

 
1,591

Investment tax credits
138

 
139

Accrued pension and other post-retirement benefit costs
82

 
82

Asset retirement obligations
453

 
32

Regulatory liabilities
776

 
796

Other
57

 
90

Total deferred credits and other liabilities
3,202

 
2,730

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 June 30, 2015 and December 31, 2014
1

 
1

Additional paid-in capital
1,384

 
1,384

Retained earnings
2,486

 
2,460

Accumulated other comprehensive income
2

 
3

Total common stockholder's equity
3,873

 
3,848

Total Liabilities and Common Stockholder's Equity
$
11,329

 
$
10,939


See Notes to Condensed Consolidated Financial Statements
32


PART I

DUKE ENERGY INDIANA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
(in millions)
2015

 
2014

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
176

 
$
200

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
214

 
206

Equity component of AFUDC
(6
)
 
(6
)
Gain on sale of other assets and other, net
(1
)
 

Deferred income taxes
232

 
45

Accrued pension and other post-retirement benefit costs
6

 
7

Contributions to qualified pension plans
(9
)
 

Payments for asset retirement obligations
(3
)
 

(Increase) decrease in
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
(2
)
 

Receivables
(1
)
 
(19
)
Receivables from affiliated companies
6

 
43

Inventory
(42
)
 
(6
)
Other current assets
87

 
(16
)
Increase (decrease) in
 
 
 
Accounts payable
26

 
(47
)
Accounts payable to affiliated companies
2

 
13

Taxes accrued
(21
)
 
51

Other current liabilities
5

 
(4
)
Other assets
(31
)
 
(8
)
Other liabilities
(43
)
 
35

Net cash provided by operating activities
595

 
494

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(380
)
 
(291
)
Purchases of available-for-sale securities
(4
)
 
(9
)
Proceeds from sales and maturities of available-for-sale securities
3

 
6

Proceeds from the sales of other assets
14

 

Notes receivable from affiliated companies
(25
)
 
21

Other
25

 
3

Net cash used in investing activities
(367
)
 
(270
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Payments for the redemption of long-term debt

 
(1
)
Notes payable to affiliated companies
(71
)
 

Dividends to parent
(150
)
 
(225
)
Other
(1
)
 
(1
)
Net cash used in financing activities
(222
)
 
(227
)
Net increase (decrease) in cash and cash equivalents
6

 
(3
)
Cash and cash equivalents at beginning of period
6

 
15

Cash and cash equivalents at end of period
$
12

 
$
12

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
46

 
$
43


See Notes to Condensed Consolidated Financial Statements
33


PART I

DUKE ENERGY INDIANA, INC.
Condensed Consolidated Statements of Changes in Common Stockholder's Equity
(Unaudited)
 
 
 
 
 
 
 
Accumulated Other Comprehensive Income
 
 
(in millions)
Common
Stock

 
Additional
Paid-in
Capital

 
Retained
Earnings

 
Net Gains on Cash Flow Hedges

 
Total

Balance at December 31, 2013
$
1

 
$
1,384

 
$
2,551

 
$
3

 
$
3,939

Net income

 

 
200

 

 
200

Dividends to parent

 

 
(225
)
 

 
(225
)
Balance at June 30, 2014
$
1

 
$
1,384

 
$
2,526

 
$
3

 
$
3,914

 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
1

 
$
1,384

 
$
2,460

 
$
3

 
$
3,848

Net income

 

 
176

 

 
176

Other comprehensive loss

 

 

 
(1
)
 
(1
)
Dividends to parent

 

 
(150
)
 

 
(150
)
Balance at June 30, 2015
$
1

 
$
1,384

 
$
2,486

 
$
2

 
$
3,873



See Notes to Condensed Consolidated Financial Statements
34


PART I
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 Condensed Consolidated Financial Statements
(Unaudited)


Index to Combined Notes to Condensed Consolidated Financial Statements
The unaudited notes to the condensed consolidated financial statements that follow are a combined presentation. The following list indicates the registrants to which the footnotes apply.
 
Applicable Notes
Registrant
1
 
2
 
3
 
4
 
5
 
6
 
7
 
8
 
9
 
10
 
11
 
12
 
13
 
14
 
15
 
16
 
17
 
18
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 . ORGANIZATION AND BASIS OF PRESENTATION
NATURE OF OPERATIONS AND BASIS OF CONSOLIDATION
Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy operates in the United States (U.S.) 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, LLC (Duke Energy Progress, formerly Duke Energy Progress, Inc.); Duke Energy Florida, LLC (Duke Energy Florida, formerly Duke Energy Florida, Inc.); 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).
These Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries where the respective Duke Energy Registrants have control. These Condensed Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities.
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.
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. On August 1, 2015, Duke Energy Progress, a North Carolina corporation, converted into a North Carolina limited liability company.
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. On August 1, 2015, Duke Energy Florida, a Florida corporation, converted into a Florida limited liability company.
Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in portions of Ohio and Kentucky, in the generation and sale of electricity in portions of Kentucky, and the transportation and sale of natural gas in portions of Ohio and Kentucky. Duke Energy Ohio conducts competitive auctions for retail electricity supply in Ohio whereby the full requirements service price is recovered from retail customers. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky). References herein to Duke Energy Ohio collectively include Duke Energy Ohio and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subject to the regulatory provisions of the Public Utilities Commission of Ohio (PUCO), Kentucky Public Service Commission (KPSC) and FERC. On April 2, 2015, Duke Energy completed the sale of its nonregulated Midwest generation business, which sold power into wholesale energy markets, to a subsidiary of Dynegy Inc. (Dynegy). See Note 2 (Midwest Generation Exit) for additional information. Substantially all of Duke Energy Ohio’s operations that remain after the sale qualify for regulatory accounting.

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.

35


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

BASIS OF PRESENTATION
Duke Energy completed the sale of Duke Energy Ohio's nonregulated Midwest generation business and Duke Energy Retail Sales LLC (Duke Energy Retail), a retail sales business owned by Duke Energy, to Dynegy on April 2, 2015. The results of operations of these businesses prior to the date of sale have been classified as Discontinued Operations on the Condensed Consolidated Statements of Operations for all 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 Condensed Consolidated Financial Statements exclude amounts related to discontinued operations, assets held for sale and liabilities associated with assets held for sale. See Note 2 (Midwest Generation Exit) for additional information.
These Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all information and notes required by GAAP in the U.S. for annual financial statements. Since the interim Condensed Consolidated Financial Statements and Notes do not include all information and notes required by GAAP in the U.S. for annual financial statements, the Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and Notes in the Duke Energy Registrants’ combined Annual Report on Form 10-K for the year ended December 31, 2014 .
The information in these combined notes relate to each of the Duke Energy Registrants as noted in the Index to Combined Notes to Condensed Consolidated Financial Statements. However, none of the registrants makes any representations as to information related solely to Duke Energy or the subsidiaries of Duke Energy other than itself.

These Condensed Consolidated Financial Statements reflect all normal recurring adjustments in the opinion of the respective companies’ management, necessary to fairly present the financial position and results of operations of each of the Duke Energy Registrants. Amounts reported in Duke Energy’s interim Condensed Consolidated Statements of Operations and each of the Subsidiary Registrants’ interim Condensed Consolidated Statements of Operations and Comprehensive Income are not necessarily indicative of amounts expected for the respective annual periods due to effects of seasonal temperature variations on energy consumption, regulatory rulings, timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors.
In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to the current year presentation.
UNBILLED REVENUE
Revenues on sales of electricity and natural gas are recognized when service is provided or the product is delivered. Unbilled revenues are recognized by applying customer billing rates to the estimated volumes of energy 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.
Unbilled revenues are included within Receivables and Restricted receivables of variable interest entities on the Condensed Consolidated Balance Sheets as shown in the following table.
(in millions)
June 30, 2015

 
December 31, 2014

Duke Energy
$
821

 
$
827

Duke Energy Carolinas
314

 
295

Progress Energy
224

 
217

Duke Energy Progress
117

 
135

Duke Energy Florida
107

 
82

Duke Energy Ohio
2

 

Duke Energy Indiana
30

 
27

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 Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 13 for further information. These receivables for unbilled revenues are shown in the table below.
(in millions)
June 30, 2015

 
December 31, 2014

Duke Energy Ohio
$
67

 
$
79

Duke Energy Indiana
98

 
112


36


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

AMOUNTS ATTRIBUTABLE TO CONTROLLING INTERESTS
Loss From Discontinued Operations, net of tax presented on the respective Condensed Consolidated Statements of Operations for Duke Energy and Progress Energy, is attributable only to controlling interests for all periods presented. Other comprehensive income reported on the Condensed Consolidated Statements of Changes in Equity for Progress Energy is attributable only to controlling interests for all periods presented.
 
 
ACCUMULATED OTHER COMPREHENSIVE INCOME
For the three and six months ended June 30, 2015 and 2014 , reclassifications out of accumulated other comprehensive income (AOCI) for the Duke Energy Registrants were not material. Changes in AOCI for the Duke Energy Registrants are presented in their respective Condensed Consolidated Statements of Equity.
EXCISE TAXES
Certain excise taxes levied by state or local governments are required to be paid even if not collected from the customer. These taxes are recognized on a gross basis. Otherwise, excise taxes are accounted for net.
Excise taxes recognized on a gross basis are recorded as Operating Revenues and Property and other taxes on the Condensed Consolidated Statements of Operations. The following table provides the amount of excise taxes accounted for on a gross basis.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Duke Energy
$
97


$
151


$
197


$
318

Duke Energy Carolinas
9

 
43

 
18

 
89

Progress Energy
57

 
74

 
106

 
151

Duke Energy Progress
4

 
24

 
8

 
56

Duke Energy Florida
53

 
50

 
98

 
95

Duke Energy Ohio
23

 
25

 
55

 
59

Duke Energy Indiana
8

 
9

 
18

 
19

NEW ACCOUNTING STANDARDS
The new accounting standards adopted for 2015 and 2014 had no significant impact on the presentation or results of operations, cash flows or financial position of the Duke Energy Registrants.
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 revised accounting guidance is effective on a prospective basis for qualified disposals of components or classifications as held for sale that occur after January 1, 2015. Under the standard, the guidance is not effective for a component classified as held for sale before the effective date even if the disposal occurs after the effective date of the guidance. Duke Energy has not reported any discontinued operations under the revised accounting guidance.
The following new Accounting Standards Updates (ASUs) have been issued, but have not yet been adopted by the Duke Energy Registrants, as of June 30, 2015 .
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 revised accounting 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 the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
For the Duke Energy Registrants, this revised accounting guidance is effective for interim and annual periods beginning January 1, 2017. The FASB has approved the issuance of a new ASU to allow companies a one year delay of implementation. Duke Energy is currently evaluating requirements, and the ultimate impact of the revised accounting guidance has not yet been determined.
ASC 835 – Presentation of Debt Issuance Costs. In April 2015, the FASB issued revised accounting guidance for the presentation of debt issuance costs. The core principle of this revised accounting guidance is that debt issuance costs are not assets, but adjustments to the carrying cost of debt.

37


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

This revised accounting guidance would be effective retroactively for Duke Energy beginning January 1, 2016, but can be adopted earlier. Based on the amount of debt issuance costs reported in the Consolidated Balance Sheets as of December 31, 2014, Duke Energy would record a reduction of approximately $118 million in Regulatory Assets and Deferred Debits and Long-Term Debt. Duke Energy is currently evaluating whether implementation will occur prior to the first quarter of 2016.
2 . ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
Purchase of NCEMPA's Generation
On July 31, 2015, Duke Energy Progress completed the purchase of North Carolina Eastern Municipal Power Agency’s (NCEMPA) ownership interests in certain generating assets, fuel and spare parts inventory jointly owned with and operated by Duke Energy Progress for approximately $1.25 billion , which exceeds the historical carrying value of the assets acquired by $350 million . This purchase acquisition adjustment is recoverable in wholesale and retail rates, as described below. The purchase resulted in the acquisition of a total of approximately 700 megawatts (MW) of generating capacity at Brunswick Nuclear Plant, Shearon Harris Nuclear Plant, Mayo Plant and Roxboro Steam Plant. In connection with this transaction, Duke Energy Progress and NCEMPA entered into a 30-year wholesale power agreement, whereby Duke Energy Progress will sell power to NCEMPA to continue to meet the needs of NCEMPA customers.
Duke Energy Progress received FERC approval for inclusion of the purchase acquisition adjustment in wholesale power formula rates on December 9, 2014. On July 8, 2015, the NCUC adopted a new rule that enables a rider mechanism for recovery of the costs to acquire, operate and maintain interests in the assets purchased as allocated to Duke Energy Progress' North Carolina retail operations, including the purchase acquisition adjustment. Duke Energy Progress plans to petition the PSCSC for an order to allow the deferral of these costs as allocated to Duke Energy Progress' South Carolina retail operations until the costs are reflected in Duke Energy Progress' retail rates in South Carolina.
DISPOSITIONS
Midwest Generation Exit
Duke Energy, through indirect subsidiaries, completed the sale of the nonregulated Midwest generation business and Duke Energy Retail (Disposal Group) to a subsidiary of Dynegy on April 2, 2015, for approximately $2.8 billion in cash. On April 1, 2015, prior to the sale, Duke Energy Ohio distributed its indirect ownership interest in the nonregulated Midwest generation business to a subsidiary of Duke Energy Corporation.
The assets and liabilities of the Disposal Group prior to the sale were included in the Commercial Portfolio (formerly Commercial Power) segment and classified as held for sale in Duke Energy's and Duke Energy Ohio's Condensed Consolidated Balance Sheet. 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 (d)

 
Owned MW Capacity (d)

 
Ownership Interest

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

 
900

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

 
605

 
46.5
%
Hanging Rock
Combined Cycle
 
Natural Gas
 
OH
 
1,226

 
1,226

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

 
652

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

 
312

 
40
%
Washington
Combined Cycle
 
Natural Gas
 
OH
 
617

 
617

 
100
%
Fayette
Combined Cycle
 
Natural Gas
 
PA
 
614

 
614

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

 
198

 
33
%
Lee
Combustion Turbine
 
Natural Gas
 
IL
 
568

 
568

 
100
%
Dick's Creek
Combustion Turbine
 
Natural 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 America Electric Power Generation Resources and The Dayton Power & Light Company.
(b)
Jointly owned with The Dayton Power & Light Company.
(c)
Facility was not operated by Duke Energy Ohio.
(d)
Total Megawatt (MW) capacity is based on summer capacity.
The Disposal Group also included 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 is seeking cost-based recovery of its contractual entitlement in OVEC in its 2014 Electric Security Plan (ESP) application. See Note 4 for information related to the 2014 ESP.
The results of operations of the Disposal Group prior to the date of sale are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. Certain immaterial costs that may be eliminated as a result of the sale have remained in continuing operations. The following table presents the results of discontinued operations.

38


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

Duke Energy
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Operating Revenues
$

 
$
245

 
$
543

 
$
613

Gain (Loss) on disposition (a)
6

 
(20
)
 
(37
)
 
(1,307
)
 
 
 
 
 
 
 
 
(Loss) Income before income taxes (b)
$
(80
)
 
$
(184
)
 
$
67

 
$
(1,487
)
Income tax (benefit) expense
(21
)
 
(73
)
 
30

 
(539
)
(Loss) Income from discontinued operations of the Disposal Group
(59
)
 
(111
)
 
37

 
(948
)
Other, net of tax (c)
2

 
(2
)
 
(3
)
 
(8
)
(Loss) Income from Discontinued Operations, net of tax
$
(57
)
 
$
(113
)
 
$
34

 
$
(956
)
(a)
The Gain (Loss) on disposition includes impairments recorded to write down the carrying amount of the assets to the estimated fair value of the business, based on the selling price to Dynegy less cost to sell.
(b)
The (Loss) Income before income taxes includes the pretax impact of a $71 million and $81 million charge for the agreement in principle reached in a lawsuit related to the Disposal Group for the three and six months ended June 30, 2015, respectively. Refer to Note 5 for further information related to the lawsuit.
(c)
Includes other discontinued operations related to prior sales of businesses and includes indemnifications provided for certain legal, tax and environmental matters, and foreign currency translation adjustments.

Duke Energy Ohio
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Operating Revenues
$

 
$
122

 
$
412

 
$
317

Loss on disposition (a)

 
(21
)
 
(44
)
 
(1,344
)
 
 
 
 
 
 
 
 
(Loss) Income before income taxes (b)
$
(88
)
 
$
(210
)
 
$
52

 
$
(1,564
)
Income tax (benefit) expense
(23
)
 
(75
)
 
27

 
(554
)
(Loss) Income from Discontinued Operations, net of tax
$
(65
)
 
$
(135
)
 
$
25

 
$
(1,010
)
(a)
The Loss on disposition includes impairments recorded to write down the carrying amount of the assets to the estimated fair value of the business, based on the selling price to Dynegy less cost to sell.
(b)
The (Loss) Income before income taxes includes the pretax impact of a $71 million and $81 million charge for the agreement in principle reached in a lawsuit related to the Disposal Group for the three and six months ended June 30, 2015, respectively. Refer to Note 5 for further information related to the lawsuit.
Commercial Portfolio has a revolving credit agreement (RCA) which was used to support the operations of the nonregulated Midwest generation business. Interest expense associated with the RCA was allocated to discontinued operations. No other interest expense related to corporate level debt was allocated to discontinued operations.
Duke Energy Ohio had a power purchase agreement with the Disposal Group for a portion of its standard service offer (SSO) supply requirement. The agreement and the SSO expired in May 2015. Duke Energy will also provide, and receive reimbursement for, transition services provided to Dynegy for a period of up to 12 months. The continuing cash flows are not considered direct cash flows and are not expected to be material. Duke Energy or Duke Energy Ohio will not significantly influence the operations of the Disposal Group during the transition service period.
See Notes 4 and 5 for a discussion of contingencies related to the Disposal Group that are retained by Duke Energy Ohio subsequent to the sale.
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 Condensed 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 of the business.
Products and services are sold between affiliate companies and reportable segments of Duke Energy at cost. Segment assets presented in the following tables exclude all intercompany assets.

39


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

DUKE ENERGY
Duke Energy has the following reportable operating segments: Regulated Utilities, International Energy and Commercial Portfolio.
Regulated Utilities conducts electric and natural gas operations that are substantially all regulated and, accordingly, qualify for regulatory accounting treatment. These operations are primarily conducted through the Subsidiary Registrants and are subject to the rules and regulations of the FERC, NRC, NCUC, PSCSC, FPSC, PUCO, IURC and KPSC.
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 relate to 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 Portfolio builds, develops and operates wind and solar renewable generation and energy transmission projects throughout the continental U.S. The segment was renamed as a result of the sale of the nonregulated Midwest generation business, as discussed in Note 2 . For periods subsequent to the sale, beginning in the second quarter of 2015, certain immaterial results of operations and related assets previously presented in the Commercial Portfolio segment are presented in Regulated Utilities and Other.
The remainder of Duke Energy’s operations is presented as Other, which is primarily comprised of unallocated corporate interest expense, unallocated corporate costs, contributions to The Duke Energy Foundation, and the operations of Duke Energy’s wholly owned captive insurance subsidiary, Bison Insurance Company Limited (Bison).
 
Three Months Ended June 30, 2015
(in millions)
Regulated Utilities

 
International
Energy

 
Commercial
Portfolio

 
Total
Reportable
Segments

 
Other

 
Eliminations

 
Consolidated

Unaffiliated revenues
$
5,211

 
$
287

 
$
75

 
$
5,573

 
$
16

 
$

 
$
5,589

Intersegment revenues
9

 

 

 
9

 
18

 
(27
)
 

Total revenues
$
5,220

 
$
287

 
$
75

 
$
5,582

 
$
34

 
$
(27
)
 
$
5,589

Segment income (loss) (a)(b)
$
632

 
$
52

 
$
(33
)
 
$
651

 
$
(48
)
 
$
(3
)
 
$
600

Add back noncontrolling interests component
 
 
 
 
 
 
 
 
 
 
 
 
4

Loss from discontinued operations, net of tax (c)
 
 
 
 
 
 
 
 
 
 
 
 
(57
)
Net income
 
 
 
 
 
 
 
 
 
 
 
 
$
547

Segment assets
$
108,139

 
$
3,913

 
$
3,462

 
$
115,514

 
$
2,880

 
$
181

 
$
118,575

(a)    Other includes after-tax costs to achieve the Progress Energy merger of $ 14 million .
(b)
Commercial Portfolio includes state tax expense of $41 million , resulting from changes to state apportionment factors due to the sale of the Disposal Group, that does not qualify for discontinued operations. Refer to Note 2 for further information related to the sale.
(c)
Includes the after-tax impact of $46 million for the agreement in principle reached in a lawsuit related to the Disposal Group. Refer to Note 5 for further information related to the lawsuit.
 
Three Months Ended June 30, 2014
(in millions)
Regulated Utilities

 
International
Energy

 
Commercial
Portfolio

 
Total
Reportable
Segments

 
Other

 
Eliminations

 
Consolidated

Unaffiliated revenues
$
5,272

 
$
364

 
$
64

 
$
5,700

 
$
8

 
$

 
$
5,708

Intersegment revenues
11

 

 

 
11

 
21

 
(32
)
 

Total revenues
$
5,283

 
$
364

 
$
64

 
$
5,711

 
$
29

 
$
(32
)
 
$
5,708

Segment income (loss) (a)
$
689

 
$
146

 
$
(21
)
 
$
814

 
$
(90
)
 
$
(2
)
 
$
722

Add back noncontrolling interests component
 
 
 
 
 
 
 
 
 
 
 
 
4

Loss from discontinued operations, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
(113
)
Net income
 
 
 
 
 
 
 
 
 
 
 
 
$
613

(a)     Other includes after-tax costs to achieve the Progress Energy merger of $ 38 million .

40


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

 
Six Months Ended June 30, 2015
(in millions)
Regulated Utilities

 
International
Energy

 
Commercial
Portfolio

 
Total
Reportable
Segments

 
Other

 
Eliminations

 
Consolidated

Unaffiliated revenues
$
10,924

 
$
560

 
$
148

 
$
11,632

 
$
22

 
$

 
$
11,654

Intersegment revenues
19

 

 

 
19

 
39

 
(58
)
 

Total revenues
$
10,943

 
$
560

 
$
148

 
$
11,651

 
$
61

 
$
(58
)
 
$
11,654

Segment income (loss) (a)(b)
$
1,406

 
$
88

 
$
(32
)
 
$
1,462

 
$
(85
)
 
$
(4
)
 
$
1,373

Add back noncontrolling interests component
 
 
 
 
 
 
 
 
 
 
 
 
7

Income from discontinued operations, net of tax (c)
 
 
 
 
 
 
 
 
 
 
 
 
34

Net income
 
 
 
 
 
 
 
 
 
 
 
 
$
1,414

(a)    Other includes after-tax costs to achieve the Progress Energy merger of $ 27 million .
(b)
Commercial Portfolio includes state tax expense of $41 million , resulting from changes to state apportionment factors due to the sale of the Disposal Group, that does not qualify for discontinued operations. Refer to Note 2 for further information related to the sale.
(c)
Includes after-tax impact of $53 million for the agreement in principle reached in a lawsuit related to the Disposal Group. Refer to Note 5 for further information related to the lawsuit.
 
Six Months Ended June 30, 2014
(in millions)
Regulated Utilities

 
International
Energy

 
Commercial
Portfolio

 
Total
Reportable
Segments

 
Other

 
Eliminations

 
Consolidated

Unaffiliated revenues
$
11,067

 
$
746

 
$
145

 
$
11,958

 
$
13

 
$

 
$
11,971

Intersegment revenues
21

 

 

 
21

 
41

 
(62
)
 

Total revenues
$
11,088

 
$
746

 
$
145

 
$
11,979

 
$
54

 
$
(62
)
 
$
11,971

Segment income (loss) (a)(b)
$
1,426

 
$
276

 
$
(53
)
 
$
1,649

 
$
(177
)
 
$
(4
)
 
$
1,468

Add back noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
8

Loss from discontinued operations, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
(956
)
Net income
 
 
 
 
 
 
 
 
 
 
 
 
$
520

(a)
Commercial Portfolio includes a pretax impairment charge of $94 million related to OVEC. See Note 13 for additional information.
(b)    Other includes after-tax costs to achieve the Progress Energy merger of $ 72 million .
DUKE ENERGY OHIO
All of Duke Energy Ohio’s revenues are generated domestically and its long-lived assets are all in the U.S.
Duke Energy Ohio had two reportable operating segments until the sale of the nonregulated Midwest generation business, Regulated Utilities and Commercial Portfolio. Commercial Portfolio no longer qualifies as a Duke Energy Ohio reportable operating segment as a result of the sale. Refer to Note 2 for further information about the sale. Therefore, for periods subsequent to the sale, beginning in the second quarter of 2015, all of the remaining assets and related results of operations previously presented in Commercial Portfolio are presented in Regulated Utilities and Other.
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.
Other is primarily comprised of governance costs allocated by its parent, Duke Energy, and revenues and expenses related to Duke Energy Ohio's contractual arrangement to buy power from OVEC's power plants. Duke Energy Ohio had no intersegment revenues for the six months ended June 30, 2015 or 2014 . For additional information on related party transactions refer to Note 9 .
 
Three Months Ended June 30, 2015
(in millions)
Regulated Utilities

 
Other

 
Eliminations

 
Consolidated

Total revenues
$
396

 
$
9

 
$

 
$
405

Segment income (loss)
$
19

 
$
(6
)
 
$

 
$
13

Loss from discontinued operations, net of tax (a)
 
 
 
 
 
 
(65
)
Net loss
 
 
 
 
 
 
$
(52
)
Segment assets
$
6,941

 
$
106

 
$
(25
)
 
$
7,022


41


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

(a)
Includes the after-tax impact of $46 million for the agreement in principle reached in a lawsuit related to the Disposal Group. Refer to Note 5 for further information related to the lawsuit.
 
Three Months Ended June 30, 2014
(in millions)
Regulated Utilities

 
Commercial Portfolio

 
Total Reportable Segments

 
Other

 
Consolidated

Total revenues
$
415

 
$
(3
)
 
$
412

 
$

 
$
412

Segment income (loss)
$
47

 
$
(14
)
 
$
33

 
$
(5
)
 
$
28

Loss from discontinued operations, net of tax
 
 
 
 
 
 
 
 
(135
)
Net loss
 
 
 
 
 
 
 
 
$
(107
)
 
Six Months Ended June 30, 2015
(in millions)
Regulated Utilities

 
Commercial Portfolio

 
Total Reportable Segments

 
Other

 
Consolidated

Total revenues
$
968

 
$
14

 
$
982

 
$
9

 
$
991

Segment income (loss)
$
89

 
$
(9
)
 
$
80

 
$
(8
)
 
$
72

Income from discontinued operations, net of tax (a)
 
 
 
 
 
 
 
 
25

Net income
 
 
 
 
 
 
 
 
$
97

(a)
Includes after-tax impact of $53 million for the agreement in principle reached in a lawsuit related to the Disposal Group. Refer to Note 5 for further information related to the lawsuit.
 
Six Months Ended June 30, 2014
(in millions)
Regulated Utilities

 
Commercial Portfolio

 
Total Reportable Segments

 
Other

 
Consolidated

Total revenues
$
977

 
$
10

 
$
987

 
$

 
$
987

Segment income (loss) (a)
$
108

 
$
(88
)
 
$
20

 
$
(7
)
 
$
13

Loss from discontinued operations, net of tax
 
 
 
 
 
 
 
 
(1,010
)
Net loss
 
 
 
 
 
 
 
 
$
(997
)
(a)    Commercial Portfolio includes a pretax impairment charge of $94 million related to OVEC. See Note 13 for additional information.
DUKE ENERGY CAROLINAS, PROGRESS ENERGY, DUKE ENERGY PROGRESS, DUKE ENERGY FLORIDA AND DUKE ENERGY INDIANA
The remaining Subsidiary Registrants each have one reportable operating segment, Regulated Utilities, 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. The following table summarizes the net loss for Other at each of these registrants.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Duke Energy Carolinas
$
(10
)
 
$
(27
)
 
$
(18
)
 
$
(48
)
Progress Energy (a)
(42
)
 
(45
)
 
(84
)
 
(97
)
Duke Energy Progress
(4
)
 
(3
)
 
(8
)
 
(13
)
Duke Energy Florida
(3
)
 
(7
)
 
(6
)
 
(11
)
Duke Energy Indiana
(2
)
 
(4
)
 
(4
)
 
(7
)
(a)
Other for Progress Energy also includes interest expense on corporate debt instruments of $59 million and $119 million for the three and six months ended June 30, 2015 , respectively, and $60 million and $123 million for the three and six months ended June 30, 2014 , respectively.
The assets of Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana are substantially all included within the Regulated Utilities segment at June 30, 2015 and 2014 .

42


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

4 . REGULATORY MATTERS
RATE RELATED INFORMATION
The NCUC, PSCSC, FPSC, IURC, PUCO and KPSC approve rates for retail electric and natural gas services within their respective 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
William States Lee Combined Cycle Facility
On April 9, 2014, the PSCSC granted Duke Energy Carolinas and North Carolina Electric Membership Corporation (NCEMC) a Certificate of Environmental Compatibility and Public Convenience and Necessity for the construction and operation of a 750 MW combined-cycle natural gas-fired generating plant at Duke Energy Carolinas' existing William States Lee Generating Station in Anderson, South Carolina. Duke Energy Carolinas began construction in July 2015, and estimates a cost to build of $600 million for its share of the facility, including allowance for funds used during construction (AFUDC). The project is expected to be commercially available in late 2017. NCEMC will own approximately 13 percent of the project. On July 3, 2014, the South Carolina Coastal Conservation League 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. The case has been fully briefed and is pending in the Court of Appeals. Duke Energy Carolinas cannot predict the outcome of this matter.
Duke Energy Progress
Sutton Black Start Combustion Turbine CPCN
On April 15, 2015, Duke Energy Progress filed a certificate of public convenience and necessity (CPCN) application with the NCUC for approval to construct an 84 MW black start combustion turbine (CT) project at the existing Sutton Plant (Sutton Black Start CT Project). The Sutton Black Start CT Project would replace three existing CTs with total capacity of 61 MW with two new 42 MW CT units with black start and fast start capability. In addition to peaking system capacity, the Sutton Black Start CT Project will provide regional black start capability and tertiary backup power services for the Brunswick Nuclear Plant. In June 2015, the Public Staff of the NCUC recommended the NCUC approve Duke Energy Progress' application. On August 3, 2015, the NCUC issued an order granting the application and requiring annual construction and cost progress reports.
Western Carolinas Modernization Plan
In May 2015, Duke Energy Progress announced a $1.1 billion plan to modernize the Western Carolinas energy system. The plan includes retiring the Asheville coal-fired plant, building a 650 MW combined-cycle natural gas power plant and installing solar generation at the site, building new transmission lines and upgrading area substations. These investments will be made within the next five years in North Carolina and South Carolina. Duke Energy is also working with the local natural gas distribution company to upgrade an existing natural gas pipeline to serve the natural gas plant. On June 24, 2015, the North Carolina governor signed into law the Mountain Energy Act of 2015 (Mountain Energy Act) which provides for an expedited CPCN process for the proposed Asheville combined-cycle project and extends certain North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) deadlines for the coal ash basin at the Asheville Plant site. The plan requires various approvals including regulatory approvals in North Carolina and South Carolina.
The carrying value of the 376 MW Asheville coal-fired plant, including associated ash basin closure costs, of $460 million is included in Generation facilities to be retired, net on Duke Energy Progress' Condensed Consolidated Balance Sheet as of June 30, 2015 .
Duke Energy Florida
FERC Transmission Return on Equity Complaint
Seminole Electric Cooperative, Inc. and Florida Municipal Power Agency filed multiple complaints with the FERC alleging Duke Energy Florida's current rate of return on equity in transmission formula rates of 10.8 percent is unjust and unreasonable. The latest complaint, filed on August 12, 2014, claims the rate of return on equity should be reduced to 8.69 percent . The FERC consolidated all complaints for the purposes of settlement, hearing and decision. On July 21, 2015, the parties filed with the FERC for approval of a settlement agreement under which (i) Duke Energy Florida will pay a total of $14.1 million as refunds for all periods through December 31, 2014, (ii) the rate of return on equity will be 10 percent effective January 1, 2015, and (iii) none of the parties will seek a change in the rate of return on equity prior to January 1, 2018.
Citrus County Combined Cycle Facility
On October 2, 2014, the FPSC granted Duke Energy Florida a Determination of Need for the construction of a 1,640 MW combined-cycle natural gas plant in Citrus County, Florida. On May 5, 2015, the Florida Department of Environmental Protection approved Duke Energy Florida's Site Certification Application. The facility is expected to be commercially available in 2018 at an estimated cost of $1.5 billion , including AFUDC. Additional environmental and governmental approvals will be sought for the Citrus County project.

43


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

Purchase of Osprey Energy Center
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 . On January 30, 2015, Duke Energy Florida petitioned the FPSC requesting a determination that the Osprey Plant acquisition or, alternatively, the construction of a 320 MW combustion turbine at its existing Suwannee generating facility (Suwannee project) with an estimated cost of $197 million , is the most cost-effective generation alternative to meet Duke Energy Florida's remaining generation need prior to 2018. On July 21, 2015, the FPSC approved the Osprey Plant acquisition as the most cost-effective alternative and an order is expected in August 2015. On July 24, 2015, the FERC issued an order approving the Osprey Plant acquisition. Closing of the acquisition is contingent upon 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.
Crystal River Unit 3
On May 22, 2015, Duke Energy Florida petitioned the FPSC for approval to include in base rates the revenue requirement for the Crystal River Unit 3 Regulatory asset as authorized by the 2013 Revised and Restated Stipulation and Settlement Agreement (2013 Agreement). The value of the Crystal River Unit 3 Regulatory asset to be recovered is projected to be $1.298 billion at December 31, 2015. Based upon this projected value, the initial annual revenue requirement is estimated to be $170 million
In June 2015, the Governor of Florida signed into law legislation to allow utilities to petition for a financing order for securitization of certain retired nuclear generation assets. On July 27, 2015, Duke Energy Florida petitioned the FPSC for a financing order to finance the Crystal River Unit 3 Regulatory asset with low-cost securities. If the FPSC issues an acceptable financing order and Duke Energy Florida issues the bonds, securitization would replace the base rate recovery methodology established in the 2013 Agreement described above, and would result in a lower rate impact to customers. The annual revenue requirement with securitization, subject to changes in assumed interest rates and timing of issuance of the securitization bonds, is estimated to be approximately $100 million . The FPSC is expected to hold a hearing on both the Crystal River Unit 3 Regulatory asset filing and the securitization filing in October 2015. Duke Energy Florida cannot predict the outcome of this matter.
Levy Nuclear Project
On April 16, 2015, the FPSC approved Duke Energy Florida’s petition to cease collection of the Levy Nuclear Project fixed charge beginning with the first billing cycle in May. Duke Energy Florida also sought approval to defer collection of the $54 million regulatory asset until litigation with Westinghouse Electric Co. concludes. The FPSC found that it was unnecessary to act on the request, finding that its previous order requiring the downward adjustment in projected costs primarily affected the timing of when the fixed charge would end, but that it did not disallow recovery of any costs previously determined to be prudent.
Duke Energy Ohio
2014 Electric Security Plan
In April 2015, the PUCO modified and approved Duke Energy Ohio's proposed ESP, with a three-year term and an effective date of June 1, 2015. The PUCO approved a competitive procurement process for SSO load, a distribution capital investment rider, and a tracking mechanism for incremental distribution expenses caused by major storms. The PUCO order also approved a placeholder tariff for a price stabilization rider, but denied Duke Energy Ohio's specific request to include OVEC in the rider at this time; however, the order allows Duke Energy Ohio to submit additional information to request recovery in the future. On May 4, 2015, Duke Energy Ohio filed an application for rehearing requesting the PUCO to modify or amend certain aspects of the order. On May 14, 2015, Duke Energy Ohio completed a competitive bidding process to procure a portion of the supply for its SSO load for the term of the ESP. The PUCO approved the results on May 15, 2015. On May 28, 2015, the PUCO granted all applications for rehearing filed in the case for future consideration. Duke Energy Ohio cannot predict the outcome of this matter.
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 manufactured gas plant (MGP) sites. 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.
Certain consumer groups appealed the PUCO’s decision authorizing the MGP rider to the Ohio Supreme Court and asked the court to stay implementation of the PUCO’s order and collections under the MGP rider pending their appeal. The Ohio Supreme Court granted the motion to stay and subsequently required the posting of a bond to effectuate the stay. When the bond was not posted, the PUCO approved Duke Energy Ohio’s request, in January 2015, to reinstate collections under the MGP rider and Duke Energy Ohio resumed billings. Amounts collected prior to the suspension of the rider were immaterial. On March 31, 2015, Duke Energy Ohio filed an application to adjust the MGP rider to recover remediation costs incurred in 2014. Duke Energy Ohio cannot predict the outcome of the appeal of this matter.
Regional Transmission Organization (RTO) Realignment
Duke Energy Ohio, including Duke Energy Kentucky, transferred control of its transmission assets from Midcontinent Independent System Operator, Inc. (MISO) to PJM Interconnection, LLC (PJM), effective December 31, 2011.

44


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

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 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 Condensed Consolidated Balance Sheets.
As of June 30, 2015, Duke Energy Ohio had recorded obligations of $93 million related to its withdrawal from MISO and a Regulatory asset of $73 million recorded on the Condensed Consolidated Balance Sheets. MTEP costs billed by MISO are recovered by Duke Energy Ohio through a non-bypassable rider.
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 or MTEP costs attributable to the Disposal Group was not transferred to Dynegy upon the sale of the nonregulated Midwest generation business.
FERC Transmission Return on Equity and MTEP Cost Settlement
On October 14, 2011, Duke Energy Ohio and Duke Energy Kentucky submitted with the 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 Duke Energy Ohio's and Duke Energy Kentucky's move from MISO to PJM effective January 1, 2012. On April 24, 2012, the 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. On April 16, 2015, the FERC approved a settlement agreement between Duke Energy Ohio, Duke Energy Kentucky and six PJM transmission customers with load in the Duke Energy Ohio and Duke Energy Kentucky zone. The principal terms of the settlement agreement are that, effective upon the date of FERC approval, (i) the return on equity for wholesale transmission service is reduced to 11.38 percent , (ii) the settling parties agreed not to seek a change in the return on equity that would be effective prior to June 1, 2017, and (iii) Duke Energy Ohio and Duke Energy Kentucky will recover 30 percent of the wholesale portion 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 Duke Energy Ohio's and Duke Energy Kentucky's integration into PJM.
Duke Energy Indiana
Edwardsport Integrated Gasification Combined Cycle (IGCC) Plant
On November 20, 2007, the IURC granted Duke Energy Indiana a CPCN for the construction of the Edwardsport IGCC Plant. 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. The Edwardsport IGCC Plant was placed in commercial operation in June 2013. Costs for the Edwardsport IGCC Plant are recovered from retail electric customers via a tracking mechanism, the IGCC rider. Updates to the IGCC rider are filed semi-annually.
The ninth semi-annual IGCC rider order was appealed by the Joint Intervenors. 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. On February 25, 2015, the IURC issued a new order upholding its prior decision and provided additional detailed findings. Joint Intervenors have appealed this remand order to the Indiana Court of Appeals.
The 10th semi-annual IGCC rider order was also appealed by the Joint Intervenors. On August 21, 2014 the Indiana Court of Appeals affirmed the IURC order in the 10th IGCC rider proceeding and on October 29, 2014 denied the Joint Intervenors' request for rehearing. The Joint Intervenors requested the Indiana Supreme Court to review the decision, which was denied on April 23, 2015, concluding the appeal.

45


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

An order on the 11th semi-annual IGCC rider is currently pending. The 12th and 13th semi-annual IGCC riders were combined for hearings which were held in February 2015 and an order is currently pending. Issues in this proceeding include whether the IGCC plant was properly declared in service for ratemaking purposes in June 2013 and the operational performance of the plant during its initial 10 months of operations. Duke Energy Indiana has filed the 14th and 15th semi-annual IGCC rider proceedings, with a hearing scheduled in November 2015.
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 12th and 13th 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 12th and 13th semi-annual IGCC riders.
On August 6, 2015, the IURC granted a motion to defer ruling on all pending matters until September 15, 2015 to allow time for settlement discussions. The Commission is expected to proceed with issuance of an order if the parties do not reach a settlement agreement. Duke Energy Indiana cannot predict the outcome of the fuel adjustment clause proceedings or pending and future IGCC rider proceedings.
FERC Transmission Return on Equity Complaint
Customer groups have filed with the FERC complaints against MISO and its transmission-owning members, including Duke Energy Indiana, alleging, among other things, that the current base rate of return on equity earned by MISO transmission owners of 12.38 percent is unjust and unreasonable. The latest complaint, filed on February 12, 2015, claims the base rate of return on equity should be reduced to 8.67 percent and requests a consolidation of complaints. On January 5, 2015, the FERC issued an order accepting the MISO transmission owners 0.50 percent adder to the base rate of return on equity based on participation in an RTO subject to it being applied to a return on equity that is shown to be just and reasonable in the pending return on equity complaint. Settlement procedures in the base return on equity proceeding were terminated and a hearing is scheduled for August 17, 2015. 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. In May 2015, the IURC denied the proposal due to an insufficient level of detailed projects and cost estimates in the plan. Duke Energy Indiana is evaluating the order and plans to file a revised infrastructure improvement plan by the end 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 company, Atlantic Coast Pipeline, LLC (ACP), to build and own the proposed Atlantic Coast Pipeline (the pipeline), a 550-mile interstate natural gas pipeline. The pipeline 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 pipeline and will own 45 percent . Duke Energy will have a 40 percent ownership interest in ACP through its Commercial Portfolio segment. The remaining share will be owned by Piedmont Natural Gas and AGL Resources. Duke Energy Carolinas and Duke Energy Progress, among others, will be customers of the pipeline. Purchases will be made under several 20-year supply contracts, 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 ACP will seek to secure by summer 2016. The estimated in-service date of the pipeline is late 2018.
Sabal Trail Transmission, LLC Pipeline
On May 4, 2015, Duke Energy acquired a 7.5 percent ownership interest from Spectra Energy in the proposed 500-mile Sabal Trail natural gas pipeline. Spectra Energy will continue to own 59.5 percent of the pipeline and NextEra Energy will own the remaining 33 percent of the pipeline. The pipeline will traverse Alabama, Georgia and Florida to meet rapidly growing demand for natural gas in those states. The primary customers of the pipeline, Duke Energy Florida and Florida Power & Light Company, have each contracted to buy pipeline capacity for 25-year initial terms. The pipeline, scheduled to begin service in 2017, requires federal and other regulatory approvals. 
East Bend Station
On December 30, 2014, Duke Energy Ohio acquired The Dayton Power and Light Company's (DP&L) 31 percent interest in East Bend Station for approximately $12.4 million . The purchase price, in accordance with FERC guidelines, was reflected with the net purchase amount as an increase to property, plant and equipment as of December 31, 2014 and with the DP&L's historical original cost as an increase to property, plant and equipment and accumulated depreciation as of June 30, 2015.

46


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

NC WARN FERC Complaint
On December 16, 2014, North Carolina Waste Awareness and Reduction Network filed a complaint with the FERC against Duke Energy Carolinas and Duke Energy Progress that alleged (i) Duke Energy Carolinas and Duke Energy Progress manipulated the electricity market by constructing costly and unneeded generation facilities leading to unjust and unreasonable rates; (ii) 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; (iii) the plans of Duke Energy Carolinas and Duke Energy Progress for unrealistic future growth lead to unnecessary and expensive generating plants; (iv) the 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 (v) the FERC should force Duke Energy Carolinas and Duke Energy Progress to purchase power from other utilities rather than construct wasteful and redundant power plants. NC WARN also filed a copy of the complaint with the PSCSC on January 6, 2015. In April 2015, the FERC and the PSCSC issued separate orders dismissing the NC WARN petition. On May 14, 2015, NC WARN filed with FERC a motion for reconsideration.
Potential Coal Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years), and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in North Carolina, Florida and Indiana earlier than their current estimated useful lives. These facilities do not have the requisite emission control equipment, primarily to meet United States Environmental Protection Agency (EPA) regulations recently approved or proposed.
The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement due to a lack of requisite environmental control equipment. Dollar amounts in the table below are included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets.
 
June 30, 2015
 
Duke Energy

 
Progress Energy (b)

 
Duke Energy Florida (b)

 
Duke Energy Indiana (c)

Capacity (in MW)
1,541

 
873

 
873

 
668

Remaining net book value (in millions) (a)
$
237

 
$
125

 
$
125

 
$
112

(a)
Remaining net book value amounts presented exclude any capitalized asset retirement costs related to closure of ash basins.
(b)
Includes Crystal River Units 1 and 2.
(c)
Includes Wabash River Units 2 through 6. Wabash River Unit 6 is being evaluated for potential conversion to natural gas. Duke Energy Indiana committed to retire or convert the Wabash River Units 2 through 5 by June 2018 in conjunction with a settlement agreement associated with the Edwardsport air permit.
In addition to evaluations based on the extent facilities are equipped to comply with environmental regulations, Duke Energy continually monitors and evaluates the appropriate generation mix and fuel diversity for its generation fleet when making retirement decisions. Duke Energy Carolinas is evaluating the potential retirement of coal-fired generating units with a net carrying value of approximately $110 million , excluding capitalized asset retirement costs related to closure of ash basins, included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets. These generating units are not included in the table above.
Duke Energy continues to evaluate the potential need to retire generating facilities earlier than the current estimated useful lives, and plans to seek regulatory recovery, as necessary, 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.
Refer to the "Western Carolinas Modernization Plan" discussion above for details of planned retirements for Duke Energy Progress.
5 . COMMITMENTS AND CONTINGENCIES
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.

47


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

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 Condensed Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable.
The following tables contain information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.
 
Six Months Ended June 30, 2015
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Balance at beginning of period
$
97

 
$
10

 
$
17

 
$
5

 
$
12

 
$
54

 
$
10

Provisions/adjustments
5

 

 
2

 

 
2

 
1

 
3

Cash reductions
(4
)
 

 
(2
)
 
(1
)
 
(1
)
 
(1
)
 
(1
)
Balance at end of period
$
98

 
$
10

 
$
17

 
$
4

 
$
13

 
$
54

 
$
12

 
Six Months Ended June 30, 2014
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Balance at beginning of period
$
79

 
$
11

 
$
27

 
$
8

 
$
19

 
$
27

 
$
7

Provisions/adjustments
9

 
(1
)
 
4

 
3

 
1

 
5

 

Cash reductions
(6
)
 

 
(4
)
 
(2
)
 
(2
)
 
(1
)
 

Balance at end of period
$
82

 
$
10

 
$
27

 
$
9

 
$
18

 
$
31

 
$
7

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 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. In July 2014, Duke Energy completed remediation work identified by the EPA and continues to cooperate with the EPA's civil enforcement process. Total repairs and remediation expenses incurred by Duke Energy Carolinas related to the release were approximately $24 million . No additional expenses were recorded in 2015. Duke Energy Carolinas will not seek recovery of these costs from ratepayers. See the "Litigation" section below for additional information on litigation, investigations and enforcement actions related to ash basins, including the Memorandum of Plea Agreement (Plea Agreements) in connection to the North Carolina Ash Basin Grand Jury Investigation. 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.

48


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

On September 20, 2014, the Coal Ash Act became law and was amended on June 24, 2015, by the Mountain Energy Act. The Coal Ash Act, as amended, (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; (iii) requires closure of ash impoundments at Duke Energy Progress' Sutton Plant and Duke Energy Carolinas' Riverbend and Dan River stations no later than August 1, 2019 and Duke Energy Progress' Asheville Plant no later than August 1, 2022; (iv) requires dry disposal of fly ash at active plants, excluding the Asheville Plant, not retired by December 31, 2018; (v) requires dry disposal of bottom ash at active plants, excluding the Asheville Plant, 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 in customer rates for unlawful discharge of ash basin waters occurring after January 1, 2014. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of coal combustion residual (CCR) surface impoundments (ash basins or impoundments) to the normal ratemaking processes before utility regulatory commissions. Duke Energy has and will periodically submit to DENR site-specific coal ash impoundment closure plans or excavation plans in advance of closure plans. These plans and all associated permits must be approved by DENR before any excavation or closure 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. In April 2015, the federal CCR rules were published and Duke Energy Carolinas subsequently executed an agreement with the conservation groups Upstate Forever and Save Our Saluda requiring Duke Energy Carolinas to remediate all active and inactive ash storage areas at the W.S. Lee Steam Station. Coal-fired generation at W.S. Lee ceased in 2014 and unit 3 is being converted to natural gas. In July 2015, Duke Energy Progress executed a consent agreement with the SCDHEC requiring the excavation of an inactive ash fill area at the Robinson Plant within eight years. The Robinson Plant and W.S. Lee Station sites are required to be closed pursuant to the recently issued CCR rule and the provisions of these consent agreements are consistent with the federal CCR closure requirements.
Asset retirement obligations are recorded on the Duke Energy Carolinas and Duke Energy Progress Condensed Consolidated Balance Sheets at June 30, 2015 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. See Note 7 for additional information.
Coal Combustion Residuals
On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation classifies CCR as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act and allows beneficial use of CCRs with some restrictions. 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. In accordance with ASC 410-20, Asset Retirement and Environmental Obligations - Asset Retirement Obligations, 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. 
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana recorded additional asset retirement obligation amounts in the second quarter of 2015. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. See Note 7 for additional information.
LITIGATION
Duke Energy
Ash Basin Shareholder Derivative Litigation
Five shareholder derivative lawsuits were filed in Delaware Chancery Court relating to the release at Dan River and to the management of Duke Energy’s ash basins. On October 31, 2014, the five lawsuits were consolidated in a single proceeding titled "In Re Duke Energy Corporation Coal Ash Derivative Litigation." On December 2, 2014, plaintiffs filed a Corrected Verified Consolidated Shareholder Derivative Complaint (Consolidated Complaint). The Consolidated Complaint names as defendants several current and former Duke Energy officers and directors (collectively, the “Duke Energy Defendants”). Duke Energy is named as a nominal defendant.
The Consolidated Complaint alleges the Duke Energy Defendants breached their fiduciary duties by failing to adequately oversee Duke Energy’s ash basins and that these breaches of fiduciary duty may have contributed to the incident at Dan River and continued thereafter. The lawsuit also asserts claims against the Duke Energy Defendants for corporate waste (relating to the money Duke Energy has spent and will spend as a result of the fines, penalties and coal ash removal) and unjust enrichment (relating to the compensation and director remuneration that was received despite these alleged breaches of fiduciary duty). The lawsuit seeks both injunctive relief against Duke Energy and restitution from the Duke Energy Defendants. On January 21, 2015, the Duke Energy Defendants filed a Motion to Stay and an alternative Motion to Dismiss.

49


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

On March 5, 2015, shareholder Judy Mesirov filed a shareholder derivative complaint (Mesirov Complaint) in North Carolina state court. The lawsuit, styled Mesirov v. Good , is similar to the consolidated derivative action pending in Delaware Chancery Court and was filed against the same current directors and former directors and officers as the Delaware litigation. Duke Energy Corporation, Duke Energy Progress and Duke Energy Carolinas are named as nominal defendants. The Mesirov Complaint alleges that the Duke Energy Board of Directors was aware of Clean Water Act (CWA) compliance issues and failures to maintain structures in ash basins, but that the Board of Directors did not require Duke Energy Carolinas and Duke Energy Progress to take action to remedy deficiencies. The Mesirov Complaint further alleges that the Board of Directors sanctioned activities to avoid compliance with the law by allowing improper influence of DENR to minimize regulation and by opposing previously anticipated citizen suit litigation. The Mesirov Complaint seeks corporate governance reforms and damages relating to costs associated with the Dan River release, remediation of ash basins that are out of compliance with the CWA and defending and payment of fines, penalties and settlements relating to criminal and civil investigations and lawsuits.
In addition to the above derivative complaints, Duke Energy has also received two shareholder litigation demand letters. 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.
On March 24, 2015, Duke Energy received a shareholder litigation demand letter sent on behalf of shareholder Saul Bresalier. The letter alleges that the members of the Board of Directors and certain officers breached their fiduciary duties in their management of the Duke Energy's environmental practices, as well as in their decision-making relating to the leadership changes following the close of the Progress Energy merger in July 2012. The letter demands that the Board of Directors take action to recover damages associated with those alleged breaches of fiduciary duty; otherwise, the attorney will file a shareholder derivative action. In May 2015, counsel for the shareholder was informed that the matter had been referred to the Demand Review Committee.
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.
Ash Basin Shareholder Securities Litigation
On May 26, 2015, Plaintiff E.F. Greenberg filed a lawsuit against the members of the Duke Energy Board of Directors (the Board) alleging violations of Section 14(a) of the Exchange Act for false or misleading statements contained in Duke Energy’s 2015 Proxy Statement. The plaintiff contends the Board caused Duke Energy to omit material facts from the 2015 Proxy Statement that a reasonable shareholder would consider important in casting a vote, especially with respect to the election of directors. Accordingly, Plaintiff alleges that shareholders were misled in casting their votes. Plaintiff seeks a determination that the 2015 Proxy Statement was false and misleading, an order from the court invalidating all votes from the Annual Meeting and requiring a revised 2015 Proxy Statement, as well as attorneys’ fees. On July 31, 2015, the defendants filed a Motion to Dismiss the case. It is not possible to predict the outcome that might occur in connection with the remaining matters.
Progress Energy Merger Shareholder Litigation
Duke Energy, the 11 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. On March 10, 2015, the parties filed a Stipulation of Settlement and a Motion for Preliminary Approval of the Settlement. The court issued an order for preliminary approval of the settlement on March 25, 2015. Under the terms of the agreement, Duke Energy agreed to pay $146 million to settle the claim. On April 22, 2015, Duke Energy made a payment of $25 million into the settlement escrow account. The remainder of $121 million was paid by insurers into the settlement escrow account. Notice has been sent to members of the class and a final approval hearing is scheduled for August 12, 2015.
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.
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.
It is not possible to estimate the maximum exposure of loss that may occur in connection with these lawsuits.

50


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

Price Reporting Cases
Five lawsuits were filed against a Duke Energy affiliate, Duke Energy Trading and Marketing, LLC, 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 five cases. The U.S. Court of Appeals for the Ninth Circuit subsequently reversed the lower court’s decision. On April 21, 2015, the Supreme Court affirmed the U.S. Court of Appeals decision. The case has been reassigned to the same consolidated federal court proceeding in Nevada for further proceedings.
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.
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. In January 2013, DEIGP filed appeals in the federal courts regarding various procedural issues. A decision on the merits in the first instance court is pending. 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.
Brazil Generation
Record drought conditions in Brazil continue to impact Duke Energy International, Geracao Paranapanema S.A. (DEIGP) in 2015. In the midst of negotiations between the hydroelectric generators and the Brazilian federal government to find ways to mitigate the financial impact on these companies, Santo Antonio Energia (SAE), a large hydro generator, filed an independent lawsuit seeking financial relief in Brazilian federal court. In May 2015, SAE was granted an injunction by a Brazilian court limiting the financial impact of its declining hydroelectric dispatch to 95 percent of its guaranteed dispatch level. Following the court’s ruling in the SAE litigation, the Brazilian electricity dispatch authority (CCEE) announced that the electric system shortfall resulting from the court-ordered limitation of liability for SAE will be compensated on a pro-rata basis with contributions from all other hydroelectric generators in Brazil. In response, the Independent Power Producer Association (APINE), on behalf of the hydroelectric generators, filed a lawsuit against the Brazilian electricity regulatory agency seeking relief from exposure to their diminished dispatch levels similar to the relief previously granted SAE. On July 2, 2015, an injunction was granted in favor of APINE limiting the market exposure of DEIGP and other independent generators to 100 percent of the guaranteed dispatch level, until the merits of the lawsuit are determined. The decision is subject to appeal. It is not possible to predict the impact to Duke Energy, if any, from the outcome of these matters.
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 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. The SELC, on behalf of several environmental groups, has been permitted to intervene in these cases.
On July 10, 2015, Duke Energy Carolinas and Duke Energy Progress filed Motions for Partial Summary Judgment in the case on the basis that there is no longer either a genuine controversy or disputed material facts about the relief for seven of the 14 North Carolina plants with coal ash basins.
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.

51


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

DENR Notices of Violation (NOV)
In August 2014, DENR issued an NOV for alleged groundwater violations at Duke Energy Progress' L.V. Sutton Plant. On March 10, 2015, DENR issued a civil penalty of approximately $25 million to Duke Energy Progress for environmental damages related to the groundwater contamination at the L.V. Sutton Plant. On April 9, 2015, Duke Energy Progress filed a Petition for Contested Case hearing in the Office of Administrative Hearings, which has been assigned to an Administrative Judge. Duke Energy Progress has appealed the penalty on the basis that DENR exceeded its statutory authority. Hearing is scheduled for October 12, 2015.
In February 2015, DENR issued an NOV for alleged groundwater violations at Duke Energy Progress' Asheville Plant. Duke Energy Progress has responded to DENR regarding this NOV. DENR has not taken any enforcement action for this NOV, but penalties may be assessed in the future.
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.
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 was held on March 16, 2015. On June 11, 2015, the North Carolina Supreme Court issued its opinion in favor of Duke Energy Carolinas, Duke Energy Progress and the EMC and remanded the matter to the state court judge with instructions to dismiss the case.
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 Steam Station. 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 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 Steam Station. Motions to Stay or Dismiss the proceedings were filed in each of the three cases. The proceedings related to Cape Fear and H.F. Lee have been stayed. A hearing was held August 5, 2015 on the motion relating to Buck.
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 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.

52


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

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 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). On May 14, 2015, the United States District Court for the Eastern District of North Carolina approved the Plea Agreements.
Under the Plea Agreements, DEBS and Duke Energy Progress pleaded guilty to 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. Duke Energy Carolinas and DEBS pleaded guilty to 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), (iii) to fund and establish environmental compliance plans subject to the oversight of a court-appointed monitor in addition to certain other conditions set out in the Plea Agreements. Duke Energy Carolinas and Duke Energy Progress also agree to each maintain $250 million under their Master Credit Facility as security to meet their obligations under 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 DEBS, Duke Energy Carolinas and Duke Energy Progress, including but not limited to payments for fines, restitution, community service, mitigation and the funding of, and obligations under, the environmental compliance plans. Payment of the amounts relating to fines and restitution were made between May and July 2015. Duke Energy Carolinas and Duke Energy Progress have remaining liabilities of $18 million and $16 million , respectively, within Accounts payable on the Condensed Consolidated Balance Sheets as of June 30, 2015 .
On May 14, 2015, Duke Energy reached an Interim Administrative Agreement with the U.S. Environmental Protection Agency Office of Suspension and Debarment that avoids debarment of DEBS, Duke Energy Carolinas or Duke Energy Progress with respect to all active generating facilities. The Interim Administrative Agreement imposes a number of requirements relating to environmental and ethical compliance, subject to the oversight of an independent monitor. 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.
Potential Groundwater Contamination Claims
Beginning in May 2015, a number of residents living in the vicinity of the North Carolina facilities with ash basins received letters from DENR advising them not to drink water from the private wells on their land tested by DENR as the samples were found to have certain substances at levels higher than the criteria set by the North Carolina Department of Health and Human Services. The criteria, in some cases, are considerably more stringent than federal drinking water standards established to protect human health and welfare. The Coal Ash Act requires additional groundwater monitoring and assessments for each of the 14 coal-fired plants in North Carolina, including sampling of private water supply wells. The data gathered through these comprehensive groundwater assessments will be used to determine whether the water quality of these private water supply wells has been adversely impacted by the ash basins. The first of these groundwater assessments was submitted to DENR on August 5, 2015. It is not possible to estimate the maximum exposure of loss, if any, that may occur in connection with claims which might be made by these residents.
Duke Energy Carolinas
New Source Review
In 1999-2000, the U.S. Department of Justice (DOJ) 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. 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 June 30, 2015 , there were 133 asserted claims for non-malignant cases with the cumulative relief sought of up to $34 million , and 66 asserted claims for malignant cases with the cumulative relief sought of up to $10 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.

53


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

Duke Energy Carolinas has recognized asbestos-related reserves of $564 million at June 30, 2015 and $575 million at December 31, 2014 . These reserves are classified in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities on the Condensed Consolidated Balance Sheets. These reserves are based upon the minimum amount of the range of loss for current and future asbestos claims through 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 indemnification and medical cost claim payments is $864 million in excess of the self-insured retention. Receivables for insurance recoveries were $617 million at June 30, 2015 and $616 million at December 31, 2014 . These amounts are classified in Other within Investments and Other Assets and Receivables on the Condensed Consolidated Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating.
Duke Energy Florida
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 engineering, procurement and construction agreement (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 on March 30, 2015. 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 nonpublic 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. Plaintiffs allege claims for antitrust violations under the federal Robinson Patman Act as well as fraud and conspiracy allegations under the federal Racketeer Influenced and Corrupt Organizations statute and the Ohio Corrupt Practices Act.
The parties have reached an agreement in principle to settle the case for approximately $81 million subject to the execution of definitive documents among the parties and approval by the federal court. A litigation settlement reserve was recorded for the full amount and classified as Other within Current Liabilities on Duke Energy Ohio's Condensed Consolidated Balance Sheets as of June 30, 2015 . Duke Energy Ohio has recognized pretax charges in (Loss) Income From Discontinued Operations, net of tax in the Condensed Consolidated Statements of Operations and Comprehensive Income of $71 million and $81 million for the three and six months ended June 30, 2015 , respectively. See Note 2 for further discussion on the Midwest Generation Exit.
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 sought 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 in December 2014. On May 6, 2015, the arbitration panel issued its final decision unanimously dismissing all of Duke Energy Indiana’s claims. This ruling resolves all outstanding issues in the arbitration.
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.

54


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

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 Condensed 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.
(in millions)
June 30, 2015

 
December 31, 2014

Reserves for Legal Matters
 
 
 
Duke Energy
$
191

 
$
323

Duke Energy Carolinas
19

 
72

Progress Energy
79

 
93

Duke Energy Progress
22

 
37

Duke Energy Florida
36

 
36

Duke Energy Ohio
81

 

OTHER COMMITMENTS AND CONTINGENCIES
General
As part of their normal business, the Duke Energy Registrants are party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. These guarantees involve elements of performance and credit risk, which are not fully recognized on the Condensed Consolidated Balance Sheets and have unlimited maximum potential payments. However, the Duke Energy Registrants do not believe these guarantees will have a material effect on their results of operations, cash flows or financial position.
In addition, the Duke Energy Registrants enter into various fixed-price, noncancelable commitments to purchase or sell power, take-or-pay arrangements, transportation, or throughput agreements and other contracts that may or may not be recognized on their respective Condensed Consolidated Balance Sheets. Some of these arrangements may be recognized at fair value on their respective Condensed Consolidated Balance Sheets if such contracts meet the definition of a derivative and the normal purchase/normal sale (NPNS) exception does not apply. In most cases, the Duke Energy Registrants’ purchase obligation contracts contain provisions for price adjustments, minimum purchase levels and other financial commitments.
6 . DEBT AND CREDIT FACILITIES
SUMMARY OF SIGNIFICANT DEBT ISSUANCES
The following table summarizes significant debt issuances (in millions).
 
 
 
 
 
Six Months Ended June 30, 2015
Issuance Date
Maturity Date
 
Interest Rate

 
Duke
Energy

 
Duke
Energy
Carolinas

 
First Mortgage Bonds
 
 
 
 
 
 
 
 
March 2015 (a)
June 2045

3.750
%
 
$
500

 
$
500

 
Total issuances
 
 
 
 
$
500

 
$
500

 
(a)
Proceeds will be used to redeem at maturity $500 million of first mortgage bonds due October 2015.

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

 
June 30, 2015

Unsecured Debt
 
 
 
 
 
Progress Energy (Parent)
January 2016
 
5.625
%
 
$
300

Duke Energy Indiana
June 2016
 
6.05
%
 
325

First Mortgage Bonds
 
 
 
 
 
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

Other
 
 
 
 
299

Current maturities of long-term debt
 
 
 
 
$
2,374


55


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

MASTER CREDIT FACILITY
Duke Energy has a Master Credit Facility with a capacity of $7.5 billion through January 2020. The Duke Energy Registrants, excluding Progress Energy (Parent), have borrowing capacity under the Master Credit Facility up to a specified sublimit for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop issuances of commercial paper, certain letters of credit, variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder and as security to meet obligations under the Plea Agreements. The table below includes the current borrowing sublimits and available capacity under the Master Credit Facility.
 
June 30, 2015
(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)
$
7,500

 
$
3,200

 
$
1,200

 
$
1,000

 
$
900

 
$
600

 
$
600

Reduction to backstop issuances
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper (b)
(1,589
)
 
(972
)
 
(300
)
 
(65
)
 
(75
)
 
(27
)
 
(150
)
Outstanding letters of credit
(71
)
 
(63
)
 
(4
)
 
(3
)
 
(1
)
 

 

Tax-exempt bonds
(116
)
 

 
(35
)
 

 

 

 
(81
)
Coal ash set-aside (c)
(500
)
 

 
(250
)
 
(250
)
 

 

 

Available capacity
$
5,224


$
2,165


$
611


$
682


$
824


$
573


$
369

(a)
Represents the sublimit of each borrower. Sublimits were reallocated in July 2015 to maintain adequate levels of liquidity for each borrower in light of near-term funding needs.
(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 Condensed Consolidated Balance Sheets.
(c)
On May 14, 2015, the United States District Court for the Eastern District of North Carolina approved the separate Plea Agreements entered into by Duke Energy Carolinas, Duke Energy Progress and DEBS, a wholly owned subsidiary of Duke Energy in connection with the investigation initiated by the USDOJ. 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. See Note 5 for further details.
7 . ASSET RETIREMENT OBLIGATIONS
COAL COMBUSTION RESIDUALS
In accordance with ASC 410-20, Asset Retirement and Environmental Obligations - Asset Retirement Obligations, Duke Energy records an asset retirement obligation (ARO) when it has a legal obligation that can be reasonably estimated to incur retirement costs associated with the retirement of a long-lived asset. 
On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation, which becomes effective six months after publication, classifies CCR as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act and allows beneficial use of CCRs with some restrictions. 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 Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana were impacted by the EPA rule and recorded additional asset retirement obligation amounts during the second quarter of 2015 .
The ARO amount recorded that relates to the EPA rule was based upon estimated closure costs for ash basins at seven plants located in South Carolina, Indiana and Kentucky. The amount recorded represents the discounted cash flows for estimated closure costs of these ash basins 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 time frame 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 standards set by the EPA rule and any current or future state regulation. The ARO amount will be adjusted as additional information is gained through the closure process, including acceptance and approval of compliance approaches which may change management assumptions, and may result in a material change to the balance.

56


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

The following table presents changes in the liability associated with asset retirement obligations for Duke Energy and the Subsidiary Registrants.
(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, 2014 (a)
$
8,466

 
$
3,428

 
$
4,711

 
$
3,905

 
$
806

 
$
27

 
$
32

Acquisitions
9

 

 

 

 

 

 

Accretion expense (b)
171

 
81

 
97

 
79

 
18

 
1

 
6

Liabilities settled (c)
(187
)
 
(60
)
 
(123
)
 
(32
)
 
(91
)
 
(1
)
 
(3
)
Liabilities incurred in the current year (d)(e)
983

 
178

 
270

 
270

 

 
116

 
418

Revisions in estimates of cash flows
48

 
(23
)
 
40

 
40

 

 

 

Balance at June 30, 2015
$
9,490

 
$
3,604

 
$
4,995

 
$
4,262

 
$
733

 
$
143

 
$
453

(a)
Primarily relates to decommissioning nuclear power facilities, closure of ash basins in North Carolina and South Carolina, asbestos removal, closure of landfills at fossil generation facilities, retirement of natural gas mains and removal of renewable energy generation assets.
(b)
For the six months ended June 30, 2015, substantially all accretion expense relates to previously established asset retirement obligations from Duke Energy's regulated electric operations and has been deferred in accordance with regulatory accounting treatment.
(c)
Primarily relates to closure of ash basins in North Carolina and South Carolina and nuclear decommissioning of Crystal River Unit 3 in Florida.
(d)
Primarily relates to amounts recorded in the second quarter of 2015 as a result of the EPA's rule for disposal of CCR as solid waste.
(e)
Retail cost recovery is believed to be probable and will be pursued through the normal ratemaking process with the NCUC, PSCSC, KPSC and IURC. Wholesale cost recovery, except for Duke Energy Indiana amounts, is believed to be probable and will be pursued through the normal ratemaking process with FERC.
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 Condensed Consolidated Balance Sheets. The following table summarizes the associated long-lived assets related to ARO liabilities incurred during the six months ended June 30, 2015.
 
 
June 30, 2015
(in millions)
 
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Ohio

 
Duke Energy Indiana

Net property, plant and equipment
 
$
535

 
$

 
$

 
$

 
$
116

 
$
418

Regulatory Assets
 
448

 
178

 
270

 
270

 

 

8 . GOODWILL AND INTANGIBLE ASSETS
GOODWILL
The following table presents goodwill by reportable operating segment for Duke Energy.
Duke Energy
(in millions)
Regulated Utilities

 
International Energy

 
Commercial Portfolio

 
Total

Goodwill at December 31, 2014  (a)
15,950

 
307

 
64

 
16,321

Foreign exchange and other changes

 
(17
)
 

 
(17
)
Acquisitions

 

 
24

 
24

Goodwill at June 30, 2015
$
15,950

 
$
290

 
$
88

 
$
16,328

(a)
Excludes fully impaired Goodwill of $871 million related to the Disposal Group which was sold in the second quarter of 2015. See Note 2 for further information related to the sale of the Disposal Group. There are no other accumulated impairment charges during the periods presented.
Duke Energy Ohio
Duke Energy Ohio's Goodwill balance of $920 million is included in the Regulated Utilities operating segment and presented net of $216 million of accumulated impairment charges on the Condensed Consolidated Balance Sheets at June 30, 2015 and December 31, 2014. However, the balance of Goodwill at December 31, 2014, also included Goodwill of $1,188 million and an equal amount of accumulated impairment charges disposed of in the second quarter of 2015 related to the sale of the Commercial Portfolio's Disposal Group.
Progress Energy
Progress Energy's Goodwill is included in the Regulated Utilities operating segment and there are no accumulated impairment charges.

57


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

INTANGIBLE ASSETS
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 Condensed Consolidated Statement of Operations. See Note 13 for additional information.
9 . RELATED PARTY TRANSACTIONS
The Subsidiary Registrants engage in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Refer to the Condensed Consolidated Balance Sheets of the Subsidiary Registrants for balances due to or due from related parties. Material amounts related to transactions with related parties included in the Condensed Consolidated Statements of Operations and Comprehensive Income are presented in the following table.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Duke Energy Carolinas
 
 
 
 
 
 
 
Corporate governance and shared service expenses (a)
$
202

 
$
217

 
$
421

 
$
439

Indemnification coverages (b)
6

 
5

 
12

 
11

Joint Dispatch Agreement (JDA) revenue (c)
14

 
15

 
40

 
112

Joint Dispatch Agreement (JDA) expense (c)
38

 
40

 
95

 
91

Progress Energy
 
 
 
 
 
 
 
Corporate governance and shared services provided by Duke Energy (a)
$
172

 
$
200

 
$
339

 
$
378

Indemnification coverages (b)
9

 
8

 
19

 
17

JDA revenue (c)
38

 
40

 
95

 
91

JDA expense (c)
14

 
15

 
40

 
112

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

 
$
104

 
$
194

 
$
200

Indemnification coverages (b)
4

 
4

 
8

 
9

JDA revenue (c)
38

 
40

 
95

 
91

JDA expense (c)
14

 
15

 
40

 
112

Duke Energy Florida
 
 
 
 
 
 
 
Corporate governance and shared service expenses (a)
$
79

 
$
97

 
$
145

 
$
178

Indemnification coverages (b)
5

 
4

 
11

 
8

Duke Energy Ohio
 
 
 
 
 
 
 
Corporate governance and shared service expenses (a)
$
103

 
$
82

 
$
188

 
$
159

Indemnification coverages (b)
1

 
3

 
4

 
6

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

 
$
94

 
$
172

 
$
199

Indemnification coverages (b)
2

 
3

 
4

 
5

(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 Condensed Consolidated Statements of Operations and Comprehensive Income.
(b)
The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation, maintenance and other on the Condensed Consolidated Statements of Operations and Comprehensive Income.
(c)
Duke Energy Carolinas and Duke Energy Progress participate in a JDA which allows the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power under the JDA are recorded in Operating Revenues on the Condensed 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 Condensed Consolidated Statements of Operations and Comprehensive Income.
In addition to the amounts presented above, the Subsidiary Registrants record the impact of other affiliate transactions in net income, including rental of office space, participation in a money pool arrangement, other operational transactions and their proportionate share of certain charged expenses. See Note 6 to the Consolidated Financial Statements in the Annual Report on Form 10-K for more information regarding money pool. The net impact of these transactions was not material for the three and six months ended June 30, 2015 and 2014 for the Subsidiary Registrants.
See Note 13 for information related to the sale of receivables to an affiliate consolidated by Duke Energy.

58


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

Duke Energy Ohio's nonregulated indirect subsidiary, Duke Energy Commercial Asset Management (DECAM), owned generating plants included in the Disposal Group sold to Dynegy on April 2, 2015. On April 1, 2015, Duke Energy Ohio distributed its indirect ownership interest in DECAM to a Duke Energy subsidiary and non-cash settled DECAM's intercompany loan payable of $294 million . The intercompany loan payable recorded in Notes payable to affiliated companies on Duke Energy Ohio’s Condensed Consolidated Balance Sheets was $459 million as of December 31, 2014 .
Intercompany transactions between DECAM and related parties are included in Income (Loss) From Discontinued Operations, net of tax in Duke Energy Ohio’s Condensed Consolidated Statements of Operations and Comprehensive Income. These amounts were a net expense of $3 million and $81 million for the six months ended June 30, 2015 and 2014 , respectively, and a net expense of $27 million for the three months ended June 30, 2014 .
Refer to Note 2 for further information on the sale of the Disposal Group.

10 . 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 Condensed Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting agreement is offset against the collateralized derivatives on the balance sheet. The cash impacts of settled derivatives are recorded as operating activities on the Condensed Consolidated Statements of Cash Flows.
Changes in the fair value of derivative instruments that either do not qualify for or have not been designated as hedges are reflected in current earnings or as regulatory assets or liabilities.
FAIR VALUE AND CASH FLOW HEDGES
For a derivative designated as hedging the exposure to variable cash flows of a future transaction, referred to as a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings once the future transaction effects earnings. Gains and losses reclassified out of AOCI for the three and six months ended June 30, 2015 and 2014 were immaterial.
Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt.
At June 30, 2015 , there were no open commodity derivative instruments designated as hedges.
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.
Regulated public utilities may have cost-based rate regulations and various other cost recovery mechanisms that result in a limited exposure to market volatility of commodity fuel prices. Financial derivative contracts, where approved by the respective state regulatory commission, can be used to manage the risk of price volatility. Wholesale generating capacity used to sell electricity results in exposure to market volatility in energy-related commodity prices.
Undesignated Contracts
Undesignated contracts may include contracts not designated as a hedge because they are accounted for under Regulated Operations accounting, 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.
Mark-to-market gains or losses on contracts accounted for under Regulated Operations are deferred and recorded as Regulatory Liabilities or Regulatory Assets, respectively. The Subsidiary Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses. These clauses allow for the recovery of fuel and fuel-related costs, including settlements of undesignated derivatives for fuel commodities, 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 used in electric generation and purchased power – regulated or as Operating Revenues – Regulated electric on the Consolidated Statements of Operations with an offsetting impact on regulatory assets or liabilities. Therefore, due to the regulatory accounting followed by our Regulated Operations for undesignated derivatives, realized and unrealized gains and losses on undesignated derivatives do not have an immediate impact on reported net income.
Mark-to-market gains and losses related to the nonregulated Midwest generation business are recorded in discontinued operations and open positions at April 2, 2015 were included in the sale of the Disposal Group. Refer to Note 2 for further information on the sale of the Disposal Group. Gains and losses on undesignated derivative contracts for nonregulated continuing operations is immaterial, including electric contracts used to hedge renewables generation in Electric Reliability Council of Texas (ERCOT), hedges for a business that is winding down by the end of 2016, and revenues during 2014 for mitigation contracts which were terminated by December 31, 2014.
Undesignated contracts expire as late as 2018.

59


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

Volumes
The tables below show information relating to volumes of outstanding commodity derivatives. Amounts disclosed represent the absolute value of notional volumes of commodity contracts excluding NPNS. The Duke Energy Registrants have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown.
 
June 30, 2015
 
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Electricity (gigawatt-hours)
75

 

 

 

 

 

 
18

Natural gas (millions of decatherms)
360

 
63

 
297

 
109

 
188

 

 

 
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)(b)
25,370

 

 

 

 

 
19,141

 

Natural gas (millions of decatherms) (a)  
676

 
35

 
328

 
116

 
212

 
313

 

(a)
Amounts at Duke Energy Ohio include volumes related to the nonregulated Midwest generation business sold during the second quarter of 2015. Refer to Note 2 for further information on the sale.
(b)
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’s interest rate swaps for its Regulated Utilities operations employ Regulated Operations accounting. Regulated Operations accounting records the Mark-to-Market on the swaps as Regulatory Assets or Regulatory Liabilities. The accrual of interest on the swaps is recorded as Interest Expense. Regulatory assets and liabilities are amortized consistent with the treatment of the related costs in the ratemaking process.
The following table shows notional amounts for derivatives related to interest rate risk.
 
June 30, 2015
 
December 31, 2014
(in millions)
Duke
Energy

 
Progress Energy

 
Duke Energy Progress

 
Duke
Energy
Florida

 
Duke Energy Ohio

 
Duke
Energy

 
Progress Energy

 
Duke
Energy
Florida

 
Duke Energy Ohio

Cash flow hedges (a)
$
714

 
$

 
$

 
$

 
$

 
$
750

 
$

 
$

 
$

Undesignated contracts (b)
527

 
500

 
250

 
250

 
27

 
277

 
250

 
250

 
27

Total notional amount
$
1,241

 
$
500

 
$
250

 
$
250

 
$
27

 
$
1,027

 
$
250

 
$
250

 
$
27

(a)
Duke Energy includes amounts related to consolidated Variable Interest Entities (VIEs) of $509 million and $541 million at June 30, 2015 and December 31, 2014 , respectively.
(b)
In January 2015, Duke Energy Progress executed fixed-to-floating rate swaps. The swaps were issued to economically convert $250 million of fixed rate first mortgage bonds due September 15, 2021, to floating rate with an initial rate of approximately 1.75 percent .


60


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED IN THE CONDENSED CONSOLIDATED BALANCE SHEETS
The following tables show the fair value of derivatives and the line items in the Condensed Consolidated Balance Sheets where they are reported. Although derivatives subject to master netting arrangements are netted on the Condensed Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown.
Derivative Assets
 
June 30, 2015
(in millions)
 
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets: Other
 
$
27

 
$

 
$

 
$

 
$

 
$
5

 
$
18

Investments and Other Assets: Other
 
1

 

 

 

 

 

 

Current Liabilities: Other
 
4

 
1

 
3

 

 
3

 

 

Deferred Credits and Other Liabilities: Other
 
4

 

 
4

 

 
4

 

 

Total Derivative Assets – Commodity Contracts
 
$
36


$
1


$
7


$


$
7


$
5


$
18

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments and Other Assets: Other
 
$
9

 
$

 
$

 
$

 
$

 
$

 
$

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets: Other
 
6

 

 
5

 
2

 
3

 

 

Total Derivative Assets – Interest Rate Contracts
 
$
15


$


$
5


$
2


$
3


$


$

Total Derivative Assets
 
$
51


$
1


$
12


$
2


$
10


$
5


$
18

Derivative Liabilities
 
June 30, 2015
(in millions)
 
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities: Other
 
$
233

 
$
15

 
$
213

 
$
74

 
$
139

 
$

 
$

Deferred Credits and Other Liabilities: Other
 
78

 
4

 
73

 
13

 
55

 

 

Total Derivative Liabilities – Commodity Contracts
 
$
311

 
$
19

 
$
286

 
$
87

 
$
194

 
$

 
$

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities: Other
 
$
13

 
$

 
$

 
$

 
$

 
$

 
$

Deferred Credits and Other Liabilities: Other
 
28

 

 

 

 

 

 

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities: Other
 
1

 

 

 

 

 
1

 

Deferred Credits and Other Liabilities: Other
 
16

 

 
10

 
9

 
1

 
5

 

Total Derivative Liabilities – Interest Rate Contracts
 
$
58

 
$

 
$
10

 
$
9

 
$
1

 
$
6

 
$

Total Derivative Liabilities
 
$
369

 
$
19

 
$
296

 
$
96

 
$
195

 
$
6

 
$


61


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

Derivative 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

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets: Other
 
$
18

 
$

 
$

 
$

 
$

 
$
1

 
$
14

Current Assets: Assets held for sale
 
15

 

 

 

 

 
28

 

Investments and Other Assets: Other
 
3

 

 

 

 

 

 

Investments and Other Assets: Assets held for sale
 
15

 

 

 

 

 
26

 

Current Liabilities: Other
 
1

 

 

 

 

 

 

Current Liabilities: Assets held for sale
 
174

 

 

 

 

 
175

 

Deferred Credits and Other Liabilities: Other
 
2

 

 

 

 

 

 

Deferred Credits and Other Liabilities: Assets held for sale
 
111

 

 

 

 

 
111

 

Total Derivative Assets – Commodity Contracts
 
$
339

 
$

 
$

 
$

 
$

 
$
341

 
$
14

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments and Other Assets: Other
 
10

 

 

 

 

 

 

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets: Other
 
2

 

 
2

 

 
2

 

 

Total Derivative Assets – Interest Rate Contracts
 
$
12

 
$

 
$
2

 
$

 
$
2

 
$

 
$

Total Derivative Assets
 
$
351

 
$

 
$
2

 
$

 
$
2

 
$
341

 
$
14

Derivative Liabilities
 
December 31, 2014
(in millions)
 
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities: Other
 
$

 
$

 
$
1

 
$
1

 
$

 
$

 
$

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets: Assets held for sale
 

 

 

 

 

 
4

 

Investments and Other Assets: Assets held for sale
 

 

 

 

 

 
4

 

Current Liabilities: Other
 
307

 
14

 
288

 
108

 
180

 

 

Current Liabilities: Assets held for sale
 
253

 

 

 

 

 
252

 

Deferred Credits and Other Liabilities: Other
 
91

 
5

 
80

 
23

 
57

 

 

Deferred Credits and Other Liabilities: Assets held for sale
 
208

 

 

 

 

 
207

 

Total Derivative Liabilities – Commodity Contracts
 
$
859

 
$
19

 
$
369

 
$
132

 
$
237

 
$
467

 
$

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities: Other
 
$
13

 
$

 
$

 
$

 
$

 
$

 
$

Deferred Credits and Other Liabilities: Other
 
29

 

 

 

 

 

 

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities: Other
 
1

 

 

 

 

 
1

 

Deferred Credits and Other Liabilities: Other
 
7

 

 
2

 

 
2

 
5

 

Total Derivative Liabilities – Interest Rate Contracts
 
$
50

 
$

 
$
2

 
$

 
$
2

 
$
6

 
$

Total Derivative Liabilities
 
$
909

 
$
19

 
$
371

 
$
132

 
$
239

 
$
473

 
$


62


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

OFFSETTING ASSETS AND LIABILITIES
The following tables 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
 
June 30, 2015
(in millions)
 
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Current (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
37

 
$
1

 
$
8

 
$
2

 
$
6

 
$
5

 
$
18

Gross amounts offset
 
(5
)
 
(1
)
 
(3
)
 

 
(3
)
 

 

Net amounts subject to master netting
 
32

 

 
5

 
2

 
3

 
5

 
18

Amounts not subject to master netting
 

 

 

 

 

 

 

Net amounts recognized on the Condensed Consolidated Balance Sheet
 
$
32

 
$

 
$
5

 
$
2

 
$
3

 
$
5

 
$
18

Non-Current (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
14

 
$

 
$
4

 
$

 
$
4

 
$

 
$

Gross amounts offset
 
(4
)
 

 
(4
)
 

 
(4
)
 

 

Net amounts subject to master netting
 
10

 

 

 

 

 

 

Amounts not subject to master netting
 

 

 

 

 

 

 

Net amounts recognized on the Condensed Consolidated Balance Sheet
 
$
10

 
$

 
$

 
$

 
$

 
$

 
$

(a)
Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Current Assets on the Condensed Consolidated Balance Sheets.
(b)
Amounts for Duke Energy Registrants are included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.
Derivative Liabilities
 
June 30, 2015
(in millions)
 
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Current (c)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
247

 
$
15

 
$
213

 
$
74

 
$
139

 
$
1

 
$

Gross amounts offset
 
(19
)
 
(1
)
 
(17
)
 

 
(17
)
 

 

Net amounts subject to master netting
 
228

 
14

 
196

 
74

 
122

 
1

 

Amounts not subject to master netting
 

 

 

 

 

 

 

Net amounts recognized on the Condensed Consolidated Balance Sheet
 
$
228

 
$
14

 
$
196

 
$
74

 
$
122

 
$
1

 
$

Non-Current (d)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
117

 
$
4

 
$
78

 
$
22

 
$
56

 
$
5

 
$

Gross amounts offset
 
(9
)
 

 
(9
)
 

 
(9
)
 

 

Net amounts subject to master netting
 
108

 
4

 
69

 
22

 
47

 
5

 

Amounts not subject to master netting
 
5

 

 
5

 

 

 

 

Net amounts recognized on the Condensed Consolidated Balance Sheet
 
$
113

 
$
4

 
$
74

 
$
22

 
$
47

 
$
5

 
$

(c)
Amounts for Duke Energy Registrants are included in Other within Current Liabilities on the Condensed Consolidated Balance Sheets.
(d)
Amounts for Duke Energy Registrants are included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

63


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

Derivative 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

Current (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
210

 
$

 
$
2

 
$

 
$
2

 
$
204

 
$
14

Gross amounts offset
 
(153
)
 

 
(2
)
 

 
(2
)
 
(179
)
 

Net amounts subject to master netting
 
57

 

 

 

 

 
25

 
14

Amounts not subject to master netting
 

 

 

 

 

 

 

Net amounts recognized on the Condensed Consolidated Balance Sheet
 
$
57

 
$

 
$

 
$

 
$

 
$
25

 
$
14

Non-Current (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
136

 
$

 
$

 
$

 
$

 
$
137

 
$

Gross amounts offset
 
(88
)
 

 

 

 

 
(114
)
 

Net amounts subject to master netting
 
48

 

 

 

 

 
23

 

Amounts not subject to master netting
 
5

 

 

 

 

 

 

Net amounts recognized on the Condensed Consolidated Balance Sheet
 
$
53

 
$

 
$

 
$

 
$

 
$
23

 
$

(a)
Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Current Assets on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Assets held for sale within Current Assets on the Condensed Consolidated Balance Sheets.
(b)
Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Assets held for sale within Investments and Other Assets on the Condensed Consolidated Balance Sheets.
Derivative Liabilities
 
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 (c)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
573

 
$
14

 
$
289

 
$
109

 
$
180

 
$
257

 
$

Gross amounts offset
 
(213
)
 

 
(17
)
 

 
(17
)
 
(222
)
 

Net amounts subject to master netting
 
360

 
14

 
272

 
109

 
163

 
35

 

Amounts not subject to master netting
 
1

 

 

 

 

 

 

Net amounts recognized on the Condensed Consolidated Balance Sheet
 
$
361

 
$
14

 
$
272

 
$
109

 
$
163

 
$
35

 
$

Non-Current (d)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
319

 
$
5

 
$
82

 
$
23

 
$
59

 
$
216

 
$

Gross amounts offset
 
(173
)
 

 
(8
)
 

 
(8
)
 
(193
)
 

Net amounts subject to master netting
 
146

 
5

 
74

 
23

 
51

 
23

 

Amounts not subject to master netting
 
16

 

 

 

 

 

 

Net amounts recognized on the Condensed Consolidated Balance Sheet
 
$
162

 
$
5

 
$
74

 
$
23

 
$
51

 
$
23

 
$

(c)
Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Current Liabilities on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Liabilities associated with assets held for sale within Current Liabilities on the Condensed Consolidated Balance Sheets.
(d)
Amounts for Duke Energy Registrants, except Duke Energy and Duke Energy Ohio, are included in Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. Amounts for Duke Energy and Duke Energy Ohio are included in Other and Liabilities associated with assets held for sale within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.
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.

64


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

The following tables show information with respect to derivative contracts that are in a net liability position and contain objective credit-risk-related payment provisions. Amounts for Duke Energy Indiana were not material.
 
June 30, 2015
(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
$
289

 
$

 
$
262

 
$
94

 
$
168

 
$

Fair value of collateral already posted
19

 

 
19

 

 
19

 

Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered
270

 

 
243

 
94

 
149

 

 
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

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. Amounts for Duke Energy Carolinas and Duke Energy Indiana were not material.
 
June 30, 2015
 
December 31, 2014
(in millions)
Receivables
 
Receivables
Duke Energy
 
 
 
Amounts offset against net derivative positions
$
19

 
$
145

Amounts not offset against net derivative positions

 
64

Progress Energy
 
 
 
Amounts offset against net derivative positions
19

 
23

Duke Energy Florida
 
 
 
Amounts offset against net derivative positions
19

 
23

Duke Energy Ohio
 
 
 
Amounts offset against net derivative positions

 
122

Amounts not offset against net derivative positions

 
64

11 . 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. These investments were sold prior to June 30, 2015. The fair value of these investments was $7 million at December 31, 2014 .
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 Nuclear Decommissioning Trust Fund (NDTF) at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to other post-retirement benefit obligations (OPEB) plans, (iii) Duke Energy’s captive insurance investment portfolio and (iv) Duke Energy’s foreign operations investment portfolio.
Duke Energy classifies all other investments in debt and equity securities as long term, unless otherwise noted.

65


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

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, substantially all 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 June 30, 2015 and December 31, 2014 .
DUKE ENERGY
The following table presents the estimated fair value of investments in available-for-sale securities.
 
June 30, 2015
 
December 31, 2014
(in millions)
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

NDTF
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1

 
$

 
$
120

 
$

 
$

 
$
136

Equity securities
1,890

 
31

 
3,654

 
1,926

 
29

 
3,650

Corporate debt securities
8

 
7

 
510

 
14

 
2

 
454

Municipal bonds
4

 
4

 
226

 
5

 

 
184

U.S. government bonds
14

 
3

 
838

 
19

 
2

 
978

Other debt securities
1

 
3

 
188

 
1

 
2

 
147

Total NDTF (c)
$
1,918

 
$
48

 
$
5,536

 
$
1,965

 
$
35

 
$
5,549

Other Investments
 
 
 
 
 
 
 

 
 

 
 

Cash and cash equivalents
$

 
$

 
$
30

 
$

 
$

 
$
15

Equity securities
35

 

 
98

 
34

 

 
96

Corporate debt securities
1

 
2

 
94

 
1

 
1

 
58

Municipal bonds
2

 
1

 
70

 
3

 
1

 
76

U.S. government bonds

 

 
55

 

 

 
27

Other debt securities

 
1

 
71

 
1

 
1

 
80

Total Other Investments (a)
$
38

 
$
4

 
$
418

 
$
39

 
$
3

 
$
352

Total Investments
$
1,956

 
$
52

 
$
5,954

 
$
2,004

 
$
38

 
$
5,901

(a)    These amounts are recorded in Other with Investments and Other Assets on the Condensed Consolidated Balance Sheets.
(b)
Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset.

66


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

(c)
The decrease in the estimated fair value of the NDTF for the six months ended June 30, 2015 , is primarily due to reimbursement from the NDTF for Duke Energy Florida's costs related to ongoing decommissioning activity of the Crystal River Unit 3 Nuclear Plant.
The table below summarizes the maturity date for debt securities.
(in millions)
June 30, 2015

Due in one year or less
$
86

Due after one through five years
642

Due after five through 10 years
500

Due after 10 years
824

Total
$
2,052

Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Realized gains
$
28

 
$
31

 
$
130

 
$
62

Realized losses
17

 
2

 
31

 
6

DUKE ENERGY CAROLINAS
The following table presents the estimated fair value of investments in available-for-sale securities.
 
June 30, 2015
 
December 31, 2014
(in millions)
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

NDTF
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
43

 
$

 
$

 
$
51

Equity securities
1,061

 
19

 
2,132

 
1,102

 
17

 
2,162

Corporate debt securities
4

 
6

 
352

 
8

 
2

 
316

Municipal bonds
1

 
2

 
90

 
1

 

 
62

U.S. government bonds
4

 
2

 
329

 
7

 
1

 
308

Other debt securities
1

 
3

 
153

 
1

 
2

 
133

Total NDTF
$
1,071

 
$
32

 
$
3,099

 
$
1,119

 
$
22

 
$
3,032

Other Investments
 
 
 
 
 
 
 
 
 
 
 
Other debt securities
$

 
$
1

 
$
3

 
$

 
$
1

 
$
3

Total Other Investments (a)
$

 
$
1

 
$
3

 
$

 
$
1

 
$
3

Total Investments
$
1,071

 
$
33

 
$
3,102

 
$
1,119

 
$
23

 
$
3,035

(a)
These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.
(b)
Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset.
The table below summarizes the maturity date for debt securities.
(in millions)
June 30, 2015

Due in one year or less
$
10

Due after one through five years
197

Due after five through 10 years
275

Due after 10 years
445

Total
$
927


67


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Realized gains
$
17

 
$
29

 
$
107

 
$
52

Realized losses
11

 
1

 
23

 
2

PROGRESS ENERGY
The following table presents the estimated fair value investments in available-for-sale securities.
 
June 30, 2015
 
December 31, 2014
(in millions)
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

NDTF
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1

 
$

 
$
77

 
$

 
$

 
$
85

Equity securities
829

 
12

 
1,522

 
824

 
12

 
1,488

Corporate debt securities
4

 
1

 
158

 
6

 

 
138

Municipal bonds
3

 
2

 
136

 
4

 

 
122

U.S. government bonds
10

 
1

 
509

 
12

 
1

 
670

Other debt securities

 

 
35

 

 

 
14

Total NDTF (c)
$
847

 
$
16

 
$
2,437

 
$
846

 
$
13

 
$
2,517

Other Investments
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
21

 
$

 
$

 
$
15

Municipal bonds
2

 

 
40

 
3

 

 
43

Total Other Investments (a)
$
2

 
$

 
$
61

 
$
3

 
$

 
$
58

Total Investments
$
849

 
$
16

 
$
2,498

 
$
849

 
$
13

 
$
2,575

(a)    These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.
(b)
Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset.
(c)
The decrease in the estimated fair value of the NDTF for the six months ended June 30, 2015 , is primarily due to reimbursement from the NDTF for Duke Energy Florida's costs related to ongoing decommissioning activity of the Crystal River Unit 3 Nuclear Plant.
The table below summarizes the maturity date for debt securities.
(in millions)
June 30, 2015

Due in one year or less
$
55

Due after one through five years
345

Due after five through 10 years
156

Due after 10 years
322

Total
$
878

Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Realized gains
$
9

 
$
2

 
$
21

 
$
9

Realized losses
5

 
1

 
6

 
3


68


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

DUKE ENERGY PROGRESS
The following table presents the estimated fair value of investments in available-for-sale securities.
 
June 30, 2015
 
December 31, 2014
(in millions)
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

NDTF
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1

 
$

 
$
47

 
$

 
$

 
$
50

Equity securities
617

 
10

 
1,198

 
612

 
10

 
1,171

Corporate debt securities
3

 
1

 
110

 
5

 

 
97

Municipal bonds
3

 
2

 
134

 
4

 

 
120

U.S. government bonds
7

 
1

 
228

 
9

 
1

 
265

Other debt securities

 

 
21

 

 

 
8

Total NDTF
$
631

 
$
14

 
$
1,738

 
$
630

 
$
11

 
$
1,711

Other Investments
 
 
 
 
 
 
 

 
 

 
 

Cash and cash equivalents
$

 
$

 
$
1

 
$

 
$

 
$

Total Other Investments (a)
$

 
$

 
$
1

 
$

 
$

 
$

Total Investments
$
631

 
$
14

 
$
1,739

 
$
630

 
$
11

 
$
1,711

(a)    These amounts are recorded in Other with Investments and Other Assets on the Condensed Consolidated Balance Sheets.
(b)
Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset.
The table below summarizes the maturity date for debt securities.
(in millions)
June 30, 2015

Due in one year or less
$
12

Due after one through five years
142

Due after five through 10 years
106

Due after 10 years
233

Total
$
493

Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Realized gains
$
8

 
$
1

 
$
17

 
$
7

Realized losses
4

 

 
5

 
2


69


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

DUKE ENERGY FLORIDA
The following table presents the estimated fair value of investments in available-for-sale securities.
 
June 30, 2015
 
December 31, 2014
(in millions)
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

NDTF
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
30

 
$

 
$

 
$
35

Equity securities
212

 
2

 
324

 
212

 
2

 
317

Corporate debt securities
1

 

 
48

 
1

 

 
41

Municipal bonds

 

 
2

 

 

 
2

U.S. government bonds
3

 

 
281

 
3

 

 
405

Other debt securities

 

 
14

 

 

 
6

Total NDTF (c)
$
216

 
$
2

 
$
699

 
$
216

 
$
2

 
$
806

Other Investments
 
 
 
 
 
 
 

 
 

 
 

Cash and cash equivalents
$

 
$

 
$
9

 
$

 
$

 
$
1

Municipal bonds
2

 

 
40

 
3

 

 
43

Total Other Investments (a)
$
2

 
$

 
$
49

 
$
3

 
$

 
$
44

Total Investments
$
218

 
$
2

 
$
748

 
$
219

 
$
2

 
$
850

(a)    These amounts are recorded in Other with Investments and Other Assets on the Condensed Consolidated Balance Sheets.
(b)
Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset.
(c)
The decrease in the estimated fair value of the NDTF for the six months ended June 30, 2015 , is primarily due to reimbursement from the NDTF for Duke Energy Florida's costs related to ongoing decommissioning activity of the Crystal River Unit 3 Nuclear Plant.
The table below summarizes the maturity date for debt securities.
(in millions)
June 30, 2015

Due in one year or less
$
43

Due after one through five years
203

Due after five through 10 years
50

Due after 10 years
89

Total
$
385

Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Realized gains
$
1

 
$
1

 
$
4

 
$
2

Realized losses
1

 

 
1

 
1


70


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

DUKE ENERGY INDIANA
The following table presents the estimated fair value of investments in available-for-sale securities.
 
June 30, 2015
 
December 31, 2014
(in millions)
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

 
Gross Unrealized Holding Gains

 
Gross Unrealized Holding Losses (b)

 
Estimated Fair Value

Other Investments
 
 
 
 
 
 
 
 
 
 
 
Equity securities
$
29

 
$

 
$
73

 
$
28

 
$

 
$
71

Corporate debt securities

 

 
3

 

 

 

Municipal bonds

 
1

 
27

 

 
1

 
30

Total Other Investments (a)
$
29

 
$
1


$
103

 
$
28

 
$
1

 
$
101

Total Investments
$
29

 
$
1

 
$
103

 
$
28

 
$
1

 
$
101

(a)    These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.
(b)
Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset.
The table below summarizes the maturity date for debt securities.
(in millions)
June 30, 2015

Due in one year or less
$
2

Due after one through five years
16

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 three and six months ended June 30, 2015 and 2014 .
12 . FAIR VALUE MEASUREMENTS
Fair value is the exchange price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value definition focuses on an exit price versus the acquisition cost. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient.
Fair value measurements are classified in three levels based on the fair value hierarchy:
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 and (iii) 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.

71


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

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 three and six months ended June 30, 2015 and 2014 . Transfers out of Level 3 during the three and six months ended June 30, 2015 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 composite (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
With the exception of U.S. Treasuries which are classified as Level 1, most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed income security is relatively inactive or illiquid, the measurement is Level 3.
Commodity derivatives
Commodity derivatives with clearinghouses are classified as Level 1. Other commodity derivatives are primarily fair valued using internally developed discounted cash flow models which incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or nonperformance risk (after reflecting credit enhancements such as collateral), and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for natural gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate fair value of natural gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves.
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, Long-lived Assets and Assets Held for Sale
See Note 8 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 Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 10 . See Note 11 for additional information related to investments by major security type.
 
June 30, 2015
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
3,654

 
$
3,485

 
$
1

 
$
168

Nuclear decommissioning trust fund debt securities
1,882

 
517

 
1,365

 

Other trading and available-for-sale equity securities
98

 
98

 

 

Other trading and available-for-sale debt securities
320

 
85

 
230

 
5

Derivative assets
51

 
1

 
27

 
23

Total assets
6,005

 
4,186

 
1,623

 
196

Derivative liabilities
(369
)
 
(1
)
 
(368
)
 

Net assets
$
5,636

 
$
4,185

 
$
1,255

 
$
196


72


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

 
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

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.
 
Three Months Ended June 30, 2015
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
169

 
$
14

 
$
183

Total pretax realized or unrealized gains (losses) included in earnings (a)

 
(6
)
 
(6
)
Purchases, sales, issuances and settlements:
 
 
 
 
 
Purchases
3

 
24

 
27

Sales
(3
)
 

 
(3
)
Settlements

 
(12
)
 
(12
)
Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities
4

 
3

 
7

Balance at end of period
$
173

 
$
23

 
$
196

(a)
Includes amounts related to nonregulated operations and classified as (Loss) Income From Discontinued Operations, net of tax in Duke Energy's Condensed Consolidated Statements of Operations.
 
Three Months Ended June 30, 2014
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
99

 
$
(14
)
 
$
85

Total pretax realized or unrealized gains (losses) included in earnings

 
(6
)
 
(6
)
Purchases, sales, issuances and settlements:
 
 
 
 
 
Purchases
15

 
51

 
66

Sales
(1
)
 

 
(1
)
Issuances

 
(1
)
 
(1
)
Settlements

 
(6
)
 
(6
)
Transfers out of Level 3 due to observability of inputs
68

 
2

 
70

Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities
7

 
(4
)
 
3

Balance at end of period
$
188

 
$
22

 
$
210

Pretax amounts included in the Condensed Consolidated Statements of Comprehensive Income related to Level 3 measurements outstanding
$

 
$
(25
)
 
$
(25
)

73


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

 
Six Months Ended June 30, 2015
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
156

 
$
(1
)
 
$
155

Total pretax realized or unrealized gains (losses) included in earnings (a)

 
18

 
18

Purchases, sales, issuances and settlements:
 
 
 
 
 
Purchases
12

 
24

 
36

Sales
(4
)
 

 
(4
)
Settlements

 
(22
)
 
(22
)
Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities
9

 
4

 
13

Balance at end of period
$
173

 
$
23

 
$
196

(a)
Includes amounts related to nonregulated operations and classified as (Loss) Income From Discontinued Operations, net of tax in Duke Energy's Condensed Consolidated Statements of Operations.
 
Six Months Ended June 30, 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

 
12

 
12

Purchases, sales, issuances and settlements:
 
 
 
 
 
Purchases
16

 
51

 
67

Sales
(2
)
 

 
(2
)
Issuances

 
(1
)
 
(1
)
Settlements

 
(45
)
 
(45
)
Transfers out of Level 3 due to observability of inputs
68

 
(3
)
 
65

Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities
8

 
(5
)
 
3

Balance at end of period
$
188

 
$
22

 
$
210

Pretax amounts included in the Condensed Consolidated Statements of Comprehensive Income related to Level 3 measurements outstanding
$

 
$
(25
)
 
$
(25
)
DUKE ENERGY CAROLINAS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 10 . See Note 11 for additional information related to investments by major security type.
 
June 30, 2015
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
2,132

 
$
1,963

 
$
1

 
$
168

Nuclear decommissioning trust fund debt securities
967

 
158

 
809

 

Other trading and available-for-sale debt securities
3

 

 

 
3

Derivative assets
1

 

 
1

 

Total assets
3,103

 
2,121

 
811

 
171

Derivative liabilities
(19
)
 

 
(19
)
 

Net assets
$
3,084

 
$
2,121

 
$
792

 
$
171

 
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


74


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
 
Three Months Ended June 30, 2015
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
167

 
$

 
$
167

Purchases, sales, issuances and settlements:
 
 
 
 
 
Purchases
3

 

 
3

Issuances
(3
)
 

 
(3
)
Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities
4

 

 
4

Balance at end of period
$
171

 
$

 
$
171

 
Three Months Ended June 30, 2014
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
82

 
$
(4
)
 
$
78

Purchases, sales, issuances and settlements:
 
 
 
 
 
Purchases
15

 

 
15

Sales
(1
)
 

 
(1
)
Settlements

 
1

 
1

Transfers out of Level 3 due to observability of inputs
68

 

 
68

Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities
7

 

 
7

Balance at end of period
$
171

 
$
(3
)
 
$
168

 
Six Months Ended June 30, 2015
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
154

 
$

 
$
154

Purchases, sales, issuances and settlements:
 
 
 
 
 
Purchases
12

 

 
12

Issuances
(4
)
 

 
(4
)
Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities
9

 

 
9

Balance at end of period
$
171

 
$

 
$
171

 
Six Months Ended June 30, 2014
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
81

 
$
(2
)
 
$
79

Purchases, sales, issuances and settlements:
 
 
 
 
 
Purchases
16

 

 
16

Issuances
(2
)
 

 
(2
)
Settlements

 
(1
)
 
(1
)
Transfers out of Level 3 to observability of inputs
68

 

 
68

Total gains (losses) included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities
8

 

 
8

Balance at end of period
$
171

 
$
(3
)
 
$
168

PROGRESS ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 10 . See Note 11 for additional information related to investments by major security type.

75


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

 
June 30, 2015
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
1,522

 
$
1,522

 
$

 
$

Nuclear decommissioning trust fund debt securities
915

 
359

 
556

 

Other trading and available-for-sale debt securities
61

 
20

 
41

 

Derivative assets
12

 

 
12

 

Total assets
2,510

 
1,901

 
609

 

Derivative liabilities
(296
)
 

 
(296
)
 

Net assets
$
2,214

 
$
1,901

 
$
313

 
$

 
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

 
$

The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
 
Derivatives (net)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Balance at beginning of period
$

 
$
(3
)
 
$

 
$

Total pretax realized or unrealized gains included in earnings

 
3

 

 

Transfers out of Level 3 due to observability of inputs

 
2

 

 
2

Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities

 
(2
)
 

 
(2
)
Balance at end of period
$

 
$

 
$

 
$


76


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

DUKE ENERGY PROGRESS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 10 . See Note 11 for additional information related to investments by major security type.
 
June 30, 2015
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
1,198

 
$
1,198

 
$

 
$

Nuclear decommissioning trust fund debt securities
540

 
121

 
419

 

Other trading and available-for-sale debt securities
1

 
1

 

 

Derivative assets
2

 

 
2

 

Total assets
1,741

 
1,320

 
421

 

Derivative liabilities
(96
)
 

 
(96
)
 

Net assets
$
1,645

 
$
1,320

 
$
325

 
$

 
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
540

 
151

 
389

 

Total assets
1,711

 
1,322

 
389

 

Derivative liabilities
(132
)
 

 
(132
)
 

Net assets
$
1,579

 
$
1,322

 
$
257

 
$

The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
 
Derivatives (net)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Balance at beginning of period
$

 
$
(3
)
 
$

 
$

Total pretax realized or unrealized gains included in earnings

 
3

 

 

Balance at end of period
$

 
$

 
$

 
$


77


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

DUKE ENERGY FLORIDA
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 10 . See Note 11 for additional information related to investments by major security type.
 
June 30, 2015
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Nuclear decommissioning trust fund equity securities
$
324

 
$
324

 
$

 
$

Nuclear decommissioning trust fund debt securities and other
375

 
238

 
137

 

Other trading and available-for-sale debt securities and other
49

 
9

 
40

 

Derivative assets
10

 

 
10

 

Total assets
758

 
571

 
187

 

Derivative liabilities
(195
)
 

 
(195
)
 

Net assets (liabilities)
$
563

 
$
571

 
$
(8
)
 
$

 
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
)
 
$

DUKE ENERGY OHIO
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 10 .
 
June 30, 2015
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Derivative assets
$
5

 
$

 
$

 
$
5

Derivative liabilities
(6
)
 

 
(6
)
 

Net liabilities
$
(1
)
 
$

 
$
(6
)
 
$
5

 
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 liabilities
$
(132
)
 
$
(97
)
 
$
(17
)
 
$
(18
)

78


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
 
Derivatives (net)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Balance at beginning of period
$
7

 
$
(19
)
 
$
(18
)
 
$
(4
)
Total pretax realized or unrealized gains (losses) included in earnings (a)
(4
)
 
(13
)
 
21

 
(19
)
Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Purchases

 
1

 

 
1

Sales
5

 

 
5

 

Settlements
(3
)
 

 
(3
)
 
(4
)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities

 
2

 

 
2

Transfers out of Level 3 due to observability of inputs

 
1

 

 
(4
)
Balance at end of period
$
5

 
$
(28
)
 
$
5

 
$
(28
)
Pretax amounts included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to Level 3 measurements outstanding at June 30, 2014
$

 
$

 
$

 
(27
)
(a)
Includes amounts related to nonregulated operations and classified as (Loss) Income From Discontinued Operations, net of tax in Duke Energy Ohio's Condensed Consolidated Statements of Operations and Comprehensive Income.
DUKE ENERGY INDIANA
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 10 . See Note 11 for additional information related to investments by major security type.
 
June 30, 2015
(in millions)
Total Fair Value

 
Level 1

 
Level 2

 
Level 3

Available-for-sale equity securities
$
73

 
$
73

 
$

 
$

Available-for-sale debt securities
30

 

 
30

 

Derivative assets
18

 
1

 

 
17

Net assets
$
121

 
$
74

 
$
30

 
$
17

 
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
$
115

 
$
71

 
$
30

 
$
14


79


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
 
Derivatives (net)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Balance at beginning of period
$
3

 
$
7

 
$
14

 
$
12

Total pretax realized or unrealized gains (losses) included in earnings

 

 

 
27

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Purchases
18

 
49

 
18

 
49

Settlements
(10
)
 
(7
)
 
(19
)
 
(38
)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities
6

 
(4
)
 
4

 
(5
)
Balance at end of period
$
17

 
$
45

 
$
17

 
$
45

QUANTITATIVE DISCLOSURES ABOUT UNOBSERVABLE INPUTS
The following table includes quantitative information about the Duke Energy Registrants' derivatives classified as Level 3.
 
June 30, 2015
Investment Type
Fair Value
(in millions)

Valuation Technique
Unobservable Input
Range
Duke Energy
 
 
 
 
 
 
Swing options
1

Discounted cash flow
Forward capacity option curves – price per MMBtu
$
13.85

$
113.10

Financial transmission rights (FTRs)
22

RTO auction pricing
FTR price – per MWh
(1.72
)
8.85

Total Level 3 derivatives
$
23

 
 
 
 
 
Duke Energy Ohio
 
 
 
 
 
 
FTRs
5

RTO auction pricing
FTR price – per MWh
0.07

4.09
Duke Energy Indiana
 
 
 
 
 
 
FTRs
$
17

RTO auction pricing
FTR price – per MWh
(1.72
)
8.85

 
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 MMBtu
$
2.12

$
4.35

Financial transmission rights (FTRs)
14

RTO auction pricing
FTR price – per 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

Commodity contract 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

Commodity contract 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


80


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

OTHER FAIR VALUE DISCLOSURES
The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements.
 
June 30, 2015
 
December 31, 2014
(in millions)
Book Value

Fair Value

 
Book Value

Fair Value

Duke Energy
$
39,169

$
42,276

 
$
40,020

$
44,566

Duke Energy Carolinas
8,885

9,695

 
8,391

9,626

Progress Energy
14,206

15,689

 
14,754

16,951

Duke Energy Progress
5,657

5,881

 
6,201

6,696

Duke Energy Florida
4,855

5,507

 
4,860

5,767

Duke Energy Ohio
1,605

1,760

 
1,766

1,970

Duke Energy Indiana
3,791

4,259

 
3,791

4,456

At both June 30, 2015 and December 31, 2014 , the fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper, and nonrecourse 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.
13 . VARIABLE INTEREST ENTITIES
A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. A qualitative analysis of control determines the party that consolidates a VIE. This assessment is based on (i) what party has the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) what party has rights to receive benefits or is obligated to absorb losses that could potentially be significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment.
No financial support was provided to any of the consolidated VIEs during the six months ended June 30, 2015 and the year ended December 31, 2014 , or is expected to be provided in the future, that was not previously contractually required.

81


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

CONSOLIDATED VIEs
The following tables summarize the impact of VIEs consolidated by Duke Energy and the Subsidiary Registrants on the Condensed Consolidated Balance Sheets.
 
June 30, 2015
 
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)
$
692

 
$
469

 
$
385

 
$
467

 
$
13

 
$
20

 
$
2,046

Other

 

 
1

 

 
83

 
8

 
92

Investments and Other Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Other

 

 

 

 
24

 
11

 
35

Property, Plant and Equipment
 
 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, cost (a)

 

 

 

 
1,856

 
20

 
1,876

Accumulated depreciation and amortization

 

 

 

 
(285
)
 
(6
)
 
(291
)
Regulatory Assets and Deferred Debits
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
1

 
1

 
1

 

 
38

 
(2
)
 
39

Total assets
$
693

 
$
470

 
$
387

 
$
467

 
$
1,729

 
$
51

 
$
3,797

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$

 
$

 
$

 
$
2

 
$

 
$
2

Taxes accrued
3

 
2

 
1

 

 
4

 

 
10

Current maturities of long-term debt

 

 

 

 
73

 
18

 
91

Other

 

 

 

 
14

 
6

 
20

Long-Term Debt (b)
400

 
300

 
225

 
314

 
917

 
7

 
2,163

Deferred Credits and Other Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred income taxes

 

 

 

 
264

 

 
264

Asset retirement obligations

 

 

 

 
30

 

 
30

Other

 

 

 

 
31

 
1

 
32

Total liabilities
$
403

 
$
302

 
$
226

 
$
314

 
$
1,335

 
$
32

 
$
2,612

Net assets of consolidated variable interest entities
$
290

 
$
168

 
$
161

 
$
153

 
$
394

 
$
19

 
$
1,185

(a)    Restricted as collateral for nonrecourse debt of VIEs.
(b)    Nonrecourse to the general assets of the applicable registrant.
(c)
The amount for Progress Energy is equal to the sum of the amounts for Duke Energy Progress Receivables Company, LLC (DEPR) and Duke Energy Florida Receivables Company, LLC (DEFR).

82


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

 
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 nonrecourse debt of VIEs.
(b)    Nonrecourse to the general assets of the applicable registrant.
(c)
The amount for Progress Energy is equal to the sum of the amounts for DEPR and DEFR.
The obligations of these VIEs are nonrecourse to Duke Energy, Duke Energy Carolinas, Progress Energy, 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 Condensed 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.

83


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

The following table summarizes the amounts and expiration dates of the credit facilities reflected on the Condensed Consolidated Balance Sheets as Long-Term Debt.
 
DERF

DEPR

DEFR

Credit facility amount (in millions)
$
400

$
300

$
225

Expiration date
October 2016

December 2016

March 2017

The activity that most significantly 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 are the related parties most closely associated with the VIE.
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 . 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 Condensed 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 activities that most significantly impact the 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 activities of CRC are decisions made related 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 activities that most significantly 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 following tables include VIEs not consolidated and how these entities impact the Condensed Consolidated Balance Sheets.
 
June 30, 2015
 
Duke Energy
 
Duke Energy
Ohio

 
Duke Energy
Indiana

(in millions)
Renewables

 
Other

 
Total

 
Receivables
$

 
$

 
$

 
$
52

 
$
80

Investments in equity method unconsolidated affiliates
149

 
98

 
247

 

 
$

Investments and other assets

 
1

 
1

 

 

Total assets
$
149

 
$
99

 
$
248

 
$
52

 
$
80

Other current liabilities
$

 
$
3

 
$
3

 
$

 
$

Deferred credits and other liabilities

 
14

 
14

 

 

Total liabilities
$

 
$
17

 
$
17

 
$

 
$

Net assets
$
149

 
$
82

 
$
231

 
$
52

 
$
80


84


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

 
December 31, 2014
 
Duke Energy
 
Duke Energy Ohio

 
Duke Energy Indiana

(in millions)
Renewables

 
Other

 
Total

 
Receivables
$

 
$

 
$

 
$
91

 
$
113

Investments in equity method unconsolidated affiliates
150

 
38

 
188

 

 

Investments and other assets

 
4

 
4

 

 

Total assets
$
150

 
$
42

 
$
192

 
$
91

 
$
113

Other current liabilities

 
3

 
3

 

 

Deferred credits and other liabilities

 
14

 
14

 

 

Total liabilities
$

 
$
17

 
$
17

 
$

 
$

Net assets
$
150

 
$
25

 
$
175

 
$
91

 
$
113

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, reflected in the table above as Deferred credits and other liabilities. For more information on various guarantees, refer to Note 5 , "Commitments and Contingencies."
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
Duke Energy holds a 50 percent equity interest in Duke-American Transmission Company, LLC (DATC). DATC is considered a VIE due to insufficient equity at risk to permit DATC to finance its own activities without additional subordinated financial support. The activities that most significantly impact DATC’s economic performance are the decisions related to investing in existing and development of new transmission facilities. The power to direct these activities is jointly and equally shared by Duke Energy and the other joint venture partner and, therefore, Duke Energy does not consolidate.

Duke Energy has a 40 percent equity interest and a 7.5 percent equity interest in ACP and Sabal Trail Transmission, LLC (Sabal Trail), respectively. These entities are considered VIEs as their equity is not sufficient to permit the entities to finance their activities without additional subordinated financial support. The activity that most significantly impacts the economic performance of both ACP and Sabal Trail is construction. Duke Energy does not control these activities and therefore does not consolidate ACP or Sabal Trail.

OVEC
Duke Energy Ohio’s 9 percent ownership interest in OVEC is considered a non-consolidated VIE. Through its ownership interest in OVEC, Duke Energy Ohio has a contractual arrangement to buy power from OVEC’s power plants through June 2040. 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 rule-making could increase the costs of OVEC, which would be passed through to Duke Energy Ohio. In 2014, Duke Energy Ohio 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.

85


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

Key assumptions used in estimating fair value are detailed in the following table.
 
Duke Energy Ohio
 
Duke Energy Indiana
 
2015

 
2014

 
2015

 
2014

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
%
 
10.6
%
 
10.5
%
The following table shows the gross and net receivables sold.
 
Duke Energy Ohio
 
Duke Energy Indiana
(in millions)
June 30, 2015

 
December 31, 2014

 
June 30, 2015

 
December 31, 2014

Receivables sold
$
228

 
$
273

 
$
279

 
$
310

Less: Retained interests
52

 
91

 
80

 
113

Net receivables sold
$
176

 
$
182

 
$
199

 
$
197

The following table shows sales and cash flows related to receivables sold.
 
Duke Energy Ohio
 
Duke Energy Indiana
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

 
2015

 
2014

 
2015

 
2014

Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receivables sold
$
425

 
$
487

 
$
1,069

 
$
1,228

 
$
637

 
$
679

 
$
1,353

 
$
1,434

Loss recognized on sale
2

 
2

 
5

 
6

 
2

 
2

 
5

 
5

Cash flows
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash proceeds from receivables sold
467

 
544

 
1,107

 
1,267

 
660

 
713

 
1,382

 
1,474

Collection fees received
1

 
1

 
1

 
1

 
1

 
1

 
1

 
1

Return received on retained interests
1

 
1

 
2

 
3

 
1

 
1

 
3

 
3

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

86


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

The following table presents Duke Energy’s basic and diluted EPS calculations and reconciles the weighted-average number of common shares outstanding to the diluted weighted-average number of common shares outstanding.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions, except per share amounts)
2015

 
2014

 
2015
 
2014
Income from continuing operations attributable to Duke Energy common shareholders
$
600

 
$
720

 
$
1,372

 
$
1,464

Weighted-average shares outstanding – basic
692

 
707

 
700

 
707

Weighted-average shares outstanding – diluted
692
 
707
 
700
 
707
Earnings per share from continuing operations attributable to Duke Energy common shareholders
 
 
 
 
 
 
 
Basic
$
0.87

 
$
1.02

 
$
1.96

 
$
2.07

Diluted
$
0.87

 
$
1.02

 
$
1.96

 
$
2.07

Potentially dilutive shares excluded from the calculation (a)
2

 
2

 
2
 
2
Dividends declared per common share
$
0.795

 
$
0.78

 
$
1.59

 
$
1.56

(a)
Performance stock awards and certain stock options were not included in the dilutive securities calculation because either the performance measures related to the awards had not yet been met, or the option exercise prices were greater than the average market price of the common shares during the presented periods.
On April 6, 2015, Duke Energy entered into agreements with each of Goldman, Sachs & Co. and JPMorgan Chase Bank, National Association (the Dealers) to repurchase a total of $1.5 billion of Duke Energy common stock under an accelerated stock repurchase program (the ASR). Duke Energy made payments of $750 million to each of the Dealers and was delivered 16.6 million shares, with a total fair value of $1.275 billion , which represented approximately 85 percent of the total number of shares of Duke Energy common stock expected to be repurchased under the ASR. The $225 million unsettled portion met the criteria to be accounted for as a forward contract indexed to Duke Energy's stock and qualified as an equity instrument. The company recorded the $1.5 billion payment as a reduction to common stock as of April 6, 2015. In June, 2015, the Dealers delivered 3.2 million additional shares to Duke Energy to complete the ASR. Approximately 19.8 million shares, in total, were delivered to Duke Energy and retired under the ASR at an average price of $75.75 per share. The final number of shares repurchased was based upon the average of the daily volume weighted-average stock prices of Duke Energy’s common stock during the term of the program, less a discount.
15 . STOCK-BASED COMPENSATION
For employee awards, equity classified stock-based compensation cost is measured at the service inception date or the grant date, based on the estimated achievement of certain performance metrics or the fair value of the award, and is recognized as expense or capitalized as a component of property, plant and equipment over the requisite service period.
The Duke Energy Corporation 2015 Long-Term Incentive Plan (the 2015 Plan) provides for the grant of stock-based compensation awards to employees and outside directors. The 2015 Plan reserves 10 million shares of common stock for issuance under the Plan. The 2015 Plan supersedes the 2010 Long-Term Incentive Plan, as amended (the 2010 Plan) and the Progress Energy, Inc. 2007 Equity Incentive Plan (the Progress Plan). No additional grants will be made from the 2010 Plan and the Progress Plan.
Pretax stock-based compensation costs, the tax benefit associated with stock-based compensation expense, and stock-based compensation costs capitalized are included in the following table.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
2015

 
2014

Restricted stock unit awards
$
11

 
$
11

 
$
20

 
$
22

Performance awards
8

 
5

 
13

 
10

Pretax stock-based compensation cost
$
19

 
$
16

 
$
33

 
$
32

Tax benefit associated with stock-based compensation expense
$
7

 
$
6

 
$
12

 
$
12

Stock-based compensation costs capitalized
1

 
1

 
2

 
2


87


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

16 . 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 equal to 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-year 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. 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. 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.
 
Six Months Ended June 30, 2015
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

 
 
 
 
 
 
 
 
 
 
 
Contributions
$
132

 
$
42

 
$
42

 
$
21

 
$
21

 
$
1

 
$
9

Duke Energy did not make any contributions to its U.S. qualified defined benefit pension plans during the three months ended June 30, 2015 , and the six months ended June 30, 2014 .
Net periodic benefit costs disclosed in the tables below represent the cost of the respective benefit plan for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment. Amounts presented in the tables below for the Subsidiary Registrants represent the amounts of pension and other post-retirement benefit costs allocated by Duke Energy for employees of the Subsidiary Registrants. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and post-retirement benefit costs for employees of Duke Energy’s shared services affiliate that provides support to the Subsidiary Registrants. These allocated amounts are included in the governance and shared service costs discussed in Note 9 .
QUALIFIED PENSION PLANS
The following tables include the components of net periodic pension costs for qualified pension plans.
 
Three Months Ended June 30, 2015
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost
$
39

 
$
12

 
$
11

 
$
6

 
$
5

 
$
1

 
$
2

Interest cost on projected benefit obligation
81

 
20

 
26

 
12

 
13

 
4

 
7

Expected return on plan assets
(129
)
 
(33
)
 
(41
)
 
(21
)
 
(22
)
 
(7
)
 
(11
)
Amortization of actuarial loss
44

 
10

 
17

 
9

 
8

 
3

 
4

Amortization of prior service credit
(3
)
 
(2
)
 
(1
)
 
(1
)
 
(1
)
 

 

Other
2

 

 

 
1

 
1

 

 

Net periodic pension costs
$
34

 
$
7

 
$
12

 
$
6

 
$
4

 
$
1

 
$
2

 
Three Months Ended June 30, 2014
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost
$
34

 
$
11

 
$
10

 
$
5

 
$
5

 
$
1

 
$
2

Interest cost on projected benefit obligation
86

 
21

 
28

 
14

 
15

 
5

 
8

Expected return on plan assets
(127
)
 
(33
)
 
(43
)
 
(22
)
 
(22
)
 
(6
)
 
(11
)
Amortization of actuarial loss
37

 
9

 
17

 
8

 
8

 
1

 
3

Amortization of prior service credit
(3
)
 
(2
)
 
(1
)
 
(1
)
 
(1
)
 

 

Other
1

 

 

 
1

 
1

 

 

Net periodic pension costs
$
28

 
$
6

 
$
11

 
$
5

 
$
6

 
$
1

 
$
2


88


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

 
Six Months Ended June 30, 2015
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost
$
79

 
$
25

 
$
22

 
$
12

 
$
10

 
$
2

 
$
5

Interest cost on projected benefit obligation
163

 
41

 
52

 
24

 
27

 
9

 
14

Expected return on plan assets
(258
)
 
(69
)
 
(84
)
 
(41
)
 
(44
)
 
(13
)
 
(21
)
Amortization of actuarial loss
87

 
20

 
34

 
17

 
16

 
5

 
7

Amortization of prior service credit
(7
)
 
(4
)
 
(2
)
 
(1
)
 
(1
)
 

 

Other
4

 
1

 
1

 
1

 
1

 

 

Net periodic pension costs
$
68

 
$
14

 
$
23

 
$
12

 
$
9

 
$
3

 
$
5

 
Six Months Ended June 30, 2014
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost
$
68

 
$
21

 
$
20

 
$
10

 
$
10

 
$
2

 
$
4

Interest cost on projected benefit obligation
172

 
42

 
56

 
27

 
29

 
10

 
15

Expected return on plan assets
(255
)
 
(66
)
 
(86
)
 
(43
)
 
(43
)
 
(13
)
 
(20
)
Amortization of actuarial loss
74

 
18

 
34

 
16

 
16

 
2

 
6

Amortization of prior service credit
(7
)
 
(4
)
 
(2
)
 
(1
)
 
(1
)
 

 

Other
3

 
1

 
1

 
1

 
1

 

 

Net periodic pension costs
$
55

 
$
12

 
$
23

 
$
10

 
$
12

 
$
1

 
$
5

NON-QUALIFIED PENSION PLANS
The following tables include the components of net periodic pension costs for non-qualified pension plans for registrants with non-qualified pension costs.
 
Three Months Ended June 30, 2015
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

Service cost
$
1

 
$

 
$

 
$

 
$

Interest cost on projected benefit obligation
3

 

 
1

 
1

 
1

Amortization of actuarial loss
1

 

 
1

 

 

Net periodic pension costs
$
5

 
$

 
$
2

 
$
1

 
$
1

 
Three Months Ended June 30, 2014
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

Service cost
$
1

 
$

 
$
1

 
$

 
$

Interest cost on projected benefit obligation
3

 

 

 

 
1

Amortization of actuarial loss
1

 

 
1

 

 

Net periodic pension costs
$
5

 
$

 
$
2

 
$

 
$
1

 
Six Months Ended June 30, 2015
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

Service cost
$
1

 
$

 
$
1

 
$

 
$

Interest cost on projected benefit obligation
7

 
1

 
2

 
1

 
1

Amortization of actuarial loss
3

 

 
1

 

 
1

Net periodic pension costs
$
11

 
$
1

 
$
4

 
$
1

 
$
2


89


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

 
Six Months Ended June 30, 2014
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

Service cost
$
1

 
$

 
$
1

 
$

 
$

Interest cost on projected benefit obligation
7

 

 
2

 
1

 
1

Amortization of actuarial loss
1

 

 
1

 

 

Net periodic pension costs
$
9

 
$

 
$
4

 
$
1

 
$
1

OTHER POST-RETIREMENT BENEFIT PLANS
Duke Energy provides, and the Subsidiary Registrants participate in, some health care and life insurance benefits for retired employees on a contributory and non-contributory basis. 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 six months ended June 30, 2015 and 2014 .
The following tables include the components of net periodic other post-retirement benefit costs.
 
Three Months Ended June 30, 2015
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost
$
1

 
$
1

 
$
1

 
$

 
$

 
$

 
$

Interest cost on accumulated post-retirement benefit obligation
9

 
2

 
3

 
2

 
1

 
1

 
2

Expected return on plan assets
(3
)
 
(2
)
 

 

 

 

 

Amortization of actuarial loss (gain)
7

 
(1
)
 
7

 
4

 
2

 

 
(1
)
Amortization of prior service credit
(35
)
 
(3
)
 
(25
)
 
(16
)
 
(7
)
 

 

Net periodic other post-retirement benefit costs
$
(21
)
 
$
(3
)
 
$
(14
)
 
$
(10
)
 
$
(4
)
 
$
1

 
$
1

 
Three Months Ended June 30, 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

 
$
1

 
$
1

 
$

 
$

Interest cost on accumulated post-retirement benefit obligation
13

 
3

 
5

 
2

 
3

 
1

 
2

Expected return on plan assets
(3
)
 
(2
)
 

 

 

 

 
(1
)
Amortization of actuarial loss (gain)
10

 

 
11

 
8

 
3

 
(1
)
 

Amortization of prior service credit
(32
)
 
(2
)
 
(23
)
 
(18
)
 
(6
)
 

 

Net periodic other post-retirement benefit costs
$
(9
)
 
$

 
$
(6
)
 
$
(7
)
 
$
1

 
$

 
$
1

 
Six Months Ended June 30, 2015
(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 accumulated post-retirement benefit obligation
18

 
4

 
7

 
4

 
3

 
1

 
2

Expected return on plan assets
(6
)
 
(4
)
 

 

 

 

 

Amortization of actuarial loss (gain)
13

 
(1
)
 
14

 
9

 
5

 

 
(1
)
Amortization of prior service credit
(70
)
 
(7
)
 
(51
)
 
(33
)
 
(16
)
 

 

Net periodic other post-retirement benefit costs
$
(42
)
 
$
(7
)
 
$
(29
)
 
$
(20
)
 
$
(8
)
 
$
1

 
$
1


90


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

 
Six Months Ended June 30, 2014
(in millions)
Duke Energy

 
Duke Energy Carolinas

 
Progress Energy

 
Duke Energy Progress

 
Duke Energy Florida

 
Duke Energy Ohio

 
Duke Energy Indiana

Service cost
$
5

 
$
1

 
$
2

 
$
1

 
$
2

 
$

 
$

Interest cost on accumulated post-retirement benefit obligation
25

 
6

 
11

 
5

 
6

 
1

 
3

Expected return on plan assets
(6
)
 
(4
)
 

 

 

 

 
(1
)
Amortization of actuarial loss (gain)
20

 
1

 
21

 
15

 
5

 
(1
)
 

Amortization of prior service credit
(63
)
 
(5
)
 
(47
)
 
(36
)
 
(11
)
 

 

Net periodic other post-retirement benefit costs
$
(19
)
 
$
(1
)
 
$
(13
)
 
$
(15
)
 
$
2

 
$

 
$
2

EMPLOYEE SAVINGS PLANS
Duke Energy sponsors, and the Subsidiary Registrants participate in, employee savings plans that cover substantially all U.S. employees. Effective January 1, 2015, all then-existing employee savings plans were merged into a single plan. 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 of up to 6 percent of eligible pay per pay period. Prior to 2015, Duke Energy also provided a match on after-tax contributions for certain plans. 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.
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, subject to three-year vesting, is provided to the employee’s savings plan account.
The following table includes employer matching contributions, as well as the additional contribution of 4 percent of eligible pay per pay period for employees not eligible to participate in a defined benefit plan, 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

Three Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
2015
$
37

 
$
13

 
$
12

 
$
8

 
$
3

 
$
1

 
$
2

2014
36

 
12

 
11

 
7

 
3

 
1

 
2

Six Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
2015
$
86

 
$
29

 
$
26

 
$
19

 
$
7

 
$
2

 
$
4

2014
80

 
26

 
23

 
16

 
7

 
2

 
4

17 . INCOME TAXES
The effective tax rates from continuing operations for each of the Duke Energy Registrants are included in the following table.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015

 
2014

 
2015

 
2014

Duke Energy
35.6
%
 
28.0
%
 
33.6
%
 
29.6
%
Duke Energy Carolinas
36.6
%
 
28.9
%
 
36.2
%
 
33.6
%
Progress Energy
39.2
%
 
37.7
%
 
37.1
%
 
37.4
%
Duke Energy Progress
40.6
%
 
37.3
%
 
36.0
%
 
36.9
%
Duke Energy Florida
38.7
%
 
38.7
%
 
38.6
%
 
38.6
%
Duke Energy Ohio
35.0
%
 
35.7
%
 
36.8
%
 
33.3
%
Duke Energy Indiana
36.4
%
 
36.9
%
 
36.5
%
 
36.8
%
The increase in the effective tax rate for Duke Energy for the three and six months ended June 30, 2015 is primarily due to a deferred tax benefit related to the merger of two Chilean subsidiaries recorded in second quarter 2014 and a deferred tax charge for changes in apportionment related to state income taxes recorded in second quarter 2015.
The increase in the effective tax rate for Duke Energy Carolinas for the three and six months ended June 30, 2015, is primarily due to favorable audit settlements and changes in apportionment related to state income tax in second quarter 2014.
The increase in the effective tax rate for Progress Energy for the three months ended June 30, 2015, is primarily due to tax levelization.

91


PART I
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 Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

The increase in the effective tax rate for Duke Energy Progress for the three months ended June 30, 2015, is primarily due to unfavorable tax levelization offset by an increase in AFUDC-equity.
The increase in the effective tax rate for Duke Energy Ohio for the six months ended June 30, 2015, is primarily due to an increase in pretax income.
18 . SUBSEQUENT EVENTS
For information on subsequent events related to organization and basis of presentation, acquisitions and dispositions, regulatory matters, and commitments and contingencies, see Notes 1 , 2 , 4 , and 5 , respectively.

92


PART I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) and Duke Energy Carolinas, LLC (Duke Energy Carolinas), Progress Energy, Inc. (Progress Energy), Duke Energy Progress, LLC (Duke Energy Progress, formerly Duke Energy Progress, Inc.), Duke Energy Florida, LLC (Duke Energy Florida, formerly Duke Energy Florida, Inc.), 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 United States (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 includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings, adjusted diluted earnings per share (EPS) 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 presented herein may not be comparable to similarly titled measures used by other companies.
Management’s Discussion and Analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2015 , and with Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014 .
Midwest Generation Exit
Duke Energy, through indirect subsidiaries, completed the sale of the nonregulated Midwest generation business and Duke Energy Retail Sales LLC (Disposal Group) to a subsidiary of Dynegy Inc. (Dynegy) on April 2, 2015, for approximately $2.8 billion in cash. Refer to Note 2 to the Condensed Consolidated Financial Statements, “Acquisitions and Dispositions,” for additional information on this transaction.
Commercial Portfolio (formerly Commercial Power) builds, develops and operates wind and solar renewable generation and energy transmission projects throughout the continental U.S. The segment was renamed as a result of the sale of the nonregulated Midwest generation business, as discussed in Note 2 . For periods subsequent to the sale, beginning in the second quarter of 2015, certain immaterial results of operations and related assets previously presented in the Commercial Portfolio segment are presented in Regulated Utilities and Other.
Accelerated Stock Repurchase Program
On April 6, 2015, Duke Energy entered into agreements with each of Goldman, Sachs & Co. and JPMorgan Chase Bank, National Association (the Dealers) to repurchase a total of $1.5 billion of Duke Energy common stock under an accelerated stock repurchase program (the ASR). Duke Energy made payments of $750 million to each of the Dealers and was delivered 16.6 million shares, with a total fair value of $1.275 billion, which represented approximately 85 percent of the total number of shares of Duke Energy common stock expected to be repurchased under the ASR. The $225 million unsettled portion met the criteria to be accounted for as a forward contract indexed to Duke Energy's stock and qualified as an equity instrument. The company recorded the $1.5 billion payment as a reduction to common stock as of April 6, 2015. In June, 2015, the Dealers delivered 3.2 million additional shares to Duke Energy to complete the ASR. Approximately 19.8 million shares, in total, were delivered to Duke Energy and retired under the ASR at an average price of $75.75 per share. The final number of shares repurchased was based upon the average of the daily volume weighted-average stock prices of Duke Energy’s common stock during the term of the program, less a discount.
For additional information on the details of this transaction, see Note 14 to the Condensed Consolidated Financial Statements, “Common Stock.”

93


PART I

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 Portfolio 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. Operating results of the Disposal Group sold to Dynegy are reported 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 reported as discontinued operations better reflects its financial performance and therefore has included these results in adjusted earnings and adjusted diluted EPS prior to the sale of the Disposal Group. Additionally, as a result of completing the sale of the Disposal Group during the second quarter of 2015, state income tax expense increased as state income tax apportionments changed. The additional tax expense was recognized in Continuing Operations on a GAAP basis. This impact to state income taxes has been reflected in Discontinued Operations in the Commercial Portfolio segment for adjusted diluted EPS purposes as management believes these impacts are incidental to the sale of the Disposal Group. Derivative contracts are used in Duke Energy’s hedging of a portion of the economic value of its generation assets in the Commercial Portfolio 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 Portfolio segment and discontinued operations.
Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, 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 Portfolio segment and special items, including the operating results of the Disposal Group classified as discontinued operations for GAAP purposes. 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 Portfolio 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 Condensed Consolidated Financial Statements, “Business Segments,” for a discussion of Duke Energy’s segment structure.

94


PART I

Executive Overview
The following table reconciles non-GAAP measures to their most directly comparable GAAP measures.
 
Three Months Ended June 30, 2015
(in millions, except per-share amounts)
Regulated
Utilities

 
International
Energy

 
Commercial
Portfolio

 
Total Reportable
Segments

 
Other

 
Eliminations/ Discontinued Operations

 
Duke
Energy

 
Per
Diluted
Share

Adjusted segment income/Adjusted earnings
$
632

 
$
52

 
$
8

 
$
692

 
$
(34
)
 
$

 
$
658

 
$
0.95

Costs to achieve Progress Energy merger

 

 

 

 
(14
)
 

 
(14
)
 
(0.02
)
Discontinued operations

 

 
(41
)
 
(41
)
 

 
(60
)
 
(101
)
 
(0.15
)
Segment income (loss)/Net Income Attributable to Duke Energy Corporation
$
632

 
$
52

 
$
(33
)
 
$
651

 
$
(48
)
 
$
(60
)
 
$
543

 
$
0.78

 
Three Months Ended June 30, 2014
(in millions, except per-share amounts)
Regulated
Utilities

 
International
Energy

 
Commercial
Portfolio

 
Total Reportable
Segments

 
Other

 
Eliminations/ Discontinued Operations

 
Duke
Energy

 
Per
Diluted
Share

Adjusted segment income/Adjusted earnings
$
689

 
$
146

 
$
16

 
$
851

 
$
(65
)
 
$

 
$
786

 
$
1.11

Costs to achieve Progress Energy merger

 

 

 

 
(38
)
 

 
(38
)
 
(0.06
)
Midwest generation operations

 

 
(34
)
 
(34
)
 
13

 
21

 

 

Economic hedges (mark-to-market)

 

 
(3
)
 
(3
)
 

 

 
(3
)
 

Discontinued operations

 

 

 

 

 
(136
)
 
(136
)
 
(0.19
)
Segment income (loss)/Net Income Attributable to Duke Energy Corporation
$
689

 
$
146

 
$
(21
)
 
$
814

 
$
(90
)
 
$
(115
)
 
$
609

 
$
0.86

The variance in adjusted earnings for three months ended June 30, 2015, compared to the same period in 2014, was primarily due to:
Lower results in Latin America primarily due to a prior-year tax benefit related to the reorganization of Chilean operations and higher purchased power costs resulting from the multiyear drought in Brazil;
Higher operations and maintenance expense primarily due to planned increased spending and the prior-year benefit associated with the adoption of nuclear outage levelization, partially offset by lower storm restoration costs;
Higher depreciation and amortization expense primarily due to higher depreciable base; and
The impact of a higher effective income tax rate due to a prior-year state tax settlement that resulted in a favorable adjustment to deferred taxes.
Partially offset by:
Higher weather-normal retail sales volumes;
Favorable weather in 2015 compared to 2014; and
Reduction in shares outstanding due to the Duke Energy stock repurchase (only impacts per diluted share amounts in the tables above).
 
Six Months Ended June 30, 2015
(in millions, except per-share amounts)
Regulated
Utilities

 
International
Energy

 
Commercial
Portfolio

 
Total Reportable
Segments

 
Other

 
Eliminations/ Discontinued Operations

 
Duke
Energy

 
Per
Diluted
Share

Adjusted segment income/Adjusted earnings
$
1,406

 
$
88

 
$
103

 
$
1,597

 
$
(58
)
 
$

 
$
1,539

 
$
2.20

Midwest generation operations

 

 
(94
)
 
(94
)
 

 
94

 

 

Costs to achieve Progress Energy merger

 

 

 

 
(27
)
 

 
(27
)
 
(0.04
)
Discontinued operations

 

 
(41
)
 
(41
)
 

 
(64
)
 
(105
)
 
(0.15
)
Segment income (loss)/Net Income Attributable to Duke Energy Corporation
$
1,406

 
$
88

 
$
(32
)
 
$
1,462

 
$
(85
)
 
$
30

 
$
1,407

 
$
2.01


95


PART I

 
Six Months Ended June 30, 2014
(in millions, except per-share amounts)
Regulated
Utilities

 
International
Energy

 
Commercial Portfolio

 
Total Reportable
Segments

 
Other

 
Eliminations/ Discontinued Operations

 
Duke
Energy

 
Per
Diluted
Share

Adjusted segment income/Adjusted earnings
$
1,426

 
$
276

 
$
26

 
$
1,728

 
$
(113
)
 
$

 
$
1,615

 
$
2.28

Costs to achieve Progress Energy merger

 

 

 

 
(72
)
 

 
(72
)
 
(0.10
)
Asset impairment

 

 
(59
)
 
(59
)
 

 

 
(59
)
 
(0.08
)
Midwest generation operations

 

 
(14
)
 
(14
)
 
8

 
6

 

 

Economic hedges (mark-to-market)

 

 
(6
)
 
(6
)
 

 

 
(6
)
 
(0.01
)
Discontinued operations

 

 

 

 

 
(966
)
 
(966
)
 
(1.37
)
Segment income (loss)/Net Loss Attributable to Duke Energy Corporation
$
1,426

 
$
276

 
$
(53
)
 
$
1,649

 
$
(177
)
 
$
(960
)
 
$
512

 
$
0.72

The variance in adjusted earnings for six months ended June 30, 2015, compared to the same period in 2014, was primarily due to:
Lower results in Latin America primarily due to lower spot market energy sales volume and higher purchased power costs resulting from the multiyear drought in Brazil and a prior-year tax benefit related to the reorganization of Chilean operations;
Higher operations and maintenance expense primarily due to planned increased spending and the prior-year benefit associated with the adoption of nuclear outage levelization, partially offset by lower storm restoration costs;
Higher depreciation and amortization expense primarily due to higher depreciable base; and
Lower margins at National Methanol Company (NMC), largely driven by lower methyl tertiary butyl ether (MTBE) prices.
Partially offset by:
Higher results at the nonregulated Midwest generation business prior to its sale on April 2, 2015, due to higher PJM Interconnection LLC (PJM) capacity revenues and increased generation margins;
Increased retail pricing primarily due to higher base rates and rate riders in certain jurisdictions, including increased revenues related to energy efficiency programs;
Increased wholesale net margins largely due to increases in contracted amounts and prices;
Favorable weather in 2015 compared to 2014
Higher weather-normal retail sales volumes; and
Reduction in shares outstanding due to the Duke Energy stock repurchase (only impacts per diluted share amounts in the tables above).

96


PART I

SEGMENT RESULTS
The remaining information in this discussion of results of operations is presented on a GAAP basis.
Regulated Utilities
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
Variance

 
2015

 
2014

 
Variance

Operating Revenues
$
5,220

 
$
5,283

 
$
(63
)
 
$
10,943

 
$
11,088

 
$
(145
)
Operating Expenses
4,003

 
4,019

 
(16
)
 
8,308

 
8,446

 
(138
)
Gains on Sales of Other Assets and Other, net
2

 

 
2

 
9

 
1

 
8

Operating Income
1,219

 
1,264

 
(45
)
 
2,644

 
2,643

 
1

Other Income and Expenses, net
59

 
62

 
(3
)
 
131

 
131

 

Interest Expense
274

 
275

 
(1
)
 
549

 
545

 
4

Income Before Income Taxes
1,004

 
1,051

 
(47
)
 
2,226

 
2,229

 
(3
)
Income Tax Expense
372

 
362

 
10

 
820

 
803

 
17

Segment Income
$
632

 
$
689

 
$
(57
)
 
$
1,406

 
$
1,426

 
$
(20
)
 
 
 
 
 
 
 
 
 
 
 


Duke Energy Carolinas GWh sales
21,306

 
20,836

 
470

 
43,774

 
44,529

 
(755
)
Duke Energy Progress GWh sales
14,952

 
14,693

 
259

 
31,717

 
30,854

 
863

Duke Energy Florida GWh sales
10,802

 
9,840

 
962

 
19,275

 
18,501

 
774

Duke Energy Ohio GWh sales
6,233

 
5,824

 
409

 
13,000

 
12,303

 
697

Duke Energy Indiana GWh sales
7,705

 
8,455

 
(750
)
 
16,433

 
17,329

 
(896
)
Total Regulated Utilities GWh sales
60,998

 
59,648

 
1,350

 
124,199

 
123,516

 
683

Net proportional MW capacity in operation
 
 
 
 


 
49,528

 
49,452

 
76

Three Months Ended June 30, 2015 as Compared to June 30, 2014
Regulated Utilities’ results were impacted by higher operation and maintenance costs, lower rate riders, higher property and other taxes net of the termination of North Carolina gross receipts taxes, and higher depreciation and amortization expense. These impacts were partially offset by higher weather-normal sales volumes, favorable weather, and an increase in wholesale power margins. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
a $78 million decrease in fuel revenues driven primarily by overall lower fuel rates for electric retail customers for all jurisdictions, except South Carolina and Florida. Fuel revenues represent sales to retail and wholesale customers;
a $58 million decrease in gross receipts tax revenue due to the North Carolina Tax Simplification and Rate Reduction Act which terminated the collection of the North Carolina gross receipts tax effective July 1, 2014; and
a $25 million net decrease in retail pricing primarily due to updated rates and rate riders in certain jurisdictions, including decreased revenues related to Duke Energy Florida's nuclear cost recovery clause and energy efficiency programs.
Partially offset by:
a $50 million increase in weather-normal sales volumes to retail customers (net of fuel revenue) reflecting increased demand;
a $27 million increase in electric sales (net of fuel revenue) to retail customers due to favorable weather conditions. (i) For the three months ended June 30, 2015 in the Carolinas, cooling degree days were 15 percent above normal as compared with 10 percent above normal during the same period in 2014. (ii) For the three months ended June 30, 2015 in the Midwest, cooling degree days were 3 percent above normal as compared to the prior year's normal weather. (iii) For the three months ended June 30, 2015 in Florida, cooling degree days were 19 percent above normal as compared with 1 percent above normal during the same period in 2014; and
a $20 million increase in wholesale power revenues, net of sharing, primarily due to additional volumes and capacity charges for customers served under long-term contracts.
Operating Expenses. The variance was driven primarily by:
a $95 million decrease in fuel expense (including purchased power and natural gas purchases for resale) primarily due to (i) lower natural gas and coal prices, and (ii) lower volumes of coal and oil used in electric generation, partially offset by (iii) higher volumes of natural gas used in electric generation; and
a $34 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 favorable 2014 Ohio gas excise tax settlement.

97


PART I

Partially offset by:
a $95 million increase in operating and maintenance expense primarily due to planned spending and the prior-year benefit associated with the adoption of nuclear outage levelization, partially offset by lower storm restoration costs; and
a $19 million increase in depreciation and amortization expense primarily due to increases in depreciation as a result of additional plant in service.
Income Tax Expense. The variance was primarily due to an increase in the effective tax rate. The effective tax rate for the three months ended June 30, 2015 and 2014 was 37.1 percent and 34.4 percent, respectively. The increase in the effective tax rate is primarily due to favorable audit settlements and changes in apportionment related to state income tax in second quarter 2014.
Six Months Ended June 30, 2015 as Compared to June 30, 2014
Regulated Utilities’ results were impacted by higher operation and maintenance costs, and higher depreciation and amortization expense. These impacts were partially offset by an increase in wholesale power margins, favorable weather, and higher weather-normal sales volumes. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
a $134 million decrease in fuel revenues driven primarily by overall lower fuel rates for electric retail customers for all jurisdictions, except South Carolina and Florida. Fuel revenues represent sales to retail and wholesale customers; and
a $131 million decrease in gross receipts tax revenue due to the North Carolina Tax Simplification and Rate Reduction Act as mentioned above.
Partially offset by:
a $67 million increase in wholesale power revenues, net of sharing, primarily due to additional volumes and capacity charges for customers served under long-term contracts;
a $24 million increase in electric sales (net of fuel revenue) to retail customers due to favorable weather conditions. (i) For the six months ended June 30, 2015 in the Carolinas, cooling degree days were 14 percent above normal as compared with 8 percent above normal during the same period in 2014, and heating degree days were 12 percent above normal as compared with 15 percent above normal during the same period in 2014. (ii) For the six months ended June 30, 2015 in the Midwest, cooling degree days were 1 percent above normal as compared with 2 percent below normal during the same period in 2014, and heating degree days were 15 percent above normal as compared with 22 percent above normal during the same period in 2014. (iii) For the six months ended June 30, 2015 in Florida cooling degree days were 22 percent above normal as compared with 2 percent below normal during the same period in 2014, and heating degree days were 6 percent below normal as compared with 1 percent above normal during the same period in 2014; and
a $23 million increase in weather-normal sales volumes to retail customers (net of fuel revenue) reflecting increased demand.
Operating Expenses. The variance was driven primarily by:
a $157 million decrease in fuel expense (including purchased power and natural gas purchases for resale) primarily due to (i) lower natural gas and coal prices, and (ii) lower volumes of coal and oil used in electric generation, partially offset by (iii) higher volumes of natural gas used in electric generation; and
a $129 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, and lower sales and use tax, partially offset by a 2014 Ohio gas excise tax settlement.
Partially offset by:
a $110 million increase in operating and maintenance expense primarily due to planned spending and the prior-year benefit of the adoption of nuclear outage levelization, partially offset by lower storm restoration costs; and
a $40 million increase in depreciation and amortization expense primarily due to increases in depreciation as a result of additional plant in service.
Income Tax Expense. The effective tax rate for the six months ended June 30, 2015 and 2014 was 36.8 percent and 36.0 percent, respectively.
Matters Impacting Future Regulated Utilities Results
Duke Energy is a party to multiple lawsuits and could be subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits and potential fines and penalties could have an adverse impact to Regulated Utilities’ financial position, results of operations and cash flows. See Note 5 to the Condensed 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 Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.

98


PART I

In 2013, a Federal Energy Regulatory Commission (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 Midcontinent Independent System Operator, Inc. (MISO) prior to the date of Duke Energy’s withdrawal. The initial decision will be reviewed by the FERC. If the FERC upholds the initial decision, Duke Energy intends to file an appeal in federal court. If Duke Energy is deemed responsible for these unrecovered costs, and if the Public Utilities Commission of Ohio disallows recovery of these costs, there would be an adverse impact to Regulated Utilities' financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.
In 2015, the Indiana Utility Regulatory Commission (IURC) is examining intervenors' allegations regarding the Edwardsport integrated gasification combined cycle (IGCC) in-service date for ratemaking purposes, operational performance of the plant, the level of operating costs and financing charges associated with construction delays. The outcome of these proceedings could have an adverse impact to Regulated Utilities' financial position, results of operations and cash flows. Regulated Utilities cannot predict the outcome of these proceedings. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.
In June 2015, the Florida governor signed legislation to allow utilities to petition for a financing order for securitization of certain retired nuclear generation assets. On July 27, 2015, Duke Energy Florida petitioned the FPSC for a financing order to finance the Crystal River Unit 3 Regulatory asset with low-cost securities. If the FPSC issues an acceptable financing order and Duke Energy Florida issues the bonds, securitization would replace the base rate recovery methodology established in the 2013 Agreement described above, and would result in a lower rate impact to customers. Securitization of the costs of the retired Crystal River Unit 3 Nuclear Plant would result in an initial acceleration of cash, followed by a reduction to Regulated Utilities’ future results of operations and ongoing cash flows as it would no longer earn an equity return on these costs. Under a previous settlement agreement with the FPSC, the allowed return on equity for Crystal River Unit 3 is limited to 70 percent of the approved return on equity, which is currently 10.5 percent. The FPSC is expected to hold a hearing on both the Crystal River Unit 3 Regulatory asset filing and the securitization filing in October 2015.


99


PART I

International Energy
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
Variance

 
2015

 
2014

 
Variance

Operating Revenues
$
287

 
$
364

 
$
(77
)
 
$
560

 
$
746

 
$
(186
)
Operating Expenses
232

 
254

 
(22
)
 
439

 
485

 
(46
)
(Losses) Gains on Sales of Other Assets and Other, net
(1
)
 
5

 
(6
)
 
(1
)
 
5

 
(6
)
Operating Income
54

 
115

 
(61
)
 
120

 
266

 
(146
)
Other Income and Expense, net
31

 
52

 
(21
)
 
45

 
109

 
(64
)
Interest Expense
22

 
23

 
(1
)
 
45

 
46

 
(1
)
Income Before Income Taxes
63

 
144

 
(81
)
 
120

 
329

 
(209
)
Income Tax Expense (Benefit)
10

 
(5
)
 
15

 
30

 
46

 
(16
)
Less: Income Attributable to Noncontrolling Interests
1

 
3

 
(2
)
 
2

 
7

 
(5
)
Segment Income
$
52

 
$
146

 
$
(94
)
 
$
88

 
$
276

 
$
(188
)
 
 
 
 
 
 
 
 
 
 
 
 
Sales, GWh
4,520

 
4,281

 
239

 
8,990

 
9,522

 
(532
)
Net proportional MW capacity in operation
 
 
 
 
 
 
4,333

 
4,411

 
(78
)
Three Months Ended June 30, 2015 as Compared to June 30, 2014
International Energy’s results were impacted by the absence of a prior year merger step-up tax benefit in Chile and unfavorable hydrology in Brazil. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
a $36 million decrease in Brazil due to unfavorable exchange rates, partially offset by higher average contract prices; and
a $29 million decrease in Central America due to lower average prices as a result of increased competition.
Operating Expenses. The variance was driven primarily by:
a $17 million decrease in Central America due to lower fuel costs and consumption partially offset by higher purchased power; and
a $10 million decrease in Peru due to lower hydrocarbon royalty and purchased power costs.
Other Income and Expenses, net. The variance is primarily due to lower interest income due to a lower cash balance held in Brazil and lower equity earnings in NMC as a result of lower average MTBE and methanol prices, partially offset by lower butane costs.
Income Tax Expense. The effective tax rate for the three months ended June 30, 2015 and 2014 was 15.9 percent and (4.1) percent, respectively. The increase in the effective tax rate is primarily due to a tax benefit recorded in second quarter 2014 as a result of the merger of two Chilean subsidiaries.
Six Months Ended June 30, 2015 as Compared to June 30, 2014
International Energy’s results were impacted by unfavorable hydrology in Brazil, the absence of prior year merger step-up tax benefit in Chile, lower dispatch in Central America and lower equity earnings in NMC. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
an $88 million decrease in Brazil due to unfavorable exchange rates and lower spot energy sales volumes, partially offset by higher average contract prices;
a $66 million decrease in Central America due to lower average prices and sales volumes as a result of increased competition; and
a $21 million decrease in Peru due to lower average energy and hydrocarbon prices and unfavorable exchanges rates.
Operating Expenses . The variance was driven primarily by:
a $38 million decrease in Central America due to lower fuel costs and consumption partially offset by higher purchased power costs; and
a $26 million decrease in Peru due to lower hydrocarbon royalty and purchased power costs, and lower fuel consumption.
Partially offset by:
a $19 million increase in Brazil due to higher purchased power costs as a result of unfavorable hydrology, partially offset by favorable exchange rates.
Other Income and Expenses, net . The variance is primarily due to a net remeasurement loss in Latin America, lower interest income due to a lower cash balance held in Brazil, and lower equity earnings in NMC as a result of lower average MTBE and methanol prices, partially offset by lower butane costs.

100


PART I

Income Tax Expense. The effective tax rate for six months ended June 30, 2015 and 2014 was 25.0 percent and 13.9 percent, respectively. The increase in the effective tax rate is primarily due to a tax benefit recorded in second quarter 2014 as a result of the merger of two Chilean subsidiaries.
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. Weather and economic conditions within Brazil have resulted in higher energy prices and a reduction in demand. In addition, International Energy’s equity earnings from NMC reflect sales of methanol and MTBE, which generate 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, changes to power prices that further impact demand, further decline of economic conditions within Brazil or a significant decrease in crude oil prices.
Commercial Portfolio
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
Variance

 
2015

 
2014

 
Variance

Operating Revenues
$
75

 
$
64

 
$
11

 
$
148

 
$
145

 
$
3

Operating Expenses
84

 
80

 
4

 
173

 
268

 
(95
)
Gains on Sales of Other Assets and Other, net
6

 

 
6

 
6

 

 
6

Operating Loss
(3
)
 
(16
)
 
13

 
(19
)
 
(123
)
 
104

Other Income and Expense, net
(2
)
 
5

 
(7
)
 

 
10

 
(10
)
Interest Expense
10

 
13

 
(3
)
 
22

 
27

 
(5
)
Loss Before Income Taxes
(15
)
 
(24
)
 
9

 
(41
)
 
(140
)
 
99

Income Tax Expense (Benefit)
18

 
(3
)
 
21

 
(9
)
 
(87
)
 
78

Segment Loss
$
(33
)
 
$
(21
)
 
$
(12
)
 
$
(32
)
 
$
(53
)
 
$
21

 
 
 
 
 
 
 
 
 
 
 
 
Coal-fired plant production, GWh

 
204

 
(204
)
 

 
675

 
(675
)
Renewable plant production, GWh
1,373

 
1,469

 
(96
)
 
2,683

 
3,058

 
(375
)
Total Commercial Portfolio production, GWh
1,373

 
1,673

 
(300
)
 
2,683

 
3,733

 
(1,050
)
Net proportional MW capacity in operation
 
 
 
 
 
 
1,634

 
1,305

 
329

Three Months Ended June 30, 2015 as Compared to June 30, 2014
Commercial Portfolio’s results were negatively impacted by the impact of changes in apportionment related to state income taxes resulting from the sale of the Midwest generation business. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
a $16 million increase in electric revenues from new solar portfolio activity; and
a $5 million increase in mark-to-market revenues due to prior year mark-to-market losses that did not recur.
Partially offset by:
a $10 million decrease in electric revenues due to lower production in the wind portfolio primarily resulting from changes in wind patterns.
Operating Expenses. The variance was driven primarily by:
a $15 million increase in operating and maintenance expenses resulting from new solar portfolio activity; and
a $6 million increase in depreciation expense from additional renewables generation facilities in service.
Partially offset by:
a $13 million decrease in operating and maintenance expenses due to lower corporate allocations and the 2014 retirement of the Beckjord Station (Beckjord); and
a $5 million decrease in fuel expense due to the 2014 retirement of Beckjord.
Gains on sales of other assets and other, net. The variance was driven primarily by a $6 million gain on the sale of an investment in a solar development entity.
Other income and expense, net. The variance was driven primarily by lower equity earnings from the renewables portfolio due to lower production resulting from changes in wind patterns.

101


PART I

Income Tax Expense. The variance was primarily due to a decrease in the effective tax rate due to changes to state tax apportionment factors on deferred taxes due to the Midwest generation sale in the second quarter of 2015. The effective tax rate for the three months ended June 30, 2015 and 2014 was (120.0) percent and 12.5 percent, respectively.
Six Months Ended June 30, 2015 as Compared to June 30, 2014
Commercial Portfolio’s results were positively impacted by the prior-period impairment recorded for an intangible asset, partially offset by the impact of changes in apportionment related to state income taxes resulting from the sale of the Midwest generation business. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
an $18 million increase in electric revenues from new solar portfolio activity; and
a $9 million increase in mark-to-market revenues due to prior year mark-to-market losses that did not recur.
Partially offset by:
a $25 million decrease in electric revenues due to lower production in the wind portfolio primarily resulting from changes in wind patterns.
Operating Expenses. The variance was driven primarily by a $94 million increase driven by the 2014 impairment related to Ohio Valley Electric Corporation (OVEC). See Note 8 to the Condensed Consolidated Financial Statements, "Goodwill and Intangible Assets" for additional information.
Gains on sales of other assets and other, net. The variance was driven primarily by a $6 million gain on the sale of an investment in a solar development entity.
Other income and expense, net. The variance was driven primarily by lower equity earnings from the renewables portfolio due to lower production resulting from changes in wind patterns.
Income Tax Expense. The variance was primarily due to a decrease in pretax losses and a decrease in the effective tax rate due to changes to state tax apportionment factors on deferred taxes due to the Midwest generation sale in the second quarter of 2015. The effective tax rate for the six months ended June 30, 2015 and 2014 was 22.0 percent and 62.1 percent, respectively.
Other
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
Variance

 
2015

 
2014

 
Variance

Operating Revenues
$
34

 
$
29

 
$
5

 
$
61

 
$
54

 
$
7

Operating Expenses
63

 
101

 
(38
)
 
113

 
185

 
(72
)
Gains on Sales of Other Assets and Other, net
6

 
1

 
5

 
13

 
1

 
12

Operating Loss
(23
)
 
(71
)
 
48

 
(39
)
 
(130
)
 
91

Other Income and Expense, net
9

 
9

 

 
10

 
15

 
(5
)
Interest Expense
97

 
98

 
(1
)
 
194

 
201

 
(7
)
Loss Before Income Taxes
(111
)
 
(160
)
 
49

 
(223
)
 
(316
)
 
93

Income Tax Benefit
(66
)
 
(71
)
 
5

 
(143
)
 
(140
)
 
(3
)
Less: Income Attributable to Noncontrolling Interests
3

 
1

 
2

 
5

 
1

 
4

Net Expense
$
(48
)
 
$
(90
)
 
$
42

 
$
(85
)
 
$
(177
)
 
$
92

Three Months Ended June 30, 2015 as Compared to June 30, 2014
Other’s results were positively impacted by a decrease in operating expenses. The following is a detailed discussion of the variance drivers by line item.
Operating Expenses. The decrease was primarily due to lower charges related to the Progress Energy merger integration efforts and lower captive insurance loss experience.
Gains on sales of other assets. The increase was primarily due to the benefit from the sale of telecommunication leases.
Income Tax Expense . The variance was primarily due to a decrease in pretax losses, partially offset by a higher effective tax rate . The effective tax rate for the three months ended June 30, 2015 and 2014 was 59.5 percent and 44.4 percent, respectively. The increase in the effective tax rate is primarily due to resolution of state tax apportionment issues .
Six Months Ended June 30, 2015 as Compared to June 30, 2014
Other’s results were positively impacted by a decrease in operating expenses. The following is a detailed discussion of the variance drivers by line item.
Operating Expenses. The decrease was primarily due to lower charges related to the Progress Energy merger integration efforts and lower captive insurance loss experience.

102


PART I

Gains on sales of other assets. The increase was primarily due to the benefit of the sale of telecommunication leases.
Income Tax Expense . The effective tax rate for the six months ended June 30, 2015 and 2014 was 64.1 percent and 44.3 percent, respectively. The increase in the effective tax rate is primarily due to resolution of state tax apportionment issues and tax levelization.
Matters Impacting Future Other Results
Duke Energy Ohio’s retired Beckjord Station (Beckjord) became an asset of Other after the sale of the nonregulated Midwest Generation business in the second quarter of 2015. Beckjord, a nonregulated facility retired during 2014, is not subject to the recently enacted Environmental Protection Agency (EPA) rule related to the disposal of coal combustion residuals (CCR) from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with the storage of coal ash, the costs could have an adverse impact on Other's financial position, results of operations and cash flows. See Note 3, “Business Segments” and Note 5, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements for additional information.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
Three Months Ended June 30, 2015 as Compared to June 30, 2014
Discontinued Operations, Net of Tax. The variance was primarily driven by the 2014 impairment recognized and unrealized mark-to-market losses on economic hedges for the Disposal Group, partially offset by a litigation reserve recorded in 2015, as discussed in Note 5 , "Commitments and Contingencies," to the Condensed Consolidated Financial Statements. Included in the variance is the impact of ceasing depreciation on the assets of the Disposal Group beginning in the second quarter of 2014. The foregone depreciation for the three months ended June 30, 2014, was approximately $42 million.
Six Months Ended June 30, 2015 as Compared to June 30, 2014
Discontinued Operations, Net of Tax. The variance was primarily driven by the 2014 impairment recognized and unrealized mark-to-market losses on economic hedges for the Disposal Group and favorable operating results in 2015, partially offset by a litigation reserve recorded in 2015, as discussed in Note 5 , "Commitments and Contingencies," to the Condensed Consolidated Financial Statements. Operating results in 2015 were favorable primarily due to higher PJM capacity revenues related to higher average cleared capacity auction pricing, increased generation margins and lower depreciation expense. Included in the variance is the impact of ceasing depreciation on the assets of the Disposal Group beginning in the second quarter of 2014. The foregone depreciation for the six months ended June 30, 2015, and June 30, 2014, was approximately $40 million and $42 million, respectively.
DUKE ENERGY CAROLINAS
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014 .
Results of Operations
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
Variance

Operating Revenues
$
3,608

 
$
3,755

 
$
(147
)
Operating Expenses
2,610

 
2,808

 
(198
)
Operating Income
998

 
947

 
51

Other Income and Expenses, net
83

 
93

 
(10
)
Interest Expense
208

 
203

 
5

Income Before Income Taxes
873

 
837

 
36

Income Tax Expense
316

 
281

 
35

Net Income
$
557

 
$
556

 
$
1

The following table shows the percent changes in GWh sales and average number of customers. 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.
(Decrease) increase over prior year
2015

Residential sales
(1.4
)%
General service sales
0.5
 %
Industrial sales
3.0
 %
Wholesale power sales
(16.8
)%
Total sales
(1.7
)%
Average number of customers
1.3
 %
Six Months Ended June 30, 2015 as Compared to June 30, 2014
Operating Revenues. The variance was driven primarily by:
a $139 million decrease in fuel revenues driven primarily by lower natural gas and coal prices, and decreased demand from retail customers. Fuel revenues represent sales to retail and wholesale customers; and

103


PART I

a $78 million decrease in gross receipts tax revenue due to the North Carolina Tax Simplification and Rate Reduction Act, which terminated the collection of North Carolina gross receipts tax effective July 1, 2014 .
Partially offset by:
a $38 million increase in retail pricing and rate riders, which primarily reflects increased revenues related to the energy efficiency programs and the second year base rate step-up from the 2013 South Carolina rate case;
a $14 million increase in wholesale power revenues, net of sharing, primarily due to additional volumes for customers served under long-term contracts; and
a $12 million increase in weather-normal retail sales volumes (net of fuel revenue) primarily due to increased demand from industrial customers .
Operating Expenses. The variance was driven primarily by:
a $156 million decrease in fuel expense (including purchased power) primarily related to lower natural gas and coal prices, and decreased generation due to lower sales volumes; and
a $67 million decrease in property and other tax expenses primarily due to lower revenue-related taxes driven by the elimination of the North Carolina gross receipts tax as mentioned above.
Partially offset by:
a $20 million increase in depreciation and amortization expense primarily due to higher depreciation as a result of additional plant in service, partially offset by lower nuclear decommissioning costs and lower amortization of certain regulatory assets.
Other Income and Expenses, net . The variance was primarily due to a decrease in amortization of deferred returns for projects that had been completed prior to being reflected in customer rates.
Income Tax Expense. The variance is due to an increase in the effective tax rate and in pretax income. The effective tax rate for the six months ended June 30, 2015 and 2014 was 36.2 percent and 33.6 percent, respectively. The increase in the effective tax rate is primarily due to favorable audit settlements and changes in apportionment related to state income taxes recorded in 2014 offset by an increase in the tax benefit associated with the manufacturing deduction in 2015.
Matters Impacting Future Results
Duke Energy Carolinas is a party to multiple lawsuits and subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact to Duke Energy Carolinas’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
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 Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.


104


PART I

PROGRESS ENERGY
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014 .
Results of Operations
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
Variance

Operating Revenues
$
5,012

 
$
4,962

 
$
50

Operating Expenses
3,973

 
3,998

 
(25
)
Gains on Sales of Other Assets and Other, net
14

 
1

 
13

Operating Income
1,053

 
965

 
88

Other Income and Expenses, net
46

 
28

 
18

Interest Expense
334

 
336

 
(2
)
Income From Continuing Operations Before Taxes
765

 
657

 
108

Income Tax Expense From Continuing Operations
284

 
246

 
38

Income From Continuing Operations
481

 
411

 
70

Loss From Discontinued Operations, net of tax
(1
)
 
(6
)
 
5

Net Income
480

 
405

 
75

Less: Net Income Attributable to Noncontrolling Interest
5

 
1

 
4

Net Income Attributable to Parent
$
475

 
$
404

 
$
71

Six Months Ended June 30, 2015 as Compared to June 30, 2014
Operating Revenues. The variance was driven primarily by:
a $63 million increase in wholesale power revenues primarily driven by increased demand rates and higher peak demand at Duke Energy Progress and increased capacity rates on contracts at Duke Energy Florida;
a $31 million increase in retail pricing and rate riders at Duke Energy Progress, which primarily reflects increased revenues related to the energy efficiency programs and the second year base rate step-up from the 2013 North Carolina rate case;
a $29 million increase driven by favorable weather conditions for Duke Energy Florida. Cooling degree days for the six months ended June 30, 2015, were 22 percent above normal as compared with 2 percent below normal during the same period in 2014; and
a $28 million increase in fuel revenues and capacity revenues driven by increased usage at Duke Energy Florida. Fuel revenues represent sales to retail and wholesale customers.
Partially offset by:
a $53 million decrease in gross receipts tax revenue due to the North Carolina Tax Simplification and Rate Reduction Act, which terminated the collection of North Carolina gross receipts tax effective July 1, 2014; and
a $53 million decrease in the nuclear cost recovery clause, energy conservation cost recovery clause and environmental cost recovery clause revenues due to lower recovery rates at Duke Energy Florida.
Operating Expenses. The variance was driven primarily by:
a $53 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; and
a $17 million decrease in operations and maintenance expense primarily due to decreased expenses that were recoverable through the energy conservation and environmental cost recovery clauses, a decrease in costs associated with Progress Energy’s merger integration efforts with Duke Energy at Duke Energy Florida, and lower storm restoration costs at Duke Energy Progress; partially offset by higher costs related to three nuclear refueling outages in 2015 compared to one outage during the same period in 2014, and the prior-year benefit associated with the adoption of nuclear levelization at Duke Energy Progress.
Partially offset by:
an $18 million prior-year reversal of an impairment related to the merger with Duke Energy at Duke Energy Progress. These charges related to planned transmission projects for which recovery is not expected, and certain costs associated with mitigation sales pursuant to merger settlement agreements with the FERC;
a $15 million increase in fuel used in electric generation and purchase power related to recovery of prior year under-collections of fuel and increased purchased power, partially offset by lower fuel prices at Duke Energy Florida; and
a $13 million increase in depreciation and amortization expense primarily due to higher depreciation as a result of additional plant in service at Duke Energy Progress, offset by reductions in amounts recoverable through the nuclear cost recovery clause and the environmental cost recovery clause, partially offset by increased depreciation due to plant additions at Duke Energy Florida.

105


PART I

Other Income and Expenses, net. The variance is due to higher allowance for funds used during construction (AFUDC)-equity, primarily due to nuclear plant expenditures.
Income Tax Expense. The variance is due to an increase in pretax income. The effective tax rate for the six months ended June 30, 2015 and 2014 was 37.1 percent and 37.4 percent, respectively.
Matters Impacting Future Results
Progress Energy is a party to multiple lawsuits and subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact to Progress Energy’s financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
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 Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
In June 2015, the Florida governor signed legislation to allow utilities to petition for a financing order for securitization of certain retired nuclear generation assets. On July 27, 2015, Duke Energy Florida petitioned the FPSC for a financing order to finance the Crystal River Unit 3 Regulatory asset with low-cost securities. If the FPSC issues an acceptable financing order and Duke Energy Florida issues the bonds, securitization would replace the base rate recovery methodology established in the 2013 Agreement described above, and would result in a lower rate impact to customers. Securitization of the costs of the retired Crystal River Unit 3 Nuclear Plant would result in an initial acceleration of cash, followed by a reduction to Progress Energy's future results of operations and ongoing cash flows as it would no longer earn an equity return on these costs. Under a previous settlement agreement with the FPSC, the allowed return on equity for Crystal River Unit 3 is limited to 70 percent of the approved return on equity, which is currently 10.5 percent. The FPSC is expected to hold a hearing on both the Crystal River Unit 3 Regulatory asset filing and the securitization filing in October 2015.


106


PART I

DUKE ENERGY PROGRESS
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014 .
Results of Operations
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
Variance

Operating Revenues
$
2,642

 
$
2,613

 
$
29

Operating Expenses
2,143

 
2,144

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

 
1

 

Operating Income
500

 
470

 
30

Other Income and Expenses, net
35

 
16

 
19

Interest Expense
116

 
115

 
1

Income Before Income Taxes
419

 
371

 
48

Income Tax Expense
151

 
137

 
14

Net Income and Comprehensive Income
$
268

 
$
234

 
$
34

The following table shows the percent changes in GWh sales and average number of customers. 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 over prior period
2015

Residential sales
(1.0
)%
General service sales
0.4
 %
Industrial sales
0.1
 %
Wholesale power sales
8.8
 %
Total sales
2.8
 %
Average number of customers
1.4
 %
Six Months Ended June 30, 2015 as Compared to June 30, 2014
Operating Revenues. The variance was driven primarily by:
a $48 million increase in wholesale power revenues primarily due to increased demand rates and higher peak demand; and
a $31 million increase in retail pricing and rate riders, which primarily reflects the increased revenues related to the energy efficiency programs and the second year base rate step-up from the 2013 North Carolina retail rate case.
Partially offset by:
a $53 million decrease in gross receipts tax revenue due to the North Carolina Tax Simplification and Rate Reduction Act, which terminated the collection of North Carolina gross receipts tax effective July 1, 2014.
Operating Expenses. The variance was driven primarily by:
a $29 million increase in depreciation and amortization expense primarily due to higher depreciation as a result of additional plant in service;
an $18 million prior-year reversal of an impairment related to the merger with Duke Energy. These charges related to planned transmission projects for which recovery is not expected, and certain costs associated with mitigation sales pursuant to merger settlement agreements with the FERC; and
a $9 million increase in operations and maintenance expense primarily due to three nuclear refueling outages in 2015 compared to one outage during the same period in 2014 and the prior-year benefit associated with the adoption of nuclear levelization, partially offset by lower storm restoration costs.
Partially offset by:
a $54 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.
Other Income and Expenses, net. The variance is due to higher AFUDC-equity, primarily due to nuclear plant expenditures.
Income Tax Expense. The variance is due to an increase in pretax income. The effective tax rate for the six months ended June 30, 2015 and 2014 was 36.0 percent and 36.9 percent, respectively

107


PART I

Matters Impacting Future Results
Duke Energy Progress is a party to multiple lawsuits and subject to fines and other penalties related to the Dan River coal ash release and operations at other North Carolina facilities with ash basins. The outcome of these lawsuits, fines and penalties could have an adverse impact to Duke Energy Progress’ financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
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 Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.

108


PART I

DUKE ENERGY FLORIDA
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014 .
Results of Operations
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
Variance

Operating Revenues
$
2,367

 
$
2,341

 
$
26

Operating Expenses
1,825

 
1,846

 
(21
)
Operating Income
542

 
495

 
47

Other Income and Expenses, net
10

 
11

 
(1
)
Interest Expense
99

 
99

 

Income Before Income Taxes
453

 
407

 
46

Income Tax Expense
175

 
157

 
18

Net Income
$
278

 
$
250

 
$
28

The following table shows the percent changes in GWh sales and average number of customers. 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 period
2015

Residential sales
7.1
 %
General service sales
2.0
 %
Industrial sales
(1.4
)%
Wholesale power sales
(1.1
)%
Total sales
4.2
 %
Average number of customers
1.5
 %
Six Months Ended June 30, 2015 as Compared to June 30, 2014
Operating Revenues. The variance was driven primarily by:
a $29 million increase driven by favorable weather conditions. Cooling degree days for the six months ended June 30, 2015, were 22 percent above normal as compared with 2 percent below normal during the same period in 2014;
a $28 million increase in fuel and capacity revenues driven by increased usage in the current year. Fuel revenues represent sales to retail and wholesale customers;
a $15 million increase in wholesale power revenues primarily driven by increased capacity rates on contracts; and
a $12 million increase due to weather-normal sales volumes to residential customers.
Partially offset by:
a $53 million decrease in the nuclear cost recovery clause, energy conservation cost recovery clause and environmental cost recovery clause revenues due to lower recovery rates.
Operating Expenses. The variance was driven primarily by:
a $24 million decrease in operations and maintenance expense primarily due to decreased expenses related to costs that were recoverable through the energy conservation clause and a decrease in costs associated with Progress Energy’s merger integration activities with Duke Energy; and
a $15 million decrease in depreciation and amortization expense due to reductions in amounts recoverable through the nuclear cost recovery clause and the environmental cost recovery clause, partially offset by increased depreciation due to plant additions.
Partially offset by:
an $18 million increase in fuel used in electric generation and purchase power related to recovery of prior year under-collections of fuel and increased purchased power, partially offset by lower fuel prices.
Income Tax Expense. The variance is due to an increase in pretax income. The effective tax rate is consistent for the six months ended June 30, 2015 and 2014 at 38.6 percent.

109


PART I

Matters Impacting Future Results
In June 2015, the Florida governor signed legislation to allow utilities to petition for a financing order for securitization of certain retired nuclear generation assets. On July 27, 2015, Duke Energy Florida petitioned the FPSC for a financing order to finance the Crystal River Unit 3 Regulatory asset with low-cost securities. If the FPSC issues an acceptable financing order and Duke Energy Florida issues the bonds, securitization would replace the base rate recovery methodology established in the 2013 Agreement described above, and would result in a lower rate impact to customers. Securitization of the costs of the retired Crystal River Unit 3 Nuclear Plant would result in an initial acceleration of cash, followed by a reduction to Duke Energy Florida's future results of operations and ongoing cash flows as it would no longer earn an equity return on these costs. Under a previous settlement agreement with the FPSC, the allowed return on equity for Crystal River Unit 3 is limited to 70 percent of the approved return on equity, which is currently 10.5 percent. The FPSC is expected to hold a hearing on both the Crystal River Unit 3 Regulatory asset filing and the securitization filing in October 2015.

110


PART I

DUKE ENERGY OHIO
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014 .
Results of Operations
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
Variance

Operating Revenues
$
991

 
$
987

 
$
4

Operating Expenses
845

 
934

 
(89
)
Gains on Sales of Other Assets and Other, net
8

 

 
8

Operating Income
154

 
53

 
101

Other Income and Expenses, net
(2
)
 
6

 
(8
)
Interest Expense
38

 
40

 
(2
)
Income from Continuing Operations Before Income Taxes
114

 
19

 
95

Income Tax Expense from Continuing Operations
42

 
6

 
36

Income from Continuing Operations
72

 
13

 
59

Income (Loss) from Discontinued Operations, net of tax
25

 
(1,010
)
 
1,035

Net Income
$
97

 
$
(997
)
 
$
1,094

The following table shows the percent changes in Regulated Utilities' GWh sales and average number of customers. 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.
(Decrease) increase over prior year
2015

Residential sales
(2.2
)%
General service sales
0.1
 %
Industrial sales
(0.1
)%
Wholesale power sales
488.2
 %
Total sales
5.7
 %
Average number of customers
0.6
 %
Six Months Ended June 30, 2015 as Compared to June 30, 2014
Operating Revenues . The variance was driven primarily by:
a $20 million increase in Kentucky wholesale revenues primarily due to the purchase of the additional capacity in the East Bend Station in December 2014, the profits from which are shared with Duke Energy Kentucky retail customers;
a $12 million increase in regulated natural gas rate riders primarily due to rate increases;
an $8 million increase in Ohio other revenues related to OVEC; and
a $5 million increase in PJM transmission revenues.
Partially offset by:
a $23 million decrease in regulated fuel revenues primarily driven by lower fuel costs, partially offset by increased sales volumes; and
a $23 million decrease in energy efficiency rider revenue due to a May 2015 regulatory order, currently under review, that limits the ability to utilize banked energy efficiency savings in Ohio.
Operating Expenses. The variance was driven primarily by a $94 million impairment taken in 2014 related to OVEC.
Gain on Sales of Other Assets. The variance was driven primarily by a gain on the disposition of certain nonutility assets.
Income Tax Expense. The effective tax rate for the six months ended June 30, 2015 and 2014 was 36.8 percent and 33.3 percent, respectively. The increase in the effective tax rate is primarily due to an increase in pretax income.
Discontinued Operations, Net of Tax. The variance was primarily driven by the 2014 impairment recognized for the nonregulated Midwest generation business and favorable operating results in 2015 primarily due to higher PJM capacity revenues related to higher average cleared capacity auction pricing and lower depreciation expense. Included in the variance is the impact of ceasing depreciation on the assets of the Disposal Group beginning in the second quarter of 2014. The foregone depreciation for the six months ended June 30, 2015 and June 30, 2014, was approximately $40 million and $42 million, respectively.

111


PART I

Matters Impacting Future Results
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 the FERC. If the 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 unrecovered costs, and if the Public Utilities Commission of Ohio disallows recovery of these costs, there would be an adverse impact to Duke Energy Ohio's financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.
Duke Energy Ohio’s nonregulated Beckjord Station, a facility retired during 2014, is not subject to the recently enacted EPA rule related to the disposal of CCR from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with coal ash, the costs could have an adverse impact on Duke Energy Ohio's financial position, results of operations and cash flows. See Note 5, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements for additional information.

112


PART I

DUKE ENERGY INDIANA
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the six months ended June 30, 2015 and 2014 and the Annual Report on Form 10-K for the year ended December 31, 2014 .
Results of Operations
 
Six Months Ended June 30,
(in millions)
2015

 
2014

 
Variance

Operating Revenues
$
1,474

 
$
1,593

 
$
(119
)
Operating Expenses
1,119

 
1,200

 
(81
)
Gains of Sales of Other Assets and Other, net
1

 

 
1

Operating Income
356

 
393

 
(37
)
Other Income and Expenses, net
9

 
11

 
(2
)
Interest Expense
88

 
87

 
1

Income Before Income Taxes
277

 
317

 
(40
)
Income Tax Expense
101

 
117

 
(16
)
Net Income
$
176

 
$
200

 
$
(24
)
The following table shows the percent changes in GWh sales and average number of customers. 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.
(Decrease) increase over prior year
2015

Residential sales
(5.6
)%
General service sales
(0.9
)%
Industrial sales
(1.0
)%
Wholesale power sales
(24.3
)%
Total sales
(5.2
)%
Average number of customers
0.7
 %
Six Months Ended June 30, 2015 as Compared to June 30, 2014
Operating Revenues. The variance was driven primarily by:
a $93 million decrease in fuel revenues primarily due to a decrease in fuel rates as a result of lower fuel and purchased power costs, and lower sales volumes. Fuel revenues represent sales to retail and wholesale customers;
a $14 million decrease in rate riders primarily due to lower energy efficiency revenues; and
a $6 million decrease in weather-normal sales volumes to retail customers (net of fuel revenue) reflecting decreased demand.
Operating Expenses. The variance was driven primarily by:
a $97 million decrease in fuel used in electric generation and purchased power primarily due to lower sales volumes and lower fuel prices; and
a $26 million decrease in property and other taxes, primarily as a result of lower sales and use tax.
Partially offset by:
a $36 million increase in operation and maintenance expense primarily due to timing and increased scope of outage work at generation plants; and
a $6 million increase in depreciation and amortization expense primarily due to higher depreciation as a result of additional plant in service.
Income Tax Expense. The effective tax rate for the six months ended June 30, 2015 and 2014 was 36.5 percent and 36.8 percent, respectively.
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 regarding the Edwardsport IGCC in-service date for ratemaking purposes, operational performance of the plant, the level of operating costs and financing charges associated with construction delays. 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 Indiana cannot predict the outcome of these proceedings. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.

113


PART I

On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. Duke Energy Indiana has interpreted the rule to identify the coal ash basin sites impacted and has assessed the amounts of coal ash subject to the rule and a method of compliance. Duke Energy Indiana's interpretation of the requirements of the CCR rule, which becomes effective in October 2015, is subject to potential legal challenges and further regulatory approvals, which could result in additional ash basin closure requirements, higher costs of compliance and greater asset retirement obligations. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact to the Duke Energy Indiana's financial position, results of operations and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.


114


PART I

LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Duke Energy relies primarily upon cash flows from operations, debt issuances and its existing cash and cash equivalents to fund its 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. See Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014 for a summary of primary sources and uses of cash for 2015-2017 and a more detailed discussion of each.
The Subsidiary Registrants generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Subsidiary Registrants, excluding Progress Energy (Parent), support their short-term borrowing needs through participation with Duke Energy and certain of its other subsidiaries in a money pool arrangement. The companies with short-term funds may provide short-term loans to affiliates participating under this arrangement.
Duke Energy and the Subsidiary Registrants, excluding Progress Energy (Parent), may also use short-term debt, including commercial paper and the money pool, as a bridge to long-term debt financings. The levels of borrowing may vary significantly over the course of the year due to the timing of long-term debt financings and the impact of fluctuations in cash flows from operations. Duke Energy’s current liabilities may at times 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 Facility and Registration Statements
Master Credit Facility Summary
Duke Energy has a Master Credit Facility with a capacity of $7.5 billion through January 2020. The Duke Energy Registrants, excluding Progress Energy (Parent), have borrowing capacity under the Master Credit Facility up to a specified sublimit for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop issuances of commercial paper, certain letters of credit, variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder and as security to meet obligations under the Plea Agreements. The table below includes the current borrowing sublimits and available capacity under the Master Credit Facility.
 
June 30, 2015
(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)
$
7,500

 
$
3,200

 
$
1,200

 
$
1,000

 
$
900

 
$
600

 
$
600

Reduction to backstop issuances
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper (b)
(1,589
)
 
(972
)
 
(300
)
 
(65
)
 
(75
)
 
(27
)
 
(150
)
Outstanding letters of credit
(71
)
 
(63
)
 
(4
)
 
(3
)
 
(1
)
 

 

Tax-exempt bonds
(116
)
 

 
(35
)
 

 

 

 
(81
)
Coal ash set-aside (c)
(500
)
 

 
(250
)
 
(250
)
 

 

 

Available capacity
$
5,224


$
2,165


$
611


$
682


$
824


$
573


$
369

(a)
Represents the sublimit of each borrower. Sublimits were reallocated in July 2015 to maintain adequate levels of liquidity for each borrower in light of near-term funding needs.
(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 Condensed Consolidated Balance Sheets.
(c)
On May 14, 2015, the United States District Court for the Eastern District of North Carolina approved the separate Plea Agreements entered into by Duke Energy Carolinas, Duke Energy Progress and Duke Energy Business Services LLC (DEBS), a wholly owned subsidiary of Duke Energy in connection with the investigation initiated by the USDOJ. 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. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
PremierNotes
Duke Energy has an effective 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 June 30, 2015 and December 31, 2014 was $1,048 million and $968 million, respectively. The notes are short-term debt obligations of Duke Energy and are classified within Notes payable and commercial paper on Duke Energy’s Condensed 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.

115


PART I

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

 
June 30, 2015

Unsecured Debt
 
 
 
 
 
Progress Energy (Parent)
January 2016
 
5.625
%
 
300

Duke Energy Indiana
June 2016
 
6.05
%
 
325

First Mortgage Bonds
 
 
 
 
 
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

Other
 
 
 
 
299

Current maturities of long-term debt
 
 
 
 
$
2,374

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, commodity price fluctuations and unanticipated expenses, including unplanned plant outages, storms and legal costs and related settlements, can affect the timing and level of cash flows from operations.
Cash flows from operations are subject to a number of other factors, including but not limited to regulatory constraints, economic trends and market volatility (see “Item 1A. Risk Factors,” in the Duke Energy Registrants’ Annual Report on Form 10-K for the year ended December 31, 2014 for additional information).
At June 30, 2015 , Duke Energy had cash and cash equivalents and short-term investments of $960 million, of which $664 million is held by entities domiciled in foreign jurisdictions. In December 2014, Duke Energy declared a taxable dividend of historical foreign earnings in the form of notes payable to repatriate approximately $2.7 billion of cash held and expected to be generated by International Energy over a period of up to eight years. In June 2015, approximately $1.2 billion was remitted. The remaining amount will be remitted by 2022. The remittances will principally be used to support Duke Energy's dividend and growth in the domestic business. 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. As a result, no U.S. tax is recorded on such prospective earnings. Duke Energy would be required to accrue taxes on these foreign earnings if they were to be repatriated. As of June 30, 2015 , the amount of unrecognized deferred tax liability related to undistributed earnings was not material.
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 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. As of June 30, 2015 , each of the Duke Energy Registrants was 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 the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the significant debt or credit agreements contain material adverse change clauses.
Credit Ratings
Credit ratings are intended to provide credit lenders a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the rating agencies’ assessments of their ability to meet their debt principal and interest obligations when they come due. If, as a result of market conditions or other factors, the Duke Energy Registrants are unable to maintain current balance sheet strength, or if earnings and cash flow outlook materially deteriorate, credit ratings could be negatively impacted.
The Duke Energy Registrants each hold credit ratings by Fitch Ratings, Inc. (Fitch), Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Rating Services (S&P). In April 2015, S&P upgraded Duke Energy's and Progress Energy's corporate credit rating to A- from BBB+ and their unsecured credit rating to BBB+ from BBB. The unsecured credit ratings of the other Subsidiary Registrants were upgraded to A- from
BBB+. In June 2015, Moody's placed Duke Energy, Progress Energy and Duke Energy Progress on negative outlook from stable. In June 2015, Fitch upgraded Duke Energy Carolinas' issuer default rating to A from A-, its unsecured credit rating to A+ from A and its secured credit rating to AA- from A+. Fitch also placed Duke Energy Indiana on positive outlook from stable.

116


PART I

Cash Flow Information
The following table summarizes Duke Energy’s cash flows.
 
 
Six Months Ended June 30,
(in millions)
 
2015

 
2014

Cash flows provided by (used in):
 
 
 
 
Operating activities
 
$
2,879

 
$
2,619

Investing activities
 
(294
)
 
(2,367
)
Financing activities
 
(3,661
)
 
255

Net (decrease) increase in cash and cash equivalents
 
(1,076
)
 
507

Cash and cash equivalents at beginning of period
 
2,036

 
1,501

Cash and cash equivalents at end of period
 
$
960

 
$
2,008

OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows.
 
 
Six Months Ended June 30,
(in millions)
 
2015

 
2014

Net income
 
$
1,414

 
$
520

Non-cash adjustments to net income
 
2,409

 
3,012

Contributions to qualified pension plans
 
(132
)
 

Working capital
 
(812
)
 
(913
)
Net cash provided by operating activities
 
$
2,879

 
$
2,619

The variance was driven primarily due to:
a $291 million increase in net income after non-cash adjustments, mainly due to higher PJM capacity prices and operating margins for the nonregulated Midwest generation business, higher wholesale origination results primarily due to increases in volume and capacity rates, higher retail pricing and rate riders and favorable weather, partially offset by
a $132 million increase in contributions to qualified pension plans.
INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s investing cash flows.
 
 
Six Months Ended June 30,
(in millions)
 
2015

 
2014

Capital, investment and acquisition expenditures
 
$
(3,189
)
 
$
(2,454
)
Available for sale securities, net
 
13

 
20

Proceeds from sales of other assets
 
2,832

 
119

Other investing items
 
50

 
(52
)
Net cash used in investing activities
 
$
(294
)
 
$
(2,367
)
The variance was primarily due to:
a $2,713 million increase in proceeds mainly due to sale of the nonregulated Midwest generation business to Dynegy, partially offset by
a $735 million increase in capital, investment and acquisition expenditures mainly due to growth initiatives in electric and natural gas infrastructure, solar projects and natural-gas fired generation.

117


PART I

FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s financing cash flows.
 
 
Six Months Ended June 30,
(in millions)
 
2015

 
2014

Issuance of common stock related to employee benefit plans
 
$
16

 
$
23

(Redemptions) Issuances of long-term debt, net
 
(672
)
 
331

Notes payable and commercial paper
 
(365
)
 
1,024

Dividends paid
 
(1,115
)
 
(1,107
)
Repurchase of common shares
 
(1,500
)
 

Other financing items
 
(25
)
 
(16
)
Net cash (used in) provided by financing activities
 
$
(3,661
)
 
$
255

The variance was due primarily to:
a $1,500 million increase in cash outflows due to the repurchase of 19.8 million common shares under the ASR and
a $1,389 million decrease in proceeds from net issuances of notes payable and commercial paper, primarily due to the repayment of commercial paper. These cash outflows were primarily made with proceeds from the sale of the nonregulated Midwest generation business to Dynegy; and
a $1,003 million decrease in net issuances of long-term debt, primarily due to the timing of issuances and redemptions across years.
Summary of Significant Debt Issuances
The following table summarizes significant debt issuances (in millions).
 
 
 
 
 
Six Months Ended June 30, 2015
Issuance Date
Maturity Date
 
Interest Rate

 
Duke
Energy

 
Duke
Energy
Carolinas

 
First Mortgage Bonds
 
 
 
 
 
 
 
 
March 2015 (a)
June 2045
 
3.750
%
 
$
500

 
$
500

 
Total issuances
 
 
 
 
$
500

 
$
500

 
(a)
Proceeds will be used to redeem $500 million of first mortgage bonds due October 2015.
OTHER MATTERS
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 Combustion Residuals
On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation, which becomes effective six months after publication, classifies CCR as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act and allows for beneficial use of CCRs with some restrictions. 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 Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana recorded asset retirement obligation amounts during the second quarter of 2015. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. For more information, see Note 7 to the Condensed Consolidated Financial Statements, "Asset Retirement Obligations."

118


PART I

Duke Energy Ohio's nonregulated Beckjord Station, a facility retired during 2014, is not subject to the recently enacted EPA rule related to the disposal of CCR from electric utilities. However, if costs are incurred as a result of environmental regulations or to mitigate risk associated with coal ash at the facility, the costs could have an adverse impact to Duke Energy Ohio's financial position, results of operations and cash flows.
Coal Ash Management Act of 2014
On September 20, 2014, the North Carolina Coal Ash Management Act of 2014 became law and was amended on June 24, 2015 by the Mountain Energy Act of 2015. The Coal Ash Act, as amended, (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; (iii) requires closure of ash impoundments at Duke Energy Progress' Sutton Plant and Duke Energy Carolinas' Riverbend and Dan River stations no later than August 1, 2019 and Duke Energy Progress' Asheville Plant no later than August 1, 2022; (iv) requires dry disposal of fly ash at active plants, excluding the Asheville Plant, not retired by December 31, 2018; (v) requires dry disposal of bottom ash at active plants, excluding the Asheville Plant, 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 in customer rates for unlawful discharge of ash basin waters occurring after January 1, 2014. 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. Duke Energy has and will periodically submit to DENR site-specific coal ash impoundment closure plans or excavation plans in advance of closure plans. These plans and all associated permits must be approved by DENR before any excavation or closure 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. In April 2015, the federal CCR rules were published and Duke Energy Carolinas subsequently executed an agreement with the conservation groups Upstate Forever and Save Our Saluda requiring Duke Energy Carolinas to remediate all active and inactive ash storage areas at the W.S. Lee Steam Station. Coal-fired generation at W.S. Lee ceased in 2014 and unit 3 is being converted to natural gas. In July 2015, Duke Energy Progress executed a consent agreement with the SCDHEC requiring the excavation of an inactive ash fill area at the Robinson Plant within eight years. The Robinson and Lee sites are required to be closed pursuant to the recently issued CCR rule and the provisions of these consent agreements are consistent with the federal CCR closure requirements.
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 was issued on February 16, 2012. The 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 compliance extensions for a number of its plants. The rule requirements apply where a compliance extension was not received. Duke Energy Registrants are on track to meet the requirements. Strategies to achieve compliance 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 and necessary to regulate hazardous air pollutants from coal-fired and oil-fired steam electric generating units. In June 2015, the Supreme Court reversed the D.C. Circuit Court's decision and remanded the case to the D.C. Circuit Court for further proceedings, finding that the EPA erred in refusing to consider costs when deciding whether it was appropriate and necessary to regulate emissions of hazardous air pollutants from steam electric generating units. Pending action by the D.C. Circuit Court, the rule remains in effect. Duke Energy cannot predict the results of these proceedings.
Clean Water Act 316(b)
The EPA published the final 316(b) cooling water intake structure rule on August 15, 2014, with an effective date of October 14, 2014. The rule applies to 26 of the electric generating facilities the Duke Energy Registrants own and operate. The rule allows for several options to demonstrate compliance and provides flexibility to the state environmental permitting agencies to make determinations on controls, if any, that will be required for cooling water intake structures. Any required intake structure modifications and/or retrofits are expected to be installed in the 2019 to 2022 time frame. Petitions challenging the rule have been filed by several groups. It is unknown at this time when the courts will rule on the petitions.
Steam Electric Effluent Limitations Guidelines
On June 7, 2013, the EPA proposed Steam Electric Effluent Limitations Guidelines (ELG). 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.

119


PART I

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 necessary and prudently incurred costs associated with regulated operations in complying with these regulations. Refer to Note 4 of 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 over the five years ended December 31, 2019. These costs are primarily to comply with the Coal Ash Act requirements for conversion to dry disposal of bottom ash and fly ash, MATS, Clean Water Act 316(b) and ELGs. The estimated 5-year cost excludes amounts for ash basin closure recorded as Asset retirement obligations on the Condensed Consolidated Balance Sheets. For more information, see Note 7 to the Condensed Consolidated Financial Statements, "Asset Retirement Obligations."
(in millions)
Estimated 5-Year Cost

Duke Energy
$
1,800

Duke Energy Carolinas
625

Progress Energy
475

Duke Energy Progress
375

Duke Energy Florida
100

Duke Energy Ohio
100

Duke Energy Indiana
600

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 legal 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 Pollution Standards for New, Modified and Reconstructed Power Plants
On August 3, 2015, the EPA issued the final rules establishing carbon dioxide (CO 2 ) emissions limits for new, modified, and reconstructed power plants. A new source is any fossil fuel-fired power plant that commenced construction on or after January 8, 2014. The 1,400 lb /MWh CO 2 emission limit EPA established for new coal-fired power plants reflects the application of carbon capture technology at a 20 percent capture rate. The 1,000 lb/MWh CO 2 emission limit the EPA established for new stationary combustion turbines is based on natural gas combined cycle technology.
The emission standard the EPA established for modified power plants would be a unit-specific limit based on the source’s historical annual performance.  The emission standards the EPA established for reconstructed coal-fired power plants ranges from 1,800 to 2,000 lb CO 2 /MWh.
The Duke Energy Registrants are evaluating the impacts of the final rule, but do not believe the impacts will be material.
Clean Power Plan
On August 3, 2015, the EPA issued the final Clean Power Plan (CPP) for regulating CO 2 emissions from existing fossil fuel-fired electric generating units (EGUs). The CPP establishes state-level CO 2 emission rates and mass cap goals that apply to fossil fuel-fired generation. States are required to develop and submit a final compliance plan, or an initial plan with an extension request, to the EPA by September 6, 2016. States that receive an extension must submit a final completed plan to the EPA by September 6, 2018. The EPA will take a year to review state plans. Once approved, states must implement their plan to ensure power plants achieve the interim CO 2 emissions performance goals over the period of 2022 to 2029 and the final CO 2 goals in 2030 and beyond. The CPP does not directly impose regulatory requirements on the Duke Energy Registrants. State implementation plans will include the regulatory requirements that will apply to the Duke Energy Registrants. The Duke Energy Registrants are unable to determine how the final CPP rule will impact them until state plans are developed and approved by the EPA , but the impact could be significant.
The EPA also released a proposed federal plan for public comment. A federal plan would be applied to states that fail to submit a plan to EPA or where a state plan is not approved by the EPA. Comment on the proposed federal plan are due 90 days after it is published in the Federal Register.

120


PART I

Global Climate Change
For other information on global climate change and the potential impacts on Duke Energy, see “Other Issues” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014 .
Nuclear Matters
For other information on nuclear matters and the potential impacts on Duke Energy, see “Other Issues” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014 .
New Accounting Standards
See Note 1 to the Condensed Consolidated Financial Statements, “Organization and Basis of Presentation,” for a discussion of the impact of new accounting standards.
Off-Balance Sheet Arrangements
During the three and six months ended June 30, 2015 , there were no material changes to Duke Energy’s off-balance sheet arrangements. For information on Duke Energy’s off-balance sheet arrangements, see “Off-Balance Sheet Arrangements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014 .
Contractual Obligations
Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. During the three and six months ended June 30, 2015 , there were no material changes in Duke Energy’s contractual obligations. For an in-depth discussion of Duke Energy’s contractual obligations, see “Contractual Obligations” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014 .
Subsequent Events
See Note 18 to the Condensed Consolidated Financial Statements, “Subsequent Events,” for a discussion of subsequent events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three and six months ended June 30, 2015 , there were no material changes to Duke Energy’s disclosures about market risk. For an in-depth discussion of Duke Energy’s market risks, see “Management’s Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2014 .
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated the effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2015 , 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 June 30, 2015 and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

121


PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS
For information regarding legal proceedings that became reportable events or in which there were material developments in the second quarter of 2015 , see Note 4 and Note 5 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and “Commitments and Contingencies,” respectively.
Virginia Department of Environmental Quality Civil Enforcement
In June 2015, the Virginia State Water Control Board voted to approve a consent order to resolve the civil enforcement claim of the Virginia Department of Environmental Quality (VDEQ) against Duke Energy Carolinas related to the February 2014 Dan River coal ash release. Pursuant to the terms of the $2.5 million settlement, Duke Energy Carolinas is required to perform $2.25 million of environmental projects that benefit Virginia communities and fund an additional $250,000 for VDEQ to respond to environmental emergencies. Failure to perform sufficient environmental projects will require Duke Energy Carolinas to make a cash payment in the amount of the shortfall.
MTBE Litigation
On June 28, 2007, the New Jersey Department of Environmental Protection (NJDEP) filed suit against, among others, Duke Energy Merchants (DEM), alleging contamination of “waters of the state” by MTBE from leaking gasoline storage tanks. MTBE is a gasoline additive intended to increase the oxygen level in gasoline and make it burn cleaner. The case was removed to federal court and consolidated in an existing multi-district litigation docket of pending MTBE cases. DEM and NJDEP have reached an agreement in principle to settle the case for a payment by DEM of $1.7 million. Such agreement is subject to the execution of a Consent Decree and approval of the Court.

DEM is also a defendant in a similar case filed by the Commonwealth of Pennsylvania on June 19, 2014. That case has also been moved to the consolidated multidistrict proceeding.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in the Duke Energy Registrants’ Annual Report on Form 10-K for the year ended December 31, 2014 , which could materially affect the Duke Energy Registrants’ financial condition or future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES FOR SECOND QUARTER OF 2015
Period
Total Number of Shares (or Units) Purchased (a)
Average Price Paid per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (a)
Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under Plans or Programs (a)
 (in millions)
April 1 to April 30
16,564,896

$
75.75

16,564,896

$
225

May 1 to May 31



225

June 1 to June 30
3,238,223

75.75

3,238,223


(a)
On April 6, 2015, Duke Energy entered into agreements to repurchase a total of $1.5 billion of Duke Energy common stock under an ASR. During the three-month period ended June 30, 2015, Duke Energy repurchased approximately 19.8 million shares for approximately $1.5 billion . See Note 14 for further information.

122


PART II

ITEM 6. EXHIBITS
Exhibits filed herein are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**). The Company agrees to furnish upon request to the Commission a copy of any omitted schedules or exhibits upon request on all items designated by a triple asterisk (***).
Exhibit
Number
 
Duke Energy
 
Duke Energy
Carolinas
 
Progress Energy
 
Duke Energy Progress
 
Duke Energy Florida
 
Duke Energy Ohio
 
Duke Energy
Indiana
3.1
Articles of Organization including Articles of Conversion (incorporated by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K filed on August 4, 2015, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
3.2
Plan of Conversion (incorporated by reference to Exhibit 3.2 to Registrant's Current Report on Form 8-K filed on August 4, 2015, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
3.3
Limited Liability Company Operating Agreement (incorporated by reference to Exhibit 3.3 to Registrant's Current Report on Form 8-K filed on August 4, 2015, File No. 1-03382).
 
 
 
 
 
 
X
 
 
 
 
 
 
3.4
Articles of Conversion (incorporated by reference to Exhibit 3.4 to Registrant's Current Report on Form 8-K filed on August 4, 2015, File No. 1-03274).
 
 
 
 
 
 
 
 
X
 
 
 
 
3.5
Articles of Organization (incorporated by reference to Exhibit 3.5 to Registrant's Current Report on Form 8-K filed on August 4, 2015, File No. 1-03274).
 
 
 
 
 
 
 
 
X
 
 
 
 
3.6
Plan of Conversion (incorporated by reference to Exhibit 3.6 to Registrant's Current Report on Form 8-K filed on August 4, 2015, File No. 1-03274).
 
 
 
 
 
 
 
 
X
 
 
 
 
3.7
Limited Liability Company Operating Agreement (incorporated by reference to Exhibit 3.7 to Registrant's Current Report on Form 8-K filed on August 4, 2015, File No. 1-03274).
 
 
 
 
 
 
 
 
X
 
 
 
 
10.1
Completed Accelerated Stock Repurchase Program executed by Goldman, Sachs & Co. and JPMorgan Chase Bank, N.A. on April 6, 2015 under an agreement with Registrant (incorporated by reference to Registrant's Current Report on Form 8-K filed on April 6, 2015, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
*10.2
Duke Energy Corporation 2015 Director Compensation Program Summary

X
 
 
 
 
 
 
 
 
 
 
 
 
*10.3
Approved Plea Agreement between Registrant and the Court of the Eastern District of North Carolina in connection with the May 14, 2015 Dan River Grand Jury Settlement.
 
 
X
 
 
 
 
 
 
 
 
 
 
*10.4
Approved Plea Agreement between Registrant and the Court of the Eastern District of North Carolina in connection with the May 14, 2015 Dan River Grand Jury Settlement.
 
 
 
 
 
 
X
 
 
 
 
 
 
10.5
Amendment to Employment Agreement between Lynn J. Good and Duke Energy Corporation (incorporated by reference to Registrant's Current Report on Form 8-K filed on June 29, 2015, File No. 1-32853).
X
 
 
 
 
 
 
 
 
 
 
 
 
*12
Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY CORPORATION
X
 
 
 
 
 
 
 
 
 
 
 
 
*31.1.1
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
 
 
 
 
 
 
 
 
 
 
 
 

123


PART II

*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
 
 
 
 
 
 
 
 

124


PART II

*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.

125


PART II

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
 
 
DUKE ENERGY CORPORATION
DUKE ENERGY CAROLINAS, LLC
PROGRESS ENERGY, INC.
DUKE ENERGY PROGRESS, LLC
DUKE ENERGY FLORIDA, LLC
DUKE ENERGY OHIO, INC.
DUKE ENERGY INDIANA, INC.
 
 
 
Date:
August 7, 2015
/s/ STEVEN K. YOUNG
 
 
Steven K. Young
Executive Vice President and Chief Financial Officer
 
 
 
Date:
August 7, 2015
/s/ BRIAN D. SAVOY
 
 
Brian D. Savoy
Senior Vice President, Chief Accounting Officer and Controller

126

Exhibit 10.2

Duke Energy Corporation 2015 Director Compensation Program Summary

 Annual Retainer and Fees . Effective May 8, 2015, the retainer and meeting fees paid to our outside directors will consist of:
Meeting Fees
Type of Fee
Fee (Other Than for Meetings)
In-person Attendance at Meetings Held in Conjunction With a Regular Board Meeting
In-Person Meetings Not Held in Conjunction With a Regular Board Meeting
Telephonic Participation in Meetings
Annual Board Retainer (Cash)
$90,000
 
 
 
Annual Board Retainer (Stock)
$125,000
 
 
 
Board Meeting Fees
 
$2,000
$2,500
$2,000
Annual non-executive Chairman of the Board Retainer, if applicable
$100,000
 
 
 
Annual Lead Director Retainer, if applicable
$75,000
 
 
 
Annual Audit Committee Chair Retainer
$25,000
 
 
 



Annual Chair Retainer (Other Committees)
$15,000
 
 
 
Audit Committee and Finance and Risk Management Committee Meeting Fees
 
$3,000
$2,500
$2,000
Nuclear Oversight Committee Meeting Fees
 
$4,000
$2,500
$2,000
Regulatory Policy and Operations Committee Meeting Fees
 
$3,500
$2,500
$2,000
Other Committee Meeting Fees
 
$2,000
$2,500
$2,000




UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No. 5:15-CR-67-H-2
No. 5:15-CR-68-H-2

UNITED STATES OF AMERICA        )
)
v.                )     MEMORANDUM OF PLEA AGREEMENT
)
DUKE ENERGY CAROLINAS, LLC    )

Pursuant to Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure, the United States of America, by and through the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina, and the Western District of North Carolina as well as the Environmental Crimes Section of the United States Department of Justice (collectively referred to herein as “the United States” or “the Government”), and the Defendant, DUKE ENERGY CAROLINAS, LLC (referred to herein as “the Defendant” or “DUKE ENERGY CAROLINAS”) with the advice and concurrence of the Defendant’s counsel, Julia S. Janson (Executive Vice-President, Secretary, and Chief Legal Officer, Duke Energy Carolinas, LLC) and James P. Cooney, III (Womble Carlyle Sandridge & Rice LLP) have agreed that the above-captioned case should be concluded in accordance with this Memorandum of Plea Agreement as follows:

1.    This Memorandum constitutes the full and complete record of the Plea Agreement for criminal conduct in each of the prosecuting districts, that is, the Eastern District, Middle District, and Western District of North Carolina and as alleged in the following charging documents (hereinafter referred to collectively as the “Criminal Informations”):

United States v. Duke Energy Business Services LLC, and Duke Energy Progress, Inc. , No. 5:15-CR-62-H;

United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. ,
No. 5:15-CR-67-H; and

United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. ,
No. 5:15-CR-68-H.

There are no other agreements between the parties in addition to or different from the terms herein.

2.    The United States and the Defendant agree:

a.
That this Plea Agreement (“Agreement”) is made pursuant to Rule 11(c)(1) (C) of the Federal Rules of Criminal Procedure (“Fed. R. Crim. P.”) and that the sentence set forth herein is the appropriate disposition of this case. If the Court rejects this Agreement, it is further agreed that the Defendant may withdraw its plea and all of the parties may withdraw from this Agreement.

b.
The parties further acknowledge that based upon the Joint Factual Statement, a copy of which is attached hereto as Exhibit A, the Court has sufficient information in the record to enable it to meaningfully exercise its sentencing authority. Accordingly, if acceptable to the Court, the parties agree to waive the presentence investigation and report pursuant to Fed. R. Crim. P. 32(c), and to request that the Defendant be sentenced at the time the guilty plea is entered.

c.
The parties further agree and acknowledge that the Defendant’s parent corporation, Duke Energy Corporation, shall guarantee all monetary penalties (criminal fine, restitution, community service, and mitigation) imposed upon the Defendant and the funding and performance due from the Defendant in connection with the nationwide and statewide environmental compliance plans under this Agreement as more fully set forth in the Guaranty Agreement, a copy of which is attached hereto at Exhibit B (without attachments) and fully incorporated herein by reference. The parties further agree and acknowledge that Duke Energy Corporation shall consent to the jurisdiction of the United States District Court for the Eastern District of North Carolina for the purpose of enforcing the Guaranty Agreement.

d.
Pursuant to Fed. R. Crim. P. 11(c)(1)(C), the parties agree that the following sentence is warranted in this case:

i.
Criminal Fines : At the time of imposition of sentencing, the Defendant shall make a payment of Criminal Fines totaling $53.6 million ($53,600,000) as follows:

Dan River Violations

(1)
$38 million ($38,000,000) for the negligent Clean Water Act discharge without a National Pollutant Discharge Elimination System (“NPDES”) permit from the 48-inch stormwater pipe at Dan River Steam Station based upon a fine of twice the gross gain or loss

pursuant to 33 U.S.C. § 1319(c) (1) (A) and 18 U.S.C. § 3571(c) and (d).

(2)
$2 million ($2,000,000) for the negligent Clean Water Act failure to maintain the coal ash impoundments and related appurtenances (48-inch stormwater pipe) as required by the applicable NPDES permit for the Dan River Steam Station, a fine within the statutory penalty range of $2,500 to $25,000 per day

of violation pursuant to 33 U.S.C.

§ 1319(c)(1)(A) and 18 U.S.C. § 3571(c) and (d).

(3)
$9.5 million ($9,500,000) for the negligent Clean Water Act discharge without a NPDES permit from the 36-inch stormwater pipe at

Dan River Steam Station, a fine within the statutory penalty range of $2,500 to $25,000 per day of violation pursuant to 33 U.S.C.

§ 1319(c)(1) (A) and 18 U.S.C. § 3571(c) and (d)

(4)
$2 million ($2,000,000) for negligent Clean Water Act failure to maintain the coal ash impoundments and related appurtenances (36-inch stormwater pipe) as required by the applicable NPDES permit for the Dan River Steam Station, a fine within the statutory penalty range of $2,500 to $25,000 per day

of violation pursuant to 33 U.S.C.

§ 1319(c)(1) (A) and 18 U.S.C. § 3571(c) and (d).

Riverbend Violations

(5) $2.1 million ($2,100,000) for the negligent Clean Water Act discharge in violation of

the applicable NPDES permit at Riverbend

Steam Station, a fine within the statutory penalty range of $2,500 to $25,000 per day of violation pursuant to 33 U.S.C.

§ 1319(c)(1)(A) and 18 U.S.C. § 3571(c) and (d).

ii.
Probation : A statutory-maximum term of five (5) years of probation is warranted. 18 U.S.C.

§ 3561(c)(2). Probation shall include the

standard conditions of probation and the following special conditions, pursuant to 18 U.S.C. § 3563(a) and (b):

(1)
Compliance with the Law : The Defendant shall not commit another federal, state, or local crime during the term of probation.

(2)
Cooperation with Probation Office : The Defendant shall fully cooperate with the United States Probation Office. The Defendant shall answer truthfully all inquiries by the Probation Officer; shall provide full access to any of the Defendant’s operating locations; shall give ten (10) days’ prior notice of any intended change in principal business or mail address; and shall provide notice of any material change in the Defendant’s economic circumstances that might affect the Defendant’s ability to pay the fines and other financial obligations set forth herein.

(3)
Nationwide Environmental Compliance Plan : Under the terms of its plea agreement, co-defendant Duke Energy Business Services LLC (“DEBS”) is required to develop, adopt, implement, and fund a comprehensive nationwide environmental compliance plan (“NECP”) during its term of probation, consistent with sentencing policies set forth in USSG §801.4 and which incorporates
 

all of the agreed-upon obligations set forth in Paragraph 3(u) (v) of this Agreement. The Defendant shall take all steps necessary or required to assist DEBS in meeting this obligation.

(4)
Statewide Environmental Compliance Plan :

The Defendant, along with its co-defendants Duke Energy Progress, Inc. (“DEP”) and DEBS, shall develop, adopt, implement, and fund a comprehensive statewide environmental compliance plan (“ECP-NC”) during its term of probation, consistent with sentencing policies set forth in USSG §8D1.4 and which incorporates all of the agreed-upon obligations set forth in Paragraph 3(u)(vi) of this Agreement.

(5)
Notice to Employees and Shareholders : Upon approval by the Court of the NECP and ECP-NC, the Defendant shall notify its employees of its criminal behavior, the NECP, and the ECP-NC. In addition, the Defendant shall cause a notice containing the same information to be sent to the shareholders of Duke Energy Corporation. Such notice shall be in a form prescribed by the Court-Appointed Monitor (“CAM”) and at a time designated by the CAM.

(6)
Community Service Payment : Pursuant to USSG §8B1.3 and in furtherance of the sentencing principles provided for under 18 U.S.C.

§ 3553(a), at the time of sentencing, the Defendant shall make a community service payment totaling $13.5 million ($13,500,000), through the National Fish and Wildlife Foundation (“NFWF”), to fund environmental projects, studies, and initiatives designed to benefit, preserve, and restore the riparian environment and ecosystems of North Carolina and Virginia affected by the Defendant’s conduct, as set forth in Paragraph 3(aa) of this Agreement.

(7)
Mitigation : In order to compensate for impacts to wetlands and other jurisdictional

waters of the United States impacted as a result of the Defendant’s conduct, including temporal and secondary effects, at its facilities in North Carolina with coal ash impoundments, the Defendant shall provide $5 million ($5,000,000) to an authorized wetlands mitigation bank or conservation trust, approved by the Court, for the purchase of riparian wetland and/or riparian land and/or restoration equivalent located in the Broad River Basin, French Broad River Basin, Cape Fear River Basin, Catawba River Basin, Dan River Basin, Yadkin-Pee Dee River Basin, Neuse River Basin, Lumber River Basin, and Roanoke River Basin as set forth in more detail in Paragraph 3(bb) of this Agreement.

iii.
Payment Liability/Financial Assurances : The Defendant shall be liable for and pay all fines, restitution, community service, and mitigation payments and shall fund the NECP and ECP-NC, all as set forth herein. The Defendant shall further be liable for any additional restitution payments as determined by the CAM.

(1) Reservation of Funds by Defendant : The Defendant further shall record appropriate reserves on financial statements for the purpose of recognizing the projected obligation to retire its coal ash impoundments in North Carolina. This obligation is currently estimated at a total of $2.0 billion ($2,000,000,000) on the Defendant’s balance sheet. Each year during the term of probation, beginning on the date that the Agreement is accepted by the Court and occurring by March 31 of each year thereafter, the Defendant shall cause the Chief Financial Officer of Duke Energy Corporation, as further directed under the Guaranty Agreement attached hereto, to certify to the United States and the CAM that the Defendant and Duke Energy Corporation have sufficient assets reserved to meet the obligations imposed by law or regulation or as may otherwise be necessary

to fulfill the Defendant’s obligations with respect to its coal ash impoundments within the State of North Carolina. If the CAM has any concerns regarding the assets available to meet obligations imposed by the Judgment in this case, the CAM shall immediately notify the Court and the parties.

(2)
Reservation of Funds by Parent Company : The Defendant further shall cause its parent holding company, Duke Energy Corporation, to record appropriate reserves on its consolidated financial statements for the purpose of recognizing the projected obligation to retire all coal ash impoundments, including those in North Carolina. This obligation is currently estimated at a total of $3.4 billion ($3,400,000,000) on Duke Energy Corporation’s balance sheet for all coal ash impoundments (including those owned by the Defendant and co-defendant DEP). Each year during the term of probation, beginning on the date that the Agreement is accepted by the Court and occurring by March 31 of each year thereafter, the Defendant shall cause the Chief Financial Officer of Duke Energy Corporation, as further directed under the Guaranty Agreement attached hereto, to certify to the United States and the CAM that the Defendant and Duke Energy Corporation have sufficient assets reserved to meet the obligations imposed by law or regulation or as may otherwise be necessary to fulfill the Defendant’s obligations with respect to its coal ash impoundments within the State of North Carolina. If the CAM has any concerns regarding the assets available to meet obligations imposed by the Judgment in this case, the CAM shall immediately notify the Court and the parties.

(3)
Security : Through the entire term of probation, the Defendant shall further maintain unused borrowing capacity in the amount of $250 million ($250,000,000) under the Master Credit Facility as security to

meet its obligations under this Agreement for the closing and remediation of coal ash impoundments, as more fully set forth in Paragraph 3(k) of this Agreement. The Defendant shall certify this set aside to the CAM on an annual basis, or more frequently as the CAM requires. If the CAM has any concerns regarding the security available to meet the obligations imposed by the Judgment in this case, the CAM shall immediately notify the Court and the parties.

iv.
Restitution for Counts of Conviction : Pursuant to 18 U.S.C. §§ 3663, 3663A, and 3563(b)(2), the Defendant shall make restitution to any victim in whatever amount the Court may order. Said restitution shall be due and payable immediately. Said restitution shall include at a minimum, as apportioned to this Defendant pursuant to 18 U.S.C. § 3664(h), restitution to be paid to the Clerk of the Court as follows:

(1)    $63,309.45 to Virginia Beach, payable to:

City of Virginia Beach
c/o Department of Public Utilities
City of Virginia Beach
2405 Courthouse Drive
Virginia Beach, Virginia 23456
ATTN: “Coal Ash Spill - Water Quality
Sampling / CIP 5-967” as a reference

(2)
$125,069.75 to City of Chesapeake, VA (Lake Gaston, sampling costs) payable to:

City of Chesapeake
c/o David Jurgens,
Director of Public Utilities
306 Cedar Rd, 2nd floor
Chesapeake, VA 23322

(3)
and $31,491.11 to the United States Army Corps of Engineers payable to:

FAO-USACE Wilmington
c/o Anita Bissette
69 Darlington Ave
Wilmington, NC 28406
(910-251-4803)

v.
Restitution for Relevant Conduct to Be Paid During Term of Probation : Pursuant to 18 U.S.C. § 3663, the Defendant shall pay restitution as directed by the CAM through the claims process set forth in Paragraphs 3(x)(iii)-(vi) of this Agreement.

vi.
Special Assessment : The Defendant shall pay special assessments, totaling $625.00, before or at the time of sentencing, and shall provide a receipt from the Clerk of Court for the Eastern District of North Carolina to the United States as proof of payment.

vii.
Public Apology : Consistent with USSG §8D1.4(a), the Defendant and co-defendants DEBS and DEP shall place a full-page public apology in at least two national newspapers and three major North Carolina newspapers (one in Raleigh, one in Greensboro, and one in Charlotte) and on its publicly accessible company website.

3.
The Defendant agrees:

a.
Consent to Transfers : To consent to the entry of

Rule 20 transfers for purposes of guilty pleas to the charges in the following matters:

i.
United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. , No. 1:15-CR-51-1 (MDNC); and

ii.
United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. , No. 3:15-CR-43-FDW (WDNC).

b.
Restitution for Counts of Conviction : Pursuant to 18 U.S.C. §§ 3663, 3663A, and 3563(b) (2), to make restitution as ordered by the Court and as set forth in this Agreement. Said restitution shall be due and payable immediately. Said restitution shall include

additional costs associated with the Dan River response as previously set forth in Paragraph 2(d)(iv) of this Agreement.

c.
Restitution for Relevant Conduct to be Paid During Term of Probation : In addition to any order of restitution in connection with the counts of conviction, to make restitution to the following entities, as determined and directed by the CAM during the term of probation and pursuant to the agreed-upon claims process set forth in Paragraphs 3(x)(iii)-(vi):

i.
City of Eden, North Carolina; Town of Madison, North Carolina; and other localities impacted by bromide discharges from the Belews Creek and Cliffside facilities

(1)
For all costs, whenever incurred, associated with water treatment system upgrades resulting from the increase of trihalomethanes including, but not limited to, maintenance costs.

(2)
All costs associated with investigating and responding to increased discharges of bromide and/or the increase of trihalomethanes.

ii.
Other Local Governments with drinking water treatment systems impacted by bromide discharges from other facilities owned by the Defendant

(1)
For all costs, whenever incurred, associated with water treatment system upgrades resulting from the increase of trihalomethanes including, but not limited to, maintenance costs.

(2)
All costs associated with investigating and responding to increased discharges of bromide and/or the increase of trihalomethanes.

d.
Crime Victims’ Rights Act : Except as provided herein, at the time of the execution of this Agreement, the parties are not aware of any other

victim as that term is defined by 18 U.S.C. §§ 3663, 3663A, and 3771. The Defendant understands that the United States intends to fully comply with all obligations under 18 U.S.C. § 3771, including victim notification and restitution provisions.

e.
Appeal Waiver : To waive knowingly and expressly the right to appeal the conviction and whatever sentence is imposed on any ground, including any appeal pursuant to 18 U.S.C. § 3742, and further to waive any right to contest the conviction or the sentence in any post-conviction proceeding, including any proceeding under 28 U.S.C. § 2255, excepting an appeal or motion based upon grounds of ineffective assistance of counsel or prosecutorial misconduct not known to the Defendant at the time of the Defendant’s guilty plea. The foregoing appeal waiver does not constitute or trigger a waiver by the United States of any of its rights to appeal provided by law.

f.
Waiver of Rights to Records : To waive all rights, whether asserted directly or through a representative, to request or receive from the United States any records pertaining to the investigation or prosecution of this matter, except as provided in the Fed. R. Crim. P. This waiver includes, but is not limited to, rights conferred by the Freedom of Information Act and the Privacy Act of 1974.

g.
Special Assessment : To pay a special assessment of $125.00 for each misdemeanor count pursuant to the provisions of 18 U.S.C. § 3013. The assessment shall be paid by the Defendant at sentencing. The Defendant or Defendant’s counsel shall provide a check in payment of the said assessment directly to the Clerk of Court, U.S. District Court-EDNC.

h.
Financial Statement : To complete and submit a financial statement under oath to the United States no later than two weeks prior to the entry of the guilty plea. The Defendant can satisfy this condition by submitting its most recent financial statement filed with the Securities and Exchange Commission.

i.
Reservation of Funds by Defendant : To record appropriate reserves on financial statements for the

purpose of recognizing the projected obligation to retire its coal ash impoundments in North Carolina, and, during each year during the term of probation, to certify that it has sufficient assets reserved to meet the obligations imposed by law and regulation as more fully set forth in Paragraph 2(d)(iii)(1) above. This obligation is currently estimated at a total of $2.0 billion ($2,000,000,000) on the Defendant’s balance sheet.

j.
Reservation of Funds by Parent Company : To cause its parent holding company, Duke Energy Corporation, to record appropriate reserves on its consolidated financial statements for the purpose of recognizing the projected obligation to retire all coal ash impoundments, including those in North Carolina, and during each year during the term of probation, to cause its parent holding company to certify that it has sufficient assets reserved to meet the obligations imposed by law and regulation as more fully set forth in Paragraph 2(d)(iii)(2) above. This obligation is currently estimated at a total of $3.4 billion ($3,400,000,000) on Duke Energy Corporation’s balance sheet for all coal ash impoundments (including those owned by the Defendant and co-defendant DEP).

k.
Security : Through the entire term of probation, to maintain unused borrowing capacity in the amount of $250 million ($250,000,000) under the Master Credit Facility as security to meet its obligations under this Agreement for the closing and remediation of coal ash impoundments, as more fully set forth in Paragraph 2(d)(iii)(3) of this Agreement. A copy of the certification for 2015 shall be filed with the Court at the time of entry of this Agreement.

1.
Cooperation : The Defendant shall continue to cooperate fully with the United States, and with all other authorities and agencies designated by the United States, and shall truthfully disclose all information with respect to the activities of the Defendant and its present and former directors, officers, employees, agents, consultants, contractors, and subcontractors thereof, regarding the conduct underlying the Criminal Informations about which the Defendant has any knowledge or about

which the United States shall inquire. This obligation of truthful disclosure includes the obligation of the Defendant to provide to the United States, upon request, any document, record, or other tangible evidence regarding the conduct underlying the Criminal Informations about which the United States shall inquire of the Defendant. Compliance with such cooperation requirements shall not be construed as requiring or effecting a waiver of the attorney-client privilege or work product protections.

m.
Such cooperation set forth in Paragraph (1) above shall include but not be limited to: (a) promptly disclosing any and all related criminal or potentially criminal conduct of which the Defendant is currently aware; (b) promptly producing all documents requested by the federal government or by grand jury subpoena; (c) promptly making employees available to the investigation team upon request for interview or for testimony in any proceeding, subject to those employees’ own legal rights; and (d) making reasonable efforts to ensure its employees provide full and truthful information.

n.
If the Defendant, through its employees acting within the scope of their employment, provides false, incomplete, or misleading information or testimony, or fails to abide by any term of cooperation set forth in Paragraphs (1) and (m) above, this would constitute a material breach of this Agreement by the Defendant, and the Defendant shall be subject to prosecution for any federal criminal violation not barred by the applicable statute of limitations (or as waived pursuant to Paragraph 3(hh)) or other legal prohibition. Any information provided by the Defendant may be used against the Defendant in that prosecution.

o.
Additionally, the Defendant agrees that in the event of the Defendant’s material breach of this Agreement the following are admissible against the Defendant in any prosecution of or action against the Defendant: (i) any statements made by the Defendant, under oath, at the guilty plea hearing (before either a Magistrate Judge or a District Judge); (ii) the Joint Factual Statement supporting this Agreement; and

(iii) any evidence derived from such statements. This includes the prosecution of the charges that are the subject of this Agreement or any charges that the United States agreed to dismiss or not file as part of this Agreement, but later pursues because of a material breach by the Defendant. Additionally, the Defendant knowingly and voluntarily waives any argument under the United States Constitution, any statute, Rule 410 of the Federal Rules of Evidence, Fed. R. Crim, P. 11(f) of the Federal Rules of Criminal Procedure, and/or any other federal rule, that the statements or any evidence derived from any statements should be suppressed or are inadmissible.

p.
Compliance with the Law : Except as provided otherwise herein and in Paragraph (q) below, the Defendant agrees that it shall commit no new violations of federal, state, or local law, including those laws and regulations for which primary enforcement has been delegated to state authorities, and shall conduct its operations in accordance with the environmental laws of the United States and the State of North Carolina. If the Defendant learns of any such violations committed by its agents or employees during the term of probation, the Defendant shall notify the United States of the violations in accordance with the terms of the environmental compliance plans.

i.
The Defendant understands that the Government shall not consider there to be a violation of the conditions of probation if the Defendant complies with federal environmental laws when there is a direct conflict between the state and federal environmental laws.

q.
The Defendant shall comply with all federal, state, and other regulations relating to coal ash, and will have no new notices of violation, notices of deficiency, or other criminal, civil, or administrative enforcement actions based on conduct (including the failure to act) occurring after entry of the guilty plea.

i.
The Defendant understands that it shall be considered a violation of the conditions of probation if the Defendant engages in the above

conduct and such conduct or condition results in a final assessment (after conclusion of any appeals) in an amount greater than $5,000 and imposed after the entry of the guilty plea and which the CAM deems material. Any conduct or conditions resulting in a final assessment in an amount greater than $15,000 shall be presumed to be material.

ii. It shall not be considered a violation of probation if the enforcement action is based upon information disclosed by the Defendant in its 2014 Topographic Map and Discharge Assessment Plan(s) and/or its 2014 NDPES permit renewal application(s) for its facilities in North Carolina.

r.
The Defendant shall comply with all legislative and regulatory mandates concerning closure of the coal ash impoundments which it operates, and shall complete full excavation and closure of all of the coal ash impoundments at its Dan River and Riverbend facilities in accordance with federal and state laws, including the United States Environmental Protection Agency’s (“EPA”) 2014 final rule governing the disposal of coal combustion residuals from electric utilities (“CCR Rule”) and North Carolina’s Coal Ash Management Act of 2014, by the dates dictated in those laws, currently the calendar year 2019 . In so doing, the Defendant shall act diligently and in good faith to meet projected critical milestones in its closure plans for each site as set forth in the following documents: Duke Energy’s Dan River Steam Station Coal Ash Excavation Plan dated November 13, 2014; and Duke Energy’s Riverbend Steam Station Coal Ash Excavation Plan dated November 13, 2014 (collectively referred to as “Excavation Plans”), as may be amended with the approval of the North Carolina Department of Environment and Natural Resources (“DENR”).

i.
With respect to excavated coal ash, the removed ash shall be stored in a lined CCR landfill space or lined impoundment meeting all requirements established by applicable statute, law, and regulation, including but not limited to 40 CFR Part 258 (Subtitle D of RCRA). Nothing in this Paragraph shall prohibit the Defendant from the

disposition of ash through beneficial reuse as contemplated by the CCR Rule.

ii.
Every six months, or on a more frequent basis as determined by the CAM, the Defendant shall provide the CAM with a detailed description of its efforts to excavate coal ash and close all of the coal ash impoundments at Dan River and Riverbend and whether it has met the critical milestones set forth in the Excavation Plans in the time period since the last report. The Defendant shall also include the status of all permits and permit applications with any regulatory body, including but not limited to DENR. The Defendant shall also make such reports publicly available on its website.

(1)
If the CAM has any concerns regarding whether the Defendant acted diligently or in good faith to meet its obligations under this provision, including the critical milestones set forth in the Excavation Plans, the CAM shall immediately notify the Court and the parties.

iii.
The Defendant shall contemporaneously provide an executive summary of the report in subparagraph (ii) above to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice - Environmental Crimes Section; the United States Environmental Protection Agency Criminal Investigation Division; and the United States Environmental Protection Agency – Legal Counsel Division.    Upon request, the Defendant shall provide the full report for inspection and review by any of the governmental parties.

(1) If the Government has any concerns regarding whether the Defendant acted diligently or in good faith to meet its obligation under this provision, including the critical milestones set forth in the Excavation Plans, the Government may elect to notify either the CAM or the Court, and may seek additional penalties as may be appropriate.

iv.
Six months prior to the end of the term of probation, the Defendant shall provide the Court, the CAM, and the Government with a full report of its efforts to excavate coal ash and to close all of the coal ash impoundments at Dan River and Riverbend and the anticipated completion date.

v.
The Government may seek additional fines and penalties should the Defendant fail to comply with such legislative or regulatory mandates and closure requirements under this Paragraph unless the compliance is delayed by a “force majeure” as that term is defined herein. The parties recognize that a change in law making performance impossible may be raised under the “force majeure” clause herein, but final determination shall be made by the Court.

vi.
The Defendant understands that the Government shall not consider there to be a violation of the conditions of probation if the Defendant complies with federal environmental laws when there is a direct conflict between the state and federal environmental laws. The Defendant, however,

shall immediately notify the Court, the CAM, and the Government of the conflict of laws and the impact on excavation and closure plans.

s.
Criminal Fine : The Defendant shall pay a total criminal fine in the amount of $53.6 million ($53,600,000), allocated as set forth in Paragraph 2(d)(i) above.

t.
Stipulated Factual Basis for Fine : The Defendant stipulates that there is a factual basis for the imposition of a criminal fine in the amount of $53.6 million ($53,600,000) pursuant to 33 U.S.C.

§§ 1319(c)(1)(A) and/or 18 U.S.C. § 3571(c) and (d) and that the payments made pursuant to Paragraph 2(d)(i) do not together exceed the statutory maximum fine available under each of the applicable statutes. The Defendant further waives any right to a jury or bench trial as to those payments.

u.
Environmental Compliance Plans : As a special condition of probation, the Defendant shall cause, assist, and otherwise take all steps necessary to

effectuate the obligation of co-defendant DEBS to develop, adopt, implement, and fund the NECP designed to ensure compliance with applicable environmental laws and regulations at all of the coal ash impoundments owned and operated (whether active or inactive) by any wholly-owned subsidiary of Duke Energy Corporation.    In addition to requirements to be applied nationwide, the Defendant, along with co-defendants DEBS and DEP, shall develop, implement, and enforce the ECP-NC that also incorporates all of the requirements of the NECP. Both the NECP and the ECP-NC shall be filed with the Court as separate documents. Components of the NECP and the ECP-NC include, but are not limited to, the following:

i.
Timing for Submission of NECP and ECP-NC : Defendant DUKE ENERGY CAROLINAS, along with its co-defendants DEBS and DEP, shall develop and adopt the NECP and ECP-NC within seventy (70) days of the selection of the CAM. The final NECP and ECP-NC shall be submitted to the Court with copies to the United States Probation Office; the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts; the Department of Justice - Environmental Crimes Section; the Environmental Protection Agency – Criminal Investigation Division; and the United States Environmental Protection Agency – Legal Counsel Division. The Court must approve both the NECP and ECP-NC.

(1)
The United States acknowledges that two (2) wholly-owned subsidiaries of Duke Energy Corporation, Duke Energy Commercial Enterprises, Inc. (an indirect wholly-owned subsidiary) and Duke Energy SAM, LLC (a direct wholly-owned subsidiary) have entered into a purchase and sale agreement with a subsidiary of Dynegy Inc. in which Dynegy Inc. will acquire Duke Energy Ohio’s unregulated Midwest generation business (which has been classified as Discontinued Operations on the Condensed Consolidated Statement of Operations). Approval is pending before the Federal Energy Regulatory Commission. Both of the subsidiaries handle coal ash.

(2)
If the sale above has not been closed at the time of the submission of the NECP to the Court for approval, it is expressly understood and agreed that these assets need not be included within the NECP with the following exception: if the sale is not closed within ninety (90) days of the approval of the NECP by the Court, the CAM may, at his/her option, require the NECP to be amended to include these subsidiaries.

ii.
Best Efforts : Defendant DUKE ENERGY CAROLINAS, along with its co-defendants DEBS and DEP, shall use best efforts to comply with each and all of the obligations under both the NECP and ECP-NC.

(1)
The requirement that the Defendant exercise “best efforts” to fulfill the obligation includes using commercially reasonable efforts to anticipate any potential “force majeure” event (as defined herein at Paragraph 3(y)) and to address the effects of any potential “force majeure” event: (a) as it is occurring, and (b) following the potential “force majeure” event, such that the delay is minimized to the greatest extent possible.

(2)
If the CAM believes that the Defendant has not used “best efforts” to fulfill its obligations, the CAM shall provide written notice immediately to the Court and the parties.

(3)
The final determination of whether the Defendant used “best efforts” shall be made by the Court with the advice of and recommendations from the CAM.

(4)
If the Court concludes that the Defendant failed to exercise “best efforts” to fulfill an obligation of this Agreement, the Court may impose and the Government will be entitled to seek additional monetary penalties.

iii.
Selection and Funding of CAM :

(1)
Funding : As part of the NECP and the ECP-NC, Defendant DUKE ENERGY CAROLINAS, along with its co-defendants DEBS and DEP, shall pay for a CAM who will be appointed by and report to the Court during the full period of probation.

(2)
Qualifications : The object of the selection process for the CAM is to select the most qualified candidate to oversee implementation of the NECP, the ECP-NC, and the bromide claims process. Therefore, the CAM must have staff, or be able to retain staff, with the following experience: (a) expertise and competence in the regulatory programs under the United States and State of North Carolina environmental laws; (b) sufficient expertise and competence to assess whether the Defendant, DEBS, and DEP have adequate management systems in place to ensure regulatory compliance, document such noncompliance, and prevent future noncompliance; and (c) sufficient expertise and competence to review claims for reimbursement under the process for identifying, verifying, and providing restitution for claims relating to bromide discharges described herein.

(3)
Nomination and Veto by Government : Within thirty (30) days of the entry of the Judgment, Defendant DUKE ENERGY CAROLINAS, along with its co-defendants DEBS and DEP, shall submit a list of three qualified candidates for the position of CAM from which the Court will select and appoint one of the candidates.    Any nomination will include a detailed curriculum vitae or similar documentation setting forth the qualifications of the candidate. The Government shall have fifteen (15) days from the receipt of the nominations to file any reasonable objection to any or all of the proposed candidates. If the Government lodges an objection, then Defendant DUKE

ENERGY CAROLINAS, along with its co-defendants DEBS and DEP, must nominate a replacement candidate(s). The Government again shall have the right to lodge any reasonable objection to any replacement candidate; and the Court may adjust the time frame for the nominations of the CAM as necessary to ensure that the best possible candidates are nominated.

(4)
Court Selection : Upon receipt of a final list of candidates, the Court shall select one candidate as CAM by written order. In the event that the Court does not find any of the candidates satisfactory or if, during any point in the term of probation, the Court does not find the work of the selected CAM satisfactory, the Court may request Defendant DUKE ENERGY CAROLINAS, along with its co-defendants DEBS and DEP, to nominate additional candidates. The Court may adjust the time frame for the selection of the CAM as necessary to ensure that the best possible candidate is selected.

iv.
Reporting by CAM : On an annual basis, or more often as the Court directs, the CAM shall provide reports in writing to the Court, through the United States Probation Office, demonstrating compliance with the NECP and the ECP-NC by DUKE ENERGY CAROLINAS, DEBS and DEP. The report shall include, among other things, a detailed description of: (1) all excavation, closure, and/or proper remediation of the coal ash impoundments located in North Carolina and addressed in the ECP-NC; and (2) all three codefendants’ compliance with all appropriate environmental laws and regulations in connection with the management of their coal ash impoundments in North Carolina and elsewhere.

(1)
Public Access to Information: The CAM shall ensure, and the Defendant shall facilitate, the posting of copies of any environmental compliance audits, annual reports, and/or any other reports prepared pursuant to the

NECP or ECP-NC on a company web page with public access.

Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it reasonably believes could impair the security of its operations before such audits or reports are posted for public access.

The CAM shall inspect such proposed redactions to determine the propriety of the redactions.

Notwithstanding the foregoing, unredacted copies shall be provided to the Court.

The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.

(2)
The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice - Environmental Crimes Section; the United States Environmental Protection Agency - Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions and challenge the propriety of the redactions. The Court shall be the final arbiter of any challenge.

v.
Nationwide ECP: The NECP shall include, among other things:

(1)
Organizational Funding : Co-Defendant DEBS shall maintain and fund the operation of all of the company compliance organizations created in the wake of the Dan River release, including: ABSAT, the Coal Combustion Products organization, and the

National Ash Management Advisory Board. Subject to the approval of the CAM, DEBS may transfer operations and responsibilities, between internal organizations or adjust funding of such organizations as appropriate, as long as the obligations of this Agreement are being met. To the extent necessary or required, the Defendant shall fund or otherwise pay for its proportionate share of the continued maintenance and operations of these compliance organizations.

(2)
Compliance Officer (“CO”) : The Defendant, and its co-defendants DEBS and DEP, each shall identify or establish a position at the Vice President level or higher who will liaise directly with the CAM. The Defendant’s designated CO shall have, among other duties, the primary responsibility for ensuring compliance with applicable environmental requirements and requirements of the NECP and ECP-NC.

The COs shall submit detailed reports discussing the development, implementa-tion, and enforcement of the NECP and ECP- NC at intervals deemed necessary by the CAM. The first report shall also include an explanation of the current corporate structure responsible for the operation and control of the coal ash impoundments and the names of the individuals filling the relevant positions. With the concurrence of the CAM, the COs may elect to submit a joint report detailing the required information for all three co-defendants. Any changes to the corporate coal ash oversight structure shall be immediately forwarded to the CAM and included in the next regular report.

Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it reasonably believes could impair the

security of its operations before such reports are posted for public access.

The CAM shall inspect such proposed redactions to determine the propriety of the redactions.

Notwithstanding the foregoing, unredacted copies shall be provided to the Court.

The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.

The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice - Environmental Crimes Section; the United States Environmental Protection Agency - Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions and challenge the propriety of the redactions. The Court shall be the final arbiter of any challenge.

(3)
Environmental Audits : Within the first ninety (90) days of his or her appointment, the CAM shall establish a schedule for conducting environmental audits of each of Duke Energy Corporation’s and its affiliates’ wholly-owned or operated domestic facilities with Duke Energy Corporation or affiliate-managed or affiliate-controlled coal ash impoundments outside North Carolina on an annual basis.

Each year the Defendant can request that the CAM accept any full environmental audit prepared by ABSAT or a similar organization in that same calendar year for its facilities subject to the audits under the NECP.

The CAM can reject any such request by the Defendant if the CAM concludes that the proposed environmental audit is not sufficiently comprehensive or not prepared by a competent organization.

Copies of the environmental audit reports shall be posted on the Defendant’s company webpage accessible to the public.

Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it reasonably believes could impair the security of its operations before such audits or reports are posted for public access.

The CAM shall inspect such proposed redactions to determine the propriety of the redactions.

Notwithstanding the foregoing, unredacted copies shall be provided to the Court and the United States Probation Officer. The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.

The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice - Environmental Crimes Section; the United States Environmental Protection Agency - Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions to determine the propriety of the redactions. The Court shall be the final arbiter of any challenge.

(4)
Toll-Free Hotline/Electronic Mail Inbox :

The Defendant, along with co-defendants DEBS and DEP, will establish and maintain a toll-free hotline that will be answered twenty-four (24) hours a day, seven (7) days a week, through which any person may report suspected violations of applicable environmental laws or regulations, or violations of the NECP or ECP-NC. The Defendant may utilize existing toll-free hotlines subject to approval by the CAM. In addition, the Defendant, along with co-defendants DEBS and DEP, shall create an electronic mail inbox accessible from its webpages and accessible through a share link, through which any employee of Duke Energy Corporation, its subsidiaries, or its affiliates, or any other person may report suspected violations of applicable environmental laws or regulations or violations of the NECP or ECP-NC.

Co-defendant DEBS shall periodically apprise employees and the public of the availability of the toll-free hotline and electronic mail inbox by posting notices on the Internet, Intranet (known within Duke Energy Corporation as the “Portal”), by distributing notice via its electronic mail system, by providing notices in appropriate employee work areas, and by publication in community outlets.

All reports to the toll-free hotline or electronic mail inbox of suspected violations of applicable environmental requirements, the NECP, or the ECP-NC shall promptly be provided to the appropriate CO for further action, and the appropriate CO shall maintain a record of the investigation and disposition of each such matter and disclose such matters in reports to the CAM.

(5)
Environmental Training Program : The Defendant, along with co-defendants DEBS and

DEP, shall adopt, implement, and enforce a comprehensive training program to educate all domestic employees of Duke Energy Corporation and its wholly-owned or operated affiliates on the environmental impact of coal ash impoundment operations and to be aware of the procedures and policies that form the basis of the NECP and ECP-NC.

The goal of this training program is to ensure that every domestic employee of Duke Energy Corporation and its wholly-owned or operated affiliates understands applicable compliance policies and is able to integrate the compliance objectives in the performance of his/her job. The training shall include applicable notice and reporting requirements in the event of a release or discharge. Subject to the approval of the CAM, the Defendant may develop different training programs that are tailored to the employee’s specific job description and responsibilities as long as the overall goal of the training requirement is met.

Additionally, the Defendant and co-defendants DEBS and DEP shall provide training and written materials describing the safe and proper handling of pollutants, hazardous substances, and/or wastes.

Copies of all written materials and training curricula shall be provided to the CAM.

vi.
Statewide ECP : The ECP-NC, in addition to incorporating all of the requirements of the NECP, shall include, among other things, the following conditions:

(1)
Point of Contact (“POC”) :    With respect to each of its facilities with coal ash impoundments in North Carolina, the Defendant and co-defendant DEBS shall identify or establish a POC for the CAM

within each of the following three business services: (1) ABSAT; (2) Environmental, Health & Safety; and (3) Coal Combustion Products.

(2)
Environmental Audits : Within the first ninety (90) days of his/her appointment, the CAM shall establish a schedule for conducting environmental audits of each of the Defendant’s facilities with coal ash impoundments in North Carolina on an annual basis.

Each year the Defendant can request that the CAM accept any full environmental audit prepared by ABSAT or a similar organization in that same calendar year for two of its facilities subject to the audits. The Defendant cannot make the request for the same facilities in consecutive years.

The CAM can reject any such request by the Defendant if the CAM concludes that the proposed environmental audit is not sufficiently comprehensive or not prepared by a competent organization.

Copies of the environmental audit reports shall be posted on the Defendant’s company webpage accessible to the public.

Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it reasonably believes could impair the security of its operations before such audits or reports are posted for public access.

The CAM shall inspect such proposed redactions to determine the propriety of the redactions.

Notwithstanding the foregoing, unredacted copies shall be provided to the Court and

the United States Probation Officer. The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.

The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice - Environmental Crimes Section; the United States Environmental Protection Agency Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions to determine the propriety of the redactions. The Court shall be the final arbiter of any challenge.

v.
The Defendant shall ensure that any new, expanded, or reopened coal ash or coal ash wastewater impoundment facilities are lined to ensure no unpermitted discharges of coal ash or coal ash wastewater to any water of the United States. This includes all engineered, channelized, or naturally occurring seeps.

w.
Recordkeeping of Coal Ash Impoundment Volumes : Every six months, the Defendant shall determine the volume of wastewater and coal ash in each of its wet-storage coal ash impoundments in North Carolina. Additional determinations shall be made following the conclusion of activities that significantly change the volumes of materials in the impoundments, including but not limited to temporary rerouting of waste streams other than sluiced coal ash to the ash impoundment, dredging, and dewatering. Written or electronic records of the volumes shall be maintained by the Defendant in a location(s) accessible to facility staff and to any of the Defendant’s employees responsible for making environmental or emergency reports.

x.
Bromide Remediation Claims and Costs :

i.
Identification : Within the first year of probation, or within ninety (90) days of the installation of a new Flue Gas Desulfurization (“FGD”) scrubber system thereafter, the Defendant shall identify:

(1)
all facilities operated by it in North Carolina that utilize or will utilize FGD scrubbers that will result in an increase in bromide discharge into surface waters; and

(2)
all local governments that are downstream from such FGD scrubbers and draw water into water treatment facilities.

ii.
Notification :    Within the first year of probation, or within ninety (90) days of the installation of a new FGD scrubber system thereafter, the Defendant shall: (1) notify in writing the identified local governments of the increase or potential increase in bromide discharge; and (2) cooperate in studies of whether there has been or will be an impact on these water treatment facilities. The Defendant shall further advise the local government of the claims process established by the CAM, as described below. The Defendant will further note that the local government is not obligated to submit a claim through the process, is not bound by any recommendation of the CAM, and may pursue any civil and/or administrative remedies available to it.    Copies of such correspondence shall be provided to the CAM, United States Probation Officer, and each of the prosecuting districts.

iii.
Claims Process : The CAM shall establish a procedure by which local governments that are downstream of the Defendant’s facilities with FGD scrubbers and experience increases in trihalomethanes at their water treatment facilities related to increases in bromide released by those facilities may submit evidence of these impacts and claims for restitution stemming from these impacts.

(1)
In these claims, the local governments bear the burden of proving by a preponderance of the evidence to the CAM that trihalomethanes have increased and that the Defendant’s facility’s discharge of bromide substantially contributed to the increase.

(2)
The Defendant shall be permitted an opportunity to respond to any evidence or material submitted by local governments in this process.

(3)
The CAM shall review proposed remediation actions and costs or anticipated costs associated with investigating, responding to, and remediating increased bromides and trihalomethanes for reasonableness in determining the correct amount of restitution. The CAM shall issue a written decision on every claim submitted. If the CAM determines that restitution to a local government in any amount is appropriate, the Defendant shall also reimburse the local government for costs associated with investigating and preparing its submission to the CAM, including reasonable attorneys’ fees.

iv.
Appeals Process : Once the written decision is issued, the Defendant or the local government may appeal the decision to the United States District Court. In such an appeal, the decision of the CAM shall be subject to a rebuttable presumption of correctness. If the Defendant unsuccessfully appeals a written decision of the CAM, the Defendant shall bear all of the costs of the appeal, including the costs of the CAM and the reasonable attorneys’ fees of the local government, with the Court making the final determination of the reasonableness of such fees. If the Defendant is successful on appeal, the Defendant shall bear the costs of the CAM and the local government shall bear the costs of its attorneys’ fees.

v.
Payment of Claims : Once the CAM has issued its written, opinion, the Defendant shall pay the approved costs to the claimant within thirty (30) days of the opinion, unless it files an appeal to the United States District Court as provided above. If, after appeal, the Court concurs with the CAM’s opinion approving such costs, the Defendant shall pay the approved costs to the claimant and submit proof of payment to the Court within thirty (30) days of the Court’s opinion. Nothing in this subparagraph will bar the CAM or the Court from ordering a different payment schedule as appropriate.

vi.
Deadline for Filing Claims : Local governments shall have until sixty (60) days prior to the end of the five-year (5-year) probationary term to submit a claim.

y.
Force Majeure . For purposes of this Agreement, a “force majeure” is defined as any event arising from causes beyond the reasonable control of the Defendant, any entity controlled by the Defendant, or its contractors that delays or prevents performance of any obligation despite the best efforts to fulfill the obligation and includes but is not limited to war, terrorism, civil unrest, labor dispute, act of God, change in law making performance impossible, or act of a governmental or regulatory body delaying performance or making performance impossible, including, without limitation, any appeal or decision remanding, overturning, modifying, or otherwise acting (or failing to act) on a permit or similar permission or action that prevents or delays an action needed for the performance of any work such that it prevents or substantially interferes with the Defendant’s ability to perform. Force majeure does not include financial inability to complete the work, increased cost of performance, or changes in business or economic circumstances.

i.
If the Defendant seeks to rely on “force majeure” to excuse performance or timely performance with any term of this Agreement, the Defendant must apply to the CAM with copies of such application provided to the Government and the United States Probation Officer.

ii.
The final determination of “force majeure” shall be made by the Court with the advice and recommendation from the CAM.

iii.
If the Court concludes that the Defendant’s failure to fulfill an obligation of this Agreement was not excused by a “force majeure,” the Court may impose and the Government will be entitled to seek additional monetary penalties.

z.
Funding of NECP and ECP-NC : A failure to fund or implement the NECP or ECP-NC during its term of probation would constitute a breach of this Agreement by the Defendant, and the Defendant shall be subject to prosecution for any federal criminal violation not barred by the applicable statute of limitations (or as waived pursuant to Paragraph 3(hh)) or other legal prohibition. Any information provided by the Defendant may be used against the Defendant in such a prosecution.

aa. Community Service Payment : In addition to the community service payment made by co-defendant DEP, the Defendant, as guaranteed by Duke Energy Corporation and set forth in the Guaranty attached to this Agreement, shall pay $13.5 million ($13,500,000) to the National Fish and Wildlife Foundation (“NFWF”), a nonprofit organization established pursuant to 16 U.S.C. §§ 3701-3710, as community service by an organization. With respect to the work described in this Paragraph below, the Defendant shall assume no responsibilities or obligations other than making the payments described in Paragraph 3(aa)(i) below. The Defendant shall not seek any reduction in its tax obligations as a result of these community service payments nor shall the Defendant characterize, publicize, or refer to these payments as voluntary donations or contributions. Additionally, the Defendant shall not seek or take credit for any project performed using funds disbursed by NFWF pursuant to this Agreement in any related civil or administrative proceeding, including but not limited to, the Natural Resources Damages Assessment process.

i.
The Defendant will make the $13.5 million ($13,500,000) payment within sixty (60) days of entry of Judgment. Payments shall be made by certified check payable to the National Fish and Wildlife Foundation and mailed to the attention of its Chief Financial Officer at 1133 15 th Street, NW, Suite 1100, Washington, DC 20005, and include a reference to the case number in this proceeding; or by electronic funds transfer in accordance with written instructions to be provided to the Defendant by NFWF at the time of transfer.

ii. NFWF shall use the money it receives from the Defendant pursuant to this Agreement for the benefit, preservation, restoration, and improvement of the water resources of North Carolina and Virginia that have been impacted by the operation of coal ash storage ponds owned by the Defendant. NFWF shall conduct or fund projects in the following federal districts, in the following amounts:

(1)
Eastern District of North Carolina: $3.5 million ($3,500,000);

(2)
Middle District of North Carolina: $3.5 million ($3,500,000);

(3)
Western District of North Carolina: $3.5 million ($3,500,000); and

(4)
Eastern District of Virginia and Western District of Virginia: $3 million ($3,000,000).

iii.
The projects and initiatives considered by NFWF should include, but not be limited to: monitoring, study, restoration, and preservation of fish, wildlife, and plant resources; monitoring, study, clean up, remediation, sampling, and analysis of pollution and other threats to the riparian environment and ecosystem; research, study, planning, repair, maintenance, education, and public outreach relating to the riparian environment and ecosystem; environmental education and training

relating to the protection and preservation of riparian resources; and the protection and support of public drinking water systems.

iv.
The projects and initiatives considered by NFWF should be focused on the following river basins or watersheds:    Broad River, Cape Fear River, Catawba River, Dan River, French Broad River, Lumber River, Roanoke River, Neuse River, and Yadkin River.    NFWF shall make every effort to fund at least one project and/or initiative in each of the river basins or watersheds.

v.
NFWF shall consult with appropriate state resource managers in North Carolina and Virginia, as well as federal resource managers, that have statutory authority for coordination or cooperation with private entities to help identify projects and maximize the environmental benefits of such projects. Specifically, NFWF should consult with the United States Environmental Protection Agency, the United States Fish and Wildlife Service, the United States Army Corps of Engineers, the North Carolina Department of Environment and Natural Resources, the North Carolina Wildlife Resources Commission, the Virginia Department of Environmental Quality, the Virginia Department of Conservation and Recreation, and the Virginia Department of Game and Inland Fisheries. NFWF shall further consult with localities as appropriate. NFWF is not bound by any recommendations from any of the state or federal agencies, resource managers, or localities consulted.

vi.
Projects shall be identified and funding obligated within five (5) years of the date of entry of Judgment in this case.

vii.
In identifying and selecting projects to receive funding pursuant to this Agreement and related Judgment, NFWF shall not incur liability of any nature in connection with any act or omission, made in good faith, in the administration of the funds or otherwise pursuant to this Agreement, excepting, however, liability resulting from

NFWF’s gross negligence or willful misconduct.

In addition, if and to the extent NFWF grants funds to or contracts with any governmental entity to implement any project under this Agreement and related Judgment: (a) NFWF shall be deemed to act solely as an administrative agent in contracting for, granting to, and disbursing funds for any such project; and (b) NFWF shall not be deemed to incur liability of any nature in connection with the design, engineering, construction, operation, or maintenance of any such project, including, without limitation, any impact or consequences of any such project on fish, wildlife, plant, or other natural resources, personal injury, or property damage.

viii.NFWF’s use of funds received pursuant to this Agreement and related Judgment shall be subject to the reporting requirements of 16 U.S.C.

§ 3706. In addition, NFWF shall report to the United States Probation Office and to the parties regarding the status and disposition of money it has received pursuant to this Agreement and related Judgment, on at least an annual basis, until all such money has been spent.

bb.
Mitigation : Within ninety (90) days of sentencing, in order to mitigate impacts to wetlands and other jurisdictional waters of the United States impacted as a result of the Defendant’s operation of coal ash impoundments and any relevant criminal conduct, including temporal and secondary effects, at its facilities in North Carolina with coal ash impoundments, and in addition to the mitigation payment made by its co-defendant DEP, the Defendant shall provide $5 million ($5,000,000), which represents its share after apportionment of a total $10 million ($10,000,000) payment, to an authorized wetlands mitigation bank for the purchase of wetland and/or riparian land and/or restoration equivalent located in the Broad River Basin, French Broad River Basin, Cape Fear River Basin, Catawba River Basin, Dan River Basin, Yadkin-Pee Dee River Basin, Neuse River Basin, Lumber River Basin, and Roanoke River Basin. This mitigation payment is in addition to, and does not replace, Duke Energy Corporation’s public commitment to fund its $10 million

($10,000,000) Water Resources Fund for environmental and other philanthropic projects along lakes and rivers in the Southeast.

i.
Such wetland restoration shall be made through an authorized wetlands mitigation bank with no affiliation to any current or former employee of the North Carolina Department of Environment and Natural Resources in that employee’s individual capacity.

ii.
The Defendant, along with its co-defendants DEBS and DEP, shall provide a list of three (3) proposed mitigation banks from which the Court will select the mitigation bank to receive the funds. If the Defendant is unable after reasonable efforts to identify one or more mitigation banks, the Defendant may substitute one or more conservation trust funds within the State of North Carolina in its proposal as long as all other conditions of this section are being met.
iii.
Such property must be purchased in the State of North Carolina by the selected authorized wetlands mitigation bank or conservation trust within four (4) years from the date of entry of Judgment.

iv.
Such property shall be held by and titled in the name of a third-party (with no affiliation to the Defendant or any of the Defendant’s sister or parent corporations).

v.
Such property shall be held in permanent conservation status for the benefit of the citizens of North Carolina.

vi.
The Defendant shall ensure that the selected authorized wetlands mitigation bank or conservation trust provides a full accounting of all mitigation property purchased to the Court and the CAM, and documentary evidence that the property has been placed in permanent conservation status.

cc.
No Credit in Civil or Administrative Proceedings :

The Defendant shall not seek or take credit for any fine, restitution, community service payment, mitigation payment, or funding of the environmental compliance plan (including the costs associated with the hiring or payment of staff or consultants needed to assist the CAM) under this Agreement in any related civil or administrative proceeding, including, but not limited to, the Natural Resources Damages Assessment process.

dd.
No Capitalization or Tax Deduction : The Defendant shall agree that:    (1) it shall not capitalize into inventory or basis or take as a tax deduction, in the United States or elsewhere, any portion of the monetary payments (fine, restitution, community service, mitigation, or funding of the environmental compliance plans) made pursuant to this Agreement. Provided, however, that nothing in this Agreement shall bar or prevent the Defendant from appropriately capitalizing or seeking an appropriate tax deduction for restitution in connection with the remediation of bromide claims set forth in this Agreement or for costs which would have been incurred by the Defendant irrespective of the environmental compliance plans. Costs that would have been incurred irrespective of the environmental compliance plans include, by way of example only, costs for staffing and operating Central Engineering Services, ABSAT, Coal Combustion Products, or other similar organizations.

ee.
No Rate Increase Based Upon Monetary Penalties : The Defendant shall not reference the burden of, or the cost associated with, compliance with the criminal fines, the restitution related to counts of conviction, the community service payments, the mitigation obligation, the costs of the clean-up in response to the February 2, 2014, release at Dan River Steam Station, and/or the funding of the environmental compliance plans in any request or application for a rate increase on customers. Provided, however, that nothing in this Agreement shall bar or prevent the Defendant from seeking appropriate recovery for restitution in connection with the remediation of bromide claims set forth in this Agreement or for costs which would have been incurred by the Defendant irrespective of the
 

environmental compliance plans. Costs that would have been incurred irrespective of the environmental compliance plans include, by way of example only, costs for staffing and operating Central Engineering Services, ABSAT, Coal Combustion Products, or other similar organizations.

ff.
Public Apology : Consistent with USSG §8D1.4(a), and in conjunction with its co-defendants DEBS and DEP, the Defendant shall place a full-page advertisement in at least two national newspapers and three major North Carolina newspapers (one in Raleigh, one in Greensboro, and one in Charlotte) and on its publicly accessible company website. The full page advertisement shall run within five (5) days of entry of the plea. The language of the public apology must be agreed upon by each of the federal districts and is appended to this Agreement as Exhibit C.

gg.
The Defendant shall not reference this Agreement, any payments pursuant hereto, or other compliance herewith in any public relations, marketing, or advertising.    The Defendant shall be permitted to make required disclosures under applicable securities laws.

hh.
Tolling of Statute of Limitations: To ensure compliance with the terms of the Agreement, the Defendant waives any statute of limitations as of the date of this Agreement through the full term of Defendant’s probation and until all of the Defendant’s obligations under this Agreement have been satisfied with regard to any conduct relating to or arising out of the conduct set forth in the Criminal Informations.

ii.
The Defendant waives any claim under the Hyde Amendment, 18 U.S.C. § 3006A (Statutory Note), for attorneys’ fees and other litigation expenses arising out of the investigation or prosecution of this matter.

jj.
The Defendant agrees to withdraw from and not to participate in any joint defense agreement, informal or formal, in connection with the defense by any person designated as a “target” or “subject” of, or indicted for, any potential criminal charges relating

to the Clean Water Act violations in North Carolina that are the subject of this Agreement and any allegations of violations of Title 18 of which the Defendant is aware or becomes aware. The Defendant agrees to submit a written statement, signed by counsel and the appropriate corporate officer, reflecting this commitment to the United States prior to entry of this Agreement.

kk.
Term of Supervised Probation : The Defendant and the Government agree that the Defendant shall be placed on organizational supervised probation for a period of five (5) years from the date of sentencing pursuant to 18 U.S.C. § 3561(c)(2) and USSG §§8D1.1 and 8D1.2.

4.    The Defendant represents and/or acknowledges:

a.
That the Defendant has had the assistance of an attorney in connection with the charges against it. That the attorney has carefully reviewed this Agreement with those persons designated by law and its bylaws to act on behalf of the Defendant (hereinafter referred to as “Designated Corporate Representative”) and that this Agreement has been signed by a person authorized by law and the bylaws of the Defendant to execute agreements on behalf of the Defendant.

b.
That its Designated Corporate Representative has reviewed and discussed the Criminal Informations filed in each of the federal districts involved in this matter with the Defendant’s attorney and that the attorney has explained the Government’s evidence to that Designated Corporate Representative.

c.
That as a corporation, it is vicariously liable for the criminal acts of its employees acting within the scope of their employment for the benefit of the corporation.

d.
That it understands that this Agreement does not provide or promise any waiver of any civil or administrative actions, sanctions, or penalties that may apply, including but not limited to fines; penalties; claims for damages to natural resources; suspension, debarment, listing to restrict rights and

opportunities of the Defendant to contract with or receive assistance, loans, and benefits from United States agencies; licensing; injunctive relief; or remedial action to comply with any applicable regulatory requirement. The Defendant understands that this Agreement has no effect on any proceedings against any party not expressly mentioned herein, including the actual or potential criminal liability of any individuals.

e.
Guaranty : That it has sought and obtained a guarantee of its obligations under this Agreement from its parent holding company, Duke Energy Corporation, a copy of which is attached hereto as Exhibit B and incorporated herein by reference. Duke Energy Corporation further consents to the jurisdiction of the United States District Court for the Eastern District of North Carolina for the purpose of enforcing the Guaranty Agreement.

f.
Resolution : That it has filed with the Court prior to entry of this Agreement the original resolution from the board of directors (or equivalent written authorization as recognized by law) that gives the authority described in Paragraph 4(a) above to the Designated Corporate Representative and that authorizes such employee to execute this Agreement on behalf of the Defendant. A copy of the Resolution, attached hereto as Exhibit D, provides as follows:

i.
The Defendant is a legally viable entity, authorized to plead guilty to the charges set forth in the Criminal Informations;

ii.
The Defendant shall be bound by the specific terms of this Agreement;

iii.
The parent corporation, Duke Energy Corporation, is authorized to guarantee all payments (criminal fine, restitution, community service, and mitigation), and funding and performance due from the Defendant in connection with its obligations under the NECP and ECP-NC under this Agreement, as set forth in the Guaranty Agreement.

iv.
Any legal successor or assignee of Duke Energy Corporation shall remain liable, as the case may

be, for the guarantee of the Defendant’s payment obligations and the funding and performance of both the NECP and ECP-NC hereunder, and an agreement to so remain liable shall be included by Duke Energy Corporation in the terms of any sale, acquisition, or merger.

v.
Any legal successor or assignee of the Defendant shall remain liable for the Defendant’s obligations in this Agreement, and an agreement to so remain liable shall be included by the Defendant in the terms of any sale, acquisition, or merger of the Defendant with or by any other entity.    Subject to the requirements of this subparagraph, nothing shall prevent the Defendant from undergoing a corporate reorganization or change in form. The Defendant shall record a copy of the Judgment with the Register of Deeds in each of the counties in North Carolina in which it owns and operates facilities with coal ash impoundments. Upon written request from the Defendant made only after fulfillment of all of the conditions of this Agreement and related Judgment, the Government shall take the necessary steps through the Register of Deeds to facilitate the removal of the notice of the Judgment.

5.    The Defendant understands, agrees, and admits:

a.
That as to each Count of the Criminal Informations to which the Defendant is pleading guilty, the charge, code section, elements, and applicable penalties are as follows:


(SPACE LEFT BLANK INTENTIONALLY)

United States v. Duke Energy Business Services LLC,
Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. ,
No. 5:15-CR-67-H-21

Violations at Dan River Steam Station

COUNT ONE

(1)
Clean Water Act violation for the unpermitted discharge through the 48-inch stormwater pipe at

the Dan River Steam Station and aiding and

abetting

(2)
Code Sections
violated:            33 U.S.C. § 1311, 1319(c) (1) (A),
and 1342; and
18 U.S.C. § 2

(3)
Offense date:    No later than February 2, 2014,
through February 8, 2014

(4)
Elements of the Offense:

First :    The Defendant did discharge a pollutant,
to wit, coal ash and coal ash
wastewater;

Second :    from a point source;

Third :    into a water of the United States;

Four :    the Defendant did so without a permit;

Five :    the Defendant acted negligently in so
doing; and

Six :        the Defendant aided and abetted another
in so doing.

(5)
Maximum term of probation for a corporation:
5 years pursuant to 18 U.S.C. § 3561(c)(2) and
USSG §8D1.2(a)(2)
______________________
1 Counts Five and Six are captured by the Plea Agreement in United States v. Duke Energy Progress, Inc. , No. 5:15-CR-62-H-2; No. 5:15-CR-67-H-3; and No. 5:15-CR-68-H-3.

(6)
Minimum term of probation for a corporation:
0 years pursuant to 18 U.S.C. § 3561(c)(2) and
USSG §8D1.2(a)(2)

(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)
and (d), the greater of: not less than $2,500 nor
more than $25,000 per day of violation (33 U.S.C.
§ 1319(c)(1)(A)); $200,000.00; or twice the gross gain or loss.

(8)
Restitution pursuant to 18 U.S.C. §§ 3663, 3663A,
and 3563(b)(2) as agreed to in Paragraphs 2(iv)-
(v) and 3(b)-(c) above.

(9)
Special assessment: $ 125.00

(10)
Other penalties: Public Notice of Violation; Development of a Compliance Program; Community Service; and Remediation

COUNT TWO

(1)
Clean Water Act violation for the failure to
maintain the 48-inch stormwater pipe at the Dan
River Steam Station and aiding and abetting

(2)
Code Sections
violated:        33 U.S.C. §§ 1319(c)(1)(A),
and 1342; and
18 U.S.C. § 2

(3)
Offense date:    No later than January 2012,
through February 2, 2014

(4)
Elements of the Offense:

First :
The Defendant did violate a condition of

its NDPES permit issued by the State of North Carolina pursuant to the Clean

Water Act; to wit, the requirement to properly maintain its equipment as more fully described in the Criminal Information;

Second :
the Defendant acted negligently in so
doing; and

Third:
the Defendant aided and abetted another

in so doing.

(5)
Maximum term of probation for a corporation:

5 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG §801.2(a)(2)

(6)
Minimum term of probation for a corporation:

0 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG §801.2(a)(2)

(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)

and (d), the greater of not less than $2,500 nor

more than $25,000 per day of violation (33 U.S.C.

§ 1319(c)(1)(A)); $ 200,000.00; or twice the

gross gain or loss .

(8)
Restitution pursuant to 18 U.S.C. §§ 3663, 3663A,

and 3563(b)(2) as agreed to in Paragraphs 2(iv) -

v) and 3(b)-(c) above.

(9)
Special assessment: $ 125.00

(10)
Other penalties: Public Notice of Violation; Development of a Compliance Program; Community Service; and Remediation

COUNT THREE

(1)
Clean Water Act violation for the unpermitted discharge through the 36-inch stormwater pipe

at the Dan River Steam Station and aiding and

abetting

(2)
Code Sections
violated:        33 U.S.C. §§ 1311, 1319(c) (1) (A)
and 1342; and
18 U.S.C. § 2

(3)
Offense date:     No later than January 2012
through February 21, 2014

(4)
Elements of the Offense:

First :    The Defendant did discharge a pollutant,
to wit, coal ash and coal ash
wastewater;

Second :    from a point source;

Third :    into a water of the United States;

Four :    the Defendant did so without a permit;

Five :    the Defendant acted negligently in so
doing; and

Six :        the Defendant aided and abetted another
in so doing.

(5)
Maximum term of probation for a corporation:

5 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG §8D1.2(a)(2)

(6)
Minimum term of probation for a corporation:

0 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG §8D1.2(a)(2)

(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)

and (d), the greater of: not less than $2,500 nor

more than $25,000 per day of violation (33 U.S.C.

§ 1319(c)(1)(A)); $200,000.00; or twice the gross

gain or loss .

(8)
Restitution pursuant to 18 U.S.C. §§ 3663, 3663A,

and 3563(b)(2) as agreed to in Paragraphs 2(iv) -

(v) and 3(b)-(c) above.

(9)
Special assessment: $ 125.00

(10)
Other penalties: Public Notice of ‘Violation; Development of a Compliance Program; Community Service; and Remediation

COUNT FOUR

(1)
Clean Water Act violation for the failure to

maintain the 36-inch stormwater pipe at the Dan

River Steam Station and aiding and abetting

(2)
Code Sections
violated:        33 U.S.C. § 1319(c)(1)(A),
and 1342; and
18 U.S.C. § 2

(3)
Offense date:    No later than January 2012,
through February 6, 2014

(4)
Elements of the Offense:

First :
The Defendant did violate a condition of

its NDPES permit issued by the State of

North Carolina pursuant to the Clean

Water Act; to wit, the requirement to

properly maintain its equipment as more fully described in the Criminal

Information;

Second :
the Defendant acted negligently in so
doing; and

Third :
the Defendant aided and abetted another
in so doing.

(5)
Maximum term of probation for a corporation:

5 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG §8D1.2(a)(2)

(6)
Minimum term of probation for a corporation:

0 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG §8D1.2(a)(2)

(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)

and (d), the greater of: not less than $2,500 nor

more than $25,000 per day of violation (33 U.S.C.

§ 1319(c)(1)(A)); $200,000.00; or twice the gross gain or loss .

(8)
Restitution pursuant to 18 U.S.C. § 3663, 3663A,

and 3563(b)(2) as agreed to in Paragraphs 2(iv)-

v) and 3(b)-(c) above.

(9)
Special assessment: $ 125.00

(10)
Other penalties: Public Notice of Violation;

Development of a Compliance Program; Community

Service; and Remediation


United States v. Duke Energy Business Services LLC,
Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc.,
No. 5:15-CR-68-H-2 2  

VIOLATIONS AT RIVERBEND STEAM STAITON

COUNT ONE

(1)
Clean Water Act violation for the unpermitted

discharge from a toe drain at the ash impoundment

at Riverbend Steam Station and aiding and

abetting

(2)
Code Sections
violated:        33 U.S.C. §§ 1311, 1319(c)(1)(A),
and 1342; and
18 U.S.C. § 2

(3)
Offense date:     No later than November 8, 2012,
through December 30, 2014

(4)
Elements of the Offense:

First :
The Defendant did discharge a pollutant,
to wit, coal ash and coal ash
wastewater;
        
Second :
from a point source;

Third :
into a water of the United States;

Four :
the Defendant did so in violation of a
permit;

              
2 Count Two is captured by the Plea Agreement in United States v. Duke Energy Progress, Inc. , No. 5:15-CR-62-H-2; No. 5:15-CR-67-H-3; and No. 5:15-CR-68-H-3.

Five :
the Defendant acted negligently in so
doing; and

Six:
the Defendant aided and abetted another
in so doing.

(5)
Maximum term of probation for a corporation:

5 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG §8D1.2(a)(2)

(6)
Minimum term of probation for a corporation:

0 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG §8D1.2(a)(2)

(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c) and (d), the greater of: not less than $2,500 nor more than $25,000 per day of violation (33 U.S.C. § 1319(c)(1)(A)); $200,000.00; or twice the gross gain or loss .

(8)
Restitution pursuant to 18 U.S.C. §§ 3663, 3663A, and 3563(b)(2) as agreed to in Paragraphs 2(iv) -
(v) and 3(b)-(c) above.

(9)    Special assessment: $ 125.00

(10)
Other penalties: Public Notice of Violation; Development of a Compliance Program; Community Service; and Remediation

Total Statutory Penalties: 5 years of probation; a minimum fine of $45,740,000; a maximum fine of $115,375,000; and $625.00 special assessment.]

6. The United States agrees:

a.
That pursuant to Fed. R. Crim. P. 11(c)(1nC), the

sentence set forth in Paragraph 2 above is warranted.

b.
That it reserves the right at sentencing to present

any evidence and information pursuant to 18 U.S.C.

§ 3661, to offer argument or rebuttal, to recommend

imposition of restitution, and to respond to any

motions or objections filed by the Defendant.

c.
That, subject to the reservations within this

Agreement, the United States shall not further
 

prosecute the Defendant, including all predecessors, successors, and assignees of the Defendant, for conduct constituting the basis for the Criminal Informations covered by this Agreement as set forth

in the Joint Factual Statement or about which the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts and the Department of Justice - Environmental Crimes Section were otherwise

aware of as of the date of this Agreement. This

Agreement shall not apply to individuals. Should the Court determine that the Defendant has breached this Agreement, the Defendant will not be entitled to withdraw its plea of guilty, and the United States

may prosecute the Defendant, and any predecessors, successors, and assignees of the Defendant for

conduct constituting the basis for the Criminal

Informations covered by this Agreement,

notwithstanding the expiration of any applicable statutes of limitations following the signing of this

Agreement. In any such prosecution, the United

States may use the Defendant’s admissions of guilt as admissible evidence against the Defendant.

d.
That it will make known to the Court at sentencing

the full extent of the Defendant’s cooperation.

e.
Pursuant to USSG §131.8, that self-incriminating information provided by the Defendant pursuant to

this Agreement shall not be used against the

Defendant in determining the applicable advisory Guideline range, except as provided by USSG §1B1.8

and except as stated in this Agreement. The United States may provide to the United States Probation Office any evidence concerning relevant conduct.

f.
Notwithstanding the foregoing, the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina and the

Department of Justice - Environmental Crimes Section further recognize that this Agreement does not

provide or promise any waiver of any civil or administrative actions, sanctions, or penalties that may apply, including but not limited to: fines; penalties; claims for damages to natural resources; suspension, debarment, listing to restrict rights and opportunities of the Defendant to contract with or receive assistance, loans, and benefits from United
 

States agencies; licensing; injunctive relief; or remedial action to comply with any applicable regulatory requirement.













(SPACE LEFT BLANK INTENTIONALLY)



The undersigned, Lynn J. Good, President and Chief Executive Office of Duke Energy Corporation, the Guarantor, hereby acknowledges the terms and conditions of the foregoing Plea Agreement as they apply to the Guaranty set forth in Exhibit B.










EXHIBIT A
Copy of Joint Factual Statement

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No.    5:15-CR-62-H
No.    5:15-CR-67-H
No.    5:15-CR-68-H

UNITED STATES OF AMERICA            )
)
v.                    )    JOINT FACTUAL STATEMENT
DUKE ENERGY BUSINESS SERVICES LLC    )
DUKE ENERGY CAROLINAS, LLC         )
DUKE ENERGY PROGRESS, INC.        )

I.     INTRODUCTION

Defendants Duke Energy Business Services .LLC (“DUKE ENERGY BUSINESS SERVICES”), Duke Energy Carolinas, LLC (“DUKE ENERGY CAROLINAS”), and Duke Energy Progress, Inc. (“DUKE ENERGY PROGRESS”),(collectively referred to as “Defendants”) and the United States of America, by and through the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina and the Western District of North Carolina and the Environmental Crimes ‘Section of the United States Department of Justice (collectively referred to herein as “the United States” or “the government”), hereby agree that this Joint Factual Statement is a true and accurate statement of the Defendants’ criminal conduct and that it provides a sufficient basis for the Defendants’ pleas of guilty to the following charging documents and the terms of the Plea Agreements:

United States v. Duke Energy Business Services, LLC, and
Duke Energy Progress, Inc. , No. 5:15-CR-62-H;

United States v. Duke Energy Business Services, LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. ,

No. 5:15-CR-67-H; and

United States v. Duke Energy Business Services, LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. ,

No. 5:15-CR-68-H.

The charges from the Middle District of North Carolina and the Western District of North Carolina have been transferred to the Eastern District of North Carolina for purposes of plea pursuant to Fed. R. Crim. P. 20. The Defendants’ guilty pleas are to be entered pursuant to the Plea Agreements signed and dated this same day.
II. OVERVIEW AND BACKGROUND

Dan River Steam Station -
Middle District of North Carolina

1.    From at least January 1, 2012, DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES failed to properly maintain and inspect the two stormwater pipes underneath the primary coal ash basin at the Dan River Steam Station in Eden, North Carolina. On February 2, 2014, one of those pipes failed, resulting in the discharge of approximately 27 million gallons of coal ash wastewater and between 30,000 and 39,000 tons of coal ash into the Dan River. The coal ash travelled more than
62 miles downriver to the Kerr Lake Reservoir on the border of
2

North Carolina and Virginia. Video camera inspections of the other pipe, conducted in the aftermath of the spill, revealed that the other pipe had also deteriorated, allowing coal ash wastewater to leak into the pipe, and that DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES had not taken appropriate action to prevent unauthorized discharges from the pipe.
Cape Fear Steam Electric Plant -
Middle District of North Carolina

2.    DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES also failed to maintain the riser structures in two of the coal ash basins at the Cape Fear Steam Electric Plant, resulting in the unauthorized discharges of leaking coal ash wastewater into the Cape Fear River.
Asheville, Riverbend, & Lee Steam Stations -
Eastern and Western Districts of North Carolina

3.    Additionally, DUKE ENERGY CAROLINAS’ and DUKE ENERGY PROGRESS’s coal combustion facilities throughout North Carolina allowed unauthorized discharges of pollutants from coal ash basins via “seeps” into adjacent waters of the United States. Three of those facilities include the Asheville Steam Electric Generating Plant, the H.F. Lee Steam Electric Plant, and the Riverbend Steam Station. At those facilities, discharges from naturally occurring seeps were channeled by DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES to flow through
 
3

engineered drains and ditches into waters of the United States without obtaining or maintaining the necessary permits.
4.    The Defendants’ conduct violated the Federal Water Pollution Control Act (commonly referred to as the “Clean Water Act,” or “CWA”). 33 U.S.C. §§ 1251 et seq. More specifically, the criminal investigation, conducted out of the Eastern District of North Carolina, revealed the following:
DEFENDANTS AND CORPORATE STRUCTURE
5.    Duke Energy Corporation is an energy company headquartered in Charlotte, North Carolina.
6.    Duke Energy Corporation is a holding company whose direct and indirect subsidiaries operate in the United States and Latin America. Duke Energy Corporation’s wholly-owned subsidiaries include: DUKE ENERGY CAROLINAS; Progress Energy, Inc. (“Progress Energy”); DUKE ENERGY PROGRESS; and DUKE ENERGY BUSINESS SERVICES.
7.    DUKE ENERGY CAROLINAS, a North Carolina limited liability company, is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina.
8.    Progress Energy, a North Carolina corporation headquartered in Raleigh, North Carolina, is a holding company which holds, among other entities, DUKE ENERGY PROGRESS.

4

9.    DUKE ENERGY PROGRESS, a North Carolina corporation, is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina.    Prior to the July 2, 2012, merger between Duke Energy Corporation and Progress Energy, Inc., DUKE ENERGY PROGRESS was known as Carolina Power & Light, Inc., d/b/a Progress Energy Carolinas.
10.    “Progress Energy Carolinas” will refer to DUKE ENERGY PROGRESS before the merger.
11.    DUKE ENERGY BUSINESS SERVICES provides shared services to all of Duke Energy Corporation’s operating utilities

nationwide, including: Legal Counsel; Central Engineering & Services; Environmental, Health & Safety; Ethics and Compliance; and Coal Combustion Products.
12.During the time period relevant to the charges, within the State of North Carolina, the Defendants and/or their predecessors owned and operated the following facilities with coal ash basins:
FACILITY
OWNER/
OPERATOR
NUMBER OF COAL ASH BASINS
ADJACENT
WATERS OF THE UNITED STATES
FEDERAL JUDICIAL DISTRICT
Allen Steam Station (Gaston County)
Duke Energy Carolinas
2
Lake Wylie & Catawba River
WDNC
Asheville Steam Electric Generating Plant
(Buncombe County)
Duke Energy Progress
2
French Broad River
WDNC


5

Belews Creek Steam Station
(Stokes County)
Duke Energy Carolinas
1
Belews Lake & Dan River
MDNC
Buck Steam Station (Rowan County)
Duke Energy Carolinas
3
Yadkin River & High Rock Lake
MDNC
Cape Fear Steam Electric Plant (Chatham County)
Duke Energy Progress
5
Cape Fear River
MDNC
Cliffside Steam Station
(Rutherford & Cleveland Counties)
Duke Energy Carolinas
3
Broad River
WDNC
Dan River Steam Station
(Rockingham County)
Duke Energy Carolinas
2
Dan River
MDNC
H.F. Lee Steam Electric Plant (Wayne County)
Duke Energy Progress
5
Neuse River
EDNC
L.V. Sutton Electric Plant
(New Hanover County)
Duke Energy Progress
2
Cape Fear River & Sutton Lake 1
EDNC
Marshall Steam Station
(Catawba County)
Duke Energy Carolinas
1
Lake Norman
WDNC
Mayo Steam Electric Plant
(Person County)
Duke Energy Progress
1
Mayo Lake
MDNC
Riverbend Steam Station
(Gaston County)
Duke Energy Carolinas
2
Catawba River
WDNC
Roxboro Steam Electric Plant (Person County)
Duke Energy Progress
2
Hyco River
MDNC
Weatherspoon Steam Electric Plant (Robeson County)
Duke Energy Progress
1
Lumber River
EDNC


________________________
1 While the parties agree that Sutton Lake receives wastewater from the L.V. Sutton Electric Plant, the status of Sutton Lake as a “water of the State” or “water of the United States” is part of ongoing federal civil litigation. See Cape Fear River Watch, Inc. v. Duke Energy Progress, Inc ., 25 F.Supp.3d 798, 808-809 (2014). The Defendants do not concede that Sutton Lake is a jurisdictional water in this Joint Factual Statement.


6

COAL COMBUSTION PLANTS AND COAL ASH BASINS
13.    Power plants that generate electricity through the combustion of coal create a number of waste byproducts. Among those waste byproducts are “coal combustion residuals” or “CCRs.” CCRs include fly ash, bottom ash, coal slag, and flue, gas desulfurized gypsum. Fly ash and bottom ash are both commonly referred to as “coal ash.” Coal ash contains various heavy metals and potentially hazardous constituents, including arsenic, barium, cadmium, chromium, lead, manganese, mercury, nitrates, sulfates, selenium, and thallium. Coal ash has not been defined, itself, as a “hazardous substance” or “hazardous waste” under federal law, although some constituents of coal ash may be hazardous in sufficient quantities or concentrations.
14.    Coal ash basins (also known as “coal ash ponds,” “coal ash impoundments,” or “ash dikes”) may be part of the waste treatment system at coal-fired power plants. Historically, the Defendants’ coal ash basins were unlined earthen impoundments and typically operated as follows: Coal ash was mixed with water to form slurry. The coal ash slurry was carried through sluice pipe lines to the coal ash basin. Settling occurred in the coal ash basin, in which particulate matter and free chemical components separated from the slurry and settled at the bottom of the basin. Less contaminated water remained at the surface of the basin, from which it could eventually be
7

discharged if authorized under relevant law and permits. In some instances, such as the Dan River Steam Station, water at the surface of the primary basin, flowed into a secondary basin, where further settling and treatment occurred before its discharge into a water of the United States.
15.    Coal ash basins generally continued to store settled ash and particulate material for years or decades. From time to time, the Defendants dredged settled coal ash from the basins, storing the ash in dry stacks on plant property.
16.    A total of approximately 108 million tons of coal ash are currently held in coal ash basins owned and operated by the Defendants in North Carolina. Duke Energy Corporation subsidiaries also operate facilities with coal ash basins in South Carolina (approximately 5.99 million tons of coal ash), Kentucky (approximately 1.5 million tons of coal ash), Indiana (approximately 35.6 million tons of coal ash), and Ohio (approximately 5.9 million tons of coal ash).
17.    Each of the Defendants’ facilities in North Carolina with coal ash basins sought and received permits to discharge treated coal ash wastewater through specified permitted outfalls into waters of the United States, including those listed in paragraph 12.


8

III. LEGAL AND REGULATORY BACKGROUND

CLEAN WATER ACT

18.    The Clean Water Act is a federal law enacted to “restore and maintain the chemical, physical, and biological integrity of the Nation’s waters.” 33 U.S.C. § 1251(a).
19.    The Act prohibits the discharge of any pollutant into waters of the United States except in compliance with a permit issued pursuant to the CWA under the National Pollutant Discharge Elimination System (“NPDES”) by the United States Environmental Protection Agency (“EPA”) or by a state with an approved permit program. 33 U.S.C. §§ 1311(a) and 1342.
20.    The Act defines “discharge of a pollutant” as “the addition of any pollutant to navigable waters from any point source.” 33 U.S.C. § 1362(12). The term “pollutant” includes a wide range of materials, including solid waste and industrial waste. 33 U.S.C. § 1362(6). Coal ash and coal ash wastewater are pollutants.
21.    A “point source” is a “confined and discrete conveyance, including . . . any pipe . . . from which pollutants are or may be discharged.” 33 U.S.C. § 1362(14). Pipes and channelized ditches conveying stormwater or wastewater to surface waters are point sources.


9

22.    ”Navigable waters” are defined in the Act as “waters of the United States.” 33 U.S.C. § 1362(7). “Waters of the United States” include rivers and streams “which would affect or could affect interstate or foreign commerce including any such waters . . . [w]hich are or could be used by interstate or foreign travelers for recreational or other purposes . . . [and the] [t]ributaries of [such] waters.” 40 C.F.R. § 122.2. The following rivers are “waters of the United States”: (1) Broad River; (2) French Broad River; (3) Cape Fear River; (4) Catawba River; (5) Dan River; (6) Yadkin-Pee Dee River; (7) Neuse River; (8) Lumber River; (9) Roanoke River; (10) Hyco River; (11) all tributaries of those rivers, including the South Fork of the Catawba River and Crutchfield Branch; and (12) all lakes and reservoirs exchanging water with those rivers, including, but not limited to, Belews Lake, Lake Norman, Mayo Lake, High Rock Lake, Sutton Lake, 2 and Kerr Reservoir.
23.    Permits regulating discharges of pollutants (other than dredge and fill material) to waters of the United States are issued under the NPDES permit program. See 33 U.S.C. § 1342. Under the NPDES permit program, persons or entities who wish to discharge one or more pollutants must apply for an permit from the proper state or federal agency. See 40 C.F.R. § 122.21. A “permit” is “an authorization, license, or equivalent
_______________________________  
2 See note 1, supra.
10

control document issued by EPA or an ‘approved State’ to implement the requirements of [the CWA].” “Permit” does not include a “draft permit” or a “proposed permit” which has not yet been the subject of final agency action. 40 C.F.R. § 122.2 (emphasis added). Thus, an application for a permit does not provide the applicant with authority or permission to discharge under the Act.
24.    States can seek approval from EPA to administer and enforce the CWA NPDES permit program. 33 U.S.C. § 1342(b). EPA’s approval of a state program does not affect the United States’ ability to enforce the Act’s provisions. 33 U.S.C. § 1342(i).
25.    On October 19, 1975, EPA approved the State of North Carolina’s application to administer the NPDES Program. 40

Fed. Reg. 51493-05 (Nov. 5, 1975).
26.    NPDES permits typically contain, among other things, effluent limitations; water quality standards; monitoring and reporting requirements; standard conditions applicable to all permits; and special conditions where appropriate. See 33 U.S.C. § 1342; 40 C.F.R. §§ 122.41-122.50.
27.    All of DUKE ENERGY CAROLINAS’ and DUKE ENERGY PROGRESS’s facilities with coal ash basins in North Carolina are required to comply with the following Standard Conditions ,

11

incorporated into their NPDES permit. See also 40 C.F.R. § 122.41.
a.
The Permittee shall take all reasonable steps to minimize or prevent any discharge or sludge use or disposal in violation of this permit with a reasonable likelihood of adversely affecting human health or the environment. Standard Conditions , Section B(2) (“ General Conditions ”).

b.
The Permittee shall at all times properly operate and maintain all facilities and systems of treatment and control (and related appurtenances) which are installed or used by the Permittee to achieve compliance with the conditions of this permit. Standard Conditions , Section C(2) (“ Operation and Maintenance of Pollution Controls ”).

IV. FACTUAL BASIS FOR PLEA AND RELEVANT CONDUCT

DAN RIVER STEAM STATION

28.    DUKE ENERGY CAROLINAS owns and operates the Dan River Steam Station (“DAN RIVER”), located on the Dan River in the Roanoke River Basin near Eden, North Carolina. DAN RIVER began operating in 1949 as a coal combustion plant. The coal combustion unit at DAN RIVER was retired in 2012. DUKE ENERGY CAROLINAS now operates a combined cycle natural gas facility to generate steam and electricity at DAN RIVER.
29.    In 1956, the first coal ash basin at DAN RIVER was constructed to store existing and future coal ash. This basin is commonly referred to as the “Primary Ash Basin.”
30.    Two stormwater pipes run under the Primary Ash Basin: a 48-inch stormwater pipe and a 36-inch stormwater pipe. Both
12

were designed to carry stormwater from the site to the Dan River.
31.    The 48-inch stormwater pipe predates the Primary Ash Basin. As installed in 1954, the 48-inch stormwater pipe was composed of galvanized corrugated metal pipe (“CMP”).
32.    From 1968 to 1969, the Primary Ash Basin was expanded over the original outfall of the 48-inch stormwater pipe. When the Primary Ash Basin was expanded, the 48-inch stormwater pipe was extended using reinforced concrete. After the expansion, the 48-inch stormwater pipe was a total of 1130 feet in length, of which approximately 786 feet was corrugated metal pipe and approximately 344 feet was reinforced concrete pipe (“RCP”).
33.    The 36-inch stormwater pipe is composed of reinforced concrete pipe that is approximately 600 feet in length.
34.    Between 1976 and 1977, the expanded Primary Ash Basin was divided to form a second basin, commonly referred to as the “Secondary Ash Basin.”
35.    The Primary Ash Basin has a surface area of approximately 27 acres and a total storage capacity of approximately 477 acre-feet (or 155,431,132 gallons). The Secondary Ash Basin has a surface area of approximately 12 acres and a total storage capacity of approximately 187 acre-feet (or 60,934,277 gallons). In 2013, the basins contained a total of

13

approximately 1,150,000 cubic yards (or 232,270,130 gallons) of coal ash.
36. In a 2009 EPA Dam Safety Assessment, it was noted that the Primary and Secondary coal ash basins were:
Classified as a significant hazard potential structure due to the environmental damage that would be caused by misoperation or failure of the structure.

DAN RIVER STEAM STATION NPDES PERMIT
37.    On January 31, 2013, the State of North Carolina, through its Department of Environment and Natural Resources (“DENR”) - Division of Water Resources (“DWR”), issued a new NDPES permit to DUKE ENERGY CAROLINAS. Effective March 2013, NPDES Permit NC0003468 (“the Dan River Permit”), and authorized the discharge of wastewater from specified outfalls at DAN RIVER.
38.    The Dan River Permit required, among other things, that the facility meet the dam design and dam safety requirements set forth in North Carolina regulations at 15A NCAC 2K.
39.    Pursuant to 15A NCAC 2K.0301, dams such as the Primary Ash Basin at DAN RIVER are subject to annual safety inspections by state authorities.

14

40.    In 2006, DUKE ENERGY CAROLINAS, with the assistance of DUKE ENERGY BUSINESS SERVICES, applied for a NDPES stormwater permit for the 48-inch and the 36-inch pipes. As of February 2, 2014, DENR had not issued DUKE ENERGY CAROLINAS an individual or general NDPES stormwater permit for either the 48-inch or 36-inch pipe.
41.    A NPDES stormwater permit is different than the NPDES permit issued for the discharge of wastewater from a treatment system. Stormwater permits generally do not allow the discharge of wastewater or particulates from coal ash basins or other industrial processes.
42.    Neither the 48-inch nor the 36-inch stormwater pipe was a permitted outfall under the Dan River permit for wastewater.    Neither DUKE ENERGY CAROLINAS nor any predecessor received authorization pursuant to the CWA and NPDES program to discharge wastewater from the coal ash basins or coal ash stored in those basins from either the 48-inch or 36-inch stormwater pipe under the Primary Coal Ash Basin at DAN RIVER.
1979 DOCUMENTED PROBLEMS WITH STORMWATER PIPES
43.    In 1979, DUKE ENERGY CAROLINAS (at that time called Duke Power Company) inspected the 48-inch stormwater pipe through its Design Engineering and Station Support group. Although no major leaks were identified, engineers noted water

15
leaking into the pipe. Repairs to the 48-inch stormwater pipe were undertaken in response to this inspection.
44.    Also in 1979, the- Design Engineering and Station Support group inspected the 36-inch stormwater pipe. Twenty-two joints in the 36-inch pipe were noted for major leaks. DUKE ENERGY CAROLINAS/Duke Power Company employees recommended that the company repair the leaks or reroute the drain lines, noting that the discharges could be violations of EPA regulations. Repairs to the 36-inch stormwater pipe were undertaken in response to this inspection.
INSPECTIONS OF DAN RIVER COAL ASH BASINS AND DUKE ENERGY’S
RESPONSE TO RECOMMENDATIONS

45.    Pursuant to the requirements of North Carolina’s dam safety laws, from 1981 through 2007, DUKE ENERGY CAROLINAS/Duke Power Company hired consultants to perform inspections of the coal ash basins at DAN RIVER every five years. The consultants generated reports containing their observations and recommendations that were provided to and reviewed by DUKE ENERGY CAROLINAS/Duke Power Company.    In the same time period and pursuant to the same laws, DUKE ENERGY CAROLINAS/Duke Power Company performed its own annual inspections of the coal ash basins. DUKE ENERGY CAROLINAS/Duke Power Company also performed less-detailed monthly inspections of the coal ash basins.

16

46.    In 1981, Engineering Firm #1 conducted the first of five independent inspections of DAN RIVER’S ash basins. The report clearly identified the 48-inch pipe as part CMP/part RCP and the 36-inch pipe as RCP. (See Appendix, Diagram 1) .
47.    The 1981 report made the following recommendation, among others:
The culverts which pass beneath the primary basin may become potential sources of problems, particularly as they age. As noted previously, there seemed to be more water leaving the 52/36-inch culvert than entering it. It is recommended that within the next several months the flow rate at each of the culverts be established, then checked at 6-month intervals thereafter. If there is a significantly greater flow of water leaving the pipes than entering them, the pipes should be inspected for leakage, as was done in 1979, and any needed repairs implemented.

48.    The original schematic drawings in the 1981 report were maintained on site at DAN RIVER.
49.    A 1984 Annual Inspection report prepared by DUKE ENERGY CAROLINAS/Duke Power Company recommended that “[f]low in the culverts beneath the primary basin should continue to be monitored at six month intervals” and that “[t]he corrugated metal pipe at the west end of the basin should be monitored in future inspections for further damage from seepage flow.”
50.    A 1985 Annual Inspection report prepared by DUKE ENERGY CAROLINAS/Duke Power Company clearly identified the 48-inch stormwater pipe as CMP. At least one of the engineers who participated in the 1985 annual inspection continues to work for
17

DUKE ENERGY BUSINESS SERVICES, although currently in a different capacity, and, in fact, conducted two inspections of the Primary and Secondary Ash Basins in 2008.
51.    In 1986, Engineering Firm #1 conducted the “Second Five-Year Independent Consultant Inspection of the Ash Dikes” at DAN RIVER. The report clearly identified the 48-inch pipe as part CMP/part RCP and the 36-inch pipe as RCP. Employees of DUKE ENERGY CAROLINAS/Duke Power Company accompanied the consultant during field inspections.
52.    The 1986 report repeated the recommendation noted in 1981:
The monitoring program appears adequate, except it would be desirable to quantitatively (rather than qualitatively) monitor the inflow and outflow at the 52/36-inch diameter culvert, as recommended in the 1981 inspection report, to check for joint leakage.

It would also be desirable to do quantitative monitoring of inflow and outflow of the 48-inch diameter culvert that also passes beneath the ash basin; part of this culvert is constructed of corrugated metal pipe which would be expected to have less longevity of satisfactory service than the reinforced concrete pipes.


* * *


It is recommended that quantitative monitoring of inflow and outflow be done at the culverts which pass under the ash basin to check for potential leakage. It is recommended that this monitoring be done at 6-

month intervals. If there is a significant difference between inflow and outflow, or whenever there is some cause to suspect leakage, the inside of the culverts should be inspected for leakage.

18

53.    In the 1986 Annual Inspection report, engineers for DUKE ENERGY CAROLINAS/Duke Power Company asked the DAN RIVER personnel to perform the following tasks:
Quantitatively monitor the inflow and outflow at the two culverts that pass under the ash basin. Instructions are provided on the attached form and tables. Monitoring should begin within thirty days after the installation of V-notched weirs at the inlets and continue at six-month intervals. Random tests at various depths of flow should be made using a bucket and stop watch to verify flow rates given in the attached tables before beginning the monitoring schedule. Results of these tests should be transmitted to Design Engineering.

54.    DUKE ENERGY CAROLINAS did not install V-notched weirs at the inlets.    Flow monitoring, while apparently performed between 1991 and 1998, was not reported on the requested forms.
55.    In 1991, Engineering Firm #2 performed the Third Five-Year Independent Consultant Inspection of the ash basins at DAN RIVER. The report noted that the two stormwater pipes passed under the Primary Ash Basin, but incorrectly identified the entire length of the 48-inch pipe as RCP. During the review process and prior to submission to the North Carolina Utilities Commission, engineers for DUKE ENERGY CAROLINAS/Duke Power Company did not correct the error.    This erroneous description

of the 48-inch stormwater pipe was repeated in the 1998, 2001 and 2007 Five-Year Independent Consultant Inspection reports produced by Engineering Firms #1 and #3 and not corrected by DUKE ENERGY CAROLINAS/Duke Power Company.
19

56.    The 1991 report repeated the prior monitoring recommendations:
As was previously recommended, the inflow and outflow of the drainage pipes extending under the ash basins should be monitored for the quantity flowing in versus that flowing out and the turbidity of the discharge. If a disparity becomes evident or if there is evidence of turbidity, the pipes should be checked for leaks.

57.    The 1998 Fourth Independent Consultant Inspection report prepared by Engineering Firm #1 made the following recommendation for monitoring of the stormwater pipes:
The outflow of the drainage pipes extending under the primary ash basins to the river should be monitored for turbidity of the discharge, which would be indicative of soil entrance into the pipes through leaks under the basin.    The appearance of turbidity would make it advisable to perform a TV camera inspection of the pipe to help determine if the leak or leaks are a threat.

58.    The recommendation in the 1998 report was repeated in identical language in the 2001 and 2007 Five-Year Inspection reports prepared by Engineering Firm #1 and #3, respectively.
59.    In the 2007 Sixth Five-Year Independent Consultant Inspection report, Engineering Firm #3 noted that DUKE ENERGY CAROLINAS engineers had not performed annual inspections since 2001, and also had not performed monthly inspections in 2003. The firm expressed concern over the qualifications of the DUKE ENERGY CAROLINAS employees assigned to perform monitoring. Engineering Firm #3 recommended “that Duke reinstitute more

20
clearly defined engineering responsibility for the receiving and plotting of data from the dikes at the individual stations.”
60.    After 2008, DUKE ENERGY CAROLINAS installed a metal platform over rip rap (large rocks) along the outer wall of the coal ash basin to better enable employees to access the river bank near the outfalls of the 48-inch and 36-inch stormwater pipes. However, DUKE ENERGY CAROLINAS employees were still unable to view the 36-inch stormwater pipe outfall.
61.    A 2009 EPA Dam Safety Assessment, prepared for EPA by an engineering contractor, restated the recommendations of the Sixth Five-Year Independent Consultant Inspection report and recommended that DUKE ENERGY CAROLINAS complete the implementation of those recommendations as described in the Sixth Five-Year Independent Consultant Inspection Report. Based on information received from DUKE ENERGY CAROLINAS, the EPA Dam Safety Assessment reported that “[v]isual monitoring of the outflow from the drainage pipes that go under the Primary Basin is performed on a monthly basis.” EPA’s contractor observed

that during its field inspection in May 2009, the outflow from the 48-inch and 36-inch pipes was clear.
62.    The last monthly inspection of the stormwater pipes occurred on January 31, 2014. The form created by DUKE ENERGY CAROLINAS for recording observations during the monthly inspections did not provide any specific space for reporting
21

observations of the stormwater pipes and the DUKE ENERGY CAROLINAS employee who performed the inspection did not independently record any observations of the pipes on the form for the January 31, 2014, inspection.    According to the DUKE ENERGY CAROLINAS employee who performed the January 31, 2014, she did not observe turbidity in the water flowing from the 48-inch stormwater pipe. She could not see the discharge from the 36-inch stormwater pipe due to the location of the outfall in relation to her observation point on the scaffolding.
63.    Between 1999 and 2008, and again from January 2013 through January 31, 2014, DUKE ENERGY CAROLINAS employees did not perform any visual inspections of the 36-inch stormwater pipe.
64.    Between 1999 and 2008, during the months from May to September, DUKE ENERGY CAROLINAS employees were generally not able to conduct visual inspections of the flow from the 48-inch pipe because it was too difficult to access the end of the pipe from land as the result of vegetative growth and the presence of snakes.
65.    Each of the DUKE ENERGY CAROLINAS employees, responsible for monitoring the flow from the stormwater pipes from 1991 to December 2012 was aware that the 48-inch stormwater pipe was composed of, corrugated metal.

22

ADDITIONAL DUKE ENERGY DOCUMENTATION THAT
THE 48-INCH STORMWATER PIPE WAS CMP

66.    On or about January 22, 2014, Engineering Firm #4 finished a draft document titled “Design Report - DRAFT Ash Basin Closure - Conceptual Design for Dan River Steam Station.” Appendix 4 of the Report identifies the 48-inch stormwater pipe as “CMP,” although that information was not separately stated in the body of the report. In preparing the report, Engineering Firm #4 engineers relied on .documentation provided by DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES, including a 2008 schematic of the Primary Ash Basin that correctly identified the 48-inch stormwater pipe as CMP. Engineers with DUKE ENERGY BUSINESS SERVICES’ Central Engineering office worked with Engineering Firm #4 in the preparation of the conceptual design and reviewed the draft documents but did not notice the labeling of the 48-inch stormwater pipe in Appendix 4.
67.    A 2009 schematic entitled “Rough Grading - Overall Grading Plan for Dan River Combined Cycle” provided to DUKE ENERGY CAROLINAS by one of its contractors also identified the 48-inch stormwater pipe as CMP.
68.    As of the date of the Dan River spill, record-keeping and information-sharing practices at DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES did not ensure that information such as the actual composition of the 48-inch pipe was
23

communicated from employees with knowledge to engineers and employees making budget decisions.    Additionally, engineers in DUKE ENERGY BUSINESS SERVICES, with responsibility for DAN RIVER, had not sufficiently reviewed the records available to them and, therefore, continued to operate under the erroneous belief that the 48-inch pipe was made entirely of RCP.
RECOMMENDATION FOR CAMERA INSPECTIONS
BY DUKE ENERGY PROGRAM ENGINEERING

69.    From at least 2011 through February 2014, DUKE ENERGY BUSINESS SERVICES had a group of engineers assigned to support fossil impoundment and dam inspections. The group was known as “Program Engineering.”
70.    In May 2011, a Senior Program Engineer and a Program Engineer with responsibilities covering DAN RIVER, recommended that the budget for DAN RIVER include camera inspections of the pipes within the Primary and Secondary Ash Basins. The estimated total cost for the camera inspection of four pipes, including the 48-inch stormwater pipe, within the Primary and Secondary Coal Ash Basins was $20,000.
71.    DUKE ENERGY CAROLINAS did not provide funding for the camera inspection.
72.    Upon learning that the camera inspection was not funded, the DAN RIVER Station Manager called the Vice-President

24

of Transitional Plants and Merger Integration, who was in charge of approving the budget at DAN RIVER and other facilities. The Station Manager told the Vice-President that DAN RIVER needed the camera inspections, that the station did not know the conditions of the pipes, and that if one of the pipes failed, there would be environmental harm.    The request was still denied.
73.    In May 2012, the Senior Program Engineer and the Program Engineer again recommended that the budget for DAN RIVER include camera inspections of the 48-inch and 36-inch stormwater pipes underneath the Primary Ash Basin, along with two additional pipes within the Primary and Secondary Ash Basins. The estimated total costs for the camera inspection was $20,000. The reason noted on the budget request form was “internal recommendation due to age of piping system.”
74.    By e-mail dated May 30, 2012, the Senior Program Engineer indicated his intention to eliminate the camera survey budget line item for stormwater pipes at DAN RIVER in light of the anticipated closure of the basins.
75.    In response to the Senior Program Engineer’s May 30, 2012, email, the DAN RIVER Equipment Owner, employed by DUKE ENERGY BUSINESS SERVICES and responsible for monitoring the Primary Ash Basin wrote, in part:
 
25

I would think with the basin closing you would want to do the camera survey. I don’t think the drains have ever been checked and since they go under the basin I would like to ensure that we are eliminating any risk before closing the basins.

76.    In response to the Senior Program Engineer’s May 30, 2012, email, another DUKE ENERGY BUSINESS SERVICES employee advised:
I don’t know if this changes your opinion, but [it] isn’t likely that the ash basin will close in 2013. We have to submit a plan to the state at least one Year prior to closure and we haven’t even begun to prepare that.

77.    On a date unknown but sometime between May 2012 and July 2012, at an in-person meeting, a DUKE ENERGY BUSINESS SERVICES Program Engineer asked the Vice-President of Transitional Plants and Merger Integration whether camera inspections of the stormwater pipes would be funded. The Vice-President said no.
78.    In June 2012, preliminary engineering plans for closing the. DAN RIVER coal ash basins called for the removal of both the 48-inch and 36-inch pipes. However, between 2012 and 2014, there was no set date for closing and no formal closure plan had been submitted to DENR. In December 2012, the DAN RIVER ash basin closure was not projected to be completed until 2016.
79.    DUKE ENERGY CAROLINAS did not provide funding for the camera inspections of the stormwater pipes and no camera
26

inspections were performed prior to February 2, 2014. If a camera inspection had been performed as requested, the interior corrosion of the elbow joint in the 48-inch pipe would likely have been visible.
80.    From at least January 1, 2012, through February 2, 2014, DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES failed to take reasonable steps to minimize or prevent discharge of coal ash to the Dan River that would adversely affect the environment and failed to properly operate and maintain the DAN RIVER coal ash basins and the related stormwater pipes located berieath the Primary Coal Ash Basin, thus, negligently violating the DAN RIVER NPDES permit.
FEBRUARY 2014 DISCHARGES INTO THE DAN RIVER

81.    On February 2, 2014, a five-foot long elbow joint within the sixty-year-old corrugated metal section of the 48-inch pipe under the Primary Ash Basin at DAN RIVER failed, resulting in the release of coal ash wastewater and coal ash into the Dan River.
82.    Later inspection of the elbow joint, after its retrieval from the Dan River, revealed extensive corrosion of the metal of the elbow joint initiating at the bottom center of the elbow. The parties disagree about some of the factors that contributed to the extensive corrosion.    Nevertheless, the age

of the pipe was at or beyond the reasonably expected serviceable
27

life for CMP under similar conditions. Ultimately, the combination of the corrosion and the weight of the coal ash basin over the elbow joint caused it to buckle, fail, and be pushed through the end of the 48-inch stormwater pipe into the Dan River.
83.    Between approximately 1:30 p.m. and approximately 2:00 p.m. on February 2, 2014, a security guard at DAN RIVER noticed that the level of the wastewater in the Primary Ash Basin had dropped significantly.
84.    The security guard immediately notified DUKE ENERGY CAROLINAS employees in the control room for the adjacent natural gas-powered combined cycle plant. The DUKE ENERGY CAROLINAS Shift Supervisor on duty went to the Primary Ash Basin and observed a large sinkhole. The Shift Supervisor saw only residual water and mud left in the basin. The Shift Supervisor alerted other DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES employees in order to begin response efforts.
85.    After the initial discovery of the sinkhole in the Primary Ash Basin on February 2, 2014, an employee who responded to the site circulated photographs of the Primary Ash Basin to other DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES employees via e-mail at approximately 3:49 p.m.
86.    Photographs attached to the 3:49 p.m. e-mail reflected

the status of the basin. ( See Appendix, Photographs 1 - 4 ).
28

87.    From on or about February 2, 2014, through February 8, 2014, the unpermitted discharge of approximately 27 million gallons of coal ash wastewater and between 30,000 and 39,000 tons of coal ash into the Dan River occurred through the 48-inch pipe from the Primary Coal Ash Basin.
88.    According to the U.S. Fish and Wildlife Service, coal ash from the release traveled more than 62 miles down the Dan River, from the Middle District of North Carolina, through the Western District of Virginia, and into the John H. Kerr Reservoir in the Eastern District of North Carolina and Eastern District of Virginia.
89.    On or about February 8, 2014, DUKE ENERGY CAROLINAS sealed the outfall of the 48-inch pipe, halting the discharge of coal ash wastewater and coal ash into the Dan River.
DISCHARGES FROM THE 36-INCH STORMWATER PIPE

90.    On February 6, 2014, an interior video inspection of the 36-inch stormwater pipe revealed: (1) infiltration of wastewater occurring through a number of joints; (2) water jets from pressurized infiltration at three joints; (3) separation in one joint near the outfall point; (4) cracks running lengthwise through several pipe segments; and (5) sections of ponding water indicating irregular vertical alignment.
91.    Analysis of water samples from the 36-inch pipe revealed that the line was releasing wastewater that contained
29

elevated levels of arsenic. On February 14, 2014, the arsenic concentration in the effluent at the outfall of the 36-inch pipe was 140 ug/L. On February 17, 2014, the arsenic concentration in the effluent at the same point was 180 ug/L. The North

Carolina water quality standard for the protection of human health for arsenic is 10 ug/L and the water quality standard for the protection of freshwater aquatic life is 50 ug/L.
92.    Discharge of contaminated wastewater continued from the 36-inch pipe between February 6, 2014, and February 21, 2014. The nature of the wastewater infiltration into the 36- inch stormwater pipe and DUKE ENERGY CAROLINAS employees’ visual and auditory confirmation of flow from the 36-inch pipe indicates that discharge from the 36-inch pipe began a significant period of time before February 6, 2014. The discharge began at least as early as January 1, 2012, continued until February 21, 2014, and was not authorized by a NPDES permit.
93.    On February 21, 2014, DUKE ENERGY CAROLINAS sealed the 36-inch stormwater pipe.
RESPONSE COSTS FOR DAN RIVER RELEASE
94.    Thus far, DUKE ENERGY CAROLINAS and federal, state, and local governments have spent over $19 million responding to the spill.
30

95.    Drinking water intakes in the Dan River watershed, including those for the Cities of Danville, Virginia Beach, and Chesapeake and for the Halifax County Service Authority in Virginia were temporarily closed and were required to undertake additional monitoring for contamination. Monitoring results indicated that the water treatment plants along the Dan River were able to adequately treat and remove the coal ash and related contaminants from the spill.
96.    The North Carolina Department of Health and Human Services issued an advisory against consuming fish from or recreational contact with the Dan River from the point of the spill to the North Carolina - Virginia border from February 12, 2014, to July 22, 2014.
97.    DUKE ENERGY CAROLINAS has reimbursed many entities for their expenditures in the aftermath of the spill. Nonetheless, at least two localities and one federal agency have not yet been fully reimbursed. Those entities and their expenditures are: (1) Virginia Beach, $63,309.45; (2) Chesapeake, Virginia, $125,069.75; and (3) the United States Army Corps of Engineers, $31,491.11.
CAPE FEAR STEAM ELECTRIC PLANT

98.    DUKE ENERGY PROGRESS (formerly “Progress Energy Carolinas”) owns the Cape Fear Steam Electric Plant (“CAPE
31

FEAR”), located adjacent to the Cape Fear River, just south of the confluence of the Haw and Deep Rivers and approximately two miles southeast of Moncure, North Carolina.
99.    CAPE FEAR has a total of five coal ash basins. Three of the basins, constructed in 1956, 1963, and 1970 have been inactive for many years. Two of the basins, constructed in 1978 and 1985 continued to receive coal ash slurry and other forms of wastewater through at least November 2011.
100.    The 1978 ash basin had a storage capacity of 880 acre-
feet (approximately 286,749,258 gallons), a surface area of 43 acres, and a maximum structural height of 27 feet. The 1978 ash basin included a “riser,” also known as a “stand pipe,” used under normal operation to allow the passive and permitted discharge of wastewater treated by settlement from the basin. The riser was constructed of vertically stacked 18-inch diameter concrete pipe sections.
101.    The 1985 ash basin had a storage capacity of 1764 acre-feet (approximately 574,801,921 gallons), a surface area of 65 acres, and a maximum structural height of 28 feet. The 1985 ash basin included a riser constructed of vertically stacked 48-inch diameter concrete pipe sections.
102.    In a 2009 EPA Dam Safety Assessment, both the 1978 and 1985 coal ash basins at CAPE FEAR were classified as having “significant hazard potential,” as previously defined.
32

103.    By December 2011, DUKE ENERGY PROGRESS/Progress Energy Carolinas ceased electric power generation at CAPE FEAR. As a result of the cessation of operation, coal ash slurry was no longer received by the 1978 or 1985 coal ash basin, although each basin continued to receive rainwater or stormwater.
INSPECTIONS OF CAPE FEAR ASH BASINS, MONITORING RECOMMENDATIONS,
AND DETECTION OF LEAKING RISERS

104.    DUKE ENERGY PROGRESS/Progress Energy Carolinas engaged outside firms to perform annual and five-year inspections of the coal ash basins at CAPE FEAR, as required by state law.
105.    On or about May 1, 2008, Engineering Firm #3, hired by DUKE ENERGY PROGRESS/Progress Energy Carolinas, conducted an annual inspection of the CAPE FEAR coal ash basins and generated a report of its observations, conclusions, and recommendations. The report was submitted to DUKE ENERGY PROGRESS/Progress Energy Carolinas and reviewed by the plant manager and environmental coordinator for CAPE FEAR.
106.    The 2008 annual inspection report described the condition of the risers in the 1978 and 1985 coal ash basins as “marginal” and estimated that the risers were “likely to develop problems” in two to five years from the date of the report. The report further recommended that DUKE ENERGY PROGRESS/Progress Energy Carolinas perform its own inspections of the risers in

33

the 1978 and 1985 ash basins by boat, in order to better assess the condition of the risers.
107.    The recommendation to inspect the risers using a boat was repeated in annual reports produced by engineering firms and submitted to DUKE ENERGY PROGRESS/Progress Energy Carolinas in 2009 and 2010, and to DUKE ENERGY PROGRESS in 2012 and 2013.
108.    At no time from May 1, 2008, until March 2014 did DUKE ENERGY PROGRESS/Progress Energy Carolinas perform inspections of the risers in the 1978 or 1985 ash basins by boat.
109.    At some time during the summer of 2011, but on a date unknown, the DUKE ENERGY PROGRESS/Progress Energy Carolinas Environmental Coordinator and the NPDES Subject Matter Expert responsible for CAPE FEAR visited the site. During their visit, they became aware that the risers in the 1978 and 1985 coal ash basins were leaking. During the fall of 2011, but on a date unknown, they informed DUKE ENERGY PROGRESS/Progress Energy Carolinas management that repairs were needed on the risers.

No additional inspection or monitoring of the risers was undertaken by DUKE ENERGY PROGRESS/Progress Energy Carolinas as a result of their observations prior to March 2014.
110.    The 2012 Five-Year Independent Consultant Report, produced on January 26, 2012, by Engineering Firm #4, noted that the skimmer located at the top of the riser in the 1978 ash basin was corroded and tilted. The skimmer was designed to
34

prevent debris from being discharged from the basin or clogging the riser.
111.    Photographs included with the 2012 Five-Year Independent Consultant Report show the skimmer on the riser in the 1978 coal ash basin sitting askew. (See Appendix, Photographs 5 & 6) .
112.    Photographs included with the 2012 Five-Year Independent Consultant Report show the skimmer on the riser in the 1985 coal ash basin. (See Appendix, Photograph 7) .
113.    Annual inspection reports for 2012 and 2013 also reported that the riser in the 1978 ash basin was damaged, deteriorated, and tilted. The annual reports recommended that DUKE ENERGY PROGRESS/Progress Energy Carolinas replace or repair the skimmer on the riser in the 1978 ash basin.
114.    At no time from January 26, 2012, through March 2014 did DUKE ENERGY PROGRESS/Progress Energy Carolinas repair or replace the skimmer on the riser in the 1978 coal ash basin.
115.    The annual inspection report produced on or about June 24, 2013, by Engineering Firm #4 and submitted to DUKE ENERGY PROGRESS noted that a “trickle of flow” was observed at the outfalls leading from the risers in the 1978 and 1985 ash basins which the report concluded indicated possible leakage.

35

DEWATERING OF THE ASH BASINS AND REPAIR OF RISERS
116.    During the summer of 2013, on a date unknown, an employee of DUKE ENERGY BUSINESS SERVICES contacted a contractor specializing in diving and underwater pipe repair and mentioned the possible need for riser repair at CAPE FEAR. The contractor was not engaged at that time and no schedule for the potential work was discussed.
117.    Also during the summer of 2013, DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES were engaged in planning for the closure of the coal ash basins at CAPE FEAR. On or about July 11, 2013, consulting engineers assisting DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES in planning for ash basin closure produced and provided to DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES a “site investigation plan” that included plans for locating, inspecting, and determining the composition of risers and discharge pipes for each ash basin.
118.    As part of the ongoing planning for ash basin closure, DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES sought to eliminate the need for NPDES permits for CAPE FEAR, in keeping with its “Ash Basin Closure Strategy.” This strategy would reduce continuing operation and maintenance costs at the plant while ash basin closure was pending. DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES knew that in order to eliminate
36

the NPDES permits, the coal ash basins would have to be in a “no
flow” state. To reach that state, DUKE ENERGY PROGRESS needed to eliminate the riser leaks at the 1978 and 1985 coal ash basins as well as lower the level of the contents of the ash basins to prevent water from overtopping the risers during a 25-year rain event. These requirements were discussed by a number of DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES employees during the summer of 2013, including the DUKE ENERGY BUSINESS SERVICES NPDES Subject Matter Expert and the DUKE ENERGY BUSINESS SERVICES Director of Plant Demolition and Retirement.
119.    Also as part of the ongoing planning for ash basin closure at CAPE FEAR, DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES recognized that dewatering the ash basins was a necessary and time-consuming part of the process of closing an ash basin. DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES further believed that dewatering the coal ash basins would “lessen hydrostatic pressure” and “over a relatively brief time reduce and/or eliminate seepage.” At the time, seepage was the subject of threatened citizen law suits, a series of state-filed civil complaints, and significant public concern.
120.    DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES also believed that dewatering the 1978 and 1985 coal ash basins prior to repairing the risers would provide a safer environment
37

for contractors performing repair work. DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES employees knew that the leaks in the risers were likely being caused by cracks or failures in the grout between the concrete pipe sections that were underwater. The employees did not know how far underwater the leaks or grout failures were or how many sections of the pipe would need repair. Because the risers were filled with air but surrounded by water, underwater repair of the risers could be hazardous to the divers due to a phenomenon known as “differential pressure.” DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES employees believed that removing the standing water from the 1978 and 1985 basins to at or below the level of the leaking portions of the risers would eliminate the risk from differential pressure.
121.    Beginning on or about August 16, 2013, and continuing through on or about September 30, 2013, employees and contractors for DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES began developing a work plan for pumping water from the 1985 ash basin at CAPE FEAR.
122.    On or about September 30, 2013, DUKE ENERGY PROGRESS employees began pumping water from the 1985 ash basin at CAPE FEAR, using a Godwin pump and hoses.
123.    On or about October 2, 2013, two days after pumping began at the 1985 ash basin, a DUKE ENERGY BUSINESS SERVICES
38

engineer assigned to the plant retirement program emailed a representative of a contracting company specializing in underwater pipe repair. In the email, the engineer indicated that there were “several potential opportunities at [the] Cape Fear plant that we would like you to look at.” The engineer went on to describe one of the opportunities as:
Ash pond riser repairs. Two ponds’ risers leak. There is a slow trickle out of the discharge of the concrete riser pipes at two ash ponds.    We may elect to stop the leak. Could you provide a ballpark for providing the investigation and repair services? Could you also describe what the process would be?

124.    On or about October 22, 2013, the underwater pipe repair contractor submitted to DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES a project estimate titled “Abandonment of Intakes and Leak Sealing” that included four tasks, including “Ash Pond Riser Repairs.”
125.    On or about January 13, 2014, DUKE ENERGY PROGRESS began dewatering operations at the 1978 coal ash basin at CAPE FEAR, using a Godwin pump and hoses similar to those used at the 1985 coal ash basin, as well as the same work plan.
126.    On or about January 24, 2014, DUKE ENERGY PROGRESS signed a contract, through DUKE ENERGY BUSINESS SERVICES, acting as its agent, with the underwater pipe repair contractor for various projects at CAPE FEAR relating to plant decommissioning and coal ash basin closure, as addressed in the October 22,
39

2014, project estimate. One of the projects was repair work on the risers in the 1978 and 1985 coal ash basins. The contract specified that work under the contract would “start on or about January 27, 2014 and shall be completed no later than December 31, 2014.” The contract did not identify specifically when the work would begin on the risers.
127.    On or about March 11, 2014, DENR officials from both the DWR and the Division of Mineral and Land Resources visited CAPE FEAR to perform an inspection. The DENR officials were accompanied by several DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES employees during their inspection. DENR observed the Godwin pumps at the 1985 and 1978 ash basins along with obvious signs of a significant drop in the water level in the coal ash basins and disturbances in the surface of the coal ash in the basins. (See Appendix, Photographs 8 - 10).
128.    At the conclusion of the DENR inspection on March 11, 2014, a dispute arose between DENR officials and DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES employees over whether DUKE ENERGY PROGRESS had been authorized by DENR-DWR to discharge water from the coal ash basins using Godwin pumps.
129.    On or about March 19 and 20, 2014, an employee of the underwater pipe repair contractor performed video inspections of the risers in the 1978 and 1985 coal ash basins. The contractor observed that in the discharge pipe leading from the riser in
40

the 1985 coal ash basin, the visibility in one area was “next to nothing.” The visibility was negatively impacted by turbidity and debris in the pipe. The contractor observed a “slow trickle” of water intruding into the riser in the 1978 coal ash basin. At the time of the camera inspections, the water level in both coal ash basins had already been lowered below the uppermost joints of the risers and, thus, below the level of some of the leaks.
130.    No other camera inspections were conducted of the risers between 2008 and March 19, 2014.
131.    On or about March 19 and 20, 2014, employees and agents of the underwater pipe repair contractor replaced and resealed the grout between the concrete pipe sections of the risers in the 1978 and 1985 coal ash basins. (See Appendix, Photographs 11 through 14).
132.    Between at least January 1, 2012, and January 24, 2014, DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES failed to properly maintain the risers in the 1978 and 1985 coal ash basins at CAPE FEAR in violation of the applicable NPDES permit.
HISTORICAL SEEPS AND DISCHARGES FROM COAL ASH BASINS
133.    DUKE ENERGY CAROLINAS’ and DUKE ENERGY PROGRESS’s coal ash basins are comprised of earthen dams. Over time, “seeps” developed in the dam walls. “Seeps” occur when water, often
41
carrying dissolved chemical constituents, moves through porous soil and emerges at the surface. Seeps are common in earthen dams. The Defendants have identified nearly 200 distinct seeps at the Defendants’ coal ash basins throughout North Carolina in permit modification applications filed in 2014. Not all seeps necessarily reach waters of the United States. However, some of the discharge from seeps is collected and moved through engineered drains or channels to waters of the United States. Other seeps are simply allowed to flow across land surfaces to waters of the United States. Each of the facilities listed in the table at paragraph 12 had seeps of some form.
134.    Water from seeps may transport pollutants. Wastewater sampled from various seep locations at DUKE ENERGY CAROLINAS and DUKE ENERGY PROGRESS coal ash basins in 2014 was found to contain constituents including aluminum, arsenic, barium, boron, chloride, chromium, copper, fluoride, lead, manganese, nickel, selenium, thallium, and zinc, and was additionally found to be acidic.
135.    On June 7, 2010, EPA issued interim guidance to assist NPDES permitting authorities with establishing appropriate permit requirements for wastewater discharges from coal ash basins at power plants. In the guidance, EPA advised with respect to point source discharges of seepage:

42
If the seepage is directly discharged to waters of the United States, it is likely discharged via a discrete conveyance and thus is a point source discharge. Seepage discharges are expected to be relatively minor in volume compared to other discharges at the facility and could be inadvertently overlooked by permitting authorities. Although little data are available, seepage consists of [coal combustion residuals] including fly ash and bottom ash and fly ash transport water and [flue-gas desulfurization] wastewater. If seepage is discharged directly via a point source to a water of the U.S., the discharge must be addressed under the NPDES permit for the facility.

136.    Since at least 2010, seepage from DUKE ENERGY CAROLINAS’ and DUKE ENERGY PROGRESS’S coal ash basins at certain of their 14 coal-fired power plants in North Carolina entered waters of the United States through discrete conveyances.
137.    Wetlands may also suffer impacts from the operation of coal-fired plants. Coal ash basins were historically sited near rivers and are, therefore, often located in or near riparian wetlands and some coal ash basins have hydrologic connections to wetlands via groundwater or seeps.
138.    Since 2010, as part of the NPDES permitting process in North Carolina, coal-fired plants are required to monitor groundwater to assure natural resources are protected in accordance with federal and state water quality standards. Monitoring of groundwater at coal ash basins owned by DUKE ENERGY CAROLINAS and DUKE ENERGY PROGRESS has shown exceedances of groundwater water quality standards for pollutants under and near the basins including arsenic, boron, cadmium, chromium,
43
iron, manganese, nickel, nitrate, selenium, sulfate, thallium, and total dissolved solids.
139.    At various times between 2010 and 2014 the Defendants included general references to seeps in correspondence and permit applications with DENR and disclosed more detailed information concerning certain seeps, including engineered seeps (i.e., man-made channels). The Defendants did not begin gathering and providing detailed, specific, and comprehensive data concerning seeps, and particularly seeps discharging to waters of the United States, at each of the North Carolina coal ash basins to DENR until after the DAN RIVER spill in 2014.
140.    After the coal ash spill at DAN RIVER in 2014, DUKE ENERGY CAROLINAS and DUKE ENERGY PROGRESS, with the assistance of DUKE ENERGY BUSINESS SERVICES, filed NPDES permit renewal and/or modification applications seeking authorization for certain seeps that discharged, via a point source, directly to a water of the United States.    These applications are currently pending as DENR considers the impacts of the seeps and discharges on the receiving waters of the United States.
H.F. LEE STEAM ELECTRIC PLANT
141.    DUKE ENERGY PROGRESS owns the H. F. Lee Steam Electric Plant (“LEE”), which is located in Goldsboro, North Carolina. LEE (formerly known as the “Goldsboro Plant”) began operation
44
 
shortly after World War II and added additional coal-fired combustion units in 1952 and 1962. The plant retired the coal-fired units in September of 2012.
142.    LEE used several coal ash basins in the past. Only one of the remaining coal ash basins still contains water and ash sluiced from LEE (the “active coal ash basin”). The active ash basin sits on the north side of the Neuse River. (See Appendix, Photograph 15) .
143.    The active coal ash basin is triangle-shaped and includes a primary basin and a small secondary settling basin. The treatment system is designed so that water discharges from the primary basin into the secondary basin and from the secondary basin into the Neuse River.
144.    The NPDES permit No. NC0003417 for LEE, effective November 1, 2009, authorized two discharges into the Neuse River — one from the active coal ash basin (“Outfall 001”) and one from the cooling water pond (“Outfall 002”). A 2010 modification of the 2009 permit also authorized a third outfall (“Outfall 003”) from a combined cycle generation facility. Water does not currently discharge from the active coal ash basin into the Neuse River via Outfall 001.
145.    Beginning at a time unknown but no later than October 2010, DUKE ENERGY PROGRESS/Progress Energy Carolinas identified a seep on the eastern embankment of the active coal ash basin.
45
This seep was adjacent to an area of seepage that was identified and repaired in 2009 and 2010. This seep in 2010 collected and flowed to a “flowing ditch” outside of the active coal ash basin. This seep was repaired in May of 2011.
146.    Additional seeps on the eastern side of the active coal ash basin also flowed into the same drainage ditch as the seep identified in October 2010. The drainage ditch discharged into the Neuse River at latitude 35.379183, longitude - 78.067533. The drainage ditch was not an authorized outfall under the NPDES permit. In 2014, DUKE ENERGY PROGRESS identified the GPS coordinates of four seeps on the eastern side of the coal ash basin as: latitude 35.380510, longitude -78.068532; latitude 35.382767, longitude -78.069655; latitude 35.386968, longitude -78.071942; and latitude 35.379492, longitude -78.067718.
147.    On February 20, 2013, DENR personnel sampled water in three locations from the drainage ditch. This sampling occurred after DENR personnel from the Land Quality Section observed a seep near the southeast corner of the ash pond dike. The seep collected in the unpermitted discharge ditch and flowed into the Neuse River. Water quality analysis of samples from the drainage ditch showed exceedances of state water quality standards for chloride, arsenic, boron, barium, iron, and manganese. This discharge of wastewater into the Neuse River
46
from the drainage ditch at LEE was not authorized under the NPDES permit.
148.    On March 11, 2014, DENR personnel again sampled wastewater from the drainage ditch referenced previously. The ditch showed exceedances for iron and manganese.
149.    Unpermitted discharges, in violation of the applicable NPDES permit, occurred at LEE from at least October 1, 2010, through December 30, 2014.
RIVERBEND STEAM STATION
150.    DUKE ENERGY CAROLINAS owns and operates the Riverbend Steam Station (“RIVERBEND”), located in Gaston County, North Carolina, approximately 10 miles from the city of Charlotte and immediately-adjacent to Mountain Island Lake, on a bend in the Catawba River. Mountain Island Lake is the primary source of drinking water for residents of Gaston and Mecklenburg Counties.
151.    RIVERBEND began commercial operation in 1929 and its combustion units were retired in April 2013, with plans to demolish it after 2016. It has two unlined coal ash basins along Mountain Island Lake, with dams reaching up to 80 feet in height. The RIVERBEND dams are designated in a 2009 EPA Dam Safety Assessment as “Significant Hazard Potential,” as previously defined. RIVERBEND contains approximately 2,730,000 million tons of stored coal ash.
47

152.    The RIVERBEND NPDES permit, No. NC0004961, was issued on March 3, 1976, and has been renewed subsequently, with the current NPDES Permit expiring on February 28, 2015. The RIVERBEND NPDES permit allows the facility to discharge wastewater to the Catawba River from three “permitted outfalls” in accordance with the effluent limitations and monitoring requirements regarding flow, suspended solids, oil and grease, fecal coliform, copper, iron, arsenic, selenium, mercury, phosphorus, nitrogen, pH, and chronic toxicity, as well as other conditions set forth therein. Wastewater from the coal ash basin was to be discharged, after treatment by settling, through one of the monitored and permitted outfalls.
153.    On December 4 through December 6, 2012, DENR conducted inspections of RIVERBEND and discovered unpermitted discharges of wastewater from the coal ash basin into the Catawba River. Among the unpermitted discharges at RIVERBEND is a seep identified in a 2014 permit modification application as Seep 12, an engineered drain to discharge coal ash contaminated wastewater into the river. RIVERBEND Seep 12 is located at latitude 35.36796809, longitude -80.95935079. (See Appendix, Photographs 16 through 18) . At some time unknown, but prior to December 2012, one or more individuals at RIVERBEND created the unpermitted channel that allowed contaminated water from the coal ash basin to be discharged into the river.
48
154.    The unpermitted seep resulted in documented unpermitted discharges from 2011 through 2013 containing elevated levels of arsenic, chromium, cobalt, boron, barium, nickel, strontium, sulfate, iron, manganese, and zinc into the Catawba River.
155.    Unpermitted discharges, in violation of the applicable NPDES permit, occurred at RIVERBEND from at least November 8, 2012, through December 30, 2014.
ASHEVILLE STEAM ELECTRIC GENERATING PLANT
156.    DUKE ENERGY PROGRESS owns and operates the Asheville Steam Electric Generating Plant (“ASHEVILLE”), in Buncombe County, North Carolina.
157.    ASHEVILLE is a coal-powered electricity-generating facility in the Western District of North Carolina. It has two unlined coal ash basins, one constructed in 1964 and the other constructed in 1982. The basins, each approximately 45 acres in size, hold a total of approximately 3,000,000 tons of coal ash waste. (See Appendix, Photograph 19) . The basins were each characterized in the 2009 EPA Dam Safety Assessment as “High Hazard Potential,” meaning that “failure or mis-operation results will probably cause loss of human life.”
158.    The ASHEVILLE NPDES permit, number NC0000396, was issued in 2005 and expired in 2010. Progress Energy Carolinas (now DUKE ENERGY PROGRESS) filed a timely permit renewal
49
application on June 11, 2010. DENR has not yet issued a new permit and ASHEVILLE continues to operate under the terms of the 2005 NPDES permit.
159.    On May 13, 2011, DUKE ENERGY PROGRESS/Progress Energy Carolinas sought authority to relocate the settling basin and permitted discharge outfall at ASHEVILLE from its original location near the 1964 coal ash basin to a location approximately 3,000 feet away, latitude 35.47367 and longitude - 82.504, in order to allow “stabilization work” on the 1964 ash pond impoundment.
160.    On March 11, 2013, DENR staff inspected ASHEVILLE and identified seeps flowing from toe drains at the 1964 coal ash basins. The engineered seep from the 1964 coal ash basin has continued to discharge pollutants. This engineered seep is not authorized under the applicable NPDES permit. Engineered seeps from the 1964 coal ash basin are located at latitude 35.468319, longitude -82.549104 and latitude 35.466943, longitude -82.548502. These engineered seeps discharge through the toe drain to the French Broad River.
161.    Unpermitted discharges, in violation of the applicable NPDES permit, occurred at ASHEVILLE from at least May 31, 2011, through December 30, 2014.

50

BROMIDE IMPACTS FROM FGD SYSTEM S
162.    As described above, DUKE ENERGY CAROLINAS owns and operates Belews Creek Steam Station (“BELEWS”) in Stokes County, North Carolina, and Cliffside Steam Station (“CLIFFSIDE”) in Rutherford and Cleveland Counties, North Carolina.
163.    As part of its efforts to comply with the Clean Air Act and North Carolina Clean Smokestacks Act, DUKE ENERGY CAROLINAS installed Flue Gas Desulfurization (“FGD”) “scrubbers” to significantly reduce or eliminate certain air pollutants, such as sulfur dioxide and nitrogen oxide at several coal-fired facilities. FGD scrubbers isolate certain pollutants from coal combustion emissions into the air and ultimately divert those pollutants, including bromides, into a gypsum slurry that is eventually routed to the facility’s coal ash basins. At times, portions of the slurry may be diverted for reuse in products such as wall board.
164.    FGD installation was completed and the scrubbers at BELEWS became fully operational at the end of 2008.
165.    When bromide comes into contact with chlorine-based water treatment systems, it can contribute to the formation of compounds known as trihalomethanes (“THMs”). There are no general federal or state water limits for the discharge of bromides to surface water. However, there are state and federal limits for total trihalomethanes (“total THMs”) under the Safe
51
Drinking Water Act. If ingested in excess of the regulatory limits over many years, THMs may cause adverse health effects, including cancer.
DISCHARGE OF BROMIDES AT BELEWS
166.    Beginning in 2008 or 2009, the City of Eden (“Eden”), downstream from BELEWS, noted an increase in total THMs in its drinking water.
167.    Prior to the installation of the FGD scrubbers, DUKE ENERGY CAROLINAS reported to DENR in its BELEWS NPDES permit applications that bromide occurred in its waste stream at a level too low to detect. When BELEWS applied for a NPDES permit modification in 2009, it made no new disclosures concerning bromide levels because the modification did not relate to bromide and there were no federal or state limitations for bromide discharge.
168.    DUKE ENERGY CAROLINAS tested for bromides, as well a number of other potential pollutants, at BELEWS in 2008-2009 to evaluate the effects of the FGD wastewater treatment system. Those test results showed that bromides were discharged from BELEWS into the Dan River. This did not violate the NDPES permit for the facility.
169.    In consultation with an outside contractor, in January 2011, Eden determined that an increase in bromides contributed

52
to the increase in total THMs it had witnessed beginning in 2008-2009.
170.    In early 2011, Eden tested the water entering its water treatment facility from the Dan River and performed water tests upstream to determine the source of the bromides.
171.    On May 10, 2011, Eden notified DUKE ENERGY CAROLINAS that it was having difficulty with increasing levels of total THMs in its treated drinking water and requested DUKE ENERGY CAROLINAS’ bromide sampling data from the outflow of BELEWS. An impending reduction in the threshold for total THMs (required by an EPA rule promulgated under the Safe Drinking Water Act) triggered Eden’s particular interest in the pollutant, especially given that Eden was at the upper limit of the then-permissible total THM range.
172.    As a result of the water testing, Eden identified the source of the increased bromides as BELEWS, which discharges into the Dan River. Eden shared this information and its test results with DUKE ENERGY CAROLINAS on June 7, 2011.
173.    Shortly thereafter, DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES internally agreed that the increased bromides very likely came from BELEWS and, combined with a number of other factors, had likely caused the THM increase at Eden. DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES

53
also agreed internally that the increased bromides were likely the result of the FGD scrubber system.
174.    In mid-June 2011, DUKE ENERGY CAROLINAS contacted the Town of Madison (“Madison”), which also draws water from the Dan River and processes that water for drinking and which is closer to BELEWS than Eden. DUKE ENERGY CAROLINAS informed Madison of its findings and Madison asked to be part of the discussions with Eden about reducing bromide levels. DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES employees met with Eden and Madison several times between June 2011 and April 2012 to discuss reducing total THMs in their drinking water.
175.    DUKE ENERGY CAROLINAS informed DENR of the increase in bromide levels in its effluent when it filed its NPDES permit renewal application for BELEWS on August 29, 2011. In the application, DUKE ENERGY CAROLINAS listed bromide as a pollutant present in outfalls 001 (into Belews Lake) and 003 (into Dan River). The largest concentration of bromide was listed as 6.9 mg/L from Outfall 003, which translates to 6.9 parts per million (ppm) or 6907 parts per billion (ppb). This bromide result appears to have been taken from a sample of water collected in January 2011 and analyzed after Eden had brought the issue to DUKE ENERGY CAROLINAS’ attention.

54

176.    At the time DUKE ENERGY CAROLINAS filed its NPDES permit renewal application for BELEWS, none of the previous permits had placed any restrictions or limits on bromides.
177.    In mid-October 2011, Eden informed DUKE ENERGY CAROLINAS that Madison had violated its limit on total THMs. DUKE ENERGY CAROLINAS was also informed that Henry County, Virginia, (which purchases Eden’s water) violated its total THM limit. Dan River Water (another purchaser Of Eden’s water) also violated its total THM limit.
178.    On November 16, 2011, DENR’s Winston-Salem Regional Office held a meeting with DUKE ENERGY CAROLINAS, DUKE ENERGY BUSINESS SERVICES, Eden, and Madison regarding the bromide issue. All participants agreed that the total THM problem was caused by bromides entering the Dan River from BELEWS. DUKE ENERGY CAROLINAS was not aware of the relationship between bromides and THMs until Eden brought the matter to DUKE ENERGY CAROLINAS’ attention in 2011.
179.    Since the November 2011 meeting, DUKE ENERGY CAROLINAS has entered into written agreements with Eden and Madison to assist them with a portion of the costs of modifying and modernizing their water treatment systems.
DISCHARGE OF BROMIDES AT CLIFFSIDE
180.    Beginning at about the time DUKE ENERGY CAROLINAS responded to Eden’s initial complaints regarding the bromide
55
discharge at BELEWS, DUKE ENERGY CAROLINAS conducted an initiative to monitor bromide discharge at other locations employing FGD scrubbers.
181.    As a result of this initiative, in or about early August 2011, DUKE ENERGY CAROLINAS also internally identified the CLIFFSIDE facility in western North Carolina as one that could pose a potential THM problem in light of the relatively shallow river (the Broad River) into which CLIFFSIDE discharged and the presence of relatively close downstream facilities that drew drinking water from the Broad River.
182.    The last CLIFFSIDE NPDES permit was issued in January 2011 and did not reference bromide.
183.    DUKE ENERGY CAROLINAS AND DUKE ENERGY BUSINESS SERVICES informed neither downstream communities nor DENR regarding this discharge from CLIFFSIDE. As of the date of this joint factual statement, the parties are not aware of a community downstream from CLIFFSIDE that has reported elevated levels of total THMs due to an increase in bromide discharge from the facility, but acknowledge the possibility that one or more communities may have been affected.
184.    In 2013, DUKE ENERGY CAROLINAS installed a spray dry absorber for one of the two FGD scrubber units at the CLIFFSIDE facility which reduced the bromide discharge from CLIFFSIDE.

56
The other FGD scrubber unit at CLIFFSIDE operates only intermittently.
SUTTON FACILITY
185.    DUKE ENERGY PROGRESS owns and operates the L.V. Sutton Steam Station (“SUTTON”) in New Hanover County, North Carolina. SUTTON houses two coal ash basins, one constructed in 1971 and one constructed in 1984.
186.    Located near SUTTON is the community of Flemington. Flemington’s water supply has a history of water-quality problems. In 1978, an adjacent landfill, designated as a “Superfund” site, contaminated Flemington’s drinking water and caused authorities to construct new wells.
187.    Flemington’s new wells are located near SUTTON’s coal ash basins. They are located down-gradient from the SUTTON coal ash basins, meaning groundwater ultimately flows from the coal ash basins toward the Flemington wells.
188.    DUKE ENERGY PROGRESS/Progress Energy Carolinas has monitored groundwater around SUTTON since 1990. Monitoring particularly focused on a boron plume emanating from the coal ash ponds.
189.    From at least 2010 through 2013, the groundwater monitoring wells at SUTTON reported unnaturally elevated levels of some constituents, including manganese, boron, sulfate, and total dissolved solids.
57
190.    Flemington’s public utility also tested its water quality. Those tests showed exceedances of barium, manganese, sodium, and sulfate in 2013.
191.    In June and July 2013, Flemington’s public utility concluded that boron from SUTTON’s ash ponds was entering its water supply. Tests of water from various wells at and near SUTTON from that period showed elevated levels of boron, iron, manganese, thallium, selenium, cadmium, and total dissolved solids.
192.    In October 2013, DUKE ENERGY PROGRESS entered into an agreement with the Cape Fear Public Utility Authority to share costs for extending a municipal water line to the Flemington community.




(SPACE LEFT BLANK INTENTIONALLY)















58

59











60















61


















62












United States v. Duke Energy Business
Services LLC, et al.

APPENDIX

TO JOINT FACTUAL STATEMENT


















February 20, 2015







Diagram 1. Engineering Firm #1, Report of Safety Inspection - Duke Power Dan River Steam Station Ash Dikes, at Fig. 4 (1981).

Photograph 1. Photograph of DAN RIVER coal ash basin during spill, attached to 2/2/2014, 3:49 p.m. e-mail from Duke Energy Business Services employee.
Photograph 2. Photograph of DAN RIVER coal ash basin during spill, attached to 2/2/2014, 3:49 p.m. e-mail from Duke Energy Business Services employee.

Photograph 3. Photograph of DAN RIVER coal ash basin during spill, attached to 2/2/2014, 3:49 p.m. e-mail from Duke Energy Business Service employee.
Photograph 4. Photograph of DAN RIVER coal ash basin during spill, attached to 2/2/2014, 3:49 p.m. e-mail from Duke Energy Business Service employee.









Photograph 5. Riser in CAPE FEAR 1978 coal ash basin from 2012 Five Year Independent Consultant Report.

Photograph 6. Riser in CAPE FEAR 1978 coal ash basin from 2012 Five Year Independent Consultant Report.


Photograph 7. Riser in CAPE FEAR 1985 coal ash basin from 2012 Five Year Independent Consultant Report.
Photograph 8. 3/11/14 aerial photograph of CAPE FEAR 1978 coal ash basin with Godwin pump and truck.

Photograph 9. 3/11/14 aerial photograph of CAPE FEAR 1985 coal ash basin with Godwin pump and truck.

Photograph 10. 3/11/14 aerial photograph of CAPE FEAR 1985 coal ash basin with Godwin pump and truck.

Photograph 11. 3/19/14 photograph of CAPE FEAR 1978 coal ash basin riser, prior to repair work.


Photograph 12. 3/19/14 photograph of CAPE FEAR 1985 coal ash basin riser, prior to repair work.

Photograph 13. 3/19/14 photograph of old grout on CAPE FEAR coal ash basin riser.

Photograph 14. 3/19/14 photograph of new grout on CAPE FEAR coal ash basin riser.

Photograph 15. Aerial Photograph of LEE from 2011 EPA Dam Safety Assessment report.

Photograph 16. Aerial photograph depicting location of RIVERBEND Seep 12.

Photograph 17 . Photograph of RIVERBEND Seep 12.

Photograph 18. Photograph of RIVERBEND Seep 12.


Photograph 19. Aerial photograph of ASHEVILLE.










EXHIBIT B
A Copy of the Guaranty Agreement
(Without attachments)





GUARANTY AGREEMENT




EXHIBIT C
United States v. Duke Energy Progress, Inc.
Plea Agreement (without Exhibits)





UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No. 5:15-CR-62-H-2
No. 5:15-CR-67-H-3
No. 5:15-CR-68-H-3

UNITED STATES OF AMERICA
)
 
 
)
 
      v.
)
MEMORANDUM OF PLEA AGREEMENT
 
)
 
DUKE ENERGY BUSINESS SERVICES LLC
)
 

Pursuant to Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure, the United States of America, by and through the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina, and the Western District of North Carolina as well as the Environmental Crimes Section of the United States Department of Justice (collectively referred to herein as “the United States” or “the Government”), and the Defendant, DUKE ENERGY PROCESS, INC., (referred to herein as “the Defendant” or “DUKE ENERGY PROCESS”) with the advice and concurrence of the Defendant’s counsel, Julia S. Janson (Executive Vice-President, Secretary, and Chief Legal Officer, DUKE ENERGY PROCESS) and James P. Cooney, III (Womble Carlyle Sandridge & Rice LLP) have agreed that the above-captioned case should be concluded in accordance with this Memorandum of Plea Agreement as follows:
This Memorandum constitutes the full and complete record

of the Plea Agreement for criminal conduct in each of the prosecuting districts, that is, the Eastern District, Middle District, and Western District of North Carolina and as alleged in the following charging documents (hereinafter referred to collectively as the “Criminal Informations”):
United States v. Duke Energy Business Services LLC, and Duke Energy Progress, Inc. , No. 5:15-CR-62-H;
United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. ,

No. 5:15-CR-67-H; and
United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. , No.

5:15-CR-68-H.

There are no other agreements between the parties in addition to or different from the terms herein.
The United States and the Defendant agree:
a.
That this Plea Agreement (“Agreement”) is made pursuant to Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure (“Fed. R. Crim. P.”) and that the sentence set forth herein is the appropriate disposition of this case. If the Court rejects this Agreement, it is further agreed that the Defendant may withdraw its plea and all of the parties may withdraw from this Agreement.
b.
The parties further acknowledge that based upon the Joint Factual Statement, a copy of which is attached hereto as Exhibit A, the Court has sufficient information in the record to enable it to meaningfully exercise its sentencing authority. Accordingly, if acceptable to the Court, the parties agree to waive the presentence investigation and report pursuant to Fed. R. Crim. P. 32(c), and to request that the Defendant be sentenced at the time the guilty plea is entered.
c.
The parties further agree and acknowledge that the Defendant’s parent corporation, Duke Energy Corporation, shall guarantee all monetary penalties (criminal fine, restitution, community service, and mitigation) imposed upon the Defendant and the funding and performance due from the Defendant in connection with the nationwide and statewide environmental compliance plans under this Agreement as more fully set forth in the Guaranty Agreement, a copy of which attached hereto at Exhibit B

(without attachments) and fully incorporated herein by reference. The parties further agree and acknowledge that Duke Energy Corporation shall consent to the jurisdiction of the United States District Court for the Eastern District of North Carolina for the purpose of enforcing the Guaranty Agreement.
d.
Pursuant to Fed. R. Crim. P. 11(c)(1)(C), the parties agree that the following sentence is warranted in this case:

Criminal Fines : At the time of imposition of sentencing, the Defendant shall make a payment of Criminal Fines totaling $14.4 million ($14,400,000) as follows:
H.F. Lee Violations
(1)
$3.9 million ($3,900,000) for the negligent Clean Water Act discharge in violation of the applicable NPDES permit at H.F. Lee Steam Electric Plant, a fine within the statutory penalty range of $2,500 to $25,000 per day of violation pursuant to 33 U.S.C. § 1319(c)(1)(A) and 18 U.S.C. § 3571(c) and (d).
Cape Fear Violations
(2)
$3.5 million ($3,500,000) for negligent Clean Water Act failure to maintain the coal ash impoundments and related appurtenances (the riser in the 1978 coal ash impoundment) as required by the applicable NPDES permit for the Cape Fear Steam Electric Plant, a fine within the statutory penalty range of $2,500 to $25,000 per day of violation pursuant to 33 U.S.C. § 1319(c) (1) (A) and 18 U.S.C. § 3571(c) and (d).
(3)
$3.5 million ($3,500,000) for negligent Clean Water Act failure to maintain the coal ash impoundments and related appurtenances (the riser in the 1985 coal ash impoundment) as required by the applicable NPDES permit for the Cape Fear Steam Electric Plant, a fine within the statutory penalty range of $2,500 to $25,000 per day of violation pursuant to 33 U.S.C. § 1319(c) (1) (A) and 18 U.S.C. § 3571(c) and (d).
Asheville Violations
(4)
$3.5 million ($3,500,000) for the negligent Clean Water Act discharge in violation of the applicable NPDES permit at Asheville Steam Electric Generating Plant, a fine within the statutory penalty range of $2,500

to $25,000 per day of violation pursuant to 33 U.S.C. § 1319(c)(1)(A) and 18 U.S.C.

§ 3571 (c) and (d).
ii.
Probation : A statutory-maximum term of five (5) years of probation is warranted. 18 U.S.C.

§ 3561(c)(2). Probation shall include the standard conditions of probation and the following special conditions, pursuant to 18 U.S.C. § 3563(a) and (b):
(1)
Compliance with the Law : The Defendant shall not commit another federal, state, or local crime during the term of probation.
(2)
Cooperation with Probation Office : The Defendant shall fully cooperate with the United States Probation Office. The Defendant shall answer truthfully all inquiries by the Probation Officer; shall provide full access to any of the Defendant’s operating locations; shall give ten (10) days’ prior notice of any intended change in principal business or mail address; and shall provide notice of any material change in the Defendant’s economic circumstances that might affect the Defendant’s ability to pay the fines and other financial obligations set forth herein.
(3)
Nationwide Environmental Compliance Plan : Under the terms of its plea agreement, co-defendant Duke Energy Business Services LLC (“DEBS”) is required to develop, adopt, implement, and fund a comprehensive nationwide environmental compliance plan (“NECP”) during its term of probation, consistent with sentencing policies set forth in USSG §8D1.4 and which incorporates all of the agreed-upon obligations set forth in Paragraph 3(u)(v) of this Agreement. The Defendant shall take all steps necessary or required to assist DEBS in meeting this obligation.

(4)
Statewide Environmental Compliance Plan :

The Defendant, along with its co-defendants Duke Energy Carolinas, LLC (“DEC”) and DEBS, shall develop, adopt, implement, and fund a comprehensive statewide environmental compliance plan (“ECP-NC”) during its term of probation, consistent with sentencing policies set forth in USSG §8D1.4 and which incorporates all of the agreed-upon obligations set forth in Paragraph 3(u)(vi) of this Agreement.
(5)
Notice to Employees and Shareholders : Upon approval by the Court of the NECP and ECP-NC, the Defendant shall notify its employees of its criminal behavior, the NECP, and the ECP-NC. In addition, the Defendant shall cause a notice containing the same information to be sent to the shareholders of Duke Energy Corporation. Such notice shall be in a form prescribed by the Court-Appointed Monitor (“CAM”) and at a time designated by the CAM.
(6)
Community Service Payment : Pursuant to USSG §8B1.3 and in furtherance of the sentencing principles provided for under 18 U.S.C.

§ 3553(a), at the time of sentencing, the Defendant shall make a community service payment totaling $10.5 million ($10,500,000), through the National Fish and Wildlife Foundation (“NFWF”), to fund environmental projects, studies, and initiatives designed to benefit, preserve, and restore the riparian environment and ecosystems of North Carolina and Virginia affected by the Defendant’s conduct, as set forth in Paragraph 3 (aa) of this Agreement.
(7)
Mitigation : In order to compensate for impacts to wetlands and other jurisdictional waters of the United States impacted as a result of the Defendant’s conduct, including temporal and secondary effects, at its facilities in North Carolina with coal ash impoundments, the Defendant shall provide $5 million ($5,000,000) to an authorized

wetlands mitigation bank or conservation trust, approved by the Court, for the purchase of riparian wetland and/or riparian land and/or restoration equivalent located in the Broad River Basin, French Broad River Basin, Cape Fear River Basin, Catawba River Basin, Dan River Basin, Yadkin-Pee Dee River Basin, Neuse River Basin, Lumber River Basin, and Roanoke River Basin as set forth in more detail in Paragraph 3(bb) of this Agreement.
iii.
Payment Liability/Financial Assurances : The Defendant shall be liable for and pay all fines, restitution, community service, and mitigation payments and shall fund the NECP and ECP-NC, all as set forth herein. The Defendant shall further be liable for any additional restitution payments as determined by the CAM.
(1)
Reservation of Funds by Defendant : The Defendant further shall record appropriate reserves on financial statements for the purpose of recognizing the projected obligation to retire its coal ash impoundments in North Carolina. This obligation is currently estimated at a total of $1.4 billion ($1,400,000,000) on the Defendant’s balance sheet. Each year during the term of probation, beginning on the date that the Agreement is accepted by the Court and occurring by March 31 of each year thereafter, the Defendant shall cause the Chief Financial Officer of Duke Energy Corporation, as further directed under the Guaranty Agreement attached hereto, to certify to the United States and the CAM that the Defendant and Duke Energy Corporation have sufficient assets reserved to meet the obligations imposed by law or regulation or as may otherwise be necessary to fulfill the Defendant’s obligations with respect to its coal ash impoundments within the State of North Carolina. If the CAM has any concerns regarding the assets available to meet obligations imposed by the Judgment

in this case, the CAM shall immediately notify the Court and the parties.
(2)
Reservation of Funds by Parent Company : The Defendant further shall cause its parent holding company, Duke Energy Corporation, to record appropriate reserves on its consolidated financial statements for the purpose of recognizing the projected obligation to retire all coal ash impoundments, including those in North Carolina. This obligation is currently estimated at a total of $3.4 billion ($3,400,000,000) on Duke Energy Corporation’s balance sheet for all coal ash impoundments (including those owned by the Defendant and co-defendant DEC). Each year during the term of probation, beginning on the date that the Agreement is accepted by the Court and occurring by March 31 of each year thereafter, the Defendant shall cause the Chief Financial Officer of Duke Energy Corporation, as further directed under the Guaranty Agreement attached hereto, to certify to the United States and the CAM that the Defendant and Duke Energy Corporation have sufficient assets reserved to meet the obligations imposed by law or regulation or as may otherwise be necessary to fulfill the Defendant’s obligations with respect to its coal ash impoundments within the State of North Carolina. If the CAM has any concerns regarding the assets available to meet obligations imposed by the Judgment in this case, the CAM shall immediately notify the Court and the parties.
(3)
Security : Through the entire term of probation, the Defendant shall further maintain unused borrowing capacity in the amount of $250 million ($250,000,000) under the Master Credit Facility as security to meet its obligations under this Agreement for the closing and remediation of coal ash impoundments, as more fully set forth in Paragraph 3(k) of this Agreement. The Defendant shall certify this set aside to

the CAM on an annual basis, or more frequently as the CAM requires. If the CAM has any concerns regarding the security available to meet the obligations imposed by the Judgment in this case, the CAM immediately notify the Court and the parties.
iv.
Restitution for Counts of Conviction : Pursuant

to 18 U.S.C. §§ 3663, 3663A, and 3563(b)(2), the Defendant shall make restitution to any victim in whatever amount the Court may order. Said restitution shall be due and payable immediately.
v.
Restitution for Relevant Conduct to Be Paid During Term of Probation : Pursuant to 18 U.S.C. § 3663, the Defendant shall pay restitution as directed by the CAM through the claims process set forth in Paragraphs 3(x)(iii)-(vi) of this Agreement. Said restitution shall also include payment to the Cape Fear Public Utility Authority for all costs, whenever incurred, associated with the extension of the Flemington water line, which was necessary to ensure that the community had clean drinking water.
vi.
Special Assessment : The Defendant shall pay special assessments, totaling $500.00, before or at the time of sentencing, and shall provide a receipt from the Clerk of Court for the Eastern District of North Carolina to the United States as proof of payment.
vii.
Public Apology : Consistent with USSG §8D1.4(a), the Defendant and co-defendants DEBS and DEC shall place a full-page public apology in at least two national newspapers and three major North Carolina newspapers (one in Raleigh, one in Greensboro, and one in Charlotte) and on its publicly accessible company website.
The Defendant agrees:
a.
Consent to Transfer : To consent to Rule 20 transfers for purposes of the entry of guilty pleas to the charges in the following matters:

i.
United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. , No. 1:15-CR-51-1 (MDNC); and
ii.
United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. , No. 3:15-CR-43-FDW(WDNC).
b.
Restitution for Counts of Conviction : Pursuant to 18 U.S.C. §§ 3663, 3663A, and 3562(b)(2), to make restitution in any amount as ordered by the Court and as set forth in this Agreement. Said restitution shall be due and payable immediately.
c.
Restitution for Relevant Conduct to Be Paid During Term of Probation : In addition to any order of restitution in connection with the counts of conviction, to make restitution to the following entities, as determined and directed by the CAM during the term of probation and pursuant to the agreed-upon claims process set forth in Paragraphs 3(x)(iii)-(vi):
i.
Local Governments with drinking water treatment systems impacted by bromide discharges from other facilities owned by the Defendant:
(1)
For all costs, whenever incurred, associated with water treatment system upgrades resulting from the increase of trihalomethanes including, but not limited to, maintenance costs.
(2)
All costs associated with investigating and responding to increased discharges of bromide and/or the increase of trihalomethanes.
ii. Cape Fear Public Utility Authority:
(1) For all costs, whenever incurred, associated with the extension of the Flemington water line, which was necessary to ensure that the community had clean drinking water.
d.
Crime Victims’ Rights Act : Except as provided herein, at the time of the execution of this

Agreement, the parties are not aware of any other victim as that term is defined by 18 U.S.C. § 3663, 3663A, and 3771. The Defendant understands that the United States intends to fully comply with all obligations under 18 U.S.C. § 3771, including victim notification and restitution provisions.
e.
Appeal Waiver : To waive knowingly and expressly the right to appeal the conviction and whatever sentence is imposed on any ground, including any appeal pursuant to 18 U.S.C. § 3742, and further to waive any right to contest the conviction or the sentence in any post-conviction proceeding, including any proceeding under 28 U.S.C. § 2255, excepting an appeal or motion based upon grounds of ineffective assistance of counsel or prosecutorial misconduct not known to the Defendant at the time of the Defendant’s guilty plea. The foregoing appeal waiver does not constitute or trigger a waiver by the United States of any of its rights to appeal provided by law.
f.
Waiver of Rights to Records : To waive all rights, whether asserted directly or through a representative, to request or receive from the United States any records pertaining to the investigation or prosecution of this matter, except as provided in the Fed. R. Crim. P. This waiver includes, but is not limited to, rights conferred by the Freedom of Information Act and the Privacy Act of 1974.
g
Special Assessment : To pay a special assessment of $125.00 for each misdemeanor count pursuant to the provisions of 18 U.S.C. § 3013. The assessment shall be paid by the Defendant at sentencing. The Defendant or Defendant’s counsel shall provide a check in payment of the said assessment directly to the Clerk of Court, U.S. District Court-EDNC.
h.
Financial Statement : To complete and submit a financial statement under oath to the United States no later than two weeks prior to the entry of the guilty plea. The Defendant can satisfy this condition by submitting its most recent financial statement filed with the Securities and Exchange Commission.

i.
Reservation of Funds by Defendant : To record appropriate reserves on financial statements for the purpose of recognizing the projected obligation to retire its coal ash impoundments in North Carolina, and, during each year during the term of probation, to certify that it has sufficient assets reserved to meet the obligations imposed by law and regulation as more fully set forth in Paragraph 2(d)(iii)(1) above. This obligation is currently estimated at a total of $1.4 billion ($1,400,000,000) on the Defendant’s balance sheet.
j.
Reservation of Funds by Parent Company : To cause its parent holding company, Duke Energy Corporation, to record appropriate reserves on its consolidated financial statements for the purpose of recognizing the projected obligation to retire all coal ash impoundments, including those in North Carolina, and during each year during the term of probation, to cause its parent holding company to certify that it has sufficient assets reserved to meet the obligations imposed by law and regulation as more fully set forth in Paragraph 2(d)(iii)(2) above. This obligation is currently estimated at a total of $3.4 billion ($3,400,000,000) on Duke Energy Corporation’s balance sheet for all coal ash impoundments (including those owned by the Defendant and co-defendant DEC).
k.
Security : Through the entire term of probation, to maintain unused borrowing capacity in the amount of $250 million ($250,000,000) under the Master Credit Facility as security to meet its obligations under this Agreement for the closing and remediation of coal ash impoundments, as more fully set forth in Paragraph 2(iii) (3) of this Agreement. A copy of the certification for 2015 shall be filed with the Court at the time of entry of this Agreement.
1.
Cooperation : The Defendant shall continue to cooperate fully with the United States, and with all other authorities and agencies designated by the United States, and shall truthfully disclose all information with respect to the activities of the Defendant and its present and former directors, officers, employees, agents, consultants, contractors, and subcontractors thereof, regarding

the conduct underlying the Criminal Informations about which the Defendant has any knowledge or about which the United States shall inquire. This obligation of truthful disclosure includes the obligation of the Defendant to provide to the United States, upon request, any document, record, or other tangible evidence regarding the conduct underlying the Criminal Informations about which the United States shall inquire of the Defendant. Compliance with such cooperation requirements shall not be construed as requiring or effecting a waiver of the attorney-client privilege or work product protections.
m.
Such cooperation set forth in Paragraph (1) above shall include but not be limited to: (a) promptly disclosing any and all related criminal or potentially criminal conduct of which the Defendant is currently aware; (b) promptly producing all documents requested by the federal government or by grand jury subpoena; (c) promptly making employees available to the investigation team upon request for interview or for testimony in any proceeding, subject to those employees’ own legal rights; and (d) making reasonable efforts to ensure its employees provide full and truthful information.
n.
If the Defendant, through its employees acting within the scope of their employment, provides false, incomplete, or misleading information or testimony, or fails to abide by any term of cooperation set forth in Paragraphs (1) and (m) above, this would constitute a material breach of this Agreement by the Defendant, and the Defendant shall be subject to prosecution for any federal criminal violation not barred by the applicable statute of limitations (or as waived pursuant to Paragraph 3(hh)) or other legal prohibition. Any information provided by the Defendant may be used against the Defendant in that prosecution.
o.
Additionally, the Defendant agrees that in the event of the Defendant’s material breach of this Agreement, the following are admissible against the Defendant in any prosecution or action against the Defendant: (i) any statements made by the Defendant, under oath, at the guilty plea hearing (before either a Magistrate

Judge or a District Judge); (ii) the Joint Factual Statement supporting this Agreement; and (iii) any evidence derived from such statements. This includes the prosecution of the charges that are the subject of this Agreement or any charges that the United States agreed to dismiss or not file as part of this Agreement, but later pursues because of a material breach by the Defendant. Additionally, the Defendant knowingly and voluntarily waives any argument under the United States Constitution, any statute, Rule 410 of the Federal Rules of Evidence, Fed. R. Crim. P. 11(f), and/or any other federal rule, that the statements or any evidence derived from any statements should be suppressed or are inadmissible.
p.
Compliance with the Law : Except as provided otherwise herein and in Paragraph (q) below, the Defendant agrees that it shall commit no new violations of federal, state, or local law, including those laws and regulations for which primary enforcement has been delegated to state authorities, and shall conduct its operations in accordance with the environmental laws of the United States and the State of North Carolina. If the Defendant learns of any such violations committed by its agents or employees during the term of probation, the Defendant shall notify the United States of the violations in accordance with the terms of the environmental compliance plans.
i.
The Defendant understands that the Government shall not consider there to be a violation of the conditions of probation if the Defendant complies with federal environmental laws when there is a direct conflict between the state and federal environmental laws.
q.
The Defendant shall comply with all federal, state, and other regulations relating to coal ash, and will have no new notices of violation, notices of deficiency, or other criminal, civil, or administrative enforcement actions based on conduct (including the failure to act) occurring after entry of the guilty plea.
i.
The Defendant understands that it shall be considered a violation of the conditions of

probation if the Defendant engages in the above conduct and such conduct or condition results in a final assessment (after conclusion of any appeals) in an amount greater than $5,000 and imposed after the entry of the guilty plea and which the CAM deems material. Any conduct or conditions resulting in a final assessment in an amount greater than $15,000 shall be presumed to be material.
ii.
It shall not be considered a violation of probation if the enforcement action is based upon information disclosed by the Defendant in its 2014 Topographic Map and Discharge Assessment Plan(s) and/or its 2014 NDPES permit renewal application(s) for its facilities in North Carolina.
r.
The Defendant shall comply with all legislative and regulatory mandates concerning closure of the coal ash impoundments which it operates, and shall complete full excavation and closure of all of the coal ash impoundments at its Sutton and Asheville facilities in accordance with federal and state laws, including the United States Environmental Protection Agency’s (“EPA”) 2014 final rule governing the disposal of coal combustion residuals from electric utilities (“CCR Rule”) and North Carolina’s Coal Ash Management Act of 2014, by the dates dictated in those laws, currently the calendar year 2019 . In so doing, the Defendant shall act diligently and in good faith to meet projected critical milestones in its closure plans for each site as set forth in the following documents: Duke Energy’s L.V. Sutton Electric Plant Coal Ash Excavation Plan dated November 13, 2014; and Duke Energy’s Asheville Steam Electric Generating Plant Coal Ash Excavation Plan dated November 13, 2014 (collectively referred to as “Excavation Plans”), as may be amended with the approval of the North Carolina Department of Environment and Natural Resources (“DENR”).
i.
With respect to excavated coal ash, the removed ash shall be stored in a lined CCR landfill space or lined impoundment meeting all requirements established by applicable statute, law, and regulation, including but not limited to 40 CFR

Part 258 (Subtitle D of RCRA). Nothing in this Paragraph shall prohibit the Defendant from the disposition of ash through beneficial reuse as contemplated by the CCR Rule.
ii.
Every six months, or on a more frequent basis as determined by the CAM, the Defendant shall provide the CAM with a detailed description of its efforts to excavate coal ash and close all of the coal ash impoundments at Sutton and Asheville and whether it has met the critical milestones set forth in the Excavation Plans in the time period since the last report. The Defendant shall also include the status of all permits and permit applications with any regulatory body, including but not limited to DENR. The Defendant shall also make such reports publicly available on its website.
(1)
If the CAM has any concerns regarding whether the Defendant acted diligently or in good faith to meet its obligations under this provision, including the critical milestones set forth in the Excavation Plans, the CAM shall immediately notify the Court and the parties.
iii
The Defendant shall contemporaneously provide an executive summary of the report in subparagraph (ii) above to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice - Environmental Crimes Section; the United States Environmental Protection Agency -Criminal Investigation Division; and the United States Environmental Protection Agency – Legal Counsel Division. Upon request, the Defendant shall provide the full report for inspection and review by any of the governmental parties.
(1)
If the Government has any concerns regarding whether the Defendant acted diligently or in good faith to meet its obligation under this provision, including the critical milestones set forth in the Excavation Plans, the Government may elect to notify either the

CAM or the Court, and may seek additional penalties as may be appropriate.
iv.
Six months prior to the end of the term of probation, the Defendant shall provide the Court, the CAM, and the Government with a full report of its efforts to excavate coal ash and to close all of the coal ash impoundments at Sutton and Asheville and the anticipated completion date.
v.
The Government may seek additional fines and penalties should the Defendant fail to comply with such legislative or regulatory mandates and closure requirements under this Paragraph unless the compliance is delayed by a “force majeure” as that term is defined herein. The parties recognize that a change in law making performance impossible may be raised under the “force majeure” clause herein, but final determination shall be made by the Court.
vi.
The Defendant understands that the Government shall not consider there to be a violation of the conditions of probation if the Defendant complies with federal environmental laws when there is a direct conflict between the state and federal environmental laws. The Defendant, however, shall immediately notify the Court, the CAM, and the Government of the conflict of laws and the impact on any excavation and closure plans.
s.
Criminal Fine : The Defendant shall pay a total criminal fine in the amount of $14.4 million ($14,400,000), allocated as set forth in Paragraph 2(d)(i) above.
t.
Stipulated Factual Basis for Fine : The Defendant stipulates that there is a factual basis for the imposition of a criminal fine in the amount of $14.4 million ($14,400,000) pursuant to 33 U.S.C.

§§ 1319(c)(1)(A) and/or 18 U.S.C. § 3571(c) and (d) and that the payments made pursuant to Paragraph 2(d)(i) do not together exceed the statutory maximum
fine available under each of the applicable statutes. The Defendant further waives any right to a jury or bench trial as to those payments.

u.
Environmental Compliance Plans : As a special condition of probation, the Defendant shall cause, assist, and otherwise take all steps necessary to effectuate the obligation of co-defendant DEBS to develop, adopt, implement, and fund the NECP designed to ensure compliance with applicable environmental laws and regulations at all of the coal ash impoundments owned and operated (whether active or inactive) by any wholly-owned subsidiary of Duke Energy Corporation. In addition to requirements to be applied nationwide, the Defendant, along with co-defendants DEBS and DEC, shall develop, implement, and enforce the ECP-NC that also incorporates all of the requirements of the NECP. Both the NECP and the ECP-NC shall be filed with the Court as separate documents. Components of the NECP and the ECP-NC include, but are not limited to, the following:
i.
Timing for Submission of NECP and ECP-NC : Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, shall develop and adopt the NECP and ECP-NC within seventy (70) days of the selection of the CAM. The final NECP and ECP-NC shall be submitted to the Court with copies to the United States Probation Office; the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts; the Department of Justice - Environmental Crimes Section; the Environmental Protection Agency - Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. The Court must approve both the NECP and ECP-NC.
(1)
The United States acknowledges that two (2) wholly-owned subsidiaries of Duke Energy Corporation, Duke Energy Commercial Enterprises, Inc. (an indirect wholly-owned subsidiary) and Duke Energy SAM, LLC (a

direct wholly-owned subsidiary) have entered into a purchase and sale agreement with a subsidiary of Dynegy Inc. in which Dynegy Inc. will acquire Duke Energy Ohio’s unregulated Midwest generation business (which has been classified as Discontinued Operations on the Condensed Consolidated Statement of Operations). Approval is

pending before the Federal Energy Regulatory Commission. Both of the subsidiaries handle coal ash.
(2)
If the sale above has not been closed at the time of the submission of the NECP to the Court for approval, it is expressly

understood and agreed that these assets need not be included within the NECP with the following exception: if the sale is not closed within ninety (90) days of the approval of the NECP by the Court, the CAM may, at his/her option, require the NECP to be amended to include these subsidiaries.
ii.
Best Efforts : Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, shall use best efforts to comply with each and all of the obligations under both the NECP and ECP-NC.
(1)
The requirement that the Defendant exercise “best efforts” to fulfill the obligation includes using commercially reasonable efforts to anticipate any potential “force majeure” event (as defined herein at Paragraph 3(y)) and to address the effects of any potential “force majeure” event: (a) as it is occurring, and (b) following the potential “force majeure” event, such that the delay is minimized to the greatest extent possible.
(2)
If the CAM believes that the Defendant has not used “best efforts” to fulfill its obligations, the CAM shall provide written notice immediately to the Court and the parties.
(3)
The final determination of whether the Defendant used “best efforts” shall be made by the Court with the advice of and recommendations from the CAM.
(4)
If the Court concludes that the Defendant failed to exercise “best efforts” to fulfill an obligation of this Agreement, the Court may impose and the Government will be

entitled to seek additional monetary penalties.
iii.
Selection and Funding of CAM :
(1)
Funding : As part of the NECP and the ECP- NC, Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, shall pay for a CAM who will be appointed by and report to the Court during the full period of probation.
(2)
Qualifications : The object of the selection process for the CAM is to select the most qualified candidate to oversee implementation of the NECP, the ECP-NC, and the bromide claims process. Therefore, the CAM must have staff, or be able to retain staff, with the following experience: (a) expertise and competence in the regulatory programs under the United States and State of North Carolina environmental laws; (b) sufficient expertise and competence to assess whether the Defendant, DEBS, and DEC have adequate management systems in place to ensure regulatory compliance, document such noncompliance, and prevent future noncompliance; and (c) sufficient expertise and competence to review claims for reimbursement under the process for identifying, verifying, and providing restitution for claims relating to bromide discharges described herein.
(3)
Nomination and Veto by Government : Within thirty (30) days of the entry of the Judgment, Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, shall submit a list of three qualified candidates for the position of CAM from which the Court will select and appoint one of the candidates. Any nomination will include a detailed curriculum vitae or similar documentation setting forth the qualifications of the candidate. The Government shall have fifteen (15) days from the receipt of the nominations to file any

reasonable objection to any or all of the proposed candidates. If the Government lodges an objection, then Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, must nominate a replacement candidate(s). The Government again shall have the right to lodge any reasonable objection to any replacement candidate; and the Court may adjust the time frame for the selection of the CAM as necessary to ensure that the best possible candidate is selected.
(4)
Court Selection : Upon receipt of a final list of candidates, the Court shall select one candidate as CAM by written order. In the event that the Court does not find any of the candidates satisfactory or if, during any point in the term of probation, the Court does not find the work of the selected CAM satisfactory, the Court may request Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, to nominate additional candidates. The Court may adjust the time frame for the nominations of the CAM as necessary to ensure that the best possible candidates are nominated.
iv.
Reporting by CAM : On an annual basis, or more often as the Court directs, the CAM shall provide reports in writing to the Court, through the United States Probation Office, demonstrating compliance with the NECP and the ECP-NC by DUKE ENERGY PROGRESS and its co-defendants, DEBS and DEC. The report shall include, among other things, a detailed description of: (1) all excavation, closure, and/or proper remediation of the coal ash impoundments located in North Carolina and addressed in the ECP-NC; and (2) all three co-defendants’ compliance with all appropriate environmental laws and regulations in connection with the management of their coal ash impoundments in North Carolina and elsewhere.
(1)
Public Access to Information : The CAM shall ensure, and the Defendant shall facilitate, the posting of copies of any environmental

compliance audits, annual reports, and/or any other reports prepared pursuant to the NECP or ECP-NC on a company web page with public access.
Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it reasonably believes could impair the security of its operations before such audits or reports are posted for public access.
The CAM shall inspect such proposed redactions to determine the propriety of the redactions.
Notwithstanding the foregoing , unredacted copies shall be provided to the Court. The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.
(2)
The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice -Environmental Crimes Section; the United States Environmental Protection Agency -Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions and challenge the propriety of the redactions. The Court shall be the final arbiter of any challenge.
v.
Nationwide ECP : The NECP shall include, among other things:
(1)
Organizational Funding : Co-Defendant DEBS shall maintain and fund the operation of all of the company compliance organizations created in the wake of the Dan River

release, including: ABSAT, the Coal Combustion Products organization, and the National Ash Management Advisory Board. Subject to the approval of the CAM, DEBS may transfer operations and responsibilities between internal organizations or adjust funding of such organizations as appropriate, as long as the obligations of this Agreement are being met. To the extent necessary or required, the Defendant shall fund or otherwise pay for its proportionate share of the continued maintenance and operations of these compliance organizations.
(2)
Compliance Officer (“CO”) : The Defendant, and its co-defendants DEBS and DEC, each shall identify or establish a position at the Vice President level or higher who will liaise directly with the CAM. The Defendant’s designated CO shall have, among other duties, the primary responsibility for ensuring compliance with applicable environmental requirements and requirements of the NECP and ECP-NC.
The COs shall submit detailed reports discussing the development, implementa- tion, and enforcement of the NECP and ECP-

NC at intervals deemed necessary by the
CAM. The first report shall also include

an explanation of the current corporate structure responsible for the operation
and control of the coal ash impoundments and the names of the individuals filling the relevant positions. With the concurrence of the CAM, the COs may elect

to submit a joint report detailing the required information for all three co-
defendants. Any changes to the corporate coal ash oversight structure shall be immediately forwarded to the CAM and included in the next regular report.
Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it

reasonably believes could impair the security of its operations before such reports are posted for public access.
The CAM shall inspect such proposed redactions to determine the propriety of the redactions.
Notwithstanding the foregoing, unredacted copies shall be provided to the Court. The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.
The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina ; the Department of Justice

- Environmental Crimes Section; the United States Environmental Protection Agency - Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions and challenge the propriety of the redactions. The Court shall be the final arbiter of any challenge.
(3)
Environmental Audits : Within the first ninety (90) days of his or her appointment, the CAM shall establish a schedule for conducting environmental audits of each of Duke Energy Corporation’s and its affiliates’ wholly-owned or operated domestic facilities with Duke Energy Corporation or affiliate-managed or affiliate-controlled coal ash impoundments outside North Carolina on an annual basis.
Each year the Defendant can request that the CAM accept any full environmental audit prepared by ABSAT or a similar organization in that same calendar year

for its facilities subject to the audits under the NECP.
The CAM can reject any such request by the Defendant if the CAM concludes that the proposed environmental audit is not sufficiently comprehensive or not prepared by a competent organization.
Copies of the environmental audit reports shall be posted on the Defendant’s company webpage accessible to the public.
Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it reasonably believes could impair the security of its operations before such audits or reports are posted for public access.
The CAM shall inspect such proposed redactions to determine the propriety of the redactions.
Notwithstanding the foregoing, unredacted copies shall be provided to the Court and the United States Probation Officer. The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.
The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice - Environmental Crimes Section; the United States Environmental Protection Agency -Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions to determine the propriety of the redactions.

The Court shall be the final arbiter of any challenge.
(4)
Toll-Free Hotline/Electronic Mail Inbox : The Defendant, along with co-defendants DEBS and DEC, will establish and maintain a toll-free hotline that will be answered twenty-four (24) hours a day, seven (7) days a week, through which any person may report suspected violations of applicable environmental laws or regulations, or violations of the NECP or ECP-NC. The Defendant may utilize existing toll-free hotlines subject to approval by the CAM. In addition, the Defendant, along with co-defendants DEBS and DEC, shall create an electronic mail inbox accessible from its webpages and accessible through a share link, through which any employee of Duke Energy Corporation, its subsidiaries, or its affiliates, or any other person may report suspected violations of applicable environmental laws or regulations or violations of the NECP or ECP-NC.
Co-defendant DEBS shall periodically apprise employees and the public of the availability of the toll-free hotline and electronic mail inbox by posting notices on the Internet, Intranet (known within Duke Energy Corporation as the “Portal”), by distributing notice via its electronic mail system, by providing notices in appropriate employee work areas, and by publication in community outlets.
All reports to the toll-free hotline or electronic mail inbox of suspected violations of applicable environmental requirements, the NECP, or the ECP-NC shall promptly be provided to the appropriate CO for further action, and the appropriate CO shall maintain a record of the investigation and disposition of each such matter and disclose such matters in reports to the CAM.

(5)
Environmental Training Program : The Defendant, along with co-defendants DEBS and DEC, shall adopt, implement, and enforce a comprehensive training program to educate all domestic employees of Duke Energy Corporation and its wholly-owned or operated affiliates on the environmental impact of coal ash impoundment operations and to be aware of the procedures and policies that form the basis of the NECP and ECP-NC.
The goal of this training program is to ensure that every domestic employee of Duke Energy Corporation and its wholly-owned or operated affiliates understands applicable compliance policies and is able to integrate the compliance objectives in the performance of his/her job. The training shall include applicable notice and reporting requirements in the event of a release or discharge. Subject to the approval of the CAM, the Defendant may develop different training programs that are tailored to the employee’s specific job description and responsibilities as long as the overall goal of the training requirement is met.
Additionally, the Defendant and co-defendants DEBS and DEC shall provide training and written materials describing the safe and proper handling of pollutants, hazardous substances, and/or wastes.
Copies of all written materials and training curricula shall be provided to the CAM.
vi.
Statewide ECP : The ECP-NC, in addition to incorporating all of the requirements of the NECP, shall include, among other things, the following conditions:
(1)
Point of Contact (“POC”) : With respect to each of its facilities with coal ash impoundments in North Carolina, the

Defendant and co-defendant DEBS shall identify or establish a POC for the CAM within each of the following three business services: (1) ABSAT; (2) Environmental, Health & Safety; and (3) Coal Combustion Products.
(2)
Environmental Audits : Within the first ninety (90) days of his/her appointment, the CAM shall establish a schedule for conducting environmental audits of each of the Defendant’s facilities with coal ash impoundments in North Carolina on an annual basis.
Each year the Defendant can request that the CAM accept any full environmental audit prepared by ABSAT or a similar organization in that same calendar year for two of its facilities subject to the audits. The Defendant cannot make the request for the same facilities in consecutive years.
The CAM can reject any such request by the Defendant if the CAM concludes that the proposed environmental audit is not sufficiently comprehensive or not prepared by a competent organization.
Copies of the environmental audit reports shall be posted on the Defendant’s company webpage accessible to the public.
Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it

reasonably believes could impair the security of its operations before such audits or reports are posted for public access.
The CAM shall inspect such proposed redactions to determine the propriety of the redactions.

Notwithstanding the foregoing, unredacted copies shall be provided to the Court and the United States Probation Officer. The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.
The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice - Environmental Crimes Section; the United States Environmental Protection Agency - Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions to determine the propriety of the redactions. The Court shall be the final arbiter of any challenge.
v.
The Defendant shall ensure that any new, expanded, or reopened coal ash or coal ash wastewater impoundment facilities are lined to ensure no unpermitted discharges of coal ash or coal ash wastewater to any water of the United States.    This includes all engineered, channelized, or naturally occurring seeps.
w.
Recordkeeping of Coal Ash Impoundment Volumes : Every six months, the Defendant shall determine the volume of wastewater and coal ash in each of its wet- storage coal ash impoundments in North Carolina. Additional determinations shall be made following the conclusion of activities that significantly change the volumes of materials in the impoundments, including but not limited to temporary rerouting of waste streams other than sluiced coal ash to the ash impoundment, dredging, and dewatering.    Written or electronic records of the volumes shall be maintained by the Defendant in a location(s) accessible to facility staff and to any of the Defendant’s employees responsible for making environmental or emergency reports.

x.
Bromide Remediation Claims and Costs :
i.
Identification: Within the first year of probation, or within ninety (90) days of the installation of a new Flue Gas Desulfurization (“FGD”) scrubber system thereafter, the Defendant shall identify:
(1)
all facilities operated by it in North Carolina that utilize or will utilize FGD scrubbers that will result in an increase in bromide discharge into surface waters; and
(2)
all local governments that are downstream from such FGD scrubbers and draw water into water treatment facilities.
ii.
Notification : Within the first year of probation, or within ninety (90) days of the installation of a new FGD scrubber system thereafter, the Defendant shall: (1) notify in writing the identified local governments of the increase or potential increase in bromide discharge; and (2) cooperate in studies of whether there has been or will be an impact on these water treatment facilities. The Defendant shall further advise the local government of the claims process established by the CAM, as described below. The Defendant will further note that the local government is not obligated to submit a claim through the process, is not bound by any recommendation of the CAM, and may pursue any civil and/or administrative remedies available to it. Copies of such correspondence shall be provided to the CAM, United States Probation Officer, and each of the prosecuting districts.
iii.
Claims Process : The CAM shall establish a procedure by which local governments that are downstream of the Defendant’s facilities with FGD scrubbers and experience increases in trihalomethanes at their water treatment facilities related to increases in bromide released by those facilities may submit evidence

of these impacts and claims for restitution stemming from these impacts.
(1)
In these claims, the local governments bear the burden of proving by a preponderance of the evidence to the CAM that trihalomethanes have increased and that the Defendant’s facility’s discharge of bromide substantially contributed to the increase.
(2)
The Defendant shall be permitted an opportunity to respond to any evidence or material submitted by local governments in this process.
(3)
The CAM shall review proposed remediation actions and costs or anticipated costs associated with investigating, responding to, and remediating increased bromides and trihalomethanes for reasonableness in determining the correct amount of restitution. The CAM shall issue a written decision on every claim submitted. If the CAM determines that restitution to a local government in any amount is appropriate, the Defendant shall also reimburse the local government for costs associated with investigating and preparing its submission to the CAM, including reasonable attorneys’ fees.
iv.
Appeals Process : Once the written decision is issued, the Defendant or the local government may appeal the decision to the United States District Court. In such an appeal, the decision of the CAM shall be subject to a rebuttable presumption of correctness. If the Defendant unsuccessfully appeals a written decision of the CAM, the Defendant shall bear all of the costs of the appeal, including the costs of the CAM and the reasonable attorneys’ fees of the local government, with the Court making the final determination of the reasonableness of such fees. If the Defendant is successful on appeal, the Defendant shall bear the costs of the CAM and the local government shall bear the costs of its attorneys’ fees.

v.
Payment of Claims : Once the CAM has issued its written opinion, the Defendant shall pay the approved costs to the claimant within thirty (30) days of the opinion, unless it files an appeal to the United States District Court as provided above. If, after appeal, the Court concurs with the CAM’s opinion approving such costs, the Defendant shall pay the approved costs to the claimant and submit proof of payment to the Court within thirty (30) days of the Court’s opinion. Nothing in this subparagraph will bar the CAM or the Court from ordering a different payment schedule as appropriate.
vi.
Deadline for Filing Claims : Local governments shall have until sixty (60) days prior to the end of the five-year probationary term to submit a claim.
y
Force Majeure . For purposes of this Agreement, a ”force majeure” is defined as any event arising from causes beyond the reasonable control of the Defendant, any entity controlled by the Defendant, or its contractors that delays or prevents performance of any obligation despite the best efforts to fulfill the obligation and includes but is not limited to war, terrorism, civil unrest, labor dispute, act of God, change in law making performance impossible, or act of a governmental or regulatory body delaying performance or making performance impossible, including, without limitation, any appeal or decision remanding, overturning, modifying, or otherwise acting (or failing to act) on a permit or similar permission or action that prevents or delays an action needed for the performance of any work such that it prevents or substantially interferes with the Defendant’s ability to perform. Force majeure does not include financial inability to complete the work, increased cost of performance, or changes in business or economic circumstances.
i.
If the Defendant seeks to rely on “force majeure” to excuse performance or timely performance with any term of this Agreement, the Defendant must apply to the CAM with copies of such application

provided to the Government and the United States Probation Officer.
ii.
The final determination of “force majeure” shall be made by the Court with the advice and recommendation from the CAM.
iii.
If the Court concludes that the Defendant’s failure to fulfill an obligation of this

Agreement was not excused by a “force majeure,” the Court may impose and the Government will be entitled to seek additional monetary penalties.
z.
Funding of NECP and ECP-NC : A failure to fund or implement the NECP or ECP-NC during its term of probation would constitute a breach of this Agreement by the Defendant, and the Defendant shall be subject to prosecution for any federal criminal violation not barred by the applicable statute of limitations (or

as waived pursuant to Paragraph 3(hh)) or other legal prohibition. Any information provided by the

Defendant may be used against the Defendant in such a prosecution.
aa.
Community Service Payment : In addition to the community service payment made by co-defendant DEC, the Defendant, as guaranteed by Duke Energy Corporation and set forth in the Guaranty attached to this Agreement, shall pay $10.5 million ($10,500,000) to the National Fish and Wildlife Foundation (“NFWF”), a nonprofit organization established pursuant to 16 U.S.C. §§ 3701-3710, as community service by an organization. With respect to the work described in this Paragraph below, the Defendant shall assume no responsibilities or obligations other than making the payments described in Paragraph 3(aa)(i) below. The Defendant shall not seek any reduction in its tax obligations as a result of these community service payments nor shall the Defendant characterize, publicize, or refer to these payments as voluntary donations or contributions. Additionally, the Defendant shall not seek or take credit for any project performed using funds disbursed by NFWF pursuant to this Agreement in any related civil or administrative proceeding, including but not limited to, the Natural Resources Damages Assessment process.

i. The Defendant will make the $10.5 million ($10,500,000) payment within sixty (60) days of entry of Judgment. Payments shall be made by certified check payable to the National Fish and Wildlife Foundation and mailed to the attention

of its Chief Financial Officer at 1133 15th Street, NW, Suite 1100, Washington, DC 20005, and include a reference to the case number in this proceeding; or by electronic funds transfer in accordance with written instructions to be provided to the Defendant by NFWF at the time of transfer.
ii. NFWF shall use the money it receives from the Defendant pursuant to this Agreement for the benefit, preservation, restoration, and improvement of the water resources of North Carolina and Virginia that have been impacted by the operation of coal ash storage ponds owned by the Defendant. NFWF shall conduct or fund

projects in the following federal districts, in the following amounts:
(1)
Eastern District of North Carolina: $3.5 million ($3,500,000);
(2)
Middle District of North Carolina: $3.5

million ($3,500,000); and
(3)
Western District of North Carolina: $3.5 million ($3,500,000).
iii. The projects and initiatives considered by NFWF should include, but not be limited to:

monitoring, study, restoration, and preservation of fish, wildlife, and plant resources; monitoring, study, clean up, remediation, sampling, and analysis of pollution and other threats to the riparian environment and

ecosystem; research, study, planning, repair, maintenance, education, and public outreach relating to the riparian environment and ecosystem; environmental education and training relating to the protection and preservation of riparian resources; and the protection and

support of public drinking water systems.

iv.
The projects and initiatives considered by NFWF should be focused on the following river basins

or watersheds:
Broad River, Cape Fear River, Catawba River, Dan River, French Broad River, Lumber River, Roanoke River, Neuse River, and Yadkin River. NFWF shall make every effort to

fund at least one project and/or initiative in each of the river basins or watersheds.
v.
NFWF shall consult with appropriate state

resource managers in North Carolina and Virginia, as well as federal resource managers, that have statutory authority for coordination or cooperation with private entities to help

identify projects and maximize the environmental benefits of such projects. Specifically, NFWF should consult with the United States Environmental Protection Agency, the United

States Fish and Wildlife Service, the United States Army Corps of Engineers, the North

Carolina Department of Environment and Natural Resources, the North Carolina Wildlife Resources Commission, the Virginia Department of Environmental Quality, the Virginia Department of Conservation and Recreation, and the Virginia Department of Game and Inland Fisheries. NFWF shall further consult with localities as appropriate. NFWF is not bound by any recommendations from any of the state or federal agencies, resource managers, or localities consulted.
vi.
Projects shall be identified and funding

obligated within five (5) years of the date of entry of Judgment in this case.
vii. In identifying and selecting projects to receive funding pursuant to this Agreement and related Judgment, NFWF shall not incur liability of any nature in connection with any act or omission, made in good faith, in the administration of the funds or otherwise pursuant to this Agreement, excepting, however, liability resulting from NFWF’s gross negligence or willful misconduct.

In addition, if and to the extent NFWF grants funds to or contracts with any governmental

entity to implement any project under this Agreement and related Judgment: (a) NFWF shall be deemed to act solely as an administrative agent

in contracting for, granting to, and disbursing funds for any such project; and (b) NFWF shall

not be deemed to incur liability of any nature in connection with the design, engineering, construction, operation, or maintenance of any such project, including, without limitation, any impact or consequences any of any such project on fish, wildlife, plant, or other natural

resources, personal injury, or property damage.
viii. NFWF’s use of funds received pursuant to this Agreement and related Judgment shall be subject

to the reporting requirements of 16 U.S.C.

§ 3706. In addition, NFWF shall report to the United States Probation Office and to the parties regarding the status and disposition of money it has received pursuant to this Agreement and related Judgment, on at least an annual basis, until all such money has been spent.
bb.
Mitigation :    Within ninety (90) days of sentencing, in order to mitigate impacts to wetlands and other jurisdictional waters of the United States impacted as a result of the Defendant’s operation of coal ash impoundments and any relevant criminal conduct, including temporal and secondary effects, at its facilities in North Carolina with coal ash impoundments, and in addition to the mitigation payment made by its co-defendant DEC, the Defendant shall provide $5 million ($5,000,000), which represents its share after apportionment of a total $10 million ($10,000,000) payment, to an authorized wetlands mitigation bank for the purchase of wetland and/or riparian land and/or restoration equivalent located in the Broad River Basin, French Broad River Basin, Cape Fear River Basin, Catawba River Basin, Dan River Basin, Yadkin-Pee Dee River Basin, Neuse River Basin, Lumber River Basin, and Roanoke River Basin.    This mitigation payment is in addition. to, and does not replace, Duke Energy Corporation’s public commitment to fund its $10 million ($10,000,000) Water Resources Fund for environmental and other philanthropic projects along lakes and rivers in the Southeast.

i.
Such wetland restoration shall be made through an authorized wetlands mitigation bank with no affiliation to any current or former employee of the North Carolina Department of Environment and Natural Resources in that employee’s individual capacity.
ii.
The Defendant, along with its co-defendants DEBS and DEC, shall provide a list of three (3) proposed mitigation banks from which the Court will select the mitigation bank to receive the funds. If the Defendant is unable after

reasonable efforts to identify one or more mitigation banks, the Defendant may substitute

one or more conservation trust funds within the State of North Carolina in its proposal as long

as all other conditions of this section are being met.
iii. Such property must be purchased in the State of North Carolina by the selected authorized

wetlands mitigation bank or conservation trust within four (4) years from the date of entry of Judgment.
iv.
Such property shall be held by and titled in the name of a third-party (with no affiliation to the Defendant or any of the Defendant’s sister or parent corporations).
v.
Such property shall be held in permanent conservation status for the benefit of the citizens of North Carolina.
vi.
The Defendant shall ensure that the selected authorized wetlands mitigation bank or conservation trust provides a full accounting of all mitigation property purchased to the Court

and the CAM and documentary evidence that the property has been placed in permanent

conservation status.
cc.
No Credit in Civil or Administrative Proceedings :

The Defendant shall not seek or take credit for any fine, restitution, community service payment, mitigation payment, or funding of the environmental

compliance plan (including the costs associated with the hiring or payment of staff or consultants needed to assist the CAM) under this Agreement in any related civil or administrative proceeding, including, but not limited to, the Natural Resources Damages Assessment process.
dd. No Capitalization or Tax Deduction : The Defendant shall agree that:
(1) it shall not capitalize into inventory or basis or take as a tax deduction, in the United States or elsewhere, any portion of the monetary payments (fine, restitution, community service, mitigation, or funding of the environmental compliance plans) made pursuant to this Agreement. Provided, however, that nothing in this Agreement shall bar or prevent the Defendant from appropriately capitalizing or seeking an appropriate tax deduction for restitution in connection with the remediation of bromide claims set forth in this Agreement or for costs which would have been incurred by the Defendant irrespective of the environmental compliance plans. Costs that would have been incurred irrespective of the environmental compliance plans include, by way of example only, costs for staffing and operating Central Engineering Services, ABSAT, Coal Combustion Products, or other similar organizations.
ee
No Rate Increase Based Upon Monetary Penalties : The Defendant shall not reference the burden of, or the cost associated with, compliance with the criminal fines, the restitution related to counts of conviction, the community service payments, the mitigation obligation, the costs of the clean-up in response to the February 2, 2014, release at Dan River Steam Station, and/or the funding of the environmental compliance plans in any request or application for a rate increase on customers. Provided, however, that nothing in this Agreement shall bar or prevent the Defendant from seeking appropriate recovery for restitution in connection with the remediation of bromide claims set forth in this Agreement or for costs which would have been incurred by the Defendant irrespective of the environmental compliance plans. Costs that would

have been incurred irrespective of the environmental compliance plans include, by way of example only, costs for staffing and operating Central Engineering

Services, ABSAT, Coal Combustion Products, or other similar organizations.
ff. Public Apology : Consistent with USSG §8D1.4(a), and in conjunction with its co-defendants DEBS and DEC, the Defendant shall place a full-page advertisement in at least two national newspapers and three major North Carolina newspapers (one in Raleigh, one in Greensboro, and one in Charlotte) and on its publicly accessible company website. The full page advertisement shall run within five (5) days of entry of the plea. The language of the public apology must be agreed upon by each of the federal districts and is appended to this Agreement as Exhibit C.
gg. The Defendant shall not reference this Agreement, any payments pursuant hereto, or other compliance herewith in any public relations, marketing, or advertising. The Defendant shall be permitted to make required disclosures under applicable securities laws.
hh. Tolling of Statute of Limitations : To ensure compliance with the terms of the Agreement, the Defendant waives any statute of limitations as of the the date of this Agreement through the full term of Defendant’s probation and until all of the Defendant’s obligations under this Agreement have been satisfied with regard to any conduct relating to or arising out of the conduct set forth in the Criminal Informations.
ii. The Defendant waives any claim under the Hyde Amendment, 18 U.S.C. § 3006A (Statutory Note), for attorneys’ fees and other litigation expenses arising out of the investigation or prosecution of this matter.
jj. The Defendant agrees to withdraw from and not to participate in any joint defense agreement, informal or formal, in connection with the defense by any person designated as a “target” or “subject” of, or indicted for, any potential criminal charges relating to the Clean Water Act violations in North Carolina that are the subject of this Agreement and any allegations of violations of Title 18 of which the Defendant is aware or becomes aware. The Defendant

agrees to submit a written statement, signed by counsel and the appropriate corporate officer, reflecting this commitment to the United States prior to entry of this Agreement.
kk. Term of Supervised Probation : The Defendant and the Government agree that the Defendant shall be placed on organizational supervised probation for a period of five (5) years from the date of sentencing pursuant to 18 U.S.C. § 3561(c)(2) and USSG §§8D1.1 and 8D1.2.
The Defendant represents and/or acknowledges:
a.
That the Defendant has had the assistance of an attorney in connection with the charges against it. That the attorney has carefully reviewed this Agreement with those persons designated by law and its bylaws to act on behalf of the Defendant (hereinafter referred to as “Designated Corporate Representative”) and that this Agreement has been signed by a person authorized by law and the bylaws of the Defendant to execute agreements on behalf of the Defendant.
b.
That its Designated Corporate Representative has reviewed and discussed the Criminal Informations filed in each of the federal districts involved in this matter with the Defendant’s attorney and that the attorney has explained the Government’s evidence to that Designated Corporate Representative.
c.
That as a corporation, it is vicariously liable for the criminal acts of its employees acting within the scope of their employment for the benefit of the corporation.
d.
That it understands that this Agreement does not provide or promise any waiver of any civil or administrative actions, sanctions, or penalties that may apply, including but not limited to: fines; penalties; claims for damages to natural resources; suspension, debarment, listing to restrict rights and opportunities of the Defendant to contract with or receive assistance, loans, and benefits from United States agencies; licensing; injunctive relief; or remedial action to comply with any applicable

regulatory requirement. The Defendant understands that this Agreement has no effect on any proceedings against any party not expressly mentioned herein, including the actual or potential criminal liability of any individuals.
e.
Guaranty :    That it has sought and obtained a guarantee of its obligations under this Agreement from its parent holding company, Duke Energy Corporation, a copy of which is attached hereto as Exhibit B and incorporated herein by reference. Duke Energy Corporation further consents to the jurisdiction of the United States District Court for the Eastern District of North Carolina for the purpose of enforcing the Guaranty Agreement.
f.
Resolution :    That it has filed with the Court prior to entry of this-Agreement the original resolution from the board of directors (or equivalent written authorization as recognized by law) that gives the authority described in Paragraph 4(a) above to the Designated Corporate Representative and that authorizes such employee to execute this Agreement on behalf of the Defendant. A copy of the Resolution, attached hereto as Exhibit D, provides as follows:
i.
The Defendant is a legally viable entity, authorized to plead guilty to the charges set forth in the Criminal Informations;
ii.
The Defendant shall be bound by the specific

terms of this Agreement;
iii. The parent corporation, Duke Energy Corporation, is authorized to guarantee all payments (criminal fine, restitution, community service, and mitigation), and funding and performance due from the Defendant in connection with its obligations under the NECP and ECP-NC under this Agreement,

as set forth in the Guaranty Agreement.
iv.
Any legal successor or assignee of Duke Energy Corporation shall remain liable, as the case may be, for the guarantee of the Defendant’s payment obligations and the funding and performance of both the NECP and ECP-NC hereunder, and an agreement to so remain liable shall be included

by Duke Energy Corporation in the terms of any sale, acquisition, or merger.
v. Any legal successor or assignee of the Defendant shall remain liable for the Defendant’s obligations in this Agreement, and an agreement

to so remain liable shall be included by the Defendant in the terms of any sale, acquisition, or merger of the Defendant with or by any other entity. Subject to the requirements of this subparagraph, nothing shall prevent the Defendant from undergoing a corporate reorganization or change in form. The Defendant shall record a

copy of the Judgment with the Register of Deeds

in each of the counties in North Carolina in

which it owns and operates facilities with coal ash impoundments. Upon written request from the Defendant made only after fulfillment of all of the conditions of this Agreement and related Judgment, the Government shall take the necessary steps through the Register of Deeds to facilitate the removal of the notice of the Judgment.
The Defendant understands, agrees, and admits:
a.
That as to each Count of the Criminal Informations to which the Defendant is pleading guilty, the charge, code section, elements, and applicable penalties are as follows:
United States v. Duke Energy Business Services LLC, and
Duke Energy Progress, Inc
.,
No. 5:15-CR-62-H-2
Violations at H.F. Lee Steam Electric Plant
COUNT ONE
(1)
Clean Water Act violation for the unpermitted discharge from a drainage ditch at the coal ash impoundment at the H.F. Lee Steam Electric Plant

and aiding and abetting
(2)
Code Sections
violated:        33 U.S.C. §§ 1311, 1319(c)(1)(A),
and 1342; and
18 U.S.C. § 2

(3)
Offense date: No later than October 1, 2010, through December 30, 2014
(4)
Elements of the Offense:
First :
The Defendant did discharge a pollutant,

to wit, coal ash and coal ash wastewater;
Second :
from a point source;
Third :
into a water of the United States;
Four :
the Defendant did so in violation of a permit;
Five :
the Defendant acted negligently in so

doing; and
Six :
the Defendant aided and abetted another

in so doing.
(5)
Maximum term of probation for a corporation:

5 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG §8D1.2(a)(2)
(6)
Minimum term of probation for a corporation:

0 years pursuant to 18 U.S.C. § 3561(c) (2) and

USSG §8D1.2(a) (2)
(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)

and (d), the greater of: not less than $2,500 nor

more than $25,000 per day of violation (33 U.S.C.

§ 1319(c)(1)(A)); $200,000.00; or twice the

gross gain or loss
.
(8)
Restitution pursuant to 18 U.S.C. § 3663, 3663A,

and 3563(b)(2), and as agreed to in Paragraphs

2(iv)-(v) and 3(b)-(c) above.
(9)
Special assessment: $ 125.00
(10)
Other penalties: Public Notice of Violation; Development of a Compliance Program; Community Service; and Remediation

United States v. Duke Energy Business Services LLC, Duke Energy
Carolinas, LLC, and Duke Energy Progress, Inc .,
No. 5:15-CR-67-H-3
Violations at Cape Fear Steam Electric Plant
COUNT FIVE
(1)
Clean Water Act violation for the failure to

properly maintain the riser within the 1978 coal

ash impoundment at the Cape Fear Steam Electric

Plant and aiding and abetting
(2)
Code Sections
violated:        33 U.S.C. §§ 1319(c)(1)(A)

            and 1342; and
            18 U.S.C. § 2
(3)
Offense date:    No later than January 1, 2012,

through January 24, 2014
(4)
Elements of the Offense:
First :
The Defendant did violate a condition of

its NDPES permit issued by the State of North Carolina pursuant to the Clean

Water Act; to wit, the requirement to properly maintain its equipment as more fully described in the Criminal

Information;
Second :
the Defendant acted negligently in so

doing; and
Third :
the Defendant aided and abetted another

in so doing.
(5)
Maximum term of probation for a corporation:

5 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG §8D1.2(a)(2)
(6)
Minimum term of probation for a corporation:

0 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG .58D1.2(a)(2)
(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)

and (d), the greater of: not less than $2,500 nor

more than $25,000 per day of violation (33 U.S.C.

§ 1319(c)(1)(A)); $200,000.00; or twice the

gross gain or loss
.
(8)
Restitution pursuant to 18 U.S.C. §§ 3663, 3663A,

and 3563(b)(2), and as agreed to in Paragraphs

2(iv)-(v) and 3(b)-(c) above.
(9)
Special assessment: $ 125.00
(10)
Other penalties: Public Notice of Violation; Development of a Compliance Program; Community Service; and Remediation
COUNT SIX
(1)
Clean Water Act violation for the failure to

properly maintain the riser within the 1985 coal a

sh impoundment at the Cape Fear Steam Electric

Plant and aiding and abetting
(2)
Code Sections
violated:        33 U.S.C. §§ 1319(c)(1)(A) and

            1342; and
            18 U.S.C. § 2
(3)
Offense date:    No later than January 1,    2012,

through January 24,    2014
(4)Elements of the Offense:
First :
The Defendant did violate a condition of

its NDPES permit issued by the State of North Carolina pursuant to the Clean

Water Act; to wit, the requirement to properly maintain its equipment as more fully described in the Criminal

Information;
Second :
the Defendant acted negligently in so

doing; and

Third :
the Defendant aided and abetted another in so doing.
(5)
Maximum term of probation for a corporation:

5 years pursuant to 18 U.S.C. § 3561(c)(2) and

USSG §8D1.2(a)(2)
(6)
Minimum term of probation for a corporation:

0 years pursuant to 18 U.S.C. 3561(c)(2) and

USSG §8D1.2(a)(2)
(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)

and (d), the greater of: not less than $2,500 nor

more than $25,000 per day of violation (33 U.S.C. 1319(c)(1)); $ 200,000.00; or twice the gross

gain or loss
.
(8)
Restitution pursuant to 18 U.S.C. §§ 3663, 3663A,

and 3563(b)(2), and as agreed to in Paragraphs

2(iv)-(v) and 3(b)-(c) above.
(9)
Special assessment: $ 125.00
(10)
Other penalties: Public Notice of Violation; Development of a Compliance Program; Community Service; and Remediation
United States v. Duke Energy Business Services LLC,
Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc
.,
No. 5:15-CR-68-1-1-3
Violations at Asheville Steam Electric Generating Plant
COUNT TWO
(1)
Clean Water Act violation for the unpermitted discharge from a toe drain at the coal ash

impoundment at the Asheville Steam Electric

Generating Plant and aiding and abetting
(2)
Code Sections
violated:            33 U.S.C. §§ 1311, 1319(c)(1)(A),                     and 1342; and

                18 U.S.C. § 2

(3)
Offense date:    No later than May 31, 2011,

through December 30, 2014
(4)
Elements of the Offense:
First :
The Defendant did discharge a pollutant,

to wit, coal ash and coal ash wastewater;
Second :
from a point source;
Third :
into a water of the United States;
Four :
the Defendant did so in violation of a permit;
Five :
the Defendant acted negligently in so

doing; and
Six :
the Defendant aided and abetted another

in so doing.
(5)
Maximum term of probation for a corporation:

5 years pursuant to 18 U.S.C. § 3561(c) (2) and

USSG §8D1.2(a)(2)
(6)
Minimum term of probation for a corporation:

0 years pursuant to 18 U.S.C. § 3561(c) (2) and

USSG §8D1.2(a) (2)
(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)

and (d), the greater of: not less than $2,500 nor

more than $25,000 per day of violation (33 U.S.C.

§ 1319(c)(1)(A)); $200,000.00; or twice the gross gain or loss
.
(8)
Restitution pursuant to 18 U.S.C. §§ 3663, 3663A,

and 3563(b)(2), and as agreed to in Paragraphs

2(iv)-(v) and 3(b)-(c) above.
(9)
Special assessment: $ 125.00
(10)
Other penalties: Public Notice of Violation; Development of a Compliance Program; Community Service; and Remediation

Total Statutory Penalties: a maximum of 5 years of probation; a minimum fine of $10,850,000; a maximum fine of $108,500,000; and a $500.00 special assessment.
6.    The United States agrees:
a.
That pursuant to Fed. R. Crim. P. 11(c)(1)(C), the sentence set forth in Paragraph 2 above is warranted.
b.
That it reserves the right at sentencing to present any evidence and information pursuant to 18 U.S.C. § 3661, to offer argument or rebuttal, to recommend imposition of restitution, and to respond to any motions or objections filed by the Defendant.
c.
That, subject to the reservations within this Agreement, the United States shall not further prosecute the Defendant, including all predecessors, successors, and assignees of the Defendant, for conduct constituting the basis for the Criminal Informations covered by this Agreement as set forth

in the Joint Factual Statement or about which the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts and the Department of Justice - Environmental Crimes Section were otherwise aware of as of the date of this Agreement. This Agreement shall not apply to individuals. Should the Court determine that the Defendant has breached this Agreement, the Defendant will not be entitled to withdraw its plea of guilty, and the United States

may prosecute the Defendant, and any predecessors, successors, and assignees of the Defendant for

conduct constituting the basis for the Criminal Informations covered by the Agreement, notwithstanding the expiration of any applicable statutes of limitations following the signing of this Agreement. In any such prosecution, the United

States may use the Defendant’s admissions of guilt as admissible evidence against the Defendant.
d.
That it will make known to the Court at sentencing the full extent of the Defendant’s cooperation.
e.
Pursuant to USSG §1B1.8, that self-incriminating information provided by the Defendant pursuant to

this Agreement shall not be used against the

Defendant in determining the applicable advisory Guideline range, except as provided by USSG §1B1.8 and except as stated in this Agreement. The United States may provide to the United States Probation Office any evidence concerning relevant conduct.
F.
Notwithstanding the foregoing, the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina and the

Department of Justice - Environmental Crimes Section further recognize that this Agreement does not

provide or promise any waiver of any civil or administrative actions, sanctions, or penalties that may apply, including but not limited to: fines; penalties; claims for damages to natural resources; suspension, debarment, listing to restrict rights and opportunities of the Defendant to contract with or receive assistance, loans, and benefits from United States agencies; licensing; injunctive relief; or remedial action to comply with any applicable regulatory requirement.






(SPACE LEFT BLANK INTENTIONALLY)




GUARANTY AGREEMENT



EXHIBIT D
Copy of Board of Directors’ Resolution
Duke Energy Corporation










EXHIBIT D
Duke Energy Carolinas, LLC
Copy of Board of Directors’ Resolution









Case 5:15-cr-00067-H Document 58 Filed 05/14/15 Page 1 of 54

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No. 5:15-CR-62-H-2
No. 5:15-CR-67-H-3
No. 5:15-CR-68-H-3

UNITED STATES OF AMERICA
)
 
 
)
 
v.
)
MEMORANDUM OF PLEA AGREEMENT
 
)
 
DUKE ENERGY BUSINESS SERVICES LLC
)
 

Pursuant to Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure, the United States of America, by and through the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina, and the Western District of North Carolina as well as the Environmental Crimes Section of the United States Department of Justice (collectively referred to herein as “the United States” or “the Government”), and the Defendant, DUKE ENERGY PROCESS, INC., (referred to herein as “the Defendant” or “DUKE ENERGY PROCESS”) with the advice and concurrence of the Defendant’s counsel, Julia S. Janson (Executive Vice-President, Secretary, and Chief Legal Officer, DUKE ENERGY PROCESS) and James P. Cooney, III (Womble Carlyle Sandridge & Rice LLP) have agreed that the above-captioned case should be concluded in accordance with this Memorandum of Plea Agreement as follows:
1. This Memorandum constitutes the full and complete record
of the Plea Agreement for criminal conduct in each of the prosecuting districts, that is, the Eastern District, Middle District, and Western District of North Carolina and as alleged in the following charging documents (hereinafter referred to collectively as the “Criminal Informations”):
United States v. Duke Energy Business Services LLC, and Duke Energy Progress, Inc. , No. 5:15-CR-62-H;
United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. ,
  

No. 5:15-CR-67-H; and
United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. , No.
  

5:15-CR-68-H.
There are no other agreements between the parties in addition to or different from the terms herein.
2.      The United States and the Defendant agree:
a.
That this Plea Agreement (“Agreement”) is made pursuant to Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure (“Fed. R. Crim. P.”) and that the sentence set forth herein is the appropriate disposition of this case. If the Court rejects this Agreement, it is further agreed that the Defendant may withdraw its plea and all of the parties may withdraw from this Agreement.
b.
The parties further acknowledge that based upon the Joint Factual Statement, a copy of which is attached hereto as Exhibit A, the Court has sufficient information in the record to enable it to meaningfully exercise its sentencing authority. Accordingly, if acceptable to the Court, the parties agree to waive the presentence investigation and report pursuant to Fed. R. Crim. P. 32(c), and to request that the Defendant be sentenced at the time the guilty plea is entered.
c.
The parties further agree and acknowledge that the Defendant’s parent corporation, Duke Energy Corporation, shall guarantee all monetary penalties (criminal fine, restitution, community service, and mitigation) imposed upon the Defendant and the funding and performance due from the Defendant in connection with the nationwide and statewide environmental compliance plans under this Agreement as more fully set forth in the Guaranty Agreement, a copy of which attached hereto at Exhibit B
  

(without attachments) and fully incorporated herein by reference. The parties further agree and acknowledge that Duke Energy Corporation shall consent to the jurisdiction of the United States District Court for the Eastern District of North Carolina for the purpose of enforcing the Guaranty Agreement.
d.
Pursuant to Fed. R. Crim. P. 11(c)(1)(C), the parties agree that the following sentence is warranted in this case:

i.
Criminal Fines : At the time of imposition of sentencing, the Defendant shall make a payment of Criminal Fines totaling $14.4 million ($14,400,000) as follows:
H.F. Lee Violations
(1)
$3.9 million ($3,900,000) for the negligent Clean Water Act discharge in violation of the applicable NPDES permit at H.F. Lee Steam Electric Plant, a fine within the statutory penalty range of $2,500 to $25,000 per day of violation pursuant to 33 U.S.C. § 1319(c)(1)(A) and 18 U.S.C. § 3571(c) and (d).
Cape Fear Violations
(2)
$3.5 million ($3,500,000) for negligent Clean Water Act failure to maintain the coal ash impoundments and related appurtenances (the riser in the 1978 coal ash impoundment) as required by the applicable NPDES permit for the Cape Fear Steam Electric Plant, a fine within the statutory penalty range of $2,500 to $25,000 per day of violation pursuant to 33 U.S.C. § 1319(c) (1) (A) and 18 U.S.C. § 3571(c) and (d).
(3)
$3.5 million ($3,500,000) for negligent Clean Water Act failure to maintain the coal ash impoundments and related appurtenances (the riser in the 1985 coal ash impoundment) as required by the applicable NPDES permit for the Cape Fear Steam Electric Plant, a fine within the statutory penalty range of $2,500 to $25,000 per day of violation pursuant to 33 U.S.C. § 1319(c) (1) (A) and 18 U.S.C. § 3571(c) and (d).
Asheville Violations
(4)
$3.5 million ($3,500,000) for the negligent Clean Water Act discharge in violation of the applicable NPDES permit at Asheville Steam Electric Generating Plant, a fine within the statutory penalty range of $2,500
to $25,000 per day of violation pursuant to 33 U.S.C. § 1319(c)(1)(A) and 18 U.S.C.
  

§ 3571 (c) and (d).
ii.
Probation : A statutory-maximum term of five (5) years of probation is warranted. 18 U.S.C.
  

§ 3561(c)(2). Probation shall include the standard conditions of probation and the following special conditions, pursuant to 18 U.S.C. § 3563(a) and (b):
(1)
Compliance with the Law : The Defendant shall not commit another federal, state, or local crime during the term of probation.
(2)
Cooperation with Probation Office : The Defendant shall fully cooperate with the United States Probation Office. The Defendant shall answer truthfully all inquiries by the Probation Officer; shall provide full access to any of the Defendant’s operating locations; shall give ten (10) days’ prior notice of any intended change in principal business or mail address; and shall provide notice of any material change in the Defendant’s economic circumstances that might affect the Defendant’s ability to pay the fines and other financial obligations set forth herein.
(3)
Nationwide Environmental Compliance Plan : Under the terms of its plea agreement, co-defendant Duke Energy Business Services LLC (“DEBS”) is required to develop, adopt, implement, and fund a comprehensive nationwide environmental compliance plan (“NECP”) during its term of probation, consistent with sentencing policies set forth in USSG §8D1.4 and which incorporates all of the agreed-upon obligations set forth in Paragraph 3(u)(v) of this Agreement. The Defendant shall take all steps necessary or required to assist DEBS in meeting this obligation.

(4)
Statewide Environmental Compliance Plan :
  

The Defendant, along with its co-defendants Duke Energy Carolinas, LLC (“DEC”) and DEBS, shall develop, adopt, implement, and fund a comprehensive statewide environmental compliance plan (“ECP-NC”) during its term of probation, consistent with sentencing policies set forth in USSG §8D1.4 and which incorporates all of the agreed-upon obligations set forth in Paragraph 3(u)(vi) of this Agreement.
(5)
Notice to Employees and Shareholders : Upon approval by the Court of the NECP and ECP-NC, the Defendant shall notify its employees of its criminal behavior, the NECP, and the ECP-NC. In addition, the Defendant shall cause a notice containing the same information to be sent to the shareholders of Duke Energy Corporation. Such notice shall be in a form prescribed by the Court-Appointed Monitor (“CAM”) and at a time designated by the CAM.
(6)
Community Service Payment : Pursuant to USSG §8B1.3 and in furtherance of the sentencing principles provided for under 18 U.S.C.
  

§ 3553(a), at the time of sentencing, the Defendant shall make a community service payment totaling $10.5 million ($10,500,000), through the National Fish and Wildlife Foundation (“NFWF”), to fund environmental projects, studies, and initiatives designed to benefit, preserve, and restore the riparian environment and ecosystems of North Carolina and Virginia affected by the Defendant’s conduct, as set forth in Paragraph 3 (aa) of this Agreement.
(7)
Mitigation : In order to compensate for impacts to wetlands and other jurisdictional waters of the United States impacted as a result of the Defendant’s conduct, including temporal and secondary effects, at its facilities in North Carolina with coal ash impoundments, the Defendant shall provide $5 million ($5,000,000) to an authorized wetlands mitigation bank or conservation trust, approved by the Court, for the purchase of riparian wetland and/or riparian land and/or restoration equivalent located in the Broad River Basin, French Broad River Basin, Cape Fear River Basin, Catawba River Basin, Dan River Basin, Yadkin-Pee Dee River Basin, Neuse River Basin, Lumber River Basin, and Roanoke River Basin as set forth in more detail in Paragraph 3(bb) of this Agreement.
iii.
Payment Liability/Financial Assurances : The Defendant shall be liable for and pay all fines, restitution, community service, and mitigation payments and shall fund the NECP and ECP-NC, all as set forth herein. The Defendant shall further be liable for any additional restitution payments as determined by the CAM.
(1)
Reservation of Funds by Defendant : The Defendant further shall record appropriate reserves on financial statements for the purpose of recognizing the projected obligation to retire its coal ash impoundments in North Carolina. This obligation is currently estimated at a total of $1.4 billion ($1,400,000,000) on the Defendant’s balance sheet. Each year during the term of probation, beginning on the date that the Agreement is accepted by the Court and occurring by March 31 of each year thereafter, the Defendant shall cause the Chief Financial Officer of Duke Energy Corporation, as further directed under the Guaranty Agreement attached hereto, to certify to the United States and the CAM that the Defendant and Duke Energy Corporation have sufficient assets reserved to meet the obligations imposed by law or regulation or as may otherwise be necessary to fulfill the Defendant’s obligations with respect to its coal ash impoundments within the State of North Carolina. If the CAM has any concerns regarding the assets available to meet obligations imposed by the Judgment
in this case, the CAM shall immediately notify the Court and the parties.
(2)
Reservation of Funds by Parent Company : The Defendant further shall cause its parent holding company, Duke Energy Corporation, to record appropriate reserves on its consolidated financial statements for the purpose of recognizing the projected obligation to retire all coal ash impoundments, including those in North Carolina. This obligation is currently estimated at a total of $3.4 billion ($3,400,000,000) on Duke Energy Corporation’s balance sheet for all coal ash impoundments (including those owned by the Defendant and co-defendant DEC). Each year during the term of probation, beginning on the date that the Agreement is accepted by the Court and occurring by March 31 of each year thereafter, the Defendant shall cause the Chief Financial Officer of Duke Energy Corporation, as further directed under the Guaranty Agreement attached hereto, to certify to the United States and the CAM that the Defendant and Duke Energy Corporation have sufficient assets reserved to meet the obligations imposed by law or regulation or as may otherwise be necessary to fulfill the Defendant’s obligations with respect to its coal ash impoundments within the State of North Carolina. If the CAM has any concerns regarding the assets available to meet obligations imposed by the Judgment in this case, the CAM shall immediately notify the Court and the parties.
(3)
Security : Through the entire term of probation, the Defendant shall further maintain unused borrowing capacity in the amount of $250 million ($250,000,000) under the Master Credit Facility as security to meet its obligations under this Agreement for the closing and remediation of coal ash impoundments, as more fully set forth in Paragraph 3(k) of this Agreement. The Defendant shall certify this set aside to
  

the CAM on an annual basis, or more frequently as the CAM requires. If the CAM has any concerns regarding the security available to meet the obligations imposed by the Judgment in this case, the CAM immediately notify the Court and the parties.
iv.
Restitution for Counts of Conviction : Pursuant
  

to 18 U.S.C. §§ 3663, 3663A, and 3563(b)(2), the Defendant shall make restitution to any victim in whatever amount the Court may order. Said restitution shall be due and payable immediately.
v.
Restitution for Relevant Conduct to Be Paid During Term of Probation : Pursuant to 18 U.S.C. § 3663, the Defendant shall pay restitution as directed by the CAM through the claims process set forth in Paragraphs 3(x)(iii)-(vi) of this Agreement. Said restitution shall also include payment to the Cape Fear Public Utility Authority for all costs, whenever incurred, associated with the extension of the Flemington water line, which was necessary to ensure that the community had clean drinking water.
vi.
Special Assessment : The Defendant shall pay special assessments, totaling $500.00, before or at the time of sentencing, and shall provide a receipt from the Clerk of Court for the Eastern District of North Carolina to the United States as proof of payment.
vii.
Public Apology : Consistent with USSG §8D1.4(a), the Defendant and co-defendants DEBS and DEC shall place a full-page public apology in at least two national newspapers and three major North Carolina newspapers (one in Raleigh, one in Greensboro, and one in Charlotte) and on its publicly accessible company website.
3.      The Defendant agrees:
a.
Consent to Transfer : To consent to Rule 20 transfers for purposes of the entry of guilty pleas to the charges in the following matters:

i.
United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. , No. 1:15-CR-51-1 (MDNC); and
ii.
United States v. Duke Energy Business Services LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. , No. 3:15-CR-43-FDW(WDNC).
b.
Restitution for Counts of Conviction : Pursuant to 18 U.S.C. §§ 3663, 3663A, and 3562(b)(2), to make restitution in any amount as ordered by the Court and as set forth in this Agreement. Said restitution shall be due and payable immediately.
c.
Restitution for Relevant Conduct to Be Paid During Term of Probation : In addition to any order of restitution in connection with the counts of conviction, to make restitution to the following entities, as determined and directed by the CAM during the term of probation and pursuant to the agreed-upon claims process set forth in Paragraphs 3(x)(iii)-(vi):
i.
Local Governments with drinking water treatment systems impacted by bromide discharges from other facilities owned by the Defendant:
(1)
For all costs, whenever incurred, associated with water treatment system upgrades resulting from the increase of trihalomethanes including, but not limited to, maintenance costs.
(2)
All costs associated with investigating and responding to increased discharges of bromide and/or the increase of trihalomethanes.
ii. Cape Fear Public Utility Authority:
(1) For all costs, whenever incurred, associated with the extension of the Flemington water line, which was necessary to ensure that the community had clean drinking water.
d.
Crime Victims’ Rights Act : Except as provided herein, at the time of the execution of this
  
 
Agreement, the parties are not aware of any other victim as that term is defined by 18 U.S.C. § 3663, 3663A, and 3771. The Defendant understands that the United States intends to fully comply with all obligations under 18 U.S.C. § 3771, including victim notification and restitution provisions.
e.
Appeal Waiver : To waive knowingly and expressly the right to appeal the conviction and whatever sentence is imposed on any ground, including any appeal pursuant to 18 U.S.C. § 3742, and further to waive any right to contest the conviction or the sentence in any post-conviction proceeding, including any proceeding under 28 U.S.C. § 2255, excepting an appeal or motion based upon grounds of ineffective assistance of counsel or prosecutorial misconduct not known to the Defendant at the time of the Defendant’s guilty plea. The foregoing appeal waiver does not constitute or trigger a waiver by the United States of any of its rights to appeal provided by law.
f.
Waiver of Rights to Records : To waive all rights, whether asserted directly or through a representative, to request or receive from the United States any records pertaining to the investigation or prosecution of this matter, except as provided in the Fed. R. Crim. P. This waiver includes, but is not limited to, rights conferred by the Freedom of Information Act and the Privacy Act of 1974.
g
Special Assessment : To pay a special assessment of $125.00 for each misdemeanor count pursuant to the provisions of 18 U.S.C. § 3013. The assessment shall be paid by the Defendant at sentencing. The Defendant or Defendant’s counsel shall provide a check in payment of the said assessment directly to the Clerk of Court, U.S. District Court-EDNC.
h.
Financial Statement : To complete and submit a financial statement under oath to the United States no later than two weeks prior to the entry of the guilty plea. The Defendant can satisfy this condition by submitting its most recent financial statement filed with the Securities and Exchange Commission.

i.
Reservation of Funds by Defendant : To record appropriate reserves on financial statements for the purpose of recognizing the projected obligation to retire its coal ash impoundments in North Carolina, and, during each year during the term of probation, to certify that it has sufficient assets reserved to meet the obligations imposed by law and regulation as more fully set forth in Paragraph 2(d)(iii)(1) above. This obligation is currently estimated at a total of $1.4 billion ($1,400,000,000) on the Defendant’s balance sheet.
j.
Reservation of Funds by Parent Company : To cause its parent holding company, Duke Energy Corporation, to record appropriate reserves on its consolidated financial statements for the purpose of recognizing the projected obligation to retire all coal ash impoundments, including those in North Carolina, and during each year during the term of probation, to cause its parent holding company to certify that it has sufficient assets reserved to meet the obligations imposed by law and regulation as more fully set forth in Paragraph 2(d)(iii)(2) above. This obligation is currently estimated at a total of $3.4 billion ($3,400,000,000) on Duke Energy Corporation’s balance sheet for all coal ash impoundments (including those owned by the Defendant and co-defendant DEC).
k.
Security : Through the entire term of probation, to maintain unused borrowing capacity in the amount of $250 million ($250,000,000) under the Master Credit Facility as security to meet its obligations under this Agreement for the closing and remediation of coal ash impoundments, as more fully set forth in Paragraph 2(iii) (3) of this Agreement. A copy of the certification for 2015 shall be filed with the Court at the time of entry of this Agreement.
1.
Cooperation : The Defendant shall continue to cooperate fully with the United States, and with all other authorities and agencies designated by the United States, and shall truthfully disclose all information with respect to the activities of the Defendant and its present and former directors, officers, employees, agents, consultants, contractors, and subcontractors thereof, regarding the conduct underlying the Criminal Informations about which the Defendant has any knowledge or about which the United States shall inquire. This obligation of truthful disclosure includes the obligation of the Defendant to provide to the United States, upon request, any document, record, or other tangible evidence regarding the conduct underlying the Criminal Informations about which the United States shall inquire of the Defendant. Compliance with such cooperation requirements shall not be construed as requiring or effecting a waiver of the attorney-client privilege or work product protections.
m.
Such cooperation set forth in Paragraph (1) above shall include but not be limited to: (a) promptly disclosing any and all related criminal or potentially criminal conduct of which the Defendant is currently aware; (b) promptly producing all documents requested by the federal government or by grand jury subpoena; (c) promptly making employees available to the investigation team upon request for interview or for testimony in any proceeding, subject to those employees’ own legal rights; and (d) making reasonable efforts to ensure its employees provide full and truthful information.
n.
If the Defendant, through its employees acting within the scope of their employment, provides false, incomplete, or misleading information or testimony, or fails to abide by any term of cooperation set forth in Paragraphs (1) and (m) above, this would constitute a material breach of this Agreement by the Defendant, and the Defendant shall be subject to prosecution for any federal criminal violation not barred by the applicable statute of limitations (or as waived pursuant to Paragraph 3(hh)) or other legal prohibition. Any information provided by the Defendant may be used against the Defendant in that prosecution.
o.
Additionally, the Defendant agrees that in the event of the Defendant’s material breach of this Agreement, the following are admissible against the Defendant in any prosecution or action against the Defendant: (i) any statements made by the Defendant, under oath, at the guilty plea hearing (before either a Magistrate Judge or a District Judge); (ii) the Joint Factual Statement supporting this Agreement; and (iii) any evidence derived from such statements. This includes the prosecution of the charges that are the subject of this Agreement or any charges that the United States agreed to dismiss or not file as part of this Agreement, but later pursues because of a material breach by the Defendant. Additionally, the Defendant knowingly and voluntarily waives any argument under the United States Constitution, any statute, Rule 410 of the Federal Rules of Evidence, Fed. R. Crim. P. 11(f), and/or any other federal rule, that the statements or any evidence derived from any statements should be suppressed or are inadmissible.
p.
Compliance with the Law : Except as provided otherwise herein and in Paragraph (q) below, the Defendant agrees that it shall commit no new violations of federal, state, or local law, including those laws and regulations for which primary enforcement has been delegated to state authorities, and shall conduct its operations in accordance with the environmental laws of the United States and the State of North Carolina. If the Defendant learns of any such violations committed by its agents or employees during the term of probation, the Defendant shall notify the United States of the violations in accordance with the terms of the environmental compliance plans.
i.
The Defendant understands that the Government shall not consider there to be a violation of the conditions of probation if the Defendant complies with federal environmental laws when there is a direct conflict between the state and federal environmental laws.
q.
The Defendant shall comply with all federal, state, and other regulations relating to coal ash, and will have no new notices of violation, notices of deficiency, or other criminal, civil, or administrative enforcement actions based on conduct (including the failure to act) occurring after entry of the guilty plea.
i.
The Defendant understands that it shall be considered a violation of the conditions of
  
 
probation if the Defendant engages in the above conduct and such conduct or condition results in a final assessment (after conclusion of any appeals) in an amount greater than $5,000 and imposed after the entry of the guilty plea and which the CAM deems material. Any conduct or conditions resulting in a final assessment in an amount greater than $15,000 shall be presumed to be material.
ii.
It shall not be considered a violation of probation if the enforcement action is based upon information disclosed by the Defendant in its 2014 Topographic Map and Discharge Assessment Plan(s) and/or its 2014 NDPES permit renewal application(s) for its facilities in North Carolina.
r.
The Defendant shall comply with all legislative and regulatory mandates concerning closure of the coal ash impoundments which it operates, and shall complete full excavation and closure of all of the coal ash impoundments at its Sutton and Asheville facilities in accordance with federal and state laws, including the United States Environmental Protection Agency’s (“EPA”) 2014 final rule governing the disposal of coal combustion residuals from electric utilities (“CCR Rule”) and North Carolina’s Coal Ash Management Act of 2014, by the dates dictated in those laws, currently the calendar year 2019 . In so doing, the Defendant shall act diligently and in good faith to meet projected critical milestones in its closure plans for each site as set forth in the following documents: Duke Energy’s L.V. Sutton Electric Plant Coal Ash Excavation Plan dated November 13, 2014; and Duke Energy’s Asheville Steam Electric Generating Plant Coal Ash Excavation Plan dated November 13, 2014 (collectively referred to as “Excavation Plans”), as may be amended with the approval of the North Carolina Department of Environment and Natural Resources (“DENR”).
i.
With respect to excavated coal ash, the removed ash shall be stored in a lined CCR landfill space or lined impoundment meeting all requirements established by applicable statute, law, and regulation, including but not limited to 40 CFR Part 258 (Subtitle D of RCRA). Nothing in this Paragraph shall prohibit the Defendant from the disposition of ash through beneficial reuse as contemplated by the CCR Rule.
ii.
Every six months, or on a more frequent basis as determined by the CAM, the Defendant shall provide the CAM with a detailed description of its efforts to excavate coal ash and close all of the coal ash impoundments at Sutton and Asheville and whether it has met the critical milestones set forth in the Excavation Plans in the time period since the last report. The Defendant shall also include the status of all permits and permit applications with any regulatory body, including but not limited to DENR. The Defendant shall also make such reports publicly available on its website.
(1)
If the CAM has any concerns regarding whether the Defendant acted diligently or in good faith to meet its obligations under this provision, including the critical milestones set forth in the Excavation Plans, the CAM shall immediately notify the Court and the parties.
iii
The Defendant shall contemporaneously provide an executive summary of the report in subparagraph (ii) above to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice - Environmental Crimes Section; the United States Environmental Protection Agency -Criminal Investigation Division; and the United States Environmental Protection Agency – Legal Counsel Division. Upon request, the Defendant shall provide the full report for inspection and review by any of the governmental parties.
(1)
If the Government has any concerns regarding whether the Defendant acted diligently or in good faith to meet its obligation under this provision, including the critical milestones set forth in the Excavation Plans, the Government may elect to notify either the
CAM or the Court, and may seek additional penalties as may be appropriate.
iv.
Six months prior to the end of the term of probation, the Defendant shall provide the Court, the CAM, and the Government with a full report of its efforts to excavate coal ash and to close all of the coal ash impoundments at Sutton and Asheville and the anticipated completion date.
v.
The Government may seek additional fines and penalties should the Defendant fail to comply with such legislative or regulatory mandates and closure requirements under this Paragraph unless the compliance is delayed by a “force majeure” as that term is defined herein. The parties recognize that a change in law making performance impossible may be raised under the “force majeure” clause herein, but final determination shall be made by the Court.
vi.
The Defendant understands that the Government shall not consider there to be a violation of the conditions of probation if the Defendant complies with federal environmental laws when there is a direct conflict between the state and federal environmental laws. The Defendant, however, shall immediately notify the Court, the CAM, and the Government of the conflict of laws and the impact on any excavation and closure plans.
s.
Criminal Fine : The Defendant shall pay a total criminal fine in the amount of $14.4 million ($14,400,000), allocated as set forth in Paragraph 2(d)(i) above.
t.
Stipulated Factual Basis for Fine : The Defendant stipulates that there is a factual basis for the imposition of a criminal fine in the amount of $14.4 million ($14,400,000) pursuant to 33 U.S.C.
  

§§ 1319(c)(1)(A) and/or 18 U.S.C. § 3571(c) and (d) and that the payments made pursuant to Paragraph 2(d)(i) do not together exceed the statutory maximum fine available under each of the applicable statutes. The Defendant further waives any right to a jury or bench trial as to those payments.
u.
Environmental Compliance Plans : As a special condition of probation, the Defendant shall cause, assist, and otherwise take all steps necessary to effectuate the obligation of co-defendant DEBS to develop, adopt, implement, and fund the NECP designed to ensure compliance with applicable environmental laws and regulations at all of the coal ash impoundments owned and operated (whether active or inactive) by any wholly-owned subsidiary of Duke Energy Corporation. In addition to requirements to be applied nationwide, the Defendant, along with co-defendants DEBS and DEC, shall develop, implement, and enforce the ECP-NC that also incorporates all of the requirements of the NECP. Both the NECP and the ECP-NC shall be filed with the Court as separate documents. Components of the NECP and the ECP-NC include, but are not limited to, the following:
i.
Timing for Submission of NECP and ECP-NC : Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, shall develop and adopt the NECP and ECP-NC within seventy (70) days of the selection of the CAM. The final NECP and ECP-NC shall be submitted to the Court with copies to the United States Probation Office; the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts; the Department of Justice - Environmental Crimes Section; the Environmental Protection Agency - Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. The Court must approve both the NECP and ECP-NC.
(1)
The United States acknowledges that two (2) wholly-owned subsidiaries of Duke Energy Corporation, Duke Energy Commercial Enterprises, Inc. (an indirect wholly-owned subsidiary) and Duke Energy SAM, LLC (a
  

direct wholly-owned subsidiary) have entered into a purchase and sale agreement with a subsidiary of Dynegy Inc. in which Dynegy Inc. will acquire Duke Energy Ohio’s unregulated Midwest generation business (which has been classified as Discontinued Operations on the Condensed Consolidated Statement of Operations). Approval is pending before the Federal Energy Regulatory Commission. Both of the subsidiaries handle coal ash.
(2)
If the sale above has not been closed at the time of the submission of the NECP to the Court for approval, it is expressly
  

understood and agreed that these assets need not be included within the NECP with the following exception: if the sale is not closed within ninety (90) days of the approval of the NECP by the Court, the CAM may, at his/her option, require the NECP to be amended to include these subsidiaries.
ii.
Best Efforts : Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, shall use best efforts to comply with each and all of the obligations under both the NECP and ECP-NC.
(1)
The requirement that the Defendant exercise “best efforts” to fulfill the obligation includes using commercially reasonable efforts to anticipate any potential “force majeure” event (as defined herein at Paragraph 3(y)) and to address the effects of any potential “force majeure” event: (a) as it is occurring, and (b) following the potential “force majeure” event, such that the delay is minimized to the greatest extent possible.
(2)
If the CAM believes that the Defendant has not used “best efforts” to fulfill its obligations, the CAM shall provide written notice immediately to the Court and the parties.
(3)
The final determination of whether the Defendant used “best efforts” shall be made by the Court with the advice of and recommendations from the CAM.
(4)
If the Court concludes that the Defendant failed to exercise “best efforts” to fulfill an obligation of this Agreement, the Court may impose and the Government will be entitled to seek additional monetary penalties.
iii.
Selection and Funding of CAM :
(1)
Funding : As part of the NECP and the ECP- NC, Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, shall pay for a CAM who will be appointed by and report to the Court during the full period of probation.
(2)
Qualifications : The object of the selection process for the CAM is to select the most qualified candidate to oversee implementation of the NECP, the ECP-NC, and the bromide claims process. Therefore, the CAM must have staff, or be able to retain staff, with the following experience: (a) expertise and competence in the regulatory programs under the United States and State of North Carolina environmental laws; (b) sufficient expertise and competence to assess whether the Defendant, DEBS, and DEC have adequate management systems in place to ensure regulatory compliance, document such noncompliance, and prevent future noncompliance; and (c) sufficient expertise and competence to review claims for reimbursement under the process for identifying, verifying, and providing restitution for claims relating to bromide discharges described herein.
(3)
Nomination and Veto by Government : Within thirty (30) days of the entry of the Judgment, Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, shall submit a list of three qualified candidates for the position of CAM from which the Court will select and appoint one of the candidates. Any nomination will include a detailed curriculum vitae or similar documentation setting forth the qualifications of the candidate. The Government shall have fifteen (15) days from the receipt of the nominations to file any
  
 
reasonable objection to any or all of the proposed candidates. If the Government lodges an objection, then Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, must nominate a replacement candidate(s). The Government again shall have the right to lodge any reasonable objection to any replacement candidate; and the Court may adjust the time frame for the selection of the CAM as necessary to ensure that the best possible candidate is selected.
(4)
Court Selection : Upon receipt of a final list of candidates, the Court shall select one candidate as CAM by written order. In the event that the Court does not find any of the candidates satisfactory or if, during any point in the term of probation, the Court does not find the work of the selected CAM satisfactory, the Court may request Defendant DUKE ENERGY PROGRESS, along with its co-defendants DEBS and DEC, to nominate additional candidates. The Court may adjust the time frame for the nominations of the CAM as necessary to ensure that the best possible candidates are nominated.
iv.
Reporting by CAM : On an annual basis, or more often as the Court directs, the CAM shall provide reports in writing to the Court, through the United States Probation Office, demonstrating compliance with the NECP and the ECP-NC by DUKE ENERGY PROGRESS and its co-defendants, DEBS and DEC. The report shall include, among other things, a detailed description of: (1) all excavation, closure, and/or proper remediation of the coal ash impoundments located in North Carolina and addressed in the ECP-NC; and (2) all three co-defendants’ compliance with all appropriate environmental laws and regulations in connection with the management of their coal ash impoundments in North Carolina and elsewhere.
(1)
Public Access to Information : The CAM shall ensure, and the Defendant shall facilitate, the posting of copies of any environmental compliance audits, annual reports, and/or any other reports prepared pursuant to the NECP or ECP-NC on a company web page with public access.
Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it reasonably believes could impair the security of its operations before such audits or reports are posted for public access.
The CAM shall inspect such proposed redactions to determine the propriety of the redactions.
Notwithstanding the foregoing , unredacted copies shall be provided to the Court. The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.
(2)
The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice -Environmental Crimes Section; the United States Environmental Protection Agency -Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions and challenge the propriety of the redactions. The Court shall be the final arbiter of any challenge.
v.
Nationwide ECP : The NECP shall include, among other things:
(1)
Organizational Funding : Co-Defendant DEBS shall maintain and fund the operation of all of the company compliance organizations created in the wake of the Dan River
release, including: ABSAT, the Coal Combustion Products organization, and the National Ash Management Advisory Board. Subject to the approval of the CAM, DEBS may transfer operations and responsibilities between internal organizations or adjust funding of such organizations as appropriate, as long as the obligations of this Agreement are being met. To the extent necessary or required, the Defendant shall fund or otherwise pay for its proportionate share of the continued maintenance and operations of these compliance organizations.
(2)
Compliance Officer (“CO”) : The Defendant, and its co-defendants DEBS and DEC, each shall identify or establish a position at the Vice President level or higher who will liaise directly with the CAM. The Defendant’s designated CO shall have, among other duties, the primary responsibility for ensuring compliance with applicable environmental requirements and requirements of the NECP and ECP-NC.
The COs shall submit detailed reports discussing the development, implementa- tion, and enforcement of the NECP and ECP-
  

NC at intervals deemed necessary by the CAM. The first report shall also include
  

an explanation of the current corporate structure responsible for the operation and control of the coal ash impoundments and the names of the individuals filling the relevant positions. With the concurrence of the CAM, the COs may elect
  

to submit a joint report detailing the required information for all three co- defendants. Any changes to the corporate coal ash oversight structure shall be immediately forwarded to the CAM and included in the next regular report.
Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it reasonably believes could impair the security of its operations before such reports are posted for public access.
The CAM shall inspect such proposed redactions to determine the propriety of the redactions.
Notwithstanding the foregoing, unredacted copies shall be provided to the Court. The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.
The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina ; the Department of Justice
  

- Environmental Crimes Section; the United States Environmental Protection Agency - Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions and challenge the propriety of the redactions. The Court shall be the final arbiter of any challenge.
(3)
Environmental Audits : Within the first ninety (90) days of his or her appointment, the CAM shall establish a schedule for conducting environmental audits of each of Duke Energy Corporation’s and its affiliates’ wholly-owned or operated domestic facilities with Duke Energy Corporation or affiliate-managed or affiliate-controlled coal ash impoundments outside North Carolina on an annual basis.
Each year the Defendant can request that the CAM accept any full environmental audit prepared by ABSAT or a similar organization in that same calendar year
  
 
for its facilities subject to the audits under the NECP.
The CAM can reject any such request by the Defendant if the CAM concludes that the proposed environmental audit is not sufficiently comprehensive or not prepared by a competent organization.
Copies of the environmental audit reports shall be posted on the Defendant’s company webpage accessible to the public.
Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it reasonably believes could impair the security of its operations before such audits or reports are posted for public access.
The CAM shall inspect such proposed redactions to determine the propriety of the redactions.
Notwithstanding the foregoing, unredacted copies shall be provided to the Court and the United States Probation Officer. The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.
The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice - Environmental Crimes Section; the United States Environmental Protection Agency -Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions to determine the propriety of the redactions.
The Court shall be the final arbiter of any challenge.
(4)
Toll-Free Hotline/Electronic Mail Inbox : The Defendant, along with co-defendants DEBS and DEC, will establish and maintain a toll-free hotline that will be answered twenty-four (24) hours a day, seven (7) days a week, through which any person may report suspected violations of applicable environmental laws or regulations, or violations of the NECP or ECP-NC. The Defendant may utilize existing toll-free hotlines subject to approval by the CAM. In addition, the Defendant, along with co-defendants DEBS and DEC, shall create an electronic mail inbox accessible from its webpages and accessible through a share link, through which any employee of Duke Energy Corporation, its subsidiaries, or its affiliates, or any other person may report suspected violations of applicable environmental laws or regulations or violations of the NECP or ECP-NC.
Co-defendant DEBS shall periodically apprise employees and the public of the availability of the toll-free hotline and electronic mail inbox by posting notices on the Internet, Intranet (known within Duke Energy Corporation as the “Portal”), by distributing notice via its electronic mail system, by providing notices in appropriate employee work areas, and by publication in community outlets.
All reports to the toll-free hotline or electronic mail inbox of suspected violations of applicable environmental requirements, the NECP, or the ECP-NC shall promptly be provided to the appropriate CO for further action, and the appropriate CO shall maintain a record of the investigation and disposition of each such matter and disclose such matters in reports to the CAM.
(5)
Environmental Training Program : The Defendant, along with co-defendants DEBS and DEC, shall adopt, implement, and enforce a comprehensive training program to educate all domestic employees of Duke Energy Corporation and its wholly-owned or operated affiliates on the environmental impact of coal ash impoundment operations and to be aware of the procedures and policies that form the basis of the NECP and ECP-NC.
The goal of this training program is to ensure that every domestic employee of Duke Energy Corporation and its wholly-owned or operated affiliates understands applicable compliance policies and is able to integrate the compliance objectives in the performance of his/her job. The training shall include applicable notice and reporting requirements in the event of a release or discharge. Subject to the approval of the CAM, the Defendant may develop different training programs that are tailored to the employee’s specific job description and responsibilities as long as the overall goal of the training requirement is met.
Additionally, the Defendant and co-defendants DEBS and DEC shall provide training and written materials describing the safe and proper handling of pollutants, hazardous substances, and/or wastes.
Copies of all written materials and training curricula shall be provided to the CAM.
vi.
Statewide ECP : The ECP-NC, in addition to incorporating all of the requirements of the NECP, shall include, among other things, the following conditions:
(1)
Point of Contact (“POC”) : With respect to each of its facilities with coal ash impoundments in North Carolina, the
  
 
Defendant and co-defendant DEBS shall identify or establish a POC for the CAM within each of the following three business services: (1) ABSAT; (2) Environmental, Health & Safety; and (3) Coal Combustion Products.
(2)
Environmental Audits : Within the first ninety (90) days of his/her appointment, the CAM shall establish a schedule for conducting environmental audits of each of the Defendant’s facilities with coal ash impoundments in North Carolina on an annual basis.
Each year the Defendant can request that the CAM accept any full environmental audit prepared by ABSAT or a similar organization in that same calendar year for two of its facilities subject to the audits. The Defendant cannot make the request for the same facilities in consecutive years.
The CAM can reject any such request by the Defendant if the CAM concludes that the proposed environmental audit is not sufficiently comprehensive or not prepared by a competent organization.
Copies of the environmental audit reports shall be posted on the Defendant’s company webpage accessible to the public.
Subject to the approval of the CAM, the Defendant may redact confidential business information or any information it
  

reasonably believes could impair the security of its operations before such audits or reports are posted for public access.
The CAM shall inspect such proposed redactions to determine the propriety of the redactions.

Notwithstanding the foregoing, unredacted copies shall be provided to the Court and the United States Probation Officer. The Defendant may seek to have the filings placed under seal to protect any information that the CAM has deemed to warrant redaction.
The CAM will contemporaneously provide copies of the reports (as posted) to the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina; the Department of Justice - Environmental Crimes Section; the United States Environmental Protection Agency - Criminal Investigation Division; and the United States Environmental Protection Agency - Legal Counsel Division. If the reports contain redactions, any of these parties may inspect the redactions to determine the propriety of the redactions. The Court shall be the final arbiter of any challenge.
v.
The Defendant shall ensure that any new, expanded, or reopened coal ash or coal ash wastewater impoundment facilities are lined to ensure no unpermitted discharges of coal ash or coal ash wastewater to any water of the United States.    This includes all engineered, channelized, or naturally occurring seeps.
w.
Recordkeeping of Coal Ash Impoundment Volumes : Every six months, the Defendant shall determine the volume of wastewater and coal ash in each of its wet- storage coal ash impoundments in North Carolina. Additional determinations shall be made following the conclusion of activities that significantly change the volumes of materials in the impoundments, including but not limited to temporary rerouting of waste streams other than sluiced coal ash to the ash impoundment, dredging, and dewatering.    Written or electronic records of the volumes shall be maintained by the Defendant in a location(s) accessible to facility staff and to any of the Defendant’s employees responsible for making environmental or emergency reports.
x.
Bromide Remediation Claims and Costs :
i.
Identification: Within the first year of probation, or within ninety (90) days of the installation of a new Flue Gas Desulfurization (“FGD”) scrubber system thereafter, the Defendant shall identify:
(1)
all facilities operated by it in North Carolina that utilize or will utilize FGD scrubbers that will result in an increase in bromide discharge into surface waters; and
(2)
all local governments that are downstream from such FGD scrubbers and draw water into water treatment facilities.
ii.
Notification : Within the first year of probation, or within ninety (90) days of the installation of a new FGD scrubber system thereafter, the Defendant shall: (1) notify in writing the identified local governments of the increase or potential increase in bromide discharge; and (2) cooperate in studies of whether there has been or will be an impact on these water treatment facilities. The Defendant shall further advise the local government of the claims process established by the CAM, as described below. The Defendant will further note that the local government is not obligated to submit a claim through the process, is not bound by any recommendation of the CAM, and may pursue any civil and/or administrative remedies available to it. Copies of such correspondence shall be provided to the CAM, United States Probation Officer, and each of the prosecuting districts.
iii.
Claims Process : The CAM shall establish a procedure by which local governments that are downstream of the Defendant’s facilities with FGD scrubbers and experience increases in trihalomethanes at their water treatment facilities related to increases in bromide released by those facilities may submit evidence

of these impacts and claims for restitution stemming from these impacts.
(1)
In these claims, the local governments bear the burden of proving by a preponderance of the evidence to the CAM that trihalomethanes have increased and that the Defendant’s facility’s discharge of bromide substantially contributed to the increase.
(2)
The Defendant shall be permitted an opportunity to respond to any evidence or material submitted by local governments in this process.
(3)
The CAM shall review proposed remediation actions and costs or anticipated costs associated with investigating, responding to, and remediating increased bromides and trihalomethanes for reasonableness in determining the correct amount of restitution. The CAM shall issue a written decision on every claim submitted. If the CAM determines that restitution to a local government in any amount is appropriate, the Defendant shall also reimburse the local government for costs associated with investigating and preparing its submission to the CAM, including reasonable attorneys’ fees.
iv.
Appeals Process : Once the written decision is issued, the Defendant or the local government may appeal the decision to the United States District Court. In such an appeal, the decision of the CAM shall be subject to a rebuttable presumption of correctness. If the Defendant unsuccessfully appeals a written decision of the CAM, the Defendant shall bear all of the costs of the appeal, including the costs of the CAM and the reasonable attorneys’ fees of the local government, with the Court making the final determination of the reasonableness of such fees. If the Defendant is successful on appeal, the Defendant shall bear the costs of the CAM and the local government shall bear the costs of its attorneys’ fees.
v.
Payment of Claims : Once the CAM has issued its written opinion, the Defendant shall pay the approved costs to the claimant within thirty (30) days of the opinion, unless it files an appeal to the United States District Court as provided above. If, after appeal, the Court concurs with the CAM’s opinion approving such costs, the Defendant shall pay the approved costs to the claimant and submit proof of payment to the Court within thirty (30) days of the Court’s opinion. Nothing in this subparagraph will bar the CAM or the Court from ordering a different payment schedule as appropriate.
vi.
Deadline for Filing Claims : Local governments shall have until sixty (60) days prior to the end of the five-year probationary term to submit a claim.
y
Force Majeure . For purposes of this Agreement, a ”force majeure” is defined as any event arising from causes beyond the reasonable control of the Defendant, any entity controlled by the Defendant, or its contractors that delays or prevents performance of any obligation despite the best efforts to fulfill the obligation and includes but is not limited to war, terrorism, civil unrest, labor dispute, act of God, change in law making performance impossible, or act of a governmental or regulatory body delaying performance or making performance impossible, including, without limitation, any appeal or decision remanding, overturning, modifying, or otherwise acting (or failing to act) on a permit or similar permission or action that prevents or delays an action needed for the performance of any work such that it prevents or substantially interferes with the Defendant’s ability to perform. Force majeure does not include financial inability to complete the work, increased cost of performance, or changes in business or economic circumstances.
i.
If the Defendant seeks to rely on “force majeure” to excuse performance or timely performance with any term of this Agreement, the Defendant must apply to the CAM with copies of such application

provided to the Government and the United States Probation Officer.
ii.
The final determination of “force majeure” shall be made by the Court with the advice and recommendation from the CAM.
iii.
If the Court concludes that the Defendant’s failure to fulfill an obligation of this
  

Agreement was not excused by a “force majeure,” the Court may impose and the Government will be entitled to seek additional monetary penalties.
z.
Funding of NECP and ECP-NC : A failure to fund or implement the NECP or ECP-NC during its term of probation would constitute a breach of this Agreement by the Defendant, and the Defendant shall be subject to prosecution for any federal criminal violation not barred by the applicable statute of limitations (or
  

as waived pursuant to Paragraph 3(hh)) or other legal prohibition. Any information provided by the
  

Defendant may be used against the Defendant in such a prosecution.
aa.
Community Service Payment : In addition to the community service payment made by co-defendant DEC, the Defendant, as guaranteed by Duke Energy Corporation and set forth in the Guaranty attached to this Agreement, shall pay $10.5 million ($10,500,000) to the National Fish and Wildlife Foundation (“NFWF”), a nonprofit organization established pursuant to 16 U.S.C. §§ 3701-3710, as community service by an organization. With respect to the work described in this Paragraph below, the Defendant shall assume no responsibilities or obligations other than making the payments described in Paragraph 3(aa)(i) below. The Defendant shall not seek any reduction in its tax obligations as a result of these community service payments nor shall the Defendant characterize, publicize, or refer to these payments as voluntary donations or contributions. Additionally, the Defendant shall not seek or take credit for any project performed using funds disbursed by NFWF pursuant to this Agreement in any related civil or administrative proceeding, including but not limited to, the Natural Resources Damages Assessment process.
i. The Defendant will make the $10.5 million ($10,500,000) payment within sixty (60) days of entry of Judgment. Payments shall be made by certified check payable to the National Fish and Wildlife Foundation and mailed to the attention
  

of its Chief Financial Officer at 1133 15th Street, NW, Suite 1100, Washington, DC 20005, and include a reference to the case number in this proceeding; or by electronic funds transfer in accordance with written instructions to be provided to the Defendant by NFWF at the time of transfer.
ii. NFWF shall use the money it receives from the Defendant pursuant to this Agreement for the benefit, preservation, restoration, and improvement of the water resources of North Carolina and Virginia that have been impacted by the operation of coal ash storage ponds owned by the Defendant. NFWF shall conduct or fund
  

projects in the following federal districts, in the following amounts:
(1)
Eastern District of North Carolina: $3.5 million ($3,500,000);
(2)
Middle District of North Carolina: $3.5
  

million ($3,500,000); and
(3)
Western District of North Carolina: $3.5 million ($3,500,000).
iii. The projects and initiatives considered by NFWF should include, but not be limited to:
  

monitoring, study, restoration, and preservation of fish, wildlife, and plant resources; monitoring, study, clean up, remediation, sampling, and analysis of pollution and other threats to the riparian environment and
  

ecosystem; research, study, planning, repair, maintenance, education, and public outreach relating to the riparian environment and ecosystem; environmental education and training relating to the protection and preservation of riparian resources; and the protection and
  

support of public drinking water systems.
iv.
The projects and initiatives considered by NFWF should be focused on the following river basins
  

or watersheds:
Broad River, Cape Fear River, Catawba River, Dan River, French Broad River, Lumber River, Roanoke River, Neuse River, and Yadkin River. NFWF shall make every effort to
  

fund at least one project and/or initiative in each of the river basins or watersheds.
v.
NFWF shall consult with appropriate state
  

resource managers in North Carolina and Virginia, as well as federal resource managers, that have statutory authority for coordination or cooperation with private entities to help
  

identify projects and maximize the environmental benefits of such projects. Specifically, NFWF should consult with the United States Environmental Protection Agency, the United
  

States Fish and Wildlife Service, the United States Army Corps of Engineers, the North
  

Carolina Department of Environment and Natural Resources, the North Carolina Wildlife Resources Commission, the Virginia Department of Environmental Quality, the Virginia Department of Conservation and Recreation, and the Virginia Department of Game and Inland Fisheries. NFWF shall further consult with localities as appropriate. NFWF is not bound by any recommendations from any of the state or federal agencies, resource managers, or localities consulted.
vi.
Projects shall be identified and funding
  

obligated within five (5) years of the date of entry of Judgment in this case.
vii. In identifying and selecting projects to receive funding pursuant to this Agreement and related Judgment, NFWF shall not incur liability of any nature in connection with any act or omission, made in good faith, in the administration of the funds or otherwise pursuant to this Agreement, excepting, however, liability resulting from NFWF’s gross negligence or willful misconduct.
  

In addition, if and to the extent NFWF grants funds to or contracts with any governmental

entity to implement any project under this Agreement and related Judgment: (a) NFWF shall be deemed to act solely as an administrative agent
  

in contracting for, granting to, and disbursing funds for any such project; and (b) NFWF shall
  

not be deemed to incur liability of any nature in connection with the design, engineering, construction, operation, or maintenance of any such project, including, without limitation, any impact or consequences any of any such project on fish, wildlife, plant, or other natural
  

resources, personal injury, or property damage.
viii. NFWF’s use of funds received pursuant to this Agreement and related Judgment shall be subject
  

to the reporting requirements of 16 U.S.C.
  

§ 3706. In addition, NFWF shall report to the United States Probation Office and to the parties regarding the status and disposition of money it has received pursuant to this Agreement and related Judgment, on at least an annual basis, until all such money has been spent.
bb.
Mitigation :    Within ninety (90) days of sentencing, in order to mitigate impacts to wetlands and other jurisdictional waters of the United States impacted as a result of the Defendant’s operation of coal ash impoundments and any relevant criminal conduct, including temporal and secondary effects, at its facilities in North Carolina with coal ash impoundments, and in addition to the mitigation payment made by its co-defendant DEC, the Defendant shall provide $5 million ($5,000,000), which represents its share after apportionment of a total $10 million ($10,000,000) payment, to an authorized wetlands mitigation bank for the purchase of wetland and/or riparian land and/or restoration equivalent located in the Broad River Basin, French Broad River Basin, Cape Fear River Basin, Catawba River Basin, Dan River Basin, Yadkin-Pee Dee River Basin, Neuse River Basin, Lumber River Basin, and Roanoke River Basin.    This mitigation payment is in addition. to, and does not replace, Duke Energy Corporation’s public commitment to fund its $10 million ($10,000,000) Water Resources Fund for environmental and other philanthropic projects along lakes and rivers in the Southeast.
i.
Such wetland restoration shall be made through an authorized wetlands mitigation bank with no affiliation to any current or former employee of the North Carolina Department of Environment and Natural Resources in that employee’s individual capacity.
ii.
The Defendant, along with its co-defendants DEBS and DEC, shall provide a list of three (3) proposed mitigation banks from which the Court will select the mitigation bank to receive the funds. If the Defendant is unable after
  

reasonable efforts to identify one or more mitigation banks, the Defendant may substitute
  

one or more conservation trust funds within the State of North Carolina in its proposal as long
  

as all other conditions of this section are being met.
iii. Such property must be purchased in the State of North Carolina by the selected authorized
  

wetlands mitigation bank or conservation trust within four (4) years from the date of entry of Judgment.
iv.
Such property shall be held by and titled in the name of a third-party (with no affiliation to the Defendant or any of the Defendant’s sister or parent corporations).
v.
Such property shall be held in permanent conservation status for the benefit of the citizens of North Carolina.
vi.
The Defendant shall ensure that the selected authorized wetlands mitigation bank or conservation trust provides a full accounting of all mitigation property purchased to the Court
  

and the CAM and documentary evidence that the property has been placed in permanent
  

conservation status.
cc.
No Credit in Civil or Administrative Proceedings :
  

The Defendant shall not seek or take credit for any fine, restitution, community service payment, mitigation payment, or funding of the environmental

compliance plan (including the costs associated with the hiring or payment of staff or consultants needed to assist the CAM) under this Agreement in any related civil or administrative proceeding, including, but not limited to, the Natural Resources Damages Assessment process.
dd. No Capitalization or Tax Deduction : The Defendant shall agree that:
(1) it shall not capitalize into inventory or basis or take as a tax deduction, in the United States or elsewhere, any portion of the monetary payments (fine, restitution, community service, mitigation, or funding of the environmental compliance plans) made pursuant to this Agreement. Provided, however, that nothing in this Agreement shall bar or prevent the Defendant from appropriately capitalizing or seeking an appropriate tax deduction for restitution in connection with the remediation of bromide claims set forth in this Agreement or for costs which would have been incurred by the Defendant irrespective of the environmental compliance plans. Costs that would have been incurred irrespective of the environmental compliance plans include, by way of example only, costs for staffing and operating Central Engineering Services, ABSAT, Coal Combustion Products, or other similar organizations.
ee
No Rate Increase Based Upon Monetary Penalties : The Defendant shall not reference the burden of, or the cost associated with, compliance with the criminal fines, the restitution related to counts of conviction, the community service payments, the mitigation obligation, the costs of the clean-up in response to the February 2, 2014, release at Dan River Steam Station, and/or the funding of the environmental compliance plans in any request or application for a rate increase on customers. Provided, however, that nothing in this Agreement shall bar or prevent the Defendant from seeking appropriate recovery for restitution in connection with the remediation of bromide claims set forth in this Agreement or for costs which would have been incurred by the Defendant irrespective of the environmental compliance plans. Costs that would
  

have been incurred irrespective of the environmental compliance plans include, by way of example only, costs for staffing and operating Central Engineering Services, ABSAT, Coal Combustion Products, or other similar organizations.
ff. Public Apology : Consistent with USSG §8D1.4(a), and in conjunction with its co-defendants DEBS and DEC, the Defendant shall place a full-page advertisement in at least two national newspapers and three major North Carolina newspapers (one in Raleigh, one in Greensboro, and one in Charlotte) and on its publicly accessible company website. The full page advertisement shall run within five (5) days of entry of the plea. The language of the public apology must be agreed upon by each of the federal districts and is appended to this Agreement as Exhibit C.
gg. The Defendant shall not reference this Agreement, any payments pursuant hereto, or other compliance herewith in any public relations, marketing, or advertising. The Defendant shall be permitted to make required disclosures under applicable securities laws.
hh. Tolling of Statute of Limitations : To ensure compliance with the terms of the Agreement, the Defendant waives any statute of limitations as of the the date of this Agreement through the full term of Defendant’s probation and until all of the Defendant’s obligations under this Agreement have been satisfied with regard to any conduct relating to or arising out of the conduct set forth in the Criminal Informations.
ii. The Defendant waives any claim under the Hyde Amendment, 18 U.S.C. § 3006A (Statutory Note), for attorneys’ fees and other litigation expenses arising out of the investigation or prosecution of this matter.
jj. The Defendant agrees to withdraw from and not to participate in any joint defense agreement, informal or formal, in connection with the defense by any person designated as a “target” or “subject” of, or indicted for, any potential criminal charges relating to the Clean Water Act violations in North Carolina that are the subject of this Agreement and any allegations of violations of Title 18 of which the Defendant is aware or becomes aware. The Defendant

agrees to submit a written statement, signed by counsel and the appropriate corporate officer, reflecting this commitment to the United States prior to entry of this Agreement.
kk. Term of Supervised Probation : The Defendant and the Government agree that the Defendant shall be placed on organizational supervised probation for a period of five (5) years from the date of sentencing pursuant to 18 U.S.C. § 3561(c)(2) and USSG §§8D1.1 and 8D1.2.
4.      The Defendant represents and/or acknowledges:
a.
That the Defendant has had the assistance of an attorney in connection with the charges against it. That the attorney has carefully reviewed this Agreement with those persons designated by law and its bylaws to act on behalf of the Defendant (hereinafter referred to as “Designated Corporate Representative”) and that this Agreement has been signed by a person authorized by law and the bylaws of the Defendant to execute agreements on behalf of the Defendant.
b.
That its Designated Corporate Representative has reviewed and discussed the Criminal Informations filed in each of the federal districts involved in this matter with the Defendant’s attorney and that the attorney has explained the Government’s evidence to that Designated Corporate Representative.
c.
That as a corporation, it is vicariously liable for the criminal acts of its employees acting within the scope of their employment for the benefit of the corporation.
d.
That it understands that this Agreement does not provide or promise any waiver of any civil or administrative actions, sanctions, or penalties that may apply, including but not limited to: fines; penalties; claims for damages to natural resources; suspension, debarment, listing to restrict rights and opportunities of the Defendant to contract with or receive assistance, loans, and benefits from United States agencies; licensing; injunctive relief; or remedial action to comply with any applicable

regulatory requirement. The Defendant understands that this Agreement has no effect on any proceedings against any party not expressly mentioned herein, including the actual or potential criminal liability of any individuals.
e.
Guaranty :    That it has sought and obtained a guarantee of its obligations under this Agreement from its parent holding company, Duke Energy Corporation, a copy of which is attached hereto as Exhibit B and incorporated herein by reference. Duke Energy Corporation further consents to the jurisdiction of the United States District Court for the Eastern District of North Carolina for the purpose of enforcing the Guaranty Agreement.
f.
Resolution :    That it has filed with the Court prior to entry of this-Agreement the original resolution from the board of directors (or equivalent written authorization as recognized by law) that gives the authority described in Paragraph 4(a) above to the Designated Corporate Representative and that authorizes such employee to execute this Agreement on behalf of the Defendant. A copy of the Resolution, attached hereto as Exhibit D, provides as follows:
i.
The Defendant is a legally viable entity, authorized to plead guilty to the charges set forth in the Criminal Informations;
ii.
The Defendant shall be bound by the specific
  

terms of this Agreement;
iii. The parent corporation, Duke Energy Corporation, is authorized to guarantee all payments (criminal fine, restitution, community service, and mitigation), and funding and performance due from the Defendant in connection with its obligations under the NECP and ECP-NC under this Agreement,
  

as set forth in the Guaranty Agreement.
iv.
Any legal successor or assignee of Duke Energy Corporation shall remain liable, as the case may be, for the guarantee of the Defendant’s payment obligations and the funding and performance of both the NECP and ECP-NC hereunder, and an agreement to so remain liable shall be included

by Duke Energy Corporation in the terms of any sale, acquisition, or merger.
v. Any legal successor or assignee of the Defendant shall remain liable for the Defendant’s obligations in this Agreement, and an agreement
  

to so remain liable shall be included by the Defendant in the terms of any sale, acquisition, or merger of the Defendant with or by any other entity. Subject to the requirements of this subparagraph, nothing shall prevent the Defendant from undergoing a corporate reorganization or change in form. The Defendant shall record a
  

copy of the Judgment with the Register of Deeds
  

in each of the counties in North Carolina in
  

which it owns and operates facilities with coal ash impoundments. Upon written request from the Defendant made only after fulfillment of all of the conditions of this Agreement and related Judgment, the Government shall take the necessary steps through the Register of Deeds to facilitate the removal of the notice of the Judgment.
5.      The Defendant understands, agrees, and admits:
a.
That as to each Count of the Criminal Informations to which the Defendant is pleading guilty, the charge, code section, elements, and applicable penalties are as follows:
United States v. Duke Energy Business Services LLC, and
Duke Energy Progress, Inc .,
No. 5:15-CR-62-H-2
Violations at H.F. Lee Steam Electric Plant
COUNT ONE
(1)
Clean Water Act violation for the unpermitted discharge from a drainage ditch at the coal ash impoundment at the H.F. Lee Steam Electric Plant
  

and aiding and abetting
(2)
Code Sections
violated:        33 U.S.C. §§ 1311, 1319(c)(1)(A),
and 1342; and
18 U.S.C. § 2
(3)
Offense date: No later than October 1, 2010, through December 30, 2014
(4)
Elements of the Offense:
First :
The Defendant did discharge a pollutant,
  

to wit, coal ash and coal ash wastewater;
Second :
from a point source;
Third :
into a water of the United States;
Four :
the Defendant did so in violation of a permit;
Five :
the Defendant acted negligently in so
  

doing; and
Six :
the Defendant aided and abetted another
  

in so doing.
(5)
Maximum term of probation for a corporation:
  

5 years pursuant to 18 U.S.C. § 3561(c)(2) and
  

USSG §8D1.2(a)(2)
(6)
Minimum term of probation for a corporation:
  

0 years pursuant to 18 U.S.C. § 3561(c) (2) and
  

USSG §8D1.2(a) (2)
(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)
  

and (d), the greater of: not less than $2,500 nor
  

more than $25,000 per day of violation (33 U.S.C.
  

§ 1319(c)(1)(A)); $200,000.00; or twice the
  

gross gain or loss .
(8)
Restitution pursuant to 18 U.S.C. § 3663, 3663A,
  

and 3563(b)(2), and as agreed to in Paragraphs
  

2(iv)-(v) and 3(b)-(c) above.
(9)
Special assessment: $ 125.00
(10)
Other penalties: Public Notice of Violation; Development of a Compliance Program; Community Service; and Remediation


United States v. Duke Energy Business Services LLC, Duke Energy
Carolinas, LLC, and Duke Energy Progress, Inc .,
No. 5:15-CR-67-H-3
Violations at Cape Fear Steam Electric Plant
COUNT FIVE
(1)
Clean Water Act violation for the failure to
  

properly maintain the riser within the 1978 coal
  

ash impoundment at the Cape Fear Steam Electric
  

Plant and aiding and abetting
(2)
Code Sections
violated:        33 U.S.C. §§ 1319(c)(1)(A)
            and 1342; and
            18 U.S.C. § 2
(3)
Offense date:    No later than January 1, 2012,
  

through January 24, 2014
(4)
Elements of the Offense:
First :
The Defendant did violate a condition of
  

its NDPES permit issued by the State of North Carolina pursuant to the Clean
  

Water Act; to wit, the requirement to properly maintain its equipment as more fully described in the Criminal
  

Information;
Second :
the Defendant acted negligently in so
  

doing; and
Third :
the Defendant aided and abetted another
  

in so doing.
(5)
Maximum term of probation for a corporation:
  

5 years pursuant to 18 U.S.C. § 3561(c)(2) and
  

USSG §8D1.2(a)(2)
(6)
Minimum term of probation for a corporation:
0 years pursuant to 18 U.S.C. § 3561(c)(2) and
  

USSG .58D1.2(a)(2)
(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)
  

and (d), the greater of: not less than $2,500 nor
  

more than $25,000 per day of violation (33 U.S.C.
  

§ 1319(c)(1)(A)); $200,000.00; or twice the
  

gross gain or loss .
(8)
Restitution pursuant to 18 U.S.C. §§ 3663, 3663A,
  

and 3563(b)(2), and as agreed to in Paragraphs
  

2(iv)-(v) and 3(b)-(c) above.
(9)
Special assessment: $ 125.00
(10)
Other penalties: Public Notice of Violation; Development of a Compliance Program; Community Service; and Remediation
COUNT SIX
(1)
Clean Water Act violation for the failure to
  

properly maintain the riser within the 1985 coal a
  

sh impoundment at the Cape Fear Steam Electric
  

Plant and aiding and abetting
(2)
Code Sections
violated:        33 U.S.C. §§ 1319(c)(1)(A) and
            1342; and
            18 U.S.C. § 2
(3)
Offense date:    No later than January 1,    2012,
  

through January 24,    2014
(4)Elements of the Offense:
First :
The Defendant did violate a condition of
  

its NDPES permit issued by the State of North Carolina pursuant to the Clean
  

Water Act; to wit, the requirement to properly maintain its equipment as more fully described in the Criminal
  

Information;
Second :
the Defendant acted negligently in so
  

doing; and
Third :
the Defendant aided and abetted another in so doing.
(5)
Maximum term of probation for a corporation:
  

5 years pursuant to 18 U.S.C. § 3561(c)(2) and
  

USSG §8D1.2(a)(2)
(6)
Minimum term of probation for a corporation:
  

0 years pursuant to 18 U.S.C. 3561(c)(2) and
  

USSG §8D1.2(a)(2)
(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)
  

and (d), the greater of: not less than $2,500 nor
  

more than $25,000 per day of violation (33 U.S.C. 1319(c)(1)); $ 200,000.00; or twice the gross
  

gain or loss .
(8)
Restitution pursuant to 18 U.S.C. §§ 3663, 3663A,
  

and 3563(b)(2), and as agreed to in Paragraphs
  

2(iv)-(v) and 3(b)-(c) above.
(9)
Special assessment: $ 125.00
(10)
Other penalties: Public Notice of Violation; Development of a Compliance Program; Community Service; and Remediation
United States v. Duke Energy Business Services LLC,
Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc .,
No. 5:15-CR-68-1-1-3
Violations at Asheville Steam Electric Generating Plant
COUNT TWO
(1)
Clean Water Act violation for the unpermitted discharge from a toe drain at the coal ash
  

impoundment at the Asheville Steam Electric
  

Generating Plant and aiding and abetting
(2)
Code Sections
violated:            33 U.S.C. §§ 1311, 1319(c)(1)(A),                     and 1342; and
                18 U.S.C. § 2
(3)
Offense date:    No later than May 31, 2011,
  

through December 30, 2014
(4)
Elements of the Offense:
First :
The Defendant did discharge a pollutant,
  

to wit, coal ash and coal ash wastewater;
Second :
from a point source;
Third :
into a water of the United States;
Four :
the Defendant did so in violation of a permit;
Five :
the Defendant acted negligently in so
  

doing; and
Six :
the Defendant aided and abetted another
  

in so doing.
(5)
Maximum term of probation for a corporation:
  

5 years pursuant to 18 U.S.C. § 3561(c) (2) and
  

USSG §8D1.2(a)(2)
(6)
Minimum term of probation for a corporation:
  

0 years pursuant to 18 U.S.C. § 3561(c) (2) and
  

USSG §8D1.2(a) (2)
(7)
Maximum fine: Pursuant to 18 U.S.C. § 3571(c)
  

and (d), the greater of: not less than $2,500 nor
  

more than $25,000 per day of violation (33 U.S.C.
  

§ 1319(c)(1)(A)); $200,000.00; or twice the gross gain or loss .
(8)
Restitution pursuant to 18 U.S.C. §§ 3663, 3663A,
  

and 3563(b)(2), and as agreed to in Paragraphs
  

2(iv)-(v) and 3(b)-(c) above.
(9)
Special assessment: $ 125.00
(10)
Other penalties: Public Notice of Violation; Development of a Compliance Program; Community Service; and Remediation

Total Statutory Penalties: a maximum of 5 years of probation; a minimum fine of $10,850,000; a maximum fine of $108,500,000; and a $500.00 special assessment.
6.      The United States agrees:
a.
That pursuant to Fed. R. Crim. P. 11(c)(1)(C), the sentence set forth in Paragraph 2 above is warranted.
b.
That it reserves the right at sentencing to present any evidence and information pursuant to 18 U.S.C. § 3661, to offer argument or rebuttal, to recommend imposition of restitution, and to respond to any motions or objections filed by the Defendant.
c.
That, subject to the reservations within this Agreement, the United States shall not further prosecute the Defendant, including all predecessors, successors, and assignees of the Defendant, for conduct constituting the basis for the Criminal Informations covered by this Agreement as set forth
  

in the Joint Factual Statement or about which the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts and the Department of Justice - Environmental Crimes Section were otherwise aware of as of the date of this Agreement. This Agreement shall not apply to individuals. Should the Court determine that the Defendant has breached this Agreement, the Defendant will not be entitled to withdraw its plea of guilty, and the United States
  

may prosecute the Defendant, and any predecessors, successors, and assignees of the Defendant for
  

conduct constituting the basis for the Criminal Informations covered by the Agreement, notwithstanding the expiration of any applicable statutes of limitations following the signing of this Agreement. In any such prosecution, the United
  

States may use the Defendant’s admissions of guilt as admissible evidence against the Defendant.
d.
That it will make known to the Court at sentencing the full extent of the Defendant’s cooperation.
e.
Pursuant to USSG §1B1.8, that self-incriminating information provided by the Defendant pursuant to
  

this Agreement shall not be used against the
Defendant in determining the applicable advisory Guideline range, except as provided by USSG §1B1.8 and except as stated in this Agreement. The United States may provide to the United States Probation Office any evidence concerning relevant conduct.
f.
Notwithstanding the foregoing, the United States Attorneys’ Offices for the Eastern, Middle, and Western Districts of North Carolina and the
  

Department of Justice - Environmental Crimes Section further recognize that this Agreement does not
  

provide or promise any waiver of any civil or administrative actions, sanctions, or penalties that may apply, including but not limited to: fines; penalties; claims for damages to natural resources; suspension, debarment, listing to restrict rights and opportunities of the Defendant to contract with or receive assistance, loans, and benefits from United States agencies; licensing; injunctive relief; or remedial action to comply with any applicable regulatory requirement.






(SPACE LEFT BLANK INTENTIONALLY)










EXHIBIT A
Copy of Joint Factual Statement


UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No.    5:15-CR-62-H
No.    5:15-CR-67-H
No.    5:15-CR-68-H

UNITED STATES OF AMERICA
)
 
 
)
 
v.
)
JOINT FACTUAL STATEMENT
 
)
 
DUKE ENERGY BUSINESS SERVICES LLC
)
 
DUKE ENERGY CAROLINAS, LLC
DUKE ENERGY PROGRESS, INC.
)
)
 

I.     INTRODUCTION
Defendants Duke Energy Business Services :LLC (“DUKE ENERGY BUSINESS SERVICES”), Duke Energy Carolinas, LLC (“DUKE ENERGY CAROLINAS”), and Duke Energy Progress, Inc. (“DUKE ENERGY PROGRESS”),(collectively referred to as “Defendants”) and the United States of America, by and through the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina and the Western District of North Carolina and the Environmental Crimes ‘Section of the United States Department of Justice (collectively referred to herein as “the United States” or “the government”), hereby agree that this Joint Factual Statement is a true and accurate statement of the Defendants’ criminal conduct and that it provides a sufficient basis for the Defendants’ pleas of guilty to the following charging documents and the terms of the Plea Agreements:
United States v. Duke Energy Business Services, LLC, and Duke Energy Progress, Inc. , No. 5:15-CR-62-H;
United States v. Duke Energy Business Services, LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. ,
  

No. 5:15-CR-67-H; and
United States v. Duke Energy Business Services, LLC, Duke Energy Carolinas, LLC, and Duke Energy Progress, Inc. ,
  

No. 5:15-CR-68-H.
The charges from the Middle District of North Carolina and
  

the Western District of North Carolina have been transferred to the Eastern District of North Carolina for purposes of plea pursuant to Fed. R. Crim. P. 20. The Defendants’ guilty pleas are to be entered pursuant to the Plea Agreements signed and dated this same day.
II.     OVERVIEW AND BACKGROUND
Dan River Steam Station -
Middle District of North Carolina

1.    From at least January 1, 2012, DUKE ENERGY CAROLINAS
  

and DUKE ENERGY BUSINESS SERVICES failed to properly maintain and inspect the two stormwater pipes underneath the primary coal ash basin at the Dan River Steam Station in Eden, North Carolina. On February 2, 2014, one of those pipes failed, resulting in the discharge of approximately 27 million gallons of coal ash wastewater and between 30,000 and 39,000 tons of coal ash into the Dan River. The coal ash travelled more than
  

62 miles downriver to the Kerr Lake Reservoir on the border of
2

North Carolina and Virginia. Video camera inspections of the other pipe, conducted in the aftermath of the spill, revealed that the other pipe had also deteriorated, allowing coal ash wastewater to leak into the pipe, and that DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES had not taken appropriate action to prevent unauthorized discharges from the pipe.
Cape Fear Steam Electric Plant -
Middle District of North Carolina

2.    DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES
  

also failed to maintain the riser structures in two of the coal ash basins at the Cape Fear Steam Electric Plant, resulting in the unauthorized discharges of leaking coal ash wastewater into the Cape Fear River.
Asheville, Riverbend, & Lee Steam Stations -
Eastern and Western Districts of North Carolina

3.    Additionally, DUKE ENERGY CAROLINAS’ and DUKE ENERGY PROGRESS’s coal combustion facilities throughout North Carolina allowed unauthorized discharges of pollutants from coal ash basins via “seeps” into adjacent waters of the United States. Three of those facilities include the Asheville Steam Electric Generating Plant, the H.F. Lee Steam Electric Plant, and the Riverbend Steam Station. At those facilities, discharges from naturally occurring seeps were channeled by DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES to flow through
3

engineered drains and ditches into waters of the United States without obtaining or maintaining the necessary permits.
4.    The Defendants’ conduct violated the Federal Water Pollution Control Act (commonly referred to as the “Clean Water Act,” or “CWA”). 33 U.S.C. § 1251 et seq. More specifically, the criminal investigation, conducted out of the Eastern District of North Carolina, revealed the following:
DEFENDANTS AND CORPORATE STRUCTURE
5.    Duke Energy Corporation is an energy company
  

headquartered in Charlotte, North Carolina.
6.    Duke Energy Corporation is a holding company whose
  

direct and indirect subsidiaries operate in the United States and Latin America. Duke Energy Corporation’s wholly-owned subsidiaries include: DUKE ENERGY CAROLINAS; Progress Energy, Inc. (“Progress Energy”); DUKE ENERGY PROGRESS; and DUKE ENERGY BUSINESS SERVICES.
7.    DUKE ENERGY CAROLINAS, a North Carolina limited liability company, is a regulated public utility primarily
  

engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina.
8.    Progress Energy, a North Carolina corporation
  

headquartered in Raleigh, North Carolina, is a holding company which holds, among other entities, DUKE ENERGY PROGRESS.
4

9.    DUKE ENERGY PROGRESS, a North Carolina corporation, is
  

a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Prior to the July 2, 2012, merger between Duke Energy Corporation and Progress Energy, Inc., DUKE ENERGY PROGRESS was known as Carolina Power & Light, Inc., d/b/a Progress Energy Carolinas.
10.    “Progress Energy Carolinas” will refer to DUKE ENERGY PROGRESS before the merger.
11.    DUKE ENERGY BUSINESS SERVICES provides shared services
  

to all of Duke Energy Corporation’s operating utilities nationwide, including: Legal Counsel; Central Engineering & Services; Environmental, Health & Safety; Ethics and Compliance; and Coal Combustion Products.
12.    During the time period relevant to the charges, within
  

the State of North Carolina, the Defendants and/or their predecessors owned and operated the following facilities with coal ash basins:
FACILITY
OWNER/ OPERATOR
NUMBER OF COAL ASH BASINS
ADJACENT WATERS OF THE UNITED STATES
FEDERAL JUDICIAL DISTRICT
Allen Steam Station (Gaston County)
Duke Energy Carolinas
2
Lake Wylie & Catawba River
WDNC
Asheville Steam Electric Generating Plant
Buncombe County)
Duke Energy Progress
2
French Broad River
WDNC
5

Belews Creek Steam Station
Stokes County)
Duke Energy Carolinas
1
Belews Lake & Dan River
MDNC
Buck Steam Station (Rowan County)
Duke Energy Carolinas
3
Yadkin River & High Rock Lake
MDNC
Cape Fear Steam Electric Plant (Chatham County)
Duke Energy Progress
5
Cape Fear River
MDNC
Cliffside Steam Station
(Rutherford & Cleveland Counties)
Duke Energy Carolinas
3
Broad River
WDNC
Dan River Steam Station
(Rockingham County)
Duke Energy Carolinas
2
Dan River
MDNC
H.F. Lee Steam Electric Plant (Wayne County)
Duke Energy Progress
5
Neuse River
EDNC
L.V. Sutton Electric Plant
(New Hanover County)
Duke Energy Progress
2
Cape Fear River & Sutton Lake
EDNC
Marshall Steam Station
(Catawba County)
Duke Energy Carolinas
1
Lake Norman
WDNC
Mayo Steam Electric Plant
(Person County)
Duke Energy Progress
1
Mayo Lake
MDNC
Riverbend Steam Station
(Gaston County)
Duke Energy Carolinas
2
Catawba River
WDNC
Roxboro Steam Electric Plant (Person County)
Duke Energy Progress
2
Hyco River
MDNC
Weatherspoon Steam Electric Plant (Robeson County)
Duke Energy Progress
1
Lumber River
EDNC


COAL COMBUSTION PLANTS AND COAL ASH BASINS
13.    Power plants that generate electricity through the combustion of coal create a number of waste byproducts. Among those waste byproducts are “coal combustion residuals” or “CCRs.” CCRs include fly ash, bottom ash, coal slag, and flue gas desulfurized gypsum. Fly ash and bottom ash are both commonly referred to as “coal ash.” Coal ash contains various heavy metals and potentially hazardous constituents, including arsenic, barium, cadmium, chromium, lead, manganese, mercury, nitrates, sulfates, selenium, and thallium. Coal ash has not been defined, itself, as a “hazardous substance” or “hazardous waste” under federal law, although some constituents of coal ash may be hazardous in sufficient quantities or concentrations.
14.    Coal ash basins (also known as “coal ash ponds,” “coal ash impoundments,” or “ash dikes”) may be part of the waste treatment system at coal-fired power plants. Historically, the Defendants’ coal ash basins were unlined earthen impoundments and typically operated as follows: Coal ash was mixed with water to form slurry. The coal ash slurry was carried through sluice pipe lines to the coal ash basin. Settling occurred in the coal ash basin, in which particulate matter and free chemical components separated from the slurry and settled at the bottom of the basin. Less contaminated water remained at the surface of the basin, from which it could eventually be

discharged if authorized under relevant law and permits. In some instances, such as the Dan River Steam Station, water at the surface of the primary basin, flowed into a secondary basin, where further settling and treatment occurred before its discharge into a water of the United States.
15.    Coal ash basins generally continued to store settled
  

ash and particulate material for years or decades. From time to time, the Defendants dredged settled coal ash from the basins, storing the ash in dry stacks on plant property.
16.    A total of approximately 108 million tons of coal ash
  

are currently held in coal ash basins owned and operated by the Defendants in North Carolina. Duke Energy Corporation subsidiaries also operate facilities with coal ash basins in South Carolina (approximately 5.99 million tons of coal ash), Kentucky (approximately 1.5 million tons of coal ash), Indiana (approximately 35.6 million tons of coal ash), and Ohio (approximately 5.9 million tons of coal ash).
17.    Each of the Defendants’ facilities in North Carolina
  

with coal ash basins sought and received permits to discharge treated coal ash wastewater through specified permitted outfalls into waters of the United States, including those listed in paragraph 12.

8

III. LEGAL AND REGULATORY BACKGROUND
CLEAN WATER ACT
18.    The Clean Water Act is a federal law enacted to
  

“restore and maintain the chemical, physical, and biological integrity of the Nation’s waters.” 33 U.S.C. § 1251(a).
19.    The Act prohibits the discharge of any pollutant into waters of the United States except in compliance with a permit issued pursuant to the CWA under the National Pollutant Discharge Elimination System (“NPDES”) by the United States Environmental Protection Agency (“EPA”) or by a state with an approved permit program. 33 U.S.C. §§ 1311(a) and 1342.
20.    The Act defines “discharge of a pollutant” as “the addition of any pollutant to navigable waters from any point source.” 33 U.S.C. § 1362(12). The term “pollutant” includes a wide range of materials, including solid waste and industrial waste. 33 U.S.C. § 1362(6). Coal ash and coal ash wastewater are pollutants.
21.    A “point source” is a “confined and discrete
  

conveyance, including . . . any pipe . . . from which pollutants are or may be discharged.” 33 U.S.C. § 1362(14). Pipes and channelized ditches conveying stormwater or wastewater to surface waters are point sources.

9

22.    “Navigable waters” are defined in the Act as “waters
  

of the United States.” 33 U.S.C. § 1362(7). “Waters of the United States” include rivers and streams “which would affect or could affect interstate or foreign commerce including any such waters. . . . [w]hich are or could be used by interstate or foreign travelers for recreational or other purposes. . . .[and the] [t]ributaries of [such] waters.” 40 C.F.R. § 122.2. The following rivers are “waters of the United States”: (1) Broad River; (2) French Broad River; (3) Cape Fear River; (4) Catawba River; (5) Dan River; (6) Yadkin-Pee Dee River; (7) Neuse River; (8) Lumber River; (9) Roanoke River; (10) Hyco River; (11) all tributaries of those rivers, including the South Fork of the Catawba River and Crutchfield Branch; and (12) all lakes and reservoirs exchanging water with those rivers, including, but not limited to, Belews Lake, Lake Norman, Mayo Lake, High Rock Lake, Sutton Lake, and Kerr Reservoir.
23.    Permits regulating discharges of pollutants (other
  

than dredge and fill material) to waters of the United States are issued under the NPDES permit program.
See 33 U.S.C. § 1342.    Under the NPDES permit program, persons or entities who wish to discharge one or more pollutants must apply for an permit from the proper state or federal agency. See 40 C.F.R. § 122.21. A “permit” is “an authorization, license, or equivalent

control document issued by EPA or an ‘approved State’ to implement the requirements of [the CWA].” “Permit” does not include a “draft permit” or a “proposed permit” which has not yet been the subject of final agency action. 40 C.F.R. § 122.2 (emphasis added).    Thus, an application for a permit does not provide the applicant with authority or permission to discharge under the Act.
24.    States can seek approval from EPA to administer and enforce the CWA NPDES permit program. 33 U.S.C. § 1342(b). EPA’s approval of a state program does not affect the United States’ ability to enforce the Act’s provisions. 33 U.S.C. § 1342(i).
25.    On October 19, 1975, EPA approved the State of North Carolina’s application to administer the NPDES Program. 40
  

Fed. Reg. 51493-05 (Nov. 5, 1975).
26.    NPDES permits typically contain, among other things, effluent limitations; water quality standards; monitoring and reporting requirements; standard conditions applicable to all permits; and special conditions where appropriate. See 33 U.S.C. § 1342; 40 C.F.R. §§ 122.41-122.50.
27.    All of DUKE ENERGY CAROLINAS’ and DUKE ENERGY
  

PROGRESS’s facilities with coal ash basins in North Carolina are required to comply with the following
Standard Conditions ,
11

incorporated into their NPDES permit. See also 40 C.F.R. § 122.41.
a.
The Permittee shall take all reasonable steps to minimize or prevent any discharge or sludge use or disposal in violation of this permit with a reasonable likelihood of adversely affecting human health or the environment. Standard Conditions , Section B(2) (“ General Conditions ”).
b.
The Permittee shall at all times properly operate and maintain all facilities and systems of treatment and control (and related appurtenances) which are
  

installed or used by the Permittee to achieve compliance with the conditions of this permit.
  

Standard Conditions , Section C(2) (“ Operation and Maintenance of Pollution Controls ”).
IV. FACTUAL BASIS FOR PLEA AND RELEVANT CONDUCT
DAN RIVER STEAM STATION
28.    DUKE ENERGY CAROLINAS owns and operates the Dan River Steam Station (“DAN RIVER”), located on the Dan River in the Roanoke River Basin near Eden, North Carolina. DAN RIVER began operating in 1949 as a coal combustion plant. The coal combustion unit at DAN RIVER was retired in 2012. DUKE ENERGY CAROLINAS now operates a combined cycle natural gas facility to generate steam and electricity at DAN RIVER.
29.    In 1956, the first coal ash basin at DAN RIVER was constructed to store existing and future coal ash. This basin is commonly referred to as the “Primary Ash Basin.”
30.    Two stormwater pipes run under the Primary Ash Basin:
  

a 48-inch stormwater pipe and a 36-inch stormwater pipe. Both
12

were designed to carry stormwater from the site to the Dan River.
31.    The 48-inch stormwater pipe predates the Primary Ash Basin.    As installed in 1954, the 48-inch stormwater pipe was composed of galvanized corrugated metal pipe (“CMP”).
32.    From 1968 to 1969, the Primary Ash Basin was expanded
  

over the original outfall of the 48-inch stormwater pipe. When the Primary Ash Basin was expanded, the 48-inch stormwater pipe was extended using reinforced concrete. After the expansion,
  

the 48-inch stormwater pipe was a total of 1130 feet in length, of which approximately 786 feet was corrugated metal pipe and approximately 344 feet was reinforced concrete pipe (“RCP”).
33.    The 36-inch stormwater pipe is composed of reinforced concrete pipe that is approximately 600 feet in length.
34.    Between 1976 and 1977, the expanded Primary Ash Basin
  

was divided to form a second basin, commonly referred to as the “Secondary Ash Basin.”
35.    The Primary Ash Basin has a surface area of
  

approximately 27 acres and a total storage capacity of approximately 477 acre-feet (or 155,431,132 gallons). The Secondary Ash Basin has a surface area of approximately 12 acres and a total storage capacity of approximately 187 acre-feet (or 60,934,277 gallons). In 2013, the basins contained a total of
13

approximately 1,150,000 cubic yards (or 232,270,130 gallons) of coal ash.
36.    In a 2009 EPA Dam Safety Assessment, it was noted that
  

the Primary and Secondary coal ash basins were:
Classified as a significant hazard potential structure due to the environmental damage
  

that would be caused by misoperation or failure of the structure.
DAN RIVER STEAM STATION NPDES PERMIT
37.    On January 31, 2013, the State of North Carolina,
  

through its Department of Environment and Natural Resources (“DENR”) - Division of Water Resources (“DWR”), issued a new NDPES permit to DUKE ENERGY CAROLINAS. Effective March 2013, NPDES Permit NC0003468 (“the Dan River Permit”), and authorized the discharge of wastewater from specified outfalls at DAN RIVER.
38.    The Dan River Permit required, among other things,
  

that the facility meet the dam design and dam safety requirements set forth in North Carolina regulations at 15A NCAC 2K.
39.    Pursuant to 15A NCAC 2K.0301, dams such as the Primary
  

Ash Basin at DAN RIVER are subject to annual safety inspections by state authorities.

14

40.    In 2006, DUKE ENERGY CAROLINAS, with the assistance of DUKE ENERGY BUSINESS SERVICES, applied for a NDPES stormwater permit for the 48-inch and the 36-inch pipes. As of February 2, 2014, DENR had not issued DUKE ENERGY CAROLINAS an individual or general NDPES stormwater permit for either the 48-inch or 36-inch pipe.
41.    A NPDES stormwater permit is different than the NPDES permit issued for the discharge of wastewater from a treatment system. Stormwater permits generally do not allow the discharge of wastewater or particulates from coal ash basins or other industrial processes.
42.    Neither the 48-inch nor the 36-inch stormwater pipe
  

was a permitted outfall under the Dan. River permit for wastewater. Neither DUKE ENERGY CAROLINAS nor any predecessor received authorization pursuant to the CWA and NPDES program to discharge wastewater from the coal ash basins or coal ash stored in those basins from either the 48-inch or 36-inch stormwater pipe under the Primary Coal Ash Basin at DAN RIVER.
1979 DOCUMENTED PROBLEMS WITH STORMWATER PIPES
43.    In 1979, DUKE ENERGY CAROLINAS (at that time called
  

Duke Power Company) inspected the 48-inch stormwater pipe through its Design Engineering and Station Support group. Although no major leaks were identified, engineers noted water
15

leaking into the pipe. Repairs to the 48-inch stormwater pipe were undertaken in response to this inspection.
44.    Also in 1979, the Design Engineering and Station
  

Support group inspected the 36-inch stormwater pipe. Twenty-two joints in the 36-inch pipe were noted for major leaks. DUKE ENERGY CAROLINAS/Duke Power Company employees recommended that the company repair the leaks or reroute the drain lines, noting that the discharges could be violations of EPA regulations. Repairs to the 36-inch stormwater pipe were undertaken in response to this inspection.
INSPECTIONS OF DAN RIVER COAL ASH BASINS AND DUKE ENERGY’S
RESPONSE TO RECOMMENDATIONS

45.    Pursuant to the requirements of North Carolina’s dam safety laws, from 1981 through 2007, DUKE ENERGY CAROLINAS/Duke Power Company hired consultants to perform inspections of the coal ash basins at DAN RIVER every five years. The consultants generated reports containing their observations and recommendations that were provided to and reviewed by DUKE ENERGY CAROLINAS/Duke Power Company.    In the same time period and pursuant to the same laws, DUKE ENERGY CAROLINAS/Duke Power Company performed its own annual inspections of the coal ash basins. DUKE ENERGY CAROLINAS/Duke Power Company also performed less-detailed monthly inspections of the coal ash basins.
16

46.    In 1981, Engineering Firm #1 conducted the first of five independent inspections of DAN RIVER’s ash basins. The report clearly identified the 48-inch pipe as part CMP/part RCP and the 36-inch pipe as RCP. ( See Appendix, Diagram 1 ).
47.    The 1981 report made the following recommendation, among others:
The culverts which pass beneath the primary basin may become potential sources of problems, particularly as they age. As noted previously, there seemed to be
  

more water leaving the 52/36-inch culvert than entering it.    It is recommended that within the next several months the flow rate at each of the culverts be established, then checked at 6-month intervals thereafter. If there is a significantly greater flow of water leaving the pipes than entering them, the pipes should be inspected for leakage, as was done in 1979, and any needed repairs implemented.
48.    The original schematic drawings in the 1981 report
  

were maintained on site at DAN RIVER.
49.    A 1984 Annual Inspection report prepared by DUKE
  

ENERGY CAROLINAS/Duke Power Company recommended that “[f]low in the culverts beneath the primary basin should continue to be monitored at six month intervals” and that “[t]he corrugated metal pipe at the west end of the basin should be monitored in future inspections for further damage from seepage flow.”
50.    A 1985 Annual Inspection report prepared by DUKE ENERGY CAROLINAS/Duke Power Company clearly identified the 48-inch stormwater pipe as CMP. At least one of the engineers who participated in the 1985 annual inspection continues to work for

DUKE ENERGY BUSINESS SERVICES, although currently in a different capacity, and, in fact, conducted two inspections of the Primary and Secondary Ash Basins in 2008.
51.    In 1986, Engineering Firm #1 conducted the “Second
  

Five-Year Independent Consultant Inspection of the Ash Dikes” at DAN RIVER.    The report clearly identified the 48-inch pipe as part CMP/part RCP and the 36-inch pipe as RCP. Employees of DUKE ENERGY CAROLINAS/Duke Power Company accompanied the consultant during field inspections.
52.    The 1986 report repeated the recommendation noted in
  

1981:
The monitoring program appears adequate, except it would be desirable to quantitatively (rather than qualitatively) monitor the inflow and outflow at the 52/36-inch diameter culvert, as recommended in the 1981 inspection report, to check for joint leakage. It would also be desirable to do quantitative monitoring of inflow and outflow of the 48-inch diameter culvert that also passes beneath the ash basin; part of this culvert is constructed of corrugated metal pipe which would be expected to have less longevity of satisfactory service than the reinforced concrete pipes.
. . .
It is recommended that quantitative monitoring of inflow and outflow be done at the culverts which pass under the ash basin to check for potential leakage. It is recommended that this monitoring be done at 6-month intervals. If there is a significant difference between inflow and outflow, or whenever there is some cause to suspect leakage, the inside of the culverts should be inspected for leakage.
18

53.    In the 1986 Annual Inspection report, engineers for DUKE ENERGY CAROLINAS/Duke Power Company asked the DAN RIVER personnel to perform the following tasks:
Quantitatively monitor the inflow and outflow at the two culverts that pass under the ash basin. Instructions are provided on the attached form and tables.    Monitoring should begin within thirty days after the installation of V-notched weirs at the inlets and continue at six-month intervals. Random tests at various depths of flow should be made using a bucket and stop watch to verify flow rates given in the attached tables before beginning the monitoring schedule. Results of these tests should be transmitted to Design Engineering.
54.    DUKE ENERGY CAROLINAS did not install V-notched weirs
  

at the inlets. Flow monitoring, while apparently performed between 1991 and 1998, was not reported on the requested forms.
55.    In 1991, Engineering Firm #2 performed the Third Five-
  

Year Independent Consultant Inspection of the ash basins at DAN RIVER. The report noted that the two stormwater pipes passed under the Primary Ash Basin, but incorrectly identified the entire length of the 48-inch pipe as RCP. During the review process and prior to submission to the North Carolina Utilities Commission, engineers for DUKE ENERGY CAROLINAS/Duke Power Company did not correct the error. This erroneous description of the 48-inch stormwater pipe was repeated in the 1998, 2001 and 2007 Five-Year Independent Consultant Inspection reports produced by Engineering Firms #1 and #3 and not corrected by DUKE ENERGY CAROLINAS/Duke Power Company.
19

56.    The 1991 report repeated the prior monitoring recommendations:
As was previously recommended, the inflow and outflow of the drainage pipes extending under the ash basins should be monitored for the quantity flowing in versus that flowing out and the turbidity of the discharge. If a disparity becomes evident or if there is evidence of turbidity, the pipes should be checked for leaks.
57.    The 1998 Fourth Independent Consultant Inspection
  

report prepared by Engineering Firm #1 made the following recommendation for monitoring of the stormwater pipes:
The outflow of the drainage pipes extending under the primary ash basins to the river should be monitored for turbidity of the discharge, which would be indicative of soil entrance into the pipes through leaks under the basin.    The appearance of turbidity would make it advisable to perform a TV camera inspection of the pipe to help determine if the leak or leaks are a threat.
58.    The recommendation in the 1998 report was repeated in identical language in the 2001 and 2007 Five-Year Inspection reports prepared by Engineering Firm #1 and #3, respectively.
59.    In the 2007 Sixth Five-Year Independent Consultant Inspection report, Engineering Firm #3 noted that DUKE ENERGY CAROLINAS engineers had not performed annual inspections since 2001, and also had not performed monthly inspections in 2003. The firm expressed concern over the qualifications of the DUKE ENERGY CAROLINAS employees assigned to perform monitoring. Engineering Firm #3 recommended “that Duke reinstitute more
20

clearly defined engineering responsibility for the receiving and plotting of data from the dikes at the individual stations.”
60.    After 2008, DUKE ENERGY CAROLINAS installed a metal platform over rip rap (large rocks) along the outer wall of the coal ash basin to better enable employees to access the river bank near the outfalls of the 48-inch and 36-inch stormwater pipes. However, DUKE ENERGY CAROLINAS employees were still unable to view the 36-inch stormwater pipe outfall.
61.    A 2009 EPA Dam Safety Assessment, prepared for EPA by
  

an engineering contractor, restated the recommendations of the Sixth Five-Year Independent Consultant Inspection report and recommended that DUKE ENERGY CAROLINAS complete the implementation of those recommendations as described in the Sixth Five-Year Independent Consultant Inspection Report. Based on information received from DUKE ENERGY CAROLINAS, the EPA Dam Safety Assessment reported that “[v]isual monitoring of the outflow from the drainage pipes that go under the Primary Basin is performed on a monthly basis.” EPA’s contractor observed
  

that during its field inspection in May 2009, the outflow from the 48-inch and 36-inch pipes was clear.
62.    The last monthly inspection of the stormwater pipes occurred on January 31, 2014. The form created by DUKE ENERGY CAROLINAS for recording observations during the monthly inspections did not provide any specific space for reporting

observations of the stormwater pipes and the DUKE ENERGY CAROLINAS employee who performed the inspection did not independently record any observations of the pipes on the form for the January 31, 2014, inspection. According to the DUKE ENERGY CAROLINAS employee who performed the January 31, 2014, she did not observe turbidity in the water flowing from the 48-inch stormwater pipe. She could not see the discharge from the 36-inch stormwater pipe due to the location of the outfall in relation to her observation point on the scaffolding.
63.    Between 1999 and 2008, and again from January 2013
  

through January 31, 2014, DUKE ENERGY CAROLINAS employees did not perform any visual inspections of the 36-inch stormwater pipe.
64.    Between 1999 and 2008, during the months from May to September, DUKE ENERGY CAROLINAS employees were generally not able to conduct visual inspections of the flow from the 48-inch pipe because it was too difficult to access the end of the pipe from land as the result of vegetative growth and the presence of snakes.
65.    Each of the DUKE ENERGY CAROLINAS employees
  

responsible for monitoring the flow from the stormwater pipes from 1991 to December 2012 was aware that the 48-inch stormwater pipe was composed of corrugated metal.
22

ADDITIONAL DUKE ENERGY DOCUMENTATION THAT
THE 48-INCH STORMWATER PIPE WAS CMP
66.    On or about January 22, 2014, Engineering Firm #4
  

finished a draft document titled “Design Report - DRAFT Ash Basin Closure - Conceptual Design for Dan River Steam Station.” Appendix 4 of the Report identifies the 48-inch stormwater pipe as “CMP,” although that information was not separately stated in the body of the report. In preparing the report, Engineering Firm #4 engineers relied on documentation provided by DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES, including a 2008 schematic of the Primary Ash Basin that correctly identified the 48-inch stormwater pipe as CMP. Engineers with DUKE ENERGY BUSINESS SERVICES’ Central Engineering office worked with Engineering Firm #4 in the preparation of the conceptual design and reviewed the draft documents but did not notice the labeling of the 48-inch stormwater pipe in Appendix 4.
67.    A 2009 schematic entitled “Rough Grading - Overall
  

Grading Plan for Dan River Combined Cycle” provided to DUKE ENERGY CAROLINAS by one of its contractors also identified the 48-inch stormwater pipe as CMP.
68.    As of the date of the Dan River spill, record-keeping
  

and information-sharing practices at DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES did not ensure that information such as the actual composition of the 48-inch pipe was

communicated from employees with knowledge to engineers and employees making budget decisions.    Additionally, engineers in DUKE ENERGY BUSINESS SERVICES, with responsibility for DAN RIVER, had not sufficiently reviewed the records available to them and, therefore, continued to operate under the erroneous belief that the 48-inch pipe was made entirely of RCP.
RECOMMENDATION FOR CAMERA INSPECTIONS
BY DUKE ENERGY PROGRAM ENGINEERING
69.    From at least 2011 through February 2014, DUKE ENERGY BUSINESS SERVICES had a group of engineers assigned to support fossil impoundment and dam inspections. The group was known as “Program Engineering.”
70.    In May 2011, a Senior Program Engineer and a Program Engineer with responsibilities covering DAN RIVER, recommended that the budget for DAN RIVER include camera inspections of the pipes within the Primary and Secondary Ash Basins. The estimated total cost for the camera inspection of four pipes, including the 48-inch stormwater pipe, within the Primary and Secondary Coal Ash Basins was $20,000.
71.    DUKE ENERGY CAROLINAS did not provide funding for the camera inspection.
72.    Upon learning that the camera inspection was not
  

funded, the DAN RIVER Station Manager called the Vice-President
24

of Transitional Plants and Merger Integration, who was in charge of approving the budget at DAN RIVER and other facilities. The Station Manager told the Vice-President that DAN RIVER needed the camera inspections, that the station did not know the conditions of the pipes, and that if one of the pipes failed, there would be environmental harm.    The request was still denied.
73.    In May 2012, the Senior Program Engineer and the Program Engineer again recommended that the budget for DAN RIVER include camera inspections of the 48-inch and 36-inch stormwater pipes underneath the Primary Ash Basin, along with two additional pipes within the Primary and Secondary Ash Basins. The estimated total costs for the camera inspection was $20,000. The reason noted on the budget request form was “internal recommendation due to age of piping system.”
74.    By e-mail dated May 30, 2012, the Senior Program
  

Engineer indicated his intention to eliminate the camera survey budget line item for stormwater pipes at DAN RIVER in light of the anticipated closure of the basins.
75.    In response to the Senior Program Engineer’s May 30,
  

2012, email, the DAN RIVER Equipment Owner, employed by DUKE ENERGY BUSINESS SERVICES and responsible for monitoring the Primary Ash Basin wrote, in part:

25

I would think with the basin closing you would want to do the camera survey. I don’t think the drains have ever been checked and since they go under the basin I would like to ensure that we are eliminating any risk before closing the basins.
76.    In response to the Senior Program Engineer’s May 30,
  

2012, email, another DUKE ENERGY BUSINESS SERVICES employee advised:
I don’t know if this changes your opinion, but [it] isn’t likely that the ash basin will close in 2013.
  

We have to submit a plan to the state at least one year prior to closure and we haven’t even begun to prepare that.
77.    On a date unknown but sometime between May 2012 and
  

July 2012, at an in-person meeting, a DUKE ENERGY BUSINESS SERVICES Program Engineer asked the Vice-President of Transitional Plants and Merger Integration whether camera inspections of the stormwater pipes would be funded. The Vice-President said no.
78.    In June 2012, preliminary engineering plans for
  

closing the. DAN RIVER coal ash basins called for the removal of both the 48-inch and 36-inch pipes. However, between 2012 and 2014, there was no set date for closing and no formal closure plan had been submitted to DENR. In December 2012, the DAN RIVER ash basin closure was not projected to be completed until 2016.
79.    DUKE ENERGY CAROLINAS did not provide funding for the camera inspections of the stormwater pipes and no camera

inspections were performed prior to February 2, 2014. If a camera inspection had been performed as requested, the interior corrosion of the elbow joint in the 48-inch pipe would likely have been visible.
80.    From at least January 1, 2012, through February 2,
  

2014, DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES failed to take reasonable steps to minimize or prevent discharge of coal ash to the Dan River that would adversely affect the environment and failed to properly operate and maintain the DAN RIVER coal ash basins and the related stormwater pipes located berieath the Primary Coal Ash Basin, thus, negligently violating the DAN RIVER NPDES permit.
FEBRUARY 2014 DISCHARGES INTO THE DAN RIVER
81.    On February 2, 2014, a five-foot long elbow joint
  

within the sixty-year-old corrugated metal section of the 48-inch pipe under the Primary Ash Basin at DAN RIVER failed, resulting in the release of coal ash wastewater and coal ash into the Dan River.
82.    Later inspection of the elbow joint, after its
  

retrieval from the Dan River, revealed extensive corrosion of the metal of the elbow joint initiating at the bottom center of the elbow. The parties disagree about some of the factors that contributed to the extensive corrosion. Nevertheless, the age
  

of the pipe was at or beyond the reasonably expected serviceable

life for CMP under similar conditions. Ultimately, the combination of the corrosion and the weight of the coal ash basin over the elbow joint caused it to buckle, fail, and be pushed through the end of the 48-inch stormwater pipe into the Dan River.
83.    Between approximately 1:30 p.m. and approximately 2:00 p.m. on February 2, 2014, a security guard at DAN RIVER noticed that the level of the wastewater in the Primary Ash Basin had dropped significantly.
84.    The security guard immediately notified DUKE ENERGY CAROLINAS employees in the control room for the adjacent natural gas-powered combined cycle plant. The DUKE ENERGY CAROLINAS Shift Supervisor on duty went to the Primary Ash Basin and observed a large sinkhole. The Shift Supervisor saw only residual water and mud left in the basin. The Shift Supervisor alerted other DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES employees in order to begin response efforts.
85.    After the initial discovery of the sinkhole in the
  

Primary Ash Basin on February 2, 2014, an employee who responded to the site circulated photographs of the Primary Ash Basin to other DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES employees via e-mail at approximately 3:49 p.m.
86.    Photographs attached to the 3:49 p.m. e-mail reflected
  

the status of the basin. (
See Appendix, Photographs 1 - 4 ).

87.    From on or about February 2, 2014, through February 8, 2014, the unpermitted discharge of approximately 27 million gallons of coal ash wastewater and between 30,000 and 39,000 tons of coal ash into the Dan River occurred through the 48-inch pipe from the Primary Coal Ash Basin.
88.    According to the U.S. Fish and Wildlife Service, coal
  

ash from the release traveled more than 62 miles down the Dan River, from the Middle District of North Carolina, through the Western District of Virginia, and into the John H. Kerr Reservoir in the Eastern District of North Carolina and Eastern District of Virginia.
89.    On or about February 8, 2014, DUKE ENERGY CAROLINAS
  

sealed the outfall of the 48-inch pipe, halting the discharge of coal ash wastewater and coal ash into the Dan River.
DISCHARGES FROM THE 36-INCH STORMWATER PIPE
90.    On February 6, 2014, an interior video inspection of
  

the 36-inch stormwater pipe revealed: (1) infiltration of wastewater occurring through a number of joints; (2) water jets from pressurized infiltration at three joints; (3) separation in one joint near the outfall point; (4) cracks running lengthwise through several pipe segments; and (5) sections of ponding water indicating irregular vertical alignment.
91.    Analysis of water samples from the 36-inch pipe revealed that the line was releasing wastewater that contained

elevated levels of arsenic. On February 14, 2014, the arsenic concentration in the effluent at the outfall of the 36-inch pipe was 140 ug/L. On February 17, 2014, the arsenic concentration in the effluent at the same point was 180 ug/L. The North
  

Carolina water quality standard for the protection of human health for arsenic is 10 ug/L and the water quality standard for the protection of freshwater aquatic life is 50 ug/L.
92.    Discharge of contaminated wastewater continued from the 36-inch pipe between February 6, 2014, and February 21,
2014. The nature of the wastewater infiltration into the 36-
inch stormwater pipe and DUKE ENERGY CAROLINAS employees’ visual and auditory confirmation of flow from the 36-inch pipe indicates that discharge from the 36-inch pipe began a significant period of time before February 6, 2014. The discharge began at least as early as January 1, 2012, continued until February 21, 2014, and was not authorized by a NPDES permit.
93.    On February 21, 2014, DUKE ENERGY CAROLINAS sealed the 36-inch stormwater pipe.
RESPONSE COSTS FOR DAN RIVER RELEASE
94.    Thus far, DUKE ENERGY CAROLINAS and federal, state, and local governments have spent over $19 million responding to the spill.
30

95.    Drinking water intakes in the Dan River watershed, including those for the Cities of Danville, Virginia Beach, and Chesapeake and for the Halifax County Service Authority in Virginia were temporarily closed and were required to undertake additional monitoring for contamination. Monitoring results indicated that the water treatment plants along the Dan River were able to adequately treat and remove the coal ash and related contaminants from the spill.
96.    The North Carolina Department of Health and Human Services issued an advisory against consuming fish from or recreational contact with the Dan River from the point of the spill to the North Carolina - Virginia border from February 12, 2014, to July 22, 2014.
97.    DUKE ENERGY CAROLINAS has reimbursed many entities for their expenditures in the aftermath of the spill. Nonetheless, at least two localities and one federal agency have not yet been fully reimbursed. Those entities and their expenditures are: (1) Virginia Beach, $63,309.45; (2) Chesapeake, Virginia, $125,069.75; and (3) the United States Army Corps of Engineers, $31,491.11.
CAPE FEAR STEAM ELECTRIC PLANT
98.    DUKE ENERGY PROGRESS (formerly “Progress Energy Carolinas”) owns the Cape Fear Steam Electric Plant (“CAPE
31

FEAR”), located adjacent to the Cape Fear River, just south of the confluence of the Haw and Deep Rivers and approximately two miles southeast of Moncure, North Carolina.
99.    CAPE FEAR has a total of five coal ash basins. Three of the basins, constructed in 1956, 1963, and 1970 have been inactive for many years. Two of the basins, constructed in 1978 and 1985 continued to receive coal ash slurry and other forms of wastewater through at least November 2011.
100.    The 1978 ash basin had a storage capacity of 880 acre-
feet (approximately 286,749,258 gallons), a surface area of 43 acres, and a maximum structural height of 27 feet. The 1978 ash basin included a “riser,” also known as a “stand pipe,” used under normal operation to allow the passive and permitted discharge of wastewater treated by settlement from the basin. The riser was constructed of vertically stacked 18-inch diameter concrete pipe sections.
101.    The 1985 ash basin had a storage capacity of 1764 acre-feet (approximately 574,801,921 gallons), a surface area of 65 acres, and a maximum structural height of 28 feet. The 1985 ash basin included a riser constructed of vertically stacked 48-inch diameter concrete pipe sections.
102.    In a 2009 EPA Dam Safety Assessment, both the 1978 and 1985 coal ash basins at CAPE FEAR were classified as having “significant hazard potential,” as previously defined.

103.    By December 2011, DUKE ENERGY PROGRESS/Progress Energy Carolinas ceased electric power generation at CAPE FEAR. As a result of the cessation of operation, coal ash slurry was no longer received by the 1978 or 1985 coal ash basin, although each basin continued to receive rainwater or stormwater.
INSPECTIONS OF CAPE FEAR ASH BASINS, MONITORING RECOMMENDATIONS,
AND DETECTION OF LEAKING RISERS
104.    DUKE ENERGY PROGRESS/Progress Energy Carolinas engaged outside firms to perform annual and five-year inspections of the coal ash basins at CAPE FEAR, as required by state law.
105.    On or about May 1, 2008, Engineering Firm #3, hired by DUKE ENERGY PROGRESS/Progress Energy Carolinas, conducted an annual inspection of the CAPE FEAR coal ash basins and generated a report of its observations, conclusions, and recommendations. The report was submitted to DUKE ENERGY PROGRESS/Progress Energy Carolinas and reviewed by the plant manager and environmental coordinator for CAPE FEAR.
106.    The 2008 annual inspection report described the condition of the risers in the 1978 and 1985 coal ash basins as “marginal” and estimated that the risers were “likely to develop problems” in two to five years from the date of the report. The report further recommended that DUKE ENERGY PROGRESS/Progress Energy Carolinas perform its own inspections of the risers in
33

the 1978 and 1985 ash basins by boat, in order to better assess the condition of the risers.
107.    The recommendation to inspect the risers using a boat was repeated in annual reports produced by engineering firms and submitted to DUKE ENERGY PROGRESS/Progress Energy Carolinas in 2009 and 2010, and to DUKE ENERGY PROGRESS in 2012 and 2013.
108.    At no time from May 1, 2008, until March 2014 did DUKE ENERGY PROGRESS/Progress Energy Carolinas perform inspections of the risers in the 1978 or 1985 ash basins by boat.
109.    At some time during the summer of 2011, but on a date unknown, the DUKE ENERGY PROGRESS/Progress Energy Carolinas Environmental Coordinator and the NPDES Subject Matter Expert responsible for CAPE FEAR visited the site. During their visit, they became aware that the risers in the 1978 and 1985 coal ash basins were leaking. During the fall of 2011, but on a date unknown, they informed DUKE ENERGY PROGRESS/Progress Energy Carolinas management that repairs were needed on the risers.
  

No additional inspection or monitoring of the risers was undertaken by DUKE ENERGY PROGRESS/Progress Energy Carolinas as a result of their observations prior to March 2014.
110.    The 2012 Five-Year Independent Consultant Report, produced on January 26, 2012, by Engineering Firm #4, noted that the skimmer located at the top of the riser in the 1978 ash basin was corroded and tilted. The skimmer was designed to

prevent debris from being discharged from the basin or clogging the riser.
111.    Photographs included with the 2012 Five-Year Independent Consultant Report show the skimmer on the riser in the 1978 coal ash basin sitting askew. (See Appendix, Photographs 5 & 6) .
112.    Photographs included with the 2012 Five-Year Independent Consultant Report show the skimmer on the riser in the 1985 coal ash basin. (See Appendix, Photograph 7) .
113.    Annual inspection reports for 2012 and 2013 also reported that the riser in the 1978 ash basin was damaged, deteriorated, and tilted. The annual reports recommended that DUKE ENERGY PROGRESS/Progress Energy Carolinas replace or repair the skimmer on the riser in the 1978 ash basin.
114.    At no time from January 26, 2012, through March 2014 did DUKE ENERGY PROGRESS/Progress Energy Carolinas repair or replace the skimmer on the riser in the 1978 coal ash basin.
115.    The annual inspection report produced on or about June 24, 2013, by Engineering Firm #4 and submitted to DUKE ENERGY PROGRESS noted that a “trickle of flow” was observed at the outfalls leading from the risers in the 1978 and 1985 ash basins which the report concluded indicated possible leakage.

35
DEWATERING OF THE ASH BASINS AND REPAIR OF RISERS
116.    During the summer of 2013, on a date unknown, an employee of DUKE ENERGY BUSINESS SERVICES contacted a contractor specializing in diving and underwater pipe repair and mentioned the possible need for riser repair at CAPE FEAR. The contractor was not engaged at that time and no schedule for the potential work was discussed.
117.    Also during the summer of 2013, DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES were engaged in planning for the closure of the coal ash basins at CAPE FEAR. On or about July 11, 2013, consulting engineers assisting DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES in planning for ash basin closure produced and provided to DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES a “site investigation plan” that included plans for locating, inspecting, and determining the composition of risers and discharge pipes for each ash basin.
118.    As part of the ongoing planning for ash basin closure, DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES sought to eliminate the need for NPDES permits for CAPE FEAR, in keeping with its “Ash Basin Closure Strategy.” This strategy would reduce continuing operation and maintenance costs at the plant while ash basin closure was pending. DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES knew that in order to eliminate
36

the NPDES permits, the coal ash basins would have to be in a “no
flow” state. To reach that state, DUKE ENERGY PROGRESS needed to eliminate the riser leaks at the 1978 and 1985 coal ash basins as well as lower the level of the contents of the ash basins to prevent water from overtopping the risers during a 25-year rain event. These requirements were discussed by a number of DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES employees during the summer of 2013, including the DUKE ENERGY BUSINESS SERVICES NPDES Subject Matter Expert and the DUKE ENERGY BUSINESS SERVICES Director of Plant Demolition and Retirement.
119.    Also as part of the ongoing planning for ash basin closure at CAPE FEAR, DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES recognized that dewatering the ash basins was a necessary and time-consuming part of the process of closing an ash basin. DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES further believed that dewatering the coal ash basins would “lessen hydrostatic pressure” and “over a relatively brief time reduce and/or eliminate seepage.” At the time, seepage was the subject of threatened citizen law suits, a series of state-filed civil complaints, and significant public concern.
120.    DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES also believed that dewatering the 1978 and 1985 coal ash basins prior to repairing the risers would provide a safer environment

for contractors performing repair work. DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES employees knew that the leaks in the risers were likely being caused by cracks or failures in the grout between the concrete pipe sections that were underwater. The employees did not know how far underwater the leaks or grout failures were or how many sections of the pipe would need repair. Because the risers were filled with air but surrounded by water, underwater repair of the risers could be hazardous to the divers due to a phenomenon known as “differential pressure.” DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES employees believed that removing the standing water from the 1978 and 1985 basins to at or below the level of the leaking portions of the risers would eliminate the risk from differential pressure.
121.    Beginning on or about August 16, 2013, and continuing through on or about September 30, 2013, employees and contractors for DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES began developing a work plan for pumping water from the 1985 ash basin at CAPE FEAR.
122.    On or about September 30, 2013, DUKE ENERGY PROGRESS employees began pumping water from the 1985 ash basin at CAPE FEAR, using a Godwin pump and hoses.
123.    On or about October 2, 2013, two days after pumping began at the 1985 ash basin, a DUKE ENERGY BUSINESS SERVICES

engineer assigned to the plant retirement program emailed a representative of a contracting company specializing in underwater pipe repair. In the email, the engineer indicated that there were “several potential opportunities at [the] Cape Fear plant that we would like you to look at.” The engineer went on to describe one of the opportunities as:
Ash pond riser repairs. Two ponds’ risers leak. There is a slow trickle out of the discharge of the concrete riser pipes at two ash ponds.    We may elect to stop the leak. Could you provide a ballpark for providing the investigation and repair services? Could you also describe what the process would be?
124.    On or about October 22, 2013, the underwater pipe repair contractor submitted to DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES a project estimate titled “Abandonment of Intakes and Leak Sealing” that included four tasks, including “Ash Pond Riser Repairs.”
125.    On or about January 13, 2014, DUKE ENERGY PROGRESS began dewatering operations at the 1978 coal ash basin at CAPE FEAR, using a Godwin pump and hoses similar to those used at the 1985 coal ash basin, as well as the same work plan.
126.    On or about January 24, 2014, DUKE ENERGY PROGRESS signed a contract, through DUKE ENERGY BUSINESS SERVICES, acting as its agent, with the underwater pipe repair contractor for various projects at CAPE FEAR relating to plant decommissioning and coal ash basin closure, as addressed in the October 22,

2014, project estimate. One of the projects was repair work on the risers in the 1978 and 1985 coal ash basins. The contract specified that work under the contract would “start on or about January 27, 2014 and shall be completed no later than December 31, 2014.” The contract did not identify specifically when the work would begin on the risers.
127.    On or about March 11, 2014, DENR officials from both the DWR and the Division of Mineral and Land Resources visited CAPE FEAR to perform an inspection. The DENR officials were accompanied by several DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES employees during their inspection. DENR observed the Godwin pumps at the 1985 and 1978 ash basins along with obvious signs of a significant drop in the water level in the coal ash basins and disturbances in the surface of the coal ash in the basins. (See Appendix, Photographs 8 - 10).
128.    At the conclusion of the DENR inspection on March 11, 2014, a dispute arose between DENR officials and DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES employees over whether DUKE ENERGY PROGRESS had been authorized by DENR-DWR to discharge water from the coal ash basins using Godwin pumps.
129.    On or about March 19 and 20, 2014, an employee of the underwater pipe repair contractor performed video inspections of the risers in the 1978 and 1985 coal ash basins. The contractor observed that in the discharge pipe leading from the riser in
40

the 1985 coal ash basin, the visibility in one area was “next to nothing.” The visibility was negatively impacted by turbidity and debris in the pipe. The contractor observed a “slow trickle” of water intruding into the riser in the 1978 coal ash basin. At the time of the camera inspections, the water level in both coal ash basins had already been lowered below the uppermost joints of the risers and, thus, below the level of some of the leaks.
130.    No other camera inspections were conducted of the risers between 2008 and March 19, 2014.
131.    On or about March 19 and 20, 2014, employees and agents of the underwater pipe repair contractor replaced and resealed the grout between the concrete pipe sections of the risers in the 1978 and 1985 coal ash basins. (See Appendix, Photographs 11 through 14).
132.    Between at least January 1, 2012, and January 24, 2014, DUKE ENERGY PROGRESS and DUKE ENERGY BUSINESS SERVICES failed to properly maintain the risers in the 1978 and 1985 coal ash basins at CAPE FEAR in violation of the applicable NPDES permit.
HISTORICAL SEEPS AND DISCHARGES FROM COAL ASH BASINS
133.    DUKE ENERGY CAROLINAS’ and DUKE ENERGY PROGRESS’s coal ash basins are comprised of earthen dams. Over time, “seeps” developed in the dam walls. “Seeps” occur when water, often

carrying dissolved chemical constituents, moves through porous soil and emerges at the surface. Seeps are common in earthen dams. The Defendants have identified nearly 200 distinct seeps at the Defendants’ coal ash basins throughout North Carolina in permit modification applications filed in 2014. Not all seeps necessarily reach waters of the United States. However, some of the discharge from seeps is collected and moved through engineered drains or channels to waters of the United States. Other seeps are simply allowed to flow across land surfaces to waters of the United States. Each of the facilities listed in the table at paragraph 12 had seeps of some form.
134.    Water from seeps may transport pollutants. Wastewater sampled from various seep locations at DUKE ENERGY CAROLINAS and DUKE ENERGY PROGRESS coal ash basins in 2014 was found to contain constituents including aluminum, arsenic, barium, boron, chloride, chromium, copper, fluoride, lead, manganese, nickel, selenium, thallium, and zinc, and was additionally found to be acidic.
135.    On June 7, 2010, EPA issued interim guidance to assist NPDES permitting authorities with establishing appropriate permit requirements for wastewater discharges from coal ash basins at power plants. In the guidance, EPA advised with respect to point source discharges of seepage:
42


If the seepage is directly discharged to waters of the United States, it is likely discharged via a discrete conveyance and thus is a point source discharge. Seepage discharges are expected to be relatively minor in volume compared to other discharges at the facility and could be inadvertently overlooked by permitting authorities. Although little data are available, seepage consists of [coal combustion residuals] including fly ash and bottom ash and fly ash transport water and [flue-gas desulfurization] wastewater. If seepage is discharged directly via a point source to a water of the U.S., the discharge must be addressed under the NPDES permit for the facility.
136.    Since at least 2010, seepage from DUKE ENERGY CAROLINAS’ and DUKE ENERGY PROGRESS’S coal ash basins at certain of their 14 coal-fired power plants in North Carolina entered waters of the United States through discrete conveyances.
137.    Wetlands may also suffer impacts from the operation of coal-fired plants. Coal ash basins were historically sited near rivers and are, therefore, often located in or near riparian wetlands and some coal ash basins have hydrologic connections to wetlands via groundwater or seeps.
138.    Since 2010, as part of the NPDES permitting process in North Carolina, coal-fired plants are required to monitor groundwater to assure natural resources are protected in accordance with federal and state water quality standards. Monitoring of groundwater at coal ash basins owned by DUKE ENERGY CAROLINAS and DUKE ENERGY PROGRESS has shown exceedances of groundwater water quality standards for pollutants under and near the basins including arsenic, boron, cadmium, chromium,

iron, manganese, nickel, nitrate, selenium, sulfate, thallium, and total dissolved solids.
139.    At various times between 2010 and 2014 the Defendants included general references to seeps in correspondence and permit applications with DENR and disclosed more detailed information concerning certain seeps, including engineered seeps (i.e., man-made channels). The Defendants did not begin gathering and providing detailed, specific, and comprehensive data concerning seeps, and particularly seeps discharging to waters of the United States, at each of the North Carolina coal ash basins to DENR until after the DAN RIVER spill in 2014.
140.    After the coal ash spill at DAN RIVER in 2014, DUKE ENERGY CAROLINAS and DUKE ENERGY PROGRESS, with the assistance of DUKE ENERGY BUSINESS SERVICES, filed NPDES permit renewal and/or modification applications seeking authorization for certain seeps that discharged, via a point source, directly to a water of the United States.    These applications are currently pending as DENR considers the impacts of the seeps and discharges on the receiving waters of the United States.
H.F. LEE STEAM ELECTRIC PLANT
141.    DUKE ENERGY PROGRESS owns the H. F. Lee Steam Electric Plant (“LEE”), which is located in Goldsboro, North Carolina. LEE (formerly known as the “Goldsboro Plant”) began operation
44

shortly after World War II and added additional coal-fired combustion units in 1952 and 1962. The plant retired the coal-fired units in September of 2012.
142.    LEE used several coal ash basins in the past. Only one of the remaining coal ash basins still contains water and ash sluiced from LEE (the “active coal ash basin”). The active ash basin sits on the north side of the Neuse River. (See Appendix, Photograph 15) .
143.    The active coal ash basin is triangle-shaped and includes a primary basin and a small secondary settling basin. The treatment system is designed so that water discharges from the primary basin into the secondary basin and from the secondary basin into the Neuse River.
144.    The NPDES permit No. NC0003417 for LEE, effective November 1, 2009, authorized two discharges into the Neuse River — one from the active coal ash basin (“Outfall 001”) and one from the cooling water pond (“Outfall 002”). A 2010 modification of the 2009 permit also authorized a third outfall (“Outfall 003”) from a combined cycle generation facility. Water does not currently discharge from the active coal ash basin into the Neuse River via Outfall 001.
145.    Beginning at a time unknown but no later than October 2010, DUKE ENERGY PROGRESS/Progress Energy Carolinas identified a seep on the eastern embankment of the active coal ash basin.

This seep was adjacent to an area of seepage that was identified and repaired in 2009 and 2010. This seep in 2010 collected and flowed to a “flowing ditch” outside of the active coal ash basin. This seep was repaired in May of 2011.
146.    Additional seeps on the eastern side of the active coal ash basin also flowed into the same drainage ditch as the seep identified in October 2010. The drainage ditch discharged into the Neuse River at latitude 35.379183, longitude - 78.067533. The drainage ditch was not an authorized outfall under the NPDES permit. In 2014, DUKE ENERGY PROGRESS identified the GPS coordinates of four seeps on the eastern side of the coal ash basin as: latitude 35.380510, longitude 78.068532; latitude 35.382767, longitude -78.069655; latitude 35.386968, longitude -78.071942; and latitude 35.379492, longitude -78.067718.
147.    On February 20, 2013, DENR personnel sampled water in three locations from the drainage ditch. This sampling occurred after DENR personnel from the Land Quality Section observed a seep near the southeast corner of the ash pond dike. The seep collected in the unpermitted discharge ditch and flowed into the Neuse River. Water quality analysis of samples from the drainage ditch showed exceedances of state water quality standards for chloride, arsenic, boron, barium, iron, and manganese. This discharge of wastewater into the Neuse River

from the drainage ditch at LEE was not authorized under the NPDES permit.
148.    On March 11, 2014, DENR personnel again sampled wastewater from the drainage ditch referenced previously. The ditch showed exceedances for iron and manganese.
149.    Unpermitted discharges, in violation of the applicable NPDES permit, occurred at LEE from at least October 1, 2010, through December 30, 2014.
RIVERBEND STEAM STATION
150.    DUKE ENERGY CAROLINAS owns and operates the Riverbend Steam Station (“RIVERBEND”), located in Gaston County, North Carolina, approximately 10 miles from the city of Charlotte and immediately-adjacent to Mountain Island Lake, on a bend in the Catawba River. Mountain Island Lake is the primary source of drinking water for residents of Gaston and Mecklenburg Counties.
151.    RIVERBEND began commercial operation in 1929 and its combustion units were retired in April 2013, with plans to demolish it after 2016. It has two unlined coal ash basins along Mountain Island Lake, with dams reaching up to 80 feet in height. The RIVERBEND dams are designated in a 2009 EPA Dam Safety Assessment as “Significant Hazard Potential,” as previously defined. RIVERBEND contains approximately 2,730,000 million tons of stored coal ash.
47

152.    The RIVERBEND NPDES permit, No. NC0004961, was issued on March 3, 1976, and has been renewed subsequently, with the current NPDES Permit expiring on February 28, 2015. The RIVERBEND NPDES permit allows the facility to discharge wastewater to the Catawba River from three “permitted outfalls” in accordance with the effluent limitations and monitoring requirements regarding flow, suspended solids, oil and grease, fecal coliform, copper, iron, arsenic, selenium, mercury, phosphorus, nitrogen, pH, and chronic toxicity, as well as other conditions set forth therein. Wastewater from the coal ash basin was to be discharged, after treatment by settling, through one of the monitored and permitted outfalls.
153.    On December 4 through December 6, 2012, DENR conducted inspections of RIVERBEND and discovered unpermitted discharges of wastewater from the coal ash basin into the Catawba River. Among the unpermitted discharges at RIVERBEND is a seep identified in a 2014 permit modification application as Seep 12, an engineered drain to discharge coal ash contaminated wastewater into the river. RIVERBEND Seep 12 is located at latitude 35.36796809, longitude -80.95935079. (See Appendix, Photographs 16 through 18) . At some time unknown, but prior to December 2012, one or more individuals at RIVERBEND created the unpermitted channel that allowed contaminated water from the coal ash basin to be discharged into the river.

154.    The unpermitted seep resulted in documented unpermitted discharges from 2011 through 2013 containing elevated levels of arsenic, chromium, cobalt, boron, barium, nickel, strontium, sulfate, iron, manganese, and zinc into the Catawba River.
155.    Unpermitted discharges, in violation of the applicable NPDES permit, occurred at RIVERBEND from at least November 8, 2012, through December 30, 2014.
ASHEVILLE STEAM ELECTRIC GENERATING PLANT
156.    DUKE ENERGY PROGRESS owns and operates the Asheville Steam Electric Generating Plant (“ASHEVILLE”), in Buncombe County, North Carolina.
157.    ASHEVILLE is a coal-powered electricity-generating facility in the Western District of North Carolina. It has two unlined coal ash basins, one constructed in 1964 and the other constructed in 1982. The basins, each approximately 45 acres in size, hold a total of approximately 3,000,000 tons of coal ash waste. (See Appendix, Photograph 19) . The basins were each characterized in the 2009 EPA Dam Safety Assessment as “High Hazard Potential,” meaning that “failure or mis-operation results will probably cause loss of human life.”
158.    The ASHEVILLE NPDES permit, number NC0000396, was issued in 2005 and expired in 2010. Progress Energy Carolinas (now DUKE ENERGY PROGRESS) filed a timely permit renewal

application on June 11, 2010. DENR has not yet issued a new permit and ASHEVILLE continues to operate under the terms of the 2005 NPDES permit.
159.    On May 13, 2011, DUKE ENERGY PROGRESS/Progress Energy Carolinas sought authority to relocate the settling basin and permitted discharge outfall at ASHEVILLE from its original location near the 1964 coal ash basin to a location approximately 3,000 feet away, latitude 35.47367 and longitude - 82.504, in order to allow “stabilization work” on the 1964 ash pond impoundment.
160.    On March 11, 2013, DENR staff inspected ASHEVILLE and identified seeps flowing from toe drains at the 1964 coal ash basins. The engineered seep from the 1964 coal ash basin has continued to discharge pollutants. This engineered seep is not authorized under the applicable NPDES permit. Engineered seeps from the 1964 coal ash basin are located at latitude 35.468319, longitude -82.549104 and latitude 35.466943, longitude -82.548502. These engineered seeps discharge through the toe drain to the French Broad River.
161.    Unpermitted discharges, in violation of the applicable NPDES permit, occurred at ASHEVILLE from at least May 31, 2011, through December 30, 2014.

50

BROMIDE IMPACTS FROM FGD SYSTEM S
162.    As described above, DUKE ENERGY CAROLINAS owns and operates Belews Creek Steam Station (“BELEWS”) in Stokes County, North Carolina, and Cliffside Steam Station (“CLIFFSIDE”) in Rutherford and Cleveland Counties, North Carolina.
163.    As part of its efforts to comply with the Clean Air Act and North Carolina Clean Smokestacks Act, DUKE ENERGY CAROLINAS installed Flue Gas Desulfurization (“FGD”) “scrubbers” to significantly reduce or eliminate certain air pollutants, such as sulfur dioxide and nitrogen oxide at several coal-fired facilities. FGD scrubbers isolate certain pollutants from coal combustion emissions into the air and ultimately divert those pollutants, including bromides, into a gypsum slurry that is eventually routed to the facility’s coal ash basins. At times, portions of the slurry may be diverted for reuse in products such as wall board.
164.    FGD installation was completed and the scrubbers at BELEWS became fully operational at the end of 2008.
165.    When bromide comes into contact with chlorine-based water treatment systems, it can contribute to the formation of compounds known as trihalomethanes (“THMs”). There are no general federal or state water limits for the discharge of bromides to surface water. However, there are state and federal limits for total trihalomethanes (“total THMs”) under the Safe

Drinking Water Act. If ingested in excess of the regulatory limits over many years, THMs may cause adverse health effects, including cancer.
DISCHARGE OF BROMIDES AT BELEWS
166.    Beginning in 2008 or 2009, the City of Eden (“Eden”), downstream from BELEWS, noted an increase in total THMs in its drinking water.
167.    Prior to the installation of the FGD scrubbers, DUKE ENERGY CAROLINAS reported to DENR in its BELEWS NPDES permit applications that bromide occurred in its waste stream at a level too low to detect. When BELEWS applied for a NPDES permit modification in 2009, it made no new disclosures concerning bromide levels because the modification did not relate to bromide and there were no federal or state limitations for bromide discharge.
168.    DUKE ENERGY CAROLINAS tested for bromides, as well a number of other potential pollutants, at BELEWS in 2008-2009 to evaluate the effects of the FGD wastewater treatment system. Those test results showed that bromides were discharged from BELEWS into the Dan River. This did not violate the NDPES permit for the facility.
169.    In consultation with an outside contractor, in January 2011, Eden determined that an increase in bromides contributed
52
to the increase in total THMs it had witnessed beginning in 2008-2009.
170.    In early 2011, Eden tested the water entering its water treatment facility from the Dan River and performed water tests upstream to determine the source of the bromides.
171.    On May 10, 2011, Eden notified DUKE ENERGY CAROLINAS that it was having difficulty with increasing levels of total THMs in its treated drinking water and requested DUKE ENERGY CAROLINAS’ bromide sampling data from the outflow of BELEWS. An impending reduction in the threshold for total THMs (required by an EPA rule promulgated under the Safe Drinking Water Act) triggered Eden’s particular interest in the pollutant, especially given that Eden was at the upper limit of the then-permissible total THM range.
172.    As a result of the water testing, Eden identified the source of the increased bromides as BELEWS, which discharges into the Dan River. Eden shared this information and its test results with DUKE ENERGY CAROLINAS on June 7, 2011.
173.    Shortly thereafter, DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES internally agreed that the increased bromides very likely came from BELEWS and, combined with a number of other factors, had likely caused the THM increase at Eden. DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES
53
also agreed internally that the increased bromides were likely the result of the FGD scrubber system.
174.    In mid-June 2011, DUKE ENERGY CAROLINAS contacted the Town of Madison (“Madison”), which also draws water from the Dan River and processes that water for drinking and which is closer to BELEWS than Eden. DUKE ENERGY CAROLINAS informed Madison of its findings and Madison asked to be part of the discussions with Eden about reducing bromide levels. DUKE ENERGY CAROLINAS and DUKE ENERGY BUSINESS SERVICES employees met with Eden and Madison several times between June 2011 and April 2012 to discuss reducing total THMs in their drinking water.
175.    DUKE ENERGY CAROLINAS informed DENR of the increase in bromide levels in its effluent when it filed its NPDES permit renewal application for BELEWS on August 29, 2011. In the application, DUKE ENERGY CAROLINAS listed bromide as a pollutant present in outfalls 001 (into Belews Lake) and 003 (into Dan River). The largest concentration of bromide was listed as 6.9 mg/L from Outfall 003, which translates to 6.9 parts per million (ppm) or 6907 parts per billion (ppb). This bromide result appears to have been taken from a sample of water collected in January 2011 and analyzed after Eden had brought the issue to DUKE ENERGY CAROLINAS’ attention.

54

176.    At the time DUKE ENERGY CAROLINAS filed its NPDES permit renewal application for BELEWS, none of the previous permits had placed any restrictions or limits on bromides.
177.    In mid-October 2011, Eden informed DUKE ENERGY CAROLINAS that Madison had violated its limit on total THMs. DUKE ENERGY CAROLINAS was also informed that Henry County, Virginia, (which purchases Eden’s water) violated its total THM limit. Dan River Water (another purchaser Of Eden’s water) also violated its total THM limit.
178.    On November 16, 2011, DENR’s Winston-Salem Regional Office held a meeting with DUKE ENERGY CAROLINAS, DUKE ENERGY BUSINESS SERVICES, Eden, and Madison regarding the bromide issue. All participants agreed that the total THM problem was caused by bromides entering the Dan River from BELEWS. DUKE ENERGY CAROLINAS was not aware of the relationship between bromides and THMs until Eden brought the matter to DUKE ENERGY CAROLINAS’ attention in 2011.
179.    Since the November 2011 meeting, DUKE ENERGY CAROLINAS has entered into written agreements with Eden and Madison to assist them with a portion of the costs of modifying and modernizing their water treatment systems.
DISCHARGE OF BROMIDES AT CLIFFSIDE
180.    Beginning at about the time DUKE ENERGY CAROLINAS responded to Eden’s initial complaints regarding the bromide

discharge at BELEWS, DUKE ENERGY CAROLINAS conducted an initiative to monitor bromide discharge at other locations employing FGD scrubbers.
181.    As a result of this initiative, in or about early August 2011, DUKE ENERGY CAROLINAS also internally identified the CLIFFSIDE facility in western North Carolina as one that could pose a potential THM problem in light of the relatively shallow river (the Broad River) into which CLIFFSIDE discharged and the presence of relatively close downstream facilities that drew drinking water from the Broad River.
182.    The last CLIFFSIDE NPDES permit was issued in January 2011 and did not reference bromide.
183.    DUKE ENERGY CAROLINAS AND DUKE ENERGY BUSINESS SERVICES informed neither downstream communities nor DENR regarding this discharge from CLIFFSIDE. As of the date of this joint factual statement, the parties are not aware of a community downstream from CLIFFSIDE that has reported elevated levels of total THMs due to an increase in bromide discharge from the facility, but acknowledge the possibility that one or more communities may have been affected.
184.    In 2013, DUKE ENERGY CAROLINAS installed a spray dry absorber for one of the two FGD scrubber units at the CLIFFSIDE facility which reduced the bromide discharge from CLIFFSIDE.
56

The other FGD scrubber unit at CLIFFSIDE operates only intermittently.
SUTTON FACILITY
185.    DUKE ENERGY PROGRESS owns and operates the L.V. Sutton Steam Station (“SUTTON”) in New Hanover County, North Carolina. SUTTON houses two coal ash basins, one constructed in 1971 and one constructed in 1984.
186.    Located near SUTTON is the community of Flemington. Flemington’s water supply has a history of water-quality problems. In 1978, an adjacent landfill, designated as a “Superfund” site, contaminated Flemington’s drinking water and caused authorities to construct new wells.
187.    Flemington’s new wells are located near SUTTON’s coal ash basins. They are located down-gradient from the SUTTON coal ash basins, meaning groundwater ultimately flows from the coal ash basins toward the Flemington wells.
188.    DUKE ENERGY PROGRESS/Progress Energy Carolinas has monitored groundwater around SUTTON since 1990. Monitoring particularly focused on a boron plume emanating from the coal ash ponds.
189.    From at least 2010 through 2013, the groundwater monitoring wells at SUTTON reported unnaturally elevated levels of some constituents, including manganese, boron, sulfate, and total dissolved solids.

190.    Flemington’s public utility also tested its water quality. Those tests showed exceedances of barium, manganese, sodium, and sulfate in 2013.
191.    In June and July 2013, Flemington’s public utility concluded that boron from SUTTON’s ash ponds was entering its water supply. Tests of water from various wells at and near SUTTON from that period showed elevated levels of boron, iron, manganese, thallium, selenium, cadmium, and total dissolved solids.
192.    In October 2013, DUKE ENERGY PROGRESS entered into an agreement with the Cape Fear Public Utility Authority to share costs for extending a municipal water line to the Flemington community.




(SPACE LEFT BLANK INTENTIONALLY)





58

59






60








61







62





United States v. Duke Energy Business
Services LLC, et al.

APPENDIX
TO JOINT FACTUAL STATEMENT










February 20, 2015






Diagram 1. Engineering Firm #1, Replort of Safety Inspection - Duke Power Dan River Steam Station Ash Dikes, at Fig. 4 (1981).

Photograph 1. Photograph of DAN RIVER coal ash basin during spill, attached to 2/2/2014, 3:49 p.m. e-mail from Duke Energy Business Services employee.
Photograph 2. Photograph of DAN RIVER coal ash basin during spill, attached to 2/2/2014, 3:49 p.m. e-mail from Duke Energy Business Services employee.

Photograph 3. Photograph of DAN RIVER coal ash basin during spill, attached to 2/2/2014, 3:49 p.m. e-mail from Duke Energy Business Service employee.
Photograph 4. Photograph of DAN RIVER coal ash basin during spill, attached to 2/2/2014, 3:49 p.m. e-mail from Duke Energy Business Service employee.










Photograph 5. Riser in CAPE FEAR 1978 coal ash basin from 2012 Five Year Independent Consultant Report.
Photograph 6. Riser in CAPE FEAR 1978 coal ash basin from 2012 Five Year Independent Consultant Report.

Photograph 7. Riser in CAPE FEAR 1985 coal ash basin from 2012 Five Year Independent Consultant Report.
Photograph 8. 3/11/14 aerial photograph of CAPE FEAR 1978 coal ash basin with Godwin pump and truck.
Photograph 9. 3/11/14 aerial photograph of CAPE FEAR 1985 coal ash basin with Godwin pump and truck.
Photograph 10. 3/11/14 aerial photograph of CAPE FEAR 1985 coal ash basin with Godwin pump and truck.
Photograph 11. 3/19/14 photograph of CAPE FEAR 1978 coal ash basin riser, prior to repair work.

Photograph 12. 3/19/14 photograph of CAPE FEAR 1985 coal ash basin riser, prior to repair work.
Photograph 13. 3/19/14 photograph of old grout on CAPE FEAR coal ash basin riser.
Photograph 14. 3/19/14 photograph of new grout on CAPE FEAR coal ash basin riser.

Photograph 15. Aerial Photograph of LEE from 2011 EPA Dam Safety Assessment report.

Photograph 16. Aerial photograph depicting location of RIVERBEND Seep 12.

Photograph 17 . Photograph of RIVERBEND Seep 12.
Photograph 18. Photograph of RIVERBEND Seep 12.

Photograph 19. Aerial photograph of ASHEVILLE.







EXHIBIT B
A Copy of the Guaranty Agreement
(without attachments)









EXHIBIT C
Public Apology





EXHIBIT D
Duke Energy Business Services LLC
Copy of Board of Directors’ Resolution



Case 5:15-cr-00067-H Document 59-1 Filed 05/14/15 Page 1 of 63
EXHIBIT 12



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.
 
Six Months Ended June 30,
 
Years Ended December 31,
(in millions)
2015
 
2014
 
2013 (d)
 
  2012 (a) (d)
 
2011 (d)
 
2010 (d)
Earnings as defined for fixed charges calculation
 
 
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
 
 
 
Pretax income from continuing operations (b)
$
2,035

 
$
3,998

 
$
3,657

 
$
2,068

 
$
1,975

 
$
2,062

Fixed charges
944

 
1,871

 
1,886

 
1,510

 
1,057

 
1,045

Distributed income of equity investees
48

 
136

 
109

 
151

 
149

 
111

Deduct:
 
 
 
 
 
 
 
 
 
 
 
Preferred dividend requirements of subsidiaries

 

 

 
3

 

 

Interest capitalized
8

 
7

 
8

 
30

 
46

 
54

Total earnings
$
3,019


$
5,998


$
5,644


$
3,696


$
3,135


$
3,164

 
 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
 
Interest on debt, including capitalized portions
$
868

 
$
1,733

 
$
1,760

 
$
1,420

 
$
1,026

 
$
1,008

Estimate of interest within rental expense
76

 
138

 
126

 
87

 
31

 
37

Preferred dividend requirements

 

 

 
3

 

 

Total fixed charges
$
944


$
1,871


$
1,886


$
1,510


$
1,057


$
1,045

Ratio of earnings to fixed charges
3.2


3.2


3.0


2.4


3.0


3.0

Ratio of earnings to fixed charges and preferred dividends combined (c)
3.2


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 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 quarterly report on Form 10-Q 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: August 7, 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 quarterly report on Form 10-Q 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: August 7, 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 quarterly report on Form 10-Q 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: August 7, 2015
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer


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 Quarterly Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-Q for the period ending June 30, 2015 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
Chief Executive Officer
August 7, 2015


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 quarterly report on Form 10-Q of Duke Energy Progress, 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: August 7, 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 quarterly report on Form 10-Q of Duke Energy Florida, 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: August 7, 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 quarterly report on Form 10-Q 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: August 7, 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 quarterly report on Form 10-Q 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: August 7, 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 quarterly report on Form 10-Q 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: August 7, 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 quarterly report on Form 10-Q 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: August 7, 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 quarterly report on Form 10-Q 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: August 7, 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 quarterly report on Form 10-Q of Duke Energy Progress, 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: August 7, 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 quarterly report on Form 10-Q of Duke Energy Florida, 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: August 7, 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 quarterly report on Form 10-Q 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: August 7, 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 quarterly report on Form 10-Q 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: August 7, 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 Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending June 30, 2015 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
August 7, 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 Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending June 30, 2015 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
Chief Executive Officer
August 7, 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 Quarterly Report of Duke Energy Progress, LLC (“Duke Energy Progress”) on Form 10-Q for the period ending June 30, 2015 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
Chief Executive Officer
August 7, 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 Quarterly Report of Duke Energy Florida, LLC (“Duke Energy Florida”) on Form 10-Q for the period ending June 30, 2015 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
Chief Executive Officer
August 7, 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 Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending June 30, 2015 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
Chief Executive Officer
August 7, 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 Quarterly Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-Q for the period ending June 30, 2015 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
Chief Executive Officer
August 7, 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 Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending June 30, 2015 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
August 7, 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 Quarterly Report of Duke Energy Carolinas, LLC (“Duke Energy Carolinas”) on Form 10-Q for the period ending June 30, 2015 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
August 7, 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 Quarterly Report of Progress Energy, Inc. (“Progress Energy”) on Form 10-Q for the period ending June 30, 2015 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
August 7, 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 Quarterly Report of Duke Energy Progress, LLC (“Duke Energy Progress”) on Form 10-Q for the period ending June 30, 2015 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
August 7, 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 Quarterly Report of Duke Energy Florida, LLC (“Duke Energy Florida”) on Form 10-Q for the period ending June 30, 2015 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
August 7, 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 Quarterly Report of Duke Energy Ohio, Inc. (“Duke Energy Ohio”) on Form 10-Q for the period ending June 30, 2015 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
August 7, 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 Quarterly Report of Duke Energy Indiana, Inc. (“Duke Energy Indiana”) on Form 10-Q for the period ending June 30, 2015 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
August 7, 2015